Bureaucratic Failure in the Federal Government

• Chris Edwards 

 

The federal government spends almost $4 trillion a year. It has hundreds of agencies and runs more than 2,300 subsidy programs.¹ It employs 2.1 million civilian workers, 1.4 million uniformed military personnel, and 560,000 postal workers.² It is a huge organization.
Most Americans think that the federal government does a poor job.³ Only one-third of people believe that it gives competent service, and people think that more than half of the tax dollars sent to Washington are wasted.⁴ The public's "customer satisfaction" with federal services is lower than their satisfaction with nearly all private services.⁵ After studying polling data, Yale University law professor Peter Schuck concluded, "the public views the federal government as a chronically clumsy, ineffectual, bloated giant that cannot be counted upon to do the right thing, much less do it well."⁶
This poor view of the federal government is not surprising given its many high-profile failures. In recent years, scandals have erupted at the Department of Veteran's Affairs, Internal Revenue Service, Secret Service, and other agencies. Federal auditors regularly uncover waste, fraud, and abuse in many departments, and federal projects often have large cost overruns.



In a 2014 report, Paul Light of the Brookings Institution studied dozens of federal failures, including the response to Hurricane Katrina in 2005, the botched launch of HealthCare.gov in 2013, and the ongoing mismanagement of veterans' health care. He found that the number of such failures has increased over the years and "have become so common that they are less of a shock to the public than an expectation."⁷
Peter Schuck critiqued federal management in his 2014 book, Why Government Fails So Often.⁸ He examined dozens of programs and found widespread failure. Many programs are not delivering promised results, and they have costs that are higher than the benefits. Schuck concluded that federal performance is "dismal" and failure is "endemic."⁹
Federal failure is a critical issue because the government controls so many aspects of our lives. Federal spending represents more than one-fifth of the nation's economic output, and federal regulations infiltrate many state, local, and private activities. When the government fails, it can create widespread harm. This essay examines structural features of the executive branch that are generating frequent failures in federal policies.

Causes of Federal Bureaucratic Failure

The key to understanding bureaucratic failure is to look at the incentives created by the structure of government. People often blame government scandals on slothful or inept bureaucrats, who have poor management skills. But the personal attributes of federal workers are not the key to understanding bureaucratic failure.
Federal workers pursue many of the same sorts of self-interested goals that the rest of us do, such as higher pay and career advancement. But in the government, those self-interested goals interact with bureaucratic incentives to explain many failures. Government workers and managers face incentives that induce them to act counter to the general public interest. They do not operate within a system that rewards the creation of value.
The following are some of the failure-causing features of the federal bureaucracy:

• Absence of Profits. Unlike businesses, federal agencies do not have the straightforward and powerful goal of earning profits. That has a profound effect on efficiency and innovation. Without the profit goal, agencies have little reason to restrain costs and stem wasteful spending. Nor do agencies have a strong incentive to improve the quality of their services or the effectiveness of their management. It is easier for agencies to live the quiet life than to take risks and try to enhance performance.

• Absence of Losses. Poorly performing agencies do not go bankrupt, so there is no built-in mechanism to end low-value activities. There is no automatic corrective to programs that have rising costs and falling quality. In the private sector, businesses abandon activities that no longer make sense, but "the moment government undertakes anything, it becomes entrenched and permanent," noted management expert Peter Drucker.¹⁰ In government, resources remain stuck in obsolete activities, rather than being reallocated to better uses. Drucker said that "the strongest argument for private enterprise" over government is not the role of profits, but the role of losses.¹¹ Losses send a powerful signal to businesses that they need to make changes. Failing government programs do not send such a signal.

• Monopoly. Adding to the problem caused by the absence of profits and losses, many federal activities are monopolies. That further reduces incentives to restrain costs and improve quality. It also means there are no alternative sources of information for people to gauge the efficiency of a government activity. In competitive markets, people can compare the performance of different companies and products, but with monopolies, poor performance is harder to identify.

