I feel like you have overlooked a massive reason why people perceive the government as hopelessly inefficient - because of a massive, decades-long PR campaign pushed by wealthy individuals, big companies, and the Republican Party to convince large amounts of people that the government can’t do anything right. Look at all of the advertising, education and “think tanks” funded by the Koch brothers and the many politicians who have complained about “welfare queens”, and Ronald Reagan’s entire campaign. One of his most quoted speech lines is: “The nine most terrifying words in the English language are: I'm from the Government, and I'm here to help.” I can point out more examples if you like but if you look around just a bit you will see they are everywhere. The Republican Party has made increased privatization and criticism of “wasteful” government spending a central talking point and has pushed this message hard through its media arms.
The fact that a lot of people think government is hopelessly inefficient doesn’t mean there has to be some hidden strong evidence that everything the government turns to garbage. It could just be that they have been propagandized into believing something that doesn’t have good evidentiary support. At one point in history the vast majority of people believed in polytheistic religions but that doesn’t mean there must be gods and goddesses running around someplace.
I’m sure you don’t want to come off as being politically partisan. But I’m not sure you can understand why the perception of vast government inefficiency exists without examining the powerful people and corporations that benefit from that perception and invest lots of resources to prop it up.
I agree with you. I just didn't want to go there in this article, esp as I was looking for empirical evidence. Though I did sneak a quote in right atop the article :)
I think the simplest reason Govt is considered inefficient is because it is hopelessly inefficient. I fear you are getting lost in statistics, papers and coming to wrong conclusions. This is why I find it helpful to always think deductively to ground my inductive reasoning. Consider the following questions :
Is firing an employee who does not work a good for the organization or not?
Is providing monetary incentives to customer satisfaction good for an organization or not?
Is it better to delegate responsibilities to employees to meet targets or better to define and keep writing sets of rules to reach targets?
Which strategy attracts and keeps young talent, high pay, high rsponsibility and high growth potential (and higher risk) or long term stability, low risk, low growth and mediocre pay? For each of these questions, the private sector does one thing while the government employs the opposite strategy. Which would be more efficient?
If the government in spite of employing the clearly bad strategy keeps getting efficient results, then our priors have to be wrong and the private industry clearly has a lot to learn but I reckon that is not the case. It's much more likely that the government is just as inefficient as it's predicted, and you're just getting lost in statistics. You can easily come up with 6-7 other such organisational deductive questions, where the government clearly uses the wrong strategy. The only times the Government is successful is when it has programs that follow at least some of the above questions (especially the 4th one, which matters more) as in the case of DARPA or early NASA or when it gives money to the private industry which can cause issues like Solyndra but also successes like SpaceX, Tesla, Internet etc. My favourite story of Government Programs done right is the Apollo Moon Mission 1969 (written in a book by Charles Murray)
I started with exactly that intuition, but if that's true, then why doesn't it show up when they try to measure? That's what I don't get. Part of the reason I'm sure is that what you described is a good private sector company, but perhaps the average isn't all that great. Same for countries, there's a Singapore there too.
True, large corporates are quite inefficient, there's an excellent book I'd recommend called Dynamic Economics by Burton Klein that goes into detail on this. But they still fire people, not firing people would be a non starter in the private sector whereas Trump tried to pass legislation to enable firing of around 5-10% of new employees only in regulatory agencies and that law still hasn't passed, so Govt agencies basically fire never (unless proven misconduct). Thats why I doubt, the averages are similar, private sector is inefficient but an order of magnitude more efficient than the government sector. There's an amusing anecdotal story regarding Steve Jobs during the early days of Apple. The QA Engineers (generally the lowest paid and lowest status software engineer) were in an old building in Palo Alto office when the boss came in and announced that they would all be shifting to the shiny new building a few blocks away. "But isn't that where the Tech R and D team is?" An employee asked (R and D is highest status generally). "Yeah don't tell them, they haven't got the news yet", the boss informed. Jobs basically fired the entire team R and D team overnight. (Something almost always justified in most companies). I think the govt needs the Steve jobs Or Gordon Ramsay treatment if we need to bring back some efficiency into this system. What you generally see is that individual bureaucrats become their own kingdoms with no one to stop them, same to agencies that end up doing stuff far beyond what they were created for. So I'd say the research papers are probably mistaken or they won't replicate. Singapore though is a special case, I wouldn't be suprised if it is an efficient government. They pay the highest salaries and is generally run more like a business. I think the core disagreement is inductive vs deductive reasoning. Deductive reasoning I find to be much more accurate in open ended fields like Economics while Inductive reasoning can easily lead you astray.
It's a fair argument! I'm still flabbergasted that it doesn't show up in the figures ... If all these studies are wrong we have bigger problems!
