Chapter 5. Regulations and Regulatory Agencies Bureaucracy Civil Service I. Regulations and Regulatory Agencies-- Introduction It took us eighteen months to build the first nuclear power generator; it now takes twelve years, that’s progress. ---Edward Teller All authority belongs to the people. — Thomas Jefferson Another part of the system which must be examined and altered is the regulatory agencies and the regulations they develop. Regulations develop because Congress passes vague sweeping legislation leaving the details to lawyers and bureaucrats who occupy government; this task has become so massive, regulation is said to have become the fourth branch of government. Regulations are directives, standards or procedures, supported by penalties or other sanctions that are designed to shape the behavior of individuals, businesses, and state, local and tribal governments. National government determined that private interests could be subject to governmental regulation if their activities posed a threat to the public interest. common concern is that unrestrained private enterprise could not, or would not, deal with economic and social problems created by conflict between the pursuits of private profits and public goals. When power is in the hands of central government, the individual citizen feels he has, and indeed does have, little control over distant and impersonal political authorities. The development of regulations involves four key players: (1) Congress passes legislation to authorize or require an agency to issue regulations; (2) the executive branch decides the form and extent of regulations, (3) interested parties may comment on proposed regulations or challenge final ones in court and (4) federal courts which review regulations, sometimes ordering agencies to revise the challenged regulations. A natural history and evolution of government intervention does exist and in time honored fashion, repeats itself over and over again. A real or fancied evil leads to demands to do something about it. A political coalition forms consisting of sincere, high minded reformers and other sincere interested parties. The coalition succeeds in getting a law passed. The reformers, satisfied, turn their attention elsewhere. The interested parties go to work to make sure the power is used for their benefit. Eventually they turn to broadening the scope of their intervention. The effects in the end are precisely the opposite of the objectives of the original reformers. Yet the activity is now so firmly established and so many vested interests are connected with it that the repeal of the initial legislation is nearly inconceivable. New government legislation is called upon to cope with the problems produced by the earlier legislation. A new cycle begins. When government intervenes in the marketplace, ever act of intervention establishes positions of power. How that power will be used and for what purposes depends far more on the people who are in the best position to get control of that power and what their purposes are than on the aims and objectives of the initial sponsors of the intervention. II. Regulation--The Problem Power does not corrupt man; fools, however, if they get into a position of power, corrupt power. — George Bernard Shaw Costs of regulations exceed the direct costs and impose indirect costs such as loss of productivity, investment disincentive, international competitiveness, loss opportunity, construction delays, inflation, resource misallocation, and shortages of supplies. Waste in government comes in many forms, employees idling or not working, working at tasks which need not be done, following regulations which should never have been written, filing out forms should never have been printed, $100 billion a year from Department of Defense alone from these wastes. Barry Bosworth, former chair of the Council on Wage and Price Stability, cited regulation as the source of a 3/4 to 1 1/2 percent increase in the cost of living each year. Excessive government regulations have been found to be responsible for nearly one-fifth of the price of a normal middle-class home.Economists indicate that the current income in the United States would be at least 25 percent higher in the absence of postwar poverty programs and government regulatory activities. Any regulations dilutes the optimization effect. An example of regulatory power gone amuck is the EPA, an agency which has learned how to keep itself big and strong by discovering problems where they don’t exist, spreading scare talk and then mandating expensive solutions (the latest being in 1997 the desire to regulate particulate pollution at minuscule levels). It believes because its cause is just, it can do anything to anyone and get away with it, after all isn’t a clean environment worth whatever it takes? Government red tapes costs American business a minimum of $600 billion a year, 10% of America’s GDP. Most small and medium size businesses put government regulation and paperwork at the top of their lists of problems. One major side effect the huge spawning of unnecessary and unreasonable laws has been the declining respect for laws in general. Studies indicate that delays for new drug approvals by the FDA have saved between 5,000 and 10,000 lives per decade but in return have caused between 21, 000 and 120,000 additional deaths during the same period. On balance, therefore, the FDA regulations have resulted in between 4 and 12 deaths for every life saved, that’s progress? A drug used in mental health therapy was not introduced in the United States until it had already been available in Europe for five years; the five year delay has been estimated to have resulted in 1,200 preventable deaths. In April 1993, The FDA blocked testing of the cardiopump, a CPR device for heart-attack victims. This device is already in use around the world and standard in ambulances in France. Studies have shown 54 percent more patients survived using the device. Yet the FDA considers the device a ‘significant risk device.’ In France, the average approval time for a medical device is eighteen months versus nearly a decade in the U.S. Estimates are the device would save 20 lives a day, over 7,000 nationally annually. Although irrational logically, it is perfectly understandable politically. If the FDA mistakenly approves a device that has adverse side-effects, this would result in highly undesirable publicity. On the other hand, if the FDA delays in approving life saving devices, the people who die are politically invisible. It is desirable that the public be protected from unsafe and useless drugs; it is also desirable that new drug development be stimulated and new drugs should be made available to those who can benefit from them as soon as possible. Safety and caution in one direction means unnecessary deaths in another. The Center for the Study of American Business calculated that environmental legislation costs each American family more than $1,000 a year. The 1990 Clean Air Act will cost $29 to $36 billion annually with benefits to flow of only $6 to $25 billion. GM has estimated that costs associated with complying with the Clean Air Act ($30 billion a year industry wide) will consume 25 to 28% of its total capital budget. Obtaining clean air permits for 150,000 small business will cost between $10,000 and $15,000 each to collect the data and do the paperwork while monitoring devices needed to track emission rates will cost an additional $10,000 to $50,000, real money few small businesses can afford if they are to stay in business or to compete. Peter Drucker estimates that over 60 percent of the time of top management in large and medium sized companies is spent on outside relations; this obviously effects the efficiency of any company. A whole cadre of company officers exist who do nothing else but deal with government relations. Estimates are that paperwork burden for individuals and businesses are in the billions of man-hours each year (a billion man-hours represents 500,000 full time employees). While regulations were growing, regulators were increasing, and government expenditures on regulatory activity skyrocketing, economic growth slowed drastically and during the seventies productivity actually declined. These were related. Agencies imposed heavy costs on industry after industry to meet increasingly detailed and extensive government requirements. They have required capital to be invested for nonproductive purposes in ways specified by government bureaucrats. Another cost is the contradictory effect that regulations sometimes have: The Department of Labor issued a regulation wherein lift trucks in factories had to be equipped with horns to warn workers when the trucks came close to them. Six months later, OSHA issued its own regulations requiring that employees ear earmuffs to protect them from the noise of the horns. One cannot simultaneously control prices, inflate costs, ban production, increase taxes, grant counterproductive subsidies and expect healthy, vigorous production to result. Yet the energy industry during the late seventies was under these presumptions. To save energy and to enhance fuel efficiency means smaller and lighter cars, which are less able to withstand collisions than are larger cars. More than likely any gains in one area will be eliminated by losses in the other. Statistics indicate that the net effects of the agencies tend to be neutral or adverse: one example of which is OSHA’s effect on achieving its overriding goal, a safer workplace. The Department of Labor’s own data on days lost per work due to job related illness or accidents has not declined since the establishment