So, you've designed your programme, it's aimed at businesses in your local community, and then some reclusive economist working in the dark basement of a local council or agency somewhere tells you "stop! there is no market failure rationale!" All of a sudden, you're back to square one.

I think market failure is over-rated. In my experience it's a useful way to shape how you think about prioritising your regeneration investments and activities, but it's a bit of a blunt instrument as a decision making tool.

For example, it's useful in thinking about why and how to support finance for small enterprises. One market failure answer is largely one of information asymmetry - that investors do not always accurately assess businesses (especially because of software-driven loan assessments in banks these days); and that businesses do not provide all the information to the financiers demands (a lack of awareness/education on the enterprise's part). This leads us to propose solutions that do not necessarily end up in public sector loan funds, but rather in promoting investment readiness in enterprises, and in taking some of the cost disincentives out of loan assessments.

Where market failure rationales are less useful is where areas lack functioning markets, which is the case in many regeneration areas. Paradoxically it's hard to demonstrate market failure, when there is no market. They are also less useful in the cases of the threats of mass redundancy or incentivising inward investment projects. It's very hard to justify expenditure on market failure grounds for these scenarios.

Orthodox economists - such as those you'll find in Whitehall - tend to stick to classic interpretations of market failure. These work well for things like congestion, pollution, industrial accidents, provision of state education and training. Lots of good research on market failure in the 1980s also laid strong foundations for governmental roles in promoting competitiveness and innovation.
So if you believe that the world behaves just as neoclassical economics would predict, market failure criteria work extremely well. But how many regeneration practitioners regularly see truly rational economic decisions, based on perfect information? There's a disconnect between the strict interpretation of market failure and real life. For example, how many of us follow a football team that never win anything, or buy lottery tickets, despite knowing the odds?

What's evident is that unfortunately market failure is used as a convenient get out clause for those agencies and institutions that rubber stamp programmes and funding. But let's not totally write off economics here. We still need economists, if not just to make fun of to make the rest of us feel better.

My interpretation and use of economics is rather more pragmatic. Firstly, what needs done - what are the challenges, the opportunities, and can government institutions and regeneration organisations do anything about it, if we chose to? Market failure is but one of the considerations. We need to ask about the potential impact of a proposed initiative or programme on the market, and why doesn't the market do this for itself, rather than obsessing about classic market failure rationales. And then, we must find some proof of such gaps in the market - but to inform the design of an initiative as much as to prove its worth. Its also useful to think about what might happen if we proceed with our initiative - will we put our money into something that the market will provide anyway, or where our money will make no difference to outcomes? Would it be better to incentivise the market rather than trying to replace it?

And then (gasp!) you might just want to do something because of political priorities and beliefs. In regeneration, this matters. When we want to encourage job creation within accessible reach of job-starved deprived areas, is market failure foremost in our minds?

No. There's real social and economic need out there that we often can't ignore. We sometimes have to manage the market, not just follow it.

In the end, economists want politicians and practitioners to make informed judgments that result in good policies and initiatives that work. It's our job to try to keep you informed. Market failure is just one of the things that should inform your decision. It should not necessarily dominate it.