• Output Measurement. Business output can be measured by profits, revenues, market share, and other metrics. But government output—the quantity and the quality—is more difficult to measure. That makes it hard for Congress and the public to judge performance, or to set goals for agencies, managers, and employees. The missions of federal agencies are often multifaceted and vague. And agencies tend to describe their activities in opaque language with lots of buzz words, which makes it difficult to hold officials accountable for results.

• Monitoring and Transparency. Businesses produce audited financial statements, and their products are usually in the public realm for everyone to see. Shareholders, creditors, and other players in capital markets monitor companies, as do consumers and competitors in the marketplace. Ironically, private organizations are often more transparent and easier to monitor than public ones. With Britain's privatization program in the 1980s, for example, hidden financial troubles of government companies were exposed when companies were floated on the stock exchange. A current example of opaqueness is our National Park Service (NPS). The agency provides to the public few details about the budgets of its individual parks. A report by Sen. Tom Coburn in 2013 noted that the NPS produced a 2,400-page study on dog-walking options in the Golden Gate National Recreation Area, yet the same park provides the public virtually no information about its budget.¹² For a contrast to the NPS, look at the private Mount Vernon in Virginia, home of George Washington. The Mount Vernon Ladies Association publishes detailed and audited financial statements for the estate showing how money is raised and spent on each of its activities.¹³ Why is this important? Without transparency and outside monitoring, organizations will receive less feedback, and that will make them more likely to fail.

• Rigid Compensation. Federal employee compensation is based on standardized scales generally tied to longevity, not performance. The rigid salary and benefits structure makes it hard to encourage improved employee efforts or to reward outstanding achievements. Rigid pay scales reduce morale among the best workers because they see the poor workers being rewarded equally. With rigid pay scales, the best workers have the most incentive to leave, while the poor workers will stay, decade after decade. But attempts to introduce greater pay-for-performance in the federal government have not worked very well either. A recent effort to give bonuses to outstanding employees in the senior executive service has led to the great majority of them being judged "outstanding."¹⁴ That dubious result was presumably facilitated by the lack of good output measurement in federal agencies.

• Lack of Firing. Disciplining federal workers is difficult. They have strong civil service protections, and about one-third of them are represented by unions.¹⁵ When surveyed, federal employees themselves say that their agencies do a poor job of disciplining poor performers.¹⁶ An investigation by Government Executive noted, "There is near-universal recognition that agencies have a problem getting rid of subpar employees."¹⁷ Federal workers are virtually never fired for poor performance. Recent data show that just 0.5 percent of federal civilian workers a year get fired for any reason, including poor performance or misconduct. That rate is just one-sixth the private-sector firing rate.¹⁸ The firing rate is just 0.1 percent in the senior executive service, which includes the top career people in the government.¹⁹ By contrast, about two percent of corporate CEOs are fired each year, which is a rate 20 times higher than the senior executive service.²⁰

• Red Tape. Federal agencies and programs are loaded with rules and regulations, which generally reduce operational efficiency. For example, people have complained for years about the heavy paperwork involved in federal recruiting, but this problem never seems to get fixed.²¹ Large private organizations also have "red tape" problems, but the problems are worse in government. One reason for all the federal rules is to prevent corruption and fraud, which are big concerns because the government hands out so many contracts and subsidies. Government has enormous power, and so layers of rules are needed to safeguard against abuse.²² Another reason for all the rules in government is that there is no profit goal, and so detailed rules provide an alternate way for superiors to monitor workers.²³ In the private sector, headquarters will monitor a regional office by seeing whether it earned a profit. In the government, headquarters will monitor a regional office by seeing whether it handed in all its paperwork. Finally, government workers themselves have reasons to favor red tape: if they follow detailed written rules, they can "cover their behinds" and shield themselves from criticism.²⁴ In sum, red tape is an unavoidable feature of the government and one reason why it will never be as efficient as the private sector.

