What do markets offer governments? Profits, after all, are not the goal of public policy. But markets are not just about money. A well-designed competitive market puts resources into the hands of those who can use them best. This is why markets can sometimes be useful to the public sector. Markets cannot supersede the governments, but in some areas they can help the government do their job.
And what can markets do for poverty?
The deepest justification for the market economy is that where it works, it is the best remedy for poverty. The deepest reason for studying market design is that markets can work badly and thus fail to do away with poverty.
From John McMillan’s ‘Reinventing the Bazaar: A Natural History of Markets’ – a great, concise and jargon-free introduction to the operation of markets, and their relationship with firms, governments and social problems. Very well written. I finally read it this weekend and would highly recommend it and agree with the Financial Times review: “a book that [you] can recommend to the proverbial nephew who desires to find out about economics without wanting to pass an exam or become a practitioner.” That being said, even the most experienced reader will enjoy (and learn something from) the book's last four chapters. See a review by David Warsh.
Update: McMillan also wrote one of my favorite papers on using the media to subvert democracy in Peru, though he is probably most famous for his work on auction design.
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