The management expert Peter Drucker believed in the power of words and ideas. His best writing on management was rarely accompanied by graphic presentations of any sort. This could be intimidating to readers accustomed to staring at multi-colored charts, graphs, illustrations and videos. It didn’t stop him, though, from presenting some of the world’s most memorable management insights.
One of those involves the structure of a business organization. Drucker said that a business resembled a sphere. The outside surface represented its relationships and contacts with its markets, customers and suppliers. The inside of the sphere contained the “works” – what it took to develop a product or service, produce it and bring it to market.
When the business remains small this is not a problem, but success would mean dealing with the mathematics of spherical growth. The surface area, where all the customer contact and the profits are, grows in proportion to the square of the radius of the sphere. The interior volume, though, where all the costs are, grows much faster — in proportion to the cube of the radius.
Worse, as contact with the surface becomes more distant, the internal organization tends to develop its own set of values and priorities, and this in turn drives it to make work for itself.
Many successful businesses have gone through a painful education in this branch of mathematics and the structural problems it creates. When a company is faced with increasing costs, the boss often looks around and finds that an internal bureaucracy has taken over the company, draining its energy along with its profitability. Everything the company tries to do now takes so long and costs so much that the business is coming to a standstill.
If that seems to be an accurate description of our federal government and of Congress in particular, it is not surprising. Drucker’s analysis applies not just to businesses but to all kinds of organizations and explains a lot about how they become dysfunctional.
Structural problems like this so often get attention when the organization runs out of money. Budgets, borrowing, cash flows and debt quickly move to the top of everyone’s agenda.
The federal budget should be a key element of understanding and solving our financial problems, but it isn’t. One reason is that it is a mixture of fact and fiction, and it’s difficult to sort out which is which.
The other reason is that Congress, at least the U.S. Senate, obviously doesn’t think that the federal budget is very important, for it hasn’t voted to approve a federal budget in more than two years. That’s against the law, but somehow that doesn’t seem to matter to them.
U.S. senators Olympia Snowe and Jeff Sessions have proposed a bill that would address the more blatant works of fiction in the budget. Its short title is the “Honest Budget Act.”
Compared with most bills it is an easy read: short, direct and right on target. It confronts the commonly used practices in the current budget that are deceptive and need to be stopped.
The fact that Congress needs to be reminded that they shouldn’t be deceiving the public is a sad commentary on the integrity of its financial management. Of course, based on the news stories that occasionally emerge from the Capitol, maybe a refresher course in the Ten Commandments wouldn’t be a bad idea, either.
There are just ten sections to the Honest Budget Act — a coincidence, surely — and nine of them address the specific abusive and deceptive gimmicks that Congress uses to transform the federal budget into a punch line.
The sections are informative and their directness evokes an image of a in-your-face Marine drill sergeant explaining the rules. Section 2, for example, is entitled “No budget — no appropriations.” (“Is that clear!?”)
Section 3 is equally direct, “No phony emergency designations.” Calling something an emergency allows Congress to dodge the rules and procedures that are there to ensure financial control.
The remaining sections address such shady practices as counting unspent money as savings, the questionable accounting methods used to budget federal loans and loan guarantees, using internal federal agency funds transfers to mask increased expenditures and similar deceptions.
The “Honest Budget Act” is not by itself going to get us out of the financial mess we have made for ourselves. But the federal budget is, in the words of senators Snowe and Sessions, “… a good place to start.”
The fakery of the current federal budget encourages a sense of hopelessness — its arrogant chicanery nourishing the belief that nothing can be done. We cannot restore integrity to Congress with a single wave of a magic wand. But we can rebuild it step by step. Is that clear?
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.
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