So You Want To Privatize Everything?

20 days ago

[Originally published in the Front Range Voluntaryist, article by Matthew Dewey]

Total privatization is entirely possible right now today, and can be done with no interruption in any service currently provided exclusively by the State. Privatization is a matter of planning the right company and market conditions, which necessarily require the removal of all prohibitions to entry in every market that is currently monopolized by the State.

A monopoly is a grant of exclusive privilege by the State. The goal of a monopolist is to restrict others from competition in order for the monopolist to cut production (or lower quantity and/or quality of services rendered) and raise prices.

As of right now, we have a bunch of State monopolies driving down quality and driving up prices because that is exactly what monopolies are designed to do. They deliver increasingly poorer goods or services at increasingly higher costs of production. We all know the State is bad, it's a monopoly, it's stagnant, and bloated, inefficient by nature precisely due to lack of potential competition.

The State is a territorial monopolist of ultimate decision making with the ability to unilaterally and forcefully expropriate its capital resources from current tax victims, sometimes also referred to as taxpayers. I prefer the former title as it’s the more accurate description.

To fix the systematic problems caused by the State, we simply and civilly allow competition while providing retribution to the proper victims of state aggression, the tax-victims. By civilized action I simply mean those that are consistent with private property norms including the non-aggression principle.

Competition is the act of rivalry, or potential rivalry, over control of scarce resources at a particular time and place. Generally in civilized society, such as western culture, competition takes place under widely accepted norms, based on the concepts of private property.

The solution to the problems caused by a monopoly is as easy as introducing competition or at minimum, the potential rivalry, over scarce resources. Competition can be potential as well as active. A single firm can be the sole provider of a good and still sell that good at competitive prices simply because if it does not, i.e., if it cuts production and raises prices thereby increasing profits it will invite actual competition. Selling above market prices invites competitors to the market looking to profit by undercutting the higher market prices. Potential competition has the same effect as actual competition. If a firm was the only provider of a good or service but was faced with potential competition, it would charge prices in line with market prices in order to not attract actual competition looking to enter the market and undercut the firm’s prices.

Planning competition is only a matter of removing restrictions on civilized action and organizing the private ownership of saleable shares, and the current stock market system can be the model of the method used to complete privatization of currently monopolized State services.

The tax victims of a certain geographical monopolist must first collectively decide to privatize. This can be done by referendum vote. Not an easy task but well worth the efforts. Capitalization plans can be specified per industry such as defense (police), fire, emergency medical, parks, garbage collection, mail delivery, sewer, water, and transportation, including roads, bridges, and tunnels. Next, a fleet of accountants can estimate a fair market value of current monopolized services as the acceptance of bids begins. Then, each industry potential competitor will be required to submit bids that include systematic and regular debt service payments to tax victim shareholders, with definitive and possibly staggered payoffs over time. These will also be tradeable shares on competitive markets, allowing capitalization of the most successful.

When the capital resources are fairly valued, the shares are divided among the collective of tax victims, which is not an easy task, but well worth the efforts. The tax victims then vote with their shares on the proposed competitive firm bids. The chosen firms will be offered use of the capital resources at the direction of the tax victims affected.

There exists a need for a subordinate class of shares. These will be issued to current State employees of their respective specific industry. The usual rule currently used on Wall Street is that debt trumps equity. On Wall Street this means debt service (bonds) takes precedent over equity (ownership), so for privatization efforts this means that the tax victim’s shares will be entitled to first liquidation rights (dibs) in the event of a company liquidation. The industry firms that accepted the debt service terms (in exchange for the use of capital resources) will be required to pay down the entire tax victim debt.

Once those debt service shares are paid, they become equity shares that will be distributed as per company by-laws to key employees possibly to further incent productive action. Also, a market can be set up to trade both sets of shares and inevitably someone will create a lucrative way to exchange the shares, much like the current derivative markets that offer a wide variety of means of private but collective ownership options to the market.

The purpose of two sets of shares is to first make a step towards acknowledging the crimes committed against tax victims and legalizing the method of trade of currently monopolized services that align with free market principles.

First, that the better looking and performing industry competitors and their ideas will be rewarded in higher capitalization resources. Just like the current stock market, if a hot IPO of a company with a popular potential business model debuts, its capitalized value is higher than those with bad business plans. The market decides the winners and losers. Second, to incent the current State employees to want to enter a competitive market situation by granting them partial ownership status for the privatized firm in which they would be helping to be profitable. Current employees could continue working on with one of the competitive firms of choice or sell shares on market.

The market takes care of the rest. A competitive market will increase quality of service while lowering the cost to the consumer.

Introducing competition through business planning utilizing currently existing models of saleable shares along with a means of providing at least a nominal restitution to the current tax victims will lead to increased quality of good or service as well as an incentive to lower the prices to consumers.

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