Published by EH.Net (December 2022).

Avner Offer. *Understanding the Private-Public Divide: Markets,
Governments, and Time Horizons*. Cambridge: Cambridge University Press,
2022. xiv + 227 pp. £19.99 (paperback), ISBN 978-1108791663.

Reviewed for EH.Net by Martin Chick, University of Edinburgh.



This book has its origins in the Ellen MacArthur Lectures which Avner Offer
gave in Cambridge in 2018. The ideas developed in those four lectures are
further elaborated here in seven main chapters, whose titles are: patient
capital; corruption and integrity; plutocratic blowback; creating humans;
exit from work; housing and democracy; and climate change and time
horizons. Together they present a complexity of ideas concerning the
economic and political conceptualisation of past, present, and future,
written in an accessible style and with such a wealth of supporting
evidence as to make this book of immense interest both for teaching and
research.

The core concern of the book is the temporal boundaries of markets, in
particular the private-public sector divide. As Offer writes: ‘the
private-public divide runs across the future, not the present. It is a time
horizon that lies a few years hence. Running up to that boundary is the
playground of market competition. Beyond it is terrain which business
prefers not to enter on its own’ (p. xi). Longer, if any, returns on
investments in health, education, science, universities, nuclear power, and
the mitigation of climate change are just some of the examples cited as
areas in which private investors enter with caution. In an inversion of the
typical neoliberal advocacy, Offer argues that when private investors do
enter these fields, they seek the protection of the state. Particular ire
is reserved for those instances when private interests enter markets better
suited to the time horizon of the state, and where private financial gains
are made while public purpose is obscured. One such is social security,
with Rose and Milton Friedman, and Martin Feldstein being criticised for
encouraging future pensioners to look to financial equity investment as a
source of future higher returns. With the pursuit of such higher returns
came higher fees. In the USA in 1999, social security administrative
expenses amounting to 0.5 percent of benefit payments, were about one-fifth
of the management charges on a private pension account (p. 113). As in the
USA, so too in the UK. Offer estimates that in the first decade of personal
pension accounts, the average charge ratio was at least 43 percent (p. 105)
It was not simply a matter of costs and fees, but also that the equity
return approach misstated the fundamental purpose of a social security,
risk-pooling income-replacement scheme, this being better reflected in a
pensions scheme on a Pay As You Go basis linked to the fundamental growth
of GDP.

A dark side to this book concerns corruption. Here there is continuity with
Offer’s earlier work, *The Challenge of Affluence*, in which with the
removal of institutional constraints and structures to eating, many
individuals struggled to control their appetite and to balance immediate
gratification against delayed reward. In this new book, the lessening of
government constraints and structures, however seemingly bureaucratic and
stuffy, widened the scope for corruption. The chapter on corruption and
integrity would make an invaluable central reading for classes on the
development of government over the past two centuries. Similarly, the
wealth of evidence and discussion in the chapter on the housing market and
policies over the past two hundred years would make it a valuable reading
for classes in this area.

Ultimately what the book seeks to explain is the persistent presence and
size of government. As economies have grown, governments have grown faster.
The fourfold increase in the size of the economies of Europe and the United
States between 1913 and 1980 was trumped by the increase in public
expenditure from around one-tenth of GDP to anywhere between 25 and 50
percent. In the U.K., the recent pandemic has had a wartime ‘ratchet
effect’ on public expenditure which as a share of GDP rose from 40 percent
immediately before the pandemic, to 53 percent during it, and has now
settled back to 45 percent in what we hope is the post-Covid period.
Economic history suggests that once ratcheted up during a crisis, public
expenditure’s new higher share of GDP does not fall back to its pre-crisis
level. Not only does this have implications for the structure of tax
systems, with a further likely shift towards indirect taxation including an
increasing interest in taxing wealth, but it also raises the central
question of what should, and should not, be financed by public expenditure.
The experience with the Private Finance Initiative in the U.K. suggests
that allowing private companies to aggregate into their required rate of
return all their estimated risks of financing, constructing, and
maintaining new schools and hospitals for an agreed future is very costly,
especially when compared with the rates at which government could borrow in
the manipulated monetary conditions following the financial crisis of 2008.
Why governments did not take that opportunity to raise money with
low-interest, long-duration debt to build assets such as social housing on
which the rental returns were higher than the cost of borrowing remains
puzzling. The answer probably lies in the politically convenient
assumptions made about the relative importance of reducing the national
debt/GDP ratio so as not to encumber the future. Not that economists are
free of such assumptions. The use made by economists of the social discount
rate in assessing the response to climate change also makes its own
assumptions about the stability of the entire ecological system. Not only
do the time horizons involved in climate mitigation schemes make arguments
over the discount rate little short of cute at times, but as Offer
underlines they contrast with the relative inattention to the implications
of an empirical extrapolation of observed changes in temperature to date.
Thought-provoking to the end, Offer’s book is highly stimulating, readable,
and immensely useful in the study of the past\’s and the present’s
consideration of the future.



Martin Chick is Professor of Economic History at the University of
Edinburgh. His most recent book is *Changing Times: Economics, Policies and
Resource Allocation in Britain since 1951* (Oxford University Press, 2020).
He is currently researching the development and use of property rights in,
on, and under the seas since 1945.

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