Business vs. Government

October/09/2008 22:09PM
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Let’s do a quick and dirty comparison of how business works and how government works and and the differences. In the business world we have an annual budget. It’s based on the projections for sales, margins, expenses and cash flows. The cash flow determines the capital plan. There are usually more options to invest cash, than cash projected to be available for investment. Hence, you have a hurdle rate. Projects are projected against the hurdle rate and those than don’t make it fall out and the ones that do are ranked by net present value and strategic value. Some one makes a call and projects are picked and other wait until next year. Debt can support the strategy, but performance must support the debt.

As the year unfolds, if sales or margins are not meeting plan, decisions are made to cut expenses or cut the capital budget. Also, those who may be falling short are called in for discussion. If plan is not made, bonuses are not made and everyone who contributed to the shortfall pays some price for failure. 

This business model is the essence of capitalism and this has made America what it is today. It has created jobs, the American Dream, and the highest standard of living anywhere in the world. It supports government. Government goes along for the ride and takes credit when things are good and blames business when they are bad.

In government, the plan is a revenue/ expense budget. There are no sales or margins. There is no hurdle rate to use for ranking projects. That’s how kids wooden arrows get thrown in with bank bailouts. If there is a revenue shortfall either taxes are raised or a deficit occurs. No mid year expense adjustments occur. No one is called in to take any heat for the shortfall.

At the end of the year no price is paid for not achieving plan. No one is hurt financially and next year’s budget will be higher even though this year’s budget was short.

We have the model for government in this country, it’s the business model that has brought us to where we are today. Why would you even let the government go into any business with no discipline? You have the post office and Amtrak as prime examples of why it doesn’t work.  If we apply the business model to government, we set the budget based on revenue. We rank expenditures based on some hurdle rate. A bridge to no where goes no where. Giving cash to countries that hate us falls off the list. Projects are not ranked by the seniority of the congressman and how bad he needs to be reelected. They are ranked by how they fit with our strategy.

Mid year, if the plan is not being met all those congressmen and senators from the states with shortfalls are asked to cut expenses. At the end of the year if they were short, they are fired and replaced by new congressmen and senators. Deficits and tax increases are not an option.

Congressmen and Senators who want to keep their jobs meet their plan. They deliver the beef to the country, not the pork to their states. Otherwise they are replaced just like they would be in the business world. Obviously, the better business does in their states, the more revenue they bring in to the treasury. This might stop the practice of government destroying business and the business tax revenue flow with  regulation and taxes. 

Want to keep your job Nancy Pelosi, don’t traipse in here with a request for $7 billion from us, bring in $7 billion in lease money from offshore drilling in California. Barney Frank and Chris Dodd you were fired last month. You are both under indictment from the Feds for illegal activity. 

Elected officials have accountability and if the don’t deliver, they go. Government wants business to run like government. I want government to run like business. Pay for yourself or go away.

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