 We use the word ownership, in other words, in a fairly imprecise way sometimes, but when I talk about property rights and about ownership, I'm talking about, at least in theory, a fully defined, fully owned set of rights, which includes then all the rights that go along with exclusivity. The central thesis of the whole property rights theory or property rights paradigm is rather simple. I think sometimes it's deceptively simple or even too simple. It seems too easy to be true and yet, as I'm going to get into in just a minute, the evidence is all there to suggest that, in fact, it does work the way the theory would indicate that it's supposed to work. The principal point is simply that, to the extent that rights are not fully and privately defined, economic performance suffers. I'm going to talk only about the economic performance part of this. Obviously there's an entire portion of the debate that concerns individual freedom, individual liberty and what have you, and I don't mean to ignore that, obviously it's part of the entire debate, but it's not the part that I'm going to touch on here. To the extent that rights are not fully and privately defined, economic performance suffers, and by suffers I simply mean that if rights were rearranged to provide for full, private definition of ownership, we could get more output, we could produce more from any given level of inputs, from any given level of resources. And that's then what I'm going to look at when I come around to talk about the empirical evidence. To what extent is that really true? Now one might ask at the start, what's so special about private rights? Why couldn't we have equivalent or even better results from government ownership of resources? Why couldn't or why wouldn't governmental ownership produce exactly the same levels of output, same quality, same performance from any given level of resources or of inputs? And the answer, as I didn't explain in any detail here, not to this group anyway, is that unless one has full ownership of one's property, one doesn't have the incentive to make the most productive use of the property. And by incentive, I very definitely mean to include the incentive to gather information, which is a costly process, the gathering of information, unless one has full ownership, one does not have the incentive to gather information about the best use of one's property in the first place. So there are two sorts of incentives at work, first the incentive to gather information to determine what the best use of the property is, and secondly then the incentive to put the property to that use. To the extent that rights are fully owned, the profits, the gains, from seeking out information and from putting property to the best use are realized by the owner of the property. It is frequently contended that incentives of the sort provided by private property are not necessary as long as we can under a governmental system force workers to do the right thing, in quotes, whatever the right things might be. There are several problems with that scheme. In particular, the monitoring of workers is costly. And since it's costly, monitoring will not achieve the same results that self-direction auto gestion, I guess, would be the word, would achieve in a system where full ownership of property, including in this case ownership by labor of the rights of work, is in private hands. But even more important, I think, and here we go right back to the central point of the whole property rights paradigm, someone has to, if we're talking about a governmental system, someone has to monitor and force productive inputs, productive resources to do the right things, whatever those right things may be. As the incentive, who has the information to do the monitoring to enforce the rules and regulations? Right thesis, the only person who has the full incentive to do that is someone who owns the rights to the gains from the gathering of the information and from the monitoring of the workers. And yet, by definition in public enterprise, the gains from doing that. So to talk about governmental ownership is merely to move back one stage in the inquiry, but to then have to pose the same question all over again. If the resources, if the rights of the profits are not fully owned, who is going to assume the responsibility? Why should we expect the sorts of outcomes that we want then to occur? It's exactly on this point then that the theory of property rights has developed into a more narrowly focused economic theory of the firm. Here I would refer you for those who are interested in a broader exposition of the theory behind this to chapter five in Henri LaPage's Viva Proprieté. There you'll see spelled out much more carefully than I am going to do in just 20 seconds here of the whole theory of the firm property rights notion. In essence, the point that I want to make here is that the agents or managers of the owners have an incentive to make the most productive use of inputs, labor inputs, capital inputs. And again, incentives include the incentive to gather information about what uses are the most productive, are the most profitable. Information is just an input like any other input. In the governmentally owned, if we want to use that term, I'll use them interchangeably, those incentives are lacking. Instead, political incentives replace market incentives. As an example to move us into the empirical questions that I now want to address, there was an interesting study done in the United States hospitals and governmentally owned hospitals. Public hospitals, the publicly owned hospitals were more expensive, principally because the administrators of government hospitals who were publicly employed, bureaucratically employed administrators in more beds, in more capital equipment. And