Sunday, December 5, 2010

Adventures In Competitive Government-Land

Move over Tea Partiers and other participants in the faux-liberty enthusiasm movement, there's a new game in town. It's called "competitive government", it's all about faux-markets and it's starting to gain interest amongst municipal governments and city managers.

Case in point: I sat through a presentation on "competitive government" efforts delivered by one local city manager on the morning of December 4th and it was long on feel-good phraseology borrowed from the best and brightest within the private bureaucracy of America's largest corporations and short on any non-fatally flawed fundamental economic theory to support it.

Competitive Government: What's It About?
As one city's government puts it, the "competitive government" movement is about "the transformation of traditional government into a competitive service business model" which aims to achieve "high quality services at the lowest cost" while "doing more for less" and "maximizing value for our citizens' tax dollars."

On its face, it sounds great! Who could be against doing more for less and maximizing value? In fact, these are such obviously desirable goals that it almost makes you wonder why, after thousands of years of experience (and experimenting) with government nobody thought of this sooner?

"Competitive government" theory doesn't assume to address this fact. "Competitive government" acknowledges that government is "broken" due to special interest group lobbying, union influence and gross cost overruns, all of which contribute to city financing schemes which are generally a shambles.

The solution? "Competitive government" initiatives aim at using the private market for real goods and services as a model to emulate by cutting costs, raising employee productivity, eliminating "luxury" expenditures in favor of "necessary" expenditures and fomenting a sense of respect toward the city's "customers" and a sense of urgency toward work amongst city employees. In other words, pretend government is a legitimate private business while ignoring the fact that it is not.

And for any of you Randians out there who might be wondering-- you have no need to get excited because "competitive government" has nothing to do with Ayn Rand's theory of governments which would compete for tax-payer dollars. Instead of competing with other governments (as the city manager in December 4th's presentation admitted was the existing model), "competitive governments" set their sights on businesses in the private sector in an aim to compete with them on price and quality.

The First Problem: Competitive Government Still A Monopoly
Let's go back to that city manager presentation I was telling you about earlier. And by the way, the individual in question and the city he represents will remain nameless-- this isn't about bullying particular individuals or criticizing the particular implementation of these strategies in one city, it's about addressing the generally erroneous thinking that underlies "competitive government" theory.

The city manager was stopped by some questions from the audience part-way through his slide show presentation about "changing the culture" in government, his personal push for "continuous improvement" and the adoption of "best practices" and some facts and figures on recent cost-cutting successes.

For a moment, I was transported back in time to when I once worked for a major, international corporation. I was reminded of all of the interdepartmental meetings I had sat in on in which one group of employees was eagerly trying to justify their budget and/or existence to another set of employees or their supervisors. I waited for the hands to go down and then I said the following:

"I have two questions. I've enjoyed your presentation and I find the idea of making government more open and competitive, like a business, rather than closed and monopolistic, to be an enticing one. My first question is this: will the citizens of your city be free to not pay their taxes if they don't want your services?"

An uncomfortable silence came over the room. The city manager appeared to be sternly but thoughtfully considering what I was aiming at and then said, "No."

I continued:

"If the citizens are not free to stop subsidizing your efforts with their taxes if they don't want the services you provide, then you are still a monopoly. And if you are still a monopoly, all of what you just discussed is interesting but amounts to nothing more than flowery rhetoric."

The audience, up to this point delivering a series of hoots, hollers and hurrahs every time the city manager exclaimed strongly against waste, inefficiency and taxpayer abuse (you know, the common domain of monopolistic government everywhere) was now outraged at my inquiry. Over cries of, "Let him speak!" and "We don't have time for this!" the city manager advised that "they can move if they aren't happy with their services." Ah! Randian "competitive government" at last!

So, we've established that "competitive government", while interested in emulating the behavior of voluntary, private business, is not interested in actually becoming one and will still rely on the use of coercion to derive its financial resources. In other words, government will still be a monopoly, but a friendlier, more efficient one. What's wrong with that?

The problem is that if government is to remain a monopoly it is likely to continue to behave as one. This is the incentive problem of economics. The commitment to change, new ideas and cost effectiveness of our earnest city manager aside, what incentive does an organization providing services have to act in an entrepreneurial, consumer-oriented way when it ultimately will rob its "customers" to provide them their services whether they like the way those services are provided or not? Surely it possibly could behave differently, but why would it?

