Exposing the Myth that “Corporations Can Run Things Better than Government Can”

[Time for change]

It was pointed out in a recent post that a central tenet of right wing ideology is that “corporations can run things better than the government can”. The main theme of that post was that we should seek to expose that myth for the lie that it is.

So how do we do that? Clearly it will not be an easy task. No less a conservative icon than Ronald Reagan put the issue vividly when he said “The nine most terrifying words in the English language are, 'I'm from the government and I'm here to help.” Reagan also gave us a lot of similarly brilliant insights, such as “Facts are stupid things” and, closely related to that, “Trees cause more pollution than automobiles”. But I digress.

Reagan’s statement about government is stupid beyond belief, and yet he sold that ideology to millions of Americans, rode it to victory in two presidential elections, and helped turn American politics sharply to the right for years to come.

Why do I say that Reagan’s statement about government was stupid beyond belief? Well, think about it. What is government and what are corporations? Government is us the people. It is the vehicle by which the American people have arranged to serve their needs. Without government we have anarchy and the rule of the jungle, as opposed to the rule of law. The purpose of a corporation, on the other hand, is to make a profit. If we as a people have a need that has to be met, such as the provision of water or health care, and all other things being equal, would we rather that need be met by an entity – government – which we created specifically to serve our needs and which is accountable to us? Or would we rather that need be met by an entity – a corporation – that was created to make a profit?

I don’t want to exaggerate this. Government is composed of people, and so are corporations. Despite the fact that government is created to serve us, it nevertheless has the potential to perform poorly, and it often does, for a variety of reasons. And conversely, corporations sometimes serve our needs quite well. This issue is not black and white, and there certainly is a role for both government and private business in our country. But Reagan’s implication that government is inherently bad or incompetent compared to the private sector is, well, incredibly stupid – and dangerous as well.


The theoretical advantages of having our needs served through corporations

The good majority of Americans – Republicans, Democrats and independents – agree that many or most economic transactions in our country should take place in the private sphere through “free market” mechanisms. At its best the free market works to improve the quality of goods and services by means of competition. When people are free to choose among a variety of goods or services, then the manufacturers and providers of those goods and services know that they will succeed only to the extent that they are able to offer good quality goods or services at reasonable costs. Those dynamics can work to everyone’s benefit.

However, there are conditions under which the free market doesn’t operate well, and in most of those situations government has a critical or even essential role to play in serving the needs of the American people. Right wing ideologues either don’t understand that or they don’t want to acknowledge it for various reasons. Their contention that free markets always work best is an absurd simplification of a complex issue and is dangerously naïve for a democracy.

I can think of at least four conditions where free markets don’t tend to work well and where therefore government has a crucial role to play:

1. Where the service is an intrinsic function of government
2. Where third parties are intimately affected
3. Where people don’t have the knowledge to allow free market principles to operate
4. Where competition is stifled by monopolies

Let’s consider the dynamics that are involved in these situations:


Where a service is an intrinsic function of government

There are many activities that are so intrinsic to government that it wouldn’t make much sense for individuals to be involved in arranging them or funding them outside the scope of government. Some examples include elections of government officials, our prison system, police and fire protection, and national defense.

Then there are other activities that could feasibly arranged for or paid for by individuals, but which are of such great importance that we have chosen to allow government to play a prominent role in them. Examples include health care (as in Medicare), provision for our retirement (as in Social Security), and public education.

With any of these activities it is possible for government to contract with one or more corporations to provide the service. But why should it? Corporations exist to make a profit. In fact, they are legally beholding to their investors to do so. Consequently, once they receive a government contract for providing a service there will always be the temptation to cut corners so as to increase their profit margin. And the bureaucracy involved in handling contracts is time consuming and expensive.

It is crucially important to the American people that the above noted programs be performed well. Because government is elected by the people it is accountable to the people. Laws and regulations have been put in place over many decades to regulate the activities of government programs in a way that is responsive to the needs of the American people. By contrast, most of those laws and regulations do not apply to private corporations.

The consequences of the privatization of intrinsic government programs

Therefore, when intrinsic government functions are privatized, we the people risk losing control of them, and bad things often happen. For example, our elections have become privatized in recent years, with consequent diminished assurance that the computers used to count our votes do so accurately and no opportunity to verify our vote counts. And then, when voters have demanded the right to inspect the voting machines for possible fraud, they are denied access because (they are told) that would be a violation of the “proprietary” rights of the voting machine manufacturers.

