Insight : Whether in O.C. or D.C., Government Is Not Solely a Business

The Orange County fiscal crisis and the new Republican Congress have something in common.

Both raise the question of how best to manage organizations responsible to the public. In both, partisans are talking about the desirability of handing over government functions to the private sector. Newspaper headlines like “O.C. Is a $3.6-Billion Business--It Ought to Be Run Like One” sound similar to the Fiscal Responsibility Act in the Republican’s Contract With America. Both suggest, as the contract says, that government should “live under the same budget constraints as families and businesses.”

The implication clearly is that American families and businesses have a corner on economic success. One look at the S&L; industry--or the debt of most American families--should disabuse most of this belief.

Developing consensus over societal values and public policies is a difficult process which requires much debate and compromise. For public officials, concerns about equity, access, fairness, control, accountability, effectiveness and a sense of community are as important as budgetary considerations. Business executives’ concerns are primarily centered around quarterly earnings. In the public sector, the main job of managers is to balance interests; in the private sector, their main concern is balancing budgets.

In the public sector, citizens want more services and fewer taxes--and they want greater government protections with fewer regulations. But that is like asking General Motors to provide a Cadillac for the price of a Chevrolet, and at the same time asking that cars not pollute the air even as air pollution regulations are loosened. It’s similar to asking public officials to be innovative about raising revenue so taxes can remain low, but at the same time condemning them for acting like an entrepreneur. And likewise, the GOP Contract With America calls for Congress to pass a balanced-budget amendment, but does not set out what programs will be cut, as if the cutting simply can--and will--be done.

The debate over whether managing differs in the public and private sectors is not new. In his famous 1887 essay, “The Study of Administration,” Woodrow Wilson called for establishing a new science of administration that would make the business of government more businesslike.

But while the thrust of his effort was to divorce politics from administration, most people involved in either activity would agree that severing the two is not easy.

In a widely read 1979 Fortune magazine article titled “Candid Reflections of a Businessman in Washington,” then-Secretary of the Treasury Michael Blumenthal--formerly the CEO of Bendix--wrote that business and government are different worlds. “From now on,” he said, “whenever my business friends speak of those fools in Washington, I can say, well, you go there and do better.” Perhaps Speaker of the House Newt Gingrich should talk to Blumenthal and others who have managed in both sectors. As Vladimar Stadnyk, Standard & Poor’s executive managing director of public finance, said recently: “In the private sector, it’s only money. In the public sector, it’s the salaries of teachers, cops and firemen.”

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In other words, the problem with managing the public sector like a business is that it is not a business. Government is about making choices between conflicting societal and political values. Business executives need not make such choices. While related, many of the goals, responsibilities and rules of managers in the public and private sectors are different. Ironically, now-deposed Orange County Treasurer Robert L. Citron was doing exactly what Gingrich and the electorate are requesting. He acted like a business executive, taking risks to maximize economic returns. While he was making a good return on the county’s money, he was a hero. But, like other fallen business heroes, when the profits dwindled, he was scorned.

So to suggest that business practices per se are always successful is naive. And to assume that applying business management principles to government or shifting government responsibilities to the private sector necessarily will create a more desirable society is similarly naive.

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The fact is that the management of business and government--while similar in many ways--is different. To seduce the public into thinking that all that is needed to properly manage the United States is a balanced budget is to raise false expectations. Congress could balance the budget this session if it had the guts to do so.

But members of Congress know that unexpected wars and natural disasters often require borrowing and an unbalanced budget. They also know that large corporations and families operate with unbalanced budgets. Borrowing is an inherent part of doing business or putting children through college.

Unlike stockholders in a corporation, citizens in a city, state or country expect their leaders to be concerned with issues other than economics. To turn complex societal problems into a mere public-versus-private management issue--or to suggest that privatizing government will necessarily lower the cost and raise the quality of needed services--is to mask the real problem: a lack of leaders willing and able to convince the public that we get what we vote and pay for.

As the economists tell us, there is no free lunch.