Private Property from Soweto to Shanghai; D. Boaz

446 Private Property from Soweto to Shanghai by David Boaz A trip around the world provides evidence of just how wrong Harvard economist John Kenneth Galbraith was in his influ ential book The Affluent Society. (Granted, one need not go nearly so far to find such evidence.) Galbraith observed that everywhere one looked, privately provided goods and services-homes, automobiles, factories, "hand somely packaged products"-were clean, shiny, and of high quality. Yet publicly provided ser vices-schools, parks, streets-were old, over crowded, and poorly maintained. Galbraith called it "an atmosphere of private opulence and public squalor." From those accurate if unremarkable observa tions, Galbraith drew the remarkably misguided conclusion that the problem was too little spend ing on the public sector. It seems astonishing to day that a brilliant man could have gone so far astray; after all, the economic theory of private property was well known 30 years ago-but maybe not at Harvard. His book, published in 1958, had a great deal of influence on the explo sion in government spending over the next decade. We are still paying a heavy price-in high taxes and poor public services-for Galbraith's error.

We are now spending much more on the public sector than we were 30 years ago-real govern ment spending has increased from $528 billion in 1958 to $1,64Q billion in 198B-yet government services are still shoddy, overcrowded, and poorly maintained. David Boaz is executive vice president of the Cato Insti tute in Washington, D. C. The reason-which Galbraith missed com pletely-is that shoddiness is inherent in govern ment ownership because of a lack of incentives. Homeowners generally take good care of their property-they paint the house regularly, fix the roof, plant grass and trees, and call a plumber promptly when they discover a leak. Why? Be cause they are the sole claimants to the property's value. If they try to sell their property, they will reap the benefits of the house's good condition or pay a price for its disrepair. Tenants tend to take less care of their homes, though landlords gener ally check on the condition of the property regu larly. Tenants in government housing show the least concern for the condition of their homes-and because there's no owner who would pay a price for the declining value of the property, no one else has much incentive to im prove it. And public housing is always in disre pair, to say the least.

Most privately owned stores are clean and well lit with friendly, helpful clerks-at least com pared with, say, the post office. The Postal Ser vice doesn't seek out rude and indifferent em ployees; it's just that neither its clerks nor their supervisors have anything to gain by treating cus tomers well. On a recent trip around the world, I found shop clerks in Shanghai just as indifferent to customers as U.S. postal workers. It is economic analysis and, more important, such observations that have created a worldwide trend toward privatization. The Thatcher govern ment has sold public housing units to their ten ants, sold Great Britain's largest trucking compa ny to its employees, and sold the telephone company to private shareholders. Japan recently sold off its telephone company.New Zealand pri vatized its national oil company. Nigeria plans to privatize 160 state-owned companies, and Togo intends to sell all of its public-sector enterprises.

Even behind the Iron Curtain, privatization is making inroads. China has in effect privatized agricultural land, and Mikhail Gorbachev has proposed to do the same in the Soviet Union. Cuba has begun allowing tenants to purchase government housing. Privatevs. PublicOwnership On my trip, which took me from South Africa to China (with a few stops in between), I saw some dramatic examples of the differences be tween private and public ownership, between pri vate opulence and public squalor. In many ways, apartheid (particularly in South Africa's black townships) was the purest form of communism the world had ever seen. The gov ernment built the townships, where urban blacks are forced to live. It built thousands of small, identical brick houses and assigned people to them with no regard to tribal origin, family rela tionships, income, or personal preferences. Un like the residents of a normal town, they could not choose to live near their friends or relatives or people of similar educational or occupational background, nor, of course, did they have proper ty rights. Not only could a tenant not sell his house, the government could and did take it away from him at will. Naturally, the unfortunate residents of Soweto did not see much point in taking good care of the houses.

Recently, however, the government quietly be gan to allow Sowetans to purchase their homes. The results have been just what one should ex pect: people are cleaning, painting, and fixing up their houses. The first thing they do is make the house look different from the government issue. They buy a wooden door to replace the standard metal one. They cover the brick with stucco--a design choice that I found strange until I was told that the brick symbolizes government housing. They buy decorative windows, put a fence around the yard, and even add a room or an up per floor. Buyers must generally continue living in the houses they already occupy, which leads to the strange phenomenon of a well-kept, newly en447 larged house sitting between two ill-kept govern ment hovels. In a freer market, an affluent home owner would probably move to a better neigh borhood-or someone would buy the houses next door and fix them up-but in Soweto he takes advantage of the few options he has and improves his own lot.

