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Milton Friedman on Incentives and self-interest

The point is that self-interest is served by different actions in the private sphere than in the public sphere. The bottom line is different.

Context. His own explanation of why a government enterprise behaves differently, after rejecting the idea that the people in it are differently motivated.

Why Government Is the Problem
Journal article, 1993, Hoover Institution Press, Essays in Public Policy no. 39, p. 8
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Milton Friedman, “Why Government Is the Problem” (Hoover Institution Press, Essays in Public Policy no. 39, 1993), p. 8. https://miltonfriedman.org/quotes/self-interest-different-actions-private-public-1993

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He also said

  1. Why is it that on one side of an arbitrary line there was East Germany and on the other side there was West Germany with such a different level of prosperity? It was because West Germany had a system of largely free, private markets—a free lunch. The same free lunch explains the difference between Hong Kong and mainland China, and the prosperity of the United States and Great Britain. These free lunches have been the product of a set of invisible institutions that, as F. A. Hayek emphasized, are a product of human action but not of human intention.

    Context. From a talk at the banquet celebrating the opening of the Cato Institute’s new building in 1993. Turning around the saying “There’s no such thing as a free lunch,” long associated with him, he has just said that there is an extraordinary free lunch: free markets and private property.

    The Real Free Lunch: Markets and Private Property
    Speech, 1993, Remarks at the banquet celebrating the opening of the Cato Institute’s new building, Washington, May 6, 1993 (Cato Policy Report, July/August 1993); reprinted in Toward Liberty: The Idea That Is Changing the World, ed. David Boaz (Cato Institute, 2002), p. 54
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  2. The private enterprises selling military goods or services know that this is the case and they have every incentive—in terms of their own bottom lines—to make it in the self-interest of the government officials to buy their products and pay high prices for them. The steady stream of scandals about the procurement of military supplies amply documents this phenomenon.

    Context. From Tyranny of the Status Quo (1984), written with Rose D. Friedman, in the chapter on defense. The authors argue that contracting military production out to private firms does not bring the efficiency of private enterprise: the officials who sign the contracts are not spending their own money, the taxpayers whose money they spend have no effective way to hold them accountable, and taxpayers hear of waste and overspending only when a scandal breaks or a major study is made. “This is the case” refers to that.

    Tyranny of the Status Quo
    Book, 1984, Harcourt Brace Jovanovich, Ch. 4 “Defense”, pp. 76–77 (with Rose D. Friedman)
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  3. I believe that the only way to make a major improvement in our educational system is through privatization to the point at which a substantial fraction of all educational services are rendered to individuals by private enterprises. Nothing else will destroy or even greatly weaken the power of the current educational establishment—a necessary precondition for radical improvement in our educational system. And nothing else will provide the public schools with the competition that will force them to improve in order to hold their clientele.

    Context. From a February 1995 Washington Post article arguing that American elementary and secondary schooling must be radically reconstructed by privatizing much of it, through a universal voucher that lets parents choose their children’s schools, a plan he first proposed in 1955. Earlier in the article he names the school establishment, reinforced by the two national teachers’ unions, as the main obstacle to vouchers.

    Public Schools: Make Them Private
    Column, 1995, The Washington Post, February 19, 1995; reprinted in full in the Congressional Record, Extensions of Remarks, March 28, 1995, pp. 9551 to 9552 (E703 to E704 in the daily edition), inserted by Representative Philip M. Crane., Congressional Record, March 28, 1995, p. 9552
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