Government, Business; where do they meet

Usually I try to come up with some title that really has nothing to do with nothing, but sounds good for the post. This post, however, I just couldn't get clever.

A big selling point for the Republicans in the past election was that Mr Romney was a business leader and our country was having fiscal problems so we needed someone who knew business and was successful to lead our country.

And basically this is a failed idea, but that is not what I want to discuss, rather I would like to discuss how government can successfully interact with a free market or capitalist society and still function as a government whose primary function is to serve the people. So a business leader doesn't work, because business leaders are single minded where a leader of a country has to manage competing interests for the better of the whole country. Finding this success is what I want to accomplish.

This is not something that can be done in simple posts, but I have a few ideas of what it may look like and how to draw a picture for better understanding, then down the road more direct ideas of making ours better.

To paint this picture I am going to use an analogy. You go to your financial planner and that person sets up a portfolio to meet your needs. Outside of specifics for your situation, most will have some sort of diversified portfolio with each portion set to help you manage your risks and grow your assets.

A government needs to think like this also. It needs to assess the needs of the country and find ways to grow the economy. So like a financial plan for an individual the government needs to create policy that leads the market forces to invest in certain ways.

For example just like a person needs some growth stocks, the government needs to create policy that encourages companies to create new products, and this includes encouraging blue chip companies to stay strong with new product development and for new companies to emerge with new technologies and products that add to the economy, basically this is the type of company that creates long term job growth along with the ability to add to exports to increase income coming in for the country. And for the benefit of the market and the country these are the types of companies where you want to see the highest earnings. This is where it is okay for a company to make outsize billions in earnings and it be a positive for everyone. A free market country wants strong growing companies.

The next group of investments that should be in a market driven economy is companies that support the infrastructure of the country as a whole. A big difference here is the government actually needs to have some involvement in two ways. One is protecting the people and their needs and two is not allowing these companies to monopolize the market and take undue profits from products that we need such as energy, water, and government services. Now there could be much discussion on what I mean by energy, for now we will stick with traditional companies like electric and gas utility companies. These are needs of the people of the country, but better served if people can make money from them. Difference that is important is the investors cannot expect to make outsize profits like the more market driven products like cars, shirts, TVs etc. It is fine to make a great TV, have everybody love it and make a fortune. It is not fine to monopolize basic needs and take advantage of the situation. Like an individual's portfolio you use these types of investments for income and stability in your portfolio. Government should regulate services here, but find ways to allow for growth investment and the investors to make a reasonable income so our ability to supply the country's needs are met. Like the individual portfolio has reserved expectations for utility stocks the economic forces should have reserved expectations about income, but some protection or policies that protect them against some downside so they will make the investment to upgrade.

Another investment is foreign investment, financial planners will want you to invest beyond your country to help growth and diversify risk. A government needs to have foreign investment also. And this can come in different ways. It isn't necessarily directly investing in foreign countries like you would in a portfolio, but developing other economies to give our companies a larger market to work and sell. This is a high risk investment for your portfolio and for a government, but for different reasons. For the government you are managing tax dollars that need to be put to the public good. How and where you invest in other countries has to be carefully analyzed, not on what the country is making, but what the country can do in the long run. And then you have geopolitical factors that can throw a wrench into any pragmatic investing. A factor that most business people ignore and why our government is better suited to determine where we allow foreign investment is how does this country reflect our values. It is better suited for the country in the long run to have governments that show the ability to respect their own people, this way our investments aren't affected by turmoil within the country and we are not associated with previous regimes and now we are investing tax dollars to protect a few interests. Most current business leaders don't want to deal with this intrusion into their world, but this again is why a government needs to be ( I don't want to say manager because that is socialism) a factor in developing the overall plan and criteria. Our country has competing interests and letting companies make money is only one. There are long term consequences to decisions so those decisions cannot be left to the people who have the least concern for the big picture. Yet we need to make serious foreign investment. And most of this should not be in the form of foreign aid. It needs to be in infrastructure and economic development where our whole market can see a return on its tax payer investment.

A good advisor will want you to invest in debt. For a government though you need to invest in debt two ways, one you need to borrow to continually improve your infrastructure and you also need to lend. A government needs income. This is a slippery slope situation for a government though and why oversight even of our government is so important. And there are different types of ways for a government to lend. Some of the obvious are the most dangerous, such as lending money directly to other countries to do what I mentioned in the paragraph above for foreign economic development. Having countries beholden to you can create friction and if things go wrong only add to the tensions. Government lending needs to be indirect. An example we could use internally is our social security. First of all that needs to be record kept separately from the government's till because that is truly for a specific purpose with specific income, but as we know is running into a potential shortfall of income vs payout. And handing it over to wall street to invest is an obvious disaster since their only concern is their profits. Yet we need to find ways to increase income for social security to make it a success long term. So the SSA with help can invest some of the proceeds into revenue bonds for municipalities. This creates a new income stream for the money from the interest earned. I am trying to touch very carefully on an idea that needs to be explored and developed. One for the premise behind this post and one just because Social Security needs some updating for the long term, but this has to to be very carefully moved forward. This type of selective investing in lending money though is something a market economy's government needs to consider as part of managing the whole of a country's portfolio.

I know this is already being done is some shape form or fashion, but when you look at our current economy it is being done unsuccessfully. Many people have examined this and come up with some plans to address some of the issues, but what I would like to start with this post is for people to sit back and look at the whole picture. The average American does not put a market driven economy into perspective with the whole picture of the country. Either they are too focused on business and feel intrusion from the government and currently it is too intrusive; mainly because of bloat not regulation (we do need regulation to be less costly but more effective), vs people who don't trust all businesses and want the government in everybody's business--socialism. Both extremes are way too heavily represented in our current thinking. I want people to see the middle ground where we promote strong business development, but manage (okay I don't like the use of that word), not over regulate, business development where the needs of the people are more important than just profits. This is the job of government in a free market economy. Again is this new or original, no, but I don't think the average American considers to look at the big and competing picture. Hopefully this analogy about comparing it to the investment advice a person receives about diversification, why you diversify,and that you need to make adjustments from time to time or as needs change helps to illustrate a government of a market economy has to create/have diversification also.


The Christmas season ends, the New Year is about to get into full gear, and tomorrow is just another Monday. What challenges are we ready to conquer in 2013?