The Creeping End Game of Government Bureaucracy

In today’s Wall Street Journal there are two articles that seem to be completely disconnected but are really linked at the core. One is titled “Health System Reflects Greece’s Ills” which summarizes Greece’s public sector health policy:

Like nearly all Greeks, Mr. Gianakouras was covered by a state social security fund, which provided $13,6000 for the hospital bill. There was just one more thing: Mr. Gianakouras said he gave his surgeon “black money” – $5000 Euros in cash – to perform the operation.

‘If you don’t pay’, he said, ‘you don’t get anything done’.

While we might be surprised by this type of situation in the United States and a few other western countries, it is the way the world operates elsewhere when the government or constitution gives “rights” to citizens without the means to pay nor proper incentives to get work done in an organized and systematic (market-based) fashion. This system was brought to a fine art in the former Soviet Bloc countries where the free-market was squeezed almost entirely into niches; a vast, parallel system of bribes, favors, and illicit goods and services ran alongside the “official” system which got little or nothing done.

Alongside the uselessness of utilizing the official channels is the general impunity of the government workers that run the sham system. Periodically there are calls to remove “corruption” but that implies that corruption is a deviation from the system when in fact corruption is the system itself. There is little or no motivation for the government workers to follow rules and bribes and favors are commonplace, so what is the point in going after them in the first place for participating in a system that can’t work?

A different article discusses the “penalty” faced by SEC workers for their failure to spot the Bernie Madoff fraud, titled “SEC Discipline over Madoff” which can be easily summarized in the first paragraph:

The SEC admitted Friday that it has disciplined eight employees over their handling of the $50 billion Bernard Madoff Ponzi scheme without firing any of the workers.

In one of the most obvious cases of gross governmental negligence (there are entire documentaries about individuals that tried to bring Madoff’s scam to light and were ignored by the SEC employees so I won’t summarize them here), there is NO CONSEQUENCE for these workers for their failures.

The core concepts of moving away from the free-market to a governmental run system are 1) bribes , corruption and favors being built in to the system to make it work 2) general impunity of workers for participating in this sham “rights based’ process.

My advice is to befriend governmental workers and medical care professionals in the future as our system moves more towards the “Greek” model of over-promising care to everyone and under-funding and not incenting the hard work necessary for quality care to occur. And be prepared for a wall of government workers who can rule with impunity based on arcane processes and standards not tied to the free market or any sort of accountability based system as our “investment” in government increases; the first thing these workers will do is build a system where they are put “first” before the mission that they are trying to accomplish.

I never thought that my classes on “command economies” would ever come in so useful, but it shows the long-term arc of our creeping end game in the West.

Cross posted at LITGM

16 thoughts on “The Creeping End Game of Government Bureaucracy”

  1. …and in one of the “Big” sites, one of the relatives of Greece’s last conservative PM, details how he tried to warn his countrymen:

    My point, hardly controversial I’d think, is that as a rule people tend to vote their self interests over the interest of the country – look at Medicare and social security….

  2. I don’t think that Greece is a good parallel to the US. Greek industry specializes in schemes that maximize income from EU subsidies, certainly not productivity.

  3. Fair point on Greece. However their institutions are thoroughly socialized, and thus lack market based incentives which means you have to pay off someone to get something done. That is where we are heading.

    Probably their farmers and consumers benefited much more directly from the EU.

  4. I was staggered at the thought of a surgeon getting 5000 Euros for an operation. With the exception of cardiac surgery, in which the charges are almost always a global fee including everything, no American surgeon would expect such a fee. I think, as government squeezes doctors here, the private system that is evolving is low cost. The busiest total hip surgeon in Orange County, several years ago, had dropped all insurance, including Medicare, and was charging about $1750 for a total hip. That was the surgeon’s fee only, of course. He had cut his overhead way down and had gone to a cash model. Of course he can do a couple of hips a day or more. The surgery takes about an hour by a really skilled surgeon. They are also going to specialty hospitals that they own, not so much to make more money but to increase efficiency. My heart surgery was done in such a specialty hospital in Tucson, Tucson Heart Hospital. The general hospitals will be the Medicare hospitals. They are drowning in bureaucracy.

