Creative corner

    Too Big to Fail: Why Government as a Business Doesn't Work

    Much is being written about Jared Kushner leading another task force to make government run like a business, with the usual caveats about how it's likely to fail. Included are all the usual right and wrong reasons about government not being a business. But the lack of failure is the biggest point.

    American business is successful precisely because so many businesses fail, and are replaced by new trendy companies with just as much chance of failing. Amazon, one of our great recent "success" stories, didn't make a profit for years, and now 20 years later only pulls in profits of maybe 1% of revenues. Uber's much worse, with a 2016 loss of perhaps $3 billion. It's hard to imagine US voters putting up with such poor results. And those are the *good* examples.

    Though many businessfolk will tell you that a failed business was not necessarily a bad business. Misplanning cash flow despite strong sales can be disastrous. Changing trends and market acceptance can catch good products by surprise. Sudden crises can take related and unrelated businesses down.

    Nokia was flying high in the early 2000's, with more than 50% of the world's cell phone market, while the phone industry had invested heavily in the next generation of phone network called IMS. But Steve Jobs came along and made his money less on phones and more on content sales, while avoiding the expensive network improvements completely. (even security was largely an afterthought a few years later). Short story, Nokia was soon acquired by Microsoft (who failed miserably in the phone market despite some good models, even as it succeeded in enterprise software and gaming), and in a couple years Nokia vanished completely.

    PIcture this graph of employment in the

     Yes, that's a death plunge you're looking at, and it occurs in industry after industry. In a process called "creative destruction" we once averaged 400-500,000 new businesses a year with a typical 50,000 bankruptcies a quarter to leech the less survivable out of the system.

    Every decade or so we have a new foreign competitor that's praised as eating our lunch, buying up all our assets, killing the American Dream. It's been Japan, Saudi Arabia, China, sometime Russia, and those less visible German, French and British investors. And then our typical death spirals send the foreigners ducking for cover and we have a new round of rebuilding and attracting someone else to our shores.

    But imagine if that curve meant not just the next recession but the government itself - that it meant a China or Saudi Arabia would take ownership of America Inc to run it like *their* business. Yes, that would change our whole dynamic, especially our approach to risk, expenditures, cash flow, assets...

    But that won't happen. The US government goes into a spending freeze every September as the fiscal year approaches, and comes out of it in January or February. No competing company could function with this kind of restriction. While we talk about downsizing companies, government hiring is usually running counter-cyclical to take up the slack, lowering unwanted unemployment.

    If we think of what government invests in, it's actually failure itself. There is no profit margin in managing public lands; there's nothing to be made from handing out Medicare services; 2 year presidential campaigns are one of the least efficient ways to choose an executive board; and on and on. When government saves money, it's often cutting off its nose, such as those closed government offices Republicans are so proud of.

    Yes, we've tried some business-like efficiencies such as digitial medical records - a technical issue mixed with privacy nightmares that's made it a stock promise for every new administration for decades. If government made a profit, we might tie salaries and hiring to sales and delivery, but government services are mostly constraint driven, not goal oriented. If we could actually implement Death Panels, the GOP would cheer, but we only have mostly toothless advisory panels to try to tame a runaway tiger.

    But it won't get better even with more intent to business-ize government. First, businesspeople succeed at what they know, via specialization and lessons-learned, and the portfolio theory of corporate acquisitions failed miserably in the 70's-90's - just like trying to run diverse bureaus in the same way will disperse focus and resources and abilities. Second, business frequently runs on seeking advantage, not in resource efficiency but in control of your customers and larger exploitation & overworking of your workflorce - these are the secrets to corporate success much more than any marginal innovation over the competition. Since government jobs in general pay *less* than private sector, the tendency is to leverage longevity as a benefit, rather than squeezing more output from the turnip. Third, private sector efficiencies often don't translate to public sector services - from procurement to marketing to project management to sales force, on and on. Conflicts of interest, government competition with private sector and other factors combine to limit adoption.

    It's amazing that 40 years after the Chrysler bailout and less than 10 years after the 2008 crash with 2009 bailout, that we're praising the performance model of our corporate sector. And we can find good examples where short-term profiteering rather than long-term viability specifically led to vain and shortsighted decisions that sunk a large number of companies globally.

    What also appeared in that meltdown was a large amount of criminal behavior peddling toxic worthless assets, a large lack of scruples and moral values, a blatantly carnivorous environment of profit-taking, tax avoidance and overspeculative presumptious behavior based on unwarranted optimism about world conditions.

