Reason Magazine - Contributors

The Incredible Shrinking State

info@reason.com (William D. Eggers) — Thu, 01 May 1997 00:00:00 EDT

Life used to be pretty simple for Jim. A middle-aged career bureaucrat in New Zealand's Supply and Information Department, Jim had a job for life if he wanted it. The work wasn't too stressful: Some days Jim spent much of his morning reading the newspaper. But those days are gone. A few years back, SID was transformed into a "state-owned enterprise": It was required to pay taxes and dividends, raise capital, and operate according to commercial principles. They even brought in a brash young business whiz to run the agency. Employees were required to account for what they did all day, and for the first time, Jim and his colleagues were forced to compete for the business of other government agencies.

Jim has been a loyal-if not too industrious-state servant all his adult life, and now he's angry and bewildered at the changes that have occurred in New Zealand since the mid- 1980s. "In the old days, the PSA [the public sector employees' union] would never have let them get away with it," says Jim sadly.

SID was recently privatized-sold to a Japanese company, making Jim a private sector employee for the first time in his life. "Public service is supposed to be for life," he says. "That was the deal when I got in; now they're going back on it." Indeed, Jim and many of his co-workers would soon become "redundant," polite New Zealandese for being laid off.

Sound like fiction? It is. The story of Jim and SID's transformation is a synopsis of Market Forces, one of New Zealand's hottest plays. The changes transforming New Zealand government, however, are quite real. You know a country has gotten really serious about downsizing the state when one of its most popular plays is about privatization.

Since launching its reform program in 1984, New Zealand, a nation of only 3.5 million people, has outdistanced every other country in reducing government's size and streamlining its operations. In that time, two successive New Zealand governments-the first led by the formerly socialist Labour Party and the second by the nominally conservative National Party-carried out a massive program of deregulation, downsizing, and privatization that makes Thatchernomics seem plodding.

Markets for a variety of goods and services that were once highly controlled-financial, housing, energy, airlines, trucking-were opened to competition. All farm and business subsidies were eliminated. Import quotas were removed. Tariffs were dramatically reduced. Immigration was liberalized. All controls on prices, wages, dividends, and foreign exchange were lifted, and the labor market was deregulated to an extent not seen anywhere else in the Western industrialized world. The sale of more than two dozen state enterprises brought in NZ$14 billion (about US$9.7 billion) in revenue-about 19 percent of New Zealand's GDP. An equivalent asset sale program in the United States would realize over $1 trillion in revenue.

By the time the downsizers were finished, the island nation's tax and spending levels had fallen from 41 percent to 35 percent of the economy. New Zealand has gone from being one of the most protected and socialized industrialized economies outside the Soviet bloc to the third highest ranking in The Fraser Institute's Index of Economic Freedom survey (one place ahead of the United States). In the wake of disappointments-and some serious strategic errors-following America's 1994 Republican "revolution," the New Zealand experience offers powerful lessons in cutting back the state.

Expert Opinion?

If you had asked experts in the early 1980s whether a reform program like New Zealand's would be politically possible in a Western, multiparty democracy, the answer from most of them would have been a resounding no. A rich and distinguished body of political science literature-much of it written by academic critics of big government-insists that such a program is all but impossible.

Economist Mancur Olson's classic text, The Rise and Decline of Nations, advances the theory that as societies mature, ever more-and more powerful-interest groups emerge. Their main trade: lobbying the state for greater collective action on their behalf. Once these groups develop, they rarely disappear.

Jonathan Rauch has labeled this phenomenon "demosclerosis." Writing in REASON, Rauch argued that one consequence of demosclerosis is that it is all but impossible to downsize-or even reform-government. "Between comprehensive disaffection with government and comprehensive reform of government lies a vast chasm and no bridge," he writes. "The public despises government and it desires reform...yet there appears, at least at present, to be no path from here to there." (See "Eternal Life," August/September 1996.) Rauch's conclusion: The federal behemoth is here to stay-permanently.

Furthermore, Nobel laureate James Buchanan, the father of the public choice school of economics, contends that all human behavior-that of politicians and bureaucrats included-is dominated by self-interest. The result: Those in government will pursue their own self-interest at the expense of taxpayers, and bureaucrats will try to maximize their budgets by "capturing" the policy making process. Both usually succeed; government grows bigger, and bureaucracy becomes more entrenched.

But even if government cannot be made substantially smaller, can't business management practices be introduced? Yes, answers James Q. Wilson, the UCLA political scientist, but to minimal lasting effect. In his book Bureaucracy, Wilson argues that while it may be possible to introduce business ideas into government, sustaining them over time is all but futile. Politics always creeps back in. Writes Wilson, "Public management is not an arena in which to find Big Answers; it is a world of settled institutions designed to allow imperfect people to use flawed procedures to cope with insoluble problems."

Though history has generally borne out the observations of these thinkers, every now and then an opportunity comes along to reverse dramatically the growth of the state and to make radical changes in the machinery of government. In 1984, New Zealand's band of reformers seized their opportunity and eventually overcame the traditional barriers to cutting back the state. The question is, How did the Kiwis do it?

A Harmonic Convergence

First, New Zealand's revolutionaries were able to take advantage of their political system: a unicameral legislature, a professionalized and nonpartisan civil service, and no written constitution. This structure allowed the party in power to do pretty much whatever it wanted.

Second, there is nothing like a good crisis to force change, and the Labour government in 1984 confronted a dire crisis from the day it took office. The currency was devalued, the budget was bleeding red ink, inflation was out of control, and interest rates were at 20 percent. The business community had lost faith in the government, and the public was ready for strong medicine.

But New Zealand's transformation cannot be properly understood without understanding the people who made it happen. Perhaps no two people were more instrumental than Roger Douglas, the Labour government's finance minister (from whom "Rogernomics" was to take its name), and Ruth Richardson, the finance minister when the National Party took back power in 1991. Their vision, persistence, stubbornness, and drive were indispensable in bringing about reform.

In the late 1970s and early '80s, while most of New Zealand's Labour Party was preoccupied with left-wing social and cultural issues (remember their anti-nuke policy?), Douglas, a businessman from a political family, was left alone to fashion much of Labour's economic policies. When Labour took office in 1984, he had brought a number of key party leaders around to his market-oriented views.

At the time, New Zealand looked remarkably similar to the interest-group-dominated state described by Mancur Olson. "New Zealand had been the acme of a lobbying, rent-seeking society," remembers Roger Kerr, the director of the New Zealand Business Roundtable. "If you look in Olson's book, you see two or three pages on New Zealand. The country conformed precisely with his hypothesis."

While recognizing the power of interest groups to block reform, Douglas didn't believe their existence necessitated compromise or retreat. Instead he designed strategies to buy out or overwhelm interest group opposition. One tactic was to apply the reforms on a broad front in order to spread the burden and enhance the legitimacy of the program.

Soon after taking office, for example, Labour eliminated farming subsidies and reduced agricultural tariffs-an extremely controversial policy considering that 44 percent of the average sheep farmer's income came from government subsidies. When Kiwi farmers staged huge demonstrations-including killing sheep in the streets-Douglas didn't waver. Instead he used their anger as ammunition to push reforms further.

Farmers started agitating for the removal of privileges and subsidies for other favored groups. They also backed reduced public sector spending (to reduce pressure on real interest rates), and privatization of the horribly inefficient state-run railways and ports (to allow the farmers to lower their input costs and better compete in the marketplace). "We had a very deliberate strategy of directing interest group fire away from us toward other interest groups," recalls one of Douglas's cabinet colleagues. "When interest groups would complain to us that 'those fellows down the road ought to have their privileges removed also,' we encouraged them to go public."

Responding to pressure from the farmers, the ports and railways were privatized. The result: Freight costs plunged 50 percent and shipping freight rates fell 25 percent. Due in part to these lower input costs-and to increased international competition-New Zealand's farmers are now among the most competitive in the world.

Business took a big hit along with other interest groups (in marked contrast to the last GOP budget). Subsidies and export incentives were eliminated, import protections were removed, and protected markets were opened up. While many firms were wiped out in the process, it was a question of fairness, says Douglas: "You need to do it across the board to demonstrate that everyone is being treated equally."

Douglas had the perfect salesman to sell the sometimes painful reforms: Prime Minister David Lange. An immensely popular, charming, and humorous politician, Lange put a soothing, smiling face on the reform program (something the GOP Congress has also sorely lacked). Trusted by the public, Lange's solid social democratic credentials made it difficult for opponents to condemn the reforms as heartless and right-wing.

Douglas was eventually forced out of office in 1988 when he began agitating for more radical reforms than the Labour Party-which by then was having major problems with its left wing-could stomach. It would be several years before another individual would come along with the will and the clout to continue the New Zealand transformation.

Lady Rottweiler

From the moment you encounter her firm handshake and throaty "how do you do," it is clear that Ruth Richardson is determined. Barely over five feet tall, Richardson seems an unlikely revolutionary. When she became the shadow finance minister of the National Party, party strategists called in make-over consultants to try to tone her down-both her looks (by her own admission she was prone to wearing "fruit salad" dresses and hadn't quite discovered make-up) and her take-no-prisoners rhetoric. Considering her too hard- line and dogmatic, critics likened her to a Rottweiler.

Richardson is a true believer-"I'm moved by conviction, the supremacy of the individual, more than anything else," she says-unwavering in her advocacy of free market policies. She practices the Margaret Thatcher brand of politics: You are either with her or against her. There is no middle ground.

So that opponents would have no time to mobilize, the National Party-which Richardson had to bring kicking and screaming around to her free market policies-quickly pushed through an ambitious and controversial agenda upon taking back power in December 1990. Within months, the new government had cut social welfare spending deeply (though the country still has a fairly generous social welfare apparatus), reduced expenditures across government, and pushed through the Employment Contracts Act, its radical plan to deregulate the labor market.

Taking Labour's cue, many of the measures were bundled together, under the reasoning that a coherent package helps people understand the links between the different policy changes. "Bundling" was also considered good politics. "If you are bound to raise a storm anyway, you might as well put as many controversial measures together as possible," explains Richardson in her book Making a Difference. "The most controversial tend to drown out the less controversial."

