Tuesday, January 10, 2012

Business and Bureaucracy

Paul Krugman in his blog makes a point about presidential candidates who claim business experience as a major qualification for president:

...running a business is nothing at all like making macro policy. The key point about macroeconomics is the pervasiveness of feedback loops due to the fact that workers are also consumers. No business sells a large fraction of its output to its own workers; even very small countries sell around two-thirds of their output to themselves, because that much is non-tradable services.

This makes a huge difference. A businessman can slash his workforce in half, produce about the same as before, and be considered a big success; an economy that does the same plunges into depression, and ends up not being able to sell its goods. Nothing in business experience prepares one for the paradox of thrift, or even the inflationary impact of increases in the money supply (which is real when the economy isn’t in a liquidity trap.)

And I haven’t even mentioned the fact that presidents need to work with Congress, and face far more limits on their authority than CEOs.

I have made a similar but different claim about local candidates like Eileen Brady for Portland mayor, that being a business person may give you lots of private market experience but does not tell you a lot about market failures (public goods, externalities, asymmetric information) that is the raison d'etre for most government agencies.  This is not to say that Brady would not make an excellent mayor or that she doesn't have other experience that speaks more directly to the market failures I mention (in fact, she does).

My point is only that experience running a business is usually given a prima facie evidence of qualification for the job and I fail to see the obvious connection other than the keen eye on cost control.  To me business experience should be mentioned after more direct qualifications for the job that can answer the important questions: Can you work well to build coalitions and consensus in an environment where your authority is limited? Are you good at understanding complicated public policy issues and finding the most efficient solution? Are you an effective public speaker and communicator who can clearly express a vision and rationale for your actions?

Less important to me is the answer to the question: are you a good sales person and profit maximizer?

And this is not to pick on Brady: the other two major candidates have had a chance to answer the more important questions and have not been very convincing in my humble opinion.

I have no agenda here by the way, I honestly have absolutely no idea for whom I will vote.


Josh said...

To your "keen eye on cost control" point, I agree. Which makes me never want to vote for Eileen Brady for anything. If you look at her campaign expenditures, she's spent over $200,000 on polling and consultants, leaving her with the same cash-on-hand as the other candidates, despite greatly out raising them.

In a time of tight budgeting and City Bureaus having to make tough choices, that kind of profligate spending really can't fly. Is that what we can expect from a Brady administration? Huge expenditures on polls, process and consultants rather than on pavement and police?

lil' sprout said...

It would seem Hales' experience in both the private and public sector gives him the best of both worlds; the ability to design policy solutions for market failures and the ability to support the market when it is successfully providing benefits to Portland residents.

I know New Seasons has a lot going for it but I view their refusal to let employees unionize as the market not functioning for the greater good.

Jeff Alworth said...

The best prep for being president is being a governor. The skills are closely translatable (albeit not identical). What's been absolutely amazing to me is that Romney has gubernatorial experience. And he was, by all accounts, a pretty successful and popular governor. Yet he's running on his other, far less applicable (and less savory) credential. Strange.

I think business experience does translate more directly to mayor, though. You have to to deal directly with the issues that affect business: taxes, regulations, zoning, etc. Being familiar with the way those work is a big advantage over someone who, say, comes from a legislative background.