Tricky Business

August 8, 2017

One of my least favorite arguments — one that never seems to die — is that the government should be run “like a business”. Much like the “we should balance the budget the way I balance my checkbook” argument is emotionally resonant but logically absurd (do you pay you household debt service with your own unique reserve currency?), the idea of running the government like Facebook, or Catepillar, or a grocery store, is as stupid as it is inspiring.

Some of the big reasons are :

  • the government isn’t supposed to be profitable
  • lots of important societal problems aren’t profitable to address
  • the government exists to do collective things we can’t or won’t do on our own
  • governments can do things that businesses can’t, like put you in jail

… etc., etc., and so forth.

Now, to give people a little credit, I think most of us who get sucked into the appeal of a business-like approach to government understand that some or all of these limitations exist. They just want people who make decisions on behalf of the government to seek improvements to operational efficiency the way they feel people in business do, and there’s nothing wrong with that.

Well… except there is.

why are businesses efficient (when they are)?

While the driving force behind efficiency in the private sector everyone thinks of is competition, another one is self-interest. Salespeople hustle because they have commissions. CFOs cut costs because they have stock, or get bonuses for doing so. Even front-line employees worry about their productivity because they want a promotion (and the power and money that comes with it), or don’t want to get fired or demoted (at the cost of… yeah, power and money).

This is a super-powerful culture for doing things, but it’s also incredibly dangerous, and the worst-case scenarios for a badly-incentivized private organization are often significantly less terrifying than the worst-case scenarios for a badly-incentivized government since, as I mentioned earlier, the government has certain extra-scary abilities (imprisonment, border-closings, artillery barrages, etc.).

In other words, if you create perverse incentives for private industry, you get Wells-Fargo, or Enron, or AIG. That’s definitely bad. But if you create perverse incentives for the government, you get a collapsing Soviet Union, or modern-day Turkey or Venezuela. The problems aren’t containable by the glories of private organizations, because a functional government (of some sort) is a baseline requirement for those private organizations to even function.

And that’s exactly why I don’t want people thinking about the government like a business — the stakes are much, much, higher, and no one “owns” the government; you’re not a CEO when you run it, you’re a steward for society at large. Electoral incentives are already dangerous; whenever people inside the government start thinking about what they can do to nail their quarterly bonuses or whatever, we have a problem.

In fact, you know what part of the government reminds me of business? Civil asset forfeiture. The most aggressive departments are almost like employee-owned companies (I worked for a restaurant like that once), where the officers are both the employees and stockholders, and the customers are basically mayors or governors. When the employees “maximize revenue”, they get bonuses in the form of perks, benefits, and stuff — so of course, they go out and “maximize revenue” by using their abilities to get it. Except when the police are trying to maximize revenue, they have guns and the ability to ignore large parts of the law. Imagine if Comcast could shoot you, or put you in jail. Healthy business, right there.

So if you’re like me, and the idea of tethering economic self-interest to government scares you a little bit, the challenge of getting anything useful from a business-like approach to government becomes a lot trickier and nuanced. There’s still something there, but now you’re talking about much less about an ideological revolution, and much more about experiments on the margins. In that case, you’re basically trying to create little, contained boxes of private-sector style thinking inside the government. I think this is fine, but don’t expect that stuff to free you from the complexities (or frustrations) of getting a drug approved by the FDA or something.

defining “business”

I do think there’s something to be said for private sector experience being a point of reference inside the government, which is why I have no objection (and even somewhat of a preference for) leaders and subject matter experts in the government with a business background. I think there are a lot of areas where the government would work better if it was better at quickly spinning up a relatively lean organization tasked with some kind of measurable goal, and that kind of thing happens out here every day. People like me (better versions of me, but still) are pretty good at it, and if you made us ultimately answer to some senior bureaucrat but basically left us alone, we could do a lot of interesting things while minimizing a lot of typical risks and costs. Again, you can’t run like, the FAA this way, but give us the post office, or some kind of constituent services or something and I think that makes sense.

But you know what’s weird? Many of the people talking about running things “like a business” the loudest don’t have this kind of experience at all. People like Donald Trump, or Jared Kushner, who basically inherit a bunch of assets, and leverage them along with other inherited assets (networks, connections, name recognition) to acquire more, aren’t really operating at all. Ironically, a lot of the value Trump created for his business was by effectively screwing with the government (albeit at a local level) by bullying authorities into zoning exemptions that benefited him. On the other hand, his best-known cost efficiency came from simply not paying vendors for services provided to him, and using his existing assets as a block against those small vendors seeking legal recourse.

You can argue about whether that’s a morally acceptable way to do make money (I think it’s gross but your mileage may vary), but it’s hard to argue that on a level playing field, somebody like this is at all equipped to use creative, entrepreneurial thinking to find efficiencies in government. If anything, the only thing someone like Trump is good at is using existing, outside leverage to create an environment that allows him to profit from an otherwise unremarkable collection of assets. So it makes sense why he would benefit from being President — that’s some serious outside leverage, even for him — but it doesn’t really make any sense why we would benefit from it.

Trump’s argument, of course, is that because he’s proven to be so good at getting civic institutions to do his bidding, he’s the perfect person to run those institutions. That seems to have resonated with a surprisingly large chunk of the population (one that appears to be confused by either how business works or what Trump’s relationship to that really is), but seems to me to be the worst possible solution to the problem.