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Sharp In Klein

October 6, 2010

Ezra plays stooge and asks:

People say that the government should be run more like a business. So imagine you are CEO of the government.

Oh. Okay.

Your bridges are crumbling. Your schools are falling apart. Your air traffic control system doesn’t even use GPS. The Society of Civil Engineers gave your infrastructure a D grade and estimated that you need to make more than $2 trillion in repairs and upgrades.

Wait, if we’re going to think of government as a business, as is our wont here, then why be prudish about the thought experiment?

First MBA Prez, Now Case Study

The difference between a CEO and POTUS has nothing to do with a willingness to indulge in Keynesian fantasies. Of course Ezra knows POTUS can assassinate the competition. Leave that aside. A set of institutional constraints, encouragements, and privileges guides the behavior of each position in very different ways. And these are differences in kind not degree. To state the libertarian obvious, you can’t pretend to play CEO of US Gov  because your revenue base depends on systematic compulsion.

But I understand you’re tired of people making that point. So I won’t elaborate. Instead let’s talk about businesses and what they do. They provide goods and services to their customers. Who controls a business? Yes, the CEO and others down the flowchart, but ultimately the customer does. If you can’t provide a product that is worth more to the customer than the price they’re willing to pay, then you’re not going to last. In the end customers control the business by expressing their dissatisfaction through the power of exit.

If governments were controlled by their customers, they would have strong incentives to decrease their operating costs as much as possible.

But governments aren’t controlled by their customers. Certainly not in authoritarian regimes. And not even in democracy. Yes, citizens are able to express their dissatisfaction through non-market institutional channels. They exercise voice. They vote. But the rub is that the citizen is less a customer and instead, as of late, increasingly an employee. Democracy is government controlled by the employees.

What does a business controlled by employees look like? Public schools. Employee-run firms tend to promote policies that ensure job security over productivity. They favor any policy that increases the number of jobs, unproductive or not, and they oppose any measures which reduce the number. Job security and advancement through seniority mean more than how effective you are. To fire any employee is nearly impossible. Costs are ignored in favor of maximizing size. And if the resistance to higher prices or taxes has any strength, they happily spend more than they take in. Customer service is poor, at best.

With each redistributive transfer payment, more citizens are put on the payroll. Why even bother to show up for work? Vote and get your paycheck instead.

What’s more is that, with an employee-run organization, you don’t even have to ask the customer how he wants to spend his money. Instead, ask other employees how to spend it. It’s easier. Let’s go back to Ezra Klein’s urgent report to the CEO:

The Society of Civil Engineers gave your infrastructure a D grade and estimated that you need to make more than $2 trillion in repairs and upgrades.

Are these engineers customers? Or employees? Who controls this business? Why don’t we ask the customer what he wants?


  1. Matt permalink
    October 7, 2010 7:59 pm

    Yeah, I do have to say that, when I saw that the “Society of Civil Engineers” says that we should spend terabucks on roads and bridges, my first response was essentially “yeah, and the Tobacco Institute reccomends that we all take up smoking…so what?”.

    I don’t think the “citizens are mostly employees, rather than customers” angle works well, though. The problem is not that government is in the hands of the employees rather than the customers, it’s that while, in a business context, the person doing the buying is (to a first approximation, anyway) the consumer, in a government context, the person doing the buying is almost never the actual consumer. A tiny minority of citizens pay for the overwhelming majority of government that their fellow citizens receive.

    Ergo, “democratic government is two wolves and a sheep, voting on what to have for dinner”. Wouldn’t be so witty if it weren’t essentially the truth.


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