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Funny How Governments Aren’t Much More Like Businesses Than They Are Like Households…

October 24th, 2012 · 7 Comments

People must really be attached to their analogies, since they seem to be pretty desperate to make a government seem like basically anything that’s not a government. First there were the conversations about how the government needs to think like a household (obviously, since the average household is doing so well nowadays and never makes poor choices), and now, presumably because of Mitt Romney and some of the other contenders for the Republican presidential nomination, we have talk about how private-sector management experience is so helpful because the principles that lead to success in business will also lead to success in government. (Personally, I am still waiting for someone to explain to me how government is like a pizza or a leaky balloon or something.)

Unfortunately, the government as business analogy breaks down pretty quickly, if for no other reason than, if government were to operate primarily using for-profit business principles, there would be little reason for government to exist as a separate entity. (We have plenty of “one dollar, one vote” in shareholder meetings, so a “one person, one vote” system is a nice counterbalance.) You can read more on the issue here:

Legally speaking, the fiduciary duty of a corporate board of directors (and, by extension, the corporation) is to maximize profit for shareholders. Sometimes the well-being of “stakeholders” — i.e. all entities who are affected by a company, including but not limited to shareholders, employees, customers, downstream neighbors, etc. — comes up in conversation, but usually only to assess what impact stakeholder satisfaction has on shareholder value rather than as a goal in and of itself. If one were to apply this principle to government, then the government’s fiduciary duty would be to maximize the well-being of its “investors,” with the importance of each investor measured by how many shares he owns. Investors, in a government sense, are taxpayers, so applying this business principle to governance would mean that the often-mentioned 47 percent of people who don’t pay federal income tax factor very little into the government’s “profit” calculation (and not at all if they don’t pay payroll taxes and such), and rich guys who pay a lot in taxes would dominate the government’s priorities. (Sound familiar?) If you believe that the government’s mandate is to think about societal well-being in a democratic “one person, one vote” sense rather than in a “one dollar, one vote” one, you should not want this business principle to be applied.

If you read the linked article, you probably noticed the unfortunate choice of headline (though not as egregious as the “Let Detroit Go Bankrupt” headline that was slapped on Mitt Romney’s op-ed by the New York Times). I can certainly see various types of private-sector experience being helpful in the public sphere, but that doesn’t mean that it’s a good idea to run a government as one would run a business. The issue, however, got me thinking about what sorts of people (outside of the obvious lawyers and such) would be helpful to an efficient government, and my thought process keeps leading me to operations consultants. As such, I will be starting an Al Roth for President campaign tomorrow.

Tags: Policy

7 responses so far ↓

  • 1 Links for 10-24-2012 | The Penn Ave Post // Oct 24, 2012 at 3:28 am

    […] Myth of the Exploding Safety Net – CBPP Rejection Improves Your Papers? – Cheap Talk Governments Aren’t Like Businesses – Jodi Beggs […]

  • 2 trivcap // Oct 24, 2012 at 5:22 am

    The line about it being a corporation’s fiduciary to maximize profit for shareholders is one that is oft repeated. sometimes an alternative is used: “a corp’s statutory duty is to max profit…”

    Is this actually stated in any statute or in common law? Some time ago a read a piece by an attorney who stated nowhere is it written that a corporation’s fid/stat duty is to max profit, or at least that such duty is only one among many and it isnt necessarily the primary duty.

  • 3 Don Levit // Oct 24, 2012 at 11:49 am

    I agree with the author that the government is not a for-profit entity.
    That being said, it is not either a for-loss entity.
    Rather, it is an entity for the general welfare of all Americans.
    While the benefits are for all citizens, rather than simply stockholders, the basic laws of economics and mathematics still hold true.
    The full faith and credit of the U.S. Government must be based on tangible evidence of its creditworthiness, in order to borrow money.
    Running continuous deficits, and “paying off” interest through increase in debt principal, shows very little creditworthiness. In fact, it seems to show an entity who cares not a whit about its credit or creditors.
    Don Levit

  • 4 Redwood Rhiadra // Oct 24, 2012 at 1:25 pm


    I believe it arises from case law from the large numbers of shareholder lawsuits starting in the ’80s (and continuing today – the directors at the company I work for just accepted a buyout offer, and immediately triggered *four* lawsuits claiming they were not maximizing the shareholder’s value, which will all have to be resolved before the sale takes place). Which cases depend on jurisdiction – these suits are usually in state courts in the state where the company is incorporated.

  • 5 Links for 10-24-2012 | FavStocks // Oct 27, 2012 at 4:28 am

    […] Governments Aren’t Like Businesses – Jodi Beggs […]

  • 6 Michael // Oct 31, 2012 at 1:20 pm

    We have examples of governments that operate like businesses — the DPRK, and the mafia.

  • 7 Michael // Oct 31, 2012 at 1:21 pm

    These are, needless to say, what conservatives think America should be like.

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