The Role of Government in Development

We often find ourselves in an interesting quandary when debating economic and community development issues. We acknowledge the important role of government in promoting trade and ensuring a positive environment exists for attracting business. But at which point do we draw the line?

Should governments actually be in the development business?

It’s an interesting question and one that deserves more than a passing discussion. Mostly it comes down to deciding when and where we expect government to step in when it comes to markets in general. We are after all, the universal proponents of free enterprise and a market-driven economy. For the most part the role of government in this arena is deemed to be regulatory at best and to have merit only when a need for consumer protection, legal monitoring, or some other publicly threatening event is to be preempted.

We do have a track record of government intervention even among the most ardently laissez faire oriented leaders. Reagan certainly set the star precedent with his move during the air traffic controllers strike. Although such a move had been unheard of in the past, its requisite justification that the public good is the only justification needed for government intervention has been the basis for similar actions since. Locally we have several manifestations of government interceding in business from Enterprise zones to business development centers, tax incentives to a plethora of seemingly alike economic development boards, authorities, commissions, and councils. And of course at the core of it – governments tax, license, allow and disallow any and all economic activity within their purview.

There certainly must be a balance.

Too much government intervention stagnates the economy whereas to little results in $3 plus a gallon gas and a mortgage industry that makes the national debt look stable. But where do we want and need that balance to be. Everything has been tried at one point. Take for example the folly that was the Soviet Union’s Comecon in which every soviet-allied state had its own very specific role to play, product to produce, and so on. It was this planned economy and its resultant stifling of innovation that ultimately more than anything else led to the wholesale abandonment of the modern communist system.

Our own history has shown us the ins and outs of a totally free economy with rampant corruption, nationwide monopolies, and a massive concentration of wealth in the hands of the few “Robber-Barons” of our gilded age of the latter 19th century. Now in all fairness this same period of free commerce led to immense innovation and massive infrastructure construction on a scale rarely seen. However the arrival of trans-continental rail, the telephone, the automobile, and so many things we simply can no longer imagine life without came at a cost. This same period of prosperity was rife with corruption, took the atrocities of bad business to new unheard of levels, and encompassed the near complete reaping of many natural resources in the US including a virtual clear-cutting of our own Louisiana hardwood forests (did you really think pine trees were native?).

We have perhaps witnessed the lightning speed at which both business and corruption can flourish in a environment free of regulation and government intervention. The explosive growth of the internet from a hobby among college engineers to a staple of our daily lives shows what is possible when innovation is allowed to take foot unchecked. At the same time though the past 8 years have shown us an uglier side of this same debate with oil companies taking the opportunity in less than a decade to merge from 12 large companies in the US to 5 companies controlling most of the petroleum trade worldwide. Perhaps this is not bad, however the fact that a slew of deregulation, lessening of environmental and safety regulations, and the removal of all sorts of other laws that are said to increase the cost of doing business has actually accompanied a 400-500% increase in consumer fuel prices lends a bit of weight to the need to government control argument.

The Government’s Role

Aside from Uncle Sam’s role in regulation of business the government has always played a large role in economic development. Certainly the availability of programs meant to spurn business and promote financial solvency have an impact. But most of the government’s influence actually comes from two areas – providing capital for growth and funding large projects that carry high risk or little promise of a good return on investment. These projects usually have taken the form of infrastructure such as our interstate highway system, the TVA, Hoover Dam, airports, the basics. Many of these projects have been the result of less than altruistic motives – usually military. The government simply needed these things anyway.

This model of massive infrastructure projects, or government contracts paying for larger than life construction has been applied for decades to purely business related ventures. Publicly funded development projects from industrial parks, to subsidized manufacturing facilities have long been used to lure everything from car plants to call centres. Add to this our state government’s favored weapon – the tax break and the active role of government in business is quite immense whether we like it or not.

The Issue.

Although we have a history of trading a bit of our economic freedom for a more stable, safer, and hopefully productive economy we still tend to lean away from bringing our governments into our marketplaces. Perhaps this is a bit of a circular argument in that we tend to want the government to stay out of our pocketbooks and to reduce taxes which leads us not to be openly supportive of using tax dollars to fun business. But at the same time we expect our government to ensure that more money can flow into our wallets by providing for and promoting greater economic opportunity and prosperity.

So where does government step in?

Where and when do we ever expect government to step in? When there’s a problem that needs to be fixed. Where something needs to change and the non government sector is either unwilling or unable to rectify the situation. Basically we tend to want government when and where we feel we need them and at the same time like them to stay as far away as possible when and where we don’t. This is of course a quandary in itself even the most independent libertarian recognizes the need for some regulation while ardently green environmentalists don’t want the government looking over their shoulders at every turn. When it comes down to it however we must determine as a constituency what we expect of our government in terms of the business realm and encourage and assist them in affecting change within the limits of that expectation.

So what is our expectation – especially on the local level? What do we want our government to do to promote development and what do we expect them not to do? Your comments on this topic are welcome. Actually they’re very desired as I’m about to start writing Part II of this piece – the Local Equation…

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