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Government Should Learn About Cost Control from the Rest of Us

If your company is like many others, it has recently gone through a traumatic and painful reorganization. If that reorganization has gone well, your company has now reduced its costs dramatically and is more competitive in our increasingly competitive business environment.

So how come the federal government can't do the same thing?

Vice President Al Gore's Reinventing Government group should be congratulated for taking important first steps to bring modern management tools to government operations. However, their recommendations are very, very modest compared to private sector standards. Let's forget about the fact that some of their recommendations probably won't be implemented, and ignore the recent finding by the Congressional Budget Office that savings calculated by the Reinventing Government group were grossly inflated. Even if we take the numbers at face value, Reinventing Government is only a first step in a full-blown cost reduction.

During the late 1980s and into the 1990s, the restructurings that I'm most familiar with have resulted in reductions of at least 10 to 20 percent, in both staffing and costs. The reduction projected for Reinventing Government are on the low side of that range. Staff reductions come to about 12 percent of the total staff reviewed, while the Reinventing Government proposals call for an annual reduction in spending of less than 2 percent of the federal budget. That's a far cry from the private sector standard.

Why did businesses downsize over the past few years? Consumer pressure. Downsizing is an unpleasant process, and unless the federal government feels the same consumer pressure from all of us, true federal downsizing simply won't occur.

Q. I work for a large federal agency. Periodically, when we get into a cash crunch, we reduce costs by 10, 15, sometimes 20 percent "across the board," so that each office has to reduce expenses by the same percentage. But these reductions never seem to stick, our budgets ultimately increase, and right now the taxpayers are calling for more reductions. Needless to say, this is having a terrible effect on morale around here.

A. Unfortunately, across-the-board reductions seem particularly popular among government agencies, because they help politicians avoid making choices and potentially offending interest groups. Such mechanisms, whether used by government agencies or private industry, reward inefficiency and punish cost-effectiveness. The inefficient managers simply trim off a little of their hefty fat, while the efficient managers struggle to cut their already-lean budgets. Soon all managers learn their lesson, and build fat into their budgets to protect themselves during the next downturn. In other words, the problem simply gets worse and worse over time.

As one of my colleagues who is a nuclear engineer put it: "It's like a sine wave that quickly goes critical. And you don't want to be around the reactor when that happens."

Q. Our government agency is trying to apply private-sector techniques to our cost-reduction effort. We've developed teams of agency employees to examine operations and find waste, inefficiency, and other ways to reduce costs. Is this the right way to go?

A. One suggestion: Involve taxpayers in your process. Make sure they understand early on that some of your services could be eliminated, and that -- even though they may be unhappy that some familiar services may no longer be available -- they'll see the results of their efforts in the form of reduced taxes and less bureaucracy to deal with. Customer involvement is always important when a major change is involved.