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The Transformation of Governance: Globalization, Devolution, and the Role of Government Author(s): Donald F. Kettl Source: Public Administration Review, Vol. 60, No. 6 (Nov. - Dec., 2000), pp. 488-497 Published by: Blackwell Publishing on behalf of the American Society for Public Administration Stable URL: http://www.jstor.org/stable/977432 . Accessed: 30/03/2011 13:28

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In 1999, Donald F Kettl chaired the Priority Issues Task Force for the National Academ of Public Administration (NAPA). The Task Force was char ed with defining a research agenda for governance in the coming years. This article builds on the discussion of Task Force members: Mark Abramson, Donald Borut, Jonathan Breul, Peter Harkness, Steven Kelman, Valerie Lemmie, Naomi B. Lynn, David Mathews, David Mathiasen, Brian O'Connell, and Susan Schwab. During the 2000 NAPA Fall Meeting (November 16-18, 2000), the Priority Issues Task Force report and, in turn, KettIls article will serve as a basis for conversation concerning the presidential transition. A decision was made to publish the article here so that ASPA members and PAR readers could join this important conversation. - LDT

Donald F. Ketil University of Wisconsin-Madison

The Transformation of Governance:

Globalization, Devolution, and the

Role of Government

Over the last generation, American government has undergone a steady, but often unnoticed, transformation. Its traditional processes and institutions have become more marginal to the fundamental debates. Meanwhile, new processes and institutions-often nongovernmental ones-have become more central to public policy. In doing the peoples' work to a large and growing degree, American governments share responsibility with other levels of government, with private companies, and with nonprofit organizations.

This transformation has had two effects. First, it has strained the traditional roles of all the players. For decades, we have debated privatizing and shrinking government. While the debate raged, however, we incrementally made important policy decisions. Those decisions have rendered much of the debate moot. Government has come to rely heavily on for-profit and nonprofit organizations for de- livering goods and services ranging from anti-missile sys- tems to welfare reform. It is not that these changes have obliterated the roles of Congress, the president, and the courts. State and local governments have become even live- lier. Rather, these changes have layered new challenges on top of the traditional institutions and their processes.

Second, the new challenges have strained the capacity of governments-and their nongovernmental partners- to deliver high-quality public services. The basic structure of American government comes from New Deal days. It is a government driven by functional specialization and pro- cess control. However, new place-based problems have emerged: How can government's functions be coordinated in a single place? Can environmental regulations flowing down separate channels (air, water, and soil) merge to form

a coherent environmental policy? New process-based prob- lems have emerged as well: How can hierarchical bureau- cracies, created with the presumption that they directly deliver services, cope with services increasingly delivered through multiple (often nongovernmental) partners? Bud- getary control processes that work well for traditional bu- reaucracies often prove less effective in gathering infor- mation from nongovernmental partners or in shaping their incentives. Personnel systems designed to insulate gov- ernment from political interference have proven less adap- tive to these new challenges, especially in creating a co- hort of executives skilled in managing indirect government.

Consequently, government at all levels has found itself with new responsibilities but without the capacity to man- age them effectively. The same is true of its nongovern- mental partners. Moreover, despite these transformations, the expectations on government-by citizens and often by

government officials-remain rooted in a past that no longer exists. Citizens expect their problems will be solved and tend not to care who solves them. Elected officials take a similar view: They create programs and appropriate money. They expect government agencies to deliver the goods and services. When problems emerge, their first in- stinct is to reorganize agencies or impose new procedures- when the problem often has to do with organizational struc- tures and processes that no longer fit reality. The performance of American government-its effectiveness, efficiency, responsiveness, and accountability-depends on cracking these problems.

Donald F. Ketti is a professor of public affairs and political science at the Robert M. La Follette School of Public Affairs at the University of Wisconsin- Madison. He is grateful to the Priority Issues Task Force members for their stimulating insights. Email [email protected].

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Consider the case of Wen Ho Lee, arrested in Decem- ber 1999 for mishandling classified nuclear secrets on his computer. Intelligence analysts concluded the Chinese government had captured the secrets of the W-88 warhead, America's most advanced nuclear device. Either intention- ally or by sloppy handling of secret data on his computer, the experts believe the Chinese had obtained the secrets from Lee. For two decades, Lee was an essential researcher at the Department of Energy's (DOE) Los Alamos nuclear laboratory. As an analyst in the secret "X Division," he had access to the top secrets and moved massive amounts of data-806 megabytes-to unsecured computers.

