Call a person sarkari in India and see what reaction you get. It is no secret that dealing with the Government is an ominous day in an Indian’s life. Dealing with the Sarkar has never been a pleasant experience and nobody likes a colleague or a friend who has a sarkari deposition to work or life. Which is not so when it comes to dealing with the private sector. Sure, there are bad apples, but you have to option to choose a more professional experience. That’s because the government consistently underperforms the private sector when it comes to results. Airtel and Vodafone make tons of profit while BSNL’s non-existent service has been running on life support graciously funded our beloved taxpayers. The examples are endless. Most people know government is less efficient but can’t explain why. Let’s examine the reasons.
- Government workers aren’t provided with the same salary, bonus, promotion, and stock option incentives. The pay for most government jobs is controlled by statutory, union, and budgetary rules. Thus, managers have limited, if any, ability to raise salaries for the best employees. And unlike private corporations, there’s no ability to award stock options or bonuses to bring out the best effort. Promotions are usually based on seniority. Add it all up and there’s almost no incentive for workers to go above a mediocre level of work effort in government. If the smartest and best employees can make several times more money in the private sector, why would they take a government job.
- Poorly performing employees have far more job security. In the private sector, poorly performing employees lose their jobs quickly. In government, union and employee protection rules make it very difficult to get rid of a bad worker. So with no incentive for great work and limited ability to fire, government workers often settle into a minimum level of effort needed to maintain their jobs.
- Government jobs are normally boring and don’t provide the self-actualizing careers available in the private sector. Government work is usually mundane, repetitive work on a 9 to 5 schedule. Think of the RTO, Municipality, Life Insurance claim processing, permits & licensing processing, and so on. Boredom leads to a certain level of lethargy. Compare that to the private sector companies like Tata and Infosys where employees can change the world, have fun, and strive to reach their potential. It is far more likely to bring out the best in employees.
- Government agencies max out their budgets whether they need to or not so future budgets aren’t cut. Since budget deficits are exploding out of control, politicians look for anything possible they can cut. If a department managed to perform all their duties one year on 25 percent less budget, they may decide to make the budget permanently 25 percent lower. Thus, departments raise their spending to max out their budgets to avoid any permanent cuts. The last month of each fiscal year is almost always the most costly as departments rush in last minute orders to use up the unallocated budgets whether they need to or not.
- Government contracts are often rewarded as political payoffs to campaign supporters. Prices of contracts are often jacked up to reward campaign supporters. Or even worse, they’re rewarded for completely unnecessary projects.
- Contractors raise their prices on essential services because they know the government has the money to spend. Economics are governed by the laws of supply and demand. For example, government will always allocate money for education, defense, health care, and utilities regardless of how much they cost. The providers of these services know it and hike their prices accordingly. It’s part of the reason we spend so much on infrastructure all we get are substandard pot hole ridden dirt tracks. Why do you think no one want to send their children to government schools?
- Inefficient programs often have their budgets increased to “fix” the problem. Only in government can you be rewarded with more money for poor performance. A perfect example is education. To “fix” the problem, politicians push for greater spending. Performance drops further. Even more money needs to be spent to fix the problem, right?
- Money is often spent for political reasons rather than any justifiable business expense. Regardless of how much spending is needed or the cost/benefit ratios, it’s political suicide to make budget cuts in certain areas (e.g. defense, medicare, agriculture, education, etc.). Also, particulars of various programs are made for political reasons. For example, most people would agree that giving free money and food does not lift people out of poverty, it only makes them dependent on the welfare schemes and destroys job market.
- Politicians can pass laws requiring citizens to pay for certain items which disrupts supply and demand economics. For example the Minimum Wage, Infrastructure Tax, Clean Energy Cess, etc. A different tax is levied on petrol and diesel cars which heavily distorts the market. It’s no surprise that higher minimum wage has not resulted in lower unemployment rates. As it gets expensive to hire labor, industries trying to provide best products at minimal cost, do not hire more than absolutely essential.
- The culture of government offices isn’t geared towards high-efficiency or excellence. Try visiting almost any government office and then immediately go to a private sector office. Observe the pace and efficiency of work. Observe how often in comparison employees stand around talking. Private companies cannot get away with consistently poor work habits since competitors would eventually run them out of business. The culture is very different in government with the guarantee of continued operation.
- Politicians often micromanage and make decisions that should be left to experts and those more knowledgeable of the area. There are endless examples where politicians stuck their nose in areas they know little about. Indians are especially great for that. For example in the current government, Mr Ravi Shankar Prasad who is the Minister for Electronics and Information Technology has no domain knowledge of technology. How else can one explain why the Indian Government employees are using Gmail and Google services. Hardly ever has a government in power elected ministers with domain expertise.
Simply put, to get the most out of limited national resources, government should only be in charge of services that can’t or won’t be provided in the private sector (essentially, nothing). Throughout history, you can almost plot a perfectly inverse relationship between level of central government control and national prosperity. It’s why socialist and communist nations inevitably struggle economically while free market ones thrive.
“The best minds are not in government. If any were, business would hire them away.” — Ronald Reagan
Adapted from Joe Messerli