Part II: The Libertarian Paradise of…South Africa?

Governments oftentimes are spectacularly incompetent. And when that happens, it creates an opening for the private sector to step up in rather unexpected ways.

I’ve even created a semi-serious, semi-satirical series to commemorate these examples.

• The libertarian paradise of Mexico
• The libertarian paradise of Nigeria
• The libertarian paradise of Somalia
• The libertarian paradise of Germany
• The libertarian paradise of Argentina
• The libertarian paradise of South Africa

None of these places are libertarian, of course, but each of them illustrate how markets can provide surprising benefits. In most of the examples, markets are even providing so-called public goods.

Today, we’re going to revisit South Africa because of a remarkable report in the Wall Street Journal.

Written by Alexandra Wexler, it shows how the private sector is providing road repair, fire protection, and traffic control.

South African insurers are joining other private companies in taking over public services, such as security, healthcare, education and mail delivery… Insurance companies…have decided that it is cheaper for them to fill in where the state has fallen short. …Discovery Ltd., a $5.5 billion financial-services company, says its Pothole Patrol—made up of eight repair vehicles and 40 staff—has filled in 150,000 potholes in South Africa’s economic capital of Johannesburg… Discovery in June 2022 also joined with a private fire service, Fire Ops SA, to launch its Fire Force service. …Discovery says the blue firetruck responded to 172 building fires between Fire Force’s launch through the end of January. …On Feb. 20, the blue Discovery-branded truck was dispatched to a fire in Johannesburg’s leafy Highlands North suburb, where Fire Ops’ Captain Wade Hugo said his team had the blaze under control about 15 minutes before the city’s fire services arrived at the scene. …OUTsurance Group Ltd., a $3 billion financial services company, first started deploying men and women on motorbikes, known as pointsmen, in 2005. They direct traffic in four municipalities, including Johannesburg and South Africa’s wine capital, Stellenbosch, when traffic lights break down and roads are congested.

Sounds to me like South Africa’s local governments should be abolished and replaced by the private sector.

David Friedman and Bryan Caplan certainly would agree.

P.S. There’s been a big decline in economic liberty in South Africa over the past two decades, thanks to eroding property rights, higher taxes, and other bad policies. Smart South Africans of all races should probably think about moving to Botswana.

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The Unfortunate Demise of Disney’s Private Governance

Libertarians have a knee-jerk desire to shrink the footprint of government, even advocating for unconventional ideas such as private roads, private mail delivery, private pensions, private money, and private air traffic control. And, as captured by this Reason video, we also like the idea of private cities.

Heck, some libertarians think everything can be privatized.

For today’s column, however, let’s focus on the controversy discussed in the video.

I wrote about this issue twice last year. In the first column, I defended Disney’s privatized governance system (the “Reedy Creek Improvement District”).

As explained in the video, the company had every incentive to operate and maintain its theme park in a safe and efficient manner. The goal was to make money by giving customers the best experience at the best price (a mindset that doesn’t seem to exist when governments are in charge).

In the second column, though, I acknowledged that Disney’s privatized governance system could be considered cronyism because other businesses – including other theme parks – did not get the same treatment.

But I pointed out that there was a simple solution, which was that “private governance could be and should be a tick-the-box exercise. Any and all companies that meet transparent criteria should be allowed to choose a self-governance approach.”

But my preferred approach did not prevail.

Governor Ron DeSantis of Florida has a column in the Wall Street Journal celebrating the demise of Disney’s private governance.

On Monday, I signed the law ending the Walt Disney Co.’s self-governing status over 43 square miles in central Florida… Disney no longer has its own government. …Disney’s special arrangement, which dates to 1967, was an indefensible example of corporate welfare. It provided the company with favorable tax treatment… It exempted Disney from Florida’s building and fire-prevention codes. …For decades, GOP elected officials have campaigned on free-market principles but governed as corporatists—supporting subsidies, tax breaks and legislative carve-outs to confer special benefits on entrenched corporate interests. But policies that benefit corporate America don’t necessarily serve the interests of America’s people and economy.

I fully agree with DeSantis on the downsides of cronyism.

It’s nauseating (and economically harmful) when big business gets in bed with big governance.

I just wish he had picked the tick-the-box strategy for getting rid of favoritism.

Let’s close by looking at something else from Reason. Last July, Scott Shackford defended Disney’s private governance.

DeSantis and Florida’s Republican-controlled legislature took aim at the Reedy Creek Improvement District (RCID), which state lawmakers established in 1967 to give Disney substantial autonomy within the nearly 40 square miles it owns in Orange and Osceola counties. The special district allows Disney to control zoning, construction, infrastructure, emergency services, and taxation to pay for all of it. …While DeSantis and other Florida Republicans seem to view the RCID as an undeserved privilege, it freed Orange and Osceola counties, along with their taxpayers, from responsibility for Disney’s massive park. For instance, Disney pays the Orange County Sheriff’s Office millions of dollars each year for policing services.

It would be nice if this approach had been made universal.

P.S. As explained in the video, DeSantis and other Republicans decided to go after Disney because the company opposed a bill that restricted whether young children could be exposed to issues involving sexual orientation. My defense of Disney’s private governance has nothing to do with that topic (which should be addressed by having school choice so that parents can decide what’s best for their kids).

P.P.S. For those interested in privatized local governance, there are interesting examples in Mexico, South Africa, and Nigeria.

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Disney, Private Governance, Special Districts, and Cronyism

Earlier this month, I defended Disney’s self-governance status.

I wasn’t motivated by the company’s position on Florida education legislation (my view is that all sorts of controversial education issues can and should be solved by having school choice).

Instead, I viewed Reedy Creek (Disney’s “Independent Special District”) as a good example of private governance.

And if you believe that the private sector produces better results, this seems like a no-brainer.

So does this mean these enclaves are a good idea?

There’s not a clear-cut answer. In a column for the Wall Street Journal, Judge Glock of the Cicero Institute is concerned that special districts often are a way of expanding government rather than curtailing it.

Reedy Creek is only one example of the proliferation of powerful “special districts,” shadowy local governments that exercise ever-greater control over taxation and spending. Florida alone has 1,800 such districts. According to the U.S. Census, there are more than 38,000 of them across the country—double the number of cities. …They are means to escape citizen limitations on government power and should be brought under the control of regular voters and local governments again. …After the tax revolt in the 1970s, special districts became a convenient way for government to escape new limitations on taxes. Over the past four decades, states have created more than 8,000 local governments. Ninety-six percent of these have been special districts. …Special districts are an increasing burden to taxpayers. They intentionally keep their accounting obscure, but…we know California districts alone spend $76 billion. In Nassau County, N.Y., 140 different special districts cost the average homeowner $1,000 a year in property taxes.

This sounds awful. And I’m sure it is awful.

But it’s not a description of Disney.

Professor David Henderson, an emeritus professor at the Naval Postgraduate School, shares my perspective about letting the company govern itself. Here’s some of what he wrote on this controversy.

 Walt Disney Corporation has a special status in Florida that allows it to avoid many regulations and some taxes and fees. …No one that I have found addressing the issue claims that Disney uses this freedom badly… Care to bet which roads are better: roads in the Reedy Creek District or roads in surrounding counties? I’ll take the bet. The explicit argument that Florida Republican legislators and Florida governor Ron DeSantis make is that Disney receives special treatment. They’re right. …But what if that special treatment works to produce good results?

And Disney does produce good results.

But there’s one more issue to address, which is whether it’s fair for Disney to have self-governance when other companies don’t have the same right.

Universal Studios competes with Disney in the same area and presumably doesn’t have self-governing status.

This isn’t fair. We don’t want politicians awarding special status to one company over another. That’s cronyism.

Fortunately, Professor Henderson gave us the answer.

…there are two ways to get rid of special privileges. The way the Florida Republicans don’t seem to have considered is to make them less special by giving people in other counties the same flexibility.

Indeed, private governance could be and should be a tick-the-box exercise. Any and all companies that meet transparent criteria should be allowed to choose a self-governance approach.

Keep in mind, however, that allowing companies to govern themselves is different from special districts that expand the powers of politicians and bureaucrats to govern others.

In other words, special districts can be good or bad depending on the purpose.

P.S. There are also examples of self-governance in Mexico, South Africa, and Nigeria.

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Defending Disney’s Self-Rule

Like any practical libertarian, I prefer decentralization (Switzerland is a great role model). My default view is that it is better for things such as roads and schools to be handled at the local level.

But I’m also an impractical libertarian. I fantasize about privatizing things (including roads and schools) that most people think can only be handled by government.

It’s why I’ve written favorably about Liberland. And I’ve also lauded examples of private local governance in some unexpected places.

