April 19, 2004

How much better might laissez faire have done?

Brian Micklethwait | Transport General

Some of the comments on this review article at Samizdata took a transport turn, what with one of the books being about the "robber barons", many of whom were railway tycoons.

Kit Taylor:

One wonders how the distribution and quantity of American wealth might be different had the country pursued a pure free market without selective perks.

Grand infrastrucure projects, monster investment subsidies, eminent domain, monopoly patents and fiddly little pump primings do apparently increase GDP, and "national greatness" righties and NPR liberals alike tend to take the fact that these things aren't likely to happen under laissez faire as proof that political intervention in the economy is A Good Thing.

Trouble is, he continued, for all the good they might do, subsidies don't necessarily achieve all of the above, but are all too likely to achieve other things.

I've some sympathy for the anarchist argument that these schemes are a corporate con to socialise the costs of private profit, concentrating wealth and sustaining all manner of waste and bloat.

Ken (who has only a day or two ago posted this at Alien Landscapes) responded with enthusiasm. How might pure laissez faire have worked in twentieth century America?

I figure the quantity of American wealth would be so much greater that any remotely likely distribution of it would have left everyone better off than they are now.

Plus, a full century of unfettered Edisons, Wrights, Bells, Rockefellers, Carnegies, Fords, and so on, in place of the century recently completed full of increasingly powerful regulatory agencies, would have left our roads decaying and crumbling through being completely obsolete while skycars zoomed overhead, and also left us a flag with a couple of hundred stars on it representing a large number of extraterrestrial states.

Discuss, as they say.

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Comments

How would they have overcome the hold-out problem to build any roads?

Posted by Andy Wood on April 19, 2004

Oh puh-leeze.

Some people are just so caught up in their utopian fantasies that they're willing to interpret all history in a way that justifies their imaginations.

First of all, no government intervention in 20th century America would mean no Pure Food and Drug Act, which would have delayed the creation of a modern pharmaceutical industry and precipitated the death of millions over the years from preventable outbreaks and quack medicines.

But that's not transit or urban planning related (aside from the obvious public benefits of sanitation and sewers, which private industry failed to provide before government stepped in).

The anti-trust prosecutions of the early part of the century certainly helped advance technology. When a company has market power, it focus not on how to compete, but on how to maintain its monopoly status, mostly by eating up or otherwise destroying smaller competitors and very often by rent-seeking behavior (most of the time, the choice ends up being between government regulating corporations or corporations bossing around government). Note how web browsers almost completely stopped improving once Microsoft became dominant. Without government regulating monopolies, the price for steel and oil would have stayed high, hindering the growth of the automobile and railroad sectors.

And all this mumbo-jumbo about unfettered Edisons, Wrights and Fords is also just so much bullplop. Were the Salks, Oppenheimers, Gateses and the rest really so held back by OSHA and minimum wage laws that they didn't do more or less what they wanted to? Were many not, in fact, helped by government funding of science and technology? Do you remember how the internet came to be?

Now, back to transport. With steel and oil prices kept high by the trusts, development would have likely been slower. Had Ford not feared unions and worker-rights laws, he may have never seen it necissary to pay his employees $5 a day, changing the industry and destroying another market for its cars. Without eminent domain, large intercity highways may never have been built and without a CAA and later a FAA to keep planes from hitting one another midair, air travel would remain largely the hobby of rich eccentrics and the military.

Obviously, hindsight allows us to re-examine some regulations we may have been able to do without, but a libertarian fantasyland, if it didn't collapse into communism, facism or anarchy first, wouldn't be that great after all.

Posted by randolph on April 20, 2004

I find it odd to hear railfans sticking up for BigGov when their interference in the transport/land use market is one of the reasons for the decline in transit and the resultant auto-dependant suburban sprawl they so loathe.

Big Oil conspires to jack-up prices? It won't take long for private transit companies to find a way around the monopoly if you let them. Pre WWII most of the US urban transit systems were privately owened and operated. The subsidies to the interstate highway system decimated these industries.

Anti-trust legislation advanced technology? Not if anything I've read (Meyer et. al.)about the cartelization of transport under the odious ICC and CAB is to be believed. The pricing structures encouraged inefficient allocation of resources and stifled innovation in each of the rail, air and trucking sectors.

Without deregulation, there is evidence that air travel would indeed still be a plaything of the rich. Real average airfares have fallen and load factors have increased since reg. reform.

