What's Next

s George W. Bush measures furniture for the Oval Office and takes the reins of power in Washington, he faces a stark but largely unrecognized reality: The federal government's role has changed dramatically, but its capacity to act has not. That will sharply challenge his ability to make his bold new plans work.

Over the last generation, American government has been undergoing a steady, but often unnoticed, transformation. Government's traditional processes and organizations have become more marginal to the big debates, from how much we pay for health care to how we solve the really tough problems-such as poverty. New processes and institutions-often nongovernmental ones-have become more central to public policy. In doing the people's work, the federal government increasingly shares responsibility with other levels of government, with private companies and with nonprofit organizations. It's struggling mightily to steer the ship it has built.

This has huge implications for the coming policy debates. The inevitable squabbling in a Congress with no working majorities will limit the legislation that can pass. That will make it even harder to think about the bold plans that dominated the campaign: new drug plans for the elderly, new strategies for local schools, new fixes for Social Security. All of these plans require ambitious new partnerships among federal, state and local governments and between government and the private sector. It's not clear that the federal government knows how to manage the system it has already created, let alone ensure that these new plans will actually work.

The transformation of government has strained relationships among all the existing players. For decades, we have debated whether and how to privatize and shrink government. What we've really done is to extend government's reach. Instead of privatizing the public sector, we have actually governmentalized more of the private sector. Many of Washington's conflicts stem directly from the fact that federal policy strategies have changed, while the way we govern and manage policy has not. The transformation also has badly strained government's capacity to deliver high-quality public services. Government is struggling to use 20th century tools to cope with 21st century problems.

Making Government Work

If we want our government to work better, we must address this problem. If President-elect Bush wants to duck the scandals that have increasingly plagued federal programs, he will have to pay careful attention to the upper echelons of government. And if he has any hope of launching the bold initiatives he promised in the campaign, he'll have to do even more. Every one of his major proposals relies more, not less, on these indirect governmental strategies.

Government management has little sex appeal. As vice president, Al Gore found that "reinventing government" gave him little political traction. But congressional hearings savaging an overzealous IRS embarrassed the administration. So did allegations of security leaks out of the Los Alamos labs and NASA's problems in landing Mars spacecraft. The political gains from improving management are negligible. However, the penalties for management failures are huge. Despite the meager sex appeal of management, the new administration has no choice but to work hard to improve government's performance.

Consider the case of Wen Ho Lee, arrested in December 1999 on charges of mishandling classified nuclear secrets on his computer. Intelligence analysts concluded that the Chinese government had somehow captured the secrets of the W-88 warhead, America's most advanced nuclear device. Members of Congress concluded that Lee had made serious mistakes and that the Energy Department had failed to manage its secrets properly. Their answer came right out of the traditional textbook: If an agency couldn't control its operations, it must be reorganized. Congress split off Energy's security functions into a new, quasi-independent National Nuclear Security Administration.

In fact, Lee wasn't a federal employee, and he didn't work for a federal agency. Los Alamos National Laboratory is operated by the University of California-Berkeley under contract to the Energy Department, and Lee was a contract employee. Congress could comfort itself that, with its reorganization, it had acted. In fact, however, Congress scarcely considered how reorganizing DOE's headquarters would improve the behavior of the agency's contractors.

Two Courses

The federal government's struggle to operate more efficiently hinges on discovering how to control front-line activities that increasingly take place outside the federal government. That's especially the case because most of the transformation of government has followed two courses: globalization and devolution.

On the international level, organizations such as the World Trade Organization, the World Bank and the International Monetary Fund have taken a strong hand in shaping international relations. Ad hoc international structures have managed the world's response to recent ethnic conflicts from the Kosovo peacekeeping operation to the intense bombing campaign in Serbia. The foreign-or shared-command of American troops has become a hot domestic issue, but it is increasingly common in the deployment of U.S. military forces.

