> It's the private sector. It does better than the government practically by definition.
I know that's a commonly repeated idea, especially in this forum, but I don't share that assumption and don't see evidence for it. I believe they are two different tools, each better at different tasks, with some overlap.
> If this wasn't true, then the government wouldn't contract the private sector for various tasks.
Three thoughts: 1) Government doesn't contract out every task; the U.S. federal government has over 1 million employees and a $2 trillion budget, so it does quite a bit in-house. 2) Government does contract out many things; when they do it right, they are contracting where it's most cost-effective without undermining justice. There is much research showing that much privatization loses money but enriches the contractor. 3) Many of the contracting decisions are due to politics: Lobbying, and who has what donor or has which jobs in their district, for example.
Consider that many privatization advocates and those promoting the supremacy of the private sector are lining their pockets: They are the ones who get the lucrative contracts and the politicians who support 'privatization' get the lucrative donations. Also, as government diminishes, the wealthy and powerful grow even more powerful.
The main difference is that private enterprises may fail if they do not deliver their product or the service to customers at a cost acceptable to the latter; government projects and departments do not have this check. This is not a guarantee that the private sector will do a good or even mediocre job, as they can make mistakes, malinvestments, get bailed out, or have rich and stupid customers. The difference is that the government agency's source of revenue is not dependent on its performance, so government agencies and projects almost never get closed down or cancelled because they did a bad job, wasted money, or were plain incompetent.
It is really a question of how one views the voice vs exit question, and how good a check those are (relative to each other).[1]
"government agencies and projects almost never get closed down or cancelled because they did a bad job, wasted money, or were plain incompetent."
In which universe?
Government projects get stopped for incompetence or wasting money about as much as they do in the private sector.
And it turns out that the private sector is just as capable of firehosing money at bullshit as the government is, otherwise all those repackaged loans wouldn't have screwed the economy.
There is a different limit on money for governments, given they back the money, but to assume that some form of cost/benefit analysis isn't generally practiced in public enterprise is to be working from a purely faith-based model of economics.
> The difference is that the government agency's source of revenue is not dependent on its performance
I'm not sure even this claim is warranted, from either side. Each has mechanisms for attempting to ensure the link between funding/performance, but from my perspective it seems like those mechanisms fail as often as they work in both sectors.
The mechanism is the voice in the case of government, and the exit in the case of private corporations; opinions definitely differ on the effectiveness of either.
Where governments provide critical services, their funding should not be tied to success. That would only ensure more failure, and that's the last thing you want to do to a critical service.
> The difference is that the government agency's source of revenue is not dependent on its performance, so government agencies and projects almost never get closed down or cancelled because they did a bad job, wasted money, or were plain incompetent.
This cuts both ways - that's exactly why the government can and does shove money into things like infrastructure, basic research and, well, space exploration, while the private sector doesn't. There is no direct short-term profit motive for private sector in such endeavours. I emphasize "short-term", because the private sector is structured to care mostly about that. It takes a company to grow really big to invest in stuff like basic research - but at this point the internal structure of such company is more like that of a government than a free market.
I think you make the strongest case for government investment (which is) in expensive, capital-intensive, high-risk projects; this is probably the most defensible area of government spending. There are two strong counter-arguments I have heard against yours. The first is that the reason private organizations do not invest in these projects is that the government's tax structure makes such ventures unprofitable, and the government crowds-out private investment in these projects. The second argument is that the government is the only investor in these projects because they are investing large sums of money when it is unwise to do so, because the project is not yet worth doing, or it is too risky, and a private organization would have invested less initially, and followed-on as the project became more affordable.
The public sector is, by definition, more efficient than the private sector.
The main difference is the profit motive. When a government department does something more efficiently, it has to use that efficiency to either reduce cost or improve quality.
When a private company does something more efficiently, it can take the spare money and shove it in the pockets of its shareholders.
It's not a guarantee that a particular public sector project or department will be more efficient than an equivalent private sector one; the Peter Principle may well scupper any efficiency improvements.
I am sorry, but I think you live in a different world than I do. Where I live, many government offices get all-new furniture at the end of every fiscal year, because if they manage to come in under budget, their budget gets cut in the next year, so they make sure to come out over-budget. This is not the behavior of an organization trying to "reduce cost or improve quality".
In addition, corporations which are closely-held have a very strong incentive to be efficient, as the officers/owners are the residual claimants. In larger, public corporations, their checks are shareholders, and their competitors, who (if more efficient) can drive a corporation bankrupt by under-pricing, or out-competing. I cannot recall the last government department driven to bankruptcy by a competitor.
