THE WHITE HOUSE
Office of the Vice President
For Immediate Release September 7, 1993
Putting Customers First
We are going to rationalize the way the federal government relates
to the American people, and we are going to make the federal
government customer friendly. A lot of people don't realize that
the federal government has customers. We have customers. The
Vice President Al Gore
Town Meeting, Department of Housing and Urban Development
March 26, 1993
All of us--bureaucrat or business owner, cabinet secretary or
office clerk--respond to incentives. We do more of what brings us
rewards and recognition, less of what brings us criticism. But our
government, built around a complex cluster of monopolies, insulates
both managers and workers from the power of incentives. We must
change the system. We must force our government to put the customer
first by injecting the dynamics of the marketplace.
The best way to deal with monopoly is to expose it to
competition. Let us be clear: this does not mean we should run
government agencies exactly like private businesses. After all,
many of government's functions are public responsibilities
precisely because the private sector cannot, should not, or would
not manage them. But we can transplant some aspects of the business
world into the public arena. We can create an environment that
commits federal managers to the same struggle to cut costs and
improve customer service that compels private managers. We can
imbue the federal government--from top to bottom--with a driving
sense of accountability.
Is it really possible to reinvent government in this way?
Horror stories about government waste are so abundant that many
doubt its ability to change. For some, the only solution is to cut
or abolish programs wholesale. In some instances those cuts make
sense and we are recommending them. But alone they do not address
the problem we face or move us decidedly toward a government that
works better and costs less. We propose a different approach. we
must make cuts where necessary; we also must make our government
effective and efficient. Some programs clearly should be
eliminated, others streamlined. We will offer many proposals to do
both in chapter 4. But reinventing government isn't just about
trimming programs; it's about fundamentally changing the way
government does business. By forcing public agencies to compete
for their customers--between offices, with other agencies, and with
the private sector--we will create a permanent pressure to
streamline programs, abandon the obsolete, and improve what's left.
This process will be neither quick nor easy. But as it
unfolds, a very different type of government will emerge, one that
is accountable to its true customers--the public.
We propose four specific steps to empower customers, break
federal monopolies, and provide incentives for federal employees to
better serve their customers.
First, we will require that all federal agencies put customers
first by regularly asking them how they view government services,
what problems they encounter, and how they would like services
improved. We will ensure that all customers have a voice, and that
every voice is heard.
Second, we will make agencies compete for their customers'
business. Wherever feasible, we will dismantle government's
monopolies, including those that buy goods and services, acquire
and maintain office space, and print public documents. These
internal monopolies serve their customers--government workers--so
poorly, it's no wonder those workers have such trouble serving
customers outside government.
Third, where competition isn't feasible, we will turn
government monopolies into more businesslike
enterprises--enterprises in closer touch with both customers and
Fourth, we will shift some federal functions from old-style
bureaucracies to market mechanisms. We will use federal powers to
structure private markets in ways that solve problems and meet
citizens' needs--such as for job training or safe
workplaces--without funding more and bigger public bureaucracies.
Together, these strategies will enable us to create a
responsive, innovative, and entrepreneurial government. If we
inject market mechanisms into federal agencies as we are cutting
red tape, we will create new dynamics--and a new
dynamism--throughout the federal government.
Step 1: --Giving Customers A Voice-- And A Choice
Setting Customer Service Standards
Long lines, busy signals, bad information, and indifferent
workers at front counters-- these are all too common occurrences
when customers come in contact with their government. Quite simply,
the quality of government service is below what its customers
We propose to set a goal of providing customer services equal
to the best in business. Too many agencies have learned to overlook
their customers. After all, most of government's customers can't
really take their business elsewhere. Veterans who use veterans'
hospitals, companies that seek environmental permits, or retirees
applying for social security benefits must deal with public
agencies that hold monopolies. And monopolies, public or private,
have little sensitivity to customer needs. So government agencies
must do what many of America's best businesses have done: renew
their focus on customers. Some are already trying. The Internal
Revenue Service (IRS) and Social Security Administration (SSA) have
taken major steps to improve their telephone services to customers.
SSA, the U.S. Postal Service (USPS), and the Department of Veterans
Affairs are developing a combined government services kiosk,
providing a single point of access for services offered by the
three agencies. The Library of Congress, the Energy Department, the
National Aeronautics and Space Administration, the National Science
Foundation, and other federal agencies have placed their materials
on Internet, a worldwide computer network.1
Good service means giving people what they need. To do that,
however, one must first find out what they want--a step few federal
agencies have taken. In the future, federal agencies will ask their
customers what they want, what problems they have, and how the
agencies can improve their services.
Knowing what customers want, public agencies must set clear
and specific customer service standards. When Federal Express
promises to deliver a package the next day by 10:30 a.m., both
customers and employees understand precisely what that means.
Similarly, when the Air Force's Tactical Air Command discarded its
thick set of specifications about living quarters for visiting
pilots and adopted a simple standard- -equivalent to "a moderately
priced hotel, like Ramada"--employees understood exactly what it
Several federal agencies that frequently interact with
citizens have launched aggressive customer service initiatives. We
endorse strengthening these initiatives--described below- -and
expanding them across the federal government.
Internal Revenue Service.
The IRS, the federal agency most citizens prefer to avoid,
might seem the least likely to develop a customer focus. But it's
working hard to do just that.
Four years ago, the General Accounting Office (GAO) discovered
that IRS staff gave a wrong answer to one of every three taxpayers
who called with a question. Since then, the agency has improved its
accuracy rate to 88 percent.3 And--in a switch that signals a basic
change in attitude--agency employees now refer to taxpayers as
customers. In IRS pilot projects across the country, employees now
have authority to change work processes on their own in order to
improve productivity. Front-line workers also have more authority
to resolve issues one-on-one with individual taxpayers. The agency
is fostering competition among its tax return centers, based on
customer service levels and efficiency at handling the 1.7 billion
pieces of paper the IRS receives each year. Centers that perform
better get higher budgets and workloads, and employees get
promotion opportunities. The IRS was among the first government
agencies to use 800 numbers and automated voice mail systems to
increase customer access to information. Today, the IRS is
beginning to survey its customers.
Customer Service Standards: IRS
As part of the National Performance Review, the IRS is publishing
customer service standards, including these:
ù If you file a paper return, your refund due will be mailed
within 40 days.
ù If you file an electronic return, your refund due will be sent
within 14 days when you specify direct deposit, within 21 days
when you request a check.
ù Our goal is to resolve your account inquiry with one contact;
repeat problems will be handled by a Problem Resolution Office
in an average of 21 days.
ù When you give our tax assistors sufficient and accurate
information and they give you the wrong answers, we will
cancel related penalties.