Other policy arenas that used to be purely domestic, from telecommunications to the environment, now have major international components. More decisions have flowed from the national to the international level-and at the international level to both ad hoc and multinational organizations. Maintaining national sovereignty while effectively pursuing international policy has become increasingly difficult. The talk during the presidential campaign about defining policy goals clearly and committing American strength only when success is clear does not begin to get at the issue of this interdependent, globalized world. Meanwhile, on the national level, responsibility for both implementing and making policy has flowed increasingly to state and local governments, and governments at all levels are relying more on contractors.

In short, America's preeminent policy strategies have tended to grow beyond the federal level, to linkages with international organizations, and to focus below the federal level, on partnerships with subnational, for-profit and nonprofit organizations. The President's biggest management challenge is that the federal government hasn't figured out how to cope with these transformations. Not only are the solutions unclear, but also the problem isn't even squarely on the table.

Globalization Since demonstrators wrecked downtown Seattle in a marginally successful effort to stop the World Trade Organization's 1999 meeting, "globalization" has become a hot-button issue. Debates about globalization have ranged from French complaints about McDonald's "burger imperialism" to agricultural giant Monsanto's decision to withdraw from the market "terminator" seeds (which yield large crops without pesticides but cannot be replanted). So hot is globalization, in fact, that neither presidential candidate dared talk much about it during the campaign.

Not talking about it won't make globalization go away. In October, the Environmental Protection Agency struggled to untangle a worldwide dispute over corn that had been genetically modified for livestock feed but found its way into food for humans. Aventis-a European agri-giant formed from French and German companies-had developed a special breed of corn resistant to the European corn borer, an insect that causes crop damage that costs American farmers more than $1 billion per year. EPA had approved the corn for feeding animals, not people. When the corn found its way into the human food chain, manufacturers and restaurants, including Wendy's and Applebee's, recalled taco shells, tortilla chips and more than 300 other products. Kellogg's shut down its corn flakes plant to make sure that the product had not found its way into the cereal. The Japanese health ministry asked the U.S. Agriculture Department to stop exporting foods containing the corn. EPA, the Commerce Department and USDA found themselves entangled in an economic/ health/foreign policy crisis as critics raised the specter of "Frankenfoods" finding their way into grocery stores.

In military affairs, the United States and its allies have delicately picked their way through ethnic battles such as Serbia and tinderbox crises like the tensions between Israelis and Palestinians. Nations have awkwardly acted together because no nation could-or would-act alone. In the bombing campaign against Serbia, nearly 30 nations negotiated which targets to bomb and when to bomb them. American pilots found themselves under the de facto command of a loose, adhoc coalition. Multi-national peacekeeping operations have struggled to reduce conflict in places as different as Somalia and Bosnia. The United States surrendered autonomy in exchange for a measure of international unity.

In economic affairs, manufacturers are debating "global sourcing," in which manufacturing and marketing know no national boundaries. Nike manufactures and markets its shoes around the world and has reduced its market presence to a single, universally known symbol. Hungry travelers can enjoy Burger King in Australia or Pepsi in Moscow. The French resent the spread of Disney and McDonald's but visit anyway. Street corner cafes in Berlin feature "genuine American pizza" from Pizza Hut. Global trade, of course, does not flow one way. Scandinavian companies manufacture two of the fastest-selling cellular phones in the United States: Nokia (from Finland) and Ericsson (from Sweden). No American television factories exist any longer, and classic American clothing from the Lands' End catalog might come from North Carolina, Scotland or Thailand.

Economic markets have become more important than national governments in setting the economic rules. Nations can choose to go their own way, but the markets exact retribution for policies that run afoul of the global marketplace. No country is exempt. The United States made a policy decision to rescue the Mexican peso in 1995, for example. But once the United States made the decision, it lost control over how the rescue would be conducted. The bond markets, not national governments, set the rescue terms.

