In the latest example of China’s transition from authoritarian management to authoritarian management by specialists with business credentials, Beijing plans to restructure its major government ministries. The reforms passed by the National People’s Congress will attempt to cut costs and increase efficiency by creating five “super ministries” of industry and information, transport, environmental protection, human resources, and housing, while streamlining existing structures.
Some of these changes might be sensible, but they miss an essential business lesson: that organisations get better results when individuals are held accountable for delivering defined products and punished and rewarded accordingly. However well one organises government ministries, they’re still government ministries, and ministries are always better at taking control of processes than responsibility for outcomes.
As the economist William Easterly explained recently, international development aid by governments generally doesn’t work, because no one is credited when it achieves its objectives and, more importantly, no one is blamed when it doesn’t.
Free markets encourage the creation of firms that specialise in providing particular goods and services. A firm lives and dies by its ability to serve the needs of consumers, who can always take their business elsewhere. By contrast, governments and international institutions like the UN can set lofty goals, like ending poverty, but they are unrealistic, largely because governments use other people’s money, seldom weigh costs and benefits, or think in terms of tradeoffs. Nor are they ever held accountable; they’re never forced to deliver.
Professor Easterly satirised the UN’s Millennium Development Goals. These, he said, had to co-ordinate 52 international donor agencies feeding aid to 97 government bureaucracies in the interest of meeting 48 different development targets - and no one was responsible for any of them. Well, that should be easy, right?
So, what exactly are the mainland’s new ministries supposed to accomplish for its people? In the US, the Department of Labour compiles and publishes employment statistics, but it can’t actually make a dent in the unemployment figures. However much the idea of an economic “stimulus package” may sound appealing, the government can’t simply create half a million jobs with a onetime tax rebate. (If it could, shouldn’t it do that each and every day?)
A case can also be made that consolidating related government functions into a smaller number of larger ministries decreases individual accountability, and thus the effectiveness of the agency, even further. Before September 11, 2001, one might have expected the director of central intelligence to be sacked in the event of a major attack on American soil. That didn’t happen but, now, in the era of the all-encompassing Department of Homeland Security, it’s not even clear who’s supposed to go.
The private sector organises activities a lot more efficiently. Take Apple Computer, where the vice-president of the iPod division has one objective: to sell as many of the company’s ubiquitous MP3 players as possible to maximise profits. In 2004, he dramatically increased iPod sales, and received over US$26 million in stock options as a reward.
Central governments, of course, aren’t trying to sell iPods, but they are trying to make a palpable difference in the lives of the people they represent. They do better when they focus their resources on accomplishing limited objectives, and allow local governments and private organisations to do everything else.
What qualifications must the new heads of the ministries have? What exactly are they supposed to provide? And under what circumstances should they be fired? A business is a business. No government - no matter how well-structured its ministries, how well-educated its ministers, and how well-intentioned its policies - can be run like one.