Lately I have been talking to a number of policy makers in the U.S. and in other countries who are facing public sector cuts. Many of them utter words to the effect of “Even if we know a new initiative will work we can’t launch anything during a period of fiscal retrenchment”. A related sentiment was conveyed to me after President Obama’s AIDS Strategy was released. Journalists asked me “What good is a strategy that re-focuses resources on the most affected groups without a major infusion of new spending?”.
Neither comment makes strictly logical sense. Public sector funds should be spent wisely whether the budget is shrinking, stable or growing. A constant frustration of the White House OMB is that everyone is interested in the “B” and few people are interested in the “M”. People come in all day long during budget development season and say “We are spending a hundred million dollars a year to solve problem X and it’s not working, but we have a new idea that will work so we need a ten million dollar increase”. To which the OMBer will typically (and appropriately) respond: “Why not take the money out of the 100 million you spend on ineffective programs, i.e., manage the money you have and not just ask for more?”.
It is axiomatic that any government agency that spends millions or billions of dollars a year is wasting at least some money, either on things that do not work at all or are less effective than other things they could be doing with the same money. A principal challenge of public sector management is cutting ineffective programs even when the money will stay in the agency and can be re-directed to programs that are effective. This situation dramatically decreases opportunities to innovate. Indeed, innovation becomes one of those luxuries a public sector manager can consider only every 3 or 5 or 10 years when the budget looks unusually good.
In my observation, which I hope RBCers will supplement with their own, at least three forces impede the replacement of less effective programs with more effective ones. First, all government programs “work” in some sense. That is, they provide jobs or money or prestige or something else someone values and will fight to keep even if the program doesn’t work at all in terms of delivering the outcome it is explicitly intended to deliver. Second, the public and the press tend to judge programs by their names and not by their record of effectiveness. A policy maker who cuts a program that is completely ineffective at helping women with breast cancer will nonetheless get labeled as “cutting desperately needed care for breast cancer patients”. Third, large bureaucracies tend towards institutional inertia, including a collective mentality along the lines of “whatever we have been doing we must keep doing, even if no one remember why precisely we started doing these things in the first place”.
Some critics of government say these challenges are not surmountable, and we are stuck with a public sector that will generally shun innovation. But I believe in public sector innovation for the same reason that Mark Twain said he believed in baptism: I’ve seen it done. Ken Kizer transformed a sclerotic Department of Veterans Affairs into a first-rate health care organization. Although there were many good ideas behind what Ken did, fundamentally he is simply a powerful leader who doesn’t take no for an answer. The late Jack Kemp played a similar role at HUD. Some people in the new U.K. coalition government seem to have the same cast, which gives me optimism for that country. Exceptional leaders by definition don’t come along very often, but you can tell who they are because they promote public sector innovation irrespective of how the budget looks.