ù With your feedback, by 1995 IRS forms and instructions will be
so clear that 90 percent of individual tax returns will be
In addition, some centers are serving customers in truly
astonishing ways. One anecdote makes the point. At the Ogden, Utah
Service Center--a winner of the Presidential Award for Quality--a
down-on-his-luck man hitchhiked from out of state to get his refund
check. As it turns out, this center doesn't issue checks. But IRS
employees there discovered that a disbursing center had sent a
check to the hitchhiker's old address and that it had been
returned. They ordered a new check sent to Ogden and helped the
hitchhiker make ends meet until the check arrived.
In the end, the IRS's efforts could affect all of us, not only
as filers of tax returns but as taxpayers. If IRS forms are easier
to understand and use, more taxpayers might file on time. If the
IRS develops an image as a more effective, user-friendly agency,
more taxpayers might decide to file in the first place. A mere
1-percent increase in voluntary compliance would add $7 billion in
government revenue each year.4
Social Security Administration.
Every year, more than 47 million Americans come in contact
with the Social Security Administration, which administers old-age
pensions, survivors' and disability insurance, and the supplemental
security income (SSI) program. The agency has 1,300 field offices
and receives 60 million calls a year on its toll-free lines. As the
nation's population ages, the agency faces an ever-increasing
workload. Recently, an inspector general's report showed that
customer satisfaction had fallen 4 years in a row due to longer
waiting times in offices and increasing problems in reaching
someone on the phone.5
Fortunately, the Social Security Administration is
strengthening its customer orientation. When Hurricane Andrew
struck South Florida, where 367,000 people collect social security
and SSI, agency workers took steps to ensure that senior citizens
would know how to get their checks despite the devastation. Local
offices used television, radio, and loudspeaker trucks touring the
area with messages in English, Spanish, and Creole. The agency also
hired an airplane to tow a banner with SSA's toll-free 800
telephone number over the hard-hit Homestead area.
Customer Service Standards: Social Security Administration
As part of its participation in the National Performance Review,
the Social Security Administration will publish nationally, and
post in each of its offices, these performance standards:
ù You will be treated with courtesy every time you contact us.
ù We will tell you what benefits you qualify for and give you
the information you need to use our programs.
ù We will refer you to other programs that may help you.
ù You will reach us the first time you try on our 800 number.
More generally, the Social Security Administration recently
adopted a customer-oriented strategic plan, which includes
objectives such as issuing social security numbers orally within 24
hours of an application. Besides pinpointing some of their
objectives as standards to reach today, SSA is publishing all 34 of
its objectives and seeking customer feedback on whether it set the
right targets for service.
U.S. Postal Service. The Postal Service, which delivered 166
billion pieces of mail in 1992, has begun improving customer
service for a good reason: It has competition. While most people
still use the Postal Service to deliver first class mail, the use
of private delivery services and electronic mail is rising quickly.
Customer Service Standards: USPS
As part of its participation in the National Performance Review,
the USPS will expand its plans to display these standards in post
ù Your first class mail will be delivered anywhere in the United
States within 3 days. ù Your local first class mail will be
ù You will receive service at post office counters within 5
minutes. ù You can get postal information 24 hours a day by calling
a local number.
The Postal Service has decided to meet its competition
head-on. Using focus groups, the agency identified service areas
where its customers wanted improvement. It found that people wanted
shorter waiting lines at counters, better access to postal
information, and better responses to their complaints. Using these
standards to measure performance, the agency set a long range goal
of "100-percent satisfaction" and developed a customer satisfaction
index to measure progress toward it.
The agency also is providing incentives for employee
performance: In cooperation with two postal unions, managers now
use customer satisfaction data to help determine employee bonuses.
Action: The President should issue a directive requiring all
federal agencies that deliver services to the public to create
customer service programs that identify and survey customers. The
order will establish the following standard for quality: Customer
service equal to the best in business.6
The President's directive will lay out principles to govern
the provision of customer services. For example, organizations
ù survey their customers frequently to find out what kind and
quality of services they want;
ù post standards and results measured against them;
ù benchmark performance against "the best in business";
ù provide choices in both source of service and delivery means;
ù make information, services, and complaint systems easily
accessible; ù handle inquiries and deliver services with
ù provide pleasant surroundings for customers; and
ù provide redress for poor services.
The order will direct all federal agencies that deal with the
ù immediately identify who their customers are;
ù survey their customers on services and results desired, and
on satisfaction with existing services;
ù survey front-line employees on barriers to, and ideas for,
matching the best in business;
ù in 6 months, report results on these three steps to the
ù develop and publish a customer service plan--including an
initial set of customer service standards--within 1 year.
The customer service plans will address the need to train
front-line employees in customer service skills. They will also
identify companies that agencies will use to judge how they compare
to the "best in business." The directive will ask cabinet
secretaries and agency heads to use improvement in customer
satisfaction as a primary criterion in judging the performance of
agency managers and front-line employees.
Action: For voluntary customer surveys, the Office of Management
and Budget will delegate its survey approval authority under the
Paperwork Reduction Act to departments that are able to comply with
The public's input is crucial to improving customer service.
But current law gives the Office of Management and Budget (OMB)
power to decide on virtually all agency requests to solicit
information from the public (OMB can delegate this authority). This
law was designed to minimize onerous paperwork burdens the federal
government imposes on businesses and citizens. But it also
minimizes the number of times agencies ask customers about their
needs. It often slows agencies down so much that they abandon the
idea of doing a survey altogether.
For many agencies, customer surveys are the single most useful
way to measure performance. If OMB has to approve every request for
a customer survey, however, neither the directive described above
nor the Government Performance and Results Act, which the President
signed in August 1993, will work. Citizens do not like to be forced
to fill out forms by their government. But most Americans would be
pleased to receive a voluntary survey asking how their post office
or social security office could improve its customer service.
We propose to delegate approval of voluntary customer surveys
to departments with the ability to comply with the law, and ensure
that they create rapid approval processes so bottlenecks don't
develop at lower levels.
Customer-driven programs rarely cost more than others; indeed,
productivity gains in past federal experiments have more than
offset cost increases. At the Ogden Service Center, the IRS
office's new approach helped workers process 5 percent more tax
returns. When organizations shift their focus to customers, they
act like Avis--they try harder.
Crossing Agency Boundaries
Unfortunately, even agencies that try harder find very real
obstacles in the way of putting their customers first. Perhaps the
worst is Washington's organizational chart. Time and again,
agencies find it impossible to meet their customers' needs, because
organizational boundaries stand in the way.
Sometimes, programs housed in the same agency are only
tangentially related. While most Agriculture Department programs
relate to food, for instance, its customers range from farmers who
grow it to poor children whose families use food stamps. At other
times, programs dealing with the same customers are located in a
dozen different agencies. Rather than make people jump over
organizational boundaries on their own, we must remove the
boundaries at the point of customer contact. We must make the
delivery of services "seamless."
The traditional solution is to shuffle the organizational
chart. But in Washington, such proposals set off monumental turf
wars between agencies in the executive branch, and between
committees in Congress. After years of struggle, one or two
agencies are reorganized -- or a new department is created.
Meanwhile, the nation's problems keep changing, so the new
structure is soon out of date.
