Question

Some advocates of anti-poverty programs claim that fighting poverty is a public good. Explain what these advocates mean by classifying charity as a public good. Why do governments tend to run programs that help the poor? Can the private sector be left to run those programs? Discuss your answer by focusing on externalities and market failure.

Answer 1

To Understand the concept, we need to know the basic meaning of a public good. A public good is one, which is provided to the masses, and the government does not derive any profits from the same. This is available at large for one and all, and at times, the same may also be provided by private players in the market.

Charity is a public good, primarily because there are no returns associated from it. Charity is done with a view of elevating a certain section of the people and providing funds for them so that they are able to derive benefits from the same. A good is called a public good when those providing for it do not do the same for benefits or returns.

Governments, tend to run programs to help the poor, primarily with a view that these have externalities associated with the same. Even though, as a transaction, anti-poverty programs may not have direct result, yet the indirect benefits from the same are tremendous.

Anti-poverty programs provide a substantial amount of guidance to the poor and help them in elevating their status, which provides them employment opportunities and helps in increasing the total demand in the country which also helps with growth.

For example, countries such as India have rapidly expanded thanks to its policies of spending more money on healthcare, education and nutrition of the poor in the country which has led to their overall productivity increasing and their economy, on an average grows by 5-10% in the last 10-15 years. The core reason, thus for these expenditures to be incurred by the government are the positive net effects which they achieve.

Further, the private sector is not capable or designed to deal with poverty reduction. The core reason for this is that governments have multiple sources of income through taxation which can be used for this purpose, and their objective is to have better conditions for the society than to make profits. Private players on the other hand, exist mainly so that they can achieve higher profit margins. If private players were the only ones to manage this, it would lead to a situation wherein they would only end up spending money and have no returns which would lead to a complete market failure. A market failure happens, when the net benefit which the parties get from entering the market is in negative. If private players continue their efforts in poverty reduction, it would lead to an inefficient market wherein they would only be costs and no returns.

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