Damaged Goods: Before Reinventing Government, Clinton Needs to Repair It

The debris of Reaganism is scattered across Bill Clinton's domestic agenda: Environmentalism may be slow to take hold at the Interior Department because friends of industry have "burrowed in" to the bureaucracy. Sound industrial policy will call for better information than the Commerce Department and Federal Trade Commission have to offer. Crafting welfare reform may be more difficult because the Department of Health and Human Services keeps insufficient data to evaluate its own experimental programs. And invigorating the Environmental Protection Agency could take years because an orgy of contracting out and budget cutting has left the agency with insufficient staff to keep the private contractors honest.

After 12 years of Republican neglect and frequent Democratic complicity, perhaps it is unsurprising that the new administration has inherited a government ill-suited for activism. The toll of drastic budget cuts and the grosser casualties of deregulation have been well-chronicled; frustrated liberals realized long ago that damage years in the making would take more than three months to undo.

But much of the damage to the executive branch hit below the water line. Although the conservative mandate had its limits during the 1980s, the White House's ability to undermine government did not. What Ronald Reagan and, to a lesser extent, George Bush could not accomplish through legislation or executive orders, their subordinates evidently achieved through subtle shifts in personnel and mission.

While the Reagan-Bush era campaign to eviscerate government machinery was neither illegal nor particularly illicit, it was illustrative of the right wing's extensive contempt for the public enterprise. And in the current climate of tight budgets and inflated expectations, that campaign's legacy will complicate the challenge facing resurgent liberals. Before reinventing or even reforming government, this ambitious administration will have to reconstitute it.


INVASION OF THE BUREAUCRACY-SNATCHERS

Although Reagan had given defenders of the welfare state plenty to fear by 1981, it was not clear at that time just how much damage his administration was capable of inflicting. After all, regulatory and social service agencies had fared well under the only other Republican administrations of recent memory, Richard Nixon's and Gerald Ford's. While that had a lot to do with Nixon's moderate attitude on domestic affairs, it also had something to do with the strength of institutional momentum.

Over the years, the independence of executive branch departments had become entrenched in statute and tradition. Although the increased regulation of the 1960s and 1970s had sparked Republican war cries of "overregulation" -- cries that fueled Reagan's 1980 victory -- few thought the new president capable of effecting drastic course changes in the bureaucracy, at least right away. As Susan and Martin Tolchin recount in Dismantling America, scholar and longtime presidential adviser Richard Neustadt warned ambitious Reaganites that taking over the government was "like steering a supertanker. You may put the wheel over hard, but it's still not going to turn on a dime."

But Reagan paid the conventional wisdom no heed, using every weapon in his arsenal to reign in the bureaucracy. When Congress was determined to defend regulatory agencies, he cut the agency budgets. And when Congress would not approve the budget cuts, he put the agencies in the hands of people determined--as he was--to see them fail.

The quintessential victim of these tactics was antitrust law. To disciples of the ultra-conservative "Chicago School" (named for the University of Chicago, where the movement was born), antitrust law was largely unnecessary. Reasoning that the market automatically protects competition by encouraging opportunistic firms to undercut price-gougers, Robert Bork and the rest of the "law and economics" fraternity argued that erecting laws against corporate mergers and other potential sources of noncompetitive behavior was an unfair burden on business.


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Even many Republicans found the Chicago School's theories specious. Antitrust enforcement had a long history of bipartisan support--it prospered during the Nixon-Ford era -- and conservatives had generally accepted it as an instrument to assure that consumers get the free choice promised by market economics. But Reagan was a true believer in the Chicago School, and he imposed it on the two agencies jointly responsible for antitrust law, the Federal Trade Commission and the Justice Department's antitrust division. The result was an effective neutering of antitrust enforcement that reminded some observers of the early 1900s -- the years when rampant corporate manipulation of consumers first spurred progressive clamoring for antitrust protection.

At the Justice Department, Attorney General Ed Meese slashed the antitrust unit's staff in half and cut the real budget by more than 30 percent during his eight-year term. The average number of annual investigations dropped from around 300 under Carter to a little more than 200 under Reagan, and most of those were filed against small businesses. Justice did keep up its practice of filing amicus briefs in private suits, but even that activity betrayed the new party line: Meese directed the unit to file briefs supporting companies accused of restraining trade. "You can imagine how demoralizing it was for government attorneys to be filing briefs on behalf of corporate defendants," says one antitrust scholar. "If they had wanted to do that, they could have gotten jobs with the companies in the first place."