Don't get me wrong. Private businesses can treat their customers like crap, and often do. They can charge high prices (relative to their actual costs), they can deliver terrible, clueless and even careless customer service and they can deliver low quality services and products. But in the marketplace, such negligence is an invitation to other entrepreneurs to enter into competition with the accused in what could prove to be mortal combat for the enterprises so engaged. Neglect the consumer and in time he may come to neglect you, as well as your profitability.

It's simply not so with government. If the government screws up and treats taxpayers and citizens -- they're not necessarily one and the same, you know -- with indifference or even callous disregard, the agents of the government are still going to collect their paychecks and their velvet-lined pensions. Everyone would prefer a friendlier government than a meaner one, and it's possible some people who work for the government have, do and will strive hard to be decent, but the general tendency to do so isn't there because government is a monopoly and monopolies lacks the consumer-driven discipline of the market.

The Second Problem: Competitive Government Unable To Calculate
Monopoly is just one problem. Back to the presentation for a moment.

As the aggravated din of the crowd died down, the city manager attempted to carry on with his slide show.

"Excuse me!" I piped up. "I had two questions." The crowd grew noisier again. I had just introduced a major theoretical obstacle, confounding the city manager's entire intellectual framework, but no matter. The participants couldn't be bothered, it seemed, with whether what they were hearing made any sense or not. They just wanted to get on and get to the end of it.

"You have discussed throughout your presentation your efforts in cutting the costs of government services," I continued over the audible disturbances. "What you have not explained is how cost-cutting alone is a relevant metric for success in serving the citizens. Government operates on the welfare principle, while private businesses operate on the profit principle. How do you manage to calculate?"

Frustrated, the city manager sought to make a tangential point. "Some services, like provision of a police force, just wouldn't make sense if you had to wait until the guy had you by the throat to make the call for help. In fact, they tried that recently in Kentucky with that guy whose house ended up burning down. Of course, anyone will say after the fact 'I would've paid, I would've paid!' but the point is, it's just impractical to have a bunch of police sitting around all day waiting for someone to call on them and then pay," he said.

"That isn't true at all," I responded. "Private businesses manage this exact feat every single day. Think about an auto mechanic shop. They manage to make money with a business model that relies upon waiting for their customers to show up, ready to fix their cars. Anyway, that isn't the point. I want to know how you plan to calculate what is the best use of city resources in any given situation? I want to know how you calculate what services are 'necessary' and which are 'luxuries' that might be cut?"

The audience had returned to a dismayed hubbub. Who was this nefarious ingrate in their midst? The city manager blew me off. "Let me just get through the rest of my slides and I think you'll be pretty impressed with some of our cost-cutting successes so far."

It probably does not need to be mentioned that I was not impressed.

The humongous elephant in the room remained-- because the city manager is not operating on the profit principle, where the success or failure of each individual initiative undertaken can be measured by the profitability (or lack thereof) of the consumers' response to said initiative, he has nothing to rely upon but his own ego and subjective insights as to what he imagines to be the "righteous" path to take. As Ludwig von Mises so succinctly explained the economic calculation problem in Chapter 27 of Human Action:
The director wants to build a house. Now, there are many methods that can be resorted to. Each of them offers, from the point of view of the director, certain advantages and disadvantages with regard to the utilization of the future building, and results in a different duration of the building's serviceableness; each of them requires other expenditures of building materials and labor and absorbs other periods of production. Which method should the director choose? He cannot reduce to a common denominator the items of various materials and various kinds of labor to be expended. Therefore he cannot compare them. He cannot attach either to the waiting time (period of production) or to the duration of serviceableness a definite numerical expression. In short, he cannot, in comparing costs to be expended and gains to be earned, resort to any arithmetical operation. The plans of his architects enumerate a vast multiplicity of various items in kind; they refer to the physical and chemical qualities of various materials and to the physical productivity of various machines, tools, and procedures. But all their statements remain unrelated to each other. There is no means of establishing any connection between them.
He continues:
The paradox of "planning" is that it cannot plan, because of the absence of economic calculation. What is called a planned economy is no economy at all. It is just a system of groping about in the dark. There is no question of a rational choice of means for the best possible attainment of the ultimate ends sought. What is called conscious planning is precisely the elimination of conscious purposive action.
In short, the city manager is hopelessly lost. His actions are not guided by the entrepreneurial motive (profit and loss) which is in turn guided ultimately by the action of consumers on the market. There is no profit and loss guide for government. Government monopoly explicitly rejects such a principle. Instead, his actions are guided by his subjective interpretation of his idea of what the citizens he is responsible for "need". As for how he will fulfill those perceived needs, the city manager is equally blind.