    You might say voters already took the step of trying to introduce this unsuccessful mix into government, and are now awaiting the unrealistic results. Well, "too big to fail" doesn't actually mean it can't fail, especially since with the US government, there's no one bigger to bail us out. It's simply a big warning sign like those 100,000 volt power lines overhead that only a fool would try to touch. But as we know, fools rush in where angels fear to tread, and just as Britain has swallowed a season's worth of false promises in its Brexit gambit, the US has embarked on an unplanned, largely seat-of-the-pants approach to decision making, hoping that a young questionable inheritor of real estate fortune can just wing it where more professional administrators have crashed into the rocks. Faith-based government - we tried that in the 20's with "the business of government is business", to disastrous results.

    So perhaps the caveat should be rephrased "Too Big to Fail Small". When the giant ferris wheel comes off its axle, the townsfolk are not amused.

    Comments

    Well depends on the point of the business. The point of most of Trump's businesses seems to be either to deliberately fail as part of a money laundering operation or to constitute fronts for invoice scams - selling condos at inflated prices to mafia henchmen - that are also soft-core money laundering operations. The closest thing to actual businesses he seems to have run were the ones like Trump University where he defrauded customers rather than the government or contractors. But he has never actually tried to run a business as a conventional business - making money by selling something that has value to the buyer. I don't think that notion of 'business' has ever entered his head. 

    The whole point of Kushner and Ivanka taking leading roles in the White House is to take this money-laundering business model up a notch. They aren't supposed to be able to run anything. They are just there to make sure money gets funnelled in the right places. That is the notion of "Government as Business" at work here. That is why they have decided they don't need scientists or policy experts or anyone with a clue how the wheels of government actually turn. Those wheels are irrelevant to the business model. They don't actually need to move for the model to work. It's a Potemkin government that the rest of the GOP will go along with as long as they believe they are in on the grift. 

    And of course you are wrong when you say it won't happen that China or Saudi Arabia take ownership of America Inc and run it like their business. It's already happening. As they invest in Trump "businesses" they win concessions on foreign policy. Cf. Trump's bizarre concession on the One-China policy and conceding East Asia as China's sphere of influence. 

     


    I think I referenced the criminality in lieu of business as a danger. (this link from OGD is amazing)

    I didn't say China or Russia *couldn't* take over - I just noted that we wouldn't accept a complete regime change every few years as acceptable or desirable, whereas in business a buyout or merger or collapse-and-replace are perfectly normal in the business world.

    So no, running government as a business isn't an acceptable model. Government is expected to be sustainable largely intact and unchanging for decades. Business is expected to be flexible and adapt to rapidly changing conditions.

    2 different models, levels of acceptable risk, desired outcomes, etc. Since business is supposed to be populated with all sorts of clever people, you'd think they should know this, but it keeps coming up without a lot of refutation.


    I worked in  massive organizations  and ran one. And also took a start up from one employee ( me) to several hundred. And concluded  Capitalism  produces efficiency , creativity  and dishonesty. And indifference to the needs of strangers.  

     Government does the opposite.

    Dishonesty is pervasive  in private corporations as to be expected. The rewards for success (one of which is simply not being  fired ) are so overwhelming  it would be irrational to expect anything else.

    Conversely one of Government ´s chief motivators is  the natural personal gratification from accomplishing any task. ( Which I  don´t disparage. We keep our houses tidy and mow our lawns because of that.) And the good feeling we get from knowing we are helping others.

    Sadly ,however ,another motivator  is the opportunity  to control others: force them to stand in line at the Post Office because that´s efficient  ....and because  we get satisfaction from telling  people what to do.

    My ¨take away ¨ rely as much as possible on private enterprise. And regulate the hell out of it..

     

     


    "rely as much as possible on private enterprise" - yes, defining that simple phrase "as much as possible" is hugely complex. Though take a stab - when is it good to use private, and to what extent/limits? similar for public.


    In reverse order.

    Health care should be public. I know that  Kenneth Arrow was once

     supposed to have written  the definitive analysis of that topic. I´ll have to take that as a given since I´ve read it without understanding. The nearest I can come is that the relative bargaining strengths of Big Medicine and Joan Consumer  are so unequal that this market behaves like an oligopoly. Have I told you of the  world wide price fixing session I attended once?

     I won´t .  

     

     What should be private? I was a businessman not an economist but clearly ¨should¨

    invites the response :  ¨according to whom¨ . And ¨according to what critera¨ and who gets

    to choose. The ¨Lord of the flies¨ comes to mind. Or maybe ¨The Lottery¨

    My knee jerk answer  is :¨Almost Everything¨ . But regulate the hell out of anything the electorate chooses..

    And make sure no one hacks the count. 

     


    A healthcare insurance company gains profit by making a family pay out of its own pocket for a funeral for a sick family member rather than the company paying for medical care. That is the Trump-Ryan healthcare plan. A company that does not have pay for filters and safe drainage to prevent pollution gains more profit. That is the Trump environmental plan. Government with a focus solely on profitable business practices is a disaster.


