The Public/Private Problem
By Duncan Whitmore
For much of the history of classical liberalism and libertarianism, the primary battleground for freedom has been the economic arena. This is not difficult to understand given that the rise of Marxism and socialism towards the end of the nineteenth century (spawning the tyrannies of the twentieth) came on the back of economic promises: of freeing the workers from the supposed exploitation of the profit system, and imposing central control over industry for the benefit of “everyone”. This, in turn, focussed specific attention upon whether the means of production should be owned either privately or by the state, and which of these two options could furnish the highest standard of living.
As a result of this binary division, it became easy enough to regard capitalists, entrepreneurs, businesses, corporations and privatisations – i.e. anywhere where there is nominal private ownership over producer goods – as being automatically “good” on account of their efficiency, resourcefulness, competitiveness and affordability. On the other hand, anything that was state owned and/or state managed was afflicted by inefficiency, waste, and corruption, and so could be denigrated as “bad” without further question.
Of course, such a rule of thumb was validated empirically not only as the “capitalist” West had outshone the “communist” East by the end of the Cold War, but also within the UK as nationalised industries (such as the railways, steel manufacturing and coal mining) were run into the ground, while private businesses (such as supermarkets) flourished. Needless to say, the rule also reflects our understanding of just rights of ownership – that private ownership (as the result of either homesteading or voluntary exchange) is fully in accordance with the non-aggression principle and is therefore “good”, whereas state confiscation of previously owned goods is an egregious breach of that principle, and is therefore “bad”.
From the point of view of pure theory, taking this position is uncontroversial given that the theorist is able to assume the conditions under which individual actors are operating, and so can specify the incentives which inform their choices. For instance, in Man, Economy and State1, Murray N Rothbard is especially clear in dividing his analysis between that of a pure market economy on the one hand (Chapters 1-11), and of what he calls “violent intervention in the market” on the other hand (Chapter 12). In fact, the latter was originally a much more extensive discussion that was later published in full under the title Power and Market. Similarly, when other “Austrian” economists and libertarians – myself included – illustrate the effects of the private ownership of property, they are normally making the same assumption of a complete absence of any state or physical interference with private property rights.2 From this, it is easy enough to lead to the rule of thumb that “private” is good while “public” is bad.
It is difficult, if not impossible, to think of any instance where the latter half of this shorthand rule – “public is bad” – is violated. By definition, the state and state-owned bodies are inherently unjust on account of their funding through compulsory taxation and their ability to inflict legalised violence in order to further their operations. Moreover, such interventions cannot confer universal, economic benefits but must always privilege one party at the expense of another. Thus, even where the state has monopolised apparently peaceful and productive activities – e.g. running the railways, the post office or the telephones – we know that it will always operate in a suboptimal if not wholly wasteful manner. The only thing the state should do is shrink itself by cutting taxes, slashing red tape and relinquishing control of property, ideally until it ceases to exist.
There are grave problems, however, with assuming that the first half of the rule – “private is good” – always holds. This is quite obvious once you remember that justice is concerned fundamentally with actions, not status. The unjust nature of public and state bodies to which we just alluded rests ultimately on the fact that their sustenance necessarily depends on the unjust actions of taxation and the unilateral imposition of violence. But private actors are quite capable of breaching the non-aggression people if, say, they engage in acts of theft or murder. We would never defend an employee of a private entity who ploughed a company vehicle into a crowded street on the grounds that such an entity can “do whatever it likes” with its property.
Unfortunately, this becomes a lot more difficult to remember when a private entity either commits (or otherwise benefits from) an unjust act when this act isn’t obvious from anything that the private entity itself is doing. Libertarians (and the right generally) often seem to assume that private entities are operating in the textbook world of a perfect “free market” of purely voluntary transactions. In the real world, however, such an assumed condition of perfection never materialises. In the first place, neither a nirvana of total liberty nor a nightmare of complete autocracy has ever appeared in a single place; instead, every regime exists somewhere on a spectrum between these two extremes, with some closer to one end while others are nearer to the other. But even if we were to remember that every regime is necessarily a “mixed” one to differing degrees, it isn’t the case that any one of them consists of hermetically sealed “public” and “private” sectors – as if the former can never influence, corrupt, cajole or co-opt the latter. Rather, state subsidies, laws, regulations and the government’s own spending patterns have a marked effect on how those operating in the “private” sector behave. Therefore, regardless of whether one is a resident of Cuba or of Hong Kong, a private individual’s actions are influenced by a combination of sources from both the marketplace and the force of the state, and, moreover, a private entity can easily co-opt the state to endow it with special privileges at the expense of everyone else. Consequently, it cannot be assumed that particular property rights (and the disposal of that property) by “private” actors are automatically just or economically beneficial, even though they may appear so if one takes only a proximate view.
As we mentioned, during both the nineteenth and twentieth centuries, the difference between the results of capitalist countries and socialist/communist regimes (as well as between privatised and nationalised industries within the same country) was stark enough for this to be overlooked without much consequence. We know that such huge strides in the standard of living resulting from the Industrial Revolution could not have occurred without a preponderance of strong, private property rights and free exchange; we know that the Soviet Union fell behind and eventually collapsed because of its heavily socialised economic system. The laws of economics do not allow for alternative explanations.
