Efficient and effective governments

Published in El Pais, August 17th 2019.

If you have a business, you know that things are not always going as you expected. You need to be constantly looking to improve it. You probably do this for two reasons. First you want to make as much money as you can on your invested money, and second you need to be competitive. If you neglect your business you might not only run out of money, you might even go bankrupt. So, for profit making businesses the main goals are profit and business growth. Maybe it sounds a capitalistic, but without these main goals you will end up liquidating your business on a fire sale on eBay.

Of course, telling your employees these same goals, doesn’t help much in most cases. You must give them clear, achievable and measurable goals. For example, if you want to increase your sales, you might want to increase publicity or improve customer satisfaction with 15% the next year. Publicity you can measure by people reached and customer satisfaction through a simple post or presales survey. You will assume that both are related with more sales, which again you are able to measure. Ultimately you will see a result on your profit or business growth.

The trouble starts when you do not achieve the numbers you planned, and you have no idea anymore on what to do. Or even worse, when you have no numbers at all, and you didn’t even know that things are going bad. The latter is often the case for government agencies who offer a service to the people. Long lines, complicated requirements, confusing forms etc. Since government agencies are not driven by profit and have no competition, they have no incentives to do the things more efficient. A customer complaining about long lines or bad service is not a real issue for them, since they won’t go to the competition as in business situation.

For example, a business that wants to be more competitive will invest in technology to reduce the labor costs and so offer a cheaper product for the consumer. A government institution has little incentive to do so and will not invest in technology to reduce labor costs. They have no reason to do so. When governments run out of money, they correct it through taxes or borrow some extra money. Both actions that can hurt the economy severely up to a situation where deficits grow, interests skyrocket, and the exchange rate tumbles.

For governments to be effective and efficient, they need to have goals and control the costs, as if they are a business. Governments can have the same strategies. Investing in technology, training, customer services, scale economies in the same way as companies do. Although growth and profit are not easy to measure, the intermediate goals are and can be the same.