Showing posts with label free market solutions. Show all posts
Showing posts with label free market solutions. Show all posts

Sunday, December 26, 2010

Racism, Cartels, and Jim Crow

It is often claimed that capitalism leads to all sorts of ills, such as racism and cartels (or monopolies). As with most attacks on capitalism, these claims attempt to blame capitalism for the consequences of government intervention into the economy. The Jim Crow laws illustrate this point.

Following the Civil War former slave owners faced a serious labor problem. Prior to emancipation slaves provided a steady and dependable source of labor. The South's agricultural economy was labor intensive, and this threatened the region's economy.

Initially this problem was addressed as free men solve problems--by mutual consent to mutual gain--and a number of solutions developed. Some plantation owners simply hired laborers as they were needed. This presented certain problems, as the planting and harvest seasons created a high demand for labor and the plantation owners were uncertain if they would have sufficient labor when it was needed. They were also bidding for that labor against other plantation owners, which drove wages up.

Another solution that developed was share cropping. The details varied, but under this arrangement the plantation owner essentially leased his land to a tenant. The land owner supplied the tools and materials to farm his land, and the tenant supplied the labor. The crop was then shared between the land owner and the tenant. This too had certain disadvantages to the land owner, as he had to front the expenses in the hope that he would be repaid. But the tenant had a motivation--his own profit--to work the land efficiently and effectively and thus provide a return to the land owner.

Following Reconstruction and the withdrawal of federal troops from the South, Democratic legislators began to slowly implement laws that disenfranchised blacks. Literacy tests and polls taxes were among the methods used. By 1890 very few blacks were eligible to vote in the Southern states. The voting requirements also excluded many poor whites, but an exception was made for them. Anyone who had been eligible to vote or who was related to someone eligible to vote prior to the Civil War was not subject to the new voting rules (this is the source of the term "grandfather clause").

With blacks now excluded from voting, as well as holding most public offices, the Democratic legislatures began to enact the Jim Crow laws. While the specifics varied from state to state, they generally contained 4 key provisions:
  1. Labor contracts had to be negotiated and agreed to at the start of the year. This allowed the plantation owners to negotiate when labor demands were low and also provided them with greater certainty that their labor needs would be met. Breaking a labor contract was a criminal offense, rather than a civil matter.
  2. It was made illegal to entice laborers to seek employment in another state or county. Prior to Jim Crow employment agents had thrived--they advertised and recruited for plantation owners willing to pay higher wages. This resulted in laborers working for those who most valued their work, and created labor shortages in areas with lower wages.
  3. Vagrancy laws made it illegal to be out of work, even temporarily. This made it difficult for laborers to seek higher paying work, as they were subject to arrest.
  4. Those who were unable to pay their fines were sentenced to chain gangs, which were then leased to plantation owners. The mortality rate on the chain gangs was often as high as 45 percent, which meant that the penalty for vagrancy was often a death sentence.
Combined, these laws essentially put black laborers back into slavery. The laborers could no longer negotiate on equal terms or act on their own judgment. The penalties for vagrancy greatly discouraged blacks from seeking better employment. The plantation cartel had the steady source of labor that it needed. In short, it was government coercion that protected racists and made the cartel possible.

Prior to Jim Crow, plantation owners competed against one another for labor. Though there were informal agreements to refrain from such bidding wars, individual plantation owners ultimately acted in their own self-interest and competed for labor. This of course, increased wages to the benefit of laborers and the detriment of the plantation owners. The plantation owners responded by using government force in the form of Jim Crow to impose restrictions on everyone--neither plantation owners nor laborers could act as they judged best.

When the market was free plantation owners had a motivation--their desire to plant and harvest crops--to put aside their racism and negotiate with black laborers as equals. Those who valued their racist views more than their profit were free to act accordingly and they suffered the consequences. But they couldn't force blacks to accept their terms. It was only through Jim Crow and government's legal monopoly on force that they were able to form a "successful" cartel and impose their racism on others.

