Chapter 3.	Government
The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse.
— James Madison

Experience should teach us to be most on our guard to protect liberty when the government’s purposes are beneficial.  Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers.  The greater dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding.
––Justice Louis Brandeis, 1928.

The true art of government consists in not governing too much.
— Jonathan Shipley

I.  Government--Introduction
	Once we have begun reasserting our responsibility and finding better ways to select leaders, we still have the system to fix.  How much fixing must be done?  Let us count the ways. . .
	In 1958, 75 percent of the public said it trusted the federal government in Washington to ‘do what’s right” always or most of the time.  By the early 1990s, the trust level had fallen to around 35 percent and in February 1993 it reached an historic low of less than 20 percent.  Seven of ten Americans say the government creates more problems than it solves.  Two to one, Americans say abuses by the federal government are a bigger problem than abuses by big business.  In the early 1990s, the proportion of people saying that government wastes “a lot” of their tax money was 75 percent, twice as many as thirty years before.  A Times Mirror Poll in 1994 indicated 66% of those polled said government was almost always wasteful and inefficient. Americans will no longer put up with corruption, shoddy services and arrogance now that the cold war has been won and no external threat exists for the first time in fifty years. 
	Government spending for the first 150 years did not exceed 12 percent of the national income; Two-thirds of that was spent by state and local governments, mostly for schools and roads.  As late as 1928, federal government spending amounted to about 3 percent of the national income. Now government spending at all levels exceeds 40 percent. Washington, the federal government, is expanding its own power by buying our freedom with our own moneys; must we all become dependent on Washington largesse as they wish us to?
	Tremendous disproportion exists between issues that agitate the national government and problems that affect people in their daily lives.  Government has become preoccupied with ever more subtle definitions of sexism or sexual harassment while illegitimacy rates have tripled in 30 years.  The government has become preoccupied with every more obscure and minute health risks from ordinary foods while the murder rate has tripled over the same time frame.  The government has become preoccupied with every more ambitious programs for multicultural recognition and bilingual education while pubic schools can no longer assure that even native English-speakers will learn to read and write at what once were grade school levels.  The government has sucked more and more resources and regulatory power to the center and has become prey to a wider and wider circle of special interest groups which make it impossible to focus on the immediate priorities of ordinary citizens. Normal government practice discourages natural selection, it encourages survival of the already entrenched or politically powerful.  Budget decisions are typically made based on what was done last year, which organizations have political clout, which gave donations, and the unions’ position. 
	In James Payne’s study of fourteen different hearings in various House and Senate committees,  the orientations of over one thousand witnesses concerning the spending under question were tabulated, ninety-nine percent of which favored spending.  “In the modern welfare state, government is viewed as a store, in which we can get anything we want or need going in there in order to avoid getting anything seems irrational and trying to prevent others from getting what they need seems mean-spirited.”  The majority of those witnesses (over 60 percent) were government officials themselves acting as an interest group with the rest primarily lobbyists, typically former government officials.  According to government workers, there is never enough money nor resources to do the job right.  Even as the budget deficit remains at historical highs, additional programs are being funded and proposed.  Surprisingly (actually, not surprisingly once you understand how government works) almost never are programs cut back or dropped. And government keeps on going, having a seemingly upward momentum of its own.
	 It is easier to create bad public programs than to eliminate them once they have been around for a while.  This is called the ‘tyranny of the status quo.” The political status quo is important because groups with a lot to gain from particular programs fiercely defend their continuation regardless of consequences to others.  Opposition is typically weak and fragmented because the taxes are spread over the many to pay for the few.  A perfect example of this is the REA (Rural Electrification Administration) which continues to eat $2 billion a year of taxpayer’s moneys  decades after it has fulfilled its original purpose.  The cost of REA’s subsidized loans amounts to no more than a few pennies per taxpayer but the loans matter tremendously to the fewer than 2,000 electric cooperatives that directly benefit from them.  As a result, the beneficiaries employ multitudes of consultants and lobbyists to convince Congress to continue the REA’s existence.  
	Among government agencies, particularly ones that are under budget pressure, programs cut are nearly always the ones that are considered the most valuable by the agency’s nominal ‘customer’--the citizenry.  In one classic budget discussion, the director of the National Park service was asked if there was any fat in his budget, if there was any service that could be closed or pared.  His answer: “Close the Washington Monument.”  No private business could long survive with an attitude of contempt for the customer and so consistently inverts the concept of customer service. 
		Government spending as a percentage of GDP is too large to maximize economic growth.  Government uses resources less productively and efficiently than does the private sector (by a factor of one third to one half if not more).  Then fewer resources are brought to market because of the tax and regulatory burdens.  Economists Rahn, Fox and Fox find that a country pays a stiff premium in terms of reduced economic growth once government expenditures exceed 10 to 15 percent.  Australian economist Colin Clark asserted that government could not take more than around one quarter (25% later revised upwards to 40%) of a country’s GNP without creating inevitable inflationary pressures.  Above that amount,  increased government revenues will not stimulate the economy, it will either depress it and create stagflation or it will create mounting inflationary pressures.   Revenues, in fact, actually begin going down at roughly that 40% level.  Tax revolt begins to occur at first by the workers working fewer hours. A gray economy filled with tax cheaters eventually results.  The American gray economy is estimated to be as much as 15% of the  GNP and will continue to grow as long as the public perceives government as unfair, corrupt, and do not feel they are getting their dollar’s worth for the taxes they pay.    Attempts to stamp out or curtail the gray economy is ineffective as long as tax rates remain high. If current trends continue, by the year 2000, the average family of four will have to pay more than $5,000 per year in taxes just to pay interest on the national debt. Is it any wonder that compliance as well as faith in the government is at an all times low? The public’s faith in the level playing field, that government can set ground rules equally binding on everyone, has become almost non-existent.  As public confidence  in the integrity of the Government is lost as has happened, the public loses faith in the system, and support for it disappears. 
