As the discussion of inducements and requirements shows, not all government-directed activities are, in fact, undertaken by the federal, state, and local governments themselves. Of the $2,819 billion directly spent by all three levels of government in 1995, only $593 billion was spent on public employee wages and salaries, about 21 percent of the total. Another $40 billion was spent on public pension contributions for these employees, perhaps a similar amount was spent on other employee benefits such as health insurance, and more was spent on the buildings these employees occupied and the supplies they used at work. Even so, it is apparent that work done by public employees is just part of the range of government-directed activities. In fact, while total direct government spending equaled $2.8 trillion, more than one-third of the 1995 total GDP of $7.4 trillion, the work actually done by governments accounted for just under $1.0 trillion in the national income accounts, or about 13.3 percent of total GDP. Similarly, public employees accounted for just 21.6 million of the 149 million jobs in the U.S. that year, or about 14.5 percent.
The attached spreadsheet provides a tabulation of 1999 public employment by category by public expenditures by category. The shares by category are very different for employment than they are for expenditures. The federal government accounted for about half of all direct government expenditures, but less than 20 percent of total government employment. The solely federal functions — defense, space and the post office — accounted for most of that — 72 percent of all federal employment. In fact, excluding defense, space and the post office, the federal government accounted for only six percent of all public employment in 1999, and the states accounted for little more than a quarter. More than two thirds of all public employment outside of space, defense and the Post Office was in local governments. This is a result of the U.S. Constitution, which calls for a national government with limited powers. The federal government pays for many public and private services, but directly provides very few.
Some folks may recall a Mayoral candidate who compared the employment of the federal government, excluding the military, to the employment of the City of New York to show the latter was overstaffed. Certainly there is always the possibility of reducing employment over time through genuine productivity gains. Excluding gains from trade (switching to producing what you can more productively), which governments cannot do, I’d say it is reasonable to expect public employment to fall one percent per year if services are unchanged. The federal local comparison, however, was dishonest, irritated me at the time, and still does now. The federal Department of Education “takes care of the whole country” with just 11,000 full time equivalent employees. How come the city Department of Education requires 149,000 full time equivalent employees for just the city? The answer is because the federal Department of Education doesn’t “take care” of anyone, it just writes checks to individuals, private companies, and state and local governments, and audits how the money is spent. And that is, in general, what the federal government does excluding defense, space and the post office.
Education, in fact, is far more prominent in its share of public employment than in its share of public spending. It accounted for 14.6 percent of all public expenditures in 1995, but it accounted for 44.4 percent – nearly half – of all public employment in 1999. Education accounted for 46 percent of all state employment, with higher education alone accounting for 42 percent. It accounted for 58.5 percent – nearly three-fifths – of all local government employment, with elementary and secondary schools alone accounting for 53 percent. Therefore, the overwhelming dominance of education in public employment at the state and local level is similar to the overwhelming dominance of defense and the post office at the federal level. This is because education is an activity that the government tends to do itself, at least here in the United States, with 80 percent of students attending public rather than private schools. No wonder the education unions are so influential. Together, defense, space, the post office, and education accounted for more than 58 percent of all public employees, or nearly three out of five.
Health care shows the opposite pattern. It accounted for about 15 percent of all government expenditures in 1995, but publicly run hospitals and public health agencies only accounted for eight percent of all public employment in 1999. To take one example, U.S. hospitals had 4,273,000 employees in 1995, but public hospitals only had 971,000, or 23 percent of the total (2001 Statistical Abstract, Table 161). Public employees are even less prominent in other categories of health care. In contrast with education, public expenditures are used primarily to purchase privately provided health care, or to provide vouchers for individuals to purchase it themselves. To understand this, one needs to be aware of a second way of classifying public expenditures, by character and object rather than by function. In 1995, according to the census bureau’s tabulation, $157 billion of the $2,818 trillion was spent on “assistance and subsidies,” and another $666 billion was spent on “insurance trust benefits.” These are payments in cash to individuals, or vouchers to purchase goods and services such as food, health care, higher education or housing in the marketplace. Some of these goods and services may be purchased from government agencies, others from non-profit organizations, and others from private companies. Of these programs, those related to the provision of health care are the most extensive and costly.
Just because health care is privately provided, that doesn’t mean that producers of health care haven’t organized to get a better deal at the expense of taxpayers and service recipients. Here in New York State, the industry has certainly figured out where its money comes from, and has become the dominant player in state politics in order to maximize public funds while minimizing what is provided in return. No matter what the teacher’s unions may say, moreover, the way health care is provided shows that the U.S. already has a huge voucher system, because that’s what Medicare and Medicaid – and indeed the private health insurance used for private health care that taxpayers provide for public school teachers – are. The government already “takes money from public hospitals and gives it to private hospitals” so teachers can have a voucher and choice, a choice they would be unwilling to allow others to have.
Like education and national defense, publicly funded “public protection” tends to be provided directly by the government. Public protection accounted for 6.7 percent of public expenditures, and 14.4 percent of public employment. Infrastructure and amenities are mixed; they accounted for 10.7 percent of public expenditures and 9.9 percent of public employment. Typically, private companies build the infrastructure, while public employees operate it.
Government agencies and programs, as we have seen, spend a great deal of money purchasing or funding a wide variety of goods and services purchased in the private market. This includes the purchase of supplies and services required by all large organizations, such as office space, office supplies, vehicles, fuel, heat, power, telecommunications, and tools. According to the 2001 Statistical Abstract (Table 469), the federal government alone spent $223 billion on procurement in 1999. State and local governments, which account for over 80 percent of all government employment, probably purchase several times this amount of general organizational supplies. Still, the government is a small share of the total market for general goods and services like these.