Monday, December 13, 2010

Altruism and the USPS Universal Service Obligation

For the past several months I have been researching various examples of the practical results of freedom. At the same time, I have examined the arguments that have been used to justify removing or preventing freedom in various realms of human activity. Invariably, this research has led me back to a fundamental philosophical issue--the mind-body dichotomy. (More specifically, I have been contemplating the moral-practical dichotomy.) For nearly a month my research has been interrupted as I have considered how this false dichotomy impacts the concrete examples I have been researching. What follows are some of my initial thoughts on this matter.

Most people understand that if they wish to achieve a certain goal they must engage in specific actions. If they want a good grade, they must study. If they want to lose weight they must watch their diet and exercise. Further, they understand that the nature of the goal determines what actions are required to reach it, that is, what is practical. For example, if one wants to lose weight, gorging on potato chips, candy, and soda is not practical.

Further still, most people understand that their goals must be realistic—they must be possible, consistent with their other goals, and attainable. For example, it would not be realistic for me to set the goal of becoming the quarterback for the Houston Texans. I don’t have the skills, have no desire to attain them, and my age and physique are inconsistent with that required. For me to pursue such a goal is to guarantee frustration and misery, for no action I take will allow me to achieve it.

These principles hold in the political realm as well. The goals of bureaucrats, politicians, and voters determine what is practical. But often these goals are unrealistic—they are impossible, inconsistent with other stated goals, and unattainable. As an example, consider the universal service obligation (USO) of the United States Postal Service (USPS).

The USO holds that the USPS must offer a certain level of service to all citizens. Further, those services must be “affordable” and uniform. To execute this mandate, the private express statutes (PES) limit the activities of private individuals and businesses, and protect the USPS monopoly on certain postal activities, such as mail box access.

While a number of arguments are used to justify the USO and the resulting limitations on individuals, they all boil down to one thing: Universal service is desirable and therefore the ends justify the means. But why is universal service considered desirable? While the idea of universal postal service dates from the beginning of the republic, a recent report from the USPS offers us a contemporary view of the topic.

In 2008 the USPS issued a report titled “Report on Universal Postal Service and the Postal Monopoly.” The report argued that changes to either the PES or mail box access would adversely impact the USPS’s ability to implement the USO. Therefore, the report concluded, such changes should not be made.

As justification of the USO, the report cited a long-held belief that the mail “binds” the nation together by providing for the exchange of ideas and information among citizens. Further, the report argues that the concept of universal service is embodied in the Constitution and therefore a proper goal of government (page 5).

First, the Constitution says nothing of universal service. It merely authorizes Congress to establish “post offices and post roads.” Second, the fact that the Constitution authorizes some power does not make it proper or just—the Constitution also legalized slavery.

What we are left with is the assertion that universal service is good and government must provide it. It is an assertion that is accepted without question, examination, or discussion. It is accepted with no consideration of context, means, or to whom such a mandate is desirable.

Consider the fact that, according to the report, alternatives to the USPS exist for every piece of mail that it delivers. These alternatives include private companies such as UPS and FedEx, as well as the Internet (page 2). Indeed, the report cites the Internet as a primary reason for declining USPS volume. In other words, the exchange of ideas and information can and does occur without the involvement of the USPS—the nation is “bound” together. So why the continued insistence on universal service? The answer to that question goes to the heart of the matter, and reveals why allowing freedom in postal services is considered impractical.

The report repeatedly argues that relaxing the PES or taking other measures to permit private businesses greater freedom in mail delivery would substantially weaken the financial position of the USPS—private companies would offer services that draw customers away from the USPS, particularly in more profitable, high volume areas. This would leave the USPS to service less profitable routes and areas if the universal service mandate remained in place. Repealing the mandate is dismissed as contrary to “social policy”—it is regarded as immutable as the law of gravity.

