The debate of whether local government should, or should not, be ran like a business has been an ongoing debate for a long time. In the 1910s and 1920s as Willam Taft and Charles Dawes started to advocate for a more like “business” to address the dysfunctional elements to local governments. While I agree some “business” principles can help local governments run more efficient [discussed in later sections], many of the core values of business principle are diametrically opposed to what can be seen as core values of good local government principles. Let me share a few principles where, I believe, business and local governments are miles apart:
Social Equity and Justice: I wanted to start with what I believe is the central distinction between local government and business; social equity and justice. Businesses focus their resources and services on the most profitable segments in their market. They design their products and services on those most able to pay for them. Businesses define market segmentations into those where their products can be sold and sold at the highest price to increase profits. Let’s be honest, Louis Vuitton is not interested in producing products to be sold in Walmart.
Local governments need to ensure equal treatment and access to all services, to all citizens, regardless of their economic status within their geographic location. This commitment to equality requires the need to subsidizing services to those in need, the marginalized, low-income communities, urban and rural areas, and those with different abilities, ensuring all are served equality, and with dignity. Local government leaders often need to make decisions that business leaders would see as financially inefficient and yet are essential on focusing on social unity and cohesion, while focusing on fundamental rights.
Success and Accountability: Businesses operate on a straightforward framework of Quartey and Yearly financial metrics; profit and loss, profit margins, return on investment, market share, and shareholder value. Focused metrics which are quantifiable, regularly reported, and metrics which can be compared across companies and industries to measure success. The accountability structure is clear; answering primarily to shareholders and boards of directors. Success in profit is the driving force.
Local government, on the other hand, measure success by a complex web of social outcomes, often defy any simple quantification. What is the qualitative return on preventive health care, clean and safe roads, public education, clean water, clean air? Outcomes often take years, decades, to manifest. Local governments also dance between the complex relationships between many government programs and societal Issues. Local government accountability centers on all those living in the community via the democratic processes. Local governments seek to balance the diverse and competing interests of all, which means local governments need to focus on financial efficiency and also long-term social benefits, fairness, and equity of the community. Local governments need to weigh the needs of the current generation with the needs future generations, balance urban and rural interests, and consider the impacts of policies on minorities and disadvantaged populations.
Planning: The typical business focuses on quarterly or annual results. These results are designed to satisfy the desires of shareholders and possible face market fluctuations and expectations. Depending on the business, and market, long-term planning usually centers on a five to ten years driven by market pressures, stock price, shareholder demands, and competitive advantage in changing markets.
Local government planning operates on much longer time frame. Local governments focus on possible impacts that might occur decades or even generations, in the future. When local governments focus on infrastructure projects, i.e. highways, bridges, public transportation systems, environmental impact, economic development, long term social issues, pensions systems, annexation, and more, require planning decades in the future; whit some infrastructure planning requiring planning 15 to 25 year in the future. Local governments long-term perspective and planning are ensuring for stability and future generations and conflict with a business mind focusing on short-term returns.
Risk Management: Businesses calculate risks in terms of profit, share price, shareholder security, profit opportunities, markets, and where bankruptcy is an acceptable outcome to mitigate risk. In general, businesses do not supply essential services, it what they produce or service they offer, leaves the open market others will jump in and take their place. When risk appears, businesses can shift priorities and focus on different markets. They also have the ability to fail, rebrand, and reboot, where it is essential to managing risk.
Local governments do not have the opportunity to shift markets as risk appears; risk mitigation is and ongoing issue for local governments. If local governments operating on the level of risk acceptable to businesses they would soon find themselves on a dangerous path of failure. All citizens depend on consistent, efficient, dependable delivery of essential services. Local governments failing to delivery on local police and fire safety, infrastructure upkeep, or social services delivery [all different from long term planning] can bring about catastrophic consequences to those expecting services. While local government operations can appear bureaucratic and inefficient [I will share the need for innovation in another section], they reflect the fundamental nature of stability and reliability in local government.
Competition vs. Monopoly: Competition reflects a fundamental difference between local government and business operations. Most businesses operate in what we call “the competitive markets.” This market is based on consumers having choices among providers, driving innovation and efficiency through market forces. This competition creates pressure for continuous improvement and cost control, as businesses must constantly work to maintain their market position and attract customers.
Local governments often provide services where competition is either impractical or undesirable. When local governments privatize public services, we often see a dramatic increase in fees to the community, a drastic decline in the quality of services, driven by the profit motivations of the businesses providing the services. Outsoaring local government services will often lead to lower quality, inefficiency, confusion, leading to dangerous gaps in service and a lack of trust. Some local governments have outsourced their law enforcement and fire services to “county services” leading to higher costs, and slower response time. While others have contracted with for profit ambulance services leading to many of the same results and a decline in community support. Maintaining the monopoly on these services is not a failure based on market principles; it is a recognition certain functions require centralized coordination and universal standards to serve the public interest effectively.
Innovation and Efficiency: Business drive efficiency and innovation primarily by the pursuit of competitive advantage and profit opportunities, with success measured in market share and financial returns. While a profit-driven efficiency and innovation can produce rapid advances in products and services, the focus is on areas with the greatest potential for financial return.
Local government innovation focuses on improving service delivery and social outcomes, and at the same time maintaining stability and equity, for example, focusing on public health initiatives, or services for disadvantaged populations. Local government innovation focuses on the needs of all citizens, not just those who can pay for services. Local governments can learn from certain business practices regarding organization and efficiency.
Conclusion: The fundamental differences between local government and business make most comparisons problematic; business focuses on market shares, profits and shareholders, while local governments focus on the fundamentals of the social contract. Local governments can certainly learn from certain business practices regarding organization and efficiency, but the fundamental differences between local government and business make direct comparisons problematic. Attempting to run government “like a business” oversimplifies the complex role of local government and undermines local government’s essential functions. Challenges facing local government – including universal service obligations, long-term planning horizons, complex accountability structures, and commitments to equity and social justice – require approaches will sometimes prioritize social outcomes over financial efficiency. Recognizing local government, while keeping the distinctive nature of local government from business, can be a complicated, not impossible, endeavor. The key is to develop approaches by aligning local government’s unique purpose, serving the public good, protecting rights, and ensuring equitable access to essential services for all citizens, while making decision that would not make business sense.
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