	Government is  a necessary evil; all civilized societies have some form of government.  We do not dispute the need of some form of government. Government is essential both as a forum to determine the ‘rules of the game’ and as an umpire to interpret and enforce the rules decided upon, to prevent individuals from coercing one another.  Government is the mechanism used to make communal decisions, to solve collective problems. To some extent, therefore, government is a form of voluntary cooperation, a way in which people choose to achieve some of their objectives through governmental entities because they believe that is the most effective means of achieving them. Government, however, is also the agency that has a monopoly on the legitimate use of force or the threat of force as the means through which some of us can legitimately impose restraints through force upon others of us. That is the problem, the Government as Dr. Jekyl and Mr. Hyde.  How can we keep the good without allowing the bad to take over? How do we avoid throwing the baby out with the bath water?
	In the beginning, it was thought that by turning tasks over to the government, conflict and decisions would be made to go away.  Once the wicked private interests had been eliminated, the right course of action would emerge, decision would be rational and automatic.  Neither selfishness nor political passion would exist.  Escape from politics of reality and ones own responsibilities.  It was commonly thought that power conflicts were always motivated by economic self-interest and could be avoided by eliminating gain, that is, nationalizing the economy. Alas, government, itself, has become one of those wicked vested interests.  To turn any area of the economy or economic decision-making over to the government, creates conflicts, creates vested and selfish interests, and complicates decisions.  Instead of abolishing politics, it makes decisions ever more political.  Government is no alternative to decision; it does not replace conflict of interests by rational decision making. Not many people would want to do without the social services and welfare benefits of the modern industrial society.  But the welfare state promises a great deal more than to provide social services, it promised to create a new and happy society, to release creative energies, to do away with ugliness, envy, and strife.  It did not do so; in fact, the new state made many of the problems worse.  At best we get from government is a competent mediocrity, often we get intolerable incompetence.  Many areas of government provide no performance, no benefits, it just eats costs by the billions of dollars every year.  The more we expand the welfare state, the less capable it appears to even handle routine mediocrity.  Modern government has become ungovernable. Government has proved itself capable of doing only two things with great effectiveness over the course of this century:  wage war and inflate currency. Government agencies are becoming autonomous, ends in themselves and directed by their own desire for power, their own rationale, their own narrow vision rather than by national policy and by their own boss, the federal government.  Administrative agencies, once created, become an ends in themselves, acquire a ‘vested right’ to eternal federal moneys and achieve immunity to political direction, almost from birth they begin to defy public will and public policy.  
	Over 150 different training and employment programs operate out of fourteen distinct federal agencies costing the American taxpayers over $17 billion annually; yet 70 percent of the jobs obtained for graduates are for $5 an hour or less and need no prior training. Social programs for Indians have twelve different federal agencies spending $5 billion annually, which amounts to over $20,000 for each Indian family of four, who receive less than one-third of that amount, the rest being drained off by the bureaucracy. The Department of Education doesn’t directly educate anyone, has no accountability, has no power over school curricula, yet spends $31 billion annually on 230 different projects. These are just three examples of agencies and departments and programs which are ineffective, unneeded, redundant, overstaffed, and downright obsolete. 
	What we have now is an industrial era government--equating to large, centralized bureaucracies and standardized services which are inefficient, inequitable and slow for the information age that currently exists.The government runs at a deficit not because we are not giving it enough of our hard earned moneys but because it is inefficient, politicized, corrupt, inept, and involved in more functions than it necessarily should be. Very few goods or services are inherently public and those that are can often still be provided efficiently on the market through typing arrangements or the development of other exclusion technologies.  By prohibiting ownership  of certain goods, such as forests or rivers or by permitting ownership only under very restricted  conditions, as is the case with rent control, the law transforms these goods and services into collective goods. If people are to be free, government is necessary, but must be controlled.  How to marshal the necessary control, without choking the flexibility needed in a changing world is one of the most perplexing and critical issues facing contemporary society. 
	The proper question that should be asked:  is why has Washington become so ineffective at solving problems.  Even with so much of our money going to the federal government, the cry is for more to solve more problems.  How can it become more effective?  Another way of looking at it is how flexible is government?  Flexibility depends not just on the size of government but on its organization.  With few lobbies, government can be large yet still quite flexible.  It could experiment as was done during the New Deal with impunity, not worrying about permanent results of a temporary program.   The government could create programs quickly, try them out, get rid of them when they were no longer needed. As interest groups sprouted, flexibility eroded and governing became ever more difficult. Any government program created today, under today’s system, will still be with us for decades to come.  The government we have now is inefficient, inflexible, corrupt, and unresponsive. We have an 18th century government for a 21st century world. All large organizations are subject to the iron law of oligarchy, they tend to concentrate power at the top, at the center.  The primary aim of this power is its own consolidation. 
	This is the system that must be changed, which must be reengineered.
	Why, why, why???

