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All Those Partnerships With Business Might Not Be So Great

by danps Sat Aug 28th, 2010 at 05:48:01 AM EST

It has become almost universally accepted in Washington that government needs to work with the private sector in various capacities in order to function effectively.  The track record from recent years suggests exactly the opposite.

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On last Sunday's "Meet the Press" Michigan governor Jennifer Granholm discussed the economy, and did so with an unmistakable emphasis:

smartly, strategically, surgically intervening to invest with the private sector
smartly intervening with the private sector to be able to do the breakthrough technologies that the private sector doesn't have the funds to be able to do
the government has to partner with the private sector to create jobs
we have 16 companies now in Michigan just in the past year because we partnered with the private sector
And with perhaps unintended accuracy:
Strategic investment with the private sector is what works in the 20th century.

That one of the more prominent Democratic officeholders in the nation took such pains to emphasize the need to partner with the private sector is very revealing.  It goes way beyond, say, offering tax breaks to encourage outcomes that policymakers favor.  In many cases (Granholm's illustration included) it means providing glorified bribes to get entrenched industries to ostensibly support goals it is openly hostile to.  If government is going to get involved so directly, wouldn't it make more sense to identify promising new actors that have embraced those breakthrough technologies - and help them get across the valley of death?

Her comments are of a piece with the larger belief that government needs to have a warm and fuzzy relationship with large corporations.  The reasoning for it usually goes something like this: If we cozy up to them and find out what they really want, they will be extra productive.  They in turn will hire lots of new people, pay higher wages and return handsome profits to shareholders.

There never seems to be any consideration for what happens if instead they lay off people due to the productivity gains, drive their existing workforce harder, perhaps even endangering them, and funnel the profits into executive compensation.  In a way it compares to trickle down economics:  In both cases those at the lower end of the economic scale are supposed to be beneficiaries, and in both cases that end is achieved by showering the privileged with largesse and assuming they will share it.

The eager-to-please attitude extends to the Food and Drug Administration (FDA), where its site proudly proclaims it "is interested in partnering with the stakeholders to further its public health mission."  The latest revelations about the egg recall are just additional confirmation that the agency subordinates regulation to happy relations with an industry it is supposed to be monitoring.

These problems are not new, either.  Perhaps the most egregious recent example came several years ago when then-Deputy Commissioner Lester Crawford testified: "Referring to the industry as a client or as a customer is sort of part of the new emphasis on stakeholder involvement."  Crawford then went on to a brief but revealing stint as FDA head.  The conflicts and perverse incentives that characterized his tenure can be seen at state and local levels too, with similarly unpleasant results.

There is sometimes a sinister aspect to these kinds of "collaborations."  Even before 9/11 the government leaned on telecommunication companies to assist them in spying on citizens.  Telecoms are free to hand their data over to the government - and the government does not need a search warrant.  Clearly it is much more convenient for a private company to hand all its records over than to go in front of a judge and argue for the right to get a single individual's data.

Now that it is clear that there will be retaliation if they do not play ball, phone companies are downright eager to provide authorities with terribly useful tools for digging in to people's lives.  The courts have pushed back in some cases, but the White House is aggressively moving to widen the pipeline of information flowing to the federal government.  The continuity with the previous administration is unmistakable, and it suggests one of those dynamics that is not so much Democrat versus Republican but establishment versus outsider.  After all, it makes life easier for everyone inside the Beltway if the lobbyists, regulators and politicians all get along splendidly.

Government should not have any kind of official position towards the private sector, and it certainly should not have the kind of solicitous stance it has so energetically cultivated in recent years.  It should simply set up the rules, expect them to be followed, and regulate with all appropriate energy.  Its stance should by default be neutral; for businesses and industries with a pattern of bad behavior it should become increasingly antagonistic.  The risks of the friendlier approach are all too plain.

by danps (dan at pruningshears (dot) us) on Sat Aug 28th, 2010 at 05:48:32 AM EST

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