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Monday, April 5, 2010

Limits of government?

Last week my wife told me that college loans will now be handled exclusively by the government. I thought, "Well, that's it for education."

The problem is that government is set up on a bureaucratic model, which in the 1700's was the most advanced management system designed to control the Bureaus (regions) of France.

There is never enough money allocated for a good program. A typical bureaucratic program will have an output of anywhere from 10% to 75% of the funds dedicated to the program. In the case of 75% return, the remaining 25% of the money has to cover ever expanding oversight and management, and in the case of 10% returns, "No matter how hard you do the wrong thing, it never quite works." This is true in all types of activities, but a well funded bureaucracy never fails, it just continues to cost.

A non-bureaucratic organization has is the ability to make benefits exceed budget. Those volunteers standing in a cold parking lot selling Christmas trees actually made more for scholarships when they starting selling bags of oranges as well. After expenses they had a return of 250% of capital. That's real money, not “jobs that might have been lost if we hadn't killed the organization for it's own good.”

You won't find that kind of initiative in a bureaucratic organization. A bureaucratic organization is designed to control resources, not experiment to better results.

I spent several years as a member of a CEO group helping a local university. I can remember having 20 minute meetings in the parking lot, as the membership all had responsibilities with our real jobs. Then a state organization convinced our executive director that they should start attending this committee meeting, since we were getting big results. And they brought donuts.

Well if you're going to have donuts, you might as well have coffee, and before you know it, we were having two hour meetings with much less throughput. I knew something was wrong, but I didn't know what until one of my older and wiser colleagues pointed out that the (by now) four state employees were all recording the two hour meetings as a major accomplishment of their day.

What the heck, it was warm, well lit, and they were sitting with high status personages. Eventually the original members went elsewhere, but the committee has continued to meet, and results are no longer tracked.

This morning I was explaining this to my mom, and she said, “Well, the government says they are taking out the middleman, that should save money…” Eureka! The government is the middleman in commercial transactions, providing no value and exacting significant cost! Their main function is to create and punish the guilty.

In our zeal to organize and stamp out fraud, waste, and abuse, we are forgetting that organized bureaucracy leads to entropy. Sure there are mostly failures in free enterprise, but the successes are the engine that drives our economy. Government has no part in that growth.

How about a little humility and perspective from our elected officials?