Understanding the Business-Government Relationship

There was a time when the private sector and the public sector were viewed as two disparate entities. They ran parallel to each other and had very different characteristics and functions. The overarching theme is that business and politics exist in two separate Venn Diagrams, the overlap is minimal. In fact, business and government today are more intertwined than ever. The relation between the two is no longer analogized as separate Venn Diagrams, but instead the relations is best likened to common intersection between the two Venn Diagrams.

The United States alone epitomizes the most powerful federal government and the most robust private sector. Both public and private sector feature the world’s largest economy, most superior military force, cutting edge technological innovation and prominent foreign policy.

Broadly business-government relations in the United States can be characterized into five different competing tensions.

1. Efficiency and Equity

Most economists and the private sector focus on the concept of “economic efficiency” — that is the concept of maximizing overall resources available to society in order to generate the most returns.

While government would want more returns from using the least resources, it is the public sector’s prerogative to not ignore the importance of equity. That is the distribution of resources within a society.

2. Economic Growth vs Quality of Life

The private sector purely needs to look at its bottom line and its return to shareholders. Governments on the other hand, need to craft policy that balances such competing tensions between our desire for economic growth without compromising on posterity’s needs.

3. Long Term and Short Term

Business has to look at both long term and short-term goals. However, government budgets have to be forecasted for the long term. Even though governments have a short term tenure.

4. General Interest vs Particular Interest

Private sector corporations could be general interest or particular interest focused. However, government bodies catering to a wide populace need to look out for the multitude.

5. Security & Stability vs Dynamism & Innovation

Private sector companies generally find themselves in a quagmire between secure stable finances or take the plunge by investing in a new innovation. America’s private sector has been characterized by innovation through Silicon Valley and has seen various risk taking appetite from Wall Street. Governments however have to be far more frugal and parsimonious with their finances.

The distinct feature of Business-Government relations in North America has been the underlying policy that the government has no business being in business. America’s competing ideological differences with the former communist Soviet Union, epitomized the country as ruthlessly free market enterprise. This meant a private sector that was far from the control of a state planned economy, that could charge the prices for its goods, sell overseas, advertise, keep its share of profits, and pay the government a fee in the form of taxes.

When the private sector earns a profit in the United States, companies tend to reinvest the earnings back into the company or provide the shareholder dividends or even contribute to the individual’s 401K pension plan.

Governments however can do two things legally that the private sector cannot do. That is print money through the Federal Reserve (Central Bank) and tax individuals and corporations.

Apart from taxation, business and government interact with each other through a few specific means. Policy makers set the investment law framework, employment visa quotas, regulation in certain sectors, labor standards, monetary and trade policy.

Lobbying is a key aspect of business-government relations in the United States with several private sector firms acting as conduits between specific interest groups and government. The positive aspect is that the private sector can use such lobbying firms as vehicles to the policy makers. If the special interest groups represent larger public interest issues such as health and environmental concerns, then it serves as an added benefit for a larger populace.

However, money buys lobbying and more often than not it’s the big tobacco and the gun lobby that wield the influence in the corridors of Washington D.C. One of the overarching negative aspects is how policymakers can easily be swayed by lobbying firms, thus influencing their position on key issues, which will subsequently affect how they pass bills.

According to various reports, think tanks which served as an intermediary between academia and policy makers are increasingly forced to publish reports based on the funding they receive from various groups and thus affects the non-partisan public interest aspect.