The average North Carolinian has endured hundreds of broadcast ads, print mailers, emails, phone calls, news stories, and personal visits about politics during the 2012 election cycle. Those in targeted districts have been treated to an even-heavier diet of political messages.
Given how many of these messages now feature the word “investment,” voters could be forgiven for thinking they’re about to be pitched a time-share or a multilevel-marketing scheme. According to the new political lexicon, governments never spend. They invest.
Back in the early 1990s, advocates of bigger government recognized they had a rhetorical problem: their cause had become highly unpopular. Asked by pollsters whether it would be better to have a larger, more costly government that delivered more services or a smaller, less costly government that delivered fewer services, most Americans were picking the latter.
So the Left began a concerted effort to use the term “investment” rather than “expenditure” to describe proposed increases in government spending. As so often happens with useful ideas, however, the new marketing strategy was carried to counterproductive extremes. While it might have made sense to voters to describe a new highway as an investment in physical capital, or to describe a new education program as an investment in human capital, politicians couldn’t stop themselves. Health programs, housing subsidies, food stamps, and the like became “investments,” too.
Voters got wise to the trick. If you claim to see every potential expenditure as an investment, don’t be surprised if people aren’t willing to give you any more of their money to invest.
Now, there really is such a thing as government investment. Federal, state, and local governments spend hundreds of billions of dollars a year building, buying, and maintaining public capital assets — be they roads, sewer systems, or aircraft carriers — as well as subsidizing the formation of human capital via education and training.
But it is important to recognize right off the bat that most investment is private. It consists of private households and companies saving, borrowing, or attracting investment funds with which they build, buy, own, and maintain private capital assets. For every dollar that governments spend on such activities as building highways, buying buildings, or upgrading their sewer lines, private entities spend more than three dollars on such activities as building factories, buying equipment, or upgrading their Internet connections.
There was about $2.3 trillion in gross domestic investment in the country in 2010. Private investment totaled $1.8 trillion, or 78 percent of the total, while government investment totaled $500 billion, or 22 percent. The private sector’s share of the nation’s gross investment has averaged about 80 percent for many years.
Even when talking about investment sectors with significant government involvement, private households and institutions play a large role — and sometimes a dominant role. In the transportation sector, for example, many people assume that government is the primary owner and operator of transportation assets. They are wrong. Most of the transportation market consists of private companies competing for private dollars. Most transportation assets are privately owned and operated.
For example, while most roads are owned by government, most of the vehicles that traverse those roads are privately owned. Most of the fuel that powers those vehicles is privately drilled, processed, and marketed. The cost of owning, fueling, operating, and insuring vehicles far exceeds the annual cost of building and maintaining the roads they travel.
The same is true for air and sea transportation. Only in the case of transit does government finance play a dominant role. In recent years, private household or business spending on vehicles, fuel, supplies, storage, and transportation services has averaged about 80 percent of total U.S. expenditures on transportation, about the same as the private share of investment as a whole.
For North Carolina policymakers, these facts offer an important lesson. If your goal is to build the investment base that makes economic growth possible, focus primarily on unleashing private investment. That’s where most of the action is, and will always be.
John Hood is president of the John Locke Foundation and author of “Our Best Foot Forward,” a book on North Carolina’s economy. It is available at JohnLockeStore.com.