of OSHA, despite the billions of dollars demanded of business by OSHA regulations, and the cost of the regulators themselves. This suggests no net benefits from OSHA and its regulations are imposing a dead weight loss on society. OSHA has taken to bullying small business, often imposing massive fines for disobeying some rule which was not relevant to the business, not made known to the business until afterwards, or subjectively arbitrarily interpreted. The ADA, the Americans with Disability Act, is a new regulatory program which offers a myriad possibilities for dependence and government regulation. Vague definitions of disability were discussed in the original bill; the regulators are now having a field day expanding the populace with disabilities. Obese people, short people, addicts, alcoholics, all are potentially covered under the law with rights and legal recourse if their disability is not recognized and satisfied. An ex-teacher was fired for sexual harassment; he then claimed he was being discriminated against as a disabled person--his disability was he was a sex addict. Under the Americans with Disability Act, people with ADD or Attention Deficit Disorder may qualify for lengthy extensions of testing periods in tests. Psychiatrists and social workers argue that children who suffer from this problem would be excused from many of the usual challenges of American education. A Physician could fail a professional test time and time again yet be given another chance. This might bode well for the soon-to-be doctor, but will he be given extra time in a real life medical crisis? The real world just doesn’t work that way. The danger is that these children believe they have something wrong with their brains that makes it impossible for them to control themselves and thus grow into victim mentality as adults. Regulations also can create monopolies with the expected negative implications. A classic protected monopoly is the taxicab. In New York City, 13,500 medallions (individual licenses) were first issued to regulate taxis in 1935, of which only 11,000 exist today (the cost to obtain one of those medallions is beyond belief and economic rationale). The Federal Trade Commission found the added cost to US consumers of that monopoly (taxis only) of $800 million (in 1972 dollars). As a regulated monopoly, in exchange for a limited number of licenses granted, the holders agree to provide consistent service at a regulated price. Because of the working of the political process, regulation invariable ends by favoring the regulated industries, that is, the regulated capture the regulators. Regulations have been increasing in number, intensity, and regulators; since 1954, the number of federal regulations have increased from 16,502 to over 200,000. The number of federal employees engaged in writing and implementing regulations exceed 125,000, growing at an annual rate of 7 percent. The Federal Register, the compendium of federal regulations that serves as a proxy measure of regulatory trends at the state and local levels, swelled by more than 65, 000 pages in 1991 alone. Government spending on regulatory efforts was 22% higher (in inflation adjusted dollars) in 1991 than in 1980. The $12 billion annual cost of hazardous waste regulations is equivalent to 6% of all new investments in plant and equipment in manufacturing. The costs of the Clean Air and Clean Water Acts during the 1980s amounted to nearly $1 trillion dollars including all economic ripple effects. The Federal Personnel Manual has 10,000 pages; the Federal Acquisition Regulation, the government’s principal set of procurement regulations has 2,900 pages of supplements to it. The Department of Defense rulebook governing the operation of military base construction was 400 pages, those regulating military housing covers 800 pages, personnel rules for civilian employees covered another 8,800 pages. Estimates are that up to one-third of the defense budget goes into rule making, rule following, or wasteful results because of bad rules. One federal agency found it needed an 18-foot chart with 373 boxes to explain its rulemaking process; this agency’s process was not unusually complex. Regulations and bureaucracy must be reviewed at all levels. Regulations should have clear concise goals and objectives when mandated: The Environmental Protection Agency (EPA) was established to protect the environment, without any legal definition of the environment. The Consumer Products Safety Commission was established without a definition of consumer products. Currently the level of regulations inherent in the FDA, EEOC, OSHA, EPA, Clean-Air Act, and Civil Rights Act, to name but a few, cost the nation’s firms billions of dollars which come straight from profits, lowering their return on investment, raising their cost of capital, lowering funds available for R&D and capital expenses, and lowering their overall international competitiveness. Of course many of these regulations provide many benefits to the public at large. However, a balanced cost-benefits analysis by government prior to issuing a regulation should be a requirement. For example, the FDA spent twelve years, 24,000 pages of proceedings, more than 75,000 pages of documents on how to define peanut butter. Many would say that the time and money could have been better spent on other pursuits. Much of the regulatory and legal fever around cancer involves trivial hazards rather than major hazards. This points out the need of an improved coherent risk regulating system that would direct regulatory effort towards big problems, not little or illusory ones. A critical issue of our time is the mismanagement of risk by government. Over the past thirty years, it appears the goal of many regulators and bureaucrats is to achieve zero risk. Zero risk is not a feasible goal. Modern society can not operate at zero risk standard. Regulators, however, strive for the magical zero risk. The result of the pursuit of risk free existence can clearly be seen in NASA. In January 1967, an Apollo spacecraft caught fire during a test on the launch pad, killing all three occupants. The nation was shocked and horrified. Yet, the Apollo flights continued after only a brief hiatus and 30 months later a man was put on the moon. In 1986, the Challenger space shuttle disaster occurred. NASA required over 3 years before it sent up another space shuttle. The idea that our individual lives and, by association, the nation’s should be risk free has grown into an obsession, threatening to create an unbuoyant and uninventive society. We need to rank risks in order of priority. Congress and its agencies need to be able to compare risks more carefully. Many EPA regulations of toxic substances address risks that are not greater than what people routinely incur from drinking a cup of coffee each day. Congress should mandate risks be detailed each time a risk regulation is issued. For example, asbestos exposure in a school has an annual rate of deaths per million of 0.005 while whooping cough vaccination has a similar rate of 1-6, aircraft accidents had 6 deaths per million, high school football had 10, drowning 27, home accidents of toddlers 60 and long term smoking 1,200. In these terms, money would have been better spent on more pursuing the correction of more high term risks with higher economic benefits possible. Even strict free market evangelists acknowledge the need occasionally for some type of regulation. As Fredrich von Hayek commented: “A free market system does not exclude on principle all regulations governing the techniques of production. Regulations will normally raise the costs of production. But if this effect on cost is fully taken into account and it is still thought worthwhile to incur these costs to achieve a given end, the appropriateness must be judged by comparing the overall cost with the gains to be received. “ Control means to regulate. One advocate of regulation says that even if the United States were to have a civilian industry that would run the post office, regulation would need to be present to guarantee the firm would not take advantage of the consumer. If you have United Parcel Post, Federal Express and Air Borne, and you allow the post offices to become private and competing enterprises to start up then you are going to see the marketplace will establish the rules of conduct. But if you get into the drug business for example you will find that even though the competition has a great advantage you are still going to have some controls or even this group competing against each other will take advantage. The answer to the criticism is that the market, a firm’s competition, is the best form of self-regulation that exists. Credible quality firms survive and thrive, fly-by-nighters die. The government would reserve the right to step in if self-regulation by an industry is insufficient. Knowing what has been done in the past and knowing the government is on the sidelines watching, would provide the best incentives for an industry to self regulate, to keep its own turf clean and not necessitate government regulators to do it for them. Advocates of government regulation say that without the Consumer Products Safety Commission, how can the consumer judge the quality of complex products? Yet others currently routinely do it for him. A department store can act as a middleman, monitoring quality on the behalf of its customers. Sears knows that poor merchandise sold to its customer directly affects the customer’s perception of the store’s franchise; it, therefore, acts in its own best interests to screen products for the consumer. Brand names also act as depository of reputation and goodwill. Consumers Research and Consumer Reports, private organizations, provide great amounts of data on consumer goods. Yet advocates can be blind to reality. Because many Americans still refused to wear seat belts while driving or riding in cars, Airbags were offered in the late sixties as a panacea for automotive safety, a near perfect way to save lives, a passive restraint that would perform the function of seat belts whether or not motorists buckled up. Airbag opponents were ignored. General Motors warned federal safety officials in 1969 that children, in particular, could be seriously injured or killed by the inflation of the airbags. Warnings were ignored by the advocates. Airbags were eventually mandated. Lives have been saved but airbags work well only when one is already wearing a belt. Airbags have been blamed for the deaths of over 20 babies and small children, eight (8) alone in 1995 (one killed for every 50-70 saved by some estimates). These ‘unintended effects’ could have been predicted. American sociologist Robert K. Merton provided the reasons for the law of unintended consequences in his 1936 paper. Reasons one and two were ignorance and error, both which feature in the airbag fiasco. Safety advocates did not know the facts and chose to ignore the evidence provided by the car manufacturers. The third reason is ‘imperious immediacy of interest’; policymakers want the intended consequence so badly that they purposely ignored any unintended effects. And as the advocates roll on, do they plan on erasing their mistake? No, the cure now is to mandate children must sit in the back and to pass a law making it a crime for children under twelve to sit in front. One error begets another. Prohibition was imposed for our own moral good. But where did prohibition lead? It did not stop the consumption of alcohol and instead furthered crime and sin. If the government has the responsibility for protecting us from dangerous substances, then logic calls for prohibiting alcohol and tobacco. If it is appropriate for the government to protect us from using dangerous bicycles and cap guns, the logic calls for prohibiting still more dangerous activities such as hang-gliding, motorcycling, parachuting, and mountain climbing. Let us free to choose what chances we want to take with our own lives. Let’s not get into the habit, as we seem to have been lately, of letting government telling us what we can and cannot do. III. Regulations––the problem: Effects on Innovation The restraining, distorting, and time-wasting effect of government controls has a negative effect upon the economic growth of a country. Regulatory intervention plays a vital role in shaping technological progress. Government regulations influence both the rate and direction of technological change by providing disincentives and barriers to the production of innovation within a country in inverse proportion to the amount and severity of the regulations. Regulation has created a climate inimical to risky innovation endeavors. Of particular concern is the contention that the costs and problems associated with regulatory compliance have helped to reduce industry-financed basic long-term research in the U.S. generally. Thomas D. Hopkins, a former Office of Management and Budget deputy Administrator under former President Bush and now Rochester Institute of Technology economist has made a comprehensive estimate of regulation’s costs. He put the 1991 price tag at more than a half-trillion dollars--nearly 10% of the U.S. GDP. Hopkins divided federal regulatory costs into these five broad areas: •Environmental regulations. In 1990 these totaled nearly $100 billion. This is more than double the sum of 1977 and does not account for the potential effect of the 1990 Clean Air Act which will add an estimated gross costs of another $25-30 billion per year. During the 1990s, it is estimated the U.S. will spend some $1.6 trillion on environmental cleanup. •Other social regulations. These are designed to protect consumers from faulty products and to protect people from injuries at work. The total costs of regulations imposed by OSHA, the Nuclear Regulatory Commission and others was $29 billion in 1990. Forbes estimates that the direct and indirect costs of affirmative action to be over $110 billion per year (Forbes, February 15, 1993 page 39). The trend here is worse with Congress increasingly turning away from spending programs and towards pressing mandates and regulations which force the costs onto the private sector. •Efficiency costs from economic regulations. Hopkins reckons that restricting airport landing fees cost $4 billion in wasted time and fuel in 1988 and agricultural programs cost American consumers and taxpayers $6 billion more than they benefited farmers. Economic regulation can stifle innovation and distort efficient investment. Deregulation can have both indirect and direct effects. When the trucking industry was deregulated in the early 1980s, the direct effects were lower transport charges. However, indirect effects included leaner inventory management for all other industries and Just-in-time deliveries. The trucking industry under regulation would have never been allowed to produce such efficiencies. The estimated cost in lost efficiency in 1990 was $46 billion. •Transfer or distributional costs from economic regulation. Milk price support programs raise prices about $500 million above what they would otherwise have been; similarly sugar growers gain nearly $1 billion from consumers. The Davis-Bacon Act, which stipulates that government construction work must go to union members, takes work away from non-union workers. Total transfer costs in 1990 were estimated to be $95 billion by Hopkins. •Cost of process regulation. The OMB reckons that the private sector spends 5 billion hours filling in paperwork to comply with federal government regulations. mostly tax laws. Add in the time needed to spend complying with State and Local mandates. Multiply by an appropriate per hour rate. Hopkins believes cost to the private sector easily exceeds $100 billion per year. In 1985, before drug approval applications were computerized, one Eli Lilly submission weighted over 4,000 pounds and filled an entire room; since then FDA data requirements have almost doubled. Hopkins’ total estimated gross cost of federal regulations for 1990 was $392 billion, roughly $4,000 per American household. The net cost is nearly the same. Only in two areas, environment and highway safety, do the benefits of federal regulations even come close to exceeding the costs. Hopkins measured the cost of federal regulations as $542 billion in 1992 or over 9% of the GDP. The estimate for 1993 and later years must also include the Clean Air Act ($15 billion per year) and the Disabilities Act (costs unknown but estimates of $50 billion a year not unreasonable). Therefore, 1993 net costs are estimated to be in excess of $550 billion dollars. These costs have led to annual productivity growth one-half a percentage point slower than it would otherwise be. Hopkins believes laws already on the books will cause the cost to reach at least $662 billion (in 1991 dollars) by 2000. This is before any mandated health-care program and its costs are included. Based upon the trends, it is not inconceivable that unless stopped, the cost of regulations will exceed 12% of GDP by the year 2000. The Center for Study of American Business at Washington University in St. Louis measures regulation by looking at the cost of regulatory agencies. The regulatory impact on the economy rises in proportion to the money spent on regulation. Regulation increased rapidly in the 1970s, stalled in the early Reagan years and then resumed its upward march. Regulation puts politics in control of the economy without having the government actually own the economy; rent control can nullify property rights without costing the government a cent Policymakers can manipulate the economy through regulation without having to tax or borrow. Congress can hide the true burden of governmental programs by ordering businesses to spend the necessary money to comply with certain edicts. The U.S. Chamber of Commerce estimates that legally required (mandated) benefits paid by employers rose from nearly 4% of overall payrolls in 1951 to about 9% in 1988. Oftentimes, business takes the heat as it has to pass the cost of the regulations to the consumer, taking the politicians off the hook. A business only has a few options on absorbing the tab: it can pass the bill to consumers in the form of higher prices; it can reorganize its operations via layoffs, plant closings and other cost cutting moves; or it can close entirely. Productivity has also suffered; Productivity growth deteriorated dramatically as tax burdens rose in the late 1970s only to return to its long term average after the tax cuts of 1982-84. Productivity rose by approximately 1.5% per year during the mid-1980s. However, the resumption of higher tax burdens and greater regulations have caused productivity to deteriorate drastically since 1988. Too many regulatory edicts are based upon unrealistic estimates of actual consumer, occupation, and environmental health risks. Most industrial countries limit exposure to hazards to tolerable levels. The U.S., by contrast, sets far more stringent ‘virtually safe doses,’ attempt to amount to a ‘zero-risk ‘mentality. This mind set dates back to 1957 when the Delaney Amendment required that any known carcinogen be eliminated, no matter how small or limited the exposure. An example of the absurdity of this mentality is asbestos. The cost of removing asbestos from all public buildings nationwide is estimated at between $53 billion to $150 billion and it would save perhaps 10 lives a year, $250 million per life saved over a 40 year period. This is the equivalent of paying an extra $48,000 for a car that is 5% safer. This can also be compared to toothpicks, which cause about one death a year due to accidental ingestion, and are, thus, more than twice as risky as asbestos. Governments are not always aware of the potentially deleterious impacts on technological progress of poorly formulated and unnecessarily severe regulations. Infant industries are especially sensitive to such mistakes. The regulatory costs and delays can severely impact R&D as noted by the impact on the development and introduction of new drugs in the United States. The United States’ share of the world pharmaceutical market has declined drastically and most of the deterioration can be attributed to regulation. Small firms are in especially precarious position because they lack the financial resources to develop new drugs and clear them through the regulatory agency. Despite a five-fold increase in pharmaceutical research and development (R&D) spending since 1962, the annual number of new drug products has declined by more than 50 percent. Moreover, a large drop-off in the volume of new chemical entities has occurred, especially in pharmaceutical innovations. The drop in pharmaceutical innovation during the last fifteen years was accompanied by sharp increases in the cost, duration, and risk of new product development. The regulatory costs and delays imposed on U.S.-based R&D are significantly higher than elsewhere. The costs associated with the development and introduction of new drugs have become so large that access to the sales volume available from worldwide markets has become a critical consideration in determining competitive viability. The lengthy time required to obtain FDA approval eliminates nearly half of the intended 17-year protection granted by a patent. Thus, the deterioration of the U.S. share of world markets is cause for concern. Small firms are in especially precarious position because they lack the financial resources to develop new drugs and clear them through the regulatory agency. Significant innovation is still accomplished in the United States but diffusion is years behind that allowed elsewhere. Regulations can be disastrous where foreign competition is not hobbled by the onerous regulations. The growth in regulations that occurred in the last twenty years (including but not limited to worker health and safety-OSHA, EEO, environmental standards, etc.) has been a major impediment to entrepreneurship and innovation. Three major effects on the entrepreneurial environment have resulted from regulation:1) government-induced economies of scale that have pushed per-unit costs up for small businesses to a greater degree than for large established firms and significantly increased labor costs which have disproportionally affected small firms. 2) The paperwork morass which accompanies these regulations usually threatens to swallow up the small businessman; about 150,000 companies may have to spend more than $10,000 each for pollution permits under the 1990 Clean Air Act. Unlike large industries, small concerns often lack the large staffs and other resources to cope with regulatory burdens; and 3) limiting the entrepreneur’s access to capital. The National Federation of Independent Business, a Washington Trade Group representing some 600,000 small employers after polling its members found in 1992 the top item on the list was regulation, ahead of taxes, quality of labor and availability of credit. Since 1986, Congress has enacted 10 major pieces of legislation to regulate business, including in 1990 alone, the Clean Air Act, Americans with Disabilities Act, Nutrition Labeling and Education Act, and the Worker Right to Know Act. This does not include the possible impact of the biggest of them all, the 1993 Health Care Reform Act. The smallest businesses are so overwhelmed with paperwork and regulations, they are taking to just ignoring the laws. Small business owners also agree on a variety of issues, overwhelmingly oppose legislation to mandate employee benefits as parental leave and health insurance coverage and strongly favor measures to pare worker compensation costs. They also disapprove nearly all proposals to boost taxes, such as extension state sales taxes to include services. In some cases, regulations have virtually destroyed the market for viable firms offered by small firms. The Consumer Product Safety Commission set standards for swimming pool slides and the number of pool-slide manufacturers fell from seven to one. A National Science Foundation survey conducted in 1981 found that two-thirds of the more than twelve hundred small high-technology firms listed non-procurement regulations as a major concern. The regulatory thrusts have failed to adequately consider the costs and harmful side effects of these efforts. Decreased small business entrepreneurial efforts are an unintentional victim of regulation. The measurable costs pale against the distortions that sap the economy’s dynamism. The public never sees the factories that weren’t built, the products that failed to appear, or the entrepreneurial idea that drowned in red ink. Another major NSF-sponsored study, undertaken by the Denver Research Institute, focused on the impact of Environmental Protection Agency (EPA) regulatory action on innovation in industry. The study, based on detailed interviews in 41 organizations representing both the industry and non industry points of new, identified 14 barrier categories relating to EPA regulations with the following order of importance: 1. regulatory time pressures leading to non-optimal innovations. 2. prohibitively high costs of complying with regulations, 3. unclear scope or implications of regulations, 4. delays by the agency in promulgating guidelines required by the law, 5. inability or unwillingness to modify regulations in view of altered circumstances, 6. disagreement about the application and meaning of regulations, 7. inconsistency over time in the agencies application of regulations, 8. inability of firm to develop or allocate the resources necessary to comply with regulations, 9. conflicts and inconsistencies between regulations, 10. inability of firm to meet prescribed deadlines in regulation, 11. lack of mechanism within the agency for explaining regulations, 12. lack of effective appeal procedure, 13. differential treatment by the agency of the entities affected by the regulations. 14. unwillingness of the agency to explain regulations. A very strong correlation between the type of regulation and the nature of the technological response exists. Thus, “product” regulation generally leads to a product response, and “pollutant” and “component” regulations generally lead to process responses. In a few cases, however, product regulation was seen to elicit primarily a process change. For example, the petroleum refiners’ principal response to regulatory limits on the lead content in gasoline has been to increase catalytic reforming, a process change. The technology in use before regulation tends to dominate the compliance response to regulation. The proportion of product and process responses to regulation closely resembles the expected balance of product process innovations occurring in the segment in the absence of regulation. Highly innovative responses are rarely tried and when done are usually unsuccessfully. Regulation can change the overall character of innovation in rigid industries. Creative response to regulation may occur especially when regulation precipitates crisis conditions for the industry. A study the efforts of performance regulation on the direction of innovation in eleven industry sectors in the United States. The study included a total of 107 projects, 68 successful and 39 unsuccessful. Gerstenfeld found that performance regulation was cited as an influencing factor in 44 per cent of successful innovations and in 25 per cent of unsuccessful innovations. However, in only ten cases (seven successful, three unsuccessful) was government regulation a primary factor in the innovation (in other words, the innovation was a direct response to a government action), In a further 29 cases (23 successful, six unsuccessful), government regulation was a secondary factor in the innovation (in other words, it shaped the development of the innovation and management decisions). The type of regulation which appeared more frequently was safety (this factor was an important stimulant for innovation for eleven of the 39 innovations in which government regulation was a factor), and this affected innovations mainly in textiles, shoes, and wood and wood products. Pollution was cited as the next most important regulation affecting innovation (in eleven of the 39 affected innovations), and this appeared in industries such as pulp and paper, chemicals and food processing (that is, three process industries). Thus, Gerstenfeld found that government regulation was most often a secondary, as opposed to a primary, factor affecting innovation; that while government regulation was often in the background, it clearly affected the shape and direction of innovation. Further one can no doubt conclude that regulation can be double-edged sword. As new products and processes are evaluated, management must now carefully consider regulatory requirements along with their previous criteria of cost an performance. Some innovations are encouraged (in fact necessitated), while others are thwarted. One study of innovation among 32 suppliers to automobile manufacturers in the United States looked both at factors that acted as barriers to innovation and at those that facilitated innovation. The most important barrier to innovation was a federal law or regulation. This barrier acted in a variety of ways. Changes in regulation or procedure required adjustment on the part of the suppliers. The uncertainty of the regulatory climate or vacillation of the government’s position caused many problems for suppliers in focusing development efforts and setting priorities for projects. In five to the cases in this category firms had difficulty in meeting federal standards. Many firms developed products in one area (e.g. energy) also recognized the need to met other federal standards (e.g. noise). From the 1950’s to the mid-1960’s, society’s norms and values changed, resulting in an increase in the rate of promulgation of regulations - notably in the United States - often of increasing severity. Of all the utilities it is, perhaps, in the area of nuclear power plant that lead time have increased most. In many cases, lead times are approaching utility planning horizons, and sometime exceeding them. The estimated current total planning lead time for nuclear power plant projects in the United States, Japan, West Germany and Canada as 12-15 years, 9-12 years, 9.7 years and 7.3 years respectively. The very long lead times in the United States reflect the very stringent regulatory requirements there. Further, not only are lead times increasing, but they are also becoming more unpredictable. The main reasons for longer an more unpredictable lead times are: • technical problems encountered when increasing the size of power plants; • lack of design standardization; • the variable economic climate of the past decade; • the increasing number and stringency of nuclear safety and environmental regulations and the continuing fluidity of the general regulatory environment • more generally, an inadequate level of political consensus over what constitutes an appropriate role for nuclear energy. Lester further states that perhaps the most important cause of increased lead times is that associated with the regulatory process. One of the more important aspects of regulatory-induced lead times - apart from greatly increased costs - is that as the period from patenting to marketing increases, so the period of effective patent protection decreases. In area where development costs are high, this can pose a serious disincentive to invest innovation. It is increasingly being noted, both in the United States and in Europe, that because of the serious consequences for company profits, and for future rates of innovation, of the regulation-induced reduction in effective patent lifetime, governments should pay urgent attention to this matter and take steps to extend patent protection periods in such cases, especially in the pharmaceutical industry. Are all regulations bad? No, of course not. They are a price one pays to live in a civilized society. Rules and regulations can have a positive effect, such as the Food laws that occurred at the turn of the century. Some regulation and control are undoubtedly necessary, but regulation can become stifling if politically motivated and may create a climate inimical to risky innovation endeavors. Of particular concern is the contention that the costs and problems associated with regulatory compliance have helped to reduce industry-financed basic long-term research in the U.S. Infant industries are especially sensitive to such mistakes. The problem is cost-benefits are almost always never measured. Does this regulation provide benefits in excess to the costs it mandates? This is one question governments typically do not ask and until it does so in a timely and unbiased accurate matter, regulations will continue to pile on one another. Too often, the regulators care only about whether it is enforceable and effective, not whether it encourages cost-efficiency or any cost-benefits to be gained. The need for regulation and the need for the stimulation of industrial activity-and especially innovative activity-are often incompatible. It is, however, significant that, in Europe and Japan at least, regulation had a greater impact on innovation than any other government measures which were formulated specifically to facilitate innovation in industry. Regulation also forces innovation, although not necessarily “business” innovation designed to offer the firm a comparative advantage in the marketplace. Government forces reprioritization of resources and certainly can be distortive if not a restrictive influence. Government regulations can be a negative influence on one industry (automobile--emissions controls) while a boom and stimulus for another (pollution controls). Tthe influence of government policy on the conduct and outcome of 164 innovations (66 successes, 51 failures, 47 on-going) in five industry sectors in Europe and Japan showed, perhaps surprisingly, that while none of the policies directly aimed at stimulating innovation had any relation to performance, regulatory constraints, not directly aimed at stimulating innovation (mostly environmental and safety), were related to performance (a factor of 15.2 per cent of successful projects and in only 2.0 per cent of unsuccessful projects). It appears that government regulation afforded a very high priority to the project, since Governmental requirements for entering or remaining in a market affect a large proportion of sales; often one hundred per cent. Thus, in effect, government regulation sometimes can demand innovation, and can lead to the speedy allocation of relatively large resources to solve an often highly specified problem, which enhances the likelihood of a successful outcome. Where governments maintain a high degree of control of the economy, whether in the Soviet Union or in third world socialist nations, inadequate capital inevitably occurs. Post-war France created the Plan Indicatif which was an effort at central planning. This was done under the belief that planning yielded superior results to the unplanned capital allocation of the market, both in total output and in output per unit of investment. However as the plan evolved, the French determined conclusively that under both types of planning, the productivity of capital is very low. Under central planning, additional units of capital investment yielded less and less output. As a result, they shelved the plan and the economic planning concept. The Russian experience was different. They retained central planning. The productivity of capital in the former Soviet Union kept on falling. Agricultural investment during the 1970s rose steadily until it took the majority of all available non-defense money. The more money poured into planning, however, the smaller the harvest. The same negative productivity of capital occurred in the civilian industries in the Soviet Union. This was a major factor in the collapse of the Soviet economy. The greater the authority of the state, the more blockage of ideas that occur. Regimentation tends to suppress or depress individualistic thinking because it is likely to be subversive of the existing order. Political thought control does not absolutely dampen an individual thought but sets the limits for discovery and innovation. It forbids antithetical social innovations but it encourages and subsidizes new ideas that further its own ends. The pressure of competition often inspires innovation. It often does this by accentuating the situation by polarizing the differences between competitors. It sets them apart and prepares the way for each to investigate different approaches to the same problem and provide means to distinguish themselves from their rivals. IV. Problem --Civil Service and the Bureaucracy The nearest approach to immortality on earth is a government bureau. — James F. Byrnes If there's anything a public servant hates to do, it's something for the public. — Kin Hubbard Were we directed from Washington when to sow and when to reap, we should soon want for bread . . . ----Thomas Jefferson The last part of the system that needs review and overhauling in the people and the management of the people involves the civil service and the bureaucracy. The key characteristic of bureaucracies is insulation from markets. Four other features that distinguish bureaucracy from other forms of organization include a relatively large size, a full time well paid staff, formalized hiring and promotion rules, and evaluation by some set of criteria other than market prices. The fundamental features of bureaucracy are the diffusion of authority among numerous offices organized in a hierarchical structure, adherence to inflexible and impersonal rules of operations, and decision-making by non-elected, career officials. The bureaucrats tend to be loyal to the ‘system’ not to their clients. They merely apply rules, regulations, and procedures. Before 1930, many public services were provided by nongovernmental institutions. At the time of the New Deal, politicians increasingly believed that public employees should be used to provide these services; they were worried about private organizations excluding specific members of society. The emergence of bureaucracies in the United States occurred late in the nineteenth century as a response to the corrupt big city political machines. To keep the administration of public services untainted by the influence of politicians, a professionals were hired to run the bureaucracy in an efficient, businesslike manner. American society wanted to control what went on inside government, to clean up government. Truly noble aims. It succeeded--too well. In making it difficult to steal the public’s money, it became virtually impossible to manage efficiently public interests. Obsession with dictating how things should be done--regulating the process, controlling the inputs--the result was ignoring the outcomes, the results. Time and the inevitable has caused the civil service to degenerate into a mindless bureaucracy, more intent on following its complex, outdated, unintelligible rules than in serving the public and providing worthwhile functions to the public. Increasingly policy is fragmented and policy direction becomes divorced from execution. Execution is governed by the inertia of the large bureaucratic empires, rather than by policy. Bureaucrats keep on doing what their procedures prescribe. The inevitable tendency is to identify what is in the best interest of the agency with what is right and what fits administrative convenience with effectiveness. By this measure, a strong president is not a man of strong policies but a man who knows how to make the lions of the bureaucracy do his bidding. Part of the growth of the bureaucracy must be put directly at the foot of Congress. Politics is primarily concerned with ‘new programs’, what is politically hot, focuses on crises, problems, issues. Politics is not congenial to managerial organization and makes managing government an oxymoronic statement. In government, loyalty is more important than performance. The premium in government is on not ‘rocking the boat’ in existing agencies, on doing with proper procedures what has been done before. Within the political process, attention will not be paid to the on-going routine work. Management of the daily work of government is considered a matter of following procedure and filling out forms. By excelling as a manager, no one in politics will ever get to the top, unless he builds his own political machine, his own political following, his own faction. No federal legislator could conceivable read, let alone analyze and study, all the laws on which he must vote. He must depend on his numerous aides and assistants, outside lobbyists or fellow legislators for most of his decisions on how to vote. This unelected congressional bureaucracy provides far more influence in shaping the detail of the laws being passed then do our elected representatives. As another result, bureaucrats end up making the policy since most Legislative Acts are necessarily vague (to not pin down Congress and unnecessarily harm a special interest group). High level bureaucrats are masters at the art of using red tape to delay and defeat proposals they do not favor, of issuing rules and regulations as ‘interpretations’ of laws that they do favor, of dragging their feet in administering those parts of law of which they disapprove, while pressing on with those they favor. They know they are indispensable, that they know more about what should be done than uninformed voters or self interested businessperson. In essence, in modern day societies, running the country has been literally given over to the Bureaucracy since no one else understands or is capable of doing so. Bureaucrats have not deliberately usurped power; it has been thrust on them without any conspiracy developing. It is simply impossible to conduct complex government activities in any other way than by delegating responsibility. When that leads to conflict between bureaucrats delegated different functions, the only solution is to give power to another set of bureaucrats to resolve the conflict, to cut red tape. Increasingly success in Washington is knowing one’s way around, influence with legislators and bureaucrats. The dangers inherent in such moves and power show everywhere. Signs of this decayed function abound. Civil Service regulations fill 21 volumes some five feet thick. No wonder, managers find it increasingly difficult to fire employees. Promotions and merit pay raises have become almost automatic. In 1979, out of the one million people eligible for merit raises, only 600 did not get them. In January 1975, a typist in the EPA was so consistently late for work that her supervisor demanded she be fired. It took nineteen months to do it, a twenty-one foot long sheet to list all the steps that had to be gone through to satisfy all the rules and all the management and union agreements. All these expenses, of course, came at taxpayer expense. This results in less than 1 percent of government employees turnover every year while the annual turnover in industry exceeds five percent. There’s something wrong with that. If civil servants are indeed under paid and are given poor benefits, people will be flowing the other way. In reality, if you have a job opening and the public knows the federal government has an opening, there are hundreds of applicants for it. The reason for that is the government tends to be unrealistically generous and people know that. And what it should be is competitive up there with the civilian economy. Most federal offices themselves estimated the number of useless personnel at 25 to 30 percent of total staffing. The United States Postal Service has a rule book the size of a collegiate dictionary; New York City School System has one twice as large. Buying by the book is how rules can evolve into meaningless clatter: A steam trap which costs $100, if it leaks, leaks $50 worth of steam per week. However, to replace it takes up to a year of paperwork, bids, reviews to make sure the best buy is received, saving as much as $2-5 dollars while losing thousands of dollars in steam. Managers in the million-acre Ochoco National Forests in Oregon had 70 separate budgets--one for fence maintenance in the north sector, another for brush burning in the south--divided into 556 management codes and 1769 accounting lines. To transfer money between accounts they needed approval from headquarters. The task of tracking spending consumed 45-50 days of their time each year (Report of the National Performance Review, Creating a Government that works better and costs less]. Northwestern University did a study of government spending on the poor in Cook Country. They found that in 1984, federal, state, and local governments spent $6209 per poor person. Yet only 35% of the money reached the poor in the form of cash while 13 % came as food stamps and rent vouchers. Over half went to service providers. The Community Services Society of New York found that of the roughly $7,000 in private and public money expended per low income person in New York City in 1983, only 37 % reached the poor. Over 59 major public assistance programs, 31 other low income grant programs and 11 low income loans programs now exist to serve the poor. A low income family would have to apply to 18 separate organizations to reach all the different sources of assistance for which its members were eligible. The list of drugs approved by the FDA show without exception that the United States was one of the last countries to accept these drugs. Dr, Max Gammon has deemed these effects the Theory of Bureaucratic Displacement: in a bureaucratic system . . . increases in expenditures will be matched by falls in production . . such systems will act rather like ‘black holes’ in the economic universe, simultaneously sucking in resources and shrinking in terms of ‘emitted’ production. All this points out the civil service has adopted as its motto the cardinal rule for bureaucratic behavior: do not take risks. If you were to approve a new drug, a risk would be taken. If anyone suffers an adverse reaction, you take the responsibility. If you do not approve the drug, the potential users are unlikely to complain as they are unlikely to know about it. You delay, ask for more studies and more information to approach the zero risk point. You want to guarantee no adverse reactions whatsoever and hence, zero risk. This is difficult if not impossible to achieve. Bureaucracies work well during crises when goals where clear and shared, when tasks straightforward, and everyone willing to get things done. During wartime, the use of bureaucracy allowed the country to win the war (some may say we won the war despite the bureaucrats). It works well in an industrial age, not in an information age. In an age of constants, it worked fine. In an age of constant change, it fails miserably. Today’s environments require institutions that are both flexible and adaptable--which bureaucracies are neither. It demands institutions which empower citizens not just serve them. bureaucracy once was a positive expression, connoting a rational, efficient method of organization that replaced autocratic rule. With bureaucracy’s hierarchical authority and functional specialization, they made possible the efficient undertaking of large, complex tasks that allowed the industrial age to happen. Bureaucracies are not limited to governments. The Big Three of U.S. health charities: the American Heart Association, the American Lung Association, and the American Cancer Society, all exhibit similar characteristics. Of the millions of dollars raised annually, over 40 percent of spending goes to staff salaries. Top executives are handsomely compensated; reserves of cars, cash and real estate are stockpiled. Almost as large a chunk goes into soliciting and direct mail appeals for money. The net result is minimal expenditures towards their stated goal but an almost constant rhetoric that there is too much to do, not enough time to do it, and not enough money or resources to get it done. The organization has a life of its own; one almost could bet that if a cure for cancer were discovered tomorrow, the American Cancer society, like any