The Limits of Privatization

The Clinton administration, believe it or not, wants to privatize a government function. No, not the mails, the parks, or the highways. Showing an unexpected faith in capitalism, the administration is preparing legislation that would allow private business to collect unpaid taxes.

Profit-driven private companies would, no doubt, do this more efficiently than lumbering government agencies. Even so, tax collection is one "service" that private enterprise should not provide. Or do we, for the first time in American history, want real Robber Barons?

The nature of business is persuasion and voluntarism, not force and fear. As a long history shows, when government recruits the private-sector to more efficiently maraud the people, the result is corruption and disaster. The President should read For Good and Evil: The Impact of Taxes on the Course of Civilization by Charles Adams. Private tax collection has been the ruin of many countries, and many politicians, in world history.

In 17th-century England, Charles II imposed a Hearth Tax, assessing two shillings per chimney in each house. To collect it, the King contracted out with private parties, empowering them to enter private homes at will.

The "Chimney Men" were ruthless and hated, and a ballad of the day expressed the popular attitude: "There is not one old dame in ten,/And search the nation through,/But, if you talk of chimney men/Will spare them a curse or two."

Hatred of the privately collected tax helped depose Charles's brother, James II. As soon as the new monarchs, William and Mary, were installed, the House of Commons abolished the tax, ending a "badge of slavery upon the whole people" that allowed "every man's house to be entered and searched at the pleasure of persons unknown to him."

The practice of private tax collection, or "tax farming," dates back at least to ancient Greece. When longs raised taxes, and had trouble collecting them, they hired private enterprise to do it. The taxmen were, of course, cruel, dishonest, sometimes violent, and always despised. "Every door now trembles at the tax-farmers," wrote a lady from Cos.

Alexander the "Great" exported the practice, and when his satrap Ptolemy founded his own dynasty in Egypt, he too institutionalized tax farming. Collectors guaranteed a certain amount of taxes to the state, swearing to get every last obol or make up the difference themselves.

When the Ptolemaic government awarded tax contracts, it was the commercial event of the year. And over time, the collectors erected an elaborate administration based on intimidation, threats, and plunder. Tax evasion became virtually impossible.

When the peasants couldn't pay, the privatized tax collectors extended credit, and then charged exorbitant rates of interest, giving this legitimate market institution the sinister cast of "usury." Men abandoned families and farms, and allowed crucial dikes to fall into disrepair. Others went to tax-debtors prison.

The private tax collectors were a plague of locusts for Egypt, and their depredations led to a civil war, which ended only when Ptolemy V issued a general amnesty for tax rebels and tax debtors. The Rosetta Stone of 200 B.C. was erected to publicize the "Proclamation of Peace."

Tax farming brutalized pre-Revolutionary France as well. The ancien regime sold tax-collection contracts to private parties, who paid a fixed sum immediately, usually 10%, for the right to extract. That gave the government fast cash and a firm assurance of more to come.

French tax farmers organized themselves into corporations, issued paper money in lieu of taxes, and marketed them to the government as bonds. To maintain their high value, tax farmers became almost a government unto themselves, suppressing tax revolts and shaking down peasants for every last sou.

The French court paid the price for this during the Reign of Terror. Some parts of the terror were more terrible than others, however. In an early version of Proposition 13, the people rounded up the tax farmers, tried them in people's courts, and condemned them to death. As heads tumbled, the taxpayers cheered.

As a result, the revolutionary government abolished tax farming, and, to this day, France prohibits private companies from collecting taxes.

Capitalism is a productive, efficient, and powerful organizer of human energies. But there are some things capitalism should not do.

This also shows us that while privatization is a useful political strategy, it is not a first principle of government. For one thing, it begs the question of what a free society should allow in the first place. We should no more privatize Treasury Department functions than those of the Federal Reserve System. It is important to advocate the abolition of agencies that are inherently illegitimate, as it is the privatization of such proper services as garbage collection.

As regards taxes, if government is going to raise them, the least it can do is assume the responsibility, and the blame, for collecting them. In bringing back tax farming, the Clinton administration should pray it is the exception to a long history of disasters. Or is that the sound of a whetstone on a guillotine blade that I hear in the distance?