Thursday, May 19, 2011

Privatization is theft

Taxes entail coercion; this is why they're not called donations. Accordingly, one might think self-styled advocates of free markets and smaller government, Ayn Rand aficionados especially, would be cognizant of the fact that, when it comes to a moral claim over the things that said taxes go to -- from telecommunications to transit systems -- the coerced taxpayer would have the strongest case for ownership.

You'd be wrong, of course. When it comes to downsizing the state, most conservatives and libertarians have a raging hard-on for privatization, by which they mean the government auctioning off taxpayer property to the highest private bidder. The problem with this approach, from a Freedom! and individual rights perspective, is that those who were forced to invest in the state entity to be auctioned off are left with next to nothing to show for it, usually some multinational corporation instead swooping in to pick it up at pennies on the dollar.

Take the example of Guatemalan state telecommunications firm GUATEL. In the late 1990s the Guatemalan government, instead of handing the firm over to the workers and taxpayers who had supported it over the previous two decades, sold 95 percent of its stake to a private company called Telgua, which -- thanks in no small part to its being handed a monopoly share of the market -- continues to be the country's largest telecommunications provider.

At Reason magazine, the move is this week being commemorated as a clear victory against statism. "In Guatemala," former head of GUATEL Alfredo Guzmán tells the magazine, "we have a clear example that freedom works."

Yeah, I'm not so sure about that. While Reason argues the move is responsible for the widespread availability of phone services in Guatemala today, one can look elsewhere in Central America and see a similar story of proliferation. Even in behind-the-times Nicaragua -- and I say that endearingly -- I can get 3G Internet access pretty much anywhere I need (and unlike in the "free market" U.S., I can do so affordably using a prepaid modem).

But if we're going to call what happened in Guatemala the result of "freedom," more pertinent to me than the number of sexting Guatemalan teens there are today is how the transition from state to "private" telecom monopoly actually came about. And if you actually look at it, it begins to look less like a story of free minds and free markets and a bit more like the standard, time-old tale of one economic class, international capitalists, using the power of the state to exploit another economic class, in this case Guatemalan workers.

As former GUATEL head Guzmán himself boasts in the interview with Reason, the decision to privatize the firm was so politically unpopular (read: courageous! ) in his country that the Guatemalan government actually had to threaten its own citizens with jail time should they protest the proposed sale by striking. Rather than respect the right of its people to freely organize and voice their discontent as they saw fit, in this case by merely not going to work, the government of Guatemala threatened those forced to live under its rule with the prospect of time behind bars should they exercise those rights. Moves like that may make life easier for multinational corporations, but it ain't exactly "freedom."

Rather than hand the state's telecom monopoly to the highest bidder, the Guatemalan government could have -- and to my warped syndicalist mind, should have -- turned it over to the Guatemalan people. Each citizen of the country could have been given a share in the company and a say in how it was run; perhaps they'd vote to delegate that authority to an elected board. Or the state could have divided its telecom monopoly amongst its workers, who could run as a cooperative. Either option, or a combination of both, would have better protected the rights and, indeed, property of those poor Guatemalans who put their time and money into GUATEL than merely auctioning it to the multinational corporation with the most money.

Putting aside the financial and political reasons as to why that didn't happen -- maybe, I dunno, it's because rich capitalists have more a say over government decisions than poor workers? -- there's a cultural reason why actual liberty-and-freedom preserving options aren't given much consideration by the folks at Reason and other privatization zealots: it reeks of socialism. Sure, cooperatives are entirely compatible with voluntarism and even modern capitalism, but unless there's a CEO with an insane salary and a private jet involved, right-wing libertarians don't want to hear it -- after all, who would pay them to defend those insane salaries and corporate jets?

While they preach their love of freedom, it's clear that for many on the right the love of markets -- or specifically, corporations -- trumps all other concerns about force and state power. All human needs must be met by a corporation in a quasi-competitive marketplace (the second part's optional), in their view, lest we all become limp-wristed socialists prattling on about "sharing" and "community." That there are alternatives to such strictly defined systems of economics that are not based on state coercion -- and who do you think grants corporations personhood and limited liability? -- is not so much as acknowledged. The light at the end of the freedom tunnel is a McDonald's arch. Corporate ledgers are the gospel.

