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.Almost always this means raising the price.Is this a solution, however? It is often stated that a single government enterprise, operating within the sphere of a private market, buying from it, etc., can price its services and allocate its resources efficiently.This, however, is incorrect.There is a fatal flaw that permeates every conceivable scheme of government enterprise and ineluctably prevents it from rational pricing and efficient allocation of resources.Because of this flaw, government enterprise can never be operated on a “business” basis, no matter what the government’s intentions.What is this fatal flaw? It is the fact that government can obtain virtually unlimited resources by means of its coercive tax power.Private businesses must obtain their funds from investors.It is this allocation of funds by investors on the basis of time preference and foresight that rations funds and resources to the most profitable and therefore the most serviceable uses.Private firms can get funds only from consumers and investors; they can get funds, in other words, only from people who value and buy their services and from investors who are willing to risk investment of their saved funds in anticipation of profit.In short, payment and service are, once again, indissolubly linked on the market.Government, on the other hand, can get as much money as it likes.The free market provides a “mechanism” for allocating funds for future and present consumption, for directing resources to their most value-productive uses for all the people.It thereby provides a means for businessmen to allocate resources and to price services to insure such optimum use.Government, however, has no checkrein on itself, i.e., no requirement for meeting a profit-and-loss test of valued service to consumers, to enable it to obtain funds.Private enterprise can get funds only from satisfied, valuing customers and from investors guided by profits and losses.Government can get funds literally at its own whim.With the checkrein gone, gone also is any opportunity for government to allocate resources rationally.How can it know whether to build road A or road B, whether to “invest” in a road or a school—in fact, how much to spend for all its activities? There is no rational way that it can allocate funds or even decide how much to have.When there is a shortage of teachers or schoolrooms or police or streets, the government and its supporters have only one answer: more money.The people must relinquish more of their money to the government.Why is this answer never offered on the free market? The reason is that money must be withdrawn from some other use in consumption or investment—and this withdrawal must be justified.This justification is provided by the test of profit and loss: the indication that the most urgent wants of the consumers are being satisfied.If an enterprise or product is earning high profits for its owners, and these profits are expected to continue, more money will be forthcoming; if not, and losses are being incurred, money will flow out of the industry.The profit-and-loss test serves as the critical guide for directing the flow of productive resources.No such guide exists for the government, which has no rational way to decide how much money to spend, either in total, or in each specific line.The more money it spends, the more service it can supply—but where to stop?6Proponents of government enterprise may retort that the government could simply tell its bureau to act as if it were a profit-making enterprise and to establish itself in the same way as a private business.There are two flaws in this theory.First, it is impossible to play enterprise.Enterprise means risking one’s own money in investment.Bureaucratic managers and politicians have no real incentive to develop entrepreneurial skill, to really adjust to consumer demands.They do not risk loss of their money in the enterprise.Secondly, aside from the question of incentives, even the most eager managers could not function as a business.Regardless of the treatment accorded the operation after it is established, the initial launching of the firm is made with government money, and therefore by coercive levy.An arbitrary element has been “built into” the very vitals of the enterprise.Further, any future expenditures may be made out of tax funds, and therefore the decisions of the managers will be subject to the same flaw.The ease of obtaining money will inherently distort the operations of the government enterprise.Moreover, suppose the government “invests” in an enterprise, E.Either the free market, left alone, would also have invested the same amount in the selfsame enterprise, or it would not.If it would have, then the economy suffers at least from the “take” going to the intermediary bureaucracy.If not, and this is almost certain, then it follows immediately that the expenditure on E is a distortion of private utility on the market—that some other expenditure would have greater monetary returns.It follows once again that a government enterprise cannot duplicate the conditions of private business.In addition, the establishment of government enterprise creates an inherent competitive advantage over private firms, for at least part of its capital was gained by coercion rather than service.It is clear that government, with its subsidization, if it wishes can drive private business out of the field.Private investment in the same industry will be greatly restricted, since future investors will anticipate losses at the hands of the privileged governmental competitors.Moreover, since all services compete for the consumer’s dollar, all private firms and all private investment will to some degree be affected and hampered
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