Can Government Be Run Like A Business?

Wharton’s Peter Conti-Brown and Philip Joyce of the University of Maryland discuss the idea of government being run as a business.

Many political observers have argued for years that the federal government, with its multitrillion-dollar budget, should be run more like a business with the president acting as a de facto CEO. Enter President-elect Donald Trump, a candidate with no background in politics or public administration but decades of experience as a captain of industry. His upcoming term renews interest in the whole question. Peter Conti-Brown, a Wharton professor of legal studies in business ethics, and Philip Joyce, professor of public policy at the University of Maryland, consider the merits of his business experience as he steps into the White House. They made their comments on the Knowledge@Wharton show, part of Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

Government

An edited transcript of the conversation appears below.

Knowledge@Wharton: I’ll throw the hard question out there first. Can you run the government like a business?

Philip Joyce: Well, I don’t think you can just decide that if you were a successful business executive that all of the things that you did are necessarily transferable to the government sector. And I think if you attempt to run government precisely like a business, then you’re going to find yourself relatively frustrated.

Peter Conti-Brown: I agree. I think that the instinct to want to have market structures, incentive-based compensation, command-and-control approaches to government as we see in business can come from anyone who’s gone and spent too much time at the DMV. It’s like, “Oh, this is miserable. If this were privately run, this would be very different.” But virtually nothing about the architecture of government, in the United States or in other places, corresponds to that model. Your interactions with Congress, your interactions with the public, with foreign countries, the entire fiscal dynamic, budgetary dynamics differ widely between public sector and private sector. To anyone who simply says, “Oh, this is an easy problem to which there’s an easy solution — just hire a CEO,” has not grasped the nature of either problem or solution.

Knowledge@Wharton: So, does it need to be a mix? It feels like there are certain elements that you can take a business approach to, but it can’t be a 100%, all-in philosophy.

Joyce: Right. It’s interesting that Peter cites the DMV because the DMV in many places has been quite focused on trying to [improve] customer service. They’ve been trying to do things like, open at times when people are not working, as opposed to when they are working, and have people move more efficiently through systems.

I think that’s the kind of thing that may be amenable to some kind of private-sector techniques. Governments also do things that are similar in some cases. They run utility companies. In some states they sell liquor. All of those things we think could be amenable to practices from the private sector. But there are lots of things that governments do because private firms would not do them and because they would not find it profitable to do them. If I’m the postal service, it’s actually not profitable for me or efficient for me to deliver mail to far-flung places, but I have to do it anyway. A private firm would not do that or would figure out how to charge a price that would be sufficient to recoup their costs. Government as the provider of last resort has to do a lot of things that private firms either can’t or would not do.

Knowledge@Wharton: Government is looking out for the concerns and welfare of millions of citizens, whereas businesses are focused on the bottom line and being the best company financially that they could be.

Joyce: Right, and they should be. Businesses operate in the interest of the people who buy and sell things with them and the interests of their shareholders. But the shareholders of the United States government are all of the citizens, and we can’t simply decide that we want to ignore some of them.

“If you attempt to run government precisely like a business, then you’re going to find yourself relatively frustrated.” –Philip Joyce

Conti-Brown: That’s right. You can break this question into a lot of different pieces. One is philosophical concerns. There have been motivated debates about what government is or should be for centuries. On one hand, people would think [any government action is] coercion. On the other hand, it’s just the name that we give to the work that we do together. That’s a big philosophical, ideological difference. Another is just what is competence, what is successful management? The DMV examples, other kinds of examples, how do we motivate public employees? Can you do it in a way that is similar to motivations used by private firms? Do you have to have more public de-unionization in order to make that effective? Those kinds of debates, I think, are appropriately more in the weeds, more technical.

Anyone who viscerally resists the idea that you can use insights from organizational behavior, and private management, and apply them to government is also missing the mark. But the question is where are we going? At the big ideological level, to simply equate the provision of services and say that anytime it is done by the public sector it is going to be inefficient or corrupt is, again, too simple.

Joyce: I’m really glad that Peter raised this point. I think people conflate how well government operates with the question of whether they think government should do something or not. And the question of whether government should do something or not is basically a political question. The question that really we should be confronting is, once we have decided that government is going to do something, how can we set it up so that it does it most effectively? That’s completely separate from the question of whether you believe the government should be in the business of supporting the arts or subsidizing Amtrak or anything else, where there are perfectly reasonable debates on both sides about whether something is an appropriate role for government or not.

Conti-Brown: Philip’s point here is so key. Because of that conflation, what we have is a rerun of the existential debates anytime we have a discussion about competence and strategy. As a historian, I can say this is something that has just come up time and time again. The 1928 election, for example, was seen very much as an election of competence. It was a question about Herbert Hoover, who was seen as this great businessman, great bureaucrat from previous administrations in the private and public sector, who had delivered food and relieved the great famine after World War I. It was the rise of competence. Hoover, interestingly in 1960, helped to devise strategies about how to make government more efficient. We saw this was Al Gore’s pet project after the 1992 election as vice president.

