What if Bureaucrats Could Benefit Financially from Finding Cost Savings?
Let’s say the federal widget inspection office in Seattle comes up with a way to save a million dollars a year by changing the method it uses to inspect widgets. Why not give personnel in that office the first year’s savings, distributing it according to a set formula…? A million dollars in “prize money” would certainly be an incentive to motivate even the most slothful government office to find new ways to do things.
The people I’ve known who work in the federal government report such bureaucratic inertia. I’ve also heard that the prevailing view among bureaucrats is a dollar spent on waste is better than a dollar given back to taxpayers. Managers get no reward for saving money. Indeed, a manager who gives back part of an appropriation is likely to get chastised by a superior for making the department look bad.
Have you absolutely lost your mind? When the system is a game, everyone will be motivated to game the system. And that goes triple for bureaucrats. “Checks and balances” is the best way, and it doesn’t mean pass out the checks and ruin your balanced budget. Assuming you have a balanced budget, ya know!
All things being equal, I would rather just fire government bureaucrats and hire private companies. But, since there are networks of rules and regulations making it impossible to fire them, this scheme seems neutral, at best.
My biggest objection is this: Let’s say that $1 million savings is low-hanging fruit. Employees get a huge payday one year. What happens the next? As the potential savings get smaller and smaller, there is little incentive to save more money.
Furthermore, there is more and more incentive to be wasteful again so that there are more areas in which to uncover the waste. You might expect to see a pattern: years of “cost cutting” followed by years of wasteful spending.
I share your concern: career bureaucrats will be much cleverer at figuring out how to “save costs” than politicians or citizens will be at figuring out which savings are “real.” Indeed, they will even seek to make things more bureaucratic so that they can “save” more.
The great thing about privateering, as described in the article, is that it has a binary outcome: You catch the enemy ship or you don’t. You can’t really game the system. Measuring government “efficiency”, however, is much more difficult to get right.
A better way to use incentives to make government more efficient is to give the savings to the consumers, not the bureaurats. For example, in the last couple of years of the Bush Administration, HHS Secretary Leavitt tried to get a grip on waste in buying durable medical equipment for Medicare.
He proposed changing the purchasing of DME (such as bottled oxygen) from a fixed rate to competitive bidding. The Centers for Medicare & Medicaid Services successfully ran one competitive auction, but the losing suppliers activated their lobbyists in Congress and extinguished the reform.
No Medicare beneficiary would have profited if the reform had worked, so there was no public buy-in. (Actually, I’m quite certain that no seniors ever learned about the reform.) Imagine if, instead of centralizing the reform via a competitive bid managed by CMS, Sec. Leavitt had sent a letter to every Medicare beneficiary stating, “Here’s what Medicare is paying for your bottled oxygen. If you can find it cheaper, we will split the savings 50/50, and add your share to your Social Security deposit.”
Can you imagine what would have happened? Seniors would have formed clubs to compete to save money, and had parties to celebrate their winnings! The losing suppliers would not have succeeded in lobbying Congress to roll back the reform.
You can’t even be sure that the new widget inspection method actually saved money. Maybe the “new” method it just shoved certain costs off-budget by forcing business to perform a bunch of previously government functions in order to have its widgets inspected.