Being a Democrat in Wisconsin: Putting the beast on a diet

Democrats should embrace incremental agency budget cuts and increased efficiency as means of expanding the functions of government.

A recent story in the Chronicle of Higher Education is quite instructive for how the recent $250 million budget cuts (over 2 years) to the UW system might affect campuses and students.  The story concentrates on UW- Eau Claire specifically, which being a mid-sized campus is a good stand-in for the UW campuses other than Madison and Milwaukee.  Some of the news is bad.  Eau Claire will be cutting some contract faculty and class sizes will be increasing; this is exactly what higher education advocates have insisted would be the result of such dramatic cuts.

But the bulk of the cuts at Eau Claire will be made in administration, by decreasing the amount of routine oversight of operations in the university, and not in positions that are directly related to undergraduate education.  In fact, cuts may make the university more efficient by decreasing the number of people who must approve expenditures and be involved in other operational decisions made at the university; anyone who has ever worked at a large public university can attest to the fact that approvals for even mundane expenditures can spend a very long time in an administrative “black hole”.  This is exactly what conservatives frequently claim is the result of their cuts; agencies find ways of doing the same things more efficiently, and in fact operate better with less money.  This is the main argument against the claim made by Democrats that government funding in the post Reagan U.S. (at all levels) is generally too low.  Democrats need a response.

“Starve the beast!”

According to the standard conservative line, one problem with having government fulfill various social functions is that there are no pressures on it to do things efficiently.  Competition between private businesses puts downward pressure on prices, which requires businesses to operate as efficiently as possible in order to maximize profit.  This automatic market process does not function for monopolies nor when funding is detached from services, and most government agencies operate as at least partial monopolies with their continued existence guaranteed by public funding.  This is why conservatives think that government must severely limit the funds of its administrative offices, thus forcing them to operate as efficiently as possible.  However, as long as the tax money is available to spend government is often reluctant to limit its own expenditures.  This is why conservatives think that taxes must first be cut, thus limiting the funds available to government itself. Only through “starving the beast” can government become more efficient.

What is wrong with this?  As with nutrition, there are two wrong ways to go regarding government funding:

“Feed the beast”

“Starve the beast”

The first is a summary of the standard American-liberal view: government funding should be expanded until the size of the American administrative state approaches that of a large European-style welfare state.  Ultimately most Democrats think that taxes and government funding are too low, and that the main remedy of this is to increase both. But this is based upon a false belief that the value of services provided by a government agency increases with the funds supplied to it.  However, this ignores the various problems that beset the management of organizations in which income is not directly linked to performance.  When there are few constraints on resources, managers will have little reason to eliminate positions and individuals that contribute nothing to the mission of the organization, because such actions risk causing strife among those who remain in the organization.  It is bad to rock the boat.  Additionally, increasing the size of ones department and capturing more funds is almost always seen as a sign of success for managers, even if nothing more is accomplished by it.  Therefore, the basic rational constraints on officials within the bureaucracy make it such that increased funds often lead to decreased efficiency rather than significantly increased public service.  In that case you keep paying more money for similar services.  (See Down’s famous Inside Bureaucracy for more about these simple rational constraints on managers.)

If you feed the beast too much it’s bound to get fat.

However, the standard conservative view that underlies “starve the beast,” that government funding can almost always be cut without hurting government services, suffers from a basic absurdity.  Although it is true that organizations must be under constant funding constraints in order for efficiency to be incentivised, constantly cutting funds will always eventually lead to a decrease in the value of services provided by the organization.  This is true for both private and public organizations, but unlike private organizations public ones never die from deprivation.  When the income of a company, like Kodak for instance, decreases dramatically it is usually not able to respond by simply “finding efficiencies,” but rather is forced to dramatically decrease its output of products and services.  This often results in a further decline in income and eventually to the death of the company.  RIP Kodak.

Tax-funded public organizations receive income regardless of whether they adequately provide services, therefore there is no death spiral.  But those who rely upon them still receive worse services, and if the public organization is a monopoly (like the IRS or Justice Department) then those who must receive services from the organization will be stuck with the new lower level of service.    But many liberals think there is something even more nefarious behind the attempts of conservatives to incrementally decrease government funding.  Although agencies cannot die a “natural” death like private companies, they can be dismantled by political officials.  Therefore, even though conservatives may claim that they intend to make agencies more efficient when they make budget cuts, their actual intent may be to make those agencies so ineffective at providing services as to justify their replacement by private service providers.  The liberal conspiracy theory — which I think has some merit — holds that “starve the beast” is really just the first step in the privatization of government functions.

If you starve the beast then it won’t be able to bear its burden.

There is a third perspective on government funding that does not suffer from the problems of the other two: keep the beast on a diet.  This sounds simplistic, but the details matter.  Political officials must first settle on what level of services government should provide — this will be the subject of great debate — and then settle on what “full-funding” would be required to provide those services.  The set of services desired should guide tax rates, while information about what tax rates would be required for a given set of government services gives some guidance about how important those services are.  If we are unwilling to pay the taxes required for a given set of services, then perhaps those services aren’t all that important to us.  Through this back and forth deliberative process we finally settle on a service and taxing level that is at equilibrium; a tax increase from this level in order to provide more services wouldn’t be worth it nor would a service reduction for a cut in taxes.  I take this to be standard thinking among Democrats (and others) about how budgeting should work

But in the next paragraph I say some things heretical to Democrats.

Conservatives are correct that austerity provides agencies incentive to work efficiently; therefore, government should generally fund programs below (though not substantially below) what experts take to be the level of “full” funding.  Additionally, a program that meets all of its goals should be incremental and unpredictably deprived of funds in order to keep continual pressure on managers to operate efficiently.  The unpredictability of cuts might be combined with salary incentives to eliminate any countervailing incentives managers might have to purposely sabotage service quality in order to avoid cuts.  Even though agency funding may be cut if it is doing especially well, such cuts must not act as overall disincentives to provide quality service.  And this process should not be seen as solely a way to decrease taxes, though this is how conservative will view it, but rather as a means of freeing up funds for further government services.  In a similar way, so called “unfunded mandates” (the bane of all public managers) might be used to see what resources could be allocated to new services through making the delivery of other services more efficient.  It is key that these cuts be relatively small, and thus manageable.  The problem with recent cuts to the UW-system is that they were sudden and large.  This coupled with the tuition freeze makes it impossible for the system to maintain the same level of services.

The process of placing government agencies on continual “diets” and thus expanding what they capable of doing, or decreasing the cost to tax payers, requires flexibility.  This is why even a liberal might be against allowing institutional constraints on agency flexibility, such as those created by the existence of public employee labor unions.  Therefore, although Walker’s recent attacks on government collective bargaining were most likely done to hurt Democrats and consolidate state power in the Governor’s office, similar actions could be justified by a “big-government” liberal who wants to increase the scope and quality of services provided by government.

Then what should Democrats think about Act 10, which eliminated collective bargaining rights for public employees?  Is there reason to resist initiatives that increase government flexibility at the cost of public employee’s rights?  I think there is, but I will leave that discussion for my next post.

Reading of Interest

There is much to read about the incentive structures that exist in bureaucracies, starting with Max Weber’s 19th century studies of the German bureaucratic state, though I would recommend the following short (and classic) study of the rational constraints on bureaucrats in the American context.

Anthony Downs, Inside Bureaucracy, Rand Corp., 1967.

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