Don’t slash spending – re-think it
IPN Opinion article
Mint (India) / Providence Journal (USA) / Japan Times / Financial Mirror (Cyprus)
The strikes in Greece against the government’s austerity package must worry the leaders of any country running big budget deficits--which is most countries. After all, the package was not particularly austere: minor trimming of Greece’s notoriously bloated and corrupt public sector, a nudge upward of the pension age to 67, but not enough to redeem Greece any time soon.
The good news for President Obama's new National Commission on Fiscal Responsibility and Reform is that governments can, however, cut budgets without civil unrest and without losing anything that voters really value. But--as Canada showed--it can only be done through a reform strategy, not a cuts strategy.
Huge rises in taxation in the USA and Europe in the last decade bought plenty of intrusive new agencies, more expensive doctors and teachers, and superlative pay and pensions for growing number of bureaucrats. But taxpayers don’t believe they have bought better services. And entrepreneurs complain that the rise in regulation and bureaucracy prevents them generating the economic growth needed to save faltering economies.
Yet talk of spending cuts always alarms voters. Even in Britain, with one of the world’s worst debt problems and a deficit nearing 15%, neither Gordon Brown’s Labour government nor David Cameron’s Conservative opposition are willing to talk budget cuts in advance of the May election. After a ten-year public spending spree, Britain’s debt was shockingly deep even before the financial crisis. Indeed, such profligacy by Britain and the USA caused the very boom that led to an inevitable and disastrous bust. The last time Britain was so far in the red was when it was fighting off Napoleon and Hitler.
Governments with debt problems might buy themselves a little time with across-the-board budget and salary freezes but that is no long-term solution: it just breeds resentment among public workers--many of whom are low paid and would be hit disproportionately--while ministers squabble about their share of a diminishing pie.
Canada found this when trying to cut its deficit in the late '80s and '90s. There were strikes and plummeting morale. Important services were cut along with marginal ones. Efficiency drives had little impact.
The incoming Liberal government of 1993 faced a huge budget problem but managed to cut the deficit from 9.1% of GDP to zero in just five years by working out how to run government a lot cheaper--and without increasing taxes.
The Canadians’ first move was to appoint a minister for public service renewal--a single figure with the authority to drive change and make sure all ministers did their bit. They put nothing off limits, not even healthcare. There were no spending targets because they knew that departments simply spend up to such limits. But there was a complete review of all government activity.
Ministers had to define what their department was for and did that really need civil servants, or could it be done better by private bodies or by the public themselves? With a reform rather than a finance minister in charge, everyone bought into this as a complete re-think of how the government served citizens--not just an exercise in penny-pinching.
There was no place to hide from the hard decisions. Pressure was kept up through cabinet retreats at which ministers’ progress was assessed and new targets set. They had to speak with one voice, with no departmental squabbling.
A ministerial task force took successful techniques from one ministry to the next. They recognised that some public services remained vital, while others could be completely redesigned or even eliminated. The end result was small cuts (or even increases) in some departments but large savings in others--massive cuts in transport and farm subsidies, for example, but rises in benefits for the elderly.
Within three years, Canada’s budget deficit was eliminated and the debt was coming down. Within five years, the size of the civil service had fallen by nearly a quarter (23%) with no strikes or civil unrest.
With so many governments now so deep in debt, Canada’s strategy seems exactly the right model. The National Commission on Fiscal Responsibility and Reform must conduct a complete review of what government does, what it needs to do, how to do that better, and what to leave to other people. Re-think government and the savings will follow.
Dr. Eamonn Butler is Director of the independent economic think-tank the Adam Smith Institute, London, and author of a new book on trimming government, The Alternative Manifesto http://tinyurl.com/yal5ynl