Bryan Caplan  

Why Do Government Enterprises Work So Well?

Intellectual decay... Markets and Prices Allow Us To...
When I was in high school, Murray Rothbard's analysis of government ownership was a revelation.  Why was my high school a den of waste, incompetence, and stagnation?  Because it was a government enterprise!
On the free market, in short, the consumer is king, and any business firm that wants to make profits and avoid losses tries its best to serve the consumer as efficiently and at as low a cost as possible. In a government operation, in contrast, everything changes. Inherent in all government operation is a grave and fatal split between service and payment, between the providing of a service and the payment for receiving it. The government bureau does not get its income as does the private firm, from serving the consumer well or from consumer purchases of its products exceeding its costs of operation. No, the government bureau acquires its income from mulcting the long-suffering taxpayer. Its operations therefore become inefficient, and costs zoom, since government bureaus need not worry about losses or bankruptcy; they can make up their losses by additional extractions from the public till. Furthermore, the consumer, instead of being courted and wooed for his favor, becomes a mere annoyance to the government someone who is "wasting" the government's scarce resources. In government operations, the consumer is treated like an unwelcome intruder, an interference in the quiet enjoyment by the bureaucrat of his steady income.
Twenty five years and a Ph.D. in economics later, Rothbard's words still sound like a revelation.  They handily explain everything wrong in government enterprises.  There's just one problem: Rothbard's words explain far too much.  Since graduating high school, I've seen a lot more government enterprises.  I've paid more attention to the ones I already knew.  And I've worked in a government enterprise for seventeen years.  Their performance is almost always disappointing.  But contrary to Rothbard's story, their performance is rarely disastrous.  The U.S. Post Office almost always delivers my letters in three days or less.  One hurricane aside, I always have clean tap water for pennies a gallon.  And most public school teachers put on a smile every morning and try to share some knowledge with their students.

What's going on?  Consider the following stories.

1. Rothbard mischaracterizes government employees' incentives.  Somewhat, but he's not far off.  In the public sector, the connection between pay and performance is truly weak.  Public universities, for example, are satisfied with professors' teaching as long as they demonstrate "high competence."  In plain English, that's the top 95% of the distribution, or even the top 98%.  Universities hold research to higher standards, but one lame article a year in A Refereed Journal usually suffices for tenure.

2. Elected politicians compete to make government work.  There's definitely something to this, but status quo bias is pervasive.  Voters may throw politicians out if there's a sudden decline in the performance of government enterprises.  But voters yawn in the face of eternal mediocrity.

3. Government employees take pride in their work.  In many parts of government, workers would feel bad about themselves if they fully exploited the system.  This is obvious for teachers, most of whom clearly like children.  But even most mailmen seem to care about doing a decent job. 

4. Government employees care about their co-workers' esteem. Government employees, like most human beings, don't want people around them to hold them in contempt.  As a result, a solid core of motivated government employees can use peer pressure to squeeze effort out of their careerist co-workers.  Some professors, for example, love teaching - and therefore look down on professors who teach poorly.  Fear of this down-looking impels conformist professors to do a better job. 

Am I damning with faint praise?  Sure.  Even the best government enterprises are slow to cut costs.  They're bad at innovation.  And they're almost uniformly terrible at putting aside Social Desirability Bias to answer every enterprise's most fundamental question: Is this worth doing at all?  Yet the anomaly remains: Simple economics implies that government enterprises should be far worse than they really are.

Unfortunately, I doubt the economics profession will ever take this anomaly seriously.  Left-leaning economists don't want to grant the obvious case against government enterprise - and market-leaning economists would rather reiterate the obvious case against government enterprise than calmly test it against the facts.

Update: Nathaniel Bechhofer points out I wrote a near-identical post five years ago.  I had a slight suspicion that this was so, but my search missed it.  The good news is that my thinking is consistent, all the way down to the order of explantions...

