No. 787: Why Can’t Government be Operated Like a Business?

During this year’s political campaigns, many candidates will talk about operating government like a business. The implication is that businesses operate more efficiently, are less wasteful, and receive greater customer satisfaction than government. So, if government can follow business principles, the thinking continues, it could do more with fewer taxes and citizens would be happier.

But some say government can never be run like a business for the simple reason that government doesn’t have the single objective driving business—to make profits. In fact, many of the services and programs provided by government are incapable of turning a profit.

So does this mean we have to give up on bringing business principles to government? Not necessarily, according to the authors of a new book, The Price of Government. David Osborne and Peter Hutchinson are longtime government-efficiency experts, and in their book they give several recommendations for making government run smarter and cheaper. Here are some highlights:

1. Prioritize what government does. Businesses constantly prioritize what they do, always searching for products, promotions, and programs that will contribute most to profits.

Government does many things, but like business, these functions aren’t of equal importance. Also similar to business, government has limited funds to spend at any time.

Therefore, it’s logical for citizens, through their elected representatives, to explicitly prioritize the functions of government and decide how much to spend on each function. Some governments actually publish a list of government activities in numerical order of importance.

Then, when hard times hit, such as with a recession, and government revenues fall, government functions at the bottom of the priority list can be discontinued, and spending is preserved for the most important government functions. This is an alternative to cutting all government programs by a certain percentage.

2. Measure and monitor government performance. Accurate and up-to-date information is at the core of any successful business. Top businesses continually monitor their costs and revenues and how they are affecting the bottom line of profits.

Even though government doesn’t make profits, it does have measurable objectives, such as improving students’ academic performance, reducing crime rates, filling potholes quickly, and rapidly responding to citizen requests for assistance.

It’s important for government to frequently collect and access indicators of success in meeting stated goals. In some cities, these indicators are reviewed on a daily basis and changes are made if progress is stalled. Governments that collect and respond to such information have seen their approval ratings soar.

3. Treat citizens as customers. Good businesses are attentive to customer needs and issues because they know dissatisfied customers can take their spending elsewhere. Although for most government services and programs there are few alternatives, citizens can still voice their dissatisfaction at the polls, on talk radio, and in the editorial pages.

So an obvious way to increase citizen happiness with government is for public agencies and workers to treat citizens as customers whose support must be constantly won. Adapting government schedules to meet the time needs of today’s households (night hours for government offices), giving citizens options for dealing with government paperwork (using the Internet versus standing in line), and simplifying access to government agencies (establishing single-number phone access to all government offices) are some simple, yet effective, ways to do this.

4. Allow government workers to share in improved efficiency: Financial incentives are a major tool used by business to motivate workers. Performance bonuses are common for workers who exceed goals and expectations.

A way to bring this same idea to government is through “gainsharing.” As defined by Osborne and Hutchinson, gainsharing means workers in government agencies that meet or exceed agency objectives without spending the entire budget receive part of the savings as salary bonuses. Thus, gainsharing gives government workers a financial stake in improving government efficiency.

Government at all levels spends almost one-third of total income. Hence, anything that improves the effectiveness of this spending can substantially increase our collective standard of living. Maybe we can get more from less!