Economic liberals forget the weak

A major scandal has erupted from the privatization of Taiwan Fertilizer (台肥). The high percentage of the company's stock, 40 percent retained by the government, and a lack of reorganization by the company's Board of Supervisors, despite the company's privatization, were the primary causes of the scandal.

With the company still led by government personnel, certain people have been helping unscrupulous politicians and elected officials with good political and business connections to speculate on Taiwan Fertilizer's stock.

The government's assets, in the process of privatization, have become a source of profit for a small number of people. We cannot help but ask what is the purpose of privatization? Is it for the welfare of our country as a whole? Or is it, perhaps, that privatization simply serves the interests of a few?

The primary reason for privatization comes from a belief in economic liberalism. Believers in economic liberalism argue that the market is the most efficient distribution mechanism of resources. They believe that the distribution of resources in a completely competitive market maximizes the utilization of resources.

The distribution engendered by privatization should, therefore, benefit both the producers and the consumers in the market. In contrast, if the market is monopolized by a small minority of individuals or businesses, then the distribution of resources will often result in waste.

Not only is the monopolization not beneficial to the total production output, but it actually hinders the fairness and legitimacy of transactions. Therefore, believers in economic liberalism emphasize the importance of the market mechanism.

Actually, this view is not only held by believers in economic liberalism, but actually constitutes, to a certain degree, the core of the contemporary economic system.

However, this analysis of economic liberalism is, in reality, deficient. To a certain degree the analysis is based on pure assumption. Not only does it fail to consider transaction costs, but it also fails to take into consideration social reality.

When we treat a theoretical world as a standard and try to impose it on real life, it is easy to forget that those businesses and individuals capable of reducing transaction costs through large volume transactions are at an advantage, and also that the political and economic status of everyone in a society is different. In other words, the level to which transaction costs may be conserved and the manner of conserving such costs are different for everyone.

Under such circumstances, economic liberalist ideals allow people to engage in transactions based on the resources and means available to them. This arrangement essentially places society in the clutches of a mechanism that does not consider the inequities between the participants in market transactions and the social costs created by such inequities.

The Taiwan Fertilizer scandal reveals the error of economic liberalism, for in the privatization process, it has failed to take into account special interests and the protection of the rights of employees. In terms of the former, the legitimacy of the market mechanism is used as the justification for privatization. In terms of the latter, the costs conserved by the privatization typically derive from the sacrifice of employees' rights.