All Commentary
Thursday, March 15, 2018

You’d Be Surprised How Many Government Services Could Be Privately Provided

The vast majority of things deemed "public goods" and thus must be provided by government simply, well, aren't.

One of the great controversies in modern society concerns the necessary and required functions of government. There are few who disagree that if government is to exist then it certainly has the duty and responsibility to secure and protect essential rights of every individual, including the right to life, liberty, and honestly acquired property. But there are a wide variety of tasks that the private sector could better provide that many think must be supplied by the government.

Many of these activities have been subsumed under the general notion of “public goods” that are subject to “free rider” problems. Public goods are often defined as a good or service from the use or coverage of which an individual may receive a benefit, but from which he is not easily excluded even though he does not pay a price or fee to help cover some portion of the cost of making it available.

Free Riders and Public Goods

This creates the problem, it is argued, of an individual choosing to take a “free ride,” that is, not voluntarily contributing to cover the cost of the good or service from which he benefits. The argument is that less of this good or service may be supplied than might otherwise be the case if all beneficiaries were required to pay for some part of its costs of production.

Virtually all of them can be marketed with little or no free rider problems or would be in the self-interest of some market participants to supply free of charge.

The standard example almost always given is national defense. How can any individual be successfully excluded from an anti-missile defense system that provides umbrella coverage to everyone within the territory of a country, whether or not any particular person has voluntarily contributed to pay for it? Hence, the case is made for compulsory payment in the form of taxation. (See my article, “Public Goods, National Defense and Central Planning”.)

But whatever may or may not be the merits of the case for national defense as a “public good,” as so defined, there are many other goods that are argued to be in the same category, and thus also requiring government provision through taxation. This is often said to be the case with infrastructure and community conveniences and amenities such as roads, bridges, parks, street lighting, and neighborhood recreational areas, as well as town or city planning in general.

Yet, the fact is that very few, if any, of these need to be thought of in this way. Indeed, virtually all of them can be marketed with little or no free rider problems or would be in the self-interest of some market participants to supply free of charge.

Misguided and Undesirable Urban Planning

Let us start with the widest of these presumptions, which takes for granted the necessity of town or city planning. A well-ordered and designed community, it is said, serves the interest of all who are or who may come to live within its environs. Yet, there is no certainty of individual or group interest to voluntarily layout and follow a prior plan before the development of an urban area.

Street grids need to be laid out, zoning ordinances must delimit where residential housing will be built, industrial or manufacturing facilities will be constructed, shopping and entertainment services are to be located, and recreational or “green” areas are to be set aside and preserved.

How can these planners know years, or even sometimes decades, ahead what types of neighborhoods and communities people may find more useful?

The question is, why? This presumes that the urban designers, planners, and implementers know way ahead of time where the current or future residents in these communities would find it most attractive and useful to live, work, and enjoy life. To use the phrase with which F. A. Hayek entitled his Nobel lecture in 1974, this involves a great “pretense of knowledge” on the part of the urban and rural planners.

How can these planners know years, or even sometimes decades, ahead what types of neighborhoods and communities people may find more useful, convenient, and serviceable for their needs, values, and circumstances? Instead, infrastructure and the outlay of communities should reflect and follow where and how people wish to live, work, and travel. It should not confine and straightjacket people to the planner’s arrogant conception of how he thinks people should live their lives in multiple layers and interconnections with others.

Communities as Spontaneous Orders

Some notable authors on this theme, especially Jane Jacobs (1916-2006) in her various studies of city life, highlighted again and again that localized neighborhood communities within towns and cities historically reflected the circumstances of the people, themselves. The seeming “chaos” and disorder of people working, living, and shopping all in the same place with apartments above retailing and small manufacturing enterprises on the ground floors of buildings, and children playing on the streets under the watchful eye of parents or grandparents looking out their apartment windows, in fact, made life easier, cheaper, and safer. It created degrees of neighborhood cohesion that often is not seen in the planned communities of the urban designers’ dreams.

This is just another form of the same “invisible hand” process that various economists highlight.

Also, communities change their membership as individuals and groups move up the income ladder or are able to take advantage of employment opportunities in other places. This, too, means that communities within towns and cities need the flexibility over time to reflect the values, needs, and circumstances of their new residents. The rigidity of urban planning and zoning laws restrict the capacity for this adaptability to changing times and people.

The apparent disorder and chaos of urban and other areas not created according to central or regional plans may create discomfort and confusion for the city planners, but it represents the patterns, structures, and arrangements of the spontaneous order of a free society. This is just another form of the same “invisible hand” process that various economists highlight when they emphasize emerging market order without central intentional design.

Private Thoroughfares vs. Road Socialism

That so many of us have become used to “road socialism” does not mean that the private sector could not work here as elsewhere.

The same applies to thoroughfares. Roads, streets, and highways should be built and shifted and “modernized” over time to reflect where people want to go. But how could markets provide roads, streets, or highways? Are these not “public goods” requiring the guiding, planning, and taxing hand of government?

