If government is bad and companies are good, explain San Onofre

Who's screwing up US competitiveness? Harvard B-School says the guilty party is business

From the American Enterprise Institute, where private industry goes to have its head stroked and be told it's a good boy, comes the latest installment of a series one could call, "Public sector bad, private enterprise good."

This one is an item by AEI columnist James Pethokoukis about a recent Harvard Business School study of "U.S. competitiveness." His piece is headlined: "Study: Pretty Much Everything Government Touches is Failing Right Now."

That's not exactly what the study says, but we'll get to it in a moment. In a broader sense, Pethokoukis' piece touches on the familiar theme that government can't do anything right, so if you want efficiency, call in the team from private enterprise. You hear variations of the caricature all the time--the claim that the problems at the Veterans Administration show why Obamacare can't work, for example.

Leaving aside that the real problem with the Affordable Care Act is not that it's a government program, but that it leaves health insurance in the hands of private insurers, the limitations of this caricature should be obvious with a moment's thought.

The San Onofre nuclear plant on the California coast is a dark, useless hulk today because Southern California Edison, a private utility, utterly screwed up a $700-million refurbishment project. Home Depot exposed 60 million customer credit and data cards to hackers all by itself, without any government help whatsoever. (In fact, some well-aimed government regulation might have forced Home Depot and other retailers to move to hacker-resistant smart cards long ago.)

On the other side of the ledger, the government built Hoover Dam and the interstate highway system and launched the Internet. The lesson is that government achieves lots of things that private enterprise can't or won't do, and if you think private enterprise is always the answer to getting things right, you're dreaming.

So what about this Harvard study? The third in an annual series, it's based on a poll of 1,947 Harvard Business School alumni. You won't be shocked to learn that this homogeneous group of strivers thinks the United States is doing just fine in a number of categories where B-school alumni are prominent, such as "entrepreneurship," company management and capital markets. (See accompanying graphic.)

You also won't be shocked to learn that these Harvard MBAs rank the U.S. low in areas where they're likely to feel the sting of government action, such as the tax code and regulation. They also placed K-12 education in the "weakness and deteriorating" category, with all those other government functions.

Pethokoukis' interpretation was: "American government isn’t taxing, educating, regulating, or adjudicating effectively or efficiently right now."

But the study made a very different point. On K-12 education, for instance, it said that the performance of the private sector was nothing to brag about. "We found that business leaders are already engaged in many generous partnerships to support students and schools," its authors wrote. "However, business is mostly involved in fragmented, subscale efforts that alleviate weaknesses in the education system without strengthening the system for the long run."

In other words, business should step up to the plate, but hasn't. The study also faulted business for failing to invest in worker skills and for inadequately collaborating with universities and government. It said that business is mired in "an opportunistic patchwork of projects" and not in "efforts that make the average American productive enough to command higher wages even in competitive global labor markets."

Its conclusion is that unless private enterprise does much more on behalf of its workers, it will "suffer from an inadequate workforce, a population of depleted consumers, and large blocs of anti-business voters." Contrary to the AEI's take, the study's theme isn't so much that government is failing to do its job, but that business is failing to prepare for the future.  

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