thanks to the Tories, wield the axe and up your bonus

Supreme Court of CanadaWhen it comes to the size of the state, the Conservatives are finally starting to live up to their name. This week Industry Minister Tony Clement announced that Ottawa bureaucrats' "at-risk pay" (government-speak for "performance bonus") will be tied to - gasp! - efficiency. Forty percent of government managers' bonuses will depend on their ability to identify savings, towards the Tories' goal of finding $4-billion in permanent cuts in the 2012 budget.

Clement may not the most credible Conservative to deliver the message, considering the $50-million in G20 funds sloshing about his riding, but he is right about one thing: Unless you motivate people to change, they won't. This type of incentive-based bonus structure is widely used in the corporate world, when companies want to pare back and remain competitive. Predictably, this has provoked negative reaction from a public service unused to this type of approach: According to Gary Corbett, president of the Professional Institute of the Public Service of Canada, "There's a potential to be a little overzealous."

Sorry, but that zealousness is long overdue. According to the Privy Council Office, after the Chr├ętien retrenchment of the 1990s, federal public spending and the size of government bureaucracy ballooned. Between 2000 and 2008, real program spending shot up 32%, the civil service expanded by 25%, while the population inched up less than 10%. While it's true that GDP increased by roughly 80% over the same time period, just because more wealth was being produced doesn't justify more redistribution. In the business world, profits would be reinvested where they would generate the greatest returns. In government, unfortunately, returns are all too often in the eye of the beholder, such as politicians, looking for support from specific constituencies at election time.

Or bureaucrats, looking to grow their fiefdoms. Government and business are alike in one crucial respect: Their employees are both motivated by personal ambition. Within any organization, people seek to protect - and grow - their turf. Just as the bank manager wants to expand the size of his branch, so the government bureaucrat seeks to increase the size of his department. In the private sector, of course, there exists a bottom line: If the branch isn't sufficiently profitable, the manager can't justify hiring more tellers. In government, however, there exists a bottomless pit: taxpayer dollars and government debt can be increased by fiat, with no relation to the actual demand for the service provided. This means that programs and staff can expand irrespective of need, resulting in waste and inefficiency.

Tying bureaucrats' bonus pay to savings is one way to mitigate the effects of these negative incentives. Indeed, the Tories' plan finds support in social science, namely a school of thought called public-choice theory. Public choice posits two types of pressure which increase the size of government. The first is "citizen over state," driven by external demand, such as the clamour of interest groups or lobbying by industry. The second is the more insidious "state over citizen," namely bureaucratic ambition and creativity: Think up a new program, and justify your job.

Or now, thanks to the Tories, wield the axe and up your bonus. While it is true that it can be difficult to measure the actual value-for-money of some expenditures - how do you quantify Canada's contribution to the Libyan intervention or the upcoming celebration of the War of 1812? - others are easier to judge. You can measure how many people use a highway, attend a university or access a government website. As in the private sector, every effort should be made, therefore, to ensure that outputs justify inputs - or that a program is needed at all.

So kudos to the Conservatives for bringing some positive incentives into government - and for making a real commitment to making it smaller.

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