Montreal, September 15, 2011 • No 292


Adam Allouba is a business lawyer based in Montreal and a graduate of the McGill University Faculty of Law. He also holds a B.A. and an M.A. in political science from McGill.



Making Government Work Like the Private Sector: Can We Square the Circle?


by Adam Allouba


          After writing last month about the ills of government, I received some welcome feedback from a reader. Although open to the argument that the state is more failure-prone than the private sector, my correspondent wondered how we could solve this problem. “How,” he asked me, “can a government look and function like a private business?” An excellent question, but before answering it we should make sure that we understand the terms of reference and the nature of the two entities we are comparing.


What Is Government?

          Let us start with government – or, more properly put, the state. Besides the obvious, such as a defined territory and a population, what defines the state is said to be its “monopoly of the legitimate use of force” within its borders. Indeed, this is the political science definition of the state, the one taught in the early days of every introductory class. It implies that the state – and only the state – can use force to compel or prohibit behaviour. In other words, the state is defined by its exclusive right to use violence.

          Of course, since the state is merely an abstract entity, in practice this coercive monopoly belongs to whoever is “in charge.” This authority can be determined in two ways: by law or by force. For example, in the United States, the military will obey a president’s order to unleash nuclear Armageddon at any time until 11:59 a.m. on his successor’s inauguration day. At the stroke of noon, through the mere operation of law, those same troops will ignore him. Conversely, political power in Syria has changed hands numerous times based on who can most successfully use physical violence against his opponents. A Syrian leader remains in office exactly as long as he can wield that threat of violence.

          Wait, didn’t we say something about “legitimate”? The Syrian regime is facing a massive uprising that has been met with brutal repression. Doesn’t that show that it is clearly illegitimate? Certainly, but does anyone argue that the regime of Bashar al-Assad is not a real government because it is too harsh? Freedom House’s annual international survey has rated only a minority of countries as “Free” every year since the first edition in 1973. Do political scientists claim that most countries do not really have governments, since they are too vicious to be legitimate? Of course not, no more than they argue that countries rated “Partly Free” have “partial” governments on the grounds that they are sort-of-but-not-quite legitimate.

          To be blunt, the criterion of “legitimacy” means little. How many governments have lost recognition solely on the grounds that they were illegitimate? Take Libya’s Transitional National Council, which only started gaining recognition as Libya’s true government after Muammar Qaddhafi’s forces had lost control (i.e., their monopoly of the use of force) of vast swaths of the country. The Syrian regime, however, with almost full control of its territory, maintains universal acceptance internationally – and why not, since even a massacre of tens of thousands in response to an earlier rebellion three decades ago did no harm to its international status. Without their monopoly of force, their global standing would be in peril. Without any semblance of the consent of the governed, they are just one more dictatorship.

          Once we set aside the meaningless criterion of “legitimacy,” we see that government’s only real defining characteristic is its monopoly of force. This is true regardless of whether those in power acquired it through law or through brute strength. While Canada’s government is far more just than Zimbabwe’s, both entities are defined by their ability to use violence against people who behave illegally. Of course, the process for defining illegality is immeasurably less arbitrary and more democratic and transparent in Canada, and only a crazy person would argue that both governments use the monopoly of force in the same way. But whatever the process for determining prohibited and compulsory behaviours, every government ultimately punishes those who fail to comply with its edicts by taking away their property, their freedom, or both.

What Is Private Business?

          If the state is defined by its ability to use force to compel behaviour, private business is defined by its inability to do the same. Corporations can influence behaviour, and they certainly try: in 2010, the fast food industry spent $4.2 billion on advertising, while in 2008 tobacco companies spent almost $10 billion to convince people to buy their products. And yet, no matter how much they try, neither industry – indeed, no industry – can do anything about a consumer who just isn’t interested. Almost no state has as much wealth and economic influence as McDonald’s, Nike, Coca-Cola, Walmart, Exxon or General Motors, and yet these companies lack a power that even the smallest village administration possesses: the ability to threaten a person with force if she refuses to behave in the way they want.

          This quality is not limited to businesses; it is true of any private entity of any kind. It applies to charities, non-profits, community groups, churches, and all other types of organizations. And it applies to the most basic building block of civilization, also a part of the private sector: the individual. The only tool that the private sector has at its disposal to get others to do or not to do something – to stop smoking, to recycle, to enter into marriage, etc. – is persuasion. If a private sector actor does resort to violence, we see the action as a transgression and the guilty party as an aggressor who needs to be punished.

