It’s The Private, Not Public, Sector That Will Overcome Our Challenges

It’s The Private, Not Public, Sector That Will Overcome Our Challenges

Whether it is investing in infrastructure or addressing the ongoing coronavirus pandemic, President Biden and the Democratic Congress continue to believe that the government is the main driver of growth and innovation. This errant belief threatens our fiscal solvency and our ability to solve the serious problems we face as a nation.

Let’s start with infrastructure. There is no doubt that investment in infrastructure is needed, but are the spending packages Congress is currently considering the best way to do it? There are many reasons to be skeptical.

First, there is the price tag. Combine the $1.2 trillion bipartisan deal, $600 billion in new spending, with the Democrats’ $3.5 trillion spending blowout and the federal government intends to spend $4.7 trillion on infrastructure over the next several years. To put this in perspective in 2019, prior to the Covid spending blowout, the entire federal budget was $4.4 trillion. Thus, any way you look at it, this would be an unprecedented increase in spending relative to the size of the federal government.

Second, the Democrats are using the need for infrastructure to implement spending that cannot be justified on its own. While the bi-partisan plan is wasteful and spends federal money on projects that are traditionally the responsibility of state and local government, at least it spends money on traditional infrastructure projects like roads ($109 billion), the power grid ($73 billion), and broadband Internet ($65 billion).

On the other hand, the $3.5 trillion Democratic package expands Medicare, creates new childcare benefits, and uses taxpayer money to create a new program that pays for college. No matter how many times Senator Schumer calls this spending “human infrastructure” these programs are not infrastructure spending. They are social spending programs that the Democrats fear they cannot pass by honestly framing the issue. Hence the deceptive terminology.

And this misdirection is one reason why leveraging the private sector is a more effective way to fix our crumbling roads and improve our infrastructure – as commonly understood. Private sector firms cannot use deceptive language to raise money from investors. And rightly so. If a private sector firm is raising capital to build a private toll road, the uses of that money must be clearly defined and then spent on the needed infrastructure.

A third reason the private sector is better positioned to improve our infrastructure is because most of the U.S. infrastructure is owned by the private sector. As Chris Edwards of the Cato Institute noted,

the key to infrastructure policy is recognizing that the private sector owns most of it. In 2019, the nation had a massive $40 trillion in nondefense, nonresidential fixed assets, which is a broad measure of infrastructure. The private sector owns 65% of it, including power stations, freight railways, pipelines, factories, broadband networks, and much else. State and local governments own 30%, including highways, schools, and airports. The federal government owns just 5%, including dams, postal facilities, and other assets.

Given this distribution, upgrading our infrastructure requires private sector investment. The plan to pay for the expanded government spending is to increase the tax burden on private companies and investors. These added burdens will make it harder for the private sector to invest in the nation’s infrastructure. Thus, the federal government’s infrastructure spending could actually reduce the total amount of infrastructure investment once the impact on the private sector’s spending is considered.

The private sector’s response to the coronavirus pandemic provides a different perspective on the importance of a vibrant free enterprise system for addressing pressing public problems. Most prominently, thanks to the pharmaceutical industry developing safe and efficacious vaccines in record time, we now have a path back to normalcy.

Importantly, the rapid development of the vaccines was possible because the for-profit pharmaceutical industry was already developing a robust mRNA research program long before the pandemic began. Once the pandemic started to spread, the industry could leverage these efforts toward quickly developing a vaccine. These research programs would not have existed, however, without a profitable pharmaceutical industry. Thus, a vibrant private sector proved to be an irreplaceable asset for overcoming the pandemic’s hardships.

But the private sector’s contributions to overcoming the pandemic go beyond vaccines. Many other private sector firms are making important contributions. For instance, as former Deputy Surgeon General Kenneth Moritsugu explained in Real Clear Health,

The virus – and mutating strands of it – circulating in closed rooms among unmasked and unvaccinated people will be a concern among public health officials moving forward. Even with an increase in vaccinations, the danger of interior COVID spread will continue, especially in schools, where few children will receive shots in the near future.

Innovations at private sector firms are addressing these problems. Former Sierra Club Board member Dr. Michael Dorsey wrote in Newsweek about a company called ActivePure that has developed a new FDA approved technology that kills pathogens like the virus that causes Covid. This private-sector solution minimizes the transmission of Covid-19 as well as the risks posed by other viruses and bacterial infections.

These examples demonstrate that often the best way to address pressing public problems is to empower private individuals and businesses. The government-first approach of the Biden Administration and the Democratic Congress is problematic because it replaces entrepreneurial innovation with government rules and regulations. Unless reversed, this government-centric approach will undermine our ability to adequately resolve many of our pressing challenges.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.