> Like much common wisdom, the idea that companies are efficient (and specifically more efficient than government) is a myth.
The claim as I've understood it is more that a private company puts control over efficiency more directly into the hands of the people whose money is being wasted.
A government entity is typically nominally accountable to the taxpayer, but that accountability is through so many layers of indirection that it doesn't actually do anything. A privately owned company with a small number of owners will in theory be more responsive to monetary pressures. I think where this breaks down is with ridiculously large publicly traded companies where stock price has more to do with shareholders betting on the irrational behavior of other shareholders than it does with the actual performance of the company.
When the owners of the company make money when the company makes money, it will typically straighten out its inefficiencies. When the owners of the company make money by buying and selling abstract financial instruments, not so much.
I think there's another explanation as well, and it's also the reason why "running the government like a business" makes no sense even if private industry can be more efficient.
Companies are profit driven entities and at the end of the day can look at net profit and see if it's positive or negative. This doesn't guarantee efficiency, but it gives you a pretty simple success metric that you can then work to tie everything else back to. This is a major oversimplification, but government doesn't even have that basic starting framework. Government functions cost money, but generally produce no direct monetary profit that can be measured against their cost. Of course government produces other outcomes, but since those outcomes are not monetary, you run into a units problem if you compare inputs and outputs. You can say how many crimes the FBI solves per million dollars of budget, but there's no easy way to measure a "break even" point where you have a net benefit. You can measure relative efficiency (solving more crimes for a given budget), but you can't say what the right target value is.
Even if you could measure government efficiency the same way, the other issue is that companies can improve their efficiency by just stopping inefficient activities to focus on the efficient ones, while government agencies generally do not have that choice. The FBI could probably increase their efficiency by ignoring hard to solve crimes and focusing exclusively on the easy to solve ones, but that's probably not the right thing to incentivize.
The worst of both worlds is where the US has landed. The public private cooperation is government bureaucracy and accountability coupled with a private company that knows there's basically no penalty to overshooting a government contract "What are they going to do, leave the road unfinished?".
There are natural monopolies that exist, road building, water, sewer, power. All these things shouldn't be controlled by private entities.
Companies can be just as inefficient as the government, sure. But unless they have a monopoly, either natural or government-enforced, inefficient companies will go out of business while inefficient government agencies can linger on for a long, long time
I don't agree, though I guess it depends on how long long is. There are certainly some examples I can think of but I would argue most of them are actually natural monopolies in disguise, usually benefitting from network effects
I 100% grant that large organizations by their nature are less efficient than small organizations due to lossy communication. And some companies have a minimum size due to the nature of their work, which places inherent limits on their efficiency. But they're still subject to competitive pricing from other, similarly large companies.
> I don't agree, though I guess it depends on how long long is.
HP started the Grand Experiment two decades ago to determine how long it takes to destroy a large company if every decision is either incompetent or malicious, with little assistance from network effects… and the experiment is still running.
Some large companies acquire the characteristics of government (spending becomes remote from the source of funds; political cover from being too big to fail; lack of meaningful competition). So when large corporations become malign or inefficient, it can be because of how government-like they have become, and some kind of competition & markets authority should step in.
I would argue the pruning function becomes way more important (and way less used) the bigger a company gets and so there are very few large companies that are efficient, not none. Twitter comes to mind since they just had 70% plus of their workforce pruned as a likely efficient company (at least at serving social media pages, not at making money so far).
I also think this is why government is the most dangerous power structure (they almost never prune anything and they have theoretical claim to 100% of the country's GDP through taxation. It would be better for us all if they were heavily restricted or just figured out how to prune effectively instead of just raising taxes all the time to support inefficient program spending)
Government is just a makeup of workers who serve the population at large. The trouble is that the population at large can never come to agree on what to prune. I want this, you want that. You want me to give up this in the name of efficiency, I want you to give up that in the name of efficiency, but neither of us want to give up what we want so in the end we agree that if I can keep this, you can keep that, thus nothing gets pruned.
That reminds me why corporations have an easier time pruning, They're not democratic, they are basically feudal.
Like, there's a king on the top, he has his board of nobility, VP dukes, knight middle managers and the peasants who do all the work and own nothing. Whatever the king and nobility say is law, they're accountable to nobody (except for the pope/national government).
They are democratic, but usually of the weighted variety. Typically, he who owns more shares has greater say – although occasionally you will see other weighting methods. Government is more likely to consider each individual an equal shareholder, although not always.
Corporations likely also benefit here from the owners generally having more care for the organization and a greater desire to see it succeed. If there is something that needs to change they will work to ensure that it gets changed as soon as a problem is identified. Most government shareholders would rather sit back and just hope that things work out.
