The American Spectator : Two Different Worlds: The Public and Private Sectors

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Two Different Worlds: The Public and Private Sectors

By Ron Ross on 6.1.11 @ 6:08AM

They're drifting even further apart.

Most everyone realizes there are differences between the economy's public and private sectors. However, they may not appreciate just how great the difference is.

We have an ongoing debate about the size of government, and by implication the size of the private sector. When choices are made about what responsibilities and functions to assign to the government, a crucial consideration should be the relative competencies of the private vs. the public sectors.

Consider, for example, differences in how the two sectors take advantage of advances in technology. In the private sector old products become better and cheaper, and new products flow with increasing frequency.

My 2009 car is the same make and body style of a 1990 one I owned years ago. It is significantly better in every way -- more powerful, 25 percent better gas mileage, better brakes, more safety features, better handling, and more fun. The application of numerous breakthroughs in technology would be too numerous to count. The inflation-adjusted sticker price has actually declined. I have seen similar improvements in virtually every consumer product I buy and use.

The private sector's products all around us -- food, shelter, clothing, automobiles, home appliances, entertainment, for example. The public sector's products include defense, the justice system, roads and highways, public schools, income redistribution (welfare), laws, and regulations.

Many of the government sector's outputs are more like anti-products than products. Regulations stifle innovation, decrease productivity, increase costs, and generally drive people crazy. Rather than wealth creation, regulations result in wealth prevention.

In the private sector virtually every product and every service has been profoundly affected by the technological revolution. The government sector, on the other hand, seems to have no learning mechanism. The private sector is responsive and dynamic; the public sector is almost catatonic. In the private sector new products are introduced at a dizzying rate of speed.

The private sector provides ideal growing conditions for creativity. A striking example of this is the explosion of "apps" (applications) for "smart phones." (A smart phone is a cell phone that connects to the internet.) The two leading providers of apps are Apple and Google. The current population of available apps is over 350,000 and still growing. Many of the apps are free or cost only one or two dollars.

What these apps can do for you is absolutely mind boggling. The proliferation of the apps is a dramatic example of R.W. Emerson's observation, "Invention breeds invention." The apps' universe has provided creative opportunities for thousands of widely dispersed innovators and entrepreneurs. Hundreds of thousands of innovative people are diligently "finding a need and filling it."

The government sector is "so yesterday." Is there any example of technology noticeably increasing the efficiency of government? Does government productivity ever increase? We have expended trillions of dollars on the "war on poverty" and the incidence of poverty is as basically unchanged. Public schools consume a large fraction of state and local budgets. Public schools have grown progressively more dysfunctional over the past several decades.

One of the public "products" most of us are forced to "consume" is the Internal Revenue Code. During the almost hundred years of its existence its efficiency has consistently grown worse. Its birth coincided with that of the Model T Ford. Automobiles are vastly superior to those of the early 20th century, the IRC has evolved backwards. In terms of resources consumed and the burden on the economy, the costs of collecting a dollar of revenue has increased dramatically over the life span of the Internal Revenue Service. The Model T is a museum piece. The IRC should be.

The relative shares and importance of the public and private sectors are only partially a political decision. It isn't simply about spending money and passing new laws and regulations. The public sector is certainly doing enough of that.

There is in effect an undeclared race between the public and private sectors in regard to satisfying human wants. Who's winning that race? Which sector is doing a better job of affecting peoples' lives in a positive way? In fulfilling human wants the private sector is leaving the public sector in the dust. People get more and more value from the private sector and the same or less value from government activity even though the cost of government has increased at an exponential rate.

Why is there so much difference in how the two sectors function? Two important reasons are incentives and competition.

The University of Rochester economist, Steven Landsburg, says, "Most of economics can be summarized in four words: 'People respond to incentives.' The rest is commentary." Although I think that's an exaggeration, there is much truth in it. The private sector is vastly more effective and efficient than the government mostly because of the differences in the incentive structures. In the private sector you can get rich filling needs and solving problems. The public sector's incentive structure is totally dysfunctional.

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About the Author

Ron Ross Ph.D. is an economist who lives in Arcata, California. He is the author of The Unbeatable Market. Reach him at rossecon@gmail.com.

Letter to the Editor View all comments (41) | Leave a comment

dee see| 6.1.11 @ 6:31AM

---And let's DROP that London capstone/bankster term 'CAP-IT-ALL---ism' from the lexicon.

It's designed to pre-program you for their monopoly
corporate Marxist foregone conclusions.

Remember kiddies -------we are the ITs.

