Davis Merritt: Why government cannot be run like business

Businesses exist to make a profit. Governments exist to produce social goods. Some businesses also provide social goods and some government programs pay for themselves, but those are secondary, and sometimes accidental, artifacts of the two institutions’ distinct reasons for being.

Yet the notion persists – against much anecdotal evidence – that people very good at business would also be good at government and, given the chance, could make government more efficient and productive by using private-sector principles and metrics.

Up to a point, that’s accurate. Being a decent leader in either institution requires a level of intelligence, people skills, ambition, dedication, experience and a bit of luck.

But the people most successful in business and in government – the superachievers – have another trait that isn’t transportable between those two separate universes: laser focus on their segment’s raison d’etre. For businesspeople, that means profit trumps every other consideration; for government leaders, social goods come first.

The dichotomy itself has value. The singular focus by each institution’s best leaders sustains each, and those institutions need each other: Private business cannot exist without the social goods that government provides, and democratic government cannot exist without profitable businesses.

Defining success in business is a matter of metrics: counting and measuring things, including ascribing value to events and people. Success is when more money comes in than goes out. If that doesn’t happen, either expenses must be lowered or revenue increased, or the business goes away.

Defining success in government is not so straightforward. Putting a specific value on social goods is mostly impossible. When only things that can be tabulated are considered important, bad things can happen. Daniel Yankelovich demonstrated this with his “McNamara Fallacy” principle – as in Robert McNamara, the auto executive who ran the Vietnam War-era Defense Department. McNamara kept insisting that, by all his elaborate metrics (body count, villages burned), the U.S. was winning.

The problem, as Yankelovich wrote, was that McNamara’s business-oriented mindset was “what can’t be measured easily isn’t very important. This is blindness. The (next step in the fallacy) is to say that what can’t be easily measured doesn’t exist. This is suicide.” What McNamara couldn’t measure was the enemy’s determination.

Likewise, how do we assign numerical values to justice, domestic tranquillity, common defense, the general welfare and the blessing of present and future liberty, the purposes for which our government was founded? We can calculate the amount of money coming into the government, but not the value of the goods that money provides. Those goods clearly exist, but as they cannot be measured, we cannot calculate government’s net worth. Thus, the endless complaining about government’s value has no rational basis.

Businesses come and go by the thousands every week. The inefficient, ill-conceived, underfinanced and otherwise insufficient ones become unprofitable, and many are replaced by new efforts. That’s the unrelenting, self-renewing reality of commerce.

Governments endure, and they must because they fulfill unprofitable but essential constitutional responsibilities. While it’s clearly true that not every function of every government agency is necessary, nor are all of them efficient, merely waving at them with the magic wands of sophisticated metrics and business philosophies cannot fix that.

Democratic self-government, like business, is hard, cooperative work. That cooperative work cannot occur so long as half the population deludes itself with the McNamara Fallacy.

This story was originally published December 1, 2014 at 6:05 PM with the headline "Davis Merritt: Why government cannot be run like business."