          There is a partial exception to the rule against private-sector coercion: sometimes a private entity gets the state to use force on its behalf, for example by compelling a person to surrender her home to a private developer, by requiring taxpayers to compensate businesses for their losses or by preventing consumers from patronizing their competitors. Needless to say, these recipients of state assistance are typically those with money, power and connections. This phenomenon, commonly known as crony capitalism, is really just another example of the state using force to compel or prohibit behaviour.

"If the state is defined by its ability to use force to compel behaviour, private business is defined by its inability to do the same."

          The opposite of government, then, is not merely business but rather a much broader category called the private sector. And the question asked above is best answered if we consider not how government can be more like a private business, but rather how it can function more like the private sector.

What Does It All Mean?

          To illustrate the distinction between the two sectors with a concrete example, consider how the state goes about providing a service. It does not have to worry about how to fund the associated costs, since it has already seized the resources from taxpayers. If it needs more money, it simply compels them to provide more of their paycheques on pain of imprisonment. Each taxpayer pays for the service regardless of whether she uses it (services entirely paid for by user fees are very rare), and so whether the service responds to an actual demand is of little concern. If the government feels that an insufficient number of people are using the service voluntarily, it can make usage compulsory and even prohibit others from offering competing options – all under the threat of violence. If it becomes appropriate to modify the service in response to changing technology, consumer tastes, demographics, etc., people are required to continue paying for and possibly using the outdated service until the state gets around to fixing it (assuming it ever does). This account applies to any government program, including public education, health care, food inspection, licensing professionals, building infrastructure, policing and firefighting.

          In comparison, how would the private sector act? Remember that whether or not the service provider is looking to earn a profit is irrelevant. First, the organization itself must bear any initial costs. Perhaps it has the cash on hand, or perhaps it can persuade a bank to lend it the money or find a partner willing to provide the funds. Next, it needs to persuade people to use the service, either by switching from their current provider or by giving the service a try if it is something novel. It also needs to offer it at a price that people are willing to pay and that is also enough to make it worthwhile to provide. In other words, both the buyer and the seller need to be happy with the price. If the service is provided below cost, as a loss leader or because profit is not a concern, it will have to continue persuading others to fund its ongoing operations. And if at any point the organization uses violence or coercion, it will be punished for its actions (again, unless it gets the state to use coercion on its behalf). This account applies to any private sector activity, from computer repair to private schools, from carpooling to environmental advocacy, from human rights monitoring to community composting.

          Few have drawn this distinction as elegantly as George Mason University economist Walter E. Williams, who at a seminar I attended described the private sector’s approach as “seduction.” Take the example of a coat; Williams explained that a private sector actor needs to tell the world, “Make me feel good (give me the coat), and I’ll make you feel good (I’ll give you $100).” The state, however, tells the world, “Make me feel good or else I’ll make you feel bad (by taking the coat and the $100, plus any other property I want, and maybe by tossing you in a cage).”

          That is the fundamental difference between the government and the private sector. The first simply helps itself to whatever it wants, while the second has to talk the other party into cooperating. And while there are enormous variations between different types of governments – just as there are enormous variations between different types of private-sector entities – no level of democracy or citizen engagement and no degree of legal protections can alter the fact that even the smallest and most well-intentioned government wields the threat of violence against those who fail to comply with its dictates, while even the largest and most immoral corporation – unless it resorts to crony capitalism – has only the power of persuasion to induce behaviour.

          In truth, the most accurate labels for the two entities we are comparing are not really “government” and “the private sector,” but rather the coercive sector and the voluntary sector. And the question posed at the outset becomes: How can the coercive sector “look and function” like its voluntary counterpart? The answer, which should by now be clear, is that it can’t. There is no reform, no restructuring, no change of any kind that can make an entity that relies on violence look or function in any meaningful way like an entity that does not.

          The only way to avoid the perils of government is to shrink the state and make way for the private sector, in all its many forms: businesses, non-profits and individuals. Those who insist that government (in other words, violence) is a solution to society’s ills must accept that its tendency to fail is not something that can be fixed. It is simply the immutable nature of the beast.