The idea of trying to make government more streamlined by bringing insights from business is a very old one. But again, as Philip points out, because people fail to distinguish between those two questions, we just have the same relatively tired debates about whether government should be in a business at all, even though that’s not the question that’s there. No one is saying, “Take government out of the provision of Medicare, of health care completely.” But the debates about how the government should do it become a fight about that. And it can be very frustrating.

Knowledge@Wharton: In terms of changes in philosophy, what needs to occur? Going into this new administration, one of the key words that has been bandied about is deregulation.

Joyce: One of the things that we need to understand is that regulations exist for a reason. And those reasons have to do with implementing particular policies or laws that have been passed by Congress. To the question of whether we should have fewer regulations, we should go back to the question of what the regulations are there to accomplish. If, for example, we think we have too many environmental regulations, that goes back to laws that have been passed that led to those environmental regulations. It’s back to the point we were making earlier. If we want to have a debate about whether that’s a reasonable thing for government to do, that’s a reasonable debate to have. But once that we have decided government is going to do that, then it’s not a particular surprise that it results in regulations.

“People conflate how well government operates with the question of whether they think government should do something or not.” –Philip Joyce

Conti-Brown: Yes, there’s something about this deregulatory phenomenon that is so interesting in its rhetorical strategy. The field that I know best is financial regulation. Deregulation is rarely the elimination of regulation and much more often the replacement of regulation. So, a re-regulation. Often, that re-regulation is just oriented toward a different coalition.

It’s not quite as clean as this, but sometimes regulation that occurs is seen as more hostile to industry. A deregulatory movement is a re-regulatory orientation toward industry. But that’s a very important idea. It’s not seen as we want to eliminate regulation, we want to reduce regulation. That has rarely, if ever, occurred in our national history. It’s much more about rewriting regulations and moving them in a different place.

Those regulatory strategies can bring out the worst of business. Business isn’t simply about fierce competitors in the marketplace fighting for supremacy, and the best and brightest and most successful will win. Sometimes it’s about cozy relationships. Sometimes it’s about increasing barriers to entry for your competitors. Sometimes it’s about dirty tricks, savage ploys. And the problem is that government can function in a very similar way. There have been Nobel Prizes awarded for the basic economic insight that people in the marketplace will use government to their ends and will seek to capture from that mechanism in order to make their business interests more protected. Hence the world of the lobbyist and the extraordinary outlay of resources by industry in order to guide both regulatory and legislative processes.

There are a number of things at play there, but one of them is to understand that it is a rhetorical strategy to say, and Democrats and Republicans alike have done this, “We’re going to pull regulations back and liberate industry.” Very often what happens instead is that we’re going to change the orientation of regulation. Citizens should be very wary to note how that orientation change occurs, who benefits and who doesn’t.

Knowledge@Wharton: I read a statement recently that government, unlike business, has a harder time reshaping itself. Do you agree with that?

Joyce: Absolutely. There’s a famous political scientist, Aaron Wildavsky, who studied the federal budget process. His key insight was that the best predictor of next year’s budget is this year’s budget. What happens in government is that we have developed a consensus around a particular allocation of resources in a particular year. Absent some major event that changes that, you’re not going to see a huge shift from one year to another. All of those coalitions that grew up around whatever that consensus was last year, by and large, they’re still there. It’s very difficult to make changes. In fact, that goes back to our constitutional structure.

“Deregulation is rarely the elimination of regulation and much more often the replacement of regulation.” –Peter Conti-Brown

I like to remind my students that our system of government was not set up to promote change. It was not set up to promote good things happening. It was set up to prevent bad things from happening. This idea that we as a country are behind, which is the idea of checks and balances, the flip side of checks and balances is gridlock. People say gridlock when there’s a change that they wanted to see made and it wasn’t made. But they said checks and balances when the change is something that they don’t really agree with.

So, it is very difficult to get things done. There is a sort of common belief out there that because we have the machine of government now completely under the control of the Republican party, that means that they’re going to be able to get anything done they want to. And it’s not quite that simple.

Conti-Brown: I completely agree with Philip’s description of it. It’s question-begging, in a sense. Is this a good system? Many other governmental systems watching the U.S. constitutional structure — its tripartite division of power and a bicameral legislative basis with significant congressional and presidential skirmishes around a variety of different policies — have taken a close look and said, “That’s not for us,” and have opted instead for parliamentary systems where legislative and executive are much closer aligned.

The political science literature on this is not clear about which systems empirically are better. That’s hard to measure. Our sample size is relatively restricted and makes it difficult to make apples-to-apples comparisons. But those who would celebrate the U.S. Constitution, which is basically every politician ever, needs to take a step back and say, “Well, this checks and balances gridlock thing, it produces certain kinds of outcomes. Are those the best kinds of outcomes? And is an ultimate democratic check and balance of regular elections efficient to guide a national system towards different kinds of goals?” That’s a hard question to answer. I’m not saying that the constitutional system is a bad one or an inferior one; I’m just saying that’s a question that we shouldn’t take for granted when we’re celebrating the very unusual design of the U.S. government.