Comments and Sharing

COMMENTS (39 to date)
Steve Sailer writes:

Also, government run enterprises tend to have a lot of rules that actually serve to prevent the kind of wholesale looting we see in some instances of privatization. For example, a few years ago I read a story about neighbors in Greenwich, CN complaining that the manager of the privatized Moscow airport was building the biggest house in Greenwich (which has some rather big houses). How much has this guy pocketed from privatization?

In contrast, the salary of the head of the Los Angeles County airports (which includes LAX) has a salary of something like $450,000. Now you could say that LAX is kind of a dump aesthetically, but it sure is busy and its busyness is a big economic boost to L.A.

I'm sure the lady in charge of LAX enjoys a lot of lavish perks such as free travel to check up on other airports around the world, but she probably isn't building the biggest house in Beverly Hills off her take. There are just a lot of rules and auditors keeping an eye on her.

In Bell in southern Los Angeles County, several government officials have been convicted of stealing a few hundreds thousand dollars per year each from the residents, who are largely semi-literate immigrants who don't pay much attention to politics. That's bad, but that's not on the scale you saw on privatizations in Russia or Mexico, where Carlos Slim made himself just about the richest man in the world off overcharging Mexicans.

ASB writes:

[Comment removed for supplying false email address. Email the to request restoring your comment privileges. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

Sanjeev Sabhlok writes:

I believe the key issue is never ownership per se, but the incentives at the micro level. Government owned organisations can perform wonderfully well, as demonstrated by Singapore (see section on Tamasek in my blog post, linked below):

I've been investigating the microeconomics of governance - a subject deeply neglected by economists - over the past 15 years. Many useful insights are obtained from operating at the micro-incentives level.

If the incentives are right, then government ownership should NOT present a problem for then the citizen (principal) is directly able to achieve his/her goals at the lowest possible cost.

In most cases, however, the incentives are not right - mainly because politicians are ignorant and economists don't care about details. In those cases Friedman and Rothbard are right (even if they may exaggerate in a few cases). Those are the more common cases.

Economists are generally unwilling to examine real institutions (their incentives to publish are stacked against such detailed analysis). If they do so they'll need to examine employee contracts, funding models, etc. That's a lot of hard work. Much easier for lazy mathematicians to make wild assumptions and preach "ideology". That's an unscientific approach, however. It is time for economists to study real institutions in great detail.

Samuel Hammond writes:

In addition to the reasons you pointed out, most of what the government does follows for reasons identified by Coase. That is, in the long run (ie durable) state bureaucracies persist for the same reasons hierarchical corporations persist - transaction costs make contracting difficult and/or less efficient relative to returns to scale. Thus our frame of reference in comparing gov't bureaucrats is usually not lean and nimble start-ups, but other large [corporate] bureaucracies, so the contrast is weakened.

A second point and related you missed is that many officially gov't agencies are "commercialized" meaning they are directed to act and compete essential as a private corporation would and thus face a version of the same incentives.

Jameson writes:

Even the government is subject to some degree of market competition. Sure, we still haven't been able to break the Post Office's government monopoly, but I think we would be able to if things got truly disastrous for the average consumer (more than three days for a typical silly letter).

I like your insights in points 3 and 4, particularly 3. Perhaps because I read a bunch of Hayek and not a bit of Rothbard, I have more of an appreciation for how much spontaneous order arises through customs, which are hardly limited to market behavior. It's really important not to underestimate how much the basic moral consistency of a people holds systems together. The world really would fall apart if everything were based on material incentives, as Rothbard almost seems to imply.

James writes:

A fifth story: Government enterprises will appear satisfactory when a person who is easily satisfied evaluates his satisfaction with government enterprises but neglects to ask the pertinent question "Compared to what?"

Sometimes the comparison is impossible because it would be a crime for private parties to try their hand at what the government does e.g. hiring prostitutes under false pretenses and then locking them in cages against their will, seizing people's cars and homes on hearsay that they were paid for with drug money, etc. But even if these activities were legal, it would be rare to see private parties doing them, let alone force the public to fund such operations.

And sometimes the comparison is entirely possible. Government does in fact provide fresh water for pennies a gallon. Meanwhile the low cost has led to a state of affairs where most people find potable water so cheap that they do not hesitate to discharge bodily waste into it several times per day. Many of these same people clearly value water at much more than pennies per gallon and demonstrate this every time they buy drinking water from private sector providers at higher prices.

