Play It Again: Private sector suffers, too, from public sector decay

Anyone following the news finds daily stories of the public sector under assault.  Across the nation and in Oklahoma, cuts to state government continue into their third straight year, while in Washington, the rhetoric around budget cuts has reached a fevered pitch, much of it couched in terms of the need to downsize government to allow the private sector to thrive. We thought this an opportune time to re-post a blog entry that we first ran last summer that takes aim at the idea that cutting government jobs and spending  best serves the private sector.

Last month I gave a presentation to a meeting of the State Chamber of Commerce along with a representative from another state policy organization.  I was struck, and frankly dismayed, by the extent to which my co-presenter  spoke as if government and the private sector were opposing forces pitted against one another in a  zero-sum competition. In this view, taxes assessed on businesses and households extract dollars away from productive consumption and investment in the private sector in order to “grow government”.

It is certainly true that a vibrant private sector will always be the main engine of economic growth in a capitalist economy. Public spending can at times crowd out private investment, although, as economists like Brad DeLong argue, during times of sluggish economic growth like the present,  government spending can be vital for keeping the economy from grinding to a halt and for incentivizing private investment. But more fundamentally, this polarizing conception of “government versus the private sector” misses the important ways in which businesses, as well as families and communities, cannot thrive without a strong and effective public sector. You cannot have a vibrant, productive private sector without state and local government helping to:

• Educate our children and train our workforce;
• Police our neighborhoods, investigate crimes, and detain lawbreakers;
• Enforce patents, copyrights, torts and other foundations of the legal system;
• Coordinate the response to natural disasters and outbreaks of disease that threaten public health and safety;
• Maintain and upgrade our roads and bridges;
• Assist those unable to support themselves due to age, disability, disease, or poverty;
• Protect the quality of our air and water supplies;
• Allow consumers to know that the products they buy and the food they eat are safe;
• Support research and development.

In addition to all these functions that the public sector assumes directly, state and local governments are also a primary payer of services to private for-profit businesses and not-for-profit agencies providing a vast array of health care, social service, correctional and educational services – from nursing homes, private hospitals, and home health agencies to private prisons and educational testing companies.

The deep and prolonged state fiscal crisis is leading to a decay of public services that affects the private sector both directly and indirectly. The Oklahoman recently reported that budget cuts to the State Fire Marshall, for example, are leading to delays of up to two to five months in issuing the fire safety plans required by every new business. The reimbursement rates paid to medical service providers have been cut by the Oklahoma Health Care Authority,  the Department of Mental Health and Substance Abuse Services, and other agencies. As school districts, state agencies, counties and cities struggle to operate on reduced funding, they cut back on their purchasing and contracting with thousands of private vendors. Layoffs and furloughs of public employees, no less than private sector job losses, leads to less economic activity and slower economic growth.

The broader point is that we are all in this together. Oklahoma’s success depends on the public sector as well as the private sector, along with non-profit organizations, the faith community, local communities, and families all playing a role.  If we “shrink government” to where public school children are taught in larger classes and offered fewer programs, crimes are not investigated and prosecuted in timely fashion, infrastructure is allowed to deteriorate, and vulnerable individuals and families are not protected, the quality of life that we all count on and that is required for our security, health and economic prosperity suffers. That isn’t good for business and it isn’t good for Oklahoma.