Balkinization: Has self-interest really been abolished as the primary motive of economic activity?

Comments:

Having been a civil servant, I can assure that we did not sit around discussing the public good. Our concerns were limited to what was good for our agency, our agency head and the elected officials who appointed our agency head. And when it came to our agency's functions, we always thought money was a good thing.

# posted by

sean : 8:44 AM

Sean,

I do not know which agency you worked for, but in mine (USCG) we tried to do a good job for the public. If we didn't, someone could die - a sobering non-market driven thought indeed.

# posted by

RLN : 9:11 AM

Sean,

Perhaps you could explain how the interests of the agency you worked for diverged from the public good.

# posted by

Rich : 10:23 AM

Many political scientists, especially those who subscribe to "social choice" theory, would agree with Sean that bureaucrats are also out to maximize their own agencies' interests (as well as their individual interests). One consequence of such a view of the world, though, is that it obviously becomes impossible to trust any "agent" (such as your babysitter) actually to subordinate his/her own interests to your own. That is the subject for another day (and, of course, it has already been the subject of many books).

My question is this, and it is a mix of a rhetorical and a real question: Is it possible that the civil service tends to draw people who are more disposed to subordinate their private interests to some notion of the collective good, at least as defined by bureaucratic superiors, Congress, or the President, than those who go to work for private corporations? If I were to ask this question about the military, I assume that conservatives on the list would be the first to say that the US Army is composed, by and large, of genuine patriots. Why else would they risk their lives for inadequate salaries while? If we credit the (relative) selflessness of members of the military, why shouldn't we equally admire those who choose to go into what used to be called "public service" via local, state, and national bureaucracies?

# posted by

Sandy Levinson : 10:41 AM

But they do think that about the military. The Army has been outsourced almost as much as the rest of the government. Contractors are responsible for supplies, logistics, and "private military companies" (PMCs) take part in what can only be described as combat roles.

If you ask for an ideological argument in favor of privatizaiton, it is that competition will produce better options. The contractors are looking out for themselves, and whoever chooses between them will look out for the national interest in ensuring price and quality. The real question, then, is why we trust that person or agency to do the right thing when we do not trust government to provide the services itself. The last six years have shown that it is just as susceptible to corruption--if not more so. Under Bush, of course, there is no competition, and cronyism is as important to allocating contracts as price and effectiveness.

# posted by

Andrew : 11:17 AM

How did the interests of my Agency differ from the public good? Well, for example, to the extent that the agency bosses wanted to do something of dubious legality, like implementing an affirmative action, we conceived it as our duty to find ways to do it, not hew to a strict interpretation of Hopwood and Croson. When formulating budget requests, we never considered whether other agencies and/or the taxpayers might have better uses for the money than we did; we lobbied for as much as we thought we could get. Ditto when it came to program administration: we never asked whether another agency might do a better job administering a particular program; we always sought to maximize our own role.

Regarding Prof. Levinson's question, my view would be that non-military agencies tend to attract people who value job security and well-defined roles over high compensation and a fluid environment. It's silly to claim that they are morally superior to people in the private sector.

# posted by

sean : 11:24 AM

This is precisely why government cannot be run like a business and where the CEO model of government goes off track. The metrics are different.

A recent case showing how far this mindset goes from here in Maine, where the Baldacci administration is merging many aspects of licensing and oversight into the economic development agency. Fox and hens and all that.

# posted by

dryki : 11:28 AM

jt davis, you must not be understanding me. You question my view that government agencies (other than the military, of which I have no first-hand experience) tend to attract people who prefer security and well-defined roles to fluid, high-risk/high-reward environments? (I should add that, for my professionals like myself, government agencies attract people who prefer 8 hour workdays.)

I should add that, in my experience, government employees are not less prone to petty cheating than private sector employees. (I have never had a job where I encountered large-scale corruption or fraud.)

# posted by

sean : 12:47 PM

I do not doubt that Sean's description of the bureaucratic mentality is correct. But is it necessarily limited to government bureaucracies? Large corporations also have large bureaucracies. Are there not any number of corporate bureaucrats who think more about advancing the interests their own (corporate) agencies, pleasing their agency bosses, and maximizing funding for their own department than of maximizing profits for shareholders?

# posted by

Essayist-Laywer : 3:08 PM

Enlightened Layperson

I would think that some of the corporate fraud cases of the early 'aughts would show that that sort of mentality can reach to the top of the corporate world. Also, what incentive does an executive have to truly perform well if, when they tank their company, they receive a multi-million dollar, tax deferrable buyout to get them to leave early?

Going back to dean, remember that prior to 9/11, airlines fought tooth and nail to prevent secure cockpit doors because of the expense, but they would likely have been a better way to stop the hijackings than any other measure since implemented.

