David Osborne & Peter Hutchinson. The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis. NY: Basic Books, 2004. 370 pp. $25.00
The thesis of The Price of Government is that there is a budget crisis at all levels of government. The taxpayers’ revolt is forcing government to redesign itself, and the best response to the crisis is performance management. The heart of the book lies in five key decisions, laid out in the Introduction, explained in the first three chapters (Part One: Smarter Budgeting), with various themes developed in the ensuing twelve chapters (divided into sections devoted to Smart Sizing, Smarter Spending, Smarter Management, and Smarter Leadership). Those five key decisions are:
Get a grip on the problem: How much of the budget problem is short-term (cyclical events, like a recession) and how much is long-term (structural, non-cyclical)? Short-term budget problems can be solved with one-time fixes; long-term problems require structural changes. Most budget crises involve some mixture of both forces.
Set the price of government: How much are citizens willing to spend? While there is no “right” price of government (POG), there is, however, an “acceptable” price. They demonstrate that the price of government has varied since 1953 within a fairly narrow band of few percentage points of the gross domestic product (GDP) or personal income (while different regions will tolerate some differences in the level, the variability has always stayed within a few points).
Set the priorities of government: What results do citizens want for their money? Since the key to solving a budget crisis lies in managing for performance, there will need to be broad agreement from the outset about which outcomes (not outputs or activities) are the most important to achieve. They recommend involving citizens and other key stakeholders (including the executive and legislative leaders), and publishing annual scorecards of those outcomes (preferably through some politically neutral body).
Set the price of each priority: Once agreement has been reached on what is to be achieved, the next step is to decide how to divide the available resources (the POG) among those priorities. This shifts the budget debate from simply “paying costs” to “buying outcomes.”
Purchase the priority: Having decided how much the citizens are willing to pay, and having determined their priorities for purchasing, how best can that money be spent to achieve each of the core results? In doing this, they recommend, one should decide not only what to purchase (in priority order) and what not to purchase, but also which results one would purchase if more funds become available—and which to give up should funds fall short.
In the chapters that follow, Osborne & Hutchinson develop a number of ideas that I have already found myself quoting to colleagues:
While they stress competition, they also admit that many functions of government do not lend themselves to it (policy functions, regulatory functions, state-sanctioned violence, protection of due-process rights, handling sensitive security and privacy issues, services that provide for the general public rather than specific customers). In those cases, they argue for “performance management”: tracking outcomes (such as quality, customer satisfaction, and effectiveness of outputs) and rewarding individual or group performance through performance bonuses (one-time awards, which they argue are more effective than salary increases) and gainsharing (a portion of the financial savings achieved by the unit are allocated back to the employees of the unit). These performance bonuses must be large enough to get people’s attention—at least double the size of a regular pay increase (say, 5% of salary).
They also stress the importance of voluntary compliance (Chapter 10 is titled “Don’t Buy Mistrust—Eliminate It”). And they provide suggestions for a number of practical changes in administrative systems in order to nourish a climate of quality, satisfaction, and results: ways to provide incentives for finding savings, substituting “best value” for “lowest cost,” using Request for Proposals to buy results rather than just meeting specifications, balancing risks against results, and integrating performance and financial information into management reports. They also recommend a “Bureaucracy Buster Panel” which has the power to modify, waive, or eliminate an internal rule or regulation (even over the objection of the one who authorized the rule).
Finally, they stress the importance of organizational change. From the research on quality management, they report that 85-94% of variability in outputs has been found to come from structural problems rather than individual worker variability. In other words, don’t look to blame the individual worker; change the way the work is structured. But they also note that some problems need more than incremental transformation; as the surrounding environment continues to change, “process reengineering” (a top-to-bottom redesign) may be needed.
There are, of course, questions left unanswered. They argue that there is an overall price that people are willing to pay for government. But in setting the price, how do you allocate the total among the competing (and independent) units of government?
They argue for creating structures to enforce accountability (e.g., consolidations) to produce efficiencies, but that doesn’t automatically work—there must be a viable alternative in place (i.e., not just “potential”). The threat of possible competition does not create efficiencies, only the event does. They write an entire chapter on “buying services competitively,” but list only the power of competition, not its weaknesses. They stress the need to “manage transitions humanely” in the process of transforming the way the public’s work is done. One way they offer for doing this is to eliminate employee “bumping rights”; but they offer no advice on how to bell this cat. But these are only quibbles about a work that is timely, intelligent, and useful.
Tony Filipovitch