Reinventing Government Osborne (Pendahuluan)

!As the 1980s drew to a close, Time magazine asked on itscover: "Is Government Dead?"As the 1990s unfold, the answer-to many Americans-

appears to be yes.Our-public schools are the worst in the developed world. Our

health care system is out of control. Our courts and prisons aresa overcrowded that convicted felons walk free. And many ofour proudest cities and states are virtually bankrupt.

Confidence in government bas fallen to record lows. By thelate 1980s, only 5 percent of Americans surveyed said theywould choose government service as their preferred career.Only 13 percent of tap federal employees said they would rec-ommend a career in public service. Nearly three out of fourAmericans said they believed Washington delivered less valuefor the dollar than it had 10 years earlier.And then, in 1990, the bottom fell out. It was as if all our

governments had hit the wall, at the same time. OUf statesstruggled with multib illion-dollar deficits. Our cities 'laid offthousands of employees. Our federal deficit ballooned toward$350 billion.

Strangely enough, in. the midst of change, the present course may 'often bethe most risky one. It may only serve to perpetuate irrelevancy.-The Florida Speaker's Advisory Committee on the Future

Introduction:An American Perestroika

trial and error-to do the public's business. As we researched it,we were astounded by the degree of change taking place in ourcities, counties, states, andschool districts. Some readers may, at 'first find our findings hard to swallow. But we urge you to'suspend judgment and continue reading, until you too have hada chance to see the vast sweep 'Ofchange coursing through

, American government. We think you will find it astonishing.OUf purpose is not to criticize government, as 'S'Omany have,

but-to renew it. We are as bullish on the future ofgovernment aswe are bearish 'On(t.he current 'condition of government. We .donot minimize the depth of the problem, nor the difficulty ofsolving it. But because we ,have seen so many public institutionstransform themselves from 'staid bureaucracies into innovative,flexible, responsive organizations, we believe there are 'solu-tions.Marcel Proust once wrote, "The real voyage of discovery con-

sists not in seeking new lands, but in seeing with new eyes." Ourgoal, in writing this book, is to help you see with new eyes. It isour fervent hope .that when you put this book down, you willnever see government in the 'same way again. It is our prayerthat you~ilI then join the thousands of other Americans whoare already working to reinvent their governments.

REINVENTING GOVERNMENTxxii

,they would have spent at least $800,000; they could QUY thisone slightly used andput it in the ground for half that amount.Like any other government agency, the school district needed

at least two weeks to advertise the question, hold a board meet-ing, and get approval for a special appropriation. But 0.11 Mon-day, the parks and recreation employee got a second call. Twocolleges wanted the pool, and they were racing each other to getthe nonrefundable $60,000 deposit together. So he got in his carand took a check down that afternoon.How could a third-level parks and recreation employee get a

check for $60,000, with no action by the city council and nospecial appropriation? The answer is simple. Visalia hadadopted a radically new budget system, which allowed managersto respond quickly as circumstances changed. Called the Expen-diture Contr-olBudget, it made two simple changes. First, it elim-inated all line items within departmental budgets-freeingmanagers to move resources around as needs shifted. Second, itallowed departments to keep what they didn't spend from oneyear to the next, so they could shift unused funds to new pri-orities .Normal government budgets encourage managers to waste

money. If they don't spend their entire budget by the end of the'fiscalyear, three things happen: they lose the money they havesaved; they get less next year; and the budget director scoldsthem for requesting too much last year. Hence the time-honored government rush to spend all funds by the end of thefiscal year. By allowing departments to keep their savings, Visa-lia not only eliminated this rush, but encouraged managers tosave money. The idea was to get them thinking like owners: "Ifthis were my money, would 1 spend it this way?"

Under the new budget system, Visalia's Parks and RecreationDepartment had managed to save $60,000 toward a new pool.Arne Croce, an assistant city manager who had worked on theproblem, knew that both the school district and the city councilwanted a pool. Between them, he was sure, they could find$400,000 ..(They ended up raising nearly half the money with acommunity fund-raising drive.) Because Visalia regularly en-gaged in strategic planning, Croce also understood the city's

3An American Perestroika

.."'\{salia, California, is the prototypical Ameri-can community.A'leafy oasis of75,000 people in California's hot, dry San Joa--quin Valley, it is the county 'seat of rural, ,conservative TulareCounty. 'It is an All-American 'city: the streets are clean, thelawns are mowed, the Rotary Clubs 'are full.In 19T8, Proposition 13 cut Visalia's tax base by 25'percent.

