All Commentary
Tuesday, July 1, 1986

The Ethics of Privatization

Dr. Tibor R. Machan is Professor of Philosophy at Auburn University, Auburn. Alabama, and Senior Fellow of the Reason Foundation and author, among other works, of Human Rights and Human Liberties. The book he edited for Random House, The Main Debate: Communism versus Capitalism, will appear in 1987.

      This essay is based on a talk delivered February 19, 1986, before a Symposium on Privatization organized by the International Chamber of Commerce and the Institut Economiqae de Paris, in Paris, France.

Without a firm moral defense, the move to privatize may founder.

Privatization springs from our Western liberal political vision, two-and-a-half centuries old. This vision conceives individuals and their voluntary institutions—churches, corporations, professional associations, labor unions, and the like—as the source of the values of civilization. The economy is capitalistic, based on the right to private property. The State is a supporting mechanism, as referees are to sporting events. The work of living and developing life’s values are tasks for free human beings. The State serves them when conflicts arise.

But this Western liberal vision has lacked a moral defense. It has had the backing of experience and common sense, and has led to greater prosperity than alternative visions. However, the righteousness of Western prosperity—that it is deserved, not in need of apology—is felt to be uncertain. Thus the system to which prosperity is linked by common sense—capitalism—is generally left undefended, constantly called into doubt, never praised as is socialism in various intellectual circles, despite socialism’s undeniable record of failure.

The relatively free portion of the globe could be even more prosperous, as the privatization movement has demonstrated. But again the case for this is made only pragmatically. Even the politicians are persuaded, temporarily, that the business of keeping nations reasonably wealthy should be left to the private sector. But because their belief rests on the view that making an economy more free will enhance the general welfare, there persists doubt about the more basic question: Is privatization a morally worthwhile, respectable idea?

The pragmatic case resting on successful production of riches is not the central defense of the West. Privatization itself must be embraced not merely as an efficient means to rescue economies but as a return to the West’s initial commitment to set people free of each other’s and their governments’ oppressive actions.

It is vital to understand the moral case for freedom and privatization also for the practical value of it. Privatization entails some upheavals for various people. What of the employment dislocation involved in privatization? Vested interests are not sitting by without protests and arguments invoking compassion and equity. They charge privatization advocates of thinking only of the bottom line, the financial concerns involved. Is that not ethically objectionable? Should some people be sacrificed to the advantages of privatization? Does not the state’s involvement ensure more concern with fairness and justice? Sometimes it is argued that removing some service from the sphere of the state will mean that only where a profit can be made will the service be available. Is it right to neglect those who may not help to make a profit for the private business that takes over the service?

The idea that freedom of enterprise might again attain public respectability instills fear in the hearts of many spokesmen in newspapers, magazines, books, and radio or television talk programs. And their skepticism—whether sincere or malicious—can be extremely debilitating, unless their arguments are faced by a morally sound defense. The only thing that can accomplish this is a confident and intelligent moral defense of privatization.

Free trade needs to be shown as a noble, not just useful, policy. If the newest aspect of capitalism, privatization, is to remain a sustained public policy in the non-communist world and manage eventually to attract the thawing Soviet bloc as well, it must be shown to be morally justified. To win men’s minds and souls, their concern with the basic question of whether some act or policy is consistent with how human beings ought to live their fives, in addition to efficiency considerations, must be addressed.


I will start with the elementary observation that commerce is an aspect of life by which men and women aim at improving their and their loved ones’ well-being here on earth. Commerce is the institutional expression of the virtue of prudence in human life. A prudent person takes care of his economic requirements. It probably will not be his main goal in life, and prudence is by no means the highest human virtue: But it’s clearly virtuous to attend to one’s economic existence. And it is thus proper, also, to have this attention develop into an institution among human beings within their variously sized communities.

Any effort then to thwart commerce is open to serious moral question. When done by force, however, there is no doubt that something evil is being done. Prudence is a genuine, bona fide human virtue in almost every major moral system on earth. Furthermore, in any bona fide moral system the freedom to choose between right and wrong is an essential ingredient in the moral life of a person. If not free, a person cannot be held morally responsible.

Of course, prudence is not the only virtue. Many others, such as courage, honor, honesty, justice, generosity, moderation, and the like, are of equal or higher moral significance. Yet those, too, can be practiced only in a genuine free society. The freer the society, the greater one’s opportunity to live in the way appropriate to a moral agent. The more the society allows some people to dictate to others how they must conduct themselves—including in the economic sphere—the more it limits human dignity, the range of a person’s sphere of individual responsibility.

