WEBVTT NOTE 10. The Public Sector, I: Government in Business 1 00:00:00.000 --> 00:00:07.000 Chapter 10. The Public Sector. 1. Government in Business 2 00:00:08.000 --> 00:00:15.000 People tend to fall into habits and into unquestioned ruts, especially in the field of government. 3 00:00:15.000 --> 00:00:21.000 On the market, in society in general, we expect and accommodate rapidly to change, 4 00:00:21.000 --> 00:00:25.000 to the unending marvels and improvements of our civilization. 5 00:00:25.000 --> 00:00:30.760 New products, new lifestyles, new ideas are often embraced eagerly. 6 00:00:30.760 --> 00:00:36.500 But in the area of government, we follow blindly in the path of centuries, content to believe 7 00:00:36.500 --> 00:00:40.320 that whatever has been must be right. 8 00:00:40.320 --> 00:00:45.540 In particular, government in the United States and elsewhere, for centuries, and seemingly 9 00:00:45.540 --> 00:00:51.680 from time immemorial, has been supplying us with certain essential and necessary services. 10 00:00:51.680 --> 00:01:07.680 services which nearly everyone concedes are important, defense, including army, police, judicial and legal, firefighting, streets and roads, water, sewage and garbage disposal, postal service, etc. 11 00:01:07.680 --> 00:01:19.680 So identified has the state become in the public mind with the provision of these services that an attack on state financing appears to many people as an attack on the service itself. 12 00:01:19.680 --> 00:01:20.680 Health. 13 00:01:20.680 --> 00:01:26.120 Thus, if one maintains that the state should not supply court services and that private 14 00:01:26.120 --> 00:01:32.520 enterprise on the market could supply such service more efficiently as well as more morally, 15 00:01:32.520 --> 00:01:37.640 people tend to think of this as denying the importance of courts themselves. 16 00:01:37.640 --> 00:01:43.200 The libertarian who wants to replace government by private enterprises in the above areas 17 00:01:43.200 --> 00:01:48.240 is thus treated in the same way as he would be if the government had, for various reasons, 18 00:01:48.240 --> 00:01:54.000 have been supplying shoes as a tax-financed monopoly from time immemorial. 19 00:01:54.000 --> 00:01:58.660 If the government and only the government had had a monopoly of the shoe manufacturing 20 00:01:58.660 --> 00:02:03.920 and retailing business, how would most of the public treat the libertarian who now came 21 00:02:03.920 --> 00:02:08.440 along to advocate that the government get out of the shoe business and throw it open 22 00:02:08.440 --> 00:02:10.640 to private enterprise? 23 00:02:10.640 --> 00:02:13.800 He would undoubtedly be treated as follows. 24 00:02:13.800 --> 00:02:16.180 People would cry, how could you? 25 00:02:16.180 --> 00:02:20.340 You are opposed to the public and to poor people wearing shoes. 26 00:02:20.340 --> 00:02:24.620 And who would supply shoes to the public if the government got out of the business? 27 00:02:24.620 --> 00:02:25.720 Tell us that. 28 00:02:25.720 --> 00:02:27.260 Be constructive. 29 00:02:27.260 --> 00:02:30.660 It's easy to be negative and smart-alecky about government. 30 00:02:30.660 --> 00:02:33.220 But tell us, who would supply shoes? 31 00:02:33.220 --> 00:02:34.220 Which people? 32 00:02:34.220 --> 00:02:37.740 How many shoe stores would be available in each city and town? 33 00:02:37.740 --> 00:02:40.340 How would the shoe firms be capitalized? 34 00:02:40.340 --> 00:02:42.340 How many brands would there be? 35 00:02:42.340 --> 00:02:44.340 What material would they use? 36 00:02:44.340 --> 00:02:45.720 What lasts? 37 00:02:45.720 --> 00:02:48.920 What would be the pricing arrangements for shoes? 38 00:02:48.920 --> 00:02:52.960 Wouldn't regulation of the shoe industry be needed to see to it that the product is 39 00:02:52.960 --> 00:02:54.080 sound? 40 00:02:54.080 --> 00:02:56.760 And who would supply the poor with shoes? 41 00:02:56.760 --> 00:03:01.680 Suppose a poor person didn't have the money to buy a pair. 42 00:03:01.680 --> 00:03:07.480 These questions, ridiculous as they seem to be, and are, with regard to the shoe business, 43 00:03:07.480 --> 00:03:13.960 are just as absurd when applied to the libertarian who advocates a free market in fire, police, 44 00:03:13.960 --> 00:03:25.960 The point is that the advocate of a free market in anything cannot provide a constructive blueprint of such a market in advance. 