Why can’t a women be more like a man?
Thus laments Henry Higgins as he wrestles to understand Eliza Doolittle and the mysterious effect she has upon him. Would we really want to eliminate those differences to avoid the complications that result?
In my last article I alluded to the notion held by many that the federal government should be run like a business. Government, it is said, is wasteful because it does not allow for the competition of the open market to force a greater degree of efficiency from its performance. As the sole provider of such things as health care, social security, the military, a penal system, maintenance of infrastructure, government excludes itself from the challenges of competition. Government has no incentive to be cost effective and instead sets its own standards which inevitably lead to waste and inefficiency.
The other major criticism is that government interferes with the performance of the free market system through the imposition of regulations which serve no useful purpose and only impede the progress of the economy and add unnecessary cost to goods and services. These regulations, as well-intended as they might be, serve no useful function, created as they are by regulators who lack any understanding of the process they are assigned to regulate and whose primary function is to justify their own existence in the next budgetary cycle. As such they are a detriment to the public by adding additional burden to those who provide the goods and services we need and the jobs essential to our survival.
There is a great deal of truth to these observations. In the days when I had to deal extensively with governmental agencies I used to joke that you could blindfold me and lead me into an office and I could tell immediately if I were in a private firm or a government agency just by the level of activity or lack thereof. Bureaucrats have long held the reputation for doing things by the book, filling out forms, following standard operating procedures, passing the buck and having no desire beyond maintaining their performance rating and putting in their time until they could retire.
The argument is made that a free market will ultimately produce the greatest good for the greatest number if left to its own devices. Competition will drive the inefficiencies out of the system and produce the best goods and services possible at the best possible price for the consumer. Why then has this not worked for the pricing of gasoline? Prices at the pump move in lockstep and any variation in price among competitors remains within a narrow range. Over the course of the past several decades, those prices have headed in only one direction – UP!
Is it the goal of a corporate entity to focus on the greater good; or is it simply concerned with its own survival and remaining attractive to investors? For nearly 4 decades, auto makers in America knew that the future called for greater fuel efficiency. Not only was this necessary for the public good, it was necessary for the auto maker’s own survival. Yet they persisted in making only those vehicles that produced the greatest profit. They maintained this course of action until they had driven themselves to the brink of complete elimination. And so the question arises – how can the public put their faith in the free market if it lacks the wisdom and foresight to even prevent its own demise?
Alan Greenspan, the great champion of the free market system, found his faith shaken to its core as a result of the financial crisis of 2008. This rude awakening is demonstrated in the following exerpt.
“Greenspan said his mistake was thinking that financial institutions would act in their own self-interest to avoid the kind of risky lending that could bankrupt them.
“Free markets did break down,” he testified. “That, as I said, shocked me. I still do not fully understand what happened.”
In his prepared remarks, Greenspan said the surge in bad home loans was fueled by demand of investors around the world for mortgage securities. Rating agencies failed to appreciate the risks in the inflated housing market and investors convinced themselves that the mortgage securities were safe. To accommodate investor demand, mortgage lenders stepped up their volume, with little regard for the safety of the loans they were handing out.
As a result, “the whole intellectual edifice” of risk management collapsed, Greenspan said.”
So why can’t a government be more like a business? It is for the very same reason that a woman should not be more like a man. The Free Market System is analogous to the aggressive, competitive nature of the male. But, left to its own devices, and absent any countervailing forces, such a nature quickly becomes destructive doing more harm than good. Government serves in a more feminine role, bringing the group together through bonding, consideration, fairness and concern for well-being. If one reads the preamble to the constitution, it is clear this is the role intended by the founders.
Everyone who has been conscious over the past decade knows that the events of 9-11, the fiasco in New Orleans after Katrina, the collapse of the housing market and the crisis in the financial sector were all due in large part to a failure on the part of government to meet its responsibilities. In each case, it was not too much government or over-regulation that created the conditions or allowed the events to occur. It was too little government not doing its job properly. In each instance it was the result of an attempt to downsize government, to gut its regulatory authority, to foil its capacity to provide appropriate oversight of goings on within each sector of the economy.
As Greenspan further observed, in Globalization and Regulation, p. 375,“An area in which more rather than less government involvement is needed, in my judgment, is the rooting out of fraud. It is the bane of any market system.”
Finally, when truly put to the test just how serious are we about shrinking the size of government? What was the response after 9-11? Was it to diminish government, or expand its bureaucracy and authority creating whole new departments to monitor and control our actions while engaging the military in the longest war in our history? What was the response after the collapse of the financial market? Was it to involve government even less or to transfer billions of funds from the public to the private sector in order to prop up the investors and speculators who brought the whole financial world crashing down upon our heads?
The truth is that we don’t really want a government more like a business any more than we want a woman more like a man. Sure, we could do without the hassles the differences create. But each has its role and, as in any relationship, if either party becomes too overbearing and fails to understand and appreciate what the other brings to the table, the relationship becomes dysfunctional. We don’t need to look too far back in history for the lesson to be learned. But will we?