Monday, October 08, 2007

Using the Wrong Tool for the Job

People have long known that government agencies perform poorly when compared with the private sector. Despite the abundant examples of people being poorly served by the private sector, empirical studies show that government agencies perform far worse. Not only do government agencies operate in a cold and emotionless manner, but their productivity and efficiency levels are deplorable in comparison with the private sector.

None of this is to say that people working for government agencies are bad, lazy, or uncaring people. That’s not it at all. However, they are stuck in an environment where all of the caring and hard work in the world simply cannot overcome the organizational culture. All of this has been studied and well documented by organizational behavioralists.

MehRan Rastakhiz, PhD has a short paper that discusses the shortcomings of the bureaucratic structure. Dr. Rastakhiz cites a number of studies to support his discussion. He notes that private sector organizations used to be similar to public sector organizations. But the private sector has evolved away from the bureaucratic structure to “fluid networks reinforced by core values of empowerment and learning.”

Consequently, private sector organizations are becoming more “holistic,” “environmentally aware,” and “publicly conscious.” Government agencies, on the other hand, are “steeped in historical tradition” and “continue to operate in isolated, mechanistic, and emotionless ways.”

Dr. Rastakhiz includes a brief, but decent discussion of the important role that government organizations play.

“Governments … maintain control, make the rules by which organizations operate, and retain the monopoly of legitimate coercive power. Often, they are the stable guarantors of open and fair dealing …. Governments facilitate the establishment and enforcement of the fundamental understandings necessary for action: who is entitled to what uses (use rights); who may legitimately sell products, land, and equipment (ownership rights); and what actions are acceptable (contract law).”

So now we know that governments are important and that government agencies are stifling bureaucracies. Dr. Rastakhiz encourages government agencies to make actual cultural changes and break out of the bureaucracy mold to gain the advantages found in private sector organizations. He mentions a number of initiatives (“incentive programs”) underway that aim to accomplish this by “select[ing], recruit[ing], and train[ing] a new generation of managers and leaders.”

In other words, Dr. Rastakhiz feels that government agencies are capable of changing from the bureaucratic style of organization to a more dynamic style. All they need are incentives. I mean, why shouldn’t they be able to make the shift to become more like the private sector? The private sector was once bureaucratic, and it has made the jump. Why can’t government?

The answer to these questions lies in Dr. Rastakhiz’s discussion of the role of government. The private sector and the government play dramatically different roles. Government is the maker and maintainer of the rules — the laws that govern society. Bureaucracy is a hierarchical system based on laws, written rules, and clearly defined career paths, among other things. It is the type of organization that is best suited for implementing and administering laws. Flexible, dynamic organizations are well suited to meeting customer needs, but are ill suited for implementing and administering laws.

Dr. Rastakhiz wants to make a dog out of a cat. He’s not alone. People argue all of the time that you can make government more productive, efficient, and customer friendly if only you have the right elected and appointed officials. If you have this nirvana cadre of individuals, you can certainly improve government, but you can never make it something it is not. You can hire the best trainers in the world and get your cat to do some of the things a dog does, but you will never turn your cat into a dog.

While promoting incentive programs, our good PhD conveniently failed to mention research, such as this 2002 University of Albany study that found no evidence that these programs (some of which have been going for more than 20 years) produce any desirable results or even have the potential to do so. This is because they are fighting a losing battle. Government agencies can be improved, but you cannot make them into something they are not. The primary role of government simply precludes this possibility.

Today, many people are clamoring for government to do more than it ever has in the past. Many people, for example, seem willing to entrust government with our health care because they are fed up with the problems in the current system (many of which stem from current government intervention). Unfortunately, confidence in government to adequately manage these types of programs is ill placed. We are asking a system whose main purpose is laws and rules to step in and provide services that in no way fall into its designed roles or competencies.

This kind of thing begins with the best of intentions, but the goals that are sought simply cannot be achieved through the tool of government. You may be frustrated with the performance of your screwdriver, but dumping the screwdriver in favor of a hammer is going to produce a worse result. The same is true when we assay to use government for purposes for which it is not suited.

This is why I favor limited government, as did our Founders. Government should stick to the business for which it is suited and should keep out of endeavors for which it is poorly suited. When we use government for the wrong purposes, it results in coercion, oppression, and limitations on liberties that each of us should regard as precious.


