‘Government Failure’

عدم موفقیت دولت

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Participants •Government •Theory •Institutional Economics •
Posted by Rezwan • Apr 16, 2009 • (0) Comments •
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The concept of "government failure" arose in the 1980s. It is not concerned with criticism of government regulations. Rather, it seeks to describe "government failure" along similar lines as the idea of "market failure."

In Property Rights, Planning and Markets (pp 65-7), we find an outline of five sources of 'public failure':

1. voter ignorance: voters do not tend to obtain costly information except on issues that are important to themselves only.
2. the power of special interests: well-informed and articulate interest groups will dominate the political process and receive political favours; [related to rent-seeking]
3. the short sightedness of elected officials - election time frames tend to take priority over long-term efficiency in decision making;
4. lack of incentive for entrepreneurial efficiency - government officials are in a weak position to recoup any personal gain from improved efficiency; and
5. imprecision in the reflection of consumer preferences -- there is little opportunity for individiuals to pick some of one candidates' positions and some of another's. Policy bundles tend to reflect a majority coalition (Gwartney and Stroup, 1982)

In sum, voters are ignorant of the issues, special interests are not, and can thus manipulate the political process. There's no incentive for politicians to think about the future or to be efficient or creative in their work because to stay in office, for the most part they need to please special interests. Creative bundling of policies also makes the problem worse for voters and better for special interests.

As a result of these natural tendencies, governments fail. Government failure appears as:

1. Failure to address market failures (and tendency to make market failure worse);
2. Creation of ill-thought out market distortions;
3. over-regulation and over-taxation
4. over-participation

How can there be over-participation? According to this book,

To promote public involvement in the government decision making process, the scope and depth of public participation has expanded. The purpose is to facilitate government in obtaining more accurate information and to enhance the legitimacy of government decisions. However, the expansion in public participation, if not properly constrained, raises the costs of transacting with government, creates opportunities for rent seeking which often infringe the rights of the less powerful and can inhibit government responsiveness and spontaneity.

I'm a bit skeptical of this, and would like some examples. Then again, having sat in on some mind-bogglingly tedious public meetings I can see that over-participation could result in numbing the public and turning them off to the process. If not done properly, "participation" is avoided by both government officials and voters. The government officials realize anew how much easier it is to deal with a few, well organized special interests, and the voters will fall back into ignorance rather than waste their time "participating".

The rules that governments devise also have a tendency to fail.

Some rules fail because they are inappropriate instruments to achieve desired effects; others because their system-wide impact was not thought through; and others because of unanticipated events. All of these are problems of inadequate information. In the absence of market prices as revealed preferences, the planner and policy maker must find other proxies to measure individual and public interest. Thus, a key cost of using the plan is the cost of trying to ascertain the true preferences of the individuals, This is, however, a formidably costly task.

Why talk about the mechanisms behind government failure and rule failure? It's important to know the forces at work here.

Can all these problems really be reduced to "inadequate information", and a lack of knowledge of "true preferences"?

If so, what does that mean for the planner?

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