Federal agents could not implicate Lee in leaking the data. In fact, they could not even demonstrate that data had leaked-or whether the Chinese had somehow managed to replicate the design on their own. The investigation itself was sloppy. It prematurely focused on Lee, precluding a close look at other suspects. At the very least, however, the agents concluded Lee had mishandled the data and might well have been the source, inadvertent or deliberate, of a leak of key weapons designs to the Chinese.

Congress responded in typical fashion. In a series of hearings, members of Congress expressed outrage at the problem and resolved to take firm action. They concluded the DOE could not be trusted to plug the leaks on its own. Members asked pointedly, "What can we do to solve this problem?" Their answer: Split off the security issues into a new, quasi-independent National Nuclear Security Ad- ministration. If the DOE could not ensure the security of nuclear secrets, Congress resolved to create a new agency that could.

However, there was little evidence the restructuring would solve the Lee problem-if there was a problem, and if the problem were structural within the DOE. Lee him- self was not a federal employee. He did not even work for a federal contractor. Rather, he was an employee of the Los Alamos National Laboratory, a subcontractor to the University of California-Berkeley, which has conducted nuclear research there since World War II. Any disciplin- ary process was not a matter for the DOE but for the Uni- versity of California. More important, to the degree that there was a problem, it lay in the DOE's ability to manage its vast contractor organization-not in the way its head- quarters was organized. Paul Light, for example, has esti- mated that there are 35 contract employees for every DOE worker (Light 1999).

Congress responded to the problem in traditional, re- flexive fashion. It misidentified the problem-govern- ment's management of its nongovernmental partners-and it solved the problem poorly, by reorganizing instead of strengthening the department's leverage over nongovern- mental partners. Suggestions that the solution failed to fit the problem were ignored. Congress did what it was used

to doing. What it was used to doing, however, increasingly failed to match the way the federal government was doing its work.

Government had quietly been transformed, and Con- gress-along with the rest of government-struggled to get a handle on governmental programs. The transforma- tion has followed two courses: globalization and devolu- tion. On the international level, state and even local gov- ernments are working directly with other nations to promote trade or attract foreign investment. Organizations like the World Trade Organization (WTO), the World Bank, and the International Monetary Fund (IMF) have taken a strong hand in shaping international relations. Ad hoc interna- tional structures have managed the world's response to recent ethnic conflicts, from the Kosovo peacekeeping operation to the intense bombing campaign in Serbia. For- eign (or shared) command of American troops proved a hot domestic issue, but it has become increasingly com- mon in the deployment of military forces. Other policy arenas that used to be domestic, from telecommunications to the environment, now have major international compo- nents. More decisions have flowed from the national to the international level-and at the international level, to both ad hoc and multinational organizations. Permanent organizations like the State Department have struggled to build the capacity to cope with these changes, while ad hoc ones never institutionalize. Maintaining national sov- ereignty while effectively pursuing international policy has become an increasingly difficult problem.

On the national level, more responsibility for both mak- ing and implementing policy has flowed to state and local governments. In environmental policy, the federal Envi- ronmental Protection Agency (EPA) has increasingly shifted into the role of service purchaser (through contracts with private companies to clean up Superfund sites) and service arranger (through partnerships with state govern- ments). The EPA's success-and the success of environ- mental policy-hinges on how well EPA serves as orches- tra conductor. Moreover, in many communities, small-scale quasigovernments are managing everything from educa- tion to arts districts. Some governance mechanisms have become computer based, neighborhood based, or both.

In short, America's preeminent policy strategies have tended to grow beyond the nation-state, to linkages with international organizations, and to focus below it, to part- nerships with subnational, for-profit, and nonprofit orga- nizations. Supranational organizations have grown to new but poorly understood functions. Subnational partnerships have transformed the role of state and local governments. As we have debated privatizing government, they have paradoxically also governmentalized a substantial part of the for-profit and nonprofit sectors. The federal government's institutions, political and administrative, find

The Transformation of Governance 489

themselves with yet more challenges, from orchestrating these partnerships to shaping the national interest. The roles of all of these players have changed dramatically. Manag- ing these roles requires capacity that lies far beyond the standard responses, structures, and processes that have gradually accumulated in American government.