The report acknowledges that differential pricing—pricing based on distance and location—is common among private companies and makes economic sense. Such pricing recognizes the fact that low volume routes and remote locations incur more costs to deliver mail, and the users of the service should bear the costs. But the USPS rejects differential pricing precisely because of this:
This would put service in danger for areas of the country whose volumes do not justify the costs to serve, namely isolated rural areas and low income urban areas. This is precisely the portion of the America public who could least afford an increase in postal pricing or a decrease in service. Isolated regions of the country currently depend heavily on the Postal Service to transport prescription medicines, educational materials, and other supplies. Cutting off such areas from uniform, affordable service and access could be devastating for these Americans. (page 81)
In other words, because of where they choose to live, some Americans need the USO in order to afford regular mail delivery. This is the “justification” for the USO. The report goes on to acknowledge the existential results: The criminalization of certain economic activities (such as the private delivery of first-class mail), higher costs to other postal customers, and political pressure to keep financially unviable post offices open.

Not surprisingly, the report claims that this serves the “public interest.” But the fact is, some members of the public benefit through lower postal rates while other members of the public are forced to bear the costs. Some members of the public are protected from the economic consequences of their choices—such as where to live—while other members of the public are prohibited from acting according to their own rational judgment—such as starting a postal service. Some members of the public are forced to sacrifice their money and their dreams for the alleged benefit of other members of the public.

That the USO—like all policies founded on the “public interest”—causes demonstrable harm to some individuals is considered irrelevant. Indeed, it is widely considered proper, just, and moral.

According to the dominant morality in our culture—altruism—each individual has a moral duty to self-sacrificially serve others. Each individual has an obligation to put aside his own interests, desires, and judgment in deference to the “public interest.” The actual consequences do not matter, so long as the intention is to serve others.

Altruism demands the renunciation of personal values and interests. In practice, altruism obligates an individual to serve the needs of others. And there never has been, nor will there ever be, a shortage of individuals in “need” of food, or shelter, or health care, or flat screen televisions. A consistent altruist must sacrifice such values in service to those in need. That such a policy is clearly impractical—if one chooses to remain alive—does not dissuade the advocates of altruism. Service to others is the “right” thing to do.

Altruism requires its advocates to choose between the moral—service to others and the renunciation of personal values—and the practical—attaining and enjoying the values required for human life.

In contrast, egoism holds that the moral is the practical. Egoism holds that the purpose of morality is to provide a set of principles to guide man in the attainment of the values required to sustain and enjoy his life. Egoism holds that each individual should be free to act according to his own judgment in the pursuit of his own values, so long as he respects the mutual rights of others. To the altruist, this is impractical—if one wishes to practice service to others, then pursuing one’s own values is impractical.

Altruism is a primary reason why it is often declared that arguments for capitalism are good in theory, but won’t work in practice. Altruism puts forth a false dichotomy between the moral (theory) and the practical. While such a dichotomy necessarily exists when the theory is wrong (such a theory is contrary to reality), the nearly universal acceptance of altruism often leads to the conclusion that such a dichotomy exists with all theories. In other words, it is widely held that theory and morality are useless when it comes to dealing with the issues and choices each of us face in our life. (The epistemological issue involved in this conclusion—skepticism—is beyond the scope of this article.)

It is within this framework that the typical non-egoist considers an argument for capitalism. He may regard the argument as good in theory, that is, logical, but regards theory and logic as unrelated to living one’s life. After all, the altruist regards his own moral creed as “good in theory” but clearly not a practical guide for sustaining and enjoying his life.

An individual will not regard capitalism as practical as long as he accepts altruism. Capitalism provides a sanction for individuals to pursue their personal values, a practice that is inimical to altruism. Only by embracing egoism—the moral right of individuals to live for their own sake—will a social system that sanctions and protects that right be regarded as practical. In other words, what one wishes to practice—service to others or the pursuit of one’s own values—will determine what one regards as practical.

This does not mean that demonstrations of the practical benefits of capitalism are pointless. To the contrary, the practical results are the purpose of a proper theory. However, such demonstrations must also identify the moral context. For example, consider the history of mail delivery in the United States.

As I previously wrote, prior to the Civil War much of the nation’s mail was delivered by private express companies. These companies offered their services at a substantially lower price than the postal service and consumers voluntarily used the private companies. The owners of the private expresses were acting in their own self-interest—their desire to make a profit. The customers of these companies were similarly acting in their own self-interest—their desire to save money. Neither was taken advantage of or forced to engage in the transaction. Neither acted for the benefit of the other as his motivation, yet each party did in fact benefit because each was left free to act according to his own judgment.

