People who support socialist programs harbor some incorrect assumptions about the nature of government agencies. Politicians and bureaucrats don’t automatically become more intelligent or virtuous than private-sector business owners and employees. It’s also dangerous to assume government is the same as the private sector – a delusion politicians like to encourage when trust in the State has cratered, and they believe they can regain some credibility by posturing as the CEOs of America, Inc.
Recent events have illustrated three vital differences between government and private industry. The first is that government does not face consequences the same way businesses do. The President just rolled out a budget with a deficit of $1.3 trillion dollars. The federal government has been running gigantic budget deficits for decades. The national debt has passed $14 trillion. Even if Enron had hired Bernie Madoff to replace Paul Krugman, it could not have endured such incredible fiscal irresponsibility for so long. Businesses faced with budget shortfalls make hard decisions in order to remain competitive. If management fails to do so, it faces bankruptcy, the wrath of shareholders, and the loss of vitally needed credit.
Government doesn’t make tough decisions like that. It simply raises taxes or runs up the deficit. It does not view itself as “competitive” – it would use its power to crush private-sector competitors who threatened its interests, as the medical insurance industry will discover to our collective sorrow, if anything resembling ObamaCare is passed into law. For the State, competition ceases when legislation is signed. No matter how badly the Barack Obama People’s Health Insurance Company performs, it will never go out of business… at least, not until the entire economic system has collapsed around it.
Individual politicians are likewise insulated from consequence. It’s extremely rare to see a powerful politician’s career end because of a single mistake. No matter how poorly Obama performs as the CEO of Government Motors, it will not be the sole, or even primary, reason he loses his job – and his job is almost absolutely secure for another three years, regardless of how unpopular he becomes.
Politicians even enjoy significant protection from outright criminal wrongdoing, which they occasionally sell to favored businessmen. No level of corruption seems capable of rousing Eric Holder’s Justice Department from its long afternoon nap. Some states don’t mind voting for politicians they can barely see through the ethical clouds swirling around them, as long as they bring home enough pork for key constituencies. The political class is simply immune to the aggressive law enforcement that purges the worst fraud from the private sector, when the hungry roots of politics are kept from digging too deeply into the soil of industry.
A second difference between the private sector and Big Government is the nature of accountability. When you hear someone pontificate about bringing more “accountability” to government, always remember this is a relative scale, which ends far below the point where it begins for private businesses. The government is the primary source of information about itself, and it feels entitled to suppress what it can’t be bothered to distort, such as the SEC documents covering the AIG bailout. Much of the news we receive about the government comes from leaks and background talks, given to a media deeply sympathetic to its goals. The federal government is also entrusted with the task of policing itself, a job it feels very relaxed about performing. The government could not begin to pass the kind of accounting audit it requires from businesses.
Even if the government was meticulous about reporting on its performance, and the media dutifully passed along this information without filters, how could ordinary citizens hope to analyze the performance of an incomprehensibly huge super-State? If your auto mechanic consistently overcharged you for shoddy work, you’d find a new mechanic. What would you do if your auto mechanic was also your doctor, grocer, chief of police, and principal of your children’s school? The idea that citizens influence government with their votes presumes a level of awareness and informed response that simply cannot exist, when the State becomes as bloated as ours. We seem to be on the edge of a political earthquake in 2010, but look at what it took to get us here. Voters won’t display the passion and organization necessary to “fire” an immense national government until it has failed comprehensively… and very expensively.
The other obvious difference between government and the private sector is the government’s monopoly on the use of force. The closest a private industry can come to compulsion are monopolistic practices, which government polices against, but is also willing to perpetrate itself. Every action taken by the government involves compulsion: the collection of taxes and the enforcement of regulations. Those little targeted tax cut ideas salted through President Obama’s first State of the Union address are another form of compulsion – you have to do what the government wants, in order to enjoy those tax-cut crumbs, and everyone who refuses to comply with the designs of the State will subsidize you.
Few people would be eager to do business with a company that somehow acquired the government’s combination of insulation from consequence, unaccountability, and compulsive force. Allowing the government to pretend it’s a giant corporation is a terrible mistake. Those who make that mistake tend to underestimate the difficulty of running a business, and the intense competitive pressure which leads to the innovations behind our material abundance. Ask a small business owner or corporate executive about the tough choices and risks he or she must undertake on a regular basis, then ask if they would subject themselves to such pressure if they didn’t have to. They would laugh and tell you how much they’d like their mistakes to be subsidized, their credit to be effectively unlimited, or their competition to be held off at gunpoint.
