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The Politics of Public Investment

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A bridge on an interstate highway collapses and people needlessly lose their lives. The government's effort to develop alternative energy sources is anemic at best and we continue to pollute the skies, worsening global climate change. The dams and levees protecting New Orleans collapse, leaving the city and its population devastated. These failures are not random events. They are directly attributable to inadequate domestic public investment and the politics that lies behind that shortfall.

Debacles such as those that occurred in the Twin Cities and in Louisiana are not inevitable. It is untrue, as conservatives would have it, that government projects inevitably fail. Forty years after the inter-state highway system was constructed during the Eisenhower Administration, that investment is still the foundation of our transportation system. What matters is whether such expenditures are engineered well and are adequately funded.

Indeed, all societies require public investments. Highways, ports, sanitation, schools, hospitals, and recreation facilities are all necessary, both to allow firms to produce and market their output, and to allow citizens to pursue healthful lives and engage in leisure-time activities. But because such investments tend not to return a private profit, it falls to the government to ensure that they are adequately supplied and maintained.

However since the early 1980s in the United States, public investment as a percentage of the gross domestic economy has steadily declined. As indicated in Table 1, the public sector investment rate peaked in 1980 and has fallen markedly since then. The 2005 investment rate of 0.299 percent was about one-third the level that prevailed in 1980.

This decline affects every facet of American life. School buildings are in disrepair all over the country, parks are neglected, and public spaces are atrophying. Our roads and bridges are dangerous. Inadequate public investment not only puts people needlessly at risk but makes production less efficient than it otherwise would be. The failure to engage in adequate public investment damages the quality of life for all of us.

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Source: Calculated from Economic Report of the President, 2007, Tables B-1 and B-20.

The data in the table underscore the fact that the downward trend in public investment was not a partisan event. The decline that occurred in the 1990s, during most of which Bill Clinton occupied the White House, was very similar to the experience during the Reagan-dominated 1980s. Both parties are at fault.

Decisions concerning public investment levels are made in the House of Representatives and the Senate. The question therefore is what has happened to our political system that induces politicians to reduce their commitment to public investment.

The answer is that the cost of campaign spending increased dramatically. Fueled by the need to pay for television time, campaign spending in 1980 was more than 50 percent higher than it had been in 1976, and had grown by almost 70 percent compared to the 1968 level. Because of the increased cost of running for office, candidates more than ever were forced to depend on rich campaign contributors for their political viability. These were the years in which the present system of donor-driven politics was born.

All studies are in agreement that the small group of wealthy political donors that funds campaigns is more conservative -- more anti-government -- than the public as a whole. The increased cost of campaigning therefore has injected an enhanced anti-public-sector bias into the political process. Though public attitudes as revealed in polling data showed no dramatic change in support, the political process, under pressure from campaign contributors, moved away from public investment.

With the rising cost of campaigns, office-holders increasingly ministered to the needs and legislated on behalf of special interests. With the attention of legislators intensely focused on satisfying their private patrons, public investment was marginalized.

All of this reinforces a lesson that has been learned in many other contexts. Individual business people (the group that constitutes an overwhelmingly large fraction of big political contributors) can not be trusted to set the rules for the economy as a whole. The tendency is for such donors to confine their political concerns to the profitability of their own firm or industry. They will not typically concern themselves with the needs of the economy, much less the society as a whole. In their pursuit of self-interest, the larger concerns of the country as a whole are neglected.

To restore an adequate rate of public investment the lopsided political influence of big donors will have to be minimized. The case for a voluntary public financing system therefore is strong. But it should be recognized that such a "fair elections" system will not be a panacea. Even in a political system of equality, it is an open question whether the electorate will support candidates who are intent upon increasing public investment.

What is true, however, is that with a "fair elections" system the case for public investment will obtain a fair hearing. Deprived of the disproportionate power provided by their contributions to political war chests, corporate representatives will, like everyone else, have a chance to justify their positions. But that precisely is the point. Unlike the situation today, rich contributors will have to engage in a process of persuasion rather than depending on the clout their money provides them. Because of that, a "fair elections" system will make it more likely that public investment will be restored to levels that will free us all from the fear that the roads we drive on will fall apart under us, that our children's schools will collapse, that parks will deteriorate, or that the levees protecting our major cities will fail.

This post first appeared on Democracy Matters.