One of the things that I find wonderful about economics is its applicability for the most amazing things. While on the train, I had little to do, except stare at the roof, or listen to the opinionated chap behind me pontificate. So I thought about government.
There are striking parallels between Microsoft and the government. Both of them cannot be challenged (At the moment). And almost everyone agrees that both of them are abusing their powers. Microsoft abuses its powers to make super profits, (while providing great products) and the government abuses its powers by giving us shoddy services (check the state of your roads for verification). Now, I merely use Microsoft because it is a convenient example, and everyone loves bashing Microsoft. But any monopoly could do. Now why is that?
Economics says that when a transaction takes place between a buyer and a seller, in the best case, both the buyer and the seller gain. For example, let us say I go out to buy potatoes (I like them...what can I say?). I would like to pay Rs. 10 for a kilo. At the same time, the friendly neighbourhood grocery store has got potatoes which he is willing to sell at a minimum price of Rs. 6. Now, the two of us meet, and then we bargain, and finally, I will walk away paying Rs. 8 for a kilo. Now I am happy, for I figure that I have saved Rs. 2. And my grocery guy is also happy, because he figures that he has gained Rs. 2 as well.
This 2 Rs gain that I as a consumer make is called the consumer surplus, and the Rs. 2 that the grocery guy got is called the producer surplus. And this works only because I could bargain with the man. Now, let us say that instead of having competition, there was only a single grocery owner in the city...and let us also say that he is a very intelligent shopowner, who is likely to know exactly how much I am willing to pay for my potatoes.
Now, I do not have a choice...if I need to buy potatoes, I will have to buy them from this man...And my shop owner is only interested in maximising his profit, which will be when he charges Rs. 10 for a kilo of potatoes. More than this, and I will go buy beans or something else. Less than this, and he could have made more from me! So, as can be seen, now the consumer surplus drops to Zero, and the producer surplus rises to Rs. 4. So, I am left unsatisfied, and my shop owner can earn super large profits.
Now, how does this relate to government? Government after all can be though of as a provider of services. And since there is only one government at any given place, what happens is that it is a classic case of monopoly. Let us take the example of policing. Since there is only one police force that is possible, and this police force is not really economically penalised for providing sub standard service, they will provide the poorest quality service that they can profitably get away with. If the law and order completely breaks down, then the police will probably be thrown out, so they ensure that that unfortunate situation does not arise. But they will not get more profits or better revenues if their service is better...after all we are a captive customer base. So they will not provide a quality of service that we would like. Instead, they will provide the minimum services that they can get away with.
So, an economic solution (to me) seems to be to bring in competition in the services that government operates. This ranges from basic services such as law and order, right up to the point of framing of laws. What does this mean? It means that the citizen should be allowed to choose the cocktail of laws that he/she will follow. These laws should be enforced by separate forces. Since each person will have different expectations of government, and how much he/she wishes to pay for it, several alternatives are likely to emerge. It would also mean that privacy campaigners can also be satisfied...just choose a set of laws that do not invade your privacy. Of course, certain services therefore will become unavailable to you, but that is market forces for you! What you gain on the swings, you lose on the roundabouts, but as it has already been proved above, our consumer surplus is zero at this current moment, so anything ought to be better!
So economic theory states that a functioning anarchy is possibly the most efficient form of government. Conversely, it now seems obvious that a completely despotic dictatorship is the most inefficient government for the citizens, although it is the best option for the people in power, as they can maximise their gains.
Sounds perfectly fine, neh?
3 comments:
Umm ... that's an interesting take. But it has holes in it.
First, the primary customer for all these essential-service providers is the government, since it pays the money. Since the service providers are themselves a part of it, let's say the Finance Ministry is the primary customer since it pays for the services. So obviously, what matters is that the service providers keep the finmin happy.
Second, Market economics in essential services is not a good idea because service providers will seek to maximise profits at the cost of the less profitable (or non profitable) customers who won't get the services at all.
Third, many aspects of government need unified command to enable quick and decisive action. Foreign policy, Defence, law and order, Finance are some that come to mind.
So the best thing would be for the government to get out of everything that it need not be in. It would be preferable to have two or more private players fighting it out for our custom in place of one government department.
What say?
Your first point reinforces my statement...the entire system is not accountable to the real customer...i.e: The paying public
Your second point is extremely valid. And true. The problem with market economies is that they are efficient always, but almost never fair! I was making an argument for efficiency...not fair or just! :)
Unified Command is frequently stated as a reason...and just as frequently we see that unified command is just a euphemism for convoluted beurocracy. The army is an excellent example of a system that requires unified command, but even there, local authority vests with the commander on the ground. In almost no other area are the benefits of unified command worth the crippling red tape that surrounds it.
I hope that clarifies things!
Agreed - unified command implies bureaucracy. But can you think of another system that effectively deals with the complexity associated with modern government?
I'm not saying bureaucracy is a must, but as far as policy matters go, it is the best because of its huge inertia. Let me explain.
Bala gets elected minister of Finance. He decides to cut income tax to 15 % for everyone irrespective of income because he believes in universal taxation. Unfortunately, the I-T dept cannot cope with the volumes involved and hence tax collections are very low that year and Bala's government collapses.
Now Shaunak's the Fin Min. He raises taxes to 80% because he's going for the upper layer, not for volumes. Black money increases, tax collections drop further. So Shaunak orders the RBI to print more money. Which causes serious inflation. Shaunak's govt falls. Anarchy prevails. Meanwhile, Ratnakar, who is the dictator of the neighbouring country, sees his opportunity and invades Balaland. Since Bala did away with the bureaucracy and replaced it with a distributed system, Balaland cannot put up a unified defence. Their resistance is uncoordinated and sparse.
Balaland becomes Rattyland! And HLL forces everyone in Balaland to pay for the privilege of watching porn.
QED!
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