Should the State of Washington Privatize Economic Development?

In the state of Washington, we have a state department known as the Department of Commerce. It is a government department, like many others, such as Ecology or Revenue, and it does various government functions, like invest in infrastructure and implement policy. But unlike many other state departments, it has a lot of responsibility to work directly with businesses in supportive ways, recruiting and retaining companies and fostering job creation. And so, like in other states, it’s an interesting question to ask: should it be privatized?

Now, first of all, let’s clarify what we mean when we say “privatize.” In other areas of government, privatize can mean contracting with a for-profit company to perform a public service. Like Chicago privatizing its parking meters. In the economic development world, it’s more of a sense of creating a public-private partnership (usually a 501(c)3 or 501(c)6, but sometimes a quasi-governmental entity), that includes significant government control and funding. Or as the Governor of Arizona put it: “privatize to the greatest degree possible but not to the degree that it’s harmful for our ability to globally compete.” We already have a lot of local economic development organizations in this state that meet that definition, like enterpriseSeattle.

The advantages of a “privatized” approach can be threefold: the potential for additional revenues (such as corporate sponsorship or membership), the potential for additional flexibility (doing things that a government organization can’t do) and the potential to “depoliticize” its activities (that is, keep elected officials from influencing programs or services). What a state loses is control and sometimes accountability, in exchange for the idea that there will be a greater return on investment.

In the current economic downturn, with the all the efforts to combine departments and slash budgets, the other interesting incentive for the state to consider this step would be if it could decrease its investment without decreasing the overall amount going into statewide economic development. In the proposed upcoming biennial budget, the Department of Commerce is slated to get $431 million (a 25% cut from the last biennium). But let’s say that Enterprise Washington, a 501(c)3 corporation was formed, and the state gave it funding of $400 million…but Enterprise Washington was able to raise $31 million in private sector funding. Same overall funding level, but the state saves $31 million! Now, I know that the state couldn’t offload all of its investments, since some of them are things like capital funds that it would still control, and I’m not sure if $31 million is a reasonable number to assume (the Association of Washington Business only claimed $5.7 million in revenues in its tax return last year, for example), but you get the point.

To me, the biggest advantage would be raising funds that could be used to do some of the things that the state can’t do, because of lending of credit restrictions. If, like in the above example, there was $31 million in private money, imagine what could be done to help market the state, incentivize businesses to move or stay here, seed start-ups and commercialize technology. But I also do worry about going too far down that road. We’ve done pretty well as a state without throwing money at companies, and once you open that door, everyone will want a piece. You’d need to have strict guidelines, serious accountability and a board that takes its oversight role very seriously.

Will it be done in Washington? I don’t know, but I have a feeling it’s going to be talked about. It’ll be interesting to see onto which side of the argument the various interest groups fall.

One Response to Should the State of Washington Privatize Economic Development?

  1. Harry says:

    While the business development aspects of the Department of Commerce might be carefully considered for some type of privatization, it should be noted that some of the most powerful and lasting work Commerce does is in the community development realm. The prime example is the State Housing Trust Fund which has invested millions into sustainable affordable housing developments across the state and across the spectrum of need while creating thousands of jobs, considerable retail and wholesale activity and significant sales tax revenue. This activity generates the very stability required for safe communities and an active and productive workforce. These are efforts that the private sector may often support but do not fall within their responsibilities or, in many cases, their broader intent.

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