In a rapidly changing world, the best solution is not to keep
redesigning the organizational chart; it is to melt the rigid
boundaries between organizations. The federal government should
organize work according to customers' needs and anticipated
outcomes, not bureaucratic turf. It should learn from America's
best-run companies, in which employees no longer work in separate,
isolated divisions, but in project- or product-oriented teams.
To do so, the government must make three changes. It must
give federal workers greater decision making authority, allowing
them to operate effectively in cross-cutting ventures. It must
strip federal laws of prohibitions against such cooperation. And it
must order agencies to reconsider their own regulations and
tradition-bound thinking. For example, the Forest Service found
that 70 percent of its regulatory barriers to new, creative ways of
doing business were self-imposed.8
Despite these barriers, some noteworthy initiatives are
underway. Rural Development Councils, under the Agriculture
Department's direction, work with several federal departments as
well as states and localities to better coordinate rural aid
programs. At the Federal Aviation Administration (FAA), a systems
manager helps coordinate the activities of the FAA, Defense
Department, international aviation organizations, and various
private interests on matters involving satellites, data links, and
traffic flow management.9
We should bring the same approach to other parts of
government. The following examples illustrate the problems we face
and the solutions we must create.
Action: Create a system of competitive, one-stop, career
development centers open to all Americans.10
Our nation's economic future depends on the quality of our
workforce. Our individual futures, too, depend on whether we have
marketable, flexible skills with which to adapt to the changing
demands of new technologies. In a country where the average worker
changes jobs seven times in a lifetime, those skills are more than
desirable; they are crucial.
Our government invests heavily in education and training.
Together, 14 separate government departments and agencies invest
$24 billion a year, through 150 employment and training programs.11
But we do not invest this money well enough. For one thing, our
system is organized for the convenience of those who deliver
services, not those who use them. For another, the system lacks
competition and incentives for improvement. "The United States has
a worldwide reputation for providing its youth extensive
opportunity to attend college," the General Accounting Office noted
recently. "However, our country falls short in employment
preparation of many noncollege-youth." Unlike our competitors, GAO
said, we have no national policy to systematically prepare
non-college educated youth for jobs.12
Our system is badly fragmented. Each service -- from job
referral to retraining -- is designed for different people, with
different rules, regulations, and reporting requirements.
Bewildered, often dispirited, job seekers must trudge from office
to office, trying to fit themselves into a program. When they find
a program, they may find that they aren't eligible, that it's all
filled up, or that the classroom is across town.
American workers deserve a better deal. Nowhere on the
government reinvention front is action more urgently needed or are
potential rewards greater. We envision a new workforce development
system, focused on the needs of workers and employers. We will
organize it around the customer -- whether an individual or a
business -- then provide that customer with good information about
the performance of different providers and plenty of choices. If we
do this, career centers and training providers will have to compete
for their customers' business, based on the quality of their
Specifically, we propose one-stop career management centers
across the country, open to all Americans -- regardless of race,
gender, age, income, employment experience, or skills. (One-stop
centers are also a key feature of the Workforce Investment Strategy
the Labor Department is developing.) Our centers would offer skills
assessment, information on jobs, access to education and training
would be linked to all federal, state, and local workforce
development programs, and to many private ones (which are, after
all, the source of most job-training money). Core services such as
labor market information and job search help would be offered free.
Some centers might offer other services, from comprehensive testing
to career counseling and workshops, on a fee-for-service basis.
These centers would help their customers get access to funds
from any of the 150 programs for which they qualified. To make this
possible, the federal government would eliminate or waive many
rules and regulations that keep our workforce development programs
separate. The centers would also be allowed to generate their own
revenues, including fees collected from employers and employees
would could afford to pay. Any organization, public or private,
would be allowed to seek a charter to operate one or more one-stop
career centers. The process would be performance-driven, with
contracts renewed only if centers met customers' demands. The
federal government would establish national chartering standards
for the centers, but states and local employment boards would
decide which organizations met the standards.
Today, local organizations such as U S Employment Service and
Service Delivery Areas get most of their federal funds almost as a
matter of entitlement. They account for the money, but we do not
hold them accountable for whether they spend it effectively. We
would make funding for these new centers more competitive, opening
the process to public and private, nonprofit and for-profit,
We would judge these centers in part by how many people
sought help at them -- on the theory that centers attracting the
most customers were clearly doing something right. But we would
focus as well on what happened after the customers left. Did they
enroll in meaningful training programs? Did they find jobs? Did
they keep their jobs? Did they increase their incomes? Finally, we
would give customers the necessary information to decide the same
thing for themselves: Which training program would meet their needs
We believe that the central problem in the Employment Service
is not the line workers, but the many rules and regulations that
prevent them from doing their jobs. Waiver of these antiquated
rules will free up these workers to perform well. In order for
state Employment Services to compete on a level playing field --
particularly after the negative effects of the last decade of
spending cuts and over-regulation -- line workers must be given the
opportunity to retool. The Labor Department should ensure that they
receive the necessary training to enable them to participate in the
process. The biggest single barrier to creating an integrated
system of one-stop career centers is the fragmented nature of
federal funds. The 150 federal programs have different rules,
different reporting requirements, even different fiscal years. To
synchronize these -- and to break down the walls between
categorical programs -- the National Economic Council should
convene a Workforce Development Council, with members from the
Departments of Labor, Education, and Health and Human Services; the
Office of Management and Budget; and other departments and agencies
with employment and training programs. This council should
standardize fiscal and administrative procedures, develop a
standard set of terms and definitions between programs, develop a
comprehensive set of results-oriented performance standards, and
improve the qualitative evaluation of program performance.
Action: The President shoud issue a directive that requires
collaborative efforts across the government to empower communities
and strengthen families.13
At Vice President Gore's recent conference on family policy in
Nashville, experts agreed that effective family policy requires new
approaches at the federal, state, and local levels. We should stop
dividing up families' needs into health, education, welfare, and
shelter, each with its own set of agencies and programs, many of
which contradict one another and work at cross-purposes. Instead,
across all levels of government, we need collaborative,
community-based, customer-driven approaches through which providers
can integrate the full network of services.
For instance, we spend about $60 billion a year on the
well-being of children. But we have created at least 340 separate
programs for families and children, administered by 11 different
federal agencies and departments.14 Thus, a poor family may need to
seek help from several departments--Agriculture for food stamps,
Housing and Urban Development for rental support, Health and Human
Services for health care and chasing down dead-beat parents. For
each program, they will have to visit different offices, learn
about services, fill out forms to establish eligibility--and wait.
The system is fragmented and illogical. In Texas, where the
immunization rate among poor children is about 30 percent, the
state Health Department sought permission to have nurses who run
the Agriculture Department's Women, Infants and Children
supplemental food program also give immunization. The Agriculture
Department said no--unless Texas developed an elaborate cost
allocation plan. Consequently, mothers and children will have to
continue visiting more than one agency.15
A few years ago, Governing magazine described a teenage girl
who was pregnant, had a juvenile record and was on welfare. Between
the three problems, she had more than six caseworkers--each from a
different agency. As one put it: "The kid has all these people
providing services, and everybody's doing their own thing and
Tasha's not getting better. We need to have one person who says,
'Now look, let's talk about a plan of action for Tasha.'"16
President Clinton's directive will help remove obstacles that
agencies face in trying to serve Tasha and others like her.
