Government in Business by Murray N. Rothbard

[Stephane Budge]

In the midst of nationwide prosperity, some economic and social
problems keep nagging at the public. All over the country, they take
the same form. What are they? Traffic congestion, inadequate roads,
overcrowded schools, juvenile delinquency, water shortages. Such
matters have proven troublesome in many ways; above all, they seem to
breed conflicts. Fierce battles are raging between warring groups of
Americans. Some want “progressive” education; others want varying
blends of the traditional. Some want socialism taught in the schools;
others favor free enterprise. Some want religion in the schools, and
others proclaim separation of Church and State. Some Americans want
water fluoridated, and others want it unmedicated.

Is there anything special about water or schooling that creates
insoluble problems? How does it happen that there are no fierce
arguments over what kind of steel or autos to produce, no battles over
the kind of newspapers to print? The answer: There is something special
—for the Problems of schooling and water supply are examples of what
happens when government, instead of private enterprise, operates a
business.

Have you ever heard of a private firm proposing to “solve” a shortage
of the product it sells by telling people to buy less? Certainly not.
Private firms welcome customers, and expand when their product is in
heavy demand thus servicing and benefiting their customers as well as
themselves. It is only government that “solves” the traffic problem on
its streets by forcing trucks (or private cars or buses) off the road.
According to that principle, the “ideal” solution to traffic
congestion is to outlaw all vehicles! And yet, such are the
suggestions one comes to expect under government management.

Is there traffic congestion? Ban all cars! Water shortage? Drink less
water! Postal deficit? Cut mail deliveries to one a day! Crime in
urban areas? Impose curfews! No private supplier could long stay in
business if he thus reacted to the wishes of customers. But when
government is the supplier, instead of being guided by what the
customer wants, it directs him to do with less or do without. While
the motto of private enterprise is “the customer is always right,” the
slogan of government is “the public be damned!”

Conflicts and bitterness are inherent in government operation. Imagine
what would happen if all newspapers were published by government.
First, because a government operation gets its revenues from coercive
taxation in. stead Of voluntary payment for services rendered, it is
not obliged to be efficient in serving the consumer. And, second,
conflicts among groups of taxpayers would rage over editorial policy,
news content, and even tabloid versus regular size. “Rightists,”
“leftists,” “middle-of-the-roaders,” each forced to pay for the paper,
would naturally try to govern its policy.

On the free market, in contrast, each group finances and supports its
own preferred product, whether newspaper, school, or package of baby
food. Socialists, free enterprisers, progressives, traditionalists,
gossip-lovers, and chess-lovers, all find schools, papers, or
magazines that meet their needs. Preferences are given free rein, and
no one is compelled to take an unwanted product. Every political
preference, every variety of taste, is satisfied. Instead of a
majority or the politically powerful tyrannizing over a minority,
every individual may have as much as he can afford of precisely what
he wants.

The standard government reply to charges of inefficiency or shortage
is to blame the public: “Taxpayers won’t give us more money!” The
public literally has to be forced to hand over more tax money for
highways, schools, and the like. Yet, here again, the question arises:
“Why doesn’t private enterprise have these problems?” Why don’t TV
firms or steel companies have trouble finding capital for expansion?
Because consumers pay for steel and television sets, and savers, as a
result, can make money by investing in those businesses. Firms that
successfully serve the public find it easy to obtain capital for
expansion; unsuccessful, inefficient firms of course go out of
business. In government, there are no profits for investors and no
penalty charged against the inefficient operator. No one invests,
therefore, and no one can insure that successful plants expand and
unsuccessful ones disappear. These are some of the reasons why the
government must raise its “capital” by literally conscripting it.

Many people think these problems could be solved if only “government
were run like a business.” And so they advocate jacking up postal
charges until the Post Office is “run at a profit.” Of course, the
users would be taking some of the burden off the taxpayers. But there
are fatal flaws in this idea of government-as-a-business. In the first
place, a government service can never be run as a business, because
the capital is conscripted from the taxpayer. There is no way of
avoiding that. (Finance by bond issue still rests on the power of
taxation to redeem the bonds.) Secondly, private enterprise gains a
profit by cutting costs as much as it can. Government need not cut
costs; it can either cut its service or simply raise prices.
Government service is always a monopoly or semi-monopoly. Sometimes,
as in the case of the Post Office, it is a compulsory monopoly—all
competition is outlawed. If not outlawed, private competition is
strangled by taxes to cover the operating deficits and raise capital
for tax-exempt government operation.

There is another critical problem in government operation of business.
Private firms are models of efficiency largely because the free market
establishes prices which permit them to calculate, which they must do
in order to make profits and avoid losses. Thus, free “capitalism”
tends to set prices in such a way that goods are properly allocated
among all the intricate branches and areas of production that make up
the modern economy. Capitalist prof-it-and-loss calculation makes this
marvel possible—and without central planning by one agency. In fact,
central planners, being deprived of accurate pricing, could not
calculate, and so could not maintain a modern mass-production economy.
In short, they could not plan. There is no way to gauge the success of
a product that the customers are compelled to buy. And every time
government enters a business, it distorts pricing a little more, and
skews calculation. In short, a government business introduces a
disruptive island of calculational chaos into the economic system.

No wonder, then, that our economic problems center in government
enterprises. Government ownership breeds insoluble conflicts,
inevitable inefficiency, and breakdown of living standards. Private
ownership brings peace, mutual harmony, great efficiency, and notable
improvements in standards of living.