17 Private and Public Services
In a sense, all trade is a trade of services - the physical good is only the embodiment of the service of labor that renders it suitable to a given need.
In the private sector, which is to say the free market, people negotiate the exchange of services with one another. Each represents what he feels a service to be worth, and they come to an agreement as a prerequisite for the exchange. If they can come to no agreement, no exchange takes place. Freedom includes the freedom to be imperfect. "Man is often the dupe of his own opinions and passions, nor does he always rank his desires in their most reasonable order." People make mistakes, and if they are intelligent they learn not to repeat them. But responsibility is the price of liberty.
There is also a political distinction of a class of services that are provided and paid for in quite a different way, and these are "public" services performed by a government for its people, financed by taxation. The declaration of a service as public is entirely arbitrary - though various arguments are offered as to what ought to be a public service, there is not an argument so compelling as it is universally recognized. Different things are claimed by different governments as being in the realm of public services.
Because the nature of public services is arbitrary, there are no fixed properties. The services may be provided to all citizens, or to a selected group. The cost of the services may be paid from a general fund taken from all taxpayers, or a special tax may be levied upon a few, or paid for in fees when used. There may or may not be restrictions on the private sector regarding providing the same or substitute services. The service may be provided at a loss (subsidized by taxes) or it may be a source of profit for the government.
A quick aside: charity is not necessarily public. There are private charities that collect from donors to provide services to benefactors who do not pay - and it is theoretically possible that they provide services to the entirety of the public. However, if they are not established, funded, and protected by force of government, they remain private organizations.
He also discourages the perception of public services as being "gratuitous." They are not so. Public roads, public education, and the like are not given for free, because payment is extracted by force. While there is no toll for using a public road, you have paid the toll in taxes whether you use the road or not. And so, public services should be regarded not as free to use, but paid for regardless of whether they are used.
(EN: There is a gray area in the present day when a government organization provides financial support of a charity. Sometimes, there is a public outcry that the donation entitles the government organization to have control over the operations of the private organization. In other times, the government grant comes with specific strings attached that obligate the organization. This too is difficult and highly idiosyncratic - so not much can be said in general except that getting into bed with the government is a dicey proposition for any company or nonprofit organization.)
It falls to politics to determine whether a given service should be taken over by government or left to citizens to provide for themselves. There is likely no service that necessarily falls into the domain of one or the other, as it is based on dogma and political agendas. The economist can only observe what a government chooses to involve itself in, and witness the impact on the welfare of the people and its effects on that portion of the market that remains private.
A significant difference between public and private services is evolution. In the private sector, particularly in competitive markets, the provider of a service is motivated to constantly improve the value he provides his customers (better value, lower cost) in order to gain their business. In the public sector, the "customer" has no choice and there is no motivation to improve the service offering. As a result, public services tend to constantly degrade rather than improve.
Likewise, the necessity to pay for benefits ensures that scarce resources are allocated to where they are most greatly needed, as evidenced by the customer's willingness to pay a higher price than others who claim to need the same resource. Public services are allocated indiscriminately, based on conjecture, and often to those who are owed political favors rather than those whose need is most desperate.
For the same reason, the price of services in the private sector is always fair - because the buyer consented to pay the price and the seller consented to accept it. Public services are not fair, as the taxes are extracted by force and the "customer" is prevented from finding an alternate method to serve their needs. "Fairness" is not the amount of the price, however high or low, but about whether the buyer consented to pay it.
Also for the same reason, the private sector serves the genuine needs of the people. If people really need something, they will pay for it and pay enough to encourage producers to provide it to them. If people do not need something, they will not pay for it and any producer who stubbornly puts out a product no-one wants will eventually be encouraged to make more productive use of his resources. In the public sector, there is no such connection, so it will not be guided to provide enough of the things that are wanted and desist from providing that which is not.
There is a bit about being forced to pay for the creating of services that are not used, which is a terrible waste that does not occur in the private sector. This is largely a political argument, though there is an economic impact: the amount of income people are forced to spend on things that they do not need decreases their budget for obtaining the things that they do need. So in all, the productive capacity of society is misdirected.
Consumers tastes, left to their own devices, tend to change slowly. A large number of people do not switch from consuming one good to consuming a different one from one month to the next, but instead they make these changes at their own pace, allowing ample time for the industry to change from one form of production to another. When a public service changes, the change takes place with the stroke of the pen, catching industries unprepared and the transition can be devastating to producers and consumers alike.
Competition is a check against corruption. Corruption adds unnecessary cost to production, and a corrupt provider in a competitive market will be underpriced by competitors and run out of business if it does not discover and amend the problem. Corruption in government is seldom detected and often becomes pervasive.
He goes back to purely political matters, considering that any government action is coercive, and in many instances the use of force is not justified. Essentially, force is justified in defense - and many of the commercial operations of government have nothing to do with defense. He speaks to the function of government to protect the rights of society, not just certain members of it - and many of the commercial operations of government favor a few at the cost of the many.
(EN: From here, it's a deep dive back into political matters, departing from economics for the remainder of the chapter.)