Government Should Fund Projects to Buoy Economy

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DAVID M. GORDON <i> is professor of economics at the New School for Social Research in New York</i>

As my eight months in Europe draw to a close, I am more and more struck by the success of the European commitment to governmental support of the private economy. By contrast, the U.S. economy is continually losing ground as our myopic hostility to government investment continues to take its toll.

Why does public support for the private economy matter?

Some examples are so obvious that they are little noticed. Many frequently observe, for example, that U.S. corporations are falling behind many Japanese and European companies in the continuing race to develop advanced technology--at least in part because their governments provide much more sustained and extended subsidy of basic (non-military) research and development than does ours.

But other examples are not so frequently noted. Take two that are part of the basic experience in France, where I’ve been staying since last fall.


As many Americans know, the French public rail system has pioneered the development of high-speed trains, known as the TGV, or Tres Grande Vitesse (very high speed). These trains travel speedily but smoothly at more than 120 miles per hour. They would cover the distance from New York to Washington in less than two hours, cutting at least an hour off the current schedule of the Metroliner, the fastest the United States has to offer.

At least in countries as densely populated as those in Western Europe, these high-speed trains provide effective and efficient links among major urban nodes for both citizens and businesses. And this means that a wide range of citizens and businesses has growing access to the opportunities and information that travel affords.

Or take another French innovation--the Minitel. This is a computerized information network developed and coordinated by the French public phone system. It works like private information networks in the United States, such as Compuserve. Hooking up to the service through your phone, you can get access to all manner of computer-stored information, such as reference sources, tickets, the weather, the news.

The twist in Minitel is that the system is provided by the government. The equipment that makes the phone hookup possible is provided free by the French phone system to any resident with a phone. Imagine the Bell system companies in the United States giving away $300 to $400 worth of hardware to any subscriber who requests it!

The economic boon, of course, is that citizens and workers can obtain information about job training, employment and skills acquisition as well as a huge range of entertainment.

The costs of this kind of public investment may appear in the short run like an additional tax burden. But in the long term--a time horizon across which we in the United States gaze far too infrequently--this commitment to the provision of what economists call “public goods” helps make an economy more productive and provides growing economic opportunities. Investment by private companies pay off in the long run. And so does productive investment by the government.


In the provision of such public goods, in comparison to Japan and Europe, the United States has been falling on its face. Anyone roaming through the U.S. urban environment in the past 10 years can see the evidence all around: decaying bridges, stagnant public transport systems and threadbare public schools.

David Alan Aschauer, an economist at the Chicago Federal Reserve Bank, says public investment began to stagnate at the end of the 1960s: The rate of growth of U.S. non-military public capital averaged 4.1% in the 1950s and 1960s, dropped substantially during the 1970s, then fell further (to an average annual growth rate of 0.7%) in the first half of the 1980s.

Public investment was initially squeezed, no doubt, by the costs of the Vietnam War. But that excuse had vanished by the mid-1970s.

Since then, it has stagnated more and more acutely, particularly in the 1980s, through a combination of aggressive right-wing attacks on government spending of any sort--except, of course, for military spending and interest payments to banks and wealthy bondholders--and citizen revolts against tax burdens that have appeared increasingly onerous in a period of stagnant household earnings.

More important, Aschauer also provides strong statistical evidence that this stagnation of public investment has contributed to the stagnation of productivity in the private sector in the United States.

There are many explanations, of course, for stagnant productivity growth in the United States and more rapid productivity growth in all of the other advanced economies. But evidence is mounting that an eroding commitment to the creation of public capital--through government investment in the provision of public goods--is one of the heaviest lead weights we in the United States must carry.


It’s long past time to turn our backs on the unrelenting and obfuscating conservative harangues about wasteful government. Governments can be productive. And in pursuing that productive role, they can help all of us prosper.