Governments should not be run like a business

The Thinker by Rodin

It’s hard to listen to a politician today without hearing them tell you that the problem with government is that it’s not being run like a business. For example, Mitt Romney says his private sector experience running a venture capital firm (Bain Capital) was great preparation for being governor of Massachusetts and, he hopes, president of the United States.

In reality, a primary reason our government is as messed up as it is is because incoming politicians have tried to treat government as a business. The resulting mess tends to be ugly and ruinously expensive. As one example, for a couple of decades now our esteemed national leaders have declared that since the private sector can do everything better than the government, we must outsource as much of the government as possible to gain the wonderful efficiencies of the private sector.

Outsourcing the government has been great for businesses, but not so much for government and for the taxpayers. Ask Blackwater. There was a need, they had the product and they had a business model designed to shaft the government. A grunt private, even with pension and various other benefits costs a tiny fraction of the cost of a guard provided by Blackwater. How much more? It’s hard to say exactly, but add in benefits, profit and nice corporate offices in Arlington, Virginia and even the most unskilled guard from Blackwater likely bills at least $100 an hour. A private does not have a problem following orders. It’s not just a good idea, it’s required, even when inconvenient. Failure to do so may result in a courts marshal. Ask a Blackwater contractor to do something not explicitly in the contract and they will either refuse or it will require the payment of some sort of high usury fee.

Businesses are entities designed to make profits. Governments expressly don’t want to make profit because taxpayers resent paying a dime more in taxes than they have to pay. If government were truly run as a business, the IRS would charge processing fees to process your tax return and charge $1 a minute for tax advice over the phone. In fact many of us pay a fee to file a tax return, but the government doesn’t get a dime. It’s private sector entities that add value and profit by facilitating the transaction so you can get a refund faster.

If government charged a fee for every service, it would grow corrupt. How many civil servants do you see driving around in luxury cars? I’m a pretty well paid civil servant, and I’ve never come close to having the income to buy a Lexus. Those few that do are likely political appointees or elected officials, and with luck their crimes will be discovered by salaried detectives and prosecuted by salaried DAs.

Here’s the thing: the civil service works best when people are paid a respectable but not lavish living wage, they are held to a strict and impartial code of conduct and they are permitted to exercise as much independent judgment as their position allows. I know this from working inside it for thirty years. When you get a fair deal, you have incentive to work in the interest of the government. Job security in the government is not something evil; it is a feature of a job that enhances loyalty and makes it easier to put the peoples’ business first. Pay a civil servant too little and there is incentive to take bribes. This is the problem in most third world countries where bribery is rife: no one can afford to live on the pittance that is their actual salary. Corruption simply breeds more corruption. Paying civil servants a living wage solves the problem.

There are so many silly myths about the private sector that you would think experience would have debunked them. One is that businesses are oh so efficient. Businesses tend to be as efficient as they need to be and never more. The ones who are really bad at efficiency tend to go out of business. Small businesses in particular have a hard time at it. People think they are cut out for being an entrepreneur, but in reality it is very hard and the odds are against you. Take a look at the docket at your local county bankruptcy court sometime. Look at the stack of business bankruptcy filings. Businesses fail all the time, some for reasons that suggest incompetency, some because they have the wrong product or service for the market, but usually for both reasons. Every business out there wants to have a lock on a particular market so they can raise prices and reduce quality. That’s why companies like Google and IBM spend significant amounts of money to buy out competitors. They don’t invite competition. They want to cut competition off at the knees. This is done by means legal, legal but unethical, and outright criminal actions which pragmatic businesses do hoping they won’t get caught. An obvious example: companies like Citibank accused of robo-signing hundreds of thousands of home foreclosures.

Maybe that’s fine in the world of business, but do we really want to inculcate this attitude in our government? I would hope not! Government exists to address common societal issues that are not suited to business. Some of the reasons are because they must be done impartially, because the work in inherently unprofitable, and because there are long-term interests that need to be addressed.

This may be hard to believe, but there are some things the government does much better than the private sector. In general, education is one of them. It may be hard to believe when you think about failing inner city public schools, but most schools are not failing and get high marks from parents. There are enormous efficiencies when you can buy textbooks for a school district in bulk, or need to ensure that 10,000 teachers adhere to the same standards, or that your students at least get one healthy and nutritious meal a day in the school’s lunchroom.

The public sector is exceptionally cost effective delivering higher education, as evidenced by state universities near you with well moneyed alumni. A public college tends to be half the cost, or less, than a private college, and often achieve better results. They serve a critical need: making higher education relatively affordable, something the private sector could not do, which is why government created them. Community colleges are an even bigger bargain. I am wrapping up teaching a semester course at a community college. I was hired to teach the course for less than $3000. My students got plenty of individual attention. They paid a few hundred dollars each for the course. It just so happens that a similar course is available down the street from Oracle Education, at a cost of several thousands of dollars. Arguably, my students got a much richer educational experience at a tenth of the cost. Yes, community colleges are bargains, which is why they are expanding like crazy and are one of the growth sectors in this crazy economy. What’s not? Try private colleges, particularly career-oriented private colleges like Kaplan University, owned by the Washington Post. Their success rate is miserable and their costs are high. They do excel at convenience, but they have little incentive to make sure their students graduate. They are after a profit, not the success of the student.

In general, government is a much different domain than the private sector. You want those leading your government to be people who understand this, and understand what makes government work efficiently and effectively. You want leaders who align the government with the current and future needs of the citizenry. You don’t want someone who thinks that a private sector business model will work in this domain. Instead, you want someone who has demonstrated competence leading and managing governments and other non-profit institutions. This leaves out most of those currently running for president. You would be wise not to vote for any of them, because they are likely to leave your government worse off when they leave.

Leave a Reply

Your email address will not be published.