Clearly, asking which is more effective in a particular situation or to address some specific problem, planning or markets, is posing the wrong question. It is wrong because the inherent difficulties (shown above) in differentiating between planning and markets will defeat rigorous analysis of the context. In this form the question is also counterproductive, because its dichotomy excludes a whole range of possible answers that may involve both planning and markets.
There is a better question: What form (or forms) of governance is most effective for the parties involved in a particular process? TCT's discriminating alignment also offers a criterion for judging effectiveness: minimizing all the stakeholders' total transaction costs (14). More important is another aspect of judging effectiveness that TCT offers: remediability. This demands comparison between alternative feasible forms of governance, rather than evaluation against some abstract ideal.
What difference does asking the right questions make? Below I will review two papers almost randomly selected (15) from Planning & Markets to show how they could have been written if their authors had not been diverted into a comparison of the relative effectiveness of planning and markets. My critique will ask: Exactly what question does this paper raise, and how well does it answer it? How and why would asking the right question have provided different answers, and would they be better?
The question this paper asks is: Is fire safety regulation effective? And if it is not, why not? This looks like a simple question, to which appropriate empirical analysis should yield straightforward answers. That is what Cobin does here. His effectiveness criterion is the change in the number of fires per 10K population, and he analyzes the incidence of fires after the enactment and during the enforcement of fire safety regulations in Northeastern Santiago, Chile. This analysis supplements a similar previous study of fire safety in Baltimore, MD.
The nine-fold increase in the number of fires/per 10,000 population over the observation period seems to provide ample evidence to prove that fire safety regulation here has not been successful (16). Combining these findings with his Baltimore analysis and other more anecdotal evidence, Cobin generalizes to conclude that "Regulation is unlikely to increase fire safety efficiently, and perhaps not effectively, because it is always constrained by inadequate local knowledge." (p.16).
This seems to be a perfectly sound answer to the questions the paper asked (17), but is it really? Even the author qualifies his conclusions: "Of course, it is impossible to say what would have happened without the fire safety regulation. Perhaps there would have been more fires."(p.18) (18) But if he can't say that, what does his conclusion say? In reframing the question in TCT terms (recalling remediability) we ask: What does "effectively" mean: effective compared to what? The paper never addresses this issue directly, but it gives some hints.
To begin with, it sets out to compare public intervention with (presumably free and unregulated) markets: "...the most interesting question scientifically is...whether...government intervention can improve on what markets do provide." (p.16) Fire safety regulation represents the public intervention side of the comparison, but where is the corresponding analysis and evaluation of "what markets do provide"?
This is limited to asserting that: "...markets have succeeded in safety provision. There is evidence that firms...(to) please customers...and maximize profits, establish their own technical and safety standards and maintain their own inspection teams"(p.17) (19) The cited evidence can charitably be called slim: two cases (Hilton International and Walt Disney World), which even the author does not claim are representative. This is hardly a strong argument for the recommended policy "...to replace the current system with more effective market-based regulatory techniques." (p.19)
If Cobin had asked the right question, he might have tried to evaluate "What would have happened without the fire safety regulation", i.e. what would be the consequences (in social efficiency terms) of feasible alternative ways (20) of limiting the incidence of preventable fires. This would have extended his analysis of governmental fire safety regulation to produce a much better paper. But it might have also yielded contrary findings and quite different conclusions.
This paper's question is: What are the market-based transportation policy or system alternatives to Los Angeles' failing publicly owned rail transit systems. Busways (some of them replacing rail's right-of-way), competitive bus transit systems, and dedicated high occupancy toll (HOT) lanes on existing freeways are presented and discussed.
After analyzing each alternative's costs, performance, and feasibility, the paper concludes that rail transit is intrinsically doomed to poor performance and ultimate failure, because its downtown focus is a mismatch to Los Angeles' scattered distribution of travel demand. Any of the proposed alternatives (they are not mutually exclusive) will be an improvement (21).
Here the question is not wrong; it is only inaccurate. Consequently, it elicits fuzzy answers. The inaccuracy lies in the failure to distinguish between separate transportation system attributes, and then compare and evaluate options in these terms. Referring to market-based transportation alternatives implies that the significant characteristic distinguishing between the status-quo (the failing L.A. rail systems) and the proposed options is public vs. private ownership (22).
But in fact this is not so, and the paper (rightly) devotes attention to another aspect as well: transportation mode (light rail, bus, or automobile). The authors' assessment of the respective merits of the various options is quite persuasive. However, at the end of the paper, the reader is left in doubt whether the proposed alternatives are superior to rail because they are market-based, or because they all are other modes: bus and automobile.
Unquestionably, the paper's conclusion leaves room for attributing at least part of the outcomes to mode: the difference between the rigidity and high costs of light rail, on the one hand, and the flexibility, demand responsiveness, and lower costs of bus systems and automobile traffic management or congestion pricing. This weakens the paper's argument, which implies that it is market-based alternatives that matter.
These two papers illustrate two different kinds of problems resulting from asking the wrong question. The first is fundamental and conceptual, affecting the basic research design and method. The second is more superficial and essentially semantic, affecting the clarity of the analysis and its conclusions. In both papers, asking the right question from the start could have effected significant improvements.
The right question is not whether planning or the market is more effective. It is: What is the most appropriate form of governance in a particular situation, policy or problem context? By association, putting the question in this form suggests two principles (here borrowed from, but not limited to TCT): remediability and discriminating alignment.
Remediability prescribes analysis that does not just invoke abstract evaluation criteria, but assessing effectiveness by comparing feasible alternatives (23). Discriminating alignment can be understood in a broad sense, not limited to transaction characteristics. It means judging the appropriateness of possible forms of government (and other types of solutions) by assessing the fit between relevant contextual characteristics and critical attributes of alternative solutions (24).
Asking the right question and abandoning the sterile dichotomy of "planned interventions versus markets" will have some positive effects. For one, it would provide a conceptual framework for more rigorous analysis. Such analysis would distinguish between various kinds of markets and hybrid forms of governance, and identify more complex patterns of asset ownership that mix public and private control. Recognizing that planning is not the same as public intervention will enable research on planning for, in, and of the market.
For another, it will encourage consideration of the institutional design implications of policy-related analysis and evaluation. Rather than just "comparing...planned interventions (to) market solutions" (Planning & Markets, 2000), this demands more attention to developing and presenting realistic public, private, and mixed alternatives, and comparative evaluation of their respective consequences to determine: Which is most effective compared to what?