Can The Government Run a Business?
With the recent government takover of so many parts of the United States economy, I continue to be asked if I think the government can effectively run these private-sector businesses. Despite all of the political arguments for or against, it appears that the Obama administration is going to continue forward in managing private businesses in every possible regulated industry or soon to be regulated industry.
With history as a guide, there are several reasons why the government has not been successful in managing operations of a private business enterprise (see "Why Government Can't Run a Business, John Steele Gordon, WSJ, May 20, 2009).
First, the government of the United States was created to be an inefficient management model. The checks and balances of the branches of government were designed to create inefficiencies that would contribute to stability of government. The theory, as our founding fathers posited, was that change would happen slowly and only by the voice of the people. For example, as the government becomes involved in private enterprise, simple question of compensation and bonuses requires hearings in congress, long legislative sessions, approval of the executive branch and years of review through the judicial system. Can you imagine Walmart making management hiring and compensation decisions by going through this process for each member of the management team?
Second, the government uses taxes rather than investor funds. Because the government uses taxpayer money, they are not held to investor standards are required of the private business comunity. For example, if Fannie Mae fails, the politicians can claim that tremendous public good was created by allowing people--who otherwise would not be able to afford homes--to afford a home. A private enterprise that fails in the same way, would see its senior management team in handcuffs for failure to disclose financial status.
Third, the government is regulated by the government. Outside of the partnership between the executive, legislative and judicial branches, the government is not regulated by anyone. The government creates its own monopoly, after all, it is a governmental monopoly, and has the power to eliminate competition. For example, a government entity, in competition wtih private enterprise, can simply lower prices by subsidy, without lowering costs, and provide real financial incentives for the government enterprise to be the only logical provider available.
Ultimately, the government is run by politicians, not businessmen. Businessmen are judged based on their performance in earning a profit for all stakeholders. Politicians are judged based on their ability to please the constituencies that support them in the hope of re-election. It is a rare occurance that these two objectives align. Despite all of the recent political rhetoric, these two objective could not be further apart than they are right now.
I must say that I am somewhat surprised at the public support for government-managed companies and that the private sector has been unable to garner support for less government intervention. Perhaps we, as a county, have a short memory. It appears that we may have to learn this lesson...again.
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