The Danger of Government-Owned Commercial Enterprises

I am always flabbergasted by folks who support government ownership of commercial assets based on the idea that the government is somehow more accountable than private enterprise.  This argument is, frankly, insane.  Commercial entities are held accountable by two things:  1) the ability of a customer not to purchase their product or service and 2) the ability of new competitors to enter the market and take away their customers with a better price-product package.

All enterprises naturally try to resist these pressures.  In the long run, there is not much a private company can do to evade these pressures.  Even bald attempts to monopolize the market have always failed (at least without the support of the government for that monopoly, as in certain utilities).

But government enterprises are entirely different.  The government has the legislative and regulatory power** to stifle competitors to themselves and to compel consumers to use only their product or service.  In other words, the government, uniquely, has the power to totally void the two sources of accountability in the market.

And the government uses this power all the time.  They use it to protect favored airports, to protect cigarette makers who pay them loads of settlement money, to protect wi-fi revenue, and of course to protect the good-old US Post Office. Via Reason, comes this story of the government even making life worse for drivers in order to protect their toll revenues:

When E-470 opened in 2002, some people thought it was a strange
coincidence that, about the same time, the speed limit on nearby Tower Road, a
paved, 2-lane, rural highway, dropped from 55 MPH to 40 MPH. Several apparently
unnecessary traffic signals also appeared. This, in spite of the fact that after
the toll road opened, Tower Road would have even less traffic than it did
before.

Well, it was no coincidence.

The lower speed limit and extra traffic signals, which make Tower Road slower
and less convenient to use, are required by a "non-compete" clause in an
agreement between the E-470 Public Highway Authority and nearby Commerce
City.

The goal is to impede traffic on Tower Road so drivers will decide they are
better off using the toll road. This protects the revenue stream from the tolls,
thereby protecting the interests of the toll road's investors.

Once government gets into a particular sphere, they are never ever going to voluntarily let anyone in, no matter how bad their product or service becomes.

** This power is not really constitutional, and has only emerged post-1930's, but that is another topic.

Update:  Just to anticipate the argument, observant readers will note that several of these examples represent "public-private" partnerships that split returns between private investors and the state.  The wi-fi example and the toll road example are of this type.  The fact that these government endeavors include private money does not change the problem one bit.  The problem is the government using its unique legislative authority to intervene in an industry to protect its own rents, which can occur with the government as a 100% investor or as a minority investor.

  • http://ashish.typepad.com/ashishs_niti Ashish Hanwadikar

    "I am always flabbergasted by folks who support government ownership of commercial assets..."
    Giving government ownership of commercial assets is same as giving private interests control over government. Yet the same folks will oppose tooth and nail any attempt to do that.

  • http://honestpartisan.blogspot.com honestpartisan

    You overlook lots of barriers to market competition in the absence of government regulation. Monopolies always fail? Debeers, anyone? There should be a free market in airports, roads, and utilities? How would such competition be meaningful given resource limitations and high start-up costs?

  • http://www.linesinthesand.net Doug Murray

    This is a discussion my son and I have had often over the years, and I may have won him just last week with the statement "Activities that best serve the public as a monopoly should be performed by government, the rest by the marketplace." When pressed, about the only such activity I can identify is...government.

    One proper role for government is to discourage the formation of cartels like Debeers (which is not technically a monopoly, honestpartisan, but a syndicate), but too often it is government that creates them and true monopolies.

    When I moved to Seminole county twenty years ago, five different garbage collectors served my street and I could choose the fee and pickup schedule that suited me. Then the county came up with a better way, offering franchises for neighborhood monopolies. Now, if you want to collect refuse here, startup costs may or may not be any different, but government itself has become the biggest barrier to access in this market.

    Is the public served any better? We still pay about the same, but no one notices because the county now collects it from your mortgage company, and we no longer control rates or schedules. As for the original argument, that the competitve situation was inefficient and unprofitable, it's hard for me to believe I would have had so many choices in an unprofitable market.

    Also, honestpartisan, many roads and airports have been constructed privately, and it's common for a business or residence owner to be able to choose from among multiple providers for utilities like phone service and electricity.