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With Regards to Government Charity for the Private Sector

With Regards to Government Charity for the Private Sector Economy Near Us (XXV)

In a market economy, which is also presumed to function within a free society, generally, the goods and services needed for individuals are acquired through economic transactions (regularly through work and the processes around it – saving, investments and so on). Part of these goods and services are delivered by the state (more exactly, by the public sector of the state), the so-called public goods. The present intervention is intended to advance some considerations about the phenomenology of the public goods. It must be mentioned that there are two categories of public goods:

  1. a) non-individualized (or diffuse) public goods – they are produced by the public sector and put at disposition in a non-personalized way (for example: highways, public education, national defense);
  2. b) individualized (or personalized) public goods (for example: social aid, consumers compensation).

So, generally, there are private goods and public goods. The private goods are produced and distributed by the private sector (through the market), while the public ones are produced and distributed by the state (outside the market). There is, however, a mixed category of goods, which is produced by the private sector but is administered (including distribution) by the state. We may call this type of goods mixed goods. The mixed goods are financed by the private sector but in a non-budgetary way (for example, the public goods are financed in a budgetary way – taxes), more exactly through the intermediation of special public funds (a public fund which does not verify the budgetary principle of non-affectation of revenues – for example the state social insurance fund). Consequently, the mixed goods delivered by the state (as administrator, not as financer) have the nature of transfers. In what follows, we address a species of such mixed goods, namely the transfers aiming to provide the social aid. 

What is charity? 

Charity is, of course, a moral concept (and, as it is well known, a very polemical one) but, for the necessities of the present discussion, it will be considered understood at the common sense level. In any case, by charity we understand a social transaction of goods (of any kind), unidirectional, non-mandatory, and without a counter-prestation. No matter, for this discussion, the reasons for which the charity arises – compassion, social contract, and even hidden egotistical motivations. What is important here is the fact that a part of the public goods become entwined with the charity phenomenon. This means that, by intermediation of budgetary expenditures, so from the position of a financier, the state pays in order to provide public goods which signify charity – for example, social aid provided to individuals with disabilities (the readers will make the distinction between disability – which is a natural deficiency –, and handicap – which is a social deficiency, partially generated by disability, partially by society). 

What governmental charity is it? 

So, the state uses the public revenues, collected in a budgetary way from all members of society, in order to pay for acts of charity. We want to distinguish here between the charity payments made to individuals (as social aid) and the charity payments (see the above definition of charity) made to private organization (as salvation aid; see, for example, the enthusiastic way in which, at recent financial crisis, the state paid – on behalf of all individuals, the bailout for the commercial banks). The charity payments from budgetary public funds are fully justified by the social contract (see Rawls’ theory on mandatory equal distribution of liberty and rights, or Nozick’s theory on the state as a protection association) when it is directed at individuals, but which is the justification when they are directed at private organizations? In our opinion, here we have a conceptual issue of the highest importance and relevance, both from the theoretical and the institutional point of view. Indeed, all individuals would agree to aid their neighbours (either directly, or indirectly, that is by intermediation of the public budgetary fund), but who would agree and why to pay for a private organization which had no success in the market and, consequently, failed? If, in the first case (the aid provided to individuals who need their support) people feel empathy and feel morally responsible, instead, regarding the private organization, people have no responsibility. It seems quite clear that the governmental charity must be restricted to the social aid provided to eligible individuals (of course, for the sake of discussion, we ignore here the corruption based on which, at least at local level, the social aid is incorrectly provided to non-eligible individuals). 

How should governmental charity be financed? 

Before answering the question in the title, let us discuss a possible “argument” in favour of extending the governmental charity towards private organizations, namely the piloting of the sustainability path of the economy (do you remember? too big to fail, or too important to fail etc.). Such an „argument” must be countered, of course, by a similar question, but in the mirror: why would saving an impotent private organization be better for the economic sustainability (or stability) than letting it out of the market? Coming back to our problem, for us it seems undeniable that the governmental charity not only cannot be avoided regarding the eligible individuals, but it constitutes a constitutional obligation of the state. Then, what about the other type of governmental charity, that is, that regarding the private organization? In the mentioned problem, our opinion is as follows:

We think that there could be cases in which a charitable intervention of the government to save a private organization is justified, but the justification must be provided only regarding the national security (food security, military security, energy security and so on). The arguments regarding the market functioning per se should not be accepted at all.

Presupposing that we are in the case of a justified argument in favour of the obligation of the state to charitably intervene in helping a private organization, the question of finance sources arises. Based on the above discussion, this financing source cannot be the public budgetary fund. Of course, it can be the case that a special fund, financed by private organizations, like at the European Union level, has been set up before for just such an event – here the problem is solved (such a special fund of intervention can be administered either by the private sector or by the state, it does not matter). But what do we do if such a special fund does not exist and the necessity of the state intervention, as said, remains?

In our opinion, there is a single acceptable and workable solution: the governmental charitable intervention for a private organization must be financed by the private domain of the state. As it is known, although the revenues of the private domain of the state are integrated into the general consolidated public budget, they are distinctly recorded, so their amount is known. If, methodologically or practically, the revenues of the private domain of the state are melted together with the other public revenues into the general consolidated public budget, then one must carefully count the amount which can be devoted to national security motivated bailouts.

We think such a point of view regarding government charity verifies simultaneously the social justice criterion, the moral criterion, and the social responsibility criterion which the state must accomplish based on the social contract.

 

 
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OEconomica No. 1, 2016