In this post, I wrote about how competition and choice is important for encouraging bottom-up innovation. When we say things like “roads are socialized” we gloss over something very important. There isn’t a single road department. There are many. We have Federal highways, state highways, county roads and city roads.
Each department operates somewhat independently and tries different things to solve the problems they face. Every now and then, one happens across an improvement that works well and other road departments can choose to adopt it. That type of innovation would not happen as often if there was a single road department that pushed one set of standards.
Alex Tabarrok of Marginal Revolution makes this point well in this post about how education was rebuilt in New Orleans after Katrina, when describing the source of innovation in education:
What really drives innovation, however, is not a simple substitution of private for public but a system substitution of competition for monopoly.
I agree. In the comments of his post, I suggested re-framing this in terms of the benefit to the user (edited slightly here):
It is not a simple substitution of a choice between free-to-the user public and cost-to-the-user private, but a system substitution of more choice by the user.’
We often get hung up on the public/private distinction. That doesn’t matter as much as how free the users — the direct beneficiaries — are to make a choice.
The freer the users are to choose to exit their current option if it isn’t working for them, the better.
This dynamic drives innovation. Why, you might ask? Because the freer your users are to leave you, the harder competitors will try to give your users what they want to encourage them to leave and the more honest soul-searching you may do to figure out why your users are leaving you. If you can’t figure it out, you end up going away.
My parents decided to move to exit a school district that wasn’t giving them what they wanted. That choice was much more powerful than their voice would have been had they decided to stay and try to change the direction of the school district.
So, whenever we think about why one system works and another doesn’t, maybe we should think in terms of how free users are to choose.