Ottawa Should Do the Math: Productivity Trumps Head Counts

Frontier Centre, Public Sector, Uncategorized, Worth A Look (historic)

The federal government employs 400,000 people, more or less – and will probably still employ 400,000 people, more or less, when it completes its modest downsizing in 2015. With a maximum hit of 12,000 people, it is a modest downsizing, indeed: one worker a year, for three years, for every 100 workers who keep their jobs. By way of perspective, New Brunswick lost 5,700 jobs in March alone. Nova Scotia lost 2,900. Prince Edward Island lost 200. Newfoundland lost 700. Atlantic Canada, in other words, lost almost as many jobs in a single month (9,500) as the country will lose in three years from the elimination of jobs in the federal government. For the most part, no one much noticed or much cared. Most of these folk, after all, were private-sector workers.

Assume for a moment, as absurd as the proposition may sound, that the federal government delivered its services slightly more efficiently in the future than it does now. Arbitrarily, say 1 per cent more efficiently. This feat would eliminate 4,000 jobs – with no loss in either quality or quantity of services. Now extend this single-point increase in efficiency to three years. This feat would eliminate 12,000 jobs with no loss in either quality or quantity of services.

These calculations show that the problem with government isn’t so much payroll as productivity. Make a single percentage-point increase in efficiency in the federal work force annually for 10 years – and you would save 40,000 jobs: once again, with no loss in either quality or quantity. (Alternatively, as some people would see it, the government could increase services by 10 per cent with no increase in payroll.)

Most governments and many people continue to make the same grievous error – the assumption that public-sector solutions necessarily require more public-sector workers. Bureaucracies, by their nature, generate procrastination and waste, but 21st-century economics will compel governments to get efficient. In 2004, long before the Great Recession, McKinsey & Company, the U.S.-based management consultant, published a study of public-sector productivity and presciently warned: “All public services will face epic squeezes in the years ahead.” The company was right.

“For all the talk of reinventing government, nothing much has happened,” McKinsey concluded in this report. “The political culture [of most governments] remains oriented to legislation, not to the proper management of programs.”

McKinsey noted that U.S. public-sector productivity once matched private-sector productivity – and, in fact, did so through much of the 20th century. For whatever reasons, this record of public-sector productivity advances ended abruptly early in the 1980s.

McKinsey returned to this theme in a commentary last September: “If the G8 nations could increase public-sector productivity by 1.5 per cent annually,” it said, “they could generate benefits worth $1-trillion (U.S.) a year – equivalent to 1.5 per cent to 2.5 per cent of these nations’ combined GDP.” The goal is not unreasonable: U.S. private-sector productivity has increased at this rate annually for the past three decades.

For Canada, this kind of productivity gain could produce a windfall equal to as much as $35-billion a year. The public sector is Canada’s largest industry by far, administering one-third of the country’s entire economy. Excused from the need to get productive, it constitutes a constant drag on economic growth.

For governments, the message is ominous: Get productive or get out. For its part, the controversial Drummond report cited low public-sector productivity as Ontario’s “ultimate challenge.” Although the government has ignored much of this report, Finance Minister Dwight Duncan now proposes to assign “productivity teams” – auditors, analysts, consultants – to look for ways to kick-start a productivity renaissance. It’s a start.

What else could governments do?

They could require that every public-sector hiring pay for itself in increased productivity – the same way many businesses do. They could outsource much more work to the private sector – if necessary, in other countries. They could reward deputy ministers (and other executive-class public servants) who solve problems – as opposed to perpetuating them. Such managers are as important as CEOs of large enterprises. They could retrieve management rights and prerogatives from public-sector unions – and limit increases in pay and perks to increases in per-capita productivity.

Public-sector unions, alas, still don’t get it. Before public-sector productivity can rise, governments will need to get their attention – or arbitrarily eliminate more of the jobs these unions exist to protect.