Thursday, July 23, 2009

Why governments can bloat the bureaucracy

A government is able to keep highly paid bureaucrats on the payroll long after they've outlived their usefulness because it pays no financial penalty for it -- the penalty is paid by thousands of taxpayers in the form of higher taxes.

BC Rail's CEO is able to continue making about half a million dollars per year to run a 40 kilometer long railway because government does not have to confront the financial discipline of the marketplace.

If a private sector company like General Motors, for example, allows its labour costs to get out of control, it can pass those costs along to its customers for a while, but high product prices attract competitors who enter the market with better and lower cost products. Eventually, the high cost competitor goes bankrupt -- sound familiar?

This doesn't happen in the public sector because a government is shielded from competition and won't go bankrupt -- if it needs more money it just raises taxes.

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