John Locke Update / Research Brief

Can Government Rebuild Social Capital?

posted on in Economic Growth & Development, Education, Education (PreK-12), Government Reform, Human Flourishing, Poverty Alleviation, Spending & Taxes
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Nathan Glazer died last week at the age of 95. He was one of the original neo-conservatives, when the term still meant “a liberal who has been mugged by reality.” After initially opposing the New Deal because it did not go far enough, Glazer’s experience in government and academia made him, in the words of the Wall Street Journal, “skeptical of social change imposed without sufficient respect for existing institutions.”

In his 1971 essay “The Limits of Social Policy,” Glazer wrote, “Every piece of social policy substitutes for some traditional arrangement, whether good or bad, a new arrangement in which public authorities take over, at least in part, the role of the family, of the ethnic and neighborhood group, or of the voluntary association. In doing so, social policy weakens the positions of these traditional agents.”

Robert Putnam in 2000 lamented that Americans were less likely to participate in voluntary organizations of any kind, whether bowling leagues or Rotary Clubs. In the current issue of National Affairs, Andy Smarick of the R Street Institute asks, “How can we lean on voluntary, intermediary associations for collective action after they’ve been allowed to atrophy for decades?”

Richard Cornuelle offered one way for Americans to work on those atrophied associations and regain their ability to help one another. He created a student loan reinsurer that effectively competed with government guarantees for a number of years, wrote books, and advocated for a truly independent nonprofit sector. Instead, today’s nonprofit human service providers rely on government grants and contracts for three-fourths of their revenue.

Recognizing the challenge of competing with a significant source of revenue, Smarick notes, “The responsibility for creating and bolstering these groups extends beyond the groups themselves and their members. But to whom? Public leaders committed to decentralization should see this indeterminate obligation as an invitation.” He argues that “the government has an interest in strengthening civil society’s wide-ranging associations.” The question remains, can government policy itself create space for people in communities to help one another?

School choice provides a current example of some ways it can. Charter schools, opportunity scholarships, and education savings accounts (ESAs) each foster competition with government monopoly schools in a unique way while shifting decisions from a more centralized authority to a more local authority. Parents can choose between public charter or district schools, can use the scholarship to attend a private school, or can use the money in their ESA to cover tutoring and other services outside of a traditional school setting. Charter schools have closed for mismanagement or poor performance, unlike their district counterparts. Other rules limit how scholarships or savings can be used. As Smarick writes, “By providing limited aid to declining formations and fostering new ones, the state can create environments that promote social entrepreneurship while modestly weeding the garden.”

The goal of school choice is not to eliminate government-provided education, but to give others a chance to compete with government on equal footing. Translating this experience from schools to other social services and community development needs has proven difficult, whether through community development block grants, Medicaid waivers, or enterprise zones. Smarick highlights three of the latest attempts to try again.

First, Opportunity Zones provide investors with partial or total elimination of capital gains taxes if earned in the designated area or invested in the area after being earned elsewhere. North Carolina identified 252 Opportunity Zones, which were created as part of the 2017 federal tax overhaul with the promise of bigger benefits and less hassle than previous iterations of place-based investment incentives. Investors are still learning about them, and the first projects are still in the planning stages.

Second, federal New Markets Tax Credits were created in 2000 to encourage investment in distressed communities. The John Locke Foundation’s Becki Gray has been a frequent and vocal opponent of creating a matching credit in North Carolina. A 2014 report by the Government Accountability Office found insufficient data to determine whether the federal program had been successful, even though businesses had then already claimed $1 billion in credits.

Of the three, Social Impact Bonds (SIBs) may offer the most viable option for government to support local action without creating new distortions or unknowable outcomes. From the narrow perspective of government contracting, SIBs merely provide a vehicle to define success before appropriating money for a program and then to hold the program accountable for results. From a broader perspective of fostering social capital, SIBs tap local expertise and create skin in the game for advocates who otherwise would be playing with other people’s money.  If a SIB-financed program is successful, it proves better than an existing government program at alleviating a social problem and in the process reduces the demand for other government services.

Less demand for government or its support should be the ultimate goal of human service programs, whether funded by taxes or voluntary contributions. Government support is an inferior substitute for the love and support that is possible through work, family, and community, as Nathan Glazer made clear.

Joe Coletti is Director of Oversight Staff for the NC House Majority. Joe is a former Senior Fellow at Locke. Here, he examined fiscal and tax policy. He previously headed the North Carolina Government Efficiency and Reform initiative… ...

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