With financing from one final bond issue'that slipped throughon the same day as Proposition 13, the school district managedto build a new high school. But a's the years went by, it couldnever scrape together the money to put in a swimming pool.One hot Thursday in August 1984, a parks and recreation

employee got a call from a friend in Los Angeles, who told him-that the Olympic committee was selling its training pool. Theemployee immediately called the school district, and two dayslater he and an assistant superintendent flew down to take a, look They liked what they saw: an all-aluminum, Olympic-size";pool, that would likely survive an earthquake. To buy one new,

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Since the tax revolt first swept the nation in 1978, the Ameri-can people have demanded, in election after election and onissue after issue, more performance for less money. And yet,during the recession of 1990 and 1991, their leaders debated thesame old -optiorrs: fewer services or higher taxes.Today, public fury alternat.es with apathy. We watch breath-

iessly as Eastern Europe and the Soviet republics overthrow thedeadening hand of bureaucracy and oppression. But at homewe feel impotent. .Our cities 'succumb to mounting crime andpoverty, 'our states are handcuffed by 'staggering deficits, andWashington drifts through it all like 30 square miles bounded,by reality.Yet there is hope. Slowly, quietly, far from the public spot-

light, new :kinds of public institutions are emerging. They arelean, decentralized, and innovative. They are flexible, adapt-able, quicktoleam new ways when conditions change. They usecompetition, customer choice, arrd other nonbureaucraticmechanisms to .get things done as creativelyarid effectively aspossible. And they are our future.

REINVENTING GOVERNMENT2

East Harlem is not the prototypical American community. It.is one of the poorest communities in America. Single mothers'head more than half of its families; 35 percent of its residentsare on public assistance; median income is $8,300. Dilapidatedpublic schools-s-their windows covered by protective grilles-coexist 'with crack houses. East Harlem IS precisely the sortofcommunity in which public schools normally fail. Yet it hasSOmeof the most successful public schools in America.New York City has 32 school districts. Twenty years ago,

Community School District 4, in East Harlem, was at the bot-tom of the barrel: thirty-second out of 32 in test scores. Only 15percent of its students-I5 of every 1OO~read at grade level.Attendance rates were pathetic."It was totally out of control,') says Michael Friedman, now

director of a junior high called the Bridge School:

The year before J started the Bridge School was probably theworst year of my life. The schools were chaotic, they wereovercrowded. There \vasa lot of violence, gangs roaming thestreets. It was sink. or swim as a classroom teacher. Theyclosed the door: (That's your class, do what you can. "And itseemed like nobody could or would try to do anything about

When Visalia's leaders decided the city needed more culturallife, the convention director coventured with privatepromotersto bring in headliner acts, limiting their risk by putting up halfthe capital and taking half the profits. When a citizens' -taskforce found a dearth of affordable housing, the city helped cre-ate a private, nonprofit organization, loaned it $100,600, andsold it 13 acres of excess city land. Fifteen months later, 89families=-with incomes ranging from $9,000 to $18,000 ayear-moved into their own single-family homes. The planningdepartment officials assigned to work on the project gave up .their summer vacations to bring it in on time. But they didn'tmind. "We've got one of the most exciting jobs in the city," oneof them said. "Its like owning your own business-s-you spendthe amount Of time necessary to get the job done."


1-,1

H

priorities and values-he knew, for instance, that the counciland manager valued entrepreneurial behavior. Although theOlympic pool was a totally unexpected opportunity, he had noqualms about seizing it "It's something you'd find in privateenterprise," said the admiring school superintendent. "Youdon't have the bureaucracy you have to deal with in most gov-ernments."

Thy Expenditure Control Budget was the brainchild of OscarReyes, an assistant finance director in Fairfield, California. CityManager Gale Wilson, one of the pioneers of entrepreneurialgovernment, installed it-after Proposition 13. Ted Gaebler, thencity manager of Visalia, brought it to Visalia 'six months later.In Fairfield, in Visalia, and in a dozen other cities and countiesthat have sinoe adopted it, the way managers spend their tax-payers' money has profoundly changed.In Visalia, even the man in charge of street sweeping changed

his thinking. For years, Ernie Vierra had had the 'streets sweptevery three weeks. Quietly, under the guise of equipmentproblems, he tried four weeks, then five, When he hit six thecomplaints rolled in, so he eventually settled on four. He didthe salm thing with the grass in the parks,Visalia's Police Department pioneered a lease-purchase pro-

:gramfor 'squad cars that was quickly copied by two dozen othercities. The shop that repaired Visalia's vehicles cut its energy OOR-.sumption by 30 percent. By 1985, with other California govern-ments 'still crying poor in the wake of Proposition 13, Visalia had$20 million' in"cashsquirreled away-almost as much as its entireannual operating budget. (Ironically, by freezing property taxes,Proposition 13 made it impossible for-Visalia to lower its rates.)The philosophy embodied by the new budget-s-a philosophy

city leaders dubbed "public entrepreneurial management"-.'permeated the organization. Managers talked of "profit cen-.ters," "enterprise budgets," "the CEO," and the "board of di-rectors." They gave bonuses of up to $1,000 per person toreward outstanding group effort. And they encouraged employ-ees to help the city save or earn money by allowing them to takehome 15 percent of the savings or earnings -their innovationsgenerated in their first year-with no ceiling on the amount.


