Americans tend to forget the value of institutional specialization. A private for-profit firm has a straightforward metric – maximizing shareholder profit-a complex goal, requiring managers to balance short and long term objectives, weigh the tradeoff between making a risky investment vs. losing out to more innovative competitors. They must also decide how to share gains with other economic partners – dividends vs. equity growth for shareholders, salaries, benefits and other incentives for employees, quality vs. price for consumers, offering price and terms for suppliers, even measures to ensure cordial relationships with neighboring facilities. But, though complex, there is a pole star guiding management decisions.
Non-profits have a mission statement – help the poor, preserve the environment, improve education – but a more difficult assessment challenge. Determining to what extent (if at all) a given activity achieves its desired goal (are smaller classrooms effective at improving education, are biofuels better for the environment) and then creating a ready metric to compare the results (in education, for example, should we focus on percent of students who graduate or the median or range of academic test scores). The subjective element is much higher in non-profit management.
Government faces the greatest metric challenge. Government as a whole has no clear mission, but rather the vague task of “doing good” or “advancing human happiness.” Is that best achieved by reducing the burden of government in some area or expanding its role in that area? How can one decide between an additional expenditure in education or the environment? Resources are finite and government cannot do everything. How can it decide? In practice, government seeks to address the concerns of the more powerful organized interests but that often leads to opposition. Too often, the non-specialized nature of government results in a series of initiatives that are rarely funded adequately. Merely proposing an initiative is often enough to appease the interest group, allowing government to turn to other concerns.
Specialization, like blinders on a horse, has problems but is a very effective way of mobilizing the genius and energy of individuals. Before rushing into the non-profit and political arenas, we should evaluate carefully whether the framework of profit-directed firms has been overlooked. All sectors whether education, health care or the environment have unrealized potential- yet we continue to rush down the less measurable path to the future and get ourselves hopelessly lost.