The Inherent Inefficiency of Government Bureaucracy

The Inherent Inefficiency of  Government Bureaucracy - Howard Lipset, CPAThere are few who will disagree with the fact that, in recent years, the governmental bureaucracy has grown dramatically while its efficiency has deteriorated in an equally dramatic manner.

From 1952 to 1972, the cost of the public payroll multiplied more than fourfold, from $35 billion to $150 billion. The 330% increase over that period exceeds the 247% growth of employee compensation in private industries ($161 billion to $557 billion). In 1952, the average worker in private employment earned 5% more than his counterpart in government. By 1972, he had fallen 10% behind.

The growth of the government bureaucracy has been accompanied by a decrease in its rate of efficiency. Consider several examples.

Employment in the Department of Agriculture went up 47% between 1952 and 1972 (78,000 to 115,000) although the number of farms in the U.S. dropped by 45% (from 5.2 million to 2.9 million) and the farm population shrank 56% (from 21.7 million to 9.6 million). More significantly, the cost of stabilization of farm prices and incomes multiplied nearly seven times in this twenty-year period from $689 million to $4,243 million.

In the Internal Revenue Service (IRS), the staff grew 28% between 1952 and 1972 (56,336 to 72,085), almost parallel to the number of tax returns filed, which increased 26%, from 89 million to 112 million. Yet, the number of tax returns per employee dropped from 1580 to 1554, even though during this same period the IRS underwent its most intensive computerization and mechanization. At the same time, audits declined from 4.4 million to 1.7 million and delinquent notices from 19.8 million to 8.8 million.

The evidence is persuasive that government bureaucracy is inherently inefficient precisely because it is not faced with any of the forces of private business management. A bureau is not a profit-seeking enterprise; it does not make use of any economic calculation.

No reform can remove the bureaucratic features of the government’s bureaus. It is useless to blame them for their slowness and slackness. In the absence of an unquestionable yardstick of success and failure it is almost impossible to find that incentive that the money calculus of profit-seeking business easily provides. All such deficiencies are inherent in the performance of services which cannot be checked by statements of profit and loss.

This blog was originally written 8 years ago. It is frightening that the situation has only gotten worse.

Howard Lipset, CPA
Progressive Management, Inc.
(516) 883-2962


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