WHO’S SMARTER than the market?

In a modest Marxist resurgence, Latin America’s “democratic-dictators,” Fidel Castro and Hugo Chávez, together with several countries in their thrall, announced recently that capitalism threatens the planet.

If you see little untoward with their pronouncements, we now return you to your regular programming at the Daily Kos. For the rest of us, it is worth considering that the conundrum posed by the concept of “democratic dictatorships” is equally present in our own little state in the form of “public-private” partnerships.

Indeed, it is hard to argue that our system is capitalism, given the blurring of lines that is occurring. And this problem of government policies intruding into market decisions is as much a cause of our current economic predicament as a result (see, Freddie Mac and Fannie Mae).

To wit: Governor Carcieri’s blue-ribbon commission wishes to transform the work of the Economic Development Corporation (EDC), itself a quasi-public body, with an adjunct public-private partnership “to focus on business attraction and recruitment activities.”

The governor, the blue-ribbon commission, and for that matter the existing EDC board have their hearts in the right place but their heads in the clouds. Asking the board to resign is a bold move reflecting the vacuity of our current economic development policy, but the answer is not to retool the board — it is to eliminate the board and retool government’s role in economic development altogether.

The last thing we need is a government-run Chamber of Commerce, a retread bureaucracy of fortune tellers picking winning businesses or sectors that will be offered state loans and regulatory absolutions. Rather, we should attract new businesses and nourish existing businesses with the level playing field of a better business environment.

You might think this is a time when we need an economic development agency more than ever. It’s not a military secret that Rhode Island is among the nation’s leaders in unemployment, a key indicator of a low-performing economy.

But it is also not a secret why. Corporate and personal income taxes are high, estate taxes are repulsive, energy costs are high, our education system produces a labor force with below-average skills, our legislature has empowered unions over management, our roads and bridges are in worse shape than other states’ at higher costs, our regulatory environment is stifling, and this all takes place in a good-ole-boy environment that breeds, at minimum, a perception of corruption.

In other words, our policies make us unattractive to business, and when you look at these problems you realize they are not to be addressed by the EDC. This systemic hostility to economic growth is brought about by the legislature and all the other departments of state government. These are the arenas where change must take place.

Spending $10 million a year of taxpayer money on a state-funded business cheerleader like the EDC will result in little more than a faint echo of these general complaints and the passing out of favors. That money, instead, should be used as a down payment on lowering our corporate tax rate to at least be competitive with those of neighboring states.

This doesn’t mean abandoning state attention to economic development; it means we must stop pretending this is what the EDC actually reflects. The mission of economic development is so organic it should be Job One of every state department. The governor should eliminate the EDC and issue an executive order making every state department an agency of economic development.

Every department should be directed to exercise its discretion to cause the least possible interference with businesses and citizens while accomplishing statutory objectives. This means using cost-benefit analysis to guide their policy. It means acknowledging and mitigating unintended consequences of government actions. It means constantly auditing their own efficiency with the sobriety and skepticism to recognize when services could be better provided without government.

This describes a continual transparent effort to maximize competition, minimize costs, eliminate favoritism in government contracting and avoid duplication of private effort in business and charity. These are the economic development duties of government; the rest is up to the market.

The Ocean State Policy Research Institute has researched numerous specific policy recommendations designed to save money, stimulate the economy, and generally improve society, e.g., increase school choice, reform welfare, consolidate services rather than regionalize government, enforce prohibitions against welfare for all aliens to restore faith in the economic efficiency of immigration, recalibrate the balance between state management prerogatives and public-employee unions, reduce regulatory involvement when it is not needed, and create a right-to-work labor environment. These ideas come from observing successful policy foundations, not government-sponsored promotion and development that tries to anticipate the market.

It is time for Rhode Island to get out of its own way and let markets do what markets do: fill needs and not agendas. It is very difficult for policy makers to pledge inactivity, but leaders secure in their own principles know when to do nothing.

Brian Bishop is the fellow on regulatory and environmental policy at the Ocean State Policy Research Institute. Governor Carcieri’s wife, Susan, is a member of the board of directors but does not review or participate in the research or writing of commentary.