Many pundits and politicians claim that government could be more efficient if it were “run like a business,” and many a candidate tout their private business experience as something they could apply, if elected, to help make government more efficient.
Such notions, however, are misguided. As economist Steven Horwitz points out, what is vital for entrepreneurs to be successful (i.e. market prices, profit and loss signals) are absent from government:
The institution of profit and loss (in the private sector) rewards those who are good economic calculators and efficient resource users, and punishes those who are not. Those who survive develop further the skills the system rewards.
Move those same people to the public sector and they lose the private property that connects their fate directly to the economic consequences of their decision making. They also lose the prices and profit signals that inform them about which sorts of action might be the most efficient. No matter how smart or skilled they were in the private sector, thrown into the public sector, businesspeople are denied the incentives and information that made their success possible.
There is one aspect, however, where business experience can be a plus as a lawmaker – identifying and eliminating burdensome regulations that erect unnecessary obstacles to businesses.
But in terms of rooting out waste, prioritizing the use of scarce resources and finding greater efficiencies, the information used to guide decisions in the private marketplace are absent in government.