I have seen the exact same bahavior ("get all-new furniture at the end of every fiscal year, because if they manage to come in under budget, their budget gets cut in the next year, so they make sure to come out over-budget") occurring in large multinational corporate companies, where individual departments are very, very away from the top decisionmakers and spend a majority of their effort on budgets and infighting, and not on company results.
It's not a symptom of public vs private, it's a symptom of lack of oversight, agency problem, and 'too big to manage' problems.
the difference is, if a private company generates waste, its shareholders pay and competitors benefit. If government generates waste, everybody pays and nobody benefits
> Where I live, many government offices get all-new furniture at the end of every fiscal year
Government offices I've visited are no comparison to lush corporate settings; in fact they tend to be old buildings with old equipment and furniture. Consider what Silicon Valley corporations provide to their employees.
I've heard this story before and I believe it's a myth. I am aware of what goes on in many government offices, local and federal, and never heard of such a thing.
Throwing money around at the end of the year is a product of a dumb budgeting process, not a govt. vs. private issue. I've worked at businesses where some units were funded the using the same process who did the same thing - coming in under budget, and squandering cash on things to avoid losing funding the next year.
Private organizations have this wonderful ability to fail if someone else can do the same job better and cheaper. This does not prevent subsets of a private organization form being wasteful, but if the organization as a whole is significantly more wasteful than their competition, they will lose.
TARP? GM? AIG? It seems like private organizations under a certain size threshold have the ability to fail if someone else can do the same job better and cheaper. Beyond a certain size, they are indistinguishable from government.
You have a valid point (although your examples not failing was the results of public action, not the private market). I think there is a trade off between economies of scale and "too big to fail". There is some size that is still too small to hide colossal mistakes, but big enough to streamline its processes.
Yes, private orgs. can fail if someone can convince them to move to another party for their goods/services. Ideally - it happens occasionally, though not often.
Democratic societies can choose to elect better suited leaders for their governance to do the job better, and vote to improve their models of governance to be more effective and provide better services/efficiency. Ideally - it happens occasionally, though not often.
Voting with dollars works about as well as voting with ballots, though. People are driven by the exact same irrational drives and misinformation whether they're behaving as consumers or voters.
government offices get all-new furniture at the end of every fiscal year, because if they manage to come in under budget, their budget gets cut in the next year, so they make sure to come out over-budget. This is not the behavior of an organization trying to "reduce cost or improve quality".
The organisation includes the bit setting the budget, so if they are willing to cut it next year if this year's isn't spent, that looks a lot like the behaviour of an organisation seeking to reduce costs.
Besides, end of financial year budget spends in divisions of large multinationals also look like that.
What is the last large public corporation you can recall driven to bankruptcy primarily by private sector competition under-pricing or out-competing them? Let's say "large" is roughly as productive as, say, Luxembourg.
Well, large corporations that are failing usually (but not always) get purchased, and subsumed by more successful corporations, or bailed out before they go bankrupt. Some examples of this would be RCA, Lockheed, Delta Airlines, Chrysler (twice), Enron, General Motors.[1][2][3][4][5][6]
I even found this convenient little slideshow.[7]
Here is a challenge: find more equivalently-sized government departments shut down for their failures. Examples of such failures would be the two dozen financial market regulators (as well as Freddie Mac and Fannie Mae) who failed to anticipate or mitigate the housing problems of 2006-2007, the various police agencies which regularly shoot innocent civilians (such as the LAPD), the department of Veteran's Affairs which caused untold suffering, or the education departments which have greatly increased spending without any improvement in outcomes.
Apologies for not addressing the second sentence, I wrote this reply before you had added that.
This makes no sense. Say we shut down The LAPD or the VA. What would it be replaced with? The idea of a private sector police force is a little scary, and what private business would perform the function of Veteran's Affairs?
The point is that there are some things which only government can and should do. Shutting down vital services isn't practical nor popular. People wouldn't stand for it. If a the leaders of a city the size of LA decided to shut down the police force and replace it with something different, they would be immediately voted out of office. The government isn't some external actor forcing its will on the people. The government serves the majority, a majority that prefers that not to have basic services shut down because they aren't performing optimally.
I agree with all but your first sentence. Perhaps I am projecting my own beliefs on nickff, but nowhere did they say that government should not provide police or similar services. They correctly stated that the private sector has the substantial advantage of being able to fail if they do a bad job. The obvious conclusion is that Government should not do things unless there is a compelling reason not to leave it to the private sector. As you point out there is a reason for the government to provide police (and other services) that outweighs the private sector's fundamental advantage.
The issue is that if the public is unhappy with the police force there is no way for them to vote in a re-organization.
