Risk and Business

Risky Business

I'm afraid we've gone and laid it on the line 
      It's a risky business

If the business of government is really business, then why can’t government be run more like a business?

The answer is in the perception of risk.  Risk has two components: likelihood and consequence.  If you get the risk wrong, and the likelihood was high, but it had minimal consequences, then that is no big deal.  If the consequence is dire, but the likelihood is low and it did not happen, then that also is no big deal.  If an event happens even though the likelihood was small, and the consequences are dire, and you did not properly consider the risk, then God help you.

That is why there are insurance actuaries. They set insurance rates by quantifying the likelihood of something bad happening and valuing the consequences of that event. And that is why insurance is purchased, not because you expect something bad to happen, but you want to mitigate the consequences if something bad happens.

Many businesses do not purchase insurance, instead they self insure.  They accept the consequence that they might go out of business if the if the worst happens.  The problem with going out of business, bankruptcy, is that it impacts the creditors and customers of that business as well. Society does not have the option of declaring bankruptcy, since the customers and the creditors are society.  Governments can declare bankruptcy only if the customers and creditors are another government, if those governments agree to take on the customers and costs of the old government.

If businesses or businessmen do value risk properly then, yes governments can be run as that business.  But a string of bankruptcies and business failures should be a warning sign that the business or businessman does not understand risk.  A child learns not to pick up a hot object by experience.  If it never learns because it assumes nothing it touches will burn, then they might be lucky, but have not learned this lesson.  You learn from mistakes. You do not  keep doing so many things in the hopes of finding something in which you will make no mistakes, incur no consequences.