why was that? Well, because politicians can more easily count beds and they can count machines and they can see what's being done with the money that's allocated to the hospital. Decision maker, though, in the case of the public enterprise is the politician. And what one produces in a public hospital then is done to please the politician or the governmental agency that watches over the hospital. Hospitals is the patients, not the politicians, who have to be satisfied. In private hospitals, there tend to be more intangibles, more personal care, different levels of care for different kinds of problems. In the public hospital, you have the same level of care provided across the board. That's as much as I want to say about the theoretical background right now. My interest really is more in the empirical evidence as I've noted. And so let's turn to that evidence right now. I should say at the beginning that the literature on this point is vast. There are more studies out there than we could talk about if we had twice the amount of time that we do today. Limit myself to some of the studies done of the situations where public and private enterprises are found side by side in the United States. But I will mention to you that there are similar studies that have been done in England, recently, for example, some comparisons of the production of coal in England by private companies and by the governmental coal producing firms. Therefore that many situations have arisen that we will not be able to get to talk to today, I'm only going to mention some of them. Perhaps in the discussion afterwards, we can bring out some more. Most important and interesting work that's been done, I think, concerns, comparisons that have been made of the relative level of efficiency or of output in private as compared to public organizations. Taking as one example, differences in output that one observes in the production of oysters, oysters of all things. Oysters turn out to be an interesting situation because there are different degrees, different variations of property rights in the production of oysters, in the different states of the United States. So it furnishes a very useful and rich sort of natural experiment to look at what difference it makes to have private versus public production. No one owns oyster beds. They're open to everyone, anybody can come in and use them, but no one has any exclusive right whatsoever. There is no sale of oyster beds, there is no renting. There is no way to make contracts for the use of them. They're owned by no one, they belong to the public. In other states, oyster beds are sold privately or are leased, very long term leases that end up then being very similar to ownership, full ownership. And the leases for the oyster beds are transferable. So there we have something that comes relatively close to approximating fully defined private property in the oyster beds. Several studies then have gone in from oyster beds when they are owned publicly or when they are owned only privately. And they have faster beds are consistently more productive, the better defined, the more private rights there are in production from the oyster beds, the higher the productivity is. What's particularly interesting I think about some of these studies is the environmental aspect of them. Because a big concern in sea life, at least in the United States, is the concern that people will take, whatever they might be, too soon before they have a chance to regenerate and produce the next generation of shellfish. And so the comparisons of the different systems of producing oysters have looked to see whether or not reproduction and the timing of the taking of the oysters differs as you go from private ownership to public ownership. And in fact, there is a big difference. As long as no one owns the oyster beds, as long as the oysters are there for the taking, the person who gets the oysters is the person who gets there first. You can't wait around and let the oysters procreate and reproduce if you expect to pull any oysters up yourself. Someone else will come before you. And consequently, in the publicly owned oyster beds, the harvest date is much earlier. The size and the age of the oysters taken is besides as much smaller, the date of the harvest is much earlier. And not surprisingly then the catch is smaller, which brings us back to the point that I made before, that the productivity overall is less. One reason the productivity is less in other words is that the fishermen move in too early and take the oysters when they're too small. And finally, as might be expected, since the overall catch is smaller and the amount of reproduction is less, the incomes of oyster fishermen are lower in the states that don't define any sorts of private property rights in oyster beds. And that all pretty much hangs together. It's what you would expect to happen. In a way, you might say this isn't a real test of public versus private enterprise, since there really is no governmental firm that's out there competing with private firms. I think the tests are interesting nevertheless, but we can turn to some empirical evidence on the precise question of public and private firms where both are in fact in existence. And that's what I want to do now, as I mentioned, several other areas where we observe both private and public firms in the United States. One area that has been very useful for study has been comparison of water companies. In many municipalities in the United States, the water company is privately owned. In many municipalities, on the other hand, the water company is publicly owned. One study in particular compared 24 private and 88 public water companies as to their operating costs. And they found that the operating costs were much higher in the