Even then, however, it is possible that Austro-libertarians (and other free marketers) have assumed too readily that the precise property relations that emerged historically out of nineteenth century capitalism are unquestionably good/optimal while overlooking the fact that the wealthy owners of industry could still manipulate the state to their advantage.3
For instance, explaining the differences between employer and employee, capitalist and wage earner, and entrepreneur and labourer (and the returns that they each earn) is a valid theoretical exercise that can be made in order to understand the motivations of a particular actor qua that particular role. But it is also entirely possible that the empirical manifestation of these divisions during the Industrial Revolution wasn’t wholly the result of genuine free choice, but owed itself also to the state having prevented employees, wage earners and labourers from accumulating too much property. In other words, the extent to which labourers continued to work “voluntarily” for wages instead of forming their own businesses could have been exacerbated by the fact that the state made it more difficult for them to transition to the capitalist class, while capitalists continued to accumulate profits not solely because they served the needs of consumers better than any rival, but because a potential source of competition had been frustrated. This is in spite of the fact that, overall, the system still managed to remain more economically productive than a system of direct state ownership of industry. In contrast, a completely free society – one in which there is truly an absence of any kind of state interference in property rights – may well see fewer large businesses run by a handful of bosses employing thousands of workers, and a greater number of smaller partnerships, co-operatives, mutuals or other organisations where the roles of owner/manager/worker are less distinctive.4
Unfortunately, state interference with property rights has only grown since the twentieth century saw the dawn of Keynesian macroeconomic (mis)management, worldwide paper money under the aegis of central banking, and generous welfare states, all of which have poisoned the economic landscape in which private entities are operating. Yet it still seems all too easy to resort to the same shorthand of assuming that nominally peaceful activities of private entities are perfectly legitimate.
For instance, Acme Ltd. may produce widgets in its factory so as to sell them in its shops. Customers may come into the shops to purchase the widgets for prices they are willing to pay. Acme Ltd. earns its profits from the sales before reinvesting those earnings in the economy, apparently creating “economic growth”. At no point does anyone appear to have been forced into a transaction – there are no tax collectors, no threats of prison – and so everything seems above board.
But what if Acme Ltd. was benefiting from a state-enforced monopoly that prevented potential rivals from entering the widget business? What if, as a result of this, the price of widgets, all else being equal, is higher than it otherwise would be and, consequently, Acme’s profits from this unduly high price are not the result of genuine entrepreneurial foresight? No longer can we say that Acme is providing a true economic benefit, nor has its wealth been earned through just means. Moreover, from this, it also becomes much harder to conclude that Acme Ltd., being a private company, can simply “do whatever it likes” with its property. Could it, for instance, decide to reduce the wages of the workers toiling in its widget factories? Ordinarily (subject to existing contractual agreement) we would say yes – if the workers do not like this new arrangement then they should find employment elsewhere. But if the state has prevented rival widget manufacturers from opening factories, then we can no longer say that Acme’s low wages are either just or economically efficient. If the state has forcibly closed off other possible options then it is likely that Acme Ltd. is able to exploit its workforce by paying them wages lower than they otherwise would be.5 6
Readers well versed in economic theory are likely to recognise that all I am doing here is illustrating a version of Henry Hazlitt’s economic lesson:
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.7
Similarly, we must look not only at the immediate, visible situation with which we are confronted, but at the entire context in which an economic actor is operating. In this regard, Bastiat’s famous “Broken Window Fallacy” (Hazlitt’s inspiration) is entirely apt.8
If a shopkeeper needs to repair a window in his shop because it has been broken by a vandal, we can see quite easily the “voluntary” spending of the shopkeeper on a new pane of glass; we can, in turn, look at the employment of the glazier and of the producers of the materials that the glazier will purchase with his income. On their own, all of these seem to be evidence of a healthy, prosperous economy. One can also be led to the conclusion that breaking the window was a good thing on account of all of this employment that has been generated as a result.9
Such observations, however, cannot given us a complete conclusion, for we have to consider also the things that the shopkeeper could not buy as a result of having to spend a portion of his income on the new window – a window he would still have if it had not been smashed. Perhaps he would have bought a new suit or a new computer? If so, the money he must spend on re-glazing the window is money that cannot now be spent on a suit or computer. Thus, the destruction of the window, far from producing a prosperous economy, has, in fact, brought about a net societal loss. For had the window not been broken, the shopkeeper would now have a window and a new suit or computer; but as the window was broken, all he has is a replacement window with no new suit or computer. Whatever employment is gained by the window glazier and his suppliers as a result of the shopkeeper’s spending is offset by the dis-employment of tailors and computer outlets.10
Going back to our earlier example, the state, by granting Acme Ltd. a monopoly privilege, is the equivalent of the vandal who breaks the shop window, while Acme Ltd. is the equivalent of the glazier whose business is swollen by the demand for a new window. We cannot celebrate the “productivity” of Acme Ltd. nor the economic decisions he makes, when the entire business is wholly reliant upon the state smashing windows. Indeed, Acme Ltd. may even be encouraging the state to smash as many windows as possible so that there is a higher demand for repairs. Stated in this way, of course, the lessons of Hazlitt and Bastiat seem so simple. Yet the fact that they are so often overlooked is the reason why both authors have been lauded for preaching them.11
One result of failing to heed these lessons is that the left and the right often talk past each other. For instance, the left will point to the pitiful wages that Acme Ltd. is paying its workers, holding them up as an example of capitalist exploitation before demanding the ameliorating hand of the state to enforce, say, minimum wages to compensate. The right, on the other hand, will take this latter measure to be an unjust, state intrusion into the free and voluntary marketplace. Each view contains a kernel of truth, yet they both fail to identify the fundamental problem of Acme’s state granted, monopoly privilege. Thus, neither the cry for “more government” from the left nor the plea to “do nothing” from the right is a suitable solution. More generally, the left may complain about rising wealth inequality and the continual concentration of the nominal, private ownership of property in a small, elite group of “billionaires” while wages stagnate. Yet the right will simply dismiss this as being the natural result of free trade and superior entrepreneurial ability. Again, both groups overlook the fact that it is state-induced, hyper-financialisation and other interferences that has concentrated wealth in an ever-dwindling number of hands.
