Reason Number Eight The Free Market is a False Concept: Water, or Public Works

Okay, here’s number eight in my ongoing series, Nine Reasons Why The Free Market is a False Concept. Reason number eight is Water, and all it represents, which includes public works or infrastructure. If you keep reading, you’ll hear me say what it means to “define infrastructure upwards.”

Imagine yourself in New York City in 1835, the largest and most prosperous city in the country. But if you want a drink of water, you buy it, if you are rich, from a “tea man,” who fills your container from a barrel of water he ports around on the street. You probably don’t risk using a decrepit private water system of hollow logs under the streets. Most people use one of the few public wells, which are polluted, or draw water directly from a dirty stream or pond. There are no sewers, so when you use the toilet, your waste goes into the ground where it blends with the water you will later drink. Devastating epidemics happen every few years.

New York City opened its public water system in 1842. It was a big effing deal. The polity had debated building one for a half century. As today with health care, it was a long and rancorous debate and tortured history. This history includes the fact that in the late 1790s Aaron Burr, before he became vice-president and before shooting Alexander Hamilton, had derailed a previous attempt by the state legislature to create a public water system. Burr got the legislature to grant him a franchise to create a private water system. It was not a very good system even for the rich, because Burr spent most of his energy using a small clause in the bill to create a bank, The Manhattan Company. It is one of the forefathers of Chase Manhattan Bank. When the city and state legislature tried to create a public water system, it was more difficult because it meant buying Aaron Burr’s heirs and partners out. Building the 1842 system from the Croton Reservoir meant constructing an aqueduct the Romans would have envied, including the arched High Bridge. But despite all the difficulties, when the system opened it was an immediate success and the arguments against it dropped away.

Why? Because not only was the city a better place to live, it was a better place to do business. It’s easier to shop or sign a contract if you aren’t as worried about catching typhoid or cholera. The public water system gave New York City a business advantage. Soon, every city had one. Although some were run by private companies, they all followed the principal of clean water for all.

Those who argue that government is some sort of parasite on the healthy body of the market should recognize more the role of government in building what used to be called “public works.” Water, sewers, roads and more are the physical infrastructure that economic actors depend on. That we take it mostly for granted shows it works really well.

Coincidentally, the New York Times columnist Nicholas Kristoff today discussed the role of public services in making a nation more prosperous. It was in the context of The United States ranking relatively low in many quality of life issues, which in turn he said hurt the nation’s business environment.

The history of water shows how we move from private to public. I believe our nation has progressed by converting more and more private responsibilities to public responsibilities. And that this holds true around the world. Society progresses, to mangle an axiom from the late Sen. Daniel Patrick Moynihan, by defining infrastructure upward.

To repeat myself from post number seven, Adolph Wagner got it wrong. The bigger an economy is, the more complex it is, and the more state spending it requires on all types of “infrastructure” to keep it functioning. It’s not an economy that supports infrastructure (meaning schools, roads, water systems, social security, fire protection, libraries, courts and so on); it’s infrastructure that supports an economy. Over time, we have progressed by converting more and more private responsibilities to public ones. This is turn allows the private sector to become more complex in a virtuous circle.

Generally speaking, the larger the economy on a median or per capita basis, the larger percentage of the economy government has. Today even a parsimonious country like the United States has in modern times spent about 35 to 40 percent of its Gross Domestic Product on state, local and federal government. Before World War I, it was in single digits, in percentage terms. Other countries have gone through similar evolutions.