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Understanding the Private-Public Divide: Markets, Governments, and Time Horizons

Author(s):Offer, Avner
Reviewer(s):Chick, Martin

Published by EH.Net (December 2022).

Avner Offer. Understanding the Private-Public Divide: Markets, Governments, and Time Horizons. Cambridge: Cambridge University Press, 2022. xiv + 227 pp. £19.99 (paperback), ISBN 978-1108791663.

Reviewed for EH.Net by Martin Chick, University of Edinburgh.


This book has its origins in the Ellen MacArthur Lectures which Avner Offer gave in Cambridge in 2018. The ideas developed in those four lectures are further elaborated here in seven main chapters, whose titles are: patient capital; corruption and integrity; plutocratic blowback; creating humans; exit from work; housing and democracy; and climate change and time horizons. Together they present a complexity of ideas concerning the economic and political conceptualisation of past, present, and future, written in an accessible style and with such a wealth of supporting evidence as to make this book of immense interest both for teaching and research.

The core concern of the book is the temporal boundaries of markets, in particular the private-public sector divide. As Offer writes: ‘the private-public divide runs across the future, not the present. It is a time horizon that lies a few years hence. Running up to that boundary is the playground of market competition. Beyond it is terrain which business prefers not to enter on its own’ (p. xi). Longer, if any, returns on investments in health, education, science, universities, nuclear power, and the mitigation of climate change are just some of the examples cited as areas in which private investors enter with caution. In an inversion of the typical neoliberal advocacy, Offer argues that when private investors do enter these fields, they seek the protection of the state. Particular ire is reserved for those instances when private interests enter markets better suited to the time horizon of the state, and where private financial gains are made while public purpose is obscured. One such is social security, with Rose and Milton Friedman, and Martin Feldstein being criticised for encouraging future pensioners to look to financial equity investment as a source of future higher returns. With the pursuit of such higher returns came higher fees. In the USA in 1999, social security administrative expenses amounting to 0.5 percent of benefit payments, were about one-fifth of the management charges on a private pension account (p. 113). As in the USA, so too in the UK. Offer estimates that in the first decade of personal pension accounts, the average charge ratio was at least 43 percent (p. 105) It was not simply a matter of costs and fees, but also that the equity return approach misstated the fundamental purpose of a social security, risk-pooling income-replacement scheme, this being better reflected in a pensions scheme on a Pay As You Go basis linked to the fundamental growth of GDP.

A dark side to this book concerns corruption. Here there is continuity with Offer’s earlier work, The Challenge of Affluence, in which with the removal of institutional constraints and structures to eating, many individuals struggled to control their appetite and to balance immediate gratification against delayed reward. In this new book, the lessening of government constraints and structures, however seemingly bureaucratic and stuffy, widened the scope for corruption. The chapter on corruption and integrity would make an invaluable central reading for classes on the development of government over the past two centuries. Similarly, the wealth of evidence and discussion in the chapter on the housing market and policies over the past two hundred years would make it a valuable reading for classes in this area.

Ultimately what the book seeks to explain is the persistent presence and size of government. As economies have grown, governments have grown faster. The fourfold increase in the size of the economies of Europe and the United States between 1913 and 1980 was trumped by the increase in public expenditure from around one-tenth of GDP to anywhere between 25 and 50 percent. In the U.K., the recent pandemic has had a wartime ‘ratchet effect’ on public expenditure which as a share of GDP rose from 40 percent immediately before the pandemic, to 53 percent during it, and has now settled back to 45 percent in what we hope is the post-Covid period. Economic history suggests that once ratcheted up during a crisis, public expenditure’s new higher share of GDP does not fall back to its pre-crisis level. Not only does this have implications for the structure of tax systems, with a further likely shift towards indirect taxation including an increasing interest in taxing wealth, but it also raises the central question of what should, and should not, be financed by public expenditure. The experience with the Private Finance Initiative in the U.K. suggests that allowing private companies to aggregate into their required rate of return all their estimated risks of financing, constructing, and maintaining new schools and hospitals for an agreed future is very costly, especially when compared with the rates at which government could borrow in the manipulated monetary conditions following the financial crisis of 2008. Why governments did not take that opportunity to raise money with low-interest, long-duration debt to build assets such as social housing on which the rental returns were higher than the cost of borrowing remains puzzling. The answer probably lies in the politically convenient assumptions made about the relative importance of reducing the national debt/GDP ratio so as not to encumber the future. Not that economists are free of such assumptions. The use made by economists of the social discount rate in assessing the response to climate change also makes its own assumptions about the stability of the entire ecological system. Not only do the time horizons involved in climate mitigation schemes make arguments over the discount rate little short of cute at times, but as Offer underlines they contrast with the relative inattention to the implications of an empirical extrapolation of observed changes in temperature to date. Thought-provoking to the end, Offer has written a highly stimulating, readable book of immense intellectual use to the study of the past and to the present’s consideration of its approach to the future.


Martin Chick is Professor of Economic History at the University of Edinburgh. His most recent book is Changing Times: Economics, Policies and Resource Allocation in Britain since 1951 (Oxford University Press, 2020). He is currently researching the development and use of property rights in, on, and under the seas since 1945.

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Subject(s):Economic Planning and Policy
Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII
21st Century