Some Questions About Government
By Arnold Kling
These are rhetorical.
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?
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?
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?
I do not believe that government is necessarily evil. I do not believe that liberty is the only good. I do not believe that individuals are always rational. I do not believe that markets are perfect. What makes me lean libertarian is that I have no enchantment with big institutions in general or with government in particular.
As corporations become large, they become more powerful in some ways, but they also become clumsy. As their behavior deteriorates, competitors will provide me with alternatives. As government gets large, I see the clumsiness. What I do not see is any tendency for the clumsiness of government to be corrected by competitive forces. I think that if instead of romanticizing government or treating it as an abstract solution (“when problem X occurs, we need government to fix it”), we need to evaluate it in terms of its institutional reality.