Government as a Business- Schnurer Part Two

Eric Schnurer has posted the second installment of his series on government, with a focus on governments “competing like business.” I talked about Schnurer’s first piece on this blog last week. Let us look at the new installment

Schnurer starts by making clear that he does not believe that government can “be run like a business.” He points to some of the reasons for that.

It’s pretty clear that governments do not actually operate like businesses for a vast number of reasons:

The employees, for the most part, cannot be fired, and thus have little reason to hit performance metrics, let alone respond to the views of management.

The politicians ostensibly overseeing all this are guided by a complex set of conflicting motives and incentives and have little reason to work together or move in the same direction. These managers and executives are in turn guided by the demands of shareholders, investors, and consumers who themselves have contradictory and often ill-defined expectations for the organization.

Most of this results from the fact that governments aren’t guided by the same profit motive as private-sector businesses. That isn’t necessarily bad in itself — in fact, a lot of what we expect and want governments to do is precisely those activities that are not profitable (or, at least, where profit cannot easily be captured). But the lack of a single, clear metric makes managing government, and assessing how the whole enterprise is doing, a lot more difficult.

The author is correct, in my view, when he says that government cannot be run like a business. His reasoning, outlined above, is pretty hard to refute. Maybe they are the three iron laws of government. I will get to the second point more specifically later, as it is the one that has to be the most infuriating, but maybe the one that is least subject to change. As I mentioned in the prior post the fact that government is not a business does not mean you cannot apply sound business principles to government, and that is where Eric Schnurer takes this post. He looks to get away from the idea that sound business principles might only reflect relentless cost cutting, and moves to the concept that there is some space for government to innovate, even when that innovation produces a “higher cost” product. Schnurer gives some real world examples in his post, including Delaware becoming a financial center, a business improvement district in Philadelphia, and the potential for peak hour tolling plans that may contribute to reduced road congestion.

On the issue of the type of model for government that is preferable Schnurer makes the very valid comparison between the so called “cost cutting” model, which infers lower taxes and fewer services, to innovation models that manage to find new ways to create revenues, including some that have folks that live outside the entity paying some of the freight (Delaware tolling is a good example). He lays out what he sees as the problem:

Competing on cost relies on commoditization, low investment, low democratization, highly concentrated gains, and highly externalized costs (such as labor or environmental exploitation). Third World countries and their governments will be those that, like their private-sector counterparts, continue to be resource-dependent commodity producers with low margins, producing better-than-subsistence benefit only for a few who live off the many, placing little value on innovation and ingenuity — and thus on people and their participation. The United States could (like, say, many firms in the apparel industry, or countries whose economies are based largely on resource extraction) choose that as a competitive strategy. But is that really the vision of the future we prefer?

Schnurer, of course, is decrying that “race to the bottom.” I do agree that, as laid out here, Schnurer makes a strong argument. My own experience, in local government, shows me that the distinction is not always the black and white choices laid out by Mr. Schnurer. Efficiency, and reform, does not of course mean that government is necessarily racing to the bottom, but it does lead to the inevitable political conflict. A good example of this might be in the so called “shared services” model, which indeed does cuts costs, but in the cases where it is done properly will actually produce better services for citizens. In a prior post we looked at some of those potentials laid out in a study done by the Boston Federal Reserve. Governing Magazine, in a post on “shared services“, looks at some of the drawbacks and many of the positives.

So it isn’t hard to understand why most of these jurisdiction-consolidation proposals languish on the vine of legislative consideration. Yet the potential for savings is so important that it should not be allowed to slip away. The alternative with real potential for achieving service efficiencies is no secret: inter-local agreements, purchasing pools, sharing of specialized personnel and equipment, and in some cases either multi-county special districts or state assumption of services.

I realize that maybe I am now the one rolling off the rails by moving to something that probably is not even a source of disagreement, but I feel the point is an important one. As far as that second point made by Schnurer on the “conflicting motivations” of politicians referenced above it is undeniably correct, but from my perspective it is a real problem. Why? Despite my having run for political office it is hard not to be frustrated by decisions based on knowingly false assumptions and numbers in the attempt to achieve a political goal. Even in local government (or maybe especially in local government) reform based on “sound business practices” is met, in many cases, with tremendous push-back. Now I have totally derailed. I look forward to the next installment in the fine series in “The Atlantic” by Eric Schnurer, and hope to have him on my radio show in the very near future.

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