Those who chose to live in remote areas were free to do so. One of the consequences of such a choice was irregular mail service, or perhaps none at all. Those who regarded mail service as sufficiently important were free to move to a city or town, pay higher postal rates, or make other arrangements. Each individual could act according to his own judgment and hierarchy of values, so long as he respected the mutual rights of others.

This system was both moral—it recognized each individual’s right to act according to his own judgment—and practical—a multitude of options existed and individuals could choose those that fit their needs and desires. However, the fact that some individuals had a “need” that was unfulfilled did not sit well with some politicians and public officials. To them, the system in place was not practical, and the unsatisfied “need” was their proof. The fact that individuals in remote areas were cut off from metropolitan areas was deemed contrary to the “public interest,” despite the fact that such individuals voluntarily chose to live in isolated areas.

The result was the private express statutes—laws specifically designed to criminalize economic activities that many Americans judged beneficial and voluntarily used. Motivated by altruism, politicians forced some individuals—the owners of the private express companies and their customers—to sacrifice their personal interests and values for the alleged benefit of others. The higher costs paid by some consumers, the destruction of some businesses, and the loss of individual freedom were simply the price to be paid in service to others. That some individuals must sacrifice for others is precisely what altruism demands.

The idea that men could live together with each pursuing his own interests is completely foreign to the altruist. He can’t imagine life without sacrifice, and regards any argument to the contrary as “good in theory.” What he doesn’t, and can’t, understand is that it is also good in practice.

Wednesday, November 24, 2010

The Freedom To Choose

It is often argued that government regulations are necessary to protect consumers from unscrupulous businesses. Without such regulations businesses could take advantage of consumers by misrepresenting their products or services, withholding information, or otherwise preventing consumers from making informed buying decisions. Regulations insure that consumers get safe and effective products.

This argument implies that offering safe and effective products is of no self-interest to businesses, that a company would sell anything in order to make money. It implies that a business would invest years of research and development and enormous sums of money only to market a product that posed a risk to consumers.

Certainly, there are companies that take a short-term perspective and focus on immediate results at the expense of long-term success (for one example see Enron). But such companies are rare. A product that is dangerous or ineffective will be discovered. And if the company knowingly and intentionally misrepresents its products, it is engaging in fraud and should be prosecuted. Defining and protecting individual rights is the only proper role of government in regard to "consumer protection." Indeed, protecting individual rights is the only means by which the legitimate rights of consumers and producers can be protected.

Rights sanction an individual's moral right to act according to his own judgment within a social context. The mutual rights of others prohibit him from interfering with their actions. If an individual chooses to market a product or service, he has a moral right to do so. And consumers have a moral right to purchase or boycott his offering. Nobody--including government--has a rational justification for interfering with either producers or consumers.

Yet, this is precisely what government regulations do. The threat of physical force--fines or prison--prohibits producers from offering the products or services they deem fit. That same threat prohibits consumers from purchasing products or services that they judge best serve their needs, desires, and values.

Government regulations prohibit individuals from exercising their own rational judgment and acting accordingly. For the mentally lazy this breeds a false sense of security--if a product or service is sanctioned by government it must be safe and effective. For the independent individual this limits opportunities and choices, and often results in actions the individual would otherwise not choose. As an example, see Social Security, which is forced upon all workers regardless of their own judgment regarding the merits of the program.

Abolishing government regulations does not mean that consumers would be left to the mercy of businesses. Indeed, there are myriad examples of private organizations that provide consumer education, certify the safety and effectiveness of products, and otherwise provide information that assists consumers in making choices that best fit their own needs and desires.

