The Public Verses the Private Sector
JANUARY 01, 1963 by W. ALLEN WALLIS
W. Allen Wallis is President of the
The discussions, written and oral, of the public versus the private sector that have drawn attention to this issue—or, rather, that have created the impression that there is a specific issue here—picture a society in which expenditures on schools, sanitation, care of the indigent, public health, highways, communication systems, churches, science, and the higher forms of art, music, drama, and literature, are in squalid decline as a consequence of serious reductions in the funds available. The facts are just the opposite. There has been tremendous acceleration in the past decade in building schools, increasing teachers’ salaries, building superhighways, supporting science, aiding the needy, conquering disease, clearing slums, building hospitals, building churches, publishing books, performances by symphony orchestras, attendance at art galleries, and innumerable other worthwhile public activities. Growth of public expenditures since the Korean War has been great and the growth has been mostly in public services—in the "welfare state," not in national security.
Those who argue that the public sector should be increased often define the public sector implicitly not even as everything that is paid for by the government, but as only that part that is provided directly by the government through government employees using government-owned facilities. They are thus arguing in effect that the provision of certain services should be transferred from private to public hands.
Churches are a good example of a public facility that in this country is provided exclusively by private funds. Even the most ardent advocates of transferring the financing and control of public facilities from private to public hands stop short of advocating this transfer with respect to churches, presumably because of ingrained belief in separation of church and state. Private institutions of higher learning are another case in point. In this instance, perhaps the principal reason that the "unmet social needers" usually stop short of advocating transfer to public control is that many of the most imaginative of them are employed by private universities, and their most valuable economic freedom is academic freedom. (It should be noted, however, that public financing of political parties is occasionally advocated; and this would be more dangerous to our political liberty than public financing of religion would be to religious liberty, or than public financing of higher education is to academic freedom.) Indeed, the "public squalor argument is," as I have said on another occasion, "simply this decade’s battle cry of socialism, which—intellectually bankrupt after more than a century of seeing one after another of its arguments for socializing the means of production demolished—now seeks to socialize the results of production."
Tocqueville pointed out in 1840 that democracy in
"The hatred which men bear to privilege increases in proportion as privileges become fewer and less considerable, so that democratic passions would seem to burn most fiercely just when they have least fuel. I have already given the reason of this phenomenon. When all conditions are unequal, no inequality is so great as to offend the eye; whereas the slightest dissimilarity is odious in the midst of general uniformity; the more complete this uniformity is, the more insupportable does the sight of such a difference become. Hence it is natural that the love of equality should constantly increase together with equality itself, and that it should grow by what it feeds on." (Mentor Edition, p. 294)
From Affluence to Equality
This burning-most-fiercely-when-the-fuel-is-least seems to operate in much of our social spending on welfare measures. Only after substantial success was beginning to be achieved in providing retirement income, through individual insurance and private pension plans, did pressure for public provision of retirement income build up to the point of compulsory federal provision of funds for old age. As the problem of medical care for the aged has steadily diminished, partly because of improved health of the aged, partly because of higher per capita income which has made it easier for people to provide their own resources for old age and to care for their aged relatives, and partly because of the wide increase in organized saving for retirement, pressure for some form of governmental program has increased. Similarly, in the case of race relations, only after rapid progress finally began to occur through private means did serious pressures grow up for governmental compulsion. There are many other examples of the same kind.
Tocqueville makes two other remarks that are particularly helpful in understanding the current pressures for expanding collective action and diminishing individual action:
"As conditions of men become equal amongst a people, individuals seem of less, and society of greater importance; or rather, every citizen, being assimilated to all the rest, is lost in the crowd, and nothing stands conspicuous but the great and imposing image of the people at large. This naturally gives the men of democratic periods a lofty opinion of the privileges of society, and a very humble notion of the rights of individuals; they are ready toadmit that the interests of the former are everything; and those of the latter nothing. They are willing to acknowledge that the power which represents the community has far more information and wisdom than any of the members of that community; and that it is the duty, as well as the right, of that power, to guide as well as govern each private citizen." (Mentor Edition, p. 291)
"Every central power, which follows its natural tendencies, courts and encourages the principle of equality; for equality singularly facilitates, extends, and secures the influence of a central power.
"In like manner, it may be said that every central government worships uniformity; uniformity relieves it from inquiry into an infinity of details, which must be attended to if rules have to be adapted to different men, instead of indiscriminately subjecting all men to the same rule…. The faults of the government are pardoned for the sake of its tastes; public confidence is only reluctantly withdrawn in the midst even of its excesses and its errors; and it is restored at the first call." (Mentor Edition, p. 295)
Other Factors Contributing to the Growth of Collective Action
In addition to the points made by Tocqueville, two other factors seem to me to contribute to the growth of collective action.