Action: The President should issue a directive and propose
legislation to reconstitute the Federal Coordinating Council for
Science, Engineering, and Technology as the National Science and
Technology Council, giving it a broader role in setting science and
Progress in science and technology is a key ingredient of
national economic success. President Clinton's A Vision of Change
for America, released in February, cites studies showing that
"investments in research and development (R&D) tend to be the
strongest and most consistent positive influence on productivity
growth."18 In an increasingly competitive world economy, the
American people need the best possible return on federal R&D
The Federal Coordinating Council for Science, Engineering, and
Technology (FCCSET) is a White House-managed team that helps set
policy for technology development. With representatives from more
than a dozen agencies, it develops interagency projects, such as
biotechnology research and the high-performance computing
initiative. Unfortunately, FCCSET lacks the teeth to set
priorities, direct policy, and participate fully in the budget
process. It can't compel agencies to participate in its projects,
nor can it tell agencies how to spend funds. Its six funded
projects will account for just 16 percent of Washington's $76
billion R & D budget in 1994. At a time of declining federal
resources, experts in business, academia, and government recognize
the need for one-stop shopping for science and technology policy.
A new National Science and Technology Council would direct
science and technology policy more forcefully, and would streamline
the White House's advisory apparatus by combining the functions of
FCCSET, the National Space Council, and the National Critical
Action: The President should issue a directive to give the Trade
Promotion Coordinating Committee greater authority to control
federal export promotion efforts.19
Unlike most of our economic competitors, the United States has
no national export strategy. Our export programs are fragmented
among 19 separate organizations- -including the Agriculture and
Commerce Departments and the Small Business Administration. The
U.S. and Foreign Commercial Service, in Commerce's International
Trade Administration, is the lead agency for trade promotion
overseas. But dozens of other entities--many within Commerce--also
have trade promotion roles.
Our export programs provide little benefit to all but our
nation's largest businesses. The economic implications of such
selective assistance are serious. Exports are among our most
effective job-creating tools. They create about 20,000 new jobs for
every $1 billion in exports. Thousands of small and mid-sized
companies make products attractive for overseas markets, but are
discouraged by high transaction costs and a lack of information.
According to trade experts, the United States may be the "world's
biggest export underachiever."20
The President's directive will give the Trade Promotion
Coordinating Committee (TPCC), chaired by the Commerce Secretary
and including representatives from 19 departments, agencies, and
executive offices, broader authority to create performance measures
and set allocation criteria for the nation's export promotion
programs. Working with the National Economic Council, TPCC will
ensure that such programs better serve the exporting community.
Action: The President should issue a directive to establish
ecosystem management policies across the government.21
"For too long, contradictory policies from feuding agencies
have blocked progress, creating uncertainty, confusion,
controversy, and pain throughout the region," President Clinton
declared at the Forest Conference held in Portland, Oregon in April
1993. Shortly thereafter, the President announced his Forest
Plan--a proactive approach to ensuring a sustainable economy and a
sustainable environment through ecosystem management. We recommend
extending the concept of ecosystem management across the federal
Although economic growth has strained our ecological systems,
our government lacks a coordinated approach to ecosystem
management. A host of agencies have jurisdiction over individual
pieces of our natural heritage. The Bureau of Land Management
oversees more than 60 percent of all public lands; the Forest
Service manages our national forests and grasslands; the Fish and
Wildlife Service manages our National Wildlife Refuge System; the
National Park Service oversees the national parks; the
Environmental Protection Agency implements laws to regulate air and
water quality; the National Oceanic and Atmospheric Administration
(NOAA) manages marine resources; and various other agencies run
programs that affect the environment. Different agencies, with
jurisdictions over the same ecosystem, do not work well together.
Even within the same agency, bureaus fight one another.
At the local level, a hodge podge of government agencies
control activities that affect the environment. Consider, for
instance, the San Francisco Bay delta estuary. One of the most
human-altered estuaries on the west coast of North or South
America, it is governed by a complex array of agencies, plans, and
laws. One mile of the delta may be affected by decisions of more
than 400 agencies.22
The White House Office on Environmental Policy has convened an
interagency task force of appropriate assistant secretaries to
develop and implement cross-agency ecosystem management projects.
The Office of Management and Budget will review the plans as part
of the fiscal 1995 budget process. In 1994, the assistant
secretaries will establish cross-agency teams to develop initial
ecosystem management plans for implementation in fiscal year 1995.
Also in 1994, the President should issue a directive that will
declare sustainable ecosystem management across the federal
Action: The President should create a Federal Coordinating Council
for Economic Development.23
The federal government has no coherent policy for regional
development and community dislocation. Instead, it offers a
fragmented and bureaucratic system of seven programs to assist
states and localities. The major programs are the Commerce
Department's Economic Development Administration, the Housing and
Urban Development Department's Community Development Block Grant
program, and the Agriculture Department's Rural Development
Administration and Rural Electrification Administration. The
Defense Department, Tennessee Valley Authority, and Appalachian
Regional Commission run smaller programs. Thus, states and
communities must turn to many different agencies and programs,
rather than a single coordinated system. Communities find it hard
to get help, and the dispersion of effort limits overall funding.
Washington's economic and regional development activities
should be reconfigured to suit its customers--states and
communities. We propose a Federal Coordinating Council for Economic
Development, comprising the appropriate cabinet secretaries and
agency heads, to coordinate such activities and provide a central
source of information for states and localities. The council will
provide a unifying framework for economic and regional development
efforts, develop a governmentwide strategic plan and unified budget
to support the framework, prevent duplication in the various
programs, and assess appropriate funding levels for the agencies
Action: Eliminate statutory restrictions on cross-agency activities
that are in the public interest.24
A series of legislative restrictions make it particularly
difficult to pursue solutions to problems that span agency
boundaries. For instance, to put together a working group on an
issue that cuts across agency lines, one agency has to fund all
costs for the group. Several agencies cannot combine their funds to
finance collaborative efforts. Rather than discourage cross-agency
operations, the federal government should encourage them. Congress
should repeal the restrictions that stand in the way of
cross-agency collaboration, and refrain from putting future
restrictions in appropriations bills. In addition, Congress should
modify the Intergovernmental Personnel Act to give cabinet members
and those working for them greater authority to enter into
cooperative agreements with other federal, state, and local
Step 2: --Making Service Organizations Compete
While our federal government has long opposed private
monopolies, it has deliberately created public ones. For instance,
most federal managers must use monopolies to handle their printing,
real estate, and support services. Originally, this approach was
supposed to offer economies of scale and protect against
profiteering and corruption. In an earlier time--of primitive
recordkeeping, less access to information, and industrial-era
retail systems--it may have offs absorb them. A monopoly's managers
don't even know when they are providing poor service or failing to
take advantage of new, cost-cutting technologies, because they
don't get signals from their customers. In contrast, competitive
firms get instant feedback when customers go elsewhere. No wonder
the bureaucracy defends the status quo, even when the quo has lost
its status. monopoly's managers don't even know when they are
providing poor service or failing to take advantage of new,
cost-cutting technologies, because they don't get signals from
their customers. In contrast, competitive firms get instant
feedback when customers go elsewhere. No wonder the bureaucracy
defends the status quo, even when the quo has lost its status.
