Reinventing Government

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Reinventing

Also by
David
Osborne
Laborato
ries of
Democra
cy
Reinventing
Government
How the

Entrepreneurial Spirit
is Transforming
the Public Sector

David Osborne
and

Ted Gaebler

A William Patrick Book


Addison- Wesley Publishing Company, Inc.
Reading, Massachusetts Menlo Park, California • New York
Don Mills, Ontario Wokingham, England • Amsterdam Bonn

Sydney Singapore • Tokyo • Madrid • San Juan


Paris Seoul • Milan • Mexico City • Taipei
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public sector / 0-
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Acknowledgme
nts xi
Preface xv

Introduction
: An
American
Perestroika

I Catalytic
Governme
nt:
Steering
Rather Than
Rowing 25

2
Community
-Owned
Government
:

Empowerin
g Rather
Than
6 :
N
C
u
s
t
o
m
e
r
-
D
r
i
v
e
n

G
o
v
e
r
n
m
e
n
t
Bureaucracy 1
x 9
GOVERNMENT
D
7 Enterpri e
c
sing
e
Govern
n
ment:
tr
Earning
al
Rather Than
iz
Spending 195
e
8 Anticipa d
tory G
Govern o
ment: v
Prevention e
Rather Than r
Cure 219 n
m
e
n
t:
F
r
o
m
Hierarc Index 393

hy to Acknowle
Partici
pation
dgements
and
Teamw
ork
250
10 Market-
Oriente
d
Govern
ment:
Levera
ging
Change
Throug
h the
Market
280
Putting It
All
Together
31 1
Appendix A
332
Appendix B
349
Notes 361
his is them, we owe
a book everything.
about the
Perhaps the single
pioneers
most influential
of a new
thinker, for us, has
form of
been Peter Drucker.
His 1968 book, The
Age ofDiscontinuity,
offered a prescient
analysis of the
bankruptcy of
bureaucratic
government. Its basic
concepts, repeated in
other Drucker books
and essays over the
years, had an
enormous impact—
not only on us, but on
many of the public
entrepreneurs about
whom we write and
from whom we have
learned. We also owe
significant
ment. intellectual debts to
Robert Reich, Tom
Peters, Robert
Waterman, and Alvin
Toffler.
Among the thousands
governance. It is of practitioners and
not so much about activists who shared
our ideas as it is their thoughts with
about the ideas of us, none was more
these pioneers. To influential than Ted
Kolderie, at the We interviewed
Center for Policy hundreds of people in
Studies in the process of
Minneapolis. Ted researching this
and his colleagues book, and we have
in the Public worked with
Service Redesign thousands more our
Project have various management
written and consulting roles
extensively about in governWe are
several of the grateful to each and
principles we every one for sharing
discuss in this their
book, and we have
learned an
enormous amount
from them. Others
who have
contributed
significantly to
our understanding
of entrepreneurial
government
include Carl
Bellone, Harry
Boyte, John
Cleveland, John
Kirlin, John
McKnight, Peter
Plastrik, Walt
Plosila, Phil
Power, Doug
Ross, James
Rouse, E. S.
Savas, Roger
Vaughan, and
Gale Wilson.
xii We also owe a great deal to several people in the publishing industry.
Our agent, Kristine Dahl, believed in the book when the notion of
"reinventing government" seemed as foreign as that other
insights with us. We are particularly grateful to those who went revolutionary phrase, perestroika. George Gibson at Addison-Wesley
beyond the call of duty in their efforts to help us. We would be remiss was alone among editors in understanding the Acknowledgements
if we did not specifically thank John K. Anderson, Doug Ayres, xiii
Duncan Ballantyne, Frank Benest, Clement Bezold, George Britton,
Belden Daniels, Mitch Dasher, Barbara Dyer, John Falco, Bill book's value back in 1986, when he acquired it. Bob Thompson, one
Frederick, Bob Guskind, Sandy Hale, Phil Hawkey, Peter Hutchinson, of America's best magazine editors, not only commissioned the piece
Ron Jensen, Curtis Johnson, David Jones, Tom Jones, Norm King, that first brought the two of us together, in 1985, but pushed us to
Jim Kunde, Tom Lewcock, Bob Moore, Joe Nathan, Bob O'Neill, publish a 1990 article in the Washington Post Magazine that created
Brenda Robinson, Jim Souby, Stan Spanbauer, Bob Stone, Tom an instant audience for the book.
Wilson, Jim Williams, and Bob Woodson.
Finally, we are deeply grateful to those who guided us at Addison-
During the four years in which we labored on Reinventing Wesley. William Patrick was the perfect editor: absolutely firm about
Government, a number of colleagues read and commented on major problems, yet absolutely willing to let us handle the sentence-
outlines, chapter drafts, or the entire book manuscript. In addition to by-sentence job of writing clean prose. Senior Production Coordinator
some of those mentioned above, we have benefited from the astute John Fuller, who shepherded the book to publication in record time,
advice of Arne Croce, Randy Hamilton, John Judis, Barry Kaplovitz, had the patience of a saint.
Wallace Katz, Bill Nothdurft, Neal Peirce, Jacqueline and Garry
Our most heartfelt thanks must go to our wives, Rose Osborne and
Schneider, Phil Singerman, Brian Sobel, Robert Stumberg, and Ralph
Bonne Gaebler, and to our families. Writing a book of this nature
Whitehead.
takes an enormous amount of time—time stolen from our families.
Others offered financial support, without which this book would have Without the warmth and patience with which our wives have
taken even longer than the four years we spent on it. We are deeply supported this project, we could never have finished the book. We
grateful to Craig Kennedy at the Joyce Foundation, Kavita Ramdas at owe them a lifetime of gratitude. Without the joy our children bring to
the John T. and Catherine D. MacArthur Foundation, Doug Ross at our lives, the years we spent on the book would have seemed like
the Corporation for Enterprise Development, and John Austin and forever.
Allen Charkow at Municipal Resource Consultants (MRC).
—David Osborne and
Other people supported the book by opening their homes or giving Ted Gaebler
their time. We want to thank Sandy Hale, Deborah Johnston and Bob
October, 1991
Thompson, Susan Pearson and John Judis, Gwen Pfanku and Bill
Nothdruft, and John and Roxanna Anderson for their gracious Boston, MA
hospitality. We are deeply grateful to Donna Hall, without whose hard San Rafael, CA
work and warm spirit we could never have completed the book on
time.
Preface xvii
tion and piece together a coherent map of the newly
Preface discovered continents.
In similar fashion, those who are today reinventing government
originally set off to solve a problem, plug a deficit, or skirt a
e have chosen an audacious title for this book. We know that bureaucracy. But they too have bumped into a new world. Almost
without knowing it, they have begun to invent a radically different
cynicism about government runs deep within the American soul. We way of doing business in the public sector. Just as Columbus never
all have our favorite epithets: "It's close enough for government knew he had come upon a new continent, many of today's pioneers—
work." "Feeding at the public trough." "I'm from the government and from governors to city managers, teachers to social workers—do not
I'm here to help." "My friend doesn't work; she has a job with the understand the global significance of what they are doing. Each has
government." touched a part of the new world; each has a view of one or two
peninsulas or bays. But it will take others to gather all this
Our governments are in deep trouble today. This book is for those information and piece together a coherent map of the new model they
who are disturbed by that reality. It is for those who care about are creating.
government—because they work in government, or work with We hope this book will provide something like that map: a simple,
clear outline of a new way of conducting the public's business. We
government, or study government, or simply want their governments will provide snapshots of existing entrepreneurial governments, and
to be more effective. It is for those who know something is wrong, we will outline ten simple principles on which they appear to be
but are not sure just what it is; for those who have glimpsed a better constructed. We offer these principles—this "map"—not as the final
way, but are not sure just how to bring it to life; for those who have word about reinvented government, but as a rough draft. We are
launched successful experiments, but have watched those in power observing a process of enormous flux, and we believe our snapshot is
ignore them; for those who have a sense of where government needs accurate. But we know that the pioneers will continue their
explorations, and we expect that as they discover new lands, newer
to go, but are not quite sure how to get there. It is for the seekers.
and better maps will be drawn for those who come behind them.
If ever there were a time for seekers, this is it. The millennium We have not plucked our ten principles out of thin air—out of our
approaches, and change is all around us. Eastern Europe is free; the imaginations. They are not what we wish government would be. We
have developed our map by looking around us, at the successful
Soviet empire is dissolving; the cold war is over. Western Europe is public sector organizations we see emerging, piece by piece, all
moving toward economic union. Asia is the new center of global across this country. Hence this book is, in a very literal sense, the
economic power. From Poland to South Africa, democracy is on the product of many people's thinking. We, as authors, are not inventing
march. new ideas so much as synthesizing the ideas and experience of others.
Those about whom we write are reinventing government. They are
The idea of reinventing government may seem audacious to those the heroes of this story.
who see government as something fixed, something that does not
change. But in fact governments constantly change. At one time,
government armories manufactured weapons, and no e are, of course, responsible for the ultimate shape of the map we
have drawn. As such, we feel a responsibility to make
xvi

one would have considered letting private businesses do something so


important. Today, no one would think of letting government do it.
At one time, no one expected government to take care of the poor; the welfare state did
not exist until Bismarck created the first one in the 1870s. Today, not only do most
governments in the developed world take care of the poor, they pay for health care and
retirement pensions for every citizen.
At one time, no one expected governments to fight fires. Today, no government would
be without a fire department. In fact, huge controversies erupt when a government so
much as contracts with a private company to fight fires.
At one time, governments were active investors in the private economy, routinely
seeding new businesses with loans and grants and equity investments. The federal
government actually gave 9.3 percent of all land in the continental United States to the
railroads, as an inducement to build a transcontinental system. Today, no one would
dream of such a thing.
We last "reinvented" our governments during the early decades of the twentieth
century, roughly from 1900 through 1940. We did so, during the Progressive Era and
the New Deal, to cope with the emergence of a new industrial economy, which created
vast new problems and vast new opportunities in American life. Today, the world of
government is once again in great flux. The emergence of a postindustrial, knowledge-
based, global economy has undermined old realities throughout the world, creating
wonderful opportunities and frightening problems. Governments large and small,
American and foreign, federal, state, and local, have begun to respond.
Our purpose in writing this book is twofold: to take a snapshot of governments that
have begun this journey and to provide a map to those who want to come along. When
Columbus set off 500 years ago to find a new route to bring spices back from the
Orient, he accidentally bumped into a New World. He and the explorers who followed
him—Amerigo Vespucci and Sir Francis Drake and Hernando de Soto—all found
different pieces of this New World. But it was up to the map makers to gather all these
seemingly unrelated bits of informa-
REINVENTING GOVERNMENT
xviii existing bureaucracies. At some times and in some places,
we do need to spend more or
Preface xix
explicit the underlying beliefs that have driven us to write this book
—and that have no doubt animated its conclusions. spend less, create new programs or privatize public
First, we believe deeply in government. We do not look at functions. But to make our governments effective again we
government as a necessary evil. All civilized societies have some must reinvent them.
form of government. Government is the mechanism we use to make Finally, we believe deeply in equity—in equal opportunityfor all
communal decisions: where to build a highway, what to do about Americans. Some of the ideas we express in this book may strike
homeless people, what kind of education to provide for our children. readers as inequitable. When we talk about making public schools
It is the way we provide services that benefit all our people: national compete, for instance, some fear that the result would be an even less
defense, environmental protection, police protection, highways, equitable education system than we have today. But we believe there
dams, water systems. It is the way we solve collective problems. are ways to use choice and competition to increase the equity in our
Think of the problems facing American society today: drug use; school system. And we believe passionately that increased equity is
crime; poverty; homelessness; illiteracy; toxic waste; the specter of not only right and just, but critical to our success as a nation. In
global warming; the exploding cost of medical care. How will we today's global marketplace, America cannot compete effectively if it
solve these problems? By acting collectively. How do we act wastes 25 percent of its human resources.
collectively? Through government.
Second, we believe that civilized society cannot function effectively
e use the phrase entrepreneurial government to describe the new
without effective government—something that is all too rare today.
model we see emerging across America. This phrase may surprise
We believe that industrial-era governments, with their large,
many readers, who think of entrepreneurs solely as business men and
centralized bureaucracies and standardized, "one-sizefits-all"
women. But the true meaning of the word entrepreneur is far broader.
services, are not up to the challenges of a rapidly changing
It was coined by the French economist J. B. Say, around the year
information society and knowledge-based economy.
1800. "The entrepreneur," Say wrote, "shifts economic resources out
Third, we believe that the people who work in government are not of an area of lower and into an area of higher productivity and greater
the problem; the systems in which they work are the problem. We yield." An entrepreneur, in other words, uses resources in new ways to
write not to berate public employees, but to give them hope. At times maximize productivity and effectiveness.
it may sound as if we are engaged in bureaucratbashing, but our
Say's definition applies equally to the private sector, to the public
intention is to bash bureaucracies, not bureaucrats. We have known
sector, and to the voluntary, or third, sector. Dynamic school
thousands of civil servants through the years, and most—although
superintendents and principals use resources in new ways to maximize
certainly not all—have been responsible, talented, dedicated people,
productivity and effectiveness. Innovative airport managers do the
trapped in archaic systems that frustrate their creativity and sap their
same. Welfare commissioners, labor secretaries, commerce
energy. We believe these systems can be changed, to liberate the
department staffers—all can shift resources into areas of higher
enormous energies of public servants—and to heighten their ability
productivity and yield. When we talk about public entrepreneurs, we
to serve the public.
mean people who do precisely this. When we talk about the
Fourth, we believe that neither traditional liberalism nor entrepreneurial model, we mean public sector institutions that
traditional conservatism has much relevance to the habitually act this way— that constantly use their resources in new
problems our governments face today. We will not solve ways to heighten both their efficiency and their effectiveness.
our problems by spending more or spending less, by
creating new public bureaucracies or by "privatizing"
REINVENTING GOVERNMENT
Preface xxi
reaucratic behavior. "The most entrepreneurial, innovative people
xx
behave like the worst time-serving bureaucrat or powerhungry
politician six months after they have taken over the management of a
Many people also assume that entrepreneurs are risk-takers. They shy public-service institution," Drucker writes, "particularly if it is a
away from the notion of entrepreneurial government because, after all, government institution."
who wants bureaucrats taking risks with their hard-earned tax dollars?
But, as careful studies demonstrate, entrepreneurs do not seek risks,
they seek opportunities. Peter Drucker, the sage of management merica's crisis of confidence in government has turned books
theory, tells a story about this that is worth quoting at length: about public policy into a growth industry. Most deal with what
government should do, and most focus exclusively on Washington.
This book is different: it focuses on all levels of government—federal,
A year or two ago I attended a university symposium on state, and local—and its subject is not what they do, but how they
entrepreneurship at which a number ofpsychologists spoke. operate.
Although their papers disagreed on everything else, they all Although the media is obsessed with the federal government, most
talked of an "entrepreneurial personality, " which was government in America actually takes place outside Washington.
characterized by a "propensity for risk- taking. There are 83,000 governmental units in the United States—one
federal government, 50 state governments, and thousands of cities,
counties, school districts, water districts, and transportation districts.
The majority of our public services are delivered by local
governments—cities, counties, towns, and districts. More than 12
million of our 15.1 million full-time civilian public employees work
for state or local government.
We care deeply about what governments do, but this is a book
about how they work. For the last 50 years, political debate in
America has centered on questions of ends: what government should
do, and for whom. We believe such debates are secondary today,
because we simply do not have the means to achieve the new ends we
seek. After 10 years of education reform and $60 billion in new
money, test scores are stagnant and dropout rates are higher than they
were in 1980. After 20 years of environmental legislation to clean up
our air and water, pollution is as bad as ever. After only a few years of
the savings-and-loan cleanup, the projected cost has skyrocketed
from $50 billion to $500 billion. We have new goals, yes, but our
governments cannot seem to achieve them. The central failure of
government today is one of means, not ends.
We hope this book will illuminate the new means people across
America have begun to develop—in fits and starts, by
REINVENTING GOVERNMENT
A well-known and successful innovator and entrepreneur who I would have become the professional painter my mother wanted
had built a process-based innovation into a substantial worldwide me to be. '
business in the space oftwenty-five years was then asked to
This jibes with my own experience. . . . The innovators I know
comment. He said: "I find myself baffled by your papers. I think I
are successful to the extent to which they define risks and
know as many successful innovators and entrepreneurs as
confine them. They are successful to the extent to which they
anyone, beginning with myself I have never come across an
systematically analyze the sources of innovative opportunity,
'entrepreneurial personality. ' The successful ones I know all
then pinpoint the opportunity and exploit it.
have, however, one thing—and only one thing—in common: they
are not 'risk-takers. ' They try to define the risks they have to take
Drucker assures us that almost anyone can be an entrepreneur, if the
and to minimize them as much as possible. Otherwise none of us
organization is structured to encourage entrepreneurship. Conversely,
could have succeeded. As for myself if I had wanted to be a risk-
almost any entrepreneur can turn into a bureaucrat, if the organization
taker, I would have gone into real estate or commodity trading, or
is structured to encourage bu-
xxii Strangely enough, in the midst ofchange, the present course may often be
the most risky one. It may only serve to perpetuate irrelevancy.
trial and error—to do the public's business. As we researched it, we —The Florida Speaker's Advisory Committee on the Future
were astounded by the degree of change taking place in our cities,
counties, states, and school districts. Some readers may at first find
our findings hard to swallow. But we urge you to suspend judgment
and continue reading, until you too have had a chance to see the vast s the 1980s drew to a close, Time magazine asked on its cover:
sweep of change coursing through American government. We think "Is Government Dead?"
you will find it astonishing.
As the 1990s unfold, the answer—to many Americans— appears to be
Our purpose is not to criticize government, as so many have, but to yes.
renew it. We are as bullish on the future of government as we are
Our public schools are the worst in the developed world. Our health
bearish on the current condition of government. We do not minimize
care system is out of control. Our courts and prisons are so
the depth of the problem, nor the difficulty of solving it. But because
overcrowded that convicted felons walk free. And many of our
we have seen so many public institutions transform themselves from
proudest cities and states are virtually bankrupt.
staid bureaucracies into innovative, flexible, responsive organizations,
we believe there are solutions. Confidence in government has fallen to record lows. By the late
1980s, only 5 percent of Americans surveyed said they would choose
Marcel Proust once wrote, "The real voyage of discovery consists not
government service as their preferred career. Only 13 percent of top
in seeking new lands, but in seeing with new eyes." Our goal, in
federal employees said they would recommend a career in public
writing this book, is to help you see with new eyes. It is our fervent
service. Nearly three out of four Americans said they believed
hope that when you put this book down, you will never see
Washington delivered less value for the dollar than it had 10 years
government in the same way again. It is our prayer that you will then
earlier.
join the thousands of other Americans who are already working to
reinvent their governments. And then, in 1990, the bottom fell out. It was as if all our governments
had hit the wall, at the same time. Our states struggled with
Introduction: multibillion-dollar deficits. Our cities laid off thousands of employees.
Our federal deficit ballooned toward $350 billion.

An American Perestroika
REINVENTING GOVERNMENT An American Perestroika
2 Olympic committee was selling its training pool. The employee
immediately called the school district, and two days later he and an
assistant superintendent flew down to take a look. They liked what
Since the tax revolt first swept the nation in 1978, the American they saw: an all-aluminum, Olympic-size pool that would likely
people have demanded, in election after election and on issue after survive an earthquake. To buy one new,
issue, more performance for less money. And yet, during the
3
recession of 1990 and 1991, their leaders debated the same old
options: fewer services or higher taxes.
they would have spent at least $800,000; they could buy this one
Today, public fury alternates with apathy. We watch breathlessly as slightly used and put it in the ground for half that amount.
Eastern Europe and the Soviet republics overthrow the deadening
hand of bureaucracy and oppression. But at home Like any other government agency, the school district needed at least
two weeks to advertise the question, hold a board meeting, and get
we feel impotent. Our cities succumb to mounting crime and approval for a special appropriation. But on Monday, the parks and
poverty, our states are handcuffed by staggering deficits, and recreation employee got a second call. Two colleges wanted the pool,
Washington drifts through it all like 30 square miles bounded by and they were racing each other to get the nonrefundable $60,000
reality. deposit together. So he got in his car
Yet there is hope. Slowly, quietly, far from the public spotlight, new
kinds of public institutions are emerging. They are lean,
decentralized, and innovative. They are flexible, adaptable, quick to and took a check down that afternoon.
learn new ways when conditions change. They use competition, How could a third-level parks and recreation employee get a check for
customer choice, and other nonbureaucratic mechanisms to get $60,000, with no action by the city council and no special
things done as creatively and effectively as possible. And they are appropriation? The answer is simple. Visalia had adopted a radically
our future. new budget system, which allowed managers to respond quickly as
circumstances changed. Called the Expenditure Control Budget, it
made two simple changes. First, it eliminated all line items within
isalia, California, is the prototypical American community. A departmental budgets—freeing managers to move resources around as
leafy oasis of 75,000 people in California's hot, dry San Joaquin needs shifted. Second, it allowed departments to keep what they didn't
Valley, it is the county seat of rural, conservative Tulare County. It is spend from one year to the next, so they could shift unused funds to
an All-American city: the streets are clean, the lawns are mowed, the new priorities.
Rotary Clubs are full. Normal government budgets encourage managers to waste money. If
In 1978, Proposition 13 cut Visalia's tax base by 25 percent. With they don't spend their entire budget by the end of the fiscal year, three
financing from one final bond issue that slipped through on the same things happen: they lose the money they have saved; they get less next
day as Proposition 13, the school district managed to build a new year; and the budget director scolds them for requesting too much last
high school. But as the years went by, it could never scrape together year. Hence the timehonored government rush to spend all funds by
the money to put in a swimming pool. the end of the fiscal year. By allowing departments to keep their
savings, Visalia not only eliminated this rush, but encouraged
One hot Thursday in August 1984, a parks and recreation employee managers to save money. The idea was to get them thinking like
got a call from a friend in Los Angeles, who told him that the owners: "If this were my money, would I spend it this way?"
REINVENTING GOVERNMENT An American Perestroika
Under the new budget system, Visalia's Parks and Recreation impossible for Visalia to lower its rates.) The philosophy embodied by
Department had managed to save $60,000 toward a new pool. Arne the new budget—a philosophy city leaders dubbed "public
Croce, an assistant city manager who had worked on the problem, entrepreneurial management"— permeated the organization. Managers
knew that both the school district and the city council wanted a pool. talked of "profit centers, enterprise budgets, the CEO," and the "board
Between them, he was sure, they could find $400,000. (They ended of directors." They gave bonuses of up to $1,000 per person to reward
up raising nearly half the money with a community fund-raising outstanding group effort. And they encouraged employees to help the
drive.) Because Visalia regularly engaged in strategic planning, Croce city save or earn money by allowing them to take home 15 percent of
also understood the city's 4 the savings or earnings their innovations generated in their first year—
with no ceiling on the amount.
5
priorities and values—he knew, for instance, that the council and
manager valued entrepreneurial behavior. Although the Olympic pool When Visalia's leaders decided the city needed more cultural life, the
was a totally unexpected opportunity, he had no qualms about seizing convention director coventured with private promoters to bring in
lt. "It's something you'd find in private enterprise," said the admiring headliner acts, limiting their risk by putting up half the capital and
school superintendent. "You don't have the bureaucracy you have to taking half the profits. When a citizens' task force found a dearth of
deal with in most governments. " affordable housing, the city helped create a private, nonprofit
The Expenditure Control Budget was the brainchild of Oscar Reyes, organization, loaned it $100,000, and sold it 13 acres of excess city
an assistant finance director in Fairfield, California. City Manager land. Fifteen months later, 89 families—with incomes ranging from
$9,000 to $18,000 a year—moved into their own single-family homes.
Gale Wilson, one of the pioneers of entrepreneurial government,
The planning department officials assigned to work on the project gave
installed it after Proposition 13. Ted Gaebler, then city manager of up their summer vacations to bring it in on time. But they didn't mind.
Visalia, brought it to Visalia six months later. In Fairfield, in Visalia, "We've got one of the most exciting jobs in the city," one of them said.
and in a dozen other cities and counties that have since adopted it, the "Its like owning your own business—you spend the amount of time
way managers spend their taxpayers' money has profoundly changed. necessary to get the job done."

In Visalia, even the man in charge of street sweeping changed his


thinking. For years, Ernie Vierra had had the streets swept every three ast Harlem is not the prototypical American community. It is one
weeks. Quietly, under the guise of equipment problems, he tried four of the poorest communities in America. Single mothers head more
weeks, then five. When he hit six the complaints rolled in, so he than half of its families; 35 percent of its residents are on public
eventually settled on four. He did the same thing with the grass in the assistance; median income is $8,300. Dilapidated public schools—
parks. their windows covered by protective grilles— coexist with crack
houses. East Harlem is precisely the sort of community in which
Visalia's Police Department pioneered a lease-purchase program for public schools normally fail. Yet it has some of the most successful
squad cars that was quickly copied by two dozen other cities. The shop public schools in America.
that repaired Visalia's vehicles cut its energy consumption by 30 New York City has 32 school districts. Twenty years ago, Community
percent. By 1985, with other California governments still crying poor School District 4, in East Harlem, was at the bottom of the barrel:
in the wake of Proposition 13, Visalia had $20 million in cash thirty-second out of 32 in test scores. Only 15 percent of its students—
squirreled away—almost as much as its entire annual operating 15 of every 100—read at grade level. Attendance rates were pathetic.
budget. (Ironically, by freezing property taxes, Proposition 13 made it
REINVENTING GOVERNMENT An American Perestroika
"It was totally out of control," says Michael Friedman, now director of by zone. By 1990, District 4 boasted 21 junior high schools, plus six
a junior high called the Bridge School: alternative grade schools.

The year before I started the Bridge School was probably the Under the new system, schools were no longer synonymous with
worst year of my life. The schools were chaotic, they were buildings; many buildings housed three or four schools, one on each
overcrowded. There was a lot of violence, gangs roaming the floor. (All told, there were 52 schools in 20 buildings.) Schools were
streets. It was sink or swim as a classroom teacher. They closed small—from 5() to 300 students—and education was personal. "Kids
the door: "That's your class, do what you can. " And it seemed need to be dealt with personally," says Falco, who now administers
like nobody could or would try to do anything about 6 the choice program. "The downsizing of the schools has been a
tremendous plus."
Alvarado also decentralized authority: he let teachers manage their
it. You had a lot ofpeople who had been there a long time, and they own schools. Principals still administered school buildings, but actual
were just punching that clock. schools were run by "directors"—most of
7
In 1974, out of sheer desperation, then superintendent Anthony
Alvarado, an assistant principal named John Falco, and several
whom also taught—and their teachers. If a teacher wanted to create a
teachers decided they had to get the "incorrigible, recalcitrant,
new school, or move to an alternative school, Alvarado usually said
aggressive kids" out of the schools, so others could learn. They
yes. This simple change released tremendous energy. "There are
created an alternative junior high for troubled students.
teachers who were burned out—they were going nowhere," says Falco.
The task was so daunting that Alvarado told Falco and his teachers "We put them in an alternative setting, and they flowered."
to do whatever it took to get results. They created a very
Before long, the junior highs were competing for students. Teachers
nontraditional school, which worked. Two other alternative schools
and directors began paying close attention to how many applicants
opened that year were also successful, so they tried several more.
ranked their schools number one each spring. And district leaders
Soon teachers began proposing others: the East Harlem Career
began closing schools that were not attracting enough students, or
Academy, the Academy of Environmental Sciences, the Isaac Newton
replacing their directors and staff. "If you're not operating a program
School of Science and Mathematics, a traditional school in which
that kids want to come to, you're out of business," says Falco. "You
children wore uniforms. Each provided a basic core of instruction in
just can't rest on your laurels. You have to continually strive for ways
math, English, and social sciences, but each also had its own special
to meet the needs of these kids." Successful schools, on the other hand,
focus.
were allowed to grow until they hit an upper limit of about 300. At that
Before long, parents and students in District 4 found themselves with point, district leaders encouraged their directors to clone them, if space
a variety of choices. But they could choose only within the "zone" was available for another school.
where they lived, and there were only so many spots in the
Ed Rodriguez, principal of one of the last junior highs to become a
alternative schools. "We had created alternative schools to create
school of choice, was not eager to compete. But he found the
good learning environments," says Falco, "but we couldn't let
competition a powerful motivator:
everyone into them. So there was a lot of pressure from parents. It
just made sense to go further." In 1983, the district converted all its
Now that we absolutely have to attract youngsters to our
junior high schools to schools of choice, doing away with assignment
building, we have to really take a long, hard look at ourselves and
REINVENTING GOVERNMENT An American Perestroika
determine—Are we good enough? Are we going to be And 36 went to selective private schools, including Andover and the
competitive enough? We replaced the idea that we're going to be Hill School. All told, more than a quarter of District 4's graduates
here forever with the idea that we are here with a purpose, and earned places in outstanding high schools—schools that were
that purpose has to be maximized. The mission, the dream of the virtually off limits 15 years before.
school, has to be in everyone's mind and everyone's heart. The
District 4 is smack in the middle of one of America's most renowned
level ofperformance has to increase.
ghettos. Yet it has a waiting list of teachers who want to work there.
Perhaps the most telling statistic is this: out of 14,000 students in
Just as important as competition and a sense of mission is the
District 4, close to 1,000 come in from outside the district. "On any
ownership students and teachers feel for their schools. Rather than
given day, I receive at least four or five calls from parents requesting
being assigned to a school and offered a cookie-cutter education, they
admission from outside the district," says Falco. "I just have to turn
are allowed to choose the style of education they prefer. They can
them away."
choose traditional schools or open classrooms; schools with mentor
programs or those that use heavy tutoring; reading institutes for those
behind grade level or advanced schools for gifted students;
photography programs or computer 8 B0b Stone works in America's archetypal bureaucracy, the
Department of Defense. As deputy assistant secretary of defense for
installations, he has at least theoretical authority over 9
programs; experiential education or even a school run in cooperation
with the Big Apple Circus. 600 bases and facilities, which house 4.5 million people and consume
$100 billion a year. Soon after he was promoted to the job, in 1981,
"When a child chooses the school, there's ownership in that choice,"
Stone visited an air base in Sicily. "We have 2,000 airmen there, and
says Robert Nadel, assistant director of a junior high called the
they're out in the middle of nowhere," he says:
Creative Learning Center. "There's also ownership on the part of the
parent and ownership on the part ofthe teachers." That ownership No families, no towns. They are an hour and a half drive over a
translates into student attitudes very different from those created horrible mountain road from a Sicilian city of 20,000—and when
when a child is simply assigned to a building. "What you own," says you get there there's not much to do. So most of our bases have
Sy Fliegel, the choice system's first director, "you treat better." bowling alleys, and we built a bowling alley at this base. I visited
them two or three weeks after the bowling center opened. They
The results of District 4's experiment have been startling. Reading took me in and they started showing me plans—they're going to
scores are up sharply: in 1973, 15 percent of junior high students read take out this wall and add six more lanes over there. I thought,
at grade level; by 1988, 64 percent did. Writing skills have improved: "Gee, you've been open for a couple of weeks, and you're going to
in 1988, state tests found that 75 percent of the district's eighth- tear the place apart and expand it? Why is that?"
graders were competent writers. And the percentage of District 4
graduates accepted to New York's four elite public high schools, such "Well, " they told me, "there's this rule that says, if you have
as Bronx Science and Brooklyn Technical, has shot up. In the mid- 2,000 troops, you're allowed to construct eight lanes. ' [You can
1970s, fewer than 10 of District 4's graduates were admitted to these get a waiver to build more—but only after you can prove you
schools each year. By 1987, 139 were—IO percent of District 4's need them.] I got the book and that is what it says: 1,000 troops,
graduates, almost double the rate for the rest of New York City. four lanes; 2,000 troops, eight lanes. And it's true ifyou 're in the
Another 180 attended a second tier of selective public high schools.
REINVENTING GOVERNMENT An American Perestroika
wilds ofSicily, with no families, or in the northern part of Forty commanders volunteered for the experiment. In the first two
Greenland, where you can't even go outdoors for most of the year. years, they submitted more than 8,000 requests for waivers or
The rule book Stone refers to covered 400 pages. The rules governing changes in regulations. Stone can tell stories about them for hours.
the operation of military housing covered 800 pages. Personnel rules In the air force, for instance, airmen use complex electronic test kits
for civilian employees covered another 8,800 pages. "My guess is that to check Minuteman missiles. When a kit fails, they send it to Hill
a third of the defense budget goes into the friction of following bad Air Force Base in Utah for repair. Meanwhile, the missile is put off
regulations—doing work that doesn't have to be done," Stone says. alert—typically for 10 days. An airman at Whiteman Air Force Base
Engineers in New Mexico write reports to convince people in got approval to fix the test kits himself—and suddenly Whiteman
Washington that their roofs leak. Soldiers trek halfway across their didn't have a Minuteman missile off alert for more than three hours.
bases to the base chemist when the shelf life of a can of spray paint Throughout Defense, people buy by the book. Stone holds up a
expires, to have it certified for another year. The Department of simple steam trap, which costs $100. "When it leaks," he says, "it
Defense (DOD) pays extra for special paint, but because it takes longer leaks $50 a week worth of steam. The lesson is, when it leaks,
to establish its specifications than it takes companies to improve their replace it quick. But it takes us a year to replace it, because we have
paint, DOD employees pay a premium for paint that is inferior to paint a system that wants to make sure we get the very best buy on this
available at their local store. $100 item, and maybe by waiting a year we can buy the item for $2
less. In the meantime, we've lost $3,000 worth of steam." Under the
10 Model Installations program, commanders requested authority to
buy things on their own. An 11

"This kind of rule has two costs," Stone says. "One is, we've got
entire army command requested permission to let craftsmen decide for
people wasting time. But the biggest cost—and the reason I say it's
themselves when spray paint cans should be thrown away, rather than
a third of the defense budget—is it's a message broadcast to
taking them to the base chemist. Five air force bases received
everybody that works around this stuff that it's a crazy outfit.
permission to manage their own construction, rather than paying the
'You're dumb. We don't trust you. Don't try to apply your common
Corps of Engineers to do it. Shaken by the threat of competition, the
sense.' "
corps adopted a new goal: to be "leaders in customer care."
Stone cut the rules governing military base construction from 400
pages down to 4, those governing housing from 800 to 40. Then he The Model Installations experiment was so successful
decided to go farther. In an experiment straight out of In Search of that in March 1986, Deputy Secretary of Defense William
Excellence, he decided to turn one base, called a Model Installation, Howard Taft IV directed that it be applied to all defense
free from these rules and regulations. If the commander would installations. Stone and his staff then developed a budget
commit to radically improving his installation, Stone would do his experiment modeled on Visalia's system. Normal
best to get any rules that were standing in his way waived. The installation budgets, first drawn up three years in advance,
principle was simple: let the base commander run the base his way, include hundreds of specific line items. The Unified Budget
rather than Washington's way. A corollary was also important: if he
Test allowed commanders to ignore the line items and shift
saved money in the process, he didn't have to give it back. He could
keep it to spend on whatever he felt was most important. resources as needs changed.
In its first year, the test revealed that 7 to 10 percent of the funding
locked into line items was in the wrong account, and that when
REINVENTING GOVERNMENT An American Perestroika
commanders could move it around, they could significantly increase "partnerships" blossom overnight—between business and
the performance of their troops. The army compared the results at its education, between for-profits and nonprofits, between public
two participating bases with normal bases and concluded that in just sector and private. It is as if virtually all institutions in American
one year, the Unified Budget increased performance by 3 percent. The life were struggling at once to adapt to some massive sea change—
long-term impact would no doubt be greater. According to Stone and striving to become more flexible, more innovative, and more
his colleagues, "Senior leaders in the Services have estimated that if entrepreneurial.
all the unnecessary constraints on their money were removed, they
could accomplish their missions with up to 10 percent less money."
THE BANKRUPrcy OF BUREAUCRACY
But in a $100 billion installations budget, even 3 percent is $3 billion.
It is hard to imagine today, but 100 years ago the word bureaucracy
meant something positive. It connoted a rational, efficient method
isalia, East Harlem, and the Defense Department are not alone. of organization—something to take the place of the arbitrary
Look almost anywhere in America, and you will see similar success exercise of power by authoritarian regimes. Bureaucracies brought
stories. We believe these organizations represent the future. the same logic to government work that the assembly line brought
to the factory. With their hierarchical authority and functional
Our thesis is simple: The kind of governments that developed during specialization, they made possible the efficient undertaking of large,
the industrial era, with their sluggish, centralized 12 complex tasks. Max Weber, the great German sociologist, described
them using words no modern American would dream of applying:

13
bureaucracies, their preoccupation with rules and regulations, and
their hierarchical chains of command, no longer work very well.
They accomplished great things in their time, but somewhere along
the line they got away from us. They became bloated, wasteful,
ineffective. And when the world began to change, they failed to
change with it. Hierarchical, centralized bureaucracies designed in
the 1930s or 1940s simply do not function well in the rapidly
changing, information-rich, knowledge-intensive society and
economy of the 1990s. They are like luxury ocean liners in an age
of supersonic jets: big, cumbersome, expensive, and extremely
difficult to turn around. Gradually, new kinds of public institutions
are taking their place.
Government is hardly leading the parade; similar transformations
are taking place throughout American society. American
corporations have spent the last decade making revolutionary
changes: decentralizing authority, flattening hierarchies, focusing
on quality, getting close to their customers—all in an effort to
remain competitive in the new global marketplace. Our voluntary,
nonprofit organizations are alive with new initiatives. New
REINVENTING GOVERNMENT An American Perestroika

The decisive reason for the advance of bureaucratic organization


has always been its purely technical superiority over any other
form of organization. . . .
Precision, speed, unambiguity, . reduction offriction and of
material and personal costs—these are raised to the optimum
point in the strictly bureaucratic administration.

In the United States, the emergence of bureaucratic government was


given a particular twist by its turn-of-the-century setting. A century
ago, our cities were growing at breakneck speed, bulging with
immigrants come to labor in the factories thrown up by our industrial
revolution. Boss Tweed and his contemporaries ran these cities like
personal fiefdoms: In exchange for immigrant votes, they dispensed
jobs, favors, and informal services. With one hand they robbed the
public blind; with the other they made sure those who delivered blocs
of loyal votes were amply rewarded. Meanwhile, they ignored many of
the new problems of industrial America—its slums, its sweatshops, its
desperate need for a new infrastructure of sewers and water and public
transit.
Young Progressives like Theodore Roosevelt, Woodrow Wilson, and
Louis Brandeis watched the machines until they could stomach it no
more. In the 1890s, they went to war. Over the next 30 years, the
Progressive movement transformed government in America. To end
the use of government jobs as patronage, the Progressives created civil
service systems, with written exams, lockstep pay scales, and
protection from arbitrary hiring or dismissal. To keep major
construction projects like bridges and tunnels out of the reach of
politicians, they created independent public authorities. To limit the
power of political bosses, they split up management functions, took
appointments to important offices away from mayors and governors,
created separately elected clerks, judges, even sheriffs. To keep the
administration of public services untainted by the influence of
politicians, they created a profession of city managers—professionals,
insulated from politics, who would run the bureaucracy in an efficient,
businesslike manner.
REINVENTING GOVERNMENT An American Perestroika
14 15
mentality got things done. The results spoke for
Thanks to Boss Tweed and his contemporaries, in other words, themselves, and most Americans fell in step. By American
society embarked on a gigantic effort to control what went on the 1950s, as William H. Whyte wrote, we had inside
government—to keep the politicians and bureaucrats from doing become a nation of "organization men." anything
that might endanger the public interest or purse. This cleaned up But the bureaucratic model developed in conditions very many of our
governments, but in solving one set of problems it created another. different from those we experience today. It developed in a In making it
difficult to steal the public's money, we made it virtually slower-paced society, when change proceeded at a leisurely impossible
to manage the public's money. In adopting written tests scored to gait. It developed in an age of hierarchy, when only those atthe third
the top of the pyramid had enough information to make
decimal point to hire our clerks and police officers and fire informed decisions. It developed in a society of people who fighters, we
built mediocrity into our work force. In making it impossible to worked with their hands, not their minds. It developed in a fire people
who did not perform, we turned mediocrity into deadwood. In time of mass markets, when most Americans had similar attempting
to control virtually everything, we became so obsessed with wants and needs. And it developed when we had strong dictating
how things should be done—regulating the process, controlling geographic communities—tightly knit neighborhoods and the inputs—
that we ignored the outcomes, the results. towns.
Today all that has been swept away. We live in an era of
The product was government with a distinct ethos: slow, breathtaking change. We live in a global marketplace, which inefficient,
puts enormous competitive pressure on our economic
impersonal. This is the mental image the word government invokes
institutions. We live in an information society, in which
today; it is what most Americans assume to be the very essence of people get access to information almost as fast as their government.
Even government buildings constructed during the industrial era leaders do. We live in a knowledge-based economy, in reflect this
ethos: they are immense structures, with high ceilings, large which educated workers bridle at commands and demand hallways,
and ornate architecture, all designed to impress upon the visitor autonomy. We live in an age of niche markets, in which the
impersonal authority and immovable weight of the institution. customers have become accustomed to high quality and
extensive choice.
For a long time, the bureaucratic model worked—not because it In this environment, bureaucratic institutions developed was
efficient, but because it solved the basic problems people wanted during the industrial era—public and private—increasingly solved. It
fail us.
provided security—from unemployment, during old age. It provided
Today's environment demands institutions that are
stability, a particularly important quality after the Depression. It extremely flexible and adaptable. It demands institutions provided a
basic sense of fairness and equity. (Bureaucracies, as Weber that deliver high-quality goods and services, squeezing ever pointed out,
are designed to treat everyone alike.) It provided jobs. And it more bang out of every buck. It demands institutions that delivered
the basic, no-frills, one-size-fits-all services people needed and are responsive to their customers, offering choices of expected
during the industrial era: roads, highways, sewers, schools. nonstandardized services; that lead by persuasion and
incentives rather than commands; that give their employees
During times of intense crisis—the Depression and two world a sense of meaning and control, even ownership. It demands wars—the
bureaucratic model worked superbly. In crisis, when goals were institutions that empower citizens rather than simply serving clear and
widely shared, when tasks were relatively straightforward, and them. when
Bureaucratic institutions still work in some
circumstances. If the environment is stable, the task is
relatively simple, every customer wants the same service,
and the quality of performance is not critical, a traditional
public bureaucracy can do the
REINVENTING GOVERNMENT An American Perestroika
virtually everyone was willing to pitch in for the cause, the top- down,
1982 recession, the deepest since the Depression, state
governments began to hit the wall.
command-and-control 16 17 Under intense fiscal pressure, state and local leaders had
no choice but to change the way they did business. Mayors
job. Social security still works. Local government agencies that and governors embraced "public-private partnerships" and provide
developed "alternative" ways to deliver services. Cities
libraries and parks and recreational facilities still work, to a fostered competition between service providers and degree.
invented
But most government institutions perform increasingly complex tasks, in competitive, rapidly new budget
changing systems.with
environments, Public managers
customers whobegan
wanttoquality and
speak of "enterprise management, learning organizations,"
choice. These new realities have made life very diffcult for our and "self-reliant cities." States began to restructure their public
institutions—for our public education system, for our public health most expensive public systems: education, health care, and care
programs, for our public housing authorities, for virtually every welfare. large,
bureaucratic program created by American governments before Phoenix, Arizona, put its Public Works Department in 1970. It
was no accident that during the 1970s we lost a war, lost faith in headto-head competition with private companies for our national
leaders, endured repeated economic problems, and experienced a contracts to handle garbage collection, street repair, and tax revolt.
other services. St. Paul, Minnesota, created half a dozen
In the years since, the clash between old and new has only private, nonprofit corporations to redevelop the city. intensified.
The result has been a period of enormous stress in American Orlando, Florida, created so many profit centers that its
government. earnings outstripped its tax revenues. The Housing
Authority of Louisville, Kentucky, began surveying its
In some ways, this is a symptom of progress—of the disruptive customers—15,000 residents of public housing—and clash that
occurs when new realities run headlong into old institutions. Our encouraging them to manage their own developments. It information
technologies and our knowledge economy give us opportunities to even sold one development, with 100 units, to tenants. do things
we never dreamed possible 50 years ago. But to seize these The Michigan Department of Commerce adopted a new
opportunities, we must pick up the wreckage of our industrial-era slogan: "Customer Service Is Our Reason for Being." It institutions
and rebuild. "It is the first step of wisdom," Alfred North surveyed its customers, hired a customer service chief, Whitehead
once wrote, "to recognize that the major advances in civilization created classes for employees in customer orientation, and are
processes which all but wreck the society in which they occur." set up an ombudsman with a toll-free telephone line for
small businesses. Several of the department's 10 Action
Teams embraced Total Quality Management, the
management philosophy espoused by W. Edwards Deming.
THE EMERGENCE OF Minnesota let parents and students choose their public
ENTREPRENEURIAL GOVERNMENT schools—as in East Harlem—and six other states quickly
followed suit. South Carolina developed performance
The first governments to respond to these new realities were local
incentives under which schools and teachers competed for
governments—in large part because they hit the wall first. On June 6, 1978, the
funds to try new ideas, principals and teachers who
voters of California passed Proposition 13, which cut local property
achieved superior results got incentive pay, and schools
taxes in half. Fed by the dual fires of inflation and dissatisfaction with public
whose students made large improvements in basic skills
services, the tax revolt spread quickly. In 1980, Ronald Reagan took it
and attendance got extra money. In the program's first three
national— and by 1982, state and local governments had lost nearly one
years, statewide attendance increased, teacher morale shot
of every four federal dollars they received in 1978. During the
up faster than in any other state,
REINVENTING GOVERNMENT An American Perestroika
18

and Scholastic Aptitude Test scores rose 3.6 percent, one of the Florida vowing to "reinvent government." Republican Bill Weld, the
largest gains in the country. new governor of Massachusetts, promised to deliver "entrepreneurial
government," which would foster "competition" and focus on
Indianapolis Mayor William Hudnut described the phenomenon as
"results, not rules." Republican George Voinovich of Ohio said in his
well as anyone. "In government," he said in a 1986 speech, "the
inaugural address: "Gone are the days when public officials are
routine tendency is to protect turf, to resist change, to build empires,
measured by how much they spend on a problem. The new realities
to enlarge one's sphere of control, to protect projects and programs
dictate that public offlcials are now judged by whether they can work
regardless of whether or not they are any longer needed." In
harder and smarter, and do more with less."
contrast, the "entrepreneurial" government "searches for more
efficient and effective ways of managing: It is difficult for the average citizen, who must rely on the mass
media to interpret events, to make heads or tails of these changes.
It is willing to abandon old programs and methods. It is Their substance is all but invisible, in part because they take place
innovative and imaginative and creative. It takes risks. It turns outside the glare of publicity that shines on Washington. They also
city functions into money makers rather than budgetbusters. It stubbornly refuse to fit into the traditional liberal versus conservative
eschews traditional alternatives that offer only life-support categories through which the media views the world. Because most
systems. It works with the private sector. It employs solid reporters are asked to provide instant analysis, they have little choice
business sense. It privatizes. It creates enterprises and revenue but to fall back on the tried and true lenses of past practice. And
generating operations. It is market oriented. It focuses on because their standard formula relies on conflict to sell a story, they
performance measurement. It rewards merit. It says "Let's make look for heroes and villains rather than innovation and change. In the
this work, " and it is unafraid to dream the great dream. process, they inevitably miss much that is new and significant. To
paraphrase author Neil Postman, American society hurtles into the
Surveys even began to pick up the trend. In 1987 and 1988, the future with its eyes fixed firmly on the rearview mirror.
consulting firm Coopers & Lybrand conducted a Survey on Public
Entrepreneurship, which focused on city and county executives in Over the past five years, as we have journeyed through the landscape
jurisdictions with more than 50,000 people. Virtually all executives of governmental change, we have sought constantly to understand
surveyed agreed that demand for public services was outstripping the underlying trends. We have asked ourselves: What do these
revenues—a conflict they expected to "require continued emphasis innovative, entrepreneurial organizations have in common? What
on 'doing more with less' and exploring more innovative, cost- incentives have they changed, to create such different behavior?
effective management techniques." Practices on the rise included What have they done which, if other governments did the same,
contracting for services, performance measurement, participatory would make entrepreneurship the norm and bureaucracy the
management, impact fees, and strategic planning. exception?

When recession hit in 1990, the deficits of large cities and states
jumped into the billions of dollars. Finally, out of desperation, even
mainstream politicians began to search for new approaches.
Gubernatorial candidates talked of "restructuring," "rightsizing," and
"partnerships." Democrat Lawton Chiles, a three-term veteran of the
U.S. Senate, won the governorship of 19
REINVENTING GOVERNMENT An American Perestroika
The common threads were not hard to find. Most entrepreneurial Differences such as these create fundamentally different incentives
governments promote competition between service providers. They in the public sector. For example, in government the ultimate test for
empower citizens by pushing control out of the bureaucracy, into the managers is not whether they produce a product or profit—it is
community. They measure the performance of their agencies, whether they please the elected politicians. Because politicians tend
focusing not on inputs but on outcomes. They are driven by their to be driven by interest groups, public managers—unlike their
goals—their missions—not by their rules and regulations. They private counterparts—must factor interest groups into every
redefine their clients as customers 20 equation.
21
and offer them choices—between schools, between training
programs, between housing options. They prevent problems before
they emerge, rather than simply offering services afterward. They put
their energies into earning money, not simply spending it. They Governments also extract their income primarily through taxation,
decentralize authority, embracing participatory management. They whereas businesses earn their income when customers buy products
prefer market mechanisms to bureaucratic mechanisms. And they or services of their own free will. This is one reason why the public
focus not simply on providing public services, but on catalyzing all focuses so intensely on the cost of government services, exercising
sectors—public, private, and voluntary—into action to solve their a constant impulse to control—to dictate how much the bureaucrats
community's problems. spend on every item, so they cannot possibly waste, misuse, or steal
the taxpayers' money.
We believe that these ten principles, which we describe at length in
the next ten chapters, are the fundamental principles behind this new All these factors combine to produce an environment in which
form of government we see emerging: the spokes that hold together public employees view risks and rewards very differently than do
this new wheel. Together they form a coherent whole, a new model private employees. "In government all of the incentive is in the
of government. They will not solve all of our problems. But if the direction of not making mistakes," explains Lou Winnick of the
experience of organizations that have embraced them is any guide, Ford Foundation. "You can have 99 successes and nobody notices,
they will solve the major problems we experience with bureaucratic and one mistake and you're dead." Standard business methods to
government. motivate employees don't work very well in this kind of
environment.
There are many other differences. Government is democratic and
WHY GOVERNMENT CANT BE open; hence it moves more slowly than business, whose managers
"RUN LIKE A BUSINESS" can make quick decisions behind closed doors. Government's
fundamental mission is to "do good," not to make money; hence
Many people, who believe government should simply be "run like a cost-benefit calculations in business turn into moral absolutes in the
business," may assume this is what we mean. It is not. public sector. Government must often serve everyone equally,
Government and business are fundamentally different institutions. regardless of their ability to pay or their demand for a service;
Business leaders are driven by the profit motive; government leaders hence it cannot achieve the same market efficiencies as business.
are driven by the desire to get reelected. Businesses get most of their One could write an entire book about the differences between
money from their customers; governments get most of their money business and government. Indeed, James Q. Wilson, the eminent
from taxpayers. Businesses are usually driven by competition; political scientist, already has. It is called Bureaucracy: What
governments usually use monopolies. Government Agencies Do and Why They Do lt.
REINVENTING GOVERNMENT An American Perestroika
These differences add up to one conclusion: government cannot be Unfortunately, we do not know how to get what we want. Most of
run like a business. There are certainly many similarities. Indeed, our leaders assume that the only way to cut spending is to eliminate
we believe that our ten principles underlie success for any programs, agencies, and employees. Ronald Reagan talked as if we
institution in today's world—public, private, or nonprofit. And we could simply go into the bureaucracy with a scalpel and cut out
have learned a great deal from business management theorists such pockets of waste, fraud, and abuse.
as Peter Drucker, W. Edwards Deming, Tom Peters, and Robert
But waste in government does not come tied up in neat packages. It
Waterman. But in government, business theory is not enough.
is marbled throughout our bureaucracies. It is embed-
Consider Deming's approach, known as Total Quality Management. 23
Increasingly popular in the public sector, it drives 22

public institutions to focus on five of our principles: results, ded in the very way we do business. It is employees on idle,
customers, decentralization, prevention, and a market (or systems) approach. But working at half speed—or barely working at all. It is people working
precisely because Deming developed his ideas for private businesses, his approach hard at tasks that aren't worth doing, following regulations that
ignores the other five. For example, most businesses can take competition for granted, so should never have been written, filling out forms that should never
Total Quality Management ignores the problem of monopoly—which is at the heart of have been printed. It is the $100 billion a year that Bob Stone
government's troubles. Most businesses are already driven by their missions (to make estimates the Department of Defense wastes with its foolish
profits), so Deming does not help public leaders create mission-driven organizations. And overregulation.
few businesses have to be told to earn money rather than simply spending it.
Waste in government is staggering, but we cannot get at it by wading
The fact that government cannot be run just like a business does not through budgets and cutting line items. As one observer put it, our
mean it cannot become more entrepreneurial, of course. Any governments are like fat people who must lose weight. They need to
institution, public or private, can be entrepreneurial, just as any eat less and exercise more; instead, when money is tight they cut off
institution, public or private, can be bureaucratic. Few Americans a few fingers and toes.
would really want government to act just like a business—making
quick decisions behind closed doors for private profit. If it did, To melt the fat, we must change the basic incentives that drive our
democracy would be the first casualty. But most Americans would governments. We must turn bureaucratic institutions into
like government to be less bureaucratic. There is a vast continuum entrepreneurial institutions, ready to kill off obsolete initiatives,
between bureaucratic behavior and entrepreneurial behavior, and willing to do more with less, eager to absorb new ideas.
government can surely shift its position on that spectrum.
The lessons are there: our more entrépreneurial governments have
shown us the way. Yet few of our leaders are listening. Too busy
A THIRD CHOICE climbing the rungs to their next office, they don't have time to stop
and look anew. So they remain trapped in old ways of looking at our
Most of our leaders still tell us that there are only two ways out of
problems, blind to solutions that lie right in front of them. This is
our repeated public crises: we can raise taxes, or we can cut
perhaps our greatest stumbling block: the power of outdated ideas.
spending. For almost two decades, we have asked for a third choice.
As the great economist John Maynard Keynes once noted, the
We do not want less education, fewer roads, less health care. Nor do
difficulty lies not so much in developing new ideas as in escaping
we want higher taxes. We want better education, better roads, and
from old ones.
better health care, for the same tax dollar.
REINVENTING GOVERNMENT An American Perestroika
The old ideas still embraced by most public leaders and political
reporters assume that the important question is how much
government we have—not what kind of government. Most of our
leaders take the old model as a given, and either advocate more of it
(liberal Democrats), or less of it (Reagan Republicans), or less of one
program but more of another (moderates of both parties).
But our fundamental problem today is not too much government or
too little government. We have debated that issue endlessly since the
tax revolt of 1978, and it has not solved our problems. Our
fundamental problem is that we have the wrong kind of government.
We do not need more government or less
REINVENTING GOVERNMENT

24

government, we need better government. To be more precise, we


need better governance.
Governance is the process by which we collectively solve our
problems and meet our society's needs. Government is the instrument
we use. The instrument is outdated, and the process of reinvention
has begun. We do not need another New Deal, nor another Reagan
Revolution. We need an American perestroika.

Catalytic Government:
Steering Rather Than Rowing
The word government is from a Greek word, which means "to steer. "
The job of government is to steer, not to row the boat. Delivering
services is rowing, and government is not very good at rowing.
—E. S. Savas

ifteen years ago, St. Paul, Minnesota, was a down-at-theheels,


Frost Belt city that appeared to be dying. Its population had fallen
below pre-Depression levels. Its central business district had lost 41
percent of its retail volume over the previous 15 years. A citizens'
committee had published a study projecting a continued drain of
people and investment to the suburbs.
George Latimer, elected mayor in 1975, knew he would never have
the tax dollars he needed to solve St. Paul's problems. So he set out to
"leverage the resources of the city"—"combining them with the much
REINVENTING GOVERNMENT
more prodigious resources of the private sector." Latimer started with
the downtown, the most visible symbol of St. Paul's malaise. A huge,
two-square-block hole in the middle of town had stood empty for so
long—waiting for a developer—that residents had begun to call it a
historic landmark. Latimer quickly found a private partner and nailed
down one of the first federal Urban Development Action Grants, and
together they built a passive solar hotel, two high-rise office towers, a
glass-enclosed city park, and a three-level enclosed shopping mall.
26 companies, and anyone
else who would listen.
The worst area was Over the previous
Lowertown, a 25- decade, investors had
square-block put only $22 million
warehouse district that into Lowertown. In the
made up the eastern Development
third of the business Corporation's first
district. Latimer and decade, it triggered
his deputy mayor, Dick $350 million in new
Broeker, dreamed up investments—
the idea of a private leveraging its own
development bank, money 30 or 40 to 1.
capitalized with Thirty-nine buildings
foundation money, to were renovated or
catalyze investment in constructed. By 1988,
the area. In 1978, they Lowertown generated
asked the McKnight nearly six times the
Foundation for $10 property taxes it had
million to back the ten years before, and
idea, and they got it. the Development
Corporation was
The Lowertown
turning a profit.
Development
Corporation brought in Latimer and Broeker
developers, offered created a second
loans or loan corporation to develop
guarantees, and put the nation's first
together package deals downtownwide hot
with banks, insurance water heating system; a
REINVENTING GOVERNMENT
third to develop enriching the lives of
affordable housing. public employees—he
They used voluntary gave voters what they
organizations to wanted: a government
operate recycling that did more but spent
programs, to perform less.
energy audits, and even
to manage a park. They
REDEFINI
turned garbage
collection and the city's NG
Youth Services Bureau GOVERN
over to the private ANCE
sector. They used
Latimer had no grand
millions of dollars'
strategy. He was
worth of volunteers'
simply responding to
time in the city's parks,
the twin pressures of
recreation centers,
dwindling tax revenues
libraries, and health
and pressing needs.
centers. And they
After a decade in
created more
office, however, he
partnerships with
understood that he was
foundations than any
Catalytic Government
city before or since.
27
By constantly
catalyzing solutions
outside the public
sector, Latimer was fundamentally
able to increase his redefining the role of
government's impact government. In his
while trimming its staff 1986 State of the City
by 12 percent, keeping address, he summed up
budget and property his new vision. To be
tax growth below the successful in the future,
rate of inflation, and he said,
reducing the city's debt.
city government
Without massive
will have to make
layoffs—in fact, while
some adjustments
REINVENTING GOVERNMENT
and in some ways was one-dimensional:
redefine its to collect taxes and
traditional role. I deliver services. Before
believe the city 1930, of course, many
will more often "public" services had
define its role as a been provided by
catalyst and nongovernment
facilitator. The institutions: religious
city will more groups, ethnic
often find itselfin associations, settlement
the role ofdefining houses. But the
problems and then Progressives and New
assembling Dealers believed
resources for governments should
others to use in use public employees
addressing those to produce most of the
problems. . . . services they decided
to provide. They
City government
worried about the
will have to
tendency of religious
become even
and other private
more willing to
organizations to
interweave scarce
exclude those not of
public and private
their own faith or
resources in order
ethnicity. They were
to achieve our
determined to stop the
community's
widespread corruption
goals.
that had discredited
government
This vision is
contracting. And they
antithetical to the way
lacked the information
traditional mayors and
technology we have
governors and city
today to monitor the
managers view their
performance of
roles. For the past 50
contractors. So they put
years, most public
virtually everything in
leaders have assumed
public hands.
that government's role
REINVENTING GOVERNMENT
By the 1970s, few to balance, they
mayors or governors or began to look for
legislators could even answers that lay
conceive of another somewhere between
way. They were the traditional yes
chained to the wagon and no. They
of taxes and services. learned how to
This was fine as long bring community
as tax revenues were groups and
rising 5.3 percent a foundations together
year, as they did from to build low-income
1902 through 1970. housing; how to
But when economic bring business,
growth slowed and labor, and academia
fiscal crisis hit, the together to stimulate
equation changed. Now economic
when problems innovation and job
appeared and voters creation; how to
demanded solutions, bring neighborhood
public leaders had only groups and police
two choices. They departments
could raise taxes, or together to solve the
they could say no. For problems that
officials who wanted to underlay crime. In
be reelected, this was other words, they
no choice at all. learned how to
facilitate problem

solving by
28 catalyzing action
throughout the
In Washington, community—how
our leaders escaped to steer rather than
the dilemma by row.
borrowing money. In Indianapolis,
But in state and Indiana, mayors
local government, Richard Lugar and
where budgets have Bill Hudnut worked
REINVENTING GOVERNMENT
with the Greater before going to
Indianapolis the state for the
Progress Committee, enabling
formed by a group legislation so
of civic and business the city could
leaders, to revitalize do its part with
the city. Working a tax. For the
together to develop a tennis stadium,
strategic vision and the city issued
plan, they decided to a $4 million
make Indianapolis bond, the
the amateur sports private sector
capital of America. came up with
They created $3 million. .
partnerships, tapped
In running a
foundations, and
city you 've got
harnessed the
to recognize
energies of
that the
thousands of
dialogue is
volunteers—
more important
stimulating more
than the agenda
than $1 1 billion of
item—getting
new investment and
people talking
building I l new
and working
sports facilities in a
and thinking
decade.
about who we
"We involved are and where
ourselves in a lot of we want to be
creative leveraging," going, not just
explains Hudnut: about specific
agenda items.
When we did The mayor is
the Hoosier more than a
Dome we deliverer
raised $30 ofservices.
million from That's become
the non-profits clear in the
REINVENTING GOVERNMENT
'80s. A mayor towers in town, the
is a deal maker, state government to
who pulls the create its first Urban
public and Heritage Park in
private sectors Lowell, and the federal
together. government to follow
suit with the nation's
In Lowell, first urban national
Massachusetts, park. These efforts
another depressed helped transform
industrial city, then Lowell, in 10 years,
Congressman Paul from a city of 16
Tsongas persuaded percent unemployment
the city's bankers to to a city of 3 percent
Catalytic unemployment.
Government 29
By 1980, the tax revolt
had radically changed
the fiscal equation for
set aside one-twentieth most American cities.
of their collective Suddenly the strategies
assets to make lowcost used in desperation by
loans to businesses Rust Belt cities like St.
wanting to expand or Paul and Indianapolis
relocate in downtown and Lowell began to
Lowell. Working with appear throughout the
local government nation:
leaders, he then
developed the Lowell Newark, New
Plan—an agreement Jersey, turned to
community
that every important
organizations
business in town would and private
do a major project to sector initiatives
improve Lowell. The to deal with
efforts of a united problems from
business and political housing to
leadership convinced AIDS to
Wang Laboratories to homelessness,
as it pared its
build three office
MANY ARROWS IN THE QUIVER
REINVENTING GOVERNMENT
payroll from The California The 36 alternatives we have found to standard service delivery
10,000 in 1980 Department of by public employees range from the traditional to the
to 4,000 in Transportation avantegarde. We have arbitrarily grouped them in three
1988. negotiated categories:
franchise
Massachusetts
agreements with Traditional
boosted its four private
funding of consortia to l. Creating Legal Rules and 5. Tax Policy
nongovernment build toll Sanctions 6. Grants
al organizations highways. 2. Regulation or Deregulation 7. Subsidies
to provide 3. Monitoring and 8. Loans
As we surveyed Investigation 9. Loan Guarantees
social services
governments across
from $25 4. Licensing 10. Contracting
America, we found no
million in 1971
less than 36 separate
to $750 million Innovative
alternatives to normal
—spread over l l . Franchising 20. Technical Assistance
public service delivery
3,500 separate 12. Public-Private 21. Information
—36 different arrows
contracts and
in government's quiver. Partnerships 22. Referral
grants—in
Some, like regulation, 13. Public-Public Partnerships 23. Volunteers
1988.
tax policy, contracting, 14. Quasi-Public Corporations 24. Vouchers
San Francisco, and grants, were long
Boston, and 15. Public Enterprise 25. Impact Fees
established. Others
other cities were more startling. 16. Procurement 26. Catalyzing
pioneered We found governments 17. Insurance Nongovernmental Efforts
"linkage" 18. Rewards 27. Convening
programs, in 30
19. Changing Public Nongovernmental Leaders Investment
which
Policy 28. Jawboning
corporations investing venture
that wanted to capital, creating private
financial institutions,
Avant-Garde
construct
using volunteers to run 29. Seed Money 33. Quid Pro Quos
buildings
parks and libraries, 30. Equity Investments 34. Demand Management
downtown had
to provide quid swapping real estate, 31. Voluntary Associations 35. Sale, Exchange, or Use
pro quos, such even structuring the 32. Coproduction or of Property
as child care market to encourage Self-Help 36. Restructuring the Market
and low-income energy conservation,
housing. recycling, and Many of these methods can be used in combination. For
environmental example, when the city of Visalia helped create its nonprofit
protection. housing corporation, Visalians Interested in Affordable Housing
(VIAH), it jawboned the private sector, catalyzed a
nongovernmental effort, provided seed money, sold property to
VIAH, and offered technical assistance.
For definitions and examples of each of the 36 methods, see
appendix A. Several methods are also discussed in chapter 10,
pp. 290-298.
REINVENTING GOVERNMENT
Surprisingly, the government to
federal government provide.'
already relies heavily
Even the leading
on many of these
symbol of New Deal
alternatives. "This
liberalism, Governor
heavy reliance on third
Mario Cuomo of New
parties to carry out
York, has articulated
public objectives has,
the new approach. "It is
in fact, become
not government's
virtually the standard
obligation to provide
pattern of federal
services," he told the
operation in the
New York Times, "but
domestic sphere,"
to see that they're
according to Lester
provided.'
Salamon of Johns
Hopkins University.
This form of "third- SMALLER
party government" uses BUT
"government for what
it does best—raising
STRONGE
resources and setting R
societal priorities Today's entrepreneurial
through a democratic leaders know that
political process— communities are
while utilizing the healthy when their
private sector for what families,
it does best— neighborhoods,
organizing the schools, voluntary
production of goods organizations, and
and services. In the businesses are healthy
process it reconciles —and that
the traditional government's most
American hostility to profound role is to
government with recent steer these institutions
American fondness for to health. As Governor
the services that Lawton Chiles of
modern society has Florida said during his
increasingly required 1990 campaign: "We
REINVENTING GOVERNMENT
believe the central
purpose of state
government [is] to be
the catalyst which
assists communities in
strengthening their
civic infrastructure. In
this way we hope to
empower communities
to solve their own
problems."
As they unhook
themselves from the
tax-and-service wagon,
leaders such as Lawton
Chiles and George
Latimer have learned
that they can steer
more effectively if they
let others do more of
the rowing. Steering is
very difficult if an
organization's best
energies and brains are
devoted to rowing. As
Peter Drucker wrote in
his 1968 book, The
Age ofDiscontinuity:
REINVENTING GOVERNMENT Catalytic Government
32

Any attempt to combine governing with "doing" on a large scale, bailout of failed savings and loans, it lets banks, insurance
paralyzes the decision-making capacity. Any attempt to have companies, and investment firms determine the overall shape and
decision-making organs actually "do, " also means very poor health of the financial marketplace. In other words, traditional
"doing. " They are not focused on "doing. " They are not governments get so preoccupied with rowing that they forget to
equipped for it. They are not fundamentally concerned with it. steer. Are these governments strong or weak?
The ability to steer is particularly important today, with the
If a government does less, one might ask, is that not a weaker
emergence of a global economy. Most people understand the impact
government? Are we not talking about undermining the power of the
global competition has had on American industry. They know about
public sector? A traditional liberal, who equates dollars and numbers
the collapse of the steel industry, the massive layoffs at auto plants.
of employees with power, might make that case. Yet the governments
But they don't understand the impact global competition has had on
we saw that steered more and rowed less— like St. Paul—were clearly
government. Stop and think about it for a moment, and it becomes
stronger governments. After all, those who steer the boat have far more
obvious.
power over its destination than those who row it.
Governments that focus on steering actively shape their com- munities, states, and nations. If corporations are to succeed in today's
They make more policy decisions. They put more social and economic institutions into supercompetitive global market, they need the highest
motion. Some even do more regulating. Rather than hiring more public employees, they quality "inputs" they can get—the most knowledgeable
make sure other institutions are delivering services and meeting the community's needs. workers, the most groundbreaking research, the cheapest
In contrast, governments preoccupied with service delivery often
capital, the best infrastructure. This makes government's
abdicate this steering function. Public leaders who get caught on the various roles as educator, trainer, research funder,
tax-and-spend treadmill have to work so hard to keep their service regulator, rule setter, and infrastructure operator far more
systems together—running faster and faster just to stay in the same important than they were 30 years ago. In 1960, it hardly
place—that they have no time left to think about steering. School mattered that 20 percent of General Motors' workers were
boards get so busy negotiating contracts and avoiding layoffs that they functionally illiterate; 20 percent at Ford and Chrysler
forget about the quality of their schools. Transit directors get so couldn't read either. But when the Japanese began selling
wrapped up in keeping the buses running and begging more subsidies
cars made by workers who could all read, the Big Three
that they never question whether the transit model of the pre-
automobile age—a centralized system operated by public employees—
found that they couldn't compete.
In the 1980s, it suddenly dawned on business and government
still makes sense. Federal leaders get so preoccupied with the ever-
leaders that our economy would suffer unless we improved our
rising cost of Medicare and Medicaid that they ignore the overall
schools, upgraded our training systems, and got control of our health
dynamics of our health care system.
care costs. To do such things, however, we not only have to
The irony is that while our governments pay 40 percent of all health restructure institutions and markets, we have to force change on
bills, they let private doctors, hospitals, and HMOs shape the some of the most powerful interest groups in the country—teachers,
marketplace. While Congress finances a $500 billion 33 principals, unions, doctors, hospitals. We are experiencing exactly
the same shock monopolistic industries like autos and airlines
REINVENTING GOVERNMENT Catalytic Government
experienced when thrust into competitive environments. Suddenly social and economic problems, their officers rarely have community
there is enormous pressure for change, and leaders have to enforce organizing skills—but they're stuck with them. When city councils
the general interest over the special interests who want to preserve require that sprinkler systems be installed in all new buildings, they
the status quo. gradually need fewer firemen—but they're stuck with them. When
welfare departments go into the business of training and placing their
When combined with voters' refusal to pay higher taxes—in part
clients in jobs, their eligibility workers rarely have the career
because global competition is also driving the average 34
counseling skills needed—but they're stuck with them. When
managers try to go around their employees, by using private
standard of living down—this new pressure demands very different organizations 35
behavior by government. Suddenly there is less money for
government—for "doing" things, delivering services. But there is
more demand for governance—for "leading" society, convincing its
various interest groups to embrace common goals and strategies. to provide the necessary services, public employee unions often sue,
This is yet another reason why our visionary public leaders now strike, or protest.
concentrate more on catalyzing and facilitating change than on
As a result, entrepreneurial governments have begun to shift to
delivering services—why they provide less government, but more
systems that separate policy decisions (steering) from service delivery
governance.
(rowing). Drucker long ago noted that successful organizations
separate top management from operations, so as to allow "top
management to concentrate on decision making and direction."
SEPARATING STEERING FROM Operations, Drucker said, should be run by separate staffs, "each with
ROWING its own mission and goals, and with its own sphere of action and
autonomy." Otherwise, managers will be distracted by operational
In today's world, public institutions also need the flexibility to tasks and basic steering decisions will not get made.
respond to complex and rapidly changing conditions. This is
difficult if policy makers can use only one method—services Steering requires people who see the entire universe of issues and
produced by their own bureaucracy. It is virtually impossible if their possibilities and can balance competing demands for resources.
employees cannot be transferred when needs change, moved into the Rowing requires people who focus intently on one mission and
employ of nongovernmental organizations when they can do a better perform it well. Steering organizations need to find the best methods to
job, or fired for poor performance. Bureaucratic governments can do achieve their goals. Rowing organizations tend to defend "their"
none of these things easily, thanks to their civil service regulations method at all costs.
and tenure systems. In effect, they are captive of sole-source, Entrepreneurial governments increasingly divest rowing from steering.
monopoly suppliers: their own employees. (If you doubt this is This leaves "government operating basically as a skillful buyer,
really the norm, ask yourself why anything else is called "alternative leveraging the various producers in ways that will accomplish its
service delivery.") No business would long tolerate such a situation. policy objectives," explains Ted Kolderie, whose Citizens League and
Monopoly suppliers become a problem as soon as policy makers Public Services Redesign Project have stimulated an enormous amount
decide to change their strategies. When police departments decide to of new thinking in Minnesota. Government agencies remain as service
attack the roots of crime by working with communities to solve their producers in many cases—although they often have to compete with
private producers for that privilege. But these public service producers
REINVENTING GOVERNMENT Catalytic Government
are separate from the policy management organizations, and "inhouse out there, and we need sensing systems to learn from their
production" is only "one of the available alternatives." Freeing policy experience," says Brian Bosworth, former president of a steering
managers to shop around for the most effective and efficient service organization called the Indiana Economic Development Council.
providers helps them squeeze more bang out of every buck. It allows "Then we need ways to transmit what we've learned to the others."
them to use competition between service providers. It preserves
Finally, steering organizations that shop around can provide more
maximum flexibility to respond to changing circumstances. And it
comprehensive solutions, attacking the roots of the problem. They
helps them insist on accountability for quality performance:
can define the problem—whether it is drug use, crime, or poor
contractors know they can be let go if their quality sags; civil servants
performance in school—in its entirety, then use many different
know they cannot.
organizations to attack it. They can bring all the stakeholders into the
Frank Keefe, former secretary of administration and finance in policy process, thus ensuring that all 37
Massachusetts, sums it up this way: Contracting with private 36

vendors "is cheaper, more efficient, more authentic, more flexible,


points of view are heard and all significant actors are motivated to take
more adaptive. . . . Contracts are rewritten every year. You can
part in the solution.
change. You cannot change with state employees who have all sorts
of vested rights and privileges." In contrast, governments that put steering and rowing within the same
organization limit themselves to relatively narrow strategies. Their line
Steering organizations that shop around can also use specialized
of attack is defined by programs, not problems.
service providers with unique skills to deal with difficult
populations: an organization of recovered alcoholics to work with In 1986, a White House report documented 59 "major public
alcohol abusers; ex-inmates to work with young convicts. This was assistance programs," 31 "other low income grant programs," and I l
not so essential 40 years ago. But as the Boston Globe points out: "low income loan programs." Another study found that "a low income
family in one county with a population of roughly half a million would
Many ofthe services provided by the government today were have to apply to 18 separate organizations to reach all the different
not even thought of back in the old days when the state ran huge sources of assistance for which its members were eligible." As the
institutions and provided direct service itself Crack babies, the White House report concluded:
AIDS epidemic and the stunning level of child abuse did not
exist in the 1950s. Because ofthe implosion of so many families, Each program began with its own rationale, representing the
16, 000 children are wards of the state today. They are housed in intent of public officials to address a perceived need. But when
small community-based residential facilities. the programs are considered as a system they amount to a tangle
ofpurposes, rules, agencies and effects.
Steering organizations that shop around can even promote
Successful antipoverty efforts, on the other hand, are usually holistic.
experimentation and learn from success. Nature experiments through
As Lisbeth Schorr reports in Within Our Reach: Breaking the Cycle of
natural selection: the evolutionary process rewards new adaptations
Disadvantage, they involve service providers from different
that work. Competition in the private sector works the same way:
professions and agencies who don't ordinarily work together. The only
successful new ideas draw customers, and unsuccessful ones die out.
realistic way to develop such holistic strategies is to separate steering
Using many different service providers helps the public sector take
from rowing, so the policy managers can define a comprehensive
advantage of the same phenomenon. "We need multiple providers
REINVENTING GOVERNMENT Catalytic Government
strategy and use many different oarsmen (oarspeople?) to implement Governments that move from steering to rowing have fewer line
it. workers but more policy managers, catalysts, and brokers. They
have fewer paper pushers and more knowledge workers. Consider
the Community Redevelopment Agency in Tampa, Florida. In 1985,
PUBLIC EMPLOYEES: it (and an agency with which it later merged) had 41 employees.
VICTIMS OR BENEFICIARIES? They were traditional bureaucratic organizations, using federal funds
to make rehabilitation loans on lowincome properties. In 1985, these
The great fear of using nongovernment institutions to row is, of
41 employees made 37 loans.
course, that it will cost many public employees their jobs. This fear is
legitimate. In fact, the prospect of massive layoffs is one of the barriers When Sandy Freedman campaigned for mayor that year, she
that keeps governments from moving into a more catalytic mode. promised to do something about housing. Almost a third of the city's
housing units needed some degree of rehabilitation. She and
We have found that the transition can be managed without significant
Community Redevelopment Director Fernando Noriega decided the
layoffs, however. The typical government loses 10 38
city could never get at the problem with its traditional approach. So
they decided to use the city as a catalyst and 39
percent of its employees every year. By taking advantage of this
attrition, governments can often avoid layoffs. They can also shift
employees to other departments or require contractors to hire them
at comparable wages and benefits. Los Angeles County, which has
more than 100 separate contracts with private firms, has
successfully relocated people within county gov ernment. The
federal government requires contractors to give workers who are
displaced by a contract first crack at job openings. Other
governments do both.
Public employees do not have to be the victims of entrepreneurial
government. In places like St. Paul and Visalia, they are its primary
beneficiaries. The total number of jobs created by such governments
does not change very much; some of those jobs simply shift to
private firms and community organizations. But the job satisfaction
of the workers increases dramatically. Many employees in
bureaucratic governments feel trapped. Tied down by rules and
regulations, numbed by monotonous tasks, assigned jobs they know
could be accomplished in half the time if they were only allowed to
use their minds, they live lives of quiet desperation. When they have
the opportunity to work for an organization with a clear mission and
minimal red tape—as in Visalia or St. Paul or East Harlem—they
are often reborn. When they are moved into the private sector, they
often experience the same sense of liberation.
REINVENTING GOVERNMENT Catalytic Government
Policy management is done on the fly—or not at all. As governments
embrace a more catalytic role, they are often forced to develop new
broker, to reshape the marketplace. They convinced several of the organizations to manage the steering role.
city's banks to create a $13 million Challenge Fund. The banks would
Steering organizations set policy, deliver funds to operational bodies
make loans with low interest rates and 15-year repayment schedules to
(public and private), and evaluate performance—but they seldom play
owners, to renovate their buildings. The city would guarantee each
an operational role themselves. They often cut across traditional
loan for its first five years, to limit the bankers' risk. A nonprofit
bureaucratic boundaries; in fact, their members are sometimes drawn
Methodist agency would process the loans—on the theory that low-
from both the public and private sectors.
income people would be more comfortable dealing with a community
organization than with bureaucrats or bankers.
The Private Industry Councils set up under the federal Job
In the process, Noriega merged his two housing organizations and Training Partnership Act bring local public and private leaders
trimmed them down to 22 employees. (He accomplished most of this together to manage job training activities within their region.
by attrition, laying off only five people.) He retrained his employees, Primarily, they use performance contracts with other
opted out of the civil service system, and structured his agency like a organizations to produce the actual training.
bank. He increased salary levels by 50 percent and began to treat his Ohio uses local boards to manage its outpatient mental health
employees like professionals. He gave them monthly goals—for loan and mental retardation services. Most of the boards play no
volume, dollar volume, and related measures—but turned them free to operational role; they contract with almost 400 nonprofit
do the job as they saw fit. Today, says Noriega, they are "happier, more mental health institutions to operate drug abuse programs, day
productive, better paid employees." They also have far greater impact. treatment centers, family programs, and other services.
With half the people and less federal funding, the agency now In Pittsburgh, the Advisory Committee on Homelessness, made
facilitates 1,000 loans a year—a productivity increase of 3,000 up of government, university, community, and religious
percent. leaders, coordinates the city's response to homelessness. It uses
federal, state, and corporate funds to fund dozens of food
"The answer to cuts in federal funds is not to cut services, but to find banks, soup kitchens, counseling centers, job training
new ways of doing things," Noriega declares: programs, and housing initiatives. "This kind of broad-based
response to homelessness has helped this city of 387,000
For some reason the philosophy in the public sector is, "When dodge the bullet that is crippling cities like New York, Chicago
funds are cut, there's no other way but to cut services. " But in my and Washington," reports the Washington Post.
opinion, sometimes the best opportunities come because you're Montgomery County, Maryland, has created a Transportation
forced by budget cuts to find new ways to do things. We Management District, in Silver Spring, that enlists all
wereforced to use the private sector—where else could we go? employers with more than 25 employees in a concerted effort
to reduce commuter traffic. By coupling fi-
41
CREATING "STEERING ORGANIZATIONS"
When governments separate policy management from service delivery,
they often find that they have no real policy management capacity. nancial incentives and discounts with a requirement that all
Their commerce departments, welfare departments, housing such employers develop traffc mitigation plans and participate
authorities—all are driven by service delivery. 40 in an annual commuter survey, it has brought the percentage of
REINVENTING GOVERNMENT Catalytic Government
commuters who drive alone down from 66 to 55 percent.
Although the Transportation Management District is an arm of
county government, it has an advisory board made up of
citizens and business leaders. Oklahoma Futures, which
describes itself as the "Central Economic Development Policy
Planning Board for the State of Oklahoma," has a five-year
strategic plan that spells out the actions it expects from more
than 25 separate organizations—from the AFL-CIO to the state
Department of Education. Oklahoma Futures oversees the state
Department of Commerce and approves the annual business
plans of several other state development authorities.

