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The Government Productivity Problem

One of the consequences of the economic downturn, post-2008, is a problem with productivity. While several of the developed nations have managed to engineer growing economies, many seem to be doing so without a corresponding increase in productivity.

When economies grow without productivity growth there is often a suspicion that growth is coming from either 1) public spending (typically fuelled by debt); or 2) consumer spending (typically fuelled by debt).  A better form of growth emanates from businesses producing more – and more efficiently.  But when demand is sluggish and businesses have difficulty sourcing bank finance, productivity tends to suffer.

Both the United States and the United Kingdom have seen poor levels of productivity growth – or even declining productivity in certain sectors. One of these sectors is public administration.

There is much debate as to how public sector productivity should be measured. Indeed, do public sector bodies ‘produce’ anything? Most clearly do. For example, local authorities provide refuse collection and disposal services; public healthcare systems provide general practitioner services, hospital services. But, public sector productivity can be measured in a very simple way. Public services have running costs and employees. If running costs increase with no reduction in headcount then the productivity per employee declines if the service provided remains constant.

Source: ONS/

Interestingly, taking the United Kingdom as an example, a recent article in The Economist highlighted the fact that in the UK while overall productivity levels have been declining, certain sectors do appear to have been improving their game. While government service productivity has been declining since 2009, productivity in the administration and support sector has been improving. This includes organisations like business process outsourcing (BPO) firms.

Therefore, there seems no clear reason why the public sector couldn’t see similar productivity improvements. The administration and support sector clearly takes advantage of technology that reduces the number of employees required to provide better service. BPO shared service centres can avail of better technologies to better manage much larger volumes of customer interactions in a much more efficient manner.  Consequently many services firms have grown – supported by better technology and processes.

The challenge for government is to provide better service with lower headcount. Departments often face considerable restrictions in terms of changing employment practices or outsourcing core services. But the public sector will, inevitably, come under pressure to deliver more, better as austerity really starts to bite.

By Jeffrey Peel

Editor, Citizen20Series and MD, Quadriga Consulting.I am responsible for all site content and have overall responsibility for site editorial, as well as site membership.

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