Progressive pundits tend to argue that job creation during privatization is offset by counterpart job loss in the public sector, and that given the cost of the transformation, along with the supposed “zero-sum” effect to unemployment rates, privatization is generally not worth the effort. What is being trivialized is the phenomenal difference in market behavior between public and private sector commerce.
The operations of public sector industry are effectively a function of decisions made by a small group of bureaucrats, who are expected to direct some aspect of the economy. In the private sector, where market functions are allowed to exist, employment and production are the direct response of aggregate demand and consumer sentiment. As peoples wants and needs evolve, supply markets evolve in accordance. When jobs are transposed from the public to private sector, these jobs are being transposed into a more functional, reactive market mechanism.
The next fallacy is all-too predictable: This increase in efficiency generally means less employment – public sector industries are most always over-staffed. But is less employment really a problem? This argument is akin to arguments against technology, as it displaces the need for labor and employment. Of course, it rewards us with the ability to maintain or even increase our output, with less resources, and to re-balance many of those freed resources to other facets of our economy that are actually in need of labor – Project Management 101.
It’s important to remain skeptical of any key market indicators based on GDP or job numbers related to public sector employment. What are these employees producing exactly? Who is directing this production, and why? How exactly is the need for these goods and services determined? How do these people plan to respond to evolving needs? Can we really assume that the product of this labor is driving any kind of value? What Friederich Hayek dubbed “the fatal conceit” was the notion that empowered politicians can calculate the needs of citizens better than the citizens themselves.
This becomes particularly concerning when incentives encourage employees to take jobs with Government instead of private employers or entrepreneurship. Free market wages, like the costs of goods services, are price signals that provide transparency into which labor services are in high demand and low supply, i.e. jobs that are valuable. These signals conveniently provide the incentive for prospective employees to pursue jobs where they are needed the most. When wages are inflated artificially, these signals become distorted and misleading. And then of course, when taxes are increased on high-income private sector jobs, we experience a polar reversal of incentives and impediments, leading the migration of our workforce from jobs that exist because of the needs of our citizens, to jobs that exist because….some bureaucrat “knows” they should exist? Not likely.
The following is a valuable example of the futility of public sector GDP, and an example of the difficulties of centralized economic calculation:
