Roll Over, Mississippi

Commentary, Public Sector, Frontier Centre

Prepare to be shocked. The average per capita income in Mississippi, the poorest U.S. State, is now higher than in Canada’s richest province. Let’s not nit-pick about details. Canada’s living standards are falling behind. Here is a prescription to fix the gap.

Nowadays nations make themselves competitive by revamping their public sectors and lowering taxes. If Canadian policymakers don’t keep pace, we’ll see the investment, brains and talent that underpin our high living standard slide southwards. Our country labours under a heavier tax burden than our main trading partner, the Americans, because our government expenditure is proportionately larger than theirs. Reducing spending while preserving our high service levels is therefore our greatest public policy challenge.

We need to retire the myth that public services can be "saved", improved or extended by throwing more money at them. Rather the critical issue is not "how much" governments spend but "how" they spend.

The key to making our public sector more effective is competition, a process that the private sector uses every day to shake out costs, drive down prices and raise service levels. But how can we channel this force into the forbidding areas of public life from which it has traditionally been excluded? Is there a framework within which competition can be applied to government services?

Yes, indeed. The recent experience of modern, highly effective government organizations all over the world, including Tony Blair’s Britain, has shown us three principles at work.

Principle one is neutrality. Governments have traditionally relied on permanent civil servants to produce the services they provide. But in a system where neutrality rules, no group is granted a lock on the market. Instead, the government buys services from whoever can supply them most effectively, whether its own employees or alternative commercial suppliers.

The second principle is transparency. Through the use of private sector accounting methods, government organizations can accurately measure all the costs involved in directly providing a unit of service. This process allows objective "shopping" comparisons between internal and external suppliers, and it exposes the true cost of overheads and excessive bureaucratic layering. Reductions in middle management and a streamlining of internal processes and regulations often follow, dramatically raising the public organization’s performance.

The third principle is separation between the roles of elected officials and management. Elected officials represent the interests of citizens, who are understood to be both customers and shareholders in the community. Once in office, they should function as a board of directors with no direct involvement in administrative activities. Their job is to set policy — to define the service levels (and tax levels) desired by their customers. Managers, in contrast, implement the policy of elected officials. They consider all alternatives and purchase services in the most cost-effective manner. Excellent performance is rewarded. Deficient performance can lead to demotion or dismissal.

These straightforward principles enable us to rate the performance of government organizations and help us find out why so many public services cost too much:

  • Operations are biased heavily towards in-house delivery, usually public monopolies.
  • Service levels and costs are ill defined, so nothing can be measured.
  • Elected officials are involved deeply in administrative activities where they have little experience or skill.

The result is low-performance government and high-cost services. In turn we end up with higher-than-necessary taxes that are eroding our relative living standards.

It is possible to create excellent public services, lower taxes, and rising prosperity at the same time. We can do all this by reorganizing Canada’s public sector according to these principles of high-performance government.

If we do, watch out, Mississippi.