While Douglas and Richardson are very different in temperament and style, they shared one important characteristic: an absolute conviction that what they were doing was necessary and morally right. "A key ingredient to what happened here is you had key people who weren't all that interested in being returned to public office," explains Jonathon Boston, a senior lecturer at Victoria University in Wellington. "I don't think Roger Douglas was concerned whether or not he lost his seat. He saw it as his responsibility to do what was right for the country irrespective of being returned to office, and if necessary to take his party down with him. Ruth Richardson was from exactly the same tradition."

Ultimately both Douglas and Richardson paid a personal price for their courage: They were both asked to relinquish their positions when their respective governments' popularity declined. But there are no regrets. When asked what she would have done differently, Richardson answers defiantly, "I would have moved further and faster."

Banking on Treasury

Douglas and Richardson needed considerable help in drafting their programs, getting them through the cabinet-where most of their colleagues cared very deeply about being re- elected-and driving the reforms down through the bureaucracy. What is startling is where that help came from.

It came in the shape of the Treasury, New Zealand's most elite and powerful department. Treasury provided not only the intellectual foundation for many of the reforms but also the technical expertise needed to translate theory into reality. "The Treasury became the life- support system for Douglas, Richardson, and other politicians trying to reform the system," says one longtime government watcher.

Treasury also brought an intellectually rigorous approach to New Zealand's reforms that had no parallel in either the Reagan or Thatcher administrations. "It became a 'think tank' for the neo-liberal [in the classical sense of the word] movement," writes political scientist Enid Wistrich, "using its authority as the top government department to influence the political leaders and secure the implementation of its blueprint." It was as if the Office of Management and Budget were run by University of Chicago economists.

New Zealand's Treasury had not always been a hotbed of free market thought. In fact, until the mid-to-late 1970s, Keynesianism was its economic orthodoxy. It was about this time that Roger Kerr (now director of the New Zealand Business Roundtable) landed at Treasury after 10 years in the Foreign Affairs Ministry. "It dawned on me after a year or two that Treasury's lofty reputation was unfounded," says Kerr. "There was lots of dopey thinking and not a high level of intellectualism in economics."

Appointed the second director of Treasury's Economics II division, which was charged with long-term economic thinking, Kerr quietly set about changing the institution. Speakers gave seminars on the latest economic thinking, exposing the Treasury staff to new monetary thinking, organization economics, supply-side economics, and public choice theory. "We got into the game of tapping into the really good brains from around the world," remembers Kerr.

Kerr also began aggressively recruiting the country's best young minds from the universities. Kerr "was an intelligent coach," recalls Rob Laking, a Treasury colleague. "He had a tremendous ability to pick out, recruit, and cultivate talent."

There was soon a growing cadre of free market intellectuals inside Treasury. While then- Prime Minister Roger Muldoon was experimenting with industrial policy and instituting wage and price controls, Kerr and his colleagues were busy writing alternative policy. "It was a remarkable feat of institution building," says a leading political commentator. "They got the department into an excellent state when Muldoon was making little use of them."

Though many of the policies advanced at Treasury were based on an appreciation of free markets, they were grounded in what was becoming mainstream academic economics, rather than the writings of prominent classical liberals. "At the time, most of us hadn't even read people like Hayek," explains Kerr. "[Milton] Friedman and others were not our touchstones at all." Partly because of this, the policies didn't carry the ideological and party baggage of the Reagan and Thatcher reforms.

This proved helpful politically when Labour was looking for a detailed economic plan. Treasury presented a 325-page report to the incoming government proposing a far-reaching liberalization program. Titled Economic Management, the report is almost universally considered the bible of the reform program.

Capturing the Bureaucracy

One of the most interesting features of New Zealand's reforms was the extent to which they were shaped by cutting-edge economic and political theory: public choice, agency theory, transaction-cost economics, and the latest in business management practices. Again, it was the Treasury-some of whose senior managers learned these disciplines in U.S. graduate schools-that was largely responsible for furnishing the reforms with their intellectual underpinnings.

After Labour's re-election in 1988, Treasury submitted another book-length report to the government. Turning its attention to the bloated public sector, the brief struck a distinctly public-choice note: "The state is not an omniscient and omnicompetent solver of social problems, but rather is subject to the same pitfalls that face private solutions to social problems plus other ones."

But instead of simply using public choice to explain why government doesn't work-about all that public choice has really been used for in America-Treasury went a step further. It used the theory's insights to devise a series of institutional countermeasures to minimize or offset the self-aggrandizing activities of public employees and interest groups.

For example, a central problem identified by public-choice theorists is "agency capture." This refers to the tendency of service departments to capture the policy-advice process, using this power to recommend themselves as service providers and to bias policy advice toward increasing the size of their budgets. To cite one instance, the U.S. Air Force once contracted with the RAND Corporation to do a study demonstrating the need for strategic bombers.

To counteract such agency capture, policy advice was separated from service delivery, which in turn was separated from regulatory functions. Dubbed the "purchaser/provider split," the goal was to free policy advisers to advance options that are in the public's best interest but may be contrary to the self-interests of the department. From prison services to road design, policy units now "purchase" services (called outputs) from their choice of public and private service providers. The new incentives this creates have turned the policy units into more discriminating consumers.

The Treasury also tried to figure out how to get public managers to achieve the results desired by the party in power. (It's not easy; one minister likened it to "pulling on a lever not attached to anything.") What they came up with was a series of accountability mechanisms-performance contracts, purchase agreements, accrual accounting, output- based budgeting-designed to help achieve some degree of political control over the bureaucracy. "The combination [of the mechanisms] really holds our feet to the fire," says a senior public manager.

Street Fighting Man

To get a better idea of just how far New Zealand's reforms have gone, consider just one department, the Ministry of Transport. Prior to the reforms, Transport owned and operated the ports, a national airline, the railroads, the air traffic control system, the airports, the ships, and so on. In its regulatory role, the ministry protected the same industries-and others-from competition.

Today, the Ministry of Transport doesn't run any transportation industries-they have all been privatized or corporatized. And from trucking to taxicabs, transportation markets have all been deregulated. Ministry employees, once numbering 4,500, can now all fit into two floors of a downtown office building. The results? Road freight rates are down by one- quarter. Domestic air fares have fallen in real terms at the same time air service has improved (Air New Zealand is now considered one of the best airlines in the world). As for taxi service, I never waited more than five minutes for a cab in three weeks in the country-and the fares were reasonable.

A leading actor behind the story of the Incredible Shrinking Ministry is Richard Prebble, Douglas's closest cabinet ally. Prebble held numerous cabinet posts in the Labour government, including minister of railways, minister of transport, and minister of state- owned enterprises (where all state trading activities, once constituting over 20 percent of the country's total investment, were placed under his supervision).

In one post after another, Prebble observed that state enterprises were not exactly paragons of efficiency. At the end of a rail line that had been abandoned for 20 years, he found a warehouse still in operation. A storeman was working in the warehouse, keeping a full inventory of supplies for the line. No one had ordered a supply from the warehouse for 20 years. It is no wonder Railways, the government railroad, was losing NZ$1 million a day. Other enterprises were little better. Australia's least efficient port was more efficient than New Zealand's most efficient port, boosting transport costs for businesses and farmers. Strong action was needed, and Richard Prebble was the ideal man to take it.

While not a big man, he has the swagger of a street fighter -and you can be sure he'd throw the first punch. "Preb appeals to people who have a taste for blood in politics," says Member of Parliament Rodney Hide, a longtime acquaintance. "He doesn't mind at all if people hate him; in fact I think he relishes the attention." A "political Rambo," says one detractor. "He doesn't fight clean," says a friend.

Such qualities made Prebble valuable to a government trying to downsize. Whenever someone had to break some unpleasant news to certain groups, Prebble was sent in. Former colleagues were amazed at how much heat he could take. "Every other politician I've ever known will at some point have that look of fear in their eye when opposition becomes too intense," says Rob Laking, who worked with Prebble on numerous privatizations. "But not Prebble. He's fearless-he never loses his bottle."

Soon after Labour took office, Transport Ministry officials went to Prebble and told him the air traffic control equipment was antiquated, asking for an additional NZ$150 million to upgrade it. "Prebble said, 'Get lost. There's no bloody way this government can afford it,'" recalls a Transport official who was there. "'Corporatize it,' he said. 'Let it raise its own money on the open market.' When we expressed some apprehension, Prebble got very red. He glared at us and barked, 'Get it done. I want a bill in the house by the end of the week.'"

Soon Prebble and the Labour government had corporatized all commercial trading activities owned by the government (including state-owned commercial forests which were ingeniously renamed "wood plantations"). The unions went along reluctantly when the government assured them they had no intention of privatizing the enterprises. "When we started out, we believed there weren't any inherent reasons why the state couldn't manage enterprises as well as the private sector," explains former Deputy Finance Minister David Caygill.

Corporatization led to sharp staff reductions and significant productivity gains in most enterprises. At the government-run mail service, New Zealand Post, for example, average productivity doubled, costs fell by one-third, and the percentage of next-day delivery rose by 20 percent. Stamp prices were actually cut by five cents.

Nonetheless, people still tended to treat the state-owned enterprises differently from private companies. When the chairman of a major SOE came to him with certain investment recommendations, Prebble was skeptical. "I said to him, 'If this was your own company, would you do this?'" remembers Prebble. "He gave me a straight-faced answer: 'No.'"

For these reasons-and because the government needed the cash to pay down huge debt burdens-the government shifted course and began aggressively privatizing the SOEs, a program that National continued. The results have been dramatic. One example: Railways reduced the number of employees from 22,000 to 4,000 (part of this reduction occurred under corporatization) and cut freight charges in half. The privatized railways are now one of the world's best, according to the World Bank.