  5. “there are entire documentaries about individuals that tried to bring Madoff’s scam to light and were ignored by the SEC employees so I won’t summarize them here), there is NO CONSEQUENCE for these workers for their failures.”

    That is because SEC decisions to investigate high profile targets or not investigate them are usually made on a political basis, not just an evidentiary one or by citizen complaint. Mr. Madoff had a long list of VIP “friends”.

    This is actually worse than mere incompetence, in my view.

  6. One of the strongest arguments against the constant enlargement of the regulatory state is the well documented corruption which follows inevitably when reams of permits are required for every action.

    It is well known that little or nothing ever got done in the soviet union without an additional dollop of cash, vodka, cigarettes, or some other valuable commodity to grease the wheels.

    China and Cuba, to name a couple of examples, are pure crony economies, one huge, and the other miniscule.

    When China privatized, several years ago, the people who managed to be first in line to buy assets were members of highly placed Party families.

    There have been numerous scandals about the lack of quality and safely of chinese products because the inspectors who were supposed to monitor various processes were simply bribed to sign off on adulterated products.

    As we encumber ourselves with more and more regulations and more and more state cadres to administer them, we create endless new opportunities for the weak in integrity to fall victim to the stark choice of either participating in a corrupt system, or losing out in a world in which honesty is foolish and venality is expected.

    One of the unacknowledged causes for the collapse of totalitarian systems over the last several decades, as well as historically, is that the all pervasive corruption distorts the economy in fundamental ways, and wastes enormous amount of resources that would be used more efficiently in a non-corrupt system.

  7. My point, hardly controversial I’d think, is that as a rule people tend to vote their self interests….

    Absolutely true, but the real issue is whether people have enough understanding to distinguish their immediate, narrow interests from their long-term, enlightened interests.

    In the Greek example, the supposed beneficiaries have voted in a system that cannot possibly sustain itself. Even if you attribute this to utterly selfish cynicism on the part those who think they can game the system, the risk of the whole thing collapsing within one’s own lifetime is great enough that it hardly seems worth it.

    In contrast, the U.S. has historically reaped enormous benefits from being deliberately founded on the principle of highly enlightened self interest. Unfortunately, we’ve been leaking enlightenment for several generations now, and I’m not sure how much is left in the tank.

    Even those of us who retain traditional moral habits are often ignorant of the fact that those habits are a necessary component not only of justice, but of prosperity. Those who insist on more “practical” ideals don’t seem to understand that their policies are driving exactly the sort of impoverishment and exploitation that they claim to be fighting.

  8. Michael – when I last had a minor operation I was talking with one of the nurses and she said that she now spends half of her time on a computer keyboard filling out reports because of government mandates.

    One things of all the stuff that hospitals and doctors have to do because of government – wonder what things would cost if most of that were taken away – (don’t have to tell you what a typical CA urban emergency room looks like) and reining back malpractice awards to realistic limits (there is an attorney in town here who through the admittedly inept work of a surgeon, became either partner or majority owner of one of our major shopping malls – literally 10s of millions –

    I would jump at the chance of being able to simply pay cash for a medical service without all the middlemen. I think I can speak for millions.

    Setbit – in the past mere mention of reforming social “security” would have the senior citizens aligned against you – ditto medicare – if you want to have some fun Google the history of Medicare and see the promises the politicos made to get that enacted; specifically what it would cost as a percentage of the federal budget…

    Honestly I want to believe you over my own cynical view – time will tell….

  9. Bill Brandt,

    Social Security and Medicare, and the shallow self interest that attends discussions about them, is exactly what I had in mind when I spoke of dwindling enlightenment.

    A wiser generation would have been able to see a little further past their own covetousness and naivete, and realize that these programs were doomed to eventually die, and that the programs might die before many of their suppose beneficiaries did.

  10. “While we might be surprised by this type of situation in the United States and a few other western countries, it is the way the world operates elsewhere when the government or constitution gives “rights” to citizens without the means to pay nor proper incentives to get work done in an organized and systematic (market-based) fashion.”

    Quick Carl — name another western country that doesn’t have socialized medicine! We don’t see bribes to surgeons in Japan, Canada, Britain, Sweden, Norway, the Netherlands, Germany, France, Denmark — even though all of these countries have the scourge of all scourges — socialized medicine!

