The new governance and the tools of public action: an introduction.

• Author: Salamon, Lester M.

In economic life the possibilities for rational social action, for planning, for reform--in short, for solving problems--depend not upon our choice among mythical grand alternatives but largely upon choice among particular social techniques ... techniques and not "isms" are the kernel of rational social action in the Western world. (1)

Far-reaching developments in the global economy have us revisiting basic questions about government: what its role should be, what it can and cannot do, and how best to do it. (2)

INTRODUCTION: THE REVOLUTION THAT NO ONE NOTICED

A fundamental re-thinking is currently underway throughout the world about how to cope with public problems. (3) Stimulated by popular frustrations with the cost and effectiveness of government programs and by a new-found faith in liberal economic theories, serious questions are being raised about the capabilities, and even the motivations, of public-sector institutions. Long a staple of American political discourse, such questioning has spread to other parts of the world as well, unleashing an extraordinary torrent of reform. (4) As a consequence, governments from the United States and Canada to Malaysia and New Zealand are being challenged to reinvent, downsize, privatize, devolve, decentralize, deregulate and de-layer themselves, subject themselves to performance tests, and contract themselves out.

Underlying much of this reform surge is a set of theories that portrays government agencies as tightly structured hierarchies insulated from market forces and from effective citizen pressure and therefore free to serve the personal and institutional interests of bureaucrats instead. (5) Even defenders of government among the reformers argue that we are saddled with the wrong kinds of governments at the present time, industrial-era governments "with their sluggish, centralized bureaucracies, their preoccupation with rules and regulations, and their hierarchical chains of command." (6)

Largely overlooked in these accounts, however, is the extent to which the structure of modern government already embodies many of the features that these reforms seek to implement. In point of fact, a technological revolution has taken place in the operation of the public sector over the past fifty years both in the United States and, increasingly, in other parts of the world; but it is a revolution that few people recognize.

The heart of this revolution has been a fundamental transformation not just in the scope and scale of government action, but in its basic forms. A massive proliferation has occurred in the tools of public action, in the instruments or means used to address public problems. Where earlier government activity was largely restricted to the direct delivery of goods or services by government bureaucrats, it now embraces a dizzying array of loans, loan guarantees, grants, contracts, social regulation, economic regulation, insurance, tax expenditures, vouchers, and much more.

What makes this development particularly significant is that each of these tools has its own operating procedures, its own skill requirements, its own delivery mechanism, indeed its own "political economy." Each therefore imparts its own "twist" to the operation of the programs that embody it. Loan guarantees, for example, rely on commercial banks to extend assisted credit to qualified borrowers. In the process, commercial lending officers become the implementing agents of government lending programs. Since private bankers have their own world-view, their own decision rules, and their own priorities, left to their own devices they likely will produce programs that differ markedly from those that would result from direct government lending, not to mention outright government grants.

Perhaps most importantly, like loan guarantees, many of these "newer" tools share an important common feature: they are highly indirect. They rely heavily on a wide assortment of "third parties"--commercial banks, private hospitals, social service agencies, industrial corporations, universities, day-care centers, other levels of government, financiers, construction firms, and many more--to deliver publicly financed services and pursue authorized public purposes. The upshot is an elaborate system of third-party government in which crucial elements of public authority are shared with a host of non-governmental or other-governmental actors, frequently in complex collaborative systems that sometimes defy comprehension, let alone effective management and control. In a sense, the "public administration problem" has leapt beyond the borders of the public agency and now embraces a wide assortment of "third parties" that are intimately involved in the implementation, and often the management, of the public's business.

Take, for example, the system for delivery of publicly financed mental health services in Tucson, Arizona. Funding for such services comes from a variety of federal and state government programs. However, no federal or state bureaucrat ever comes in contact with any mentally ill person. Indeed, no federal or state bureaucrat even comes in contact with any local government official or private agency employee who actually delivers services to the mentally ill. Rather, the entire system is operated at two and three steps removed. The State of Arizona not only contracts out the delivery of mental health services: it also contracts out the contracting out of mental health services. (7) It does so through a "master contract" with a private, nonprofit local mental health authority called ADAPT, Inc. (8) ADAPT, in turn, handles all dealings with more than twenty other local agencies that deliver mental health services in the Tucson area with funds provided by state and federal programs. (9) Although this may be an extreme case, the phenomenon it exemplifies has been a central part of public sector operations for well over a generation now.

What is involved here, moreover, is not simply the delegation of clearly defined ministerial duties to closely regulated agents of the state. That is a long-standing feature of government operations stretching back for generations. What is distinctive about many of the newer tools of public action is that they involve the sharing with third-party actors of a far more basic governmental function: the exercise of discretion over the use of public authority and the spending of public funds. Thanks to the nature of many of these tools and the sheer scale and complexity of current government operations, a major share--in many cases the major share--of the discretion over the operation of public programs routinely comes to rest not with the responsible governmental agencies but with the third-party actors that actually carry the programs out.

This development has proceeded especially far in the United States, where hostility to government has long been a staple of political life, and where the expansion of governmental programs consequently has had to proceed in a highly circuitous way. (10) Contracting arrangements invented to fight the Revolutionary War and later elaborated to handle the far more complex tasks of product development during World War II were thus quickly expanded in the aftermath of that war to fields as diverse as agriculture, health, space exploration, and social services. (11) Grants-in-aid, loan guarantees, social regulations, insurance, and other indirect instruments have expanded as well. (12) As Donald Kettl has reminded us, "[e]very major policy initiative launched by the federal government since World War II--including medicare and medicaid, environmental cleanup and restoration, antipoverty programs and job training, interstate highways and sewage treatment plants--has been managed through public-private partnerships." (13)

Reflecting this, a study of a cross-section of United States communities carried out by this author in the early 1980s found that the majority of the government-financed human services available at the local level was already being delivered by private nonprofit and for-profit organizations as of that date, and this was well before the advocates of "privatization," contracting out, and "reinventing government" had proposed it. (14) In particular, as shown in Table 1, government agencies delivered only forty percent of these publicly funded services while private agencies--both nonprofit and for-profit--delivered sixty percent. (15)

Instead of the centralized hierarchical agencies delivering standardized services that is caricatured in much of the current reform literature and most of our political rhetoric, what exists in most spheres of policy is a dense mosaic of policy tools, many of them placing public agencies in complex, interdependent relationships with a host of third-party partners. Almost none of the federal government's more than $300 billion annual involvement in the housing field, for example, bears much resemblance to the classic picture of bureaucrats providing services to citizens. Rather, nearly $190 billion takes the form of loan guarantees to underwrite mortgage credit extended by private commercial banks; another $114 billion takes the form of tax subsidies that flow to homeowners through the income tax system; and more than $20 billion takes the form of housing vouchers administered by semi-autonomous local housing authorities to finance housing provided by private landlords (17) (see Table 2).

More generally, as reflected in Table 3, the direct provision of goods or services by government bureaucrats accounts for only five percent of the activity of the United States federal government. Even with income transfers, direct loans, and interest payments counted as "direct government," the direct activities of the federal government amount to only one-fourth (twenty-eight percent) of its activities. Far larger in scale are other instruments of public action--contracting, grants-in-aid, vouchers, tax...