II  Government--the Problem: Special Interests

Government is a kind of legalized pillage.
— Elbert Hubbard

The government is us; we are the government, you and I.
— Theodore Roosevelt

In the long-run every Government is the exact symbol of its People, with their wisdom and unwisdom; we have to say, Like People like Government.
— Thomas Carlyle

	The Logic of Collective Action was first documented by Mancur Olson in 1965.   The problem of free riders applies to private collective projects no less than to government.  The bigger the class of people who benefit from collective action, the weaker the incentive for any particular beneficiary to join or organize and so the less likely that a group will coalesce.   The larger the group, the less it will further its common interests. Relatively small groups will organize and act in support of their common interests.   Small, narrow groups have a permanent and inherent advantage because they are organized and active while larger groups are generally unorganized and inactive. (For example, in the beginning the AARP was one such small interest group, as it  grew until it represented nearly every elder, its ability as an interest group waned) Stable societies with unchanged boundaries tend to accumulate more collusions and organizations for collective actions over time.  It is only in times of violent societal change (losing a war such as Japan and Germany did in  the Second World War) that housecleaning can occur and  the nation gets a clean slate.  Because group-forming is difficult and takes time, the society must be stable enough  so that pressure groups have time to form and affix themselves to the political body.  				Democracies, being relatively stable, offer the best environment for coalescing to occur.  Countries that have had democratic freedom of organization without upheaval or invasion the longest will suffer the most from grow-repressing organizations and combinations.  It takes some cataclysmic event--foreign occupation, loss of war, revolution, to shatter a society and sweep away an existing government and destroy the society’s network of interest groups.  In the aftermath, the restored economy would be freed from its accumulated burden and therefore can grow relatively quickly immediately afterwards.   Gradually, however, interest groups form and attach.  Each group secures some sort of subsidy or anti-competitive rule.  Interest groups form to persuade government to redistribute resources their way; taken one at a time, benefits are minuscule  so no countervailing group arises to stop the waste; multiply like termites gnawing way at the pillars of effective government. These benefits accumulate over time, ever more distorting the economy until the country becomes just like others.  But over time, forces coalesce.  Immediately after the war, Germany and Japan prospered; now, forty years after the war, they find themselves in the same dilemmas that the victors, Britain and the United States, have had for nearly thirty years.  Time has allowed collective forces to appear.  The danger in this coalescing is that for interest groups, the bigger payoff is in redistributing the pie, not growing it.  As long as government was a small entity,  the incentive did not exist.  Now with the federal government claiming one-quarter of GDP, and total government spending exceeding forty percent, the potential is present and the groups have arisen. The founders feared the power of ‘factions,’ the eighteenth century term for the passion of narrow interests that operate against the common good.  Their fears were well founded; modern day factions are better organized, better financed, and better skilled at the politics of persuasion.
	A government program almost always confers substantial benefits on a relatively small group while at the same time spreading the costs widely (thinly on a per capita basis) over the population at large.  As a result, the chosen few have a strong incentive to lobby intensively for the program while the many others are rarely informed about it, let alone have time or money or interest to oppose it.  A vote against such a program generates opposition from the few who will benefit but only weak and diffused support from the many who will pay for it. Any measure that affects a concentrated group significantly--either favorably or unfavorably--tends to have effects on individual members of that group that are substantial, prompt, and highly visible.  The effects of the same measure on the individual member of a diffused group tend to be trivial, delayed, and less visible.  Quick, concentrated reaction is the hallmark of special interest groups in a democracy.  It motivates politicians to make grandiose promises before an election and to postpone any measures adversely affecting special interest groups until after an election. 
	The single cause group derives its power from being a small minority; its strength lies in its single purpose. It is organized, active, directed, totally, fanatically  committed to its cause, its interest.  The rest of the public is large and diffused.  This single cause, interest group, paralyzes political life in developed countries and by its presence,   dominates politics.  Although rarely enough to provide margin of victory, its opposition often ensures defeat.  It is often not a force for positive action but succeeds in blocking whatever action it does not approve.  As a result, policy making becomes special interest manipulation which can only be done by people who themselves have no political power base, no political agenda, and thus increasingly is postponed until crisis or emergency forces action.   Only under such a threat does the single cause, the special interest groups lose their veto power.   
	Modern pressure in the form of interest groups is rarely corrupt, it is its cumulative effects that create gridlock.  The number of groups have grown explosively; at least five to ten times the number of groups exist today as did forty years ago.  Interest groups (lobbies), regulations, bureaucrats and lawyers tend to grow together.   As laws prosper, the regulations needed to implement the law increase, the number of bureaucrats needed to enforce the regulations increase, and the number of lobbyists to influence the law and its disposition also increase drastically.  Often times, specialists (lobbyists for special interest groups) will lobby against simplification or elimination of the regulation due to the vested interest the lobbyist’s sponsor has for that regulation.  Therefore, the incentive changes from production to redistribution, to transfer the wealth. Any government activity, installation, employment, become immediately built into the political process.  The inability of government to abandon anything is not limited to the economic sphere.  Every beneficiary of a government program becomes a constituent who then organizes himself for effective political action and for pressure upon the decision maker. 
	Groups begin with legitimate rationale, most still do.  Sooner or later, the group begins to seek collective goods, some benefit members can obtain from nonmembers by lobbying and agitating as a group.  Agricultural groups began with good intentions as distributors of information and technology to farmers; they have evolved into lobbyists to retain and increase subsidies.  Civil rights groups began by seeking equal justice under the law, an admirable pursuit; they have evolved  into defending affirmative action benefits. These groups  claim to serve some larger good, and in fact they do (or did in the beginning). Interest groups are dedicated to transfer resources, to divert resources to some activity they like.  AARP’s membership accounts for the vast majority of Social Security recipients, the organization’s headquarters in Washington  has its own ZIP code, a staff of 125, 16 registered lobbyists, and a lobbying budget alone of over $4 million. 
	Conventional wisdom believed that as more Americans get organized and as the lobbying process opened up to more groups and classes than ever before, the claims of all of those competing interests would be weighted and mediated in the political process, producing a more and satisfactory result than before; this has not happened, the situation has only worsened.  Pluralism has not worked. The theory was if some group became disproportionately powerful, or began to abuse its power, an opposing group will form and the system will move towards balance.  Often, countervailing groups did not form  due to the small group principle. And not everyone is economically or politically interested in groups: higher educated, higher income citizens are more likely to form groups than others.  What happened was hyperpluralism, as more groups formed, like hyperinflation, groups begat groups and fed on its own growth.  They began to choke the system that bred them, to undermine confidence in politics, to erode political stability.  The system becomes unable to make reasonable social decisions reasonably quickly.  The tax code, instead of becoming simplified, is complicated by the thousands of groups lobbying for small tax breaks for each particular group. Far too many people approach the government for handouts taking the attitude that if they do not accept these handouts, someone else will and the world will be no better for their individual restraint.  
	In fact, there is no effective bottom line for government.  Government is a majority composed of a coalition of minorities representing special interests.  These special interests will vote for a representative on the basis of how he votes on a particular measure, regardless of how he votes on any others.  It is not in the interest of a legislator to vote against a particular bill if that vote will create strong enemies while a vote in its favor will garner many dedicated fanatic supporters. Too many special interests are demanding too much of government, creating overload. Pressures to satisfy every special interest leads government to undertake programs that cancel each other out.  Government imposes a heavy tax on tobacco programs, thereby raising its price and discouraging smoking.  Government also subsidies the growing of tobacco, lowering its price and encouraging smoking.  Government finances a campaign by the Surgeon General to publicize the harmful effects of smoking and to discourage smoking.  This is where America is now, the true cause of gridlock and governmental inaction.  
	The Soviet economy collapsed because every important business enterprise was kept alive by a politically connected coalition of enterprise managers and government officials.  The world changed but business and government didn’t.  Obsolescent companies gobbled up resources, crowding out new companies.  The economy ceased to adapt.  In principle, the American government is behaving much like the Soviet Economy:  old programs and policies cannot be gotten rid of and continue to suck up money and energy; as a result there is less and less money and energy for new programs and policies.  Something has to give. If the government is poor, unable to afford things, it is because of its inability to unlock resources from entrenched programs and reallocate them for more needed causes.  
	Both history and theory indicate that there is a tendency for the state to grow.  When benefits are concentrated on a small group but the costs are widely dispersed, the beneficiaries of the proposed program will act vigorously to secure their implementation while the opponents will remain largely inactive, thereby all but ensuring passage.   James Madison was aware of this potential problem and warned against speculators who earn profits by brokering government subsidies and favors.  Madison’s solution was that government should have little power to reassign property so that transfer-seekers, would have little to buy and sell.   Thus the bill of rights says: “No person shall be deprived of life, liberty, or property without due process of law, nor shall private property be taken for public use without just compensation.”
	Government services do well only if there are no political pressures.  As soon as a government activity has more than one purpose, say EEO, it degenerates.  Government services will also not perform if the basic assumptions under which they originated change--education, workman’s compensation. Government activity to be successful means it  is the only way to do a certain task, that it not outlive its usefulness, not be continued once it has obtained its objective, not be made to serve political ends, remain narrowly focused on specific performance for the public, assumptions on which it is based remain unchanged.  Government will be ineffective if an activity is under pressure to satisfy different constituencies with different values and different demands.  In an easy activity all constituencies want the same performance.  Hard activities if different constituencies expect and demand different things and have different values and expectations.  The latter category is prime setting for government disaster. Vulnerability is in the democratic public’s tendency to form ever more groups clamoring for ever more goodies and perks and then defending them to the death.
	The defect  of special interests is that they seek through government to force people to act against their own immediate interests in order to promote a supposedly general interest.  They seek to resolve a conflict of interest, or difference in interests, not by persuading people, but by forcing people to act against their own interests.  They substitute the value of outsiders, those who think they know better, for the values of participants.  The beneficial effect of government intervention, is direct, immediate, and visible while its evil effects are gradual, indirect, and almost out of sight. The natural bias in favor of government intervention is strengthened when special interests seek benefits through administrative procedures rather than legislation. The government as viewed by our founders was suppose to be a ‘government of laws instead of men.’  It has become the reverse. Pluralist society  guarantees freedom from domination by any single group; the danger is its collapse into indecision and into a statement of competing influences. This danger has already come to pass.
	What we need to return to is accountability. Accountability means that government action accords with the will of the people the government represents--not the will of individuals who work in the government , not what those individuals believe the citizens should want or need, but what the people, by their own criteria, count desirable. 

