Institutions

Deregulation and privatisation, the invisible hand of the market: those were the much-invoked magic words of wealth growth – until the financial crisis. Since then, the regulatory state has been experiencing a renaissance as the vanishing point of economy and society. The Max Planck Institute for Research on Collective Goods has long been on the case.

The banks are our fate: if it goes bad for them, the economy and stability of society threaten to topple. The financial crisis has taught us that. A functioning payment system appears to be a genuine “collective good” for everyone – hence a good that the general interest demands not be abandoned to the play of private or economic forces. The state and even the international community therefore must and wants to foster and maintain such goods.

Not a child of the crisis

In order to study this subject, the Max Planck Society has established a special Institute for Research on Collective Goods, located in Bonn. It is not a child of the financial crisis: the Institute, with a staff of approximately fifty research associates, has existed since 2005. Its point of departure was the problems of environmental, nature and climate protection that we all cause (quite concretely, for example, the problem of waste) – and that all too many people want blithely to forget.

The Institute treats these and similar challenges mainly from two angles: law professor Christoph Engel and his team work on legal solutions, and the internationally noted economist Martin F. Hellwig and his group work on economic methods of management – for example, constraints and incentives. “The right behavioural incentives can also be brought to bear by state subsidies”, says Hellwig; for example, subsidies for solar electricity, or by higher taxes on non-renewable energy.

Of fish and nets

An example of collective goods in the nature is provided by the protection of the seas against over-fishing, for as experience teaches, each individual fisherman blindly exploits and ruins this common food source unless private access is regulated by farsighted resource conservation.

Hellwig further includes modern “nets” among collective goods: for example, electricity, telecommunication, traffic on land, sea and in the air, and the already mentioned money transactions.

Control is necessary

The state should “guarantee” such goods in the interest of all citizens. This does not mean, of course, that the state must necessarily fulfil the requirements of the general good through state-owned enterprises. In Hellwig’s view, for example, the state can leave education to private schools if general standards are complied with; and also money transactions can operate optimally through the competition of private carriers “provided the required security can be audited by state or supra-state regulatory authorities”.

Internationally considered, which concrete areas of life can be regarded and organised as collective goods depends on the “given prosperity function” of the state, notes Hellwig. Consideration of this context comes plainly to expression in the “Public Goods and Welfare Economics” section of the Max Planck Institute. It finds a particular echo in the German political tradition of the social state. On the other hand, it is equally clear that those who must fight for their daily survival in the poor regions of the world are not apt to be especially responsive to talk of common resource conservation for tomorrow and the day after tomorrow.

Rationality and intuition at the head

In order to be implemented, all well-intended regulations and sanctions to protect collective goods must find understanding and appreciation from those concerned. Jurist Christoph Engel and his colleagues call the area of research dedicated to this problem “Behaviourally Informed Design of Institutions”. It treats the optimal, socially oriented design of public authorities and administration: with whom, for example, can I best talk so that the harmful introduction of untreated water waste in rivers and lakes can be prevented?

Experience teaches that regulations can be more successfully implemented when they are felt by those concerned to be fair. But how do social fairness and the dogmatic legal idea of “justice” consort with one another? A young researcher at the Institute is currently writing a (it is hoped) fundamental work on the question.

And how does a judge reach a verdict in the name of the public? How does anyone at all come to his personal preferences and judgements? How much rationality is in play here, and how much “feeling”? A special group of “intuitive experts” is researching these questions from the point of view of behavioural psychology. Their consoling thesis: human beings are often capable of taking more intelligent decisions and undertaking more intelligent actions on the basis of (unconscious) experience than on the basis of learned behaviour and conscious calculation.