Today’s state has turned over profit-seeking activity to the private sector. It runs its operations at a loss, and finances them by levying taxes on the private-sector surplus.
Introduction
Several institutions that had a public character for millennia are now almost fully privatized. In considering how privatization reflects societal priorities, how it affects us, and whether it is the best solution going forward, it’s worth looking back at how things were organized in earlier epochs.
The Privatization of Law
Modern criminal law has become increasingly public and formally binding on society at large. Whereas archaic societies and tribal communities down to the present century left the enforcement of laws to the injured parties, modern law makes hitherto civil offenses criminal in character, e.g. by considering them to “break the king’s peace.” Accordingly, fines are paid to the state; victims must recover through separate civil actions.
On the other hand, civil law has become more private. Nowhere is this more pronounced than in the evolution of the legal power to create corporate bodies. Individuals now can form limited liability corporations at will, whereas until the mid-19th century it took an act of Parliament to create a corporation. Such acts could be passed only after the incorporators had demonstrated that their company served the royal interest. Today this legal innovation of limited liability companies, far from serving the public interest, protects individuals from legal recourse by society at large. The effect is to shift today’s locus of social planning from public control to private companies gaining increasing immunity from public oversight.
The Privatization of Culture
Also increasingly immune from public sponsorship has been culture. One may ask whether it is entirely natural for society to let drama, myth, poetry and even sport become mere instruments for profit-making. Is culture one of those sectors whose “external economies” outweigh its direct market costs and profits, and hence cannot well be brought within the measuring rod of money? Should television be essentially a vehicle for commercial advertising, for instance, or should it become part of a process of uplifting individuals and expanding their understanding of the world’s horizons?
This question can be posed as an historical rather than philosophical one by asking what changes have occurred as a result of privatizing culture and drawing it within the market sphere. For one thing, the content of culture has shifted. A major theme of Greek drama was hubris, the unchecked arrogance of wealth becoming power-mad and insatiable, to the point of injuring others. Many Stoics and other social philosophers of imperial Rome (viz. Plutarch, Livy, Seneca, and before them Blossius and Poseidonus) described their society as being rent apart by the economic hubris that tended to accompany oligarchic privatization. Yet no one in antiquity recommended the option of productive debt and investment. This idea is as uniquely modern as is that of an equilibrating market-price process. It was left to Adam Smith to put forth the idea of an Invisible Hand of self-interest spurring progress for society at large. Subsequent economists have elevated the personality trait of self-interest to the motive force of economic progress. One might even say that the objective of modern economic education is to rationalize economic hubris, and to define alternative personal motives and social systems as unnatural. This is the ultimate cultural consequence of privatization.
How Today’s Privatizations Go Beyond Those of Antiquity
Modern economics assumes that market forces, if left alone, will produce the best of all possible equilibria. Wealthy individuals will use their wealth to build up society’s productive powers, and imbalances or inequities will be self-correcting rather than leading to further economic polarization.
These assumptions do not describe what happened in ancient society. Chieftains, headmen or traders in tribal communities were expected to maintain their position by using their resources to keep dependent families afloat. The alternative was for their communities to suffer attrition—or else simply to unseat the chiefs. It was with the emergence of oligarchic regimes that economic behavior grew more narrowly self-serving.
The Consequences of Our Roman Inheritance
One result of our modern world evolving out of Rome’s collapse rather than directly from the Mesopotamian upswing is that our legal traditions sanctify debt obligations rather than providing for their cancellation when they grow too top-heavy. Modern industry is financed with borrowed money via mortgages, bonds and bank loans. Even our governments are debtors, not creditors as in the Bronze Age. Indeed, in an attempt to service these public debts, governments throughout the world are privatizing natural resources and public utilities long considered to be part of the national patrimony.
In the early twentieth century, the Austrian free-enterprise economist Anton von Menger used the word Verfügung (“disposition”) to describe the decision-making process of modern investors. This also is the word Fritz Kraus used to describe Mesopotamia’s royal Clean Slate proclamations. The major Bronze Age policy option concerned just when rulers would relieve the destabilizing forces of debt, privatization of the land, and personal debt bondage. Today’s major economic decisions concern just the reverse: how to extract interest from economies by turning governments into agents to oversee the transfer of rentier incomes to private creditors.
Privatization in Medieval Europe
Looking over the course of medieval European development, we see a re-play of privatization. Early capitalism was, to a large extent, planned by royal advisors as a means of obtaining more taxes for the Crown. Following the Norman Conquest, for instance, England’s land was turned over to barons to enable them to supply troops for the king’s army, and also to squeeze out rent to pay the taxes needed to finance royal military campaigns. (The Domesday Book was compiled for this purpose, stating each area’s potential usufruct-yield.) Jews were brought into England and France as “royal serfs” to lend the population the money needed to meet these obligations, and Jewish usury income was then heavily taxed by the Crown, making it the ultimate usurer.
Industry—and hence, immigration of skilled craftsmen—likewise was promoted as a means of strengthening the royal fiscal position. Later, Crown Corporations such as the East India Company were chartered to pay off the national war debt by earning private corporate profits (such as the Bank of England in 1694, and the South Sea Company in 1708).
However, as the surplus controlled by individuals grew, the wealthier mercantile classes managed to break free of public control. This counter-dynamic is seen in the Magna Carta, the Revolt of the Barons, and the 1688 Glorious Revolution. Finally, in the 19th century, the limited liability joint-stock corporation emerged as a fully free mode of private-sector corporate organization.
Toward Another Crisis
The privatization of wealth and power has produced a drive for dismantling the public regulatory state. The ultimate objective of the privatizers, today as in antiquity, is to gain control of the public sector to serve their own economic interests.
So far, this has been achieved mainly by the debt lever rather than by equity investment. The most fertile field for rentier income—and also the most risk-free field—is public debt, followed by real-estate debt. Today, it is international creditors that use governments (most conspicuously in third-world countries) to extract money from the private sector. A growing proportion of this money is channeled through offshore banking centers which serve as tax-free zones, contributing to the chronic fiscal crisis of recent decades. In this fiscal crisis our epoch is being brought into line with the major privatizations that ended up engulfing past societies from Babylonia through Rome and Byzantium.
Bibliography
Kraus, Fritz. KöNigliche VerfüGungen in Altbabylonischer Zeit (Studia Et Documenta Ad Iura Orientis Antiqui Pertinentia). 1st ed., Brill, 1984.
“The Privatization of Law, Religion and Culture” by Michael Hudson is licensed by the Observatory under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License (CC BY-NC-SA 4.0). For permissions requests beyond the scope of this license, please see Observatory.wiki’s Reuse and Reprint Rights guidance. Last edited: September 19, 2024
