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.
This entry was posted on Monday, September 21st, 2009 at 12:13 pm and is filed under Mike Haubrich, Politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.