Phone service is also much better. It used to take six weeks to install a phone in New Zealand. Now, the privatized New Zealand Telecom guarantees hookup within 24 hours, or the customer gets NZ$50 in long-distance calls free. At the same time, the work force at Telecom has dropped from 27,000 to 8,500. But the presence of hundreds of new companies in the country's telecommunications market means that more people are employed in the communications sector than ever before.

Privatization dramatically altered the New Zealand public landscape. "Of all the changes wrought by the Labour Government...privatization may well have the greatest long-term impact on the society and politics of New Zealand," writes Colin James, New Zealand's leading political commentator, in his book New Territory. But while all this was happening, where were New Zealand's once-feared labor unions?

The Unions Strike Out

Conventional political wisdom says you need to achieve consensus support before embarking on reform; otherwise the reforms will prove unsustainable. Roger Douglas doesn't buy this argument. "Consensus among interest groups almost never arises before decisions are made," he says. "It comes after they are taken, as the public sees satisfactory results." If you wait for consensus, he says, all you do is give interest groups time to organize. A better strategy: Make your next move while opponents are still trying to mobilize against the last one; this way you force them to fight uphill. That was the strategy followed when it came to reforms affecting labor unions.

First, the Labour government dealt several critical blows to public unions. Privatization and corporatization removed 22,000 state employees from the core public service; many employees left the union in the process. Within months after his ministry was turned into an SOE, the new chairman of the Forestry Corporation had nearly 90 percent of the employees (all of whom had to reapply for their jobs) signed up on individual contracts. Before the unions had recovered from corporatization, the government was already talking about privatization. "Things were moving so fast that I don't think the unions realized what was going on," says one observer. "By the time it became apparent that privatization was on the table, it was too late to stop the momentum."

With public unions preoccupied battling privatization, the government rammed through Parliament the State Sector Act, which effectively broke up the unified public service. It gave department heads, called chief executives, total control over hiring, firing, pay, promotion, and industrial relations; abolished statutory criteria governing collective bargaining and compulsory arbitration; and allowed all state employees to opt out of collective bargaining contracts and be put on individual employment contracts.

"The public unions were broken by the State Sector Act," says one high-ranking New Zealand official. "The stranglehold of their combined grouping was snapped."

Ironically, Labour's lead M.P. for the State Sector Act was Don Rodger, the former head of the public employees union. Nevertheless, Labour didn't even consult with the unions about the legislation. "The Labour government had no great love affair with the public unions," says Roger Kerr. "It was almost that because they couldn't make the grade on labor reform in the private sector that they were willing to go so far in the public sector."

If the Labour Party was unwilling to deregulate the private labor markets (Douglas was willing, but politically unable), National was more than happy to finish the job. Soon after taking power, National passed the Employment Contracts Act in May 1991. Considered the most aggressive and far-reaching labor market deregulation in the world, the ECA established freedom of association for individuals, abolishing compulsory union membership and union monopoly powers. The unions' legal status is now no different from that of any other private association. In the five years since the ECA was introduced, private union membership has plummeted by one-third.

Ken Douglas, the president of New Zealand's Council of Trade Unions (the equivalent of our AFL-CIO), explains how the unions let this happen (and in the process became the laughingstock of the international labor movement). A large man of Irish descent in his 60s, with white hair and a bulbous red nose, he is the spitting image of Tip O'Neill.

When National first unveiled the details of the ECA, the unions profoundly underestimated the government's resolve. "I told the unions, 'They've got this bill, it's well prepared and its going to pass,'" recalls Ken Douglas. "But we had union leaders saying, 'No, they won't do it. The employers will want order.' They were naive. National had seen how Labour thoroughly ignored the unions and got away with it, so they did the same thing."

Though the disagreements within the union movement delayed a strong response, eventually the unions would mount the highest level of industrial protest the country had ever seen. But unlike in France, where two years ago the unions were able to defeat a government austerity package by shutting down the country for three weeks, there was no general strike. The individual unions wouldn't support a general strike," says Douglas bitterly. "Our union movement was strong on rhetoric and short on delivery."

Despite his denunciations of the ECA, Douglas wouldn't go back to the pre-ECA days. "Compulsory unionism is why the union movement was so weak here," says Douglas. "I'm in favor of voluntary unionism." It turns out that a lot of workers are much better off under the ECA. Unemployment has fallen from around 10 percent to 5.5 percent, and real wages have grown briskly for skilled workers.

Replicating New Zealand

New Zealand's reforms have attracted considerable international attention-it is said that government reform is the country's best tourism draw. The hundreds of government delegations, academics, and policy wonks who converge on New Zealand each year all have the same question: Can the New Zealand model be replicated in my country? That depends.

Already, at least one government-the state government of Victoria in Australia-is aggressively following the New Zealand model, and Great Britain has instituted many of the same reforms. There is considerable interest in New Zealand's state sector reforms from both Rep. Scott Klug of Wisconsin, the GOP's point man on federal privatization, and from the folks at Al Gore's National Performance Review. Some of New Zealand's public sector reforms will almost surely find their way into the federal government and to some states.

But can the New Zealand model be duplicated holistically in the United States? Fat chance, say the experts. "I think it would be impossible to have such a sweeping overhaul in the United States," says UCLA political scientist Susan Lohmann. "There are too many veto players." Not only that, but transforming a country of 3.5 million people is a lot easier than one of 270 million.

"When talking about the changes in New Zealand, we're talking about an enormous range of changes-macroeconomic, labor markets, health, housing, education, social welfare, privatization, public sector reforms-you name it, we probably changed it," says Victoria University professor Jonathon Boston. "I can't imagine that any other society, in the absence of war or pestilence, will seek to re-engineer virtually every significant public institution simultaneously like we did."

At the national level, Lohmann and Boston are probably right. But a smaller government- a state, city, or county-where the executive and legislative branches are controlled by the same party would have at least a fighting chance. And at least one individual believes the New Zealand model can be duplicated.

"Sure, it's doubtful that you could sell a program like New Zealand's to the public in advance," says Roger Douglas. "But it can be done if you're willing to do it and then take the public with you. But in order to win, you have to be willing to lose."

AFTER THE REVOLUTION

On October 12, New Zealand held a general election, the first under a proportional representation system approved by voters in 1993. The new electoral system was endorsed by voters who clearly wanted to reduce the ability of the party in power to make sweeping changes.

National, the incumbent party, received the largest percentage of the vote of any single party. After six weeks of negotiation, National formed a coalition government with New Zealand First, a populist party led by Winston Peters, a former National M.P. Peters is anti-immigrant, anti-free trade, and anti-big business-kind of a cross between Pat Buchanan and Ross Perot-but you can't take his positions too seriously, because they change so often.

Roger Douglas, Richard Prebble, and a few other disenchanted Labour and National party radicals formed their own party, ACT. Quasi-libertarian, its platform calls for educational vouchers, a flat tax, and privatizing social security. ACT squeaked by the 5 percent threshold needed to garner parliamentary representation. Though hardly an impressive showing, it is not terrible for a new party advocating radical reform in a country that has just been through a decade of change. Led by the irrepressible Prebble, ACT's eight parliamentarians will be vocal, though their small numbers mean it will be an uphill battle to have a major influence on government policy.

Thus, a dozen years after New Zealand embarked on the most radical and comprehensive set of government reforms seen in the industrialized world, further market-based reforms are likely to be on hold. What happened?

The probable answer is the simple one: A majority of New Zealanders want a breather from the relentless pace of change. But free market advocates shouldn't be dismayed. While not a resounding vote of confidence, the people clearly did not vote to reverse the reforms. (Alliance, the major party of the left, saw its share of the votes drop from 18 percent to 10 percent.) The New Zealand experience shows above all else just how much can be accomplished in that limited time by determined reformers with vision.

The Doctor Is In

info@reason.com (William D. Eggers) — Thu, 01 Aug 1996 00:00:00 EDT

In 1995, Los Angeles County faced one of the most serious fiscal crises of any county in the United States. The culprit: ballooning costs from a government-run health care apparatus that included six hospitals and 39 health centers and clinics. New York City- -which owns a dozen hospitals and employs more health care workers than the total number of city employees in Boston, Cleveland, San Diego, and Seattle combined--is also experiencing major problems with its health care system.

Maricopa County, Arizona, supervisors think they have a cure: getting county government out of the health care delivery business. In what could become a model for other troubled city and county health care systems, Maricopa County--which includes Phoenix--privatized its entire $620 million-a-year health care system in late March. The county hospital and a dozen clinics were turned over to S.K. Ching and Associates, a private firm based in Los Angeles.

Maricopa County had spent about $46 million a year on direct health care costs and millions more on indirect costs, but generated only $26 million in revenue. Under the terms of the contract, Ching will pay $12.5 million a year in rent for the Maricopa Hospital and the clinics and will receive a fee of $33 million a year to provide care for the uninsured poor. The contract also allows the county to share in any year-end profits. Tom Rawles, the county supervisor who spearheaded the privatization efforts, estimates the county could save between $80 million and $100 million over the life of the lease without lowering service quality. The savings would come from reducing the county's indirect costs and from the profit-sharing arrangement. "The same people will go to the same facilities and will be treated by the same doctors," says Rawles. "The only thing different is that we have found a new, a better, more efficient way to deliver services."

The county also expects the contract to lead to substantial physical improvements to the health care facilities. Ching has to make $25 million in capital improvements over a five-year period. The firm will have total control over the county's health operations, enabling the company to set fees, close programs, and negotiate purchases free from a host of cumbersome public-sector bureaucratic and legal restrictions. "It took us six weeks and six signatures just to hire a nurse," says Rawles. "Government can't move fast enough to be in the health care business."

No Easy Answers

info@reason.com (William D. Eggers) info@reason.com (John O'Leary) — Wed, 01 Feb 1995 00:00:00 EST

James Q. Wilson is one of the foremost authorities on crime and bureaucracy--two seemingly disparate topics that most Reason readers will recognize as intimately connected. As the author or editor of books such as The Moral Sense and The Politics of Regulation, Wilson has added immensely to our understanding of complex social structures and individual behavior. He has also shaped public policy by serving on a number of national commissions, such as the White House Task Force on Crime (1966) and the President's Foreign Intelligence Advisory Board (1985-1991).