Globalization Debates about "globalization" have ranged from French

complaints about McDonald's "burger imperialism" to agricultural giant Monsanto's decision to withdraw "ter- minator" seeds (which yield large crops without pesticides but cannot be replanted) from the market (Rubin 1999). London School of Economics director Anthony Giddens (1999) notes that globalization "has come from nowhere to be almost everywhere." In the early 1990s, the term was little used. By 2000, no speech was complete without it- even if those who used the term agreed on little more than the fact "that we now all live in one world." "Globaliza- tion" is poorly defined. Most often, the term is synony- mous with the galloping expansion of the global market- place. However, globalization is much more. It includes political, technological, and cultural forces. It is more than a description-it is an ideology that defines basic expecta- tions about the roles and behaviors of individuals and in- stitutions. Giddens suggests, in fact, that globalization is about "action at a distance": the increasing interpenetra- tion of individual lives and global futures.

The ideology of globalization sprang quickly from dis- parate roots (Held, McGrew, Goldblatt, and Perraton 1999). The end of the Cold War left the United States as the world's remaining superpower. By uprooting generations of ideolo- gies and power relationships, it also scrambled relationships among all the world's nations. The major conflicts since the end of the Cold War have been not international but subnational and ethnic. These conflicts have posed tough dilemmas: How much do internal conflicts threaten interna- tional stability? How can the world's nations respond to such conflicts? The United States-and other nations-have deli- cately picked their way through these battles, and, when they have responded, they have forged multinational alliances. 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 com- mand of a loose, ad hoc coalition. The coalition shored up international support but made it far harder to fight the war. Multinational peacekeeping operations have struggled to reduce conflict in places as different as Somalia and Bosnia. In each case, the essential strategy was surrender of national autonomy in exchange for (more or less) international unity. Nations acted awkwardly together because no nation could- or desired-to act alone.

Behind the notable military actions, however, lies the rampant globalization of world markets. Manufacturers debate "global sourcing," where manufacturing and mar- keting know no national boundaries. Indeed, Nike manu- factures and markets its shoes around the world. The com- pany 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 caf6s in Berlin feature "genuine American pizza" from Pizza Hut. Global trade, of course, does not flow one way. Corporate mergers have sometimes become mania, especially in the consolidation of communications indus- tries across national borders. Scandinavian companies manufacture two of the fastest-selling cellular phones in the United States, Nokia (Finland) and Ericsson (Sweden). No American television factories exist any longer, and clas- sic American clothing from the Lands' End catalog might come from North Carolina, Scotland, or Thailand. Some analysts have gone so far as to suggest that globalization "is increasingly forcing us to live in an economy rather than a society"-with shrinking national political power and "with government's role in economic affairs now deemed obsolete" (Smadja 2000).

While that might be going a bit too far, it is impossible to ignore the fact that it is at least a debatable proposi- tion. With online trading, futures and options trading, and the world's rotating time zones, the stock market never closes, and no nation can insulate its finances from the world economy. Capital markets are global and hiccups in one region can quickly spill over to everyone else, as the "Asian flu" in 1997 and 1998 painfully proved. The Clinton administration's much-vaunted campaign to wipe out the national debt has had surprising spillovers, in fact. The U.S. Treasury's 30-year bond has long been the world's interest rate benchmark. If the national debt de- clines sharply-or even disappears-so too will the bed- rock of investor security. While is it surely better to de- velop a new touchstone than to lean too heavily on an old one, the worldwide implications of the Treasury's deci- sion show how tightly linked the world's economic fi- nances have become.

The 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 retribu- tion for policies that run afoul of the global marketplace. No country is exempt. It was a U.S. policy decision to res- cue the Mexican peso in 1995, for example. But once the United States made the decision, it lost control over how to do so. The bond markets, not national governments, set the terms for the rescue (Mathews 1997). Corporations are outgrowing the world's governments, some observers sug- gest (Gelbspan 1998).

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At the core of the globalization movement, however, are lightning-fast communication systems-especially the Internet-that have developed over the last decade. The communications revolution has made it possible to spread information around the world easily and cheaply. Not only has it fueled the 24-hour financial markets, it has, just as importantly, transformed governance. For the price of a local telephone call to connect to the Internet, organiza- tions around the world can instantly exchange informa- tion. Jessica Mathews argues in Foreign Affairs (1997),

Widely accessible and affordable technology has broken governments' monopoly on the collection and management of large amounts of information and deprived governments of the deference they enjoyed because of it. In every sphere of activity, instanta- neous access to information and the ability to put it to use multiplies the number of players who matter and reduces the number who command great author- ity. The effect on the loudest voice-which has been government's-has been greatest.

