Wall Street has always been divided between producers and overhead. The same is true in every for-profit profession and business. When “overhead” overwhelms production, profits collapse and the business fails. Technology has allowed for-profit and not-for-profit businesses to reduce overhead staff, thereby increasing the ratio of producers to staff. That is not true in government where profit is not necessary for viability. Government does not manufacture goods or produce services to sell. The purpose of government is to secure and protect the rights of its citizens – to protect the people against loss of life, liberty and the unlawful seizure of property. Obviously, government’s role has become far more complex, which is one reason bureaucracies have grown, but it does not explain why they have become bloated.
Over the past eighty years government’s role in the economy has become increasingly intrusive. When state and local governments are included, total government spending exceeds 41% of GDP. A hundred years ago, that number was 7%. At that time, state and local spending exceeded that of the federal government. Today, the latter has the lion’s share.
As insidious as burgeoning bureaucracies (and related to it) is cronyism, which exists between government, big business, favored industries and public sector unions. Banks too big to fail are protected against failure, giving them a cost advantage versus their smaller, regional competitors. Industries are favored because of long term relationships or because products and services coincide with an Administration’s agenda. Unions are interested in expanding their reach. Big bureaucracies are in their wheelhouse. With private sector unions in decline, the public sector represents their only growth opportunity. Taxpayers, small businesses and fans of small government stand on the outside and ogle the party to which they were not invited.
Is this trend a good thing? No, because it is ultimately debilitating for both the economy and democracy. Big companies lobby for tax relief and for regulations that limit competition. Small and midsize companies do not have the same means; their stretched margins negatively impact economic growth. Complex regulation increases costs and reduces employment. Government bureaucracies have become self perpetuating, benefiting those who feed off the public teat. Are tax payers getting an adequate return on their investment? It seems doubtful.
We can see the negative impact of increased government participation in the economy in GDP per capita that has slowed over the past few decades. Between 1950 and 2013, GDP per capita compounded annually at 2.02%, but between 1990 and 2013 it annualized at 1.4%. Europe provides a view of the future, as Eurozone government spending as a percent of GDP exceeds 50%. Arguably, infrastructure spending does help economic growth. Better roads, rail systems and airports can speed the movement of goods and services. The problem is that funds for such services are being squeezed. Transfer payments now exceed 63% of all federal spending, rendering discretionary spending (which includes infrastructure investments) subject to cuts. There may be other explanations for slowing growth, but logic suggests that the greater the government’s role, the less room for the private sector. Expansion of government is a boost to overhead costs, reduces the number of producers and hurts profitability.
Most organisms have an instinct to expand, not contract. And that is certainly true for government. Very few people want to take over a department with the mandate to shrink it, anymore than they would a business. It is our nature to grow, not contract. It is why we applaud those like former Indiana Governor Mitch Daniels who shrank his state’s bureaucracy.
Are tax payers getting their money’s worth? The answer to that varies on the respondent, but one can look at the performance of our high school students in international competition and not feel comforted. On our highways, we can see and feel the lack of maintenance. The same is true for our bridges and tunnels. In Washington, from the aborted rollout of ObamaCare to the scandalous Department of Veteran Affairs; from the ineptitude of the Secret Service, to an Internal Revenue Service that has been exploited for political purposes, we have seen the consequences of amorphous, uncontrolled bureaucracies. Whatever happened to the public servant, who was there to serve the taxpayer for whom he or she worked?
Bloated bureaucracies are not limited to the federal government. Among the worst examples are our public schools. Between 1970 and 2010, public school enrollment increased 7.8%, while the teaching staff grew by 60%. But it is the non-teaching staff where the problem lies. In the past forty years, they grew by 138%. In doing so, they increased the roles of dues-paying union employees, but did little to help students. Across the United States today, non-teaching staffs comprise 50% of education jobs. In 1950, they represented 29.82% of education jobs. Have students been helped? Their performance on international tests suggests the answer to be no.
To take one example: in Old Lyme, Connecticut, where I live, the high school has 409 students and a total staff of 86. Of those, 37 are teachers and assistant teachers. The rest – 49 – are administrative and staff. Teachers only represent 43% of education jobs in the Old Lyme High School! While the teacher-student ratio, at 11.1-1 is something I applaud, I can not say the same about the staff-student ratio of 8.3-1. It is bloated and assuredly unnecessary.
Bloated bureaucracies put our entire free-market, democratic system at risk. Many of these people have forgotten the meaning of service. Crony capitalism encourages bureaucrats to protect the big at the expense of the small. Unions have no interest in taxpayers, other than as a source of funding. Worse, they pit government employees, who are supposed to serve the public, against taxpayers who are paying their wages. Bloated bureaucracies breed indolence and arrogance.
The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.
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