Tuesday, December 21, 2004

Government as Business

I know this has been a well worn topic of late, but as I was flying home from CA last week and was delayed at the Denver airport, I picked up a copy of this month’s Atlantic Monthly, which contained an interesting article about former CEO’s who had become Governor of their respective states. The article cites Mitt Romney (R-MA), Brian Schweitzer (D-MT), Craig Benson (R-NH), and Mark Warner (D-VA), all of whom have successfully made the jump from the boardroom to the Governor’s office. The article focus on how the fact that none of these people were seen as "career politicians" may have actually aided their quest for office, but I want to focus on a slightly different aspect, specifically whether it’s a good idea to think of the government (whether it be local, state, or federal) as a business or even as a corporation. As I see it there are several flaws with the government as business/corporate model.

First, business’s/corporations are created to make money, government isn’t. In other words, business is supposed to be profitable, corporations are designed and structured to invest capital and provide a significant rate of return on the investment. CEO’s are entrusted to lead the business/corporation, made decisions and report a profitable year for all of the investors. There isn’t anything wrong with this model at all. The laws of economics dictate that profitable business stay afloat, while non-profitable businesses close shop or become subsumed into other businesses. Government, however, is exactly the opposite. At best Government is supposed to break even. Remember, government capital is mostly taxpayer money, hence, the goal is to take as little of that capital as possible, while still providing the maximum services possible. Governments that are profitable, or run a surplus, are often required to give the excess money back to the taxpayer. Unlike businesses there is no reward for surplus or excess. Pres. Clinton was hailed for running projected surpluses, but at the same time was vilified for wanting to reinvest the excess into new services and expanded government programs. Instead, Pres. Bush was elected in 2000 largely on a platform of returning the projected surplus back to the taxpayer. Government isn’t like business, because any CEO that merely broke even would be automatically fired at the next meeting of the board of directors and replaced by a more aggressive profit maximizing person. Of course the converse is also true, in business too much debt is bad, while in government as we have seen multiple times in history (post-Revolutionary War, post-Depression, 1980's Cold War Era, and post-9/11) government debt is at time encouraged and supported (recall the VP Cheney’s statement to then Treasury Sec. Paul O’Neil: "Reagan proved that deficits don’t matter.") Any CEO that ran a company from projected surplus to projected deficit in 3 and half years would summarily be dismissed (likely in a Donald Trump from the Apprentice type manner. Picture wealthy obnoxious chairmen of the board saying "You’re Fired") in favor of a more fiscally sound person. In government, however, deficits are agenized over publically, while privately they are ignored in favor of public works projects and other "pork barrel" spending disasters.

Second, governments are not like business because business is supposed to be efficient, while government is supposed to be deliberative and slow. This needs little explanation, but I’ll say this, over the last three years we have seen three distinct instances where government has tried to be efficient and each time has resulted in what can only be described as legislative disaster. Example 1 the Patriot Act, which hardly anyone understands and few continue to support in its entirety (now there are some good parts to the Patriot Act, but for every "good" provision there are about 10 "heinous" provisions that should make any freedom loving American pause and hope they are never subjected to a search or seizure that is authorized under this law.). Example 2: The Homeland Security Act of 2002. Almost three years later and no one knows exactly what this agency does or how it does it, moreover, we can’t even find someone who wants to take control over the damned thing. Bernie Kerik was a walking PR disaster, and I don’t see a line of people actively campaigning for the job. Example 3: Intelligence Reform Act of 2004. This recently passed monstrosity is a perfect example of what happens when Congress responds to public pressure. Delaying action on this bill until the 109th Congress would have been the right thing to do, because I promise no one has read all 257 pages much less understands the implications and effects of what is contained within them. But hey, Congress was efficient and responded to national issues in a timely fashion. The fact that they will likely in the long run do more harm then good, well who need to be concerned with that inconvenient fact. It’s one thing for Microsoft to rush out a new version of Windows as when there are flaws (as there always are) they can simply provide a patch free of charge. When government rushes through an important project, the ability to change the results if they end up different from what was intended is very difficult to say the least.

Finally, government, unlike business answers to all the people, not just the group of investors that put up the capital. If a corporation makes a bad decision and loses money it only has to answer to a relatively small number of affected investors. Even in large, publically traded corporations, the number of "individual" investors is small, (growing but still small just take a look at the millions and millions of shares available of Microsoft, Citibank, or any other Fortune 500 company) especially given the size of institutionalized investors (mutual funds, hedge funds and other large corporate players), When government, on the other hand, makes a costly decision or error everyone is affected in some way. Even those people who don’t actively pay into the system in the form of taxes. (I’m not even talking about welfare recipients or the elderly, but of children who don’t pay taxes and yet attend/benefit from institutions be they public or private that are affected by the decisions of government).

In sum, while I understand to a point the loathing of career politicians, I’m not yet convinced that business acumen is the necessary tool to being a successful Governor or President. George W. Bush may be the first "MBA President," but I doubt he’ll be the last, and I’m not so sure that’s a good thing, regardless of whether the person is a Democrat or Republican. The keys to running a successful business and the keys to leading a prosperous nation are vastly different, we shouldn’t pretend that being good at one means being good at the other. The skill set may arguably be similar in some respects, but governing is so much more than profits and losses, it is about vision, vision for the whole of the country, vision of the prosperity of future generations who will inherit both the positive and the negative of what this generation and my generation accomplishes. Business isn’t a bad model for vision and prosperity, but it shouldn’t be applied to the government.


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