Freedom and the Contract State; D. Warmbeir

OVER 100 years ago, John Stuart Mill summed up the difficulty of preserving freedom under social ism with these words: If the roads, the railways, the banks, the insurance offices, the great joint-stock companies, the univer sities, and the public charities, were all of them branches of the govern ment; if, in addition, the municipal corporations and local boards, with all that now devolves on them, be came departments of the central ad ministration; if the employees of all these different enterprises were ap pointed and paid by the government, and looked to the government for every rise in life; not all the freedom of the press and popular constitu tion of the legislature would make this or any other country free other wise than in name. 1 1 John Stuart Mill, The Essential Works of John Stuart Mill (New York: Grosset & Dunlap, 1965), p. 356. Mr. Warmbier is a student at Michigan State University.

Today, in the United States at least, the. kind of formal socialism described by Mill is no longer a maj or threat. We now face not so much increasing state ownership of our enterprises as increasing state purchase of their products. As one writer puts it: The old demands that government nationalize railroads, coal mines, shipping,shipbuilding, arms-making have in the last thirty years sub sided from a roar to a whisper. In stead, governments as mass pur chasing agents have operated in creasingly .... It is this trend ... that can be expected to increase for some years. 2 Expanding use of government as .a purchasing agent, funneling through it ever-larger percent ages of the national income, has been called the movement toward a contract state, in reference to 2 Max Ways, "The Road to 1977," Fortune, January, 1967, p. 196. 591 592 THE FREEMAN October the ever-greater role contracts with the government play in the economy. This contract state dif fers in form from the socialism envisioned by Mill, but does it differ in substance? There are those who say that it does: If the government were to take 30 cents or even 40 cents or 50 cents out of every dollar's worth of our production, in contrast to its present share of about 20 cents, the govern ment would then become a larger customer of American business. It would not be a larger producer. This is a most significant difference: a government that buys a larger pro portion of our output creates neither a planned economy nor a socialist one.3 Millions of Potential Employers - Or Just One?

Yet there are reasons for doubt ing the significance of the above· difference. Mill saw socialism as a danger to freedom because it replaces the millions of potential employers of a free economy with a single employer, the state, to which everyone must look "for every rise in life." Those who would criticize the actions of a socialist state might well be in hibited by the knowledge that they risk antagonizing their only source 3 Peter L. Bernstein, The Price of Prosperity (New York: Random House, 1966), pp. 107-108. of advancement in their chosen line of work. Rather than the nation's pre dominant employer, expansion of the contract state turns govern ment instead into its predominant customer. Businessmen must de pend on the state for more and more of their sales. Relying in creasingly on a single customer, such businessmen find their free dom to criticize that customer diminished in a manner closely resembling what Mill feared would take place under formal socialism.

One advocate of increased pur chases by the state says of such businessmen that they have been . . . losing freedom in the precise pattern of classical expectation. The officers of Republic Aviation, which does all of its business with the United States government, are no more likely in pub]ic to speak crit ically of some nonsense perpetrated by the Air Force than is the head of a Soviet combinat of the ministry to which he reports. No Ford exec utive will ever fight Washington as did Henry 1. No head of Montgomery Ward will ever again brea the de fiance of a President as did Sewell Avery in the age of Roosevelt. Man ners may be involved here. But most would state the truth: "Too much is now at stake !"4 4 John Kenneth Galbraith, "Capital ism, Socialism, and the Future of the Industrial State," The Atlantic Monthly, June, 1967.

1967 FREEDOM AND THE CONTRACT STATE 593 But growth of the contract state affects not only businesses and businessmen. It also forces uni versiti.es, hospitals, research .. and cultural organizations to look· in creasingly.to the government for the sale of their services. Asgov ernment takes 30 cents or 40 cents or 50 cents or more out of every dollar of production, scholars,· doctors, scientists, even artists come to view the state as their mOst important patron and benefactQr. Under the· con~ract state, no ,less than under formal socialism, Sl point is reached· when "not all the ,.,freedom of press. or popular con stitution of the legislature would make this or any other country free otherwise than in name." • A Tale of Two Message Carriers Editorial, ChiesA!' Tribune, August 9, 1967. First class mail Letter Postcard 2c Ic 3c lc 3c "2c 4c 3c 5c 4c *6c *6c A STRANGE CONTRAST exists in recent moves of two Federal organizations, both ostensibly acting "in the public interest."

One Federal agency, the Federal Com munications Commission, has ordered the American Telephone and Telegraph Com pa~y to reduce its long distance rates. To the dismay of the more than 3 million A. T. & T. stockholders, the market value of their investment dropped several bil lion dollars as a result of the FCC action. At the·' same time another agency, the Post Office Department, is asking for a 20 per cent boost in its first class rate on letters. In less than 35 years the government operated postal service has increased by 150 per cent the· rate· on letters-from'2 cents to the present 5 cents-and another increase from 5 cents t06 cents is in the works. The rate on, the old "penny" post card, which was held at 1 cent for 80 years until 1952, would also be boosted to 6 cents~ In the same 35-year period long dis tance rates of the privately operated tele phone company have been reduced by as much as 70 per cent.

For example, a three-minute daytime station-to-station call from Chicago to Los Angeles in 1932 cost $6.25, with an overtime charge of $2a ,minute after the first three min utes. Today the same call can, be made for, $1.80, with an overtime ~harge of 45 cents aminute., > A comparison of' first· class mail ;rates for years when significant 'changes 'were made since 1932.and the cost of atypical long distance telephone call [day rate, Chicago to Los Angeles] follows: Three minute phone call 1932 $6.25 1933 6.25 1952 2.25 1958 2.20 1963 1.95 1967 1.80 *Proposed. The cost of mailing a letter is the same day or night; but not for making ~ long distance call. The night rate for a Chi cago .to Los Angeles call is 90 cents· for the first three minutes and 25 cents for each additional minute. In the light of· this, record, it hardly seems appropriate for the government to be lecturing a private, communications system on the advisability of holding down rates.