Just as important as competition and a sense of mission is theownership students and teachers feel for their schools. Ratherthan being assigned to a school and offered a cookie-cutter edu-cation, they are allowed to choose the style of education theyprefer. They can choose traditional schools or open classrooms;schools with mentor programs or those that use heavy tutoring;reading institutes for those behind grade level or advancedschools for gifted students; photography programs or computer

Now that we.absolutely have to attract youngsters to our build-ing, we have to really take a long, hard look. at ourselves anddetermine-Are we good enough? Are we going to be competi-tive enough? We replaced the idea that w~ 're going to be hereforever with the idea that we are here with a purpose, and thatpU71JOsehas to be maximized. The mission, the dream of theschool, has to be in everyone's mind and everyone's heart. Thelevel of performance has to increase.

whom also taught-and their teachers. If a teacher wanted tocreate a new school, or move to an alternative school, Alvaradousually said yes. This simple change released tremendous en-ergy. "There are teachers who were burned out-they were go-ing nowhere," says Falco. "We put them in an alternativesetting, and they flowered."Before long, the junior highs were competing for students.

Teachers and directors began paying close attention to howmany applicants ranked their schools number one each spring.And district leaders began closing schools that were not at- .tracting enough students, or replacing their directors and staff."If you're not operating a program that kids want to come to,you're out of business)" 'says Falco. "You-just can't rest on yourlaurels. You have to continually strive for ways to meet theneeds of these kids." Successful schools, on the other hand,were allowed to .grow until they hit an upper limit of about' 300.At that point, district leaders encouraged their directors toclone them, if space was available for another school.Ed Rodriguez, principal of one of the last junior highs to be-

come a school of choice) was not eager to compete. But hefound the competition a powerful motivator:


I

In 1974) out of 'sheer desperation, then superintendent An-thony Alvarado, an assistant principal named John Falco, andseveral teachers decided they had to get the "incorrigible, recal-citrant, aggressive kids" out 'Of the schools, so others couldlearn. They created an' alternati ve junior high for troubledstudents.The task was so daunting that Alvarado told Falco and his

teachers to -do whatever it took to get results. They created avery nontraditional school, which worked. Two other alterna-tive schools opened that year were also

600 bases and facilities, which house 4.5 million people andconsume $100 billion .ayear. Soon after he was prom oted to thejob, in 1981, Stone visited an air base in Sicily. "We have 2,000airmen there, and they're out in the middle of nowhere," hesays:

No families! no towns. They are an hour and a half driveover a horrible mountain road from a Sicilian city of20,DOO~aj'ld when you get there there's not much to do. Somost of our bases have bowling alleys, and we built a bowl-ing alley at this base. I visited them. two or three weeks afterthe bowling center opened. They took me in and they startedshowing me plans-they're going to take out this wall andadd six more lanes over there. I thought, "Gee. you've beenopen/or a couple of weeks, and you're going to lear the placeapart and expand it? TiVhy is that?" .

"Well, J) they told me, "there's this rule that says, lJ youhave 2,000 troops, you're allowed /.0 construct eight lanes. t s[You can get a waiver to build more-but only after you can

j prove you need them.] Igot the book. and that is what it says:1,.000 troops, four lanes,' 2,000 troops, eight lanes. And it'strue if you're in the wilds of Sicily, with nofamilies, or in thenorthern part of Greenland, where you can't even go out-doors for most of the year.

The rule book Stone refers to covered 400 pages. The rulesgoverning the operation of military housing covered 800 pages.Personnel rules for civilian employees covered another 8,800pages. "My guess is that a third of the defense budget goes intothe friction of following bad regulations-s-do ing work thatdoesn't have to be done," Stone says. Engineers inN ew Mexicowrite reports to convince people in Washington that their roofsleak. Soldiers trek halfway across their bases to the base chemistwhen the shelf life of a can of spray paint expires, to have itcertified for another year. The Department of Defense (DOD)pays extra for special paint, but because it takes longer to estab-lish its specifications than it takes companies to improve theirpaint, DOD employees pay a premium for paint that is inferiorto paint available at their local store.


BOb Stone works in America's archetypal bureaucracy, theDepartment of Defense. As deputy assistant secretary of de-fense for installations, he has at least theoretical authority over

~."

programs; experiential education or even a school run in coop-eration with the Big Apple Circus."When a child chooses the school, there's ownership in that

choice," says Robert Nadel, assistant director of a junior highcalled the Creative Learning Center. "There's also ownershipon the part of the parent and ownership on the part of the teach-ers." That ownership translates into student attitudes very dif-ferent from those created when a child is 'simply assigned to abuilding. "What you own," says Sy Fliegel, the choice system'sfirst director, "you treat better."The results of District 4',s experiment have been startling.

Reading scores are up sharply: in 1973, 15 percent of juniorhigh students read at grade level; by 1988, 64 percent did. Writ-ing skills have improved: in 198B, state tests found that 75 per-cent of the district's eighth-graders were competent writers.And the percentage of District 4 graduates accepted .to NewYork's four elite public high schools, suchas Bronx Science andBrooklyn Technical, 'has shot up. In themid-I970s, fewer than10 of District 4's,graduates were admitted to these schools eachyear. ~r 1987, 139'were~10 percent of District 4's graduates,almost double the rate for the rest of New York City. Another180 attended a second tier of selective public high schools. And3-6went-to 'selective private schools, including Andover and theHill School. All told, more than a quarter of District 4's gradu-ates earned 'places in outstanding high schools=-schools thatwere virtually off limits 15 years before.District 4 is smack in the middle of one of America's most

renowned ghettos. Yet it has a waiting list of teachers who wantto work there. Perhaps the most telling statistic is this: out of14,000 students-in District 4, close to 1,000 come in 'from out-'side the district. "On any given day, I receive at least four orJive calls from 'parents requesting admission from outside thedistrict," says Falco. "I just have to turn them away."

