Friday, February 25, 2011

Government as a business

Matt Yglesias and Steve Greene both hit on an important theme today: the rather perverse notion that government should be run like a business. As Steve notes, school administrators who follow this logic end up seeking to remove special needs kids from schools because they're too costly to educate. Matt takes the argument to its logical conclusion: people over the age of 70 are unproductive and harmful to the bottom line, and should therefore be terminated and harvested for their organs.

There's nothing wrong with the idea that governments should be run more efficiently or with better customer service, and if that's what people mean, they should say that. But to say that governments should be run like businesses is to reveal ignorance about what either governments or businesses -- or both -- are. Businesses exist to turn a profit. They provide goods and services to others only insofar as it is profitable to do so, and they will set prices in a way that ends up prohibiting a significant sector of the population from obtaining those goods and services. And that, of course, is fine, because they're businesses. Governments, conversely, provide public goods and services -- things that we have determined are people's right to possess. This is inherently an unprofitable enterprise. Apple would not last long if it had to provide every American with an iPad.

I'm also always surprised to hear people tout the efficiency of the private sector. There's a great deal of inefficiency in the private sector, of course. How many CEOs end up hiring dim, unqualified brothers-in-law or grandkids who are taking time off college? And that's just not considered a big deal as long as it doesn't noticeably hurt the bottom line. If a member of Congress does that, it becomes a major scandal.

This isn't to say that government is a paragon of efficiency and thrift, either, but there's a whole subfield in journalism and several citizen activist groups devoted to rooting out waste in the public sector. There's not much interest in rooting out waste in the private sector unless a business is seen as misusing public money (e.g.: Halliburton). And again, that's fine -- they're private entities that are free to do what they want with their money. But let's not just assume they're waste-free and that our governments would improve by emulating them.


Anonymous said...

Of course there is waste in the private sector. The big difference in efficiency is that there is a punishment mechanism in the private sector: loss of profits. There is a precise line you can draw between cause and effect.

There is no similar punishment mechanism in the public sector...and it often works in reverse, with inefficient agencies only drawing more resources. Citizen activist groups have been "rooting out waste" in government for decades, with practically nothing to show for it. The only way to "punish" waste in government is to vote for one of two options. Not a very effective means of punishment.

Anonymous said...

I think most of the people who talk about how the government should be run like a business do understand the distinctions and what they mean. They just don't want there to be a government... or, more precisely, their vision of government is one that subcontracts all of its services out to private businesses, a mere conduit for public money.

Also, you're too fair to the inefficiencies of the private sector. Profit itself is an inefficiency, as is marketing and, arguably, competing firms in the same fields.

Not to imply that profit and competition aren't often beneficial... but every dollar that flows into the pockets of an investor is one that could have been shaved off the costs of the good or service provided, a phenomenon that simply doesn't apply to the government. I also don't mean to imply that the private sector doesn't have its place--at the very least, it provides structure to channel greed and ambition into relatively good ends, and provides services that no government should. But I've never seen the case truly made that it does things better than government; it is only bluntly asserted.

TJ said...

You are right, business is certainly not waste free. I have come to accept that most people who argue that government should be run like a business without specifying what they mean are just trying to say that government is doing something they don't like and should be doing something they do like. Even if that means, as mentioned already, not exist.

Government can be run well, but that only happens when interested parties make decisions in the best interest of the policy objective, and not other motives like general constituent popularity.

Anonymous said...

What goes unmentioned here is that most people who bandy about the notion of running the government like a corporation [and its accompanying idea of the CEO President] also advocate for irresponsibly low tax rates. They want the government to be run like a company while at the same time drying up its primary source of revenue.

Anonymous said...

Also, the desire does not make sense because in normal business you have competition. There is no competition with government services--they are provided on a pay or get shot basis. The only businesses that can be run this way are crony capitalist businesses where the government has outlawed competition.

As the first poster pointed out, there is no profit and loss system present, and I am adding that there is no competition either. In order for the sentiment that government should be "run like a business" in other words, made more efficient, is to allow competition and choice of the taxpayer as to what he wants to fund (if at all). Those are sorely lacking.

Johnny G said...

