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Performance-Based Organizations: Assessing the Gore Plan

Alasdair Roberts, School of Policy Studies Queen's University

In March 1996, Vice-President Gore unveiled a plan to "dra-

matically change" parts of the federal bureaucracy by converting

them into "performance-based organizations, " or PBO 's. PBO j

would be given more freedom in operations and held accountable

for the achievement of specified results. While the PBO plan may

improve effectiveness in some parts of the federal government.

claims about its significance have been overstated, and it will

encounter serious challenges in implementation. The PBO model

is not likely to be applied widely. The paper also assesses the sig-

nificance of the PBO proposal as a part of a larger battle to pre-

serve the administrative capabilities of the federal government.

Finally, it is argued that the proposal is evidence of the increasing

internationalization of the "reinventing government" movement.

The weakness of the PBO plan reflects some of the weaknesses of

the larger international reform movement.

In March 1996, Vice-President Gore announced anew initiative that would dramatically change theway federal agencies provide services to the pub- lic. Gores proposal is to establish many service deliv- ery functions within the federal government as per- formance-based organizations (PBO's). This model has two key elements: organizations would be freed from many of the laws, regulations, and policies that normally constrain managers within government; and new incentives would be created to improve per- formance. Executives working in performance-based organizations would be hired on short-term con- tracts, with pay and tenure contingent on their suc- cess in meeting annual performance targets (National Performance Review, 1996a, 6-7).

This plan is modeled on a reform of the British public service begun by the government of Prime Minister Margaret Thatcher in 1988. In the last eight years, most of the British civil service has been reorganized into a set of executive agencies that are given more flexibility in administration and expected to meet annual performance targets. The heads of these executive agencies are no longer career civil ser- vants; instead, they are recruited from either the pri- vate or public sector, hired on limited-term con- tracts, and given performance-related pay. Similar reforms have been made within the New Zealand public service (Boston et al, 1996), and on a much smaller scale in Canada (Aucoin, 1995, 146-48).

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Table 1 Candidates for Performance-Based Organization Status

Department C~ommercc Commerce Defense Agriculture HUD HUD 0PM Transportaiion Treasury Commerce

t996 FTEs 5,2.37 406 17,612 5,300 4,544 72 921 168 2.347 200

Date Announced Seprembcr 1995 September 19'JS March 1996 March 1996 March 1996 March 1996 March t996 March 1996 July 1996 September 1996

Organization , I'ateni and Trademark Office National Teclinical Information Service Dcfensf CommLisjrv Agency Animal and I'laiu Healtli Inspection Service Federal Housing Administration Government National Mortgage Association Office of Retirement Programs St. Lawrence Seaway Development Corporation U.S. Mint Seafood Inspecuon Program

Sources: Gore, 1995. 120; NPR. t996a. 20; Gore. 1996, 78-79; OMB. 1997. 37. T!ie U.S. Mint was originally nominated by a House appropriations subcommittee and later adopted by the administration. The Animal and Plant Health Inspection Service has not been included in the administration's most recent list of reform candidates.

Ten organizations, accounting for about 2 percent of the federal civilian work force have been identified as candidates for this reform (Table 1). However, advocates of the plan suggest that it can be applied much more widely. David Osborne. a coauthor of Reinventing Government, says that three-quarters of the federal bureaucracy could be transformed into performance-based organi- zations by the year 2004 (1997, 97-98). A senior official of the Office of Management and Budget also says that "significant areas of the federal government" would benefit from this reorganization (Koskinet\. 1996). During the 1996 election campaign. President Clinton suggested that hundreds of performance-based organiza- tions might be established within the federal government (Clinton, 1996). The President recently said that this plan wili be a priority for his second term (OMB, 1997. 37).

Advocates of performance-based organizations have also sug- gested that the reform could allow participating organizations to make deep cuts in operating budgets and personnel requirements without impairing overall performance. Osborne (1997) says that the plan could reduce total operating costs by 25 billion dollars by the year 2004—enough to pay for a battery of new federal educa- tion and training programs. Administration officials have made similar claims about the efficiency improvements that could be obtained with this plan. '

The main purpose of this study is to consider whether the claims made about the potential benefits of performance-based organizations are realistic and whether it will be as easily imple- mented as proponents suggest. It concludes that the plan is a use- ful experiment, but that there are good reasons to regard expansive claims about its benefits with caution. Assertions about results achieved in the United Kingdom have sometimes been exaggerated and there is little evidence to suggest that the savings from the American plan will be large enough to fund substantial new pro- grams. The British public service has in fact found it very difficult to deregulate its service delivery organizations, and early experience in the United States suggests that candidates for reorganization are likely ro encounter a similar challenge. Constitutional differences will also restrict the pocential scope of the performance-based plan, and undercut attempts to create a regime in which these organiza- tions face strong incentives to improve their performance.

There is a second sense in which it may be useful to evaluate this proposal. Although many National Performance Review pro-

posals represent a t t e m p t s to address longstanding concerns about the rigidity and inefficien- cy of the federal bureaucracy, it is also true chat many of these exercises consist of an attempt to preserve the administrative capabilities oi the federal gov- ernment in the face of congres- sional pressure to downsize and abolish functions. The perfor- mance-based organization pro- posal can be viewed as part of a broader effort to preserve administrative capabilities, and we can consider whether the

proposal is likely to be effective as a tactic in this broader political struggle. In the end. it is probably not likely to be tactically signif- icant because it cannot have the breadth and political salience of its British precursor. There are also some ways in which it may inad- vertently erode administrative capabilities.

The performance-based proposal also provides evidence of an important new tendency: the integration of the American govern- mental reform movement into a larger, international movement that includes proponents of reform in many of the industrialized democracies. Leaders of this international movement have suggest- ed that there are significant commonalities among national reform programs, that jurisdictions ought to increase their effort at learn- ing from one another, and that the "new paradigm" (Organization for Economic Cooperation and Development, 1996, 8) emerging internationally may have the potential to dramatically improve governmental effectiveness. This case study may provide evidence that we should be wary of claims about the portability of reform plans and the promise of this new paradigm.'

What Has the Next Steps Initiative Accomplished?

The British initiative that is the model for the performance- based organization plan has been described as the most important reform undertaken within the British civii service in this century (House of Commons, 1994c). Despite this, it is difficult to assess precisely how much the reforms have improved performance with- in the British government. Informed opinion seems to agree that the reforms have, in some instances, allowed significant improve- ments in agency performance without any increase in financial or human resources. However, it also seems clear that the more expansive claims about the effect of the British reforms made by proponents of performance-based organizations have been over- stated.

The British reforms came out of a 1988 study by Sir Robin Ibbs, a senior advisor to Prime Minister Margaret Thatcher. Ibbs had been asked by Thatcher to consider why earlier management reforms intended to broaden the authority of line managers had not worked out, and to suggest what the next steps in reform might be. The proposals made by Ibbs became widely known as the Next Steps Initiative.

466 Public Administration Review • November/December 1997, Vol. 57, No. 6

I t « difficult to assess precisely how much the reforms have improved performance within the British government.

Ibbs' reporr began with a strong critique of the state of the British civil service. Mosc work within the government, Ibbs argued, consisted of delivering services to citizens. However, that didn't mean that the civil service was good at delivering these ser- vices. Many senior managers lacked experience In service delivery, and there was little sustained pressure on managers to improve ser- vice quality over time. Ibbs argued that the attempt by central agencies to impose common rules on diverse operations had also impaired effectiveness. Attempts by managers to improve service were sometimes undermined by the intervention of ministers and 'ienior officials in day-to-day operations (Cabinet Office, 1988, 3- 5).

