Arnold Kling  

Business Experience

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Will Wilkinson summarizes some discussion of the relevance of business experience to being President. One of the tropes that he mentions (without endorsing it) is that "business people don't realize that when you come to Washington you just can't boss people around. It's not as easy as it is when you're CEO."

Actually, that is completely wrong. In business it is actually really hard to get people to do what you want. In fact, understanding that fact is exactly what sets CEOs apart from policy wonks. Policy wonks think that you write a law and that solves a problem. They think that you promulgate regulations and people do not figure out how to game those regulations.

Someone with business experience would never announce a mortgage loan modification program and expect it to be implemented in a matter of weeks (remember, a mortgage is a legal document that is somewhat antiquated with procedures that differ by state and local jurisdiction; remember that, prior to 2008, mortgage servicers had very few staff with any experience at all in loan modification; remember that when you introduce entirely new parameters into a highly computerized business process, somebody has to determine which systems are impacted, gather requirements, redesign databases, develop logic to protect against data input errors, develop a test plan,...). Someone with business experience would not enact a program that fines companies for failing to use a fuel that does not yet exist. Someone with business experience, I dare say, would understand that chaotic organization has consequences.

I am not saying that business experience is the be-all and end-all. I am not saying that it should be required of a Presidential candidate. But when Congress and the Administration are permeated with people who lack business experience, this has consequences, and the consequences are not good.

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COMMENTS (11 to date)
John Thacker writes:

Excellent point. Anyone who thinks that CEOs just "boss people around" and issue orders that are implemented quickly and as intended has no experience with the private sector. Just as in the government, orders that are disliked by people below can and will be frustrated.

Mark S. Devenow Esq. writes:

I am following the position(s) of the legal scholar HLA Hart and the late distinguished federal appeals court judge, Jerome Frank, a "rules skeptic." Arnold Kling here summarizes the reasons why the school of thought comprising rules skepticism ought to have more adherents better than I could.

However, I think the greater valence of the rules skepticism approach in the administrative-(hyper)regulatory state STILL distributes within the untoward/unanticipated consequences of rules adopted to deal with various and sundry 'problems' within the ambit or reach of legal regulation,and NOT within the problem of achieving compliance as such.

matt writes:

I'm generally sympathetic to your view, and find the attacks on Romney's Bain experience misplaced, but you overstate your case. CEOs of large corporations act like dictators most of the time, and often make demands that are unrealistic or impossible and underestimate the complexity of implementing vaguely-thought-out plans. This should be clear from experience dealing these people; but it is also consistent with economic theory. Coase's theory of the firm is all about how the intra-firm allocation of resources follows the same command-and-control model as public allocation. Managers responsible for decisions within the firm should then at least sometimes take on the "do what I say" mindset of regulators.

Milton Recht writes:

Let's not romanticize business.

Business people are doing stupid things all the time and some demand unachievable things from their workers. Some companies even try to bring products to market before all the details are worked out and all the kinks in the design and necessary inputs are resolved. Many products fail. Many bosses are tyrants.

The difference is that in business, the marketplace and the consumer will not buy and will punish a business for a product that does not work or is not developed.

In politics, voters do not bring the same negative consequences to politicians that the market brings to companies. A politician who introduces and votes for legislation that requires the use of a non-existent fuel, and penalizes its non-use, can be reelected because he says he was trying to help the environment or his local economy, even without achieving measurable positive results. He can even put the blame for failure on the companies by saying they are not investing enough in new technologies or are delaying implementation of better strategies for more profit. It becomes his word against that of greedy business.

Consumers are much more discerning about what products they buy with their hard-earned dollars than they are with their votes for politicians.

The discipline of the marketplace distinguishes business from politics.

Wayne writes:

Irony. I always thought the reason Bill Gates and Warren Buffet got into politics was because they wanted to, finally, just tell people what to do.

Fazal Majid writes:

What you are describing is the adverse impact of a lack of administrative experience (whether in business, government or the military) on the quality of the Legislative branch's output.

Given that a majority of lawmakers are lawyers, the results are unsurprising.

[broken url fixed--Econlib Ed.]

Greg writes:

i have to say that running a business is like trying to heard cats. everyone has his own opinion, everyone is trying to do his own thing or or is just trying to go home early (yes yes, he or she PC police).

it is quite an admirable skill (learned or born with) to be able to make many people voluntarily work together to achieve something in an efficient way.

but i think one cannot view government like a business. large parts of the government is military and intelligence (especially in america) and much of the rest is paramilitary in nature (FBI for example is civilian but they like to think of themselves as if they were military). the culture is different and certainly how things get get done is very different from a business.

considering that security and military is one thing that the president is surely responsible for (believe it or not the constitution does not view the president as the main conductor of the US economy) i think it is much more important for the president to have a few years experience as an officer in the military, preferable in the army.

PrometheeFeu writes:

That a very good point and related to the principal-agent problem. Monitoring is hard and expensive. All employees are prone to some amount of slacking. But if they think their work is meaningless or counter-productive, you can bet they aren't going to stay late to get it done. When I'm working on something important, I don't care that 5PM has just blown by. I want to get that done because I also believe it's important. On the other hand, if I work on something that I find absurd, I'm not very likely to put in the extra effort and thinking to get it done. Furthermore, if I don't understand the vision, I won't know how to resolve minor problems that come along. So either everything will grind to a halt as the CEO has to get involved in every single decision or people will just resolve ambiguities and conflicts in ways that are anti-thetical to the CEO's vision. Getting "buy-in" is supremely important.

Ted Craig writes:

There's no board of directors for the President. Maybe there should be.

Mark Michael writes:

Dr. Kling's point is an excellent one. These kind of posts are why I read his posts first when I come to Econlib. He's brings a strong pragmatic dimension to his economic opinions. (The others are good, too, but Kling's are best.)

John Thacker writes:

matt, you said:

"Coase's theory of the firm is all about how the intra-firm allocation of resources follows the same command-and-control model as public allocation. Managers responsible for decisions within the firm should then at least sometimes take on the "do what I say" mindset of regulators."

But Kling's point (which I completely endorse) is that neither regulators or managers actually are able to get things done by fiat. He's not claiming that they're different, but that they're the same. Orders are issued but not necessarily followed. If each level of the workforce down to the individual contributors don't have buy-in, and don't see why the rule makes sense, then they'll frustrate it, slack off, game it, or do all sorts of things to make the result the opposite of what the CEO or the regulator intended.

That's why Will's point was unintentionally hilarious. I don't think that being a CEO is necessarily the best preparation for government, but the thing that Will thought was a difference is actually a similarity.

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