public enterprises. The productivity of labor, on the other hand, was higher in private firms. Our public firms with the productivity of labor is higher in private firms. Making the evidence as graphic and stark as possible, the study looked at the period 1965 to 1970 to measure these operating costs. And during that time, one firm that was public went private, and one firm that was private went public. So the study looked to see what happened in particular to those two firms that changed their property rights system during the period on the study. And the results are quite interesting. The public firm, its output per employee, found that its productivity, that is, its output per employee, fell by 40%. Quite a significant difference. Thank you. That's not what I mean by the phrase here. Yes, I mean that the government simply took it over and ran it as a public enterprise. Thank you. That's an important qualification, obviously. I'm not talking about going public in the sense of issuing shares. I'm talking about a change in the property rights for private to public. Thanks. Another study that was done by Peter Pashigian of the University of Chicago looked at private and public ownership of municipal transport, municipal bus system. Interesting case because the whole raison d'etre of a municipal transport system, it is said, certainly of a public transport system, is to us and not to bring their cars into town. Stop auto pollution. Stop congestion in the streets and what have you. Pashigian then looked to see, using the period 1960 through 1970, for 40 different cities, some of which had private transport, some of which had public transport, a bus ride. And Pashigian found that there was a significant difference that, in fact, had a significantly higher ratio of bus riders to put, in this case, the bus, if you will, one bus, riders per bus, was higher for the private firm than it was for the public firm. I want to come back and talk a little bit more about this study about public ownership of buses in just a minute. For the moment, though, I will just note that the evidence there is quite consistent with the evidence from the water companies as to the effect on productivity of having the means of transport owned privately rather than publicly. There have been several studies done that relative efficiencies of privately owned airlines and publicly owned airlines. One that I think is particularly interesting is one that was done about 10 years ago, comparing the performance of two airlines in Australia, one publicly owned, one privately owned. The system in Australia is particularly interesting because the government, the owner of the public airline, all kinds of laws competing in lots of different ways with the public airline. For example, they're to charge the same rates as the public airline. The cities in which they land and take off must be the same, airlines must fly the same number of flights between each city. The public and the private airlines typically have to have the same hours of departure. So you go to the airport and you'll find two airplanes, one private and one public. They're in all senses, at least as far as the law can make them the same. They are in all senses the same, except that one is publicly owned and one is privately owned. The situation is even more bizarre than that. The government itself, when its employees, when the bureaucrats fly, is required to have them fly half the time on the public airline, half the time on the private airline, so as not to favor one over the other. They have to have the same size airplanes. When he buys a new airplane, a new model, a different type, moves up from a 727 to a 747. The airline can't introduce the new model until the other airline has had a chance to buy the same model and introduce it at exactly the same time. Similarity in the two airlines, Duke University, Dave Davies, looked at three passengers carried and he looked at those year by year, significantly higher product years as a whole. And what's particularly remarkable is, and in each one of the three measures of productivity that I just mentioned, so you had, in effect, 45 years, three each, and the private airline was consistently higher. Yes, sir? The freight and courier, passenger, and revenue, go into some detail on that particular study because it was particularly carefully done, and also because, as I mentioned, the conditions under which the private airline was forced to operate were rather extreme. And yet, these two airlines with only one real difference between them, everything else is the same. The only difference being that the one is privately owned and the one is publicly owned. And the results are absolutely astonishing. Services that both private companies and governmental companies tend to produce, one that's of interest to me, in particular, that being the area of fire protection or firefighting services, firemen, about one aspect of that in just a minute. Right now, let me mention, though, that there was a study done, the level of operating costs of private firefighting companies with the costs of publicly owned firefighting companies in the United States. And in the United States now, more and more, there are private firms that cities can hire to do their firefighting for them. So again, we have a fairly rich, natural experiment that allows comparison of the different means of operating and the different levels of efficiency of these two kinds of enterprises. The study that I mentioned now that was done about 10 years ago found that private firefighting firms experience only about one half of cities that maintain their own firefighting services. It's twice as expensive, in other words, for a city to hire its own firemen and maintain its own fire companies as compared to contracting