good government agency, would find another rationale for its existence. Bureaucrats have long tenure, it being almost impossible to discharge them. They know where the bodies are buried. They can outwait administrators and legislators. A large bureaucracy tends to proceed by laws of its own. Each person tends to put his or her interests first. These interests will include some that are broad and unselfish but all will be interpreting what he or she is doing in terms of one’s own values. The key characteristics of bureaucrats is that they spend other people’s money, they have a bottom line, a proof or success that is difficult and distant to define--the major incentive for most bureaucrats to succeed or become more powerful is to have more people reporting to the bureaucrat, to expand the scope of his or her domain. Every bureaucracy knows the way it conducts its affairs is the best way. In bureaucracies, there is no mechanism for terminating unsuccessful experiments, instead they tend to be expanded to bury small failures in large ventures. The more dedicated a bureaucrat, the more determined he is that what he is doing is important for the country, the more persistent he is likely to be in making sure that his role is not reduced. Traditionally bureaucratic entities focus on inputs not outcomes. They fund schools based on how many children enroll, welfare based on how many poor people are eligible, etc. They pay little attention, have little reason to strive for better performance, to pursue better outcomes, to strive for results. In fact, many governmental entities actually get more money when they fail. Hence, since they don’t measure results, they rarely achieve them. With little information on results, they reward employees on other measures; seniority, size of budget and staff, level of authority. So the motivation pushes the organization 180 degrees away from where it should be going. Bureaucracy is doing business entirely according to rules and without regard to output. Strict adherence to rules and devotion, religion and almost ritual attention to them. Promotion based upon seniority and number of underlings and not competence. Spend all money have. resistance to changes. conformity, conservatism, technism,. defensive, informal organizations. empire building. Rules instead of objectives becomes focus of organization. They are rewarded for non-risk taking, not for achieving but for not doing wrong. Not budget conscious. formalism, Inability to react to non general cases. Very little accountability of actions. A change must be made towards more entrepreneurial business situations. A reward for achievement must be available. We must encourage the agency and its civil servants to accomplish the desired goal not to merely follow rules. Government bureaucracy also acts as an inhibitor to innovation as regulatory agencies tend to be risk averse. Government bureaucracies are not rewarded for taking risks but for avoiding failure and hence, once again, the incentives to favor the old over the new. Ignorance about risks translates into the strictest possible regulation by the agency against the new technology. Agencies previously created to regulate then-new but now established,mature and settled technologies (ICC-railroads,FCC-radio and TV,etc.) have a proven investment for the prior technology and inertia against the new technologies. Often, the agencies own survival is at stake: it is so heavily integrated to the established technology that the new innovation threatens its very existence.Bureaucrats require compliance with an array of detailed rules, many of them baffling and nonsensical, but all of them expensive, time-consuming and required. Government intrusion into the market system almost always distorts the market and causes second-order efforts often far worse than the original problem. Government interference should be limited to breakdowns in the market, such as “common” items like environmental issues. One reason for the English fathering the industrial revolution instead of the French is that the excessively bureaucratized French system contrasted so sharply with the loose British administrative style and prevented middle-class capitalists in France from innovating as freely as their counterparts in England. Bureaucracy and innovation have an inverse relationship. Low levels of political- bureaucracy typically leads to higher levels of innovation, especially radical technological innovations while a highly bureaucratic--political environment can lead to a comparatively low levels of innovation. An excessively bureaucratic system stifles incentive. This is done through massive regulation of the society with the effects of regulation. Thus, the greater the central government's bureaucracy and regulatory powers, the less inclination for innovation within the country. V. Regulations and Bureaucracy--Recommendations Good government is no substitute for self-government. — Mahatma Gandhi Former President Carter’s Executive Order 12,044 stipulated that: •Proposed regulations should be as simple and clear as possible •Meaningful alternatives must be considered and analyzed before an agency could promulgate a regulation •The public should have a meaningful opportunity to participate in the development of agency regulations •Agencies must publish an agenda of significant regulations under development at least twice a year •An economic-inpact analysis must be prepared for all significant regulations •Existing regulations must be periodically reviewed to determine whether their objectives were still being met. Full compliance with Carter’s initial order and follow-on orders by Reagan would be an outstanding initial step. Government can encourage changes in private sector behavior in many ways: •catalyze the creation of new institutions or programs •broker private sector actions •leverage private sector action with small public investment •extract quid pro quid from private corporations when it grants loans, tax cuts or regulatory changes •create public private partnerships Regulation is just one of the alternatives available. What we advocate is a two step process: deregulation, that is, to deregulate means for the government to exercise less control over public goals and private pursuits. Less governmental oversight portends more opportunities for private gain, competition, and individualism. The Bill of Rights, the first ten amendments to the Constitution, focused on the limitations of government. America must realize and accept that government is no longer the entity to produce a better, let alone a perfect society. This would portend self regulation: where businesses work together toward desirable results without governmental intrusion. Self-regulation is most likely to work when the goals of the groups involved are similar; the chances for success increase when the costs to businesses from a lack of standards are high. We propose industry associations create set of acceptable standards of conduct and behavior for firms within their industry and monitor the firms according to the standards laid down. This does not necessarily imply the absence of government. If voluntary standards do not suffice, government intervention will follow. However, If rules are developed in a cooperative spirit and in a collaborative public effort among companies, compliance is likely to be substantially higher, especially if the media is available to keep an ever-present eye on violators of the covenant. Instead of regulating the solution, economic incentives should be provided to encourage the private sector towards the desired solution. Bureaucrats should not specify what technology companies must install but at most should set a goal and a time limit and allow companies and industry to derive their own solutions. A far better way to control pollution than the present method of specific regulation and supervision is to introduce market discipline by imposing effluent charges. For example, instead of requiring firms to erect specific kinds of waste disposal plants or to achieve a specified level of water quality in water discharged into a lake or river, impose a tax of a specified amount per unit of effluent discharge. That way, the firm would have an incentive to use the cheapest way to keep down the effluent. The tax rate itself could be varied as experience was gained. This method would put the costs on the users of the products responsible for the pollution. Those products for which it is expensive to reduce pollution would go up in price compared to those for which it is cheap. This would control more effectively at lower cost and impose fewer burdens on non-polluting activities. Another approach is that taken to regulate Emissions, a free market in emissions with companies buying and selling rights to pollute. This has worked outstanding in lowering emissions significantly, faster than expected and at less cost then projected. The other part of overhauling regulations and regulatory agencies (that is, whatever agencies are left after many have been spun off to the private sector) include these suggestions: • sunset laws: setting a date on which a program or regulation will die unless it is reauthorized, thus forcing a review. All laws should have a date of no longer being in effect, a sunset date, continuous review so that they don’t continue beyond their needs. •limiting the number of deputy directors in agencies. •requiring some type of measurement of results. •review commissions to examine government regulations or activities to weed out the obsolete regulations and agencies. •zero-based budgets which require agencies to justify every element of