Need for speed [Economics and Policy]

Ever since the country went into financial assistance mode, the Portuguese Government has cut costs essentially by reducing wages and pension benefits. Why is it so hard to admit that, inevitably, some Government institutions are less efficient than average and less efficient than in other European countries? Would it not make sense to conduct some benchmarking and implement reforms?

There is a pressing need for efficiency improvements and this would almost certainly involve merging the significant amount of small institutes, independent entities and regional authorities that were created in the past 20 years.

Hopefully for the better…

The advantages would far outweigh the disadvantages: fewer needless consulting committees, boards, and commissions. Increased efficiency, leaner organisations employing more qualified civil servants would all result in sustainable cost savings.

This Government’s stated aim of tapping financial markets ASAP could create the wrong incentive. This need for speed could well become a way to avoid deeper reforms which would result in a leaner Government sector.

Se vogliamo che tutto rimanga com’è bisogna che tutto cambi (2)

Are there any alternatives to the measures currently being implemented by the Portuguese Government under the supervision of the IMF, the Commission and the European Central Bank? The actions implemented up to date amount to an increase in taxes and cuts in civil servants’ pay and pension costs. While this is an effective way to make sure that the country can meet its debt obligations, little is being done to increase Government’s efficiency.

Current estimates show that 12,000 entities can carry out public procurement (according to OPET). That compares to about 800 in Ireland. In 2013, Government entities spent an estimated 15 billion euros in the acquisition of goods and services to third parties (similar to operating expenditure in company accounting). This represents roughly 20% of total Government spend. A simple 5% reduction in this expenditure would cut costs by 750 million euro on an annual basis.

How can this be achieved? It would almost certainly involve merging the plethora of institutes, regional entities, hospitals and other institutions. In Portugal, nearly every State-run hospital is a standalone company, as is every school. It would also involve using electronic procurement platforms in a more efficient way. Local Government and indeed political parties would have to adapt to this new reality.

What are the odds that this will happen in the coming years? As I wrote before, everything needs to change, so everything can stay the same.