The Business of Government

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In the midst
of nationwide prosperity, some economic and social problems keep
nagging at the public. All over the country, they take the same
form. What are they? Traffic congestion, inadequate roads, overcrowded
schools, juvenile delinquency, water shortages. Such matters have
proven troublesome in many ways; above all, they seem to breed conflicts.

Fierce battles
are raging between warring groups of Americans. Some want "progressive"
education; others want varying blends of the traditional. Some want
socialism taught in the schools; others favor free enterprise. Some
want religion in the schools, and others proclaim separation of
Church and State. Some Americans want water fluoridated, and others
want it unmedicated.

Is there anything
special about water or schooling that creates insoluble problems?
How does it happen that there are no fierce arguments over what
kind of steel or autos to produce, no battles over the kind of newspapers
to print? The answer: There is something special – for the
problems of schooling and water supply are examples of what happens
when government, instead of private enterprise, operates a business.

Have you ever
heard of a private firm proposing to "solve" a shortage
of the product it sells by telling people to buy less? Certainly
not. Private firms welcome customers, and expand when their product
is in heavy demand thus servicing and benefiting their customers
as well as themselves. It is only government that "solves"
the traffic problem on its streets by forcing trucks (or private
cars or buses) off the road. According to that principle, the "ideal"
solution to traffic congestion is to outlaw all vehicles! And yet,
such are the suggestions one comes to expect under government management.

Is there traffic
congestion? Ban all cars! Water shortage? Drink less water! Postal
deficit? Cut mail deliveries to one a day! Crime in urban areas?
Impose curfews! No private supplier could long stay in business
if he thus reacted to the wishes of customers. But when government
is the supplier, instead of being guided by what the customer wants,
it directs him to do with less or do without. While the motto of
private enterprise is "the customer is always right,"
the slogan of government is "the public be damned!"

Conflicts and
bitterness are inherent in government operation. Imagine what would
happen if all newspapers were published by government. First, because
a government operation gets its revenues from coercive taxation
instead of voluntary payment for services rendered, it is not obliged
to be efficient in serving the consumer. And, second, conflicts
among groups of taxpayers would rage over editorial policy, news
content, and even tabloid versus regular size. "Rightists,"
"leftists," "middle-of-the-roaders," each forced
to pay for the paper, would naturally try to govern its policy.

On the free
market, in contrast, each group finances and supports its own preferred
product, whether newspaper, school, or package of baby food. Socialists,
free enterprisers, progressives, traditionalists, gossip-lovers,
and chess-lovers, all find schools, papers, or magazines that meet
their needs. Preferences are given free rein, and no one is compelled
to take an unwanted product. Every political preference, every variety
of taste, is satisfied. Instead of a majority or the politically
powerful tyrannizing over a minority, every individual may have
as much as he can afford of precisely what he wants.

The standard
government reply to charges of inefficiency or shortage is to blame
the public: "Taxpayers won’t give us more money!" The
public literally has to be forced to hand over more tax money for
highways, schools, and the like. Yet, here again, the question arises:
"Why doesn’t private enterprise have these problems?"
Why don’t TV firms or steel companies have trouble finding capital
for expansion? Because consumers pay for steel and television sets,
and savers, as a result, can make money by investing in those businesses.

 

 

The
Rothbard Collection

 
 

Firms that
successfully serve the public find it easy to obtain capital for
expansion; unsuccessful, inefficient firms of course go out of business.
In government, there are no profits for investors and no penalty
charged against the inefficient operator. No one invests, therefore,
and no one can ensure that successful plants expand and unsuccessful
ones disappear. These are some of the reasons why the government
must raise its "capital" by literally conscripting it.

Many people
think these problems could be solved if only "government were
run like a business." And so they advocate jacking up postal
charges until the Post Office is "run at a profit." Of
course, the users would be taking some of the burden off the taxpayers.
But there are fatal flaws in this idea of government-as-a-business.
In the first place, a government service can never be run
as a business, because the capital is conscripted from the
taxpayer. There is no way of avoiding that. (Finance by bond issue
still rests on the power of taxation to redeem the bonds.) Secondly,
private enterprise gains a profit by cutting costs as much as it
can.

Government
need not cut costs; it can either cut its service or simply raise
prices. Government service is always a monopoly or semi-monopoly.
Sometimes, as in the case of the Post Office, it is a compulsory
monopoly – all competition is outlawed. If not outlawed, private
competition is strangled by taxes to cover the operating deficits
and raise capital for tax-exempt government operation.

There is another
critical problem in government operation of business. Private firms
are models of efficiency largely because the free market establishes
prices which permit them to calculate, which they must do
in order to make profits and avoid losses. Thus, free "capitalism"
tends to set prices in such a way that goods are properly allocated
among all the intricate branches and areas of production that make
up the modern economy.

Capitalist
profit-and-loss calculation makes this marvel possible – and
without central planning by one agency. In fact, central planners,
being deprived of accurate pricing, could not calculate,
and so could not maintain a modern mass-production economy. In short,
they could not plan.

There
is no way to gauge the success of a product that the customers are
compelled to buy. And every time government enters a business, it
distorts pricing a little more, and skews calculation. In short,
a government business introduces a disruptive island of calculational
chaos into the economic system.

No wonder,
then, that our economic problems center in government enterprises.
Government ownership breeds insoluble conflicts, inevitable inefficiency,
and breakdown of living standards. Private ownership brings peace,
mutual harmony, great efficiency, and notable improvements in standards
of living.

This article
was first published in The
Freeman
in September 1956.

Murray
N. Rothbard
(1926–1995) was the author of Man,
Economy, and State
, Conceived
in Liberty
, What
Has Government Done to Our Money
, For
a New Liberty
, The
Case Against the Fed
, and many
other books and articles
. He was
also the editor – with Lew Rockwell – of The
Rothbard-Rockwell Report
.

Murray
Rothbard Archives

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