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The ethics and economics of privatization

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Stranger Posted: Tue, Nov 20 2007 2:04 PM

The subject of homesteading and original appropriation is well developed in our political theory and philosophy. However the problem of appropriation, although useful for handling unforeseeable future resources, does not deal with the very current problem of unappropriable resources, resources that are currently being forcibly excluded from private property. The process of assigning property rights to unappropriable resources has been labeled privatization. The question must now be asked, what kind of privatization is just, and what kind is economically efficient?

The first approach is to eliminate the restrictions on appropriation and let anyone who wishes homestead the now abandoned resources. That creates an ethical and economic problem that does not exist for regular homesteading. Because homesteading concerns resources that are only marginally valuable, the process of homesteading is orderly and peaceful. But because privatization involves resources which have a very well determined value, a race to appropriation occurs. It will then not be homesteaders who claim the resources but the fastest amongst many competing appropriators. It results in a new kind of tragedy of the commons.

The second approach is to claim that the taxpayers, because they have been expropriated to pay for these resources, should have first claim to ownership. That however leaves the problem of determining how much was paid in taxes by whom, and how these taxes are to be valued (protectionist privileges are hard to value). In the process of arbitrating these claims the resources will remain in limbo, and their exploitation and abuse will intensify. And who is to say that because one paid specific taxes, that translates to a right to own unrelated property? This is not an ethically and economically sound solution, and it cannot apply to plainly communal resources such as the ocean.

The process of privatization can be easily simplified. Because all members of society act towards an unappropriable resource with no regard to its future value, a result of their having no claim to its future value, no one has any right to being first in line to privatization. All forms of privatization, in so far as they create a guardian for the resource that will exclude exploitation and abuse, as well as making the resource available to the market and to economic calculation, is a legitimate grant of a property right. The economic consequence of this is that there will be a very strong incentive for members of the political class to appropriate these resources immediately and in their own favour, and then to sell them on the market to secure their wealth. This principle of privatization will produce the greatest number of privatization and economic efficiency, while not infringing the rights of anyone (as no one can claim any right to unappropriable resources).

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Both Hoppe and Rothbard have dealt with this. I think Rothbard's belief was that publicly-owned property should go to the workers working on it. Whereas, Hoppe believes that they are net tax-consumers, and thus have no such entitlement, an entitlement which belongs instead to the taxpayers. On a purely theoretical level I think Hoppe is correct, in spite of the appeal of the users of this property having a direct link to it. The means by which most public property was set up was money extracted from the public-at-large. However, if this should prove infeasible, other solutions must be brought about, such as those you listed.

 

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Stranger replied on Tue, Nov 20 2007 7:06 PM

Those are proposals (that happen to presuppose we can gain control of the government), not analysis. They don't begin to adress the question; should we recognize as legitimate private property acquired through other means of privatization? And what are the economic consequences of not doing as such?

 

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Right, I see what you mean now. By guardian do you mean whoever comes to own the resource? Your proposition seems valid to me. I think the case against taxation payments justifying ownership can further be extended by saying that the taxpayer never intended to appropriate the resource in the first place, so if they never even aimed to use it, why should it fall under their control? At most they'd have a claim to whatever was taken from them. It definitely does not apply to property that was never put to any use whatsoever.

 

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tgibson11 replied on Tue, Nov 20 2007 10:08 PM

Interesting topic.

I'm not sure I would characterize Rothbard's view that way, at least not without some additional clarifications (though I can't claim to have read everything he wrote - that guy was a machine).

First I would note that one of his main principles of justice was that criminals should not be permitted to benefit from their crimes. That would obviously preclude, for example, letting the President keep the White House. For lower-level government workers, there is probably less of a concern here.

Second, Rothbard did acknowledge the complexity of this problem, and after offering his thoughts, I think his bottom-line was to just do it. His point being that putting the resources into private hands as soon as possible in any manner was preferable to endlessly debating the merits of any particular method of privatization - none of which is ever going to be perfectly just anyway. Once resources are in private hands, market forces will go to work to put them into the hands of those able to best utilize them.

This seems to be pretty much the same thing Stranger is saying, if I understand him correctly. He seems to be going a step further, to argue that this is not only practical, but morally justified.

I would add one caveat - in cases where the rightful owner of government expropriated property can be clearly identified, it should obviously be returned to them if possible.

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