Indeed, while free-marketers are generally correct on theory, it seems to me as though they routinely underestimate how much the historical record can be interpreted as vindicating alternative economic doctrines on either side of the political aisle. For instance, the nationalist, populist right can also misinterpret some of the empirical effects of contemporary global trade. Once again, theory tells us that, assuming the absence of any kind of state interference, an expansion of investment and the division of labour across national boundaries should result in a global rise in prosperity. But instead, jobs and manufacturing are shipped overseas (leaving behind rotting rust belts where there was once prosperous industry), Western economies have been morphed into financial casinos, and foreign “investment” is forced into developing countries, saddling the latter with debt while their assets disappear into the pockets of Western corporations. As we have said before, the explanation for this is the wanton printing by Western states of paper reserve currencies, and the management of international trade to the benefit of both themselves and politically connected corporations through shelf bending trade agreements. This is not to mention the imperialist military threat (with private arms contractors also gobbling up taxpayers’ money) against any regime that refuses to play ball. But as the state’s minions and lackeys promote of all their odious policies under the rubrics of “free trade” and “globalisation”, the problem is seen to be too much freedom and not enough control – or, at least, not enough of the right kind of control. Hence, one, seemingly appropriate response – as demonstrated by Donald Trump’s “America First” programme – is to raise tariffs on imported goods in an effort to repatriate industry and manufacturing. Such an effort will, of course, exacerbate conflict and impoverishment in the long run, but those who falsely believe in such measures are suffering from real problems that cannot simply be dismissed as the inevitable costs of “free trade”.
The more serious problem, however, is how private corporations can actively promote the role of physical enforcement and the growth of state power under the guise of creating general, social benefits. These corporations benefit from co-opting the state for the purposes of privilege and wealth distribution rather than wealth creation, while the state, in turn, is able to further its nefarious purposes by persuading/paying/bullying private entities to use the latter’s control over the production process to serve political, ahead of consumer, priorities.12 In fact, the mixed economy under the aegis of “liberal democracy” has been the biggest boon for the growth of what Franz Oppenheimer called the “political means” (i.e. taking your wealth from others) – so successful, in fact, that at the close of the twentieth century, political scientist Stephen Holmes was able to utter the following, unashamedly candid assessment:
Limited government is, or can be, more powerful than unlimited government […] By restricting the arbitrary powers of government officials, a liberal constitution can, under the right conditions, increase the state’s capacity to […] mobilize collective resources for common purposes.
It now seems obvious that liberalism can occasionally eclipse authoritarianism as a technique for accumulating political power. However temporary, the current world supremacy of liberal-democratic polities would be incomprehensible if liberalism really were […] a quasi-anarchical war against the state. Liberalism is not allergic to political power […] [F]or good or ill, liberalism is one of the most effective philosophies of state building ever contrived.13
The especially “ingenious” element of this arrangement – “state capitalism”, “crony capitalism”, “state corporatism”, or whatever we want to call it – is how it can promote even more state growth not as a result of its apparent successes but as a consequence of its own failures. As economic law tells us, the negative effects of “violent interventions into the market” must always appear, but the precise way in which they become manifest in our contemporary economies is markedly different from how they would do so in a fully socialised economy (or with a de jure nationalised industry). If a state enterprise fails to produce affordable, high quality goods, then the state, as direct owner and operator, is clearly to blame. Thus, more quickly does it become obvious that the answer is to reduce the role of the state and to open the enterprise to genuine entrepreneurship. But this is not the case when the state’s role of granting special privilege is distant, taking effect only through the obvious and visible actions of private corporations.