At the Federal Trade Commission, the process was a bit more subtle. Carter's FTC director, Michael Pertschuk, had made many enemies in Washington, landing the FTC atop the Republican hit list. When Pertschuk left in 1981 (FTC commissioners serve staggered terms), Reagan quickly handed the agency over to James Miller, a Chicago School economist who had been directing Reagan's slash-and-burn campaign at the Office of Management and Budget. Miller brought a pro-business sensibility to the government's consumer-protection agency, and he institutionalized it in the guise of restructuring -- namely, he subordinated the agency's two investigative divisions, the Bureau of Competition and the Bureau of Consumer Protection, to its analytical unit, the Bureau of Economics. Miller also presided over substantial downsizing, cutting the staff by more than one-third through attrition.

With Justice's lawyers at the mercy of Meese and the FTC's lawyers at the mercy of conservative microeconomists, antitrust enforcement virtually vanished. The political appointees routinely refused to pursue investigations put forth by the career attorneys, and a Wall Street free-for-all ensued. Both agencies stayed silent while Northwest Airlines swallowed up Republic, a top rival in the Midwest, and General Motors began joint ventures with Toyota, its largest foreign competitor. The government backed off other high-profile investigations too, refusing to scrutinize a string of oil industry mergers and dropping altogether a Carter-era initiative to break up IBM.

With Northwest in a tailspin, IBM tumbling from the pantheon, and GM reporting record losses, today the purported economic rewards of the Meese-Miller strategy seem dubious. (In a recent New Yorker article, James Stewart made a convincing case that IBM, at least, would have benefited from the kind of breakup the government forced at AT&T, stimulating the competitive energies of that protected behemoth.) As for the agencies, their misfortune is a bit more certain: they lost a generation of would-be crusaders to corporate law. "There were a lot of people sitting around reading the newspaper," recalls one refugee who fled the FTC for a corporate firm in 1985. "Frankly, I was bored."

For the most part, the carnage at Justice and FTC -- emblematic of what happened to almost every regulatory agency during the Reagan years -- ended in 1989, since George Bush had less stomach for fighting wars with the bureaucracy. (His limited passion was reserved for wars elsewhere.) With more moderate conservatives in charge, the budget cuts slowed and the ideological war ceased. Bush even appointed a few legitimate regulators -- that is, people who believed in the agencies they were appointed to direct -- giving defenders of the regulatory state cause for a small sigh of relief. (David Kessler, who will continue to head the Food and Drug Administration under Clinton, comes quickly to mind.)

But declaring a truce and clearing the battlefield are two different things. Bureaucratic negligence inflicted lasting damage on everything from the American economy to the global environment -- damage the Bush administration was in no rush to undo. Bush in many cases appointed activists to the political posts only to deny them the funds they needed to make repairs. Clinton can do better by not only appointing the right people but also by appropriating the necessary money. Unfortunately, in some cases that will not be enough.


LETHARGY AS A LEGACY

Not since the days of Lyndon Johnson have career government servants enjoyed the support of an enthusiastic public. Nixon and Gerald were actively apathetic about government workers, and Carter's run against the government served mainly to heighten public anger at the bureaucracy -- anger that subsequently helped force him from office.

But nobody ever despised the civil service quite like Ronald Reagan and his band of ideologues did. To conservative intellectuals like Howard Phillips, now president of the Conservative Caucus Foundation, the welfare state seemed to subsidize left-wing activists intent on using the government as a means of social revolution. Though that view was far from universally shared, most conservatives at least agreed that the civil service had become something of a permanent left-wing constituency within the executive branch.

The claims were not wholly without foundation: After all, who else but liberals would shirk Wall Street to toil away at the Justice Department? (Actually, quite a few conservatives, hoping to build résumés for lobbying careers.) But even at the height of conservative power in the 1980s, Reagan could not always squeeze the liberals out. When White House strategists realized that budget cuts could accomplish only so much, they settled on the next best alternative: they sought to infiltrate the career bureaucracy by installing like-minded ideologues.

Getting old civil servants out was surprisingly easy. Often, it meant simply shuffling departments and priorities, thus promoting or -- in some cases -- forcing the attrition of career staff. At the Environmental Protection Agency, Reagan pushed a plan to force 5,000 of the department's 1980 staffers out within two years (there were only 5,400 in the first place). Although the initiative met with last-second opposition from Congress, the message got through: by the fall of 1981, EPA was losing staff at a rate of nearly 3 percent a month.

Filling those positions with conservatives was a tad more complicated, since the prohibition of political cronyism was precisely the reason the civil service was founded in the first place. But clever administrators usually found a way around the letter -- if not the spirit -- of the law.

One popular scheme took advantage of the Ramspeck Act, which allows staffers on Capitol Hill to bypass the usual civil service application process. Under the law, competitive reviews are expedited and six-month probation periods are waived for staffers seeking career posts in federal agencies. The law's intent was to keep the staff of lame-duck legislators from fleeing public service, and in fact it only applied to staffers with at least three years of Hill experience. But in practice the law was interpreted loosely, and the result was to provide conservative ideologues with a way to "burrow in" to the bureaucracy. Currently, at least seven cases of possible Ramspeck violations are under investigation at the Interior Department, where transition officials found former political appointees had burrowed in to the bureaucracy after working on the Hill for as little as a week.

