It’s obvious: “Government should be run like a business.”

It’s obvious:  “Government should be run like a business.”

This assertion has a corollary, which has a strong form and a weak form:

  • Strong form:  “Business leaders should govern.”
  • Weak form:  “Government officials, elected or otherwise, should have at least some business experience.”

It also has an analogous assertion:  “Government finances should be managed like family finances.”

First, we should try to understand the phrase, “like a business”.  How is a business “run”, and, to achieve its goals, how is a business structured?  Economists, sociologists and business people propound more than one “Theory of the Firm”, but, this article is a blog post, and I see no need and insufficient space to discuss this entire topic here.

We can, however, point out some salient characteristics of management structures that are found in almost all companies and non-profit organizations.  I don’t claim that these characteristics are essential for effective management, only that they are endemic to it.  I also claim that these characteristics are a product of design, evolution.  They are:

  1. Command and Control management structure:  The CEO, with the assistance of his or her small circle of senior lieutenants, determines policy unitarily; members of the organization implement it uniformly throughout the organization.
  2. Tightly Restricted speech:  Organization policy determines message content to other organizations (public relations, transaction content, professional and commercial communication) and among the members of the organization (informal and formal speech and writing norms).
  3. Non-representative governance:  Leaders at every level are chosen to lead by their superiors or peers within the organization (or its governing Board, a very small circle of “friends”).  Individual producers have no direct influence on the appointments of leaders, nor do policy makers consider their personal life interests or requirements when forming policy (except as an afterthought).
  4. Opaque operations, structure and decision processes:  The company attempts to hide its operations and specific intentions about many aspects of operations from competitors, observers (the press, the government, the tax authorities, for example) and employees to gain competitive advantage.
  5. The stated goal of for-profit corporations:  to maximize the financial wealth of company owners (shareholders, members, as in LLCs, partners).
  6. Singular focus on achieving this goal, i. e., “winning the game by any means ”.

Promised outcomes, accordance to economic theory of the firm, of this structure include:

  1. Superior (“economic”) returns to shareholders;
  2. Nothing else.

A representative governance structure and management has at least the following salient characteristics:

  1. Distributed Power:  Decisions are taken as a result of collective action; the most frequent form of collective action in governments is voting under the principles, one person, one vote and a majority decides the issue in its favor.
  2. Loosely restricted speech:  Members of the governing body are permitted to participate in framing, arguing and voting issues equally; they make speak to non-members as they wish about any subject they want to discuss.
  3. Constituent representation:  Presumably, representatives express the preferences of their constituents and act on them by voting consistently with them.
  4. The stated goals of the government are several and the representatives and their constituents dispute their composition continuously.
  5. Transparent operations, structure and decision processes.  Admittedly, no government is completely transparent, but citizens require a significant minimum transparency of their governments.
  6. Foci on various means and limitations on means to achieving such goals.

By comparing these lists, item-by-item, it should be obvious that economic entities and political entities differ materially along at least these five dimensions.  Indeed, almost no citizen of any Western democracy would want government according to business principles.  It would be tantamount to wanting governance in the style of Somalia, Syria, Egypt, Saudi Arabia, Senegal, Burma, or any other totalitarian dictatorship that you want to name.  What, then, can one mean by asserting, “Government should be run like a business?”

To run a government like a business means, apparently, that its managers should devise a budget that represents the planned implementation of strategic policy, they should be allowed to deviate from it only by special approval of strategic-level management, and total expenditures should not exceed total operating cash inflow in any single year.  This position is naïve.  The federal and state government have budgets, and expenditures that would exceed budgeted amounts require approval of their legislative bodies.  Private companies do require budgets, and upside deviations from budget do require approval by more senior managers.  But, total expenditures frequently exceed total cash operating cash inflow for companies in a given period and they may do so for several periods (years) without damage to the future viability of the company.  To the argument that this operating cash outflow must turn positive at some time (but no particular time) and over the life of the firm cash inflows must exceed cash outflows, I note that so long as lenders are willing to lend and investors are willing to invest in it, a given company may never achieve positive net operating cash flows during their lifetimes.  Many companies never do achieve positive cash flow.

So, the proposition, “Government should be run like a business,” seems quite dubious to me, at least from the perspective of a citizen of a country with a representative form of government.  No two organizations are structured or operate less dissimilarly than a private-sector company and a representative body.  Representative government is a recent development in the history of civilization; private enterprise is ancient.

Having pointed out some considerable de facto differences between representative governments and private-sector companies, I haven’t addressed the question as to whether governments should be run like businesses or vice versa, i. e., whether businesses should be run like representative governments.  There are successful cooperative private companies that are run and/or owned by their employees in the United States and in Europe.  There was, at least, one in Brazil, documented in two articles in The Harvard Business Review in 1983 and 1985.  The degree of employee (vs. owner) participation in management processes varies among companies and the incidence of companies that include such participation varies from country to country.

One could draw an analogy between the primacy of corporate stockholders and the primacy of the citizenry and claim that as corporations seek to maximize the wealth of their shareholders so should governments seek optimize the well-being of their citizenry.  This analogy only shifts the comparison from goals to methods.  Businesses are managed from the top down with great flexibility and little accountability for any particular actions; governments are managed from the top down according to strict rules developed within the framework of laws passed by their legislative bodies.  The managers of government agencies are accountable to their managers, their legislators and, ultimately, their constituents.

I just don’t see the advantage of business experience versus experience as a professional, non-profit manager or other non-government employee.  I do believe that a political career should be a second career.

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Filed under Governance, Government, Policy, Politics

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