Modeling Government After Business

Two weeks ago, I posed this question to my readers and eagerly awaited a response. The few remarks I received were thoughtful and gave me some ideas on what to write about today.

What is a “Business Model?”

The first task became understanding what we mean when we refer to a business and a “business model.”

Wikipedia defines it as “a legally recognized organization designed to provide goods and/or services to consumers.” All right – what else? “…Most…are formed to earn profit and increase the wealth of its owners and grow the business itself.”

While this sounds a little general, we can extract a few points of reference for our discussion:

  • Business gives customers a service or a product
  • Businesses are established to (at the very least) break even, or make a profit for themselves and their shareholders
  • Businesses aim to grow, but to do so within their limits

With these points in mind, let’s see what my readers thought:

Balancing the Budget

Pamela’s take on running a business requires a balanced budget – in other words, only spending money you have. She makes a great point – more and more businesses are having trouble borrowing money these days, “yet the government prints money like nothing, getting us deeper and deeper into debt.”

In fact, the financial consideration of a business are of primary importance – if a business runs out of money, it fails. If the government runs out of money, it borrows…indefinitely.

Many, if not all state budgets in the U.S. are required to operate on balanced budgets every year. So why is the federal government different?

Business Efficiency

Pamela also brought up another great point – when the recession came knocking, businesses became leaner and cleaner. People were laid off because that’s what was required to balance the books. Overhead was reduced, and elective spending (like company retreats and some continuing education) were discontinued.

Can you say that the government has done the same thing? Hardly – we are spending more now than ever, in the president’s hope that this “investment” of debt will pay off in the end. Is it right for us to leave this burden for future generations to repay?

Incentives

The issue of incentives was one of the most intriguing conversations that started in the comments. Manshu pointed out that private businesses have incentives that are aligned with the objectives of the shareholders.

Although we can compare the electorate to a company’s shareholders, and the power of the vote is our exercise of choice, can we really say that politicians have our best interests aligned with their incentives?

Manshu doesn’t think so – “politicians and bureaucrats have incentives…influenced by lobbyists and personal fiefdom ambitions…” Not a bad point – not only that, but voting only occurs every 4 years, and most people don’t have the time to analyze every decision their representatives have made (and only sometimes do they consider even their basic beliefs and principles).

Jesse takes a different perspective on the same issue – “government runs like a business that tries too hard to please the stockholders regardless of their views or business knowledge…” Therefore, even while understanding some of the long-term ramifications of their actions are harmful to economic prosperity, politicians would rather get re-elected than care.

Do you blame them? From that perspective, their incentive is getting back into Washington, while they can always blame government failure on “everyone else that voted” for something, or other external forces beyond their control, like the “bad economy.” That makes it hard to keep anyone accountable.

Solutions?

Atlas from My Money Shrugged reinforces the point – the politician’s “self-interest is to become reelected.” What would he do? Cut payrolls, cut and downsize departments, and stop charging the customers (i.e. tax payers) large amounts of money for services than could be run on less.

Regardless of which side of the bigger government-smaller government debate you fall on, can you really say that government is efficient?

In my own field of business, I have to deal with government entities to approve building plans before construction begins. We have seen with our own eyes what the recession has done to the agencies that deal with us – reviewers are getting more picky and are taking their time to process paperwork.

Once again, the motivation behind this is incentives – why would they want to hurry up and approve everything? It’s in their best interest, and in the interest of keeping their jobs alive, to stall and create more work for themselves.

Is this what you call efficiency and the best interest of the public? Hardly.

Can We Win?

There is no right answer to this one, folks. Our over-simplified analysis to what may or may not happen if we ran government like a business is out of touch with the realities of politics and change.

Washington would be hard-pressed to change its ways unless most of the people in this country demanded it. Even then, the realities of implementing a new way of thinking and working are hard to face.

But we can speculate all day long, and consider the theoretical efficiency government could take on.

Do you have other thoughts? Do you completely disagree? Keep the conversation going and share your thoughts in the comments.

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