Tagged: local government

Market churn, innovation, and the experience curve


There are a lot of articles about savings in local government about how much has been delivered and just how much more can be done? Has local government really been innovative in redesigning services or is local government reflecting its journey along the experience curve and there just isn’t much more room to save more.

The other common topic today, economic development, might hold some clues. National and Local Government often measure the success of their economic development strategies on the numbers of startups that are created. If we build a new business park they will come. If we fund startups more employment will result. This will be good, this means more confidence in the economy. The presumption is that more startups means more entrepreneurs seeing opportunity, which means more jobs, which means the economy is growing. Or does it?

Research suggests that his approach mainly produces market churn and it is only a small number of businesses that create most of the jobs. New companies set up and create jobs and these displace jobs in other companies who are less competitive. Churn is a mechanism by which labour markets reallocate workers towards more efficient ends. In this way, the churning of the labour market contributes to growth in the potential output of the economy. Or at least it would if those businesses were in a growing market. It doesn’t mean there a more jobs, or even that disruptive innovation is happening and new models of business or services are being found. When the market is maturing, or even reducing, businesses learn to do things more efficiently. That generally begins with making successively larger improvements and then successively smaller ones.

The exception to market churn, those businesses that create more net jobs, are those that are innovative and disrupt exising markets. They do something radically new that is significantly more efficient and/or meets the market’s needs more effectively, or even creates a new market. Interestingly evidence suggests these businesses are also more resilient though a downturn.

But how does this apply to local government and the impact of austerity? Have we seen a similar journey in how local government has delivered savings. A lot initially and then they get harder to find. The experience curve begins to flatten. What we may be seeing isn’t the creation of anything really different, we are just seeing market churn that pushes public services along the experience curve. Its just getting cheaper to do what has always been done. Costs are going down, salaries below inflation, jobs are being deskilled though the introduction of technology and changing practice, systems and processes are getting leaner. Simply, people doing fairly similar things for less and probably for a different employer. Will this improve services? If improvement means cheaper then probably not. If it means reducing demands, finding better ways of doing things then maybe, but its not looking promising.

This isn’t to lay the blame on anyone. NESTA, in their study on innovation in Whitehall found, for many valid reasons, public services have typically not been subject to the same kind of creative destruction seen in some private markets. The risks are high, decommissioning services isn’t cheap, writing off sunk costs is hard politically, and considerable social harm would result from the breakdown of the public services. Service closures could push demand elsewhere, undermining the actual efficiency and legitimacy of any cuts.

A lot is stacked against radical innovation, and so transformation, in public services. Is it just too much?


Will greater transparency lead to, errrrr, greater transparency?

Dick Cheney has yet another memorable quotation – no, not that one – this one:

‘I learned early on that if you don’t want your memos to get you in trouble someday, just don’t write any.’

The Government is keen on transparency – especially if it’s about what money is spent on or how much public servants are paid. Increasingly data is being published on-line in usable formats, Council meetings are on YouTube, and politicians blog and tweet. Transparency has certainly had some impact but will it lead us to a greater understanding of why decisions are made or enable us to hold decision makers to account?

While I hope that transparency will increase accountability I have a nagging, and growing, doubt. Those invoices over £500 that are being published, let’s be honest, it’s difficult to know if the expenditure represents value for money without understanding more of its context. If I book a conference at a Racecourse is it better value for money than a hotel? Transparency has helped me know which one will get more flack regardless of cost – so perhaps that will inform my decision next time? If I try to hold MPs to account on the basis they promised something at an election and then changed their minds I’m told that ‘once we got in and saw the mess we had no choice.‘ If I dig into performance data I begin to wonder if anyone has heard of data quality? Its fine publishing data – but if it isn’t accurate am I any the wiser – maybe I’m just more misled than I would have been without it? Undoubtedly some of these things are teething troubles – old dogs learning new tricks – but will they all, ultimately, lead to the same place? The problem is that transparency is nothing without information and interpretation. Even then its just a path to a longer road.

Whatever your views on Wikileaks its clear that Governments across the world are happier with just the ‘right kind’ and amount of transparency. Enough to persuade us we can trust them, but not so much as to restrict their freedom of movement and ability to position the ‘presentation’ of difficult decisions. Will the perverse incentive behind transparency encourage some to record the minimum and increase ‘informal’ conversations to line up the ducks before the formal decision-making. Are we at risk of moving to a world where those making the decisions rely more on the phrase ‘what shall we say for the record?‘ rather than believe in the power of their own argument?

We have a choice. Lets be honest it was never going to be easy opening up local and national government to more openness. But the prize isn’t transparency. Its increased involvement of people in the services that have an impact on them and their communities. So what goes along with transparency is inevitably dissent. Arguably, if you share more information there is more room for disagreement and interpretation. Equally there is a good chance of more assent – if you have to spend time explaining your decisions more clearly then there is a good chance you will persuade some of those doubters – we’ve seen this with Wikileaks. The recent cable leaks have received a range of views with some American commentators pleased their Diplomats have a focus on American interests, others aghast at the self-interest expressed. While none of it seems a great surprise, it has forced governments to explain their thinking more clearly and fully. The transparency has created discussion and argument all essential attributes of a healthy democracy.

The prize for transparency is increased involvement of people in the decisions of the day, whether its simply hearing the arguments or influencing and making the decisions. Perhaps it might even generate an understanding that some problems don’t have an easy fix, or a pragmatic solution, and that the Politicians job is one that can’t keep everyone happy all of the time.