Business and economics columnist Lee Schafer recently mused about spending the summer “watching government decide to supply things that pretty clearly aren’t public goods (“Amazing what we now call a public good,” Aug. 3). He offered three examples.
The first concerned the $600 million bribe Minnesotans paid the Vikings to stay in town. No dispute there. The Vikings stadium is a monument to private benefit. Indeed, all public financial assistance to private, profit-making businesses should be severely curtailed, if not eliminated. Study after study finds that such incentives are costly and ineffective and that they divert scarce public resources from being spent on otherwise clear public goods such as health, education and welfare.
Schafer also opposes public subsidies to build publicly owned high-speed internet networks, especially in rural areas. Here I disagree. Private companies’ telecommunications services are woefully inadequate and often wildly overpriced. After decades of pleading with private companies to upgrade their networks, communities began to take matters into their own hands. To date, more than 130 cities around the nation, most of them small, have built citywide networks.
Minnesota communities have proven ingenious in bringing their telecommunications systems into the 21st century. Windom was the first in Minnesota to have a citywide fiber network. With a population of 5,000, it has built a system whose speeds and prices put Minneapolis and St. Paul to shame. In Renville and Sibley counties, a cooperative of 27 cities and townships is building a network, much of it in very low-density areas. In Lac qui Parle County, a local telephone cooperative is the prime mover.
Historically, government has twice intervened to bring essential infrastructure to rural areas. The first time it intervened to bring electricity to farmers. In 1930, 90 percent of urban areas were electrified but only 10 percent of rural America. Then, as now, the private sector deemed it unprofitable to serve low-density populations. In 1936, the Rural Electrification Administration began extending long-term, low-interest loans to electricity networks, provided these were customer-owned cooperatives. By 1942, half of all farms had electricity. By 1950, virtually all did. In 1949, Congress extended financing to rural telephone cooperatives.
Three-quarters of a century later, municipal electric companies, rural telephone cooperatives and, most recently, rural electric cooperatives have played the key role in bringing fast internet to rural areas.
The second government intervention began in the 1990s. The goal was to build a nationwide fiber-optic-based “information superhighway,” where internet, cable and phone services would be offered by a variety of competitors. Rather than intervene directly, government chose to handsomely subsidize private businesses to do the job. Subsidies came in the form of higher rates for phone and, later, cable customers. By one estimate, over 25 years, private telecommunications companies received a $400 billion public subsidy while failing to make good on their promises. For that sum, government arguably could have installed fiber to every building in the country by now.
Schafer’s third example, involving garbage collection, is confusing. Collection clearly is a public good. No subsidies are involved. Every community establishes rules. It appears that Schafer’s opposition is not to rules per se, but to the kind of rules governments impose. Schafer, a former investment banker, prefers “open competition” systems where any hauler can sign up customers on any block. He calls these “free market” systems that offer customers the opportunity “to seek the cheapest price.” One study by Maplewood, however, found that cities in the Twin Cities area that limit competition actually have rates “37 to 57 percent” lower than unlimited competition.
In the metro area, many cities opt for open competition. Others contract with a single private hauler and still others with multiple haulers. In Minneapolis, half of the residential solid waste is collected by the city and half by a consortium of 11 private haulers. To me, the key factor is that customers have a great deal of influence on what the rules are.
A recent survey by St. Paul’s Macalester-Groveland Community Council of neighborhood residents may have identified the rules customers prefer. A little over 80 percent of customers favor organized competition, but only if it protects small and locally owned haulers.
A tip of the hat to Schafer for addressing such an important and timely topic. Perhaps his column can be the catalyst for a wide-ranging discussion on a key question in this election year: What rules can maximize the public good?
David Morris is director of the Public Good Initiative at the Institute for Local Self-Reliance.