• Mexico
• South Africa
• Nigeria

By the way, we also have examples of private local governance in the United States.

Such as Disney World in Florida.

To elaborate, Disney struck a deal with Florida lawmakers back in the 1960s. The company agreed to invest billions of dollars and create tens of thousands of jobs and the state agreed to let Disney govern itself.

That approach has worked very well. But it’s now at risk because state lawmakers are upset that the company opposed a bill to limit discussion of certain sexual topics for kids in kindergarten through the 3rd grade.

Those lawmakers are so angry that they want to undo a successful example of private governance.

I’m not the only one who is worried about this development. Charles Cooke of National Review is not impressed by the state’s attack on the company’s self-governance.

Governor Ron DeSantis issued a proclamation instructing a special session of the Florida legislature to review whether Walt Disney World’s 50-year-old “independent special district” status should be rescinded now that the Walt Disney Company has had the temerity to annoy the Republican Party. …There is no need for the Republican Party of Florida to salt the earth… Presented with this objection, advocates of further retribution tend to switch gears and contend that…Disney’s special status, granted before 1968, was probably due for “reconsideration” anyway. …Florida has 1,844 special districts, of which 1,288 are, like Walt Disney World, “independent.” The Villages — where Governor DeSantis made his announcement about the review of Walt Disney World’s status — is “independent,” as are Orlando International Airport and the Daytona International Speedway. …Walt Disney World is deeply rooted in Florida’s soil, as a result of agreements the Florida legislature made with it in good faith. To poison that soil over a temporary spat would be absurd.

Scott Shackford also argues in favor of Disney’s legal status. Here’s some of his Reason column.

The Reedy Creek Improvement District, established in 1967, grants Disney the legal authority over and responsibility for 25,000 acres of land in Orange and Osceola counties. This includes planning and zoning authorities, as well as the responsibility to provide police, fire, and utilities in the area. …It’s a bit simplistic to think that giving Walt Disney World Resort the power of self-rule is some sort of gift or privilege. That the park, given self-governance, has managed to maintain itself as a generally safe and stable environment that people flock to from across the world is a pretty good indication that the company knows what it’s doing. Any contention that DeSantis is eliminating some sort of “special treatment” for Disney comes with it the perhaps mistaken assumption that the two counties suddenly in charge of all of this infrastructure will somehow make the park better and not worse. In reality, putting Disney parks at the mercy of two different counties with different laws will be a huge mess for everybody involved.

By the way, my defense of Disney’s legal structure does not mean I agree with the company’s political posturing. To the extent that we have to have government schools, I don’t see any problem with focusing on teaching small children the basic of reading and math, while leaving human sexuality for later ages.

In an ideal world, of course, we would have widespread school choice and the teaching of various subjects would be governed by market demand.

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The Libertarian Paradise of…South Africa?

You can find examples of libertarianism in some very unexpected places.

• Mexico
• Nigeria
• Somalia
• Germany
• Argentina

What’s particularly interesting are the examples of how private governance is evolving in developing nations.

These are real-world example of “anarcho-capitalism” and they exist for the simple reason is that governments have utterly failed to provide core “public goods” such as crime control.

Now we have a new case study. The U.K.-based Economist reports on the development of a “private parallel state” in South Africa.

Situated in the north of Johannesburg, Steyn City has shops, a school, generators, a petrol station, golf, 50km of biking trails, fishing dams, 24-hour security and a dinosaur-themed playground. There is even a helipad; but residents need never leave. …estates like Steyn City, which account for nearly one in five property transfers (a proxy for sales)…represent a broader demand: for a sanctuary in a country where the state cannot seem to curb crime or provide decent services. And it is not just the rich who are fending for themselves. So, increasingly, is everyone else.

Incidentally, we have similar “estates” in the United States, such as The Villages in Florida and other private communities and residential developments.

But let’s focus on South Africa and why people are opting for private alternatives to government.

The article notes that a growing number of citizens are choosing private schools (akin to what’s happening in India).

Since 1997 the number of pupils in private schools has tripled, from 236,000 to 703,000… The increase is not happening in the most expensive schools, which are, in fact, becoming easier to get into, because so many well-heeled South Africans are emigrating. “The growth is in the low-to-mid range of the market,” says Lebogang Montjane, the head of the Independent Schools Association. …Private fees are priced to be affordable for the black middle class. Spark costs 28,050 rand ($1,800) a year for primary school.

There is also a section on private health care.

But the part about public safety is even more remarkable.

Security is the clearest case of where private companies are replacing the state. In 1997 there were roughly as many police officers (110,000) as active security guards (115,000). Since then officer numbers have increased by 31% (to 144,000) but the number of private guards has ballooned by 383% (to 557,000). Gun-carrying watchmen and ubiquitous surveillance cameras that feed footage to security firms’ operation rooms are everyday sights in suburbs and high-walled estates. …the sense that the state cannot protect citizens—underlined dramatically last year when the country saw the worst civil unrest since apartheid—is widely felt.

Here’s the bottom line.

Some South Africans emigrate to escape failing public services. But most cannot leave, or do not want to. Instead, argues Gwen Ngwenya of the opposition Democratic Alliance, they slip across an imaginary border, migrating, as it were, into the arms of “the private parallel state”.

The obvious takeaway is that the failing parts of government should be eliminated and, in tandem, the tax burden should be reduced so that it’s easier for citizens to pay for the private alternatives that actually work.

But that’s a very unlikely outcome.

Why? Because government programs in developing nations generally exist to provide patronage to friends and supporters of the politicians.

• The purpose of government schools is to provide over-paid patronage jobs to teachers, not to educate children.
• The purpose of government health care is to provide over-paid patronage jobs to providers, not to cure sick people.
• The purpose of government security is to provide over-paid patronage jobs to cops, not to fight against crime.

So long as this corrupt system works for politicians, there’s no reason to expect changes.

P.S. At some point, South Africa will go bankrupt. In theory, this should lead to long-overdue changes. In practice, it will mean a bailout from the International Monetary Fund, which temporarily will prop up the current system of corruption and waste.

P.P.S. South Africa will be bankrupt sooner rather than later if it takes advice from the OECD.

P.P.P.S. This comparison of South Africa, Botswana, and Zimbabwe is very revealing.

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To Improve Transportation, More Private Sector or More Federal Involvement?

There are some remarkable stories of the private sector showing initiative when governments fail to maintain infrastructure.

• In response to dithering by government, residents and businesses in Hawaii put up $4 million to fix an important community road.
• Smugglers in Russia repaired a road to facilitate untaxed trade between Russian and Belarus.
• I also wrote about a guy in England who was fed up with the slow pace of road repairs and built a private toll road.

Regarding the final example, here’s a video on his project.

I’m particularly amused that this example of practical libertarianism (I’m guessing without the cost overruns that are inevitable with government) was made possible because zoning laws (normally an obstacle to sensible land use) basically allowed the organizer to ask for forgiveness afterward rather than permission beforehand.

To be sure, these isolated examples are hardly a sign that infrastructure is going to be privatized in the United States.

But maybe we can at least learn a lesson on whether we should have more centralization and control from Washington, versus more decentralization and private-sector involvement.

Regarding the former, Chris Edwards explained for FEE that the federal gas tax should not be increased since politicians impose taxes for the ostensible purpose of building and maintaining roads, but then they divert the money to other programs that buy more votes.

…a federal gas tax increase makes no sense. State governments own America’s highways, and they are free to raise their own gas taxes whenever they want. Indeed, 19 states have raised their gas taxes just since 2015, showing the states are entirely capable of raising funds for their own transportation needs. …Also consider that gas taxes used to be a more pure user charge for highways, but these days gas tax money is diverted to inefficient nonhighway uses such as transit. …About 20 percent of those funds (about $8 billion) are diverted to transit and other nonhighway uses. …In 2016, state governments raised $44 billion from fuel taxes, and they diverted 24 percent—14 percent to transit and 10 percent to other activities. …The states also raised $38 billion from vehicle fees. They diverted 34 percent of those funds—13 percent to transit and 21 percent to other activities.

Regarding the latter, the City Manager of Milford, Delaware, wrote a column for the Washington Post about benefiting from private financing for road repairs.

…when I heard that a Domino’s marketing campaign was paying municipalities to repair potholes in return for credit for the work, I quickly responded. …Our role was easy. In exchange for a $5,000 check, Domino’s wanted its logo and a tag­line saying “Oh yes we did” in spray chalk on the road next to each repair. …In two weeks, they fixed more than 40 potholes of different sizes — about 20 to 25 percent of the potholes that appeared after the winter. …The program has elicited some complaints about what it means that a pizza chain is funding basic government projects. …But we saw this as a great idea for our community. …In many communities, there’s a constant competition between paying for police and paying for everything else. …if we demonstrate good stewardship of our resources, then hopefully fewer people will complain about paying taxes. …sometimes that means letting Domino’s pick up the tab.