As our prison system has become privatized the corporations that run our prison system have sometimes used state or federal prisoners for slave labor, and they even lobby Congress for tougher criminal penalties in order to increase their profits. As many of our military functions have been given away in no-bid contracts, we have lost billions of dollars to fraud, and our soldiers have suffered from unsafe food and inadequate equipment. Worse yet, our mercenary soldiers, working for private companies, sometimes kill civilians in cold blood and we provide no way to hold them accountable for their actions.

When we’re burdened with a right wing ideologue for a president, his contempt for government programs that serve the American people creates a self-fulfilling prophecy whereby government is indeed shown to be incompetent:

Largely as a result of George Bush’s contempt for public health programs, infant mortality has risen during his administration for the first time in 40 years. Republicans in Congress have defeated even a veterans’ health care benefits plan which was sponsored and fought for by Democrats. And they have voted against every plan to increase the health benefits of the American people brought up by Democrats during the past several years. One of the most unfortunate results of all this is 46 million uninsured American citizens.

De-funding of public education in America has resulted in a situation where more and more children are unable to afford a chance at higher education, and a lack of public funds for primary school education has resulted in a deterioration of our public school system. If Republicans have their way, their attack on our Social Security system is likely to erase the prospect of a comfortable retirement for millions of Americans.

The failure of the Bush administration to fund the rebuilding of levees that would have prevented thousands of deaths from Hurricane Katrina, and its non-response to the emergency itself is emblematic of the contempt of today’s right wing ideologues for the idea that our government should exert itself to protect American citizens.


Where third parties are intimately affected yet not represented in “free market” transactions

When corporations enter into agreements that pollute our air, water or soil, or use up scarce resources that affect the quality of our lives, the use of the term “free market” to characterize such agreements seems highly disingenuous. The great majority of people who buy the products of polluting corporations do not live or work in the areas that are most affected by their activities. Therefore, the people who are most adversely affected by these activities have no representation in the presumed “free market” transactions that allow them to take place.

The “free market” neither provides limits on such activities nor holds the involved corporations responsible for them. The only means to correct for these injustices is government intervention. Such was one of the major purposes of the Environmental Protection Agency, created in 1970. But in recent years the Republican free market ideologues have worked hard to dismantle government protections in this and other similar areas.

The same general principle applies to essential scarce resources, such as the public airwaves. Essential information is transmitted through the public airways, and therefore their use is intimately tied up with our First Amendment rights to a free press, which is essential for the workings of democracy. This fact was recognized as early as 1934, with the enactment of the Federal Communications Act and the Fairness Doctrine in 1949, which required that radio and television stations must act in the public interest in return for being granted free licenses to use the public airways.

The consequences of deregulating corporations that have vast powers to hurt us

The results of the belief of free market ideologues that government has no right to regulate the polluting activities of corporations can be seen in the enactment of such laws as George Bush’s misnamed “Clear Skies Initiative”, which substantially reduced environmental controls on several dangerous pollutants. The effects of such laws include respiratory disease, birth defects from mercury contamination, death, and global warming, with its attendant potential to inflict catastrophic damage on our planet and its people.

Ronald Reagan’s 1987 veto of Democratic legislation meant to enforce the Fairness Doctrine, and the Federal Communications Act of 1996 passed by a Republican Congress, effectively deregulated the telecommunications industry. The results have been corporate control of almost all the news we receive on radio and TV, with the consequent creation of such monstrosities as Rush Limbaugh and FOX News. With wealthy corporations in control of so much of the news that Americans receive, right wing Republicans have had a megaphone that is effectively denied to others, which greatly biases the news that most of us receive and thereby substantially weakens the effectiveness of our First Amendment guarantee of a free press.


Situations where free market principles don’t work because of lack of essential information

It should be obvious that free market principles can operate effectively only when all parties to a transaction have enough knowledge to evaluate the relevant product. In today’s increasingly technological world that is not always possible. An understanding of this issue is what led to the creation of such government organizations as the Food and Drug administration and the Consumer Product Safety Commission. The point is that the American people have neither the scientific data at their disposal, nor the expertise to understand that data well enough to make effective decisions regarding the purchase of drugs, medical devices or many other consumer products that may pose a safety hazard to them. Thus, they need a government, elected and committed to their welfare, and with the necessary scientific expertise, to make decisions on the safety of those products and to prevent the sale of dangerous products. The free market cannot ensure that only safe products will be sold and bought.