'.


Vsalia, East Harlem, and the Defense Department are notalone. Look almost anywhere in America, and you will see sim-ilar success stories. We believe these organizations represent thefuture.Our thesis is simple: The kind of governments that devel-

oped during the industrial era, with their sluggish, centralized

entire army command requested permission to let craftsmendecide for themselves when spray paint cans should be thrownaway, "rather than taking them to the base chemist. Five airforce bases received permission to manage their own construc-tion, rather than paying the Corps of Engineers to do it. Shakenby the threat of competition, the corps adopted a new goal: tobe "leaders in customer care."The Model Installations experiment was so successful that

in March 1986, Deputy Secretary of Defense William How-ard Taft IV directed that it be applied to all defense installa-tions. Stone and his staff then de veloped a budget experimentmodeled on Visalia's system. Normal installation budgets,first drawn up three years in advance, include hundreds ofspecific line items. The Unified Budget Test allowed com-manders to ignore the line items and shift resourcesas needschanged.In its first year, the test revealed that 7 to 10 percent of the

funding locked into line items was in the wrong account, andthat when commanders could move it around, they could sig-bi'ficant1yincrease the performance of their troops. The armycompared the results at its two participating bases with normalbase'Sand concluded that in just one year, the Unified Budgetincreased performance by 3 percent. The long-term impactwould no doubt be greater. According to Stone and his col-leagues, "Senior leaders in the Services have estimated that ifall the unnecessary constraints on their money were removed,they could accomplish their missions with up to 10 percent lessmoney." But in a $100 billion installations budget, even 3 per-cent is $3 billion.

1 1An American Perestroika

11

"This kind of rule has two costs," Stone says. "One is, we'vegot people wasting time. But the biggest cost-and the reason Isay it's a third of the defense budget-is it's a message broad-'cast to everybody that works around this stuff that it's a crazyoutfit. 'You're dumb. We don't trust you.. Don't try to applyyour common sense.' '.?Stone cut the rules governing military base construction from

400 pages down to 4, those governing housing from 800 to 40.Then he decided to go farther. In an experiment straight out ofIn Search of Excellence, he deci-ded to t.urn one base, called aModel Installation, free 'from these rules and regulations. If the'commander would commit to radically improving his installa-.tion, Stone would -do thisbest to get any rules that were standingin his way waived. The principle was simple: let the base com-mander run the base his way, rather than Washington's way. Acorollary was also important: if he 'saved money in the process,he didn't have to give it back. He could keep it to spend onwhatever he felt was most important. ...Forty commanders volunteered for the experiment. In the

first two years, they 'submitted more than 8,000 requests forwaiv~rs"or changes in regulations. Stone 'can tell stories aboutthem for hours. III the air force, for instance, airmen use com--plex electronic test kits to check Minuteman missile's. When akit fails, they send it to HIU Air Force Base in Utah for repair.Meanwhile, the missile is ;put off alert- typically for 1Q days.An airman at Whiteman Air FOIceBase got approval to fix thetest kits himself-s-and suddenly Whiteman didn't have a Min-uteman missile oft' alert for more than three hours.ThroughoutDefense, people buy by the book. Stone holds 4P

asimplesteam trap, which costs $100. "When it leaks," he says,"it "leaks $5:0 a week worth of 'steam. The lesson is, when itleaks, replace it quick. But it takes us a year to replace it, be-cause we have a system that wants to make sure we get the verybest buy on this $100 item, and maybe by waiting a year we canbuy the item for $2 less. In the meantime, we've. lost $3,00Qworth of steam." Under the Model Installations program, com-manders requested authority to buy things on their own. An

(\


In the United States, the emergence of bureaucratic govern-ment was given a particular twist by its turn-of-the-century set-ting. A century ago, our cities were growing at breakneck speed,bulging with immigrants come to labor in the factories thrownup by our indu-strial revolution. Boss Tweed and his conternpo-fades ran these cities .like personal fiefdorns: I~ exchange forimmigrant votes, they dispensedjobs, favors', and informal ser-vioes. With one hand they robbed the public blind; with theother they made sure tho-sewho delivered blocs lof loyal voteswere amply rewarded. Meanwhile, they ignored many of the~ew problems of industrial America-its slums, i~s sweatshops, .its desperate need for a new infrastructure of sewers and waterand public transit. 1Young Progressives like Theodore Roosevelt, Woodrow Wil-

son, and Louis Brandeis watched the machines until they couldstomach it 110 more. In the 1890s, they went to war. Over thenext 30 years, the Progressive movement transformed govern-ment in America. To end the use of government jbbs as patron-age, the Progressives created civil service systems, with writtenexams, lockstep pay scales, and protection from arbitrary hiringor dismissal. TOkeep major construction projects like bridgesand tunnels 01.1tof the reach of politicians, they: created inde-pendent public authorities, To limit the power of politicalbosses, they split up management functions, took 'appointmentsto important offices away from mayors and governors, createdseparately elected clerks, judges) even sheriffs. TIDkeep tbe ad-ministration of public services untainted by the influence ofpoliticians, they created a profession of city managers-s-profes-sionals, insulated from politics, who would run tl~ebureaucracyin an efficient, businesslike manner.