Incidentally, sometimes “anarchists” decide to fix potholes without even waiting for permission.

Let’s close with some libertarian-themed humor.

Some people apparently thing that roads wouldn’t exist in the absence of government. This is an anti-empirical sentiment since many of the first main arteries in America were private roads. And we still have private highways being built today.

Not to mention plenty of neighborhood developments and office parks (or even stairs) that are examples of privately financed and privately maintained infrastructure.

Yet there are still doubters, so this sarcastic image is for them.

Speaking of sarcasm, this next image is a clever combination of two concepts.

First, politicians have an insatiable appetite to tax us over and over again.

Second, they don’t fulfill the responsibilities that they claim only government can handle.

The bottom line is that Washington should have no role in infrastructure. And even if you think infrastructure should be handled by state and local government, that definitely does not (or should not) imply a large public sector.

P.S. Here’s some more libertarian-themed infrastructure humor.

P.P.S. To be balanced, libertarians can be mocked because of our disdain for public goods.

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A Libertarian Paradise in…Mexico?

I’m sometimes accused of being too radical, though I take that as a compliment (including the time a British journalist wrote that I was “a high priest of light tax, small state libertarianism”).

In reality, I’m actually a moderate. I don’t want to eliminate all government, just the 90 percent that is ineffective or counterproductive. As a result, some of my friends accuse me of being a squish, which is probably a fair characterization since I only scored a 94 out of 160 on Professor Bryan Caplan’s Libertarian Purity Quiz.

In my defense, I say let’s get rid of all the programs and departments that clearly shouldn’t exist (such as Transportation, Housing and Urban Development, Education, Energy, and Agriculture), and then we can have a fun discussion of whether the private sector can take over things like roads, policing, and the military.

And it does seem that many so-called public goods actually can be handled by the market. I’ve written about private roads and private money, for instance, but the example that really caught my attention was the private, church-run city in Nigeria.

And the New York Times has a fascinating story about similar developments in Mexico.

Fifteen-foot stone turrets are staffed by men whose green uniforms belong to no official force. Beyond them, a statue of an avocado bears the inscription “avocado capital of the world.” And beyond the statue is Tancítaro, an island of safety and stability amid the most violent period in Mexico’s history. Local orchard owners, who export over $1 million in avocados per day, mostly to the United States, underwrite what has effectively become an independent city-state. Self-policing and self-governing, it is a sanctuary from drug cartels as well as from the Mexican state. …Tancítaro represents a quiet but telling trend in Mexico, where a handful of towns and cities are effectively seceding, partly or in whole. These are acts of desperation, revealing the degree to which Mexico’s police and politicians are seen as part of the threat.

I can’t resist commenting that the reporters should have written that police and politicians “are the threat” rather than “are seen as part of the threat.”

The Mexican government is a grim example of the “stationary bandit” in action.

Anyhow, back to our story about de facto secession and privatization.

…such enclaves…you will find a pattern. Each is a haven of relative safety amid violence, suggesting that their diagnosis of the problem was correct. …The central government has declined to reimpose control, the researchers believe, for fear of drawing attention to the town’s lesson that secession brings safety.

Tancítaro is not the only example of a quasi-private town.

Rather than ejecting institutions, Monterrey’s business elite quietly took them over… C.E.O.s would now oversee one of the most central functions of government. …they circumvented the bureaucracy and corruption that had bogged down other police reform efforts. Crime dropped citywide. Community leaders in poorer areas reported safer streets and renewed public trust… Monterrey’s experience offered still more evidence that in Mexico, violence is only a symptom; the real disease is in government. The corporate takeover worked as a sort of quarantine.

Wow, who would have imagined the New York Times would ever have a story stating that “the real disease is in government.”

Sadly, the story goes on to say traditional politicians are now regaining control in Monterrey, so the period of good governance is coming to an end.

In an ideal world, the central government would allow towns to formally secede, and those towns could then contract to have private management. But that’ll never happen since politicians wouldn’t want real-world examples showing the superiority of markets over government.

For now, we’ll have to settle for ad hoc and unofficial secession and privatization.

P.S. We can also hope that Liberland succeeds.

P.P.S. While today’s topic is de facto secession of local governments, my support for decentralization makes me sympathetic to regional secession. See, for example, Scotland, Liechtenstein, California, Italy, Belgium, and Ukraine.

P.P.P.S. I did once write about the “libertarian paradise of Argentina,” but that was mostly in jest.

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A Libertarian Paradise in…Nigeria?!?

Whenever someone accuses me of being too dogmatically opposed to government, I tell them that I only got 94 out of 160 possible points when I took Professor Bryan Caplan’s Libertarian Purity Quiz.

That’s barely 70 percent, which makes it seem like I’m some sort of squishy moderate even though I have a nice list of government departments and agencies I want to abolish.

And whenever someone accuses me of being insufficiently opposed to government, I point out that my score on Professor Caplan’s quiz is good enough – albeit just barely – for me to be categorized as a hard-core libertarian.

So does this mean I’m a principled moderate, if such a creature even exists?

Actually, it simply means that I’m not an “anarcho-capitalist,” which is the term for people who think all government can be abolished (sort of like the “more libertarian than thou” character in this amusing list of the 24 types of libertarians). If you want to get a perfect score on the Libertarian Purity Quiz, you have to favor abolishing the Department of Defense, the court system, and every other vestige of government.

That being said, I like that there are people pushing the envelope for more liberty. And I tell my anarcho-capitalist friends that we should all work together to get rid of 90 percent of government and then we can quibble over the rest.

Moreover, when I spoke earlier this year at the conference celebrating the 2nd-anniversary of Liberland, I pointed out that there are plenty of examples of how the private sector successfully carries out functions that most people think can only be handled by government.

Which leads me to the focus of today’s column. The U.K.-based Guardian has a fascinating story about a very successful Nigerian church.

The Redeemed Christian Church of God’s international headquarters in Ogun state has been transformed from a mere megachurch to an entire neighbourhood, with departments anticipating its members’ every practical as well as spiritual need. A 25-megawatt power plant with gas piped in from the Nigerian capital serves the 5,000 private homes on site, 500 of them built by the church’s construction company. New housing estates are springing up every few months where thick palm forests grew just a few years ago.

To most people, this story is probably interesting because of what it says about Nigeria and religion.

But since I’m a wonky libertarian, what grabbed my attention was the fact that the church – for all intents and purposes – was building an anarcho-capitalist society.

Education is provided, from creche to university level. The Redemption Camp health centre has an emergency unit and a maternity ward. …“If you wait for the government, it won’t get done,” says Olubiyi. So the camp relies on the government for very little – it builds its own roads, collects its own rubbish, and organises its own sewerage systems. And being well out of Lagos, like the other megachurches’ camps, means that it has little to do with municipal authorities. …according to the head of the power plant, the government sends the technicians running its own stations to learn from them. …the camp’s security is mostly provided by its small army of private guards in blue uniforms.

To be sure, it’s not a purely anarcho-capitalist society. The Nigerian government still has ultimate power to enforce laws.

But from a practical, day-to-day perspective, the church has set up a private city governed by private contract and voluntary cooperation. Sort of a Nigerian version of Galt’s Gulch.

And it’s definitely worth pointing out that it is far more successful than traditional Nigerian cities (and it sounds like it works better than many American cities!).

P.S. Anarcho-capitalism is susceptible to satire, as you can see from this clever video about Somalia and this ad for libertarian breakfast cereal.

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Clever Video Mocking Privatization, but the Free Market Got the Last Laugh

My favorite anti-libertarian video is the one based on the notion that Somalia is a libertarian paradise. Since no libertarian has ever pointed to that country as a role model, the underlying premise is a bit silly (I’ve written something semi-favorable about Somaliland, but that’s a different place). However, that doesn’t change the fact that the video is well produced and rather amusing.

It’s now time to share another amusing video with a bad message. It’s not targeting libertarians directly, but it’s mocking an idea that’s being promoted by libertarians such as my colleague Chris Edwards. The video shows a pair of English comedians doing a mock interview back in the 1990s on privatizing the U.K.’s air traffic control system.

Putting millions of passengers at the mercy of a for-profit company? Seems laughably absurd, right?

Except it actually happened. Not only in the United Kingdom, but also in Canada. So advocates of privatization actually got the last laugh.

And we may see similar progress in the United States. Remarkably, even the Washington Post is supporting this reform.

