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Volume X, Number 1
January 1992

Privatization vs. the State
by Chris Woltermann

Bertrand de Jouvenel wrote that history "is the picture of a concentration of forces growing to... the state, which disposes, as it goes, of ever ampler resources, claims over the community ever wider rights, and tolerates less and less any authority existing outside itself."

We should remember his words in assessing the progress of privatization of state-owned assets in Eastern Europe and the various Republics of the Soviet Union. The need for privatization is urgent, but unless ex-communists disabuse themselves of the notion that government should administer the transfer of state properties to private hands, privatization will remain an empty promise, and enervated state systems will lumber on indefinitely.

So far, the efforts in those countries resemble that of a witless counterfeiter who copies other counterfeiters' work. Such a bungler will produce a product twice removed from the genuine article.

In theory, the policy of governments to divest themselves of socialized properties should reverse the historical trend toward the distension of public authority. Privatization should augment private interests in civil society while reducing both the scope and the intensity of governmental activity. This reasonable theory, however, proves practically inoperable. It only serves to mask--and thereby facilitate--the state's growing subjugation of private interests.

Western privatizers take an action-oriented, empirical perspective: privatized enterprises are desirable because they yield tax revenues. and the proceeds from the sale become available to finance new governmental programs. Then, too, the welfare state's "mandated benefits" can be expanded to newly private firms. In contrast, government-owned businesses require subsidies that divert public spending from other objectives. Thus privatization serves the welfare state by both funding it and relieving it of someof its burdens, freeing resources for the state to meddle yet more intrusively in the lives of its subjects.

State-sponsored privatization does not reverse the welfare state's pernicious conflation of public and private interests. Instead, all property takes on an air of conditionality: it becomes a species of "social grant," something analogous to an entitlement whose beneficiaries retain their positions on condition that they fulfill social democratic pods.

Everything denoted by proprietorship has come to subsist at the will of those who staff the government's apparatus. Under penalty of the state's sanction, property owners must manage their possessions so as to satisfy the demands of egalitarian victim groups. If two hallmarks of ownership are, as Aquinas taught, exclusive possessionand the right to control, then today's proprietors appear increasingly to be mere stewards of public property.

This is precisely the conundrum of privatization in Eastern Europe and the Soviet Union. These efforts are already floundering and causing a public backlash against privatization by bureaucracies and international agencies. Only in former East Germany is privatization taking hold, but there again in its social democratic variety, and with the help of a "rich uncle" to stand surety for their future.

If not through a state-run program, how, then, to privatize? If it happens, it will be through a radical privatization from below--an authentic dismantling of the state--rather than from above, where the state disingenuously divests itself of costly socialized property.

No blueprint exists for privatization from below, yet the history of the Western Roman Empire's dissolution provides an inkling of what workable privatization might look like. Russian-born historian, Mikhail Ivanovich Rostovtsev, provides suggestive analysis in his Social and Economic History of the Roman Empire.

The reforms of Diocletion and Constantine, explains Rostovtsev, brought productive activity nearly to a standstill. Although this was hardly the emperors' intention, their ruinous taxes, which systematically despoiled the private sector, made disaster inevitable. No longer could men employ their creative energies and ideas--and what was left of their capital assets--to generate wealth. The only path to personal enrichment was state employment, where the corrupt cunning exploitation" of one's position enabled one to plunder both the people and the government. The entire situation. like today's collapsing communist societies, was extraordinarily unstable.

That's when privatization got underway. Roman officeholders appropriated state lands as their private property. Other officials used ill-gotten liquid wealth to purchase real estate of newly-impoverished merchants and landowners. Rome's erstwhile "public servants," having acquired vast estates where they ruled amidst mercenary retainers, came to devote their time and energy to private concerns. By default, the Roman state withered away.

Nor were the officeholders the only practitioners of crude privatization. Barbarian invaders seized much property. And Romans who were not officials, provided they were energetic and unscrupulous, also grabbed public and private lands.

The late Roman Empire's process of privatization was chaotic, lawless, and often violent. Yet despite the untold suffering it involved, it swept away the abominations wrought by Diocletian and Constantine. Thus in some ways it worked splendidly. Moreover, it was--and remains in both retrospect and prospect--the only conceivable means to reverse statism.

If replicated in lands blighted by communism, the Roman precedent would have government officials and/or ex-communist party members privatizing--that is, seizing for their private purposes the lion's share of public properties. Ambitious civilians, certainly including common criminals, would also grab quite a bit. The role of barbarian invaders would fall to foreign investors intrepid enough to invest without guarantees. The entire affair would be an enormous upheaval, the sort of epochal event which gives birth to epics and tragedies.

What about the necessity of orderly change? It is commonly suggested that the first step towards orderly dismantling communism is the creation of laws that respect private property. In fact, private property is chronologically and logically anterior to laws that respect it. Private property must exist before there can be laws enshrining it as a right. In our example, the property rights established amidst the debris of the Western Roman Empire became the basis of new civil codes cobbled together with Roman jurisprudence. Laws by themselves do little or nothing to alter their social contexts. Private property must be established before it can be legalized and protected.

If Western privatization enthusiasts are right to be optimistic about the future of former communist societies, it will be the first time in history that internal revolutionary change significantly diminished state power. The ghosts of Diocletian and Constantine will always demand their revenge.

"Revolutions liquidate weakness and bring forth strength," said de Jouvenel. That's why, short of the solution laid out here, a gambling man would require steep odds to bet in favor of authentic, state-run privatization.

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