Hijacking 'Privatization'

The Associated Press recently reported that the GOP, now in control of both the White House and Congress, is set to pursue its agenda of, among other things, partial privatization of Social Security. According to the AP, "Emboldened by Republicans' election triumph, proponents of partial privatization of Social Security are pressing for an overhaul of the retirement system as early as next year."

The kind of plan most congressional Republicans likely have in mind is similar to those promoted by the Cato Institute, the Heritage Foundation, and other mainstream conservative and libertarian think tanks. According to the Cato plan, “Rather than paying taxes into a government-owned fund, workers should be allowed to redirect their payroll taxes into individually owned, invested accounts, similar to 401(k) plans and Individual Retirement Accounts.” The thinking behind such plans is that workers would get a better return on money in a 401(k) than on their government “investment” and that they would have more choice about where their money goes.

While Cato initially envisions that people will invest 2-3 percent of their payroll taxes into capital funds, eventually this amount could be increased “and allow workers to control the maximum feasible amount of their retirement income.” Now, this plan might certainly be preferable to the Ponzi scheme that currently exists, but what is truly objectionable is calling it a plan for the “privatization” of Social Security. Our first tip-off that something fishy is going on is that even the language used by Cato (“workers should be allowed,” “maximum feasible amount”) implies that the government will still be calling the shots.

As George Orwell saw so clearly, the corruption of language leads to the corruption of thought. Political language, in particular, tends to be vague and misleading, often hiding something indefensible behind bland and comforting words, like “collateral damage” or “humanitarian intervention.”

In modern political speech, “privatization” has come to mean something very different from its natural meaning. “Privatization” has been used to describe Cato-style Social Security plans, the government’s use of prisons run by corporations, school voucher programs, and turning the management of public schools over to for-profit companies. Unfortunately, none of this represents privatization in its most important sense.

A government service has been privatized only when the government ends its coercively enforced monopoly on the provision of that service. For this to happen, two conditions must be met: The market in that service must be opened up to competition, and people must be able to opt out of the service altogether. Social Security “privatization,” “private prisons,” school voucher programs, and “for-profit” management of schools are not examples of privatization, but simply examples of government outsourcing and subcontracting for various services while maintaining its monopoly.

Take the example of so-called “privatization” of failing public schools. In some states, such as here in California , certain public schools that have been consistently inept at managing their money and educating their students have been turned over to private for-profit corporations to see if they could be better managed. But these are still government schools, funded by tax dollars, and subject to all the regulations and restrictions that go along with that.

The case of Social Security is similar. Even the supposedly libertarian Cato Institute is not proposing that people be allowed to opt out of Social Security altogether. Your tax money will still be extracted from your paycheck; it’s just that you’ll have (slightly) more say over where it goes. But, should you decide you’d rather spend that money on a retirement plan not approved by the feds, or on something else altogether, well, that’s just too bad. Your government-extracted money can be invested in a government-approved fund, rather than going directly into the government’s coffers. Anarchy, here we come!

To call this privatization is like saying that the U.S. Army was partially privatized because it used Afghan civilians as proxy troops in its war against the Taliban. This was still a government-directed operation from start to finish, just with a significant amount of outsourcing. The proponents of these schemes of psuedo-privatization seem to have forgotten an essential distinction between private and public institutions. As Murray Rothbard put it in his For a New Liberty:

“The libertarian sees a crucial distinction between government, whether central, state, or local, and all other institutions in society . . . . [E]very other person or group receives its income by voluntary payment: either by voluntary contribution or gift (such as the local community chest or bridge club), or by voluntary purchase of its goods or services on the market (i.e., grocery store owner, baseball player, steel manufacturer, etc.). Only the government obtains its income by coercion and violence—i.e., by the direct threat of confiscation or imprisonment if payment is not forthcoming. This coerced levy is ‘taxation.’”

This distinction makes it crystal clear that any service, even if it is ostensibly provided by a “private” firm, has not actually been privatized as long as it is funded coercively, i.e. by taxation. This includes all “private” prisons, “private” schools, and “private” Social Security accounts that are funded (and directed) by the government.

What is so sinister about the way the term privatization has been hijacked by proponents of statist programs is that it lulls conservatives and libertarians into thinking that they’re successfully rolling back the state, and it sours the general public on all talk of privatization when these government-funded and directed endeavors fail (as they’re wont to do). In fact, privatization (much like the related tern “deregulation”) has come to mean almost the opposite of its intended meaning. Rather than reducing the role of the government in providing important services, privatization seems to have become an all-purpose justification for the government to extend its influence into even more areas of the economy and private life. For instance, some opponents of school vouchers justly fear that using tax money to fund private and religious schools will only give the government an excuse to regulate the policies and curricula of those schools.

