Thrawn Rickle 66

Government—by the Bureaucrat, for the Bureaucrat

© 2003 Williscroft

I recently saw a bumper sticker that read: If you like the Post Office, you will love socialized medicine.

Point taken. The Post Office can’t seem to move into the state-of-the-art world of modern computers at any level that seems to matter. Not that the Post Office doesn’t try. Unfortunately, its technology implementation lags by about ten years. Think back to the PC you had on your desk ten years ago. Compare it to what you probably use today. Imagine trying to cope with that anachronism. The major mail processing equipment used by the Post Office suffers similar inadequacies. By the time such equipment is put in place across the United States, and by the time it is finally operating without significant bugs, it is so outmoded that much of the internal hardware is no longer routinely available on the open market. This means, of course, that repairs are significantly more expensive than they might be were the equipment genuinely state-of-the-art.

You can step into any other United States government agency or department and find similar situations.

What’s going on?

Learned members of the liberal intelligentsia tell us there is no reason a government agency cannot run as efficiently as a private business. I listen to the arguments and can’t help but agree: a group of dedicated government employees should be able to function with an efficiency at least as focused as a similar group working for General Electric or Ford. They never do, but they should, right?

In at least one way there is not a lot of difference between General Electric and the federal government. Both are large, unwieldy bureaucracies. In fact, one can effectively argue that from a management point of view there is only one significant difference: GE has to be profitable in order to pay its employees.

Usually in commercial companies, supervisor pay is at least in part determined by the performance of the people they supervise. In any case, long-term viability of any company is a direct function of its profitability. An employee who does not contribute in some measurable way to this profitability sooner or later will be doing something else.

When inefficiencies and actual losses reach unacceptable levels in a commercial firm, the market solves the problem. Inevitably, the bottom line rules.

One can argue that the very nature of government prevents bottom line arguments from being applied. As a general rule, government consumes money. Even when government appears to be generating money, it still is a bottom line consumer. Salaries paid to government workers, for example ultimately derive from taxes collected from citizens, including the government workers themselves. The money put back into the economy as paid wages is always less than that taken from it through taxes. Again, it can be argued that the differential still ends up back in the economy after being used to pay for overhead and infrastructure, since eventually the money is used to pay for something, somewhere.

To illustrate this, tax five individuals who earn $4 thousand a thousand dollars each, and use this money to pay a government worker $4 thousand, and use the remaining thousand dollars to support the infrastructure in which this government employee works. Without the tax, the four individuals would, ideally, spend $20 thousand, making this money immediately available to the rest of the economy, where it will percolate through the economic system. After the tax, however, only $15 thousand immediately finds its way into the economy. The remaining $5 thousand is put on hold. It spends time in the collection process, in the accounting process, in the allocating process, in the payroll process, and eventually, $4 thousand finds its way to the government employee and from there into the economy. The other thousand dollars also eventually finds its way back into the economy.

There is a significant time lag between the time the original five individuals received their money and spend it, and the time the remainder of the money finally arrives in the economy. During this time, it’s not doing anything. It just sits there. Like friction, it consumes economic energy without producing anything. It adds an unavoidable degree of inefficiency.

A mine uses workers to extract raw material from the earth, processes and then sells the mined minerals, and uses part of the money to pay the workers, and the rest to do other economic things like investing in other operations, purchasing mining or office equipment, or whatever.

A factory produces widgets that it sells for money that it uses to pay workers, purchase raw material, equipment, etc.

An accounting firm sells a service, using the money to pay the accountants, purchase equipment, etc. Service firms of all kinds can profitably exist in any economy where there also exists a manufacturing base that ultimately underwrites the cost of these services.

Together, production (mining, farming, etc.), manufacturing (cars, computers, etc.), and services (accounting, legal, etc.) form a synergy that keeps an entire economy afloat and working efficiently.

But wait a minute. Doesn’t government supply a service, using people that it pays with taxes it collects from the consumers of that service? Isn’t government part of this synergy?

Simply stated: yes it is. A major key to the process, however, is the degree of input from each segment, and the efficiency of that input. An economy that has no production, no manufacturing, that consists only of services cannot endure, because there is nothing generating the underlying source of payment for the services, unless, of course, such an economy services another economy that does have a production and or manufacturing base. Ideally, an economy will adjust so that the production and manufacturing base will balance the service sector so that everything works smoothly and efficiently.

Anytime a part of this system develops a significant inefficiency, the whole system suffers the consequences. Eventually, the inefficient element has to go, or it will drag down the entire system.

For example, a manufacturing process that falls behind current technology will produce widgets that are either more expensive than gidgets, don’t work as well as gidgets, or maybe are not even useful anymore, like chariot wheel spokes. If this manufacturer is subsidized with money extracted from the rest of the system, creating either an increasing but useless inventory of spokes, or tying up the money in the inefficiency of the manufacturing process, the whole system bogs down to the degree of this inefficiency. In effect, a percentage of every dollar produced in the system, disappears, is used up, consumed by the friction of the inefficiency.

Fortunately, in real economic systems, chariot wheel spoke manufacturers eventually wither and die. They fall away from the whole, taking their inefficiency with them. Since this doesn’t happen immediately, and since the effect exists at different levels in a whole bunch of industries and processes, every economic system has an inherent level of inefficiency that it can never overcome.

Government always adds to this inefficiency. It is inherent in the process. You cannot add a taxing entity to an economic system that consumes part of the collected taxes in overhead, and that supplies a delayed service worth less than the collected taxes, without adding a significant inefficiency burden to that system.

Sometimes the service is worth the price of the inefficiency. A good example is the military. Any economic system has to protect itself collectively from other economic systems. We need to protect ourselves from the bad guys, from the Pearl Harbors and the Twin Towers. We need a system in place to do this, and we must maintain that system. It adds inefficiency, but it cannot be avoided. It is worth the price we pay. It is clearly in our interest to make such services as efficient as possible so that the total inefficiency they add to the economy is minimized. Lean and mean is the watchword.

On the other hand, many services government provides may not really be necessary, or they can be more efficiently accomplished within the private service sector, or there may exist a way to fund them that is much more efficient than our current tax and spend approach. We all benefit by eliminating unnecessary government functions: The perpetual committee that always seems to generate another “necessary” study just as it is about to be dismantled; the agency created to solve a specific problem that it solved, and which now competes with other unnecessary agencies for jurisdiction over new “problems”; and so forth for literally hundreds of government functions at the federal level and all fifty states.

Privatizing government services that can better function in the private sector is a no-brainer. Myriads of functions and services need to be examined in this light. The increase in efficiency gained simply by moving such functions into the private sector is phenomenal.

Practically any agency that supplies a recognized service could, in principle, be funded by the fees it charges for that service. Unfortunately, the typical user of government services is used to receiving those services “for free”. There are, of course, those services to “customers” who never will have the means to pay. At least in the short term, social welfare agencies and the vast assortment of services falling into this general category will have to retain traditional funding.

Many government services, however, such as passports or patents to name two, might be funded directly from the net proceeds of fees they could charge. The trick would be to generate a corresponding reduction in taxes, and you know how likely that would be.