Brett writes:

It's not really that surprising, at least in the case of utilities and the Post Office. They are technically businesses that have to fund themselves, even if they're given both a guaranteed minimum profit and a guaranteed minimum universal service obligation. That incentivizes them towards some level of efficiency.

But even government agencies can be pretty effective at particular tasks, as long as there's professionalism, a reasonable level of accountability in hiring/firing, and low levels of corruption.

vikingvista writes:

A coercive monopoly isn't necessarily bad overnight. If it feels a need to disguise its invasions as "public service", then there is some degree of pushback, probably cultural, stemming from family and neighbors and learned notions of right and wrong. If the nongovernmental sectors are large, there is going to be some mixing of sentiments.

No, the problem with coercive monopoly is that no matter how good or bad, or how big or small it seems now, *it tends to get worse*.

Rothbard's description may be more of a long run result, but he correctly identifies the problem--that bad and abusive behaviors accumulate and congeal, because of the lack of market discipline to correct them.

But once the market culture has been sufficiently overwhelmed in society, you will see government enterprises less restrained by them, and they will start to more and more resemble those of the aging Soviet Union.

State growth and abuse are the natural incentives and will occur if they are not deliberately and consciously and sufficiently checked. Time is clearly on the side of the state, at least to the point where the state ceases to be tenable.

Tom West writes:

Honestly, at the employee level, I don't see much difference in government and private employees.

The incentives towards providing good service and personal reward (raises or job security) are almost non-existent in the private sector for most employees.

The vast majority do a good (or bad) job because that's the sort of people they are, regardless of where they work.

Private enterprises are subject to a *different* level of pressures that cause inefficiency and disastrous decisions, but in the end, I don't find there to be all that much difference between the public & private, except public failures get more press coverage.

The *only* difference that counts is that private enterprises can eventually go bankrupt, which puts a limit to the depth of the disaster (unless you're a too-big-too-fail bank). But even that's pretty close to the voters choosing a candidate who closes down a government enterprise.

I prefer private to public as a provider for most goods and services, but at least in my observation, failure can be found *everywhere*.

Lars P writes:


verb (used with object)
1. to deprive (someone) of something, as by fraud, extortion, etc.; swindle.
2. to obtain (money or the like) by fraud, extortion, etc.
3. to punish (a person) by fine, especially for a misdemeanor.

4. a fine, especially for a misdemeanor.

sam writes:

The answer here is "culture".

In the short run, most people do not respond to incentives, they just follow their cultural script. People in this culture are expected to take pride in their work be trustworthy, and government workers, having been raised in this culture, attempt to do so.

Many of the most frustrating stories about the government are not those of shiftless employees taking advantage of the system, but hard-working employees who are trying to do their job, but get stymied by the system.

In the long run, incentives slowly shape the culture.

After half a century, you end up with the Soviet Union, where they pretend to pay us and we pretend to work. Sadly, even after the fall of the Soviet Union, the low-trust culture persists there, and it will take another half a century or so to restore it.

ilya writes:

In the public sector, the connection between pay and performance is truly weak.

Here's one more explanation: incentives between you and the government employee can be aligned to surprising extent.

Example: imagine you need to get a birth certificate and you need to do it in person. You're sitting across the government employee. You want to get the job done and get out ASAP. Guess what — that's likely the same thing the employee wants.

Arguing with you, or making you come later with another set of documents isn't in the interests of an employee.

While having a nice and pleasant day as a human being by politely interacting with customers is in the interests of the employee (especially if you hold monetary compensation constant; also the system self-selects for people who enjoy fixed income).

Note how this logic breaks down:

  1. When the costs are more asymmetrical (e.g. you are waiting in the queue for an employee to become available, see under "DMV"; but note professors don't usually interact with the underfunded parts of the system)

  2. When the task can be performed in different ways, and so performing the basic minimum is in the interests of the person behind the counter (e.g. police not taking mugging reports)

  3. At the management level (if the person didn't take your documents, you'll make another appointment with her/him, no the boss).

