Will Cutting Back on Government Help the American People?

It’s time for us to cut back on government and help the American people. — Mitt Romney

Chief Executive Magazine annually surveys CEOs about the best and worst American states for doing business. America’s CEOs consider: Texas, Florida, North Carolina, Tennessee and Indiana the Five Best for Business States (BfB); and Michigan, Massachusetts, Illinois, New York and California the Five Worst for Business States (WfB). The survey’s rankings have been stable over long periods. Massachusetts, for example, has been known as a high tax, heavily-regulated state for at least the last forty years.

According to the survey, America’s BfB have what America’s CEOs want — smaller government, low taxes and business-friendly regulations. The BfB clearly have lower taxes and smaller government with an average per capita state tax of $1,843, compared to the WfB at $2,520. So, let’s examine whether smaller government is better for Americans.

CEOs, paradoxically, prefer to live and work in the high tax, heavily-regulated WfB. Of the Fortune 500 companies, 165 are headquartered in the WfB, while only about 100 are headquartered in the BfB. Among America’s 50 fastest growing corporations, about twice as many have headquarters in the WfB, as in the BfB. Even CEO Romney selected Massachusetts (ranked 47th on the survey) for Bain Capital’s headquarters, and it’s where he’s lived (on and off) for the last 30ish years.

The State Human Development Index ranks American states on well-being and opportunity for their residents (rank 1 is best). On this Index, the WfB are better places to live (average rank 13) compared to the BfB (average rank 36). Metrics such as: household income, life expectancy, infant mortality, and educational opportunity demonstrate that the BfB — are worse for people.

WfB median household incomes are much higher ($57,000 in the WfB vs. $47,000 in the BfB). Further, people live longer and have lower infant mortality ratesin the WfB, compared to the BfB. The WfB average rank (rank 1 is best) is 14 for life expectancy and 15 for infant mortality, while comparable BfB ranks are respectively 31 and 36. In highway fatalities, WfB are safer (average rank 8) compared to BfB (average rank 31).

In higher education, the WfB (as a percent of their college-age population) graduate 50 percent more students with advanced degrees than the BfB. Also, the WfB have 23 of our nation’s top universities, compared to the BfB’s four.

No wonder CEOs choose to live, and establish growth companies in, the so-called Worst for Business states.

Mitt Romney’s shibboleth that shrinking government helps the American people — isn’t based on any rational analysis of costs and benefits. Government isn’t a parasite destroying the American economy. Government is the provider of public goods (infrastructure, education, police, safety standards, etc.) that the private sector can’t or won’t provide. If citizens select lower taxes, smaller government and less regulation, they’ll get: less infrastructure, fewer police, teachers and inspectors, resulting in worse outcomes.

This isn’t a universal defense of every government employee or program. Nor am I claiming that bigger government is always better government. Government programs should be evaluated, and terminated (or restructured), if they aren’t efficiently serving taxpayer needs.

Throughout my career (in the Bloomberg administration, at the World Economic Forum and its Davos conferences, and at McKinsey), I’ve had the honor of working with some of the world’s leading CEOs, venture capitalists and entrepreneurs (such as, my co-judges for NYCBigApps).

I found these business leaders incredibly talented at what they did. However, business expertise conveyed no automatic insights on public policy.

My old boss, NYC Mayor Michael R. Bloomberg (who made a highly successful transition from private to public sector), emphasized that the public sector must make investments the private sector won’t risk making. Consider President Obama’s successful public sector rescue of the auto industry vs. the private sector approach, which would have left millions more unemployed.

Another smart public sector investment is Applied Sciences NYC (Mayor Bloomberg’s plan to bring a major new engineering campus to NYC). The mayor’s team did all the work to develop Applied Sciences NYC, but won’t reap any tangible benefits — the benefits are for future generations of New Yorkers. But that’s what the public sector must do, to benefit the governed: make major, long-term investments in education, infrastructure, health and other public services.

CEO Romney’s actions, in selecting Massachusetts as his base, suggest he understands the importance of government in making America a better place. But, Politician Romney’s statements suggest otherwise.

Which Romney are we supposed to evaluate for president?

Disclosure: As the Bloomberg administration’s head of policy and strategy for economic development, I was an architect of Applied Sciences NYC.

A version of this post originally appeared at Huffington Post and is posted here with permission.

