The private sector can’t do everything – we need government, regulations, and taxes. But why are government agencies so encumbered by bureaucratic inefficiency? Here are some possible reasons:

  1. Staying within budget often means next year’s budget will be smaller – government agencies can’t pocket savings (and government employees don’t receive bonuses for savings or great income-generating ideas) so efficiency, risk-taking, and creative problem-solving often go unrewarded.
  2. Government agencies are subject to constraints that prevent them from “allocating the factors of production” as optimal – that is, they cannot move people and equipment to where it is most needed
  3. Government agencies must serve goals not of their own choosing. These goals may be politically motivated, unreasonable or impractical, but they cannot be rejected.
  4. As tax-funded enterprises, government agencies have a public mission and their actions are closely scrutinized to make sure the public good is being upheld. So individual players in the system will error on the side of caution, which is rational. But if you multiply the millions and millions of individual actions, each makes sense within its local context, but the net effect is overall inefficiency, which isn’t doing the public much good at all.
  5. Government workers operate under many rules. Official routines tend to be characterized by excessive complexity, e.g., follow these procedures, use those forms, buy only from these vendors, which makes bureaucrats worry more about process than outcomes.
  6. Once government workers are hired and have passed a probationary period, keeping one’s job has less to do with personal qualities than with broader issues, like budgets and the political winds. Initiative, creativity and risk-taking are poorly rewarded. Adequacy is enough. As long as you just do your job, you’re likely to get raises and promotions according to the rules.

All these factors conspire to disincentivize going beyond the call of duty. Proactive and creative people would shrink under such a regime. And they do, or they end up working in the private sector.  Ok, accepted: government organizations are inherently inefficient and risk-averse. Next question: is that such a bad thing, and if so, what can be done about it? Stay tuned.

A couple references:

Wilson. 1989. Bureaucracy: What government agencies do and why they do it. In Brief