How business economics differs from bureaucratic economics

Most people who gravitate toward government jobs have little or no experience in business – what is referred to as the “private sector”

Likewise, most people who have run a business or held a position in one that requires them to understand business economics rarely become government employees.

It’s probably for the best. Once a person learns business economics that person would have difficulty understanding the economics used by government agencies – and vice-versa.

There are some similarities. Both a business and a bureaucracy work toward growing bigger and…well…that’s the only similarity.

A business grows by producing more of something people want and are willing to pay for. A bureaucracy doesn’t actually produce anything, but it does offer something people need. It also does not have to concern itself with offering those things at a price people are willing to pay because their “customers” can’t go somewhere else to get things that only the government has to offer. Bureaucracies can charge whatever fees they like.

But a bureaucracy doesn’t have to increase its offerings in order to grow. In fact, if it can convince government that its services are being under-used, it can claim to need more money to reach more people who need those services. A business whose products are being under-used just goes out of business. Bureaucracies never go out of business.

To put the difference simply, a business grows by acquiring a bigger customer base.
A bureaucracy grows by acquiring a bigger budget.

Of course, people who work in business frequently want a bigger budget for their departments. To get that increase, they need to convince management that more money supplied will produce more business and more profit. Bureaucracies don’t have to worry about producing a profit. They just don’t.

Which brings us to Obamacare.

The President says the website failed because so many people want the coverage it offers. But if people don’t sign up, they will pay a penalty to the IRS. I can’t think of any private-sector business with such a coercive marketing strategy. Not that a business owner wouldn’t like to have that advantage, but such methods are limited to government. If Amazon’s website was as glitchy as that, people would just shop somewhere else. If people weren’t signing up under penalty of a fine, I wonder how many people would make the effort?

So, since the website isn’t working, the government’s answer is…increase the budget to hire more people to fix it. Because as it stands, they are not reaching all the people who “want” the services offered.

Business people don’t understand, but that’s because they haven’t learned bureaucratic economics.

What we can learn from the government shutdown

As you all know, the government is experiencing a partial shutdown due to the inability of our elected officials to agree. No, that’s not today’s lesson – we already knew that.

We also know that our government has to borrow 30 cents for every dollar it spends. Some of us wonder how it can continue to do that. We know that if we ran our personal budgets that way, we would eventually end up in bankruptcy court.

And yet, we are constantly told that there is no room in the budget for cuts.

Over the past few days the Congressional impasse has forced some severe belt-tightening. Some of it has been overblown (like barricading the Veterans War Memorial that never had a fence around it) but most of it was necessary. The government, which never had enough money to pay for all it did, now has even less.

So, each government department has been forced to evaluate it’s work force to determine which positions can be furloughed and which are too critical to live without.

For example, the EPA determined that 6.6% of it’s employees are “critical”. The other 93.4% have been sent home temporarily. Similar decisions have been made by most other government agencies.

This had been very informative. One has to wonder why we have been borrowing money to fund these departments in full for all this time when the departments themselves acknowledge that only a small percentage of their employees are actually needed.

The truth is out. The bureaucracy has confirmed what most of us already suspected. It is bloated, filled with many unnecessary positions not actually required to fulfill its mission.

It’s time to trim the ranks. The government itself has shown us where to make the necessary cuts.