10/31/2012 12:08 pm ET Updated Dec 31, 2012

Romney's Cudgel: The Myth of Business Relevance

The success of Mitt Romney's presidential campaign rides largely on the myth that business experience provides a superior training ground for government, and business people consequently are better at governing than people from other walks of life. How many voters who have no faith in anything Romney says assert that they will vote for him because his business experience may help him lead the country out of the economic doldrums? This hope is dependent upon assiduously fostered misconceptions, broadly distributed within the population. Broadly stated, knowledge of how to manage organizations is useful in both business and government. Beyond that, the myth of business superiority depends upon a profound deficiency of understanding of the functions of business and government and, at the national level, a related tendency to conflate and confuse the budget and the economy.

First, consider the commonly-held but profoundly mistaken notion that government should be run "like a business." In fact government is nothing like a business and neither can nor should be run like one. A business, particularly a publicly-held corporation in our economy, has a very clear mission, often couched as a duty and legal imperative, to maximize profits. Certainly individuals within a corporation, even CEOs, may have other objectives, but the corporate mission, even as defined by laws governing corporate behavior, remains to maximize profits. That mission has generated a narrow ethic that tends to infect all of society and is now applied too frequently in both public and private spheres in the U.S.

Corporations, of course, have not just stockholders who are the presumed beneficiaries of profit, but customers. The fundamental role of customers is clear and limited. The relationship is a commercial one. The more customers pay, the more goods or services they get. For reasons that should be hard for anyone who hass ever purchased a used car to understand, the relationship between businesses and customers is held up as an admirable thing to be emulated whenever possible. Generations of public servants at all levels of government have been admonished to treat the people they serve "like customers." That is a very strange and fundamentally misguided admonition, for public servants (usually called "bureaucrats," in what has become an epithet) serve a much more important population.

Governments have a much broader, more important and less clearly defined mission than businesses, even large multinational corporations. They are supposed to maximize the public interest and/or public welfare -- both of which are hard to define and hard to obtain agreement upon. Governments have a relationship with citizens, who have both rights and responsibilities, elaborated in centuries of political philosophy and underlying the very foundation of the United States, far exceeding those of customers or consumers. Citizens have a social contract, both lifelong and hard to escape, with their governments. That contract contrasts sharply with the commercial relationship consumers have with businesses, which, ideally, can be fleeting and transferable to competing businesses. Proper governments should have a monopoly on the legitimate use of force on which, by the definition of "monopoly," businesses should not infringe. The very existence of a tolerable society (including the efficient operation of businesses) is dependent on the rule of law, which only governments can provide.

In strong contrast to the business-customer relationship, governments are often most needed to provide services to those who are least able to pay for them. Even when it is serving its affluent citizens, a government is typically providing services they could not provide so well for themselves. When governments provide more services to those willing and able to pay more for them, it is usually a case of corruption. Thus, the same relationship which is proper and expected between businesses and customers is corrupt and illegal between governments and citizens. Not incidentally, it is also corrupt when it exists between governments and corporations, whether the corporations are considered to be "persons" or not. One of our greatest contemporary problems is that, through a kind of indirect payment, corporations and fabulously wealthy individuals not only extract preferential government services but also control government policies by purchasing the election of politicians or providing lucrative jobs for government officials when they are not on a government payroll. The great danger is that the coercive power of the state will be exercised in the service of corporations. That may be called "corporatism," or less politely when it occurs in its most virulent form, "fascism." The possibility or the emerging reality of such a relationship is rightly a subject of much contemporary concern.

It should be obvious that government is much more difficult than business. Whereas the basic objective of business (profitability) is relatively clear and easy to measure, the objectives of government -- the public interest and public welfare -- are hard to even get agreement upon much less measure. While the consequences of business failure are unpleasant for those involved, businesses can and do fail all the time without consequences too dire for society as a whole. (We will not deal here with the exceptions -- those enterprises that are "too big to fail" precisely because the consequences of their failure are too dire for society to tolerate. Such enterprises exist if and when governments allow them.) The collapse of a government or its failure through total perversion of its rightful purposes, on the other hand, is a society-wide disaster.

A primary source of misconceptions about the relevance of business experience to government, especially national government, is confusion about and conflation of budgets and the economy. We would prevent a tremendous amount of confusion and many bad policy choices if more people kept in mind the distinction between an economy and a budget. Not just Mitt Romney, but a countless number of business people are convinced they could do better in handling our national economy than any of the officials responsible for running it at any given point in time, because, they note, they have balanced a budget within their businesses. It should be obvious as soon as you think about it, however, that balancing a budget is nothing like managing an economy. If a person skilled and experienced in managing a budget is so obtuse as to not recognize the difference, his or her experience can actually be detrimental. Business people are not inherently less perceptive or intelligent than other people, although it may be that less perceptive business people with an underdeveloped understanding of human limitations, specifically their own, are more prone to trumpet the relevance of their own experience to situations outside of it. However, human beings tend to reason by way of metaphors and analogy -- they strive to understand the unfamiliar by making analogies with the familiar. We all do this, but in some cases high familiarity with one system, process or phenomenon can lead us to rely on it too heavily, thus inhibiting understanding of a new one. That is too often the case among those who confuse budgets and the economy.

Reaching beyond his business experience, Mitt Romney trumpets his experience balancing the Massachusetts budget. Governors love to trot out this red herring. They, of course, are required by law to balance their states' operational budgets, which is the one they always talk about. The same mandate does not apply to their capital budgets, which run on borrowed, usually bond-supported, funds. Of course, it would cripple their states if they could not borrow capital funds. The bigger point, though, is that, although the actions of state and local governments may have serious economic consequences, these entities are not responsible for, and are incapable of, management of an economy in the sense that the federal government is responsible for the operation of the national economy. State and local governments have neither the fiscal and monetary resources nor the tools of the federal government. They are often in competition with each other for the businesses or resources that will affect their local economies and they are largely at the mercy of trends that affect the national economy. It follows that neither business executives nor state and local officials have experience which is entirely relevant and adequate to running a national economy.

Focusing on fundamental factors that affect the national economy and macroeconomics is counterintuitive for most people. Many national politicians seem to lack the slightest understanding of macro-economics, and even those whom we would normally believe must have an understanding keep reverting to language and explanations more appropriate to a mere budget, knowing that that will be the reference point of most of their audience. This tendency is visible in the current fixation on the deficit and the national debt and the inclination to ignore economic knowledge gained over the last 70 years and revert to austerity economics representing the state of understanding in the days of Calvin Coolidge. It is evident in the statements of those who want to reduce entitlement benefits to balance budgets, even though that would increase the inequality we have come to recognize as debilitating to our entire economy. Economists point out in vain that it is the interest on the debt rather than its raw size that puts a strain on the budget and that a time of high unemployment and low interest rates is a time for capital projects that can be financed with the low rates. "Conservative" politicians pretend that taxes on millionaires have economic effects equivalent to taxes on low and middle income people.

Mitt Romney either possesses all the misconceptions considered above or seeks to exploit them in whatever audience he addresses. Because he professes to believe whatever is convenient at the moment, it is probably fruitless to speculate about what he really believes. What he would have to act upon if he ever became president, however, includes the beliefs he has responded to in the past, and fostered and nurtured in the party and followers on whom he would have to depend. The consequences would be disastrous. Because they make such use of common and popular myths and seize whatever side of an issue seems most popular at the moment (seemingly without suffering any consequence for deceptions exposed), however, his campaign tactics have been dismayingly successful and may be imitated. Whether he wins or loses, we will have to guard against them far into the future.