Greed versus Ambition
The failure modes of corporations versus governments
I have a lot of friends that lean left on the political axis. (I assume it’s because I live in a blue state and went to college, both of which make me demographically more likely to socialize in blue circles.)
When we talk about political topics - especially things like housing, energy, regulation, transportation, etc. - I often find the same disagreement cropping up. It goes something like this:
Friend: …and that’s why capitalism causes homelessness. Rents skyrocket because landlords are greedy (or greedflation, or whatever), causing people to be put out onto the streets.
Me: So what do you think would help?
Friend: Well, the government should do more for homeless people. They should fund affordable housing, housing first policies, and so on.
Me: So you’re saying the free market failed these people, and you think the government will do better?
Friend: Exactly!
Me: What reason do you have to believe that the government will do better at solving this problem than the free market?
Friend: Well, the free market is full of greedy capitalists who only care about their bottom line, whereas the government isn’t.
Me: The government has its own problems running things, you know.
Friend: But at least the government isn’t greedy like those dastardly business-people!
My hypothetical friend is right, in a sense. The government isn’t attempting to maximize its profits or shareholder value the way a corporation would be. But that doesn’t imply that the government is free of ulterior motives, and it doesn’t imply that the government’s motives are any better than a corporation’s.
Governments and Corporations
Both governments and corporations are, in the end, just organizations made up of individuals. Both, in the end, are accountable to those they serve, just in different ways.
A corporation is accountable to its shareholders - literally the people who own pieces of it - via their votes. The corporation has a responsibility to its shareholders to maintain and/or increase the value of their shares. A corporation is ultimately, however, accountable to its customers - the people who buy whatever it produces. If these people stop buying what it sells, the corporation will soon go out of business.
A government is accountable to its people via their votes, or in many cases, their violence (especially in non-democracies).
So what’s the difference?
In a word: competition.
There’s more than one corporation that sells a given product, in most cases. (When this isn’t true it’s called a monopoly, and we try to avoid those where we can through government action.) People always have the choice to stop buying one company’s product and start buying another’s. Don’t like a brand of orange juice? Switch to its competitor. Don’t want to support a fast-food company given its policies? Go to a different chain.
Corporations compete with each other for market share, giving them a constant incentive to chase their customers in whatever way they can: lowering their prices, increasing the quality of their goods, better advertising, whatever.
Governments, on the other hand, don’t have to compete with each other for people. They enjoy a monopoly on governance itself in their territory. America, for instance, doesn’t have to compete with Canada to serve a shared group of people. American citizens are mostly stuck with the American government; they can’t just switch legislatures or laws the same way they might switch brands of cereal.
A government is accountable to its people, sure - but the nature of that feedback loop is long and uncertain. Particular laws and policies are filtered through political parties, special interests, lobbyists, legislatures, bureaucrats, courts, and more before getting to the people they affect, and the people they affect have to get through all of that in reverse to affect any kind of change.
A corporation, on the other hand (so long as it’s not a monopoly), is always in immediate danger of losing market share to a competitor. It has to be fast and responsive to its consumers or it immediately suffers. A government can have terrible policies last hundreds of years because no one had the incentive or the political will to remove them; corporations as a whole rarely even last that long because they get put out of business by competitors.
Principle-Agents Problems
Governments and corporations are made of people, and those people face incentives that are not always aligned with the incentives of the organization as a whole. This is called the Principle-Agent problem, and it’s basically a description of how corruption works.
A government employee faces a bribe (cough “gift from a lobbyist” cough)? Now they’re personally incentivized to do something against the interests of the people they represent and/or serve.
A high-level executive wants to get their bonus and get out? Now they’re incentivized to take shortcuts to meet their target goals (sales numbers or whatever), acting in their own best interest rather than in the interests of shareholders or customers.
The principle-agent problem is ubiquitous and largely unsolved. There’s no magic button that makes people committed to exactly what they’re supposed to be committed to, no matter if they’re in government or the private sector.
The difference between the principle-agents problems in the two kinds of organization can generally be summarized as:
In the private sector, individuals are tempted by greed. In the public sector, individuals are tempted by power.
An executive wants their bonus, a CEO wants their stock options to be valuable. A startup founder wants to get rich.
A bureaucrat wants a promotion, a cabinet member wants to change how the government is run. A senator wants to win the next election.
Ambition or Greed?
Given the incentives and temptations faced by the people in corporations and governments, which should we expect to produce better outcomes?
As I understand it, this largely boils down to the question of ambition versus greed.
A government - and the people in it - are going to keep trying to gain power.
A corporation - and the people in it - are going to keep trying to gain wealth.
Which is worse for the average person, who is ruled by that government and consumes that corporation’s product?
I don’t know if there’s an objective answer to this question, but to me the key to judging which is worse is that power is a zero-sum game, whereas wealth can be positive-sum.
There’s only so much power and control to go around. There can only be one president, one federal government, one party with a majority at a time. When a government exerts more control over the lives of its citizens, they have less control to exert over their own lives. Don’t believe me? Try to build a house that doesn’t obey setback requirements or drive a car as fast as you can down the street and get back to me.
Wealth, on the other hand, can be created and destroyed. There isn’t a fixed amount of it, which means that a corporation (or its founder or CEO or executives) getting rich doesn’t necessarily mean anyone else getting poorer.
Government power growing necessarily means personal power shrinking. Corporation wealth growing doesn’t necessarily mean personal wealth shrinking. When a government - or the people in it - get what they want, the people they rule get less. When a corporation - or the people in it - get what they want, the people can potentially benefit as well.
I’m repeating this point to try to drive it home, because it’s widely misunderstood. When Apple made the iPhone, many people became rich, but it didn’t make anyone else poorer. When Donald Trump became President (either time), he became far more powerful and it made many other people far less powerful.
Power is zero-sum, a fixed pie.
Wealth can be positive-sum, a growing pie.
This is why I personally think greed is a more pro-social form of corruption than ambition: someone else’s greed doesn’t have to be my loss, but someone else’s ambition for power does.
(There’s an obvious objection I can hear already: what about people who get wealthy by stealing from others, whether legally or illegally? And to that I say: if it’s literally theft, like a robbery or a pyramid scheme, that’s obviously terrible and needs to be stopped. It’s a zero-sum or negative-sum competition. Which is why I’ve been careful to say that wealth can be positive-sum, not that it always is.)
Conclusion
For any given function in society - transportation, healthcare, consumer electronics, etc. - is it better for the government to do it, or a private corporation?
One of the foundational beliefs of communism is that government should be the organization that does everything. One of the foundational beliefs of libertarianism is that government should be responsible for as few things as possible, plausibly nothing.
Which is right?
The argument above, that governments and the people in them will become more corrupt over time in the form of seeking more power and that corporations and the people in them will become more corrupt over time in the form of seeking more wealth, indicates that most things - specifically, anything that isn’t vulnerable to the tragedy of the commons (or is amenable to Coasean bargaining) - should be run privately. Anything that isn’t a non-excludable public good (e.g. national defense, law, etc.) should be run with less interference by the government, not more.
Corporate corruption is simply not as ruinous as government corruption in the long term. Customers can boycott products much easier than they can boycott governments, meaning that corporations face greater incentives to align their interests to their consumers than governments often do, even democracies.
There are more corporations than governments, but the failures of the latter tend to lead to a lot more human suffering than the failures of the former. Remember: corporations pollute and scheme and enrich themselves and sometimes get people killed, but the Holocaust, Holodomor, and Cultural Revolution were all government actions, as were the world wars, Vietnam, the War on Terror, and so on.