Defense department acquisition chief Ashton Carter has begun an efficiency initiative aimed at reducing overhead costs by $100 billion during the 2012-2016 period. Carter notes that most of the Pentagon’s budget is spent on purchases of goods and services, but the government does not seem to be getting the kind of productivity gains from its suppliers that are common in the commercial marketplace. He therefore has set up a series of panels to review how military items are bought, with an eye to minimizing redundancy, tightening contract terms, and eliminating requirements that do not add value.
It’s hard to complain about an efficiency drive when the Pentagon is such a paradigm of waste. Over the last ten years the military was so awash in money for modernization, transformation and counter-insurgency that little attention was paid to whether taxpayers were getting a good deal. But when the decade began America was generating about a third of global output and a third of global military outlays; now it is generating only a quarter of global output and half of military outlays. Obviously, some cuts will have to be made. Nobody expects that efficiency measures will be where most of the money is saved, but if the Pentagon can’t deliver better value at a time when the government is running a budget deficit of $4 billion per day, the political system will respond by imposing draconian cuts.
So it makes sense for policymakers to take the initiative on reducing costs. However, past experience does not counsel optimism about whether the search for efficiencies will pan out. First of all, the Pentagon is adding thousands of new acquisition workers who will increase the fixed costs of the system. Second, many of the practices that contribute to the high cost of military goods are mandated in legislation that cannot easily be repealed. And third, the federal government is a political system structured to respond more to the distribution of power than the efficiency of processes. The latter consideration is crucial to the fate of any efficiency drive, because the Pentagon’s ability to dole out billions of dollars each week has spawned powerful constituencies that will resist change.
These constituencies aren’t impressed by arguments that they need to make sacrifices for the common good. They have long since convinced themselves that their interests are coterminous with the common good. So in a political culture where self-interest is the force motivating almost all of the players, the way money is usually pried from the grasp of an established player is to promise it to someone with even more political clout. For instance, money is taken from the defense industry and given to veterans. Unfortunately, that formula doesn’t work when the goal is to become more “efficient” or “productive,” because abstractions don’t vote. What to do?
One approach that policymakers seem loathe to embrace matches up well with the political culture. Instead of trying to impose new practices on the defense industry that threaten to punish it with lower profits, why not reward it by creating incentives for rooting out waste? In other words, tell companies that if they can identify instances where money is being poorly spent, they can keep some percentage of the savings generated by doing business a different way. With the right structure of incentives, industry could be motivated to lead the crusade for greater efficiency, rather than resisting an initiative it currently fears will hurt bottom lines. Self-interest may not be the most uplifting principle in public life, but since it is the touchstone of success in both our political system and our economy, it is likely to yield better results than a command-style approach to finding efficiencies.
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