Government Should Run Like a Business—but Not in the Way You Think

Regimes around the world are under pressure to deliver more and cost less. Here's a plan for how to actually make that work.


"Government" is, everywhere, an industry in serious trouble. Not only do its consumers constantly complain, but some also are finding alternatives. Its products are failing the tests of quality and innovation, and it costs more than users want to pay. If governments were private firms, they'd be facing the prospect of either a takeover to "rescue" them or death in the competitive marketplace as their customer base migrates to newer alternatives.

Don't buy the government-business comparison? In fact, governments today face precisely those challenges. Start with takeover threats. Many governments -- from a variety of municipalities in the United States (Governing maintains an online list and map citing at least 31) to several member countries of the European Union -- have been forced to accept one form or another of outside supervision of their fiscal affairs. The Tea Party openly offers the usual corporate raider's solution: dismemberment and liquidation of the hostile takeover target -- in this case, "government" generally.

Look at competitive challenges to governments today: not just a range of alternative public-sector models, from the autocratic to state failure, but also a growing host of private-sector challengers in the provision of every sort of "governmental" service, from the state's traditional province of use of force to such newer areas as social welfare (as we'll discuss in future posts, non-state actors ranging from major defense contractors, responding to former Secretary of State Hillary's Clinton "soft power" initiatives, to terrorist group Hamas have gotten into the social services field). Many businesses have qualities of de facto government (top-down decisions, no consumer voice, little transparency, trampling of individual rights like privacy, and no viable means of escape; as I've written elsewhere, Facebook comes to mind). So it's not too big a stretch to say that governments face pretty much the same challenges as any other business.

At some point, all entities need a demand for their services, to deliver those services at a level of quality that maintains that demand, to respond to innovation and competition by improving them for the times, and to do it with the resources they can command by performing those functions. Any entity that ignores these realities will eventually "go out of business" -- whether or not it's a business.

To make government work in the 21st century requires the same basic "business plan" as in any other failing, but potentially still viable, enterprise:

  • First, resize it to current realities -- stop the bleeding, cut the fat, and get the existing operation on stable footing. Then, start thinking about the future -- or, more accurately, the present that's already arrived while the enterprise remained stuck in the past;
  • Redesign the business, its products, services, and organization, to meet current and future demand -- you wouldn't keep selling buggy whips if people wanted cars. And then,
  • Redefine and reposition the enterprise to compete effectively against new competitors and in whole new markets.

That's the business plan I'll follow (if fitfully) in this space. Let's start with resizing, the subject of most of the debate about government today. How much should we spend on government? How large or small should the deficit be? How much should we cut? A good place to start is discussing how we can control reckless spending, spend more wisely, and make the decisions necessary to bring spending in line with what we're able and willing to pay for it.

That's because, in turning around a troubled enterprise, the first thing to do is to stop the hemorrhaging. That doesn't mean you start hacking away at the enterprise indiscriminately, or just blow it up. You want to attack the problem strategically, starting with purely wasteful spending that can be eliminated without hurting operations -- in fact, eliminating waste will actually help operations.

Consider for a moment what is "waste" (and its cousins, "fraud" and "abuse"). Many people apply this term to virtually any government program with which they disagree. For instance, a liberal may view military spending as "waste" while a conservative might think the same of giving money to a homeless person. We'll use the term "waste" in a different and more precise sense: money that isn't being spent for its intended purpose. However one feels about defense spending, defense dollars shouldn't be spent on gold toilet seats, as the National Performance Review under Vice President Al Gore found they were, and whatever one thinks of welfare, welfare dollars shouldn't be spent on ineligible services, as various federal reviews have found to be the case with as much as 40 percent of Medicaid spending.

There is, sad to say, plenty of wasteful spending in government, and those who believe in the public venture should be even more interested in ferreting it out and eliminating it than those who hate all government. In subsequent posts, I'll talk about my professional experience in cutting billions in government waste, fraud, and abuse. But contrary to what most people want to believe -- since, if true, it would make the solution to our challenges simple and painless -- eliminating truly wasteful spending only gets us so far. By my estimates, it will tame about one-third of the structural deficit problem facing most state and local governments, and an even smaller portion of the massive structural deficit at the federal level -- a start, but not a solution.

These structural deficits are caused not just by irresponsible politicians but, fundamentally, by a public to which they are simply responding. The public -- not just here, but everywhere -- demands a wide range of government services. With the exception of a small minority, most Americans expect the government to provide public safety and national defense, good and affordable schools and institutions of higher learning, health services at least sufficient to control the spread of infectious disease and to keep the poor and aged from dying in the streets, and the public infrastructure that keeps our economy and life as we know it moving forward. These functions account for almost all spending at every level of government -- other, more controversial programs like income transfers ("welfare") and business incentives ("corporate welfare") make up a small, and declining, portion of government today. So, in fact, there is little in modern government that most people would actually consider waste -- or be willing to give up. The piece-by-piece rollback of the sequester is demonstrating this on a daily basis.

On the other hand, the public is unwilling to pay for the government it demands. Yes, that means taxes. I estimate that the difference between what Americans collectively expect their governments to provide and the amount they're willing to (or their elected leaders are willing to make them) pay for it amounts to about 20 percent of spending at all governmental levels. In some countries -- and even in some U.S. jurisdictions -- the problem is even worse.

The unwillingness of voters everywhere to pay for what they want government to deliver can stem from two possible expectations. The first is that government leaders should somehow figure out a way the public sector can actually deliver more in services, with more customer choice, and do it for less. Preposterous -- except that the technological advances of the last few decades have allowed consumers to demand that the private sector do exactly that. (In future posts, I'll discuss how the same can be done in the public sector.) Again, however, even these changes in massively expensive government bureaucracies will help but won't completely solve the challenges governments face today.

And that brings us to the second, and irrational, expectation that citizens of all advanced democracies appear to hold today: that you can get something without paying for it. Whether manifested in an assertion that "it's all waste, fraud, and abuse" or that the problem can be solved by goring someone else's ox (e.g., "cut welfare but keep the government out of my Medicare"), the belief is rampant that we can make up for years of poor choices without a day of reckoning, that we can dig our way out of a hole without any effort, or that we can cure self-inflicted wounds without any pain. It's not true. There's no sugarcoating the fact that we need to make tough choices to bring government spending under control and rebuild our economy -- choices between public and private spending, consumption and investment, and paying our debts today or making the next generation pay for them tomorrow. But there are better and worse ways to deal with these realities. The answer lies neither in attempting to preserve government as we came to know it in the 20th century, nor trying to tear it down and roll it back to an imagined 18th-century ideal.

If we can resize government to fit what we're willing and able to pay for it, it will stop the hemorrhaging. But it still won't make government competitive in the 21st century. To do that, we will need to redesign government for 21st-century challenges and opportunities, and reposition government to meet 21st-century competition.