5.2. Public Services

It is argued that some goods can be better provided by a government-run industry than they can by private businesses, or that some goods cannot be provided by private businesses at all.

These services often include:

• Education
• Healthcare
• Social security / insurance
• Transportation grids and services
• Energy and communication grids
• Housing and town planning
• Preservation of the environment
• Waste disposal
• Security – military and policing
• Emergency services
• Courts, prisons and the justice system

In some of these cases, the industries are entirely run by the government, and it can be difficult to envision how private industry could provide even the same level of services that the government does.  In other cases, the industries are a hybrid of government run services and private (though heavily regulated) services – like public schools and private schools.  But, in fact, in all cases, it can be shown that the free market – with no “public” component at all and no regulations – will not only be able to match the performance of government, but make it far more effective and efficient. 

We do not have time here to go into exactly how a free market in each of these industries would work, but we can make some general points about the difference between government services and free market services.

With government services:

• There is no way to make economic calculations; there is no feedback mechanism between consumer and producer.
• Because of this, the services cannot be run “like a business”; they do not know what parts of the service are efficient and which are inefficient, because there is no such thing as profit and loss to convey this information.  The ballot box, public consultations, and “expert” panels are far inferior ways of trying to gauge whether or not a particular service is working efficiently.
• In fact, the least efficient parts of the service will tend to perpetuate, because they will receive more money, not less, when the government feels that they are not delivering effectively.  Every government bureaucrat knows that his budget will increase if he is not delivering effectively, and will decrease if he is – the exact opposite of the free market mechanism.
• There will always be conflict about what types and levels of service should be provided - for example, what should be taught in government schools.  By its very nature, the government acts on behalf of “society” and thus the lack of unanimity on a given issue will always lead to strife.  In a democracy (in theory), the will of the majority is forced upon the minority, whereas in a free market, entrepreneurs will provide for the minority as well.  There will always be people who disagree with the choices made by the government bureaucrats, and will be left unsatisfied.  This is particularly the case where the government operates a monopoly (e.g. policing).
• Pricing will be set at a level which is politically-driven, rather than prices being set according to supply and demand.  There will therefore always be shortages and surpluses in government industries.  For example, traffic jams will always be common in major cities, because the price of using the roads is too low.  Private road-owners would set prices to maximize income and this will mean that the roads have an optimum amount of traffic.

So-called government “investment” is misnamed because there is no reason to believe such projects will serve the future consumption desires of consumers.  Certainly, it would not be the best investment possible, since that is precisely what would happen in a free market and would not need the government intervention.  In fact, all government spending is consumption by the politicians.

Government property is not “public” despite the common terminology.  Part of having property rights is being able to exercise control over and if desired, sell the property; no individuals can therefore be said to own “public” property.  Government cannot legitimately own anything, because government cannot produce anything; “public” property is merely property that the government has acquired through coercion.

In a free market, businesses that are not satisfying consumer demand go bankrupt, which allows the land, labor and capital in that business to be switched to more productive uses.  This way, the market quickly eliminates any waste of resources.  .  In government there is no such indicator of failure.  Failing government agencies often receive increases in budgets, and so continue to waste resources.  

The free market tends to maximize the satisfaction of everyone in society, whereas government intervention, particularly where entire industries are run by the government, can only decrease satisfaction.