But this is not all there is to the story. What we have is sound, but there is not enough moral punch to it: It is all true but not sufficiently inspiring. We need to point out that the kind of life associated with commerce is not just permissible, but often honorable, even noble. Adam Smith provided the clue in the following remarks:

Ancient moral philosophy proposed to investigate wherein consisted the happiness and perfection of a man, considered not only as an individual, but as the member of a family, of a state, and of the great society of mankind. In that philosophy the duties of human life were treated of as subservient to the happiness and perfection of human life. But when moral, as well as natural philosophy, came to be taught only as subservient to theology, the duties of human life were treated of as chiefly subservient to the happiness of a life to come. In the ancient philosophy the perfection of virtue was represented as necessarily productive to the person who possessed it, of the most perfect happiness in this life. In the modern philosophy it was frequently represented as almost always inconsistent with any degree of happiness in this life, and heaven was to be earned by penance and mortification, not by the liberal, generous, and spirited conduct of a man. By far the most important of all the different branches of philosophy became in this manner by far the most corrupted.

Smith’s remarks suggest that the ethics that supports capitalism and its current offspring, privatization, may be found in the U.S. Declaration of Independence. There the rights to life and liberty are linked with the right to the pursuit of happiness. To pursue human happiness in a diligent, conscientious, honest, and courageous manner, men and women everywhere require political and economic liberty. What must be stressed is, in Smith’s words, that “virtue [must be] necessarily productive to the person who possessed it, of the most perfect happiness in this life.”

That is the point of an ethical system, namely, to give a person meaningful, principled guidance in his life. And it is once such an ethics is identified that we learn it does not support socialism, fascism, communism, or some other collectivist system, but the free society with its legal system that protects freedom of thought, freedom of religion, freedom of trade, freedom of contract, and freedom of enterprise.

Economic Egoism?

Of course, capitalism has often been linked with the idea that men are selfish and that it is the only economic system that properly accommodates this fact. The cruder renditions of Adam Smith so interpret him. Most notably, of course, it was Karl Marx who linked the system of private property rights with callous selfishness, when he noted that “the right of man to property is the right to enjoy his possessions and dispose of the same arbitrarily, without regard for other men, independently from society, the right of selfishness.” And many modern economists, too, link the system with this kind of crude, narrow egoism which they have inherited from the English philosopher Thomas Hobbes. They often do this in a desperate effort to make capitalism scientific, to pretend that some pure, normatively neutral, value-free analysis commands us to choose the system.

But, the narrow economic idea of egoism is false: People do not in fact automatically seek out what is best for them—if it were only so, we would live in a wonderful world. Nor do they always know what is best for them—that too would be very helpful if it were so. Rather, people must work very hard to learn what is best for them and then try hard to obtain it. But this philosophy of humanist selfishness or individual happiness is something very different from what most people link with capitalism. It is demanding. Again, Adam Smith noted its nature quite clearly when he wrote that “It is not the love of our neighbour, it is not the love of mankind, which upon many occasions prompts us to the practice of . . . virtues. It is a stronger love, a more powerful affection, which generally takes place upon such an occasion, the love of what is honourable and noble, of the grandeur, and dignity, and superiority of our own character.” As Smith shows, a genuine concern for ourselves is a demanding and indeed noble pursuit. Our task in life is to seek human excellence.

Here we get a clue to the answers to the several moral questions generated by privatization. Free trade is a necessary requirement of a dignified human life. We cannot justify compromising it even for such good causes as employment security, guaranteed welfare, concern with the possibly neglected minority whom it may not be profitable to serve, and so on. Such a compromise may appear to be appealing when one considers only the plight of the few who do not immediately benefit from privatization. But when we realize that a political- economic system must serve the morality of individual self-development, not of self-sacrifice, then clearly privatization is on sound moral grounds and its detractors must attempt to solve the few problems associated with it without compromising it.

Defending the Free Society

It is those who are doing the work within the free sectors of the world, including the newly privatized regions, who must defend it in our time. We cannot count on intellectuals—most of whom live off the state and are convinced that the state is superior in its intentions and capabilities to the agents in the free market.

The defense of the free society, including its newest manifestation, privatization, must be conducted on the philosophical front first. It need not exclude mention of the material benefits such a system tends to bring to people in any society. But what is more important is that it affords the freedom for everyone to make moral choices in life, including one’s commercial endeavors, and that such choices are rightfully aimed at enhancing the welfare of the economic agents and those to whom they stand closest in society—family, friends, colleagues, neighbors, roughly in that order of importance.

Humanity is not some one body, one large person, whose welfare we must serve the way our livers and hearts serve the welfare of their owners. Humanity is you and me. If we are not free to do the most with ourselves, if we cannot be left to ourselves to seek human excellence in life, that task is not going to be achieved by anyone. Any contrary message rests on dreams, not on a clear awareness of the facts.

The privatization movement has a lot of promise and must go much further than it has already toward freeing up the economic lives of human beings. It should avoid promising panacea, however—it should not fall prey to the temptation of the utopians who think some system alone will solve all our societal problems. And most of all, the movement must stress its own moral legitimacy. Without that it will be a mere passing fancy.

  • Tibor R. Machan is an Emeritus Professor in the Department of Philosophy at Auburn University and formerly held the R. C. Hoiles Chair of Business Ethics and Free Enterprise at the Argyros School of Business & Economics at Chapman University.