Although Wilson, the James Collins Professor of Management at UCLA, is no libertarian--resolutely against drug legalization, he informed our interviewers that he has "a mutual non-aggression pact" with Reason on the topic--his work is characterized by an emphasis on issues such as the appropriate scope of government, the baleful effects of centralized social engineering, and the primacy of individual responsibility and autonomy.

Perhaps the single most remarkable attribute of Wilson's work is its sense of engagement with an intensely real world populated by living, breathing individuals. Even though he is an "expert" on human behavior and social organization, he admits to no glib answers or sweeping theories. As he writes in Crime, the new essay collection he edited with Joan Petersilia, "We offer no magic bullet that will produce safe streets or decent people. What needs to be done is difficult, complex, and costly, and the gains will be deferred and moderate. But they may be all the more lasting because they have been achieved by linking scientific knowledge and practical wisdom to the interests of both citizens and public officials."

Reason Foundation Privatization Center Director William D. Eggers and Policy Analyst John O'Leary interviewed Wilson at his UCLA office.

Reason: For the first time since the Eisenhower administration, Republicans control both houses of Congress. House Speaker-in-waiting Newt Gingrich has called the mid-term elections a victory over "bigger government, redistributionist economics, and bureaucracies deciding how you should spend your money." Can the GOP really reduce the scope of federal government?

Wilson: That is clearly their sincere intention, especially with respect to the House leadership. But I don't think they can diminish the scope of the federal government in a significant way unless they first confront the collective choice problem. And that consists of the following: Individual voters want lower taxes, no deficit, and high levels of spending on a variety of entitlement and other programs.

The voters have not had to confront the inconsistency of those preferences. When that inconsistency was pointed out to voters during the Reagan administration, they were assured that the elimination of waste, fraud, and abuse would solve that problem. It will not.

In the long run, however, if the Republican leadership succeeds in passing a constitutional amendment requiring a balanced budget and permitting a line-item veto, they will set in motion events that may force those hard choices. It's possible they will succeed in attaining some reduction. But no one has yet succeeded in reducing the size or scope of the federal government. Even the Reagan-era cuts turned out, in retrospect, to be quite modest and generally short-lived.

Reason: Last year, Al Gore's National Performance Review was touted as "revolutionary" by the White House. You yourself have called it, "the best White House statement I have ever read about what citizens really want from government and how, in theory, it can be delivered." What's the catch?

Wilson: The catch is we don't know how to convert theory into practice. If we want to answer that question seriously, we have to--among other things--ask whether any government agency, no matter how inspired it may be, can deliver its service the way citizens want it.

The first part of my sentence that you quoted said, "This report, unlike all the others I've read, asks itself: How can I be of better service to people who want things from government or who are being regulated by government?" All previous efforts talked about inefficiency or increasing presidential power. The Gore report does offer some ideas drawn from business literature about how in theory you do this. In theory, you could give lower-ranking authorities the power to make more discretionary decisions. An example: If you know it's within the law and you're sure it's the honest thing to do, then just do it. In theory, that's a wonderful idea. Who could object to that? It's like saying, in theory, we know how to design good families--caring and enforcing rules that take the best interest of the child into account. The question is, How do you go from theory to practice? I'm skeptical of the overall theory about institutionalizing the spirit of customer service that exists in the private sector because government represents a sovereign power, not a competing provider.

In our system of government, there have hardly been any cases where somebody wins the struggle for power. Rather, like a peace treaty, the legislation, the court rulings, and administrative procedures are negotiated among the combatants in a way that everybody is given a piece of the action.

Some people suggest that the problem is the separation of powers. If you had a parliamentary system, the struggle for power would not result in such complex peace treaties that empower so many different people to pursue so many contradictory aims.

This is true, up to a point. The question is, Do you want a system of government that has the power to do this? When you give this power to government, government expands much faster. But, on the other hand, it probably regulates with a lighter hand. Our system of government has made the rate of government growth slower than parliamentary systems. The tax level is lower than in most other nations, but we do regulate with a heavier hand. Other tradeoffs also exist, such as: To what extent do you want the government to be open to external investigation, to have a Whitewater or Watergate?

I confess that I prefer the American version of that tradeoff. I would rather have a slower rate of government growth even though I know by so doing I will pay a high price in a few ways. I will have an administrative system where there is no way to extricate red tape. I know that once the government ever manages to start doing something, it will be at least as hard to change that here as it is abroad.

I'm not sure how important this last point is because, if you ask which government in the world has been the boldest in the last 15 years in reconsidering the past courses of action, the United States has to be at the top of the list. We started the move toward cutting taxes and we started the effort to begin deregulation. Then again, you can say other countries have provided, for example, more parental choice in schooling.

Reason: You have criticized the Gore report for only recommending the elimination of a few programs. What things does government do now that it shouldn't be doing at all? Is the failure to ask this question--what should government do?--the main weakness of reinventing government?

Wilson: Yes, that is the biggest weakness of the reinventing government movement and of virtually every other effort to think about the problems of government. I don't want to say that Mr. Gore has failed more conspicuously than other people, but he fails in precisely the same way.

Where should we look for things that government ought not to be doing? At the national level, I would begin with Social Security. We can no longer tolerate a governmental system which guarantees that people of relatively young age will be impoverished in order to support people of relatively old age, a system where you have almost no chance of earning a positive rate of return on your Social Security payments. We know that there are systems--not only in the private sector in this country but also in nationally privatized systems in places such as Chile and Singapore--where you can have better retirement benefits without taxing the young to pay for the old.

Medicare and Medicaid are close seconds in answer to your question. I believe we ought to subsidize some health care for the poor, but Medicare subsidizes everyone's health care. In terms of other functions, we are making a mistake about insisting on a public school monopoly.

Reason: Is the answer to devolve federal government activity to the state and local levels?

Wilson: I can give a theoretical answer to that question, but the theory has nothing to do with how those decisions get made. On economic grounds, you can say that the federal government has a responsibility for only those problems that cannot be handled at the state and local level, such as issues dealt with by the State Department. You have to have certain environmental questions dealt with at the federal level and also income redistribution, if that is something you favor.

But I don't think there is much hope for the idea of devolving authority. Once we have sold the idea (which we didn't succeed in selling until 1965) that the federal government is responsible for everything, the idea of state and local control doesn't make political sense. I'm not very optimistic about devolving control. It is just too easy for Congress to pass a law that imposes costs on others--unfunded mandates, etc. It is even difficult to define what an unfunded mandate is. If a radical devolution of powers was possible, it would have been done before. The assumption of states' rights is gone. There's no support for it in the Supreme Court and there's no support for it in public opinion.

Reason: Are you concerned that the crime bill federalizes law enforcement?

Wilson: I am indeed. I have a lot of trouble with the federal government asserting that it now has authority over enforcement of criminal issues. That's a big mistake.

I like building more prisons. I like the drug courts. I think the most interesting aspect of the bill is one that hasn't been talked about, and that's the ban on semi-automatic pistols whose magazines have more than 10 rounds. That would, in effect, make it illegal for Americans to buy virtually any semi-automatic pistol on the market.

This includes Barettas, Glocks, Colts, and Brownings, all of which have magazines ranging from 12 to 16 rounds. Those guns will all become illegal to manufacture. Nobody has even mentioned that. They talk as though the debate is on assault weapons. I don't care if they ban AR-15s and AK-47s because I'm absolutely confident that there's no way Congress will move much beyond that. I don't buy the National Rifle Association's argument that this puts the camel's nose under the tent. There is no way the American public will sit still for the banning of or putting any significant restrictions on the kinds of guns they want. The ban is mostly symbolic arm waving, apart from the magazine issue, which is why I am amazed that no one has ever talked about it. This is as close to a ban on a certain kind of handgun as we've even considered. Doubtless, manufacturers can alter their models so that they hold no more than 10 rounds, but that's rather silly.

Reason: What about the funds for more police?

Wilson: Well, first of all, the much-discussed 100,000 cops are nowhere mentioned in the bill. The bill calls for a series of appropriations scaled over a certain period. That money would permit you, making certain assumptions, perhaps to get up to 100,000 five or six years from now. Possibly. It depends on how much you think it costs to put a cop on the street, and I think it costs a lot more than they think. They are considering only salary, when in fact you have training, cars, equipment, and administrative support. Moreover, the cities have to pay part of the price tag, and some cities are not going to do it.

Then half [of the cops] are reserved for cities under 150,000. What that means is that we'll have federally funded cops in places like Bangor, Maine, and Walnut Grove, California. So now we're down to 50,000 cops--again, possibly--to spread around to cities with over 150,000. Well, every state and every congressional district has to get some. There will be some margin to reward those states, such as California, that Mr. Clinton needs to get reelected.

In the end, do you know how many cops Los Angeles might get, if all the assumptions break favorably? Maybe 500? Now, Los Angeles could certainly use 500 more police officers. But this is a clumsy and misleading way to get them, because in five years their pay has to come out of the local taxpayers. Either that, or the federal government is going to say, "Well, we will continue the funding but only on condition that you follow these 97 federal guidelines," which I think is absolute mischief. I remember during debates for the federal aid to education act, supporters said federal money wouldn't lead to federal control of schools. Of course it did. It brought a boat load of paperwork, and this will too.

Reason: It must strike you as ironic that even as the crime bill gives the federal government more control over local police, the bill itself pays lip service to your notion of "community-based policing."

Wilson: Community-based policing has now come to mean everything. It's a slogan. It has come to mean so many different things that people who endorse it, such as the Congress of the United States, do not know what they are talking about. In the crime bill, Congress has said that, "Community policing works." I'm an advocate of it and I don't know whether it works. We have no carefully evaluated, long-term experience with it yet in any big city, with the possible exception of Houston, that tells us whether community-based policing "works."

Reason: What do you mean by "community-based policing"?

Wilson: I mean that the function of the police is to solve problems that have law-enforcement consequences in a way that is based on a genuine partnership with the neighborhood in both the venting of the problem and the discussion of the solution. Say the problem is drug dealers, or teenage gangs, or graffiti. Identifying those as problems and discussing solutions for them will be a collaborative effort. The police will do this proactively and will not wait simply to respond to a 911 call.