Meanwhile, lightning-fast communications give governments little time to react. Stock trading never closes. The number of players has multiplied, but the number of those able to steer the process has shrunk. Governments everywhere-starting in Washington-have seen their power diminished. Instantaneous communication has already fueled the growing role of nongovernmental organizations (NGOs). When nations debated trade liberalization in the 1986 Uruguay round of talks, 12 NGOs registered to follow the proceedings. Seattle's 1999 World Trade Organization meeting drew so many NGO representatives that they crammed the city's new symphony hall. About 1,500 NGOs signed an anti-WTO protest declaration created online by Public Citizen, an American nongovernmental organization. The Internet allowed organizers to share ideas and tactics instantly. They overwhelmed the Seattle police, who found themselves using 1970s-era crowd-control strategies to tame 21st-century organizers. Princess Diana used the rising power of NGOs in her crusade to outlaw land mines in many parts of the world. Estimates suggest that the number of NGOs active in international affairs grew from 6,000 in 1990 to more than 26,000 at the end of the decade.

Add to this the growing power of formal, quasi-governmental, international organizations, such as the World Bank, the International Monetary Fund, the World Trade Organization and the European Union. The IMF played a powerful (and much-criticized) role in steering Asian nations through their brutal but short-lived economic flu. In Seattle, the WTO stumbled into a vicious political crossfire as it attempted to transform international trade. The U.N. has had intermittent success in launching peacekeeping missions. The European Union has become a major force reshaping everything from environmental policy to drug manufacturing in Europe. Its policies are entering America through the back door via companies that do business on both sides of the Atlantic.

Amid this galloping globalization, the United States has found itself squarely in the middle of an international paradox: It has become the world's only superpower, but it is unable to act alone. It has struggled to craft policies to accommodate these new realities-and to organize its governmental apparatus to cope with them.

In struggling with this paradox, American government faces two tough challenges. First, it must define its role at a time when international organizations-ranging from the WTO and the U.N. to a host of NGOs and multinational corporations-have become far stronger. Policy-makers have found their discretion in choosing what to do and, more important, how to do it diminished by the rising power of supra-national organizations. National sovereignty, even for the world's remaining superpower, has eroded. At least in relative terms, the federal government has become marginalized on the international stage.

Second, the federal government must develop the capacity to energetically play a new role. Following a 42-year career in the State Department, outgoing Assistant Secretary of State Phyllis Oakley worried in 1999 that America's ability to conduct foreign policy in the global age had become "threadbare."

The State Department, she said, lacked enough people skilled in dealing with issues ranging from terrorism to multinational military and diplomatic actions. Its budget stagnated while those of the CIA and Pentagon grew. Special envoys took important jobs that previously would have gone to senior career Foreign Service officers. Oakley's worries about the nation's capacity to cope with globalization strike at the heart of the nation's international challenge. Though deficiencies are most visible in the State, Defense and Treasury departments, no Cabinet department is untouched by globalization. It has implications for everything from Health and Human Services Department health care programs to EPA clean air standards and from Labor Department job security programs to Commerce Department efforts to help American businesses compete. Ad hoc White House and interagency teams have sprung up to deal with crises, but they have failed to build long-term capacity to anticipate and cope with tough problems. Congress, for its part, has scarcely proved equal to the task of framing policies to cope with this trend.

In many ways, globalization has sparked an emerging system of governance without government, management or control. National sovereignty has shrunk along with government's capacity to understand and shape the emerging issues and the conflicts that underlie them. The puzzle now is in building a sustained administrative capacity to tackle these problems. It is also in strengthening the ability of our political institutions, especially Congress, to frame the policies the nation will need to negotiate the problems and potential of globalization.

Devolution

As globalization is internationalizing American policy, devolution is localizing it. Every major domestic policy initiative since World War II has arisen from the complex ties among the federal government and its partners at the state, local, private sector and nonprofit levels. From Medicare to Medicaid, environmental planning to transportation policy, the federal government shares responsibility with state and local governments and with for-profit and nonprofit organizations.

