Nestled deep within President Obama’s infamous “you didn’t build that” speech is a subtle statist sentiment that has escaped the slings and arrows of his detractors. Perhaps because, being statist themselves, they agree with it. He says:

“The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.  There are some things, just like fighting fires, we don’t do on our own.  I mean, imagine if everybody had their own fire service.  That would be a hard way to organize fighting fires.”

There are two flaws in this statement, the first philosophical, the second practical. The philosophical flaw is the implication that a necessary condition for success is human cooperation (true) that is facilitated by government action (false). This notion rests on the faulty premise that absent government coercion certain types of cooperation are simply not possible. To underscore this sentiment he utilizes what many statists consider to be the “slam dunk” example against privately supplied “public goods”: fire fighting. Alas, he has picked just about the most easily debunked example.  This one is almost too easy to dispense with. Here goes:

To the statist the question is this: We want to protect our homes from fire, but how shall we pay for this service? If your house is burning down you aren’t going to compare prices, therefore market failure is implied. In fact some have made the most ironic of arguments against privatization of such services by citing the recent example of a public fire department that allowed a house to burn due to lack of fee payment. The irony lies within their straw man argument that mischaracterizes the distortions of normal market incentives inherent in a public monopoly as being examples of flaws in putative private market.

To understand how any private market works requires an understanding of incentives. Who has an incentive to prevent property destruction? The owner and the insurer. In a private system insurers would REQUIRE homeowners to purchase fire protection (if not outright inclusion of such costs in the premium). Because the insurer wants to be reasonably confident that these companies are competent, the insurer will have a vested interest in auditing and regulating these fire companies to be sure they know what they’re doing. And the fire companies will welcome such regulation because meeting the insurer’s standards will ensure they are on the insurer’s short list of approved fire mitigation vendors. The mutually beneficial incentive structure of the relationships ensures their continued maintenance. No outside compulsion or force is necessary. The homeowner is protected from fire and loss, the insurer is protected from loss and the fire company receives remuneration for their valuable service to both parties.

What would be the benefits of this private system over the current system? The amount the homeowner pays will be related to risk. Riskier homeowners pay more, less risky ones pay less. Our current system simply assumes expensive homes are somehow inherently more likely to catch fire than inexpensive homes. This is absurd on its face.  In a private system costs will be driven downward as each party tries to minimize risk. Owners suffer fewer losses, insurers pay fewer claims and fire companies decrease their capital overhead and operate more efficiently. In our current monopoly system, fire prevention technology may help the owner and the insurer however it has minimal to no impact on the budget of public fire departments. Because there is no price feedback in the public system, resources may be under or over allocated due to budgets driven by bureaucrats rather than customers.

So, the President is wrong. If we all had our own fire service it would work just fine. It is indeed possible to cooperate without the gentle fist of government.