Sorting out who should do what.

• Author: Rivlin, Alice M.
• Position: Marking the line between federal government and state government duties

Many functions of government are absolutely the federal government's, but for other functions of government what's needed is strong community support.

A major area for radical change in public policy is a clearer distinction between federal and state responsibilities for the things that government does.

For example, the federal government should take full responsibility for reforming the health care financing system. That means controlling the growth of health costs and ensuring universal access to health care. It means setting up some kind of a system that will subsume Medicaid.

Meanwhile, states should take full responsibility for the "productivity agenda": improving work force skills, transportation and infrastructure. The federal government should devolve these programs to the states.

There are two lines of argument for this position. One relates to reviving the American economy and the other to restoring confidence in government.

The key to higher living standards is productivity. The key to productivity is investment. We need a more skilled and better equipped workforce if we are going to be a high-wage, high-productivity country.

A more productive society requires three things. First is get rid of the federal deficit. It has been draining our savings into unproductive uses. It lowers the general rate of investment. It makes us dependent for capital on other countries. Instead of saving ourselves, we have been borrowing the capital of other countries, in part because our government has been draining off our savings.

Eliminating the deficit would leave more of our domestic savings for private investment. But private investment is not enough. Besides eliminating the federal deficit, we must increase public investment, especially in reforming our education system and improving the skills of workers and improving the infrastructure of the country.

And we need to control health costs. That's not just a social policy, it's an economic policy. The rising cost of health care is an enormous drain on the economy and although we are now spending 13 percent of our gross national product on health care, we aren't buying a very good system, and expenses are rising rapidly. Millions of people are left out and many countries who spend less than we do per person get better results in terms of infant mortality and longevity.

A cut in the growth of health care costs by half by the end of the decade--a cut in the growth rate, not the cost--could save...