The result-so far, at least-has been rampant fragmen- tation of norms, ideologies, values, and institutions. "We are at the beginning of a fundamental shake-out of world society," Giddens bluntly suggests, "and we really do not know where it is going to lead us" (quoted in UNRISD 1996).

Instantaneous communication has already fueled an important transformation. Nongovernmental organiza- tions-NGOs, for short-have quickly acquired great in- fluence, in the United States and around the world. (In the United States, they are better known as nonprofit organi- zations, for their tax status.) 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 repre- sentatives that they crammed the city's symphony hall to plot strategy. About 1,500 NGOs signed an anti-WTO pro- test declaration created online by Public Citizen. The Internet allowed organizers to share ideas and tactics in- stantly. They overwhelmed the Seattle police, who found themselves using 1970s-era crowd-control strategies to try to tame twenty-first-century organizers (Economist 1999; Mallaby 1999).

How many NGOs exist is unknown. These organiza- tions are powerful engines for organizing and driving policy change, and their influence has been impressive. At the 1992 Earth Summit in Rio de Janeiro, they raised public pressure for governments to commit to reducing greenhouse gases. In 1994, they dominated the World Bank's fiftieth-anniversary meeting and forced the Bank to rethink its goals and techniques. In 1998, a coalition of environmentalists and consumer rights activists pressed

for the end of the Multilateral Agreement on Investment, a draft treaty under the auspices of the Organisation for Economic Co-operation and Development to improve foreign-investment rules. In the late 1990s, Princess Diana's much-publicized campaign to outlaw land mines was part of a broader movement that, in just a year, led to substantial success. The Jubilee 2000 campaign helped shape a new policy of reducing the debts of the world's poorest countries. The number of international NGOs behind these and other movements grew from 6,000 in 1990 to more than 26,000 at the end of the decade. The total number of NGOs around the world, from neighbor- hood-based groups to large international organizations, surely numbers in the millions (Mathews 1997). More- over, these NGOs have been important not only in politi- cal organizing; in many countries, including the United States (as we shall shortly see), they have become im- portant in delivering public services as well.

Add to this the widely recognized and growing power of formal, quasigovernmental, international organizations like the World Bank, the IMF, the WTO, and the European Union. The IMF played a powerful (and much-criticized) role in steering Asian nations through their brutal but short- lived flu. In Seattle, the WTO stumbled into a vicious po- litical crossfire as it attempted to transform international trade. The United Nations has had intermittent success in launching peacekeeping missions. The European Union has become a major force in reshaping everything from envi- ronmental policy to drug manufacturing in Europe. Its policies are spilling through America's back door via in- ternational companies that do business in both places.

Amid this galloping globalization, the United States has found itself squarely in the middle of an international para- dox: It has become the world's only superpower but has found itself unable, for political and pragmatic reasons, to act alone. It has struggled to craft a policy to accommo- date these new realities-and to organize its governmen- tal apparatus to cope with them.

In struggling with this paradox, American government faces two tough challenges. First, what is the federal government's role at a time when international organiza- tions-formal organizations like the WTO and the United Nations; informal organizations like the NGOs and multi- national corporations-have become far stronger? Policy makers have found their discretion over what to do and, more important, how to do it diminished by the rising power of supranational organizations. National sovereignty, even for the world's remaining superpower, has eroded. At least in relative terms, the federal government has become more marginalized in the international debate.

Second, what capacity does the federal government need to play this emerging role? Following a 42-year career in the State Department, outgoing Assistant Secretary of State

The Transformation of Governance 491

Phyllis Oakley worried in 1999 that America's ability to conduct foreign policy in the globalized age had become "threadbare." The State Department itself lacked people skilled in dealing with these issues. Its budget stagnated while the CIA and Pentagon budgets grew. Special envoys took important jobs that previously would have gone to senior career foreign-service officers. "The only thing we have left is the military," she complained, "so we use it in Iraq and Kosovo." Consequently, the nation tends toward "using military means for diplomatic purposes" (Perlez 1999).