Bring back, and refuse to abandon the term
FREE enterprise.

--------You're already on your way!

drudge ette obama| 6.1.11 @ 7:00AM

Exactly. Change the terms. Reintroduce the concept of free enterprise. Progressives became liberals became progressives. Soon progressives will be a dirty word - if there are any left? Oh, yeah, Halliburton, Cheney..... (If my mom sees that I wrote those two words, she'd bring out the Lava soap.)

Shamus| 6.1.11 @ 7:26AM

Communist China embraces free enterprise even as the US embraces collectivism.

Michael Tomlinson| 6.1.11 @ 8:45AM

No, China has embraced a fascist government driven/managed economy with slave labor being a key element.

Tim Cox| 6.1.11 @ 7:45AM

In your subtitle the word "every" should be "ever".

dee see| 6.1.11 @ 8:02AM

RED China is Globalist/bankster set up and
directed.

Their 'free enterprise' is entirely state directed
and can, and will, be withdrawn when need be.
---As privacy, the Constitution, the Republic,
and GENUINE church and family culture are
being systematically withdrawn here.

BOTH sis-tems are being directed by 'experts'
--fronts for their ideal of a scientific dicatorship
('benny violence' and EUGENICS efficiency).

BTW ----take special notice of how Monday's
Annversary of the perpetually 'EUGENICS friendly'
KOREAN WAR is, again, 'overlooked'...

Paul Hilsenrath| 6.1.11 @ 8:17AM

Mr. Ross has it right about the private sector, ie; "In the private sector you can get rich filling needs and solving problems....."

The public sector corollary to this is; in the public sector the politicos get rich by filling some folks desire for something for nothing by reallocating public resources, thus gaining power and influence and then filling the needs of others in the private sector by applying their power and influence to solving the problems of others who are able to pay high prices for those services.

How else could for example, Harry Reid become a wealthy man by serving in Congress. He worked for two whole years as a private sector attorney. Then there is Bill and Hillary and her famous big "win" in the futures market. The Dems aren't the only ones who are guilty. Dick Armey had a virtually worthless piece of property until the feds built a big highway through it.

As yourself this question, why would anyone or group spend the huge sums of money it requires to get elected to get a job that pays what a congressman gets paid? This is true all the way down to the local councils. The ability to command where public resources are allocated produces the corruption and the longer anyone politico remains in office the deeper this sense of entitlement becomes and manifests itself in a patronizing attitude toward the public.

Rant complete.

Thanks

Old Soldier| 6.1.11 @ 8:18AM

Good article. Explains why I have moved from a Reagan Repulican to a Libertarian over the past 25 years. Most of our government isn't a necessary evil - it's just extra evil.

Most of our laws and regulations have no victim except an overreaching state.

Dan Hirsch| 6.1.11 @ 8:28AM

Mr. Ross;

Be careful what you wish for! The reason that government is so inefficient is made obvious to all who understand that the fundamental purpose of all governments is to "Take your money and give it to my friends."

In the late 1770's this country was formed with a different fundament, "Government of the people, by the people, for the people." This has been lost.

Should the government become more efficient, it will only more quickly strip away our natural, God-given rights; freedoms; property; and liberty. So I, for one, love government inefficiency, given its current fundamental objective!

We just need to turn the Washington elites out, replace them with Constitutionalists, and never take our eyes off the ball again. I really despair that the GOP will never understand this fundamental problem.

Didn't somebody say that "Eternal vigilance is the price of freedom?" I don't remember that price ever being lowered...

Don't tread on me!

PS To dee see:

What in the Sam Hill are you talking about?

Try using less code and more proper nouns, please. Or are you sending coded instructions to your minions?

David T| 6.1.11 @ 10:22AM

I believe you misread Mr. Ross. He certainly wasn't asking for more efficient government. I'm not sure he even believes there is such a thing.

Louis Jenkins| 6.1.11 @ 8:36AM

As has been said here many times, the government doesn't creat private sector jobs, it doesn't innovate, it doesn't work at making a product better. It only regulates. Off with their heads.

Have you considered| 6.1.11 @ 8:53AM

Let's examine the first rule of economics..People respond to incentives. Some food for thought.

Why are most people careful to not get caught speeding or running a stop sign? Is it because these traffic infractions typically result in loss of liberty, ie, jail? No, but they do carry a negative monetary incentive called a Fine.

Is there a mathematical difference between a direct Tax and a Fine? I don't believe there is.

The more you Fine the industrious for being industrious, you lessen the incentive to be industrious.

