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Source link: http://archive.mises.org/7477/its-just-being-turned-into-a-businessae%c2%9d/

“It’s Just Being Turned into a Business”

November 26, 2007 by

This lament is often heard today about medicine and education, among other fields. Business, however, is the last thing medicine and education have been turned into. Bureaus of the government would be a more accurate description. Why the confusion between bureaucracy and business?

The simplest answer is that most people do not understand the difference between the two. A bureaucracy, as Mises points out, is an organization dominated by methods of managing the affairs of government, whereas a business is dominated by the goal of making a profit through customer satisfaction.Bureaucracy, or rather, bureaucratic management, is a set of rules and a budget handed down from a higher authority to guide the running of a government department, such as the police, the courts, or the military. A business may have guidelines, usually called policies, and each department within the organization may have a budget, but the ultimate yardstick by which business activity is evaluated is profit-making by producing need- and want-satisfying products. When market conditions change, meaning customer needs and wants have changed, policies and budgets must be adapted lest the company fail to keep up with the competition and go out of business. Bureaucracy has no such ultimate yardstick. That is why the rules and budgets of government offices often ossify leading to the familiar refrain of the bureaucrat: “Rules are rules, fella; I don’t make ‘em, I just enforce ‘em.”

When bureaucratic rules, in the form of laws and regulations of business, intrude on the marketplace, businesses that are regulated will take on the characteristics of bureaucracies. This is because the laws and regulations of our mixed economy deflect attention away from profit-making through customer satisfaction to compliance with the rules of the bureaucracy. And the rules almost never coincide with what is best for the market. Ossification sets in and a “rules are rules” mentality eventually takes over. To the extent that a business is regulated by the government, to that extent it will be bureaucratic. Small businesses, except for local zoning ordinances and licensing requirements, usually escape regulation, that is, until they grow in size to a certain number of employees or level of sales; more rules, then, kick in.

Bureaucracy does not mean a large, hierarchically structured organization, such as General Motors or the Department of Justice. This is the popular misconception given by the media and management professors. General Motors is a private business that is highly regulated by the government; bureaucratic intrusions into the profit-making, customer-satisfying operation of the company are what make GM today seem so bureaucratic, not its size or structure. The Department of Justice makes no pretense at being a private business; it was founded as a bureaucracy.

The postal service, on the other hand, does pretend to be a business by mimicking the operations of private enterprise, such as subtracting costs from revenues and conducting market research surveys. But the post office is so thoroughly regulated and controlled by the government—it is a quasi-governmental agency under the executive branch—that it is a joke to consider it anything other than a bureaucracy. Public schools and state universities are government entities, making them bureaucracies by definition; private schools are highly regulated by the education czars and so are nearly as bureaucratic. Almost all operators of both types of school abhor the prospect of making a profit or of having to satisfy paying customers.

Yet occasionally the trustees of these institutions will demand that expenses be accounted for or that pay be tied to merit. This is when the screams of faculty are heard to say that education is just being turned into a business. More accurately, the demands are the bureaucracy trying to mimic business accountability by imposing additional rules on the system. The result is a stilted, heavy-handed decree of arbitrary edicts administered by a “rules are rules” mentality. (And pay tied to merit becomes a political popularity contest.) Add to this the fact that education today, which once was controlled at the local and state level, is rapidly becoming nationalized by the US Department of Education and you have education as a bureau of the national government.

The same attempts at mimicking business accountability can be seen in medicine with the cartel-imposed cost constraints of the insurance industry and Medicare. Medicine is hardly a free market today, nor was it prior to the current health-maintenance-organization/Medicare era. In the early twentieth century, the licensing monopoly of the American Medical Association drastically reduced the number of medical schools and hospitals and continues to keep that number low (1, 2, 3). The mess that we have now is just one bureaucratic monstrosity piled on top of the previous model. Calls for cost containment and accountability are not the calls of free enterprise. They are the panicked cries of bureaucrats who have no clue what they are doing.

But they do have their rules and the rules must be enforced.

Jerry Kirkpatrick is author of In Defense of Advertising: Arguments from Reason, Ethical Egoism, and Laissez-Faire Capitalism and the forthcoming Montessori, Dewey, and Capitalism: Educational Theory for a Free Market in Education.

{ 9 comments }

M Brown November 26, 2007 at 6:21 pm

As the author notes, many people are resistant to allowing the market to ‘run’ certain things (as noted here, medicine and education).

I believe that a big reason for this resistance is *control*.

More precisely, the average person thinks that if business controls these things, they have no ‘control’ over stuff. (you know, ‘big business’, etc). However, if government controls things, then they (the average person) would have control, because they vote and the politicians do what the voter wants.

Of course, that’s all nonsense, but I really think that is a big aspect of the resistance to free market running things, and I don’t know of anyone who has really looked into it from that aspect.

Anthony November 26, 2007 at 6:52 pm

Very good article. Would that it were so that more institutions were not only run like business, but were in fact private enterprises.

Ohhh Henry November 26, 2007 at 9:22 pm

If you read the comments on left-wing blogs which have posted articles favorable to Ron Paul, you will see that many people are aghast at what they call his “regressive” domestic policies – meaning that he is against government education, medicine, pensions, and the like.

