What makes governments inefficient?

Newspaper editorials and news channels are oft found comparing how governments fare inferior to private businesses in almost all their endeavours. While the focus usually is on corruption and resultant inefficiency, there is more explanation behind the lag.

Governments are there to please all groups of people. If not please all groups, it must at least make sure that it does not offend any group. This conundrum forces government efforts to throw efficiency out the window and instead focus on democracy.

It is interesting to note how democracy and efficiency refuse to go hand in hand. And the issues become more and more complex as people and regions become more diverse and the livelihoods more complex. Let us consider an example.

A private player decides to make unparalleled advances in the country’s telecom sector. Having deep pockets, it can afford to build expensive infrastructure and yet provide its services absolutely free to begin with. Even later, only nominal charges are laid. Everyone is happy – shareholders (increased wealth), consumers (better services at lower prices) and even government (better infrastructure for the country, and maybe even higher tax collections in the future).

What if the government had done the same thing? Think about it. Government builds expensive infrastructure for telecom. Building infrastructure is the bare minimum we expect them to do, no points there. But what about the interests of the shareholders of other private telecom companies who just lost a part of their wealth? Wasn’t government supposed to take their interests on board?

Anyhow, government manages to launch the services. And they are entirely free. As soon as the decision is announced, economists and opposition tear all efforts apart claiming that the freebie is to lure voters in the upcoming elections (even if they are by-elections!) at the cost of numerous employees already working in the telecom sector in private companies, which now stare at soon-to-come bankruptcies.

Later, government starts charging a nominal fee for these services to keep it financially viable and also in response to these economists. Now, we have a cheater government who wants to thrive at the cost of poor in the country (as telecom is used by both poor and rich alike – free services are likely more availed by the poor).

This imaginary government had done the exact same thing as the private player – but attracted all the negative press. Yet, we all hailed the private company for doing so.

Don’t get me wrong here. I am all pro-business, pro-profits and pro-capitalism. But the point being laid out here is that this ever-elusive need of the government to satisfy all groups at all times is what makes it so inefficient.

Does that mean democracy wasn’t a good idea after all? We have seen efficient dictatorships! But that’s not the point being made here. Democracy has a number of advantages, and they well can cover for some inefficiency! Given a choice between assured human rights and efficient government, we all have a clear choice.

So is there any solution, or are we supposed to live with inefficient governments? There is a solution. And while the situation seems way too complex, the solution is fairly simple. Government needs to step out of any activity that can be handled by the private sector. It just needs to promote the private sector by setting the right policies and steering it in the desired direction. Free from all this extra baggage, governments then must focus on what they are meant to do, and what they do best – public welfare.

Perhaps having realised this, our government has already decided to privatise most of the PSUs. Though the speed of implementation of this decision is slow, it is a step in the right direction.

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