I recently noticed a string of stories with the same theme. Domino’s Pizza is donating money to 20 cities, to be used for fixing potholes and cracked roads. Salesforce has donated $1.5 million to reduce homelessness in San Francisco, and its CEO, Marc Benioff, has spoken of grander schemes to end homelessness in the city. And Facebook is talking about renovating a defunct bridge that runs across the San Francisco Bay near its offices.
It’s good for potholes to be fixed, the homeless to be housed, and traffic congestion to be relieved. But the fact that it’s private companies taking these steps is an ominous sign. It suggests a breakdown in the government’s ability or willingness to carry a core function — the efficient provision of public goods.
A public good is something that one person can use without making it less available to another person — in other words, a good that doesn’t get “used up,” in the way that food or cars do.
In reality, there are few perfectly public goods in the textbook sense. But lots of things have some public aspect to them, because they create positive spillovers that benefit people who don’t pay for them. Roads and bridges benefit not just the people who drive on them, but also others who benefit from the economic activity enabled by transportation networks. Housing homeless people certainly is a moral obligation of society, for their safety and dignity. Incidentally it also results in a cleaner, safer city.
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In most advanced societies, public goods — infrastructure, sanitation, national defense and others — are mostly provided by the government. Public goods have an inherent free-rider problem: For anyone who can, the impulse is to let someone else foot the bill, and simply consume the public good for free. Businesses, nonprofits and wealthy individuals might provide some amount of public goods — for their own benefit and others’ — but not the full amount that society needs.
Economists have theorized about just how much public good the private sector would provide in the absence of government. One classic paper by Theodore Bergstrom, Lawrence Blume and Hal Varian explores the question of how inequality affects the equation. They find that when a few people get really rich, they start acting like a government.
So companies like Domino’s, Salesforce and Facebook might be venturing into public-good provision because of rising inequality in the U.S. economy. While the moves might seem like marketing gags, they also provide value to the companies — Domino’s drivers will use the roads, Facebook employees will commute over the bridge, and Salesforce employees will live and work in a more ethical community. It might be that these companies are reaching such a level of size and wealth that it no longer makes sense for them to wait for governments to fix these problems.
Also, private provision of public goods might signal another, even scarier trend — government dysfunction. In the U.S., government investment has been trending down, as a percentage of total economic output, for decades. This may be caused by diverging preferences. Some people would rather live in dense urban areas and take the train and walk the streets; others would rather live in the suburbs and use the roads. Some people care more about clean air and water than about commodity prices; others prize cheap fuel to sustain economic growth. Political polarization may be a sign that Americans just can’t agree on what they want their governments to do.
Another factor is cost. Infrastructure in the U.S. is very expensive relative to other countries, which may deter governments from being willing to undertake infrastructure projects at all.
So while it’s nice for companies to spend money on public goods, it’s also a harbinger of some unpleasant trends. A more divided, unequal, sclerotic country will be a less pleasant place to live and do business.