Restructuring

The reason most often given for this embarrassment of nonresults is “resistance by the bureaucracy.” Of course, no one likes to be reinvented by fiat from above. But actually, one positive result of Gore’s program has been the enthusiastic support it has received from a great many people in the government’s employ—especially the low-level people who are in daily contact with the public and are thus constantly frustrated by red tape and by such inane rules as the one that prevents their selling the beautiful Geological Survey maps, of which they are justly proud.

Nor is lack of effort the explanation. Some of the most dedicated people in Washington meet week after week to produce these embarrassing nonresults. They include the deputy secretaries of the major government departments. Vice President Gore—an unusually energetic man—pushes and pushes. And the driving force behind the whole endeavor is the most knowledgeable of all Washington insiders, Alice Rivlin, formerly the director of the Congressional Budget Office, and now the director of the Office of Management and Budget.

These able people are getting nowhere fast because their basic approach is wrong. They are trying to patch and to spot-weld, here, there, and yonder—and that never accomplishes anything. There will be no results unless there is a radical change in the way the federal government and its agencies are managed and paid. The habit of continuous improvement has to be built into all government agencies, and has to be made self-sustaining.

Continuous improvement is considered a recent Japanese invention—the Japanese call it kaizen. But in fact it was used almost eighty years ago, and in the United States. From the First World War until the early eighties, when it was dissolved, the Bell Telephone System applied “continuous improvement” to every one of its activities and processes, whether it was installing a telephone in a home or manufacturing switchgear. For every one of these activities, Bell defined results, performance, quality, and cost. And for every one, it set an annual improvement goal. Bell managers weren’t rewarded for reaching these goals, but those who did not reach them were out of the running and rarely given a second chance.

What is equally needed—and is also an old Bell Telephone invention—is “benchmarking”: every year comparing the performance of an operation or an agency with the performances of all others, with the best becoming the standard to be met by all the following year.

Continuous improvement and benchmarking are largely unknown in the civilian agencies of the U.S. government. They would require radical changes in policies and practices that the bureaucracy, the federal employees’ unions, and Congress would all fiercely resist. They would require every agency—and every bureau within every agency—to define its performance objective, its quality objective, and its cost objective. They would require defining the results that the agency is supposed to produce. However, continuous improvement and benchmarking need different incentives. An agency that did not improve its performance by a preset minimum would have its budget cut—which was Bell Telephone’s approach. And a manager whose unit consistently fell below the benchmark set by the best performers would be penalized in terms of compensation or—more effective—in terms of eligibility for promotion. Nonperformers would ultimately be demoted or fired.

But not even such changes, though they would be considered radical by almost anybody in Congress or the federal bureaucracy, would warrant being called a reinvention of government. Things that should not be done at all are always mishandled the worst—and thus here we see the greatest improvements when attempts are made to do better what is already being done.

Any organization, whether biological or social, needs to change its basic structure if it significantly changes its size. Any organization that doubles or triples in size needs to be restructured. Similarly, any organization, whether a business, a nonprofit, or a government agency, needs to rethink itself once it is more than forty or fifty years old. It has outgrown its policies and its rules of behavior. If it continues in its old ways, it becomes ungovernable, unmanageable, uncontrollable.

The civilian part of the U.S. government has outgrown its size and outlived its policies. It is now far larger than it was during the Eisenhower administration. Its structure, its policies, and its rules for doing government business and for managing people go back even further than that. They were first developed under William McKinley after 1896, and were pretty much completed under Herbert Hoover from 1929 to 1933.In fact there is no point in blaming this or that president for the total disarray of our government today. It is the fault neither of the Democrats nor of the Republicans. Government has outgrown the structure, the policies, and the rules designed for it and still in use.

Rethinking

The first reaction in a situation of disarray always is to do what Vice President Gore and his associates are now doing—patching. It always fails. The next step is to rush into downsizing. Management picks up a meat-ax and lays about indiscriminately. This is what both the Republicans and the Clinton administration now propose to do. In the past fifteen years one big American company after another has done this—among them IBM, Sears, and GM. Each first announced that laying off 10,000 or 20,000 or even 50,000 people would lead to an immediate turnaround. A year later there had, of course, been no turnaround, and the company laid off another 10,000 or 20,000 or 50,000—again without results. In many if not most cases, downsizing has turned out to be something that surgeons for centuries have warned against: “amputation before diagnosis.” The result is always a casualty.