The United States can and should learn from the experience of other Western democracies… Take the prosaic but crucial function of air traffic control. In the United States, that is still a job for big government: specifically, the Federal Aviation Administration. Overseas, however, countries are turning away from this statist model. Canada spun off its system, Nav Canada, in 1996, to a private entity funded by user fees. Britain privatized in 2000. Australia and New Zealand are also part of the movement; ditto Germany and Switzerland… In all of these countries, safety and innovation have stayed the same or improved, which is not surprising.

The editorial urges something similar for America.

A new corporation, funded by charges on the system’s various users, would manage flights and implement the long-stalled modernization. The FAA would still ensure safety, a regulatory job it already does remarkably well and might do even better if it were free to focus on that exclusively. Major players in the industry would share governance of the new entity, working out their differences within its boardroom rather than through the costlier and more conflictual method of lobbying Congress, as they do now.

Wow, the Washington Post is pointing out that a leaner government with fewer responsibilities would be more effective. I hope in the future they apply that lesson on a consistent basis.

Let’s close with a reference to another bit of anti-libertarian humor. Last year, I shared an image showing a satirical box of libertarian cereal, which I freely admitted was very amusing. But I then made the obvious point that private companies have zero incentive to harm or kill their customers.

Moreover, there’s even a system of mutually reinforcing private regulation that further discourages bad or sloppy behavior by companies.

Sot the bottom line is that there are greater incentives for safety with for-profit firms than there are with governments, where it’s just about impossible to fire someone for doing a bad job.

P.S. Since I’m a fiscal wonk, I’ll confess that I also want to privatize air traffic control because I’m still irked that the FAA tried to deliberately and unnecessarily inconvenience travelers during the 2013 sequester. Sort of like the jerks at the National Park Service, who did something similar that year during the partial government shutdown (though at least we got some good humor out of that).

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Amtrak Needs Privatization, not More Handouts and Subsidies

I almost feel sorry for my leftist friends. Whenever there’s a story about a crazed shooter, they invariably speculate that it’s someone affiliated with the Tea Party. So they must be sad when it turns out to be a random nut or in some cases a leftist.

Similarly, when the news broke a few days ago about the Amtrak derailment, they instantly decided that the crash was the result of inadequate handouts from Washington. So imagine how forlorn they must be since it turns out the bureaucrat in charge of the train was traveling at about twice the appropriate speed.

But let’s set aside the tender feelings of our statist buddies and look to see whether there are any policy lessons to learn from the recent Amtrak tragedy.

Writing for National Review, Kevin Williamson makes a key point that Amtrak, like other parts of government, is first and foremost focused on maximizing the amount of money that can be extracted from taxpayers.

…everything from the stimulus bill to regular appropriations has spent billions of dollars on Amtrak, and Amtrak still failed to install the speed-control system that was supposed to be completed this year — a system that the NTSB and others believe would have prevented this accident. So, the “investments” in safety systems have produced no safety system. Where does Amtrak spend its money? Almost every dime of ticket revenue is spent on personnel — salaries, benefits, bonuses, etc.  Amtrak can’t be bothered to finish up a safety system on time. But did Amtrak CEO Joseph Boardman ever miss a nickel of his $350,000-a-year salary? No. Did Amtrak fail to pay employee bonuses? No—in fact, it paid bonuses to people who weren’t even eligible for them, and then refused to rescind them once it was pointed out that they were unauthorized. So Amtrak took care of Amtrak’s priorities, just like every other government agency. But Amtrak’s priorities are not its customers’ priorities.

In other words, the culture at Amtrak is to maximize goodies from government, not to maximize profits, which is the culture at a real company.

And the beneficiaries are the overpaid bureaucrats who operate Amtrak, as well as the insiders (like Joe Biden’s son) who get special appointments to Amtrak’s board of directors.

So what, then, is the solution?

As explained by Jeffrey Dorfman, an economics professor at the University of Georgia, it’s time to wean Amtrak from the public teat.

…within two days liberal politicians had seized on the occasion to demand larger subsidies for Amtrak. In fact, the events of last week show the precise opposite-Amtrak should not receive a larger subsidy, but rather should be sold off and privatized. Currently, Amtrak receives more than $1 billion in funding from Congress although it still manages to lose money. …This leads to the question of why Americans taxpayers should subsidize a rail service that only somewhere around one or two percent of Americans actually use. The clear and obvious answer is that they should not be. While Democratic leaders are calling for more federal funding, the problem is not a lack of subsidies but instead that Amtrak’s leadership is divided between serving its customers and serving the political benefactors who provide it with about $1.4 billion per year. If Amtrak was privatized, it could focus solely on serving its customers. If those customers were concerned with safety, then Amtrak would prioritize safety improvements because that would be a necessary step to staying in business.

Moreover, Amtrak would have the incentive to behave rationally if it wasn’t sponging off taxpayers.

If sold for a fairly low valuation for a railroad, Amtrak would sell for around $6.5 to $7 billion. …the federal government would save the $1.4 billion each year that it has been providing to Amtrak. After privatization, Amtrak will know that federal government subsidies are not available to it and will focus on serving its customers and turning a profit. That may mean that some routes are discontinued or continue operating with fewer scheduled trains. At the same time, some routes, such as those in the northeast corridor, may see an increase in the quality and frequency of service as Amtrak responds to the level of consumer demand in the free market.

Notwithstanding the recent accident, trains actually are very safe. And in the absence of government meddling, a private rail company would have the right incentives to produce the correct amount of investments in safety.

Train travel is already ten times safer than driving in terms of deaths per mile traveled. It is possible that riders do not want to pay more for train tickets in exchange for safety improvements. After all, Amtrak is actually ahead of many private railroads in installing the positive train control safety systems. However, if riders demand it, a private, profit-oriented railroad will provide it.

P.S. Here’s a personal story to give you a sense of Amtrak’s misguided culture.

P.P.S. The good news, for what it’s worth, is that Amtrak is a bargain for taxpayers compared to the rail boondoggle taking place in California. And I guess we should be happy that we don’t have the Chinese version of Amtrak.

P.P.P.S. Don’t carry a lot of cash if you’re a young black male and riding Amtrak.

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What Happens When Libertarian Fantasies Become Reality?

No, this post is not about that kind of fantasy.

Instead, we’re dealing strictly with public policy and specifically addressing whether the libertarian agenda is unrealistic.

This is because when I talk to people about libertarianism, they often will say something mildly supportive such as: “I like the idea of getting government out of my wallet and out of my bedroom.”

But then the other shoe drops and they say something skeptical such as: “But you folks are too idealistic in thinking the private sector can do everything.”

If you ask them to elaborate why libertarian ideas are fantasies, you’ll usually hear comments such as:

“Libertarians are crazy to think that we can replace Social Security with personal retirement accounts.” Apparently they’re unaware that dozens of nations including Australia and Chile have very successful private systems.

“Libertarians are silly to think that money could be handled by the private sector.” Apparently they’re unaware that paper money was a creation of the private marketplace and that competitive currencies worked very well in many nations until they were banned by governments.

“Libertarians are naive to think the mail could be delivered in the absence of a government monopoly.” Apparently they’re unaware that many nations such as the United Kingdom and Germany have shifted to competitive private mail delivery.

 “Libertarians are foolish to think that the private sector could build and maintain roads.” Apparently they’re unaware of what I’m going to write about today.

It turns out that the private sector can build roads. And a great example happened earlier this year on the other side of the Atlantic Ocean. Here are some passages from a story out of the United Kingdom.

A grandfather sick of roadworks near his home defied his council and built his own toll road allowing people to circumvent the disrupted section. Opened on Friday, it’s the first private toll road built since cars became a familiar sight on British roads 100 years ago.  …Mike Watts, 62, hired a crew of workmen and ploughed £150,000 of his own cash into building a 365m long bypass road in a field next to the closed A431. He reckons it will cost another £150,000 in upkeep costs and to pay for two 24 hour a day toll booth operators. …Father of four Mike asked his friend John Dinham if he would mind renting him the field until Christmas and hired three workmen to help build the road in just 10 days. He worked with the Highways Agency, has public liability insurance… But a spokesman for the council said it was not happy about the bold build.

Wow, talk about the private sector coming to the rescue. Two things jump out from that story. First, it took only 10 days and £150,000 to build the road. If the government did it, it would take 20 times as long and cost 30 times as much.

The other noteworthy part of the story is that the local government isn’t happy. Well, of course not. Mr. Watts showed them up.

Some of you may be thinking this is a once-in-a-lifetime story and that we shouldn’t draw any lessons.

But that’s why an article by Nick Zaiac in London’s City A.M. is a must read. He cites the new toll road, but puts it in historical context.

