Ipso Facto Inefficiency?

September 13, 2011

"Normal Dan" Dan Liechty

In my last blog, I wrote about how confounded I am by the current antigovernment sentiment we are hearing everywhere. Moved to action, I did what all good academics do – I fired off a letter to the editor of our local paper! It was a shortened version of my last blog.

In the online discussion following, a number of people wrote in agreement, and quite a few more wrote in obvious disagreement, though not in any way that would leave me less perplexed about the original sentiment. But there was one thoughtful fellow. While acknowledging the point I had made about the value of government services, his position was that in the best of all possible worlds, all but a very limited few government services would be “privatized,” that is, carried out by private companies rather than by government workers. “My position is that high government employment itself represents a big inefficiency in any economy.”
That is a view I at least had heard before, back in my youthful days when I flirted with “Christian anarchy” as a viable political philosophy. But experience over the last 30 years has mostly raised only counter-arguments in my mind. But at least this is a view I can get my head around, even though I think it should subjected to more demand for evidence than I have seen to date.

Here is what I think. Any well-functioning modern society has “commons” work that needs to be done-basic social welfare, education, public health and sanitation, public land maintenance, park and recreation facility maintenance, protective services (emergency, fire, police), infrastructure building and maintenance, basic research, judicial affairs and such. There also needs to be adequate administration to oversee and regulate these. It is not at all clear to me that private employers, contracted by government for the purpose and driven by the motive to maximize their business profits, can or will do these types of “commons” work any cheaper, better, or more efficiently, than public employees. This has never been adequately demonstrated, and there are all sorts of common sense reasons to doubt it.

Of course there are stories of bad public employees, people who use their position to maximize personal gains at the expense of those they are there to serve. But there are at least as many stories of bad private employers and employees. It is the very fact that there is no great profit to be had that makes these areas of “commons” work in the first place. Once we recognize that, it becomes wrong-headed to think that subjecting this work to “market forces” will get it done any more cheaply or efficiently. If the fact that we have people employed by the commonwealth to do works of the common good represents, ipso facto, inefficiency in the economy, this indicates a problem in how we have been defining the economy in the first place. It is not a view of the economy that is up to the task of facilitating civilized living in a well-functioning modern society.

Why do we persist in defining our economic life as one big thunderdome of survival of the fittest (i.e., those who can squeeze out the most personal gain for the least input of resources.) It seems to me that pride of accomplishment and commitment to serving the common good (what we once hailed as civic-mindedness and recognized in our public service workers) could be even better motivational sources for economic life than maximum profits. The private sector hardly recognizes that it is actually dependent on a good public sector for its own success.  A strong public sector ethos, in which we are taught to appreciate public sector work and respect public sector employees, would be a much better economic foundation for a good society than this current private sector fetish we have now.



  1. I could not agree more, Dan. There are many endeavors where private sector control leads to disaster… look at out private prisons, and our health care “system.” It is clear that until the profit motive is removed (or at least controlled) in our health care system, costs will continue to escalate. Most economists agree that this will eventually drag our economy even more completely into the toilet. But those people who are getting rich providing private health care (and many are) would rather have the whole country in the crapper before giving an inch.

    And the truly sad part is that those millions won’t make them happy. Just this morning I was re-reading Schopenhauer’s “The Wisdom of LIfe” and he recounts the futile happiness-through-wealth chimera. “For beyond the satisfaction of some real and natural necessities, all that the possession of wealth can achieve has a very small influence upon our happiness, in the proper sense of the word; indeed, wealth rather disturbs it, because the preservation of property entails a great many unavoidable anxieties.” (So true. I was once a passenger in an expensive car, where the owner drove around a garage for about 15 minutes–passing up dozens of open spaces–seeking the coveted “2 adjoining spaces” slot so he could park diagonally across both, thus assuring that nobody would open their door and nick his precious car.)

    Best, Phil

    • I agree that up to a certain point (satisfaction of basic Maslow-Pyramid needs) more wealth means more happiness/well being. But as wealth accumulation has become a symbol for “winning” in our society (i.e., proving myself “above” the merely human) it has also become an ever-receding Omega point, leaving society as a whole much worse off. And by the way, I was the one who couldn’t find a space at all that day so that your guy could have two of them!!

  2. Dan,

    You are absolutely right about the need for government to regulate “common” activity. The main difficulty, however, is in defining which activities are in the common good, because what is in the common interest changes over time.

    Consider the mail service. When it first arose, it was clearly a common good activity. Government funding ensured that the cost of mailing letters and packages was low, thereby allowing citizens to communicate over vast distances. A for-profit mail service would have been much more expensive and therefore less useful.

    But today? The mail service is less essential now, with FedEx, UPS and above all email, text messaging, and other cheap forms of communication. It may not be a worthwhile government expenditure; it does not facilitate the common good like it once did. On the other hand, some people (e.g., the elderly) have built up reliance on the mail service,and will suffer if it is cut or remade into a for-profit vehicle. So goes the argument for retaining the public mail service.

    The problem is that any government service for the “common good” will lead to such reliance, and this reliance may eventually lead to inefficient outcomes after time passes. Privatizing government activity may in fact be more efficient in the long run, but less efficient in the short run. How do we weigh the future versus the present?

    • The USPS is only very incidentally a “government” service. It runs completely on its own self-generated revenues. Of course, it enjoys a whole lot of tax benefits compared to private delivery companies. But on the other hand, they are restricted from entering into direct competition with private delivery companies EXACTLY IN THIS AREAS THAT ARE NOW THE MOST LUCRATIVE. It is exactly like what a gov’t/private health insurance mix would be – with the gov’t program getting all of the most sick and costly people and the private for-profits getting all of the least costly and most revenue generating people. Private delivery companies benefit greatly by the fact that the USPS remains “government,” exactly so they can continue to keep them from competing in the most lucrative delivery service markets. All of this post-Friedman hype about inevitable gov’t inefficiency, etc, has never been demonstrated on a factually level playing field.

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