Taking this principle one step further, the Arizona Department of


Health Services actually contracts out the steering role. It contracts
with nine nonprofit agencies and local governments—which must
compete every three years for designation as "administrative
entities"—to manage its adult mental health system. This method
has reduced the cost of administration within the system to less than
7 percent, while allowing the Department of Health Services to
function with only 62 full-time employees (excluding the state-
owned hospital and mental health center).
The administrative entity in South Phoenix, one of Arizona's poorest
areas, is the Community Organization for Drug Abuse, Mental
Health and Alcoholism Services, Inc. CODAMA, as it calls itself,
was born 20 years ago as an activist community organization.
Today, it is a perfect example of a steering organization. It manages
almost $17 million in state contracts with more than 50 drug,
alcohol, and mental health treatment programs in South Phoenix.
Every year it reviews each contract. Organizations that perform well
are kept on; those that don't are cut off; those with high overhead
costs are forced to slim down.
42 Catalytic Government 43

In CODAMA's first year as an administrative entity, it cut the


administrative overhead among its service providers from 21 to 17 PUBLIC SECrOR, PRIVATE SECrOR,
percent. It forced South Phoenix's largest mental health center to cut
its overhead by $150,000. The next year the center applied to run a OR THIRD SECrOR?
new residential treatment program, and lost. Most people have been taught that the public and private sectors
"They were real mad," remembers CODAMA's executive director, occupy distinct worlds; that government should not interfere with
Alan Flory, "so I said, 'Let's talk' ": business, and that business should have no truck with government.
This was a central tenet of the bureaucratic model. But as we have
There were three competitors for this new contract. I said, "The seen, governments today—under intense pressure to solve problems
reason you didn't get funded was real clear: You were gonna do without spending new money—look for the best method they can
it for $300, 000, they were gonna do it for $200, 000, they were find, regardless of which sector it involves. There are very few
gonna hire 15 staff members, and you were gonna hire six!" I
said, "I'll be damned, that doesn't make any sense to me!" services traditionally provided by the public sector that are not today
provided somewhere by the private sector—and vice versa.
Businesses are running public schools and fire departments.
Flory is quick to enumerate the advantages of using nongovernment
Governments are operating professional sports teams and running
organizations like CODAMA as steering bodies:
venture capital funds. Nonprofits are rehabilitating convicts, running
banks, and developing real estate. Those who still believe government
We can respond a lot quicker. We don't have the restraints of and business should be separate tend to oppose these innovations,
state government. It takes the state three to six months to get a whether or not they work. But the world has changed too much to
contract amendment through the system; I can take care of a allow an outdated mind-set to stifle us in this way. "We would do
contract amendment in a day. The state uses civil servants; they well," Harlan Cleveland writes in The Knowledge Executive, "to
can 't switch those people. They went through cutbacks a few glory in the blurring of public and private and not keep trying to draw
years ago, and they ended up with all the people that had been a disappearing line in the water."
therefor years and years. They're burned out. And the state can 't
fire anybody. My people—I can push 'em, I can make 'em work When people ask themselves which sector can best handle a particular
hard. task, they also tend to think only of two sectors, public or private. But
as Alan Flory made clear, "voluntary" or "nonprofit" organizations are
Flory has contracted with nonprofit organizations, local governments, often quite different from both public organizations and private, for-
and for-profit firms. "The nonprofits are clearly the best," he says. profit businesses.
Many social services are simply not well suited to companies whose The voluntary sector plays a role in American life that is seldom fully
basic motive is profit. How much profit is there, after all, in helping appreciated. By 1982, nonprofit organizations employed 8 percent of
poor people deal with alcoholism? "The for-profits and the all workers and 14 percent of all service workers in the United States.
government agencies have both been real problems for us. The for- Between 1972 and 1982, they were the fastest growing sector of the
profits are in business to make money, and the public sector agencies economy, in terms of employment. A 1989 Gallup survey on
have little interest in saving money." voluntary activities found that roughly half of all Americans 14 years
of age or older—93.4 million people—volunteered their time in some It is startling to see how many "public" services are actually delivered
way. The Independent Sector, which commissioned the poll, by third sector organizations. Even a decade ago, according to a
estimated the dollar value of their time $170 billion. survey by Salamon's team at the Urban Institute, nonprofit
44 REINVENTING GOVERNMENT organizations delivered 56 percent of all social services financed by
government, 48 percent of employment and Catalytic Government
Defining this sector can be tricky. Neither the word voluntary nor the 45
word nonprofit offers an accurate description. Organizations like the
Red Cross, or Blue Cross/Blue Shield, are hardly voluntary: they
employ thousands of professionals on salary. Nor does the phrase not training services, and 44 percent of health services. Government was
for profit describe them accurately. In 1985, Blue Cross/Blue Shield by far their most important source of income. Our old assumptions
of Massachusetts served three million members, earned a "gain" of blind many of us to this fact, but it is obvious to anyone who works in
$43 million, and was indistinguishable in its behavior from a for- the human services field.
profit business.
Ronald Reagan often argued that by cutting public sector spending, we
This sector, it seems to us, is made up of organizations that are
could liberate voluntary efforts from the oppressive arm of
privately owned and controlled, but that exist to meet public or social
government. Where we followed his lead—particularly in low-income
needs, not to accumulate private wealth. By this definition, large,
housing—we often had the opposite effect, crippling community-
nonprofit firms that exist primarily to accumulate wealth would not
based organizations. Such are the perils when one acts based on
qualify. But for-profit institutions that exist to meet social or public
outdated assumptions.
needs (development banks, for instance) would qualify. For lack of a
better term, we call this group of institutions the "third sector.
When governments shift from producing all services themselves to
a more catalytic role, they often rely heavily on the third sector. Most PRIVATIZATION IS ONE ANSWER,
of us assume that government does the important things and voluntary NOT THE ANSWER
efforts fill in the cracks. But according to Lester Salamon, who lead a Conservatives have long argued that governments should turn over
multiyear research project on nonprofit organizations at the Urban many of their functions to the private sector—by abandoning some,
Institute, the third sector is actually society's "preferred mechanism for selling others, and contracting with private firms to handle others.
providing collective goods." It existed long before most government Obviously this makes sense, in some instances. Privatization is one
services existed. It coped with social problems long before arrow in government's quiver. But just as obviously, privatization is
governments took on that role. Governments stepped in only when the not the solution. Those who advocate it on ideological grounds—
third sector proved incapable of dealing with particular problems. To because they believe business is always superior to government—are
this day, cities with a high level of third sector activism, such as selling the American people snake oil.
Pittsburgh and the Twin Cities, are by far the most effective in dealing
with social problems. In fighting homelessness in Pittsburgh, says Privatization is simply the wrong starting point for a discussion of the
Allegheny County official Robert Nelkin, "individuals and churches role of government. Services can be contracted out or turned over to
are the mainstay. Government is the Johnny-come-lately." the private sector. But governance cannot. We can privatize discrete
steering functions, but not the overall process of governance. If we
did, we would have no mechanism by which to make collective
decisions, no way to set the rules of the marketplace, no means to income group.) This shared experience may not be efficient, in market
enforce rules of behavior. We would lose all sense of equity and terms, but it is effective in making democracy work.
altruism: services that could not generate a profit, whether housing for Those who support privatization in all cases because they dislike
the homeless or health care for the poor, would barely exist. Third government are as misguided as those who oppose it in all cases
sector organizations could never shoulder the entire load. because they dislike business. The truth is that the ownership of a
good or service—whether public or private—is far less important
Business does some things better than government, but government
than the dynamics of the market or institution that produces it. Some
does some things better than business. The public sector tends to be
private markets function beautifully; others Catalytic Government
47
better, for instance, at policy management, regulation, ensuring equity,
preventing discrimination or exploitation, ensuring continuity and
stability of services, and ensuring social cohesion (through the mixing do not. (Witness the savings-and-loan crisis.) Some public institutions
of races and classes, for example, in the public schools). Business function beautifully; others do not. (Witness public education.)
tends to be better at performing economic tasks, innovating, The determining factors have to do with the incentives that drive those
replicating successful experiments, adapting to rapid change, within the system. Are they motivated to excel? Are they accountable
abandoning unsuccessful or obsolete activities, and performing for their results? Are they free from overly restrictive rules and
complex or technical tasks. The third sector tends to be best at regulations? Is authority decentralized enough to permit adequate
performing tasks that generate little or no profit, demand compassion flexibility? Do rewards reflect the quality of their performance?
and commitment to individuals, require extensive trust on the part of Questions like these are the important ones—not whether the activity
customers or clients, need hands-on, personal attention (such as day is public or private. Often when governments privatize an activity—
care, counseling, and services to the handicapped or ill), and involve contracting with a private company to pick up the garbage or run a
the enforcement of moral codes and individual responsibility for prison, for example—they wind up turning it over to a private
behavior. (For a discussion of the particulars, see appendix A.) monopoly, and both the cost and the inefficiency grow worse!
It makes sense to put the delivery of many public services in private
Likewise, private markets handle many tasks better than public
hands (whether for-profit or nonprofit), if by doing so a government
administrations—but not all tasks. Our private market for higher
can get more effectiveness, efficiency, equity, or accountability. But
education works extremely well, but without public universities,
we should not mistake this for some grand ideology of privatizing
public community colleges, and public financial aid, many Americans
government. When governments contract with private businesses, both
would be denied the opportunity to go to college. Our public
conservatives and liberals often talk as if they are shifting a
administration of elementary and secondary schools has many
fundamental public responsibility to the private sector. This is
problems, but if we turned all education over to the private
nonsense: they are shifting the delivery of services, not the
marketplace, many Americans could not even afford elementary
responsibility for services. As Ted Kolderie once said, "The fact that a
school. Even if we used public vouchers, we would lose one of the
road is built by a private contractor does not make that road a private
fundamental benefits of public education—the chance for children to
road." When governments contract activities to the private sector,
rub elbows with others from many different walks of life. (Those who
those governments still make the policy decisions and provide the
could afford to would add their own funds to the voucher and buy a
financing. And to do that well, they must be quality governments.
"better" education for their children, leading to extreme segregation by
Even Peter Drucker, the first advocate of privatization (he coined the
term, originally calling it reprivatization), argued that we needed more
governance, not less. Drucker did both in 1968, in The Age of
Discontinuity:

We do not face a "withering away of the state. " On the contrary,


we need a vigorous, a strong, and a very active government. But
we do face a choice between big but impotent government and a
government that is strong because it con-
REINVENTING GOVERNMENT

48

fines itself to decision and direction and leaves the "doing" to others.
[We need] a government that can and does govern. This is not a government that "does"; it is not a government that "administers"; it
is a government that governs.
REINVENTING GOVERNMENT Community-Owned Government
REINVENTING GOVERNMENT Community-Owned Government

Community-Owned Government:
Empowering Rather Than Serving
The older I get, the more convinced I am that to really work programs have to be owned
by the people they're serving. That isn 't just rhetoric, it's real. There's got to be
ownership.
—George Latimer, Former Mayor of St. Paul

n 1982, Lee Brown became chief of police in Houston, Texas. The Houston police
force was beset by charges of racism and brutality. Brown, who is black, set out to
transform it. The vehicle he chose was "neighborhood-oriented policing": the
notion that the police should not simply respond to incidents of crime, but also help
neighborhoods solve the problems that underlie crime.
Brown assigned most of his officers to neighborhood beats. He set up 2() storefront
ministations in the neighborhoods. He instructed his officers to build strong
relationships with churches, businesses, PTAs, and other community organizations.
In one high-crime area, he had officers on the beat visit more than a third of all
homes, to introduce themselves and ask about neighborhood problems.
"What we're doing is revolutionary in U.S. policing," Brown told one columnist.
"We're redefining the role of the patrol offlcer—we want him to be a community
organizer, community activist, a problem solver. . . . I want people as committed to
neighborhoods as young Americans were to the Peace Corps."
REINVENTING GOVERNMENT Community-Owned Government

50 of Town Watch. To make a long-term impact, most experts have


concluded, such groups need to focus on their commu51
Now the police chief in New York City, Brown is a leader in
what political scientist James Q. Wilson calls "the most significant
redefinition of police work in the past half century." Wilson and nity's underlying problems. Community-oriented policing
others call it community-oriented policing. The basic idea is to turns the local police officer into their ally.
make public safety a community responsibility, rather than simply The real key, says Hubert Williams, president of a research institute
the responsibility of the professionals—the police. It transforms the called the Police Foundation, "is the ability of the police to act as a
police officer from an investigator and enforcer into a catalyst in a catalyst to draw together community resources, to provide
process of community self-help. Sometimes this means police resources, backup and training."
officers help neighborhood members clear out vacant lots and
rusting cars. Sometimes it means they help organize marches in In short, the police can be most effective if they help communities
front of crack houses. Sometimes it means they work with help themselves. This is really just common sense. We all know that
community leaders to keep neighborhood children in school. people act more responsibly when they control their own
"You can't rush in with the police car, handle the call, and leave," environments than when they are under the control of others. We
says Tulsa Police Chief Drew Diamond. "Then what you've done is know that owners take better care of homes than renters. We know
reactive, a momentary solution to the problem, and you're going to that workers who own a piece of the company are more committed
be back." than those who simply collect a paycheck. It stands to reason that
Under Chief Diamond's leadership, the Tulsa police studied arrest when communities are empowered to solve their own problems,
trends, school dropout statistics, drug treatment data, and the they function better than communities that depend on services
problems of the city's public housing developments. They concluded provided by outsiders.
that teenagers from one section of town were creating most of the Empowerment is an American tradition, as old as the frontier. We
city's drug problems—so they began to work with the community to are a nation of self-help organizations. We create our own day-care
attack the problem at its roots. They organized the residents of one centers, our own babysitting cooperatives, our own Little Leagues,
apartment complex, and with their backing prosecuted and evicted our own Girl Scout and Boy Scout troops, our own recycling
residents who were dealing or helping dealers. They created an programs, our own volunteer organizations of all kinds.
antidrug education program in the housing projects. They set up job
placement programs and mentoring initiatives for young men and And yet, when we organize our public business, we forget these
women. They set up a youth camp for teenagers. And they worked lessons. We let bureaucrats control our public services, not those
with the schools to develop an antitruancy program. they intend to help. We rely on professionals to solve problems, not
families and communities. We let the police, the doctors, the
Community-oriented policing is under way in more than 300
teachers, and the social workers have all the con trol, while the
American cities, from Newark, New Jersey, to Dallas, Texas;
people they are serving have none. "Too often," says George
Charleston, South Carolina, to Madison, Wisconsin. In addition
Latimer, "we create programs designed to collect clients rather than
some 18,000 "neighborhood watch" groups, with a million
to empower communities of citizens."
members, work with local police forces to help defend their
communities against crime, according to the National Association When we do this, we undermine the confidence and competence of
our citizens and communities. We create dependency. It should
REINVENTING GOVERNMENT Community-Owned Government

come as no surprise that welfare dependency, alcohol dependency, churches increasingly empty. But along the way, we lost something
and drug dependency are among our most severe problems. precious. The Progressive confidence in "neutral administrators" and
"professionalism" blinded us to the consequences of taking control
Latimer likes to quote Tom Dewar, of the University of out of the hands of families and communities.
Minnesota's Humphrey Institute, about the dangers of The reaction was not long in coming. During the 1960s,
"clienthood": neighborhoods fought against the urban renewal schemes
52
53
Clients are people who are dependent upon and controlled by
their helpers and leaders. Clients are people who understand
dreamed up by professional city planners. Minority communities
themselves in terms of their deficiencies and people who wait
fought for control over Great Society programs like Community
for others to act on their behalf
Action and Model Cities. By 1970, a welfare rights movement had
Citizens, on the other hand, are people who understand their emerged to demand more control over the welfare system, a
own problems in their own terms. Citizens perceive their tenants' rights movement had emerged to demand more control
relationship to one another and they believe in their capacity to over public housing, and a neighborhood movement had emerged
act. Good clients make bad citizens. Good citizens make strong to demand more control over urban development and public
communities. services. Soon middle-class America joined in, with a consumer
movement, which sought to give consumers more control over the
products made by private corporations; a holistic health movement,
PULLING OWNERSHIP OUT OF THE which sought to give individuals more control over their own
health; a deinstitutionalization movement, which sought to give
BUREAUCRACY, INTO THE COMMUNIN
mental patients more control over their environments; and a general
Clienthood is a problem that emerged only as our industrial economy effort to force authorities of all kinds to share their power, through
matured. Before 1900, what little control existed over neighborhoods, "sunshine" laws, freedom-of-information acts, right-to-know laws,
health, education, and the like lay primarily with local communities, open-meeting laws, and the like. These movements were animated
because so many products and services, whether public or private, by a common sense that real control over our lives had been lost to
were produced or sold locally. It was only with the emergence of an the megainstitutions of society: big business, big government, and
industrial economy of mass production that we began to hire big labor.
professionals and bureaucrats to do what families, neighborhoods,
churches, and voluntary associations had done. Slowly, government has begun to respond. Communityoriented
We started with the best of intentions, to heal the new wounds of an policing is not an isolated phenomenon. The same themes of
industrial, urban society. We moved ahead rapidly when the community ownership and empowerment appear in virtually every
economic collapse of the Depression strained the capacities of segment of American public life. Our governments are beginning to
families and communities to the breaking point. And we continued on push ownership and control of public services out of the hands of
after the Depression, as prosperity and mobility loosened the old bureaucrats and professionals, into communities.
bonds of geographic community, leaving the elderly far from their
children, the employed uninvolved in their neighborhoods, and the
REINVENTING GOVERNMENT Community-Owned Government

During the huge refugee resettlement effort for those fleeing In Chicago, every public school is now run by a council of six
Southeast Asia, the federal government did not pay professionals or parents, elected by parents; two community members, elected by
bureaucrats to help people find homes and jobs; it used churches. community residents; two teachers, elected by the school staff; and
As recycling became a priority, the city with the best track record, the principal. This council acts as the board of directors: it hires the
Seattle, credited part of its success to voluntary block captains who principal (on a four-year performance-based contract), prepares a
helped their neighbors figure out how to make curbside recycling school improvement plan, and prepares the school budget, in
work. accordance with its improvement plan. Principals are now hired and
fired based on merit rather than seniority. After the first year, 81
Most housing initiatives now use community percent of parents and 62 percent of teachers said their schools were
development corporations, tenant cooperatives, and the operating "better" than before the reform. Seventy-eight percent of
like to develop parents reported improvements in safety and discipline, 61 percent
54 saw improvements in the physical plant, and 83 percent reported
progress in educational programs.
low-income housing. Boston even let one community organization
"Lots of people told us we were making a terrific mistake, because
take over abandoned buildings and lots through eminent domain.
we were turning power over to illiterate, underclass people, taking it
In education, parents are beginning to assert control over the away from those who had the professional knowledge," says Don
schools. According to John Chubb, coauthor of Politics, Markets Moore, whose advocacy organization, Designs for Change,
and America 's Schools, "The largest estimated influence on the spearheaded the reform effort:
effectiveness of school organization is the role of parents in the
school. All other things being equal, schools in which par ents are They said we wouldn't get people to run for the councils. But
highly involved, cooperative, and well-informed are more likely to 17,000 people ran, and we had a higher turnout than they get in
develop effective organizations than are schools in which parents do suburban school board elections. We see the councils as a new
not possess these qualities." And yet most public schools let parents democratic unit in the community. We expect that the people
handle little more than bake sales, fund-raising, and PTA meetings. who serve on councils will probably 55

get involved in other issues, like housing, economic


development, and adult education. These are real seedbeds for
leadership development.
REINVENTING GOVERNMENT Community-Owned Government

New Haven, Connecticut, tried something similar back in 1968. At


two failing, inner-city schools, it set up Governance Management
Teams made up of parents, teachers, other staff members, and the
principal. By 1978, students at the two experimental schools had
caught up to grade level. By 1984, they scored third and fourth
highest in the system and had the best attendance records. By 1990,
the specific model, called the
School Development Program, was used in all 42 New Haven
schools—and in more than 60 other schools in eight states. Professor
James Comer of Yale, who initiated it, was even planning to
introduce it in six Chicago schools.
The same trends are evident in early childhood education. From its
inception, Head Start has "made an all-out attempt to use the parent
as part of the teaching process," in the words of one expert. Even
where parents do not teach, they work as aides, serve on boards, and
help with field trips and other activities. "The best Head Start
programs in this country learned a long time ago that when the
parents really feel like they're in charge, like they've got ownership,
you get a different performance out of that kid," says Curtis Johnson,
a former college president who, as director of the Citizens League,
has been a key force behind education reform in Minnesota. Today,
Head Start is considered by many one of our most successful
antipoverty programs.
Several states have gone even further, developing programs that
encourage parents to teach their own children. Arkansas imported its
model—the Home Instruction Program for Preschool Youngsters
(HIPPY)—from Israel. Every day, 2,400 welfare mothers spend 20
minutes teaching their children at home, with simple workbooks. A
trained HIPPY worker—often a former HIPPY mother—visits once a
week to help plan the next week's work. In 1989, the percentage of
children testing at or above national averages jumped from 6 percent
going into the program to 74 percent at the end of the year. "In one
Community-Owned Government
56 REINVENTING GOVERNMENT neighborhood dispute, used a Community Board to resolve it, and
liked the process so much they volunteered.
project, 18 of the 39 participating welfare mothers enrolled in
57
education courses for themselves after the first year," says Governor
Bill Clinton. "The HIPPY program builds in its own follow-up by
changing the parent into the child's first teacher, which is what every
parent should be." Some community organizations are even taking ownership of the
justice process after a criminal is arrested. Florida paroles first-time
Even job training agencies are beginning to empower workers. The convicted criminals into the care of the Salvation Army—25,000 of
Massachusetts Industrial Services Program, which provides training them at any one time. Massachusetts closed its traditional, prison-like
for dislocated workers, uses some of those very workers to help staff juvenile corrections institutions and moved its juvenile offenders into
its 30-odd centers around the state. When a plant announces a closing small, community-based group homes. A 1989 study by the National
or major layoff, the state sets up a temporary center and hires a staff to Council on Crime and Delinquency found that this system not only
provide counseling, training, help in finding another job, and related led to lower rearrest rates than most states and fewer violent crimes,
services. It hires several of the dislocated workers, then keeps those but cost less than incarceration.
who excel to staff other centers. In some centers, every staff member is
a former dislocated worker. David and Falakah Fattah opened their own home in Philadelphia to
15 teenage gang members in 1969. Since then, they have "adopted"
These workers know firsthand the problems their colleagues face, and
more than 500 former gang members, with such success that the
they are determined to do something about them. "I love these people
juvenile courts have begun to send many of their worst cases to the
in the plant, and I've worked with them for 25 years, " says Richard
Fattahs' House of Umoja. Those who stay abide by strict rules: they
Wisniewski, a former machinist who became a career counselor at one
must rise by 6 A.M. every morning for a conference to set goals for
center. "I wish I could change and take away their hurt, but I can't do
the day; they must do chores; and they must attend a weekly meeting
that. But maybe I ease the pain just a little bit by giving 110 percent to
to review their behavior. In return, they get the support of a strong,
my job."
dedicated family. In a study of recidivism, the Philadelphia
The program is one of the most effective in the country. Over its first Psychiatric Center found the rearrest rate of ex-offenders sent to the
five years, it served more than 37,000 dislocated workers, placing 80 House of Umoja to be just 3 percent. At the city's far more expensive
percent in jobs that paid, on average, 92 percent of their former wages. correctional facilities, rearrest rates ranged from 70 to 90 percent.

In criminal justice, community-oriented policing is just the beginning. Health care is a system thoroughly dominated by professionals, but
San Francisco uses Community Boards, with voluntary mediators, to even here a shift toward community is evident. Our health care
resolve the kinds of everyday conflicts that often erupt into violence. system was set up to deal with acute care: lifethreatening illnesses
Pioneered in the late 1970s by neighborhood activists, these boards and injuries. It was so effective that today most people die of
now handle and settle more cases than the San Francisco Municipal chronic, degenerative problems—of "old age." Yet we continue to
Court. They save a tremendous amount of money, but more important, respond with an acute care system of high-technology hospitals and
they build a sense of empowerment, a sense that people working highly trained doctors. Ironically, it was our very success at acute,
together in neighborhoods can solve their own problems. A third of professional care that left us with an elderly population desperate for
their volunteers are people who have found themselves in a something more.
REINVENTING GOVERNMENT Community-Owned Government
"Chronic care requires a fundamentally different response, one But when San Francisco's average cost of AIDS treatment dropped
grounded in the meaning and familiarity of community, family, and to 40 percent of the national average, they finally understood.
friends," explains David Schulman, who runs the Los Angeles City The idea spread quickly to other cities. In some, the new
Attorney's AIDS/HIV Discrimination Unit. "That explains the communities of care even began helping AIDS patients do battle
powerful growth of hospice—providing a homelike setting for with Medicaid and welfare bureaucracies. "For the first time in
supportive care of the terminally ill." recent history, AIDS brought members of the organized middle
class into the ghetto of the human services bureaucracy, Boo
wrote. "They found the system lacking, so they changed it. 59
58

Between the late 1970s and the late 1980s, Schulman reports, the
Outside the fragmented, assembly-line world of social services, with
number of hospices in the United States swelled from a few dozen
an army of volunteers, the gay community built a new way of caring
to a few thousand. The home health care industry also exploded.
for some of society's most vulnerable members."
State governments developed extensive programs to help the
elderly stay in their own homes rather than go into nursing homes. "This is how effective social service programs work: intimately,
Most health insurance companies began covering home health care. aggressively, with feeling."
One even began to pay family members, trained by nurses, to
provide care at home. By 1989, home health care was a $7 billion
industry. PUBLIC HOUSING: A CASE STUDY
AIDS catalyzed perhaps the most profound shift from the old model
To understand just how profound a force community ownership can
to the new. "The San Francisco gay and lesbian community adopted
be, let us take a close look at one example: the transformation that
the hospice model," explains Schulman. "They got teams of friends
occurs when public housing tenants take control of their own
and volunteers together to care for people with AIDS at home—at a
environment.
fraction of the cost of hospital care. It not only works better, it
helped San Francisco soften a blow that may yet bankrupt it." Public housing began as transitional housing for working people
In a powerful article in the Washington Monthly, Katherine Boo who had come upon hard times, during the Depression. It was an
described the process. It began when a gay nurse at San Francisco inexpensive, safe, stable environment for families while they got
General Hospital, Cliff Morrison, convinced his superiors to let him back on their feet. Public housing authorities had rigid standards,
suspend the normal hierarchical, bureaucratic rules on the AIDS and residents had clear responsibilities: they had to pay their full
ward. He let patients set visiting rules, recruited hundreds of rent; they were generally not welcome if they were on welfare; if
volunteers to help AIDS patients—often just to sit with them—and they had children, they had to be married; and if they found jobs and
set up a special kitchen and other facilities. could afford better housing, they had to move.
But "a comfortable hospital is still a hospital," as Boo put it. So
Morrison and his staff "began suturing together a network of local
Public housing worked well for two decades, even though it was a
clinics, hospices, welfare offices, and volunteers that would get
classic example of the centralized, top-down, bureaucratic model.
patients out of the ward and back into the community." For two
Then, during the prosperity of the 1950s, a dramatic change took
years, Morrison spent much of his time "battling the higher-ups."
place. Working families moved out of public housing, and poor,
REINVENTING GOVERNMENT Community-Owned Government
illiterate blacks from the rural South poured in. Bureaucratic When she got her first apartment at Kenilworth-Parkside, in 1966,
organizations are slow to respond when conditions change, and Kimi Gray personified the stereotype many people have of the
housing authorities were no exception. As this radically different welfare mother: 21, black, divorced, on welfare, with five children.
population moved in—most of whom had never seen a high-rise Today she is an example not of dependency but of the mountains
building, let alone lived in one—few housing authorities changed people can move when they decide to take control of their own
anything. lives.
In 1974, Gray remembers, "some students came to me and said,
Meanwhile, Congress decided to deny welfare to most families if the
'Miss Kimi, we want to go to college.' What the hell did I know
father was present—thus driving many fathers away. It also gave
about going to college? [But] I said, 'Let me check it out, let me
welfare mothers in public housing subsidized rent, which meant that
see what I can do.' " Soon she and several recruits were tutoring
their rent often tripled or quadrupled if they left welfare to work.
students, helping them find summer jobs, enrolling them in
These changes created powerful incentives to stay single and
Upward Bound, helping them fill out college applications, and
unemployed.
drumming up scholarship money. The students called their project
60 College Here We Come. They held bake sales and raffles, got part-
time jobs, and opened bank accounts. After Kimi had hustled all
the scholarships and loans and work61
Before long, public housing developments were functioning as
traps, not safe havens. In many cities, they sank into a vicious study jobs she could, and a student still needed $600 or $1 ,000,
cycle of drugs, crime, teenage pregnancy, and welfare dependency. College Here We Come kicked in the rest.
Because all the control lay with a central bureaucracy—the local
housing authority—residents were powerless to enforce standards Seventeen kids left for college the first August. Word spread quickly:
of behavior or evict criminals. If someone dealt drugs out of the "Man, this stuff is real! People really going to college! These children
apartment next door, residents could complain—but the system couldn't believe that," Kimi says. "Poor people, from public housing,
rarely responded. their mothers on welfare, absent fathers, going to college?"

The Kenilworth-Parkside development, in northeast Washington, In the 15 previous years, two residents of Kenilworth-Parkside had
D.C., was a classic example. By 1980, its main street was an open- attended college. Over the next 15 years, 700 did—and threefourths of
air drug market, and violence was so common that the management those graduated, according to Gray. Today even 16-year-old boys on
company put a bulletproof barrier around its office. Residents went street corners look up to those who attend college.
without heat or hot water for months at a time. The roofs leaked, The second phase of the transformation began in 1982. For several
the grass died, and the fences were torn down. Rubbish was picked years, Kenilworth-Parkside's residents had been pressuring the mayor
up so infrequently that rats infested the buildings. to let them manage the property. Finally, grudgingly, he agreed. The
tenants wrote their own constitution and bylaws, their own personnel
Over the next ten years, however, Kenilworth-Parkside's residents and policy procedures, their own job descriptions.
transformed their community. By 1990, the drug dealers were
gone, crime was negligible, and the buildings were under repair. The bureaucrats "could not believe it," Kimi says. "Public housing
residents? I said, 'The worst it can do is have wrong grammar in it. But
The catalyst for this transformation was an at least we would understand and we would know clearly what was in
extraordinary woman named Kimi Gray. it, right? So therefore we could enforce what we knew we had written.'
REINVENTING GOVERNMENT Community-Owned Government
" Besides, if the Department of Housing and Urban Development barber shop, a clothes boutique, a thrift shop, a catering
(HUD) wrote it, there would be ten lawyers in the room, writing "rules service, a moving company, and a construction company
for things that don't even exist. I mean the crime hasn't been committed that helped renovate vacant apartments. All the
and they got a rule for it already."
businesses employed residents, and all were required to
The Kenilworth-Parkside Resident Management Corporation hired and hire young people to work with the adults. At one point,
trained residents to manage the property and do the maintenance. They 120 residents had jobs at Kenilworth.
held monthly meetings of all tenants. In their Bring the Fathers Out of Gradually maintenance improved as well. The managers and
the Closets campaign, they hired absentee fathers. Believing that peer maintenance men lived on the property; if the heat went out over
pressure was the key to changing their environment, they set up fines the weekend, they got cold too. "It has to be someone who's there
for violating the rules—littering, loitering in hallways, sitting on all the time, on the property," says Renee Sims, head teacher at
fences, not cutting your grass. They created a system of elected Kenilworth's Learning Center. "Because if you have someone
building captains and court captains to enforce them. They started outside managing it, and a pipe bursts over the weekend, you're not
mandatory Sunday classes to teach housekeeping, budgeting, home going to get it done."
repair, and parenting. And they required mothers who 62 Kimi and her managers estimate that in 1982, when they began,
less than half the residents were paying rent. Resident Manager
Gladys Roy and her assistants began going door to door, serving
30-day eviction notices. They explained that if people didn't pay the
enrolled their children in the day-care center to work, attend
rent, they couldn't afford the repairs people needed. If people did
school, or get job training.
not have the cash, they worked out 63
Based on the results of a needs survey, the Resident Management
Corporation created an after-school homework and tutorial
program for kids whose mothers worked full-time. They set up
payment plans or collected what they could. By 1987, rent collections
courses to help adults get their high school degrees; contracted with
were up to 75 percent.
a doctor and a dentist to set up part-time office hours and make
house calls at the development; set up an employment office to Perhaps the worst problem at Kenilworth-Parkside was drugs. Every
help people find training and jobs; and began to create their own evening hundreds of dealers lined Quarles Street. Many of the worst
businesses, to keep money and jobs within the community. offenders lived at Kenilworth, but the police were reluctant to enter
the neighborhood because residents were hostile. Mothers kept their
The first was a shop to replace windows, screens, and children barricaded indoors.
doors, owned by a young man who could neither read nor
count. In return for a start-up loan from the residents Finally, Kimi called a meeting and invited the police. At first most
council, he trained ten students, who went on to market residents stayed home, afraid to be seen as snitches. Kimi and the
few who did attend asked for foot patrols at Kenilworth. Then they
their skills elsewhere in Washington. The board fired the
suggested a temporary station—a trailer— right on the grounds. The
garbage collection service and contracted with another police agreed.
young man, on condition that he hire Kenilworth-
Parkside residents. Before long they had a cooperative "By putting guys over there, on a regular basis, they began slowly to
develop a sense of trust in us," says Sergeant Robert L. Prout, Jr.
store, a snack bar, two laundromats, a beauty salon, a
"And they began to give us information. . . . And now, it's got to the
REINVENTING GOVERNMENT Community-Owned Government
point where we have mothers that have sons that if they're wanted for explains. "Now once we got to court, we were alright, because we
something, they'll pick up the phone and call us." would take residents with us down to court to say, 'No, your honor,
Kimi remained the role model. She turned in anyone who was selling that fella cannot stay in our community any longer.' " Four families
drugs—even members of her beloved College Here We Come. (Her were evicted. "That's all it took. People seen, 'Hey, they serious.' "
own son was arrested for dealing in southwest Washington.) She Evictions did not stop the dealers who lived elsewhere, of course.
made sure a 30-day eviction notice went to every household in which Finally, in 1984, the residents decided to confront the dealers head on.
someone was dealing. If nothing happened, the Resident "We got together and we marched," says Denise Yates, assistant
Management Corporation started litigation. manager of the Resident Management Corporation. "Day after day,
"We got with the attorney down at the Housing Department and we and in the evening too. We marched up and down the street with our
wore 'em to death, 'til we got them to take our cases to court," Kimi signs. We had the police back
6465

us. Maybe half the community would march. A lot of teenagersExpectations are powerful. Before they took control of their and little kids, in addition to
mothers."own environment, people at Kenilworth-Parkside expected After several weeks of disrupted business, the dealers beganthings to happen to them.
They expected to lose their heat or hot to drift away. Some resisted, and for a time things got nasty.water. They expected to be victimized by crime. They
expected Someone cut the brake lines in Kimi's car, put sugar in her gastheir roofs to leak. They expected their sons to get into drugs, tank, slashed her tires.
But she refused to bend, and her confi-their daughters to get pregnant. They expected to have no power dence rubbed off on the others.to change any of this,
because all the power in their environment "When she didn't show any fear of being seen with the police,lay with the housing authority, the police, or the
criminals. or riding through the neighborhood with us, then they more orAs they took control of their environment, their expectations less followed suit,"
says Sergeant Prout. By 1989, the crime ratebegan to change. "There is a conversion experience that people had fallen from between 12 to 15 crimes a
month—one of thego through," says David Freed, a real estate consultant who spehighest levels in the city—to 2.cializes in low-income tenant buy-outs
in Washington, D.C. "It The lesson is clear: the police can make raid after raid, buthappens when there is a process that renters go through together only if
a community decides to take responsibility for its ownand there is a change in people's view of themselves and their safety can the police be truly effective.
"We tell them, 'The po-neighbors. I see it again and again. It's what's exciting about my lice can't be here all the time,' " Prout explains. ' "You
livework: it's that conversion experience." here, you know more about what goes on, you know who doesToday, more than 15 tenant organizations around
the counwhat. It's just a matter of whether you want your community, or try manage their own public housing projects, and more than whether you want
In 1986, the accounting firm Coopers & Lybrand released anrole. Several want to buy their developments, as Kenilworthaudit of Kenilworth-Parkside.
During the first four years of ten-Parkside residents have.

ant management, it reported, rent collections increased 77 per-"Development begins with a belief system," says Robert cent—seven times
the increase at public housing citywide.Woodson, whose National Center for Neighborhood Enterprise Vacancy rates fell from 18 percent—then the citywide
aver-has functioned as an informal staff for the tenant management age—to 5.4 percent. The Resident Management Corporationmovement: helped at least
132 residents get off welfare: it hired 10 as staff and 92 to run the businesses it started, while its employmentWhat Kimi and other tenant leaders have done
is just selfoffice found training and jobs for 30 more. (Others receivedconfidence, and they've passed that self-confidence on to othpart-time
jobs.) Overall, Coopers & Lybrand concluded, fourers. Only when you overcome the crisis ofself-confidence can years of resident management had
saved the city at leastopportunity make a difference in your life. But we act with $785,000. If trends continued over the next six years, it wouldprograms as
if opportunity carries with it elements of selfsave $3.7 million more—and the federal government wouldconfidence. And it does not. reap additional
REINVENTING GOVERNMENT Community-Owned Government
Since the Coopers & Lybrand audit, a complete renovation ofPROFESSIONAL SERVICE VERSUS
Kenilworth has been done, under HUD's normal renovation program. In 1990, the residents bought the development—for aCOMMUNITY CARE
grand total of $1. A community of 3,000, once characterizedThe empowerment of communities like Kenilworth-Parkside largely by single-
parent families on welfare, is now a commu-not only changes expectations and instills confidence—it usunity of homeowners, the majority of whom
work.ally provides far better solutions to their problems than normal

than their coworkers. "I'm from manufacturing, and I speak their


66 language," says Barbara Gillette, a former sugar refinery worker who
joined the staff of a Worker Assistance Center in Massachusetts. "The
public services. John McKnight, director of community studies at key to what I do is to let people know I've experienced it. I had
Northwestern University's Center for Urban Affairs and Policy difficulty and I had losses too, but I came through it."
Research, spent several decades as a community organizer in Chicago. Professionals and bureaucracies deliver services; communities solve
His experiences convinced him that by pulling ownership of services
problems. McKnight describes a neighborhood organiza67
out of the community and into the hands of professionals and
bureaucracies, we have actually weakened our communities and
undermined our people. "There is a mistaken notion that our society
has a problem in terms of effective human services," he says. "Our tion in Chicago that tried to forge a partnership with the local hospitals
essential problem is weak communities." to improve health care. When the effort yielded few results, the
McKnight provides an illuminating series of contrasts between organization gradually began to look "not at more professional service,
professional service delivery systems and what he calls "associations of but instead at the question of what brought their people to the hospital
community"—the family, the neighborhood, the church, and the in the first place." The answers were predictable: automobile accidents,
voluntary organization. For example: interpersonal violence, accidents, alcoholism, and dog bites.
Communities have more commitment to their members than service
delivery systems have to their clients. Kimi Gray and her staff are more When this became clear, the people in the neighborhood
committed to their residents than any housing authority could be. Those immediately saw that what they needed was not really more and
who join Mothers Against Drunk Driving are more committed to their better medical/hospital service, but to work down the volume of
mission than any government agency could be. The nonprofit auto accidents, interpersonal violence, accidents, alcoholism, and
organizations CODAMA contracts with in Arizona are more committed dog bites. . . . They began with dog bites. It occurred to them to
to their patients than any hospitals or psychiatrists could be. "In our offer kids in the neighborhood a bounty for bringing in dogs
organizations, bachelor-level counselors are working for around running loose. They had been paying something like $185 for the
$15,000," says Alan Flory. "They tend to be very committed people. treatment of a dog bite. They paid a $5 bounty for dogs. And they
Some of them are recovered alcoholics, or people who've had alcohol or gradually began to be aware, as this went on, that though there is a
drug problems in their families.' market for professional service, there is not really a market for
Communities understand their problems better than service problem solving. Nobody puts up money to reduce dog bites; they
professionals. No bureaucrat could know more about problems in a put up money to stitch up dog bites. Most of the activity and the
public housing development than the people who live there. No state money nominally addressed at solving problems is, in fact, simply
employee can understand the problems of unemployed workers better going to pay for services.
REINVENTING GOVERNMENT Community-Owned Government
As we write, the city of Boston is forcing its hospitals to expand their that they used for white adoptions. They turned down black families
services for pregnant women in Boston's black neighborhoods, where because they lived in apartments rather than houses, they did not have
infant mortality is on the rise. But anyone who reads the newspaper enough formal education, they lacked middle-class incomes, or they had
knows that the problem is not simply a lack of medical services. The only one parent.
problems are poverty, drug addiction, teenage sex, and the dissolution In 1980, the department turned to the black community for help.
of the black family. More medical services will have very little impact. Working with black ministers, it asked each black church to find at least
Institutions and professionals offer "service"; communities offer "care." one family willing to adopt a child. The first person to volunteer was an
Care is different from service. Care is the human warmth of a genuine unmarried black minister. The churches have since found homes for
companion; care is the support of loved ones as a family copes with more than 3,000 black children, and the backlog of black children
tragedy; care is the gentle hand of a helper when one is bedridden. waiting for adoption has fallen below that for whites.
Economist Steven E. Rhoads describes one example in his book The Communities are cheaper than service professionals. One
Economist's View of the World: Church, One Child saved Illinois an estimated $15 million in 69
68

Over 6,000 people in our community of 100, 000 perform just three years. Florida saves $180 million a year by financing home
volunteer work. One hundred participate in the "Meals on Wheels" care and community care to keep people out of nursing homes. The
Program, donating a few hours a week and driving expenses to take community mental health organizations with which Arizona contracts
hot meals to elderly people who cannot cook for themselves. save the state millions of dollars every year. (In fact, the state makes
them raise 25—50 percent of their budgets on their own; by 1989, this
This program is the perfect example ofthe kind ofin-kind amounted to $12 million a year.)
redistribution program economists typically attack. The charge
would go something like this. "Why have a separate bureaucracy "The professional servicers take increasing proportions of public
charged with one small thing—delivering hot meals to the elderly? money, desperately needed by the poor, and consume it in the name of
What is so special about a hot meal anyway? Why not give the poor helping poor families," says McKnight. His center at Northwestern
the money we spend on the program to do with as they wish?" University did a study of government spending on the poor in Cook
County, which includes Chicago. They found that in 1984, federal,
This analysis misses something. The most important thing that the state, and local governments spent $6,209 per poor person in Cook
volunteers bring the elderly is not the hot meal, but the human County—enough to get everyone over the poverty line. Yet only 35
contact and the sense that someone cares. Volunteers can do this percent of this money reached the poor in the form of cash. Another 1
more convincingly than bureaucrats. 3 percent came as food stamps and rent vouchers. The majority, 52.6
percent, went to service providers: hospitals, doctors, nursing homes,
Communities are more flexible and creative than large service social service agencies, job trainers, lawyers. The Community Services
bureaucracies. Kenilworth-Parkside is a perfect example. An Illinois Society of New York did a similar study, with similar results. Of the
initiative called One Church, One Child provides another. A decade ago, roughly $7,000 in public and private money expended per low-income
the Illinois Department of Children and Family Services was having person in New York City in 1983, only 37 percent reached the poor.
trouble placing black children for adoption; it had a backlog of 1,000.
Communities enforce standards of behavior more effectively than
The problem, according to black leaders, was the bureaucracy. Its
bureaucracies or service professionals. Several years ago a Catholic
members brought the same middle-class standards to black adoptions
REINVENTING GOVERNMENT Community-Owned Government
church in Brooklyn closed down a shelter for homeless men, which talent, or treasure. Hence its entire attention is on your capacities—on
provided a bed, clothing, and help in finding a job. The church had run what you can bring to the task. In contrast, job training programs, social
it successfully for 10 years, but when the city opened a shelter nearby, work agencies, police departments, and welfare programs focus on your
most of the men left. Why? Because they preferred the city shelter— deficiencies: what you don't know, what you can't do, how you have
where no one forced them to give up alcohol and drugs, to wash up, or been victimized. Most professionals "basically see the family as a client
to look for a job. in need of treatment and therapy," says McKnight. This has "the
increasing effect of convincing families that they are incompetent to
Sister Connie Driscoll runs a nationally recognized shelter for
know, care, teach, cure, make, or do. Only certified people can do that
homeless women and children in Chicago. Those who stay have to
for you."
take classes, do chores, and save 70 percent of their welfare checks. In
seven years, 6,000 women have moved through the shelter, and
according to Driscoll, only 6.5 percent have returned to the shelter
system. Driscoll believes other shelters should start requiring things MANAGING THE TRANSITION
like education—"if you can get the liberal left to 70 FROM SERVICE TO EMPOWERMENT
If community ownership is the goal, what role can government play?
How can it empower stakeholders? Does it simply abandon services
get off the bandwagon about 'You can't force people to do things delivered by bureaucrats and professionals?
because you think it's right.' Well, maybe they can't, in publicly 71
operated shelters and publicly funded shelters. But, as a private shelter,
we can make it a part of our contract—and we do."
Of course not. Public housing again provides a useful illustration. In the
Like public bureaucracies, professionals are also reluctant to impose mid-1980s, Robert Woodson asked Kimi Gray and other tenant
their values by telling clients how to behave. In fact, by treating management leaders to draw up a list of policy changes that would
problems as "diseases," professionals often avoid the question of values remove barriers to their success. Based on that list, they developed
and behavior altogether. Family members, church members, and seven amendments to the federal Housing Act. The resulting bill gave
community members are not so reluctant. resident councils a clear right to manage their own developments; gave
"One of the things that this community has brought back is a kind of them priority for HUD renovation grants; set up procedures by which
old-fashioned shunning," says Dr. Alice Murray, a psychologist who resident management corporations could buy their projects after three
runs Kenilworth-Parkside's Substance Abuse Prevention project. "It's a years of successful management; and appropriated $5 million to train
way of saying, 'This is behavior we will not tolerate. Should it happen, residents in self-management at 50 projects. When Jack Kemp became
then we put you through all the services, but we don't expect it to secretary of housing and urban development, he made tenant
happen ever again.' It's done in a very kind and gentle and loving way, management and ownership one of HUD's top priorities. By 1993, he
but there's shame when it occurs—which is not the case in the outside hopes to have moved 250 public housing developments through
community." training for tenant management.
Communities focus on capacities; service systems focus on deficiencies. Government cannot force people to take control of their housing or
Communities like Kenilworth-Parkside depend on the capacities of their schools or neighborhoods. When HUD and the Ford Foundation tried to
members to get things done. Think of your church, your synagogue, stimulate tenant management from the top down, during the 1970s, most
your voluntary organization. It wants a contribution from you, in time, of their attempts failed. But governments can structure things so that
REINVENTING GOVERNMENT Community-Owned Government
people can take control, if they want it. "I'm not suggesting that we're National Center for Policy Alternatives, in Washington, D.C. One
going to force it down people's throats, and I'm not suggesting that solution, he argues, is some form of "intermediary ownership structure,
everybody might want to do it, and I'm not suggesting that everybody such as a mutual housing association—a corporation owned by its
should be treated in exactly the same manner," says Kemp. "But I at residents:
least want the opportunity out there for everybody." Kemp's strategy
includes many of the specific steps government can take: it can remove
People have a vested interest in how it's run, they have a direct democratic vote in
the barriers to community control; encourage organized communities to
management, they are encouraged and involved in policy making about such thing
take control of services; provide seed money, training, and technical
structures and resident obligations, and they get a financial cut in terms ofpersonal
assistance; and move the resources necessary to deal with problems into
benefits and the rewards ofsweat equity in maintaining their own units. But they st
the control of community organizations.
corporate accountability in terms of making the whole thing work. There are profe
Public organizations can create a spectrum of opportunities, which
managers who are hired and fired by the residents.
different communities can seize as they are ready. Many public housing
authorities create resident advisory boards, give tenants seats on the
board of directors, or encourage residents to form tenant councils at each Even in the best situations, there will be problems. Corruption has
development. Some encourage tenant councils to hire and fire private plagued some tenant management corporations. The 73
management firms. A few encourage tenants to form their own
corporations and manage the property themselves. And a handful,
including those in 72 Housing Authority of Louisville quit contracting with one of its resident
management corporations because the corporation began to cheat. But
Louisville's experience also demonstrates the answer: it discovered the
Washington and Louisville, have allowed tenants to buy developments. corruption because it had strict, measurable performance standards in its
contract. When performance began to fall off—because the corporation
None of this is easy, or automatic. In poor communities, enormous
was engaging in nepotism and other self-dealing practices—the
leadership is necessary to make something like tenant management
performance measures quickly showed it. The success of empowerment
work. "The Kimi Grays are rare," says Andrea Duncan, who runs the
is thus directly dependent on the success of other concepts in this book,
Housing Authority of Louisville. "Most public housing residents are
including accountability for results.
women who are very dependent, who don't have a lot of confidence,
who have a long way to go just to deal with their own sense of wellness, When governments push ownership and control into the community,
their own life management." But it takes enormous leadership to create their responsibilities do not end. They may no longer produce services,
any successful enterprise—whether Kenilworth-Parkside Resident but they are still responsible for making sure needs are met. When
Management Corporation or IBM. So why not create more opportunities governments abdicate this steering responsibility, disaster often follows.
in poor communities and see how many leaders emerge? The massive deinstitutionalization of mental patients in favor of
It would be wrong to force people who have long been dependent to communitybased treatment during the 1970s was a perfect example. It
suddenly manage on their own, without some kind of transitional worked in a few places, but most governments abdicated their steering
support. "You can't take residents of public housing who spent most of responsibilities. They failed to make sure that community treatment
their lives in a colonial state and expect them to turn around and have centers and homes were in place, with adequate funding, and they failed
the attitudes of entrepreneurs and the skills of private sector to monitor what happened to patients who left their hospitals. As a
administrators,' says Robert Stumberg, a housing expert with the result, many of the mentally ill ended up on the streets, homeless.
REINVENTING GOVERNMENT Community-Owned Government
EMPOWERING CITIZENS MROUGH hours every week to volunteer work in the schools, on neighborhood
PARTICIPATORY DEMOCRACY watches, or in community organizations. It is precisely here that
participatory democracy is becoming real within American
The ultimate form of ownership is not ownership simply of problem governments.
solving or of services, but of government. In theory, our representative
system of democracy gives us that ownership. In reality, few Americans In St. Paul, for example, George Latimer pushed ownership of dozens of
feel that they "own" or "control" their governments. By 1989, three out services into the community, from home energy audits and
of four Americans surveyed agreed that "most members of Congress weatherization to the replacement of trees killed by Dutch elm disease.
care more about special interests than they care about people like you." He was so intent on getting citizens to feel like they owned the city that
By 1990, efforts to take control back—through term limits, campaign he published an Owner's Manual listing all city services and
finance reform, and a broader use of ballot initiatives— had begun to departments. His principal instrument was a remarkable system of 17
sweep the country. elected district councils. (Several other cities, including Dayton,
Cincinnati, Birmingham, Seattle, and Portland, Oregon, have similar
74 systems.) The city subsidized an office and an organizer for each
council, and 75
Campaign finance reform is obviously a precondition to recapturing
our governments. Many people have recommended other forms of
democratic participation, from neighborhood assemblies to a national
initiative and referendum process. Many cities and states have used the councils acted as sounding boards for city government, set
"futures projects" to generate widespread discussion of issues. (See priorities for half a billion dollars' worth of public works investments,
chapter 8.) initiated special projects funded by the city, and delivered services.
Some district councils remained essentially reactive, but others actively
Most of these ideas make eminent sense. We would no doubt be better
attacked problems in their neighborhoods. Many sponsored
off if they were adopted by every government in America. But there is a
neighborhood watches. One managed the city park in its neighborhood.
reason they have not been. Americans are not clamoring for more
Another organized a Chore Service that paid neighborhood kids to do
elections, more opinion polls, and more meetings to attend; most of us
chores for the elderly. Still another organized a Block Nurse Program,
are far too busy making ends meet and raising our children. America
through which neighborhood residents and nurses provided nursing
already holds more elections than virtually any other country on earth
care, companionship, and help with household chores to elderly
—national elections, state elections, city elections, county elections,
residents, so they could stay out of nursing homes. Church groups
school board elections, water board elections, transit board
trained the volunteers, church youth groups helped out with things like
elections . . . We already have 504,404 elected officials, one for every
lawn care, Boy Scouts painted houses, and local stores provided goods.
182 voters. We all know the sinking feeling that comes in the voting
booth, after we get through the national and state and city council races, Kathy Tarnowski, the paid organizer for the District 14 Community
when we see pages of names we do not know and contests for offices Council, summed it up well: "The strength of our process is not in
we know nothing about. reactive governance. The strength is that we're solving our own
problems. That's the kind of thing a politician—an alderman—can't
What Americans do hunger for is more control over matters that do."
directly affect their lives: public safety, their children's schools, the
developers who want to change their neighborhoods. They care so
much about these things, in fact, that many of them devote precious
Competitive Government
The losses forced Jensen and his employees to rethink the way they
Competitive Government: did business. They were already converting from threeperson to one-
person trucks, with mechanical arms that picked up trash barrels.
Injecting Competition into When given the opportunity to compete, however, the private
companies followed suit. So Jensen and his managers had to look
Service Delivery elsewhere for an advantage. They asked their drivers to redesign their
routes and work schedules, because the drivers knew better than
anyone else where efficiencies lay. They created quality circles, called
The issue is not public versus private. It is competition versus monopoly.
"partnership teams," and a labor-management Productivity
—John Moffitt, Chief Secretary to Massachusetts Governor
William Weld Committee, to come up with other improvements. They developed a
new cost accounting system, so they would know precisely how much
their services cost, per household, per month. They installed a
suggestion program that gave employees 10 percent of the savings
n 1978, in the throes of a tax revolt, Phoenix decided to contract generated by their suggestions—up to a maximum of $2,000. And
garbage collection out to the private sector. Predictably, the union they gave monthly and quarterly awards to the best drivers.
protested. The city council met, discussed the issue, and eventually
Gradually the department's costs came down. In 1984, a seven-year
voted to go ahead. After the vote, the mayor turned to Public Works
contract came up for the city's largest district. Public Works was
Director Ron Jensen: "You are going to compare the bids with your
determined to win it. All competitors in Phoenix, public and private,
costs, aren't you?"
were using trucks that held 25 cubic yards of garbage. Jensen and his
"Mayor," Jensen replied, "we'll bid [for the job] too." colleagues heard that Sacramento had picked up on the idea of one-
"I said it just like that, without any thought," Jensen remembers. "It person trucks, but had put the mechanical arm on 32-cubic-yard
was a halfway humorous remark. When I got back to the office, my trucks. "So we had one of our guys go look at them," Jensen says. "He
staff said, 'What do you mean we'll bid it too?' I just said, 'Why not?' " liked them. We had the auditor take a look, so we could include that in
our bid. The private contractors were still using 25-cubic-yard trucks,
So began one of the nation's most extensive experiments in public- so we beat them by more than $6 million."
private competition. The Public Works Department divided the city Morale soared. Management held a dinner for all employees and
into districts and began bidding them out on fiveto seven-year handed out new hats with the city logo and "Sanitation #1 " printed
contracts—roughly one a year. The city adopted a no-layoff policy; it across the face. "It was amazing, when they finally whipped the
required private contractors to hire Public Works employees who were private people morale went way up, because now they could prove
displaced, and it transferred those who wanted to stay with the city to that they had done it well," said Mayor Terry 78
other jobs (sometimes at 77
Goddard. "They weren't just city bureaucrats, they weren't just people
that had a cushy job. They had proof, out of the competitive process,
lower pay). To make sure the bidders included all their costs, the city that they were good."
auditor's office examined each bid, public or private. The private companies quickly converted to 32-cubic-yard trucks as
Three times Public Works submitted bids, and three times it lost. The well. ("We learn from each other,' says Jensen. "That's what
fourth time its bid was virtually identical to that of the lowest private competition does. ") But Public Works kept finding new ways to drive
bidder, but the council decided to go with the private company. its costs lower. It won a second district, then a third. By 1988, it had
REINVENTING GOVERNMENT Competitive Government
won back all five districts. "Over a 10-year period, you see the costs bureaucracies, they embraced monopoly. To this day, we deride
for all other city programs going up," says Jensen. "Solid waste costs competition within government as "waste and duplication." We
have gone down by 4.5 percent a year, in real, inflation-adjusted assume that each neighborhood should have one school, each city
dollars." should have one police force, each region should have one
organization driving its buses and operating its commuter trains.
Charles Fanniel, the union president, would prefer the comfort of
When costs have to be cut, we eliminate anything that smacks of
guaranteed jobs for his employees. He is critical of a "lowball"
duplication—assuming that consolidation will save money. Yet we
contract the city once awarded to a firm that quickly failed to fulfill its
know that monopoly in the private sector protects inefficiency and
obligations; after virtually a complete breakdown, the city had to hand
inhibits change. It is one of the enduring paradoxes of American
the contract to another firm. But overall, Fanniel agrees that working
ideology that we attack private monopolies so fervently but embrace
conditions, pay and morale are better than they were before 1978.
public monopolies so warmly.
Communication between labor and management is good, and formal
"I often ask people how they would like it if there were one airline in
grievances have virtually disappeared. "We've done well," says
this country," says General Bill Creech, who used competition and
Fanniel. "And we've got some good incentives for performance." But,
decentralization to turn the Tactical Air Command around, as we will
he adds, his people work very hard. "What happens with this bidding
see in chapter 9. "By the theory of centralization, it would be very
system is you cut out all the fat."
efficient. How efficient? Just ask anyone who flies on Aeroflot, the
Phoenix has used competition not only in garbage collection but in Soviet airline."
landfill operation, custodial services, parking lot management, golf
Entrepreneurial leaders such as Creech know that competition
course management, street sweeping, street repair, food and beverage
between policy agencies—otherwise known as turf war— only makes
concessions, printing, and security. Between 1981 and 1984, it moved
it harder for government to play a steering role. In policy
from 53 major private contracts to 179. Some proved better than their
management, coordination between different interests is vital.
public competitors, some did not. The city eventually decided that
Similarly, they know that competition makes little sense in most
ambulance service, street sweeping, and maintenance of median strips
regulatory functions. But they have discovered that when service
were better handled by public employees. But overall, the city auditor
providers must compete, they keep their costs down, respond quickly
estimates savings of $20 million over the first decade, just in the
to changing demands, and strive mightily to satisfy their customers.
difference between the bids the city accepted and the next lowest bid.
No institution welcomes competition. But while most of us would
Since competition has forced all bid levels down, this is but a fraction
prefer a comfortable monopoly, competition drives us to embrace
of the real savings.
innovation and strive for excellence.
City Auditor Jim Flanagan has overseen the process from the
beginning. There is no truth to the old saw that business is always 79 Competition will not solve all our problems. But perhaps more than
any other concept in this book, it holds the key that will unlock the
bureaucratic gridlock that hamstrings so many 80
more emcient than government, he has learned. The important
distinction is not public versus private, it is monopoly versus public agencies. This is not to endorse cutthroat competition, which
competition: "Where there's competition, you get better results, more can bring out the bad as well as the good. If competition saves money
cost-consciousness, and superior service delivery." only by skimping on wages or benefits, for instance, governments
In government, of course, monopoly is the American way. When the should question its value. Nor are we endorsing competition between
Progressives embraced service delivery by administrative individuals. Merit pay for individual teachers, to cite one example, just
sets teacher against teacher and undermines morale. But merit pay for
REINVENTING GOVERNMENT Competitive Government
schools is another matter. Competition between teams—between Since then Savas has studied other services and reviewed countless
organizations—builds morale and encourages creativity. other studies. They show, he says, that on average public service
delivery is 35 to 95 percent more expensive than contracting, even
when the cost of administering the contracts is included.
THE ADVANTAGES OF COMPETITION "Nevertheless," he adds, "I have seen situations— and have helped
bring about situations—where the government matches the
The most obvious advantage ofcompetition is greater eficiency: more performance of the private sector. It does that in a situation like
bang for the buck. E. S. Savas, chairman of the Department of Phoenix, or Minneapolis, or Kansas City, or Newark, when the
Management at City University of New York, is one of the nation's government competes continually with the private sector."
leading experts on competition in public service. He came to the issue
in an interesting way, when he served under New York City Mayor Other studies confirm Savas's points, although estimates of the savings
John Lindsay. from contracting vary. James Q. Wilson presents an exhaustive review
of the literature in his book Bureaucracy. It shows that in most cases,
We had a disastrous snowfall which had serious political private firms deliver services more economically than public
overtones. To make a long story short, we discovered that the organizations. But where public and private organizations (of similar
department responsible for cleaning the snow was really working size) function in the same marketplace—as in health care and electrical
only about 50 percent of the time during this emergency. The rest utilities—their costs and quality are roughly the same. If anything,
of the time was consumed by work breaks, warm-up breaks, publicly owned utilities are cheaper.
coffee breaks, fueling breaks, lunch breaks, and wash-up breaks. Where private service providers do not have to compete, on the other
Being curious about how this departmentfunctioned when there hand, they are just as inefficient as public monopolies. Consider
was no emergency but only the normal work of refuse collection, Massachusetts, which like other states relies on private companies to
I decided to compare the New York City Department of Sanitation provide automobile insurance, but unlike most states does not let them
with the private sector in and around the New York City area. We compete. Their prices are set by a regulatory commission, just as a
discovered that it cost private contractors about $17 per ton to utility's would be. As a result, insurance companies have no incentive
collect refuse, whereas it cost the city agency $49 a ton, almost to lower their costs, to find efficiencies, or to control fraud. They show
three times as much. as little interest in their customers as do the worst government
bureaucracies. Not surprisingly, Massachusetts has the highest average
When these findings attracted media attention, Mayor Lindsay 82
appointed a commission to look into the option of con81
premium rates in the country, the highest claims frequency, and the
highest auto theft rate.
tracting out garbage collection. But when the unions objected, Lindsay
Competition forces public (or private) monopolies to respond to the
buried its report.
needs of their customers. Consider the U.S. Postal Service—with
After leaving government, Savas convinced the National Science 760,000 employees, our largest civilian monopoly. We all know the
Foundation to fund a large-scale comparison of public and private Postal Service is ineffcient: if the ever-rising cost of first-class mail is
garbage collection. "The results were quite striking and irrefutable," he not evidence enough, consider the fact that the Postal Service spends
says. "Private firms under contract were equally effective, equally more than 80 percent of its budget on labor, while United Parcel
responsive, but vastly more efficient than government agencies." Service (UPS) spends less than 60 percent. The Postal Service is also
REINVENTING GOVERNMENT Competitive Government
unresponsive. In 1973 it tried, unsuccessfully, to suppress private found that we too could have covered access to planes, just like
courier services—even though it was not willing to offer same-day the rest of the world. The capital city had been using a grotty old
service itself. In the 1970s, it refused to offer overnight express prefabricated building as a terminal ever since World War 11,
service—until Congress let its private competitors into the market. In and nobody had been able to get it upgraded. Suddenly we had
1988, it met its own third-class delivery standards only 30 percent of two totally modern terminal buildings. We got more flights,
the time—and it lost 3.5 to 15 percent of all thirdclass mail. The trade cheaper flights, better food, friendlier service and virtually a zero
association of bulk mailers, the Third Class Mail Association, became wait for luggage.
so frustrated that it finally endorsed competition in third-class
People began to see, often for the first time, that the central issue
delivery as well.
in safeguarding their own interests as consumers was not, in
Competition has forced drastic improvements in some areas, such as fact, ownership—it was competition.
express mail. But with the Postal Service's monopoly on first- and
third-class mail intact, old habits die hard. While Federal Express and Competition rewards innovation; monopoly stifles it. Competition in
UPS have produced a constant stream of innovation, earned millions of service delivery favors "the survival of the helpful," as two British
loyal customers, and kept their prices steady, the Postal Service has socialists once put it. It is a form of natural selection. "Nature's
struggled. In 1971, it had half the market for package delivery; by the incessant experimentation with mutations enables species to evolve,
late 1980s it was down to 8 percent. In 1981, it had 26 percent of the adapt, and survive despite drastic environmental changes," writes
overnight market; by 1989, it was down to 12 percent. Savas; "some of these 'experiments' turn out to be better suited to the
new surroundings than the original model and ultimately replace it."
In contrast, public monopolies that are thrust fully into competition
have little choice but to please their customers. Countries all over the Normal government practice discourages natural selection. Rather
world have discovered this as they have privatized their state-owned than the survival of the helpful, we find the survival of the already
enterprises. Consider what happened when New Zealand simply entrenched or the politically powerful. Service decisions are made
allowed one airline to compete with its state-owned line. Roger based on what was done last year, which provider organizations have
Douglas, a former Labor Party finance minister, tells the story: political clout, who gave campaign contributions, and where the
unions stand. Successful experiments all too often remain marginal,
Air New Zealand, as a state owned business, had always done afirst- if they have no political clout. And when budgets are cut, marginal
classjobfor customers on international routes. They had 83 programs are the first to go.
When service organizations are put into genuine competition,
everything changes. Those who deliver poor service at 84
to—they were competing with Pan Am, Quantas, British
Airways and the best in the world. But at home in New Zealand, high prices are gradually eliminated, while those who deliver quality
where they had a domestic monopoly, it was a different story. service at reasonable prices grow larger. Competition on the margin
Passengers all trudged through the rain from the terminal to their forces organizations to shed their skins, time and again. If accurate
aircraft. They waited up to 20—30 minutes at the other endfor measurement of quality is in place, natural selection proceeds almost
their luggage. Nobody realized what we had been missing until automatically. Politicians may try to interfere, but when they do,
the present government decided to break Air New Zealand's they have to argue against the facts.
monopoly by letting Ansett come in alongside them. Suddenly, Competition boosts the pride and morale ofpublic employees. Most
overnight, to the utter amazement of the New Zealand public, we of us assume that public employees suffer when they have to
REINVENTING GOVERNMENT Competitive Government
compete. They certainly lose a degree of security, and for that reason Beginning in 1984, the federal Department of Transportation asked
their unions often oppose any threat to their monopoly status. We local transit authorities that wanted federal funds to include private
believe that efforts to minimize the pain, such as Phoenix's no-layoff firms as potential service providers. By the late 1980s, at least two
policies, are critical. Governments can easily guarantee their dozen cities, including Los Angeles, Kansas City, Miami, and
employees a job, without guaranteeing the job they currently hold. Denver, were bidding out some transit routes competitively.
But we have also found that once public employees find themselves in
New York City's Sanitation Department, which claims to have the
competition—if their job security is not at stake—they enjoy it.
largest nonmilitary vehicle fleet in the free world, used public-private
"People want to do fine work," says John Cleveland, formerly of the competition as one element of a remarkable turnaround. By
Michigan Commerce Department: comparing the costs of its internal repair shops with those of private
shops—and posting charts of each public shop's resulting "profit" or
They find that when they get ihto a competitive situation, they "loss' '—Deputy Commissioner Ron Contino and his employees
work a lot harder, but it's far more exciting. They may have to be increased productivity enough to save $2.4 million a year. Now that
pushed into it, but they discover that it's much more rewarding. they "could see how their shop compared with other shops," Contino
And there's no question about when they're doing a good job. says, his employees "were no longer just city workers." They thought
The world knows it, because they're winning in competition with "of themselves now as competitive individuals, working for a
others. competitive shop." Almost inevitably, they began looking for other
business—bidding for jobs other departments had contracted out. By
1989, they were pulling in $700,000 a year, in what they dubbed their
THE VARIETIES OF COMPETITION Contracting-In program.
Phoenix is hardly alone. Since the tax revolt of 1978, governments all
Even the Postal Service uses some private contractors, although it
across America have begun to use competition to lower their costs.
doesn't expect its employees to compete with them. To handle 4,500
They have developed almost an infinite variety of methods.
of its rural routes, it contracts with private individuals—at halfthe
cost of its 40,000 other routes. To operate some of its small
Public versus Private Competition community post offices, it contracts with private merchants—also at
half the cost of its own community post offices. Were it willing to
Some people believe government cannot compete with business. But
build such competition into its core services, it could no doubt save
as we saw in Phoenix, not only can it compete, it can win. Arizona's billions of dollars a year.
adult mental health system, described in chapter 1, pits public
hospitals and agencies directly against for-profit 85
Private versus Private Competition
This is by far the most common approach: governments ask private
and nonprofit providers for contracts. In job training, competition firms to compete to produce some public service.
between public agencies and private firms has become relatively 86
common. When Tennessee recently decided to build three new
prisons, it let a private firm handle one and the state operate the others Load shedding is perhaps the simplest method. By simply backing out
—to see who could do it more cheaply. of public provision, governments turn services over to the private
market. George Latimer did this in St. Paul with garbage collection,
REINVENTING GOVERNMENT Competitive Government
for example. By setting the rules, governments can structure the estimated, would have experienced a 37 percent inflation rate.
marketplace so it meets public needs. But because public agencies Quality of care was also higher in Arizona than in a comparable
give up direct control over service producers, load shedding reduces traditional program.
government's ability to hold firms accountable. If customers do not
Studies in Wisconsin estimate that the state is saving roughly 1 5
have the information or leverage necessary to hold them accountable
percent a year by putting its welfare population in Milwaukee County
—principally by threatening to switch to a competitor—load
into HMOs. Many governments, including Milwaukee's, have also
shedding can leave them vulnerable. (We will return to this subject in
bid their public employees out to HMOs on a competitive basis. "We
greater depth in chapter 10.)
didn't slash any benefits, and we didn't shift costs to employees,"
Procurement is another common avenue governments use to force Milwaukee's deputy budget director told Governing magazine. "We're
private companies to compete. Typically, public agencies have to using the competitive free-market process to force HMOs to compete
secure competitive bids for any procurement contract over a set for the city's business."
amount—say, $5,000. Governments spend hundreds of billions of
Contracting is another common method of injecting competition into
dollars this way every year—on health care, on highway construction,
public services. By 1987, the federal government contracted out
on building maintenance.
$196.3 billion of work, while state and local governments contracted
Consider health care. More than half the states have experimented out $100 billion. (Not all contracting is competitive, of course—
with competition between prepaid medical plans to provide Medicaid witness Defense Department contracting.) The average city
and/or coverage for state employees. Medicaid is "the Pac-Man of contracted out 27 percent of its municipal services.
state budgets," as a National Association of State Budget Officers
Contracting is one of the most difficult methods a public organization
executive put it—and health insurance for state employees is right
can choose, because writing and monitoring contracts require so
behind it. In recent years, Medicaid costs have shot up by almost 20
much skill. Many governments act as if their job is done once they
percent a year. States like Massachusetts, which still rely primarily on
have signed a contract. As a result, too many private contractors fail
traditional third-party payment systems, find their costs doubling
to deliver what they promise—or worse, commit fraud. The AFL-CIO
every five years. By 1991, Medicaid consumed 20 percent of
has filled books with the resulting horror stories.
Massachusetts' entire budget. The state had to eliminate $250 million
in other spending every year, just to feed its Medicaid habit. To do it right, cities often spend 20 percent of the cost of the service
on contract management. (When they keep services inhouse they also
Prepaid plans such as health maintenance organizations (HMOs) tend
have management costs, of course.) Typically, they have to hire new
to be less expensive, because they compete fiercely on price. In
people, with particular expertise. "We found out that a foreman who
Massachusetts in 1989, for instance, traditional health insurance for
can supervise a crew does not often have the skills to administer a
public employees cost almost $200 per month per employee, while
contract," says Phoenix's Ron Jensen. "So we created a position
prepaid plans cost between $104 and $138.
called contract monitor, and we recruited people who had those
Arizona was the first state to use prepaid plans to provide all skills."
Medicaid coverage. An in-depth study by SRI International 87
Cities like Phoenix have learned a great deal about how to manage
their competitive contracts. Phoenix ties reimbursement 88
showed that during the program's first five years—fiscal years 1983
through 1987—its per capita inflation rate was only 23 percent (5.3 closely to performance and puts withholding clauses in its contracts,
percent a year). A traditional Medicaid program in Arizona, SRI so contractors who do not perform are not paid. It tracks citizen
REINVENTING GOVERNMENT Competitive Government
complaints by area and incidence, so managers can tell a contractor petitive; the competition is based on hard information about cost and
exactly where the problem is and defer payment until it is solved. quality of performance; the contractors are monitored carefully; and
And it uses inspectors to compare contracted areas and areas served a relatively nonpolitical body is set up to perform these tasks. If an
by public agencies. agency like the city auditor's office in Phoenix exists, with the
capacity to evaluate competitors based on hard data—and if that
Lowball bids are a common problem. Companies bid low to get the
information is public—politicians have trouble steering contracts to
first contract, assuming they can jack up the price later. After a
their cronies.
disastrous experience with one solid waste company, Phoenix learned
to weed out the low bidder. "Quite frankly, the low bid is usually not Despite all the difficulties, contracting can save significant sums,
a good bid," says Jensen. "They've done it at a loss, or too low a particularly if public providers are ineffcient. It works best, says
margin, and they're going to fail. So now we use 'the lowest Harvard's John Donahue, author of The Privatization Decision, when
responsible bid.' " public agencies can define precisely what they want done, generate
competition for the job, evaluate a contractor's performance, and
Another danger is that the private contractor will gradually develop a
replace or penalize those who fail to achieve expected performance
monopoly. Privatizing to a monopoly is not only senseless but
levels.
extremely expensive. In services that require heavy equipment or a
fleet of vehicles, some cities accept lowball bids, get rid of their own Overall, most public agencies appear pleased with their contractors'
equipment, and then find themselves over a barrel when the performance. A 1989 survey by the National Commission for
contractor later raises its prices. When they turn to other private Employment Policy found that 72 percent of local officials rated the
competitors, they sometimes run into an informal agreement not to quality of their contracted services "very favorable," 10 percent
compete on price—a recurring problem in road construction. Hence "slightly favorable," 13 percent "slightly unfavorable," and 5 percent
Phoenix always keeps at least two of its garbage districts in public "very unfavorable." The same study found that contracting saved
hands—so it will always have the capacity to compete. local governments 15 to 30 percent.
Finally, there is the danger of fraud. As Paul Starr has written,
"Contracting is the locus classicus of the political pay off." During the Public versus Public Competition
heyday of Boss Tweed, contracting was often rife with corruption— Contracting is difficult enough that governments sometimes prefer
one reason the Progressives turned most service delivery over to to pursue the same results by stimulating competition between their
public bureaucracies. In some places, the problem still exists: Marion own organizations. As noted earlier, public organizations in
Barry's administration in Washington, D.C., was known to steer competitive environments often perform just as well as private
contracts to Barry's political supporters—and, in some cases, organizations. Some places now use competition between public
girlfriends. Many of the abuses that surfaced during the federal schools—a subject we will return to in a moment. Phoenix
Housing and Urban Development scandal in 1989 involved constantly compares the cost, efficiency, and effectiveness of many
developers who used their political connections to obtain contracts. city services with those offered by other cities. "If you can draw
The solution is fairly simple. Corruption is difficult when a good comparisons, even if it's not actual competition, that puts the
contracting system meets four criteria: the bidding is truly com89 pressure on," says City Auditor Jim Flanagan. "You'll behave
differently if in fact the service you provide is looked at in that
manner."
Competitive Government
90 REINVENTING GOVERNMENT

CREATING COMPETITION mote its products, and look for a profit. Soon sales had increased by
17 percent and the center was turning a $111,000 annual profit. He
FOR INTERNAL GOVERNMENT SERVICES
watched how Central Stores responded when the department lifted
Most of the examples listed above involve services provided to the its procurement ceiling of $50 and let other agencies buy items
public. But many government agencies do not serve the public; they costing less than $1,500 on their own. Suddenly, Central Stores had
serve other government agencies. They include printing, accounting, new competition—so its managers began changing their policies.
and purchasing offices, telecommunications and data processing (They stocked Post-it Notes, for one.) Observing these changes,
services, vehicle fleets, repair operations, and dozens of others. Hale's management team decided to inject marketplace dynamics—
Normally, the idea of having to compete never crosses their competition, profit, and the like—into the rest of the department.
employees' minds. Even their customers rarely imagine going to First the department had to sort out each of its bureau's proper roles.
outside competitors: it never occurs to the police chief to send his cars Some played both a service and a regulatory role: for instance, the
down to Jiffy Lube, rather than the city maintenance shop. Information Management Bureau provided mainframe computer
services, but also controlled who could buy a computer and who
When public managers do exercise such options, remarkable things
could not. "This was a disaster," said Deputy Commissioner Jeff
begin to happen. E. S. Savas tells a story from Yugoslavia, of all
Zlonis. "There was a clear conflict of interest, because some
places. It seems that the city fathers of Ljubljana solicited bids for
employees were telling agencies whether they could have a PC, while
some city planning work not only from their own planning office, but
earning their livelihood by selling mainframe services." So first Hale
also from the planning agency of Zagreb. "An American observer
and Armajani separated service from control, creating two different
there at the time remarked that he had never seen city employees
information bureaus. The new Information Policy Office was a
anywhere work as hard as Ljubljana's city planners, who wanted
"steering" operation, setting policy about who could buy what kind of
desperately to avoid the humiliation of having their own city's work
computers, with what common standards. The new InterTechnology
contracted out to their professional and regional rivals."
Group was a service operation, selling computer services such as data
American governments are beginning to use similar techniques. When processing, voice mail, and electronic mail. It was a classic divestiture
Sandra Hale took over Minnesota's Department of Administration in of rowing from steering.
1983, she found morale low and dissatisfaction widespread. The
About half of the service budget was already in what the department
department was known, satirically, by its initials: DOA. Its customers
called revolving funds, under which service bureaus charged their
—managers in other departments—thought its services were shoddy,
customers directly and relied entirely on income they generated. Hale
its prices too high, and its procedures hopelessly out of date. When
and Armajani made virtually all service bureaus revolving funds,
they bought personal computers, they still had to fill out forms and
then divided them between those that should remain monopolies and
jump through hoops left over from the days when computers cost
those that should be forced to compete.
$100,000. Central Stores had never even stocked Post-it Notes.
Hale hired a management consultant who had experience in state This was the key breakthrough. Activities that were judged better off
government, Babak Armajani, as her deputy. He surveyed the agency's as monopolies, such as those in which the economies of scale
customers, then began working with its units to improve their favored one provider, or the legislature wanted every agency to buy
performance. He helped the Public Documents Center, which was the same service, were called utilities. Their rates were set through
running a deficit, shift to market prices, pro91 negotiation with their customers—in comparison with 92
REINVENTING GOVERNMENT Competitive Government
PUBLIC EDUCATION: A CASE STUDY

the rates of other providers, both public and private. Other bureaus, To most people, competition between garbage collection firms seems
dubbed marketplace activities, were opened up to competition: data only natural. Why would anyone prefer monopoly? Competition in road
entry, Central Stores, micrographics services, and management construction, in health care, even in public transit, seems like nothing
consulting. Suddenly their customers—other state agencies—could more than common sense. And forcing department of administration
buy from them or from anyone else. This was a shock to many bureaucrats to compete for a living—what a refreshing idea!
employees. But, says Sandra Hale, But turn the conversation to education and all bets are off. Most of us
went to public schools. Most of us have an image of the public school
our customers took us seriously. It wasn't long before we knew stamped indelibly on our psyches. It never occurs to us that public
that services like typewriter repair and systems design and schools could be different. We assume that schools are synonymous
programming didn't and couldn't have competitive rates. So they with buildings, and that children are assigned to buildings. Students
went out of business. On the other hand, our micrographics don't choose; parents don't choose; and schools don't compete for their
services, Central Stores, and management consulting were very customers. The sky is blue, and the public school is a monopoly.
competitive with private-sector vendors. In fact, they became And yet, as Peter Drucker pointed out several years ago,
growth businesses.
America is the only major developed country in which there is no
Between 1987 and 1990, the InterTechnology Group's sales grew from competition within the school system. The French have two parallel
$35 million to $60 million a year. Its computer rates fell by 20 percent, systems above the elementary grades, a public one and a Catholic
its telecommunications rates by 17 percent. The Management one, both paid for by the state. So do the Italians. Germany has the
Consulting Group virtually tripled its volume. Meanwhile, many Gymnasium, the collegepreparatory school for a fairly small elite.
delivery and turnaround times were cut by more than half. Overall, In Japan, schools are graded by the performance oftheir students on
reports Hale, the cost of utilities and marketplace operations rose less the university entrance exams. The teachers ofhigh-ranking schools
than I percent per year from 1986 through 1990, while inflation are recognized, promoted, and paid accordingly. The American
averaged 4.7 percent a year and the state general fund increased by 5.7 public school, by contrast, has a near-monopoly—no performance
percent a year. In 1991, the revolving funds cut their costs by 4.5 standards and little competition either within the system or from the
percent, saving the state $3.6 million. outside.
All these results could have been achieved simply with good
management. There is no genius to stocking Post-it Notes, eliminating Writing in 1988, Drucker noted that this pattern was changing. He
obsolete bureaus, and cutting costs. The problem is, public agencies described Minnesota's decision to move toward choice and competition
don't always do such things, because they have no incentives to do in education, as East Harlem had before it. Since 1988, at least seven
them. The genius of enterprise management—as Minnesota called its other states have followed Minnesota's lead, offering their students the
strategy—is that it forces managers to act. Competition does not wait option of attending school in a different district: Iowa, Arkansas, Ohio,
for good management: if managers cannot keep costs down and Nebraska, Idaho, Utah, and Massachusetts. (Vermont and Maine have
improve quality, their customers go elsewhere and they go out of 94
business. Competition is the permanent force for innovation that
government normally lacks. long allowed school districts to give students vouchers for use in
93 private schools.) California, Washington, and Colorado have opened up
REINVENTING GOVERNMENT Competitive Government
limited choice, particularly for those in high school. And dozens of teachers (in our terms: community ownership, a mission-driven
cities now offer choice, including Rochester, New York; Montclair, organization, and decentralized authority). To develop these attributes,
New Jersey; Seattle; and San Jose. Chubb and Moe found, schools needed autonomy from external control
—from administrators, unions, and school boards. "The more freedom
Unfortunately, many of these systems give parents a choice of schools,
that the school was granted to chart its own course," they discovered,
but don't really force schools to compete. Inferior schools that fail to
"the more likely it was to become effectively organized":
attract many students still get filled up—with the children of parents
who aren't paying attention. Such systems are usually an improvement The real issue in school reform, then, is: how do you provide
over traditional assignment systems, because they let parents choose the autonomy and still hold schools accountable? After all, you can't
style of education they prefer, and they let principals and teachers just turn over the keys of the school to the teacher and principals
experiment with different methods. But they lack the power to force and be sure that they're going to be held accountable. .
improvement that competition delivers.
The only empirically and logically compelling way in which
When it comes to the effects of competition, education is no different autonomy and accountability can be maintained is to move to a
from any other service industry. As Governor Tommy Thompson of different system of accountability. You need a system that holds
Wisconsin explains: schools accountable not from the top down, but through the market
process, through the competitive process. You need a system that
Competition breeds accountability. Under the concept ofparental holds schools accountable by giving them autonomy—and by
choice, schools will be held accountable for their students' observing how well the schools succeed in winning the support
performance. Schools providing a high quality education would ofparents and students.
flourish, the same way as a business that improves its quality for
its consumers. Schools failing to meet the needs of their students After John Chubb delivered the remarks quoted above, Robert Wagner,
would not be able to compete, and in effect would go out of Jr., then president of the New York City Board of Education, questioned
business. him. East Harlem's District 4 had indeed used competition to produce
successful schools, he noted. But District 13 had done it in the opposite
John Chubb and Terry Moe, authors of a Brookings Institution book way: through strong, autocratic leadership. Perhaps the issue is "one of
called Politics, Markets and America's Schools, studied data on 500 leadership rather than choice." Chubb's answer should be tacked up on
high schools around the nation to discover what factors most influenced the wall of every school district in America:
student performance. The greatest influence was, of course, the aptitude
You can get effective schools through other means—such as the
the student brought to school—something determined largely by family
force ofpowerful leadership. But ifwe have to rely on the
background. But the second most important influence was the school
development of truly unusual leaders in order to save our schools,
itself. Yet the traditional factors we often emphasize—teacher salaries,
our prospects simply aren't going to be very good. The current
per pupil expenditures, class size, graduation requirements—had no
system is simply not set up to encourage that kind of leadership. A
impact on school performance. Instead the keys were parental control,
system of competition and choice, on the other hand, automatically
the clarity of the school's mission, strong leadership, and the degree of
provides the incentives for schools to do what is right.
freedom and respect offered the Competitive 95
96
REINVENTING GOVERNMENT Competitive Government
This is the key. Leaders can urge schools to improve;
legislatures can order schools to improve; outstanding
principals and superintendents can force schools to improve. go after the symptoms," explains Ted Kolderie, Johnson's predecessor at
the Citizens League. "But what you've got to ask yourself over and over
But only competition can motivate all schools to improve—
and over again is, 'What is causing the system to behave like that?'
because only competition for customers creates real You've got to find what is causing those symptoms to appear, and then
consequences and real pressure for change when schools go fix the cause."
fail. Only competition forces principals and teachers—
constantly—to make the diffcult changes necessary to meet The league's report shocked the community—both because it said
Minnesota's schools were woefully inadequate and because it called for
the needs of their students. This was the fundamental insight
some system of competition, whether through vouchers or choice of
that drove a small group of activists in Minnesota to thrust public schools. In response, the Minnesota Business Partnership, made
public school choice onto the national agenda. up of the Twin Cities' 80 largest corporations, decided to commission its
own study. A massive, intensive look at the schools, it came to the same
conclusions. After the Business Partnership report came out, Kolderie,
The Minnesota Experience Johnson, Joe Nathan (who had written a book that endorsed choice),
former Republican governor Al Quie, and several others began meeting
District 4 developed its choice system incrementally. It was a quiet to formulate a strategy.
process, invisible to those beyond the borders of East Harlem.
Minnesota, the first state to institute statewide choice, was a different In 1984, they convinced John Brandl, a state senator, to introduce a bill
story altogether. The first state to publicly debate the issue of to give low-income students vouchers they could use at any school,
competition in public education, Minnesota triggered the national public or private. The system was obviously failing those kids, they
debate about choice. As such, the Minnesota Story reveals a great deal argued, so why not start with them?
about both the ideological issues and the practical realities of
The bill failed. But late that year, Governor Perpich decided he needed
competition in public education.
an education reform agenda. When his top aides brought him the ideas
The story begins in the late 1 970s, when the Citizens League, a of Johnson, Kolderie, Nathan, and their group, he jumped at them.
combination citizens' organization and think tank, created a task force to Where other governors would have seen only political pitfalls, Perpich
examine the results of court-ordered desegregation. Minnesota had long instinctively saw truth. On the eve of the legislative session, at a
prided itself on its excellent public schools. But to its surprise, the task Citizens League breakfast, he unveiled a proposal to let Minnesota
force surfaced growing complaints. Regardless of race or class, what children attend school in any district they chose. It sent shock waves
people were most disturbed about was the declining quality of their through the education establishment.
schools. So the league set up a second task force, to examine the quality
After furious debate, the legislature defeated the bill. But it overlooked
issue. Again they were surprised. "To put it in terms of our departed
a separate clause in the education bill, drafted by a legislator, which
prophet Garrison Keillor," says former Citizens League Director Curtis
allowed juniors and seniors to take their state education dollars to a
Johnson, "we were just a little above average. Not bad, but not nearly so
college and finish high school while earning dual credits. Buried within
deserving of the smugness that was so prevalent. "
a long bill, the measure survived. Suddenly 16- and 17-year-olds in
Seven years before the nation began hearing about choice, the task force Minnesota public schools had a choice.
opted for radical change. "Everybody always wants to 97
REINVENTING GOVERNMENT Competitive Government
In the program's first yeår, only about 3,600 students—two percent of
those eligible—took advantage of it. Some enrolled
REINVENTING GOVERNMENT Competitive Government
98

in college; others took only one or two college courses. But they and school. Simply by allowing choice, in other words, Minnesota brought
their parents loved it. A survey of those participating during the first 1,500 dropouts back to school in just two years.
two years found that 95 percent were satisfied or very satisfied, 90
Minnesota subsequently opened the program to adult dropouts. Their
percent said they had learned more through the program than if they
options include Area Learning Centers and Alternative Programs,
had taken only high school courses, and 87 percent of parents reported
designed for those who want something other than the traditional
that their children spent more time studying for their college courses
high school. Some are run by private schools or firms, on contract
than they did for high school courses. Not all participants were the
with school districts. One is a new Minneapolis high school that
elite: 60 percent were B, C, or D students. More than half of those
meets in the evening. Once they entered these programs, the
participating received As or Bs in their college courses.
percentage of students expecting to graduate and enter college or
In 1986, the education establishment tried to gut the vocational training more than doubled.
program. But the cat was out of the bag. When its In 1988, the legislature finally passed Perpich's full choice program,
supporters organized hearings, Curtis Johnson says, freeing students to attend school in any other district, as long as the
"parents swarmed the capitol": receiving district had room and the move did not harm desegregation
efforts. All public dollars allocated for the student now followed him
They wouldn 't let it happen. Student after student showed up to
or her to the other district. Parents must transport the student to the
say, "This transformed my life. I was bored, I didn't care about
district boundary of the school he or she attends, but if the family is
school, I wasn't even going to go to college, and this just made
low income, the state will pay for public transportation.
me come alive. " Parents showed up to say, "I couldn't get my kid
to study, and now I can't stop him. The first year in which all districts had to participate was 1990—
1991. That fall, 6,134 students applied to leave their district. Another
By 1987, 5,700 students were participating (about 5 percent of those 6,000 chose the college option, while almost 8,000 enrolled in Area
eligible statewide; 10 percent in Minneapolis). Roughly a quarter Learning Centers, 3,000 chose public Alternative Programs, and 750
were attending college full-time. Faced with very real competition for chose private Alternative Programs that contracted with school
their students—and, more significantly, for the dollars they brought— districts. In all, nearly 24,000 of Minnesota's 720,000 students
Minnesota's high schools responded. In three years, they quadrupled exercised a choice. Perhaps 30,000 more exercised their choice
the number of advanced placement courses they offered. More than 50 options within individual districts.
high schools established cooperative courses with postsecondary
schools, taught on the high school campus. Some schools used two- Altogether, it is safe to assume that 5 to 10 percent of Minnesota's
way television instruction. public school students chose to change schools in one way or another.
Hence, even in the program's first full year, schools faced a very real
In 1987, Perpich pushed through a second bill, allowing students aged threat of losing students. ' 'It changes the conversation in the
12 to 21 who were not succeeding in one school to attend another, as boardroom," says Curtis Johnson. "Instead of arguing for 45 minutes
long as the shift did not have a negative impact on desegregation. The about which lawn mower to buy, suddenly they're asking, 'Are we
state advertised the program with the slogan: "Students on the verge providing anything that anybody would want to come to, by their
of dropping out don't need a lecture, they need an alternative." In its choice?' "
first two years, 3,000 youngsters participated. Halfofthem were
dropouts returning to 99
REINVENTING GOVERNMENT Competitive Government
One district reopened a school it had closed, because so many schools, created only by teachers and chartered only by school boards.
students left the district in response to the closing. Another, which But it is a beginning.
had tried to stop its juniors and seniors from taking the 100 Minnesota's choice system has other limits. It mandates competition
between districts, but not competition within each district. (The state's
large districts offer significant degrees of choice, however, and
smaller districts normally have only one 101
college route, finally turned around and created an entire package of
advanced placement and college-in-the-school programs. "As soon as
our people saw those kids walking out the door and we couldn't stop junior high and one high school.) It mandates choice, but not choices:
it," an administrator confided to Ted Kolderie, "we decided we had to it creates pressure for schools to diversify their programs and teaching
do something ourselves." styles, but does not mandate the decentralization of authority that
would facilitate such changes. And it does not force school districts to
In a suburban district with a long history of stonewalling parental open and close schools, as District 4 does in East Harlem. Schools
demands and defeating property tax increases, 200 students signed up that excel and attract more students rarely grow or clone themselves.
to leave. The superintendent personally Poorly performing schools are rarely closed and reopened under new
management.
interviewed all 200 families, and voters passed a tax increase by 70
percent. The district developed a coherent strategy to compete with its
neighboring suburbs, focused on the use of technology in the Still, Minnesota's system is a revolution in public education. In a few
classroom. short years, it has convinced a majority of Minnesotans of its virtues.
In 1991, Kolderie, Johnson, and their allies pushed a bill through the When Governor Perpich first proposed choice, in 1985, only about a
legislature that allows groups of teachers to create new public schools. third of those surveyed supported the idea. By 1989, 60 percent did.
In truly competitive markets, they reasoned, much of the significant Even more revealing, in a poll taken by the Minnesota Education
competition comes from new firms that have discovered a better way Association, 60 percent of teachers supported choice.
to please their customers. This is particularly important in education,
because many parents do not want their children traveling great The Equity Issue
distances to school. Hence their true choices are limited unless new
Perhaps the greatest objection to competition between schools is
schools spring up in their area.
based on a concern for equity. A pure competitive marketplace—an
"School choice alone won't change a closed system," explains unrestricted voucher system, for instance—would be certain to
Kolderie; "what's needed is to open the system to enterprising people produce inequitable outcomes, because the affluent would add
who want to start innovative new schools." In some places, like East money to their vouchers and buy the best education they could
Harlem, district leaders make sure this happens. But in many places, afford. Most others would be unable to do this, and the education
Kolderie points out, "the district's ability and willingness to start new market would segregate by income group.
schools is bound to be limited . by its desire not to threaten the other
We believe this would be a mistake. Our public schools exist to
schools it owns." The answer, Kolderie concludes, is a system under
provide education, but they also exist to bring children from all
which districts and states can charter new schools created by teachers,
walks of life together. This mixing of social classes and races is
parents, or private organizations. The Minnesota bill, a political
extremely important in a democracy; without it, we lose our capacity
compromise, is only a pilot program. It allows only eight charter
to understand and empathize with those who are different from us.
When that happens, it is not long before our society loses its ability
REINVENTING GOVERNMENT Competitive Government
to care for those who need help. We become a collection of resources flee to private schools or the suburbs, while those without
individuals, not a community. remain trapped.
Any marketplace can be structured in different ways by government Choice advocates in East Harlem and Minnesota argue that their
rules, of course. Verne Johnson, another leader of the Minnesota approach has exactly the opposite effect: competition forces failing
reform movement, puts it well: schools to improve—or forces the district to change their
management. "We're not really working for the 2 percent or the 5
I am not for laissez-faire. I am for controlled
percent who leave," says Verne Johnson. "We're working for the 95
competition. Public policy absolutely must control what percent who are still there, to energize and revitalize the system." East
kind of Harlem offers living proof. Competition has revitalized the system.
102 Failing schools are im103

competition takes place, and public policy and financing must


take care of those who don't have enough money. Deregulating
everything means that the people with money win and the rest of proved, and failing management is replaced. Students in infe rior
them lose, and we can't have that. Secondly, you can't have schools are not left behind, they are rescued.
destructive competition; you have to have informed consumers,
The same thing happens in almost any marketplace, if competitors
for example, and government has to set that up. Within those
have to compete for their funds. In higher education, for example, the
parameters, the more that you can energize market forces like
worst students end up in the schools with the lowest standards, but
competition, the better you are.
those schools don't necessarily degenerate. Because they face
competition—and because they could go bankrupt—they strive
In a voucher system, schools accepting vouchers could be forbidden
constantly to improve. (This is not the case with public institutions
from charging tuition beyond the voucher and required to achieve
that are guaranteed a certain number of students or a certain amount
some degree of racial balance. But given the risks that the political
of financial support, however. True competition means competition
process would create a voucher system without such controls, equity
for students and funds.)
will be easier to maintain in a public school system.
Even the auto industry demonstrates the power of competition to
Even public choice systems must be carefully structured to ensure
improve the low end. During the 1950s and 1960s, when GM, Ford,
equity, of course. Parents need reliable information about the quality
and Chrysler faced little foreign competition and tacitly divided up the
of each school, and particular efforts must be made to get that
American market to avoid antitrust prosecution, low-end cars did
information to low-income, poorly educated parents. Students need
deteriorate. The Big Three had little financial incentive to pursue new
free transportation. Integration must be preserved—something many
customers at the low end, so the Falcon and the Comet degenerated
districts do by setting a bottom line for the percentage of minority
into the Pinto and the Vega. But once the Japanese invaded, with real
students in each school.
alternatives that took away real customers, Detroit responded. Today,
Some who oppose public school choice fear that low-income students, the lowend consumer enjoys more choices, better quality, and lower
whose parents may be less able to make informed choices or less prices (in inflation-adjusted dollars) than ever before.
committed to quality education, will be left behind in failing,
Some critics fear that schools in competition will pander to children in
shrinking inner-city schools as better students flee. This is precisely
order to attract more students—perhaps teaching with the television or
what happens under the old system, of course: those with financial
spending half the day on sports. In a system still "steered" by the state
REINVENTING GOVERNMENT Competitive Government
and by local school boards, however, basic standards make such lot of public schools without moving, if you're willing to pay tuition.
behavior very difficult. Such fears are exaggerated in any case: When So choice exists, but it's related to your family income."
District 4 in East Harlem opened a "sports school," which used sports
This is the argument Kolderie, Perpich, and their allies ultimately
as a lure but offered rigorous academics, most of East Harlem's poor
used to bring Minnesota's teachers' unions around. "We said, 'Those
minority parents would not let their children attend for fear they
who can afford it already have choice,' " recalls Curtis Johnson. " 'So
would not get a good education. The district finally had to change the
you want to deny the extension of it to the poor, is that right?' " It was
school's name.
an argument that carried the day.
Another common argument is that the poor will not make their
choices based on good information about the schools. All choice MANAGING COMPETITION
advocates agree that an aggressive information system— something
As the discussion above makes clear, competition must be carefully
beyond mailings of written material—is necessary. 104
structured and managed, if it is to work. Just as in education,
unregulated markets generate inequity. Organizations 105

In places like East Harlem and Cambridge, Massachusetts, both of selling services, whether job training or transportation or day care,
which have many low-income families, such systems clearly work. tend to "cream" off the most profitable business: those who need the
"Critics say choice cannot work in inner-city schools because parents least training; those bus routes most heavily traveled; those parents
lack the necessary education to make informed choices," notes Sy who can pay for day care.
Fliegel, one of the pioneers of choice in East Harlem:
This is exactly what happens in health care today. For-profit hospitals
They are wrong. Inner-city minority parents are no less turn away patients who have no insurance, sending them to
concerned than their middle-class counterparts to see their overcrowded public hospitals. The consequences of this practice,
children educated in stimulating, orderly, vigorous schools and known as patient dumping, can be severe. In one sixmonth study of a
no less capable ofchoosing those schools when information is public hospital in Dallas, 77 percent of those patients transferred in
made available to them. . . . Schooling often represents the only from other hospitals had no insurance. In other words, private
avenue ofescapefrom a much more desperate situation. hospitals routinely turned away patients without insurance, sending
them to a public hospital that would take them. Eleven of them died
We provide parents with reading and math scores and high on the way in.
school placements. Our parents and our kids know who the best
teachers are and which are the best schools. They make selections A different form of inequity can threaten those who work for
based on experience, word of mouth, and public information competitive service providers. Careful studies indicate that wages
about the schools. paid by governments and private contractors are, on average, fairly
comparable. But some studies suggest that contractors offer fewer
In East Harlem, choice has extended opportunities normally reserved
benefits, such as health insurance. Governments also tend to be more
for middle-class whites to poor black and Hispanic children. If we
aggressive than private contractors about hiring and promoting
drop our ideological blinders and look squarely at reality, it becomes
minorities and women.
clear that choice, properly designed, will not threaten equity but
increase it. "Choice exists now," explains Ted Kolderie. "You can go Competition that is structured carefully, however, can produce more
to private school, or you can move your place of residence to another equitable results than service delivery by a public monopoly.
district—and people in fact do this all the time. You can even go to a Contractors can be required to provide comparable wages and benefits
REINVENTING GOVERNMENT Competitive Government
and to promote affirmative action, for example. This is important, if
the values we embrace through our governments are not to be lost
when those governments use competitive contracts.
Contractors can also be required to serve all segments of the market,
to keep from creaming off the most profitable customers. During the
National Science Foundation study on garbage collection, E. S. Savas
found that competition actually heightened the equity of service
delivery—because public agencies were, in effect, creaming. When
city forces encountered delays and did not want to pay overtime, they
would simply skip some areas that day— often the poorest areas,
because they had the least political clout. With a contractor that didn't
happen, because the contractor had no choice but to fulfill his
contract. "It's a job to be done, rather than a set of neighborhoods to
be differentially placated, depending upon their political strength,"
Savas says.
Competitive Government
106 REINVENTING GOVERNMENT lifetime job security. A public employee union in Michigan sued to
block the state from contracting out job training for welfare recipients.
Rural Metro, a private firm that operates fire departments in some 30
If not carefully structured, markets that look competitive can also com107
succumb to monopolistic power. In both contracting and procurement
systems, for example, some projects are so massive that for all munities, has been threatened so often by unions that it will no longer
practical purposes it is impossible to switch providers once the job bid against a unionized fire department. The threat usually goes
has begun. Defense contractors who build submarines and ships something like this: "If you come in here, we're going to raise money
enjoy this protection; it explains why they get away with endless cost
from every union in the country and make trouble in your backyard."
overruns and seem impervious to sanctions. A similar problem is
Unions may have less money to spend than large corporations, but
emerging with private corporations that contract to operate prisons,
public employees vote at twice the rates of the general public.
many of which demand 20- to 30-year contracts. "There is some
reason to fear that instead of being competitive like the trash
collection industry," John D. Donahue wrote in The Privatization
Decision, prison management "will be competitive like the nuclear- competition is here to stay, regardless of what our governments do. In
submarine industry—which is to say, not at all." today's fast-moving marketplace, the private sector is rapidly taking
market share away from public organizations. Public schools are losing
Even when private firms do not have monopolies, they at times ground to private schools. The Postal Service is losing ground to
develop enough political power to stifle competition. In mass transit, Federal Express and UPS. Public police forces are losing ground to
private bus companies spend considerable sums to influence private security firms, which now employ two-thirds of all security
legislatures, to get and keep their contracts. In garbage collection, personnel in the nation.
large private firms use their power to lobby against policies that
We can ignore this trend and continue with business as usual, watching
would reduce the volume of garbage, such as recycling and source
reduction. Even in day care, private firms try to restrict the fewer and fewer people use public institutions. We can sit idly by as a
competition. vicious cycle unwinds in which the less people depend on government
the less they are willing to finance it, the less they finance it the worse
This pattern suggests that governments would be wise to deny firms it gets, and the worse it gets the less they depend on it. Or we can wake
with which they do large volumes of business the right to lobby or
up—as entrepreneurial leaders from Phoenix to East Harlem to
make campaign contributions. Such prohibitions may have
Minnesota have—and embrace competition as a tool to revitalize our
constitutional problems when applied by law to all private firms, but
they can certainly be written into specific contracts. If a company public institutions.
wants the public sector's business, it simply agrees to forgo any effort The choice is not quite as stark as it would be in a competitive
to influence public policy in related areas. The conflict of interest is
marketplace: compete or die. But it is stark enough. Our public sector
obvious.
can learn to compete, or it can stagnate and shrink, until the only
None of this is to say that public monopolies don't require the same customers who use public services are those who cannot afford an
careful oversight. The postmasters sent enormous volumes of free alternative.
mail to lobby Congress for a rate hike in 1990. School principals in
Chicago sued to eliminate the reform program that took away their
Mission-Driven Government
Louisville Housing Services' first big project was the sale of a 100-
unit complex to public housing residents. Its second project was
construction of 36 new units, which it sold to more public housing
residents. It borrowed the money (using the income from the first 100
mortgages as a partial loan guarantee), built new condominiums in
Mission-Driven Government: just five months, and sold them for $32,000 to $36,000.
"I'm still working on a development program with HUD we started two
Transforming Rule-Driven years ago," Duncan told us, by way of contrast:

Organizations We've got the buildings there, all we have to do is rehab them.
We have made no progress, because the buildings have lead
paint, and HUD cannot decide what to do, how to go about the
Never tell people how to do things. Tell them what you want them to
achieve and they will surprise you with their ingenuity. lead-based paint removal, because they didn 't budgetfor it and
—General George S. Patton there's not enough money. They won 't let us go ahead until they
get clearance, and they can't get clearance until it goes through
region, and up to Washington, and back down again. I mean it's
crazy. These buildings are vacant. Meanwhile, over here at our
subsidiary, we not only put a deal together, we've got people
ublic housing is one of the most centralized, bureaucratic, living in the units, and it's time to go on to the next deal. There's
dysfunctional systems in American government. The federal no comparison.
Department of Housing and Urban Development controls virtually
everything a local housing authority does. "The HUD office we have
The punch line? Louisville Housing Services has no employees. It is
here is almost obsessed with this book of regulations they've got," says
run by a half-time consultant, who contracts with private firms or
Andrea Duncan, executive director of the Housing Authority of
hires housing authority employees in their offhours when he needs
Louisville. "If you deviate from that by the slightest bit, they've got to
something done.
write you up. If a specification says the screw should be three-quarters
We have seen the same pattern hundreds of times over the past
of an inch long, and the contractor put in half-inch screws, they want
decade: public entrepreneurs who are frustrated by their huge, rule-
them all taken out and changed."
driven bureaucracies simply go offshore, creating smaller, mission-
Being entrepreneurial types, Duncan and her colleagues figured out a driven organizations. This is one reason why public authorities and
way around HUD's rules: They created a nonprofit subsidiary, special districts are the fastest growing forms of government
Louisville Housing Services, which can do things the housing organization today.
authority can't dream of doing. It can spend money on awards dinners
Massachusetts has at least a dozen quasi-public corporations to do
for housing authority employees, run a scholarship program for kids in
economic development and job training. Tampa General Hospital
public housing, even develop 109 created a subsidiary to combat infant mortality. St. Paul and
Minneapolis created a nonprofit corporation to 110
new housing. "We established it just to get out of the HUD regulations,
to be able to move a little faster," says Duncan.
Mission-Driven Government
finance low-income housing. In its first ten years, it helped more than any other industrialized democracy." Wilson ascribes this tendency to
1,700 families buy homes, helped finance more than 2,000 rental or our system of checks and balances, which makes each power center
cooperative units, helped create more than 1,000 units for people so weak that everyone falls back on rules to control what everyone
threatened by homelessness, and spun off a development else can do. But the tendency escalated dra-
corporation that has since helped build or renovate more than 1,800 matically during the Progressive Era, when reformers were struggling
units. And it had only one employee. to control Boss Tweed and his cronies. To control the 5 percent who
That employee, Tom Fulton, first articulated for us the concept of were dishonest, the Progressives created the red tape that so frustrates
mission-driven government. It was late one Friday afternoon, in his the other 95 percent.
office in Minneapolis. We had come to hear about his Family Housing
To this day, whenever things go wrong, politicians respond with a
Fund, and Fulton had regaled us with tales of the inertia and waste he
blizzard of new rules. A business would fire the individuals
encountered when dealing with federal and state bureaucracies—the
responsible, but governments keep the offenders on and punish
35-page manuals of regulations and 20-page legal opinions. "You
everyone else by wrapping them up in red tape. They close the barn
know," he said, "we don't even have an application form. That doesn't
door after the horse has escaped—locking in all the cowhands.
mean we don't know what we want: we have a two-page list of
criteria, and when someone approaches us for a loan, I go through We embrace our rules and red tape to prevent bad things from
them. We don't have a thousand rules; we fast forward to the distilled happening, of course. But those same rules prevent good things from
essentials of the deal. Our organization is mission-driven rather than happening. They slow government to a snail's pace. They make it
rule-driven." impossible to respond to rapidly changing environments. They build
wasted time and effort into the very fabric of the organization.
Fulton meant that the guiding force behind everything the Family When the Federal Aviation Administration needed to recruit, train,
Housing Fund did was its mission—its fundamental purpose. This may and move air traffic controllers quickly in the 1980s, civil service
sound like common sense, but in government it is rare. Most public procedures made it impossible. When air tramc controllers needed
organizations are driven not by their missions, but by their rules and even the simplest pieces of equipment, the procurement process took
their budgets. They have a rule for everything that could conceivably 9 to 12 months.
go wrong and a line item for every subcategory of spending in every When the Massachusetts Revenue Department decided it could
unit of every department. The glue that holds public bureaucracies generate $100 million in new revenues if it had 40 more auditors, it
together, in other words, is like epoxy: it comes in two separate tubes. took a year just to create the positions.
One holds rules, the other line items. Mix them together and you get
When Massachusetts enacted a series of controls after construction
cement.
scandals in the 1970s, public construction slowed to a crawl and its
Entrepreneurial governments dispense with both tubes. They get rid of price skyrocketed. The reformers legislated an absence of even the
the old rule books and dissolve the line items. They define their appearance of wrongdoing "at a price of no product," said former
fundamental missions, then develop budget systems and rules that free Boston Redevelopment Director Frank Logue. "They have created a
their employees to pursue those missions. process which makes cowards out of everyone. "
Some rules are necessary to run any organization. But as James Q.
Wilson writes, "The United States relies on rules to control the The U.S. Postal Service has a rule book the size of a collegiate
exercise of official judgment to a greater extent than dictionary. The New York City school system has a rule book the size
of two collegiate dictionaries. Principals in New York
111
REINVENTING GOVERNMENT Mission-Driven Government
112 locked up by rules and line items that they cannot do anything new
without adding more people and more resources?
113
cannot tell school custodians when to open and close their schools—
much less discipline or fire them. They cannot even fire teachers, in
practice. And the Board of Education cannot fire or transfer a Those who rail against "waste, fraud, and abuse" should think twice
principal, once that principal has put in three years at a school. the next time a politician tells them we have to control the
bureaucrats, so they don't waste our money. The very control
"We have created a bureaucratic monster that functions essentially as mechanisms those politicians support make waste— staggering,
a special-interest state," says Andrew Stein, president of the city monumental waste—inevitable.
council. "It is a state in which every powerful group's prerogatives are
protected, everyone's special claims are honored—the custodians, the
principals, the 1 10 Livingston Street bureaucrats, the board of
examiners. Everyone, that is, except the children." THE ADVANTAGES OF
MISSION-DRIVEN GOVERNMENT
All this has an insidious effect on employees. "It's suffocating,
entangling," says Tom Fulton. "It's like Gulliver, being tied down." Mission-driven organizations turn their employees free to pursue the
Unable to do what they know is right, fearful of punishment if they organization's mission with the most effective methods they can find.
are found to be ignoring the rules, many public employees simply give This has obvious advantages.
up. They forget their agency's mission and settle for following its
Mission-driven organizations are more efficient than rule-driven
rules. They write memos upon memos, in the time-honored tradition
organizations, for one. Louisville Housing Services employs only one
known as "covering your ass."
half-time consultant. The Family Housing Fund had only one
Fernando Noriega, director of the mission-driven Community employee for 10 years; now it has three. St. Paul, Visalia, Phoenix,
Redevelopment Agency in Tampa, Florida, sums it up perfectly: Indianapolis—all are well below average in employees per capita. As
"What's happened in the public sector has been a massive attempt to Morton H. Halperin noted long ago, bureaucracies are often happy to
demotivate the employees, by not letting them exercise their minds— trade less money for greater control.
by telling them exactly what they have to do and when they have to do Mission-driven organizations are also more effective than ruledriven
it and how they have to do it." organizations: they produce better results. Look at the contrast
between Louisville Housing Services, or the Family Housing Fund,
This impulse to control is embedded in virtually every set of rules by
and HUD. Or consider education. All the research shows that
which government operates: the budget system, the personnel system,
administrative autonomy and clear goals are critical to the success of
the procurement system, even the accounting system. Every rule was
schools. As East Harlem's Sy Fliegel puts it, "Every school that is
originally laid down with the best of intentions. But the cumulative
successful has a mission, has a dream." Mission-driven organizations
effect is gridlock.
are more innovative than ruledriven organizations. Rule-driven
The price we pay is staggering. Rule-driven government may prevent organizations stifle innovation, because there is always some rule that
some corruption, but at a price of monumental waste. Who can put a stands in the way. Stuart Butler and Anna Kondratas describe a classic
price tag on the employees who have given up? Who can put a price example in their book Out of the Poverty Trap. When a Philadelphia
tag on the bureaucracies that grow ever larger, because they are so youth gang decided to go straight, its leaders approached the city with
a proposal to rid the streets of abandoned cars. Who, after all, knew
REINVENTING GOVERNMENT Mission-Driven Government
more about stripping cars than their members? City administrators SCRAPING THE BARNACLES
were very interested, but one thing stood in the
OFF THE SHIP OF STATE
How do we create mission-driven governments? The first task is to
scrape off the dead weight of accumulated rules, regulations, and
way: city rules required that the youths be insured—and who would
obsolete activities. Many people understand the need to deregulate
pay for the insurance? Frustrated, the gang went back to the streets.
the private sector, but few apply the same thinking 115
Mission-driven organizations are more flexible than ruledriven
organizations. If an agency performs a function that is simple, to the public sector. Even the Reagan administration fought to control
patterned, and repetitive, its operations can effectively be structured the bureaucrats, not to deregulate them.
by rules. Even today, McDonald's restaurants are run according to
Government needs some rules, of course. The ship of state needs a
extremely precise rules. But less and less of what government does is
coat or two of paint; if we take it down to bare metal, it will rust. The
simple, patterned, and repetitive.
problem is, most governments have acquired several dozen coats of
To take advantage of the unanticipated, organizations must have paint and layer upon layer of barnacles. The goal of deregulation is to
flexible rules and budgets. Visalia bought a swimming pool at half get back to the one or two layers of protection we really need—so the
price because its employees were unencumbered by line item ship can move again.
budgets. Teachers in East Harlem are able to run effective schools Visalia decided that two regulations had to be eliminated for every
because they have permission to break the rules. "I'll tell you new one signed. Washington State gave its Schools for the 21st
something," says East Harlem's Michael Friedman, pointing to a six- Century waivers to any rules that stood in their way. Bob Stone's
inch-thick book called Standard Operating Procedures, Board of Model Installations program gave waivers to base commanders.
Education, City of New York. "If you had to follow that book, you "Once they've had the heady experience of challenging and defeating
could not run any one of these schools. You could not do the special stupid regulations," Stone said, "they're never the same."
things that we do." Entrepreneurial leaders do away not only with obsolete regulations,
but with obsolete programs. Every year, a typical business is forced to
Mission-driven organizations have higher morale than ruledriven
winnow out some •of its products or services, because they no longer
organizations. A visitor to East Harlem's schools cannot miss the
sell. But in government, managers have no incentive to winnow out
esprit de corps, among both students and teachers. A visitor to the
their product mix. They simply add more and more services and
Latimer administration in St. Paul quickly noticed the same thing. It
regulations until finally a fiscal crisis or tax revolt forces a massive
was, quite simply, one of the happiest organizations we have ever
cutback—which is typically executed with all the subtlety of a meat
encountered. And why not? A recent recruit told us: "I was hired to
ax.
come up with new ideas, I was given a lot of slack and I was told not
to worry about stepping on toes. They said, 'People won't hold it In 1803, the British created a detachment to stand on the cliffs of
against you during your honeymoon, and that may be the only way Dover and watch for Napoleon. In 1927, they finally quit funding it.
you'll get some of your ideas done.' "
In 1939, Minnesota prohibited line agencies from buying items that
cost more than $50 without approval from Central Purchasing. In the
mid—1980s, it finally raised the limit, to $1,500.
REINVENTING GOVERNMENT Mission-Driven Government
A century ago, states required manufacturers to sterilize the horsehair tax, budget, and planning systems; its revenue needs; and its
in mattresses and display tags showing they were properly inspected efficiency and productivity. The commission has the power to
and licensed. (You know the tags; they say: "Do Not Remove Under propose statutory changes to the legislature and to put constitutional
Penalty of Law.") Fifty years ago, mattress manufacturers quit using changes on the ballot.
horsehair. In 1990, one state finally repealed its law.
Zero-based budgets require agencies to justify every element of their
In 1935, Franklin Roosevelt created the Rural Electrification
budget every year. A good idea in theory, they have proven in
Administration to bring electricity to rural America. Its work, as
practice to be too cumbersome, too time-consuming, too fraught with
former director Harold Hunter says, "was done a long, long, 116
paperwork, and too easy for managers to manipulate. In most places,
they have died of their own weight.

long time ago." Today, it hands out low-interest loans to massive Phoenix has developed a successful modification: it asks every
telecommunications firms—at a $1.2 billion-a-year cost to the manager to submit a prioritized list of cuts every year that 117
taxpayer.
add up to 10 percent of his or her budget. The city council ranks them
To slough off the obsolete, governments have tried a variety of
and votes to eliminate the most expendable. Governor Branstad in
methods:
Iowa has proposed a complete budget review for each department
Sunset laws set a date on which a program or regulation will die every five years, in which every program would disappear unless the
unless it is reauthorized—thus forcing a review. Colorado passed the legislature authorized it again.
first sunset law in 1976; by 1983, 35 states had one kind or another.
Florida has gone the furthest: it sunsets all regulations, all trust
funds, and all advisory committees, commissions, councils, and CREATING A MISSION-DRIVEN
boards. (If that seems like overkill, think again: California spends
$1.9 billion a year on 400 advisory commissions, boards, and
BUDGET SYSTEM
councils.) Government's rules are aggregated into systems—budget systems,
personnel systems, purchasing systems, accounting systems. The real
Unfortunately, sunset laws have not fulfilled their promise. Unless
payoff comes when governments deregulate these systems, because
governments measure the results of their activities and regulations,
they create the basic incentives that drive employees. If leaders tell
sunset review committees have trouble knowing whether they're
their employees to focus on their mission, but the budget and
worth keeping. When Common Cause surveyed states that had sunset
personnel systems tell them to follow the rules and spend within the
laws in 1982, 46 percent said inadequate measurement of agency
line items, the employees will listen to the systems. The leaders'
performance created significant problems. If results were measured,
mission will vanish like a mirage.
however, think what effect it might have if every activity of
government required a periodic vote of confidence to continue. Few people outside government pay any attention to budget systems.
But budgets control everything an agency does. They are onerous and
Review commissions examine government regulations or activities to omnipresent, useless and demeaning. They suck enormous quantities
weed out the obsolete. Again, Florida has gone the furthest. Every 20 of time away from real work. They trap managers in yesterday's
years, a Constitutional Revisions Commission is appointed to review priorities, which quickly become tomor-
and change the state constitution. Every 10 years, a Taxation and
row's waste.
Budget Reform Commission is called together to review the state's
REINVENTING GOVERNMENT Mission-Driven Government
At the root of these problems lies a villain. Most public budgets fence he repaired the sidewalks in the other two areas, but left residents of
agency money into dozens of separate accounts, called line items. the third to walk in the mud. In welfare departments, money for job
This was originally done to control the bureaucrats—to hem them in training, job placement, and the like is in separate line items from
on all sides, so they could not spend one penny more than the council welfare grant money. Spending more on training and placement
or legislature mandated on each item of government. But once again, normally saves money on welfare grants. But when times get tight,
our attempt to prevent bad management made good management states cut their training and placement accounts. The welfare account
impossible. —which is an entitlement, driven by the number of people who apply
If you started a business, you would ask your bookkeeper to track for welfare—then skyrockets.
how much you spent on travel, supplies, personnel, and so on. But By fencing money into line items, in other words, we waste billions
you surely wouldn't let the bookkeeper control how much you spent of dollars every year.
under each account. The same is true of family budgets: you may set But it gets worse. As we explained in the Introduction, if managers do
aside so much for groceries, so much for the mortgage, and so much not spend their entire budgets by the end of the fiscal year, they lose
the money they have saved and they get less next year. Most public
for car payments every month. But 118
managers know where they could trim 10 to 15 percent of their
budget. But why go through the pain of transferring or laying people
off, if you can't use the money for 119
if the washing machine breaks, you find the money to fix it, and if
manufacturers offer rebates on new cars, you seize the opportunity. something more important? Especially if your savings are going to be
handed to some other manager who overspent his budget! Who in
Public managers cannot do this. Their funds are fenced their right mind would save any money, under these circumstances?
within line items that are often absurdly narrow. In one
Smart public managers spend every penny of every line item, whether
branch of the military, base managers have 26 different
they need to or not. This explains why public organizations get so
accounts for housing repairs alone! A typical manager of a bloated: our budget systems actually encourage every public manager
city department has 30—40 line items for every program to waste money.
or division. In most cities and many states, legislatures not
only dictate line items, they tell each unit how many full-
time employees it can have. Fairfield's Expenditure Control Budget
Theoretically, a manager can request permission from the finance In 1979, the northern California city of Fairfield invented a solution.
office or the legislature to move funds across the fences. But this is As is so often the case, it sprang from the mind of an outsider, who
risky, because more often than not the answer is: "We're glad to was unencumbered by the knowledge that "it's always been done this
know you don't need so much in this account, and we'll take back the way." Fairfield's assistant finance director was an immigrant from the
surplus. But we're sorry, money's tight, we can't let you move it to Philippines, where he had been a banker. He could not believe how
the other account." Fairfield budgeted. He suggested to City Manager Gale Wilson that
Fairfield budget the way his bank did in the Philippines, roughly the
As a consequence, managers usually stick with the line items they way a family budgets: it sets up accounts for various major
have. This creates incredibly perverse consequences. At one military expenditures, but if something breaks down or an opportunity comes
base, one housing area had no sidewalks. The commander had no line along, it shifts money from one account to another.
item to build sidewalks, but he did have an account to repair them. So
REINVENTING GOVERNMENT Mission-Driven Government
Wilson understood the argument but doubted that the city council
would accept it. Then, in 1978, Proposition 13 put a drastic hole in
Fairfield's budget. Now, Wilson decided, he could get permission to
change. He proposed a general fund budget that eliminated line items
and allowed departments to keep what they didn't spend. Each
department's budget was determined by a formula: it got the same
amount as last year, increased to account for inflation and growth in
the city's population. (The city manager could adjust these amounts,
and when revenues fell short and the city council failed to act, an
automatic across-the-board cut kicked in.)
The new system assumed that departments would maintain the same
level and mix of services, at a minimum. If the council wanted a
major new initiative, it would appropriate additional money.
Managers still used line items to track their expenditures, but the
council never saw them or voted on them. They
REINVENTING GOVERNMENT Mission-Driven Government
120 architectural design to make it like a gas station came to around
$30, 000. We thought that was outrageous. So somebody said,
"What 121
became an accounting device to help managers, not a control device
to hem them in. about these bus stop covers—the glass-enclosed ones?" We
checked, and they cost $2,500. We put one ofthose up, and it
Ted Gaebler, who convinced Visalia to adopt the system six months works fine.
later, suggested to Wilson that the idea would spread faster if they
gave it a politically appealing name. So they called it the Expenditure The results speak for themselves. By 1981, California had named
Control Budget. Fairfield one of its four most fiscally sound cities. By 1991, the city's
departments had spent $6.1 million less than they were appropriated.
The new system transformed the way managers thought about their The General Fund, then $30.2 million, had spent $28.8 million less
money. In the past, if the police chief needed more omcers, he asked than its revenues. This allowed the city to take care of several
for more money. If the manager or city council said no, he blamed unfunded liabilities, to salt away an unrestricted reserve as a hedge
them. It was never his fault. No one expected him to comb through against recession, and to build a $20 million Intergovernmental
the budget he already had, to find savings. Service Loan Fund, which makes start-up loans to new capital
Now the dynamics changed. "Spend it or lose it" gave way to "save it projects, such as a theater and a sports complex.
and invest it." The contrast was glaring. Chuck Huchel, chief of The new budget system also proved itself when sales and property
public safety, saw it every day. His city budget came the new way, but tax revenues plummeted during the 1991 recession. First the city
his police department hustled a fair number of federal grants, which decided to draw down half of its $10 million in reserves over the next
came the old way. "It's amazing," he said, "the same people behave three years, to limit the spending cuts required. When the state then
differently with the two streams of money: transferred several revenue sources to the counties—deepening the
city's fiscal hole—Fairfield simply changed its budget formula for the
With thefederal grants, we prepare a budget in advance, and we next three years. From July 1, 1991, through June 30, 1994,
put on all the bells and whistles, all the frills—we try to departments will receive no increase for inflation or population
anticipate everything we might need. When we get an growth.
authorization, we spend everything that's on the list, whether we "When I came here from Sacramento, my instinctive reaction was
need to or not. People don't say, 'Oh I can save some money here, that this system was crazy," said Finance Director Bob Leland, who
or I can use it another way now, " because it's in the plan. You previously worked in the state finance offce. "It was totally alien to
don't have incentives to make the cost savings, because if you what I had experienced. But I got converted in a hurry. I wouldn't
don 't spend it you give it back. trade it now."
With the city money, they know that any savings they make
Over the past 10 years, perhaps a dozen other cities have
can be applied to other programs or other equipment. So you say,
"Hey, I don't actually need this to make the program work, so I'm adopted the Expenditure Control Budget, including Scotts
not going to spend it. " Plus they get creative about saving money. Valley, Kingsburg, and Porterville, in California; Chandler,
We needed a weather covering over a gas pump, to protect people Arizona; and Las Vegas, New Mexico. Dade County,
from the rain when they were gassing up their vehicles. The Florida, uses a similar system, which it calls Operational
REINVENTING GOVERNMENT Mission-Driven Government
Budgeting. Other cities have dropped their line items better tools, even they began to search for savings. For years, one of
without allowing departments to keep any of their savings. the shop's heaters had blown hot air outdoors. It had been a standing
At the state level, Arizona got rid of line items for several joke. Now they shut it off, repaired several other heaters, and cut
small doors in the shop's huge vehicle doors, so they could close them
years under Governor Bruce Babbitt, with great success.
during the winter. Within 18 months, they had reduced energy
And other states use consumption by 30 percent. They used the savings to buy new tools.
122
123

lump-sum budgets—or few line items—in some agencies


and departments. Mission-driven budgets free up resources to test new ideas. Peters
Even the Defense Department has experimented with mission-driven and Waterman note that entrepreneurial managers constantly
budgeting, as we explained in the Introduction to this book. After he bootleg resources—"squirreling away a little bit of money, a little
read about Visalia's use of the Expenditure Control Budget, Bob Stone bit of manpower"—to carry on new experiments. Mission-driven
developed his Unified Budget Test, which allowed six bases to swap budgets give public managers the capacity to do that.
money between line items and one of the six to keep its savings. Eight
air force bases still use a unified budget, and the army has reduced or Mission-driven budgets give managers the autonomy they need to
eliminated many of its budget restrictions. (Unfortunately, base respond to changing circumstances. Line item budgets trap
commanders in both branches are still subject to the spend-it-orlose-it resources into old patterns. In Fairfield and Visalia, managers
rule.) A few other federal agencies, including the U.S. Forest Service constantly shift their resources to meet new needs and phase out
and the Bureau of Indian Affairs, have also moved toward unified obsolete activities. This autonomy not only fosters responsive
budgets. government, it builds morale and unleashes creativity.
The shift is under way even in other nations. Sweden, Canada, Britain, Mission-driven budgets create a predictable environment. Managers
Denmark, and Australia now budget by broad policy categories, and know what their budget will be six months before the fiscal year
Canada allows those in charge of each category— called an begins. They don't spend months sweating over a budget,
"envelope"—to keep and reuse their savings. negotiating with the finance department, carefully balancing three
dozen accounts—only to watch part-time legislators who know
nothing about their area cut it up at the last minute, on a political
whim. Nothing is more frustrating to a public servant. Nothing
The Strengths of Mission-Driven Budgeting creates more cynicism within the ranks.
Fundamentally, the Expenditure Control Budget empowers Mission-driven budgets simplify the budget process enormously. For
organizations to pursue their missions, unencumbered by yesterday's people inside government, budget season is six months of hell. In
spending categories. That is why we call it a missiondriven budget. Its traditional systems, managers come up with their wish lists six to
advantages are overwhelming: eight months ahead of time, to submit to the finance office. (In the
Department of Defense, they submit requests three years ahead.)
Mission-driven budgets give every employee an incentive to save
The finance department spends months whacking away at their wish
money. Everyone begins to look at things differently: Do we really
lists. Finally, it sends a mammoth budget to the council or
need the air conditioning on all day? Could we find a better deal on
legislature. (The 1990 federal budget was 1,376 pages long. San
word processors? In Visalia, when the mechanics decided they needed
Francisco's is literally two feet thick. Visalia's is two pages long.)
REINVENTING GOVERNMENT Mission-Driven Government
Legislative committees then pore over thousands of line items to The only thing more destructive than a line item budget system is a
make their own cuts and additions. personnel system built around civil service. Most personnel systems
After months of toil and turmoil—in which legislators have to say in American government are derivatives of the federal Civil Service
yes or no hundreds of separate times to dozens of powerful interest Act of 1883, passed after a disappointed job seeker assassinated
groups—a budget finally emerges. Then, within weeks, the President Garfield. A typical Progressive reform, civil service was a
departments begin submitting budget amendments to cover well-intended effort to control specific abuses: patronage hiring and
unanticipated expenses—eating up more legislative 124 political manipulation of public employees. In most places, it
accomplished its goals. But like a howitzer brought out to shoot ants,
it left us with other 125
time. "Here [in Fairfield] it's sort of magical," says Leland. "You tell
people what they've got, and they stay within it. They manage for the problems. Designed for a government of clerks, civil service became a
long haul." straitjacket in an era of knowledge workers.
Mission-driven budgets save millions of dollars on Fifty years ago, governments were not unionized. Nor had the courts
auditors and budget oficers. No one has to spend months outlawed most patronage hiring and firing and protected most
whacking away at departmental budget requests. No one employees from wrongful discharge. In other words, most of what civil
has to spend all year checking to see that managers don't service procedures were established to prevent has since been ruled
illegal or made impossible by collective bargaining agreements. Yet the
overspend any of their line items. Fairfield has just one
control mentality lives on, creating a gridlock that turns public
budget analyst in its finance department. management into the art of the impossible.
Finally, mission-driven budgets free legislatures to focus on the
important issues. It is a truism in government that the amount of Several years ago the Massachusetts Taxpayers Foundation, a nonprofit
money in a line item is inversely related to the amount of time the watchdog group, surveyed state managers in Massachusetts. "No
legislature spends debating it. Legislators, city council members, and issue . . . evoked such a consistent and intense response as civil service
school board members are often lawyers or small-business people. hiring procedures," it reported. "Managers uniformly find that it
They're familiar with decisions about buying computers and hiring hinders rather than helps them hire suitable employees, and with some
secretaries. They feel useful when they can help make such decisions. bitterness cite civil service as the most serious impediment to
But nothing has prepared them to deal with the larger policy issues: accomplishing their mission." The Foundation labeled civil service "a
AIDS, or crime, or poor schools. So they feel less comfortable in that nightmare, a scandal," and "an unmitigated disaster."
arena.
In business, personnel is a support function, to help managers manage
Mission-driven budgets relieve legislators of micromanagement more effectively. In government, it is a control function—and
decisions, freeing them to focus on the larger problems they were managers bitterly resent it. Civil service rules are so complex that most
elected to solve. Once they have that luxury, they usually learn to managers find them impenetrable. The federal personnel manual, to
enjoy it. Of all the city councils that have adopted the Expenditure cite but one example, is 6,000 pages long. Consider just a few of the
Control Budget, we've never found one that would go back. major problems:
Hiring. Managers in civil service systems cannot hire like normal
TRANSFORMING A RULE-DRIVEN managers: advertise a position, take résumés, interview people, and
PERSONNEL SYSTEM talk to references. They have to hire most employees from lists of those
REINVENTING GOVERNMENT Mission-Driven Government
who have taken written civil service exams. Often they have to take the
top scorer, or one of the top three scorers—regardless of whether that
person is motivated or otherwise qualified. (In San Francisco, if two
applicants tie for the top score, the one with the highest social security
number gets the job.)
The hiring process usually takes forever. When E. S. Savas studied
New York City's system during the 1970s, he found that the higher
people scored on the civil service exams, the less likely they were to be
hired, because they had the savvy to find
REINVENTING GOVERNMENT Mission-Driven Government
126 Layoffs. When governments reduce their numbers through layoffs,
civil service employees with seniority can bump those 127

other jobs in the seven months that normally passed between testing with lesser seniority. Middle managers can bump secretaries who
and hiring. can bump mail room clerks. In the Reagan cutbacks of 1981, a
secretary at the Department of Energy who had worked her way up
Our favorite horror story comes from Michigan, where the Treasury to running a program—and was proud of it—was bumped back to
Department, which invests $20 billion in state pension funds, is secretary. When New Jersey laid off 1,000 employees in 1991,
expected to hire venture capitalists from those who score well on the 20,000 people received notices that they might be bumped.
civil service exam.
Typically, layoffs comb out the young, eager employees and
Classification. Civil service jobs are classified on a graded scale, and leave behind the deadwood—in jobs they neither know nor want.
pay within each classification is determined by longevity, not For a manager, says Rutgers University political scientist Alan
performance. Personnel departments spend thousands upon thousands Rosenthal, this is "like playing Russian roulette with five
of useless hours deciding whether such-and-such a job is a GS-12 or a chambers loaded." In scientific agencies, one former director told
GS-13, telling managers they cannot pay the salary they want to us, bumping replaces "highly trained experts with people who
because the classification doesn't allow it, and blocking their efforts to have no experience or knowledge of the area. It maximizes
reclassify people. Even when classification changes are approved, the seniority, and it maximizes destruction."
process takes forever. In Massachusetts, where local governments
have to get approval from the state, it can take two years. The result is a system in which managers cannot manage,
deadwood is kept on, and morale goes through the floor. When a
Promotion. When people hit the top of their pay range, they cannot consulting firm surveyed St. Paul's employees, even the
earn a raise without earning a promotion into a new type of work. But nonmanagerial people—whom the system was created to protect
promotions are controlled by the personnel department, not the — were fed up. While their unions defended the system—
manager. They seldom have anything to do with performance. In a particularly pay and promotion by seniority—67 percent of
typical line job—in a police department, or data processing office— employees favored pay based on performance and 96 percent said
managers have to promote from among those already in the proper performance should be considered in making promotions. Several
career track who have scored highest on the promotional exam. years later, we asked the personnel director how much civil
Firing. There's an old saying: "Government workers are like headless service limited the creativity of the bureaucracy, even after a series
nails: you can get them in, but you can't get them out." Federal of reforms. His answer: "How high over 100 percent can I go?"
employees cannot be fired until a manager has spent months (if not At the federal level, things may be even worse. Federal
years) carefully documenting poor performance and the employee has employees we know describe colleagues who spend their days
then exhausted three appeals processes— the first two of which alone reading magazines, planning sailing trips, or buying and selling
take an average of 224 days. State and local governments have their stocks. Scott Shuger, who interviewed several dozen federal
own versions of this scenario. The process is so time consuming and employees for the Washington Monthly, found that most estimated
difficult that few managers ever fire anyone. (James Q. Wilson the number of "useless personnel" in their offices at 25 to 50
estimates that in one recent year, fewer than two-tenths of I percent of percent.
federal civil service employees were fired.) Instead managers tolerate
incompetents, transfer them, or bump them upstairs. The waste in this system is mind-boggling. With 17.5 million
civilian government employees (roughly 15 million of them full-
REINVENTING GOVERNMENT Mission-Driven Government
time), our public payroll approaches $500 billion a year. Benefits allowed managers to pay market salaries to recruit people,
add another $100 billion or so. One study found statistical evidence to increase the pay of outstanding employees without
not only that civil service increased spending, but 128 having to reclassify them, and to give bonuses and salary
increases based on performance. It automatically moved
employees who received repeated marginal performance
that the increases were "positively associated with the length of time evaluations down to the next pay band. And it limited
Civil Service has been in effect." No one can say how much lower bumping to one career path and based it primarily on
our personnel costs could be with a rational system, but 20 percent is performance ratings, not seniority.
not an outlandish guess. The experiment, which continues, is widely considered a roaring
Some governments—particularly at the local level—have taken success. Personnel officers, who no longer have to spend 129
action. Mayor Latimer pushed through some changes in St. Paul,
although nothing close to what he wanted. Iowa now allows all their time dealing with arcane classification issues, can now
managers to hire from among dozens of people who receive one of actually help managers manage. Turnover rates have declined,
the top six numerical scores on a general aptitude test. It also lets particularly for those employees considered by managers the best
managers bypass seniority during layoffs, with the permission of the performers. Managers who previously complained that they could not
Personnel Department. San Francisco is attempting to reform its keep their most skilled people have been able to improve the quality
system. of their skilled employees. In 1987 surveys, more than 80 percent of
the employees who responded preferred the new system to the old,
The most dramatic move has come in Florida, where and 70 percent even supported performance pay.
Governor Lawton Chiles convinced the legislature to
The federal Office of Personnel Management was pleased enough
sunset the civil service system, while turning two
with the results to draft legislation permitting other agencies to adopt
departments free to invent a replacement. If the legislature the same basic system. Unfortunately, the Reagan administration
has not reauthorized the system by June 30, 1992, or decided that it had to be "cost neutral"—meaning that any pay
authorized a new one, it will disappear. increases or bonuses had to be paid by reducing staff or pay
At the federal level, the Civil Service Reform Act of elsewhere. In part for this reason, in part because several public
1978 held some promise, but the Reagan administration employees unions opposed any merit pay, Congress yawned.
did little to exploit it. The one exception was the so-called Still, the China Lake Experiment shows the way toward a modern
China Lake Experiment, a demonstration project personnel system, by demonstrating the success of:
authorized by the act.
broad classifications and pay bands; market salaries;
The China Lake Experiment revolutionized the performance-based pay; and promotion and layoffs by
personnel system at the Naval Weapons Center in China performance rather than seniority.
Lake, California, and the Naval Ocean Systems Center in
Other important elements would include:
San Diego. It classified all jobs in just five career paths
hiring systems that allow managers to hire the most qualified
(professional, technical, specialist, administrative, and
people (within legal and affirmative action guidelines);
clerical). It folded all 18 GS (General Schedule) grades aggressive recruitment of the best people; and streamlining of
into four, five, or six pay bands within each path. It the appeals process for employees who are fired.
REINVENTING GOVERNMENT Mission-Driven Government
The task is less to reform civil service than to define the appropriate attention to what is important, and to set organizational goals to align
personnel system for a modern government and create it. When we practices with values."
ask entrepreneurial public managers what they would do with civil
The experience of hashing out the fundamental purpose of an
service, most simply say, "Scrap it and 130
organization—debating all the different assumptions and views 131

held by its members and agreeing on one basic mission—can be a


start over." Indeed, some of the most entrepreneurial public powerful one. When it is done right, a mission statement can drive an
organizations we know—including Visalia, the Housing Authority of entire organization, from top to bottom. It can help people at all levels
Louisville, and many public authorities and quasipublic corporations decide what they should do and what they should stop doing.
—get along just fine without civil service. Even 50 years ago, leaders
who were bent on creating missiondriven organizations—such as the
Social Security Administration and the FBI—got their agencies Chunking and Hiving
exempted from the system. Texas has managed to survive without a Public organizations work best when they have one clear mission.
civil service system all along. Unfortunately, governments tend to load several different—and often
conflicting—missions on each agency as the years go by. In 1989,
Like the steam engine, civil service was a valuable breakthrough in its Representatives Lee Hamilton and Benjamin Gilman reported that
day. But that day has long since passed. We obviously need some Congress had given the Agency for International Development (AID)
protection against patronage hiring and firing. But it is time to listen 33 objectives, 75 priorities, and 288 reporting requirements. Among
to our public entrepreneurs and replace a civil service system designed its 33 missions: to win friends in the developing world, to feed the
for the nineteenth century with a personnel system designed for the hungry, to counter initiatives of the SoViet Union, to dispose of U.S.
twenty-first. agricultural surpluses, to build democratic institutions, and to
strengthen the American land grant college system and the historically
black colleges and universities. No wonder AID had failed in its
BUILDING MISSION-DRIVEN primary mission: to stimulate economic development in the Third
ORGANIZATIONS World.
As organizations scrape off the barnacles of line-item budgeting, civil In a world of niche markets, the problem becomes even more intense.
service, and obsolete rules and programs, their next task is to define Historically, most public institutions have been designed to serve mass
their mission and build around it. A ship freed of barnacles is not yet a markets: the schools to educate all children, the Postal Service to
ship on course to its destination. Public entrepreneurs use a number of deliver all the mail. Today we need institutions whose mission is to
basic strategies to build missiondriven organizations. serve one niche. Doug Ross, who ran the Michigan Department of
Commerce during the 1980s, confronted this reality head on. He split
off the agency's development {unctions from its regulatory functions,
Creating a Mission Statement creating a 400-person Development Department within the
Clarity of mission may be the single most important asset for a department. He then split the Development Department into 10 action
government organization. Increasingly, public agencies seek that teams—one focusing on capital markets, another on manufacturing
clarity by constructing mission statements. "The role of a mission technology, another on small business. He gave each one great
statement," explains Police Chief David Couper of Madison, autonomy—in fact, he spun off several as separate organizations—and
Wisconsin, "is to focus on the purpose of the organization, to call he encouraged each one to develop its own mission statement.
REINVENTING GOVERNMENT Mission-Driven Government
Peters and Waterman called this chunking (breaking large Creating a Culture around the Mission
organizations up into small groups) and hiving (spinning off new To imprint the mission of an organization on its members, leaders
teams and organizations). build a culture around it. They articulate their values and model the
132 behavior they want.
Bob Stone has been trying to do this in the Department of Defense for
10 years. Stone was an early disciple of In Search of 133
Organizing by Mission Rather Than by Turf
Missions do not respect turf lines. In his book Neighborhood Excellence. He had his eight staff directors read the book, then took
Services, John Mudd, a former New York City offcial, put it this way: them off for a one-day retreat to talk about it. There they decided
"If a rat is found in an apartment, it is a housing inspection their primary value was not productivity or emciency or austerity, but
responsibility; if it runs into a restaurant, the health department has excellence. Stone decided to hold a contest to see who could come
jurisdiction; if it goes outside and dies in an alley, public works takes up with a motto that would best capture that value. The winner was
over." Similarly, if a poor woman needs health care, she must sign up "Excellent Installations—The Foundation of Defense." To this day it
with Medicaid; if she needs money, she must visit the welfare is printed on all office stationery and publications.
department; if she needs a job, she must find her way through a maze
of training and placement programs; if she needs housing, she must One of the corporate leaders profiled by Peters and Waterman, Ren
negotiate a similar maze. Improving the lives of the poor is the core McPherson of the Dana Corporation, had substituted a one-page
mission of none of these agencies or programs. Each simply provides statement of philosophy for 22.5 inches of policy manuals. Stone and
a discrete service. his staff decided to write a values statement patterned after
McPherson's. They called it their Principles of Excellent Installations
Organizations built around turf rather than mission tend to be (see next page).
schizophrenic. Commerce departments that handle matters related to
business—rather than to a particular mission—must simultaneously Soon someone suggested that Stone put a condensed version of this
regulate existing businesses and try to recruit new businesses. Welfare statement on a wallet-size "gold card." He and his staff have recruited
departments that handle the welfare turf—rather than a mission of more than 20,000 military people, including most of the highest brass
helping the poor—often urge people to get jobs with one hand, while in the Pentagon, to sign the principles and carry the card.
stripping those who succeed of their health coverage with the other. Stone addresses every Naval Commanders Course (a threeweek
The solution is to reorganize around mission, not turf. When George course for new base commanders) on the gospel of excellent
Latimer became mayor of St. Paul, five organizations dealt with installations. The Army Chief of Staff, General Vuono, created an
planning and development: the Port Authority, the Housing and Army Communities of Excellence program based on the principles of
Redevelopment Authority, the Office of City Planning, the excellence. Every army base commander, every division commander,
Community Development Office, and the Planning Commission. All and every infantryman who is picked for command is imbued with
five charged off in different directions. Latimer pushed through a the value of excellence. Army bases compete for $ 10 million in
reorganization that left three agencies, each focused on a specific prizes each year, based on how well they embody that value.
mission and each extraordinarily effective in pursuing that mission. Stone is normally a fairly modest person. But when we asked him
what influence he thought the principles had had, he said:
REINVENTING GOVERNMENT Mission-Driven Government
I think they've changed the way most influential people in the people from the Naval Audit Service, and they were
military think about military installations. They've been copied complaining about this damn guy in the Marine Corps who kept
in all sorts ofplaces. I got a visit a couple ofweeks ago from the insisting that it was okay to build new marine barracks, even
though the existing barracks met minimum adequacy standards.
135

They said, "We told him he was wasting money. And he just kept

saying, 'Bob Stone says it's okay. ' He says we're not supposed to
have minimum adequacy standards. " They wanted to know how they
could nail this son ofa bitch. I told 'em, "He's right, that's ojicial
DOD policy—our policy is to provide excellent barracks, not
minimum barracks. "

Principles of Stone's decade-long campaign demonstrates several of the basic


techniques used by hundreds of smaller public organizations: retreats,
EXCELLENT NSTALLATIONS group competitions, awards, and values statements. Other leaders use
These Princi.p(es guide members of the Excellent Instai(ations Team. stories, myths, and metaphors to communicate their values. George
Purpose Tromote competition 6)' providing it-staffations people To proviiG for our ctßtomers-tfie soQfiers, sailors, (Ots of
Latimer used slogans—"The Self-Reliant City," "The Homegrown
information on how peopQ at other instalGltions are marines, and airmen who defend America—exceffent doing at similar jobs, then Economy"—and symbols. When energy conservation became his
celebrate the winners. priority in the late 1970s, he created an Energy Commission open to
places to work and live, and excellent 6mse services. aff Encourage the authority installation available commanders anyone in the city who wanted to join, then shut down city hall for three
to them, demand to take reliefcharge, from usesti-
days to send every city employee willing to volunteer—plus hundreds
Serve Our Customers over-regulation, gnc( exercise gn innovative spirit,
of community volunteers—out into the neighborhoods, to help teach
people how to weatherize their homes. This threeday celebration of
We are here only to serve our customers and their Pay for Excellence
families. Defense Cannot afford (ess than
Latimer's values—volunteerism, activism, and conservation—was an
'Xttow our ctßtotners and their desires. There is no tftirtg as a bad investment in extremely powerful symbol.
Get out and ta[f and listen to them in their workplaces, cecentfacilities for our peop(e, because
excellent
[tomes, and communities. facilities engeruGr fuel of human 'Tec the American people, the Congress, and our bosses, accompas what
our ctutorners need, using rear-Cife stories that people Trotect our ittstaffations from Oterioration. Every year can relate to. replace Creating Permission to Fail
at (east 2% of our physical plant, and do more Show unjustifiable overcommitment to improving repair and maintenance than the
"What's the one thing I could promise
year before.
facilities and services for our customers. Encourage and enable the troops to improve their own facilities. They get better facilities far
anybody about combat?" Commandant A.
sooner and a greater M. Gray of the Marine Corps asked his
Manage for ExceCCence feeling Of and Ownership.
The fwundrecG of thousaruG OfPeople—in and out commanders in a 1987 speech.
of uniform—wfLO work at Defense instaCGJtion$ the APPturfL are "Uncertainty. How do people deal with
our most important asset. Keep fighting the natural ten.%' Of Gzrge
Trovide them with freedom and incentives to unfeasft organizations to ration authoriy, to overtheir drive and uncertainty? How do you get people to have
entrepreneurial genius. centralize, and to over-rguiate.
'Discourage conformity, uniformity, and centralization anyone who is trying to promote the excellent because
initiative, boldness and to act?"
they stifle innovation. installation idea.
Tush responsibility and authority as far into the Tind examples of what the excellent itßtaffation aporganization
as possible—and that's a (ot further than proacft ftcs accomplished and fioül them up as nwdeLs for most people
think. others.

EXCELLENT INSTALLATIONS — THE FOUNDATION OF


DEFENSE
REINVENTING GOVERNMENT Mission-Driven Government
"You learn it in an outfit where you're allowed to do things. You learn it in an outfit where you're allowed to make
mistakes. "
Entrepreneurs are people who fail many times. Tom Peters and Robert Waterman told managers to make sure their organizations generated a reasonable number
of mistakes—because if they weren't failing occasionally, they weren't trying hard enough to succeed. Florida's State Management Guide makes a similar point:
"If a department or program director does not 136 137

have the opportunity to do things wrong, authority is lacking to Peter Drucker long ago pointed out that "control of the last do them right." 10 percent of
phenomena always costs more than control of the Visalia invented an award for the year's most spectacular fail-first 90 percent." If it costs far more to eliminate
corruption ure. It was called the Nugmeyer Award—after Joanna Nugentthan we save by doing so, is it worth the expense? If by making and Roy
Springmeyer, who came up with the idea. Ted Gaebler corruption virtually impossible we also make quality performwon it one year for proposing, on
television, to give back a por-ance virtually impossible, have we done a good thing? If by tion of the city's surplus by paying all citizens a "dividend"—
tying everyone up in rules we so demoralize public employees without consulting beforehand with the city council. The mes-that they give up, is it
worth the enormous cost we bear in deadsage to city employees was clear: It's okay to make mistakes;weight?
we'll laugh along with you. There is another way. Entrepreneurial governments rely on information about the results of government spending
—the cost and quality of government programs—to detect fraud and A NEW ACCOUNTABILrry SYSTEMabuse. A century ago, it was
relatively easy to hide corruption.
With today's information technologies, it is harder. By carefully It is hard to imagine anyone actively choosing a civil servicemeasuring results,
entrepreneurial organizations can minimize system today, or comparing a traditional line item budget to athe need for rules.
mission-driven budget and opting for the former. These sys-This is the trade- off necessary to get permission to scrape off tems live on not because
anyone likes them, but because they'rethe barnacles. It is the answer to the legislator's first question: like the furniture: they've been in place so long
we assume they"What if the managers don't perform?" To be successful in pobelong there.liticized environments, where trust is minimal, mission-
driven There are three principal obstacles to the spread of mission- governments need to marry their budget systems to performdriven budget
and personnel systems. The first is the mind-setance measures. If legislators are to stop holding managers acjust described: "We've always done it this
way." The second iscountable for following hundreds of rules and spending every the desire by some elected officials to retain control over thepenny of
every line item, they will need another standard. As we pork barrel, through line items. And the third is the usual short-will see in the next chapter,
entrepreneurial governments hold age of trust between legislatures and executives. Even those leg-them accountable for their results. islators who
are willing to forgo the pork barrel often have doubts about giving the executive more leeway. "What happens if the managers don't perform?"
they ask. "What if they steal the money, or use half of it for travel? What if they hire all their campaign workers? We're elected to control things like
that." The Supreme Court has ruled virtually all patronage hiring and firing unconstitutional, and a modern personnel system would establish some
REINVENTING GOVERNMENT Mission-Driven Government
limits of its own. As for spending, auditors still audit for corruption under mission-driven budgets. No public entrepreneur wants to give anyone permission to

defraud the taxpayer. The question is: Should we roll out the howitzer every time corruption appears?

Apparently, by paying more for bedridden patients, the state had given
nursing homes a financial incentive to keep them bedridden—and a
disincentive to get them up, involve them in physical activities, and
help them function independently. Because the funding formula
focused on inputs but ignored outcomes, it had produced the exact
Results-Oriented Government: opposite of the state's intentions.
139

Funding Outcomes, Not Inputs To its credit, the Department of Public Aid quickly changed its system.
It developed a set of performance measures that rated patient
satisfaction, community and family participation, and the quality of
What I've noticed about bureaucratic programs is that for all their rules
and red tape, they keep very little track of what actually happens to the the nursing home environment. Nursing care managers now visit each
people they're serving. If that's built in from the beginning—ifyou keep institution periodically and rate them, much the way the Michelin
track of the results—you can dispense with a lot of red tape. Guides rate restaurants. The higher they rate, the higher their
reimbursement level: a six-star rating is worth $ 100,000 a year more
—Tom Fulton, President of the Minneapolis/ St.
Paul Family Housing Fund
than a one-star rating. The state also publishes the ratings, so
consumers can choose between nursing homes based on their quality.
Illinois nursing homes, in other words, now compete for their
customers based on their performance.
Unfortunately, the new system is still the exception. Traditional
several years ago, the Illinois Department of Public Aid decided to bureaucratic governments act just as Illinois did before its study. They
reexamine the way it reimbursed nursing homes for Medicaid patients. focus on inputs, not outcomes. They fund schools based on how many
It paid according to the level of care provided: for severely ill residents children enroll; welfare based on how many poor people are eligible;
who needed more care, the state paid more; for those who needed less police departments based on police estimates of manpower needed to
care, it paid less. This seemed entirely logical and fair, but when state fight crime. They pay little attention to outcomes—to results. It doesn't
analysts finally looked at the results, they were horrified. The matter how well the children do in one school versus another, how
overriding goal of state policy was to keep the elderly as independent many poor people get off welfare into stable jobs, how much the crime
as possible, so as to minimize costs. Yet the percentage of nursing rate falls or how secure the public feels. In fact, schools, welfare
home residents who were bedridden was rising steadily. departments, and police departments typically get more money when
REINVENTING GOVERNMENT Mission-Driven Government
they fail: when children do poorly, welfare rolls swell, or the crime
rate rises.
Entrepreneurial governments seek to change these rewards and
incentives. Public entrepreneurs know that when institutions are
funded according to inputs, they have little reason to strive for better
performance. But when they are funded according to outcomes, they
become obsessive about performance.
Because they don't measure results, bureaucratic governments rarely
achieve them. They spend ever more on public education, yet test
scores and dropout rates barely budge. They spend ever more on job
training for welfare recipients, yet welfare rolls continue to grow. They
spend ever more on police and prisons, yet crime rates continue to rise.
With so little information about results, bureaucratic governments
reward their employees based on other things: their
REINVENTING GOVERNMENT Results-Oriented Government
140 assistant research director at the Governmental Accounting Standards
Board: "a growing frustration among taxpayers that they don't know
what they're getting for their money." 141
longevity, the size of budget and staff they manage, their level of
authority. So their employees assiduously protect their jobs and build As a result, words like accountability, performance, and results have
their empires, pursuing larger budgets, larger staffs, and more begun to ring through the halls of government. Luckily, we now have
authority. the technology needed to make such words mean something. We can
generate, analyze, and communicate a thousand times more
Why did we ever do it this way? In part, we have Boss Tweed to
information than we could just a generation ago, for a fraction of the
thank. In their battle against public corruption, the Progressives
cost. Fountain's organization, which sets the accounting standards
slapped controls on everything they could. Unfortunately, that meant
followed by most state and local governments, is in fact redefining
controls on inputs. At the time, it was not easy to measure results.
"generally accepted accounting standards" to include performance
There were no computers, no calculators, and little experience with
measurement. It hopes to release its first performance accounting
performance measurement, even in business. Most tasks entrusted to
standards, for general adoption, by the mid-1990s.
governments were also fairly straightforward, so performance tended
to take care of itself. When government picked up the garbage, In an equally telling sign of the times, President Bush and the nation's
delivered the water, and constructed the roads and bridges, the results governors have adopted a set of national education goals for the year
of its activities were clear to all. 2000, with specific objectives such as a 90 percent graduation rate
This legacy has endured because the ultimate test in government is not and first-in-the-world ranking in math and science achievement. They
performance, but reelection. Private organizations focus on results are developing benchmarks by which to measure each school's or
because they will go out of business if the key numbers go negative. state's progress toward those goals.
But governments don't go out of business. Failure in government is Not everything government does generates results that can be
not failure to achieve results, it is failure to secure reelection. As one measured. How would we measure the performance of diplomats in
state legislator put it, "Pleasing the voters is our performance the State Department, for instance? But in an astonishing variety of
evaluation." public activities, entrepreneurial leaders are developing new ways to
measure and reward outcomes:
Politics focuses on perceptions and ideology, not performance. In
ordinary times, politicians get reelected based on how the voters and The federal Job Training Partnership Act created a system that
interest groups perceive them, not on how well their government operates almost entirely on performance contracts: training
provides services. Even department heads at the federal and state vendors are paid according to how many people they place in
levels are more politicians than managers. "You learn very quickly jobs—not how many people they enroll in training.
that you do not go down in history as a good or bad Secretary in At least nine states now tie their funding for vocational
terms of how well you ran the place," wrote Michael Blumenthal, education to job placement rates. In Arkansas and Florida, for
after his stint in President Carter's cabinet. In Washington, "you can instance, an adult program that repeatedly fails to place 70
be successful if you appear to be successful." percent of its graduates in jobs loses its state funding.
But we are no longer in ordinary times. Today's citizens refuse to pay At the Housing Authority of Louisville, if rent collections fall
higher taxes for services whose prices skyrocket while their quality below 97 percent, or turnaround time for vacant apartments
declines. "You're seeing it everywhere," says James R. Fountain, Jr., exceeds 14 days, or the "site appearance" falls below a graded
REINVENTING GOVERNMENT Results-Oriented Government
standard, the managers are warned. If the problem persists, To see the full power of performance measurement, one has only to
they are replaced. visit Sunnyvale, California, a city of 120,000 in the heart of the
Silicon Valley. It is only fitting that Sunnyvale should lead 143
142

the performance revolution. As the home of thousands of computer


In Illinois's Cook County, the nation's second largest, the
jocks, Sunnyvale has a culture steeped in information technology. Few
courts are experimenting with report cards for judges, based
other places on earth would be so receptive to the use of performance
on ratings from jurors, witnesses, and lawyers. Several states
measures. But where Sunnyvale pioneered, other cities and states have
use similar systems.
begun to follow.
Six states are testing performance standards for entire courts, Sunnyvale's managers measure the quantity, quality, and cost of every
developed by the National Center for State Courts and the service they deliver. Because the city council has this information, it
U.S. Department of Justice. They use customer surveys, focus no longer votes on line items: it votes on service levels. It does not tell
groups, analysis of case files, and other methods to measure the Department of Public Works: "We want to spend $1 million
things like how accessible the courts are, how affordable reconstructing highway A, $500,000 repairing roads B, C, and D, and
justice is, how swiftly courts handle cases, how impartial $250,000 filling potholes throughout the city." Instead it defines the
court decisions are, and how effective courts are in enforcing results it wants. Using a classification system developed by the city, it
their orders. says, "We want every road surface now at level A maintained at that
Governments are shifting the way they fund highway level; every road surface now at level B brought up to level A within X
construction. In the past, they specified the inputs they years; and every surface at level C brought up to level A within Y
expected from contractors: so many inches of material A, years." The department tells the council exactly how much that will
topped by so many inches of material B. Today, they cost, depending on the numbers used for X and Y, and the council
increasingly specify the number of years the highway is decides how much to spend to achieve the results it wants, and how
expected to last and hold the contractor accountable if it fails. fast.
Some offer performance bonuses for contractors who beat
Sunnyvale uses literally thousands of measures. In each program area,
their deadlines; a Minnesota firm earned itself an extra $1
million by completing a stretch of Interstate 94 a year early. the city articulates a set of "goals," a set of "community condition
indicators," a set of "objectives," and a set of "performance indicators."
Some states even sign performance agreements with utilities Goals are fairly self-explanatory: "Provide a safe and secure
that operate nuclear power plants. Boston Edison pays a environment for people and property in the community"; "Control the
penalty if its Pilgrim plant operates at full capacity less than
number and severity of fires and hazardous materials incidents and
60 percent of the year, but earns up to $15 million extra if it
operates at full tilt more than 76 percent of the year. provide protection for the lives, welfare and environment of people
within the community."
"Community condition indicators" give the city information about the
current quality of life. For example:
THE PERFORMANCE LEADER:
the number of days in which ozone standards are exceeded;
SUNNYVALE, CALIFORNIA
the number of traffic accidents per million vehicle miles; the
number of persons receiving Aid for Dependent Children; and
the number of persons at •or below the poverty line.
REINVENTING GOVERNMENT Results-Oriented Government
144 first time they understand what the money is actually buying, and they
can say yes or no."
145
"Objectives" set the specific targets for each unit of city government.
In street landscaping, for instance, one objective is to "maintain trees
Because the council has control over outcomes, it has gladly
and shrubs in a healthy state with a loss factor of no more than five
eliminated many of the rules and budget line items that hamstring
percent." In public safety, one objective is to keep the city "within the
most public managers. "Our council does not know how many people
lowest 25 percent of Part I crimes for cities of comparable size, at a
work for the city, nor do they really care," says Lewcock:
cost of $74.37 per capita." And in transportation, one objective is to
"achieve a ratio of 3.42 accidents per million miles traveled."
They do notfocus on line items. There is no approval process for
"Performance indicators" provide specific measures of service quality, hiring people around here; management does it. The essential
which reveal how well each unit is doing in meeting its objectives. thing the council does is set policy: what level of service, how
They include numbers such as: many units are going to be produced, and at what unit cost. What
they have done is give us freedom over the management of city
the percentage of trees needing replacement that are replaced affairs, in return for them getting true policy control.
within two months; the percentage of job trainees who get jobs, Our council feels so good that they are in fact the policy leaders
their average wage at placement, and the satisfaction level of that they don't feel it's a risk at all to let managers manage. To
their employers; the percentage of participants in a recreation me, that's the big secret that has allowed us to be risk-takers and
program who rank it "good" or above; and the number of to do things without always having to check the political
complaints about recreation facilities. implications.

Not all of Sunnyvale's measures are equally useful. Because Sunnyvale can measure the results of each unit's work, it can
Managers constantly refine them, eliminating those judged also reward managers based on whether they succeed or fail. If a unit
inadequate or not worth what they cost to collect. But exceeds its service objectives for quality and productivity, its
enough of the measures are solid that Sunnyvale's city manager is eligible for a bonus of up to 10 percent of his or her
salary. "This puts them in an environment where it is to their
council can predict quite accurately the results it will
advantage to find productivity improvements," says Lewcock.
achieve depending on how it allocates its resources. In other
words, by measuring results, Sunnyvale gives its decision This system generates tremendous productivity. The city keeps a four-
makers the information they need to make intelligent part Municipal Performance Index, which measures both its
decisions. They can tell success from failure. They can see efficiency and its effectiveness over time. Between 1985 and 1990,
the city's average cost per unit of service went down 20 percent, after
where increased spending will produce the results they
factoring out inflation. (In other words, its productivity increased by
want. And they can predict the results of any spending cut. roughly 4 percent a year.) In 1990, when it compared its own costs to
"In a normal political process, most decision makers never spend
those of similar size and type cities, Sunnyvale found that it used 35
much time talking about the results they want from the money they
to 45 percent fewer people to deliver most services. Its employees
spend," says City Manager Tom Lewcock. "With this system, for the
were paid more, but its operating budget was still near the low end of
REINVENTING GOVERNMENT Results-Oriented Government
comparable cities, and its per capita taxes were lower than those of 1986, the percentage of streets rated "filthy" had declined from 43 to
any comparable city in its sample. 4 percent. Nearly 75 percent were rated "acceptably clean."
146 The foundation, called the Fund for the City of New York, went on to
develop outcome measures for parks maintenance, 147

THE POWER OF PERFORMANCE job training and placement, foster care, home care services, school
maintenance, and other programs. "In large institutions, public and
NEASUREMENT
private, things are counted, and whatever is counted, counts," said
Organizations that measure the results of their work—even if they do then Executive Director Greg Farrell. "What is counted shapes and
not link funding or rewards to those results—find that the influences the behavior of the organization. It helps make public
information transforms them. policy practicable, gets it out in the field, on the ground. And it
leaves a trail."
The simple act of defining measures is extremely enlightening to
What Gets Measured Gets Done many organizations. Typically, public agencies are not entirely clear
"All you have to do is measure something and people respond," says
about their goals, or are in fact aiming at the wrong goals. When they
John Pratt, a former director of Massachusetts' welfare department. In
have to define the outcomes they want and the appropriate
1979, Massachusetts had a 23 percent error rate, the highest of any
benchmarks to measure those outcomes, this confusion is forced into
industrial state. (Cases in "error" were those lacking the
the open. People begin to ask the right questions, to redefine the
documentation required to support the level of grant awarded.)
problem they are trying to solve, and to diagnose that problem anew.
"When the measurement pro cess starts," says Stan Spanbauer,
When we began measuring error rates statewide, nothing
president of Fox Valley Technical College in Wisconsin, "people
happened. But as soon as we published the rates for each Ojice,
immediately begin to think about the goals of the organization."
things changed. Because how thefinger was pointed at
managers: everyone knew if their office had a high rate. It only
took 12 months to cut it down to 12 percent. Six months later, If You Don't Measure Results,
when we published error rates for each supervisor, it fell to 8
percent.
You Can't Tell Success from Failure
The majority of legislators and public executives have no idea which
During New York City's fiscal crisis in the 1970s, an independent programs they fund are successful and which are failing. When they
foundation developed a method to measure the cleanliness of streets, cut budgets, they have no idea whether they are cutting muscle or fat.
called Scorecard. It then sent out volunteers every month to rate each Lacking objective information on outcomes, they make their
of 6,000 streets. The sanitation department had always focused on decisions largely on political considerations. Large, powerful
inputs: How many trucks were assigned to each district? How many organizations—whether public agencies or private contractors—make
men were needed on each truck? Now it began to look at the the most noise and have the best connections, so they escape
Scorecard information, which rated outcomes: How clean was each relatively unscathed. Smaller, more entrepreneurial organizations take
street? Using this information, it reassigned its street cleaners and the hits.
began to reward crews that made the greatest improvements. By
REINVENTING GOVERNMENT Results-Oriented Government
Likewise, when political leaders decide to increase their efforts in any other group of homeowners. When the Federal National Mortgage
area, they often have no idea where to put the new money. When the Association began rewarding A and B students at a Washington, D.C.,
Bush administration declared war on drugs, it had no idea what school with mentors, summer and money for college tuition, the
worked. So it poured most of its money down the same holes the number of A and B students rose from 33 to 130. When wealthy New
Reagan administration had already poured $21 billion—interdiction, Orleans oilman Patrick F. Taylor guaranteed college tu149
investigation, and prosecution. Yet as the Wall Street Journal reported,
eight years of 148

ition for 180 7th and 8th graders—most of whom had already failed
effort on that front had "hardly put a dent in the drug traffc." One of
two or more grades—only 1 1 dropped out of high school. In an
the few evaluations the Journal could find, done by the Rand
average American school, roughly 50 of 180 would drop out; among
Corporation, had concluded that $5.72 billion spent on Coast Guard
those who had already failed two grades, at least half would call it
cutters, Customs Service jets, and radar-equipped blimps had done
quits before graduation. In 1989, the state copied Taylor's effort;
little more than raise the price of illegal drugs by 4 percent. As for
within two years more than I , 300 Taylor Plan students were in
drug treatment, an administrator of the Alcohol, Drug Abuse and
Louisiana colleges and five other states had adopted similar tuition
Mental Health Administration, which spent nearly $2 billion in 1989,
guarantees.
admitted to the Journal that his agency didn't even monitor the
results. Congressman Charles Rangel of New York summed it up
well: "We're spending blindly. We don't know what we've bought." If You Can't Reward Success, You're Probably
Police forces make this mistake all the time. Research proves that Rewarding Failure
doubling the number of patrol cars on the streets has no effect on the Rewarding success may be common sense, but that doesn't make it
level of serious crime—or on public anxiety about crime. Yet when common practice. In education, we normally reward failure. "If you're
crime rates rise, the police buy more squad cars. failing, you qualify for aid," explains East Harlem's Sy Fliegel. "If
you're doing well, then you lose the aid." In public safety, we also
One sage summed up this approach with these words: "Inasmuch as reward failure: when the crime rate rises, we give the police more
we have lost sight of our objectives, we are going to redouble our money. If they continue to fail, we give them even more. In public
efforts." housing, we reward failure: under federal funding formulas, the better
a local housing authority performs, the less money it gets from HUD.
If You Can't See Success, You Can't Reward It Rewarding failure creates bizarre incentives. It encourages school
By rewarding successful managers, Sunnyvale has increased its principals to accept the status quo. It encourages police departments
productivity by 4 percent a year. By rewarding successful schools, to ignore the root causes of crime and simply to chase criminals. It
School District 4 has revolutionized education in East Harlem. discourages housing authorities from working to improve their
Rewarding success works even in places where most governments operations.
have given up. When the Housing Authority of LouisVille sold a Our tendency to reward failure has literally crippled our efforts to
public housing development to former tenants, they kept the place in help the poor. Most of the money we spend on the poor—welfare,
better condition than most condominiums, filed far fewer insurance food stamps, Medicaid, public housing, housing vouchers, child care
claims for damages, and paid their mortgages on time just like any
REINVENTING GOVERNMENT Results-Oriented Government
vouchers—rewards failure, because it goes only to those who remain Wisconsin's Learnfare program penalizes welfare families when their
poor. teenage children miss three days of school without a written excuse.
If a welfare recipient saves enough to buy a car so she can look for Arkansas requires the social security numbers of both parents when
work, her grant is reduced. If she finds a job, she not only loses her birth certificates are issued, then uses that information to track down
welfare check, she loses her Medicaid coverage (after a year), her absent fathers and demand parental support for welfare children.
food stamps are reduced, and if she lives in public housing, her rent
often triples. One study, done in LouisVille, showed that a public
housing resident with two preschool 150
If You Can't See Success, You Can't Learn From It
Entrepreneurial public organizations are learning organizations. They
constantly try new things, find out what works and what doesn't, and
learn from the experience. But if an organiza151
children had to earn $9 an hour in 1989 just to break even with her
total welfare package. And Louisville is not an expensive place to
live; elsewhere the figure would be higher. tion doesn't measure results and can't identify success when it
happens, can it learn from success? Without feedback on outcomes,
Under these circumstances, why would a single mother with two or innovation is often stillborn.
three children ever leave welfare? This explains why even our most The greatest opportunities for innovation in business, Peter Drucker
effective efforts to move people into jobs seem never to shrink the counsels, are "unexpected successes. " When a product or service
welfare rolls. takes off unexpectedly, there are inevitably important lessons to be
learned. The same principle applies to government, as the following
Not only do we punish those who get off welfare, we require little of
story demonstrates.
those who stay on. In fact, we call programs like welfare
"entitlements" precisely because people are "entitled" to them, During the 1970s, the Ford Foundation created the Manpower
regardless of how they behave. The combination of rewarding failure Demonstration Research Corporation, to test a Swedish concept
and expecting nothing in return for benefits breeds dependency— called "supported work." The idea was to create a sheltered work
undermining people's motivation to improve their lives. environment—usually a subsidized business set up specifically for
this purpose—for ex-convicts, ex-addicts, high school dropouts, and
Healthy relationships are built on mutual obligations. If we expect
long-term welfare recipients. Over the course of the year, while
nothing from people, we usually get it. But if we expect effort in return
working, the participants would receive counseling, training, and
for what we give, we usually get that. Louisville Housing Services is
other support services. At the end of the year, they would get help
extremely strict about mortgage payments from the former public
finding "real" jobs. The corporation set up a dozen supported-work
housing tenants who buy its condominiums. "If you raise the
experiments around the country and carefully measured their results
expectations," says Director David Fleischaker, "people will jump
against those of a control group. (With 10,000 participants, it was
through the hoops."
the largest control group experiment ever done on an urban
Increasingly, governments are beginning to build demands for program.) The Massachusetts entry was called Transitional
performance into their poverty programs. The federal Family Support Employment Enterprises (TEE). It emerged as the most successful
Act of 1988 required many welfare recipients to participate in of the dozen experiments, largely because it stumbled on a different
education, training, or work. Minnesota's Learnfare initiative requires way of doing business. While trying to place its participants in jobs
teenage mothers of school age to attend school if they want welfare. with the Massachusetts Department of Public Welfare, TEE argued
REINVENTING GOVERNMENT Results-Oriented Government
that they could outperform Kelly Services. Fortuitously, an errant If You Can't Recognize Failure, You Can't Correct It
computer destroyed thousands of welfare files, and the department People often wonder why government programs live on for decades
—in crisis—took TEE up on the idea. It hired TEE workers to re- after they have become obsolete: why a state keeps inspecting meat
create its written files, and 10 and behold, they were better than long after the federal government begins duplicating its work; why
Kelly Services. Once its crisis was over, the department convinced HUD keeps a large urban renewal staff long after most cities have
Blue Cross/Blue Shield, which handled Medicaid processing for the quit doing much urban renewal; why California has 400 commissions
state, to hire TEE workers as temporaries. They were so productive that spend almost $2 billion a year.
that the company began hiring them for permanent jobs.
The answer, at least in part, is that no one outside the bureaucracy
Suddenly, TEE found itself running a placement service for Blue can tell if these offices and commissions do anything worthwhile,
Cross/Blue Shield. But because of its supported-work philosophy, it because no one measures the results of their work. In a 1990 article,
continued to provide support services for its people 152 the Washington Monthly told the sad story of Community Mental
Health Centers—an initiative launched in 153

after they started their jobs—helping with their personal problems, 1963 by President Kennedy to create community centers so the
helping them learn the ropes at work, and helping their managers mentally ill could be moved out of hospitals (or "deinstitutionalized").
supervise them. Only after they had successfully performed on the Kennedy thought he was pushing control of services out of the
job for four to six months did the company have to hire and pay bureaucracy, into the community. In his message to Congress, he
them; until then they remained on TEE's payroll. announced that "reliance on the cold mercy of custodial isolation will
The combination worked so well that TEE decided to market itself to be supplanted by the open warmth of community concern and
Boston businesses as a placement service for low-end jobs. The capability."
results were extraordinary: 90 percent of those hired stayed with the Unfortunately, no one bothered to track the results. The National
company for at least a year; 83 percent for at least two years. Institute of Mental Health handed out millions of dollars to firms that
promised to build and staff Community Mental Health Centers and to
It was a classic unexpected success. And because all results were serve all residents in the area for 20 years. But the institute rarely
measured, it did not go unnoticed. TEE used its data to convince the bothered to check whether the recipients followed through. Many
Massachusetts legislature to spend $6 million a year funding 21 converted to private, forprofit status and provided care only to those
supported-work corporations around the state. Since then, TEE and who could pay; others focused on psychotherapy for the worried well
its successor, a for-profit firm called America Works, have placed rather than care for the mentally ill. When the General Accounting
thousands of people in jobs, in four different states. Today, America Office finally forced the institute to hire a contractor to visit centers,
Works is completely performance funded. States do not pay it a dime in the late 1980s, it found that only 46 percent were fulfilling their
until a welfare recipient has been on the job for four months; they do commitments. Meanwhile, perhaps a million mentally ill Americans
not pay in full until the person has stayed another three months. In wandered the streets, sleeping in cardboard boxes or homeless
other words, the states pay only for results. shelters.
The same story can be told about many public programs. Consider
public housing and welfare, which between them cost us roughly $30
billion per year. Both systems were created during the 1930s to
REINVENTING GOVERNMENT Results-Oriented Government
accomplish specific missions. Welfare (AFDC) was designed to
provide an income for widows with children. Public housing was
created to give temporary housing to the unemployed during the
Depression, as we saw in chapter 2. Both programs worked quite well
for a time. But when the postwar economic boom brought many of
their recipients into the work force and replaced them with
uneducated black sharecroppers from the South, both programs faced
an entirely different clientele. Yet both kept operating exactly as they
had before. Not surprisingly, they soon found themselves in deep
crisis. Had each program defined its intended outcomes and measured
whether they were being achieved, policy makers would have known
by 1960 that they had a massive failure brewing. Had their funding
been tied to outcomes—how many
Results-Oriented Government
154 REINVENTING GOVERNMENT 155

welfare recipients left the rolls for jobs, how long each family stayed
in public housing, the crime rate at each public housing development "Funding tied to performance by the Florida DOT will be accepted
—the funding would have shifted gradually to those innovators who by a significant majority of Floridians, funding with no such
devised new strategies to deal with the new clientele. But by 1990— assurances will not," Florida TaxWatch concluded. "It is as simple as
30 years later—that process had barely begun. that." With its data in hand, it proposed a gas tax increase that would
be rescinded unless the DOT hit specified performance benchmarks.
The legislature amended the bill slightly, but passed it
If You Can Demonstrate Results, You Can Win Public overwhelmingly. When spending is conditioned on results, it
Support suggested, voters—and politicians—will respond.
Many governors point out that even today's antitax electorate has
supported tax increases for education—if linked to some form of
accountability for performance. Civic leaders in Phoenix, long a PUTTING PERFORMANCE IWASURES
hotbed of antitax fervor, believe their voters passed $1 billion in bond TO WORK
issues in 1988—probably the largest municipal bond approval in
American history—because the city had a reputation for sound Many people in government resist the idea of performance
management, certified by the bond rating agencies. But such claims measurement because they have seen it done poorly. When the Job
are largely anecdotal. Training Partnership Act passed in 1982, for instance, it mandated
performance-based contracts with training providers. But many of the
In 1990, an organization called Florida TaxWatch came about as close original contracts encouraged providers to train those who were the
as one can to proving the connection between documentation of results most job-ready, because they rewarded providers on the basis of how
and public support. Although normally not eager to raise taxes, the many trainees they placed. This encouraged providers to cream off
organization had joined several prominent business groups to back an the easiest to serve, and led to severe criticism.
increase in the gasoline tax, to fund highway construction—one of the Performance measurement in education has been criticized for other
hottest issues facing the legislature. When it commissioned a poll of reasons—principally because it relies on standardized tests, which do
628 registered voters to measure support, it found that 57 percent not necessarily reflect anything but rote learning. Critics also fear that
described the state's transportation system as "fair" or "poor." Yet when standardized tests will force all schools to teach the same subjects in
asked if the legislature should increase the gas tax by 4 cents per gallon the same way—robbing them of the flexibility to try different
to pay for improvements, only 43 percent said yes. Why? Because two- methods. But such criticisms have pushed many states to refine their
thirds of those with an opinion believed the state wasted more than 20 tests. Maine's tests now include a writing sample and focus
percent of every tax dollar it collected. So Florida TaxWatch rephrased increasingly on problem solving. California and Massachusetts are
its question: "Would you favor a four-cent gas tax hike if the legislature moving in similar directions. Vermont is testing a statewide
made sure the increase would take effect only if the Florida assessment that includes an exam, a single piece of work chosen by
Department of Transportation (DOT) improves its performance?" Now the student, and collections of a student's work, called portfolios.
59 percent said yes. (Of those who said no, nearly half chose, as their Connecticut is assessing high school students in math and science
reason, that "state government can't be trusted to spend money without based on team-oriented projects that take up to a semester of work.
wasting most of it.")
156
REINVENTING GOVERNMENT Results-Oriented
what do we plan to do this year?' " explains City Manager Tom
Lewcock of Sunnyvale. "So you
This pattern—adoption of crude performance measures, followed by
protest and pressure to improve the measures, followed by the Government 157
development of more sophisticated measures— is common wherever
performance is measured. It explains why so many public come up with artificial stuff that has no relationship to anything." Such
organizations have discovered that even a poor start is better than no systems can easily degenerate into subjectivity and favoritism. To
start, and even crude measures are better than no measures. All avoid this problem, many managers simply award equal merit increases
organizations make mistakes at first. But, over time, they are usually or bonuses to everyone—the standard practice in the federal merit
forced to correct them. system. Those who try to reward particular individuals sow resentment
and distrust throughout their ranks.
For those readers interested in a detailed discussion of the art of
performance measurement, we recommend appendix B. For those less Managers under typical MBO systems also tend to set their objectives
interested in such details, the more important question is: Once the artificially low, so they can be sure to meet them. Others meet their
appropriate measures are in place, how do governments use the artificial objectives by sacrificing the organization's more fundamental
information they provide to improve their performance? There are at objective: service quality. "In the Michigan Modernization Service I
least three common answers. Some organizations link pay to was told to serve 250 customers a year," says John Cleveland, the
performance. Others use performance information primarily as a organization's former director. "You know what? I met that quota, but I
management tool, with which to continually improve their operations. met it by sacrificing quality, and by defining it as the number of
And still others tie their spending to results. The most entrepreneurial customers in the door. So I ended up with an enormous backlog, and it
attempt to do all three. took 7.5 months to serve the typical customer. That happens all the
time."
James Q. Wilson describes a classic example of "gaming the numbers"
Paying for Performance in his book Bureaucracy. Under J. Edgar Hoover, FBI agents were
The most common strategy is performance pay: some kind of merit or
under pressure to produce ever-rising numbers of arrests, recoveries of
bonus system for high performing individuals and/or groups. Phoenix,
stolen goods, and so on. To meet their goals, they began to ask local
Sunnyvale, Visalia, and many other organizations use this practice.
police departments for lists of stolen cars that had been found—so they
The traditional approach goes by the name Management by Objectives, could claim them as recoveries. To increase the numbers of fugitives
or MBO. Although it covers a variety of specific plans, the term they apprehended, they began concentrating on military deserters, who
usually describes a system in which managers sit down with their were far easier to find than normal criminals. By the 1970s, U.S.
superiors every year and negotiate a list of objectives. A manager who attorneys were declining to prosecute 60 percent of the cases the FBI
reaches or exceeds his or her objectives is eligible for either a bonus or presented, often because they were so trivial.
a merit increase in salary.
Finally, strict MBO systems can create internal conflict within the
Unfortunately, this is probably the least effective approach. Its most organization. Each department focuses obsessively on meeting its
glaring flaw is the fact that the objectives rarely have anything to do objectives, while ignoring the impact on other departments or on the
with the organization's key results: the quantity, quality, and cost of its ultimate goal—customer satisfaction. Each manager worries about
services. "In a lot of these systems you just sit down and say, 'Now hitting his or her numbers, rather than solving the underlying problems
that get in the way of customer satisfaction. Few are willing to take the
REINVENTING GOVERNMENT Results-Oriented
risk of pursuing major new opportunities that are not covered by their Al Shanker, president of the American Federation of Teachers, has
stated objectives. proposed a five-year national competition to pick
158 Government 159

"merit schools," whose teachers would receive financial bonuses


Sunnyvale avoids most of these problems by using actual levels of starting at $15,000. This would make great sense, if tied to parental
service quantity, cost, and quality—some of which are measured by choice. Under a system of choice, schools would be evaluated not by
surveying customer satisfaction—as its objectives. When managers subjective criteria, but by actual customer satisfaction. Schools that
surpass these levels, they are rewarded with bonuses, and the new level attracted the most applicants would be rewarded with bonuses. (The
becomes their expected base. Hence managers stay focused on the community's socioeconomic background would have to be factored in,
organization's fundamental purpose. And rather than setting their of course; schools in ghettos could not compete on a level field with
annual objectives artificially low, they push them ever higher—because schools in wealthy suburbs.) "If the Soviet Union can begin to accept
that's how they earn bonuses. the importance of financial incentives to productivity," says Shanker,
"it's time for public education to do the same."
Sunnyvale does experience one flaw of MBO systems, however: the
fact that they motivate through fear. "The numberone problem with a
system like this is it puts all sorts of pressures on people that they're Managing for Performance
not used to dealing with," says Lewcock. "It doesn't feel real good. Sunnyvale's approach is clearly an advance over the traditional
That is a very natural human reaction, and I understand it. When government practice of ignoring results and using no financial
people are feeling stressed around those kinds of things, they are not incentives. It is also superior to traditional MBO systems. In the
necessarily performing to their ultimate." hierarchy of management practice, in other words, Management by
One solution is to reward groups rather than—or in addition to— Results is more effective than both Management by Guesswork and
individuals. Visalia used bonuses to reward groups more often than Management by Objectives. But even Management by Results can be
individuals, on the theory that individual rewards encourage people to improved.
hoard information and compete with one another, while group rewards One approach used by an increasing number of governments is Total
encourage people to share information and work together. Visalia also Quality Management—the management philosophy developed
allowed groups that improved productivity to keep 30 percent of the principally by W. Edwards Deming. Deming argues that once we learn
savings (or new revenues) they generated. Lewcock would like to use about poor performance (or "quality," the term he uses), we do not
group rewards in Sunnyvale, but in the past has been rebuffed by the necessarily know what is causing it. It might well be factors outside the
unions. control of the workers and the manager—like students' family
The idea of rewarding groups is also gaining steam in the bitter debate backgrounds. As one Rochester teacher put it, in rejecting a contract
over merit pay for teachers. Most teachers have resisted individual that proposed merit pay, "I give the same effort to every class, but the
merit pay, understanding that because it would inevitably be based on results don't always match. I don't think I should be accountable alone.
subjective judgments, it would create resentment between teachers and These kids come in here with an awful lot of baggage."
hurt morale. The Urban Institute's Harry Hatry, who has reviewed a In Deming's view, only 15 percent of the problems in most
variety of merit pay plans, has concluded that combinations of organizations are caused by the workers and managers involved. The
individual and group incentives work better.
REINVENTING GOVERNMENT Results-Oriented
other 85 percent stem from the broader systems within which these
people work—the education system, the budget system, the personnel
system, and so on. Performance
REINVENTING GOVERNMENT Results-Oriented Government

160 return to Madison's story, and to the subject of Total Quality


Management, in the next chapter.
pay gives people an incentive to improve performance, but it does not
161
give them the authority or the tools to change the systems that lie
behind their problems.
Budgeting for Results
Deming's approach uses performance data to pinpoint problems, then
gives employees tools they can use to analyze them, isolate their root Management by Results and Total Quality Management are both
causes, develop solutions, and implement them. Under quality effective means to force organizations to act on the performance
management, explains Peter R. Scholtes, author of a quality text information they receive. But in government, the most important
called The Team Handbook, "numerical measures . . . guide the lever—the system that drives behavior most powerfully—is the
search for better performance, and are recognized as a means rather budget. Most managers work in government, after all, not to enrich
than an end. They lead the way to a deeper understanding of the themselves but to have some positive impact on their community.
organization, and are not used as criteria for judging individuals." That opportunity is available only to the degree that they can get
control over resources. How do they get that control? Through the
Deming also points out that organizations can solve their problems
budget system. Resultsoriented organizations find that they ultimately
most effectively if the employees get involved in crafting the
need to develop budget systems that fund outcomes rather than
solutions. The employees know the system best, and they know
inputs.
where the problems lurk. Even if a manager can diagnose the
problem, without employee buy-in it is difficult to solve it. Hence There are several ways to do this, depending on the service and
Total Quality Management uses teams of employees— often known organization involved. The first is simply by adding output and/or
as quality circles—to tackle most problems in the workplace. outcome measures to a mission-driven budget. (An output is a
measure of the volume of something actually produced; an outcome
Total Quality Management, or TQM, has been embraced by public
is a measure of the quality. For more on this distinction, see appendix
organizations at all levels. The federal government has even set up
B.) This gives managers and legislators the information they need to
the Federal Quality Institute to propagate the faith. In practice,
reward excellence or intervene when performance falls short, whether
however, most of these organizations implement only a part of the
by replacing people, adding resources, or stimulating efforts to
Deming approach. Many fail to track the results of their work, for
improve.
instance, or to define exactly what results constitute quality
performance. Very few focus on the basic systems that drive their The second variation is Sunnyvale's approach: to actually budget for
organizations, so they remain in the realm of 15 percent solutions, the service level desired—to "buy" a defined level of quantity and
rather than transforming their organizations. When organizations do quality. With services that have clear and tangible results, such as
use TQM as it is intended, however, it is an extremely powerful tool. street maintenance and job training, this is not difficult. If a
When John Cleveland brought it to the Michigan Modernization legislature or city council budgets for the training and job placement
Service, his first project brought the time it took to serve each of I ,000 people, for instance, payment can be made contingent on
customer down from 7.5 to less than 3 months. When Madison, successful job placement. If the department in charge places only 900
Wisconsin, embraced TQM, it saved millions of dollars—in people, it gets only 90 percent of its money.
everything from refuse collection to motor vehicle repair. We will
Government

With other services, it is difficult to buy outcomes, but possible to kidney dialysis, $ Y for a double heart bypass. In such cases, one can
buy outputs. In health care, for example, governments would find it still attempt to measure the outcome. When it falls short, those in
impractical to fund only successful outcomes. But they could—in charge (or those involved) can investigate and take corrective action.
fact, they already do—fund outputs. Medicare pays $X for each
Budget Type Definition Examples

1. Mission- See chapter 4. See chapter 4.


Driven
Budgeting
2. Output A budget system that
Government

ENTREPRENEURIAL APPROACHES Budget Type Definition Examples


training organization,
with data gathered on
percentage of trainees
who get jobs, job
retention rate, employer
satisfaction, employee
satisfaction, etc.
Budget allocates $X for $X per trainee who gets
Pay per
Outcome each outcome produced. job and holds it at least

Producers get funds only 90 days.

when they produce $X per soldier trained to

desired outcomes. expected level of


on number of people competence.
trained, number placed in 4. See chapter 6. See chapter 6.
jobs, cost per trainee, etc. Customerdriven
Pay per Budget allocates $X for $X per box shipped. $X Budgeting
Output each output produced. per soldier recruited. The table above summarizes the different types of budgets
discussed here (and in other chapters). They are not mutually
Producers get funds only $X per person trained.
exclusive: one government can use all methods, each for the
when they produce the
output desired. programs to which they best apply.

