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Office of the Vice President

For Immediate Release September 7, 1993

Chapter 2

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

American people.

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

market incentives.

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

delivered overnight.

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

public to:

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

President; and

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 act.7

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

technology policy.17

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

Materials Council.

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

in any."

Thomas Jefferson

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

office space.

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

Conservation Centers.30

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

private competitors.

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

pay for.

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,

partial monopolies.

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

did sell.

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

customer demands.32

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.

Environmental Protection

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

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

afford them.

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.