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Volume 24, Number 2
February 2004

Why the State Keeps Failing
Llewellyn H. Rockwell, Jr.

Critics accuse libertarians of reveling in government failures. Yes and No. No one is pleased to see the destruction caused by government policies, whether small scale, as when a tighter regulation causes business failures, or large scale, as when wars destroy life for millions.

The kernel of truth to the claim is this: the failure of government illustrates something extremely important about the structure of reality that most people are likely to forget. It comes down to this: statesmen and public officials, no matter how powerful they may be, cannot finally control social outcomes.

If I might offer a summary of a point emphasized in all of Mises’s works: the structure of society and world affairs generally is shaped by human actions, stemming from imaginative human minds working out individual subjective valuations, and their interactions with the material world, which is governed by laws that are beyond human control.

What this means is that governments are not omnipotent. Many try to be, and no government is liberal by nature. But there are limits. Governments bump up against human valuations time and again. Even in the highly rarified event of a despotic government that rules a population unanimously in support of despotism, government still bumps up against the structure of the world, which resists control.

For example, let us say that government desires a strong dollar. But it still wants to print dollars and ship them around the world. In this case, there is nothing that government can do to insure the dollar’s strength against depreciation. Nothing. This is due to the laws of economics. All else equal, the value of a currency in terms of goods falls as its quantity increases. Governments that desire otherwise can only shake their fist in anger.

The experience of Iraq has provided myriad examples. The US wants to pump oil. It wants to start factories, stores, and commerce generally. But it refuses to put private owners in charge. As a result, all its military muscle has amounted to very little at great expense. It is a classic example of how governments fail when they try to fight against forces they cannot control. Factories in Iraq that have gone into operation have done so without support of the occupying government.

Here at home we are given constant examples. The Bush administration wanted to give the steel industry a boost in the name of helping the industrial base survive and thrive. The administration established tariffs, which amounted to a tax on all consumers of steel. American manufacturers faced a choice of paying the tax to buy imported steel or paying the higher prices for domestic steel. Those who could do neither had to cut back production and hiring in other areas. Other consumers had to pay higher prices, which diverted income from other pursuits.

As for the steel industry itself, the tariffs did nothing to help it achieve greater efficiency, which is the only way to deal with more efficient competitors. They only ended up subsidizing inefficiency. Even then, it wasn’t enough. During the period of tariffs, the industry dramatically consolidated in order to become more efficient in other ways.

Once faced with the prospect of trade wars, the ultimate cost of protectionism, the Bush administration pulled back and repealed the new tariffs, thereby landing the industry in exactly the same predicament it was in before the tariffs were passed. As for commercial society as a whole, it paid dramatically higher steel costs, and faced sporadic shortages, for absolutely no reason.

Faced with failure on every front, the Bush administration did the right thing. Not that it was honest about the failure. Instead it claimed its policy worked so well that it could now repeal it. This is like a physician prescribing poison and then changing his mind. He can’t but try to put the best spin on it, I suppose.

But what a beautiful example of the powerlessness of government this is! The Bush administration wanted to save American industry and only ended up vastly raising the costs of doing all forms of business. More cutbacks are inevitable as steel production shifts to other countries and the US finds comparative advantages elsewhere.

Because libertarians know in advance that government policies are destructive, we tend to focus our editorial energy on pointing to their destructive effects. But in our zeal to draw attention to issues others ignore, let us not forget the bigger picture. There are always limits to what the government can do, and the government’s destruction is always accompanied by examples of great creativity on the part of the market.

Even as government dominates the headlines, private entrepreneurs are busy every day working to improve products and services that improve our lives. They do it without taxing us or regulating us, or making us suffer through tedious elections or political debates. They make their products and offer them to us in a way that pleases the consuming public the most. We can choose whether we want them or not.

Consider the success of Wal-Mart. If government had set out to create a volume discounter that made a world of material goods and groceries available to the multitude in all countries, it might have tried for a thousand years and not created anything resembling this company. Even the military has relented and now routinely points its employees not to its on-base stores but to Wal-Mart, Office Depot, and others for the best prices.

Foreign development aid is another example. It took decades to get the message across, but today finance ministers in the developing world understand that they have far more to gain through integration into the world economy than from development aid and all the restrictive policies that come with it. Today, as Sudha Shenoy points out, the largest resistance to new trade deals comes from the developing world, not because they don’t want trade but because they desire trade without the labor and environmental controls the US demands.

Consider the area of communications. In the last century, governments aspired to control them all: the phones, the mails, the media. Today, we see that government, in practice, controls very little of the communications industry, despite every attempt to hobble private enterprise.

In that same vein, major issues for everyone these days are computer viruses and spam, which threaten to make our chief mode of communication less reliable. Congress passes ineffectual legislation against spam and viruses, while private enterprise has given us dozens of means of winning the battle.

Of course there is one way in which government never fails. It can loot. It can gain footholds into society’s command centers. It can punish enemies. It can even indoctrinate people in its preferred vision of the world through propaganda.

This is the best way to understand the public school system. It doesn’t work to educate but it does work to transfer vast sums from the private to public sector. And here too, we see the power of private enterprise: booster clubs in public schools represent a de facto source of privatization, and the clubs and groups connected to them are the only really successful things going on in public school.

One hundred years from now, the great story of the latter part of the 20th century and the first part of the 21st century will be the vast improvements in life wrought by technology. Consider the web, the cell phone, the PDA, the affordable laptop computer, advances in medicine, and the spread of prosperity to all corners of the globe. What has government had to do with this? The answer is: nothing contributory. It has worked only to impede progress, and we can only be thankful that it hasn’t succeeded.

Throughout human history, governments have caused frightening levels of bloodshed and horror, but in the end, what has prevailed is not power but the market economy. Even today governments can only play catch-up. This is because of the reasons that Mises outlined. Government cannot control the human mind so it cannot, in the long run, control the choices people make. It cannot control economic forces, which are a far more powerful and permanent feature of the world than any government anyway.

So let us fear government but not exaggerate its powers. It can cause enormous damage and it must always be fought. But in this struggle, we are on the right side of history. The power of human choice, aided by the logic of economics and the laws that operate without any bureaucrat’s permission, are our source of hope for the future.

Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute (rockwell@mises.org).

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