Thursday, August 16, 2012

The fetishization of the private sector

One thing I've always found mildly baffling about the right wing is its unrelenting fetishization of the private sector. To hear politicians like Mitt Romney, Paul Ryan, and their ilk tell it, the private sector -- i.e., for profit businesses -- are always more efficient and more cost effective than anything the government can possibly do.

I can halfway understand it when it's politicians like Ryan, Newt Gingrich, and some others doing the bloviating. They have no substantive private sector experience. Gingrich, for example, went from grad school to teaching at a public university to being a professional politician. His private sector experience came after he left government, and then it consisted (and still consists) of selling himself, not a particularly useful product. Ryan has at least seen the private sector from the sidelines -- his great grandfather founded Ryan Construction, a company that grew into a substantial business -- although his entire adult life has been spent in government, first as an intern and employee and then as a career politician. The no real-world experience leaves them free to fantasize about how much better things must be outside the stifling constraints of a government bureaucracy. I get it. I worked for the government, too, and I'm familiar with the frustrations.

Mitt Romney, on the other hand, should know better. He was, after all, a vulture venture capitalist. He's intimately familiar with the major difference between government and the private sector. Businesses can fail; government cannot. Romney knows businesses fail on a regular basis. He knows this on a personal level (someone should ask him sometime about how well the car company that his father ran is doing these days -- anyone seen an AMC Ambassador for sale lately?) and on a business level. Romney may talk a lot about job creation, but the reality was that his company, Bain, specialized in finding businesses that were asset-rich, stripping those businesses of anything that could be easily liquidated, and then pushing the businesses into a shark tank. Bain can point to some success stories (the classic one being Staples), but they also nudged a number of companies into bankruptcy.

Of course, businesses fail all the time. Maybe Bain just sped up the inevitable a little for the companies it sucked the life out of. A person doesn't have to do much research to come up a lengthy list of companies that were booming not many years ago and have faded into obscurity or totally vanished today. Kodak, Enron, American Motors, Gimbels Department Stores, Woolworth's, Eastern Airlines . . . the "rust belt" is full of industrial ruins, the remnants of what used to be foundries and factories, and every state has its ghost towns that boomed for awhile around a sawmill, a copper mine, or a textile mill. It doesn't matter what area of the private sector -- manufacturing, extractive, or service -- a business is in, it can fail. It can fail fast -- the Small Business Administration optimistically notes that "70% of new business are still in operation two years later," which is another way of saying that 30% have gone belly up -- or it can fail slow. Studebaker was in business for over 100 years and successfully transitioned from building wagons to building automobiles, but bad management succeeded in killing the company in the 1960s. Woolworth's and Gimbels were both retail giants for decades, but longevity wasn't enough to save them.

The Small Business Administration also says that the five year survival rate for new businesses is a whopping 51%. Wow. That's definitely cheerful news. If you start a new business, you've got a 50/50 chance of staying in business long enough to pay off a car loan.

Which brings me back to my original question: why the fetishization of the private sector? Based on its failure rates, the private sector doesn't exactly inspire confidence it would be a good role model for government. The one thing it does well appears to be failure. You know what they call it when governments fail? Bosnia. Rwanda. Somalia. Afghanistan. Things get really messy, and people die.

[I do actually know the answer to my rhetorical question. Romney et al. want to apply the Bain model to the U.S. government, i.e., strip it of anything worth selling, award no-bid contracts to their cronies, and then pass the cannibalized corpse back to the next administration to try to re-animate.]


  1. I've heard of Gimbels but have never lived in an area near one. My first bike came from a Proctor and Gamble store.

    Why a lot of new small businesses fail is because they act things out wrong, want to get to flashy and self important too fast just because they are now business monkeys.

    If I had started my parts house that way I likely would have failed also. But I took it slow and easy, one step at a time, and didn't buy fancy new things to show how important I was.

  2. One thing I've seen kill a number of small businesses is the obligation the owners felt to hire relatives. Even if the relatives (spouses, siblings, whatever) were merely incompetent, they cost the business money -- and if the relative went beyond incompetence to actively driving customers away, the business was almost guaranteed to tank.

  3. The notion that government is just like any other business is so stupid that I cannot see how intelligent people can buy into it. But you are right in that those in government who maintain this myth have no experience in business and those in business no experience in government. Kleptocracies such as Russia, Ukraine and America (??) understand that countries and governments can be milked for many years. It takes a long time to strip them of all their assets.

    I have done a few business plans for small business start-ups. The most important job we can do for them is to investigate thoroughly the feasibility of what they want to do and if it obviously isn't going to work, try to talk them out of it. Not popular. And the danger is that you can still miss something that should have been a lead pipe cinch.

  4. Here is where I partially agree with the Republicans - Up in Indianapolis a family opened up a pastry business - just the paperwork and inspection requirements was over-whelming.
    The far right wants No rules that hinder capital growth and product safety and the public be damned.
    Having covered that; I think that a more streamlined start-up process to encourage new small business growth is needed with a
    keen eye to making sure that the product sold is safe.


  5. Sarge, how many of their problems were caused by bureaucrats at the local level and how much by state or federal regulations? The Republicans talk about federal regulations stifling business when the things that can cause the real headaches are the local building inspectors or city licensing offices.

  6. I work for a small business which has been around for over 20 years. Government regulations are not the problem, taxes are not the problem. The problem is that we are a n emergency services business and most of our work comes trough or is paid by insurance companies. They have squeezed the profit margins down to the point that it is nearly impossible to grow. We are paid half as much now as we were 15 years ago for labor and materials.

    They also (illegally) refer their insured customers to their own companies for the work that needs to be done and no one complains for fear of being black balled.

    My perspective from the last 3 companies I have worked for is that big business is the problem for small business.


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