If a government stops enforcing the law, private businesses will not — and cannot — step in to fill the void.
San Francisco is refusing to stop shoplifters, and it’s driving businesses, such as Walgreens, out of the Bay Area. Instances of brazen stealing have circulated on Twitter and other social-media networks, leading some to wonder why Walgreens spends so much on security guards if they aren’t going to stop theft. The disastrous outcomes in San Francisco shows what happens when sound economics meets bad public policy.
The traditional definition of a public good is something that is enjoyed by all without anyone’s consumption infringing on someone else’s use of it. National defense is the canonical example of a public good because everyone relies on the Army’s protection, and the United States must defend the whole country. Public goods lead to a free-rider problem, though, where people shirk paying into the system because they will receive the benefits whether or not they contribute. This is why governments provide public goods.
However, we often think of public goods as, well, goods. Defense, roads, and environmental protection physically require tanks, concrete, or an EPA. But San Francisco shows why we need a more capacious definition of a “public good.” Police officers and the justice system do more than simply arrest criminals; they create a social climate of order from which all citizens benefit. But because “order” is not a tangible product, people can misunderstand it as something that is individually enforced. This is a mistake.
It’s not surprising that if a city decriminalizes shoplifting, there will be more shoplifters. However, it is important to be clear-eyed about the fact that if a city, county, or state stops enforcing the law, private businesses will not step in to fill the void. They simply cannot do so.
If law enforcement will not prosecute criminals, it’s not economically efficient to stop minor crimes. Litigation is costly, so suing shoplifters isn’t worth it. If a security guard and a shoplifter had a conflict, companies could be held liable for any physical harm that occurred. Furthermore, any physical conflict between a company staffer and the public could hurt a company’s public image.
This is why Walgreens security guards have been relegated to essentially documenting crimes rather than enforcing the law. As long as Walgreens insures the products in their stores, there is not a strong enough incentive to enforce shoplifting rules. If things get bad, as they have in San Francisco, companies will just close their doors.
In this way, companies are free-riders on the public good of order, unable and unwilling to provide it themselves. The police-brutality protests-turned-riots last summer are a perfect example of this phenomenon. Stores were looted, sometimes more than once. Businesses boarded up their facilities in anticipation of riots but often refused to enforce security at the door of their stores.
Some may wonder why businesses don’t do more to protect their property. It may seem unfathomable to knowingly allow one’s store to be raided. On the other hand, others believe that companies that close up shop are abandoning the community. This frustration arises because we expect businesses to act on the same norms that individual people do. This is not the case, though.
Many critical interpersonal interactions are based on “Schelling points” — points of agreement that people arrive at without communicating. In the context of property rights, people naturally agree (without actually saying anything to one another) to contracts that roughly look like: “If you don’t come onto my property, I won’t come onto yours.”
People defend their homes from invaders both to protect their things and because they find the intrusion itself offensive. Whether or not one’s house is insured isn’t relevant. If someone broke into your house, for example, and did nothing but rearrange the furniture, you’d still find that “breach of contract” disagreeable. People expect Schelling points to be honored.
Americans don’t have the same Schelling points for businesses that we have for individuals. For many people, shoplifting is forgivable, but robbing a house is not. Conversely, there is no sense of “castle doctrine” for company managers. They will not take the same measures to defend their business that ordinary people would take to defend their property. This explains why some Minnesota private citizens acted as “unofficial neighborhood guardians” during the Black Lives Matter protests while many companies left their stores unguarded.
In sum, maintaining order is not economically efficient at the atomized level for two reasons. First, privately paying for private security, insurance fees, and litigation expenses doesn’t make economic sense. Perhaps more important, there is no widely agreed upon Schelling point between businesses and ordinary citizens.
There is a reason that even the most minimalist libertarians look to the government to administer justice and maintain order. However, politicians seem to believe that businesses are like wealthy merchant traders, not realizing that the culture around business interactions is wildly different from the culture that shapes interpersonal norms. People will defend themselves. Businesses will flee. San Francisco should serve as a warning to other major cities: Treat order like a public good, or companies will run to places that do.