Are businesses more efficient and effective than governments?

Posted on 18 August 2014 | 4 Comments

A particularly disheartening feature of the world we’ve been living in since the 1990s is the assumption — widely held and expressed in many ways — that anything governments can do, private enterprise can do better. It’s not exactly a lie. There are indeed many things private enterprise can do better than government, but the generalization of that proposition to any and all government programs doesn’t hold water.

My August 12th (2014) entry in my Passing Scene column points — too cryptically, I’ve decided — to two examples of the misapplication of market principles to governance — one from a recent newspaper article and another from a study a student and I did a few years ago. The newspaper article is written by a competent journalist and is self-explanatory.

The academic article is a different matter,

not because I don’t know how to write, but because, in an academic article, you can’t just explain an interesting finding, you have to place it in a theoretical context, one which, more often than not, is less interesting to a member of the public than to a boffin — as the British like to call those of us who teach and do research in universities.

The problem that both articles address is the assumption, a staple of 21st Century governance, that the best way to get almost any job done is to solicit bids from qualified providers and give the contract to the organization that submits the best bid. That sounds reasonable: A bidding process is open to anyone who can do the job, and seems to ensure that work is awarded to the person or group most qualified to do it, rather than civil servants, or those who have cultivated good relations with civil servants or politicians.

So, what’s the problem? Actually, there are a number of problems, but for now, let’s just deal with one particularly important one. The delivery of such social services as immigrant settlement often requires co-ordination among different branches of government. Refugees, for example, may need food and clothing, help in family reunification, and language education, thereby requiring the services of different branches and levels of government.

In other words, in traditional government administration, the public servants dealing with the needs of refugees, who necessarily work for different government agencies, have to talk to each other and work together. That’s the most important thing that gets lost when immigrant settlement services are contracted out.

Anyone who bids for the opportunity to supply a government service, whether she’s employed by a company or a government department, becomes a contractor. Contractors are not allowed to communicate, either with competing bidders or with the agency calling for bids. Such communication constitutes either collusion or conflict of interest.

As my article explains in greater detail, reducing a social service to a business opportunity deprives deliverers of the service of much of the capacity they need to do their job really well. Government accountability and economy are laudable objectives, but the reduction of a service provider to a business is, in many cases, a poor way of going about it.

This entry was posted in Economic policy, Multilevel governance, Political economy, Social policy, What's wrong with the way our communities are governed and tagged , , , , , . Bookmark the permalink.

4 responses to “Are businesses more efficient and effective than governments?”

  1. Sid | 19 August 2014 at 6:30 pm | Reply

    All depends how well a government administers its RFP’s. On the social side, it also depends how they Government oversees the services contracted for. I believe that government having no accountability is worse than a business since a business is liable and can vanish if they preform poorly. The marketplace tends to deal with them quickly.

    A government on the other hand can continue to exist and preform poorly. As long as they maintain their majority in an apathetic environment , its all good.

    Examples of government not preforming for their stakeholders.

    MPIC donating money to the CMHR
    MLCC donating to CMHR
    MLC donating to CMHR and handing Millions to a private corporation.
    Hydro – overspending to chase markets that have nothing to do with their mandate and responsibility to their stakeholders.

    All 4 also spend lavishly on advertising, which , is not really required since they are defacto monopolies.

    In the real world – this would not be tolerated by shareholders and markets. Consequences like bankruptcies, share depreciation, job loss are very real market mechanisms.

  2. Christopher Leo | 11 September 2014 at 9:01 pm | Reply

    Jim Hoddinott (Vice-Principal, Author, Blogger) had a comment on my Passing Scene entry for 9 September 2014. Here it is:

    “She [Judy Wasylycia-Leis] may be right that it will take decades but with her plan it will never get accomplished. Municipalities can not generate the revenue to fix infrastructure. It is a problem across Canada. The entire tax structure at the Federal, Provincial and Municipal levels all need an overhaul and we need to look at fairness issues. We need new thinking at all levels.”

    • Steve Snyder | 17 September 2014 at 4:06 pm | Reply

      I agree with Jim that municipalities can’t generate sufficient revenue to fix all their infrastructure, but I’m of the opinion that this isn’t a funding problem; it’s the fact that we are over built.

      For example, the neighbourhood everyone loves to hate, Linden Woods. Lindenwoods Drive hitting Route 90 has just as big (and just as dangerous) an intersection as at the McGillivray/Route 90 intersection. Same with many other residential collectors, like Grassie @ Lagimodiere, De la Seigneurie, River, or Island Shore @ Bishop, Burrows @ Keewatin, Red River @ Main, Warde @ St. Anne’s.

      Even within newer neighbourhoods you have intersections like Dr. Jose Rizal @ Adsum or Aldgate @ Dakota.

      This shouldn’t be a question about funding! Unequivocally, there is no funding method that will keep us on this current trajectory. We cannot create a budget solution to fix our roads. It’s not a matter of how large our tax increase needs to be, nor is it how deep our civic services will be cut. What is needed is a city council and city administration that understands how to create value in the places they approve. Also important would be for the City to prioritize those areas that are already creating the vast majority of value; value in this sense — as seen from the City — being property value.

  3. jameswhoddinott | 11 September 2014 at 11:27 pm | Reply

    I agree with the premise in regards to business running government like a business doesn’t work. It has been a drastic mistake to privatize essential services. Snow clearing and trash collecting for an example has not provided the savings promised and in fact has also resulted in a growing dissatisfaction with the quality of service provided. Are current mindset needs to change. Reducing taxes on business has not increased jobs and only increased profits for a few people which has negatively effected Government’s ability to provide the services for people. Our tax system needs to be looked at differently. I would propose an incentive system that rewards individuals and businesses making decisions that fit in with a vision. The receiving of tax credits when you create jobs, make green decisions (reward one car families or people who use public transportation) I guess tax credits for those that support the long term society visions.

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