A very insightful observation by Harvard Sociologist Mary Ruggie about the ironies of an American public policy committed to both limited government and correction of market failures:
The United States has been a “liberal” welfare state, less inclined to adopt centrally directed intervention than its European counterparts. A liberal welfare state seeks to intervene minimally in a market economy; intervention is undertaken only in order to compensate for adverse consequences of private or market forces. State intervention in a liberal order is intended neither to supersede market forces nor to dictate or direct the conduct of private affairs, merely to enable them to return to a condition of “normalcy” (Gutmann 1988; Moon 1988). Thus, keeping the domains of state and society distinct is fundamental to a liberal order.
However, certain anomalies may arise in the attempt to maintain this separation of state and society. There are two possible sources of anomalies. One is the disposition of a liberal welfare state to limit its sphere of intervention in favor of the market, which requires strict specification of the proper boundaries of state intervention. The accumulation of these specifications itself frequently results in deep forms of intervention. Another source of anomaly is the private sector. In its capacity as a provider of services, the private sector may try to outwit or manipulate the government as a monopsony buyer of those services. When such behavior occurs, the state in turn is drawn into deeper forms of intervention as it attempts to limit its vulnerability to such exploitation and to correct the adverse social consequences of such private sector behavior.
Ruggie cites Medicare and Medicaid as specific examples of this dynamic. Government steps in to solve a problem: certain people cannot afford what has become “basic” health care. The intervention is limited at first–the government pays for those who cannot afford to pay according to certain criteria, while leaving the rest of the private market largely intact. But private suppliers of health care services see a large source of revenue and contrive ways to exploit the government as a third-party payer. Then, what’s a government to do? It has to intervene more extensively in order to prevent itself (the taxpayer) from being exploited. This means controlling more of the industry. Federal laws related to health care have proliferated in the decades since Medicare and Medicaid, all with the goal of limiting government exposure in the health care market. Thus, the rather limited goal of subsidizing health care for vulnerable groups becomes a complex mess requiring new instruments of government control over the market. The Patient Protection and Affordable Care Act is the latest development in this story.
A.K.
