Is the South Fulton Fire Department Really an Indictment of Libertarianism?

Liberals ranging from Keith Olbermann to Salon’s Alex Pareene have attempted to use the South Fulton, Tennessee firefighting incident as an indictment of libertarianism, and of all libertarian proposals to supply public services on the free market.  Alternet’s Joshua Holland considers it “Ayn Rand Conservatism at Work” (Alternet, Oct. 4), which admittedly might be somewhat less unfair — I can actually imagine Howard Roarke blowing up Cranick’s house because it was ugly, or something.

As a number of libertarian commentators have pointed out, the South Fulton fire department is a government agency, funded by tax revenues, which also supplies fire protection services on a voluntary contractual basis to the surrounding county.  Not only is it a government entity, but it has certain state-conferred advantages that put it in a unique bargaining position as against potential customers.  So it’s rather perverse to treat it as a black eye for free market libertarianism.

In any case, the specific course of action taken by the South Fulton firefighters is hardly mandated by free market principles as such.

Several libertarian commentators, Thomas Knapp among them, have argued that letting the house burn down was necessary for dealing with moral hazard problems (“Contra Long,” KN@PPSTER, Oct. 7). If Cranick had been allowed to buy in when he actually needed protection, it would undermine the actuarial mechanism involved in spreading risk over the entire population served.

“If you can still get the payoff without tying up your money by placing the bet in advance, even if you have to pay something of a premium, you’re a lot less likely to make that hedged bet.  And the hedged bet is probably what allows the fire department, private or public, to equip itself, train its personnel, and keep them on the clock to respond if you ‘win’ that bet.”

But others have pointed out that letting the house burn down wasn’t the only solution to the moral hazard problem.  Bob Murphy and Gary Chartier, among others, suggested that the Fulton fire department might have put out the fire for a “penalty rate” or  “on-the-spot charge” (“Firefighters Watch House Burn Down,” Free Advice, Oct. 5; “The Fulton Fire Fiasco,”  LiberaLaw, Oct. 10).

What’s more, in a market where fire protection was offered by a number of competing providers rather than one government agency in a subsidized monopoly position, there would probably be a market niche for providing fire protection services on short notice for a premium to those not served by other providers.  There’s surely some price at which a competing fire protection service could recoup its costs for putting out Cranick’s fire, and which Cranick would regard as a bargain compared to losing his house.  And if so, the competing service provider would cut a deal (I believe Bob Murphy’s term was “jump at it”) regardless of moral hazard considerations.

Of course the likely number of competing providers a free market could support depends on things like the minimum capitalization levels set by technological requirements, the resulting ease of market entry, the size of the customer base required to amortize capital outlays, and the downward scalability of service.

One thing that especially warrants looking into is the assumption, apparently shared by the liberal critics and most libertarian responders, that fire protection services in a stateless free market society would be provided by conventional for-profit businesses.  Many market anarchists — and especially anarcho-capitalists — work from the implicit assumption that functions currently provided through the state would be provided in a stateless society by business firms and mediated by the cash nexus.

There’s no reason this has to be true, or even that the for-profit business model is likely to be the dominant model for organizing social services.  Anarchism, as individualist anarchist Benjamin Tucker put it, is simply the belief that all functions of the state should be replaced by voluntary associations.  And out of the almost infinite range of possible voluntary associations, Acme Fire Protection Service spans everything from A to B.  As Karl Hess once wrote, libertarianism is a people’s movement, and encompasses whatever self-organized alternatives the people see fit to establish.

In that light, the relevance of the Fulton incident as a test-case for a free market society becomes especially doubtful.

Art Carden, for example, points out that people’s motivations in cases where they’re known to each other are different from cases where they’re simply business person and paying customer (“Fight My Fire:  Government or the Market?” Forbes, Oct. 8).

“Strictly moral incentives work pretty well in small settings.  My most meaningful relationships with my family and my friends are mediated by norms, conventions and (wait for it) love rather than market prices.”

It’s likely that the same complex of trends that leads to the collapse of state capitalism will also lead to a decentralized society of smaller, demographically stable communities with mixed-use economies, in which extended families and other intermediate social institutions play a much larger role.  Neighborhoods and small communities are likely to play the same role in maintaining social services and the social safety net, post-collapse, that the villa did after the collapse of the Roman Empire in the West.  Hence Carden’s moral incentives are apt to become a lot more important in the provision of social services.

So it gets back, in large part, to what social model we’re imagining as the background context in which the fire protection service operates, how cohesive the community is, how organically tied the protection services are to the community, and so forth.

In a cohesive community after the collapse of state capitalism, social services might be organized in any number of ways.   Fire protection and other services might preserve some institutional continuity with the former state, after its powers to fund its services with taxes and push them off on unwilling consumers were abolished.  An elected mayor and board of selectmen might oversee the provision of fire protection and other services to the majority of the population who chose to participate in the former “government,” organized as a consumer cooperative.

A volunteer fire department at the neighborhood or community level might be financed by subscriptions.

A fire protection collective might be organized by a federation of cohousing projects and urban communes, as neighorhoods coalesced into functional social units for the organization of services in the vacuum left by the withdrawal of the state, with dues for all social services taken as a percentage of income as a condition of membership in such primary social units.

And yes, fire protection might be provided by a for-profit firm or co-op whose members or owners were lifelong neighbors of the population being served.

In any of these cases, I imagine the social pressure to put out the fire of a non-subscriber would be considerable. But so would the social stigma on freeloaders also be.

And the smaller the social unit to which fire services are provided, the more likely their provision is to be governed by social rather than monetary considerations. So some of it hinges on the above questions of how low the minimum capitalization is for the smallest possible scale fire prevention startup, how scalable it is to small population units, and so forth.

By the way, there’s one thing we should never lose sight of in all this:  what the actual statist alternative is. Lots of people point to the harshness of letting the house burn down for nonpayment. But keep in mind that having one’s house auctioned off for nonpayment of taxes is more common than house fires, and that it entails just as much of an effective loss of your house as having it burn down. The modal statist alternative, as practiced in most places, is to fund fire services with mandatory taxes — and unless taxation is backed in the last resort by punitive measures almost as harsh as having your house burn down, it’s prone to exactly the same moral hazard problems as a voluntary payment system.

That’s a favorite tactic of critics of libertarianism:  to compare the actual performance of voluntary institutions to the good intentions of the state.  But any social system can be expected to work optimally if it’s staffed by angels.

Anarchy and Democracy
Fighting Fascism
Markets Not Capitalism
The Anatomy of Escape
Organization Theory