their budget. • require cost-benefit analysis from non-partisian parties to establish if net benefits will accrue to society or if the cost of the proposed regulation exceeds the benefits to society. •Each institution must be confined to its particular task and mission; this is especially true of government agencies, the claiming of responsibility beyond its narrow sphere should be considered usurpation. • Currently, when private property is appropriated by the government, a fair market value must be paid, however regulatory taking has created a situation whereupon new regulations can severe affect property values. The Private Property Rights Act of 1993 would correct this imbalance by requiring that any governmental action that substantially and significantly diminishes the value of a private property to pay just compensation for the lost value. The takings clause should be enforced, the public should be provided with safeguards from the fifth amendment. Deming believed only 15 percent of the problems in most organizations were caused by the workers and managers involved, the other 85 percent stemmed from the broader systems within which these people worked. That is, do not necessarily punish the workers as much as the need to isolate root causes, develop solutions and implement them. Employees need to get involved, they know best the system and where the problems lurk. It is our belief that the system indeed is the culprit in this case. It is the archaic system, not the employees, that is the root cause of the problem. The most entrepreneurial innovative person becomes the typical bureaucrat within a year of taking over a public institution, especially if it is a government institution. Rewarding success seems commonsensical; in many bureaucracies, failure is rewarded with more money, with qualifying for grants and aid while success means aid is lost. Indeed many bureaucracies reward confusion: The less comprehensible the spending program, the more questionable its overall worth. The more obscure and confusing a program is, the more likely it is to escape the attention of reformers, while comprehensible wasteful programs are often weeded out. Bureaucracy . . the means are important, not the outputs of the system. This encourages reactive behavior and not preventive measures. Most of the money spent on the poor reward failure because it goes only to those who remain poor and is taken away form those who succeed. Those who get off welfare are punished, those who remain on have few requirements, expecting nothing in return for benefits given. This breeds dependency. empowerment, self help. Bureaucrats control public services. Clients are people dependent upon and controlled by their helpers and leaders, who wait for others to act on their behalf. Citizens understand their own problems on their own terms, understand their relationship to one other and believe in their own capacity to act. So a major change must be to tie in the mission of the agency to the reward structure. Public agencies are not customer driven; their funds are not derived form their customers but from their legislatures, city councils and elected boards, whom they lobby hard to impress. Their customers are typically captive with few alternatives to services their government provides them. Elected officials are driven by organized interest groups. Traditional public systems are designed for the convenience of administrators and service providers not the customers. Over 93 federal programs administered by 20 different agencies relate to the reduction of infant mortality. One clear Mission is needed. AID (Agency for International Development) has been given by Congress throughout the years 33 objectives, 75 priorities and 2888 reporting requirements. Its real primary mission: to stimulate economic development in the third world got lost with the rest of the Congressional mandates it has received. Combination of agencies and narrowing of purpose should be done. The two functions the Federal Reserve Bank perform, the regulation of individual banks and other financial institutions and the control of the money supply should be separated. The regulatory function could be combined with that of the FDIC and the comptroller of the currency and exercised by a single government agency. The money control function could be exercised within the Treasury Department, assuring that a single agency would have full responsibility to recommend and conduct monetary as well as fiscal policy. The SEC, FCC, FAA, CAB, etc. other government regulatory agencies should be funded by user fees, exchange fees, and operate as pay-as-you-go. We would prefer if these government agencies were replaced by industry associations which would have the role of monitoring their own industry. Governmental oversight must remain, however, in the event of inability to effectively monitor. A Times Mirror survey in 1994 indicate that 69% of Americans polled said dealing with a federal agency is “often not worth the trouble,” up a third from 1987. Entrepreneurial organizations are task oriented, fluid and result oriented. change their structures and procedures as their tasks change. temporary teams to be activated quickly and disbanded when not needed any further. Power and role oriented organizations have trouble dealing with change because both associate control with a position in the organization, neither provides for rapid and rational reassignment of appropriate persons to positions of influence. Centralized and hierarchical organizations divide themselves into many layers and boxes and identify with their unit, their turf. Communications suffer. The mission of the organization suffers. What is necessary is to remove barriers to community control, encourage organized communities to take control of services, provide seed money, training, and technical assistance and move the resources necessary to deal with the problems into the control of community organizations. Advisory boards, giving citizens seats on the board, citizen councils, are solid first steps. Another important distinction is not public versus private, it is monopoly versus competition. When’s competition exists, you get better results, most cost consciousness and superior service delivery. Monopoly in the private sector protects inefficiency and inhibits change yet public monopolies are encouraged. competition between policy agencies is not good, competition between service providers is, keeping costs low, responding quickly to changing demands, satisfying customers better. in most cases, private firms deliver services more economically than public organizations. but when public and private organizations function in the same marketplace (health, utilities, etc.) , their costs and quality are roughly the same. when private sector providers do not have to compete, they are just as inefficient as public monopolies. Under situations just as prices are set (insurance, ) companies have little incentives to lower costs, find efficiencies or to control fraud, little interests in their customers.Government must transform itself to provide choices to picky consumers used to have such choices. System that funds individuals and provides choice (GI Bill). Customer driven systems depoliticize the choice of provider decision. Post Service uses private contractors on 4500 of its rural routes at half the cost of its 40,000 other routes. Privatize. By promoting competition between service providers. empowering citizens by pushing control out of the bureaucracy into the community. Focused measurement of the agencies on outcomes. Driven by goals, missions, not rules and regulations. Offer choices. Work on prevention not reactive. Decentralize authority, participatory management. Market mechanisms to bureaucratic mechanisms. The tenure system in civil service is counterproductive because it creates complacency, apathy, and again self serving rather than service to the public. If you knew you had to be polite to the people that you work with or work for that you knew you had to serve them properly and be efficient at what you do because you would be fired you would be in much better civil servant if you knew you had tenure and the government has to show and by maintaining numerous records on why they are firing you. Then if you have some reason you are either disabled or a little older or maybe you are in the minority category it is all most impossible because you can always throw that back at the government. There is no reason why a civil servant should have more tenure or security than a person out in industry. If government should get out of the business world and give the public free society a chance, then why should the government give its people more advantages than the private sector. What we want to do is bring the government back to the people to serve the people not to self improve itself we are not to be self-serving. The Civil Service must be reformed with these items in mind: •broad classifications and pay bands •market salaries •performance based pay •promotion and layoffs by performance rather than seniority •hiring systems that allow managers to hire the most qualified person. •aggressive recruitment of the best people •streamlining of the appeals process for employees who are fired. Home Page Preface & Introduction Chapter 1: Responsibility Chapter 2: Leadership Chapter 3: Government Chapter 4: Congress Chapter 5: Regulations and Bureaucracy Chapter 6: Defense Chapter 7: International Affairs Chapter 8: Crime and Justice Chapter 9: Civil rights Chapter 10: Economic Chapter 11: Education Chapter 12: Health Chapter 13: Planning and National Goals Conclusions