Government Productivity Dividend - a policy proposal

Government Productivity Dividend

I have been employed in the recruiting industry since 1981 and have found it to be a very rewarding profession - financially, intellectually and socially. During 28 years of this period, I earned my living based on a 100% commission plan. This reality provided me with a constant reminder that I needed to be focused, productive and ultimately successful in staffing the job openings assigned to me by my clients, or else fail to provide for my family.

As a specialist in the Information Technology and Business Transformation Consulting sectors, I have learned many useful and interesting things about people, technology, business, sales, economics and government. One of my clients during the late 1980s and early 1990s was a very successful executive named George Sekely. 

George was the Executive Vice-President of the Computer & Communications Division of Canadian Pacific Limited – one of Canada’s largest corporations at the time. He directed an organization of over 400 IT professionals and he had built a reputation as one of the best Technology executives in Canada. George had a formula for fostering increasing productivity within his organization:

1-    Hire the most talented people you can find for each and every job.

2-    Invest in the best tools and training to enable work to be performed in the most efficient and effective ways possible.

3-    Incent top performance by providing a framework of clearly-defined goals and rewards to encourage all staff members and teams to strive persistently to achieve the desired results.

It was essential that all 3 components of George’s ‘Productivity Formula’ had to be implemented and supported by C&C’s management team if increasing productivity was to be expected. Failing to invest in one or more of these elements would lead to deteriorating performance and unsatisfactory results.

I have seen this  ‘Productivity Formula’ work very successfully within many private sector organizations. However, I've never seen it applied successfully in the public sector. There are many reasons for this failure and anyone familiar with government operations would be able to identify many of these quite readily. More on this later.

Call me naive, but it has always been my understanding that the purpose of government is to provide a limited range of protective services for the taxpayers who fund its operations and programs. While this was likely the original intent, it seems to me that the exact opposite has evolved over time - that all governments now exist ( and continue to expand!) for their own self-serving reasons.  The predictable rhetoric of politicians and government leaders, of course, claim otherwise - professing public assurances that the interests of all citizens is all that matters to them. Here’s a reality check ….with the current crushing levels of public debt standing in stark contrast to the rich entitlements that have been bestowed on our “public servants”, is it any wonder that no one believes their claims any more?

What I find most frightening about this scenario is that there no longer appears to be anything to stop the creeping expansion of the state in all areas of our lives.

I was raised to believe that I must live within my means. It has been a matter of personal pride that I have been able to provide for my family and for my retirement with the knowledge that I will never become a financial burden to anyone  – with one exception  - my share of the public debt. This debt, has been estimated at $122,000 per family, was ostensively incurred on my behalf even though I never wanted it, never asked for it, and never had any control over it!

There needs to be a set of “hard checks” on public spending if we are ever to live within our collective means. 

Hard checks are baked into success in all business enterprises. Competition and the need to be profitable are the two enduring realities that ensure companies invest thoughtfully in George Sekely’s  3 productivity levers if they are to survive. These “survival of the fittest” checks and balances continually guide and mold successful, wealth-creating businesses. Unfortunately no such unrelenting checks exist in government to determine success or failure.  Oh sure, you often  hear politicians and bureaucrats sing the right words to the appropriate productivity tune, but the measures to control government excesses are as flimsy and flighty as the whims of the electorate at election time.

The sad truth is that there exists no incentive for government leaders and workers to increase productivity or control costs.

Human nature, which is governed heavily by the survival instinct, is inherently self-serving. This fact is clearly manifested in the poor attitudes towards work responsibility and work performance of too many government workers today. To add injury to insult, these same people have manned picket lines to extract rich entitlements (compensation, employment benefits, job security and pension schemes) in spite of their dismal productivity records.

Why is this the way things are?  Simply put, public servants have no “skin in the game”.

There is nothing  to encourage them to reduce costs and/or to increase their productive output. On the contrary, the pernicious influence of trade unionism has actively pursued an ethic of less productivity within their memberships. With some 750,000 government workers in Ontario working under union-negotiated employment agreements, this represents collectively an awful lot of lost human productivity.

Wikipedia defines “productivity“ as: “a measure of the efficiency of production”;  “a ratio of production output to what is required to produce it (inputs)”;  and “total output per one unit of total input”.  From my own studies in economics, I have learned that there are 2 types of “productivity” - human and capital (aka “return on investment”). If we refer back to George Sekely’s Productivity Formula, the capital form is derived from the investments made in tools and training intended to leverage human efforts for greater gains. However, in government, a positive return on capital investments is unlikely when it is so difficult to satisfy the other 2 components: ie hire the best talent and provide truly motivating incentives. Government hiring practices are often designed to meet other objectives that take precedent over hiring the best talent – meeting “diversity quotas”; giving preference to “qualifications” over hiring the best person suited to achieving best results. Once hired, their incomes rise on the basis of “cost of living adjustments”, tenure, and negotiated collective agreement gains. Promotions are bestowed on people with “seniority” over people who have produced real achievements and meaningful results.