And as for needing the govt to prevent planes from crashing into one another. Canada (of all places) has shown that the private sector can handle that task, too!
NAV Canada's success

Posted by Jay on April 20, 2004

You haven't responded to one of my points on monopolies, which is how do you stop a very, very big company from being so big it can essentially buy out the government for its own uses to stifle competition? In small countries, the problem is even worse.

But anyway, NAV Canada is not a true laissez-faire system - it's essentially a contract job. It took over a pre-existing system and runs it independently of the government itself, paid for with mandatory fees. In a truly independent system, competing airports would not have to share flight information with the government or a central authority. Therefore, anyone could have access to the skies as long as they owned a plane and could find a strip of pavement long enough for a takeoff. Especially in instrument flying situation, this isn't safe and will eventually lead to some sort of mandatory system.

Oh, and airline deregulation didn't mean the end of airline subsidies, just a shedding of outdated laws, in much the same way bad companies fail and are replaced by new ones. The fact that we don't have many of the old, bad regulations but keep the good ones shows that regulation in a democratic society is capable of evolving with public demand and trial & error.

As for private industry doing a better job at roads and rails: Railroads were built with tremendous government help in the form of land grants and subsidies, which is fair because the government got quite a lot out of it. And yes, many urban transit systems were built by private money and later failed because of government subsidies to highways. Does the failure of private subways prove government public works don't work? No. It proves that just like with the Edsel and the Apple Lisa, it screws up sometimes.

I don't consider myself a statist, just someone who believes in balance and ecshews utopian pipe-dreams, left, right or libertarian.

Who built the Erie Canal? (state) government. Who built the Panama Canal? Government. Who built the Golden Gate Bridge? Government. There's obviously room for both.

Posted by randolph on April 20, 2004

The one way you certainly don't deal with monopolies is to have the state regulate it and its competitors. Otherwise you get a half century of bureaucratic meddling and cronyism that takes a least another half century to shake the inefficiencies out of. That's if you're lucky enough to out-lobby the entrenched interests that grow up in the regulated system.

Private monopolies may be a pain in the ass, but they send a signal to the market that there is a desire to get around the monopoly, whether its increased demand for alternate modes of travel, reducing the need to travel, locational/land use adjustments. etc.
To me, the only way a monopoly can effectively maintain its stranglehold is to team up with the State in dome form or another, which is precisely what a lot of crony capitalists (the robber barons) choose to do.

Posted by Jay on April 20, 2004

So you're saying that if the oil trust wasn't broken, we'd all be driving solar cars now?

And as to how a monopoly can maintain its power -- yes, the state often helps. And what makes you think that a government could resist capture from a firm that is allowed to get big enough to dominate a sector of the economy for long? And if government is too small to be of help to the monopoly, what would stop the monopoly from setting up a quasi-government of its own, like the Pinkerton guards who attacked strikers in turn of the century company towns?

To believe that doctrinairre libertarianism (complete economic anarchy, really) would work in practice requires a willful ignorance of externalities, market power and political economy, just as belief that communism would work requires a willful ignorance of principles of human nature and economic decisionmaking.

Posted by randolph on April 21, 2004
To believe that doctrinairre libertarianism (complete economic anarchy, really) would work in practice requires a willful ignorance of externalities, market power and political economy...

Do you believe that David Friedman is willfully ingorant of externalities, market power and politcal economy?

Posted by Andy Wood on April 21, 2004

I think life would be far more nasty, brutish and short if ideologically inflexible deciples had complete control of government, that's for sure.

The good thing about being a strict adherent to a radical philosophy that's never been fully tried is that you can't be proven wrong until the damage is done.

Posted by randolph on April 21, 2004

that should be *his* ideological disciples.

Posted by randolph on April 21, 2004

You didn't answer my question.

Posted by Andy Wood on April 21, 2004

Ok, Yes.

Posted by randolph on April 21, 2004

How do you justify that answer?

Posted by Andy Wood on April 21, 2004

"First of all, no government intervention in 20th century America would mean no Pure Food and Drug Act, which would have delayed the creation of a modern pharmaceutical industry and precipitated the death of millions over the years from preventable outbreaks and quack medicines."

Nonsense. It's the FDA that puts delays between every incremental step of drug advancement. There is no indication that a century without the FDA would have led to millions of deaths from quack medicines; there's lots of indication that a century without the FDA would have saved millions through faster development of drugs for diseases that they ended up dying of through lack of any available treatment. At some point a world without the FDA would have developed a cure for aging, which means that every death of "natural causes" after that point is one caused by the FDA. Maybe we've already reached that point.

