All Commentary
Thursday, June 1, 1989

Monopoly Government

Dr. DiLorenzo is the Scott L. Probasco, Jr., Professor of Free Enterprise at the University of Tennessee at Chattanooga. This article is partly adapted from his book, coauthored with James T. Bennett; Unfair Competition: The Profits of Nonprofits (Hamilton Press, 1988).

In theory, the goods and services provided by federal, state, and local governments are public goods—goods that will not be provided in adequate quantities by the market system because of “market failure.” But in reality, most of the goods and services provided by governments are private goods. Governments in the U.S. provide literally thousands of goods and services in direct competition with private businesses.

Governments, however, compete unfairly. They enjoy exemption from Federal, state and local income, sales, and property taxes and immunity from minimum wage, securities, bankruptcy, antitrust, and myriad other regulations. Government enterprises can also exercise the power of eminent domain and borrow at interest rates considerably below those paid by their taxpaying competitors (especially small firms) because of tax-exempt interest payments. Their capital and operating costs are subsidized by tax revenues and, perhaps most importantly, they are often granted monopoly status by law. Thus, competition between private businesses and government enterprises is unfair.

Unfair Competition by Federal Government Enterprises

The federal government provides what many consider to be public goods, such as national defense and the justice system, but it also provides thousands of purely private goods and services. Former Senator S.I. Hayakawa of California stated in 1981: “Federal employees are currently operating over 11,000 commercial or industrial activities that the private sector also performs. . . .”[1] The Senator added: “Since the business of government is not to be in business, I ask myself why.”

The reason probably has something to do with the desire to supplement agency budgets with commercial profits. Federal agencies enter businesses as mundane as laundry work and as sophisticated as engineering and computer programming. Such services are also provided by private firms.

As one example of unfair competition by government, consider the Federal publishing business. Although much government printing consists of publishing congressional hearings, executive branch memoranda, IRS tax forms, and other tools of running the government, much of it is commercial and, therefore, competes unfairly with private printers. The Government Printing Office (GPO) is the largest Federal publishing facility. According to the director of the GPO: “We have . . . 33 acres under our roof, 6,200 employees, of which over 5,000 . . . are in the main plants . . . and well over 100 presses . . . .

We are probably the largest . . . printer in the United States.” There are also ”more than 300 printing plants located in many government agencies.”[2]

Even a cursory look at the GPO’s monthly catalog of publications reveals that the federal government competes on a large scale with private publishing companies. Consider the following examples from the January 1987 catalog. The Backyard Mechanic “can help you save money by doing simple auto repair and maintenance jobs yourself” and “discusses ignition systems and spark plugs and guides you through a tuneup, a brake relining, a brake system flushing and bleeding, a power-brake check . . . .” and so on.

Oddly enough, the debt-ridden federal government claims expertise in financial management. In Managing for Profits readers are instructed in “production and marketing, purchasing and collections, financial management, taxation, insurance, and more.” Also in the financial planning area is Starting and Managing a Business of Your Own. Insurance and Risk Management for Small Business “provides basic information in selecting insurance and in reducing risk for the small businessman.” The GPO also publishes advice to the individual investor in A Guide to Individual Retirement Accounts, which discusses “the various savings and investment vehicles available.”

The federal government may be notorious for producing barely comprehensible laws, regulations, and forms, but it offers published advice on How Plain English Works for Business: “twelve case studies describe how some business organizations have scored success by simplifying consumer documents.”