nderwriters Laboratories (UL) is one example. UL is a private product safety testing and certifying organization. Founded in 1894, their web site states:U
UL has developed more than 1,000 Standards for Safety. Our Standards for Safety are essential to helping ensure public safety and confidence, reduce costs, improve quality and market products and services. Millions of products and their components are tested to UL's rigorous safety standards with the result that consumers live in a safer environment than they would have otherwise.1
Products that meet UL standards are allowed to display the UL logo as long as it remains compliant. Though UL certifications carry no legal weight, the company’s reputation is such that failure to meet UL standards can mean the death of a product:
[I]t may be extremely difficult to sell certain types of products without a UL Mark. Large distributors may be unwilling to carry a product without UL certification, and the use of noncertified equipment may invalidate insurance coverage. It is common practice in many fields to specify UL Listed equipment or UL Recognized materials.2
Unlike government regulations, which are imposed on producers and consumers regardless of their individual choices, UL certifications are entirely voluntary. A manufacturer can choose to market a product that does not meet UL standards, and consumers are free to purchase such products if they choose. While both assume certain risks on the basis of their choices, each remains free to act according to his own judgment. UL is only one example of private companies offering testing and consumer information.

MET Laboratories offers a service similar to UL, offering further choices to consumers and manufacturers. MET’s web site describes the difference between its service and that of UL: “The main difference between these two marks is with the level of involvement and partnership between the manufacturer and the test lab.”3 Whether this difference matters is a choice that each manufacturer and consumer is free to decide.

Unlike government regulations, which impose one set of standards upon an entire industry regardless of the judgment of those subjected to the regulations, the free market provides producers with choices. A manufacturer can decide to have his product tested by UL, or by MET, or forgo testing entirely. Consumers are free to purchase products that are certified or not certified (and likely less expensive). While UL and MET focus their efforts on electrical products, other organizations test other consumer products.
 

Good Housekeeping has been testing and approving products since 1902. The magazine first began testing products “to study the problems facing the homemaker and to develop up-to-date, firsthand information on solving them.”4 In 1910 the magazine built the Good Housekeeping Institute in Springfield, Massachusetts to test products, which included a model kitchen, a domestic science laboratory, and test stations for testing products under household conditions. As with the UL mark, the Good Housekeeping Seal of Approval has become an important aspect of marketing and brand recognition for many products.

Interestingly, both UL and the Good Housekeeping Seal of Approval were started during the Progressive Era—a time when businesses were unjustly under attack for the safety of their products. Recognizing the need for independent evaluation of products, these two private companies moved to satisfy the legitimate concerns of consumers. And they are not alone in helping consumers make informed decisions.

Consumers Union (CU) tests products and publishes the Consumer Reports magazine. Its mission
is to work for a fair, just, and safe marketplace for all consumers and to empower consumers to protect themselves. The organization was founded in 1936 when advertising first flooded the mass media. Consumers lacked a reliable source of information they could depend on to help them distinguish hype from fact and good products from bad ones. Since then CU has filled that vacuum with a broad range of consumer information.5

In addition to its laboratory testing, CU also conducts reader surveys, which results in product reliability reports from the actual users of those products.

Other organizations also provide information to consumers. For example, ConsumerLab.com provides “independent test results and information to help consumers and health care professionals evaluate health, wellness, and nutrition products.”6 Angie’s List allows consumers in more than 120 cities to share their experiences with service providers in more than 450 different categories. The Better Business Bureau “ensures that high standards for trust are set and maintained… so consumers and businesses alike have an unbiased source to guide them on matters of trust.”7 Many trade associations and product manufacturers offer certification programs that insure that professionals meet certain standards, properly install products, and operate ethical businesses.

Each of these is an example of the private sector providing alternatives for consumers to obtain the information that they require to make an informed decision. Unlike government regulations, which are inflexible and coercive, these organizations can respond quickly to changing market conditions and are entirely voluntary. As such, they respect the moral right of producers and consumers to act according to their own judgment. Protecting that right is the only proper function of government, and the only form of "consumer protection" required.

Footnotes
1 "Standards for Safety," http://www.ul.com/global/eng/pages/corporate/standards
2 http://en.wikipedia.org/wiki/Underwriters_Laboratories#About_UL
3 http://www.metlabs.com/pages/AsGood.html
4 "The History of the Good Housekeeping Seal," http://www.goodhousekeeping.com/product-testing/history/good-housekeeping-seal-history
5 "Our Mission," http://www.consumerreports.org/cro/aboutus/mission/overview/index.htm?CMP=OTC-FOOTER4
6 http://www.consumerlab.com/aboutcl.asp
7 "Vision, Mission, Values," http://www.bbb.org/us/BBB-Mission/

Thursday, November 18, 2010

Television, Phones, and Freedom

On Sunday the Chronicle ran an article that illustrates, at least in part, a practical benefit of freedom. The development of Internet television is creating concern among broadcasters and cable companies, who fear that they will lose viewers. Prior to this innovation, cable television created similar concerns for broadcast television.

