Mark Mellman: Government isn’t a business

“Running government like a business” is a mantra for many politicians, particularly Republicans. 

Two GOP governors who are trying to become president, Ohio’s John Kasich and Wisconsin’s Scott Walker, made that appeal explicit as they transformed their state economic development agencies into “private” entities. The results suggest they know precious little about the business world they seek to emulate.

Walker has an excuse: He never worked in business, preferring instead the public sector he ostensibly disdains. 

Kasich took a break from politics to work for Lehman Brothers — that is, until it collapsed, helping set off the economic crisis from which we are just emerging. 

{mosads}The differences between government and business are many, but Kasich and Walker’s economic development agencies have them all backward. Perhaps the most important distinction is that government is a monopoly, while, to get the advantages of the market, business must be disciplined by competition.

Kasich created JobsOhio as a monopoly. Walker did the same with his Wisconsin Economic Development Corporation (WEDC).

An entity facing no competition cannot be run like a business because that, combined with the quest for profit, is what drives businesses toward innovation and efficiency. 

Government agencies, which are usually monopolies, can be innovative and efficient, but they cannot achieve those goals through markets and competition and, therefore, cannot be run like businesses. 

Thus, neither JobsOhio nor WEDC are particularly innovative, nor are they efficient. 

JobsOhio’s most innovative move was to assert it was a private entity by obtaining monopoly rights, through the political system, to money generated by Ohio’s state-owned liquor stores. What “business” operates on an annual gift of hundreds of millions of dollars from taxpayers?

And they are hardly efficient. On becoming private, JobsOhio moved from an already built state office building to the “premier” office tower in Columbus, paying more than $400,000 a year for the privilege, while spending almost three-quarters of a million dollars on office furnishings.

The Columbus Dispatch reported the annual salary JobsOhio’s CEO “grew by about $82,000, or 36 percent, to more than $306,964 … as JobsOhio reported its work landed 21,377 new jobs.” 

An audit of WEDC found it “made unknown purchases, questionable purchases, and excessive or unnecessary purchases” — the opposite of efficiency. 

Businesses are accountable to shareholders, while governments account to voters. JobsOhio is accountable to no one except the governor, who appoints its entire board, without legislative input.

Indeed, when the Republican state auditor wanted to examine JobsOhio’s books, Kasich said no. 

Of course, monopoly, waste, bloat, inefficiency and lack of accountability might all be forgiven if these agencies were effective. 

There is little evidence they are.

In truth, these unaccountable monopolies don’t provide the information required to render a complete verdict.

An audit found Walker’s WEDC did not require recipients of state grants “to submit information, such as payroll records, showing that the jobs were actually created or retained.” In some cases we know they were not. WEDC bankrolled several firms that promptly outsourced jobs to Mexico. 

Of course, Walker himself set the standard, claiming he would create 250,000 jobs in Wisconsin during his first term. Even with the national economic recovery, the state added only 59 percent of the jobs Walker promised.

JobsOhio has been plagued with the same reporting problems. 

It touts winning Site Selection Magazine’s Governor’s Cup as evidence of success. The cup is awarded annually to the state that adds the most “new and expanded corporate facilities.” 

Ohio certainly took home the cup for 2011. The only problem with the argument: Former Gov. Ted Strickland’s governmental development agency, run by then-Lt. Gov. Lee Fisher, won the cup every year he held the office.

Kasich and Walker have a lot to learn about running businesses and creating jobs. They might take lessons from their Democratic predecessors.

Mellman is president of The Mellman Group and has worked for Democratic candidates and causes since 1982. Current clients include the minority leader of the Senate and the Democratic whip in the House.