A Case for Reform

by James Fallows
How the Entrepreneurial Spirit Is Transforming the Public Sector, From Schoolhouse to Statehouse, City Hall to the Pentagon
by David Osborne and Ted Gaebler.
Addison Wesley,
THIS BOOK may turn out to be enormously influential. Ten years ago every businessman in America seemed to be reading In Search of Excellence, by Thomas Peters and Robert Waterman. I doubt that Reinventing Government will enjoy the same runaway commercial success; its intended audience—politicians and government managers—is not quite as large or as well funded as Peters and Waterman’s was. But in spirit, approach, and general élan, the two projects are quite similar. In Search of Excellence examined the most successful U.S. corporations to find out what traits they shared, especially traits of corporate culture. Reinventing Government examines state and local governments, plus a few federal bureaucracies, to find out what constitutes governmental success and to see how the lessons of success could be applied where governments now fail.
David Osborne (who has written occasionally for The Atlantic) has spent much of the past decade studying state and local governments. His previous book, Laboratories of Democracy, which described innovation at the state level, was a warm-up for this one. Ted Gaebler has been a city manager in several places, most recently Visalia, California. The two maintain a studiously nonpartisan pose, and the book’s jacket has a carefully balanced set of blurbs from Republican and Democratic officials. William Weld, the Republican governor of Massachusetts, says that the book will be “required reading in the Weld administration.” Bill Clinton says more expansively that it “should be read by every elected official in America.” Osborne has been a campaign adviser to Clinton in this year’s presidential race, and at one stage he served as a surrogate for Clinton. (In January, when Gennifer Flowers made her allegations concerning Clinton, Osborne was pitted against the New York gossip columnist Cindy Adams on the television show Larry King Live. It was up to that point the most bizarre pairing of the campaign, as the tweedy, staid-seeming Osborne had to discuss the nuances of the “love nest” with a woman who exclaimed that the allegations might be good for Clinton because being a “great lover” is “part of the presidential résumé.”)
If Clinton—or, for that matter, Weld— should become President, the OsborneGaebler message would have obvious importance. Even without top-down support, it has already attracted a cultlike following in state and local governments. Moreover, the impact of the book’s argument is almost completely positive. If governments throughout the country ran the way this book suggests, the United States would be a happier and better-governed place. Considered as an instrument of political reform, therefore, Reinventing Government deserves attention and praise— even though considered strictly as a book it leaves me quite critical and wary.
OSBORNE AND Gaebler’s initial achievement is to stand on an unfamiliar side of a great political divide. This is the divide that separates theory from practice, politics from governance. It is the gap between the government’s intentions, as reflected in speeches and six-point plans, and its effect, as reflected in what agencies and bureaucrats do all day. Virtually all of American journalism is focused on the intentions side of this divide—on the struggle to pass a bill, win an election, confirm a nominee. When we read about the effect side, it’s usually because of an outright scandal, such as the S&L collapse. Journalists are uncomfortable trying to make subjective judgments about whether a program has worked well or poorly, and they often find the whole subject of implementation boring.
The division between intentions and effect creates a class division among politicians. Senators can remain almost completely on the intentions side. They tell us their plans for solving this or that problem, which usually means the legislation they would support, but they are rarely responsible for carrying plans out. Governors of very large states—in practice, only New York and California—can get honorary membership in the intentions club and be excused from talking much about implementation. Ronald Reagan was able to rise above the workaday details of the state government in Sacramento, as he later did with the national government in Washington. Mario Cuomo’s struggles with the New York state government have been portrayed, by Cuomo and a sympathetic press, as a lamentable nuisance that has kept him from talking about the big picture.
Osborne and Gaebler concentrate exclusively on the delivery end of government, although their findings naturally have implications for how laws should be drafted in the future. Their most significant accomplishment is to integrate many hundreds of examples into a basically new concept of how government should function. This concept is organized into ten chapters, reflecting the ten operating principles that distinguish a new “entrepreneurial” form of government. But they all seem to be corollaries of one central principle: Government should use incentives, so that people want to do certain things, rather than using rules and regulations that force people to comply.
This is also the main idea of the New Paradigm movement, an onagain-off-again bipartisan effort to rethink government. The Old Paradigm, in this view, was born almost a century ago, during the Progressive era, when “political reform” mainly meant government efforts to regulate the mighty business trusts, plus the breaking up of corrupt political machines. (Progressive reformers, like many New Paradigmists today, were from the “better class” of people, who looked balefully on the tawdry instincts of ordinary politicians.) The centralized regulatory approach got bigger and stronger through the New Deal, the Second World War, and the postwar welfare, entitlement, and national-security state. Everyone in every party now agrees that the system is too big, costly, and cumbersome. The New Paradigm argument is that the system can’t be saved by doing more of the same, and that, contrary to Ronald Reagan’s claims, it’s not sensible simply to do less of the same. The government must do something different—which brings us back to this book.
