Running Government Like a Corporation

Former factory site in Flint by Blueskiesfalling

In the wake of the Flint leaded water scandal, we're seeing many decrying "running government like a corporation" or "running government like a business".

It goes deeper than that. The problem isn't just that we've got people trying to run government like it's a for-profit institution with no concern that should be weighed higher than cost savings. The problem starts with that so many of our businesses run that way. It doesn't work for corporations either. At least not in the long run.

Wages account for a lot of the budget the typical businesses. What happens when an employer is consistently stingy with salaries? They have trouble attracting top talent and maintaining morale.

Another big cost is quality materials. What happens when a company skimps on the quality of materials from which to make their goods? The quality of their products suffers, and customers eventually learn to avoid their products.

Then there's research. What happens when a company puts less into research than its competitors? It falls behind and its product line eventually stops appealing to buyers.

The illustrations could go on and on. In so many ways, a business that uses cost cutting and profit maximizing as a large part of its strategy sets itself up for being a short term success that will fold in the medium to long run.

We don't just need to "stop running government like a corporation". We need to stop running government like a mismanaged corporation in which the short-term profits are being maximized to earn big compensation bonuses for the CEO at the cost of the long term strength and stability of the corporation. And maybe just as important, we need to stop running businesses that way too.

LIBOR Ought to Nail Deregulation's Coffin Shut

If our world were ruled by rational, informed decisions, the LIBOR scandal would serve as the final nail that would forever end the plague of deregulation fervor and the pestilence of laissez-faire myopia. It won't be. Most true believers will never give up that push towards more and more laissez-faire, no matter how clearly it's shown to destabilize our systems of commerce. Wave ream after ream of documented business and finance train-wrecks under their under their noses and it they'll be unconvinced. They'll still rant and rave that we need less govt just as they've been doing for decades.

"In the early 1990s, the Fed suspended its surveillance of primary dealers, another example of Alan Greenspan's laissez-faire approach to regulation. Since then, there has been "failure after failure" among their ranks, Kotok notes, citing Lehman Brothers, Bear Stearns, Merrill Lynch, MF Global, Countrywide, and now Barclays."
- Aaron Task in "Why the LIBOR Scandal Matters: ‘Destruction of Confidence to the Nth Degree’"

Even now in the wake of LIBOR, candidate Romney's "Day One, Job One" summary lists elimination of regulations as one of the five executive orders he wants to carry out on day one of a Romney term.

Our markets have proven time and again that we need a mix of market choices with government oversight. The ideal balance may vary from market to market, but in any significant market -- one on which much of the economy depends -- we need stabilizers to improve predictability of returns on investment. And we need oversight in order to not only protect the consumer but to protect the honest businessman from dishonest competitors. In an arena of sensible regulation, the honest businessman can proudly say "my company holds to good business practices and I proudly work with government regulators to confirm that to the public." And he can rest more soundly at night knowing that his competitors won't undercut his otherwise stable business with shady, risky moves that a long-term outlook would abhor. Or at least that they'll have significant risk of being caught and called out if they do. And that businessman's potential investors can better expect a reliable, predictable return year after year rather than a sudden flop into insolvency from cutting corners. Business thrives under sensible regulation that keeps it lined up with good business practices.

Yet this is a truth that runs contrary to laissez-faire dogma. And we can not expect them to give up their notions. The best we can hope for is that maybe these scandals might help to show enough of the public that deregulationists hold to a debunked economic faith and that their doctrines should be no less a subject of mockery than Branch Davidians or Flat Earthers.

Why Business Hires, and the Deficit Isn't It

Why would you hire a new employee for your business assuming you had one? All of the answers generally come down to one root: to make the company better.

Better could be a lot of things: producing more products/services, reducing vulnerability to some risk, producing better products/services, improving public image, broadening supply resources, strengthening relationships with vendors/clients/customers, etc. They all more or less seek the same goal. You want your company to bring in more income and do so more reliably.

What's this have to do with the deficit? Nothing.

Seriously, how many businesses can you name that consider the deficit when making a hiring decision? A few financial companies may occasionally see some impact from really big deficit changes on the need to create or eliminate positions related to bond trading. That's most of the jobs that are impacted by the deficit in any real way. Ordinary businesses hire because they need more employees to cover their production or to pitch their products, with absolutely no factoring in the size of the deficit.

None the less, Republicans want us to focus on cutting the deficit despite that many of them campaigned on the idea that they would improve the job situation. So now they're trying to make people think there's a connection between what they promised and what they're trying to do.

"Cutting the federal deficit will create jobs" -- Rep. Cantor (R-VA)

That's completely and utterly divorced from any sort of reality on where we get jobs. The GOP have begun spinning elaborate stories to try to pretend there's a connection. Why is Rep. Cantor making that claim? Voters are concerned about jobs. The Republicans know that right now there's no better pitch for anything than jobs. And they wants to eliminate any govt program they can get their hands on. There's no way to get more support for their plans to ransack govt than to convince voters that it'll help what voters really care about: jobs. Unfortunately, the truth is quite the opposite. The truth is that -- during a troubled economy -- the sort of cuts the Republicans are pushing are worse than doing nothing at all.

Cutting the deficit won't give businesses more customers. Cutting govt spending takes customers away from businesses that provide goods and services to the govt. That's most businesses. Indirectly, that's all businesses. During good times, when the economy is humming along at a fast pace, a govt cutback wouldn't necessarily be a big problem. With the economy struggling to recover from the massive credit crunch and layoffs that were the finale of the Bush II administration, we can't afford so many businesses losing demand from govt purchases. The most obvious reason to hire is to handle greater demand. The most obvious reason for layoffs is because of a drop in demand. There's no more surefire way to drive ourselves back into recession -- or worse -- than massive budget cuts. That's a recipe for even higher unemployment.

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On a related note, for a decent catalog of the Republican record as far as jobs, see ""Where Are The Jobs?":The GOP's Two-Year Campaign Against Job Creation and Economic Growth"