The Corporate Playbook for Government

Should governments emulate the business practice of Fortune 500 companies?
 

You’ve heard it a million times from elected officials, from people who want to be elected officials and from those who vote for elected officials: Government should be run like a business.

This has become a mantra in some circles and a subject of raised eyebrows in others. We decided to dig a bit and consider the statement’s validity. We kicked off this process by chatting with the mayor of Albuquerque, Richard J. Berry. He has eliminated a $90 million shortfall without layoff s while housing many of the chronically homeless and addressing infrastructure problems. He talks about things like succession planning and a focus on return on investment as ways in which he runs his city like a business.

An example of his initiatives: “The fi re department buys a lot of stuff , from baby aspirin to bandages,” he told us. “Those things have a shelf life. We had a firefighter who realized that we were buying things that had only six or seven months’ shelf life on them. We saved $700,000 by insisting that our suppliers give us commodities that last at least a year.”

Scott Pattison, executive director of the National Association of State Budget Officers, agrees that government can learn from business. He suggests government can learn to better cost out various transactions, which is standard operating procedure for successful corporations.

OK. So far, so good. But over the years we’ve encountered many public-sector managers who recoil when they’re told that they’re not doing a good job because they haven’t emulated the folks who run the Fortune 500. Pattison and Berry agree that there are limitations to the degree to which the two groups can and should act alike.

Note, for example, that two paragraphs back, we purposefully described a business practice as one used by successful companies. There’s simply no magic to the for-profit world, and it can be run just as badly as the worst-run township. Would you really want your government to operate as well as, say, Lehman Brothers was? Or General Motors before it went into bankruptcy?

Webster J. Guillory is the assessor for Orange County, Calif. He worked for corporate America before he entered the public sector. He makes the point that government must deal with tasks very rarely found in companies. “Government has to deal with almost every kind of emergency service: fires, health, natural disasters,” he says. Moreover, government has to be prepared 24/7 to deal with those problems— even ones that occur very infrequently.

Beyond that, of course, there’s a fundamental difference between government and business that makes easy translation of management styles a difficult effort: Government doesn’t need to make a profit. Private-sector firms do. If they don’t, well, we’re back to rescuing General Motors again. Pattison agrees that while there’s a lot that government can learn from the private sector, “It’s in a very different situation.”

Government, like a business, should aim to be effective and efficient in what- ever it does. But as Paul Epstein, a consultant with Epstein and Fass, points out, “it should not restrict itself only to policy options that are least cost, will generate the greatest revenue or even off er the least unit cost. Instead, the values and interests of constituents must be kept in mind, and strategic priorities and other policies formulated and executed to match.”

The existence of a genuine financial bottom line in companies also makes it significantly easier to gain acceptance for specific kinds of policies and practices. If there’s a good profit at the end of the year, that’s proof enough that they work. But until performance measurement becomes universally utilized and perfected—which may never happen—a whole different ethos exists for governments.

The differences between government and private-sector management were articulately spelled out in a chapter on “public bureaucracies” in The Oxford Handbook of Political Science. The chapter was written by Donald F. Kettl, dean of the school of public policy at the University of Maryland (and a Governing columnist). Here are a few points he makes, slightly paraphrased from the original:

  • Unlike private bureaucracies in which top officials can define their own missions (which cars to build, for example), top officials in public bureaucracies have their missions defined by elected policymakers.
  • Public administrators not only have to do what the law says, like everyone else, they can only do what the law says.
  • Many public administrators are required to utilize civil service rules, the likes of which don’t exist in corporations. 

Finally, getting policies approved, regardless of evidence that they may work, is often a largely political process in government. Corporate CEOs keep their jobs as long as they make the stockholders happy. But mayors and governors have to make sure that at least 51 percent of voters perceive them as good for the job, without a profit and loss statement to consider.

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