Public Policy: What Does Business Really Want from Government?

What does small business really need from the government? The same thing big business and society in general need -- fundamental reform. Government has a role to play in the transformation the industrial world is going through, but government itself cannot remain unchanged. "Within a few short decades," Drucker wrote, "society rearranges itself -- its worldview; its basic values; its social and political structure."

You don't get that kind of rearranging by tinkering with the number and value of small-business set-asides, by hiking the amount of capital investment businesses can expense each year, or by speeding up the processing of SBA loans. What's needed is a fundamental rethinking of government purposes and processes.

There is no lack of ideas to draw from. Libraries, bookstores, newsstands, and the Internet are jammed with them. Private-sector organizations -- companies large and small -- have already set useful examples in the ways they are going about reinventing themselves.

In the May/June 1995 issue of the Harvard Business Review, Bartlett and Ghoshal say: "Today's top managers recognize that the diversity of human skills and the unpredictability of the human spirit make possible initiative, creativity, and entrepreneurship." The same principle applies to reshaping our government, and the people with the diversity of human skills and unpredictable spirit -- the people with the ideas -- are all of us: you, me, and them. The best we can all do is to keep asking two questions of ourselves, our businesses, and our government: What are we doing, and what's the best way to get it done?

WHO'S MAKING THE LAWS?

If there is any validity to the idea that people's views are shaped by their experiences, this year's House of Representatives should be more sympathetic to the needs of business than any House over the past 40 years: 163 out of 435 members list their prior occupations as business or banking. The number of former lawyers in the House, 170, is the lowest it's been over the same period. In the Senate, on the other hand, the legal profession still commands a majority, 54%.

Prior Occupations of Representatives and Senators

Source: "Vital Statistics on Congress, 1993Ñ1994," Congressional Quarterly, Washington, D.C., 1994.

REGULATION: THE NEXT GENERATION

In the last couple of decades, the United States has deregulated much of its economy -- everything from broker rates to interest rates to utility rates, from trucking to airlines to taxi fleets. So if there's been so much deregulation, why are businesses still complaining about the regulatory burden?

The reason is that while economic regulation has gone out of fashion, social regulation has not. Governments -- federal, state, and local -- use their regulatory power to achieve all kinds of ends deemed socially desirable, from environmental protection to improved access for the handicapped, from workplace safety to pension improvement. The social regulations are what businesses are complaining about.

But the means may be creating the problems, not the ends. If you want a clean environment, for instance, there is more than one way to get it. In fact, Michael Kellogg, a Washington, D.C., lawyer, explains in the Cato Institute's quarterly magazine, Regulation (1994, No. 1), that there are three different approaches to managing environmental regulations: (1) the command-and-control approach, in which regulators write and enforce rules and standards; (2) the market-based incentive approach, in which government shapes policy but uses market incentives to implement it; and (3) the free-market approach, in which market forces act through a body of property rights and tort laws to prevent environmental degradation without government intervention. In remarkably plain English, Kellogg illuminates all three approaches before endorsing the second.

Command-and-control regulation, which by and large describes most government regulations today, is (1) slow, because it relies on a single bureaucracy to learn and understand everything there is to know about a problem and prescribe the solution, (2) adversarial, because regulations don't change the underlying incentive for companies to pollute, (3) inefficient and expensive, because it imposes the same rules and standards everywhere and offers companies no incentive to fix a problem better or cheaper, (4) deceptive, because it buries the cost of regulation in the price of the product or service produced, and (5) politicized, because of the vast amounts of money at stake.

The free-market approach, Kellogg's third category, won't work for two reasons, he says. First, the transaction costs are too high. If I don't like the quality of the air over my house, I could sue the polluter. But sue whom? The local utility? The drivers of the 800 cars that drove by today? What are their respective shares of responsibility? The free-market approach also fails Kellogg's test because it leaves all decisions up to the market. If someone wants to buy Yosemite National Park and put up condos because the condo purchasers will pay more to own condos than hikers will to hike, then, Kellogg writes, condos there will be. What the free-market approach can't conceive of is, says Kellogg, that some things "are, or should be, sacred."