with private companies for the same level of service. I might add that there is now tremendous competition, even among companies, in providing private fire services to the cities in the United States, where that kind of competition is allowed, one particularly interesting phenomenon is that even in the very small towns, 25,000 people maybe, one observes that there is no natural monopoly in firefighting. It is not the case that a single firefighting firm ends up serving the entire city. Rather, you'll find two or three companies, private companies competing with one another, contracting with different people to provide for firefighting service. So it does not appear that there is even any sort of natural monopoly rationale for cities' continued insistence on providing their own firefighting. Lastly, I'll mention a rather humble but nevertheless necessary service that many cities provide, that being garbage collection. But there, too, are willing to come around and pick up the trash if they're allowed to compete. One study using St. Louis, the city of St. Louis, considerably lower in communities that use, across the United States, the importance, such as the size of the city and the number of people in the city and how much garbage they generate every year. There are statistics on such things, apparently. Collection of garbage, of these studies that compare the cost of collecting trash, and I won't mention them here. Some of them find that the savings are even greater than 30%. Some find that the savings are more on the order of 50%. The same saving it apparently obtains when you have private firefighting service. That's enough, I think, to give you the general idea as to levels of efficiency. Private firms appear to be much more efficient in general. I will mention that there is one very interesting piece of work that was done on Canadian railroads where you have private railroads competing with the Canadian National Railway. There, there was no difference found in the levels of efficiency of the private and the public enterprise. It's the only such conclusion that I've ever seen. It's the one exception to the rule that private enterprise does seem to operate more efficiently at a lower cost, but in the interest of objectivity, I will mention that there is that one study. I will note, too, though, that there is no suggestion that the governmental railroad was in any way superior. It was simply that it was not inferior in the way that the other government entities had been found to be, as I just mentioned. There are different, there are other interesting empirical phenomena that go along with this question of public versus private enterprise. And I'll just mention a couple of them here. As I say, we can talk more about some of these in the question period afterwards if we like. One phenomenon that is found repeatedly in the comparison of private and public enterprises is the fact that the pricing of certain services done by public entities, done by governmental firms, tends to reflect the relative power who are able to have government alter the prices that are charged to them for the services that they purchase. You find this, for example, in the case of electric utilities. There are many electric companies in the United States that are privately owned. There are many that are publicly owned. In all firms, the prices to large users are lower because there are apparently economies of scale in producing electric power. But public enterprises charge much lower prices to their big industrial users than do private enterprise. Public enterprise, in other words, takes into account the political power within the municipality of the large industrial user and lowers the prices to that large user accordingly. It doesn't have to worry about political pressure or certainly worries less about the political pressure that a big user can generate. It does not underprice electricity to the large user, but rather charges a higher price. When we talk about electric companies, it's the way in which public enterprises charge different prices depending on whether the user of the electricity can vote or not vote. Many electric companies, in addition to serving their own city, also have some users that lie in the next county or in the next city. And they tend to serve those customers as well because they're nearby and it's profitable to do so. But the users that are outside the political jurisdiction are charged a higher price when the provider is a public enterprise, but that does not tend to happen when the provider is a private enterprise. So again, the pricing reflects the degree of political strength in the jurisdiction where the public enterprise is located. I might add that the same kind of, let's call it two parts, is found with the water companies. Once again, if the water company is governmentally owned and it's selling water to users inside the city and outside the city, it tends to charge a higher price to those outside the city than to those inside the city who, of course, have some political power through the right to vote when we compare private and public companies. What we have comes from the electric companies, and as you might predict at this point, the studies, there was one in particular I'm thinking of that looked at all every single private and public electric company in the United States in 1969, and it compared their rates of adopting new electric generation technology as that technology became available after World War II, and it found that private firms adopted new technology much faster and tended to adopt it also on a greater scale than did the public enterprise. There are many other aspects to this question of how public and private enterprise is different. We haven't talked about wage rates. We haven't