The Private Sector Has More Incentive to Invest Wisely

Daniel RoncariQuickPoint!

Governor Kulongoski recently signed a series of bills that will spend a total of $28 million dollars on several industries and research centers. The Oregon Innovation Plan will “invest” in “innovation-based economic development,” supposedly to help make Oregon more competitive. Because the Oregon Innovation Plan is government-directed investment, it is inferior to private sector investment. That is because government decision makers, no matter how well-intentioned they may be, do not have as strong incentives to invest wisely.

Milton Friedman once said: “Nobody spends somebody else’s money as carefully as he spends his own.” In a free market, business people are driven by the profit motive and are directly affected by the decisions they make. Hence, they have a strong incentive to ensure that their investments are generating value for consumers and are profitable. However, when government officials spend other people’s money, they are assuming less risk and have less incentive to ensure that the investments are successful.

If this $28 million dollars were left in the private sector, perhaps as a research and development tax cut, private firms likely would invest these funds in innovation and research that would generate more economic growth. Oregon should pursue policies that promote investment decisions motivated by market incentives, not political ones.

Daniel Roncari is a research associate at Cascade Policy Institute, a Portland, Oregon-based think tank.

© 2007, Cascade Policy Institute. All rights reserved. Permission to reprint in whole or in part is hereby granted, provided the author and Cascade Policy Institute are cited. Contact Cascade at (503) 242-0900 to arrange print or broadcast interviews on this topic. For more topics visit the QuickPoint! archive.

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