To begin, toll roads by both government and the private sector have long histories in both Europe and the United States. The fact that so many of us have become used to and take for granted “road socialism” (to use the phrase of the American 19th-century economist, Francis A. Walker) does not mean that the private sector and the profit motive could not work here as elsewhere in society. Nor need there be the presumed inconvenience of frequent stops and slowdowns to go through toll booths.

Many of us have driven on highways that are toll roads in certain states around the country. Sensors on these highways read the electronic “passes” attached to the front windshield of automobiles and simply automatically deduct the charges similar to a bank debit card. For instance, through the northeast corridor of some mid-Atlantic and New England states is a shared “EasyPass” that the different states’ highway sensors mutually respect and recognize.

This “smart” technology helps demonstrate that roads and highways are easily able to charge those using the common thoroughfares. As one observer has pointed out:

“The private roads that exist now have fewer accidents than public roads, probably in part because they’re better maintained: If private road builders let potholes remain, get reputations for high accident rates, or do repairs during rush hour, they have to deal with complaints and with people choosing other roads.

“Pollution and pollution controls on automobiles would also be handled by road privatization. If auto pollution were to grow too thick, people living near the offending roads would sue the biggest, most obvious target: the road owners. Road owners would therefore charge higher fees for cars without up-to-date inspection stickers.”

Roads and Parking Areas Intentionally Made for Free Riders

In addition, there would be many instances in which land developers would see the profitable gain from supplying and maintain roads at no charge to the users. Go to any enclosed or open shopping mall. There is often a large parking lot surrounding it, with one or more access roads leading to the main, nearby thoroughfares.

The free rider cost is more than worth the revenue-generating benefit.

These are usually provided with no parking fees precisely because the company or corporation owning and operating the shopping mall want customers to come on to their property and have easy access to the mall facilities. The more people finding it easy and safe to come do their shopping on their property, the more attractive the rental units are inside the mall and, therefore, the willingly paid occupancy fees by the retail businesses who want their stores in that mall.

Many of these malls are entertainment centers all their own. They are well maintained, designed to be aesthetically attractive, and offer holiday festivities to customers at no charge. “Free riders” who enter the mall at no cost, who may simply walk around, or sit on one of the mall walkway benches, and spend the time listening to music, reading a book, or text messaging to friends, and not buy a thing, does not inhibit the mall owners from making it “open to the public” and free of charge.

For every free rider, there are many others who actually shop and generate revenues for the retail outlets and the mall owners. The free rider cost is more than worth the revenue-generating benefit.

Downtowns, Condos, and Housing Associations

Similarly, “downtown” areas with hotels, restaurants, shops, and apartment units could and, no doubt, would form their own owner and renter associations for the providing of related infrastructure, including streets, lighting, parking, and cleaning services in their mutual self-interests, if government no longer was considered to have tax-based responsibility for the provision of many of them.

Everything from streetlights to tree and shrubbery care is widely provided, and even when visiting free riders are able to enjoy many of these amenities.

We see this is in condominiums or gated communities. The developers and maintainers of the facilities have profit-making incentives for supplying common-area amenities and conveniences precisely because it makes residence in these areas more attractive and higher valued for owners and rental residents.

Homeowner associations that are not “gated” are the complement to this, with residents paying fees in the areas and communities in which they live as part of the contractual agreement in purchasing a house in that neighborhood. Everything from streetlights, parks, recreational facilities, walking and biking paths, and doggy poop bag disposal bins, to tree and shrubbery care in the “public” areas, is widely provided, even when visiting free riders are able to enjoy many of these amenities, all at the expense of others.

Much Smaller Government in the Society of the Future

My purpose has been to briefly bring attention to a few of the non-governmental possibilities in areas of everyday life in which it is presumed that it is necessary for government to provide these services or goods at taxpayers’ expense because it is assumed that they fit some form of the “public goods” category when, in fact, they need not or do not.

In a truly free society, the scope of government easily can be reduced to a much smaller domain than even many friends of freedom often think.

Some things presumed to be “non-excludable” for many users, in fact, can be privatized and offered for a price. At the same time, the world abounds with “free riders,” from the person who attends a church service but puts nothing into the collection plate when it is passed around to the individual who sits in a shopping mall to get out of the summer heat and whiles away some free time without buying anything in any of the stores.

Normally, churches want to attract free riders as part of their outreach to non-believers at the expense of the parishioners who have voluntarily contributed to the religious organization’s activities. And many in the private sector offer access to and use of “free” goods as part of the operating costs of attracting customers from whom they hope to directly or indirectly earn profits.

Whatever may or may not be the functions of government, the market and the associations of civil society could easily and, no doubt, far more cost-effectively and efficiently provide a large number of these “public goods” and common area conveniences, rather than being dependent upon any tax-funded government to have them supplied. In a truly free society, the scope of government easily can be reduced to a much smaller domain than even many friends of freedom often think.

  • Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.