45 00:03:25.960 --> 00:03:38.960 The essence and the glory of the free market is that individual firms and businesses competing on the market provide an ever-changing orchestration of efficient and progressive goods and services, 46 00:03:38.960 --> 00:03:46.500 Services, continually improving products and markets, advancing technology, cutting costs, 47 00:03:46.500 --> 00:03:52.340 and meeting changing consumer demands as swiftly and as efficiently as possible. 48 00:03:52.340 --> 00:03:58.960 The libertarian economist can try to offer a few guidelines on how markets might develop, 49 00:03:58.960 --> 00:04:02.640 where they are now prevented or restricted from developing. 50 00:04:02.640 --> 00:04:07.620 But he can do little more than point the way toward freedom, to call for government to 51 00:04:07.620 --> 00:04:12.700 to get out of the way of the productive and ever-inventive energies of the public, as 52 00:04:12.700 --> 00:04:16.300 expressed in voluntary market activity. 53 00:04:16.300 --> 00:04:22.300 No one can predict the number of firms, the size of each firm, the pricing policies, etc., 54 00:04:22.300 --> 00:04:26.580 of any future market in any service or commodity. 55 00:04:26.580 --> 00:04:32.960 We just know, by economic theory and by historical insight, that such a free market will do the 56 00:04:32.960 --> 00:04:46.060 How will the poor pay for defense, fire protection, postal service, etc., can basically be answered 57 00:04:46.060 --> 00:04:52.140 by the counter question, how do the poor pay for anything they now obtain on the market? 58 00:04:52.140 --> 00:04:57.400 The difference is that we know that the free market will supply these goods and services 59 00:04:57.400 --> 00:05:04.360 far more cheaply, in greater abundance, and of far higher quality than monopoly government does today. 60 00:05:05.640 --> 00:05:12.680 Everyone in society would benefit, and especially the poor. And we also know that the mammoth tax 61 00:05:12.680 --> 00:05:17.960 burden to finance these and other activities would be lifted from the shoulders of everyone 62 00:05:17.960 --> 00:05:25.800 in society, including the poor. We have seen above that the universally acknowledged pressing 63 00:05:25.800 --> 00:05:31.360 and problems of our society are all wrapped up in government operations. 64 00:05:31.360 --> 00:05:36.680 We have also seen that the enormous social conflicts entwined in the public school system 65 00:05:36.680 --> 00:05:42.560 would all disappear when each group of parents was allowed to finance and support whichever 66 00:05:42.560 --> 00:05:46.800 education it preferred for their children. 67 00:05:46.800 --> 00:05:54.320 The grave inefficiencies and the intense conflicts are all inherent in government operation. 68 00:05:54.320 --> 00:05:59.860 If the government, for example, provides monopoly services, for example, in education or in 69 00:05:59.860 --> 00:06:05.900 water supply, then whichever decisions the government makes are coercively imposed on 70 00:06:05.900 --> 00:06:12.460 the hapless minority, whether it is a question of educational policies for the schools, integration 71 00:06:12.460 --> 00:06:18.960 or segregation, progressive or traditional, religious or secular, etc., or even for the 72 00:06:18.960 --> 00:06:25.080 What kind of water to be sold, for example, fluoridated or unfloridated? 73 00:06:25.080 --> 00:06:30.980 It should be clear that no such fierce arguments occur where each group of consumers can purchase 74 00:06:30.980 --> 00:06:34.040 the goods or services they demand. 75 00:06:34.040 --> 00:06:38.920 There are no battles between consumers, for example, over what kind of newspapers should 76 00:06:38.920 --> 00:06:46.400 be printed, churches established, books printed, records marketed, or automobiles manufactured. 77 00:06:46.400 --> 00:06:52.280 Whatever is produced on the market reflects the diversity as well as the strength of consumer 78 00:06:52.280 --> 00:06:53.720 demand. 79 00:06:53.720 --> 00:06:59.140 On the free market, in short, the consumer is king, and any business firm that wants 80 00:06:59.140 --> 00:07:05.440 to make profits and avoid losses tries its best to serve the consumer as efficiently 81 00:07:05.440 --> 00:07:09.040 and at as low a cost as possible. 