III. How Much Government is Enough

Which is the best government? That which teaches us to govern ourselves.
— Johann Wolfgang von Goethe

Far more important to me is, that I should be loyal to what I regard as the law of my political life, which is this: a belief that that country is best governed, which is least   governed … — George Hoadly

The legitimate object of government is to do for a community of people whatever they need to have done but cannot do in their separate and individual capacities.      -----Abraham Lincoln. 

	Given that some form of government is necessary and yet the present form of government seems to be rusting and ineffective, what then should government consist of and do, that is, how much government is enough? Adam Smith argued that government, by its very nature, cannot run the economy, not even poorly.   Despite widespread public dissatisfaction with the results of government and the quality of service provided by government, demands for more government appear every day, continued pressure for further expansion.  If you get bad meat you blame the government for not inspecting it;  If you get a drug that isn’t effective you blame the government for not controlling it;  If you see advertising that is misleading you complain because the government doesn’t control it; If you see pornography you complain because again the government doesn’t control it. The increase in population along with increases in  technology, communications, transportation, means society becomes every more complicated. But does the average Joe want the government to make his decisions for him or does he want to do it himself?  By taking responsibility for one’s own actions and accepting life’s fates, the need for government interference becomes minimal.      It is unrealistic to say I want this, this and this service and have no agency to administer it.  One has to ask how was this done fifty or one hundred years ago when there was no agency, how could man have prospered so well before all the agencies?  He got along because he had to and he relied on himself, not the government for all the answers.	The resort to government by socialists during the preceding half century has had  six main sources:
	•the notion that if the market failed, the only alternative was the state.
	•the superstition that collective action would secure better use of resources than individual action.
	•the myth that public control was more responsible than private.
	•since government was obviously necessary in external defense and internal safety, it could also properly supply many other services.
	•the thinking that since government has the resources to create good works, able people should joint it to ensure that it did.
	•the self delusion that government is the arena of professionally inclined people who would rather provide a service to others than work for profit for themselves.  
It is obvious that these myths have been debunked. The 1980s resulted in the defeat of communism and  displayed overwhelmingly the value of capitalism over socialism. In the 1990s, capitalism is replacing socialism throughout the world.  Large government is not the answer.  What is then?
	From Adam Smith’s The Wealth of Nations (1776) onward, increasing numbers of professionals have argued that people everywhere would be better off if protectionism were to be removed from economic affairs and commerce and investment operated according to market criteria rather than governmental desires. The classical list of the purposes of government by classical economists of our time include:
	•external defense, internal law and order, money, tax collection, some education, roads, bridges, canals, and harbors.
	•Keynes thought the business of government was  to do those things ‘not done at all’ but individuals, where there is no market.  Wherever it is used, he claimed, government tends to be disappointing or worse--inefficient, unaccountable and corrupt. The price of government is so high that it should be avoided wherever possible.
	•Lionel Robbins: defense, laws to create and defend property rights and contract, security, provision against infectious diseases, communications, roads, land for railways, canals, drainage, water supply, electricity, telegraph and telephone., 
These are the extensive but necessary functions of government. 
	•Other classical philosophers envisage government as limited to protector of the peace and guardian of civil society.
	•Adam Smith in his classic book, The Wealth of Nations,  viewed government intervention in the market with great skepticism. He indicated that the sovereign has only four duties to attend to: First, protecting the society  from the violence and invasion of other independent societies; second: protecting as far as possible, every member of the society from the injustice or oppression of every other member of it, establishing an exact administration of justice;  thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it would never be for the interest of any individuals or small number of individuals to erect and maintain because the profit could never repay the expense. Examples of these include city streets and highways where the costs of tolls would be inadequate  compared to the cost of building and maintaining the streets or highways.  Smoke and pollution would also fall into this third duty. . .  that is, market failure because of external or neighborhood effects. Government failure also arises from government intents to correct the market failure . The third duty says not that government intervention is never justified but the burden of proof should be on its proponents. The practice of cost benefit analysis must be developed to examine government interventions. His fourth duty is the duty to protect members of the community who cannot be regarded as responsible individuals.  This can be extended to refugees, children, madmen, indigents.  
	 Adam Smith specifically  claimed that  government could legitimately do the following:
	•protect the merchant marine and give bounties to defense related manufacturing industries
	•impose tariffs on imports in order to bargain for reduction of tariffs by other countries
	•punish, and take steps to prevent, dishonesty, violence, and fraud.
	•establish indicators of quality of goods, such as the sterling mark for silver.
	•require employers to pay wages in cash rather than in kind.
	•regulate banking
	•provide public goods such as highways, harbors, bridges, and canals
	•run the post office
	•grant patents and copyrights
	•give a temporary monopoly to a trading company developing commerce in new and risky regions.
	•require children to have a certain level of education
	•provide protection against communicable diseases.
	•require the streets to be kept clean
	•set a ceiling on interest rates
	•impose discriminatory taxation to deter improper or luxurious behavior.
Smith looked at the conditions of the time and made a judgment regarding whether government action in a particular case was appropriate.  Like he did, we must do so today. Those thoughts of over two hundred years ago are an excellent place to start.
	•Dr. Gray argues that except for three positive functions, government must withdraw from participation in economic life and confine itself to devising the rules under which individuals can conduct their affairs in security and peace.  These three are to liberate the poor from dependence and emancipate them as independent members of civil society, to enable them to acquire the means to exercise choice and responsibility in the control of their health, education and provision for old age, and to facilitate the transmission of valuable cultural traditions across the generations. 
	• Ayn Rayn  believed the proper functions of a government  (Atlas Shrugged) are the police to protect you from criminals, the army to protect you from foreign invaders, the courts to protect your property and and contracts from breach or fraud by others and to settle disputes by rational rules according to objective law.
	• John Stuart Mills believed that states should not do things better done by individuals, things that is better for the individual to do themselves and things that might unnecessarily increase the state’s own power.  Anything that can be done by a private non-public organization, he said, should be done by it and not by the government. The state’s main function is protection, both from individuals and special interest groups who threaten the freedom of others and from unfriendly outside forces (national defense), insuring order, public safety, promotion of justice, and public health.
