About imperfect markets

Economists think of an imperfect market as one where there isn’t full knowledge of what’s going on. Sellers don’t share everything, buyers don’t have the tools or opportunities to find out. That means that it’s difficult for the buyer to make a fully rational decision. It can work the other way around too, sellers don’t know everything about the market, their competitors or buyers.

Generally speaking that’s OK but sometimes this results in us getting ripped off. For years Britain’s banks ensured the market was imperfect to maximise their profit. Through a series of shams they sold us stuff we didn’t need, charged us more than they should have and made it damn near impossible to dump them. I could have picked utility companies as the example. Or oil companies. Or supermarkets. Or Airlines… but you get the idea.

It’s market failure. But of course it’s hard to use this term. Because markets are powerful and they object to anyone attempting to speak truth to their power. So mostly we hear a lot of weasel words trying to say this without actually saying it. The media is another imperfect market. A few years ago I was on a government board that tried to suggest the broadband industry was in market failure (because it was). We fought a long and eventually semi-victorious battle with the mandarins who were worried not about customers or even the companies but that the incumbent TelCo was so prominent on the stock exchange. Something’s going seriously wrong here.

Why am I talking about this? Well, let’s turn to democracy shall we. Ignoring the usual political scandals, the supplier-side dodgy dealing, half-truths and failed promises, there’s a huge void in the public’s understanding of how our democratic systems work. A clear failure of representative democracy is that we’ve outsourced it to those who are willing and generally forget about it between elections (if we’re lucky).

And when a problem does arise, we can no longer rely on the media to mediate. We’re in a time of almost unprecedented revolution in the funding, delivery and function of public services. The only solution to this challenge is to restore knowledge to the market place. We need to improve the level of political and democratic education, not just in schools but at every level. We need to create hubs where those with the policy or data analysis expertise can meet and work with those who understand the issues. Above all we need to create democratic conduits into the policy and legislative processes (both locally and centrally) to ensure that people are heard and that systems are fully accountable.

This leads me right back to a model of co-creation and collaborative open policy that I’ve believed in for sometime as necessary if we’re to make democracy better. But this model requires better knowledge, a willingness to secede power to the collective and the abandonment of personal egos.