Can Public Power Advance Economic Justice?

What is public power? For many, it means publicly generated electricity. Indeed, an estimated 49 million people in the United States get their electricity from publicly owned power authorities, including residents of Los Angeles, Seattle, Nashville, and Memphis.

In a word, a large share of public services during the neoliberal era of the past few decades has been outsourced.

But at the EconCon conference held in Washington, DC, in June, hosted by the Omidyar Network and a dozen nonprofit think tanks, speakers offered a far broader definition of public power—namely, the power of government to act on behalf of the public.

Why focus on “public power”? Behind the conference speeches was the recognition—sometimes explicit, sometimes less so—that even as budgets have grown, direct public provision of services has atrophied. In a word, a large share of public services during the neoliberal era of the past few decades has been outsourced. Often, the federal government distributes grants or writes checks as if it were a gigantic private foundation rather than implementing public programs directly.

This outsourcing of services is a major reason for the rapid growth of the nonprofit sector. Of course, for-profit corporations are the primary beneficiaries. For example, the Guardian reported that in 2020 the United States had twice as many contractors on the ground in Afghanistan as soldiers. In a masterstroke of understatement, the reporter noted that “much of the wartime expenditures were highly wasteful.” Alas, while the military may be the worst offender, the problem of a regularly deficient federal administrative structure extends far beyond it.

A Turn to Industrial Policy

In the past two years, President Joe Biden’s administration has persuaded Congress to approve investments totaling hundreds of billions of dollars for infrastructure and climate legislation, the latter misleadingly named the Inflation Reduction Act. The ability of the public sector to perform after decades of underinvestment is about to be tested.

Public procurement done well can be a powerful tool for public good. Done poorly, it can reinforce inequity.

Many have touted the “industrial policy” turn these bills represent—meaning using public sector purchasing (also known as procurement) and regulatory policy to shape markets. But for this shift in policy direction—which also includes other bills passed by Congress, such as the CHIPS and Science Act that subsidizes semiconductor manufacturing—to advance economic justice, the problems of the dominant US industrial policy of the past 80 or so years will need to be addressed.

Although some treat this turn to industrial policy as new, that is hardly the case. While better known as the “military-industrial complex,” there is no doubt that the defense contracting system remains the nation’s dominant industrial policy. Certainly, federal officials and corporate executives explicitly treat it as such.

The economic impact of this procurement is obvious if one thinks about it. Famously, for example, the internet was a product of military investment in decentralized communications networking technology. Public procurement done well can be a powerful tool for public good. Done poorly, it can reinforce inequity. This is why finding ways to manage public procurement for public good is so important.

The Opportunity

There has been a lot of talk about “historic” investments contained in climate legislation and other federal laws. However, at the conference, Noah Kaufman of the Center on Global Energy Policy at Columbia University (and formerly a senior economist for Biden’s Council of Economic Advisers) conceded that “to a first approximation, we really have no idea what this [climate] bill will accomplish.” Kaufman indicated that the legislation’s true significance is that it “gives us a fighting chance that we wouldn’t have otherwise.”

So, what is the nature of the opportunity? Most obvious is the direct one. While the legislation passed falls far short of restoring investment to 1960s-era levels, the $579 billion in new resources committed over the next five years for infrastructure nearly doubles previous annual federal spending. On top of that are $386 billion of energy and climate provisions (mostly in the form of tax credits) in the IRA. Due to these provisions, US carbon emissions in 2030 are projected to be 32 to 40 percent lower than they were in 2005, compared to between 24 and 35 percent lower without the legislation.

But the power of industrial policy extends further. When the government writes checks, it can and does establish conditions on what recipients do with those checks.

Take childcare. In the United States, a 2022 National Bureau of Economic Research study found that with adequate public support, the percentage of women in the labor force with children ages three to five would be likely to increase from 68 percent to 78 percent. Subsidized childcare not only benefits families but also the greater economy; the NBER study authors note that such benefits can include increased adult educational attainment, heightened tax revenues due to higher adult earnings, reduced public benefit use, and increased productivity.

The childcare provisions contained in Biden’s Build Back Better legislation did not pass. However, industrial policy offers the opportunity to advance this objective at least in sectors that are receiving public subsidy. For instance, regulations to implement the CHIPS and Science Act require that corporations receiving semiconductor manufacturing subsidies provide childcare for their employees. As Sameera Fazili, former deputy director of the National Economic Council in the Biden administration and a fellow at the Roosevelt Institute, explained, Commerce Department rules promulgated in February 2023 “include a mandate of having to provide high-quality childcare for their workers—not just for their production workers but for the construction workers.”

In so doing, the Biden administration is imitating policies for childcare that have long existed for military families. As Rutgers historian Jennifer Mittelstadt, author of The Rise of the Military Welfare State, wrote several years ago in Aeon, “Military social welfare features a web of near-universal coverage for soldiers and their families—housing, healthcare, childcare, family counselling, legal assistance, education benefits, and more. The programs constitute a multi-billion-dollar-per-year safety net, at times accounting for nearly 50 percent of the Department of Defense budget.”

The commitment of funds over multiple years creates the possibility to make plans that are attached to real resources.

There is also the opportunity to advance equity. At the conference, Fazili noted that some clean energy provisions in the climate legislation passed last year offer “extra incentives in low-income communities or communities that depend on fossil fuels.” The Justice40 initiative—implemented by Executive Order 14008, which mandates that in qualifying programs a minimum of 40 percent of federal investment must occur in disadvantaged communities—is the leading Biden administration initiative of this kind.

A third intriguing possibility that Fazili offers is that the existence of federal discretionary funding itself might be catalytic far beyond Washington, after a long period when such funds were scarce.

