Government is Insanely Wasteful, So Let’s Give it More Money…?

 

Dame Margaret Hodge is a British Labour politician, who has served as Member of Parliament for the London Borough of Barking since 1994 and was a minister in both the Blair and Brown governments. She’s just released a book entitled “Called to Account: How Corporate Bad Behaviour and Government Waste Combine to Cost us Millions.”

According to Amazon, here’s what is written on the inside flap of the book.

Everyone in Britain pays tax in some form and all of us use the public services it pays for. At present too much money is squandered and too little tax is collected, leaving those who pay their dues to make up the shortfall.

 

When money for most people is tight and public services affecting many families are being cut, it is a scandal that hugely profitable corporations and ultra wealthy individuals aggressively avoid paying tax. Called to Account reveals how vast amounts of money, which could be used to improve schools and hospitals, remain uncollected from those best able to pay…

 

The other side of the coin is Government waste. Inexcusable inefficiencies and incompetence cost taxpayers billions: police forces could cut the cost of uniforms by over 30 per cent if they all bought the same one, but they disagree on how many pockets they need; having committed to buying two new aircraft carriers, the Ministry of Defence realised they did not have the money to pay for them – the delayed delivery cost an additional £1.6 billion.

 

As Chair of the Public Accounts Committee until 2015 Margaret Hodge is in a unique position to shine a light on some of the most important and alarming financial issues that face the country today. The result is a compelling and wide ranging book, essential reading for anyone who cares how Britain is run.

Rather than persuading me to read the book, the synopsis showed me why I didn’t need to read the book. Hodge’s basic argument is the government could be spending more on schools and hospitals if people and corporations weren’t able to avoid tax and if government employees weren’t wasting billions.

There’s a problem with the logic of Hodge’s plan to drain more from the private sector and pour more into the public sector. Given the latter is so wasteful and inefficient, increasing its funding would only defeat the object of reducing public sector waste.

Surely Hodge isn’t arguing that the public sector should be given more funding precisely because it is so wasteful? In other words, it needs more funding because it wastes so much funding!

That’s like an alcoholic arguing he needs more booze because he drinks so much of it. In the same way an alcoholic simply cannot contemplate drinking less because he is convinced alcohol is the only answer to all of his problems, Hodge can’t contemplate the public sector spending less because she is convinced the state is the answer to all of society’s problems. Just like the alcoholic doesn’t see or refuses to see that alcohol is the cause of his problems, Hodge doesn’t see or refuses to see that the state is the cause of the social ills she cites.

With sufficient desire and will power an alcoholic can change his behaviour for the better, but all the willpower or good will in the world isn’t going to stop government wasting billions of pounds. Imploring public sector workers to behave differently, as Hodge does with her book, won’t do it either. Neither will any number of new government rules aimed at forcing them to behave better.

It’s not the moral fibre or the intelligence of public sector workers that is the root cause of government wastefulness and inefficiency, as Hodge seems to believe it is. Most of them are well-educated people with good intentions. So why do good and smart people working for government end up wasting so much money and using resources so inefficiently? It’s because of the inherent inferiority of public sector enterprises to private enterprises as means to the end of providing high quality and low-cost services to society.

The crucial difference between a private enterprise and a public one is the former is managed for profit, out of necessity, whereas the latter isn’t, by design. For-profit-management means every private organisation is orientated, from top to bottom, around the ultimate end of satisfying its customers’ most urgent needs. They have to be. It’s the only way for private enterprises to survive.

This isn’t true for public enterprises. Not needing to satisfy their ‘customers’ most urgent needs to survive, they inevitably become inward-facing and self-serving. If it lasts long enough, then a public enterprise becomes orientated around the ultimate end of doing what is best for its current incumbents, not what is best for its customers. This is government nature. This is human nature.

In short, all public enterprises become the opposite of private enterprises: self-serving instead of society-serving. Public enterprises, cut off from the wisdom of markets (prices, and profit and loss signals), have no good way of knowing what their customers’ most urgent needs are. They’re in the dark in this regard. Private enterprises, in contrast, are enlightened by the wisdom of markets.

Public enterprises are so wasteful and inefficient because being so doesn’t threaten their continued existence and because they have no idea what the cost of producing their service is (as determined by what their customers are willing to pay for it). Private enterprises know exactly what is ‘too much’ spending because (using profit and loss signals) they can calculate the value society has placed on their product or service. The mantra of the public sector manager is ‘spend it or lose it’ whereas the mantra of the private sector manager is ‘save it or lose profits’.

Only someone who assumes (or believes) everything the government monopolises the provision of couldn’t be (or shouldn’t be) provided by the private sector would write a book about how absurdly wasteful the public sector is and then declare: it needs more money! Selfish capitalists are to blame for the poor quality and high cost of public services! Public sector workers can change their ways! Just give them one more decade and you’ll see!

The public sector’s staggering wastefulness is not only an argument against giving it more funding but also for cutting its funding. More than that, it’s an argument for privatising everything it does (badly and at great expense). The absence of for-profit management is the problem so only the opposite can be the solution: for-profit management. And the only way to introduce the profit motive is to pull up the public sector, root and branch, and let free markets flourish in its place.

As someone whose career choice was based on the belief the modern state is a force for social good, it would require significant intellectual courage for Hodge to accept privatisation is the only way to stop billions being wasted, and the only way to truly improve (and continue improving) education and medical care in the UK. Conceding privatisation is the only way to progress would require a regard for the truth so high that it is almost never seen from politicians, and so I would be astonished if we saw it from her.

Even Hodge probably doesn’t realise just how ridiculous government can be. A recent piece on rare.us revealed how “[US federal government workers], for the past 17 years, have been required to file paperwork in preparation for a potential Y2K calamity…”

If this example of government bureaucratic absurdity, which you can bet your life is by no means exceptional, doesn’t convince the common man of how utterly detached from intelligence and reality the modern bureaucratic leviathan state is, then nothing will.

The article also revealed that “In 2015, an internal report found that the Pentagon was set to amass $125 billion in administrative waste over the next five years…”

Only a gigantic state gorging itself stupid on the enormous wealth created by the most productive free market capitalist society on earth could waste more on administration than the total amount of wealth produced by any of the economies of two-thirds of the world’s nations.

The bigger the government, the more it wastes. The more funding it gets, the bigger it gets. Believing we can give government more funding without increasing government waste is sheer fantasy.

And finally, one can’t help but wonder how much it cost taxpayers for the Public Accounts Committee, of which Hodge was the Chair, to spend years investigating government waste.

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