In business, is it competition that keeps organizations in check in terms of the prices they charge and the quality they deliver. With few exceptions (such as natural monopolies), this competition is fundamental to a capitalistic system. But competition often means that some entity wins and some entity loses. Losing could mean having the smaller market share, but it also could mean going out of business. In fact, businesses go out of business and others start up every day. Government agencies, on the other hand, don’t “compete” in the same sense, and it’s unrealistic to ask them to. Do you want to have two police forces fighting to get to the same crime scene first? Do we want government agencies to go out of business and others start up on a regular basis? Of course not.
Consistency of delivery is a hallmark of a public service. If my TV manufacturer goes out of business, well, no big deal—I’ll buy my TV from someone else. But for our armed forces, do we want a different organization managing the country’s defense every year?
Inherent in the capitalistic notions of profit maximization and competition is risk. Businesses take risk. By and large, it is the businesses that take the most risk (and then in turn succeed) that deliver the greatest return to their shareholders. However, for every company that succeeds, many more fail. This is totally acceptable in a capitalistic system, because it is this risk-taking that fuels innovation and growth. However, no one in business would be willing to take these risks unless they had a system that protected their “downside.” The corporation was invented to do exactly that—it shields the individual owners, directors, officers, and other employees from individual liability. They are protected from financial loss (shareholders can only lose the money they put in, but not more) as well as legal liability in the case where the company causes harm to others. This is known as the corporate “shield.”
The ultimate manifestation of this shield is the bankruptcy process. When a company goes bankrupt, it restructures or eliminates its liabilities. The corporation can be re-formed and start again, or it can be dissolved. In any case, the individuals within the company have no downside other than the money they invested themselves. In fact, the bankruptcy process in this country has been crucial to its economic growth. Without a bankruptcy system, companies would not have taken nearly the risks that they have, and without the risk taking, there would be little innovation or growth.
With very limited exceptions, government agencies don’t go bankrupt. The risk of their not being able to deliver on their services is just too great. Again, we’re OK with a restaurant going under, but what happens if my police force goes bankrupt? Do I not have police protection for a while? Therefore, government agencies by design will be more risk averse. The consistency of delivery of those services trumps the potential to optimize them.
In a government setting, risk is also measured in more than just financial terms. For example, no one argues that public schools are doing everything possible they can for all students—we know there can be improvements. Even though most school districts are constantly trying to improve curriculum and instruction and learn new “best practices,” schools will inherently move slowly and cautiously in making changes. The reason is simple: In a corporate setting, the risk of experimenting on a new product is limited (the risk is the loss of the investment made in that product), but do we really want to seriously experiment with our children’s future? The price for being “wrong” is often just too high in delivering a public service. Of course, schools and government agencies should always look to improve, but it’s hard to fault them for being cautious.
Otto Von Bismarck allegedly remarked: “Laws, like sausages, cease to inspire respect in proportion as we know how they are made.”
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