Yesterday afternoon, I heard this stunning interview with Anirban Basu, CEO of Sage Policy Group and Chairman of the Baltimore County Economic Advisory Committee.
In the interview, Mr. Basu said the following:
The incomes of these communities that we’re talking about are quite low and so the private sector in and of it’s own self is not necessarily going to put a lot of investment into these communities and that’s why there is only grinding progress, but it is progress.
I commend Mr. Basu for his honesty. It's rare to hear that there are issues the private sector will not fix. We need more blunt talk about what markets do well and where they struggle.
More from the interview and an argument for public sector investment below the fold.
As the interview progressed, Mr. Basu talked about the wonderful development happening in Canton, Locust Point, and Otterbein.
Anirban Basu: I still believe that there’s going to be a lot of young people who will continue to move to Canton, Locust Point, Otterbein and other fabulous urban neighborhoods.
Lisa Mullins (NPR): Right, but they’re already fabulous. They already have money and those aren’t the areas that need more investment.
Anirban Basu: That’s one of the great ironies of economics. Right? That is that investment tends to be greatest in those places where it’s least needed.
Here again, we hear the simple truth about the private sector: there are certain things that it is not good at. One of these is investing in places where it's badly needed.
Why?
It's quite simple really. The goal of private investment is to turn as big a profit as possible. The easiest way to do this is to focus on people who have money. As Mr. Basu says, "investment tends to be greatest in those places where it's least needed".
This is not bad or good in and of itself. It simply is the way markets work.
If we want to really invest and develop poorer areas, the private sector is not going to do this alone. It has to be either a) driven by the public sector (through direct investing), or b) incentivized by the public sector (incentives have to be put in place to make it worthwhile for private development).
I encourage you to listen to the entire interview. It also is an interesting window into how economics can be used as a rational justification for existing conditions.
The significance of this in terms of our thinking
What we tend to hear in the media is rah-rah private sector, look at all the great things it's done, it's the solution to everything.
Anything that isn't the private sector is socialism (evil, warning, beware, scary).
A much healthier view for our country would be to look at what the private sector does well and look at what the public sector does well and to figure out when and where both are best and appropriate.
The private sector is simply not good at developing areas that are poor and developing economic opportunities for people who have been left behind. If left to economic forces, development will take place in those areas that least need it.
The private sector won't solve poverty on it's own. It simply has no interest in it nor should we ever think it has an interest in it when the only goal and moral is clearly profit.
Another way to say this is, why would anyone invest in a poor area when all of the wealth has already been extracted?
The private sector does not solve social problems. It never has and it never will. It simply has no interest. The private sector was fine with slavery, it simply put prices on slaves. The private sector was fine with child labor, it priced it into the market. The private sector is fine with sweatshops, it's a great way to turn a big profit.
If there is nothing else, if we believe only in the private sector, this means we will perpetuate and institutionalize social problems. If left to the private sector alone, the poor will always be poor and the rich always rich and quite soon there will be no middle class.
If we want to address the economic issues in Baltimore, we need to look beyond the private sector. The private sector alone will not fix Baltimore and it will not fix America.
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David Akadjian is the author of The Little Book of Revolution: A Distributive Strategy for Democracy.