My intuition is that the areas where they're comparable are all prone to same.levels of large org style structures and bureaucracy and inefficiencies. So healthcare is complex enough that govt is inefficient through bureaucracy and Pvt sector through idiotic profit seeking.
Ultimate intuition being that there are few sectors that have the magic combo of clear enough incentives + market forces via competition + profit motive that leads to efficiency.
Rxample: Postal service vs. The Bezos machine; the second one operates on subsidized labor, subsidized real esrate, and tax breaks, yet only extracts massive amounts of money out of the economy. It’s a black hole that never sheds a dollar. Meanwhile the postal service is hamstrung, obstructed and underfunded, yet manages to pay living wages, charge nominal rates and provide essential services that no private entity would go near despite their supposed efficiency and despite refusing to pay a living wage. So imo the private sectir is more efficient at sucking money out of society and not much else.
The problem with most comparisons that are made here is they look at a world in which the government already has a monopoly. No wonder private insurances cost more in such a context. I wonder how it is that you wrote an article about the costs of efficiency comparing public and private efficiency without ever talking about government regulations.
Apologies for the late reply. I thought of the effect of govt regulations should show up endogenously within the cost comparisons. i.e., if monopoly is bad per se, then it should show up in efficiency/cost comparisons. For instance, the private insurance in US, public in US where there is no govt monopoly, vs public in the UK where there is a govt monopoly, which show disparities amongst the options.
I'm still somewhat surprised that they don't by the way. Very happy to see data that proves otherwise.
1. It cannot show up endogenously, because the point I'm trying to make is that your comparisons are concerned with a model that works with a monopoly already there. You are not comparing public vs private, what you are really comparing is public vs private-within-a-public-framework. So if you like, what you successfully showed is that private business doesn't work very well with government regulations. Allowing competition to occur is allowing results we cannot predict will occur to occur. https://mises.org/library/competition-discovery-procedure-0
2. It is not that monopoly is bad per se. Monopoly has to be understood as the government imposing prices or preventing other firms from providing so-called "public goods". From that point of view, the expression "private monopoly" makes no sense, though a private firm may come to dominate (to put it in game theory jargon) a market, but that does not mean that another firm cannot enter that market. If the monopolistic firm violently prevents any other firm from entering it, then it ceases to be a firm, it's a mafia. Sorry if I'm getting sidetracked. Anyway Mises makes a very similar point in Human Action (I think I could find the exact reference if you're interested).
4. Another thing you don't deal with is how those programs are financed and the effects of more government spending on the overall "structure of production". Also, I seem to have failed to notice the part where you address the respective quality of the services in question (private/public). There is an intrinsic feature of the very way in which the programs are financed: nobody directly bears the cost.
5. While we're at it, I'm not sure I understand the graphic about poverty rate reduction: how is poverty measured? Is the same standard applied to all of these countries? And if so, is it adjusted for inflation and what standard is it? The reason why I'm asking is I have a problem with the methodology in your paper, namely the fact that it is not enough methodologically individualistic, so to speak. Take the definition of allocative efficiency: "Allocative inefficiency, where inputs can't be substituted for one another without raising costs", but whose costs is that? Because it is not like everyone needs the same amount of healthcare or everyone pays for each amount of healthcare they are being provided, for that would mean we're in a fully private system. That's why I just don't think these macro indexes are relevant to your problem.
Ah I see your point, that there is no situation where you can compare a "pure private" option, since that doesn't exist. I think that's true, but I'm honestly not sure how it will impact the thought, since that doesn't seem to be the case almost anywhere, and best we can get is the directional arguments that exist. What we see is a wide variance in private, and in some places t's better and some worse than public options, and once you do intra-country it's pretty uniformly more expensive. That said I take your point on the crowding out argument, though again, that's a pretty complicated picture still empirically - Ill probably dig into it in a future post though.
In general I'm highly sympathetic to competition creating better efficiencies, for the same reasons you are I suspect, though I'm quite surprised that it doesn't seem to show up. I suspect that's because it's difficult to engender competition everywhere, even when you move to private. The SF garbage collection example is an example of that type of market failure.
Lastly on the indices themselves, yes they're methodologically inexact. I have this issue generally whenever we do cross country analyses, especially macro, though I still wonder why the effects are not large enough that they wouldn't shine through regardless. What I'd love to see is an efficiency measure where govt programs can be clearly seen as terrible, but that doesn't seem to happen. This is a classic "too many variables" problem though that I'm not sure any amount of messing about with the data can cure. That's kind of the whole issue with macro debates I have anyway.
