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By
reading the articles on LRC about New Orleans, many of us, me included, have
learned that the serious flooding came from the breaks in the levees. More
importantly, we have learned that many people, in government and out,
ordinary and professional, old-timers and new-timers, knew that the levees
were in precarious condition or could not withstand a severe shock. Many who
were supposed to be responsible knew the risk, and they did nothing about it.
In fact, the Bush administration diverted
money from shoring up the levees to their higher priority,
the Iraq War.
Lew
Rockwell, Walter Block and others have correctly pointed out that the public
sector that has been charged with these responsibilities, has no stake in
seeing that they are done well and that privately owned and operated
companies would have done better. We would all be better off if the
facilities now under public management were under private management. The
more general way to think about this (than facilities) is that we want
various services, and we would be better off if we left their provision to
the spontaneous invention of the people themselves through any and all
organizational forms that they might invent that would operate without tax,
regulatory, or other coercion. These are the services associated with air
flight control, airports, harbors, roads, the post office, public education,
policing, bridges, sewers, waterways, satellites, military defense,
libraries, welfare, housing, weather forecasting, justice, dispute
resolution, and more.
In
addition, we would all be better off if our so-called private sector were in
fact private, which most of it is not. It is hard to name any unregulated
industry or any industry not actually in bed with the public sector. Through
subsidy, cartelization, privilege, licensing, rules of exclusion, zoning,
patents, court rulings, laws, and similar devices, businesses merge with the
State and shield themselves from accountability to their customers in the
same way that public sector service-providers do.
Reason
(theory and understanding) and experience working together provide the pathways
to the truth that private is better than public. The bitter experience of
disasters is a hard way to learn how inept the public sector is at handling
emergency and infrastructure services. Those who favor the public sector do
not make learning any easier when they throw sand in our eyes and shift the
responsibility for problems away from their origin – which is the
existence of public sector management itself.
Katrina
is not an isolated instance. Every Communist country provides examples in
spades of the grave defects of public management. Politicians and bureaucrats
controlled whole countries in the Soviet Union, apart from the private sector
or black markets. The resulting defects and deficiencies were obvious to the
eye of any casual observer.
Even before
Russia became Communist, it suffered from autocracy. It was backward. Yet
after 8 decades of Communist rule, the water in Leningrad remained filled
with parasites that would devastate the bowels of any visitor. The
environmental damage wrought by Russian public sector manufacturing
enterprises put Lake Michigan pollution to shame. Russian public housing
multiplied Chicago’s Cabrini Green to national scale. The food was, by
Western standards, unfit for human consumption and the people’s health
and complexions reflected that. To fly was to endanger one’s life.
Airports were small, dark, dank, and dreary. The clothing was ill-fitting,
scarce, coarse, and without style. Where else could occur a disaster like
Chernobyl that created massive radiation damage? Vodka had always been and
remained the way out of facing a life run by public bureaucrats, a life in
which opportunities to get ahead were limited.
A
visit to a butcher shop in the Soviet Union would reveal the butcher chopping
a side of beef into indiscriminate portions of mangled meat and bone. No
t-bone steak, no round steak, no sirloin or tenderloin, no brisket or chuck
roasts, no eye round or bottom round, no porterhouse or club steaks. The
manifold discrimination among cuts that we take for granted was completely
absent. Why? Because the public sector management had decreed that the
butcher shops would have no price system. There was no incentive to peddle
the better cuts or the cuts more in demand at a higher price and sell the
tougher or less desired and desirable cuts at lower prices. There was no
profit in it, so the butchers really did butcher the meat! There is no profit
in fixing a levee either, or maintaining a drainage system in proper order.
These
defects of public sector management were obvious to all but the CIA which
must have been examining only the marbled Moscow subway, not the empty
shelves in the State stores. The completely faulty assessments of the Soviet
Union’s real strengths by our Central Intelligence Agency were either intentionally
calculated to fool the public and prolong the Cold War agenda of the
military-industrial complex benefitting from it, or were the result of the
gross incompetence of the CIA, or both. Both factors were and are at work.
Since
the CIA itself is a public sector group that provides the service of
gathering and interpreting information, we can be quite sure that its
incompetence far exceeds those of any other privately-run concern or concerns
like Morningstar, Moody’s, or the Standard and Poor’s Corporation.
If we take at face value the recent words of our legislators who are trying
to absolve themselves of their own decisions, the public intelligence
agencies completely bungled their job prior to the Iraq War. And, if they did
not bungle the job, if they allowed intelligence to be twisted, which the
facts suggest, then we see that they shirked their responsibilities to the
ill-defined public interest in favor of a select group of neoconservatives
who wished to promote their private war-making agenda. Either way, we have
another perfect example of public sector failure.
The
public sector always fails at serving its purported customers. It must fail.
