Mustang Ranch: Our Government’s Talent for Running Businesses

How good is the government at running a business? It’s a viable question in light of the recent government take-over of General Motors, once the bell weather for American industry. I am reminded of a previous excursion of the government into the operation of a private business enterprise, namely: the Mustang Ranch brothel.

The Mustang Ranch, for those of you not familiar with its history, was a legal brothel operating a short taxi ride from Reno Nevada. In 1990, the government seized the enterprise in an attempt to collect $31 million in back taxes. The Ranch only sold two products: sex and booze. They had an established clientele and an excellent location with their close proximity to a large city.

So, beginning with an estimated base of $20,000 per day in revenues and all the brilliant advisors the government had at their disposal, they were an abject failure in operating this enterprise and later put it up for auction where it received just one bidder. It eventually sold to a private party for $1.49 million.

With Reno only a few miles away, how could the Government, with all its resources, lose money operating such a relatively simple business? The government moved in again in 1999 taking the position that the new owner was just a front for the former owner who had declared bankruptcy and fled to South America, which is where he is presumed to be today. In spite of the government’s bungling, the Ranch is back in business under private ownership and is operating at a profit today.

If the government cannot make a profit running a whorehouse, how confident are we in their ability to run a billion dollar automobile company? For that matter, how can we expect them to run the entire healthcare industry with its countless companies, products and services? Their most recent foray into the housing industry led to a housing bubble and the failure Fannie Mae and Freddie Mac. The collateralized mortgages and other toxic assets created under the government’s regulatory watch were sold to banks and insurance companies which we also had to bail out. The list of government failures seems to have no end. “Cash for Clunkers,” the Bridge to Nowhere, endless farm subsidies, $800 hammers. FEMA spent $5 billion dollars in the last year and a half trying to explain how they spent $29 billion in 2002 but can’t seem to provide us with the information. I imagine their strategy is to just delay and postpone their findings until we give up or die.

There is a mountain of evidence that we should stop asking the government to take over any business enterprise or bail out any industry and run it for any length of time. To do so is to further invite more disruption and long term inefficiency which we will be coerced into funding with higher taxes and deficits.

Still not convinced?

• A car company in Finland sponsored by Al Gore has received a loan from our government for $529 million but our banks who received money from the government’s TARP Program have still not found a way to begin lending to American small business.

• Congress publicly rebukes Detroit automobile executives for flying to Washington hearings on private jets yet shortly thereafter appropriates tax dollars to order more private jets for Congressional travel.

• The Federal Communications Commission’s plan to bring broadband Internet access to the three to six million Americans who don’t have access to the Internet. This bill requests $350 billion for this plan which works out to over $120,000 per user!

In each of these instances, we see examples of favoritism to the politically connected, hypocrisy or a lack of simple business economics at work.

On the surface it appears that in Washington, the right hand never knows what the left hand is doing but I suspect that the real answer is more complicated. Perhaps government bureaucrats, with no business training or expertise, make business decisions based on political considerations and endless CYA paperwork instead of economics. Or, perhaps it is an inbred government culture of simply demanding more tax revenue to fund inefficiency instead of a culture that innovates to reduce cost and increase efficiency? Perhaps it is a lack on internal accountability or the knowledge government workers have that no matter how inefficient they are there is still little chance they will be fired and that their above average wages and pension are safe.

So, as we move towards a final decision towards a government-run healthcare industry which will put your medical safety in the hands of the government and you relinquish your freedom to purchase or not purchase insurance and select your own doctor, please remember the simple lesson learned at the Mustang Ranch.