Government is not a Business, 1/15

But the focus of management in each should be on people and processes

A couple of Twitter responses to my essay on redesigning the regulatory state claimed that I was saying that government should be run like a business. That is not a correct interpretation. But, well, Twitter.

What does it even mean to run something like a business? If there were a single correct answer, consultants would have stopped writing management books years ago.

Economists have an especially stunted view of what it means to run a business. In economics, the role of the head of a firm is to make decisions. How much output to produce? What capital/labor ratio to use? But it is wrong to picture business leaders as just sitting around making decisions, and certainly wrong to picture them only making the decisions that are described in economic textbooks.

Many tech workers have a “Dilbert” view of business leaders. They like to characterize the boss as a misplaced ignoramus who spouts empty jargon and issues absurd directives to the underlings who are the ones with the skills to actually do things.

I myself describe business leadership as managing out and managing down. You may think of the CEO as managing out and the COO as managing down, although it does not necessarily have to work that way.

Managing out means addressing the firm’s external environment. What do the customers want? What partnerships and alliances with other firms can be useful?

Managing out also means scanning the horizon for opportunities and threats. These might come from competitors, from technology, from regulation, or from overall economic conditions. In 1994, if your scanning effort dismissed the Internet as irrelevant for business, you got it wrong. In 2022, if you bet that Web3 is going to change the way that your industry functions, are you getting it right?

Managing down means improving people and processes. If you think of human resource development as a process, then it’s all about processes. But I prefer to think of the people component separately.

Consider Deming’s 14 points. Almost all of them deal with the process issue or the people issue. Of course, neither he nor anyone else has written the last word on running a business. But I think that his focus remains apt.

Business leaders are constantly learning about managing down and managing out. If they don’t learn, then sooner or later the market teaches them a hard lesson.

Organizations in government and nonprofits are usually more insulated from their customers and from competition. Executives also can get away with failing to get better at managing down. Their focus instead is on managing up. That is, they make sure to please the donors or the political leaders who sit on top of them. My sense is that this makes it relatively easy for organizations to persist in performing poorly in government and in the nonprofit sector.

Leaders in government agencies can and sometimes do try to implement practices used in business to “manage down.” Some agencies, especially in the areas of national security, make a point of studying management practices and even occasionally coming up with innovations and testing them. For many reasons, though, for government agencies to strictly copy business management techniques would be neither necessary nor desirable.

But generally speaking, in the realm of government agencies there is little impetus to improve management, and consequently much room for improvement. In my essay, I propose creating two powerful positions at the top of the executive branch: a Chief Operating Officer and a Chief Auditor. My hope is that the COO would have the authority, the ability, and the passion to improve people and processes at government agencies. My hope is that when the CA calls attention to agency mismanagement and abuse, cultural norms within agencies would be to address issues that the auditors find, rather than blowing them off.

Dominic Cummings has thought about the process of staffing government. He identifies weaknesses and proposes remedies. (Thanks to Infovores for the pointer.)

State-capacity libertarianism rests on the theory that as you raise the effectiveness of government agencies at performing their missions, you reduce the likelihood that they will flail at problems by seizing additional powers. Incompetence, left unchecked, leads to ever-increasing infringements on individual rights. The COO/CA model is a proposal intended to interrupt this cycle by improving the way that “managing down” takes place in government. The idea is that the COO would bring in a focus on people and processes, while a CA would apply pressure on agencies to improve performance.

One can think of many ways that the COO/CA model could fail to work as intended. But if you have not read the essay yet, before you tweet about it, actually read the entire essay. Compare the proposal to the status quo, not to some hypothetical nirvana.