Many cities now use one or more of the budget techniques


3. Outcome A budget system that
Budgeting focuses on the outcomes described in the chart, and both Florida and Oregon have begun

working to develop some form of outcome-oriented budget.


of the funded activity,
Even the Defense Department is experimenting with the con-
i.e., the quality, or
cept, which it calls a Unit Cost Budget. The philosophy is the
effectiveness, of services
produced. same as Sunnyvale's: figure out how much it costs to deliver a unit of
service (to recruit a soldier, to train a sailor, to sell an
Budget for Budget system defines the $X per supply depot, with data item at a commissary), and then budget for the service level
Mission, mission and the outcomes gathered on number
Define and desired, but does not link of boxes shipped and desired. The experiment began because the Defense Logistics
Measure dollars spent to quality of percentage of shipments Agency (DLA), under pressure to contract out its supply depots,
Outcomes outcomes. rated acceptable by felt it had to cut its costs to stave off the threat. Interestingly, its
recipients; $X per job approach was heavily influenced by Total Quality Management,
which much of the Defense Department has embraced.
Government

Budgeting focuses on the output of services, i.e., the volume produced.


Budget for Budget system defines the $X per supply depot, with Mission, mission and the outputs data gathered on number Define and
desired, measures them, of boxes shipped, cost per
Measure but does not tie dollars box, etc.
Outputs spent to volume of
$X per job training outputs.
center, with data gathered

TO BUDGETING
REINVENTING GOVERNMENT Results-Oriented Government

164 REINVENTING GOVERNMENT explaining why we didn't meet it. For example, some of the facilities
out there were in terrible shape, and we had neglected them for
As it turned out, the supply depots were the perfect place to start, years." So "we made the Results-Oriented 165
because their desired outcome was so clear: the successful shipment
of some item of supply. In essence, the DLA decided that each box decision to upgrade the facilities, to get a productivity increase in the
received by a supply depot would be worth $X, each box shipped future."
would be worth $Y. (It experimented with different figures at
When Don Shycoff, who spearheaded the effort, moved to the
different depots, using the historical costs at each depot.) The depots
Defense comptroller's office, he convinced the comptroller to try Unit
received all their funds this way; all line items disappeared. The more
Cost Budgeting for all "support" activities. By 1991, the system—
boxes a depot received or shipped, the more money it received.
now called the Defense Business Operations Fund—was operating for
Each depot had a productivity increase target of 10 percent a year for all Defense supply depots and inventory control points. By 1992, the
two years, then 3 percent a year thereafter. Beyond that, they could comptroller's office hoped to have it in place for all depot
reinvest any surplus they generated during the fiscal year. (Anything maintenance, commissaries, military training, military recruiting, and
left over at the end of the year would return to the DLA, however.) medical care.
Depot managers were free to spend their funds as they saw fit: if they
Similar trends are visible in other nations. In November 1989, Bob
needed to hire an extra person, they did so; if they needed extra
Stone's colleague Gerald Kauvar hosted a 14-nation conference on
equipment, they bought it. As long as they could perform the same
defense budgeting. All 14 nations agreed that "a modern defense
service for 3 percent (or 10 percent) less than the year before, they
resource management system must include:
could manage their money as they thought best.
"knowledge of full costs; a unified [i.e., non-line-item]
At one supply depot, the DLA let the employees split up half of all
budget; decentralized control of dollars and personnel, both
savings beyond the 3 percent goal. According to Joan Freeman, who
military and civilian; freedom from unnecessary regulatory
ran the unit cost budgeting team:
burden (internally and externally imposed); and accountability
That gave us an installation full of budget analysts, because for mission results."
everybody was looking at their process. It pushed them to look at
Translated into our terms, this means that a modern budget system
the way they worked and ask: "Is there a better way?" It caused
must be mission-driven, decentralized, and results oriented. France,
managers to be more involved with their employees. Before they
Great Britain, and the Netherlands have already moved their defense
made an investment they would notify their employees to see if
budgets in this direction. Great Britain, Denmark, Sweden, Canada,
they had some ideas, or whether this equipment would help
Australia, and New Zealand are all shifting toward mission-driven,
them, or whether they had some knowledge of it. Management
results-oriented budgets for their entire national governments, using
still made the decisions, but it gave employees an opportunity to
many of the same mechanisms developed here.
speak out that they never had before.
The Unit Cost Budget also allowed the DLA, for the first time, to get
a handle on its true costs, to compare costs at different installations, One other powerful method exists to focus public organizations on
and to pinpoint problems. Although "we didn't always hit our their results—a method that takes us into the next chapter. One might
productivity goal," says Freeman, "it gave us a point of discussion, in call it Customer-Driven Budgeting: putting money into customers'
Government

hands and forcing service providers to earn their keep by pleasing


those customers. The desired outcome of most services, after all, is a
satisfied customer. And how better to get that outcome than to make
service agencies dependent on their customers for their very survival?
Customer-Driven Government

167

American governments are customer-blind, while McDonald's and Frito-Lay are customer-driven. This may be the ultimate
indictment of bureaucratic government.
Why is it this way? Simple. Most public agencies don't get their funds from their customers. Businesses do. If a business
pleases its customers, sales increase; if someone else pleases its
Customer-Driven Government

Customer-Driven Government:customers more, sales decline. So businesses in competitive en-


vironments learn to pay enormous attention to their customers. Public agencies get most of their funding from legislatures, city
Meeting the Needscouncils, and elected boards. And most of their "customers" are captive: short of moving, they have few alternatives to
the serof the Customer,tor learn to ignore them. The customers public managers aim to vices their governments provide. So managers
in the public sec-
please are the executive and the legislature—because that's Not the Bureaucracywhere they get their funding. Elected officials, in
turn, are
driven by their constituents—in most cases, by organized interest groups. So while businesses strive to please customers,
government agencies strive to please interest groups.
Quality is determined only by customers.The real customers of the Department of Transportation —David Couper, Chief
of Police, Madison, Wisconsinhave not been drivers and mass transit riders, but highway builders and public transit systems. The real
customers of the Department of Housing and Urban Development have not hen was the last time you felt like a valued customer atbeen poor
urban dwellers, but real estate developers. If this your children's school? How about your motor vehicles office?sounds like an overstatement,
consider the comment made by Your city hall?David Forsberg, then New England regional chief for HUD, afFew people in government ever use
the word customer. Mostter Jack Kemp changed HUD's focus: "I can't tell you what a public organizations don't even know who their customers
are.help it's been to be able to say, 'HUD's constituency is low- and When Bob Stone took his Defense Installations staff on retreatmoderate-
income people.' You can say, 'HUD is not here to to discuss In Search ofExcellence, their first task was to defineservice the developers and
industry groups.' " their customers. The results were a big surprise, even to Stone. "We had thought of our customers as the secretary of defense, or
the Congress, or the American taxpayer," he says. "But we figured out that the people we were supposed to serve were thehe greatest irritant most
people experience in their dealings troops—the soldier, sailor, airman, or marine who defendedwith government is the arrogance of the
bureaucracy. People America. It was something none of us had thought of before."today expect to be valued as customers—even by government.
Democratic governments exist to serve their citizens. Busi-In 1950, nearly two-thirds of Americans who had jobs did nesses exist to make profits.
And yet it is business that searches unskilled labor, while one-third worked with their minds. Toobsessively for new ways to please the

American people. Most day that ratio is reversed. The result is a generation of citizens
168 REINVENTING GOVERNMENT Many of us ignore government, assuming that we are too busy to
waste our time on such a hopeless cause. But when we do brush up
who have very different expectations from those held by their against the public sector—when our children enter school, or the
industrial-era mothers and fathers. Our parents stood in line for hours state decides to build an incinerator in our community—we refuse to
at the Registry of Motor Vehicles with a shrug: that was simply the be passive. We want proofthat the incinerator will be safe. We want
way the world worked. We stand in the same lines and fume. Our to choose which school our children will attend. We welcome help
parents accepted the public schools as a given, something they could with child care, but we will choose where and by whom that care is
not change. We organize committees, demand new programs, raise given, thank you. We need help with health care expenses—but the
funds, and volunteer to teach special units—and if that doesn't work, last thing we want is a public health system in which we have no
we send our kids to private schools. choice of physician or hospital.
Customer-Driven Government

As we become a society dominated by knowledge workers, we are they processed driver's licenses or registrations—so the more they
also breaking into subcultures—each with its own values and life- processed, the more money they received—would their employees
style, each watching different things on television, each shopping at act differently? You bet. With the consequences of attracting
different kinds of stores, each driving different kinds of cars. We customers so clear, the scramble to cut waiting times would be
have been transformed from a mass society with a broad and fairly intense. We might even find offices staying open evenings and
homogeneous middle class to a mosaic society with great cultural Saturdays, operating drive-by windows, and advertising the shortest
diversity, even within the middle class. We have come to expect waiting lines in town!
products and services customized to our own styles and tastes, from
television networks to restaurants to beer.
And yet traditional public institutions still offer one-size-fitsall GETTING CLOSE TO THE CUSTOMER
services. Traditional education systems still deliver a "brand X" All the management experts, from Peters and Waterman to Drucker
education. Traditional housing authorities still offer an identical and Deming, dwell on the importance of listening to one's customers.
apartment in a cluster of identical high rises. Traditional public They counsel managers to expose their employees directly to their
libraries still offer only books, newspapers, and magazines. When customers. Hewlett-Packard asks 170
consumers accustomed to choices confront public institutions that
offer standardized services, they increasingly go elsewhere.
169
customers to make presentations describing their needs to its
engineers. All senior managers at Xerox spend one day a month
taking phone calls from customers. "There is simply no substitute
To cope with these massive changes, entrepreneurial governments for direct access," says former Xerox CEO David Kearns. "It keeps
have begun to transform themselves. They have begun to listen managers informed, it keeps them in touch, it keeps them honest."
carefully to their customers, through customer surveys, focus groups,
and a wide variety of other methods. They have begun to offer their Drucker even describes nonprofit organizations that act this way.
customers choices—of schools, of recreation facilities, even of police One of them, Willowcreek Community Church in South Barrington,
services. And they have begun to put their customers in the driver's Illinois, is now the nation's largest church, with 13,000 parishioners.
seat, by putting resources directly in their hands and letting them Bill Hybels founded it in the mid-1970s, when he was still in his
choose their service providers. early twenties. He picked a growing community with relatively few
churchgoers and went door to door, asking, "Why don't you go to
This takes competition a step further: rather than government church?"
managers choosing service providers in a competitive bidding
process, it lets each citizen choose his or her service provider. It Then he designed a church to answer the potential customers'
establishes accountability to customers. "I can't think of a better needs: for instance, it offers full services on Wednesday
mechanism for accountability than parental choice," says Sy Fliegel, evenings because many working parents need Sunday to spend
of East Harlem's District 4. "If you begin to see that youngsters are with their children. . The pastor's sermon is taped while it is
not coming to your school, that is the highest form of evaluation." being delivered and instantly reproduced so that parishioners
To make their public institutions as customer-driven as businesses, in can pick up a cassette when they leave the building because he
other words, entrepreneurial governments have learned to finance was told again and again, "I need to listen when I drive home or
them like businesses. If schools lose money every time a student drive to work so that I can build the message into my life. '
departs—as in Minnesota—do teachers and administrators act
differently? Of course. If motor vehicle offices were paid only when
Customer-Driven Government

There is no reason public organizations cannot act this way; public library channel on cable TV. Next came a summer reading
religion is at least as hidebound as government. Fortunately, some club with a big prize: any child who proved he or she had read 10
do: books got a free trip to see the Oakland A's. (Once a month White
also brought an A's ballplayer—Jose Canseco was the biggest draw—
The Duval County School Board, in Florida, surveyed its into the library.) Five thousand kids signed up.
community and discovered a pressing need for day care for To bring in minorities, White created Latino and Asian collections—
latchkey children, before and after school. So the district the latter in nine languages. She developed Asian cassettes,
launched a Community Schools program that keeps most particularly for Hmong refugees, who do not have a written
schools open from 7:00 A.M. to 5:45 P.M. School is free,
language. She sent an American Indian bookmobile around the
but parents pay $20 a week for the full child-care service.
community.
The Dallas Parks and Recreation Department operates a full-
service recreation center 24 hours a day, for people who For other adults she set up a literacy project with 800 volunteers; a
work odd shifts. It has volleyball, softball, concerts, 171 Lawyers in the Library program, in which volunteer

and art shows around the clock. A side benefit, according to the
Dallas Police Force: reduced crime rates.
The California Department of Motor Vehicles is
testmarketing self-service, computerized terminals at which
drivers can renew their licenses as easily as they get cash
from a bank card machine. If those who use the terminals say
they like them, on a customer survey, the state hopes to
expand their use to vehicle registration and put them in
supermarkets and shopping malls.
The Rochester, New York, public schools have developed a
Home-Based Guidance program, in which each teacher
becomes a mentor for 20 students. Throughout the students'
years at the school, it is the teacher's job to keep track of
them, to get to know their parents, to visit their homes, to stay
in touch over the summer.
Perhaps our favorite practitioner of customer-oriented government
was Lee White, who retired recently from her job as head librarian in
Oakland, California. Librarians are normally thought of as shy and
retiring. Not Lee White. One of the first things she did when she took
over was to survey her customers. The survey told her that the
libraries were neglecting two important groups: children and ethnic
minorities.
To bring children into the libraries, White pushed her librarians to
stock videotapes. "That took a long time," she sighs. "I finally had to
give them some of my own money to do it." Then she created a
REINVENTING GOVERNMENT Customer-Driven Government
172 Consider the Police Department, one of six departments in Madison—
known as Transformation Departments—that have 173

lawyers dispensed free legal advice; a free income tax preparation fully embraced the new gospel. In 1987, it began mailing a survey to
service; and a books-on-tape library. White even tried to keep one every 50th person it encountered, whether a victim of crime, a
branch open until midnight and to put a laundromat in another. The witness, a complainant, or a criminal. (It is now up to every 35th
city staff nixed the latter idea because it didn't want to compete with person.) Every month, more than 200 people receive the survey, which
private laundromats! comes with a postage-paid, self-addressed return envelope. It asks
them to rate the officers they encountered on seven factors: concern;
helpfulness; knowledge; quality of service; professional conduct; how
THE TOTAL QUALITY IWTHOD well they solved the problem; and whether they put the person at ease.
They can rate an officer "excellent, good," "fair," "poor," or "very
In 1984, the mayor of Madison, Wisconsin, Joseph Sensenbrenner, poor." An open-ended question asks: "How can we improve the
attended a lecture by W. Edwards Deming. Like many cities, quality of our service in the future?"
Madison was in a severe fiscal squeeze. Federal aid had been cut
sharply. Property taxes were at record levels. "Budget hearings were Forty percent of the recipients return the survey—a figure the
becoming an annual nightmare," Sensenbrenner says. "The people of department reached only after Chief David Couper started including a
Madison did not want their services cut or their taxes raised. In their handwritten note explaining that he personally reads every survey.
view, city services were in a steady decline already, even as they paid Couper publishes the results in the departmental newsletter and sends
more for them." positive comments along to the officers who receive them. On a scale
in which 3 is "fair" and 4 is "good," the department has increased its
Sensenbrenner sums up the plaint of the modern public offlcial in four average rating from 3.8 to 4.3.
words: "I felt boxed in."
Deming's approach sounded like a way out of the box. Deming urges In its Experimental Police District, which we will describe in chapter
organizations constantly to ask their customers what they want, then 9, responses to the departmental customer survey go directly to the
to shape their entire service and production processes to produce it. In officer involved—as a kind of personal feedback system. Mary Anne
effect, Total Quality Management stands the traditional organizational Wycoff, who did an evaluation for the National Institute of Justice,
chart on its head: it says that the customers are the most important relates the kind of impact that feedback has had:
people for an organization; those who serve customers directly are
Fairly early after they began getting the customer reports, one
next; and management is there to serve those who serve customers.
ofjicer got one back that was quite critical. He read it out loud to
"This is the single most difficult thing about Total Quality his colleagues, quite sarcastically, expecting them to agree that it
Management," says John Cleveland, one of several managers who was ridiculous. And there was dead silence. It was clear that the
introduced it to the Michigan Commerce Department. "Every group did not necessarily agree with him. That kind ofchange in
question becomes: 'How does this add value to the customer?' There's peer relations can have a big impact on people. That Ojicer was
a period of intense ignorance you have to go through, because you very surprised.
don't know much about your customers—because no one talks to
their customers." By forcing organizations to listen, TQM has been
extremely effective at changing their cultures.
REINVENTING GOVERNMENT
In 1991, Couper created an employee project team to develop methods Fox Valley also surveys its business customers, which contract for
to find out what services the customers in each of the city's districts training courses and economic development services. It has roughly
most wanted: traffic enforcement, noise control, 174 1,200 separate contracts with business, industry, and government
every year, far more than any other technical
control over street violence, and so on. Couper ticks off what he Government 175
calls "the important questions": "What are the important customer
needs in your district? How did you find out what they are? What
college in Wisconsin. Using a computerized system its people
methods did you use? What are you doing to address those customer-
developed, it can tell businesses that request training within a matter
identified problems? And how do you know when you've been
of hours whether the curriculum already exists; if not, how long it will
successful?" If it can answer those questions, Madison will have a
take to develop; how much it will cost; and when the course can
police department that offers customized rather than standardized
begin.
services, then measures the results.
Fox Valley tracks the job placement rate of graduates carefully, to see
if its courses are in fact preparing them for jobs that are in demand.
erhaps the most thoroughly customer-driven public institution we Ninety-three percent of 1988—1989 graduates surveyed found jobs
have ever encountered is Fox Valley Technical College, a junior within six months; of those, 87 percent did so in areas directly related
college that serves 45,000 part- and full-time students in Appleton, to their course work.
Wisconsin. In 1985, a local paper company suggested that Fox Valley
offer training in quality and productivity for area businesses. After To force its instructors to take seriously the requirement of preparing
the college president, Stanley Spanbauer, and his colleagues looked their students for success in the job market, Fox Valley decided in
into TQM, they decided to create a Quality First program for their 1990 to offer students a guarantee. If a graduate cannot find a job in
own employees. Since then, they have restructured virtually their an area related to his or her training within six months, the college
entire operation around the needs of their customers. guarantees up to six free credits of additional instruction (two or three
courses), plus support services such as counseling, career
To identify those needs, they do an annual Student Satisfaction
development, or help with interviewing techniques. The school also
Survey, which asks a representative sample of 650 students to rate
guarantees training courses for business customers: if a business is not
teaching effectiveness, different instructional methods (labs, lectures,
satisfied, it will repeat a course for free, with a new instructor.
group discussions, work experience, computerbased instruction), and
student services such as admissions, counseling, and the library. Each "I just figure it tightens up the front end," says Spanbauer. "You begin
division of the school receives its own results, which allow it to to look at students more carefully in terms of counseling them before
pinpoint problems and take appropriate action. they go into a program. And the faculty will ensure that what they
teach is relevant, because they know that a major criterion is whether
One problem, for instance, was course cancellations. Every year, Fox
or not the student gets a job."
Valley had to cancel 16 percent of the classes listed in its catalog,
because not enough students signed up. "You can get some real As it listened to its customers, Fox Valley realized that the traditional
dissatisfied customers that way," says Spanbauer. "But once we academic calendar was frustrating to many of them. People did not
pinpointed the departments where we were having the greatest need training only in September and February, and businesses did not
problems, it improved markedly, because it was pure and simple a hire only in January and June. So the school switched to a Perpetual
lack of good planning." Enrollment/Graduation calendar. Courses are taught in three-week
modules, and every course has at least three entry points and three exit
REINVENTING GOVERNMENT
points each year. In some courses students can enroll daily. Most All 62 instructional programs, plus service departments like
instruction is individualized: students move through their course work accounting and the food service, are expected to use these indicators
at their own pace. Fox Valley instructors use at least 150 different to
"computer-assisted instruction" programs, and students have access to do
1,600 computer terminals. As Spanbauer put it in his 1987 book,
Quality First in Education . . . Why Not?, "Why do educators in LISTENING TO THE VOICE
traditional schools continue to insist, by OF THE CUSTOMER
176 As the examples cited in this chapter make clear, there are
dozens of different ways to listen to the voice of the customer:
their actions, that all students are the same, learn at the same rate, and Customer Surveys. In addition to the organizations described in
learn best in the same manner?" the text, we have seen customer surveys used by Phoenix,
Sunnyvale, and Orlando, Florida; by the Massachusetts Bay
Since Fox Valley has little control over the quality of previous Transportation Authority, the Housing Authority of Louisville,
education its students have received, it has also concentrated on the Michigan Commerce Department, and the New York
counseling and remedial programs to bring its customers up to speed. Department of Labor; by court systems in Michigan,
For those having trouble, the school developed an 18-hour counseling Washington State, and Los Angeles; and by the Naperville,
course, called "College Survival Skills," that deals with things like Illinois, police department.
time management and study habits. Testing the course with an
Customer Follow-up. Fox Valley Technical College and the
experimental group and a control group, Fox Valley found that it Michigan Modernization Service have surveyed their customers
decreased the dropout rate by 22 percent. As a result, several six months, a year, or two years after they were served to see
departments now require it. whether the service actually yielded the desired results. Fox
Valley even plans a follow-up survey after five years.
Total Quality Management stresses the constant measurement and
improvement of quality. As one more tool to do this, Fox Valley Community Surveys. These are even •more common than
developed a kind of quality checklist. It lists Indicators of Excellence customer surveys. Every year, many cities—including Visalia,
in seven key areas: Goal Setting, Quality Based Management, Sunnyvale, Fairfield, St. Petersburg, Dayton, and Dallas—
Customer Service, Human Resources, Curriculum and Instruction, survey their residents to see what they like and dislike about
Use of Technology, and Marketing. Under Customer Service, for their city and their government. The International City
example, the indicators ask whether: Managers Association has even published a how-to book called
Citizen Surveys.
customers are satisfied with the unit's products and/or services; Customer Contact. Police Chief David Couper of Madison
service unit customers have an opportunity to evaluate services; spends one month of every year in the field, working as a
customer service and satisfaction in service units are frontline police offcer. Florida TaxWatch has recommended that
"every state employee who does not have direct contact with the
continuously monitored, evaluated, measured, and used as a basis
public should spend a minimum of two days a year in direct
for constant improvement; students evaluate each of their contact service." Minnesota's STEP program (see chapter 9)
courses; and evaluations are used as a basis for improving urged managers to sit in the service areas of their offices to talk
curriculum and instructional delivery. with customers, and to ask frontline employees what they heard
from customers and how service could be improved.
Customer Contact Reports. Madison's Experimental Police
District gives customer feedback directly to the employee who
served the customer.
Customer Councils. Several housing authorities, including
Louisville's, use resident councils to stay in touch with their
REINVENTING GOVERNMENT
self-audits, to identify areas in which they need to improve. At least
once every seven years, each one is audited by a team of six outside
experts. Between major audits, a computerized quick-check system
flags any programs whose basic
REINVENTING GOVERNMENT Customer-Driven Government

customers. The Michigan Modernization Service used a customer Guaranteed Work Force Program retrains employees at no cost,
council to give it feedback, particularly on new ideas. to employer specifications, if employers are not satisfied. Many
Focus Groups. Common in industry and in political campaigns, high schools in Colorado and West Virginia guarantee qualifying
focus groups bring customers together to discuss a product, graduates to employers; if the graduate has problems with some
service, or issue. The consulting firm Jobs for the Future basic skill needed on the job, the high school will bring him or
discovered through focus groups that people in Indiana reacted her up to speed for free.
negatively to the phrase job training program, because it implied
there was something wrong with them. They preferred career Inspectors. The New York City Taxi Commission sends
development opportunities, because it implied respect for their inspectors out as undercover passengers to police the behavior
potential. of New York's taxi drivers. Private firms routinely send
professional service raters out to check the quality of their
Customer Interviews. Michigan's Literacy Task Force
interviewed 130 people—both providers and customers—to find banks, supermarkets, and restaurants. An entire industry has
out what kind of adult education and job training system grown up to provide this service on contract.
Michigan needed. It discovered that social problems—issues of
motivation, attitude, and expectations—were a greater obstacle Ombudsmen. Some customer-driven governments create an
than lack of programs. And it learned that many Michigan ombudsman, so citizens have someone they can call who will
workers saw "going back to school" as a traumatic idea and work with the offending department to straighten out the
associated visiting government service offces with receiving problem. Peter Drucker calls ombudsmen "the hygiene of
welfare or unemployment—"something successful people just organizations—or at least their toothbrush." Sweden, which
don't do." invented the idea, even has a national ombudsman—as do the
Electronic Mail. In Santa Monica, California, citizens can use rest of the Scandinavian countries and most of the British
the city's Public Electronic Network to communicate directly Commonwealth. In the United States, at least 15 states, cities,
with any department. Staff members are expected to respond to and counties had ombudsmen by 1988.
any request within 24 hours. Citizens can hook up through their
own computers, or they can use public terminals located Complaint Tracking Systems. Many cities have systems that
throughout the city. track responses to inquiries and complaints, to improve the city's
Customer Service Training. Many governments, including response time. With Phoenix's computerized system, city
Madison, Phoenix, Wisconsin, and Arkansas, now offer council members can see whether citizens in their district are
customer service training to their employees. San Antonio has getting the answers they need from city departments.
developed an interesting wrinkle: its Yes, It Is My Problem
initiative encourages city employees to solve citizens' problems 800 Numbers. Governor William Donald Schaefer in Maryland
in one phone call, rather than bouncing them from agency to set up a red-tape telephone hotline on which citizens can report
agency. cases of bureaucratic mismanagement. The Michigan Commerce
Test Marketing. Customer-oriented governments test new Department uses 800 numbers to make it easy for businesses to
services to see if people like them before imposing them on call. The Georgia Public Service Commission set up 800
everyone. The Phoenix Department of Public Works tested its numbers so all residents could call their county omcials for free.
one-person, automatic side-loading trucks with 90 homes; when
it found 96 percent liked the service, it adopted the system Suggestion Boxes or Forms. The open-ended question asked by
citywide. The Minnesota Department of Natural Resources the Madison Police Department's customer survey is in effect a
tested the use of credit cards in one park before accepting them suggestion box. Fox Valley Tech has 23 suggestion boxes on its
statewide. campus. The Michigan Treasury Department puts a suggestion
REINVENTING GOVERNMENT Customer-Driven Government

Quality Guarantees. At least a dozen community colleges in box right on its tax forms.
Michigan guarantee their training to industry. West Virginia's
180 Putting resources directly in customers' hands may at first sound like
a radical idea, but it is not. In fact, it is not even a 181
numbers—enrollments, dropouts, job placement rates, costs, student-
teacher ratios, and so on—suggest problems. If the problems look
real, the school calls in an audit team.
new idea. Vouchers, cash grants, and funding systems that allocate a
In the public sector, unlike business, most institutions have multiple set dollar amount for each customer served have been around for
sets of customers. Since it exists not just to educate and train decades.
individuals but to strengthen the local community and economy, for
Food stamps are vouchers. The $2 billion WIC program (the Special
instance, Fox Valley has at least three sets of customers: students,
Supplemental Food Program for Women, Infants and Children) uses
businesses, and the community. Many of its service departments, like
vouchers. Many states, including California, Massachusetts,
purchasing and accounting, also have internal customers: the
Connecticut, and parts of Minnesota, provide vouchers or their
departments that use their services. So Fox Valley also conducts
equivalents to low-income people for child care. HUD funds housing
detailed surveys of the community and of its own employees.
vouchers. Our largest housing subsidy—the mortgage interest tax
Although we are dealing primarily with external customers in this
deduction—is the equivalent of a voucher. Pell grants, the primary
chapter, much of what we have described also applies to internal
form of federal financial aid, are like vouchers: their recipients can
customers.
use them at any accredited college. In fact, most of our higher
education system is customer-driven, and it is widely considered the
best in the world. If it works so well for 18- to 25-year-olds, why not
PUTTING CUSTOMERS 5- to 18-year-olds?
IN THE DRIVER'S SEAT
Perhaps the best contrast between a system that funds individuals and
The single best way to make public service providers respond to the one that funds institutions occurred after World War Il, when our
needs of their customers is to put resources in the customers' hands soldiers came home. To pay for their college educations, Congress
and let them choose. All the listening techniques listed above are passed the GI bill—perhaps the most successful social program in
important, but if the customers do not have a choice of providers— American history. Congress didn't fund GI colleges; it let every GI
schools, training programs, motor vehicle offices—they remain pick an accredited university, college, or technical school and offered
dependent on the goodwill of the provider. The providers are in the to pay for it. With this act, Congress turned millions of battle-scarred
driver's seat, and customers can only hope they drive where the young men into the educated backbone of a 30-year economic boom.
customer wants to go. When the customers control the resources, on In health care, Congress took the more traditional route. It built GI
the other hand, they choose the destination and the route. hospitals, and it assigned veterans to specific hospitals. One system
Most customers know what is important to them. For one it might be let customers choose their institution, hence promoting competition;
a school with a good national reputation. For another it might be a the other system assigned customers to institutions that could take
school whose graduates get well-paid jobs. For a third it might be a them for granted, because they were monopolies. Which worked
school close to home. If the customers have access to all the relevant better, the GI bill or veterans' hospitals?
information and they vote with their feet by deserting one school, no The advantages of the GI bill approach are obvious. First, customer-
one can argue that that school is providing quality education. driven systems force service providers to be accountable to their
REINVENTING GOVERNMENT Customer-Driven Government
customers. Because customers can take their business elsewhere, wants to invest in new equipment or more clerks, he has to convince
providers must constantly seek feedback on their needs and then do the legislature. But individual legislators will not benefit if lines get
what is necessary to meet them. "There are two ways for shorter and customers are happier at one registry (or even at all
accountability to come about," explains sociologist James 182 registries). So why should they pay the political price of raising taxes
or fees—or taking money away from some other agency—to spend
more at the registry? The McDonald's franchise, in contrast, will earn
Coleman, for three decades one of our leading authorities on more 183
education. "One way is from the top down, which is a bureaucratic
mode of authority. The other way is from the bottom up—for there if its lines get shorter and its service faster. So its manager can easily
to be accountability to parents and children. I think everything that justify the investment, and its owners will eagerly make the
we've seen suggests that the second is a more effective mode of investment. Unfortunately, Wilson omits the punch line: if registries
accountability than the first." received their funds according to how many customers they served,
like McDonald's restaurants do, they might act like McDonald's.
Second, customer-driven systems depoliticize the choice-ofprovider Fourth, customer-driven systems give people choices between
decision. Even in competitive service delivery systems, public different kinds of services. Standardization was very important to the
agencies usually contract with various providers (e.g., for training) or Progressives, because the political machines of the day often
allocate budgets between various providers (e.g., between public dispensed services unevenly. Those of the right religion, or those
colleges). Too often, politics interferes with these decisions. The who voted the right way, or those who worked for the local ward
providers with the largest constituencies get the most money, simply captain, were treated well. Others were left to fend for themselves—
because they can bring the most political pressure to bear during or worse, persecuted.
budget time. Every college, every real estate developer, every large
human service provider, has its constituency—many of which Even today, many still have an ingrained feeling that public agencies
include heavyweight campaign contributors and workers. Few should give everyone the same kind of service, because there is one
politicians get elected because service providers do a good job, but right way to do things—to run a school, to hand out welfare, or to
many politicians get defeated because a constituency rebels—so the run an army. One reason educational choice has not spread faster,
politicians usually listen. But when the customers control the says education professor Mary Anne Raywid, "is that it challenges
resources, no legislature can protect inferior providers from the one of education's most deep-seated and broadly pursued
verdicts rendered by those customers. assumptions: that there must be a right answer to questions of
educational practice, and that all other answers can thus only be
Third, customer-driven systems stimulate more innovation. When inferior."
providers have to compete, they constantly look for ways to cut their
costs and increase their quality, as we explained in chapter 3. But We don't think this way about private goods or services,
when they get their funds from their customers, rather than from a of course. No one wants Apple to produce exactly the
legislature, they also have far greater incentives to invest in same kind of computers as IBM. Even 50 years ago, when
innovation. Henry Ford said, "You can buy a car in any color, as long
James Q. Wilson, in his book Bureaucracy, compares the plight of a as it's black," his attitude almost destroyed Ford Motor
Registry of Motor Vehicles manager who wants to improve service Company. Today the same attitude is destroying American
with that of a McDonald's franchise manager. If the registry manager
REINVENTING GOVERNMENT Customer-Driven Government
education and American government. People don't want welfare. (Think of the waste in that equation—of both human
standardized services anymore. potential and taxpayers' dollars.) Dislocated workers may want health
Can you imagine requiring that all Medicaid and Medicare recipients insurance, but the programs we fund are more apt to pay for job-
go to public hospitals? Or requiring all commuters to use the same search clubs. Systems that put resources in customers' hands allow
form of transportation? And yet we require virtually all children who them to buy what they want, rather than what the legislature or city
attend public school to endure the same basic style of education— council thinks they need. Hence they tend to satisfy their customers
even though we know different children learn in different ways. while wasting far less.
Perhaps Joe Nathan said it best, in Public Schools By Choice: "We Sixth, customer-driven systems empower customers to make choices,
believe that true equality of opportunities demands that different and empowered customers are more committed customers. Education
kinds of programs be 184 research shows that students are more commit185

available. We think providing identical programs to all students


guarantees unequal results."
ted to education in schools they have chosen. Schools of choice have
Do you know anyone who doesn't want to choose the school his or lower dropout rates, fewer discipline problems, better student
her children attend? Of course not. People may oppose choice in attitudes, and higher teacher satisfaction. The same applies to
principle, but if they can afford it, everyone either chooses a virtually any other service: housing, training, health care, even
neighborhood with good schools, sends their children to private recreation.
schools, or uses a public school of choice. Even those who oppose
choice in principle are fast disappearing. Gallup polls show that the The differences can be dramatic. In 1982, American Express set up
percentage of adults who believe parents should be able to choose the Academy of Finance in New York, for potential high school
the public school their children attend increased from 12 percent in dropouts. It combined schoolwork with job experience, and it
1980 to 62 percent in 1990. Support is highest among young adults promised each student a summer internship in the financial world.
(age 19 to 29) and racial minorities, at 72 percent. Even a majority of These students were failing in the standard system, but having chosen
teachers said that choice would help their students in a 1989 poll. a school that made real-world sense to them, they took it very
seriously. "They did their schoolwork; they showed up for work on
Fifth, customer-driven systems waste less, because they match supply time; they wore suits and ties," says Louis V. Gerstner, Jr., then
to demand. The type and volume of most public services are president of American Express. "Ninety percent of the first class went
determined not by what customers want—by their demand—but by on to college."
law. And legislatures create laws in response to the demands not of
individuals, but of constituencies. Consequently, those laws tend to Finally, customer-driven systems create greater opportunities for
dictate impartial treatment and equal service to all members of the equity. When governments fund programs or institutions directly,
targeted group. This is a natural impulse, and it often ensures a basic equity becomes difficult to enforce. If we do enforce it, limiting use
fairness in public systems. But it has perverse side effects. Some to the poor, we create separate institutions that not only deteriorate
customers may not want the standardized service; many may need but develop a stigma. Think only of public housing or public health
other things far more. But if the law exists, the money is spent. clinics, and you will understand the problem. "Separate but equal" is
virtually impossible, if all those using the separate institution are
Poor women may need training, housing, child care, and Head Start, poor.
but our laws make it far easier for them to get food stamps and
REINVENTING GOVERNMENT Customer-Driven Government
If we do not limit the program or institution to the poor, we have no
way of ensuring equity. Often we produce just the opposite, because
the affluent become the most intense users of the service. Think of
how we fund public universities: we use state tax revenues collected
from everyone to subsidize higher education primarily for the middle
and upper middle class. Studies done in Wisconsin and California
have shown that their fine public university systems actually promote
inequality, because those who attend them come from more affluent
families, on average, than those who do not.
When governments fund individuals rather than institutions, it is
much easier to promote equity. They can simply equalize the funding
for each individual—or even increase it for those with less income.
This also removes the stigma of subsidies for
REINVENTING GOVERNMENT Customer-Driven Government
186 Administration suddenly shifted to vouchers, its hospitals would have
to undergo profound and wrenching changes.
the poor by allowing them to participate in the mainstream—to attend
187
any school, live in any apartment building within their means, use
any health clinic.
Customer-driven systems will not promote equity if information
Traditional public systems—even those that put resources in people's
about the cost and quality of different providers is not accessible to all
hands—are designed for the convenience of administrators and
customers. Even public schools, for instance, will act like businesses
service providers, not customers. Medicare is so complex that many
when forced to compete for their students and dollars; they will
of the elderly have to hire private firms to help them navigate the
manipulate test scores, produce slick brochures, and put on the best
jungle of paperwork, forms, and claims. Our social welfare systems
marketing campaign they can muster. Government's responsibility is
are so fragmented that many poor families have to wait in line at five
to make sure all families, no matter what their income or education
different offices and fill out 10 different forms. In 1989, the assistant
levels, have accurate information about the quality of the schools and
secretary for health testified that there were 93 federal programs
the satisfaction levels of their customers, and to police the
administered by 20 different agencies related to the reduction of
marketplace for fraud.
infant mortality.
Two other caveats: First, what we have discussed in this To understand what happens when a system works for the
section applies to service delivery, not regulation. In convenience of its agencies rather than its customers, consider the
regulatory activities, the primary customers are not story of Youngstown, Ohio, as told by Terry Buss and Roger Vaughan
in their remarkable book On the Rebound. During the late 1970s and
individuals but the community at large. Second, customer-
early 1980s, 25 steel plants closed in the Youngstown region. Forty
driven systems require head-to-head competition between thousand steelworkers lost their jobs. As might be expected, the
service providers. If there are few competing service existing service delivery infrastructure geared up to help them. None
providers and new competitors face significant barriers to were in .the habit of asking their customers what they needed, but
entry, customers will encounter the problems of monopoly. that didn't stop them. With federal and state money flowing, each
And if the economics are such that direct competition on mustered all the data it could to prove that the dislocated
each route would be inefficient— as in garbage collection steelworkers needed just what it had to offer: psychological
—a city can choose between competitors, but it makes no counseling, or job training, or financial counseling.
sense to allow individual customers a choice. Buss and his colleagues at Youngstown State University went back
later and asked a scientific sample of the 4,000 workers laid off from
Youngstown Sheet and Tube what they needed and which services
TURNING AGENCY-DRIVEN had been of value. Only 20 percent, it turned out, had used retraining
programs. Vaughan explains why:
GOVERNMENT ON rrs HEAD
As powerful as it is to put resources in customers' hands, it is not
The Job Training Partnership Act (JTPA) was originally
always enough. If the service providers are public, or publicly funded,
intended to help disadvantaged people, poor people. Then it was
entrepreneurial governments often find that they face one more step:
extended to deal with the problem of worker displacement,
they must transform their existing bureaucracies. If the Veterans
because it passed in 1982, when displaced workers were a prime
REINVENTING GOVERNMENT Customer-Driven Government
issue. So it was that displaced steelworkers in Youngstown were Transforming an agency-driven system like this would require more
sent to sessions where they were told how to show upfor work than putting resources in customers' hands. A job training voucher, a
on time, what the work environment was like, and what mental health voucher, and a financial counseling voucher would have
employers expected ofyou. Not surprisingly, they were furious. been big improvements. But what dislocated workers really needed
was some form of resource that would let them decide their own needs.
188
Perhaps the most dramatic effort at this kind of transformation took
Other programs trained people for steelworking, welding, and small- place in Michigan during the 1980s. In 1983, Governor Blanchard
engine repair, areas in which there were no jobs available. Overall, asked a newspaper publisher, Philip Power, to chair his Job Training
only 37 percent of those "retrained" found work. Those who avoided Coordinating Council. Power spent several years trying to understand
the training programs actually had better luck finding jobs. "The only the state's job training infra189
program that worked was when JTPA dollars were turned over to the
Steelworkers Union, and they trained their own to help their own,"
says Vaughan. "They actually had steelworkers helping steelworkers. "
structure—essentially the same one that had served Youngstown so
The mental health system was even worse. To get more funding, one poorly. He found it incredibly confusing, because it seemed to have no
community mental health center demonstrated an increased demand rationality. "I kept asking people who was the expert, who was the
from dislocated workers. But when Buss's researchers looked at its genius who could come in and tell us how this system worked," he
files, they found that it had listed every family member of an smiles. "And the governor's staff would say, 'There isn't any.' So then
unemployed person as a separate case. "We were led to believe that we went to lots of conferences, but we didn't find anything there
displaced workers suffered psychological trauma from the loss of either." Finally, at one conference, Power complained to a federal
jobs," says Vaughan. official about the poor quality of JTPA's management information
system. "He said, 'It's not a management information system. It wasn't
But in Youngstown, the homicide rate went down. Divorce went designed for that. It was developed for filling out the federal forms
down. Child abuse cases went down. All the pathologies that we required.'
in our minds believe are associated with unemployment went
down. They spent millions on mental health programs in "I guess that's when I got angry."
Youngstown, and we were able to trace 33 steelworkers who used In frustration, Power did what any business person would do when
them. confronted with a business he or she doesn't understand: he took an
inventory. "I said, 'Let's just see what we've got.' " The results were
The one service the steelworkers most often said they wanted, when "absolutely astonishing." Michigan had 70 distinct job training or adult
Buss and his colleagues asked, was health insurance. But there was no education programs, funded by $800 million a year. They ranged from
health insurance agency in town, so no one stepped in to meet that JTPA programs to welfare training programs to summer youth
need. programs to adult basic education. Each had been legislated into
existence separately. Most were invisible to the average citizen. Most
were hard to access; in fact, you had to be "disadvantaged" or
unemployed, or to have done something wrong, to get at much of the
money. Many customers who qualified got bounced from one office to
REINVENTING GOVERNMENT Customer-Driven Government
another, where they filled out one form after another—until finally any performance data. It was, in effect, a nonsystem: 70 categorical
they gave up. pots of money with no coherence, no user-friendliness, little
Some of the money came from Washington, some from state performance data, and little management. People in government often
government, some from local government. Nine state departments or talk about "funding streams," but these were puddles: funds could not
agencies had jurisdiction over at least one of the 70 programs. No one flow from one to another as needs shifted. They were driven by
knew which were effective and which were not, because few collected legislation and organized for the convenience of public agencies—not

190191

driven by demand and organized for the convenience ofthe training or education they wanted. If they were interested in customers.learning
computer-aided design, the counselor would tell them "That inventory tore my head off," says Power. "The topwhich programs existed in the area,
how much they cost, what managers in state government were stunned. This was an abso-percentage of their graduates had found jobs and at
what salary lutely invisible $800 million. We had all thought we had alevels.
money problem—but we didn't have a money problem, we hadThe counselor would then electronically graze the 70 categoria management
problem. "cal pots of money. An unemployed or poor person might qualify Gradually, Power and his colleagues developed a plan to turnfor funding
from one or more pots. That information would be the 70 programs into a coherent Human Investment System.put onto the smart card, and the
customer could then use it to buy They started by creating a steering organization at the top, theservices from any vendor in the state: a
training program, a comHuman Investment Fund Board, which included the directorsmunity college, a private technical school, even a university.
of the nine state agencies and representatives of key business,As this system matured, Power and his colleagues reasoned, labor, and
education organizations. They pulled the frontlineinformation about customer demand and vendor performance agency and provider
organizations at the local level togetherwould build up in the data base. Gradually, it would become into Core Groups, to adopt identical one-
page intake forms,clear which training vendors placed 90 percent of their graduhook into the same computers, and begin acting like differentates
in jobs and which placed only 40 percent, which commuintake points for the same system. They set the Core Groups tonity college programs sent
their graduates off to solid jobs and work defining performance targets and measures for the entirewhich did not, which adult education programs
significantly system. They mapped out a set of Opportunity Stores— officesraised their students' reading levels and which did not. It would
with common logos and bold colors, like those of any other ser-also become clear which of the 70 pots of money were in high vice franchise
community colleges, and main streets all across Michigan, toAs this information built up, Power believed, both customers act as the visible
"front doors" of the system. They set up Op-and service providers would pressure the legislature to elimiportunity Directories: kiosks with
automatic teller machines,nate some of the pots, expand others, and revise the rest. Ultilike those used by banks, which customers could use to
electron-mately, the legislature might realize that an effective lifelong ically browse through the training and education options avail-learning
system would not have 70 pots of money, but one— able in their geographic and interest area. And they created anand that every citizen
of Michigan below a certain income level Opportunity Line—an 800 number anyone could call to get in-ought to have access to it. At that
point, the Opportunity Card formation about training and education services.would become a true voucher. Power and his colleagues Finally,
in a master stroke, they invented an Opportunitydreamed of $500 a year in education and training credit piling Card: a "smart" credit card, with a
computer chip, which wouldup on each worker's card, so they could buy the retraining and go to every Michigan citizen of working age. Citizens
REINVENTING GOVERNMENT Customer-Driven Government
have a social security card for retirement, a driver's license for The result would be a truly customer-driven system. Customtransportation, and an Opportunity
Card for lifelong education ers would know exactly where to go for information about the and training. They could bring their card to any Opportunity quality
and availability of various services, and they could Store, where a counselor would insert it in his or her computer, choose the service they preferred. All
vendors—public proread the data from the person's last entry into the Human In- grams, private schools, community colleges, for-profit firms— vestment

System, and advise them about how and where to find would have to compete for their dollars by providing quality
REINVENTING GOVERNMENT Customer-Driven Government

192 give customers all the information they need about the lights and
faucet and phone.
training or education. The market would respond to the needs of the
193
customers. Businesses could even use the system to select contractors
for training they needed, or to handle the retraining funds they set
aside for those they laid off. Customer-driven systems also allow individuals to meet their needs
in a holistic way, without applying to half a dozen different programs.
There was only one thing wrong with Power's vision. It required the Michigan's Opportunity Card and Stores were designed to help
full backing of a governor, and Power's governor lost an election customers buy any kind of education, training, or placement services
while the system was still under development. Continuity of they needed, without visiting half a dozen offices. Multiservice
leadership is critical in transforming public systems. (This is another shelters for the homeless—which bring an array of services together
huge difference between business and government: political under one roof—offer yet another example.
successors are often more adversarial than business successors.)
Because Opportunity Cards were not yet widely available during the A recent Governing magazine article about at-risk youth illustrated
1990 campaign, in which Governor Blanchard sought a third term, the importance of a holistic approach. It described a girl who was on
his opponent ridiculed the idea as a public relations gimmick. During welfare, was pregnant/ and had a juvenile record. Through her
speeches, he would invariably ask the audience, "Does anyone here contacts with corrections and social welfare agencies, she had more
have an Opportunity Card?" When he won, he quickly dismantled the than half a dozen different caseworkers. The system was so
system. It was such an important breakthrough, however, that other fragmented that while each agency was performing a discrete service,
states immediately began to look into it. no one was dealing with her real emotional needs. "The kid has all
these people providing services, and everybody's doing their own
thing and Tasha's not getting better," one caseworker said. "We need
to have one person who says, 'Now look, let's talk about a plan of
USER-FRIENDLINESS, action for Tasha.' " Even the AFL-CIO has begun to protest
TRANSPARENCY, AND HOLISM fragmented, userhostile systems. In a publication called Making
Power and his colleagues believed a customer-driven system should Government Work, its Public Employees Department recommended
be "user-friendly": customers "should not be faced with a confusing restructuring service delivery systems to create one-stop shopping,
maze of fragmented programs, conflicting eligibility requirements, single intake systems, case management, and the like. It held up
and multiple forms to fill out." They also felt it should be models such as New York State's merger of Job Service and
"transparent": customers should be able to sort through their options Unemployment Insurance offices into Community Service Centers, in
without having to sort through the complex bureaucracy behind them. which the unemployed can sign up for unemployment insurance and
food stamps and receive information about education, training, child
Think of our public systems as an infrastructure—like sewers, water care, and jobs—even during the evening. The idea, it said, is to "serve
pipes, and electrical lines—and the idea of transparency becomes people, not funding streams."
clear. Customers don't care how infrastructure systems work; they
don't want to know what goes on underground. They just want the
lights and faucet and phone to work. User-friendly, transparent time will come when people won't believe that a pregnant high
systems are designed to hide the underground pipes and wiring, but to school girl in America once had more than half a dozen different
REINVENTING GOVERNMENT Enterprising Government

caseworkers. A time will come when people won't believe that the benefits to which they were entitled. And a time will come when
poor in America once had to visit 18 different offices to get all the people won't believe that parents in
194

America once could not choose the public schools their children attended.
By the evidence piling up across this land, that time will come sooner than
most of us think. In a world in which cable television systems have 50
channels, banks let their customers do business by phone, and even department
stores have begun to
customize their services for the individual, bureaucratic, unre- Enterprising Government:

sponsive, one-size-fits-all government cannot last.


REINVENTING GOVERNMENT Enterprising Government

Earning Rather Than Spending


The tax revolt . . . is here to stay. We have to guaranteefuture revenues by creating new
revenue sources.
—Gale Wilson, former city manager, Fairfield, California

n 1990, Ace-Federal Reporters, Inc., offered to pay the Federal


Energy Regulatory Commission (FERC) for the privilege of transcribing its
hearings. Ace had discovered, over the previous eight years, that it could make
whopping profits by selling transcripts to the thousands of law firms that argued
before FERC every year. When FERC rebid the contract in 1990, three of Ace's
REINVENTING GOVERNMENT Enterprising Government

competitors offered to perform the service for free. But Ace went them one
better: it volunteered to pay $1.25 million.
FERC turned down the offer. As FERC officials explained, they couldn't keep
the money. They would have to turn it over to the U.S. Treasury, and they would
have to hire a clerk to set up the account and monitor the contract. To FERC, in
other words, it was an expense, not a source of revenue. Who needed it?
Ace sued, of course. "I never thought I'd see the day that I'd have to sue the
government to force them to take money," its lawyer mused.
This is a particularly glaring example, but similar stories unfold every day of

the year, in virtually every government in America. Our budget systems drive
people to spend money, not to make it. And our employees oblige. We have 15
million 196197

trained spenders in American government, but few people who The Milwaukee Metropolitan Sewerage District transare trained to make money. In most
governments, few peopleforms 60,000 tons of sewage sludge into fertilizer every outside of the finance and revenue departments even think year and sells it—
generating $7.5 million in revenue.
about revenues. No one thinks about profits. Phoenix earns $750,000 a year by siphoning off the The typical public employee, in fact, resents the fact
that hemethane gas generated by a large wastewater treatment or she
occasionally has to worry about revenues—because bud-plant and selling it to the city of Mesa, for home heating gets fall short or taxpayers revolt. The
police, the librarians, theand cooking. social workers—most believe they are doing God's work, and the public should be grateful. They are often
justified in this Chicago turned a $2 million annual cost into a $2 million opinion. But can you imagine the creativity they would turnsource of
revenue by contracting with a private company loose if they thought as much about how to make money as they to tow away abandoned cars. The city
once spent $24 per do about how to spend it?car to tow cars; now a private company pays $25 a car for Many readers remember the 1984 Olympics.
Eight years ear-the privilege.

lier, in Montreal, the Olympics had rolled up a $1 billion public The St. Louis County Police developed a system that
aldebt—a debt Canadians will still be paying offin the year 2000.lows officers to call in their reports, rather than write But the Los Angeles Olympic
REINVENTING GOVERNMENT Enterprising Government

Organizing Committee, formedthem up. The department then licensed the software to a about the time Proposition 13 passed in California, understoodprivate
company—earning $25,000 every time it sells to that the citizens of Los Angeles were not about to pay $1 billionanother police department.
to subsidize the Olympics. So they spent three years convincing The Washington State ferry system generated $1 million a the International Olympic
Committee that they could break the year in new revenues during the early 1980s by rebidding pattern of 85 years and finance the Olympics without publicits
food service contract; more than $ 150,000 a year by bidmoney.a contract to sell advertising in the terminal build-

ding out
The Olympic Committee finally agreed, and the organizersing; and another $150,000 a year by letting a contract to went to work. They recycled old facilities.
They drummed upoperate duty-free shops on its two international boats. corporate sponsors. They recruited 50,000 volunteers—not just to park cars, but to
organize transportation, to feed thousands Paulding County, Georgia, built a 244-bed prison, when of people from 1 18 countries, and to help with a
sophisticated it needed only 60 extra beds, so it could charge other juantiterrorist system. The organizing committee, led by civic en- risdictions $35 a night to
handle their overflow. In the
trepreneur Peter Ueberroth, painted a vision that included not jail's first year of business, it brought in $1.4 million, only spending money but making money.
And the 1984 Olym- $200,000 more than its operating costs.

pics turned a profit of $225 million. Enterprising police departments in California are earn Pressed hard by the tax revolts of the 1970s and 1980s and ing
money by renting out motel rooms as weekend jails. the fiscal crisis of the early 1990s, entrepreneurial governments The courts often let those convicted of
drunk driving are increasingly following Ueberroth's example. They are serve their time on weekends. So some police departsearching for nontax revenues.
They are measuring their return ments reserve blocks of cheap motel rooms, pay someone on investment. They are recycling their money, finding the 15 to sit
outside and make sure everyone stays in their or 20 percent that can be redirected. Some are even running for- room, and rent the rooms to convicted drivers as
jail profit enterprises. cells at $75 a night.
Enterprising Government
198 REINVENTING GOVERNMENT199

TURNING THE PROFrr MOTIVEAdministration negotiated a deal with IBM to develop six "expert systems" pioneered by its InterTechnology
Group, the TO PUBLIC USEstate attorney general announced that it had to limit its royalIn the early 1970s, Ted Gaebler worked in Columbia, Mary-ties,
because it was a nonprofit organization.

land, the "new town" built by developer James Rouse, of Bos-We can no longer afford this attitude, in an age of fierce resiston's Quincy Market and
Baltimore's Inner Harbor fame.tance to taxes. This is not to say that most public services Columbia was created by a private corporation, not a
publicshould be sold for a profit—most shouldn't. But think of all the organization. It was Rouse's first experiment in the use of busi-public services
that benefit individuals: the golf courses, the tenness practices to solve public problems. nis courts, the marinas. Typically, the taxpayers subsidize those

Gaebler learned many lessons at Rouse's knee, but perhapsservices. Average working people subsidize the affluent to play the most fundamental was the
power of the profit motive.golf and tennis or moor their boats. Why not turn such services Gaebler and his colleagues would often be stymied by someinto
profit centers?

problem, gnashing their teeth and getting nowhere. RouseWhen Ted Gaebler arrived in Visalia, the city was charging would walk in and ask, "How could
we profit from solving this men's recreational softball teams $25 per season. Gaebler asked problem?" That question invariably unleashed tremendous cre-his
staff how much the softball program cost the city—for ativity.umpires, equipment, park maintenance, and so on. No one Seven years later, Gaebler
became city manager of Visalia.knew. They put an intern on it, and in traditional governmental Sixty days after he took the reins, Proposition 13
eliminated 25fashion an answer came back three years later. Softball cost the percent of the city's tax revenues. So Gaebler began askingcity $140 per team,
per season.

Rouse's question. When the school district needed $1.4 million No one had ever voted to subsidize the men's softball league, so to build a new school, Gaebler
asked what it could put on theGaebler asked his staff to recommend a new fee. Three weeks table. Months later, after a complex series of land purchaseslater
they came back with a figure: $90. "Where did you get that?" and negotiations, it completed a four-parcel swap and sale that he asked. "Well," they
answered, "we think that's what the traffic left the district with $1.2 million and a prime site for its newwill bear." Gaebler decided to pose James Rouse's
question. school and the city with commercial property worth more thanThe occasion he chose was a public hearing on softball fees, $1.5 million. in the
recreation building. It was a hot July night, and 300 angry "Other cities do a project and see what the expense is," saidballplayers showed up. To begin the
meeting, Gaebler walked to John Biane, then Visalia's real estate manager. "We do a projecta blackboard at the front of the room, erased the figure $90, and
and figure out how much money we can make."wrote down $400. An hour later, 300 people walked away The word profit is anathema to traditional
governments, ofhappy to pay a $400 fee. Why? Because they had decided to course. When a public entrepreneur in Rhode Island began recruit team
sponsors, who would pay the $400. Ballplayers no marketing a state software program to the private sector—pull- longer had to pay a fee, merchants got
cheap advertising and ing in $275,000 a year for the state—his superiors gave him noloyal customers, and the city earned $260 per team, per season.
encouragement or extra staff, because they did not considerIt was pure profit—which the city invested in girls' softball and making money to be their job.
Frustrated, he left state govern-recreation for senior citizens.
ment and launched a private company—and the state dis-Within a year or two the city had a new problem: it had 300 banded its marketing effort. When
Minnesota's Department of teams, and they were overflowing the portable toilets. Again in

200 201
REINVENTING GOVERNMENT Enterprising Government
traditional government fashion, the finance director assured the After the mall opened, in 1985, the city began leasing and recreation director that if
she wrote up a request she could get selling off its other parcels. Overall, according to Fairfield's calportable toilets tacked onto the end of the five-
year capital im-culations, its investment of $8 million in land purchases and provement plan. If she could then get a state matching grant,
inrelocation costs had generated, by mid-1991, $6.4 million in six or seven years the city could buy her some new toilets. sales, $9.4 million in
increased property taxes, and $15.4 mil "I don't think you understand," the recreation director re-lion in sales taxes. The profit-sharing agreement is
generating sponded. "These people are killing our trees today." $ 120,000 a year, and ground leases from the second major parHaving caught a whiff
of the entrepreneurial spirit, she sug-cel developed, the Gateway Plaza, will kick in soon. The city gested a solution: why not take $85,000 out of
the savings her still owns about 35 acres, which it intends to sell or lease as the department had built up (under its new budget system) andmarket
can absorb them.
invest in 12 flush toilets? To pay for the water and sewer sys-Fairfield has since taken a similar approach to its other develtems needed, she would put
a concession stand on the frontopment projects. When a developer tried to build a large resiend and lease it out to the highest bidder. A&W Root
Beerdential development just outside city limits, for instance, the won the concession, and in 31 months its contract repaid the city backed a county
proposition that made it difficult to decity's investment. From then on, it generated pure profit— velop land outside a city, then proposed a deal that
convinced $24,000 a year or more. The ballplayers got not only their toi- the developer to build in Fairfield. The city built a public golf lets, but the
opportunity to buy soft drinks, beer, and hot dogs. course around which the developer could build, then allowed A&W earned a profit, but so did
the city. Where were the him to increase the number of homes in the project from 800 to losers in that story? 1,200. The only catch: the
developer had to donate land for the Fairfield, the city that invented the mission-driven budget, golf course and a public school, build a public road
into the was even more aggressive. In 1976, a developer approached project, and put in the storm drainage system.
then city manager Gale Wilson for permission to develop a The city used revenue from the course and clubhouse to pay small shopping center.
Wilson and his staff believed that Fair- off the $7 million it borrowed to build the course. The result: field—which sits astride Highway 80, halfway
between San The developer got higher value building lots, because they surFrancisco and Sacramento—would grow into a perfect location rounded
a golf course, and the city built its first public golf for a large regional mall. (Fairfield had 51,700 people in 1976; course with no subsidy from
the taxpayers.
today it has 80,000.) So they created a Redevelopment Author- The project worked so well, in fact, that the city then negotiity, which bought
90 acres of land for $3.6 million, sold 48 to ated a similar deal with another developer—in which the develthe developer for a $2 million profit,
and built a new highway oper not only donated land but built a reservoir. As we write, interchange. The developer put in a "super regional mall" with
Fairfield is studying the option of selling the first course and more than a million square feet and five large department investing the profit of $20 to
$25 million in some other amenstores. As part of the agreement, Fairfield negotiated a piece of ity, such as a sports complex. "We intervened in the
market by the action: 10 to 17 percent of net cash flow for 65 years. When creating more value," explains City Manager Charlie Long. Proposition 13
limited the city's take from property taxes, Wil- "The golf course created higher home prices because it created son negotiated a 55-cent-per-acre
assessment for off-site im- more value, and we then take that increment of profit and put it provements—roads, sewers, and the like—for 25 years. It
now in the public sector to pay for more amenities." brings in between $400,000 and $500,000 a year and covers the Lest you think this kind of
entrepreneurship can happen only cost of the bonds floated to pay for the improvements. in California, Cincinnati earns 1 7 percent of the profits
from a
202 stations. Orlando, Florida, even struck a deal in which a developer
built a new city hall.
hotel and office complex in the city center, for which the city
Orlando Mayor Bill Frederick, first elected in 1980 in the wake of a
assembled the land and arranged the financing; San Antonio is a
nationwide tax revolt, understood that his citizens wanted lower taxes.
partner in several real estate projects, including a Sheraton hotel; and
(He pushed property taxes down by 29 percent over the next decade.)
the Metropolitan Area Transit Authority in Washington, D.C., has
He knew that if he wanted to accomplish anything, he would have "to
developed lucrative real estate above and around some of its subway
look to new solutions— especially when it comes to finances."
REINVENTING GOVERNMENT Enterprising Government
"If Orlando had taken 5 percent of its General Fund revenue in 1980 Perhaps the safest way to raise nontax revenue is simply to charge
and used it to finance a 30-year series of bonds," he explains, "we fees to those who use public services. User fees have become ever
could have built only $30 million worth of capital projects." Instead more popular as resistance to tax increases has mounted. Sunnyvale
Orlando used a series of profit-making authorities and funds to build generates 37 percent of its operating budget from fees, another 3
nearly $2.5 billion worth of facilities—an expanded airport, a new percent from franchises and concessions. The average local
basketball arena, wastewater treatment plants, a performing arts center government (not counting school districts) raises more than 25
—with virtually no subsidy from local taxpayers. percent of its revenues from user fees. They are particularly common
for garbage collection, water and sewer services, recreation facilities,
The crowning achievement was city hall. To avoid dipping into general
parking, health services, police services at special events, building
revenues, the city used seven acres around the old city hall as a lure—
inspections, and zoning services.
asking developers to compete for the right to develop the land. The
The public clearly prefers this approach. "All of our publicopinion
winner, Lincoln Property Company, agreed to build a $32.5 million,
polls indicate that when you confront citizens with their preference
246,000-square-foot, state-ofthe-art city hall, complete with its own
for raising revenue—user fees, property tax, local sales tax, local
closed-circuit television system. In exchange, it got the right to build
income tax—user fees win hands down," says John Shannon, former
two office towers adjacent to city hall. Ground rents from the towers
executive director of the Advisory Commission on Intergovernmental
will pay off the city's construction bonds.
Relations, in Washington. "That's what's kept this [user fee]
In addition, the city will receive 20 percent of the net proceeds from movement skipping right along. "
office and retail rents over a set income level, plus 20 percent of the
And why not? What is fairer than a system in which those who
proceeds from any sale or refinancing. (If Lincoln fails to build city
benefit from a service and can afford to pay for it do so, while those
hall to the city's satisfaction, or fails to begin paying ground rents on
who don't benefit don't have to pay? What is fair 204
the first office tower in 1992 and the second in 1996, it will forfeit a
$750,000 deposit.) The city expects the project's revenues to pay off its
30-year bonds in 10 to 12 years. about subsidizing Little League but not youth soccer—as Visalia
203 discovered it was doing? What is fair about subsidizing golf while
cutting more important public services, as Dayton discovered it was
doing?
After 75 years, the entire project will revert to city ownership. "I User fees are not always appropriate, of course. They work under
know 75 years seems like a long time," says Lew Oliver, the city's three conditions: when the service is primarily a "private good,"
project manager. "But Rockefeller Center is 65 years old and it is benefiting the individuals who use it; when those who don't pay for it
some of the hottest property in New York." Oliver estimates that the can be excluded from enjoying its benefits; and when fees can be
Orlando project will be worth $3 billion by 2070—by which time the collected efficiently. "Collective goods," which benefit society at
city will already have collected some $700 million in ground rents. large, should not be charged in full to paying customers. Mass transit,
for instance, benefits everyone— whether they use it or not—by
limiting tramc congestion and pollution. If it were priced to cover its
costs in full, fewer people would use it and the society would lose
RAISING MONEY BY CHARGING FEES much of this collective benefit.
Making profits through development deals is one of the more Even user fees charged for private goods have some drawbacks. If it
aggressive methods used by enterprising governments. It is also costs $1 to use a public swimming pool or $2 to use the tennis courts,
riskier than many of the alternatives. Fairfield has made money hand for example, poor children will not have the same access as others. To
over fist from its mall, but it lost roughly $500,000 from a series of solve this problem, some governments forgo certain user fees; others
energy investments when the price of oil collapsed. provide free season passes, vouchers, or their equivalent to poor
families; still others give recreation staff the authority to admit poor
REINVENTING GOVERNMENT Enterprising Government
children for free. This approach equalizes the customers, without it is a way to save money. By measuring their return on investment,
spending enormous amounts to subsidize everyone. "It defies logic to they understand when spending money will save them money.
give services free to high-income folk because you're worried about Businesses focus on both sides of the balance sheet: spending and
low-income folk," says John Mikesell of Indiana University, an expert earning, debits and credits. They don't care as much about the
on state and local taxes and fees. "That gives welfare to the rich." spending side as the earning side: they will spend whatever is
necessary to maximize their returns. But governments look only at the
Other user fees actually make public systems more progressive. When
spending side of the ledger. Ignoring returns, they concentrate only on
governments pay for water and sewer systems out of general tax
minimizing costs. Frequently they refuse even to consider
receipts, the poor often subsidize the rich, who use far more water.
significant investments that would generate significant returns—
Even when this is not the case, user fees for a service not heavily used
simply because of the cost. They postpone spending on road repair
by the poor, like highways, can be used to subsidize a service more
until the road has to be rebuilt, at three
accessible to the poor, like mass transit. In such cases, the impact is
clearly progressive.
User fees have two advantages: they raise money, and they lower
demand for public services. Both help balance public budgets.
205

When consumers do not have to pay the full price of a service, they
often consume far more of it than they otherwise would. Norm King,
city manager of Moreno Valley, California, compares the dynamic to a
restaurant dinner in which the diners agree beforehand to split the bill.
When he knows the bill will be evenly shared, he says, "I have the filet
mignon." When he pays his own bill, on the other hand, "I may well
have the chicken, and not the filet mignon."
When Minnesota's Department of Administration required some of its
services to charge their full costs, it learned these lessons. Demand for
long-distance telephone service fell by half, because suddenly
departments had to pay for what they used. On the other hand, it was
now clear that those who chose to buy valued their services. The
Management Analysis Division, which sells management consulting,
grew rapidly. "Since we've been charging the involved parties have
taken more seriously our recommendations and are much more
committed to carrying them out," says Terry Bock, who runs the unit.

