Government for Hire

Commentary, Public Sector, Frontier Centre

CAMBRIDGE, MASS. President Bush’s budget submission this month produced its share of critics and advocates, but one thing they all should agree on is that if we continue to deliver government services as we have for the last 50 years, there is no way the supply of goods can keep up with the demand. In order to have any hope of responding, government must transform how it manages and delivers public services.

Unfortunately, debates about government policy and performance remain anchored in an outmoded left and right axis. The left argues that privatization equals government abdication, while the right believes the efficiency of the private sector is reason enough to undo government bureaucracy. Both sides miss the point.

The question is no longer whether a service should be delivered by a private or a public player. The federal government now spends about $100 billion more annually for outside contracts than it does on employee salaries. Many federal departments and offices – NASA and Energy, to name just two – have become de facto contract management agencies, devoting upward of 80 percent of their budgets to contractors.

The question now is how the sectors, including nonprofit groups, should be arrayed and managed to produce the best services. Such “governance by network” is embodied by Wisconsin’s welfare delivery model, which reduced the welfare rolls by 90 percent using state agencies, nonprofit and for-profit administrators and community-based subcontractors.

Despite some obvious advantages, greater private involvement is no panacea, as recent news reports show. The Pentagon is investigating procurement problems in the wake of the high-profile Air Force tanker scandal, in which questionable relations between the procurement chief and the vendor were revealed. More than one-third of the federal programs that the Government Accountability Office considers at “high risk” of experiencing significant problems involve large procurement operations or programs delivered mainly by third parties.

Though these difficulties say something about the private providers, they illustrate a more basic problem with government itself: most public officials don’t know how to efficiently manage a government that does most of its work through third parties.

In the past, those of us who wished to limit government’s monopoly over public services were content to make the case for greater private delivery and then leave it up to the bureaucrats to figure out how to do it. But not enough attention has been devoted to one of the central policy and management issues of our time: what kinds of systems, organizational structures and skills are needed to operate a government that increasingly orchestrates (rather than owns) resources and purchases (rather than directly provides) services?

It must be recognized that involving partners to produce government services places more – not less – responsibility on public officials. It requires them, often with declining resources, to provide more public service than before, but produce less of it themselves. This in turn demands a different set of governmental abilities. It requires public leaders who understand that their job is to produce public value and not merely to manage activities.

This new breed of leadership must recruit managers skilled in negotiation, contract management and risk analysis who will tackle problems unconventionally and focus on results rather than on defending bureaucratic turf. Ultimately, this means fewer people overall at the lower and middle levels, but more highly skilled individuals at the top who are properly paid.

Record baby boomer retirements over the next four years – up to 50 percent in some federal agencies – provide an opportunity to transform the public work force without layoffs. But to attract a new kind of public employee, the government has to change outdated seniority rules, narrow job classifications and archaic hiring practices.

Management must move to center stage. Holding providers accountable and measuring and tracking their performance has to become a core government responsibility that is as important, if not more so, than managing public employees.

Public officials must be careful to retain control of outcomes even while their private partners directly manage services. This requires a delicate balancing act, building in the needed flexibility to enable dynamic change, while not becoming a captive of private vendors.

It’s time to put the debate aside. The government’s ability to meet its obligations depends on both sides understanding that a profound change is occurring in how governments fulfill policy goals. If this change is managed well, we’ll have a new model of government that protects the public better but produces less itself, focuses on goals instead of processes, and harnesses the dynamism, efficiency and flexibility of the private sector. And that, ultimately, can only lead to greater public good.

Stephen Goldsmith, a professor at Harvard, and William D. Eggers, a director at Deloitte Research and a fellow at the Manhattan Institute, are the authors of Governing by Network: The New Shape of the Public Sector. This article originally appeared in the New York Times on February 21, 2005.