A Philosopher's Blog

Is the State a Business?

Posted in Politics by Michael LaBossiere on December 21, 2016

While people who voted for Donald Trump give various reasons for their choice, some say that they chose him because he is a businessman and they view government as a business. While some might be tempted to dismiss this as mere parroting of empty political rhetoric, the question of whether the state is a business is well worth considering.

The state (that is, the people who occupy various roles) does engage in considerable business like behavior. For example, the state routinely engages in contracts for products and services. As another example, the state does charge for some goods and services. As a third example, the state does engage in economic deals with other states. As such, it is indisputable that the state does business. However, this is rather distinct from being a business. To use an analogy, individuals routinely interact with businesses, yet this does not make them businesses. So, for the state to be a business, there must be something more to it than merely engaging in some business-like behavior.

One approach is the legal one. Businesses tend to be defined by the relevant laws, especially corporations. As it now stands, the United States government does not seem to be legally defined as a business. This could, of course, be changed with a law. But such a legal status would not, by itself, be terribly interesting philosophically. After all, the question is not “is there a law that says the state is a business?” but “is the state a business?”

To take the usual Socratic approach, the proper starting point is working out a useful definition of business. Since this a short essay, the definition also needs to be succinct. The easy and obvious way to define a business is as an entity that provides goods or services (which can be very abstract) in return for economic compensation with the goal of making a profit.

While there are government owned corporations that operate as businesses, the government itself does not seem to fit this definition. One reason is that while the state does provide goods and services, these are typically provided without explicit economic compensation. For example, while taxpayers do pay taxes, they do not typically pay explicit bills for what they have received. Some also receive goods and services without providing any compensation to the state. For example, some corporations can exploit the tax laws so they can avoid paying any taxes.

While this seems to indicate that the state is not a business (or is perhaps a badly run business), there is also the question of whether the state should operate this way. In his essay on civil disobedience, Henry David Thoreau suggested that people should have an essentially transactional relationship with the state. That is, they should pay for the goods and services they use, as they would do with any business. For example, a person who used the state roads would pay for this use via the highway tax. This approach does have some appeal.

One part of the appeal is ethical—Thoreau’s motivation was not to be a cheapskate, but to avoid contributing to government activities he regarded as morally wrong (two evils he wished to avoid funding were the Mexican-American war and slavery). Since the state routinely engages in activities that various citizens find morally problematic (such as subsidizing corporations), this would allow people to act in accord with their values and influence the state directly by voting with their dollars. The idea is that just as a conventional business will give the customers what they want, the state as business would do the same thing.

Another part of the appeal is economic—people would only pay for what they use and many probably believe that this approach would cost them less than paying taxes. For example, a person who has no kids in the public schools would not pay for the schools, thus saving them money. There are, of course, some practical concerns that would need to be worked out here. For example, should people be allowed to provide their own police and fire services and thus avoid paying for these services? As another example, there is the challenge of working out how the billing would be calculated and implemented. Fortunately, this is technical challenge that existing business have already addressed, albeit on a much smaller scale. However, this is not just a matter of technical challenges.

A rather obvious problem is that there are people and organizations who cannot afford to pay for the services they need (or want) from the state. For example, people who receive food stamps or unemployment benefits cannot pay the value for these goods. If they had the money to pay for them, they would not need them. As another example, companies that benefit from United States military interventions and foreign policy would be hard pressed to pay the full cost of these operations. As a third example, it would be absurd for companies that receive subsidies to pay for these subsidies—if they did, they would not be subsidies. The company would just hand the state money to hand back to it, which would merely be a waste of time. The same would apply to student financial aid and similar individual subsidies.

It could be replied that this is acceptable—those who cannot pay for the goods and services will be forced to work harder to be able to pay for what they need. Just as a person who wants to have a car must work to earn it, a person who wants to have police protection must also work to earn it. If they cannot do so, then it will become a self-correcting problem. Naturally, the state could engage in some limited charity, much like businesses sometimes do so for customers who are down on their luck but could return to being sources of profits. The state could also extend credit to citizens who are down on their luck or even conscript them so they can work off their debts to the state.

The counter to this is to argue that the state should not operate like a business here—that it has obligations that go beyond those imposed by payments for goods or services to be received. The challenge is, of course, to argue for the basis of this obligation.

A second reason the state is not a business is that it does not operate to make a profit. This is not merely because the United States government spends more than it brings in, but because it does not even aim at making a profit. This is not to say that profits are not made by individuals, just that the state as a whole does not run on this model. This is presumably fortunate for the state—few other entities could operate at a deficit for so long without ceasing to be.

There is, of course, the question of whether the state should aim to operate at a profit. This, it must be noted, is distinct from the state operating with a balanced budget or even having a surplus of money. In the case of balancing the budget, the goal is to ensure that all expenditures are covered by the income of the state. While aiming at a surplus might seem to be the same as aiming for a profit, the difference lies in the intent. The usual goal of achieving a budget surplus is analogous to the goal of an individual trying to save money for future expenses.

In the case of profit, the goal would be for the state to make money beyond what is needed for current and future expenses. As with all profit making, this would require creating that profit gap between the cost of the good or service and what the customer pays for it. This could be done by underpaying those providing the goods and services or overcharging those receiving them—both of which might seem morally problematic for a government.

