Governments are not known for being cost-effective organizations due to a number of perverse incentives – politicians putting politics before rational decisions and powerful employee unions pressuring politicians into signing lucrative contracts to name just two.

Here are a couple ideas that tweak the traditional government model and could save taxpayers money while creating new opportunities for local businesses.

First, governments should take a page out of former Indianapolis mayor Stephen Goldsmith’s book and proceed with something called “managed competition.”

Instead of getting into a fight with city unions by just outsourcing a service to a private company, managed competition involves helping current government employees to craft their own bid and compete with the private sector for the work.

For example, when Indianapolis opened its pothole repair service up to competition, Goldsmith had the city’s accountants help the city’s pothole repair crews draft their proposal. They knew they would have to really trim the fat if they were to stand a chance bidding against private sector firms – so that’s exactly what they did.

The city employees put in a bid that proposed cutting a sizable amount of management overhead while reducing work crews significantly. In his book, The Twenty-First Century City, Goldsmith notes the city’s pothole repair employees won the tender and ended up reducing costs by 25 per cent while productivity skyrocketed by 68 per cent. Just think – none of those benefits would have materialized if it weren’t for Goldsmith introducing competition into the mix.

Ultimately, this competitive model saved his city over $400 million while improving services. Some government services were ultimately outsourced, but government employees won many bids as well.

Another tool that can help drive savings within an organization is gainsharing – an incentive program that rewards employees for coming forward with ideas that save money while maintaining output levels.

For example, after gainsharing was introduced in the State of Maryland, the highways maintenance division decided to stop paying a firm to haul away pieces of scrap highway signage that state employees had gathered at their public works yard. Instead, the state began selling the materials to a metal recycling company – raising $15,000 in revenue. These funds were then split between the employees and the state.

One can easily see how this idea could work well at reducing costs in government. For example, some employees could decide to rent out a smaller office space or utilize a work-from-home model, renting meeting rooms as needed. Some divisions may decide to offer buyouts to employees, reducing staff complements down to more efficient levels. As long as the division maintains its output, it really doesn’t matter how many staff do the work or where it is done.

If you like the idea of easing your tax burden, try asking your local politicians to explore these cost-saving ideas.


This column was published in the April 2018 edition of Business in Calgary/Edmonton magazine