Thursday, September 04, 2003

Why Government is not a Universal Panacea

There is a considerable amount of economics literature in existence that confirms that markets are not always optimal, and that they often either fail to take into account undesirable side effects of our actions, or they require certain stringent assumptions for their efficiency that are rarely met in practice. Faced with such instances of market failure, it is always tempting to look for some action that government can take to remedy the shortcomings observed. The problem is that there is often no good reason to believe that any solutions put in effect by government action will not do more harm than the actual problems they are intended to resolve.

Public choice theory teaches us to be wary of the notion that government intervention is the answer to every perceived failure of the market. Governments, like firms, are human institutions, and as such can be expected to display the shortcomings that are the common lot of humanity. That a man works for the government does not automatically free him from the burden of self-interest that the rest of us must labor under, and it is foolish in the extreme to imagine that turf wars, empire building, avoiding responsibility, feather bedding and outright theft will be absent from the halls of bureaucracy simply because its' denizens are nominally beholden to the public as a whole. To the contrary, we can expect all of the ills of corporate life to manifest themselves in the halls of government, with one key difference: where firms are at least subject to the restraint of the market, and may go out of business if misbehavior is left unconstrained, government bureaucrats know no such discipline, and can (and do) pass on the burden of misgovernance to their nominal overlords, without serious fear of personal consequences.

From Econlog we learn about one such instance of government profligacy, which appears in the context of a Washington Post article:

This time of year, it is not uncommon for a shriek and the clang of a bell to rattle the normally staid offices of GTSI Corp., the 20-year-old Chantilly company that serves as one-stop shop for government buyers with tech-heavy shopping lists.

That's how the company's salespeople celebrate another order for laptops, printers or servers -- by screaming in glee, pulling a cord on a small brass bell and jotting the amount of the sale on a communal whiteboard.

Fall is coming, and for GTSI that means the end of the federal fiscal year is approaching and that civil servants are rushing to spend department funds before they revert to the U.S. Treasury on Oct. 1. (emphasis added)

With a new focus on homeland security, Congress gave the federal government its biggest information technology budget ever this year -- $58 billion, up from $49 billion last year. But Congress passed the budget for civilian agencies unusually late, in February instead of October. That compressed the already heavily seasonal business of selling technology products and services to the government.

In September, GTSI's distribution warehouse adds 15 or 20 workers to its usual staff of 45 to 50 people to handle accelerated shipments of computers and networking equipment. By next Monday, the company will begin staying open three hours later, until 9 p.m., so that its sales force can field last-minute calls from customers.

By the middle of the month, the company will extend its hours to 11 p.m. and open its doors on weekends as well. On the last day of the month, administrators and executives will join workers in the warehouse to help check orders for defects and load boxes before the midnight deadline.

"We sell as much on the last day of September as we do in the whole month of January," said M. Dendy Young, chief executive of GTSI.

During the rush, the company's largest suppliers, giants such as Cisco Systems Inc., Microsoft Corp. and Sun Microsystems Inc., usually pay for catered lunches and dinners for the 356 salespeople.

Terri Allen, vice president of sales, jokes that the key to her sales staff's stamina is the "three C's: calories, carbohydrates and caffeine."

Food helps, but it can't hurt that salespeople earn an average of 20 percent of their annual commissions in September. In the July-through-September period of 2002, GTSI earned $3.1 million on revenue of $276 million. In January through March of 2002, GTSI earned $541,000 on revenue of $176.7 million.

GTSI's two main competitors are CDWG, a wholly owned subsidiary of CDW Corp., which has 15 to 20 salespeople in a Lansdowne, Va., office, and Northrop Grumman Corp., which has 459 people working in its reselling division, 338 of them in the Washington area. That division had revenue of $750 million in 2002, Northrop said.

They, too, are scrambling to fill orders at this time of year, said Juli Ballesteros, a spokeswoman for Northrop Grumman.

What is most revealing is that the focus on spending all department funds by the end of the budget year is not even the central issue in this article. So common is such misbehavior that the article's author hardly thinks it worthy of comment. It isn't as if such shenanigans are unusual in the corporate world, but given shareholders' interest in seeing the maximum return on their investment, along with an active market for corporate control, private employees have a lot less room for irresponsible expenditure than public counterparts enjoy. It takes real effort to get fired from a government job anywhere in the world.