Our founders understood this. This is why they Chained the federal government down by Enumerating the objects over which they had authority. This was supposed to guarantee a limited scope of expenditure, thus limiting the need to tax.

Jack Olson| 6.1.11 @ 10:03AM

There is a big difference between a direct tax and a fine. A fine is a penalty to deter illegal conduct. My community uses red light cameras at heavily traveled intersections and also collects property taxes. I have never had a ticket here for running a red light but I pay property taxes every year. The "mathematical" difference between the tax I pay and the fines I don't pay is the difference between thousands of dollars a year vs. zero dollars so far.

John Navratil| 6.1.11 @ 10:15AM

Jack Olson,

So far! But the purpose of the camera is to collect revenue. It is a venture between a private operating firm and your city. That firm isn't in it for public safety (and your city isn't either, but that's another topic).

When the yellow light gets shorter, you'll start paying there too.

Have you considered| 6.1.11 @ 1:38PM

Thank you Jack, you may have inadvertently augmented my point.

It seems you have rationally responded to negative incentive by modifying your behavior so as not to run red lights.

I would guess physical danger is an equal, if not superior, component of negative incentive using this particular example of running red lights, but the crux of my point is we respond to incentive.

I'm not sure if I'm understanding you, but are you saying that negative incentive does not operate in the sphere of industriousness?

I still assert there is no Mathematical difference between paying a fine, and paying a direct tax. The outflow is the same, the Reason for said outflow is different.

Aindyin| 6.1.11 @ 9:16AM

"In light of the stark difference in the effectiveness and competence between the private and public sectors, it totally mystifies me that any sentient person would want to transfer more power and money to the government."

Thats because liberals are not sentient beings.

Old Soldier| 6.1.11 @ 9:55AM

And their prime motivation is to destroy those whose are talented, motivated, and self-sufficient.

Joe Schmuckatella| 6.1.11 @ 10:24AM

Obammy promised to pay-off my mortgage, give me money every month and provide free internet. What else could one want in life?

David T| 6.1.11 @ 10:32AM

I work in defense acquisition. For 30 years the focus has been on improving the efficiency of the process by which the DOD acquires its weapons systems. Despite all the "re-engineering" efforts, it still takes about 10-15 years to get a new system into the hands of our soldiers, sailors, and airmen. In other words, about as long as it took 30 years ago.

Pelligrino| 6.1.11 @ 2:32PM

David,
You obviously have some real (and real personal) problems.

1. You are being a tad bit over-critical, are you not?
2. Candor is not appreciated. You have to be more nuanced. Where did you go to school?
3. Internal complaining is seldom warranted but possibly excusable. Truth-telling in public is unforgiveable.
4. This is the U.S. Government and specifically the DOD you're talking about. Optimism, son. No room here for pessimism. We show the door to the naysayers.
5. Criticizing something that takes just as long today to achieve as it did three decades ago is more than unfair. Things are vastly more complicated now.
6. Who gave you the right to engage in critical thinking?
7. You seem to have some warped view of "speed" as an important criterium.
8. Your inbox is being sent a bevy of web-based tutorials. Do them NOW. Focus on: The process is the key, the process is paramount. Not the end result.

Unless we the management see a radical alteration of your thinking patterns, we'll have to do the drastic.

[Thanks for posting.]

russel| 6.1.11 @ 10:36AM

" Close enough for government work " gets more pertinent by the day . Our highway dept. employs boobs and their planning is a joke and a mess . Used to be if one was so inept as unable to handle a decent job , they wound up in government . Now they hold the private sector in contempt . The friction between the two is escalating ( witness Wis. ) and I predict all out war when we've decided enough is enough . " They work for us , not the other way around " .

Pelligrino| 6.1.11 @ 11:37AM

A good article, Mr. Ross. Thank you.

Two additional areas where the public sector/government is behind the times.

Hiring quotas. How absurd in a land where a dirt poor Vietnamese couple can raise the kid who graduates first at the Colorado Springs Air Force Academy. Our government is staffed by faceless unaccountable bureaucrats whose career starts in the "public sector" are directly tied to quotas and not sheer merit.

Their promotions, too? (say 'yes')

Second, meticulous dollar calcuations in the areas of stewardship/organizational infrastructure. Here, private sector businesses trounce the public sector. Ask any larger scale or medium sized regional IT companies that do the whole spectrum of office machine repairs, software installs, copier maintenance contracts, etc. These do-it-all Geek Squad-like teams are in and out of government and private business offices all day all around the country. They'll typically tell you that the newer (replaced more often) IT hardware is in government offices.

