Business experience can help, hurt candidates

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Based on various polls, it’s clear that solid majorities of voters are worried about federal government spending, debt and taxes, and related to all of that, where the economy is headed.

As a result, incumbents feel uneasy heading into the November elections, especially with the Tea Party movement generating political uncertainty.

However, one of the most interesting developments in the 2010 election cycle thus far has been the number of high-profile candidates with extensive business experience. This raises an always-interesting question: Can government be run like a business?

California has garnered the most attention with two women who were high-tech CEOs. Carly Fiorina, the former head of Hewlett-Packard, is the Republican challenger taking on U.S. Senator Barbara Boxer, a Democrat. And bidding to succeed outgoing Republican Gov. Arnold Schwarzenegger, former eBay CEO Meg Whitman, the Republican, is running against Democrat Jerry Brown, the current state attorney general and a former governor.

In Connecticut, Republicans have another businesswoman seeking a statewide office. Linda McMahon stepped down as CEO of Worldwide Wrestling Entertainment last year in order to run for the U.S. Senate. Pro wrestling, politics, what’s the difference?

And another high-tech CEO is in the Republican primary mix to become the next governor of Michigan, which in recent years has had the worst economic performance among the states. Rick Snyder is the former head of Gateway computers, and is billing himself during this campaign as “one tough nerd.”

Others coming from primarily business backgrounds in this year’s political mix include Dan Maes competing in the Colorado Republican gubernatorial primary; and Democrat Alex Sink looking to become Florida governor.

Given the huge messes created by the current political class, it’s not all that surprising that can-do business people believe they clean things up, and get government and the economy back on the right track. And perhaps the voters in November will see things that way as well.

But many candidates from the business world seem to think they can run government like a business. Indeed, for them, that’s the key to straightening out government — just run it like a business.

This isn’t a new idea. We’ve heard it plenty of times before, from local races for mayor to when businessman Ross Perot ran for president in 1992.

The problem is that government and private business are very different animals. Most important, they operate under a clashing set of incentives.

Businesses, for example, have owners with obvious direct interests in the success of the enterprises. But government has no owners. Oh sure, people like to say that we’re all the owners, or taxpayers are the owners when it comes to government. When everyone is an owner, though, in reality, no one is the owner.

That lack of ownership in government feeds the fundamental problem generating tremendous waste in government: politicians spend other people’s money. Individuals spend their own money far more wisely compared to politicians who grab trillions of dollars to dole out pretty much as they please.

Of course, the success of business is measured by profits, while losses mean that a business must improve or close up shop. In other words, success is rewarded, and failure is punished. The story is quite different in government. When a government program or undertaking is deemed a failure, more often than not, that failure is rewarded with more money and staff. How many times, for example, have more subsidies been handed over for non-economic renewable energy escapades?

For good measure, performance and productivity play key roles in determining the compensation of employees in private business. In contrast, government workers tend to get compensated based on political connections or according to civil service rules — which too often have very little relationship to adding value to the economy.

If candidates from the business world understand these significant differences between free enterprise and government, then they can make a real, positive difference, especially when combined with firsthand knowledge of how costly bad public policy can be for the entrepreneurs, businesses and investors that drive innovation and invention, generate economic growth and produce new jobs.

But if business candidates believe that government can work just like a business, they will turn out to be just as guilty as lifetime politicians in getting public policies wrong. They’ll set up programs that, even if run well initially, eventually will succumb to government’s prevailing perverse incentives.

In the end, businesses, their employees and the economy will benefit from a policy agenda featuring low taxes, a light regulatory touch and government spending restraint, whether offered by elected officials with business experience or not.

Keating is chief economist for the Small Business and Entrepreneurship Council. He can be reached at rkeating@sbecouncil.org.