There has been so much partisan noise about the budget crisis that it’s hard to figure out what really happened and what needs to be done. But the whole situation gets much simpler when you look at the problem the way a manager would in the private sector. So let’s cut through the spin and use this as a case for how a manager is supposed to think about a budget. No politics, I promise. (But you can always go back to your favorite flavor of spin afterwards if you feel a close an attachment to it…)
The story of our budget problem reads like a fable about what happens when a core business virtue – accountability – gets replaced by other agendas. I won’t try to support or vilify those agendas (won’t even mention them, in fact), because it’s not necessary. It’s the lost accountability that any private sector leader would go after first in understanding and addressing the crisis.
So imagine with me for a second. A Senior VP somewhere learns that one of her business units has a budget that is, well, completely upside down. The first statement out of the VP’s mouth would be “Get [insert name of accountable manager here] on my calendar.” Possibly stated using far more colorful language.
Next would come The Meeting. The Meeting has many names – The Woodshed, Math Camp, The Cuisinart – all depending on your company culture and the disposition of the VP in your particular case. In preparation for The Meeting, all-nighters would be pulled, takeout food consumed, and important family functions missed or canceled. Jobs are on the line.
During The Meeting, the appropriately nervous manager would explain the top-level story of the budget crisis, quickly and succinctly, but with several back-up slides in the appendix covering specific details that answer a myriad of questions the VP may or may not ask. The explanation would cover top-line revenue vs. spending, highlighting where and why one or both went sideways, and what has been done to date to course-correct. After much uncomfortable discussion, a decision would be made on the go-forward strategy and deadlines. The focus of the meeting for the VP would be three-fold – first, to determine the most important facts about the situation; second to approve or revise the manager’s action plan to address the problem; and third, to assess the manager’s ability to fix the problem and continue running the business longer term.
It’s a series of steps that occur daily around the globe in the private sector. So let’s go down this same road with the Federal Budget.
Who’s the “accountable manager” in this case? The quantity and quality of spin here is impressive, but the answer is simple – Congress created and owns this problem. This isn’t an opinion. Per the Constitution, only the legislative branch can change the income and spending of the Federal Government, or create any laws whatsoever. So when you hear about “Bush Tax Cuts” or “Obamacare,” don’t be confused about who really owns these. The President simply doesn’t have the power to create laws that alter tax rates or restructure the healthcare system. No matter who asks Congress to do something - whether it be a lobbyist, a Senator’s second cousin, or even the mighty POTUS - making laws, approving budgets and taxing the public are the exclusive purview of the folks in the Capitol Building. So the accountability to fix it also sits squarely on the shoulders of your elected officials in Congress.
Now let’s move to the core of The Meeting – what on earth happened with our budget? Was it those nasty tax cuts in the early 2000’s, or that evil stimulus bill? Is someone not “paying their fair share?” Was it the misguided ideals of [insert your opposing political party here]? Nope. Each might be a factor in the larger picture, but the savvy VP would cut through all that in a heartbeat. “Show me the trending on revenue against spend,” she would say before her notepad was even out of her computer bag.
And it’s usually a very telling picture. The chart shows what it looks like for the Federal government since 2000.
You can see that annual revenue has cycled up and down, reaching its highest level ever in 2007, and is up by 7% ($138 billion) over the decade. But spending has skyrocketed over the last several years – up 93% ($1.67 trillion) over the decade. Twice the growth of GDP and 3x cumulative inflation. The gap is being covered by borrowing money – which is now over 40 cents of every dollar the government spends.
But what would be equally notable to our Senior VP is that the two lines are moving independently of each other. In the private sector, if the two lines moved apart in one year, they would typically correct to each other the following year (i.e., spending would by adjusted to align with revenue). So the lines tend to follow each other over time. But with the Federal budget there isn’t a connection. For example, Congress issued two tax reductions early in the decade that reduced revenue, but they increased spending both years. And when revenue fell due to economic conditions in 2008-2009, Congress increased spending more than any year in history.
You don’t need to be Keynesian or Austrian in your economics to sort out what the problem is here. For a private sector manager, this one’s a softball. No connection between spending and revenue. Which means no accountability taken by the managers of the budget (especially when, unlike the free market, Congress has a lot of control over both revenue and spending). It’s been going on for 10 years and gotten significantly worse in the last two. And don’t blame election cycles and party shifts in Congress for disconnecting accountability from the problem. Since the average tenure of a US Senator is about 13 years, many of the same folks have presided over the mess for the entire decade.
Here’s the moral of the story. At the heart of management is the concept of stewardship – that you’re given authority over resources that belong to your organization, not you. And your job as a steward is to leave things better than when they were given to you. You have to make tough, unpopular choices to ensure the success and stability of your organization, especially when people’s desires and the situational realities don’t match. And even when your own desires or agendas don’t match reality.
Peter Drucker once said, “Successful leaders don’t start out asking, ‘What do I want to do?’ They ask, ‘What needs to be done?’” The fix for government will be painful because the problem has been allowed to erode for a decade. But what we need now is clarity, accountability and real leadership that is willing to put aside agendas, ideologies, blaming and personal interests, and make hard choices. Whether it’s popular or not, spending and income need to line up, or you inevitably run out of money. Leaders, cowboy up and make the hard choices.
No comments:
Post a Comment