State Government Competes Unfairly With Private Firms

When foreigners are subsidized by their governments so they can sell their goods in American markets below true cost, we call that "dumping." Understandably, many Americans get upset about it, especially if they own private businesses which must compete with that sort of thing.

It may come as a surprise to some, but here in Michigan we don't have to look overseas to find the source of such unfair competition. We don't have to look any further than our own state government and some of the institutions it supports. In fact, this is a growing problem of great concern to many small businesspeople.

State-owned campgrounds compete with private ones, and have the benefit of not just subsidies that enable them to charge less, but also publicly-financed signs posted on highways. And the Michigan Employment Security Commission competes with private employment agencies and temporary service providers.

The state's prison industries currently manufacture shoes, signs, furniture and tool and die equipment, among many other things. Theoretically, the sale of those items to other arms of state government (the principal customer of prison industries) can actually enhance criminal rehabilitation and be economical to the state at the same time by helping to cover the costs of incarceration.

But private sector opponents of this form of "competition" may have a potent argument when they claim that the state is paying prison industries too much for low quality merchandise. Marty Andrews, president of Businesses and Associations for a Strong Economy, a Lansing-based group that opposes unfair government competition, argues that many private firms in Michigan would sell the state identical or better goods at lower prices if they had the chance.

Some of the state's universities are deeply involved in competition with private businesses in areas quite remote from their educational mission. These include computer sales, florist shops, hotel and conference centers, sign-making, golf courses, printing, packaging, optical and hearing aid clinics, and tennis clubs.

Usually, these university entities don't even pay rent and they never pay taxes. And when they market to the general public, not just to college students, it's understandable that private businesspeople aren't happy that their own tax dollars are competing against them in the marketplace.

As the largest computer retailer in Washtenaw County, the University of Michigan has run a multi-million dollar business selling computers at deep discounts from the average retail market price. Untold (and unaudited) sums of taxpayer money support the sale of these computers, which easily and frequently end up off-campus and in the hands of individuals who have no connection with either the university or education.

Proponents of these public sector business activities claim they make sense because government can provide the goods or services cheaper than private enterprise. But that's an illusion. If all costs were accounted for and charged to the public sector--including the implicit but foregone costs of rent, taxes, and depreciation—we would find that the competitive, cost-conscious private sector can usually outbid any public bureaucracy.

At the very least, state-supported entities should be audited and their income statements and balance sheets charged with these implicit costs. That way we would find out if the taxpayers are getting a break or if they'd fare better through contracting out to private firms.

This problem of public sector competition has crept up on us with little legislative consideration of the implications. The issue is overdue for some serious scrutiny, the kind that will find answers to questions like these: What activities can we tolerate as legitimate for the state or its entities to be engaged in and which ones ought we to put a stop to? How many jobs are lost in the private sector because the state unfairly "dumps" its competing product?