mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
The Big Crunch And America’s Hidden Opportunity

Between the presidential election and Hurricane Sandy there hasn’t been much room in the news for anything else lately, but for anybody trying to understand the big issues facing the United States a just-released report that Accenture commissioned from Oxford Economics makes riveting reading.

Looking at demographic trends and trends in the costs of service delivery, the report projects the cost of delivering public services to the American population through 2025. No huge surprises here: whether you measure the absolute dollar cost or the percentage of GDP required to provide these services, costs are set to rise. By 2025, fully 34 percent of US GDP will be eaten up by the cost of providing public services. Throw in little items interest on the burgeoning national debt and pension and other liabilities, and we are looking at basic governance costs and obligations close to 40 percent of GDP—and heading inexorably higher.

It’s not a party matter; this is an unsustainable path and whoever wins Tuesday’s election will have to grapple with these numbers one way or another.

There are two basic drivers behind these numbers: the first is the well known demographic problem that comes from the combination of increased longevity and falling birth rates. Programs like Medicare cost more as people live longer, and reduced population growth means that the workforce grows more slowly than the number of old people drawing on government services and transfer programs.

But the second driving force, which Accenture highlights very usefully, is less well understood: the catastrophically slow growth of productivity in the government workforce. Think of this as “bureaucracy drag;” while productivity in the workforce as a whole is rising by 1.7 percent per year, and in private sector service industries it is rising by 1.5 percent each year, in government productivity is rising by a miserable 0.3 percent per year.

Most of the American debate is focused on how to close the budget deficits that result from the growing cost of public services. Republicans generally argue for cuts in spending and look to tax cuts to stimulate more growth as a way of ultimately growing our way out of the budget trap. Democrats think that more taxes can cut the deficit while the right kinds of stimulus spending can promote growth.

But the terrible numbers on government productivity suggest a third avenue: raising productivity of government workers can reduce the cost of providing any given level of services. Making government more efficient should appeal to both Republicans and Democrats, but we spend surprisingly little national energy on this discussion. “Re-inventing government” and “eliminating waste, mismanagement and fraud” come up fairly often, but seriously retooling and streamlining government to raise productivity steadily over time doesn’t get the intellectual attention or political energy it deserves.

Democrats shy away from the issue, I think, largely because of the power of public sector unions in Democratic politics. Raising the productivity of government involves breaking lots of union taboos: outsourcing, layoffs, merit pay and so on. Overall it means creating fewer new jobs per unit of government spending, so the politicians and interests with the greatest natural interest in government and the services it provides are less than eager for reform.

Republicans have embraced many of these issues, particularly at the state and local levels, but mostly from a budget-cutting standpoint. Bending the curve of government productivity growth long term involves more than outsourcing and cuts. It also involves investments and sometimes quite large ones: private companies that have raised service productivity often do so as the result of sustained investment in IT hardware, software, and employee training and development. Raising productivity can also mean paying workers more in order to attract a higher caliber of personnel.

Much of the most important work in raising government productivity consistently and over the long term will come from rethinking and repurposing rather than tweaking and cheese-paring. Take the prison system; using IT more effectively, fighting expensive union work rules and otherwise slicing and dicing the budget will ultimately do less for us than rethinking how justice can be done in ways that don’t involve locking up nonviolent offenders for years at a time. Similarly making health care, education and the legal system more productive requires deep rethinking about how life in the information age can be different from and better than life in the late stage industrial economy of the late twentieth century.

The bad news is that America’s governance problems cannot be solved without a deep rethink of many of our most important institutions—and that cannot happen without bitter political battles with the entrenched guardians of the status quo. The good news is that our governance problems are so expensive that like it or not we’re going to be forced to do the intellectual and political heavy lifting needed to fix them.

Features Icon
© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service