I've heard several people say that it's illegal for the US government to compete with private industry. The specific context was about developing and providing software (desktop programs, mobile apps) that would be a direct competitor to products that are already available on the commercial market.

I tried to do some research to find the official wording of this law or policy, but couldn't find anything. I did find that Sen. Thune is trying to introduce S.506 - Freedom from Government Competition Act but it doesn't seem that Act has been passed/enacted at this time. So, are there currently rules about this?

  • Isn't this precisely what the United States Postal Service does with UPS, FedEx, DHL, etc? – Ron Beyer May 31 '18 at 19:24
  • @RonBeyer Actually, the USPS has a legal monopoly on mail delivery and UPS, FedEX, DHL, etc can only legal compete in areas that have been held to be outside that monopoly like parcel deliver and express courier services. – ohwilleke Jun 2 '18 at 6:14

It is generally speaking, not illegal for the US government, at any level, to compete with industry. (There may be some specific exclusions, especially at lower levels). In fact, it does compete with private industry in multiple fields.

In general, however, government does not compete with private industry, as a policy, because the government does not care about making money (insert comment about budget deficits here).

A small, and incomplete, list of ways government competes with private industry in the US:

  1. Unemployment, Disability, and (low income) Medical Insurance, with the added bonus of the government forces you to participate (e.g. SSI).

  2. Subsidized housing, for various forms of people, competing with private real estate development.

  3. Formerly, a postal and delivery service(credit to Ron Beyer).

  4. Security Services (e.g. the Police).

  5. Worker Resources (e.g. hiring people out of the private sector).

  6. Providing public roads (competes with private toll roads) and public transportation (ferries, buses, trains) which compete directly and indirectly with private transportation industries.

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The federal government is not prohibited by the United States Constitution from competing with private industry, and indeed, does so in many instances.

This said, there are a mish-mash of statutes and regulations that limit specific kinds of government competition with private industry, and legislators often decline to compete with private industry as a matter of policy.

For example, there are laws that limit the way that the federal government can use the services of prisoners in federal prisons to compete with private industry. Many states have similar prohibitions which is one of the reasons that many of the stereotypical prison industries, like making license plates, are industries that do not have private sector competition.

There are also laws that prohibit competition with government industries. For example, the Tennessee Valley Authority has a government monopoly on the generation of hydroelectric facilities in its jurisdiction, and the United States Postal Service, in theory, has a monopoly on the delivery of ordinary mail as opposed to express courier services and packages. Similarly, the federal government, in theory, has a monopoly on the issuance of currency not backed by precious metals.

There are some states, Colorado among them, whose state constitutions prohibit competition between state government agencies and the private sector, although these constitutional prohibitions are commonly interpreted in such a way as to not bar state government from participating in industry sectors like education, prisons, and hospitals, where government provision of services has historically had a large market share of the industry.

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