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Public and Private

January 27, 1999

Tags Big GovernmentU.S. Economy

The Journal of Commerce
January 27, 1999

It's no secret that government has lost its prestige status in recent years. Surveys of students show that very few have an interest in becoming employees of federal agencies.

Being elected to public office no longer carries the cache it did during the Cold War. The Wise Men of our time aren't cabinet secretaries and presidential advisers, but people who thrive in the private sector, like high-tech innovators and heads of successful companies.

What can the partisans of the public sector do? Bill Clinton provided part of the answer in his State of the Union address. Many of his ideas involve drawing the private sector more closely into the government's orbit through a variety of programs and incentives that will not be administered by new federal employees as such. This has the effect of building up the size of government, but in ways that are more difficult to detect. It bolsters what has been called the "shadow government."

Clinton's speech promised new welfare benefits for students, the elderly, the sick, the disabled, and low-wage workers; new programs for banks, financial markets, farmers, and exporters; and new subsidies for police departments, schools, hospitals, and local governments, among many other programs. The list touches nearly every sector of the economy and every corner of society.

Though collectively they could cost as much as the entire fiscal 1971 federal budget, none of them necessarily add to the federal civil-service payroll. The administration of many of them will be contracted out to businesses and non-profit organizations that specialize in public-private partnerships. Some infuse funds directly into local government and quasi-governmental institutions like hospitals. Others will come in the form of mandates and bribes to the states, localities, and the private sector itself.

Even small gifts from the federal government come with strings attached. A town getting a grant from the Department of Energy to put up powerlines will be more inclined to jump when the agency later demands it purchase new fuel-saving school buses (from a contractor favored by the federal government). Even the educational organization I head was muscled by FEMA for a single critical article on grounds that the agency had given the university near our offices a hurricane warning system.

These types of programs, giveaways, incentives, and contracts go well beyond making the private sector more dependent on the government. They actually take serious steps in the direction of making the private sector behave as if it were the public sector, causing a myriad of institutions and individuals to adopt priorities and goals decided on by political and not market forces.

The pioneering research on the shadow government was done by Thomas DiLorenzo of Loyola College, Maryland. His book Destroying Democracy (1985) was the first study to document the alarming rise of government funded non-profit organizations that exist only to do contract work for the feds, and lobby for even more money.

More recently, Paul C. Light of the Brookings Institution, in his book The True Size of Government, has shown that even now, the actual size of the public sector is far greater than the White House (or any other government agency) is willing to admit.

Clinton's claim to have shrunk government is based on the workforce directly on the payroll, which stands at 1.7 million, below the level of 1960. But add to that the number of those working on contract with the government or in government-financed enterprises, and the number swells to 17 million.

That number includes only those receiving a federal check in return for a variety of labor services. It does not account for the ways in which a threatened cutoff of small subsidies changes the character of formerly private institutions.

The most egregious example is Clinton's proposal to drag the stock market into the public-sector quagmire through an infusion of Social Security finance. This would politicize the stock market, cause formerly efficient companies to go clamoring for a piece of the public pie, and artificially subsidize a whole range of economic activities in violation of market principles. The sign and symbol of capitalism itself would become dependent on government, which would also become the biggest player on Wall Street.

It is easy to see why the partisans of the public sector are looking to this plan. If it is enacted, it would be the biggest victory for the shadow government in a generation.

This would be the worst legacy of the Clinton administration. The public sector and all its failures, no matter how much its prestige has fallen, would become a permanent economic partner with the private sector, and set a policy precedent that could lead to ruin.

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Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute in Auburn, Alabama.


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