talked about rates of profit. We haven't talked about a lot of different things on which there has been a considerable amount of work done. Let me set that whole question aside, though, for the moment, and ask the second question that I said that I wanted to address, and that is, works so well, why do we have so much public enterprise? To me, at least, the answer is, in part, obvious. The most obvious reason is because politicians themselves benefit from public ownership, owns an appreciable or significant total resources or the total wealth of society, trivial as compared to the total amount of wealth that the government owns in society, of the way in which government makes its money. For example, it becomes wealthier, but it cannot be said that those who are taxed at the same time find themselves wealthier. George Stigler recently observed, it might be true that Henry Ford worth of wealth with two billion dollars was absolutely nothing compared to the benefit that he conferred on the world from the increased ability to produce automobiles at much lower cost of resources, de-concentrated ownership of wealth. On the other hand, it creates a significant portion of society in its hands, and that portion of wealth that's concentrated in the hands of government is in effect concentrated in the hands of politicians who run the government. And I should say here that although I use the term politician and certainly not here to praise the role that politicians play in the running of public enterprise, I'm not suggesting that there's anything morally wrong or that I would do anything different if I were a politician. We have structured the incentive such that we get the outcomes that in effect we've provided for. We have allowed the laws to be written that define the rights in many cases to use the resources publicly. And if we have allowed that to happen, that's our fault. We shouldn't blame those who take advantage of the opportunities that are presented. Resources are resources that are controlled either by politicians directly or indirectly through the bureaucracy, which answers to the politicians. The more resources a politician controls, the more a politician can use those resources to benefit the persons, the organizations that the politician wants to benefit and by benefiting organizations, the politicians make their living. That's their job. Typically the ones who, by the way in which resources that are publicly owned are used, are the voters, are the ones who contribute to the campaigns, are the ones who give money directly to politicians. And much of this giving of money is completely legal. I'm not suggesting that this is an illegal activity at all. There are many ways in which politicians can be compensated directly for the sorts of benefits that they provide. The real issue then, I think, is to identify and to benefit use resources in one way as opposed to another to begin to understand we have allowed these kinds of public enterprises to be a lot more work done. Why did that happen? Why was it allowed to happen? It happened as an outcome of a democratic process. And yet the results, if what I'm quoting in these various studies is true, the results are quite unfavorable to us as a society. Why then did it happen? Who gains and who loses? There have been a number of studies equations in the United States. There have been many done elsewhere, but I'm going to stick to the American evidence to try to identify how this process works. How has it been that public enterprise arises? In the United States, most of the governmental ownership, outright ownership, the sources occurs at the municipal level. The national government regulates, and in many ways that's similar to public ownership, but it's more interesting to look at the municipalities because in the United States the municipalities themselves own the electric companies, the water companies, the firefighting services and whatever it might be. What I want to do then is to talk about two or three historical instances where public ownership did arise as a producing various kinds of goods and services. I mentioned earlier the study that was done of private versus public bus transportation. It was found in that study that the shift from private to public ownership of municipal transit depended on the voting of the users of the buses. As the number of users of the buses rose, the chances of the city taking over the bus lines increased. Think of the situation that that places the owner of the bus in. As he becomes more and more popular and provides better service so that more and more people ride the bus, the people to whom he provides the service increasingly go down to city hall for the city itself to take over the buses. Why do they do that? Well, because as soon as they take over the buses, they start to subsidize them. And so municipal ownership of the bus lines is just an indirect way then for cities to subsidize the riders of buses. And that in fact is what the historical evidence shows. First the ridership on the buses rose, then the city took them over, the prices then were slashed. And that's why we got public ownership of the bus lines. Purely as an outcome of a political process. Another example that's been studied quite a lot has to do with public provision of education. Perhaps the biggest single industry that cities at least in the United States provide education. In a very interesting article that was done some time ago, a close friend of mine from memory, a Canadian at West, looked at why it was that the state of New York began to produce public education. And it was quite interesting. The claim in New York, this happened about 1850. Until then there was only private education in the state of New York. But the claim was that under private education, because