What is the purpose of a business? It's primary purpose is to make money for its owners. There may be ancillary benefits, such as job creation, or providing a product of benefit to the community, but first and last, a business exists to benefit its owners. I used to work for a company that was (mostly) locally owned. In the 70's it instituted an Employee Stock Ownership Plan (ESOP). ESOP's, using various formulas, award employees with company stock from profits which they can receive as cash when the retire or otherwise leave the company. The company president, who at the time was the son of the company founder, liked to promote this ESOP as an example of how the company cared about its employees (euphemistically called "associates"), treating them like family. In an unguarded moment at a shareholders' meeting, the company founder admitted that he instituted the ESOP because it allowed the company to legally avoid taxes on that portion of the profits while still having access to the cash. (The percentage of profits that were the ESOP allocation existed as cash. Since the employees did not receive cash, but shares of stock, the cash still existed in the company's bank account and could be used for other priorities) So, the existence of the ESOP, even though employees benefitted as a side effect, had as the main beneficiaries the primary owners, the founder's family. (In the wake of the 2017 corporate tax reductions, this company bought back all the ESOP stock and converted the shares to 401(k) balances)
One wouldn't have to search for long to come up with examples of companies that laid off long serving employees in order to increase profits, or whole subsidiaries being shut down completely because they weren't generating enough revenue. Even pay increases are structured to benefit the owners. The legend of Henry Ford altruistically doubling pay rates so that his employees could afford to buy his cars is mostly myth. Anyone who knows anything about Ford knows that he wasn't the warm and fuzzy fatherly type. Ford was a control freak who attempted to control every aspect of his employees lives. But he also realized that his turnover rate was unacceptable. He was hiring 52,000 men a year to maintain a 14,000 man work force. The pay increase was his solution to the high turnover. Even so, his investors balked at this move, seeing it as counter to their interests. Maximizing profit for the owners is the primary, if not the only, goal of running a business.
In contrast, the purpose of a government is to serve the people. In this country's founding document, the reason a government is being established is to (1) establish justice, (2) insure domestic tranquility, (3) provide for the common defense, (4) promote the general welfare and (5) secure the blessings of liberty. One can debate the specific meaning and application of these things, but it's pretty evident that "turn a profit" isn't on the list. "Run it like a business" advocates point out that government services cost money, and that it is irresponsible to spend more than is being taken in. Or spend so much in some areas that there are no funds available for other needed programs. This is a fair point, in many jurisdictions deficit spending is not an option, and it is good stewardship to not spend the public's money frivolously or wastefully. But the criteria by which it is determined what is and isn't waste is necessarily different in a service organization, i.e. a government, than it is in a for profit entity.
A current example is the unilateral decision to eliminate state government positions that have been unfilled for more than 90 days. In a typical private business labor budgets are set in part by looking at the payroll expenditures for the previous year. The assumption is that the business was able to operate at the lower staffing level so it should be able to do it again. This outlook does not take into account the effect lower staffing levels had on anything other than the bottom line. I was a grocery store manager ten years ago when the unemployment rate locally was starting to consistently dip below 3%. Some of our departments were always understaffed. The Deli in particular was hard hit - it was a high sales volume, labor intensive department. Being even one person short negatively effected productivity, customer service and even basic sanitation. As it dragged on, it effected morale and turnover increased. When it was time to write the budget for the new year, the payroll expenditure for the short staffed year was the baseline. We were doomed to continue being overworked, providing bad customer service, unsanitary conditions and eventually losing sales. That's the business mindset. Until it could be demonstrated unambiguously that the decrease in sales exceeded the labor savings did the company's owners take any action - it wasn't a problem until it affected the bottom line. The executive order eliminating close to one thousand state jobs assumes the profit mindset and not the service mindset. All that is being scrutinized is the potential money savings, rather than attempting to find out why these positions haven't been filled.
In addition to the differing views of finances, the role of a leader is necessarily different in government and business. In most businesses the owner is a virtual dictator. This is especially true in a privately held company, but can also be true in a publicly traded firm. Boards of Directors can fire a CEO, but in practice a company's management team acts virtually independently and with little oversight. A smart CEO will have a team of accountants, lawyers and other advisors, but in practice there's nothing to reign in a CEO from taking unilateral action. Government is structured differently. Executives, i.e. governors, mayors, presidents, are constrained by a web of rules limiting their power. Legislatures constitutionally have co-equal authority, as does the judiciary. A newly elected government executive whose "qualifications" were running a business is often surprised that they cannot do whatever they like once in office. They certainly don't want to hear "You can't do that". I even heard our current governor, in a meeting at my workplace, say "I'm the governor, I can do what I want".
Related to the fallacy that a businessman will bring skills to the table that will make them a good elected official is the "outsider" myth. While there is some validity to the premise that we sometimes need fresh ideas, new faces and "change", you still have to know what the rules are before you can decide to break them. There is a very noticeable difference in approach between a president or governor who spent time in Congress, or even as a local executive, from one who was elected with no government experience. In the sports world, teams will often bring in new coaches to shake things up. But what doesn't happen is an NFL team bringing in a hockey coach, even if his team won the Stanley Cup. Sure, he was successful. Very successful! But the success was in an entirely different field, even if both were "sports", both involved "teams" and the goal in both was "winning".
Someone wants you to vote for them because of success in the business world? Vote for someone else.
No comments:
Post a Comment