About October 2012
The privatization of state-provided services is often high on libertarians’ wish lists. But how do we get there from here? And how do we avoid losing our principles along the way? The dismantling of communism has given us some valuable data about how to divest state-owned assets, but sometimes the results have been far from satisfying. In the United States, the problems of privatization are smaller but still quite real, and libertarians need to offer a credible policy roadmap in this area if they are to convince a skeptical public.
Sheldon Richman, longtime editor of The Freeman, leads this month’s discussion. Joining him will be Leonard Gilroy, Director of Government Reform at the Reason Foundation; Dru Stevenson, Professor of Law and the Helen and Harry Hutchins Research Professor at the Southern Texas College of Law; and Cato Senior Fellow Randal O’Toole.
In a sweeping essay, Sheldon Richman explains why private property and free competition are superior to state-provided goods and services. He warns against granting “private” corporate monopolies, which are not true privatizations, but act as arms of the state. He adds that for many state activities, the best way to privatize is not to provide the service at all — as in the case of punishing victimless crimes, which no one should do. For legitimate services, he recommends a “homesteading” approach, in which stakeholders in a public service, such as a school, would receive shares in a new, independent corporation.
Leonard Gilroy argues for the benefits of incremental privatization. The general public, he writes, must still be convinced that private entities can perform many of the services that have for a long time been provided by monopoly government entities. To win them over, demonstrations will be necessary, and these should be incremental in nature. Gilroy cites several such attempts and argues that they have successfully built support for the idea of privatization.
Professor Stevenson agrees that much so-called privatization does not deserve the name. It both fails to shrink the government and also creates new constituencies for government spending–the private firms who win lucrative contracts. That said, we must think very carefully about what a more privatized world would look like, and whether we would really prefer it in all cases. Are we comfortable, for example, with the largely religious education system that would likely replace state-run schools?
Randal O’Toole argues that the difference between success and failure in privatization is primarily a matter of incentives. He cites examples of failed incentive structures, like British Rail and New Zealand’s fishing quota system, as well as some successes: Denver’s Regional Transit District has contracted bus service that runs for half the cost of its government-operated lines, and Atlantic City has an entirely private bus fleet.
Related at Cato
- Essay: “Privatization” by Chris Edwards, DownsizingGovernment.org
- Policy Analysis: Fixing Transit: The Case for Privatization by Randal O’Toole, 2010
- Policy Analysis: The Mounting Case for Privatizing Fannie Mae and Freddie Mac, by Vern McKinley, 1997
- Blog Post U.S. Postal Service Default by Ted DeHaven, 2012