Montreal, August 15, 2011 • No 291

 

Adam Allouba is a business lawyer based in Montreal and a graduate of the McGill University Faculty of Law. He also holds a B.A. and an M.A. in political science from McGill.
 

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The Triumph of Hope Over Experience:
Why Government Failure Should Be No Surprise
 

by Adam Allouba
 

          On the morning of Sunday, July 31, Montrealers awoke to a depressingly familiar scene: the city’s infrastructure crashing to the ground. This time, it was a 15-meter concrete slab that suddenly fell from a tunnel that accommodates 100,000 vehicles on an average weekday. The incident evoked memories of 2006, when a collapsed overpass in a Montreal suburb killed five and seriously injured six others. This time, while no one was hurt, the same accident just 24 hours later would have surely crushed several unlucky commuters. Public outrage was further stoked when the government released a 2008 inspection report that labelled the tunnel’s state “critical” and specifically warned that “pieces of concrete could fall into lanes.”
 

          Montreal’s ongoing adventure in structural collapses illustrates a broader phenomenon: the state’s incompetence. Granted, people also suffer terribly as a result of private-sector mistakes. But which sector is more error-prone? After considering some particularly flagrant examples of government incompetence below, I will offer some reasons why we should expect the state to be inept. Conversely, despite its flaws, the private sector has a variety of self-correcting mechanisms that make blunders less likely.

Getting Around

          The Ville-Marie collapse is only the latest in a series of similar incidents that include the ever-crumbling Olympic Stadium and, of course, the 2006 De La Concorde overpass tragedy. The inquiry report that followed identified serious problems at the Ministry of Transport, including:

  • failing to consider the structure’s “special nature” in its inspection program;

  • poor record-keeping, including half-complete files;

  • failing to ensure compliance with its own inspection manual, particularly in collecting data necessary to oversee the structure;

  • ambiguous lines of authority among engineers and internal units.

          The commissioners found that the ministry’s organizational culture and work habits were in urgent need of reform.

          Quebec is hardly alone in having infrastructure problems. In 2007, a bridge collapse in Minneapolis left 13 dead and almost 150 injured. An investigation blamed a design flaw, concluding that “current Federal and State design review procedures are inadequate to detect design errors in bridges.” Indeed, 10 of the 14 state Departments of Transport it surveyed had “approved bridge designs that were later found to be deficient.” In 2006, a fallen ceiling panel of Boston’s “Big Dig”―which finished a decade behind schedule and 570% over budget―crushed a woman in her car.

          Even if your roads are intact, problems may be closer than they appear: In 2007, McGill University civil engineering professor Saeed Mirza estimated that for Canada’s municipal infrastructure alone, the infrastructure deficit―the difference between necessary and actual maintenance expenses―had reached $123 billion. South of the border, the American Society of Civil Engineers estimated in March 2009 that $2.2 trillion in infrastructure investments were required over the next five years. They noted that governments had allocated less than half that amount.

Watching Your Money

          When it’s not keeping our transportation system running, the state also actively surveys the financial markets. It thereby protects the average investor against scams. Right?

          Not always―just ask the victims of Bernie Madoff, who may be history’s most notorious financial villain. In 2008, his investment firm turned out to be a pyramid scheme that bilked clients out of up to $65 billion. No fly-by-night operator, Madoff admitted to running the scam for almost 20 years, although investigators believe it started perhaps a decade earlier.

          Government regulators investigated Madoff’s operations eight times over 16 years and never found a thing―even after an industry executive handed them a 21-page report that he had prepared, which concluded that the firm was “the world's largest Ponzi scheme.” Madoff himself professed to be “astonished” at regulators’ failure to make elementary inquiries that would have made it “easy” to uncover the fraud. As one client put it, “We're not just the victims of Madoff; we’re the victims of the incompetence and irresponsibility of the [U.S. Securities and Exchange Commission] SEC!”

Keeping You Safe

          If there’s anything the government should do well, it’s keeping us from physical harm. After all, isn’t the most common justification for the state the need to ensure our safety? If so, the story has a few loose ends.

          Let’s take airline security. Confiscated nail clippers, forbidden water bottles, mandatory ID, shoe x-rays―the government has left no stone unturned in its efforts to make flying safer since 9/11. To ensure its full control over passenger screening, Washington even nationalized the entire industry shortly after the attacks. After all, the private sector was not up to the task: in November 2001, security contractor Argenbright Security’s screeners missed “seven knives, a stun gun and a box labeled tear gas.” Months later, one of their employees lost track of a man with apparent “explosive residue” on his shoe, requiring thousands to be rescreened.
 

"Some may dismiss these examples as a few particularly flagrant illustrations of the maxim that no one’s perfect, but there are systematic reasons behind the state’s dramatic failure."


