[Smart Economics] Why Governments Fail

Government Is Not a “Genie in a Lamp”

Among the Arabic literary works in *One Thousand and One Nights*, there is a story called “Aladdin and the Magic Lamp.” In this story appears the lamp’s genie, “Genie,” who grants any wish with ease. Nothing is impossible for Genie. He can make Aladdin, the owner of the lamp, enormously wealthy and even enable him to marry a princess. He can also move a huge palace to another place in an instant. In this way, Genie, who grants every wish as soon as it is made, has long been regarded by many people as a symbol of perfectly transcendent power. The “ideal government” that people commonly imagine is probably not very different.

Do we not expect government to be an all-purpose organization that serves the people, the true owners of the state, without reservation and solves even the most difficult problems smoothly, while transcending petty self-interest unlike ordinary businesses or interest groups?

But unfortunately, this is a clear misunderstanding and a futile dream. Government is not fundamentally different from businesses or interest groups. That is because government, too, is made up of the same kind of “people” as businesses and interest groups, and is likewise an organization that acts and strives for its own interests.

Government, too, is in effect an interest group that acts for its own benefit

If government were to be a perfect “government for the public interest” or a “government devoted to the people,” then the individuals who make up the government would have to be sages wholly detached from private interests. But that is unrealistic. It is far more realistic and generally valid to see bureaucrats and politicians in government organizations as people with the same self-interested tendencies as members of businesses or interest groups. In fact, the government’s inherently self-interested nature is revealed through various corruption scandals. Such corruption, driven by the pursuit of private gain in public enterprises and by dependence on political power, occurs with some frequency, and the same is true within government organizations.

Lobbying surrounding enormous vested interests is, in particular, a representative type of government corruption. The most famous lobbying scandal in Korea is the “Linda Kim case” that occurred in 1996. During the Kim Young-sam administration, the arms company Loral hired Linda Kim as a lobbyist and succeeded in winning the Baekdu Project contract, a reconnaissance aircraft acquisition program. In return, it paid Linda Kim more than $10 million. The problem was the illegal conduct that took place during her lobbying activities. At the time, suspicions arose that senior officials had accepted bribes from Linda Kim. In the end, the Baekdu Project was awarded to Loral, which was connected to Linda Kim, and Linda Kim was able to collect commissions beyond legal limits. It was an unprecedented corruption scandal in which a national project involving an enormous budget was swayed by illegal lobbying.

In his theory of public choice, Buchanan sharply criticized the concept of a “government for the public interest.” Buchanan pointed out that the “government for the public interest” that people commonly imagine is nothing more than a vain hope, and that the real government is a self-interested actor that exists for itself. The reason is that the people who run the government and make its political decisions are self-interested individuals. Accordingly, just as market participants each pursue their own interests, members of government also seek to maximize public support and political power. When necessary, they may decide policy not for the majority of citizens but for the benefit of particular groups, and they may even force minorities to make sacrifices for political purposes.

A self-interested and inefficient bureaucracy

The particular problem with government organizations is that as power becomes more concentrated, the bureaucratic system grows stronger. Bureaucrats are senior civil servants with substantial political influence. Just as market participants compete with one another in the marketplace, bureaucrats also compete among themselves for advantage. Likewise, just as market participants strive to maximize profit, bureaucrats also work to solidify their political standing or gain greater power.

A businessman in Moscow once said this:

“The bureaucracy is rotten across the board. Wherever you go, officials do not think about the interests of the market. They care only about their own interests. They all want bribes.”

If the subjects of policymaking and policy implementation are bureaucrats full of self-interest, then it may be a natural consequence that the government, as the sum of those bureaucrats, fails. Even if the top leader decides on good policies for the country and the people, it is of no use if the bureaucrats who implement those policies think differently and do not sincerely cooperate. No policy can ever be carried out smoothly under such conditions.

In addition, government organizations, by their nature, often follow political decision-making processes rather than economic principles and efficiency, even if that makes them somewhat slower. Suppose a problem arises in the market. It takes considerable time for the government to analyze the problem, seek solutions, gather various opinions, and formulate policy. By the time the policy that was finally decided upon is ready to be implemented, it is often the case that the problem has already disappeared, or else worsened to the point that the policy no longer fits the situation.

That does not mean, however, that government is unnecessary. There is no need to deny government altogether, as anarchism does, or to dream of a world without government. The government does have a necessary role in essential fields such as national defense, diplomacy, public security, and the judicial system. Of course, even in those fields, government cannot be given unconditional power. Philosopher Ayn Rand pointed out that “if society is to be free, government must be controlled.” Government has meaning only when it faithfully carries out its role of protecting the people’s property and freedom while refraining from wasting taxpayers’ money.

△ Please remember

Government is not fundamentally different from businesses or interest groups. Government, too, is made up of the same kind of “people” as businesses and interest groups, and is likewise an organization that acts and strives for its own interests. The particular problem with government organizations is that as power becomes more concentrated, the bureaucratic system grows stronger. Just as market participants strive to maximize profit, bureaucrats also seek to solidify their political standing or gain greater power.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [스마트 경제 읽기] 정부는 왜 실패할까

Author: Sung-no Choi

Date: 2021-06-07

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=4&idx=23759