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Friday, August 25, 2006

Double Standard

When the market (apparently) fails, choruses immediately sing out for a government takeover of the particular function. When government fails, do we ever hear calls for a takeover by the competitive sector? Almost never.

Government departments routinely fail to achieve their stated goals. (Forty years and many trillions of dollars into the war on poverty, and poverty's not yet been licked. How many more years? How many more trillions?) Departments can't even keep track of their own budgets. The Pentagon misplaces billions the way the rest of us misplace our keys. The FBI has spent hundreds of millions of dollars on a new computer system that is such a turkey that agents still use paper files. This sort of thing is the rule, not the exception.

When the government abuses the taxpayers, it is rewarded with more of their money. When a private firm (usually knee-deep in government privileges) abuses consumers, employees, or stockholders, congressmen scurry not to get rid of the government-provided immunities, but to sponsor new regulations.

I was going to use this phenomenon to identify and indict a double standard, one for government action, another for private action. But then I realized that this is not what's wrong here. The problem is not that a double standard is used but that it is used inappropriately.

In principle, government action and private action should be judged by different standards — because they are different. And because they are different, our response to results we don't like from the respective spheres also should be different. Our tolerance for unwanted government outcomes should be much less than our tolerance for unwanted market outcomes.

Nothing else is like the government. It and only it may legally use physical force (or threaten its use) against peaceful people who have harmed no one. If any of the rest of us try this, we're in trouble. Like it or not, this is the defining characteristic of the state.

When government does something that has undesirable results, we have reason to be alarmed. Why? Because we have no choice but to surrender resources to it — the IRS doesn't take no thanks for an answer. This creates a dynamic unique in any society. A group that obtains its revenue without first having to win the consent of the people who provide it can be counted on to act differently from one that must persuade its customers to part with their money in return for valuable goods or services. The former group's sense of responsiveness is likely to be (how should I put it?) nil. Or close to it. Sure, we have elections on a set schedule, but marking a ballot is a weak form of clout compared to taking your money elsewhere without notice. If you're unhappy with a particular bureaucracy, whom exactly do you vote out of office with your one vote? You know what to do if the corner grocer sells you sour milk. Your action in that case is decisive, unlike your response in the political realm. In most cases, you can't even sue the government without its permission.

This only scratches the surface of the perverse incentives that accompany government. Once the state can acquire wealth by force, the political bazaar is open for business and the class conflict between tax producers and tax consumers is clear. As the perspicacious H. L. Mencken put it, Every election is a sort of advance auction sale of stolen goods.

In contrast, people restricted to consensual transactions face constructive incentives that advance the general welfare by enabling everyone to pursue his or her own preferences. Through the logic of entrepreneurial action in this voluntary setting, undesirable results generate better alternatives. The key is to bar the use of aggressive force so that competition remains free — no privileges for anyone.

One reason to abhor today's corporate state is that it makes companies more like governments. The form is unchanged, but under the surface state coercion has been added. For example, one can cease to patronize a subsidized firm as a customer while still being forced to support it as a taxpayer.

Two Forms of Cynicism

Thomas Frank, author of One Market Under God and other books, sees things differently. This week in the New York Times ($$), Frank criticized people he thinks oppose activist government. (He calls these people conservatives, so I can only wonder which country he lives in. He seems to believe that Jack Abramoff is a champion of laissez faire.) Frank says that such people see two kinds of cynicism today, a bad kind and a good kind.

The bad kind, according to Frank, is defined in the business world as doubt about the benevolence of market forces. I can't dwell on this, but really, it deserves comment.

Contrary to Frank's assertion, business people generally have been the last to see benevolence in unfettered market forces. They have long been eager promoters of activist government as a way to stabilize unruly markets, that is, to protect their market share from upstart competitors. To pick one episode of many, the corporate elite pushed for what became the Federal Trade Commission (FTC) in 1914. The officers of the largest companies wanted a counterpart to the Interstate Commerce Commission, a government entity that would exercise control even as to prices, said J. P. Morgan associate and U.S. Steel chairman Elbert H. Gary. He told a congressional committee, I would be very glad if we knew exactly where we stand, if we could be freed from danger, trouble and criticism by the public. He wanted to be able to approach a responsible government authority, and say to them, 'Here are our facts and figures . . . now you tell us what we have the right to do and what prices we have the right to change. This was a sure way to protect his company from competitors; the marketplace offered no such protection. (Source: James Weinstein, The Corporate Ideal in the Liberal State: 1900-1918, p. 84.)

The FTC was opposed by the National Association of Manufacturers (NAM), an organization of smaller firms. But to conclude that the NAM wanted laissez faire instead would be hasty. On the contrary, it wanted vigorous enforcement of absolutist antitrust laws against its larger competitors. The 1911 Standard Oil antitrust case had created a quandary for business. Although the case went against Standard Oil, the Supreme Court accepted the principle that big was not necessarily bad. But if companies had to wait until the courts sorted Bad Big from Good Big, life would be highly uncertain. For most businessmen, that left only two alternatives: the NAM approach, which condemned anything big, and the corporate elite's approach, which sought advance certainty from a trade commission that would let businessmen know, in Perkins's words, where we stand?

Who of prominence in the business world wanted laissez faire? No one.

Liberating Possibilities

The other, good kind of cynicism Frank identifies is aimed at government, whose helpful or liberating possibilities are to be derided whenever the opportunity presents. Of course, Frank begs the question when he describes government as helpful or liberating. That is what's in dispute.

Government is run by human beings who are indistinguishable from other human beings except that they have physical force at their disposal. So Frank and others like him are obliged at least to explain how threatening force against non-aggressors can be helpful or liberating. Libertarians and voluntarists have been asking this question for a good long time. We're still awaiting the answer.

Besides that, Frank ought to tell us what becomes of the ideal of equality if one group (the political class) may subordinate others (the taxpayers) to its own ends. (See For Equality; Against Privilege.)

Just to indicate the extent of Frank's confusion, here's what he thinks has come from turning government over to people who allegedly don't like government: the auctioning-off of public policy in a manner we have not seen since the last full-blown antigovernment regime held office, in the 1920's. Agencies and commissions are brazenly turned over to campaign contributors; high-ranking officers of Congress throw grander and gaudier fund-raisers even after being arraigned; well-connected middlemen sell access for unprecedented amounts.

I'd have expected people who really dislike government to, well, abolish agencies and functions, not turn them over to their cronies. What would those folks have done if they really liked government?

Frank seems thrown off by the fact that although there are indeed left and right wings of the ruling establishment, they both are committed to a corporate state that attempts to guide the economy, however ineptly, in predetermined directions. The left wants more direct government control, the right more contracting out. But this is purely an internecine squabble over details. Both sides are committed to corporatism and opposed to unruly free competition.

Frank's great fear now is that this alleged cynicism about government will lead to public disillusionment with the political system. Not bloody likely, but one can hope.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.