The concept of zero-based budgeting is not one commonly associated with the "third way" of political economy. This is not to say that thee is no connection. When dealing with budgeting processes for "third way" economics, there are two strands of thought: First, that the budget must meet the expectations of the "third way labor capitalism," and second, to be focused entirely on efficiency in the use of public funds. Therefore, third way, zero-based economics is about refocusing the national or local government budgets both for efficiency and responsiveness.
The "Third Way"
The concept of a "third way" in political economy is that of a "labor capitalist" state. In some cases, it is called a "social democracy" or a "mixed economy." Its elements are a strong commitment to social justice, some basic equality, equal access to public services and a strong and large state presence in the economy. The point is to take some insights of moderate socialism and mix them with the productive success of late capitalism. It has been the subject of many social experiments from Putin's Russia to Chavez's Venezuela.
Zero-based budgeting is a form of allocating public funds based on the efficiency and reliability of an organization. Instead of using last year's numbers to budget for this year, each department, project or office starts from zero dollars. The organization must justify itself to the taxpayers on issues of responsiveness, efficiency and the ethical use of public funds. In practice, what this means is that new mechanisms are found each year to save money as each bureau must show how it will use its needed funds with greater efficiency than last year.
The combination of the zero-based idea and the economic third way implies that there is a large and socially active state that must be extremely careful about its budget priorities. The zero-based method is important for strong welfare states because public funds are at a premium. Therefore, each department must constantly be improving their efficient use of public funds. Since each office starts at zero, the assumption is that there is no need for that office unless the office itself proves the contrary. This requires each specific office to report its activities and success to the government before it gets a dime. If government funds are in high demand, the zero-based method makes sense because each penny must be accounted for each year as the budgeting process begins.
Budgeting for the Third Way
A government office under a third way system must prove that it uses its funds in the best interest of its constituents. If you are dealing with the British health service, this means that this bureaucracy must submit to Parliament how it is responding to public demand and with what level of caution. Since the third way is about social protection against the inequalities of capitalism, the zero-based process will be primarily concerned with how these inequalities have been minimized through the specific action of the bureaucracy itself.
- "The Economics of the Third Way"; Experiences from Around the World; Philip Arestis and Malcolm C. Sawyer; 2001
- "Process Improvement for Effective Budgeting and Financial Reporting"; Nils Rasmussen; 2003