Ibbs called for a dramatic change in structures and incentives within the British civil service. Parts of government that were con- cerned mainly with service delivery would be set up as executive agencies that would be given more flexibility to do their work, and freedom from political interference in operational details. The chief executives heading these new agencies would be selected through competitions open to public and private-sector candi- dates, and hired on the basis of three-year contracts. Each agency would negotiate an annual performance agreement with its parent department that would include measurable targets for financial performance, efficiency, and service quality. At the end of rhe year, each agency would report on whether it had achieved those target goals. Executives would receive yearly bonuses of up to 20 percent of their base salary based on their success in meeting these annual targets.

Britain's first executive agency was set up in 1988. By Decem- ber 1996, there were 129 agencies with 28 more planned. Execu- tive agencies now include roughly 75 percent of personnel in the British civil service. Agencies vary substantially in size, from the Social Security Benefits Agency with a staff of 75,000, to the Wilton Park Conference Center with a-staff of 35. Roughly one- quarter of the agency executives recruited since 1988 have come from the private sector (Cabinet Office, 1996b; Cabinet Office, 1997).

Several studies have suggested that the Next Steps Initiative has produced significant improvements in agency performance. A 1991 internal study concluded that the initiative was having

a profound effect on many areas of civil service manage- ment and is leading to tangible benefits in the way in which services are delivered....The vast majority of those [officials] we saw believe that the initiative is generating and releasing fresh ideas, energy, enthusiasm and increased commitment—at all levels—to making the best use of the resources available (Cabinet Office, 1991, 1, 12).

A subsequent internal review also credited the initiative with a "significant number of constructive achievements," including increased efficiency and an improved "customer orientation" (Trosa, 1994, 4). A recent independent survey found a strong belief among agency executives that the reforms have "increased

operational effectiveness, and enabled better delivery of service to the public" (Pendlebury and Karbhari, 1996, 6).

For several reasons, it is difficult to say with precision how much overall governmental performance has improved as a result of NSl. One difficulty is a lack of performance data for executive agencies for pre-reform years. A second problem is a lack of con- sistent performance data for post-reform years: agencies have often added, removed or modified measures from one year to the next (See Talbot, 1996, p.l6}. A third problem is uncertainty about the effect of other reform initiatives undertaken after NSI. One of these reforms is the Citizens' Charter Initiative, begun in July 1991, under which agencies were directed to publicize service stan- dards and provide remedies for poor service. Another reform is the Competing tor Quality Initiative, introduced in November 1991, under which agencies have been strongly encouraged to expand contracting-out.

Notwithstanding these difficulties, it is possible to say that the more expansive claims made in the United States about the impact of Next Steps are probably untenable. The initiative may have allowed agencies to achieve significant improvements in perfor- mance, but it has not produced deep cuts in operating budgets or personnel requirements.

One of these claims was made in September 1995 by the head of the U.S. Patent and Trademark Office, as Congress began its review of an administration bill to transform the office into a per- formance-based organization. Commissioner Bruce Lehman observed that a reorganization of the British Patent Office into a Next Steps agency in 1990 had resulted in a 40 percent reduction in costs (Lehman, 1995, 4). In fact, the British Patent Office claimed only that it had achieved a 40 percent reduction in same inflacion-adjusted operating costs, mainly by relocating staff from London to Wales in 1991. Between the years 1992-1993 and the years 1995-1996, the office's total operating costs increased by 13 percent in nominal terms and declined by only 5 percent in real terms ( Patent Office, 1995, 59; Cabinet Office, 1996a, 322; Cabi- net Office, 1997,271).^ i i , i

David Osborne has recently made broader claims about the capacity of the PBO plan to generate efficiency gains, which are also based on the achievements of the British reform. Osborne says that under the Next Steps Initiative, "even the largest agencies have increased their operating efficiency by at least 2 percent a year. On average, agencies got by on 4.7 percent less operating money in 1994-1995 than they had the year before" (1996b, 8).

Osborne says that it would be reasonable to expect PBO's to achieve comparable annual reductions in operating costs. He argues that the savings should be used to pay for a set of new edu- cation and training programs that he calculates would cost 25 bil- lion dollars by the year 2004 (1997, 98-99, 105). The National Performance Review has made similar claims about the impact of the Next Steps Initiative. NPR suggests that Next Steps has allowed participating agencies to reduce operating costs by 3 to 5 percent a year, while maintaining or improving service to the pub- lic (National Performance Review, 1996a, 17; National Perfor- mance Review, 1996b, 3; General Accounting Office, 1997, 5).

These representations of the British experience with Next Steps are misleading. The statistics relied upon by advocates of perfor- mance-based organizations are not measures of flfttw/year-to-year

Performance-Based Organizations: Assessing the Gore Plan 467

reductions in operating costs for Next Steps agencies. Instead, they are meastires ot the extent to which operating costs have been reduced from the amount planned for that year. There may be grounds to doubt the realism of the planned figures, and conse- quently the reported reductions, given the strong incentives to demonstrate yearly efficiency improvements. Furthermore, these annual statistics are based on data provided by the agencies them- selves. Several agencies do not provide data or adjust it to remove budget increases attributable to rising work loads or restructuring costs.' Statistics based on dc/iw/year-to-year changes in operating costs for al! Next Steps agencies tell a less dramatic story (Table 2). In recent years, total operating costs for Next Steps agencies have shown consistent, although not large, annual increases. Even after adjtistment for inflation, operating costs have increased.

Advocates of performance-based organizations have suggested that the plan might also produce deep cuts In the size of the federal civil service. A senior advisor to Vice-President Gore says that

The PBO I performance-based organization] concept...has the potential to deliver a very high quality of service at a much smaller number [of civil servants]. We are not going to give out a set number, but let me say by means of comparison that over an eight-year peri- od in the British government, the use of this concept to change the way the government does its business, allowed rhcm to cur their civil service by a third. So there arc huge potentials to changing the way we do the government (Executive Office of the President, 1996).

It is true that the British public service has shrunk by one-third since the election of the Thatcher government in 1979. But most of this reduction cannot be attributed to the Next Steps Initiative. The largest part of the reduction consists of industrial employees in state-owned enterprises that were privatized throughout the 1980s (See Cabinet Office, 1996c, Annex A).

Osborne makes the more modest claim that Next Steps has allowed a 15 percent reduction in the British civil service (1996b, 8; 1997, 94). However, this is also inaccurate. While the British civil service has shrunk by roughly 15 percent since 1990, much of this cannot be attributed to Next Steps. The British government has suggested that as much as one-third of this reduction is the result of an expansion of contracting-out under the Competing for Quality Initiative.^ Much of the remainder should probably be attributed to defense cutbacks and continued privatization of gov- ernment establishments. At the same time, the number of tempo- rary staff employed by government—not included in counts of the permanent public service—doubled from 1988 to 1996 (See Cab- inet Office, 1996c; Office of National Sratisiics, 1996, Table 3-3).

It these expansive claims about savings cannot be substantiated, what can be said about the impact of the Next Steps Initiative? A more modest but still important claim might be that Next Steps has allowed agencies to maintain or improve services in a period in which work loads have increased and budgets have remained almost frozen in real terms. The Social Security Benefits Agency, for example, claimed in 1994 that it was able to manage a work load that would have required 15,000 more staff if it were orga- nized as it had been in 1990 (Chancellor of the Duchy of Lancast- er, 1995, 19-20). There are also individual instances in which agencies have experienced significant resource cuts and still main-

Table 2 Financial Performance of Next Steps Agencies

, , - I Change from Change in Change in planned actual actual

Number of operating operating operating Year Agencies costs^ costs (nominal)'' costs (real)'- 1992-1993 71 -3.9% n/a n/a i 993-1994 87 -6.3 +7.7% *6.0% 1994-1995 99 -5.2 +3.2 +0.7 1995-1996 H I -2.8 +4.5 +1.2

a. Percentage by which actual operating costs for a year changed from planned running costs for that year for all agencies reponing running costs savings data in that year.

b. Change in actual operating costs from previous year for all agencies not adjusted for inflation. 1995-1996 figures exclude one agency chat did not provide data for that year.

c. Change in actual operating costs from previous year for all agencies, adjusted for inflation using Retail Prices Index for the year in which the fiscal year began. 1995-1996 figures exclude one agency that did not pro- vide data for that year.

