The State Needs a Short Leash
Centralized systems work poorly compared to decentralized ones. Yet they often persist. We need to encourage private solutions instead of waiting for the government to help.
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Decentralized systems have many advantages over centralized systems. For example, in agriculture, the decentralized market economy of the United States far outperformed the centralized command system of the Soviet Union.
Economic and cultural progress requires experimentation, evaluation, and evolution. Individuals and organizations experiment with new products, new services, and new social norms. People evaluate the results. We keep the most helpful new ideas, and we discard the rest.
Decentralization works better at all phases of this process. Markets work better than government at experimentation, evaluation, and evolution.
The value of variety
A central government cannot initiate nearly as many experiments as a decentralized market. In the realm of higher education, the United States became a world leader because many different colleges and universities sprang up, experimenting with a variety of educational models. Unlike many other countries, there is no national university or a nationally harmonized system of higher education. Instead, a great variety of colleges and universities have been allowed to emerge.
In the Swiss and Canadian health care systems,
different provinces and cantons experiment with slightly different organizations and insurance programs. They allow for private provision of health care, unlike Britain’s National Health Service, which as of this writing appears to be suffering from high cost and ineffective care.
Overall, federal systems allow for more experimentation than centralized systems of government. Moreover, markets allow for much more experimentation than even federal government systems. Every single participant in a market is an autonomous actor capable of making choices and trying out new things.
Suppression instead of self-reflection
A government has no natural mechanism for evaluating the success or failure of an initiative. In fact, public officials work assiduously to avoid such evaluations. It is human nature to desire authority without accountability. Government officials are eager to issue dictates, as long as they face no personal consequences when things go wrong. When an agency is ineffective in carrying out its mission, its leaders claim that the solution is to give them more power, and certainly not to fire the accountable officials.
In the United States, the national public health bureaucracy performed poorly during the pandemic. The advice to close schools was especially harmful. Testing was delayed by bureaucratic power struggles, and it was never implemented effectively to track and control the spread of Covid-19.
But the nature of government is that agencies do not engage in self-reflection. Incompetent officials are not replaced. Instead of identifying and correcting mistakes, officials tried to suppress dissent by branding as “disinformation” criticism that later proved
to be correct, for example Stanford professor Jay Bhattacharya’s warnings that lockdowns would harm children.
The market has a built-in mechanism for evaluating new experiments. If a business offering is attractive to consumers, then the business will earn profits. If the offering fails to please consumers, then the business will incur losses.
Subsidies are sticky
This brings us to the third mechanism of progress: evolution. Government programs that have become obsolete, or which never worked in the first place, continue to exist. There is no mechanism in place for stopping a program once it has become embedded in the government’s budget. A notorious example in the United States is a subsidy for farmers to increase the supply of mohair, a type of wool that was used in army uniforms during World War II. Not long after the subsidy was enacted, the army stopped using mohair in its uniforms, but the subsidy persisted into the early 1990’s. Even then, after the subsidy was briefly abolished, it was restored a few years later in slightly different fashion.
«Government programs that have become obsolete, or which never worked in the first place, continue to exist. There is no mechanism in place for stopping a program once it has become embedded in the government’s budget.»
In the market, a product that is no longer useful results in the exit of producers. But in government, there is no Darwinian process for keeping only the programs that work and winnowing out those that are ineffective.
In the market, money-losing initiatives fall by the wayside. Firms go out of business unless their projects succeed. The evolutionary process serves to promote progress.
Fear of the new
If decentralized processes work much better at experimentation, evaluation, and evolution, what explains the strong trend toward centralization of power? Why do central governments around the world undertake so much more regulation than it did in the past?
One legitimate reason for a more extensive regulatory state is the increased complexity of our economy. We cannot return to the limited government of 1800 when faced with an environment that includes the possibilities of aircraft drones in the sky, the need to allocate electromagnetic spectrum for different communication services, the effects of new technologies on personal privacy, and the risks posed by new financial instruments, from credit default swaps to cryptocurrencies.
Ironically, the decentralized innovation that emerged from the market requires new forms of regulation. But government often introduces regulations that are not necessary and that stifle further innovation.
Unfortunately, government officials are inclined to exaggerate the perils of new technologies. They stimulate citizens’ fears and then exploit those fears in order to regulate with a heavy hand.
As citizens, I believe that we need to try to find a way to not give in to our worst fears of new technologies. We need to retain confidence in our ability acting in our capacity as individuals and members of organizations to handle the challenges posed by new technologies. We need to encourage solving problems using entrepreneurial approaches from the private sector instead of looking to government to provide the answer. For example, during the early weeks of the pandemic, private labs had developed effective tests for Covid-19. But the national Food and Drug Administration ruled against using these tests, instead insisting on a government-developed test that was not working properly until the pandemic was well underway.
In addition, we need to try to overcome the resistance of public officials to being held accountable for the success or failure of their conduct. We need to establish audit agencies that can provide a check on otherwise unaccountable bureaucrats. Audit agencies ought to have the resources to evaluate government agency performance. And when audit agencies find serious problems within an agency, leaders should fire the officials involved and initiate real reforms. It would be beneficial to change inefficient procurement practices, misguided regulations, and attempts by public officials to suppress criticism.