The decisive reason for the advance of bureauJatic organi-zation has always been its purely technical superiority overany other form of organization .Precision, speed, unambiguity, reduction of frktion

and of material and personal costs-these are raised tothe optimum point in the strictly bureaucratic adminis-tration.


r

It is hard to imagine today) but LOO years ago the word bureau-cracy.trreant something-positive. itt connoted a rational, efficientmetho-doforganization-c-sornething to take the place of-the ar-bitrary exercise of power by authoritarian regimes. Bureau-cracies brought the same logic -to government work that theassembly -linebrought to the factory. With their hierarchical au-thority and functional specialization, they made possible the~.til.cientundertaking of large, complex tasks. Max Weber, thegreat German sociologist, described them using words no mod-em American would dream of applying:

THE BANKRUPTCY OF BUREAUCRACY

bureaucracies, their preoccupation with rules and regulations,and their hierarchical chains of command, no longer work verywell. They accomplished great things in their time, but some-where alongthe line they got away from us. They became bloated,wasteful, ineffective, And when the world began to change, theyfailed to change with it. Hierarchical, centralized bureaucraciesdesigned in the 1930s or 1940s simply do not function well in therapidly changing, information-rich, knowledge-intensive societyand-economyof-the 199Ds.They areIikeluxuryoceanIiners in anage of 'supersonic .jets: .b-i:g,cumbersome, expensive, and ex-tremely difficultto tum around,Gradually, new kinds of publicinstituticns are taking their place.Government is hardly leading the parade; similar trarrsforma-

tions are -taking place throughout American society. Americancorporations have 'spent the la-st decade making revolutionarychanges: decentralizing authority, flattening hierarchies, focus-ing on quality, getting close to their customers-c-all in an effortto remain competitive in 'the new global marketplace. Our vol-'l1ntary, nonprofit organizations are alive with new initiatives.New "partnerships" blossom overnight-between business andeducation, 'between .for-profits and nonprofits, between -public'sector' and private. It is as ifvirtually all institutions in Ameri-'can 'life were struggling at -once to adapt to some massive seaeha1).ge___!striyingto become more flexible, more innovative,and more entrepreneurial.

'.


mentality got things done. The results spoke for themselves,and most Americans fell in step. By the 1950s, as William H.Whyte wrote, we had become a nation of "organizationmen,"But the bureaucratic model developed in conditions very

different from those we experience today. It developed in aslower-paced society, when change proceeded at a leisurely gait.It developed in an age of hierarchy, when only those at the topof the pyramid had enough information to make informed deci- .sions. It developed in a society of people who worked with theirhands) not their minds. It developed in a time of mass markets,when most Americans had similar wants and needs. And it de-veloped when we had strong geographic communities-tightlyknit neighborhoods and towns.Today all that has been 'Swept away. We live in an era of

breathtaking change. We live in a global marketplace, whichputs enormous competitive -pressure on our economic institu-tions. We live in an information society, in which people getaccess to information almost as fast as their leaders do. We livein a knowledge-based.economy, in which educated workers bri-dle at commands and demand autonomy, We live in an age of'Iliche markets, in which customers have become accustomed tohigh quality and extensive choice.In this environment, bureaucratic institutions developed dur-

ing the industrial era-s-public and private-s-increasingly fail us.Today's environment demands institutions that are :ex-

tremely flexible and adaptable. It demands institutions that de-liver high-quality goods and services, squeezing ever more bangout of every buck. It demands institutions that are responsive totheir customers, offering choices of nonstandardized services;that lead by persuasion and incentives rather than commands;that give their employees a sense of meaning and control, evenownership. It demands institutions that e111pOWercitizensrather than simply serving them.Bureaucratic institutions still work in some circumstances. If

the environment is stable, the task is relatively simple, everycustomer wants the same service, and the quality of perform-ance is not c.ritical, a traditional public bureaucracy can do the


"

Ie

Thanks to Boss Tweed and his contemporaries, in otherwords, American society embarked on a gigantic effort to con-trol what went on inside government-to keep the politiciansand bureaucrats from doing anything that might endanger thepublic interest 'or purse. This cleaned up many of our govern-ments, but in solving one set of problems it created another. Inmaking it difficult to steal the public's money, we made it virtu-ally impossible to manage the public's money. In adopting writ-ten tests scored to the third decimal point to hire our clerks a~dpolice o.filicers.and fire fighters, we built mediocrity into ourwork force. In making it impossible to-like people who did notperform, we turned mediocrity into deadwood. In attemptingto control virtually everything, we became so obsessed with dic-tating how things should be done-regulating the process, con-trolling the inputs-that we ignored the outcomes, the results.

