That’s the subject of JLF President John Hood’s column today. A highlight:
In government, however, the incentive to pursue productivity isn’t as strong. State agencies and departments can’t lose market share to competitors if they fail to innovate. Even in cases where state-assisted institutions do compete with the private sector – public universities, for example – the large share of their budgets derived from direct appropriations rather than user fees gives them an artificial advantage and weakens their incentives to promote productivity.
That’s one reason why formal fiscal constraints such as balanced-budget rules, referendum requirements, and spending caps are essential to achieving better returns on taxpayer investment. In the absence of true market competition, they force public-sector managers to find new ways to deliver services at a lower unit cost.