The Grail of Efficiency

“Boosting Government Productivity” by Thomas Dohrmann and Lenny T. Mendonca, in The McKinsey Quarterly (2004: No. 4.

With the first of the 76 million aging baby boomers due to begin retiring in a few years, the federal government will soon be facing some hard choices: Cut retirees’ benefits or raise taxes to pay for them—or reduce public services for everyone else. But there’s another, less painful option: Improve government productivity.

Yes, it’s been tried before, notably in the “reinventing government” effort of the early 1990s, and with some success. But the surface has barely been scratched, say Dohrmann and Mendonca, principals in the Washington office of McKinsey & Company, a management consulting firm.

Between 1987 and 1994, the federal government’s productivity grew by a total of only 0.4 percent, while the private sector’s grew at a 1.5 percent annual rate. Washington then stopped measuring its productivity; private sector productivity has since grown by three percent annually. If Washington could match the 1.5 percent rate, the savings would total $104 billion to $312 billion.

That wouldn’t mean simply taking an ax to government payrolls and programs. A handful of state governments and quasi-governmental organizations have shown the way. Illinois, for example, has consolidated public aid programs scattered through six different departments into a new Department of Human Services, eliminating duplication, better serving aid recipients, and redeploying saved money and staff to new programs.

One study shows that the Medicare budget could be pruned by about 20 percent with no loss in the quality of medical services if the program could be administered as well in every region of the country as it is in the ones where service is most efficient.

Even the U.S. Postal Service has had successes. Despite an increase of seven million since 1999 in the number of addresses it serves, the Postal Service “has saved $5.5 billion by replicating the best practices of the best sorting plants and by improving its delivery and counter operations.” Productivity has increased by six percent, and “customer satisfaction ratings are at all-time highs.”

New competition has spurred the Postal Service to improve, and governments could use a stiff dose of the same stuff. Outsourcing, which can put everything from paper clip procurement to schooling in the hands of private contractors, is one way to go. But more can be done even when there’s no competition to be found. Conducting customer satisfaction surveys, publicizing the results, and establishing “metrics” to gauge improvement would prod government agencies to perform better.

Admittedly, the task is difficult. It’s one thing to pass good legislation, the authors note, another to put in the sustained and thankless effort needed to make it effective. But if the Postal Service can do it, why can’t everyone else?