In a bold and transformative move, President Donald Trump announced his administration’s intention to downsize the federal government by offering compensation to federal workers who voluntarily resign. This policy aims to enhance the efficiency of the American economy by reducing bureaucratic inertia and reallocating human capital to more productive sectors. While the proposal has sparked controversy, it represents a crucial step towards fostering a dynamic and innovative economy.
Undoubtedly, the private sector is more efficient than the government in allocating resources, driving innovation, and responding to market demands. Indeed, empirical research shows that redirecting talent from the public to the private sector enabled the rise of China, hence President Trump is positioning America for growth by encouraging labor to flow to the private sector.
Government institutions often struggle with inefficiencies due to their organization. Bureaucratic inertia, rigid hierarchies, and a lack of competitive pressures lead to resource misallocation and stagnation. Unlike government entities, private enterprises operate in environments driven by competition, consumer demand, and the constant need for innovation. These forces compel businesses to optimize resources, improve products and services, and maintain fiscal discipline. The private sector’s responsiveness to market signals ensures that capital and talent are allocated where they can generate the highest returns, fostering an environment of continuous improvement and economic vitality.
China’s economic transformation over the past few decades serves as a compelling case study in the benefits of a dynamic private sector. Three key studies—“Entrepreneurial Reluctance: Talent and Firm Creation in China” by Chong-En Bai and co-authors, “Entrepreneurial Talent and Economic Development in China” by Weiying Zhang and colleagues, and “Reluctant Entrepreneurs: Evidence from China’s SOE Reform” by Hanming Fang and associates—highlight how the diversion of talent from state-owned enterprises (SOEs) to private ventures has propelled China’s economic rise.
In “Entrepreneurial Reluctance: Talent and Firm Creation in China,” Bai and his team reveal that the most intellectually-capable individuals in China historically gravitated toward government positions due to the high status and job security these roles offered. However, when these talented individuals transitioned into entrepreneurship, their businesses achieved remarkable success, outperforming peers without similar intellectual pedigree. This finding underscores a critical insight: while government jobs may attract top talent, the private sector offers a platform where their skills can generate far greater economic value.
Weiying Zhang’s “Entrepreneurial Talent and Economic Development in China” further reinforces this argument. The study demonstrates that individuals are significantly more productive in the private sector than in government roles. The entrepreneurial environment fosters innovation, efficiency, and responsiveness to market signals, enabling individuals to maximize their potential. Zhang’s research illustrates that as more talented individuals shifted from public employment to private entrepreneurship, China’s economy experienced accelerated growth and diversification.
“Reluctant Entrepreneurs: Evidence from China’s SOE Reform” by Hanming Fang and colleagues examines the unintended, yet beneficial, consequences of SOE reforms, which pushed many reluctant bureaucrats into the private sector. The study found that even individuals initially hesitant to leave secure government jobs became successful entrepreneurs, contributing significantly to economic development. This transition not only enhanced individual productivity but also stimulated broader economic dynamism.
The lessons from China’s experience are highly relevant to the United States. Policies that encourage the migration of talent from government roles to the private sector can unlock substantial economic potential. For example, Trump’s proposal to downsize the federal government by compensating employees to voluntarily resign can catalyze this transition. Former government workers possess valuable skills and experiences that—when redirected into entrepreneurial ventures or private enterprises—can drive innovation, create jobs, and enhance industry competitiveness. This approach not only reduces the fiscal burden of an oversized government, but also invigorates the economy by maximizing the productive potential of the workforce.
A smaller government—paired with a vibrant and dynamic private sector—is fundamental to economic prosperity. The private sector’s superior efficiency in capital allocation, talent utilization, and innovation highlights the necessity of policies that promote entrepreneurial activity and minimize bureaucratic inefficiencies. As demonstrated by China’s remarkable economic transformation, the strategic reallocation of talent from the public sector to the private sector is not merely beneficial, it is essential for fostering sustained economic growth, competitiveness, and America’s national prosperity.
