The Business Fad States Should Steal

For the most part, it’s a bad idea for governments to copy private-sector trends. But there may be one exception.
March 2019
(Shutterstock)
Alan Ehrenhalt
By Alan Ehrenhalt  |  Senior Editor

Government can’t be run like a business. There are many reasons for that, but one simple one will do: It can’t be run like a business because it doesn’t have profits to measure itself against.

Most of us understand that, at least if we give the subject a moment’s thought. Most politicians understand it, too -- even the ones who make their prior business careers the centerpiece of their campaigns. When he left office as governor of Michigan two months ago, eight years after he had won the office by touting his tech industry credentials, Rick Snyder made it clear that he understood the difference between private and public leadership. “I’ve never run the state like a business,” he said, “because the motive is not profit. The motive is to help people.” He is not the first governor to reach that conclusion.

But there’s one strange thing many governors and other elected officials can’t seem to stop doing: trying to copy the transitory management fads that sweep through business schools and corporations. The business copycat syndrome in state and local government goes back at least to the 1920s, when public officials noticed the attention that corporations were paying to precise targets and decided to come up with a few of their own. But the syndrome’s modern era really began in the late 1980s in Oregon, with the establishment of an official state benchmark program and the creation of the Oregon Progress Board, which set more than 100 specific targets for the state to aim at.

The benchmarks were a curious combination of the ambitious and the absurd. Promising to immunize every 2-year-old in the state was sensible, even though it was difficult to achieve. Promising to cut child abuse in half was ludicrous, since nobody had a clue about how to accomplish it; child abuse actually increased after the promise was made. Too many of the benchmarks were like that one, wishes rather than strategies. They were a far cry from the tangible marketing and financial targets that corporations were able to promulgate.

The Progress Board refined some of its benchmarks in the early 2000s, but by then it was too late. In 2009, the legislature abolished the board and took the state out of benchmarking altogether.

In the early 1990s the business fads were rightsizing and reengineering, and governments moved quickly to embrace them. Few elected officials took the trouble to explain just how those concepts could be applied to public institutions, or even to say what they were supposed to mean. They are not precisely the same thing, but they are both fancy words for cutting costs and reducing the number of employees. Very few people in government wanted to be caught admitting that this was true.

As it turned out, rightsizing and reengineering had a very short career in private capitalism. The management scholar Walter Kiechel referred to reengineering as a “mindless fad.” The Economist denounced it as a “shallow intellectual justification” for widespread job cutbacks. Today, if you look up “rightsizing” on Wikipedia, you will be directed to a site labeled “layoffs.” That would seem to prove the point.

Just as business began shedding this baggage, however, states and localities started picking it up. For more than a decade, many of them hastened to explain to voters that they had a plan to deal with serious fiscal shortfalls: They would rightsize their bureaucracies, and possibly reengineer them as well. But the concepts aren’t any more amenable to definition in 2019 than they were in 1992.

A more enduring public appropriation from corporate business is the civic obsession with long-range plans. Very long-range plans. The big management consulting firms, most notably McKinsey & Company, started urging client businesses

to adopt these long ago, and nearly all of them did it. Cities caught the fever. Many of them now have documents that purport to project what life will be like in the year 2040, or even 2050. “We just adopted

our Minneapolis 2040 Plan,” Council President Lisa Bender said proudly not long ago. “Our goals included eliminating racial disparities and taking action to fight climate change.”

Nothing wrong with those. It makes sense for governments to have goals and to think about the future. But the reality of ultra-long-range urban futurism is that it isn’t a reliable predictor of anything. Suppose your city had adopted a 30-year plan in 1989. It would have missed a few events, such as the arrival of the internet, the threat of terrorism, the decline in the crime rate and the comeback of central cities. In other words, it would have been essentially useless. Just as nearly all the current ones will turn out to be.

Management consultants will tell you that there is a difference between planning and strategy. A long-range plan is often just a wish list. A strategy outlines a specific set of steps to reach a goal. Many businesses can do this. They can decide what they want to be and start working on it, even if it involves a significant change in their operations. Governments can’t do it -- they are forced to proceed incrementally from where they are at the moment.

But some of the largest consulting firms continue to talk as if this weren’t true. McKinsey began preaching a decade ago about the need for “whole government transformation.” Its management journal proclaimed that “the public sector must transform itself,” calling this “a challenge of vast scale and urgency.” No doubt this brought the company at least a few clients in local government. But unless I am missing something, no major transformation at the local level has taken place.

There’s an irony to all this. While governments have been seeking to emulate the long time horizons espoused by business, corporations have been reinforcing the bad example of short-term thinking common in politics. Whatever long-term planning elected officials may profess, they have always tended to live from one year to the next, even when there is an obvious need for foresight, especially in budgeting. Over the last 30 years, businesses have become prisoners of the quarterly earnings report, many of them failing to make the capital investments that demand a greater degree of patience. In both business and government, we now have leaders who claim to be thinking decades into the future while they have difficulty focusing on anything further away than the next three-month statement or the next election cycle. When it comes to time horizons, neither enterprise distinguishes itself.

Over the past few years, however, one piece of private managerial dogma has shown some promise, at least at the right moment in the right place. This is the doctrine of “clustering,” first put forward by Harvard’s rock-star business professor, Michael Porter. The idea is that any large enterprise should determine the things it is really good at and concentrate on those, instead of scattering resources all over the figurative map. Porter began preaching this doctrine to corporations in the 1980s, and it made him perhaps the most famous management expert in the nation. Later he began to apply it to nations and to state and local governments.

In the first decade of the new century, Porter worked with New York Mayor Michael Bloomberg. More recently, his ideas have been taken up by the Metropolitan Policy Program at the Brookings Institution, which has employed them to try to improve the economic development fortunes of large and medium-sized American cities.

Clustering can claim some high-profile successes. In a paper published last year, Brookings touted a few of them. Austin, Texas, made a conscious decision to become a technology hub, and has prospered and grown as a result. Pittsburgh went for biotechnology and pharmaceuticals, and those fields have led its comeback from late-20th-century industrial decline. Most strikingly of all, Akron, Ohio, has recovered from the collapse of its tire and rubber industries by remaking itself as a center for the industrial application of polymers.

In the end, a few broader lessons stand out. No city can create a successful cluster merely by wanting one. A few fundamental resources are needed, among them a university with qualified researchers, adequate public infrastructure and creative leadership. Without those things, declaring yourself a technology or science cluster isn’t going to do you much good.

Brookings admits this. “Policymakers or other leaders can transform a barren landscape into fertile ground, but a seed must be available that can grow to fruition,” two of its scholars wrote last year, adding that “a cluster must have the skills and technical capability to produce products and services that are demanded in the marketplace.” To which one might reply that a place with all those advantages is destined for success even if it has never heard of clustering.

Still, it’s at least comforting to know there’s something business and business schools can teach government that isn’t totally irrelevant to its needs. Clustering will continue to appeal to cities of many different shapes and sizes -- at least until the next seductive management buzzword comes along.