Though this is not widely recognized, the same principle applies to medical care in general. Few people have the ability to effectively evaluate the medical care that they receive, and attempts to do so are terribly time consuming. Sure, we can decide what doctors we like and what doctors seem to be competent. But such evaluations are superficial at best. Especially when we develop medical conditions that require the services of doctors with whom we have no previous personal knowledge, government provided information and/or assistance could be of great value in helping us to make decisions that are more consistent with healthy lives and economic stability.

The consequences of giving free reign to “free market” principles when essential knowledge is lacking

The inability of Americans to evaluate the health care that they receive is largely responsible for inflation in the cost of health care to the point where numerous Americans are effectively priced out of the health care market and a single illness has the capacity to drive American families into bankruptcy. Recognizing this fact, several of our Democratic candidates for President, most notably Dennis Kucinich, have put forth plans for government provision of health care that attempt to reverse some of these problems.

George Bush doesn’t believe in the principle of having scientific governmental agencies whose purpose is to provide a margin of safety to American consumers who lack the necessary technological expertise to provide for their own safety. That interferes with the “free market”.

I’ve had personal experiences with George Bush’s attempts to dismantle the scientific basis for the Food and Drug Administration (FDA). A few years ago, as an epidemiologist for the FDA, I conducted research on a medical device that appeared to fail after three years or so and therefore cause people to die from ruptured aortic aneurysms. I wrote a scientific paper which described the evidence for my conclusions, and it was subsequently cleared by the FDA and accepted for publication in a medical journal. But when the manufacturer of the device found out about the impending publication it complained to the FDA Commissioner, Lester Crawford, who demanded that the journal cancel the publication of the article, which it did. I hope that the surgeons who use the device were able to get the information about its fatal complications elsewhere.

Not too surprisingly, within a short period of time after Lester Crawford cancelled the publication of the article that I wrote, he pled guilty to charges of conflicts of interest for owning stock in several companies that the FDA was supposed to regulate in the public interest – for which he received a $90,000 find and three years probation. Perhaps that was unfair. How can we expect right wing ideologues to understand how exercising their “free market” rights could be a crime?


Monopolies

The engine behind the principle of “free market” capitalism is competition. In the absence of competition there can be no free markets or the benefits they are supposed to provide.

It has long been recognized that corporations have a tendency to form monopolies, which reduce competition and raise prices. That is why, beginning with the Sherman Anti-trust law of 1890, and continuing with President Theodore Roosevelt’s trust busting efforts, the U.S. government has had a long and justified history of intervening to prevent unfair monopolistic practices, especially with regard to services that are essential to us, such as gas and electric utilities.

When monopolies are allowed to flourish, competition is stifled and the result is an increasing wealth gap and poverty. Specific examples of monopolies leading to bad consequences include the lax regulation that led to the energy blackouts in California in 2001 and policies that allow price gouging by oil companies.

Yet, for reasons that they’ve never explained, the right wing “free market” ideologues are the first ones to allow the stifling of competition by monopolies.


An example of corporate power run amok

Many corporations have acquired an extraordinary degree of power and influence in our country because they have lots of money, which they use to lobby and bribe (legally) our elected representatives to enact laws that facilitate their acquisition of still more money. So it is a vicious cycle:

$$$ == > favorable legislation == > more $$$$ == > more favorable legislation, etc.

Consequently, numerous corporate friends of the Bush administration have profited greatly from the Iraq War, for example, largely as the result of administrative decrees that the Bush administration has foisted upon the Iraqi people.

