Taking Stock / Beware the Rich, the Bleeding Hearts and the Hypocrites

The key isn't 'privatization,' it's 'competition.' Heed the lessons of that forefather of modern economics.

Some of our readers were surprised last week to read TheMarkerWeek's view that some of Israel's tycoons pose a threat to the free market. Everyone sees how the business barons pose a threat to democracy, by buying up the newspapers and sweetening politicians. But the idea that the richest in the land oppose the free market surprises them.

It shouldn't, and the fact the public debate doesn't associate vast wealth with hatred of competition just goes to show, perhaps, how shallow the public debate is.

Here are some more surprises for people who think competition goes hand in hand with big business, or who associate "socially aware" economic policy with concern for the poor.

This may surprise some readers, but economic analysis indicates that privatization is of marginal benefit to the economy at best, and is destructive in other cases. The contribution of "privatization," which involves transferring companies and activities from the public sector to private hands, is doubtful, unless the government makes sure to force competition into the sector in question.

The fact that telecommunications - cellular, long-distance calls and lately, wireline too - were opened to competition from the 1990s is vastly more important than the sale of Bezeq to Haim Saban and Apax.

Experience with most privatized government companies proves that private-sector owners aren't much better at dealing with belligerent unions than the government had been. In Bezeq's case, the state was forced to pay billions of shekels in cash as a "transition" payment to workers so they wouldn't foil the company's sale, rendering the net income the state actually got for its shares marginal indeed.

Privatization enables the powerful unions of the state monopolies to harness the bleeding hearts to their struggle to foil competition, based on the said hearts' failure to understand that "privatization" is an economic non-event that does not always culminate in some greater economic good. They don't see that the key to greater economic good is "competition."

The Israel Electric Corporation recruited several bleeding hearts to their fight against "privatization." But what the marketplace needs isn't a privatized IEC, it's for new entities to arise that would generate electricity in competition with the nepotistic, wasteful, rotten IEC.

But where do we find effective unions? At the government enterprises feeding off taxpayer money, directly or indirectly. Who do these unions protect? Workers already fastened to the government teat.

But protecting workers irrespective of efficiency and competitive edge carries a heavy price, paid first and foremost by the rest of the workers - mainly the weak ones with no contacts in power, then by the taxpayers and the users of the service.

Who pays the price of the unions controlling the seaports? The thousands of nonunionized workers who have the skills but not the contacts to get good jobs, and the millions of consumers in Israel. The added cost of the ports' sluggishness in transferring goods rolls onto them.

That's the sort of fodder that the business barons and their PR flacks have been feeding us for years.

How about letting Adam Smith, one of the fathers of modern free economics, speak. Well before the term "capitalism" was invented, Smith understood that the great enemies of capitalism were - the capitalists.

On landowners:

Landlords "are the only one of the three orders whose revenue costs them neither labor nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own.

"That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary in order to foresee and understand the consequences of any public regulation."

On bequeathing land to heirs:

"When great landed estates were a sort of principalities, entails might not be unreasonable .... But in the present state of Europe, when small as well as great estates derive their security from the laws of their country, nothing can be more completely absurd.

"They are founded upon the most absurd of all suppositions, the supposition that every successive generation of men have not an equal right to the earth, and to all that it possesses; but that the property of the present generation should be restrained and regulated according to the fancy of those who died perhaps five hundred years ago...

"Entails, however, are still respected through the greater part of Europe, in those countries particularly in which noble birth is a necessary qualification for the enjoyment either of civil or military honors.

"Entails are thought necessary for maintaining this exclusive privilege of the nobility to the great offices and honors of their country; and that order having usurped one unjust advantage over the rest of their fellow citizens, lest their poverty should render it ridiculous, it is thought reasonable that they should have another."

And for dessert, Adam Smith on the rich:

"The interest of this third order therefore, has not the same connection with the general interest of the society as that of the other two. Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration.

"As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candor (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter.

"Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his .... The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.

"It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."