As a government stakeholder - a taxpayer - I have been concerned for many years about the juggernaut we call government and the never-ending lip service it has paid to attaining productivity gains in its own operations. Mostly, I am frustrated by my inability to do anything about it. How many Canadians feel helpless like I do about the current state of Government in Canada?

I yearn for real levers of accountability that I can employee as a stakeholder in order to obtain more for the tax dollars that are taken from me every day and, better yet, achieve a situation where less of my earnings are taken as taxes.

Government workers that are employed by trade unions have an unfair advantage over the non-unionized taxpayer. They are, collectively, able to organize and exercise very powerful levers of political influence to obtain financial and employment conditions that favor themselves - at the expense of the rest of us.

Some may argue that all taxpayers have the right to vote for the government they desire. However, a single vote can in no way be compared as a lever of political influence when matched to that under control of trade unions. The balance of power has become overwhelmingly in favor of serving the needs of government employees at the expense of the stakeholder citizen.

There is an old saying that there are only two things you can count on in life: death and taxes. I don't believe that the second part of this saying necessarily has to be true.

I am proposing a rebalancing of the levers of power that will provide ALL citizens with a governance structure to protect their interests without taking anything away from the public servant that he or she has not earned. I call this governance structure the Government Productivity Dividend. Here's a summary of its main features:

Government pension contributions will only be made when annual budgets balance. If pension contributions are missed one year, then an opportunity to regain part of those losses will be available if the budget is balanced the subsequent year; in such a case, the pension contribution would be 125% of the amount expected as a reward for making up for the failure in the prior year. This, of course, will apply to the pensions of all elected government representatives in all levels of the public service sector (no exceptions), as well as all union officials.

Government Revenues (GR) (from all sources) must not exceed a predefined percent of GDP. To achieve progressive productivity returns over time, Government Revenue Targets (GRT) will decrease each year so that a combined provincial and federal Government Revenue rate of 20% of GDP is ultimately achieved and maintained in perpetuity.

Government Revenue will be adjusted for government-induced inflation. This adjustment will reflect the inverse relationship between the GR and changes in the money supply effected by the Bank of Canada. This measure is intended will discourage political and government leaders from hatching schemes to manipulate the Government Productivity Dividend for political or self-serving ends. For example, if the money supply increases by 1%, then the GRTs must decrease by 1%. Note that this feature of the Government Productivity Dividend program makes it impervious to government efforts to “inflate away” public debt.

It is well-known that changes in government operations occur at glacial speed. There are many ways for politicians and bureaucrats to stall efforts to implement programs. However, since the levels of public debt at have reached near crisis levels with no credible signs for correction, then we cannot afford to delay implementing the Government Productivity Dividend. The sooner it goes into effect, the sooner we can expect to reap its rewards and put our fiscal house in order.

I do, however, recognize that the Government Productivity Dividend should be phased in over a few years. For this reason, I propose the following:  

Schedule of Pension Contribution payments to be made whenever annual budgets fail to balance:  

                   85% in Year One;  

                   65% in Year Two;  

                   40% in Year Three;

                   15% in Year Four; 

                   0% thereafter.

The reaction to the Government Productivity Dividend is as predictable as the sun rising each day. The self-serving union leaders and membership will howl that the Government Productivity Dividend is an attack on Canada’s hard working public servants and their families. The appropriate response is to point out that their defined benefits pension plans is an exclusive, tax-funded privilege that may have been viable at a different time in Canada's history. However -  times have changed and government must change as well for the enduring benefit of ALL hard-working Canadians and their families, not just those within the government class.

Furthermore, it is appropriate to point out that pension contributions are not being eliminated but will be earned as a reward for success rather than bestowed as an entitlement.  If all government works and their union reps pull together to achieve their targets, there is no reason to expect that they will lose any pension contributions. The onus will be on every public servant at every level of government to put forth a collective and concerted effort to earn their Productivity Dividend by using our hard-earned tax dollars wisely!

I believe strongly in the fairness of the proposed Government Productivity Dividend. It benefits everyone. Even the retired public servant can look forward to a future in Canada where the likelihood of economic crisis will be greatly reduced by the powerful fiscal governance effects of the Government Productivity Dividend.

As a final comment, I believe that the public servant who has a sincere interest in working for “the public good” will embrace the Government Productivity Dividend. These workers will come to feel proud to deliver his or her work efforts  within a framework of increasing productivity and fiscal responsibility. Human capital is a terrible thing to waste and personal self-esteem is often derived from knowing that the work you are performing provides real value for the costs (wages, benefits, tools, training, etc) incurred.

Having been employed in the personnel industry for nearly all of my adult life, there is one recurring theme that has arisen in conversations with the tens of thousands of job candidates that I have interviewed: people want assurance that their work efforts will contribute in a meaningful way.

I also spoke with many people who were employed by government organizations in  “make work” assignments that resulted in little or no output of enduring value. I feel story for these people. Let’s dedicate our efforts to them, and make the Government Productivity Dividend a reality as soon as possible so that we do not unnecessarily squander another man-day of Canada's national stock of Human Capital.