Anyone for a laptop?
By Chris Clancy
In the private sector, the most successful businesses are those which cut wasteful expenditure to an absolute minimum.
If not, they go to the wall.
Not so in the public sector which is renowned for wasteful spending. And ironically, far from going to the wall, it just grows and grows. In a crazy sort of way it thrives on empire-building, duplication, waste and inefficiency.
It's never been any different – and probably never will be.
I remember meeting a couple from the UK when I was working in China. They were having a two week jolly in the Far East. They spotted me in a crowded department store and needed some help. Rather than give them directions I escorted them to the shops they needed.
We agreed to meet up for dinner that evening.
We had a pleasant enough meal. They talked about how things were going in the UK and I told them about living and working in China. Back home they both worked in the public sector – as administrators of some kind – seemingly doing very well for themselves.
I suppose back in the days of the "yuppies" they would have been called "dinkies" – maybe they still are – I don't know.
I got the impression they'd manoeuvred themselves deep into the middle of the public sector - lodged somewhere between layers of protective fat - above and below - in a very secure position. Heat from the top is shovelled to the bottom - trouble at the bottom booted to the top.
If any government ever tried to really sort out the public sector – cut it down and thin it out – they'd be the last to go.
They were safe, comfortable - and bullet proof.
As we exchanged email addresses at the end of the evening they said they had five laptops at home. They both laughed – a kind of silly-isn't-it-but-there-you-are kind of laugh. When I asked why they had so many they said they'd just "picked them up" as their careers progressed.
I'm quite sure the original purchase and issue of these computers must have been recorded somewhere, but after that they just … sort of … got lost?
Both had come straight through the system – from state school to university to the public sector. But I doubt if either had any real understanding of the private sector – about how it actually operates – about what makes the thing click - about why the two are so different?
Like chalk and cheese.
It's not just that the incentives are not the same – it's the whole culture - even the language used. Words like "profit" and "loss" are replaced with words like "surplus" and "deficit". Words like "income" or "revenue" just don't fit – instead it's expressions like "budget allocation".
For those in charge the biggest worry is not where the money actually comes from - but rather, how much of it they can get their hands on. This is their battle ground.
And it's all very political.
In fact there's a whole branch of economics devoted to it.
How different things are in the private sector – a place where value is added – where real wealth is created. A place where survival is dependent upon turning one dollar into two dollars – and doing it again and again - day after day.
The ground rules are very different.
Nobody hands them other people's money to spend. They've got to go out and earn it first. And every penny must be accounted for.
Their jobs depend on it.
If revenue generated exceeds costs then the business is profitable. The reward for having reached this happy state is that the difference – profit - is then taxed by the government.
So let's be clear - employment and spending in the public sector is initiated off the backs of those working in the private sector. It's the productive end of an economy that pays for the non-productive end.
But there's a limit – and developed economies have reached that limit - a growing non-productive sector can't be sustained indefinitely by a shrinking productive sector. Increasing levels of borrowing and then printing will see to that.
Therefore at some point it has to stop. In the end nothing is free – just like those unused laptops.
In the end, someone somewhere always has to pay.
Chris Clancy lived in China for seven years. Most of this time was spent as associate professor of financial accounting at Zhongnan University of Economics and Law in Wuhan City, Hubei Province. He now lives in Thailand where he spends his time reading, writing, lecturing and, whenever he gets the chance, doing his level best to spread Austrian economics.