Governments, even in small countries, are vast bureaucracies that manage thousands of activities. The federal government of the United States, for example, runs a vast and complicated healthcare system, levies taxes on individuals and corporations, pays benefits to retirees, runs a large and highly mechanized military, decides whether pipelines can be built and oil exported out of the US, manages a vast payment system for the unemployed, and enforces complex regulations of banks. I could go on endlessly. A smaller government like Argentina’s does about as many things, but on a much smaller scale.
As Posner indicates, large corporations also have extensive bureaucracies, but several differences between public and private bureaucracies work against the relative efficiency of governments. The most basic is that government bureaucracies are just too big to perform most of their activities effectively. Governments undertake too many and too complicated activities to expect effective oversight from presidents, prime ministers, and legislators. Private corporations would also be much less efficient if they grew to the size of large governments, which explains why corporate bureaucracies are far more limited in size, and especially in scope.
Further raising the efficiency of corporate bureaucracies relative to public bureaucracies is that corporations typically face much stronger competition. Corporate competition is from other firms, non-corporate as well as corporate, and from firms that form when a corporation faltered in its efficiency. Also, a badly performing corporation often faces a battle from ”corporate raiders” for control of the corporation. Although such private competition is not always effective in disciplining the corporations who are too bureaucratic to be efficient, many formerly powerful corporations have vanished after they no longer performed well. These include Lehman brothers, A&P Groceries, Wong computers, Bethlehem Steel, and Woolworth.
Government bureaucracies also face some competition, but it is much weaker and less immediate. In democracies, elections occur at regular intervals, but the complexity of governments makes it extremely difficult for voters to judge whether the incumbents are performing well. Profit statements are usually a good guide to corporate performance, but there is nothing comparable for governments. Interested voters can look at a few things to judge, for example, whether government-financed health care is effective, but nothing for government performance is as simple and as inclusive as a balance sheet report on how profitable a corporation is. In addition, powerful special interests often spend considerable resources to insure that voters hear their point of view far more often and more effectively than opposing views.
Another difference between corporate and government bureaucracies is that corporations use the price system far more than do governments. For example, government pay scales are much more compressed than are those of corporations. A head of a major government agency, such as the SEC or the EPA, has at least as much responsibility as the heads of major corporate divisions, but government heads earn only a fraction of what corporate heads do. Of course, heads of government agencies often leave after several years to take lucrative private sector positions, but they would do that much less frequently if they were better paid in their government jobs.
Another example is from the immigration authority (USCIS) that allocates visas on a first-come-first-served- basis that often takes weeks and even months. A corporation handling this issue would have a system of fees that would be higher for those who need a quicker decision.
So my answer to the question posed in the title of my discussion of whether government bureaucracies are too big and inefficient is a strong “yes”. Government should do much less so they can concentrate on and do better with the tasks they are most needed for, such as police and military, infrastructure, safety nets, and regulation of activities with big externalities. Regrettably, I am not optimistic that much can be achieved quickly in slimming down governments, given the strong self-interests and special interests that benefit from the present situation.