Chapter 2 Putting Customers First ********************************* We are going to rationalize the way the federal government relates to the American people, and we are going to make the federal government customer friendly. A lot of people don't realize that the federal government has customers. We have customers. The American people. Vice President Al Gore Town Meeting, Department of Housing and Urban Development March 26, 1993 ********************************* All of us--bureaucrat or business owner, cabinet secretary or office clerk--respond to incentives. We do more of what brings us rewards and recognition, less of what brings us criticism. But our government, built around a complex cluster of monopolies, insulates both managers and workers from the power of incentives. We must change the system. We must force our government to put the customer first by injecting the dynamics of the marketplace. The best way to deal with monopoly is to expose it to competition. Let us be clear: this does not mean we should run government agencies exactly like private businesses. After all, many of government's functions are public responsibilities precisely because the private sector cannot, should not, or would not manage them. But we can transplant some aspects of the business world into the public arena. We can create an environment that commits federal managers to the same struggle to cut costs and improve customer service that compels private managers. We can imbue the federal government--from top to bottom--with a driving sense of accountability. Is it really possible to reinvent government in this way? Horror stories about government waste are so abundant that many doubt its ability to change. For some, the only solution is to cut or abolish programs wholesale. In some instances those cuts make sense and we are recommending them. But alone they do not address the problem we face or move us decidedly toward a government that works better and costs less. We propose a different approach. we must make cuts where necessary; we also must make our government effective and efficient. Some programs clearly should be eliminated, others streamlined. We will offer many proposals to do both in chapter 4. But reinventing government isn't just about trimming programs; it's about fundamentally changing the way government does business. By forcing public agencies to compete for their customers--between offices, with other agencies, and with the private sector--we will create a permanent pressure to streamline programs, abandon the obsolete, and improve what's left. This process will be neither quick nor easy. But as it unfolds, a very different type of government will emerge, one that is accountable to its true customers--the public. We propose four specific steps to empower customers, break federal monopolies, and provide incentives for federal employees to better serve their customers. First, we will require that all federal agencies put customers first by regularly asking them how they view government services, what problems they encounter, and how they would like services improved. We will ensure that all customers have a voice, and that every voice is heard. Second, we will make agencies compete for their customers' business. Wherever feasible, we will dismantle government's monopolies, including those that buy goods and services, acquire and maintain office space, and print public documents. These internal monopolies serve their customers--government workers--so poorly, it's no wonder those workers have such trouble serving customers outside government. Third, where competition isn't feasible, we will turn government monopolies into more businesslike enterprises--enterprises in closer touch with both customers and market incentives. Fourth, we will shift some federal functions from old-style bureaucracies to market mechanisms. We will use federal powers to structure private markets in ways that solve problems and meet citizens' needs--such as for job training or safe workplaces--without funding more and bigger public bureaucracies. Together, these strategies will enable us to create a responsive, innovative, and entrepreneurial government. If we inject market mechanisms into federal agencies as we are cutting red tape, we will create new dynamics--and a new dynamism--throughout the federal government. Step 1: --Giving Customers A Voice-- And A Choice Setting Customer Service Standards Long lines, busy signals, bad information, and indifferent workers at front counters-- these are all too common occurrences when customers come in contact with their government. Quite simply, the quality of government service is below what its customers deserve. We propose to set a goal of providing customer services equal to the best in business. Too many agencies have learned to overlook their customers. After all, most of government's customers can't really take their business elsewhere. Veterans who use veterans' hospitals, companies that seek environmental permits, or retirees applying for social security benefits must deal with public agencies that hold monopolies. And monopolies, public or private, have little sensitivity to customer needs. So government agencies must do what many of America's best businesses have done: renew their focus on customers. Some are already trying. The Internal Revenue Service (IRS) and Social Security Administration (SSA) have taken major steps to improve their telephone services to customers. SSA, the U.S. Postal Service (USPS), and the Department of Veterans Affairs are developing a combined government services kiosk, providing a single point of access for services offered by the three agencies. The Library of Congress, the Energy Department, the National Aeronautics and Space Administration, the National Science Foundation, and other federal agencies have placed their materials on Internet, a worldwide computer network.1 Good service means giving people what they need. To do that, however, one must first find out what they want--a step few federal agencies have taken. In