In a free market, an individual can offer any product or service that he chooses. The voluntary choices of consumers will determine whether he succeeds or fails.

In a regulated market, an individual must meet the arbitrary mandates of government officials. His success depends partially on his ability to satisfy consumers and partially on his ability to satisfy government bureaucrats. And often the latter is more important than the former.

When I was a child we had 3 choices when it came to television. Because the airwaves are "public property", the government regulated (and still does) their use to promote the "common good." The result was a lack of choice for consumers and the stifling of innovation.

Cable provided (and still does) a way to escape the regulatory burden of the FCC. Because they are not using "public property" cable companies do not need to comply with many FCC regulations. This freedom allows cable companies to offer a wide variety of programming, and the success or failure of these companies depends upon the voluntary choices of viewers.

Today, Internet television is expanding the choices available to consumers. Companies such as Google and Apple have identified an opportunity and are acting according to their judgment.

Government regulations are often defended because alternatives to the status quo cannot be imagined. For example, few can imagine how electricity or water might be provided on a competitive basis. Such industries, it is argued, are "natural monopolies" and should be regulated to protect consumers from gouging.

For decades this argument was made to "justify" regulation of phone companies. Cellular technology--which could not be imagined just a few years ago--has made that argument moot. Even with regulations restricting their actions, entrepreneurs developed alternatives that others could not envision. The same is occurring with television.

It wasn't that long ago that cable television and cell phones were considered luxuries. Today, their availability and affordability make them almost necessities. This development did not occur because of government regulations, but in spite of them. When men are free to act according to their own judgment, they will find innovative methods for providing the products and services that others desire and value.

It is impossible to predict what innovations men would develop if they were free do so. We cannot imagine how water, electricity, roads, and a myriad other services would be provided if men were free to innovate and act according to their judgment. But our lack of vision does not justify stifling the creativity and ingenuity of Thomas Edison, Henry Ford, or Bill Gates. Instead, we should stay out of their way. Not only will we enjoy the practical benefits, it is the moral thing to do.

Tuesday, November 9, 2010

Public Education and the Poor

It is commonly argued that without public education the poor would have few, if any educational opportunities. Without public education, those born into poverty would have little opportunity to escape, and the poor would remain poor generation after generation. To break this cycle, the argument goes, government must intervene and provide the educational opportunities that would otherwise be absent.

Undoubtedly, poverty can pose an obstacle to attaining a quality education, just as poverty can pose an obstacle in the attainment of many other values. But obstacles are simply that, and they can be overcome without government intervention.

Today, education is a virtual monopoly of the government. While home schooling and private schools have grown in popularity in recent decades, public schools remain the dominant source of education for most Americans. Indeed, approximately 85 percent of America’s schoolchildren attend public schools, primarily because these schools are “free” to attend.[1] Of course, these schools are not free—their costs are borne by taxpayers, which includes parents and non-parents alike. Because they are forced to financially support public schools, most parents cannot afford the expenses associated with private schools or home schooling, despite the fact that, according to a survey conducted by the National Association of Independent Schools, only 39 percent of those polled would send their children to public schools if cost and proximity were not factors.[2]

In other words, while the vast majority of parents send their children to public schools, those schools are not their preference. Taxation to support public schools effectively eliminates a meaningful choice for many parents, and prevents them from acting as they would choose if they had complete control over their money.

