Why the Public Sector Can’t Be Run “Like A Business”

The public sector can certainly benefit from the adoption of many business practices, from a focus on customer service to more efficient work flow, from TQM to greater transparency.  But no matter how important these practices may be, no matter how much the public sector can benefit from their use, there is a fundamental difference between the two sectors that will perpetually lead to differences: the public sector rests on a foundation of democracy while private organizations do not.  This plays itself out in at least five ways: government’s requirement to serve everyone, government’s requirement to fulfill its entire mandate, the multiple and sometimes competing dimensions that defines quality in public programs, the complicated way public revenues are generated, and the population-wide ownership of the public sector.

1) Universal Imperative:

If a firm’s product doesn’t do well, it gets discontinued.  If an employee is failing to perform, he gets fired.  If a factory doesn’t cost-effectively produce, it gets closed.

But public services are not allowed to do triage, to cull the best and leave the rest.  The motor vehicle department has to serve all citizens, no matter how obnoxious or uncoordinated they may be.  Schools are expected to educate everyone, no matter what their capability, motivation, external support, or other factors.  This democratic foundation is one of the good reasons that we ask the public sector to take on essential functions.  It is vital that public services are universal – this gives the entire society a stake in their existence, continued funding, and quality:  programs only for poor people inevitably end up being poor programs.  But it creates a totally different context for public sector work.

2) Open-ended Responsibility

A business gets to define the limits of its products and services — to say that their products will serve some purposes and not others, that their services will do certain things but not others – beyond which they are not responsible.

It is much more difficult for public services to create expectation boundaries since the public sector is generally seen as the provider of last resort for nearly every problem.  Welfare, for example, is simple an income transfer yet it is supposed to solve job training, child care, and citizenship problems as well.  Teachers are supposed to pass on specific knowledge and skills, yet schools are also expected to deal with sex education, alcohol problems, mental health and behavioral issues, dysfunctional families, safety education, obesity, and just about every other social ill.

It is very important that we continue to insist that ways be found to solve social problems, no matter how difficult they may be.  But we need to either create more appropriate programs and institutions to serve this broad range of tasks, or give enormously greater resources and lots of room for innovation to the existing institutions whose mission is being so radically expanded.

3) Ambiguous Evaluation

A business has a legally clear and simple goal: making money.  Progressives have repeatedly tried to expand the list of private sector goals to include workforce development, environmental stewardship, public service, and more.  But these have only endured to the extent they are tied to the core directive of profit.  Firms that profit are successful; those that don’t fail.  In theory, managers (and owners) of the former get rewarded; managers (and owners) of the later pay a price.

The public sector is responsible for the continued health of society as a whole, which means every aspect of nearly every person’s life.  Schools are ultimately responsible for creating the next generation of adults in all their roles as citizens, parents, friends, workers, and individuals.  Of course, there is wide disagreement about what is meant by each of these categories.  So not only does the public sector have a constantly evolving and endlessly contentious mission, there is no simple or agreed upon way to measure its success in achieving that mission – whatever it is.  This leads to the robust and never-ending political debates that are the essence of democracy, but it also makes it hard for public sector firms to focus their efforts and measure their progress – and for the public to evaluate their level of success.

4)  Funding

Business investors are not doing charity.  They invest money in expectation of getting a profitable return later on.  A firm’s expected ability to provide that return determines how easy it will be to secure credit, get loans, and sell stock.  The other major source of funds is customers, who can refuse to buy if the firm’s products and marketing aren’t attractive or if the customer’s own financial situation worsens.

Public sector organizations are funded through taxes.  While taxes are actually an investment in the continued health of our overall society (without which none of our personal lives and business activities would be possible) our culture primarily describes them simply as a cost, or even as “theft.”  And it is true that taxpayers have little choice about paying, no matter how bad their own financial situation, or how poorly public services are delivered, or even whether or not they are direct users or beneficiaries of a particular service.

The mutual aid and insurance aspects of taxation – through which (in a progressive system) everyone contributes into a common pot according to their income and wealth with the knowledge that resources will be made available to them when needed – is a vital foundation for the cultural awareness that we are all interdependent with overlapping lives and intertwined destinies.  But taxes are also, by definition, political, subject to the manipulative distortions of appeals to anti-social self-interest by right-wing demagogues.

5) Ownership

Private firms are owned by investors.  The owners have final say, directly or indirectly, over all decisions.  Decision-making is an insider’s prerogative.  No outsider expects to be able to tell Coca-Cola what to do; we can subsidize, regulate, protest, or boycott – all from the outside.  But we can’t decide.

The public sector is “owned” by everyone.  There are no outsiders.  We believe that public workers work for us, that public organizations exist for our benefit.  This is based in everyone’s right to vote.  But it extends into our attitudes:  everyone has an opinion about the way our schools should be run and feels free to demand that school authorities listen respectfully.  The democratic foundation of the public sector gives everyone a stake and a voice, but also creates a context in which operational decisions can become media nightmares, bosses change every few years, priorities change even more often, and avoiding scandal is sometimes more important than improving performance.

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