Business vs. Government Time Horizons

One of the excuses statists often use to promote government over private enterprise is that businesses are "short-term focused".  They are only after "profit in the next quarter."  They don't "invest for the long-term" like a government can.  Really?

Iran's oil exports are plummeting at 10pc a year on lack of
investment and could be exhausted within a decade, depriving the world
economy of its second-biggest source of crude supplies.

A report by the US National Academy of Sciences said rickety
infrastructure dating back to the era of the Shah had crippled output,
while local fuel use was rising at 6pc a year.

"Their domestic demand is growing at the highest rate of any country
in the world," said Prof Roger Stern, an Iran expert at Johns Hopkins
University, Baltimore.

"They need to invest $2.5bn (£1.28bn) a year just to stand still
and they're not doing it because it's politically easier to spend the
money on social welfare and the army than to wait four to six years for
a return on investment," he said.

"They've been running down the industry like this for 20 years."

You never hear this problem in the privately run oil industry.  And I can say with complete confidence that this is a government problem, not just an Iran problem. 

Take one area in this country I know about, public recreation.   The BLM, the Forest Service, the National Park Service, the Corps of Engineers (not to mention state, county and local authorities) all run thousands of recreation facilities across the country.  And I can tell you that no public entity I know of budgets or spends adequate money on preventative and routine maintenance.  The nature of the process is that Congressmen love to get their name attached to building a new government recreation facility - that's sexy.  But then they never appropriate enough money to keep it maintained.  In their calculus, politicians can get a lot more political mileage from spending money in year 2 on another flashy announcement of a new facility than they can from spending that money to maintain the facilities they funded in year 1.

Can you imagine someone like Disney doing this?  Of course not.  The Magic Kingdom at DisneyWorld, the oldest of the them parks there, looks as fresh and new and well-kept when you visit it as does the newer MGM and Animal Kingdom parks.

And don't even get me started on government pensions and Social Security.  Oops, too late, I am started.  Yes, a few private companies in steel and airlines have under-funded pensions (though the government is partially to blame there) but by the definition of "under-funded" that private companies use, nearly every single public pension fund in the country is under-funded.  That is because most public pensions do not actually put away any money (zero, zip) for future liabilities -- they simply pay this year's required payments out of this year's funds.  States and municipalities have a huge balloon pension burden coming -- just wait twenty years and we will all be talking about it.  And Social Security, for all the smoke and mirrors, effectively works the same way, since current premiums in excess of current obligations are spent on the feds general obligations (if you still think there is some trust fund out there, wake up.)

  • http://politicalcalculations.blogspot.com/ Ironman

    Iran's not alone - Venezuela seems intent on following the same path with its oil production. How much would anyone care to bet that the decline will be blamed on "falling oil reserves" and "peak oil" rather than the respective governments' actions that have squandered their ability to tap the resource?

  • Anon

    How about research? I think a reasonable case can be made that research with a time span pay-off of 10 years should be privately funded. What about 20 years, or 30 years?

    What about things like sending rovers to Mars? I can imagine a number of reasonable positions.

  • N. Joseph Potts

    Anon: 20 years: private (or, more specifically, the money of people who WISH to invest in it, not money taken forcibly from people who would like to do something else with their money). 30 years: private. Rovers to Mars? Do you WANT that? Invest in it! So will I, if I want that more than other things I might invest in, or consume, or just contribute to.

    Regarding the article, my favorite aphorism is, "No one ever cut a ribbon over a fixed pothole."

  • Mesa EconoGuy

    Coyote writes:

    “Can you imagine someone like Disney doing this? [Not planning long-term, and acting economically irrationally] Of course not.”

    Disney actually did do this. My wife, who used to work at Disney World, reflects on the shameful Eisner-era, which is recently over. The parks fell into a noticeable disrepair on Eisner’s watch (who assumed CEO after Frank Wells’ untimely death) while he pursued purchase and expansion of such non-core businesses as Capital Cities/ABC Broadcasting (including ESPN).

    Meanwhile, Disney’s core competencies, such as the parks and movie animation, went largely neglected. Pixar, Steve Jobs’ digital animation outfit, just recently agreed to a merger, which should have occurred earlier, with Disney. It was delayed because of Eisner. When he left, it happened.

    But that’s another critical distinction between public and private enterprise – private (or publicly shareowned) enterprises have the ability, and indeed, obligation to “right the ship” when it starts listing. Government and public entities have no such ability, and continue to expand into areas they were never designed to function, and do so very poorly at increased taxpayer expense.