Probably the most easily illustrated (and most important) example of where this can happen is in the banking industry. The cartelisation of financial services under the aegis of a central bank insulates private banks from competition and from the prospect of bankrupting themselves through overzealous credit expansion. The state, in turn, gets to exploit a spigot of paper money with which to fund both itself and its favoured contractors without having to raise taxes on the population. Such an arrangement is likely to exacerbate the business cycle given that the obliteration of natural market incentives removes barriers to the excessive extension of credit. Yet when the whole edifice comes crashing down, as it did in 2008, all that people see is “greedy”, private bankers over-lending (through a myriad of complex financial products) to borrowers who never had a snowball’s chance in hell of repaying their debts. Such “criminals” are then seen to be making off like highwaymen having been bailed out by the apparently poor, unsuspecting state. In short, “capitalism”, and everything about it, is to blame, and so the answer to the state-induced crisis appears to be the increase of state control over financial services – more regulation and more taxation on profits – rather than its diminution. However, what people do not see is the state endowed privilege behind the scenes that enables this catastrophe to happen. Thus, the state grows as a result of its own calamities while heaping the blame onto a “private” sector that seemingly cannot be trusted to be left alone. The latter, in turn, is unlikely to utter much objection given that a) it has been able to privatise its gains while socialising its losses, and b) further regulation tends to depress competition to the benefit of oversized, incumbent firms rather than clipping their wings.
All of this is exacerbated by the fact that banks and other corporations readily spout free market platitudes such as “low taxes” and maximising “private ownership” in a “business friendly” economy – except that these are no longer institutions that seem to benefit the average person but are, instead, merely vehicles for companies to enrich themselves by hoarding their ill gotten gains. A contemporary example is COVID restrictions disproportionately affecting small and medium sized, “non-essential” businesses and their employees. Not only has this directly favoured larger companies and online behemoths which were allowed to remain operating14, but if restricted companies go bankrupt all of their assets are gobbled up by their creditors in order to settle outstanding debt. In other words, the formal apparatus of property rights – the enforcement of ownership, contracts and agreements – is being used by large, politically connected corporations to mop up from when the state interferes with other people’s property rights. When the rich are getting richer through such a ruse, it is no small wonder everyone else isn’t particularly keen on hearing about “property rights”.
Many libertarians and those on the right generally are currently warning about the impending prospect of a “Great Reset” of the present economic order, of which this kind of fallout from COVID-19 lockdowns and restrictions seem to be a part. But as I have suggested a few times before, such a plan is not so much a revolution as it is the existing economic order trying to save itself by morphing into a more efficient, hyper-globalised, trans-national, digital version of what we already have.15 Thus, the longer term danger is what might replace all of this when it too collapses, as economic theory tells us it must. If the kind of order promoted by the “Great Reset”, or any kind of similar plan, is still identified as being primarily a “capitalist” one run by and for wealthy, private corporations and their billionaire owners, then the solution will be seen, once again, as full socialisation and direct state ownership.16 In fact, it wouldn’t be altogether surprising if direct nationalisations and explicit growth of the state at a national level in response to continued crises ends up “overtaking” any kind of globalist-corporatist scheme – a direction seemingly being taken by Boris Johnson’s government in the UK. Particularly as memories of Cold War era socialism and communism recede into distant memory, libertarians (and free marketers generally) may have to work very hard in order to ensure that we end up with a smaller, rather than a bigger state.17
Cancel Culture and COVID-19
The medium term result of all of this is that, as private industries become ever more cartelised, regulated and controlled by the state, they become more responsive to political concerns than they do to the needs of consumers. An additional “advantage” of private companies doing the state’s dirty work is that the state is able to claim that no legal or constitutional norms (which normally serve to restrict only the direct action of state bodies) are violated for the reason that policies are being implemented by “private” corporations exercising their own “private property rights”. The more this continues, the more that private corporations become de facto extensions of the state. The revolving door between corporate C-suites and board rooms on the one hand, and high offices of state on the other, is a testament to this, for it illustrates the fact that political talent and entrepreneurial talent are now effectively one and the same thing instead of polar opposites.18
It is important to realise in this regard that the popular perception (on both the left and the right) that the state is “controlled” by wealthy and powerful private interests is something of an inaccuracy. True enough, a particular individual with wealth and political connections, such as Bill Gates, will be able to exert more influence on government policy than the average voter. Such an individual also has the means to either promote or denigrate specific elected officials through financing and influencing media attention. As a whole, however, it is the state that is always the dominant partner in any public-private relationship for the reason that only the state can exercise the imposition of violence with the full backing of the people. The state has a far greater arsenal at its disposal, in terms of legal and material resources (as well as public support), with which to persecute private interests. Thus, it is private interests that need to keep the state on side more than vice versa. As Ron Paul explains in relation to vaccine mandates:
Government approved model vaccine requirements combined with government officials encouraging their adoption send the message to businesses that imposing vaccine requirements on their employees, and maybe their customers as well, is a good way to stay in the politicians and bureaucrats’ good graces.
An effective way for the US government to “encourage” adoption of vaccine mandates and vaccine passports is denying federal funds to businesses, states, local governments, and other institutions that refuse to require employees, customers, or other people to prove they are vaccinated. This will result in vaccine requirements while enabling government to claim it is not forcing vaccines on anyone.
Another commentator explains briefly the partnership between state intelligence organs and Google:
Google […] has been financially intertwined with US intelligence agencies since its very inception when it received research grants from the CIA and NSA. It pours massive amounts of money into federal lobbying and DC think tanks, has a cozy relationship with the NSA, and has been a military-intelligence contractor from the beginning.