82 00:07:09.040 --> 00:07:13.360 In a government operation, in contrast, everything changes. 83 00:07:13.360 --> 00:07:20.640 Inherent in all government operation is a grave and fatal split between service and payment, 84 00:07:20.640 --> 00:07:25.520 between the providing of a service and the payment for receiving it. 85 00:07:25.520 --> 00:07:30.520 The Government Bureau does not get its income, as does the private firm, from serving the 86 00:07:30.520 --> 00:07:37.240 consumer well, or from consumer purchases of its products exceeding its costs of operation. 87 00:07:37.240 --> 00:07:38.240 No. 88 00:07:38.240 --> 00:07:44.380 The Government Bureau acquires its income from molting the long-suffering taxpayer. 89 00:07:44.380 --> 00:07:48.960 Its operations therefore become inefficient, and costs zoom. 90 00:07:48.960 --> 00:07:53.980 Since Government Bureaus need not worry about losses or bankruptcy, they can make up their 91 00:07:53.980 --> 00:07:58.040 losses by additional extractions from the public till. 92 00:07:58.040 --> 00:08:03.700 Furthermore, the consumer, instead of being courted and wooed for his favor, becomes a 93 00:08:03.700 --> 00:08:10.740 is a mere annoyance to the government, someone who is wasting the government's scarce resources. 94 00:08:10.740 --> 00:08:16.460 In government operations, the consumer is treated like an unwelcome intruder, an interference 95 00:08:16.460 --> 00:08:20.980 in the quiet enjoyment by the bureaucrat of his steady income. 96 00:08:20.980 --> 00:08:27.400 Thus, if consumer demand should increase for the goods or services of any private business, 97 00:08:27.400 --> 00:08:29.500 the private firm is delighted. 98 00:08:29.500 --> 00:08:34.420 government woos and welcomes the new business and expands its operations eagerly to fill 99 00:08:34.420 --> 00:08:36.100 the new orders. 100 00:08:36.100 --> 00:08:42.500 Government, in contrast, generally meets this situation by sourly urging or even ordering 101 00:08:42.500 --> 00:08:48.820 consumers to buy less and allows shortages to develop, along with deterioration in the 102 00:08:48.820 --> 00:08:50.780 quality of its service. 103 00:08:50.780 --> 00:08:57.000 Thus, the increased consumer use of government streets in the cities is met by aggravated 104 00:08:57.000 --> 00:09:02.660 Traffic Congestion and by continuing denunciations and threats against people who drive their 105 00:09:02.660 --> 00:09:04.620 own cars. 106 00:09:04.620 --> 00:09:09.820 The New York City administration, for example, is continually threatening to outlaw the use 107 00:09:09.820 --> 00:09:15.580 of private cars in Manhattan, where congestion has been most troublesome. 108 00:09:15.580 --> 00:09:20.340 It is only government, of course, that would ever think of bludgeoning consumers in this 109 00:09:20.340 --> 00:09:21.340 way. 110 00:09:21.340 --> 00:09:26.940 It is only government that has the audacity to solve traffic congestion by forcing 111 00:09:26.940 --> 00:09:52.820 New York City, for example, has suffered periodically from a water shortage. 112 00:09:52.820 --> 00:09:58.380 Here is a situation where, for many years, the city government has had a compulsory monopoly 113 00:09:58.380 --> 00:10:02.140 of the supply of water to its citizens. 114 00:10:02.140 --> 00:10:07.120 Failing to supply enough water, and failing to price that water in such a way as to clear 115 00:10:07.120 --> 00:10:13.960 the market, to equate supply and demand, which private enterprise does automatically, New 116 00:10:13.960 --> 00:10:20.700 York's response to water shortages has always been to blame not itself, but the consumer, 117 00:10:20.700 --> 00:10:25.020 whose sin has been to use too much water. 118 00:10:25.020 --> 00:10:30.640 The city administration could only react by outlawing the sprinkling of lawns, restricting 119 00:10:30.640 --> 00:10:35.640 use of water, and demanding that people drink less water. 120 00:10:35.640 --> 00:10:41.340 In this way, government transfers its own failings to the scapegoat user, who is threatened 121 00:10:41.340 --> 00:10:46.500 and bludgeoned instead of being served well and efficiently. 