In part, this represents a conscious strategy to expand government's programs without increasing its size. Also in part, it represents a policy that has emerged slowly but clearly: to wire society ever more directly into public programs. As Paul C. Light has shown in The True Size of Government (Brookings, 1999), the federal government's "shadow" employees in state and local government, as well as the for-profit and nonprofit sectors, outnumber federal workers 9-to-1.

Welfare reform is a case in point. The federal government "ended welfare as we know it" by handing to the states the job of getting welfare recipients into paying jobs. The states, in turn, have typically passed the task on down to their counties, and counties, in turn, frequently have contracted with for-profit and nonprofit organizations that deliver welfare reform and, in some cases, serve as managing contractors for the entire effort. On the front lines, welfare reform is a multi-faceted connection among job assessment, job training, job placement and family support programs. Effectively managing welfare reform requires tightly coordinating these different programs, some of them managed by government contractors.

The result is an extended chain of implementation in which no one is fully in charge of everything. In Milwaukee, where welfare reform is both more extensive and more successful than elsewhere, the typical welfare recipient does not encounter a government employee-federal, state, or local-in the journey from welfare to work, unless he or she qualifies for Medicaid or food stamps. Government workers manage contractors instead of delivering services. Contractors have to figure out how to do what no one has ever done before-moving large numbers of unemployed or under-employed welfare recipients to jobs and weaving together the fabric of support programs required to make this work.

Similar forces have transformed environmental policy. The Environmental Protection Agency does very little by itself. The Justice Department litigates on its behalf. Private contractors clean toxic waste sites in the Superfund program. State governments enforce most environmental laws. The EPA sets national environmental standards, as required by statute, and conducts some enforcement activity. Despite its image in the popular (and sometimes congressional) mind, the EPA conducts most of its important functions through partnerships with the states and private contractors. The Health Care Financing Administration is a tiny shell of just 4,300 employees charged with managing the $221 billion Medicare and $108 billion Medicaid programs. The nation's hospitals and physicians deliver the health care. In Medicare, they deal with nongovernmental financial intermediaries, especially Blue Cross/Blue Shield, which process claims. In managing Medicaid, HCFA's relationship is with state governments, which often add their own benefits to the federal base. The programs have grown rapidly and work well. But as with welfare, responsibility is broadly shared and no one is fully in charge.

At every level of American government, such partnerships are proliferating. They have made government more horizontal, across an array of nongovernmental partners that must be integrated and coordinate to provide services, and vertical, across more levels of government for more programs.

Therein lies the central challenge for domestic governance. We have pursued good management through authority and hierarchy for a century. When new challenges emerged, we responded by reorganizing and strengthening the bureaucracy. Today's problems, however, simply don't fit bureaucratic orthodoxy. Bureaucracies still exist, and they must be managed well if government is to work. But more of government's work occurs through links among many bureaucracies at different levels of government and between the government and nongovernmental sectors. Increasingly, the job of government managers is to manage these networks, but it is a job for which no one is well prepared. Neither is it a job that the White House or Congress clearly perceives. When problems develop, those entities respond with traditional instincts that just don't match today's problems. So not only do they fail to solve the problem, as was the case in the Wen Ho Lee investigation, but often they make the problem worse.

The transformation of the Federal Emergency Management Agency illustrates one way to make 21st century governance work. A decade ago, FEMA was the butt of constant jokes. Wags suggested that every natural disaster was in fact two: one when the tornado, hurricane, earthquake or flood occurred; the other when FEMA's case workers arrived. In 1993, FEMA Administrator James Lee Witt led a radical turnaround. He restructured FEMA's work to get checks into the hands of victims faster. He built a fast-track claim process and upgraded the information systems that process forms. Even Florida officials, enraged by FEMA's handling of Hurricane Andrew in 1992, had little but praise for the agency's response to storms in 1998. The key to Witt's success lay in redefining FEMA's function. The agency traditionally arrived after a disaster to provide emergency relief and financial assistance. Under Witt, FEMA officials focused more on preventing damage from disasters, through intergovernmental and public-private efforts. FEMA developed a "life-cycle" model of disaster management. Instead of waiting for a hurricane to hit and dealing with the aftermath, for example, FEMA officials worked closely with state and local officials to improve evacuation plans. They built partnerships with the construction industry to design and build hurricane-resistant houses. FEMA, in short, moved from a limited form of direct service delivery to a complex network-based approach that stretched from the federal government into state and local governments and the private sector. Witt saw FEMA more as a catalyst than as a service deliverer. He redefined FEMA's role and rebuilt its capacity to deal with the new role.