the future, federal agencies will ask their customers what they want, what problems they have, and how the agencies can improve their services. Knowing what customers want, public agencies must set clear and specific customer service standards. When Federal Express promises to deliver a package the next day by 10:30 a.m., both customers and employees understand precisely what that means. Similarly, when the Air Force's Tactical Air Command discarded its thick set of specifications about living quarters for visiting pilots and adopted a simple standard- -equivalent to "a moderately priced hotel, like Ramada"--employees understood exactly what it meant.2 Several federal agencies that frequently interact with citizens have launched aggressive customer service initiatives. We endorse strengthening these initiatives--described below- -and expanding them across the federal government. Internal Revenue Service. The IRS, the federal agency most citizens prefer to avoid, might seem the least likely to develop a customer focus. But it's working hard to do just that. Four years ago, the General Accounting Office (GAO) discovered that IRS staff gave a wrong answer to one of every three taxpayers who called with a question. Since then, the agency has improved its accuracy rate to 88 percent.3 And--in a switch that signals a basic change in attitude--agency employees now refer to taxpayers as customers. In IRS pilot projects across the country, employees now have authority to change work processes on their own in order to improve productivity. Front-line workers also have more authority to resolve issues one-on-one with individual taxpayers. The agency is fostering competition among its tax return centers, based on customer service levels and efficiency at handling the 1.7 billion pieces of paper the IRS receives each year. Centers that perform better get higher budgets and workloads, and employees get promotion opportunities. The IRS was among the first government agencies to use 800 numbers and automated voice mail systems to increase customer access to information. Today, the IRS is beginning to survey its customers. *********************************** Customer Service Standards: IRS As part of the National Performance Review, the IRS is publishing customer service standards, including these: · If you file a paper return, your refund due will be mailed within 40 days. · If you file an electronic return, your refund due will be sent within 14 days when you specify direct deposit, within 21 days when you request a check. · Our goal is to resolve your account inquiry with one contact; repeat problems will be handled by a Problem Resolution Office in an average of 21 days. · When you give our tax assistors sufficient and accurate information and they give you the wrong answers, we will cancel related penalties. · With your feedback, by 1995 IRS forms and instructions will be so clear that 90 percent of individual tax returns will be error-free. *********************************** In addition, some centers are serving customers in truly astonishing ways. One anecdote makes the point. At the Ogden, Utah Service Center--a winner of the Presidential Award for Quality--a down-on-his-luck man hitchhiked from out of state to get his refund check. As it turns out, this center doesn't issue checks. But IRS employees there discovered that a disbursing center had sent a check to the hitchhiker's old address and that it had been returned. They ordered a new check sent to Ogden and helped the hitchhiker make ends meet until the check arrived. In the end, the IRS's efforts could affect all of us, not only as filers of tax returns but as taxpayers. If IRS forms are easier to understand and use, more taxpayers might file on time. If the IRS develops an image as a more effective, user-friendly agency, more taxpayers might decide to file in the first place. A mere 1-percent increase in voluntary compliance would add $7 billion in government revenue each year.4 Social Security Administration. Every year, more than 47 million Americans come in contact with the Social Security Administration, which administers old-age pensions, survivors' and disability insurance, and the supplemental security income (SSI) program. The agency has 1,300 field offices and receives 60 million calls a year on its toll-free lines. As the nation's population ages, the agency faces an ever-increasing workload. Recently, an inspector general's report showed that customer satisfaction had fallen 4 years in a row due to longer waiting times in offices and increasing problems in reaching someone on the phone.5 Fortunately, the Social Security Administration is strengthening its customer orientation. When Hurricane Andrew struck South Florida, where 367,000 people collect social security and SSI, agency workers took steps to ensure that senior citizens would know how to get their checks despite the devastation. Local offices used television, radio, and loudspeaker trucks touring the area with messages in English, Spanish, and Creole. The agency also hired an airplane to tow a banner with SSA's toll-free 800 telephone number over the hard-hit Homestead area. *********************************** Customer Service Standards: Social Security Administration As part of its participation in the National Performance Review, the Social Security Administration will publish nationally, and post in each of its offices, these performance standards: · You will be treated with courtesy every time you contact us. · We will tell you what benefits you qualify for and give you the information you need to use our programs. · We will refer you to other programs that may help you. · You will reach us the first time you try on our 800 number. ************************************ More generally, the Social Security Administration recently adopted a customer-oriented strategic plan, which includes objectives such as issuing social security numbers orally within 24 hours of an application. Besides pinpointing some of their objectives as standards to reach today, SSA is