For example, does he do the job in house or outsource it to a private contractor? Should garbage be picked up once a week or once a day? Does "waste removal" necessarily entail recycling as well, or just the transportation of trash? When the city manager has to choose between cutting costs and cutting services, how does he know which is the better one to do?

Concerns About Criticism Of The "Competitive Government" Model
"It's not a monopoly! They can move!" a woman beside me said in the midst of the cacophony that arrived following my first question to the city manager. "Sure it is," I replied, "He just said that people will not have the choice to reject paying taxes to support it."

"What's your alternative?" she asked after the city manager had finished his presentation.

"My alternative is the abandonment of government, in its entirety. Don't try to run government like a business. Instead, there should be nothing but businesses," I replied.

"Have businesses provide city services? That seems beside the point," she declared somewhat haughtily. "The discussion is about how to manage those services, not how to provide them."

"That isn't correct," I tried to explain. "I've just raised the point that the provision of those services by government is impossible. If it's impossible for government to provide the services it's certainly beside the point to discuss how government should try to manage to do so."

"What's your bottom line? And hurry, I've only got two seconds," she shot back. I rolled my eyes at this rude and arbitrarily-imposed deadline. What, was I being interviewed on cable news all of a sudden or something? I took one second pondering how to phrase my primary idea and another second verbalizing it.

"How will he calculate?" I said. She scribbled it on a piece of notepaper and proceeded to ignore me.

A Short Demonstration Of Principles Via Example
Not for long, however.

"Now that I've had a chance to calm down a little, I just want to say, don't stop asking tough questions like you did," the woman advised. "Even though it might make people uncomfortable, we need outliers like you to challenge our beliefs."

I didn't need the pep talk as I hadn't managed to find myself in a pit of nihilistic self-doubt following the poor reception of my questioning by the supposedly pro-market audience. If I was an "outlier" by understanding sound economic theory while they didn't, that was everybody else's problem, not mine. Still, I hoped I could leave this person with something to ponder besides the confused, self-contradictory babbling of Yet Another Starry-Eyed Central Planner.

I turned to the woman and said, "Think about the example the city manager mentioned about the implementation of the self-checkout technology at the city library. The city manager said this was a successful demonstration of their 'competitive' principles because it lowered the cost of checking out at the library while other libraries nearby still rely on costly personnel to handle this part of the library process. Ignore for a moment whether the city manager is being honest or correct in determining this to be lower-cost on net. We'll assume he has achieved some financial savings. The question remains, is this the best possible way to serve the visitors at the library? Maybe it is lower cost, but what if library visitors prefer to receive assistance from a real person, for instance? There is obviously more to calculating the success of any of the city manager's proposals than simply examining the cost. After all, the absolute lowest cost process would be to not have any checkout system at all-- no machines, no people. That costs zero. You could instantly make the entire government permanently 'cost effective' by eliminating all spending entirely. But would that leave people feeling better off? Because he doesn't serve a voluntary market but rather taxes his 'customers' beforehand and then provides them with his anticipation of services that meet their assumed needs, the city manager will never know."

The woman got up to leave, but before doing so turned to me and said, "You've certainly raised an interesting problem."

No doubt, I had. Consequently, it is the problem of all socialist schemes and of course the one the city manager was least eager to consider or address.

An Actual Solution: Real, Free Markets
In conclusion, "competitive government" rests upon a farcical interpretation of what drives private businesses and how entrepreneurs ultimately manage to serve their customers.

In a true market, entrepreneurs try to serve the customer's desires in the most efficient way possible by giving the customer that which he demands at the lowest cost possible. "Competitive government", on the other hand, gets it about half-right by trying to cut costs and provide goods and services as cheaply as possible. Whether those goods and services provided are actually demanded by anyone is another concern entirely, one which "competitive government" practitioners necessarily must ignore lest they reason themselves out of a job.

Additionally, in accepting a monopoly role for government, "competitive government" supporters fail to ask themselves what type of incentive structure a monopoly faces in determining how to treat the consumers that it serves. "Competitive government" theorists ignore the historical expression of this perverse incentive structure and choose to believe that all the past problems of government are due to the wrong people running it, or the adoption of a misdirected focus or poor attitude.

The solution to all the problems faced by government, as well as caused by government, is the spread of real, free market conditions as the predominating social institution and the concomitant retreat of governments. In short, the solution is the replacement of "substantially competitive" feel-good efficient-socialism rhetoric (however government agents themselves subjectively choose to define this) with actually competitive, private, voluntary free enterprise reality.


  1. Excellent post. Thanks.
    "Neglect the consumer and in time he may come to neglect you."
    Joe Quirk