Why the Government is so Slow (And Why it should be)
What would you call a corporation that could give you a relentless return of 2.81 percent every year (After subtracting inflation) for 70 years?
The Dow Jones, started in 1896 represented the strength of the US economy. Holding all the great titans of US Industry it represented every major sector of the US economy from Railroads to Tobacco. The Stock Index tracked the value of these companies and through proxy, the health of the economy that they drove. On June 18 2018 only one company from that list remained on that list, General Electric. On June 19 it was gone. All while the list went from 12 to 30 companies in the intervening century.
For the aficionado, this is the company that Edison led into his war with Tesla. Later in life as Edison’s folly caught up to him with regards to his obsession with DC supply over AC supply, JP Morgan, the American banker would take it out from under him and merge it to form the company we call General Electric. A corporate coup so to say. Considering its size, one could consider it comparable to a small country taken up under new administration with a peak market cap of 600 billion in 2000. That’s a 5th of the Indian economy in 2020. And just to make the size more apparent, that’s higher than the size of the Indian Economy at that point (468 billion dollars at the turn of the Millenium). So… yes, GE was bigger than the entire Indian Economy at one point of time. No longer true if that’s some sort of relief. But Apple and Microsoft look like they might give us some tough competition if we don’t pull up our socks. Who shall win this race? Time will tell.
The interesting thing
It is often taken for granted that the government is inefficient. A similar phenomenon is often seen in old creaky companies that develop vast bureaucracies. The old slow lumbering big corporation trope. And it has validity. But how many young fresh corporations exist that have continued to yield growth for centuries? Every original member of the Dow Jones is now either dead or diminished. But the US government continues to soldier on. You can say it’s because of the fact that it has no customer, or that it can’t be shutdown. But you miss the fact that to survive a government must carry a littany of acts unpopular as ever. And historically that’s a hard thing to keep doing without getting your head cut off. Or at least someone’s head cut off. The government is as bloated as ever but it keeps chugging with no real disturbance to the peace. Which leads us to the central point.
Governments are not judged on the same scale as corporations.
They are not treated with the same mercy in hindsight. A company that dies leaves open a place to be filled by another. They are designed to die. The point of capitalism is to motivate people to try every method and push the limits. And in turn let the ones that die, die. And the ones that live grow. It’s how we find the path to efficiency. By firing a million bullets at the well and hoping the right one goes through. This is also how evolution happens to work. A thousand random mutations over millennia until one aids survival and ends up sticking. Over many millennia you end up seeing a lot of changes that stick. And a lot of total change. A dead government leaves anarchy in its wake. And to stave that off is it’s primary task. It is easy to forget that civilisation rose from anarchy. And that anarchy is the natural state of civilisation. Many countries find that out when their institutions start failing. A government is not primarily a function entity, but a stabilising one. It is designed to keep the peace. Maintain the great bluff of the law. It is a tempting thing to forget. After all… it’s what we see it doing. Doing things. Passing a law, planning out schemes, building roads, and buying fighter jets. Sometimes inventing them. And they do it slowly, and with mind-numbing stupidity at times. Paper pushed for the sake of pushing. And if we see the government doing one thing, and it does it badly. It must be incompetent. Right? Right??
Imagine a fish. It swims in water. No bother in the world. It bumps into the edges of the tank and eats it’s orange treats when they float down to it. Now imagine yourself as the ‘owner’. You feed it diligently every day. Give it it’s treats, cleaning the tank, replacing the water regularly. You spend money on an oxygenator for the tank. You’re a good owner. As the fish, it sees neither the water nor the oxygenator. To the fish, it’s environment is the default. What else could be there? The water is just the water. Everpresent. One day you’re in a bag, and then back in the tank with fresh water. But you hate the treats. Goddamn salty treats make you retch. To you, the owner is terrible. Feeding you shitty treats. He has one job!
Would it really be wise then to go to another owner if he promises tasty treats. It’s easy to forget that replacing the water and maintaining it is a tough job. It is not easily seen when done right. It is wise then to consider if that is something likely to be compromised. Is it really better to get tasty treats for 10 minutes while you gag on polluted water for hours. Maybe. But one would be wise to factor that in. If you haven’t guessed, we are the fish in the example. To most people living in civilisation, peace, stability, and the rule of law are just defaults. They’ve always been. Institutions have been strong for years. And thus they must always be. There is an interesting idea in Economics. The number one requirement to achieve prosperity is to achieve stability. This is an underrated trait by most idle observers and voters but seen as very important by the market. Business responds aggressively to stability or the lack of it. When the Zimbabwean government took land from white land owners to give to poor blacks in a land redistribution scheme, it almost wrecked their economy. Why? Because all stability is based on a bluff. And the bluff was now broken. Private property is no longer sacrosanct. No amount of good intentions and exceptions and justifications mean anything. The bluff is gone. A reason can then be found for taking any land. Foreign companies pulled out of Zimbabwe en masse. The uncertainty was now too great. Of course, the market does not control too many voters and thus the government tends to pander to the voter that demands quick moves. Even if foolish. A flaw of democracy. This is, in a well-administered country usually mitigated by a relatively inelastic bureaucracy that resists change.