publishing all 34 of its objectives and seeking customer feedback on whether it set the right targets for service. U.S. Postal Service. The Postal Service, which delivered 166 billion pieces of mail in 1992, has begun improving customer service for a good reason: It has competition. While most people still use the Postal Service to deliver first class mail, the use of private delivery services and electronic mail is rising quickly. *********************************** Customer Service Standards: USPS As part of its participation in the National Performance Review, the USPS will expand its plans to display these standards in post offices: · Your first class mail will be delivered anywhere in the United States within 3 days. · Your local first class mail will be delivered overnight. · You will receive service at post office counters within 5 minutes. · You can get postal information 24 hours a day by calling a local number. ************************************ The Postal Service has decided to meet its competition head-on. Using focus groups, the agency identified service areas where its customers wanted improvement. It found that people wanted shorter waiting lines at counters, better access to postal information, and better responses to their complaints. Using these standards to measure performance, the agency set a long range goal of "100-percent satisfaction" and developed a customer satisfaction index to measure progress toward it. The agency also is providing incentives for employee performance: In cooperation with two postal unions, managers now use customer satisfaction data to help determine employee bonuses. Action: The President should issue a directive requiring all federal agencies that deliver services to the public to create customer service programs that identify and survey customers. The order will establish the following standard for quality: Customer service equal to the best in business.6 The President's directive will lay out principles to govern the provision of customer services. For example, organizations should: · survey their customers frequently to find out what kind and quality of services they want; · post standards and results measured against them; · benchmark performance against "the best in business"; · provide choices in both source of service and delivery means; · make information, services, and complaint systems easily accessible; · handle inquiries and deliver services with courtesy; · provide pleasant surroundings for customers; and · provide redress for poor services. The order will direct all federal agencies that deal with the public to: · immediately identify who their customers are; · survey their customers on services and results desired, and on satisfaction with existing services; · survey front-line employees on barriers to, and ideas for, matching the best in business; · in 6 months, report results on these three steps to the President; and · develop and publish a customer service plan--including an initial set of customer service standards--within 1 year. The customer service plans will address the need to train front-line employees in customer service skills. They will also identify companies that agencies will use to judge how they compare to the "best in business." The directive will ask cabinet secretaries and agency heads to use improvement in customer satisfaction as a primary criterion in judging the performance of agency managers and front-line employees. Action: For voluntary customer surveys, the Office of Management and Budget will delegate its survey approval authority under the Paperwork Reduction Act to departments that are able to comply with the act.7 The public's input is crucial to improving customer service. But current law gives the Office of Management and Budget (OMB) power to decide on virtually all agency requests to solicit information from the public (OMB can delegate this authority). This law was designed to minimize onerous paperwork burdens the federal government imposes on businesses and citizens. But it also minimizes the number of times agencies ask customers about their needs. It often slows agencies down so much that they abandon the idea of doing a survey altogether. For many agencies, customer surveys are the single most useful way to measure performance. If OMB has to approve every request for a customer survey, however, neither the directive described above nor the Government Performance and Results Act, which the President signed in August 1993, will work. Citizens do not like to be forced to fill out forms by their government. But most Americans would be pleased to receive a voluntary survey asking how their post office or social security office could improve its customer service. We propose to delegate approval of voluntary customer surveys to departments with the ability to comply with the law, and ensure that they create rapid approval processes so bottlenecks don't develop at lower levels. Customer-driven programs rarely cost more than others; indeed, productivity gains in past federal experiments have more than offset cost increases. At the Ogden Service Center, the IRS office's new approach helped workers process 5 percent more tax returns. When organizations shift their focus to customers, they act like Avis--they try harder. Crossing Agency Boundaries Unfortunately, even agencies that try harder find very real obstacles in the way of putting their customers first. Perhaps the worst is Washington's organizational chart. Time and again, agencies find it impossible to meet their customers' needs, because organizational boundaries stand in the way. Sometimes, programs housed in the same agency are only tangentially related. While most Agriculture Department programs relate to food, for instance, its customers range from farmers who grow it to poor children whose families use food stamps. At other times, programs dealing with the same customers are located in a dozen different agencies. Rather than make people jump over organizational boundaries on their own, we must remove the boundaries