There are some industries, however, that rely on public purchasing, subsidies or vouchers for such a large share of their revenues that they may be considered, in effect, private sector arms of the government. The level of publicly-supported employment in these industries is substantial, even when compared with the 21 million people employed directly by the three levels of government.
As has been alluded to earlier, the largest of these industries, and the fastest growing, are the health care industries, which employed 10.1 million private sector workers in 2000 (Table 609). Since, as I have shown elsewhere, the federal, state and local governments directly or indirectly pay for the vast majority of “third party” health care costs, it may be reasonable to assume that 7.0 million of these workers have their jobs funded, at least in part, by the government. That’s nearly one-third of the number of people the government actually employs. The social services industries are also dependent on public funds. They industries employed 3.0 million private sector workers in 2000, up from just 1.1 million in 1980 (Table 609). In addition to traditional social services such as counseling and foster care, this industry includes child care, job training, and “personal care” (as opposed to health care) services for the elderly financed by Medicaid. Personal care includes housekeepers, aides, and shoppers sent to the home to allow the frail elderly to continue to live independently, and is one of the fastest growing categories of Medicaid expenditures. To an even greater extent than health care, government expenditures account for the majority of private social service industry revenues.
The aerospace industry is also dependent on the government, in this case the federal government, for revenues. It directly employed 459,000 workers in 2000 (Table 609), with many more employed by companies in its supply chain; it employed 759,000 in 1990, at the end of the 1980s defense build up. In 2000, out of total aerospace industry revenues of $120 billion, the Department of Defense, N.A.S.A. and other agencies accounted for $58 billion, or just under half (Table 1014). So it seems reasonable to assume that half of all aerospace industry workers, 225,000 in 2000 plus more in the supply chain, are dependent on government funding. In 1990, the government had accounted for 64 percent of aerospace industry revenues, and thus perhaps supported 485,000 aerospace industry workers. Compared with health and social services, aerospace industry employment is geographically concentrated, so the importance of government spending in this category is far greater in some parts of the country than these nationwide figures would suggest.
The ‘heavy construction” industry includes the construction of structures other than buildings, such as roads, bridges, power plants, pipelines, railroads, ports, and other infrastructure. In 2000, 886,000 people worked in the private heavy construction industry (Table 609), with additional workers employed by in transportation and infrastructure planning, engineering, and consulting firms, and firms producing the materials used in such construction. In that year, the “value of new construction put in place” was $48 billion for private non-building construction (mostly railroads and utilities) and $93 billion for public non-building construction (Table 930). The government, therefore, financed nearly two-thirds of the private employment in the industry, thereby supporting another 584,000 private sector workers, plus those in related activities and industries.
Finally, the agriculture industry employed 3.3 million people in 2000 (Table 596). While the government doesn’t purchase many agricultural products directly, it does intervene in the agricultural market, through price supports and other payments, far more than in other industries. In 1999, national farm income equaled $56.9 billion; assistance and subsidies to operators equaled $17.6 billion, accounting for 31 percent of the total (Table 806). It many be inferred, therefore, that nearly one third of those employed in agriculture are indirectly employed by the government, a total of an additional 1.0 million workers. Moreover, only some crops receive federal subsidies; for farms growing the subsidized crops, the government share of farm income is even greater.
Personal and organizational conduct may be restricted and controlled either by public laws or by private agreements. Private agreements, however, cannot control behavior without the possibility of enforcement behind them, and in the end only the government – the one institution in society with the legal right to compel people to do what they do not wish to do – can compel enforcement. In a sense, then, all those whose job involves investigating, auditing, protecting, and otherwise controlling other people’s behavior are working – indirectly – under government authority.
A second attached spreadsheet presents 1990 U.S. employment by detailed occupation in “restriction and control” occupations. The table shows that in the “Protective Services” category, there were 822,000 public law enforcement and corrections officers, but there were nearly as many – 786,000 – private sector guards, detectives and police. Including supervisors and other related occupations, there were 1,818,000 people working in protective services occupations, not including the military, or 1.5 percent of the civilian labor force.
In 1990, people and businesses were supervised and regulated by 64,000 construction inspectors, 161,000 other inspectors and compliance officers, and 50,000 social welfare eligibility clerks. They were also supervised and regulated by 582,000 investigators and adjusters (other than insurance adjusters), and 163,000 bill and account collectors. Together, these regulatory occupations employed over one million people, or 0.8 percent of the civilian labor force.
Both criminal cases, brought by public authority, and civil cases, generally adjudicated between private parties based on contracts, are handled by the government court system. In 1990 there were 747,000 lawyers, 258,000 legal assistants, and 32,000 judges, among others. All were concerned with laws, a public activity, and contracts, a private activity blessed and enforced by the government. These occupations accounted for another 0.8 percent of the workforce.
All together, in 1990 there were 3,875,000 public and private workers whose primary job tasks involve placing and enforcing restrictions and controls on other people. That was 3.1 percent of the civilian labor force. Their support staff included additional workers. In addition, there were 1,935,000 accountants, auditors, and insurance adjusters, and while these occupations involve more than restrictions and controls, restrictions and controls are a part of them.
There are those who would contrast “government” activities, those undertaken by public agencies, with private sector activities. But a huge share of private sector activity is financed by, or undertaken under the authority of, the government, and this government/private relationship is concentrated in certain businesses that are primarily dependent on it. There is not only a military-industrial complex, but also a medico-industrial complex, and a heavy construction complex, and a private regulatory complex. Even among city planners, a large share are employed by private consultants whose job it is to steer developers around regulations rather than by public agencies seeking to enforce those regulations. Businesses directly linked to government, along with public employee unions and single-issue social-issue pressure groups, dominate political contributions and lobbying. The rest of us, who merely pay taxes and hope to receive public services and benefits in return, matter far less.