The Air Combat Command--Flying High With Incentives and Competition
The military: the most conservative, hierarchical and
traditional branch of the government and the bureaucracy least
likely to behave like a cutting-edge private company, right? Wrong.
One of Washington's most promising reinvention stories comes
from the Air Combat Command. With 175,000 employees at 45 bases
across the country, the ACC owns and operates all of the Air
Force's combat aircraft. Says its commander, General John Michael
Loh, "We manage big, but we operate small."
How? The ACC adopted overall performance standards, called
quality performance measures. Each ACC unit decides for itself how
to meet them. General Loh then provides lots of incentives and a
healthy dose of competition.
The most powerful incentive is the chance to do creative work,
General Loh told the National Performance Review's Reinventing
Government Summit in Philadelphia. For instance, the Air Combat
Command allows maintenance workers to fix parts that otherwise
would have been discarded or returned to the depot for repair
"under the thesis that our people aren't smart enough to repair
parts at the local level." The results have been astonishing. Young
mechanics are taking parts from B-1s, F-15s, and F-16s- -some of
which cost $30,000 to $40,000--and fixing them for as little as
$10. The savings are expected to reach $100 million this year. ACC
managers have an incentive, too: Because they control their own
operating budgets, these savings accrue to their units.
General Loh instilled competition by using benchmarking, which
measures performance against the ACC standard and shows commanders
exactly how their units compare to others. The ACC also compares
its air wings to similar units in the Army, Navy, and Marine Corps;
units in other Air forces; and even the private sector. Before
competition, the average F-16 refueling took 45 minutes. With
competition, teams cut that time to 36 minutes, then 28.
The competition is against a standard, not a fellow ACC unit.
"If you meet the standard, you win," says General Loh. "There
aren't 50 percent winners and 50 percent losers. We keep the
improvement up by just doing that--by just measuring. If it doesn't
get measured, it doesn't get improved."
As for economies of scale, the realities have changed. The
philosophy when these procurement systems were set up was that if
the government bought in bulk, costs would be lower, and taxpayers
would get the savings. But it no longer works that way.
As we discuss more fully in chapter 1, we no longer need to
buy in bulk to buy cheaply. The last decade has brought more and
more discount stores, which sell everything from groceries to
office supplies to electronic equipment at a discount. The Vice
President heard story after story from federal workers who had
found equipment and supplies at discount stores--even local
hardware stores--at two-thirds the price the government paid.
"It is better to abolish monopolies in all cases than not to do it
Letter to James Madison, 1788
Not all federal operations should be forced to compete, of
course. Competition between regulatory agencies is a terrible idea.
(Witness the regulation of banks, which can decide to charter with
the state or federal government, depending on where they can find
the most lenient regulations.) Nor should policy agencies compete.
In the development of policy, cooperation between different units
of government is essential. Competition creates turf wars, which
get in the way of creating rational policies and programs. It is in
service delivery that competition yields results--because
competition is the one force that gives public agencies no choice
but to improve.
The Government Printing Office
Perhaps the oddest federal monopoly is the Government Printing
Office. In 1846, Congress established a Joint Committee on Printing
(JCP) to promote efficiency and protect agencies from profiteering
and abuse by commercial printers. The JCP sets standards for all
agency activities--including printing, photocopying, and color and
paper quality. When the Naval Academy wants to use parchment paper
for graduation certificates, for instance, the JCP must approve the
The JCP also supervises the Government Printing Office, the
mandatory source of most government printing--a whopping $1 billion
a year. Along with printing federal publications, the GPO must
approve all privately contracted government printing jobs. This
even includes printing orders less than $1,000--of which there were
270,000 in 1992. Simply for processing orders to private companies,
GPO charges 6 to 9 percent.
Such oversight doesn't work in an age of computers and
advanced telecommunications. Desktop publishing has replaced the
traditional cutting and pasting with computer graphics and
automated design. In private business, in-house printing
flourishes. Small printing companies specialize in strategic market
The "government look"
Here's a sad story about the Government Printing Office, multiple
signatures, and $20,000 of wasted taxpayer money.
Vice President Gore heard it from an employee at the Transportation
Department's National Highway Traffic Safety Administration, which
promotes highway safety. Hoping to convey safety messages to young
drivers, her office tries to make its materials "slick"--to compete
with sophisticated advertising aimed at that audience. Sound
simple? Read on.
After the agency decides what it wants, it goes through multiple
approvals at the GPO and the Department of Transportation. In the
process, the material can change substantially. Orders often turn
out far differently than NHTSA wanted. But under the GPO's policy,
agencies must accept any printing order that the GPO deems
"usable." "I can cite one example where more than $20,000 has been
spent and we still do not have the product that we originally
requested," the employee explained, "because GPO decided on its own
that it did not have a `government' look. We were not attempting to
produce a government look. We were trying to produce something that
the general public would like to use."
Action: Eliminate the Government Printing Office's monopoly.25
For all executive branch printing, Congress should end the
JCP's oversight role. Congressional control of executive branch
printing may have made sense in the 1840s, when printing was in its
infancy, the government was tiny, there was no civil service, and
corruption flourished. But it makes much less sense today. We want
to encourage competition between GPO, private companies, and
agencies' in-house publishing operations. If GPO can compete, it
will win contracts. If it can't, government will print for less,
and taxpayers will benefit.
The General Services Administration
Among government's more cumbersome bureaucracies is the
General Services Administration (GSA), which runs a host of federal
support services--from acquiring and managing 250 million square
feet of office space to managing $188 billion of real estate, from
brokering office furniture and supplies to disposing of the
government's car and truck fleets.
With its monopoly, GSA can pass whatever costs it wants on to
tenants and customers. Often it rents the cheapest space it can
find, then orders federal agencies tooccupy it- -regardless of
location or quality. (Occasionally an agency with enough clout
refuses, and GSA ends up paying to rent empty space.) And this is
not all GSA's fault. Frequently, the agency is hemmed in by federal
budget and personnel rules. GSA admits that many of its customers
are unhappy. It has already permitted some agencies to make their
own real estate deals. We propose to open that door farther.
