‘Nations stumble upon establishments, which are indeed the result of human action,
but not the execution of any human design.’
Adam Ferguson, An Essay on the History of Civil Society (1767)

14 November 2011

Canada Sidesteps the Bureaucrats

Students of public choice theory will recognise the rationale behind the Canadian government’s recent effort to cut waste.

In response to an access-to-information request, the Treasury Board released a ‘Statement of Work’ announcing that a private consulting firm was hired to recommend ways to eliminate the federal deficit by 2014-15 (currently between CAN $32-36 billion); specifically to ‘advise the government on the Strategic and Operating Review ... that will eventually trim $4 billion from $80 billion in annual program spending.’

In a contract that began 15 August and will run to the end of March, the firm will be paid $19.8 million — on average $90,000 a day.

Replying in the House of Commons, Jim Flaherty, Minister of Finance, said that ‘there actually is some waste in government. Governments can actually reduce their expenses. We should not do it ourselves solely. We should get advice and expertise from the private sector. For every $1 of spending on experts, we expect $200 of savings, which is a pretty good deal.’

Criticism has taken two recognisable forms. First among them are the Keynesian defenders of public spending — and for government economic intervention regardless — especially at a time of chronic unemployment.

The second tranche of critics, however, has clear implications for public choice: Why, it is argued, with a cache of experienced and knowledgeable civil servants, is the government hiring a private firm to advise it?

‘If bureaucrats are ordinary men, they will make most of (not all) their decisions in terms of what benefits them, not society as a whole,’ was Gordon Tullock’s response in the public choice classic, The Vote Motive. ‘As a general rule, a bureaucrat will find that his possibilities for promotion increase, his power, influence, and public respect improve, and even the physical conditions of his office improve, if the bureaucracy in which he works expands.’

Relying on the public sector alone may not suit a government committed to reduction, but does it have the right to sidestep the civil service? It does, for as Ludwig von Mises argued in Bureaucracy, ‘It is not for the personnel of the administration and for the judges to inquire what should be done for the public welfare and how the public funds should be spent. This is the task of the sovereign, the people, and their representatives.’

But von Mises’s endorsement comes with a caveat: While the objectives of profit management are easy to calculate — ‘profit’, the criterion for which the consultants were ostensibly hired — those of bureaucratic management are far less so.
They sometimes turn out to be the result of special political and institutional conditions or of an attempt to come to an arrangement with a problem for which a more satisfactory solution could not be found. A detailed scrutiny of all the difficulties involved may convince an honest investigator that, given the general state of political forces, he himself would not have known how to deal with the matter in a less objectionable way.
They must conform to laws and regulations — in particular, they must adapt to political considerations which require a high degree of skill to master. (In Canada, for example, the governing ministry must balance regional and linguistic concerns, nowhere more so than with respect to Québec.)

The ideal outcome is a compromise, consisting of public servants, private consultants, and elected officials, all working together to realise best practices that eliminate government waste, while safeguarding government programmes that are demonstrably in the public interest.

In The Vote Motive, for instance, Tullock promotes competition ‘within bureaus’ and ‘between bureaus’ for cost-saving measures, while a columnist for the National Post presents a helpful suggestion:
Make the fee a percentage of the savings found and open the process to everyone — consultants, academics, members of the public, even civil servants. [...] Many bureaucrats, too, know how to make their departments more efficient, but are stymied by institutional inertia or internal politics. But if the budget-cutting process is opened up to all comers and if everyone proposing a useful solution is awarded 10% or even 5% of the savings their ideas generate, then sit back and watch the good ideas come from inside the public service itself.
Are civil servants up to the challenge and willing to call public choice theory’s bluff?

UPDATE: There have been developments since this essay was written in late September (and not posted until now due to ancillary difficulties): The Government of Canada has decided to incentivise the public service by linking bonuses to programme cuts. According to CBC News, Treasury Board president Tony Clement announced ‘that 40 per cent of “at risk” pay for senior managers would be tied to their ability to find the $4 billion in permanent savings the government is looking for in the next budget.’

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