They'll tell you that they're glad for the ongoing replacements because this means more business for them but that it is daffy to replace perfectly working desk PCs or laptops for people who just web browse, email, and word-process.

Better IT hardware, snazzier color laser printers, faster copiers, better networks, better telephone networks, larger state of the art servers, yet - yes - slower clerks, lazy filing, slow problem solving, lethargic, antagonistic customer service.

Just compare office furniture the next time you visit a government office building.

A related example: Does anyone really think that the electronic medical records (and ALL that entails) will enhance the personal health or that of your loved ones? Do you? The infrastructure costs for implementing EMR are stratospheric. But will you as the consumer/customer/taxpayer really benefit?

Al Adab| 6.1.11 @ 12:56PM

Since government "services" have no competition, they have no reason to upgrade or improve their "products". The agencies simply either expand qualifications to create new "clients" or mandate purchase of their "goods". Almost every department has a position titled, Program and Projects Specialist, the purpose of which is to increase the reach of the agencies functions. Over time the agencies intrusion grows like a cancer and eats out the substance of the population. Most agencies and certainly the regulatory ones, are counterproductive and raise costs beyond any good they might be doing. This calls for radical surgery to remove this cancer from our body politic.

Pelligrino| 6.1.11 @ 1:53PM

AA, we are (again) on the same page.

What I think that the American taxpayer has no idea about: The total EXPLOSION of the public affairs/public information civil servants in the last 15 years.

With simple-to-use gadgetry like digital cameras (single shot and video), web software, graphics, digital imaging, press releases that can reach thousands of media outlets with just one click, online newsletters, desktop publishing, and a website for everything, government has now expanded to grossly excessive, unnecessary, deceitful self-promoting public information.

All under the guise of a very vague definition of 'transparency,' every mid level organization now has a full time executive Public Affairs Officer with an arsenal of tech gadgetry and fairly well-paid staff flunkies with budgets and time on their hands to create a multitude of propaganda products.

The problem with this? Oh, there are MANY.

Egregious use of public funds, for starters.

You see, it is all about self promotion. Specifically the department heads. You see, these Public Affairs Officers are full-time, taxpayer funded career promotion gumshoes. The unstated but real mission: Career enhancement for the “boss.”

We expect political campaign managers to lie to us and tell us the saintly qualities of the candidate. We should not expect this of career civil servants who are to use their positions to serve the public.

EVERY public affairs slot/employee in our government (all departments) needs to come under heavy, heavy scrutiny. I think a fair umpire decision would be to remove 90% of these duty positions.

If you ever hear about a ‘stalwart’ FEMA manager, a real go-getter in the Dept. of Commerce, Interior, the VA, HUD, NSA, HHS, the CDC, or even the FBI, you can be sure that he or she has a hyperactive 'publicist' falsely titled as a Public Affairs Officer outdoing even Hollywood's finest.

The propaganda ministers of old Europe in the 1930's would be smiling.

(If the taxpayers of flyover country only knew.)

Al Adab| 6.1.11 @ 1:58PM

Aren't enough votes in flyover country to control. Problem underlying is the myopic view of the Big Cities and East Coast (plus California) populations. They have the votes and have little concept of life outside urbania. Just add up the electoral votes to understand why we have concerns. If not for Texas and Florida, the election would be over now.

Intelligent Design| 6.1.11 @ 11:48AM

Every increase in government means a corresponding decrease in freedom. The obscene level of government spending and debt has sucked trillions of dollars in capital away from private enterprise, and is undermining our national security.

tonyo| 6.1.11 @ 12:01PM

It's worse than you think. In SC, a relatively poor state, government school teachers (and their children) get 2 "free" massages each month, paid for by insurance/taxpayers, to help alleviate the "stress" of mis-educating children. They also receive dental care, eye care, and health care benefits that would make a Weiner blush.

Nice work if you can get it.

cicero| 6.1.11 @ 12:08PM

The first rule of a beaurocrat is to do something, whether is is needed, or if it makes sense, or not. The only way to stop this is to do away with the obscene number or government workers (contradiction in terms), and send them to the private sectror.
Check out the leter to the editor in the WSJ this morning from the beaurocrat in the Consumer Protection Agency.

Kevin Compton| 6.1.11 @ 1:05PM

My personal pet peeve has always been why the IRS, with all of the knowledge they have of every person in the US, can't manage to subtract the exact amount of taxes necessary each year to pay my share. Why must I always have to pay them just a little bit more each year along with my tax return?

