Can we make government more efficient?

The U.S. government is unique in its inefficiency in providing services

As the U.S. Congress (belatedly) hammers out this year’s federal budget, our politicians and pundits have focused their attention on three questions. First, how important are the activities that government performs relative to the private enterprise that it supplants? Second, how redistributionary should our system of taxes and spending be, both in terms of how much we take from the rich to give to the poor, as well as how much we take from future generations to give to the present? And finally, which presents the greater risk: a failure to provide Keynesian stimulus today, or a potential debt crisis tomorrow?

These are crucial questions, and I don’t mean to take away from their importance, but there is a sort of futility to them. At their heart, these questions frame the debate as one of making a choice among a frontier of possibilities, as one of making trade-offs between risks, costs, and benefits in which each new cut or tax produces winners and losers, but seemingly no reform could make us all better off.

For some programs, such as Social Security, this zero-sum framing may well ring true (and it is for that reason why fixing our entitlements programs has been so notoriously difficult). But applying this paradigm to discretionary spending seems premature. Before we retreat to our partisan parapets and pretend (as the left does) that all government spending is sacrosanct or imagine (as the right does) that huge pools of unadulterated waste exist in our system, it is worth investigating: can we expand the frontier of possibilities? Are so-called “Pareto” improvements possible? And why is our government so inefficient at supplying the services that we as a society want?

Nowhere is the government’s dysfunction more apparent than in public education. Per pupil, adjusted for purchasing power parity, Poland has spent less than a third of what the U.S. has in secondary education, and yet has outperformed the U.S. in nearly every secondary education test in the past decade. They’re not alone; almost every Eastern European country can make the same claim. Can this really be the result of cultural differences or some twisted sort of American exceptionalism? Are Slovak students really smarter, Polish children more diligent, or Hungarians better at parenting than we are? Surely not.

The more likely explanation is that contrary to other educational systems, we fail to fire bad teachers or use merit pay to attract and retain good ones. A mounting body of evidence (Gordon, Kane, and Staiger 2006; Hanushek 2009; Goldhaber and Hansen 2010) indicates that if public schools merely used a teacher’s performance during their first three years to weed out the lowest performing teachers before they were granted tenure, this effect alone would be larger than several other proposals (longer school days, longer school years, smaller class sizes) combined, and at a fraction of the cost. But instead of firing bad teachers and paying good teachers more, we continue to demand that our teachers earn master’s degrees and earn certifications despite virtually no evidence that these requirements have any significant effect on quality of education.

It is easy to blame teachers unions for the poor human resources policies in our schools, and indeed, unions are a large part of the reason why education reform often fails to make headway. But the failure is not limited to unionized work forces. Across all of our governmental programs, the personnel management is the same: government workers get their jobs by earning the diplomas or certificates that we pretend separate the productive workers from the unproductive, and then are promoted almost solely on the basis of how many years they fill a chair, not how well they do their jobs. It doesn’t matter if the workers belong to a public service employees union or not: our military has been bleeding away its finest officers for years. If you ask the departing officers why they’re leaving, they consistently blame the sclerotic military bureaucracy that mints generals on the basis of seniority, assigns personnel in a manner that is blind to skill sets and preferences, and encourages conformity over entrepreneurship.

The free market often does no better: as most who have worked in corporate bureaucracy can attest to, the private sector has the potential to be just as inefficient as any public administration. Today’s Great Recession ended the jobs of roughly one in ten workers in the private sector while output hardly budged at all. The implication is that before the crisis, one in ten workers sat in their cubicles watching YouTube all day, and it was only the threat of collapse that pushed companies to release their deadweight. Still, unlike government offices, if businesses persistently fail to fire their worst and reward their best, they’ll go bankrupt and be replaced by those with better workforce management. There is no invisible hand to hold the Department of Education’s feet to the fire: we must rely on our representatives to do that task for us.

Unfortunately, our leaders have long been delinquent in their duties. Rather than tackling the hard problem of squeezing more out of its workers, government has simply raised the compensation of its employees across the board in a crude effort to staunch the exodus of its best and brightest. But bad employees like money just as much as good employees, and without any effort to separate the wheat from the chaff, productivity in the public sector has remained low.

The effect has been disastrous on public finances. Faced with balanced budget requirements, many states have raised the compensation of their employees by offering wildly unsustainable pensions, and thus pushed the burden of their mismanagement onto future generations. For the federal government, with no such accounting restrictions, the consequences have been much the same, with bloated salaries adding billions to our national debt.

It is time for a reform of our civil and military services. Last month, the National Commission on Fiscal Responsibility and Reform recommended a three year freeze on the salaries of public employees and a 10 percent reduction in employee numbers. The size of these cuts is appropriate, but the method matters as much as the magnitude — it does us little good to fire one out of ten employees randomly, freeze the pay of our best workers, or continue to offer inflated paychecks to the worst public employees. The private sector shed 1/10th of its workforce without a drop in output — the demand we must make of our politicians is that they reform our government and achieve the same.

1 Comment
Anonymous about 13 years ago

Excellent article. I am ex-federal employee and now am a contractor and with all of the waste and mismanagement I have personally seen, I must say this arictle is spot on. The US government could make a significant dent in its debt if it were to apply more oversight its federal employees. At least a 10 reduction in force could be executed without any reduction in the services the government provided. I wish more federal employees and contractors were willing to say this or that is broken and needs to be fixed.