Out of Control Policy Blog

How History Shows Private Equity is Infinitely Better than a Stimulus

As the government considers "investing" massive amounts of money into national infrastructure plans or other ventures in order to "stimulate the economy", Congressman would do well to consider history. Just a cursory glance at historical trends show that private enterprise has always been the most efficient and effective means for developing new technologies, reaching great infrastructure goals, and moving society forward.

As John Sparks noted in his 1954 essay "If Men Were Free to Try" published by FEE:

Private ownership, private initiative, the hope of reward, and the expectation of achievement have always been primarily responsible for the advancement of mankind. Continued progress–be it spiritual, mental, or material–rests squarely upon a better understanding of the idea of individual freedom of choice and action, with personal responsibility for one's own decisions.

Sparks goes on to suggest a thought experiment. Suppose it is the year 1900 and the government was considering spending a large sum of taxpayer dollars (as it is today) with the goal of seeking a solution to any one of the following problems:

  1. To build and maintain roads adequate for use of conveyances, their operators, and passengers.
  2. To increase the average span of life by 30 years.
  3. To convey instantly the sound of a voice speaking at one place to any other point or any number of points around the world.
  4. To convey instantly the visual replica of an action to men and women in their living rooms all over America.
  5. To develop a medical preventive against death from pneumonia (or polio).
  6. To physically transport a person from Los Angeles to New York in less than four hours.
  7. To build a horseless carriage of the qualities and capabilities described in the latest advertising folder of any automobile manufacturer.
Most likely, a government official considering this list in 1900 would have thought the first item to be the easiest to solve. As Sparks said, "In fact, the other problems would have seemed fantastic and quite likely would have been rejected as the figments of someone's wild imagination."

The irony is that, of these developments, they all occurred rapidly through private development. Private medical advances have nearly doubled life expectancy since 1900. Pneumonia and polio are essentially cured--thanks to private research. Audio and telecommunications technologies have exploded in ways never dreamed of in 1900, despite government interventions, and we now have the cell phone and HDTV. Not by government design, by 1908 there were horseless carriages (cars and trucks) on the road. Within just a decade GM and Ford were producing affordable cars for thousands. And we all know the story of Orville and Wilber Wright, two entrepreneurs who wanted to develop the ability to fly. Now thanks to private air industry (especially post-CAB regulations) we can fly from New York to LA faster than ever and have thousands of flights crisscrossing the world every minute. (Note that private train travel, dominated by the government, is stagnate and dying).

Meanwhile the creation of roads--the government project--has taken much longer to develop, has not been completely or efficiently completed, has needed private equity in many places (with the expansion of toll roads), has not been efficiently maintained, nor was really energetically pursued until the Eisenhower interstate projects post-WWII (largely as a defense project as well).

Sparks said in his essay: "It is not accidental that solutions have been found wherever the atmosphere of freedom and private ownership has prevailed wherein men could try out their ideas and succeed or fail on their own worthiness. Nor is it accidental that the coercive force of government–when hooked up to a creative field such as transportation–has been slow, plodding, and unimaginative in maintaining and replacing its facilities."

The federal government, now considering such stimulus projects, should bear these truths in mind, before they go off throwing away another trillion here and trillion there.

Anthony Randazzo is Director of Economic Research


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