I remember when I was speaking to a person who is a senior manager in a printing parts company. The effluents from the factory of this company were sent out to a Central Effluent Treatment Plant run by the government. Towards the end of its term, the government decided that it could not continue to run the plant anymore. And so all the companies must deal with their effluents. This company then decided that it was wise to build a superior effluent treatment system that could handle the waste better to the point that it could be looped back. At great expense of course. As time went on and the project was planned out a new government came into power. And this new government went in with all the enthusiasm of a 10-year-old with a hammer and declared that the Central plant would not be after all shut down. This is when the project is halfway done. Left with no choice the company, having made most of the major orders went ahead with the project and absorbed the cost. The point of the manager was that it is not just the quality of policy that affects the economy, but the stability of policy too. As CEO of a private company, you can say pretty much anything. There is very little liability. It is a little more, as the head of a publicly-traded company. But for Chief Minister, what he says drives the actions of millions of people. As such the repercussions are greater. And changes must be done with care. As a science student would understand, the entropy change is the lowest the slower rate of change. A zero entropy change is only achieved for an infinitely slow process. A well-run government has to run somewhere in between. The ruler Ivan the Terrible of Russia earned his name for the terrible conditions of the poor in the country under him. Millions were ruined even as he ended the old feudalistic systems in his country. Russia modernized rapidly under him. Never underestimate the investment of people in the status quo. Positive change still ends up hitting people hard if carried out fast enough. People might not expect or be prepared for it.
Dictatorships tend to be the fastest form of government. Whatever the dictator wants, gets done. There is no limit to what can be done. And when the dictator is gone, so is everything torn down. What happens when an economy grows by 90 percent by one year and shrinks by 90 percent the next. Are these equivalent conditions? Not quite. A 90 percent drop means that you have to grow by 1000 percent to recover.(From 10 to 100) 90 percent growth is 90 percent growth. Drop by 50 percent of the new value (190) and you’re back below the old value (Down to 95 from an original 100). If that sounds too vague to understand, the crux is that as growth is often based on a base, loss means more than gain. A loss of 10 percent is bad enough to more than negate a 10 percent gain. And what is built in a decade can be destroyed in a day. What is destroyed in a decade, might take a century to rebuild. Over the long term, a good government must far more importantly stave of damage than just build progress. In good, peaceful times, prosperity is likely to come. If no one’s shooting anyone, someone will till the land. But the moment the guns start to shoot, all growth goes out the window. Reform, at the cost of stability has broken many a nation. Emperors have lost their lives to it. To be replaced by anarchy. When we read about the Roman, the emperors most hated, are the ones that made enemies with the senate. They are the ones that wrote the history books. The emperors died, but the system chugged on. The senators went on and got replacements. And the system remembered the ones it disliked. The will and the interests of the people be damned. And this was in an autocracy. The senate at this point was merely a signing body. When these emperors made enough enemies in the existing power structure, they didn’t live long enough to see the results of their reforms very often. They died. And back to the battlefield went the generals until a successor was the only one that remained. All this to say, resistance to change is a real thing. It might even be justified. Reform must factor that in. The former Prime Minister of India, Manmohan Singh said in his farewell press conference that reforms are process. He explained that they must be carried out when appropriate.
None of this is to disparage reforms. Some of the greatest men and women in history reformed systems in their lifetimes. Augustus, the greatest and first emperor of Rome, made the ultimate reform by changing Rome from a republic into an empire. He died an old man, at peace with his work. And his empire lived on for another one and a half millennia. The point is, when you disparage the government for being slow, it’s probably by design. Every fuck up by the government is worth far more when done by the government. Every experiment that fails has greater implications. The government is by default defined by conservativism. If you want to change that you better be very very competent at doing it. Lest you might bring the whole thing crashing down. And it’ll take a whole lot longer to rebuild. As we started in this article. How many companies can you name that have grown for 200 years while giving consistent returns? How many governments? The ones who do, have done a pretty good job by default. Ask the citizens of Libya and Egypt. All the canal projects and Dams built in record time didn’t mean a damn thing when the bombs came in. They let their system of checks and balances rot, and all the speed they built came at a cost. All those annoying archaic limits and safeguards we set up, act like speed breakers. That all reform be well considered. For better or worse. As a person I often read pointed out, Fascism has a perfect economic record of great prosperity in the short term. We don’t know what happens in the long term because all the regimes ended in war. All but China. I wonder, what that’s gonna lead to?
As an observer people need to focus also on whether the present disposition is taking care of all that has been built before them. All law and order is built on an illusion. The law is just paper. If everyone broke the law it would mean nothing. That is why in court, precedent is everything. How does what we do today reflect on us as a nation? What will this decision made today lead to tomorrow? How will it echo in the history books and our culture? What will it say about our society when it is looked back upon. Every society ends up constructing its own social contract. Every law subverted for expediency means all law is a little less respected. Easier for the next guy to subvert. Until none mean anything. All this conservativism and circle jerk of checks and balances is very bad in a lot of places. PSUs for one suffer for it.
It might perhaps be wiser instead to keep the government out of certain sectors. All these checks and balances make for a great referee. But also a terrible player. To the utilitarian, their own dictatorship would always be ideal. I’d argue though that in the long term that if the government cannot be agile without compromising its stability, it might be wise to keep it out of sectors that demand agility. Or take the losses. Which is a defensible stance. It allows you to have a representative entity in an industry. But try to make this a lynchpin of growth and you start to see a degree of failure. Democracy does not work because it represents the will of the people. It works because it allows for the peaceful transfer of power. Very few systems do that. I allows the leader to change every five years. So tension can be dissipated. And it gives the new guy legitimacy. One or the other has brought down many a kingdom or empire. The moment people stop trusting any of these institutions though, the jig is up.
Let the privates die and be reborn en masse. Factories going bankrupt and bought by someone else. To be modified. Let the government stick to what it excels at. Being the referee. As the player with the most power, it is perhaps the most important that it use it sparingly. Let the government do a few things. And let it do it well. Let GE make all the risky moves. There’s always Apple to take over. And then Amazon. If the US government loses it’s shirt to Bitcoin, I’d hardly expect the government of Togo to take over adequately. But if JP Morgan does, that’s less of a concern for most.
