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Imprimis, On Line -- October, 1993
IMPRIMIS (im-pr¡-mis), taking its name from the Latin
term, "in the first place," is the publication of
Hillsdale College. Executive Editor, Ronald L.
Trowbridge; Managing Editor, Lissa Roche; Assistant,
Patricia A. DuBois. Illustrations by Tom Curtis. The
opinions expressed in IMPRIMIS may be, but are not
necessarily, the views of Hillsdale College and its
External Programs division. Copyright _ 1993.
Permission to reprint in whole or part is hereby
granted, provided a version of the following credit
line is used: "Reprinted by permission from IMPRIMIS,
the monthly journal of Hillsdale College." Subscription
free upon request. ISSN 0277-8432. Circulation 480,000
worldwide, established 1972. IMPRIMIS trademark
registered in U.S. Patent and Trade Office #1563325.
For more information on free print subscriptions or
back issues, call 1-800-437-2268, or 1-517-439-1524,
ext. 2319, or write Imprimis, Hillsdale College,
Hillsdale, MI 49242.
---------------------------------------------
"Private Sector Solutions to Public Sector Problems"
by Barry Asmus, Senior Economixt
National Center for Policy Analysis
---------------------------------------------
Volume 22, Number 10
Hillsdale College, Hillsdale, Michigan 49242
October 1993
---------------------------------------------
Preview: Barry Asmus argues that public sector
"solutions" have done more harm than good in our
society and that it is high time to restore the freedom
of the marketplace. This essay is based on his remarks
at Hillsdale's Shavano Institute for National
Leadership seminar, "American Perestroika: Returning
Public Services to the Private Sector" on May 24-25,
1993 in Atlanta, Georgia.
---------------------------------------------
Let's play a "what if" game about public spending for a
moment. What if our politicians had said back in 1965:
"We won't spend a dime on welfare for the next three
decades, but in the early 1990s, we will take the money
we would have spent and buy every Fortune 500 company
and every piece of farm land in America. Then we will
deed these companies and farms over to the poor." That
is exactly what politicians could have done with the
money--about $3.5 trillion--that they have spent on
welfare since 1965. If they had, what would the problem
of poverty be like today? Would there be tens of
thousands of Americans who are members of a "permanent
underclass" and millions more who qualify as "working
poor?"
What if our politicians had said back then:
"Instead of spending 14 percent of the GDP--about $840
billion in 1992--on health care, much of it subsidized
government spending, we will promote free market
solutions," that is, health care costs paid by the
consumer instead of government and other third parties.
Would there be any support today for socialized
medicine, for price controls on provider fees and
charges, or for adopting what is basically a Third
World model for U.S. health care?
What if they had also said: "Instead of spending
more money than any nation on earth on centralized,
government-run primary and secondary education--
currently more than $200 billion a year or almost
$6,000 per pupil--we will strengthen the private,
locally-supported schools that were once the backbone
of education in the country." Would 40 percent of all
high schoolers today be functionally illiterate or
reading below the 8th grade level? Would one-quarter of
them be dropping out?
This "game" has a very serious purpose: It shows
how much our dependence on politicians and public
sector solutions has cost us and how little it has
achieved. Schemes of top-down economic coordination are
a hopeless absurdity whether tried by the U.S. or the
former Soviet Union.
The Essence of Modern Politics
The "public choice" school of economics explains why
government solutions to economic problems inevitably
fail. First, politicians don't spend our money as
carefully as if it were their own. Second, in contrast
to the private business firm, the public agency has no
bottom line. Prices, wages, interest, profits are not a
part of the government calculus. The politician has all
sorts of incentives to spend more of our money to "do
good" (there is no end to what do-gooders will do with
other people's money). It is important that they "care"
about a perceived public crisis and "bring home the
bacon" to constituents, so as to increase their own
political power and influence.
Finally, politicians are motivated to localize
benefits and defuse costs. For instance, a few
Congressmen can get together in committee and agree to
award sugar beet farmers in their districts a whopping
$1 or $2 billion in subsidies and price supports in
exchange for electoral support, knowing full well that
since it costs only a few dollars per taxpayer, no one
will protest. Every Congressman has supporters who are
quite willing to steal from the many to benefit
themselves. The Congressman gets re-elected and special
interests vow their continued support.