Surprised this analysis is not mentioned in the original post.

David writes:

Operating pretty well makes it seem there could be a high amount of opportunity cost associated with these entities

Dan W. writes:

Government enterprises can be simply assessed as some form of monopoly. The greater the monopoly the worse its performance.

Consider the post office. It operates in a very competitive market. Sure the post office has a monopoly on delivering mail to a mailbox. Big deal! As a consumer I can choose to do business electronically or I can choose between several national delivery firms. If the delivery is local there are other options. If my local post office performs well I will choose it. If not I will choose other delivery options. The consumer is not captured by the post office.

But the taxpayer is. That is the problem with the post office as a government enterprise - by law it can't go out of business and the taxpayer is on the hook for its losses!

Public schools have more capture of the consumer market but they still do not have a complete monopoly. Not only are their private schools but people can move and leave a poor performing school for a more desirable one.

But as a taxpayer public schools can be an expensive problem. It is easy for public school employees to lobby politicians and perpetually make the case that more money is needed.

By and large I believe the greater general threat of government enterprises is to the taxpayer - they simply do not make the most efficient use of the money they have. What is needed for failure to be an option.

Hugh writes:

Let's look at the Post Office a bit closer.

In Victorian England letters were delivered within 24 hours, so a 3-day delivery ("usually") isn't all that high a standard to live up to.

Secondly, the Post Office hasn't been a great innovator: hence UPS, DHL and all the rest found unserved niches in the Post Office's space.

Thirdly, the Post Office can serve as a source of political patronage due to the large number of not too demanding jobs that it can offer. The Post Office workers must then pay a portion of their salaries to a Union that then launders the cash back to the political patrons. I don't know if this happens in the US, but elsewhere it's common enough.

Greg G writes:


>---"No, the problem with coercive monopoly is that no matter how good or bad, or how big or small it seems now, *it tends to get worse*."

If I understand you correctly the ratification of the Constitution was a giant step towards making things worse then and things have gotten worse ever since.

How then to explain the fact that there is so much more freedom and prosperity in America in our generation than any previous era?

Apparently "a long run result" takes a lot longer than 225 years to develop.

David E. Shellenberger writes:

"The U.S. Postal Service ended the June 30, 2014, quarter with a net loss of $2.0 billion, compared to a net loss of $740 million for the same period last year. The Postal Service has recorded a loss in 21 of the last 23 quarters..."

RPLong writes:

Commentator "David," above, makes an excellent point.

I think Caplan's analysis overlooks something important: Existence. That is, regardless of how well an agency performs, if there is no market justification for the service it provides, then all we are talking about is an agency that wastes less money than an even worse agency might waste.

A clear example of this is government advertising. Governments spend tax money advertising services that they spend tax money providing. Why?

Seth writes:

Great point.

I think Adam Smith explained some of it in "Theory of Moral Sentiments," especially concerning personal interactions between and among people in gov't and outside of it. There's more than financial incentives at play -- there's the senses of prudence, propriety, benevolence and justice that come into play. Teachers, for example, even though they get a paycheck from the state, they still have to face parents often.

I also think competition plays a factor -- more so at local levels -- not just with election choice, but also in the choice of exit, especially in areas where it is relatively easy to move between different local governments.

Also, at local levels, you get more benefit of lots of natural experiments (Taleb) which every now and then yields a successful innovation that can then be easily adopted by other local governments, if it makes sense for that locale and (this is maybe even more important) not adopted if it doesn't make sense.

I think it's important to not fall into the trap of categorizing activities too strictly into gov't and private.

I think it's more important to determine to what degree the system is top-down vs. bottom-up.

Finally, as far as the Post Office goes, there's a couple of points worth mentioning. Most of its expenses are funded by users, not taxpayers.

Second, getting a letter delivered in 3 days may seem adequate, but we don't know what it would be like if there was more competition in that market.

