It’s a familiar libertarian insight that regulation often holds government itself to lower standards than it does private actors. Pension funds for public employees are mostly immune from the federal solvency and funding requirements that apply to their private counterparts; Federal Trade Commission rules against false advertising by private companies do not restrain false advertising by government actors on the same topics; the FTC can fine companies massively for data breaches even as the federal government itself suffers gigantic losses of sensitive data to foreign actors with few, if any, visible career consequences for those who had dozed; anticompetitive practices per se illegal under antitrust law become legal when the states engage in them, and so on and so forth.
Now David Konisky of Indiana University and Manuel Teodoro of Texas A&M, in a study published by the American Journal of Political Science entitled “When Governments Regulate Governments,” have taken a look at some data:
Our empirical subjects are public and private entities’ compliance with the U.S. Clean Air Act and Safe Drinking Water Act. We find that, compared with private firms, governments violate these laws significantly more frequently and are less likely to be penalized for violations.
More from an Indiana press release via Tyler Cowen:
For the study, Konisky and Teodoro examined records from 2000 to 2011 for power plants and hospitals regulated under the Clean Air Act and from 2010 to 2013 for water utilities regulated under the Safe Drinking Water Act. The study included over 3,000 power plants, over 1,000 hospitals and over 4,200 water utilities — some privately owned and others owned by public agencies.
* For power plants and hospitals, public facilities were on average 9 percent more likely to be out of compliance with Clean Air Act regulations and 20 percent more likely to have committed high-priority violations.
* For water utilities, public facilities had on average 14 percent more Safe Drinking Water Act health violations and were 29 percent more likely to commit monitoring violations.
* Public power plants and hospitals that violated the Clean Air Act were 1 percent less likely than private-sector violators to receive a punitive sanction and 20 percent less likely to be fined.
*Public water utilities that violated Safe Drinking Water Act standards were 3 percent less likely than investor-owned utilities to receive formal enforcement actions.
[After speculating that public operators may find it harder to raise funds promptly for needed facilities improvements:] Public entities also face lower costs for violating the regulations, the authors argue. There is evidence from other studies that they are able to delay or avoid paying fines when penalties are assessed. And officials with regulatory agencies may be sympathetic to violations by public entities, because they understand the difficulty of securing resources in the public sector.
Application of the principle to state-owned industry outside the United States can be left as an exercise for the reader. (cross-posted from Cato at Liberty).
8 Comments
“…..public operators may find it harder to raise funds promptly for needed facilities improvements:”
1) Do the authors of the study really think that private entities have a money tree out back from which they can gain funds? Private entities have the same issues and concerns on raising funds for mandated “improvements” that government entities do.
2) If the government cannot compete (and some would argue should not compete) with the problems facing private entities on costs, pricing, etc, maybe the government should get out of the business to begin with. The argument is always that “government enterprises lower costs” and if that is true (it isn’t) then the government officials running the places need to get out of public businesses and step back into the real world.
3) If the government – the people making the rules – can’t afford the regulations, maybe the solution is to look at the regulations or in many cases, the “over-regulations.”
4) If the government is treated differently than private entities, that gives credence to the idea that there are those in government who are supportive of more government and less private enterprise.
1. Not quite, it would be accurate to say that a public entity has all the same issues as a private entity. However public entities also face political pressures when it comes to fund raising.
If a private entity fails to come up with the funds it goes out of business. A government entity does not face this risk, leaving them free to ignore inconvenient mandates for which raising funds might raise political opposition.
2 agreed
3) True, very true. Although multiply layers of overlapping government complicates the issue.
4. Duh. Despite sweat talk to their base about smaller government, even the Republican establishment falls into this category.
1) Private entities tend to have less disturbances due to politics.
2) Wait, when was the argument that government enterprises lower costs?
I mean the point of privatization of certain utilities and such were that it would save the government a lot of money doing so.
I thought government enterprises were supported/created due to positive externalities, security, size (eg. interstate highways), or welfare.
This report just seems to point evidence to the belief that government treats itself with more leniency than outsiders (ex. cops don’t ticket other cops).
“Wait, when was the argument that government enterprises lower costs?”
Isn’t that the whole argument in favor of single payer government run health care?
MattS:
1) From the press release: And they may face pushback from customers or taxpayers who object to higher rates and have the political power to block them.
So when a company raises rates, they get no push back from customers? When a company gets a mandate from the government, it has several options. First, it can raise rates causing customer push back. Secondly, they could lay off people which generates push back from ex-employees. The government, on the other hand, simply says “we need more revenue” and raises taxes or fees. Many government agencies operate on the principle that you either spend the allocation or you lose it. There is no – zero, nada, zilch – incentive for anyone to save money in a public entity.
By far the stress and pressure on the private entity in forced compliance is greater than that of a public entity.
zzz:
2) Did you miss the entire health care debate?
That’s a somewhat different scenario-
For one thing, government enforced Health insurance gives them a new pool of profit earning customers- the “young invincibles”- that private entities would like as customers, but wasn’t able to obtain.
There’s other acceptable discussion points regarding the possibility that the government could change the situation of how the US has always been a very profitable place to sell drugs (compared to other countries), but I never really felt that government entities were more loss effective and efficient were ever a major discussion point (some that a socialist type system was less costly, but that’s comparing entire systems).
Given that the the topic was government promises lower rates and then you cite forcing people into a system with the purpose of lowering rates, I am not sure how your own analysis doesn’t prove my point.
Your second point seems to be that if the government takes over the drug market, that will lower costs. Once again, how does that not support the idea government claims to lower prices?
Want more examples? Governments claim price control in housing will lower costs and that never works out either.
Here in my state many municipalities own golf courses. The reason is they claim that ownership lowers prices to golfers. (Of course the rest of us pay for the difference between the going market and the so called lowered prices so people actually end up spending more and getting less.
You mention utilities, but one has to why with the government mandated monopoly on things like telephone, internet, cable, etc, markets with multiple sources of private enterprise have lower prices. Oh, and the town to the north of me which had a municipal owned electric grid because of the promise of lower costs had to sell after the 10 year experiment failed with residents paying 10% – 20$ higher rates. But even to the end, the government was promising lower rates.
Governments get their nose in the tent with promises of lower prices. Do you really think that the ACA would have passed if the administration had been honest on the rise in costs and lowering of services?
” thought government enterprises were supported/created due to positive externalities, security, size (eg. interstate highways), or welfare.”
The can also be created due to political ambition.