Too big to fail?

Recent Fiscal Times introduced me with Pres. Reagan's former budget director David Stockman. This "enfant terrible" shocked in his time by admitting: “None of us really understands what’s going on with all these numbers’’.

Our public sector is now in the phase of building bigger and bigger entities of services. In doing so, I've come up with a similar thought.

Economy of scales may also carry a side effect. As things grow bigger, the number of those who can really understand what is going on grows smaller. Failures and misbehaviors do slip through, giving room to delusions of being too big to fail, so victorious nothing can harm us anymore.

In service chains covering the whole of society also their financies tend to complicate.

Open economy and eternal growth

In the times of regulation the economical ecosystem was (somewhat more) controllable. Now the whole world is an open economy, and a rapid growth or shift in consumption in one corner is bound to carry an effect somewhere else. Whoever tries to foresee the future developments judging by the numbers in recent history, truely needs to be quite a genious.

Stockman, like our ministry of finance a few years ago, Mr. Niinistö, calls for debt deflation, downsizing and a rise in national savings.

The principle is chrystal clear, let's just recall our studying years! If you gain 200 and have no assets to liquidate, 200 is what you can spend. After that, you are in the loan market. If you can prove a future revenue, you may discount that promise for a loan at the present. - I believe the whole world now knows, there is an end on that road of getting into debt..

Streamlining processes lowers expenditure

The Finnish way of cutting back public expenditure is to streamline processes. Up until now we've done that because of scarce human resources, a problem common to the aging western world, sometimes even for the benefit of our customer.

However, the next step must be unifying the common pools of data, gathering data only once at the source and sharing those data pools between government agencies. Some of that thinking you may read in my recent post.

The principle of open data (F) adds to transparency of government and optimizes the use of common data. Nowadays there are many government agencies whose funding is arranged solely on the revenues from distributing data. On government budgeting this means blurring image of the entity and complicated finances.

In practice, government agency A has budget means to buy data from B, also a government agency. B, however, is granted government funding for only part of its functions, so it needs to budget on revenue basis. This all results in a financial cobweb, sometimes impossible to audit trail.

In order to make things more reasonable and transparent, the core function of supplying the original data will be funded by the government. Distribution of that data between government agencies would become free of charge, or be done at cost pricing at the most.

We Finns do handle many areas already quite effectively. But I wonder how many brilliant solutions there are in many other areas, just waiting for us to find.

Disclaimer
These thoughts are mine and do not represent views of my employer, Finnish Tax Administration or the Finnish public sector, either.