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How to tackle challenges when government is polarized

Nov. 11, 2012 - 03:47PM   |  
By DIANA FARRELL   |   Comments

In the U.S., as in many countries, leaders are grappling with fundamental questions about the size and role of government, the best way to stimulate economic growth, and the nature and form of regulations and entitlements. While these challenges would be difficult under any circumstance, the increasingly polarized environment has meant solutions and progress have become elusive.

But polarization need not result in paralysis. We have the opportunity both to strengthen the evidence and reasoning that underpin the existing policy debate, and to start a new conversation about how to make government more efficient and effective, no matter what policies the public chooses.

That is the lesson from our recent work on what other countries have discovered in similar moments. By identifying the solvable management problems, using robust data to develop and deliver the right solutions, and abandoning the approaches that fail to yield results, it is possible to make huge strides in addressing critical challenges even without resolving the ideological and policy dilemmas.

Take the budget situation facing the U.S. and most other Organisation for Economic Co-operation and Development countries, arguably the most daunting of all issues today and one that will likely dominate the agenda of the next presidential term. The highly charged policy debates over entitlements, spending and taxes will likely continue. However, operational reforms designed to improve efficiency can make a meaningful difference in the short term and set the stage for larger transformations over time.

For instance, spending reviews undertaken agency by agency, rather than top-down — even if initially focused on seemingly mundane overhead functions — can bring about meaningful savings that also increase credibility and flexibility as fiscal constraints increase. Drawing on benchmarks from different governments, we estimate a potential to save 5 to 10 percent of operational costs through overhead categories alone. This saving represents 10 percent of the adjustment OECD countries need to meet their long-term debt targets.

Tax collection is another area where reforms can meaningfully improve government’s fiscal stance. We estimate, based on in-depth research at federal tax administrations in 15 OECD countries, that these tax administrations could collect an additional $86 billion in direct tax revenues if they adopted a set of best practices including proactive demand management that smoothes tax collection across the year, sophisticated taxpayer segmentation to prioritize which taxpayers to target with which approaches, streamlined operations and rigorous performance tracking.

Finally, take job creation, another priority for governments around the world.

Globally, 75 million young people are unemployed and looking for jobs. But while the issue is polarizing, tangible progress can be made even without settling the large ideological battles over the stimulus or tax cuts. Many governments around the world are involving employers more closely in designing and delivering job training. Employment agencies are using technology and data to better match supply and demand of workers. As a result of managerial changes over the last decade, Germany’s federal employment agency reduced the duration of unemployment of its users from 164 days in 2006 to 136 days in 2011, and doubled the annual number of job placements.

These types of approaches are not glamorous, and they will not yield answers to the overarching policy questions before the American people. They are, to use a sports metaphor, the relatively humdrum “blocking and tackling” of governance. But they can yield important results, serve as an arena in which government officials can come together in common purpose and provide a launching point from which more ambitious endeavors can be undertaken.

The real prize for the governments elected over the next 12 months is to make progress even when the political and fiscal environments conspire to thwart action. By applying best practices from around the world, governments can adapt to fit the challenges of our times.

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Diana Farrell is the global leader and co-founder of the McKinsey Center for Government.

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