By Dennis Polhill
An advantage that private sector entities have over public sector entities is clarity of purpose. The parts of private sector entities function like a well-tuned and well-oiled machine. Both the purpose of the overall entityisclear (to produce widgets) and the purposes of the respective subordinate functions are equally clear (to produce left front widget wheels). Private sector human resources and talent are intensely focused at producing more and better widgets. This intense focus yields an endless stream of innovative ideas. Innovations discovered are quickly identified and implemented. Individuals who add value are rewarded. When left front widget wheels malfunction, the problem is quickly realized and corrected. Both individuals and organizations perform more efficiently and more effectively when they know their purpose.
Governments are deprived of the advantage of clarity of purpose. Governments operate under a vagueness of purpose that frustrates its workers and preempts the efficient disposition of its charge. The disadvantage of government is augmented by the sweeping trends of the last century wherein the New Deal encouraged and facilitated massive expansion of the dominion of government. The proliferation of multitudes of fragmented governments has not mitigated, but has compounded, the problem. Currently, there are over 86,000 governments in the U.S. The number is growing by 4,000 per year or eleven per day. Colorado has nearly 2,000 governments.
Governments do, of course, have charges, and they perform many critical functions. However, those charges, by virtue of the very nature of government, must remain vague. The need to sustain reasonable decision making latitude, supports the argument for vagueness. The temptation for elected officials to respond to the desires of special interests by directing public resources into new areas is evidently irresistible. The result (rightfully or wrongly) in a practical sense is a public policy of dynamic perpetual change and waffling. To the employee committed to results, the situation is untenable. Goal achievers and self starters either stop being self-starters or leave government service. To the extent that vagueness can be minimized by virtue of a more clearly defined specific purpose, efficiency will result.
Given the assignment to define the role of government, one would quickly find oneself confounded. Defining what government should do is very difficult, if not impossible, particularly in specific terms. Since it is so difficult to define what governments should do, perhaps the best approach is to search for activities that governments obviously should not do.
In a socialist society, all goods and services are produced and distributed by the state (the government). In a capitalist society, goods and services are of two types: public goods and private goods. Private goods are produced and distributed by the private sector. Private goods are acquired by an individual consumer for his individual private consumption. Examples are shoes, radios, oranges, and automobiles. They are divisible. Private goods can be produced in units sufficiently small for individual households to purchase. The satisfaction, benefits, and costs are limited to the individual purchaser. Those who are not willing or are not able to pay the market price for private goods are excluded from the benefits and enjoyment such goods confer. This exclusion is called the exclusionary principle.
Public coeds (sometimes called social goods or collective goods) are goods and service that provide benefit to the general public as a whole. Examples are police protection, fire protection, transportation systems, flood control, regulations, and national defense. Public goods are goods that are not likely to exist without the benefit of government sponsorship and subsidy. Public goods are not divisible. They are of such large units that individuals cannot purchase them. They yield widespread benefits to the entire community. Public goods cannot be supplied on the basis of buyer initiative. The exclusionary principle does not apply to public goods. Everyone receives benefit.
There are many examples of governments at all levels that have crossed over the line, and have entered into the provision of private goods. When governments compete in the same market with private businesses, the businesses can be injured and, in many cases, destroyed. When governments use their power of tax exemption, liability exemption, and regulation exemption to injure their competition unfairly, many groups are injured.
When government owned businesses do not pay taxes, other governments are deprived of revenues that they need, and to which they are entitled. Who wins when Winter Park does not pay property tax? Winter Park generates jobs, housing, people and kids. The kids need to have a school to attend. If the Grand County School District does not get operating revenue from Winter Park, how is it expected that the School District can carry on its function? The Federal Center produces traffic, flooding, and other impacts on the City of Lakewood. When the Federal Center does not pay its fair share, Lakewood’s operating costs are elevated and revenue base is diminished. Is this fair?
When government owned businesses are exempt from or limited in their liability, consumers are placed at risk. Why should a consumer at Water World in Federal Heights be at a greater risk than at Southshore Water Amusement Park in Arapahoe County? If a consumer becomes a quadriplegic at Water World, why should that individual be limited to damage recovery of $250,000? Is it not reasonable for the injured party to expect the same damage relief irrespective of who the owner of the property is?
When government owned businesses are exempt from regulations, both the public and consumers are at risk. When special districts claim to be exempt from zoning codes and procedures, then do the procedures truly protect the public from injury? The same is true of all laws: building codes, sign codes, fire codes, inspection procedures, plan reviews, the permit process, flood plane infringements, environmental impact reviews, curb cuts, etc. How can a government function in an objective regulatory role (without conflict of interest) when it is in the same business as a private business upon which it wishes to impose regulations?
Unrelated Business Income Tax (UBIT) laws came into existence to curb abuses by non-profit corporations that overstepped the bounds of their charge to perform charitable work. Similar controls on errant government activity are needed.
Dennis Polhill. Unfair Government Competition Against Small Business, Independence Institute issue paper no. 12-93 (July 9, 1993).