	The former British colony of Hong Kong was an example of almost pure capitalism:  no tariffs or other restraints on international trade.  no minimum wage.  no price fixing.  no government direction of economic activity.  Its government has limited involvement  and narrowly interpreted their responsibilities to the four duties specified by Adam Smith:  facilitating communication and transportation, supervising issuance of currency, and providing for temporary housing for refugees. 
	The founders created only four departments: the Justice Department, Treasury Department, State Department, and Defense Department. These were the basic four ones that started and they tend to be exactly that justice for people who have conflict.  Treasury for the money. State for relations with foreign governments and Defense for protection. All of these elements are macro which no single citizen can do on his own.
	We believe, supported by major economists both present and past, that the best government is minimal govern. Government should protect people only from risks they cannot easily protect themselves against: unemployment, natural disasters, catastrophic illnesses.  Government should not protect nonindigent people against the predictable results of their own actions or the inevitable cycles of life--against the costs of retirement and college, against the regular fluctuations of farm and factory prices, against the miseries caused by idleness and addiction.  Government intervention into the free market system should be limited to incentives and disincentives and the encouragement of highly competitive society and prevention of any groups or collusion to prevent competition. Adam Smith’s four duties of government appear to have been the foundation of American government by the Constitution as well as the organization of government by the founders.   We believe the best way for government to fulfill its responsibility would be for it to get out of way of business. Four principle rules should apply:
	•The less the government the better.  Government should be limited to its legitimate functions:  national functions, providing protection for lives and property of its citizenry, justice--arbitrating contractual disputes, national security, projects private sector will not do (space), international liaison with other governments. Transfer control to state and local governments those functions best suited to them: health, education, welfare, society.  
	•The market forces (natural forces) should regulate economic supply and demand as much as possible.  Minimum regulation.  Competition whenever possible.  Even utilities should allow.  Fixed costs shared and allowed competition.  Open public services up for private firms to compete and bid--trash, fire, police, education, postal system.  The Government should not prohibit, regulate or control. By use of incentives or disincentives, the desired results should be obtainable without hindering individual freedom of choice (not outlaw tobacco, tax it as disincentive) or resulting to force. A quantitative value can be placed on anything and everything; even human life has a value.  Cost Benefit Analysis should be used to describe any situation.  Government regulations and controls should not be necessary.
	•The greater the individual freedom of choice the better (despite liberals thoughts to the contrary, we cannot regulate morality, zero risk infeasible, individual’s right to act unwisely). Can not legislate morality: legalize gambling, sexual behavior, drinking, smoking, etc.  Concentrate on regulating and controlling ethical behavior against society:  stealing, cheating, murder, etc.  Pay as you go for public services.  Affluent taxes on pollution.  taxes on vices to pay for social needs. usage taxes.  In an economic marketplace thee is always risk.  The object of government policy should not to make as many people happy as possible but to provide the greatest benefit to society as a whole. We do not advocate any more government any more than we want or need. The key to government  is to protect the public;   The principle we advocate is the least government necessary to provide ample protecting for the citizenry.
	‘•Devolution’, giving (returning) power to states or local governments. That is, returning welfare, health, education, and other functions  back to states where they traditionally were and truly belong if these functions must have some element of governmental involvement.
		Yet,  we have to look at it realistically and consider that our population is increasing, our technology is ever improving and  our international commitments are increasing to the extent that almost in every area of human endeavor or human contact that the government seems to have to have a greater role than it possibly has before.  In the long in the future it will, hopefully the government will be better and therefore it won’t be as invasive and the laws will be more fair and more readily supported by the people. The question we need to ask and answer is what is the minimum amount of government necessary to have a happy constituency?  
	The FDA (The Federal Drug Administration) was set up for good reason at the turn of the century.  Can  the public can operate without some standard of the quality of drugs?   Now, the Food and Drug Administration (FDA)  is at the point where it takes the drug a matter of 10 years to go through all the testing and all the volumes and documents, it has become a bureaucracy responsive to no one. Should one leave it to the manufacturers completely to be in control of the drugs that they manufacture without anybody to monitor them.  Or would an industry association set up to act as a watchdog over all of its members be sufficient. This, knowing full well that the government would step in if misuse of power occurs.  What should government control be as far as health or education?  Need it even be concerned?  Or should it be left to the states as it was a century ago? 	
	Government is responsible for defending the people (defense, justice).  Traditionally military has been meant but this also includes physical security,  crime and terrorism.  Threats within the country by other citizens to citizens is today a greater threat than any external threats from other countries.  In the United States today, in many parts of our countries, individuals can not walk safely in the daylight let alone night.  This is totally unacceptable.  Government should be responsible for allowing the public to walk on any public street at any hour totally free of danger.  A major proper purpose  of a government  is to protect man’s rights, protect him against physical violence and physical removal of the fruits of his labor, his wealth, his property. 
	•Government should also provide reasonable protection from predatory business practices.  
	•Government should minimize its involvement in the family.
	In summary, government should perform those functions in which no one but government should be allowed to perform and only government can perform:  defense and arms. maintaining law, order, and justice. Collective production is necessary for a small part of economic activity; it is not chosen (for public gods) because it is preferred to the market nor better than the market but because the market cannot supply them at all.  True public goods are to distinguished by two characteristics: they cannot be financed by market pricing because individuals who do not want them cannot be excluded, and individuals who use them without paying do not reduce the supply available for others who do.  The classic public good, external defense, unavoidably protects all citizens, including those who evade taxes and is non-excludable.   				Government tends to be able to only function if it is a monopoly and no other ways to do the job.  As soon as alternative ways to provide the same service arise, government begins to flounder.  For example, only the non-governmental American railroads remain effective freight carriers, no nationalized railroad in the non-Communist world carries more than one-tenth of its country’s freight while the American railroads carry four times proportionally as much. It is our belief that government should be temporary, that as technology and creativity provides alternatives to governmental service, these alternatives, rather than government, should be utilized. As the Declaration of Independence so eloquently reminded us: Governments are instilled among men, deriving their just power from the consent of the governed.   

