Poverty alleviation: Public goods vs private goods

Subject: Economy

Section: National Income

Context:

NITI Aayog put out a report two weeks ago on multidimensional poverty. The index measures deprivation across three equally weighted dimensions – Health, Education, and Standard of living.
These three dimensions are represented by 12 indicators such as nutrition, child and adolescent mortality, maternal health, years of schooling, school attendance, cooking fuel, sanitation, drinking water, electricity, housing, assets, and bank accounts.

So should the government provide all these goods to alleviate poverty?

Economics defines public goods as those whose marginal cost of production is zero, meaning that one person’s consumption does not reduce that of the other. Police, justice, clean air are examples of this.
Health, drinking water, roads and education on the other hand are quasi-public goods. But cooking fuels and other such things aren’t. They are purely private.
The problem arises from the political practice of making the provision of these things the responsibility of the government. In other words, private goods have been turned into public or quasi-public goods disregarding the definitions of such goods in economics.

What happens when private goods are provided by government:

It has a direct impact on the levels of taxation, investment and borrowing by governments.
Basically, turning private into public goods increases the consumption expenditure of governments at the expense of investment expenditures, much of which is intended precisely to increase the supply of higher order or original public goods like defence, police, justice, etc.
That is why the answer lies in increasing incomes so that private goods can remain private and expanding the tax base so that the output of real public goods can be expanded.

Public and Quasi Public Goods

Public Goods:

Public goods are goods or services that are non-excludable and non-rivalrous in consumption.
Non-excludable means that once the good is provided, it is available for all to use, and no one can be effectively excluded from using it.
Non-rivalrous means that one person’s use or consumption of the good does not diminish its availability or usefulness to others.
Classic examples of public goods include street lighting, national defense, and clean air. Due to their characteristics, public goods often require government intervention or provision, as private markets may fail to supply them efficiently.

Quasi-Public Goods (Club Goods):

Quasi-public goods, also known as club goods, exhibit characteristics of both public and private goods. They are non-rivalrous but excludable.
Non-rivalrous means that multiple individuals can consume the good simultaneously without reducing its availability to others.
Excludable means that it is possible to limit or exclude individuals from using the good if they do not pay for it.
Quasi-public goods often have high fixed costs and low marginal costs, making them suitable for exclusive access through membership or subscription fees.
Examples include cable television, toll roads, and private parks. Unlike pure public goods, quasi-public goods can be provided by both the public and private sectors.