The free market punishes irresponsibility. Government rewards it. – Harry Browne
I am altering the deal. Pray I don’t alter it any further. — Darth Vader
Business owners and government officials work in diametrically opposite ways. Companies make offers to trade with you; governments use force to compel you to give resources to them. A corporation increases its product quality, then advertises the fact and improves revenues; an official agency delivers shoddy service, blames the problem, and cajoles the legislature into raising its budget. A firm that lies to its customers gets punished severely in the marketplace; a politician who lies to the public can point to political opposition and get re-elected.
Sometimes a business owner, under pressure in the marketplace — and perhaps impressed with how pols can get away with so much — may be tempted to take the path of Lying, Cheating, and Stealing. This is expected behavior from a politician but a horrific mistake in a CEO. Companies thrive on efficiency and customer satisfaction but deteriorate with bad behavior; governments burgeon with every problem they can create.
Here are four ways politicos and bureaucrats do bad things that you should avoid at all cost:
— Use force: We the People have seen fit to delegate police powers to the State, on the grounds that some of society’s problems must be resolved with the threat or use of violence. This affords government stupendous power, which breeds arrogance and a sense of entitlement and veiled contempt for the citizenry.
Your firm, on the other hand, must never, ever use or appear to condone coercion against your customers. This may seem obvious and trite, but companies sometimes think they’re clever to lure patrons with tempting offers, cajole them into contracts, and then corner them with fine print or sudden changes to benefits. For customers, that behavior looks like force, even if technically it isn’t. And it’s a chief reason citizens demand bureaucratic intervention into the concerns of companies.
— Be incompetent: The bottom line for a business is profits, which tend to evaporate when processes become inefficient. Bureaucrats, on the other hand, increase their power and influence by screwing up and then blaming the problems they’re charged with solving. Legislators already have signaled that the issue is important enough to warrant laws backed by the threat of force. They’re rarely in a hurry to punish, much less dismantle, the very departments they’ve staked their reputations on. This means bureaucrats have wide latitude to argue that their departments haven’t been adequately funded. As with Lucy and the Football, most legislatures succumb annually to this game.
Businesses aren’t immune, either. Large corporations subdivide into departments with separate budgets, and divisions that fail to spend all their allotments may find funding cut back the following year. This creates an incentive to waste money simply to keep the department at its current size. Only at the top of the organization chart can this process be kept in check. Corporate leaders save themselves a lot of financial grief by inspecting closely those year-end weird purchases. Why does the IT department suddenly need a bunch of folding tables and chairs? And accounting can do without those fancy window treatments; simple shades will suffice.
— Renege: Like Darth Vader, politicians can change their promises almost on a whim, and citizens have few short-term remedies. Worse, in the long term, voters tend to re-elect liars: it’s hard to find candidates who don’t bend the truth, so dishonesty gets rewarded. Meanwhile, laws and enforcement can change overnight, leaving companies in the lurch. For example, hotels and taxi companies — that depend on regulations banning unlicensed room rentals and gypsy cabs — are left holding the bag as local agencies dump them and, instead, flirt with high-tech hotties Airbnb and Uber.
Companies that lack integrity, on the other hand, can suffer marketplace death penalties when word of mouth condemns them. Happily, if an enterprise screws up and then goes to the trouble of reimbursing its victims, those patrons often morph into evangelists who sing the praises of the company. (Not that business should therefore make big mistakes just to fix them.)
— Spy: Americans, lately having learned that their government has engaged in wholesale spying on their phones and computer accounts, are touchy about the topic. But because of the “Blame Outside Forces” principle — in this case, possible enemy sleeper cells inside the U.S. — most citizens are less upset with Federal bulk snooping than they are with corporations collecting information on them.
Big Data can be useful, but it’s easy to mishandle the process and alienate your patrons. By now, most people are cynical about promises that “We will never give away your information”, since any company in financial trouble (read: every company, eventually) will be tempted to monetize all that data in a desperate try to save itself from ruin. Suddenly customers’ private information is being passed around like a stolen doobie, and trust goes up in smoke. One workaround is to anonymize as much of the information as possible, so when temptation strikes, you’ll be able, at least in part, to live up to that original promise of data security.
… It’s one of those eternal mysteries, that people can disdain companies that serve them while acting worshipfully toward governments that shake them down. But imitating political bad behavior on the grounds that “They can get away with it, so why can’t we?” will probably blow up in your face. A business simply can’t pull off actions the State can do with impunity. Owners dwell in the marketplace, where trust is vital; government officials live in the realm of coercion, where power trumps all other considerations. They involve completely different sets of incentives. Mix them at your peril.
In an age when an avowed socialist can win presidential primaries, companies would do well not to alienate customers who might rise up and vote to dismantle businesses altogether and hand the remains to government management.
In a word, cultivate integrity. Governments don’t have to be honest, but successful businesses thrive on it. And their customers love them for it.