Reason: What kinds of proactive policing are you talking about?

Wilson: All sorts of things. You can enforce truancy laws, you can enforce a whole list of things: curfew laws, revoke a landlord's building occupancy permit, etc. The technique that police use--within broad limits--is almost irrelevant to the argument. The point is that it is to be proactive, problem-oriented, and neighborhood-based.

That still leaves a lot of questions. In what kind of neighborhoods can you have this kind of partnership? We know they now exist in affluent communities where the police and neighborhoods talk all the time. But how far down in the social structure can you go and still have that kind of effective partnership that will not either be destroyed by the absence of any social structure or corrupted by ideologues in the neighborhoods who will use this as a way of gaining and keeping power?

Reason: The Republicans are talking about passing their own crime bill in early 1995. Do you think it will counterbalance the weaker aspects of the current crime bill?

Wilson: First, most of the things that are in the current crime law as enacted are meaningless unless there are appropriations to fund them. The Republicans need do nothing more than block the appropriations for undesirable or untested programs. They do not need to repeal or amend the bill.

The larger question, however, is whether there is anything that the federal government can do at all to make a significant impact on the crime problem. I'm very skeptical of that. The Republicans may pass a crime bill that would meet with general approval--that might, indeed, meet with my approval. But it would not be a crime-reduction bill. It would be a justice-enhancing bill.

By that, I mean it would be a bill that reduces the extent to which the current system perpetuates injustices by, for example, allowing convicted prisoners to make endless and costly appeals. Or by penalizing police officers who make an honest mistake in making a search or conducting an interrogation in ways that allow the guilty party to go free. There is some reason to think that Congress can correct some of those injustices.

But whatever they do will have next to no effect on the crime rate. Still, it's worth doing nonetheless, because it would make people feel that the system now strikes a more reasonable balance between the rights of the accused and the rights of society.

Reason: As a society, how do we minimize crime?

Wilson: We have two kinds of crime problems. The first crime problem is common to every industrialized nation in the world, from the United States to France, Italy, Sweden, Australia, Canada, and even Switzerland: They all have high and rising rates of property crime and some increases in the rates of violent crime. I believe that the high rates of property crime (and some of the increase in violent crime) are part of the price you pay for freedom.

Once you emancipate people from strings, once you give them freedom to prosper, you're going to empower them to do all sorts of things ranging from the spectacularly good to the heinously bad. And the ability of public figures, or families, or village life, or customs, or tradition to restrain people is going to be powerfully degraded. You cannot change that without reimposing economic controls. Our friends in China and Singapore believe that you can have economic freedom and advantages without paying the social price. I don't think they are right.

Reason: Would you favor giving up some freedom, some affluence, in exchange for lower crime rates?

Wilson: I would certainly give up some freedom in exchange for that. I certainly am willing to give the police more power to stop and question people, just as I am willing to have metal detectors at airports. I don't like it, but there's a great benefit and the inconvenience to the average person is not that great. But I don't think giving up some freedom will produce much of a gain.

Other countries experiencing higher rates of property crime than we do already give their police more power. You don't want to be arrested by the police in Stockholm or London. They are not bound by the Miranda rules.

Reason: Wouldn't increasing police power to conduct pat-down searches of individuals exacerbate antagonisms between communities and the police, especially in the lower-income and minority areas likely to be searched more frequently?

Wilson: Yes. It's a problem of reconciling an imperfect empirical generalization with standards of fair play. The imperfect empirical generalization is that young blacks--and to some extent young Latinos--commit a disproportional share of crimes, so they will get disproportionately stopped for searches. However, they may get stopped to a greater degree than they are actually over-represented in crime statistics. It's that excess that creates the antagonism.

That seems to me the best argument for community-based policing. If you get the police sufficiently close to the neighborhoods, then the neighborhoods will consult the police and tell them who the bad apples are. Blacks will still be stopped more frequently than somebody who lives in San Marino [a wealthy WASP Los Angeles suburb], but it will not be this excessive disproportion because the police will have calibrated distinctions among individuals based on local lore and local information. That's the theory. We don't know yet whether or not it will work.

Reason: While community-based policing might work--in fact, while it might already be informally at work--in affluent neighborhoods, what can be done for those areas that are almost totally overwhelmed by street crime?

Wilson: I said earlier that there are two crime problems. Now you're talking about the second. You're talking about the crime problem that grows out of the absolute destruction of communities. These are communities where people are growing up absent any social norms. Among industrialized nations, this is a distinctly American problem, although it also exists in backward nations and developing nations.

There has always been some disorganized lower class--we used to call it skid row. Now, of course, we have whole residential areas that are skid rows. There is not an inherent dynamic in human nature that makes it necessary for hundreds of thousands of people--as opposed to thousands--to live in totally disorganized communities. Nothing has changed in human nature in the past 40 years that should have produced this. What I think has happened is that a downward cycle of neighborhood decay has gotten to the point where the situation won't improve as long as people stay there. If you take people out of those neighborhoods and put them elsewhere, they might well have a chance at a decent life.

So how do you take them out? I think there are a lot of alternatives that we haven't thought of. One, of course, is the Section 8 [federal housing] voucher. Give them a voucher and let them find housing somewhere else. I think there's a lot of merit in that. I've always been in favor of rent vouchers. But it also creates a problem because if you just move them out the way they are now, no neighborhood would want to take them. Who wants a crack addict with three illegitimate kids? That's not an adequate solution. It's part of a solution.

I've been toying around with this idea in which young mothers who want welfare would be required to live in group homes. These could be located physically very near where the mother is now living. But you would still be taking them out of the neighborhood in the sense that no drugs would come in and no drugs would come out, including alcohol. And the children and the mothers would be under the supervision of responsible adults.

The problems of our urban areas are rooted in the failure of parents to raise decent children. Admittedly, it is a failure partially excused by the horrifying conditions under which these children must be raised. But these horrifying conditions themselves reflect a collapse of family structure from the prior generation.

I was recently arguing about this question with someone who claimed that society had let down these teenagers. I said, "No, society hasn't let them down. Their parents have let them down." But, she rejoined, even if the parents let them down, isn't it the case that they have to grow up in such a terrible environment that it would take a truly heroic parent to do much better?

There are two answers to that. One is that their own parents are at fault because they put themselves in the situation in which they had very little competence to raise a child. Second, it is the widespread failure of other parents that is now making the environment so threatening for decent parents. It is a downward spiral that reveals how fragile civilization is and how quickly we return to savagery.

I am not denying that there are some economic factors, but they aren't the ones that people talk about. It is not the unemployment rate and it is not a problem that can be solved by creating jobs. It is a problem created when children grow up and learn in an environment in which they never a see a married man working for a living at a legitimate job and supporting his family. These children learn, since they have never seen such behavior, that it isn't an available alternative, or if it is, it's an undesirable one. They see fear, they see drug use, they see gangsterism, they see disorganization. This is what they learn.

Reason: What has created the widespread inability of parents to raise children?

Wilson: I wish we knew the answer. It wasn't happening at all until the late '60s, so the phenomenon has only been around for 25 years. In reality, it has only gotten dramatically worse in the last 10 years.

Several items play a role. I think Charles Murray is correct that if the welfare options were not there, fewer people would be able to support themselves in this lifestyle, and therefore fewer people would lead such a lifestyle. My only reservation is that I do not think that any politically feasible change in the monetary value of the welfare package of benefits would alter the rate at which people take advantage of it. It is a kind of safety net, and you can raise or lower the safety net a little bit and it won't make any difference. Now, Charles Murray's response to that statement would be to say, "Yes, and that's why the safety net has to be totally abolished." But that's not going to happen.

I think Myron Magnet is correct in his claim that underclass culture is a dialect of upper-class culture, with an emphasis on hedonism and personal satisfaction and value relativism. This cultural defect is something which gets magnified and endorses certain kinds of behavior. The media are partly responsible, but not because there is violence on TV. I think the impact of such depictions of violence probably has very little to do with behavior. I think television's main effect has to do with socialization. Viewers are absorbed in a world of self-expression, compulsiveness, immediate gratification--that's what TV gives you.

I do think the problem is sufficiently serious so that no modest interventions will make a difference, and no purely economic modification will make a big difference. That's why I think we really have to alter, fundamentally, the way that lots of these children grow up from ages one to 12.

Reason: Hence, your endorsement of a return to public orphanages.

Wilson: You begin with the rule that the goal of our public policy is to protect the children. We're not particularly interested in whether the mothers work or not, not interested in whether they'll get 10 percent less money or 10 percent more money. For many of these children, the only thing that will work is if they are raised in radically different settings.

This means they are either raised by somebody else or they are raised by their own mother but in an environment in which the mother herself is taught how to be a mother and the child is given a decent environment. For the most at-risk children, I suggest pooling welfare checks and housing allowances in a way that will make economically feasible group shelters, either run by government or private organizations. Sen. [Bill] Bradley [D-N.J.] is thinking about introducing a bill that would authorize it. Wisconsin's Gov. Tommy Thompson is likely to make it a main component of his reforms.

Reason: Isn't this paternalism in the extreme? In the past, you have written that the goal of public policy should be to reinforce the obligation of parents to raise their children. But wouldn't you be letting parents avoid that responsibility by allowing them to place their children in orphanages and group homes?

Wilson: Yes, it is paternalism. That is exactly what it is. What these children lack is paternalism. That's a very good way to put it. And it is a fair criticism to say it will let some parents off the hook. But for some people I think that's exactly right. I've increasingly come to the view that, for some children, we have to accept the fact that their parents will slough off their responsibility. We also have to reinforce the legal and cultural sanctions that support the maintenance of those responsibilities, but we have to face the fact that in some cases these cultural reinforcements will not work.