Robert writes:

There is also the obvious point that Rothbard missed, namely that private sector works don't get a share of their firms profits either. So if you criticise public sector bus drivers and teachers for getting paid the same regardless of whether they do a good or bad job, then private sector teachers and bus drivers suffer the same flaw.

There is also the point hinted at in the OP, that people are motivated by more than just money and maximising profits. Making money isn't the only or even the main reason why people become nurses, teachers etc.

Terrymac writes:

Compared to what?

Government schools have had soaring costs, with stagnant performance. Meanwhile, home education is rising rapidly; home-schooled students score, on average, at the 85th percentile, and some are just rocketing along. Consider Eric Demaine, who began college at age 14, and obtained a PhD at age 20. No government schools teach math at the pace of truly gifted students.

I submit that we truly have no idea what is possible in the field of education. Home educators report that their students often learn with dazzling speed, in minutes rather than hours; days rather than years.

At a Sudbury Valley school, an instructor covered six years of math in 20 hours. He brought these results to an expert in math instruction, who yawned. His reaction? Math isn't hard; teaching children who hate school is the problem.

Well, if students hate being forced to learn, and force slows down the process by a factor of 100, why are government schools not learning to adopt more efficient tactics? We could discuss Public Choice Economics, or simply observe that, to a person with a hammer(the use of force), every problem is a nail(requiring the use of force).

vikingvista writes:

Greg G,

"Things"? You mean like frozen pizzas, stardust, and situation comedy? Could you be more inclusive?

You've posted similarly before. You seem to be of the strange and unshakable belief that all things are government, and government is responsible for all things.

But the answer is yes, the Federal government was larger and more abusive than what preceded it, and has continued to get larger and more abusive since. I wasn't aware that this observation was particularly controversial.

Politics Debunked writes:

Some posters already asked "compared to what?", it is the issue of the "seen vs. the unseen". I'm sure many people in the former Soviet Union who knew nothing about life in free market economies were persuaded that the government was doing a great job when it provided any food at all. We have no idea what sort of innovations might have been created to address various problems that government not "solves" if the private voluntary sector had instead been left to compete to solve the problems.

Despite all the ways that public choice theory and related ideas explain that government doesn't necessarily work for the public's best interest, there is at least some pressure for it to do so even if limited. Scattered media coverage of problems and occasional election of supposed reformers probably does give government entities some incentive to not perform *too* badly or risk being abolished/reformed. The very fact that many people don't understand public choice theory well enough may lead them to be too likely to fear political consequences if they are to incompetent or too obviously cater to special interests. There is a limited amount of comparison done between entities in different states&cities which does provide some pressure for improvement and lessons to be learned.

In addition the innovations of the free market do prop up the productivity of the private sector, and its examples that are visible in a country with a large free market provide at least some examples for the government to learn from or incentive for them to not be too bad in comparison for fear they will be reformed.

The fact that not everything is a complete disaster isn't that surprising if you don't assume the very worst about humanity. In addition much of the rise in the size&power of government took place the last few decades, it may take some time for the flawed foundation to lead to more problems and a more noticeable divergence from the private sector.

khoffman writes:

Years ago I read a book/paper that argued that gov't agencies with defined missions/tasks performed better than one with more nebulous missions. One gov't agency they highlighted as working well was Social Security Administration. Their job is to get checks to those eligible to receive them. Straight forward and easy to benchmark and know whether the workers are doing their job.

An addendum to that insight is that there is always a feedback mechanism; it is simply a matter of how direct it is. In the private market it is usually as direct as it can be. In the public market, "consumers" who have a complaint have to go to their relevant elected official. That, of course, incurs costs. If the "consumer" can afford the cost, they will, which is why public education looks pretty good in well-to-do neighborhoods. Local pols know their constituents vote and can fund their campaigns or their opponents. Poor citizens can't which is why their public schools are as bad as Rothbard would expect. On the Social Security front, no politician wants unhappy seniors, so the SS staff has great motivation to make sure everything works smoothly.

On the flip side, politicians need things to fix to show that they are working for the constituent. The more interaction the public has with a gov't enterprise, the more likely a politician can get points for "fixing" any service problems.