Chevron is one of the oil companies that has profited immensely from the Iraq War. A $6 billion lawsuit brought against Chevron in 2003 for their activities in Ecuador provides a shocking example of the things that some corporations do when they accumulate too much power. Antonia Juhasz describes the situation in her book, “The Bush Agenda – Invading the World One Economy at a Time”:

Indigenous communities were removed from their land to make way for the oil facilities, as were more than one million hectares of ancient rainforest. According to the suit, rather than install the standard environmental controls of the time…. Texaco (a co-defendant in the suit) dumped 18.5 billion gallons of toxic waste directly into the rainforest. The result is an exploding health crisis among the region’s indigenous and farmer communities…

Some final words about the role of government and the role of corporations in government

The justification for a role of government in providing essential goods and services to the American people was established in the preamble to the U.S. Constitution, which establishes “to promote the general welfare” as one of the main reasons for our existence as a nation. Closely related to that purpose is the need to establish justice, secure the blessings of liberty and defend against crime (“insure domestic tranquility”).

But the right wing effort to demonize “big government” has demonized these major principles of our Constitution as a prelude to dismantling government programs that have long benefited the American people. By equating “big government” with Socialism or Communism they have had a good deal of success towards their goal of privatizing all the functions of government.

Their idea of reducing “big government” is to hire “contractors”, unhindered by government rules created for the purpose of ensuring accountability to the American people, to do the work that government employees used to do. The expense of doing this is immense because of the additional layers of bureaucracy, the need to support the immense salaries of the CEOs who employ the contractors, and the need for corporate profit. But it allows ideologues like Ronald Reagan and George W. Bush to then claim that they have eliminated “big government”.

The reality is that these ideologues not only don’t care about the welfare of the American people, they don’t care about their so-called “free market” principles either. Would those who care about free market principles vote down an amendment that would have required the federal government to negotiate prices with Medicare? Would they vote to make it illegal for Americans to obtain cheaper generic drugs from Canada? Is that free market ideology in action? Or would those actions be more accurately described as sucking up to the pharmaceutical industry in return for the millions of dollars showered upon their campaigns?

[mediaman007]

1. I've always thought that government should be allowed to compete

with private enterprise. It doesn't make sense for people to pay more for something just because its run by a corporation. If nothing else, let the corporations worry about public competition.

Blackwater and Haliburton are two examples of how the free market is not more productive.

(By the way, a great post! This really needs to be discussed...not only at DU, but in our society.)

[pnorman]

6. "Public Power is the Yardsdtick...."

"Public power is the “yardstick” that sets the standard for competitive pricing and
reliability in harmony with environmental stewardship and economic growth. Public
power’s ability to provide competitively priced, reliable electric power brings benefits
even to those areas not presently served by public power by providing successful
models." http://www.tva.gov/power/ppfactsheet.pdf

This is NOT to say that any entity of the government (TVA for example) doesn't ultimately go "bad", but thats generally due to sabotage or co-option by the industry it was intended to regulate or check. So eternal vigilance by an informed citizenry is always required.

pnorman

[cascadiance]

7. And Medicare drug program is an example where corporations aren't ALLOWED to compete

for the government's bulk purchases business in a true capitalistic fashion. The monopolists there have taken over with their lobbyists.

Ultimately, if we don't have true government, it will evolve to the point where we don't have capitalism either, in the strict sense of the world, but pure cronyism in a mafia-style state where the rules are adjusted to reward the wealthy and punish those that aren't.

Russia is also an example of a mob-run state now too. It would do us well to study it. Compared to their rules on eminent domain (or the lack thereof of any clear and consistent ones), our eminent domain issues are a picnic.

[skids]

9. Bear with me... government could also self-compete.

There's nothing stopping the government from having multiple competing agencies serving a function, and having their performance determine their staff retention, funding, and even existence.

Now that might sound like waste, but not if they have clearly defined boundaries that prevent them from being too redundant.

For example, say we had not one FEMA but three, each serving an area on the map. If one turns out to be poorly administered they lose "territory" and the more competent ones take it over. Meanwhile the bad FEMA tries to get its crap together. If it gets really bad, they get disbanded and the employees summarily dismissed. When the number of FEMAs gets too small, a new one is created and territory ceded to it from the others.

So competition is not necessarily exclusive to private industry. It's only that way because government hasn't had competition designed in, other than that between local/state/feds.

[FREEWILL56]

11. Agreed and something like this should be in newspapers and magazines.

Kicked & Recommended.

[Time for change]

13. Thank you -- For an administration who claims to value the "free market" so much

it sure does give out a lot of no bid contracts.

[rockymountaindem]

2. Kick

[Demeter]

3. K&R

[Kat45]

4. K&R

I also bookmarked it for future reference. I know all of this already, but you laid it out very well.

