Politics/Economics

The Private Sector Vs. The State

A common question in society today is how the public should decide certain political and economic issues. I wish to posit that not only is this less important than the question of whether the government should be involved at all, but it is falsely premised. There is no “public sector”. As legal and political theoretician Lysander Spooner put it:

“Legally speaking, there is no such creature or thing as ‘the public.”

Spooner’s idea merits far more attention than is paid. He distinguishes the government as a separate entity from society. He tears apart the new version of the divine right of kings (the historical doctrine that the King was an agent of God, and thus disobedience of his orders is disobedience of God), what had by Spooner’s time become “the common good”. That is, the actions of the State were called into question as having been actions by a predatory entity wholly different from any other in society.

This logical position has a serious consequence, as the “public sector” can no longer be called public. The Private sector (composed of more people than the State and thus more “public” than the State could ever purport to be) is not damaged by this position because it is wholly voluntary and is not claimed to be a vehicle for societal improvement. It may act in a way that does promote the betterment of society, but in its nature it is simply a system of voluntary exchanges. What, then, shall we term the not so public “public sector”?

Henry Hazlitt, the author of Economics in One Lesson, said,

“The ‘private sector’ of the economy is, in fact, the voluntary sector; and the ‘public sector’ is, in fact, the coercive sector.”

He was correct. In order that the State may act, it must necessarily prey upon wealth created by private individuals. The “coercive” sector (henceforth; State sector) is a leech on the private. This is no opinion, rather it is the nature of the State.

Upon defining what is meant by the State and private sectors, we must now answer a host of questions of which one would work better in which areas of the economy. When ‘better’ is defined as being more productive and more moral, the private sector is superior to the State sector. We are conditioned to think that the State, in its benevolent wisdom, can act as an equal or superior substitute for private enterprise. Austrian economist Murray Rothbard explains;

In this way, the assumption is smuggled into the analysis that the public [State] and private sectors are equally productive, equally important, and on equal footing altogether, and that ‘our’ deciding on the proportions of public [State] and private sector is about as innocuous as any individual’s decision on whether to eat cake or ice cream.”

The State sector is indeed far less productive than the private sector. Putting morality aside for the moment, how does the State sector differ from the private? Ludwig Von Mises, an Austrian economist who opposed socialism in the age of Hitler in Europe, explained it:

“Where there is no free market, there is no pricing mechanism; without a pricing mechanism, there is no economic calculation.”

Mises was articulating an idea that stems from two premises:

  1. In order that resources may go to their most productive uses, there must be a mechanism of price to guide them to where they are most highly valued.
  2. When a State or ruler plans an economy or a part of an economy, the resources involved can not be bought and sold in a traditional price system, and the decision of what to do with said resources must therefore be ultimately satisfied by the State.

These premises combine to form the conclusion that in a socialist society, or any other society in which the State controls a portion of the economy, the portion of the economy controlled by the State will inevitably be subject to decisions of what to do with scarce resources that are arbitrary at best.

This syllogism is what Mises called the economic calculation problem. It is a horrible blow to the State sector, as it shows just how inefficient it is inevitably destined to be. Production, then, will tend to be more efficient in the private sector than the State. There is no industry so categorically different from others that the State is better equipped to handle it than the the private sector.

George Mason University economist Walter Williams asserted,

“… there are literally trillions of ways of doing even the simplest task. That being the case, what would you think of a person, a committee, or a bureaucrat who said, ‘I (we) know which is the single most efficient way of doing a particular task.'”

Of course the State sector won’t know how best to accomplish something, The state earns its revenue coercively and cannot allocate resources efficiently. Even attempts at trial and error are futile, and the State will tend to adopt methods of accomplishing tasks which were privately developed. The State can never, by its nature, compete with the private sector.

The coercive sector of society is always seeking to grow itself at the expense of the private sector. In many of the most destructive societies in history, the coercive sector had taken over most of the economy and driven out the lifeblood off of which the State feeds: private production. The whole of societal history has been fraught with attempt after attempt to balance some amount of State coercion and private production. Thus one must ask himself: Why must there exist an instrument of oppression which preys on private wealth at all?

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