Sources: Cabinet Office. 1996a; 1997; Office of National Statistics. 1996. Table 18.1.

tained service quality. A dramatic case is that of the Driver and

Vehicle Licensing Agency. O n c e regarded as a " n a t i o n a l joke"

because of its inefficiency, this agency is said to have been "totally

transformed" since its e s t a b l i s h m e n t as an executive agency in

1990 (Dynes and Walker, 1995, 3 9 ; see also Painter, 1 9 9 5 . 23). At

the same time it experienced a 10 percent cut in its nominal oper-

ating budget. In testimony before a parliamentary c o m m i t t e e in

1994, the agency's senior managers credited the Next Steps Initia-

tive for helping to make the transformation possible ( H o u s e of

C o m m o n s , 1994b, 11-12).

Tossing out the Rules? One of the two key elements of the performance-based organi-

zation plan is the proposal to loosen legislative and regulatory con- straints on these organization's operations. As Vice-President Gore explained in March 1996; •

For these PBOs [performance-based organizations], we're going to toss out the restrictive rules that keep them from doing business like a business. Ail the red tape, personnel rules that keep managers from using people effectively, the budget restrictions that make planning or allocating resources almost impossible (National Performance Review, 1996a, 7).

The premise is that, once freed from red cape, performance- baied organizations will find more effective methods tor accom- plishing their missions. However, the British experience suggests that substantial deregulation is difficult to achieve. (This may explain why the performance oi Next Steps agencies has been more modest than some proponents have suggested.) Many of the diffi- culties confronted by Next Steps agencies are already being encountered by these early reform candidates as well.

The British experience. Next Steps agencies have found that their attempts to obtain greater freedom in operations have been checked in at least three ways. Perhaps the most difficult problem has been the reluctance of departmental headquarters to loosen

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their control over agencies. A 1991 report observed that agency executives found the process of winning nexibilicies from parent departments "exhaustive and exhausting" (Cabinet Office, 1991, 14). Departments, the report concluded, were reluctant to allow significant variations in pay and working conditions between agen- cies; often refused to release agencies from the obligation to use centrally-provided support services; and tended to watch agency hnances closely to ensure economy and probity in the management of money Following the report, the government began encourag- ing the appointment of impartial arbitrators—known as "Fraser figures" after the author of the 1991 report—to manage disputes between agencies and departmental headquarters.

Despite this innovation, difficulties between agencies and departments have persisted. A 1994 report found continued evi- dence of departmental resistance to devolution of authority, often founded on a "lack of trust that agencies will make good and responsible use oi freedoms" (Trosa, 1994, 32). Trosa found that "a considerable cultural gap" had arisen in some departments, "with [agency] executives often believing that the department's management is a bureaucratic obstacle, and departments viewing agencies as little fortresses following their own aims regardless" (1994, 6). A 1995 study also found that "departments are not let- ting go to the extent initially envisaged.... The new managerialism has not, so far, seriously challenged traditional forms and struc- tures" (Barberis, 1995, 102).

Central management agencies have also imposed constraints on Next Steps agencies. Talbot (1996, 11) argues that executive agencies remain caught in a "complex web of relationships" with central agencies. White (1996, 98-105} suggests that the Trea- sury's willingness to give more flexibility over pay and working conditions to Next Steps agencies is compromised by its desire to maintain tight control over total expenditures (see also Cabinet Office, 1991, 20-21). Campbell (1995, 496-498) argues that a succession of centrally-imposed reform initiatives—such as the Competing for Quality Initiative and the Citizen's Charter Initia- tive—have also reduced the freedom of Next Steps agencies and caused "profound disillusionment" among agency executives (see also Trosa, 1994, 30; Greenaway, 1995, 366),

Parliament has also had a role in restraining executive agencies. Although parliamentary committees have endorsed the principles of the Next Steps reforms, legislators have worried that deregula- tion and an emphasis on entrepreneurial management will increase the risk of misconduct within the public service (see Doig, 1993). A 1994 report of the House of Commons* Public Accounts Com- mittee implied that management reforms had contributed to a deterioration in standards of conduct within the public service (House ot Commons, 1994a). Another parliamentary committee argued that a new civil service code, enforced by a strengthened Civil Service Commission, was needed to ensure that "traditional standards of probity and integrity" were maintained within govern- ment (House of Commons, 1994c). The government acquiesced to this proposal in January 1995 (Chancellor of the Duchy of Lan- caster, 1995).

In two recent cases, parliamentary complaints about agency misbehavior have resulted in the dismissal of an agency executive. In early 1994, the head of the Social Security Child Support Agen- cy was dismissed in response to legislative and public criticism of

the methods the agency had used to collect child support payments (Creenaway, 1995, 364-365; Campbell and Wilson, 1995, 279), In October 1995- parliamentary complaints about the mismanage- ment of prisons prompted the home secretary to fire the head of Her Majesty's Prison Service (Jones and Millward, 1995). The dis- missals had a chilling effect: the government had difficulty in recruiting a new executive for the Prison Service (Johnston, 1996; Mason and Adonis, 1996).

The American experience. In the United Kingdom, attempts to deregulate Next Steps agencies have been significantly qualified because of resistance from central agencies, parent departments, and legislators. If advocates of Next Steps are right in thinking that deregulation is a prerequisite for significant performance improvements, then we might conclude that the effect of this resis- tance has been to dampen the gains that the initiative had been expected to produce. The same would be true in the United States if efforts to deregulate PBO candidates were similarly constrained. Early evidence suggests that this is likely to be the case.

Advocates of the PBO plan have argued that the main opposi- tion to deregulation within the federal public service will come from legislators. ("There's this problem," David Osborne (1996a) says, "It's called Congress.") Congress, these advocates say, has failed to adopt many of the National Performance Reviews recom- mendations for reform of government-wide laws that now con- strain federal managers.'̂ The PBO plan is predicated on the belief that it may be easier to obtain agency-specific legislative relief with the support of the congressional subcommittees that have a special interest in the performance of those agencies, A senior official of the National Performance Review observes that

the basic 'rules of the game' in the personnel and budget systems have not changed,..The inability of NPR to achieve government-wide changes in these rules during its first three years is part of the underlying rationale for the Vice President's embrace of the Performance-Based Organizations initiative—it allows piecemeal reforms of these rules on an agency-by-agency basis (Kamensky, 1996,34).

The premise that agency-specific legislative relief might be more easily obtained appears, at first glance, to be a reasonable one. In August 1995, Congress adopted provisions that exempted the Federal Aviation Administration from most federal personnel and acquisition laws,'̂ ' At the same time, the House subcommittee on intellectual property proposed a bill that would give the Patent and Trademark Office significant new freedoms, including broad personnel and procurement exemptions.^ A House appropriations subcommittee later proposed flexibilities for the U.S, Mint,^ Although this legislation was not adopted, a conference report urged that a similar proposal be put forward in the next Congress,

However, a closer examination of the history of these three bills shows that support for agency-specifk deregulation is heavily quali- fied. The Senate Governmental Affairs committee, led by Senators William Roth and John Glenn, reacted angrily to the Federal Avia- tion Administration exemptions, arguing that the agency's real prob- lem was "incompetent management" and that the new freedoms would put "billions of dollars and lives at risk" (Roth, 1995), The committee later told administration officials that they would also oppose attempts to obtain similar flexibilities for other agencies.**

Performance-Based Organiiations: Assessing the Gore Plan 469

The proposal to exempt the Patent and Trademark Office from personnel laws was strongly opposed by the unions of the U.S. Patent and Trademark Office, who noted that bills such as this were likely to undermine the Clinton administration's attempt to improve labor-management relations within the federal govern' ment (National Treasury Employees Union, 1996). The subcom- mittee's revised bill maintained the exemptions, but also made a substantial concession to the unions; for the first time, it would have allowed them to negotiate over pay and other forms of com- pensation.'" (A similar bill passed by the House in April 1997 eliminated the exemption and also the right to bargain over p a y " The Senate subcommittee on intellectual property then restored the exemption and bargaining rights.'^ Members of the Govern- mental Affairs committee have again protested that the exemption will undermine government-wide management laws and create a risk oi abuse.)