I also agree with Sean that most government agencies seek to expand their budget, then expand their acitivities to fit their budget. My real world example, HHS bought multi-million dollar mansions in the Houston Galleria area to house unattended illegal immigrant minors, when they could have bought homes for probably 1/5th the price in other Houston neighborhoods with more space and better facilities (I saw one example that would have been under $500K).
RLN, but during an exercise, the USCG got in a turf fight with the FBI over who had priority in the test case, a hijacking of a ferry with commuters aboard. IIRC, about half of the alloted exercise time was taken up over the turf fight as opposed to planning a response. Your example may be true at the lower levels, but near the top some of the attitudes may be different.

# posted by

Fraud Guy : 4:02 PM

I'm not sure exactly the point of referencing affirmative action here, but it not too surprisingly touched a button here. Likewise, if you do so, maybe using an appellate decision not taken for review and a locality case is not the best ones to cite anyway.

Second, it is a bit naive -- and the military cite by conservatives really just underline the point -- to think public agencies would necessarily take the public interest at heart more than the private. We might also have a debate what the 'public interest' really is -- see criticism of the Bush Administration.

It does underline, however, that when private companies affect the public interest, it is essential for the government to properly regulate it. The concern over oversight of Bush agency action underline the need is universial.

Finally, per SL continual lament, a query. I recall that SL suggested at least in one discussion that a 'no contest' vote warranting some sort of new election very well might require a supermajority vote in an ideal system. Would such a vote pass?

Or, does he wish a strict majority rule, so that when a majority of Congress votes (given the current majority, would they? some on the edges are a bit conservative) 'no confidence,' the desired end would occur?

Finally, if desired, under our current system, Bush can be removed. If the will was present. If the public demanded it in significant force. he fact SL thinks the arguments are too "legalistic" (torture etc.) notwithstanding.

Anyway, please, a counter to count down the days is quite easy to put on the side panel.

# posted by

Joe : 7:25 PM

I'm not an expert, but I believe that the US Code requires civil servants to take an oath of office with attendant legal obligations that government contractors do not (TITLE 5 > PART III > Subpart B > CHAPTER 33 > SUBCHAPTER II > § 3331).

This seems to effectively insulate contractors and their employees from at least a certain class of restraints imposed on federal employees. Not sure what those restraints might be or if this actually plays a role in decisions to privatize, but it would be interesting if someone who knows would comment.

# posted by

Sam Thornton : 8:21 PM

A superb article in Sunday's New York Times elaborates the way that the federal government is increasingly "privatizing" basic functions of government by hiring corporations. Much could be said--indeed, Paul Krugman has an apt column in Monday's Times--but the really key point is made by David Walker, the Comptroller General of the United States: “There’s something civil servants have that the private sector doesn’t. And that is the duty of loyalty to the greater good — the duty of loyalty to the collective best interest of all rather than the interest of a few. Companies have duties of loyalty to their shareholders, not to the country.”

Private market buffs are caught in an intellectual bind, which is to explainwhy Mr. Walker is wrong. After all, the basic argument of market economists is that made by Bernard de Mandeville in the 18th century, that "private vice leads to public virtue." I.e., people motivated by crass self interest will nonetheless serve the public good by inventing products and services that other people will want to buy.

The problem with Mr. Walker's statement is not with his conclusion that private companies act out of self interest, but rather with the nearly laughable presumption that your average civil service bureaucrat has a "duty of loyalty to the greater good — the duty of loyalty to the collective best interest of all rather than the interest of a few."

In general, people are rational beings who work in what they perceive to be in their own best interests. In the private market, self interest and the common good intersect because businesses create goods and services which make life better for society at large. While businesses naturally act in their self interest by seeking profits, businesses must first comply with the wishes of the consumers of their products. Otherwise, their consumers will take their business elsewhere and there will be no profits.

The problem with the government civil service is that they lack the accountability to their consumers which is present in a private market. Civil servants will get paid regardless of how poorly they serve their consumers. Firing a civil servant for poor work is nearly impossible. Moreover, consumers of government services have no alternative except foregoing the service altogether, which is hardly in the public interest.

Contracting out the provision of government services to private companies can provide accountability if the government holds them to task for any failures in service. Unlike the civil service, the government can fire a private company. However, if the government does not hold the them to account, private contractors are little better than the civil service.

# posted by

Bart DePalma : 10:04 AM

This article makes a mistake to conflate the interests of the shareholders and the interests of the employee's family. The distinction is essential, because it shows the strengths and limitations of the neoclassical point of view. To the degree to which these interests coincide, you have people working for both interests. The problems occur when they do not coincide.

The same can be said for public sector employees. You have two interests: the interests of the shareholders (i.e. the American public) and the employee's private interests. To the degree these two interests coincide, you have civil servants working for the public good. But, again, this will not always be the case.