Oakley's comments could be dismissed as the parochial complaints of a long-term State Department official who had lost too many budget wars. Her worries about the nation's capacity to cope with new issues, however, strike at the heart of the globalization movement. Globalization is not the province of any cabinet department. Indeed, on top of the usual suspects in the State, Defense, and Trea- sury departments, no cabinet department is untouched by globalization. Its implications strike at issues ranging from the Department of Health and Human Service's health care programs to the EPA's clean air standards, from the Labor Department's job security programs to the Commerce Department's 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 proven equal to the task of framing policies to cope with this trend.

Globalization has helped to homogenize cultures. The phenomenon is far broader than the spread of American fast food and movies. The Internet has helped to cement English as the global language and has fueled rapid com- munication. Governments, including American govern- ment, cannot hope to manage this trend. At best, they can learn to cope and take advantage of the synergies it offers. They can also devise policies to ensure that the rampant spread of electronic communications does not create an underclass without the knowledge of or access to the com- munication system.

In many ways, however, globalization has sparked an emerging system of governance without government, man- agement, or control. Shared values, which shaped govern- mental policies in the past, have yet to emerge. National sovereignty has shrunk along with government's capacity to understand and shape the emerging issues and the con- flicts that underlie them. European concerns about Ameri- can "Frankenstein foods"-produced with genetically modified organisms like disease-resistant corn-have shaped a new generation of public-policy problems (Rubin 1999). So, too, have the rise of ethnic conflicts, interna- tional currency flows, and multinational business merg- ers. The puzzle is building the administrative capacity, in sustained rather than ad hoc fashion, for tackling these prob-

lems. It is also 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 At the same time that globalization has international-

ized much of American policy, devolution has localized other arenas. As much of the work in public administra- tion over the last two decades has shown, the federal government's work is carried out through an elaborate net- work of contracting, intergovernmental grants, loans and loan guarantees, regulations, and other indirect adminis- trative approaches (Mosher 1980; Salamon 1981, 1989; Kettl 1988). My doctor's office, for example, has a sign reading, "Patients receiving medical assistance must show their card before receiving service." My pharmacist fills prescriptions for private-pay, group subscriber, HMO, and medical-assistance patients.

The federal government manages most of its domestic programs through such indirect partnerships. It mails en- titlement checks directly, steers air traffic control, and runs the national parks. From Medicare to Medicaid, and envi- ronmental to transportation policy, the federal government shares responsibility with state and local governments and with for-profit and nonprofit organizations (Kettl 1993). Indirect tools have gradually and subtly risen in promi- nence. In part, this represents a conscious strategy to avoid increasing the size of the federal government while ex- panding its programs. In part, it represents an unconscious strategy to wire civil society ever more directly into public programs. As Paul C. Light shows (1999), the federal government's "shadow" employees, in the state and local governments as well as in the for-profit and nonprofit sec- tors, outnumber federal workers by nine to one.

Welfare reform is a case in point. The federal govern- ment "ended welfare as we know it" by passing the job to the states. The states, in turn, have typically devolved the task to their counties, and the counties in turn have con- tracted for-profit and nonprofit organizations to deliver welfare reform and, in some cases, to serve as managing contractor for the entire effort. Moreover, welfare reform is really a multi-faceted connection among job assessment, job training, job placement, and family support programs. Effectively managing welfare reform requires tightly co- ordinating these different programs-each often managed in turn by nongovernmental contractors.

The result is an extended chain of implementation. A vastly complex network produces the program, and no one is in charge of everything. At ground zero of welfare reform in Milwaukee, the typical welfare recipient does not even encounter a government employee-federal,

492 Public Administration Review * November/December 2000, Vol. 60, No. 6

state, or local-in the journey from welfare to work, ex- cept for workers who qualify recipients for Medicaid and food stamp programs. The county divided the city into regions and contracted with separate nongovernmental organizations-some nonprofit, some for-profit, and some not even based in Wisconsin-to manage the job. Mil- waukee County had to determine which contractors were equipped to do the job. It had to maintain competition among them to prevent criticisms of government mo- nopoly, which plagued traditional welfare programs, from visiting themselves on the new program. They had to devise new systems of oversight, especially of auditing contractors' financial records. They had to determine what level of profits was acceptable. Reports of excessive prof- its produced criticisms that the contractors were squeez- ing the poor. The effort enjoyed remarkable success in its first years, with far more welfare recipients moving to jobs than the program's advocates had dared hope. That, in turn, led to questions about appropriate benchmarks: What level of performance was expected and desirable in welfare reform?

