Bringing Leviathan under Control

Privatizing Federal Spending: A Strategy to Eliminate the Deficit, by Stuart M. Butler, New York: Universe Books, 186 pp., $14.95

Ronald Reagan's election in 1980 raised the hopes and expectations of those who seek a limited government, lower taxation, and a less-intrusive public sector. Unfortunately, in the four years that followed, the Reagan record in bringing Leviathan under control left much to be desired.

Contrary to predictions and election promises, federal spending has soared, as has the deficit: Reagan is likely to achieve the highly dubious distinction of being the biggest spender and borrower in the history of the American presidency. The growth in spending under Reagan has exceeded even the projections developed by the Carter administration. Moreover, despite the hysterical reports of the media and political activists that the safety net has been shredded, the level of spending for social programs has actually risen after inflation.

Conservatives should be questioning long-standing notions that they have widely accepted as articles of faith (for instance, that a "conservative" administration would change the direction of government, or that ideology matters, in that having the "right person" appointed to office will produce the needed policy changes). The Reagan administration is now the Washington Establishment, and unless effective and dramatic changes are made in policy initiatives, the second term is likely to end as disappointingly as the first.

Stuart Butler's Privatizing Federal Spending attempts to answer two basic questions: What went wrong? and, What should be done to correct the mistakes of the past? He makes a convincing case that the administration failed to cut federal spending and reduce the size and scope of the public sector because it failed to "get a grip on the basic political dynamics of budget growth." Those dynamics, Butler explains, involve "a systematic political imbalance between those who desire more spending (politicians, bureaucrats, and beneficiaries) and those who desire less (taxpayers)—an imbalance consistently favoring the pro-spending lobby."

Every governmental program is backed by a coalition of supporters who have much to lose if spending is cut; these individuals fiercely oppose any efforts to reduce spending on their behalf. On the other hand, the average taxpayer will gain little if spending is reduced on a particular program, because the costs of the program are widely dispersed among all taxpayers. Cutting a billion from the budget would save the individual taxpayer only a few dollars. So Joe Taxpayer has little incentive to mount a counter-offensive to offset the determined lobbying efforts of spending advocates. Faced with withering opposition to budgetary reductions, the administration has again and again retreated.

Practitioners of the "public choice school" of economics have long recognized the problems for public policy that stem from this "rational ignorance" on the part of the voter-taxpayer in a democracy. A "supply-side" approach was taken as an alternative offensive by the administration: starve the federal government of revenue, and spending would have to be reduced. Rather than bite the bullet on the budget, however, Congress, joined by the administration, simply continued to increase outlays. The deficit soared. Only under a "conservative" administration could deficits of $200 billion per year be tolerated.

What, then, is to be done? Butler persuasively argues that privatization is the proper approach to shrinking the federal government. This conclusion is not based solely on the notion that the private sector is a much lower-cost provider than the public sector—a fact that academics and others have been demonstrating for at least two decades. Little has been achieved in the past by attacking the waste, fraud, and abuse that seem to permeate every governmental program or by the perennial (and unproductive) exercise of "reforming the bureaucracy" to make it more efficient. Instead, privatization is especially desirable because it provides an incentive for citizens to join in political coalitions to oppose the pro-spending lobbies. The proper political strategy for privatization initiatives can spark coalitions with a vested interest in turning governmental programs over to the private sector.

As evidence of the success of this strategy, the author cites examples in Britain where, according to Madsen Pirie in Dismantling the State: The Theory and Practice of Privatization (Dallas: National Center for Policy Analysis, 1985), privatization has been widely adopted and excellent results have been achieved. The Thatcher government, for example, has managed to sell nationalized industries, thereby ridding the taxpayer of grossly mismanaged state "assets." Under Thatcher's administration, Britain has privatized many public housing units by permitting tenants to purchase their homes, contracted out many services provided by public employees, and provided a private-sector alternative that, over time, will greatly reduce dependence on, if not replace, the enormously costly and wasteful national health scheme.

As examples of how coalitions might be developed for privatization in the United States, Butler discusses public housing, Amtrak, human services, the post office, space transportation, the air traffic control system, defense spending, and Social Security. In each case, he identifies the constituents who would benefit from, and thus would be willing to lobby and proselytize for, privatization, and he proposes a strategy for overcoming the political resistance of the pro-spending lobby. Although the general approach is the same in every case, the author adjusts the tactics to fit the unique characteristics of each program to devise the most workable approach to defusing opposition to privatization.

This is an excellent book, for it covers every aspect of the privatization issue—perverse bureaucratic incentives, the superiority of competition and private provision, the persistence of government programs and their growth despite their inefficiency. It also goes beyond the typical treatment of the subject, in that most of the analysis is concerned with the political problem of implementation, an issue that has not heretofore been given the consideration that is surely required.

My one reservation is over Butler's recommendation that privatization be institutionalized through the establishment of yet another presidential commission. Unfortunately, the record of these commissions in accomplishing substantive changes in policies and programs can only be described as dismal. One hopes that the Grace Commission on controlling government costs will have a substantial and lasting impact, but only an inveterate optimist (or a fool) would bet money on this outcome.

The Reagan administration itself should undertake a major initiative on privatization as the best means for bringing government spending under control. At this point, everything else seems to have produced few substantive results.

James T. Bennett, a professor of economics at George Mason University, is the coauthor with Manuel Johnson of Better Government at Half the Price.