Clearly any breakdown in these relationships would be a bigger threat to Google than to the state – even more so if the state sought to persecute Google. For, in that instance, the state would still be there, and the people – who are already predisposed to thinking that private corporations are evil – would still be paying their taxes. Yet Google would lose an essential source of funding and patronage, leaving it vulnerable to competitors whom the state may choose to favour in its stead.
Anyhow, all of this is coming to a head at a time in which freedom in the West is being driven closer to the brink of extinction. All of the mechanisms of achieving this extinction – the confiscation of property, mass censorship, the imposition of vaccine mandates and vaccine passports, the infiltration of cultural leftism into corporations and institutions – are largely being exercised not by the state directly, but by nominally private entities. It is corporate behemoths such as Amazon and Walmart (not to mention their billionaire owners) who are confiscating wealth and productivity through inflationism and defaults from COVID lockdowns; it is Facebook and Twitter who are censoring dissenting voices on their platforms; it is private employers that are being harassed into enforcing “no jab, no job” policies and demanding proof of vaccination from customers; it is corporations such as Sainsburys or Ben and Jerry’s that are bending over backwards to demonstrate their woke credentials, and mandating diversity and inclusion training that embrace cultural leftist assumptions.
All of this makes for a tremendous amount of difficulty in analysing the legal and ethical situation. For on the one hand, we cannot, say that “vaccine passports” or “no jab, no job policies” are perfectly legitimate if they are enforced by Walmart or Sainsburys when the decision is clearly being made under state influence. We cannot possibly endorse censorship and regulation of information by Twitter or Facebook on the grounds that these are private companies when they are so heavily privileged by the state, and are clearly responding more to state priorities than to those of consumers. And yet, on the other hand, we cannot promote any further state intrusion into private property rights as “corrective” measures either. For instance, more laws regulating whom private entities can and or cannot hire, and “free speech laws” to protect what we say on Twitter, are both of the same ilk as “wealth taxes” to tackle to wealth inequality or tariffs to tackle the flight of industry to China. They simply compound, rather than address, the fundamental problem of state interference. What are libertarians to do?
An Alternative Way Forward
The first step is to recognise the obvious inadequacy of the “public” versus “private” framework that classifies entities solely according to their nominal, legal status. Indeed, most large, private corporations must now be seen as part of the problem, not as the solution, and so we need an alternative method of sifting the net perpetrators from the net victims of the growth of state power (and, by extension, whom we might regard as our “heroes” and as our “enemies”).
The solution is to re-orientate our thinking away from status and to focus instead on actions. Thus, the question we should ask is not whether a given entity is legally public or private. Rather, the basic distinction we should bear in mind is that drawn by Franz Oppenheimer – whether the entity is either a net beneficiary/promoter/partaker of the “economic means” or of the “political means”. (The “economic means” being homesteading, production and voluntary trade between willing participants; the “political means” being the forced confiscation or control of resources belonging to other people). Additionally, when considering companies and corporations, we could ask whether a particular entity exists primarily to serve the needs of private consumers on the one hand, or whether it is primarily serving/fostering/promoting the needs of the state (at the expense of consumers) on the other.
As we indicated earlier, it is virtually certain that all state and public bodies are utilising the “political means” by virtue of their funding through taxation and/or their ability to impose violence in order to sustain themselves. However, whether a private entity falls into one category or the other will be a matter of judgment on a case by case basis, over which particular libertarians are likely to disagree.
Indeed, it would be remiss not to point that, however much we may despise them for their political influence, large corporations such as Amazon and Facebook do have value for the people that use them. On top of every other ill of which we accuse them, we may well lament the demise of the high street and the gradual digitisation of our social lives. But it is also the case that online shopping has served to connect a greater number of suppliers and customers without the expense of a bricks-and-mortars presence, and so a greater number of goods are likely to be available at lower prices to more people than they otherwise would be. And however much social media outlets such as Twitter try to censor information they dislike (or cajole us into accepting “authoritative” sources), it is still the case that social media and the internet has enabled a greater dissemination of alternative information for those who are willing to look for it.19 20 Moreover, we have to remember that, unlike socialists, we are not attacking the principle of private property per se. Thus, unrestrained attacks on private entities that fail to account for at least some of the good things they may do is unlikely to be a helpful strategy.
Further, we cannot automatically assume that all net partakers in the political means should be treated homogenously as “the enemy”. There is a huge difference, for instance, between Google or a military contractor on the one hand, and a single mother who lives mostly off state handouts on the other. Both may be net beneficiaries of the political means, and yet clearly one is more dangerous than the other. In fact, it is generally more reasonable to regard welfare dependents as victims of the state rather than co-conspirators.
Thus, I will propose here a few general questions that we can ask of a given entity so as to sift the culpable generators of the political means from those who may be unwilling, incidental or otherwise innocent beneficiaries of the political means, but who are otherwise primarily involved with the economic means. Such a list is not intended to be exhaustive, and I would encourage readers to think of other helpful criteria.
First: Does an entity appear to earn most of its income from utilising the political means?
If state subsidies or privilege are necessary, rather than incidental, to the entity’s financial survival, the more likely it is that the entity is a willing extension of the state. Into this bracket will fall all of those contractors which derive their revenue only from government contracts (such as arms manufacturers), but it will also include most financial services corporations given their proximity to the monetary printing press.
Second: Does an entity attempt to promote and foster the political means?
