Why Government Fails So Often

Public administration scholars often write about what’s working in the public sector, hoping to help people who work for government agencies improve their programs’ performance.

As government has grown, another strain of writing has emerged, devoted to analyzing public sector failures and their causes. Eric Patashnik’s 2008 book, Reforms at Risk and Phillip Howard’s The Rule of Nobody, published earlier this year, are two examples, as is a new paper by Paul Light, a professor of public service at New York University. They are now joined by another volume straightforwardly titled Why Government Fails So Often and How it Can Do Better by Peter H. Schuck, an emeritus professor of law at Yale University who worked for the now defunct Department of Health Education and Welfare during the Carter administration.

Schuck’s book includes a chapter about federal programs he deems successful, and a chapter about the civil service, but most of his analysis focuses on programs that could be seen as failing. The dozens of domestic programs he covers serve the interests of some, he acknowledges, but often inefficiently, and with unintended consequences, and at immense cost. Schuck advocates incremental change to improve government performance.

It is a timely book in light of the steep declines in the public’s regard for government, a Congress that is increasingly hostile to federal programs, and a civil service whose morale keeps sinking lower with every survey. Schuck’s analysis helps explain why the government is so reviled and thus helps us think about remedial steps and the kinds of policies that should be avoided in the future.

The very size of government doubtless contributes to the public’s skepticism. Its spending has reached $3.8 trillion. The $3 trillion we spend on domestic programs is consuming the highest share of gross domestic product since the end of World War II. With food stamps and unemployment insurance and Social Security and health programs running at record levels, more Americans are receiving entitlements than ever before. Tens of millions are dependent on such programs for the essentials of life: food, shelter and basic health care among them. The government now backs 90 percent of new mortgages, more than before the financial crisis, and nearly 100 percent of student loans. Yet it’s clear that government has not (perhaps cannot) cure many problems that afflict us, Shuck writes, including “an embedded underclass, weak family structures, fiscally unsustainable entitlement programs, persistently mediocre (or worse) elementary and secondary education, growing inequality, a deteriorating infrastructure.”

High spending and inefficient regulation threaten future economic growth, Schuck argues. And low public esteem compromises the government’s “legitimacy,” he writes. As Philip Howard also observes in The Rule of Nobody, citizens who don’t particularly trust government aren’t of a mind to give it the power and resources that would enable successful, effective programs. In one example, more than four years after enactment of the Affordable Care Act, many states continue to resist the new law, opting not to establish insurance exchanges or to adopt Medicaid reforms that would enroll millions of uninsured people.

Shuck writes interestingly about the problem of “moral hazard” in programs that seek to manage risks. Incentives in such programs tempt people to take on more risk because they know that others will bear the costs if the bet goes sour. Federal flood insurance is a familiar example, blamed for costly building and rebuilding in vulnerable flood plains. Moral hazard characterized the Fannie Mae and Freddie Mac housing loan programs, whose guarantees tempted lenders to make risky subprime mortgages (with taxpayers ultimately left holding the bag). The Federal Housing Administration is now replicating the problem. The Pension Benefit Guaranty Corporation sets pension plan insurance premiums too low to cover the true risks of default, tempting companies to shift their obligations to the agency, which now has a deficit exceeding $25 billion. The Affordable Care Act creates moral hazard with its lenient treatment of young people who don’t sign up until they’re sick. Drought insurance programs costing billions guarantee farmers a portion of their projected income, rather than simply paying them for damaged crops, tempting many to buy more coverage, and providing more income than they would earn with healthy crops. Shuck writes that “moral hazard is common in government programs targeted at the poor, as one usually can receive benefits only by remaining poor.”

The student loan program “is an engine of moral hazard,” Schuck writes. Debt in the program now exceeds $1.2 trillion, and more than $75 billion is in default. Student borrowers have few assets, aren’t asked for collateral or evidence of ability to repay. Delinquency rates are the highest of any federal program, reaching 11 percent in 2012. And the program appears to have contributed to the tripling of tuition and fees in the past 20 years—since student borrowers can now “afford” to pay more.

Of course, implementation of ambitious programs is often fraught with difficulty. The Affordable Care Act is the latest example. Schuck focuses on the many programs (including the ACA) whose success depends on effective cooperation from many different actors who often have inconsistent perspectives on the program, and the power to make decisions affecting it. The complexity of reaching agreement often produces delays that can “defeat, deform and sap a program,” Schuck writes. Apparent waste of huge amounts of money in Afghanistan and Iraq are one well-known example, but Schuck sees comparable problems in many U.S. jurisdictions.

Writing about structural impediments to successful regulatory programs, he observes that markets are so powerful “that they tend to resist, distort, override and marginalize” well-intentioned policies. Expansion of government regulation, he writes, has fed development of the underground economy, now estimated at about $2 trillion in income unreported to the Internal Revenue Service, and growing apace.

Analyzing policy successes, Schuck credits Social Security, food stamps and the earned income tax credit as effective anti-poverty programs. The G.I. Bill, the interstate highway system, the Voting Rights Act and the Immigration and Nationality Act of 1965, airline deregulation in the late 1970s, the Welfare Reform Act of 1996 and the National Institutes of Health, all make his list of programs that have contributed to the national welfare. 

Programs big and small, with varying records and often under attack from the right, are managed by civil servants and their armies of contractors. They continually seek better performance and greater efficiency, but improvements come mostly at the margins. So, writes Schuck in a glum passage, the federal workforce is “demoralized, poorly equipped, marginalized, publicly scorned and [literally] undisciplined” because it is so difficult to suspend, demote or fire a poor performer. Still, he dedicates his book to “our federal officials—civil servants and political appointees alike—who struggle against great odds to make our government work.”

Schuck suggests a few useful steps for incremental reforms, but the importance of his book lies in its analysis of why domestic programs falter—comprehensive and compelling, timely and important for those who care about government’s performance and reputation.