The Private vs. Public Sector False Dichotomy

During debates concerning the role of government in the economy, it is customary for the terms “private sector” and “public sector” to be tossed around lightly. As libertarians, we all know that the voluntary nature of the private sector is what enables for all sorts of innovation and economic prosperity. But, is the free market actually private in nature? Markets involve the actions of millions of producers and consumers to help coordinate prices and allocate resources. Governments, on the other hand, are notable for working behind closed doors and doling out benefits to interest groups that represent a very narrow sector of the entire populace. So, which sector of the economy is truly upholding the “public interest”?

With a clever Orwellian sleight of hand, the use of the phrase “private sector” effectively evokes the idea that markets are a totally secretive process with a bunch of corporate fat cats calling all the shots without any form of accountability. This could not be further from the truth. In reality, markets are very complex institutions that involve not just the producers and managers at the top, but the consumers that ultimately vote with their dollars on which products and what businesses stay afloat. The subjective value judgments of countless consumers also play a significant role in the formation of prices. This whole process stands in sharp contrast to the inner workings of the so-called “public sector” which is notorious for operating under a veil of secrecy— especially when it comes to crafting unpopular legislation behind closed doors and then ramming it down the general public’s throats!

Ultimately, the private versus public sector arguments in today’s political arena highlight a false dichotomy. The way these debates should be framed is whether an institution is voluntary or coercive. The voluntary nature of the market allows for a dynamic process of competition amongst producers. Thanks to the process of creative destruction, free markets are truly progressive forces that allow for consumers to enjoy a wide variety of goods services that they could have never possibly imagined. The paradigm-shifting nature of the marketcompels producers to pay heed to the demands of consumers or get put out of business. As Ludwig von Mises aptly pointed out in Bureaucracy, “The real bosses, in the capitalist system of market economy, are the consumers.”

The state, on the other hand, is the absolute antithesis of the marketplace; it is an institution of coercion and regression. By it’s definition, the state is a monopolistic institution. So, when it gets its hands on the economy, stagnating competition and economic malaise logically follow. The state also operates in a very surreptitious manner in which consumers have little to no say in judging the efficacy of its services. Without the profit and loss motive and with an endless trough of taxpayer funds, it’s nearly impossible to put a government agency out of business through normal market means, except by outright abolition.  It’s also commonplace for the state to work in absolute secrecy as it doles out favors to special interest groups through subsidies, tariffs, regulations, etc. All of these types of policies work against the free market in nature. Not only do they hurt producers, but they also limit consumer sovereignty by restricting the overall supply of goods and services. So much for upholding the public interest!

Debates over whether the private sector or public sector is more accountable to the general populace tend to miss the point. Markets in reality provide tremendous amounts of positive externalities to the general public at large and actually uphold its interest more so than the purported  “public sector”. The real distinction here is between the process of a handshake that promotes competition and the process of the hidden gun in the room that stifles competition. Consumers are kings in a true free market, as they are the ultimate deciders of what goods and services are produced. Just ask the former heads of General Motors, IBM, Kodak, Xerox, and other fallen corporate powerhouses if they wielded more power than the customers who stopped consuming their products. Any form of top-down economic regulation suppresses the will of consumers by effectively limiting the stock of goods and services that they can choose from. Many of these horrible economic policies were crafted in a very unaccountable fashion by political and corporate elites in the more obscure halls of Congress.

The only thing public about these political actions is the level of suffering that the American populace must face due to the unintended consequences of these misguided economic policies.Handshake