But there have been a few organizations—some large companies (GE, for instance) and a few large hospitals (Beth Israel in Boston, for instance)—that quietly, and without fanfare, did turn themselves around, by rethinking themselves. They did not start out by downsizing. In fact, they knew that to start by reducing expenditures is not the way to get control of costs. The starting point is to identify the activities that are productive, that should be strengthened, promoted, and expanded. Every agency, every policy, every program, every activity, should be confronted with these questions: “What is your mission?” “Is it still the right mission?” “Is it still worth doing?” “If we were not already doing this, would we go into it now?” This questioning has been done often enough in all kinds of organizations—businesses, hospitals, churches, and even local governments—that we know it works.

The overall answer is almost never “This is fine as it stands; let’s keep on.” But in some—indeed, a good many—areas, the answer to the last question is “Yes, we should go into this again, but with some changes. We have learned a few things.”

An example might be the Occupational Safety and Health Administration, created in 1970. Safety in the workplace is surely the right mission for OSHA. But safety in the American workplace has not improved greatly in the past twenty-five years. There may be slightly fewer disabling injuries now than there were in 1960 or 1970, and to be sure, the workforce has increased tremendously over those years. But considering the steady shift of the labor force from highly unsafe to fairly safe work (for example, from deep-level coal mining to the safer surface strip mining, and especially the shift from inherently dangerous manufacturing jobs to inherently safe office and service jobs), safety in the American workplace may actually have deteriorated since 1970. Such a result may mean that we have been going about the task in the wrong way. In OSHA’s case we actually understand the problem. OSHA runs on the assumption that an unsafe environment is the primary cause of accidents, and it therefore tries to do the impossible: create a risk-free universe. Of course eliminating hazards is the right thing to do. But it is only one part of safety, and probably the lesser part. In fact, by itself it achieves next to nothing. The most effective way to produce safety is to eliminate unsafe behavior. OSHA’s definition of an accident—“when someone gets hurt”—is inadequate. To cut down on accidents the definition has to be “a violation of the rules of safe behavior, whether anyone gets hurt or not. This is the definition under which the United States has been running its nuclear submarines. Anyone in a nuclear sub, whether the commanding officer or the most junior seaman, is punished for the slightest violation of the rules of safe behavior, even if no one gets hurt. As a result, the nuclear submarine has a safety record unmatched by any industrial plant or military installation in the world; and yet a more unsafe environment than a crowded nuclear sub can hardly be imagined.

OSHA’s program should, of course, be maintained, and perhaps even expanded. But it needs to be refocused.

This analysis will consider a number of agencies whose mission is no longer viable, if it ever was—agencies that we would definitely not start now if we had the choice.

The mission may have been accomplished, for instance. An example is that most sacred of cows, the Veterans Administration’s 171 hospitals and 130 nursing homes. When they first became accredited hospitals, around 1930, competent hospitals were scarce in the rural areas and small towns where many veterans lived. Today a competent hospital is easily accessible to a veteran almost anywhere. Medically, most VA hospitals are at best mediocre; financially, they are costly to the government. Worst, they are not neighborhood facilities, and thus veterans—especially elderly, chronically ill ones—have to travel far from their communities and their families just when they most need community and family support. The VA hospitals and nursing homes long ago accomplished what they were set up to do. They should be closed and the job contracted out to local hospitals and HMOs.

Or there may be no mission left. For example, would we now establish a separate Department of Agriculture? A good many Americans would answer with a loud no. Now that farmers are no more than 3 percent of the population, and productive farmers are half that (and “agribusinesses” to boot), a bureau at Commerce or Labor is probably all we need.

Some perfectly respectable activities belong elsewhere. Why, for instance, should a scientific agency like the Geological Survey run a retail business? Surely there are enough businesses around, map stores or book chains, to sell its maps. Or they could be offered in the catalogs of firms that sell outdoor gear.

Continuing with activities that we would not now choose to begin is wasteful. They should be abandoned. One cannot even guess how many government activities would be found to be worth preserving. But my experience with many organizations suggests that the public would vote against continuing something like two-fifths, perhaps even half, of all civilian agencies and programs. And almost none of them would win a vote—that is, be deemed to be properly organized and operating well—by a large margin.

