Government Should Run Like a Business?

Oh, God, No!

“Government should have to be run like a business.  They should have to set a budget and stay within it.  They shouldn’t be borrowing money and raising taxes.  When government runs out of money, they should just cut their spending across the board!”

Whenever I hear people say such things, I shudder.  I work with businesses and their finances and have come to the conclusion that government runs far better than business.  I work with business lending and checking, taking phone calls when business customers need funds transferred, want overdraft fees reversed, make credit payments, complain that they have overdrafts and swear that the banks are just a bunch of crooks.

Here’s a dirty little secret.  Most businesses that I deal with, which are generally small businesses, aren’t run well financially.  Moreover, many of these businesses blame their bank for their financial problems.  I am often amazed at the number of people who start and run businesses but don’t know how to avoid overdrafts, how to best take advantage of the services that banks offer nor how to manage the flow between their credit line and their cash accounts.  They know how to sell and perform their services, but there is a reason that most small businesses fail.

When a customer calls up demanding the reversal of some overdraft fees (because our bank was a recipient of $25 billion in TARP money and we should just be throwing money at our customers because of it), one of the first things I will do is to look at their overdraft history.  I am often amazed to see customers who have had  more than 100 overdrafts or NSFs over the prior  year.  The cost to a small business is enormous, considering that the penalty is $35 per item.  One hundred overdrafts cost the business $3,500, which is an unnecessary expense that definitely could be used elsewhere.

But these are not the only ways that businesses mismanage their funds.  I was talking to a customer the other day who had used her business check card to make a check card purchase for materials from a company in Canada.  Her complaint was that the exchange rate was not what the vendor had quoted her, and the purchase cost $200.00 more than she had budgeted.  Further, Visa charges a 3% currency conversion fee, so the business lost $178.00 and the materials they purchased ended up costing $378.00 more than they had anticipated.  A mistake like this can wipe out the resale profit completely.  I attempted four times to explain to her how the exchange rate that her vendor quoted her was different than the rate charged by Visa, but she wasn’t getting it.  She was convinced that the seller had cheated her.

My company offers services that can be used by customers to wire money to foreign recipients with a small flat fee.  She wasn’t interested in hearing the options and decided against professional advice to go back to mailing checks, which take extra time for her vendors to process (and for which the vendors pay foreign-check processing fees.) It was more important for her to revert to what she considered a “safe” way of handling the issue than taking advantage of a process which would save time and money.  We have a large number of customers who manage their banking the old way, the way in which they find comfort.

I am always surprised when businesses take time to call us for their balances and most recent transactions rather than take advantage of free serviecs such as online banking.   When I suggest online banking and the time saving benefits alone, I have many people who just say, “I don’t trust computers or the internet,” completely cutting off this avenue.

There are many things that businesses do to waste time and money, and they make rash decisions with no deliberation.  Too many just spend, without a budgeting process.  I can see it in their transaction histories and the ways that they use their check cards.  No, I don’t think that government should be run like a business for that reason alone.  Businesses are just people, and there is nothing magical about the way that they are run.

The main reason that a government shouldn’t be run like a business is the profit motive.  There is a key point here that the “government should be run like a business” people miss.  The goal of government is decidedly not profit. The purpose of government is to provide services, which includes maintaining a semblance of societal order, providing essential services and, yes, even aiding commerce. But the government itself shouldn’t be looked at as a profitable enterprise because of the decisions that need to me made.  There is no profit in stop signs or traffic lights.  There is no profit in public education that can be measured on a financial statement.  There is no profit even in the government’s conduct of war (except in the cases of corruption, of course.)

Organizations whose goal is profit make decisions through a far different process than entities that don’t, and it is best that way.  As a property-tax payer, I can go to an opening meeting of the local city council and voice my opinion.   Even if I weren’t a property-tax payer, I could do so, because budget meetings for the government entities are open-door proceedings and have time allotted for public comment.  I couldn’t do that at a Medtronics board meeting. I have no influence over the way that Medtronics sets its budget or conducts its business, even if the decisions that they make effect me in some ways.

This is not to say that government is perfect compared to business.  Government has its faults, including one aspect of purchasing that bugs the shit out of me.  That is the concept of “buying up” near the end of the budget cycle so that the budget for a particular department isn’t reduced for the following year.  You’ve heard stories of department managers buying tons of toilet paper that never get used, justifying such decisions because, “If we don’t use the money for this year, we will lose it for next year.”  I know someone who works for MnDOT whose department, he told me, does this every year.  I asked him “If you do this every year, aren’t you just wasting money in order to protect your budget,  which makes such purchases unnecessary for MnDOT’s mission?  He looked at me like I was an alien, and said, “You just have to do it.”

Well, no, you don’t.

I think that government should be run more like government, with oversight and open elections.  Government should be run to serve the people rather than profit from them.  After all, government is the people.  Government is us.

