Very few people seem to appreciate the significance of managerial leverage in public services. Everyone understands that a well-managed company in the private sector can achieve much more than a poorly-managed company. Indeed, if the poorly-managed company is losing money, and if making or losing money is the criterion, then the well-managed company can achieve infinitely more than the badly managed one.
There is very little understanding that the same principle applies in public services. Instead, there is a crude assumption of a more or less one-to-one ratio between input and output. In other words, if you wish to increase the range of services provided by the state, or to improve the quality of a service already provided, you have to make a (vaguely) proportionate increase in expenditure. This is simply untrue. A well-managed government department can achieve ten or even a hundred times as much as a badly managed one, just like a private company. Consequently it is entirely possible to reduce the financial input by say 30% and increase the output by that same 30%.
The problem is that you cannot change the quality of management overnight. However, there are ‘work-arounds’. On page 219 of The Puritan Gift, we proposed that the United States should model its new healthcare service on the Veterans Administration and appoint ex-military doctors to run it. (The original suggestion actually came from Paul Krugman.) Should we not do the same in the UK? Of course (once again), the nature of the ‘output’ and the method of transmission are likely to change once we have put into the driving seat managers who have (a) learned the ‘craft’ of management and (b) possess ‘domain knowledge’ of medicine. They may change the nature and purpose of the whole organisation.
