Privating Societal Value

A couple of times I’ve alluded to an idea I first saw from Peter Singer, that the structure of society creates a great deal of the value which flows to the wealthy. Our legal system and our stable system of property ownership is crucial for building successful companies. Yet the value gained from companies flows largely to company management and partially to dividends to shareholders. None of goes to the operations which support the company: the courts, the police, the schools which train the workers, etc. Instead, we tax profits, and use the tax money to pay for the infrastructure.

This naturally suggests that we could arrange matters differently. Instead of using taxes to pay for the courts, companies could pay the courts directly. And likewise for other social services. This would match my understanding of how libertarians think society should work. It would bring the benefits of free competition to the court system: the best courts would get the most money.

Of course, there is an obvious so-called moral hazard: if you choose whether or not to pay the fire brigade, then if you chose not to pay, the fire brigade has a pretty strong incentive to burn down your house as an example to encourage others to pay. And if you pay the court system, then the judges have a very strong incentive to issue findings which favor whoever pays them the most.

Also, if different court systems compete, then how do you pick which court system to use when two parties in a dispute pay for different ones? While this could be negotiated, in extreme cases the winner will be the most powerful party, which will normally be the richest party.

So as far as I can tell such a system degenerates reasonably quickly into control by the wealthiest. Of course they would normally hide their power in a velvet glove, but it would be there when needed.

Is that any different than our system? I think there is a difference, which is that we can vote people out of power. Voting does not require a great deal of commitment, it just requires making a decision. So we have a way of derailing powerful people, a way which would not be available if societal infrastructure were privatized.

Of course there are many very powerful people in our society who are not elected. But even those people can be controlled by the masses, via the court system. It doesn’t happen all that often–the lawsuits which followed the stock market crash are over now–but it does happen, and it does constrain people to obey the rules to some degree.

The opposite of privatizing societal infrastructure is nationalizing private property. The U.S. does this in a very limited way via eminent domain. It has been done effectively on a larger scale in countries like South Africa. But too much privatization leads to a state socialist system like the U.S.S.R., which we could see was a disaster.

So there is some sort of balance to strike, or perhaps a third way to find, in the ideal society.