SPENDING MONEY TO SAVE MONEY:


INVESTING FOR A RETURN
A third characteristic we have seen in enterprising governments is an
"investment" perspective—a habit of gauging the return on their
spending as if it were an investment. This is not a way to make money;
REINVENTING GOVERNMENT Government

206 Enterprising 207

times the cost of simple resurfacing. They ignore the minor expense Stumberg argues that we should give teeth to politically popular terms
of health care for pregnant women, but pay the massive expenses of such as "investment" and "partnerships" by giving them the kind of
premature babies. serious content they have in the private sector. Partnerships are used in
A few politicians have begun to throw around the word investment to business all the time, he points out— but they are structured by
justify their spending—as in "This appropriation for our schools will contracts, and they specify a return on investment. What we need is a
be an investment in our future." But few really think like investors. form of accounting that measures return on investment, as businesses
The average tax auditor in the Los Angeles Clerk's office generates do. Stumberg suggests an "economic impact statement":
140 times his or her salary in increased tax collections. But during the
1991 recession, Los Angeles hired no additional auditors. "Politically, Say you've got a budget proposal to invest $5 million in a low-
when you're laying off cops and firemen, you can't hire auditors," a income housing project this year by subsidizing the rehab of the
city offlcial explained. An entrepreneurial city wouldn't lay off the building. You convert that investment into a per-unit cost in the
cops and firemen: it would train a few of them as auditors and context of its 30-year life, and you compare that to alternative
quickly make enough money to keep the rest on. investment scenarios. That cost might translate into something
Careful studies have estimated the return on investment for every like $40, 000 per housing unit, in present dollar terms. But then
dollar spent on Head Start at close to $5 over the life of the student— when you add in down-the-road costs your 30-year public
in lower welfare costs, education costs, and crime costs, and higher expense for that property is going to look more like $150,000. In
tax revenues from earnings. But we still spend enough to provide contrast, you might be able to make a $50,000 investment now,
Head Start to only a third of all poor children. which would only require $20,000 more over the 30-year cycle.
That would tell you the politicians are about to vote on something
Welfare spending tells a similar story. Studies have demonstrated
that would be twice as expensive as the alternative.
that welfare-to-work programs produce their greatest financial return
by investing in women who need help the most: those who have been In Florida, managers in the Department of Health and Rehabilitative
on welfare the longest. It takes far more money to buy the education, Services are working to develop a system that will measure return on
training, and other support they need to get permanently off welfare, investment. Several states have required specific returns from their
but the return is significant—because without the intervention, they investments in economic development—no doubt because those
are virtually guaranteed to stay on the rolls. Many of these involved in economic development are often accustomed to thinking
investments pay themselves back—through welfare savings—only in like investors. Kansas enacted a venture capital tax credit for investors
the second or third year. But when Robert Stumberg of the National in new venture capital firms, provided that those firms invested at least
Center for Policy Alternatives reviewed state welfare programs, he 60 percent of their money in Kansas businesses. The legislation
found only three or four that even measured their return beyond the required an annual analysis of the fiscal rate of return generated by the
current budget year. tax credit. Iowa set up a customized job training program for industry
"I keep coming back to trying to rationalize economic returns," that recouped its investments through a corporate tax increment
Stumberg says. "Convincing people to spend more money now, or assessed on increases in property value or income taxes paid by the
serve fewer people now, on the grounds that you shouldn't be trying firm's workers.
to reduce cost per capita in a one- or twoyear period. You should be
trying to think like an investor, and maximize your long-term return."
Enterprising Government

208 REINVENTING GOVERNMENT 209

Perhaps our favorite illustration of an investment mentalitying with the private sector. "It was a terrible split, an emotional comes from a far less likely
source, however: the decision bysplit, that was played up in the San Jose Mercury News for alSanta Clara, California, to buy an amusement park.
most a year," remembers Jennifer Sparacino, who succeeded
Santa Clara is a city of 93,000 that borders both San Jose andVon Raesfeld when he retired. "We had bad press, we had a Sunnyvale in California's
Silicon Valley. In 1976, the Marriottlawsuit. It was a very wrenching decision."
Corporation opened a theme park called Great America, on un-At 1 1 P.M. on January 31, 1984, 49 minutes before its right developed land in north Santa
Clara. It quickly proved profit-of first refusal expired, the city council voted four to three to able, but during the late 1970s the Silicon Valley
explosionbuy the park. At the same time, they put a nonbinding referenoccurred and the land skyrocketed in value. dum on the June ballot, asking whether the
Redevelopment In 1983, City Manager Don Von Raesfeld heard rumors thatAgency should preserve the theme park, as long as it did not Marriott was planning
to sell the land. He and the mayor askedrequire any of the city's general funds. Seventy-six percent of Marriott to grant the city the right of first refusal.
Perhaps fear-the voters said yes. In June 1985, after a lawsuit, Santa Clara ing that the city would seize the park under its power of emi-finally closed the
deal—becoming the only city in America to nent domain or use its zoning powers to block development ofown a theme park.
the land, Marriott eventually agreed. Von Raesfeld and his col- The city then contracted with Kings Entertainment Corporaleagues believe that it did so
only to defuse political opposition,tion, which runs several large amusement parks around the never dreaming that the city might exercise the option.
Aftercountry, to operate the park for five years, with a right to purall, how many cities—particularly of Santa Clara's size—wouldchase after that
period. In 1989, it sold Kings the park facilibe willing to spend close to $90 million for an amusement park?ties—but not the land. (This time it put a
right of first refusal To Marriott's surprise, Santa Clara was.into the sale contract, should Kings Entertainment ever decide The key was the city's
investment perspective. Under Von to sell.) Kings agreed to pay $5.3 million a year for at least 50 Raesfeld's leadership, Santa Clara's Redevelopment
Agency years to lease the land. (When gross revenues top $56 million— and its publicly owned utilities were already run with a private as they already have—5
percent of everything above that sector, return-on-investment mentality. In purchasing Great amount also goes to the city.) The city came out of the deal with
America, the city council was simply continuing the tradition. $42 million in debt left over from the 1984 purchase, which It was willing to spend $88.5 million
because it knew that ex- should be repaid by Kings' lease payments in 15 years. At that penditure would save it a tremendous amount of money down point, the
city will have an income of at least $5.3 million a the road. year, ownership of 200 valuable acres, and a continuing soluThe goal was not profit, but traffic
control. Traffic in the areation to its traffic worries. This was clearly a deal made by inveswas already horrendous, particularly when the high-technologytors, not
spenders. firms let out every afternoon. If Marriott's 200 acres were turned into office and industrial buildings, it would get even TURNING MANAGERS
worse. "We wanted the park to be maintained, because it wasINTO ENTREPRENEURS the best traffic mitigator that there was," says Von Raesfeld.
"We could spend all kinds of money, equal to what we wereIf managers cannot keep any of their earnings, they are not paying for the park, and never be able
to adequately mitigatelikely to pursue them. If managers' budgets are supplied regard200 acres of intense industrial development."less of whether their
departments earn anything, they are not Still, the decision was not an easy one. Some, including news- likely to spend time trying to make money. If we

want public paper editorialists, argued that the city had no business compet- managers to think like entrepreneurs, in other words, we have
Enterprising Government

210 REINVENTING GOVERNMENT investments, such as pension funds, based on the performance of
their investment portfolios.
to give them incentives to do so. There are a number of ways to do
this: Some places even extend the principle to contractors. Under
Mayor Henry Cisneros, San Antonio contracted with a private
211
Shared Savings and Earnings
As we explained in chapter 4, traditional budget systems contain no
incentive for managers to save money or make money. law firm to collect its taxes. "They get a percentage of what they
Consequently, they act like the people at FERC did when offered collect," Cisneros explained. "As a result, they have a tremendous
$1.25 million: "What, me make money?" incentive to collect taxes, and they do things we couldn't do in terms
of the legal process." In California, a firm called Municipal
Mission-driven budgets solve this problem by allowing departments Resource Consultants (MRC) does tax audits for more than 100
to keep all or part of any funds they save or earn. Fairfield, Visalia, local governments, collecting 25 to 35 percent of any new revenues
St. Paul, Phoenix, Dade County, Los Angeles County, and it turns up.
Minnesota all practice some version of shared savings. (Dade
County and Los Angeles County call it profit sharing.) Even the
Department of Defense has endorsed the concept. Its Directive for
Innovation Capital
Installation Management says: "Unless prohibited by law, a share of In the private sector, businesses routinely raise capital to pursue
any resources saved or earned at an installation should be made attractive investments. "Typically, innovative companies have two
available to the installation commander to improve the operations separate budgets: an operating budget and an innovation budget, "
and working and living conditions at the installation." says Peter Drucker. "Top management spends as much time and
attention on the fifty pages of the innovation budget as on the five
Politicians and green-eyeshade budget officers will often try to hundred of the operating budget—and usually more."
recapture any savings or earnings by appropriating less in the next
fiscal year. Hence budget formulas are necessary to protect In most governments, managers can raise innovation capital only by
managers from raids on their hard-earned profits. In Fairfield, unless securing an extra appropriation from the council or legislature—a
the city council votes to change service levels or the budget goes very difficult process. We all understand that "it takes money to
into deficit, a department normally receives the same amount as the make money," but in government we seldom act on that premise.
year before, adjusted for inflation and community growth. Visalia A mission-driven budget provides a partial solution, because it
does the same, although it gives departments only half the inflation allows managers to accumulate savings, which they can use as seed
increase. capital. Riverside, California, set up a $100,000 seed fund,
The shared earnings principle can also be applied to individual pay. controlled by the department heads, to make small loans for new
In Visalia and Phoenix, employees receive a percentage of any initiatives. Governor Lawton Chiles of Florida tried a slightly
savings or earnings that result from their ideas. (Phoenix typically different version in 1991: to balance the budget he asked all
gets 1,000 suggestions a year and saves $2 million annually by agencies to eliminate 5 percent of their spending, but he then offered
implementing them.) Some cities pay a few of their managers on half of that amount back to agencies that developed plans to invest it
commission. And governments often pay those who manage public to increase productivity or effectiveness.
Enterprising Government

Gifford Pinchot Ill advocated something similar for large private business leaders might buy them to demonstrate their support for
corporations in Intrapreneuring, his book on entrepreneurs within better government. Other citizens might also, if the bonds were sold
large corporations: in small units. Local governments have already begun to sell tax-
exempt "mini-bonds" in denominations as low as $100.
Perhaps the most tangible form of business freedom is the
power to spend money on new ideas without having to ask for
permission. . Enterprise Funds
If we want public employees to become "revenue conscious," we
Given that the basic motivation of the intrapreneur is the drive to need incentives that encourage them to make money as well as to
realize a vision in his or her own way, failing to 212 spend it. Guaranteed incomes create all the wrong incentives. A
manager with a hefty budget supplied entirely by the legislature
REINVENTING GOVERNMENT
will act much like a teenager with a hefty allowance. 213
provide the freedom to do so is a fundamental failing in reward
systems. Intrapreneurs should be able to build up "freedom
credit" on the basis of past successes—that is, something akin Neither will beat the bushes for new ways to earn or save money.
to the capital that entrepreneurs earn. Babak Armajani, who helped Governor Perpich reinvent government
Pinchot called his solution "intracapital. " Some corporations in Minnesota, discovered this as he watched how differently the
already provide it, he noted. Ore-Ida chooses five "fellows" every Department of Administration's "revolving funds"—which had to
two years and gives each one a $50,000 annual budget to fund other earn all their income—acted from the rest of the department:
employees in the exploration of new ideas. Texas Instruments I noticed that generalfund activities employed as many people
awards "wild hare" grants to intrapreneurs; it also gives some as the legislature's staging limits permitted, whereas revolving
managers the authority to award "IDEA grants" of up to $25,000 for fund activities usually employed fewer people than they were
the development of prototypes. allowed. In my conversations with revolving fund managers, I
In government, the simplest approach might be a loan pool against got the sense that their time horizon was different from that of
which managers could borrow automatically, up to a certain limit. general fund managers. If managers of a revolvingfund could
To ensure political accountability, they might need executive invest in something that had a pay-back of three years, they
approval to borrow up to a higher limit, and legislative approval were inclined to go with the project. Beyond this, revolving
beyond. Such a fund would put more control in the hands of fund people, with some exceptions, just seemed a lot more
managers—a worthy goal in itself. But by requiring repayment, it upbeat and creative, and there was definitely a lot better morale.
would also force managers to think like investors. They could secure While Minnesota uses the term revolving funds, most governments
investment capital, in other words, only if they had some prospect of call self-supporting units enterprise funds. (If they are structurally
generating a return. If that return failed to materialize, they would independent, they are usually called public authorities.) Enterprise
have to dip into their own budgets to repay the loan. funds are quite common today; most local governments operate at
least one or two. Orlando has seven: refuse collection, a parking
A government could capitalize such a fund without any cost to the
fund, a stormwater utility, the golf course, the wastewater system,
taxpayer, simply by selling revenue bonds. If they were marketed
the Centroplex Fund (which manages a stadium, arena, exposition
correctly—as "innovation bonds," or "restructuring bonds"—
Enterprising Government

hall, and performing arts center), and the Civic Facilities Authority,
which manages several stadiums. Adding enterprise fund earnings to
other profits and fees, Orlando actually collects 30 percent more in
earnings than it does in taxes. (If we counted the Greater Orlando
Airport Authority, an independent public authority, earnings would
absolutely dwarf taxes. It has built one of the fastest growing and
highest quality airports in the country with no subsidies from local
taxpayers. Most of its expenses are covered by airline gate fees.)
Enterprise funds, like user fees, are not appropriate for all services.
It would be ludicrous to require a police department, which provides
a collective good, to charge for all of its services.
REINVENTING GOVERNMENT Enterprising Government
214 system generated enough money to upgrade all its hardware—cables,
boxes, everything—every 10 years, without 215
Yet it is equally ludicrous for a city to ask its taxpayers to subsidize a
private good such as golf. Other activities, like job training, produce
both private and collective benefits; hence governments often provide
them a partial subsidy. borrowing a dime. (This is after it returns 5 percent of gross revenues
to the city.) "We don't use the word profit," Thomas smiles, "but we
Several years ago, Pensacola, Florida, developed a useful way to do use the term retained earnings."
classify public services. It divided them into two categories: "general
government functions," which "generate virtually no revenue"; and We saw the same mind-set in Santa Clara. Like San Bruno's cable
"public enterprise functions," which do generate revenue. It divided company, Santa Clara's publicly owned electric utility returns 5
public enterprise functions into three categories: percent of gross revenues to the city, but still charges 30 to 40 percent
less than its private competitor does in surrounding communities.
activities designed to create profit; activities structured to Thirty years ago, it spearheaded a group of other municipal utilities to
break even but return no profit; activities which can partially, form the Northern California Power Agency, which then built a large,
but not completely, support themselves. 200-megawatt geothermal energy project, as well as the last major
dam in California. When tax credits favored wind energy, the utility
bought 2,600 acres and leased them out to private companies to build
Profit Centers windmills.
The first two categories of enterprise funds, those expected to break
Santa Clara's Water and Sewer Utility created a solar division—in
even or make a profit, put public managers in much the same position
effect, the nation's first solar utility. It provides hot water units for
as business managers. When he was mayor of Tampa, Bob Martinez
apartment buildings and swimming pools. The utility buys, installs,
ran Tampa's water and sewer services, solid waste collection, public
and maintains the equipment, charging the customer a monthly fee for
marinas, and golf courses as enterprise funds. "They're a business," he
six months of the year to cover the costs.
said. "The departments are so organized that you could conceivably
sell them." When the city's housing market became extremely tight, Santa Clara's
Redevelopment Agency leased the existing city golf course to
Enterprise funds like Tampa's create powerful incentives to make
developers, who are putting in 2,000 apartment units; used the lease
money. We have seen the phenomenon many times. The San
revenues to pay for a new golf and tennis club built over the city's old
Francisco suburb of San Bruno owns its cable television system, for
landfill; and put in wells to tap the natural gas generated by the buried
instance. David Thomas, who runs it, is a typical garbage. The new course anchors the Santa Clara Trade and
Convention Center (built next to Great America), which includes a
entrepreneur. He has pride of ownership. He is mission-driven. He 240,000-square-foot convention center, a 502-room hotel, and an
plans ahead. He strives to please his customers. He is aware of his office building. "One of our major goals was to create a long-term
competitors—and he beats the pants off them. In 1991, San Bruno revenue
charged its 1 1,200 subscribers $12.55 for a 31channel package.
stream for the city," says City Manager Jennifer Sparacino, "and it is
Private cable companies in the county charged an average of $19.57
definitely accomplishing that." Despite problems filling up the office
for the comparable package. Yet even at San Bruno's low price, the
building, the entire deal is already generating a positive return.
Enterprising Government
The private sector often complains about public enterprise, arguing did just what Santa Clara did. It took over the franchise, proved it
that government should not compete with business. And many public could make money for six years, and sold it to local owners for a
leaders buy the argument. Lewis V. Pond, city manager of San Bruno, profit.
wants to sell the cable system. "We can't make money," he told us,
"because we're a government." But 216 REINVENTING
Identifying the True Cost of Services
GOVERNMENT This may strike many readers as odd, but most governments have no
idea how much it costs to deliver the services they offer. 217
where is it written that government should handle only lemons, while
business gets all the profit centers? As Don Von Raesfeld said during
the Great America debate, "It's been awfully interesting to me in my
career as a city manager here that the people are always willing to Even if they can give you a budget figure for each service, it
push on to government losers in this country. The winners are always typically excludes "indirect costs," such as administrative overhead,
to be preserved to the private enterprise system." capital costs, and employee fringe benefits. One study of 68 cities
found their true costs to be 30 percent higher than their budgeted
In reality, there are several good reasons why government should costs. Doug Ayres, who owns a company that helps California
sometimes compete with the private sector. Some services are natural governments determine their true costs, says that only 4 percent of
monopolies. It is inefficient to string two or three sets of electrical local governments know the direct cost of each service they provide,
lines and or bury two or three sets of gas lines in a city, for example. only 2 percent know the total cost of each service they provide, and
In such cases, governments can grant a private monopoly and regulate only 10 percent can even tell you what services they provide!
its prices, or they can create a public monopoly. The latter option
often delivers a better deal to the public. For 100 years, publicly Obviously, public managers cannot think like investors or pursue
owned utilities have sold electricity at lower prices than their private profits if they don't know their true costs. How can one measure the
counterparts. Today, publicly owned cable television systems do the return on an investment if one doesn't even know how much that
same. investment costs? How can one pursue a profit if one doesn't know
how much one is spending? How can one even establish an
In other areas, where there is insufficient private competition, public appropriate subsidy if one doesn't know the cost of a service?
enterprise can act as a competitive yardstick, forcing private firms to
lower their prices and pursue greater efficiency. The Phoenix Governments all over America are unintentionally subsidizing
Department of Public Works does this by competing in garbage softball teams, golfers, developers, and corporations—because they
collection. can't tell if their charges cover their costs. Once they expose the true
cost of their subsidies, elected officials often decide that some are
Finally, there are some occasions on which the private sector chooses inappropriate. A dramatic example occurred in New Zealand, when
to abandon a profitable business. Marriott sold Great America even the Labor Government turned its postal service into a publicly owned
though it was profitable, because industrial development would have corporation—the equivalent of a public authority. On discovering
been more profitable. (Being private, MarriOtt could ignore the public how many of its 1,200 post offices were subsidized, the board
costs, which would have been enormous.) The Mets dropped a minor decided to close almost half of them. Because Parliament expected
league franchise they owned in Visalia not because it was an uproar, it voted a $42 million subsidy to keep them operating.
unprofitable, but because they decided to limit their farm system to Now that the subsidy was out in the open for all to see, however,
the eastern United States. When no private buyers turned up, Visalia support melted away. Members of Parliament had to ask themselves:
Enterprising Government
Is it more important to spend $42 million keeping tiny post offices become extremely cumbersome and expensive if it requires workers
open, or should we spend it on education, or highways? Six months to document their time on each job and departments to hire extra
later, New Zealand Post closed 432 post offices. accountants. More efficient are costing systems in which accountants
go in retroactively to figure out
Sunnyvale, Phoenix, Visalia, and Fox Valley Community College all
have systems that define the true cost of their services. This can
218

what the real costs were for each service, then use that information to project the costs for the next
year.
An enterprising government exposes its subsidies to public light, relies on public pressure to do away with them—and then finds
ways to make money from the services involved. It raises its greens fees for golf. It asks softball teams to get sponsors. It
charge those convicted of drunk driving for the cost of process-Anticipatory Government: limits its tax subsidies. If it gets truly creative, it might even
ing the arrest, as San Jose does; or charge those whose malfunc-
tioning security systems set off false alarms, as Baton RougePrevention Rather Than Cure
does; or charge motorists who run into city-owned trees, as Fairfield does.
Such practices may not yet be widespread. But ask yourself:
Are they not more consistent with American values than subsi-For centuries we were taught that to worship did so. our But ancestors now, given and to the be novelty
true to andour traditions, and it was good we dizing the affluent to play golf and use marinas?quantity of the challenges rushing at us from the future, we need to do And is
there anything more American than enterprise?something we have never had to do before, and which Ifear we may not be able to do now: we must worship our
descendants; we must love our grandchildren more than we love ourselves.
—Jim Dator, University of Hawaii futurist
Enterprising Government
raditional bureaucratic governments focus on supplying services to combat
problems. To deal with illness, they fund health care services. To deal with crime,
they fund more police. To combat fires, they buy more fire trucks.
There was a time when our governments focused more on prevention: on building
water and sewer systems, to prevent disease; on enacting building codes, to prevent
fire; on inspecting milk, meat, and restaurants, to prevent illness; on research that
would lead to vaccines and other medical cures, to stamp out disease.
But as they developed more capacity to deliver services, their attention shifted. As
fire departments professionalized, they developed the art of fire suppression, not
prevention. As police departments professionalized, they concentrated on chasing
down criminals, not helping communities prevent crime. Even environmental
agencies, while quick to acknowledge the superiority of prevention, somehow
found themselves spending most of their money cleaning up pollution.
REINVENTING GOVERNMENT Anticipatory Government
220

The bureaucratic model brought with it a preoccupation with service In 1991 the federal debt reached $3.6 trillion—$ 14,000 for
delivery—with rowing. And organizations that focus their best every man, woman, and child in America. Every year we
energies on rowing rarely do much steering. They develop tunnel spend $200 billion in federal taxes simply to pay interest on
vision. Because they are programmed to think of government as that debt. This amounts to $3,000 in additional taxes for the
average family of four. If current trends continue, by the year
service delivery by professionals and bureaucrats, they wait until a
2000 the average family of four will have to pay more than
problem becomes a crisis, then offer new services to those affected— $5,000 a year in taxes—simply to pay interest on the debt.
the homeless on the street, school dropouts, drug users. Hence we
spend enormous amounts treating symptoms—with more police, These statistics present an appalling indictment of our governments.
more jails, more welfare payments, and higher Medicaid outlays— Our ship of state is like a massive ocean liner, with all the luxuries
while prevention strategies go begging. Consider: above decks but no radar, no navigation systems, and no preventive
maintenance below. "Instead of anticipating the problems and
Homicide is the leading cause of death for black opportunities of the future, we lurch from crisis to crisis," wrote Alvin
males between the ages of 15 and 34. Since 1986, Toffler in Future Shock. "Our political system is 'Future-blind.' "
gunshot wounds to children age 16 and under have
increased by 300 percent in major urban areas. Our culture has become equally future-blind. With the pervasive
influence of television—particularly television advertising— the old
Deaths from gunshot wounds have soared among
ethic of hard work, savings, and self-denial has given way to a new
black youths, while deaths from other forms of ethic of instant gratification. We buy now and pay later— consuming
violence have remained level. Yet we do almost more and saving less than any other people on earth. In Washington,
nothing to prevent the ownership of guns. we borrow $1 of every $5 we spend—not for one year, but year after
Every year American industry produces more than two tons of year. The Reagan and Bush administrations tripled the national debt in
hazardous wastes for every man, woman, and child in the a decade, transforming America from the world's greatest lender to its
nation. Industry could cut this amount in half in five years, greatest debtor.
according to the Congressional Office of Technology
Assessment. Yet the Environmental Protection Agency spends In an age when change comes with frightening rapidity,
99 percent of its budget managing pollution, not preventing it. futureblindness is a deadly flaw. "We've all seen companies that were
The United States ranks 20th in the world in infant mortality exceptionally well run or cities that were well run—that did
—ahead only of Greece among the industrialized everything just right—and suddenly the environment changed around
democracies. According to the National Commission to them and they fell apart," says Bill Donaldson, a city manager
Prevent Infant Mortality, the average hospital cost for low- renowned for his entrepreneurial leadership in Scottsdale, Arizona;
birth-weight babies is $500,000—at least 250 times the Tacoma, Washington; and Cincinnati, Ohio.
average cost of medical care during pregnancy. Careful
medical studies prove that preventive care during pregnancy In today's global village, events in Japan or Kuwait can suddenly turn
saves money: estimates range from $2 to $10 for every $1 our world upside down. Ask the Rust Belt states, which saw entire
invested. Yet 20 million women and infants in America still industries die in the early 1980s. Or ask the oil states, which saw their
have no health insurance. tax revenues drop through the floor when the price of oil collapsed.
221
"For a long time, government 222
REINVENTING GOVERNMENT Anticipatory Government
could be somnolent," says political scientist John Bryson. "But now "To paraphrase the late economist Ernst Schumacher, the smart person
we're sleeping on waterbeds—and we're not alone in the bed. When solves problems, the genius avoids them. Preventing dis223
anybody moves in the bed, we wake up."
Fortunately, the pendulum appears finally to be swinging the other
way. New governors in three of our largest states—California, ease is easier and cheaper than treating it. Preventing crime is easier
Florida, and Illinois—have made prevention a central theme of their and cheaper than treating it." So wrote David Morris, founder of the
administrations. States, cities, and counties are increasingly banning Institute for Local Self-Reliance, in his 1983 paper for the city of St.
the sale of unnecessary pollutants: ozone-depleting chemicals, Paul, "The Homegrown Economy."
polystyrene foam cups, nonrecyclable plastic packaging. States are
shifting dollars from high-technology medicine designed to prolong Santa Clara demonstrated this mentality when it fought to preserve its
life for the already feeble to preventive medicine designed to give Great America theme park—to prevent future traffic problems.
newborns a healthy start. San Jose demonstrated this mentality when it inspected every piece of
"How much better to provide prenatal care to assure 50 or 60 healthy infrastructure it owned and set up a schedule for maintenance,
newborns than to pay for neonatal care for one unhealthy baby," says renovation, and reconstruction. The idea was to do each piece of work
Governor Pete Wilson of California. "How much better to prevent at the moment when it could reestablish maximum useful life at the
pregnant women from using drugs, than to suffer an epidemic of drug most cost-effective price.
babies." New Jersey demonstrated this mentality when it sought to prevent
Anticipatory governments do two fundamental things: they use an homelessness by intervening before people lost their homes—with
ounce of prevention, rather than a pound of cure; and they do one-time loans, security deposits, or rent payments. According to state
everything possible to build foresight into their decision making. officials, the effort helped more than 15,000 households in its first six
years—at one-thirtieth the cost of putting them in welfare hotels.
In a political environment, in which interest groups are constantly
pressing public leaders to make short-term decisions, neither is easy.
Hence anticipatory governments have been forced to change the Fire Prevention
incentives that drive their leaders. They have developed budget Perhaps the sharpest contrast between reactive and preventive
systems that force politicians to look at the 10-year implications of all government can be found in a place few would think to look: our
spending decisions. They have developed accounting methods that nation's fire departments. Most cities spend a fortune on their fire
force politicians to maintain the programs and infrastructure they departments—often 20 percent of their entire general fund. Yet the
build. And they have begun to attack the electoral process—with its United States has a terrible record. According to the National Fire
political action committees, campaign contributions, and 30-second Protection Association, we have the highest fatality rate from fire in
sound bites—that produces future-blind politicians. We will come the industrial world. Why? Because we spend most of our money
back to these efforts later in the chapter. responding to fires, not preventing them.
Many poorer cultures ingrain the value of fire prevention in their
PREVENTION: SOLVING PROBLEMS RATHER citizenry, because fires can be so disastrous. In Europe, many nations
THAN DELIVERING SERVICES fine citizens for carelessness or negligence with fire; others condition
fire insurance, which is mandatory, on compliance with strict fire and
REINVENTING GOVERNMENT Anticipatory Government
building codes; still others allow insurance companies to reimburse We have our building codes, but we rely primarily on massive
owners for only part of their losses from fire, so they have incentives response once a fire has begun. "We're a throwaway society,"
to prevent it.
224225

says Palm Springs Fire Chief Tom Robertson, past president oftial buildings. Effective as of January 1986, it has reduced fire the California Association of
Fire Chiefs. "We're so impressedlosses, insurance rates, and fire department costs. It even saves with our U.S.A. technology that we think we can solve
every 23 percent on infrastructure costs—because the city needs

problem after the fact."smaller water pipes, storage systems, water pumps and the like.
Our fire departments have powerful incentives to keep thingsPassed when only a third of the city's land was developed, it will that way. If they were actually to
prevent fires—by emphasizingsave $7 million in infrastructure costs by the time the city is building inspections, code enforcement, burning bans,
sprinklerfully built out, according to city estimates. "You also save fire systems, and the like—they would need fewer fire fighters.department growth,"
says Edwards. "When you have sprin(Fresno, California, required sprinklers in all downtown build-klers, you don't have to have an army to fight the fire,
because ings decades ago; as the city doubled and redoubled in popula-when you get there, it's going to be a small fire or it's going to tion, the fire department
remained the same size.) Needless tobe out." say, few fire departments want to shrink. Rural Metro works closely with developers. Although they are If a fire
department were given a lump sum budget and al-not city employees, two of its fire protection engineers are stalowed to keep any savings, these incentives
would change. Sud- tioned at city hall, in the division that checks building plans. denly prevention would benefit the department, because it"We work with
the developer from the beginning," says Edwould save money. This is precisely what happens in Scotts-wards. "A building cannot open without our approval."
dale, Arizona, which since 1948 has contracted with a privateRural Metro has also made Scottsdale the only city in the company to operate its fire
department.state to use "gray" water—treated wastewater—in its fireThe company, Rural Metro, was founded by a newspaper re-fightihg system. The
result of all this innovation: Scottsdale's porter who lived on the outskirts of Phoenix and had no fire fire department costs just over half the national average
for a protection. He and his neighbors bought a fire truck to protectcity its size. It has safer buildings, too: between 1986 and 1991, their area, but the neighbors
got cold feet. To make the pay-while the assessed value of property in Scottsdale shot up by 86 ments on the truck, he began to sell fire protection to
individualpercent, fire losses decreased by 15 percent.
homeowners. Scottsdale, then a small desert town, decided toRural Metro is driven by the profit motive, a particularly sign up. Today, Rural Metro operates fire
departments and/orpowerful incentive in an employee-owned company.
Fairfield's ambulance services in 50 communities with 5 million residents, Public Safety Department (which includes both police and fire) spread through
Arizona, Texas, Tennessee, Florida, and Ore-does not make a profit, but it does get a lump sum budget and it gon. A for-profit company, it is owned by its 1,475
employees.is allowed to keep its savings. Hence it has some of Rural
Rural Metro expands by offering superior quality for a lowerMetro's incentives. Not surprisingly, it has assigned a dozen price. Hence it has a
tremendous incentive to prevent fires.people to work on prevention. The fire division members do "Most fire people talk about, 'It took us three minutes to
get everything from code enforcement and safety checks on new here,' " says Bob Edwards, who runs Rural Metro's Scottsdale developments to installation of
sprinkler systems and smoke operation. "But of course the place burned for 25 minutes, andalarms for senior citizens and the handicapped. Fairfield's fire it was
a total loss. We talk about fire prevention more than firedivision costs were the sixth lowest of 65 Bay Area cities when protection. "the city last surveyed them.
Yet it had a better insurance rating Edwards worked for six years to convince Scottsdale to passthan all but two other cities in its county.
REINVENTING GOVERNMENT Anticipatory Government
an ordinance requiring sprinkler systems in every new buildingOther forms of prevention have emerged even in cities like constructed—the first in the nation to
include all new residen-Boston and New York, which have cut arson rates by studying
maintenance organizations (HMOs) have done the same with their
226 patients.
Our governments have also tried to change our behavior.
fire patterns, vacancy rates, and tax arrearages, then intervening in Health warnings on cigarette packages have had some impact. The
areas where arson appeared likely. Several cities in California are federal government has banned smoking on airplanes. Many
operating a Cooperative Home Insurance Program, in which jurisdictions have required nonsmoking areas in restaurants or banned
homeowners are eligible for lower insurance rates (from a private smoking in public buildings. California has re227
company) if they pass a comprehensive safety inspection.
Homeowners get a financial incentive to take preventive measures,
and the city gets a financial dividend from the insurance company if
losses are low enough.

Health Care
During the 1970s, the U.S. Surgeon General estimated that 50 percent
of illness was related to behavior, 20 percent to the environment, 20
percent to genetics, and 10 percent to medical care. Cigarette
smoking causes cancer. Fatty diets cause heart disease. Air pollution
causes $40 billion a year in health care costs. Stress costs business
more than $150 billion a year, according to some estimates. A
research team at the University of Louisville summed it up this way:
"Our mode of life itself, the way we live, is emerging as today's
principal cause of illness."
Yet we respond to illness primarily with medical care. In 1983, we
spent 7 times as much on medical care as on environmental controls
and 20 times as much on medical care as on self-care medication,
fitness equipment, and nutrition, according to the Congressional
Office of Technology Assessment.
As the industrial era has given way to the information age, people
have begun to pay more attention to the maintenance of health.
Americans have begun jogging, doing aerobics, and pumping iron.
Many have quit smoking and changed their diets. Companies have
given their employees incentives to join health clubs, and health
REINVENTING GOVERNMENT Anticipatory Government
Prevention has scored some notable victories already: the mandatory
bottle deposit laws passed by 10 states; the federal 228
quired health warnings on all alcoholic beverages and in all premises
that sell alcohol. ban on lead in paint and gasoline; and federal bans on other toxic
chemicals. In addition:
Other governments have begun to shift their health care spending
ever so slightly from remediation to prevention. The federal Vermont banned the sale of new cars that use ozonedepleting
government in 1990 mandated broader Medicaid coverage for chemicals in their air-conditioning units.
pregnant women, infants, and children under six. Several states have Nearly 30 jurisdictions have banned polystyrene (Styrofoam)
recently put new money into preventive services for low-income or other plastic packaging, including Minnesota, Maine, and
pregnant women and their babies. Vermont.

The boldest moves have come in Oregon, which halted Medicaid California in 1990 enacted a plan requiring drastic cuts in air
funding for transplants in 1987, using the money instead to expand pollution from automobiles.
care for pregnant mothers. The state then asked for federal waivers to Massachusetts in 1989 required companies that produce toxic
eliminate Medicaid funding for other hightechnology procedures, so wastes to reduce their production; the state provides technical
it could afford to expand coverage to 80,000 poor people now assistance, which is funded by a tax on firms that use toxic
ineligible for welfare. "We had to ask: Is our objective to guarantee all materials.
Oregonians access to health care or to keep all Oregonians healthy?" By 1990, 10 states and dozens of cities, including New York
said Dr. John Kitzhaber, the physician-senator behind Oregon's effort. City, had implemented mandatory recycling plans.
"We decided our objective was to keep all Oregonians healthy." New York, California, Connecticut, and Wisconsin have
passed laws or negotiated agreements requiring newspaper
publishers to use a certain percentage of recycled paper.
Environmental Protection Ohio's Solid Waste Management Advisory Council, a
Prevention has made its greatest strides in the environmental arena. statewide steering organization, has adopted a comprehensive
Governing magazine summed the situation up this way in 1991: plan that calls for a 25 percent reduction in landfilled waste in
five years through recycling and prevention. Suffolk County,
At present, federal and state regulations—and consequently, New York, banned nonrecyclable plastic, polystyrene, and
most technology development—focus on "waste destruction and polyvinyl chloride packaging unless it enters the county as part
separation. " The intent is to treat the pollutants to reduce the of an existing package. It took the action after its infamous
garbage barge could not find a home in 1987 and the state
level emitted into the atmosphere by a smokestack, tailpipe or
ordered it to close its landfills by 1990.
water discharge system.
So many governments have jumped on the prevention bandwagon
Meanwhile, there is a growing trend toward "pollution
that industry has mobilized to curb production of pollutants on a
prevention" and "waste reduction. " This entails reducing
voluntary basis—to head off more draconian measures. Dupont,
production ofpollution at the source, through recycling, use of
Procter & Gamble, and other large oil, chemical, and consumer
materials that pollute less and reliance on "cleaner" energy
product corporations have formed the Council for Solid Waste
sources.
Solutions, which has committed to a 229
REINVENTING GOVERNMENT Anticipatory Government
of Commerce, the AFL-CIO, the Farm Bureau. Political campaigns

were financed by such groups, and political consensus was brokered


goal of recycling 25 percent of all plastic bottles by 1995. McDonald's
between such organizations. But today our mass society has fractured
has stopped selling food in polystyrene containers. Dow Chemical has
into thousands of pieces. "Instead of a few widely voiced, class-based
launched a Waste Reduction Always Pays (WRAP) program, which
slogans calling, say, for jobs or housing or social security, the political
taps employees' ideas to curb the company's use of toxic chemicals. In
decision-maker today faces a clamor of competing, often
its first year alone, an investment of $3 million eliminated 57 million
contradictory demands from" single interest groups, Alvin Toffler
pounds of pollutants and generated a return on investment of 84
wrote more than a decade ago. "Designed to respond to mass
percent, according to Dow.
movements, mass opinion, mass media, and large flows of relatively
simple information, the system is now struggling against a tidal wave
of de-massified mini-movements, de-massified opinions, increasingly
GOVERNING WITH FORESIGHT: de-massified communications media, and torrents of specialized data
ANTICIPATING THE FUTURE pouring in through fastmultiplying channels."
Some governments are not only trying to prevent problems, they are Toffler argued that we needed political systems capable of sifting
working to anticipate the future—to give themselves radar. This is through this noise to find the common interest—processes that could
extremely difficult in today's short-term political environment. But it is bring together many different constituencies to hammer out a
also extremely important, given the pace of change and the tremendous collective vision of the future. At the end of his 1970 book, Future
pressure on politicians to sell out the future. Shock, he coined a phrase for his solution:
It is said that there are three types of people in the world: those who "Anticipatory democracy."
make things happen; those who watch things happen; and those who
don't know what hit them. This is equally true of governments.
Unfortunately, most of our governments don't know what hit them. Futures Commissions
When the National Conference of State Legislatures asked legislative In the last 20 years, anticipatory processes have become increasingly
leaders several years ago what state governments needed to improve common. The simplest technique, in a political environment, is the
the most, the virtually unanimous answer was their capacity to grapple Futures Commission—a process through which citizens analyze
with long-range problems. "We in government react to crisis," says trends, develop alternative scenarios of the future, and establish
Andrea Duncan, who runs the Housing Authority of Louisville. "We recommendations and goals for the community. Futures commissions
wait until there's a mess on our hands and then say, 'Now what do we are often created by communities that have experienced some form of
do?' instead of thinking, 'Okay, what's coming down the road? Let's trauma, such as economic collapse.
plan for this and anticipate it.' ' The first big futures project, in fact, took place in Dallas after the
shock of President Kennedy's assassination. Suddenly characterized
The problem has its roots, in part, in the demassification of American by the national media as "the hate capital of the nation," Dallas found
society. During the industrial era, our political system evolved to itself under attack for its ultraconservatism, its business-dominated
respond to the needs of a mass society. Power was shared between power structure, and its resistance to civil rights. To counter this
large blocks—principally business, labor, and agriculture. Each had its image, the mayor resigned to run against a conservative incumbent
representative organizations: the Chamber 230 congressman, and the 231
REINVENTING GOVERNMENT Anticipatory Government
committees to push the relevant public and private agencies to fulfill
them. By 1972, the city had achieved nearly 27 percent of the goals
business-dominated Charter Citizens Association nominated an activist and made "substantial progress" toward 43 percent more. More than
businessman named Erik Jonsson for mayor. 100,000 citizens had participated in the process.

Jonsson proposed a Goals for Dallas program—"a systematic process It is impossible to establish cause and effect with any precision, but
of determining what was to be done, how we were to do it, when we significant bond referenda passed in 1967 and 1972, to redevelop
were going to do it, and what tools and resources were available." The downtown Dallas, improve the flood control system, build an airport,
idea was to move city government out of its short-term posture. "When and so on. Other goals that were achieved included a vast increase in
I came to city hall," Jonsson later explained, "I found that essentially green space and a major expansion of the community college system.
we were living on a one-year basis. You presented to the council a one- The entire process had a significant impact on city government. "Goals
year budget on August 15. On October 1 you accepted or rejected the for Dallas was to some degree responsible for the more sophisticated
final budget . and that was what you did in the succeeding year. That city budget, the better information system, and the overall improved
was no way to run a railroad or a city." management system," said then city manager George Schrader. "The
city . . . was forced to make these improvements in order to respond to
Goals for Dallas began in 1965, when Jonsson appointed a one-year the goals set by the citizens."
planning committee of 26 influential citizens. They spent nine months
developing a set of 98 goals in 12 general areas. They then held a At least 1 7() other governments have followed in Dallas' footsteps,
series of neighborhood meetings, revising the goals in between each according to the Institute for Alternative Futures— including the
round. After they published their final goals, they organized 12 Carter administration in Georgia. As experience has built up, futures
projects have become quite sophisticated.
232 233

"Alternatives for Washington," initiated by Governor Evans in analysis of the situation, both internal and external; 1974, used conferences; a Delphi
survey (a series of question- diagnosis, or identification of the key issues facing the naires, each building on feedback from the previous one); a se-
organization; ries of television programs depicting alternative scenarios for

Washington's future; a statewide questionnaire that laid out a definition of the organization's fundamental mission; dozen different scenarios and
asked people to choose their pref- articulation of the organization's basic goals; erence; opinion surveys asking for feedback on specific ques-
creation of a vision: what success looks like; tions; cost/benefit study teams; and town meetings. development of a strategy to realize the vision and
goals;

Perhaps the most successful futures project was conducted by the Florida House of Representatives. The Speaker's chair indevelopment of a timetable
for that strategy; Florida rotates every two years. In 1985, Jon Mills convinced measurement and evaluation of results. his predecessor to let
him chair the Speaker's Advisory Committee on the Future, made up of 45 citizens and 7 House mem-In government, one other element is necessary: a
consensus. A bers. Under Mills's leadership, the committee spent two yearsgovernment has more stakeholders than a business, and most of
developing a set of long-term issues and goals, then publishedthem vote. To change anything important, many of those stakewhat it called The Sunrise
Report.holders must agree. This is the piece most private sector versions
REINVENTING GOVERNMENT Anticipatory Government
When Mills became Speaker, in late 1986, he had an agendaof strategic planning miss, according to John Bryson, author of ready. In a move many observers
thought suicidal because itStrategic Planning for Public and Nonprofit Organizations. created a public scorecard, he released close to 30 legislativeThe Fund for the
City of New York operates an exchange proinitiatives the committee recommended before each session. gram with Tokyo. "When we take our guys to Japan, they
come Yet he was able to shepherd more than 80 percent through toaway awed by the degree to which the Japanese take planning passage. They included a series of
environmental laws, a wel-seriously," Greg Farrell, its former executive director, told us. fare reform initiative called Project Independence, a
low-"They're talking about the twenty-first century all the time." income housing program, and the Taxation and Budget ReformThe Tokyo Metropolitan
Government begins with a long-range Commission described in chapter 4.planning process, guided by its vision of what Tokyo should look like in the
twenty-first century. It then develops ten-year plans for both operational and capital projects, with specific Strategic Planninggoals and costs. From these
flow three- to four-year administraIt is one thing to anticipate the future; it is quite another totive and fiscal plans, which are developed in great detail. Finally
make decisions based on foresight. An increasing number ofcomes the annual budget-making process, which conforms to public institutions have attempted to
do so, using a private sec-the three- to four-year plan.
tor discipline known as strategic planning. In essence, strategic Sunnyvale, California, uses a system much like this. Phoeplanning is the process of
examining an organization's or com-nix, Fairfield, the Housing Authority of Louisville, the Madimunity's current situation and future trajectory, setting
goals,son Police Department, and Fox Valley Technical College all developing a strategy to achieve those goals, and measuring thedo strategic planning.
Oklahoma has even created a publicresults. Different strategic planning processes have differentprivate steering organization called Oklahoma Futures,
wrinkles, but most involve a number of basic steps:which develops a five-year strategic plan for the entire state
REINVENTING GOVERNMENT Anticipatory Government
234 organization will be. "It is strategic thinking and acting that are important," says

economy. The plan lays out goals for dozens of


organizations, public and private.
Strategic planning is not something done once, to develop a plan, but a Bryson, "not strategic planning." 235
process that is regularly repeated. The important element is not a plan,
but planning. By creating consensus around a vision of the future, an
organization or community builds a sense of where it is going among CHANGING THE INCENTIVES
all its members. This allows everyone—not just leaders—to Strategic planning is the antithesis of politics. It assumes a thoroughly
understand what direction they need to take. It helps them seize rational environment—something that never exists in government.
unexpected opportunities and deal with unexpected crises, without Even in the best of times, few politicians look beyond the next
waiting for word from the top. election. As a mayoral assistant in New York City once said, "Short-
term planning is this afternoon's New York Post. Long-term planning is
Strategic planning does not promise that decisions will be correct; only
tomorrow morning's New York
that they will be made with foresight. The best laid plans go awry—
Times."
particularly in government, where leaders may go through the motions
of planning but still make decisions in response to political pressures. Futures projects have the same problem. Even their most passionate
Part of the value of strategic planning is that it helps an organization advocates admit that few have changed the behavior of elected
recognize and correct its mistakes. officials. "Indeed, there are not a few cynics who say that legislatures
and future planning mix like oil and water," says Neal Peirce, the
Strategic planning systems can of course deteriorate into meaningless nation's leading columnist on state and local government. "The
exercises. During his last year as Florida governor, Bob Graham reasoning is that legislators' lives revolve around the election cycles.
pushed an ambitious system of long-range planning through the Politics forces them to be preoccupied with district or regional
Florida legislature, involving a State Compre hensive Plan, 10-Year problems, to go for fast, short-term payoffs instead of thinking and
Functional Plans for each agency, and regional plans prepared by acting long-term." During the 1970s, the Congressional Clearinghouse
Regional Planning Councils. Unfortunately, when Graham left office on the Futufe worked hard to introduce foresight into the U.S.
Governor Martinez ignored the system, and it quickly degenerated into Congress. Judging by the record of the 1980s, the effort failed. As
makework. When this happens, strategic plans not only waste early as 1978, its leader, Congressman Charlie Rose, diagnosed the
enormous time and money, they can become actual barriers to problem:
innovation.
Congress as a representative body doesn't act, it reacts. Members
At its best, however, strategic planning permeates the culture of an organization, of Congress respond to their constituents' wishes and whims. We
creating an almost intuitive sense of where it is going and what is important. John seek quick-fix solutions to problems because short-term results
Bryson uses the analogy of hockey great Wayne Gretzky, whose sense of strategy are more likely to keep us in office than the early and costly
is highly refined but purely intuitive: "I skate to where I think the puck will be." In attempts to anticipate emerging problems.
an anticipatory organization, members work toward where they think the
Even prevention is a hard sell in a political environment. Where
leaders have embraced it, they have usually been driven by
unavoidable financial or political pressures: toxic wastes found in
REINVENTING GOVERNMENT Anticipatory Government
drinking water; landfills that have closed; or a Medicaid system whose
cost doubles every five years.
Prevention is not nearly as attractive to politicians as is a visible
response to crisis. Prevention is quiet, but politicians who
REINVENTING GOVERNMENT Government
236 Long-Term Budgeting
Most American governments use one-year budgets; a few budget for
mount all-out attacks on symptoms generate great publicity. two years at a time. In either case, their leaders act with information
Prevention is also threatening to industry, because it requires difflcult only about the short-term impact of their deciAnticipatory 237
changes in production practices. It is subversive to companies that
sell remediation—which explains why solid waste companies often
block efforts to reduce the volume of garbage. And it is even
sions. Typically, they have no idea what will happen to spending or
threatening within public bureaucracies, because it renders some of
revenues beyond the first or second year. In today's world, this is the
the professional problem solvers—like social workers and fire
equivalent of flying a 747 through the fog with no instruments.
fighters—obsolete.
When political parties were stronger, they could at times overcome It does not have to be this way. Sunnyvale, California, projects all
such pressures. A president could define a coherent, long-term revenues and costs, in both its operating and capital budgets, over the
platform and use party discipline both to force legislators to come next 10 years. When the city council is considering a new initiative or
along and to give them political cover when they did so. ("I know my a change in service levels, it sees the impact not for 1 year, but for 10.
constituents don't like it, but I did it for my president. ") In If it is debating whether to repair a road this year or to wait, it sees that
parliamentary systems, this is still the case. But in the United States, the cost will triple if it waits four years. If it is deciding whether to buy
our political parties are so weak that legislators operate largely as land for a park, it sees what it will cost to staff and maintain the park
individuals, raising their own money and rising or falling on their for 10 years.
own reputation and voting record. Hence they have virtually no
incentive to look beyond the short-term interests of their constituents. This process makes the long-term costs of decisions painfully clear to
And in an electoral system dominated by money, that often means the the press and the public. Skeptics often argue that it is impossible to
short-term interests of their largest campaign contributors. predict spending and revenues with any accuracy 10 years ahead. They
are right. But the point is not to make projections that are 100 percent
There are ways to build in foresight, despite the political environment. accurate. Through trial and error, Sunnyvale has become quite
In Florida, the legislature came along because House Speaker Jon sophisticated in its projections, but it does not pretend to predict the
Mills lead the effort. Elsewhere strong governors or mayors have future. The point is simply to flag problems that loom ahead. Any dip
forced foresight on legislatures or councils. But if we depend on in revenues— regardless of how accurately one can pinpoint the
extraordinary leadership, anticipatory government will remain the severity—is worth knowing about in advance. Likewise any increase
exception. To make it the rule, we must change the incentives that in costs.
drive decision makers. Entrepreneurial governments have attempted to
do this in several ways: by changing budget systems, changing The 10-year projections let "us begin to make policy changes before
accounting systems, creating regional governments, and reforming the we reach the edge of the financial cliff," says former mayor John
electoral system. Mercer. Mercer finds it "incredible" that most cities budget on a one-
year basis: "There is no way that they can tell whether a new program
can be supported over the long term."
Sunnyvale has married its budget system to a long-range planning
system. The city council and its advisory commissions develop long-
range plans for every element of the budget: transportation, recreation,
REINVENTING GOVERNMENT Anticipatory Government
law enforcement, and so on. The council then devotes the off year of The council developed a plan, listing those schools it felt the city had
its two-year budget cycle to longterm planning. The year begins with a to have and those it could do without. It then said to the school
daylong workshop, at which the council sets priorities for the coming district: if you sell anything, please sell these. "Ten years later, after
year. In advance, the staff flags anything in the city's long-range plans many schools have been sold to developers, we have not lost one
that has not yet been addressed. The staff and advisory commissions school we wanted to keep," says Lewcock. "We now have a stronger
238 park system, and we have a $10 million reserve fund in our budget for
acquisition of any remaining 239
also make recommendations, in one-page position papers. At its
workshop, the council ranks the items, from highest priority to
lowest. sites that become vacant." The 10-year budget was instrumental,
because once the council adopted its open space plan, the budget
The staff then comes back at a second meeting with estimates of included costs for park acquisition 10 years out. As a result, "money
what it will cost to achieve each of the council's priorities. The that otherwise looked like surplus got put into this reserve fund for
council builds its calendar for the year around its priority issues, open space."
examining them one by one. By the end of the year, it is ready to
insert its new priorities into the biennial budget. Another example dealt with street maintenance. The city did a study
This system allows Sunnyvale's leaders to be proactive rather than showing what it had to invest each year to keep the streets from
reactive. City managers are normally quite cynical about politicians, deteriorating to the point where costs would skyrocket. But after
but Tom Lewcock, Sunnyvale's city manager, says he has had a Proposition 13, the council was not eager to spend the extra $400,000
revelation: —$500,000 a year required. Once the information was overlaid on the
10-year budget, however, the high expense of bringing the streets back
In the right environment, all ofthe myths about how elected to good condition if the city didn't allocate the new maintenance
ojicials behave have come falling down for me. They don't have money became obvious. "What it clearly showed was we would
to be short-range thinkers, they can be long-range thinkers. They literally be going broke, if we didn't spend the money now," says
don't have to bepeople who say, "I know this is more important Lewcock.
than that, but we're going to spend our time on that, because I've The mayor said, ' 'If we don't do it now we'll never be able to
got constituents on my back. " They don't have to be any of afford it, so the decision is to maintain the roads the right way, or
those things. to let the road system fall apart. It's as black and white as that. "
And the council made a unanimous decision to spend the money.
Lewcock can cite endless examples. One year the council designated Managers tell councils this kind ofthing all the time, but you had
the issue of open space as one of its priorities. It began with a study, to put it into a frame that shocked them—that got them to say,
which stumbled on an eye-opening statistic: because of demographic "Yes, we understand this. '
change, half the city's schools had closed or were going to close over In 1988, the 10-year budget flagged a shortfall looming about five
the coming decade. This would create problems, because most parks years out, because of a slowdown in population growth. The council
were located next to schools and depended on the use of their athletic commissioned a yearlong study of the problem, which looked at
fields, tennis courts, and other facilities. The question was, how could revenue and spending forecasts for 20 years. It concluded that while
the city afford to buy the closed schools, particularly after Proposition problems would emerge by the fifth year, they would become severe
13 had eliminated two-thirds of its property tax base? after 10 years. Sunnyvale was starting with large reserves, and its total
REINVENTING GOVERNMENT Anticipatory Government
budget was only $125 million. But by the year 2010, it would have a four-year budget projections, in the late 1980s, the legislature has in
$150 million deficit. To head off the problem, the city needed to come effect balanced its budgets for four years, rather than two. "We used to
up with $3.5 million a year in new revenues or spending cuts— produce budgets that were wildly out of balance in the second
between 5 and 10 percent of its operating budget. While the council biennium," says Hutchinson. "That doesn't happen anymore." Many
absorbed this shock, the 1990 recession hit—knocking revenues down states now do long-term revenue projections, and both California and
another $1.5 million a year. Florida prepare serious spending forecasts. Fairfield, Dallas, San
Antonio, and Ft. Worth also prepare longrange expenditure forecasts.
In response, the staff combed through the 10-year budget for savings.
In Washington, both the Office of 241
It recommended, and the council passed, several fee 240

increases, cancellation of several planned capital


Management and Budget and the Congressional Budget Offce publish
improvements, and a few other changes. "These are
five-year projections of spending and revenues, by major category.
relatively cheap and painless items," says Lewcock. (All these forecasts project spending as it would unfold without any
policy changes.)
But they closed a $5 million annual gap. The thing is, without
our system ofprojections, no one could have even identifled a All these measures are helpful in flagging future problems and trends.
problem. We didn't have a deficit. We had plenty of reserves. . . . But if they are not built into the budget, they do not force decision
You wouldn 't see any problem in a one- or twoyear budget. But makers to confront the long-term consequences of their actions—or
we were able to peer into the future and see trouble coming. allow the press to see those consequences. When a governor's staff
Getting our council to focus on a problem that begins to get proposes a budget item or a legislator votes on an appropriation, no
serious 10 years out, and then take action today—I still can't one sees a 10-year spending projection—unless a fiscal note provides
quite believe we did that. it. (Congress separates appropriations bills from the budget process,
so its forecasts have even less impact on individual appropriations.)
The secret, Lewcock says, is to recast the information on which As a result, legislators act in blissful ignorance, claiming to have
politicians make decisions. "One of the keys in government is to take made responSible decisions. Only later, when the next forecast shows
things that aren't politically acceptable in the normal context and the 5- or 10-year trend, is it clear whether they were penny wise but
change the context—to create a different way for the decision makers pound foolish. "If you don't put the financial projections into the
to look at them." When you do that, "the very same issue often turns actual decision-making context," says Lewcock, "they're not very
out to be politically acceptable. " useful."
Minnesota is the state-level equivalent of Sunnyvale. It uses a two- This is obviously easier in a relatively rational environment like
year budget, but projects all costs and revenues out four years. Sunnyvale than in a highly politicized city or state. It requires that
(Nebraska also projects spending decisions out four years.) Whenever politicians trust the objectivity of the forecasts, then agree to take
a legislative committee considers a policy change, the finance them seriously. Often elected officials prefer to ignore bad news, so
department provides a "fiscal note" that details the four-year they question the accuracy of the numbers. To make long-term
implications of the change. "This forces the legislature to confront the budgeting work, each community will have to figure out its own
long-term implications of what they're doing," says former finance solution to this problem. Florida uses a consensus process involving
commissioner Peter Hutchinson. "They talk about it all the time—and staff from both houses and the governor's office: until they all agree,
when they don't, the governor does." Since the state began making no forecast can be made. Other communities might have to hire a
REINVENTING GOVERNMENT Anticipatory Government
prestigious economic forecasting firm to create the necessary contingency fund, as an automatic protection against the tendency of
authority and neutrality. Whatever the method, trust is critical. politicians to spend every dime. After the 1982 recession virtually
bankrupted them, many states adopted the practice. By 1989, 28 states
required what they call "rainy day" funds—although few were as
Cross-Departmental Budgeting large as 5 percent of general revenues, the figure recommended by the
Sunnyvale's system not only flags the future implications of today's National Conference of State Legislatures.
spending decisions, it flags the impact of a decision made regarding
one department on all other departments. Minnesota's fiscal notes 243
include the impact on other departments and 242

other jurisdictions, such as local governments and school districts. Oklahoma, which suffered a disastrous plunge in revenues when the
Typically, governments cut spending in one department or line item to price of oil collapsed, created one of the most stringent set of rules. Its
save money, only to find that it drives spending up in another legislature can appropriate no more than 95 percent of estimated tax
department or line item—or at another level of government. Faced revenues each year. If the remaining 5 percent come in, they go into an
with a severe deficit, Massachusetts enacted sharp cuts in child care interest-bearing account to meet future shortfalls. Anything above 100
and rent subsidies in its fiscal 1992 budget. Everyone knew that would percent goes into a separate rainy day fund, for emergencies.
drive up spending on welfare and homeless shelters. The Boston Globe
found single mothers who would be forced back on welfare if they lost
the child-care subsidy and splashed their pictures across the paper. But Accounting for the Long Haul
because legislators did not have to vote on budget items that specified In any institution, people pay attention to what is counted. The budget
how much each cut would cost other departments, they closed their is one method of counting; the accounting system is another. And in
eyes and slashed the budgets. If governors and legislatures were forced government, accounting systems give the long term short shrift.
to deal with the cross-departmental implications of all spending Businesses and governments practice very different forms of
decisions, this would be more difficult. accounting. Businesses use "accrual accounting," in which any future
The flip side is also true: if budgets showed the cross-departmental obligation incurred (a debt, a commitment to pay a pension) is counted
impact, governments might invest more in prevention. In her book on as an expense. Governments normally use cash accounting, in which
successful antipoverty programs, Lisbeth Schorr asked why expenses are not counted until money is actually paid (or a slightly
governments "more readily appropriate money to repair a disaster than different version called modified accrual accounting.) Hence
to prevent one." One answer, she concluded, was that expenditures for governments can rack up enormous future obligations—far beyond
prevention typically came out of one department's budget, while the their capacity to pay—and their accounts will look perfectly balanced.
savings accrued to another's. So no department had an incentive to Government accounting, in other words, is future-blind.
invest in prevention. Why would governments do their books in such shortsighted fashion?
As with so many of our public systems, the answer takes us back to the
Progressive Era, when we last reinvented our governments. Herman
Contingency or "Rainy Day" Funds Leonard described the process in his book Checks Unbalanced: The
The simplest and most widespread form of long-term budgeting is the Quiet Side of Public Spending. "The profession [of public accounting]
reserve fund, which cushions the blow when recession hits. Many developed in response to a rising level of public alarm about
cities require that 3 to 5 percent of all revenues be held in a
REINVENTING GOVERNMENT Anticipatory Government
government corruption in the early years of this century," he explained.
The focus was on "control" systems, to make it difficult to steal.
Because fraud usually dealt with current transactions, not future
obligations, the focus remained almost entirely on the short term.
The results were perverse. Since pension commitments were not
transactions, they were not counted as current expenditures.
Consequently, many governments ignored their responsibilities to
REINVENTING GOVERNMENT Anticipatory Government
governments to a form of accrual accounting. (At least one other
244 country, New Zealand, has already made the shift.)
245
build up reserves adequate to meet future obligations. Nor were tax
credits and deductions or loan subsidies counted as spending items,
since they too were not transactions. But perhaps the worst problem During the late 1970s, after New York City and Cleveland nearly went
was the treatment of physical assets like roads, waterways, buildings, bankrupt, Congress began to discuss ways to impose better accounting
and machinery. standards on state and local governments. Fearing action from
Washington, the National Governors Association and eight similar
Physical assets are investments: when a government builds a
bodies created the Governmental Accounting Standards Board
highway or dam, it is creating something of value, almost like a
(GASB), to do the job themselves. The majority of state and local
savings account. As that dam ages and wears out, its value declines—
governments are required by their constitutions or charters to use
because without expensive repair, it will ultimately give way. This
Generally Accepted Accounting Practices. Since GASB defines these
use is a form of spending; in business it is called depreciation. But as
standards for the public sector, the majority of governments have little
Leonard points out, "our accounting systems hardly notice." Since
choice but to comply with its guidelines.
they were designed to track cash transactions, they don't record the
declining value of a physical asset: During the 1980s, GASB released new pension standards, and in 1990
it released standards that require governments to adopt a form of
At all levels of government, accounting records almost entirely
accrual accounting, beginning in July 1994. As GASB Chairman
ignore what assets are owned, their state ofrepair, and their
James F. Antonio told Governing magazine, "The whole thrust is to
value. These systems therefore imply that it costs nothing to use
make governments aware not just of current liabilities but what they're
existing assets. Indeed, they suggest the opposite: by cataloging
facing down the road." A member of GASB's Advisory Council put it
the costs ofmaintenance as a current expense, they make it seem
more bluntly: "Elected officials don't think of a crisis until the bridge
cheaper to use up assets than to keep them in good repair.
collapses. Well, accrual accounting makes you aware of any potential
In this way, public accounting reinforces the politician's natural crisis. It allows you to plan and program responsibly."
preference for building impressive new structures that will win votes,
rather than spending money on maintaining existing structures. GASB's standards deal with future financial obligations such as
(Leonard quotes E. S. Savas: "Have you ever seen a politician pensions and legal claims, but because so many governments rebelled
presiding over a ribbon-cutting for an old sewer line that was at the threat of being held to private sector depreciation standards, they
repaired?") Our accounting systems also allow politicians to cut exclude depreciation. GASB is still wrestling with the depreciation
spending for maintenance during budget crises—as they often do— issue, trying to find a public sector equivalent to business depreciation
without appearing to incur any expense. In reality, they are building that makes sense. The goal is something like "life-cycle costing": some
up tremendous future expenses. Under accrual accounting, these accounting measure that will show a failure to maintain a physical
would show up as current expenditures, in the form of depreciation. asset as a form of current spending, so even if politicians forgo
But under cash accounting, depreciation is invisible. maintenance they will incur a cost in the budget. With one stroke, this
would eliminate the incentive to defer maintenance.
Not surprisingly, as we reinvent our governments for the first time
since the Progressive Era, a concerted effort is now under way to shift Most governments use capital budgets to finance their longterm assets.
They require balanced operating budgets, but they borrow to finance
REINVENTING GOVERNMENT Anticipatory Government
expenditures whose benefits will be long term—just as families do authority that they were ineffective. It also mandated regional land
when they buy houses and cars. The federal government, however, use planning councils, which were equally ineffective.
does not have a capital budget. It makes absolutely no distinction Americans have always preferred ad hoc, pragmatic solutions to
between spending on welfare 246 sweeping "good government" reforms. This is precisely how 247

checks and spending on an asset that has continuing value, like a


highway. It simply borrows indiscriminately—so debt has no they are handling the regional problem. Rather than creating regional
relationship to investment. The American people have no way of governments, most areas have created regional bodies to handle
limiting their federal borrowing to genuine investments in their specific functions: a regional transit authority, a regional water
future. authority, a regional planning authority.
The federal government also ignores GASB standards. But the budget More than 20 cities have merged with their county to create a more
director and the comptroller general have put together the Federal effective regional government—as Indianapolis did. Since 1985, eight
Accounting Standards Advisory Board, which is working on accrual states—led by Florida and Vermont—have mandated regional land
accounting standards. Like other elements of the shift from use planning organizations to manage growth. And in other areas
bureaucratic to entrepreneurial government, the trend appears strong regional bodies have sprung up on their own, such as the Cape
irreversible. In a world of inexorable change, governments that Cod Commission.
remain future-blind are simply taking too big a risk.
Minnesota, the land of rational government, is one of the only places
that has created a true regional government. In the mid-1960s, the
Regional Government Citizens League recommended a Metropolitan Council with enough
To turn foresight into prevention, governments need jurisdiction to power, in then director Ted Kolderie's words, "to guide the growth of
deal with the problem in question. "I find that the most significant and the entire [Twin Cities] metropolitan area." In 1967, the Minnesota
complex problems are those questions of the future that do not stop at legislature created such a council and gave it power to review and
a city border," says George Latimer. "Consequently, their solutions suspend local government projects that affected the entire region. In
must be regional rather than municipal. " some areas it has been effective: in forcing solutions to the region's
solid waste problems; in developing a regional park system; in
In many ways, we have outgrown our governments. The building routing freeways; and in structuring mass transit. In other areas it has
blocks of our economy today are regional economies, which radiate been less effective.
out from a city or group of cities: the Greater Boston region, the
Greater Chicago region, the Greater Los Angeles region. Each region Despite its mixed record, some argue that the Metropolitan Council
has integrated needs—for public transit, for water and sewer systems, has been the Twin Cities' most important innovation. "Individual
for solid waste treatment, for economic development. But few have governments can be superb entrepreneurs," says John Bryson, "but if
integrated governments. County governments once played this role, no one is looking out for the region as a whole, it can still go to hell."
but many regions have outgrown their counties.
Clearly, different regions are choosing different paths. But equally
In the 1960s, the federal government pushed local governments to clearly, most areas are under pressure to find some way to get their
create voluntary "councils of governments," but most had so little hands around the new problems of the metropolitan region.
REINVENTING GOVERNMENT Anticipatory Government
Changing the Political System the only way a community can get a handle on its long-term
This book is about governance, not politics. But as governments problems.
struggle to lengthen the time horizons of their officials, they quickly No one would argue that these efforts take us far enough. During the
discover that much of the problem stems from the short-term Progressive Era, the American people reinvented virtually their
incentives built into the electoral process. As the 248 entire political system—introducing the initiative, referendum and
recall, direct election of U.S. senators, the enfranchisement of
1990s dawned, a movement to change those incentives gathered women, voter registration, the council249
steam.
In Florida, former U.S. senator Lawton Chiles ran for governor
calling for election finance reform, to limit the influence of special manager form of government, and many other reforms. As the current
interest lobbies on elected leaders. In his first months in offce, he wave of reinvention matures, they will no doubt do the same. Alvin
pushed a bill through the legislature limiting campaign contributions Toffler said it well in Anticipatory Democracy:
to $500 per candidate for each contested election and creating partial
I fail to see how it is possible for us to have a technological
public financing for gubernatorial and cabinet-level races. The
revolution, a social revolution, an information revolution, moral,
Minnesota legislature passed a bill combining public financing for
sexual and epistemological revolutions, and not a political
candidates for the U.S. Congress with voluntary spending limits for
revolution as well. . Simply put, the political technology of the
those who accept public money. New Hampshire passed a law
industrial age is no longer appropriate technology for the new
limiting spending for congressional races. And national campaign
civilization taking form around us. Our politics are obsolete.
finance reform began to work its way through the U.S. Congress.
Meanwhile, California, Oklahoma, and Colorado passed referenda
limiting the terms of their elected officials. Limiting the number of
times an official could run for reelection, supporters argued, would
limit their tendency to sacrifice long-term wisdom on the alter of
short-term reelection. We already do this, of course, with the
president and many governors.
Perhaps the most effective efforts have not been those that have
changed the electoral process, but those that have created powerful
constituencies for the future. Over the past 20 years, hundreds of
civic leadership coalitions, with names like BUILD Baltimore, the
Greater Indianapolis Progress Committee, and Confluence St. Louis,
have sprung into being. In essence, they act as keepers of the long-
term agenda. By focusing on major issues that loom ahead, they
create a forum for anticipatory thinking. By engaging as political
activists and lobbyists, they then turn that agenda into government
policy. Where political parties and elected leaders have failed to
respond to new realities, these organizations have become virtually
REINVENTING GOVERNMENT Decentralized Government

251

school principal who discovers students wearing beepers to stay in contact with their superiors in the drug trade. In a centralized system, the
principal asks the school board to promulgate a regulation about beepers. By the time a decision comes down, six months later, the
students are carrying mobile phones—if not guns.
Decentralized Government:In today's world, things simply work better if those working in
public organizations—schools, public housing developments, parks, training programs—have the authority to make many of From
Hierarchy to Participationtheir own decisions.
In the information age, "the pressure for accelerated deciand Teamworksion-making slams up hard against the increased complexity
and unfamiliarity of the environment about which the decisions must be made," Alvin Toffler wrote in Anticipatory Democracy. The result is
"crushing decisional overload—in short, There is nothing that can replace the special intelligence that a worker has political future shock." Toffler
described two possible reabout the workplace. No matter how smart a boss is or how great a leader,sponses: he/she will fail miserably in
tapping the potential of employees by working against employees instead of with them.One way is to attempt to further strengthen the center of
—Ronald Contino, former deputy commissioner,government, adding more and yet more politicians, bureauNew York City
Sanitation Department crats, experts, and computers in the desperate hope of outrunning the acceleration ofcomplexity; the other is to begin
reducing the decision load by sharing it with more people, ifty years ago centralized institutions were indispensable. In-allowing more
decisions to be made "down below" or at the formation technologies were primitive, communication be-'periphery" instead of concentrating
them at the already tween different locations was slow, and the public work force stressed and malfunctioning center.
was relatively uneducated. We had little alternative but to bring Traditional leaders instinctively reach for the first alternaall our public health
employees together in one hospital, all our tive. When fiscal crisis erupts, they consolidate agencies and public works employees together in one
organization, all our centralize control. When savings and loans fail, they create a bank regulators together in one or two huge institutions, so in-
superagency in Washington. When drug traffic escalates, they formation could be gathered and orders dispensed efficiently. appoint a national
drug czar. But this instinct increasingly leads There was plenty oftime for information to flow up the chain of to failure. Centralized controls and
consolidated agencies gencommand and decisions to flow back down. erate more waste, not less. The Resolution Trust Corporation But today
information is virtually limitless, communication falls further and further behind the complexity of the marketbetween remote locations is
instantaneous, many public em- place. Our drug czar watches in impotence as shooting wars beployees are well educated, and conditions change
with blinding tween drug gangs erupt in city after city.
speed. There is no time to wait for information to go up the Entrepreneurial leaders instinctively reach for the decentralchain of command and
decisions to come down. Consider the ized approach. They move many decisions to "the periphery,"
252 "down below," by flattening their hierarchies and giving authority to
their employees.
as we have already described—into the hands of customers,
Decentralized institutions have a number of advantages.
communities, and nongovernmental organizations. They push others
REINVENTING GOVERNMENT Decentralized Government

First, they are far more flexible than centralized institutions; they can Fourth, decentralized institutions generate higher morale, more
respond quickly to changing circumstances and customers' needs. commitment, and greater productivity. When managers entrust
Doug Ross, former director of the Michigan Commerce Department, employees with important decisions, they signal their respect for
offers the perfect illustration. "The only way we could serve our those employees. This is particularly important in organizations of
businesses in a rapidly changing marketplace was by decentralizing knowledge workers. If we are to tap the skills and commitment of
authority," he told us. "1 couldn't know as much about any of our development specialists, teachers, and environmental protection
programs as the people who were out in the field, dealing day in and officers, we cannot treat them like industrial workers on an assembly
day out with businesses. If the decisions had to come up the chain of line. Employers of all kinds have learned the same thing: to make
command to me, I had to learn enough to make them, and then they effective use of knowledge workers, they must give them authority to
had to go back down, we could never respond quickly enough to the make decisions. Management fads come and go, as all public
needs of our customers." employees know. But participation is not a fad; it is all around us, in
Second, decentralized institutions are more effective than virtually every industry.
centralized institutions. Frontline workers are closest to most
Harlan Cleveland, former dean of the Humphrey Institute at the
problems and opportunities: they know what actually happens, hour
University of Minnesota, wrote a fascinating book about managing in
by hour and day by day. Often they can craft the best solutions—if
a knowledge economy called The Knowledge Executive. "In the old
they have the support of those who run the organization. This gives
days when only a few people were well educated and 'in the know,'
participatory organizations a tremendous advantage. Ronald Contino,
leadership of the uninformed was likely to be organized in vertical
who used participatory management to turn around the New York
structures of command and control," he said. "Leadership of the
City Sanitation Department's Bureau of Motor Equipment (BME),
informed is different: it results in the necessary action only if
puts it well: "On the basis of proven experience, I regard the BME
exercised mainly by persuasion, bringing into consultation those who
worker as our most valuable resource, who has more capability to
are going to have to do something to make the decision work."
improve the organization as an entity and solve its problems than
Authority, in other words, is increasingly "delegated upward."
barrels of management specialists bearing very profound ideas about
"Collegial not command structures become the more natural basis for
what should be done in the workplace. Armed with the employee
organization. Not 'command and control' but 'conferring and
involvement programs that we have put in place, the worker has an
networking' become the mandatory modes for getting things done."
overriding advantage: it is his/her workplace." Third, decentralized
Cleveland called this "the twilight of hierarchy."
institutions are far more innovative than centralized institutions. The
policy experts at Harvard's Kennedy School of Government While the rest of society has rushed headlong away from hierarchy—
discovered this in their work on the Ford Foundation's Innovation whether through the student movements of the 1960s or the women's
Awards. Their biggest surprise, they testify, was the discovery that movement that began during the 1970s or the entrepreneurial
innovation does not 253 movement of the 1980s—most governments have held tight to the
reins. Their message to employees has not changed: Follow orders.
usually happen because someone at the top has a good blueprint. Don't use your heads, don't think for yourself, don't take independent
Often, it happens because good ideas bubble up from employees who action. If something goes
actually do the work and deal with the customers.
254 REINVENTING GOVERNMENT255
REINVENTING GOVERNMENT Decentralized Government

wrong that is not strictly your responsibility, ignore it. If youTHE WORLD ACCORDING TO CREECH absolutely have to make your own decision, choose
safety.
Never, ever, take a risk.Perhaps the starkest example of decentralization we came This message is enormously destructive. For decades it hasacross occurred in
the nation's largest and most centralized bucowed public employees, left them docile, passive, and bitter. Inreaucracy: the Department of Defense. According to
military traditional, hierarchical organizations, they may complain, buthistorian Martin van Creveld, successful armies have always they can barely conceive of
taking control into their own hands.decentralized authority. But during the 1960s, the U.S. military The resulting inertia carries an enormous price tag.
"Seeinglost sight of this lesson. Defense Secretary Robert McNamara, the waste, some call for more centralized controls, " says Giffordwho came to the
Pentagon from the helm of the industrial-era Pinchot Ill. "But the waste is not being created by inadequateFord Motor Company, was a devotee of centralized
systems. controls. It is being created by removing the sense and fact ofEnthralled by the idea of efficiency through centralized control control from the only
people close enough to the problem to doand systems planning, his whiz kids churned out cost-benefit something about it" (emphasis added).analyses and new
regulations faster than the field commanders To return control to those who work down where the rubbercould follow them. Authority gravitated upward, and
those on meets the road, entrepreneurial leaders pursue a variety of the field felt their ability to make decisions slip away.
strategies. They use participatory management, to decentralizeAs the military bogged down in Vietnam, the urge to centraldecision making; they encourage
teamwork, to overcome theize intensified. Ultimately, President Johnson took personal rigid barriers that separate people in hierarchical institutions;control of the
war. He ordered bombing runs and battlefield they create institutional "champions," to protect those withincampaigns from the White House. His people at the
Pentagon the organization who use their new authority to innovate; andpored over aerial photos and pinpointed targets 10,000 miles they invest in their
employees, to ensure that they have theaway. Generals at headquarters in Vietnam commanded skills and morale to make the most of their new authority. En-
frontline troops over the radio. And the U.S. military paid the trepreneurial leaders also decentralize authority between gov-price.
ernmental organizations—pushing decisions down fromFortunately, our leaders learned from defeat. When they exWashington to the states and from state
governments to localpelled Iraq from Kuwait in 1991, they used a very different apgovernments. We will discuss each of these five strategies laterproach.
President Bush, who stressed repeatedly that he would in this chapter.not repeat the mistakes of Vietnam, gave General Norman Governments that want to be
accountable to their citizensSchwarzkopf only two missions: expel Iraq from Kuwait and cannot simply turn their employees free, of course. Voters de-destroy the
fighting power of Iraq's Republican Guards. He told mand some accountability. Hence organizations that decentral-the military what he wanted done, but he let
them figure out ize authority also find that they have to articulate theirhow best to do it. General Schwarzkopf took the same attitude missions, create internal
cultures around their core values, and with his battlefield commanders.
measure results. Accountability for inputs gives way to account-One of those responsible for this philosophical shift was Genability for outcomes, and
authoritarian cultures give way to theeral W. L. (Bill) Creech—a man who remains a legend within kind of "loose-tight" cultures described by Peters and
Water-the U.S. Air Force, even in retirement. In 1978, Creech took man in In Search ofExcellence, in which shared values and mis-over the Tactical Air
Command (TAC), a $40 billion, 115,000 sions take the place of rules and regulations as the glue that person, 3,800 aircraft operation. On any given day,
nearly half keeps employees moving in the same direction.of its planes could not fly because of mechanical problems. The
REINVENTING GOVERNMENT Decentralized Government

256 name on the aircraft's nose.) He decentralized the supply operation, so


spare parts were available right on the flight lines. And he let
number of training sorties flown by its pilots had dropped 7.8 percent squadron commanders plan their own sortie schedules.
a year for nearly a decade. Pilots who felt they needed 25 hours of
Creech lavished attention on his repair and supply people, improving
flying time per month to stay combat ready were getting 15 or less.
their living quarters, investing in their training, and spending his own
For every 100,000 hours flown, seven planes were crashing—many
time giving them briefings. He had every building in the TAC
because of faulty maintenance. Pilots, mechanics, and technicians
command given a fresh coat of paint, and he invested in carpets and
were leaving TAC in droves. "The U.S. military was coming apart,"
furniture and new barracks—on the theory "that if equipment is
Creech later confided. "It was worse than you think."
shabby looking, it affects your pride in your organization and your
Creech had worked in the Office of the Secretary of Defense during performance. . . . You either have a climate of professionalism, or one
the mid-1960s, and he had seen McNamara's passion for of deterioration and decay."
centralization and standardization. He decided that passion was TAC's
He also publicized results, embraced competition, and allowed
biggest problem. The air force used "a 'one size fits all' approach," he
squadrons and bases to concentrate on their missions. TAC set clear,
said in a 1983 speech. "A single maintenance organization was
measurable goals for each team. Creech encouraged bases to put
created that was supposed to fit organizations as disparate as [the
charts of maintenance, supply, and sortie performance on the walls.
Military Airlift Command], which does its maintenance on the road,
Often they put the most vital statistics on big boards out in front of the
to [the Strategic Air Command], which operates out of its main
unit, for the competition to see. TAC began giving out trophies and
operating bases for alert, . to TAC, which deploys in squadron size
holding annual awards banquets to honor the best squadrons. "We
packages all over the world. . . . Everybody does it exactly the same."
actively stressed competition," Creech explained. "We instituted new
In addition, everything was centralized: maintenance, parts, planning, scheduling. "Control goals and standards, but at the same time we gave the unit control
was at the top." Every single repair call had to go through the centralized maintenance over its own pace and schedules to meet its year-end goals."
shop, called Job Control—a process that slowed maintenance down to a crawl. Moving one
"It was not long before a strong comradery grew up between pilots
F-15 part through the supply system, Inc. magazine reported, "required 243 entries on 13
and their crew chiefs," according to Inc. "And pretty soon one
forms, involving 22 people and 16 man hours for administration and record keeping."
squadron was working overtime to beat the other two squadrons in a
Creech decided the cure was radical decentralization. During the days wing, on everything from pilot performance to quality of
of centralization, the air force had put the mechanics and airplanes in maintenance."
a central pool, separating them from the squadrons—the 24-pilot
The results speak for themselves:
teams, each with its own name, symbol, and fierce loyalties, that had
entered American folklore during World War Il. Creech reversed this. When Creech left TAC, 85 percent of its planes were rated
He assigned mechanics to squadrons, giving each mechanic the cap mission capable, up from 58 percent when he arrived; he had
and patch of his own squadron—the Buccaneers or the Black Falcons. taken TAC from the worst to the best of all air force commands.
He assigned airplanes to squadrons, painting the squadron insignia— Fighter jets were averaging 29 hours a month of flying time, up
the same as the pilots and mechanics now wore—on their tails. (He from 17.
even painted the name of the lead mechanic next to the pilot's 257 TAC was capable of launching double the number of sorties it
could when Creech arrived.
REINVENTING GOVERNMENT Decentralized
258Government 259

The elapsed time between the order of a part and its de-mands adopted many of his ideas. One of his disciples, General livery had dropped from 90
to 11 minutes.Larry D. Welch, succeeded him at TAC, then took his approach u The crash rate had dropped from one every 13,000 flyingto the
Strategic Air Command, and finally wound up as Air hours to one every 50,000.Force Chief of Staff. In 1990, a Welch protégé took over the air
And the reenlistment rate for first-term mechanics hadforce's last centralized command, the Military Airlift Comnearly doubled.mand, and
began spreading the gospel according to Creech. And in the army, General Vuono's Communities of Excellence TAC accomplished all of this with no
new money, no moreprogram is essentially modeled on what Creech did at Langley people, and a workforce with less experience than the
workforceAir Force Base, TAC's showplace.
in place through the years of decline. "What was it primarily?"Creech was also instrumental in the success of Bob Stone's Creech asked. "We think it
was organization. We think it wasModel Installations initiative. When he was recruiting comdecentralization. We think it was getting authority
down to themanders, Stone says, a funny thing happened. "I briefed a lowest level. We think it was acceptance of responsibility to gobunch of generals,
and they all said, very tensely, 'Have you with that authority. We think it was a new spirit of leadership at shown this to Creech?' I'd say no. And a couple
of them said, many levels—making good things happen."'Well, I'd be interested in seeing what his reaction was.' " Once In any organization,
Creech told Inc., "there are lots of peo-Creech came on board, 40 other commanders followed. ple just waiting for you to give them some
responsibility, some sense of ownership, something they can take personal pride in.
And it's amazing höw, once you take those first steps, suddenlyDECENTRALIZING PUBLIC a thousand flowers
bloom, and the organization takes off inORGANIZATIONS THROUGH ways that nobody could have predicted."PARTICIPATORY
MANAGEMENT
Traditional managers assume that if they decentralize authority they will have less control, he added. But the opposite is In his six years at TAC, Creech
virtually doubled its productivtrue. ity. He did so simply by recognizing human nature: people work harder and invest more of their creativity when
they control When I left TAC, I had more control over it than my prede-their own work. Manufacturing businesses that embrace particcessors. I'd created
leaders and helpers at all those variousipatory management say it typically increases their productivity levels. Without that kind of network below you,
you're a by 30 to 40 percent. Sometimes the increase is far higher. "The leader in name only. extra commitment of the self-motivated doesn't make just
a 10 It's not really that hard to run a large organization. You or 20 percent productivity difference," says Pinchot; "someone just have to think small
about how to achieve your goals.who is fully engaged in his or her chosen work can do in months There's a very finite limit to how much leadership you
canwhat routine attendance to a task might not accomplish in exercise at the very top. You can't micromanage—people re-years." sent that. Things are achieved
by individuals, by collectionsParticipatory management is flourishing in entrepreneurial of twos and fives and twenties, not collections of
115,000.public organizations, from school districts to police departments. Consider the New York City Sanitation Department, a General Creech retired
in 1984, but his philosophy spread. huge, sprawling organization that collects the garbage and While he was still at TAC, both the European and Pacific
com- sweeps the streets in a city of 7 million. In 1978, when Ronald 260Decentralized 261

Contino was hired to manage the department's Bureau of Mo-in solid waste, where waiting time at the Energy Recovery Plant tor Equipment, it was a shambles.
With more than 1,300 me-was delaying drivers every afternoon. Management was planchanics, welders, electricians, blacksmiths, and machinists, it ning to
spend $1 million to double the size of the tipping floor, was responsible for maintaining all Sanitation Department ve-where the trucks unloaded. But by
charting the trafhc flow, the hicles. Yet on any given day, it could keep only half of the city'semployees figured out that if drivers on the East Side simply
6,500
garbage trucks and street sweepers in operation.started an hour earlier, the early afternoon traffic jam would Contino tapped the ideas of his employees
through a top-disappear.
REINVENTING GOVERNMENT Government
level labor committee and a series of labor-management com-"That would never have happened if management had hired a mittees. Within three years, 85
percent of the garbage trucks consultant who said, 'Get the east side guys to start at six in the were back in operation, and departmental innovations
hadmorning,' " says Tom Mosgaller, TQM coordinator for the city. saved more than $16 million. "This was possible because an"We would have had to
bargain 'til hell froze over to get that. But environment had been created where each individual knew thatbecause the employees came up with it, they
owned it." he was being represented in the decision-making process, andMadison has even shown how police departments can use that he had a
direct 'pipeline to the top' to voice his very own participatory management. In the summer of 1986, Police concerns and desires," Contino says. "Changes
in proceduresChief David Couper called a meeting to discuss the idea of a were no longer viewed as orders generated by a distant elite, butfield
laboratory, where the department could test new ideas. rather as a product of teamwork and a universal desire to seeOver 50 members of the department
showed up. They chose a the job improve."10-member planning team, which Mosgaller trained in quality Once the department was back on solid footing,
Contino be-management.
gan handing day-to-day control over operations to line employ- After intense discussions, the team recommended an Experiees. He put a machinist in charge
of his new Special Projectsmental Police District, with 38 members and jurisdiction over Division, which handled all new equipment orders. He hadan
area of 30,000 people. They interviewed all department emauto mechanics help write all specifications for new orders, testployees to find out their
concerns, then incorporated them into all new equipment when it first arrived, and staff the unit thatthe management structure of the new district. This was the
revnegotiated and enforced warrantees. He created a Research andolutionary step: The employees elected their own captain and Development Group,
composed entirely of auto mechanics, lieutenants. They developed their own staffing and work schedwhicl.y has implemented at least 50 design
improvements and ules. They designed and built their own district building. licensed several to private companies, earning royalties for the The Experimental
Police District also surveyed its customers city. An employee team even developed a new refuse wagon, a and adopted community-oriented policing (see chapter
2). To monstrous vehicle used to carry garbage from a wharf to a land- help carry out the community approach, detectives, officers, fill. They call it "Our Baby."
meter monitors, and clerical workers began meeting in teams.
Madison, Wisconsin, embraced participatory management as Cooperation between them increased dramatically. "They used part of its Total Quality Management
effort. (One of Deming's to be stratified," says Mosgaller: fundamental principles is employee involvement in decision making.) Madison's first quality team, in the
Motor Equipment The great thing is what's happened to the meter monitors. Division, saved $700,000 a year by creating a preventive main- We never used the
meter monitors as the eyes and ears ofthe tenance program and reducing average vehicle downtime from police force. They were just out there writing tickets. But
nine days to three. Another employee group studied problemsthey see things every day. And now they know what the

262Decentralized Government 263


REINVENTING GOVERNMENT Government
detectives are looking for, so they can help. They're our besttions, and turned each school over to an elected council of information source— and they feel
empowered.parents, teachers, and community members.

Today the Experimental Police District is an enthusiastic, motivated organization. Absenteeism and workers' compensa-Labor-Management
Cooperation tion claims have fallen sharply. In an employee survey takenMany public managers believe that unions are the greatest obduring the district's
second year, more than 80 percent reportedstacle standing in the way of entrepreneurial government. Cerhigher job satisfaction than in their previous
assignment, andtainly unions resist changes that threaten their members' jobs — more than 60 percent believed they were more effective in solv- as any
rational organization would. But most entrepreneurial ing crimes. The top five reasons they gave for choosing to workmanagers tell us that unions have not
been their primary obstain the district were "a more supportive management style," aCle. The real issue, they believe, is the quality of management. "less
rigid structure," "greater input to decision-making,""Labor-management problems are simply a symptom of bad "more autonomy," and "a team
atmosphere." The departmentmanagement," says John Cleveland, who ran the Michigan was so pleased with the results that in 1991 it created three
Modernization Service. "The issue in all organizations is the more decentralized districts, to cover the rest of the city. "Iquality of the top
managers. And traditionally, in political envithink we've learned that effective working teams are 30 to 40ronments, the top appointees have no management
experience. people," says Couper.They don't stay around very long, and they don't pay much Participatory management is even spreading in public educa-attention
to management." tion. Traditionally, public school systems have been horriblyWhen the consulting firm Coopers & Lybrand conducted its
centralized. (Before its recent decentralization, Chicago had Survey on Public Entrepreneurship, it found that local govern500,000 public school students and
3,000 administrators; Chi- ment executives said "governmental regulations, institucago's Catholic school system, with 250,000 students, had 36 tional
opposition," and "political opposition" were the greatest administrators.) Yet study after study has proven that schools barriers to productivity improvements.
"Organized labor oppoin which principals and teachers have significant authority are sition" ranked fourth out of six choices.
more successful than those in which the important decisions are The rank and file are "anxious to help make changes," says made by a central administration. So
hundreds of school dis- Rob McGarrah of the American Federation of State, County tricts have begun to practice what educators call site manage- and Municipal
Employees (AFSCME). They understand what a ment—pushing "decision-making authority down as much as poor job many public institutions do. If change
means losing possible to the school level," as Arkansas Governor Bill Clinton pay or giving up collective bargaining, they're not interested. describes it, to "give
the principals more authority [and] give "But if it's a question of new opportunities, our people are hunthe teachers more authority." gry for new opportunities."
Dade County, Florida, which encompasses Miami, has given Public sector unions are in much the same position their authority over most of its schools to teams of
principals, teach- private sector counterparts were in when foreign competition ers, and, sometimes, parents. In Dade County and in Rochester, decimated so many
American industries. They can resist New York, each school now has a mission-driven budget. In change—and watch their industry decline. Or they can work
Chicago's first year of reform, it shifted $40 million from cen- with management to restructure their organizations and regain tral administration to the schools, cut
640 administration posi- the trust of their customers—the taxpaying public.
REINVENTING GOVERNMENT Decentralized Government
264 265

When Ron Contino took over the Bureau of Motor Equipment in New No one wants to innovate themselves out of a job. But when
York City, labor-management relations were disastrous. So Contino employees know they have job security, their attitude toward
decided his first move had to be a top-level labor committee, to prove innovation changes dramatically. In Phoenix, several employees have
to the work force that he was willing to share power. He asked the 20 even recommended that their positions be eliminated. Since Phoenix
union locals that represented his workers to nominate members. "I employees get to keep 10 percent of the first-year savings they
said, 'Give me the guy in your union hall that's always yelling about generate through the city's suggestion program, these employees have
how lousy things are and how they've got to change," Contino not only moved to new jobs, but earned sizable bonuses in the
remembers. "That's the guy I want." process.

