The Wall government recently disclosed that they have asked every department to cut their budgets by 10 per cent in order to balance the budget this year. That’s a good start to reaching an important target, but implementing something called “managed competition” could help them achieve the same goal.

To begin, it should be noted that asking each department to reduce their expenditures sends an important signal to the bureaucracy that the government is serious about balancing the books. However, it will undoubtedly be met with resistance.

During the budget process, bureaucrats will inevitably present politically unpopular cuts to their political masters, knowing full well that they’ll never be made. It’s how bureaucrats protect their empires and is part of the annual budget game.

That’s why the government needs to turn the funding model on its head by changing the incentive structure. An approach called “managed competition” can do just that.

Under managed competition, governments begin by taking services which could be provided by others and open them up to competition. Data on results provided by bureaucrats in the past is used as a benchmark. However, services aren’t not simply contracted out, existing employees are encouraged to bid too.

According to former Indianapolis Mayor Stephen Goldsmith, when his administration introduced managed competition in the 90’s, they found that existing employees often knew where the fat could be trimmed, but needed the incentive to trim it.

Once their jobs were put on the line, innovative ideas suddenly came to light.

For example, when Indianapolis opened up pothole repair to competition, existing employees won the bid and ended up cutting costs by 25 per cent while increasing productivity by 68 per cent.

So how did they do it? They trimmed management overhead, remounted some patching equipment and reduced the size of their crews from eight men and two trucks to five men and one truck. For years the employees knew the changes would help, but had absolutely no incentive to do it.

In other areas, Indianapolis employees saw wage increases and bonuses worked into new, innovative bids. Managed competition helped reward them for their innovative ideas. Certainly some services were outsourced, but the common denominator of the process was better services at a lower price.

Now imagine if you opened up a paper shuffling division in the Wall government to competition. The government could look at output from the division from the past three years and then seek bids to exceed or meet such benchmarks over the next three years.

Complacent, twenty-year senior bureaucrats would suddenly face the prospect of being undercut by an upstart subordinate or someone from the outside. Suddenly there would be an incentive to submit a bid which could include a budget based on a smaller office area, less staff, fewer Blackberries, market forces on salaries or perhaps even less travel.

Who knows what great ideas could be unleashed by taking the “innovation shackles” off provincial employees. One thing is for certain, it’s something worth looking into.