Profit, by its nature, is supposed to go to someone. For example, the owner of a small business gets the profits. As another example, the shareholders in a corporation get some of the profits. In the case of the government, there is the question of who should get the profit. One possibility is that all the citizens get a share of the profits—although this would just be re-paying citizens what they were either overcharged or underpaid. An alternative is to allow people to buy additional shares in the federal government, thus running it like a publicly traded corporation. China and Russia would presumably want to buy some of these stocks.

One argument for the profit approach is that it motivates people; so perhaps some of the profits of the state could go to government officials. The rather obvious concern here is that this would be a great motivator for corruption and abuse. For example, imagine if courts aimed to operate at a profit for the judges and prosecutors. It could be contended that the market will work it out, just like it does in the private sector. The easy and obvious counter to this is that the private sector is well known for its corruption.

A second argument for the profit option is that it leads to greater efficiency. After all, every reduction in the cost of providing goods and services means more profits. While greater efficiency would certainly be desirable, there is the concern that costs would be reduced in ways that are harmful. For example, government employees might be underpaid. As another example, corners might be cut on quality and safety. It can be countered that the current system is also problematic since there is no financial incentive to be efficient. The easy reply to this is that there are other incentives to be efficient. One of these is limited resources—people must be efficient to get their jobs done using what they have been provided with. Another is professionalism.

In light of the above discussion, while the state should certainly aim at being efficient, it should not be regarded as a business.


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11 Responses

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  1. ajmacdonaldjr said, on December 21, 2016 at 8:19 am

    Perhaps government is more like the opposite of business?

  2. nailheadtom said, on December 21, 2016 at 8:40 am

    Maybe your worst blog entry ever.

    One thing. If it’s satisfactory from an ethical standpoint for the government to forcibly confiscate the assets of its citizens to finance whatever schemes government figures dream up, why would it be wrong for the same government to confiscate the assets of non-citizens? If the US “economy” requires extensive supplies of crude oil to function with the maximum benefit for Americans why not just take that oil from the Canadians or Saudis or Nigerians or whomever? Doesn’t a practical cost-benefit analysis make more sense than some weird moralistic justification for blowing up brown people? There’s actually a long history of this kind of thinking. At what point was it abandoned, if indeed it ever was?

    The state is, of course, a profit-making enterprise in the sense that the money it acquires is distributed in wages to its functionaries and dividends to businesses with which it’s allied. It finances this by not only taxation but by enpixelating new money. Eventually, this suicidal process comes to an end, as it always has, and is begun again.

    Curiously, people are concerned about aspects of the future and have plans to remedy potential problems, even though they’ll never see that future. AGW, for instance, is currently a worry but no currently living human will ever witness any serious change, barring an asteroid impact or immense volcanic eruption, both of which are likely to occur at some point. At the same time, people disregard the very real possibility of the destruction of their medium of exchange and store of wealth, something which could easily take place during their own lifetime or that of their children.

  3. TJB said, on December 21, 2016 at 8:36 pm

    Mike, can you name any serious person that believes the state is a business?

    • Michael LaBossiere said, on December 23, 2016 at 8:48 pm

      Are you saying that the Trump supporters in question are not serious people?

      • TJB said, on December 23, 2016 at 8:57 pm

        It would be useful if you provided a link to the position you are arguing against.

  4. TJB said, on December 22, 2016 at 12:05 pm

    Mike, I was listening to a Sam Harris podcast recently, and his guest was talking about the importance of erecting “steel men” instead of “strawmen” to argue against.

    So, instead of caricaturing your opponents views as “the state is literally a business,” you might actually try to understand that there are some very good reasons why it might be better to have businessmen rather than lawyers running things.

    • Michael LaBossiere said, on December 23, 2016 at 8:47 pm

      As I note in the post, I am addressing a position that has been stated. I do not attribute this view to those who do not really hold it, hence there is no straw man.

      Also not a fan of lawyers running things.

      • TJB said, on December 23, 2016 at 9:00 pm

        Again, can you provide a link to the “position that has been stated”? It would also be good to know if more that 1 or 2 people hold this position.

      • WTP said, on December 24, 2016 at 12:50 pm

        It is a weak argument presented for the purpose of easy refutation. Whether or not you attribute the argument to some third party is irrelevant. Note “weak OR imaginary”.

        Again, per Webster…

        Definition of straw man
        : a weak or imaginary opposition (as an argument or adversary) set up only to be easily confuted

        Of course if Mike really believes the qualification he presents is valid in regard to what is or is not a straw man argument, then whatever is going on inside his head trumps all other understanding. The Constanta defense.

  5. DH said, on December 22, 2016 at 12:11 pm

    What the state lacks is skin in the game, or risk. They are not concerned with profit or loss – if what they want to do produces revenue that’s a good thing, but if it doesn’t, they just tax people to make up the shortfall.

    A good example of this can be found in the debate over public-service unions – like public school teachers for example. The argument against this is that the state (employer) has nothing at risk in the negotiations except perhaps the popularity of the politicians. I don’t want to get into a discussion about the relative merits (or lack of them) regarding teacher’s unions, only to point out that the ability to make a profit and (in many cases) satisfy shareholders is off the table in these negotiations – and replaced simply by taxing authority.

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