Miscellany:Running the government as a business

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Politicians speak of "running the government like a business." Why not go a step further, and run the government as a business? What makes government services so different from the services provided by the private sector, that the organizational structure needed to provide them needs to be completely different?

One might argue, government services are public goods that the private sector would not supply. This isn't true; the private sector has in many cases stepped in to take on roles that businessmen felt the government could not do as well as they could. Examples would include the Central Manufacturing District of Chicago or the Reedy Creek Improvement District of Orlando, both of which were essentially corporate-run local governments unto themselves, with their own private security, transportation infrastructure, and so on.

The major problem with a democratic government is that the vast majority of people can't be bothered to pay attention to politics and get involved, especially in elections for state and local offices. Scott Lingamfelter was elected with 9,506 votes in 2015, out of a district population of 79,210. That's hardly an overwhelming mandate.

Economists call this the problem of rational ignorance. A typical voter knows that he can more effectively improve his life by devoting time and effort to other activities (school, work, time with kids, etc.) besides become fully informed about issues and voting. At the same time, special interests often line their own pockets by donating to candidates who will pass laws that will financially benefit them.

In the corporate world, this problem is mostly avoided. Corporate officers have a fiduciary responsibility to look out for the interests of shareholders. If they don't, the oppressed shareholders can sell their shares (causing the stock price to go down) or sue for shareholder oppression.

Those who lack an interest in keeping track of what the company leadership is doing can simply refrain from buying shares, or sell their shares to someone who wants to get more actively involved. The accumulation of shares in the hands of a few people tends to eliminate the problem of rational ignorance, since the shareholders are usually casting many votes rather than just one vote out of millions, as is the case in governmental elections. Their return on investment depends on making sure that the company does well.

Why not structure the Commonwealth of Virginia as a corporation? Have an initial public offering, and sell shares to the public. Finance the government with not just debt and taxes, but also equity. We already allow utilities such as the water and power companies to be structured as corporations, so that, even though they are heavily regulated to the point of being quasi-governmental, they can still be more efficiently run than the government. Why not also structure the organization in charge of police, courts, roads, etc. that same way?

It wouldn't be the first time this has been done in Virginia. Some of the original 17th-century settlements were by the London Company, an English joint stock company.

There is no reason why the consumers of government services (i.e. the people of Virginia) need to also have a vote in how the government is run. Already, people from other states who visit or travel through the Commonwealth pay some Virginia taxes, consume some Virginia services, and are subject to Virginia laws without having a vote in Virginia elections. If they don't like how Virginia is being run, they can simply choose not to come to Virginia.

Similarly, Virginians who don't like who Virginia is being run can vote with their feet and move to another state. This is a quicker remedy for disgruntlement and discontentment than trying to change the system through participation in the political process. Already, politicians respond somewhat to the threat of people and businesses leaving the Commonwealth if its laws are bad. It will be all the more that way if there are financial analysts on Wall Street whose perceptions that the Commonwealth is being run poorly (and who therefore fear an exodus of taxpayers, which would hurt revenues) are reflected immediately in share prices.

Wall Street already encourages legislators to exercise fiscal restraint by rating its bonds based on their opinions about the Commonwealth's ability and willingness to pay its debts. Putting equity shares on the market would automatically tend to produce changes of leadership in the event of mismanagement, as any dip in the stock price would make it cheaper for outsiders to buy shares of stock in an attempt to launch a hostile takeover to institute new management. On the other hand, during times of good management, stability of leadership would be enhanced by the stock price's rising and making it more expensive for an outsider to try to buy a controlling stake.