All Commentary
Tuesday, May 1, 1979

Efficiency in Government


It is always fashionable to criticize governmental waste and ineptitude. People constantly make reference to the fact that most government employees are overpaid and under-worked, and that administrative agencies frequently waste resources.

These criticisms contain a grain of truth, but fail to focus on the fundamental issue. Although it is true that many agencies waste resources or pay salaries higher than are paid in the private sector, such censure strikes merely at the symptoms of governmental bureaucracy.

Government functions differently from private enterprise. Industries are organized in a way that maximizes production while minimizing costs. An enterprise that does otherwise finds itself quickly out of business. Competition among firms stimulates the search for cost-saving measures. Consumers reap the benefits of this in the form of lower prices. Enterprises depend for survival upon the patronage of willing customers. Government, on the other hand, does not look to voluntary contracts for its existence. Government does not rest on the need to maximize production or to minimize cost. The essence of government is organized force, which society utilizes to compel its members to act in prescribed ways, or to punish those members who refuse to obey the law.

If government is to compel people to obey the law, the broader the scope of the law, the more powerful must the government be. As the state assumes increasing responsibility for activities previously left to private citizens, it becomes necessary for the government to set up additional bureaus or agencies that serve to implement the law. It is futile to censure government bureaucracy on the ground that it does not act in a fashion comparable to that of a business enterprise. The very purpose and nature of these bureaucracies do not allow for such behavior. Even if governmental agencies were managed in a manner similar to a business, it would still be impossible to objectively measure the success or failure of the agency.

The Profit and Loss System

Business organizations have at their disposal a quick and objective method for judging the success of their venture—the profit and loss system. Administrative agencies, on the other hand, lack any such objective measure of efficiency in administering or enforcing a law. And the worst judges of their performance are the agencies themselves, because they have a vested interest in enhancing their work and portraying it as attractively as possible.

At best, there might be some evidence of a general trend, but this is not always useful. For example, an agency may have prosecuted more cases in a given year than the previous year. But this statistic alone does not reveal the nature of the prosecutions. It is possible that one case has greater significance than many others combined. Similarly, the fact that an agency handled its cases according to arbitrarily drawn time targets is not an indication of its efficiency. Quality is often sacrificed for quantity, as the agency attempts to mold each case to a preconceived time target. Highly unreliable are such measures by which administrative agencies supposedly justify their activities.

Business enterprises have a double incentive to reduce costs of operation: the profit motive as well as the competition in the marketplace. No shareholder is pleased to discover that management has increased its operating costs. Yet, this is precisely what the administrative agencies are doing when they attempt to justify their existence by pointing to the extra millions of dollars spent to operate this year as compared to last year. This is supposed to be evidence that the agency was truly necessary. After all, the more money spent, so goes the logic, the more important the function.

Instructive is the behavior of an agency as it nears the end of its fiscal year. Because they are funded by the legislative branch of the government, agency heads are always trying to persuade Congress that their work will require more funds than were allocated the previous year. If agency heads were to approach the end of the fiscal year with an operating surplus, this would be tantamount to an admission that their agency did not really need the money it asked for before; and Congressmen would most certainly point this out when the new budget is being discussed. Accordingly, administrative agencies rush to spend every dollar allocated to them. If a surplus is being generated, the agency may take care of it by hiring new employees, or embarking upon additional studies, or by intensifying programs previously neglected. The point, of course, is to persuade Congress that the agency not only is necessary, but that its work is as important as the amount of money needed to pay expenses.

No Measure of Efficiency

The efficiency of an agency cannot be measured by the fact that it leaves either a surplus or a deficit. A surplus may indeed evidence the fact that many areas that could have been covered by the agency were not, so that the implementation of the law in question has suffered accordingly. Similarly, a deficit may signify irresponsible waste on the part of the agency, as it made little, if any, effort to cut costs.

The efficiency of the work of the employees of the agency cannot be effectively measured either. Since there is no profit motive nor a market price for the services that are provided by a governmental agency, efficiency is translated into subjective terminology. This may be one of the reasons why public employee unions are growing. Public employees find that the merit system is based on many subjective factors, opening the door to favoritism and inequities.

In the private sector, employers are limited by consumers as to the wages that ought to be paid. In addition, employers have the incentive of paying more to the more productive workers to retain and attract good employees and to improve productivity. It is possible, of course, for a private employer to favor the least productive and to award solely on the basis of favoritism. The profit and loss system, however, will limit any such arbitrary behavior.

The public employer, on the other hand, is not constrained by these considerations. Rather, the work of an agency employee is evaluated in clearly subjective ways. If an employee caused an agency to spend more money in a case when he could have, let us say, settled the matter before its having had to go to court, this factor is not taken into consideration. Allegedly objective criteria are utilized to evaluate some of the work of the government employee. However, in the final analysis, it is the personal preference of the agency head that carries the most weight.

Favoritism exists. No matter how cleverly the agencies may try to suppress it, it will not be effectively eliminated because there are no objective criteria by which efficiency may be measured. How can we measure, for instance, the effectiveness of a policeman? Can it be said that one who caught five burglars is any more efficient than the policeman who happened to be on his beat during an uneventful day? If money is set aside to be awarded to the most efficient employees, it easily lends itself to favoritism and patronage.

When agencies are established to protect the rights of the people, it is not uncommon to find that the law grants the respective agencies a monopoly in the investigation and prosecution of cases that arise under the law. Individuals thus lose the freedom to institute legal proceedings in their own defense. According to these laws, the agency chooses whether or not to assert the claim. Administrative agencies frequently cite the rate of success of their legal actions as evidence of efficiency. However, those statistics are incomplete. Of the actions that were administratively dismissed, no one knows how many would have been litigated successfully had the government allowed the parties to litigate at their own choice.

Administrative agencies frequently under-utilize their resources precisely because cost is not a significant consideration. Many talented agency employees are obliged to perform time-consuming tasks that others might have done more efficiently. Professional employees in these government agencies often are kept busy at clerical chores. Furthermore, as the government becomes more conscious of its “duty” to hire people of diverse backgrounds so that its workforce adequately reflects a sample of the population, exceptions begin to be made; the rules of efficiency that were promulgated previously cannot be enforced according to the letter of the law.

What is the solution to this problem? It is certainly not the abolition of all forms of governmental agencies. Government is essential to a civilized society, regardless of the fact that in performing its functions it may be inefficient. Rather, the solution lies in limiting the duties of government as much as possible in order to avoid this incalculable waste of resources. Limiting government to its appropriate functions would reduce the need for bureaucracies, with consequent saving to the taxpayer and society in general.