the other hand, the need to regulate the economy is constantly evolving: the bureaucratic burden of its organization prevents the state from being the best predictor and the best architect of the need to implement it. Aside from the fact that public authorities can only intervene retrospectively, once the negative effects of poor regulation have been felt, the question is whether those in power have the same relevant information as market players, according to the signals provided by price evolution: thanks to their specialization and their better knowledge of the mechanisms they consistently practice, market players have multiple ways of circumventing the new rules and benefiting from them3. At the same time, too frequent changes in regulations can only disrupt agents in their behavior, for example, by preventing them from taking the decisions necessary for economic growth.
All in all, from a strictly economic point of view, the state does not have the necessary means of action to ensure growth. On the contrary, it must be able to create the conditions for market mechanisms to achieve this growth. While it is true that in reality the market is incapable of setting the “true” price of a good or service, it is not clear that the public authorities would be able to determine its “fair” price. Thus, the policy of price control is, most of the time, a failure. Blocking prices at a certain level leads to perverse effects, particularly an increase in public spending. For example, the existence of a minimum wage is often equated with an increase in unemployment insofar as some labor-intensive firms refuse to hire workers whose qualifications would require lower pay. The same is true of rent freezes, which turn against the tenants themselves, since landlords are less inclined to build, reducing the number of housing units on offer and leading to higher rents.
There is also the definition of goods and services that are presented as not being abandoned to market mechanisms (public goods) and, as a result, can only be managed by the state. The political approach to this question is often more important than the purely economic approach, which explains why this definition differs from one country to another. Nevertheless, there is agreement on the fact that collective goods are presented as indivisible and non-appropriable goods, and therefore cannot be sold and are not part of the market economy. For example, the construction, operation and maintenance of a lighthouse at the entrance to a port can be considered as responding to this approach. Yet, the choice quickly becomes more delicate: should health, education, transportation infrastructure or public transportation be considered services or public goods?
The answer given by those in favor of the management of certain goods and services by the state can be summarized by five main reasons: (1) no one can be the individual owner of these goods; (2) no one can or should be excluded from consuming them, not least because the price dissuades them from doing so; (3) they are naturally indivisible, because they can only be available for a minimum significant quantity, which is also necessary to benefit from economies of scale; (4) no private company is in a position to create or manage them because of their cost and the impossibility of setting a selling price that would cover the costs incurred; and (5) external effects exist that lead to collective satisfaction. This is the case, for example, with the construction of anti-seismic shelters in order to protect not only the individual who is able to protect themself from the risk of earthquakes, but also the entire population.
However, it is questionable whether it is up to the state to establish a list of collective property by determining what is good or what is necessary for individuals, deciding that public resources should be allocated to one good or service over another, when the majority of the public does not feel the need, arbitrating between methods to reduce waste, deciding what to do or not to do based on moral or ideological considerations. Moreover, we can never be certain that the state manages more efficiently than private companies. Thus, de Tocqueville already condemned the fact that the state seizes functions for which private initiative would be more efficient.
If we consider that the price resulting from the confrontation of supply and demand is the best signal, we can only condemn the practice of administrative pricing of collective goods and services. Moreover, if the public authorities set a price lower than that which would come from market mechanisms, financing by taxpayers can be considered a source of greater inconvenience than a high price. Similarly, if the market is not capable of meeting the needs of consumers, is it certain that public authorities can satisfy the demands of customers?
The problems to which the scope of public enterprises leads are close to those posed by public goods, even though these firms fall into the category of the market economy since they are selling something at a certain price. Most of the time, the search for profit is not one of their objectives, which does not lead them to optimize their costs, especially if they are in a monopoly situation. This mindset of public enterprises is reinforced by the fact that they often believe that their shareholder – the state – cannot go bankrupt and is therefore always able to bail them out in case of difficulties. Thus, industrial successes or prestige financed by public funds sometimes result in financial black holes for taxpayers. That said – and both old and recent examples are there to remind us of this – this belief in the infallibility of the state can be problematic, as tax increases, the creation of money and recourse to public borrowing are not infinite.
Even when they are managed according to the standards in force within private firms, for example with regard to making a profit and therefore seeking cost savings, we must also question the justification for public companies. We can envisage three types of firms under the authority of the state:
– those that have been nationalized for moral or political reasons, as well as to fight against proven collusion of private companies in the sector, which brings us back to the problem of questionable unilateral decisions by public authorities;
– those that concern goods with increasing returns (e.g. in the transport and energy sectors) and which only allow the economic optimum to be reached with maximum production and in the form of a monopoly, and for which it is questionable whether they are truly efficient. For example, the railway tariff set by the state may not be the best, and competition between several companies could probably lead to lower prices on some lines. The same is true of postal services;
– those that are in competition with private companies and which have no reason to exist, because the fact that the goods and services concerned are already in the competitive sector means that they do not need to be in the hands of public authorities. As has already been pointed out, if the prices set by private companies are too high, it is up to consumers to act by refusing to accede to the diktats of certain producers, who will then be forced to revise their objectives.
The definition of public goods and their management by the public authorities is constantly evolving. This is the case for, among many other examples, the telephone or electricity, which having long been considered collective services have now in some countries become genuine private services. Similarly, when legal rules impose competition, or when public monopolies need funds that the state is unable to provide, moving them into the private domain is a good solution.
“True” liberalism rejects the existence of monopolies that annihilate the action of individuals: it is necessary to avoid the concentration of capital in the hands of very large companies that leads to the negation of individual property and the destruction of entrepreneurial freedom. Since it is people who must be privileged, they cannot be subjected to the influence of powerful groups, whoever they may be, in the economy of monopolies, private or public. One of the criticisms leveled at monopolies is that they encourage protectionism in international trade, because such a regime favors them to the detriment of consumers, whereas free trade, advocated by Richard Cobden as early as the 1830s, is beneficial for all economic actors. It is therefore logical that, in keeping with its individualistic approach, liberalism is favorable for small businesses.
The financing of public spending also remains to be considered – a problem that we will revisit in section 4.1 on capitalism today. For the moment, let us simply say that the most intransigent liberals reject,
