When Government Shouldn't Operate as a Business

Amid examples of failed loan guarantees, Providence Journal reporter Bruce Landis interviews Gary Sasse about the 38 Studios deal, in which a videogame company has $75 million in backing from the state of Rhode Island:

If the company doesn't pay, Sasse pointed out, "The taxpayers of the state would be on the hook."

"You're playing with other people's money," Sasse said, and argued that it's too risky a use of tax money.

He also said that the qualities most important to companies are good schools, a trained work force, low taxes and an infrastructure in good condition. Without them, he said, in the long run other economic development tools such as loan guarantees "aren't going to get you where you want to be."

The cliché — with which I typically agree — that government should run like a business comes to mind, because when it comes to loan guarantees, we're moving beyond the phrase's intent. What government should emulate, in the private sector, is the imperative to provide a better product more efficiently — to pretend that its revenue entails a consensual exchange of money for service that it must justify to the payers.

That is a wholly distinct approach from behaving like a business in the sense of taking financial risks with the hope of making money. Even mitigated risk is inappropriate when the investors (taxpayers, in this case) have no choice but to participate and do not have clear, direct rewards to which they are contractually entitled should things work out well.