Large organizations are not good at delivering innovation. Despite all its various products, Google for example only really makes money on advertisements. Microsoft only makes money on its office and operating systems products. GE leverages regulations to crowd out smaller competitors. Large companies tend to acquire rather than build innovation.
The United States Federal Government consumes roughly 20% of our national GDP. It attempts to offer services to 300M or more Americans. Like any big organizations, it does not do this well. It may not even do one thing well. It can not even collect taxes well.
We do need a federal government especially for common needs like defense. The constitution delegated specific functions to the federal government, functions that benefit general welfare (not specific welfare).
In any large operation that becomes unmanageable, it becomes time to break operations apart. Companies that get unwieldy sell off unprofitable divisions to organizations that can revitalize a product offering. Federalism established a government duopoly, in which citizen needs are resolved either at a state or federal level. This forms a robust construct where local governments innovate and federal government scales best practice. Whether the innovation is a service or social change, the duopoly of federalism dampens the momentum of the majority, to assure common sense and judgment.
The partisanship in our federal government is a function of doing too many things. The task before the President and the Congress is to big. There are too many issues to resolve. We do not need more politics, we need the federal government to stop doing so much. By delegating inefficient government functions, we expand innovation. Different states can develop new approaches to education, welfare services, and other public functions. Innovation reduces cost and improves the quality of services. Innovation generates productivity, that brings people out of poverty and despair. Effective government becomes an enabler not a drag on the economy. Reform includes:
- Maintain Core Federal Government functions: The Federal Government is best suited to manage the following:
- Common Defense
- International Treaties and Affairs
- Interstate regulatory frameworks that facilitate trust and quality.
- Manage national assets – public lands, wireless spectrum, etc.
- Rule Making: In the modern legislature, laws are passed, but the rules and procedures are determined by executives in government. So a 100 page bill turns into 1000 pages of rules set by the executive branch. As administrations change, the rules are changed depending on the presidents preference. This creates unproductive friction. Common rules assume a monolithic set of needs. What works in Missouri may not work for California. The Legislature should make the rules, and it should be difficult to change them without legislative authority.
- Federal Regulations: At times, markets operate best with agreed to standards. In the early days of railroad it made sense to have different gauges of track until the market could resolve the size, scope and utility of trains and their design. Overtime, as markets resolve best practice, translating these best practices into regulation allows the market to move innovation into a different level. For example, once Ethernet and TCP/IP became a standard, innovations by Google, Amazon and Apple could emerge. Th Federal government has a role in setting in law key common practices to allow the free market to operate. Examples include trade settlement, check clearing, inter bank transfers. These laws should emerge as a result of observed success in multiple markets, at the time in which the bulk of states agree that a common set of regulations assures market progression. The states rather than companies should “Lobby” for such changes.
- Block Grants: Permanently pass all federal programs funded by block grants to the states. Programs like Medicaid are funded by taxing individuals federally, processing them through the IRS, and then transferring funds in bulk to state government. The Federal Government, under the guidance of the state should set broad rules to facilitate some aspects of the programs so that a family can move from one state to another. States rather than the federal government will tax for these programs. The Feds will reconcile some resources across states if an odd imbalance emerges (Migration after Katrina).
- Departments of Government: In most cases, there is little or no need for the various departments of government (Education, Housing, Energy, Commerce). In each case they may help establish rules and standards so that a 10th grade student moving from one state to the other can fit into the school system. Each government role could assist with encouraging best practices. If these are even needed they can execute such a role with 1% of their current budgets. Perhaps all these functions could be rolled into a single Commerce Department focused on eliminating the small barriers between the practices of each state.
- Government Laboratories: In markets that require a lot of R&D, but that the market is fractured, unprofitable or only has a government customer, the Federal government should maintain laboratories. For example, government is really the only user of defense systems. Not many other industries need a Nuclear weapon test facility. FBI needs specific forensic abilities. NIH provides key services to the states for public care and research, especially for Orphan diseases. In all these cases, these national facilities should be built with guidance from industry for the general welfare of commerce in the US.
- Social Security and Medicare: We are into social security enough that its hard to get out of it. Over our lives, we move around enough that a federal backup savings program makes some sense. The Federal government should continue to maintain it. All other programs belong at the state level. Over time they will figure out how to manage the interoperability of these programs across state lines.
- Healthcare: The healthcare system is in flux and going through major innovation waves. The federal Government should avoid involvement in parts of our economy going through change, because the federal government slows change. There is a role for some form of High Deductible requirement for healthcare in which we all pay into a plan that covers healthcare costs in excess of 100K in our lifetime. Administered in a form of social security, it would pay out to private plans, but managed as a joint risk pool across the nation. This addresses the moral hazard of some choosing not to buy healthcare. To protect individual civil liberty, allow each of us to “Opt Out” emergency care so that we do not place a burden on healthcare system if we do not want to buy healthcare.
- Other Rules:
- Don’t implement a rule, policy or law at the federal level unless proven to work by a bulk of states at the local level
- Don’t collect and redistribute money
All together this eliminates 60%-70% of Federal Spending. It moves much of it to States, so it still is an economic burden. But the states, being close to the “Customer”, will evolve programs to serve people effectively. If they do not the political process will quickly push for change. Between the news, twitter, and transparency, best practices will quickly emerge and transfer to adjacent states. Just as business establishes best practices for commerce, so will governments set best practices at the local level. In the end it delivers the rhetoric of the federal monolith, but with the efficiency of a company connected to its consumers.
