I tend to get testy when I hear people intone that government should “be run like a business.” (Granted–I’m testy a lot…) Government is very different from business–its purposes (which do not include a profit motive) are distinct. Not recognizing the substantial differences between governance and enterprise marks those making that facile comment as–at best– uninformed.
That said, there is one concept fundamental to both business plans and investment decisions that should also guide governmental decisions: return on investment. Interestingly, however, many of the same folks who want more businesslike governance routinely ignore that calculation.
If I’m purchasing stock in a company, I want evidence that the shares I purchase will appreciate in value–or at least pay dividends. If I am a savvy/mature investor, rather than a gambler playing the market, I understand that such appreciation will likely not be immediate; I will invest “for the long haul.”
That same calculation ought to determine America’s investments in social spending. Although appropriate returns on government investment will not and should not be monetary, a number of studies confirm that a surprising number of programs actually do turn a fiscal profit for taxpayers.
Children who have been fed thanks to food stamps grow up into healthier, more productive adults than those who didn’t get enough to eat. That greater productivity means that government eventually recoups much of what it spent on those food stamps–and also saves money due to reduced spending on things like disability payments.
A recent study by Harvard economists found that many programs — especially those focused on children and young adults — made money for taxpayers, when all costs and benefits were factored in.
That’s because they improved the health and education of enrollees and their families, who eventually earned more income, paid more taxes and needed less government assistance over all.
The study, published in The Quarterly Journal of Economics, analyzed 101 government programs. In one way, it was a standard cost/benefit analysis–it looked at what government’s costs were, and the resulting benefits to the recipients. However, the researchers took an extra step–they calculated the “fiscal externalities: the indirect ways that a program affected the government’s budget.”
In other words, in addition to the upfront costs, they calculated the monetary return on taxpayers’ investment.
Consider one program: health insurance for pregnant women. In the mid-1980s, the federal government allowed states to expand Medicaid eligibility to more low-income pregnant women. Some, but not all, states took up the offer. Increased Medicaid coverage enabled women to receive prenatal care and better obstetric care, and to save on personal medical spending.
For the federal government, the most straightforward fiscal impact of this expanded coverage was increased spending on health insurance. The indirect fiscal effects were more complex, and could easily be overlooked, but they have been enormous.
First, newly eligible women had fewer uninsured medical costs. The federal government picks up part of the tab for the uninsured because it reimburses hospitals for “uncompensated care,” or unpaid bills. Thus, this saved the government some money. On the other hand, some of the women stopped working, probably because they no longer needed employer-provided private health insurance, and this cost the government money.
But the biggest indirect effects were not apparent until children born to the Medicaid-covered women became adults. As shown in a study by Sarah Miller at the University of Michigan and Laura Wherry at the University of California, Los Angeles, those second-generation beneficiaries were healthier in adulthood, with fewer hospitalizations. The government saved money because it would have paid for part of those hospital bills. The now-adult beneficiaries had more education and earned more money than people in similar situations whose mothers did not get Medicaid benefits. That meant higher tax revenue.
Data on other social programs yields similar results. Researchers have found that Medicaid expansion, for example, more than paid for itself, even after accounting for the fact that future benefits are “discounted”–i.e., worth less today.
Businesspeople understand that it usually takes time to realize profit. With government social programs, too, the fiscal “payoff” generally is delayed. That doesn’t mean it is less substantial or less real. In the cited study, 16 of the social policies that the researchers examined either broke even or actually made a profit.
I’m certainly not suggesting that government programs be limited to those with a positive financial return–government is most definitely not a business. I am suggesting, however, that we consider government social programs investments–and that the returns on those investments aren’t limited to improving the safety and security of the communities in which we all live, sufficient as that return would be. In many cases, taxpayers also get a positive monetary return on investment.
Just like well-run businesses.