Corporations and governments: can’t have one without the other

Melvyn Magree

Considering some of the shouting, one might think that politics has divided into two camps: government is bad and corporations are for the common good, or corporations are greedy and government is for the common good.

As too often is the case, the truth lies somewhere in the middle.

First, let’s look at the similarities.

Corporations and governments are organized by people for a large number of reasons.  The people who organize these entities do so to provide goods and services, to make money, to be famous, or to push certain views, both altruistic and selfish.  Neither type of organization is any better than the people who run the organization.  Success depends more on the leadership and the resources available than on the form.  Success also depends on the circumstances of the time.  If a large segment of the population is not interested in an idea, it will take a lot of effort to promote the idea, whether a new product or a new law.  On the other hand, if a very large segment of the population is interested in an idea, somebody in corporations or government will be working overtime to fulfill the population’s wishes.

The big difference is that the corporations are run by the few and governments are run by the many, if the many show up and vote.

As many misinterpret Adam Smith’s “invisible hand”, many misinterpret Milton Friedman’s the only purpose of a corporation is to “increase profits”.

“[t]here is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”  - Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970

Many interpret this as the only purpose of a corporation is to increase shareholder value.  Unfortunately, they ignore “rules of the game” and “without deception or fraud”.  But what is shareholder value?  Is it a continued gain in stock price?  Is it a continuous stream of increasing dividends?  Or could it be the long-term provision of a good or service?  For example, do investors want to create a product that could take years to bring to market?  Do investors want to insure that medical services can be provided to a community for decades rather than maximize profits for the short-term and destroy the community long-term?

Many point to the problems of MNSure and ObamaCare as examples of government inefficiency.  But guess who provided the computers and software for these health insurance programs?  Private companies!

And private companies have not been known for efficient, trouble-free rollouts of new products.  How many auto recalls are there every year?  Has every computer program or system you purchased or downloaded been free of bugs?  It seems every time I get a notice of an app update, the description includes “bug fixes”.

In the “bad old days” of mainframes, it was really a major milestone when a computer ran a whole day without a crash.  Now things are much better.  My laptop, which is more powerful than any mainframe I worked on, might go a whole week without some kind of frustrating error, including freezes.
MNSure and Obamacare are massive systems requiring massive co-ordination of many pieces.  As we don’t give up on our computers, we shouldn’t give up on massive projects that don’t work perfectly on the first day.

“I’m as confident of this as I would be that when the first cars didn’t work well, it wasn’t time to return to horses and buggies; it was time to improve the cars. This is the new technology; there are kinks to it and it’s going to take some time to work them out.”

• Joel Ario, quoted in “Contractor’s report slams MNsure weaknesses, readiness”, Elizabeth Stawicki, MPRNews, 2014-06-18

Are you collecting Social Security?  Is your check posted to your bank account on the promised day every month?  But it was not always so.  Like getting computers to not crash, the rollout of Social Security was not without glitches or without critics who claimed dire consequences.  Like “nationalization of wheat fields would soon follow” and Americans would be reduced to passive servility.  It would take forty years of tinkering to have ninety percent of Americans covered by Social Security.

See “What about Social Security’s rollout?” Bruce J. Schulman, 2013-10-29, Reuters

An interesting contrast to the call for less regulation and taxes is the call by some of the same people for government subsidy.  How many stadiums for billionaires have been built without government subsidies?  How many companies have chased after the best subsidies and tax breaks to determine the location of a new office or factory?  Are these the same people who say government shouldn’t be picking winners and losers?

Consider the big howl from Congress when Solyndra collapsed.  But nothing was said about the success of Tesla.  Both received start-up subsidies from the Federal government.  Tesla paid its loans back!  Also among those who received subsidies were Compaq, Intel, and Apple.  Now Apple is the largest company in the world in capitalization!  And looking for ways to avoid paying back its benefactor through taxes.

For a lot more on how government has fostered many other successful innovations, see “The Innovative State: Governments Should Make Markets, Not Just Fix Them”, Mariana Mazzucato, Foreign Affairs, January/February 2015.

- Mel wishes a few far-sighted Republicans and Democrats would start a Pragmatic Party.