Cutting the National Deficit
The country is in turmoil: the national debt of the United States is, to put it in simple words, HUGE, or huge enough to worry even politicians. National leaders are saying things like: “I am not worried about my grandchildren or my children anymore. I am worried about us, now.”
It is not difficult to understand how the debt was created: the government is spending more than it is collecting.
To stop the debt from increasing, the executive and legislative branches of the government have to agree on how to increase revenue (i.e. taxation) and/or how to cut spending.
It’s that simple, right? It is what corporations, families, and even individuals struggle with. How complicated can that be?
It is not simple at all.
In some families it can lead to divorce. A high percentage of divorces occur because the couple cannot agree on which expenses to cut, or on where and how they should increase the revenues.
If the issue is not addressed in one’s personal life, the result is often homelessness.
The problem is not simple and mistakes are made in how the problem is treated: to cut expenses they cut the (P) rather than the (A).
Let me explain.
To cut expenses you can either cut WHAT you do or HOW you do it.
Cutting the WHAT means, in the case of corporations, those services to clients are cut. This is what we’re seeing right now on some airlines. Have you noticed how long the lines are at the airline check-in counters? The service is getting worse and worse. Have you experienced the decreasing quality of meals served on your flights?
To increase revenue, the airlines are focusing on WHAT they provide, charging for baggage and for anything else they used to include for free.
Cutting the HOW, (A), would mean cutting the bureaucracy, the layers upon layers of managers, vice presidents, assistants and support functions that over time mushroom in corporations as they age on the lifecycle.
What is happening now, as the government struggles with the need to cut government spending?
The government is making the same mistakes that many corporations do: Instead of cutting fat in order to lose weight, they are cutting the muscles, cutting the services government provides, like Education, Medicare, Defense, Social Services and Social Security (the age at which people will be entitled to receive benefits will go up).
What about the money spent on administration, i.e. government employees? Not those in direct service like social workers, policemen and teachers but the myriad supervisors, coordinators, assistants, chiefs and deputy chiefs? All those in between those on the “firing line” and the President of the United States?
Do you have any idea how big the staff of the White House is today?
Do you know how big it was during Eisenhower, not too long ago, in the 60’s?
A 300% increase.
Some more numbers:
In 1946, there were 6,000,000 people on government payroll.
As of 2006, there were 19,734,000. That is also about a 330% increase.
Granted, the government expenditures are growing because the government is taking more and more functions upon itself. Expenditures, as a percentage of the GDP, show this. The NIPA report by the Bureau of Economic Analysis (BEA) shows the amount spent on “the government” as an entity comprised roughly 24.25% of the GDP in 1961 (Eisenhower). By 2003 it became 31%. Again, a 33% increase.
But here is what is important to know: I suggest to you that the administrative component of the “ government machinery” is growing the most.
Why do I assume that?
Because of my knowledge of the lifecycle theory. (See my book: Managing Corporate Lifecycles: Santa Barbara, California, Adizes Institute Publications, 2004). I suggest to you that the USA, as a country, is starting to age and with aging the administrative subsystem, in this case “the government” (which includes Federal, State and Local), as a percentage of the total expenditures grows disproportionately.
It is analogous to the fat we increasingly accumulate as we age, fat we find increasingly difficult to get rid of.
The problem then, is not the deficit but what is causing the deficit. And what is causing the deficit is expenditures on a mushrooming bureaucracy. Cutting services rather than cutting the bureaucracy is the wrong solution.
What is it analogous to?
A person gets on the scales and realizes that he is fifty pounds overweight. He cuts his right foot off and gets on the scales again. It looks good now. The numbers look right.
Why do managers or politicians cut “muscles,” (services,) rather than cut “fat”, (the administrative layers)?
In corporations, it is easier to cut what you provide to your clients than to go to war with your own breed, the managers. There is a fear of losing control. And if all companies in your industry do the same, which is not legally prohibited, it is not considered collusion, it is not competitively disadvantaging.
In the case of a country there is a new factor: POLITICS: The government employees cannot only strike but also VOTE you out of power. And how many politicians do you know who would agree to be voted out of power? To minimize political risks, politicians cut services to those that have the weakest voice – the sick, the old and the children.
It is true that cutting services can hurt in the polls too, but those cuts can be explained as an inevitable necessity and whoever disagrees with cutting the deficit will be accused of being disloyal to the country. Cutting unionized, mature, voting administrators is much more dangerous; they can paralyze a country. Just look at what is happening in France.
As long as we believe in Democracy and accept that the system is weak to enforce unpopular political solutions, what we are facing is the byproduct of the system we chose.
Is there a danger to democracy?
I believe so. Eventually there will be explosive anti- government sentiment, chaos-see Greece-that people will prefer to be governed by someone with a strong hand who will instill some order amidst the mess.
There is a famous model about a cycle on how political systems progress (deteriorate): democracy deteriorates to anarchy, which calls for dictatorship, that is rebelled by oligarchy, only to develop into democracy, which then disintegrates into anarchy, and so on and so on.
We sure live in interesting times.
(This is, incidentally, a Chinese curse).
Wish you well,
Ichak Kalderon Adizes
NIPA report by the Bureau of Economic Analysis (BEA)
White House Staff Information: