Referring to this “myth of the market economy,” William Lazonick, an economist now at the University of Massachusetts Lowell, told me that most Americans, including many economists and politicians, misunderstand or neglect the true history of how the United States built its economy. The lone, visionary entrepreneur and the audacious industrialist are not the originators of the economic system, but rather the products of a system fostered by the collective efforts of the people through their government.
The railroads may have been the product of private enterprise, he pointed out, but they relied on government land grants to help finance construction. And the government gave states federal land to sell so that they could finance the creation of top-flight universities, such as Ohio State, Wisconsin, and Purdue, that promoted innovation and business across the interior of the country. “Aviation doesn’t happen without the government being involved,” via air-mail subsidies and airplane-design subsidies, Lazonick notes. Hoover Dam, the TVA, the California and Colorado River Aqueducts, the internet—the list of infrastructure projects that grew the economy and nurtured individual business success is very long. “So the government is everywhere, but the ideology is that government is not there,” he says.
The Erie Canal established the template, explained Jack Kelly, author of Heaven’s Ditch: God, Gold and Murder on the Erie Canal. When James Madison vetoed the bill Congress passed to pay for the Erie Canal, some promoters urged the canal’s most vocal proponent, DeWitt Clinton, a former mayor of New York City and then a U.S. Senator, to finance it privately. But the canal’s supporters “did not feel it should be private for two reasons,” Kelly says. “First, it would be enormous in terms of capital and no company could come up with it. Second, if a private company went in and tried to make a profit, it might dampen the subsidiary effects of expanding trade and development of the interior—creating farms and so on—because tolls would be high. The state could keep tolls low.”
So the state sold bonds. Incurring that debt was a risky move, but the canal proved to be a boon. “By 1833, it was taking in more in tolls than the interest in bonds,” Kelly said. The canal was paid off faster than expected. Trade expanded. The volume of goods passing through the port of New York grew quickly.
Today, cities, states, and some in the federal government insist that there’s no money to pay for projects. The billions being lined up by investors says otherwise. One way or another, Americans will pay, either through taxes and tolls paid to their government, or through tolls, fees and rates paid to equity investors. “There’s no free lunch,” Gordon, of the Tax Policy Center, said. The Great Depression, when money was much scarcer than it is today, was an era of intense infrastructure investment. As Gordon spoke, she happened to be driving over the Golden Gate Bridge. On November 4, 1930, a year into the Depression, voters in Northern California supported the issuance of $35 million in bonds to build it. It still belongs to the public.
* This article originally stated that the consortium included the government of Dubai. We regret the error.