Members of the Labor Committee were relieved of their other duties. They
worked full-time on improving the organization: visiting work sites to ask Flattening the Organizational Hierarchy
their members how their jobs could be improved, bringing back formal The most serious resistance to teamwork and participatory
suggestions, and meeting weekly with Contino and his top managers. In a management often comes from middle managers, not unions. If
year and a half, their ideas saved nearly $2 million. As employees realized employees are making decisions and solving problems, middle
their representatives had genuine power, they began coming forward with managers become superfluous. Too often they stand in the way of
more suggestions. Having earned their trust, Contino then created labor- action, because their instinct, to justify their existence, is to intervene.
management committees throughout the organization. They helped develop As Peters and Waterman put it, middle management acts as a sponge.
the "profit center" and "contracting-in" initiatives described in chapter 3, It stops ideas on their way down and stops ideas on their way up.
which saved additional millions of dollars.
With today's computerized systems, managers also have so much
Many unions are ready for this kind of partnership. AFSCME now information at their fingertips that they can supervise far more people
negotiates labor-management committees into many of its contracts. than they once could. Their span of control is broader. If organizations
In Rochester and Dade County, the American Federation of Teachers keep all their layers of management— and all the middle managers
has been a full partner in sweeping education reform efforts. And in continue to play their traditional roles—overcontrol quickly sets in.
Madison, the unions have been important allies in the Total Quality Hence participatory organizations find that they must eliminate layers
Management process. and flatten their hierarchies. David Couper has eliminated the deputy
chief layer between him and his captains. Phoenix eliminated 39
middle managers in one year, using an early retirement program. (It
No-Layoff Policies
saved $1.5 million in the process.) Fox Valley Technical College has
Perhaps the best way to secure union cooperation is to adopt a policy
eliminated one vice president and six middle management positions
of no layoffs. As noted in chapter l, most governments lose 10 percent
over the past three years, simply by not replacing people when they
of their employees every year, so attrition often creates room for
retire.
flexibility. Governments don't have to guarantee people the job they
have, but they can guarantee a job, at comparable pay. Visalia did this.
Phoenix guaranteed jobs, although not always comparable pay. THE TEAMWORK ORGANIZATION
District 4 in East Harlem has not laid off any teachers.
Employee Evaluation
THE VARIETIES ofManagers, although
AND TECHNIQUES OF not yet widely
used, is a powerful tool. Supervisors in the Madison Police
PARTICIPATORY MANAGEMENT
Department developed a Four-Way Check, which solicits
feedback from REINVENTING
theirinemployees, theirGOVERNMENT
peers, their bosses, and Decentralized Government
Participatory management varies depth and quality. Some
themselves. Wherever we have found participatory organizations, we have found
efforts are window-dressing; some are revolutionary. Some
managers simply Invention
want morePolicies
inputhelp
fromemployees
employees,patent and develop new
but don't teamwork. Madison used quality circles; the Tactical Air
products
want to share power. or processes
Others view their they invent. Visalia
employees will put up the money
as genuine Command relied on squadrons; the Bureau of Motor Equipment used
to secure a patent, then either help
partners who share responsibility for all aspects of the with development, let the
employee teams of all kinds. Visalia and St. Paul constantly created
employee handle development, or help the employee license the
organization's productivity and quality of work life. The further cross-departmental teams to develop new projects. East Harlem's
invention to a private company. The state of Oregon and one of
organizations move along thisowned
its employees path, the
thegreater the payoff.
first patent There
for raised lane dividers on schools were run by teams. This is no accident. When organizations
are almost an infinite
highways.number of devices they can use along the push authority into the hands of employees, they quickly discover that
way: to get a handle on major problems or decisions, those employees need
Innovation Champions encourage teams of employees to to work together in teams.
Quality Circlesinnovate and champion
are voluntary, temporarytheir teamsefforts
that when
use they do. Minnesota's
Deming's methods STEP program work
to improve is described
processes. on pages 272—275,
They choose a but Hawaii and
Washington State have similar programs. In Washington's
problem or process to improve, then measure results, analyze
Teamwork Incentive Program, teams of employees that want to
data, pinpoint underlying causes, design and implement
make changes in service delivery, reduce costs, or increase
solutions, checkrevenues
the results, refine
apply to atheir solutions,board.
productivity and try again.
When their
In TQM lingo, they "Plan, Do, Check, Act."
accomplishments are verified, they share 25 percent of the
monetary gains. In its first seven years, thé program saved the
Labor-Management stateCommittees
$50 million.give managers and labor
representatives a permanent forum in which to discuss their
RewardDepartment
concerns. The Phoenix Programs are of used
Public to Works,
honor high
for achievers in virtually
every entrepreneurial organization
instance, uses quality circles to attack specific problems, we have
butencountered.
it The
National Forest Service's Groo Award is the most participatory
also has a labormanagement committee to keep permanent lines
award we have seen: every year each employee can give one
of communication open on broader issues.
other employee an award for outstanding performance. Fittingly,
the awardPrograms
is namedhelp afteremployees
its inventor, forestry technician Tyler 268 269
Employee Development develop their
Groo.
talents and capacities through training sessions, workshops, and Peters and Waterman described identical behavior in entre- • And those with a person
the like. Organizations that provide such opportunities and orientation, such as social preneurial companies. "Small groups are, quite simply, the ba- groups,
follow up by promoting from within generate tremendous loyalty exist simply to serve the needs of their members. sic organizational building blocks of excellent companies,"
and commitment. At one point in Visalia, where city employees they wrote: Entrepreneurial organizations clearly fall into the task-oriented category.
run the entire program, both the personnel director and the risk
Because task-oriented organizations do whatever it The action-oriented bits and pieces come under
manager were former police officers. The airport manager was a
many la-takes to achieve results, Harrison explained, they typically change bels—champions, teams, task forces,
former secretary.
czars, project centers,their structures and procedures as their tasks change. They conskunk works, and quality
Attitude Surveys give leaders more information about their circles—but they have one thing in stantly set up project teams and task forces. "These temporary common.
employees' feelings than virtually any other technique. Both They never show up on the formal organization systems can be activated quickly, provided with the
Phoenix and Fox Valley Technical College survey their necessary chart and seldom in the corporate phone directory. They aremix of skills and abilities, and
employees every year. When an employee survey in the Madison disbanded again when the need nevertheless the most visible part ofthe adhocracy that keepsis past. Their use
Police Department revealed dissatisfaction with the way
promotions were awarded, the chief asked a team of officers to
create an entirely new system.
REINVENTING GOVERNMENT Decentralized Government
provides what is, in effect, a continuously varithe company fluid.able organization structure," Harrison wrote. As a result, "the task-oriented organization's greatest
strength is dealing with comNearly 25 years ago, in The Age of Discontinuity, Peter plex and changing environments." In contrast, power- and roleDrucker
explained why knowledge workers require teamwork oriented organizations have trouble dealing with change, because organizations:both "associate control with a
position in the organization; neither provides for rapid and rational reassignment of appropriate Knowledge workers still need a superior. . . . But knowledgepersons
to positions of influence." work itself knows no hierarchy, for there are no ' 'higher"Centralized, hierarchical organizations also divide themand "lower" knowledges.
Knowledge is either relevant to a selves up into many layers and boxes. People begin to identify given task or irrelevant to it. The task decides, not the name, with
their unit—their turf Communication across units and bethe age, or the budget of the discipline, or the rank of thetween layers becomes difficult. This explains why
innovative individual plying it. . organizations so often use teams, according to Rosabeth Moss Knowledge, therefore, has to be organized as a team in

Kanter.
which the task decides who is in charge, when, for what, and "The primary set of roadblocks to innovation result from segfor how long. mentation," Kanter wrote in
The Change Masters: "a structure In 1972, social psychologist Roger Harrison explained whyfinely divided into departments and levels, each with a tall
entrepreneurial organizations rely so heavily on teams. Harri-fence deed, around carefully it guarded." and communication Even when in one and
innovation out restricted—in-succeeds, son divided organizations into four basic types:

the innovation rarely spreads—because the communication be Those with a power orientation, including many tradi- tween departments is so
minimal and the fences so high.

tional businesses, are autocratic and hierarchical. In contrast, innovative organizations foster constant communication, so information flows quickly
through their ranks. To do Those with a role orientation, such as traditional govern-this, they regularly new teams and new configurations, so
create ment bureaucracies, are carefully ordered by rules, pro-nearly everyone comes into contact with nearly everyone else. In
cedures, and hierarchy.innovative organizations, Kanter says, "job charters are broad"; Those with a task orientation, like technology-oriented work
assignments are "ambiguous, non-routine, and changebusinesses, are extremely fluid and results-oriented. directed"; "job territories are intersecting";
and employees have
Decentralized Government
270 REINVENTING GOVERNMENT inadequate responses to changing times," says George Britton, a
deputy city manager in Phoenix. Teams build lasting networks
throughout an organization, because everyone gets to know like-
enough "local autonomy" to "go ahead with large chunks of action minded people in other departments. Ideas and information flow
without waiting for higher-level approval. " more rapidly, and action becomes easier. To get anything
significant done within a large organization, every entrepreneur
Madison illustrated Kanter's argument perfectly. When Mayor needs an informal network of allies.
Sensenbrenner introduced TQM, he quickly discovered that the high
Teams hold employees to high standards, acting as a more
walls between departments were among the greatest barriers to quality
acceptable quality control mechanism than evaluations and
and innovation. His first quality team, at the Motor Equipment
orders from the top. In East Harlem, where small teams of
Division, isolated the city's policy of purchasing the cheapest (and
teachers run most schools, teachers who don't perform "fall by
therefore the lowest quality) parts as one of the underlying causes of
the wayside on their own, because of the peer pressure that's
vehicle maintenance problems. Sensenbrenner and the team decided to
put upon them within their own collegial group," says John
see if they could change the policy. First they visited the parts
Falco. "If you have one rotten apple in the bunch, it impacts
purchaser, who agreed that the policy was unwise but blamed central
the others. They put the pressure on. Those teachers see
purchasing. So they visited central purchasing, whose staff again
themselves; they come to me. They say, 'I can't make it here.'
agreed with them, but said the city comptroller wouldn't let them
Many of them choose to go elsewhere, or to leave the system."
change the policy. When they visited the comptroller, he also agreed—
but said the city attorney would never approve a policy change.
Finally, they visited the city attorney. What did he say? "Why, of
course you can do that. . In fact, I assumed you were do ing it all CREATING AN
along." INSTITUTIONAL CHAMPION FOR
BOTTOMS-UP INNOVATION
"This, " says Sensenbrenner, "was a stunning disclosure."
To be successful, participatory organizations must not only empower
employees and teams, but protect them. Not all managers want their
n addition to. their capacity to innovate, to accomplish tasks, and to
employees mucking around with decisions. Many of the participatory
respond rapidly to changing environments, teamwork organizations
management efforts of the early 1980s failed, in fact, because
display a series of other strengths:
managers did not support them. In Madison, managers were so
Cross-departmental teams bring different perspectives to bear unsupportive in the early years of quality management that at one
on problems or opportunities, from different parts of the point, every member of a quality team resigned.
organization. People in isolated departments see only the local
symptoms of a problem. Teams can see the whole problem. Participatory management is also risky. It encourages employees to
Team members who are confronted with different perspectives
begin to think "outside the box" of their own department.
When they take that habit back to their own office, they often
dream up better ways to accomplish their goals.
Teams break down turf walls, fostering collaboration
share information and confront underlying issues. In 272
across departments. "The issues no longer fit neatly
271 the fishbowl of city hall or the state capitol, where reporters are
constantly looking for conflict and leaks, this invites negative
publicity. "The wariness of this risk is one of the major fears that
within departmental lines, and organizations which don't realize holds public managers back" from participatory efforts, ac cording to
that are going to endure a lot of frustration and relatively Robert Krim, who runs the Boston Management Consortium, a
REINVENTING GOVERNMENT Decentralized Government
public-private management consulting firm created by the city to help Hutchinson took this message to the working group that Sandra Hale,
its departments. Perpich's commissioner of administration, had put together to design
STEP. They proposed a bottoms-up, teamoriented approach—with a
Rudy Perpich, governor of Minnesota from 1976 to 1979 and 1983
new name—and the governor agreed.
to 1991, created an interesting solution: a kind of institutional
"champion," designed to empower and protect entrepreneurs deep The program was simple. Perpich appointed a STEP board, which he
within the bureaucracy. Called Strive Toward Excellence in and Andres cochaired. It solicited proposals from employees who had
Performance (STEP), it was effective enough to win one of the Ford innovative ideas, and it chose the most promising as official STEP
Foundation's first Innovation Awards. projects. It used criteria similar to those entrepreneurial governments
were embracing all across America. STEP projects had to be proposed
STEP had an interesting history. During Perpich's first term, he had
by a team, they could not require any new money, and they had to
learned firsthand how much state employees resented edicts sent
embody at least one of six principles: customer orientation,
down from the top. To cut spending, he had created a Committee on
participatory management, decentralization of authority, performance
Waste and Mismanagement. It had nickel-anddimed employees in the
measurement, new partnerships, or state-of-the-art technology.
worst way: forbidding them from buying new file cabinets, turning
off every other overhead light, banning coffee-making machines The STEP seal of approval did four things. It gave people permission
from state offices. To this day, employees in Minnesota remember to innovate. It offered them technical assistance. It forced their bosses
when the governor took away their coffee machines. In 1978, many to sit up and listen. And it gave them protection when the inevitable
of them took their revenge on election day, and Perpich went down to flak hit.
an unexpected defeat.
One of the first STEP teams convinced the Department of Natural
For the next four years, Perpich worked for the Control Data Resources to change its attitude toward its customers. During the mid-
Corporation, in its Vienna office. There he learned something about 1980s, use of the state's 64 parks was declining and budget problems
managing knowledge workers. He particularly remembers the fury were nibbling away at the parks. A group of people within the
when American managers told their Austrian employees they could department decided that they needed a marketing program. They
no longer keep wine in their office coolers. applied for STEP status and won. First they asked park managers to
brainstorm about what their customers wanted; soon managers were
When Perpich was reelected in 1982, Minnesota again faced drastic
putting in children's play equipment in parks and electric hookups at
fiscal problems. His first impulse was to create a business group like
campsites. Then they created the Passport Club—a kind of frequent-
the Grace Commission, which had combed through the federal
flyer 274
government for waste, then submitted a gargantuan report that
gathered dust on many shelves. Perpich planned to call it Strive
Toward Efficiency and Productivity. Fortunately, he asked Dayton-
Hudson Chairman William Andres to cochair the group. program for park users, to lure them to outlying parks that were not
heavily used. Next they began accepting credit cards, running
273
advertising, and promoting park permits as Christmas gifts. Sales
jumped 300 percent. Then they brought in a private company to
improve their gift shops, and gift sales increased by 50 percent.
Andres understood that productivity was not something that could be
Finally, they conducted a customer survey of 1,300 park users.
imposed from without. It had to be built in from below. "The way to
get it is to empower the employees to do what's right," he told Peter During the first year after the marketing strategy took effect, the
Hutchinson, the vice president he assigned to the project. "When you number of park visitors jumped by 10 percent. Numbers like these got
help people figure out what's right—and empower people to do it— the department managers' attention; in 1987 they created a marketing
you get great results. You get results that are way beyond anything coordinator position and hired the STEP team leader to fill it. They
you could dream up in the big offices upstairs." also set up their own Innovations Board, to keep an atmosphere of
change alive in the department.
REINVENTING GOVERNMENT Decentralized Government
Another STEP project, in the agency that issues driver's licenses, can't treat them shabbily, and house them shabbily, and expect quality
cut waiting time for the public in half. Yet another helped the work in return." We found over and over again that entrepreneurial
Department of Human Resources dig out from under a backlog organizations paid their employees well and worked to improve the
of racial discrimination complaints against landlords, employers, physical quality of their workplaces. In addition, they invested heavily
and banks. This one demonstrated the role of STEP as a in training.
champion of innovation—a formal protector of entrepreneurs
No one wants poorly trained employees making important decisions,
within the bureaucracy. When the department commissioner
yet few governments spend much on training. Accurate statistics do
refused to give her staff the time needed to develop the new
not exist, but virtually everyone who has studied the situation believes
program, STEP's executive director threatened to tell the
that government spends far less on training than does business.
governor the project had failed because top management had not
supported it. The next day, the commissioner relented. During the 1980s, Paul Volcker's National Commission on the Public
Service estimated that the federal government spent roughly 1 percent
The Perpich administration learned a number of valuable lessons
of the civilian, nonpostal payroll for training, compared to 3 percent in
from STEP, which it summarized in a book called Managing
Fortune 500 companies. In 1990, the Governor's Management Review
Change: A Guide to Producing Innovation from Within. One
Commission, in New Jersey, reported that the state spent only six one-
was that innovation often comes from the bottom up. "At least
hundreths of 1 percent of its $30() million management and
one-third of the (STEP) project managers are line employees,
supervisorial payroll on training or development. Western Electric, a
not middle or upper management," the book reported. Another
major New Jersey corporation, spent 100 times that amount.
was that projects run by teams do much better than those run by
individuals. The lesson: "The Lone Ranger is not an appropriate
role model." A third was that decentralization requires a firm
commitment from the top. Without Perpich's full support, STEP
would not have worked. Ironically, in centralized institutions
and systems—whether state governments, school systems, or
federal programs—those at the top must often change the 275

rules before those at the bottom can innovate. Good ideas may
bubble up from below, but in centralized systems those ideas are
usually ignored. To empower employees to act on their ideas,
1
policy makers must decentralize the locus of decisionmaking. 276

New mayors and governors, who so often create commissions to As they have moved into a globally competitive knowledge economy,
root out waste and increase productivity, could learn an in which constant updating of skills is virtually a pre-
enormous amount from STEP's success and Perpich's first-term
failure. The contrast demonstrates one of our favorite maxims: requisite of survival, businesses have dramatically increased their
efforts to improve productivity usually undermine both investments in training. Entrepreneurial governments have learned the
productivity and morale; efforts to improve morale by same lesson. Visalia was the first outside organ-
empowering employees usually heighten both morale and ization to send managers to Hewlett-Packard's management training
productivity. program. Madison invests heavily in training. Phoenix provides 25
different courses for its employees every quarter. Like many
governments, it also offers tuition reimbursement for employees who
INVESTING IN THE EMPLOYEE take courses at an accredited college.
Decentralization can work only if leaders are willing to invest in Some unions even invest in training. According to Rob McGarrah,
their employees. As General Creech said of his troops, "You AFSCME often puts up money to get public agencies to
REINVENTING GOVERNMENT Decentralized Government
provide training. AFSCME's District Council 37, in New York City, thumb, articulated by the National Conference of State Legislatures:
runs its own college. "Our members are hungry—almost desperate— unless there is an important reason to do otherwise, responsibility
for training," McGarrah says. for addressing problems should lie with the lowest level of
government possible.
The closer a government is to its citizens, polls show, the more they
DECENTRALIZING THE trust it. The closer it is, the more accountable its officials tend to be
FEDERAL SYSTEM and the more likely they are to handcraft solutions rather than create
one-size-fits-all programs.
For many of our readers in the nation's capital, the issue of
decentralization is synonymous with the issue of federalism. During Were we to adopt this rule of thumb, the federal government might
the 1960s and 1970s, in a burst of national activism, we have fewer employees and provide fewer direct services, but its role
overcentralized many activities of government. Between 1963 and in steering American society would not decrease. In many areas, it
1980, Congress created 387 new categorical grant programs—separate would still have responsibility for providing funds and setting an
pots of federal money, tied up in federal rules and regulations, to pay overall policy framework, even if it delivered no services. These
for services delivered by state or local government. By 1977, they would include:
accounted for $1 of every $4 spent by state and local governments.
Despite severe funding cuts and passage of a few consolidated block Policy areas that transcend the capacities of state and local
governments, such as international trade, macroeconomic
grants, 475 categorical grants still existed in 1991. And as the federal
policy, and much environmental and regulatory policy.
deficit widened, Congress increasingly turned to mandates—in
essence, categorical programs without the funds. Antipoverty policy, which requires investment in precisely
those regions with the fewest financial resources. To equalize
We centralized responsibility for good reasons. During each area's ability to invest, the federal government must act.
the industrial era, those in Washington had far more Social insurance programs like social security and
information and capacity than those in smaller state and unemployment compensation. If we want equal benefits 278
local governments. And during the 1960s, many state and
local governments were unwilling to do much of what the
American throughout the country, we cannot expect rich and poor states
277 to shoulder the same burden.
Investments that are so costly that they require sizable tax
increases, which might discourage business from locating or
staying in a city or state (one obvious example is health care).
people wanted done—particularly the hard work of racial States will avoid such responsibilities, for fear of discouraging
integration. But 30 years later, many state and local investment, unless the federal government bears much of the
governments are not only more effective than the federal financial burden.
government, but more progressive as well. Even in many of these cases, however, programs can be designed to
State leaders have been complaining bitterly about overregulation
allow for significant flexibility at the state or local level. The federal
from Washington for 25 years, and local leaders increasingly
government can define the mission and the outcomes it wants, but
complain about overregulation from state government. Ronald
free lower governments to achieve those outcomes as they see fit.
Reagan promised a "new federalism" but did little more than cut
federal aid, leaving behind what some call "fend for yourself What we really need is a new model of grant program, built around
federalism." Clearly, it is time for an intelligent sorting out of the principles of entrepreneurial government. Fortunately, state
federal, state, and local roles. governments have struggled with the same issue and come up with
some intriguing models. During the 1980s, Pennsylvania Governor
This is not the place for a full discussion of the solution; tomes have
Richard Thornburgh and his policy chief, Walt Plosila, designed one
already been written on the subject. Let us simply suggest a rule of
REINVENTING GOVERNMENT Decentralized Government
of the nation's most successful programs to stimulate technological criteria, it could drive them toward the creation of entrepreneurial
innovation and entrepreneurship. Called the Ben Franklin strategies. In this way, Challenge Grants could replace categorical
Partnership, it was essentially a grant program for four regional grants and block grants as the heart of a genuine New Federalism.
networks called Advanced Technology Centers. Each center made
matching grants, called Challenge Grants, to small businesses,
academic organizations and other organizations that invested in
technological innovation.
For our purposes, the key innovation was the method by which
the centers were funded. Every spring, each of the four centers
would submit a package of applications for Challenge Grants. The
state Ben Franklin board would rate each potential grant according to
a set of criteria: the project's potential for commercial application,
the number ofjobs it would create, the quantity of the private sector
investment, and so on. It would also rank each center's past results,
on measures such as job creation, corporate match, and the ability of
grantees to attract venture capital. Centers with higher average
ratings would get more money. They could then divide up their
allocation as they wished.
279

This funding formula forced centers to embrace the mission defined


by the state—commercial development of technological innovations
—and to push for the results the state wanted— private sector
investment and job creation in Pennsylvania. But it left each center
free to define its own methods.
Translated to the federal level, this approach would suggest broad
Challenge Grants in a variety of policy areas. The federal
government would set up broad criteria, based on factors such as
need, quality of program, results, and state or local commitment. It
would then make state or local governments compete for the grants.
Several organizations, including the Committee on Federalism and
National Purpose, the National Neighborhood Coalition, and the
Heritage Foundation, have proposed mechanisms along this line.
Congress has even debated a competitive grant program for antidrug
strategies.
This approach would create incentives for state and local
governments, but would leave the job of designing and running
programs in their hands. By using performance criteria, Washington
could exercise quality control without dictating program structure
and content. And by making governments compete based on rational
Market-Oriented Government
individuals and banks make their own decisions, without commands
Market-Oriented Government: from above or funding from government. Yet it accomplished a goal
set by government.
Leveraging Change What the FHA did, in essence, was structure the marketplace to
fulfill a public purpose. This is a powerful and economical way for
Through the Market governments to accomplish their goals. By finding the incentives
that can leverage millions of decisions, government can often
accomplish far more than it can by funding administrative programs.
Instead ofoperating as mass suppliers ofparticular goods or services, .
public agencies arefunctioning more as facilitators and brokers and seed Think of the way some states have handled litter from bottles and
capitalists in existing or incipient marketplaces. As the past decade has cans. Rather than creating elaborate and expensive recycling
taught many ofthe leading private corporations, this more entrepreneurial programs, they have simply required buyers to pay a fivecent
role cannot be performed well by traditional command-style deposit on each bottle or can—to be returned when the bottle or can
bureaucracies.
is returned. Anyone who lives in a state with a "bottle bill" can see
—The Corporation for Enterprise Development
the dramatic difference it makes: less broken glass in the parks, less
litter on the streets, less garbage in the landfills. Those who don't
live in bottle-bill states can read the studies documenting the effects:
half a million fewer beverage containers on the streets of New York
f you had set out to buy a home in 1930, you would have saved up 50
City every day; a 4 percent drop in landfill tonnage throughout New
percent of the purchase price for a down payment and applied at your
York State; broken glass prevalent in only 16 percent of Boston's
local bank for a five-year mortgage. That was how people bought
parks.
houses in 1930, because that was how banks did business. During the
New Deal, Franklin Roosevelt's Federal Housing Administration American governments have always used market mechanisms to
(FHA) pioneered a new form of mortgage, which required only 2() achieve their goals to one degree or another. We have long used tax
percent down and let the borrower repay over 30 years. Other incentives to influence individual and corporate spending. We have
government corporations created a secondary market so banks could long used zoning to shape the growth of our communities. We have
resell these new loans. And the banking industry converted. Today we always set the rules of the marketplace—and often changed them
take our 30-year, 20 percent down payment mortgages for granted, when we wanted different outcomes.
because the federal government changed the marketplace. Ask
yourself: would we be better off if FDR had created half a dozen low- But when confronted with a problem, most people in government
and moderate-income housing programs? instinctively reach for an administrative program. They believe their
job is to "run things"—not to structure a marketplace. They share an
281 unspoken assumption with a deputy mayor of Moscow described to
us by E. S. Savas. An old guard Communist, he listened skeptically
as Savas discussed the need for a 282
In pioneering a new form of mortgage, the FHA was practicing a
form of decentralization. But it was different from the variety of service delivery strategies in America's diverse and
decentralization we discussed in chapter 9; in fact, it might be more complex cities. Finally he announced, with great finality: "You
accurate to call it uncentralization. The FHA strategy let millions of
REINVENTING GOVERNMENT Market-Oriented Government
cannot have each station master making up the railroad schedule! It's tal needs. Not surprisingly, this is precisely where they are heading:
got to be centralized; somebody's got to control it."
In health care, the debate about universal health care is really
In reality, of course, cities are not much like railroads. They don't
a debate about how to restructure the marketplace. No one
have master schedules. They don't operate on one set of rails. They recommends a British-style public health system, in which
don't have one task. Cities are much more like markets: vast, government administers the entire system and doctors and
complex aggregations of people and institutions, each constantly nurses are public employees.
making decisions and each adjusting to the other's behavior based on In environmental protection, the Clean Air Act of 1990 used a
the incentives and information available to them. market mechanism known as emissions trading— a form of
In a city, or state, or nation, managers cannot make up "the schedule" tax on pollution—to control acid rain. Environmental
or "control" the decisions. They can manage administrative organizations have begun to advocate marketbased regulatory
programs, which control specific activities. They could even manage strategies, such as "green taxes," and state governments have
a railroad. But to manage the entire polity, they must learn how to begun to pass them.
steer—as we stressed in chapter 1. And perhaps the most powerful In job training, several states are exploring variations of the
method of steering is structuring the marketplace: creating incentives Michigan Human Investment System. Rather than trying to
that move people in the direction the community wants to go, while fund more publicly administered job training programs, they
letting them make most of the decisions themselves. are working to create functioning markets for job training, in
which workers have the purchasing power and information
Think of the challenges facing our governments today: a health care they need.
system in crisis; an environment threatened as never before; a global And in child care, when Congress passed its first major child-
economy in which American workers need dramatically better care bill, in 1990, the debate was between those who wanted
education and training throughout their careers; a changing family Washington to fund day-care centers directly and those who
structure that makes quality child care virtually a necessity. Ask wanted to use market mechanisms, like tax credits and
yourself if your governments have the capacity to solve these vouchers, to give low-income families the power to make
problems by raising taxes and spending more money. In today's their own decisions. Needless to say, the latter view prevailed.
fiscal and political climate, the answer is clear. Just as FDR's New
Deal could not afford to build all the moderate-income housing These trends have been spurred on by the collapse of communism in
Americans needed, our governments today cannot afford to supply Eastern Europe, a development that has dramatized in living color the
all the health care, environmental protection, job training, and child superiority of market systems over administrative systems. Since the
care we need. The very thought is inconceivable. fall of the Berlin Wall, market-oriented government seems almost to
If this is true, it means that government has no choice but to find a have been in the air. The trend has nothing to do with conservative
noncentralist approach. Our governments must consciously use their calls to "leave it to the market," however. Structuring the market to
immense leverage to structure the market, so that millions of achieve a public purpose is in fact the opposite of leaving matters to
businesses and individuals have incentives to meet our health care, the "free market"—it is a form of intervention in the market.
child care, job training, and environmen283 284
REINVENTING GOVERNMENT Market-Oriented Government
(In reality, there is no such thing as a free market, if by that we mean a than affecting only those activities for which the government pays—it
market free of government intervention. All legal markets are can multiply its impact a thousandfold.
structured by rules, set down by governments. The only markets free
The trend toward market-oriented government, like the collapse of
of government regulation are black markets—and precisely because
communism in Eastern Europe, is a direct product of the information
they operate outside government's authority, black markets are
age. With information expanding at a geometric rate and change
controlled through force and wracked by violence. Next time you hear
breathing down our necks, we need systems that process information
someone condemn government and glorify the free market, ask him if
quickly, that build in feedback loops, and that move information out to
he really means to hold the drug trade up as a model.)
millions of individuals—in the form of price signals—so they can
Structuring the market is also the opposite of creating publicly adjust as reality changes. A group of mandarins sitting atop a
administered bureaucracies to deliver services. It is a third way, an hierarchical empire can no longer make effective decisions for all of
alternative to both the liberal call for administrative programs and the us; they simply cannot cope with the volume of information or
conservative call for government to stay out of the marketplace. It is a decisions they must handle. But a market can.
way of using public leverage to shape private decisions to achieve
Markets are to social and economic activity what computers are to
collective goals. It is a classic method of entrepreneurial governance:
information: using prices as their primary mechanism, they send and
active government without bureaucratic government.
receive signals almost instantaneously, processing millions of inputs
We are not saying that market mechanisms always work. Many efficiently and allowing millions of people to make decisions for
collective goods provided by government, from parks to public safety, themselves. Consider our higher education system: millions of
are not traded in markets. And many markets are deeply flawed. students (and their parents) sift through volumes of information,
Government is often called on to act because a market has created compare prices, and finally choose their preferred schools. The
severe social or economic problems. In the 1930s, government was colleges and universities do the same with student records, references,
called on because the market economy collapsed. Today government and applications. And a match occurs. Would some kind of
is called on because the market is moving us toward environmental administrative mechanism—such as the assignment of students to the
catastrophe, while simultaneously leaving many of the poor and college nearest their home—work better?
uneducated without jobs, homes, or hope. But as Franklin Roosevelt
demonstrated 50 years ago, the most effective way to solve a problem
generated by the market is often to restructure that market. THE TROUBLE wrrH GOVERNMENT BY
Market mechanisms have many advantages over administrative PROGRAM
mechanisms. We have discussed some of them in previous chapters: "When we think of 'government,' the word that automatically comes
markets are decentralized; they are (normally) competitive; they to mind is 'program,' " Philip Power and Jan UrbanLurain wrote in
empower customers to make choices; and they link resources directly Michigan's Creating a Human Investment System. ' 'Ham and eggs;
to results. Markets also respond quickly to rapid change. And as government and programs. We literally denominate government's
emphasized above, market restructuring allows government to achieve workings in units of programs."
the scale necessary to solve serious problems. If a government can
create incentives that affect millions of decisions made in the The word program of course covers much ground. Many "programs"
marketplace—rather 285 are actually market mechanisms. But the vast majority are
administrative mechanisms: monopolistic organizations, 286
REINVENTING GOVERNMENT Market-Oriented Government
normally of public employees, that spend appropriated money to Agencies come to assume that if they are not sole service providers
deliver a service. When we speak of programs here, this is what we for a client population, they will lose program funding; if they lose
mean. their money, they lose staffpositions; if they lose staff, they lose
status; if they lose status, they lose future funding. Therefore,
Unfortunately, administrative programs have a series of bureaucracies naturally tend to spend their time and attention
flaws, when compared to markets: building and defending turf, not in managing well.
Programs are driven by constituencies, not customers. As Power and
Urban-Lurain explain: Programs tend to create fragmented service delivery systems. As we
explained in chapter 6, when legislatures add new programs year after
Programs tend to be created in response to a constituency group- year, each with its own perfectly logical rationale, the result is an
defined claim on resources, not in response to demand from unintended hodgepodge of old and new. People have to visit a dozen
individuals or labor markets. But mere membership in a different offices and apply to a dozen different programs to get the
constituency group does not entail one person's demand for services for which they qualify. Each one has its own rules, its own
something. As a result of this confusion, things—cash, goods, forms, its own hoops through which people must jump. The system is
services—are regularly offered by programs to individuals who neither transparent, nor holistic, nor user friendly.
may not want or who are not prepared to use them effectively.
The distribution of things provided by government responds to Programs are not self-correcting. When government programs fail,
their supply, not to the demand for them by individuals. their managers are often the last people to know, because they don't
measure results. Typically, they use numbers to promote their program,
This is one reason why so many government programs, created with not to manage it. But markets are self-correcting. Institutions that sell
the best of intentions, fail so miserably to meet the real needs of those goods or services in competitive markets know when they are failing,
they are intended to help. and their very surVival depends on their ability to correct those
failures. Since markets involve millions of independent decisions—and
Programs are driven by politics, not policy. To create a program, political leaders must put every participant is constantly reevaluating their decisions—markets
together a coalition broad enough to pass a bill and fund an appropriation. Hence there is a tend to correct errors fairly rapidly.
constant pressure to make the program all things to all people. By the time a bill works its
way through the legislative process, its original goals have often been watered down so far Programs rarely die. Except in dire fiscal crisis, most programs keep
as to be meaningless, and it has often picked up a dozen other goals. Some may even be chugging along, year after year. Many politicians and administrators
contradictory. One state development program had a goal of "new job creation" right have broken their picks trying to eliminate an obsolete program that
alongside "the adoption of high technology means of production "—which often eliminates still has a constituency. While the general public remains oblivious, the
jobs. program's beneficiaries fight tooth and nail to protect it. The politicians
win no friends but wind up with a determined group of enemies, who
Programs create "turf," which public agencies then defend at all retaliate on election day.
costs. "We have all heard the cry of the bureaucratic jungle," says
Philip Power: "My program; my money; my clients." Power and Programs rarely achieve the scale necessary to make a significant
Urban-Lurain again hit the nail on the head: impact. To get a program enacted, politicians often accept

287
REINVENTING GOVERNMENT Market-Oriented Government

li
288
289
appropriations they know are too low to do the job. Particularly if a
program is successful, demand quickly outstrips funding. Head Start, Civil servant: What I mean is that I am fully seized ofyour aims
long acclaimed as a success, still serves only a third of those eligible. and, ofcourse will do my utmost to see that they're put into
practice. To that end, I recommend that we set up an
In a market, demand creates its own supply. Businesses selling in markets expand to
interdepartmental committee with fairly broad terms of reference
meet whatever demand exists; government programs that receive appropriations
so that at the end of the day we'll be in a position to think through
through the political process do not. Few public organizations can grow by making
the various implications and arrive at a decision based on long-
money, so they ignore the search for new market niches, new services, and new
term considerations rather than rush prematurely into precipitate
customers. Even when they do get aggressive about meeting customer demand, they
and possibly ill-conceived action which might well have
are often hamstrung by the legislative process. "If you've got a good new idea and the
unforeseen repercussions.
market for it is really large, you can't get to the market, because the political process
controls your funding," says Peter Plastrik, former president of the Michigan Departmental minister: You mean no?
Strategic Fund. Civil servant: Yes.
Plastrik and his colleagues in Michigan described administrative programs as Harry Truman once made the same point while contemplating Dwight
"retailing," while they called market structuring "wholesaling." The Michigan Eisenhower's ascension to the White House. Eisenhower had been
Strategic Fund was designed to wholesale, by changing bank lending patterns and commander of the Allied forces during World War Il. He was
catalyzing the formation of new financial institutions. "Understanding that our accustomed to giving orders and having them obeyed. But now he
$100 million is peanuts if you look at just the $16 billion of bank assets in the state would command a civilian bureaucracy. "He'll sit behind that big desk
alone," Plastrik said, "you quickly realize you can't buy success—you just can't do and say, 'Do this' and 'do that,' " Truman remarked. "And do you
it. You don't have enough money." By wholesaling, the Strategic Fund leveraged know what will happen?
success.
Nothing. "
Finally, programs normally use commands, not incentives. Commands are
In 1961, President Kennedy ordered U.S. missiles out of Turkey.
sometimes necessary. But in today's world of knowledge workers and
More than a year later, during the Cuban missile crisis, he was
ever-expanding information, incentives are often more effective. This is
stunned by Khrushchev's offer to remove Soviet missiles from Cuba
particularly true when commands cannot be enforced, as is so often the
if we took our missiles out of Turkey. As it turned out, the State
case in public policy. Bureaucracies long ago refined the art of feigning
Department had undertaken leisurely consultations with our allies
compliance while ignoring commands they find disagreeable. Antony Jay
about the withdrawal, then finally put together a five-year plan for
and Jonathon Lynn captured this art brilliantly in their television satire for
dismantling the missiles. In the military, this is known as the "slow
the British Broadcasting Company, "Yes, Minister." In one scene, a
roll."
departmental minister tells his chief civil servant what he wants done, and
the civil servant delivers an ambiguous answer. The minister presses, asking The same thing happens constantly in education. When many states
just what the civil servant meant: ordered their top-down reforms in the 1980s, most school districts
quickly reported compliance. But reformers who went out in the field
found a far different picture. Newly required courses were simply old
courses relabeled; required "remedial" services were minimal;
Market-Oriented Government
WHAT IT TAKES TO MAKE
required tests were administered, but some teachers were virtually teaching A MARKET WORK
the test before it was given. (Ralph Tyler, a professor of education at Stanford
and a leader in his field for 50 years, says this happens all the time, all over To critique programs is not to argue that markets are always
better. Some markets are deeply flawed. When a small number
the world.) To make matters worse, the commands
of firms dominate a market, true competition often disappears.
290 When customers do not have adequate information, they are
often victimized. Profiteers have preyed upon the poor and
required teachers and principals to spend enormous amounts of time doing uneducated throughout our history—from the days when snake paperwork to
oil salesmen sold bogus medicines to more recent scandals in
document their supposed compliance. They created fierce resentment. As we saw in East
which shady mortgage companies have taken advantage of poor
Even when commands can be enforced, they often create perverse side homeowners. effects. When the
courts ordered busing to desegregate the schools, for example, white families To work effectively and fairly, markets require a number of fled the urban
elements, outlined below. When a government is considering a
market mechanism to solve a problem, it should see if these six
elements exist. When they do not, it is usually possible to
HOW GOVERNMENTS ARE restructure the market to provide the missing elements. If not, it
RESTRUCTURING THE MARKETPLACE may be better to stay with an administrative mechanism.
It may seem strange to argue that there are market-oriented alternatives to Supply. There must be an adequate supply of the service— most
administrative programs. But there are almost an infinite number of ways whether it is child care, home care for the elderly, low-income government can
structure the market to achieve its ends. They are used all the time; many, like housing, or group homes for the mentally retarded. There should tax credits and
user fees, are so common we barely notice them. be enough suppliers to ensure competition.

The six elements outlined in the box on the following page suggest six basic Demand. Customers must have enough purchasing power to buy strategies to
change the market. We have seen dozens of examples of virtually every one, the product or service, and they must have a desire to exercise already in use.
that purchasing power. In the job training market, for instance,
Consider just a few of the highlights (for a discussion of market mechanisms not covered here,
many individual customers cannot afford to buy training. Many
including procurement policy, public-private partnerships, loans, loan guarantees, and
corporations are not motivated to buy training, because they
equity investments, see appendix A): often lose their trained workers to competitors.
Setting the Rules ofthe Marketplace. Governments have done this since the Accessibility. Sellers must be easily accessible to buyers. Often day government
was invented. Zoning laws set the rules for real estate development. this requires brokers, to carry out transactions. For example, Securities laws
set the rules for the stock markets. Even something as simple as the market buyers of stock do not meet sellers of stock; instead they use for taxicabs is
regulated by public laws. stockbrokers to make transactions. In services such as job
training, brokers are rare. When they do exist, in the form of
Governments constantly change the rules of the marketplace to solve problems.
public programs, they are seldom visible or easily accessible to
Consider just one example: automobile insurance. As rates have pushed steadily upward,
the public.
states have tried a variety of market reforms to hold them in check. Some, like
Massachusetts, have used command-and-control mechanisms, Information. When consumers do not have adequate information
about the price, quality, and risks of a product or service, their
decisions will be flawed. They will end up paying too much
for an inferior product—or worse, losing their home to an
unscrupulous mortgage company.
Market-Oriented Government
Rules. These are normally established through government.
Policing. As in any activity, those who would prey on the
buy services; requiring people to buy certain services; or simply encouraging
uninformed need to know they may be caught and punished.
their use. State vouchers (and their equivalent) have helped stimulate the
emergence of functioning markets for child care. The GI bill created great
regulating insurance companies and setting their rates. (Done in the name of demand for higher education, after World War Il. San Francisco's energy law
the consumer, this ends up costing the consumer dearly, because it created demand for energy inspections.
eliminates competition.) Other states, including New York and Florida, have Catalyzing Private Sector Suppliers. Governments constantly make deals with
driven premiums down by limiting the consumer's ability to sue. (This is private corporations to augment the supply of some product or service. In
known as tort reform.) Three states have driven rates down by adopting 1988, the St. Paul Department of Planning and Economic Development
nofault systems, in which those injured are automatically reimbursed by convinced the First Bank to commit $94 million over five years to housing
their own insurance companies—thus eliminating lawsuits to establish guilt. and economic development loans in poor communities. In 1990, the Federal
Eighteen others have opted for watered-down no-fault laws, which have Reserve Board pressured Massachusetts banks into promising $1 billion in
backfired. This process of constant market restructuring will no doubt loans to poor communities.
continue as long as people drive cars.
Some cities have even incorporated such deal making into their zoning
Providing Information to Consumers. If consumers are able to choose processes. To prevent the deterioration of its downtown, Scottsdale created a
between competitive providers, government can force fundamental changes series of incentives for businesses to supply infrastructure amenities—like
simply by publishing information about the quality of each provider. When parking garages and street improvements. Those that do so can get permission
the federal government began publishing the on-time records of airlines, it to increase their buildings' density, height, and other factors. Seattle, San
had a dramatic impact—far greater than any regulatory command could Diego, and Tampa have all developed their own versions of this approach,
have achieved. When Arizona began to publish auto insurance, home called incentive zoning.
insurance, and hospital rates, it forced providers to compete based on price.
Creating Market Institutions to Fill Gaps in the Market. Often private
When California required companies to disclose all toxic substances until
investors leave portions of the market untouched because profits are too
the state ruled them safe, it not only discouraged the use of toxics, but
small, investors are ignorant of the profits to be earned, or prejudice clouds
punished corporations for delaying the regulatory process.
their vision. Typical market gaps include loans to small businesses, minority-
Visalia used information to encourage energy efficiency. For a fee, people owned businesses, and businesses owned by women. Today many state and
selling their homes can now get an energy inspection and a rating from the local governments catalyze the formation of private or quasipublic
Board of Realtors. Sellers pay the fee to add value to their homes by corporations to fill these gaps. This is hardly unprecedented: early in
proving they are energy efficient. Nearly a dozen states now operate similar American history, state governments helped
systems. In San Fran293

Cisco, such inspections are mandatory, and sellers are required to bring
their homes or offices up to certain standards. The city's Public Utilities
Commission estimates the measure saved $5 million in energy costs in its
first five years, even before it was extended to commercial real estate.
Creating or Augmenting Demand. Governments create or change markets
all the time by stimulating demand: giving people resources with which to
REINVENTING GOVERNMENT Market-Oriented Government
294 Administration has long guaranteed small-business and
minority-business loans. The federal government virtually
organize and launch many private corporations. Many of Japan's created a market for student loans by guaranteeing bank
largest businesses also began as government enterprises.
loans to college students.
Catalyzing the Formation ofNew Market Sectors. Sometimes 295
governments help create not just one corporation to expand the supply
of a service, but an entire market sector. Consider health maintenance
organizations (HMOs). The first group practice prepayment plan—the And many cities have shared the risk of real estate deals
precursor of the modern HMO—was created by the Los Angeles with private developers.
Department of Water and Power in 1929. Four decades later, HMOs Changing Public Investment Policy. Most governments invest
were still rare. Enamored of their advantages, Congress in 1973 significant amounts of capital: their pension funds, cash balances, and
passed the Health Maintenance Organization Act, to stimulate their reserve funds. By choosing where to invest, they can have a
creation. It volunteered federal funding to help establish private significant impact on the supply of capital in different markets. In
HMOs and mandated that employers who paid for health insurance 1982, when the Michigan Treasury Department was allowed to invest
give their employees the option of joining an HMO, if one existed in up to 5 percent of its then $6 billion public pension fund in venture
their area. States have also worked to stimulate the growth of HMOs. capital, it transformed Michigan from a state with virtually no venture
Today, thanks in part to governmental efforts, HMOs serve a capital to a state awash in venture capital. Other states quickly
significant share of the market. followed suit.
In the 1980s, several state governments pursued similar strategies in Dozens of state and local governments have also developed policies to
economic development. Pennsylvania catalyzed the formation of a put their cash balances in banks that pursue specific lending strategies.
seed capital industry, which provides early stage venture capital. These are known as linked deposit programs, and they have been used
Michigan catalyzed both a seed capital industry and a new financial for almost every purpose under the sun. Illinois used one to encourage
sector made up of business and industrial development corporations minority-business loans, beginning in the late 1960s. Santa Monica,
(BIDCOs), which specialize in providing long-term loans to smaller California, used one to encourage energy conservation loans a decade
manufacturing firms. later. Ohio used one to encourage small-business loans during the
Sharing the Risk of Expanding Supply with the Private Sector. difficult years of the early 1980s. And Boston announced one to
Remember the story of Tampa's Community Redevelopment Agency, encourage loans in minority communities in 1991.
in chapter l? It was a classic example of risk sharing. By guaranteeing Public money can be disinvested as well as invested. As South Africa
bank loans for five years and subsidizing the labor of loan processing, discovered, divestiture can be a powerful tool. Public pension funds
Tampa convinced banks to make loans they would otherwise avoid. have created the Council of Institutional Investors, which discourages
"We put the market together and presented it to the private lenders," corporate activities such as "greenmail" and inflated management
says Community Redevelopment Director Fernando Noriega. salaries by threatening divestiture.
Risk-sharing is quite common. In the 1930s, the federal Acting as a Brokerfor Buyers and Sellers. As we noted above, markets
government shored up the banking system by providing in which buyers cannot easily find sellers require brokers. Sometimes
insurance to depositors. The Small Business the public sector can play this role. Michigan's Opportunity Card and
Opportunity Stores were designed to act as accessible, user-friendly
REINVENTING GOVERNMENT Market-Oriented Government
brokers between buyers and sellers of adult education and training. require motorists to pay any of the costs. "One economist
Massachusetts' Bay State Skills Corporation (now copied by at least a did a study that showed that for every new mile of freeway
dozen states) acts as a broker between businesses that need trained that's constructed in Los Angeles, the actual cost of
workers and sellers of training. It uses the lure of start-up capital—
construction if allocated only to those vehicles using that
typically 100 percent the first year, 50 percent the second, and a small
portion the third—to get corporations and educational institutions to new freeway would be 13 cents per mile for the life of that
create new training programs. Because its primary role is to 296 freeway," said Norm King, manager of Moreno Valley,
California, in a 1988 speech. "The amount being generated
bring together buyers and sellers, it funds training programs that by the gas tax right now is about one cent per mile."
buyers want—programs that respond to genuine market needs. As a 297
result, those programs have extremely high job placement rates.
Pricing Activities through the Tax Code. The tax incentive is no
If a community built a new highway to ease commuter traffc, King
doubt America's favorite method of leveraging change through the
pointed out, general taxpayers would subsidize more than 90 percent
market. We use tax incentives to encourage people to buy houses and
of the cost. "Now I wouldn't go out and ask any of you to pay for the
donate to charities, to encourage businesses to hire the poor and
gasoline I need to get to my work; but for some reason we have no
invest in research and development, and to encourage institutions to
qualms at all about asking our neighbors to pay for the cost of the
adopt not-for-profit status or employee stock ownership plans.
freeway for us to get to work." Impact fees have become common in
Occasionally we even use taxes to discourage behavior that we are
high-growth areas like California, Florida, and the suburban counties
not ready to outlaw, such as smoking cigarettes and drinking alcohol.
around Washington, D.C. They are used to force developers to pay for
We could of course use the latter method far more widely. Think of
the cost of roads, transit systems, sewers, water systems, and schools
all the things Americans would like to discourage but cannot bring
they make necessary when they build new developments. After
themselves to ban: pornography, billboards, junk food, violence on
Florida's 1985 Growth Management Act required that local
television. A stiff tax might do the trick.
governments have the money for all necessary infrastructure and
Pricing Activities through Impact Fees. An impact fee is a form of services before approving new development, half of Florida's 67
tax designed to impose the social cost generated by an activity, such counties adopted impact fees. By 1988, 58 percent of the communities
as driving or building new subdivisions, directly on those who that responded to a nationwide survey by the National Home Builders
engage in the activity. The idea is simple: turn public costs into Association were using some form of impact fee—a number that had
private costs, so people and institutions cannot shift the cost of their doubled in the previous five years.
activities onto others. According to the Rand Corporation, cigarette
Managing Demand through User Fees. A third variation on the pricing
taxes in America are now almost high enough to do this, but alcohol
theme is the user fee, which can be used to manage demand for
taxes are not.
services. Traditional governments, which focus entirely on supplying
Consider driving, which not only creates air pollution services, have discovered that they can never outrun demand. They
but requires expensive roads. Roads are a public as well as build new highways to fight congestion, and within years those
highways are choked. They build new landfills, and within years they
a private good—benefiting all Americans, whether they
are filled.
drive or not—so governments do not require motorists to
pay their entire costs. Unfortunately, however, they barely
REINVENTING GOVERNMENT Market-Oriented Government
"Our gut instinct is to provide more," says Norm King. "Our downward so that we don't have to invest those funds in the first
background has emphasized the supply side: how to build more place."
freeways, how to build a bigger sewage treatment plant, how to build
To slow the use of landfills, governments now raise the price of
a new landfill." But with governments at every level stretched to their
garbage collection. To manage demand for highways, they raise tolls,
fiscal limits, this approach leads straight to bankruptcy. We have to
develop special lanes for car pools, and give employers incentives to
"look at what we can do to manipulate the demand for that product
reduce rush-hour traffic by adopting flextime, car
REINVENTING GOVERNMENT Market-Oriented Government
298 299

pools, and van pools for employees. They are even beginning to APPLYING MARKET-ORIENTED use peak load pricing, in which they charge more during peak
THINKING TO GOVERNMENT'S travel hours. (Our telephone companies have long used peak load OTHER JOB: REGULATION pricing for long-distance calls,
and the airlines do the same with airfares.) The Washington, D.C., subway system charges more during rush hour, and the California Department of Transporta-
Most of our argument to this point has focused on the superiortion has negotiated franchise agreements with four private com- ity of market mechanisms over
administrative mechanisms. panies to build toll highways that will use peak load pricing. But administrative mechanisms are used primarily for service Singapore,
Norway, and the Netherlands all use peak load pricing delivery. Regulation is another matter entirely. In the regulaalready. According to economist Steven A.
Morrison, severaltory arena, traditional governments use command-and-control studies have estimated its potential benefits at roughly $8 billionmechanisms: they
lay down rules and order people to comply. in the United States.Environmental protection offers a perfect example. Ever The principal objection raised against
demand managementsince it created the Environmental Protection Agency (EPA), is that user fees discriminate against the poor. But as we noted the
federal government has relied primarily on a commandin chapter 7, that depends how the revenue generated by userand-control strategy. Washington
has tried a few market mechafees is spent. If it were devoted to mass transit, it would benefitnisms: tax credits for energy conservation; several emissions the
poor. Another objection is the inefficiency and inconven-trading experiments; a small tax on gas guzzlers. But the EPA ience of tollbooths. But the technology
to charge drivers auto-has primarily set standards and dragged businesses or local govmatically, without tollbooths, is already in use in several placesernments to
court for violating them. Often it has gone so far as around the country. A laser system reads an electronic card in-to dictate the technology the business or
government must use stalled in the cars of regular commuters and bills them accord-to comply with its standards.
ing to the time of day.This strategy has yielded some positive results. Air quality in Building Community. Changing the marketplace meansmost
metropolitan areas has improved. The Great Lakes are more than restructuring the private, for-profit economy. Itmuch cleaner than they were in 1970, and
many rivers have can also mean strengthening communities. For example, abeen cleaned up. Bans on toxic substances like DDT and PCBs handful of
states award grants to community development have limited our exposure sharply.
corporations, which strengthen low-income communities byBut the command- and-control strategy has hardly been an developing housing, creating jobs,
enhancing public safety,unqualified success. Cities such as New York, Los Angeles, Bosand the like. Washington, D.C., has a condominium conver-ton,
and Houston routinely exceed EPA standards for air qualsion law that gives tenants the right to buy their buildingsity—Los Angeles by 140 days a year.
Half of all Americans still when their landlords convert them to condominiums. Ft.live in counties whose air is rated unhealthy by the American Collins,
Colorado, has created a zoning process in which de- Lung Association. The EPA has regulated less than 20 toxic air velopers must meet with and gain
approval from community or water pollutants, out of hundreds. And the entire effort has representatives before they get city approval for new develop- been
extremely expensive. According to the EPA itself, by 1990 ments. And of course the U.S. government funnels billions of American corporations, governments, and
individuals spent dollars to churches and other community organizations every $115 billion a year to comply with federal environmental reguyear, with its tax
deduction for contributions to charitable lations. Studies suggest that other methods could have achieved organizations.

the same results at 25 percent of the cost.


REINVENTING GOVERNMENT Market-Oriented
300 Government 301

The command-and-control strategy has a number of drawbacks.


First, it does not change the underlying economic incentives driving because the best available technology is required primarily in new
firms or individuals. Because the EPA's commands run directly facilities and industries. Even the EPA's own Advisory Committee on
counter to economic incentives, businesses and firms often do their Technology Innovation and Economics recently concluded that the
best to find some way around them, legal or illegal. A great deal of regulatory system discourages the development of innovative
time and money goes into fighting and circumventing regulations, and pollution-control technology.
illegal dumping increases. Fifth, because the command-and-control approach slaps the same
Second, the command-and-control strategy relies on the threat requirements on industries all over the country, it is extremely
ofpenalties—but in a political environment, many ofthose penalties expensive. No matter what the cost, it requires everyone to use the
can never be assessed. The original Clean Air Act, passed in 1970, same technology and meet the same standards. This one-size-fits-all
ordered that air quality in cities meet EPA standards by 1987. By approach is tremendously wasteful, because it requires clean
1989, 96 cities still failed to comply. But what could the EPA do? businesses to make the same investments as dirty businesses, rural
Whenever it tried to impose penalties with real consequences, businesses to make the same investments as urban businesses.
congressional representatives from the afflicted cities raised a storm. Sixth, the command-and-control approach forces EPA to focus
Third, command-and-control regulation is a very slow process. It primarily on large institutions, whether businesses or governments.
requires the EPA to establish unsafe levels of exposure to thousands of After 20 years of effort in that arena, some environmentalists believe
substances, with enough accuracy to stand up in court. EPA regulation greater returns may now be found by concentrating on individuals and
tends to be an all-or-nothing matter. Since the consequences are so small businesses. But that is very difficult to do with the command-
severe—requiring industry to scale back or eliminate its use of the and-control approach. It is politically dangerous to order individuals
substance in question—the stakes are very high. Hence industry drags and small businesses around, and enforcement is a nightmare.
virtually every decision through the courts, while often fighting in Finally, command-and-control regulation has a tendency to focus on
Congress as well. Not only does this take forever, it makes regulators symptoms rather than causes. Regulations require specific
extremely cautious about reaching their decisions, because they know technologies on cars, but ignore how much people drive. The EPA
they will be fiercely contested. requires scrubbers in the smokestacks of coal-fired plants, but ignores
Fourth, regulations that specify the exact technology industry must what kind of coal the plants burn.
use to control pollution discourage technological innovation. Most
federal regulations require that industry adopt the "best available
technology" when they install new plants and equipment. The EPA MARKET-BASED REGULATORY POLICY:
defines that technology, and businesses must use it. If they develop a INCENTIVES RATHER THAN COMMANDS
better technology, they have to convince the EPA bureaucracy to
redefine its standards—a costly, uncertain process at best. So, unlike For 20 years, economists have been telling us there is a simple way
competitive markets, EPA regulations discourage businesses from around these problems. "When the EPA was created," James Q.
pursuing new technologies to solve their problems. They also Wilson writes, "economists who had studied the matter argued almost
discourage businesses from closing down their old, dirty plants and unanimously that the most efficient way to reduce pollution was to
opening cleaner ones, assess an effluent charge on polluters.
REINVENTING GOVERNMENT Market-Oriented Government
The EPA ignored this advice and instead sued polluters in want to drive an energy-efficient, clean car, they will save money. If
court. " they want to stick with expensive elec303
302

As with other impact fees, the idea is to make sure that all of us, tricity, they can. But if they want to put solar panels on their roof, they
producers and consumers alike, face up to the full costs and will save money.
consequences of our decisions—when we are making those decisions.
This is done by building the cost imposed on society by the polluter If pollution became a significant expense, industries would do what
into the cost of the product—whether gasoline, pesticides, electricity they could to avoid it—developing cleaner technologies, changing
generated by burning coal, or products containing the fuels they burned, recycling materials, and conserving energy.
chlorofluorocarbons. When this is done, people have an incentive not The profit motive is a powerful incentive to innovate. A system of
to pollute. And businesses that don't spend money or time to reduce "green taxes," as they are becoming known, would turn loose the
their pollution put themselves at a competitive disadvantage. creativity of corporate America to find cleaner ways to live, work,
and produce.
Economists refer to these social costs as "externalities. " Peter
Drucker points out that we have built externalities into the price of Green taxes also encourage people to address the root cause of the
business before. "During the last century every developed country has problem, rather than dealing with its symptoms. In the past we forced
converted industrial accidents from an externality into a direct cost of coal-fired plants to install scrubbers. The price incentive would drive
doing business," he says. "Every developed country has adopted them to find the cleanest and least expensive way to produce—
workmen's compensation under which the employer pays an insurance perhaps by switching to a cleaner fuel. In the past we forced auto
premium based on its own accident experience, which makes the manufacturers to install catalytic converters. Emission charges or
damage done by unsafe operations a direct cost of doing business." green taxes on gasoline would drive everyone to find the cleanest
form of transportation that was practical.
Some substances are so harmful that they should simply be banned,
Drucker adds. But this is not practical for every harmful activity. (Can Green taxes might also avoid some of the drawn-out legal battles that
you imagine a ban on driving, flying, dry cleaning, or barbecuing?) In come with all-or-nothing regulation, because the stakes would be
such cases, impact fees, effluent fees, and other market incentives lower. They would give governments more flexibility: by raising or
have many advantages. They create powerful economic incentives for lowering the fee, they could vary the pressure. They would be far
everyone—businesses and individuals—to change their behavior, cheaper, because they would achieve their goals more efficiently.
because they drive up the cost of activities that pollute. Consumers And they would generate public revenue, which could be used both
need no sophistication about which product is more environmentally to clean up pollution and to invest in activities that prevent it, such as
damaging than another; they simply have to look at the price. If mass transit.
driving a heavily polluting car creates significant air pollution, it
Market incentives appear to be the wave of the future. During the late
becomes expensive. If electricity from coal-fired plants creates acid
1980s, they finally began to attract significant attention. Watching
rain, it becomes expensive. If disposing of plastic diapers fills up
Western Europe debate green taxes, several environmental
landfills, they become expensive.
organizations endorsed the idea. (European nations have always had
Not only does this approach give everyone clear price signals about very high gasoline taxes, which have helped limit their air pollution
the cost of pollution, it lets them decide how best to respond. If they significantly. Now they are beginning to apply the same idea to other
want to keep driving the dirty, gas-guzzling car, they can. But if they products.)
REINVENTING GOVERNMENT Market-Oriented Government
States and cities also began to experiment. Iowa, Minnesota, and the trading program saved 20 percent of the cost of reducing lead in
Oregon taxed agricultural pesticides and fertilizers, then devoted gasoline.
some of the revenues to groundwater protection. Florida passed a tax
In 1990, acid rain was the most contentious environmental issue
on nonrecycled paper and a law requiring disposal fees on certain
facing Congress. The Bush administration recommended and
containers if 50 percent of them were not 304
Congress passed an emissions trading system, in which coal-burning
electric power plants essentially receive credits for 305
recycled by October 1992. Oregon and New Jersey created
investment tax credits for the purchase of recycling equipment.
California's South Coast Air Quality Management District
persuaded the EPA to exempt it from "best-available-technology" the amount of sulfur dioxide emissions they are allowed. They can use
language so it could use new technologies as they developed. And any means to reduce their emissions, and if they emit less than they
Seattle got an enormous amount of attention by creating a voluntary are allowed, they can sell their credits to other plants. Paul Portney of
recycling program that used price as its lever—charging $14 for Resources for the Future, a research organization that helped pioneer
every garbage can not separated for recycling. By 1990, Seattle was the concept of market incentives, estimates that this will reduce the
recycling 37 percent of its trash, more than any other city in the cost of compliance from $8 billion a year to $4 billion.
nation.
By 1991, proponents of market-based environmental regulation found
In Washington, the Clean Air Act of 1990 stimulated interest in themselves suddenly in the mainstream. The press began writing about
market-based strategies, because it included an emissions trading green taxes and other market incentives, members of Congress began
program to control acid rain. Emissions trading is a market introducing bills, and the environmental community swung cautiously
mechanism that acts like a green tax: polluters can pay to pollute or behind the idea. In 1988, Harvard's Robert Stavins published a study,
innovate to save money. The EPA first tried it during the 1970s. It with Senators Timothy Wirth and John Heinz, which outlined 36
gave credits to firms that reduced air pollution below the level set by marketbased approaches to environmental problems. In January 1991,
law, and allowed them to trade the credits between different sources he told Fortune magazine: "Two years ago, we were complaining that
of pollution within the firm or sell them to firms in the same general no one listened to us. Now it's almost as if night had turned to day."
location. The idea was to encourage businesses to meet EPA's goals,
but to let them figure out the most innovative and economical way to
do so. If they could reduce one source of pollution economically,
THE EMERGENCE OF
they could use the credits generated to offset others that were more
expensive. This stimulated only a limited market in emissions SMARTER MARKETS
trading, but is still estimated to have saved business between $5 Market-based strategies like those just described are possible only
billion and $12 billion. because the information age has radically increased our ability to
measure pollution and quantify its impact. Only in the past decade, for
In 1982, the EPA extended the idea to lead in gasoline. If refiners
example, have we developed continuous emissions monitors that are
produced gasoline with lead content below EPA requirements, they
capable of measuring the sulfur emissions from a power plant, or
earned credits, which they could sell to other refiners that were still
electronic systems that can record which car is passing and at what
above required levels. This produced a lively market in credits, partly
time, without a tollbooth. Businesses are even developing systems that
because buyers and sellers had far greater access to one another in
can measure the exhaust pollution from cars as they pass. Technology
the relatively homogeneous refining industry. The EPA estimated that
REINVENTING GOVERNMENT Market-Oriented Government
like this makes it possible to use market mechanisms in ways we citizens to shape the marketplace according to their own needs and
could barely dream of just a decade ago. values.
The Institute for Alternative Futures, led by futurist Clement Bezold,
labels this trend the emergence of "smarter markets"— markets in RESTRUCTURING MARKETS WITHIN
which buyers and sellers have access to vastly more information than THE PUBLIC SECTOR
they previously did. One result, Bezold points 306 Markets exist not only in the private sector; they also exist within the
public sector. When they do, we normally call them 307
out, is that consumers are beginning to "consciously vote their values
with their dollars. Socially responsible" investment firms now invest
their clients' money only in corporations that meet certain criteria. The
systems: the education system, the job training system, the mental
Council on Economic Priorities has published a book that rates
health system. But they are markets, just as surely as the financial
corporations and their products according to nine values.
system, the banking system, and the health care system are markets. If
Environmentalist Denis Hayes, the originator of Earth Day, has
we applied market-oriented thinking to our public systems, we could
launched an organization to certify products that are environmentally
accomplish a great deal.
sound. It will sell an official Green Seal to companies, to display on
those products. "Our objective is to help American consumers vote Unfortunately, few people think about government this way. Even
with their pocketbooks on environmental issues," says Hayes. "We business people drop their market mind-set when they work with
expect the Green Seal to become a catalyst for sweeping change in government. Norm King tells a story about the Palm Springs City
consumer purchasing habits." Council, whose business members could not understand the idea of
lowering demand for water by raising its price:
Some products already come with stickers that indicate their energy
efficiency: cars, hot water heaters, furnaces, refrigerators, and air The irony is that our often conservative, local business people,
conditioners. Nearly a dozen states have estab lished voluntary energy whose very livelihood is dependent upon understanding the laws
rating systems for houses, as Visalia did. In the Washington, D.C., ofsupply and demand, do not understand how supply and
area, a sophisticated consumer organization rates the region's health demand concepts work in a government situation or could work
plans according to customer satisfaction, price, and other factors, for in a government situation. So you have five people, all of them
public comparison in The Washington Consumer Checkbook. And local business people, all of them depending upon supply and
health care researchers are beginning to develop further yardsticks demand in their own occupations, resisting the idea that
with which to measure the quality of various health care providers. consumption would go down if the user was charged the full cost
of water consumed. What we have is a very interesting
With computer technology, it has become possible not only to develop
dichotomy. As capitalists, we believe that the laws of supply and
such information, but to make it readily available to large numbers of
demand work well in the private sector but we disbelieve their
people. Think of the Michigan Human Investment System and
validity in the public sector. This in spite of the fact that properly
Opportunity Card: they were attempts to create a smarter market in
implemented pricing systems will promote the conservation of
job training, using "smart" credit cards, electronic information kiosks,
many government resources.
and a computer system with data on the performance of every job
training or adult education provider in the state. By facilitating the Ted Kolderie describes a similar phenomenon in the education reform
emergence of smarter markets such as this, governments can empower movement. He points out that institutions work when they create the
right incentives. Yet business leaders rarely focus on the incentives
REINVENTING GOVERNMENT Market-Oriented Government
built into the education system. Instead they create "partnerships" and improved to make it work effectively? What other public systems
sponsor projects. "Business's involvement today is roughly the have to change to make this possible? Budget systems? Personnel
equivalent of doing your daughter's homework," Kolderie says. "It is a systems? Accounting systems? This is precisely the kind of thinking
kindness, but a misdirected kindness." It consists of: Philip Power and his colleagues in Michigan applied to job training,
and Ted Kolderie and his colleagues in Minnesota applied to
Donating computers. Giving science teachers summer training. education.
Recognizing outstanding teachers. Motivating students to
graduate by promising them a college education. Helping 308 Some would call this a systems approach. A few governments use
such an approach. Those that embrace Total Quality Man309
pass a law extending the school year or toughening teachers'
tests. It is hard to criticize such efforts. . [But] the test is always
whether these efforts change the system. . . .
agement, for instance, learn that 85 percent of the problems in a
Business should be tougher. When approached for support, typical operation stem from the systems, only 15 percent from the
executives should ask the central question: "If these things are so people. But most public sector TQM projects focus on very minor
important, why aren't they important enough for the system to do systems, the ones that are easiest to change: the schedule for garbage
itself? Why are they done only when we finance them?" truck drivers; the way the city's fleet is purchased. Changing these is
important, but the real challenge is whether TQM can address the
Ifbusiness were thinking strategically, it would be helping to see
big systems: budget, personnel, and accounting, or education, job
that the schools get opportunities and incentives to innovate on
training, and unemployment insurance. Tom Mosgaller, Madison's
their own.
TQM coordinator, believes TQM will run its course if it deals only
with the micro systems. "It's valuable that you improve queuing [of
We have argued throughout this book that the key to reinventing
garbage trucks] and back injuries," he says, "but it doesn't transform
government is changing the incentives that drive public institutions.
the culture. If you don't move it up into those fundamental
This is simply another way of saying that the key is changing the
infrastructures, after a while the unions and the employees will say,
markets that operate within the public sector. In education, this might
'Come on guys, cut the crap.' "
mean moving to a competitive market in which customers have
choices and key stakeholders (parents and teachers) have genuine
control. In job training, it might mean injecting information about the
BALANCING MARKETS AND COMMUNITY
quality of all training providers into the system, putting resources
directly into customers' hands, providing them with accessible Much of what we have discussed in this book could be summed up
brokers, and empowering them to choose between competing under the rubric of market-oriented government: not only systems
providers. In unemployment insurance, it might mean creating a change, but competition, customer choice, accountability for results,
financial incentive for corporations to retrain employees rather than and of course public enterprise. But market mechanisms are only
lay them off, or creating an incentive for those collecting half the equation. Markets are impersonal. Markets are unforgiving.
unemployment to seek retraining— something that is still Even the most carefully structured markets tend to create
discouraged in many states. inequitable outcomes. That is why we have also stressed the other
half of the equation: the empowerment of communities. To
The idea is to apply the same analysis one would to a private market:
complement the efficiency and effectiveness of market mechanisms,
to ask, What's wrong with this market? What is missing? Demand?
we need the warmth and caring of families and neighborhoods and
Information? Competition? What elements of the market need to be
REINVENTING GOVERNMENT Market-Oriented Government
communities. As entrepreneurial governments move away from
administrative bureaucracies, they need to embrace both markets
and community.
In Washington, this would be called moving right and left at the
same time. The political media are quick to label "conservative"
those who embrace markets and "liberal" those who empower
communities. But these ideas have little to do with traditional
notions of liberalism or conservatism. They do not
REINVENTING GOVERNMENT
310

address the goals of government; they address its methods. They can
be used to implement any agenda. They can help a community or
nation wage war on poverty, if that is its priority, or lower taxes and
cut spending, if that is its priority. Reinventing Government
addresses how governments work, not what governments do. And
regardless of what we want them to do, don't we deserve
governments that work again?

Putting It All Together


[From 1875 through the 1930s social] innovation took the form of
creating new public-service institutions. . . The next twenty or thirty
years will be very different. The needfor social innovation may be even
greater, but it will very largely have to be social innovation within the
existing public-service institution. To build entrepreneurial
management into the existing public-service institution may thus be the
foremost political task of this generation.
—Peter Drucker, Innovation and Entrepreneurship

ur map is complete. It is now yours to use. We hope that you


find it a helpful guide in the process of changing your governments.
Used almost as a checklist, the ten principles offer a powerful
conceptual tool. One can run any public organization or system—or
any of society's problems—through the list, and the process will
suggest a radically different approach from that which government
would traditionally take. This is the checklist's ultimate value: the
power to unleash new ways of thinking—and acting.

To illustrate, let us offer a simple exercise. What would


happen if we took three of the most intractable problems
REINVENTING GOVERNMENT Putting It All Together
American society faces and ran them through the list?
What would our health care, education, and criminal
justice systems look like, organized according to the ten
principles of entrepreneurial governance? We provide this
exercise not to propose definitive solutions to these
problems, for we are not experts in education, health care,
or criminal justice. We simply intend to demonstrate the
power of the ten principles when used as an analytic tool.
312 Americans were.) Our
spending is growing
so fast that without
CREATING
fundamental changes
AN it will double by the
EFFECTIVE year 2000, according
HEALTH to Secretary of Health
CARE and Human Services
Louis Sullivan.
SYSTEM
Health care looms as Meanwhile, an
the next big crisis. In estimated 34 million
1991, we spent $750 people have no health
billion on health care insurance at all.
—12 percent of our Insurance firms are
gross national product. refusing to cover many
This was more than people, hospitals are
double the share of 30 going bankrupt, and
years ago. (Canada each sector of the
spent only 8.5 percent market is desperately
of GNP on health care, trying to shift its costs
West Germany 8 to others. Doctors
percent. Yet both had complain bitterly
lower infant mortality about mindless
rates and longer life overregulation by
expectancies, and their governments and
people were far more insurance companies
satisfied with their that are trying to
systems than control costs. And the
REINVENTING GOVERNMENT Putting It All Together
situation is clearly driven, with virtually
coming to a boil: in a all regulations set in
recent national survey, Washington and
89 percent of waivers needed for any
Americans said our experimentation. They
health care system are funded primarily
needed "fundamental" based on inputs, not
change. outcomes, and they
rarely promote price
New technologies that
competition between
have radically
service providers.
prolonged average life
Customers almost
spans have increased
never receive enough
the cost of health care
information about
throughout the
performance to make
developed world. But
informed choices
inflation has been
among doctors,
highest in the United
hospitals, and insurance
States, because our
plans, so the system is
health care system is so
shaped not by 313
poorly structured. It is
reactive, not
preventive: it is built to
treat disease, not to the choices customers
preserve health. It is make, but by the
extremely hierarchical, preferences of
with too many providers (hospitals,
functions reserved for physicians, insurance
highly trained, highly companies, health
paid physicians and too maintenance
few for physicians' organizations,
assistants, nurse Medicaid, and
practitioners, and Medicare).
nurses. Our public
programs, like Perhaps most
Medicare and fundamental, our
Medicaid, are overly governments have
centralized and rule- abdicated a steering
role in health care.
REINVENTING GOVERNMENT Putting It All Together
Policy is made largely competition,
by the private sector particularly through
—insurance prepaid plans, which
companies, hospitals, allow consumers to
HMOs, and the shop for the best
medical profession. price. It would allow
Government simply customers to choose
reacts. It rarely tries to their doctors and
shape the health care hospitals. It would
marketplace. It simply measure and publicize
pays the bills that results— customer
come its way—for the surveys, medical
poor, the elderly, and outcomes, and the like
public employees. —so customers could
choose based not only
In an entrepreneurial
on price but on
health care system,
quality. It would
government would
create strong
play a steering role. It
incentives for
would set the rules—
preventive care, in
perhaps creating a
part by encouraging
mechanism for
prepaid arrangements,
negotiating limits on
under which insurers
health care costs,
benefit by preventing
requiring that all
disease, and in part by
Americans have
encouraging
health insurance, and
preventive behavior
providing funding at
(perhaps by making
least for the
activities like smoking
unemployed and poor.
and drinking more
But it would not try to
expensive).
row. It would leave
the practice of An entrepreneurial
medicine in private government would
hands. preserve the
decentralized nature
An entrepreneurial
of our system, with
system would
many different health
encourage
REINVENTING GOVERNMENT Putting It All Together
care institutions, but its closest—although
would push for less not identical—
hierarchy, so more of parallel is in
the routine medical Germany (actually,
care could be in the former West
provided by less Germany). The
expensive nurse German government
practitioners, steers the system,
midwives, physicians' which consists of
assistants, and nurses. more than 1,000
It would encourage insurance companies
enterprising behavior (most of which are
by health care nonprofits, much like
institutions, making Blue Cross/Blue
them survive in a Shield), but pays for
competitive (although less than 14 percent
carefully structured) of the care.
marketplace. And it (Government in the
would structure that United States does
marketplace to meet little steering but
social needs. Simply pays for more than
by requiring that 40 percent of all
insurers and prepaid health care.) The
plans take all comers, German government
for example, it could requires that
end the current everyone have health
practice of competing insurance, but
for the business of subsidizes only the
low-risk patients and unemployed and
dumping the rest on selfemployed.
the public sector. Premiums are paid
through payroll
314
deductions, split 50
This kind of system —50 between
would share some employer and
features of the employee.
Canadian model, but Consumers choose
REINVENTING GOVERNMENT Putting It All Together
their doctors and REINVENTI
their insurance NG PUBLIC
company, but the
government sets
EDUCATIO
uniform payment N
rules and procedures, Traditional public
as well as limits on education is a classic
overall costs. example of the
Doctors' rates are set bureaucratic model. It
through negotiation is centralized, top-
with the insurance down, and rule-
funds. driven; each school is
The German system a monopoly;
is the best in the customers have little
world, in the opinion choice; and no one's
of many experts. job depends on their
Germans spend just performance. It is a
over half as much as system that
we do, per capita, on guarantees stability,
health care. They not change.
devote only 8 percent Public education's
of GNP to health customers—children,
care, compared to our families, and
12 percent. They employers—have
hold medical changed dramatically
inflation in check over the past 50
better than any other years. Yet most
developed nation. Yet schools look just like
everyone has health they did 50 years ago.
insurance, and they We still require most
enjoy far more liberal children to attend the
benefits than school closest to their
Americans. home, as we did in
the days of the horse
and buggy. We still
organize school
calendars as if
REINVENTING GOVERNMENT Putting It All Together
children were needed In 1983, with the
on the farm all 315 publication of A
Nation at Risk, our
leaders announced
what most Americans
summer. We still already knew: the old
schedule the day as if system was failing us.
Mom will be home at During the 1980s,
3 P.M. We still put they tried all the
each student through conventional
the same 12-year medicine. They
program, grade by increased total
grade. We still spending on public
measure students' education by 29
progress in course percent, after
credits, using a system inflation. They passed
designed in 1910. And major education
we still put teachers in reform bills in 47
front of rows of states, most of which
children, primarily to accepted the old
talk. model but
"We know based on commanded it to
research that people speed up—by
remember about 10 requiring more
percent of what they courses, more tests,
hear, 20 percent of and more time in
what they see, 40 school.
percent of what they Critics dubbed this the
discuss and 90 percent "more-longer-harder"
of what they do," says strategy of education
Adam Urbanski, vice reform. Like most
president of the command-and-control
American Federation strategies, it failed.
of Teachers. "But we Dropout rates were
still largely use one higher in 1990 than
teaching style: 'I talk, they had been in 1980.
you listen and you Scores on the two
learn.' "
REINVENTING GOVERNMENT Putting It All Together
major college entrance and regulations";
exams (the SAT and "decentralization of
ACT) rose only about authority and
1.5 percent between decision-making
1982 and 1987, then responsibility to the
leveled off or dropped. school site"; a
In tests used to personnel system "that
compare student provides real rewards
achievement in for success with
advanced industrial students" and "real
nations, we were in consequences for
worse shape in 1990 failure"; 316
than in 1980.
and "active, sustained
By the late 1980s,
parental and business
many education
community
reformers had given
involvement. "
up on traditional
answers. A consensus What would a school
began to emerge system restructured
around the idea of according to these and
restructuring. In the other five
September 1989, at principles look like?
their Education
Summit, the president State governments and

and the governors school boards would


adopted restructuring steer the system but let
as their agenda, others row. They
endorsing a number of would set minimum
the principles of standards, measure
entrepreneurial performance, enforce
governance: "greater goals such as racial
choice for parents and integration and social
students", "a system of equity, and establish
accountability that the financing
focuses on results, mechanisms necessary
rather than on to achieve their
compliance with rules standards and goals.
REINVENTING GOVERNMENT Putting It All Together
But the school districts rules would be kept to a
would not operate the minimum. Those who
schools. Public ran each school would
schools would be run have to meet very basic
—on something like a state and school board
contract or voucher standards for
basis—by many curriculum, length of
different school day, and so on.
organizations: But they would have
teachers, colleges, far greater freedom to
even community create the kind of
organizations. It would school they felt would
be relatively easy to best meet the needs of
create a new public their customers. Each
school. Teachers school would develop
would work for the its own budget, based
school, not the school on the number of
district. Steering students it attracted,
would be separate and would retain any
from rowing. funds it did not spend.
Parents would have It would decide how
a great deal of control much to pay its
over their children's teachers, whether to
schools—as in New provide performance
Haven or Chicago. bonuses, whom to hire,
Schools would have to and whom to fire.
compete to attract Tenure would be
students, and each eliminated or radically
school's funding might redefined.
depend on the number The state would
of students it could measure and publicize
attract. Yet each school many different kinds
would be relatively free of results: test scores;
to define and pursue its evaluations of
own mission. Most students' other work;
authority would be at parent, student, and
the school level, and teacher satisfaction
district or statewide surveys; honors won
REINVENTING GOVERNMENT Putting It All Together
by students (both arrived at school
academic and unprepared. They
nonacademic); might work with
dropout rates; college communities to attack
placement rates; the problems that were
perhaps even undermining the
evaluations by neutral success of their
panels of expert students, whether drug
observers. The use, violence, or lack of
system's primary connection to the world
customers— parents of work. They might
—would use this sponsor preschool
information to choose programs and Head
the schools their 317 Start centers.
Schools would be
encouraged to earn
children attended. By more money by
measuring performance attracting more
but letting parents students, starting
choose, school boards another school, or
and state departments providing new services.
of education would Have you ever
avoid the subjective wondered why most
task of rating schools. public schools have not
They would let parents offered nursery school,
decide which schools or before- and after-
were best for their school care—or simply
children. rented space to other
organizations to do so?
Schools would seek to Were they allowed to
prevent problems rather keep their revenues,
than constantly trying they no doubt would.
to remediate failure. Have you ever
Hence they might begin wondered why a new
to work with families to industry of private
solve problems at learning centers has
home, before children sprung up to sell
REINVENTING GOVERNMENT Putting It All Together
remedial education, created. If racial
after school, but the segregation were a
public schools don't concern, for example,
compete for the they might require a
business? If they could certain percentage of
earn revenue by doing minority students in
so, perhaps they would. every school, as some
Blue Hills Regional districts do. If schools
Technical School, a in poor communities
high school in Canton, began to close, so poor
Massachusetts, has students lost their
recruited adults to neighborhood schools,
receive training they might create
alongside its high financial incentives for
school students— teachers to create new
because it can charge public schools in those
$2,500 per adult in neighborhoods, or
tuition. When change 318
demographics cut down
the pool of customers the funding formula to
from which it drew, the award more money to
school acted like any schools with large
business would: it went numbers of
looking for other disadvantaged
customers. Its staff students.
loves the idea, because Together, these
the serious attitude of changes would create
the older trainees rubs a system in which
off on the parents could choose
highschoolers. what they wanted for
Finally, our state their children and
governments and local schools would have no
school boards would alternative but to
solve problems that provide it, if they
arose by changing the wanted to survive.
rules and incentives of Schools would have
the system they had great freedom, but
they would be directly
REINVENTING GOVERNMENT Putting It All Together
accountable to industry we have where
parents. Incentives if you do a good job,
would replace nothing good happens
commands. to you, and if you do a
The problem with bad job, nothing bad
education is not that happens to you," says
we don't know what David Kearns, former
works. We do. The CEO of Xerox, now an
research is clear, and undersecretary of
there is remarkable education. We can
consensus among spend all the money we
education specialists. want, but if we do not
The problem is that change this fact, we
many schools won't— will not get better
or can't—do what schools. Indeed, 150
works. Twenty years different studies have
ago companies were agreed that there is no
writing computer correlation between
software that could spending on education
teach reading, math, and how much students
even writing—yet only learn.
a tiny percentage of all
Is the kind of system
schools now teach that
outlined above utopian?
way. Business has
Well, private schools
embraced computer
are run according to
technologies, radically
most of these
changing its training
principles. The
methods, but our
parochial school system
public schools have
operated by the Roman
not.
Catholic church
Institutional change is embodies most of them
painful, and in our —and produces far
current education better results for far
system, this pain can be less money than
avoided. No one has to comparable public
change. No one has to school systems. Even
do better. Public the president of one of
education is "the only
REINVENTING GOVERNMENT Putting It All Together
the two major teachers' Perhaps the only public
unions wants to turn system in worse shape
schools free from most than education and
school board health care is criminal
regulations, let teachers justice. Since 1960,
run them, pay them violent crime has
according to the increased 12 times
performance of their faster than our
students, let them fire population. Our
incompetent murder, rape, and
colleagues, let parents robbery rates are the
have choice of public highest in the world.
schools, and waive any Our courts and prisons
union contract are so full that
provisions that stand in criminals know real
the way. "It's no punishment is unlikely.
surprise that our school Yet the system is
319 bankrupting state and
county governments.
While the prison
population more than
system doesn't
doubled in the 1980s,
improve," says Albert
total state corrections
Shanker, president of
spending more than
the American
tripled.
Federation of Teachers.
"It more resembles the Again, the problems
communist economy stem in part from an
than our own market outmoded way of
economy." approaching the
problem. Radical
change is afoot in a few
RETHINKI places, but for the most
part our criminal justice
NG OUR
system is made up of
APPROAC large, rule-bound,
H TO reactive bureaucracies:
CRIME police departments,
REINVENTING GOVERNMENT Putting It All Together
court systems, and services, alternative
prison systems. dispute resolution
forums, community
Our governments do
courts, environmental
not play a catalytic
courts, "emergency
role, trying to work
room" treatment for
with other sectors of
pressing cases,
society to strengthen
restitution for victims).
families and
They rarely let the
communities and thus
police or courts or
prevent crime. They
prisons define a
simply hire more public
mission and go after it;
employees to staff the
they tie them up in
assembly line: more
rules and red tape. They
cops, more court
rarely use competition:
offlcials, more prison
Unlike large
guards. No one steers,
corporations,
because the system in
governments don't let
any geographic region
320
is fragmented into
many different security companies
fiefdoms: dozens of compete to provide
police departments, their police
several different court protection. And they
systems, and three rarely tie police,
different corrections court, or prison
systems (federal, state, funding to outcomes
and local). such as arrest rates,
Our governments rarely conviction rates,
give communities and recidivism rates, or
citizens any control customer satisfaction
over public safety; they surveys. They just
leave that to the shovel more money in
professionals (the as the inputs—the
police). They rarely number of crimes, the
offer their customers number of cases, the
any choices (mediation number of inmates—
rise.
REINVENTING GOVERNMENT Putting It All Together
Consider an their funding based on
alternative suggested demographics and
by our ten principles. need, but they would
The system would be compete for bonuses
managed, at the state based on the strategies
and local levels, by they chose and their
steering organizations performance. Funding
—call them Public formulas would
Safety Coordinating encourage them, for
Councils. The state instance, to do strategic
council would fund planning, to invest in
local coordinating prevention, to survey
councils, perhaps at their customers, to
the county level. empower communities
These councils would through community-
bring together oriented policing, and
representatives of all to convince
the providers (the participating agencies
county sheriffs, state to adopt missiondriven
attorneys, U.S. district budgets and personnel
attorneys, public systems. No one would
defenders, police have to do these things,
chiefs) and some of but the incentives
the customers (the would be clear. The
civic coalitions, state council would
neighborhood measure all the results
organizations, it could—crime rates,
superintendents of recidivism rates,
schools). The councils response times, court
would steer their local performance—and
systems, but would award extra funding to
not row. those who performed
best.
The state council
would fund local Local councils would
councils on a in turn use many
competitive basis. They different mechanisms
would receive most of to achieve their goals
REINVENTING GOVERNMENT Putting It All Together
—contracts, vouchers, revolutionary change.
seed capital, Yet it is not too far
partnerships. They from what the
might invest in Governor's
community Commission for
organizations, push Government by the
public housing People recommended
authorities to adopt to Florida Governor
resident management, Lawton Chiles in
and contract with October 1991.
organizations that
work with troubled
families. They might A NEW
seek to change the PARADIG
marketplace by
M
offering partial
insurance to banks What we are
that invest in high- describing is nothing
crime areas. They less than a shift in the
might even encourage basic model of
their cities to ask governance used in
different police America. This shift is
departments 321 under way all around
us, but because we are
not looking for it—
because we assume
to compete for the that all governments
contract to offer have to be big,
their police centralized, and
protection, as some bureaucratic—we
of the "contract seldom see it. We are
blind to the new
cities" in southern
realities, because they
California do. do not fit our
This kind of approach,
preconceptions.
which embodies most
of our principles, University of
would be a Minnesota political
REINVENTING GOVERNMENT Putting It All Together
scientist John Bryson words, is a new
put it well, when we framework for
interviewéd him several understanding
years ago: government, a new
way of thinking about
In the past, we let government—in short,
markets work a new paradigm.
until they failed;
then we responded Historian Thomas
with public Kuhn introduced the
bureaucracies. notion of a paradigm
We're struggling three decades ago, in a
to figure out a book called The
new way, Structure of Scientific
somewhere Revolutions. As Kuhn
between markets
and public defined it, a scientific
bureaucracy. So paradigm was a set of
far, there's no assumptions about
theory guiding it. reality—an accepted
People don't have model or pattern—
a real clear idea of that explained the
why past practices world better than any
aren't working, or other set of
what a new model assumptions. It could
might be. So they be as all-encompassing
can 't learn from as Newtonian physics
success or failure: or as specific as the
there is no notion that life exists
theoretical only on earth. Each
framework people 322
can use to
integrate their scientific paradigm
experiences. had its own set of
rules and illuminated
What we need most if its own set of facts.
this revolution is to As long as it
succeed, in other explained most
REINVENTING GOVERNMENT Putting It All Together
observed phenomena guide our perceptions.
and solved the From the 1930s to the
problems most people 1960s, what might be
want solved, it called the New Deal
remained dominant. paradigm reigned
But as new supreme. During the
phenomena began to 1960s and 1970s,
contradict it, the anomalies began to
paradigm succumbed appear. Many
to increasing doubt. supporters of New
As these anomalies Deal government
multiplied, it was were blind to them,
thrown into crisis. because of their
Finally, someone paradigm. Others—
articulated a new particularly the young
paradigm—such as and those who found
Einstein's quantum themselves paying for
mechanics—and a New Deal government
broad shift took but not directly
place. benefiting—felt the
anomalies acutely.
Kuhn argued that
When they rejected
human beings deal
the New Deal
with social reality in
paradigm, the young
much the same way
turned to radical
—"that something
doctrines, while those
like a paradigm is
on the right reached
prerequisite to
back to the previous
perception itself." His
paradigm of a free
book described
market society and a
almost perfectly what
laissez-faire state.
is happening to our
Barry Goldwater
view of government
articulated this view
today.
in 1964, and by 1980
Each of us has a it had triumphed in
mental image of the election of Ronald
government, a set of Reagan.
assumptions that
REINVENTING GOVERNMENT Putting It All Together
But many powerment," "Total
practitioners, Quality
particularly in state and Management,
local govern ment,
participatory
needed something more
than a nineteenth management,
century paradigm if privatization, load
they were to deal with shedding." All the
the new realities. They symptoms of what
had little choice: they Kuhn called a
had to grapple with the paradigm crisis
tax revolt, the sad state appeared: the
of public education, the
traditional rules
runaway costs of
prisons and Medicaid. blurred,
Washington remained experimentation
mired in an ideological spread rapidly, and
stalemate between one practices once so
party still wedded to accepted that they
the New Deal paradigm were simply part of
and another wedded to the woodwork (civil
the laissez-faire
service, line-item
paradigm, but visionary
state and local leaders budgets, teacher
gradually began to tenure) were called
adjust, developing new into question.
practices and new As we entered this
vocabularies. Suddenly, period, our national
the field of government leaders seemed almost
was brimming with bewildered, as if they
new catch phrases: had been outrun by
"public-private reality. National
partnerships, alternative politics appeared
service delivery," increasingly
"contracting out," incomprehensible.
"em323 People wanted
problems solved that
the old paradigms
REINVENTING GOVERNMENT Putting It All Together
simply did not address. had little choice but to
The parties debated cling to the old. Kuhn
issues (the flag, prison is explicit on this point:
furloughs, patriotism) "A scientific theory is
that had little to do with declared invalid only if
voters' primary an alternate candidate
concerns. Hence voter is available to take its
turnout plunged, and place." With no new
some of the best approach to offer, the
candidates left office or politicians could only
refused to run in the stand on the edge of the
first place—just as void and hope someone
scientists often abandon came up with
their fields during something before the
paradigm crises. voters got fed up and
gave them a shove.
In the void,
politicians turned to In this situation,
negative traditional party politics
became almost
campaigning.
irrelevant. A few years
Things were so ago Ted Kolderie
confusing, so much related a conversation
in flux, that they in which former
found it risky to tell Minnesota governor
voters exactly what Elmer Andersen, when
they stood for. asked to name a few
Instead they told people who had the
capacity to be governor
them how bad their
someday, replied, "
opponents were. 'You know, I don't think
This produced a that's really the right
further revulsion question.' "
toward politics—
"At a time when the
and by association, public is clear with
toward government. itself about its situation,
Without a new and about where it
paradigm, the parties wants to go, elected
REINVENTING GOVERNMENT Putting It All Together
officials are very important," Andersen
said.
324325

Then they know the job they have to do, and they are able toing
the pie. Because they respond to vested interests that have get that
job done—disagreeing marginally, ofcourse, aboutorganized to
protect what they already have, they tend to ignore how and how
rapidly.the unorganized interests who would benefit from change.
The
But we are now in a time when the public is quite unclearmedia
reinforces these tendencies by reporting the drama of about its
situation, and about where it wants to go. So, inevi-politics—the
conflicts, the horse races, the scandals—more tably and
understandably, elected officials hesitate. Theythan the substance
of government. The result is an environment have to wait for that
consensus to develop. And the job ofin which substantive change
is risky and politicians are pundeveloping that new consensus is a
job that has to be done byished more for trying something and
failing than for running a others.mediocre or ineffective
government.
Because crisis often leaves them no choice, entrepreneurial "In
Gov. Andersen's terms," Kolderie concluded, "the realleaders find
ways to overcome these obstacles—just as their question today is
who is putting together some new understand-Progressive forebears
did when they imposed the rationality of ing of the problems, and
some new ideas for action, to whichbureaucracy on the political
machines. Some have developed the elected officials will, in time,
respond."quite sophisticated strategies to overcome the political and
buThose who are putting together "some new
understanding"reaucratic obstacles (a subject that will have to wait
for another tend not to be those who have been in politics or
governmentbook). We have identified, in the box on the following
pages, a for a long time. "Almost always the men who achieve these
fun-few of the elements that make their success possible—including
damental inventions of a new paradigm have been either verycrisis,
leadership, vision, and trust. When enough of these eleyoung or very
REINVENTING GOVERNMENT Putting It All Together
new to the field whose paradigm they change,"ments are present,
even the most politicized environment will Kuhn tells us. ' . being
little committed by prior practice togive way. And once the dike is
breached, change will come like a the traditional rules of normal
science, [they] are particularlytidal wave. We are not so naive as to
suggest that the process is likely to see that those rules no longer
define a playable gameeasy. But we do believe it is inevitable—just
as the transition and to conceive another set that can replace
them."from machine rule to Progressive government was inevitable.
As we have traveled the country talking to public entrepre-One can
see how the process works by looking at education, neurs, we have
been struck by this reality again and again. Thethe public system that
has moved farthest toward a paradigm men and women who are
piecing together a new way of doingshift. The public grumbled about
the schools for ten years begovernment are relatively new to public
service. Many arefore our leaders officially declared a crisis, in 1983.
It then young; many had previous careers, as journalists or
businesstook five years of old-paradigm failure before a group of
vipeople or social activists. When they entered government,
theysionary leaders in Minnesota—a state with a healthy civic could
see the anomalies fresh.infrastructure and a high level of trust—
convinced the legislaThese new leaders are not making their
revolution throughture to try a radically new approach. Within two
years, six the conventional channels of political parties. Indeed,
conven-states had followed and both the governors and the president
tional politics stands in their way. Many of the changes they arehad
endorsed what amounted to a new paradigm in the field of making
involve more rational approaches—but politics is not aeducation.
Concepts like choice and competition—fringe rational business.
Politicians often make decisions based not onideas when we began
the research for this book—suddenly what will produce the best
results, but on what will get thememerged as the president's and the
governors' agenda. "When reelected. Because they are rewarded for
delivering pieces of theparadigms change," Kuhn tells us, "the world
REINVENTING GOVERNMENT Putting It All Together
itself changes pie to constituency groups, they show little interest in

reinvent- with them."