Osborne and Gaebler say that by using more incentives and fewer regulations, the government can apply the automatic-feedback mechanisms of the market to its own operations. Incentives are self-enforcing: if people can save money by changing their behavior, they usually change. Regulations, by contrast, must be enforced. You need inspectors to make sure that companies are complying, and internal inspectors to make sure that the regular inspectors have not been bribed. Osborne and Gaebler provide more illustrations, in more permutations, of the incentive-based approach than I can hint at here.
For example (although this is not included in the book), for nearly a generation the U.S. government has tried to save gasoline by dictating fuel-efficiency standards. Under the Energy Policy and Conservation Act of 1975, each manufacturer’s fleet had to meet a steadily rising “corporate average fuel economy" level: 20 miles per gallon in 1980, 27.5 miles per gallon by 1985. This is, in effect, the King Canute approach to conservation: the sovereign orders the cars to become more efficient. But by the mid-1980s, the price of gasoline was dropping—which left manufacturers with no economic incentive to invest in expensive new engine technology and customers no incentive to buy expensive new fuel-efficient cars. The law did, however, give manufacturers a powerful incentive to lobby Congress and the Department of Transportation, in hopes of overturning the law or postponing the deadlines.
The incentive approach would be simply to raise the tax on gasoline. In the short run that would help cover some of the real cost to the nation of using gas—the environmental impact, the effect on the trade balance (imported oil now accounts for at least half the trade deficit), the need or temptation to fight wars in the Middle East. In the longer run it would transform the car companies and the American public into natural allies in the struggle to create more-efficient cars. When gasoline costs three to four dollars a gallon, as it does in most other First World countries, people find ways to conserve. The same principle applies to other forms of conservation. You see many fewer bottles on the roadside in states with heavy bottle-deposit fees than in states with strict anti-littering laws.
Much of the book is about the internal mechanics of bureaucratic operation, and it shows great canniness about how regulations and incentives really work. Here a memorable illustration concerns what The Washington Monthly magazine, in a pioneering article on the subject twenty years ago, called “The Spring Spending Spree.” As a government agency nears the end of a fiscal year (which used to occur in June for the federal government), it has every reason to spend every penny that’s left in the budget. Under most budgeting systems it can’t keep for the future the money it doesn’t spend now—and in fact, underspending this year will usually mean a smaller budget next year, since obviously the department didn’t need all the money it had received. The government as a whole may think it wants to reduce spending, but each component part has an incentive to do just the reverse. The answer, as Osborne and Gaebler sensibly explain, lies in changing the incentives, through multi-year budgets, more-flexible budgets that allow managers to move money from one account to another, even encouraging agencies to open moneymaking, businesslike operations.
Some of these reforms can bring new problems of their own. For instance, the Customs Service is allowed to sell the boats and airplanes it confiscates from drug smugglers, and to use the proceeds for its own budget. Some lawyers have complained about an overzealous approach to confiscation. Osborne and Gaebler carefully sift through such consequences, as part of their generally sophisticatedsounding understanding of bureaucratic realities.
Rather than paraphrasing the entire book, let me simply say that it is full of sensible, specific recommendations. Politicians and government officials really should read and underline in it. But I’m not sure that many other people should.
ONE OBJECTION to this book is on the purely conceptual level: it offers a view of government that defines away some of our largest, most difficult political problems. The book’s working assumption is that the American public, through its government, always means to do the right thing, and that it’s held back only by specific failures and barriers—faulty information, bad incentives. A suspiciously large number of supporting anecdotes are drawn from cities like Orlando, Phoenix, and Sunnyvale, California, in Silicon Valley. In such places the political world may operate as Osborne and Gaebler say, and the main drama of government may be the struggle to serve its people more efficiently. But in many other political arenas, from the local to the federal level, government works on more Hobbesian premises. It takes money from the politically weak and gives it to the politically strong. No one opposes the concept of efficiency, but in practice many parts of the government are designed to be nonefficient—that is, to preserve jobs. The major problem in federal politics is not that the government is perplexed about how to administer programs. It is that the public demands more in services and benefits than it is willing to pay for in taxes.
Osborne and Gaebler do not explicitly deny that any of these complications exist, but an implied faux optimism runs throughout the book: If only we knew all the facts, we’d never make these foolish mistakes. For instance, in illustrating the (unexceptionable) point that it’s cheaper to prevent a problem than to solve it after it has happened, they mention that thousands of young black men are killed or wounded by gunfire every year. It would be more sensible and efficient, they suggest, to get rid of the guns than to build more jails. You don’t say! Hey, maybe it would also be more sensible if the Arabs and Israelis made friends, rather than fighting so much! But perhaps there’s something involved in the Middle East, and in America’s reliance on guns, that goes beyond faulty cost-benefit analysis.