    So, Carl, can you explain what’s going on here? Sit on the couch for us… Why do you think you got this so wrong? Did socialized medicine beat you when you were little?

  11. Bill, I had a small stroke and heart attack in September followed by cardiac bypass. I went to my cardiologist (mainly to let him know). He wanted me to see a neurologist about it and I am scheduled for a couple of CT scans and an MRI next week. They will all be normal but I didn’t want to insult him. He started off with a burst of laughter, looking at my records from Tucson, saying he had never before seen a discharge summary with no diagnosis. They told me in Tucson they couldn’t explain what happened. Anyway, I had to have two simple blood tests for the scans (BUN and Creatinine), so I went to the local hospital here in Lake Arrowhead for them.

    I spent two hours while the girl took my information for the two simple tests. When I looked at the printout, she had gotten my date of birth, age, and driver’s license wrong. She had also sent me to CAT scan instead of the lab.

    Modern medicine.

  12. Thorstein Veblen – Your ignorance is showing. I suspect you didn’t even do a cursory google search before airily stating that such bribes do not happen in your listed countries. In reality, there are two phenomenon going on, bribery to jump ahead in line for rationed care for inflexible systems and the shifting of more and more care to a parallel private system in socialized medicine countries, effectively privatizing care to avoid the long lines in the first place. Japan, Canada, and Sweden all have these dynamics going on and I lost interest before I got through the whole list. If your government is rolling in dough because of other factors, they may throw enough money into socialized medicine that it works for a time. I suspect North Sea oil money plays this role for Norway. But the financial bonanza permitting this sort of thing is always temporary and then the same old dynamics appear.

    So what made you so sure that there was no bribery in any of those countries? Why were you so sure without checking that the systems called socialized were actually socialized? Sit on the couch for us… Why do you think you got this so wrong?

  13. Bribery, while technically accurate, is a loaded word here and I think this little story illustrates more differences in culture rather than implications of gov’t provided health.

    What you have here is an operation that cost 18,600 Euros. The gov’t paid 13,600 and the patient paid 5,000. In other words, you have an insurance policy with a 25% co-pay. If the gov’t paid more, the co-pay may fall, if it paid less, it would rise. That’s really no different than private insurance in the US or employer provided insurance in the US.

    Yes yes, language wise there’s a difference. In the US you have a strict contract. The patient knows his co-pay is 25%, the doctor knows he is allowed to charge $5,000 and if he tries to collect additional cash payments under the table he is breaking the contract he has with the insurance company etc etc. But the US is a heterogeneous society with a long tradition, from English law, of treating the language of contracts as sacred and are interpreted literally with little motivation to . Other cultures put less stock behind the literal language of the law or the contract and more behind the informal understandings. The relationship trumps the contract and taking the literal language of the contract very specifically indicates a lack of trust and a certain amount of disrespect. In a highly heterogeneous society where many relationships are more transitory, its more efficient to take relying on the literal language of contracts and laws than it is to treat them as more ‘suggestions’.

  14. The logical end point to all of this is that private insurers will be driven out of the business, leaving a single payer system, i.e. the government, which will of course mean rationing. One aspect of Hillarycare that really frightened people was the possible criminalization of people seeking care outside the government-run system; that may make a comeback under Obamacare – who knows?

    Prediction: Medical care will be rationed, and medicine itself will become a lower-status occupation. Medical tourism will become big business. It’s not difficult at all to picture high tech clinics popping up in Tijuana and Mexicali (or Cabo San Lucas, if you prefer) catering to well-to-do Americans, complete with English-speaking doctors, “concierge care,” and whatnot.

  15. The logical end point to all of this is that private insurers will be driven out of the business

    An end point but hardly ‘logical’. If the gov’t provides universal coverage but is skimpy then you have ample market incentive for supplemental insurance to ‘pay the difference’. You already see this in Medicare where you can live with Medicare or use your own money to buy ‘gap insurance’ to pay the 20% & other various co-pays. If Medicare cuts in the future ‘bite’, then such private insurance markets would no doubt grow.

    The above is only a ‘logical end point’ if a society voted to provide excessively lavish health benefits so hardly anyone would want to bother with any type of ‘supplemental’ insurance of any type. I don’t put the odds of that very high anywhere in the developed world.

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