Making things cheaper and better

Rory Sutherland recently wrote: “Regulators are obsessed with reducing prices, not increasing quality. The net effect is that a few people on the margins can afford something they don’t really need, while everyone else has to put up with second-rate services.”

I generally agree, with one qualification: the problem is not that regulators are obsessed with reducing prices (that’s good!), but that they often try to reduce prices in ways that lower, rather than raise, quality.

To see what I mean, consider Toyota. One of the company’s major contributions was the postwar insight that higher quality does not necessarily cost more. Done well, raising quality lowers costs because defective products require rework, are harder and more expensive to market and sell, and require larger customer support and maintenance networks to handle broken products or customers struggling to use them. So when Toyota invested heavily in quality, costs did not rise, but fell instead.

Of course, this is true only of certain kinds of quality. Toyota defined quality as reducing defects and unnecessary work, not adding mahogany finishes. It focused on getting the necessary right, so that it worked well, the first time, and at low cost, rather than adding the unnecessary.

Governments could learn from this. Poorly designed public services generate their own costs: applications have to be processed twice, projects are delayed and redesigned, mistakes need to be corrected, and citizens need additional help navigating unclear or defective systems. In these cases, poor quality is not the cheap alternative, but the reason the service is expensive.

Some governments already understand this, but rarely consistently across sectors, performing relatively well in areas such as healthcare while doing much worse in others, such as transport infrastructure. More troubling, the effects spill across sectors: overpriced infrastructure does not only waste money in transport; it also leaves less to spend on healthcare and other services.

This is why a competent government would make Toyota-style quality a core principle, and why competent voters would reward politicians who deliver it. They would demand fewer defects, less rework, and simpler processes, not because quality is worth paying more for, but because this kind of quality often makes services cheaper and thus more abundant.

More importantly, they would be skeptical when politicians say that better services require more money. Sometimes they do. But often the causality runs the other way: the service needs more money precisely because defects, delays, and unnecessary work have made it expensive in the first place.

What would this look like in practice? Suppose a government wants to build a metro line. The usual debate is about how much money to allocate. A quality-centric approach would ask a different set of questions: how much of the cost comes from redesigns, delays, coordination failures, permitting friction, change orders, and work that has to be done twice? The goal would not be to build a cheaper metro by accepting a worse one, but to build a better metro by removing the failures that make metros expensive in the first place, thus freeing the budget to do more of what makes a difference.

The point is, governments too often make things cheaper by lowering quality, instead of taking the actions that would lower costs and increase quality at the same time. Citizens should demand the latter.