Friday, 4 May 2007

Why Government Fails

If you've ever wondered why almost everything government does is a total screwup, the answer is actually very simple.

If a business satisfies its customers, it gets more customers and more money. If a business fails to satisfy its customers, the customers go elsewhere and it loses money.

If a government agency satisfies its 'customers', it gets less money as funds are diverted elsewhere. If a government agency fails to satisfy its 'customers', it whines about how it's underfunded and gets more money.

Put quite simply, government agencies have a strong incentive to fail, while business has a strong incentive to succeed. Business rewards success, whereas government rewards failure. Government's motivation is totally backwards.

Imagine you ran a business where you adjusted employees' pay each year based on a performance appraisal. Those employees who did better than expected would have their pay cut because they clearly didn't need an incentive to work hard. Those employees who did worse than expected would have their pay increased to give them an incentive to work harder.

The whole idea is clearly absurd; anyone can see that if you paid people more for doing a bad job, that pretty soon all the employees would be doing as little work as possible in order to increase their pay. Doing a good job is difficult, but any fool can do a bad job.

So next time a failing school, police force or whatever is demanding more money to solve its problems, remember: if you reward failure... you just get more failure.

1 comment:

leelion said...

hi AA found your blog link on Gates of Vienna. Sounds like you have a libertarian streak there.

I'm in NZ and yes shame to see England going to the dogs. The future will be interesting if nothing else. I can see some really nasty stuff happening in Europe in the next few years.