Efficiency isn’t best way to evaluate government

July 21, 2010 | John Burbank

John Burbank, EOI Executive Director

From the Everett Herald:

As the recession continues bumping along, tax receipts are continuing to fall behind what’s needed to sustain public investments in education, health care and public safety. The most recent state forecast projects a $3 billion revenue shortfall over the next two years.

The governor has responded with a call for “transforming Washington’s budget.” As this “transforming” process heats up, we’ll no doubt hear a lot about making government more “efficient,” like the private sector. And that should raise a big red flag, because an economist would tell you that efficiency isn’t really what you want to measure when it comes to governing well.

How’s that, you say? We want government to be inefficient? Well, not exactly.

We want government to build public structures and provide services that meet the fundamental needs of its citizens. That means government stands apart from the private sector focus on efficiency and cost-cutting in search of greater profit. (Indeed, it is that single-minded, for-profit approach that often results in increased and escalating costs for the public, such as BP’s Deepwater Horizon disaster in the Gulf of Mexico.)

Some services are provided much more efficiently by the public sector — especially those that would never occur if left to the private sector to manage alone. For example, a colleague of mine has a child with Down’s syndrome. Both federal and state laws require that “each school district … insure(s) an appropriate educational opportunity for all children with disabilities between the ages of three and twenty-one.” That means that when my colleague’s daughter turned 3, she started receiving educational services paid for by the government.

Those services could include one-on-one tutoring and coaching for a special education student, learning in very small class sizes, tutoring, speech therapy, or help with “mainstreaming” into a regular classroom. It all takes money, and it all could be considered an economically inefficient expenditure. After all, the private sector would not assume those costs. Applying a standard cost-benefit analysis would not point to a pathway for this intervention or help — unless the parents were very, very wealthy.

But morality tells us something different: to invest in all children. It is inefficient, and that is good.

Another example: When there is a fire in the neighborhood, you can be sure you’ll hear the sirens soon, and the firefighters will be responding within minutes, if not seconds. They don’t ask for a VISA card before they put out the fire. But they are helping a private homeowner, as well as those neighbors whose houses might be threatened by an out-of-control fire nearby.

That’s because fire prevention is a public good, whose benefits and costs are shared by all of us. Is it economically efficient? Not necessarily. Maybe the house they save isn’t worth the money spent to save it, when you consider all the tax money needed to build or upgrade fire stations, engines and ladders, and the wait time for firefighters between fires. But that’s not the point. The point is that we can all depend on our firefighters to be at an emergency or a fire at our house when we need them.

There are other efficiencies in government that the private sector can’t touch. For example, all of us use our streets and roads to get around. Left to the private sector, we might have a few very well paved streets, walled off from most of us by tolls. But that wouldn’t do much good for commerce and for just plain getting around. We have only been able to build the transportation infrastructure we have because millions of citizens — past, present and future — have paid, are paying, and will pay for them with taxes. That just can’t be done by the private sector.

So when we sit down to talk about government efficiency, taxes, and what is “cost-effective,” let’s be careful. We may not be asking the right questions. Governments are not businesses, and should not be. They are not accountable to shareholders, looking for short-term profits. Governments are accountable to the citizens — all of them — whether they make $1 million a year or $30,000.

As citizens, we expect public structures and services, certainly for ourselves and our children, for the unlucky and the forgotten, and for the vast majority of our neighbors. No special favors to the wealthy, but essential public structures for all of us. That’s how government in a democracy should work.

Tagged with: , ,
Posted in Column, Tax and Budget

Comments

  1. Steve Roth says:

    I am profoundly disappointed by this article. Mainly by its failure to distinguish between the common understanding of efficiency, and the term of art, “economic efficiency.” The meanings overlap, but they are far from synonymous.

    I’m sure that if John doesn’t understand that distinction, there are people at EOI who could explain it to him.

    If he does understand it, the article is even more misguided.

    The argument to be made: government *can and does* deliver spectacular efficiencies, of both types.

    Educating Downs Syndrome kids, in fact, is a prime example where the government can do it more efficiently (lower cost per result) while simultaneously delivering greater economic efficiency (putting money in places that make all boats rise).

    I’d call this article a serious “own goal.”

    And yes: efficiency (of both types) is one of the crucial measures — though of course not the only one — by which we judge how good our government is.

    • John Burbank says:

      Dear Steve,

      My intent with this column was to shift the conversation away from “government is inefficient, bad, wasteful, the enemy, etc.” and point out a couple things:

      1. We should not measure government as if it were a private business. There are higher values and measurements for government than business.
      2. In many cases, especially in dealing with natural monopolies, government is more efficient from a standard cost-benefit analysis (PUDs vs. Puget Sound Energy).
      3. A third point would be that corporate profitability is measured without any reference to cost externalities, which are either absorbed by government (pollution control), or accumulate as negative outcomes for other people, businesses, and governments. If these were taken into account, we would have a much different and more accurate estimate of actual profitability.

      I like your blog. And hope you are active in the campaign for Initiative 1098.

      ~John

  2. Steve Roth says:

    Thanks for the response, John. Keep up the good work.

    I generally disagree with #1. While government obviously has different goals from business — certainly not profits — we should be just as rigorous as business in judging whether it achieves those goals efficiently (in the common usage). To judge that efficiency — the cost-benefit analysis — we need to make some admittedly difficult judgements about whether policies and policy mixes are economically efficient — whether they do the all-boats-rise/bigger-pie thing. Government delivers public goods: positive externalities. Just as with businesses’ negative externalities, these don’t get counted.

    Totally agree on #2 and #3.

    My point is that rather than sort of shimmy-shammying around the issue — trying to “shift the conversation away from “government is inefficient, bad, wasteful, the enemy, etc.”” — we need to point out at every opportunity that it’s just plain false. It’s the dominant meme in the American political belief system, and it will take many years of constant, direct contradiction to counter it.

    I think the article conceded our best ground (see: http://presimetrics.com/), hence my comment about “own goal.”

    Thanks again,

    Steve

  3. Michael says:

    I am in shock. A civil discussion where two people disagree and talk (type) it out. Only to find out they do have agreement on some points and will continue to disagree on others.

    My experience with other comment sections tells me I must be dreaming right now and will soon wake up to some serious bashing

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