Limited Government and Free Markets

by Allan C. Carlson

“Limited government” and “free markets” are two of Sutherland Institute’s governing principles.  These phrases can be found attached to policy groups or think tanks in other states and Washington, DC, as well.  Yet Sutherland’s Center for Community and Economy takes them perhaps more seriously than others.

The problem is that many persons equate free markets with pro-business public policy.  Sometimes, that is the case.  Yet too often, business groups are eager to use government to gain special favors or tax benefits to prevent the emergence of new competitors, or even to promote state regulations that give advantages to large firms while unfairly burdening small ones.  These acts might with some truth be called “pro-business”; yet they undermine free markets and encourage the growth and intrusion of government.

Examples of such policies exist right here in Utah.  For instance, the Governor’s Office of Economic Development provides millions of dollars in cash and tax credits to (as they say) lure a corporation into Utah or to keep one in the state.  Part of the justification offered is that other states and municipalities do it; so must Utah.

The Center for Community and Economy is critical of this approach for several reasons.

• First, state economic-incentive programs are clearly unfair.  They involve special favors to a few businesses, at the expense of their competitors who pay the full state corporate income tax and otherwise play by the rules of a free market.  More broadly, the system encourages ever more businesses to spend time and resources seeking government favors rather than developing new products or finding new markets.

• Second, these incentive programs do more harm than good.  In most cases, such efforts are at best “job stealers” rather than “job creators.”  And the cost to government of each “new job” can sometimes be staggering: over $150,000, in some cases.  A federal study of state incentive programs actually found that, overall, they had a large negative impact on the rate of economic growth in their respective states.

• Third, these programs are both politically-suspect and backward-looking.  Indeed, they are simply another form of central economic planning, where state bureaucrats attempt to guide the economy, what economist Friedrich Hayek called “The Road to Serfdom.”  Such agencies almost always invest in last year’s “hot” technology, while truly valuable innovations – which are more likely to produce the new jobs of the future – are ignored.  Clearly, the clumsy hand of government should stay out of the process.

• Fourth, these programs are unnecessary, especially in Utah.  Despite the sophisticated forms of blackmail used by corporations to win state favors, most of those businesses with an eye on Utah would come here anyway.  This state offers a magnificent physical setting, the nation’s youngest and best-educated work force, and livable, affordable, and family-centered cities.  With these real, non-governmental advantages already in place, state incentives are simply a waste of money.

Should governments, then, do nothing to encourage economic growth?  Actually, the Center for Community and Economy recommends several actions.

To encourage creativity and innovation among the young, Utah should favor education that is free of the bureaucratic sclerosis found in most conventional public schools.  State policy should encourage more charter schools, informal cooperative schools, home schools, private academies, and church schools.  Such entities are more likely to produce the inventors and entrepreneurs of the future.

To be truly fair and business-friendly, the State of Utah should abolish both its corporate incentive program and its corporate income tax.  Indeed, the former act would pay for a portion of the latter tax cut.  In this way, Utah’s inherent advantages would all be enhanced.

And relative to Sutherland Institute’s governing principles, free markets and limited government would be enhanced.

The author, Dr. Allan C. Carlson, is director of Sutherland Institute’s Center for Community and Economy, president of The Howard Center for Family, Religion & Society, and an associate professor at Hillsdale College in Michigan.  Dr. Carlson founded the World Congress of Families in 1997.  He has written for numerous publications including The Wall Street Journal, National Review, and Intercollegiate Review, and is the editor of The Family in America.  He is the author of nine books, in cluding The Natural Family: A Manifesto (Spence, 2007), which he co-authored with Paul T. Mero.