Meet Uncle Sam, Pickpocket: Exposing the Private Vices of the Public Sector

Self-interest has long been recognized as the dominant factor in most people’s private decisions. Not the only consideration, of course, but usually the most important one. The car one buys, the job one chooses, and the party one attends all normally reflect a judgment as to what best advances one’s own interests, whether financial, social, or highly moral. In fact, one of Christianity’s most difficult challenges has been to induce individuals used to focusing on themselves to consider the good of their neighbors.

Yet for years many economists, philosophers, and most of all theologians have assumed that service in the government magically transmuted personal selfishness into public-spirited benevolence. The baseness of fundamental human nature was treated as if it simply disappeared when people entered the public sector. Thus, the government, though run by individuals as self-centered as anyone else, could be counted on to guarantee the common good. Observes George Mason University professor James Buchanan:

Given this romantic and totally nonscientific, non-analytic vision of the workings of politics, it is not at all surprising that the failures of markets to match up to idealized standards of performance seemed to offer adequate reasons for politicization. Why not regulate or nationalize an industry if, as unregulated, it seemed not to work ideally?

In practice, however, government has proved to be far from benign. There was a time, writes historian Paul Johnson, when “most intelligent people believed that an enlarged state could increase the sum total of human happiness.” But, by the 1980s, “the experiment had been tried in innumerable ways; and it had failed in nearly all of them. The state had proved itself an insatiable spender, an unrivaled waster. Indeed, in the twentieth century it had also proved itself the greatest killer of all time.”

What went wrong? Each succeeding band of totalitarian utopians promised that its reign would be different; politicians in democratic nations simply continued tinkering. But none of them could overcome the nature of man—his selfishness and his tendency to use any means, including the political process, to advance his own interests.

The recognition that government could become an instrument serving private ends rather than the common good was not itself a particularly startling revelation. In the sixteenth century Machiavelli provided detailed advice for public officials on how to govern to their own advantage. And many modern political scientists have long recognized the flaws inherent in the democratic process, but nevertheless believed that interest group competition was the best means of determining public policy. As Jane Shaw, an analyst with the Political Economy Research Center writes: What distinguishes “public choice” theory is its very different view of democratic policymaking, seeing “special interest groups not as competitors against one another as much as joint raiders of a common pool—the U.S. Treasury—and as potential abusers of government’s coercive powers.” Special interests then “compete against the public, which is largely unaware of what is happening.”

More than three decades ago Swedish economist Knut Wicksell developed some of the intellectual foundations of public choice analysis, and Anthony Downs’ An Economic Theory of Democracy, published in 1957, was the first major American work in the field. However, it was James Buchanan, then a professor of economics at the University of Virginia, “who took this simple idea and pushed it hard,” says political scientist Aaron Wildaysky. Buchanan, along with University of Virginia colleague Gordon Tullock, provided the first systematic explication of public choice theory in The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962). The book analyzed the political process in terms of individual, rational decision-making; it put forward, in Buchanan’s words, “the hypothesis that politicians, voters, bureaucrats, and lobbyists act in their own self-interest when participating in the public sector, just as they do when pursuing their private lives.”

Though the issues involved look like political science questions, explains Thomas Borcherding of the Claremont Graduate School, public choice analysis is “nothing more than the application of economic theory to political choice.” Using economic analysis, this theory “replaces a romantic and illusory set of notions about the workings of governments by a set of notions that embody more skepticism,” adds Buchanan. Though many people have contributed to public choice theory, Buchanan and Tullock did the most to turn it into an independent school of thought. In 1986 Buchanan received the Nobel Prize in economics for his work.

A number of principles underlie public choice theory. One is the basic nature of governments, which “are viewed,” Buchanan says, “as exploiters of the citizenry, rather than the means through which the citizenry secures goods and services that can best be provided jointly or collectively.” Moreover, adds Buchanan:

The fact is that the state is not, has never been, and cannot be a monolithic entity. The state is an order, which generates patterns of outcomes as a result of interdependent but separate choices by many persons, each of whom acts in a particular role and each of whom seeks to maximize his utility subject to the constraints he faces. The state in this sense is analogous to a very complex market, and it needs to be modeled as such if we are to understand its operation.

Public choice also postulates that voters are rationally apathetic. “While the outcome of an election may be tremendously important for a nation or city, an individual’s vote will rarely be decisive,” explains Shaw. Thus, many people view voting as a waste of time. Even when public pressure causes them to cast a ballot, it rarely moves them to spend the time necessary to keep informed on issues.

