Editorial
Privatize the Government!
by Fred E. Foldvary, Senior EditorAdvocates of free markets tend to prefer private enterprise over governmental operations because it is more efficient and provides for free choices rather than an imposed government monopoly. Free-marketeers would like to privatize the postal service and education or at least provide an equal financial choice between private and governmental schools. The ultimate in privatization is to privatize the government itself.
There is already a lot of private governance. Homeowner or residential associations elect a board of directors which functions much like a city council. There are monthly assessments on the owners, which act like a property or site-value tax, and the association provides collective goods and services similar to those of a city, such as parks, parking, recreation, community buildings, security, and public utilities.
Condominiums, housing cooperatives, and land trusts have similar governance, and proprietary communities such as hotels, shopping centers, and landlord-owned apartment buildings have an administration that is not elected but provides governance and public goods to the tenants and customers. A great amount of governance is thus already privatized.
As competitive private organizations seeking to maximize their profits and benefits to members, private communities tend to be financed efficiently, to minimize costs. The efficient way to pay for civic services is by charging the tenants and users a rental on the property they use or have access to. This is in accord with the benefit-based method of public finance. Private organizations also have user fees for services that are specific to users, such as room service for hotel guests. But many general services, such as the elevators and escalators in hotels, office buildings and malls, are gratis to users, paid for from the rental charges on tenants.
City, county, State, and national governments do the opposite. They impose taxes according to the ability-to-pay principle. This is also called "the ability to extract." Any explicit flow of funds, such as earning income or spending money, gets siphoned off. When government does tax real estate, it usually taxes the buildings along with the land value, just because the owner can pay it. Anything you try to do: set up a business, fly in an airplane, see a movie, get gasoline for your car, or have money in a savings account, gets taxed, taxed again, and often triple taxed. You pay taxes when you earn money, again when you spend it, and again when you die and your heirs inherit it. Most of these taxes have no relation to any specific benefit provided by government, and by raising costs, these taxes impose an excess burden and welfare loss to society.
Private enterprise tends to be more efficient than government, so one reason to privatize governance is on the spending side, for a more efficient provision of collective goods. Another reason is on the revenue side: private communities charge user fees and rental payments rather than willy-nilly forcing people to pay surcharges any time they want to do anything.
Local government can be privatized by dividing a city into small districts, and then making each district a contractual community organization. Those landowners who don't want to join the local association can form their own association or stay under the direct authority of the government. All taxes would be eliminated in these associations. Also eliminated would be arbitrary regulations, including all zoning, building codes, and laws restricting activity without victims, such as gambling and drug use. Private communities would only be subject to criminal laws that have victims, such as murder, theft, and fraud. Each community would then enact whatever internal rules they wish.
After almost all local government has been converted to community associations and proprietary communities, the city administration would be converted to a contractual association, the council elected by the neighborhood associations. The county board would then be elected by the city councils, the State legislature by the county councils, and the federal congress or parliament by the State or provincial councils. From bottom to top, the governance would be contractual and voluntary, other than to prohibit and punish coercive harm such as theft.
Private governance would have maximal liberty and no taxes. The financing would flow from bottom to top, based on user fees and property rentals. Since it is more efficient to charge a rental for a site rather than also for the building, competition and cost-minimizing would induce the local communities to have assessments based only on site value, excluding the value of the buildings and other improvements, rather than the value of the entire property. Most US State governments now actually prohibit localities from only using site rent for public finances.
With private governance, there would be a great variety of community cultures. There could be religiously based communities, communal communities, individualist communities, and a wide variety of contractual agreements. Some would prohibit gambling or alcohol, and others not. Some would allow discrimination in employment and housing, and others not. Some would have Sunday as a holy day, others Saturday or Friday. People would be more free to live with neighbors with similar religions, cultures, languages and values, while many communities would value diversity and encourage people of various cultures and races and incomes to enter.
Private government carries freedom of association to its logical conclusion. Only when governance is truly voluntary can we have complete liberty and justice.
Copyright 2002 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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