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2007-07-13

Privatization

As a laissez-faire capitalist, I support the privatization of everything the government does. Everything.

Unfortunately, many governments at various levels (state, local, federal) have made trials of something that they have called "privatization" without trying real privatization. Since this pseudo-privatization is really not based on letting the market work, it doesn't work to efficiently meet needs, and often people are dissatisfied and become fearful of privatization. They become more convinced than ever that government is necessary to meet our needs and is somehow magically able to do so in ways that cannot be done by voluntary self-organization. Government becomes like a powerful drug addiction that people will not turn loose of. And unfortunately those of us who aren't addicted and would like to refuse to be a part of it have no choice but to deal with the consequences anyway.

For example: suppose a city decides to "privatize" its garbage pickup. True privatization would be this: the city stops collecting the taxes and fees used to support the garbage pickup service. It sells (possibly by auction) all of the buildings, equipments, dumps, etc. that have been used in providing its service. It discontinues the service entirely. After that, the city does nothing.

Now the people have an unmet need to have their garbage hauled away. Entrepreneurs realize that the people of this town have this need and get to action because there is money to be made. Some of them obtain land and turn it into private dumps. They may contract with citizens to give them a place to take their garbage to. But of course most people don't want to haul their own garbage. So more entrepreneurs, or possibly the same ones who start the dumps, obtain vehicles and start businesses hauling garbage away to the dumps. If they don't run the dumps themselves, they contract with the people who do. Anticipating these needs, some of these entrepreneurs probably arranged to buy some of the city resources at auction. Some of them might even be people who were formerly employed by the city for garbage pickup.

Some garbage services might offer daily pickup. Others offer twice weekly pickup for a lower cost. If the garbage pickup is late (as it often is in my neighborhood under the socialized garbage pickup system we have today), people switch to a competing service. If there is no competing service, then there is money to be made starting one, and some entrepreneur may do this, starting a more reliable service that will be able to charge higher rates, assuming that people care enough to pay for a more reliable service. Some entrepreneur realizes he can save money if he creates automated garbage pickup trucks, and this service is offered. Some entrepreneur realizes his pickup service can be available on call, any day of the week, so this service is offered. Some entrepreneur realizes he can make money offering an additional service where your garbage pickup men also clean up your yard. A dynamic market forms where people are constantly seeking to do a better job of picking up the garbage because doing so makes them money.

Unfortunately, cities don't do true privatization. Instead, here's what happens: the city scraps its own garbage pickup service and puts out a request for bids from private services. The city makes ONE choice of a private service for everybody. The city might pick the cheapest service. Or it might not. You might think it's better to pick a more expensive service that's more reliable. Or you might prefer to do it as cheap as possible. Either way, your individual preferences, and those of your neighbors, are not likely to be respected. The city might not even use price and quality of service to make its decision: the contract might go to the mayor's brother-in-law. Cronyism. (You'll note that such a situation can't occur under the true privatization scenario, where if somebody picks his brother-in-law he has to live with the consequences himself and can't impose them on other people.)

And of course the city signs a two year contract with the service provider. Lock in.

The garbage pickup company now has a lucrative government-granted monopoly. They'll pick up the garbage. But if they are late once in a while, their customers can't fire them. If they were in a free market, their customers would vacate them one by one at their own pace. But a city government cannot possibly react that fast, and may be locked in by a contract any way. The garbage pickup company has no incentive to come up with new services, or make its existing service better to customers. They just have to make sure they do the worst and cheapest job possible without making enough people angry enough to call the city council that the city council actually reacts strongly enough to affect their bottom line.

As more and more cities "privatize," such companies grow fatter, bigger, and less responsive. There's no market for little, agile, companies to spring up and meet needs with a fresher more energetic approach, because nobody has the money to consider switching to an alternative to the city monopoly service.

This, my friends, is what your government calls "privatization." But the truth is that it is socialism. You are meeting your needs as a collective, not individually. The city gets to brand the failures of a system that is collectivism, socialism, communism as if it were the failures of privatization, the free market, capitalism.