Difficulties such as these have already led the National Perfor- mance Review to moderate the claims it will make on behalf of reorganization candidates. In Spring 1996, NPR worked with the Office of Federal Procurement Policy and the Office of Personnel Management to develop guidelines for future reform legislation. The Office of Federal Procurement Policy's guidelines stipulate that "as a general matter, [performance-based organizations will be] required to abide by all applicable federal procurement laws and regulations" {Office of Federal Procurement Policy, 1996, 1). The guidelines then outline a set of amendments that modify, in incre- mental ways, existing procurement practices.

Similarly, the guidelines of the Office of Personnel Management emphasize the need to retain "government-wide approaches" to per- sonnel management in a range of areas and to preserve its own over- sight role (Office of Personnel Management, 1996, 2). Their origi- nal approach had been to suggest that performance-based organizations be given authority, subject to its approval, to design demonstration projects like those permitted under the 1978 Civil Service Reform Act without some of the constraints imposed on demonstration projects under that act. However, the Office of Per- sonnel Management has recently moved away from this approach, suggesting instead that candidates might pursue specific flexibilities using legislative language dratted by their office. In some instances the PBO would also be required to obtain approval from the Office of Personnel Management, and approval from affected unions, before using these new flexibilities (National Performance Review, 1997).

Is Congress the problem!' Congress may well oppose radical dereg- ulation of performance-based organizations, but it is wrong to sug- gest that Congress is the only obstacle to deregulation. Concern about deregulation can also be found within the executive branch itself The National Performance Review's original goal was to have its original list of performance-based organizations established by Fall 1996. However, by June 1997 only three bills—for the Patent and Trademark Office, the St. Lawrence Seaway Development Cor- poration, and the Defense Commissary Agency—had been put for- ward by the administration. The delay is largely attributable to dif- ficulties in resolving internal disagreements about the legislative freedoms that ought to be given to these organizations.

Central management agencies are one of the major sources of internal resistance. While officials in these agencies have endorsed

the PBO plan, they have also expressed doubts about the need for some of the legislative remedies requested by reorganization candi- dates. The Office of Federal Procurement Policy and the Office of Personnel Management guidelines place heavy emphasis on the availability of flexibilities under current law in the procurement and personnel areas. The Office of Personnel Management has suggest- ed that in some cases proposals for performance-based organizations "may be based entirely on existing authorities" (Office ot Personnel Management, 1996, 1). As if to illustrate the point, their own PBO candidate, the Office of Retirement Programs, has decided not to seek any special legislation at all.

Other central management agencies are also ambivalent about granting complete freedom to performance-based organizations. For example, the Patent and Trademark Office has publicly expressed its desire to move its headquarters (McAllister, 1995), and probably would find it easier to do this if freed from the Ceneral Service Administration's legal monopoly over real property services. Even though a bill already endorsed by the chair of the U.S. Patent and Trademark Office's House subcommittee would have released the Patent and Trademark Office from the General Service Admin- istration's control, the administration's own bill did not. Instead, the bill allowed the Patent and Trademark Office co contract for real property services only when the head of chc administration and the secretary of commerce agreed it would be cost-effective to do so.'-^ Similarly, the subcommittee's bill would have released the patent office from the Department of Justice's control over the pro- vision of leg;il services within the federal government, but the administrations bill contained no similar provision.''' A later ver- sion of the subcommittee bill also gave the patent office an unlimit- ed authority to borrow from the Treasury Department. This provi- sion was subsequently restricted, at the administration's request.'^

Parent departments are also reluctant to give flexibilities to reform candidates. One important issue is whether performance- based organizations should be obliged to accept support services from parent departments and what they should be charged for those services. One candidate attempted unsuccessfully to obtain approval for a legislative provision that would allow the organization to refuse services provided by the parent department. This was a legislative solution to a purely administrative problem, but the candidate argued that the provision was essential to obtain leverage in its nego- tiations with the department. The administration's bill to reorganize the St. Lawrence Seaway Development Corporation includes a simi- lar provision (Department of Transportation, 1996, Section 4).'^'

(In fact, a recent study by the Ceneral Accounting Office sug- gests that many of the restrictions from which the Sc. Lawrence Sea- way Development Corporation is seeking relief are actually imposed by its parent department. The corporation complains that che Department of Transportation imposes too many reporting require- ments and draws too heavily on its small stafF for service on depart- mental committees. The department concedes that it has been reluctant to give the corporation relief because it does not want to set a precedent for other bureaus (Ceneral Accounting Office, 1197, 4, 18-19).

The largest candidate for reorganization, the Defense Commis- sary Agency (DeCA), may also fiice serious difficulties in negotia- tions with its parent department, Regulations presently require che agency to use the Defense Transportation System to make ship-

470 Public Administration Review • November/December 1997. Vol. 57. No. 6

There f, however, important constitutional differences between the parliamentarj and concessional systems of

government, and some of these differences may make

the proposed new rules for performance-based

organizations less workable in the American context. ments to overseas commissaries, the Defense Information Systems Agency for communications services, and the Defense Financial Accounting Service. DeCA has complained about the qualiry of service provided by these agencies and suggests that substituting commercial suppliers would reduce its total operating costs by 3 percent {Whittaker, 3996, 18). However, the Detense Commissary Agency is a major source of revenue for these internal suppliers, who may argue that allowing che agency the option to purchase ser- vices elsewhere will damage their attempts to maintain the war readiness o\ transportation and information systems (see Defense Commissary Agency, 1996).

Rewarding Performance A second important element of the PBO plan is a proposal to

change the rules that govern how heads of PBO's are hired and compensated, and to also change the relationship between these PBO's and their parent departments. (In early plans of the National Performance Review, PBO heads were referred to as chief executives; they are now called chief operating officers). Under the Core plan, chief operating officers would be hired through a com- petition that includes candidates from both inside and outside the public service. They would be employed on the basis of a contract that would prohibit dismissal except for failure ro achieve perfor- mance targets specified in an annually-negotiated performance agreement. Chief Operating officers would be paid a substantial bonus based on their success in meeting those target goals. "Pay and job security," Gore said in March 1996, "will be tied direcrly to performance" (National Performance Review, 1996a, 7).

These new arrangements, which are essentially the same as those used to govern the British Next Steps agencies, are expected to compel organizations and their parent departments to identify clear performance targets, and create stronger incentives for the organizations to achieve those targets. In September 1995, an administration official argued that the "incentive-based employ- ment system should prove a powerful motivator for efficient, high- quality, cost effective service" (Lehman, 1995, 8). More recently, an official of the Office of Management and Budget has argued that "the main argument in favor of the [performance-based orga- nization] model" is the ability to hire operating officers under fixed-term contracts with performance incentives (Koskinen, 1996).