122 00:10:46.500 --> 00:10:51.100 There has been similar response by government to the ever-accelerating crime problem in 123 00:10:51.100 --> 00:10:52.740 New York City. 124 00:10:52.740 --> 00:10:57.700 Instead of providing efficient police protection, the city's reaction has been to force the 125 00:10:57.700 --> 00:11:01.700 innocent citizen to stay out of crime-prone areas. 126 00:11:01.700 --> 00:11:07.420 Thus, after Central Park in Manhattan became a notorious center for muggings and other 127 00:11:07.420 --> 00:11:14.660 crime in the night hours, New York City's solution to the problem was to impose a curfew, 128 00:11:14.660 --> 00:11:18.020 planning use of the park in those hours. 129 00:11:18.020 --> 00:11:23.420 In short, if an innocent citizen wants to stay in Central Park at night, it is he who 130 00:11:23.420 --> 00:11:26.780 is arrested for disobeying the curfew. 131 00:11:26.780 --> 00:11:31.760 It is, of course, easier to arrest him than to rid the park of crime. 132 00:11:31.760 --> 00:11:37.700 In short, while the long-held motto of private enterprise is that the customer is always 133 00:11:37.700 --> 00:11:44.300 right, the implicit maxim of government operation is that the customer is always to be blamed. 134 00:11:44.300 --> 00:11:51.300 Of course, the political bureaucrats have a standard response to the mounting complaints of poor and inefficient service. 135 00:11:51.300 --> 00:11:54.300 The taxpayers must give us more money. 136 00:11:54.300 --> 00:12:04.300 It is not enough that the public sector and its corollary in taxation has been growing far more rapidly in this century than the national income. 137 00:12:04.300 --> 00:12:13.300 It is not enough that the flaws and headaches of government operation have multiplied along with the increased burden of the government budget. 138 00:12:13.300 --> 00:12:18.300 We are supposed to pour still more money down the governmental rat hole. 139 00:12:19.300 --> 00:12:25.300 The proper counter-argument to the political demand for more tax money is the question, 140 00:12:25.300 --> 00:12:29.300 how is it that private enterprise doesn't have these problems? 141 00:12:29.300 --> 00:12:36.300 How is it that hi-fi manufacturers or photocopy companies or computer firms or whatever 142 00:12:36.300 --> 00:12:40.300 do not have trouble finding capital to expand their output? 143 00:12:40.300 --> 00:12:46.340 Why don't they issue manifestos denouncing the investing public for not providing them 144 00:12:46.340 --> 00:12:49.900 with more money to serve consumer needs? 145 00:12:49.900 --> 00:12:56.700 The answer is that consumers pay for the hi-fi sets or the photocopy machines or the computers, 146 00:12:56.700 --> 00:13:02.020 and that investors, as a result, know that they can make money by investing in those 147 00:13:02.020 --> 00:13:03.400 businesses. 148 00:13:03.400 --> 00:13:09.320 On the private market, firms that successfully serve the public find it easy to obtain capital 149 00:13:09.320 --> 00:13:15.880 for Expansion. Inefficient, unsuccessful firms do not, and eventually have to go out of business. 150 00:13:16.680 --> 00:13:22.680 But there is no profit and loss mechanism in government to induce investment in efficient 151 00:13:22.680 --> 00:13:28.360 operations and to penalize and drive the inefficient or obsolete ones out of business. 152 00:13:29.240 --> 00:13:35.240 There are no profits or losses in government operations inducing either expansion or 153 00:13:35.240 --> 00:14:03.800 Many people, including some government officials, think that these problems could be solved 154 00:14:03.800 --> 00:14:07.360 and if only government were run like a business. 155 00:14:07.360 --> 00:14:12.620 The government then sets up a pseudo-corporate monopoly run by government, which is supposed 156 00:14:12.620 --> 00:14:16.020 to set affairs on a business basis. 157 00:14:16.020 --> 00:14:22.020 This has been done, for example, in the case of the post office, now the U.S. Postal Service, 158 00:14:22.020 --> 00:14:27.620 and in the case of the ever-crumbling and decaying New York City Transit Authority. 159 00:14:27.620 --> 00:14:32.780 The corporations are enjoined to end their chronic deficits and are allowed to float 160 00:14:32.780 --> 00:14:35.620 Bonds on the Bond Market. 