A government could print a good edition of Shakespeare’s works, but it could not get them written.

Alfred Marshall

Whether private or public, large organizations develop extensive formal operating rules or managerial coordination becomes impossible. The resulting mountains of red tape cause many people to view bureaucracy as almost synonymous with mindless inefficiency.

Any large task-oriented organization is a bureaucracy.

The federal government is by far our largest employer. State and local governments also hire their share of workers, as shown in Table 4. Federal, state, and local governments employ almost one out of six American workers. Most government employees work in the agencies, or bureaus, that purchase goods and resources and develop policies and regulations to implement laws passed by legislatures. Note that most of the growth of government employment in recent years has come at the state or local level—more teachers, social workers, police officers, firefighters, and so on.

 

Table 4  Government Employment
Thousands of Government Employees
	1972	1982		1992		2002*
Federal	6,308		6,084		5,211		5,076
Civilian	2,017		2,113		2,231		1,825
Military	3,410		3,094		2,980		2,289
Federal enterprises	881		877		966		962
State and Local	10,728		13,065		15,662		18,358
Education	5,467		6,421		7,885		9,623
Other	4,697		5,886		6,950		7,759
S&L enterprises	564		758		827		976
Total Government	17,036		19,149		21,839		23,434
% of US labor force	18.6 %		16.8 %		16.9 %		16.1
US labor force	91,353		114,147		132,921		145,412
Sources:  US Dept. of Commerce, Bureau of Economic Analysis, http://www.bea.doc.gov/bea/dn/nipaweb/                 US Dept. of Labor, Survey of Current Business, http://data.bls.gov/servlet/SurveyOutputServlet

 

Many government employees work hard because they believe strongly in the mission of their agency. Economic theory suggests, however, that the best starting point for analysis of behavior is the assumption of self-interest. Anyone who has worked in a large organization knows that opportunities for raises and promotions are closely tied to the organization’s fortunes; prosperity and growth yield larger personnel budgets in both public and private bureaucracies. Thus, we can expect career employees of any large organization to push for growth and to fight budget cuts.

 

Government agencies sometimes have worse reputations than business bureaucracies do. Incentive structures may be the reason. Divisions of private firms are usually profit centers, with growth depending on serving more customers better and at lower cost. Ascertaining efficiency is much harder in government bureaus that use tax revenues to cover costs. Legislators try to assess whether public services they consider important are provided adequately. If not, a standard solution is to boost funding. Thus, paradoxically, inefficiency may swell a bureau’s budget. Competition drives the opposite trend in the private sector.

 

After reviewing 50 international studies of cost differences between publicly and privately provided services, Dennis Mueller, a public choice specialist, concluded, “The evidence that public provision of a service reduces the efficiency of its provision seems overwhelming.” [1] In 40 of 50 cases, public sector enterprises were significantly less efficient than their private counterparts, and in only two cases were public agencies relatively more efficient. Figure 3 presents a few results from of these studies.

 

Have you noticed that it is often easier to buy auto insurance than to get a license for a new car? That the time absorbed in buying four bags of groceries is often less than the time waiting in line at the Post Office to buy a roll of stamps? Rewards for efficiency are rare in government bureaucracies. Lack of incentive may cause relative inefficiency because (a) the public may be served at the convenience of government employees rather than vice versa and (b) government tends to pay relatively high prices for much of what it buys.  For example, you may have read about outrageous cost overruns in Department of Defense contracts.

 

 

Figure 3  Private Provision vs. Government Provision

Empire Building

It is a commonplace observation that work expands so as to fill the time available for its completion. Politicians and taxpayers have assumed with occasional phases of doubt that a rising total in the number of civil servants must reflect a growing volume of work to be done. Cynics, in questioning this belief, have imagined that the multiplication of officials must have left some of them idle or all of them able to work for shorter hours. But this is a matter in which faith and doubt seem equally misplaced. The fact is that the number of the officials and the quantity of the work to be done are not related to each other at all.

C. Northcote Parkinson [2]

Salary and status in a bureaucracy tend to be positively related to the numbers and levels of employees a manager supervises and the budget for which the manager is responsible. Thus, managers at all levels have incentives to acquire as many employees as possible, a practice termed empire building. In business, this usually requires showing that your division has extraordinary profit potential. In government bureaus, however, it normally requires persuading legislators of the enormity of the problem your agency is supposed to cure. Thus, law enforcement officials predictably talk about organized crime and anarchy in the streets; educators decry teacher shortages and growing demands on our schools; admirals and generals stress world unrest; agriculture officials lament the plight of the family farmer—the ways bureaucrats try to build demands for their services seem endless.

 

The Growth of Government

Few experts in any field ever conclude that their area will be of less concern in the foreseeable future. Thus, few credible witnesses are available to dispute claims that society needs to devote more resources in any number of directions. This is another instance of asymmetric information and principal–agent problems in governmental processes. The result is that legislators, many of whom might want to slash taxes, are inundated with well-documented requests for more funding in support of almost all programs.

 

Pressing social problems seem to beget new programs that acquire lives of their own, even if the original problem fades away. Trying to identify areas to cut is often an exercise in frustration. Interest groups (including bureaucrats) become accustomed to programs that benefit them and always want more rather than less. Attempts to cut any spending category provoke intense lobbying. One common strategy used by bureau chiefs to combat proposed budget cuts is to assert that any cuts threaten a bureau’s most popular services. This usually arouses loud support from the bureau’s clients. This was one tactic used by some opponents of attempts to cut military spending in the early 1990s. When military bases were scheduled to be closed, local merchants made sure that their elected officials worked long and hard to keep open facilities that were the hub of local commerce. The predictable result of the political processes described in this chapter? Government grows and grows, with no end in sight.

 

Public choice analysis identifies a number of problems inherent in political processes. Voting only crudely signals citizens’ preferences and is flawed by apathy and rational ignorance; candidates base campaigns on image instead of substance; legislation is diverted from efficiently satisfying public wants by logrolling, pork barrel projects, and rent seeking; and bureaucratization yields incentives for sloth and artificial growth.

 

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