Private Power Is Not “The Market”

Many people who consider themselves proponents of free markets are comfortable with the idea that any deregulation or privatization is, at least somewhat, a victory for the principles of markets and a net benefit to the public. After all, isn’t the private sector more efficient than the public sector? Shouldn’t we always strive to move economic control away from the state and into the private sphere?

Not all deregulations and privatizations are made equal.

If we jump to accept any proposal that has any element of both, we risk simply re-distributing unjust power and concentrating it even more while shielding self-interested parties from competition and accountability. If you’re for a proposal or plan that has that ultimate effect under the guise of “the free market,” then you’re abusing the term.

It is often suggested that something should be placed back “on the market” or “into the private sector.” These opinions are typically padded with standard types of statements about the benefits and miracles of free markets.

You can find these standard-issue pro-market sentiments in writings from North American classical liberals and conservatives alike1. These conversational circles may feature some differing views on certain details, but a shared love for markets and all of the standard arguments about competition and the invisible hand prevail in polite company. People in these crowds nod their heads when pro-market platitudes are thrown around because they’re supposed to be on the same page about what they mean — the private sector is simply better for, well, everything! Without nuance, people move on to other matters.

It is almost a joke, in many of these circles, if someone wants to go deeper into what they really mean when they use the term “free markets” or try to distinguish that from the private sector — more than likely they are looked at as over-talking the point or splitting hairs.

These sentiments damage the potential for meaningful distinctions.

The conversations and debates (online or otherwise) I’ve been part of, and articles that feature a proponent (or opponent) of private business and the private sector I’ve read this past year, have convinced me that it is still crucial, every now and then, for so-called proponents of markets to stop and elaborate on the distinction between “free markets” and simply economic activity in the private sphere or control by private interests. Only then can we judge whether we’re dealing with proponents of truly free-market ideas.

When those who say they are pro markets talk about “privatizing” something, or how a certain industry or service would be better off subject to “market forces,” they are (or at least should be) implying all that comes with that.

Let’s take the example I brought up in my article that touches on public schools in Ontario. In it, I suggest that an interesting idea would be to open up a “market for education.” The intention would be to create an environment where schools compete for attendance. This would probably, in the long run, see the buildup of an education market where the public benefits from the rising quality, and increased amount, of choices available to them at a range of prices. That would be the result of different companies and entrepreneurs racing to improve the educational services they provide, the condition of their schools, and different methods and approaches to education.

Here would also be a good place to illustrate what I don’t mean by a market for education.

What I don’t mean is a political scheme that would see the current public institutions, structures, and frameworks handed over to private firms in hopes that they would run the same ones, but more “efficiently” than they would be if they were on the public purse as a public institution.

This scenario would look something like public school boards being purchased or handed over to a private firm by a selection or bidding process hosted by the government. The firm would then, perhaps, be subject to some legal framework or regulation, but would ultimately have the exclusive rights to run the provincial public school system. This would include the management of staff, and the building and closing of schools to react to changes in demand2. Of course, schooling would still be mandatory for most children.

There are many who think this kind of idea is a good one, or at least a “step in the right direction,” for services like education, utilities, and healthcare. They feel that such an arrangement would put the operators of the education system under some form of market-like pressure and subject to non-government incentives. So, they say, this type of setup would be a win in at least two ways — it privatizes something public, taking it off the public purse supposedly making it more efficient, and is a small step on the road toward a full, free-market scenario.

I would say this would be a complete loss on both counts, and would probably be immensely worse than the current arrangement.

Pointing out that government is unable to deliver top-quality services and solutions (and why) is almost a reflex to proponents of free markets. But hyper-focusing on the state and public power as the only enemy of the market can be a dangerous distraction from the problems of concentrated private power (sometimes supported, in part, by the state anyway). This hyper-focus means many blindly embrace any proposed reduction in state involvement without consideration of other variables.

Government and publicly funded institutions are disliked by free marketeers for having monopoly or near-monopoly privileges in certain sectors, and being only semi-accountable to the public through democratic arrangements. If one agrees that that comes with a variety of negative effects, then it is only consistent that proponents of free markets see the massive problems that would come with handing over monopolistic-like jurisdiction or privileged power to a private interest that would be even less subject to public pressure and accountability in any democratic or market-oriented way.

