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We have all heard the same story. Governments are necessary to provide benefits to their citizens. Governments are necessary to provide fair administrative procedures to their populations. Governments are necessary to manage public finances… and so on. However, no government actually provides any proof that government benefits are cost-effective. In reality, we live our lives paying the high costs of government benefits and we don’t even know it.

A valid question that we should be asking is this: how much of the benefits distributed to the population is being spent administering this process?

It is a fair question. Every single corporation and business and most households and people do cost accounting. It would be insane not to calculate the cost of goods and services a company provides because it is the only way to calculate profits and therefore to avoid bankruptcy. Most households and people budget their money. It is only natural to want to know how much one is spending to know how much one can afford to spend and save.

Governments insist in cost accounting. There are volumes of books containing rules and regulations about how to calculate costs. Entire rivers of ink have been used to print allowed and disallowed tax costs and their judicial conclusions.  

Governments keep adding to that enormous pile of conditions every year. New “loopholes” are closed. New conditions imposed. More and more rules are imposed on us almost every day.

Fair enough. If there is any conclusion from these facts that we can reach, it is that cost accounting is not an obscure branch of accounting but a well known, well implemented process.

So, if we want to find out what is the price of government administration (i.e. red tape), all we need to do is to look for government statistics in this area, right? If it is something so well known, so full of government rules and regulations, for sure governments know how to do it by now? Right?

Well… actually no. If you would want to get really frustrated, try to find out how much does your government spend on administration. Unless you live in a few selected countries, don’t even bother. There is no data!

Strange, isn’t it?

This should not be a problem because rules and regulations are known, right? Well…no. It would seem that “normal” cost accounting procedures (those that you and I and every mortal must follow) do not apply to countries.  You see, countries are “sovereign”, meaning that they can do whatever they want to do, just because they can do it. What a surprise...

But, hold on a second! If countries are sovereign, then what are we? We, the people, are actually born sovereign. We are born with rights some of which we pass on to the government in the form of privileges. Governments have no rights and therefore they are not sovereign. They simply cannot be, because sovereign means that there is no higher authority. In the case of government, we, the people, are the higher authority. Then, how is it possible that an entity with privileges only is dictating us, the right holders, what we must do? Never mind, just ignore this blatant contradiction and keep reading… Nothing to see here… keep moving….keep moving...

But let’s take a step forward (or backwards, it depends on how you see it). Is there even a procedure (however tainted it may be) that governments could follow to determine administrative costs? No.

What a surprise….

Is there another measure that could give us some indication of the burden imposed by countries on their citizens? Incredibly enough, yes, there is one. It is called the Standard Cost Model (SCM) and it was developed in 2005. It provides an accounting methodology that tries to capture the “red-tape” burden for people and companies doing business in a given country.

Theoretically, all 196 countries in the world, could adopt the model. How many did (at least formally)? Twenty nine. This is, only 14% of all countries in the world consider worth knowing how much spending in red tape are they imposing.

Well, that’s progress. Do as I say but not as I do. Spartan cost accounting for you mere mortal, but cloak and dagger for us. It’s only fair, you worthless taxpayer!

So, from this SCM, what can we deduct? Take a look at the following table:

Country

Red Tape Cost

As %GDP

As %Budget

Australia

1 Giga AUD

0.4%

180%

Austria

5.6 Giga Euros

2.1%

3800%

Belgium

1.9 Giga Euros

0.6%

1300%

Denmark

3.6 Giga Euros

1.8%

2500%

Germany

49 Giga Euros

2.25%

460%

Italy

16.2 Giga Euros

1.14%

220%

Netherlands

9.3 Giga Euros

1.8%

330%

Sweden

9.5 Giga Euros

3.6%

5100%

UK

13.2 Giga Pounds

1.3%

1600%

Romania

2 Giga Euros

1.8%

4500%

Kazakhstan

1 Giga USD

0.8%

3750%

The amount of money that governments are forcing companies to spend is just staggering. It ranges from a “low” 180% to a “high” of 5100% of annual budgets!!! Which means that if governments would not impose any red tape to companies, and companies would to donate this money to governments, their budgets would increase overnight between 1.8 times and up to 51 times!!!

And what do companies get for all this money? Essentially nothing.

Remember, these monies are not going to employees. They are not going to investors or shareholders. They are not improving manufacturing capabilities. They are doing exactly nothing!

Business must spend these amounts of money just because the government (those people commanding other people with guns and badges) say so.

This is not Robin Hood robbery, this is not even robbery. This is rob and burn robbery. Business spending these amounts of money are essentially burning their profits away. Quite literally. If governments would not exist and somehow this process would be forced upon business, there would be an accounting entry in their books titled: money burning.

Remember, governments are forcing business to spend anywhere between 1.8 to 51 times the worth of the entire government budget on nothing. People advocating “government efficiency” in terms of administrative procedures should keep this in mind.

It is not only that the government is a gigantic waste machine, the main problem is that forces untold wastes on other people and business. People and business which are, paradoxically, the only ones making the existence of governments possible.

All this money is being wasted in non-productive tasks. All this government leaves capital markets never to return. Less money for investing equals lower quality of life. Less money for business equals lower economic activity.

To get things into perspective, it is estimated that the capital available to business (i.e. money that can be lent to business) in relation to GDP fluctuates anywhere between 2 and  10%.

In other words, the amount of money available to be loaned is between  2% and 10% of all the goods and services a country produces.

If we now compare these numbers with the imposed waste which oscillates between  0.4% and 2.25% it is immediately obvious that these numbers are not negligible.

If we recalculate to figure out how much available money (capital) are governments destroying on an annual basis we have two case scenarios:

  • Best case scenario: 4%
  • Worst case scenario: 180%

In other words, depending on a business, the government has anywhere between a small impact and a gigantic impact. A number higher than 100% indicates that all money available to business in a given country has been destroyed. Business wanting to borrow need to do so from other countries.

Is then a surprise to find out that (all things being equal) countries with high “social” spending are the worst ones in terms of economy?  Remember, high social spending = high red tape.

Again, it is not only that government are gigantic waste machines, but they are so inefficient that they impost gargantuan wastes to all productive business and people.

Government = imposition of waste at a massive scale.

Numbers don’t lie. They truly are that bad. More if one considers that all potentially embarrassing numbers are mysteriously deflated and all potentially uplifting numbers are magically inflated. And even with all these biases, the numbers still look horrible.

Now you know. Governments lie, cheat, steal, kill and do whatever they want to do. You can claim ignorance no longer. What you do from here is your choice.

Note: please see the Glossary if you are unfamiliar with certain words.

 

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