By this, we mean that the entity isn’t merely opportunistic or serving the government out of happenstance, but it is actively lobbying for government sustenance and the diversion of tax funds and privileges – in other words, engaging in what economists call “rent seeking behaviour”. So if an entity is pressing the government to divert tax funds towards the kind of industry in which the entity operates, or is crowing for a special privilege or exemption, it is likely to be guilty. However, we could probably exclude, for example, a cleaning company employed by the government to clean the Town Hall. Clearly such an entity is earning revenue from the state, but it may well be indifferent to that fact, and would be quite willing and able to find business elsewhere if state spending was cut.
Third: Does an entity appear to be more responsive to politics and political pressures, or it is more sensitive to the demands of consumers? If the former, is this enthusiastic or is it grudging?
If an entity is actively embracing and promoting state preoccupations then it is more likely to be operating as an extension of the state; if it avoids most engagement in politics or does so only half-heartedly just to “tick a box” then it is probably more concerned with serving the needs of its customers.
Fourth: Is the entity courting the state even though other options may be available, or has it been coerced into choosing an apparently “statist” path solely because the state has forcibly crowded out its other options?
This is a complex, but important matter to understand. Occasionally, one sees libertarians debating the question of whether it is “ethical” for a libertarian, say, to use government roads, to seek help from government healthcare, or to accept any service that is government funded. Are we hypocrites in complaining about tax funded roads if we drive on them anyway? If we willingly accept the assistance of a state employed doctor in an emergency, do we still have a right to complain about the NHS?
In an ideal world, we may wish to say that it is, indeed, our duty to avoid all contact with and patronage of state run services. However, the question can only be answered by considering how much the state has forcibly closed off other reasonable options. The moral responsibility of an individual for an action can be judged only in relation to the alternatives that he was able to choose freely – it cannot be judged in relation to some impossible or reasonably unattainable ideal.
For instance, imagine a bank robber points a gun to a bank manager’s head, threatening to shoot him dead unless he opens the bank’s vault. The bank manager, fearing for his life, duly complies, opening up the vault so that the robber can make off with the cash. Clearly, it is very difficult for us to suggest that the bank manager behaved “unethically” in complying with the bank robber’s demand. In fact, from a purely legal perspective, his action under duress should be considered not as his own action at all, but as the action of the robber who was using the bank manager’s ability to open the vault as a means to do so.21 From the point of view of wider morality, the bank manager may well have failed to aspire to the heights of heroism through his compliance – he probably wouldn’t win any awards – but he cannot be considered morally culpable for the unlocking of the vault.
Similarly, therefore, if the state has forcibly prevented us from using all other reasonable alternatives to government roads, then libertarians are not behaving unethically by driving on them; if we get sick and go to a government hospital, it is not unethical for us to do so if the state has crowded out all affordable alternatives. To suggest otherwise is to mistake a coerced victimhood for willing complicity.
Applying this to corporate entities, therefore, if they are merely complying with state mandates such as excessive “Health and Safety” laws or operating the PAYE (payroll withholding tax) system because the government forced them to do so, then it isn’t reasonable to regard them as willing agents of the state. In fact, they might well regard the state as something of a nuisance, and would much rather prefer to focus on serving their consumers. Similarly, if a cleaning company takes a government contract to clean the Town Hall, it shouldn’t be blamed for doing so if government demand for those services has crowded out private demand.22 However, if the entity is going above and beyond this bare minimum by championing state priorities ahead of serving the needs of consumers, then we may come to a different conclusion. Moreover, we should be suspicious of any entity that encourages the state to spend taxpayers’ money on services that would have no, equivalent, private demand.
Fifth: Is the entity helping ordinary people to reduce the burdens that the state imposes on them?
Some entities may exist only because of the state but they earn their revenue from private consumers who wish to minimise state interference in their lives. Such entities should properly be considered as defences against the state rather than as co-conspirators. We mentioned earlier the example of tax accountants, but so too should we include any vendor of, say, firewalls, VPNs or encryption that reduce the efficacy of state surveillance and snooping of our online lives. Indeed, these entities are little different from the vendors of safes, locks and security alarms to prevent burglary; if burglars were to stop burgling then these companies would go out of business, but so long as the latter are not provoking burglaries so as to inflate the demand for security, we would not consider them as part of the enterprise of burglary.
Sixth: Be willing to reassess!
Finally, we should note that entities can go from being good to bad or from better to worse (although vice versa is less likely). Indeed, most successful companies usually start out as genuine market leaders who only later cosy up to the state so as to consolidate and protect their positions. We can reason that Amazon, Google and Microsoft are of this ilk.
In conclusion, we must reiterate that the only solution to entities that mostly fall foul of these criteria is to reduce the power of the state that lends them their privilege. It cannot be stressed enough that passing more laws to curb their activities, heaping more taxes upon them, or increasing the power of some state agency to regulate them “better” is no solution at all. For such measures not only fail to identify the fundamental cause of state interference, but they lend even more power to the culprit – the equivalent of paying the man who is bankrolling the burglars to protect you from burglary. However, orienting our thinking and our arguments away from status and, instead, highlighting the fundamental problem of state interference should prevent alternative, superficially plausible explanations (which, more often that not, will be an anathema to freedom) from nestling in the public psyche.
