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Governments as Facilitators of Value Creation

There is a fundamental humanity to business institutions. Businesses are cooperative endeavors that leverage human work and creativity to create social value. Stable, functional, and purpose-driven businesses are key to real human flourishing.

And yet, many governments are expected to be neutral about business. Western liberalism largely recognizes two roles for governments when it comes to business: The redistributor role, carried out primarily through the tax system, where business gains are redistributed to other parts of society, and the referee (or regulator) role, where governments ensure level playing fields for business ventures and set ground rules for what counts as fair play in each industry.

There is, however, a third role: governments as facilitators of value creation. By facilitators, we mean that governments can enact policies that enable businesses to better create value in terms of both efficiency and effectiveness. Governments can raise the knowledge and skill base of their citizens by enabling research and reforming education. Governments can invest in infrastructure that improves conditions for businesses to create value and develop innovative business ideas. And governments can do all this without picking winners and losers, the traditional free-market ideologue’s objection to any government involvement in the marketplace.

What Governments as Facilitators Look Like

There are many examples of governments acting as facilitators throughout history. In the United States, building the interstate highway system from the 1950s to 1990s led to much more efficient commerce (and while some argue that this system favored trucking companies over rail companies, there was no reason in principle that governments had to ignore investment in rail infrastructure so that today’s passenger rail system only works in some parts of the country). The U.S. Surgeon General’s 1964 report on smoking and health helped change congressional and agency priorities to enable research substantiating the reports’ claims, and mobilized medical, public health, and civil society efforts against early death and disease.

Non-U.S. governments have fewer institutional biases against business and government cooperation — and blurrier lines around what constitutes private and public space. But many see themselves as facilitators of value creation. For example, the central government of Estonia has built a data exchange system called X-Road, a borderless network that transparently stores, protects, and filters access to citizens’ data, identities, and interactions with state organizations. Described as the heart of Estonia’s “digital government,” X-Road is used by private companies as an entry point to the country’s markets because it eliminates transaction risks and simplifies the creation of new businesses. Estonia’s digital state is hyper-democratic, progressive, and a catalyst of commerce.

When we hear the term “pro-business” government, we often think of a particular political ideology, a set of tax incentives, or even a particular attitude to the poor. But imagine, instead, government being “pro-businesses” — that is, for the development and success of real businesses, not of business as an ideology. This is what governments that are facilitators really look like.

We contend that a pro-business government is part of the old story of business and capitalism. In the old narrative, we were taught that private businesses should focus on creating value, and governments should intervene in that process as little as possible. This view needlessly casts businesses as a source of value to be exploited by owners or restrained by regulators, and it artificially constrains the ways we might imagine government helping to propagate the good that business does.

A government that is “pro-businesses” is part of a new story of business. In this new capitalism of the 21st century, companies are rediscovering their purposes, taking a larger role in solving society’s problems, and inventing new ways to create value for all their stakeholders. This intersection of government and business is more likely to improve the lives of actual people instead of the portfolios of investment managers.

Governments that are facilitators and pro-businesses are often local and closely connected to the geographies, people, and capabilities that make up real businesses. Local governments can be laboratories for democracy and are well-positioned to understand the people they serve, their needs, and the various ways that government interventions might enhance or inhibit the local creation of value for and by businesses.

Toward a ‘Pro-Businesses’ Future

In today’s business environment, we should look to innovative governments to facilitate value creation. Here are two ways that governments can seed experiments in value creation:

Encouraging Entrepreneurship

A partner of ours at the Darden School of Business, Jeff Cherry, founded Conscious Venture Lab, a Baltimore-area accelerator that invests modest amounts of money in young, growing startups in return for small financial stakes in those companies. Cherry and his team provide four months of intensive advice, management training, and mentorship to each company. The lab’s goal is to help ingrain in participating entrepreneurs a social purpose in their mission and business practices, and to succeed in returning value to their communities, employees, shareholders, suppliers, and other stakeholders in their success. The lab is a private program in a large city, but it could be duplicated by local and small-state governments where it is difficult to attract or home-grow private investment capital.

Designed correctly, public educational programs that teach kids and young adults how to start businesses can be a way to reconnect young people to the goals of the broader economy. While many U.S. locales provide tax incentives to locate business operations in their jurisdictions or to hire new people, governments should experiment with other mechanisms, including accelerators like Cherry’s, that equip local startups with a purpose and set of practices targeted at producing benefits to their local stakeholders.

Facilitating Education and Retraining

As economies change, local governments can enable workers to transition by creating community retraining programs in schools and community colleges. Government investment in technical and other certificate-based education should be made more widely available, giving business a larger number of workers to grow their operations in their communities. Government can also play a role by helping industries and companies in their jurisdictions understand the job disruption that’s on the horizon, as the governments of France, Denmark, and Singapore have been doing recently.

In Brazil, the Brazilian Fund for the Protection of Workers works with trade unions and government agencies in providing vocational training. As an example, the School of Tourism and Hospitality in Florianópolis coordinates with the national Ministry of Tourism in training both employed and unemployed workers in everything from food handling to information technology.

Early childhood programs that prepare tomorrow’s labor force early to participate in businesses are responsible investments as well — and they will pay off in 20 years. In the United States, the not-for-profit ReadyNation encourages businesses to promote government investments in local early childhood programs. The organization’s parent group, Council for a Strong America, also advocated for expanded career and technical education programs in California, Michigan, and Oregon.

While there are no guarantees, we are arguing for a philosophy of experimentation. Free markets and free minds require access to new ideas, innovation, and infrastructure. To build a better society for our children, we must build better cooperation between businesses and governments.

1 Comment On: Governments as Facilitators of Value Creation

  • CGS Themes | October 11, 2018

    Absolutely agree with this “In today’s business environment, we should look to innovative governments to facilitate value creation.”

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