the private schools had to charge, you had to pay a fee, there were some people who were not going to school because it was too expensive. Some children who could not go to school. And West went out and looked to see whether that was true. And he went right down to the records in each town and looked at the lists of the children and looked to see whether they were going to school or not. And it turned out everyone was going to school. There was no such thing as a child who wasn't going to school. And he then asked, well, how was it possible for everyone to go to school if some of the children were too poor for his private charity to pay in each case for the children to go to school? In fact, what happened is that the students who could pay all paid a little bit more so that the few children who couldn't afford it could also go to school. There isn't any evidence in other words that children could not go to school because it was too expensive. He then asked what was the point of having public education if everybody was already going to school? There was one group that was adamant, that was almost vehement in its support of public education. And you can guess who that might be. The private school teachers were the ones who wanted public education. Why did they want public education? Well, because with private schools they had to compete for students. And the competition was in quite strong. Secondly, under private education, teachers were answerable to parents. It was the parents of the children who were the monitors of the work that the teachers did. Once public education came in, who monitored the performance of the teachers? They set up a bureaucracy called the school board and it was stocked with teachers who were themselves the ones who decided whether or not this teacher would be hired, this teacher would be fired, who would be paid, how much, et cetera. Once public education was begun in New York, salaries for teachers went up quite a lot. And we observed that same distinction today in the United States. Public school teachers are paid much better than private school. So in effect, public ownership of education gave first of all a quieter life, a nicer life, less competition and secondly higher pay. I don't know about in France but in the United States the strength of the teacher's lobby is absolutely enormous. One quarter of the delegates who nominated Jimmy Carter to run for president in 1980 were in fact teachers. One quarter. A piece of work that I did, some others who have been speaking at the seminars here have perhaps alluded to it on the stress by which public ownership came about. For over 200 years in the United States, the municipal fire department simply didn't exist. It was all done hard to get in. You had to pass the insurance company that insured the house would pay them for having put out the fire. Organizations financed themselves. Also the insurance companies bought the fire engines and the other capital equipment that the fire clubs needed. But these were purely voluntary private organizations. There was no governmental involvement whatsoever. Been on these private organizations to disorganize. They didn't do the job well. But in fact, when I went back and looked at the evidence was that from the politicians themselves, the disorganization that occurred at fires and there was always a lot of disorganization. There was looting and fighting and all kinds of behavior that was very unproductive to putting out fires. But the reason that that occurred is that the politicians refused to send the police to the fires. They told them not to go. The firemen then began to enforce their own rules and regulations to try to stop all these problems. When they would catch a looter or something like that at a fire and to enforce their own sorts of property rights, they just passed laws that put all these private fire departments out of existence. It just ended the system right then and there. If you go and look at the debates in the city hall and the state legislatures at the time that the private questions and the public fire departments were created, there were two principal groups that were in favor of public fire departments because they were the ones who were paying the bonuses to the firemen, paying the fees in other words, and also were the ones that were buying the fire engines. But the second group, and by far the most vociferous group, the most vehement group in favor of public fire departments was the firemen themselves because now they were paid to do what they used to do for nothing. The same people who had been in the private organizations were all taken into the public fire departments except before they weren't paid and now they were paid. And there was no requirement that they quit their other job to do it. In fact, they continued to do whatever job they had done before, but they were paid on top now by the city. So that was the plane, this movement to public ownership. It's very similar to what we saw in the case of public education. Once the labor group providing the service becomes fairly large and becomes fairly affected politically, they begin to bring political pressure to bear to have the ownership shifted from private hands to public hands and to have themselves then taken in to be part of the new public entity. They're paid more than they were before. They have an easier time of it. The level of service provided doesn't appear to increase in many cases as I've just explained. The productivity of the good or service produced appears to decline, but for the political group or for the labor group that's able to bring this political pressure to bear, results are quite favorable and how it relates to all of this. But I think I've gone on long enough, so let me stop it right there.