Adams’ work falls into a long tradition of private provision of public services in order to serve some private goal. …Actions like these are not without precedent. In the American island state of Hawaii, residents and business owners gathered together in 2009 to fix a road through a state park that was vital to the area. They completed it entirely for free, with locals donating machinery, materials, and labor. In fact, the project was completed in a shockingly brief eight days. …Private roads have a long and storied history in both Britain and the US. Between 1800 and 1830, private turnpikes made up an astounding 27 per cent of all business incorporations in the US. Britain, between 1750 and 1772, had previously experienced a period of “turnpike mania”, as noted by economic historians Daniel Klein and John Majewski. Put simply, private infrastructure is by no means a new thing. It is simply the slow return to the way many roads were originally built.

Nick then explains that the private sector is making a comeback, and not just for little projects in the United Kingdom and Hawaii.

Australia stands out as one of the leaders. There are currently eight P3 projects on the market, with others in the pipeline, ranging from new rail lines and roads to hospitals. Each of these projects brings private financing into traditionally public projects, with benefits to companies, taxpayers, and, local citizens. Even better, as David Haarmeyer notes in Regulation, infrastructure projects such as those funded public private partnerships serve as good, long-term investments for investors seeking safe returns. …The traditional role of the government as infrastructure monopolist is slowly falling apart. Whether from grassroots efforts or large, complicated P3 projects such as the M6 Toll, the market is proving that it can provide infrastructure that people need, in one way or another.

John Stossel also has written on the topic and discussed modern-day examples of private sector involvement in the United States.

Heck, there are even private lanes on the Virginia side of the “beltway” that circles Washington!

So the moral of the story is that the private sector can do a lot more than people think.

In other words, libertarians may fantasize when they think of very small government. But the fantasy is not because libertarian policy is impractical. The fantasy is thinking (and hoping…and praying…and wishing) that politicians will actually do the right thing.

P.S. You want to know the best part of private roads? If they’re truly private, that means local governments wouldn’t be able to use red-light cameras and ticket traps as scams to generate revenue!

P.P.S. As I explained on Wednesday (only partially tongue in cheek), I’m willing to let the government be in charge of roads if the statists will agree to give people more personal and economic freedom in other areas. I’m not holding my breath waiting for a positive reply.

P.P.P.S. Though if government continued to have authority to build and maintain roads, that doesn’t mean Washington should play a role. The Department of Transportation should be abolished as quickly as possible.

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Time for a Free-Market Postal System

It’s not often that I agree with the Washington Post, but a government-run monopoly is not the best way to get mail delivered.

Moreover, it’s not often that I agree with the timid (and sometimes reprehensible) Tory-led government in the United Kingdom, but they just put the Royal Mail into the private sector. And that’s something deserving of loud applause.

Here’s a slice of the big news from the Financial Times.

The goal of privatising Royal Mail had defeated governments for 40 years. …Even prime minister Margaret Thatcher balked at the political risk of selling off a public service that carried the Queen’s head on its stamps. This time, the legislation went through parliament.

My Cato colleague, Chris Edwards, is suitably impressed.

Here’s some of what he wrote for Cato-at-Liberty.

Britain privatized its Royal Mail in 2013, proceeding with an initial public offering of shares that raised about $2.7 billion. …privatization in Britain has been hugely successful. Prime Minister Cameron should be applauded for having the guts to build on the privatization reform legacy of Thatcher, Major, and Blair. Meanwhile on this side of the pond, Republican Darrell Issa is having trouble getting his own nominally conservative party to accept even small changes to the broken government postal system.

Not surprisingly, some folks in Washington think we should move in the wrong direction by retaining the monopoly and allowing the Postal Service to enter new lines of business.

In this interview with Neil Cavuto, I explain why the Postal Service should be unleashed – but only after getting weaned from the taxpayer teat.

You’ll notice that I took the opportunity to explain that many poor people can’t afford banking services in part because government “anti-money laundering” rules impose very high costs on banks.

And since I’ve already mentioned that I have strange bedfellows at the Washington Post and UK government on the issue of postal privatization, I may as well note that the World Bank agrees with me about the poor being disadvantaged by these ill-advised financial regulations.

Let’s close with a good cartoon by Jerry Holbert.

It’s not as good as his classics about Obamacare, sequestration, big government, and Patty Murray’s budget, but obviously very appropriate for today’s topic.

P.S. In there was a contest for government stupidity, the Japanese might be front runners.

No, I’m not talking about their bizarre policy of regulating coffee enemas.

Instead, I’m baffled by the notion of government-funded dating. I’m not joking. Check out these excerpts from the British press.

The Japanese government is funding matchmaking events in a desperate attempt to boost a birth rate that has halved over the past six decades. …The support of marriage – and the active encouragement of young people to settle down – is regarded by government policy-makers as a key strategy for boosting the nation’s birth rate. …Matchmaking events organised by local authorities, where young singles are introduced to one another in romantic settings, are becoming increasingly common in areas such as rural Kochi, a prefecture around 500 miles west of Tokyo.

By the way, Japan does have a severe demographic problem.

And when you mix falling birthrates and increasing longevity with a tax-and-transfer welfare state, the results are catastrophic.

But the right way to deal with that problem is with genuine entitlement reform, not another bound-to-fail government-run version of Match.com.

P.P.S. If you like making fun of foreign governments, here are some more examples.

Taxpayer-financed friends for mass murderers in Norway.

Spending 800,000 euro to collect 25,000 euro of tax in Germany.

Giving welfare handouts to foreigners in the United Kingdom.

Remember, nothing is too stupid for government.

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More Amusing Anti-Libertarian Humor

Do libertarians have a sense of humor?

That’s a relevant question because many people think of us as unhappy curmudgeons, or perhaps as dorky Randians.

While I think those stereotypes are unfair, I also confess that I can only think of a few examples of explicitly pro-libertarian humor.

Libertarian Jesus scolding modern statists.

This poster about confused statists.

The libertarian version of a sex fantasy.

Since I could only find three examples, does this mean libertarians are hopelessly dour and lacking in humor?

I think the answer is “no” and I think there are two reasons to justify that response. First, libertarians are always making fun of oafish and moronic government. I like to think, for instance, that my UK-vs-US government stupidity contest contains some amusing satire.

Skeptics may respond that you can mock big government without being a libertarian, and that’s a fair point.

But this gives me an opportunity to list the second reason why it’s wrong to accuse libertarians of lacking a sense of humor. Simply stated, we have the ability to appreciate anti-libertarian humor. This not only shows that we have funny bones, but it also demonstrates that we have considerable confidence about the strength of our ideas.

So with that build-up, here’s an example of anti-libertarian humor I received from a fellow traveler in Illinois.

I think you’ll agree that this can be added to our collection of anti-libertarian humor.

• A video portraying Somalia as a libertarian paradise.
• Cartoons on libertarian ice fishing and libertarian lifeguards.
• A mosaic showing 24 types of libertarians.
• A poster showing how the world sees libertarians.
• A 23-photo montage of libertarian problems.
• The answer to the riddle of why the libertarian chicken crossed the road.

P.S. Since I am a dorky libertarian, I can’t resist responding to the above cartoon by noting that we actually don’t need government fire departments. The folks at the Reason Foundation have been working on this issue for decades and have a study explaining the benefits of private fire departments.

But there’s a lot more evidence. Here’s what one expert wrote in 2012 for Cato Unbound.

…my town contracts out its entire fire department to the company Rural/Metro, a pioneer in privatized fire services. Their trucks are shiny, red, and full of water, just like a “traditional” fire department’s. Their firemen train just like their municipal counterparts do in neighboring jurisdictions. They respond to fire and EMS calls just like the government-run systems do. The main differences I’ve discerned are that: (1) their logo—which otherwise looks much like other fire department logos—notes the name of the company underneath the name of the town, and (2) workers are covered under a private sector 401(k) plan, so our town is not on the hook for a massive future pension payout. Neither of these differences is relevant from a service delivery standpoint.

And an article in Capitalism Magazine the same year pointed out that privatized fire protection exists in hundreds of communities.

…nearly half of Denmark’s municipalities contract with Group 4 Falck to provide firefighting and ambulance services. In America, more than 450 communities contract with Rural/Metro Corporation for fire protection service, EMS, or both. Unlike government fire services, which focus on fire response, Rural/Metro focuses on fire prevention. A former mayor of Scottsdale, Arizona, which has used Rural/Metro for more than two decades said, “Scottsdale citizens are offered a much better balance between response and prevention than is available in most communities.”

Why are so many communities looking at private options?

Most likely, it’s because unions have conspired with government officials to push labor costs to absurd levels, as humorously depicted is this somewhat off-color video.

P.P.S. Returning to the topic of humor, I have a serious request. Can anybody provide examples of self-deprecating humor by leftists?