One of the biggest areas of commercial book sales has been health and fitness, including diet and exercise books. The federal government competes in this market with such publications as Dietary Guidelines and Your Diet, which advises people to “maintain desirable weight; avoid too much fat; avoid too much sugar; and if you drink alcoholic beverages, do so in moderation.” The federal government competes with the flourishing cookbook industry by publishing hundreds of cookbooks, including Country Catfish, which “describes 18 ways to serve them” and exhorts that “Catfish are great—either plain or fancy.” Getting Fit Your Way provides consumers with “a total physical fitness program” and also “contains information on weight control and how to stop smoking.” The GPO produces more than 18,000 publications, including all these books and thousands more that compete with commercial publishers. And they compete at a considerable advantage because of taxpayer subsidies and other benefits. Taxpayers pay for both the production of books and pamphlets and for the marketing as well. The GPO proudly boasts: “In addition to our mail order service, we [the GPO] maintain a nationwide network of Government bookstores.”[3]

Unfair Competition by State and Local Governments

State and local government enterprises provide few goods and services that are not private goods. At the local level of government the major category of expenditure is education, even though education is not a public good. Private schools existed long before public schools were established in the U.S., and they still proliferate despite the competitive disadvantages they face.

At one time, there was a pretense that public schools provided a uniform education to everyone, but the great disparities that are apparent in the quality of public schools have abolished that myth. Supporters also argued that morality could be better taught in public schools, but many parents are concerned about the lack of morality taught in public schools, while others believe that teaching morality violates the constitutional separation of church and state, Public education is also said to increase worker productivity through skill enhancement, but that, too, is questionable in light of the decades-long decline in educational achievement in primary and secondary education. Private schools, by contrast, have demonstrated superior quality education despite fewer financial resources.

Moreover, the mere fact that education may increase worker productivity does not justify governmental provision of education. In fact, the opposite may be closer to the truth. If one wishes to increase worker productivity through education, the appropriate direction should be in favor of private provision of education, not public provision, given the superior quality of private schools. Thus, the reason why local governments nearly monopolize the primary and secondary education industry is not likely to have much to do with “market failure.”

There are services provided by both local governments and the private sector. Local governments are involved in many private activities, including garbage collection, tree trimming, transportation, day care, and housing. The mere existence of private sector firms in all these categories is direct evidence that they are inherently not public goods, but private goods.

It would appear that there is no economic justification for governmental provision of any of these services. The most likely explanation for governmental provision is the natural inclination among government bureaucracies to expand their domain by whatever means possible. Competing with private business is apparently an expeditious way of doing this, given that local governments have the taxing, spending, and regulatory power to do so. By using tax revenues to subsidize local government enterprises and imposing costly taxes and regulations on private sector competitors, local governments can easily dominate many industries.

State governments also are guilty of usurping the domain of the private sector. States spend vast amounts of money on education, highways, hospitals and health care, parks and recreation, liquor stores, and utilities—all private goods.

New York, for example, runs a transportation business, operates museums, constructs “industrial exhibits,” operates sports arenas, builds parks and other recreational facilities, finances home mortgages, and many other activities. Other states are involved in the same activities.

So why does government have its hand in all these commercial enterprises? It is certainly not because the market has “failed.” A more likely explanation is that government is the monopolist par excellence. By subsidizing its own enterprises and taxing and regulating its private competitors it can drive them from the market. Many other private businesses will not even become established in the first place. That’s why privatization of “public” services is more than just a means of cutting the cost of public service provision. It is a genuine anti-monopoly policy.

For nearly a century antitrust policies have been used to persecute private “monopolies,” but the real monopoly problem lies in government itself. The government’s so-called antitrust policies are only a smokescreen. Under the guise of fighting private-sector monopolies, government draws attention away from the real monopoly problem in America—monopoly government.

One of the reasons the American revolution was fought was to escape the economic tyranny of King George, who had implemented a system of British government monopolies to fleece the colonists. That’s why the privatization movement might properly be labeled the second American revolution. []

1.   Senator S. I. Hayakawa, Statement on “Government Competition with Small Business,” Hearings of U.S. Senate Committee on Small Business, Subcommittee on Advocacy (Washington, D.C.: U.S. Government Printing Office, June 24,1981), p. 1.

2.   Statement by Danford L. Sawyer, Head of the U.S. Government Printing Office, Hearings Before the House Appropriations Committee, 97th Congress, 2nd Session, 1983, p. 14.

3.   Ibid.