Abandoning

Together the qualified yeas and nays are likely to be awarded in any organization to some three-fifths or two-thirds of programs and activities. The thorny cases are the programs and activities that are unproductive or counterproductive without our quite knowing what is wrong, let alone how to straighten it out.

Two major and highly cherished U.S. government programs belong in this category. The welfare program is one highly visible example. When it was designed, in the late 1930s, it worked beautifully. But the needs it then tackled were different from those it is supposed to serve today: the needs of unwed mothers and fatherless children, of people without education, skills, or work experience. Whether it actually does harm is hotly debated. But few claim that it works or that it even alleviates the social ills it is supposed to cure.

And then there is that mainstay of U.S. foreign policy during the Cold War years: military aid. If it is given to an ally who is actually engaged in fighting, military aid can be highly productive: consider Lend-Lease to Great Britain in 1940–1941, and military aid to an embattled Israel. But military aid is counterproductive if it is given in peacetime to create an ally—a principle that Plutarch and Suetonious accepted as proved. Surely our worst recent foreign-policy messes—Panama, Iran, Iraq, and Somalia are prime examples—were caused by our giving military aid to create an ally. Little, if any, military aid since the beginning of the Cold War has actually produced an ally. Indeed, it usually produced an enemy—as did Soviet military aid to Afghanistan.

The favorite prescription for such programs or activities is to reform them. President Clinton’s welfare reform is one example, as is the welfare reform proposed by the new Republican majority. Both are quackery. To reform something that malfunctions—let alone something that does harm—without knowing why it does not work can only make things worse. The best thing to do with such programs is to abolish them.

Maybe we should run a few—a very few—controlled experiments. In welfare, for instance, we might try, in some carefully chosen places across the country, to privatize retraining and placing long-term welfare recipients. Indianapolis Mayor Stephen Goldsmith has achieved promising results in this area. In health care we might try several different approaches in different states: for example, managed competition in California, home of the strong and experienced health-care wholesaler Kaiser Permanente; single-payer health care on the Canadian model in New Jersey, where there has been support for it; and in Oregon, rationing on the basis of medical expectations, which is now being tried for the care of indigents.

But in areas where there are no successes to be tested—for example, military aid—we should not even experiment. There are no hypotheses to test. We should abandon.

Rethinking will result in a list that has activities and programs that should be strengthened at the top, ones that should be abolished at the bottom, and between them activities that need to be refocused or in which a few hypotheses might be tested. Some activities and programs should, despite an absence of results, be given a grace period of a few years before they are put out of their misery. Welfare may be the prime example.

Rethinking is not primarily concerned with cutting expenses. It leads above all to a tremendous increase in performance, in quality, in service. But substantial cost savings—sometimes as much as 40 percent of the total—always emerge as a by-product. In fact, rethinking could produce enough savings to eliminate the federal deficit within a few years. The main result, however, would be a change in basic approach. For where conventional policy-making ranks programs and activities according to their good intentions, rethinking ranks them according to results.

An Exception for Crusades

Anyone who has read this far will exclaim, “Impossible. Surely no group of people will ever agree on what belongs at the top of the list and what at the bottom.” But amazingly enough, wherever rethinking has been done, there has been substantial agreement about the list, whatever the backgrounds or the beliefs of the people involved. The disagreements are rarely over what should be kept or strengthened and what should be abandoned. They are usually over whether a program or activity should be axed right away or put on probation for two or three years. The programs that people do not agree on are the ones concerned not with results but with “moral imperatives.”

The best American example is the War on Drugs. After many years it has had little effect on substance abuse and addiction, and much of the effect it has had is deleterious. But it underlies the destruction of our cities in that addicts are prostituting themselves, mugging, robbing, or killing to earn enough for the fix that the War on Drugs has made prohibitively expensive. All the War on Drugs is actually doing, in other words, is enriching drug dealers and penalizing and terrorizing nonusers, especially in the inner city. But the War on Drugs is a crusade. What lies behind it is not logic but outrage. Stopping the War on Drugs, no matter how beneficial, would be “immoral.” The smart thing to do is to exclude such crusades from the rational analysis involved in rethinking. Fortunately, there are never a lot of them. As for the rest—more than 90 percent of all programs and activities—rethinking will in all probability produce substantial agreement.