Rational Ignorance

This sort of “rational ignorance,” writes Shaw, is “the most important reason why special interests take over,” a central tenet of public choice theory. Any given policy, however costly, is likely to have little impact on a single voter. For instance, a $2.4 billion expenditure will run 240 million citizens ten dollars each, too little to provide taxpayers with much incentive to follow the issue and write to their congressman, let alone to lobby actively. In contrast, those hoping to receive the benefits of such an appropriation—say the 200,000 dairy farmers for whom that same $2.4 billion comes to $12,000 each—will work hard to get it passed. The theoretical disparity in political influence between the diffuse majority and the organized minority predicted by public choice theory is reflected in practice by the fact that federal milk subsidies have generally ranged between $1.8 billion and $2.6 billion annually.

Public choice theory suggests that selfish motives govern not only those seeking to influence the state, but also those making and implementing policy. This is not to say that many government officials don’t believe in what they are doing. That feeling tends to merge conveniently with what is in their personal and institutional interests, however.

For example, governmental departments rarely request fewer funds, recommend dropping programs, or voluntarily cut their staffs. Instead, bureaucratic aggrandizement, with officials seeking to expand both their power and status, is a constant of government. And where an agency works in tandem with an industry or other constituency, the combined pressure is likely to overwhelm scattered opposition from an ill-informed public whose members have little individually at stake. Writes Buchanan, “the bureaucracy can manipulate the agenda for legislative action for the purpose of securing outcomes favorable to its own interests. The bureaucracy can play off one set of constituents against others, insuring that budgets rise much beyond plausible efficiency limits.”

Indeed, the desire to aggrandize encourages regulatory agencies to cooperate with the firms they are supposed to monitor. Economist George Stigler, another Nobel laureate, helped pioneer the study of how regulated groups often “capture” the agencies that are supposed to limit industry misbehavior. During the 1970s, for example, dissatisfaction with the Interstate Commerce Commission grew as the Commission’s dedication to protecting the profits of shippers, rather than the interests of the public, be-came increasingly apparent. A coalition of consumerist liberals and free market conservatives succeeded in cutting the ICC’s powers, though the industry blocked complete deregulation.

Also self-interested are elected officials, whose primary concern is re-election. Thus, suggests public choice theory, politicians will be most responsive to interest groups that offer financial and electoral support. A recent example of the impact of pressure groups is the conversion of Rep. Richard Gephardt (D., Mo.), an unsuccessful Democratic presidential candidate in 1988, to the pro-abortion cause. Once a backer of the Human Life Amendment, Gephardt asked party leaders whether it was possible for a pro-life candidate to win the Democratic Party nomination; they said no and he switched sides.

Iron Triangle

The selfishness that permeates every facet of the political system gives rise to the so-called iron triangle, as interest groups, bureaucrats, and politicians work together to benefit each other. University of Oregon political scientists William Mitchell, for instance, has analyzed how legislators use agencies and their programs to win votes. Congressmen then seek committee assignments that will enable them to protect and promote programs supported by friendly interest groups (that are often made up of influential constituents). Members with divergent causes “log-roll,” backing each other’s programs. For instance, rural congressmen are in a minority, but have successfully sponsored expensive farm subsidies in part by buying off urban legislators with support for such benefit programs as food stamps.

Some members, unwilling to trade their vote on a particular issue for election aid, instead offer access to the decision-making process. For this reason, the majority of political action committees, which have proliferated in recent years, contribute heavily to incumbents, irrespective of the policies they support. Many interest groups have simply given up trying to unseat hostile legislators-1988 resulted in a 99 percent re-election rate for House members—and instead back whoever is in office in hopes of receiving a hearing when their issues come to the fore.

Of course, after listening to a lobbyist who has rendered campaign assistance, congressmen often respond with some form of policy concession. For instance, while financial contributions may not cause a liberal Democrat to drop his opposition to the decontrol of natural gas prices, he may vote to adjust pricing levels to benefit one industry group or another. For this reason, Montana State University economist Richard Stroup argues that politicians have an incentive to remain uncommitted on the broad range of issues that voters are not deeply concerned about. In contrast, a predictable, principled approach is costly politically, since interest groups are less likely to bid for access to such a politician’s ear.

Though public choice theory is critical of the capacity of government to promote the common good, it is more descriptive than prescriptive, seeking to answer not what government should do but what government does do. “Taken directly, there is no ideological aspect to the logic of public choice theory,” says Buchanan. In particular, public choice is not the same as libertarianism, a moral philosophy dedicated to a very limited government. Instead, in their purest form public choice arguments simply point out the practical limitations of state intervention and the potential for interest groups or politicians to pervert even the most well-intended programs.

Not that there are no policy implications from such an analysis. Argues Florida State University economist James Gwartney: “the major contribution of public choice is to show that market failure is not a sufficient condition to turn a problem over to the government.” But while this may appear to be a conservative or libertarian position, it is not partisan to advocate that everyone, whatever their ideological perspective, take into account the likely results of the policies they propose.