A 17-year-old girl who is on crack cocaine cannot be taught responsibility. It's impossible. We don't have the faintest idea how to do that. There are a lot of 15- and 16-year-old girls who have children who are not on crack cocaine, and who would like to be decent mothers. Most of these can be decent mothers, provided they're put in an environment where they're taught how to be decent mothers and protected from those influences outside that make it impossible to be decent mothers. That's why I support pooling the welfare checks into group shelters where mother and child would live together. This could help the child. Remember that we know how to raise babies. This is not a problem. Society has spent 50,000 years learning that. Putting a mother in a group shelter doesn't absolve her of her responsibilities. It says, "If you want help raising your baby, you've got to go to this shelter." Most of these mothers love their babies. They don't want to abandon them.

And it would be voluntary in the sense that, if you want public support, that's the way you get it. You don't have to go there. But you won't get any money and you won't get any housing units.

Reason: What can be done to prevent the situation in the first place?

Wilson: The first step to doing that is reducing illegitimacy. We don't know how to reduce illegitimacy. My idea is not to end welfare for 15-year-old girls. You simply say that you can't get the welfare unless you give up the opportunity to have an independent household. This would make it much less attractive for some people.

But for other people, the group homes will be very attractive. Better than the life they now lead. I am not asserting that this proposal will reduce illegitimacy dramatically. I'm saying that I think it will give the children that are the fruits of these illicit unions a better start, and that by giving them a better start and keeping them off the mean streets for five or 10 years, they will be less likely to have illegitimate children of their own. I'm betting that it's a successful second-generation strategy to reduce illegitimacy by training a generation of children that illegitimacy is morally unacceptable. Among the messages being delivered is that it's wrong.

Do I know if any of this will work? No. But it's something that can be assessed.

Reason: You've advocated using nonprofit organizations to deliver these services. Won't this turn once-independent nonprofits into virtual appendages of the state?

Wilson: The key to this question has to do with the terms and contract. It makes sense to use private contractors and nonprofits if the contracts are performance-based. The government says, "Look, we want the following outcome. If you think you can achieve that outcome at the price we're willing to pay, we'll give you a contract." A payoff follows performance.

There are real difficulties, though, with quantifying performance and terms of a contract. If I knew the answer I'd be able to retire. I'm pessimistic that much can be done about the crime problem for exactly this reason. We all know how to evaluate successful families. We do it all the time. We look at our neighbors and say the Joneses are a good family and the Smiths are doing terrible. That's a global judgment based on our perception of a wide range of factors--how the kids behave, how often the parents fight. The difficulty is putting that into contractual language.

Reason: Can we go back to an America where aid is primarily based on true voluntary self-help?

Wilson: We need to use government because there are simply too many children around for private charities to do the job. I'm trying to think of the least harmful way to structure this, but unfortunately I cannot think of a way of doing it without a good deal of public money.

We can't go back. The kinds of problems we are talking about are of an order of magnitude different even in my lifetime. We once had skid rows, and the Salvation Army took care of skid row. And that was a terrific arrangement. If that were our problem today, I would be in favor of a similar arrangement. But now we have 50,000 to 100,000 crack babies being born every year. We have millions of illegitimate children. This is a totally new phenomenon, both here and abroad. I don't see how we can cope with these problems with the resources available in the private sector. I don't think that by having these relationships between government and private agencies, we destroy the spirit of voluntarism. I think the spirit of voluntarism is as strong as it has ever been.

Reason: What is government in America going to look like in the next century?

Wilson: It's going to be bigger, more complicated, more burdensome, and more costly. No matter what point in human history you ask that question, the answer is always the same. Government gets bigger. In the United States, however, I think we may be more adept at minimizing those burdens in part because of our constitutional system, which makes it fairly easy for people to contest a burden.

I'm more optimistic about the long-term prognosis here than in Sweden or England or Germany. The changes in local government--state-level tax cuts, privatization, downsizing--are all wonderful things. They are examples of the virtues of our system of government. If the central government ran our local governments, there wouldn't be any privatizing, there wouldn't be any cutting back. That's because local
governments must stand on their own fiscal feet and be responsible to the taxpayers. I think these good things will continue to happen unless the federal government finally persuades us to allow it to fund local operations.

REGO No Go

info@reason.com (William D. Eggers) info@reason.com (John O'Leary) — Fri, 01 Apr 1994 00:00:00 EST

President Clinton is starting a revolution in government," said Vice President Al Gore last September. "It will fundamentally change the way government works." The reinventing government revolution was such a big deal it even got a nickname: REGO.

REGO was serious stuff--you don't drive forklifts on the White House lawn for just any government study. Al Gore, America's favorite funnyman, even appeared on The Late Show with David Letterman to pitch the REGO program. According to the press releases, REGO was going to save $108 billion and cut 252,000 federal positions. "This is one report that will not gather dust in a warehouse," said the president.

But, as the REGO report itself so eloquently quotes Ralph Waldo Emerson, "What you do thunders so loudly I cannot hear what you say to the contrary." And the administration's actions demonstrate that Clinton isn't really all that gung-ho on making government smaller.

Consider Clinton's legislative strategy for pushing REGO through Congress: There isn't one. To get reinventing-government guru David Osborne to sign on to the federal reinvention effort, Clinton and Gore had to promise that the recommendations would be presented to Congress as a coherent package and that Clinton would go to bat for them on the Hill. Neither promise has been kept. "The administration has no legislative strategy for REGO," says one insider close to Osborne. "The recommendations have been picked apart by Congress."

This situation could have been avoided if Clinton and Gore had insisted from the beginning on obtaining commission authority from Congress to present the REGO recommendations as a single package, as was done with the successful base-closure commission. This would have forced members of Congress to vote up or down on the entire package. Why didn't they?

"For one of two reasons," says Scott Hodge, a budget expert at the Heritage Foundation in Washington. "It either shows political naïveté or a lack of sincerity regarding reinventing government--REGO as merely a political slogan." A clue: It wasn't political naïveté.

REGO was sacrificed early on to a much higher administration priority: to avoid budget cuts and deficit reduction at all cost. The worry was that if a REGO package were presented to Congress, Republicans would demand that the savings be applied to deficit reduction, a demand that Democrats couldn't openly refuse. But if REGO passed and any savings were returned to taxpayers, Clinton would still have to work under existing spending limits. So long big-ticket programs to "invest" in public works, urban programs, and education. This is Clinton's worst nightmare. What fun is reinventing government if you can't spend the savings?

"We feared that if we put REGO together in one big package it could be used for deficit reduction," admits a Gore staffer. "We needed the savings to meet existing savings targets." With a host of new "investments" to fund, Clinton had no interest in actually cutting money out of the budget. Thus, REGO will be presented to Congress in dribs and drabs, where it will be drubbed by special interests.

The irony is supreme. At the first sign that it might mean having to reduce the budget deficit, a president who spent months talking about the perils of that very deficit sacrifices to the pickpockets in Congress his ballyhooed plan to reinvent the federal government.

Not that REGO was any ax-wielding budget chopper to begin with. The report's recommendations were advertised as saving $108 billion over five years. That sounds pretty good, until you realize that it represents only 1.3 percent of all federal spending. And now that people have started combing through the fine print of the appendix, it turns out that the REGO report may have been just a tad optimistic.

When Reps. Tim Penny (D-Minn.) and John Kasich (R-Ohio) went to REGO to find cost-cutting items for their own budget proposal, they found the report thoroughly lacking in specifics. (See "Deficit Chickens," February.) And when the administration included a number of REGO proposals in a November bill, it estimated the six-year savings at $9.1 billion. The Congressional Budget Office put the savings at $350 million over the same period. Part of the difference arises from arcane budgetary procedures, but the CBO declined to estimate savings on some aspects of the bill because "the legislative language of the bill is not specific enough to generate any savings."

The appendix of the REGO report contains recommendations such as this: "The State Department should do a better job collecting debts, such as medical expenses and others, owed to the department." Estimated savings: $9.8 million. Many of the proposals called for "improving" or "streamlining" this or that function, with a savings figure beside it. Says one Senate staffer, "Most of the proposals lacked specifics. They were a lot more window dressing than substance."

Initially, REGO wasn't focused on savings at all; the objective was to radically alter the culture of the federal government, to "revolutionize the way the federal government does business." After the REGO revolution, the federal government would run like Federal Express, maybe better. The reinvented federal government would be customer friendly, quality-obsessed, and entrepreneurial. To paraphrase Milton Friedman, the report wants to build a cat that barks.

REGO does make sense in places, especially when it stresses the need for competitive pressures: "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."

The report also does an excellent job of identifying the root causes of federal inefficiency and urges steps to combat them: "The problem is not lazy or in- competent people; it is red tape and regulation so suffocating that they stifle every ounce of creativity." The report challenges government to focus on re-sults rather than process and for government workers to serve the customer rather than the system. It recommends opening up some federal agencies--such as the Government Printing Office--to competition and spinning off air-traffic control into an independent corporation. All sensible recommendations.

But it also helpfully explains why its recommendations will never be adopted: "While the savings from killing a program may be large, they are spread over many taxpayers. In contrast, the benefits of keeping the program are concentrated in a few hands. So special interests often prevail over the general interest."

It would be a major achievement--though far short of a revolution--if most of the report's legislative proposals were adopted. Unfortunately, the Clinton administration has approached the implementation of reinvention with anything but revolutionary zeal.

The biggest flaw with the REGO report lies with what it doesn't say. The report states that it "focused primarily on how government should work, not on what it should do": efficiency as the goal of government. The cult of efficiency meshes well with Clinton's Roosevelt-like faith that government can solve all our problems.

When assessing any government activity, the first question that should be asked is: Is this activity necessary in the first place? By ignoring that question, the reinventing-government drive becomes a blueprint for better bureaucracy rather than a blueprint for revolutionary change in government.

Even such a liberal stalwart as Nobel- laureate economist Paul Samuelson recognizes that efficiency in government is a means, not an end. "The crucial steps in overhauling government involve political choices, not questions of managerial efficiency," writes Samuelson. If the surgeon general efficiently discourages smoking while the Department of Agriculture efficiently subsidizes tobacco growers, government still isn't working right.

