Beyond the Big Government vs. Big Business Debate

Critics of big government and big business get some things right, but they both miss the larger point.

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Sarah Taylor, of Everett, Wash., holds a sign that reads in part "Run Big Business out of Congress," as she protests at "Occupy Seattle," Wednesday, Oct. 26, 2011 in downtown Seattle.

Scratch a conservative these days and she'll give you ten examples of how big government squashes initiative, distorts markets, encumbers enterprise and erodes individual freedom. Scratch a liberal and he's likely to do the same for how big business rapes the planet, exploits its denizens, erodes their quality of life and mortgages their grandchildren's future.

The not-so-funny part is: each side has a point. And also misses the point. Both perspectives are as accurate, in the risks they highlight, as they are misleading in their obsessive emphasis on one form of institution over the other. 

Whether we're talking big government or big business, it requires no small effort to keep folks honest and rein in their worst tendencies.

This should not be news. Big institutions can do extraordinary damage. Throughout human history, when their power has been left unchecked, such institutions have grown unresponsive to the needs around them.

[Read the U.S. News debate: Are Banks Becoming Too Big to Jail?]

This has been true not only of governments and corporations, but also, when they've become powerful enough, of military and religious institutions, universities and labor organizations, charities and private societies.

You don't even have to take the historical long view to see the ways powerful institutions require oversight and accountability, if they are not to lose touch with those they serve.

For a moment, suppose you wanted them to serve you. Think of the last time you were on the receiving end of the actions (or inaction) of an unresponsive bureaucracy. Recall the last time you dealt with a shoddy and unreachable services organization, a manufacturer who sold you junk or poison (all the while touting quality assurance) or a government agency as powerful as it is disorganized.

If you're in the mood for self-reflection, go at it from the other side. Consider the last time you looked at the people you were supposed to serve and gave them downright contempt, half-measures or simply something less than your resourceful, competitive best.

Then consider all the places mediocrity, rogue behavior and corruption can hide in large organizations, not to mention smaller ones.

[See a collection of political cartoons on airport security.]

To keep these tendencies in check, pressure and oversight are essential.

At the same time, oversight regimes often generate administrative burdens, barriers to access, and direct costs. This can further advantage large organizations over small ones. Moreover, it often suffocates those whose resourcefulness is essential to generating economic value. Entrepreneurs and innovators require freedom to experiment, breathing room to grow and the chance to maintain lightweight operations free from ponderous restraints, overhead-intensive processes and complicated regulations. Without this freedom, it can be difficult for challenger organizations to generate potent alternatives and disrupt existing models.

So we need pressure and oversight, on the one hand, and leeway and breathing room, on the other. How to balance these seemingly contradictory requirements?

To get at the intuition behind the answer, it's worth narrowing our focus temporarily to consider the individual within the organization and what makes her thrive.

Let's presume a definition of thriving that entails creating new solutions when old ones become outworn, and refining and refurbishing existing solutions to meet changing conditions (something that Jim Collins, in researching failed companies for "How the Mighty Fall," found to be a key factor for organizations that escape decline). To thrive in this way, most individuals require a combination of freedom to explore and pressure to perform.

[See a collection of political cartoons on Occupy Wall Street.]

This is powerfully evident if you've ever supervised or taught a group of grownups, where it was your job to get performance out of them – not of a repetitive, prescribed task, but of work that required them to think for themselves in order to succeed.

Most people initially resist having their work critiqued and placed in dynamic competition with that of others. Some positively kick and scream. But, if they come to believe that your critique is fair, and if you provide the right balance of leeway and pushback, a strange phenomenon often takes place. They start to seek out the same kinds of pressure they initially resented.

When it comes to those on whose satisfaction we rely, many of us naturally buck under the pressure their power exerts on us. The same is true when we're faced with resourceful and motivated competitors and an open playing field, when in the past we'd felt like the only game in town. But as uncomfortable as these pressures may be, most of us do our best work when our peer group is performing at a level that makes us do our best to compete, and when we're lucky enough to have to perform for a demanding audience. 

The key insight is that this applies not only to competition within organizations, but also to the competition between organizations, when that audience comes to include customers, voters and other "stakeholders."

For private corporations and governments alike, performance pressures from such stakeholders and competitive pressures from other high-performing organizations and potential challengers are critical.

[Read the U.S. News debate: Has the Short-term Deficit Been Reduced Enough?]

The combination of freedom to explore and pressure to perform is as important for organizations as it is for individuals. Public bodies, when they function well, help ensure that private interests don't rig the game: that they compete fairly with each other and pay their real costs. Private enterprises, when they compete on level playing fields, often generate extraordinary efficiencies in the face of market pressures to perform. When this works well, these efficiencies provide consumers and other businesses with choices: with alternatives to having to accept what someone who already has their money or their vote might give them. These alternatives in turn exert powerful competitive pressure on public organizations that underperform when shielded from the need to satisfy customers and investors, and from the demands of market competition. 

These are only a few examples of the kinds of productive tensions that exist within well functioning economies. In a subsequent post, I will expand upon this to examine key ways public and private entities can work together to create fertile soil for economic growth, while maintaining the firewalls that are essential if these entities are to keep each other in check.

The key point here is to recognize that we need both kinds of institutions to be in healthy tension with each other and with others like them.

[See a collection of political cartoons on the budget and deficit.]

Here, let's borrow from biology the concept of the ecosystem, in which organisms interact with each other and with their habitat. To thrive, economic ecosystems depend upon balances and tensions between multiple organizations and multiple types of organizations.

Which brings us to an assertion (drawn from my work with a cross section of public and private organizations including businesses, investor groups, nonprofits and government agencies) that will further exasperate your friendly neighborhood ideologue.

There's no one-size-fits-all version of the thriving economy. In practice, there are powerful models, but not ideal ones. Even the most successful economic ecosystems, like the organizations within them, need to change constantly and adapt dynamically to stay competitive.

It is valuable to examine successful ecosystems and take note of "best practices" – which is business jargon for ways of doing things that have been shown to work pretty darned well. When doing so, it's not hard to observe that particular configurations of public, private and other organizations tend to be best suited for various functions. But what works best in one locale, with its existing institutions, resources, practices, cultural habits and specific players, is not necessarily what will work best elsewhere.

[See a collection of political cartoons on the economy.]

Thriving ecosystems tend to feature vigorous collaboration between, competition amongst, and constraints on a diverse array of institutions. From this perspective, we need more than a few competing banks, states and multinationals to keep the juice flowing. We need multiple competing institutions, groups, and even models. The key is that they have many, not just a handful, of healthy rivals and partners, along with (to return to the image of the playing field) institutions powerful and independent enough to keep leveling the field.

If we want to reign in the excesses of modern institutions, we need to stop rehashing the tired debates of the 20th century that pit private greed against people's utopia, in one telling, and the failure of planned economies against the fiction of perfect markets in the other. In practice, strong public and private institutions create tensions essential to healthy economic ecosystems.

In view of this, it's high time we move our discourse beyond scapegoating either public entities, on the one hand, or private entities, on the other. Only then will we begin the vital game of catch-up we must play if we are to measure up to the economic challenges and opportunities we now face. It's a game we need to play much better if we are to keep powerful institutions honest at today's pace of global change.

Alejandro Crawford is a senior consultant at Acceleration Group. He teaches innovation, growth and digital strategy at NYU's Polytechnic Institute and Baruch's Zicklin School of Business. He graduated from the Tuck School of Business in 2003.

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