Joyce: It does go back to the precise question that we started with, which is the question of running government like a business. Let’s imagine that you’re somebody moving into a cabinet department to run it. You are going to be managing in the system we have. And the system we have is a system where there’s all this fragmentation of power, where it’s not a hierarchy, where you don’t have control over your budgetary resources or even knowledge of what your budgetary resources are.

The federal government is right now operating under a continuing resolution, which is a short-term appropriation that expires at the end of April. At the end of April, that will be seven months into the fiscal year. They have no idea what changes President-elect Trump and the Republican Congress are going to make to their budgets. Imagine a business executive that was trying to operate in an environment like that where there was not only uncertainty about what your resources were going to be next year or the year after, but not even any certainty about what the resources were that you were going to have in the fiscal year that you are currently in.

Knowledge@Wharton: But that’s something that most people getting into government have to realize. That’s the way it’s been forever and the way it’s going to be forever. Some of the core things about how government run are not going to change in our lifetimes.

Joyce: The lesson I would take from this is, rather than thinking that you’re going to bring people in from the private sector, and somehow because you’re bringing them in from the private sector, everything about the way the government operates is going to change, you should ask: What are the self-inflicted wounds about the operation of government right now that is preventing it from operating in an optimal fashion?

This is my own hobby horse because I’ve written about this. To me, when members of Congress decry the inefficiency of government, but only four times in the last 41 years have they been able to pass appropriation bills on time, I would suggest they look in the mirror before they start pointing to why it is that government agencies don’t operate efficiently.

Conti-Brown: When we talk about government as a singular, it’s important to remember the way that citizens perceive governmental failure is talking about a multitude of interactions on the municipal, state and federal level. If we’re talking about the federal level, it’s in a variety of different contexts. If you’re a Louisiana fisherman and the EPA has limited your ability to navigate wetlands or something like that, then your beef with government is going to be very specific. It might have something to do with legislation passed in 1970, right? Where there’s not discretion really being exercised. It’s very clear you’re in plain, straightforward violation of law in a way that is harming us all. It’s a way that when you’re angry at the government for limiting your freedom, what you’re actually seeing is you are polluting the watershed in a way that hurts the rest of us.

“The way that citizens perceive governmental failure is talking about a multitude of interactions on the municipal, state and federal level.”Peter Conti-Brown

But that anger feeds into the same person who’s saying, “I just spent five hours at the DMV and didn’t get done what I wanted,” to the same person who’s saying, “The government caused the financial crisis,” to the person who says, “What happened with the BP oil spill was a government failure.”

Conflating all those concerns, which is just what happens in a democratic process, we don’t have individual referenda on each individual policy. Thank God for that. But because we don’t, all of that gets swirled together in a common ideology when the problems have virtually nothing to do with each other and sometimes aren’t even problems. That makes it really hard to navigate.

Joyce: Let’s just look at the federal government for a second. If you were to add up the costs of Social Security, Medicare and the defense budget, you’re accounting at that point for two-thirds or more of the federal budget. Those are three things that are actually quite popular. Those are three things that citizens actually think the government should be doing and, by and large, think that the government does well.

So, we also can’t paint government with this sort of broad brush as if the citizenry is opposed to all things that government does or thinks that everything that government does are done badly, because there’s a lot of things that government does that have quite a bit of support from the citizens or where citizens think that government does it pretty well.

Knowledge@Wharton: If you’re correlating taxpayers to shareholders, how closely aligned are they?

Joyce: I am a small shareholder in a few corporations, and I don’t think I have much say at all because I’m not one of the big shareholders, right? We do not have a system of government where we make decisions based on some big town-hall meeting that we all have. We have representative government. The way that taxpayers are able to influence government is through their elected officials and through interest groups that influence their elected officials. The capacity for an individual taxpayer, unless they’re somebody who has a lot of clout and gives a lot of campaign contributions, is probably not all that great. But I would argue that an individual shareholder, unless they’re a major shareholder, probably doesn’t have that much influence either.

Conti-Brown: Right. I think that the shareholder/taxpayer parallel breaks down pretty quickly under scrutiny in part because of these kinds of issues that Philip is identifying. I’m also a shareholder in thousands of corporations, and the organization that represents my interest is a large shareholder, sometimes the largest, because I have index funds. So, Vanguard is representing my interest to these companies, and Vanguard doesn’t really represent those interests because they’re invested in everything, right? They’ll vote proxies, etc. But again, they’re looking at the market systemwide.

The better analogy perhaps might be voter as opposed to taxpayer. Taxpaying is a phenomenon, and the tax system is riddled with all kinds of exceptions, exemptions, loopholes, different maneuvers and that kind of thing. Tax policy has become social policy in an extraordinary extent. But for citizen voters, and sometimes even citizen nonvoters, the key there in influencing government is by capturing the public attention and then making our representatives within that government make your cause their own.

Article by Knowlege@Wharton