Why Government Can't Be Run Like a Business

In a recent article on PolicyMic, pundit Masuma Ahuja asked why more business people don't leave Silicon Valley for the road to the White House. This begs the question: Can government be run like a business? It's the topic of many stump speeches, but is it even possible?

On a high level, running government like a business is a good principle. Government should be as efficient, accountable, and transparent as possible because taxpayer monies are at stake. However, the statement “government should be operated like a business” is a gross oversimplification, and it shows just how little politicians understand about how businesses actually work. On the contrary, inherent differences between government and business prevent government from operating like a business. 

The reason is not simply because businesses seek profits and governments don't, as Chris Miller recently argued on PolicyMic. Government may not seek profit, but it does seek power. It wants to jump through bureaucratic hoops and stop you from bad behaviors. The nature of bureaucracies is to grow in size and scope, and this is often more dangerous than maximizing profit. 

There are many differences between businesses and government that make it nearly impossible for the government to operate like a business, and significant reasons include the following:  

(1) Government is a monopoly; businesses operate in a market. 

Because businesses face more competitive pressure than government, they have an incentive to innovate their products, improve their services, drive down prices, become more efficient, etc. Government doesn’t experience this kind of competitive pressure because it is the sole provider of its services, so it does not have an incentive to do those things. Government can afford to deliver sub-par service because it prohibits other firms from entering the market. 

(2) The knowledge and incentives are different.

Individuals remain rationally ignorant about the waste in government because their share is small, and their time is better spent in other ways. On the other hand, business executives have a stronger incentive to be be informed of the waste in their organizations. 

(3) They make decisions differently. 

Leaders made decisions differently in businesses and in government. Decisions are made by consensus in a representational democracy like the United States. In a business, the power to make decisions tends to be more centralized. Decisions are made by a select number of individuals, by polling all of the employees. 

Participants also make decisions differently. In a market, individuals always get to decide what they pay for, whereas in a democracy, they have to go along with whatever the majority wants. 

(4) Taxes and retail prices are different. 

People are free to decide to patronize businesses voluntarily, but they are required by law to pay money to government. If a person thinks that a price of a good or service is too high, then she will choose not to pay. If a person thinks that taxes are too high, it doesn't matter; she is forced to keep paying them or get thrown in prison.

Furthermore, there is a limit to how much a person will pay for a product. The act of raising prices is not malicious. Companies incur costs that they have to cover, and they have customers whose willingnesses to pay is largely dependent on price. If a company raises its price too high, then individuals will stop voluntarily buying its product or service. This means that the company will not be able to cover its costs, and then it will go out of business.

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