Author of the article: Palanisamy Nagarajan, Contributed Published Mar 29, 2025 • Last updated 14 hours ago • 4 minute readA photo shared by Elon Musk on Twitter/X, with the caption, “”I will fight to my last drop of blood to ensure that the US remains the land of freedom and opportunity.” Photo by Twitter/XIt has long been believed that the ideal functioning of a competitive free market system will always lead to efficient outcomes. In fact, it is traced back to Adam Smith’s theory of the invisible hand.In a seminal 1958 paper, “The Anatomy of Market Failure,” in the Quarterly Journal of Economics, Francis Bator challenged the basic assumptions of the competitive free market model and shed light on the nature and extent of market failures that are more prevalent in the real-world economies than one might realize.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY.Subscribe now to access this story and more:Unlimited access to the website and appExclusive access to premium content, newsletters and podcastsFull access to the e-Edition app, an electronic replica of the print edition that you can share, download and comment onEnjoy insights and behind-the-scenes analysis from our award-winning journalistsSupport local journalists and the next generation of journalistsSUBSCRIBE TO UNLOCK MORE ARTICLES.Subscribe or sign in to your account to continue your reading experience.Unlimited access to the website and appExclusive access to premium content, newsletters and podcastsFull access to the e-Edition app, an electronic replica of the print edition that you can share, download and comment onEnjoy insights and behind-the-scenes analysis from our award-winning journalistsSupport local journalists and the next generation of journalistsRegister to unlock more articles.Create an account or sign in to continue your reading experience.Access additional stories every monthShare your thoughts and join the conversation in our commenting communityGet email updates from your favourite authorsSign In or Create an AccountorArticle contentMarket failureBator defined the term market failure as the “failure of a more or less idealized system of price-market system to sustain ‘desirable’ activities or to stop ‘undesirable’ activities.” It arises from various sources, including the existence of pure public goods, externalities of production and consumption, market concentration, imperfect information, and the interdependence of firms.Recommended from Editorial COMMENTARY: Notion of ‘America First’ is out of touch COMMENTARY: Reimagining sustainability in an era of climate breakdown He provided the rationale for active government intervention in the economy to correct market failures through regulations, taxes, subsidies, government provision of public goods and services, and redistributive policies.It has been nearly 70 years since Bator’s article was published. It is ironic that we have yet to come to grips with the failure of the competitive “free” market systems. The illusion of “free” market systems and the cult of market efficiency persists despite mounting market failures. It is a matter of great concern.Article contentCost of emissionsIn 2006, the notable Stern Review on the Economics of Climate Change, commissioned by the UK government, declared that “Climate change presents a unique challenge for economics. It is the greatest and widest-ranging market failure the world has ever seen.”This is because greenhouse gas emissions impose significant costs on society. These costs are not reflected in market prices. In fact, in economic terms, this is a classic case of a negative externality where the polluter does not bear the full cost of an economic activity. Instead, it is distributed across society worldwide and to future generations.One thing is clear and undeniable. In today’s interconnected world, market failures have become more severe and complex. In fact, the interlinked nature and scope of global market systems in a telecoupled world have amplified these failures in so many ways. It highlights the seriousness of the situation we face.Against this backdrop, it is deeply ironic that the U.S. government, under the mask of so-called “efficiency,” appears to mirror the same global corporate market system logic that has significantly contributed to market failures.Article contentThe Department of Government Efficiency (DOGE) is setting the stage to run the government like a large global corporation. It overlooks the fundamental objectives of the public sector and its vital role in the 21st century.Misguided notionThe idea of using corporate governance as a model for government is not only misguided but also a dangerous illusion of our time. Confusing the goals of corporate enterprises, which aim to maximize returns for shareholders, with the fundamental role of government, which is to serve the common good, can lead to a complete failure of the system.The DOGE seeks to cut thousands of federal jobs under the banner of efficiency and waste elimination. In this case, it risks undermining the very institutions designed to support public services and governance.The concept of efficiency should not be an end in itself. Instead, it should be a tool to support the broader goal of effective governance, which is of paramount importance.Reducing the workforce without considering systemic consequences can lead to loss of expertise, weakened regulatory oversight, and diminished public service capacity. For instance, a reduction in the number of food inspectors could lead to an increase in food safety incidents. It will seriously compromise the effectiveness of governance.Article contentIt is odd that the concept of ‘efficiency’ is often linked to layoffs. In fact, it is a neoliberal narrative, a set of economic policies that prioritize reducing labor costs over other solutions. This narrative often leads to a reduction in government services.Large businesses often advocate for a smaller government. It is because they tend to underestimate the role of governments in the economy. In fact, they benefit more from government spending, both directly (through contracts, subsidies, and bailouts) and indirectly (through infrastructure, regulation, and R&D investments).Economic contractionWe cannot ignore the Keynesian employment multiplier effect of the intended massive federal employee layoffs by the DOGE. The multiplier works both ways — just as hiring stimulates the economy, mass layoffs can lead to economic contraction.In a recent report, Downside Risks Intensifying, the chief economist Torsten Slok at Global Management said that the “consensus expects total DOGE-related job cuts to be 300,000.”Furthermore, based on an earlier study, Slok stated “that for every federal employee, there are two contractors. As a result, layoffs could potentially be closer to 1 million.”Article contentThe neoliberal shift towards deregulation from the 1980s onwards resulted in increased market failures, environmental degradation, financial instability, and growing inequality. Let us suppose the current wave of DOGE-style “efficiency” continues unchecked. In that case, we may see a reduction in government functions, likely leading to decreased regulatory oversight, diminished environmental protection, and a lack of long-term strategic planning.In fact, this is precisely the hollowing out of the state, which could lead to government failure on top of deepening market failures – where the institutions responsible for addressing the sustainability crises become too weak or dysfunctional to respond.Palanisamy Nagarajan is an emeritus professor of economics and island studies teaching fellow at the University of Prince Edward Island.Article content
COMMENTARY: The cult of DOGE and hollowing out of the state
