Traditional analysis of economic motives holds that the private sector is motivated by self-interest and greed, while the public sector [...]
November 1 1989 by Chief Executive
Traditional analysis of economic motives holds that the private sector is motivated by self-interest and greed, while the public sector is guided by, well, the “public interest.” In this understanding, the businessman is a somewhat dubious character; whatever value he contributes to society is thoroughly unintentional. By contrast, bureaucrats assume moral superiority over entrepreneurs, because even if their programs don’t work, at least they are looking out for the common good.
For decades, under the intellectual hegemony of Lord Keynes, this approach shaped the ways that economics departments taught; the assumptions that reporters brought to their stories; and the self-satisfaction and pomposity of government officials. Even businessmen accepted their moral inferiority to “public servants.”
A recent and increasingly influential school of thought, described as “public choice” economics, challenges the distinction of motive between the private and public sector. Can we assume, public choice theorists ask, that when someone leaves the private sector to work in government, he discards self-interest and suddenly becomes altruistic? That he abandons private gain for the public good? That he metamorphoses into a virtuous person? “No one seems to have explored carefully the implicit assumption that the individual must somehow shift his psychological and moral gears when he moves between the private and public aspects of life,” write James Buchanan and Gordon Tullock of George Mason University in The Calculus of Consent, a seminal public choice text that helped Buchanan win the Nobel Prize for economics.
It is hard to believe in the virtue of bureaucrats when we see them relentlessly defend pet programs, even in an era of serious budget deficits, even when it is clear that projects have outlived their usefulness or failed in addressing problems. The Department of Housing and Urban Development has been wracked by scandal this past year, with plenty of evidence of bureaucratic self-interest on public exhibit. The laissez-faire advocates never tire of pointing out the contradictions between government promise and government performance, between what programs are supposed to achieve and what they do in fact achieve.
But Buchanan and other public choice theorists argue that this behavior isn’t anomalous, it is natural. That is because the same set of motives propels bureaucratic action and private initiative. Buchanan and Tullock observe, “Politicians, bureaucrats and lobbyists act in their own self-interest when participating in the public sector, just as they do when pursuing their private lives.” Morally speaking, one is not “born again” when one goes from business to government.
What seems a fairly obvious starting point leads to a fascinating array of new insights. Once we recognize that bureaucrats have a “bottom line,” often defined not in terms of profit but of power, we see right away why they always want larger staffs, new programs, and additional funds. Further, public choice analysts say, legislators spend carelessly on programs because they are giving away other people’s money; by contrast, they are prudent in the resources and efforts devoted to their reelection, in which they have a high personal stake.
For those in the private sector who wonder why it is so difficult to cut back the size of government, public choice theorists have a compelling answer. Because a relatively small number of bureaucrats, aided by special interest groups, have an enormous amount to gain from government handouts, they fight tenaciously to retain them. But the cost of these handouts is distributed evenly over a much larger number of citizens, imposing a small price on each, and making it difficult if not impossible to mobilize taxpayers against these programs.
To see how this works, consider a $10 billion farm subsidy which benefits 100,000 dairy farmers at an average level of $100,000 each. These farmers will go to a great deal of effort-hiring lobbyists, organizing rallies, sending letters and telegrams-to preserve their benefits. But if this price tag is distributed over 250 million citizens, that means each American pays $40, an aggravation, no doubt, but not enough to galvanize most people to concerted political action. Public choice economists speak of “the rational apathy of the voter.” Consequently the private interest, masquerading as the public interest, prevails over what the American public actually wants.
In Book 10 of The Federalist, James Madison outlined his famous theory of faction, where rival interests compete against each other, neutralizing dangerous concentrations of power, forcing political accommodation and compromise. But, public choice theorists say, this is not how special interest groups work. Jane Shaw, in Policy Review, described interest lobbies “not as competitors against one another but rather as joint raiders of a common pool-the U.S. Treasury.” These groups collaborate and then “compete against the public, which is largely unaware of what is happening.”
Public choice theorists have extended their analysis of government as a self-interested actor to discuss how politicians buy and sell votes; collusion between regulated industries and regulated divisions of government; and political corruption and scandal. Unfortunately, Buchanan and other public choice thinkers are better at describing the public sector problem than proposing ways out of these dilemmas.
Even so, a clear and basic account of how government actually works is the first step to improving it.
Dinesh D’Souza is a research fellow in social policy at the American Enterprise Institute in