One of the constant struggles in our market-based, democratic society is deciding how best to solve a problem.
We need to educate our young. Is that goal best accomplished by public schools financed by taxpayers? Or by private schools financed by tuition? Or by a nonprofit hybrid financed by both?
We need to move ourselves and our products. Should roads be public goods financed by all taxpayers? Or should they be semi-public goods financed only by those who use them via tolls and fuel taxes? Or should they be entirely private enterprises financed apart from government and paid for as needed through entry fees paid by those who choose to use them?
Electricity and telecommunications have usually been defined as public “utilities,” where private companies build the facilities and provide the service. But they fall under the regulation of public officials who approve rates, often set at levels sufficient to subsidize consumers in sparsely populated, high-cost rural areas with funds collected from lower-cost, densely populated urban areas.
The term public-private partnership has a long, if not always glorious, history in America.
The severity of our current economic recession is largely the result of two huge swings in this ongoing public-private struggle.
The first was the enormous bias in our tax and regulatory system toward home ownership, and the second was the decision in the late 1990s to deregulate our banking system.
These policies moved in opposite directions on the public-private continuum of problem solving.
On the one hand, we deemed “affordable” home ownership to be a “public” good and provided public support in the form of both tax subsidies and loan guarantees, both formal and implicit.
On the other hand, we deemed the Depression-era bank regulation that separated retail and investment operations to be old-fashioned and unnecessarily restrictive of financial innovation.
The Clinton, Greenspan, Rubin banking deregulation was supposed to ensure the long-term primacy of U.S. companies in the world of global finance.
The unforeseen consequence of this marriage of housing and banking policy reforms, we now know, was economic catastrophe on both sides of the coin.
Privatizing potential gain while socializing potential risk has all but eliminated the goal of home ownership for millions of people for a generation, devastated the construction industry and burdened the financial industry with a morass of new regulations that limit new lending while maintaining socialized protection for an ill-defined special class deemed “too big to fail.”
The lesson here is that we need to look very carefully at the definitions of “public good” and at the implications of the public investments intended to produce it. And that care needs to be exercised across the board for all social “problems.”
We all get irritated when gas prices jump. Energy independence sounds like a common-sense “public good.” But how far are we willing to go to socialize the risk for wind and solar and ethanol and bio-mass and the other possible “alternative” energy producers?
Similarly, we hear daily of the enormous power of the internet — the power to connect us, the power to live anywhere and work anywhere else; the power to do business more quickly and efficiently; the power to provide health care remotely; the power to multiply educational resources almost limitlessly; the power to put the services of town hall on the desktop of every citizen.
Again, the need is obvious, and the “gee-whiz” solution appealing. But how does it happen? Who are we expected to subsidize? What are the risks? What are the standards of success, and how will we know when they are met?
Our recent history gives us reason to pause before jumping on the next “sure thing” necessary for the 21st-century economy.
The primary lesson, it seems to me, is to avoid the one-size-fits-all, universal, big government-financed and enforced solution.
The model for approaching our energy and communications needs should not be rural electrification and the Tennessee Valley Authority — a single solution provided by a government agency.
It should, rather, be the model provided a century ago in Tin Pan Alley by the nascent popular music industry that created demand for the radio by writing and recording popular songs. It’s also a model pursued today by software developers in the nascent social media industry who write and distribute popular apps and games that creating demand for broadband Internet connections.
The model we should follow is an open environment welcoming to lots of little enterprises seeking to find ways to make new technologies useful.
To paraphrase Maine’s own innovation guru, Doug Hall, this model generates lasting innovation by producing lots of little experiments that fail quickly rather than one big one that takes a long time to fail. We’ve had quite enough of that approach.
And that leads to consideration of a new brand of enterprise — the social entrepreneur and the hybrid organization — a topic for a future column.
Charles Lawton is senior economist for Planning Decisions, a public policy research firm. He can be reached at:
clawton@maine.rr.com
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