Action: The President should end GSA's real estate monopoly and
make the agency compete for business. GSA will seek legislation,
revise regulations, and transfer authority to its customers,
empowering them to choose among competing real estate management
enterprises, including those in the private sector. 26
Specifically, GSA will create one or more property
enterprises, with separate budgets. The enterprises will compete
with private companies--real estate developers and rental firms--to
provide and manage space for federal agencies. Agencies, in turn,
will lease general purpose space and procure, at the lowest cost,
real property services--acquisition, design, management, and
construction. Such competition should lower costs for federal
All other federal agencies with real estate holdings,
including the Defense and Veterans Affairs Departments, will adopt
similarly competitive approaches.
Dialing for Dollars: How Competition Cut the Federal Phone Bill
In the mid 1980s, a long-distance call on the federal system,
which the General Services Administration manages, cost 30 to 40
cents a minute, the "special government rate." AT&T's regular
commercial customers normally paid 20 cents a minute. The Defense
Department, citing GSA's rates, would not use the government-wide
Spurred by complaints about high costs and the loss of
customers, GSA put the government's contract up for bid among
long-distance phone companies. It offered 60 percent of the
business to the winner, 40 percent to the runner up.
Today, the government pays 8 cents a minute for long-distance
calls. More agencies- -including the Defense Department--are using
the system. And taxpayers are saving a bundle.
Competition in Support Services
Every federal agency needs "support services"--accounting,
property management, payroll processing, legal advice, and so on.
Currently, most managers have little choice about where to get
them; they must use what's available in-house. But no manager
should be confined to an agency monopoly. Nor should agencies
provide services in-house unless the services can compete with
those of other agencies and private companies.
Over the past decade, a few federal entrepreneurs have created
support service enterprises, which offer their expertise to other
agencies for a fee. Consider the Center for Applied Financial
Management, in the Treasury Department's Financial Management
Service. A few years ago, Treasury officials realized that many
agencies reporting to their central accounting system had problems
meeting the Treasury's reporting standards. Rather than send nasty
letters, they decided to offer help.
The Treasury established a consulting business. The center
includes a small group of people who offer training, technical
assistance, and even a system for accounting programs so that
agencies need not own the software. The center markets its services
to government agencies, aggressively and successfully, competing
with accounting and consulting firms for agency business and
dollars. Its clients include the Small Business Administration and
the Nuclear Regulatory Commission. Already, the center's work has
reduced the errors in reports submitted to the Treasury and reduced
agencies' accounting costs. Opened 2 years ago, the center plans to
be profitable by 1995; if not, the Treasury will close it.
Action: The administration should encourage operations of one
agency to compete for work in other agencies.27
We want to expand the approach exemplified by Treasury's
Center for Applied Financial Management throughout government. Just
as in business, competition is the surest way to cut costs and
improve customer service.
Competing with the Private Sector
Forcing government's internal service bureaus to compete to
please their customers is one strategy. Forcing government's
external service organizations to do the same is another. In a time
of scarce public resources, we can no longer afford so many service
monopolies. Many federal organizations should begin to compete with
private companies. Consider the National Oceanic and Atmospheric
Action: The National Oceanic and Atmospheric Administration (NOAA)
will experiment with a program of public-private competition to
help fulfill its mission.28
NOAA, a part of the Commerce Department, maintains a fleet of
ships to support its research on oceans and marine life and its
nautical charting. But its fleet is reaching the end of its
projected life expectancy. And even with the fleet, NOAA has
consistently fallen far short of the 5,000 days at sea that it
claims to need each year to fulfill its mission. NOAA faces a basic
question--whether to undertake a total fleet replacement and
modernization plan, estimated to cost more than $1.6 billion in the
next 15 years, or charter some privately owned ships.
The experience of the U.S. Army Corps of Engineers, which
contracts out 30 to 40 percent of its ocean floor charting to
private firms, shows that the private sector can and will do this
kind of work. Competition among private companies for these
services also might reduce costs.
Action: The Defense Department will implement a comprehensive
program of competitive contracting non-core functions
The Defense Department is another agency in which necessity is
becoming the mother of invention. Facing a swiftly falling budget,
the department literally can't afford to do things in its usual
way--especially when private firms can perform DOD's non-core
functions better, cheaper, and faster. Functions such as command,
deployment, or rotation of troops cannot be contracted, of course.
But data processing, billing, payroll, and the like certainly can.
Private firms--including many defense contractors--contract
out such functions. General Dynamics, for instance, has contracted
with Computer Services Corporation to provide all its information
technology functions, data center operations, and networking. But
at the Pentagon, a bias against out-sourcing remains strong. Only
a commitment by senior leaders will overcome that bias.
In addition to the cultural barriers at the Pentagon, numerous
statutory roadblocks exist. In section 312 of the fiscal year 1993
DOD Authorization Act, for example, Congress stopped DOD from
shifting any more in-house work to contractors. Another law
requires agencies to obtain their construction and design services
from the Army Corps of Engineers or Naval Facilities Engineering
Command. The administration should draft legislation to remove both
of these roadblocks. It will also make contracting easier by
rescinding its orders on the performance of commercial activities
and issuing a new order, to establish a policy supporting the
acquisition of goods and services in the most economical manner
possible. OMB will review Circular A-76, which governs contracting
out, for potential changes that would simplify the contracting
process and increase the flexibility of managers.
Action: Amend the Job Training Partnership Act to authorize public
and private competition for the operation of Job Corps Civilian
The Labor Department's Employment and Training Administration
(ETA) supervises 108 Job Corps Centers, which provide training and
work experience to poor youth. The ETA contracts with for-profit
and non-profit corporations to operate 78 of the centers. The
department has long sought to contract out the other 30, now run by
the Agriculture and Interior Departments as Civilian Conservation
Centers. But Congress under the Job Training Partnership Act, has
passed legislation barring such action.
Because they are insulated from competition, CCC managers have
few incentives to cut costs and boost quality. For the past 5
years, average per-trainee costs at a CCC have run about $2,000
higher than at centers run by contractors. Competition would force
the Interior and Agriculture Departments to operate the rural
centers more efficiently--or risk losing their operations to
Truth in Budgeting
If federal organizations are to compete for their customers,
they must do so on a level playing field. That means they must
include their full costs in the price they charge customers.
Businesses do this, but federal agencies hide many costs in
overhead, which is paid by a central office. Things like rent,
utilities, staff support, and the retirement benefits of employees
are often assigned to the overall agency rather than the unit that
incurred them. In this way, governmental accounting typically
understates the true cost of any service.
With a new accounting system that recognizes full costs--and
assigns rent, utilities, staff support, retirement benefits, and
all other costs to the unit that actually incurs them--we can
determine the true costs of what government produces. At that
point, we can compare costs across agencies, make agencies compete
on a level playing field, and decide whether we are getting what we
Action: By the end of 1994, the Federal Accounting Standards
Advisory Board will issue a set of cost accounting standards for
all federal activities. These standards will provide a method for
identifying the true unit cost of all government activities.31
Some government agencies have already moved in this direction.
Others have gone even further. The Defense Department is
experimenting with what it calls a Unit Cost Budget. It calculates
the costs of delivering a unit of service, then budgets for the
desired service levels.
