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Policy Talk

Market-Based Models Are Key to Transforming U.S. Government to a 21st Century Organization

Newt Gingrich

Newt Gingrich, former Speaker of the U.S. House of Representatives, discussed his vision for transforming government into a 21st century organization at a recent meeting for Freddie Mac employees. In our feature interview, Gingrich explains the unique role of the government-sponsored enterprise (GSE) model.

Q: You advocate a profound transformation in the model of government, from what you call the current model of "Bureaucratic Public Administration" to a "21st Century Entrepreneurial Public Management" model. Let's start with the bureaucratic model – what is it, and what is wrong with it?

Gingrich: Imagine walking into a government office and seeing no telephones, no fax machines, no computers. Instead, you see a clerk working under a gas light, writing with a quill pen dipped into a bottle of ink. You would see right away that trying to run a modern-day government program out of that office would be hopeless. What may not be as readily apparent is that today's model of government – the bureaucratic model – is just as obsolete as that office. Government today is organized around highly centralized bureaucracies. Decisions are made at the top and disseminated down to the ranks. The key measure of success is process – following to the letter detailed instructions about the "right" way to do things. Personal initiative, innovation, and creativity are all strongly discouraged. The result is that government moves very slowly, uses resources very inefficiently, and usually fails to get the job done in a timely or effective manner.

Q: And you argue that the bureaucratic model is completely inadequate to address the opportunities and challenges of the Information Age.

Gingrich: Absolutely. The information and communication technologies of today are driving revolutionary changes in the very structures of our economy and society. Because of computers and the Internet, information can be captured, analyzed and synthesized as never before. Businesses are using information technology to completely reinvent how they produce and distribute goods and services – this more than anything else is driving the incredible increases in productivity we are seeing. Technology also empowers individual citizens in ways nobody dreamed of 20 years ago. Anybody with a computer and Internet access can obtain information and knowledge that until about 10-15 years ago, was available only to a few people. For example, the Library of Congress has millions of documents online that anybody can access at any time. Individuals can share and disseminate this information with each other quickly and easily through blogs, e-mail, and instant messaging.

Information technology and communications are decentralizing the economy and society. They are flattening hierarchies and creating networks. And the pace at which we obtain, disseminate and use knowledge is fast and getting faster. One thing stays the same: knowledge is power. But knowledge now is available to everyone, not just a small elite. Meanwhile, bureaucratic government remains stuck in the Industrial Age. It is hierarchical and slow and inefficient. It cannot begin to keep up with the speed of the Information Age. It's like an old Model T trying to keep up with a Ferrari.

Q: How would the "21st Century Entrepreneurial Public Management" model improve the effectiveness of government?

Gingrich: It starts with a different measure of success. Bureaucratic government focuses on process – success means following procedures, checklists, regulations. Entrepreneurial public management focuses on results – success means achieving specific objectives in the most effective and efficient manner. And this change in focus is key. It changes the way you approach issues. On any given issue, bureaucratic government typically says "no, because…" But if your measure of success is results, you begin saying "yes, if…" I'm not saying process is unimportant. But results are the key metric.

Government under the entrepreneurial public management model would flatten hierarchies and use networks to connect people across the entire system. It would both empower and encourage its employees to apply information technology to use resources more efficiently, reduce costs, and achieve results more effectively. It would learn from the successes of the private sector. Let me hasten to add that this does not mean simply applying the private sector model to government. Government obviously plays a different role in society. Its activities are and should be subject to a greater level of public disclosure and accountability. So government has to develop a model suitable to its role, but one that adopts the successes of others and adapts to the changing world we live in.

Q: A key element of the entrepreneurial model is using the private sector where possible to save taxpayer dollars and improve efficiency. And you believe the GSE model provides one way to use the private sector.

Gingrich: Some activities of government – trash collection is a good example – can be efficiently contracted out to the private sector. Other functions – the military, police and fire protection – obviously must remain within government. And then there are areas in which a public purpose would be best achieved by using market-based models. I think GSEs provide one of those models. I like the GSE model because it provides a more efficient, market-based alternative to taxpayer-funded government programs. It marries private enterprise to a public purpose. We obviously don't want to use GSEs for everything, but there are times when private enterprise alone is not sufficient to achieve a public purpose. I think private enterprise alone is not going to be able to help the Gulf region recover from the hurricanes, and government will not get the job done in a very effective or efficient manner. We should be looking seriously at creating a GSE to help redevelop this region. We should be looking at whether and how the GSE model could help us address the problem of financing health care. I think a GSE for space exploration ought to be seriously considered – I'm convinced that if NASA were a GSE, we probably would be on Mars today.

Certainly there is a lot of debate today about the housing GSEs, but I think it is telling that there is strong bipartisan support for maintaining the GSE model in housing. There is not much support for the idea of removing the GSE charters from Freddie Mac and Fannie Mae. And I think it's clear why. The housing GSEs have made an important contribution to homeownership and the housing finance system. We have a much more liquid and stable housing finance system than we would have without the GSEs. And making homeownership more accessible and affordable is a policy goal I believe conservatives should embrace. Millions of people have entered the middle class through building wealth in their homes, and there is a lot of evidence that homeownership contributes to stable families and communities. These are results I think conservatives should embrace and want to extend as widely as possible. So while we need to improve the regulation of the GSEs, I would be very cautious about fundamentally changing their role or the model itself.

Q: This is not a point of view one normally associates with conservatives.

Gingrich: Well, it's not a point of view libertarians would embrace. But I am more in the Alexander Hamilton-Teddy Roosevelt tradition of conservatism. I recognize that there are times when you need government to help spur private enterprise and economic development. Look at our own history. The government provided railroad land grants to encourage widespread adoption of what was then the most modern form of transportation to help develop our country. The Homestead Act essentially gave land away to those willing to live on it and develop it. We used what were in effect public-private partnerships to bring telephone service and electricity to every community in our nation. All of these are examples of government bringing about desired public purposes without creating massive, taxpayer-funded bureaucracies. To me that is a pragmatic and effective conservative approach.

Former Speaker of the U.S. House of Representatives Newt Gingrich is an author, commentator, and founder of the Center for Health Transformation, and the Gingrich Group, a communications and consulting firm. He is an advisor to Freddie Mac.

April 24, 2007

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