Finance Minister Benjamin Netanyahu has faced an enormous challenge in designing an economic plan that is politically feasible and that can bring the national budget deficit under control. With tax rates reaching 60% for a significant portion of the population, directly raising tax rates was never an appealing option and close to political suicide.

Nevertheless, tax rates were raised, in a disguised way, by cutting children's allowances and eliminating tax credits. But Netanyahu's work is not finished. He must further shrink the budget deficit by more substantially reducing government expenditures. Apparently, Netanyahu's preferred option is to implement across the board budget cuts. But he should be reminded, and should remind his peers, that cutting government services is not the only way in which government spending can be reduced. In fact, government expenditures can be substantially reduced without cutting services at all.

The solution to the problem lies in outsourcing the provision of public services to private firms. In the US, the UK and even in tiny Denmark, local and national governments are increasingly examining ways to outsource a wide variety of services previously provided by the government. But in Israel it looks like this idea hasn't yet fully come to mind. Perhaps many of our politicians just aren't motivated to offer less costly and overall better services to the public?

Netanyahu should remember that across the board budget cuts do not differentiate among services. They equally affect best performing and worst performing services. One way to avoid this mistake is to assess the performance of each service and evaluate its cost. That's what would be done in a private company. The less competitive, poor quality and high cost products would be taken out of the production line and the productive resources used to produce them would be transferred to the winning products. However, in the Israeli public sector, no performance tests exist. Without measures of productivity, no one can tell the difference between success and failure. Our national and local governments do not even know the cost of each service they provide. Without knowing how much it really costs to repair a road, plant a tree, put up new lights, it's impossible to know if the service is delivered efficiently or not and which service performs better than the other.

Perhaps we should consider adopting the method of Stephen Goldsmith (the former Mayor of Indianapolis) who developed a process called Activity-Based Costing (ABC). ABC follows the definitions used in the private sector to determine the cost of providing a service. It takes into account depreciation, costs of equipment, building space and other fixed costs. In Israel, a similar costing system in the public sector has yet to be developed. Across the board budget cuts that throw out the relatively good (cost-effective) services along with the bad cannot be the right answer.

Why should the public sector deliver services at all when there exist private firms that provide the same service in a more efficient manner and at lower costs? Private firms have to be efficient, customer-minded and innovative in order to survive in a competitive market. A private firm that offers services which are too expensive or of poor quality will go out of business. The government, on the other hand, never goes out of business. It just confiscates more money through taxation or cuts services entirely.

Here's a way to open up government services to competition, ensure that our tax money will be spent more efficiently and leave room for cutting government expenditures. Take any service that the government provides and look in the yellow pages. If one can find a few private companies listed under that heading, the public sector should not be directly offering that service. Note that outsourcing government services is not totally unprecedented in Israel. Some government bodies have transferred activities to the private sector (e.g., automatic data processing). But outsourcing should be widened and it should become an automatic reflex for our politicians to ask themselves the following question: Can existing private companies do a better job at lower cost?

Any kind of commercial activity can be outsourced. Services like picking trash, gardening, printing, copying, and cleaning can easily be transferred to the private sector. Union workers can even be given the opportunity to compete along with private firms. In fact, it's not unusual in the US for union workers to win an outsourcing contract, and once the unions put their own ideas into action they become cost-conscious and competitive. Their experience even gives them an edge over the competition.

In short, public employees are not the problem, public management is. Take away poor performing public management and let the public employees compete with their private counterparts to offer less costly, more efficient and more consumer-minded service. Maybe the Israel Electric Corporation employees should be working on a business plan instead of threatening the nation with a countrywide blackout. The business plan surely wouldn't include free electricity consumption for employees. Outsourcing is easy to implement. It's a better alternative.