    Yes, that's one of the usual complaints.

    My point is simply that most businesses are designed to fail within a fairly short, finite period of time.

    This article gives the typical lifespan to bankruptcy or being acquired as 10 years. It notes that companies 20 years or older had a fairly consistent chance of both bankruptcy and acquisition in any year. The authors also note that very few of the businesses cease early on, leading them to speculate that they usually have funding and other measures lined up for adolescence.

    What this means as regards my thesis is simply that there's no real smart way to surviving as a business - it's a fairly consistent failure rate and almost no businesses make it past the long tail of that curve. So the idea that you might get the brightest together to run the US successfully as a business is likely sheer delusion - if you have smart people (or other factors like well-connected, diverse, industrious, God knows what else), you may place high in the survivors' circle, but you're still almost assuredly dying or being gobbled up in a relatively short time-frame whatever genius you pull out of your hat.

    And note that this is true for pretty much any industry starting at any point (though survival was easier coming out of WWII).

    And the reasons for that is likely that the particular kinds of competition and game theory and other threats & opportunities are pretty similar across the board. Government of course games the table to be risk-averse and assured of survival, especially in ability to raise funds by fiat, but also to regulate threats out of existence.

    Eastman-Kodak went out of business despite having invented the appropriate replacement technology that took the world by storm. "Congratulations, you are a certified genius. Now clear out your desk and grab your last paycheck on the way out." Yep, I remember when there was the question of Detroit just "simply" shutting down - which businesses do all the time. Anyone notice a subtle distinction between the two?

    So when people say they want to run government "like a business", ask them what they mean, to define it, as it doesn't even make much sense. Governments are akin to a business with most of the profit motive and fear driven out of them to start, which means it's not much of a business at all. Even "messaging", as opposed to marketing, is quite dissimilar. Can government be run more or less efficiently? Sure, and a few of those factors relate to private industry but a whole slough don't. And it's quite obvious they don't. So why does these idea keep coming up - both that business leaders are somehow more successful at survival - they aren't - and that those skill sets can apply to government - they largely can't.

    Combine that with private industry rapaciousness that both Obey and Flavius bring up, and we see a pretty weird masochistic trait - "hey, let's go play chicken with explosives taped to the front of our cars!!!" Uh sure, it can be done, and that's about the best that can be said for it. Al Gore did some interesting things with "reinventing government" (including the 2nd infusion for the internet), but that's quite a different approach.


    The business meme is part of how Reactionaries view government. Businesses are efficient and give profit to stockholders. Businesses create jobs. Government does not create jobs (Ivanka, Jared, Kellyanne, Omarosa, Sean, etc. are not workers). Taxes represent theft from the citizens of the United States. A businessman has no problem cutting off Meals on Wheels and sending Kermit and Elmo packing. Liberty comes from limited government. Reactionaries do not care that businesses can pollute your air and water or sell your information without your permission. Being a serf is a risk of the "freedom" you gain from less government. What is good for business is good for America. It is tradition.

    Edit to add:

    Scott Pruitt at the EPA overruled the scientific advise of his agency and allowed the continued use of a pesticide associated with brain damage in children. Corporate profits over public safety, A clear cut business decision.

    http://www.huffingtonpost.com/entry/scott-pruitt-pesticide-chlorpyrifos_...?


    Well, Soros is a businessman, Gates is a businessman, Ben & Jerry is a businessman, Elon Musk is a businessman, Nolan Bushnell is a businessman, Oprah Winfrey is a businesswoman, Beyoncé is a businesswoman, Arianna Huffington is a businesswoman, Woody Allen is a businessman, Michael Jordan is a businessman, etc etc. Business folks come in all shapes and sizes. The Republicans have tried to win the propaganda field of what a businessman is and how businessmen are naturally Republicans, but it's simply not true. Many businesspeople have concern about the environment, don't steal, pay their taxes, etc, and feel they are providing a needed public service, though most will guard conditions that keep their businesses growing - I.e. concern about government rules and regulations that go too far.


    Yes, this is correct. No doubt businesspeople come with certain management and/or entrepreneurial skills that can benefit almost any organization, government included.

    The key is for the businessperson to stay true to the goals of the non-profit or governmental organization. Financial sustainability is probably still a goal, but you might not want to save a buck by cutting out half the opera season or by allowing a lot of people to die because it's more efficient.

    The big argument in favor of the business model of running an organization is that you marshal the forces of greed and ambition to get people to do what you want them to do. You pay them, so you don't have to depend on their altruism, and you don't have to worry about their doing something else "on the side" to make a good living.

    Motivations other than greed and ambition, in this telling, are less reliable in getting people to act the way you want them to act.

