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