Is it possible that the government is managed "as if it were a company"?

12/04/2017


With the sharp fall in the prestige of politicians (sooner than never!) And the rise of leaders who have had a successful passage through private enterprise, it has become a commonplace to say that the electorate, tired of professional politicians, now is wanting successful people with proven administrative experience and capable of "imposing efficiency on government management."

The basic idea is that by putting an experienced manager in the running of the state machine, government can be "better managed."

The enthusiasts of the idea even say that under the command of an experienced entrepreneur, the government could be managed "as if it were a company."

Likewise, it is not uncommon to hear several professional politicians promising the same thing: if elected, they will manage the government "as if it were a company."

But this undermines the more basic logic of the functioning of both government and business. A government can not be managed "as if it were a company" because governments and corporations are intrinsically different, not to say opposites.

The functioning of government

A government is a huge organization with millions of employees and hundreds of divisions, such as state, ministries, secretariats, regulatory agencies, municipalities, commissions, etc. (In Brazil, only the federal government commands 148 state companies, not counting the other 119 companies that have BNDES participation).

The government has facilities and equipment to be purchased and replaced, teams to be assembled and directed, strategies to be formulated and executed, and payrolls to be fulfilled.

In this respect, it really resembles a company. But the similarities end there. Everything else is completely different.

To begin with, the government, by its very nature, does not operate with its own resources. Government is the only organization among all organizations that obtains its revenues not through the provision of services voluntarily acquired by consumers, but by means of taxation - that is, by coercion of citizens.

More: unlike private companies, government revenues do not depend on the quality of services provided.

Consequently, the government is not subject to consumer demands. There is no "consumer sovereignty" with regard to government. Your recipes are guaranteed. Therefore, with guaranteed revenues, the government is not subject to the profit and loss mechanisms of the market. The government does not have to worry about losses or risk of bankruptcy; your employees need serve no one but themselves.

By not being guided by the mechanism of profits and losses, nor by the price system, everything becomes a game of divination within the government bureaucracy.

For example, each ministry, agency, and secretariat have stated objectives. But how well are those goals being met? Is the Ministry of Education, for example, catering to its "consumers"? What about the Ministry of Health? And the Ministry of Justice? And the Ministry of Finance? And the Ministry of Fisheries? And every regulatory agency?

Are the bureaucrats responsible for each of these bodies worthy of praise or criticism? What constitutes "good performance" in each of these bodies?

As Ludwig von Mises explained in his book "Bureaucracy," these questions are fundamentally unanswerable. At best, they can only be estimated according to some subjective criterion, but they can not present the same precision of the estimates made in private companies, since government agencies do not sell their services in the competitive market. The "consumer" of government services does not choose between several suppliers, directing their money to that company that provides the best products at the best prices. On the contrary: with the government, the consumer compulsorily pays for everything, whether he likes it or not. So how to assess government performance? Mises said:

The objectives of public administration can not be measured in monetary terms and can not be measured by accounting methods. In public administration, there is no connection between revenue and expenditure. Public services are just spending money. The revenues derived from taxes and fees are not "produced" by the administrative apparatus; its source is the law and the performance of the Internal Revenue Service, not the quality of services rendered.

Given that within this government bureaucracy everything is a guessing game, you do not know exactly how much you should spend on what; you do not know if there is any rational goal in what you are doing; you do not know if this or that plan will succeed or fail completely; you do not know where to cut expenses if you have to do it; and you do not know which sections and which people are doing a good job and which ones are not.

