Archive
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Document Name: Chapter 2 -- Putting Customers First Part II
Date: 09/07/94
Owner: National Performance Review
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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
agencies.
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 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
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 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
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 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
competitively.29
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
standards.
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'
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 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.
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
time.
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 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
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 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.
Conclusion
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.
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