Arnold Kling posts some questions on government. He doesn’t expect answers, but I’m going to provide them (for my own entertainment).
1. Is government subject to diminishing returns to scope? In the business world, it is usually considered a better strategy to stick to one purpose rather than to constantly get into new lines of business. The thinking is that if you try to combine too many businesses, you end up being ineffective. Does this consideration apply to government? If not, why not?
The problem here is that in business, there’s a clear and measurable indication of success and failure: profit.
In government, there’s just as clear an indication of success and failure: power. In government, the more power you have, the more successful you are, by definition. The more lines of business you have, the better. The success of increasing power is not to be confused with efficiency – they are unrelated. Who cares about efficiency?
Thus, diminishing returns to scope don’t kick in. Success in government is identical to scope. The bigger your scope the more successful you are.
2. Are government monopolies efficient? In theory, in the business world monopoly is efficient, because it eliminates duplicate overhead. (Monopoly is inefficient in theory because the monopolist charges a price that is too high, but we might suppose that government will not do that.) In practice, however, monopoly is inefficient because without the pressure of competition, business practices tend to stagnate. Is government immune from this stagnation problem, and if so, how?
3. Most new businesses disappear within a few years. Most government programs persist. Does this persistence indicate that government is more effective than the private sector at choosing carefully which initiatives to undertake, less effective at choosing which initiatives to terminate, or both?
See 1. All that matters is scope of control. The fact that you control an obsolete area is immaterial – you are by definition effective, since you control an area. Your challenge is to milk it for all it’s worth.
4. Because of the profit and loss system, businesses are accountable to some extent for keeping their promises. (There are weaknesses in accountability mechanisms, to be sure. Most notably, an executive with a short-term focus can gain personally while making decisions with adverse long-term consequences.) In government, the main accountability mechanism is an election. But most government workers are not subject to elections, and elections are very crude expressions of voter preferences. Overall, is the accountability mechanism in government nearly as effective as that in business?
No, in fact, in many cases, there is an anti-accountability mechanism. If you fail in some ways, your budget may increase.
In another post, Kling suggested that he liked President Obama’s re-org proposal. A government re-org is not a re-org in the private sense of the word. Instead of increasing efficiency, a government re-org will be co-opted to increase the power of certain people in government. It thus becomes a power struggle. In a government re-org, no one actual government employee would lose his job (at least not for long). Moving the deck chairs on the Titanic is not a re-org. Proposals like this will be co-opted by the bureaucracy and used to increase their power. It’s almost better not to talk about the problem.