I don’t think statists have much self-confidence in their ideas, so they probably don’t have much ability to poke at themselves, but I imagine there must be some examples.

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Privatization Is the Best Response to the FAA’s Deliberate Attempt to Inconvenience Air Passengers

In an interview with Neil Cavuto earlier this month, I mocked proponents of big government for their hysterical predictions of bad things happening under sequestration. And cartoonists had a field day making the same point (see here and here).

The White House obviously wasn’t happy about the sequester, in part because they like bigger government and also because sequestration was a big defeat for the President.

Well, now the Obama Administration sees a chance for revenge and redemption. The President’s appointees, by choosing to furlough air traffic controllers, are seeking to turn air travel into something akin to a visit to the Post Office or DMV. It’s clear that the White House hopes to recreate momentum for a tax hike as an alternative to sequestration.

But they’re not exactly being subtle.

The Wall Street Journal exposes the White House’s political motivated chicanery, starting with the very important point that the FAA’s budget – even after sequestration – is as large as it was in 2010. Yet the White House is manipulating the sequester to cause the maximum amount of inconvenience for taxpayers.

The sequester cuts about $637 million from the FAA, which is less than 4% of its $15.9 billion 2012 budget, and it limits the agency to what it spent in 2010. The White House decided to translate this 4% cut that it has the legal discretion to avoid into a 10% cut for air traffic controllers. Though controllers will be furloughed for one of every 10 working days, four of every 10 flights won’t arrive on time.

The Obama Administration is pretending that it’s merely following the law, but the WSJ editorial debunks that notion.

This is a political pose to make the sequester more disruptive. Legally speaking, the sequester applies at a more general level known as “accounts.” The air traffic account includes 15,000 controllers out of 31,000 employees. The White House could keep the controllers on duty simply by allocating more furlough days to these other non-essential workers. Instead, the FAA is even imposing the controller furlough on every airport equally, not prioritizing among the largest and busiest airports. …ever since Al Gore launched a training initiative to increase the productivity of air traffic controllers in 1998, productivity has continued to fall. A larger workforce is now in charge of a smaller workload as the number of flights has dropped by 23%.

I didn’t realize that controllers were doing less work over time, but I’m not surprised to learn that superfluous bureaucrats at the FAA are being protected.

But the WSJ doesn’t go far enough. My Cato colleague Chris Edwards has a column in the Daily Caller that outlines the inefficiency of the FAA.

The federal budget sequester is interfering with the air traffic control (ATC) system and snarling up air traffic. As usual, politicians are pointing fingers of blame at everybody but themselves. But politicians are the ones who have strapped the ATC system to the chaotic federal budget. And they’re the ones who have insisted on running ATC as a bureaucracy, rather than freeing it to become the high-tech private business that it should be. …Last year Bloomberg reported: “More than one-third of the 30 contracts critical to building a new U.S. air-traffic system are over budget and half are delayed, a government audit concluded.

Chris then takes the logical next step and says the system should be privatized. Which is exactly what happened in his home country of Canada.

To run smoothly and efficiently, our ATC system should be given independence from the government. We should privatize the system, as Canada has done very successfully. …Canada provides an excellent model for U.S. reforms. Canada’s ATC system is run by the nonprofit corporation Nav Canada, which is separate from the government. Like any private business, it raises revenues from its customers to cover its operational costs and capital investments. The company’s financial statements for 2012 show revenues and expenses of $1.2 billion, with $125 million allocated to capital expenditures. Unlike the U.S. system, Nav Canada is self-supporting and not subsidized.

I’ve already written on this topic, citing some good analysis from Canada’s Financial Post, and the evidence is overwhelming that the private system in Canada works much better than the inefficient bureaucracy we have in the United States.

Let’s close with a Michael Ramirez cartoon. The “politics” and “waste” markings are very appropriate.

Lost in this controversy, by the way, is any recognition that sequestration barely makes a dent in the federal budget. There are some small first-year cuts in a few programs, but the wasteful behemoth known as the federal government is barely nicked.

To be more specific, the net effect of the sequester is that the burden of government spending grows by $2.4 trillion over the next 10 years rather than $2.5 trillion.

So don’t pay any attention to the hyperbole and hysteria from the special interest groups in Washington. The sequester is a tiny – and desirable – step in the direction of fiscal responsibility.

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Crikey, Australia’s a Good Role Model

Welcome Instapundit readers. Notwithstanding my next-to-last paragraph full of caveats, some people are saying I’m too soft on the Aussies. This previous post should disabuse people of that notion.

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The Economist magazine has a couple of good articles about Australia’s increasingly enviable economic status. Here’s a blurb from the first article, which outlines the pro-market reforms that enabled today’s prosperity.

Only a dozen economies are bigger, and only six nations are richer—of which Switzerland alone has even a third as many people. Australia is rich, tranquil and mostly overlooked, yet it has a story to tell. Its current prosperity was far from inevitable. Twenty-five years ago Paul Keating, the country’s treasurer (finance minister), declared that if Australia failed to reform it would become a banana republic. Barely five years later, after a nasty recession, the country began a period of uninterrupted economic expansion matched by no other rich country. It continues to this day. This special report will explain how this has come about and ask whether it can last. …With the popular, politically astute Mr Hawke presiding, and the coruscating, aggressive Mr Keating doing most of the pushing, this Labor government floated the Australian dollar, deregulated the financial system, abolished import quotas and cut tariffs. The reforms were continued by Mr Keating when he took over as prime minister in 1991, and then by the Liberal-led (which in Australia means conservative-led) coalition government of John Howard and his treasurer, Peter Costello, after 1996. …By 2003 the effective rate of protection in manufacturing had fallen from about 35% in the 1970s to 5%. Foreign banks had been allowed to compete. Airlines, shipping and telecoms had been deregulated. The labour market had been largely freed, with centralised wage-fixing replaced by enterprise bargaining. State-owned firms had been privatised. …the double taxation of dividends ended. Corporate and income taxes had both been cut.

This chart (click for a larger image), from Economic Freedom of the World, presents a more rigorous look at this period. It shows how Australia’s economic freedom ranking had dropped to as low at 19 (out of 72 nations measured) and now is up to 8 (out of 114 nations measured). This is akin to moving from the 74th percentile to the 94th percentile.

There is also an accompanying article about Australia’s private Social Security system. Called superannuation, these personal accounts have generated tremendous results.

…most Australian workers, over 8m in total, now have a private nest-egg for their old age. No tax is paid when members withdraw from their fund; they can take all they want as a lump sum, subject to a limit, or buy an annuity. Aussies are now a nation of capitalists. At the same time the state pension system, and therefore the taxpayer, is being progressively relieved of most of the burden of retirement provision, since eligibility for the state pension depends on both assets and income. As supers take over, the provision for old folks’ incomes will be almost entirely based on defined contributions, not defined benefits. So Australia is in the happy position of not having to worry too much about the pension implications of an ageing population… The supers…have created a pool of capital in Australia that might not otherwise have existed. Collectively worth about $1.3 trillion—much the same as GDP—they have made Australia the world’s fourth-largest market for pension savings.

Australia is not exactly Hong Kong. Marginal tax rates are still far too high. The burden of government spending is lower than in the United States, but is still far too onerous. Nonetheless, the Aussies have made impressive strides in reducing the overall size, scope, and level of government interference and intervention. And this has translated into much better economic performance.

This video uses the Economic Freedom of the World index to explain why comprehensive free market reforms (like Australia) generate the best results.

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Article on Bail Bondsmen Suggests New Nickname for the Private Sector: “Is There Anything It Can’t Do”?

Alex Tabarrok has a fascinating article in the Wilson Quarterly about the history of bail bondsmen and their role in this privatized segment of the criminal justice system. Let’s start by excerpting some history of the system.

Bail began in medieval England as a progressive measure to help defendants get out of jail while they waited, sometimes for many months, for a roving judge to show up to conduct a trial. If the local sheriff knew the accused, he might release him on the defendant’s promise to return for the hearing. More often, however, the sheriff would release the accused to the custody of a surety, usually a brother or friend, who guaranteed that the defendant would present himself when the time came. So, in the common law, custody of the accused was never relinquished but instead was transferred to the surety—the brother became the keeper—which explains the origin of the strong rights bail bondsmen have to pursue and capture escaped defendants. Initially, the surety’s guarantee to the sheriff was simple: If the accused failed to show, the surety would take his place and be judged as if he were the offender. The English system provided lots of incentives for sureties to make certain that the accused showed up for trial, but not a lot of incentive to be a surety. The risk to sureties was lessened when courts began to accept pledges of cash rather than of one’s person, but the system was not perfected until personal surety was slowly replaced by a commercial surety system in the United States. That system put incentives on both sides of the equation. Bondsmen had an incentive both to bail defendants out of jail and to chase them down should they flee. By the end of the 19th century, commercial sureties were the norm in the United States. (The Philippines is the only other country with a similar system.)