I live in Oakland, CA, a rust-belt city luckily located in the SF Bay Area and not the Midwest (meaning it's proximity to job generators like SF and Silicon Valley keep it from falling even further down.) Every election cycle there is at least one or two candidates running on a platform to run Oakland more like a business. To me the biggest fallacy in that position is city government or any government for that matter can't shut down money-losing divisions. Oakland has pockets of deep poverty, neighborhoods that in business parlance are money losers - they consume more resources than the revenue generated through the taxes and fees they pay. A for-profit business would shut down or spin-off that division. A city can't shut down a neighborhood. Oakland is not going to "disincorporate" East Oakland from the city and cut them loose. So, sure, there is always room for improvement and increased efficiency in delivery of services but governments do not have the tools that private entities have for dramatically reducing their costs.

DaveE said...

I believe that when most people talk about government running like a business they are referring primarily to fiscal issues. Since successful businesses cannot print their own money, cannot borrow money without thinking about paying it back, begin programs that they cannot afford or continually go to shareholders for more money, they (businesses) are more accountable. I would say if government could be more like businesses in that regard, we would all be better off.

Taylor Wray said...

Wow, good comments! A) Government is different from business and has different aims and responsibilities - HUGE POINT that, by itself, makes the "efficiency" argument pretty moot.

B) Obviously, efficient government is desirable, but what in the hell makes anyone think that the private sector, as it exists now, is more efficient?

For instance, I believe the first commenter referenced a "punishment" being in place in the private sector where it isn't in the public sector? I'd refer you back to that HUGE BAILOUT we just had that PREVENTED ANY PUNISHMENT for a whole passel of American corporations and industries, despite their blatant collective idiocy and collusion.

In the private sector, you only have to be as efficient as your competitors, and I'd argue the standard of efficiency has been dropping like a rock, especially since the corporations figured out THEY ARE TOO BIG TO FAIL.

Ask anyone who works in a national or global corporation, and I'll bet wasteful and inefficient company bureaucracy is one of their number-one pet peeves.

So not only is it wrong to value efficiency in government over everything else (since, I don't know, ENSURING DEMOCRATIC EQUALITY might be a more important goal for government) but even if you do value efficiency, the private market is increasingly not the place to find it.

Robert Holden said...

DaveE, close, very close. I would like to see money managers throughout the federal government have the ability to manage the funds that come into their accounts as a business would. Not a profit motive, that's not possible. They can plan however, and should be able to lay aside funds year on year. Program management teams need to create real budgets that change according to real conditions, and not necessarily be docked follow on funds just because conditions on the ground didn't "allow them to spend" this year's budget.

Right now managers prove their worth by spending every dime, or worse by over spending and scrounging funds from some other program that needs to spend their money. It's a shell game, and only the taxpayer ever loses.

Robert Holden said...

Taylor Wray, I don't know what you mean by "DEMOCRATIC EQUALITY". Right now we have to competitively bid most of our purchases. This means goods and services purchased for the federal government. That sounds great, competitive bids, but when you leave the decision in the hands of a novice, a contracts officer or worse a lawyer, you get what you get or you appeal and delay your project for months.

Some of it is sheer stupidity gone wild. When I was in the service I joined a section that had three underwater cameras. All three needed repairs. I called the manufacturer, got the shipping address and a rough estimate and called my supply officer. His reply to me was that I could give him the cameras and he would competitively bid the repair. He also stated that the manufacturer would not be included as it was not a small business.

Glorious, so we get our three bids, roughly three times the manufacturer quote, and my shop cameras disappear for three months (original estimate from Nikon was two weeks). I called the winning bidder at the two week mark and was told that they don't repair cameras in house, they send them to the manufacturer.

That is absurd, and rampant to the point of being as common as air.

We hire people to make informed, intelligent decisions. If I'm tasked to buy a server and I'm given clear requirements, let me buy a server. I still have to buy multiple servers to find the most reliable one. I still need to make sure it fits my space, weight and power requirements, fits any shock and vibe requirements, etc. Let me buy my eval units non-competitively. All of this needs to be monitored closely, and that's what a Contracting Officer's Representative should be there for.

The COR should be the Contracts Officer's (KO) eyes and should sit on every board and meeting. They should know the project as well as the Program Manager and should be able to tell when a purchase is below board or above. They should also not be accountable to the PM. We have these relationships in some cases, but the PM can be a COR.

And another thing, why can't I budget for the hardware we're going to need, adjust for the impact of a contractor that can't seem to hire the right (or enough) people. Actually, the govt seems pretty good at dumping contractors on the street. They merely transfer incompetent govt folks, but whole teams of contractors get dropped due to budgetary foul ups. That's another rant.