Government Budget Cuts Versus Privatization

            For most people, the term ‘libertarian’, if it signifies anything at all to them, is associated with ‘right-wing’ political groups, especially the current Republican Party in the United States. Often, right-wing politicians will try to get the government to cut its ‘social spending’ budget for things such as health and education, because they argue that the private sector is better at providing these services. From the point of view of genuine libertarians, so far so good. The problem with the right-wingers is that most are not consistent enough libertarians to realize that just cutting the government budget is not enough, measures must be taken in conjunction to deregulate or privatize the industry in question, or else the budget cuts may be harmful.

            

           Let us take an extreme hypothetical example to flesh out the point I am trying to make. Imagine a country where the government has completely socialized the food industry, from agricultural production, to processing, to wholesale, to retail. There are laws on the books preventing any private individual from involving themselves in food production or distribution, backed-up by strict punishments and a ruthless police force. Seeing this, some politicians in this country who have a ‘right-wing’ orientation argue as follows: ‘Food socialism is not the way; government has no business involving itself in the food industry. Therefore, we propose that the government’s food budget be slashed by a third’. The politicians pass this bill, declare a victory for liberty, and then satisfied with their work, go back to arguing about gay marriage and abortion.

            

           The problem with this ‘solution’ is clear: as the laws are currently set up in this country, there is no private option that could spring up to fill in the gap in food production capacity which will be left by the food budget cut. What happens in this: citizens will indeed bear less of the burden of taxes, inflation, and government budget deficits because of the budget cut, but some of the country’s food production capacity will be lost. Citizens have more money to spend on everything that the private sector is allowed to provide; but they lose in terms of the amount of food available. Depending on the circumstances, this could lead to mass starvation and death; the fact that citizens now have more money to spend on movies and cars is little consolation.

            

           We must always remember that governments do not just tax and spend; they also monopolize and ‘regulate’ industries. To move towards a free-market in a certain industry, cutting government spending in that industry is often not enough, the government’s restrictions and ‘regulations’ on that industry, or at least a significant amount of them, must also be lifted in conjunction if the reform is to be worth praising.

            

           Let us now apply these principles to some real-life examples. In Canada, the government has, for all intents and purposes, monopolized the most important parts of the healthcare industry. In many provinces, setting up private medical practices for many purposes is simply not allowed, especially for complicated medical procedures such as surgeries. In my opinion, this incredibly inefficient system is very undesirable and should be reformed based on free-market principles, the healthcare industry should be privatized. The way to do so, however, is not just to call for reduced government spending on healthcare. The result of this would just be an even worse system which citizens could not escape from, and which might actually cause the deaths of more Canadian citizens. Cuts in spending must be accompanied by a significant change in the laws governing the healthcare industry, namely, allowing private practices to be set up and to perform all medical procedures and not stifling these private practices with excessive regulations.

            

            The principle applies a bit differently in the US healthcare industry’s case. Here, private provision of medical services is allowed, but the industry has been crippled by a mass of harmful government regulations. Through restrictive licensing requirements for doctors and hospitals, the supply of most medical services has been artificially reduced. The industry, through government action, has been burdened with a very uneconomic practice: the practice of comprehensive health insurance as opposed to payment upon receipt of service being the dominant method of payment. Most people’s needs for most medical services cannot be classified as an insurable risk, a risk that must, as much as possible, be beyond the control of the service consumer and the service provider. In a free-market system, it would probably only make sense for medical insurance to cover the most truly unpredictable and serious diseases, with the rest paid for upon receipt of service.

Through its actions, the government has encouraged the comprehensive health insurance model. Income tax does not have to be paid on medical insurance granted to workers in lieu of cash payment of wages, and labour unions have often, through their coercive actions, forced employers to provide medical insurance to their workers, thus encouraging the prevalence of medical insurance. To make matters even worse, governments have set up tough licensing requirements for medical insurance providers, thus contributing to the cartelization of the industry and restriction of competition. Moreover, many governments have prohibited medical insurers from ‘discriminating’ against clients with certain known medical risk factors (something that any viable insurance business must do to keep its premiums lower for less risky clients), and many have forced insurers to cover certain medical procedures (treatments against alcoholism for instance) for all of its plans. These actions have made the price of medical insurance skyrocket, and the artificial dominance of the whole comprehensive medical insurance model lends itself to skyrocketing prices for all medical procedures covered due to an artificial stimulation of demand, thus making it very dangerous for people not to be insured.

            

           When Republicans, then, propose that government medical spending in the form of Medicare or Medicaid, or on public hospitals be reduced, without suggesting any reforms of the crippling government regulations on the private healthcare market, libertarians may be skeptical. While perhaps not as serious as in a fully monopolized system such as in Canada, where cuts in government medical spending simply result in less medical service available, no matter how urgently people need it, the results are not all that better in a healthcare system such as the United States has. Here, what citizens lose in government medical provision, they must look for in the ‘regulated’ private market that has been monstrously deformed and crippled by ill advised government interventionist policies. Any intelligent reform of the US medical industry along free-market lines must couple government spending cuts with repealing many of the harmful government interventionist policies in the private healthcare market.

            

           One of these two variants of the analysis can be applied to the industries of education, transportation, protection of ‘environmental’ resources, and other industries where governments tend to have a very visible presence. In order to gain much-needed clarity in policy analysis, we must refrain from comparing ‘public sector’ provision of a service and the provision of the service by a private sector crippled and deformed by government intervention. Rather, we should compare government provision of a service to the provision of the service as it would be based on free-market principles. Then, if we think that free-market provision of the service will be more effective and the service is currently provided largely or entirely by government, we should advocate a concurrent cutting of the government’s spending in that area and the loosening or elimination of the government’s interventionist restrictions of that industry. In other words, the real question is not: to cut the government budget or not to cut the government budget? It is: should this particular industry be run primarily by the government or should it be run primarily by competing private entrepreneurs according to free-market principles? Only by answering the latter question can we then answer the former question intelligently and effectively.