Voluntary vs Compulary

In response to a class discussion on the difference between government and private organizations.

Since I work for both the government (IRS) and a private company (UOP). I see the difference in the two organizations. If UOP makes poor decisions, it stock price will fall, its revenues will decline, it will lose money and ultimately it would go out of business. The stronger companies in the market which made better decisions will remain in the market.

On the other hand, there is no direct connection between performance and the existence of the IRS. Its management can keep making bad decisions, but as long as Congress allocates funds the organization can carry on. Even if it performs very well, that does not mean that it will be rewarded with more funding or more resources. In other words, private sector companies have a direct connection between their performance and the accompanying financial rewards, while government agencies do not have that type of direct connection between performance and reward.

However, when you are talking about core governmental functions, you do not want a direct connection between performance and financial reward. Just as important as collecting taxes is the responsibility of the IRS to do so in a manner that does not trample of people's rights. If IRS employees and managers were financially rewarded based on the amount of taxes that they collected, then you would see a lot of abusive behavior as IRS employees would try to maximize their own financial well being to the detriment of taxpayers. The same principle applies to military organizations, police forces, courts, etc.

So, why are things so different between the private sector and government. It really comes down to the monopoly given to government on the legal use of force in society. If UOP is out trying to recruit new students and keep the students they have coming back for more classes, they have to convince people that taking classes is in their own best interest. It is a voluntary system. In fact, once force or deception are introduced into the picture, the law will declare any contracts obtain through force or deception void and punish the private party who sought to obtain business in that way.

In contrast, the IRS can ultimately use force to collect taxes. If a person owes taxes but refuses to pay, ultimately men with guns can come and take the person's property to pay the tax liability. The government may also take a person to jail and prosecute him for willfully refusing to pay taxes. Thus, when the use of force is an option, you do not want to give the people who make the decision to use force a personal stake in the outcome. Otherwise, they will have an incentive to misuse force for their own private gain.

As a basic premise of freedom, it is best to minimize the number of situations in which force is used and maximize the number of situations which are voluntarily resolved by the parties. Thus, the size of the private sector must be balanced with the size of the government sector. The government sector must have sufficient resources to carry out its core governmental functions, which are critical to the operation of society, including markets. However, a government sector which is too large deprives people of their freedom as more and more aspects of their lives are compelled by government rules and fewer decisions are left to the voluntary agreement of private individuals.

		May 24, 2006 *Balancing the Voluntary and Compulsory Institutions of Society*
	In response to a class discussion on the difference between government and private organizations. Since I work for both the government (IRS) and a private company (UOP). I see the difference in the two organizations. If UOP makes poor decisions, it stock price will fall, its revenues will decline, it will lose money and ultimately it would go out of business. The stronger companies in the market which made better decisions will remain in the market. On the other hand, there is no direct connection between performance and the existence of the IRS. Its management can keep making bad decisions, but as long as Congress allocates funds the organization can carry on. Even if it performs very well, that does not mean that it will be rewarded with more funding or more resources. In other words, private sector companies have a direct connection between their performance and the accompanying financial rewards, while government agencies do not have that type of direct connection between performance and reward. However, when you are talking about core governmental functions, you do not want a direct connection between performance and financial reward. Just as important as collecting taxes is the responsibility of the IRS to do so in a manner that does not trample of people's rights. If IRS employees and managers were financially rewarded based on the amount of taxes that they collected, then you would see a lot of abusive behavior as IRS employees would try to maximize their own financial well being to the detriment of taxpayers. The same principle applies to military organizations, police forces, courts, etc. So, why are things so different between the private sector and government. It really comes down to the monopoly given to government on the legal use of force in society. If UOP is out trying to recruit new students and keep the students they have coming back for more classes, they have to convince people that taking classes is in their own best interest. It is a voluntary system. In fact, once force or deception are introduced into the picture, the law will declare any contracts obtain through force or deception void and punish the private party who sought to obtain business in that way. In contrast, the IRS can ultimately use force to collect taxes. If a person owes taxes but refuses to pay, ultimately men with guns can come and take the person's property to pay the tax liability. The government may also take a person to jail and prosecute him for willfully refusing to pay taxes. Thus, when the use of force is an option, you do not want to give the people who make the decision to use force a personal stake in the outcome. Otherwise, they will have an incentive to misuse force for their own private gain. As a basic premise of freedom, it is best to minimize the number of situations in which force is used and maximize the number of situations which are voluntarily resolved by the parties. Thus, the size of the private sector must be balanced with the size of the government sector. The government sector must have sufficient resources to carry out its core governmental functions, which are critical to the operation of society, including markets. However, a government sector which is too large deprives people of their freedom as more and more aspects of their lives are compelled by government rules and fewer decisions are left to the voluntary agreement of private individuals.