There is a section of expensive new homes in Soweto. (Yes, there are rich people in Soweto; South African blacks have at least some opportu nity to become rich, but their money won't free them from the requirement to live in the town ships.) A visitor can stand in the middle of this impressive new development and look across the road at the government-provided barracks where single men live under truly appalling conditions. It's a striking example of private versus public property. At the other end of the scale from the impres sive new houses are the shanties, built by blacks who migrated to the Johannesburg area because there was work there and who were denied ac cess to government housing. At first the govern ment bulldozed the shanties, saying that the oc cupants were illegal squatters. More moderate voices finally persuaded the government that be cause it was not providing those blacks with housing (or allowing them to live outside the townships), it should at least leave the shanties alone. So now the shanties are tolerated, but they have no legal right to exist. The residents of the shanties don't bother to improve them-the gov ernment retains the right to expel the occupants or bulldoze the buildings at any time-but inside are appliances and televisions for which electrici ty is supplied by enterprising neighbors. In other words, Galbraith could find private opulence and public squalor within one small shack; people spend their money on the things they can own.

Obviously, a civilized South African govern ment would repeal the Group Areas Act and let people live wherever they want to live. But the incentives of privatization and property rights can work even in the interstices of freedom over looked by a repressive government. China:"OneBigSoweto" In many ways, China is one big Soweto. Hous ing is owned and allocated by the government. Not surprisingly, the housing stock is old, over448 THE FREEMAN • NOVEMBER 1989 crowded, dirty, and in disrepair. One gets the im pression that little has been built and nothing has been washed since the Communist takeover in 1949. Once again, the market works at the edges. Because of the de facto privatization of agricul tural land, rural Chinese are more prosperous than city dwellers. I was told that two million people come into Shanghai every day to shop, and the tourist on Nanjing Road or in No.1 De partment Store wouldn't doubt it. For obvious reasons, people spend little money on the upkeep of their homes, but many are well dressed, and a Shanghai college student spoke disparagingly of the unfashionable clothes that "we won't buy" in a state department store. Old habits die hard, though; he explained to me that privately run stores are not permitted on Nanjing Road "be cause this is the main shopping center."

Appropriately enough, while I was in China for a conference on economic reform, the gov ernment announced plans to begin selling houses to the tenants. The professed reason was to dampen demand for appliances, which con sumers were spending too much on; I hope that was just a cover story to obscure the fact that the largest Communist government in the world was legalizing private property. Presumably the Chi nese government has noticed the successof priva tization and property rights in the West; on its doorstep in Hong Kong, Taiwan, and South Ko rea; and finally inits own rural areas. If China does in fact privatize a significant amount of its housing, I fully expect that when I return I will see not only housing that has been built since 1949, but older housing that has been repaired and even washed. From the United States to Soweto to Shang hai, economic forces are the same. Owners have an incentive to take care of their property, but government property is owned by everyone and therefore by no one. It is no mystery that China's housing is run-down or that America's infrastruc ture is falling apart while shiny new office build ings are going up in every U.S. city.

Experience shows that the relationship be tween private opulence and public squalor is the reverse of what John Kenneth Galbraith conclud ed. The public sector will always tend to be squalid, which is why leaders around the world-from Margaret Thatcher to Deng Xiao ping-are moving essential services into the pri vate sector. With a little more of this, the whole world could become the affluent society. D *1989-1990* ESSAYCONTEST "Education for a Free Society" HIGH SCHOOLDIVISION First Prize, $1,500 Second Prize, $1,000 Third Prize, $500 COLLEGE DIVISION First Prize, $1,500 Second Prize, $1,000 Third Prize, $500 For complete contest information call or write: FREEDOM ESSAY CONTEST Foundation for Economic Education 30 South Broadway Irvington-on-Hudson, NY 10533 (914) 591·7230 449 The Market for Low Cholesterol by MichaelWalker J ust about every time conversation turns to food these days, the subject of cholesterol isn't far behind. Saturated fats, so it is said, are the source of fatty build-up in our veins and arteries, causing restricted blood flow and in many cases premature death from heart attack or other afflictions. During such discussions, even my most laissez-fairefriends often intone that the government should do something about this problem. According to these well-intentioned folks, producers of prepared or manufactured foods, which often use large amounts of shorten ing or oil containing saturated fats, ought to face regulation of what and how much they can use.