But Can He Swing An Ax?

On the campaign trail, Bill Clinton promised to cut the federal work force by 100,000 jobs and trim government administrative costs by 3%. Now, though, sources close to the transition team say that Clinton is mulling over a far more dramatic restructuring of the federal bureaucracy, including elimination of some Cabinet departments. BUSINESS WEEK has learned that one target is the Energy Dept.

Clinton also may consolidate federal regulation of financial institutions and reorganize the stewardship of federal lands, now handled by several agencies. Says one source close to the Clinton transition: "There's an enormous opportunity for streamlining government at both the Cabinet and sub-Cabinet level."

Unlike Presidents Reagan and Carter, whose efforts sank in Congress, Clinton may find surprisingly strong support on Capitol Hill. But as a weary George Bush might have warned Clinton when they met at the White House on Nov. 18, the President-elect still must tangle with committee chairmen whose power is based in part on the size of the bureaucracies they oversee.

Clinton shouldn't shrink from the fight. Like a badly run corporation, government has failed to adapt to changing times. The price of poorly managed, duplicative efforts is staggering--and not just in billions of wasted tax dollars. "The cost in terms of credibility is enormous," says James Thurber, American University professor of government. "The more programs you have that seem worthless, the more people distrust government."

That's why Clinton has Energy in his sights. It spends half its budget developing and building nuclear weapons, and much of the rest trying to clean up the mess it has made. Other functions are simply outdated. Fifty years ago, the Rural Electrification Administration brought badly needed power to rural America. Now it brings cheap electricity to wealthy suburbs.

In a reorganization, scaled-down weapons production could be shifted to the Pentagon. Civilian energy research could be largely privatized or shipped off to the National Science Foundation.

NINE IN ONE. That leaves the cleanup work, which logically belongs in a new Environment Dept. It would mesh well with the Clintonites' plans for rationalizing the management of public lands. Bureaucratic infighting is rampant among the Bureau of Land Management, the Bureau of Reclamation, the Forest Service, the Park Service, and the U.S. Army Corps of Engineers. One solution: combine them into a single department. Clinton could add the Environmental Protection Agency and other offices that study the environment and create a single Environment & Natural Resources Dept. That would cut hundreds of millions of dollars worth of overhead--and encourage sensible solutions to complex land-use and environmental disputes.

The President-elect may also unify the nine agencies that oversee financial institutions. As the businesses of banks and securities firms become more intertwined, it makes less sense to maintain separate regulatory schemes. At the least, all depository institutions could come under the purview of a single federal regulator.

Reorganizing those agencies is only a small part of the job, though. For now, the Clintonites seem disinclined to tackle some of the biggest sacred cows. Perhaps the largest is the Agriculture Dept., which spends some $46 billion a year. In 1940, there were more than 6 million farms in the U.S. and 98,000 USDA employees. Today, there are 2 million farms but 128,000 employees to watch over them.

Many of the department's programs, such as subsidies that distort prices and hurt both consumers and small farmers, could be eliminated. The rest belong with other agencies. For example, food stamps and other "feeding programs" could go to the Health & Human Services Dept.--or even to a new agency that could handle all federal assistance.

MOVE QUICKLY? If Clinton tries to streamline the government, he has two very important choices to make: How big a job does he want to take on in one bite? And how quickly should he move? Carter's ill-prepared assault on federal water projects wrecked any chance of a serious reorganization during his tenure.

The new President may have it slightly easier. Key members of Congress, from conservatives such as Senator William V. Roth Jr. (R-Del.) to moderates such as House Budget Committee Chairman Leon E. Panetta (D-Calif.) and liberals such as House Government Operations Committee Chairman John Conyers Jr. (D-Mich.), favor reform.

Fixing the economy remains Clinton's top priority. But he could save money while improving delivery of services by radically changing the way government does business. It would mean a nasty fight with some of Congress' old bulls, but the rewards could be sweet.