Australia, explained.
A short-term saving can become a long-term public burden (Aditya Sethia/Unsplash)
Is DOGE the answer to improving productivity?
Putting fear into the bureaucracy is not a way to encourage better results.
Australia, explained.
A short-term saving can become a long-term public burden (Aditya Sethia/Unsplash)
Putting fear into the bureaucracy is not a way to encourage better results.
Subscribe to The Informer for monthly expert analysis, and to Events for advance notice of visiting world leaders and distinguished guests.
You may unsubscribe from Lowy Institute newsletters at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
Is DOGE the answer to improving productivity?Is DOGE the answer to improving productivity?
Incoming US President Donald Trump has asked Elon Musk and Vivek Ramaswarmy to establish a “Department of Government Efficiency” – to be known by the acronym DOGE – to “dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures and restructure Federal Agencies.” Musk is already back-tracking on just how much DOGE will reduce government spending, having halved his claim from US$2 trillion to $1 trillion. Many doubt the capacity to deliver even these savings, but there is a deeper question about what big cuts to public services and deregulation will mean for US productivity in the future.
The Productivity Commission is calling for ideas on how to improve Australia’s productivity growth, so it is worth paring away the DOGE rhetoric and asking whether taking an axe to government can shift the productivity dial. If Musk and Ramaswarmy pay attention to the Australian experience, some valuable lessons might also be drawn.
Entitlement programs offer the largest potential savings as the biggest expenditure item (Defence aside) for government. The easiest savings come in reducing eligibility, such as raising the pension age, or tightening the criteria around periods of unemployment or income. Lowering the size of the benefits or requiring larger co-payments will also deliver savings, at least in the short term. Public resistance can be reduced by grandfathering existing recipients so only future recipients of entitlement programs are affected, but this dramatically reduces the savings available.
Two considerations are critical in assessing the impact of such cuts on productivity and ultimately overall public savings. The first is the extent to which costs are shifted as opposed to reduced. This is easiest to see in co-payments, which shift costs from the public to the individual, but shifts from the federal to state or local government, and from the public to the private sector, are also likely. To the extent that the individual, lower level of government or private sector make more efficient choices then productivity will improve.
The second consideration is the effect on investment. If the spending reductions raise the level of investment and shift it towards productive capital, productivity will rise.
But are either of these outcomes likely?
Given the tech interests of the emerging DOGE team, they will not doubt be looking for AI type solutions. Before they do, they should consider Australia’s Robodebt experience.
It will be a case-by-case question. Shifting costs to people, governments and businesses that have ample resources might influence their choices but is unlikely to have major effects on their productivity. It may even make some improve their efficiency, as reducing industries subsidies often does for businesses. Establishing clear rules for what government will and will not fund and adhering to them will reduce lobbying efforts that divert resources from productive to unproductive activities.
But for those people, governments and businesses that do not have ample resources, the effect on productivity can be negative if they cut down on spending that enhances their productivity. The clearest negative productivity impact comes from a reduction in the level of human services which reduces investment in human capital – the education and health of the current and future workforce.
Big spending programs with eligibility requirements usually require big bureaucracies to deliver them. Assessing eligibility, especially if there is regular reassessment, is resource intensive. Given the tech interests of the emerging DOGE team, they will no doubt be looking for AI-type solutions.
Before they do, they should consider Australia’s Robodebt experience, subject to a 2023 Royal Commission. This demonstrated the very high cost – both to individuals mistakenly charged with debt and the public purse as they sought compensation – of the assumptions that there was widespread non-compliance with the rules and that an automated solution putting the onus of proof onto the program recipient would deliver large savings. Experienced public servants raised concerns, but these were ignored. Putting fear into the bureaucracy is not a way to encourage their productivity. The value of empowering workers to identify problems and propose solutions, rather than impose solutions dreamed up by consultants, has been shown to be a far more productive approach.
Deregulation is a commonly offered solution to improving productivity. Again, this needs to be considered case by case as a lot of regulation is about reducing the costs that a business’ activities impose on the environment, its workers, and consumers (what are known as negative externalities). Regulatory bureaucracies can become captured by their industries, meaning that they are ineffective in reducing these costs.
Other regulatory bureaucracies are inefficient, imposing unnecessary burdens on the businesses they regulate or the public purse. Reforming both these types of bureaucracies will improve productivity, the latter in the short run by reducing transaction costs, and former in the long run by reducing productivity-sapping negative externalities. But abolishing the regulations and their associated bureaucracy will be costly to productivity if the externality raises costs for other businesses, harms human health, or reduces the quality or quantity of environmental services. These externalities also shift the costs back to government, so a short-term saving can become a long-term public burden. Superfund clean-up of toxic waste dump sites is an obvious case in the United States.
If DOGE is to deliver savings anywhere near their promise without harming future productivity it should pay attention to these lessons. Unfortunately, most of these costs come later when those who have claimed success in their cost cutting are long gone. The failure to heed warnings about climate change, falling educational achievements for large segments of the population, and the effects of rising inequality in opportunity on social stability, suggest the political class is blind to the impacts beyond their election cycle. Perhaps the best way to improve productivity is to remove the rose-tinted glasses on DOGE-like approaches and find a way to hold political parties to account on the long-term impacts of their policy choices.
About the author
Jenny Gordon
Dr Jenny Gordon is a Nonresident Fellow at the Lowy Institute and also a Honorary Professor at the Centre for Social Research and Methods at the Australian National University.
The most-pressing world events explained by Lowy Institute experts and global contributors, in your inbox, every Thursday.
You may unsubscribe from The Interpreter at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
