Bad Companies and Bad Governments – How Quickly do They Go Out of Business?
I had a post yesterday in which I stated:
One of the reasons I don’t buy the argument that the private sector is more efficient than the public sector (and I don’t buy the reverse argument either – I think both are equally inefficient) is that there seems to be ample evidence that most companies don’t know what they’re doing.
In comments, reader Sebastian Holsclaw responded…
This doesn’t seem like a very hard question to me. Companies eventually get run out by their competitors all the time, governments once they start doing something are almost never run out of it no matter how bad they do. Even unmitigated disaster area policies like farm subsidies or rent control in New York can persist for generations.
Certainly, some dumb policies persist for generations. But is the same thing true in companies that last for generations? I believe it is. A company that gets itself into a niche and survives for a while – whether it knows why it is surviving or not – develops its own stupid internal bureaucracy and rules.
And how quickly do “bad companies” go out of business? Conversely, how quickly are “bad governments” replaced? It took a long while for people to realize that Enron was a giant fraud and not one of the most successful and brilliantly run companies in America… Similarly, CountryWide’s business model was unsustainable… who knew it wouldn’t occur to the company to hedge in some way? But does anyone think CountryWide will completely disappear (unless it is bought out by another financial company) any time in the foreseeable future? (Say, any sooner than the Bush administration?)
So that’s the question… do bad companies really go out of business faster than bad governments? How would we measure this?