Implications for Governance

Globalization and devolution have redefined governance and they define the central problem that the federal government faces. We need to redefine the role the federal government will play in the 21st century or risk having that role marginalized. The new President must strengthen the federal government's capacity for fulfilling this role or risk having his bold campaign plans come to naught.

As governance has been transformed, the federal government remains structured and staffed for a different age. Effective 21st century governance requires redefining the federal government's job. The federal government's new role is more likely to resemble Witt's catalytic strategy than the New Deal-style hierarchical service-delivery models that dominate administrative orthodoxy. This does not mean abandoning the traditional model, which is the keystone of democratic accountability. It means adapting it to deal effectively with the horizontal networks that have been layered on top of the traditional vertical system.

The second governance problem of the new millennium is capacity: enhancing government's ability to govern and manage effectively in this transformed environment. The federal civil service system, for example, is built on the assumption of direct service delivery. This is anachronistic in an era when private contractors are delivering a growing proportion of government services. The civil service system has not yet risen to the challenge of developing and rewarding a cadre of skilled contract managers. Likewise, the federal budget system does not track well the number and dollar volume of contracts awarded; the available data are rudimentary and require a great deal of estimating and interpreting. Government's structure is function-based-it's organized to manage environmental, labor, health or education programs. More of its problems, though, are area-based-government must pull together lots of related functions into an integrated package that works for citizens on the front lines.

Closely related is a third problem: scale-sorting out the functions of different levels of governance. As Daniel Bell argued in his prescient 1988 forecast, Previewing Planet Earth in 2013, the nation-state is becoming too small for the big problems of life, and too big for the small problems of life. It is too small for the big problems because there are no effective international mechanisms to deal with such issues things as capital flows, commodity imbalances, the loss of jobs and the several demographic tidal waves that will be developing in the next 20 years. It is too big for the small problems because the flow of power to a national political center means that the center becomes increasingly unresponsive to the variety and diversity of local needs.

Some problems, such as welfare reform, are better suited to devolved systems. Other problems, like international capital flows and regional security policy, might best fit globalized systems. The U.S. federal government, along with other national governments, risks finding itself in a squeeze for relevance. The rise of global pressures on international (and even domestic) policies, coupled with the increasing importance of state and local governments and non-governmental partners in implementing domestic programs, raises sharp questions about what role the federal government should play.

Washington politics already shows the strain of these questions. The executive branch has increasingly relied on ad-hocracy, especially in the Executive Office of the President. Decisions have leaked away from the executive departments, with two costs: Their expertise increasingly is not used in making major decisions, and their machinery for coping with cutting-edge problems risks atrophying from disuse. Whatever capacity accumulates in the ad-hoc machinery quickly evaporates when crises end. Most major policy issues no longer can be the province of any single agency or department, so ad-hoc mechanisms tailored to important problems are inevitable. The ad-hocracy, however, has not yet been accompanied by attention to sustaining its capacity.

Congress finds itself trapped in gridlock, unable to take more than symbolic stands on a host of important issues. Some of this undoubtedly flows from the bitter politics of divided party government and, in particular, the fallout from the Clinton impeachment battle. But the tensions and inaction on Capitol Hill also are a sign of the mismatch of congressional behavior and the demands of the 21st century. Government in the United States has become increasingly intertwined in the world's governance. This poses huge management challenges. Meeting them is an issue that never surfaced in the presidential campaign, but the success of the new administration will ultimately depend on how it frames the answer.