Over and over governments use this technique to brainwash you into fearing the free market. They make you and your neighbors fearful of what would happen if you didn't have the government to take care of your needs. You might sometimes notice that the government doesn't do a very good job of meeting some needs, but you'll be too afraid that without the government doing the job (complete with compulsory funding and compulsory participation) things would be worse to consider that there might be an alternative. And they'll try to work hard to meet enough needs that nobody gets too unhappy, as governments have since the first conquerer rode into the first conquered peaceful community and proclaimed himself "king." Like those kings, the governments will use its successes and what few services it does provide as propaganda to show people how benevolent their government is and how it helps them in ways that could never be done by ordinary people working together on their own accord.

By the way, you'll see the same thing with "deregulation." Deregulation means getting rid of the regulations. Governments never do this. But they will eliminate a couple of rules, possibly making others, and they'll take the opportunity to make a lot of noise about how great they are for trying "deregulation," just before the new system fails. Perhaps dramatically, as in the case of the California energy crisis, spawned by "deregulation." Of course, when you look at such failures, you never actually see a market without regulations. You see a situation where companies where regulated to the hilt and then suddenly allowed to set their own prices, or you see a situation where a government granted monopoly was suddenly forced to produce and sell its services at a forced price, possibly below cost, to new competitors. Of course these systems fail, but they don't represent a failure of freedom.

7 comments:

Timotheus said...

I appreciate and agree with your garbage service example. Now, can you explain how that would work with a product or service that requires contiguous physical infrastructure, like roads and utilities?

A.B. Dada said...

Timotheus:

Roads are an intriguing dilemma of sorts for the pure capitalist. First and foremost, we have to understand that the market does provide services during dire need situations -- in many situations, when the government disallows something, the black market is how the market works.

With roads, we can all agree that they are a great need, and for some a dire need. Sometimes I feel that we'd all be flying airplanes if not for the discreet State subsidies for roads, but that's another talk.

Who benefits most from roads in a given community? Generally, businesses do. For most people, the transit on the roads is not to go see mom, or to go for a drive around. They're going somewhere, to purchase a product or service from someone. Even a stop to the library is a use of another's product/service.

I believe roads would be primarily paid for through businesses (individually, or cooperatively) that finance the motorway for consumers. The Wal-Marts want you going to them, but they also know you have elsewhere to go: this would give incentive for a Wal-Mart to provide for roads from the major residential areas to Wal-Mart. Property owners next to Wal-Mart would have incentive to offer that land to other retailers, who would navigate their own road to Wal-Mart's motorway. Wal-Mart could charge others for inlets and outlets, which would help them recoup their investment.

We'd also see mall co-ops providing financial investment in motorways. Instead of one large company trying to finance a road, you could have a few hundred. Because this would be a competitive market, we'd likely have a more efficient and inexpensive roadway -- maybe with new materials. Government-maintained roads are not designed to last forever.

What about property for roads? Some say without eminent domain, roads would be impossible to build. This is not the case -- anything that has a market incentive to invest in will be invested in. Even if a company has to buy property in a million-dollar-per-acre area to build a road, they will. The long term investment potential is huge: imagine the return on a road that is constructed where no one else could develop one?

You might argue that it would be bad for you if Wal-Mart bought your neighbor's land to build an 8-lane highway right behind your backyard. This gives people who demand privacy and quiet an incentive to purchase more land to keep such thoroughfares away from their homes. Anyone who complains about what their neighbor is doing did not buy enough land to offset the risk of someone building a road, or a McDonald's, next to their home. Zoning laws just keep property prices up instead of defending market principles. In an anarcho-capitalist society, zoning laws would be non-existent. If I buy your neighbor's land, I can build a road, a McDonald's, or whatever. You are the only one obligated to protect your needs by providing the amount of property that will give you what you want and need.

Roads are a necessary item, and this is why I find it so important to develop market solutions. We don't know all the incentives for roads because we've had them subsidized from the start. Yet I've lived in private communities with privately-funded roads, and that solution works just fine with zero government intervention. We had our own fines for speeding, we had our own roadside assistance, and we paid significantly less per mile/driver than the public roads.

