WORLD BANK: (International Bank for Reconstruction and Development) An agency of the United Nations that was established in 1945 to promote the economic development of the poorer nations in the world. They pursue this goal by providing low-interest loans to less development countries and offering technical assistance on the best ways to use these loans. Funds for the loans are obtained by the World Bank by selling bonds on the world's financial markets. It's long-run economic development orientation is usually coordinated with the shorter-run efforts of its sister U. N. agency, the International Monetary Fund.
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Election seeking politicians who undertake risks inherent in the allocation of resources made through government actions. Like business entrepreneurs, political entrepreneurs take risks and organize production. They organize production with government laws, regulations, and policies. They run the risk of failed policies and losing elections. Their utility-maximizing actions are also a prime source of government failure. Falling victim to the principal-agent problem, pursuit of their own satisfaction (winning elections) often conflicts with what is best for the rest of society. Political entrepreneurs are those who seek elected office or other leadership roles in the government sector. Like business entrepreneurs who take on the risk of organizing the production of private goods and services (those exchanged through markets), political entrepreneurs take on the risk of organizing the production of public goods and other government activities. Business entrepreneurs sell products, political entrepreneurs sell policies.
Both forms of entrepreneurship are risky.
- Business entrepreneurs run the risk of failure. They might fail to produce a good that people are willing to buy. They might fail to generate enough revenue to cover the costs of production. They might go bankrupt.
- Political entrepreneurs also run the risk of failure. They might fail to implement policies that the voting population supports. They might fail to generate sufficient tax revenue to implement policies. They might lose elections.
Utility MaximizersKey to this notion of political entrepreneur is that politicians are human beings, human beings who have hopes and dreams, likes and dislikes, wants and needs, just like everyone else. Putting this in economic terminology, political entrepreneurs are utility maximizers. Politicians seek to maximize utility just like everyone else.
And what is it that provides political entrepreneurs with utility?
The pursuit of income, wealth, and political power are a key source of government inefficiency. However, it is important to keep in mind that politicians are also commonly motivated by altruistic pursuits, by the sense of "doing what's right" for the country.
- Income and Wealth: Like every other person who has ever existed, political entrepreneurs receive utility from the consumption of goods and services; from food, clothing, shelter, entertainment, and every other conceivable commodity; from the goods and services that can be obtained with income. Politicians pursue greater income and wealth.
- Power: Political entrepreneurs are also motivated by nonmonetary rewards; by utility that can be achieved through political authority, by increased self-esteem, or by a sense of historical legacy. More than a few aspiring leaders aspire to a position of authority that only an elected office provides. Others aspire to elected office hoping to leave a legacy that ends with their likenesses etched on coins and currency.
- Altruism: However, political entrepreneurs, also like a lot of other people, receive utility from helping others, from improving society, from making the world a better place. For many politicians, this is as important if not more important than personal satisfaction. Many political entrepreneurs are actually willing to sacrifice personal gain for the "public good."
Election SeekersElected politicians are elected politicians only if they are... well... elected. This places elections at center stage in the political game. While political entrepreneurs are motivated by income, wealth, power, and altruism, none of these matter if politicians fail to be elected. Government inefficiency can and does arise because actions needed to win elections are not necessarily the actions needed to achieve an efficient allocation of resources.
Consider what it takes to be elected and what this means for efficiency.
Suppose, for example, that only three-fourths of the total population is eligible to vote and only half of this group actually registers and casts their votes. Election victory is then achieved with only half of those casting votes. As such, an elected politician owes allegiance to less than one-fifth of the population (one-half of one-half of three-fourths).
- First, the majority wins: A politician is elected with a majority of the votes cast. This means that successful politicians only need to represent the interests of just over half of the voters and thus can presumably ignore the interests of the remaining voters.
- Second, not everyone votes: In addition, only a portion of the population is actually eligible to vote (children and felons are excluded). Moreover, only a portion of the eligible voters register to vote. And finally, only a portion of registered voters actually cast votes. This means that politicians need to represent only the interests of a surprisingly small fraction of the population to be elected to office. A majority of the population is not needed for victory at the ballot box.
This means that the preferences of over four-fifths, 80-plus percent, of the population can be largely ignored when implementing policies, imposing taxes, and providing public goods. The lack of society-wide representation is a recipe for inefficiency. If politicians need not consider the preferences of everyone, then generating the greatest level of satisfaction for ALL members of society, the standard for efficiency, is hard to accomplish.
The Principal-Agent ProblemGovernment inefficiency that results from politicians is further reflected in what is termed the principal-agent problem. The principal-agent problem is a disconnection or conflict between the objectives and goals of the principal and those of the agent authorized to represent the principal.
The principal-agent problem is commonly discussed in the context of corporations in which the principal is the stockholder or owner of the corporation and the agent is the executive hired to manage the business. The problem arises if the agent (executive) pursues actions, such as greater personal wealth, that conflict with the profit-maximizing goal of the principal (owner).
In the political arena, the principal is society and the agent is the politician. With this illustration of the principal-agent problem, the agent (politician) pursues actions, again such as personal wealth, that conflict with the efficiency goal of the principal (society). And once again, this is a recipe for inefficiency.
Other Sources of Government FailurePolitical entrepreneurs are not the only source of government failures. Three other noted sources are voters, interest groups, and bureaucracies.
- Voters: People, citizens of a nation, also seek to maximize their own utility. Two rational choices they make in this pursuit are to NOT be informed (rational ignorance) and to NOT participate in the political process (rational abstention). Such "apathy" means that elected leaders can ignore their preferences.
- Interest Groups: While some people have little or no involvement in the political process, others have a great deal of involvement. These people, who also seek to maximize utility, have more to gain or lose from particular government actions and are thus motivated to act accordingly, usually by forming special interest groups.
- Bureaucracies: Government policies are usually implemented by complex organizations. Those who work in these bureaucracies are also, you guessed it, utility maximizers. Their pursuit of utility can and does conflict with the efficient implementation of government policies.
POLITICAL ENTREPRENEURS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: March 4, 2024].
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