When Government Can Help the Economy

Leslie Helm | February 2012 | FROM THE PRINT EDITION

When it comes to government intervention in the economy, it’s easy to find examples of poor policy. The $535 million in federally backed loans to solar panel manufacturer Solyndra is a good example. The company’s executives paid themselves from $37,000 to $60,000 each in bonuses before shutting down their factory last summer and firing 1,100 workers.

But such failures shouldn’t taint all government efforts to promote economic growth. There are many areas in which government can and should play a critical role. Consider job training. There’s a yawning mismatch between the jobs that are being posted and the skill sets of our workforce. Yet companies are reluctant to spend money to train workers.

That’s where the Workforce Development Council of Seattle–King County comes in. Under CEO Marléna Sessions, the private nonprofit is working closely with industry to identify demand for labor in such critical sectors as aerospace, health care and green building, and then finding or developing programs to train workers for those jobs. Sessions figures the council gets a $10.50 return on every $1 it spends.

Providing credit to small businesses is another area in which government can play an important role. In the boom years, entrepreneurs frequently used home equity loans and credit cards to fund their businesses. Today, those avenues have been cut off as credit has tightened. Now, even the strongest small businesses have trouble borrowing money to invest in growth.

The Washington State Department of Commerce has responded by using $19.7 million in federal grants to entice private investors to lend as much as $300 million to small businesses. Close to $9 million will go to a nonprofit that finances businesses in rural and underserved communities. An additional $6 million will go to a Capital Access Program that will create a loan loss reserve fund allowing bank partners to make riskier loans than they might otherwise be willing to make. Another infusion of $5 million will go to an early-stage venture fund to help commercialize technologies and business ideas coming from the state’s university and government research laboratories. In each case, federal money will be matched by significant funds from private lenders, whose involvement will provide the market discipline required to assure the money is invested wisely. The state has also launched programs, in cooperation with the federal government, to help small businesses increase their exports.

There has clearly been some significant waste as the federal government sought to stimulate growth. But well-designed government programs have an important role to play in spurring economic growth by providing services the invisible hand of the market fails to provide.