The public sector is a sector that, inevitably, by pure economic logic, always works in the dark, without having the minimium idea on It does not operate according to the signs of prices issued by the market, and because it does not follow the logic of the profit and loss system, the government simply has no way of knowing what it is doing, and always having to pretend that it is doing everything right. evaluate and estimate the real economic value of anything you do. What the nation derives from government expenditures and services can not be assessed in monetary terms, however important and valued that "product" may be. This evaluation will depend exclusively on the criteria established by the government itself - that is, the personal and arbitrary decisions of politicians and bureaucrats. By all this, government investments can never be done in the right way, their services will never be rendered satisfactorily, and there will always be wastage of resources and blatant inefficiency. This is an unavoidable reality. It is not about ideology; it's pure economic science. By not having this rationality, the state bureaucracies always end up following the vagaries of the government of the moment, preoccupied exclusively to satisfy the demands of politicians who aim only at its self-promotion and its re-election. Consequently, state bureaucracies will always be under the auspices of a people whose time horizon is a maximum of four years, and will inevitably turn into factories of waste, inefficiency, confusion and resentment.Therefore, it is impossible for a government to play business. Venture means risking your own money on an investment. It means to receive revenues according to the quality of the services provided. Already bureaucrats and politicians have no real incentive to develop entrepreneurial skills, to actually adjust to consumer demands. They do not risk losing their own money in the venture. Moreover, apart from the question of incentives, even the most avid state administrators could not operate as if they were private entrepreneurs. The whole state operation works with tax money - therefore, through coercive taxation. The government, by its very nature, has already been born with this grave defect "rooted" in its vital organs, and no "good manager" entrepreneur can change it. In addition, the fact that any future expenses can be made using tax revenues makes the decisions of the administrators are subject to the same defects. The ease of getting money will inevitably distort operations. The operation of private companies. Private companies operating in a competitive environment are operating completely differently. To begin with, the company will only earn revenue and will continue to exist if it persuades consumers to voluntarily give it money continuously. And they will only be able to do so by offering quality goods and services at prices considered acceptable by consumers. Unlike government, they can not force people to simply give them more money if they need it. In order to get more money, they have to satisfy consumers even more. In addition, in the world of commerce, and unlike the state world , price signals issued by the market govern the decisions. The profit and loss system shows how scarce resources are being used. If correctly, consumers reward companies for big profits; if they erroneously, consumers punish them by imposing losses on them. An expansion or a cut in investments is something that will be guided by the balance sheet of the companies. It does not matter if the company is big or micro: it will always be in search of profitability. And profitability will always be ultimately determined by the voluntary decision of consumers. Private companies, unlike government, exist for only one supreme goal: to make a profit. The participation of employees, suppliers, investors and consumers in this arrangement is strictly voluntary. The company's capital is private property. Profits are earned and losses are avoided by producing goods and services that consumers want and are willing to buy. Under competition, you can measure the success or failure of a company in monetary terms: you just have to look at your bottom line and the market value of your assets, your stocks, and your net worth. All this is done "automatically" by the pricing system. A good manager generates profits for the owners of the company; a bad one generates damages. The specifics for each specific case are different and fascinating, but the overall model is clear, straightforward and consistent. Operational Differences In a large company, the pursuit of profit generates a combination of rules and freedom of action. Executives provide the general directions, establish systems and procedures, recruit managers and employees, resolve disputes and divergences, and focus on strategy In the meantime, they delegate a large measure of daily activities to their subordinates and their branches, which have more freedom of action. Even in government, this whole structure is bureaucratic and has no objectively measurable goals. The administrative actions carried out by bureaucrats do not have monetary value in the market. There is no price set freely for them. Its value can not be measured by means of a market transaction. Consequently, government administrative measures can not be expressed in terms of money. Management for profit and bureaucratic management requires completely different skills and uses completely opposite management principles. For example, under bureaucratic management, decision-making processes must be strictly hierarchical, with very little freedom of action for subordinates. And it has to be that way, how would you know if the actions of your subordinates will contribute to overall performance if you do not have the financial result to guide you? "Mises said that in the state bureaucracy" subordinate is personal. The subordinate depends on the judgment the superior will make of his personality, not his work. " And it made the following analysis on the operational difference between private branches and state agencies: It is not because of the meticulousness that administrative regulations determine how much each agency or state apparatus can spend on things like cleaning, repairing furniture and equipment, lighting and air-conditioning system. In a large private company, such things can be left, without hesitation, to the criteria of the local administrator. He will not spend more than he needs because he is using his own money in a way. If he wastes the company's money, he will jeopardize the profits of that branch and thus be indirectly damaging his own interests. On the other hand, the situation is different for the head of a state agency. By spending more money, it can improve the results of your department. The parsimony will have to be imposed on him by governmental control. And that almost never works. Conclusion Public administration students are already well aware of the problem of measuring public sector performance. There are already hundreds of academic monographs and books on the subject, which remains the subject of heated debate among scholars. However, whatever sophisticated methods researchers may devise to measure public sector performance - opinion surveys, secondary indicators, randomized controlled trials, computer simulations, etc. - the fact is that no method can circumvent that fundamental problem: the government and its organs do not sell their services in the competitive market for consumers who voluntarily choose to buy them, are not driven by the profit and loss system, and their revenues are not are earned according to the quality of their services. Even with an excellent CEO in charge, no government can be managed as a company. And honestly, we should not even want that. Imagine an extremely efficient government in collecting taxes and imposing draconian regulations? On the other hand, it would not hurt to have as CEO a CEO who specializes in asset sales, corporate share disposal, layoffs, liquidations and dissolutions.