There is some evidence to suggest that the new rules have had the desired effect in the United Kingdom. In 1994, one Next Steps executive observed that "the crispness of the targets, the disci- pline it exerts on us, the clarity of accountability, the focus on cus-

Performance-Based Organ iiacions: Assessing che Gore Plan

tomers, are all good for us....There is a clarity of accountability...! can tell you from personal experience it is certainly very real and marked. It does make a difference" (Hotise of Commons, 1994b, 11-12). There are, however, important constitutional differences between the parliamentary and congressional systems of govern- ment, and some of these differences may make the proposed new rules for performance-based organizations less workable in the American context.'^

Who sets performance targets? Under the Next Steps Initiative, annual performance targets for executive agencies are agreed upon by each agency executive and the minister who is ultimately accountable to Parliament for the activity of that agency. The pro- cess of negotiating and enforcing these agreements is simplified by the relative weakness of Parliament. There is little danger that Par- liament will attempt to intervene in negotiations over annual per- formance targets or use its power to divert executives from agreed- upon goals. The situation is obviously quite different in the United States where Congress has more influence in shaping the priorities of departments and agencies.

This difference is important for two reasons. First, it may com- plicate and prolong negotiations over the content of annual perfor- mance agreements. The National Performance Review has not proposed a role for Congress in the negotiation of performance agreements, although it does suggest that members of Congress might be invited to comment on proposed agreements "if strong Congressional resistance is anticipated" (National Performance Review, 1996d, 3). In practice, however, the exclusion of Congress might prove difficult to sustain, particularly if the goals of the per- formance-based organizations are contentious.

The power of the performance agreement as an instrument for holding the attention of organization officers may also be weak- ened. The agreement, and the bonuses which are tied to ii, are expected to provide incentives for officers to focus on stipulated goals. Congress, however, has the capacity to impose another set of incentives tied to its own goals; it can pass legislation to alter the missions of organizations, or hold oversight hearings on subjects not identified as priorities in the performance agreement.

Congress has already signaled its ambivalence about the propos- al to establish performance agreements between organization oper- ating officers and executive departments. A provision to negotiate annual performance agreements had been included in the Clinton administration's bill to reorganize the Patent and Trademark Office as a performance-based organization."* The U.S. Patent and Trade- mark Office's user groups strongly opposed the administration's plan, arguing that it would give the Commerce department too much influence over the organization (American Intellectual Prop- erty Law Association, 1995). The House subcommittee on intel- lectual property agreed. The reorganization bill that it reported in 1995 omitted the performance agreement provision. After the administration indicated that the President would not sign a bill without such a provision, the subcommittee agreed to reinstate it. Current House and Senate bills to reorganize the patent office now include this provision.

A provision to establish annual performance agreements for the head of a reorganized U.S. Mint was also included in the House of Representative's 1997 Treasury appropriation bill.'^ However, the provision was deleted during mark-up of the bill by the Senate

471

appropriations committee. The decision to remove the provision was apparently motivaced by concern about the efFect that it might have on Congress' relationship with the Mint.

The National Performance Review has attempted to anticipate congressional concerns about the erosion oi its authority by restricting the range of potential reform candidates. It has said that candidate organizations should have "a clear line of account- ability to an agency head" (National Performance Review, 1996a, !9)—a criterion that excludes any organization whose relationship [0 the executive branch has historically been contested. More importantly, the review has also insisted that candidates "have a clear mission with broad-based support from its key 'stakehold- ers'—both internal and external to the agency—regarding its mis- sion" (National Performance Review, 1996a, 19). This may explain why the administration did not take up a suggestion made by the former head ot the Occupational Safety and Health Admin- istration that his organization should be established as a perfor- mance-based organization (Dear, 1996).

Stability of funding. The success of the performance agreement system depends significantly on the ability of the parent depart- ment and central management agencies to make commitments about budgets for the period covered by the agreement. If, for example, an organization agreed to achieve certain improvements in service quality, and then found that its budget had been cut sub- stantially mid-way through the term of the agreement, it might reasonably argue thai it could no longer be held responsible for achieving the originally agreed-upon target.

Governments in parliamentary systems usually have the ability to make budgetary commitments. Convention dictates that the government alone can introduce appropriation bills in Parliament. The fact that the governing party usually holds a majority in Par- liament means that appropriation bills rarely change dramatically. Unless there is a major shift in economic conditions, operating budgets will not change radically during the fiscal year.

As recent experience has vividly demonstrated, the situation is quite different in the United States, intense policy disagreements between the Clinton administration and the Republican-controlled 104th Congress meant that appropriation bills were delayed and in some cases blocked entirely. This budgetary deadlock may be unusual. Even in more normal conditions, however, it is common for the president's budget proposals to be altered significantly by Congress and to have unexpected conditions regarding the use of money included in appropriations bills.

The problems that would confront an appropriation-funded performance-based organization during a budgetary deadlock are obvious. The organization would likely argue that the perfor- mance agreement negotiated at the start of the fiscal year was viti- ated by the cuts imposed in continuing resolutions. Even in a nor- mal budget year, however, conditions imposed in appropriations acts could undermine the organization's ability to achieve target goals agreed upon earlier in the budget cycle. This might mean that in some cases the performance agreement would have to be modified once the appropriation bill had been enrolled.

The National Performance Review has anticipated this difficul- ty and responded to it by insisting that candidates for reorganiza- tion have "funding predictability" (National Performance Review, 1996c). In practice this means that candidates will typically be

organizations that impose user fees, hold those fees in revolving funds, and draw on those revolving funds without the need for an annual appropriation. All of the current candidates finance them- selves through a revolving fund, have proposed the establishment of a revolving fund, or earn fee revenue and have the potential to finance their activities through a revolving fund. By contrast, only 12 of the 110 Next Steps agencies operating in 1995 financed themselves through a revolving fund (Cabinet Office, 1996a).

Constitutionality of contract-based employment. The perfor- mance-based plan assumes that it will be possible to hire operating officers on fixed-term contracts that are terminable only if the executive fails badly in his or her attempt to achieve performance targets identified in annual performance agreements. The threat of dismissal for nonperformance is expected to sharpen the executive's focus on targets. However, the arrangement also provides protec- tion for the officer; it precludes dismissal during the term of the contract on any other basis except failure to achieve stipulated tar- gets.̂ f The operating officer should then be freed from the obliga- tion to make investments in areas not identified as priorities in his or her performance agreement.

The administration's 1995 bill to reorganize the Patent and Trademark Office, H.R. 2 5 3 3 , would have established this arrangement in law. It provided for the new chief executive officer to "serve on the basis of a six-year contract with the Secretary [of Commerce], so long as performance, as set forth in the annual agreement, is satisfactory."-' The same language was used by the House appropriations subcommittee in H.R. 3756 to define the status of the director of the proposed Mint reorganization.-^

There is, however, reason to doubt the constitutionality of the language proposed in H.R. 2533 and H.R. 3756. The general rule established by the Supreme Court is that Congress may not limit the ability of the president to remove appointees, unless those appointees exercise quasi-legislative or quasi-judicial functions that require some independence from the administration.-' Perfor- mance-based organizations will not undertake any quasi-legislative or quasi-judicial work. Instead, they will focus entirely on service delivery functions.

Concerns about the constitutionality of the administration's proposals were raised during subcommittee hearings on H.R. 2533, but were nor seriously pursued, mainly because Congress evinced no interest in adopting the new arrangements for a reorga- nized Patent and Trademark Office. However, concerns about the provisions in the Mint bill. H.R. 3756, were taken more seriously. These provisions were removed from H.R. 3756 after Department of Justice officials suggested that the provisions infringed on the power of removal.^''

The National Performance Review then sought legislative lan- guage acceptable to the Department of justice. Its 1996 bill to reorganize the St, Lawrence Seaway Development Corporation provided chat rhe new PBO executive would "serve on the basis of a five-year contract with the Secretary, which ihe Secretary may renew so long as performance, as set forth in the annual perfor- mance agreement, is satisfactory or better, and who shall be remov- able by the President" (Department of Transportation, 1996, sec- tion 2). In early 1997, NPR adopted new language that provides that chief operating officers "shall be removable (1) by the Presi- dent; or (2) by the Secretary, for misconduct or failure to meet per-

Public Administration Review • November/December 1997, Vol. 57, No. 6

formance goals set forth in the performance agreement" (National Performance Review, 1997, 10). The location of punctuation in this passage is important. The new language still gives the Presi- denr unfettered authority to remove the organization head. How- ever, the review says that "this authority is expected to be rarely, if ever, used" (National Performance Review, 1997, 31).

