The Efficiency Fallacy
Don't listen to the entrepreneur bros
You will see across the influencer space and from think tanks and mainstream media that there is a narrative being pursued that the private sector is inherently efficient and the public sector inherently inefficient.
But this belief functions less like economics and more like theology. Every outcome is interpreted as proof of its own correctness.
Private sector happy face
Private sector performance is a win win. Whatever happens, it’s interpreted as efficiency. Profits up? Efficient, growth!. Profits down? Even more efficient, because it shows the market correcting.
Hiring more workers? Efficient, growth!. Laying off workers? Hyper‑efficient cost saving for more growth.
A company expands? Efficiency. A company collapses under the weight of its own hype? That’s the market efficiently cleansing the ecosystem.
No matter the outcome, efficiency is assumed rather than proven.
Public sector sad face
Public sector performance is a lose-lose. Whatever happens, it’s interpreted as inefficiency.
Funding goes up? Suggests they can’t run a lean operation. Funding goes down? Suggests they aren’t utilising funds properly
Hire more staff? Inefficient, bloated bureaucracy. Hiring fewer staff? Funding must be dropping because they can’t utilise them properly
A service improves? A service declines? Waste of money
Everything is a sign of inefficiency because inefficiency is the only conclusion available.
Private sector efficiency is measured in returns, not in outcomes, if the two things happen to coalesce, that is a coincidence, not a guarantee.
You can’t apply this metric to outcomes. If I spend £100 and prevent someone from homelessness, how do we measure that in terms of return of investment?
If I spend £1000 to then prevent the next person from homelessness, am I now 10x less efficient? Or have I saved 2 people from homelessness?
Outcomes in human welfare don’t scale linearly with spend, which makes return on investment a poor tool for judging them.
I’ve worked in almost every kind of organisational structure, which has given me an unusually broad view of how waste actually happens.
My Personal Anecdote
On account of my ADHD I’ve switched jobs more than I’ve had hot dinners.
I’ve worked at small family manufacturing firms, a SoftBank backed rapid growth unicorn start-up in its infancy, a McKinsey backed charity start up, a huge corporate airline, a huge corporate water contractor, a huge public health institution and everything in-between.
Let me tell you, each one of these can be ranked by which is the least inefficient.
Because organisations like these are driven by people, people will always be wasteful.
All human designed organisations and systems are inherently inefficient.
By treating our most precious capital - our people - as something to be min/maxxed, we frame the argument incorrectly.
Corporate Giants
Some of the most wasteful environments I’ve worked in are the huge corporate ones.
Lifers sitting on huge salaries doing the bare minimum to collect their pension, bonuses and benefits, entire departments changing direction every 6 months every time there is a restructure at the senior level.
Teams drown in corporate governance and SOPs and detailed technocratic processes made by people who don’t know what they are doing.
Not every corporation is a cess pit of waste, but the myth that private sector companies - particularly “successful” ones - are lean profit making machines is simply not true as an assumed universal truth.
Charities
In the charity sector, this was actually probably the least inefficient place I worked.
Why?
Firstly, your books MUST balance to the penny, if you have £100 of funding you can only spend £100 of that money, anything not spent is waste and that impacts someone’s life who you are hoping to serve
Secondly, because everyone was there for the same reason, they believed in the mission and wanted to work towards a social outcome for other people.
That isn’t to say charity is the superior model. This comes with a huge risk of burnout and many inefficiencies exist in allocation of funding and bid writing. Limited capital prevents the kinds of economies of scale available to large firms.
Financial Motivations
Very rarely do people take lower paid charity sector jobs because they have to, they take them because they’re motivated by the outcomes, they aren’t motivated by the salary or the benefits, or the beanbags or Fridays pizza.
They actually do care about their shareholder value because their shareholders are often real people and their value is measured in quality of life.
Growing a business means growing anything
The tech bros, the entrepreneur bros, the Dubai money bros, they push the narrative that they are business tycoons because they pitched an idea to a room full of investors and they convinced them to dump millions into it and that somehow qualifies them on “efficiency” and “waste”.
Building a business does not imply efficiency. I have written about this in more detail here.
They can’t understand how the state could ever be efficient because they only define efficiency as the pursuit of measurable profit or shareholder value.
Good state governance is measured in these metrics - happiness, suicide rates, homelessness, social support, trust in institutions etc etc - they’re the kind of human centred metrics that matter and they’re the metrics that efficiency doesn’t care about, and ignores in its measurements.
The proof is in the pudding
It’s odd, given that some of the most genuinely efficient projects of the last century — vaccines, the internet, GPS, sewage systems, universal education — emerged from public investment, not private‑sector optimisation committees.
Have SpaceX meaningfully progressed towards getting humans on Mars or are they pivoting to achieving something NASA achieved 60 years ago?
When an idea becomes so flexible that every possible outcome confirms it, it stops being an economic principle and starts being at best, superstition, at worst, its finance bro propaganda.
The efficiency fallacy works the same way: it’s not really about productivity, value, or outcomes.
It’s about preserving a worldview where one sector is always virtuous and the other is always flawed, despite the evidence. The public sector is bad for business, so this narrative helps in the never ending quest to make it as small as possible.
The efficiency myth persists not because it measures real outcomes but because it preserves a worldview where the private sector is always virtuous and the public sector always flawed.
Inherently, it isn’t about which sector is most efficient, but what outcomes is that sector focused on? Is it focused on human need, because it so efficiency is completely the wrong metric, or is it based on extraction, exploitation and consumption?
Remember this next time you see an entrepreneur talking about public sector waste. They want you to leave it all up to them.
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One thing that often grinds my gears is how decoupled economic "efficiencies" can be from real-world physics. Carting things halfway around the world just to use them once and throw them away doesn't seem very efficient when viewed through anything but an economic lense...
I’m an MBA but have always been puzzled at prizing efficiency. “Achieving efficiency for what larger goal” should always be the question. Efficiency is simply a standard of measurement, not the larger goal it was designed to serve. Viewing efficiency as an end goal is viewing the world upside down.