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?