In short, welfare reform turned the existing system on its ear. Government workers found themselves managing contractors instead of delivering services. Contractors, many of whom had substantial experience managing so- cial services but did not have a track record of running such a broad or ambitious effort, had to find employees and develop mechanisms for the new program. The suc- cess, driven by a rapidly growing economy with low un- employment, helped to disguise the underlying manage- ment issues that Milwaukee and the state struggled to resolve. Other local governments hired private companies to serve as general contractors to manage the entire pro- gram. These contractors, in turn, hired subcontractors to conduct front-line operations.

Contracting out for urban social services is, of course, nothing new. The practice dates from the 1960s, when Model Cities and other antipoverty programs supported neighborhood organizations around the country. The fed- eral government worried that cities were unresponsive to the needs of their citizens, especially their poor. They gave local governments grants with the expectation that the com- munities would develop service-delivery partnerships with neighborhood groups. The funding helped to institutional- ize these groups, as well as the pattern of service partner- ships. Nongovernmental organizations have become part- ners with local governments in managing federal- and state-funded programs.

Welfare reform marks the maturation of a generation- long trend that fundamentally transformed community governance. It is a trend with great political attraction: It wires local nongovernmental groups directly into the ser- vice system, and it allows government to increase its reach

without increasing its size. It spreads administrative re- sponsibility, and hence political risk. It provides a way to tailor broad programs to community needs. Having forged partnerships that serve so many interlocking purposes, it will be hard for governments to undo them.

Similar forces have transformed environmental policy. The U.S. Environmental Protection Agency does very little itself. The Justice Department litigates on its be- half. Private contractors clean toxic waste sites in the Superfund program. State governments do much of the enforcement. Congress mandates the EPA to set national environmental standards, and the EPA conducts some enforcement activity. Despite its image in the popular (and sometimes congressional) mind, most of the EPA's im- portant functions occur through partnerships with the states and private contractors.

To some degree, of course, the EPA has relied on such partnerships since its creation. As it has moved on to tougher environmental problems-especially problems that cross the lines among its traditional air, water, and soil of- fices-these partnerships have become far more impor- tant to its operations. Indeed, the EPA faces a second gen- eration of environmental problems, such as non-point-source pollution and global warming, for which its first generation tactics, including inspection and litiga- tion, have proven weak (Kettl 1998; Graham 1999).

Meanwhile, the states have asked for more flexibility in fulfilling their responsibilities under federal laws. They have sought to integrate federal requirements with their own policy goals and, in many cases, to tailor environ- mental approaches to individual watersheds and other place-based approaches. American multinational compa- nies, driven to compete with companies based in the Euro- pean Union, have sought to level the regulatory playing field so they do not face widely different rules in different countries. They have been especially eager to import the ISO 14001 approach from Europe, which gives compa- nies greater flexibility to create environmental manage- ment systems in exchange for agreements to meet envi- ronmental standards. Thus, the EPA has found itself pulled toward more devolution while its policy strategies have faced increasingly global pressures (NAPA 1997, 1995).

The Health Care Financing Administration, located within the U.S. Department of Health and Human Services, is responsible for managing the federal government's two most important health programs, Medicare and Medicaid. It is a tiny shell of just 4,300 employees, compared with the vast network it supervises: $221 billion for Medicare and $108 billion for Medicaid (in fiscal year 2001). The nation's hospitals and physicians deliver Medicare and Medicaid services. In Medicare, they deal with nongov- ernmental financial intermediaries, especially Blue Cross! Blue Shield, which processes claims. In Medicaid, their

The Transformation of Governance 493

relationship is with state governments, who often add their own benefits to the federal base. The states have followed the federal government's course in contracting with finan- cial intermediaries, often the same ones used in the Medi- care program, to manage the reimbursements. The gov- ernment has thus built an extensive publicly funded health care system without making it publicly run. The HCFA sets basic standards and monitors the programs, while state governments tailor Medicaid to local tastes and account for about 43 percent of total Medicaid spending. Large data- processing organizations manage the paper flow, while private and nonprofit health care providers actually deliver the services. It has grown rapidly and works remarkably well. But as in welfare, responsibility is broadly shared, and no one is fully in charge.