The Defense Logistics Agency (DLA) began this experiment,
hoping to ease pressures to contract out its supply depots to
private companies. DLA examined the cost of receiving and
delivering shipments, then attached a dollar figure to each item
received and another to each item delivered. All money was then
appropriated according to the number of items shipped or received.
Line items disappeared, incentives grew. The more boxes a depot
shipped or received, the more money that depot brought in. For the
first time, DLA could calculate its true costs, compare those of
various installations, and pinpoint problems. This approach, which
enables managers to set productivity targets, is now spreading to
other military installations.
Step 3: Creating Market Dynamics
Not all public activities should be subject to competition, as
noted above. In the private sector, we call these utilities and
regulate them to protect the consumer. They are run in a
businesslike fashion, and they respond to the market. (For
instance, they have stockholders and boards, and they can borrow on
the capital markets.) They simply don't face competition.
Many governments, including our federal government, do
something very similar. They create government-owned corporations
to undertake specific tasks. The Postal Service and Tennessee
Valley Authority are two examples. Such corporations are free from
many restrictions and much of the red tape facing public agencies,
but most of them remain monopolies--or, as with the Postal Service,
At other times governments subject public organizations to
market dynamics, stimulate the creation of private enterprises, or
spin off public enterprises to the private sector. To get the best
value for the taxpayer's dollar, the federal government needs to
use these options more often.
Consider the National Technical Information Service (NTIS), a
once-failing agency in the Commerce Department that turned itself
around in a brief year's time. Established to disseminate federally
funded scientific and technical information, NTIS was, until
recently, not meeting its mission. The agency, which receives no
congressional appropriations, was suffering serious financial
problems, selling fewer documents each year to its mostly private
sector customers, and charging higher and higher prices on those it
Commerce--not surprisingly--considered abolishing the agency.
A year earlier, the department's inspector general had concluded
that NTIS's reported earnings of $3.7 million were vastly
overstated, that it suffered $674,000 in additional operating
losses in 1989, and that its procedures in handling such losses and
cash shortfalls violated government accounting principles and
Commerce instead decided to turn the agency around. The effort
worked. NTIS's revenues and sales are both up. Why? Because the
agency was forced to respond to its customers' unhappiness. NTIS
reduced the turnaround time on its orders, cut complaints about
incorrect orders, and dramatically slashed the percentage of
unanswered phone calls. Consequently, most business customers who
turned away in the 1980s have returned. NTIS's turnaround shows
what can happen when public organizations face the pressure of
Other agencies may require a structural change to enhance
their customer service. Because it's run as a public agency, for
instance, the Federal Aviation Administration's air traffic control
(ATC) system is constantly hamstrung by budget, personnel, and
procurement restrictions. To ensure the safety of those who fly,
the FAA must frequently modernize air traffic control technology.
But this has been virtually impossible, because the FAA's money
comes in annual appropriations. How can the FAA maintain a massive,
state-of-the-art, nationwide computer system when it doesn't know
what its appropriation for next year or the years beyond will be?
As a result, the 10-year National Airspace Plan, begun in
1981, is now 10 years behind schedule and 32 percent over budget.
Federal personnel rules aggravate the problems: The FAA has trouble
attracting experienced controllers to high-cost cities. With no
recent expansion, the system lacks the capacity to handle all air
travel demands. Consequently, airlines lose about $2 billion
annually in costs for additional personnel, equipment, and excess
fuel. Passengers lose an estimated $1 billion annually in delays.
America needs one seamless air traffic control system from
coast to coast. It should be run in a businesslike fashion--able to
borrow on the capital markets, to do long-term financial planning,
to buy equipment it needs when it needs it, and to hire and fire in
reasonable fashion. The solution is a government-owned corporation.
Action: Restructure the nation's air traffic control system into a
"There is an overwhelming consensus in the aviation community
that the ATC system requires fundamental change if aviation's
positive contribution to trade and tourism is to be sustained," one
study concluded earlier this year.34
The ATC's problems can't be fixed without a major
reorganization. Under its current structure, the system is subject
to federal budget, procurement, and personnel rules designed to
prevent mismanagement and the misuse of funds. The rules, however,
prevent the system from reacting quickly to events, such as buying
the most up-to-date technology. In its recent report, Change,
Challenge, and Competition, the National Commission to Ensure a
Strong Competitive Airline Industry, (chaired by former Virginia
Governor Gerald Baliles), recommended the creation of an
independent federal corporate entity within the Transportation
Department. We agree.
We should restructure the ATC into a government-owned
corporation, supported by user fees and governed by a board of
directors that represents the system's customers. As customer use
rises, so will revenues, providing the funds needed to answer
rising customer demands and finance new technologies to improve
safety. Relieved of its operational role, the FAA would focus on
regulating safety. With better, safer service, we all would
benefit. This approach has already worked in Great Britain, New
Zealand, and other countries.
Action: The General Services Administration will create a Real
Property Asset Management Enterprise, separating GSA's
responsibility for setting policy on federally owned real estate
from that of providing and managing office space.35
In asset management, too, government could take a few lessons
from business. We must begin to manage assets based on their rates
of return. A good place to start is in the General Services
The federal government owns assets--land, buildings,
equipment--that are enormous in number and value. But it manages
them poorly. Like several other agencies, GSA wears two hats: with
one, it must provide office space to federal agencies. With the
other, it serves as manager and trustee of huge real estate
holdings for American taxpayers. It cannot do both--at least not
well. Should it maximize returns for taxpayers by selling a
valuable asset? Or, as the office space provider, should it require
an agency to occupy one of its own buildings when less expensive
leased space is available?
GSA will create a Real Property Asset Management Enterprise,
solely responsible for managing federally owned real estate to
optimize the highest rate of return for taxpayers, while competing
with the private sector and better serving tenants' needs.
Action: The Department of Housing and Urban Development will turn
over management of its "market rate" rental properties and mortgage
loans to the private sector.36
The Department of Housing and Urban Development has a growing
workload of problem multi-family loans and foreclosed properties.
In addition, restrictive rules and outdated practices hamper its
management of these assets. Rather than more staff, HUD needs a new
HUD, which oversees the Federal Housing Administration, owns
many loans and properties it acquired from the FHA when owners
defaulted on their loans. These "market-rate" assets--which were
never set aside for low-income people--have fewer restrictions on
disposal than most HUD-subsidized properties. But in trying to sell
the assets, HUD still faces a variety of legal and political
pressures. If the department entered into limited partnerships with
real estate firms, it could retain most profits from any sales and
let a private business entity perform the sales in the most
economically beneficial way.
Step 4: --Using Market Mechanisms To Solve Problems
Government cannot create a program for every problem facing
the nation. It cannot simply raise taxes and spend more money. We
need more than government programs to solve our problems. We need
Governance means setting priorities, then using the federal
government's immense power to steer what happens in the private
sector. Governance can take many forms: setting regulations,
providing financial incentives, or ensuring that consumers have the
information they need to drive the market.
