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INTERVIEWS
WITH ECONOMISTS
PROFESSOR
YEW-KWANG NG
Professor Yew-Kwang Ng was born in 1942 in Malaysia. He
graduated with a BCom from Nanyang University (Singapore) in 1966
and a PhD from Sydney University in 1971. He holds a personal
chair at Monash University and has been a fellow of the Academy
of Social Sciences in Australia since 1980. He has worked in welfare
economics, proposed mesoeconomics (a simplified general equilibrium
analysis with both micro and macro elements), and welfare biology.
He also collaborates with Dr Xiaokai Yang on an inframarginal
analysis of division of labour. He has published more than one
hundred refereed articles in economics, a dozen in biology, mathematics,
philosophy, psychology and sociology, and about one hundred articles
in the popular press. Books published include Welfare Economics
(London: Macmillan, 1979 and 1983), Mesoeconomics: A Micro-Macro
Analysis (London: Wheatsheaf, 1986), Social Welfare and
Economic Policy (London: Wheatsheaf, 1990), Specialization
and Economic Organization (Amsterdam: North-Holland, 1993,
with X. Yang), Increasing Returns and Economic Analysis,
(ed., London: Macmillan, 1998, with Nobel laureates K. Arrow and
X. Yang), Economics and Happiness (collected papers in
Chinese) (Taipei: Maw Chang, 1999), Efficiency, Equality, and
Public Policy: With a Case for Higher Public Spending (London:
Macmillan, forthcoming).
What, in your opinion, is the role of government in the provision
of goods and services?
The government should refrain from providing goods and services
that can be effectively supplied by private producers since the
government is, as a rule, less efficient. This would also allow
the government to concentrate in areas where private provision
fails due to free-riding and external effects like pollution.
These areas include public goods such as law and order and research.
If clean air is regarded as a good or the protection of the environment
as a service, the government should have a big role to play.
What are the arguments for and against government provision of
goods and services?
Due to bureaucratic inflexibility and the lack of private motivation
and market discipline, government provision, especially in the
absence of competition, tends to be less efficient. In addition,
an economy dominated by a big government sector may pose a threat
to freedom. In an economy where there are many independent private
employers, employees can find alternative jobs if they disagree
with their employer. If the government provides 90 per cent of
the jobs, it has enormous power over its employees – without
even having to send people to prison. Thus, the government should
only step in where the market fails. Apart from public goods and
external effects, the provision/prohibition of certain merit/demerit
goods such as the fluoridation of water and the prohibition of
hard drugs may also be desirable. However, this is more controversial
as some undesirable side-effects may be involved.
The government can provide goods and services in a variety of
ways. For example, education services can be provided via subsidies,
as at present, or through a voucher system. What are your views
on this debate?
The idea is that education should be subsidised as it generates
external benefits. A more educated person benefits not only herself
but also others by being a better citizen, parent, neighbour and
friend. However, a voucher that a student may use in alternative
educational institutions may be better than a direct subsidy as
it may increase the freedom of choice of the student and the efficiency
of suppliers by enhancing competition. I understand that some
countries including Sweden and the US have certain voucher-equivalent
systems or are experimenting with the voucher system. Australia
should be thinking along the same line. However, it may be necessary
to have safeguards to ensure educational standards due to another
kind of external effect. Due to imperfect information, employers
judge the quality of graduates from the reputation established
by previous graduates. Thus, the effective lowering of standards
now imposes negligible costs on current students but substantial
costs on future students. Thus, if everything is ruled by current
supply and demand, standards may fall, especially in the presence
of many decision-makers with short time horizons.
If you were to scale back the role of government in the provision
of goods and services in Australia where would you start and where
would you finish?
I am in favour of scaling back from all those areas where private
provision can effectively take over. This has been taking place,
especially in Victoria. There have been quite a few successful
privatisations in Australia, including the Commonwealth Bank and
Telstra. Efficiency has improved significantly and the share prices
have tripled. However, I also want the government to dramatically
increase spending on the necessary areas, especially on education
and research and on environmental protection. The pressure to
keep up with the Joneses makes people think that private consumption
is very important, causing a bias against public spending. Recent
studies show that per-capita consumption correlates very little
with either measures of happiness or quality-of-life indicators.
However, these indicators have improved significantly over time
associated with breakthroughs in science, technology and other
knowledge at the world level. These breakthroughs depend more
on public spending on research than on private consumption. For
example, the central public finance question of the optimal level
of government spending is so under-researched that the factors
I have raised here are not widely known. Brain stimulation is
another area that is under-researched. It has been known for over
four decades that the stimulation of certain areas in the brain
can induce intense pleasure with no damage and without diminishing
marginal utility. No further research has been done to perfect
this possible method of increasing welfare for the community by
a quantum leap. I for one would be prepared to pay more than my
annual income for such a stimulator! The amount of research spending
on this is a trivial fraction of its worth.
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