To pay for the care of the elderly, developed societies face plummeting levels of public services for everyone else—and soaring taxes. Productivity could be the answer.
The costly retirement of 76 million US baby boomers will swell the ranks of the elderly to more than 20 percent of the population of the United States during the next 20 years. In Europe and Japan, the elderly will come to account for more than 30 percent of the population during the same period. This transformation is about to create a new sense of urgency to get the most from every government dollar. Public services beyond health care and pensions for seniors will face epic squeezes, and officials will struggle to balance the needs of retirees and younger citizens while still holding taxes to politically acceptable levels. Boosting the government's performance will be an imperative no country can ignore.
To be sure, attempts have been made before. In the United States, former Vice President Al Gore's efforts to "reinvent government" in the early 1990s scored some successes. The administration of President George W. Bush has made efforts to reform civil service rules that inhibit some sensible management practices. The Government Accountability Office (formerly the General Accounting Office) has shown perennial leadership in prodding government departments to address their management challenges. In the United Kingdom, Peter Gershon's recent review of government efficiency1 has galvanized work to improve productivity across the public sector, with a target of £20 billion in savings by the end of 2008.
But veterans of reform efforts agree that they have barely begun to scratch the surface of the government's performance potential. One reason is that reforms take sustained attention—often rare when they become caught up in partisan or interest group politics. What's more, political cultures remain oriented to legislation, not to executing and managing programs. Few people make their name by improving the way government runs.
Nonetheless, the coming era's extraordinary fiscal pressures will force leaders to overcome these obstacles. In the developed world, the state commands a large share of the economy, so improving the performance of government departments can generate hundreds of billions of dollars of value. Our experience working with public institutions in 50 countries has shown us that the opportunity, though hard to capture, is large enough to take some of the sting out of the hard choices that aging societies face. With the first baby boomers becoming eligible for retiree health and pension benefits in just a few years, there is no time to lose.