Mutch Moore| 6.2.11 @ 9:11AM

Flat tax = consumption tax. The more you consume, the more tax you pay. Excruciatingly simple for a bureaucrat. It works in Tennessee (one of the few states with no earned income tax). Will American ever attain efficient self governance? The latest troublesome trend is expanded union protection for gov. workers (I even see it even when I go to a Veteran's hospital for occasional care) - while private sector unionism is disappearing like an obsolete VCR player, as it should.

Dean| 6.1.11 @ 1:18PM

In the film "Ghostbusters," Dan Ackroyd explained to Bill Murray the difference between academe (and government) and the "real world":

Personally I liked the university. They gave us money and facilities and we didn't have to produce anything. You've never been out of college. You don't know what it's like "out there." I've worked in the private sector. They expect RESULTS!

replica handbags&wallet;| 6.1.11 @ 11:30PM

www.shop-bag.net

Jack London| 6.1.11 @ 5:19PM

Just when you think you've read the most stupid article ever on AmSpec another comes along, like clockwork.

Of course the list of public-funded innovation is just amazing, from the birth of the Internet, to about half of all pharmaceuticals to all the spinoffs from the space program. The list of wasteful, harmful and useless and me-too products from the private sector is also amazing.

simon templar| 6.1.11 @ 5:44PM

Then why are you out here reading these stupid articles by stupid conservatives on a stupid conservative web site? Get a life. Get a brain. Get lost.

Jack London| 6.1.11 @ 5:48PM

Someone has to counter the lies. There are people who read and don't post who need to know the facts and I'm sure this makes a difference.

russel| 6.1.11 @ 7:24PM

Agreed Simon , these boobs couldn't invent anything that even came close to a stick poking holes in the ground for planting seed . They'd also be too lazy to plant anyway . The actual invention of the internet came from a Brit ( tho IBM had a hand in casting away the idea ) . A " spin-off " from NASA , Velcro , was invented by a guy who noticed how weed seed stuck to socks . He wasn't employed by the space agency . That's the only " spin-off " that comes to mind . As for Pharma , they are big business , not run by by some half-baked government agency . Agreed , go to Cuba JL and live the good life on THEIR dime .

Jack London| 6.2.11 @ 4:22AM

Sadly your ignorance is a big part of our problem in America. If you want to educate yourself abit have a look at Fred Block's book 'State of Innovation: The US Government’s Role in Technology Development'.

You can see him here:

http://ineteconomics.org/fred-block

'Block, a professor at the University of California, Davis, lays out a strong case that in the modern era government has provided essential support at the crucial early stages of all fundamentally new technologies – despite the rhetoric of those extolling the wonders of the free market. In Reagan’s era, government played a central role in the development of information technologies and, of course, the Internet.

'But even today the central role of government in technology development is the norm. Fortune 500 companies have outsourced most core technology innovation, and almost all businesses rely on the government and nonprofit universities for supporting fundamental research, and taking on the initial risks of getting new technologies working. Even storied VC firms frequently point entrepreneurs to government funds to get their embryonic ideas to the point where the private sector can invest.

'Government – both in the US and around the world - is also critical in getting many technologies from the commercialization phase to the more difficult mass production phase. This is particularly true now in clean energy technologies that require large economies of scale for large-scale adoption.

'Looking forward, Block makes the case that even more sustained government investment and intervention is needed in this global era of climate change. For example, he talks about the idea of creating a national innovation fund that would spread the costs of core technology innovation across many businesses, but also have the public share in the upside that eventually comes.'

Mutch Moore| 6.3.11 @ 1:55PM

Indeed, Mr London, your post did make a difference here. It accords readers the benefit of your feckless counterpoint that government actually fosters more innovation than it stifles. Regressive taxation, oppressive laws driving venture capitalists offshore, wealth redistribution by awarding grants for mediocrity - all to drag down excellence in symphony. To give credit where due, sometimes some excellence emerges but mostly despite the government, but not because of it. Witness the already infamous shrimp-on-a- treadmill study, funded by our tax dollars under the imprimatur of serious "scientific research." Of course there are many, many more examples of such frivolity masquerading as research to wrest tax dollars from all of us. Thank you for the counterpoint Mr. London. It reminds us conservatives to remain vigilant because you folks promoting socialism in disguise just don't go away. And you can always seem to manage to post some link supporting your bovine scat. I suppose one could even find a supporting link to post here that the world is really flat - or that hybrid flying pigs, with enough grant money, could be developed.