Economic Report of the President 1994 - The American Presidency ...

CHAPTER 5Microeconomic Initiatives toPromote Efficiency and ProductivityAS WORKERS AND CONSUMERS, we conduct our economic affairsthrough markets. These markets provide us with a vast arrayof products and services to purchase, and a host of different waysto earn our livelihoods.Yet markets are not flawless. They may, for example, becomecontrolled by monopolies, generate excessive pollution, or lead toinsufficient investment in research and development. Through collectiveaction, we can sometimes correct such "market failures,"and thereby improve the ability of private markets to serve socialgoals. When targeted microeconomic policies are successful, theyreduce the costs of production and distribution, place goods andservices in the hands of those who value them most, and maximizethe increase in social well-being that derives from trade in the privatemarketplace. For these reasons, well-chosen government initiativesare as important for microeconomic policy as they are formacroeconomic policy.The United States has a long history of employing targetedmicroeconomic policies to improve the performance of private enterprisein significant industries. Roughly three-fourths of the Nation'sinvestment in canal construction before the Civil War waspublicly financed. Land grants and other subsidies encouraged thedevelopment of intercontinental railroads during the second half ofthe 19th century. Since 1914, the Extension Service of the Departmentof Agriculture, a cooperative venture of Federal, State, andlocal governments, has vastly improved the Nation's agriculturalproductivity by spreading information about modern farming techniques.Our massive national commitment to create high-technologyindustries critical to our defense, such as computers and jetaircraft, dates from the Second World War. Targeted microeconomicpolicies such as these have been employed throughout thehistory of the Republic, regardless of the political party in power.The Administration's initiatives described in this chapter areaimed at both correcting failures of private markets and improvingthe functioning of the Federal Government. The initiatives are organizedaround three themes: promoting efficiency in the public169