Public policy suffers from Münchhausen 'by proxy' syndrome

The Draghi-Committee states that the EU is entering the first period in its recent history in which growth will not be supported by rising populations. According to the committee sustainable growth can only be achieved by rising productivity. The committee strongly focuses on issues such as accelerating innovation, decarbonisation and competitiveness, and increasing security and reducing dependencies. The committee builds its ambition on the observation that the EU has some strengths, such as strong education and health systems. However, the committee neglects the importance of preserving these strengths by ignoring the fact that public services are a substantial part of the economy. The public sector contributes to total factor productivity (TFP) and to society's welfare, but at the same time it absorbs resources that cannot be used by other sectors. Moreover, there are strong indications that the public sector in many western countries is also suffering from a serious disease, that may hinder the ambitions of the committee. Analysing the case of the Netherlands and in particular its public sector policies over the past decades shows that the public sector has developed into a deplorable state. Evidence is presented showing that Dutch public sector highly suffers from Baumol's disease, Niskanen's bureaucracy obesity and Parkinson's law. Dutch policymakers have misled citizens with claims on the benefits of consolidations of public firms, the false quality-efficiency trade-off ideology and invasive reforms regarding public/private and funding issues. The truth is that in many cases public services delivery has become inefficient and of low quality. Citizen and private companies are burdened with high taxes and low-quality services, while the economy suffers from labour market shortages also due to unnecessary high levels of labour demand coming from highly inefficient public sector firms. The most effective instrument to cure the diseases given above is the implementation of strong budget cuts, which should be much more targeted based on current information from monitors or benchmarks. In order to make significant improvements in quality in many areas of the public sector, it is crucial to have proper information. Quality improvements should mainly stem from attention to this topic. Quality does not necessarily require extra money, as many policymakers believe (the quality syndrome). The government can effectively steer this through regulators and inspections. The government should also not hesitate to sanction poor service directly by dismissing executives or terminating funding or licences. Since the advantages of increasing scale are expired, there should be a prohibition on mergers and further scaling up. In some cases, where diseconomies of scale prevail, even a policy of splitting large firms should be taken into consideration. Since the "Niskanen's obesity" also partly stems from an excess of administrators and policy makers who are meant to oversee complex bureaucratic and regulations, even when not enforceable, the number of civil servants could be substantially reduced over time.