Wednesday, October 2, 2013

Public Waste And Public Choice

These are cover your eyes awful:

  1. RM2 billion in dubious security services
  2. RM3,800 wall clocks
  3. RM600,000 in unused footwear
  4. RM550,000 in unverifiable claims
  5. Lost cars!
  6. RM8 million in double subsidies
  7. RM16 million in uncollected performance bonds

Not much can paper over the amount of waste that goes on in government. The only one that I can understand is item 2, which was part of a lowest bid contract awarded by open tender. That’s fairly typical of tenders conducted even in the private sector – contractors hide their profit margins any way they can. But the rest look more like cases of inefficiency, incompetence and outright corruption.

Unfortunately, this is par for the course (I especially like the one about US$3.9 million for rearranging desks and chairs).

Governments are by construction inefficient, since they provide public goods that the private sector will not or cannot provide. Since there is no market discipline (where’s the competition?), there’s no tendency to economic or financial efficiency.

Secondly, based on public choice theory, this behaviour is perfectly rational. Despite what some believe, changing the faces at the top won’t change these essential characteristics (though you might get rid of the more egregious abuses and abusers). That has led many public choice theorists to support smaller governments i.e. since waste will happen whether you like it or not, you should reduce the opportunities for waste.

But in the Malaysian instance, that covers many areas which might not be palatable for many. Free market liberalism is a bad word for some. We are in some ways heading in that direction already (for example, reduction in subsidies), but that requires a social consensus that is still lacking.

I’m somewhat bemused by Malaysian political economy – on the one hand, we demand efficiency and transparency in governance. On the other hand, we demand a scale of government social and economic support that essentially undermines any hope of government efficiency.

I’ve no doubt many civil servants do their job the best they can, with the interests of the public at heart. But I’ve no doubt just as many don’t care, and see public service as just another job. Part of the problem I’m sure is the low scale of wages – we get the level of government we paid for.

I’m reminded of my experience sitting on the Joint Management Body of the condo I stay in. Pretty much the same issue – we demand a certain level of competence, but aren’t prepared to pay for it. The result was a revolving door of property management companies (and service contractors) with less than salutary results, as you might expect.

Are there any solutions? The GTP is one – culling ineffective programs, putting outcomes over budget compliance, for example. Better audit monitoring, as  the A-G is moving towards, would surely help. Just bear in mind that none of these change the leopard’s spots. We’re still talking about the same animal here.

Kudos to the National Audit Department for an honest and frank assessment of government finances. You can read the Auditor General’s 2012 Federal Government report here.

7 comments:

  1. "...Governments are by construction inefficient, since they provide public goods that the private sector will not or cannot provide. Since there is no market discipline (where’s the competition?), there’s no tendency to economic or financial efficiency..."

    Are there any real world exceptions Hisham?

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    1. Greg,

      Morning, maybe Singapore Government fit the exceptions as they only spend about 17% of GDP with an army to fit while Hong Kong Government spend about 18% of GDP without an army. Singapore is know as the stingy nanny by the Singaporean.

      Zuo De

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    2. Sorry, feed not fit ...

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    3. Greg,

      If you put a gun to my head and force me to an answer, I might say the Scandinavians.

      But I don't think many others would fit. Singapore for instance (like Taiwan or Hong Kong) have really gone the private choice route - minimising waste by minimising government.

      But we have little in the way of solid metrics to make such judgments.

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  2. Dishonest Ambrin BuangOctober 8, 2013 at 6:08 PM

    Dont be fool by these Ambrin Buang figures. If anything you should consider his figures are full of mal a fides towards the government. Consider that the 44 guns operational losses are from 2010 to 2012.
    Hey wasnt these included in the previous years audit?
    Why include them in 2012 Audit? Why not take over the last 10 years?
    What happen may be that the fresh graduate auditor said there are only 5 guns missing in 2012. Thats too low. Why dont you include the last 3 years and make it a respectable 44?

    Also Ambrin Buang is mischievous because he hid the part that there are probably hundreds of thousand of guns and 11 losses per year is very very good.
    Consider that in NY itself they lose thousands of guns per year. The only way not to lose guns is to keep them under lock and key. That way no gun will ever be lost.

    Than there is the abuse logging licenses in Sarawak which are given to a certain race Chinese year in year out while the Penans remans wearing cawat.

    Shouldnt Ambrin Buang spent more time auditing the Jabatan Perhutanan who issued these logging licenses and cause waste and abuse of rainforests assets which are million of years old being hacked for Chinese profits?

    These are billions and trillions of money going to waste in Sarawak and Ambrin Buang was proud to declare the police lost 1.3 millon assets from 2010 to 2012! The audit report should clearly state that it is an audit from 2010-2012.
    Thus his report is compromised as it shows his dishonesty.

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    Replies
    1. The Auditor General, like many internal audit departments, does not have the capacity to audit all government departments simultaneously in any given year. Hence the two-three year gap between audits for particular departments. Second, even then, it's unlikely a full-scale audit is possible. What is more likely is they conduct sampling e.g. the audit of school security, which only covered a few schools. This is all standard SOP.

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    2. Thank you for 'highlighting' the popular misconception about audits (especially the scope of coverage by the Auditor General), which is worrisome, to say the least, because it means many may have also missed another important point: If the AG's report represents just the tips of only some of the icebergs, is anybody paying any attention to the rest of the icebergs?

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