Universal Demand for Quality

I’ve been reading some books about professionalism. The one I was reading yesterday touched on an interesting model that I’m not quite sure what to make of, but it certainly caught my fancy.

Some commodities have universal demand; i.e. everybody wants some. Some examples: food, education, knowledge, safety, health, mobility, conflict resolution. States naturally are drawn into providing a regulatory function for these industries. A state that fails in these areas finds its legitimacy at risk. Their universal demand assures a strong signal from the citizens to the state, particularly in any functional democratic state.

Meanwhile, universal demand tends to attract numerous suppliers; and in the absence of barrier to entry too many suppliers. Which will lead in short order to market failure if the quality of the goods supplied is hard to measure dependably. The market fails because the horde of suppliers furiously underbid each other until they can’t make a reasonable living, which drives all the competent suppliers to seek other work.

The lack of clear quality measures leads the substitution of alternate sources of legitmacy: pomp, pompus attitude, parasiting on other sources of authority, advertising, character defamation. (A point which deserves a blog posting of it’s own, but since that’s unlikely I’ll toss in this marvelous line. When this happens you see a pattern: consumers hold the trade in very low esteem but hold their personal practitioner in the highest regard. Where have I heard that before?)

It is practically impossible for most buyers to evaluate the quality of what they are buying. If you can’t tell from the plate on the table in the resturant if the kitchen is or isn’t a public health nightmare there is no chance you can evaluate the quality of your teachers, lawyers, groceries, or the city’s levee.

(Oh no, another aside: The library I was reading this book in has taken to using the fire alarm to annouce that the library is closing. It’s a nightmare waiting to happen – the fire that breaks out at 20 minutes before closing time.)

So that’s the story. A commodity with strong demand whose quality isn’t transparently obvious can easily engage in a rush for the bottom, a market failure. If the demand is universal the state will find the pressure to respond irresistible. And so the state will step in to regulate.

As early as the 16th century some European states established regulatory mechanisms for medical providers. Now that’s a great example because it looks to me like those states picked, more or less at random, one class of medical hucksters declared them legit, and declared the others ill-legit. They had to do something.

What I find thought provoking is how granting the state license (the franchise, the monopoly) to one group is a new kind of standards making I’d not recognized before. In the presence of 16th century medical science (i.e. a something totally bogus) and complete market failure (i.e. doctors and barbers sharing the same wages) the state has a chicken and egg problem. No quality, and no market. By tagging one group as responsible it solves the market failure. Wait a few centuries with luck the might science emerges.

If the practitioners don’t capturing the regulator and the regulator keeps demanding that the practitioners address the quality problem this can work. There is some hint that is exactly what happened with the medical profession. That time and time again the profession failed to provide reasonably quality; for example Doctors were very slow to adopt ideas about public health, hygiene, etc. If you want to be nice you could say they were very loyal to their professional practices. Forces would come to bear that would force them to change; in the absence of the professional monopoly there wouldn’t have been anything for those forces to bear down upon.

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