Front Page Titles (by Subject) CHAPTER V: CORRUPTION - Where and Why Public Ownership has Failed
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
Also in the Library:
CHAPTER V: CORRUPTION - Yves Guyot, Where and Why Public Ownership has Failed 
Where and Why Public Ownership has Failed, trans. H.F. Baker (London: Macmillan, 1914).
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
The text is in the public domain.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
Multiplication of Opportunities for Corruption.—The German Railways.—Mr. Seddon on New Zealand.—Taussig.—Dangers of Public Enterprises in a Democracy.—Ring Leaders.—Importance of Their Rôle.—The Way to Succeed.
The more governments and municipalities increase their functions and interfere with the economic life of the group the more the opportunities for corruption will multiply.
M. de Miquel, Prussian minister of Finance, who was compelled to hand in his resignation after the failure of the Imperial Canal projects, declared some time afterward:
“If the separate government railways become the property of the Empire, the Reichstag will claim the right of establishing and revising railway rates. The day on which it obtains this right will see the beginning of corruption on a grand scale in the German elections. Already the temper of a large number of the electors is such that they are sending to the Reichstag many representatives who never ask how any given measure will serve the interest of the nation at large, but simply how it is going to be regarded by their local constituents. The concession to the Reichstag of the right to fix the railway rates would be as disastrous for our whole political life as for the economic development of Germany.” 1
In their book on New Zealand Le Rossignol and Stewart say:
“He (the Right Hon. R. J. Seddon) taught the people in every part of the colony to 'stand in'with the government if they wished to be remembered in the distribution of the loaves and fishes.”
Thanks to this practice, Mr. Seddon himself managed to remain at the head of affairs for a very long time.
Concerning the administration by the state or municipalities of “public service industries,” F. W. Taussig 2 observes that the title is applied to certain enterprises only, as railways, telephones and telegraph, water, gas and electricity. In the very beginning, in the United States, competing private enterprises had invariably provided these services. Little by little, by virtue of the law of increase of returns, these enterprises united.
Here we meet again the third incentive of all human action. “For all except the very few of extraordinary gifts, the spur of gain is not only powerful, it is indispensable.” Progress in industry is largely due to inventors and administrators, but the venturesome capitalist, ready and eager to risk his wealth in new ways, is equally necessary. We owe little thanks to any state that the world has been transformed through the railways, steam navigation, the industrial use of steam, etc. This transformation has been brought about by individuals. “Electric traction was easily started in England as a public business, after private enterprise in the United States had shown how the thing could be done.”
The transmission and distribution of hydraulic and electric power call for an amount of enterprise and vigor which public officials are not at all likely to supply. However, Mr. Taussig would suggest that such resources should never be given in perpetuity by the public. There should be no unlimited franchises.
Mr. Taussig speaks as follows of the qualities demanded of administrators of undertakings in a democracy, and he is full of misgivings as to the corrupting power of such undertakings:
“It is often said that corruption in our municipal and state affairs is caused by private ownership of the great monopoly enterprises, and that public ownership is the cure. To reason so is to mistake the occasion for the cause. The occasion is the great fund of gain which the monopoly enterprises can yield; the cause is political demoralization. It matters little whether the initiative in corrupt ways is taken by the heads of the monopoly corporations or by the public officials—whether the first step be bribery or blackmail. In either case it is the existence of venal legislators and administrators that brings coarse and characterless persons into the management of the ‘public service’industries. Honorable men withdraw from the unsavory affairs and are replaced by those less squeamish. The root of the difficulty is that a bad political situation invites corruption, not that corruption makes the political situation bad.”
The true way to abolish corruption is to suppress the opportunity for corruption. But the more government and municipal undertakings increase in number and in importance, the more these opportunities will multiply.
Government undertakings are a terrible source of temptation to the ring-leaders among their employees. They know that fear has a value, and they become exploiters of the fears of their superiors, the deputies and the ministers. And, although all their plans may not succeed, it is more than enough that any of these demagogues have obtained avowed advantages. Others have obtained secret advantages.
The employees of the navy yards and of the city halls gaze with admiration at a man like M. Goude, and more than one young clerk of the navy department is saying to himself:
“That is the way to succeed. Let us imitate him.”
See the discussion relating to the Prussian railways in the series of volumes, Le Marche Financier, by Arthur Raffalovich.
Principles of Economics.