161 00:14:35.620 --> 00:14:40.540 It is true that direct users then would be taking some of the burden off the mass of 162 00:14:40.540 --> 00:14:45.740 taxpayers, which include users and non-users alike. 163 00:14:45.740 --> 00:14:51.260 But there are fatal flaws inherent in any government operation which cannot be avoided 164 00:14:51.260 --> 00:14:54.520 by this pseudo-business device. 165 00:14:54.520 --> 00:14:59.220 In the first place, government service is always a monopoly or semi-monopoly. 166 00:14:59.220 --> 00:15:04.420 Monopoly. Often, as in the case of the Postal Service or the Transit Authority, it is a 167 00:15:04.420 --> 00:15:12.420 compulsory monopoly. All or nearly all private competition is outlawed. The monopoly means 168 00:15:12.420 --> 00:15:18.700 that government service will be far more costly, higher priced, and poorer in quality than 169 00:15:18.700 --> 00:15:25.020 would be the case in the free market. Private enterprise gains a profit by cutting costs 170 00:15:25.020 --> 00:15:54.020 A second fatal flaw is that, try as it may, a government corporation can never be run as a business because its capital continues to be conscripted from the taxpayer. 171 00:15:54.020 --> 00:16:07.020 There is no way of avoiding that. The fact that the government corporation may raise bonds on the market still rests on the ultimate power of taxation to redeem these bonds. 172 00:16:07.020 --> 00:16:14.020 Finally, there is another critical problem inherent in any government operation of a business. 173 00:16:14.020 --> 00:16:30.020 One of the reasons that private firms are models of efficiency is because the free market establishes prices which permit them to calculate, to figure out what their costs are and therefore what they must do to make profits and avoid losses. 174 00:16:30.020 --> 00:16:49.020 It is through this price system, as well as through the motivation to increase profits and avoid losses, that goods and services are properly allocated in the market, among all the intricate branches and areas of production that make up the modern industrial capitalist economy. 175 00:16:49.020 --> 00:16:54.360 It is economic calculation that makes this marvel possible. 176 00:16:54.360 --> 00:17:00.040 In contrast, central planning, such as is attempted under socialism, is deprived of 177 00:17:00.040 --> 00:17:06.240 accurate pricing, and therefore cannot calculate costs and prices. 178 00:17:06.240 --> 00:17:12.140 This is the major reason that central socialist planning has increasingly proved to be a failure 179 00:17:12.140 --> 00:17:15.920 as the communist countries have become industrialized. 180 00:17:15.920 --> 00:17:22.240 It is because central planning cannot determine prices and costs with any accuracy that the 181 00:17:22.240 --> 00:17:27.960 communist countries of Eastern Europe have been moving rapidly away from socialist planning 182 00:17:27.960 --> 00:17:32.220 and toward a free market economy. 183 00:17:32.220 --> 00:17:38.280 If central planning, then, thrusts the economy into hopeless calculational chaos and into 184 00:17:38.280 --> 00:17:45.440 irrational allocations and production operations, the advance of government activities inexorably 185 00:17:45.440 --> 00:17:52.200 introduces ever greater islands of such chaos into the economy and makes calculation of 186 00:17:52.200 --> 00:17:59.200 costs and rational allocation of production resources more and more difficult. 187 00:17:59.200 --> 00:18:05.600 As government operations expand and the market economy withers, the calculational chaos becomes 188 00:18:05.600 --> 00:18:11.960 more and more disruptive and the economy increasingly unworkable. 189 00:18:11.960 --> 00:18:18.400 The ultimate libertarian program may be summed up in one phrase, the abolition of the public 190 00:18:18.400 --> 00:18:24.560 sector, the conversion of all operations and services performed by the government into 191 00:18:24.560 --> 00:18:30.680 activities performed voluntarily by the private enterprise economy. 192 00:18:30.680 --> 00:18:36.360 Let us now turn from general considerations of government, as contrasted with private 193 00:18:36.360 --> 00:18:44.360 to some of the major areas of government operation and how they could be performed by the free market economy.