Should Government be Run Like a Business?

As I pointed out in my post a few years ago, one of the big questions discussed in the public sector, is should the government be run like a business? In addition, we have seen many examples of business people running for office suggesting that they can improve government by running it like a business.

For example, Donald Trump, a billionaire business tycoon is now the CEO of the United States of America. He has said his country should “run like a business.” But he’s far from alone in that belief. In Canada, Kevin O’Leary has said, before he backed out, he’d be a good prime minister because “You need someone who has run a business.”

Now, very few people would question that government should run some of their operations using a business approach and there are clearly some business practices, that when applied to government make a lot of sense. But when applying business practices like marketing, for example, they should be done in the context of a public-sector environment.

For example, at the Centre of Excellence for Public Sector Marketing (CEPSM) we pride ourselves in understanding the needs and constraints of the public sector and deliver marketing solutions that are strategic, innovative and practical to meet the unique needs and challenges of governments.

The issue of overlaying private sector solutions to the public sector has many challenges, however, if done right it can work. But those who want to bring business practices into government should have a full understanding and appreciation of how government functions.

It must be conceded that governments at all levels have provided too much ammunition for critics. They’ve been guilty of bonehead practices that seem to cry out for rigid, businesslike control. As an article in the Toronto Star points out the federal government rolls out a shiny new payroll system, and thousands of employees still aren’t getting the right amount of dollars in their paycheque, and some aren’t getting a paycheque at all. The Ontario government’s schemes for green energy seem to blow up as surely as a stick of dynamite in the hands of Wile E. Coyote.

But for every example of government incompetence, there’s also a business example.

Volkswagen programmed its engines to control emissions only when they were being tested in labs. Once those engines hit the road, they emitted 40 times more pollution. Not to be outdone, Fiat Chrysler installed engine software to disguise the fact that illegal amounts of nitrogen oxides were getting into the air. To be clear, this wasn’t accidental. In the words of the California Air Resources Board, “A major automaker made the business decision to skirt the rules.”

Takata put faulty airbags in millions of North American cars. Then it prepared falsified reports to cover it up. At least 16 people have been killed by those airbags exploding violently.

Of course, risking the health of its customers isn’t an uncommon business practice. Big Tobacco spent years denying that smoking caused cancer. Now it more often wraps its lethal work in the veneer of personal freedom. It argues that smoking cigarettes is simply something a grown-up should be allowed to do. Some businesses wouldn’t know a moral principle if it kicked them in the pants. Say what you like about government, but it doesn’t deliberately set out every day to provide people with the means to kill themselves.

John Harvey points out in Forbes, the idea that government should be run like a business is a popular one. But this betrays a basic misunderstanding of the roles of the private and public sector. We should no more want the government to be run like a business than a business to be run like the government.

Those popularizing this notion feel this way because they see business as more efficient. This must be the case, so the logic goes, or the entity in question would lose market share and go bankrupt. Only the fit survives. Meanwhile, government agencies face no backlash. This is why we have long lines to get driver’s licenses etc. Were there a choice on where to be licensed to drive, then such offices would be forced to make the customer’s experience a positive one or they would go elsewhere.

Mickey Edwards points out in the Atlantic, I have a problem with the continued promotion of business success as a qualifier for public office. Success in the market is not an automatic disqualifier for public service, but it is a far different undertaking with different purposes and different values.  In fact, business and government — while there may be skills involved that are translatable and useful as one moves from one sphere to another — are in some ways polar opposite undertakings.

The business of business is business and the goal of business is to earn a profit in the provision of goods and services. The business of government is service — well managed, one hopes, and not wasteful, but never at a profit. That said, there are occasions where government operates their services on a cost-recovery basis.  Business and government are not opposites, but they are distinct; the mindset is necessarily different; the understandings are different; the obligations are different.

Unlike private sector organizations − which have the distinct advantage of being able to offer services on the strength of market demand and profitability − government organizations have the mandate to serve and be accessible to all constituents. Governments cannot choose their customers. In fact, customers often have a right to access a service thereby creating an obligation for a government agency.  By comparison, any private sector business can analyze their markets and opt to target customers with specific characteristics or needs.  They can quickly retreat when confronted by poor performing results, undesirable segments, or onerous challenges.

In an article titled Running government like a business has been a dismal failure, Donald Savoie states that the notion that public administration could be made to look like private-sector management has been ill-conceived, misguided and costly to taxpayers. Management in the private sector has everything to do with the bottom line and market share. Administration in the public sector is a matter of opinion, debate and blame avoidance in a politically charged environment. It doesn’t much matter in the private sector if you get it wrong 40 percent of the time so long as you turn a handsome profit and increase market share. It doesn’t much matter in the public sector if you get it right 99 percent of the time, if you get 1 percent wrong it becomes a heated issue for a politician and the media

The government was intentionally designed to be inefficient. Our government is supposed to be slowed down by oversight, due process, and fair treatment of a vast array of constituencies that make up the public.

It’s also a myth that businesses typically operate in a lean and efficient manner, and therefore should be emulated in the public sector. Government and business are both operated by humans, with all their diverse motivations, interests and foibles. The most mind-numbingly inefficient and unresponsive bureaucracies some would argue are actually in the private sector, not the government. Most weren’t even failing businesses; they are just so big they didn’t particularly feel the need to be efficient or responsive to individual customers.

If you want to think of businesses scaled to the size of national governments, don’t think of nimble and innovative startups that are staffed by young people doing cool and highly lucrative things. Think of your phone company, or your cable/satellite company, or your insurance company, or large, corporate banks, all with uninspired customer service reps who couldn’t make quick and useful decisions for you if they wanted to. Is that what you want the government to emulate?

The long and short of it is quite simple, those who advocate that public-sector managers should operate like their private-sector counterparts without understanding the context of how political and administrative institutions function are clearly misinformed. There is no question that there are opportunities for government to adopt business practices from time to time, but the government is not a business and those who continually argue for government to act like a business are offering a misguided solution.

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