In recent decades, however, some states have begun to restrict or ban the use of private bail bondsmen. Not surprisingly, this hasn’t been good news. The cost to taxpayers rises and the effectiveness of the criminal justice system falls. Here’s another excerpt.

Every state now has some kind of pretrial services program, and four (Illinois, Kentucky, Oregon, and Wisconsin) have outlawed commercial bail altogether. …Today, when a defendant fails to appear, an arrest warrant is issued. But if the defendant was released on his own recognizance or on government bail, very little else happens. In many states and cities, the police are overwhelmed with outstanding arrest warrants. In California, about two million warrants have gone unserved. Many are for minor offenses, but hundreds of thousands are for felonies, including thousands of homicides. In Philadelphia, where commercial bail has been regulated out of existence, The Philadelphia Inquirer recently found that “fugitives jump bail . . . with virtual impunity.” At the end of 2009, the City of Brotherly Love had more than 47,000 unserved arrest warrants. About the only time the city’s bail jumpers are recaptured is when they are arrested for some other crime. …Unserved warrants tend not to pile up in jurisdictions with commercial bondsmen. In those places, the bail bond agent is on the hook for the bond and thus has a strong incentive to bring those who jump bail to justice. My interest in commercial bail and bounty hunting began when economist Eric Helland and I used data on 36,231 felony defendants released between 1988 and 1996 to investigate the differences between the public and private systems of bail and fugitive recovery. Our study, published in TheJournal of Law and Economics in 2004, is the largest and most comprehensive ever written on the bail system. Our research backs up what I found on the street: Bail bondsmen and bounty hunters get their charges to show up for trial, and they recapture them quickly when they do flee. Nationally, the failure-to-appear rate for defendants released on commercial bail is 28 percent lower than the rate for defendants released on their own recognizance, and 18 percent lower than the rate for those released on government bond. Even more important, when a defendant does skip town, the bounty hunters are the ones who pursue justice with the greatest determination and energy. Defendants sought by bounty hunters are a whopping 50 percent less likely to be on the loose after one year than other bail jumpers. In addition to being effective, bail bondsmen and bounty hunters work at no cost to the taxpayers. The public reaps a double benefit, because when a bounty hunter fails to find his man, the bond is forfeit to the government.

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The Case for Social Security Personal Accounts

There are two crises facing Social Security. First the program has a gigantic unfunded liability, largely caused by demographics. Second, the program is a very bad deal for younger workers, making them pay record amounts of tax in exchange for comparatively meager benefits. This video explains how personal accounts can solve both problems, and also notes that nations as varied as Australia, Chile, Sweden, and Hong Kong have implemented this pro-growth reform.

Social Security reform received a good bit of attention in the past two decades. President Clinton openly flirted with the idea, and President Bush explicitly endorsed the concept. But it has faded from the public square in recent years. But this may be about to change. Personal accounts are part of Congressman Paul Ryan’s Roadmap proposal, and recent polls show continued strong support for letting younger workers shift some of their payroll taxes to individual accounts.

Equally important, the American people understand that Social Security’s finances are unsustainable. They may not know specific numbers, but they know politicians have created a house of cards, which is why jokes about the system are so easily understandable.

President Obama thinks the answer is higher taxes, which is hardly a surprise. But making people pay more is hardly an attractive option, unless you’re the type of person who thinks it’s okay to give people a hamburger and charge them for a steak.

Other nations have figured out the right approach. Australia began to implement personal accounts back in the mid-1980s, and the results have been remarkable. The government’s finances are stronger. National saving has increased. But most important, people now can look forward to a safer and more secure retirement. Another great example is Chile, which set up personal accounts in the early 1980s. This interview with Jose Pinera, who designed the Chilean system, is a great summary of why personal accounts are necessary. All told, about 30 nations around the world have set up some form of personal accounts. Even  Sweden, which the left usually wants to mimic,  has partially privatized its Social Security system.

It also should be noted that personal accounts would be good for growth and competitiveness. Reforming a tax-and-transfer entitlement scheme into a system of private savings will boost jobs by lowering the marginal tax rate on work. Personal accounts also will boost private savings. And Social Security reform will reduce the long-run burden of government spending, something that is desperately needed if we want to avoid the kind of fiscal crisis that is afflicting European welfare states such as Greece.

Last but not least, it is important to understand that personal retirement accounts are not a free lunch. Social Security is a pay-as-you-go system, so if we let younger workers shift their payroll taxes to individual accounts, that means the money won’t be there to pay benefits to current retirees. Fulfilling the government’s promise to those retirees, as well as to older workers who wouldn’t have time to benefit from the new system, will require a lot of money over the next couple of decades, probably more than $5 trillion.

That’s a shocking number, but it’s important to remember that it would be even more expensive to bail out the current system. As I explain at the conclusion of the video, we’re in a deep hole, but it will be easier to climb out if we implement real reform.

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Why Can’t We Copy those Radical Free-Market Canadians and Privatize the Air Traffic Control System?

Like most federal agencies, the Federal Aviation Administration is a costly bureaucracy. Its $16.4 billion budget is enormous, but that is just the direct cost borne by taxpayers. The indirect costs, such as inefficiencies imposed on the air transportation system, also are significant. This has nothing to do with the TSA, by the way. The FAA is responsible for the air traffic control system, things like airport towers and radar systems that tell planes where to fly and when to land.

The Canadians have a much better approach. They privatized their air traffic control system back in the 1990s. So instead of having to rely on a clunky and incompetent government bureaucracy, our neighbors to the north have a private company that is generating very impressive results.

Not that this should be a surprise. Other nations have made remarkable gains through privatization, including Social Security personal accounts in Chile and 30 other nations, education choice in places such as Sweden and the Netherlands, and privatized postal service in Germany.

Reforming government monopolies should be a priority in the United States. Robust economic growth requires more than just low tax rates. It means getting rid of policies that cause resources to be misallocated. Privatization is an unsettling concept for some people, in part because they’ve always assumed certain things should be run by the government. This is why international examples are so important. Canada’s 14 years of experience with a private air traffic control system clearly shows that there are very successful alternatives to inefficient and costly bureaucracies.

Here are some excerpts from a story in Canada’s Financial Post about Canada’s remarkable reform.

A once troubled government asset, the country’s civil air traffic controller was privatized 14 years ago and is now a shining example of how to create a global technology leader out of a hulking government bureaucracy. Nav Canada’s efforts have flights moving more efficiently than ever through the skies above the country. Many of the changes implemented by Nav Canada in recent years have gone unnoticed by the flying public. Certain flights are now shorter than they once were; aircraft no longer circle airports awaiting a runway; descents start further out and planes reach cruising altitudes more quickly; and flights to Asia now spend less time by jaunting over the Arctic than endlessly cruising the Atlantic or Pacific Oceans. …Nav Canada estimates its efforts to modernize the aircraft navigation system in the country since it was privatized in 1996 have cut the fuel bill of airlines flying into Canada and above it by an estimated $1.4-billion collectively… Meantime, Nav Canada has won the respect of airlines for keeping its fees steady, and in some cases, like in 2006, even reducing them when it can. …John Crichton, Nav Canada chief executive, makes no bones about why he thinks his organization has been able to make these improvements and emerge as a global leader. I don’t think there’s any question that the privatization was the best thing that ever happened,” he said. “That really unleashed all the innovation.” …Calin Rovinescu, Air Canada’s chief executive, commended Nav Canada for its efforts to modernize the country’s navigation systems during a speech in Montreal earlier this year, while condemning the United States and the European Union, which still operates as a patchwork of nationalized systems, for their lack of leadership on the issue. Nav Canada also won the International Air Transport Association’s Eagle Award earlier this year for its efforts, in particular its constant consultation with the industry.

My Cato colleague Chris Edwards has more analysis, including a call to private the Federal Aviation Administration as well as some useful links.

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“I Wish Republicans Had a Secret Plan for Personal Accounts”

Here’s my debate on Larry Kudlow’s show about Social Security personal retirement accounts. 

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The Private Sector Always Does a Better Job than Government

Using road management as an example, John Stossel explains that government does a worse job than the private sector, even at things that theoretically are a government responsibility. Part of this is because of the profit motive, to be sure, but a big reason is probably because government bureaucracies inevitably are filled with overpaid bureaucrats who understand that job security is best assured by maintaining problems rather than solving them. Stossel makes an excellent point by noting that “contracting out” is not the same thing as genuine free enterprise. But at least it means whatever government is doing (either good things or bad things) will be done for less cost and with more competence.