at the point of customer contact. We must make the delivery of services "seamless." The traditional solution is to shuffle the organizational chart. But in Washington, such proposals set off monumental turf wars between agencies in the executive branch, and between committees in Congress. After years of struggle, one or two agencies are reorganized -- or a new department is created. Meanwhile, the nation's problems keep changing, so the new structure is soon out of date. In a rapidly changing world, the best solution is not to keep redesigning the organizational chart; it is to melt the rigid boundaries between organizations. The federal government should organize work according to customers' needs and anticipated outcomes, not bureaucratic turf. It should learn from America's best-run companies, in which employees no longer work in separate, isolated divisions, but in project- or product-oriented teams. To do so, the government must make three changes. It must give federal workers greater decision making authority, allowing them to operate effectively in cross-cutting ventures. It must strip federal laws of prohibitions against such cooperation. And it must order agencies to reconsider their own regulations and tradition-bound thinking. For example, the Forest Service found that 70 percent of its regulatory barriers to new, creative ways of doing business were self-imposed.8 Despite these barriers, some noteworthy initiatives are underway. Rural Development Councils, under the Agriculture Department's direction, work with several federal departments as well as states and localities to better coordinate rural aid programs. At the Federal Aviation Administration (FAA), a systems manager helps coordinate the activities of the FAA, Defense Department, international aviation organizations, and various private interests on matters involving satellites, data links, and traffic flow management.9 We should bring the same approach to other parts of government. The following examples illustrate the problems we face and the solutions we must create. Action: Create a system of competitive, one-stop, career development centers open to all Americans.10 Our nation's economic future depends on the quality of our workforce. Our individual futures, too, depend on whether we have marketable, flexible skills with which to adapt to the changing demands of new technologies. In a country where the average worker changes jobs seven times in a lifetime, those skills are more than desirable; they are crucial. Our government invests heavily in education and training. Together, 14 separate government departments and agencies invest $24 billion a year, through 150 employment and training programs.11 But we do not invest this money well enough. For one thing, our system is organized for the convenience of those who deliver services, not those who use them. For another, the system lacks competition and incentives for improvement. "The United States has a worldwide reputation for providing its youth extensive opportunity to attend college," the General Accounting Office noted recently. "However, our country falls short in employment preparation of many noncollege-youth." Unlike our competitors, GAO said, we have no national policy to systematically prepare non-college educated youth for jobs.12 Our system is badly fragmented. Each service -- from job referral to retraining -- is designed for different people, with different rules, regulations, and reporting requirements. Bewildered, often dispirited, job seekers must trudge from office to office, trying to fit themselves into a program. When they find a program, they may find that they aren't eligible, that it's all filled up, or that the classroom is across town. American workers deserve a better deal. Nowhere on the government reinvention front is action more urgently needed or are potential rewards greater. We envision a new workforce development system, focused on the needs of workers and employers. We will organize it around the customer -- whether an individual or a business -- then provide that customer with good information about the performance of different providers and plenty of choices. If we do this, career centers and training providers will have to compete for their customers' business, based on the quality of their services. Specifically, we propose one-stop career management centers across the country, open to all Americans -- regardless of race, gender, age, income, employment experience, or skills. (One-stop centers are also a key feature of the Workforce Investment Strategy the Labor Department is developing.) Our centers would offer skills assessment, information on jobs, access to education and training -- everything people needed to make career decisions. The centers would be linked to all federal, state, and local workforce development programs, and to many private ones (which are, after all, the source of most job-training money). Core services such as labor market information and job search help would be offered free. Some centers might offer other services, from comprehensive testing to career counseling and workshops, on a fee-for-service basis. These centers would help their customers get access to funds from any of the 150 programs for which they qualified. To make this possible, the federal government would eliminate or waive many rules and regulations that keep our workforce development programs separate. The centers would also be allowed to generate their own revenues, including fees collected from employers and employees would could afford to pay. Any organization, public or private, would be allowed to seek a charter to operate one or more one-stop career centers. The process would be performance-driven, with contracts renewed only if centers met customers' demands. The federal government would establish national chartering standards for the centers, but states and local employment boards would decide which organizations met the standards. Today, local organizations such as U S Employment Service and Service Delivery Areas