IV. Government--Recommendations

The whole aim of practical politics is to keep the populace alarmed by menacing it with an endless series of hobgoblins, all of them imaginary     
------H.L. Mencken

Politics is the only profession for which no preparation is necessary---  Robert Louis Stevenson

A statesman thinks of his country’s future, a politician thinks only of the next election--Winston Churchill

	Given the problems with government and what government should be, how should we then fix it?  Many suggestions have been made.  Our suggestions follow:
	I.  	Candidates to all offices should sign legally binding campaign promise contracts like a performance bond.
	II.	Sunset laws: government activities should be organized as temporary from the outset, enacted for a limited and fairly short period of time with a clear statement of the results it is expected to achieve within that period and with explicit commitment to abolishing it if it should fail to produce the promised results. Currently, it is very hard to abandon an activity even if obsolete. or when it has accomplished its objectives. Renewal of the activity must be done by the full legislature. Congress should be required to eliminate an old program for every new one it adopts. The Temporary Emergency Food Assistance Program was created in 1983 and now is permanent, being appropriated $120 million during 1994-1995 to buy food to give way. Dozens of such programs exist; once created they live on infinitely.
	III.	Downsize and decentralize the federal government. Decentralize systems to the local level. Government power must be dispersed; the more local, the better.  We espouse a return to federalist philosophy--that is strict constitutional limits on what national governments can do.  We wish to re-create local political control over issues that involve profound regional differences in cultural values, such as education, morality and culture.  Federalism imposes limits on political power by making it easy for people to vote with their feet.  The different governments are forced to compete with each other. Dividing political authority is essential to preserving the rights of individuals and minorities and to making government as responsive and efficient as possible.  The limitation of national power to preserve a large degree of autonomy to the states have guaranteed our liberties.  Therefore, as advocated in the earlier sections,  the federal government must be limited in its control.
	A number of departments should be eliminated at the federal level and their  functions would be returned to the state and local governments.   Alice Rivlin of the Brookings Institute in 1992 said Washington should cede to the states control of education, job training, economic development, housing, transportation, social services, etc.  Just coincidentally all these functions were done by the states and local communities prior to the New Deal and  most would say they did a fairly good job.  The states are better adapted to local conditions and more effective, clearer accountability, sharper competition. Economic development efforts is a local phenomenon, generated by local players.  If I do not like what my local community does, I can move or I can more responsively view my displeasure.  Though few will actually move, this will act as a check.  However, If I do not like what Washington is doing, I have no choice. 
	Every government program should face the test of market competition and consumer empowerment.  If it can’t compete, it should be Privatize or eliminated.  We believe the large and intrusive federal government must be scaled back.  The very premise of the ‘welfare-entitlement state’ must be challenged. The result will be a federal government vastly different in size and scope. 
	IV.	Balanced Budget. A Balanced Budget amendment must be carefully thought through.  As one democrat said to a republican counterpart, “ We’re both in favor of a balanced budget.  You want a balanced budget of 1 Trillion and I want one of 2 Trillion.”  A balanced budget by itself is insufficient; it must be paired with a statement regarding government revenues.  If Federal revenues were limited so as not to exceed 20 percent of GDP, then it would be more workable.  Budgets would be allowed to run  deficits only in times of war or national emergency, with a vote of 3/4 of both houses of Congress and Presidential approvals on a year-by-year basis.   The only off-budget items would be those funded with bonds serviced by user fees and run on as their own budget center.  Capital budget for infrastructure and other items would be composed separately from the operating budget.  But both would fall under the 20 percent limit. Another aspect of the balanced budget amendment is to force tradeoffs; before a new program can be approved, equal appropriation from other programs must be removed.  This would force lobbyists to compete against one another and put some equalization into the special interests formula.
	V. Revise the Budget and budget process. Government budget ought to be revised into basic components:
			•an inventory of the nation’s public facilities
			•an estimate of additional capital investment needs
			•estimate of operating and maintenance requirements
			•identification of sources of funding
			•allocation of responsibilities among various levels of government
VI. Kill off obsolete programs:
	The Wall Street Journal on Friday, May 13, 1994 provided a hit list of federal spending programs which could be cut without cutting muscle.These included:
	agricultural supports, too many extensions, unnecessary research (Mohair, peanut, tobacco, sugar, etc.) The Department of Agriculture when it was founded by President Lincoln had one employee for every 227,000 farms; by 1900 it had one employee for every 1,694 farms; by 1990 it had one employee for every sixteen farms and provides over $14 billion of subsidies.
	1230 boards, commissions and advisory committees costing $145 M
	Corporation for Public Broadcasting at $150 m
	Dairy subsidies . . . $17 billion
	National Endowment for Arts, Humanities . . . not government
	Farmers Home Administration . . . unnecessary
	Government has 1,406 nonmilitary aircraft unnecessary
	Helium Reserves
	ICC is obsolete
	Job training programs, nearly $25 billion on 154 different programs in 14 departments.  consolidate and revise.  Labor Department auditors in 1990 warned that 15 percent of the money invested in the Job Corps program, approximately $100 million annually, yielded ‘no measurable results.’  One-third of Job Corps’ participants drop out in the first three months.  The average cost is $23,000 per student with nearly half the graduating students unable to secure jobs with above minimum wage levels. Clearly this needs reworking if not chopping.
	Legal Research Corporation . . . $350 m
	Market Promotion Program  . . . $110 m
	Overhead at approximately $150 b
	Power Marketing Administrations, TVA, Bonneville . . . privatize
	Rural Electrification Administration . . . unneeded
	Small Business Administration . . . revise, downsize, close
	Urban Mass Transit subsidies
	Vessel Subsidies
	EXIM bank . . . downsize provide credit for small businesses only
	The idiocy of it all and the apparent ill concern public servants have with public money can be best explained by this true case: Large farmers using subsidized water (for which taxpayers chip in) to grow surplus crops (which the taxpayers buy to steady the commodity markets) on land leased at below market prices from the government.
	A requirement should be added  to get rid of a program every time one wants to be added.  Pay as you go with permanent funding sources for every program as it is approved. 
	VII. Line Item Veto
The line item veto,  a power now possessed by Governors in most states, must be given to the President so as to allow him to veto individual items in congressional measures, to prevent expansion in the scope of the government.    It can be overridden by the legislature by a two-thirds vote. Granting the power to the president would reestablish balance to government. 
	The answer is not necessary privatization but more competition.  A monopoly or cartel administered by a public authority is at least as likely to be backward and abusive as one administered by a private company.  Both kinds of monopolies are likely to produce high prices, poor service, slow innovation, and entrenched arrogance.  competition is the necessary answer.  From the point of view of stimulating economic growth and development, the implication of economic history, is for the state to divest itself  of all state owned enterprises. Success in government is too often measured by the number of dollars spent, number of people employed, not by the quality of services provided.  Privatize or contracting out is one answer.  In this technique, government acts as a doer versus government as a provider, with the work being done by outside contractors to government set standards.  Government agencies have too many layers of management with too little accountability. A business (private or public) will perform only if run as an autonomous institution, as a business, whether privately owned or nationalized. Obvious possibilities for privatization include the Post Office, Amtrak, Conrail, and quasi-public affiliates such as Fannie Mae, Sallie Mae, FHA. 
