Society benefits when government more carefully aligns OCR for page 137 Reprise 137 incentives. While a thoroughgoing policy of in- fluencing behavior by altering prices should be part of a government's repertoire, it should be resorted to sparingly, for it can possess a fatal flaw those devising the policy might not be acting in the public interest. The effect of this flaw has vividly emerged in recent years as we have witnessed its contribution to the colossal failure of communist regimes. As both Adam Smith and lames Madison saw, in a free society of people expected to act in their own self-interest, competition the institutionalization of countervailing forces provides this function. The pros- pect of profit stimulates creativity and industry, but excessive profits are whittled away when competitors enter a market.
Competition can harness self-interest to the public interest.
But he did not anticipate the great bureaus of American government, and in them his admonition has not been honored. They are not sub- ject to vigorous competition. Much of what state governments spend goes to monopoly bureaus, organizations inherently not disposed toward innovation and efficiency. Requiring public bu- reaus to compete with private entities for contracts, and granting vouchers or tax credits to citizens rather than funding bureaus directly are the two main ways that more competition could be injected into government. The new economics implies that policymaking for public services is designing competition- choice into their production.