We all know that public employees do not have to compete in a market for their services and that the expected productivity standards are very low whilst wages are higher than in the private sector. But just how bad is it? Actually there is a very easy way to find out because some government functions have been sub contracted out in the market to private contractors such as Capita, G4S and Serco, so we have a direct measure.
Paul Pindar is the boss of Capita and he says that a cost saving of 30 to 40% is typical. But out of this his company is running at a profit margin of 14.4% which suggests that overall the exposure to the market halves the cost of doing the job. Or in other words we only need half the number of public employees that we now have to do the work that is currently being done.
People say that it is wrong to make a profit from providing a public service. Why? Surely if a company competes in the market to give us a given service at the lowest price then how much profit they do or don’t make is none of our business. They are taking the risk on the contract, they are making the investment, they are applying management resources, they are saving us a fortune. Of course they should earn out of this.
The same goes for their executive pay, these guys use enterprise, have fantastic judgement and take risks to generate earnings, they deserve whatever their company want to pay them. And it is none of our business, the only thing relevant to us is the price we bought the service for in the market.
But there is more to government waste than that it takes twice as many people to do the work. There is the fact that much of the work doesn’t need to be done. National and local government are full of non jobs that are a total waste of taxpayers money. Looking at the Guardian, even in the middle of supposed cuts, I see a Head of Nuclear Projects and Programmes for a borough council at £52K pa and a Director of Place & Sustainability for a London borough at £140K.
It is not just non jobs, it is whole government departments, both national and local, that we don’t really need. Why is the taxpayer financing a Department for Culture Media and Sports with £1.9 billion of their hard earned money? (Admittedly this is being reduced to £1.1 billion, but it is still pretty silly.) In fact why do we even need a Department for Business, Innovation and Skills? Its £18.6 billion budget (reducing to £14.6 billion) would be far better left in the productive economy in the form of lower taxes. Business can run itself without any government interference (except for necessary regulation).
And there is more. So far we have double the number of people being employed that are necessary. Then we have non jobs and unnecessary departments. But on top of this government has excessive layers of very expensive hierarchical management that are largely a complete waste of money. In the real world of private enterprise, where wealth is created and everyone is exposed to the market, it was realised a long time ago that you can run just about everything just as well with a very lean management structure. So they went through a process called de-layering where whole management grades were made redundant. After which everything ran just as well as before. This is what British government needs, de-layering and lots of it.
As you can see there is massive room to reduce the cost burden of our public sector. Remember that it is totally parasitic on the private sector. Every penny the government spends ultimately has to be earned by the enterprise, work and investment of the private sector. Increase the size of the private sector and reduce the size of the public sector and we will be a far wealthier nation, as the countries that already do this have proved.