* * * * *
1Murray N Rothbard, Man Economy, and State with Power and Market, Scholars’ Edition, Ludwig von Mises Institute (2009).
2Although, having reread some of my older work, I probably could have made this clearer.
3A noted scholar who has questioned the historical development of capitalism, albeit to reassert a version of the labour theory of value, is Kevin Carson. See Kevin Carson, Studies in Mutualist Political Economy, Fayetteville, Ark. (2004). Austro-libertarian critiques of Carson’s work by Robert P Murphy, Walter Block, George Reisman, and Roderick T Long (together with rejoinders by Carson) can be found in the Journal of Libertarian Studies, Volume 20, No. 1 (Winter 2006). Cf. Hans-Hermann Hoppe, Marxist and Austrian Class Analysis, Ch. 2 in Yuri N Maltsev (ed.), Requiem for Marx, Ludwig von Mises Institute (1993), 51-74. Hoppe notes that, while Marxist class analysis correctly identifies a class of “exploiters” pitted against a class of “exploited”, it misattributes this fact to the existence (and state protection) of private property rights rather than to the state’s exemption from having to comply with the rules of homesteading and voluntary acquisition. Ibid. 63-4. This misunderstanding, no doubt, is the reason for leftist misinterpretations of the historic economic record, a matter we will touch on further below.
4In two insightful sections of Man, Economy and State, Murray N Rothbard explains how the emergence of “one big cartel” – and, by extension, one or only a handful of vast firms – is likely to be impossible on the free market. Singular control both horizontally and vertically throughout the production process means that such a cartel would become a de facto central planning board, allocating factors of production between internal divisions of the same entity. Given that such a state of affairs precludes exchange and, thus, the formation of market prices for the factors, the cartel would soon run into the economic calculation problem in just the same way as a socialist government. This would lead to the failure of the cartel as losses start to mount while other, smaller firms (which still have to trade for their factors) begin to flourish. See Rothbard, 612-6, 659-61. Thus, the benefits of economies of scale notwithstanding, we can draw the conclusion a priori that the sustenance of large, multinational corporations in our contemporary economy is unlikely to owe itself wholly to genuine market superiority instead of state privilege.
5This very example appears whenever there are complaints about the wage rates paid by large corporations to workers in developing countries. The right’s defences of these relatively low wage rates, while often correct under the assumption of a completely free market, tend to overlook the extent to which these corporations are benefiting from state interference with the exploitation of both human and natural resources in developing countries.
6The Children’s Health Defense offers a contemporary, US example of the COVID lockdowns which disproportionately affected small businesses while larger ones were allowed to remain open:
[C]orporate entities like Amazon and Walmart, which continued operating while smaller businesses were asked to make sacrifices, have scooped up Main Street’s market share and made out like bandits. The two companies’ founders and largest shareholders took home 56% more profits in 2020 compared to the previous year, but — notoriously stingy with their employees — “shared almost none of it with their workers.” The best Amazon seems able to do is to offer “up to $80” to frontline employees who get a COVID shot. Walmart, meanwhile, is telling employees (called “associates”) who do not get COVID vaccines by Oct. 4 they will go one month without pay and will then be terminated if they do not comply.
7Henry Hazlitt, Economics in One Lesson, Revised Edition, Three Rivers Press (1988), reprinted by The Ludwig von Mises Institute (2008), 5.
8Frederic Bastiat, That Which is Seen, and That Which is Not Seen, (1850), reprinted in The Bastiat Collection, Second Edition, Ludwig von Mises Institute (2007), 2-48.
9Anybody who argues that war and natural disasters are “good for the economy” is making this very claim.
10Similarly, all of the time and resources spent rebuilding houses and factories after a war or natural disaster are time and resources that cannot be devoted to producing other things.
11It should be remembered, however, that Bastiat’s illustration does not imply that the glazier is unproductive. Clearly, once the window has been smashed, the shopkeeper is made better off by calling on the glazier’s services. Rather, Bastiat’s point is that the act of vandalism cannot create universal, economic benefits.
Similarly, therefore, once the existence of state interference is taken as a given, we should not conclude that there is no value in services that offer to reduce or remedy the effects of that interference. Tax lawyers, for instance, would not exist in the absence of taxes, but to the extent that they succeed in reducing their clients’ tax liabilities, they are clearly offering a beneficial service. Thus, the analogy of the broken window should not be deployed verbatim to condemn any business that happens to exist only because of state interference. We will consider such complications in more detail below.
12Such an arrangement is often, and not incorrectly, described as fascism. It is important to remember, however, that fascism is explicit in its commitment to subordinating the individual to the state, whereas the key to the successful fusion of public and private interests under our liberal democratic system is its deceptive nature. As Thomas DiLorenzo explains:
Many American politicians who have advocated more or less total government control over economic activity have been more devious [than fascists] in their approach. They have advocated and adopted many of the same policies, but they have always recognized that direct attacks on private property, free enterprise, self-government, and individual freedom are not politically palatable to the majority of the American electorate. Thus, they have enacted a great many tax, regulatory, and income-transfer policies that achieve the ends of economic fascism, but which are sugar-coated with deceptive rhetoric about their alleged desire only to “save” capitalism.
