Government Competence During Recessions
An often raised objection to President Obama’s economic policy (or its natural extensions) is that the government is ill-suited to run private firms. I want to raise two counter-arguments that I think diminishes the force of that claim, and which I haven’t seen elsewhere: (1) government workers are smarter during severe recessions; and (2) we know more than we used to about what makes non-profit governance work.
1. Government Eats Brains During Severe Downturns
Because it is familiar, consider the market for legal jobs. A year ago, or two, top law students would be trading present income for the possibility of future income & (difficult to quantify) life satisfaction if they took a job with a government agency instead of a large private firm. That calculation being uncertain, many argued that government jobs were disproportionately filled by individuals seeking to increase the power and prestige of the State, i.e., that they weren’t maximizing wealth. Today, that calculation looks different. Students have to consider the likelihood that the firm will rescind their offers, either before they start work or after. (Odds helpfully summarized here.) So, assume that a student has an offer from (say) Ditto Dot, LLP, with a starting salary of $150K, and she determines that the likelihood that the firm will honor its offer is 50%. The student’s expected salary, obviously, is 75K. A DOJ job (taken after a clerkship) pays in that zone, and there is zero chance that the job will disappear. Since the likelihood that some of these firms will honor their offers appears to be significantly lower than 50%, the DOJ now “pays more” than large parts of the private sector. (Incidentally: another argument against increased federal judicial pay.) Thus, the competition for government jobs should be much more fierce today than it was last year, and will be severe in the Fall hiring season. The result ought to be better qualified government lawyers at all levels.
This same dynamic will be in play in other government departments, including the Treasury & the Fed. During very severe recessions, Washington will be a tremendous talent magnet. Thus, though it is true that the government will never be as nimble as a private firm, our views about its relative level of competence may be unduly influenced by its performance during the times of plenty that we’ve had over the last two generations. Better employees should lead to better government work.
2. Non-profit organizations can work well
At the same time, I think that the claim that the profit motive is necessary to drive effectively governed institutions also needs a bit of rethinking. Universities and other complex non-profits thrive because of internal cultures of performance, driven by strong leaders. Nonetheless, they can be incredibly effective, at making money (consider the success of Yale’s endowment), at inculcating loyalty, at being stable, etc. The literature on non-profit governance is just beginning to influence the legal academy, but appears to offer some promising ideas about how to structure a non-profit so that it can function well absent traditional market pressures. The government, though not a non-profit technically, ends up looking something like it in terms of how its employees are governed and rewarded. We might draw on the lessons of the NP literature in thinking about how to organize the new public-private firms that we’ve seized – at least for the brief period of time that we will be running them.