Osborne and Gaebler might properly respond that they’re not trying to solve all the world’s problems; it’s enough to help solve a few, as their book will. But a sort of chirpiness in the book’s outlook is connected to its most serious literary and intellectual defect. I trust the conclusions that the authors reach mainly because the conclusions conform to my experience as a reporter and in the government. But I don’t trust all the evidence they present. This book sometimes seems to be the work of salesmen, not reporters or analysts.
The anecdotes that jam the pages have an unvarying narrative structure. A government program is failing. The administrator stops and thinks things over the entrepreneurial way. He takes the New Paradigm approach and— presto!—“the results speak for themselves” (a phrase that is worked to death in the book).
I don’t doubt that something like this sequence happened—that the programs worked better after the change—just as I don’t doubt that people who go to Dale Carnegie courses generally become better speakers. But the tone of the book often reminded me of an Amway or a Dale Carnegie sales pitch, or a TV infomercial. Every story is a success story. Before the change everything is bad. After the change everything is good. Characters have no function or nuance except to put the New Paradigm into effect. I respect Osborne and Gaebler as theorists about the government, but I do not trust them as reporters—that is, people who will observe critically and openmindedly and tell you everything they have seen.
My suspicions are heightened by their handling of a case I happen to know about firsthand. Osborne and Gaebler present a long and 100 percent favorable profile of William Creech, a retired Air Force general who from 1978 to 1984 ran the Tactical Air Command, often called TAC. TAC was the fighter-plane branch of the Air Force. Before Creech took command, it had terrible operational and morale problems. Large numbers of planes sat in the hangars, for lack of spare parts. Pilots could not get enough flying hours to remain proficient. By the time Creech left, things looked much better fur TAC. More planes were operational; more pilots were in the air. (“The results speak for themselves.”)
Osborne and Gaebler present this as a clear-cut morality play. Before Creech arrived, TAC had been overcentralized—that is, Old Paradigm. Repair work was handled by one big, impersonal, centralized depot, which slowed things down and eroded morale. Creech believed in decentralization and incentives. He got rid of the central repair depot and made each squadron responsible for its own maintenance. He made sure that the head mechanic’s name was painted on each plane’s nose, right next to the pilot’s, to symbolize their bond. He emphasized the intangible elements of pride: “He had every building in the TAC command given a fresh coat of paint, and he invested in carpets and furniture and new barracks.”Most impressive of all, according to Osborne and Gaebler, “ TAC accomplished all of this with no new money, no more people, and a work force with less experience than the work force in place through the years of decline.”
Osborne and Gaebler chose to italicize this passage in their book, which is unfortunate, because it is both flatly untrue and broadly misleading, TAC’S turnaround had everything to do with money. The “years of decline” in the late 1970s were due principally to dishonest budgeting. The Air Force, along with the other services, chronically lowballed its estimates of how much a new fighter plane or missile would cost, in order to get more planes authorized. Inevitably the planes cost more than “expected,” and the services made up the difference by raiding the operations-and-maintenance account. The result was the bad old TAC that Osborne and Gaebler describe, with too little fuel and too few spare parts.
Creech’s tenure coincided with the early years of the Reagan boom in defense spending. The reforms Creech made were undoubtedly important, but so was the money. The TAC budget went up 44 percent during Creech’s tenure, which included a big increase in the operations-and-maintenance account.
It would not have undermined Osborne and Gaebler’s case to show that the story had complications. No matter how much money is involved, it still makes sense to decentralize authority, as Creech did. It would not have hurt to hint that the man himself might have had complicated motivations. Because Creech’s story seems to fit their argument, Osborne and Gaebler present him as a one-dimensional hero (“a man who remains a legend within the U.S. Air Force, even in retirement”). They discuss Creech in a way that sounds as though they have talked with him personally—“Creech later confided,”“Creech asked.” I don’t know whether they actually talked to Creech —their reference notes show that most of the quotations come from one of Creech’s published speeches and a magazine profile—but if they did, they could hardly have avoided noticing the droll side of his emphasis on pride in appearance. The carpet in his office was so thick that one’s shoes practically disappeared in it. His assistants were so ramrod-straight and wrinkle-free that it was easy to imagine the daily panic as they prepared to meet the general’s eye.
Osborne and Gaebler’s case would have been even more powerful if they’d been able to admit that real people, not earthbound saints, put it into effect. □