On Thursday 26th July, we had another policy discussion meeting figuring Nicholas Gruen as the introducer of a potential policy reform. The issue debated was whether we should have a national information policy. Ben Ives argued in favour, Tony Beatton argued against. The underlying presentations can be found here (it might take a couple of hours after posting before the linked files comes online). My take on the discussion follows below (I trust Nick will correct me if I misinterpret his plan).
Nick’s basic observation is that the economy is full of asymmetric information about the quality of products and jobs. Individuals are ignorant of the death rate of their doctors; the success rate of their lawyers; the job-satisfaction usual at their next employer; and the relative price obtained by their mortgage broker. These providers will all pretend to be exceptionally good but us consumers have to rely on reputation and referrals from friends to gleam some of the hidden information. This leads to classic lemmons-type problems of undersupply and overpricing.
To a certain extent, asymmetric information is nothing new and holds for nearly all products. Markets themselves gradually generate quality signals, such as certification of doctors, enforced food preparation protocols, or quality signals for cars (brand names and crash rates). Government’s role is often to just adopt the market-generated signal as the official standard to which new entrants have to comply. The policy issue is then whether the quality requirements improve outcomes by overcoming the asymmetric information or whether they lead to power on the supply side by allowing implicit entry deterrence. However, the stylised history of standardisation is that governments respond to a signalled market wish for common standards and either certifies what a market has come up with or on request facilitates the emergence of a new standard. In some cases, such as medicine or food preparation, governments have been more pro-active in their quest for quality branding.
Nick’s basic contention is that in some markets there is a failure to come to standardisation because the market is too thin and disaggregated, in which case the government has an economies of scale advantage to coordination. This would for instance be the case for certain medical services delivered by local monopolies with little interest in comparable qualities. A secondary contention is that the turnover time of products (including their maturisation) is now becoming shorter and that that requires a faster process of standardisation than hitherto seen, i.e. the process of looking for standards and enforcing them has itself to be speeded up just like the life cycle of products has been speeding up.
Ben Ives professed himself convinced by these arguments and strongly noted the economies of scale to coordination that a government has, as well as the coercive powers needed to enforce standards. His/Nick’s suggestion was to set up a coordination system between industry leaders and government in order to streamline the process of standardisation.
Tony Beatton on the other hand argued against such a national information policy for 2 distinct reasons. The first is that a lot of the information is sensitive and wouildnt be released because of privacy concerns (what does your doctor get up to in his spare time and what does he earn?) or political expediency (governments hiding performance information for fear of public embarassment). The second concern Tony raised was that a real National Information Policy (over and above the ones we already have) would simply introduce additional hurdles to entry; would introduce additional administrative requirements on business; and have in the past lead to a flood of uninterpretable information (i.e. the disclosure requirements made on firms has lead to huge documents being churned out at incredible rates).