Promoting Public Sector Innovation in a Time of Constrained Budgets

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.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College London. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over thirteen thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

5 thoughts on “Promoting Public Sector Innovation in a Time of Constrained Budgets”

  1. A fourth reason for the hedgehog strategy is lack of trust. I have been on both sides of budget arguments of this type. Once you (as programme menager) concede that any of your programmes are ineffective, how can you be sure that the budget guys won't simply take away the money? All the more as your competitors are also hedgehogs, claiming everything they do is marvellous. I agree that it takes real leadership and integrity to convince line people that courage, good faith and creativity will be rewarded rather than exploited, which is probably the lesson they have drawn from experience.

    You can't get round these issues with ingenious formalisms like "zero-based budgeting", which merely create a lot of work repackaging the same product to meet the latest new managerial fad.

  2. James

    This is no doubt in the soup. One of the very clever things Ken Kizer did as VA Undersecretary was get an agreement with OMB that any savings changes in the VA generated would go back to the VA and not the treasury. This had the added benefit of making veterans advocacy groups' trust him…when he closed a disused hospital ward he wasn't trying to reduce care for veterans, he was trying to spend the same money in way that would serve them better.

  3. Money is our medium of exchange. Store your wealth in another form, and quit hoarding our economic grease.

  4. Perhaps not surprisingly, this mistrust is also common in the private sector, where productivity gains tend to accrue first to companies that don't have a policy of immediately firing the now-excess increment of workforce.

    The other fourth thing is that lots of innovations are ineffective. (After all, the old things that don't work and are being put on the chopping block were innovations once too.) So anyone who has had any experience in a bureaucracy is going to be very leery of redirecting money from "ineffective" to "effective" programs unless/until the new programs are proven effective in their particular context and at something like their proposed scale. (Anecdata: a friend who worked for a tax department that was supposed to ditch its custom software for an off-the-shelf solution, complete with ringing references from several other tax departments. 18 months after projected cutover…)

  5. They way the media covers government also prevents innovation because there is NO program, new or old, that can't be distorted by a so-called journalist looking for a sound bite or a story, or who just plain can't be bothered to report all the relevant information.

    Example: I work for the state of California and every month every employee covered by the state pension has a percentage of their paycheck withheld and paid into the CalPERs pension fund. NOT ONE SINGLE NEWSPAPER ARTICLE that I have seen that discusses the so-called crisis in public pensions has mentioned this except for ONE lonely op-ed by the director of the pension fund). Instead, they cherry-pick gross extreme examples from municipalities (which may or may not be part of CalPERS — I have no idea if cities and counties are in CalPERS, but at least I know I don't know). This is relevant because (1) it means CalPers gets additional money paid in as well as paying out every month, and (2) those contributions are NOT an additional item in current taxes, they are included in money appropriate for each agency. I would think those things would be relevant, but then I'm not a news editor.

    Another example: some years ago the San Francisco Chronicle ran a very snarking article about how a local water district was paying vast quantities of money for bottled water for water district employees, and had a lot of fun with jokes about how the water district must think there was something wrong with its own water. Turns out that the water district was providing bottled water for employees who were PUTTING IN NEW WATER LINES IN NEW DEVELOPMENTS — in other words, where there were as yet no water pipes. (Oh, and the article mis-stated the terms of the contract so that it sounded like a much worse deal than it was, and the misstatement was so blatant it's hard to see how it was accidental).

    Another instance of how good government ideas get distorted: in the 1960s the FAA (I think, don't recall exactly, it's been a while) went to airlines, talked to stewardesses and asked them what kind of safety equipment they could handle. They also measured the stewardesses' height and reach to see how high they could reach to get equipment off of shelves, in order to make sure the stuff was placed where they could get it and they could use it when they reached it. Sensible, no? Well, former Senator William Proxmire used to publicize government waste — he called it his Golden Fleece award — and this effort got stigmatized as "measuring girls at government expense," nudge nudge wink wink.

    Want another example? I just heard a libel case argued in a state appeals court in which a reporter stated that money (alleged kickbacks) had been channeled to a state employee through a certain bank account. Turns out the account did not exist because its owner had died years before the state employee worked for the state!

    And don't even get me started on coverage of the criminal justice system. I used to work in criminal law and the gap between the reality of the cases I worked and the system overall, versus how it was reported in the media, makes the Grand Canyon look like a crack in a sidewalk.

    I suppose this has wandered slightly off the topic and I apologize, but it is extremely hard to innovate if you know every single twitch is subject to public misinterpretation (to be charitable) or outright lies (to be accurate).

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