Hope that helps.

Timotheus said...

a.b. dada:

I'm digesting your response. I certainly oppose the 'zoning' stuff you touch on toward the end. But when I read things like "this would give incentive for a Wal-Mart to provide for roads from the major residential areas to Wal-Mart", it feels as though the cart is before the horse -- how can "major residential areas" exist in the first place without a network of roads?

Also, utilities like drinking water mains would seem to present different issues.

voice said...

Tim,

I haven't had the time to write a comprehensive response myself, but in response to "how can 'major residential areas' exist in the first place without a network of roads?" the answer is that the people who came to those areas would build, repair, and replace those roads as they came and as the area grew.

Right now the people can afford to do this. It's just that all the money is confiscated by the city (or other authority) and thrown into a big pot and then spent. Having this process occur through voluntary capitalism instead of socializing it is definitely going to be more optimal and suit people better.

Paying for construction and upkeep of the road around your house would just be an expected expense in such a scenario, much as paying for upkeep of your house is an expected expense.

The government is just a bunch of people taking money that doesn't belong to them. :) A bunch of people putting their money together voluntarily can do anything the government can do. Government roads are by no means a prerequisite to developing a residential area.

A.B. Dada said...

Tim:
I'm digesting your response. I certainly oppose the 'zoning' stuff you touch on toward the end.

Excellent start!


But when I read things like "this would give incentive for a Wal-Mart to provide for roads from the major residential areas to Wal-Mart", it feels as though the cart is before the horse -- how can "major residential areas" exist in the first place without a network of roads?

I don't have any facts or studies at hand on this, but much of the overwhelming over-building in many towns is based on the city and county subsidizing people for living close together rather than further apart. Before we had huge towns, people did maintain their own roads to the major turnpikes (private tollways). But as villages incorporated, they decided to take on the infrastructure, and instead of many of us having acreage, we're packing in like sardines so we "don't have to build our own roads." It's counter-intuitive because having acreage gives you privacy, safety, and also makes sure you don't infringe on your neighbors (noise pollution, ugly color house, etc). Instead of acreage, we have homeowner's assocations trying to force those issues to happen.


Also, utilities like drinking water mains would seem to present different issues.

I'm not sure of this, either. First of all, government subsidies of water don't necessarily give us safer water (look at the terrible fluoride we still add to water!).

Without waterways, what would happen? Who is to say that the water-providers like Hinckley Schmitt wouldn't deliver water that you want and need at a quality level you desire to your home tank every week or whenever necessary? During the horrific hurricane situations (Katrina, Asia, etc), drinking water was NON-EXISTENT because of government's ineptness Imagine if everyone had water-tanks below ground that were privately maintained -- you'd at least have SOME water rather than none (or poisonous water).

I think the current water situation is greatly inefficient. Union workers don't work as efficiently as private competitive forces -- is the cost of maintaining all of those water pipes worth it? How much efficiency is lost when a street has to be dug up, when a water main freezes and explodes, when bacteria or other baddies get into the water supply? I don't see how shared water distribution makes economical sense in the least once you take into account all the actual costs. I'd much rather rely on private water delivery -- if on company can't get me water when I need it, at the price I need it, and the quality I want, I'll have it delivered by another. A simple inlet near the street curb lets the water company pump in and top off my water tank, and bill me for the cost.

Does that sound inefficient? Start adding up the cost of getting water to your house -- not just the cost of the water bill you pay, but the taxes you pay to redig the roads, build new mains, connect to city water, and the infrastructure of the company that is paid for out of secondary taxes outside of your water bill.

voice said...

when a water main freezes and explodes

Timotheus and I live south enough that we've never heard of such a thing happening. :)

A.B. Dada said...

Guess it ain't always cold that ruptures those inefficient, outdated water mains:

Two large water mains ruptured today, and Forth Worth crews are dealing with a dozen smaller breaks every day. Channel 8's Angela Davis joins us now live with more on that. Angela. -- Dallas/Forth Worth

Due to a ruptured water main beneath the Clarion Hotel, we have relocated to the Holiday Inn Select DFW North

Heh