The lure of government work

2011-03-15

in Economics, Geek stuff, Politics

In discussions of the financial crisis, I have often heard it argued that the financial industry did some of its harm by luring intelligent and capable people away from industries that actually do more good. Rather than applying their knowledge to improving technologies, teaching the young, or providing valuable services, they spent their time earning millions for the partners at big investment banks.

It occurs to me that something a bit similar may happen with government. In many ways, government jobs are the best ones left in society. While there are strong reasons to doubt whether the pension plans will actually exist in thirty years, they do provide a good deal to people who will be retiring soon. They also provide good benefits, flexibility, high rates of pay, generous family provisions, and job security. As an unintended consequence of all that, they might be acting like the banks did – drawing in some of Canada’s most promising people, keeping them in place with generous pay and benefits, but ultimately not putting them to very good use in a lot of cases.

Economists talk about how high interest rates on government bonds can ‘crowd out’ private investment. It is easy to see how this could be the case. When a private organization needs to repay a loan, they need to earn money to do so by selling goods or services. The government, by contrast, can simply raise taxes or print money. The government also enjoys the highest level of public confidence, in that people fully expect it to repay its debts. As a result, people may find it safer and more profitable to lend their money to governments than to firms. At the same time, it is not always the case that governments will use that money well. They might, for instance, use it to fund wasteful undertakings like building hockey arenas or hosting big international sporting competitions. They might squander it on costly and unnecessary weapon systems, or on trying to buy votes in marginal constituencies, or doing favours for their friends in the private sector or their political allies.

Often, it is within the power of government to offer people the best deal available, when they are choosing how to invest their money or time. What governments should remain aware of – however – is the risk that in doing so they will be drawing people away from better uses of their energies and skills. Canada would probably be better off if some of the underused people within government were off doing productive work in some other sector instead.

Report a typo or inaccuracy

{ 8 comments… read them below or add one }

Tristan March 15, 2011 at 3:10 pm

All hail before the God of market fundamentalism.

Milan March 15, 2011 at 3:27 pm

So you are arguing that anyone who thinks that the time and talent people have should not be wasted is a slave to an ideology you oppose? That really doesn’t seem like a coherent or credible argument.

Obviously, there is a lot of important work done by government. At the same time, there are high-wage government jobs that provide limited public benefit. From the perspective of society as a whole, would it not be better for the people currently in those jobs to do something different?

Tristan March 15, 2011 at 5:38 pm

From the perspective of society as a whole, it would be helpful if the powerful sectors were not organized against rather than in alignment with the public benefit. The government is at least potentially an institution whose interests could be aligned with the public good; corporations necessarily act against the public good whenever it is in their shareholder’s benefit. The fact that the government is inefficient is not an argument in favour of outsourcing; it’s an argument in favour of more transparency and accountability – something governments resolutely oppose (just look at the conservatives campaign rhetoric vs actual actions on government accountability).

Milan March 15, 2011 at 5:49 pm

I am not encouraging outsourcing, necessarily. I am saying that smart people are kept in unproductive government jobs that do not make full use of their abilities, and that one major factor driving those choices is the appealing combination of high pay, benefits, and security offered by the government.

A lot of people in cubicles in Ottawa doing tedious paperwork would contribute more to society as entrepreneurs, teachers, social workers, full-time parents, or private sector employees.

Tristan March 15, 2011 at 7:19 pm

Well, maybe we should find ways to increase the job security of private sector employees, and increase the pay of teachers, social workers, and full-time parents. It’s either that or reduce the pay and security of government workers.

. March 15, 2011 at 10:26 pm
. March 16, 2011 at 7:28 pm

In the great Canadian game of “pension envy,” those with flimsy or non-existent private-sector pensions often cast green-eyed glances at the inflation-indexed defined-benefit pensions of public-sector workers.

Sadly, the gap between pension haves and have-nots seems to be rising. Last week, Sun Life Financial Inc.’s Unretirement index found the average Canadian expects to work until 68, or 70 if they earn less than $50,000 a year. About the only people who can achieve the dream of retiring in their mid-50s seem to be government workers in DB pensions, apart from rich business and pop culture stars.

But the “have-nots” can enjoy some “schadenfreude” (German for pleasure derived from others’ misfortunes) after University of British Columbia associate professor Ronald Davis released a study last week reminding us DB plans “do not offer complete security” in the event of employer insolvency.

The study for the Institute for Research on Public Policy mentions several high-profile cases where large pension plan sponsors became insolvent and “pension fund assets were insufficient to pay the benefits earned by workers and retirees.” Just ask any member of DB plans at Air Canada, Stelco, Nortel, General Motors or AbititiBowater. All experienced “substantial pension deficits” that were major factors in their entry into insolvency proceedings, Davis wrote.

G March 17, 2011 at 12:06 am

Firstly, please forgive my (not particularly deftly) dodging the twin questions of whether all corporations are evil and whether the government (small G intentional) is aligned with the public interest.

That said, what about the counter-argument that the public sector’s compensation structure (i) attracts the risk averse; (ii) drives away the ambitious; and (iii) encourages a change-averse culture to an extent not found in the private sector.

(The result being that the most capable public servants (i.e., those with the ambition and skill to move a policy forward) tend to leave the public service for a less constrained and stagnant organization – i.e., the private sector)

G

Leave a Comment

You can use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Previous post:

Next post: