Are Government Bureaucracies Too Big? Becker

Governments, even in small countries, are vast bureaucracies that manage thousands of activities. The federal government of the United States, for example, runs a vast and complicated healthcare system, levies taxes on individuals and corporations, pays benefits to retirees, runs a large and highly mechanized military, decides whether pipelines can be built and oil exported out of the US, manages a vast payment system for the unemployed, and enforces complex regulations of banks. I could go on endlessly. A smaller government like Argentina’s does about as many things, but on a much smaller scale.

As Posner indicates, large corporations also have extensive bureaucracies, but several differences between public and private bureaucracies work against the relative efficiency of governments. The most basic is that government bureaucracies are just too big to perform most of their activities effectively. Governments undertake too many and too complicated activities to expect effective oversight from presidents, prime ministers, and legislators. Private corporations would also be much less efficient if they grew to the size of large governments, which explains why corporate bureaucracies are far more limited in size, and especially in scope.

Further raising the efficiency of corporate bureaucracies relative to public bureaucracies is that corporations typically face much stronger competition. Corporate competition is from other firms, non-corporate as well as corporate, and from firms that form when a corporation faltered in its efficiency. Also, a badly performing corporation often faces a battle from ”corporate raiders” for control of the corporation. Although such private competition is not always effective in disciplining the corporations who are too bureaucratic to be efficient, many formerly powerful corporations have vanished after they no longer performed well. These include Lehman brothers, A&P Groceries, Wong computers, Bethlehem Steel, and Woolworth.

Government bureaucracies also face some competition, but it is much weaker and less immediate. In democracies, elections occur at regular intervals, but the complexity of governments makes it extremely difficult for voters to judge whether the incumbents are performing well. Profit statements are usually a good guide to corporate performance, but there is nothing comparable for governments. Interested voters can look at a few things to judge, for example, whether government-financed health care is effective, but  nothing for government performance is as simple and as inclusive as a balance sheet report on how profitable a corporation is. In addition, powerful special interests often spend considerable resources to insure that voters hear their point of view far more often and more effectively than opposing views.

Another difference between corporate and government bureaucracies is that corporations use the price system far more than do governments. For example, government pay scales are much more compressed than are those of corporations. A head of a major government agency, such as the SEC or the EPA, has at least as much responsibility as the heads of major corporate divisions, but government heads earn only a fraction of what corporate heads do. Of course, heads of government agencies often leave after several years to take lucrative private sector positions, but they would do that much less frequently if they were better paid in their government jobs.

Another example is from the immigration authority (USCIS) that allocates visas on a first-come-first-served- basis that often takes weeks and even months. A corporation handling this issue would have a system of fees that would be higher for those who need a quicker decision.

So my answer to the question posed in the title of my discussion of whether government bureaucracies are too big and inefficient is a strong “yes”. Government should do much less so they can concentrate on and do better with the tasks they are most needed for, such as police and military, infrastructure, safety nets, and regulation of activities with big externalities. Regrettably, I am not optimistic that much can be achieved quickly in slimming down governments, given the strong self-interests and special interests that benefit from the present situation.

Comments

[Anand Manikutty]

I don't think it is fair to categorize the collapse of Lehmann brothers as an instance of 'poor performance'.

[Roger Chittum]

"Every good cause is worth some inefficiency."--Paul Samuelson

[Mattnotda]

You had me until you got to the 'safety net' thing. Yes, we do need a safety net, but as long as a democratically elected government runs the safety net, it will primarily be a means of buying votes.

[B Wilds]

Part of the problem is government jobs often pay more and provide benefits, security, and pensions that the private sector cannot afford to meet. An unhealthy system supports this, politicians give raises to government employe unions that in turn support the politicians reelections so they can get further raises, this has created a ugly cycle. This should be the crux of the discussion about the economy going forward, the size of government must be contained and reduced. More on this subject and how a government centered economy distorts the private market in the post below,

http://brucewilds.blogspot.com/2012/06/government-centered-economy.html

[Itcomesundone.wordpress.com]

Is it fair to compare private corporate bureaucracies to public government bureaucracies? Can bureaucracies be made more effective and efficient? Sure. Could the government learn a few things from the private sector? Of course.

But bear in mind that governments are here to do a completely different job than a private corporation. The corporation exists soley to make money while the government is there to look after the well being and health of its given society and all of the people who live within it. This includes handling those highly complicated, non-monetarily rewarded projects that corporations steer away from, in addition to a host of other tasks that are not related directly to the running of our domestic affairs (ie, interacting with other societies, handling those relations and connections between citizens and organizations and, of course, working with the conditions of our environments in which we all live).

Could government be run better? Yes. But this would require a greater amount of investment in its services and personnel that, given the attitude towards taxes, isn't likely to happen.

Therefore, I would make the distinction between private corporations' bureaucracies and public government bureaucracies, because they are working towards different ends and serve completely different purposes in our societies relative to themselves and relative to all others.

[B Wilds]

Another quick thought. In reference to the statement "many formerly powerful corporations have vanished after they no longer performed well. These include Lehman brothers, A&P Groceries, Wong computers, Bethlehem Steel, and Woolworth."

It should be noted these companies vanished a lot quicker than many governments. Governments tend to hang around much longer after they become inefficient. While it seems politicians at times have painted themselves into a corner they also have super powers that allow the constant creation of new exits. Pray tell what you might ask. The power of the pointed finger and the placing of blame should never be underestimated for they are indeed magical.

[Jack]

Ha B. Wilds! Lehman, in addition to being run by arrogant and foolish management was just as corrupted as the many other big names of our cancerously growing "financial sector" that "produces" little by comparison to their gleanings. Lehman "forgot" to supply the Bush admin with a Treasury secretary, as did the recently taken public Goldman, who protected the monstrously off-base AIG, which then covered GS.

The Wang computer days were hard on most mfg's of mini-computers. Beth steel? Largely fell prey to "changes in governmental priorities" that once included having the Navy subsidize our cargo ships with the caveat that when WE need them WE get them. Instead............ Ha! "we" save money by trying to support the wars ginned up in the M/E by air. The fuel for one C-5 trip across the Pacific with an Abrahms tank aboard, and how many mid-air refuelings from fuel guzzling tankers could fuel a small fleet of ships........ which is how the private sector ships heavy cargo.

Fortunately! "The slow moving government" or the many layers of government from city, county, state and fed aren't in the competitive game.... there job is more like making sure the ball field is maintained for the competitive games to be played on them.