[Insight & Opinion] For Musk's Reform to Succeed, Government Must First Relinquish Power

Pursuing a Smaller Government with an Entrepreneurial Mindset
Shrinking Agency Budgets Is No Easy Task
Success Requires a Fundamental Shift of Power to the Private Sector

On January 20, the second Trump administration will take office in the United States. At this point, it seems that the second most influential figure in the Trump administration is not Vice President Pence but Elon Musk, CEO of Tesla. Although there is much controversy due to his excessive influence, Trump’s response to Musk is simply that he is a “very smart person.” Musk’s official title is Chairperson of the newly established Department Of Government Efficiency. As an entrepreneur, Musk shares a similar perspective with Trump regarding regulations and government: regulations should be reduced, and the government should be as small as possible. In fact, Musk has pledged to drastically cut regulations and reduce the federal workforce of about 2.3 million employees by more than half, aiming to cut the government budget by at least $2 trillion. Trump called this “the Manhattan Project of our time.” But is this really possible?

First, regulatory easing is likely to be achieved to some extent. Especially, as Trump promised during his candidacy, environmental regulations are expected to be significantly relaxed. With fewer regulations, the number of public officials can also be reduced. Musk has said he will first abolish the current work-from-home system, where 1.3 million employees work remotely 2 to 3 days a week. There will be resignations in protest against the abolition of remote work and the mandatory five-day office attendance. General civil servants, whose positions are guaranteed, may be reclassified as political appointees and subjected to a personnel evaluation system to find grounds for dismissal. Musk is the person who fired 80% of employees after acquiring the social media platform X. Some government agencies will be eliminated or merged.

Musk said there are currently about 428 federal agencies, and about 99 would be sufficient. However, no matter how much they are reduced, the target number is impossible. Seventy percent of federal employees belong to national security-related agencies, including the Department of Defense, which employs 740,000 people. These are organizations where the U.S. government cannot easily choose to cut personnel. The budget situation is similar. Sixty percent of the budget is spent on mandatory support programs defined by law, such as Social Security, Medicaid for low-income groups, and unemployment insurance. Discretionary spending accounts for only 25%, and if defense spending is excluded, only about half remains, much of which consists of grants designated for specific regions.

In the U.S., the power to allocate the budget lies with Congress. Lawmakers will naturally oppose cuts to budgets allocated to their constituencies. A $2 trillion reduction in government spending is not feasible. Moreover, government spending cuts usually cause economic slowdown. The midterm elections will be held two years from now. The only time to touch the budget will be the first year at best. In conclusion, workforce restructuring will likely involve closing a few agencies that have been eyesores and the dismissal of public officials suspected of disloyalty to Trump, while budget cuts will be noisy but mostly symbolic and end up being superficial. The sharp rise in U.S. Treasury yields likely reflects these expectations. There were no budget cuts during the first Trump administration either. In fact, the Department Of Government Efficiency, headed by Musk, is not a government department despite its name but merely an advisory body within the White House.

The U.S. government reform attempts are not new. Since World War II, the Harry Truman administration, the Ronald Reagan administration in the 1980s, and the Bill Clinton administration in the 1990s all pursued innovation under the name of “government reform.” All aimed to reduce government organizations and operate budgets and personnel efficiently but were not very successful. This was due to significant practical obstacles. Overcoming resistance from groups that suffer losses from innovation is difficult, but fundamentally, government reform means shifting power from the government to the private sector. First, the government must relinquish power, which is not as easy as it sounds. South Korea would not be much different.

Kim Sangcheol, Economic Commentator