In other gov't enterprises like the university system with very strong private (non-gov't) competition failure to compete would likely mean closure as students would simply go to the private system.

With regard to the Post Office with some restricted private competition, I think it more piggy backs on where FedEx and UPS lead in part because the private sector provides some sort of benchmark for the public to compare and in part because it does the innovation that the PO can then replicate.

But while quality (a smiling teacher and helpful postal worker) might not be noticeably different, it is in efficiency and convenience where the real but mostly hard to measure difference is. The need to be self-financing and provide a profit means that most private organizations are lean. Gov't enterprises are top heavy and bloated. In addition, while staff may be pleasant, go to the post office at lunch time when workers are trying to do chores, and the staff is at lunch too. The local deli, you can see all of the staff working during lunch time and eating their own lunch at 2pm.
Greg G writes:


By "things" that have gotten better I meant that Americans of our generation enjoy more economic prosperity and more political rights and liberty and equal treatment under the law than any previous generation.

From the first anti-Federalists right up to your comment above, libertarians have been predicting that the growth of government would cause a reversal in both economic prosperity and overall the long run.

I did not ever say or think that government is responsible for all things. In fact, I just said that the growth of government has NOT led to the gloom and doom that that you guys have been predicting since the 18th century. So there is something it is not responsible for. Maybe we really are all dead in the long run.

david c writes:

Re: tom west

Private enterprises can lose market share. Toyota has had a big impact on the car market even though gm is stillaround. Also, low-level employees are ignored at large firms but have a huge effect on smaller businesses.

vikingvista writes:

Greg G,

It is telling that you didn’t instead write: “If I understand you correctly the ratification of the Constitution was a giant step towards making [GOVERNMENT] worse then and [GOVERNMENT has] gotten worse ever since.”

Having done so would not only have revealed that you actually carefully read my post (or Rothbard), but also makes your point considerably less interesting as counterpoint.

Are there “things” that have gotten better in the universe, even in the presence growing more abusive government? Yes. In fact, whether you limit your interest in the universe to the British monarchy, the territory of the USSR, or the America’s, you will be able to find a great many things that got considerably better.

But to conflate those increasing good “things” with increasing government size and abuse is to either believe that correlation is causation, or to have a model that the increase in those things is due to enlarging more abusive government. If the former, further conversation isn’t necessary. If the latter, you have yet to articulate it.

“From the first anti-Federalists right up to your comment above, libertarians have been predicting that the growth of government would cause a reversal in both economic prosperity and overall liberty”

Reversal? It *has* resulted in ever greater impediments to both prosperity and liberty. You doubt this? So, do you think the list of demands and prohibitions in the Federal legal code has been decreasing over time, or do you just think that almost nobody takes them seriously?

“I did not ever say or think that government is responsible for all things. In fact, I just said that the growth of government has NOT led to the gloom and doom that that you guys have been predicting since the 18th century.”

Increasing foreign interventions. Increasing war. Increasing confiscations. Increasing government threats and persecutions of citizens. Increasing prohibitions. Increasing incarceration rates. Decreasing Constitutional restrictions. Decreasing individual influence in governance. I don’t know what “gloom and doom” you are referring to, but clearly the antifederalists were long ago proven resoundingly correct regarding their fears about the Federal government.

Now, you may argue that people are wealthier today or have more choices. But that argument only make sense if you credit that prosperity to government rather than as a thankful result in spite of government.

Also, I haven’t been around since the 18th century.

Glen writes:
Simple economics implies that government enterprises should be far worse than they really are.

Really? Are you actually that unaware?

Have you never experienced email? Or heard of FedEx? How much do you pay each month for the most abundant compound on earth? And since when did trying count as results in education? Or any other commercial endeavor?

Maybe your seventeen years of tenure in government enterprises has irreparably skewed your perception.

Greg G writes:


So then, just to be clear let me ask: Are you predicting that wealth and personal choices will CONTINUE to increase DESPITE the obstacles of a growing government or are you predicting that growing government will finally cause a net reversal in those trends?

vikingvista writes:


When has that ever happened? Even Tyler Cohen doesn't argue that. There have been punctuated setbacks in the accelerating growth trend, but even the "Dark" Ages saw progress. It would be an extraordinary prediction for anyone to make.

