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January 1995
Volume 13, Number 1


Privatize the Welfare State?
Jeffrey Tucker


The phrase "End Welfare As We Know It" is a classic Clinton evasion. It sounds bold and "neoliberal" at first, but on close examination it collapses into nothingness. Almost any change in a policy qualifies as ending it "as we know it." It could mean cuts. It could also mean more spending and redistribution. 

In either case, the bill-writing, policy-proposing industry is overjoyed that "welfare reform" will bring another boon year along the lines of last year's "health-care reform." In short order, the public will be asked to root for one of hundreds of treatises promising to turn South Central LA into Malibu. Judging from the initial offerings, none of these bills will result in cuts to overall government spending. 

On the plus side, Clinton's phrase did conjure up, however vaguely, the prospect of getting rid of the welfare state, which, depending on how "welfare" is defined, consists of between one third and four-fifths of the budget. Suddenly, what was once advocated only by "extremists" Ludwig von Mises, Henry Hazlitt, and Murray Rothbard has become, if not respectable, at least not unthinkable. 

Is the ultimate solution to "privatize the welfare state," to use the newest phrase being batted around the land of policy wonks? As with Clinton's famous words, the term "privatize" means different things to different people. To HUD official Andrew "Mario's Son" Cuomo, it means turning over federal housing monies to private non-profit organizations. As the founder and former administrator of a government-funded homeless shelter in New York City, he discovered this to be a more profitable way to pursue left-wing politics than the old-fashioned public-sector approach. 

Part of the glory of the private sector--profit or non-profit--is its financial accountability. But give a privately owned entity a government grant, and that virtue comes to an end. Andrew Cuomo himself demonstrated this by building publicly funded projects for "the poor" in ritzy suburban areas, thereby driving down everyone else's property values. 

The proposal to "privatize the welfare state" isn't limited to the left. An idea bandied about the right suggests that individual income-tax filers name their favorite charities on their tax forms. Up to 20% of the taxes they pay will go directly from the U.S. Treasury to the selected non-profits' bank accounts. It's a souped-up plan to spread government subsidies more widely. 

About 60% of the non-profit sector's resources already come from the government. As Thomas DiLorenzo and James Bennett have documented, much of this money is used to lobby for more government spending, which in turn is allocated back to the non-profits. Proposals from the left and the right to "privatize" in this manner would only make this scandalous practice worse. 

When non-profit organizations accept government money, they compromise their independence. Many are already little more than lobbyists and grafters, virtual adjuncts of labor unions, welfare clients, and the subsidized corporate establishment. It is especially perverse for non-profits pushing free enterprise to receive funding from the government's pipeline. The few who refused such funds on principle would be at a distinct disadvantage to those living off the taxpayer. 

The correct word for this approach is not "privatizing" but "contracting out," that is, have the private sector do efficiently what the government is doing inefficiently. But why should we want to do that? Government waste and inefficiency is troubling, but, even so, it is often a saving grace. If government worked as well as the private sector, we would be doomed. Who needs bad law enforced with new vigor? 

Real privatization of the welfare state requires more than contracting out. It requires returning property to its original owners, or at least the cessation of further redistribution. A dollar in private capital can do more work, and do it well, than a hundred taken by the government and redistributed. Doing this doesn't require complex "reforms," a thousand-pages long. It takes persistent efforts to cut spending and taxes, a solution that is somehow beyond the grasp of Washington's bipartisan planners.


Jeffrey Tucker edits The Free Market


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