Wednesday, February 22, 2012

Libertarian Illusions - Debunking the Public/Private Paradigm

Libertarian ideology, that thing supposedly that distinguishes Ron Paul's principles from those of other Republicans, rests on its own faulty principles. Libertarianism distinguishes between something that it calls the public sector and something that it calls the private sector. But the so-called sectors differ only by decree; operationally they feed the same circuit. The categories by which libertarian ideology defines itself are not essential nor foundational nor substantive in any regard. They are merely nominal, maybe even only ceremonial, as in a hoodwink. Libertarian ideology is a house of cards build on sand. The question is whether libertarians devote themselves to an honest mistake or engineer diversionary dissents to stifle real reform.

Corporations, those mainstays of the so-called private sector, are, after all, progeny of the government. It is the government that grants to enterprises various legal designations by which they derive competitive advantages. These designations are the familiar titles of C-Corporation, S-Corporation, holding company, limited liability corporation, nonprofit, and so forth. Entrepreneurs regularly appeal to the government to grant them charters of incorporation or any of these other favorable designations. And this governmental bestowal of favors, which is what it is, unto enterprises constitutes governmental intrusion into markets as much as does any ostensibly "anti-business" regulatory intervention.

Suppose that a vision inspires you to design a new style of widget, and you dutifully manufacture this widget. Go ahead. Secure the equipment, install it in your garage and produce widgets. Congratulations, you are an entrepreneur, enterprising away in the private sector.

But, there's a complication . . . .


Your neighbor observes your operation. And she imagines that she can produce higher-quality widgets at a lower cost than that at which you produce yours. So she sets up shop in her garage.

The two of you now compete for business in the widget market. You extend your product lines. You fight for market share.

If you compete "on an even playing field," then all is well, because your ingenuity and the law of supply an demand will do what they do. They will guide the invisible hand of the market to shape your personal fortunes. The hand also will translate the virtues of your enterprises into broader social benefit. May the best enterprise win to produce the greatest social good. Batter up! This is the naive faith of romantic capitalism.

But wait.  

Your wily competitor pulls an ace from her sleeve. She has a secret weapon. Having ventured outside of the private market, she has secured from the public sector--the government--a competitive advantage. She has secured a . . . corporate charter.

Now your competitor continues to battle you in the market, but government has tilted the playing field in her favor. Her personal fortunes are protected from liability claims stemming from court decisions that involve her business. She enjoys the tax advantages of certain of her "business expenses," such as insurance premiums. By applying for and using corporate credit, she can establish a credit history for her newly created legal fiction separately from her personal credit history. And she now qualifies for various governmental grants and subsidies.

Is she still a capitalist entrepreneur, or is she now, because she has incorporated her business, a socialist parasite, basking in governmental favors? You complain about the uneven playing field. She explains:

Anybody can get a corporate charter. You too can fill in the paperwork. The goverment grants the benefit to any enterprise that qualifies. If the benefit is available to all, then it's nothing to which to object. The playing field remains level. She enjoys the sound of her voice and becomes long winded. She starts to complain about the welfare class. She bemoans governmental bestowal of a generous social safety net to catch the needy.

AH, you reply, But you too can enjoy the benefits. Just do what's required, and you too can get food stamps and welfare checks. The social safety net should not be a problem for freewheeling, free-market, enterprising entrepreneurs, because it's available to everyone who submits the qualifying qualifications. It's just like incorporating. It's a level playing field out there in welfareland.

She demures the sarcastic digression and gets back to business, explaining that if she couldn't shield her personsal fortunes from liability suits that might stem from, say, injuries that her, perhaps poorly designed, widgets might cause, then she would have to raise the price of her widgets to cover the prospective overhead of legal fees.

Maybe legal fees and maybe premiums for private insurance should be factored into her business planning. But libertarians shouldn't care how she manages her risk, so long as it doesn't involve the government. It's not the government's job to intervene in markets to keep prices down. Libertarians don't care what prices are, because they have faith that markets will establish prices at whatever level is most advantageous for all involved. Free markets automatically optimize among multiple variables.

So what is a private corporation, limited liability partnership, or nonprofit organization? A status defined and bestowed by the government. Strip the government of its authority to bestow these knighthoods, and you would have a real libertarian, free-market even playing field.

But when and wherever the law recognizes a legal personality or other legal fiction, government distorts the market mechanism by granting favors and benefits to the concerned parties. The "capitalist" so-called private sector seeks refuge behind the protections offered by the "socialist" so-called public sector.  Any entrepreneur can start a business, but it takes a government to create corporations. And you think Ron Paul wants to change that?

Additional Reading:

http://en.wikipedia.org/wiki/Legal_personality
http://en.wikipedia.org/wiki/Legal_fiction

Here's a list of national taxpayer-funded lobbying associations:
http://sunshinereview.org/index.php/National_taxpayer-funded_lobbying_associations

Recipients of taxpayer funds include the National Bus Association, the International Code Council, and the National Association of Latino Elected and Appointed Officials, all with the objective of lobbying the government for more money with which to lobby the government.

The public/private blur culminates in Clint Richardson's videos on CARFs:   http://thecorporationnation.com/

The U.S.A., its states and their municipalities are all corporations.
There is no public/private distinction.
Libertarianism is a hoax.
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