Government and corporations – where lies the greatest waste?

There are a few standard articles of faith, largely following a requisite indoctrination in economic theory, that seem to have percolated down to at least a third of society. Governments are inherently wasteful, whereas markets are inherently efficient. Governments inherently make wrong decisions, whereas markets are inherently wise. Governments are inherently corrupt and self-serving, whereas companies … well, you get the idea.

Some people know this to be totally bogus, pointing to the fact that companies are often corrupt, corporate leaders all too often splash shareholder money about like it grows on trees, and make wrong decisions.

I’m not trying to say that governments are inherently efficient (they’re not), or inherently wise (they sometimes exhibit wisdom, but clearly fail this test more often than we’d like), or that public officials are inherently selfless (while some are, I suppose most just want a job).

Then again, incompetent and wasteful companies are put to the test of markets, and either shape up or ship out. Success or failure in the market is presumed to lead to the best allocation of economic resources. On the other side, so goes the argument, is that government projects don’t face market pressures and are therefore guaranteed to be less efficient. (It may be true some of the time, or perhaps even most of the time, but I simply refuse to take it as an article of faith. The market is certainly less efficient in some cases too.)

I don’t really want to take on the general argument of market efficiency, although it is incredibly simplistic, ignores the fact that too many companies live for short term gain, and pays insufficient attention to the fact that the government provides many services that would be underprovided if left to the market.

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I have two main questions.

The first stems from a number of conversations with people who work in corporate environments and complained incessantly about the amount of incompetence, laziness and waste, in a corporate environment.

Given that corporations are also inherently wasteful, can it be taken as an article of faith that governments are EVEN MORE wasteful and suffer from EVEN GREATER difficulties in retaining talented and motivated workers? I.e. – Is it possible that governments might sometimes be more effective at some things, or that some talented individuals in the public service will end up competently directing some programs?

The second question stems from the idea that markets (and therefore company CEOs) make better and more competent decisions than governments.

If good business planning is they keystone of a successful business, then how on earth could a complete lack of public planning be the keystone of a successful society? Shouldn’t we expect both governments and companies to engage in short-term and long-term planning?

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Don’t get me wrong here. This is not an attack on markets. I’m completely comfortable with simultaneously holding both sides of a contradiction. (This is something I learned from Hegel, and it has served me well in accepting the legitimacy of competing views relating to complex issues.) A free-marketist environmentalist who believes that public planning is needed to ensure that private enterprises can efficiently create jobs with the goal of maximizing private profits in a sustainable society simply finds it hard to understand how otherwise intelligent people often argue that companies are inherently less wasteful than governments.

Why is this a terribly important issue? Because the concept of deadweight loss in microeconomic theory comes across as showing that governments destroy economic capacity and reduce a society’s well-being any time it levies taxes. It is a visual tool that is communicated easily, and seeing how readily 50 or so classmates swallowed the whole bit last summer without questioning where the tax money went is one of the reasons that the study of economic theory can all too easily feel like brainwashing.

Many people see through this. Others repeat the mantra of “cut taxes, cut taxes” any time they are faced with a question about economic policy. Markets pressures are great, but to presume that agents carrying out decisions based on collective public wisdom as expressed through democratic institutions will always make worse decisions than individual market actors is a contradiction that is untenable as general truth, in my mind.

All the same, keep the public corporations very far away from politicians. I have suggested that good managers can be found at crown corporations and in public projects. This does not mean that political elites will never abuse their position for personal gain or for nepotistic appointments. Similarly, it would be ridiculous to say that corporate elites would never abuse their position for personal gain or make nepotistic appointments. Which is greater? Well, my argument is simply that it is a matter of debate, not an article of faith, for any given project.