If minimizing the use of coercion in human affairs is your goal, however, as opposed to maximizing corporate profits, than faux-privatization schemes like the one Guatemalans were subjected to should be described for what they are: manifestations of corporatism, not liberty and free markets. Again, it bears repeating: Transferring a state monopoly funded by taxpayers to the control of international investors is not a win for freedom. The only thing that changes in that scenario is who profits from state coercion, politicians or capitalists -- if it even does that, given the ties between the two.

Instead of fawning over big business and demanding state power be given to state-created corporations, libertarians and other self-styled proponents of freedom on the right ought to be demanding that power be given to the people. That they're not suggests they should be described not as proponents of liberty, but of corporate capitalism. And no, Virginia (Postrel), they're not the same thing.


  1. Anonymous1:38 PM

    As a libertarian, I wholeheartedly agree with this.

  2. amcevoy3:40 PM

    The "theft" occurred before the "privatization" when the taxpayer's money was used to build something that could be privatized at all. Government should not own business enterprises such as telecommunications and should only "own" public infrastructure like roads, bridges, etc. that were built by contracted, private labor and paid for by taxes.

    You demonize libertarians, but it is really the government system that is at fault in your argument. If free markets were present then none of this would have occurred. Also, if a free market was available immediately following the sale of those state assets then the monopoly would quickly lose its grip to competition or else it would provide the best possible service that no one could compete with. Either way, the consumer wins with a free market, which is really what a libertarian would be asking for.

    And as for your bit on how, "...unless there's a CEO with an insane salary and a private jet involved, right-wing libertarians don't want to hear it", I don't know who you have been talking to but I don't know any libertarians who have some sort of problem with small businesses. In fact, in many cases they actually serve their customers better than a corporation could, which is really what matters.

  3. I'm actually kind of with Anonymous 4:38 on this one. I'm a libertarian who stumbled across your blog because of the Ron Paul article and have been lurking for a while because I like what else you have to say, even though I disagree with a lot of it. (And my high school history teacher would love that I'm reading a blog by a guy who idolizes Emma Goldman.) I think what you're articulating in this article is actually pretty compatible with what a lot of libertarians would actually prefer to see when privatization occurs; if anything, I tend to think what you're espousing here really is more inherently "privatizing" whereas the GUATEL example, and others like it, is more just "corporatizing".

    There's a reason that even many libertarians dismiss Reason and Cato as "cosmotarians", who have a sort of libertarian white-man's-burden outlook on how to make people "free", i.e., to see to it that everyone on earth lives in modern cities and uses cell-phones and eats Snickers bars--and if that has to be accomplished by corporatizing the culture of third-world nations, then so be it.

    I'm not even going to pretend that I'm not more-or-less in agreement with Reason's general outlook, but I still think that you raise serious points about the methods that many people support for the various privatization schemes, which tend to do more good for shareholders in rich countries than they actually do for the people whose benefit it's supposed to be for.

    It just makes me think of how Chile is always put forward as a great country of a highly liberalized South American nation, but people kind of conveniently leave out that the liberalization of their economy was the result of Pinochet's military dictatorship. One the one hand, I support the end result... but on the other hand, I'm not really a guy who thinks the ends justify the means.

    Maybe--nay, probably--GUATEL has left the Guatemalan communications better off than it was. But I tend to agree that your scheme for privatizing the industry would have been more in keeping with liberal and humanitarian principles, even if the end result hadn't been as efficient or desirable.

  4. Just to add, I am another libertarian who agrees with you.

  5. Anonymous4:48 PM

    If there's "a cultural reason" why Reason won't endorse privatization via the mass dispersal of shares, it somehow failed to stop the publication of articles like this one.

    Similarly, its bias against cooperatives somehow failed to prevent items like this and this from appearing.

    If your gloss on what happened in Guatamala is correct, Reason missed the boat on what happened there. But it's not hard to find it criticizing crony-capitalist "privatization" in several other places.

  6. amcevoy,

    If as you posit the theft occurred when the government taxed its people to build State Enterprise A, then it's continuing to act as a thief if -- instead of returning that property to those it stole it from -- it in turn sells it somebody else, e.g. International Megaconglomerate Inc.

    As for Reason, I should preface any of my comments about them by always noting that Jesse Walker, who wrote the majority of the articles about co-ops linked in the comment above, is cool (as are Brian Doherty and Jacob Sullum). And yes, it's published some good stuff on crony capitalism.