• Bureaucratic Layering. American businesses have become leaner in recent decades, with flatter management structures. Research has found that the average number of executives reporting directly to corporate CEOs has increased substantially in recent decades, while the number of management layers in major corporations has fallen.²⁵ By contrast, in the federal government, "layering has become very extreme," says Peter Schuck.²⁶ Paul Light found that the number of layers, or ranks by title, in the typical federal agency has jumped from 7 to 18 since the 1960s.²⁷ The federal workforce has become top-heavy with a growing number of executive designations (such as "principal associate deputy undersecretary").²⁸ Light concluded that today's "over-layered chain of command" in the government is a major cause of failure.²⁹ Overlaying stifles information flow, and it makes it hard to hold anyone accountable for failures.

• Political Priorities. The federal executive branch is headed by an elected president who appoints about 3,000 people to top positions across the bureaucracy.³⁰ Political leadership of federal agencies has some benefits, but it also causes failures.³¹ New administrations come into office eager to launch new initiatives, but they are less interested in managing what is already there. Political appointees think that they know all the answers, so they do not bother learning the lessons from past efforts, and they repeat mistakes. As each administration yanks agencies in new directions, past investments are thrown down the drain.³² The average tenure of federal political appointees is short—just two and half years—and so appointees tend to push superficially appealing initiatives that look good on their resumes, but they shy away from tackling longer-term, structural reforms.³³ Another problem with appointees is that many of them are political partisans who lack management or technical experience. One of the reasons for the failed response to Hurricane Katrina in 2005 was that many executives in the Department of Homeland Security were inexperienced party loyalists.³⁴ This lesson from Katrina has not been learned. Today, for example, many U.S. ambassadors are political donors with no experience in the countries they are posted.³⁵ Another specific example is the current acting head of the 900-employee Federal Railroad Administration, who seems to have no background in railroads or transportation, or apparently any technical qualifications. The ticket to the top for this official appears to have been a decade of media relations jobs for members of Congress and the White House.³⁶

• Agency Capture. Federal agencies get influenced or "captured" by special interests, such as businesses. Interest groups may gain influence by providing gifts or benefits to federal employees, or by using their relationships with legislators who oversee the agencies. Lobbyist influence also stems from the power of the revolving door, meaning the possibility of officials gaining lucrative private-sector jobs after leaving government. Another power that interest groups often have is control over information and expertise that a federal agency needs. Economist George Stigler developed the idea that interest groups would "capture" regulatory agencies, meaning that agencies would work on behalf of regulated industries, rather than the general public.³⁷ By being regulated, businesses can use government to give them monopoly power, keep prices high, and gain other benefits. A classic example of capture was the Interstate Commerce Commission, which regulated railroads between 1887 and 1995. Milton Friedman said that it "started out as an agency to protect the public from exploitation by the railroads," but eventually became "an agency to protect railroads from competition by trucks and other means of transport."³⁸ Similarly, the Civil Aeronautics Board "managed and enforced a cartel among air carriers" to the detriment of the general public between 1940 and 1978.³⁹ In a more recent example of capture, the federal agency supposed to be overseeing Fannie Mae and Freddie Mac leading up to the recent financial crisis overlooked problems at the government-tethered companies.⁴⁰ Another captured agency was the federal Minerals Management Service (MMS). MMS employees had very close relationships with, and often received gifts from, employees of the energy companies that they were supposed to oversee.⁴¹ That closeness appears to have been a factor in MMS's failures leading up to the BP Deepwater Horizon oil spill in 2010.

• Principal-Agent Problem. Numerous relationships in the economy involve a person (the principal) paying someone else (the agent) to do a job for the principal, but the agent instead pursues his or her own goals. In the government, employees are paid to faithfully execute the laws, but they often pursue goals counter to those of legislators and the public. Unionized federal workers, for example, actively oppose legislators who support trimming worker pay or program budgets.⁴² Meanwhile, agency leaders try to maximize their budgets in underhanded ways. They exaggerate problems in society to gain support for their missions. They leak biased information to the media to ward off budget cuts.⁴³ They put forward the most sensitive spending cuts in response to proposed budget reductions, which is called the "Washington Monument" strategy. They signal to the public that they are solving problems without actually solving them—for example, security agencies use "security theater" techniques that are visible to the public but do not make people safer. Agency leaders trumpet the supposedly great job they are doing, but hide agency failures from the public. And officials stonewall congressional requests for information that may shed a bad light on them. What is missing in the federal bureaucracy is critical self-examination, and that is one reason why agencies often find themselves in major failures and scandals that could have been avoided.

