John Langhorne/Tree Full of Owls
This column was co-written by Rick Fosse, Iowa City’s public works director.
If men are from Mars and women from Venus, what opposite planets must entrepreneurs and public officials be from? Understanding the basic nature of these sectors helps to explain this disconnect. Let’s begin by examining the way market forces work in these sectors.
Market forces within the private sector are straight forward and widely understood. When demand exceeds production capacity, resources are maximized and the price for services is favorable. If the organization is well managed, profits are good. Of course, if demand exceeds production too far and fast and companies cannot successfully scale, the result is inflation. Conversely, it is costly to have production capacity exceed demand. Attaining this balance is the sweet spot for a business.
In the public sector, market forces are often not relevant and reactions to market forces can be delayed or counter intuitive. When demand exceeds production capacity, resources are maximized just like in the private sector, but prices (taxes) are decoupled from the service provided. In the private sector, prices can fluctuate to continually align resources with demand. In the public sector prices are adjusted through the legislative process and can take months or years to occur. This can make it difficult to effectively scale operations to match changing conditions.
Another symptom of this disconnect between taxes paid and services rendered is that conditions are ripe for discontent. Taxes present no opportunity to hunt for bargains or revel in the thrill of a great purchase; both positive emotions that propel free enterprise. Few people pause to contemplate that their roads cost less than cable TV or that many public services are very cost effective.
Next it is important to understand that entrepreneurs serve customers and public officials serve citizens. Customers and citizens are not the same. The service a customer receives is based on many factors, the foremost being ability to pay. The service a citizen receives is based on public law and is occasionally inversely related to their ability to pay. Interesting?
Customers reward entrepreneurs who bring new ideas to the market place. How often do you see advertisements that tout “New!”? Citizens, on the other hand, expect and rely on a certain level of consistency in their governance and laws. When “New!” does occur, there is an expectation that it will be the result of an open public process rather than a unilateral act.
This is a strategic issue regarding the public and private sectors that is more apparent from 30,000 feet. The wise men who framed our constitution in 1789 did not care much for kings, i.e. autocracies. They created a federal government that had three largely independent parts to assure that excessive power did not reside in any part. They also struck a balance among federal, state and local entities, a moderately de-centralized system that was not optimized for efficiency. One can imagine they believed that efficient government could act to deprive us of our freedoms.
The key to appreciating this paradox is to understand the core purpose of the public and private sectors. The private for-profit sector exists to create wealth. It does this by offering people an enormous range of opportunities to begin and operate their own businesses and it then distributes this wealth by creating jobs. Businesses are funded by the sales of products and services and more recently by the sale of information.
American law offers many mechanisms to form profit-making companies. This variety of structures permits a wide breadth of possible strategies for entrepreneurs and business people. Such flexibility means that a private sector employer can treat employees much better or much worse than the public sector.
One of the great strengths of the private sector is its immense ability to leverage ideas and monies to create new wealth. In addition, the intense level of competition can spur innovation and creativity. Throughout our historical trajectory, with a few notable exceptions, our for-profit sector has steadily improved the financial well being of citizens and immigrants.
The purpose of the public sector is inscribed on the sides of many police vehicles: to protect and to serve. Government exists to “establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare and secure the blessings of liberty.” The public sector is essentially owned by citizens, and those who actively participate have more influence. It draws its operating monies from the use of various forms of taxation. It exists within the constraints of public sector law, which generally means that elected officials and rule-writers define the boundaries of its functioning from minimum obligations to limits of power.
Our Venus – Mars metaphor continues because in the book about male-female relationships, the author assumes that men can become more like women and vice versa. That is an interesting assumption and open to debate. Can this happen in the sectors? We are seeing signs of this as tight budgets and competing governmental jurisdictions adopt good business practices focused on service delivery and return on investment. In the private sector, we see expanding use of social media that makes operations more transparent. Also, for some time we have seen the blending to create private-public entities. Some of these have been disasters, others have been more successful. It will be interesting to see if this trend will continue. Our governor has recently created a public-private organization dedicated to economic development.
Does this mean the gap is narrowing? Probably not; the sectors are simply gleaning best practices from each other. However their basic reason for existence remains distinctly different. There will always be things that each sector does very well and other things that it does poorly.
So keep all this in mind when you hear someone say: “If I ran my business the way you run the government, I wouldn’t be in business for long!” because they are right. And when another states: “If I ran the government the way you run your business, I wouldn’t be in office for long!” they are also right. Hence the importance of understanding the purpose and functions of these two sectors and how their effective collaboration is essential to the productivity of our economy.
John Langhorne is with Langhorne Associates. He can be reached at www.langhorneassociates.com. His new book, Beyond Luck: Practical Steps to Navigate the Path from Manager to Leader, is available at www.beyondluck.net.