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Jodi Beggs

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Presidential Job Opening, Business Experience Not Required

Posted: 10/23/2012 9:20 am

Let me start by making one thing clear: I don't actually care who you vote for. If you want to vote for Mitt Romney because you believe that all the country's problems (including gun control) can be cured by women keeping their knees together and getting married, that's your prerogative. Similarly, if you want to vote for Obama because you're an investor in Solyndra (no, really), that's cool too. That said, I would really like it if you would consider an important principle in your decision-making process.

The question of whether management experience is useful to public office has been brought up many times in the last few months, and this debate leads naturally to one over whether a government should be run like a business. I'm here to show you that the answer to the latter question is a resounding no. I'm also here to explain that even a government run like a good business wouldn't necessarily operate as the businessmen propose.

Legally speaking, the fiduciary duty of a corporate board of directors (and, by extension, the corporation) is to maximize profit for shareholders. Sometimes the well-being of "stakeholders" -- i.e. all entities who are affected by a company, including but not limited to shareholders, employees, customers, downstream neighbors, etc. -- comes up in conversation, but usually only to assess what impact stakeholder satisfaction has on shareholder value rather than as a goal in and of itself. If one were to apply this principle to government, then the government's fiduciary duty would be to maximize the well-being of its "investors," with the importance of each investor measured by how many shares he owns. Investors, in a government sense, are taxpayers, so applying this business principle to governance would mean that the often-mentioned 47 percent of people who don't pay federal income tax factor very little into the government's "profit" calculation (and not at all if they don't pay payroll taxes and such), and rich guys who pay a lot in taxes would dominate the government's priorities. (Sound familiar?) If you believe that the government's mandate is to think about societal well-being in a democratic "one person, one vote" sense rather than in a "one dollar, one vote" one, you should not want this business principle to be applied.

Furthermore, one can examine a number of business trends over the past few decades and ask if these are patterns that we want to see replicated in the government sphere. First up is the explosion of CEO compensation, which has increased from 42 times the average blue-collar worker's pay in 1980 to 380 times the average pay in 2011. The consensus is that this disproportionate increase has been the result of CEOs having control over their boards of directors (a form of regulatory capture) and CEO compensation being determined in comparison to that of other CEOs (a form of arms race). In government, the CEOs and other managers are the president, members of congress, etc. (and I suppose this makes voters the board of directors). Is this a precedent we want to set for our so-called public servants?

Another trend of note is the growing wedge between worker productivity and wages. Until the early 1970's, productivity and hourly compensation for non-managerial workers grew at roughly the same rate. This can be thought of as workers getting a fair share of the returns to their increased productivity (eg. you make twice as much stuff per hour, you get paid twice as much). After this point, however, the growth in productivity continued while wages remained stagnant (when adjusting for inflation). Instead of going to the workers themselves, the returns to the increased productivity of workers went to managers and shareholders. Perhaps this is a perfectly natural and acceptable outcome for a collection of for-profit businesses, but the government has a responsibility to include not only efficiency (i.e. profits) but also equity (i.e. fairness) in its objective function. It's hard to look at the data and conclude that this outcome passes the equity sniff test, so it probably shouldn't be used as a model for maximizing societal well-being.

Hopefully I've at least gotten you thinking that perhaps running a government like a business isn't the best idea ever. That said, I don't mean to imply that government can't learn anything from the private sector -- many economists believe that competition for resources is an important factor in efficiency and quality innovations, for example -- but expertise in operating a for-profit business model with a clear profit obligation to a limited subset of people is not directly transferable to understanding the need to balance desires for not only efficiency but also fairness across a wide variety of citizens.

Even if applying a business model to government were a decent idea, it's not the case that such a government would undertake the strategy that many business leaders are currently espousing. For example, a smart business would manage for long-term profit and sustainability rather than for short-term gain. Such a business would (hopefully) understand that both positive and negative economic swings happen and would take action to mitigate the effects of these swings. One such action might be to retain some profits from good times in order to weather bad times without having to lay off workers (and thus lose institutional knowledge) who are going to again be needed when the economy recovers. In fact, firms that overhire during good times and, well, overfire during bad times are usually not seen as stable and value maximizing, so why should this be a model for government?

If we were smart, we would respect the insight that the for-profit sector brings to the table but also understand the myriad ways that running a successful government is very different from managing a profitable corporation. Or, you know, we could take the businessmen's advice and break up the United States into smaller pieces (it's pretty much already done for us) and offshore it to China or something. It's your call.

 

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