In Praise Of Inefficiency
The mass purge of the federal bureaucracy by the Trump/Musk administration has nothing to do with waste, fraud, and abuse but everything to do with exerting and gaining power. Even according to DOGE itself, Musk’s Sherman’s march through the federal bureaucracy has only produced $65 billion in “savings” which is around 2% of the $2 trillion Musk promised to cut and less than 1% of total federal spending. However, the DOGE site’s “wall of receipts” for these “savings” come to less than $10 billion. But even that $65 billion number Musk has claimed is an overstatement since analysis has showed that 40% of those “savings”, around $40 billion, produce no savings at all. In fact, that approximately $40 billion is about how much Elon’s businesses have received in government subsidies over the years. Even worse, it’s probable that some of those “savings” actually end up bringing in more federal revenue than they cost, or will make the government even less efficient, or are even totally fraudulent, further reducing the already pathetic numbers.
The pathetic total “savings” that Elon has identified highlight three important points. First, there really isn’t that much waste, fraud, and abuse in the federal system otherwise it would be far, far easier to find much more than he has so far. More importantly, the largest amount of “inefficiency” in the federal government is probably in areas Musk is specifically avoiding like the Pentagon and subsidies/overpayments for already hugely profitable businesses like Big Ag, Big Pharma, and Big Oil. Lastly, Musk has clearly targeted agencies that regulate and investigate his businesses as well as businesses he would like to be in. For example, his destruction of the CFPB is probably clearing a path for integrating a payment system into his X app. All of it is part of a broader agenda to further privatize government services preferably under his control.
Ever since Reagan, “waste, fraud, and abuse” have just been code words for denying support for programs and people that Republicans simply don’t like. Similarly, the Reagan era saw the emergence of the almost contradictory idea that free markets were at the same time better than government in providing services while also being integral to democracy itself. The core of this idea was expressed through the “efficiency” mantra that business used to privatize government services, eliminate regulation that restricted the undue concentration of economic power, break unions, and outsource good American jobs overseas.
It was in the 1980s that mass layoffs were sold as an indication of corporate competitiveness and efficiency. Remarkably, 1 out of every 25 workers would lose their jobs within any two-year period during the 1980s. Even more remarkably, this was seen as a sign of corporate efficiency rather than a travesty. “Chainsaw Al” Dunlop, “Neutron Jack” Welch, and a rogues’ gallery of corporate raiders all used mass layoffs as a way to enhance their reputations and prove to investors, analysts, and the market in general that management was “serious” about being “efficient”, despite little evidence that such action really improved performance. We still live with the legacy of this efficiency myth today. Many companies engage in a practice of purging the worst performing 10% of their work force, often annually but also in times of both increasing and declining profits, even though there is no real basis arriving at that particular level. Performance evaluations are notoriously subjective and inaccurate. Often, the cut is across the board, meaning even high performing workers in certain areas get cut. For those that do it annually, there is similarly no evidence for thinking that this year’s 10% would be any more or less efficient than last year’s or even next year’s. But the kabuki theatre of layoffs illustrating a commitment to efficiency must continue.
Of course, the reality is that layoffs have little to do with efficiency and everything to do with managing profits. More often than not, “cost-cutting” means shifting the cost burden onto others. The trope of “doing more with less” really means asking remaining workers to do more work for the same pay so that the company can maintain the same level of output. Similarly, the tactics of offshoring jobs, subcontracting, and/or using temporary workers is simply shifting the cost of the replaced employees onto others, either partially or wholly, especially when taking health care costs into consideration. Walmart’s low-wage employees receive over $6 billion in public assistance. The classic example is the replacement of actual customer service people with automated voice systems, thereby imposing enormous inefficiencies and time costs onto customers to save the firm a few dollars. At times, such cost shifting can actually produce a negative effect, reducing the bottom line and, even when there are any savings, it usually goes right into pockets of the executives and shareholders. When thinking about government in particular, this kind of cost shifting, exactly the kind Elon is engaging in right now, is even more absurd. Cutting IRS agents will actually decrease government revenue. Eliminating the CFPB will encourage more financial fraud, which again means less tax revenue. Eliminating FEMA will just stretch the resources of state and local first responders. Cutting Medicare/Medicaid will just mean states and hospitals will have to foot the bill for more emergency medical care and poorer health outcomes for Americans.
