The theory that there exists a thing called „public interest“ is a fallacious belief based on a romantic idea of political man. In truth, the overwhelming evidence shows us that governments are more likely to fail than markets, and when they do, the consequences of their failure are more catastrophic.
Political man vs. economic man
Most of Western political thought is grounded in the idea that the ruling class acts reasonably and in the best interest of the people it governs. This idea dates back to Plato’s Republic, in which the “philosopher kings” shall exercise absolute powers over the citizenry, only kept in check by their virtues of benevolence and knowledge. According to Plato, philosophers have to lead the way as kings, or rather kings have to grow into philosophers.
Plato famously likened the governance of the state with the command of a naval vessel when he wrote:
“[…] the true pilot must pay attention to the year and seasons and sky and stars and winds, and whatever else belongs to his art, if he intends to be really qualified for the command of a ship […].”
Plato’s writing received intellectual resistance by many classical liberals, including Milton Friedman who brilliantly responded to his interviewer on a TV show in 1979:
“Is it really true that political self-interest is nobler somehow than economic self-interest? You know I think you are taking a lot of things for granted. And just tell me where in the world you find these angels that are going to organize society for us?”
The purpose of this short essay is to show that the belief that there are two different types of human beings is delusive. In fact, there has hardly ever existed a convincing story that there are those who pursue the interests of the public benevolently, the so-called political man, on the one hand, and those who are only interested in their personal advancement, the so-called economic man, on the other hand.
The concept of public interest in the theory of regulation
The public interest theory of regulation explains, in general terms, that regulation seeks the protection and benefit of the public at large, such as for reasons of security or health. Apparently, these are very vague terms, which are in need of a definition.
In contrast, we can all ascertain our personal interests that are based on our own preferences. A farmer, for instance, usually wants to maintain or increase the value of his land, on which his cattle graze. A company, on the other hand, might want to acquire the farmer’s property at the lowest possible price to build a new factory on it. The rationale of economic exchange is that both farmer and company would strike a bargain, each from their own perspective, if they agreed on the purchase of the land.
What exactly, then, is public interest? You would expect an entire bookshelf filled with straightforward answers to that question. However, the concept has deliberately been left open to interpretation by the legislator and judiciary. Further, it is difficult to define such a concept since the terminology doesn’t say anything about its substance. It is clear, however, that public interest cannot correspond to a specific private interest.
Now, imagine that a government agency plans to build a railroad track across the property of said farmer. In line with the law on expropriation, the agency claims that building the track is in the public interest since everyone uses the train now and then, or rather that trains are just an important pillar of the local economy. Therefore, they conclude, the property must be taken away from the farmer. Well, this does seem fair given the farmer receives an appropriate compensation equal to the market value, doesn’t it?
The concept of social welfare in economics
How do the officials of that railroad agency estimate the farmer’s individual welfare loss? After all, he couldn’t be willing to sell his property at all. However, welfare economists make it easier for the authorities.
Mainstream economic analysis of law has come up with a simple answer to the question. The transaction must satisfy the criterion of (improved) Pareto efficiency in order to be considered beneficial for society: It suffices if the general public benefits more from taking away the farmer’s property than the farmer loses, given that his loss is compensated appropriately. More precisely, the welfare function is served justice if the farmer receives a compensation that doesn’t worsen his position compared with his original situation as a landowner. According to the Pareto calculus, no one should be worse off after the transaction than before. However, because the state is on the „other side“ of the transaction, the farmer’s individual preference to sell or not to sell doesn’t carry any weight in the equation. That’s the rationale of political exchange.
But how can the government be sure what the public truly wants? In fact, it almost never can. Conceptually, it is just assumed that elected politicians and their policies will increase social welfare. This sweeping assumption makes up the alleged public interest. To suggest, however, that all citizens (except for the farmer) share the same social preferences (building the railroad track) is outright fallacious. The problem doesn’t disappear in a direct democratic system; the opinions of politicians or bureaucrats are only replaced by the majority’s desire for some sort of public welfare, to which minorities have to be subordinate.
It should thus come as no surprise that eminent domain has encouraged governments to take advantage of the poor and politically powerless historically.
Welfare economics generally emphasizes the importance of property rights. The same theory, however, allows for expropriation under the conditions mentioned above. In doing so, the argument becomes an entirely utilitarian one: Property turns into a matter of monetary compensation; even more, the concept of property is ultimately reduced to a mere tentative claim instead of full ownership. This is true for the farmer’s land as much as it is for any kind of property.
