As an average American, I’m too busy to obsess about the business of others on a regular basis, and as a business owner, I don’t have the time to pay attention to other people’s finances. Sometimes, I forget that the size of government and all that it does—until it becomes too difficult to ignore wasteful spending.
Last week was one of those times. Congress passed, and the President just signed, the second largest budget and largest defense budget in history. Somehow, given today’s polarized politics, the bill had strong bi-partisan support, which tells me that there was a lot of horse trading done in the budget. In exchange for more dollars for the Democrats’ agenda, Democrats, who typically don’t like military spending, offered support for the increased defense spending. While Democrats’ sudden support of defense spending is a bit perplexing, what’s most confusing is that Republicans are supposed to be the party of limited government, yet they are allowing this discretionary spending to grow for one of the biggest budgets (and deficits) in our nation’s history when they control the House, Senate, and White House.
At $700,000,000,000, the defense budget is so large that it is hard to understand. So, let’s make it personal: Washington has committed each of us to taxes of approximately $2,150 just to fund our mutual defense. For a family of four, that’s $8,400. Worry not: many give the military kudos for being some of the most efficient in government, claiming they really need the additional $60,000,000,000 in funding for maintenance, raises, and materiel that this bill gives them. But, as it turns out, the military is inefficient too. For example, in 2015, the Defense Business Board completed an internal report on Transforming Core Business Processes for Revolutionary Change (Department of Defense) that was widely reported in the news in fall of 2016. The purpose of the report was to identify opportunities to reduce costs in support services for defense. Support services include areas like information technology, human resources, logistics, and procurement. The Department of Defense spent approximately $134B and employed more than 1,000,000 people in 2014 on support services. That is roughly $400 per person for each of us, just on overhead, to manage the Department of Defense. This report identified a moderate goal of with five year savings at $125,000,000,000 just on overhead for the military based on improving efficiency.
Put more simply, it’s a lot of money. Just defense support services alone (the overhead for our military) could literally cover a basketball court about three-feet deep in $100 bills every year and light it on fire with wasteful spending, and yet defense continues to demand more money from the average American. It’s not a problem that the military makes up a disproportionate amount of our budget relative to other countries. But if that’s going to be the case, the money should at least be well spent.
So, then, how do we reform the military spending budget (and perhaps spending more broadly)?
First, improving the culture for efficiency can save money. The 2015 report cites implementing Lean and Six Sigma approaches to facilitate savings. These business process improvement concepts have been in the private sector for decades. What are they? Both were first adopted by manufacturers to make them more competitive. Lean eliminates waste by looking at each step in a process and identifying whether that step is adding value or contributing to the objective of the process. The fewer or more streamlined the steps are in a process, the more efficient it is. The ultimate goal is to provide perfect value to the customer (in this case, taxpayers!) through a perfect value creation process that has zero waste (from the Lean Enterprise Institute). Six Sigma looks to eliminate defects in a process.
Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects in any process – from manufacturing to transactional and from product to service. (isixsigma). Building quality into a process improves the results of that process and reduces the costs of correcting or living with mistakes. GE, Accenture, Verizon, IBM, Toyota and thousands of other companies use these principles to focus transformation efforts and save billions. They encourage and reward process improvements. The results are organizations getting the most benefit from their limited resources.
If this way of thinking and analyzing finances is internalized from top to bottom, Lean and Six Sigma will counter the pervasive bureaucratic quagmire that is our current government. Even better, Lean and Six Sigma are designed to be continuous improvement programs that become part of the culture, providing more benefits each year. To help facilitate the adoption of these approaches, there should be incentive programs for employees to internalize Lean and Six Sigma need to be in place. Recognition and advancement should be tied to accomplishment and being more efficient with taxpayer money should be treated as one.
A more difficult, but perhaps important, one, is to budget for discretionary spending based on a percent of the economy. Limit baseline defense spending to 2.5-3% of GDP. Additionally, Congress needs to get out of the way of career officials and let them organize their departments for efficiency. This might mean base re-alignment, consolidation or outsourcing of certain support services, and critical evaluation of weapons systems. Then take all active foreign engagements and force congress to evaluate and authorize them with additional annual or multi-year spending bills that can’t automatically renew. By doing this, defense will be naturally encouraged to focus on efficiency to get more bang for our buck versus lobbying congress for incremental funds. The budget will grow with the economy (what we can afford) and be somewhat predictable.
Conservatives tend to give our military a high priority in spending with the belief that a strong defense is the backbone of the country, protects us from aggressors, and acts as an extension of global diplomacy. But that doesn’t mean the department should be entitled to wasteful spending. The question is, why won’t conservative lawmakers, who claim to disdain government overspending and inefficiency, get more aggressive with controlling DoD waste?