I feel like you have overlooked a massive reason why people perceive the government as hopelessly inefficient - because of a massive, decades-long PR campaign pushed by wealthy individuals, big companies, and the Republican Party to convince large amounts of people that the government can’t do anything right. Look at all of the advertising, education and “think tanks” funded by the Koch brothers and the many politicians who have complained about “welfare queens”, and Ronald Reagan’s entire campaign. One of his most quoted speech lines is: “The nine most terrifying words in the English language are: I'm from the Government, and I'm here to help.” I can point out more examples if you like but if you look around just a bit you will see they are everywhere. The Republican Party has made increased privatization and criticism of “wasteful” government spending a central talking point and has pushed this message hard through its media arms.
The fact that a lot of people think government is hopelessly inefficient doesn’t mean there has to be some hidden strong evidence that everything the government turns to garbage. It could just be that they have been propagandized into believing something that doesn’t have good evidentiary support. At one point in history the vast majority of people believed in polytheistic religions but that doesn’t mean there must be gods and goddesses running around someplace.
I’m sure you don’t want to come off as being politically partisan. But I’m not sure you can understand why the perception of vast government inefficiency exists without examining the powerful people and corporations that benefit from that perception and invest lots of resources to prop it up.
I agree with you. I just didn't want to go there in this article, esp as I was looking for empirical evidence. Though I did sneak a quote in right atop the article :)
I think the simplest reason Govt is considered inefficient is because it is hopelessly inefficient. I fear you are getting lost in statistics, papers and coming to wrong conclusions. This is why I find it helpful to always think deductively to ground my inductive reasoning. Consider the following questions :
Is firing an employee who does not work a good for the organization or not?
Is providing monetary incentives to customer satisfaction good for an organization or not?
Is it better to delegate responsibilities to employees to meet targets or better to define and keep writing sets of rules to reach targets?
Which strategy attracts and keeps young talent, high pay, high rsponsibility and high growth potential (and higher risk) or long term stability, low risk, low growth and mediocre pay? For each of these questions, the private sector does one thing while the government employs the opposite strategy. Which would be more efficient?
If the government in spite of employing the clearly bad strategy keeps getting efficient results, then our priors have to be wrong and the private industry clearly has a lot to learn but I reckon that is not the case. It's much more likely that the government is just as inefficient as it's predicted, and you're just getting lost in statistics. You can easily come up with 6-7 other such organisational deductive questions, where the government clearly uses the wrong strategy. The only times the Government is successful is when it has programs that follow at least some of the above questions (especially the 4th one, which matters more) as in the case of DARPA or early NASA or when it gives money to the private industry which can cause issues like Solyndra but also successes like SpaceX, Tesla, Internet etc. My favourite story of Government Programs done right is the Apollo Moon Mission 1969 (written in a book by Charles Murray)
I started with exactly that intuition, but if that's true, then why doesn't it show up when they try to measure? That's what I don't get. Part of the reason I'm sure is that what you described is a good private sector company, but perhaps the average isn't all that great. Same for countries, there's a Singapore there too.
True, large corporates are quite inefficient, there's an excellent book I'd recommend called Dynamic Economics by Burton Klein that goes into detail on this. But they still fire people, not firing people would be a non starter in the private sector whereas Trump tried to pass legislation to enable firing of around 5-10% of new employees only in regulatory agencies and that law still hasn't passed, so Govt agencies basically fire never (unless proven misconduct). Thats why I doubt, the averages are similar, private sector is inefficient but an order of magnitude more efficient than the government sector. There's an amusing anecdotal story regarding Steve Jobs during the early days of Apple. The QA Engineers (generally the lowest paid and lowest status software engineer) were in an old building in Palo Alto office when the boss came in and announced that they would all be shifting to the shiny new building a few blocks away. "But isn't that where the Tech R and D team is?" An employee asked (R and D is highest status generally). "Yeah don't tell them, they haven't got the news yet", the boss informed. Jobs basically fired the entire team R and D team overnight. (Something almost always justified in most companies). I think the govt needs the Steve jobs Or Gordon Ramsay treatment if we need to bring back some efficiency into this system. What you generally see is that individual bureaucrats become their own kingdoms with no one to stop them, same to agencies that end up doing stuff far beyond what they were created for. So I'd say the research papers are probably mistaken or they won't replicate. Singapore though is a special case, I wouldn't be suprised if it is an efficient government. They pay the highest salaries and is generally run more like a business. I think the core disagreement is inductive vs deductive reasoning. Deductive reasoning I find to be much more accurate in open ended fields like Economics while Inductive reasoning can easily lead you astray.
It's a fair argument! I'm still flabbergasted that it doesn't show up in the figures ... If all these studies are wrong we have bigger problems!
My intuition is that the areas where they're comparable are all prone to same.levels of large org style structures and bureaucracy and inefficiencies. So healthcare is complex enough that govt is inefficient through bureaucracy and Pvt sector through idiotic profit seeking.