So it appears at first glance that Friedman et al. are being inconsistent by having private employees working for their
"public" good, while public employees are working for their "private" good. Friedman however would respond that there are structural differences in the way that private and public entities operate.

One important such difference is flexibility, in that private companies have more flexibility to adapt to changing circumstances. However, this does not necessarily align the interests of a corporation and its employees--it just makes the company as a whole run more efficiently.

For purposes of this issue, the only important difference I see is job security. One could argue that less job security there is present, the more likely the interests of the company and the individual are aligned. However, this will not always true, for as the main character Peter said in "Office Space," "This just motivates me enough to avoid getting fired." This does not create the strong coupling between interests that economists love.

# posted by

Zathras : 10:51 AM

Prof. Levinson mischaracterizes the argument of Mandeville and Smith. The central idea is that individuals pursue their own private interest with NO regard for the public interest. By buying from and selling to one another, two people make each other better off than either one was alone. In Smith's argument, these "gains from trade" also allow people to specialize in doing whatever it is that they do best. This leads everyone to be at their most productive, and also allows the widest possible variety of goods and services into the marketplace. The public interest is served by making everyone more prosperous and by allowing them greater freedom to choose when, where and how to spend their time. (Interestingly, formal modern economics has only just begun to deal with the variety benefits of trade.)

Where these gains from trade based on pure privately-interested actors does NOT result in improved outcomes for the public taken as a whole is when there are "externalities," i.e. benefits that accrue to or costs that are borne by others who are not parties to the transaction. It is in dealing with these externalities that economists argue that governments, in certain cases, should get involved.

Neither Mandeville nor Smith nor virtually any other economist would argue that market actors do (positively) or should (normatively) have the public interest in mind. In fact, they would argue that, to the extent externalities cannot be internalized by further exchange between self-interested market actors, then dealing with such externalities is one of the things the government is for.

# posted by

Unknown : 7:33 PM

We call such people entrepeneurs, who serve a vital function in our society, but no one really believes that Michael Dell is motivated to serve the country rather than, at best, the shareholders of Dell. (And free marketeers always have a problem with "agency costs," explaining why corporate managers who may own relatively little stock will put the shareholders' interests ahead of their own with regard, say, to compensation packages and perks of office.)

Not only does the piece likely overstate the "public-spiritedness" of public servants, but it oversimplifies, grossly, the motivations of entrepreneurs. Michael Dell qua CEO of a mature company is not the Michael Dell who revolutionized the process by which computers are brought to market. For real inventors or entrepreneurs, providing a return to shareholders is not the motivating factor, because very few inventors and entrepreneurs start with shareholders (and I'm not sure return to the shareholders is a prime motivating factor even when there are shareholders). It is the process of creation from ideation, the very birth and nurturing of an idea. The commitment is neither to self, nor shareholder, nor country, but to the scratching of the creative itch, and to the fulfillment of the dream.

# posted by

Jeff Lipshaw : 11:34 AM

This post strikes me as a non sequitur from beginning to end.

We call such people entrepeneurs, who serve a vital function in our society, but no one really believes that Michael Dell is motivated to serve the country rather than, at best, the shareholders of Dell.

And what of it? The whole argument of Adam Smith is that the butcher and the baker serve us with goods that we need, not out of charity but out of self-interest.

If Mr. Walker is wrong, then we would expect free-market economists to applaud company management and workers who regularly ask "is this good for the country" rather than "is the good for shareholders and the economic interests of my family."

Huh? Free-marketeers would think that Walker is wrong, not because he attributes self-interest to entrepreneurs, but because he (1) attributes higher motivations to government bureaucrats, and (2) assumes that such higher motivations are relevant to the actual results.

Is Friedman's insight now rejected by free-market conservatives?

No, and I can't figure out anything in the blog post that suggests otherwise.

# posted by

Stuart Buck : 11:32 AM

@ bart depalma

The problem with the government civil service is that they lack the accountability to their consumers which is present in a private market. Civil servants will get paid regardless of how poorly they serve their consumers. Firing a civil servant for poor work is nearly impossible. Moreover, consumers of government services have no alternative except foregoing the service altogether, which is hardly in the public interest.

Contracting out the provision of government services to private companies can provide accountability if the government holds them to task for any failures in service. Unlike the civil service, the government can fire a private company. However, if the government does not hold the them to account, private contractors are little better than the civil service.

That's precisely correct, and it's an open argument, I think, if it'd be better to simply improve the accountability of the civil servants (e.g. by making it easier to fire or otherwise reprimand them) or to hire contractors under a contract which enforces accountability.

In practice, I think it's largely a wash... either way, SOMEONE needs to be held accountable, and the biggest problems we see are cases where NO ONE, civil servant or contractor, was.

# posted by

k : 4:56 PM