investiledysfunction

I remember when I was younger (much younger), I’d wake up on Sunday morning excited to watch WWF wrestling (now WWE) only to find my dad parked in front of the TV watching Meet the Press or something that I found utterly mundane.  But it seems that I’ve outgrown my fascination with the figure-four-leglock and the camel clutch (former WWF fans will understand those references) and now I’m watching the boring stuff on Sunday mornings.  This morning, I was watching “This Week With George Stephanopoulos” (herein referred to as GS) with many guests including Robert Rubin and Newt Gingrich.  (Please note: as is fashionable these days, this is a ‘bipartisan’ post)

Newt Gingrich and Robert Reich were guests on GS’ show and these two agreed (shocking) that the US government needs to differentiate between expenses and investment.  They argued that investment occurs in improving infrastructure, education, alternative energy, etc while there are expenses which keep the machine running.

They were discussing investments vs expenses in the context of the government.  Yes - you read that right.  So let me explain why this is important.

Brilliont did an analysis of the 800 large and mid-cap companies which found that those who increase investment (expenditures in marketing, R&D, innovation, sales, etc) and minimize expense (general & administrative, IT infrastructure, etc) outperform their peers.  Basically, investing in those things that help the organization attract and retain customers and compete more effectively/efficiently is a good thing.

The key point here is that not every dollar that goes out the door is the same.  Some are strategic and create value and some are non-strategic.  It really is that simple.  Unfortunately, our accounting and treatment of these dollars is all too often not nuanced enough, and every dollar is the same.  This lack of understanding of expenses continues today in corporations which generally have more enlightened or progressive practices than government bodies given the short-term accountability they generally have and their inability to print new money.  So as you can imagine, this type of understanding within the government based on our experience with the public sector is quite rare.

Although Reich and Gingrich’s discussion was only on a talk show, I can only hope that the government (as well as corporations) starts to understand the difference between investments and expenses.  Investments may take some time to pay dividends but when thinking about the long-term, they are very important.  They’re the thing that ensure you have a long-term.  Investments (strategic expenses) need to be maximized and expenses minimized.  This is where the public sector at all levels can take a portfolio approach to its expenses and really improve decision-making and the outcomes they achieve for the constituencies they represent.

Hopefully, this type of understanding can move past talk and begin to impact decision-making within the government.