Even more important than cost-shifting is the fact that built-in inefficiencies often are there for very good reasons. As Edie Flowers says in the great docudrama of the Sackler family’s mass murder spree, “I am a bureaucrat. Bureaucracy is what holds us together. It’s what keeps society organized, functioning, moving. There’s no civilization without bureaucracy”. Sure, bureaucracy is inefficient and slow. But it is exactly what is supposed to keep people like Elon from firing key nuclear security workers and then having to scramble to rehire them. As we are witnessing in real time, the destruction of the administrative state is not making things more efficient, but instead making things more chaotic, dysfunctional, and dangerous.
Similarly, the areas of research and development are usually enormously inefficient. Ninety percent of clinical drug trials fail. But that 10% that don’t change, even save, people’s lives. Studying the venom from bees, wasps, snakes, frogs, and lizards sounds like a waste of time and money, but it led to Ozempic. Around three-quarters of venture capital startups never return a penny to their investors and anywhere from 30% to 40% of those end up having to liquidate their assets. There are better odds at a casino.
Another area of positive inefficiency is redundancy. Backup systems are notoriously costly considering how rarely they are used. But, as the pandemic clearly illustrated, single points of failure can be even more catastrophic. The “efficient” choices of limited inventory, single sourcing from one specific company or region, and reliance on just-in-time delivery exposed the fragility of the globalized supply chain with deadly consequences. Redundancy also covers proper staffing levels so that business isn’t lost due to the inability to deal with unexpected higher volumes. Bare-bones staffing in the retail sector contributes to increased shoplifting but also drives underserved shoppers to on-line retailers. Forcing shoppers online is yet another efficiency cost-shift as improper or inaccurate sizing that would have been discovered in-store now requires the consumer to repackage and return the item, with all the other external costs of shipping now added on. Lastly, countries that helped keep employees attached to their companies during the pandemic, despite those employees not being able to actually do any work, were the fastest economies to recover after the crisis abated.
A related area to redundancy is maintenance, which is usually one of the first areas to suffer under efficiency measures since its reduction or elimination usually has no immediate impact. But neglected maintenance can create unexpected emergencies, easily avoidable costly repairs, shorter machine life, business downtime, and even dangerous conditions. I’m old enough to remember when long-term neglect of bridges by financially-strapped states resulted in collapses that killed people. The critical Northeast rail system is on the verge of collapse due to decades of neglected maintenance. In certain areas like healthcare, preventive maintenance in the form of vaccines, screenings, and prenatal care can actually save money in the long run, despite solving no immediate health problem.
Lastly, efficiency is actually the enemy of innovation and creativity. Hyper-efficiency is designed to leave no downtime where there is freedom to explore ways to innovate and degrades employee morale. 3M was a leader in innovation until a new management team installed the Six Sigma efficiency program. The pipeline of new products shrank, employee morale cratered as their ideas were quashed as not within the program, and the competitive advantage the company had withered away. In addition, efficiency reduces the capacity to adapt to changes. When processes are rigid and streamlined, it becomes difficult to adapt them to unexpected disruptions as we saw during the pandemic. Finally, true artistic creativity cannot be done on a timetable and is usually an iterative process, despite the protestations of the AI crowd.
There is a certain horrifying irony that a man whose management skills have cost twitter 80% of its value and are tanking Tesla’s market share around the world is lecturing us about efficiency. His “efficiencies” are creating massive inefficiencies throughout our society. As Edie Flowers noted, it is the necessary inefficiencies that keep our society organized, functioning, and, yes, civilized. We ignore their value by simply measuring our world with the monetary bottom line at our peril.