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February 1995

Really Reinventing Government

Both parties promise to reinvent government. We asked the father of corporate restructuring to show them how

by Peter F. Drucker

Vice President Al Gore's promise to "reinvent government," proclaimed with great fanfare in the first year of the Clinton Administration, produced only a nationwide yawn. (The similar promise made in the Republicans' "Contract With America," last year, initially met with no better response.) There has been no lack of publicity about the Gore initiative since. Press release after press release has announced the reinvention of yet another agency or program; big conferences, one chaired by the President himself, have been convened, and any number of TV appearances made. Of all the domestic programs of the Clinton Administration, this is one of the few in which there actually have been results and not just speeches. Yet neither the public nor the media have shown much interest. And last November's elections were hardly a vote of confidence in the Administration's performance at reinventing government.

There are good reasons for this. In any institution other than the federal government, the changes being trumpeted as reinventions would not even be announced, except perhaps on the bulletin board in the hallway. They are the kinds of things that a hospital expects floor nurses to do on their own; that a bank expects branch managers to do on their own; that even a poorly run manufacturer expects supervisors to do on their own--without getting much praise, let alone any extra rewards.

Here are some examples--sadly, fairly typical ones:

* In Atlanta, Georgia, six separate welfare programs, each traditionally with its own office and staff, have consolidated their application process to give "one-stop service." The reinvented program is actually getting phone calls answered, and on the first try.

* In Ogden, Utah, and Oakland, California, among other places, the Internal Revenue Service is also experimenting with treating the taxpayers as customers and with one-stop service, in which each clerk, instead of shuffling taxpayers from one office to another, has the information to answer their questions.

* The Export-Import Bank has been reinvented. It is now expected to do what it was set up to do all of sixty years ago: help small businesses get export financing.

* The U.S. Geological Survey office in Denver is supposed to sell maps of the United States to the public. But it is almost impossible to find out what maps to order and how and where to order them, since the catalogue is carefully hidden. And the very fact that a map is in demand by the public all but guarantees that it will be unobtainable. It cannot be reprinted simply because the public wants to buy it; another government agency must order it for internal use. If the map sells well, it therefore immediately goes out of print. What's more, the warehouse is so poorly lit that when an order for a map in print comes in, the clerks cannot find it. The task force that the Geological Survey created seven months ago to reinvent all this has succeeded so far in putting more lights in the warehouse and making a few other minor improvements.

For the future, however, more-ambitious things are promised:

* The Department of Agriculture proposes to trim its agencies from forty-two to thirty, to close more than 1,000 field offices, and to eliminate 11,000 jobs, for savings of about $3.6 billion over five years.

* Of the 384 recommendations of ways to reinvent government identified by the Vice President in 1993, about half are being proposed in the budget for fiscal year 1995. If all these recommendations are accepted by Congress, they should result in savings of about $12.5 billion over two years.

But neither the trimming of the Department of Agriculture nor the Vice President's 384 recommendations are new. We have long known that a great many agricultural field offices are in cities and suburbs where few if any farmers are left. Closing them was first proposed in the Eisenhower years. And a good many, perhaps the majority, of Gore's 384 recommendations were made ten years ago, in the Grace Report, under President Ronald Reagan.

Nor is it by any means sure that all of these proposals and recommendations will become law. Mike Espy unveiled large cuts in the bloated USDA on December 6. But he had announced in October that he would be resigning effective December 31, and there is no guarantee that there will be someone at the top of the department committed to presiding over these changes.

Even if all of these proposals were to be enacted, the results would be trivial. The proposed Agriculture Department saving of $3.6 billion over five years works out to about $720 million a year--or around one percent of the annual department budget of almost $70 billion. A saving of $12.5 billion looks like a lot of money. But over two years the federal government spends $3 trillion. An annual saving of $6 billion -and this is many times more than Congress is likely to accept--would thus be a cut of no more than two tenths of one percent of the budget. Surely the only way to describe the results of Gore's efforts so far is with the old Latin tag "The mountains convulsed in labor only to give birth to a ridiculous, teensy-weensy Mouse."


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 that was installing a telephone in a home or manufacturing switch gear. 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 civilian agencies of the U.S. government. They would require radical changes in policies and practices which the bureaucracy, the federal employees' unions, and Congress would all fiercely resist. They would require every agency--and every bureau within it--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. 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 is always 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 itself indiscriminately. This is what the Republicans and (as of last December) President Clinton now promise. 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, without fanfare, did turn themselves around, by rethinking themselves. They did not start out by downsizing. In fact, they knew that the way to get control of costs is not to start by reducing expenditures but 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 now go into it?" 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 would 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 work force 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 safety 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--sometimes 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 three 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 catalogues 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, if not 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 yea votes 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 Suetonius 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, with 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 policymaking 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 it, 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.


Effective Government

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 were 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-First World War government has also not proved out--the theory that was first formulated in 1944 in Friedrich 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 500 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.


Peter F. Drucker is a writer, a consultant, and a professor of social science at Claremont Graduate School. He is the author of more than twenty books, including Managing for the Future (1992) and Post-Capitalist Society (1993).

Copyright © 1995 by The Atlantic Monthly Company. All rights reserved.

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