One of the most oft-repeated sayings in political circles is that “the government should be run like a business.” Traditionally, those throughout history who have argued for the reorientation of government and society along the lines of a single business or enterprise have been advocates of socialism and totalitarianism, including individuals like Vladimir Lenin, Henri de Saint-Simon, and Georges Sorel. However, many “pro-business” conservatives have adopted this traditionally left-wing talking point without full consideration of its implications.
Most recently, Oklahoma GOP gubernatorial candidate Kevin Stitt revived this argument. He claimed that by merely reorientating the government along the lines of a business, he will improve Oklahoma’s educational performance, create jobs, and improve infrastructure—all through these supposedly simple administrative changes. In believing that applying the principles of the private sector to the public sector will automatically improve the performance of the public sector, Stitt shows a poor understanding of what makes the private sector successful in the first place.
Government Cannot Mirror the Market
The market is the solution to the problem of dispersed knowledge throughout society, or the fact that no one person has access to all of the knowledge within society.
The key to the perceived superiority of business to government among politicians like Stitt is not some characteristic of businesses themselves but the market environment in which they operate. The market is the solution to the problem of dispersed knowledge throughout society, or the fact that no one person has access to all of the knowledge within society.
As Adam Smith, the Scottish economist commonly regarded as the father of capitalism, once said, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest.”
This means that even if someone doesn’t have the knowledge of butchery, brewing, and baking, through the market he can benefit from others’ knowledge of all three. In a village with three butchers, the butcher with the greatest knowledge and skill will attract the most customers. One of the other butchers, realizing that his services are inferior and thus in lower demand, may lower his prices. Now, individuals of lesser means and individuals who care little about the quality of their meat and wish to conserve their money for other purposes have an option that is favorable to them.
The public sector, however, is like a village with a single butcher. Although the butcher can still respond to the needs of those in his village, he is unable to, by himself, recreate the efficiency and immediacy the market provides.
Businesses are efficient only inasmuch as they are the butchers, brewers, and bakers referenced by Adam Smith. Consider the dispersion of knowledge within a business itself. Anyone who has worked in a business can testify that at some point, a superior has ordered them to do something unreasonable or issued guidelines and procedures in conflict with what the employee knows to be effective. The employee knows things about his role unknown to his superiors, and the decisions his superiors make in their ignorance of this knowledge causes inefficiencies within the business.
Most businesses consider this lost efficiency insignificant in light of the company achieving a conscious goal, which itself is determined by market demands. However, in society, no one person or organization can know the ultimate goal. For example, much of the modern technology that has come about through the market necessitating innovation would have been inconceivable to an individual tasked with consciously directing society 200 years ago.
The efficiency of the market is far superior to the efficiency of any one business, and businesses are efficient only in that they must constantly adjust to meet market demands.
The efficiency of the market is far superior to the efficiency of any one business, and businesses are efficient only in that they must constantly adjust to meet market demands. In fact, larger businesses operated with disregard for the dispersion of knowledge within them are highly inefficient, and it is through the functions of the market that such businesses are often short-lived. Those who seek a free and prosperous society should thus spurn the notion of the government emulating a business—and embrace the efficiency of the market, instead.