The only way to genuinely privatize any service would be to invite competition and to make funding purely voluntary—in other words, get the government out of it, period. True privatization is not just another name for government outsourcing. A system of nominally private institutions being funded by taxation and guided by the state resembles the discredited system of fascism far more than it does the free market. The upshot of this confusion is to further blur the distinction between private and public, between the coercive state and civil society.

Some interesting points here. I guess the Social Security issue here partially hinges upon a question - if the funding mechanism for Social Security is to be changed to one where workers maintain their own private accounts, should the government mandate that a certain minimum percentage be withheld from worker's paychecks and deposited into their accounts? I'd like to see a civil debate from both sides here - the first poster who uses either "drugaterian" or "facist" will get sewn into a sack with Janet Reno and Madeline Albright.

if the funding mechanism for Social Security is to be changed to one where workers maintain their own private accounts, should the government mandate that a certain minimum percentage be withheld from worker's paychecks and deposited into their accounts?

Of course not. People need to be responsible for their own lives. It should be up to me, and only me, if I want to save or spend my money.

Not only is this the correct choice in terms of respecting my rights, it is also has economic advantages. There may be a period of time in my life where I need to spend every penny I earn, such as when I start a family, and other times when I can save a significant amount. Having a government mandated minimum amount withheld from my paycheck robs me of that flexibility.

But you do know that that is the question that will be posed and used to justify continued Government control and you will be called a heartless conservative/libertarian?

Of course I do. I still think total privatization is the right thing to do.

And I would offer several challenges to the person who poses that question, and who accuses me of being heartless. What is more heartless: to have some group of people suffer for bad decisions that are entirely their own fault, or to punish the hardworking and wise and force them to support the dirtbags?

Is it more "compassionate" to perpetuate a retirement system like our current one, which is inadequate for the vast majority of (forced) participants, or to allow one that will provide several times more for the majority, and provides nothing for those who do nothing to help themselves?

For all the anti-libertarian conservatives on this thread, please take note of which side will support personal responsibility on this issue, and which side believes in supporting the irresponsible.

I use the term privatization because thats what everyone else uses in the term, but I think deregulated social security is a better term, however, unless we are all kidding ourselves, we all know what the goal is. To slowly erode it, and then one day, the liberty to totally opt out of social security and to have competition for our dollars and the best return so as to create wealth and let our money grow. Its called baby steps, I would love to see alternate programs (private) competiting, and I think that will happen one day.

Do you want to stand up in front of a Townhall meeting make, your point and have your Socialist Congressman imply that you want to throw old people into the street and let them starve? I ask my Congressman about where he found Constitutional Authority to allow Social Security and instead of addressing the question he went straight to the emotional button. I was prepared to argue the Constitution and he caught me off guard by evading the question but his switching the issue was very effective with the audience.

If it was just me, as an average joe citizen, I wouldn't care what kind of accusations were leveled against me. But I understand that political figures sympathetic to my point of view might not have that kind of freedom.

The liberals have quite an effective emotional argument at their disposal. No one likes the idea of gramps being forced to eat cat food and live in a cardboard box. But we ought to realize that we have strong arguments too, and some of them also have emotional appeal.

No one likes being told how they have to spend their money. People like being free, and being trusted to do the right thing. If we get called cold-hearted for wanting to privatize SS, we should call the liberals control freaks or dictators for wanting to force us to bend to their will. If they imply that we want to see old people thrown out onto the street, just ask them, "If you saw an elderly person on the street, with no food, wouldn't you help them out of basic human decency? Or do you need someone to hold a gun to your head to do it? If your elderly mother was eating cat food, wouldn't you help her yourself, instead of just relying on the government to do it?"

We can also offer higher returns to people than a statist SS program. Greed is a powerful emotion, too.

Maybe instead of being reactive and defensive any time a liberal utters some vicious lie against us, we should hit back.

The prison industry is a good model to ponder when determining whether something should be privatized, and whether the social cost incurred makes good public policy sense.

When the cost of prison finance becomes un-doable and turned over to commerce, commerce responds by doing the normal free-market thing: creating more criminals to incarcerate. Or maybe pressuring govt to create more criminals to incarcerate. Converting working, tax-paying citizens to criminals is economic cannibalization by definition, but that's what the invisible hand winds up doing.

If we were to privatize urban police patrol forces, commerce would endeavor to create more stoppable and fineable drivers. Or pressure govt to do it.

If the government's saying it won't have enough subjects to provide monthly SS revenue for future SS recipients, there's only two ways to meet the increased revenue demand: more money per month from existing payers or more payers created to contribute. Can commerce provide the much higher return-on-investment required per subject or can it create more subjects from which to extract money?

And what exactly will it be investing our money in to create the higher returns necessary to finance privatization?

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