13Stephen Holmes, Passions and Constraint: On the Theory of Liberal Democracy, The University of Chicago Press (1995), Preface (emphasis in the original).
14See note 6, above.
15Indeed, the World Economic Forum, which has proposed the initiative, lauds itself as the “International Organization for Public-Private Cooperation” – precisely the formula that has created our present, crumbling economies.
16Any distinction between “stakeholder capitalism” (a key concept of the Great Reset) and the kinds of “state capitalism” or “state corporatism” we have presently is evident more in style and emphasis rather than substance. Economic leftists in particular are unlikely to see much difference on account of the fact that they perceive all of them to be based on what, to them, is a fundamentally irredeemable problem: private ownership of the means of production.
17A related danger is that, because states are currently misusing science and technology in order to promote their COVID and climate change narratives, any resulting backlash could end up sweeping way the value of real scientific truth, including the laws of economics. As I have also mentioned once or twice before, when a particular tendency reaches an intolerable extreme, it is seldom tempered by moderation; instead, we seem to swing to the opposite extreme.
18For instance, the UK’s present Chancellor of the Exchequer, Rishi Sunak, and his predecessor, Sajid Javid, are former investment bankers.
19I own hard copies of the oeuvres of Mises, Rothbard and a few others, but much of the rest of Austro-libertarian literature I have studied is in electronic format, which, thanks to the efforts of the Mises Institute, I was able to download for free. This is in addition to the countless websites and blogs I have visited which probably wouldn’t even exist in an equivalent, offline form. In fact, most of my spending on books is on works antithetical to the libertarian creed.
20Around the year 2000, the proliferation of the internet was heralded as the death knell for traditional media, broadcasting and publishing, together with the relatively tight control a handful of outlets were able to maintain on the dissemination of information. For many years – perhaps up until around the election of Trump and the Brexit vote – continuous liberalisation seemed to be the case. Today, however, mainstream media seems more dominant than ever, while new and alternative forms of media are under the thumb of exactly the same kinds of corporate behemoth whose vested interests and strong ties to the state we have always despised – a seeming reversal of a once promising trajectory.
However, while it is understandable for libertarians to lament the resurgence of control and regimentation, it is, at the same time, no tremendous surprise.
In the first place, technology, in the long run, is likely to be neutral in the fight for freedom. The internet and instant communication have, indeed, opened up more opportunities for us, but at the same time they have lent the state another avenue through which to spy on and control us. All technology has to be created and deployed by individuals for specific purposes, and so ultimately the question of whether technology is either beneficial or harmful boils down to the question of whether those purposes are good or bad.
More specifically, from the invention of the printing press through to the newspaper and broadcast radio/television, the state has always tried to control the ability of the people to communicate. This ambition has stretched also to the monopolisation of education, transport networks (roads, railways, etc.), the postal service and telecommunications. For the state is an entity that benefits the few at the expense of the many, but it can survive only if it maintains the illusion that it benefits everyone. Thus, statism is fundamentally incompatible with the discovery of truth. The state can never, under any circumstance, allow for the free dissemination of ideas, and so it was always going to come after the internet at some point – particularly as the fracturing of the present order based upon liberal democracy, paper money and welfare statism has fertilised the ground for alternative ideas.
21For a more detailed explanation of this, see my discussion of legal causation in one of my prior essays on Libertarian Law.
22Indeed, we can reason that, if the Town Hall was sold off to private enterprise, its new, private owner would still have to have it cleaned.
Pages and pages of rubbish here. The thing is that a free society can only be a society with a coherent culture and J S Mill pointed out in Ch16 of On Representative Government. When in the 19C the elite as pro-British, they did not launch ideological attacks on the majority of society. The experience of the 20C and influence from America/Hollywood inter alia saw the elite detach themselves entirely from society: they now base their ideological claim to rule on their support for diversity and their anti-nomian values. This isn’t a public vs. private thing – the same upper middle class people staff the upper echelons of both the public and private sector in a manner described by James Burnham, forming a managerial elite. If it were just the government, it would be great, as you could vote them out. But you can’t vote out the entire upper middle class, who, in any society, will hold the real strings of private sector power. They are hostile to us as a people and as a culture, and see immigrants as the battering rams to destroy the pre-existing society. This is why J S Mill pointed out you can’t have free institutions in a cultural divided society. Clowns like Duncan Whitmore are effectively bag carriers for this detached elite and support mass immigration–which will end the last vestiges of freedom in this country for good.
Very interesting piece Duncan. I especially like the questions to ask at the end. I do think though you could justify some government restrictions on some firms as a defensive measure, analogous to supporting reserve requirements given the existence of central banking.
Thank you Swithun. If there are regulations already in place which are a response to some previous kind of state interference then I would agree that they shouldn’t necessarily be removed ahead of dealing with the prior interference at the same time; I can’t envisage a situation in which I would support any, wholly new regulation though.
Excellent article, Duncan; thank you. The assumption that “private ownership is good” regardless of how the entity actually behaves is a trap that far too many libertarians have fallen into. And your questions to check whether the entity is or is not using the economic means are good ones. Though there probably ought to be a few more!
Thank you Neil. And yes, the list wasn’t by any means intended to be exhaustive.