There is a philosophy of government inherent in this blog's view. Markets fail, and often so does the public sector. Government can't go it alone, but neither can businesses. They and the nonprofit sector can achieve much more working together than apart. The functions that state governments can play in development are as broker, catalyst/leader, investor, service deliverer, and stabilizer. There are places where government should contract; there are others where it should expand. It is all about rethinking the mixed economy and re-imagining the idea of economic progress.
This blog does not follow the adage that "the best government is the one that acts the least." Instead, it advocates for government that "acts most thoughtfully." "Thoughtful government" may sound utopian and, to many, oxymoronic, but we need a more complete, albeit idealistic, image of "government of, by, and for the people" than narrower functions like correcting market failures and protecting property rights. Good government requires starting with a vision for excellence and openness to experimentation.
Two different metaphors do well to capture my perspective on the nature of economic development and the role of the three sectors (most especially on the state and local levels). The first is a bit more difficult to explain, but more all encompassing, while the second is useful in talking to business audiences.
GOVERNMENT AS A PUBLIC TRUST
A government is not just an institutional body with the power to make, enforce, and administer laws. It should be more than this.
More specifically, government should operate like a Public (or People's) Trust with elected officials serving as its elected and accountable trustees. (The state's Governor would be the "endowment's" President.) The Public Trust's fiduciary responsibility is to preserve and enhance the assets of the trust (e.g., human capital, infrastructure, financial capital, natural capital, technological assets, and social capital), keeping in mind the good of the beneficiaries (the citizens). Using this metaphor, a variety of issues and principles can be framed in these terms from environmental stewardship to corruption, from considering future generations to balancing commerce with other values. By following the guidelines, navigating by this vision, and approaching these tasks constructively, imaginatively, and not dogmatically, there are lots of existing and undiscovered ways to foster greater economic opportunity. Although governance cannot be contracted out, service delivery can be to quasi-public agencies and the private and nonprofit sectors. And a variety of techniques, ranging from vouchers to tax incentives to loan insurance to direct grants can be used, where appropriate within this public trust framework.
The strength of this metaphor is that it does not define the public sector as a kind of after-thought, the venue for all the functions that the market can't handle, because of lack of effective demand or externalities.
Instead, I view markets as embedded institutions. They are shaped by governmental rules and a society's culture and history. In fact, property rights are just claims unless they are enforce by the state. And certain rights are regarded in the United States as inalienable, which historian Daniel Jacoby remarks, are "rights which if sold or surrendered, as distinct from property rights, would jeopardize human freedom." (Although today's free market fundamentalism is trying to change this in certain respects allowing market values to almost always trump all others.)
The notion of "trust" is key. A trust implies a sort of sacred covenant between state and citizen, with reciprocal duties and obligations. According to Burke, "Society is indeed a contract . . . a partnership not only between those who are living, but between those who are dead, and those who are to be born." Unlike the libertarian view, not all promises and obligations are a function of explicit, conscious contracts. We are born, with a hefty list of debts to pay, and the longer we live, the more they grow. As Buddhist teacher Thich Nhat Hahn describes it: "We inter-are."
"Trust" also implies something that must be earned and may be lost through corrosive public corruption and other "sins" against the commonwealth. As Benjamin Disraeli states: "All power is trust . . . we are accountable for its exercise; that, from the people, and for the people all springs, and all must exist."
The word "public" is also very important. As University of Leeds Professor David Beetham elaborates on this rift,
First is the idea of the public as that touches all citizens, and the arrangements of society as a whole, in potentially any aspect. Anything may become a legitimate object of public action, if it concerns all or fulfills a recognized social need. And since individuals are many-sided, and social life is complex, the tasks of public administration will be correspondingly varied. They cannot be reduced to a mere appendage of the economy. Secondly, the public connotes not only that which is of general public concern, but that which is carried on in the "public", subject to public view . . . Thirdly, the concept of the public suggests a form of administration which is carried out ‘for the public', according to an ethos of public service . . . The designation . . . may contain an element of idealization, but the term includes something of the expectations held about the way in which the function should be carried out.
This also means that market notions of efficiency may or may not apply. "Decisions about how to define or measure ‘effectiveness' are thus themselves qualitative or political judgments." According to this perspective, a politician is not like a CEO setting out goals that the public sector are required to carry out in the most cost-efficient way. Indeed, treating like cases the same is not a method of maximizing efficiency, it is based on the rule of law and the equality of citizen rights. Consequently, these profound differences between the public and private sectors must be kept in mind when pursuing economic development or any politically selected goals for the citizenry.
It is for these reasons that Peter Brown believes that the market imperfection rationale for government is highly misleading and reductionistic.
A PERMUTATION OF ECONOMIC DEVELOPMENT AS A BUSINESS
Think of it as an economic development enterprise. (This is a slight refinement of a concept developed by Doug Ross, a former President of CFED.)
What's this economic development enterprise? A few obvious points:
Ultimately, in a market economy, entrepreneurs and private investors are responsible for job creation, not governments.
A Department of Commerce is not the only major player in providing what businesses need. Chambers, community colleges, universities, nonprofits, utilities, revolving loan funds, etc. are also active.
The Economic Development Enterprise consists of:
- Stockholders – citizens (returns on investment – middle class job opportunities)
- Chairman of the board – governor, mayors
- Board of directors – elected officials (legislators, city councils)
- Management – development agencies
- Customers – investors and entrepreneurs
- Product – the community (e.g., locations and conditions for investment)
- Business strategy – development goals and plans; oversight of management, providing capacity building services and incentives, with aim of organizing to win in the marketplace
- Be the board of directors
- Manage your economic development portfolio
- Invest for the long haul
- Raise your rate of return
- Move from compliance accountability to performance accountability
- Don’t always play “gotcha” – be a collaborator
- View programs as experiments not solutions
- The long-term goal is “continuous improvement”
Peter G. Brown's Restoring the Public Trust: A Fresh View for Progressive Government in America (1994, Beacon Press) describes this conception in detail.