Theproductwasgovernment with a distinct ethos: slow, inef-ficient, impersonal. This is the mental. image the word govern-ment .invokes today; it.is what most Americans assume to be thevery -essence of .government. Even government buildings con-struetos during the industrial era -reflect-this ethos: they are im-mense :structures, with high ceilings, large hallways, and ornatearchitecture, all designed to impress upon the visitor the imper-.sonal authority-and immovable weight.of the institution.

for a long time, the bureaucratic model worked-not be-. cause it was efficient, bui-because it solved the basic problemspeople wanted solved. It provided security-c-from unemploy-ment, during old age. It provided stability, a particularly impor-tant quality after the Depression. It provided a basic 'sense offairness and equity. (Bureaucracies, as Weber pointed out, a-r-e-dcssgnedtotreateveryone alike.) It provided jobs. And it deliv-ered the basic, no-frills, one-size-fits-all services people neededand expected during the industrial era: roads, highways', sewers,schools. .During times of intense crisis-the Depression and two

world wars-the bureaucratic model worked superbly. In crisis,when goals were clear and widely shared, when tasks were rela-tively straightforward, and when virtually everyone was willingto pitch in for the cause, the top-down, command-and-control

:,,"


1982 recession, the deepest since the Depression, state govern-ments began to hit the wall,Under intense fiscal pressure, state and local leaders had no

choice but to change the way they did business. Mayors andgovernors embraced "public-private partnerships" and devel-oped "alternative" ways to deliver services. Cities fosteredcompetition between service providers and invented new bud-get systems. Public managers began to speak of "enterprisemanagement," "learning organizations," and "self-reliant cit-ies." States began to restructure their most expensive publicsystems: education, health care, and welfare.

Phoenix, Arizona, put its Public Works Department in head-to-head competition with private companies for contracts tohandle garbage collection, street repair, and other services. St.Paul, Minnesota, created half a dozen private) nonprofit corpo-rations to redevelop the city. Orlando, Florida, created so manyprofit centers that its earnings outstripped its tax revenues. TheHousing Authority of Louisville, Kentucky, began surveying itscustomers-l 5,000 residents of public housing-and encourag-ing them to manage their own developments. It even sold onedevelopment, with 100 units, to tenants.The Michigan Department of Commerce adopted a new s10-

.gan: "Customer Service Is OUf Reason for Being." It surveyedits customers, hired a customer service chief, created classes foremployees in customer orientation, and set up an ombudsmanwith a toll-free telephone line for small businesses. Several ofthe department's 10 Action Teams embraced Total QualityManagement, the management philosophy espoused by W. Ed-wards Deming.Minnesota let parents and students choose their public

schools-c-as in East Harlem-s-and six other states quickly fol-lowed suit. South Carolina developed performance incentivesunder which schools and teachers competed for funds to trynew ideas, principals and teachers who achieved superior re-sults got incentive pay, and schools whose students made largeimprovements in basic skills and attendance got extra money.In the program's first three years,' statewide attendance in-creased, teacher morale shot up faster than in any other state,


,

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.The first governments to respond to these new realities werelocal governments-in large part because they hit the ",:aUfirst.On June 6, 1978, the voters of California passed Proposition13,which cut local property taxes in half: Fed by the dual firesof inflation and dissatisfaction with public services, the tax re-volt spread quickly. In 1980, Ronald Reagan took it national--and by 1982, state and local governments had lost nearly one ofevery four federal dollars they received in 1978. During the

'THE EMERGENCE OFEl\TfREPRENEURIAL GOVERN1VIENT'.,

(-c

job. Social security still works. Local government agencies thatprovide libraries and parks and recreational facilities still work,to a degree.But most government institutions perform increasingly com-

plex tasks, in competitive, rapidly changing environrnents, withcustomers who want quality and choice. These new realitieshave made life very difficult for our public institutions-for ourpublic education system, for our public health care programs,for our public housing authorities, for virtually every large, bu-reaucratic program created by American governments before1970. Itwas no accident that 'during the 1'970s we lost a war,lost faith in -OUT national Ieaders, end ured repeated economicproblems, and experienceda tax revolt. In the .years since, thedash between old and new has only intensif ed. The result hasbeen .a period of enormous stress in American government.In 'some ways, this is a symptom of progress-of the disrup-

.tive dash that occurs when new realities run headlong into 'Oldinstitutions. Our information technologies and our knowledge-economy give us 'Opportunities to do things we never dreamed.possible SO years ago. Buttoseize these opportunities, we mustpick up'the wreckage of our industrial-era institutions and re-build. "It is the first step of wisdom," Alfred North Whitehead-once wrote, "to recognize that the major advances in civiliza-tion are processes which all but wreck the society in which theyoccur."


