County bid to help local business would actually harm us all
Written by Michael Lewis on April 22, 2015
County government is making a warm-and-fuzzy bid to help local businesses and farmers that in the end would backfire, costing taxpayers more and hurting our businesses too.
A county committee last week voted to give unspecified preference to locally manufactured or grown goods when it awards contracts from a spending pool that now tops $900 million a year. That would be done either by setting aside some of its buying for local firms or by giving some yet-to-be-established break in bidding to local producers.
That sounds wonderful: keep the money at home. Who could argue with that?
Nobody could – when local goods are better or less costly or both than those that would come from anywhere else on the globe.
But whenever local goods really are better or less costly, there is absolutely no need for a preference. The county already takes the best offers.
The problem with bid preferences is that they order officials to buy inferior or more costly products solely because they come from Miami-Dade County. That costs government money – and government is us, funded from our taxes.
If you don’t pay extra for goods just because they come from Miami-Dade, why should government use your money to shop in that wasteful way?
Moreover, by giving inefficient local businesses a guarantee that their more costly or inferior products will have a ready market at county hall, those businesses have no incentive to improve to compete not only here but globally.
Globally is key. We spend millions marketing this county as global, yet under this proposal we would discriminate against products from such foreign lands as Fort Lauderdale or Palm Beach – let alone anything produced in another state or nation.
The message this legislation sends is that we have erected a tariff at the county line. An outside vendor would be disadvantaged or frozen out entirely, depending on the final structure of a preference that would be erected only after the measure became law.
Last week the county commission’s Economic Prosperity Committee passed the anti-competitive measure unanimously without debate or discussion of repercussions. The full commission needs to consider the unintended consequences of telling the world that Miami-Dade does not want a level playing field.
Examples of those consequences abound. Homestead created bid preference for a new city hall that officials found raised bids millions of dollars above budget. Most out-of-area firms refused to bid because the preferences handicapped them.
Those preferences also handicapped city officials, who tossed out all the bids and had to wait to build because local firms jacked up their prices when outside competition disappeared.
That’s not an isolated case. One national study found that a 5% government price preference for local firms raised final prices by 3.8%.
But that didn’t mean local businesses shielded by protectionism got stronger. Another study found that with a 5% local preference, the local bid winners’ profits were actually 3.1% less, not more, because the most efficient firms were kept out of the bidding so the local firms didn’t maximize efficiency.
Preferences are like the old-fashioned tariffs that penalized foreign traders. More business was done at home, but much of it was less efficient and less profitable. So everyone wound up poorer.
It stands to reason that local businesses are not equally effective in producing every kind of product – not even in Miami-Dade County.
That’s the whole basis of trade: areas produce what they provide best and sell to others who are good at other things. Prices everyone pays decline, yet incomes of all rise as they produce the best in their own fields. It’s Economics 101.
Why don’t those common truths of economics apply here? Only because it sounds so much better to say we are keeping our money at home when government buys locally than to let government pay less while taxpayers earn more in the most efficient industries.
In truth, it’s far less important to keep our money at home in one transaction than for the county to get the most quality at the lowest prices and strengthen our local economy in the process by competing on a level playing field.
Further, if we decide to buy primarily at home, our customers might do the same, freezing Miami-Dade businesses out just as we are about to freeze out Fort Lauderdale and Palm Beach – not to mention New York and Pennsylvania and Colombia and Mexico and so on. All businesses would lose.
Protectionism always sounds great – and it always backfires, costing everyone involved more money for less quality.
This warm-and-fuzzy proposal should wind up in the deep freeze.