I surely hope you are not arguing that as long as there remains a positive trend in human progress, any claims of worsening or horrible governance can be dismissed. That would be, after all, a defense of the worst governments man has ever experienced.

It would be better if when you hear people make statements about government, you don't assume that by "government" they mean "things" in general.

Greg G writes:


OK, then. Thanks for clarifying.

For some reason, I had expected that having the government resemble the aging Soviet Union and become untenable would cause a net decline in the well-being of Americans.

It is comforting to know that, even if this happens, we can still expect life in the future to be better than it is today.

vikingvista writes:

"I had expected that having the government resemble the aging Soviet Union and become untenable would cause a net decline in the well-being of Americans."

Is that what happened in Russia? No. Does that mean the Soviet government wasn't horrible or was any rational way defensible?

Also, the post is specifically about particular enterprises. So, it may be, e.g., that people will finally be forced one day to realize that Medicare is untenable, and Medicare will then stop. And although that may be a great day for humanity, that unfortunately doesn't mean all government enterprises, or the government in its entirely will come to an end.

Handle writes:

The USPS is losing money hand over fist and would be declared insolvent with normal, private-sector accounting.

Congressmen apparently have perverse incentives to exacerbate the problem, getting points to ensure price-ceilings (can't raise stamp prices), service-floors (can't eliminate Saturday delivery, must deliver everywhere at the same price no matter how uneconomical), and redundant branches (locations that don't pay for themselves).

Part of this is also rent-seeking for shadow-subsidies, since commercial interests lobby to keep postage rates low because most postal volume these days is advertising.

And, of course, when the lack of necessary incoming cash flows finally force their hand, they can just bail the enterprise out of the ultimate backstop of general tax revenues, which is exactly what everyone expects to happen.

Another mystery is why some regulated natural monopolies work better than mostly-unregulated ones.

For instance, utility companies for gas, electric, and water are typically pretty good when it comes to customer service, even though they are practically guaranteed the ability to charge whatever prices will guarantee a profit margin on their capital costs and operating expenses. Yes, they have to ask permission, and this involves a lengthy and burdensome dance, but the long-term trend line follows cost-plus very nicely.

On the other hand, Comcast, Verizon, ATT, Time Warner and other broadband internet providers are justifiably reviled for their blithe attitude toward customer service. I've had my own horror stories, and similar incidents are popular fodder on the internet, but I've never experienced anything comparable from my electric company. They are actually getting slightly better now that there is increasing competition in many markets, but it's still pretty bad.

Any guesses out there for why this should be?

Flocccina writes:

The teaching profession is a job that some people will do for free. Most Government workers in such professions do work reasonable hard (though some are awful) but many blue collar Government workers are incredibly bad. In the post office the mail carriers seem to do OK but the clerks in the post office that I have dealt with have often been incredibly bad.

Mr. Econotarian writes:

Governments are very efficient at killing people!

A Country Farmer writes:

Bob Murphy responded quite well on his blog

vikingvista writes:

"Governments are very efficient at killing people!"

Governments are very efficient in creating inefficiencies.

David Auner writes:

[Comment removed for irrelevance. --Econlib Ed.]

Joe writes:

The mistake you made is in assuming how bad economists assume government enterprises would end up.

The theory is that government enterprises would be worse off without the pressures of market forces and you point out that they are worse off.

Of course they can do a few things moderately well, it is not as if they have no pressure to perform at all. They just perform worse than they would if they had the additional pressures of the market. With the post office or water delivery the penalties for failure would be immediate and extremely harsh so they must perform those basic duties with some competence. However the costs are often hidden and much higher than they could be.

To imagine that Rothbard somehow forgot about all other possible human motivation to do a good job is a bit silly on your part. It's a simple statement that all else being equal enterprises will perform better with market forces than without. To what degree we see this effect is debatable as well as conditional to the market forces that still remain while under government control which can vary wildly.

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