Free enterprise does everything better. Why? Because if private companies don’t do things efficiently, they lose money and die. Unlike government, they cannot compel payment through the power to tax. Even when a private company operates a public facility under contract to government, it must perform. If it doesn’t, it will be “fired” — its contract won’t be renewed. Government is never fired. Contracting out to private enterprise isn’t the same thing as letting fully competitive free markets operate, but it still works better than government. Roads are one example. Politicians call road management a “public good” that “government must control.” Nonsense. In 1995, a private road company added two lanes in the middle of California Highway 91, right where the median strip used to be. It then used “congestion pricing” to let some drivers pay to speed past rush-hour traffic. Using the principles of supply and demand, road operators charge higher tolls at times of day when demand is high. That encourages those who are most in a hurry to pay for what they need. …for years there was a gap in the ring road surrounding Paris that created huge traffic problems. Then private developers made an unsolicited proposal to build a $2 billion toll tunnel in exchange for a 70-year lease to run it. They built a double-decker tunnel that fits six lanes of traffic in the space usually required for just two. The tunnel’s profit-seeking owners have an incentive to keep traffic moving. They collect tolls based on congestion pricing, and tolls are collected electronically, so cars don’t have to stop. The tunnel operators clear accidents quickly. Most are detected within 10 seconds — thanks to 350 cameras inside the tunnel. The private road has cut a 45-minute trip to 10 minutes.

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Budget Deficits Force Local Governments to Do the Right Thing for the Wrong Reason

There are legitimate reasons for local governments to own land, but surely it doesn’t make sense for them to hold on to surplus acreage. Better to get that land back in private hands, where it will be used for some productive purpose. This is why the downturn does have a silver lining. A handful of local governments are so anxious for more property tax revenue that they are going out of their way to make extra government-owned land available to private owners at rock-bottom prices. Ideally, they should have privatized their holdings years ago, but better late than never. Here’s a blurb from the New York Times about this development.

Give away land to make money? It hardly sounds like a prudent scheme. But in a bit of déjà vu, that is exactly what this small Nebraska city aims to do. Beatrice was a starting point for the Homestead Act of 1862, the federal law that handed land to pioneering farmers. Back then, the goal was to settle the West. The goal of Beatrice’s “Homestead Act of 2010,” is, in part, to replenish city coffers. The calculus is simple, if counterintuitive: hand out city land now to ensure property tax revenues in the future. …Around the nation, cities and towns facing grim budget circumstances are grasping at unlikely — some would say desperate — means to bolster their shrunken tax bases. Like Beatrice, places like Dayton, Ohio, and Grafton, Ill., are giving away land for nominal fees or for nothing in the hope that it will boost the tax rolls and cut the lawn-mowing bills. …Officials acknowledge that the benefits sound modest, in the thousands of dollars annually, but say the revenue is needed. “What is the value of a lot to us if it’s empty?” said Tom Thompson, the mayor of Grafton, where an offer of 32 city-owned lots, promoted with a television advertising campaign, has quickly led to eight takers so far. “This is strictly financial — a way to go upstream from the trend.” In Dayton, officials are offering thousands of vacant, foreclosed or abandoned properties under certain conditions for nominal fees — $500, in many cases, to cover the cost of recording fees or $1,200 if the city must initiate tax foreclosure proceedings. The prospect of city savings on mowing fees alone is enormous: each year, Dayton spends $2 million to cut grass on the properties.

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Get Government Out of the Education Business

There’s a controversy in Texas because the State Board of Education has mandated the inclusion of certain materials in textbooks. This has elicited howls of protests from the left, which generally has controlled how some issues are portrayed. Since I don’t want leftist propaganda being pushed on kids, I’m mildly sympathetic to the Texas educrats, but the best way to solve the controversy is school choice. As Jeff Jacoby explains for the Boston Globe, education in America should be more like religion. This means getting rid of one-size-fits-all monopoly schools operated by the government:

“Throughout American history,’’ writes Neal McCluskey of the Cato Institute, “public schooling has produced political disputes, animosity, and sometimes even bloodshed between diverse people.’’ Political fighting is neither rare nor anomalous: In the course of just one school year, 2005-06, McCluskey tallied almost 150 reported cases of public-school conflicts. There were bitter battles that year over Darwinism-vs.-intelligent-design in Pennsylvania and Kansas, heated fights over books about Cuba in Florida, and an emotional dispute in California over the portrayal of Hindus in history texts. In Lexington, Mass., a teacher’s decision to read a story celebrating gay marriage to her second-grade class without first notifying parents triggered a fight that ultimately wound up in federal court. Again and again, Americans find themselves at war with each other over public schooling. Yet furious conflict over religion in this country is almost unheard-of. Why? Why don’t American Catholics and Protestants angrily attack each other’s views of clerical celibacy or papal infallibility? Why is there no bitter struggle between Orthodox and Reform Jews to control the content of the Sabbath liturgy? Why don’t American atheists clash with American believers over whether children should be taught to pray before going to sleep? …The answer is no mystery. America is a land of religious freedom, in which people decide for themselves what to believe and how to worship. No religion is funded by government. Elected officials have no say in the doctrine of any faith or the content of any religious service. Religion flourishes in America because church and state are separate. And it flourishes so peacefully because no one is forced to support anyone else’s faith, or to attend a church he isn’t happy with, or to bring up children according to the religious views of whichever faction has the most votes. Religion is peaceful because it is government-free. Liberate the schools, and they too would be at peace. Taxpayer-funded, one-curriculum-fits-all schooling makes conflict inevitable. There would be far less animosity if parents were as free to choose how and where their children learn as they are to choose how and where they worship. Separation of church and state has made America an exemplar of religious pluralism and tolerance. Imagine what separation of school and state could do for education.

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Washington Post Calls for Postal Service Privatization!

Do my eyes deceive me? Has you-know-what frozen over? Something strange clearly has happened in the universe, because the Washington Post’s editorial page has published a very sensible piece about the Postal Service, noting the system is fundamentally unsound and stating that privatization is the only realistic long-term option:

Approaching the limits of its federal credit line, the USPS must change drastically or go bust. …Postmaster General John E. Potter…has acknowledged the scope of that challenge, and last week he proposed new product lines, efficiency improvements and workforce attrition to generate $115 billion in revenue or savings between now and 2020. But that’s not even half the projected losses. To really transform, the Postal Service needs congressional action. Some 26,000 of the Postal Service’s 32,000 post offices lose money. …There is only so much that can be accomplished without tackling the item that accounts for 80 percent of the Postal Service’s expenses: labor costs. To be sure, 50 percent of postal workers come up for retirement in the next decade, and that will help cut costs. But attrition has its limits. Management and labor must aggressively tackle uncompetitive wages, benefits and work rules — including no-layoff clauses that cover most personnel. …Given the state of technology, privatization is probably the only long-term solution for the USPS. But it is so saddled with legacy costs that no investor would touch it. If Congress gives management the tools it needs to meet the crisis, and if management uses them effectively — two big ifs, we admit — the Postal Service will have a chance to get its house in order and one day attract private capital, as European postal services have done.

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Is Viagra a Secret Weapon for Social Security Reform?

A weird headline for a blog post, to be sure, but that’s the implication of this report from Brazil. Older men are marrying young ladies, who then become eligible for decades of government pension payments when their husbands die. This is apparently so common that it has become a large fiscal drain and politicians feel pressure for reform. It is highly unlikely that Brazil’s politicians will choose the right reform, but hope springs eternal. Perhaps if they pop some little blue pills before the debate, they’ll be willing to do something…um…manly, such as personal retirement accounts:

The widespread tendency in Brazil for men to remarry women several decades younger — called the “Viagra effect” — is undermining the country’s pension system, researchers warned Tuesday. The report, by Brazil’s National Social Security Institute (INSS), showed that a trend of men in their 60s marrying women half their age was leaving a big pool of young widows collecting benefits for much longer than anticipated. “The social security system was planned so that the wife receives her husband’s pension for only 15 years or so. With growing life expectancy and remarriages with much younger women, benefits today stretch out over 35 years,” the author of the study, Paulo Tafner, explained to AFP. He said the younger-wife phenomenon was commonly called the “Viagra effect.” …Of the separated men, 64 percent of those aged over 50 remarry women younger than them. In the 60-64 age range, the proportion is 69 percent. And the marked preference is for women aged 30 years younger. …Under current laws, when a retired man dies, his wife continues to receive his full pension until her own death. According to the INSS, 94 percent of pensions go to women. “This is a grave and serious challenge for the future of the country, and it’s going to require a reform of the pension system,” Tafner said.

 

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