Run government like a business -- it might surprise you

"Why don't we run the government like a business?"  That question is a persistent theme in American politics.

The best answer to the question is this:  Running government as a business is absurd and not possible in a democracy.  Businesses are inherently authoritarian -- the boss at the top runs the show; everybody else in the business follows orders from above or else is out of the company.  A democratically-accountable government is the inverse, and that's the way we like it.

However, there are some things that government can learn from business practices--both good and bad--and businesses can learn some things from government, too.

You might be surprised at what would happen if the American Federal government were to take a lesson from the wonderful, wild world of American business.

"Best Practices"--budgeting for operating expenses

Most businesses follow various "best practices" regarding their operating expenses.  Since today's politics, especially at the national level, are so consumed with governmental budgets and fiscal policies, it seems like a good place to start would be with a business "best practice" regarding operating expenses.

Let's say, for example, that a business has discovered that its expenses have grown faster than its revenues.  The business leadership then chooses a course of action from among these options:  (1) reduce expenses; (2) increase revenues; (3) do a combination of #1 and #2; or, (4) do nothing.  Most times, the choice is #3; in other words, economize on expenses immediately, and do something to increase business sales in the long run.

In reducing expenses, most businesses compare themselves with their peers and their competitors.  That's fairly easily done with governments, too.  In making expense reductions, the natural starting point is the biggest line item.

For the U.S. Government, the biggest line item is National Defense, which consumes almost 25 cents of every income tax dollar in revenue.  Check out this part of the White House web site to see the details.

Fun with numbers--you show me yours, I'll show you mine

So, if we have a national governmental expense problem in this country, it seems like a good place to start looking for corrective action would be with the National Defense part of the Federal budget.

Admittedly, the foregoing statement is usually labeled as a "left-wingy" thing to do, but remember that we got here by taking a purely business-like approach.  If there's an argument with that, I'd like to know what it is.

The business publication The Economist is a favorite source of information for me.  It's informative, detailed and sometimes dryly amusing.  Occasionally, I'll even find myself agreeing with their opinions and conclusions.  The cover story for the April 7 issue is called "China's military rise" and it includes a table describing the top ten military spending countries; here it is:


Wow!  The United States spends almost as much on its military as all of the other countries in the world combined.  Well, you've probably heard that before, so maybe it's not such a big surprise, but the fact is given considerable impact when it is presented in this manner.  By the way, it's not just The Economist saying this -- the attribution to IISS as the source refers to The International Institute for Strategic Studies.

Here's what the table doesn't tell us:  As a portion of the nation's Gross Domestic Product (GDP), military spending by the U.S. is almost 5%, while that of China--number two in the table above--is only about 1.5% of their GDP.  (The same article cites these approximate figures in another table, which is not included here because it is cluttered up with many other factoids like numbers of ships, planes, tanks, etc.)

In other words, if looked at in a business-like way, the United States spends about three and one-half dollars on its national budget military line-items every time that China spends about one dollar, in order to accomplish the same relative amounts of national economic--or business--output.

Here's the same thing in different words:  the GDP of the Unites States is about twice the size of China's GDP, but our military spending is about eight times as much.

Another point:  military spending by the U.S. represents more than 45% of the world's total such expenditures, but our GDP is only about 20% of the world's total GDP.

We're militarily-spending ourselves out of business

That's probably enough fun with numbers for now.  Here's the conclusion:  this much spending on the military amounts to a going-out-of-business strategy.

It is not economically-possible for the United States to continue its current level of military spending.  It's not desirable for any number of reasons, but that's a subject for a future writing.  This is what all those numbers tell us:  The US Federal Government has a really big military spending problem. 

National defense spending is necessary, but it's not necessary to spend so much.  No other country in the world even remotely approaches the military spending of the United States.  There's plenty of room for reducing the spending without jeopardizing national security.

Every tax dollar that is spent on the military is sucked away from funds that could otherwise be spent on research, development, infrastructure, healthcare, education, environmental protection, tax reduction or any number of other things that amount to investments in the national economy.

Investments produce future benefits in the form of economic growth, which means employment growth and business success.

The lack of investments reduces future opportunities for national growth.  A reduced amount of these investments leads to reduced employment and business activity.

The rest of the world seems to have learned this.  Now is the time for America to learn the same thing.