Prior to the Civil War, public schools were virtually non-existent. As educator Robert Peterson writes, most young children were taught at home: “Home education was so common in America that most children knew how to read before they entered school.”[3] It wasn’t necessary for public officials to dictate the curriculum, compel school attendance, or force citizens to pay for public schools. Parents recognized their responsibility for educating their children and acted accordingly. Combined with vocational training received at home, for many colonial Americans a formal education was simply unnecessary. For those who did desire additional education, churches and private schoolmasters offered an abundance of choices. Peterson writes:
Historical records, which are by no means complete, reveal that over one hundred and twenty-five private schoolmasters advertised their services in Philadelphia newspapers between 1740 and 1776. Instruction was offered in Latin, Greek, mathematics, surveying, navigation, accounting, bookkeeping, science, English, and contemporary foreign languages. Incompetent and inefficient teachers were soon eliminated, since they were not subsidized by the State or protected by a guild or union. Teachers who satisfied their customers by providing good services prospered. One schoolmaster, Andrew Porter, a mathematics teacher, had over one hundred students enrolled in 1776. The fees the students paid enabled him to provide for a family of seven.[4]
These schools allowed colonial Americans to attain the education they desired without government intervention. The desire to profit motivated educators to provide the types of classes that individuals wanted, not those demanded by public officials. Both educators and students were free to pursue their own self-interest.

Despite the success of the market in providing educational services, in the mid-nineteenth century many Americans began to demand public schools. Much of the justification for establishing public schools was to meet the needs of the poor and to help immigrants assimilate. The market was considered a failure because some individuals were not receiving the education that others deemed desirable. The fact is however, that the market was providing educational opportunities to these groups. According to Peterson: “In 1767, there were at least sixteen evening schools, catering mostly to the needs of Philadelphia’s hard-working German population…. There were also schools for women, blacks, and the poor. Anthony Benezet, a leader in colonial educational thought, pioneered in the education for women and Negroes.”[5]

In colonial America for example, education was a favorite form of philanthropy for Quakers, and “the poor, both Quaker and non-Quaker, were allowed to attend without paying fees.”[6] Such educational philanthropy is not limited to colonial times: Oprah Winfrey has donated nearly $2 million to the Ron Clark Academy in Atlanta[7] and Providence St. Mel in Chicago.[8] Both schools serve poor, inner-city children. Such examples demonstrate that those who are concerned about education for the poor have the opportunity to provide voluntary financial support to schools for the poor.

However, the poor do not need to rely on alms and philanthropy. If individuals are free of government coercion, entrepreneurs find innovative ways to provide the values desired by consumers, education included.  A study by James Tooley, a professor of education policy at the University of Newcastle in England provides a compelling example.

Tooley conducted a two-year study of education among the poor in five cities in Nigeria, Kenya, China, Ghana, and India. His study focused on differences between public and private schools in the poorest areas of his selected cities—areas that lacked indoor plumbing, running water, electricity, and paved roads. What he found was remarkable.

For example, in Hyderabad, India, 76 percent of all schoolchildren attended private schools. Despite the fact that public education was available, many of the city’s poorest parents chose to send their children to private schools, even when then had to pay tuition. Tooley reported similar findings in the other cities: “the poor have found remarkably innovative ways of helping themselves, educationally, and in some of the most destitute places on Earth have managed to nurture a large and growing industry of private schools for themselves.”[9] The students in private schools in Hyderabad had an income of less than $30 per working household member, compared to an average of $46 per month for the city. Tooley’s findings dispel the myth that the poor need government assistance in order to educate their children.

The competitive nature of private education directs schools to provide the curriculum and quality desired by consumers. If the schools fail to do so, parents are free to move their children to a better school. As previously noted, taxation virtually eliminates this option for most Americans.

As we have seen, both historically and currently, the private sector can and does provide ample educational opportunities, even for the poorest of the poor. More importantly, private institutions cannot rely on coercion to obtain funding or customers, but must meet the freely chosen desires of parents and students. In recognizing the right of individuals to act according to their own judgment in the pursuit of their own values, a free market in education is moral. The examples in this article demonstrate that it is also practical.