[Jackpine Radical]

5. Let me bring up another line of criticism of corporations.

Milton Friedman used to say, in effect that the only legitimate purpose for a corporation to serve is to make profits for its owners. Any other purpose is, in his view, immoral. Actions for the greater good (e.g. voluntary environmentalism) are immoral unless they increase profits.

And, as we all knw, corporations are "persons" for most purposes under the law.

Psychopaths are persons who act without conscience--that is to say, only in their own narrow self-interest.

Put these two ideas together. Corporations are expected, mandated, required to be psychopathic--predatory--in their relationship with the other persons in their world.

Government is supposed to act in the interest of the greater common good. Governments may indeed be be corrupt, but this is a perversion of their intended nature.

The times of greatest evil are when governments fall under the sway of psychopaths who twist them away from their intended functions to serve the narrow self-interests of the few. In the old days, the psychopaths tended to be evil individuals, despots and tyrants. These days, they tend to be evil corporations. True, individual psychopaths may appear to be in charge--Bush and Chney, for example--but these individuals are actually mere tools of the great corporate forces abroad in the world.

It follows that the great challenge of our times will be to build adequate firewalls to protect governments from the currently prevalent form of psychopath, namely, the corporation.

[divinecommands]

10. Corporations != psychopaths.

Your argument is flawed.

1. Psychopaths pursue self-interest, narrowly construed.
2. Corporations necessarily pursue profit.
... Therefore, corporations are necessarily psychopaths (or psychopathic.)

The flaw in the argument is that the pursuit of profit is not necessarily identical with the pursuit of self-interest, narrowly construed. Narrow self-interest is often so-called precisely because it isn't REALLY in one's interest to pursue it at all. At the same time, there is a vast range of actions between pure altruism and narrow self-interest that a corporation could pursue, consonant with its duties to its shareholders.

I do agree with the idea of putting "firewalls" between government and business, though. But that's not because corporations are inherently psychopathic. It's easier than that: there should be a firewall between political power and ANY single person or subset of persons. Government is inherently dangerous and no one should have too much control over it, corporations included.

[Time for change]

18. That's a very interesting way to look at it

It's difficult to fathom how Friedman or anyone else could make a statement like that. So what he's saying is that any concern that a corporation shows towards the environment or people in general is immoral if it hampers the ability of a corporation to make money. In other words, up is down and down is up.

It is indeed one of the great challenges of our times to find a way to protect our government from psychopathic corporations.

[TahitiNut]

8. Where excess capacity is required for emergency preparedness.

For any business, 'excess capacity' is an innate evil - an expense without corresponding revenues is called 'waste' in business - an erosion of profits, which are the primary objective. Businesses 'prepare' for emergencies by preemptively mitigating the financial impact, often using insurance (business interruption, key-man, etc.) as the final safety net before dissolution. To the degree FEMA, for example, is dependent upon either 'business thinking' or privatization, it is an unmitigated failure. Furthermore, the privatization of national defense operations is both an on-going financial disaster but a catastrophe beyond measure should world events demand substantial deployment of force. (Operational contractors have absolutely no ability to up-scale and mobilize expeditiously as a proper national defense must be capable of doing.)

[Time for change]

21. I find privatization of national defense to be a disgrace, with a potential for catastrophe

Blackwater appears to be accountable to no one. They kill Iraqi civilians, sometimes apparently for no good reason, without having to suffer any consequences. They therefore are therefore contributing substantially to the hatred felt towards our country.

I also fear that they may be employed against U.S. civilians if Bush and Cheney feel the need (or desire) to do that.

Congress should step in and do something dramatic about this.

[Dewlso]

12. Comical to even think so.

If corporation are given free reign in government It would be pre-civil war America. Middle class will be wiped out in favor of the new "slave" class. All done in the name of profits for the CEO's.

[flashl]

15. Contractors with free reign in government is evident today

Contractors hire contractors. Contractors write policies, regulations, budgets, etc.

[Time for change]

22. Excactly

And that's where the Republican Party, especially Bush and Cheney, have been trying to take us for the past three decades.

[The Backlash Cometh]

14. Well, they can run it into the ground better than a government can.

[flashl]

16. You are right.

I watched, from the inside, the transformation of government during the Regan administration.