That is its nature. It is built into the nature of the organization through
its incentive structure. When and where it does not fail or fails less, that
occurs because the incentives more closely resemble private sector
incentives. The U.S. will come to resemble the old Soviet Union the more that
its public sector grows, and Russia, Vietnam, India, and Somalia will thrive
and prosper, each in its own way, the more their private sectors grow. Hong
Kong is a better model for China than Zimbabwe.
A
publicly-managed airport in the U.S. is and was better than a Soviet airport
because the U.S. airports to some extent raise monies by bond issues, some of
which must be endorsed by public voting. Any bond issuer is subject to some
market discipline. There have to be prospective revenues to cover the costs,
or else the issue is not feasible. Airports usually do not have a call upon
the public treasury. If and when they do, then their services will
deteriorate accordingly because their accountability will decline.
Now,
the U.S. Army Corps of Engineers says that lack of
funding for levees is not the reason that they burst, a claim that is
strongly questioned in that same article. It blames decisions made years ago
by a cost-benefit analysis, in which it was determined that building against
a Class 3 hurricane was economic, but not building against a Class 4
hurricane. However, no matter which way this debate ends, it will not alter a
basic fact. The levee projects are funded from the public treasury, not from
issuing bonds. To issue bonds there would have to be a levee authority, and
it would have to be able to tax those who benefit from the levees. This would
partially privatize the levees and align the incentives of those who manage
it more properly with those who receive the benefits.
Even
if the Clinton and Bush administrations cut back levee funding, as they did,
it will not solve our social problem if funding is now restored. That is
because taxes will be diverted from some other project somewhere else through
a haphazard political process. If we were sure that Iraq War money would be
used for fixing the levees and similar problems, without an overall expansion
of the public sector, we could say that’s an improvement. We can never
be sure of this dream, however. Money is fungible. We can’t easily
track where it is coming from or going in a dynamic process like taxation,
appropriation and spending. Since the State just keeps getting bigger and
bigger, it is foolhardy to think that more public money is the solution to
problems like this. Privatization is the solution.
Communism,
socialism, fascism, democracy, autocracy, monarchy, feudalism, plutocracy,
ochlocracy, oligarchy, dictatorship – for many purposes it is useful to
distinguish these forms of government. For purposes of this discussion, the
main factor is this: How large a control does the public sector exercise over
activities that could be handled privately? The main factor is how
totalitarian a State is, that is, how much absolute centralized power the
State has. The bigger the control of the public sector, the more totalitarian
the country is. And the more totalitarian the country is, the worse off it
is.
The
public sector succeeds at what its real aim is, which is to live off the
bounty produced by those outside the public sector. The growth of the public
sector in the U.S. and other countries shows just how successful tax
parasites can be. Having worked for a public university that is somewhere
between 25 and 50 percent funded by the State of New York, I can vouch for
the parallel between working for the U.S. post office and working for a
university. Those of you who have attended universities will have encountered
the unresponsiveness of the professors to the students. Unfortunately, nearly
all private universities also dip liberally into the public treasury via
subsidies for research distributed by the National Science Foundation and the
National Institute of Health.
An
association of individuals in a stock company can be very, very large in
terms of assets or sales or customers or worldwide scope. This does not make
it totalitarian, because it lacks political power in and of itself. In the
world as it is today, all sorts of private businesses and organizations,
associations, and unions of all types have and seek political power. The
powers of aggression that they gain and wield are through and because of the
State. They should not be confused with the lack of legalized aggressive
power that social groups have when unaided by the State. Even in a system
like ours that has the improper incentive of seeking the aid and comfort of
State power, privatizing the public sector helps make services more
responsive to customer wants at least for a time.
The
key issue in keeping a society going on a proper footing on a long-lasting
basis is to prevent the growth of totalitarianism or absolute, centralized
power. If there are alternatives open to people to choose or not choose a
particular service-provider, or to withhold or provide funds to a provider,
and if alternative providers have ways of replacing existing managers with
fresh management, then centralized power is held in check. That is the goal
of privatization.
The
first key to attaining the benefits of freedom is to know that freedom is far
more beneficial than totalitarianism. The second key to attaining freedom is
to know it when you see it. The third key is to know oppression and
totalitarianism when you see them.
Freedom
means untrammeled choice and association in all matters, great and small,
that do not harm others. It means a child can run a lemonade stand without
being forced to be licensed, inspected, having wages withheld, paying a
helper the minimum wage, meeting safety standards, labeling the lemonade
contents, or being open only certain hours. Oppression means every baby
having to have a Social Security number, being herded into a convention
center or stadium, kept there and left to die, and being severely
beaten for no good reason by a brutal customs agent.
Michael
S. Rozeff
Michael S. Rozeff is a retired Professor of Finance
living in East Amherst, New York. He publishes regularly his ideas and
analysis on www.LewRockwell.com .
Copyright © 2009 by LewRockwell.com. Permission
to reprint in whole or in part is gladly granted, provided full credit is
given.
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