THE ENTREPRENEURIAL (R)EVOLUTION citizens, community organizations, businesses and media outlets
are committed to the public welfare. Governments that enjoy
In our study of public organizations, we have discerned a such commitment find it much easier to make fundamental
number of factors supportive of fundamental change. Not all changes.
need be present, but wherever we have seen wholesale
reinvention, at least half have been in evidence: Shared Vision and Goals. It is not enough that a leader has a
vision of change; he or she must get other community leaders to
A Crisis. Necessity is still the mother of invention. The most buy into that vision. "The key element is a collective vision of a
common form it takes in government is fiscal crisis, but city or state's future—a sense of where it's headed," explains
economic crises, political crises, and even natural crises such as Parr. "If you haven't put that together, it's very diffcult to make
earthquakes can create demands for change. When no crisis is these innovative approaches work, because people are so
present, imaginative leaders sometimes create one. As confused about the role of government. They become very
Shakespeare wrote, "Sweet are the uses of adversity." confused about why government is changing."
Leadership. Nothing is more important than leadership. A shared vision is not the same thing as a consensus.
Typically the leader is a mayor, city manager, governor, or Entrepreneurial leaders rally their communities to their visions,
president, but leadership can take many forms. In some places a rather than accepting a least common denominator consensus.
group of leaders has acted together—some from the public This does not eliminate conflict, it simply assures that enough of
sector, some from the private sector. At times leaders push the community shares the leaders' vision to overcome the
government from the outside, as Martin Luther King, Jr., did; at opposition.
other times they are internal department heads or managers. One Trust. When people embark on fundamental change, it helps if
important element of leadership is the ability to champion and those with power trust one another: if the city council trusts the
protect those within the organization who are willing to risk mayor, the business community trusts the governor, the union
change. presidents trust the city manager. "If you look back at what it
Continuity ofLeadership. When leaders come and go, it is was that was really key in the development of civic and political
imposSible to create fundamental change. In virtually every institutions, it was trust that was based on personal
example we know, the key leaders—whether George Latimer in relationships," says Scott Fosler, a former chairman of the
St. Paul or Rudy Perpich in Minnesota or Kimi Gray at Montgomery County Council, in Maryland, now a vice president
KenilworthParkside—have made a long-term commitment. Yet of the Committee for Economic Development. "We've lost that
top leaders in government, particularly political appointees, are today."
often too busy climbing the ladder of success to stay in any one Outside Resources. Fundamental change is diffcult and painful,
position for more than a few years. No organization is going to fraught with uncertainty and risk. Most organizations that
risk reinventing itself if it senses that its leader might be gone in embark on the journey need outside help—from foundations,
a year or two. consultants, civic organizations, even other governments. The
A Healthy Civic Infrastructure. John Parr, executive director of Citizens League in Minnesota, the Fund for the City of New
the National Civic League, uses the notion of civic infrastructure York, the Lilly Endowment in Indianapolis—all were
to describe the informal networks of civic commitment that instrumental in creating change, whether through their expertise,
differentiate strong communities from weak communities. Cities their financial resources, or their political activism.
and states with healthy civic infrastructures are those in which
Models to Follow. Fundamental change occurs in an infinite trying to create already in operation somewhere else. Not only
variety of ways; there is no single mold everyone can copy. But does this give them mentors from whom they can learn, it gives
institutions take great comfort when they can see what they are them conviction that their goal is attainable.
328 REINVENTING GOVERNMENTPutting It All Together 329

A GLOBAL REVOLUTIONfor a more market-oriented approach. As a result of the growing outcry about the uneven state
ofhealth care, educaIf the rise of entrepreneurial government is an inevitable shift tion and day care, the Government is seeking to inject more rather
than a temporary fad, as we argue, one would expect it tocompetition into providing services to increase quality and happen in other nations as
well. And to a startling degree, it has.efficiency.
A similar process of transformation is under way throughout the developed world.Sweden's extensive employment and training system now bids The
British government, for instance, has forced local gov-out most training on performance contracts, treats "clients" as ernments to put all services up for
competitive bid, sold more customers, and markets to industry. Public sector training prothan a million public housing units to tenants, and movedviders
compete directly with private, under the slogan "We have much of its publicly funded training system out of the publicto earn it." Many taxpayers are given a
choice of which hospital, bureaucracy, using vouchers and contract arrangements. It has day-care center, or other government service agency
they want to allowed choice of public schools and encouraged schools thatuse. The national government has adopted a three-year budget want more
autonomy to secede from their school districts and cycle, to support long-term planning. Once every three years, receive funds directly from the national
government. each agency undergoes an in-depth examination of its expendiThe British Audit Commission, originally designed to per-tures,
performance, productivity, and outcomes.

form financial audits, now audits the performance of both na-Canada has given its federal departments authority to reallocate tional and local agencies,
often comparing and ranking themresources across line items and to carry over some of their capital according to their efficiency and effectiveness. In
1982, the na-funds from one year to the next. In exchange, departments are tional government adopted a set of financial management ini- subject to
more stringent use of performance measures.

tiatives designed to create, in essence, organizations thatAustralia has adopted what it calls Program Management and understood their missions and
measured their results. By theBudgeting, as well as a Financial Management Improvements late 1980s more than 1800 output and performance
measuresProgram. "FMIP/PMB is shifting the focus of budgeting from were in use. In 1991, the British government restructured itsthe inputs used to the
results achieved," says Allen Schick of the National Health Service, separating policy management fromUniversity of Maryland. "It seeks to change the
operating culservice delivery and forcing hospitals and physicians' groups toture of Australian public management from one which places a compete
for contracts.premium on compliance with externally-imposed rules to one One might ascribe Great Britain's movement to the conserva-which spurs
managers to do the best they can with the resources tive Thatcher administration, but the Social Democrats in Swe-at hand." The reforms
required departments to cut their spendden have attempted many of the same things. "Our main effortsing by 3.75 percent over three years, but gave them
greater in the past have been to build the welfare structure," Financespending flexibility and the right to keep any money saved beMinister Kjell-Olof
Feldt told the New York Times in 1989. yond the 3.75 percent.
"Now we're trying to remodel that building from the interior."Debates about school choice have aroused strong emotions in The Times summed up
Sweden's predicament this way:Canada, Great Britain, Germany, France, Belgium, the Netherlands, Australia, Israel, and Spain. Amsterdam is
decentralizing The recognition that they cannot raise taxes forever is . . .not only its school system (moving to school site management) causing the Social

Democrats to rethink how to managebut its entire city government, by dividing the city into 16 adSweden's huge public sector, and many of them are calling
ministrative neighborhoods.
330 Finally there is Eastern Europe, where bureaucracy and state
monopolies have given way to markets and choice with a
New Zealand has gone the farthest along the entrepreneurial path. Fuddenness that was unthinkable five years ago. Change was
Its Labor Party—still a socialist party according to its constitution— imposSible in Poland, but it happened. Change was impossible in
lead a total overhaul of New Zealand's welfare state during the the rest of Eastern Europe, but it happened. Change was
1980s. It restructured many of government's commercial functions impossible in the Soviet Union, but it happened. People and
as state-owned, for-profit enterprises—in energy, transportation, movements that were seen only a few years ago as hopelessly
banking, insurance, forestry, construction, air tramc control, isolated and idealistic are now leading revolutions and governing
communications, broadcasting, and postal service. It sold other nations.
public agencies to the private sector, including an oil company,
several banks, a shipping company, and the national airline. It
separated the remaining government services into those with a n his 1991 inaugural address, Governor Pete Wilson of California
policy management role, those with a regulatory role, and those articulated the central challenge of our age:
with a social welfare role. The latter were thoroughly restructured, Putting It All Together 331
with new cost structures, increased reliance on user fees,
increased contracting (with both public and private service We will not suffer the future. We will shape it. We will not
providers), heightened competition, elimination of many simply grow. We will manage our growth. We will not
regulations, and greater freedom for managers to manage. passively experience change. We will make change. But to
shape our future, we need a new vision of government.
In one fell swoop, New Zealand did away with its old civil service
system, freeing department managers to negotiate their own Our purpose in writing this book, as we made clear in the preface,
contracts with their employees. It eliminated regulations that in- was to offer our readers such a vision. Our governments are in
hibited competition in both the private and public sectors—forc ing deep trouble today. In government after government and public
government-owned businesses like the national railway, the system after public system, reinvention is the only option left. But
telecommunications system, and the broadcasting corporation into the lack of a vision—a new paradigm— holds us back. We hope the
more competitive markets. And it adopted a budget system focused vision we have laid out will unlock the remaining gates—
on performance (called output budgeting) and an accrual unleashing a paradigm shift throughout American government,
accounting system modeled on business accounting. from the smallest hamlet to the largest federal bureaucracy. We
hope our road map will empower you to reinvent your
governments.
Appendix A: Alternative Service Delivery Options
and other environmental hazards. State and local governments
Appendix A: investigate complaints against businesses, monitor and investigate
racial bias by landlords, and monitor buildings for compliance with
Alternative Service fire and safety codes. With a small investment, governments can
dramatically improve the quality of private goods or services simply
by monitoring them and investigating complaints.
Delivery Options 4. Licensing. By licensing activities, governments determine
who can perform them and who cannot: who can drive a taxi and who
cannot; what nurse practitioners can do and what they cannot; which
buildings can be used for day-care centers and which cannot. By
nce a government decides to look into the alternatives to changing the licensing requirements, governments can increase or
service delivery by public employees, it faces an array of choices. decrease service delivery almost overnight. When governments relax
Would contracting work best? Or would vouchers be more effective? the licensing requirements for day-care facilities, nursing homes, and
Would a partnership be appropriate? Or would a quasipublic the like, thousands of nongovernmental providers spring into action.
corporation do the job better? The 36 alternatives we have found in 5. Tax Policy. The federal government encourages people to buy
use across America include the following: homes and contribute to charities by allowing them to deduct their
mortgage interest and charitable contributions from their taxable
1. Creating Legal Rules and Sanctions. Surely the most com incomes. State and local governments offer tax breaks to entice
mon form of government action to encourage or discourage activity is industries to move into or expand within their boundaries.
the law. By making an activity illegal, government can minimize it; by Pennsylvania encourages firms to hire welfare recipients by offering
making a formerly illegal activity legal, government can—with no them a tax credit. On the other hand, governments often tax activity
other action by public employees—multiply the availability of that they want to discourage. The most common examples are "sin taxes"
service a thousandfold. (Consider the impact of the Supreme Court's on items such as cigarettes and alcohol. Minnesota even requires drug
Roe v. Wade decision, in 1973, on the availability of abortions.) And dealers to buy "tax stamps" and affix them to drug packages, so as to
by requiring an activity— whether affirmative action or pasteurization have another count on which to prosecute drug traffickers and another
of milk—government can make that activity the norm. way to confiscate their assets.
2. Regulation or Deregulation. Momentous changes in service 6. Grants. Virtually every American is eligible for a government
delivery can be accomplished with nothing more than a simple change grant at some point. Our governments give grants to 334
in the regulations. When the federal government deregulated the
express statutes governing the Postal Service—allowing competition artists, research scientists, low-income housing developers, small
for express delivery—an entirely new industry was born. Today businesses, schools, students, hospitals, community organizations,
Federal Express, United Parcel Service, and their 333 nonprofit corporations, and, of course, other governments. In 1987, the
federal government dispensed $1 12 billion in grants.
competitors deliver millions of overnight packages every day. When 7. Subsidies. Not only are all Americans eligible for subsidies at
states began requiring utilities to provide free energy audits to some point in their lives, most receive them. Social security is a
homeowners, what had been a tiny industry was transformed. subsidy. Welfare is a subsidy. Our farm programs provide subsidies.
3. Monitoring and Investigation. The federal government The tax deduction for home mortgage interest is a subsidy,
inspects meat, milk, and other foods. The federal Occupational Safety administered through the tax system. A second category of subsidy
and Health Administration monitors workplace safety. Other federal goes not to individuals but to institutions, so as to lower the cost of
agencies monitor strip-mining, nuclear power plants, waste dumps, service to the public. We subsidize educational institutions, hospitals,
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
medical schools, developers of low- and moderate-income housing, private firm. Former Massachusetts Governor Michael Dukakis
and many, many others who produce services we consider beneficial contracted out much of his state tax collection effort. Seventy-two
to the public interest. cities in southern California, which have banded together in the
8. Loans. By 1987, the federal government had $234.2 billion in Contract Cities Association, contract out most of their services to both
loans outstanding; state and local governments had untold billions public and private providers. (Many contract with the Los Angeles
more. These loans financed virtually everything imaginable. Some County Sheriff's Department to provide their police services, for
were at market interest rates; others offered subsidized interest rates
example). The first contract city, Lakewood, has 73,000 residents
(e.g., student loans); others provided some degree of loan forgiveness.
Over the years, for instance, many medical students have received today but only 170 employees. (For more on contracting, see chapter
loans that were then forgiven if they served for an agreed number of 1.)
years in the military or in an underserved area.
9. Loan Guarantees. Our governments guarantee private loans 11. Franchising. Franchising is contracting with a twist:
government awards the franchise, but users of the service pay the
even more often than they lend money themselves. By absorbing part
producer directly. It is normally used when a service is a natural
or all of the risk, they encourage private banks and other lenders to
monopoly (or entry into the business is extremely limited) but
make loans that (theoretically, at least) accomplish public purposes.
government wants private companies to compete for the right to
According to Lester Salamon, "loan guarantees became the principal
provide the service. Governments give franchises to restaurant chains
growth vehicle" for federal domestic activism during the 1970s: by
to operate restaurants on turnpikes. They give franchises to utilities,
1987 the federal government had more than half a trillion dollars'
cable television companies, bus companies, and concession firms.
worth of loan guarantees outstanding. Our governments guarantee
loans to students, businesses (from the smallest start-up to the 12. Public-Pripate Partnerships. Like contracting, the use of
Chrysler Corporation), home buyers, exporters, farmers, and many partnerships exploded in the 1980s. Most cities of any size were
others. involved in real estate deals of some kind, coventuring with
developers. Indianapolis created a joint venture to burn 2,000 tons of
10. Contracting. Contracting is older than the U.S. government trash a day and produce steam, which it sold as heat. Dade County,
itself. As E. S. Savas points out, "It was a private entrepreneur, under
Florida, made deals with private companies to operate public schools
contract to the Spanish monarchs, who sailed to the 335
on their property for the children of 336

New World in 1492." When the federal government wanted to deliver


mail west of the Mississippi River, it contracted with 80 horseback employees. Seattle and many other cities created Adopt-a-Park
riders, known collectively as the Pony Express. Our governments have programs, in which private companies helped fund and maintain
long contracted with private companies to build roads, sewer systems, public parks. Dallas did the same with libraries.
buildings, and virtually every other element of our infrastructure. St. Paul created partnerships with for-profit firms, nonprofit
Our defense establishment employs 6 million people, 3.4 million of organizations, and foundations. Mayor George Latimer found that
whom work for private contractors. Our Department of Health and when a foundation or for-profit firm brought substantial resources to
Human Services contracts with Blue Cross/Blue Shield to administer the table, he could entice the city to do things it would never have
Medicare for millions of people. tried on its own. "Once established, the machinery of city government
But contracting is hardly limited to such predictable tasks. The city of is difficult to realign, no matter how rapidly social and economic
Chelsea, Massachusetts, has contracted with Boston University to run circumstances change," he and Dick Broeker, his deputy mayor,
its school system. San Francisco contracts out its budget analysis to a wrote. "Foundation participation can make things happen outside
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
conventional governmental restraints. . The trick is to skirt the governments set aside a percentage of their procurement for minority-
paralyzed or outmoded bureaucracy and initiate direct action." owned firms or small businesses.
Government procurement policy can have an enormous impact;
13. Public-Public Partnerships. Minneapolis and St. Paul joined occasionally, it creates an entire industry. The federal government
together to create the nonprofit Family Housing Fund. Independence, created the computer and semiconductor industries by funding the
Missouri, subsidizes the school system to keep its schools open 12 development of computers for military purposes during and after
hours a day, to provide before- and afterschool child care. Many World War Il, then asking for smaller and smaller units to put into its
governments share services, trade services, or contract with one
ballistic missiles and space vehicles. The General Services
another for services.
Administration gave a major push to the commercial development of
14. Quasi-Public or Private Corporations. When entrepreneurial air bags in cars by ordering 5,000 Ford Tempos equipped with air bags
governments want to accomplish tasks that are economic in nature,
they often create private, nonprofit corporations, or the virtually in 1984. Overall, federal, state, and local governments buy nearly $1
identical quasi-public corporations. Baltimore pioneered the use of trillion worth of goods and services every year—18 percent of the
private, nonprofit development corporations to redevelop its Inner gross national product.
Harbor area. St. Paul created the Lowertown Development
Corporation, the District Heating Development Corporation, and the 17. Insurance. The federal government seeks to prevent financial
Energy Resource Corporation, which performed energy audits and panics by providing insurance for depositors in banks and savings-
made loans to owners and landlords for investment in energy and-loan institutions. It also administers systems of unemployment
conservation. Phoenix created a nonprofit corporation to run a insurance, workers' compensation insurance, and medical insurance
homeless shelter. for the elderly and poor. The state of Illinois fights racial segregation
15. Public Enterprise. When the private sector will not or cannot by authorizing the creation of home equity districts in Chicago, which
can offer insurance against price drops caused by sudden racial
provide some economic service—or public leaders feel the price is too
turnover. Montgomery County, Maryland, struck a deal with Blue
stiff—governments at times create their own businesses. Municipally
Cross/Blue Shield to offer catastrophic health insurance to county
owned utilities are common. Dozens of cities own their cable
residents for $53.80 per family per year.
television systems. Visalia owned a minor-league baseball team for six
years. The public authorities 337 18. Rewards, Awards, and Bounties. When police departments or
the FBI offer rewards for information leading to the arrest of 338

created by many states and cities—for instance, port authorities, or criminals, they are using nongovernmental employees to help solve
bridge and tunnel authorities—are public enterprises. The federal their problems. When governments award prizes and awards to private
government owns at least 30 public corporations, including the individuals and organizations, they are encouraging the behavior they
Tennessee Valley Authority, the Commodity Credit Corporation, and reward—whether individual heroism or community development of
the Overseas Private Investment Corporation. (For more on public low-income housing. Both of these approaches can harness private
enterprise, see chapter 7.) energies toward public goals, without increasing the use of public
employees or tax dollars.
16. Procurement. In similar fashion, governments encourage
certain activities by buying only from companies that engage in those 19. Changing Public Investment Policy. As noted in chapter 10,
activities. New York City buys payroll processing services from banks most governments are financial investors. By changing where and how
that make investments in low-income neighborhoods. Los Angeles they invest, they can encourage or discourage virtually any behavior:
gives preference to contractors who provide day-care facilities. Many apartheid in South Africa; lending in minority communities here at
home; even energy conservation. Public pension funds have become
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
more deliberate about where they invest, and many governments have volunteers serve as tutors, interpreters, foster parents, drivers,
developed linkeddeposit programs to put their cash only in banks that speakers, and shopping, bookkeeping, and cleaning assistants. In
agree to meet some social objective. (See also chapter 10, p. 295.) Massachusetts, the Department of Environmental Protection has
20. Technical Assistance. Governments often provide technical begun to use volunteer lawyers to mediate disputes involving the use
assistance to businesses, community organizations, and other of wetlands.
governments, so they can better provide some service of value. The 24. Vouchers. When governments want to give specific groups
Catalogue ofFederal Domestic Assistance lists 21 different advisory of people the ability to buy specific goods or services, they often use
services for businesses. Many states fund technical assistance for local vouchers. The federal government gives poor people food stamps to
governments. Massachusetts created two quasi-public corporations buy groceries and housing vouchers to help pay their rent. Some
that offer technical assistance to community-based development states give low-income people vouchers to help pay for day care.
organizations. Pennsylvania pays outstanding community More than 100 towns in Vermont and Maine give their high school
development organizations to work with others, so as to transfer their students vouchers to attend private schools. Wisconsin provides up
skills. to 1,000 poor Milwaukee children with vouchers to attend private
21. Information. Sometimes government can have a tremendous schools. (For a more thorough discussion of voucher mechanisms,
impact simply by providing information to the public. A 1989 study of see chapter 6.)
bank lending patterns by the Federal Reserve Bank of Boston forced 25. Impact Fees. In chapter 10, we described impact fees as a
Massachusetts banks to promise $1 billion in new investments in form of tax designed to impose the social cost generated by some
minority communities. The surgeon general's 1964 report condemning activity, such as driving, developing real estate, or generating
smoking triggered a dramatic 25-year decline in the percentage of electricity, directly on those who benefit from the activity. By raising
Americans who smoked. Information about cholesterol, fat, and other the cost of such activities, governments discourage them. They also
elements in food has had an effect as well. Columnist George Will has ensure that people who benefit from them 340
argued that "the most cost-effective thing government does is
disseminate health information." (See also chapter 10, p. 292.)
339
cannot shift their costs onto others, except their customers. Impact
fees on developers are becoming common, and effluent fees on
pollution are the subject of increasing discussion.
22. Referral. Many governments operate referral services, steering
people or organizations to those who offer the services they need. 26. Catalyzing Nongovernmental Efforts. Los Angeles County
Many states offer referral services to businesses looking for help with helped organize a network of 1,200 churches and community
exporting, financing, modernization of production technology, and the groups, with 20,000 volunteers, that delivered 36 million pounds of
like. Connecticut operates a very effective referral service for day food a year to poor families. When the public sector effort ended,
care; parents can get a list of everyone in their area who offers day 350 food pantries and soup kitchens remained in place. Minneapolis
care and talk to the state employee who monitors the quality of catalyzed the formation of a series of neighborhood networks
different facilities. involving community organizations and businesses, to get local
23. Volunteers. In a mid-1980s survey, almost three of every four corporations to hire low-income residents. (One city employee,
cities surveyed reported using volunteers. More than 42 percent of the whose salary was paid by the business community, acted as a
cities used volunteers in their fire departments. (Many small fire coordinator and troubleshooter.) California's Contra Costa County
departments are in fact made up entirely of volunteers.) The Dallas Housing Authority brought banks and a nonprofit counseling agency
Parks and Recreation Department used 1,200 volunteers on a regular together to help homeowners create second units in single-family
basis and another 4,800 for special events. Many cities had full-time neighborhoods, as an inexpensive way to expand the supply of rental
employees who coordinated the use of volunteers. In Florida, housing.
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
27. Convening Nongovernmental Leaders. Often all government neighborhood associations; St. Paul funds them to deliver certain
has to do is bring the key stakeholders together to solve a problem. services; Kansas City gives them a partial rebate on their property
Several states operate labor-management cooperation programs that do taxes if they opt out of city services; New York City and others give
little more than convene groups of employers and union leaders. business owners in neighborhood shopping districts the power to tax
Boston Mayor Ray Flynn convened an Infant Survival Summit in their members to finance improvements.
1990, to bring all those responsible for medical care in the city 32. Coproduction or Self-Help. Many governments help citizens
together to fashion a response to the rising infant mortality rate in produce services themselves. Urban homesteading programs in many
Boston's black community. Mayors, governors, and presidents often cities let people buy houses for next to nothing if they will renovate
convene conferences to focus attention on particular problems. them. Public housing authorities contract with residents to manage
28. Jawboning. At times, convening is not even necessary; public their own properties. And of course local governments provide support
leaders can make something happen simply by jawboning those —if only the use of school grounds and parks—to people who
involved. President Kennedy rolled back a steel price increase by organize baseball, soccer, and other sports leagues. Little League is a
jawboning. Governor Bruce Babbitt of Arizona stimulated the creation classic self-help operation.
of at least 100 after-school daycare programs by drawing attention to 33. Quid Pro Quos. When the tax revolt hit, governments quickly
the phenomenon of latchkey children. Mayor Art Agnos of San began to require businesses to pay for more services. Many developers
Francisco shamed the churches into opening their doors to the now pay for new roads, highway interchanges, and other
homeless. improvements in exchange for the right to 342
29. Seed Money. St. Paul gave seed money to a nonprofit
recycling program so it could extend its services to the entire city. 341
build their developments. (In San Antonio, Sea World
agreed to help pay for a new freeway.) Cities like San
Visalia gave out seed money constantly: for a new swimming pool,
Francisco, Oakland, and Boston use linkage programs, in
for the Little League, for the Chamber of Commerce's economic
development work. Arkansas gives communities $5,000 in seed
which developers must invest in low-income housing or
money to bring their private employers together to organize Total day care in exchange for the right to construct downtown
Quality Management programs. Massachusetts and Pennsylvania office buildings. Many governments put their cash reserves
have used seed money to catalyze the formation of networks of only in banks that agree to maintain branches in poor
small manufacturers, to work on improving their productivity. communities or loan to small businesses or minority-
owned businesses. Montgomery County, Maryland, even
30. Equity Investments. At times, governments make equity
investments to encourage or support a desired activity. The Michigan asks developers to build public housing units in their
Strategic Fund has invested $12 million to $15 million in equity to private developments, in exchange for zoning concessions.
catalyze the formation of private sector business and industrial 34. Demand Management. Rather than spending ever more to
development corporations. Pennsylvania's Ben Franklin Partnership keep up with rising demands for services, some governments focus on
has invested in five private seed capital funds. Many states encourage reducing demand for services. To cut down on demand for water,
their public pension funds to invest in venture capital. The federal Tucson and other cities mandate the use of ultralowflow toilets in all
government held stock in Chrysler during the bailout. new houses. To cut down on demand for highways, governments raise
31. Voluntary Associations. Some governments encourage tolls or fares during rush hour, provide discounts to cars with three or
neighborhoods, shopping districts, or groups of employers to form more passengers, and provide special lanes for buses and car pools. To
their own associations to provide services. Seattle contracts with cut down on ambulance and fire calls, some cities charge for calls that
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
turn out to be unnecessary. (For a more thorough discussion of "produce" them. In other words, Savas is a pragmatic advocate of
demand management, see chapter 10.) privatization, rather than an ideologue.
35. Sale, Exchange, or Use of Property. Visalia enabled the local
school district to build a new school by arranging a fourparcel land In his book, Savas divides goods and services into four categories:
swap and sale. (See p. 198.) Orlando got itself a free city hall by private goods, toll goods, common pool goods, and collective goods.
letting a developer build two office towers on the same seven-acre He discusses the different options for providing each, then examines
parcel. (See p. 202.) Fairfax County, Virginia, gave a private developer the strengths and weaknesses of 10 different service arrangements:
up to 146 acres of prime public land— valued at $50 million to $70 government service, government vending, intergovernmental
million—in return for construction of a new county government agreement, contracts, franchises, grants, vouchers, market systems,
center. voluntary service, and selfservice. Finally, he develops a list of
36. Restructuring the Market. As explained in chapter 10, criteria by which each arrangement can be judged and examines the
governments constantly shape the private marketplace to meet citizens' strengths and weaknesses of each of his 10 alternatives in light of
needs. Zoning laws determine where development will occur and what
each criterion. The criteria are:
kind it will be. Federal agriculture programs guarantee a set price and
a market for many farm products. Tariffs and import restrictions
protect markets for domestic producers. Building codes and rent "service specificity" (how specifically a service can be
control laws shape real estate markets. defined, so governments can tell private producers exactly what
they want);
343
"availability of producers" (are there enough, for instance, to
ensure competition?);
344
CHOOSING THE BEST ALTERNATIVE
Entrepreneurial governments can choose not only from these 36 "efficiency and effectiveness"; the "scale" of the service
alternatives, but from among endless variations and combinations of (how large an organization is necessary to produce it);
the 36. With all these arrows in their quivers, they need to develop a "relating benefits and costs" (the degree to which those using
methodology to find the right arrow for the target in question. As the the service pay directly for its benefits); 'responsiveness to
Florida Speaker's Advisory Committee on the Future put it, "What is consumers";
needed is a policy and an "susceptibility to fraud";
evaluation technique which can be routinely applied to each request "economic equity";
for service initiation, continuation, or expansion. The question to be "equity for minorities";
answered is 'where does the state get the best deal 'responsiveness to government direction"; and
"the size of government" required by the service
The best methodology—or analytical framework—we have found is arrangement.
presented in E. S. Savas's 1987 book, Privatization: The Key to
Better Government (Chatham House Publishers, Chatham, New
Jersey). Although an advocate of privatization, Savas distinguishes nother question public decision makers must ask, in deciding how
carefully between government's critical role in "providing" necessary to handle each service, is which sector would best produce it: the
goods and services and the separate question of who can best public sector, the private sector, or the third sector? Each of these
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
sectors has its own set of strengths and weaknesses, as we pointed out a great incentive to expand, but more often delivered poor-quality
in chapter 1. care.
For example, public sector institutions tend to be best at: For-profit businesses are more accustomed to innovating than
public or nonprofit institutions, because they must often innovate to
policy management; regulation; ensuring equity; survive. For the same reason, they are far more accustomed to
preventing discrimination or exploitation; ensuring continuity adapting to rapid change and to abandoning unsuccessful or
and stability of services; and ensuring social cohesion (through obsolete activities. They also tend to use people with more expertise
the mixing of races and classes, for instance, in public schools). and more professional training than public or third sector
organizations. Hence when tasks are extremely technical or
In contrast, even entrepreneurial public service providers are less complex, the private sector often has a great advantage. "A lot of
adept at: snide remarks have been made about the risks of a manned lunar
program consisting of the activities of thousands of profit-seeking,
performing complex tasks; replicating the successes of low-bidding private firms," William Niskanen wrote in 1971. Yet
other organizations; 345 "the U.S. lunar program . . . has been one of the more spectacularly
successful public activities in recent years."

u delivering services that require rapid adjustment to change;


delivering services to very diverse populations; and
delivering services that become obsolete quickly.
Bureaucratic government organizations fall short on
many other counts, as we have argued. They have
trouble, for instance, with tasks that require flexibility,
rapid change, customer responsiveness, and extensive
customization of services.
The private sector is almost the opposite. It does very poorly at the
first list of tasks above, but very well at the second. When tasks are
economic in nature, or when they require an investment orientation,
the private sector is far more effective than either the public or third
sector. It is also far better at replicating successful experiments,
because the profit motive attracts investors and drives private
companies to imitate their successful competitors.
When there is little or no profit to be generated, on the other hand,
the private sector is seldom interested or effective. One study of
nursing homes, for instance, found that nonprofit institutions tended
to offer high quality, but had no incentive to expand; for-profits had
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
346
QUALITIES DESIRED IN
On the other hand, large private firms, like large public organizations, are aggressive monopolists. They often have enough political clout to convince
legislatures and city councils to give them virtual monopolies on production of
SERVICE PRODUCERS a
particular service or good. The third sector tends to be best at tasks that: (H = high; L = low; M = moderate level)

generate little or no profit margin; require compassion and Public Private Third
Public Sector Strengths
commitment to other humans; require a comprehensive, holistic
Stability H L M
approach; require extensive trust on the part of customers or clients;
require volunteer labor; and require hands-on, personal attention (such as Ability to handle issues outside central mission (e.g., day
care, counseling, and services to the handicapped or ill). affrmative action) H L M
Immunity to favoritism H M L
The third sector is also best at enforcing moral codes and individual
responsibility for behavior. Whether an institution is running homeless Private Sector Strengths
shelters, schools, or day-care centers, it must often enforce a code of Ability to respond to rapidly changing
behavior (shelter residents shall not use alcohol or drugs, for instance). circumstances L H
Public institutions often have trouble doing this, because their employees
have been inculcated with the idea that it is wrong for a government to Ability to innovate M H M
impose any particular set of values on its citizens. For-profit firms have Tendency to replicate success L H
trouble doing this because it might cost them money—if they expel a paying
student, for instance. But religious organizations, community groups, and the Tendency to abandon the obsolete or failed L H M
like—which typically exist to fulfill a mission—often have both a strong Willingness to take risks L H M Ability to generate capital
sense of values and a willingness to enforce them, despite the financial M H L Professional expertise M H M
implications. Ability to capture economies of scale
On the other hand, third sector organizations often choose to serve only Third Sector Strengths
certain people (only Catholics, or only poor people, or only Hispanics) and to
exclude others. They are also less effective than government or business Ability to reach diverse populations LM
organizations at tasks that require them to generate extensive resources on Compassion and commitment M L H Holistic
their own, that require a high degree of professional expertise, or that treatment of problems L L H Ability to generate
benefit from economies of scale. trust M L H
We have summarized the strengths and weaknesses of each sector in the
following tables:
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
TASKS BEST SUITED
TO EACH SECTOR Appendix B:
(E = effective, I = ineffective, D = depends on context)
The Art of Performance
Public Private Third

Best Suited to Public Sector


Policy management 1
Regulation E 1
Enforcement of equity E 1
Prevention of discrimination E D D
Prevention of exploitation E 1
Promotion of social cohesion 1
Best Suited to Private Sector
Economic tasks 1 E D
Investment tasks 1 E D
Profit generation 1 E 1
Promotion of self-sufficiency 1 E D
Best Suited to Third Sector
Social tasks D 1
Tasks that require volunteer labor D 1
Tasks that generate little profit D 1
Promotion of individual responsibility 1 D E
Promotion of community D 1
Promotion of commitment to welfare of others D 1
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options

Measurement

overnment is famous for its endless figures and forms. To an outsider, it seems
like an industry that pays an enormous amount of attention to numbers. People in
government are always counting something or churning out some statistical report.
But most of this counting is focused on inputs: how much is spent, how many people
are served, what service each person received. Very seldom does it focus on
outcomes, on results.
This is true in part because measuring results is so difficult. Measuring profit in
business is fairly straightforward. Measuring results in government is not. Normally it
takes several years to develop adequate measures: an agency's first attempt often falls
woefully short. It may measure only outputs, not outcomes. It may define outcomes
too narrowly, driving employees to concentrate on only a few of the results the
organization actually wants to achieve. It may develop so many measures that
employees can't tell what to concentrate on.
Even Sunnyvale, California, perhaps the most sophisticated government we know
when it comes to performance measures, still has some measures that cry out for
refinement. As Sunnyvale, Phoenix, and hundreds of other government organizations
have developed their measurement systems, however, they have learned a number of
basic lessons:
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
350 Deming's Total Quality Management, for instance, constantly measure
their internal processes so they can 351
1. There is a vast difference between measuring process and
measuring results. When public organizations set out to measure see where problems lie and correct them. In addition, the outcomes
performance, their managers usually draw up lists that measure how desired by any given organization are often very difficult to measure,
well they carry out some administrative process: how many people or will not become evident for a long time. In such cases,
they serve; how fast they serve them; what percentage of requests are organizations often choose process measures that appear to be reliable
fulfilled within a set period of time. In essence, they measure their proxies for the ultimate outcome. For example, Pennsylvania's Ben
volume of output. But outputs do not guarantee outcomes. A Franklin Partnership measures things like the amount of private
vocational school might pump out more and more graduates of a investment attracted to match each of its grants—on the assumption
welding program, for instance. But if those graduates cannot find jobs that projects which attract significant private investment have a better
as welders, what good is the program? It may be generating chance of contributing to economic growth than projects that have
impressive outputs without generating any positive outcomes. difficulty attracting private investment.
The tendency to focus on process is natural: managers measure what The problem comes when organizations measure only process—as too
their agencies do, and in rule-driven organizations, people think of many do. Fox Valley Technical College measures many process
their jobs as following certain processes laid down by the rules. If issues: the number of courses scheduled but later dropped; the use of
they follow those processes faithfully and produce the expected evaluation techniques that stress skill competency rather than the
volume of output, they are doing their jobs. They rarely think of the ability to take written exams; the amount of computer-based
outcomes: what impact the activity has on those the agency is instruction offered; and so on. If it did not also measure how many
designed to serve. Yet a perfectly executed process is a waste of time graduates got jobs in the fields for which they trained, their
and money if it fails to achieve the outcomes desired. satisfaction, and the satisfaction of employers, however, it might
create ever better courses that resulted in ever fewer job placements.
The National Center for State Courts provides a good example. With
Once robots have replaced welders, it makes no sense to keep
the U.S. Department of Justice, it set out to create performance
working to improve one's welding courses.
standards for trial courts. The purpose, stated explicitly, was to focus
not on "the structures and machinery of the courts," but on "their 2. There is a vast difference between measuring efficiency and
performance (what courts actually accomplish with the means at their measuring effectiveness. Efficiency is a measure of how much each
disposal)" (emphasis added). Yet the group found itself struggling unit of output costs. Effectiveness is a measure of the quality of that
constantly with what Dr. Ingo Keilitz, who staffed the project, calls output: how well did it achieve the desired outcome? When we
"process creep." Some members assumed that "good management is measure efficiency, we know how much it is costing us to achieve a
an outcome," Keilitz remembers. "And we would say, 'But good specified output. When we measure effectiveness, we know whether
management is not an end in itself.' We argued until we were blue in our investment is worthwhile. There is nothing so foolish as to do
the face." more efficiently something that should no longer be done.
Both efficiency and effectiveness are important. But when public
Process measures can be useful, of course. Good management is
organizations begin to measure their performance, they often measure
important, and process measures can help organizations get a handle
only their efficiency. Typically, a traditional Defense Department
on how they can improve their management. Organizations that use
might measure how much it costs to house and feed its troops—and
REINVENTING GOVERNMENT Appendix A: Alternative Service Delivery Options
strive constantly to drive that number down. Yet as Bob Stone put it in
his four-page "Department of
REINVENTING GOVERNMENT Appendix B: The Art of Performance Measurement
352

Defense Construction Criteria": "The goal is not to minimize the life- litical independence, and accountability. To measure these things so,
cycle cost of the facilities, but to maximize the performance of the courts use public surveys, focus groups, and the like. But none of
people who use the facilities." these measures deals with the broader outcomes most important to the
public: crime rates, public safety, conviction rates, recidivism rates,
The public certainly wants efficient government, but it wants effective justice for victims of crime, or satisfaction with the way in which
government even more. Citizens may be pleased that they spend less disputes are resolved. Judges would argue, of course, that the courts
per student on education than other states, but if their schools are the are not the only institutions responsible for things like crime rates,
worst in the country, they are not likely to be pleased for long. They conviction rates, and public perceptions of safety. They would be
may enjoy a low tax rate, but if that means they spend an hour getting correct. Yet these are the outcomes people care most about.
to work on clogged highways, they usually vote to invest in a more
effective transportation system. This dilemma confronts many public organizations. They can measure
the outcomes of their specific program or activity, but those numbers
Focusing on efficiency more than effectiveness also tends to are not as important as certain broader measures. A jobs program for
alienate public employees. When governments stress the cost of each welfare recipients might measure its job placement rate and the wages
unit of work, they often develop a green-eyeshade mentality that of those placed, for example. But what about the number of people
belittles the intelligence and skill of their workers. Most employees coming onto the welfare rolls, the length of time they stay on, and the
want to be effective. Most will gladly do what is necessary to increase size of the overall caseload? Managers of the jobs program would
their organization's impact. But if their superiors concentrate solely on argue that they should be held responsible for their job placement
their efficiency—on how quickly they do each unit of work—they numbers, but not for the total caseload or the number of people
will begin to feel as if they are on an assembly line. signing up for welfare.
George Britton, a deputy city manager in Phoenix, notes that his city Again, they would be correct. The latter numbers are affected by
got heavily into efficiency measurement during the 1970s. "We broader policy questions: who is eligible; how attractive welfare is
thought every street sweeper ought to do 65 lanemiles a day," he says: compared to low-skill, low-wage work; and how much low-wage
work is available. Yet if the welfare department does not measure both
But that collapsed, because it got caught up in a greeneyeshade sets of numbers, it may think it is doing a terrific job of getting people
philosophy. And it lost track ofasking the question: Why are we off welfare, while its rolls are actually growing! This is precisely what
doing this service? Governments do a lot ofservices very has happened to many states over the past decade. Massachusetts'
efficiently, without asking why they do them. We lost the Employment and Training (E. T.) Choices program is justifiably
relationship between efjiciency and effectiveness. You're only considered one of the best in the nation. Yet, although it placed
being effective if you're doing something that needs to be done. roughly 10,000 people a year in jobs between 1983 and 1990, the
department's AFDC caseload started at 90,000, never got below about
3. There is an important difference between "program outcomes" and 84,000, and headed past 100,000 when a recession began.
broader "policy outcomes." When the National Center for State Courts
developed its performance standards, it came up with outcome Statistics like this underscore the importance of measuring both
standards that measure public satisfaction with a court's accessibility, program outcomes and policy outcomes. Programs like E.T. Choices
fairness, reliability, speed, po353
need information on how well they are achieving their goals. Indeed, For those interested in learning more about performance
E.T. Choices' managers collected that information 354 measurement, a number of experts have written widely on the subject.
Harry Hatry at the Urban Institute has published a series of books,
religiously and continually used it to refine and improve their efforts. particularly for local governments. Jack Brizius, 355
But they also need information on broader trends, such as the
percentage of the population on welfare and in poverty. With this
information, it becomes clear that E.T. Choices is innovating within a
Michael Campbell, and Roger Vaughan have written about
broader welfare system that contains powerful incentives for people to
performance measurement in state government, for the Council of
get on and stay on welfare. At some point, one can hope, such
Governors Policy Advisers and the Corporation for Enterprise
information will trigger efforts to change the broader system, rather
Development. In 1990, the Governmental Accounting Standards
than simply more efforts to train and place people in jobs.
Board (GASB) released a research report on performance
measurement, called Service Efforts and Accomplishments Reporting:
Its Time Has Come, which provides a useful overview. GASB is also
he table on pages 356—357 outlines the difference between
developing detailed research reports on a variety of specific fields,
outputs (process) and outcomes (results), between program outcomes
such as education, economic development, hospitals, mass transit,
and policy outcomes, and between efficiency and effectiveness. It then
police, and water treatment. (See endnotes, p. 392, for specific
illustrates those differences for several different public services. To
citations.)
use street sweeping as an example, it illustrates that one would
measure the output, or process, by measuring the number of miles
swept. But if one wanted to measure the outcome, or result, one would
have to measure the cleanliness of the streets—as rated, perhaps, by he experts tend to agree on a series of further lessons:
objective, trained observers. This latter measure would be the program
Do both quantitative and qualitative analysis. Some valuable results
outcome. A policy outcome would look at a broader question: how
are impossible to quantify. Others require so much paperwork and
much litter do citizens leave on the streets, and how effective is public
expense that they are not worth quantifying. Still others are
policy at minimizing this amount?
quantifiable, but no one can say for sure whether the program in
To determine program efficiency, an organization would simply question was responsible for producing them. For all these reasons, it
measure the cost per mile swept. But to determine policy efficiency, it is important to combine quantitative measurement with qualitative
would have to measure the cost to achieve a desired level of street evaluation. Good managers can get enormous insight into
cleanliness, by whatever method—street sweeping, prevention, performance by looking at relevant numbers, but they can get equally
community self-help. Finally, to measure program effectiveness, a city valuable insight by spending time observing the program, agency, or
might measure citizen satisfaction with the level of street cleanliness. provider; talking with workers; and listening to customers.
But to measure policy effectiveness, it might ask citizens whether they If all performance evaluation is done through numbers, service
wanted their money spent keeping the streets clean, or whether providers may also learn to game the numbers. "We watch the
alternative uses, such as construction or repaving, would be [enrollment and job placement] numbers, but we don't want our
preferable. centers obsessed with them," explains Suzanne Teegarden, director of
Massachusetts' Industrial Services Program.
WHAT TO MEASURE?
Welfare: Job
General Definition Street Sweeping Training Policy Effec- Degree to which Do citizens want Effect on larger sotiveness
fundamental goals to use their money ciety: e.g., poverty and citizens needs this
Output (or Volume of units Miles swept Numbers of people process) produced
way? E.g., rate, welfare are met would they rather caseload, crime spend it on
trained
repav- rate, later spending ing streets? to remediate poverty, etc.
Outcome (or Quality/effective- Cleanliness rating Numbers of people result) ness
of production: of streets placed in jobs, degree to which it working, and off
creates desired out- welfare after six comesmonths, one year, and beyond. Impact
252. They aren 't very energetic, and they don't take risks. Our
on their lives.
best centers are the ones that really care, that get creative, that do
Program Effectiveness of Cleanliness rating Numbers placed in Outcome specific it first and ask questions later. We know the centers well, so we
program in of streets as a re- jobs, working, and achieving desired sult of know what the numbers mean.
sweeping off welfare after six outcomes months, one year, and beyond. Impact Watch out for creaming. Service providers will usually deliver the
on their lives. numbers they're asked to deliver, even if they have to cut corners to do
Policy Effectiveness of Measures indicat-Percentage of poOutcome broader
it. If they have to place 1,000 people in jobs in a year, they will find
policies in ing how much lit-tential work force achieving funda- ter citizens the 1,000 most employable people they can and give them training—a
leave unemployed, on mental goals on streets welfare, and in practice known as creaming. This is precisely what happened during
poverty; percent of welfare population on welfare more than one year, five years, the early years of the Job Training Partnership Act. One solution is to
etc. set goals for each of several different target populations: 250
placements from among people who have been out of work for at least
Program Cost per unit of Costs per mile of Cost per job two years; 250 from those who do not have high school degrees; and
Efficiency output streets so on. Another is to set different reimbursement rates for different
swept trainee; populations. The job training industry has learned to use such
placement; retained mechanisms without any great difficulty.
job; etc.
Anticipate powerful resistance. Hard information about efflciency and
Policy Cost to achieve Cost for X level of Cost to achieve de- effectiveness can be extremely threatening to service providers who
Efficiency fundamental goals street cleanliness sired decrease in unemployment, doubt their ability to compete. Florida repealed a program that
poverty rate, rewarded individual schools for improved performance. Arizona
welfare caseload, defunded a program that publicized the job placement rates of
etc.
graduates from all postsecondary education and training institutions.
Program Degree to which Level of citizen Numbers placed in Effectiveness The community colleges and technical schools found the information
program yields de- satisfaction with jobs, working, and sired outcomes extremely threatening, because it revealed how effective they were at
cleanliness of off welfare after six streets months, one year, and beyond. Impact preparing people for real jobs. "You had big winners and big losers,"
on their lives. says George Britton, who helped devise the system while serving
under Governor Bruce Babbitt. "Whenever you single out people at
the top and at the bottom, in a governmental function, it's very
Our worst centers are those that are numbers-driven. One of them
—if the goal is 250 people enrolled, you can be sure they'll enroll
threatening." (Publication of such data is not impossible, however.
Florida now does it successfully.)
Involve providers and employees in developing the correct measures.
The best way to deal with resistance is to bring providers
REINVENTING GOVERNMENT
358Appendix B: The Art of Performance Measurement 359

and employees into the process of defining the appropriate mea- measures—anticipating how clever providers might respond— sures. To use data effectively, after
all, people have to buy intobefore imposing them.

its value. They need to "own" the specific measures used—to Keep the measurement function in a politically independent, feel that they provide useful, relevant
information that will im-impartial ofice. If people are to rely on data, they must trust its prove the service they deliver. Those who oppose the idea, orobjectivity.
Hence it is a good idea to use an independent office, oppose particular measures, need a fair hearing. Saddling peo-like the Phoenix City Auditor's
Office, to do the measuring. In ple with inappropriate measures in whose development theyFlorida, two private organizations, Florida TaxWatch and the
have had no input is a sure way to create resistance, destroyFlorida Council of 100 (a business group), have created a nonmorale, and encourage cheating.
governmental organization, Partners in Productivity, to deSubject measures to annual review and modification. No mea-velop performance measures for state
government. In Great sures are perfect. Since governance is not a science, it is impos-Britain, the national Audit Commission audits the performance Sible to
isolate measures that perfectly reflect the outcomes of not only of national government agencies but also of local govgovernment activity. All we can do is
hope for a close approxi-ernments. Because it publishes comparative information about mation, often using the best proxies available. Therefore it
efficiency and effectiveness, local governments pay close attenmakes sense to modify and refine performance measures often, tion to its studies.

particularly as their flaws are revealed in practice. It also makesFocus on maximizing the use ofperformance data. Just develsense to commission an
independent audit of the measures pe-oping measures does not guarantee that managers will use them riodically, to see if they in fact measure what one thinks
theyto change what they do or that legislatures will use them to measure. (Once the measures are refined, however, it is best tochange what they fund. The Fund
for the City of New York keep some measures steady over time, so as to be able to com- discovered, according to Greg Farrell, that "good measures and pare
performance from one year to the next.)management information turned out to be much easier to conDon't use too many or too few measures. If an
organizationceive than to integrate into the conduct of government busisets too few measures, they may not reflect all of its goals.ness. . . . Government
managers are not, for the most part, used Hence its service providers may be driven to emphasize someto having or using management information,
especially for goals at the expense of others. If it sets too many, it will diluteforward-looking purposes. And on many issues, political presthe power of
all measures. Providers may become confusedsures are often so great that data seem to be beside the point about priorities and burdened with paperwork, and
managerswhen decisions are made." Hence while developing performmay be overwhelmed by detail. If employees and service pro-ance measures,
organizations should try to develop budgets, viders participate in the development of measures, and if theymanagement systems, and reward systems
built around perare allowed to correct the measures periodically, they will usu- formance data, as discussed in chapter 5.

ally be able to find the right balance.


Watch out for perverse incentives. The funding formula used to finance nursing
home care in Illinois during the 1970s created an incentive to keep people
bedridden, as we saw in chapter 5. The performance measures originally used
by JTPA encouraged job training providers to cream. Perverse incentives like
these can undermine the entire effort to measure performance. To avoid them,
organizations should "game" new
Notes

All quotations that are not attributed in the text or in these endnotes are from
interviews with the authors. Only in cases where there might be some confusion
about the source of a quotation have we indicated in a note that it came from an
interview.

Preface
P. xvi "At one time, governments were active investors . . . ": See, for instance, Peter K. Eisinger, The Rise ofthe Entrepreneurial State (Madison: University of Wisconsin Press,
1988), pp. 331—32.
"The federal government actually gave . . . ": Congressman Byron L. Dorgan, "Disappearing Railroad Blues," Progressive (August 1984): 32-34.
P. xix Quotation from J. B. Say: Quoted in Peter F. Drucker, Innovation and Entrepreneurship: Practice and Principles (New York: Harper & Row, 1985), p. 21.
p. xx "But as careful studies demonstrate . . . ": See, for example, David C. McClelland, "Achievement Motivation Can Be Developed," Harvard Business Review (November—
December 1965), and David C. McClelland and David Winter, Motivating Economic Achievement (New York: Free Press, 1969).
Drucker quotation: Drucker, Innovation, p. 139.
P. xxi Drucker reference and quotation: Ibid., pp. 170, 178.
83,000 governmental units: U.S. Department of Census, 1987 Census of Governments, vol. 3, no. 2 (Washington, D.C.: Bureau of the Census, 1991), p. v.
Figures on full-time civilian employees: Ibid., National Summary, p. 1, Table 1.
"After 10 years of education reform and $60 billion in new money, test scores are stagnant and drop-out rates are higher . . . U.S. De partment of Education, personal

communication. Test scores


362 Notes to Pages xxii—8 ce in Education," an East Harlem conference sponsored by
1990 the U.S. Department of Education, October 17, 1989.
referred to are Scholastic Aptitude Test (SAT) and American College ,
Distr Sy Fliegel quotation: Quoted in Robert Merrow, "Schools of
Testing Program (ACT).
ict 4 Choice: More Talk Than Action," in Public Schools By
P. xxii Proust quotation: Quoted in The Homegrown Economy, videotape boas Choice, ed. Joe Nathan (St. Paul, Minn.: Institute for
prepared by the Latimer administration, St. Paul. ted . Learning and Teaching, 1989), p. 118. "Reading scores are
Ibid. up sharply . Personal communication, District 4. See also
Domanico, Education Policy Paper Number l, p. 10. In 1989
Introduction: An American Perestroika Ed the reading test manufacturer renormed the test to reflect
Rod heightened reading achievement nationwide and the
"Strangely enough, in the midst of change . . . " Speaker's Advisory
rigu percentage of children in New York City schools who read
Committee on the Future, The Sunrise Report: Florida Sunrise: ez at grade level dropped below 50 percent. Using these new
Which Tomorrow? (Tallahassee: Florida House of Representatives, quot national norms, 43.1 percent of District 4 students read at
March 1987), p. 79. atio grade level in May of 1991.
Time magazine cover: October 23, 1989. n: "Writing skills have improved . Mary Ann Raywid, "The
Fro Mounting Case for Schools of Choice," in Public Schools by
"By the late 1980s, only five percent . • Derek Bok, "Why
m Choice, P. 27.
Graduates Are Shunning Public-Service Careers," Sacramento Bee,
his P. 10
June 26, 1988, p. 1.
rem
"Only 13 percent of top federal employees . Susan B. Garland et arks,
al., "Beltway Brain Drain: Why Civil Servants Are Making Tracks," at
Business Week, January 23, 1989, pp. 60—61. The survey cited was "Ch
conducted by the federal General Accounting Office (GAO). oosi
"Nearly three out of four Americans . . ' . Laurence I. Barrett, ng
"Giving the Public What It Wants," Time, October 23, 1989, P. 34. Bett
er P. Il
From a Time/CNN poll, conducted October 9—10, 1989, by
Yankelovich Clancy Shulman. The exact percentage was 73 percent. Sch P. 13
ools:
"Single mothers head . . . median income is $8,300": Raymond J. Regi
Domanico, Education Policy Paper Number 1: Model for Choice: A onal 14
Report on Manhattan's District 4 (New York: Manhattan Institute for Strat
Policy Research, June 1989), p. 3. egy
Mee P. 16
"Twenty years ago . . and "Only 15 percent . : Ibid., p. 10. tings
"Incorrigible, recalcitrant, aggressive kids": John Falco, interview with on
authors. Choi
P. 17 quot Essays in Sociology (New York: Oxford University Press, 1958), P.
atio 214.
n: For a fascinating study of government buildings, see Charles T.
H. Goodsell, The Social Meaning of Civic Space: Studying Political
H. Authority Through Architecture (Lawrence: University Press of
Gert Kansas, 1988). Alfred North Whitehead quotation: Quoted in
P. 18
h William Van Dusen Wishard, "What in the World Is Going On?"
and Vital Speeches, March 1, 1990, pp. 311-317.
C.
Wri . . by 1982, state and local governments had lost ": According to
19
ght Table 21 in Significant Features of Fiscal Federalism, vol. 2:
P. 21 Mill Revenues and Expenditures (Washington, D.C.: Advisory
8—21 363 s, Commission on Intergovernmental Relations, 1990), p. 21, federal
eds., grants to state and local governments totaled $77.9 billion in 1978
Fro and $88.2 billion in 1982. Expressed in 1978 dollars, the 1982 figure
Statistics on admittance to selective public and private schools: John m would have been $59.6 billion. This is a reduction of $18.3 billion,
Falco, interview with authors, and Domanico, Education Policy Paper Max or 23.5 percent, between 1978 and 1982.
Number 1, pp. 15—17. Web
"Yet it has a waiting list . . . ": Joe Nathan, "Prime Examples of School- er: South Carolina's education reforms: Gary Putka, "South Carolina's
Choice Plans," wall Street Journal, April 20, 1989. Broad School Reform Includes Incentives or Punishment Based on
Performance," Wall Street Journal, July 12, 1988, p. 62, and Terry
"Perhaps the most telling statistic . . . ": John Falco, interview with Peterson, "Five Years and a Quantum Leap," Entrepreneurial
authors. Economy Review (December—January 1989), published by the
"In an experiment straight out of In Search of Excellence . . . ": See Thomas Corporation for Enterprise Development, Washington, D.C. William
J. Peters and Robert H. Waterman, Jr., In Search of Excellence (New York: Hudnut quotation: Quoted in Marjorie George, "Can a City Be Run
Warner Books, 1982), pp. 146—47. Like a Business?" San Antonio (December 1986): 22—29.

For more information on the Model Installations program, see Model Coopers & Lybrand survey: Survey on Public Entrepreneurship
Installations and the Graduate Program: A DOD Report to the President's (Coopers & Lybrand, 1988).
Blue Ribbon Commission on Defense Management, May 16, 1986, available Neil Postman paraphrase: From Neil Postman, Teaching As a
from the Office of the Deputy Assistant Secretary of Defense for Subversive Activity (New York: Dell, 1987).
Installations.
Lou Winnick quotation: From "The Cleveland Conference on Fiscal
Data on the Unified Budget Test: The Unified Budget Test (Washington,
D.C.: Deputy Secretary of Defense [Installations], March 1988). Weber Constraints/Constructive Responses/Action Steps," report on a
364 Notes to Pages 23—30 Notes to Pages 32-43 365
conference held in Cleveland, April 21—23, 1982, sponsored by theP. 32 Drucker quotation: Peter F. Drucker, The Age ofDiscontinuity (New Cleveland
Foundation and the Hubert H. Humphrey Institute ofYork: Harper Torchbooks, 1978), p. 233.
Public Affairs, University of Minnesota. Available from TedP. 35 Drucker quotation: Ibid.
Kolderie, Center for Policy Studies, Minneapolis.Kolderie quotation: Ted Kolderie, "The Puzzle of the 'Public SecP. 23 Keynes comment: See, for instance, John Maynard
Keynes, The Gen-tor' and the Strategy of Service Redesign," in An Equitable and Comeral Theory ofEmployment, Interest and Money (London: Macmillanpetitive Public Sector, ed.
Ted Kolderie (Minneapolis: Hubert H.
Humphrey Institute of Public Affairs, University of Minnesota, and co., 1936), Chapter 24.
1984), P. 20.
P. 35 Keefe quotation: Quoted in Chris Black, "Question 2: Is It Still Bad for You?" Boston
Globe, September 30, 1990, pp. Al-A4. "Many of the services . . . ": Ibid.
"In 1986, a White House report . : Cited by Sar A. Levitan, Garth L. Mangum, and Marion
W. Pines, A Proper Inheritance: Investing in the Self-Suffciency ofPoor Families
(Washington, D.C.: George Washington University Center for Social Policy Studies, July
1989), p. 3. "Another study . Ibid.
"As Lisbeth Schorr reports . . . ' . Lisbeth B. Schorr, Within Our Reach: Breaking the
Cycle ofDisadvantage (Garden City, N.J.: Doubleday, 1988).
"The typical government loses . . . ": According to the federal Office of Personnel
Management, the federal government loses roughly 10 percent of its- employees each year.
State and local governments with which we have been able to check this figure report
similar attrition rates.
"Los Angeles County . . . ": Kitty Conlan, "Contracting Out: A Labor Perspective," Urban
Resources 2, no. 4 (Summer 1985): 19. "Ohio uses local boards . For more information, see
Nancy D. Kates, "Pam Hyde and Ohio Mental Health: Shifting Control of Inpatient Care," a
case study prepared for the John F. Kennedy School of Government, Harvard University,
1987.
"In Pittsburgh . Gwen Ifill, "Pittsburgh Finds Diversity Works in Fight on Homelessness,"
Washington Post, March 31, 1990, p. A3.
"Montgomery County, Maryland . : C. Kenneth Orski, " 'Managing' Suburban Traffic
Congestion: A Strategy for Suburban Mobility," Transportation Quarterly 41, no. 4 (October
1987): 471—472, and personal communication with Transporation Management District.
"This method has reduced the cost . . . ": Behavioral Health Service System Description
(Phoenix: Arizona Department of Health Services, Division of Behavioral Health Services,
February 1989).
For more on CODAMA, see David Osborne, Laboratories ofDemocracy (Boston: Harvard
Business School Press, 1988), pp. 122—128. Cleveland quotation: Harlan Cleveland, The
Knowledge Executive (New York: E. P. Dutton, 1985), p. 82.
"By 1982, nonprofit organizations . . . ": Gabriel Rudney, "The Scope and Dimensions of
Nonprofit Activity," in The Nonprofit Sector: A Research Handbook, ed. Walter W. Powell
(New Haven: Yale University Press, 1987), pp. 55—56.

Chapter i: Catalytic Government:


Steering Rather Than RowingP. 37
P. 26 Statistics on Lowertown: From Weiming Lu, executive director, Lowertown Development Corporation, interview with authors. See also Ann E. Webber,
"Lowertown: The Beginning," in The Saint Paul Experiment: Initiatives of the Latimer Administration: Case Studies in Metropolitan Reform, ed. David A.
Lanegran, Cynthia Seelhammer, and Amy L. Walgrave (St. Paul: City of St. Paul, December 1989), pp. 459—73. This book is an excellent and exhaustive
source on the Latimer administration.
Statistics on St. Paul's fiscal status: George Latimer, interview with authors, and J. J. Allaire, "Fiscal Policy and Budget Process," in The Saint Paul
Experiment, pp. 407—425.
P. 27 "This was fine as long as tax revenues were rising . . . Thomas E.P. 38 Borcherding, "One Hundred Years of Public Spending, 1870—1970," in Budgets and Bureaucrats: The
Sources of Government Growth, ed.p. 40 Thomas E. Borcherding (Durham, N.C.: Duke University Press, 1977), pp. 19-43.
P. 28 William Hudnut quotation: From transcript of interview with Robert Guskind and Neal Peirce of the National Journal, provided to the authors by Guskind and
Peirce.

P. 29 "Newark, New Jersey . . . ' Howard Jurtz, "In an Era of Reduced Federal Aid, Newark Stays Afloat," Washington Post National Weekly Edition, June 20—26,
1988.
"Massachusetts boosted . Executive Office for Administration and Finance, Office of Purchased Services, Progress Report to the
House and Senate Ways and Means Committees, as of February 1,p. 41 1988 (Boston, 1988), p. 3.
p. 30 Salamon quotation: Lester M. Salamon, "The Changing Tools of
Government Action: An Overview," in Beyond Privatization: Thep. 41
Tools of Government Action, ed. Lester M. Salamon (Washington,
D.C.: Urban Institute Press, 1989), pp. 10—11.p. 43 Cuomo quotation: From Martin Tolchin, "More Cities Paying Industry to Provide Public Services," New York Times,
May 28, 1985, PP. Al, D17.
Chiles quotation: From "Building Community Partnerships," campaign statement released by the Chiles campaign November I, 1990.
Notes to Pages Notes to Pages
366 43—5050—58 367

"Between 1972 and 1982 . Ibid., p. 56.National Association of Town Watch figures: "Neighbors Join to "A 1989 Gallup survey . $170 billion": Personal
communica-Roust the Criminals in the Streets," Insight, November 28, 1988, p. 9. tion with the Independent Sector, Washington, D.C., which commis-P. 51
Williams quotation: Ibid., p. 20.
sioned the Gallup poll.Latimer quotation: The Saint Paul Experiment: Initiatives of the P. 44 "In 1985, Blue Cross Blue Shield : Mitchell Zuckoff,
"BlueLatimer Administration, ed. David A. Lanegran, Cynthia SeelhamCross Reports $30 Million Profit in 1990," Boston Globe, March 5,mer, and Amy L. Walgrave (St.
Paul: City of St. Paul, December 1991.1989), p. xxii.
"This sector . . . ": More than 20 years ago, Peter Drucker used aP. 52 Latimer quotation: George Latimer, "1986 State of the City Adsimilar definition. He
called such organizations "nongovernmental,dress." autonomous institutions" that acted as "agents of social perform-P. 53 On recycling in Seattle, see Randolph B.
Smith, "Aided by Volunance." He prophesied, in 1968, that their design might "become ateers, Seattle Shows How Recycling Can Work," Wall Street Journal,
central job for tomorrow's political architects." Drucker, Age ofDis-July 19, 1990, pp. 1, A5; and "Recycling Life's Debris," Governing continuity, p. 240.
(October 1990): 47. Two years after the program began, Seattle was Salamon quotation: Lester Salamon, "Partners in Public Service:recycling 38 percent of its
waste stream.
The Scope and Theory of Government-Nonprofit Relations," in TheP. 54 Chubb quotation: John E. Chubb, "Why the Current Wave of School Nonprofit
Sector, p. 113.Reform Will Fail," Public Interest, no. 90 (Winter 1988): 40.
"It existed . . . particular problems": Lester Salamon, "Of MarketStatistics on Chicago schools: Closer Look (published by Designs Failure, Voluntary Failure,
and Third-Party Government: Toward afor Change, Chicago), no. I (February 1991): 5.
Theory of Government-Nonprofit Relations in the Modern WelfareP. 55 On New Haven, see Sharon Elder, "The Power of the Parent," Yale State," in Shifting the
Debate: Public/Private Sector Relations in the(Alumni Magazine) (October 1990): 50—54.
Modern Welfare State, ed. Susan A. Ostrander and Stuart Langton For an excellent article on Head Start in which the remarks quoted (New Brunswick, N.J.:
Transaction Books, 1987), pp. 29—49.here appear, see Liza Mundy, "The Success Story of the War on Pov"To this day . Johnny-come-lately": See Gwen Ifill,
"Pittsburgherty," Washington Monthly (December 1989). As Mundy reports, a
Finds Diversity Works in Fight on Homelessness," Washington Post,careful long-term study of one Head Start center, in Ypsilanti, Michi-
March 31, 1990, p. A3.gan, found that children who attended were more likely than their coun-

"Even a decade . . . source of income": Salamon, "Of Market Fail-terparts in the community to finish high school, to go on to college or ure," p. 30.vocational
training, and to become self-supporting, and they were less P. 47 Kolderie quotation: "Let's Not Say Privatization," Urban Resourceslikely to be detained or arrested or to
become pregnant as teenagers. A 2, no. 4 (Summer 1985): 14.cost-benefit analysis showed that every dollar spent on the center saved Drucker quotation: Drucker, Age
of Discontinuity, pp. 241—42.$6 in later special education, social service, court, and prison costs.
Notes to Pages Notes to Pages
Clinton quotation and data on HIPPY: Bill Clinton, "Repairing the Family," New
Perspectives Quarterly (Fall 1990): 12—15.
Chapter 2: Community-Owned Government:P. 56 Wisniewski quotation: From Gregg McCutcheon, In Their Own Empowering Rather Than ServingWords (Boston: Industrial
Services Program, 1990), p. 8.
P. 49 Brown quotation: Neal R. Peirce, "Police As Neighborhood Or-Data on San Francisco Community Boards: Rebuilding American ganizers: Chief Brown's Momentous
Innovation," Washington PostCommunity (New York: Project for Public Spaces, August 1988). Writer's Group, March 13, 1988. On community-oriented policing,P. 57
"Florida paroles . . . law-abiding citizens": Peter Drucker, The New see also James Q. Wilson and George L. Kelling, "Making Neighbor-Realities (New York: Harper &
Row, 1989), pp. 200—203.
hoods Safe," Atlantic (February 1989): 46-52; several articles in theThe "House of Umoja": Stuart Butler and Anna Kondratas, Out of July 1990 issue of Public
Management (published by the Interna-the Poverty Trap (New York: Free Press, 1987), pp. 77, 124; and Lynn tional City Management Association, Washington, D.C.);
John F.A. Curtis, "Neighborhood, Family and Employment," in American Persinos, "The Return of Officer Friendly," Governing (AugustViolence and Public Policy, ed.
Lynn A. Curtis (New Haven: Yale 1989): 56—61; and Richard Lacayo, "Back to the Beat," Time, AprilUniversity Press, 1985), p. 208.
l, 1991, pp. 22-24. 58 Home health care a $7 billion industry: Mary Sit, "Lifetime Corp: p. 50 Wilson quotation: Wilson and Kelling, "Making NeighborhoodsHouse
Calls with a Hug," Boston Globe, June 13, 1989, pp. 57, 58. Safe."Washington Monthly article on AIDS care: Katherine Boo, "What
Diamond quotation: Persinos, "Return of Officer Friendly,"Mother Teresa Could Learn in a Leather Bar," Washington Monthly pp. 64—65.(June 1991): 34—40.
Notes to Pages Notes to Pages
368 60—6969—80 369

p. 60 For more on Kenilworth-Parkside, see David Osborne, "They Can't"Sister Connie Driscoll . . . as we do": Bryan Miller, "House of
Stop Us Now," Washington Post Magazine, July 30, 1989, pp. 12— 19,Hope," Reason (May 1991): 50-53.
27—31, from which this discussion is drawn.P. 70 McKnight quotation: McKnight, testimony, pp. 2—3.
P. 62 "At one point, 120 residents . . . ": Cost Benefit Analysis ofthe Kenil-P. 73 "By 1989, three out of four Americans . . . ": Richard Morin and worth-Parkside Public
Housing Resident Management Corporation:Dan Balz, "Majority in Poll Criticize Congress," Washington Post, Executive Summary (Washington, D.C.:
National Center for Neigh-May 26, 1989, p. A8.

borhood Enterprise, May 1986). This report was based on a cost-P. 74 "Many people have recommended . . : In his book, Strong Democbenefit analysis
done by the consulting firm Coopers & Lybrand.racy: Participatory Politics for a New Age (Berkeley: University of
p. 63 "By 1987, rent collections were up to 75 percent . . . ": Dennis Eisen,California Press, 1984), Benjamin R. Barber outlined an ambitious a real estate consultant
hired to prepare a financial plan for residentset of proposals, including weekly or monthly neighborhood assemownership at Kenilworth—Parkside, interview with
authors.blies, town meetings using two-way televised communications, a nap. 64 "By 1989, the crime rate . . . ": Sergeant Robert L. Prout Jr., Wash-tional initiative
and referendum process, and the use of interactive ington, D.C., police department, interview with authors.video communications to hold frequent straw polls and
plebiscites as "In 1986 . . additional savings": Cost Benefit Analysis ofthe Ken-a way to spur discussion of important issues.
ilworth-Parkside Public Housing Resident Management Corporation.For more information on "futures projects," see Clement Bezold, p. 66 McKnight
quotation: John L. McKnight, "Regenerating Commu-ed., Anticipatory Democracy (New York: Vintage Books, 1978).
nity," Social Policy (Winter 1987): 58."We already have 504,404 . . . ": Richard Morin, "A Half a Mil"McKnight provides an illuminating series . . . ":
Ibid., pp. 56—58.lion Choices for American Voters," Washington Post National
Gillette quotation: From McCutcheon, In Their Own Words,Weekly Edition, February 6—12, 1989, p. 38. According to the Statispp. 22, 45.tical
Abstract ofthe United States 1990 (Washington, D.C.: Bureau of P. 67 McKnight quotation: From "The Cleveland Conference on Fiscalthe Census, 1990), p. 263,
table 440, 91,595,000 votes were cast in Constraints/Constructive Responses/Action Steps," report on a con-1988. This works out to one elected official for every 182
voters. ference held in Cleveland, April 21—23, 1982, sponsored by theFor more on St. Paul's district councils, see The Saint Paul ExperiCleveland Foundation and the
Hubert H. Humphrey Institute ofment, pp. 388—405. Public Affairs.
p. 68 Rhoads quotation: Steven E. Rhoads, The Economist's View of the
World (Cambridge: Cambridge University Press, 1985), p. 192.Chapter 3: Competitive Government:
One Church, One Child: see John Herbers, "And a Little ChildCompetition into Service Delivery Injecting Shall Lead
Them," Governing (October 1989): 34—35.
p. 69 "Florida saves $180 million' . . . ": Florida TaxWatch, Cost SavingsP. 76 Moffitt quotation: Quoted in Scott Lehigh, "Privatization Would Be in Florida Government
1980—89 (Tallahassee: Florida TaxWatch,Far-reaching," Boston Globe, April 29, 1991, p. l.
1989), P. 20.P. 78 . the city auditor estimates savings of $20 million . . . Phoe"In fact, the state . . . ": Behavioral Health Service System Descrip-nix City
Auditor's Office, "Estimated Cost Impact of Competitive tion (Phoenix: Arizona Department of Health Services, FebruaryService Delivery for Fiscal Year
1989—90 Management Summary,' 1989), P. 3.June 29, 1990. The precise number is $19.9 million.
McKnight quotation: John L. McKnight, testimony before the U.S.P. 79 Creech quotation: Quoted in Jay Finegan, "Four-Star Management," Senate,
Subcommittee on Aging, Family and Human Services, Sep-Inc. (January 1987): 42-51.
tember 17, 1981.P. 80 "If competition saves money . . . Some governments specify a Cook County study: Diane Kallenback and Arthur Lyons, Govern-
minimum wage contractors must pay. Some require minority hiring. ment Spendingfor the Poor in Cook County, Illinois: Can We Do Bet-Others, such as
Notes to Pages Notes to Pages
Phoenix, find that in services like garbage collection, ter? (Evanston, Ill.: Northwestern University Center for Urbanthe private sector pays just as well as government. A
1984 study done Affairs and Policy Research and Center for Economic Policy Analy-for the federal Department of Housing and Urban Development by sis, April
1989).Ecodata, a New York research company, found that in low-skill jobs, New York City study: McKnight, "Regenerating Community,"such as janitorial services,
governments tend to pay more than conpp. 55—56. The study was New York City's Poverty Budget, done bytractors, but in more high skill occupations, such as asphalt
paving, the Community Services, Society of New York, 105 East 22nd Street,contractors pay considerably better. Barbara J. Stevens, ed., DeliverNew York, NY
10010.ing Municipal Services Efficiently: A Comparison of Municipal and 370 80—8687—92 371

Private Service Delivery (Washington, D.C.: U.S. Department ofP. 87 "Studies in Wisconsin . . . " Timothy Tyson, An Evaluation of the
Housing and Urban Development, Office of Policy Development andMedicaid Health Maintenance Organization Program: 1987—1989
Research, June 1984).(Madison: Wisconsin Office of Policy and Budget, December 1989), Savas quotation: E. S. Savas, "Implementing Privatization," Ur-and The
Medicaid Health Maintenance Organization Program: Its Imban Resources 2, no. 4 (Summer 1985): 41.pact on Cost, Utilization and Access (Madison: Department of Health P.
81 "They show, he says . • Interview with authors. But see E. S. Sa-and Social Services, Division of Policy and Budget, January 1988). vas, Privatization: The Key to Better
Government (Chatham, N.J.:"We didn't slash any benefits . John F. Persinos, "The Good
Chatham House, 1987).Old Days of Generous Health Benefits Are Starting to End," Governing "James Q. Wilson . . . ": James Q. Wilson, Bureaucracy: What(March
1989): p. 60.
Government Agencies Do and Why They Do It (New York: Basic"By 1987, the federal government . . . ": President's Commission on Books, 1989), pp. 350—51. See
also Robert M. Spann, "Public versusPrivatization, Privatization, p. 129.
Private Provision of Governmental Services," in Budgets and Bureau-" . . . state and local governments contracted . . . John R. Miller crats: The Sources ofGovernment
Growth, ed. Thomas E. Borcherdingand Christopher R. Tufts, "Creative Management Through Privatiza(Durham, N.C.: Duke University Press, 1977), pp. 71-85.tion,"
American City and County, (September 1988): 82.
"Not surprisingly, Massachusetts . . . " Doug Bailey, "Study"The average city . . . ": E. S. Savas, "Private Enterprise Is ProfitBlames Regulators for High Auto Rates,"
Boston Globe, August 30,able Enterprise," New York Times, February 14, 1988.
1989, PP. 69, 70."The AFL-CIO has filled books . ": See, for example, America .
p. 82 "We all know the Postal Service . . . ": Carol Matlack, "No Pickup,Not for Sale: A PED Guide for Fighting Privatization (Washington, No Delivery," National Journal, June
4, 1988, p. 1484.D.C.: AFL-CIO Public Employee Department, October 1989).
"In 1988, it met . . . ": President's Commission on Privatization,"To do it right . : Stevens, Delivering Municipal Services EfjiPrivatization: Toward More Effective
Government (Washington, D.C.:ciently, pp. 9—10.
President's Commission on Privatization, 1988), p. 107.P. 88 "Privatizing to a monopoly . . . ": See Harry P. Hatry, A Review of "The trade association of bulk
mailers . . . ". Matlack, "NoPrivate Approaches for Delivery ofPublic Services (Washington, D.C.: Pickup, No Delivery."Urban Institute Press, 1983), p. 74.
"In 1971 12 percent": John Judis, "What's Wrong with theStarr quotation: Paul Starr, "The Meaning of Privatization," Yale Post Office," New York Times Magazine,
September 15, 1988.Law and Policy Review 6 (1988): 34.
Douglas quotation: From Roger Douglas, "National Policy-"Marion Barry's administration . . . ": Michael Willrich, "DepartMakers' Experience—New Zealand"
(address to World Bank Confer-ment of Self Services," Washington Monthly (October 1990): 28—36. ence on Privatisation, Washington, D.C., June 1 1—13, 1990).P. 89 "It
works best . . . ": Jeffrey L. Katz, "Privatization Without Tears," P. 83 . the survival of the helpful . : David Miller and Saul Estrin,Governing (June 1991): 40.
Notes to Pages Notes to Pages
"Market Socialism, a Policy for Socialists," in Market Socialism, ed."A 1989 survey . 30 percent": Jonathan Marshall, "Troubled Ian Forbes, Fabian
Society pamphlet 516.Cities Put Services Out to Bid," San Francisco Chronicle, June 3, Savas quotation: E. S. Savas, Privatizing the Public Sector
(Chat-1991, pp. 1, 6.
ham, N.J.: Chatham House, 1982), p. 136.p. 90 Savas quotation: Savas, Privatizing the Public Sector, p. 136.
P. 85 "When Tennessee recently decided . . . ": Elizabeth Neuffer, "CostFor more on Minnesota's Department of Administration, see Miof Private Prisons Debated,"
Boston Globe, May 6, 1991, pp. 15, 18.chael Barzelay and Babak J. Armajani, "Managing State Govern-
New York City's Sanitation Department material: Ronald A. Con-ment Operations: Changing Visions of Staff Agencies," Journal of tino, "Waging
Revolution in the Public Sector: Operational Improve-Policy Analysis and Management 9, no. 3 (1990): 307—338; and Miments Through Labor/Management
Cooperation," unpublishedchael Barzelay and Pamela Varley, "Introducing Marketplace Dypaper, available from Ronald A. Contino, Surface Transit, New
Yorknamics in Minnesota State Government," a case study prepared for City Transit Authority.the John F. Kennedy School of Government, Harvard
University, "To handle 4,500 . . . post offices": President's Commission on1988.
Privatization, Privatization, p. 121.p. 92 Hale quotation: From Sandra J. Hale, "Reinventing Government the p. 86 "In Massachusetts in 1989 . . Bruce
Mohl, "Insurance CostsMinnesota Way" (address to National Public Sector Productivity Shackle State," Boston Globe, December 8, 1989, pp. 1,
18.Conference, Albany, N.Y., September 10, 1990).
SRI International study on Arizona: Nelda McCall et al., Evalua-"Between 1987 and 1990 . . saving the state $3.6 million": Santion ofthe
Arizona Health Care Cost Containment System: Final Re-dra Hale, Judith Pinke, and others in the Minnesota Department of port (Menlo Park, Calif.: SRI
International, January 1989). Administration, interviews with the authors.

372 93-106106—1 13 373


Notes to Pages Notes to Pages

p. 93 Drucker quotation: Peter Drucker, The New Realities (New York:"In mass transit . See Elliott D. Sclar, K. H. Schaeffer, and Harper & Row, 1989), p. 235.Robert
Brandwein, The Emperor's New Clothes: Transit Privatization P. 94 Thompson quotation: From Nancy Paulu, Improving Schools andand Public Policy (Washington, D.C.:
Economic Policy Institute, Empowering Parents: Choice in American Education (Washington,1989), PP. 19-24.

D.C.: U.S. Department of Education, Office of Educational Research"Even in day care . : Bill Jameson, former director of Ariand Development, October 1989), p.
44.zona's Department of Economic Security, told us: "The private, forP. 95 Chubb quotation: From "The Right to Choose: Public School Choiceprofit day care centers did
everything they could to keep us from and the Future of American Education," Manhattan Institute for Pol-contracting with mothers who took in a few kids. My goal was, the icy
Research Policy Paper, June 1989, pp. 8—13.more kids we can get in day care homes the better, because it's a good Wagner quotation: Ibid., p. 29.environment. But they went to
the legislature and tried to prohibit us Chubb quotation: Ibid.from putting kids in those homes. They also tried to keep us from
P. 97 "In the program's first year . . . college courses": Jessie Montano,doing business with schools, for after school care. They said that was "Choice Comes to Minnesota," in
Public Schools by Choice, ed. Joeunfair competition from the public sector, because the schools are Nathan (St. Paul, Minn.: Institute for Learning and Teaching,
1989),subsidized. . . They succeeded one year in striking down any atpp. 165-180.tempt to license schools, but that's been taken care of."
P. 98 "By 1987, 5,700 students . . . ": Ibid., PP. 176-177."The postmasters sent . ' : Associated Press, "Post Offices Use "Roughly a quarter . Joe Nathan, "Prime Examples ofFree
Mail to Lobby," Boston Globe, July 5, 1990.

School-Choice Plans," Wall Street Journal, April 20, 1989.P. 107 "Public police forces are losing ground . . . ": William C. Cunning-
"In three years . . . television instruction": Montano, "Choiceham, John J. Strauchs, and Clifford W. Van Meter, Private Security Comes to Minnesota."Trends 1970 to
2000: The Hallcrest Report Il (Boston: Butterworth"In its first two years . . . just two years": Joe Nathan, in "TheHeinemann, 1990), pp. 229, 230. Right to Choose," p.
22.
P. 99 "Once they entered . Peter Hutchinson, Babak Armajani, andChapter 4: Mission-Driven Government: John James, Enterprise Management:
Designing Public Services As ifTransforming Rule-Driven Organizations the Customer Really Mattered (Minneapolis: Center of the American
Experiment, 1991), p. 14.P. 108 Patton quotation: Quoted in Roger Vaughan, "Is It Working," EntreStatistics on participation in open enrollment options:
Minnesotapreneurial Economy Review (published by the Corporation for EnterDepartment of Education.prise Development, Washington, D.C.) (July—August 1989): 3.
P. 100 Kolderie quotation, "School choice alone . . . ": Ted Kolderie, Be-P. 1 10 Wilson quotation: James Q. Wilson, Bureaucracy (New York: Basic yond Choice to New Public
Schools: Withdrawing the Exclusive Fran-Books, 1989), p. 342.

chise in Public Education (Washington, D.C.: Progressive PolicyP. 111 "When the Federal Aviation Administration . . . 9 to 12 months": Institute, November
1990).President's Commission on Privatization, Privatization: Toward 101 "When Governor Perpich . 60 percent did": Nathan, "Prime Ex-More Effective Government
(Washington, D.C.: President's Commisamples."sion on Privatization, 1988), pp. 67—68.
"Even more revealing . . . ". Rebecca Woosley, "School Choice"When the Massachusetts Revenue Department . . . ". Chris Benefits Students, Teachers," Wingspread
Journal (Fall*WinterBlack, "Civil Service Feels the Strain," Boston Globe, August 26, 1990): 1-5.1987, PP. 1, 83.
P. 105 Dallas hospital study: Elizabeth Hudson, "Stemming the Tide of Pa-Logue quotation: Charles A. Radin, "High Cost Seen in Adhering tient Dumping," Washington Post
Weekly Edition, April 4—10, 1988, p.to Ward Reforms," Boston Globe, December 26, 1989.

