The Complete Package

Sue Bradford’s departure leaves a huge gap in the Greens, and Parliament.

Listener: 12 December, 2009.

Keywords: Regulation & Taxation; Social Policy;

To work properly, the market must be “complete” – that is, all possible transactions must be able to be carried out. For example, those who invested in finance firms such as Bridgecorp should have been able to buy insurance to protect them if the company went bust. The world needed similar insurance for Lehman Brothers, the New York investment bank whose collapse almost brought down the international financial system. But then we would have needed insurance in case the counterparty in the deal went bust, and then . it’s an infinite regression.

In practice, only a few reiterations of insuring the insurer were needed, but because there were not enough, the global financial crisis occurred. Why there were not enough reiterations is to do with transaction and information costs, but that is for another column.

However, the finance markets are not the only ones sufficiently incomplete to damage economic welfare. Because the market for pollutants is incomplete and polluters are not charged for their emissions, a person can get away with dumping on the neighbours – and in the case of carbon emissions, on the whole world and on future generations.

This has led to cap-and-trade schemes, and other measures such as individual tradable quotas for fish and water, which force resource users to take into fuller account the consequences of their actions. But even these measures may not complete the market, since future generations cannot participate in it. As a consequence, we have the sustainability provisions in the Resource Management Act.

Another example of incompleteness, this time in the political market, is that children don’t vote. Had they taken part in the smacking referendum, the outcome may well have been different. It is not sufficient to say that parents represented their children; that was the justification for not giving women the vote, since it was said men took their wives, mothers and daughters into consideration when they voted.

That children don’t vote has a major impact on economic policy. It is no accident that children are associated with poverty in New Zealand. Before the Working for Families package, over 80% of the poor were children and their parents. Although the package has taken some families out of poverty, those with children almost certainly continue to dominate the poor. Their parents vote, but it is twice as expensive per vote to support children as, say, the elderly.

Market completeness, or more precisely the lack of it, has a major effect on our economic and public life. It is one reason we have governments. Very often they fill in for market failure (so any collapse of private retirement savings is backstopped by New Zealand Superannuation) or increase the completeness of markets (such as by reducing transaction costs). Sometimes they stand in for those who don’t have a say, such as future generations.

It is also a reason for the existence of a political party such as the Greens, whose theme is that market incompleteness damages things that are important to us and future generations.

That is what made MP Sue Bradford so special. The anti-smacking legislation was one of her many achievements, although by no means her most important. She had outstanding political skills that enabled her to locate consensus for progressing her aims. For instance, she had an important role in the select committee on the consumer-credit legislation – such a lot of Parliament’s best work is hidden in such places.

Most of all, she had a commitment to that which is left behind by the market: children, other marginalised groups such as those with or recovering from mental illness, and areas of the environment. However, even she did not extend to the problem of the incompleteness of the financial sector, and we have yet to recover from the free-for-all of the 1990s.

There is no obvious replacement among the Greens now that Bradford has left Parliament. She was such a force for social justice that the rest of the caucus could turn their attention to other matters. I hope they fill the vacuum she has left in Parliament, while she continues to advocate for the marginalised in her next career. Meanwhile the problems of incomplete markets continue to bedevil us.