Right, this applies more to private held firms and late game startups than public corporations, but I would still expect that the higher you typically go, the more shares one owns on average, so the weighted average of that won't be too far off compared to the actual structure, minus external shareholders. We can imagine those as foreign kingdoms that the king owes money to :P
Plus there is upwards mobility, whereas in typical feudalism there is none, but it is still funny to think about the suspiciously odd similarities.
It is certainly not suspicious. It's all just people being people. It's questionable if it is even similar and not the exact same thing. Government isn't something magical. It's just a particular kind of business.
I feel like I should try and do business with you because you would be easy to take advantage of..... Workers serve their own interests and are contracted to serve a purpose mandated by government but the only guarantee they do so is the quality of their manager (who has the same problem). Once you get through the matryoshka doll of managerial layers you eventually hit a politician or committee of politicians who also serve their own interests (but more often than not lied to your face about supporting your personal interests in order to get elected). The reason nothing gets pruned in government is because the points in the decision tree that require pruning almost never get hit because there is low interest from a majority of politicians on addressing old problems when they have some new nonsense they are personally invested in that they want to push and they have growth in the economy (and the opportunity to raise taxes if there isn't enough growth) to fund the new nonsense. On top of that, it's harder to prune government workers because they usually have a strong union (because again, no one pruned that nonsense in the 80's and 90's when private enterprise mostly jettisoned theirs due to shareholder and competitive pressures).
> I feel like I should try and do business with you because you would be easy to take advantage of.....
Yet for some reason you haven't... You must, deep down, be worried that I will end up taking advantage of you?
> Once you get through the matryoshka doll of managerial layers you eventually hit a politician or committee of politicians who also serve their own interests
Of course, the cool thing about government is that you can literally tar and feather anyone who violates the wishes of the owners. That's usually a lot harder to pull off in a private business.
But you need people who care. That is a rare quality when it comes to the owners of government. It's a miracle when someone shows up just to hire the worker, let alone stay in contact with the worker after they have the job.
Inefficient companies _may_ go out of business. The problem is that this only happens if there’s more effective competition and clear market pressure across the board.
Consider Google: they’re highly inefficient in many areas producing entire applications which are written off not long after release and failing to capitalize on areas they had substantial edges in (e.g. AI), (arguably their last successful product launch was in the 2000s) with the net result that they employed a ton of people doing things which were not really tied to satisfied customers. This didn’t matter because they had a few business areas where they had massive profits despite not having a government-enforced monopoly which more than made up for those losses. Most of the tech giants have variations on that theme where they have many people who can report absolutely absurd internal inefficiencies but until that’s broken out on a balance sheet it’ll probably never change.
Government is unique in two ways: the first is that it’s more public (which is good, but e.g. you’d be shocked if Comcast was audited at the same level) but the other is that much of that inefficiency is mandated by the same people who complain about it in public. For example, benefits programs are often structured to require expensive validation processes which cost more than the savings, and there’s intense pressure to contract everything out even though that process requires significant overhead.
Yep, a classic case is governments have to serve all their citizens, including all the really problematic and expensive ones. Businesses don't have to do that.
this is far too often the case -- i.e., they are the only business providing X in Y region; or while technically not a monopoly their market share is so large it takes a very long time to be displaced (i.e., Google)
This is a claim without evidence and simply not true. There is no argument that private organizations are perfectly efficient. Rather, that there are built in feed back loops that drive towards efficiency. This includes bankruptcy as ultimate conclusion in some cases.
Government on the other hand, has no such feedback loops and misaligned incentives which produce enormous fraud, waste, and abuse. There is no example of government being more efficient at any activity. Pick one, and there is a counter example in private industry doing it better for less.
> Like much common wisdom, the idea that companies are efficient (and specifically more efficient than government) is a myth.
There is a book - Recoding America - that gives a behind-the-scenes look into government IT and the more recent changes that improve efficiencies and outcomes. It was published in the last 2 or 3 years and your local library almost certainly has a copy.
FYI - the first chapter or two seem to imply developers are to blame for things that are truly the fault of leadership; power through that section and the rest of the book shows developers in a different light: perhaps she was setting up a strawman to make the change look even better.
I believe the argument for privatization of services is that you can switch providers in a marketplace, that should provide efficient options. So you can switch payroll and billing systems from ado to new without laying off a whole division and software rewrites. However in practice it leads to vendor capture and more interface layers of project and program managers and auditors.
It happens at small companies and medium sized companies too. I've seen it as both a contractor and an employee.
Like much common wisdom, the idea that companies are efficient (and specifically more efficient than government) is a myth.