by Col. Frank Ryan, USMC Ret.
Recently a Governor gave a speech in which he insinuated that government is a business. The Governor went on to say that government must reinvest in infrastructure. He noted that government may have to borrow to accomplish those investments.
The potentially fatal flaw in this logic is not about government adopting business practices but in the view that government is a business at all. Government produces nothing. It is, and always will be, an expense.
To any family, taxes are an expense. Taking taxes before the person receives his or her pay makes the real tax difficult to see. The imbedded taxes in everything else we do are mind boggling. Just look at the taxes added to your phone bill, your gasoline purchases, or to your hotel bill, and you will appreciate the hidden costs of government. All of these taxes make private citizens lives that much more expensive.
Taxes also make companies less competitive. Businesses understand that taxes are a cost of doing business but they have the effect of making those same businesses less competitive. To the extent that government provides the framework for doing business such as the Uniform Commercial Code, the SEC (yes, the SEC), and our civil courts, these costs have value in that the benefit they provide generally exceeds the cost. To the extent that the government goes beyond providing the rule of law, the benefits seldom justify the cost to society.
When I hear of the growth of in the government sector and “government job creation,” I am decidedly confused as to what is getting created and who is paying for it. The perception that government creates anything is a mistake. Ultimately, excessive government spending and taxes are destructive to any economy.
Government’s role is to provide a “rule of law” to govern how we all deal with one another. Without a doubt, government is very valuable in this appointed role. Government can regulate the framework of commerce effectively through the rule of law but certainly has failed dismally when it tries to get involved in commerce directly.
There was a document that I read a while ago which clarified this point. What was that document called? Oh yes, it was the U. S. Constitution. It makes interesting reading by the way. It starts with: “We the people of the United States, in Order to form a more perfect Union, establish justice, insure domestic tranquility, provide for the common defense, promote the general Welfare, and secure the blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution of the United States of America.”
I am having a tough time finding in the Constitution where we should get involved in stadium financing, income redistribution, casinos, education and all the other activities which make for government today. One might counter that our founding fathers were not aware of such activities when it was written. Apparently, the founding fathers thought of post offices and roads (see Article 1, Section 8) so, I suspect they must have given it some thought and decided that the other activities were best left to the free market system constrained only by the rule of law and commerce.
The problem with continually expanding the role of government is twofold.
First, there is no market standard to gauge value. As a result, efficiency is governed by non market related factors. As such, bureaucracy becomes the benchmark of success rather than results to society. There is little to no ability to determine if the desired result was achieved cost effectively. National health care will be measured by cost per patient, rationed care, length of stay rather keeping people well. Once a government program is put into effect and then fails, the same political leaders will suggest solutions to the problems that the process created in the first place.
Second, government programs frequently cause significant unintended consequences. A societal desire to promote home ownership increases the likelihood of inflated home values since increased demand may lead to increased home prices. Government intervention in the energy sector, as an example, has made the problem worse, not better. Imagine if the problems of Three Mile Island were addressed decades ago, corrected, and then allowed nuclear energy to proceed again. The same system which “protected” us from nuclear energy is now “protecting” us from greenhouse gases without anyone questioning that their cure to nuclear may have caused the other problem.
So when we talk of government being run like a business, remember the principles of sound businesses. Provide what the customer wants at a cost that they can afford in an ethical manner. Nothing more. Nothing less. It’s really quite simple. It only becomes complicated when politicians think that they can do it better.
Frank Ryan is a member of the Lincoln Institute Board of Directors and lectures for the AICPA and BLI on management related topics. He can be reached at [email protected].