Wednesday, October 26, 2011

Pols as entrepreneurs

Jim Powell has an excellent article in Forbes outlining why politicians make bad entrepreneurs. Read the whole thing, but here is a clear statement of the difference between the choices made by private entrepreneurs and politicians:
If business is challenging when entrepreneurs make decisions for sound business reasons, it’s doomed when politicians become involved, because they make decisions for political reasons.  Politicians like to pay off big campaign contributors by steering government contracts their way, regardless of how dubious the campaign contributors might be as business executives.
Politicians want projects they can brag about during an election campaign, whether or not the projects make business sense.  Politicians demand that projects be located in their districts or states, even when such locations create problems like higher costs.
And here's a good explanation of why the losses of failed ventures will be larger when they are chosen by politicians:
And of course, politicians expect that those who receive government funding will help their re-election campaigns.  No surprise that many businesses have chief executives best known for their ability to find a place at the public trough, rather than boosting sales in free markets.
Government attempts to pick winners are most likely to increase the amount of money lost betting on losers.  This is because with the power to tax, subsidize and mandate, politicians are able to pour money into unprofitable projects that private investors would never touch voluntarily.