Nevertheless, this new provision erodes the idea that operating officers are hired on the basis of a performance-based contract. Executives who believe that they have been wrongly dismissed will have no legal recourse if [he removal is done in the name of the President. This may mean [hat the appointing officials will be able CO judge the performance of the chief operating officers by any cri- cerion they wish, regardless of whether that criterion has been stip- ulated in the annual performance agreement. Chief operating offi- cers may then adopt hedging strategies. Investing in areas that they believe might attract the interest of appointing officials in the future. (For example, a C O O might invest more heavily in inter- nal controls knowing that allegations of impropriety, however small, may quickly lead to dismissal.) The attention of the organi- zation may be diffused, and its ability to achieve targets specified in the annual performance agreement compromised.

There are also difficulties regarding the provisions governing appointment of chief operating officers. The Nationid Performance Review's original proposal had been [ha[ COO's should be "hirefd] through a competitive search" (Lehman, 1995, 3) for candidates from the public and private sector. However, the administration's 1995 Patent and Trademark OfTice bill said only that their new executive would be appointed by the Secretary of Commerce (H.R. 2533, section 103). The administration made a non-legislative commitment to conduct competitive searches before making appointments. A similar approach is proposed for future perfor- mance-based organizations (National Performance Review, 1997, '''I 31-32). However, this may raise a significant practical prob- .^iii: What if future administrations ignore this commitment? The efl̂ êct may be to expand the number of political appointments in those "operational" areas where they are thought to be particularly ill-suited.

Oversight of salaries and bonuses. Under the Next Steps Initia- tive, agency executives are paid an annual bonus based on cheir success in achieving target goals identified in annual performance agreements. Bonuses are negotiated with each executive but typi- cally amount to 20 percent of the executive's base salary. Under the PBO plan, bonuses will be larger and established in law. The administration's Patent and Trademark Office bill provided for a performance bonus equal to 100 percent of the base salary-̂ ** In mid-1996, the National Performance Review tempered this pro- posal. It now suggests that chief operating officers should receive a bonus of up to 50 percent of their base salary, with the qualifica- tion that total compensation cannot exceed the president's salary of $200,000 (National Performance Review, 1997, 11).

Bonus arrangements such as these seem likely to attract legisla- tive attention, in part because they may result in unusually high salaries, and also because of legislative skepticism about whether discretion in the size of bonuses is being properly exercised. Some legislative resistance to the new compensation arrangements is already evident in the United Kingdom. In January 1996, for example, the House of Commons Public Accounts Committee

Performance-Based Organizations: Assessing ihe Gore Plan

challenged the bonus that had been awarded to the head of the Meteorological Office, arguing [hat performance targets had not been rigorous and that the office has misrepresented its actual per- formance (House of Commons, 1996).

Congress had a similar but more violent reaction to the bonus system established for the Senior Executive Service (SES) in the Civil Service Reform Act of 1978, The act allowed each agency to award bonuses of up to 20 percent of [he base salary to no more than half of its senior executive personnel. Congress reacted quick- ly when, in the first year of implementation, three agencies award- ed the m;iximum amount allowed under the law. In July 1980, it amended the law to limit bonuses to one-quarter of senior execu- tive personnel. A short time later, the Office of Personnel Manage- ment, hoping to forestall further action by Congress, imposed more severe restrictions on the bonus program. A 1984 survey by the General Accounting Office found that most Senior Executive Service members thought that the restricted program had a "mini- mal effect on performance" (House of Representatives, 1984, 3; see also House of Representatives, 1981; and Senate, 1981). A later study of senior members within the Department of Labor also found that the bonus system had no significant impact on their priorities in the first five years of its operation (Yeager, 1986),

There have been other, more recent controversies over bonuses paid to government executives. In October 1995, President Clin- ton signed an executive order that restricted the discretion of gov- ernment corporations in bonus decisions (Executive Office of the President, 1995). The order was a response to criticism of bonuses paid to executives by the Tennessee Valley Authority, the U.S. Enrichment Corporation, and the Resolution Trust Corporation in 1993 and 1994. The largest of these bonuses was $150,000— comparable to the maximum bonus proposed for the head of rhe reorganized Patent and Trademark Office under the administra- tions 1995 bill (Mansfield, 1995).

h is an open question whether any bonus program of signifi- cant size can be maintained under the glare of public scrutiny. It does seem clear, however, that the prospects for survival would be improved if it could be demonstrated that the standards used to assess bonuses are demanding. One option would be to give the Office of Management and Budget authority to review bonus deci- sions.̂ "* While the National Performance Review recognizes that some sort of external review might "add validity to the process...[and] counter potential Congressional concerns about the lack of checks and balances for a new supplementary compensation method" (National Performance Review, 1996d, 6), it does not plan to give this authority to the Office of Management and Bud- get.

Working Better and Costing Less? The National Performance Review has argued that the aim of

its reform proposals is to make government "work better and cost less." With the PBO proposal, the Vice-President has gone fur- ther, suggesting that it may make a "dramatic change" in the way federal agencies do business. But is the performance-based plan likely to make any part of government work dramatically better and cost dramatically less? The answer is probably no. Certainly the British experience with the Next Steps Initiative does not pro-

473

vide evidence that the plan will, by itself, permit substantial reduc- tions in operating costs or staff.

One of the reasons for the modest impaa of Next Steps may be the reluctance of many actors—including legislators, central man- agement agencies, and parent departments— to permit radical deregulation of executive agencies. It is already clear that similar resistance will be felt by candidates for reorganization status within the United Scares government. The freedoms achieved may be useful, but they are not likely to produce widespread, dramatic changes in operating procedures.

A second challenge, which will be more serious in the United States than in the United Kingdom, will be one of creating strong performance incentives. Senior executives in a congressional sys- tem of government are compelled to serve many masters. This basic constitutional problem is unlikely to be resolved by legisla- tively-mandated performance agreements. The challenge of focus- ing managerial attention on a few well-specified performance tar- gets will also be aggravated by the inability of chief operating officers to compel cabinet secretaries to live by the terms of annual performance agreements. Secreraries will continue to worry about many aspects of organizational performance, and chief operating officers will diffuse their efforts in order to accommodate this fact,

It is also unlikely chat the performance-based model will be applied to a large proportion of the federal bureaucracy. An important condition, already recognized by che administration, will be significant agreement among politically important stake- holders about the goals of the candidate organization. A second condition, also recognized by the administration, will be some kind of financial self-suffkiency that gives the organization free- dom from the uncertainties of the appropriations process. When these cwo conditions are fulfilled it should be easier for organiza- tions CO obtain significant flexibilities, engage in long-range plan- ning, and negotiate well-defined performance targets. However, many bureaus will find it impossible to meet these conditions.

Despite these limitations, the PBO plan ought to be seriously pursued. There are undoubtedly circumstances in which service delivery organizacions are unnecessarily constrained by regulations and laws. The PBO initiative sets up a process through which can- didaces, central management agencies, and parenc departments can negotiate about flexibilities. Experimentation within PBOs will provide lessons that will prove valuable in future debates about sys- tem-wide reform. The process of negotiating performance agree- ments will be a useful instrument for clarifying understandings about organizational goals and tradeoffs, even if the agreements are noc, at che end of che day, binding on either administration offi- cials or Congress. The publication of annual performance targets .ind results could also improve public and congressional oversight of performance-based organizations. In chis respect, the perfor- mance-based plan can be regarded as a more rigorous application of principles already incorporated in che Government Performance and Results Act of 1993.

