In the last blog we discussed the three issues were associated with risk tolerance in the public sector which stifles innovation, application of business principles to public sector efforts, and the lack of vision and understanding of consequences. In this blog we will explore the second issue – application of business issue into the public sector. The public and private sectors are different. We need to recognize this. For the most part, the public sector does those things that the private sector deems to be averse toward profits. Clearly everyone needs water, but if you can’t get people to pay for it, you can’t make a business out of it. Enter government, which has the ability to lein and condemn houses for failure to be connected. A bit more incentive.
Or take fire service. Fire service in New York was once a private affair. You paid and the fire company would respond. If your house caught fire and you had not paid, then what. No one shows. This was illustrated nicely in the movie “Gangs of New York” and was the catalyst for creating the NYC fire department. And many others. It simply is not acceptable to have some people but not all, because of the risk to everyone. Vaccinations are the same way. Much easier to implement by government. And historically this is what has happened.
But we often hear the commentary about how we should be “running government like a business.” However I suggest this is an oversimplified argument that ignores true differences in the objectives of the public and private sector. The two sectors are different and let’s look at an example. If you were in charge of Ford Motor Company and let’s say you had only two vehicles, the F150 pickup (largest selling vehicle in the US) which has a high profit margin, or a passenger vehicle which does not have a high profit margin and does not sell nearly as well. If you determine that your revenues are likely to decrease as a result of the economy, where do you make cuts? There is an easy metric – cutting costs and reducing production of the passenger vehicle might actually maintain or improve your profit margin. So that manager looks like a brilliant leader.
He (generic) now gets hired to run a City because of his success at Ford. The City of course has a revenue shortfall, so what does he do? Much more difficult. He has police, fire, parks and recreation, planning, etc. so where do you cut. None of them are profit centers; they are all services, the value of which cannot easily be measured. He could evaluate the risk of higher losses if he cuts the fire department, but that likely has other issues. Hence there is a distinct different in the metrics between the sectors. So he cuts all services the same amount – sharing the pain because there is no means to measure the impact of success of cutting costs. Every government employee recognizes this method to reduce the budget. So how would that have worked at Ford? Well, cutting back on the F150 and the passenger vehicle the same percent would likely make the overall situation worse, not better. A Ford executive making that type of decision would be roundly criticized and likely dismissed, but that same person is viewed as a successful manager in the public sector. Nonesense. He’s still an idiot and deserves to be fired. Ditto the other officials that go along with such simplistic decision-making.
The public and private sectors are different, and while there are commonalities, the inability to directly measure impacts on the public sector make private sector applications suspect in many situations. Curtaining services that have much larger, unanticipated consequences, a risk that dissuades innovation because of the inherent risks and the risk of impacting some powerful constituency. Simplistic solutions that are commonly offered up simply mean that these “leaders” simply do not understand what their “products” are nor which ones are a priority. And hence they abdicate their decision-making for simplistic solutions that seem “fair.” Successful leaders in business and government will tell you lesson #1 is life is not fair. We need leadership to help us make better decisions.