A very instructive interaction recently concluded in Salt Lake City between the city council and KCPW, a local nonprofit radio station. It helps illustrate how private-sector businesses can (and often do) dupe policymakers into giving them special, privileged deals that their competitors do not enjoy, and which are not even necessary to accomplish the stated goal of the deal.
It all began in the second week of October when KCPW officials approached the city because they had an outstanding loan that was about to expire and, according to KCPW’s general manager, their “backs [were] against the wall.” Without the loan from the city, KCPW would be going off the air. The city’s citizen loan committee had recommended that the city council turn down the loan because “KCPW had not proven it could repay” it. Ignoring this warning, the city council chose to override the loan committee recommendation and award the loan to KCPW anyway.
A week later, city lawyers reported a problem with the loan, effectively killing it: The money was coming from a city loan fund that was only intended for for-profit businesses. Sounds like game over for KCPW, right? After all, KCPW had its financial “back against the wall.” Wrong.
Just last week, KCPW reported that, miraculously, an “anonymous donor had stepped forward because of the inability of the City to provide short-term funding.” That’s right, when the government was forced to cancel its special deal to KCPW, a private actor in the free market stepped up and provided the money that KCPW needed.
Evidently, KCPW really didn’t have its back against the wall. Rather, free market actors were simply waiting to see if the government would do what they themselves should be doing.
The KCPW drama is instructive. Utah government agencies and policymakers at both state and local levels are constantly being bombarded by private businesses and nonprofits for special government favors. They ask for special grants, loans or tax breaks that their competitors won’t get, or regulations to protect their business from free market competition. These requests, like the KCPW example, are regularly supported by warnings that, without the special government favor, something terrible will happen.
The first lesson from the KCPW example, however, is that many of these businesses are playing Utah policymakers for suckers. They predict doomsday scenarios if special government favors are not granted them, when in fact they could actually get what they need in the free market if they were willing to make some sacrifices. Unfortunately, policymakers have shown that they are willing to cave to what businesses ask for, and so when some difficulty arises, many businesses think it is easier to get special favors from the government than sacrifice in the free market.
The second lesson from the KCPW example is that when the government starts doing the private sector’s job (e.g., loaning money to private entities) they crowd out private sector actors. Like KCPW’s “anonymous donor,” many private sector actors see the government doing what used to fall to them, and so they spend their time and money elsewhere. The irony is that this takes away more private sector resources from the problem that the government is purporting to solve, often making that problem worse than it was in the first place.
Rather than being duped by businesses whose primary interest is their bottom line and rather than making social problems even worse, Utah policymakers at all levels would be wise to trust in the principles of the free market and personal responsibility – letting private businesses survive or fail based on their ability to compete in the marketplace, rather than in politics. As the KCPW example illustrates, businesses can find in the free market what they seek from government, and private sector actors will be willing to step up – without costing taxpayers a dime.