If the State is immune to the restrictions and hardships that lead to innovation and efficiency, isn’t it completely foolish to expect it to match the performance of private industry? Any politician who asks you to believe the State can do better deserves to be laughed off the stage.
Cross-posted at Hot Air.
I decided the reason governments excel at war is partly explained from a quote by the then commander of the Canadian Forces who said that a soldiers job is to break things and kill the enemy. Most everything else the government tackles does not benefit from breakage and death however, but when your only tool is force…
I’m not seeing the differences between the two of late as much as the similarities. Do you see industry as a benevolent force? Companies make their profit here in the US but base their operations somewhere else so they won’t have to pay taxes. Companies screw their workers by dissolving pension funds.
How about Washington Mutual’s CEO, Kerry Killinger. The biggest failure in US banking history happened on his watch. He did get fired, but I don’t see how he faced the consequences of his actions when he walked away with $44 million dollars. How many banks lost money, closed branches, laid off workers and yet still paid bonuses? What kind of consequences were felt there?
I don’t mean to gloss over the positive aspects of industry and the vital role it has played in making this country great. Let’s just remember that big industry needs to be watched as closely as big govt.
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George of Cappodocia wrote:
I’m no fan of the unholy merger between government and industry – hence the line about “the hungry roots of politics digging too deeply into the soil of industry.” Prosperity requires confidence between producers and consumers, including those relationships where business is the consumer of an individual worker’s labor.
Only an impartial government can provide that atmosphere of confidence, through secure trade routes (interstate and international commerce, in the modern environment), stable currency, legally enforceable contracts, and property rights. The more Big Government sells the influence Big Business is naturally eager to buy, the less impartial it becomes, and the more our system deforms. How eager are entrepreneurs to take the field in the great game of commerce, when they know the government referees are willing to tackle them, to help out favored teams?
George,
My late Senator committed murder in the third degree and spent the next forty years in the US Senate. My Congressman helped out his roommate’s gay prostitution ring, prevented reform of Fanny Mae and Freddy Mac, and let his buddies Franklin Raines and Jaime Gorelick walk away with $100 million in bonuses after ruining these two institutions which subsequently helped bring down the US economy. Tim Geithner, a tax cheat, is Secretary of the Treasury as is House Ways and Means Chairman Charlie Rangel.
The damage from government corruption and incompetence is far more dangerous than the occasional slimy CEO walking away with a bundle. Companies go bankrupt, but governments come after you for more when they fail, and they have guns to back them up.
[...] Dr. Zero: The Differences Between Government and Industry [...]
With Big Government currently getting a ‘pass’ by the liberal factions of the MSM in matters of communicating to the public using fuzzy math and linguistic legerdemain, the image being supported and even touted by the MSM of a beneficent federal government is hard to overcome.
Thank heavens for people like you, Doc, and Ed and Allah and Michelle, and all of the other bloggers, who are dedicated to reporting on crucial issues that impact our daily lives. For this reason alone, along with other alternative media sources like talk radio, plus Fox News, the American public is far more informed than at any other time throughout US history.
“Companies make their profit here in the US but base their operations somewhere else so they won’t have to pay taxes.”
Despite the high rate of taxation businesses in the US pay, that is NOT their reason for basing manufacturing overseas. Remaining competitive so that they may stay in business IS why they have done so.
There is such a disparity in the cost of labor between say the US and China, that an American manufacturing company cannot compete with a Chinese manufacturing concern in the final consumer price of similar products.
Which means that if American manufacturing hadn’t moved overseas they would be out of business, so the jobs would be lost, regardless.
Americans have chosen products that cost less in an attempt to maintain their standard of living, an entirely understandable motivation.
Obviously, the loss of manufacturing jobs is a problem. Blaming companies for trying to survive, in some fashion… is to misunderstand the problem.
If Americans ‘saw the big picture’ and decided to “do the right thing” by accepting a lowering of their standard of living, which would result from buying more expensive American products…the economy would support far less jobs.
