Document Name: Chapter 2 -- Putting Customers First Part II
Date: 09/07/94
Owner: National Performance Review
Title:Chapter 2 -- Putting Customers First Part II

Author: Vice President Albert Gore's National Performance Review

Date:7 September 1993 10:00:00 EST

Content-Type: text/ascii charset=US ASCII

Content-Length: 75744

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


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?


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 decision.

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 niches.


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


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 system.

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



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 Administration.

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


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


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


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


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 corporation.33

"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 Administration.

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'


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 approach.

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


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


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 requires.

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


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 crime.

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.


Navigation Bar For NPR site Back To The NPR Main Page Search the NPR Site NPR Initiatives Links to Other Reinvention Web Sites Reinvention Tools Frequently Asked Questions NPR Speeches NPR News Releases