Private Governance, Public Governance and Sexual Harassment

I generally favor private, voluntary solutions to social problems over government mandated solutions. Some private solutions involve business. Others involve charities or foundations. But I’m not an anarchist. There are many things the government does better than the private sector — defense, police, the courts, enforcing property rights and protecting the environment. Government doesn’t always do these things particularly well, but I think private solutions would do an even worse job.

One reason I tend to support private solutions over public solution in most situations is that private solutions tends to be subject to competition. There are numerous grocery chains — that keeps price down and quality. Sure, a grocery chain can exploit its reputation and take advantage of some customers for some period of time, but as long as I have alternatives, the ability of any one grocery store to exploit me, is constrained. Government, on the other hand, often claims a monopoly on some service or good — police protection, my neighborhood public school, the provision of drivers licenses and the licensing of doctors are just a few examples. Government also claims a monopoly of the legal use of violence. I have to pay my taxes or I go to jail. I don’t have to shop at Amazon.

Yet there are competitive forces that constrain government. If I dislike the policies here in my home state of Maryland, I can move to Virginia or elsewhere. And politicians do face something of a market test — we can vote incumbents out of office. The fact that incumbency is so powerful tells us little. Incumbents may be thriving because they are doing a good job. Many people believe that elections and the opportunity to vote with your feet means that government policy responds to the will of the people through the democratic process. I disagree, but it’s a serious argument.

People (like me) who dislike much of what government does and who want less government intervention tend to overstate the power of competition in private markets and undersell the responsiveness of governments to citizen pressure. People who like much of what government does and who want more government intervention tend to understate the power of competition in private markets and overstate the responsiveness of government to the will of the people.

The news of the day provides an interesting example of the difference between private and public governance. Numerous private sector employees such as Matt Lauer who worked for a for-profit corporation and Garrison Keillor, who worked for a non-profit radio network were fired almost instantly for offenses that at least right now, seem quite disparate. Lauer allegedly pressured younger colleagues into sex in his office and allegedly sexted others. Keillor, at least as far as has been revealed, touched a women’s back inappropriately, making her recoil. No matter, they were both gone immediately.

Al Franken remains on the job. He is under an ethics investigation which appears to be going to take some time and such investigations rarely lead to any serious consequences. He has paid some price for his actions already. He has been humiliated. But he remains on the job. John Conyers who allegedly pressured his aides for sexual favors was at first left alone by his colleagues. Now, a number of his Democratic colleagues, including Nancy Pelosi, have decided he should resign. But so far, he remains on the job. The Washington Post reports:

“It is not up to Nancy Pelosi. Nancy Pelosi did not elect the congressman, and she sure as hell won’t be the one to tell the congressman to leave,” Arnold Reed, the attorney, told reporters outside the Conyers home in Detroit.

There is something to that argument. The problem with the argument is that the voters only get to weigh in every two years. I assume Pelosi has had a change of heart over the issue because her voters are giving her an earful. I suspect Conyers is also hearing many complaints from his constituents. But he is free to ignore those complaints. And at 88, I have a feeling he might not be running for re-election in 2018. (This Washington Post article pointed out the differences in response between the public and private sector.)

The other interesting aspect of this comparison with private and public governance is the role of the minority vs. the majority. Roy Moore may end up being elected to the Senate either because people do not believe his accusers or because there aren’t enough of those who believe his accusers and who care. But NBC in deciding what to do with Matt Lauer, doesn’t use a majority calculus. It could be a majority of their viewers don’t believe the accusations and don’t care. But they would certainly still fire Lauer if the number of believers and carers was a minority. That would still cost them money.

NBC doesn’t only care about the viewing public’s attitudes and the potential for lost revenue from a disgusted minority. They also worry about being sued and presumably believe that firing Lauer quickly will help them in the event of a future lawsuit. The House and Senate do not face the same legal environment.

But I still think it’s true that the costs imposted by the marketplace by disgusted customers play a role in how private entities respond to these kinds of stories and accusations. They are an example, I think, of what Nassim Taleb calls the minority rule: the preferences of a small group, if intense enough and even if quite small, can sway outcomes.

These differences in governance are not necessarily all good. Companies can be cowed by activists across the political spectrum and they may lead to unattractive outcomes. There was an interesting case recently when the University of Tennessee rescinded a job offer Greg Schiano to coach their football team. Some think that Schiano was aware of the crimes of Penn State coach and child molester Jerry Sandusky when Schiano was on the staff at Penn State. When news broke that Schiano had been offered the job, there was an outcry of outrage from Tennessee fans. Many observers found this frightening — Schiano had never been convicted of anything. The accusation had been made in a deposition. Schiano denied it. But enough Tennessee fans were upset enough to get the university to rescind the offer.

I recognize that Tennessee is a state institution. But its leadership is not elected. I also recognize that some of those outraged fans didn’t think Schiano had abetted a child molester — they just didn’t think he was a very good coach and found a way to show their disapproval. But I think there are two points to be made. Public and private organizations use very different mechanisms for making decisions than those organization like Congress and the Presidency that use elections and variations of majority rule.

There’s an irony here. The government, which imposes regulations and other restrictions in a top-down way across the whole economy, has a strange degree of autonomy. The constraints on government tend to come from the bottom up, with limited effectiveness. The control is spread out over time and the process of competition among political parties is more like a cartel than a competitive market. The constraints on the private sector actors are top-down. The board of directors fires the CEO at will. There is much more command-and-control at NBC than there is in the oversight of Congress.

This confuses some people when they think about emergent order. First, there is a lot of planning in the voluntary sector and a reasonable amount of top-down control within any corporation or non-profit. But each of these organizations competes with other organizations in a sea of market competition. Hayek for example, recognized that planning and foresight are crucial to much of life. But the question is who does the planning and over what range of activities. It is the centralization of planning at the national level that is ineffective and potentially dangerous. Ineffective because of the incentives facing the decision-makers and their distance from the relevant information to plan effectively, and dangerous because it can lead to tyranny.

As John Papola and I wrote in our rap video, Fight of the Century:

I don’t want to do nothing, there’s plenty to do
The question I ponder is who plans for whom?
Do I plan for myself or leave it to you?
I want plans by the many, not by the few.

Letting the market decided how much of each kind of bread will be produced and what its price will be does not mean that everything will then be chaotic or that there will be no planning. Each baker is making plans. So is the pasta maker who competes with the baker for flour. The farmer has to decide how much land to devote to wheat vs. soy and corn. The fact that this market works well in most cities around the world is because of the power of competition that allows the planning by disparate and sometimes competing entities to harmonize without top-down control of the process.

Having said all of this about the different nature of governance and control within private organizations and government officials, neither system protected women from horrific experiences as employees. If most powerful men see women as sexual objects, competition is of limited help in preventing exploitation. I explore the limits of competition in the second half of this essay.



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Russ Roberts

I host the weekly podcast, EconTalk and I'm the co-creator of the Keynes-Hayek rap videos. My latest book is How Adam Smith Can Change Your Life.