Government Failure

Governments are a necessary part of any society to lay down a foundation of rules and laws, to correct negative externalities, and to provide public goods. Most people consider democracy to be the ideal form of government, because they can choose representatives who, they think, will serve their best interest. However, even democratic governments often do not act in the best interests of the people who elected them. Several major factors cause this government failure:

Special Interests

The primary cause of government failure is special interests, people who are highly concerned about a particular aspect of the law or government policies, such as the concern of the wealthy and businesses about taxation, or the concern by the National Rifle Association about laws regulating firearms. Special interest groups influence politicians in several ways. Because of their knowledge about particular topics and because of their motivation to have things their way, they spend an inordinate amount of time and money trying to influence politicians to vote their way. Because politicians constantly need money for reelection campaigns, special interests are especially effective when they offer campaign contributions to cooperative politicians.

Special-interest legislation is always against the public interest, since if it was for the public interest, then the special interests would not have to do anything special, since legislators would simply be voting in the best interest of the people. However, since special interests profit at the expense of society, they bribe the politicians to vote their way. Most politicians succumb to special interests because, although the object of special interests may be at odds with the rest of society, most people do not care sufficiently or even know about the drawbacks of special-interest legislation. Hence, politicians have little to fear by voting with the special-interests.

Pork barrel politics refers to a particular type of special interest in which legislators try to get projects approved for their own individual districts. The primary characteristic of pork is that no federal agency or the White House has requested funds for the pork project; instead, the project is financed by a line item addition to an appropriation bill by a member of Congress who wishes to reward certain individuals or organizations within his district. Because it is a line item appropriation, it is not subject to congressional hearings. Usually, members of Congress who have the most power get the most pork projects funded. However, both Republican and Democratic parties use pork projects to help reelect new members of Congress.

In 2007, $18.3 billion was spent for almost 13,000 projects. Only 18 lawmakers out of over 500 did not seek earmarks (funding for special pet projects) for their district.

Rent-seeking is the procurement of government favors so that a business, industry, or labor union can earn higher profits than would be possible under a competitive market. Other examples of special interests include tariffs on imported products, so that affected domestic industries can remain competitive or earn higher profits; tax breaks that benefit specific individuals, such as allowing hedge fund managers, some who make hundreds of millions of dollars per year, to categorize their wages as carried interest, for which they do not have pay payroll taxes; rules that require government financed projects to use labor unions; occupational licensing that is more stringent than required for public safety; and large subsidies to specific groups, such as farmers, some who are large corporations making millions of dollars in profits annually.

Favoring Projects with Current Visible Benefits but Hidden or Future Costs

Because of their obsession with being reelected, politicians are inclined to choose projects with highly visible current benefits but whose costs are not widely known or will only be paid sometime in the future, even if those costs exceed the benefits they provide. Conversely, they will reject projects with future benefits but visible current costs, even if the future benefits are much greater than the current costs.

Because most politicians only remain in office for a limited time, they care more about present benefits and less about future costs. After all, when costs become payable, they may be out of office; even if they are not, the electorate often forgets about issues of the past.

Limited Choices

In the United States, American voters have 2 viable choices: the Democratic Party or the Republican Party. Both of these parties are influenced by special interest groups. The Democrats are heavily influenced by unions and lawyers, while the Republicans are heavily influenced by wealthy people and big businesses. Hence, the voter is reduced to choosing the lesser of 2 evils.

Legislative Process

Another major cause of government failure is the legislative process itself, since it allows legislators to insert preferential items into large complex bills where other representatives are forced to either vote for or against the bill as a whole — they have no line-item veto. This is the means of getting pork barrel projects financed. Legislators cannot approve the bill without also approving the line items, so if the overall bill is desirable, then legislators will probably approve the bill in spite of the objectionable line items.

Bureaucracy Inefficiency and Corruption

A private enterprise must be efficient; otherwise, it may go bankrupt or its profits may be small. However, public agencies do not have to concern themselves with viability or profitability, and since most of them are paid by the hour, they have little interest in efficiency. To make matters worse, many public employees are represented by unions, whose objective is to preserve jobs and to prevent the firing of its people. So public employees are not too concerned about losing their job, either, since there is little chance of that. Unions generally oppose automation, since it reduces jobs, even though it will save taxpayers money. Furthermore, public employees rarely concern themselves with costs. After all, who has not heard of the $600 toilet seats purchased by the Pentagon.

Many, if not most, governments of the world are characterized as corrupt because many public employees seek bribes to do their jobs. Complex rules and regulations require the assent of several government agencies before anything can be done, so, because of their monopoly position created by law, they can dillydally until the taxpayer pays an additional sum to expedite service. For instance, before a restaurant can open in most places, it needs a license. Public employees can delay the granting of the license until the restaurateur pays a bribe; otherwise, the restaurant may not open to conduct business.