At the state and local levels, more partnerships have developed. Mayor Steve Goldsmith launched major re- forms of Indianapolis's government through his "yellow pages" test. If the local yellow pages contained at least three entries for a service the city provided, the city would contract it out (Fanaras 2000; Potapchuk, Crocker, and Schechter 1998, 213; Jeter 1997). Phoenix won an award as one of the world's best-run cities by pursuing an ag- gressive contracting-out approach (Flanagan and Wigenroth 1996; Flanagan and Perkins 1995). In addi- tion to Medicaid, state governments tend to manage their highway construction programs through contracts. Driven by the legacies of the federal Model Cities, Comprehen- sive Employment and Training Act, Community Devel- opment Block Grant program, and Title XX block grant programs, state and local governments have contracted out most of their social service programs. Local "smart growth" initiatives have led to new partnerships among local governments.

In general, the lower the level of government in the United States, the more the government is engaged in di- rect service delivery. At every level, however, partnerships, with both governmental and nongovernmental partnerships, have proliferated at an accelerating rate. That has made government both horizontal-in search of service coordi- nation and integration with nongovernmental partners in service provision-and vertical-through both traditional hierarchical bureaucracies and multilayered federalism. It is not so much that the horizontal relationships have sup- planted the vertical ones; rather, the horizontal links have been layered on top of the vertical ones. That, in fact, was one of the implicit precepts of the "reinventing govern- ment" movement of the 1990s.

Therein lies the central challenge for domestic gover- nance: More than a century's worth of administrative theory, since Woodrow Wilson's classic paper on public administration (1887), shapes the theory and practice of vertical relationships. Since the New Deal, this approach

has defined the analytical and normative orthodoxy of American government. Reformers have focused on reor- ganizing administrative structure and reshaping organiza- tional processes (especially budgeting and personnel). Elected policy makers have seen in these vertical relation- ships the cornerstone of bureaucratic responsibility: del- egation of authority to administrators in exchange for ac- countability for results. The hierarchical chain, driven by authority, provided the critical linkage between front-line workers and policy makers.

The spread of horizontal relationships muddies that ac- countability. They replace hierarchical authority with net- works-sometimes formally constructed through contracts and other legal agreements, sometimes informally drawn through pragmatic working relationships (Kickert, Klijn, and Koppernjan 1997; Milward and Provan 1998; Provan and Milward 1995; Nohira and Eccles 1992; Chisholm 1989). It is impossible to dispute the existence and impor- tance of these networks. It is easy to bet on their perma- nence. Since the maturation of traditional administrative theory in the 1930s, interorganizational networks have been steadily growing in importance, and they show no sign of fading away. Welfare reform, Medicaid, and Medicare ce- ment their continued existence.

For public administration, the challenge is reconciling the management and accountability challenges of these networks with the bedrock that hierarchical authority has long provided. How can government ensure accountabil- ity in extended service networks where administrative re- sponsibility is widely shared and where no one is truly in charge? How can government, structured and staffed for an era when vertical relationships dominated, build the capacity to manage horizontal partnerships effectively?

The Federal Emergency Management Agency (FEMA) shows one way to make this transition. FEMA at one point was the butt of constant jokes. Wags suggested that ev- ery natural disaster was in fact two: one when the tor- nado, hurricane, earthquake, or flood occurred, and the other when FEMA's case workers arrived. In 1993, ad- ministrator James Lee Witt led a radical turnaround, re- structuring 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, had little but praise following storms in 1998. Senator Bob Graham (D-FL) hailed FEMA's response as "a 180-degree turnaround" from the Hurri- cane Andrew disaster.

The kernel of Witt's success lay in redefining FEMA's function. Traditionally, FEMA arrived after a disaster to provide emergency relief and financial assistance. Under Witt, FEMA officials focused more on preventing the dam- age from disasters, though an intergovernmental and pub-

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lic-private effort. FEMA developed a "life-cycle" model of disaster management. Disasters-and their costs-were the product of planning and mitigation that needed to be- gin far in advance of disasters and continue long after to prevent their recurrence. 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 more houses that are hurricane resistant. FEMA, in short, moved from a lim- ited 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. He saw FEMA more as a catalyst than as a service deliverer. Witt redefined FEMA's role and rebuilt its capacity to deal with that role.