The result of the privatization arrangement sketched above would only be a changing of the guard. Exclusive power and privilege going from a publicly funded institution to private interests really only creates superficial differences in the way they are leveraged. We would still have a situation with massive barriers against the market pressures free marketeers regard as forces that drive benefits, and there would also be less opportunity for public oversight, checks, and balances.

What I also certainly don’t mean by a “market for education” is an arrangement that would see a select or limited number of private interests (either by special permission or a restrictive and cumbersome licensing system3) get the opportunity to go about their profit-maximizing journey in what would then be insultingly presented to the public as a “deregulated” sector by businesses.

This would be an example of a highly restrictive scenario that would tie the hands of any entrepreneur or smaller interest willing to try their hand at the delivery of education, and, more importantly, would ultimately result in a sharply limited range of choices available to families trying to make decisions in the best interest of their children. By restricting the number of players on the market in this way — but championing it as “deregulation” or some sort of “free market” nonetheless — we would have another scheme where special privilege and high degree of control is simply moved from the government to a pre-existing class of interests or those who can afford to “pay to play.” Any new entrants to the market, if allowed, would be joining by a permission granted by the existing players or the government, and that usually only occurs when the interests of both of those groups line up with those of the new player — hardly an environment that encourages innovation and strong alternatives. Hardly a “market,” and certainly not a free one.

It’s interesting to note that what I don’t mean when I say something like “markets” lines up with what many proponents of publicly funded, government-controlled education envision as what I could mean by using the term. They rightly fear, and are opponents of, the consequences of watered-down, perverted alternatives to education posing as “markets” for a lot of the same reasons pointed to above. Funnily enough, they happen to make the same mistake as many supposed proponents of “markets” by calling them that, and that’s not for no good reason.

Many free-marketeers (in both of the scenarios outlined, and others similar) would be too quick to take any semblance or shred of enabling private business action where they can get it and crown it as “markets.” The sentiment is that privatization at least gets things away from the state. There is faith that an inch toward a free market is better than no movement toward it at all, but that is as flawed as the assertion that someone having a ridiculously unsafe automobile (with mechanical failures that pose high, deadly risks to others) on the road is definitely better than that person having no automobile at all. Some might say, at least it’s some transportation4.

If we believe that one of the main benefits of markets is that they empower individuals to make decisions that better their lives from a range of options that are themselves created by other individuals free to pursue their own self-interest, then the reality is that schemes such as the ones illustrated above aren’t actually a move toward a free market, but are neutral, or at the very worst, going the opposite direction.

Even if it’s true that a handful of the benefits of market pressures kick in when some semblance of competition between firms, consumer choice, and private business interests is present, these potential benefits need to be weighed against an understanding of the costs of the concentrated power that intermediate private interests would possess with such a compromised “market” arrangement.

A free-marketeer will never tell you that businesses are primarily out to promote the “general good.” They will, rightly, remind you that by pursuing self-interest (increasing market share, running their affairs efficiently to make a profit, etc.), private entities will unintentionally and indirectly increase the general welfare of everyone — the baker makes sure you can buy your bread in the morning because she can sell more bread that way, not because she is altruistic. The same goes for Apple and their products.

However, it’s paramount to bear in mind that the arrangement and structure of the economic playing field can severely hinder, and sometimes even reverse, the positive “invisible” effects of a market. In many cases, the arrangement of the field can unjustly and disproportionately shift privilege and profits toward certain private entities— especially ones that are already established and powerful that could have severely questionable ethics as organizations — while seeing no major or worthwhile improvement to the products delivered or services rendered. Meanwhile, influence and control moved away from the public — as consumers, or voters.

An arrangement that sees the removal of democratic structures as a controlling and balancing force of private interest paired with a playing field that is unjustly tilted in favour of a certain set of interests or class means that the average person — in the long and short run —is hurt, rather than helped, by the whole arrangement — economically and politically.

When something like a government-supported monopoly or special interest is propped up and power is concentrated in the hands of a few, it’s bad enough that the public doesn’t have the power that comes with more options available to them as consumers, and worse when the power of some of the tools in the liberal society’s toolbox, like democracy, are turned into useless objects. In the first scenario outlined above, you can’t vote out the firm running the school system, and may never be able to influence how they operate with your money. The same is true in the second case — even with some choice, you have severely limited influence as a consumer (or a prospective entrepreneur) because a select group of players and the government are working together.

