Tough Times Mean More Pressure for Government Preferences and Setasides

Two items of interest are in the news.  First women are upset that the Small Business Administration announced rules that require at least 5 percent of all federal government contracts to go to female "controlled" companies.  Controlled companies include those managed by women or owned 51% by women.  The women wanted more, 8% perhaps.  Small business owners are upset that the agency did not increase the present 23 % set aside for small business; they want 30%.  Second, state pension funds are participating in the bailouts of banks that employ people in their states.  New Jersey's pension fund is investing in both Citigroup and Merrill Lynch (along with governments of China, Korea, Singapore, Kuwait and others) to shore both up the banks' capital.  Many states put pressure on state investment funds to invest in "local businesses." 

This is all bad.  First, the subsidies pile up and hard to eliminate when the reasons for them wane.  Why not Latino set asides?  to geographic setasides (is the suffering Midwest getting its due in contracts?)?  Second, investment returns or quality of contracts is given a back seat to social engineering.  Give grants or loans to favored businesses -- they are more transparent and do not affect the healthy competition that maximizes the quality of the product sought (investment returns or product quality).  Third, China's investment fund has done this for years.  Is this the example we want to follow?