In my endeavor to learn more about the US economy and government, I found this book on Amazon. I first read about the book on the website of Deloitte consulting - this book has been written and published by senior members of the Deloitte public-services research division in the US. Although the book is slightly dated, i.e. 2006 edition, I found that in some ways it was quite relevant because as I read about the data projections made in the book, I also followed current news stories about the US public services that demonstrated to me that the data projections made in the book were quite accurate.
What the book has attempted to do, and quite successfully, is outline some of the key challenges facing the United States - ranging from the changing demographics, to the state of schools and education, the health care issues, infrastructure and disaster recovery. The book then outlines, in a typical consulting way, the key issues that need to be resolved in each of these areas and the manner in which we should be looking at and addressing these issues before everything gets out of hand. The book is intended to be a guide for State Governors, who occupy the role with a responsibility to plan and take action on these issues. The most fascinating aspect of the book is that it was written, in 2006, when federal government and most State governments were not facing a deficit crisis; the authors however, do mention that if these issues are not tackled, the deficits will grow to an unmanageable levels. When you look at the country today, 5 years hence, it's clearly visible that the States that acted to address issues in all the areas listed earlier, are the ones not facing a deep deficit crisis, while the States that didn't, are really up against it (although, at this point it's safe to say that most States are in some shape or form, up against it!).
So how come the US public services finances have become such an issue? I've been keen to figure out how the country got to this place. Some of the figures and projections outlined in the book help explain that. Here are the key ones:
Demographics: Age group 30-50 is considered to be the most economically productive group. This group invariable provides the lion's share of tax revenues. In the US, this group has been, and is expected to continue shrinking. In the year 2000, about 1/8th of the US population (13%) was 65+. By 2030 that group is expected to grow to 1/5th (20%). Essentially, what is happening is that the two largest groups of population, the children and old, that cost more in terms of taxation and services are growing, but the population that provides the most in tax revenue is shrinking. This shift in demographics is evidenced by the recent news stories of how the 'baby boomers' will begin to retire in the next few years, putting further pressure on the federal and state budgets.
Entitlement spending: We hear a lot about this in the news. This is by far the largest expenditure item in State budgets. Until 2005, most States spent the most on education and schools, followed by health (Medicaid - the state-run public health insurance program for low income individuals and families). However, since 2006, most State budgets started to see a shift - the spending on medicaid began to nudge school and education spend to second place in most State budgets. What this means is that medicaid is now the biggest line item in most State budgets. And the average annual growth rate in spend for medicaid is over 5% in most States. That's a staggering fact for two reasons - one, it shows that the health spending is spiraling out of control and the population demanding that care is only projected to increase in size; two, this spend is taking away from the resources that are available to deploy and invest in children's education, which could turn out to be disastrous in the medium to long term. In addition to medicaid spending, most pensions are underfunded and are currently unsustainable.
Policies and legacy: The third key reason for the current state is the fact that most of the laws and rules were designed and agreed for an era that has long gone. And an attempt to change the laws to reflect the reality of the present time is a nightmare. This is greatly evidenced by the recent strikes by the public service officers in Wisconsin. The authors outline that "some of the legacy problems are systemic, reflecting the failure to update industrial age processes and business models. Others are structural - rooted in statutes and state constitutions from a bygone era".
So where do we go from here? My take is as follows...
Most of us are aware of the issues that got us to this place. Few are aware of the trends and trajectories that we're on - in terms of spend, demographics, global trends etc. And for me, the latter is the scary part. If the nation does not fix these issues and stop the bleeding now, it could reach fairly disastrous proportions, requiring radical changes. Some argue that we're already at that stage. I differ, because I think the fundamentals driving the US economy and public services are strong, the values are intact, the intentions are good. What's required is a drive to act, and do so together. So, here's my view (a very very simplistic outline for a fairly complex issue - but I'm limited by the space on this page and the desire to not lose the reader's interest when faced with pages and pages of text on their computer screen!)
In my mind, I class the required action in three categories:
- The big picture and policy discussion: This is about the leading government figures and policy-makers getting together to outline what the business model for the nation as a whole should be in the coming years and decades. It is about building a blueprint, agreeing a 5-year, 10-year and 15-year outline of how the US wants to operate both domestically and globally. It is about really defining the role of the government in the future. And from this, should emerge the policy constraints and the changes required in this area. From this should also emerge the actionable strategies and plans that will help align the direction of the country with the blueprint. Fundamental issues such as tax levels for the wealthy, business taxation, immigration laws etc should be addressed at this level.
- The focus on customer: Very often, the discussion around change stays within the government buildings and town-halls. Ultimately, all changes impact the customers - the residents and citizens. It's important, particularly for State governments, as they tend to be closer to the last-mile delivery of services, to take into account what the customers expect. From my experience of working with Public services in the UK, I can safely state that whenever public services are re-designed based on customer expectations, the satisfaction levels increase, while the delivery costs decrease. Why is that? Well, for one, most public services continue to operate the way they've operated for decades - without any consideration for the changing customer profiles, requirements and available technology. The moment the services are re-aligned to current customer requirements, a lot of the service delivery processes are recognized as redundant, the platform for service delivery changes to a low-cost technology platform and the overall costs decline.
The other important benefit of focusing on the customers is that the services tend to stay relevant. When you have a system whereby you listen to the customer requirements, your business has built-in processes to hear and interpret customer needs, it makes it easier to stay relevant. Which means, that a number of shifts in demographics etc don't come as a shock to the public services demanding radical changes all at once, but rather allow the services to adapt at a manageable pace.
- Implementing new business models: Public service organizations should reconsider the way the services are delivered. This not only relates to embracing technology (online services etc) but also the fundamental business models. Exploring public-private partnerships, social enterprise, private sector delivery, innovative service use charging mechanisms etc are all ways in which the delivery of services can be improved without impacting the budgets negatively.
To conclude, I want to leave you with a quote mentioned in the book. Albert Einstein, the greatest experimenter of all times, was fond of saying "Out of difficulty, find opportunity". We live in exciting times. We have a great opportunity.
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