Consume or Invest: What Do/should Agency Leaders Maximize?

• Publication year: 2021

CONSUME OR INVEST: WHAT DO/SHOULD AGENCY LEADERS MAXIMIZE?

William E. Kovacic(fn*) & David A. Hyman(fn**)

Abstract: In the regulatory state, agency leaders face a fundamental choice: should they "consume," or should they "invest"? "Consume" means launching high profile cases and rulemaking projects. "Invest" means developing and nurturing the necessary infrastructure for the agency to handle whatever the future may bring. The former brings headlines, while the latter will be completely ignored. Unsurprisingly, consumption is routinely prioritized, and investment is deferred, downgraded, or overlooked entirely. This Article outlines the incentives for agency leadership to behave in this way and explores the resulting agency costs (pun intended). The U.S. Federal Trade Commission's health care portfolio provides a useful case study of how one agency managed and minimized these costs. Our Article concludes with several proposals that should help encourage agency leadership to strike a better balance between consumption and investment.

INTRODUCTION ................................................................................ 296

I. THE NEED FOR INVESTMENT ................................................. 298

II. THE SIRENS OF CONSUMPTION ............................................. 304

III. A CASE STUDY OF BALANCED INVESTMENT AND CONSUMPTION ........................................................................... 313

A. Setting Goals and Designing a Strategy to Achieve Them .. 315

B. Capability and Capacity Enhancements ............................... 316

C. Retrospective Evaluation ...................................................... 317

IV. STRIKING A BETTER BALANCE BETWEEN CONSUMPTION AND INVESTMENT ....................................... 318

A. Create a Pro-Investment Norm ............................................. 318

B. Investment Budgets .............................................................. 320

C. Setting Priorities and Approving Projects ............................ 320

D. Ex Post Evaluation ............................................................... 321

V. A FEW COMPLICATIONS .......................................................... 322

A. Striking the Proper Balance .................................................. 322

B. Does It Matter Whether Agency Leadership Is a Plank-Owner or a Successor-in-Interest? ....................................... 322

C. Agency Leadership Versus Agency Personnel .................... 323

D. Operationalizing the Framework .......................................... 323

CONCLUSION .................................................................................... 324

INTRODUCTION

"[P]art of public service is planting trees under whose shade you'll never sit . . . ."(fn1)

In the management cliché hall of fame, the all-time winner is pick the "low hanging fruit."(fn2) Of course, obtaining high-value results with a minimum of effort is excellent advice, at least as a starting point. But, as a general principle, the message is extremely short sighted. Unless leaders plant trees, there will be neither shade nor fruit for future generations to enjoy.

The conflict between picking and planting-between consuming and investing-is a policy perennial. Good leaders know that any success they may achieve depends on the investment decisions made by their predecessors. In like fashion, good leaders also know that many of the benefits of any investment they make will be captured by their successors.

Agency leaders are not angels.(fn3) They are human beings, who desire personal recognition and advancement. Investment in institutional capability and capacity does not result in newspaper headlines, popular acclaim, or the offer of a high-paying private sector job. Instead, it is the announcement of a "big" case or rulemaking that casts agency leadership in a positive light.

If there is no turnover in agency leadership this dynamic would not create a major problem: "[w]hen agency leadership does not change, the leaders capture the benefits (and bear[] the costs) of the outcomes in the cases that they initiate."(fn4) But agency leadership is never indefinite. Indeed, in most of the administrative state, political appointees come and go quite frequently.(fn5) A timely departure makes it possible for agency leaders to "'outrun their mistakes,' so that when blame-time arrives, the burden will fall on someone else."(fn6) In practice, this means that agency leaders have a significant incentive to launch big cases or rulemaking without being overly concerned about the agency's capability and capacity to deliver the goods.(fn7) Stated more concretely, agency leaders will predictably and systematically slight investment and prioritize consumption. I.B.G.-Y.B.G. ("I'll be gone, you'll be gone") does not apply only to Wall Street.(fn8)

Building on our previous work,(fn9) we show the importance of balancing consumption against investment. We focus on the policy mismatches that arise when short-term political appointees lead governmental agencies with long-term policy needs-but our analysis also applies to private and nonprofit firms. We also discuss measures that can serve to counteract inadequate attention to investment. The Federal Trade Commission's (FTC) health care program illustrates the importance and benefits of sustained investments in capability.

Part I describes how investments in agency capability provide the necessary foundation on which an agency builds successful cases, rules, and other policy initiatives. Part II examines the structural and political incentives that encourage agency leadership to systematically privilege consumption over investment. Part III provides a case study of the FTC's health care portfolio, where investments in policy research and development (R&D) have played a critical role in generating policy success. Part IV identifies a few modest strategies that might encourage the prioritization of investment by agency leaders. Part V addresses objections that might be raised against a rebalancing of consumption and investment.

I. THE NEED FOR INVESTMENT

In this Article, we focus on agencies similar to the FTC, but the framework we describe applies to many governmental agencies. Regulatory agencies, like the FTC, have a wide variety of policy instruments at their disposal.(fn10) A regulatory agency can prosecute cases, promulgate rules, conduct studies, issue reports, convene public consultations, issue guidelines, and have agency personnel give speeches. To apply these tools effectively, the agency must do three things well: it must understand the behavior it observes; it must decide whether the behavior is sufficiently problematic to justify intervention; and it must then choose among the various alternative solutions. Competent performance of these three tasks requires substantial institutional capability and capacity-and expert performance requires substantially more than that.(fn11) Developing the necessary capability and capacity requires an agency to invest effectively in five distinct domains: hiring personnel, developing administrative infrastructure, building depth and currency of substantive knowledge, establishing internal decision-making procedures, and engaging effectively with other organizations and leaders.

The first investment domain is hiring personnel. The agency must find, hire, and retain skilled professionals and other personnel. And, once the personnel are hired, they must be organized into teams. For example, the FTC has separate Bureaus for Competition, Consumer Protection, and Economics. The Bureau of Competition and the Bureau of Consumer Protection are staffed by lawyers; the Bureau of Economics is staffed by economists.(fn12) As we have noted elsewhere, "[t]he government is already thickly planted with bureaus, agencies, and inter-agency working groups, departments and commissions"-and each has its own internal organization designed to effectuate the statutory mission.(fn13)

Whatever organizational configuration is chosen, a successful operating unit will contain teams with strong analytical skills and deep expertise in the relevant subject matter.(fn14) Good teams prosper by reason of their intellectual acumen and intuition, honed by repeated study of specific problems. For example, the FTC economists and lawyers who review mergers in the pharmaceutical industry have analyzed dozens of transactions over the past few decades.(fn15) They have a sophisticated understanding of individual firms, drug research pipelines, and industry trends. The specific individuals staffing this area have changed over time, but the FTC pharmaceutical mergers team has sustained a good mix of experienced managers and case handlers and newer employees who learn from longstanding team members.

The second investment domain is developing an administrative infrastructure (both personnel and physical facilities) to support substantive projects. A major component of the FTC's consumer protection work consists of prosecuting fraudulent schemes involving health care products and services.(fn16) These and other antifraud initiatives benefitted immensely from investments the FTC made in the 1990s to build an electronic database (Consumer Sentinel) that collects and analyzes complaints about alleged misconduct.(fn17) By amassing complaints received by the FTC and a variety of governmental...