Florida vowing to "reinvent government." Republican BillWeld, the new governor of Massachusetts) promised to deliver"entrepreneurial government," which would foster "competi-tion) and focus on "results, not rules." Republican George Voi-novich of Ohio said in his inaugural address: "Gone are thedays when public officials are measured by how much theyspend on a problem. The new realities dictate that public offi-cials are now judged by whether they call. work harder andsmatter, and do more with less."It is difficult for the average citizen, who must rely on the

mass media to interpret events, to make heads or tails of thesechanges. Their substance is all but invisible) in part becausethey take place outside the glare of publicity that shines onWashington. They also 'stubbornly refuse to fit into the tradi-tionalliberal versus conservative categories through which themedia views the world. Because most reporters are asked toprovide instant analysis, they have little choice but to fall backon the tried and true lenses of past practice. And because their'standard formula relies on conflict to sell a story, they look forheroes and villains rather than innovation and change. In the'process, they inevitably miss much that is new and significant.To paraphrase author Neil Postman, American society hurtlesinto the future with its eyes fixed firmly on the rearview mirror.Over the past five years, as we have journeyed through the

landscape ofgovernmental change, we have sought constantlyto understand the underlying trends. We have asked ourselves:What do these innovative, entrepreneurial organizations havein common? What incentives have they changed, to create suchdifferent behavior? What have they done which, .if other gov-ernments did the same, would make entrepreneurship the normand bureaucracy the exception?The common threads were not hard to find. Most entrepre-

neurial governments promote competition between service pro-'viders. They empower citizens by pushing control out of thebureaucracy, into the community. They measure the perform-ance of their agencies, focusing not on inputs but on outcomes.They are driven by their goals-their missions=-tvx: by theirrules and regulations. They redefine ,their clients as customers


Surveys even began to pick up the trend. In 1987 and 198'8,the consulting firm -Coopers -Sc Lybrand conducted a Survey 'OnPublic Entrepreneurship, which focu-sedon city and county ex-ecutives in jurisdictions with more than 50;000 people. Virtu-ally all executives surveyed agreed that demand for public'Serviceswas outstripping revenues-a conflict they expected to"require continued -emphasis on 'doing more with less' and ex-ploring more innovative, cost-effective management tech-niques." Practices On the rise included contracting for service's,performance measurement, participatory management, impactfees, and strategic planning.When recession hit in 1990, the deficits of large cities and

states jumped into the billions of dollars. Finally, out of desper-ation, even mainstream politicians began to search for new ap-proaches. Gubernatorial candidates talked of "restructuring,""rightsizing," and "partnerships." Democrat Lawton Chiles, a'three-term veteran of the U.S. Senate, won the governorship of

It is willing to abandon old programs and methods. It is in-novative and imaginative and creative. It takes risks. Itturns city junctions into money makers rather than budget--busters. It eschews traditional alternatives that offer onlylife-support systems. It works with the private sector. It em-ploys solid business sense. It privatizes. It creates enterprises"andrevenue generating operations. It is market oriented. Itfocuses .on performance measurement. It rewards merit. It.says (Let's make this work," and it is unafraidto-dream thegreat dream.

and Scholastic Aptitude Test scores rose 3.6 percent, one of thelargest gains in the country.Indianapolis Mayor William Hudnut described the phenom-

enon as well as anyone. "In government,') he said in a 1986speech, "the routine tendency is to protect turf, to resist.change,to build empires, to enlarge one's sphere of control, to protectprojects and programs regardless of whether or not they are anylonger needed." In contrast, the '

Governments also extract their income primarily throughtaxation, whereas businesses earn their income when customersbuy products or services of their own free will. This is one rea-son why the public focuses so intensely on the cost' of govern-ment services, exercising a constant impulse to control=sodictate how much the bureaucrats spend on every item, so theycannot possibly waste, misuse, or steal the taxpayers' money.All these factors combine to produce an environment in ,

which public employees view risks and rewards very differentlythan do private employees. "In government all of the incentiveis in the direction of not making mistakes," explains Lou Win-nick of the Ford Foundation. You can have 99 successes andnobody notices, and one mistake and you're dead." Standard-business methods to motivate employees don't work very wellin this kind of environment.There are many other differences. Government is democratic

and open; hence it moves more slowly than business, whosemanagers can make quick decisions behind closed doors. Gov-ernment's fundamental mission is to "do good," not to makemoney; hence cost-benefit calculations in business turn' intomoral absolutes in the public sector. Government must often'serve everyone equally, 'regardless of their ability to payor theirdemand for a service; hence it cannot achieve the same marketefficiencies as business, One could write an entire book aboutthe differences between business and, government. Indeed,Jam~s Q. Wilson, the eminent political scientist, already has. Itis called Bureaucracy: What Government Agencies Do and WhyThey Do It.Tilese differences add up to one conclusion: government can-

not be run like a business. There are certainly many similarities.Indeed, we believe that our ten principles underlie success forany institution in today's world-public, private, or nonprofit. .And we have learned a great deal from business managementtheorists such as Peter Drucker, W. Edwards Deming, TomPeters, and Robert Waterman. But in government, business the-ory is not enough. .. Consider Deming's approach, known as Total Quality Man-.agement. Increasingly popular in the public sector, it drives


. I!

