Government is Not a Business

“We need political leaders who will run government like a business.” This is a common refrain among “fiscal conservatives” in the U.S. I assume they want leaders who will reduce taxes, balance federal budgets, increase employment, and promote economic growth as a means of enhancing their investments in the stock markets. However, maximizing efficiency, employment, and economic growth are not the primary functions of government. According to the Declaration of Independence governments are established to ensure the equal rights of all to life, liberty, and the pursuit of happiness. The purpose of government is to ensure social equity, not economic efficiency. People need governments to do those things essential for society that businesses and the private economy simply cannot do.

The economy cannot provide an opportunity for all to participate fully in society. The economy responds to the ability to pay, not to need. We are all created equal and are of equal inherent worth, but we are all inherently unequal in our ability to do things that have economic value. There have always been, and always will be, many people in society who are inherently incapable of earning enough money to acquire the economic essentials for life, liberty, and the pursuit of happiness. We are born with different physical and mental abilities and nurtured in different cultural environments, with different initial endowments of family wealth and connections. Governments exist to address these inequities. We need leaders who will run our government like a government, not a business.

If the U.S. government actually were a business, it would be relatively easy to cut taxes, reduce the federal budget, increase employment, maximize economic growth, and support a strong stock market—at least in the short run. It would only provide government services to those who were able and willing to pay taxes to cover the full cost of each service. It would reduce unemployment by prohibiting workers unions and reducing or eliminating minimum wages, unemployment benefits, and welfare benefits for the chronically unemployed. People would be forced to work or starve. The resulting lower salaries, wages, and fringe benefits would reduce economic costs of production, increase economic efficiency, and promote economic growth. Interest rates would be kept low and Social Security would be privatized to force people to put their retirement savings in the stock market.

If the U.S. government was operated like a corporate business, it would only consider the short run in making decisions. Businesses discount the value of expected future returns on long-term investments to account for future risks and uncertainties and their opportunity to earn money elsewhere in the short run. If a business has opportunities to earn 10% returns on its ventures, a long-term investment would need to return $1,000 at the end of 50 years to be competitive with a $100 payback at the end of one year. That’s why the planning horizons for most businesses are only 5 to 7 years. A government run like a business would maximize economic growth or GDP by removing environmental regulations and opening up federally protected lands and natural resources for drilling, mining, logging, and other forms of economic exploitation. The president/CEO of a government run like a business wouldn’t need to be “like, really smart” or a “very stable genius.”

However, if our federal government were run like a business, the nation might soon go bankrupt or collapse. If mismanagement led to a recession, a government run like a business would be still be forced to balance its budget and continue paying back loans it had taken out in an attempt to survive. Like any other business, it would be powerless to force private investors to borrow and spend or invest money to stimulate the economy during an economic recession. The government would be forced into bankruptcy. The people ultimately would be forced into economic austerity programs to pay off the federal debt—which has happened in other countries.

Our federal government is still run like a government, however, and has the ability to instruct the Federal Reserve Banks to “create new money”—by making low-interest or no-interest loans to businesses, which are deposited in banks and spent or invested to stimulate new economic activity. The vast majority of money in circulation is in bank deposits—not paper money or coins. If private businesses are reluctant to borrow money during a recession, the government can borrow and spend enough new money to stimulate the economy and restore economic stability. Contrary to the prevailing propaganda, the federal government budget is not like a “household budget” or the “financial budget” of a business. The federal government doesn’t need to be concerned with how much new money it puts in circulation or how big a budget deficit it runs, at least not during a recession.

The federal debt is simply a portion of the total money supply that the government has spent and put in circulation. The federal debt doesn’t need to be paid back, but may need to be reduced if the total money supply increases faster than the supply of things to buy with money. Too much money in circulation causes inflation in consumer prices. Inflation is not a concern during a recession, and a little inflation can help stimulate sustained economic growth, at least to the extent that resources are available to support growth. A government that is run like a government is responsible for ensuring that economic growth does not exceed the sustainable productivity capacity of its workers or natural resources.

Certainly, businesses are important to society. Businesses not only allow people to pursue their legitimate economic self-interests, but also allow them to contribute “economically” to the common good of society. The private sector provides government with the “economic” means of sustaining the ecological and integrity of the human and natural resource base upon which the economy ultimately depends for its productivity—one use of tax dollars. However, a government that is run like a business is simply not sustainable because it would result in ever-greater social and economic inequity. It would create inequity within generations, by exploiting workers and degrading the environment, within and among generations, by depleting natural resources and fomenting societal incivility. Once the productivity of nature and society has been destroyed, there would simply be no means of sustaining the economy—or government.

Even if one can only see government as a necessary evil, it is nonetheless necessary. As Thomas Paine wrote it in his essay, Common Sense, "Society is produced by our wants, and government by our wickedness; the former promotes our happiness positively by uniting our affections, the latter negatively by restraining our vices." He concluded that government is "rendered necessary by the inability of moral virtue to govern the world." Whether by a monarchy, aristocracy, oligarchy, democracy, or theocracy, people throughout history have chosen some form of government to “produce their wants, govern their wickedness, promote their happiness, unite their affections, and restrain their vices.” None of the various forms of government can fulfill their fundamental purpose if they are managed as businesses.

History has verified that we humans lack the moral virtue to secure and protect the inalienable rights of others unless we form a democratic government to interpret and enforce a moral consensus by which we agree to be governed. There can be no liberty and justice for all without government. In America today, we already see many of the characteristic traits of a government that is managed like a business. If we truly care about liberty and justice for all, including for those of future generations, we must return to the fundamental purpose and principles of our democratic republican form of government—before it’s too late.

John Ikerd