The federal government's procurement decisions are industrial policy, economic development, and political economy simultaneously.
The Scale of Federal Purchasing Power
The federal government's purchasing power — exercised through the trillions of dollars in goods and services it procures annually — is among the most consequential instruments of government influence over the private sector. Federal procurement decisions shape the industrial structure of defence contracting, the technology investment decisions of IT companies, the geographic distribution of economic activity, and the labour market practices of the companies that hold federal contracts. The government that requires its contractors to pay a minimum wage above the federal minimum has created a wage floor for a significant sector of the private economy. The government that prioritises small business set-asides in its contracting has created a protected market for small businesses. The government that concentrates its IT procurement in a small number of large contractors has created an oligopoly in federal IT.
The Federal Acquisition Regulation — the body of rules that governs federal procurement — is the institutional framework within which these consequential decisions are made. It is a framework designed primarily around procurement efficiency: getting the right goods and services at the best value for the government. It is a framework increasingly being used for objectives beyond procurement efficiency — using the government's purchasing power to advance labour standards, diversity requirements, domestic content rules, and environmental practices that elected leadership wants to promote through the procurement mechanism.
The Procurement System's Limits
Using the procurement system to advance policy objectives beyond procurement efficiency is legitimate but has structural limits. The procurement requirement that reduces the pool of eligible contractors reduces competition and increases costs. The procurement condition that is so burdensome that contractors price it into their bids is a policy mechanism that generates its own cost. And the procurement system that is used for too many objectives simultaneously produces the complexity that creates the compliance costs and opportunities for gaming that the system's critics cite.
Federal procurement is industrial policy conducted through purchasing decisions. Its power is enormous and its governance is consequential. The policy objectives pursued through procurement are legitimate but not free — they impose costs that should be measured against their benefits, as they would be for any other policy instrument.
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