It shouldn’t go without mentioning that, in both cases, private interests will blame as many of their woes as they can back on the government after receiving their gifts of privilege, and try to persuade the public to hand over more power and privilege, as if more of the same will be helpful to everyone.

While the business community and certain vested interests sing the praises of “the market” and “consumer choice” when the rhetoric works for them, in practice they more often than not prefer to have these elements diminished — minimizing the positive effects that come from both. Pesky things like: increased competition from new players entering the market providing a wider range of options for customers; the removal of corporate safety nets and corporate welfare in the event of business failure; and the government ensuring an even playing field by refraining from granting special permissions, are all elements that make a business’ journey toward increased profits and market share more challenging.

My line of thinking does, and should, generate challenges from fellow proponents of free markets about how to affect change. If half-measures and the “diet” versions of market ideals aren’t acceptable, are we not then stuck with the status quo? Isn’t political progress about compromises? Will certain functions and services tied into the inefficiencies of the public sector be doomed to stay there while we sit around trying to achieve a no-compromise utopia?

That would be the wrong takeaway from this. What I hope to get across is that these answers are not easy. Not every path toward an ideal results in a net benefit. Some might.

Removing democratic pressures on a private interest(s) in conjunction with allowing a bastardized version of a “deregulation” to happen while calling it the creation of, or a step toward, “free markets” should be looked at with just as much skepticism and scorn by free-marketeers as government bureaus running an entire industry. We shouldn’t be so quick to take ruined scraps where we can get them and champion them as a meal at a Michelin starred restaurant.

The task incumbent on the liberal is to consider political and economic arrangements on a case-by-case basis, in the real-world context, and to only accept the outcomes that will have a net positive impact on the very real people that can be affected by minor or massive structural changes. Sure, sometimes directional and small changes might work. Other times, they may be a complete disaster. Many times, most of the benefits are enjoyed by a privileged few by socialized costs and privatized profits.

Much to the chagrin of the sensibilities and biases of free-marketeers (myself included here), if minimizing the negative impacts on people and their well-being in the short- and long-run is something you care about, it’s important to recognize when the scenario that’s being presented as “deregulation,” “privatization,” or any of the other keywords we like hearing, may not always be as favourable as it may seem. The status quo might be preferable.

The state and its involvement in the many aspects of our lives isn’t a rigid object that can’t be divided or separated — it’s a bundle of multiple components5. Each component needs to be addressed. These discussions should be complex and should feel the burden of the facts rather than rely on hopes and dreams. We can’t simply default to the stock answers in the category of “I Love Capitalism” when faced with these conversations, and think that the only preferable dimension for a conversation is one of “less government” any way we can get it.

“In many ways, the major enemy of markets are the business communities. In many ways, the real function of government ought to be to keep down the power of anybody from becoming excessive — including the business community.”

Milton Friedman

1There is an open question, especially now, as to whether conservatives actually favour “markets” in even nearly the same way market liberals do. It seems that they don’t. In fact, there’s an open question as to whether conservatives in previous eras ever did either. However, that is not within the scope of this piece to decide or to deny.

2Tuition in this example, for your own imagination, could still be “free” to the public via taxation, or be priced out in certain ways, either set by the government or the firm providing the service, etc. However, for the sake of the point I’m trying to make in this area, tuition is not a main pillar of the discussion. 

3Government licensing schemes can be restrictive to entrepreneurs and new entrants to the market by simply being cost-prohibitive in nature to all but a handful of corporations or businesspeople that can afford the time and funds to go through all the hoops.

4Many of my economist friends would be quick to remind me that it may very well be true that someone owning a ridiculously unsafe automobile is preferable to none — one must consider the net benefit (or cost) to the person who owns it as well as its other productive capacities, and then weigh that against the danger it poses to others. Let’s assume for the sake of this example that it’s not preferable, on net, to have this car on the road, and likewise, that the scenarios I’m outlining in this piece are, again on net, not preferable to the current public systems.

5Jason Kuznicki, and his work in “Technology and the End of Authority: What Is Government For?,” deserve the credit for the clear-thinking the “bundle” analogy provides.

Photo is taken from cover art found on the book “Corporate Welfare”.

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Alex Aragona

About the Author: Alex Aragona

Alex is a business and marketing professional residing in Canada. He also hosts The Curious Task podcast. He is the founder of Speaking Liberally and a contributor.

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