Today, government at all levels is spending about
$2.3 trillion of our money every year, in contrast to
the $678 billion, adjusted for inflation, in 1965. Yet
we still have the same problems and they are, if
anything, worse. Why? It is not because politicians are
spending too little. It is because there are inherent
flaws in government as a delivery system. When the
consumer "purchases" something from government, the
good or service appears to be "free." The act of
consumption is divorced from the tax payment and excess
demand always results. In addition, efficiency suffers.
The absence of a profit or loss calculation by
government means services such as garbage collection,
fire protection, prisons, city management services, and
schools, for example, are invariably more expensive
than when provided by private industry. Government does
a rotten job of running nearly every enterprise it
undertakes while simultaneously reducing personal
freedom and choice.
Deja Vu All Over Again
The Clinton administration continues to stubbornly
insist that government is not spending or regulating
enough. Exploiting the politics of envy and class
warfare, they suggest that the rich are not paying
their "fair share" of taxes, though the top one percent
of income earners paid 17 percent of the total federal
tax burden in 1980 and 27.5 percent in 1990.
The essence of modern politics, Clinton seems to
think, is to keep the populace envious and then to drag
out more "experts" and public sector "solutions."
That's certainly what is happening now. Health care is
a good example. We are the world leader in health care.
There is no place on the face of the earth that has a
system as successful as ours or can deliver the quality
of health care we have come to enjoy. Yet politicians
tell us that the current system is falling apart and
that only government can "fix things." Stirring the
acids of envy, they portray doctors and drug companies
as the enemies who need to be controlled when in fact
it is government policy and the legal system that need
changing. Hillary Clinton warns us that 37 million
Americans are uninsured, even though 10 million of
these earn more than $30,000 per year and fully one-
half of the 37 million are without insurance for less
than four months. To the extent that there is an
uninsured problem, it is the result of government's
larger role in health care markets--largely made "free"
to the patient by Medicare and Medicaid--that has
driven medical care costs upward, thereby forcing many
individuals out of the market.
Taking from Peter to Pay Paul
Politicians can't give us anything without depriving us
of something else. Government is not a god. Every dime
they spend must first be taken from someone else.
Unfortunately, stealing money from Peter to give to
Paul really makes Peter a "Paul-bearer." The last
Republican administration signed off on nearly $300
billion in increased taxes and regulatory costs during
its four years. The current Democratic administration
wants to at least match that with its very first round
of proposed of tax hikes.
No wonder Washington, D.C. is so often described
as 67 square miles surrounded by reality, an influence-
peddling pleasure palace, a whorehouse where every four
years we get to elect a new piano player. Politicians
just don't seem to understand that taxes are a
disincentive to people who work, save, and invest. High
taxes actually reduce tax revenues from the rich, as
they motivate individuals to reduce their taxable
income and economic activity. And the problem is
compounded by the fact that politicians spend at least
$1.30 for every dollar collected in taxes. Tax rates
have gone up and down over the years, but spending
continues to rise.
The Wealth of Nations
The good news is that despite what politicians are
doing to damage our economy--and they are doing plenty-
-we are living in an age when the possibilities to
create new wealth and expand the production of goods
and services are greater than ever. In today's global
marketplace all you need to start a business is a
telephone and a fax machine. Labor and capital are more
mobile than ever before, going where they are wanted
and staying where they are well treated. Annual
international capital flows are fifty times greater
than all world trade, zooming along fiber optic cables
and bouncing off satellites at the speed of thought
rather than the speed of things. The earth has become a
massive electronic highway.
The world economy is in an epochal transformation
from the Machine Age to the Information Age. Brains are
replacing BTUs. The new source of wealth is not
material, it is information. Here are two very modest,
everyday examples: Old-style carburetors used to allow
automobiles to run 12 miles on a gallon of gasoline.
Now, computerized fuel injectors allow them to run 22
miles on the same amount of fuel, thereby effectively
increasing the world supply of gasoline by one-third.
It used to take 165 pounds of aluminum to make one
thousand cans. Now, it only takes 30 pounds. As we push
further into the information age, matter will no longer
matter. It is what the mind does with matter that
counts. These technological advances, and thousands
like them, are not the result of public spending; they
are the result of free minds at work in a free market.
It is for this reason, says Hillsdale College President
George Roche, that "the wealth of nations lies not in
material resources but in the minds and hearts of men."
Centralized command is over. Hierarchal, corporate
bureaucracies are over. We are moving from monolithic
palace structures to a world of tents--fast, flexible,
and immediate response to changing customer demands.