Footnotes
[1] http://en.wikipedia.org/wiki/Education_in_the_United_States#Elementary_and_secondary_education
[2]“Public Knows Features That Make a Quality School”, Council for American Private Education, January 2000, http://www.capenet.org/Outlook/Out1-00.html#Story1
[3] Robert A. Peterson, “Education in Colonial America”, The Freeman, September 1983, Vol. 33, Issue 9, http://www.thefreemanonline.org/columns/education-in-colonial-america/
[4]Ibid
[5] Ibid
[6]Ibid
[7] http://blogs.ajc.com/the-buzz/2009/12/17/oprah-gives-1-5-million-to-ron-clark-academy/?cxntlid=thbz_hm
[8] http://www.npr.org/templates/story/story.php?storyId=113683847&ft=1&f=1013
[9] James Tooley, “Private Schools for the Poor”, Catholic Education Resource Center, http://www.catholiceducation.org/articles/education/ed0319.htm

Thursday, October 28, 2010

Private Letter Carriers

We are often told that government must provide certain vital services, such as education, roads, and mail delivery. If such services were left in the hands of private companies, service would be poor or nonexistent. But history provides a very different lesson.

Prior to the Civil War private letter carriers flourished throughout the United States. In sparsely settled areas of the country about 300 “western expresses” provided mail delivery.[1] The best known of these companies was the Pony Express. In the more densely populated northeast, two types of delivery companies emerged—“locals” and “eastern expresses”.

The locals were based in the major eastern cities and primarily served local businesses. One of the largest of the locals was Boyd’s City Post in Philadelphia, which employed 45 carriers and delivered up to 15,000 letters a day.[2] The eastern expresses mostly operated between the larger eastern cities, such as Boston, New York, and Philadelphia. Both the locals and the expresses offered their service for considerably lower rates than the postal service.

As one example, in 1844 Lysander Spooner founded the American Letter Mail Company. Spooner believed that he could deliver mail anywhere in the country for five cents per letter, versus the 12 cents charged by the postal service. Not surprisingly, the public loved Spooner’s company and the revenues of the postal service plummeted. Congressmen, who often rewarded political supporters with an appointment as the local postmaster, were incensed and responded by lowering postal rates. Spooner was not to be outdone, and lowered his rates further. Finally, in 1851 Congress strengthened the postal service’s monopoly and forced Spooner out of business.[3]

It wasn’t poor service or outrageous prices that closed Spooner’s business, but literally an act of Congress.

The popularity of the private services was so great that one United States Senator estimated that at least half of the letters mailed in the country were being delivered by private carriers.[4] The success of the private mail companies prompted one economist to write in the New York Review in 1841 that, even though postal services in all western nations were a branch of the government, "we might easily imagine it to be carried on by a private association, without its changing in any degree its essential character."[5]

However, this would have meant the end of an important tool for political patronage. When confronted with the possibility that the postal service might be abolished, Selah Hobbie, the first assistant postmaster general at the time, allegedly cried, “Zounds, sir, it would throw 16,000 postmasters out of office.”[6] This would not have been politically popular, and we are paying the consequences today.

It wasn't market forces--the free and voluntary choices of consumers--that led to the demise of the private letter carriers. It was government coercion that literally made it illegal for them to offer a service that consumers willingly paid for.

The lesson from the private letter carriers goes far beyond mail delivery. The same arguments used to justify the postal monopoly--universal service, affordable rates, etc.--are used to justify government monopolies in roads, education, water and sanitation, and now health care. In each instance the private sector is either prohibited from offering such services, or severely restricted by government regulations, i.e., coercion. And in each instance the results are the same as with the postal service--poor service, fewer choices, and higher costs.

While the primary argument in favor of abolishing the postal service is moral--the moral right of each individual to act according to his own rational judgment--there is abundant evidence that private mail delivery is also practical. When individuals are free to pursue their own values without interference from others, they will find ways to attain those values. It was true of private mail delivery, and it is true of every other value as well.

Footnotes
[1] Richard R. John, Jr., “Private Mail Delivery in the United States during the Nineteenth Century: A Sketch”, p. 138, http://www.h-net.org/~business/bhcweb/publications/BEHprint/v015/p0135-p0148.pdf


[2] Ibid.


[3] Lucille J. Goodyear, “Spooner vs. U.S. Postal System”, American Legion Magazine, January 1981, http://www.lysanderspooner.org/STAMP3.htm


[4] John, p. 141.


[5] John., p. 143.


[6] John, p. 144.