When Business Meets Governance: A Risky Convergence
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With anticipated changes to the U.S. government's structure and approach to its portfolios, and with many of the people nominated for key positions in Trump’s upcoming government hailing from a variety of corporate and business backgrounds, it is a good time to take a look at the potential impact of managing government like a business.
This will be a two parter, with the first part looking at the general impact of managing a government like a business, and the second part taking on board the impact of the predictable Dunning Kruger effect that often comes with people attempting to tackle government without fully understanding the multitiered consideration that come with a high level government position.
The Dunning-Kruger Effect is a cognitive bias where individuals overestimate their competence in a specific area—a mistake many of us make at times. In this case, people with business backgrounds come into government with the assumption that they are better suited to solving challenges that face government because of their success in business. They frequently underestimate the divergence in context, style and goals of the two sectors and believe that success in one translates into success in the other.
The reality is that government and business are entirely different entities. They have different goals, purposes, and flows of operation. They serve different masters and do not align in their methods, and excelling in one does not necessarily translate into success in the other. The parameters of success in each of them are starkly different, as are the markers of failure and what could be considered a failure in one is not necessarily true for the other.
So, the question is: what happens if we try to approach government with a pure business mindset?
Goal Variance
The goal of business is to maximize profit, and it is structured accordingly. It seeks to reduce costs to ensure continued profitability, and its entire set up is geared with that in mind. The primary beneficiaries of a successful business are the owners, who reap the profits. The services or goods provided by the business to its clients serve that need, and therefore the clients are a means to the owners’ profits. The clients are not the goal.
For governments however, the goal is the provision of services. The citizens are the beneficiaries of the government, and the ones that hold it to account. Governments are - at least in theory - established to represent and address the interests of their citizens. It is where the common three-pronged government structure originates from: the legislative arm representing the voice of the people, the executive to ensure implementation of actions to address their needs, and the judicial to ensure accountability.
While business success is defined by its owners, government success is measured by citizen satisfaction, well-being, and safety. Government effectiveness does not hinge on its profitability, but rather its ability to deliver what citizens need, particularly in times of crisis.
Approach Variance
With these diverging goals, the approaches to achieving them are starkly different. A business will focus on designing its operations for maximum efficiency, lower costs as much as possible, and delivering the lowest cost product or service acceptable by the market, and charge as much as the market will bear. Governments, by contrast, aim to deliver the highest possible quality of service within their resource constraints while ensuring sustainability and access.
Businesses eliminate unprofitable branches, reallocating resources to areas with higher returns. Government on the other hand needs to be equitable in its provision of services; an under-resourced department providing essential services to vulnerable populations, for example, is provided with additional resources rather than cut off. Efficiency is paramount for business success, while effectiveness in delivery is what government hinges on.
Mismatch of Goals
A purely business-minded approach to government looks at it with a very narrow scope. It looks at improving efficiency through cost cutting measures, and through the lens of return on investment. Looking at government expenditures and the related return inevitably and repeatedly leads the business-oriented mind toward cutting costs and trimming government bureaucracy to the lowest operational necessities. It looks to eliminate redundancies and ensure that the cost burden is justified by the returns of those costs. This approach disproportionately impacts vulnerable citizens, such as those in poorer or remote areas, by prioritizing efficiency over equitable service delivery.
When the government adopts a returns-oriented mindset, public services risk being underfunded or deprioritized if they don't yield immediate tangible returns. For example, services like public health, disaster response, or social welfare, which may not be profitable but are essential for societal well-being, could be neglected, particularly in times of relative normalcy, leading to a reduction in their scope.
The blowback from this manifests when crises emerge. Governments often contain within them redundant system -overlapping responsibilities or backup systems spread out over multiple departments for example- to ensure continuity and capacity to deliver results in times of crisis or particular challenges.
The elimination of redundant systems yields immediate short-term results by reducing the gap between spending and enhancing efficiency. It however also introduces vulnerabilities and reduces operational resilience. Without overlapping systems in place, the impact of crises multiplies and the ability of government to deliver services to vulnerable members of society is reduced.