While some of Regan’s assertions, regarding shortcomings in government were true. At that time, the real problem for the Regan administration was the firewall of civil servants.

The infusions of contractors corrode what little governmental functionality and service to the public that the true civil servants fought to maintain.

[The Backlash Cometh]

17. There is no question that the Republicans first came for the civil servants.

And no one said a peep, because they painted civil servants as unnecessary and overpaid.

Who's sorry now?

[Time for change]

20. A word about civil servants

I've been a civil servant most of my adult life. One of the most important things about being a civil servant is that you have the right to voice your opinion about matters concerning your job without fear of being fired. That's very important because it helps to discourage a corrupt regime (such as we have now) from perverting the functions of government. You don't have that right if you work for a corporation. Those who work for a corporation can be fired for anything or nothing, unless you can prove that it was based on racial or gender or religious discrimination.

Bush and Reagan tried very hard to chip away at that right, but they have been far from 100% successful. As a civil servant I have always been able to voice my opinion without fear of being fired. I could not do that when I worked in the private sector.

[FREEWILL56]

34. In retrospect bush did succeed at making it a no no to voice

one's opinion. Just ask Wilson or Plame. This group of idiots in our government will go as far as to violate the law and people's rights in order to run things like a corporation which in summary is fascism.

[Blue_Tires]

19. i'll bookmark this for later -- good stuff

ttt

[Warren Stupidity]

23. The Vampire State

The Vampire State
And Other Myths and Fallacies about the U. S. Economy
Fred L. Block


If you can find this small but wonderful book, it is an excellent reference source for debunking the standard rightwing cant.

[roxnev]

24. An thing that is required by law or needed

To live should be Government controlled. Remember we turned privet industry loose on our oil and they depleted our oil in 30 years and destroyed our air, all for the dollars.

[ThoughtCriminal]

25. The problem with most corporations - Idiots

Micromanaging, abusive, know-nothings excel at nothing but the promotion management ladder. No wonder Bush is their idol.

These imbeciles make Dilbert's pointy-headed boss look like Captain Picard.

[nashville_brook]

26. damn --- bookmarking for later

k n r!

[Hosnon]

27. I agree. This appears to be a well-thought-out post which I don't have time for at the moment.

Bookmarked!

[Hosnon]

28. On first glance, numbers 3 and 4 will garner the most support from me.

They seem extremely self-evident. The other two, not so much (again, at first glance).

[Time for change]

31. Consider # 2

Someone buys a gas guzzling SUV from a car manufacturer. The deal works out fine for the buyer and the car manufacturer. The buyer gets what he wants and the car manufacturer makes a profit.

But how does it work out for the rest of us when that transaction is multiplied several million times. It results in more pollution of our air, respiratory disease, global warming leading eventually to flooding of our coastal cities, and further dependence on Middle Eastern oil. Is it right that the buyer and the car manufacturer are allowed to profit from a deal that hurts millions of people?

The question is, what should government do about this? At one extreme they can encourage such acts by subsidizing the production of SUVs with low gas mileage. At the other extreme it can enact legislation that taxes such purchases or controls fuel efficiency in a way that cause such transactions to greatly decrease, with consequent reversal of the adverse effects that I mentioned above.

Does government have a right to intervene in areas such as that? Well, whose air is it? Should corporations have the right to pollute our air and water without paying some price? I don't believe they should. And like I mentioned in the OP, the people who are most affected by corporation produced environmental degradation are the poor, who benefit the least from buying their products.

[Bjorn Against]

29. K&R

Thanks for writing this, this is exactly the type of post I hoped my original piece would inspire.

[Time for change]

32. Your original piece was very inspiring

[Deja Q]

30. Simply put, find any politician who says (s)he wants to run it like a business.

If that can't say anything about the convoluted cacophony of reality, nothing will.

[MUSTANG_2004]

33. That's always bothered me

Running a business like a business is fine - they're meant to produce something useful and sell it to people who want it, making money for the owners and the workers. But government has an entirely different role, and I don't want it to be run like an entity that is profit-motivated.

I know they mean it to be "run it like a business, cutting out needless expenditures to run it efficiently" but the problem is that businesses can easily identify needless expenditures - they are those that cost more than they bring in. There's no such easy way with government.