What if Government Ran Like Business?

In April, former Fed Chairman Paul Volcker announced a new program to restore confidence in government. The effort, known as the Campaign for High Performance Government, couldn't come soon enough. Confidence in government is near an all-time low. A survey released in mid-April by the Pew Research Center found that only a small minority of Americans—22 percent—believe they can trust the federal government "almost always or most of the time." More than half of the respondents (56 percent) said they were frustrated by government's actions; 1 in 5 (21 percent) said Washington makes them angry.

And who can blame them? As I noted in an April column, "Managing Perception, Ignoring Reality," Washington appears out of control. The rules of the game seem to be rigged to keep government growing while few problems get solved. Nobody is held accountable and performance seems irrelevant. The incentive structure in government is backward: Programs and agencies that accomplish the least seem to get the greatest rewards, with more money and personnel. A manager seeking a larger portfolio and greater responsibility has an incentive to shoot for the sidewalk, rather than the stars.

After that column appeared, my Bloomberg Businessweek editor, Patricia O'Connell, asked me a great question: If our best business executives ran government, how would they change things? Fair enough; let me offer some ideas.

First, let's acknowledge that business doesn't have all the answers, and that public confidence in business has tanked in recent years as well, thanks to various scandals, the housing bust, the banking mess, the supposed migration of U.S. jobs to foreign shores, and now the oil gusher in the Gulf of Mexico. According to an Allstate/National Journal Heartland Monitor poll, also released in April, half of all Americans have less confidence in major corporations today than they did a year ago; just 13 percent have more confidence. Even before the dimensions of the BP oil disaster became clear, business had plenty of credibility problems of its own.

Accountability at the Core

Still, many ideas and practices that have been tested in the business world could improve government. Washington should borrow the best of these. At their core, they all involve accountability.

Government officials often become far too cozy with, and even captives of, the special interests—from corn growers and road builders to labor unions, deep water oil drillers, and big banks—that their departments, agencies, and programs are supposed to regulate or assist. Government officials are supposed to serve the public. We need to refocus the federal enterprise on public service and put an incentive system in place to reward the right outcomes.

To accomplish this, changes are needed in at least two areas.

The first would be to shift government's focus from activities to results. Government officials would need to change their mindsets from being program advocates and administrators to being problem-solvers. In some cases, this might mean that the ultimate goal of some government executives would be to manage themselves out of their current jobs. Eliminating the need for certain government programs would be the ultimate mark of success. The second set of measures would ensure that our tax dollars are spent wisely and that taxpayers receive a measurable return on their considerable investment. The term "federal money" is a misnomer. The money that government spends is the taxpayers' dollars; it needs to be spent carefully and strategically.

So what management practices from the business world might help government executives improve their success record?

Clarify the mission: Set clear, attainable goals.

The problem in government typically isn't faulty execution—it's failing to have a clear, focused, attainable mission.

At the root of many government programs are real problems—but the goals of the programs are not designed to solve the problems. The 1980 environmental Superfund act (or Comprehensive Environmental Response, Compensation & Liability Act), for example, was passed during a period of near public panic triggered by the discovery of abandoned hazardous waste dumps in several states, most notoriously at Love Canal, near Buffalo, N.Y. Since the legislation was signed into law, the Environmental Protection Agency has identified more than 1,600 priority waste sites urgently needing to be cleaned up. At the beginning of this year, after 30 years and the expenditure of tens of billions of dollars on the program, 1,170 of the 1,600 sites were still on the EPA's "priorities" list. The mission of this program is not to identify abandoned chemical dumps, but to see that they're cleaned up. Identifying priority sites is just the first step.

Washington professes to believe in goal-setting. During the Clinton Administration, legislation known as the Government Performance & Results Act was passed, requiring government agencies to "establish [program] performance goals," spell out those goals in "objective, quantifiable and measurable" terms, and "systematically hold … Federal agencies accountable for achieving program results." Ironically, that's where the effort ends—agencies are only told they are accountable but they are not held accountable.

Most business executives would demand more. They would insist on clear, concise short- and long-term goals; they would set up a system to measure and evaluate whether the goals are met; and they would judge management accordingly. Government should do the same.

Share responsibility.

Top business executives know they are only as good as their management teams. The same holds true for government officials appointed by the President and Cabinet secretaries. Their line managers—the top echelons of the permanent bureaucracy—are the people most familiar with existing programs, the daily nitty-gritty, and the institution's capabilities and limitations. What they often don't understand—because it has never been made clear—is the mission. This needs to be fixed. Career executives need to be brought onboard and made part of the team.

Insist on concrete results.

It's amazing how many government agencies judge management by the wrong standards: the number of applications processed, the number of grants awarded, the number of people served. Such metrics emphasize process rather than progress. The real question should be: What has the agency done to ameliorate or solve the problem it was established to solve? One of the things government does well is collect data. This is what should be used to evaluate performance and results. If a program is established to provide workers whose companies have moved overseas with new job skills, we should judge the program not by the number of "displaced" workers who pass through the door, but by the number of such workers hired in their new skills areas. If this isn't happening, the program should be jettisoned or its management changed. What government typically does now is the opposite of what business would do: It increases funding for ineffective or failed programs, or adds still another program with the same mandate.

Make programs compete.

There's an assumption in Washington, largely unstated, that there is an endless supply of money. If tax revenues are inadequate, the government borrows. There's no sense of urgency to get the job done.

Government managers need to understand that the days of easy money are over. One way to do this is by making government agencies and programs compete for funding. The most successful might see their budgets increased. The least successful would get the ax. When a program has achieved its goals, we would retire it and reward its managers with promotions and new challenges.

Competition is fundamental to business. In a global economy, companies everywhere compete for everything: talent, resources, customers, loyalty. Government programs should be expected to compete as well.

Reward success, penalize failure.

Business executives understand incentives. At the management level, salary increases, bonuses, and other rewards typically are earned—not awarded for longevity or showing up on time. Business leaders also know that failure has a price. Civil service rules notwithstanding, government executives need to be held accountable as well. There needs to be a mechanism within the federal civil service whereby talented career executives who succeed receive recognition, promotions, bonuses, and appointments to positions of greater responsibility where they can lead the efforts to solve other challenging problems. Somebody who has "done it" before is likely to do it again. There also needs to be a mechanism for weeding out ineffective managers. Accountability requires no less.

Confidence in government won't be restored until government demonstrates that it knows how to run smart and lean, and that the objective of government is not merely to create programs with lofty objectives, but to solve problems. Instill in government managers a sense of real mission and let them know that career advancement depends on success. Then shake up the system and give the careerists the opportunity to work themselves out of their current jobs into new challenges. Watch how quickly things change.

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