After the initial media blitz, REGO, once a top priority (how many top priorities can one administration have?), faded from prominence. It will likely be resurrected any time the question, "How will we pay for it?" is raised by pesky naysayers. But anyone still paying attention knows that a lean, streamlined federal government is not in this administration's plans. Between ClintonCare and Labor Secretary Robert Reich's slew of programs designed to throw a warm government security blanket around America's helpless workers, the truth has become apparent: The Clinton administration isn't nearly as interested in reinventing government as it is in expanding government.

Last September, flashbulbs popped as Clinton and Gore stood on the White House lawn in front of a forklift loaded with federal regulations. "The government is broken, and we intend to fix it," the president solemnly intoned.

To get more money for planned spending projects, people had to be convinced the money would be well spent. REGO is intended to make taxpayers feel good about the federal government, allow- ing Clinton to spend real dollars now in exchange for phantom savings later. Pretty clever. As the report puts it: "Is government inherently incompetent? Absolutely not!"

Competitive Instinct

info@reason.com (William D. Eggers) — Sun, 01 Aug 1993 00:00:00 EDT

The Indianapolis Department of Parks and Recreation had a problem. The end of the 1992 fiscal year was fast approaching and the department still had money in its budget. Rather than return the "extra" money to the general fund and risk having next year's budget cut by at least that amount, the department decided to buy a few supplies for a rainy day. The end result: It's a chilly day in February and sitting in the department's warehouse is a towering 40-ton mountain of chalk. The four-year supply of chalk—enough to line a baseball field with 101 miles between the bases—is now useless. To save money, the department recently switched to spray paint for lining ball fields.

When the heap of chalk was brought to his attention, Indianapolis Mayor Stephen Goldsmith didn't dress down park officials for wasting taxpayer money. He issued a press release. Calling attention to the perverse incentives that make it rational for bureaucrats to purchase 1,600 50-pound bags of chalk, the 46-year-old Republican mayor said, "The problem is they are trapped in a system that punishes initiative, ignores efficiency, and rewards big spenders."

Changing that system is what Indianapolis's mayor of 18 months is all about. Goldsmith is trying to do for big-city government what Wal-Mart's Sam Walton did for retail—revolutionize it. To survive in the 21st century, he believes Indianapolis and other big-city governments must become smaller and more efficient and foster an environment of "chaos." Job classifications, descriptions, and hiring forms will have to be tossed. " All city government really ought to be is a series of 100 projects around different clusters. We finish a project and we move on to the next one," declares Goldsmith in a statement that would be considered radical even in the private sector.

In most of America's big cities, the need for change is not too tough a sell. The signs of crisis are everywhere—decayed infrastructure, rampant crime, poor-quality basic services, fleeing businesses, and soaring taxes and spending. Philadelphia almost went bankrupt in 1991; Detroit has lost more than 40 percent of its population since World War II—most of those who remain are city employees; and a year after experiencing the country's second-worst riots, Los Angeles faces a $500-million budget shortfall.

For Goldsmith, getting people to "buy in" to radical change is more difficult. His problem: Indianapolis is an honor student in the classroom of big cities. It is not facing a fiscal crisis or any other kind of crisis. Taxes aren't as high as in other big cities, the bond rating is triple A, the streets are clean, and it's among the safest of all large cities.

Goldsmith's predecessors, Sen. Richard Lugar and William Hudnut, both moderate-to-conservative Republicans, made national names for themselves while mayor. Lugar annexed the city's suburban townships (all of Marion County), bringing local services under city control and making it possible to have a Republican mayor in the nation's 12th largest city. Hudnut put Indianapolis on the map as the amateur sports capital of America by leveraging public money with private dollars and erecting a slew of fancy stadiums, domes, and arenas.

When Goldsmith—Marion County's former high-profile prosecuting attorney—was elected mayor in 1991, few really expected much change. "I thought that by voting for Goldsmith we would be getting the status quo. I voted for more of the same. Now I feel betrayed," says a former campaign volunteer and longtime suburban Republican. Why fix what ain't broke? If we wait, says the mayor, Indianapolis will suffer the same fate as Philadelphia, Detroit, and other troubled big cities.

Those who followed the young mayor's previous career more closely haven't been as surprised by the radical change he is bringing about. He has always been somewhat of a visionary—doing preventive maintenance on organizations most people view as working just fine. Despite no experience in criminal law, he was elected district attorney at the ripe age of 31. In his 12 years as prosecutor, Goldsmith earned a reputation not only for being tough on corruption and crime—he prosecuted more people than ever before in Indianapolis—but also for being innovative.

When he became chief prosecutor, the child-support office was collecting only $900,000 a year from deadbeat fathers. He turned the office around. Goldsmith established bonuses and productivity raises for the staff, upgraded the computer system, and contracted with a private collection agency to locate hard to-find fathers. After 12 years, collections jumped to $36 million a year.

Since his inauguration in January 1992, the workaholic mayor has put his ideas into practice at a blistering pace that has left little time for building consensus or indulgences like sleep (though when he fell to below five hours of sleep a night he found it to be "counterproductive"). "We have only four years of our lives to make the city better for everyone in Indianapolis," says Goldsmith, who is unable to sit through an hour-long interview without frequently sneaking impatient peeks at the e-mail messages coming across his lap-top computer screen.

Mayor Stephen Goldsmith is working hard to do for big-city government in America what Wal-Mart's Sam Walton did for retailing revolutionize it. Goldsmith is gaining a national reputation for having the most ambitious privatization program in any large city in the United States. But he says he doesn't have a privatization program; he has a competition program. His goal is not to privatize for its own sake but to break up the government monopoly. As long as there's competition, he doesn't care whether a private firm or a city department delivers the service.

"There is no great value in and of itself for privatization, as contrasted to the competitive process," says the mayor. And that process must be

approached "as the fundamental aspect of change in order for a city that is successful to stay successful."

To drive that change, Goldsmith created a private-sector advisory group called SELTIC (Service, Efficiency, and Lower Taxes for Indianapolis Commission). SELTIC is not your typical task force of corporate government-relations types who produce reports that end up unread and forgotten. Comprising nine of the city's leading entrepreneurs and more than 100 volunteers, SELTIC has not produced a single report—nor will it in the future. It is looking for results.

SELTIC's chairman, former Reagan White House political director Mitch Daniels, describes the commission's work as "antitrust for government." It is examining everything the city does and asking two questions: First, should government even be involved? If the answer is no, SELTIC recommends that the city get out of the service. If the answer is yes, SELTIC asks a second question: How can we make the service subject to competition from the private sector? More than 150 competition opportunities have been identified; more than 40 government services have already been opened to competition.

Many of the examples are small but telling. Take window washing. Previously, windows on city buildings were washed by city crews exactly three times a year—whether they were dirty or not. The service was totally focused on inputs. Now a private company washes the windows—not three times a year, but when the windows are dirty. Microfilm operations were also moved into the marketplace. The private contractor has cut the city's cost by 61 percent, $40O,000 a year, and the quality of the microfilm documents has improved.

Competition does not always result in privatization, however. To beat out private competitors, a Transportation Department crew discovered they could fill potholes with four workers, rather than eight, and one truck instead of two. The crew also asked the mayor to relieve them of the 32 Republican-patronage supervisors above them. The supervisors were laid off (the mayor took a lot of heat from his fellow Republicans), and the city crew came in with a bid thousands of dollars under the closest private bidder, cutting costs by 25 percent.

Total savings from competition run $10 million to $20 million in Goldsmith's first 18 months, says Skipp Stitt, the spirited 30-year-old lawyer who runs the mayor's competitiveness office. Stitt is a true believer, one of the young idealists around Goldsmith who share the mayor's vision of leaner, more competitive government. He says the mayor is more interested in hiring people who share his political philosophy than those who merely have technical expertise. Goldsmith regularly assigns required reading to his top staffers—the 800-plus- page tome Liberation Management, by management guru Tom Peters, was on a recent reading list— and staff meetings move easily from garbage collection to political philosophy. "Working for the mayor, there's a sense you're part of something larger," says Stitt.

Stitt goes on to explain that while businesses have to tightly manage their assets, governments have a giant-sized attic full of potentially valuable holdings. On a tour of the transportation department facilities, SELTIC commissioner Jean Wojtowicz, a venture capitalist who manages a $70-million portfolio, was shocked at the piles of what she calls "stuff" just lying around. "The government mentality is: If we don't use it, we better hold onto it, we might need it next year," she explains. "The problem with stockpiling all this stuff is that it takes up expensive real estate."

With the blessing of the mayor, a SELTIC team has established periodic "garage sales" of city-owned furniture, equipment, and materials. By reducing inventories, Goldsmith hopes eventually to eliminate more than 40,000 square feet of leased space, saving as much as a third of a million dollars a year. Another SELTIC team is busy trying to sell off about 750 parcels of surplus real estate—$300,000 worth has been sold so far. The mayor is even exploring selling or leasing some of the city's "family silver," such as the wastewater treatment plant (the country's largest), the City-County Building, and the airport.

Could government officials have achieved these savings without SELTIC? It's possible, but doubtful. "I think if you are inside government you're too close to the forest. Sometimes you need someone from the outside to come in and take a fresh look. Private businesses sometimes need this also," says Wojtowicz, who has advised many private companies on restructuring.

Still, line-level employees can see government waste and inefficiency that outsiders might miss. To encourage employees to expose this waste, Goldsmith created the "Golden Garbage" award, presented each month to the city employee who finds the most egregious examples of government waste. The winning employee gets a toy plastic truck glued to a piece of wood and lots of press coverage.

The first award went to an employee who found a garbage truck that broke down so often and was so expensive to repair that it cost the city $39 for every mile it operated. "Taxpayers could have hired limousines to carry away their garbage and it would have cost less than using this 'Golden Garbage' truck," declared Goldsmith when he announced the award. The truck has since been sold to some sucker.