Reforming the Federal Bureaucracy

These sorts of bureaucratic drivers of federal failure have been observed for many decades. In a 1952 book, Illinois Sen. Paul Douglas, who was a famed PhD economist, discussed reasons for the "elephantiasis" of federal agencies.⁴⁴ He described, for example, how agencies have little incentive to control costs and why it was almost impossible to fire "deadwood" employees.
Many presidents have tried to improve executive branch efficiency.⁴⁵ President Theodore Roosevelt appointed the Keep Commission in 1905 to improve federal management. In a message to Congress, Roosevelt said, "There is every reason why our executive government machinery should be at least as well-planned, economical, and efficient as the best machinery of the great business organizations, which at present is not the case."⁴⁶ The president was expressing Progressive-era optimism in government, but, as we have seen, such optimism is misguided.
President William Howard Taft appointed a Committee on Economy and Efficiency in 1910.⁴⁷ Then there was President Franklin Roosevelt's Brownlow Commission in the 1930s, President Harry Truman's and President Dwight Eisenhower's Hoover Commissions in the 1940s and 1950s, President Ronald Reagan's Grace Commission in the 1980s, and Vice President Albert Gore's "Reinventing Government" project in the 1990s. President George W. Bush had a "management agenda" that examined the effectiveness of programs. And President Barack Obama promised in his 2011 State of the Union address to create "a government that's more competent and more efficient. … My administration will develop a proposal to merge, consolidate, and reorganize the federal government in a way that best serves the goal of a more competitive America."⁴⁸
Despite all those efforts, the performance of the executive branch may be getting worse today, not better.⁴⁹ Federal employee morale, for example, is low and declining, and experts agree that the process of filling senior positions in agencies is broken.⁵⁰ Furthermore, federal personnel systems do not work very well. Government Executive recently concluded, "The processes for hiring and firing employees are riddled with complex regulations and confusion over how to apply rules designed to preserve fairness and diversity. The system frustrates employees and citizens alike, and makes it hard for agencies to effectively deliver services."⁵¹
So the various reform efforts over the decades may have been useful exercises, but they were just tinkering around the edges. Such efforts cannot solve fundamental structural problems, such as the absence of measured profits and losses in government activities. The government will always fall far short of competitive private markets in efficiency and innovation.
In 1969 Peter Drucker wrote the influential article "The Sickness of Government." In it he stated that the love affair with government was coming to an end because it was increasingly clear that government "costs a great deal but does not achieve much."⁵² He noted that governments have simply not performed very well, and that their record was "dismal."⁵³ He argued that the problems of government bureaucracy were deeply structural, and so fiddling to improve management was not enough. Drucker called for "reprivatization" of government activities, a word that would later morph into "privatization."
A decade later in 1979, Great Britain's Margaret Thatcher launched a privatization revolution that swept the world. Britain privatized housing, energy firms, seaports, airports, airlines, air traffic control, utilities, passenger rail, and many other activities. Dozens of nations followed Britain's lead, and more than $2.5 trillion worth of government businesses and infrastructure has been sold off over the past two decades.⁵⁴
Unfortunately, the privatization revolution has largely bypassed the U.S. federal government. Yet many federal activities could succeed in the private sector, such as air traffic control, passenger rail, postal services, and various infrastructure. These activities would generate more value for society if they were in the private sector. Academic studies across many countries have revealed that privatized activities generally perform better than similar government activities.⁵⁵
In sum, the federal bureaucracy has many features that contribute to poor performance and failure. Members of Congress may wish that the programs they dream up are delivered to their constituents in an efficient manner by expert civil servants, but that is not how the government actually works much of the time. Congress should try to improve government management, but it is more important for legislators to focus on ending or privatizing federal activities