Government That’s Effective

Surely, it will be argued, even total agreement among highly respected people will be futile. Congress will not accept anything like this. Neither will the bureaucracy. And lobbyists and special interests of all persuasions will be united in opposition to anything so subversive.

Perfectly true: action on rethinking is impossible today. But will it be impossible tomorrow? In the last presidential election almost one-fifth of the electorate voted for Ross Perot, the man who promised to get rid of the deficit by slashing government expenditures. A substantial number—perhaps another fifth—agreed with his aims even though they could not bring themselves to vote for him. Just now the federal deficit is declining. But even without health-care reform or welfare reform, the deficit will again grow explosively, at the latest by 1997. And then the demand for cutting the deficit may become irresistible and overwhelm Congress, the bureaucracy, and the lobbyists. If no rational rethinking of government performance has yet occurred, we will in all likelihood do what so many large companies have done—apply the meat-ax and downsize. We will then destroy performance, but without decreasing the deficit. In fact, it is predictable that the wrong things will then be cut—the things that perform and should be strengthened.

But if we have a plan that shows how and where the government needs to be rethought, we have a chance. In a crisis one turns to people who have thought through in advance what needs to be done. Of course, no plan, no matter how well thought through, will ever be carried out as written. Even a dictator has to make compromises. But such a plan would serve as the ideal against which the compromises are measured. It might save us from sacrificing things that should be strengthened in order to maintain the obsolete and the unproductive. It would not guarantee that all—or even most—of the unproductive things would be cut, but it might maintain the productive ones. Within a few years we are likely to face such a crisis, as the federal budget and the federal deficit resume explosive growth, while taxpayers grow ever more resistant to tax increases and ever more contemptuous of government and its promises.

In fact, we may already be very close to having to reinvent government. The theory on which all governments in the developed world have operated at least since the Great Depression (Harry Hopkins, Franklin Delano Roosevelt’s adviser, called it “Tax and Tax, Spend and Spend”) no longer delivers results. It no longer even delivers votes. The “nanny state”—a lovely English term—is a total failure. Government everywhere—in the United States, the United Kingdom, Germany, the former Soviet Union—has been proved unable to run community and society. And everywhere voters revolt against the nanny state’s futility, bureaucracy, and burdens. The landslide in which California’s voters last November enacted Proposition 187, abolishing health care and even free public education for illegal immigrants, is but one example. But the countertheory that preaches a return to pre–World War I government has also not proved out—the theory that was first formulated in 1944 in Friedrich von Hayek’s The Road to Serfdom, and that culminated in neo-conservatism. Despite its ascendancy in the 1980s, despite Ronald Reagan and Margaret Thatcher, the nanny state has not shrunk. On the contrary, it is growing ever faster. As the new Republican majority is soon going to find out, neither maintaining nor curtailing the nanny state is acceptable to the public.

Instead we will have to find out what government programs and activities in community and society do serve a purpose. What results should be expected of each? What can governments—federal, state, local—do effectively? And what nongovernmental ways are there to do worthwhile things that governments do not and cannot do effectively?

At the same time, as President Clinton learned in his first two years, government cannot opt out of the wider world and become domestic only, as he so very much wanted it to be. Foreign brush fires—in Bosnia, in Rwanda, in the former Soviet Union—have to be attended to, because they have a nasty habit of spreading. And the growing threat of international terrorism, especially if used as a weapon by outlaw governments, will surely require more government involvement in foreign affairs, including military matters, and more international cooperation.

By now it has become clear that a developed country can neither extend big government, as the (so-called) liberals want, nor abolish it and go back to nineteenth-century innocence, as the (so-called) conservatives want. The government we need will have to transcend both groups. The megastate that this century built is bankrupt, morally as well as financially. It has not delivered. But its successor cannot be “small government.” There are far too many tasks, domestically and internationally. We need effective government—and that is what the voters in all developed countries are actually clamoring for.

For this, however, we need something we do not have: a theory of what government can do. No major political thinker—at least not since Machiavelli, almost five hundred years ago—has addressed this question. All political theory, from Locke on through The Federalist Papers and down to the articles published by today’s liberals and conservatives, deals with the process of government: with constitutions, with power and its limitations, with methods and organizations. None deals with the substance. None asks what the proper functions of government might be and could be. None asks what results government should be held accountable for.