Not everyone is thrilled about Goldsmith's top-to-bottom downsizing of city hall. The new mayor did, after all, eliminate about 450 of 4,700 full-time employees from the city's payroll in his first 16 months, including 160 mostly managerial-level employees within the first three months. The layoffs of the patronage positions angered some Republican council members and party officials. "They were upset with Goldsmith because he broke up the old boy network," says a Democratic councilman.

The driven mayor concedes he will have to spend more time building consensus in the future, which will likely slow the brisk pace of change. He's not very happy about this. Schmoozing with other politicians is just not something the technocratic Goldsmith—who friends and foes alike say is incapable of b.s.—appears very comfortable doing.

Even more of a problem has been the city work force. "Abject fear," is how one city employee described his initial reaction to Goldsmith's downsizing. In the public works department, about 20 engineers left the first year. "No good engineer wants to work for this city anymore," former public works administrator Pete Chavol told the Indianapolis News in December 1992. A Parks Department employee admitted that "a lot of people coasted under Hudnut. Now they have to work and many people feel miserable and threatened."

Mitch Roob, the city's 31-year-old Transportation Department director, wants to show me that not all employees have been demoralized. He takes me out in the field to see the department's pride and joy: a city

crew that underbid private firms for a contract to seal cracks in the city's roads. I'm supposed to hear from them how empowered they feel and how competition has energized them. Instead, with their boss

standing not more than five feet away, I'm greeted with a torrent of complaints. They're "much more stressed," "always afraid" of losing

their jobs, and their "sense of security has disappeared." One crew member sums up the feelings of the group: "The mayor has rocked our boat."

Goldsmith worries about the morale problem. "Without successful buy-in from the employees of our efforts, we can't succeed," he

says. To bring employees into the fold, he has set up an array of programs, including once-a-month department brown-bag lunches with the mayor, so the employees can "get the vision," and an electronic mailbag system in which employees can send him messages directly. "I have 4,000 new pen pals," says Goldsmith.

Some employees have indeed caught the entrepreneurial fever. The crack-sealing crew, for all their griping about increased stress and tougher conditions, say their major complaint is that it takes them a week to get supplies. The delay slows us down and decreases our productivity." In fact, the crew is talking about taking their unit private. "I'm ready to do it right now," says David Walderop, the alternate crew leader, "There's money to be made out there and we all know it."

Downsizing, quantifying performance, measuring productivity, competing services, and eliminating waste are only half the revolution Goldsmith is trying to bring about in the way big cities are run. The other half is decentralizing government and empowering neighborhoods. The mayor believes governments at all levels have over-centralized decision making and superseded more important non-governmental organizations such as churches, families, and neighborhoods.

"You cannot ignore the populations in neighborhoods, do things for them, to them, and then think you're going to solve their problems in the long run," says the mayor. "You need to have a theory that empowers the people in those communities."

He has publicly embraced the outlines of a radical proposal developed at the Indiana University School of Public Affairs called "municipal federalism." It would allow for the voluntary establishment of neighborhood councils to make decisions now made in city hall.

Neighborhoods would have the right to contract with the city to maintain their own parks and sweep their own side streets and sidewalks. The people in the neighborhoods, not city bureaucrats, would determine which vacant lots are fixed up with housing rehabilitation money. Implementing this Tocquevilleian vision of getting people to seize control of public services and decision making at the neighborhood level has been Goldsmith's greatest challenge so far.

Upon becoming mayor he had hoped to duplicate in other areas of the city a successful neighborhood effort to revitalize a local park. Holiday Park, located in an upper-middle-class neighborhood, had degenerated to the point where drug dealers and male prostitutes had set up permanent shop there. Community residents were afraid to go anywhere near the park. Neighbors, fed up with the situation, received permission to take over the park and proceeded to raise $300,000 in private donations for new equipment, a security guard, and better upkeep. The former drug-infested park is now filled with picnicking families on weekends.

But SELTIC Parks Commissioner Tom Reilly hasn't found it easy to duplicate that success. The straight- shooting chairman of Reilly Industries, a multi-million-dollar, international chemical company, Reilly says most community groups just aren't interested in adopting "orphan" parks. "We haven't been particularly successful," he says, shaking his head. "It's been a very frustrating process."

Reilly points to a troubled park where there were recently two shootings. Within 200 yards of the park are six churches. If they worked together, he says, they could turn that park around. But "there's a great deal of envy between the various groups," he explains. "If you talk about turning over a park to one group, the other ones go crazy. Sometimes they'd rather the park be in bad shape than see it turned over to someone else."

And many neighborhood groups aren't very organized. They can't take on some of the repetitive functions involved in managing parks, such as weekly grass cutting, youth programs, and maintenance. But Reilly, who is known to sometimes bulldoze his way through hurdles in the

business world, is not giving up. "We'll get some them done," he pledges. "It's just happening too slowly."

Goldsmith is also bringing his vision of self-governance to two of the city's two most troubled housing projects. The management of the projects will be turned over to private firms—chosen by the residents themselves—for an 18-month period. At the end of the 18 months, the residents of Barton Towers and Concord Village will have the choice of staying with the private contractor, going back to the housing authority, or taking over management themselves. What makes this plan unique is a built-in work incentive: Rents will go up if incomes go up, giving the private manager motivation to find jobs for project residents.

Following the cue of Jack Kemp, whom he admires, Goldsmith criticizes regulatory barriers to home ownership and entrepreneurship. He is fond of telling the story of Paul Veyer, an artist who owns a small graphic-design shop downtown. After 20 years, Veyer decided to

replace his storefront awning. The materials cost him about $15O, and he figured he could put it up in a day. By the time he had gotten five different permits, hired an attorney, and submitted two plans to myriad officials, however, it was six weeks later and his bill was more than $1,000.

To identify and remove such unnecessary regulations, the mayor created a deregulatory SWAT team called the Regulatory Study Commission (RSC). The RSC also does cost-benefit analyses on all proposed regulations.

While poring through the municipal code, deregulators have found reams of outdated ordinances. Shuffleboard operators were required to obtain special licenses—as were residents who happened to keep milk cows in their back yards. The RSC's biggest first-year success was getting the Asbestos Abatement Commission to abandon proposed

regulations which would have made the city's asbestos standards far more stringent than current state and federal regulations. Regulatory reform will save government and business $16 million to $50 million a year.

The RSC is beginning to move into more politically controversial areas. A few of the city's 28 different development-permission processes have been eliminated, but bureaucratic roadblocks have hindered progress on this front. Deregulating prices and market entry

for taxicabs is on the drawing board, as is the idea of giving regulatory breaks to start-up businesses in distressed areas now designated enterprise zones.

Goldsmith has also targeted poorer neighborhoods for substantial infrastructure improvements. So why is Goldsmith, a Republican mayor whose political base is in the suburbs, expending so much time and effort on the heavily Democratic inner city? "Over the next 20 years, if we write off 100,000 people into poverty and abandon them from the marketplace, the rest of the community cannot be economically successful," he says. Right now the city's poorer neighborhoods are not in terrible shape, but he points to cities like Chicago and Detroit as warnings of what will happen unless Indianapolis takes steps to reverse the decline.

Goldsmith's attention to the inner city has won him accolades from some unlikely circles. "Steve Goldsmith is the first person to come along and actually ask my people what it is they want from the mayor," says Orlando Jones, who spent 10 years in public housing and now heads up the Black Family Forum. Jones likes Goldsmith's emphasis on community policing and says privatization "will open up the door for a lot more economic opportunity" for minority-owned businesses.

Democratic City-County Council Member Jeff Golc, who represents a district where only 42 percent of the residents over 25 have graduated from high school, also praises Goldsmith. Under the previous administration his district was ignored, says Golc. "I got two calls from Hudnut [the former mayor] in four years." In a little over 16 months, Golc had already collaborated on two inner-city development projects with Goldsmith and supports the mayor's downsizing of city government and philosophy of empowering neighborhoods.

Some Republican leaders are less enthusiastic. I sat down with a group of prominent spokespeople from suburban neighborhood groups (most of them Republicans) and was somewhat taken aback by the harshness of their criticism of the mayor they helped elect. On Goldsmith's top-to-bottom restructuring of city government: "He wants to be known for reinventing what need not be reinvented." On their access to the mayor: "We know more about neighborhoods than him or his group of young CPA and corporate attorney advisers. You'd think he would listen to us, but he doesn't." On municipal federalism: "A way to shove the grunt work, the everyday essential housekeeping services, to the neighborhoods."

The criticism reflects in part a split in the Republican party between the empowerment, free-market, enterpriser types and the moderate country-clubbers. The principal concerns of these self-appointed neighborhood leaders have little to do with free-market economics. They worry about building code and zoning violations and dislike people who operate businesses out of their homes. Their access to the mayor and their interaction with city regulators are their traditional sources of political clout. Under Hudnut they had more regulators and more access. They have lost both under Goldsmith. One of his first official acts was to lay off more than half the code-enforcement officers. And if they're mad now, they'll go ballistic when his deregulating team starts attacking restrictions on development, signage, and landscaping.

But the mayor is unlikely to back down. He is still very popular with Joe and Jane Suburbanite, who have better things to do than run around screaming about building and signage violations. And he's stubborn. "After a while most politicians get worn down into the soft solution that accommodates all the various interest groups," says SELTIC commissioner Reilly. "It can take the best Folks and wear them down to the point of moral compromise, but not Stephen Goldsmith. He just keeps bullying ahead."

If Goldsmith is successful in turning Indianapolis into the country's first 21st-century city, what will city hall look like? The mayor ponders this one for a minute. "You'll have obviously smaller government, more outsourcing [privatization], dramatically increased neighborhood-based service provision, and a much higher percentage of people involved in protecting and developing their own areas. Government will act more as a skilled purchasing director, rather than a service provider."

Henry Kissinger once said, "The task of the leader is to get people from where they are to where they have not been. The public does not fully understand the world in which it is going. Leaders must invoke an alchemy of great vision." The average Indianapolis resident isn't yet aware of it, but Stephen Goldsmith is taking the city where no large American city has gone before. His vision, which combines the new and the old—a lean, service-oriented, computer-age city hall mixed with the 19th-century New England township—just may be the best hope for the future of our big cities.