The Emerging Federal Quasi Government: Issues of Management and Accountability

• Author: Ronald C. Moe
• Date: 01 May 2001
• Published date: 01 May 2001
• DOI: http://doi.org/10.1111/0033-3352.00031

290 Public Administration Review •May/June 2001, Vol. 61, No. 3

Ronald C. Moe

Congressional Research Service

The Emerging Federal Quasi Government:

Issues of Management and Accountability

There has been a growing trend in the federal government toward reliance on organizations that

commingle legal attributes of the government and private sectors. These hybrid organizations now

constitute a quasi government that occasions both interest and concern by political leaders, prac-

titioners, and scholars alike because these organizations touch the very heart of democratic gov-

ernance: To whom are these hybrids accountable? How well is the public interest being protected

against the interests of private parties?

In this article, the author seeks to define the quasi government and place these hybrid entities into

manageable categories from which legal and behavioral generalizations may be drawn. Are

hybrid organizations a problem or a solution? Looking critically at this question, the author sug-

gests the answer may depend in large measure on which of two management paradigms the

reader accepts: the constitutionalist management paradigm or the entrepreneurial management

paradigm, both of which are defined and discussed. The author concludes that the increasing

reliance on hybrid organizations constitutes a threat not only to accountable management within

the government, but to the fundamental values of democratic governance as well.

Ronald C. Moe is the specialist in government organization and manage-

ment at the Congressional Research Service of the Library of Congress. His

responsibilities include providing research and consultations for members

and committees of Congress. Moe is also a fellow at the Center for the Study

of American Government at Johns Hopkins University. His writings include

books and articles in professional journals. He has received the Louis Brownlow

Award four times (1988, 1992, 1995, 1996) for the best article by a prac-

titioner to appear in

Public Administration Review

that year. Email:

ronald.moe@crs.loc.gov.

In recent years, both Congress and the president have

turned to hybrid organizations (Fannie Mae, National Park

Foundation, Polish-American Enterprise Fund, for ex-

ample) to implement public policy and functions that tra-

ditionally have been assigned to executive departments

and agencies. Hybrid organizations, which possess legal

characteristics of both the government and private sec-

tors, tend to generate considerable support and criticism.

Today, associated with the federal government alone, there

are literally hundreds of hybrid entities that have collec-

tively come to be called the “quasi government” (Seidman

1988). The relationship of this burgeoning quasi govern-

ment to elected and appointed officials is of growing in-

terest, and some concern, as it touches the heart of demo-

cratic governance: To whom are these hybrids

accountable? How is the public interest being protected

against the interest of private parties?

The scope and consequences of these hybrid organi-

zations have not been studied extensively. Basic defini-

tional issues resist resolution. Even the language used in

discussing the quasi government is in dispute. Should

quasi government management be discussed in the lan-

guage of public law, economic theory, or the business

school? The traditional tools for holding executive agen-

cies accountable (such as the budget and general man-

agement laws) are often inapplicable, leaving these hy-

brids free to pursue their own institutional interests, which

may or may not conform to the public interest as defined

by the nation’s elected leadership.

The current popularity of the quasi-government option

can be traced to at least four major factors at work in the

political realm:

1. Current controls on the federal budget process that en-

courage agencies to develop new sources of revenues;

2. Desire by advocates of agencies and programs to be

exempt from central management laws, especially statu-

tory ceilings on personnel and compensation;

The Emerging Federal Quasi Government 291

3. Contemporary appeal of generic, business-focused val-

ues as the basis for a New Public Management; and

4. Belief that management flexibility requires entity-spe-

cific laws and regulations, even at the cost of less ac-

countability to representative institutions.

Congress is increasingly engaged in quasi-government

issues ranging from the creation of nonprofit organizations

to promote individual national parks, to proposals to

strengthen regulation of government-sponsored enterprises

such as Fannie Mae, to oversight hearings on national se-

curity issues at Los Alamos Laboratory, a government-

owned, contractor-operated national laboratory. There is

nothing modest about the size, scope, and impact of the

quasi government.