Rethinking government, its programs, its agencies, its activities, would not by itself give us this new political theory. But it would give us the factual information for it. And so much is already clear: the new political theory we badly need will have to rest on an analysis of what does work rather than on good intentions and promises of what should work because we would like it to. Rethinking will not give us the answers, but it might force us to ask the right questions.

Now is the time to start, when polls show that less than a fifth of the American public trusts government to do anything right. Vice President Gore’s “reinventing government” is an empty slogan so far. Yet what the slogan implies is what free government needs—and desperately.

1995

Postscript, May 1995

“We may already be very close to having to reinvent government,” reads the opening sentence of the final section of this chapter. Had any one asked me in the late summer of 1994 when I wrote this piece what I meant by “very soon,” I would have said “a few years.” But by the time this essay appeared in print for the first time—in the February 1995 issue of the Atlantic Monthly—“very soon” had already happened. The flight of the global money markets out of the U.S. currency and the resulting collapse of the U.S. dollar, which began in January of 1995, is still going on while I am writing this. And it will force the United States—but also all other developed countries—to “really” reinvent government. Within a few short weeks, the U.S. dollar tumbled by twenty percent against the Japanese yen—and by almost as much against the German mark—an almost unprecedented collapse, and one that never would have been deemed even remotely possible for the currency of what is the world’s biggest and equally the world’s strongest economy. What triggered this collapse was not an economic event; it was the failure of the U.S. Senate—by one vote!—to pass a proposed constitutional amendment mandating a balanced budget by the early years of the next century.

By itself the vote was not particularly meaningful. Even if the Senate had passed the amendment it would still have had to be adopted by thirty-eight of the fifty states, which would have taken years if it had happened at all. Moreover the amendment was so riddled with loopholes and escape hatches that any future Congress or President would have little trouble to keep on running budget deficits. But the amendment’s failure to clear its first hurdle, the Senate, was taken by America’s foreign creditors and by the global money markets altogether as a clear signal that even the conservatives in the U.S. Congress, whatever their rhetoric, are not committed to doing anything politically painful and surely not committed to “reinventing government.” The amendment’s defeat destroyed the world’s confidence in the United States—not only in the U.S. dollar but in American leadership altogether. For forty years confidence in the U.S. economy, in its stability and its strength, had been the foundation on which the world economy rested. It enabled the United States to do what had never been done before: to borrow, since the Johnson Administration thirty years ago, growing amounts abroad to cover the U.S. government deficit, and to do so—totally without precedent—in the debtor’s currency, that is, in dollars rather than in the creditor’s currency. For these thirty years the United States enjoyed unlimited credit abroad. But that confidence is gone now. And it won’t come back until the U.S. budget is balanced—or until the United States domestic savings rate has risen enough to enable the government to cover its deficits by borrowing at home (which, however, as is explained in some detail in chapter 25, will not happen until the budget has been balanced first). It is not only the United States, the recent events have made clear, that will no longer be able to borrow on the world markets to finance chronic budget deficits. No developed country can do so any longer. All except Japan and Germany still do so, however. The collapse of the U.S. dollar therefore means that practically all governments in the developed world will now have to go to work on “re-inventing government.” The collapse of the U.S. dollar thus signals the end of what the next chapter of this book calls the “Keynesian Welfare State.”

Whenever such a possibility was discussed in the past, it was always dismissed with the argument that the United States would bail out a government in international trouble. The U.S. dollar, after all, was the “key currency” and, as such, responsible for maintaining currency stability worldwide. Just a few weeks before the collapse of the dollar, the United States did indeed still play that role—or at least attempted to play it—when the Mexican peso collapsed in late 1994. But the U.S. dollar, and the United States as a whole are no longer able to carry the world economy. What the collapse of the U.S. dollar means is that it is no longer the “key currency.” In fact, in Asia the yen is already taking over that role—though it is very unlikely that the Japanese will be willing to shoulder the responsibilities and burdens that go with it. How serious the consequences will be—for the United States, for the world economy, for the emerging countries—we cannot even guess at so far. But the dangers are real, and they are great. The post–World War II economy no longer functions; it was based, after all, on the U.S. dollar as the key currency and on the willingness and ability of the U.S. economy to finance the rest of the world. This ability, however, had come to rest increasingly in the last thirty years on the willingness of the global money markets to finance the U.S. budget deficit—and that willingness is gone, and gone for good.

