Nothing focuses the mind like a hanging,” noted Samuel Johnson, according to his biographer James Boswell. The condemned man, realising that he has only a few weeks to live, focuses on what is truly important. The economic equivalent of this expression is: “Nothing focuses the mind like a hard budget.” Hard budgets make countries and organisations efficient, innovative, thoughtful and, by injecting financial discipline, ensure that decision-makers work through their options to get value for money. The hard budget in itself leads to better management, getting more from less, which requires more effort.

In contrast, a sloppy, bloated budget where money is not a problem will lead to waste, cynicism, cutting corners and the abandonment of accounting discipline. When money is wasted, the essential connection between the cost of something and the delivery of quality breaks down.

Without a hard budget, management becomes almost impossible and the corporation, organisation or country drifts, becoming gradually unable to deal with any shocks to the system that might lie ahead. Like someone who allows themselves to get out of shape, their muscles to weaken, and their weight to soar, the person becomes more susceptible to physical and potential emotional or psychological fragility.

Countries and corporations operate in a similar fashion. If they become addicted to easy money, particularly if that money is someone else’s, a gap opens up between reality and fantasy. The managers begin to feel that the money is theirs and they are entitled to it, creating a dependency. Successful management no longer revolves around the best use of the resources to achieve a specific outcome, but rather it........

© The Irish Times