Of course, infiltration of the bureaucracy did not always involve such deception, nor did it always involve a political agenda. But whatever the motives, conservative foot soldiers are now entrenched throughout the federal government. Some may leave on their own, and some may fall in line out of a commitment to professionalism. But those who do not could prove a troublesome nuisance -- if not an outright obstacle -- for an administration looking to undertake an expansion of the activist state. Warns one aide who worked on the transition team: "We can kid ourselves into thinking the political appointees have all the power, but in truth they are the steerers, not the rowers. And those rowers can really slow things down."

Interior may be in the most trouble. Carter had prepared the department for a renaissance of sorts, expanding the staff at key divisions such as the Bureau of Land Management and the Bureau of Reclamation. But Carter never had time to fill the posts he worked so hard to create -- an opportunity Interior Secretary James Watt was quick to seize in 1981. With Reagan's strong support, Watt packed the agency with opponents of environmental protection, and during the last decade this group, dubbed "the rip-and-run set" by environmentalists, presided over a massive sell-off of federal lands to industry and developers.

Given the extensive damage, even Bruce Babbitt, known for his administrative skills, may have trouble righting the ship. The sell-off has deprived the department of several billion dollars in annual revenue, creating a serious fiscal drain. The Government Accounting Office predicts new legislation and proper collection of current fees could boost department revenues and savings by $4.5 billion over the next four years, but in practice mid-level officials hostile to these objectives could be responsible for implementing the plans.

Unfortunately, changing the crew at Interior will not be easy. Al Appleton, New York City's Commissioner of Environmental Protection, predicts it could take as long as five years to clean house, since Congress has unusually extensive oversight at Interior and many legislators are protective of the Reagan-era staffers: "It's going to be very intricate work. They're going to have to go through an entire culture change."

Time bombs are also ticking in other agencies, and officials have started to notice. At the EPA, Administrator Carol Browner has warned Congress about a "total lack of management, accountability, and discipline" within the agency. She also worries that Reagan-era moves to contract out more than $1 billion in work every year -- the agency's total budget is only $7 billion -- could compromise the integrity of EPA studies. At the Department of Housing and Urban Development, a confidential report obtained by the Washington Post said the scandal-ridden department may still be wasting hundreds of millions of dollars, because former secretary Jack Kemp's focus on ideologically charged issues deflected attention away from mid- and low-level management issues.

In principle, contracting-out can save the government money. But that outcome depends on competitive bidding, performance reviews, and careful audits. In practice, under Reagan and Bush the ranks of public officials necessary to supervise contractors have been so thinned that the putative gains of contracting out have evaporated. Agencies have been left with the worst of both worlds--demoralized and disorganized public officials and unaccountable private contractors.


IGNORANCE AS REPUBLICAN BLISS

In some cases, the private sector has stepped in to profit from what the government is failing to do. Consulting firms make millions each year by taking recently released Commerce Department data, updating it with better analysis, and selling it back to American businesses. Meanwhile, the Japanese government employs more economists to study input/output statistics for American industries than the American government does, and the city of Cleveland, tired of insufficient information from Washington, now gets its cross-border trade statistics from the Canadian government in Ottawa.

Such poor standards for information gathering and analysis are not unique to the economic sphere. Indeed, the campaign to undermine research programs was a trademark of the Reagan era. Although the professed rationale for these cuts was downsizing and a desire to privatize government functions, the strategy's main impact was to deprive the bureaucracy of the intellectual foundation it needs to function and develop new initiatives. Now that damage threatens to compromise some of Clinton's most highly touted campaign proposals -- namely, his plans to revive the economy and revamp social welfare programs.

The campaign against government information began with David Stockman, Reagan's director of the Office of Management and Budget. Like many conservatives, Stockman saw in the government information apparatus tremendous waste and duplication. He also knew that information companies were eager to provide for fees what the government had always provided for free. Although privatization would squeeze out non-corporate consumers -- namely small businesses and academics -- and although information gathering was widely considered a public function, Stockman forged ahead and called for maximum privatization of government information services.

While the duplication and disorganization Stockman perceived was not illusory (unlike most developed nations, the U.S. divides information gathering functions among 70 agencies and subagencies), the budget impact was. Statistical research accounts for less than one-tenth of 1 percent of government spending. But Stockman could make his ideas stick: he was responsible for approving all department budget proposals, and information programs rarely had strong constituencies anyway.

The impact of the Stockman crusade was a real cut in research and statistical funding for practically every department except defense. (Stockman wanted to cut there too, but Reagan forbade it.) Agencies coped by cutting corners -- using smaller statistical samples and skipping all but major recalculations -- but the product inevitably suffered. As predicted, a private information industry quickly sprung to life, offering a product geared exclusively for corporate clients and priced accordingly.

