Can Governments Function?

One of the popular indoor sports is government bashing. This takes several forms depending upon one's view of the world. For some government must be inefficient because there is no profit motive spurring people on to do their best. For others it is the "faceless bureaucrats" who create needless regulations. For still others it is an axiom that private firms can do things better, no explicit reason is needed. Finally there are those who feel that government is, per force, an infringement on their liberty.

Let's examine the arguments.

The need for competition.

This is based upon an assumption about human nature, that people will only work hard in response to a financial reward. Those who believe this tend to disregard all the counter examples. The most visible are those who chose to work in fields where money is not a primary factor. This includes those who work for non-profit and governmental organizations as well as those who go into lower paying professions because they "want to make a difference". Those who believe that people are primarily driven by self interest ignore altruism as a motive.

Lack of accountability.

What makes bureaucrats "faceless" is that they are (allegedly) not subject to any accountability. But this is as true in private firms as in government. The stories of people getting a runaround when they contact their bank or insurance company or for service on a consumer product are legion.

Let's compare the organizational structure of a typical government agency and a business firm. Each is headed by a single individual who holds his job because of an external selection process. In government it is via an appointment from the head of government. In business it is via the selection of the board of directors and/or a handful of major investors. Below this person are others who are appointed by the head. Below them are the line employees who are (presumably) selected on the basis of merit. In corrupt societies this may not be true, bribery may be the mechanism.

The staff of each organization has two goals, one stated and one unstated. The stated goal is for the organization to do whatever its charter requires - make widgets or disburse social services or the like. The unstated goal is for the employees to preserve their livelihood. So what passes for inefficiency or unresponsiveness may be the result of the second goal taking precedence over the former.

If the organization is not performing properly then what is the recourse? In the case of the modern private firm the stakeholders have little control. The employees don't set policy, the stockholders are excluded from decision making and the customers can only apply pressure indirectly. If the firm has quasi-monopoly power (say an insurance company) that the options for a consumer to withhold his purchase is limited. Change only comes about by, what is effectively, a revolution. A financial firm loses billions and the CEO is unceremoniously dumped. There is no mechanism for orderly succession.

In the case of government, democratic states have a mechanism for orderly succession and adjustment when things are not going as desired - elections. Those who complain that the faceless bureaucrats don't get replaced are actually complaining about the fact that the democratic process is imperfect. The way to fix this is to make the government more democratic. There is no way to fix private firms they are centralized command and control systems by design. This demolishes the argument of those who claim that private firms will always do a better job. Both types of organizations are command and control systems, one has a feedback and accountability system (which may be imperfect) the other has none.

Those who support private dictatorships are revealing their preference for a social structure run by elites. They don't trust the people to govern themselves. When Jefferson penned:

Governments are instituted among Men, deriving their just powers from the consent of the governed...
he made the most profound change to political science in a thousand years. No longer was the leadership based upon the authority of those who claimed a connection to a supernatural or hereditary power, but resided in the people themselves. That many have still refused to accept this is not surprising. Those in power are not likely to share it voluntarily.

Infringement on Liberty

This complaint is also inconsistent. Private firms place limits on people's options all the time. I'd like to subscribe to a select handful of cable TV channels, but I can't. The monopolies don't offer this option. I'd like to buy insurance that covers hurricane damage, but I can't because the industry has decided not to offer it, even at a higher price. Where is the "free market" that is supposed to provide the offerings that the consumers desire? They don't exist in practice. In modern society all important markets are controlled by a small number of players. They are not responsive to the needs of the customer. They don't need to be.

The second infringement that is mentioned is that of limits on what one can do with their personal property. Part of this is a resentment of taxes. The other part is the belief that private property is special. However, in a democratic society the public gets to decide the limits to which private property can be used. You can't build a smelting plant in my backyard if the space isn't zoned for it. The zoning was determined (indirectly) by those who chose the elected officials to come up with the regulations. Once again, if there are those who think the officials are not being responsive to the public will, then the fault lies with the incomplete implementation of the democratic process. What's the alternative? A free for all?

What this all boils down to is this. All modern organizations are based upon a centralized command and control system. In the case of government there are mechanisms in place to provide feedback and correction when things aren't going as desired. In the case of private firms there aren't. Neither is inherently more or less efficient at what it does than the other. To go back to my hurricane insurance example, there is now a movement, in the US, for the federal government to offer such insurance, since the private firms won't. Why should this be necessary if the market was functioning as claimed?

Some could claim that private firms are unresponsive because the market is not functioning in a totally "free" manner. This is true, but the reason for this is not because of too much government interference, but too little. Monopolies only exist when they are allowed by government. The basic axiom of capitalism is that each firm should try to establish itself as a monopoly in order to extract the highest profit. Everyone from Adam Smith on has understood this. Why don't those who still believe in the "free market"? Either they are oblivious to history or they are using the language of the free market as a cover for their monopolistic aims.

Any system becomes unstable when it has no feedback to govern it. We have an imperfect one for government, but the one for private capitalism doesn't exist at all.

Click here to see all my essays in context.

If you have any comments or for further discussions email me at
Copyright © 2008 Robert D Feinman
Feel free to use the ideas, but the words are mine.