Is it realistic to think governments can run like businesses? There are many opinions – some say yes, many say no way! But is there a common ground somewhere in the middle?
1) The Ability to Scale
This is perhaps the first thing to debate: how governments and businesses differ in their ability to scale. If a manufacturing company sees demand for their product drop, they can almost immediately cut production capacity by slowing down the supply of incoming material, cut manufacturing hours or shifts, and even shutter plants. Government, on the other hand, is a services provider to their customers (the taxpayers), that must continue to provide a fixed level of services to a fixed geographic area with a fixed number of people no matter what the revenue stream. Obviously there are some ways to adjust, but lower revenue does not change the demand for services. Governments cannot make linear decisions on direct labor cost reductions like a manufacturing company can. Inherently, government will be slower to respond (or scale) to revenue reductions, but respond they must! In either case, raising prices (or taxes) is not a popular option for either sector.