Crowding out

Crowding out is where a state enterprise, by virtue of its subsidized (or other advantage it gains from its creature of the state) nature, forces other competitors out of the market. An example of this in action is the way friendly societies went out of business when the Welfare State was set up. Who was going to contribute to a mutual fund when they could get the same benefits without making a contribution? It is possible that GCSEs (which have the advantages of being free at the point of use) aren’t yet quite so bad that it has become worth it for someone to offer an alternative.

Other examples include:

  • Compulsory purchase (possibly) crowding out non-coercive alternatives.
  • State schools supplanting private schools in the 19th Century.

My definition is rather wider than the one that currently appears in Wikipedia.

PermalinkEconomics • Last Updated: 03 October 2006
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