private enterprise

Joe Biden’s Weak Case for Government Meddling

by Ryan Young on November 10, 2010

in Economy

Joe Biden believes that government played a large role in the success of railroads in the 19th century. In this video, Don Boudreaux points out that that isn’t actually true. There were four transcontinental railroads. Three of them received subsidies. The fourth was the Great Northern Railway, founded by Canadian immigrant James J. Hill. He alone rejected any special government favors.

All three subsidized railroads went into receivership. Hill’s Great Northern Railway remained solvent, and is still in business today as BNSF Railway.

Lessons from Snowpocalypse: Fire the DDOT

by Michelle Minton on February 24, 2010

in Odds & Ends

Could a private organization get away with handling the Snowpocalypse/Snowmegeddon the way the District of Columbia department of transportation handled it? Maybe, but they wouldn’t stay in business for long. Not planning ahead, making rash decisions, wasting money, destroying property you’ll later have to pay to fix, pissing off customers: these are not the tenets of a long-lasting and successful commercial enterprise. But luckily, DDOT doesn’t have to rely on consumer choice to continue the flow of money into the coiffures; they can just forcibly take taxpayer money to allow them to continue spending willy nilly on useless items like this:

The “Snow Melter,” as reported  NBC Washington and the DCist, was an emergency purchase in 2003 for $120,000. While the Maryland snow melter was busy at work in Baltimore, reportedly a big help, the DC Melter sat idle throughout the snow and the aftermath. NBC was able to locate the machine, but could find no clear answers as to why the machine hasn’t been utilized.

2010_0223_snowmelter2Officials declined a request for an on-camera interview, saying in a statement the snow melter needed parts, was difficult to operate and wasn’t worth using again.  So it sits on the city’s public works lot.

A major problem in the problems with DDOT is simply that the activities are publicly funded and thus there is no competition and no incentive to plan ahead, utilize resources effectively, or take care of other people’s property i.e. parked cars, residential walkways, and the roads that you might have noticed (if you drive in the DC-metro region) are increasingly marked by tire-busting, car-swallowing potholes.

If DDOT operated like a private organization it would have to worry about pleasing customers and being sued for damages by the owners of the roads their snow plows dig up. They would also have a greater incentive to invent new or improve old methods of snow removal. To be fair, the private snow plows that currently operate aren’t always a shining example of capitalism’s bounty, but they aren’t exactly operating in a free market. As it is now, private plows have no incentive to attempt to “capture” the market when the government already forces consumers to pay for public plows or for the private plows DDOT aka “the middle man” decides to hire to supplement their own ranks.

There are a lot of ways for private individuals to deal with snow-related problems (snow insurance is one interesting idea). Instead of paying lip service to privatization by letting the government choose the private contractor maybe it’s time to give the free market a real go. Maybe next year if Snowmeggedon rises again we’ll have better than a snowball’s chance in hell of getting back to normalcy within two weeks of the storm.

Barack Obama’s ‘Digital Lines’ to Nowhere

by Ryan Radia on January 20, 2009 · 4 comments

in Deregulate to Stimulate, Features, Stimulus to Nowhere, Tech & Telecom, Zeitgeist

So spoke President Barack Obama in his inaugural address today:

“We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.”

When Obama said this, he was no doubt referring to his stated goal of having government build out broadband networks on taxpayers’ dime. The massive $825-billion stimulus package unveiled in Congress last week devotes $6 billion to build out broadband to areas where high-speed online connectivity is sparsely available.

Providing private goods like broadband Internet access is a task best left to private enterprise. As Obama himself noted only a few moments earlier in his address:

“It has been the risk-takers, the doers, the makers of things…who have carried us up the long, rugged path towards prosperity and freedom.”

Unfortunately, it seems that President Obama does not fully understand the true meaning of this line. If he did, he would realize that the very risk-takers he lauds are the ones who ought to be tasked with building the “digital lines” that “feed our commerce”.

We rightly rely on government to provide public goods such as national defense, dispute resolution, and the enforcement of property rights. We rely on the private sector, however, for nearly everything else. In an open marketplace, competing firms take risks, investing in business ventures with hopes of earning a profit by selling goods and services above cost. Demand is met with supply, and consumers enjoy the goods and services they desire at prices that aren’t too high.

Broadband is not a public good, and government should not be in the business of funding the development of networks for private use. Investment in broadband in the U.S. today may be below the socially optimal level, but this is the case because of too much government involvement in the marketplace, not too little of it. Moreover, it is not at all clear that government has any better idea than the marketplace how much investment in broadband is socially ideal.

To be sure, spending billions of taxpayer dollars may well mean faster and more widely available broadband access in America. To make this happen, however, capital would have to be reallocated to government from other, likely more productive uses. $6 billion spent on broadband at government’s whim necessitates $6 billion in additional tax revenue, which must come from the pockets of private firms and individuals. For government to spend the funds on delivering a service that the market has deemed unworthy—specifically, fiber optic connectivity to homes across rural America—would deny private entities the ability to spend or invest that $6 billion as they see fit.

Residential broadband access is hard to come by in many rural and low-income areas, and many unserved consumers would love it if firms were to provide high-speed Internet in their neighborhood. Many of these people value broadband considerably as a tool of commerce, communications, and entertainment—or at least they say they do when asked—yet in many cases, private businesses have decided against laying out the funds needed to build out fat-pipes to these areas.

Is the state of broadband access in rural areas proof of market failure? Hardly. What it actually suggests is that, while some unserved individuals clearly desire broadband, residents of underserved communities don’t value broadband enough overall to make it worth deploying. This signals to private firms that in some regions, building fat pipes to every home is an unwise use of limited funds. Instead, these firms allocate their scarce resources to other pursuits—ones which consumers actually value enough to justify an initial investment.

What of claims that the U.S. is lagging behind foreign countries in terms of broadband speeds across? While these reports may hold some truth, they’re hardly cause for alarm. After all, different countries have different characteristics—not just geography and population density, but consumer preferences as well. It’s quite possible that some of the nations with speedier broadband than America actually suffer from too much investment in broadband—and that their economies have suffered as a result. Like telecommunications firms in Japan, which over-invested in building out high-bandwidth fiber optic networks, some nations that currently surpass the U.S. in terms of broadband connectivity may well have harmed their economies on net by misallocating funds. The fact that the average U.S. worker is still more productive than the average worker of any nation with government—funded broadband is a testament to the fact that we can use capital efficiently without embracing a command-and-control approach to broadband.