"Reinventing government" is not going to work because
government is the wrong mechanism to give people what
they want. The information economy demands agility and
the efficiency of market signals which government does
not possess. The speed that Wal-Mart shows in
responding to consumer preferences in its markets is
simply not possible for the U.S. postal service or the
top-heavy, monopolistic public school system. If
Marriott believes it must contract out the hotel's
parking, then what are the implications for municipally
operated parking garages? As GM, IBM, Apple, GE, the
Union Pacific, and EDS eliminate bureaucratic rule,
decentralize, link their profit centers in partnership,
and engage in a continuous process of self-education
and assessment, what are the odds that the EPA, FDA,
the Department of Agriculture, the Department of
Education, and the Tennessee Valley Authority, to name
a few, will do the same?
The answer is privatization wherever possible and
then some. Public bureaucracies never plan their own
demise. We must do it for them, arguing on the grounds
that government ownership of property does not promote
an efficient allocation of resources but that it
actually prevents it.
The Mainspring of Human Progress
Others have said it over and over again: Freedom is the
mainspring of human progress. But our politicians
apparently choose to ignore this. They are not looking
to maximize our freedom; they are bent on limiting it
and on confiscating more of what we earn and save. The
idea of imposing higher taxes and more regulation on an
economy to help it grow is like breaking a man's leg to
help him run faster. As with everything politicians do,
their timing is awful. Around the world,
centralization, industrial planning, and command
economies are on the way out. Privatization around the
globe continues to be the goal--in the United Kingdom,
Mexico, Chile, New Zealand, China, parts of Africa, and
in particular in Eastern Europe and the former Soviet
Union. Most of these countries are lowering taxes, not
raising them.
Ironically, that in the midst of this revolution,
Clinton's brain trust--in particular Secretary of Labor
Robert Reich and intellectual guru Lester Thurow--offer
the German "social economy" as a model to be emulated.
(Note how they have now soured on Japan.) We are
advised to copy Germany's apparent hardening of the
arteries, even as Chancellor Helmut Kohl, recognizing
his nation's folly, declares: "A successful industrial
nation--which means a nation with a future--doesn't
allow itself to be organized as a collective amusement
park." Meager job growth in Germany has been mostly in
the government sector. Labor unions and
"codetermination" in industrial management have
produced restrictive labor practices, discouraged new
hiring, and limited productivity in German industry.
The current German recession and the cost of
reunification have simply accelerated the demise of the
earlier "economic miracle." It appears that the social
welfare state can no longer pay for its foolhardy
promises.
It has taken all of the history of the world to
reach its current gross world product-- about $25
trillion--and that could very well double in the next
30 years because so many nations in Latin America,
Eastern Europe, and Asia have finally begun to throw
off the chains of socialism and embrace the free
market. We can learn from them as we seek to rid
ourselves of the creeping varieties of collectivism
that have taken root here in the United States in the
last sixty years:
* Public sector problems will be resolved best
through private sector solutions.
* Individuals are the ultimate source of wealth,
and economic growth can occur only if people are
allowed to better themselves by taking chances.
* It is entrepreneurial business that creates
prosperity, not politicians. Government cannot
create jobs. The miracle of a government summer
employment grant is more than offset by the
anti-miracle of higher taxes and the private
businesses that fail to expand and hire.
* The economy is not a machine; it is a living
social organism. The beneficial outcomes
generated by a spontaneous free market order
cannot be known in advance. The self-regulating
nature of a market economy is comparable to the
interdependent qualities of the biologist's
ecosystem, not the mathematical precision wished
for by so many economists in their static
systems and equations.
* The market is not good because it works; it
works because it is good. As one economic
historian has noted, "It is a plain historical
fact that the treatment of man by man became
conspicuously more humane side by side with the
rise of capitalism."
* Freedom and capitalism are inseparable.
Capitalism is. The market, like gravity, is.
* And finally, freedom is a "virus" for which
there is no antidote.
---------------------------------------------
Barry Asmus is a senior economist for the National
Center for Policy Analysis. The Center produces studies
that promote free enterprise, tax reform, limited
government, and a strong national defense. His
background includes: professor of economics, twice
voted outstanding university educator; Freedoms
Foundation award winner in private enterprise
education; and syndicated radio commentator for
"Perspectives on the Economy." His recent books include
Crossroads: The Great American Experiment, co-authored
with Donald B. Billings and nominated for an H.L.
Mencken Award, and a fictional work, The Space Place.
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