Unfortunately RP and his supporters are pandering to them somewhat by saying things like, “Don’t worry if we can just end this war there will be a lot more money for things like that”, and “He would never be able to touch those programs in the short time he’ll be in office so you can vote for RP knowing that important [sic] federal programs are safe”.

I wish RP supporters would tell them more often, “All those government programs suck – they’re nothing but pyramid schemes that are going to bankrupt the country faster and more certainly than any George Bushian foreign intervention.”

The trouble is that the more people who might vote for RP under the impression that he is going to safeguard all their precious welfare programs, the less of a moral mandate he’ll have to make meaningful changes, and the more resistance he will meet. It would be far better to give people the straight dope and not get elected than to sweet-talk them into voting for the fantasy of a foreign-affairs dove who believes in unlimited welfare at home.

D.QN November 26, 2007 at 10:26 pm

Think of the FAA running of air traffic when you think of bureacracy. The FAA says it’s trying to run ATC as a business, but in fact, they can, at best, only run it like they *think* a business would be run. There’s no market feedback since the FAA has a complete monopoly on ATC.

RHU November 27, 2007 at 6:48 am

Fully agree with Anthony’s comment: I wish education, medicine and all other essential services – justice, police etc. – were run like a real business.

Leviathan runs these areas in its sole interest, i.e. to extract the maximum personal benefit for the “elected” bureaucrats and their gangs, in full disregard to the users’ rights and interests, always at consistently higher costs and lower quality level.

And, most pathetic, the vast majority of the population candidly believes that gov’t manages their tax money better than they would themselves do.

Sometimes I like to joke on my statist- collectivist minded friends and colleagues like this: – would you hand over 35% of your gross income to your brother-in-law to manage, invest and decide what’s better for your children’s education, health, transportation, security etc.?
Most guys would indignantly answer something like “- Are you nuts???”
So I knock them down with the words that normally end up the subject: – If you don’t trust your wife’s brother for this job – you know him, he’s a nice guy -, why on earth do you trust politicians and other professional robbers for taking care of your tax money? You’d better keep it and allocate in the best way for your personal benefit (hadn’t you merrily voted your own rights out…)

As far as I can see, in so-called developed countries like Norway, USA and Canada, the Leviathan still gives a certain fraction of the expropriated money back in services – sometimes even with a reasonable quality level, if you don’t take into account the issue about who’s paying the bill and how long will this fairy tale last; however in Brazil we do pay over 35% of GDP in taxes but get absolute trash for that.
If you’re an average middle-class professional with a minimum conscience level, you MUST sacrifice +/- 15-20% of your earnings for a good private healthcare plan and an additional 30% for private school for your children, then try to live with the rest of it…

In summary, what the world needs *is* actually to let the private sector run all areas “like a business” – that simple measure would render an era of great prosperity and freedom.

The Force Be With LvMI!!

RHU, Mech. Engineer, Rio de Janeiro

IMHO November 27, 2007 at 2:15 pm

Ohhhh Henry,

“The trouble is that the more people who might vote for RP under the impression that he is going to safeguard all their precious welfare programs…”

I recently spoke to someone who participated in a Ron Paul mini-rally outside an establishment that was hosting a liberal venue. When I questioned the soundness of such an idea, the individual said that there was no harm in it, because both groups were against the war.

Remembering that it was just a few years ago that this individual switched from being a liberal to a Libertarian, that they have repeatedly declined my suggestions to read some basic literature, and that they frequently blur the lines between the two philosophies, I said that there were differences in the thinking of the two groups concerning the war in Iraq. For example, libertarians want the troops home because they believe in non-intervention, whereas many liberals want them out of Iraq so that our tax dollars and soldiers can be redeployed; i.e. for government programs and Darfur respectively.

So, I concur with what you say. For many people, this has become a one-issue campaign; but there are a number of motivations surrounding that issue. Unfortunately, many people do not wish to acknowledge this.

Black Bloke November 27, 2007 at 2:42 pm

Where’s Kevin Carson when you need him…?

Nat November 27, 2007 at 2:55 pm

For example, libertarians want the troops home because they believe in non-intervention, whereas many liberals want them out of Iraq so that our tax dollars and soldiers can be redeployed; i.e. for government programs and Darfur respectively.

IMHO, I think you got it half right. Libertarians want the troops home because they believe in non-intervention; that much is true.

Liberals want them out of Iraq simply because the current occupant of the White House has an “R” after his name. If Bush switched to the Democrats the moment he was declared the winner of the 2000 election, but did everything else exactly the same, the same “liberals” would be calling him FDR reincarnated. And ironically accurately so.

Francisco Torres November 27, 2007 at 8:55 pm

Regarding the “It would be cruel to profit from people’s misery” thought, I watched a debate on Sunday in one of those Spanish-speaking TV channels (Univision) between two doctors and the host, discussing health care in the US. One of the doctors said that “nobody should profit from people’s suffering because that would be rude, and that is what will happen if health care where to be left to a private sector. Health care is a right”. Problem is, this is the kind of thinking that permeates in many persons’ minds, that is would be crass to profit from people’s windfalls.

The host failed to ask the doctor if he worked for free if he considered health care a right. The answer would have been interesting…

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