Definitions and Variations in Kind

Writing about the quasi government is like entering a

thicket with little hope of escaping unscathed. The truth is

that the quasi government, virtually by its name alone and

the intentional blurring of its boundaries, is not definable

in any precise way. In general, the term describes entities

that have some legal relation or association, however tenu-

ous, to the federal government. One common aspect of this

mélange of entities is that they are generally not agencies

of the United States, as that term is used in Title 5 of the

U.S. Code.1

The first task is to break the many hybrid entities in the

quasi government into manageable categories so that legal

and behavioral generalizations may be made. For the

author’s purposes, the following categories of quasi-gov-

ernment entities are defined and discussed: (1) quasi-offi-

cial agencies; (2) government-sponsored enterprises; (3)

federally funded research and development corporations;

(4) agency-related nonprofit organizations; (5) venture

capital funds; (6) congressionally chartered nonprofit or-

ganizations; and (7) instrumentalities of indeterminate char-

acter. There is nothing definitive about these categories;

they are simply intended to provide a useful framework

for analysis. There is some utility in viewing them on a

lineal spectrum, ranging from quasi-official agencies that

are closest to the executive branch (such as the Smithsonian

Institution) to entities apparently furthest from the execu-

tive branch (such as the Veterans of Foreign Wars). There

is also a category of hybrids called instrumentalities of in-

determinate character, to include entities such as the Ameri-

can Institute on Taiwan and the U.S. Investigations Ser-

vice, which frustrate any taxonomy.

The distinguishing characteristic of the organizational

categories of the quasi government is the commingling of

the legal characteristics of the government and private sec-

tors. It may be an implicit guarantee by the federal gov-

ernment of debt instruments, or simply permission to use

a logo implying government approval. In any case, to some

degree the attributes of the sovereign are assigned to an

otherwise private party.2 The decision to create a quasi-

governmental body is not politically neutral. Presumably,

the private parties receive advantages that are not avail-

able to others. On the other hand, the private beneficiaries

then become liable for reporting and supervision of their

activities by the sovereign to protect it and the citizenry

against abuse.

Even in situations in which abuse seems unlikely, it may

still exist in subtle forms. Perception can become reality

in the political world. The interests of the private and gov-

ernment sectors may appear to be congruent or comple-

mentary at one level, while at another level they may ap-

pear to be in direct conflict. At the very least, they are

generally different interests. For instance, the federal

government’s interest in national security against espio-

nage is likely to be greater than any one of its contractors

engaged in operations. The federal government’s concern

for protecting the interest of the taxpayer may conflict with

the private shareholder interests in a government-sponsored

enterprise (GSE), such as the Federal Home Loan Mort-

gage Corporation (Freddie Mac). Even in the most tenu-

ous element of the quasi government—congressionally

chartered nonprofit organizations—the government’s in-

terests may be at odds with the interests of, say, the Ameri-

can Legion or the U.S. Olympic Committee.

There is little federal understanding, much less super-

vision, of much of the quasi government. Indeed, a good

part of the quasi government’s appeal, and of its growth, is

that it has little accountability. The complexity of much of

the subject matter and its low visibility and impact con-

tribute to this failure of attention. But occasionally, what

starts out as a small exception to meet a particular need

becomes a substantial entity with its own constituency, still

under little accountability. This is what has happened with

respect to GSEs like Fannie Mae: They started small and

were considered an appropriate response to a defined prob-

lem. Then, they took on a life of their own, providing ben-

efits to certain groups and risks to others, and today are

viewed by many as too big and powerful to be effectively

regulated and supervised (Kosterlitz 2000).

Both Congress and the executive branch are duty bound to

ask certain questions about the burgeoning quasi government:

•Is the quasi government a desirable or undesirable orga-

nizational option for public purposes?

•Does it make a difference if a task is assigned to a quasi-

governmental organization rather than a regular agency

in the executive branch; if so, in what ways?

•To what extent should accountability to government in-

stitutions be required?

•Who benefits from the quasi-governmental status, and

who is harmed?