 	IX.  An understanding and appreciation of Pareto’s Law: government cannot effectively change the distribution of incomes.  Distribution is determined by the economy’s productivity.  The less productive an economy, the greater the inequality of incomes; the more productive, the less the inequality; it is true that a rising tide raises all boats and that principle should be the guiding force behind our programs. Government program of inflation can change distribution of incomes and wealth but it does so by expropriating the middle class and destroying productivity. In other words, government should stop trying to redistribute incomes and try to increase them by wealth producing endeavors. Public housing began as transitional housing for working people who had come upon hard times during the depression. It provided an inexpensive, safe, stable environment for families until they could get back on their feet.  Authorities had rigid standards and residents had clear responsibilities.   Most tenants were married with children, pay full rent, moved when could afford it. Public Housing of the modern era are given to tenants who proceed to destroy it since they have no interest in it.  Public housing is often located in undesirable areas and turn residential areas into war zones (or locating public housing in upscale areas tend to quickly downscale those same areas quickly).  Any government effort in housing should be as before to provide temporary assistance, or to assist in providing subsidies (low interest rates through FHA) so low income families can purchase their own home. People must have a vested interest in their own welfare.
	X.Eliminate subsidies  and programs, including tax loopholes which are subsidies administered through the tax code. Specifically prohibit the passage of special interest legislation such as tariffs, subsidies, and licensing restrictions.  Also prevent other types of legislative or executive interference in the economy.  Governments do not create wealth, only reallocate income. Totally competitive free market system is the most efficient (optimum) allocator of resources.
	XI. Interaction directly from the public.  Congress can then be more responsive to the public at large.  This would entail national referendums on critical areas to pose to the public the question and several alternatives and have a public poll of their preferences.  With the advent of electronic databases and the information highway, this need not wait until a election day but could be done on a weekly basis. We would espouse a regular Town Hall meeting where periodically the President and Congress have an opportunity to address the public in a town hall (not the staged types Clinton has been using) but a real live impromptu setting.  Advisory council of citizens, academy members, should meet with the president on a regular basis.  
	XII.District of Columbia should merge with Maryland. There is no need for DC to be a state of its own.  Return control of it to Maryland.  Congress should not rule it like a fiefdom. 
	XIII.  Current activities undertaken by the government which can not be validly be justified in terms of the principles should be reviewed and abolished if no benefit to be public at large can be determined:
	price support programs for agriculture
	tariffs on imports or restrictions on exports
	government control of output, farm programs, prorationing of oil 
	rent control
	legal minimum  wage rates.
	legal fixed maximum rates (interest)
	detailed regulation of industries
	control of radio and TV by FCC
	present social security programs compelling people to spend a specified fraction of their income on the purchase of retirement annuity and to buy that annuity from a publicly operated enterprise.
	Licensure  provisions  which restrict conduct of businesses to those with certain licenses.
	public housing and the FHA and VA guarantees 
	Legal prohibition on the carrying of mail for profit
	Publicly owned and operated toll roads
A perfect example is the Veterans Administration. It currently runs 171 hospitals, 128 nursing homes, 37 domicilaries, has 268,000 employees and an annual budget of $16 billion.   It also has a clientele that is constantly shrinking; only 10 percent of veterans use VA health care in any given year.  Between 1978 and 1993, the VA closed one-sixth of its beds but could close only one hospital, one that was damaged in the January 1994 Los Angeles earthquake. It is pork, policized, and inefficient.  It should be contracted out to private providers.  The federal government need not be in the hospital or health business. 
	XIV. Government must become more mission driven, planning oriented, and less rule driven. It must learn to steer more and row less, not as much doing as directing--governance--leading society. Letting Other institutions provide the services. is not a cardinal sin (see chapter 10, planning). 
	Implications of bad government are many and need to be stopped:
	•destructive . . . saps the vitality of the economy and ravages the flexibility and problem solving capacity of the government
	•inherent . . . in the system and self-perpetuating.
	•progressive . . . worsens unless constantly devote attention and effort to it.
	•more benefits for me, well meaning programs
	XV.  Restore private accountability.  Instead of having the FDA or FAA or ICC, allow industries to create associates to self monitor and conduct the same types of functions government had been doing but within an industry association.  These would be monitored to prevent competitive abuses such as anti-trust, collusion, restraint of trade, as well as to guarantee adequate protection, monitoring, and  behavioral modification incentives were in place.
	XVI.  Instead of going for zero risk or 100% coverage, go for an optimum level that is based upon cost and benefits. Control of the last 10 percent always cost more than the control of the first 90 percent; if control tries to account for everything, it becomes prohibitively expensive, yet that is exactly what government does, what it is expected to do.  In essence, use sample theory or audit samples, not all.
	XVII. The budgeting process must be realistic, above the board and not use funny money or game playing.  In particular, 
	•eliminate the use of inflated baselines; when Congress considers a budget the amount under consideration is compared to an artificial baseline, cuts from the baseline are considered savings even if actual spending goes up
	•emergency appropriations bills could contain only spending related to emergency
	•lock in spending cuts, not redirect it
	•enhance recession authority, force congress to at least consider presidents suggestions for spending cuts in large bills. 
	XVIII. In March 1994, Federal Aviation Administration announced its modernization project was $2.6 billion over budget and years behind project; the project won’t be completed until after the year 2000 if ever.  Government agencies often have severe problems with implementing and managing high tech projects. The IRS has spent over $6 billion modernizing its computer systems and has admitted it is all wasted. Since all projects must be competitively bid, protests from disappointed losers must be addressed, low wages do not attract the best help, bureaucrats hide problems, political specifications overrule operational ones. 
	XIX. Federal unfunded mandates, those federally imposed regulations state and local governments must impose, can not be legislated nor implemented unless funded in full by the federal government. 
	XX. Eliminate Strategic Lawsuits against Public Participation (SLAPP).  These  are used to intimidate and silence foes of controversial lawsuits, hitting them with multimillion dollar lawsuits for defamation, conspiracy or interference with business.  Letter to the editors, statements to school boards, citizen groups have been sued.  SLAPP-back statues enable plaintiffs in such cases to get frivolous suits dismissed and collect reimbursement for attorney fees as well as punitive damages.  Any such activity violates freedom of speech and should not be allowed.
	XXI. The Davis-Bacon Act should be repealed. This act charges union wages to any construction project funded by the government.  It openly discriminates against minorities.  By doing so taxpayers would save an estimated $3 billion in construction costs and bureaucratic overhead over the next five years.	

