Big Government at Fire-Sale Prices

Reinventing Government: How the Entrepreneurial Spirit Is Transforming the Public Sector, by David Osborne and Ted Gaebler, Reading, Mass.: Addison-Wesley, 359 pages, $22.95

The Massachusetts treasurer fires the state employees who pick up lottery receipts and hires United Parcel Service to collect them instead. Florida contracts the administration and maintenance of three public-school districts to a private, for-profit company. California authorizes four new private toll roads to relieve traffic congestion.

Across the nation, federal, state, and local agencies are asking the marketplace to perform services governments have traditionally provided. In Reinventing Government, writer and political consultant David Osborne and former city manager Ted Gaebler chronicle these market-oriented approaches. They also systematically suggest how other government officials experiencing legislative gridlock or budget shortfalls might get their agencies moving again.

Reinventing Government has apparently provided bedside companionship for policy nerds everywhere. It's been on The Washington Post's best seller list for weeks. The authors' fans include Bill Clinton and Massachusetts Gov. William Weld (each of whom wrote a glowing blurb for the dust jacket), as well as Florida Gov. Lawton Chiles. Indeed, this book may be Clinton's campaign manifesto: He often speaks of "reinventing government" and derives many of his policy proposals from these pages.

In the preface, Osborne and Gaebler state, "We believe deeply in government. We do not look at government as a necessary evil." What they hope to do is make government work more effectively without soaking taxpayers. Despite the authors' open embrace of government activism, they offer reform-minded fiscal conservatives plenty of examples to show how government can do more with less.

The problem with government, the authors argue, is that it behaves like government—slow, unresponsive, and inflexible. "Normal government budgets encourage managers to waste money," they write. "If they don't spend their entire budget by the end of the fiscal year, three things happen: they lose the money they have saved; they get less next year; and the budget director scolds them for requesting too much last year."

The authors also cite Pentagon procurement reformer Bob Stone: "My guess is that a third of the defense budget goes into the friction of following bad regulations—doing work that doesn't have to be done." Sluggish bureaucracies stifle service providers at every level of government. They are, the authors say, "like luxury ocean liners in an age of supersonic jets: big, cumbersome, expensive, and extremely difficult to turn around."

The authors believe they know how to make government more responsive: Strip away rule-bound bureaucracies and change the incentives agencies face. Force governments to invest rather than spend, make service providers treat clients as customers, refocus agencies on the missions they hope to accomplish rather than the bureaucratic rules that constrain them. To work, government should act more like a business.

If these vague directives sound as if they came from management gurus Edward Deming or Tom Peters, that's the idea—and the problem. Despite the book's comprehensive treatment of the creative ways government officials are reconstructing stilted bureaucracies, it is overloaded with jargon: mission-driven agencies, total quality management, neighborhood empowerment, and the like.

More important, we should temper our zeal to make every government agency more businesslike. In 48 states, motor-vehicles registries can sell personal information from drivers' licenses to direct marketers; many of them do. And I, for one, am happy that bureaucratic (a.k.a. constitutional) rules prevent the Internal Revenue Service and the Drug Enforcement Administration from relentlessly pursuing their missions.

When the authors start prescribing instead of describing, they get into trouble. They recognize that market competition requires entrepreneurs to provide more things at lower prices. They would agree that, say, it's better to give the poor food stamps than to have the government run grocery stores.

And they recognize—theoretically, anyway—that regulations impose burdens. But cite any specific regulation—from health warnings on "dangerous" products to bans on styrofoam cups—and they'll probably figure out a way to give it an entrepreneurial spin. Indeed, they praise regulation as "a third way[!], an alternative to both the liberal call for administrative programs and the conservative call for government to stay out of the marketplace."

They use regulations as a response to "market failures," such as the private sector's allegedly inadequate provision of child care, health care, and environmental protection. When the market fails, they argue, government must "restructure the marketplace." "Zoning laws," they gush, "set the rules for real estate development. Securities laws set the rules for the stock markets. Even something as simple as the market for taxicabs is regulated by public laws. Governments constantly change the rules of the marketplace to solve problems."

But these "solutions" entail costs of their own. Government regulations prohibit many informal, inexpensive forms of child care and health care. Zoning laws often prevent the construction of apartments and other low-income housing. Securities laws can create victimless "insider-trading" crimes. Taxicab regulations often keep jitneys or other entry-level transit providers out of the market.

Some types of "restructuring" can help markets work more efficiently; others can't. Consider three environmental regulations the authors praise. Per-can garbage-collection fees encourage residents to seek cost-effective recycling. Mandatory recycling programs often kill local recycling markets; the areas then get stuck with "recyclables" that would be cheaper to landfill. And mandates to reduce packaging (as with aseptic juice boxes) often lead people to buy products that, on balance, waste energy. The last two regulations don't make economic or environmental sense; yet all three gain Osborne and Gaebler's enthusiastic support.

Even civil liberties tumble before the authors' regulatory zeal. "Think of all the things Americans would like to discourage," they write, "but cannot bring themselves to ban: pornography, junk food, violence on television. A stiff tax might do the trick."

The government's record in repairing "imperfect" markets is far from perfect. After all, the savings-and-loan crisis resulted from a market restructuring. Congress simultaneously boosted limits on taxpayer-backed deposit insurance and let thrifts offer higher interest rates on those guaranteed accounts. Legislators later prevented those same thrifts from holding the high-yield investments that could have helped them recover their losses.

Similarly, the Federal Housing Administration lends lots of money to people too risky to qualify for private mortgages; it faces a multibillion-dollar bailout. Government student-loan programs face huge defaults. And, barring rapid privatization, the Social Security Administration, which restructured the nation's pension markets, threatens to beggar both wage earners and retirees within a few decades.

The authors want to do more than reinvent government. They want to redefine and rejuvenate progressivism.

They spend some time reflecting on the turn of the century, when that era's Progressives replaced political-patronage machines with career civil servants. Osborne and Gaebler wish to encourage a new type of progressivism, led by entrepreneurial managers instead of rule-bound bureaucrats. They envision these new progressives, no doubt armed with city and regional planning degrees, enacting five-year regional economic-development plans, growth controls, and mandatory recycling programs.

The authors obviously want to make grassroots democracy meaningful and fun again. But there's more to life than attending city-council meetings. And local governments in our more progressive communities (such as college towns) are among the most tyrannical on the planet.

Osborne and Gaebler have spent so much time collecting information on creative government strategies here at home that they have completely ignored the collapse of central planning worldwide. While the authors have valuable insights, they aren't really visionaries.

Entrepreneurial strategies, the authors conclude, "can be used to implement any agenda. They can help a community or nation wage war on poverty, if that is its priority, or lower taxes and cut spending, if that is its priority. Reinventing Government addresses how governments work, not what they do."

When the authors focus on the mechanisms that can help policy makers streamline agencies and improve services, Reinventing Government shines. David Osborne and Ted Gaebler could effectively help any state or county that is out of money and needs to deliver government services on the cheap. But once your tax revenues start flowing again, you'd better get rid of these guys—fast.

Rick Henderson is Washington editor of REASON.