Preserving Governmental Capabilities? Vice-President Gore and the National Performance Review staff

have made a considerable effort to depoHcicize their reform propos- als. The "reinventing government" initiative has often been pre-

is also unlikely that the performance-based model will

be applied to a large proportion of the federal bureaucracy.

senred as an attempt to apply common sense or business principles to the federal bureaucracy. However, these attempts at depoliti- cization may be misleading in two ways. First, many key reform proposals involve important tradeoffs between policy objectives. For example, attempts to broaden managerial discretion may sometimes weaken commitments to conscicuents such as organized labor, women, racial minorities, and small businesses (e.g., Behr, 1997). There is also a second and much broader sense in which the National Performance Review is an intensely political exercise. It represents an active atcempc by the Clinton administration to preserve the administrative capabilities of the federal government in the face of congressional attempts to cut back or abolish func- tions and agencies. The NPR is an instrument in che larger strug- gle between the Clinton administration and some elements in Congress over che role and organization of the federal government.

The performance-based proposal can be usefully regarded as a pare of this larger struggle over federal administrative capabilicies, !n part, ic is an attempt to reform parts of che federal government so as CO protect them from more radical proposals for corporariza- tion, privatization, or abolition. Ic is noc coincidental that four PBO candidates have come from che Department of Commerce, which would have been eliminated under Republican bills pro- posed in June 1995.^^ In face, several PBO candidates have been the subject of privatization proposals.^^ Organizations such as these may regard the PBO model as a method of achieving the effi- ciencies or work force reductions that critics are believed to want, without removing the organizations from the public service or abolishing them entirely.

If we are right in regarding this proposal as one tactic in a larger struggle to preserve administrative capabilities, we mighc ask: How efFeccive a caccic is it likely co be? The question may never be sec- tied. The threat posed by che Republican Congress has diminished substantially since early 1995. Even if che chreat had not abated, however, it is difificult to see how the PBO plan could be politically useful unless it were co be expanded much more broadly. The British iniciacive has been useful co che Thatcher and Major gov- ernments because it is a substanciaJ and highly visible exercise now covering three-quarters of the British civil service. For the reasons noted earlier, che American plan will never achieve comparable size or policical salience.

In che longer run, it is conceivable chat che PBO plan could serve, in a small and unintentional way, as an instrument for reducing the admin is tracive capabilities of the federal government. The aim of the plan, Vice-President Gore says, is to allow parts of the federal government to "[do] business like a business" (National Performance Review, 1996a, 7). Successful candidates may achieve chis goal; they may become financially self-sufficient, obtain sub- stantial operating flexibilities, and weaken their links co other fed- eral agencies. Once these condicions are achieved, however, che rationale for maintaining public ownership of the service provider is likely to become less compelling. Ac the same time, industry pressure to eliminate publicly-owned competitors is likely co

474 Public Administration Review • November/December 1997, Vol, 57. No. 6

Hard evidence about effectiveness often cannot be obtained for a reasonable cost or within a reasonable time,

and in such circumstances decisions to proceed with a

reform might be made without conclusive data about its

likely impact. increase. The probability chat performance-based organizations will be privatized or abolished may then increase significantly (see Roberts, 1996, 192-198).^''

There is a second sense in which the PBO plan, if broadly applied, could impair administrative capacities. The National Per- formance Review has already been criticized for its inattention to the condition of the senior civil service (see Huddleston and Boyer, 1996, 162), The problems of the higher service—such as poor career development, low morale, and high exit rates—have not been priorities for the NPR, and it has not made major recommen- dations for reform of that part of the federal bureaucracy. The per- formance-based plan may represent the first statement by the National Performance Review on how senior levels of the civil ser- vice ought to be staffed. Its position appears to be that in some parts of the federal government there is no need for a career senior service at all; instead, senior appointments ought be to made through open competitions and limited-term contracts. Critics might ask whether this approach wilt erode collegiality and the level of experience within the senior ranks, and consequently, the bureaucracy's capacity to formulate and implement policy effec- tively. However, the PBO plan would have to be applied much more widely than currently proposed in order for this to become a serious problem.

The Internationalization of Governmental Reform

NPR's reform proposals of the review are often described as an application at the fedenil level of ideas first worked out in state and local governments throughout the United States. In this regard, the current wave of government reform may not seem dramatically different from earlier reform movements such as those of the Pro- gressive era, in which reform ideas were applied at the federal level only after years of experimentation by state and local governments. However, viewing the initiative in this way would be a mistake. As the PBO proposal shows, reform activities within the United States are increasingly influenced by reform efforts in other nations. The same is true of reform movements in other industrialized nations. A number of relatively isolated national reform movements are now being linked together to form a reform movement that is international in scope.

One of the consequences of this internationalization is a ten- dency among reformers to emphasize the similarities between reform efforts in different jurisdictions. A recent report by the Organization for Economic Cooperation and Development pro- vides a good illustration of this homogenizing tendency. The

Performance-Based Organizations: Assessing the Gore Plan

report surveys reform efforts undertaken by the organization's member countries, and argues that there has been a "remarkable degree of convergence" in reform proposals (Organization for Eco- nomic Cooperation and Development. 1995, 25). The report asserts that a "new paradigm" has now emerged, "aimed at foster- ing a performance-oriented culture in a less centralized public sec- tor" (8). Some observers have chosen to refer to this new paradigm as "the new public management, or NPM" (see Aucoin, 1993).

The argument for adoption of the NPM-style reforms by the Organization for Economic Cooperation and Development's member countries depends on three assumptions. First, there is an assumption about feasibility; that is, the assumption is made that the proposed reforms can actually be implemented without major modifications. The OECD report is optimistic on this point, arguing that new public management reform efforts will produce governments chat are "radically different in appearance and behav- ior" (1995, 10). The second assumption is one of effectiveness; it is assumed that these reforms will, once implemented, produce dramatic improvements in the effectiveness of the public sector.'" The third assumption is one of universality; it is assumed that reform principles that work well in one country will generally work well in others.- '̂

An examination of the performance-based proposal may show the potential weaknesses in each of these assumptions. It suggests, for example, that radical changes in the structure of governmental bureaucracies may not always be feasible. Of course, the validity of the assumption depends in large part on what is meant by the word "radical." One way of thinking about the question might be to ask whether the principles or procedures employed within orga- nizations ten years from now are likely to be entirely different from those employed today It seems likely that the similarities would outweigh the differences. The effect of the resistance now bemg manifested toward the PBO plan by organized labor, central man- agement agencies, parent departments, and legislators will be to ensure that there is more continuity than change in the structure of PBO organizations.

The PBO plan also suggests that the assumption about effec- tiveness is contestable. As Lynn (1996, 13-14) has recently observed, one of the most serious problems now confronting the new public management movement is a lack of good dara to demonstrate the actual effects of the reforms.

Claims [about the effect of reforms) are plagued by selection bias, fx/>«/rationalizations, irrefutable or unverifiable arguments, and the absence of either empir- ical or conceptual context. A typical sentence from obviously sympathetic evaluations includes expressions such as "widely-held impressions are," "informed observers believe," "there has been a substantial impact," and "there has been a real difference."

Hard evidence about effectiveness often cannor be obtained for a reasonable cost or within a reasonable time, and in such circum- stances decisions to proceed with a reform might be made without conclusive data about its likely impact. In such circumstances, however, the strength of effectiveness claims ought to be related to the quality of available evidence. The PBO proposal may be one of those instances in which claims about effectiveness ought to be tempered to suit the evidence at hand.