But this means also that the United States has lost control of its own domestic economic and financial policies unless it speedily eliminates the budget deficit. The United States has lost economic and financial sovereignty, and military strength is no substitute for it. The only true “sovereigns in the world economy now are the global money markets—fickle, volatile, prone to panic, uncontrolled, and uncontrollable. This has already been proven by the total and ignominious failure of the concerted effort of the main central banks—the Fed in the United States, the Bank of Japan, the Deutsche Bundesbank—to halt the fall of the dollar. They only made speculators rich. From now on a balanced budget is the only economic policy that will allow a country to be master in its own house. This may be very poor economics; a good many, perhaps most, of America’s economists would say so. But it is a fact.

Seen in this perspective, rather than in terms of purely domestic politics, the Republicans “First Hundred Days” and their “Contract with America” look quite different from the way America’s politicians and the American media see them. There is no doubt that the Republican victory last November (several months after this essay was written) constituted a profound change—perhaps as profound a change as did the Democratic victory of 1932. There is, however, equally little doubt that the Republicans achieved far less than their rhetoric claims—not unlike the Democrats sixty-two years ago. Most of the measures passed by the radical Republicans in the House still have to pass a far more moderate Senate where they are likely to be watered down heavily, some surely to the point where they represent good intentions rather than substance. And then there is of course the possibility of a presidential veto; the Republicans may not have enough votes to override one in either the House or in the Senate. But the “Contract with America” of the new Republican majority also suffered all along from having three goals rather than one clear focus. It promised to balance the budget; it promised at the same time to cut taxes; and it promised to downsize government but on the basis of partisan ideology rather than on the basis of careful analysis as to what works and what doesn’t. In the last analysis these goals are not compatible—which is the main reason why even the Republicans in the Senate are wavering on every one of the measures the House passed.

But, frankly, none of this matters too much anymore. What the Congress or the President want has become secondary. They are not in control. What do they have to do to regain control? What do they have to do to restore the economic sovereignty the United States is losing? The answer has been given by our new masters, the global money markets: Eliminate chronic budget deficits and with them dependence on borrowing abroad—that well has gone dry.

Financial and business people worldwide have gotten this message. Is it too much to expect that the politicans will get it too? Several years ago, while the Republicans still were given little chance of ever regaining control of the Congress, the Heritage Foundation, the Washington think tank of the radical Republicans and closely allied with Newt Gingrich, proposed what then became the “Contract with America.” Nobody listened to it then. But last April—just before I was writing this postscript—the same Heritage Foundation—still the think tank of the radical Republicans and still closely linked to Newt Gingrich—published a new proposal entitled “Rolling Back Government: A Budget Plan to Rebuild America.” Far from celebrating its victory it completely ignores the “Contract with America.” Instead it takes the approach this essay advocates: It systematically asks of every government agency, every government service, every government program: “If we didn’t do this already, would we now go into it?” Its conclusions go a good deal further than anything I would have proposed. (I had nothing to do with them, by the way, or with the new proposal altogether. In fact, the Heritage’s new proposals go well beyond anything I would have dared advocate or would even strongly support.) The Heritage Foundation now proposes not only to get rid of the Department of Agriculture—something that’s mentioned in this chapter—it also proposes to get rid of the majority of other cabinet departments such as Commerce, Energy, Environment, Housing, Veterans Affairs, and to limit the Cabinet to five departments: State, Treasury, Defense, Justice, and Health (Health, by the way, is the only one that was not already a cabinet department under George Washington). The proposal is equally radical in its treatment of government policies and programs. Nothing that extreme might seem to have much of a chance—in fact the media have paid practically no attention to the proposal. But then they also paid no attention to the earlier “Contract with America” when it was first published a few years back. And even if none of the specific measures of this new proposal ever becomes law, the very fact that such a proposal is now seriously being put forward—and by people who speak for the politicians now in the ascendancy—guarantees that “really” re-inventing government will remain the central and urgent political “hot button” in the United States—and in all developed countries—for years to come.