E-M8 Entrepreneurial Management for Eternal Mission

Government, like any large and complex system, is inherently inefficient and corrupt. Since the humans who make up the government are imperfect, governments will never be perfect (just as market or any other human institution cannot be perfect). The management complexity increases exponentially with the  increase in the size of the large systems, creating lots of opportunities for problems. 

Yet, the more relevant question is: Are government systems necessary?

While in many ways, the markets are superior, I would submit to you that the government is better positioned to foster free market and provide leadership than free market. Free markets imply the freedom from coersion, full informational disclosure and low transaction costs.  It takes government policy to create a fair and open market place with strict disclosure rules and with protections from coersion and unfair dealing.  The only other option is a small enough market where each participant know enough about the other participant to know what to expect (E-bay feedback ratings, anyone). Obviously, a private business can foster the creation of the information rich markets, but then there is no non-market mechanism to punish the wrongdoers who can manipulate the market in their favor.

The two functions of government that even Libertarians accept are: infrastructure and defense. I would argue that infrastructure is broader that Libertarians define it: infrastructure includes legal systems, information exchange systems, standard setting bodies, etc. The government is ideally positioned to facilitate all of those functions.

Facilitating, in my mind, is really the key role and approach to function of the government. Coersion and taxes to address behaviors that are harming public resources (huge fan of taxes on pollution for example) are also roles of the government, but pramarily facilitation. By facilitation, I mean bringing together the right people and the right resources to get stuff done. By the government being the guarantor of our trust, they are in a position to lend money to facilitate all the activities that have long term return but would not otherwise be accomplished since the benefit is largely to the society as a whole. They can also facilitate projects that require a level of stability that market system cannot guaranty. Any time the government can reduce uncertainty, it has the potential to actually be more efficient than the market.

The other role of government – defense, is a tricky issue, since much of what we call defense today does nothing to increase our safety. The size of US military does not influence the likelihood of me being shot or blown up, or my business interest being damaged. Nevertheless, in my estimation, there is some role for the government here. Again, for the same reason, we need to have a plan and we need to have a pointman who can coordinate efforts in times of crisis, rather than random uncoordinated efforts of the market. So, my conclusion is that we need the government because it is the only force that can stabilize our society when the market wants to panic.

What are your thoughts on the role of government?

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