When the Roosevelt administration made home ownership a
national priority, the government didn't build millions of homes or
distribute money so families could buy them. Instead, the Federal
Housing Administration helped to create a new kind of mortgage
loan. Rather than put down 50 percent, buyers could put down just
20 percent; rather than repay mortgages in 5 years, borrowers could
stretch the payments over 30 years. The government also helped to
create a secondary market for mortgages, helping even more
Americans buy homes.
As we reinvent the federal government, we, too, must rely more
on market incentives and less on new programs.
Worker Safety and Health
Today, 2,400 inspectors from the Occupational Safety and
Health Administration (OSHA) and approved state programs try to
ensure the safety and health of 93 million workers at 6.2 million
worksites. The system doesn't work well enough. There are only
enough inspectors to visit even the most hazardous workplace once
every several years. And OSHA has the personnel to follow up on
only 3 percent of its inspections.
Action: The Secretary of Labor will issue new regulations for
worksite safety and health, relying on private inspection companies
or non-management employees.37
Government should assume a more appropriate and effective
role: setting standards and imposing penalties on workplaces that
don't comply. In this way, OSHA could ensure that all workplaces
are regularly inspected, without hiring thousands of new employees.
It would use the same basic technique the federal government uses
to force companies to keep honest financial books: setting
standards and requiring periodic certification of the books by
expert financial auditors. No army of federal auditors descends
upon American businesses to audit their books; the government
forces them to have the job done themselves. In the same way, no
army of OSHA inspectors need descend upon corporate America. The
health and safety of American workers could be vastly
improved--without bankrupting the federal treasury.
The Labor Secretary already is authorized to require employers
to conduct certified self-inspections. OSHA should give employers
two options with which to do so: They could hire third parties,
such as private inspection companies; or they could authorize
non-management employees, after training and certification, to
conduct inspections. In either case, OSHA would set inspection and
reporting standards and conduct random reviews, audits, and
inspections to ensure quality.
Within a year or two of issuing the new regulations, OSHA
should establish a sliding scale of incentives designed to
encourage workplaces to comply. Worksites with good health, safety,
and compliance records would be allowed to report less frequently
to the Labor Department, to undergo fewer audits, and to submit
less paperwork. OSHA could also impose higher fines for employers
whose health and safety records worsened or did not improve.
As governments across the globe have begun to explore better
ways to protect the environment, they have discovered that market
mechanisms--fees on pollution, pollution trading systems, and
deposit-rebate systems--can be effective alternatives to
regulation. But while the idea of "making the polluter pay" is
widely accepted in this country, our governments have not widely
applied it. Many federal, state, and local regulations rely on an
earlier approach to environmental control: stipulating treatment,
not outcomes. Their wholesale shift to a new approach will take
Action: Encourage market-based approaches to reduce pollution.38
Many federal agencies, lawmakers, and environmental groups endorse
using market-based incentives to meet environmental goals. We
propose that both EPA and Congress use administrative and
legislative measures, for example, the Clean Water Act, to promote
market mechanisms to stop polution.
One route is allowing polluters to "trade: pollution rights.
This would reward companies that not only meet legal requirements--
but for the extra mile to reduce pollution by more than the law
Rather than dictating exactly which technologies industry
should use to reduce pollution, the government would set standards
and let the market handle the details. The government could also
assess fees based on the amount and nature of pollution emissions
or discharges. Fees could reflect the quality, toxicity, and other
adverse characteristics of pollutants.
The federal government has used this approach before. In the
1970s, the Environmental Protection Agency (EPA) distributed
credits to companies that cut air pollution and let them trade
credits between different sources of their own pollution or sell
them to other companies located nearby. In the 1980s, the EPA used
a similar approach as it forced industry to remove lead from
gasoline. Both efforts were successful: industry met its targets,
while spending billions of dollars less than otherwise would have
been required. Then, as part of the 1990 Clean Air Act, the
President and Congress agreed to give credits to coal-burning
electric power plants for their allowable emissions of sulfur
dioxide, to cut down on acid rain. Power plants that cut their
emissions below a certain level can sell unused credits to other
plants. Experts estimate that this will cut the cost of reducing
sulfur dioxide emissions by several billion dollars a year.39
Public housing is a classic story of good intentions gone
awry. When the program began in the 1930s, it was hailed as an
enlightened response to European immigrants' squalid living
conditions in cities across the nation. Through an enormous
bureaucracy stretching from Washington into virtually every city in
America, the public housing program brought clean, safe,
inexpensive living quarters to people who could not otherwise
For two decades, public housing was a success. But by the
1970s, it had come to symbolize everything wrong with the "liberal"
approach to social problems. Inflexible federal standards, an
overly centralized administrative structure, and local political
pressures combined to produce cookie-cutter high-rise projects in
our worst urban areas. Over time, many projects degenerated into
hopeless concentrations of welfare families beset by violence and
We spend $13 billion a year on public housing, but we create
few incentives for better management. In local housing agencies,
managers are hamstrung by endless federal regulations that offer
little flexibility. Any savings they generate are simply returned
to the government.
Tenants enjoy even less flexibility. With housing subsidies
attached to buildings, not people, the program's clients have no
choice about where to live. They, therefore, have absolutely no
leverage--as customers--over the managers.
Action: Authorize the Department of Housing and Urban Development
to create demonstration projects that free managers from
regulations and give tenants new market powers, such as freedom of
choice to move out of old public housing buildings.40
We want to let public housing authorities, through
not-for-profit subsidiaries, compete for new construction and
modernization funds that they would use to create market-rate
housing. The managers would manage this new housing free of most
regulations, provided they met performance standards set by HUD.
They would rent to a mix of publicly subsidized and market-rate
tenants. The rents of unsubsidized tenants would help to finance
the subsidies of assisted tenants.
With portable subsidies, publicly assisted tenants could look
for housing wherever they could find it. Rather than dependent
beneficiaries, forced to live where the govern- -----ment says,
they would become "paying customers," able to choose where to live.
Thus, public housing managers would no longer have guaranteed
tenants in their buildings; they would have to compete for them.
We know from experience that monopolies do not serve customers
well. It is an odd fact of American life that we attack monopolies
harshly when they are businesses, but embrace them warmly when they
are public institutions. In recent years, as fiscal pressures have
forced governments at all levels to streamline their operations,
this attitude has begun to break down. Governments have begun to
contract services competitively; school districts have begun to
give their customers a choice; public managers have begun to ask
their customers what they want.
This trend will not be reversed. The quality revolution
sweeping through American businesses--and now penetrating the
public sector--has brought the issue of customer service front and
center. Some federal agencies have already begun to respond: the
IRS, the Social Security Administration, and others. But there is
much, much more to be done. By creating competition between public
organizations, contracting services out to private organizations,
listening to our customers, and embracing market incentives
wherever appropriate, we can transform the quality of services
delivered to the American people.
In our democratic form of government, we have long sought to
give people a voice. As we reinvent government, it is time we also
gave them a choice.