          A decade later, screeners hired by the Transportation Safety Administration have missed a hunting knife, a pair of 12-inch razor blades, a 200,000 volt stun gun, a bag filled with explosive material that blew up on the tarmac after landing, a large gun in an otherwise empty bag, a box cutter (the same implement used by the hijackers)…

          To be fair, given the number of passengers screened daily, even a 99.9% success rate would generate enough “oops” stories to keep journalists busy. Unfortunately, the TSA is nowhere close. Last December, its failure rate was reported to be nearly 70% at certain major airports and “every test gun, bomb part or knife got past screeners at some airports.” In 2006, undercover TSA agents got bombs and explosives past their colleagues on 20 of 22 tries and Government Accountability Office investigators snuck bomb-making parts past security at all 21 airports they tested. The head of the House Homeland Security Committee later called these audits a “waste of money” since there was no follow-up to determine why the screeners had failed.

          Of course, incompetence on this grand a scale leads to a single, inevitable question: Does anyone have Argenbright’s number?
 

Why So Incompetent?

          Some may dismiss these examples as a few particularly flagrant illustrations of the maxim that no one’s perfect, but there are systematic reasons behind the state’s dramatic failure.

Not My Problem!

          What did the government do after the overpass collapsed? After we learned that you could probably sneak an elephant past security? After Bernie made off with all those billions? Well, besides the shelved inquiry reports and soaring rhetoric, nothing much. No one was fired. No bureaucracies were dissolved. No budgets were cut. In other words, the government was never penalized. Sure, the occasional cabinet minister is forced to resign, but given their short tenure, how often are they really to blame? And while you could always sue, the Crown is not subject to any law unless it specifically provides otherwise. In other words, the state is literally above the law until it chooses not to be. And even if it does have to pay out, the government doesn’t have to worry about running out of (our) money.

          Even worse, government is often rewarded for its mistakes. For some, the SEC failed to catch Bernie Madoff because it was underfunded and understaffed. The result has been large increases in budgets and employee levels. A failure to keep our infrastructure intact, a failure to detect tainted food, a failure to teach children to read―each proves that the government body concerned needs more resources and responsibility, not less.

          Now consider the private sector. Many investment firms refused to do business with Madoff because his returns were “suspicious” or even “impossible.” Unlike the SEC, they had a strong incentive to detect the fraud, since falling victim to it would hurt their business or even get them sued. The victims of Canada’s mini-Madoff, Earl Jones, allege that the Royal Bank’s negligence inadvertently enabled his fraud. If so, the bank, unlike its public-sector counterparts, will be liable for its errors. And, of course, when mistakes happen in private business, heads may roll. When was the last time a civil servant got fired for a serious mistake?

Whose Fault Is It Anyway?

          Another reason for lower government competence is a lack of expertise. The senior management of a private firm is hired specifically to run that business. It normally includes people with technical proficiency, managerial know-how and other skills required for a corporation operating in that field.

          In the public sector, whatever group voters happen to elect (they are especially fond of lawyers) is expected to be expert in everything that the government does―which is pretty much, well, everything. Food inspection, drug regulation, highway maintenance, fishing quotas, scientific research, military operations, trade policy, and beyond: politicians need to be good at it all. Of course, like anyone else, they haven’t the slightest clue about most of these fields, which means that government is mostly delegated to civil servants with specialized training. As a result, voters have no one to hold accountable―politicians aren’t really running things, and bureaucrats certainly don’t answer to the public.

You’re Fired… and Hired… and Fired…

          A third issue is the sheer impracticality of holding the public sector accountable. The state is responsible for so much that hardly a month goes by without news of some significant government failure. What do you do if you like the way the state handles issues A, B and C but not X, Y and Z? At most, changing government will get you another team with different strengths and weaknesses but not one that’s good at everything. Private firms focus on one thing, or maybe a few. Management either gets it right and stays, or gets it wrong and answers to disappointed shareholders. And while they often fail to take a sufficient interest in who’s managing their companies, problems with shareholder democracy (like lack of engagement) pale in comparison to those inherent in political democracy. The result is that when a mistake occurs, nobody is responsible.

Out of Sight, Out of Mind

          A final reason for government failure is over-centralization: reliance on a single legislature, a single regulatory body, a single cabinet of ministers, etc. If the law on, say, telecommunications was last updated 20 years ago, it will stay frozen in a pre-Internet age until Parliament gets around to reforming it. If a new class of drugs doesn’t fit in the current regulatory scheme, patients will go without until the regulators pass amendments. With the speed at which societal, technological, economic and other changes occur today, it is impossible for the state to keep up. What’s worse, if you don’t have the political clout to grab someone’s attention, your issue may be so far off the radar that it simply never gets fixed. Conversely, the private sector can respond much more quickly, as cutting-edge businesses adapt to new developments. Even if only a few firms adjust their practices, they are the ones that will do best. Eventually, their competitors will either move in the right direction or get left behind.

It Doesn’t Have to Be This Way

          Is it any wonder that bureaucratic mistakes induce laughter or anger, but rarely shock or surprise? People expect the government to slip up―they just figure that it’s better than those greedy businesses trying to fleece us. But for all the above reasons―and more―we should actually expect worse results from the state. No matter how well-intentioned, competent and intelligent the people who work in the public sector, failure is simply embedded deep within its nature. Instead of trying to make government work better―instead of trying to fix the unfixable―we should accept reality and transfer its functions to the private sector.