Government's Twisted Transformation

The transformation of America's public sector to date is limited and, worse, distorted. Second-order, silly, or questionable reforms have outpaced the fundamentals.
September 13, 2006
By John D. Donahue  |  Contributor
John D. Donahue is a GOVERNING contributor. He is the Raymond Vernon Lecturer in Public Policy, faculty chair of the Harvard Kennedy School Case Program and the SLATE teaching initiative.

In my previous turn with Management Insights, I observed that the growth of governmental outsourcing has been a lot slower than is commonly believed. More important, I argued, was that the pattern of privatization is frequently perverse. Government outsources many tasks that it should not -- tasks that are hard to specify, hard to monitor, not subject to much competition -- and fails to outsource many tasks that meet these criteria for efficient and accountable delegation. And, I promised to propose an explanation (other than random muddle) for this pattern.

Outsourcing actually offers a microcosm of the bigger picture of governmental reform over the past several decades. Some real changes have taken place in how public organizations operate, and many of these changes have been very good indeed. But many aspiring reformers, among whom I count myself, are plagued by a sense that progress has been meager, scaled against either the effort applied or the distance to be traveled. The transformation of America's public sector to date is limited and, worse, distorted. Eminently sensible changes remain stubbornly stalled. Some second-order, silly, or questionable reforms have outpaced the fundamentals.

This twisted transformation has multiple causes, of course, but one key driver is under-recognized: an ever-deepening segregation between the public and private worlds of work. Government has become the last stronghold of the middle-class economy that is evaporating in the private sector. In business, but not in government, the bottom has fallen out and the ceiling has blown off the pay distribution.

Around the mid-1970s, America's long post-war spell of shared prosperity began to unwind. As the economy became more global, more diverse, more sophisticated, technologically complex and flooded with information, some workers surged ahead. Others fell behind. Laws, institutions, and norms that had constrained the highs and the lows of working life were swept away. Inequality increased, through boom and bust, until, by the turn of the century, the economic distances separating Americans were wider than they had been in living memory.

Employment became a game with higher and higher stakes, and Americans learned to play the game hard. More hours in the week and steeper quotas of energy and passion were drained from the rest of life and invested in the workplace. Winners won big. Losers fell hard. Those are the rules today.

This didn't happen in government. Government work tends to operate under the rules that marked much of America's economy a generation or more ago. Risk is dampened. So is opportunity. Rewards at the top are not all that different from those below. Nearly all workers, from janitors to managers, earn middle-class salaries. Unions endure. Change is gradual. Layoffs are rare. Promotions come slow.

The kinds of workers who no longer have a decent shot at earning middle-class status in the private sector -- especially, but not only, those without advanced skills -- seek out and cling to government jobs. Other kinds of workers -- especially those with the most and best education -- find more freedom, more flexibility, and much, much higher compensation in the private sector. Certain commentators believe that it is the business world that has turned its back on a healthy balance, breaching a vague, but vital, social contract. Others believe the public sector has foolishly lagged behind as business blazes new trails of efficiency and opportunity. But, for present purposes, let's set aside the debate over which working world is better and which is worse and focus on the fact that they have become sharply different. And, this difference goes a long way to explain why government reform campaigns are so difficult and so error-prone.

Twin gaps at both ends of the labor market -- with government compensation high at the low end and low at the high end -- impose two kinds of damage. They starve government of the top talent required for consistent excellence in core competencies. And, they hobble government's flexibility to alter or delegate more straightforward tasks. Public missions that demand highly qualified workers are performed less adroitly than they ought to be (if carried out internally despite skills shortfalls) or performed more awkwardly and less accountably than they ought to be (if delegated despite the downsides). Simpler public missions are performed less flexibly than they should be because of the (entirely rational) risk aversion that is rife among government workers.

Both aspects of the segregation of public work, its attraction for the less skilled, and its limited appeal to the most fortunate, make government fall short of the performance it could attain in a less divided economy. There is little good news in this story -- and much of it, of course, is not news at all to experienced public managers. But, there may be some comfort in clarifying just why governmental reform is such heavy lifting.