Thursday, October 28, 2010

Why Cost Cutting Costs Money

My last post went on a little too long for this related idea to make it in.

A second problem resulting in big, expensive government is that constant demands for cost cutting prohibits government from making the necessary investments to save money in the longer run.  We're* constantly besieged by calls to save money.  From those that rely on our services, it's also constantly demanded that we do more.

What this results in is that all of our money ends up being dedicated to the direct provision of whatever it is we're required to do.  Sounds great, right?  Well, in practice this means that we're short shifting training, capital investments, and just about everything else that won't result in angry letters to legislators about our failings.

Of course, this costs money in the long run.  Computers don't get upgraded, far too many offices are relying on antiquated machinery and legacy software.  This means that over time it gets more difficult to share information and to use lower cost ways to communicate.  Training doesn't get finished meaning we can't keep up with best practices.  Basic infrastructure falls apart and costs more to fix later than if we had done it on schedule.  We're in constant crisis control mode meaning its hard to build for the future.

But go on, keep demanding that we somehow find savings.  Then wonder why everything seems to simultaneously get worse while costing more just to keep running.  If you don't maintain things properly, and pay for it to be done properly, you always end up with a higher bill down the line.  Giving some money to actually invest, and letting us know this will be available when necessary,** will go a long way to both shrinking government and making it more efficient in the long run.

* Favored bureaucracies, like the military, don't really have this problem and can be pretty profligate.  This is the exception, not the rule.

**Because of these pressures to save money you get an unfortunate situation where when we do get an increase in funding to do needed upgrades and maintenance we're very tenacious about keeping that money, even when the work gets done.  There's a lot of reasons for this, but a big one is that we know how hard it is to get a needed increase so we'd rather have more resources than we need than not have the resources we need when we need it.  If we could be reasonably sure that needed funding increases would be approved for maintenance or upgrading these pressures would be much less.

1 comment:

  1. Very true. My current job I like to call "capital adjacent" or "downstream government." We're a for-profit company that mostly subcontracts with non-profit agencies that are entirely funded by California and the United States.

    In 2002 when the California budget blew up, I met with my assembly representative who asked for suggestions. The system I worked in is very complex (There are roughly 8000 other companies doing different things different ways that contract with the 21 non-profits funded by government.)

    I pointed out that no consistent effort has ever been made to track outcomes and without that all I could recommend is to cut someone else and leave me whole. With that, he wouldn't need me to recommend anything because they could figure out which things they bought were helping and which things they bought were not helping, and cut out the waste. He actually did include my suggestion in a bill but it died in committee because it would have cost $50 M over several years.

    Since then, they have cutting the whole system by around $150M/year and it doesn't matter if a particular purchase is under- or over-valued because nobody knows.