As Fazili put it, “So many of us have grown up in a generation of this politics of austerity. We were fighting over a shrinking pie.” The result, she argued, has been to fuel cynicism because people tire of making “plans that don’t go anywhere because nobody has the funding to implement them.” Now, the commitment of funds over multiple years creates the possibility to make plans that are attached to real resources and pull “our country together at the regional and local level.”

The Implementation Challenge

The vision is encouraging, but the implementation challenge remains daunting. For example, to date Justice40 implementation has often fallen short of the vision. To address these obstacles and ensure resources reach low-income and BIPOC communities that most often are excluded from federal grant programs, considerable philanthropic energy has focused on offering support to low-income communities and movement groups to negotiate the bureaucracy and better access federal resources.

As former Biden administration officials Pronita Gupta and Justin Maxson observe, not just philanthropy but also community organizing will be key to realizing the potential for more equitable public investment. What Gupta and Maxson detail, however, should also give pause to those who perhaps paint too shiny a picture of federal industrial policy. As they write, “the infrastructure and IRA bills alone contain 163 new programs with more than $300 billion in funding.” In short, fragmentation—and attendant bureaucracy and complexity—is the rule, not the exception.

Of course, this is not unique to domestic spending. Again, consider the Pentagon. Famously, Pentagon spending touches every congressional district.

Earlier this year, the Government Accountability Office reported that in 2022, the Pentagon failed its fifth audit in a row, remaining the only major federal agency never to have passed an audit. In its most recent audit, the GAO reported that the Pentagon was unable to account for 61 percent of the department’s $3.5 trillion in assets.

But the difficulty of implementing industrial policy is not a reason not to engage in it. In fact, there really is no choice because, by mere virtue of their size, federal purchases have large economic effects. In fiscal year 2020, for instance, direct federal purchasing totaled $665.1 billion or nearly 3 percent of gross domestic product. Over 63 percent of this procurement, by the way, was military-related. If “you are what you buy,” then US industrial policy continues to have a distinctly military flavor.

At the conference, speakers acknowledged the implementation challenge. Paul Williams of the Center for Public Enterprise observed that there had been, in the past few decades, a “hollowing out” of public sector capacity. He added that people want to see existing public institutions meet their needs. Noting that the association he directs includes 3,300 public housing authorities, public utilities, power authorities, and economic development corporations, Williams advocated for using these existing institutions “to deliver the stuff that we want.”

Building Power

Two further challenges named by conference speakers had to do with building power. One face of this involves coming to terms with corporate consolidation and acting to counter it. In healthcare, Jamila Headley, co-executive director of Be A Hero, noted that Medicare Advantage—a privatized Medicare insurance option—is a prominent example of how the outsourcing of public authority has enriched corporations and entrenched corporate power. Medicare Advantage insurance companies, she explained, earn double the margins of what insurers earn per patient from other health insurance products (such as individual and employer-based insurance). Now, she added, “the profits are being used to consolidate the industry…we have a much harder opponent to fight than we used to have.” Headley called on advocates to exercise greater “situational awareness” and challenge corporate concentration.

The other face of building power involves a call to build political power. This requires constructing a narrative that can bind a political coalition to use public power to advance economic justice. Representative Delia Ramirez (D-IL) opened the conference by calling on attendees to “change the narrative of what is possible and what we expect for ourselves and our leaders.”

Tara Raghuveer, who directs the Homes Guarantee campaign, which advocates for tenant rights and a right to housing for all, explained that building a narrative to advance public power does not mean ignoring previous public sector policy failures but rather organizing to provide tangible demonstrations of what public power can do. “Sometimes with the government I don’t have a great story to tell,” Raghuveer noted. “I do have a story to tell of what we can organize to get out of the government. In those wins, [tenants] see the potential of public power. Getting the material win is so critical.”

Where We Are Today

In a paper written last year for the Roosevelt Institute, University of Massachusetts economist Lenore Palladino and Roosevelt deputy director Isabel Estevez make the important point that what really needs to happen is a shift away from current industrial policy, which often facilitates corporate profiteering. In their paper, they warn that “without specific course corrections by policymakers, US industrial policy will be embedded in the existing corporate orientation.”

For example, Palladino and Estevez point out that the infrastructure bill includes $65 billion to support broadband development and that absent an explicit policy to the contrary, the three dominant corporate players in the industry—namely, AT&T, Comcast, and Charter Communications—are likely to be the primary beneficiaries.

“The public interest,” they write, “would be best served by fully public infrastructure in far more corners of the economy. For example, broadband does not need to be provided by large corporations…Municipal broadband and cooperative broadband should be a much bigger part of our digital ecosystem, and federal industrial policy should focus on supporting these networks rather than subsidizing dominant private corporations.”

At the conference, speakers addressed the need for structural economic change. Headley, as described above, called for rolling back the privatization of Medicare insurance in healthcare. Williams noted that the IRA allows tax credits to be converted into grants for community owners. This means that both rural electric cooperatives and public power authorities can access the funds. (Without this provision, tax credits would be unusable for these entities since neither pay taxes). This, he said, provides the chance for a “renaissance of public power.”

For her part, Raghuveer lifted up social housing and called for a larger federal housing role. Ameya Pawar, a senior advisor for the Economic Security Project, briefly mentioned some state initiatives, such as California’s use of a state contract to produce insulin at low cost through a nonprofit drug maker and an Illinois law to support city-owned and co-op grocery stores in areas suffering from food apartheid.

Still, fears that a corporate free-for-all might result—not just due to the climate bill but also boosted by existing state and local tax incentives—are not unfounded. In short, to restore public power and craft an industrial policy that truly fosters economic democracy, enormous challenges lie ahead.