Government Ownership of Companies is a Very Bad Idea
Americans may have become accustomed to ever increasing taxes and regulations that control every nook and cranny of our lives, but we are not quite ready to allow the government to own companies outright.[1] And yet, this is precisely the situation that the ongoing Third Frontier program invites us to consider.[2]
On the November 4 ballot, we will be asked to vote on Issue 1, a $500 million bond issue to fund a new wave of industrial planning gearing toward high-tech development. Leaving aside the questionable claim that this is not a tax increase (because debt ultimately has to be paid back with tax dollars) or that it will "create jobs," there is one truly frightening aspect of the Third Frontier program.[3] Namely, it will allow the state to become a direct stockholding investor in these new high-tech start-ups.
At first glance many people will recoil at the risk the state is undertaking by investing directly in companies. After all, if the companies fail, then the state will have lost its investment. Of course, if the government merely loans or grants money to private companies, it exposes itself to similar risks. But the real worry is what will happen if the companies succeed and prosper and the state becomes a shareholder in many Ohio companies. Over time, the state could become a major shareholder in hundreds of companies.
Think of the opportunities for political shenanigans if the state owns whole or even just parts of companies. Will politicians expect kickbacks or campaign support from the companies they invest in? Will the politicians invest in politically friendly companies or disinvest in companies that are politically on the outs?
These are not idle concerns. In 1999, the quasi-private, but really state-controlled, Ohio School Employees Retirement System temporarily stopped doing business with Huntington National Bank in Columbus after one of its economists, an advisor with the Buckeye Institute, wrote an op-ed piece in a newspaper which the pension bureaucrats disliked.[4]
Do we want the state to be able to threaten Ohio companies with divestiture if they, or their employees, don't tow the line and agree with current policy? The implications for freedom of speech are chilling.
Ultimately, we have to ask ourselves why the government should be spurring private investment at all whether through ownership shares or through the more traditional means of grants and loans. We have the most advanced capital markets in the world in the U.S. If a company has good ideas, then usually there is a rush of investors competing to give it money and to share in the profits. If a company can't find investors, it is because the private capital markets don't think the company is likely to make a profit. Why should the state of Ohio invest in these companies after the private markets have already determined that they're not worth the risk?
Issue 1 will allow the state of Ohio to cross a time-honored line by permitting the state to own companies directly. It is hard to see how, once this line is crossed, there will be any limits on direct state involvement in private enterprise. This will make a mockery of our claim to being a bastion of private enterprise in this world.
Footnotes:
[1] To be fair, there are a few exceptions to this rule, most importantly the public ownership of certain utilities. But even in the case of utilities, the dominant model is private ownership with public regulation.
[2] James McNair, "Caveat Issued for Ohio Ballet Issue," Cincinnati Enquirer, 10 October 2003.
[3] The bond issue is in fact a tax increase since every dollar of the $500 million will have to be paid back, with interest, by taxpayers in the future. And for every job "created" by Third Frontier supported companies, we can expect a job will be "destroyed" because of the taxes needed to finance the programs.
[4] The original article was by Jim Coons, "Let Ohio Public Employees Ride the Bull Market," Perspective on Current Issues (Columbus, OH: The Buckeye Institute, January 1999). For details on how the pension fund reacted, see, Barnet D. Wolf, "Commentary Leads Fund to Retaliate," Columbus Dispatch, 11 February 1999. After intense criticism, the fund was forced to return to doing business with Huntington, though the fund was eventually cleared of any legal wrongdoing.
Robert A. Lawson, Ph.D. is Professor of Economics and George H. Moor Chair at Capital University in Columbus, Ohio and a Senior Fellow with The Buckeye Institute.
