The Wrong Kind of Market Disruption

Study: Government-backed commercial entities cost taxpayers, hurt businesses, and threaten lives

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Federal and state governments are using seemingly unlimited tax bases to compete with private businesses, disrupting the free market and even endangering troops, according to a new report.

The Business Coalition for Fair Competition, which represents a broad base of trade associations, released an analysis on Friday morning documenting 10 times public sector entities have hindered the free market by injecting government-backed entities into competition.

The U.S. Postal Service, for example, is looking to enter the grocery delivery business after losing market share to Fed Ex and UPS. The guarantees of government support mean that it can charge inordinately lower prices, unfairly competing with private sector services, such as Pea Pod, according to the BCFC.

"Unfair government competition with private enterprise is a pervasive and ubiquitous problem, from the White House to the local court house. Government, nonprofits and universities all too often veer from their core missions and engage in commercial activities best left to the private sector," BCFC president John Palatiello said in a release.

The government’s willingness to compete directly with the private sector doesn’t just threaten the free market; it can also endanger the lives of troops, according to the report.

When the government decides to spend taxpayer dollars creating products in-house there is an incentive to use the government-made product even if a private sector alternative is superior in quality. The BCFC pointed to a $28 billion mapping service developed by the U.S. Army that was designed to help troops identify IEDs.

"The Army produced inferior software known as Distributed Common Ground System-Army (D-sigs A) which placed troops at risk in Afghanistan. This was despite widespread knowledge that similar software technology in the private sector was more user-friendly," the report says.

The government’s involvement in services generally left to the private sector can also result in wasted taxpayer dollars. The federal Department of Agriculture is paying a New York state agency $1.5 million to kill wild pigs after issuing a no-bid contract. Taxpayers are forced to pay $10,000 for each scalp collected by state workers.

"The products and services produced by government agencies and non-profits not only hurt private enterprise generally and small business in particular, but are often substandard and pose a danger to the consumer," Palatiello said.

The BCFC said that the best way to deal with government’s encroachment on the private sector is to revitalize the "Yellow Pages" test, a broad policy recommendation cautioning against public sector expansion.

The Eisenhower administration drafted policy language in 1955 telling its departments that "government will not start or carry on any commercial activity to provide a service or product for its own use if such product or service can be procured from private enterprise through ordinary business channels."

Palatiello said that it is time for politicians and regulators to curb their appetite for expansion.

"These ten examples are just the tip of the iceberg of the thousands of ‘businesses’ supported, operated, or subsidized inside government at all levels," he said.

Bill McMorris   Email Bill | Full Bio | RSS
Bill McMorris is a staff writer for the Washington Free Beacon. He joins the Beacon from the Franklin Center for Government and Public Integrity, where he was managing editor of Old Dominion Watchdog. He was a 2010 Robert Novak Fellow with the Phillips Foundation, where he studied state pension shortfalls. His work has been featured on CNN, Fox News, The Economist, Colbert Report, and numerous print publications and radio stations. He lives in Alexandria, Va, with his wife and three daughters. His Twitter handle is @FBillMcMorris. His email address is mcmorris@freebeacon.com.

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