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Four Legs Good, Two Legs Bad

By Mark Thompson

There is an assumption in both conservative and libertarian circles that anything that the private sector is inherently better at doing things than the government. And on many things, this philosophy is, I think, correct (it is also something that liberals/Progressives agree with more than they get credit).

But where it gets tricky is when you get to the concept of "privatization" of various things. Libertarians and conservatives hear the root word "private" and they reflexively think that it is better than "public." But "privatization" is different from "free market," and in many cases "privatization" can mean the worst of all worlds.

For instance, if by privatization, you mean the contracting out of various government services and needs, you are often just asking for trouble. Why? Because this is a setup for the epitome of "crony capitalism." Sometimes, to be sure, this kind of "privatization" is a necessity in instances where the government is seeking to obtain products or services that it simply has no ability to provide on its own. Frequently, however, where the government is contracting out a product or service it already provides or can easily provide, this kind of "privatization" at best has the effect of doing no more than adding an extra layer of bureaucracy. At worst, though, it is an invitation for corruption and a particularly convenient means of avoiding government accountability. Far from allowing market forces to take over, this kind of privatization creates a market that would not otherwise exist, in which firms seek to please only one customer: the government. And contrary to popular belief, "the government" is not synonymous with "the people," but is rather more frequently synonymous with "elected and/or appointed government officials." What privatization does in this context is to make the purpose of the service provider to please the government official who awarded them the contract - not to offer "the people" with the best possible services at the lowest possible price. Oftimes, pleasing the responsible government official means nothing more than shielding the official from responsibility for the implementation of that official's policy preferences.

The other type of "privatization" that libertarians and market conservatives should fear is anything that suggests a public-private "partnership." Such partnerships all too often take the form of placing the risk of loss on the taxpayer while placing the benefits of profit on the private ownership side of the equation. To say the least, this creates frequently undesirable market distortions best exemplified by Amtrak, and, now, the collapse of Fannie Mae and Freddie Mac.

The bottom line is that "privatization" only works if it actually allows genuine, basic market principles to play out. Where "privatization" simply means that the government will seek to make purchases in a market that would not exist at all without the government intervention, it is a virtual guarantee that the "privatization" will result in no more and no less than something resembling the much-maligned and ever-expanding military-industrial complex. Where "privatization" means a "partnership" under which government agrees to back what would otherwise be a purely private entity, the government is both granting that company an unnatural market advantage and virtually begging that company to engage in really, really bad business practices. Finally, I would add that the manner in which government has incentivized employer-based health insurance is another example of a "public-private" partnership gone terribly wrong.

This isn't to say that "privatization" is always bad - far from it, and I remain a firm believer that market forces are the far superior manner of economic policy. Indeed, where "privatization" literally means the selling off of a government asset to the highest bidder, no strings attached, I would rarely disagree with it. But when it creates a situation where the entire raison d'etre of a firm is to serve the government or where the government has immunized the firm from market realities, the effects of privatization can often be worse than the disease.

The fact is that as between public ownership of an asset and the fictional "privatization" of that asset, I think public ownership is superior (again, if the choice is between public ownership and actual private ownership in a free market, then the free market wins hands down). At least where a service is entirely provided by the public sector, you know who to blame (and how to blame them) when things go wrong. In a representative democracy, this can be a non-trivial power. But when that service is provided by the private sector on behalf of the public sector, the question of who to blame and how becomes much more muddled....and frequently I suspect that's the point.

So as far as libertarian blind spots go, the belief in the private sector is often the "four legs good, two legs bad" of large segments of the libertarian movement.

Mark blogs regularly at Publius Endures