Yes, manufacturing would continue but because people could afford less, they would buy less and so manufacturing would shrink to meet lessened demand. A smaller manufacturing base means less distribution, less consumer outlets, less middlemen and less service sector jobs.
It’s a vicious circle, either a downward or an upward spiral. Since the 50′s, with the exception of the historically brief 90′s, when the widespread introduction of the computer drove productivity gains upward, we’ve been experiencing a downward spiral. There are a variety of factors responsible for this but few mention them. So we waste our time discussing symptoms instead of causes.
There’s no getting around a central fact, as long as American manufacturing cannot compete competitively on every level, including labor costs, the US’s standard of living will experience downward pressure. Which means people will either accept being ‘poorer’ or attempt to end-run around the problem, which only creates deeper, more long-term problems.
@ Geoffrey Britain:
I agree wholeheartedly: even I did a double-take and shouted “Wha…?!” when Obama issued the edict of “doubling U.S. exports.” I can see only two ways that this could be done: issuing prohibitive tariffs on all foreign goods (thereby forcing China to bankrupt us by calling in our debts) or finding a new industry, a la the tech industry in the ’90s. I’m certain that Obama would like to do the latter with the alternative energy market, but I don’t see the world buying our cost-prohibitive products in an industry without a great demand yet.
Doc, great post as usual. But I think you left out the chief cause and enabler of government’s absolute incompetence. The reason why they act so utterly irresponsibly, is not because they are idiots, it’s because they know one thing: they can print fiat paper money all day long. All they want is power and they have the perfect tool to secure it: the printing press.
Printing spurious paper money is nothing less than theft; the good thing for the folks in Washington is that they can call it inflation and blame it on an abstract contraption called the “economy”. It is the crime without a criminal. And society takes it as if it was an inevitable force of nature.
@DOne:
I just want to draw your attention to a couple of things. In the first place, the whole “China’s gonna call in its markers and own the US” trope is not entirely accurate. China didn’t issue us a credit card that it can cancel. China bought a boatload (actually, most likely, several container ships’ full) of Treasury bills, which have a maturity date on which they can be presented to the US government for redemption. Until then, China, like any other owner of T-bills, can just sit there and collect its interest.
Or, if China was inclined to truly damage the US economy, it might dump its T-bills on the market, which would devalue the dollar. By a curious happenstance, this would . . . make US imports more attractive, so, given the president’s stated position in the SOTU, he might not mind getting thrown into that briar patch. He’s probably planning a weak dollar strategy anyway; that is the option to increase exports that you left out of your treatment above. Needless to say, China’s not going to do that. There are certainly ways in which China can try to punish what it perceives as bad behavior on our part, but destroying its own export market by devaluing the dollar will not be one of them. It’s ironic; China might want to hurt the US economy, but from the Chinese perspective, the dollar is “too big to fail.”
Oh, and re tariffs: Ain’t gonna happen, at least during the current monster recession. The American consumer need cheap imported goods too much right now. I don’t think that Congress-critters are going to be competing to see who can be the next Smoot and Hawley . . .
Can anyone suggest a good place to start learning more about some of these broader financials issues? I do have a nagging feeling that the whole Wealth of Nations mentality needs to be tweaked to suit our post-industrial economy. At some point we either reach a point where we can’t advance productivity any further or technology replaces the worker (i.e. robotic assembly lines.) Where do we go then? I will be the first to admit I don’t have the chops to settle this issue and would be interested in reading what those who do have to say on the subject.
@ Paul. It’s not just the money CEOs receive that bother me. Just as one example, the CDC reports that food-borne diseases cause 5,000 deaths a year in the US. The actions of companies can and do kill people. I just want to sound a note of caution that not all regulation is bad.
George of Cappodocia wrote:
You raise an interesting point about productivity in a post-industrial economy. It would seem, as a matter of simple logic, that the producers in a free economy are also the consumers – we create the demand that produces jobs and generates our overall wealth. Industrial technology increased productivity enough to meet demand with less reliance on labor, causing a natural loss of jobs in manufacturing.
The post-industrial economy would seem like the best *solution*, rather than a problem, as it can find productive uses for human labor, beyond the requirements of industrial production. To make this solution work, it is essential to lower the barriers to entry in the marketplace, making it easier for small companies and independent workers to generate demand by making services and intellectual property available.
That’s pretty much the opposite of the direction our system has been heading for the past few decades.