OP-ED | The Economics of People, Part I
Following is the first of a three part series that explores the enormous economic value in maximizing the productivity of all Connecticut citizens.
Don’t Make Government Smaller
These are difficult times for government. Everyone appears unhappy. One sensitive issue is the direct cost of government and the total number of state employees. To add complexity, we live in a time when the need for government services is increasing as government revenues are decreasing.
We appear to be between the proverbial rock and hard place. What can we do?
Our state economy requires an overarching economic solution. One very simplistic approach is to make government smaller. Let’s engage in a simple analysis that examines our state’s job market and economy to determine whether slashing government jobs will help.
For the twenty year period ending 2009, Connecticut had the worst private sector jobs market in the nation. We managed to lose jobs during a period of extraordinary national growth.Since 2009, we haven’t done better on jobs in a material way. More troubling is our state’s gross domestic product. I am not an economist, but all the smart folks agree that the best indicator of a state’s economy is represented by the measurement of GDP. This is how much stuff is produced by our economy – both goods and services.
Recently, the Bureau of Economic Analysis reported that Connecticut was last in economic growth during 2012 and 2011. We are producing less goods and services each year. Our economy is getting smaller. This impacts personal incomes and government revenues. Ok, we have a poor jobs market and a constricting economy. Should we continue to cut government jobs? Absolutely not.
One reason our economy is smaller is because government is smaller. That certainly seemed to be a mandate from an electorate seeking relief from constant budget deficits—but it is fool’s gold. We have the nation’s worst jobs market and no economic growth. Mindlessly cutting 15 percent of our government workforce would have a devastating impact on our economy. In addition, our state spends $1.3 billion each year to support nonprofit entities that represent 12 percent of the workforce, or over 190,000 people. Government’s role in the job market of our state is everywhere: as an employer, as a direct support and as a policy making entity.
Massive government layoffs are not the solution.
However, business as usual is not an option. Can we maintain the size of government and return to fiscal stability? Yes, in fact we will need a robust government to achieve such a goal. If you are a “liberal,” you want government to attack root causes. If you are a “conservative” you want the greatest return on investment for taxpayer dollars. Guess what? These are the same approach. The greatest fiscal impact will be generated by addressing root causes and seeking to reduce the conditions that create expense. Both sides of the political spectrum are in violent agreement.
Don’t make government smaller; make it more effective and driven by economic analysis. There are tremendous economic benefits that accrue when our citizens are more productive – and this includes government employees. Change the focus of government to increase economic opportunity and decrease need. This is not a process conducive to a four year election cycle, however, and needs to span administrations and political parties. Government employees are central to our state’s economy as taxpaying citizens and hearty consumers, but we need them working in a manner that generates a better return on investment.
If government cannot turn its considerable power to enhancing economic opportunity, it will contribute to the facilitation of economic need, because that is what our present portfolio of government investments has produced.
Our policies of the past 35 years have contributed to the economic issues we see discussed incessantly: (i) poor jobs market, (ii) academic achievement gap, (iii) transformation from a state with income equality to one with great inequality, (iv) extremely high per capita debt, (v) a dramatic increase in poverty indicators, (v) isolated urban areas that are cost centers, (v) large unfunded public liabilities and (vi) an increasing percentage of the budget devoted to debt service.
Our issues are clearly economic and our responses should be as well. Blindly pursuing policies that generate red ink put private business under. To add to the dilemma, we are borrowing to create these conditions of need. Any good CFO knows you do not fund losses.
Across the country and globe, new tools are developing that help government evaluate taxpayer return on investment. Social impact bonds, pay-for-success contracts and Human Capital Bonds measure and finance the savings generated by successful social services. What does this mean? It means that the economic health of a state is tied to the productivity of its citizens. Social Innovation Financing is premised on the idea that the more productive we make our citizens, the stronger our state will be economically. This is common sense. The economic benefits that accrue when human beings are more productive can turn our state around. This is true if our citizens work in government or the private sector.
There is a wave of research that evaluates the increasing economic costs associated with human capital. The University of Chicago has conducted extensive research in this area. Our governor’s creation of the Office of Early Childhood Development is a direct outgrowth of this research.
Fear of criticism and partisanship prevents government from devoting its vast resources to evaluating how we can spend a diminishing pool of public funds more efficiently to address increasingly complex needs.Tell government employees that the jobs are safe, but different. Families in poverty, hedge fund managers and government employees all want the same thing: to lead productive lives. We should encourage this basic human instinct any way we can.
The truth is that we need government because no one else can do the job.
Brian O’Shaughnessy of New Haven is a principal in the firm Community Impact Strategies Ltd.