Incentives and Bureaucracy

April 11, 2010

Incentives and Bureaucracy

Bureaucrats have very different incentives from politicians. They have no need to get elected, but once hired, they have a secure job, good pay, early retirement with a good pension, and power to interfere with the hapless taxpayers.

In fact, harassing us is the object of their job, as they must be seen to be doing something in order to advance in the bureaucracy.

The usual route to promotion in bureaucracy is empire building. Expand your activities beyond your capacity to handle, and build a department to take over the job. If the people in your department do the same, you become a manager of several departments. The only limit to expansion is your ability to justify your expanding activities. The incentives throughout bureaucracy are heavily tilted to activism and expansion.

Most bureaus were created to regulate some specific industry or activity. The Food And Drug Administration (FDA) was created to regulate the production, quality, and safety of foods and drugs, as well as medical equipment and procedures.

Even before the bill was passed to create the FDA, the food and drug industries had an incentive to try to control the shape of the bill to suit their interests. They succeeded. The FDA has been controlled from the start, especially by the biggest drug companies.

The FDA hires experts from the drug companies. After serving their real masters, the drug companies for years while employed by the FDA, they “retire” to a cushy position back in the drug company they originally came from. The FDA foolishly assumes that loyalties of their employees to their former and future employers will not prejudice their performance while employed by the FDA.

In recent years, most of the funding of the FDA has come from fees paid by the drug companies, but only if their drugs are approved. This leaves little incentive for the FDA to reject an application for approval.

Acceptance or rejection is based on research funded by the drug companies. There is no requirement to reveal any research which might cause a rejection.

The rules governing application and acceptance make it very expensive to apply for approval. This effectively prevents new or small companies, unless backed by lots of money, to get started and compete with the entrenched big boys in the business.

In practice, drugs are not seriously tested (on people) for safety before approval. After approval, we become the guinea pigs for testing the safety of the newly approved drug. A very ineffective system for reporting adverse reactions means that thousands must die before enough “adverse events” are reported and a drug is withdrawn from the market.

The patent system (another government bureau), when applied to drugs, creates a perverse incentive for the drug companies to push ineffectual, dangerous drugs. There are many substances which occur in nature which have proven safe and effective remedies for a thousand years. They are not patentable. To get a patent, drug companies must create chemicals which don’t occur in nature. Mostly, they imitate the natural remedies, almost always with inferior results and safety.

However, with approval by the FDA, and lots of hype to sell their product to the AMA, to the doctors who prescribe them, and to the public, they make literally billions of dollars out of the patent monopoly on their overpriced synthetic drugs.

Apparently, this is what happens in all government regulatory bodies. The people they are supposed to regulate gain control and use the regulator to suit their own purposes. This is simply human action, people reacting to their situation to achieve their wants. The fundamental cause is the power of government and the incentives this creates.

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