Public choice economists generally believe that only overarching rules to constrain self-interested decision-making will bring the practical consequences of state intervention closer to the theoretical ideal. “Western societies face a task of reconstruction; basic political institutions must be re-examined and rebuilt so as to keep governments as well as citizens within limits of tolerance,” argues Buchanan. For this reason he supports a constitutional amendment to require a balanced budget and a requirement that Congress cite the revenue source for any new expenditure.

These and other measures would reduce the ability of public officials, appointed and elected alike, to expand state power. One example, proposed by John Baden, chairman of the Foundation for Research on Economics and the Environment, would be a “predatory” budget bureau that would oppose financial requests from other agencies and keep a portion of any resulting savings. Nevertheless, such policy proposals are not an ideological attempt to limit government per se. In fact, some advocates of public choice analysis, such as Mancur Olson, who documented the pernicious impact of special interests in his book, The Rise and Decline of Nations, and Downs, the early public choice theorist who studied the rational apathy of voters, believe in an activist state. Moreover, a measure such as a balanced budget amendment would not prevent legislators from spending more; they would simply have to be willing to bear the political cost of raising taxes to support the programs they favored.

Some public choice scholars would encourage greater accountability in the public sector in other ways—by favoring local and state government action over federal intervention, for example. Explains Shaw: “The existence of many governments allows the testing of many alternatives and provides a semblance of competition. People can point to successful alternatives or even ‘vote with their feet’ when the government taxes them too much or is inefficient.” Similarly, Gwartney and economist Jonathan Silberman support the increased use of voter referenda, which their research indicates are less susceptible than legislative votes to interest group pressure. (Neither of these approaches would necessarily result in a smaller government; they affect at what level and by whom policy is decided, not how expansive the state may be.) Other ideas include charging user fees for government services, with the money returned to the agency rather than the overall treasury, and creating competing bureaucracies to encourage improved performance.

Public choice theory is by no means a complete explanation of all political and bureaucratic behavior. Contends former Budget Director Alice Rivlin, “the fundamental notion that there is no altruism in the system is wrong.” And Cornell University political scientist Theodore Lowi points to the importance of “tradition and institutional patterns of commitment” in shaping government action. Voting that crosses party lines suggests that some congressmen do what they think is “right” irrespective of their colleagues’ arm-twisting; the predictability of many legislators’ votes demonstrates the importance of ideology in determining political behavior. Moreover, there are obvious instances where congressmen have ignored their constituents’ opinions and bureaucrats have resisted interest group pressures, instead acting in what they believed to be the common good.

In fact, Buchanan admits as much, observing that “through the 1950s there was a genuine moral constraint against having the federal government run big deficits except in wars or major depressions.” That unwritten understanding restrained legislators from acting in their self-interest by approving new spending measures without risking electoral retaliation for imposing corresponding tax hikes. Today, however, that overarching political consensus against deficits has disappeared—largely, in Buchanan’s opinion, as a result of Keynesian economic theory. The natural result, argues Buchanan, has been persistent, huge deficits: “It’s natural for our political agents to create deficits unless there are strong rules that keep them from doing so. They want to keep their jobs, and they know spending gains votes and taxing loses them. What that creates is an irresistible incentive to pile deficits on top of deficits.”

Ultimately, the most important point of public choice theory is probably that human nature, however complex, does not change when a citizen moves from the private to the public sector. “Individuals operate from self-interest when they are engaged in a system of exchange, whether this is in the market economy or in politics,” explains Buchanan.

As such, some critics of Buchanan’s Nobel award may have been right to describe his work as merely “ordinary and obvious,” in the words of Washington Post columnist Colman McCarthy. Yet most academics had forgotten these commonsensical notions until Buchanan, Tullock, and their colleagues popularized them. “Our profession had been going along with these idealized mathematical solutions to market failure,” observes Haverford College’s Michael Weinstein, but he adds that public choice theory, by calling such unrealistic models into question, changed the questions being asked by both economists and political scientists.

Public choice analysis is likely to continue shaping the modern intellectual debate. Adherents of the public choice school, such as Federal Reserve Vice Chairman Manuel Johnson and former Federal Trade Commission chairman and budget director James Miller, have begun to move into positions of authority. Moreover, the important role of rational choice not only in private decision-making but also in the public policy process is now widely recognized: “It is fair to say that the bulk of political scientists now think this way,” says William Riker of the University of Rochester. As the ideas promoted by the public choice school continue spreading, they may eventually have even more practical impact, leading to fundamental changes in the structure of government.

  • Doug Bandow

    Doug Bandow, J.D., is Senior Fellow at the Cato Institute, specializing in foreign policy and civil liberties. His is a prolific author whose books include Wealth, Poverty, and Human Destiny; Beyond Good Intentions: A Biblical View of Politics; and The Politics of Envy: Statism as Theology.

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