get most of their federal funds almost as a matter of entitlement. They account for the money, but we do not hold them accountable for whether they spend it effectively. We would make funding for these new centers more competitive, opening the process to public and private, nonprofit and for-profit, entities. We would judge these centers in part by how many people sought help at them -- on the theory that centers attracting the most customers were clearly doing something right. But we would focus as well on what happened after the customers left. Did they enroll in meaningful training programs? Did they find jobs? Did they keep their jobs? Did they increase their incomes? Finally, we would give customers the necessary information to decide the same thing for themselves: Which training program would meet their needs best? We believe that the central problem in the Employment Service is not the line workers, but the many rules and regulations that prevent them from doing their jobs. Waiver of these antiquated rules will free up these workers to perform well. In order for state Employment Services to compete on a level playing field -- particularly after the negative effects of the last decade of spending cuts and over-regulation -- line workers must be given the opportunity to retool. The Labor Department should ensure that they receive the necessary training to enable them to participate in the process. The biggest single barrier to creating an integrated system of one-stop career centers is the fragmented nature of federal funds. The 150 federal programs have different rules, different reporting requirements, even different fiscal years. To synchronize these -- and to break down the walls between categorical programs -- the National Economic Council should convene a Workforce Development Council, with members from the Departments of Labor, Education, and Health and Human Services; the Office of Management and Budget; and other departments and agencies with employment and training programs. This council should standardize fiscal and administrative procedures, develop a standard set of terms and definitions between programs, develop a comprehensive set of results-oriented performance standards, and improve the qualitative evaluation of program performance. Action: The President shoud issue a directive that requires collaborative efforts across the government to empower communities and strengthen families.13 At Vice President Gore's recent conference on family policy in Nashville, experts agreed that effective family policy requires new approaches at the federal, state, and local levels. We should stop dividing up families' needs into health, education, welfare, and shelter, each with its own set of agencies and programs, many of which contradict one another and work at cross-purposes. Instead, across all levels of government, we need collaborative, community-based, customer-driven approaches through which providers can integrate the full network of services. For instance, we spend about $60 billion a year on the well-being of children. But we have created at least 340 separate programs for families and children, administered by 11 different federal agencies and departments.14 Thus, a poor family may need to seek help from several departments--Agriculture for food stamps, Housing and Urban Development for rental support, Health and Human Services for health care and chasing down dead-beat parents. For each program, they will have to visit different offices, learn about services, fill out forms to establish eligibility--and wait. The system is fragmented and illogical. In Texas, where the immunization rate among poor children is about 30 percent, the state Health Department sought permission to have nurses who run the Agriculture Department's Women, Infants and Children supplemental food program also give immunization. The Agriculture Department said no--unless Texas developed an elaborate cost allocation plan. Consequently, mothers and children will have to continue visiting more than one agency.15 A few years ago, Governing magazine described a teenage girl who was pregnant, had a juvenile record and was on welfare. Between the three problems, she had more than six caseworkers--each from a different agency. As one put it: "The kid has all these people providing services, and everybody's doing their own thing and Tasha's not getting better. We need to have one person who says, 'Now look, let's talk about a plan of action for Tasha.'"16 President Clinton's directive will help remove obstacles that agencies face in trying to serve Tasha and others like her. Action: The President should issue a directive and propose legislation to reconstitute the Federal Coordinating Council for Science, Engineering, and Technology as the National Science and Technology Council, giving it a broader role in setting science and technology policy.17 Progress in science and technology is a key ingredient of national economic success. President Clinton's A Vision of Change for America, released in February, cites studies showing that "investments in research and development (R&D) tend to be the strongest and most consistent positive influence on productivity growth."18 In an increasingly competitive world economy, the American people need the best possible return on federal R&D investments. The Federal Coordinating Council for Science, Engineering, and Technology (FCCSET) is a White House-managed team that helps set policy for technology development. With representatives from more than a dozen agencies, it develops interagency projects, such as biotechnology research and the high-performance computing initiative. Unfortunately, FCCSET lacks the teeth to set priorities, direct policy, and participate fully in the budget process. It can't compel agencies to participate in its projects, nor can it tell agencies how to spend funds. Its six funded projects will account for just 16 percent of Washington's $76 billion R & D budget in 1994. At a time of declining federal resources, experts in business, academia, and