The Business of America Is Not Just Business

With dozens of newly-elected mayors set to take the reigns of government this month, many are wondering how to make good on their pledges to ``run it like a business.''

In the past year, promises to make government work like a business have multiplied dramatically. From Vice President Al Gore Jr.'s ambitious effort to ``reinvent government'' to billionaire Ross Perot's third-party candidacy, making government act more like the private sector is an increasingly popular idea with voters.

Early this year, two businessmen-turned-politicians won impressive mayoral races using this theme. Venture capitalist Richard Riordan in Los Angeles and investment banker Bret Schundler in Jersey City, N.J., overcame underdog status and won a tough election by promising to use business skills to make government work better.

Frequently ignored in campaign debates, however, is that governing is fundamentally different from managing a business. Leaders in government and business face dramatically different incentives that influence their decisions:

* Businesses seek to maximize profits; governments seek to maximize voter satisfaction. A business targets only promising customers: If a private enterprise ran the post office, it might conclude that mail delivery to rural customers was not profitable and eliminate the service. But government leaders must satisfy the broad range of voters who elected them. Ignoring rural postal customers would not only cripple a politician's ability to govern, it would mean likely defeat when running for reelection.

* Business best provides services supplied in competitive markets; government best provides services supplied by a monopoly. Businesses supply the US with thousands of goods and services every day, from computer software to dry cleaning. But government is definitely better at providing those services that benefit all of its citizens. For example, many people would not buy police protection if it were provided by the private market, realizing they could let others pay while still reaping the profits.

* Businesses get their money from customers; governments get their money from taxpayers. Businesses earn money from consumers purchasing products and services of their own free will. Inferior products or poor service means lost customers. Governments, however, must raise revenues from taxation to ensure that everyone pays a fair share of the bill.

* Business decisions can be made in private; government decisions must be made in public. CEOs typically make decisions behind closed doors. With competitors seeking ways to steal market share, secrecy is essential. But government is democratic and must allow everyone to express their opinions before making decisions.

Each of these differences produces an environment in government that is very different from the private sector. With the media and voters scrutinizing everything government does, most politicians govern by trying to avoid mistakes. Unlike the private sector, this climate is not very conducive to risk-taking.

Of course, despite these differences, any institution - private, public or nonprofit - can be innovative. And all successful organizations must listen to their customers and strive for efficiency. When politicians promise to run government like a business, they should explain what they actually mean. Streamlining government bureaucracy and increasing efficiency are laudable goals. But government making quick decisions in secret for a few special interests would undermine our democracy. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.