A guide on how to run your country like a business

Just for fun let’s talk about actually sitting down and working out how to run a country like a business. How would that work and what would happen? Would it look anything like what Conservatives mean when they say “run a country like a business”? The answer is: probably not.

So how do real businesses behave? Well they try to maximise shareholder value. Value is a bit of a tricky word there because it isn’t quite the same as “returns” maximise returns means pay them the most money. Value means bring them the most of what they want and shareholders might want returns AND for the river they live next to not to be polluted, so it’s a bit complicated. For now though let’s go the neoliberalism route and only worry about returns, not value. (We can come back to that at the end).

OK so we want to maximise shareholder profits. How do we do that? Also, important question, who are the shareholders??

Citizens is the basic answer here. The citizens of the country are all equal owners of the business and all have an equal stake. However, as with many private companies, countries often also issue non-voting shares, in the case of countries we call those “money”. Ok so we know we are maximising value for the joint owners, citizens, but that we also have a type of non-voting share called money.

So like any business we want to do some activity that generates an income and we want to maximise that income and then distribute it to our owners. So what is it governments actually do? Well they write laws, enforce those laws and also provide some services, for example, defence. Collectively you can think of these as the government acting as a land management corporation within its borders. It manages the land within its borders in order to maximise the value of that land and so collect as much revenue as it can from that land to pass to its owners. OK.

So we want to choose a corporate structure (a constitution) and then laws and service provision that maximises the value of the land within our borders and then we want to collect the revenue we have generated and pass that to our owners. That might mean more or fewer government services, how do we decide that? Same as any business deciding on outsourcing! For each service we look at whether it can be provided more cheaply and efficiently by someone else (chocolate bar production, probably yes, military protection, probably no) and then we either keep the service in house or we outsource it. There is absolutely nothing about this that assumes outsourced (privatisation) is inherently better than the government running it themselves or the reverse. It is a case by case decision. If you accept running the government like a business you should probably expect to be shrinking government in some areas AND expanding it in others. (Looking at you America, if you run the government like a business then you’d definitely not have the hyper-privatised health care system!)

This goes for regulation and law as well. A reduction in regulation may well be reasonable in some cases BUT in others additional regulation may enhance the value of the land under management by the government. (A house next to an unpolluted river is worth more than a polluted one, to be trite.) Naturally places that are secure, safe and clean will be more attractive. The same is true for countries. If food regulation is lax and people don’t feel safe purchasing food in that country then that erodes the value of the country. If the education or health system is bad (public or private) then that erodes the value of the country.

OK so that’s how government should be run, what about revenue collection and distribution?

This comes in two parts. The first is maximising potential revenue. Obviously part of that has already been discussed but we also want to measure it. Here we should be looking to maximise the total market value of all land within the countries borders in terms of the currency and then the currency, which we have described as non-voting shares, needs to have the maximum possible market cap. Market cap is a shortened version of ‘market capitalisation’ and is used to measure the value of companies. It is the total number of shares times by the value of each individual share. For countries this is the total amount of shares, money, times by the value of each share, unit of money.

This one is, frankly, a bit of a mess for countries. Firstly what do we measure the value of each share in? Obviously not itself! We can look at it in relation to other currencies from other countries, commodity materials like gold or oil or in terms of market prices for goods and services. This last one is the most popular with many nations now measuring their currency against a “basket” of common goods and services at market prices. Increasing or decreasing the amount of currency or shares is not a one way street though. Sometimes adding more shares will do nothing to increase the market cap and so each share becomes worth less than before. Other times increasing the number of shares can increase the future profitability of a company and so increase market cap. This is true of money too. Sometimes increasing the amount of money in circulation just causes inflation but often increasing the amount of money increases the future productivity of a country and so increases the worth of the country overall.

However, how much currency there is is a little more nebulous than you might expect! Sure there is a literal and clear amount of money in the Central Bank of a country BUT most of that money isn’t used directly. Mostly what happens is that money is kept by banks and then banks owe you money at some future point. This is the confusing and sometimes scary part, banks owe the money in your bank account to you, they do not actually have that money. Banks overall owe far more money in bank accounts than they actually have. That sounds a little worrying but actually, and confusingly, because money is spent by transferring money from one bank account to another this is actually fine for banks and the total amount in bank accounts is a fairly good representation of the amount of money available to be spent… so for our market cap example which do we choose? The amount of money issued by Central Banks or the amount in bank accounts? It’s a tricky one and real countries just avoid this question by only worrying about inflation instead and assuming that if inflation is kept low and steady that this will maximise future productivity as much as is possible. For the benefit of simplicity I’m going to suggest that for our business plan we do the same! I also think it may be possible to manage inflation better than we do now but, again, for the purposes of simplicity, let’s stick with the current system of pushing up and down short term interest rates (this may be a huge problem in the coming years, as it has been for Japan for the last twenty but that’s for another blog post!).

OK so we are making some progress here, we are going to keep our currency stable and try to manage our government such that we maximise the value of land within our country, great. We are now running the government pretty much like a business. Sometimes we will expand and sometimes shrink things the government is doing and we have a clear target to achieve. We know how we judge our provision of service. This is also where debt comes in, it’s managed the same way, if taking on more debt will expand the future productive capacity of the country we will do it, if not we won’t. Ditto paying down debt. If paying down debt shrinks future capacity (which is actually often the case) then we will not pay down that debt just like a private company would make the same decision!! It is not a case of simply always trying to shrink the debt or always investing. Each time we borrow or pay off previous borrowing it is a judgment on the individual case at hand.

