Run government like a business? It takes investment
December 19, 2013

When it comes to budgets, like the one our politicians frequently fight over, people often throw up their hands and say, aEURoeWhy canaEUR(TM)t you run the government like a business?aEUR? I used to think that question represented a simple-minded view. Businesses canaEUR(TM)t levy taxes or print money. But maybe we should look at government that way. If we did, weaEUR(TM)d get a very different picture of how lawmakers should think about taxpayersaEUR(TM) money.


Investing in America’s future.

If the government operated like a business, the majority of what it spends would not be considered costs. Much of what it spends would be considered investments. ItaEUR(TM)s not difficult to see how infrastructure, for example, fits into this category. If a company making jet engines needed to build warehouses, loading docks, and entry and exit roads, even the toughest-minded investor would understand that you canaEUR(TM)t sell jet engines if you canaEUR(TM)t get them out of your factories and onto trucks, trains, planes, or ships. When they undertake infrastructure projects, companies like General Electric and United Technologies get to deduct those expenditures from their revenue because they are investments. But when government does the same thing for the country, itaEUR(TM)s considered a cost. Too few people realize that if you canaEUR(TM)t get American goods onto ships, planes, trains, and trucks, no one will buy what we produce aEUR" and jobs will go away.

The same is true with health. What the government spends on health care is not that dissimilar from what a business does when it offers free flu shots or gym memberships to its employees. Investing in flu shots and gym memberships keeps workers healthy, which increases their productivity and lowers health care costs. The same is true for the country at large. The only difference is scale. And even though our health-care and research investments are vast, no one would deny that the payoff from those investments is greater than their costs. When people get sick, they canaEUR(TM)t directly contribute to the GDP. Helping people recover from illnesses is an investment that has the potential to pay dividends for decades.

Companies are allowed to deduct what they invest training their workers because smarter employees do a better job aEUR" which contributes to the bottom line. The same is true for what government agencies spend on education, but itaEUR(TM)s accounted for in our municipal, state, and federal budgets as costs. But is that all it is? In the 152 years since the government provided a grant to the fledgling Massachusetts Institute of Technology, that universityaEUR(TM)s students, graduates, and professors created more than 25,000 companies, employing millions of people around the world. Was the money the government provided under the Morrill Act to start MIT simply a cost? I donaEUR(TM)t think so. Given the contributions the MIT community has made to the country and the world, the returns on that initial grant would make even Warren Buffett envious.

Not all government spending has the kind of multiples that spending on education or health care generates. Military expenditures, for instance, donaEUR(TM)t pay direct dividends to the economy until they are used to protect our interests, and then, by design, a lot of that investment is destroyed.

When the budget and borrowing arguments start up again in early 2014, cost should not be the guiding principle for determining whether to spend or cut. It should be whether the investment produces a return for us all.