Published September 16, 2011
It's time for government to start running like a low-cost airline.
It's called zero-base budgeting.
Peterson is a business professor at Stanford University and the founder of an investment company, Peterson Partners in Salt Lake City, which invests in everything from airlines and home alarm systems to nuclear energy services.
"The very thing we would do, running these businesses, Washington has not done," he said in a telephone interview.
Government agencies begin the budgeting process with automatic annual increases. When politicians boast of cutting the budget, they are often just talking about cutting these increases.
"It's kabuki theater for politicians to score points and keep their jobs," Peterson said. "It's nonsense. It's not how you budget."
Peterson wants the government to begin the budgeting process with the assumption that it has no budget for the coming year. Then it should look at available revenues and add from zero.
"You build it from the bottom up, based on what we can afford and what is necessary," he said.
Starbucks Corp. (SBUX) chief executive Howard Schultz has rallied more than 100 business leaders in a promise not to make any campaign contributions to Washington incumbents until they fix the long-term debt problem. Peterson has yet to sign this pledge.
Instead, he's written Schultz, suggesting a campaign demanding the government simply tend to budgeting basics.
"No business or family would survive this insane system of budgeting," Peterson wrote to Schultz. "Let's focus their efforts on a simple task that will work in the public sector, just as it does in businesses and households.
"I'd be happy to join forces with you to demand that the 12-member deficit reduction committee...sign a pledge to publish a zero-base review of every department."
Peterson also spoke with Schultz by phone: "He said he agreed with me but he was in all-out recruiting mode to get the names of 100 CEOs and/or chairmen to 'sign his pledge.'"
Born in Iowa, reared in Michigan, Peterson grew up with this sort of Midwestern common sense. He graduated with valedictorian honors from Brigham Young University, and then disappointed his father by attending Harvard Business School.
"He was a scientist...a geneticist. He didn't know about business," Peterson explained. "I also have two brothers that went to Harvard Business School, so he was really devastated."
Before starting his investment company, and becoming JetBlue's chairman, Peterson was chief executive of real estate developer Trammell Crow Co. He says he can often slice 15% to 20% from a company's budget and improve outcomes.
"You don't take cuts across the board," he said. "All that does is institutionalize all the bad ideas you've had in the past, and create a hyperpolitical environment as people race to protect their budgets."
By starting at zero, people fight for what's working. Needless or unprofitable endeavors that persisted only through the force of politics start to disappear.
"It's never popular in a business," Peterson concedes. "It always creates problems. You have companies that break up. You have managers that leave...and lots of conflict. But with real leadership, you can turn companies around. And it's the same thing with government."
Unfortunately, "dysfunction" is the word most often used to describe American leaders these days. The very idea of a super committee to cut the debt shows Congress can't do it. And what are these super committee members really going to do? Wear capes and sit around a table like cartoon super heroes from the Justice League?
"Crisis tends to generate leadership," Peterson said. "And I think there's an emerging crisis."
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at email@example.com or tellittoal.com)