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10 Responses to “Government Should Run Like a Business?”

  1. September 21st, 2009 at 10:57 pm

    Dan J says:

    Government is already run way too much like a business. Heck, I live in Illinois, where public office is treated as a business enterprise. You want corruption at the highest levels? Look no further than government entities that are run like businesses.

    Government shouldn’t profit from the people. Government should provide the profit we derive from our good citizenship.

    Re: “buying up” at the end of the fiscal year. Yeah, that’s always bugged me too. Having funds left over from the allocated annual budget means you didn’t need that much money. Ensuring that you will not get a budget cut (after adjusting for inflation)means you will get money next year that you again do not need. There really needs to be oversight on that sort of thing at all levels of government.

  2. September 21st, 2009 at 11:13 pm

    Mike Haubrich says:

    I am writing, of course in the ideal. Government has been a great place for corruption, but then again so is business. Whoo – some of the the expenses I have seen people write off as business expenses!

    I’ve done it, too. A bar and grille is a great way to get a tax deduction for getting drunk.

  3. September 22nd, 2009 at 3:18 am

    Michael says:

    In Sydney, public bus drivers are terrible and I often say that if they were from a private company it would be out of business immediately. The analogy isn’t perfect but I don’t think it needs to be thrown out altogether. Governments have a lot to learn from successful businesses in terms of trying to achieve the best outcome for the available resources. Of course the focus of business is profit but there’s no reason government can’t be run in the same way just with different end goals (ie. voter satisfaction, access to services, protection of rights etc). The big problem is that these end goals are more wishy-washy and harder to measure, which lets governments not be accountable to voters (or constitutions etc) since they are not operating on any defined goals.

    There are many problems with the analogy like the ones you mentioned, but I don’t think everyone who mentions it is talking about those things: when I mention it I refer to efficiency for the correct (ie. worthy) goal.

  4. September 22nd, 2009 at 6:28 am

    Mike Haubrich says:

    Yes, government does need to be accountable, and in issues like service I think that it should be treated like a customer service entity. The context I used relates to people referring to the budgetary process. Small businesses, especially the ones in my examples, pay less heed to the financial implications of what they do than government does.

  5. September 22nd, 2009 at 7:17 am

    Greg Laden says:

    Michael: This is where outsourcing can work.

    A private company supplying the bus service would drop low-use routes which may be not what ultimately should happen. The profit motive will ruin the bus service.

    The government in a place like Australia where everyone is even more cynical than the US will have a bus service with drivers with no sense of shame or work ethic, and that will ruin it for everyone.

    BUT … the government can design a service route system that does not drop low use or other important routes and is not designed around the pure profit motive. They can then outsource this set of routes to a handful of private companies, not renewing contracts with companies that screw up in any of several ways, and giving preference to low (but not necessarily lowish) bid companies.

  6. September 22nd, 2009 at 9:22 am

    Peter says:

    My first question to anyone who makes the ‘government should be run like a business’ claim is to ask them exactly who do they think are their shareholders, and who do they think are their customers…

  7. September 22nd, 2009 at 7:49 pm

    Mike Haubrich says:

    I think some people would say it’s the wealthy, Peter.

  8. September 23rd, 2009 at 5:49 am

    MadScientist says:

    One problem is that all departments complain about too little funding (gee, go into private business and see if that’s any better), so they’re quite keen to game the system to maintain the illusion that they’re getting as much funding as they can, even if they essentially waste it at the end of the year. I used to beg for that sort of money to support research projects and I’ve known quite a few others who did the same, so not all money is wasted – it depends on whether or not someone high up can see a worthwhile project to put the money into.

  9. September 23rd, 2009 at 6:23 am

    a daughter's mother says:

    Back when I was on the city council of a very small city, we had a member who kept telling us we should run the city like a business. She was partly right and partly wrong. Where she was right was in pushing us to become more professional in our financial decisions – making deposits in a timely manner to earn interest, shopping banks for better interest rates and better services, making reports more clear, etc.
    Where she was wrong was in thinking the city budget had to grow by a certain percent every year, in some version of a “grow or die” business model. The budget increased anyway, inflation being what it is, and that being a time of building and expansion, but cities don’t shrivel up and die if they spend the same or less, as most are finding out right now. They may offer fewer services, but it’s still the only government in town. Your citizens can’t go elsewhere for water & sewer, police & fire protection, or building permits.

  10. September 23rd, 2009 at 9:39 am

    Peter says:

    Yes, mike, some would… But which some?… Usually the sell is made by convincing the taxpayer that they are the shareholder, not the customer. While money is collected from campaign donors with the same argument… The flaw in the government-as-business analogy is that generally speaking, in government, the shareholders and consumers are the same people. So if you ask a potential politician who makes this claim this question, almost any answer they give is likely to make their base somewhat unhappy…

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