The Unintended Consequences of Reforming Government

If you missed Lou Gerstner’s Op-Ed in the Wall Street Journal yesterday, go look for it online. Gerstner makes some very good points about reforming government drawn from his unparalleled experience turning around a large, bloated and decrepit organization like IBM. The parallels between the once-great, fallen and then great again IBM and the United States as a whole are almost irrelevant. Though you could certainly make some interesting comparisons.

As a manager, Gerstner is always fascinating and entertaining. There’s a Harvard Business School case study from his time at American Express where he talks about liking to have small meetings. When he reduced the size of the meetings, managers complained that they were being left out and it was clearly a sign that their careers had stalled. Gerstner’s response was classic: he made the meetings so grueling by interrogating every detail during these business reviews that soon no one was left griping about being excluded.

As tough as Gerstner is, he knows there are simple soluctions. In his op-ed he makes it clear that you cannot re-make something by simply freezing spending or having across-the-board budgetary cuts. In the process, he calls for the government to re-imagine its role, citing a great example like the post office.

Americans do not want only a smaller government; they want a more productive government. We do not want simply to decrease our taxes by, say, 5%, as nice as that sounds. We also want 100% of our tax dollars to be working as effectively as possible. In short, we need to reinvent government. […] A good example would be the U.S. Postal Service. Simply cutting it back to, say, 2008 levels means missing the opportunity to reinvent an organization that could develop over $20 billion in annual losses, according to projections by the U.S. Postmaster General. No one wants the postal service to disappear. The focus should be on reinvention—forcing the organization to become more competitive in the information age.

Once you take that on board, it is hard not to let the mind wander a little further and wonder whether government–which is an enormous information management enterprise–couldn’t be massively improved by the application of technology. What we’re beginning to see with cloud computing, smartphones and mobile payments can and will have dramatic effects on everything government does. Once all your transactions are recorded electronically, paying your taxes will be easier and more efficient. Your identification, healthcare, driving record, child support payments, etc. will be easier to track, verify and modify.

Here’s not the place to debate all of that. Let’s simply say that government will be very different once information is made more accessible. Technology enhances productivity. Productivity is another word for getting more work from fewer employees. That’s a big part of the fix we’ve been in since 2000. Technology is improving our lives but making more and more workers superfluous. Which brings us back to the post office, America’s largest employer.

The more we reform government and reduce the cost burden of providing government’s services–which, in turn, will reduce the defeicit by reducing the cost of government–the more we will increase unemployment. Reform the post office and you have a lot of not-hugely-skilled workers looking for jobs. Keep going through state, municipal and federal functions and you’ll keep increasing the levels of unemployment.

Obviously, that’s not an argument against re-inventing government, just a reminder that everything has unintended consequences.


Don’t Just Cut Governmnet, Re-invent It
Wall Street Journal; January 21, 2011

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