Direct Government Investment: Perverse Privatization or New Tool of Government?

• Author: Eva M. Witesman,Charles R. Wise
• Published date: 01 March 2019
• DOI: http://doi.org/10.1111/puar.12987
• Date: 01 March 2019

168 Public Administration Review • March | Apr il 20 19

Public Administration Review,

Vol. 79, Iss. 2, pp. 168–179. © 2018 by

The American Society for Public Administration.

DOI: 10.1111/puar.12987.

Abstract: In recent years, public administration scholars have called attention to a blurring of the boundaries between

the public and private sectors. However, little attention has been focused on the administration of public programs

that seek to impact private markets through direct government investment in private firms. The direct government

investment approach is a new tool of government that has been applied in several countries and at multiple levels of

government. Through an analytic mix of theory and attention to practice, this article leverages a deep case analysis

of the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program to propose and

utilize criteria for examining justifiable rationales for direct government investment, areas of administrative capacity

necessary to manage such investments, and potential pitfalls of this new tool of government.

Evidence for Practice

• Relying on advocates’ assertions of market failure to justify direct government investment in specific

industries and/or firms is insufficient. A systematic analysis of existing private sector incentives, as well as

those provided by other federal, state, and local programs, is needed.

• Prior to initiating a direct government investment program, the existing and potential capacity of the

government organization or organizations that will have responsibility for administering the program should

be assessed.

• Prior to investment in private firms, the appropriate metrics for program monitoring and assessment should

be determined, including determining the program’s expected independent contribution to altering the target

market. Government agencies should consider risk and the potential for financial gain or loss to the taxpayer.

• Direct government investment in private firms raises equity concerns that should be weighed against

potential program benefits.

Direct Government Investment:

Perverse Privatization or New Tool of Government?

Eva M. Witesman is associate professor

and Stewart Grow Research Fellow in the

Romney Institute of Public Service and

Ethics at Brigham Young University. Her

primary research interest is the intersection

of the public, private, and nonprofit sectors.

E-mail: eva_witesman@byu.edu

Charles R. Wise is Affiliated Full

Professor in the School of Government and

Public Policy at the University of Arizona

and professor emeritus in the John Glenn

College of Public Affairs at The Ohio State

University and the School of Public and

Environmental Affairs at Indiana University.

Wise is a three-time recipient of the William

E. Mosher and Frederick C. Mosher Award

for the best academic article published in

PAR

. Wise formerly served as managing

editor of

PAR

.

E-mail: charleswise@email.arizona.edu

Charles R. Wise

University of Arizona

Eva M. Witesman

Brigham Young University

Government entities in several countries,

including the United States—at the national

and subnational levels—have begun using a

new tool of government (Salamon 2002) that further

blurs the lines between the public and private sectors.

In 2012, the U.S. Department of Treasury’s acting

assistant secretary for tax policy, Emily McMahon,

described the U.S. federal government’s purchase of

private stock as a “novel” and “unique” government

intervention in that “the Federal Reserve began

making investments in private companies.” This article

introduces direct government investment as a policy

tool, distinguishes it from other types of public-private

interactions, and identifies and applies a framework

for examining this unique new type of public policy.

Through an analytic mix of theory and a deep case

examination of direct government investment in

practice (Eisenhardt 1989), we propose and utilize

criteria for examining justifiable rationales for direct

government investment, areas of administrative

capacity necessary to manage such investments, and

potential pitfalls of this new tool of government.

Although our exploratory analysis is primarily

descriptive, we nonetheless seek to contribute

to a theory of direct government investment by

offering systematic criteria for the evaluation of such

initiatives. Following our case analysis, we provide

additional examples of direct government investment

and propose directions for future research and theory

development based on our findings.

The Rise of Direct Government Investment

Beginning with the extreme anti-recessionary

measures taken in the United States by the George W.

Bush administration in 2008 and continuing through

various direct investments—particularly related to

environmental innovation—made during the Barack

Obama administration, we have witnessed the advent

of a new form of direct government investment that

is shifting the nature of the relationship between the

public and private sectors.

Research Article