35.P. 112 Stein quotation: Andrew Stein, "The Board of Education Surrenders "Careful studies indicate . . . ": Stevens, Delivering Municipal Ser-to Janitors," New York
Times, November 6, 1987.
Notes to Pages Notes to Pages
vices Efficiently.P. 113 "St. Paul, Visalia . . . ": "The Top 50 Cities: 5th Annual Financial "But some studies suggest . . . ": Jonathan Marshall, "Troubled
Cit-Report," City and State, November 19, 1990, p. 12.
ies Put Services Out to Bid," reporting a 1989 study by the National"As Morton H. Halperin . . . ": James Q. Wilson, Bureaucracy Commission for
Employment Policy.(New York: Basic Books, 1989), P. 179.
P. 106 Donahue quotation: John D. Donahue, The Privatization Decision"All the research shows . . . ": For a review of the research litera-
(New York: Basic Books, 1990).ture, see Mary Anne Raywid, "The Mounting Case for Schools of

374 1 13—127127-135 375


Choice," in Public Schools by Choice, ed. Joe Nathan (St. Paul,"With 17.5 million . Figures on public payroll: Statistical Minn.: Institute for Learning and
Teaching, 1989), pp. 26—27.Abstract of the United States 1990, Table 487, reports a total Fliegel quotation: Remarks at East Harlem conference
sponsoredmonthly payroll of $32,382,000,000 in 1987—roughly $388 billion by the U.S. Department of Education, October 17, 1989.a year. As of 1992,
this is the most recent figure available. Adjusting "When a Philadelphia youth gang . . . ": Stuart Butler and Annafor inflation between 1987 and 1992, the
figure should be close to Kondratas, Out of the Poverty Trap (New York: Free Press, 1987),$500 billion.
PP. 130-131."Benefits add . : In the federal government, benefits total 23 P. 114 "Even today, McDonald's . . . ": Wilson, Bureaucracy, p. 1 14.percent of
payroll, according to the Office of Personnel Manage-
p. 115 Rural Electrification Administration: James Bennett, "Power Fail-ment. Applying the 23 percent figure to $500 billion, benefits for all ure," Washington
Monthly (July—August 1990): 12—21.governments would be $115 billion a year.
P. 116 "When Common Cause surveyed : The Status of Sunset in the"One study found . . . T. E. Borcherding, W. C. Bush, and R. States: A Common Cause Report
(Washington, D.C.: CommonM. Spann, "The Effects on Public Spending of the Divisibility of Cause, 1982). Cited by Jonathon Rose, "The Arizona Sunset
Experi-Public Outputs," in Budgets and Bureaucrats: The Sources of Govence: The First Two Cycles, 1978—82," Arizona State Law Journal,ernment
Growth, ed. Thomas Borcherding (Durham, N.C.: Duke no. 2 (1985): 321- 423.University Press, 1977), pp. 221—224.
P. 118 "In one branch . : The Unified Budget Test (Washington, D.C.:P. 128 "Mayor Latimer pushed . . See The St. Paul Experiment, Deputy Secretary of Defense
[Installations], March 1988).PP. 372-387.

"At one military base . . . in the mud": Ibid.The China Lake Experiment: Wilson, Bureaucracy, pp. 146—148. P. 121 "By 1991 . . . its revenues": City
ofFairfield, California, 1991/92 An-P. 130 "Even 50 years ago . . : Ibid., pp. 97—99.
nual Budget and Ten-year Financial Plan (Fairfield: City of Fairfield,Couper quotation: David C. Couper and Sabine H. Lobitz, Quality May
30, 1991), p. 29.Policing: The Madison Experience (Washington, D.C.: Police ExecuP. 122 "Sweden, Canada, Britain . Allen Schick, "Micro-Budgetarytive
Research Forum, 1991), p. 24.
Adaptations to Fiscal Stress in Industrialized Democracies," PublicP. 131 "In 1989, Representatives Lee Hamilton . . . ": Morton Kondracke, Administration
Review (January-February 1988): 523—532; and Al-"How to Aid A.I.D.," New Republic, February 26, 1990, pp. 20-23. len Schick, "Budgeting for Results:
Recent Developments in Five In-P. 132 "When George Latimer . . . See The Saint Paul Experiment, dustrialized Countries," Public Administration Review
(January—pp. 57-71, 317-328.
February 1990): 26-33.P. 135 Gen. Gray quotation: "CMC Blasts Zero- defect Mentality," GraduP. 123 Peters and Waterman quotation: Thomas J. Peters
and Robert Wa-ate Gazette, n.d., published by the Office of the Assistant Secretary of terman, Jr., In Search ofExcellence (New York: Warner Books, 1982),Defense
for Installations.
Notes to Pages Notes to Pages
In his book, Bureaucracy, pp. 14—16, James Q. Wilson describes a
P. 125 "No issue . ". Black, "Civil Service Feels the Strain."fascinating example of a mission-driven organization: the German "In San Francisco . . . " Stephen Schwartz, "SF
Proposal to Re-Army in World War Il. The central concept the Germans used to form Hiring, Firing," San Francisco Chronicle, May 18, 1991.build a military capable of
blitzkrieg tactics was auftragstatik—a "When E. S. Savas . . . ". Interview with authors. For more, see"mission-oriented command system":
E. S. Savas and Sigmund G. Ginsberg, "The Civil Service: A Meritless System?"
Public Interest, no. 32 (Summer 1973): 70—85.
P. 126 "Federal employees cannot . Wilson, Bureaucracy, pp. 145—146."An army that could probe enemy defenses, infiltrate weak "James Q. Wilson . . . ": Ibid.points, and
rapidly exploit breakthroughs with deep encircling P. 127 "When New Jersey . . . ": Matthew Cooper and Paul Glastris,moves could not be an army that was centrally directed
or de"Laughing at the Hangman," U.S. News and World Report, June 17,pendent on detailed plans worked out in advance. . . .
1991, p. 28-29.tell their subordinates precisely what
Commanders were to
Rosenthal quotation: Ibid.but not necessarily how to accomplish it. was to be accomplished
"While their unions . . . ": The St. Paul Experiment, ed. David A.. had remarkably little paperwork. OrThe German army . . Lanegran, Cynthia
Seelhammer, and Amy Walgrave (St. Paul: City ofbrief. ders were clear but
St. Paul, December 1989), pp. 376-377.
"Scott Shuger . . . ": Scott Shuger, "How to Cut the Bureaucracy inThe result was an organization well adapted to the task of getHalf," Washington Monthly (June
1990): 38-51.ting men to fight against heavy odds in a confused, fluid setting
Notes to Pages Notes to Pages
376 135—143146—155 377
"Scorecard" and related performance measurement: See Fundfor the far from army headquarters and without precisely detailed in-City
ofNew York, Three-year Report, 1979-81 (New York: Fund for structions."of New York, 1982). the City
Notes to Pages Notes to Pages
p. 147 Farrell quotation: Ibid., p. 3.
P. 135 "Florida's State Management Guide . . . ": Governor's ManagementSpanbauer quotation: Stanley J. Spanbauer, Quality First in EduImprovement Program, State
Management Guide (Tallahassee: Ad-cation . . . Why Not? (Appleton, Wis.: Fox Valley Technical College ministration of Governor Bob Graham).
Foundation, 1987), p. 48.
P. 137 Drucker quotation: Peter Drucker, The Age of Discontinuity (New"Smaller, more entrepreneurial . . • For a good example, see York: Harper Torchbooks, 1978), p.
229.Mark Muro, "Agencies Find That Small Is Vulnerable," Boston Globe, May 30, 1989, PP. 15, 19.

Chapter 5: Results-Oriented Government:"When the Bush administration . . . what we've bought": Paul M.
Barrett, "Federal War on Drugs Is Scattershot Affair, with Dubious
Funding Outcomes, Not Inputs
Progress," Wall Street Journal, August 10, 1989, p. 1.

P. 139 For more on the Illinois system of rating nursing homes, see Innova-P. 148 "One sage . . . Stan Jordan, chairman of the school board, Duval tions in State and Local
Government, 1986, report of the Ford Foun-County, Florida.
dation/John F. Kennedy School Awards Program, p. 13."When the Federal National Mortgage Association . . . ' . Brian P. 140 " 'Pleasing the voters is our performance
evaluation' ": Quoted inDumaine, "Making Education Work," Fortune, Education 1990 IsKatherine Barrett and Richard Greene, "The Forgotten Statesue, p. 13.
House," Financial World, April 17, 1990."When wealthy New Orleans oilman . ": Ann Reilly Dowd, "How Blumenthal quotation: Quoted in James Q. Wilson,
BureaucracyWashington Can Pitch In," Fortune, Education 1990 Issue, p. 62.
(New York: Basic Books, 1989), PP. 195, 197. Originally from Mi- "In 1989, the state . . . ": Ibid., and "Arkansas Adopts Taylor Plan," chael Blumenthal, "Candid
Reflections of a Businessman in Wash-New Concepts (newsletter published by the Exchange Foundation, ington," Fortune, January 29, 1979, p. 39.Birmingham, Ala.) 4,
no. 9 (Spring 1991): 3, 4.
Fountain quotation: Quoted in "Tracking Bang for the Buck," Gov-Fliegel quotation: Quoted in Robert Merrow, "Schools of Choice: erning (April 1991): 13—
14.More Talk Than Action," Public Schools by Choice, ed. Joe Nathan P. 141 "Fountain's organization . . . ": See Harry P. Hatry et al., eds., Ser-(St. Paul, Minn.: Institute for
Learning and Teaching, 1989), p. 119. vice Efforts and Accomplishments Reporting: Its Time Has Come: An"One study . . • In 1986, Metro United Way in Louisville
pubOverview (Norwalk, Conn.: Governmental Accounting Standardslished Incentives for Working, which used a $7 an hour figure. (In-
Board, 1990).deed, it became known as the "$7-an-hour study.") In December P. 142 "Six states are testing performance standards . . . ": See Commission1988, a
University of Kentucky report said the figure had increased on Trial Court Performance Standards, Trial Court Performanceto $9 an hour: Lucinda R. Zoe and Lynne S. Kelly,
Status of Child Standards with Commentary (Williamsburg, Va.: National Center forCare in Kentucky (Lexington, Ky.: University of Kentucky College of State Courts, 1990);
Measurement of Trial Court Performance: 1990Business and Economics, Center for Business and Economic ReSupplement to the Trial Court Performance Standards with
Commen-search, Dec. 1988).
tary (Williamsburg, Va.: National Center for State Courts, 1990); andP. 150 "Minnesota's Learnfare initiative . . . ": Access to Excellence, Education Beatrice P.
Monahan, Public Perceptions of Access to Justice (Wil-in Minnesota (St. Paul: Minnesota Department of Education), p. 14. liamsburg, Va.: National Center for State
Courts, 1990).P. 151 Drucker quotation: Peter Drucker, Innovation and Entrepreneurship "Some offer performance bonuses . . . ": Ted Kolderie, An Equita-(New York:
Harper & Row, 1985) p. 37.
ble and Competitive Public Sector (Minneapolis: Hubert H.For more on Transitional Employment Enterprises and America Humphrey Institute of Public Affairs,
University of Minnesota,Works, see David Osborne, Laboratories ofDemocracy (Boston: Har1984), p. 61; and Kolderie, "Let's Not Say Privatization," Urban Re-vard
Business School Press, 1988), pp. 198—200.
sources, 2, 4 (Summer 1985): p. 13.P. 153 Community Mental Health Centers story: Andrew Bates, "Mental "Boston Edison pays . . . ": Gordon McKibben, "Edison,
State SetHealth Spas," Washington Monthly (December 1990): 26—29.
Notes to Pages Notes to Pages
Rate Pact," Boston Globe, October 4, 1989, pp. l, 26.P. 155 Florida TaxWatch quotation: "TaxWatch Survey Shows Strong PubP. 143 Sunnyvale
performance standards: From City of Sunnyvale, Re-lic Support for Increased Transportation Funding IF Tied to Insource Allocation Plan: 1989-90 to 1998—
99 Fiscal Years, 10-Year Op-creased DOT Performance," Florida Tax Watch Briefings, April 24, erating Budget.1990. Available from Florida TaxWatch,
Tallahassee, Florida.

378 157—178178—192 379


P. 157 "James Q. Wilson . . ": James Q. Wilson, Bureaucracy (New York:Workforce (Lansing, Mich.: Governor's Cabinet Council on Human Basic Books, 1989), p.
162.Investment, March 1988), p. 49.
P. 158 "The Urban Institute's Harry Hatry . . : Harry P. Hatry and John"And it learned that . . . ": "Creating a Strategic System for HuM. Greiner, Issues and Case
Studies in Teacher Incentive Plansman Investment: The Michigan Opportunity System," Michigan Hu(Washington, D.C.: Urban Institute Press,
1985), p. 115. man Investment Fund, January 1990.
Shanker proposal and quotation: Edward B. Fiske, "Lessons," NewElectronic mail in Santa Monica: M. J. Richter, "The Real AdvanYork Times,
July 26, 1989, p. B8.tages of Putting Government On Line," Governing (May 1 991): 60.

P. 159 "As one Rochester teacher . . . " Quoted in Jerry Buckley, "Black-P. 179 "Many high schools . . . ": Jerry Thomas, "High School Gives Warboard Juggle,"
U.S. News and World Report, December 24, 1990,rantees," Boston Globe, June l, 1991.
P. 56.Drucker quotation: Peter Drucker, The Age ofDiscontinuity (New P. 160 Scholtes quotation: Peter R. Scholtes, The Team Handbook (Madi-York:
Harper Torchbooks, 1978), p. 256.
son, Wis.: Joiner Associates, 1988), pp. 1—11, 1—12."Sweden . . . by 1988": Sam Zagoria, "Ombudsmen Can Clear the P. 165 "Great Britain, Denmark .
• See Allen Schick, "Budgeting forAir Between Citizens and City Hall," Governing (November 1988): Results: Recent Developments in Five Industrialized
Countries,"82. A former Washington Post ombudsman, Zagoria wrote The OmPublic Administration Review (January—February 1990): 26—33.budsman:
How Good Governments Handle Citizens' Grievances (Bethesda, MD: Seven Locks Press, 1988).
Chapter 6: Customer-Driven Government:P. 182 Coleman quotation: From "The Right to Choose: Public School
Notes to Pages Notes to Pages
Choice and the Future of American Education," Manhattan Institute
Meeting the Needs of the Customer, Not the Bureaucracy for Policy Research policy paper, June 1989, p. 29.
P. 166 Couper quotation: David Couper and Sabine Lobitz, Quality Polic-"James Q. Wilson . like McDonald's": James Q. Wilson, Buing: The Madison Experience
(Washington, D.C.: Police Executivereaucracy (New York: Basic Books, 1989), pp. 135—136.
Research Forum, 1991), p. 65.P. 183 Raywid quotation: Mary Anne Raywid, "The Mounting Case for P. 167 Forsberg quotation: In Peter S. Canellos, "Undaunted by
DireSchools of Choice," in Public Schools by Choice, ed. Joe Nathan (St. Straits," Boston Globe, December 23, 1990, pp. 25, 31.Paul, Minn.: Institute for Learning and
Teaching, 1989), p. 32.
P. 169 Fliegel quotation: Remarks at East Harlem conference sponsored byNathan quotation: Joe Nathan, "Introduction," in Public Schools the U.S. Department of Education,
October 17, 1989.by Choice, p. 9.
P. 170 Kearns quotation: David T. Kearns and Denis P. Doyle, Winning theP. 184 "Even a majority . Poll funded by Metropolitan Life, released Brain Race: A Bold Plan to Make
Our Schools Competitive (San Fran-in October 1989.
cisco: Institute for Contemporary Studies, 1988), pp. 21—22."Education research . . satisfaction": Raywid, "Mounting Case Drucker quotation: Drucker, "What Business
Can Learn fromfor Schools of Choice."
Nonprofits," Harvard Business Review (July—August 1989): 328—333.P. 185 "Studies done in Wisconsin . . . ": E. S. Savas, Privatizing the Public "The Dallas Parks
and Recreation Department . : See Innova-Sector (Chatham, N.J.: Chatham House, 1982), p. 142.
tions in State and Local Government 1987, report of the Ford Foun-P. 187 "In 1989, the assistant secretary . U.S. Congress, Select Comdation/John F. Kennedy School
Awards Program, p. 12.mittee on Children, Youth, and Families, Opportunities for Success: P. 172 Sensenbrenner quotation: Joseph Sensenbrenner, "Quality Comes toCost-
Effective Programs for Children Update, 1990 (Washington, City Hall," Harvard Business Review (March—April 1991): 65.D.C.: U.S. Government Printing Office, 1990), p.
159.
P. 174 For more on Fox Valley Tech, see Stanley J. Spanbauer, Quality FirstYoungstown story: Terry F. Buss and Roger J. Vaughan, On the in Education . . . Why Not?
(Appleton, Wis.: Fox Valley TechnicalRebound: Helping Workers Cope with Plant Closings (Washington, College Foundation, 1987); and Stanley J. Spanbauer, Quality:
AD.C.: Council of State Policy and Planning Agencies, 1988), and inBusiness Prescription for America's Schools (Milwaukee: Qualityterviews with authors.
Press, forthcoming).Vaughan quotation: Interview with authors.
P. 177 Florida TaxWatch quotation: Building a Better Florida: A Manage-P. 188 "Those who avoided': Personal communication from Dr. Terry Buss ment Blueprint to Save
Taxpayers over $1 Billion (Tallahassee: Flor-and Dr. Roger Vaughan.
ida TaxWatch, 1986), p. 15.Vaughan quotations: interview with authors.
P. 178 "It discovered that social problems . . . ": Adult Literacy Task Force,P. 192 "Power and his colleagues . . . ": Creating a Human Investment System Countdown 2000:
Michigan's Action Plan for a Competitive(Lansing: Michigan Job Training Coordinating Council, 1989), p. 10.
Notes to Pages
380 Notes to Pages 193-203 P. 203 Charles Long, Fairfield city manager, interview with
Olive authors.
P. 193 "A recent Governing . . . for Tasha": Kathleen Sylvester, "New r "Sunnyvale generates . . . ": City of Sunnyvale, Resource
quota Allocation Plan: 1989—90 to 1998—99 Fiscal Years, 10-
Strategies to Save Children in Trouble," Governing (May 1990): 32
tion: Year Operating Budget, p. xxxix.
—37. In
Stitel "The average local government . . . ": Steven D. Gold,
"Even the AFL-CIO . . . funding streams": Making Government er, Reforming State-Local Relations: A Practical Guide
Work (Washington, D.C.: AFL-CIO Public Employee Department, (Denver: National Conference of State Legislatures, 1989),
"Deal
1991). pp. 51—52.
that
Built
City "They are particularly common . . . Harry P. Hatry,
"Using Fees and Charges to Adjust Demand," in The
Chapter 7: Enterprising Government: Hall,"
Entrepreneur in Local Government, ed. Barbara Moore
p. 55.
Earning Rather Than Spending (Washington, D.C.: International City Management
P. 195 Wilson quotation: In Ray Vicker, "Fairfield, Calif., Relies on Business Association, 1983).
Savvy to Raise Revenues in Wake of Tax Revolt," Wall Street Fa
Journal, November 24, 1982, p. 56. irf 204
iel
FERC story: Dale Rusakoff, "The Government's Not Like You or d
Me," Washington Post, February 15, 1990, p. A23. ha
P. 196 1984 Olympics: See Peter Ueberroth, Made In America (New York: s
William Morrow and Co., 1984). m P. 205
ad
P. 197 "Chicago turned . the privilege": Katherine Barrett and Richard
e.
Greene, "American Cities: A Special Report," Financial World,
..
February 19, 1991, p. 22.
": P. 206
"The St. Louis County . . police department": Fred Jordan,
Innovating America (New York: Ford Foundation, 1990), p. 48.
"Paulding County . . . operating costs": Tom Watson, "Lockups
for Lease," Boston Globe, May 16, 1991. P. 210

200 Figures on Fairfield mall and other development projects: Interviews P. 211
with Fairfield development staff.
P. 201 "Lest you think . . . ' Lawrence M. Fisher, "Cities Turn into
Entrepreneurs," New York Times, April 4, 1987, pp. Business 1, 19.
P. 202 Frederick quotations: From Mayor Bill Frederick, 1991 State of City
Address, p. 6. P. 212
Orlando city hall: See Lewis Oliver and Eric Smart, "Orlando's
City Commons," Urban Land (January 1990): 21—25; and Rowland P. 213
Stiteler, "The Deal That Built City Hall," Orlando Magazine
(December 1990): 53—74.
Notes to Pages Notes to Pages
P. 214 "Loca lay and Pamela Varley, "Introducing Marketplace Dynamics in
l Minnesota State Government," a case study prepared for the John F.
gover Kennedy School of Government, Harvard University, 1988, p. 6.
nmen
ts Pensacola quotations: From Steve Garman, "Divesting Local
P. 216 Functions in Pensacola," in The Entrepreneur in Local Government,
have .
. . ": p. 170.
Lawr Martinez quotation: Peirce and Guskind, "Fewer Federal Dollars
ence Spurring Cities To Improve Management and Trim Costs," National
P. 217 "Chip Journal, March I, 1986, p. 506.
203—217 381 "
Pierc
Shannon quotation: In Penelope Lemov, "User Fees, Once the Answer to e, Von Raesfeld quotation: From transcript of Santa Clara City Council
City Budget Prayers, May Have Reached Their Peak," Governing (March "Hitti meeting, January 31, 1984, attached to "Deposition of Mr. Donald
1989): 26. ng R. Von Raesfeld," in Casimer Szlendak and Gerald I. Waissman vs.
the Marriot Corporation, City of Santa Clara, Redevelopment Agency,
"What is fair about subsidizing golf . . . ": Neal R. Peirce and Robert Beac et al., January 22, 1988, vol. 2.
Guskind, "Fewer Federal Dollars Spurring Cities to Improve Management h and "One study of 68 cities . . . ": E. S. Savas, "How Much Do
and Trim Costs," National Journal, March I, 1986, p. 506. Runn Government Services Really Cost?" Urban Affairs Quarterly 15, no.
ing: I (September 1979): 23—42.
"To solve this problem . . For examples, see Lemov, "User Fees,", p. 28.
Mini
Mikesell quotation: Ibid., p. 27. bonds 382 219—225
,"
King quotation: Norman R. King, "Managing Demand for Government Gove
Services: Toward a New Public Administration Ethic" (address delivered to rnme
Chapter 8: Anticipatory Government:
Michigan City Management Association, February 1 7, 1988), P. 12. nt Prevention Rather Than Cure
"Careful studies have estimated . See U.S. Congress, Select Committee on Finan P. 219 Dator quotation: "State Judicial Foresight in the '80s and
Children, Youth, and Families, Opportunities for Success: Cost-Effective ce '90s," in "Governing with Vision: State Government
Programsfor Children Update, 1990 (Washington, D.C.: U.S. Government Revie Foresight in the '90s" (Washington, D.C.: Council of
Printing Office, 1990), pp. 70—71, for summaries of several studies. w Governors Policy Advisers and Institute for Alternative
(Aug Futures, unpublished draft).
"Phoenix typically gets 1,000 . . . ": Interviews with Phoenix Personnel ust
Department. 1988) P. 220 "Homicide is . . . remained level": Neal Peirce, "Brady Bill
: 29- Will Help Save the Children," Philadelphia Inquirer, April
Cisneros quotation: Marjorie George, "Can a City Be Run Like a Business?" 31. 1, 1991.
San Antonio (December 1986): 22—29.
"Every year . . . preventing it.": Howard Wolpe and
Arma Claudine Schneider, "Reducing Hazards, Cutting Costs,"
Drucker quotation: Peter F. Drucker, "The Innovative Organization," The jani
Frontiers of Management (New York: Harper & Row, 1985), PP. 263-264. Northeast-Midwest Economic Review, March 6, 1989, pp.
quota 5—6.
Pinchot quotation: Gifford Pinchot Ill, Intrapreneuring (New York: Harper tion:
& Row, 1985), p. 275. In "The United States ranks . . . during pregnancy":
Mich National Commission to Prevent Infant Mortality, 1988
ael statistics, (most recent available), personal communication.
Barze
Notes to Pages Notes to Pages
"Careful medical studies prove . . . ": See U.S. Congress, Select P. 227 "It has safer . . . ": Rural Metro, interview with authors.
Committee on Children, Youth, and Families, Opportunities for
Success: Cost-Effective Programsfor Children Update, 1990 "Other forms of prevention . . . ": See Fund for the City of New
(Washington, D.C.: U.S. Government Printing Office, 1990), pp. York, Three-year Report, 1979—81 (New York: Fund for the City
P. 228 of New York, 1982), pp. 24—25; and Fund for the City of New
26, 35—36, 43. "Yet 20 million . . . ' Kathleen Sylvester, "Infant
Mortality: It's As American As Apple Pie," Governing (July 1988): York, Three-year Report, 1982—84 (New York: Fund for the City
56. Sylvester cites analysis by the New York—based Alan of New York, 1985), pp. 52-53.
Guttmacher Institute. Cooperative Home Insurance Program: See Charles W. Thompson,
P. 221 "In 1991 . . the debt": As of September 1991, the federal Office of P. 229 "Municipal Home Insurance," in The Entrepreneur in Local
Management and Budget estimated fiscal 1991 net interest (interest Government, ed. Barbara H. Moore (Washington, D.C.:
P. 230
paid on the federal debt minus interest payments made to the federal International City Management Association, 1983), pp. 195—204.
government) at $197 billion. It estimated the total federal debt at "During the 1970s . . . ": Clement Bezold, "An Image of Health
$3.6 billion. P. 231 Care in 2010," in "Governing with Vision."
Toffler quotation: Alvin Toffler, Future Shock (New York: "Air pollution . : From Elliott Sclar, K. H. Schaeffer, and Robert
P. 232 Brandwein, The Emperor's New Clothes: Transit Privatization and
Bantam Books, 1970), P. 471.
Public Policy (Washington, D.C.: Economic Policy Institute, 1989),
P. 233
Donaldson quotation: From transcript of interview with Robert p. 5. The authors cite Transit 2000: Interim Report of the American
Guskind and Neal Peirce of the National Journal, provided to the
authors by Guskind and Peirce. Public Transit Association Transit 2000 Task Force (October 1988).
"Stress costs . . . ". William Van Dusen Wishard, "What in the
P. 222 Wilson quotation: In Neal Peirce, "Two New GOP Governors Try 233 World Is Going On?" Vital Speeches, March 1, 1990, p. 314.
New Approaches to Old Problems," Philadelphia Inquirer, April 8,
1991, p. Il-A. "A research team . Ibid.

P. 223 "New Jersey . . . welfare hotels": Gwen Ifill, "New Jersey Battles "Th "In 1983, ye spent . • U.S. Congress, Office of Technology
Homelessness by Preventing It," Washington Post, March 14, 1990, e Assessment, Technology and the American Economic Transition:
p. Al. result Choicesfor the Future, OTA-TET-283 (Washington, D.C.: U.S.
. . . ". Government Printing Office, May 1988), p. 41.
"In Europe . . . ": Ted Kolderie, "The Declining Need for the 'Fire Rural
Department,' " Public Services Redesign Project, Humphrey Kitzhaber quotation: In Richard A. Knox, "Oregon Strips Its
Metro
Institute, University of Minnesota. Medicaid Plan," Boston Globe, July 9, 1990, p. 28.
and
P. 224 "Fresno, California . . . ". Ibid. city Governing quotation: Laura Ost, "Governing Guide: Cleaning
of Up," Governing (April 1991): 41.
P. 225 "It even saves . . . " personal communication from Rural Metro, Scotts
Scottsdale, Arizona. dale, "Nearly 30 jurisdictions . . . " Reid Lifset and Marian Chertow,
interv "Changing the Waste Makers: Product Bans and the New Politics of
"Passed when only . . Innovations of Cities," September 14, 1988,
iews Garbage," American Prospect (Fall 1990): 83—88.
memo provided by city of Scottsdale, p. 7.
with "Dupont, Procter & Gamble . . . ": Tom Arrandale, "Plastics
P. 226
autho Recycling: Industry Buys In," Governing (May 1991): 21.
rs. "Dow Chemical . . to Dow": Wolpe and Schneider, "Reducing
Hazards, Cutting Costs."
Notes to Pages Notes to Pages
Toffler quotation: Alvin Toffler, "Introduction," in Clement Bezold, ed., Was Robert L. Stilger, "Alternatives for Washington," in Anticipatory
Anticipatory Democracy (New York: Vintage Books, 1978), pp. xiv—xv. hing Democracy, pp. 88—99. Bryson book: John Bryson, Strategic
ton . Planning for Public and Nonprofit Organizations (San Francisco:
Goals for Dallas, including all quotations: See Robert B. Bradley, "Goals See Jossey-Bass, 1988).
for Dallas," in Anticipatory Democracy, pp. 58—87. "Alternatives for

384 233-249 Schorr quotation: In Eileen Shanahan, "Attacking the 'Nothing


Works' Notion," Governing (December 1989): 65. The book is Within
Our Reach: Breaking the Cycle ofDisadvantage (Garden City, N.J.:
"The Tokyo Metropolitan Government . . . plan": See Mary
Doubleday, 1988).
McCormick, "What's Produced in Tokyo That Will Play in New York?
Lessons in Public Management from Japan," Public Papers of the State rainy day funds: See Tony Hutchison and Kathy James,
Fund for the City of New York 7, no. I (May 1988). Legislative Budget Procedures in the 50 States: A Guide to
Appropriations and Budget Processes (Denver: National Conference
Gretzky quotation: From John M. Bryson, "A Strategic Planning
of State Legislatures, September 1988).
Process for Public and Non-profit Organizations," Long Range
Planning 21, no. l, (February 1988): p. 73. Oklahoma: Larry Tye, "Oklahoma Charted a Course Out of Its 1980s
Budget Crisis," Boston Globe, February 25, 1990.
Bryson quotation: Bryson, Strategic Planning for Public and
Nonprofit Organizations, p. 2. Leonard quotations: Herman B. Leonard, Checks Unbalanced: The
"As a mayoral assistant . • Gregory Farrell, "Helping Government Do Quiet Side ofPublic Spending (New York: Basic Books, 1986), pp. 9,
Better with Less," in Fundfor the City ofNew York, ThreeYear Report, 170, 208-212.
1979-81, p. 2.
Antonio quotation: In Jonathan Wal!ers, "The Books and the Bottom
Peirce quotation: Neal R. Peirce, "New Horizons for Nebraska," Line," Governing (November 1989): 61.
(address at conference sponsored by Nebraska State Legislature), "A member . • Ibid., p. 62.
October 25, 1987.
Latimer quotation: George Latimer, "Public Administration," in The
Rose quotation: Charlie Rose, "Building a Futures Network in St. Paul Experiment, ed. David Lanegran, Cynthia Seelhammer, and
Congress," in Anticipatory Democracy, p. 105. Amy L. Walgrave (St. Paul, Minn.: City of St. Paul, December 1989),
p. 314.
"The 10-year projections . . . ": Quoted in Clint Page, "Small
Computers Solve Big Problems," Nation's Cities Weekly, March 22, Toffler, "Introduction," pp. xii-xiv.
1982,
250-262 385
"There is no way . . . ": John Mercer, "Only Poor—and Thrifty—
Cities Should Get Federal Aid," San Jose Mercury News, September
6, 1985. Chapter 9: Decentralized Government:
From Hierarchy to Participation and Teamwork
"The Boston Globe found . . . Weld to Revamp Day Care Despite Cuts
in Budget," Boston Globe, May 31, 1991, pp. I, 10.
P. 250 Contino quotation: Ronald A. Contino, "Waging Revolution in the P. 234Public Sector: Operational Improvements Through Labor/Management
Cooperation," unpublished, 1988, p. 34.
Notes to Pages Notes to Pages
P. 251 Toffler quotation: Alvin Toffler, "Introduction" in Clement Bezold, ed., Anticipatory
Democracy (New York: Vintage Books, 1978), pp. xvii—xviii.
P. 235P. 252 Contino quotation: Ibid., pp. 33—34.

"Their biggest surprise . . John Herbers, "The Innovators: Where Are They Now?"
Governing (October 1989): 33.

253 Cleveland quotation: Harlan Cleveland, The Knowledge Executive (New


York: E. P. Dutton, 1985).

P. 254 Pinchot quotation: Gifford Pinchot, Intrapreneuring (New York: Harper & Row,
1985), p. 304.
P. 255 "According to military . . . ": Martin van Creveld, Command In War P. 237(Cambridge, Mass.: Harvard University Press, 1985), p. 270.
On the Tactical Air Command, see Jay Finegan, "Four-Star Management," Inc. (January 1987): 42—51; and General W. L. Creech, "Leadership and Management
—The Present and the Future" (address at the Armed Services Leadership and Management Symposium, October 1 1—14, 1983), available from the Office of the P. 242Assistant
Secretary of Defense for Installations, in the Pentagon.

P. 256 Creech quotations: "The U.S. military . . . " Finegan, "Four-Star Management," p. 42; "
'one size fits all' ": Creech, "Leadership and Management," p. 17; "Control was at the
top": Ibid., p. 10.

P. 257 Creech quotations: if equipment is shabby . . Finegan, "Four-Star Management," p. 48;


"We actively stressed . : Creech, "Leadership and Management," p. 34.
P. 258 Creech quotations: "What was it primarily?": Ibid., p. 33; "When I left TAC": Finegan,
"Four-Star Management," p. 51.
P. 259 "Manufacturing businesses . . . ": See, for instance, John Hoerr,
P. 243"Getting Man and Machine to Live Happily Ever After," Business week, April 30, 1987, pp. 61-62.
Pinchot quotation: Pinchot, Intrapreneuring, p. 200.
New York City Sanitation Department story: See Contino, "Waging Revolution."
P. 245P. 260 "Madison's first quality team . . . ": Joseph Sensenbrenner, "Quality Comes to City Hall," Harvard Business Review (March—April 1991): 68.
Notes to Pages Notes to Pages
P. 246P. 261 Madison Police Department: See David Couper and Sabine Lobitz, Quality Policing: the Madison Experience (Washington, D.C.: Police Executive Research Forum,
1991).

P. 262 "Before its recent decentralization . Joe Nathan, Free to


P. 249Teach (Minneapolis: Winston Press, 1983), p. 61; and "Improving
Notes to Pages
386 262-275Notes to Pages 275-290 387
Education: Lessons from the States," State Backgrounder (Washing-"In 1990, the Governor's . . . ": Governor's Management Review ton, D.C.: Heritage
Foundation, October 24, 1988), p. 1.Commission, Operational Review of Training (Trenton, N.J.: Depart"Yet study after study . See, for example, John E.
Chubb,ment of Personnel, July 27, 1990), p. 5.
"Why the Current Wave of School Reform Will Fail," Public Interest,P. 276 "Between 1963 and 1980 . local governments": John E. Chubb, no. 90
(Winter 1988); or John E. Chubb and Terry Moe, Politics,"Federalism and the Bias for Centralization," in The New Direction Markets and America's
Schools (Washington, D.C.: Brookings Insti-in American Politics, ed. John E. Chubb and Paul E. Peterson (Washtution, 1990).ington, D.C.: Brookings
Institution, 1985), pp. 279—281.
Notes to Pages

Clinton quotation: From address to Democratic Leadership Coun-"Despite severe funding cuts . . . ": David Rapp, "Nervous Partcil, November 1989, published in the
DLC's magazine, Mainstreamners in the Block Grant Minuet," Governing (May 1991): 58.
Democrat 2, no. 2 (December 1989).P. 277 "Let us simply . . . ": Gold, Reforming State-Local Relations (DenP. 263 "When the consulting firm . Survey on Public
Entrepreneurshipver: National Conference of State Legislatures, 1989).

(Coopers & Lybrand, 1988).P. 278 For more on the Ben Franklin Partnership, see David Osborne, LaboP. 264 Contino quotation: In Work Worth Doing, documentary
availableratories of Democracy (Boston: Harvard Business School Press, from the City of New York Department of Sanitation.1988), chap. 2.
Bureau of Motor Equipment story: Contino, "Waging Revolution."
"And in Madison . . . ". Sensenbrenner, "Quality Comes to CityChapter 10: Market-Oriented Government:

Hall."Leveraging Change Through the Market


P. 265 "As Peters and Waterman . . way up": Thomas Peters and RobertP. 280 Corporation for Enterprise Development quotation: Robert FriedWaterman, Jr., In Search of
Excellence (New York: Warner Books,man and Doug Ross, The Third Wave in State Economic Develop1982), p. 313.ment (Washington, D.C.: Corporation for Enterprise
Development, P. 266 Quality Circles: For a useful handbook on Total Quality Manage-1990), draft.
ment, see Peter R. Scholtes, The Team Handbook (Madison, Wis.:P. 281 half a million fewer . . . throughout New York State": "Before Joiner Associates,
1988).and After: Streets and Parks and the Returnable Container Law,"
P. 267 Washington's Teamwork Incentive Program: See James L. Perry,Public Papers ofthe Fundfor the City ofNew York 4, no. 3 (November "Unleashing the Power of
Teamwork," Government Executive (July1985).

1990): 40. . broken glass prevalent . . David Arnold, "Neglect by 268 Peters and Waterman quotation: In Search ofExcellence, p. 126.City, Abuse by Vandals Mar
Boston's Parks," Boston Globe, June 1 7, Drucker quotation: Peter Drucker, The Age ofDiscontinuity (New1985, pp. 1, 16.
York: Harper Torchbooks, 1978), pp. 289—290.P. 285 Power and Urban-Lurain quotations: Creating a Human Investment P. 269 Harrison quotations: Roger Harrison,
"Understanding Your Organ-System (Lansing: Michigan Job Training Coordinating Council, ization's Character," Harvard Business Review (May—June 1972):1989), pp. 4—5.
1 19-128.P. 286 "One state development program . . . ": Roger Vaughan, "Is It WorkKanter quotations: Rosabeth Moss Kanter, The Change Mastersing," Entrepreneurial
Economy Review (July—August 1989): 3—7.
(New York: Harper & Row, 1983), pp. 75—76, 143.P. 287 Power and Urban-Lurain quotation: Creating a Human Investment P. 270 Madison story: Sensenbrenner,
"Quality Comes to City Hall."System, p. 5.
P. 271 "In Madison, managers . . . ": Ibid.P. 288 "Head Start, long acclaimed . . . ": Associated Press, "Senate Moves P. 272 Krim quotation: Robert M. Krim, "Quality of Worklife
Programs into Boost Head Start," Boston Globe, June 2, 1991.
the Public Sector: Toward a More Effective Management Paradigm,""The Michigan Strategic Fund . . . ". For more, see David Osunpublished, pp. 22—23.borne,
Laboratories ofDemocracy (Boston: Harvard Business School P. 273 Andres quotation: Recollection of Peter Hutchinson, interview withPress, 1988), pp. 158-161.
authors.P. 289 "Yes, Minister" quotation: Quoted in Roger Vaughan, "Bridge over For more on STEP, see Sandra J. Hale and Mary M. Williams, eds.,Garbled Waters,"
unpublished manuscript.
Managing Change: A Guide to Producing Innovation from Within"Ralph Tyler . . . ": "Education Guru Is Optimistic About Fu(Washington, D.C.: Urban Institute Press,
1989).ture," Stanford Observer (January—February 1990): 8—10. P. 274 STEP lessons: Ibid., pp. 151-158.P. 290 "Today school districts . . . ": see David Armor, "After Busing:
EduP. 275 Creech quotation: Creech, "Leadership and Management," p. 34.cation and Choice," Public Interest, no. 95 (Spring 1989): 24—37.
Notes to Pages
388 292—301Notes to Pages 302—315 389

P. 292 "Other states, including New York . . . ": Jacob Sullum, "Totaled!"P. 302 Drucker quotation: Peter Drucker, The New Realities (New York: Reason (November 1990): 30
—35.Harper & Row, 1989), pp. 135—136.

"Three states have driven . . . backfired": Peter Spiro and Daniel 303 "European nations . . . other products": See Susan Owens, Victor Mirvish, "Whose
No-Fault Is It, Anyway?" Washington Monthly (Oc-Anderson, and Irene Brunskill, Green Taxes: A Budget Memorandum tober 1989): 24-28.(London:
Institute for Public Policy Research, 1990), cited by Calla"When California required companies . . . ". Cass R. Sunstein,han, "Greening of the Tax System."
"Remaking Regulation," American Prospect (Fall 1990): 80."Iowa, Minnesota and Oregon . Callahan, "Greening of the "In San Francisco . . . real
estate": Kathleen Sylvester, "GlobalTax System," p. 92.
Warming: The Answers Are Not Always Global," Governing (AprilP 304 "Oregon and New Jersey . . Recycling Pays, But Not in Cash," 1990): 48.Governing
(March 1989): 65.
P. 293 "Seattle, San Diego, and Tampa . . . On Seattle, see Robert H. Mc-Seattle: See Randolph B. Smith, "Aided by Volunteers, Seattle Nulty, R. Leo Penne, Dorothy R.
Jacobson, and Partners for LivableShows How Recycling Can Work," Wall Street Journal, July 19, Places, The Return of the Livable City (Washington, D.C.:
Acropolis1990, pp. 1, A5; and "Recycling Life's Debris," Governing (October Books, 1986), p. 287. On incentive zoning in general, see Terry Jill1990):
47.
Lassar, Carrots and Sticks: New Zoning Downtown (Washington,"This stimulated only a limited market . Robert Hahn and D.C.: Urban Land Institute,
1989).Robert Stavins, "Incentive-Based Environmental Regulation: A New P. 294 "Many of Japan's . ": Peter Drucker, The Age of DiscontinuityEra from an Old Idea?"
Ecology Law Quarterly 18, no. I (1991). (New York: Harper Torchbooks, 1978), p. 134."The EPA estimated that the trading program . . . ": Ibid.
For more on Pennsylvania's and Michigan's strategies, see Os-P. 305 Stavins study: Robert N. Stavins et al., Project 88—Harnessing Marborne,
Laboratories ofDemocracy.ket Forces to Protect Our Environment: Initiatives for the New PresiP. 295 "In 1982, when ": Ibid., pp. 154—158.dent (Washington, D.C.:
Project 88, December 1988). For more on For more on Massachusetts' Bay State Skills Corporation, see ibid.,market-based approaches to environmental regulation,
see Robert N. pp. 206-207.Stavins et al., Project 88—Round Il; Incentives for Action: Designing P. 296 "According to the Rand Corporation . . . ": George Will,
"Construc-Market-Based Environmental Strategies (Washington, D.C.: Project tive Irritability," Boston Globe, July 16, 1989.88, May 1991).
King quotations: Norman R. King, "Managing Demand for Gov-Stavins quotation: In "The Most Fascinating Ideas for 1991," Forernment Services: Toward a
New Public Administration Ethic" (ad-tune, January 14, 1991.
dress delivered to Michigan City Management Association, FebruaryP. 306 Hayes quotation: "Guidance Planned for Green Consumer," Boston 17, 1988).Globe,
June 15, 1990.
P. 297 "After Florida's 1985 . . . ": Associated Press, "Study: Fees Not Able toP. 307 King quotation: King, "Managing Demand."
Pay All Costs of Growth," Miami Herald, November 30, 1990, p. 28.Kolderie quotation: Ted Kolderie, "Education That Works: The "By 1988, 58
percent . . . ": William E. Schmidt, "Developers PayingRight Role for Business," Harvard Business Review (September— New Fees for Public Services,"
New York Times, October 31, 1988.October 1987): 56-62.
King quotation: "Managing Demand for Government Services: Toward a
New Public Administration Ethic."

P. 298 "According Crowds off the to economist Roads," Boston . .Globe, Steven May A. Morrison, 14, 1991. "Pricing theChapter 11: Putting It All Together
Notes to Pages
P. 299 "Half of all Americans . . . ": David Callahan, "The Greening of theP. 31 1 Drucker quotation: Peter Drucker, Innovation and Entrepreneurship Tax System," American
Prospect (Fall 1990): 90. (New York: Harper & Row, 1985), pp. 186—187.
"Studies suggest that other methods . . . ". Sunstein, "RemakingP. 314 For a good description of the German medical system, see a threeRegulation," p. 77.part
series, "Health Crisis: The German Cure," that ran in the Boston P. 300 "The original Clean Air Act . . . a storm": "A Clean-Air Era," BostonGlobe May 12, 13, 14, 1991.
Globe, November 19, 1990.P. 315 Urbanski quotation: Diego Ribadeneira, "Educators Say School ReP. 301 "Even the EPA's own . . . ": Laura Ost, "Cleaning
Up: A Governingform Is Not Enough," Boston Globe, November 13, 1990.
Guide," Governing (April 1991): 36."Drop-out rates . . . ": U.S. Department of Education, personal Wilson quotation: James Q. Wilson, Bureaucracy (New York:
Ba-communication.
sic Books, 1989), p. 13. "Scores on the two . . . ": Ibid.

390 315-328Notes to Pages 328—339

391
"In tests used . • David Pierpont Gardner, "If We Stand, They Legislatures, 1990), pp. 78—79. Gold reports that state corrections
Will Deliver," New Perspectives Quarterly (Fall 1990): 4. Gardner, spending tripled between 1980 and 1988.
president of the University of California, chaired the commission P. 320 "They might even encourage . . • In Bureaucracy (New York: Basic
that produced A Nation at Risk. Books, 1989), p. 352, James Q. Wilson reports a study showing
Education Summit: "The President's Education Summit with that after allowing for differences in population, crime rates, and
Governors, University of Virginia, September 27—28, 1989, Joint other factors, "the operating expenditures (per capita) of a sherifPs
Statement," p. 4. department were lower in counties where contracting was
common." He cites Stephen L. Mehay and Rudolfo Gonzalez,
P. 317 Blue Hills Regional Technical School: Amy Callahan, "Postgrads "Economic Incentives Under Contract Supply of Local
Enroll at Blue Hills," Boston Globe, October 15, 1989, South Government Services," Public Choice 46 (1985): 311-325.
Weekly Section, pp. 1, 4.
P. 321 Kuhn book: Thomas S. Kuhn, The Structure ofScientific
P. 318 Kearns quotation: In Edward B. Fiske, "Lessons," New York Times, Revolutions, 2nd ed. (Chicago: University of Chicago Press,
July 26, 1989, P. B8. 1970).

"Indeed, 150 different studies . . . ": Herbert Walberg, P. 322 Kuhn quotation: Ibid., p. 1 13.
"Educational Productivity and Choice," in Public Schools by
Choice, ed. Joe Nathan (St. Paul, Minn.: Institute for Learning and P. 323 Kuhn quotation: Ibid., p. 77.
Teaching, 1989), p. 87. Kolderie, quoting Andersen: Ted Kolderie, ed., An Equitable and
"Even the president . . . market economy": Albert Shanker, Competitive Public Sector (Minneapolis: Hubert H. Humphrey Institute of
"Letting Schools Compete," Northeast-Midwest Economic Public Affairs, University of Minnesota, 1984), p. 29. P. 324 Kuhn
Review, November 13, 1989, pp. 4-8. quotation: Structure of Scientific Revolutions, p. 90. P. 325 Kuhn
quotation: Ibid., p. 11 1.
P. 319 "Since 1960 . . in the world": Tim Weiner, "Senate Unit Calls US
'Most Violent' Country on Earth," Boston Globe, March 13, 1991, P. 328 "In 1982 in use": Allen Schick, "Budgeting for Results: Recent
p. 3. Weiner cited a report by the U.S. Senate Judiciary Committee. Developments in Five Industrialized Countries," Public
Administration Review (January—February 1990): 26—33.
"While the prison . . . ": Steven D. Gold, The State Fiscal
Agenda for the 1990s (Denver: National Conference of State
Notes to Pages
"In 1991, the British government . . . ": Francis H. Miller, "According to Lester Salamon " . • Ibid., pp. 5, 10.
"Socialized Competition—British Style," Boston Globe, August
16, 1991, p. 15. Savas quotation: E. S. Savas, "The Key to a Better Society,"
World and I (January 1988): 22.
KjeII-Olof Feldt quotation and New York Times quotation:
P. 335 "Our defense establishment Wendell M. Hannaford Jr., "Peace May
Steven Greenhouse, "Sweden's Social Democrats Veer Toward
Be the Only Dividend," State Government News (August 1990):
Free Market and Lower Taxes," New York Times, October 27, 25.
1989, p. A3. "The first contract city . . . ": Jonathan Marshall, "Troubled
P. 329 "The national government . . . outcomes": Schick, "Budgeting for Cities Put Services Out to Bid," San Francisco Chronicle, June 3,
1991, pp. I, A6.
Results."
P. 336 Latimer and Broeker quotation: George Latimer and Richard
Schick quotation: Ibid. Broeker, "Recycling an Older City with Foundation Support,"
unpublished, August 1981.
"Debates about school choice . . . ": Charles Glenn, "Parent
Choice and American Values," in Public Schools by Choice, pp. 44 P. 337 "The federal government owns " . • Lloyd D. Musolf, "The
—45. Government-Corporation Tool: Permutations and Possibilities," in
P. 330 For more on New Zealand, see Graham Scott, Peter Bushnell, and Beyond Privatization, p. 231.
Nikitin Sallee, "Reform of the Core Public Sector: The New "'The General Services Administration . . . Gross National
Zealand Experience," Governance: An International Journal Product": Ralph Nader, "Big Consumer," Mother Jones
ofPolicy and Administration (April 1990). (November— December 1990): 21-22.
P. 338 "The Catalogue ofFederal Domestic Assistance . . . ": Salamon, "The
Appendix A: Alternative Service Delivery Options Changing Tools of Government Action: An Overview," in Beyond
P. 334 "In 1987, the federal government . . . ": Donald Haider, "Grants As a
Tool of Public Policy," in Beyond Privatization: The Tools of Privatization, p. 7.
Government Action, ed. Lester M. Salamon (Washington, D.C.:
Urban Institute Press, 1989). Will quotation: George F. Will, "Access to Fashion," Boston
"By 1987, the federal government . : Lester M. Salamon, "The Globe, January 8, 1989.
Changing Tools of Government Action: An Overview," in Beyond
P. 339 "In a mid-1980s survey ": Sydney Duncombe, "Volunteers in City
Privatization, p. 5. Government: Advantages, Disadvantages and Uses," National
Civic Review (September 1985): 356—364. The survey was

392 339—359

conducted by the University of Idaho's Bureau of Public Affairs Research.


"In Florida, volunteers serve . . . ": Keon S. Chi, "Private-Public Alliances
Grow," State Government News (January 1986): 10— 13.
"In Massachusetts . . . ". James L. Franklin, "Volunteers to Mediate
Environmental Cases," Boston Globe, September 18, 1990, PP. 25, 56.

P. 343 Florida Speaker's Advisory Committee quotation: Florida Sunrise:Index


Notes to Pages
Issues and Options: Choosing Strategies for the Future, Issue Paper Notebook,
vol. I (Tallahassee, Fla.: Speaker's Advisory Committee on the Future, July
1987), p. 204.
345 "One study of nursing homes . . . ": Joe Nathan, Free to Teach (Minneapolis:
Winston Press, 1983), p. 154.
Niskanen quotation: William A. Niskanen, Jr., Bureaucracy andAccountability, 35, 47, 86, 136—37health care, 41, 86—87. See also Representative Government
(Chicago: Aldine-Atherton, 1971), p. 217.169, 181-82, 212, 254, 277 Phoenix

Ace-Federal Reporters, Inc., Arkansas, 93, 150, 178, 262, 341; contract with FERC, 195
education, 55—56; job training,
Adopt-a-Park programs, 336
Adoption, 68 Armajani, Babak, 90—91, 213
AFL-CIO. See Unions Army, U.S., Communities of
Agency for International Excellence program, 133. See also
Development, 131Department of Defense, Military
Agnos, Art, 340 Bases
AIDS,
Air 29, 36,
Force. See 57-59
Tactical Air Australia, 122, industry,
Automobile 165, 32933, 103. See
Air bags, in automobiles, 337 Austria, 272
Command also Highways, Pollution
Airlines, 33, 82-83, 111, 298 Ayres, Doug, 217
Alabama, 74
Alvarado, Anthony, 6, 7
American Federation
American Express, Academy of
of Teachers, Babbitt, Bruce, 88
Barry, Marion, 121, 340, 357
Finance, 185 Baltimore, 198, 248, 336
158-59, 264, 315, 319 Baton Rouge, Louisiana, 218
Amusement parks, 82—83, 1 1 1, Belgium, 329
208-9, 215-16, 223, 298 Ben Franklin Partnership, 278—79, Andersen,
Elmer, 323, 324
341, Andres, William, 272-73 Bezold, Clement, 305 351
Anticipatory government. See Birmingham, Alabama, 74
266, 292, 293, 340, 342, 357, Blumenthal, Michael, 140
359; fire departments, 224—25; Bock, Terry, 205
Notes to Pages
PreventionBlanchard, Governor, 188, 192
Antonio, James F., 245 Blue Cross/Blue Shield, 44, 151,
Appleton, Wisconsin, 174—77. See 314, 335, 337 also Fox Valley Technical
College Blue Hills Regional Technical
Arizona, 66, 69, 76—79, 121, 221, School, 317

Appendix B: The Art of Performance Measurement


P. 350 National Center for State Courts material: See Commission on Trial Court Performance Standards, Trial Court Performance Standards with Commentary (Williamsburg,
Va.: National Center for State Courts, 1990), p. I.
P. 353 "Yet although it placed . See David Osborne, Laboratories of Democracy (Boston: Harvard Business School Press, 1988), pp. 200— 206; and Scot Lehigh and M. E.
Malone, "Weld: Revenue Loss Threatens '92 Budget," Boston Globe, April 23, 1991.
P. 354 Works on performance measurement: See, for instance, Harry P. Hatry, Louis H. Blair, Donald M. Fisk, John H. Greiner, John R. Hall, Jr., and Philip S. Schaenman,
How Effective Are Your Community Services? Procedures for Monitoring the Effectiveness of Municipal Services (Washington, D.C.: Urban Institute and
International City Management Association, 1977); Jack A. Brizius and Michael D. Campbell, Getting Results (Washington, D.C.: Council of Governors'
Policy Advisors, 1991); Richard E. Brown, Meredith C. Will)ams, and Thomas P. Gallagher, Auditing Performance in Government: Concepts and Cases (New York:
Ronald Press, 1983); Harry P. Hatry et al., eds., Service Efforts and Accomplishments Reporting: Its Time Has Come: An Overview (Norwalk, Conn.:
Governmental Accounting
Standards Board, 1990); and Roger Vaughan, "Is It Working," Entre-
preneurial Economy Review (July—August 1989): 3—7.
P. 359 Farrell quotation: Gregory Farrell, "Helping Government Do Better with Less," in Fund for the City of New York, Three-year Report, 1979-81, pp. 5-6.
REINVENTING GOVERNMENT
394 395

Boo, Katherine, 58 Bureau of Indian Affairs, 122 3


1
Boss Tweed, 13, 14, 88, 11 1, 140 Bureaucracy, 12—16, 34, 43, 138, 167-68, 220
2
Boston, 29, 54, 67, 111, 142, 152, Bush, George, 141, 147, 243, 255, 304 -
198, 224, 246, 272, 281, 295, 1
Business, differences between government and, 20—21, 45—48, 167, 205-6, 243 Buss, Terry,
3
299, 335, 338, 340, 342 187-88 Butler, Stuart, 1 13
Control Data
Boston Globe, 36, 242
Corporation, 272 Chrysler, 33, 103,
California, 94, 116, 152, A 71, 181, 197, 198, 217, 222, 226, 248, 334, 341
Bosworth, Brian, 36
292, 298, 330, 336; education, Coopers & Lybrand, 18,
Brandeis, Louis, 13
155, 185; pollution, 228. See also Collective goods, 44, 204, 284 64, 263 Chubb, John, 54, 94
Brandl, John, 97
Fairfield, Los Angeles, San College, 98-99, 174-77, 181, 185, Corporation
Branstad, Governor, 117 for Enterprise
Francisco, Sunnyvale, Visalia 315; College Here We Come, 60— Cambridge, Massachusetts, 104
Bridge School, East Harlem, 5 61, 63 "Chunking and Hiving," 131
Campbell, Michael, 355 Colorado, 85, 94, 1 16, 179, 248, Development,
Britain, 115, 122, 165, 179, 328,
Canada, 122, 165, 196, 312, 314, 298
329, 359 Churches, 170, 340; and adoption,
329 Columbia, Maryland, 198
Britton, George, 271, 352, 357 Canton, Massachusetts, 317 Comer, James, 55 68; and refugees, 53 Corruption,
Brizius, Jack, 354 Carter, Jimmy, 140, 231 Common Cause, 116 in government, 13—14, Cincinnati,
Catalytic government, 25—48 Community-owned government, 19, Ohio, 74, 201, 221 88-89, 11 1, 137,
Broeker, Dick, 26, 336
140, 243
Challenge Grants, 278—79 49_75
Brookings Institution, 94
Chandler, Arizona, 121 Competition, 19, 21, 33, 76—107, Cisneros, Henry, 210—1 1Council
Brown, Lee, 49—50
Charleston, South Carolina, 50291; advantages of, 80—84; among for Solid Waste Solutions, Citizens
Bryson, John, 222, 233, 234, 247, Chelsea, Massachusetts, 335government agencies, 90—92; Chicago, 66, 67, 69, 197,
League, of Minnesota, 35, 228-29
321 246, 337;among schools, 7, 93—104, 181; education, 54, 106, 262, 316and service
delivery, 76—107;
Budgets, congressional, 240—41; 55, 96-97, 247, 327 Couper,
Child care, 29, 170, 242, 283, 336, varieties of, 84—89
encourage wasteful spending, 30, David, 130, 166, 173-74, Civil
1 17—1 19, 195; Expenditure 339, 342 Congressional Clearing House on
service system, 34, 124—30, 177,
Control Budget, 3—4, 1 19—21;
Chiles, Lawton, 18, 30, 128, 21 1,the Future, 235 261-62, 265
line items, 1 17-18, 1 19, 121,
123, 124, 136, 242; long-term, 321Connecticut, 55, 155, 181, 228,
236-46; mission-driven, 1 17— 136; Civil Service Act of 1883,
24, 161—62; results-oriented, China Lake, California, civil service316, 339 experiment, 128—29 Contino, Ronald, 85, 250, 252, Courts, 56-57, 142, 319-21, 350,
161—65; and savings, 3, 118- 260, Choice, 15, 20, 180-81; in 264 education, 5-8, 17, 93-104, 158- Contracting, 29, 31, 38- 124; Civil Service Reform Act of
121, 210-14; types, 162—63; 42, 45-48, 59, 183-85; in health care, 168, 87-89, 334-35 353; Supreme Court, 136, 332
zero-based, 1 16-17
REINVENTING GOVERNMENT
1978, 128 Creech, General W. L. Dana Corporation, 133 Department of Housing and Urban
(Bill), 79, Development (HUD), 61, 64, 71,
Dator, Jim, 219
Clean Air Act of 1990, 283, 300
88, 108-9, 113, 149, 152, 167
59, 275 Day care. See Child care
Department of Justice, 142, 350
Cleveland, Harlan, 43, 253 Dayton, Ohio, 74, 177, 204
Crime, 56-57, 60, 144, Department of Motor Vehicles,
188, 219Cleveland, John, 84, 157, Decentralized government, 20, 22,
160, 172, 20, 223, 319-21. California, 171
47, 79, 250-79; advantages of, 252-54; federalism, 276-79
see also Police
Department of Transportation,
Defense Logistics Agency (DLA), 163-65
263 Croce, Arne, 3
U.s., 85, 167
Deming, W. Edwards, 17, 21, 22, 159, 160, 169, 172, 266, 350
Cleveland, Ohio, 245
Depression, the, 14, 17, 52, 59, 153,
30 Democracy, 22, 54, 73-75, 101, 166, 230 284
Clinton, Bill, 56, 262 Denmark, 122, 165 Designs for Change, 54
driven government, 22,
Denver, Colorado, 85 Department of Defense, 133—25, 210, 255-59, 265, 267, 351; budget Dewar, Tom, 51
Coleman, James, 182 systems, 1 1, 23, 163—65; Principles of Excellent Installations, 132—35; reforms of military
bases, 8-1 1, 87, 115, 122, 123, 166. See also Model Diamond, Drew, 50
Dallas, Texas, 50, 177, 240;
crime, 171; Goals for Dallas, Installations Program Donahue, John D., 89, 106
230-31; health care, 105; parks,
339; recreation in, 170 Department of Energy, 127 Donaldson, Bill, 221
Douglas, Roger, 82
Department of Health and Human Services, 335

396 Index 397

Dow Chemical, 229 Earth Day, 306 East Harlem, New York, Elections, 20, 74, 140, 192, 235, Environmental Protection Agency, 220,
education reforms in, 5-8, 17, 38, 93, 95, 247-48, 272, 192: and elected 299-302, 304
Driscoll, Connie, 69 96, 100, 101, 102, 104, 107, 113, 148, officials, 167, 241, 323, 324
149, 169, 264, 267, 271, 290 Employment programs. See Job Equal opportunity, xix, 104, 105, 185—
Drucker, Peter, xix—xxi, 21, 30, 35, 86; in education, 101—4
training
47, 93, 137, 151, 169, 170, 179, Education, 5-8, 17-18, 46, 54-56, 60-61,
63, 148-49, 159, 168, Enterprise funds, 212—16 Evans, Governor, 232
211, 268, 302, 311 Expenditure Control Budget, 119-21
181, 183, 262-63, 289-90, 31419; Enterprising government, 195—218,
Drug abuse, 36, 41, 50, 51, 60, 6364, competition and, 93—104; job 336-37 Experimental Police District. See
65, 67, 70, 147-48, 222, 251, training, 174—77; national goals, 141;
testing, 155. See also Job training Entrepreneurial government, 18, 23, 139, Madison, Wisconsin
284, 333 209—1 1; definition of, xix; ten
Edwards, Bob, 224-25 principles of, 19—20
Dukakis, Michael, 335
Fairfield, California, 4, 1 19—21, 123,
Eisenhower, Dwight, 289 Environment. See Pollution,
Duncan, Andrea, 72, 108-9, 229 124, 177, 195, 210, 218, 225, 233;
Elderly. See Nursing homes Recycling golf course, 201-2; shopping mall,
Dupont, 228 200—201, 203
REINVENTING GOVERNMENT
Falco, John, 6, 7, 8, 271 planning, 234; sunset laws and review 306; Futures Commissions, 230-32 Gretzky, Wayne, 234
commissions, 116, 128; TaxWatch, 154,
Family Housing Fund, 336 155, 359. See also Orlando, Tampa Groo, Tyler, 267
Gaebler, Ted, 4, 120, 136, 198-99
Family Support Act of 1988, 150 Flory, Alan, 42, 43, 66 Garbage collection, 26, 47, 76—79, Gulf war, the, 255
Fanniel, Charles, 78 Flynn, Ray, 340 86, 93, 105-106, 146, 236, 25960, 297
Hale, Sandra, 90-92, 273
Farrell, Greg, 147, 233, 359 Fattah, Ford Foundation, 21, 71, 252, 272 General Motors, 33
David and Falakah, House of Umoja, 57 Halperin, Morton H., 1 13 Hamilton, Lee,
Ford Motor Company, 103, 183, 255 Georgia, 179, 231; prisons, 197 131
FBI, 130, 157, 337
Ford, Henry, 183 Germany, 14, 93, 312, 329 Harlem. See East Harlem
Federal Aviation Administration, 111
Forest Service, 122; Groo Award, 267 Gerstner, Louis V. , Jr., 185 Harrison, Roger, 268—69
Federal Energy Regulatory
Forsberg, David, 167 Gl bill, 181, 293 Hatry, Harry, 158, 354
Commission (FERC), 195, 210
Federal Express, 82, 107, 332 Federal Fortune magazine, 305 Gillette, Barbara, 66 Hawaii, 219, 267
Housing Administration (FHA), 280-81
Fosler, Scott, 327 Gilman, Benjamin, 131 Hayes, Denis, 306
Federal National Mortgage
Fountain, James R. , Jr., 140—41 Goals. See Mission-driven government Head start, 55, 206, 317
Association, 148
Fox valley Technical College, 147, Goddard, Terry, 78 Health care, 32, 57-59, 67, 86-87,
Federal Quality Institute, 160
174-77, 179, 180, 217, 233, 265, Goldwater, Barry, 322 105, 161, 186-87, 226-27, 283,
Federal Reserve Board, 293, 338 266, 351 France, 93, 165,
329 Golf courses, 201 312—14, 340; infant mortality,
Federalism, 276-79
Frederick, Bill, 202 Governing magazine, 87, 193, 227, 245 220, 222; insurance, 188, 337;
Feldt, Kjell-010f, 328 Fire
departments, 106, 107, 339; Freed, David, 65 Governmental Accounting Standards Medicaid, Medicare, 227, 31213, 322,
prevention, 223—26 Board (GASB), 14041, 245-46, 355 335, 337; mental, 40,
Freedman, Sandy, 38
Flanagan, Jim, 78, 89 Graham, Bob, 234 41-42, 84, 152-53, 188. see also AIDS,
Freeman, Joan, 164, 165 Blue Cross, Nursing homes
Fleischaker, David, 150 Gray, A. M., 135
Fresno, California, 224 Health Maintenance Organizations
Fliegel, sy, 8, 104, 1 13, 149, 169 Gray, Kimi, 60-65, 66, 71, 72, 326
Friedman, Michael, 5, 1 14 (HMOs), 32, 86-87, 226, 294,
Florida, 69, 135, 163, 224, 303, 321, 359; Great America amusement park,
budgets, 163, 21 1; Ft. Collins, Colorado, 298 313
208-9, 215-16, 223
Dade County, 121, 210, 262, 264, 335; Ft. Worth, Texas, 240
Great Society, 53
Department of Transportation, 154—55;
Fulton, Tom, 1 10, 1 12, 138
Election reforms, 248; Governor Chiles, Greece, 220
18-19, 30, 128, 21 1, 222, 248, 321; Fund for the City of New York, 145-46,
impact fees, 297; job training, 141; 233, 327, 359 Green seal, 306
Speaker's Advisory Committee on the
Future, planning for, 74, 219—49, Green taxes. See Taxes
Future, I, 232, 236, 343; strategic
REINVENTING GOVERNMENT
398399

Heinz, John, 305 Houston, Texas, police reform, 49; 291—292, 338; in choice systems, Johnson, Lyndon, 255
pollution, 299
Heritage Foundation, 279 103—4, 186, 285; technologies, Johnson, Verne, 101, 102
Huchel, Chuck, 120 HUD. See
Hewlett-Packard, 169-70, 276 Department of Housing and Urban 137, 226, 306. See also Jonsson, Erik, 231

Hierarchy. See Bureaucracy, Development Knowledge workers Kansas, 207

Decentralized government Hudnut, William, 18, 28 Innovation, 83, 182, 211-12, Kansas City, 81, 85, 341
Human Investment System, 189— 25253, 265, 267, 269, 270, 271-
Highways, 29, 142, 143, 154, 296, 335, 75, Kanter, Rosabeth Moss, 269—70
341, 342 192, 283, 285, 306 Humphrey
Institute, 51, 253 Hunter, Harold, 115 301, 345 Kauvar, Gerald, 165
Home Instruction Program for
Hutchinson, Peter, 240, 273 Institute for Alternative Futures, Kearns, David, 170, 318
Preschool Youngsters (HIPPY), 55-56 231, 305
Hybels, Bill, 170 Keefe, Frank, 35
Homelessness, 29, 40, 69, 193, 223, 242, Investment, by governments,
340 Hoover, J. Edgar, 157 Keiiitz, Ingo, 350
IBM, 199 205—9, 338
Hospices, 57—58 Kemp, Jack, 71, 167 Kenilworth-
Idaho, 93, Iowa, 93, 1 17, 128, 207, 303 Parkside development, 68, 70, 326; drug
Hospitals. See Health care Iraq, 255 problems, 63— 64; education
Illinois, 68, 142, 170, 177, 222, opportunities, 60— 61; Resident
Hotlines, 179, 190 Isaac Newton School of Science Management
358; education, 262; health care,
House of Umoja, 57 and
67; nursing homes, 138—39. See also Corporation, 60—65, 72 Kennedy,
Chicago Mathematics, 6 John, 152, 230, 289, 340
Housing, public, 5, 29, 31, 38—39, 45,
53-54, 59-65, 71-73, 108-10, Impact fees, 296-97, 302, 339-40 Israel, 329 Kennedy School of Government, 252-53
141, 148, 153, 280-81, 282, 336, Italy, 93 Kentucky. See Housing Authority of
Inc. magazine, 256, 257
Louisville
340, 341, 342. See also Incentives, 23. 122, 210, 235-49,
Japan, 93, 103, 221, 233, 294, Keynes, John Maynard, 23
Department of Housing and 302-5, 307-8; perverse, 358-59
Jay, Antony, 288 Khrushchev, Nikita, 289
Urban Development, Housing Independence, Missouri, 336
Jensen, Ron, 76-78, 87-88 King, Martin Luther, 326
Authority of Louisville, Indiana Economic Development
Job training, 56, 106, 141, King, Norm, 205, 296, 307
Kenilworth-Parkside Council, 36 144, 151-52, 178, 187-92,
Kingsburg, California, 121
291, 353, 356-57, 359
Housing Authority of Louisville, 17, Indianapolis, 18, 28, 29, 113, 247, 248,
Kitzhaber, John, 227
327, 335 Job Training Partnership Act,
72, 73, 108-9, 113, 130, 141,
40, 141, 155, 187-89, 357, Knowledge workers, 15, 125, 168,
Infant mortality, 67, 109, 187, 220, 222, 359 Johnson, Curtis, 55, 96-
148, 149-50, 177, 229
312, 340 100, 104 253, 268
Information, as a public policy tool,
REINVENTING GOVERNMENT
Koiderie, Ted, xi, 35, 47, 97, 100, 104, Corporation, St. Paul, 26, 336 Mass markets, 15, 131; and cultural
247, 307-8, 309, 323, 324 diversity, 168; end of, 229—30 Mass
Lugar, Richard, 28 transit, 32, 106, 204, 298
Kondratas, Anna, 1 13
Lynn, Jonathon, 288
Krim, Robert, 272
Kuhn, Thomas, 321-22, 324, 325 McDonald's restaurants, 1 14, 167, 182-
83, 229
Lakewood, California, 335 McGarrah, Rob, 263, 276
Las Vegas, New Mexico, 121 McKnight Foundation, 26
Latimer, George, 25—27, 30, 49, 51, McKnight, John, 66-70
74, 86, 114, 128, 132, 135, 236, 246, McNamara, Robert, 255, 56
336
McPherson, Ren, 133
Layoff policies, 26, 32, 37-39, 56,
Madison, Wisconsin, 50, 160, 166,
76, 84, 126-30, 187-88, 264-65
Leland, Bob, 121, 124 177, 179, 264, 265, 266, 271,

Leonard, Herman, 243—44 276, 309; Experimental Police

Lewcock, Tom, 144, 145, 156, 238-41 District, 130, 172-74, 233, 26162;
Motor Equipment Division,
Libraries, 171—72
260-61, 270
Lilly Endowment, 327
Maine, 93, 339; education, 155; pollution
Lindsay, John, 80—81 control, 228
Load shedding, 86 Logue, Malls, shopping, 200-203
Frank, 1 1 1
Management by Objectives (MBO), 156-
Long, Charlie, 201 60
Los Angeles, 38, 57, 85, 177, 206, Manpower Demonstration Research
Corporation, 151
210, 246, 294, 296, 299, 340;
Marine Corps, U.s., 133, 135
Olympics, 196
Market-oriented government, 22, 280-310
Louisiana, 149
Marriott Corporation, 208, 216
Louisville, Kentucky, 226, 233. See also
Housing Authority of Louisville Martinez, Bob, 214, 234
Lowell, Massachusetts, 28—29 Maryland, 40-41, 179, 327, 337, 342. See
also Baltimore
Lowertown Development
REINVENTING GOVERNMENT Index
400401
Massachusetts, 29, 36, 66, 146, 242, 290, Defense Morris, David, 223 Nebraska, 93
293, 335, 338; car insurance, 81—82;
child care, 181, 242; civil service, 125; Mills, Jon, 232 Morrison, Cliff, 58 Neighborhood watch, 50, 75
crime, 57; education, 93, 155; Milwaukee, 87, 197, 339 Morrison, Steven A., 298 Nelkin, Robert, 44
Employment and Training (E.T.)
Choices, 35354; health care, 86; Minneapolis, 44, 81, 138, 336, 340; Mosgaller, Tom, 261, 309 Netherlands, the, 165, 298, 329
Industrial Services Program, 56, 66;
job training, 56, 296, 317; pollution Family Housing Fund, 109—10 Motor Vehicles Registry, 168, 182 New Deal, xvi, 27, 30, 280, 282, 322
control, 228; Taxpayers Foundation, Minnesota, 115, 181, 247, 248, 333; Mudd, John, 132 Murray, New Hampshire, 248 New Haven,
125; Transitional budgets, 240, 241; Department of Alice, 70 Connecticut, 316; education, 55
Employment Enterprises (TEE), Administration, 90—92, 198—99,
New Jersey, 29, 50, 81, 94, 127, 223, 275
205, 213; education, 55, 93, 96102, Nadel, Robert, 8
151—52. See also Boston New Orleans, Taylor Plan students, 148—
150, 169, 325; highways,
Naperville, Illinois, 177 49
Mattress display tags, 115 "Meals on
Wheels," 68 Medicare and Medicaid. See 142; parks, 178, 273-74; New York, 177, 193, 203, 225, 276, 292,
Nathan, Joe, 97, 183
Health care 327
pollution, 228, 303; STEP program,
National Association of Town
Mental health. See Health, mental 177, 267, 272-75. See also New York City, 50, 69, 337, 341; civil
Minneapolis; St. Paul Watch, 50 service, 125; education, I l I— 12, 114;
Mercer, John, 237 pollution, 228, 281, 299;
Mission-driven budgets, 1 17—24, National Center for State Courts, 350,
Mesa, Arizona, 197 210-11 351 Sanitation Department, 80—81, 146,
252, 259-60; Taxi Commission, 179;
Miami, 85, 262 Mission-driven government, 108— National Center for Neighborhood vehicle fleet,
37; advantages of, 113—14;
Michigan, 17, 126, 188-93, 288, creating, 1 14—19 Enterprise, 65 85. See also East Harlem New
294, 308; Commerce Department, 84, National Center for Policy York Times, 30, 328
Missouri, 258, 336
131, 172, 179, 252; education, 178;
Alternatives, 72, 206 New Zealand, 165, 244, 330; airlines, 82
Human Investment System, 189—192, Model Cities, 53 —83; postal service, 217
283, 285, 306; Michigan Model Installations Program, 10— 11, National Commission for Newark, New Jersey, 29, 50, 81
Modernization Service, 157, 160, 177, 115, 259 Employment Policy, 89
Niskanen, William, 345
178; 263; Opportunity Card and
Moe, Terry, 94 National Conference of State
Shops, 190-93, 295, 306; Strategic Nonprofit organizations, 39, 42—48, 109,
Legislatures, 229, 242, 277
Fund, 341; Treasury Monopoly suppliers, 34, 88, 216 336, 340, 344-48 Noriega, Fernando, 38—
National Governors Association, 245 39, 112, 294
Department, 295 Montclair, New Jersey, 94
National Instititue of Justice, 173 Northwestern University Center for Urban
Mikesell, John, 204 Montreal, 196 Affairs and Policy
National Science Foundation, 81,
Military bases, 9—11, 115, 118, 122, Moore, Don, 54 Research, 66, 69
105
166. See also Department of Moreno Valley, California, 205, 296 Norway, 298
Navy, U.s., 128, 133,
REINVENTING GOVERNMENT Index
Nuclear power plants, 142, 333 Parks, city and state, 29, 178, 27374, 336, 76—79, 84, 87— 88, 264; customer Postal Service, U.S., 82, 85, 106
339. See also surveys and training, 177—178;
Nugent, Joanna, 136 garbage collection, 76—79, 81;
Amusement parks strategic planning, 233
Nugmeyer Award, 136 11 1, 131, 332
Parr, John, 326, 327 Pinchot, Gifford, 111, 211-12, 254,
Nursing homes, 69, 75, 138—39, 358 Postman, Neil, 19
Patton, General George S., 108 259 Power, Philip, 188-92, 285, 286
Oakland, California, 171 Occupational Peirce, Neal, 235 Pittsburgh, Pennsylvania, 44;
Safety and Health
Pell grants, 181 Advisory Committee on 308
Administration, 333
Pennsylvania, 278-79, 294, 338, 341, 351 Homelessness, 40 Pratt, John, 146
Ohio, 19, 40, 93, 187-88, 245, 295;
pollution control, 228. See also Pensacola, Florida, 214 Plastik, Peter, 288 Pregnancy, teenage, 60, 65
Cincinnati
Performance measurement, 19, 138-65, Plosila, wait, 278 Prevention policies, 22, 219— 49
Oklahoma, 50, 233, 243, 248; Oklahoma
176-79, 349-59. See also 313, 317
Futures, 41, 233
Poland, 330
Customer-driven government, Prisons, 36, 47, 57, 85, 197
Oliver, Lew, 203
Police, 130, 196, 335, 337; at
Results-oriented government Kenilworth-Parkside, 63—64; Private Industry Councils, 40
Olympics, the, 196
Performance pay, 156—60 community-oriented policing, 49— 51;
Ombudsman, 17, 179 Private sector, 25—26, 28, 43—48,
customer surveys, 177; in
Perpich, Rudy, 97-99, 101, 104, 213, 272- 86, 76-79, 293, 345-48
One Church, One Child, 68 Opportunity Fairfield, 120—21; in Madison,
75, 326
Card and Shops. See Procter & Gamble, 228
Peters, Tom, 21-22, 123, 131, 133, 135, 130, 166, 172-74, 179, 233, 261-
Michigan Profits, versus spending in government,
169, 254, 268 62, 267
Ore-Ida, 212 195—218
Philadelphia, crime, 57; youth gangs, 113 Polls. See Surveys.
Progressive Era, xvi, 13, 27, 52, 79,
402403

—14
Oregon, 74, 163, 224, 227, 267, 303 Pollution, 219-20, 222, 226-29, 283, 299- 88, 111, 124, 140, 183, 243-44, 248,
Philippines, the 119 303, 305, 333, 340, 325
Orlando, Florida, 17, 177, 202-3, 213, 342
Phoenix, Arizona, 89, 113, 154, 156, Pond, Lewis V., 215 Proposition 13 cutbacks, 2, 4, 16,
Ownership, community. See 179, 197, 217, 265, 352; budget Pony Express, 335
system, 1 16; Community 119, 196, 198, 200, 238
Community-owned government Porterville, California, 121
Organization for Drug Abuse, Prout, Robert L., Jr., 63—64
Phoenix, Arizona, (cont.) Portland, Oregon, 74
Palm Springs, California, 224, 307 Portney, Paul, 305
Mental Health, and Alcoholism Services Quie, Al, 97
(CODAMA), 41-42, 66; contracting, 17,
REINVENTING GOVERNMENT Index
Rand Corporation, 148, 296 224-25 293 326, 340, 341; civil service, 127.
See also Latimer, George St.
Rangel, Charles, 148 Sea World, 342 Louis, Missouri, 197, 248
Sacramento, California, 77, 121
Raywid, Mary Anne, 183 Salamon, Lester, 30, 44, 334 Seattle, Washington, 53, 74, 94, 293, 341 St. Petersburg, Florida, 177
Reagan, Ronald, 16, 22, 23, 45, San Antonio, Texas, 178, 202, 21011, 240, Sensenbrenner, Joseph, 172, 270 Starr, Paul, 88
342
115, 127, 128, 129, 147, 221, 277, 322 Services, delivery of, 17, 27, 29, 32, 140, Stavins, Robert, 305
San Bruno, California, 214—15 145, 186, 215, 186, 220,
Recycling, 44, 53, 227-29, 281, Stein, Andrew, 112
San Diego, California, 128, 293 287; alternative options, 31, 332— 48;
304, 340 competition, 76—107; costs, 216—18; STEP (Strive Toward Excellence in
San Francisco, 29, 56, 128, 292-93 340, and steering organizations, 39—42 Performance). See Minnesota stone,
Red Cross, 44
342; and AIDS, 58-59; budget, 123— Bob, 8-1 1, 23, 115, 122, 132-35, 165,
Results-oriented government, 19, 22, 335; civil service, 125, 128 Shanker, Al, 158-59, 318-19 166, 259, 351
138-65, 349-59 Reyes, Oscar, 4 Shannon, John, 203
San Jose, California, 94, 209, 21 8, Street maintenance, 4, 146, 239, 259-60,
Rhoads, Steven E., 67 Shuger, Scott, 127 354, 356-57
223
Rhode Island, 198 Shycoff, Don, 165 Stumberg, Robert, 72, 206—7
Santa Clara, California, 215, 223;
Riverside, California, 211 amusement park, 208—9 Santa Monica, Silver Spring, Maryland, 40—41
Sullivan, Louis, 312
California, 178, 295 savas, E. S., 25, 80- Sims, Renee, 62 Singapore, 298
Robertson, Tom, 224 81, 83, 90, 105 Sunnyvale, California, 217, 233,
Small Business Administration,
Rochester, New York, 94, 159, 262 264 294 Smoking, 226, 338 240—41, 349; community surveys,
125, 244, 281, 334, 343
Social Security Administration, 130
177; long-term budget, 233, 23741;
Rodriguez, Ed, 7 Savings, retained in budgets, 3, 5, 10,
Softball teams, Visalia, 199-200 performance measurement and
209-1 1, 242, 265 say, J. B., xix budgeting, 142—45, 148, 156, 158,
Roosevelt, Franklin, 115, 280, 282
South Africa, 338 159, 161, 163, 349; user fees, 203
Schick, Allen, 329
284
South Barrington, Illinois, 170 Sunset laws, 1 16
Scholtes, Peter R., 160
Roosevelt, Theodore, 13
South Carolina, 17, 50 Surveys, 18, 173-74, 177, 184, 232, 263,
Schools. See Education
Rose, Charlie, 235 266, 274. See also Customerdriven
Soviet Union, 330 government, Performance measurement
Schorr, Lisbeth, 37, 242
Rosenthal, Alan, 127
Spain, 329 Sweden, 122, 151, 165, 179, 328-29
Schrader, George, 231
Ross, Doug, 131, 252
Spanbauer, Stan, 147, 174—76
Schulman, David, 57
Rouse, James, 198, 199 Tacoma, Washington, 221
Sparacino, Jennifer, 209, 215 Speaker's
Schumacher, Ernst, 222
Roy, Gladys, 62 Advisory Committee on the Future. See
Schwarzkopf, Norman 255 Florida
Rural Electrificaiton
Scotts Valley, California, 121 Springmeyer, Roy, 1 36
Administration, 115—16
Scottsdale, Arizona, 221, 224—25, St. Paul, Minnesota, 17, 25-27, 29, 38,
Rural Metro fire departments, 106, 109-10, 113, 210, 267, 293,
REINVENTING GOVERNMENT Index
404405

Tactical Air Command, 79, 255—59, 265, 344—48; definition of, 44 Unions, 41, 76, 78, 87, 104, 106- 342; Expenditure Control Budget,
267 7, 125, 127, 188, 193, 263-64, 3-5, 122-23, 210; Employee
Thomas, David, 214-15 266 United Parcel Service, 82, Development Program, 226; energy
Taft, William Howard IV, 11 107, 332 efficiency ratings, 292, 306; invention
Thompson, Tommy, 94
Tampa, Florida, 112, 214, 293, 294; policy, 267; profit generation, 198—
Thornburgh, Richard, 278 Universities. See College, 200, 216
Community Redevelopment Education
Time magazine, I Voinovich, George, 19
Agency, 38—39; health care, 109 Upward Bound, 60
Tarnowski, Kathy, 75 Toffler, Alvin, 221, 230, 249, 251 Volcker, Paul, 275
Urban Development Action Volunteers and voluntary organizations,
Taxes, 22, 27, 333; and voters, 33, Toll-free phone numbers. See 30, 43, 45, 51, 56, 68, 75, 135, 196, 339,
Grants, 25 Urban
Hotlines Institute, 44, 158, 354 340, 341 Von Raesfeld, Don, 208, 216
140, 299; federal, 221; Florida,
1 16, 232; gasoline, 296; green, 283, Total Quality Management (TQM), 17, Urban-Lurain, Jan, 285—86 Voucher systems, 94, 97, 181, 188, 339
299, 303-5; Orlando, 213; St. Paul, 21, 159-63, 172, 174, 176,
25, 26; tax collections, 206; tax Urbanski, Adam, 315 Vuono, General, 133, 259
revolt, 23, 29, 76, 15455, 195-96, 260-61, 264, 266, 270, 309, 341, 350
199, 202, 322, 341. User fees, 203-5, 297-98
Traffic, 40-41, 208-9, 223, 298. see also Utah, 93 Wagner, Robert, Jr., 95
See also Proposition 13 Highways Wall Street Journal, 147-48
Utilities, 81, 333, 335.
Taylor, Patrick F., 148 Transitional Employment Wang Laboratories, 29
Teachers. See American Federation of Enterprises (TEE), 151-52 Van Creveld, Martin, 255 Washington, DC, 88, 148, 202, 298,
Teachers, Education
Truman, Harry, 289 Vaughan, Roger, 187—88, 355 306. See also KenilworthParkside
Teegarden, Suzanne, 355 Vermont, 93, 247, 339;
Tsongas, Paul, 28—29 Tucson, Washington state, 115, 177, 197,
education,
Television, 221; cable, 214-15, 335, 336 Arizona, 342
155; pollution control, 228 232, 267. See also Seattle
Tennessee, 85, 224; Tennessee Tulsa, Oklahoma, 50
Veterans Administration, 186
Washington Monthly, 58, 152
Valley Authority, 337 Turkey, 289
Vierra, Ernie, 4
Washington Post, 40
Texas, 49, 130, 224, 299. See also Dallas, Tyler, Ralph, 289 Waste, in government, 23, 118—19, 127-
Vietnam, 255
San Antonio 28, 184
Virginia, 342
Texas Instruments, 212 Ueberroth, Peter, 196 Unemployment. Waterman, Robert, 22, 123, 131,
See Job training, Layoffs. Visalia, California, 2—5, 31,
Thatcher, Margaret, 328 133, 135, 169, 254, 268
Unified Budget System, 11, 122 113, 115, 122, 123, 130, 136,
Theme park. See Amusement park 158,

Third sector organizations, 43—47, 177, 210, 264, 276, 336, 341,
REINVENTING GOVERNMENT Index
Weber, Max, 12-13, 14 "Yes, Minister," BBC, 288-89
Welch, Larry D., 259 weld,
Bill, 19 Yates, Denise, 63

Welfare, xvi, 58, 59, 118, 132, 149_ 50, Youngstown, Ohio, 187—88, 189
153, 206, 242, 333, 353 education and Yugoslavia, 90
training, 55, 15152, 206, 353, 356-57;
Kenilworth-Parkside, 64 Zero-based budgets, 116—17
West Virginia, 178-79 Western Zlonis, Jeff, 91
Electric, 275 White, Lee, 171-72
Whitehead, Alfred North, 16
Whyte, William H., 15
Will, George, 338
Williams, Hubert, 51
Willowcreek Community Church, 170
Wilson, Gale, 4, 119, 120, 195, 200
Wilson, James Q., 21, 50, 81, 110, 126,
157, 182-83, 301
Wilson, Pete, 222, 330
Wilson, Woodrow, 13
Winnick, Lou, 20
Wirth, Timothy, 305
Wisconsin, 228; education, 94, 150,
185, 339. See also Fox Valley,
Madison
Wisniewski, Richard, 56 Woodson,
Robert, 65, 71
Wycoff, Mary Anne, 173

Xerox, 170, 318

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