    The big argument against the business model is that businesses are only good for accomplishing things that will turn a profit. Unless you can turn a profit doing X, a business model simply won't work. Business SKILLS can still be useful, but the business model won't work in that instance. It's like having a gun that, for whatever reason, will only kill birds. If you want to kill snakes and water buffalo, you need something else. The "business gun" simply won't do what you want it to do.

    Also, starting a business is no sure thing. Many businesses fail. There are a lot of reasons for this, but one is that not enough people are willing to pay for the product or service at a price that would allow the business to turn a profit or at least break even. You can try new approaches, e.g., new products, changes to the offer, but you can't force it. You can't take a gun that will only kill birds and demand that it kill snakes simply because it is so good and efficient at killing birds.

    With the government model, you at least get to pick your goals without respect to whether reaching those goals will turn a profit. To greatly simplify: If you want to do X, you can go for X. You have to convince a lot of people-- which, on the plus side, can mean a LOT of support for reaching your goal and not just the desires of a lone businessperson--which can be hard, as Trump is finding out.

    Because business is such a big deal in America, Americans have this constant thought that the government should be run by businesspeople. In fact, most of our best politicians have not been businesspeople.


    We complain about treating Trump supporters as deplorables, but treat business people as deplorables every day, especiall in finance ( acknowlegong 2008)


    I think that hurts the Dems alot. And it also hurts candidates like Bernie. There is a lot of visceral dislike of the traditional Dem. party platform, it is a dislike of a socialist attitude, i.e., FDR to LBJ not being conducive to modern times. That is what the DLC was all about, not so much about chasing lost Reagan Dem racist Southerners but lost votes about anti-capitalism.. DLC outreach worked, helped Bill Clinton get elected. Th "a rising tide lifts all boats" neo-liberal thing helps win business people and  a lot of swings. Obama's professorial seriousness about everything helped him some in this regard, I think a lot of this type thought about Obama like this: well, he's sympathetic to traditional liberalism, but he's smart enough to understand how our needs are important to the entire system.


    I think this needs to be parsed more finely, and I'm not sure I'm up to it.

    The closer you get to Bernie, the more you find people who treat businesspeople as pariahs.

    To some degree, this view has intensified with the financialization of the economy and the yawning inequality. In short hand, people see Wall Street as the culprit because they don't "produce anything" and because they make truly insane amounts of money. Also, boiling a business down to maximizing "shareholder value" does make workers even more expendable than they were before. The horizon is so close. Hillary spoke about this as a problem, and she was right. It goes along with anti-unionism, the discarding of defined benefit pensions, and good health plans. If we somehow--and maybe we can't--could get back to the way businesses used to be run, then the animus toward business people might subside a bit.

    My view is more that not every organization is a business. Therefore, it doesn't follow that businesspeople will be particularly good at running any old organization, especially the government. They may have skills that will apply and have an important role to play, but it doesn't follow that Mitt would've been a good president just because he made a lot of money.

    As to artappraiser's comments, I don't know what to say. Polling has been so whacky, it's hard to tell what the electorate thinks anymore. However, we are clearly experiencing a wave of populism, and Bernie had a surprising amount of support. People pound me on this point all the time on FB. "The Democratic establishment is dead, etc., etc." Not that I'm starting this conversation back up, but I'm genuinely unsure whether Bernie would've beaten Trump. Until recently, I felt strongly that he would not have--now, I'm [not - pp] so sure. I don't say this as a partisan, but as an attempt to gauge the public's sentiments.


    I was going to post this In The News, but here seems a great spot for it.  It is a former employee of Jared's who knows her stuff, and she thinks he will not do well with his latest task:

    https://www.washingtonpost.com/posteverything/wp/2017/03/30/i-worked-with-jared-kushner-hes-the-wrong-businessman-to-reinvent-government/?utm_term=.39c7ce2f10df

     


    Yeah, saw that earlier. Kid who took over his prison-destined father at 26 and is basically an arrogant front for his father's multi-billion dollar empire - felons can't sign. Dad had to pay $3 million twice to get Jared accepted into undergrad and then grad school Think he's smart enough to reinvent government if he can't even pass his SATs? Paid double value for 666 Fifth Avenue at 27, as we were heading into a recession - then went begging to the Chinese for a bailout before finding some bucks from shadier types. Now he'll get to discuss 666 with the FBI to see what he was negotiating with the Russians and Chinese after dad-in-law got elected Prez. Who knows, maybe he'll get his father's old cell.

    Think I'll go watch "Once Upon a Time in America" again - great movie about New York's Jewish mafia. Too bad Charles Kushner's so thin - would be great to have DeNiro reprise his role with him. Elizabeth McGovern was a sweetheart as well.


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