government recognize the need for one-stop shopping for science and technology policy. A new National Science and Technology Council would direct science and technology policy more forcefully, and would streamline the White House's advisory apparatus by combining the functions of FCCSET, the National Space Council, and the National Critical Materials Council. Action: The President should issue a directive to give the Trade Promotion Coordinating Committee greater authority to control federal export promotion efforts.19 Unlike most of our economic competitors, the United States has no national export strategy. Our export programs are fragmented among 19 separate organizations- -including the Agriculture and Commerce Departments and the Small Business Administration. The U.S. and Foreign Commercial Service, in Commerce's International Trade Administration, is the lead agency for trade promotion overseas. But dozens of other entities--many within Commerce--also have trade promotion roles. Our export programs provide little benefit to all but our nation's largest businesses. The economic implications of such selective assistance are serious. Exports are among our most effective job-creating tools. They create about 20,000 new jobs for every $1 billion in exports. Thousands of small and mid-sized companies make products attractive for overseas markets, but are discouraged by high transaction costs and a lack of information. According to trade experts, the United States may be the "world's biggest export underachiever."20 The President's directive will give the Trade Promotion Coordinating Committee (TPCC), chaired by the Commerce Secretary and including representatives from 19 departments, agencies, and executive offices, broader authority to create performance measures and set allocation criteria for the nation's export promotion programs. Working with the National Economic Council, TPCC will ensure that such programs better serve the exporting community. Action: The President should issue a directive to establish ecosystem management policies across the government.21 "For too long, contradictory policies from feuding agencies have blocked progress, creating uncertainty, confusion, controversy, and pain throughout the region," President Clinton declared at the Forest Conference held in Portland, Oregon in April 1993. Shortly thereafter, the President announced his Forest Plan--a proactive approach to ensuring a sustainable economy and a sustainable environment through ecosystem management. We recommend extending the concept of ecosystem management across the federal government. Although economic growth has strained our ecological systems, our government lacks a coordinated approach to ecosystem management. A host of agencies have jurisdiction over individual pieces of our natural heritage. The Bureau of Land Management oversees more than 60 percent of all public lands; the Forest Service manages our national forests and grasslands; the Fish and Wildlife Service manages our National Wildlife Refuge System; the National Park Service oversees the national parks; the Environmental Protection Agency implements laws to regulate air and water quality; the National Oceanic and Atmospheric Administration (NOAA) manages marine resources; and various other agencies run programs that affect the environment. Different agencies, with jurisdictions over the same ecosystem, do not work well together. Even within the same agency, bureaus fight one another. At the local level, a hodge podge of government agencies control activities that affect the environment. Consider, for instance, the San Francisco Bay delta estuary. One of the most human-altered estuaries on the west coast of North or South America, it is governed by a complex array of agencies, plans, and laws. One mile of the delta may be affected by decisions of more than 400 agencies.22 The White House Office on Environmental Policy has convened an interagency task force of appropriate assistant secretaries to develop and implement cross-agency ecosystem management projects. The Office of Management and Budget will review the plans as part of the fiscal 1995 budget process. In 1994, the assistant secretaries will establish cross-agency teams to develop initial ecosystem management plans for implementation in fiscal year 1995. Also in 1994, the President should issue a directive that will declare sustainable ecosystem management across the federal government. Action: The President should create a Federal Coordinating Council for Economic Development.23 The federal government has no coherent policy for regional development and community dislocation. Instead, it offers a fragmented and bureaucratic system of seven programs to assist states and localities. The major programs are the Commerce Department's Economic Development Administration, the Housing and Urban Development Department's Community Development Block Grant program, and the Agriculture Department's Rural Development Administration and Rural Electrification Administration. The Defense Department, Tennessee Valley Authority, and Appalachian Regional Commission run smaller programs. Thus, states and communities must turn to many different agencies and programs, rather than a single coordinated system. Communities find it hard to get help, and the dispersion of effort limits overall funding. Washington's economic and regional development activities should be reconfigured to suit its customers--states and communities. We propose a Federal Coordinating Council for Economic Development, comprising the appropriate cabinet secretaries and agency heads, to coordinate such activities and provide a central source of information for states and localities. The council will provide a unifying framework for economic and regional development efforts, develop a governmentwide strategic plan and unified budget to support the framework, prevent duplication in the various programs, and assess appropriate funding levels for the agencies involved. 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.