"Without government regulating monopolies, the price for steel and oil would have stayed high, hindering the growth of the automobile and railroad sectors. "

Is that why the price of oil was trending downward throughout the entire time that Standard Oil remained unregulated?

"Now, back to transport. With steel and oil prices kept high by the trusts, development would have likely been slower."

Except they weren't kept high by the trusts. They were driven lower. That would lead to faster development.

"Do you remember how the internet came to be?"

Yes I do. Thanks to the FCC holding a monopoly on the airwaves, and AT&T holding a monopoly on landlines, there were no preexisting computer networks when the military wanted one, so they built their own. Eventually, they let the unwashed masses in on it.

"Had Ford not feared unions and worker-rights laws, he may have never seen it necissary to pay his employees $5 a day, changing the industry and destroying another market for its cars."

Ford paid $5 a day, long before any law or proposed law or threatened law forced him to, because that wage rate attracted the best available workers to his enterprise, thus boosting production and Ford's profits. Also, jacking up your own employees' wages in order to enable them to buy your cars is just a roundabout way of giving away your cars!

"Without eminent domain, large intercity highways may never have been built and without a CAA and later a FAA to keep planes from hitting one another midair, air travel would remain largely the hobby of rich eccentrics and the military. "

Instead, we have the FAA helpfully keeping the skies practically empty with outrageous licensing requirements, thus making air travel a hobby of rich eccentrics, the military, and people willing to put up with lots of time-consuming security requirements for the privilege of riding in a flying cattle car to an airport only to sit in groundcar traffic to get anywhere else.

A much less restrictive system could allow the skies to handle lots more traffic safely. Especially if you set the bar of "safely" as low as you do for groundcar traffic.

"And what makes you think that a government could resist capture from a firm that is allowed to get big enough to dominate a sector of the economy for long?"

A government that was bounded with enumerated powers that didn't include doing lucrative favors for favored companies would do the trick. We've got a blueprint for one written by some guys in Philadelphia a couple hundred years back... let's give that a try.

Posted by Ken on April 22, 2004

"In a truly independent system, competing airports would not have to share flight information with the government or a central authority."

If they didn't do whatever information sharing with other players was needed to keep their own customers from crashing into someone (or someone crashing into their customers, which is equivalent), they'd have a hard time keeping customers.

"Therefore, anyone could have access to the skies as long as they owned a plane and could find a strip of pavement long enough for a takeoff."

Which is the optimal state of affairs, assuming that they're all somehow staying out of each others' way. And with a big enough market, product development speeds up and you end up with aircraft that don't even need that strip of pavement for takeoff. The skycar, in other words.

"Especially in instrument flying situation, this isn't safe and will eventually lead to some sort of mandatory system."

I can see some sort of rights-of-way being worked out by a central agency, even the government, with penalties for violations, kind of like we do on the ground. But that doesn't even come close to what the FAA does to us.

Posted by Ken on April 22, 2004

I my point was that whilst political intervention might bring more of a particular nice thing than a free market, might the free market in the long term facilitate an even nicer but perhaps less obviously nice thing instead? Might there be a better solution to the environmental and social problems some libbos try to pretend don't exist, than politicians simply ordering them to go away?

The original Samizdata.net post was prompted by a pamphlet by Kevin Carson (paleocon-ish turned individualist anarchist and maintainer of Mutualist.org) called The Iron Fist Behind the Invisible Hand.

The argument is that whilst a regulatory and welfare state is indeed necessary to clean up the mess created by existing power structures, such structures can only arise through prior political controls on the free market. As randolph says, these are unfortunately rather difficult to stop, and it's easier to apply a sticking plaster at the end of a process rather than fix a broken system itself.

There might be little or none of today's existing legal or physical infrastrucure under laissez faire. Carson argues that this would be a good thing, forcing economic growth in a more holistic direction and creating a seller's market in labour, one that would ideally force businesses to hand control of factories over to staff (the term "workers" gives me a bad vibe).

Transport is one piece of the puzzle. Say if in Laissezfairenginar roads were paid for by solely by user fees, with roads owned by people living next to them, what would become of companies such as Wal Mart, which have a business model dependent on vast distribution networks?

Posted by Kit Taylor on April 22, 2004

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