    But I don't think there's any denying that Reason magazine -- and especially the Reason Foundation -- is much more likely to promote a standard privatization-via-auction argument as opposed to advocating worker control of state enterprises. Just check out the Reason Foundation's page promoting privatized prisons ( And I also don't think there's any denying that most -- not all -- self-described libertarians glorify corporations as manifestations of the free market. Look at the love for Bill Gates and Steve Jobs, both of whom became billionaires in no small part to "intellectual property"-granted privilege.

  7. I am a libertarian who agrees with you, mostly, except the part about turning it over to the people and have voting, That's the same as government control.

    I hold that all taxation is theft and yes, this company should never have been taken over by the government in the first place. And you are right, all of that money should be given back to the people.

    I have no problem auctioning the company off, but perhaps what should have happened instead was when they auctioned it off, the money should have been returned, every penny, to the "taxpayers". In other words, to the victims of the theft to make restitution.

    And, if there are laws prohibiting competition with this new private company, then those should go away as well, since that's nothing more than capitalism.

    Libertarians like me believe in having a level playing field with no favoritism from government preventing competition.

  8. "...since that's nothing more than capitalism." Er, uh, I mean nothing more than crony-capitalism, or corporatism.

  9. "Each citizen of the country could have been given a share in the company and a say in how it was run;"

    Agreed. Preferably the citizens should be able to trade these shares among themselves, so that someone uninterested in owning the telephone company may get the money taken away from him back by selling the share.

    As somebody from Eastern Europe where we had loads of this type of theft in the 1990s this is a huge issue for me so kudos for getting it right!

  10. According to my beliefs regarding government, it never should have been started by government in the first place. How it was sold is further down on my list of problems with this situation. Forcing people to do a job is slavery. Forcing people not to protest at the point of a rifle is tyranny. Our government has an abysmal record of running everything. Yes, I know we are discussing Guatemala but I have no interest in what happens there. Its just not our business. Most federal programs should be moved to state and local governments where the people have more control over politicians. From there they can be privatized, eliminated or reformed. Just the opinion of a libertarian of the minarchist persuasion.

  11. Neoliberalism =/= libertarianism. Libertarians sometimes forget how radical they're supposed to be. It's a right shame.

  12. Anonymous10:24 AM

    "Instead of fawning over big business and demanding state power be given to state-created corporations, libertarians and other self-styled proponents of freedom on the right ought to be demanding that power be given to the people"

    This is the same collectivist logical fallacy used to justify communism. It's an error in reasoning to believe that public ownership is giving power to "the people" (i.e. taxpayers collectively). In fact, it is always giving power to a certain tiny limited number of individuals, and taking it away from "the rest of the people".

  13. It's an error in reasoning to believe that public ownership is giving power to "the people" (i.e. taxpayers collectively). In fact, it is always giving power to a certain tiny limited number of individuals, and taking it away from "the rest of the people".

    I didn't call for vague "public ownership," by which you presumably mean ownership by thae state, but rather specifically advocated a syndicalist approach -- workers taking over state entities themselves -- and/or giving all taxpayers an equal share in state institutions.

    If you oppose "giving power to a certain tiny limited number of individuals, and taking it away from 'the rest of the people,'" you ought to oppose selling taxpayer goods to corporations, whose executive boards aren't exactly models of decentralized, democratic governance.

  14. Great post. I will just add that in the Emilia-Romagna region of Italy, some local government services were turned over to worker-owned and run cooperatives and the results have been pretty good from what I understand. Corporate privatization is not the only alternative to state ownership.

    By the way, if anybody is interested, here is an interesting little slideshow about the Emilia-Romagna cooperatives:

  15. As a libertarian, your article sustains the rationale for my opposition to Paul Ryan's Medicare Reform Plan.

    I have paid Medicare taxes all my adult life. Paul Ryan proposes to steal this money from the Medicare trust fund, and transfer it into the pockets of insurance company executives (in the form of subsidies).

    Whether it be RyanCare, ObamaCare, or RomneyCare -- all three reforms entail a mandated program of corporatism. Public moneys will be funneled into private companies.

    The central planners (Republican and Democrat) are peddlers of crony capitalism. This is our road to serfdom.

  16. Anonymous11:01 AM

    I believe that true libertarians And conservatives agree with the idea: "Transferring a state monopoly funded by taxpayers to the control of international investors is not a win for freedom." "Public moneys [] funneled into private companies" is crony capatalism.
    Jane Mayer wrote about the Koch brothers and their influence in her excellent New Yorker article -
    David Koch sits on The Reason Foundation's Board of Trustees. Not all people are following the party line, whatever it may have been, like they used to. I like to think this is where the change (revolution) will come from.