Tuesday, August 16, 2016

Government cannot be operated as a for-profit business

A few years back I received a call from a business entrepreneur who wanted to invest in what he conceptualized as a local newspaper that would editorialize about "running the city like a business".
He was enthused enough to be considering an investment in such a project and asked for a presentation on the subject, in order to be more clear and committed to the notion.

After having covered city hall for a decade plus, as a neophyte reporter, and written about issues and personalities, conflicts, the passing of bylaws, and the community gut-wrenching debate over the values and the benefits of a peripheral shopping mall as compared with a similar shopping centre in the downtown core, I was asked to make a presentation on the validity and sustainability of a local newspaper that would focus on the deliberations, decisions and long-term planning of city hall, determined to put pressure on the elected politicians and their staff to "operate the business of the city on the premises and principles of a business. I accepted his invitation, and made the presentation.

Business transactions, by definition, in the micro-sense, require a customer, a supplier, a determined price, and the passing of a good or service from one to the other. In a macro-sense, the level of the supply of the product or service, the level of demand for that service and the current cultural context in which the transaction is occurring, as well as the detailed calculations on the cost of production, and the benefits to be derived from the transaction all go into the production, marketing, demonstrating, selling and distributing the product or service. Business operators are compelled by the demands of their market forces, including their competition, the proximity to raw materials and skilled labour, and the distance from their target market, to build in detailed monitoring systems that compare the operations of their competitors and discern the intricate cost-saving steps that can and will make their business more profitable. Their investors, too, and the dividends they demand, play an integral role in the governance of the business, and compared with the need to keep the customer happy, require even more detailed and disciplined attention.

Profit, measured both by the return on investment for investors, and the gap between the cost of the operation and the total of the sum of the sales revenue, for a more daily accounting, is the core operating principle of the business, There is nothing wrong with the dimensions of the various business models, unless and until the quality of the product/service does not meet the minimal standards expected by the customer, or unless and until the market forces driving the operation shift so dramatically that they render the production or the consumption redundant, outdated, environmentally hazardous or subject to taxes or tarriffs that make the price too high to be sustained.

However, there is virtually no comparison between the demands of running a city government and the demands of operating a for-profit business. Of course, there are discreet costs of purchasing sand and salt to pour on the roads during winter storms, without having any reliable prediction of the size of the need except the history of such purchases over the last half century. And there are also direct and discreet costs to purchasing paper to prepare and mail out tax bills, as well as labour costs to process the collection of those taxes. And there are other labour costs in building inspection, roads crews, planning officers who implement official plans, and serve as the city's brain and voice in Municipal Board hearings on new applications for land development. And then there are the costs of buying, operating, repairing and insuring a transit system and the reasonable and bearable costs to the riders, which could never fully generate a profit, dependent as every city is on senior government support for transit, among other aspects of civic government. Provincial inspection is required and necessary to assure the quality of drinking water, to assure residents that their garbage and sewage is being appropriately disposed, and to provide safe and secure access to services like electricity, gas, and more recently green power energies, in co-operating with private business enterprises.

And while, in Ontario, at least, city governments are not permitted to run deficits in their budgets, and they are expected to be able to provide at least five-year projections and plans, there are clearly responsibilities, like the raging fires in Fort MacMurray, followed tragically  by days of rain-generated floods, that far exceed the normal capacity of tax payers to bear. If abnormal amounts of snow fall in any given winter, the snow-plow budget will be fully spent by mid-winter.  If water rises and threatens homes and businesses due to excessive rain falls, sand bags, evacuation procedures, extra security protection, rescue operations, for which the city may not have fully budgeted in their contingency account, will empty the "disaster relief" or "emergency" budget, and petitions for assistance will go out to senior levels of government. If an epidemic breaks out in the local school system, and the health of students and teachers is threatened, the public health officials will have to take extra and often extreme measures to counter the impact of the outbreak. And while some city governments have included labour unions for their workforce, there are always labour negotiations needed to renew those contracts, and the limits of the city negotiators will include directives from the council based on what is considered the limit the taxpayers will accept as an increase in their annual tax bills. And, built into the "cake" of these negotiations, and into all other decisions of the city government is the need for current elected officials to be able to go to their voters and to explain their reasons for their respective votes on significant matters of public policy.

So there are numerous significant differences between the operation and the culture of a government operation and a for-profit business. Included in that list are:

  • the complexity of the forces determining all decisions in government
  • the dependence of an informed and engaged public in the effective functioning of a government
  • the absence of a special group of investors from government, which includes the potential participation of each citizen as an equal protector of the system
  • the issues and the unpredictability of their dimensions under the umbrella of civic government
  • the differences between a government budget and a business plan with sales and revenue projections on a scale dependent on the size of the business commitment and investment
  • the difference between a flow of new residents into a jurisdiction and a new market niche on which business growth is built
  • the adaptability and flexibility of a for-profit business as compared with the institutional aspects, history and political parameters of the voters' expectations and demands
  • the necessity of secure services for water, energy, roads and sanitation to all tenants and property owners regardless of their income size, address, or preferred choice of supplier
  • the integration of all governments with other levels of government who share responsibility for their operation, as compared with the discreet and independent modus operandi of the for-profit business
There will always be those, like taxpayer watchdogs, at all levels of government, who monitor and criticize the way tax money is spent, and who wish that those in government were "more responsible" in their care and custody of the public purse than they are, and who believe, sincerely no doubt, that the criteria surrounding a business decision are precisely the same as those that govern the political decision. That, clearly is not the case.
The criteria for many of the decisions of a government are much more dependent on the perceived, and possibly measured by public opinion polls, public perception of the 'right thing to do'...as in the need to completely renew the hard services down a main street, after nearly a century of neglect, a neglect based primarily on the respective goal of all councils to "keep the tax rate as low as possible" in order to more certainly ensure their own re-election. When those hard services are so broken and deteriorated as to be little more than round holes in the dirt where once there were iron pipes for storm and waste sewers, the job really cannot be postponed any longer. And when the council appointed almost by history to do the 'big dig' and complete the services makes the decision to proceed, (usually with the financial support of senior government) they then prepare the arguments for their own re-election campaign, demonstrating the long-term investment decisions of their term.
The public media is also much more interested in the details of all civic government issues, including the background, and the bond issue if required, and the potential impact on the tax rate, and the long-term political aspirations of the elected men and women. 
Those men and women, too, are daily encountering their voters, both supporters and critics, and are having to account for their respective votes, a very different climate and ethos in which decisions are made, Whereas, the for-profit executive must reach agreement with his team and his investors, the mayor and council have to have the confidence of their rate payers, in order so attain and sustain the trust of the electorate in the broad range of government decisions.
Needless to say, following the presentation, some ninety minutes later, the independent businessman thanked me for the presentation, commented briefly that the differences had been clearly depicted, and suggested that his original premise of mounting a newspaper to foster civic government based on for-profit business operating principles was one he need not spend more time contemplating.

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