By the late 1980s, the potential harm to government -- which depends on reliable information -- was so apparent that even Michael Boskin, Bush's very conservative chairman of the Council of Economic Advisers, called for a massive reconstruction. But those efforts ended in 1991, and today a wide range of federal statistics remain insufficient or out-of-date. The agencies simply have too little information or too few people to analyze it, and the consumers are beginning to take notice. "There's a steady erosion in the confidence of numbers," says one congressional aide. "This affects everybody. It causes mistakes."

Such mistakes could well begin with economic policymaking. Data from the Commerce Department's Bureau of Economic Analysis, including the trade deficit and the gross national product, is essential for an informed policy debate, particularly when tariffs and targeted tax-breaks are on the table. But since that same information is crucial for economic regulation too, the unit was a target of Reagan-era cutbacks and today can barely keep up with the times. When the bureau released this year's tables on input and output of American industry, it based the analysis on industry relationships from 1982.

At the FTC, the erosion of information could do more to thwart Clinton's attempts to forge an industrial policy. In the 1970s the FTC launched the Line of Business Reporting program, which required corporations to file information on annual revenues, costs, and investments in research and development. Such data is important for targeting public investment, since it provides information on industry concentration and competitiveness. But Reagan and Miller killed the program in 1982, and it could take five to ten years to get it going again. "Hundreds of hours were spent on that program under Ford and Carter," says Eleanor Fox, an antitrust expert at New York University. "Now they're probably going to have to start from scratch."

But if there is a potential poster-child for the victims of Reagan- and Bush-era abuse, it is the Department of Health and Human Services. HHS will be responsible for enacting at least one and probably two of Clinton's most high-profile proposals -- welfare reform and a comprehensive national health care system. But 12 years of fiscal and political abuse have crippled the department's intellectual base, and today it has barely enough information to allow the proper administration of existing programs, let alone the implementation of new initiatives.

Consider the department's most well-known program, social security. Reagan cut the national staff of the Social Security Administration (a division of HHS) from 80,000 to 60,000, eliminating field jobs that ensured effective administration in less populated areas. He also dismantled the Office of Research and Statistics, which collected information on poverty and pensions used throughout the government.

The cuts produced a sharp decline in the quality of services. Many disability recipients now wait months for their checks, with some 800,000 claims pending. Retired people with routine questions about their pensions or recipient status wait on hold for hours and conclude the government cannot do anything right. Thanks to Reagan, social security -- once the government's most popular and successful program -- has become an easy target for government critics. (Leading the charge during the 1980s was Dorcas Hardy, Reagan's SSA director, who eventually published a book warning people not to have faith in social security because it was doomed to failure.)

As for the ability of HHS to carry out Clinton's expanded agenda, the outlook is equally bleak. According to the GAO, HHS has not kept adequate data on the Jobs Opportunities and Basic Skills Training (JOBS) initiative, a potential model for welfare reform. As a result, HHS is ill-equipped to judge whether JOBS is helping speed the transition from welfare dependency to self-sufficiency--the very kind of information architects of a new welfare system will need to make reform work.

Rebuilding the government's statistical base at places like HHS will not take much money. It will, however, take political chips -- chips that nobody has to spare. "During the Reagan years, nobody in the administration was going to expend political capital on behalf of statistics," says one congressional staffer. "Given the big-league baseball that is being played with the budget this year, I think it is unlikely that anybody will expend political capital on behalf of statistics right now."


GETTING THE LAST LAUGH

Could something have been done to avoid this mess? Not much, aside from reversing the last two or three presidential elections. For all the talk about the bureaucracy's neutrality, agencies and cabinet departments are still part of the executive branch. As Reagan demonstrated, these departments are explicitly political.

But the state of affairs in the bureaucracy does offer one valuable -- if somewhat belated -- insight on the Republican legacy. As many of Reagan's critics long suspected, one reason government did not work during the last decade was that the officials running it were often determined to see it fail. Underfunding and understaffing the bureaucracy did not always cut waste, as the Republicans promised; in many cases, it increased it.

Policymakers would do well to keep that lesson in mind during the coming months. While every agency has fat, the trimming must be done with care. The Clinton administration and Congress might be surprised to learn how effective the HHS or EPA can be under the direction of true believers. At the very least, the administration needs to know that the success of new initiatives depends on the ability of the government to carry out basic functions it is now ill-equipped to handle.

Rebuilding the foundation of activist government will not grab many headlines, and it holds out no promise of grass-roots appeal. But such unglamorous work lurks behind every politically potent proposal now on Bill Clinton's agenda.

Disbelief in government could still be a self-fulfilling ideology. Four years later, Ronald Reagan could still have the last laugh.

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