Ultimate intuition being that there are few sectors that have the magic combo of clear enough incentives + market forces via competition + profit motive that leads to efficiency.
Rxample: Postal service vs. The Bezos machine; the second one operates on subsidized labor, subsidized real esrate, and tax breaks, yet only extracts massive amounts of money out of the economy. It’s a black hole that never sheds a dollar. Meanwhile the postal service is hamstrung, obstructed and underfunded, yet manages to pay living wages, charge nominal rates and provide essential services that no private entity would go near despite their supposed efficiency and despite refusing to pay a living wage. So imo the private sectir is more efficient at sucking money out of society and not much else.
It's definitely a weird dichotomy ...
The problem with most comparisons that are made here is they look at a world in which the government already has a monopoly. No wonder private insurances cost more in such a context. I wonder how it is that you wrote an article about the costs of efficiency comparing public and private efficiency without ever talking about government regulations.
Apologies for the late reply. I thought of the effect of govt regulations should show up endogenously within the cost comparisons. i.e., if monopoly is bad per se, then it should show up in efficiency/cost comparisons. For instance, the private insurance in US, public in US where there is no govt monopoly, vs public in the UK where there is a govt monopoly, which show disparities amongst the options.
I'm still somewhat surprised that they don't by the way. Very happy to see data that proves otherwise.
Thanks for your reply.
1. It cannot show up endogenously, because the point I'm trying to make is that your comparisons are concerned with a model that works with a monopoly already there. You are not comparing public vs private, what you are really comparing is public vs private-within-a-public-framework. So if you like, what you successfully showed is that private business doesn't work very well with government regulations. Allowing competition to occur is allowing results we cannot predict will occur to occur. https://mises.org/library/competition-discovery-procedure-0
2. It is not that monopoly is bad per se. Monopoly has to be understood as the government imposing prices or preventing other firms from providing so-called "public goods". From that point of view, the expression "private monopoly" makes no sense, though a private firm may come to dominate (to put it in game theory jargon) a market, but that does not mean that another firm cannot enter that market. If the monopolistic firm violently prevents any other firm from entering it, then it ceases to be a firm, it's a mafia. Sorry if I'm getting sidetracked. Anyway Mises makes a very similar point in Human Action (I think I could find the exact reference if you're interested).
3. I am not sure you can jump so easily from "there is no government monopoly" to "there is no regulation". If we look at the cost of separate surgical operations, say, and compare private vs public in the US, there does seem to be a wide difference. https://fee.org/articles/what-a-funny-taylor-swift-video-can-teach-us-about-health-care/
4. Another thing you don't deal with is how those programs are financed and the effects of more government spending on the overall "structure of production". Also, I seem to have failed to notice the part where you address the respective quality of the services in question (private/public). There is an intrinsic feature of the very way in which the programs are financed: nobody directly bears the cost.
5. While we're at it, I'm not sure I understand the graphic about poverty rate reduction: how is poverty measured? Is the same standard applied to all of these countries? And if so, is it adjusted for inflation and what standard is it? The reason why I'm asking is I have a problem with the methodology in your paper, namely the fact that it is not enough methodologically individualistic, so to speak. Take the definition of allocative efficiency: "Allocative inefficiency, where inputs can't be substituted for one another without raising costs", but whose costs is that? Because it is not like everyone needs the same amount of healthcare or everyone pays for each amount of healthcare they are being provided, for that would mean we're in a fully private system. That's why I just don't think these macro indexes are relevant to your problem.
Ah I see your point, that there is no situation where you can compare a "pure private" option, since that doesn't exist. I think that's true, but I'm honestly not sure how it will impact the thought, since that doesn't seem to be the case almost anywhere, and best we can get is the directional arguments that exist. What we see is a wide variance in private, and in some places t's better and some worse than public options, and once you do intra-country it's pretty uniformly more expensive. That said I take your point on the crowding out argument, though again, that's a pretty complicated picture still empirically - Ill probably dig into it in a future post though.
In general I'm highly sympathetic to competition creating better efficiencies, for the same reasons you are I suspect, though I'm quite surprised that it doesn't seem to show up. I suspect that's because it's difficult to engender competition everywhere, even when you move to private. The SF garbage collection example is an example of that type of market failure.
Lastly on the indices themselves, yes they're methodologically inexact. I have this issue generally whenever we do cross country analyses, especially macro, though I still wonder why the effects are not large enough that they wouldn't shine through regardless. What I'd love to see is an efficiency measure where govt programs can be clearly seen as terrible, but that doesn't seem to happen. This is a classic "too many variables" problem though that I'm not sure any amount of messing about with the data can cure. That's kind of the whole issue with macro debates I have anyway.