Governments are not corporations

The New York Times’ Roger Cohen files an optimistic column today, arguing that predictions of American decline are premature. I tend to agree with Cohen’s sentiment but not his logic because, well, it’s God-awful. Here’s the key bits:

Perhaps the most successful U.S. chief executive of the past decade is stepping down this month. Samuel Palmisano of I.B.M. has presided over a remarkable transformation of the technology giant, extracting it from the personal computer business and shifting it toward services and software to power a “Smarter Planet.” In a fascinating interview with my colleague Steve Lohr, Palmisano said the first of the four questions in his guiding business framework was, “Why would someone spend their money with you — so what is unique about you?” At root, business is still about getting money out of your pocket into mine. By being unsentimental in making I.B.M. unique, Palmisano ensured a lot of money flowed the company’s way. Profits followed. The stock price surged. Warren Buffett, who knows which way the wind blows, recently acquired a stake of more than 5 percent. I.B.M. has been re-imagined, not least in the way it has shifted from being a U.S. multinational to a global corporation powered by rapid expansion in growth markets like India and China. The question arises: If an American colossus like I.B.M. can be turned around, can America itself? (emphasis added)

A small aside: if Cohen’s logic is correct, then the 2012 election is over and everyone should vote for Mitt Romney. This kind of ruthless turnaround is exactly what Romney did while at Bain. While his track record can be disputed, there’s no doubt that he was willing to be ruthless to increase profits. So, whether he knows it or not, Cohen is making the argument that a turnaround specialist like Romney would be just the ticket for the United States, transforming America’s political economy into a leaner, more efficient engine for progress.

The thing is — and this is kind of important — governments are not corporations . I cannot stress this enough. There’s the obvious point that in democracies, legislatures tend to impose a more powerful constraint than shareholders, making it that much harder for leaders to execute the policies they think will be the most efficient.

There’s also the deeper point that it’s a lot harder for governments to be "unsentimental" when it comes to the provision of public services. It’s a lot harder for states to eliminate the functions that are less efficient. Frequently, demand for government services emerges because of the perception that the private sector has fallen down on the job in that area. This means that the government has been tasked with doing the things that are difficult and unprofitable to do. It is precisely because these government outputs are often so hard to measure that Newt Gingrich’s claims about Six Sigma sound pretty laughable. Even libertarians who want the government to reduce its operations drastically will acknowledge the political risks and costs of trying to execute this plan.

To be fair, there are some policy dimensions where this analogy holds up better. Cohen implicitly argues that America’s willingness to jettison costly and inefficient foreign ventures — cough, Iraq, cough — is an example of this kind of turnaround strategy. Fair enough. Even on foreign policy, however, it’s hard to execute this kind of ruthless efficiency. Israel is prosperous enough to not need the $3 billion it gets in U.S. aid. Good luck to anyone trying to cut that. Africa is not a vital strategic areas of interest for the United States, but I suspect AFRICOM isn’t going anywhere. I’ve been a big fan of getting the United States out of Central Asia, but critics make a fair point when they observe that the last time the United States tried this gambit, Al Qaeda took advantage of it.

There’s been a lot of bragging in the 2012 primary about candidates that have "real world" business experience, and how that translates into an effective ability to govern. That logic is horses**t. Being president is a fundamentally different job than being a CEO — because countries are not corporations.