Implications for Governance These two trends-globalization and devolution-de-

fine the agenda for governance in the early twenty-first century. They chart the challenge for government. Not only must government devise new strategies for managing pub- lic programs effectively in a globalized and devolved policy world, it must also build the capacity for doing so. Most government bureaucracies remain structured and staffed to manage traditional direct programs through tradition- ally structured and staffed bureaucracies. As the government's strategies and tactics have changed, its struc- tures and process-especially its personnel systems-have not. Governance of twenty-first-century American govern- ment is more likely to resemble the catalytic strategy that Witt developed than the New Deal models that dominate administrative orthodoxy. This certainly does not mean abandoning the traditional model. That model is the key- stone of democratic accountability. It does mean adapting it to deal effectively with the horizontal networks that have been layered on top of the traditional vertical system. Thus, the first governance problem is adaptation: fitting tradi- tional vertical systems to the new challenges of globaliza- tion and devolution, and integrating new horizontal sys- tems to the traditional vertical ones.

The second governance problem is capacity: enhanc- ing government's ability to govern and manage effec- tively in this transformed environment. For a century, hierarchical authority has provided the intellectual foun- dation of public administration. It has also provided the foundation for delegation of power to the bureaucracy in exchange for a mechanism of accountability. Because both globalization and devolution scramble these foun- dations, they demand that government create new strat- egies for effective management and accountability. The federal civil service system, for example, is built on the

assumption of direct service delivery. It performs more poorly in developing and rewarding a cadre of skilled contract managers (Kettl, Ingraham, Sanders, and Horner 1996). The federal budget system simply does not track well the number and dollar volume of contracts awarded. The data that are available are rudimentary and require great interpolation. Government's structure is function based, at a time when more of its problems are area based. There is sound logic, as Luther Gulick argued in 1937, in organizing by function. The strain between the verti- cal processes of government (represented in function- based departments) and its horizontal problems, how- ever, has been growing. How can government strengthen its ability to govern and manage while maintaining demo- cratic accountability?

This is also a problem of education. Many, perhaps most, of the nation's schools of public affairs, public administra- tion, and public policy have not adjusted themselves to cope with the challenges well under way in public institu- tions. Consequently, future public servants, who will pur- sue the public interest both within and outside the govern- ment, might well fail to receive the education they need. Increasingly, the pursuit of public value occurs in the non- governmental institutions that manage many of government's programs. It is also increasingly the case that the careers of many public affairs program graduates take them, at least for part of their professional life, into non- governmental organizations. Public affairs education needs to broaden its perspective to the emerging tools of govern- ment action-and to the transforming environment in which managers use them.

Closely related is a third governance problem, scale: sorting out the functions of different levels of governance and, in particular, redefining the role of the federal gov- ernment. As Daniel Bell argued in his prescient 1988 fore- cast, "Previewing Planet Earth in 2013",

The common problem, I believe, is this: 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 things as capital flows, commodity imbalances, the loss ofjobs, and the several demographic tidal waves that will be developing in the next twenty 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. In short, there is a mismatch of scale.

Some problems, like welfare reform, are better suited to devolved systems. Other problems, like international capital flows and regional security policy, might best fit globalized systems. The federal government, along with

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other national governments, risks finding itself in a squeeze for relevance. The rise of global pressures in international (and even domestic) policies, coupled with the increasing importance of state and local governments and nongov- ernmental partners in implementing domestic programs, raises sharp questions about what role the federal govern- ment should play.

Washington politics already show the strain of these questions. The executive establishment has increasingly relied on ad hocracy, especially in the executive office of the president. Decisions have leaked away from the ex- ecutive departments, with two costs. It is harder for their expertise to find its way into major decisions. Their ma- chinery for coping with cutting-edge issues risks atrophy- ing from disuse. Whatever capacity accumulates in the ad hoc machinery can quickly leak away when crises end. Most major policy issues cannot be the province of any single agency or department, so ad hoc mechanisms tai- lored to important problems are inevitable. The ad hocracy, however, has not yet been accompanied by attention to building the capacity to make ongoing ad hocracy work.

Congress finds itself trapped in gridlock, unable to take more than a symbolic stand 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. The tensions and inaction on Capitol Hill are a sign of the mismatch of con- gressional behavior and the mission that twenty-first cen- tury asks of it. There is indeed a mismatch of scale. Its symptoms show up regularly enwrapped in Washington's dysfunctional politics.

Government in the United States has thus become in- creasingly intertwined in the world's governance. The fed- eral government shares domestic policy with state and local governments and with nongovernmental organizations-and state and local governments do the same. These changes are not the result of an explicit policy decision; rather, they grew gradually and imperceptibly from hundreds of tactics deci- sions over two generations of public policy. They have cu- mulated, however, into a fundamental transformation of governance-a transformation that poses substantial chal- lenges for public institutions and how we manage them.

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