Public choice’s critique of politics
Early critics of arbitrary public policies undertook an analysis of political exchange. David Hume famously stated that we should govern public employees the way we treat „knaves“:
„Political writers have established it as a maxim, that, in contriving any system of government, and fixing the several checks and controuls of the constitution, every man ought to be supposed a knave, and to have no other end, in all his actions, than private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and ambition, co-operate to public good. Without this, say they, we shall in vain boast of the advantages of any constitution, and shall find, in the end, that we have no security for our liberties or possessions, except the good-will of our rulers; that is, we shall have no security at all.“
(David Hume, Of the Independency of the Parliament, 1777, in: Eugene F. Miller (ed.), David Hume. Essays. Moral, Political, Literary, Indianapolis 1987, Essay VI, 42-43)
Hume anticipated a whole new research field in economics and political science, beginning with Knut Wicksell, Ludwig von Mises, and later the Virginia School of political economy (among many more). The proponents of public choice argue that the distinction between economic and political man is fallacious on the ground that politicians don’t run for office because they only have the public interest in mind, but rather pursue their self-interest and other motivations.
I don’t claim that politicians never act out of other reasons than pure self-interest. However, public policies will more often than not be undermined by special interest groups, trying to pass off their private interests as the „public interest“. In fact, as everyone else, politicians react to the incentives of their biggest financial backers, and seldom behave in ways that reflect the interest of their constituency, let alone the „public interest“. In the case of the farmer, it is plausible to presume that railroad corporations have used their power to influence the legislator and bureaucrats in their favor, resulting in the confiscation of the farmer’s land.
Constitutional constraints, and the protection of individual liberty
How, then, can we limit political power in line with a free society? Typically, classical liberals have sought to restrict the competences of the government in the first place. Both James M. Buchanan and Gordon Tullock, the founders of the Virginia School, advocated the implementation of constitutional constraints, within which political decisions are made. They provided a theory of government failure, thereby questioning the common belief that politics is some sort of romantic relationship between the state and its citizens:
„The romance is gone, perhaps never to be regained. The socialist paradise is lost. Politicians and bureaucrats are seen as ordinary persons much like the rest of us, and „politics“ is viewed as a set of arrangements, a game if you will, in which many players with quite disparate objectives interact so as to generate a set of outcomes that may not be either internally consistent or efficient by any standards.“
(James M. Buchanan, Politics without Romance: A Sketch of Positive Public Choice Theory and Its Normative Implications, in: The Logical Foundations of Constitutional Liberty, The Collected Works of James M. Buchanan, Indianapolis 1999, Vol. 1, 57)
Western constitutions were initially grounded on a classical liberal foundation. However, most governments have resorted to very broad interpretations of alleged public interests, be it in the area of eminent domain or national security. As it is the case with social justice (Hayek’s „weasel word“), everything can somehow be subsumed under the term „public interest“. The challenge, however, lies in securing individual liberties in the sense of the Lockean trinity „life, liberty, and property“ against all future prevailing odds. This is consonant with what Adam Smith and F.A. Hayek meant by „liberty under the law“. After freeing it from its non-existent romance intellectually, the relationship between the state and its citizens should be put back on a strong legal foundation, keeping political agents in check.
A society based on the principles of peaceful cooperation is in the public interest
A concept as shallow and unclear as the concept of public interest must pose a constant danger to freedom. We should therefore abandon the concept of public interest altogether, and replace it with a classical liberal approach instead. For all intents and purposes, the protection of individual liberties against unwarranted actions of both government and citizens is in the long-term interest of society.
In other words, legitimate government intervention should be confined to prevent citizens from being harmed by their fellow men and their property from being stolen or impaired. Therefore, public interest ultimately comes down to the production of rules that allow for peaceful cooperation and the pursuit of individual interests. Any other interpretation of public interest (or social welfare for that matter) is based on unrealistic behavioral assumptions about politics.
Hayek similarly wrote:
“In this sense the general welfare […] consists of what we have already seen to be the purpose of the rules of law, namely that abstract order of the whole which does not aim at the achievement of known particular results but is preserved as a means for assisting in the pursuit of a great variety of individual purposes.”
(Friedrich A. Hayek, Law, Legislation and Liberty: The Mirage of Social Justice, Vol. 2, London 1998, 5)
Certainly, difficult questions of weighing individual rights against each other will arise in many instances. This, however, is actually the „art of navigation“ Plato should have pointed to instead of promoting a special ruling class. If we are not willing to give up the foundation of an open and peaceful society in the long run, this is the only sensible way to interpret the concept of public interest.