NCPA - National Center for Policy Analysis


May 20, 2009

The Obama administration is bent on becoming a major player in -- if not taking over entirely -- America's health-care, automobile and banking industries.  Before that happens, it might be a good idea to look at the government's track record in running economic enterprises.  It is terrible, says John Steele Gordon, author of "An Empire of Wealth: The Epic History of American Economic Power" (HarperCollins, 2004).

For instance:

  • In 1913, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant.
  • It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70 percent of what the steel companies charged.
  • When the plant was finally finished, however -- three years after World War I had ended -- it was millions over budget and able to produce armor plate only at twice what the steel companies charged.
  • It produced one batch and then shut down, never to reopen.

Or take Medicare:

  • Other than the source of its premiums, Medicare is no different, economically, than a regular health-insurance company.
  • But unlike, say, UnitedHealthcare, it is a bureaucracy-beclotted nightmare, filled with waste and fraud.
  • Last year the Government Accountability Office estimated that no less than one-third of all Medicare disbursements for durable medical equipment, such as wheelchairs and hospital beds, were improper or fraudulent.
  • Medicare was so lax in its oversight that it was approving orthopedic shoes for amputees.

These examples are not aberrations; they are typical of how governments run enterprises.  There are a number of reasons why this is inherently so, says Gordon.

Foremost is that governments are run by politicians, not businessmen.  Politicians can only make political decisions, not economic ones.  They are, after all, first and foremost in the re-election business.  Because of the need to be re-elected, politicians are always likely to have a short-term bias.  What looks good right now is more important to politicians than long-term consequences even when those consequences can be easily foreseen.  The gathering disaster of Social Security has been obvious for years, but politics has prevented needed reforms, explains Gordon.

Source: John Steele Gordon, "Why Government Can't Run a Business; Politicians need headlines. Executives need profits," Wall Street Journal, May 20, 2009.

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