Why Government Productivity is Always Less Than the Private Sector

Want to understand why government productivity is inevitably much worse than the private sector?

Imagine there are two companies. Lets call them Alpha and Beta.

At Alpha, employees get reviewed frequently and are rewarded with raises if they meet their goals. Those that don't meet their goals for many quarters are fired and replaced with new employees. The company's motto is: Adequate is Not Good Enough.

At Beta, performance reviews have few consequences. Employees don't get raises for meeting goals, but rather for years of employment with the company. Employees who fail to meet goals are allowed to stay with the company as long as they want to. The company's motto is: Adequate Is Good Enough. 

What would you expect to happen?  Beta employees who are ambitious and can meet goals realize they can make more money working at Alpha. Alpha employees who can't or don't want to meet their goals get fired or quit and go to work at Beta.  Over time, what happens? Alpha ends up with more of the better performers, Beta ends up with fewer.

Now if Alpha and Beta are both in competitive industries, Alpha does well and grows; Beta shrinks and eventually goes out of business. But what if Beta has no competition? What if they can literally force their shareholders to give them money to stay afloat? They just keep getting worse and bigger.

It's just that way with the public sector and the private sector. The private sector attracts more of the ambitious goal-oriented employees; the government attracts the less ambitious people who seek employment security over accomplishment. Neither will ever be made up entirely of one type or the other, but the skews will be in opposite directions.

Economics 101: That which you reward you will get more of. That which you penalize you will get less of.