T

Many people, who believe government should 'simply be "runlike a business," may assume this is what we mean, It is notGovernment and business are fundamentally different insti-

tutions. Business leaders are driven by the profit motive; gov-ernment leaders are driven by the desire to get reelected.Businesses get mostoftheir money from their customers; gov--ernments .get most of their money from taxpayers. Businessesare usually driven-by competition, governments usually us-emo-nopolies.Differences such as these create fundamentally different in-

centives in the public sector. For example, in government theultimate test for managers is not whether they produce a prod-uct or profit-s-it is whether they please the elected politicians.Because politicians tend to be driven by interest groups, publicmanagers-unlike their private counterparts-must factor in-. terest groups into every equation.

WHY GOVERNMENT CAN'T BE'~RUNLIKE A BUSINESS"

and offer them choices-between schools, between trainingprograms, ;between housing options, They prevent problems be-fore they emerge, rather than simply offering services afterward:They 'put their energies into earning money, not simply spend-ing it. They decentralize authority, embracing participatorymanagement. They -prefer market mechanisms to bureaucraticmechanisms. And they focus not simply on providing public'Services,but on catalyzing all sectors-public, private, and vol-untary-into action to solve their community's problems.We believe that these ten principles, which we describe at

length in the next ten chapters, are the fundamental principlesbehind this new form of government we see emerging: the'spokes that hold together this new wheel. Together they form acoherent whole, a new model of government. They will notsolve 'all of-our problems. But if the experience of organizations-that.have embraced them is any guide, they will solve the majorproblems we experience with bureaucratic .government.

"


ded in the very way we do business. It is employees on idle,working at half speed-s-or barely working at all. It is peopleworking hard at tasks. that aren't worth doing, following regula-tions that should never have been written, filling out forms thatshould never have been printed. It is the $100 billion a year thatBob Stone estimates the Department of Defense wastes with itsfoolish overregulation.Waste in government is staggering, but we cannot get at it by

wading through budgets and cutting line items. As one observerput it, our governments are like fat people who must loseweight. They need to eat less and exercise more; instead, whenmoney is tight they. cut off a few fingers and toes.

To melt the fat, we must change the basic incentives thatdrive ,QUI' governments. We must turn bureaucratic institutionsinto entrepreneurial institutions, ready to kill off obsolete ini-tiatives, willing .to do more with less, eager to absorb newideas.The lessons are there: our more entrepreneurial governments

. have shown us the way. Yet few of our leaders are listening. Toobusy climbing the rungs to their next office, they don't have'time to stop and look anew. So they remain trapped in old waysof looking at our problems, blind to solutions that lie right infront ofthem. This is perhaps our greatest stumbling block: thepower of outdated ideas. As the great economist John MaynardKeynes once noted, the difficulty lies not so much in developingnew ideas as in escaping from old ones.The old ideas still embraced by most public leaders and polit-

ical reporters assume that the important question is how much-govemrnent we have-not what kind of .government. Most ofour leaders take file old model as a given, and either advocatemore of it (liberal Democrats), or less of it (Reagan Republi-cans), or less of one program but more of another (moderates ofboth parties);But our fundamental problem today is not too much govern-

ment or too little government. We have debated that issue end-lessly since the tax revolt of 1978, and it has not solved ourproblems. Our fundamental problem is that we have the wrongkind of government. We do not need more government or less


Most of our leaders 'still tell us that there are only two ways out'Ofour repeated pubsic crises: we can raise taxes, or we can cutspending. For almost two decades, we have asked for a third..choice. We do not wa-nt less education, fewer roads, less health'Care.Nor do we want higher taxes. We want better education,better roads, and better health care, for the same tax dollar.

Unfortunately, we do riot know how to get what we want.Most of our leaders assume that the only way to cut spending isto 'eliminate programs, agencies, and employees. Ronald Rea-gan talked as if we could simply go into the bureaucracy with ascalpel and cut out pockets of waste, fraud, and abuse.But waste in government does 1'1Otcome tied up in neat pack-

ages. It is marbled throughout our bureaucracies. It is embed-

A TIHRD CHOICE

public institutions to focus on five of our principles: results,customers, decentralization, prevention, and a market (or sys-.tems) approach. But precisely because Deming developed hisideas for private businesses, his approach ignores the other five.For example most businesses can take competition for granted,"SO Total Quality Management ignores the problem of monop-oly-which is at the heart of government's troubles. Most busi-nesses are already driven bytheir missions (to make profits), soDeming does not help public leaders create mission-driven or--ganizations. And few business-eshave to be told to earn moneyrather than simply spending/it.The fact that government cannot be run just like a business

does not mean it cannot become more entrepreneurial, of'course. An)T institution, public or private, can be entrepreneur-ial, just as any institution, public or private, can he bureau-cratic, Few Americans would really want government to act just'like a 'business-c-making quick decisions behind dosed doorsfor private profit. If it did, -demccracy would be the first casu-alty. But most Americans would like government to -be'less bu-.reaucratic. There is a vast 'continuum between bureaucratic-behavior and entrepreneurial behavior, and government cansurely shift its position on that spectrum.

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Reinventing Government Osborne (Pendahuluan)

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