However in the private sector this happens all the time; either forcing one company to re-organize or a re-organization happens by a company going out of business and getting replaced with another one.
Voting for a politician (especially when you are stuck with two political parties) hardly constitutes voting for a re-organization.
Maybe there is a way to create competition in some way shape or form by having several different police forces (still government sponsored) that compete for your vote or maybe something else. But there definitely is a problem that there is almost no way to properly restructure a bloated government organization when it is underperforming, and somehow that should be addressed.
> The issue is that if the public is unhappy with the police force there is no way for them to vote in a re-organization. However in the private sector this happens all the time; either forcing one company to re-organize or a re-organization happens by a company going out of business and getting replaced with another one. ... But there definitely is a problem that there is almost no way to properly restructure a bloated government organization when it is underperforming, and somehow that should be addressed.
The public is unhappy with Thames Water, a private company, but no amount of private sector competition pixie dust is going to make another company start digging up London's streets to provide a re-organization.
It's not a problem with governments, it's a problem with natural monopolies and that's difficult to solve. Saying "government bad" is oversimplifying.
How so? The very fact that someone makes a profit means that the end consumer is paying more than cost price.
If I pay £10 for something that costs £5. The organisation that just pockets the difference is less efficient from my perspective than the one that either reduces my next bill by £5 or gives me an extra £5 worth of service.
The point is that even if a private sector company operates with perfect efficiency, there is a built-in inefficiency from the consumer's perspective because investors need to make money on the deal.
Efficiency is not part of the definition of public sector or private sector, so clearly your statement is false. It's inconsistent with the rest of your comment because you wrote "It's not a guarantee that a particular public sector project or department", which could not be case if it were true by definition. Your argument that public sectors, depending on circumstance, tend to be more efficient is quite different from your assertion that they are more efficient by definition.
What I mean is that all else being equal, public is more efficient than private. The same team doing the same task with the same information, constraints, and money will be able to provide better value to the consumer in the public eector than the private.
The caveat is there because a handful of strategically placed idiots or geniues could easily make more of a difference than the fact that all the money stays within the system.
But governments do slash budgets or cut programs altogether. And agencies typically continue on because their existence is mandated by law and (unlike the private sector) they can't choose to just ditch those customers that cost a lot to deal with. There are big variations in administrative competence to be sure, but the logical conclusion of your argument is that if you hate the President (or rather, the administration of the federal government by a given President) then the logical thing to do is get rid of the government.
I don't understand how " the logical conclusion of your argument is that if you hate the President... then the logical thing to do is get rid of the government." The voice vs exit paradigm has been employed in some arguments for anarchism, and many arguments for limiting the scope of government, but those arguments have nothing to do with the executive, and I didn't make any such argument.
I know you didn't, but where is the line between saying individual agencies are inefficient and should be shut down and the administration as a whole? There's certainly a contingent (not necessarily including you) that wants to scale the federal government back to the bare minimum sketched out in the Constitution and devolve everything except national defense and certain enumerated powers back to the States.
There is no line to draw, but there is a counter-argument. The (most effective) counter-argument is that the government agencies are capable of achieving objectives that the private organizations can or will not.
> The main difference is that private enterprises may fail if they do not deliver their product or the service to customers at a cost acceptable to the latter; government projects and departments do not have this check.
Every government executive's job (including appointees' jobs and to a degree every program), relies on a public vote every 2-6 years.
Democracy isn't nearly perfect, but as we've seen, neither are the markets.
If you read the link, you will see that it makes a point similar to what you are saying (but more nuanced, and well thought-out than an HN comment). No one is arguing that perfection is achievable (or even a goal), the question is what form of feedback is most effective in providing desirable outcomes.
I know that's a commonly repeated idea, especially in this forum, but I don't share that assumption and don't see evidence for it. I believe they are two different tools, each better at different tasks, with some overlap.
> If this wasn't true, then the government wouldn't contract the private sector for various tasks.
Three thoughts: 1) Government doesn't contract out every task; the U.S. federal government has over 1 million employees and a $2 trillion budget, so it does quite a bit in-house. 2) Government does contract out many things; when they do it right, they are contracting where it's most cost-effective without undermining justice. There is much research showing that much privatization loses money but enriches the contractor. 3) Many of the contracting decisions are due to politics: Lobbying, and who has what donor or has which jobs in their district, for example.
Consider that many privatization advocates and those promoting the supremacy of the private sector are lining their pockets: They are the ones who get the lucrative contracts and the politicians who support 'privatization' get the lucrative donations. Also, as government diminishes, the wealthy and powerful grow even more powerful.