Democracy Lover said...

Cameron, I don't know if you work in corporate America as I do, but if so you are probably aware that efficiency and cost-effectiveness are hardly hallmarks of private industry these days. In fact, I find over and over that private for-profit corporations are making decisions based on executive whim, the last good sales pitch, or posturing for a promotion more than on sound business principles.

As for the application to the health care debate, this is where the analogy breaks down most. If there is a prime example of bloated bureaucracy in private business, it is most certainly in the health care insurance business. In fact, the inefficiency of the claims processing apparatus is completely intentional - it reduces or delays expenditures. When you consider that each of several competing companies has their own unique bloated claims bureaucracy, the burden falls on health care providers who must hire large administrative staffs of their own just to insure they are paid.

In a single-payer health plan, the only plan worth considering (although the "major" Dem candidates all have bizarrely complex alternatives), the current mishmosh of competing private insurers (competing to increase profits, not to serve insureds or providers) would be replaced by a single entity with a single set of forms and policies. Since the objective of a government insurance plan is to process claims and pay providers as rapidly as possible, even if it were somewhat inefficient, it would be far better at achieving those goals than the current system.

I would also question whether we really want government to operate in the "more dynamic" style of private industry. That style is designed not to produce higher quality goods and services, it is designed to maximize profits. This is most certainly the case with private health insurance.

Reach Upward said...

I'm Scott, not Cameron. I work in private industry, but I have worked for the bloated bureaucracy both as an employee and as a contractor. Nobody is arguing that private industry is the paragon of perfection when it comes to efficiency and customer focus; however, multiple empircal studies show that private industry consistently far outperforms the best government agencies in these respects.

Nor am I arguing, as does Rastakhiz, that government should adopt all private business practices. Indeed, I am arguing that this is impossible.

The health insurance industry obfuscates the provider-consumer relationship so that the patient is not the provider's actual customer. That's a problem. This is why I mentioned health saving accounts in this recent post.

The single-payer system with which folks on the Left are so enamored would only duplicate the huge mess they have in other countries with single payer systems and would amplify the problems with our current insurance- and government-obfuscated system.

As GMU Econ prof Don Boudreaux recently wrote, "The elemental problem is that more and more people feel entitled to vast quantities of high-quality health care paid for by someone else. And politicians, ever lusting for office, are only too happy to conjure the ridiculous illusion that A will get top-flight service from B when C is forced by G to pay the bills."

Democracy Lover said...

Sorry Scott - got mixed up there. Actually the single-payer system enhances and clarifies the relationship between the patient and the provider. The provider's motivation becomes quality of care and overall patient health instead of cost-cutting, currying favor with the insurers, and maximizing profits.

If you look at the relevant data (actual health of the population, available of care, etc.) the major industrialized nations with government health care all surpass the United States.

Every American, like every human, is entitled to receive decent health care when needed. The role of government is to make sure that right is defended in spite of the failure of the private health care marketplace. This is not an ideological debate it is about morality and human rights.

Reach Upward said...

The only thing a fixed payer plan can guarantee is equal access at the basic coverage. This works great for healthy people. It doesn't work so great for people that really need help.

I saw how badly this worked when I lived in Norway. This all starts with very good intentions, but the system soon becomes one mess of shortages. Politicians mandate certain levels of coverage, which the system soon proves incapable of fully delivering. In the end, everyone gets the same crappy level of care except for those that buy up.

Democracy Lover said...

I don't understand why you believe a single payer system restricts everyone to "basic care". The decision about what care should be provided is one that is properly made between a patient and provider based on the needs of the patient, not on ability to pay. If we remove the huge bureaucratic oppression of the private insurance industry, physicians are free to make their decisions solely upon their professional expertise and their understanding of the patient and their needs and desires.

I have not experienced the health system in Norway, but if it has issues then we should learn from their experience and design our solution to avoid them. We should not simply reject the only viable option for fixing our health care system because some other country has a less than perfect solution.

Reach Upward said...

The problem is that the patient is not the customer. The government is the customer. And just as insurance companies today interfere and tell doctors what they can and can't do, the government ends up regulating what doctors can and can't do. We already have this problem with Medicare today. Only when the patient is also the customer does the relationship actually work.