7 Responses to "Will Cutting Back on Government Help the American People?"

  1. Tim Chambers   July 17, 2012 at 7:48 am

    Romney's and the G.O.P.'s claims about government are just dangerous and unpatriotic shibboleths cynically designed to win hearts and minds in states where voters have little love for the government because most of them are ashamed of being so heavily dependent on government. They would like to fancy themselves otherwise, and they love being flattered by G.O.P. politicians, who tell them they can do better for themselves if we just get government out of the way. Then they take those poor peoples' votes and stick it to them even worse than before. It's an amazing form of co-dependence.

  2. Mark Stuart   July 17, 2012 at 11:23 am

    Wow, I don't know where to begin. You made the following false claims in your article:
    (1) You state,Millions would have been unemployed with the corrupt give-a-way to the UAW and GM and Chrysler management. Are you suggesting that demand for autos would have declined permanently if GM had been restructured according to traditional standards? It's more likely that demand for autos would have switched to Ford, Honda, etc…, and that employment would have followed the change in demand. Bailouts lead to a strategic decision to rely on future bailouts, rather than to manage your company sensibly, and to focus on building products that consumers desire. Bailouts create the idea that it's more important to cultivate political capital, than to intelligently allocate shareholder capital.

    • Lou Cattaruzza   August 12, 2012 at 7:59 pm

      a restructuring of the size of GM with so many other second tear business involved would have taken more time, money, unemployed and possibly a depression.

  3. Mark Stuart   July 17, 2012 at 11:24 am

    (2) You state, government isn't a parasite. The idealized notion of government providing public goods is not consistent with the current practices of government. The corruption and related misallocation of resources is the problem with a government centric society. The financial crisis was created because of government corruption. First Fannie and Freddie, then the realization that generating fees for originating mortgages was a better use of capital than actully kicking tires and preforming traditional banking credit analysis. The bailouts followed because of political corruption, not because of any real need to prevent failures. How much would Warren Buffett have lost, if AIG liabilities had been settled via traditional bankruptcy like Lehman?
    You're really stretching to create conclusions that ignore the payoffs to political capital, and the costs to the rest of us without these connections.

  4. Mark Stuart   July 17, 2012 at 11:28 am

    (3) Cal is a WfB state. Businesses reside there because of the incredible climate, and the proximity to Stanford and the legions of businesses spwaned by Standford.
    Are you claiming that Government created the mild climate in Cal and Stanford U?
    Massachuesetts benefits tremendously from MIT and Harvard. Are you claiming that government created these schools also?
    This is quite a stretch, even for an Obamakin.
    All of your comparisons will change dramtically if you take Cal and the Boston area out of the group.

  5. Mark Stuart   July 17, 2012 at 11:30 am

    What you are really claiming is that WfB states will create better opportunities in the future.
    What will happen if Stanford opens up a technology campus in Texas, or MIT, or CalTech?
    Allow me to leave you with one last bit of insight into the cost of government corruption, which is only possible with big government:
    We have a terrible and costly misallocation of resources when lobbyists earn more than Neuro surgeons or cardiologists? When Senators and Congressmen earn more than engineering professors, what does this say about a country's priorities? Lobbyists create returns for their clients by taking from the other tax payers. Are you really claiming that this process is good for the vast majority of the public? The notion that an activist government is essential for prosperity creates an entire industry of parasites. These parasites impoverish the rest of us, and future generations. Hopefully, Romney will downsize government. The parasitic industries will follow, and propserity will increase. Obama is unquestionably a strong beleiver in the power of parasitivism. Aren't you also?

  6. Doug Shetler   July 19, 2012 at 8:15 am

    CEO's and high income people love the California Coastal Zone. From La Jolla to Newport, to Palos Verdes, to Santa Monica – stretching to Beverly Hills, to Santa Barbara, to San Francisco and Marin County. I'm not sure you find many physical operations being started in these areas. One needs to make a distinction between where CEO's love to live and where they want to build their operation base. Live in Santa Barbara and build the operations base in Texas. So Romney loved Boston. I bet most of his employees loved it too. Of course they were highly educated financial people able to afford to live in a great place. He could have located at the Water Garden in Santa Monica, or Newport, or Santa Barbara too. So what! I don't think we are talking about how great it is to start a Toyota Plant in Santa Monica. Or high tech manufacturing in Santa Barbara. I would love to have my horse ranch in Santa Monica, say about 10 acres along the beach. No, I'm moving my horses to Powhatan in Virginia where it is hot and humid. The only way to measure these things is by where businesses move, where employment increases. etc.