The Government Nudge: A Public Role in the Private Sector

The Government Nudge: A Public Role in the Private Sector

The Government Nudge: A Public Role in the Private Sector

The government has the power to spur innovation and reshape the economy—but it must be willing to flex its muscle.


It’s not easy envisioning a more democratic and just economy not dominated by large corporations. It may be even harder to imagine ways to get from here to there, with giant corporations restructured or displaced altogether. The central involvement of the government in the private sector—as a direct market participant and as a rule setter—offers opportunities, too little appreciated, to spur new forms of economic organization.

Consider the recent case of General Motors. In June 2009 GM—the world’s leading auto maker for much of the twentieth century, and the emblematic enterprise of the modern corporate era—declared bankruptcy. When it re-emerged a month later, the government was its majority holder. Remarkably, this move was accompanied by precious few ideas about how the government could manage and restructure GM to achieve social ends. There was no serious talk about directing R&D funds to speed the introduction of electric cars. No serious consideration of converting closed plants to produce light rail or other products for a sustainable future. No proposals to give workers—who own a sixth of the company’s postbankruptcy shares—meaningful control over the company, or to break it up. Instead, Obama administration officials emphasized their interest in returning GM to private shareholder control as soon as possible.

The GM example is less of an outlier than it might seem. When the government took an ownership stake in Citigroup, AIG, Fannie Mae and Freddie Mac in the midst of the financial crisis, it also took a severely limited view of its role—imposing few obligations in exchange for the bailouts. Whether the public maintains control over an extended period or not, such ownership positions offer an opportunity to fundamentally restructure corporate giants. If the government is going to use taxpayer money to save corporations from disaster, it should seize the opportunity to reshape them for the public good.

The government could also remodel the economy through more intentional economic engagement as a service provider. A single-payer Medicare for All system would simply do away with corporate health insurers. Massively expanded public transit systems would refashion our dysfunctional transportation arrangements.

And the government has major underutilized leverage as a consumer. Government purchasing can spur innovation—for example, by creating a market for solar power—but it can also be used to leverage emerging markets. Any serious program to address impending catastrophic climate change would prioritize retrofitting homes and buildings. The government could stipulate that this work be done entirely or largely by cooperatives, small unionized firms or other preferred business forms.

Government competition policy—including but not limited to anti-trust—is another powerful force for shaping the economy. The government’s decision to grant long monopoly protections to pharmaceutical companies, for instance, has led to dominance by large firms that spend heavily on marketing to exploit their positions. When patent and other monopoly protections expire, a competitive market emerges with much lower profit rates, more room for smaller firms and consumer savings of 80 percent or more. If the government eliminated monopoly protections for pharmaceuticals, as the Washington-based Knowledge Ecology International recommends, it could refashion the pharmaceutical industry. A new system involving government payment to firms that engage in successful R&D could lower drug prices dramatically while supporting innovation, creating a competitive market structure that rewards productive research rather than effective marketing.

The ongoing struggle over net neutrality is another competition policy dispute with far-reaching implications. Its outcome will shape the architecture of the Internet, influencing the development of web technologies, the availability and cost of products, and the extent to which a small number of corporations can control how the Internet and digital communication evolve. The government should steer this debate in the public’s interest rather than deferring to the cable and telecom lobby.

Tax policy, commonly understood to create incentives for certain kinds of corporate behavior, can be used to advance preferred economic arrangements as well. Preferential tax treatment of debt over equity helps fuel the debt-reliant private equity industry. The tax-free status of charities facilitates a vibrant nonprofit sector.

Of course, identifying these courses to a democratized economy does not mean that they are easily attainable. They require rejecting orthodoxy, mustering political will and frequently overcoming restrictive international trade rules. But articulating possible routes to a more just economy helps demonstrate the practicality of getting there.

Read the next proposal in the “Reimagining Capitalism” series, “Rethinking GDP: Why We Must Broaden Our Measures of Economic Success,” by Dirk Philipsen.

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