International Liberty

When speaking about the difference between the private sector and the government, I sometimes emphasize that mistakes and errors are inevitable, and that the propensity to screw up may be just as prevalent in the private sector as it is in the public sector.

I actually think the government is more likely to screw up, for reasons outlined here, here, and here, but let’s bend over backwards to be fair and assume similar levels of mistakes.

The key difference between capitalism and government, though, is the feedback mechanism.

Private firms that make errors are quickly penalized. They lose customers, which means they lose profits. Or perhaps they even fail and go out of business (remember, capitalism without bankruptcy is like religion without hell).

This tends to concentrate the mind. Executives work harder, shareholders and bondholders focus more on promoting good corporate governance. All of which benefits the rest of…

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