475

This plin iilso provides some obvious challenges to the assump-

tion of universality. There are aspects of the plan that will not

work as well as Next Steps has in the United Kingdom because of

the important differences between the American congressional sys-

tem and the British parliamentary system. However, the differ-

ences are not just constitutional. There are also important differ-

ences In political culture (including perceptions about the

legitimacy of the national bureaucracy), in the relative power of

various actors (such as labor unions), and in a range of historical

contingencies, such as earlier controversies over similar reform

efforts.

None of this is meant to suggest that the new public manage-

ment movement is fundamentally ill-advised, or that reformers in

different countries should not try to learn from one another.

Instead, it is meant to suggest that claims about the advent of a

radical new paradigm that is international in scope ought to be

regarded with skepticism. Governmental reform may continue to

be what it has always been—a series of significant, but rarely dra-

matic renovations, that dififcr substantially from one nation to the

next. The PBO plan can be an important part of that reform pro-

cess within the American bureaucracy.

• • •

Alasdair Roberts is an associate professor of public manage-

ment in the School of Policy Studies, Queen's University. He is

also a visiting scholar at the Council of Excellence in Government

in Washington, DC. . .-*_ •. ».= . ..• . i .1.

Notes

t. Most of this article draws on publicly-available docLiments describing the British reforms and the performance-based proposal. In sume instances the author iiai tirawn on interviews or communications with officials in central management agencies or line deparrment.i. TD preserve confidentiality, attributions are noi provided in some instances.

2. Operating co.st.s have been adjusted using rhe Retail Prices Index for the year in which the fiscil year began (Office of National Statistics, 19'Xi, Table 18.1).

3. Data an annual running costs savings are reported in the Cabinet Office's annual publication. Next Steps Agtndes in Review. Reasons for not report- ing or adiusting data are also provided by agencies in this review. A recent British study concludes that the government's savings figures "are .so broad- ly based and so vaguely defined that they are virtually meaningless" (Centre for Public Services. 1997, 3).

A. The civil service declined hy 79,000 employees between 1990 and 1996 (Cabinet Office, 1996c, Annex A). The government has claimed that CQI produced reductions of 26.900 (Cabinet Office, 1995, 15) or 20,000 (Cabinet Office, 1996b, 21) in that period.

5. Although significant procurement reforms have been enacted, many other key recommendations from the National Performance Review's first report have not been adopted. These include proposals to reduce "over-itemiza- tion" in appropriation accounts (recommendation B(.iT03); eliminate employment ceilings and floors (BGT04): convert to multi-year appropria- tions and permit carry-forwards (BGT07); allow agencies to develop their own recruitment and examining programs (HRMOl), broadband classifica- tion systems (HRM02), performance management programs (HRM03). or incentive systems (HRM04); and fliminate the GPO and GSA service

• monopolies (SUPOl and SUP08) (Gore. 1993). 6. Department of Transportation and Related Agencies Appropriations Act,

1996, P.L 104-50, sections 347 and 348. 7. Patent and Trademark Office Corporation Act, H.R. 1659, 104th Cong.,

h t sess. 8. Treasure, Postal Service, and General Government Appropriations Act.

1997. 104th Cong., H.R. 3756, section 527. 9. This has been confirmed in interviews with two senior administration offi-

cials. 10. Patent and Trademark Office Government Corporation Act of 1996, H.R.

3460 (as reported by subcommittee}, section 113, 104th Cong., 2d sess. 11. 21st Century Patent System Itnprovement Act. H.R. 400 (as referred to

Senate Committee on the Judiciary), i05thCong., 1st sess. 12. Omnibus Patent Act of 1997. S. 507 (as reported in the Senate), 105th

Cong., 1st sess. 13. Compare H.R. 1659, section 101, with United States Intellectual Property

OtganizationActori995, H.R. 2533, 104th Cong., section 102. 14. Compare H.R. 1659, section 102, with H.R. 2533, section 102. 15. Compare H.R, 3460 (as reported by subcommittee), section 121 with

H.R, 3460 [as reported by committee], section 122. 16. The administration's U.S. Patent and Trademark Office bill gives evidence

of a similar tension. It would have required the reorganized office to con-

tribute up to 2 percent of its revenue to the parent department to cover the cost of policy oversight of the office (H.R, 2533, section 201).

17. This article focuses on rhe wotkability of the proposed bonus arrange- ments. A related question is whether the bonus arrangements, even if work- able, are likely to be imponant in motivating chief operating officers. Ai least one study questions the significance of monetary mducements for members of the Senior Executive Service (see Wilson, 1994).

18. H.R. 2533, section 103. 19. H.R. 3756 (as reported to the House), section 527. 20. This principle may have been established in Britain as a result of the con-

troversy surrounding the firing of the head of Her Majesty's Prison Service in October 1995. The fired executive stied the government for wrongful dismissal, arguing that he had achieved all of the targets specified in his performance agreement. In March 1996, the government agreed to pay damages ro the executive (Mason and Adonis, 1996).

21. H.R. 2533, section 103. 22. H.R, 3756 (as reported to the House), section 527. 23. The key cases are Myen v. United Siatei. Ill U.S. 52 (1926) and

Humphrey's Executor v. United Stales. 295 U.S. 602 (1935). 24. This has been confirmed in conversation with two administration officials

Involved in discussions about the provisions in H.R, 3756. , , 25. H,R. 2533, section 103. 26. In general, performance-based organizations would not be covered by

Executive Order 12976, which mandates that the Office of Management and Budget review bonuses paid by government corporations.

27. Representative Dick Chrysler (R-Ml) introduced the Department of Com- merce Dismantling Act (H.R. 1756} in June 1995, Senator Spencer Abra- ham (R-MI) introduced a similar bill (S. 929} at the same time.

28. The Congressional Budget Office is currently studying the feasibiliry of privatizing the Defense Commissary Agency. The National Technical Information Service was the subject of several privatization proposals in the 1980s. The 1995 National Performance Review annual report included a proposal to privatize the Seafood Inspection programs (Gore. 1995. 120), The (Canadian government recently announced its intention to privatize the Canadun counterpart of the St. Lawrence Seaway Development t-or- poration.

29. The Centte for Public Services notes that Britain's Next Steps Initiative has been "an easy vehicle for the government to privatize services, since they are already packaged with separate accounts, personnel and support ser- vices" (1997. 3).

30. The Organization for Economic Cooperation and Development's report su^ests that the new public management-style reforms will preserve gov- ernments' "capacity to govern and deliver services" despite fiscal constraints and pressures associated with the emergence of a global economy (see 1995, 15}.

31. The Organization for Economic Cooperation and Development's report emphasizes that there is no "single model of reform"; on the other hand, the report ii buiit on the notion that important "common reform trend.s"" can be identified (1995. 15, 25; see also Rivlm. 1996. 1-2),

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Dissertation on the Presidency Prize

The Center for Presidential Studies in the George Bush School of Government and Public Service announces the second annual national competition for the best dissertation on the American presidency. Tlie competition is open to scholars in any field, and dissertations may focus on any aspect of the presidency. Nominations may be made by chairs of dissertation committees or other faculty members.

The winners will receive a Si ,000 award and expenses to present their work at Texas A&M University. The prize also carries with it the opportunity for publication in the Presidency and Leadership Studies series of Texas A&M University Press.

Nominations for the prize should include three copies of the dissertation and a cover letter. They should be sent to George C. Edwards III, Director, The Center for Presidential Studies, George Bush School of Government and Public Service, Texas A&M University, College Station, TX 77843. Dissertations accepted for degree completion in 1997 are eligible. For additional information see our web site at http://www-bushschool.tamu.edu. Deadline: February 15,199S.

The Center for Presidcniial Studies George Bush Sch<X)l ot Gt)verrirnent and Public Service

Tfexas A&M Univcrsiiv

Public Administration Review

478 Public Administration Review • November/December 1997. Vol. 57. No. 6