The first of these is failure to diagnose a problem and failure to analyze the consequences of a proposed solution, or else wrong diagnosis and wrong analysis. The provision of retirement income through a federal social security program, for example, began shortly after the Great Depression, and it may well be that hardships of the aged that were in fact due to that depression were attributed to inadequate provision for old age. Similarly, since the Korean War, financial hardships entailed in medical care for the aged are in fact due largely to the transitory inflations of the Second World War and the Korean War which, in effect, confiscated large fractions of the savings of many who are now retired; but the hardships (or alleged hardships) are misdiagnosed as due to persistent forces that will continue to affect all retired people.
Instead of myself discussing the neglect of long-run consequences, I should like to quote from the Federal Reserve Bank of
"In the course of wide debate, economists and public policy makers have often overlooked the fact that depressed areas have been a recurring aspect of the economic development of this country. American history includes many accounts of the rise and fall of communities and whole regions owing to changes in technology, exploitation and exhaustion of natural resources, changes in demand and the migration of industry to other parts of the country in response to the pull of new markets—the same factors cited as contributing to chronic unemployment in today’s depressed areas….
"There is, of course, an inherent danger that some attempts at solving the problem may backfire and only prolong the process of readjustment as well as contribute to an inefficient allocation of the nation’s resources….
"Thus, the experience of economic readjustment to the decline of the lumbering industry in the northern counties of the
Lakestates has emphasized… that there is always the risk that some attempts to solve the problem of depressed areas may not work at all and may only complicate and delay the adjustment process. Witness the collapse of the campaign to promote farming on the cut-over lands despite vigorous backing from the state governments, the railroads, lumber companies, local businessmen, and even ‘experts’ from the agricultural colleges."
I have the impression that good examples could be drawn from European history of the great cost that may be incurred by neglecting long-run consequences when adopting policies that seem to provide some hope of temporary relief of symptoms. For the
The other force that I think must be added to Tocqueville’s in explaining the contemporary movement toward larger federal spending, for which the "unmet social needs" argument has provided buttressing, is a rather profound change in our political processes since the days of Tocqueville. The expansion of the federal government’s welfare activities has led to a great increase in the importance of pressure groups. Many of the programs for expansion of the public sector get their effective backing not from those who would receive the service but from those who would sell it to the government. While this is strikingly true in the case of education, medicine may seem to be a counter-example; but in the case of medicine, the opposition to expanded government activity comes from those who are now selling the service and who visualize others selling it or themselves selling it on less advantageous terms if the government expands its activity.
As a matter of fact, as government welfare programs have fallen more and more under the control of pressure groups, the real problems have tended to be neglected. The consideration of depressed areas relief illustrates this. This is not a depressed areas problem, but many different problems, with varied causes. Some of the most serious of these problems are in the so-called "hillbilly" areas—the mountain regions of certain Southern and
In conclusion, let me remark that it is perhaps a mistake to call the position of the "unmet social needers" socialism, even though their position represents, as I have pointed out earlier, a gradual evolution from the socialist position of a century ago, and is its contemporary counterpart in the United States. Socialism has traditionally been associated with government ownership of land and capital. The modern movement would continue a large measure of private ownership and private enterprise, but seeks to elaborate and to extend control of private activities and to confiscate a large and growing part of the private product. This is carried on partly in the name of unmet social needs at home, and partly in the name of national security. It is in many respects on all fours with mercantilism, the economic policy followed by
Cotton Textiles, 1760-1835
At the accession of George III (1760), the manufacture of cotton supported hardly more than 40,000 persons; but since machines have been invented by means of which one worker can produce as much yarn as 200 or 300 persons could at that time, and one person can print as much material as could 100 persons at that time, 1,500,000 or 37 times as many as formerly can now earn their bread from this work.
And yet there are still many, even scholars and members of Parliament, who are so ignorant or so blinded by prejudice as to raise a pathetic lament over the increase and spread of the manufacturing system… there are persons who regard it as a great disaster when they hear that 150,000 persons in our spinning works now produce as much yarn as could hardly be spun with the little hand-wheel by 40,000,000.
These people appear to cherish the absurd opinion that if there were no machines, manufacture would really give employment to as many millions as now; nor do they reflect that the whole of
EDWARD BAINES, History of the Cotton Manufacture in