Inequitable Benefit Distribution
Businesses primarily serve their shareholders, focusing on maximizing returns. Adopting this mindset when approaching government and mimicking corporate governance gives disproportionate influence to those who pay more into the system. The inevitable result is the rise of inequitable policies where certain groups receive preferential treatment based on economic value rather than need. This results in deepening social inequality and alienating marginalized populations.
Apparent government inefficiencies are often geared to address this very issue. Systems geared to deliver services to underrepresented or under resourced areas often read as inefficient when looked at from a returns perspective: in reducing people to numbers, the return for spending on delivery quality services (medical/education/safety/relief/social support/etc.)
Unlike businesses, governments are tasked with ensuring equal access to services for all citizens, regardless of their status or ability to pay; while businesses favor those who can afford their services, government should not theoretically engage in such distinctions.
Programs like unemployment benefits or disaster relief often overlap across agencies, creating resilience and ensuring no one falls through the cracks. A business-like approach would likely consolidate or eliminate such overlaps, leaving gaps for those in need.
Inefficiency in Non-Profit-Driven Services
Government is a non-profit organization. Most of its services are not expected to yield profits, but rather enhance the wellbeing and quality of life of citizens. Think of sectors that are critical for societal function, such as infrastructure, education, health, and public safety. These sectors form a baseline below which society begins to face crises.
When looked at from a business-oriented lens, these sectors (if operated by the public sector) are highly inefficient. They require constant maintenance, and large teams of skilled personnel to upgrade and operate, and generally represent a large spending burden without providing returns to the budget. The cost to revenue ratio for them is generally abysmal.
The urge, from a business perspective, is to figure out a way to minimize spending on these sectors, even if that impacts access to the services. For example, privatizing some sectors and relegating them to the private sector is often presented as a solution to large scale spending, arguing that private enterprise will manage the sector more efficiently and even provide revenue to the government budget while doing so.
What actually manifests however is that private enterprise, driven by profit, will redesign the sector to cater to their own main incentive: profit. This progressively leads to reducing operations in unprofitable sectors or regions, reducing access to previously available services and discriminating against vulnerable populations. By streamlining operations and prioritizing profit and efficiency over effective service delivery, often excluding lower-margin segments.
Governments tolerate inefficiencies, including redundancies, as they prioritize service effectiveness over profitability, and continued and sustained service capacity rather than ad hoc provision based on expected returns. Adopting a business mindset might therefore lead to deprioritization of services deemed "unprofitable," such as rural healthcare facilities or public transportation in low-density areas, resulting in societal harm, regional disparities, and inequitable access.
In times of crises or disruption, businesses could for example cease or pause production or delivery of services until the disruption is over and resume once suitable operating conditions resume. Government on the other hand needs to ensure that during times of disruption or crisis that they are able to provide uninterrupted services, relying on existing frameworks and operational mechanisms. For example, multiple water sources, backup power systems, or public transportation options are maintained to ensure continuity in service during failures. A business approach might centralize or privatize these systems, leading to critical disruptions during outages and exacerbating emergency situations.
Short-Term Focus vs. Long-Term Sustainability
While businesses prioritize short-term gains to satisfy investors, governments must focus on long-term continuity and stability. Applying short-term profit-driven strategies in government could undermine investments in sustainable development, environmental conservation, and long-term infrastructure projects that are critical for sustaining development and maintaining a good quality of life for society rather than only for those who can afford it.
In envisioning long term sustainable delivery of services, governments consider potential systemic breakdowns within their calculations, and as a result build extra capacity in in infrastructure (e.g., reserve hospitals, backup IT systems), or create deliberate overlapping mechanisms, allowing effective management of sudden spikes in demand or failures in primary systems.
Revenue and profit driven entities like businesses would likely underinvest in these systems if they do not offer potential returns on invested resources; during regular operating circumstances, this investment of resources would read as inefficient resource management and allocation.
Misguided Metrics of Success
Efficiency is a key metric in business, with inefficiency leading to failure. In government, effectiveness—ensuring service delivery and citizen satisfaction—is more important, even if inefficiencies exist. Efficiency, as a primary business metric, often eliminates redundancies deemed non-essential. In government, deliberately designed redundancy supports effectiveness by providing safety nets and alternative mechanisms in case of service disruption, even at the cost of inefficiency.