Thomas Jefferson, described the type of government he hoped would continue: “ a wise and frugal government which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.” It is instrumental to remember that a government does not grant rights to people, the people grant rights to a government.

V. The Proper Role of Governmental Support

If angels were to govern men, neither external nor internal controls on government would be necessary-- James Madison

	Governmental policies, reflected in federal R&D expenditures and allocation, environmental legislation, tax treatment of R&D expenses, and education policies, have been related to innovation trends in different countries. The measures governments can take to assist in, and to stimulate, technological innovation are many and varied. They can be classified under three main headings:environment (taxation-- tax incentives and credits  for R&D or accelerated depreciation allowances, legal--antitrust laws, and regulatory); supply (technical-scientific and technical infrastructure--support of university research) and information-and financial (grants, subsidies, loan guarantees, development funding); and demand (procurement, public services). All of these policy variables influence the character and extent of technological innovation within an economy.
	The impetus for strong governmental presence and direction in research stems from the heavy commitment of governmental resources in World War II which demonstrated technological solutions to specific problems can be organized, managed, and carried to success quickly. Yet, while  the immense funds and resources available by national governments can not help but provide impetus towards innovation; results will simply from the sheer size of the effort arrive.  It is a catalyst and not in itself sufficient for innovation to occur. If the government intervenes and rigidly sets limits and parameters on the funding then the opposite effect can be expected.  The results from governmental support is dependent, therefore, upon the total dollars and resources made available and inversely to the strings attached.
	The federal government is actively seeking to fund and support technological efforts that have the potential for commercialization. Sometimes private corporate research labs are the source of new innovations and firm spin offs, again often with defense-related seed money.  Examples are the role that Minnesota Mining and Manufacturing (3M) and Honeywell played historically in forming the high tech complex in the Minneapolis-St. Paul area.  New government initiatives, such as the space program, have clearly underwritten the emergence of yet other high tech centers, such as Houston, Huntsville (Alabama) and Melbourne-Titusville (Florida).  Military bases, as the locations of hardware testing facilities and the final destination for assembled war material, figured prominently in the historical location of aircraft and related electronics activities;  Los Angeles is the most obvious example of this link. Locations with concentrations of federally funded fundamental scientific research  or those with high concentrations of defense spending have a higher likelihood of generating high tech industry than other areas.	
	The United States federal government spends approximately $75 billion a year on science and technology, up from $30 billion a year in 1980.  Major projects being considered or under development include $40 billion space station, until 1994 the $8 billion  supercollider, $8 billion for civilian basic research, and $43 billion for defense R&D.  Federal R&D funding increased 13% in 1993 over that spent in 1991. Governmental research programs have spawned impressive scientific advances:  recombinant DNA and the biotechnology are the result of forty years of subsidy from the government.  But the possibilities of major spinoffs are less than in the past.  Big government investments aren’t necessarily the answer.  Japan’s fifth generation effort of billions of dollars and ten years of effort has failed to even approach the impressive goals set for it.  Europe's JESSI, the semiconductor consortium, was a major disappointment in its results.  Dollars alone don’t work.  Tax policies, governmental regulations, industry’s own resolve, and other factors may carry more weight on influencing results than pure money.  
	Governmental activity towards innovation can take one of three forms. In totalitarian political states, where the degree of effort and direction is orchestrated by the government, little high level technological innovation has emerged.  The former Soviet Union is the prime example of this form.  The second form is where industry has primary responsibility for technological innovation, the government’s role is normally passive in providing stimulation for innovation and its primary involvement in regulatory.  The U.S. is an excellent example of this form. The third possibility is where the government takes an active role in promoting technological innovation, usually a cooperative effort.  Partnerships are  usually formed among government, industry, and universities.  Japan and West Germany typify  this form of government role. 
	Governmental support towards technology and innovation can go a long way towards the encouragement or discouragement of innovation. Excessive government controls as well as government indifference can affect innovation. By imposing new taxes that raise business costs directly, and imposing regulations costly to comply with, excessive governmental controls as well as government indifference can affect innovation. New Hampshire was the darling of high technology start-ups during the early part  of the eighties but a basketcase by 1992.  What went wrong?   Two business economists, Robert Genetski and John Skorburg, indicate that the direction of policy and consistency of the policy  is more important than any absolute level of taxation.  When a state’s taxes drop, particularly relative to other states, the economy typically responds after a short lag. This lag  used to be three years but now as news and capital travel faster, it has been trimmed to half that.  After the boom with government spending growing, once a contraction arrives, as surely it will, the tax burden will shift upward, with the corresponding economic drop after a short lag.  Massachusetts responded to its Proposition 2 by booming during the early and mid 80s only to decline in the late eighties as out of control government spending caused tax burdens to rise to unacceptable levels. 
	 Lack of national direction as exemplified by no discernible goals or priorities can act as a discouragement.  High costs and considerable risk can be negative factors if the government is unwilling to underwrite all or part of the effort. Capital availability including the cost of money, opportunity costs, and profit prospects all impinge on the innovational decision process.  Protection of innovations by patent policy or trade practices can provide inducement.  The failure of government to adequately support university scientific effort and coordinate such activity with industry can lead to negative synergism. A need exists for consistency and predictability of governmental support and the government’s willingness to invest in long-term projects.
	  Government also sets the tone for society’s attitudes towards nonconformists. The attitude and receptivity of the people are important as well:  Inventors are typically unconventional people.   A tolerance must exist towards the unfamiliar and eccentric, receptive and tolerant of new ideas and different people and different ideas.   The level of interest and enthusiasm of the area’s citizens, business, and local government are most important in the quest for high tech growth.  This can enhance the local level of educational and cultural programs, thus improving the quality of life so critically needed for technically skilled personnel.  The level of taxation must be a fine balance, adequate enough to ensure a high level of public services but not so high as to be a negative disincentive. 
	 What should the government do in its support of R&D, of the innovation process? The Government's role should be to act as a directional force and sponsor, and  provide a more positive climate for technological innovation to flourish: by encouraging more rivalry and competition, more capital formation, encouraging the entry of new ventures, and the removal of those economic regulations that serves as a protective cocoon to existing interests. Government support of basic science and engineering research (in moderation) is desirable; the results should be made available to all that want them, particularly smaller firms and new entrants. However, the government should not attempt to commercialize the technology; but merely present it as a workable model to whomever wants it.
	1)Government should support the scientific and engineering research in universities that provides the knowledge base and the graduate training required in the private and public sectors.
	2)Effective technology transfer programs from such research to private firms should be endowed so as to provide small firms with the technology and allow them to better commercialize it.
	3)Government should establish cost-benefit analysis for health, environment versus the innovation.  Government should not dictate the technology but should set up the incentives to solve the problem.
	4)Public moneys should be spent in projects that exceed the capacity of the private sector in which public policy has decided is important and must be addressed (e.g. the space program, “Man on the Moon”)
	5) Although the military still consumes more than 50% of the nation’s R&D budget, the industrial spinoffs have lagged.  By reoriented much of this excess spending into commercial technologies such as superconductivity, material sciences, optoelectronics, as well as supporting badly needed research in manufacturing science and productivity, competitiveness will be aided.
	6) By the creation of a manufacturing extension service, the government could reach out to the nation’s 335,000 small manufacturers which account for 99% of all American producers. Currently a miserly $80 million a year of federal and state aid is made available to small manufacturers. This service would assist small companies in implementing manufacturing technologies.
	The removal of these potential barriers must be accomplished on many levels, including federal, state, and local governments and industry.  On the national level, the federal government has encouraged the transfer of technology from federal laboratories and has encouraged formation of research consortia by modifying antitrust laws.  Many state governments have repealed tax laws that are considered disadvantageous to technology-oriented firms, have enacted special education laws to help keep and attract highly qualified personnel to local employment, and have endeavored to create an environment conducive to entrepreneurship.  A National Federation of Independent Business 1991 survey found considerable agreement among small-business owners on the importance of structural factors.  They overwhelmingly opposed legislation to mandate such employee benefits as parental leave and health-insurance coverage. They also strongly favored measures to pare worker compensation costs. They disapproved of nearly all proposals to boost taxes, including such peripheral taxes as extending state sales taxes to include services (The Wall Street Journal March 25, 1991 page B2).
	The weaker the government (the less direct involvement), the better it appears to be for innovative activity.  Autocratic rules have tended to be hostile or indifferent to technological change.  The instinctive need for stability and the suspicion of nonconformism  explains this.   When rulers are weak, they  are typically unable to halt technological progress.   Technological change is notoriously subject to market failure, the free market system if left on its own is unlikely to produce a desirable level of innovation.  Additional institutions such as patents, monopolies, governmental positions are these inducements.   Political factors also determine whether initiative and ingenuity would be directed towards productive purposes or not.  

Home Page	
Preface & Introduction	
Chapter 1: Responsibility  
Chapter 2:  Leadership   
Chapter 3: Government  
Chapter 4:  Congress    
Chapter 5: Regulations and Bureaucracy   
Chapter 6: Defense  
Chapter 7: International Affairs 
Chapter 8: Crime and Justice  
Chapter 9:  Civil rights 
Chapter 10: Economic  
Chapter 11:  Education  
Chapter 12:  Health  
Chapter 13:  Planning and National Goals