Simple Solution to the Free-Rider Problem

[I]f a group of men pursues mixed goals, its bad principles drive out the good. What is the political status of a free country whose government violates the citizens’ rights once in a while?
— Ayn Rand. Capitalism: The Unknown Ideal (p. 161). Kindle Edition.

As a new student of economics, I recently stumbled upon a curiosity called the ‘free-rider problem’. I call it a curiosity because Wikipedia describes it as “a type of market failure that occurs when those who benefit from … public goods … do not pay for them or under-pay.” (Emphasis mine; links and footnotes removed.)

How can it be a market failure if it affects public goods? By definition, ‘public’ goods are meant to exist ‘outside’ the market. The government decides, by fiat, that market forces don’t apply to some park, for example, and then claims it belongs to ‘everybody’.

Now, even a privately owned park might have a free-rider problem if its owner can’t figure out how to restrict access to paying customers only. But that’s not what proponents of public goods mean when they refer to the free-rider problem. There are many public goods and services to which access could easily be restricted, like the police force or the fire department. Not a paying customer? Sorry, no service.

‘But wait’, you say. ‘Everyone is a paying customer of public services. We all pay taxes!’ No, not everyone pays taxes. Not everyone earns enough to pay income tax. Many people get more money from the government than they pay. Others pay far more in taxes than the services they receive are worth. Also, taxes are too far removed from the actual services to know whether enough money is being allocated. These discrepancies, distortions, and disconnects hinder error correction and hurt not just the consumers’ ability to consume those services but also the providers’ ability to provide them. Such disconnects wouldn’t happen in a free market, but this doesn’t stop politicians from blaming it for the public sector’s own failures!

‘Fair enough. But society depends on both the police force and the fire department. Nothing would work without them.’ Certain goods and services, so the argument goes, are absolutely necessary for a society to work, and so they must be guaranteed. This stance is foundationalism applied to politics. Different countries implement this foundationalism to varying degrees. Some include the police, the fire department, and jury duty, others go as far as ‘guaranteeing’ access to healthcare and higher education. In any case, I’m not saying I want to get rid of the police. On the contrary, I do agree that law enforcement is important. I’m saying that access should be restricted to paying customers – and that, counterintuitively, such restriction would lead to better access to the police for all.

‘But then poor people wouldn’t be able to call the police!’ Now we’re getting to the real reason for this whole mess with ‘public’ goods – the very mess public ‘servants’ then blame on free-riders. It’s a deeply rooted misconception, half perl-clutching argument, half argument from intimidation: ‘Surely you wouldn’t deny poor people access to emergency services?!’

To satisfy foundationalist concerns, the police is supposed to magically exist outside the free market so that everyone has access. To guarantee access, the government would need to solve all scarcity around law enforcement outside the market. But if it can do that for the police, why can’t it do the same for all goods and services? Why can’t it make computers, food, and housing, all of which are scarce, abundant by law?

Although a working society does absolutely depend on food supply, societies that have tried to nationalize food were some of the bloodiest in history: millions died of starvation. But the somewhat free societies, those that don’t guarantee access to food, have the most abundant food supply history has ever seen.

No good or service can be isolated from the market – not even the police. Reality doesn’t work that way. The police need resources: guns, bulletproof vests, cars, desks, computers, etc. These things don’t grow on trees, nor do the police know how to manufacture any of them. So they have no choice but to buy them on the market. To do that, they need money. They also have to hire people and allocate resources to enforce the law: they have to decide which violations to investigate and prioritize. In other words, the police must deal with economic constraints like anyone else.

No one can evade or sidestep this economic reality. No one can outlaw scarcity. Any attempt to do so regardless hurts, again, both the police force and its customers. Trying to isolate some good or service from the free market hinders error correction. As a result, funds are allocated inefficiently, leading to the very outcome proponents of public goods try so desperately to avoid: chronic under-availability of law enforcement in poor neighborhoods. In a free society, however, the market would create abundance, and police services would be cheaper, more effective, and more easily available. I’d be surprised if a voluntary subscription cost more than $50 a month. And on the off chance a poor person still couldn’t afford it, there’d be charity, loans, insurance, etc. (Of course, if we had had a truly free market for the past 100+ years, everyone would already be lifted out of poverty by now anyway.)

Freedom of association is a core enlightenment value. Public goods are an institution that consistently violates it. Imagine a 6-foot-4-inch, 250-pound burly guy who owns guns and knows jiu-jitsu. If he feels he can protect himself, why should he be forced to fund the police? Why should he be forced to pay for a service he doesn’t want? Conversely, why should someone who does use the service be able to refuse payment? Freedom of association goes both ways: in a free society, not only could citizens refuse payment for a service they don’t want, the police could refuse to provide service for those who don’t pay. A free man has a right to refuse any association with anyone for any reason or no reason at all. But public property, by its very nature, depends on violating that right.

The sad reality is that, whenever the government tries to guarantee access to some resource, it is the people forced to finance it who become the resource. Taxes in exchange for access to the police, and forced jury duty in exchange for access to jury trials, are only two of many examples.

This brings me back to the curiosity of the ‘free-rider problem’, and the quote I started this article with. Ayn Rand asks us to imagine a business partnership between an honest man and a swindler: “… the latter contributes nothing to the success of the business; but the reputation of the former disarms the victims and provides the swindler with a wide-scale opportunity which he could not have obtained on his own.” So it is with any mixed system: try mixing rationality and irrationality, truth and falsehood, or the free market and ‘public’ services (meaning freedom and force), and the bad drives out the good.

So you see, the ‘free-rider problem’ is a misnomer: the problem is not the free-rider but the public good. It’s common for people to credit the bad parts of a mixed system for the achievements of the good parts. And this asymmetry explains why Wikipedia blames the shortcomings of public goods on the free market. The real problem is a kind of mysticism: the naive idea that the government can magically sidestep the laws of economics by forcing everyone to pay for services they may not even want. The free rider is innocent in all this: the politicians are to blame. The solution is freedom of association.