Efficiency as a metric of success therefore could lead to over prioritization of cost-cutting measures to balance revenue with expenditures. Achieving this usually comes at the expense of the quality or accessibility of essential services. For instance, privatizing public services might introduce barriers to access for low-income citizens, compromising the government’s ability to serve everyone.
Effective delivery as a metric of success however guides government to prioritize the needs of citizens over efficiency; in a scale between the two, the former outweighs the latter in the case of government, while the reverse is true for business.
What could be considered redundant for a business might be viewed as an important risk mitigation plan for government. Deliberate redundancies in systems (e.g., overlapping regulatory agencies or multiple levels of oversight) ensure checks and balances, prevent systemic collapse, and reduce the possibility that governments would fail to deliver the services required.
Risk to Social Safety Nets
When looked at through a return on investment prism, the social safety net provided by the government for its citizens would appear as a symptom of a bloated bureaucracy, the functions of which could be substituted through privatization and cost cutting measures. It is frequently a measure that disproportionately benefits underprivileged segments of society that would otherwise not have access to the resources or services they need to uphold their quality of life.
From a business point of view, this is an inefficient use of resources, and would be approached accordingly, with efforts geared toward curtailing expenditures as much as possible, inevitably reducing or degrading the quality of the social safety nets for the most vulnerable. A business-like approach might lead to neglecting underperforming regions or sectors, such as economically weaker areas or struggling school districts, eroding social safety nets that protect vulnerable populations.
From a governmental perspective, the outlook is that of strengthening weaker and more vulnerable sectors for the benefit of society as a whole; while business operates in an environment where competition drives innovation, governments are geared to foster collaboration and unity in a society, providing support for more vulnerable members to protect the cohesion of societal structure as a whole. An ailing school district, for example, may receive state and federal support to prevent closure or degraded quality of education, whereas a business approach might shutter or deprioritize such districts.
Citizens are not Customers
Businesses provide goods and services in exchange for payment. They provide better products for those who pay more in the service of their primary goal, which is profit. Customers know that this is a transactional context and therefore expect unequal treatment to be based on their economic value to the business.
Government’s relation with citizens is not transactional. Citizens expect equal quality of service across the board regardless of status, and similarly expect continuity of services even in the face of challenges. A disparity in treatment based on economic value to the government would undermine its raison d’etre and lay the foundations for broad inequalities in a society, with widening gaps between the haves and have nots.
While it may provide useful returns in the immediate term, incentivizing those with greater access to resources to support the government, over the long term this breeds reduced government ability to deliver on its services and fosters a corrupt, transactional form of interaction between government and its citizens.
A Tempered Approach
All of this comes with an important disclaimer. Everything above would make it appear that I believe that government run through a purely governmental bureaucratic approach is the best-case scenario. That is not the case. Governments are notoriously inefficient—not just in the business sense but also in achieving their own goals and fulfilling their purposes.
Governmental organizations are set up in such a way that the cultures that evolve within them are often more skewed toward process than results. Without ways to incentivize employees similar to the private sector, the motivation within governments becomes avoidance of blame and damage making the organizations hesitant and lethargic in decision making and implementation as a result of reluctance to take responsibility for actions.
When governments recruit only from within their ranks, innovation and development stagnates, and the ideas and proposals become circular. As solutions to challenges follow the same patterns, problems persist and remain unsolved, often morphing into more complex challenges.
This means that infusing new ideas into government structures is both welcome and necessary; bringing in new perspectives and innovative approaches develops new strategies to problem solving.
In this sense, bringing on people from a business and corporate background to address challenges infuses government with renewed vigor, and can help identify problems and ways to improve mechanisms to operate more effectively in addressing challenges. Business and corporate mindsets are more suited to finding the shortest ways to solve a problem, through their efficiency mindset.
However, approaching government challenges entirely through a business lens is where the problems lie: while certain business principles, such as operational efficiency or innovation, can improve government performance, a wholesale adoption of business strategies would likely lead to reduced service quality, increased inequality, and diminished public trust. Approaching government purely like a business risks exposing systems to avoidable disruptions and leaving citizens vulnerable during crises.
To effectively utilize the business mindset in government therefore, a balanced approach is necessary, blending efficiency-driven business practices with government’s broader strategic vision to achieve the best of both worlds.
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