What Government Can Learn From Business

Many public-sector management challenges are unique, but there are plenty of private-sector techniques that government can profit from.
by | March 28, 2017

Philip Joyce

A professor at the University of Maryland School of Public Policy

The column I wrote in December on the "enduring myth" that government should be run like a business generated a lot of reaction -- more, in fact, than any in the five-plus years that I have written in this space. The level of response and the thoughtfulness of the rejoinders convinced me that the narrow perspective I had taken, and the limitations of an 800-word column format, almost demanded that I give it another try.

My main point in the prior column, expressed in the aftermath of the election of a president who had touted his business success as a qualification for leading the federal government, was to suggest that the experience of running a private-sector enterprise (perhaps especially a family business) does not translate directly to the challenges of leading a government.

A lot of people agreed with the points I made about how fundamental differences between the sectors, particularly related to concepts such as the separation of powers, required very different approaches to management. Some did not agree. A few readers seemed to view the entire concept of "government performance" as an oxymoron -- believing instead that private businesses almost always are more effective than governments and government agencies. A variation of this argument came from a reader who asserted that governments do not treat their "customers" with the same respect as businesses do.

I believe, as I suggested in the December column, that this paints both sectors with an overly broad brush. There are lots of very effective governments, and there are many failed businesses. As for customer service, I would say that there are at least as many horror stories about customer dealings with cable companies or online retailers as there are about problems at the DMV.

My focus on the big picture, however, left out many day-to-day lessons that public agencies can learn from private business, and Governing's readers were quick to point out some that I had ignored. Here's a sampling:

• The notion that governments do not have a profit motive ignores the fact that governments run enterprises -- toll highways, utilities and even liquor stores -- that are almost exactly like private businesses. A former mayor reminded me that these can sometimes make a profit and that these profits can subsidize the general provision of public services and keep taxes lower.

• Saying that government does not measure itself based on profitability can be an excuse for failing to focus on performance, which is government's equivalent of return on investment. The fact that government performance measurement is not as straightforward as measuring business profit should not be an excuse for failing to focus on outcomes. In fact, much of what government does can be measured, and asking how we would know we were doing well is not a question that should be asked only of a private business.

• Government programs and agencies are much more likely to continue to exist when they have a questionable raison d'être than are private firms and products. The floppy disk, "new Coke," the Edsel and Eastern Air Lines went away when there was no longer sufficient demand for them or they did not find favor in the marketplace. These kinds of market forces tend not to result in the abolition of government programs.

• Many government services already are provided by private contractors. Firms that provide Medicaid and Medicare services, as one example, may simultaneously be contracting with private hospitals or providing HMO services, all the while using the same business practices for public and private clients. In fact, the delivery of health care in this country has evolved to more of a model where the techniques taught in business schools are valuable for the management of hospitals.

• While there is understandable controversy over how to measure the effects of regulations, the use of cost-benefit analysis and similar techniques from the business world can inform the process of rulemaking for government agencies. The question in this case should be what regulation or regulatory technique (broad rulemaking or case-by-case adjudication, for example) would provide the most bang for the buck.

In addition to these direct responses to my assertions, the always thoughtful Howard Risher referred in a column of his own to the limitations of my analysis, arguing that civil-service reform is central to efforts to improve government, largely because government employees are more inclined than their private-sector counterparts to have "a culture of compliance and risk avoidance ... [t]hat is incompatible with efforts to improve performance." He believes that governments should expand the use of individual performance goals and build a greater capacity to reward performance.

In the end, we should all have a common goal: improving the performance of government. In pursuit of this, it is not reasonable to assume that private-sector success can always be seamlessly translated to government or that government cannot learn any lessons from successful business practices. I thank the readers of the December column for helping to focus me on both sides of that equation.


More from Smart Management