What Small-Government Fans Should Learn From Walmart

Even the staunchest left-wingers should admit there's waste in the system, but cheaper often isn't the same as better government.
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Few people consider Walmart a paragon of public virtue. But no one would deny that Walmart is the avatar of low costs.

That's what makes a recent piece on Walmart's employee health-care plan so interesting. The company long resisted providing benefits to employees at all. But then it discovered that health care actually wasn't that expensive for most workers -- big costs were really driven by a small number with high-cost conditions. Then it realized that it could drive down those high costs through a simple expedient: providing even better care. All of a sudden, workers with serious health challenges were getting all-expenses-paid trips to the Mayo Clinic.

"We come at it from the perspective of how can we improve quality," a senior vice president told National Journal. "When we improve quality, often there will be a reduction in waste or unintended or unnecessary cost." (This echoes similar findings about Mayo's approach generally.)

Aside from what this says about health care, there is a lesson here about government. Look what Walmart discovered: Costliness generally isn't due to everyone and everything but rather a few specific problems. In most cases, investing in avoiding the problem costs less than enduring the problem itself -- as numerous companies have found when it comes to reducing waste of energy or, for that matter, anything else: Doing "the right thing" is often cheaper, because the "wrong thing" almost by definition produces "waste" of some sort. And "waste," by definition, is a cost -- or as Dow Chemical's highly profitable in-house effort puts it, "Waste Reduction Always Pays". (Here's an interesting paper that opposes so-called "triple-bottom-line" accounting, but argues that socially-conscious decisions by corporations benefit them in the long run.)

Think this is true only of a few high-end goods like health care? We all have experiences teaching that the "cheapest" item often is really the most expensive, such as the less expensive dish soap that's less "soapy" and dissipates faster than higher-priced brands, so that you wind up needing, and thus spending, more to do the same amount of dishwashing.

In short, saving money and doing things more efficiently do not necessarily mean cutting needed activities -- in fact, they usually mean quite the opposite. But if you want to start an online food fight, suggest "cutting government waste." You'd think waste wouldn't be such a terrible thing to mind, yet the suggestion seems to anger both poles of the political spectrum.

Until recently, politicians of both parties indulged the conceit that government and the taxes to support it could be significantly reduced without any pain, simply by cutting waste, fraud, and abuse. Not anymore. With the soaring deficits following the Great Recession and a Democrat in the White House, conservatives believed that the time had arrived for an all-out assault on the welfare state. Gone was the bromide that conservative objectives could be achieved without painful cuts to programs people actually like. "Painful cuts" were now the stated goal. Liberals were more than happy to meet conservatives on their chosen ground -- because, unsurprisingly, pain lost.

As a result, while a few years ago the only prescription on sale was "waste, fraud, and abuse" snake oil, it isn't even available over the counter today. Instead, suggesting that perhaps not everything in government is waste is enough for some conservatives to brand someone a quisling. Talk of cutting government waste also inflames liberals, as if acknowledging any inefficiency in government simply plays into the hands of the enemy. According to former Texas state comptroller John Sharp, when he wrote a 12-page memorandum to officials in Washington on how to implement a systematic search for savings, then-House Speaker Tom Foley told him it was a "personal insult to the Democratic Party."

Patrick Bresette of the liberal think-tank Demos has framed this as almost a Catch-22: Attempts to root out waste only reinforce public perceptions of government as wasteful. Nevertheless, as Bresette observed, cutting waste also increases public confidence in those who do so. The National Performance Review that identified waste and inefficiency in the federal government resulted in substantial savings and was part of an overall revival in Clinton Administration fortunes -- and public trust in government -- during the final six years of Bill Clinton's presidency.

In an earlier age, the critics of government waste were Democrats, like Senator William Proxmire with his Golden Fleece award and Charlie Peters of The Washington Monthly, who recognized that inefficient, ineffective government should be anathema to a pro-government party. A more recent exemplar of this tradition is centrist Democratic Senator Mark Warner, a successful entrepreneur who as governor of Virginia -- hardly one of the country's more left-wing states -- increased spending on education by the largest amount in the state's history and raised taxes to pay for it, all with the help of a GOP-controlled legislature. A Governing magazine story on these events is worth reading in its entirety, but here's the money quote:

Having cut spending and streamlined government operations, Warner was then in a position to make the case that the state simply had to raise more money if it wanted to remain solvent. "If you're going to go out and ask people for more revenues, you have to have rock-solid credentials," he says. "You've got to show the taxpayer that you're going to squeeze every dollar and efficiency before you ask for more."

Now with the deficit receding, the U.S. economy slowly improving as countries that pursued austerity slip back into recession, and the Reinhart-Rogoff thesis linking public debt to slowing economic growth imploding over spreadsheet errors, liberals feel emboldened to push for more federal spending, not less.

But the proper level of public spending is a separate issue from whether it should be as effective and efficient as possible. Spending money more intelligently, rather than less, oughtn't be viewed as an offense against liberalism or Keynes (who himself argued that the government could stimulate the economy by burying money at the bottom of coal mines to generate jobs digging it up -- but that it would be better to achieve the same effect through smarter investments).

It also ought to be a defining tenet of conservatism. Unfortunately, the declining political traction of the deficit issue has betrayed congressional Republicans' apparent lack of real interest in "fiscal conservatism" except insofar as government spending raises the specter of wealthy individuals and corporations having to pay taxes to fund it. The House leadership now suggests linking increases in the nation's debt limit not to commensurate cuts in federal spending, which at least had some fiscal logic to it, but to upper-bracket tax rates and federal revenues -- which, of course, would only worsen the deficit and the national debt.

Instead, let's try to tackle specifics on how to cut government spending intelligently. That starts with how efforts like the National Performance Review, as well as projects I've done across the country that emulate it at the state and city level, actually find and rectify waste and inefficiencies. Plenty of good people on both sides of the aisle have identified similar ways to save money, whether on entitlements, defense, or everyday operations of governments from city hall to the National Mall.

As I wrote in a previous post, "waste, fraud and abuse" won't solve all our problems -- they're simply one leg of a three-legged stool. The second leg is larger-scale changes in how government delivers most of its services; as I've discussed elsewhere, about two-thirds of spending at all levels of government consists of human services delivered in ways that are outdated, counterproductive, and more costly than need be.

Our method of providing these services is literally straight out of an insane asylum. It's a model developed 200 years ago that originated with the sanitariums but is now how we handle not just mental health but also corrections, health care, long-term care, most children's services (it's a model Oliver Twist would recognize), and even education. The method is simple: Build the biggest, ugliest building you can. Cram as many people into it as it will hold. Keep them there as long as you can. Then let them out. Repeat as necessary. All of us are worse off for it. We know better ways to address all these problems today, and not only do these improve people's lives -- they save money.

That leaves the third leg of the stool: painful choices. Spoiler alert: Yes, we'll have to make some, and there should be plenty there to start a food fight. But as Walmart shows, from the soap aisle to its health-care program, smarter decisions up front generally produce both better outcomes and lower costs. Whether you like government or hate it, you ought to want whatever governments do to work better and cost less. Instead, as a society, we generally choose exactly the opposite. We're going to be talking here about turning that around.

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Eric Schnurer

Eric B. Schnurer is president of Public Works LLC, a public-policy and management-consulting firm that works with state and local governments across the country. He has served as a gubernatorial chief-of-staff and speechwriter or policy adviser to governors, senators, and presidential candidates.

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