So now we need to do the all important part of business, we’re providing a great and high value service and now we need to charge people for it and pass that along to our owners! …what is the best way to do that then?

So as with any business we want to maximise our revenues. I just want to reiterate that for a second, if we were actually running the country like a business we would be trying to maximise our revenues… because quite famously that’s what businesses do. We have already talked about maximising the value of what we are “selling” so how do we extract every penny we can from it and what do we do once we have them?

This is where countries are messy in a way businesses generally aren’t. That’s why running the country as a business is a questionable analogy but let’s do our best. Broadly speaking maximising economic activity within our borders will maximise the value of the asset we control, land. That, along with making the country an attractive place to live, is broadly how we maximise the value of our product. The simplest thing to do is then put a price directly on that product, I.e. on land. Now we could charge a flat rate on all land BUT land on the Strand is clearly capable of paying more than land half-way up a mountain so if we want to make as much money as possible we should probably charge a percentage of the market value of each piece of land. This is relatively simple logistically and we can just keep increasing the percentage until we aren’t making any more money by raising it further. (Irl I’d approach this slightly differently but we’re only looking at running a country like a business here!) The other great advantage of this is that the government has a monopoly on that land and so can charge quite a sum for it BUT each landowner also has a monopoly on their bit of land and so the money the government is getting in through these fees was actually already going to monopoly owners. Why is that good? Well because taxing monopoly income doesn’t hurt the economy so while many taxes might risk reducing economic activity, and hurting the total amount we could hope to collect, charging a percentage fee on land won’t! Two for one bargain there. So that’s easy, if we’re acting like a business we charge the maximum fee we can on land until raising the fee brings in less income than lowering it. Great.

Next question: can we get any more money or juice the economy any more than we already are? Remember we’re a business, we are trying to bring in as much revenue as possible here!

Well the good news is changing interests rates to keep stable inflation should mostly keep the economy ticking over. We can also think about ensuring consumers always have money to spend as well though, which is where dividends to shareholders come in handy.

Money collects no dividend, even though it acts a bit like a non-voting share. However companies do give out cash to shareholders as much as they are able to so after maximising our revenue and minimising costs we should, if we’re a business, be giving that money to our shareholders equal to the shares they own. Now in a democracy each voter is, in effect, an equal shareholder in the country. So by this logic each citizen would get an equal lump sum payment that’s their dividend. This has the added advantage that they can go out and spend it and so that keeps the economy flowing. It also has a disadvantage though, what if they work fewer hours and so the economy produces less? Well this is an interesting problem for a country but easy for a business, after all we are here to maximise shareholder VALUE (told you that one would come back later) real companies don’t check in with shareholders to ensure they use that value in a way that benefits the company’s bottom line! We won’t be either because we are running the country like a business.

OK so we are charging our landowners a percentage fee, as high as we can make it, paying for government services and then giving the rest as equal dividends to each citizen. We’re behaving a lot more like a company now but can we squeeze out any more value?

Well, we’ve collected all we can from land but we can’t be sure each business and person is paying as much to landowners as they possibly could so we better keep raising taxes on them too until raising the tax more actually decreases revenue. Just keep ratcheting it up as high as it can go. Again this should be a percentage as a flat fee wouldn’t collect every possible penny. We might also consider that the first bit of income might be exempt and the last bit of income might be taxed at a higher rate just to absolutely maximise how much tax we are collecting. This is easier to do with individuals, harder to do with companies so we should choose whatever works best for collecting the most money. Again, eventually high enough taxes will decrease revenues because companies will scale back investment and activity here and wealthy individuals will move abroad but until that point we should keep increasing taxes. Then we add that additional income to the pot and it gets redistributed as well.

And that’s how to run a country like a business… it’s not quite what Conservatives tend to mean is it? But can you imagine what it would look like to run a business the way Conservatives run an economy?

“Hi Mr CEO, borrowing is really cheap right now and we have these great projects that will make the company far more than the borrowing costs, should we call the bank and arrange a loan?”

“No no dear boy, got to get the debt down!”

“…oook but we’re being offered an interest rate that’s below inflation, I mean they are literally paying us to borrow, it’s free money AND we can then use it to build projects that make us even more money! Are you SURE you want to pay down debt right now?”

“Yes yes, no business ever succeeded through sensible investment. Best to shrink the business and make less money. Also I don’t like that some of these departments seem to cost a lot without bringing anything in. Marketing for instance. Very expensive and we need to cut the debt don’t ya know!”

“Erm but marketing brings us sales, which is how we make money. I realise they cost money and don’t directly bring money in but they really are vital for bringing in sales…”

“No no, fire them all. Also this “accounting” department. Do we really need them?”

Reader it would, of course, be a disaster.

Now I wouldn’t run a country exactly the way I’ve outlined here but I think it’s helpful to remind ourselves what “run like a business” looks like and that it’s perfectly reasonable for voters to demand that the government make choices that are in their interests. That’s what democracy is for.