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