Government Is An Anachronism

In the last decades, technology has rolled through one sector of the U.S. economy after another, rationalizing processes like supply chains; enhancing factory productivity by replacing labor with automation like Linestream’s advanced motor controls technology; and creating new industries, new jobs, and tremendous wealth for the technologically literate.

Two sectors of the U.S. economy have been resistant to this trend: the federal government and the healthcare industry. Each has increased its share of the U.S. economy and added people as workloads expanded. The growth of Washington has been well chronicled; it has added jobs and wealth and, even during the mortgage bust and downturn, was the only metropolitan area where real estate prices rose consistently. The healthcare industry similarly has been adding jobs and has been touted as a bright spot in a weak jobs market—you have all seen the ads on television.

Perpetual growth in government and healthcare is not sustainable.  Both government and the healthcare industry have similar characteristics. They have been dominated by centralized, one-size-fits-all control from Washington, rules and regulations, and political decisions that defend old ways of doing things to protect them from market forces. This has inhibited innovation in both industries and driven up costs. While defending old labor-intensive business models has certainly increased jobs (which is what politicians care about) neither industry has matched its increasing costs to the U.S. economy with commensurate value creation.

The era of automatic growth in government and healthcare is coming to an end. Technology is now making it impossible for any industry to wall itself off from market forces, and this is all to the good. Both government and healthcare are experiencing pricing pressure, as the impasse in Washington clearly demonstrates. Government employment is down—albeit from a recently engorged level—and major health systems like the Cleveland Clinic and Vanderbilt University Medical Center have announced layoffs as reimbursement pressures ripple through the healthcare system.

While politicians in Washington argue and defend past solutions to past problems, industry is innovating. Yesterday Premise Data Corp. emerged from stealth mode to announce that it has created an inflation index that is an alternative to the Department of Labor’s Consumer Price Index (currently suspended due to the wrangling in Washington). Premise creates real-time inflation data using photos of store shelves taken by hundreds of mobile-device-empowered individuals.  Premise also scrolls through Web sites to gather price data. In contrast, the Department of Labor uses a half-century old centralized, top-down survey methodology for its CPI index.

During the government shutdown, businesses that depend on government statistics have been casting about for alternatives, and Premise Data Corp. is one such alternative. The question I have is: Once the small part of government that is closed reopens, will anybody notice? Or will we all have moved on to other, more current products and services that do a better job at low cost?

Similarly, healthcare systems are rapidly adopting information technology to improve productivity, lower costs, and improve quality. It is no accident that healthcare systems are laying off people at the same time that they are adopting big data solutions like Cleveland’s Explorys or infection control products from companies like Ann Arbor’s BioVigil.

In the next decade the healthcare system will become rationalized, and it won’t be due to Obamacare—although the politicians will take the credit. It will be due to technology.

Here’s one way to look at the struggle in Washington. The federal government’s business model is breaking down, and its ability to funnel resources to itself to be paid out in political rewards to supporters is being undermined. The real fear of the people in Washington may be that we, the people, will realize that we don’t need them for much of what they do at our expense and that technology and the private sector do a better job. Perhaps that’s why the battle in Washington is so fierce.

Here’s hoping at the end of the protracted struggle in Washington that the federal government is on a downward trajectory. It is too expensive; delivers too little value; and pulls too many resources from more productive uses in the private economy. It needs to be disrupted, rationalized and downsized. Why should it be immune to the productivity-enhancing technologies that have improved every other industry?

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