Why Government Fails So Often: And How It Can Do Better (13 page)

Finally, the agency is often the site at which public participation is most effective. This is not only because the details of the policy’s impacts are hammered out there. It is also because the agency is where the public can best educate the government about the true nature of the problem that Congress has tried to address. Only the interested parties, reacting to specific agency proposals for rules or other actions, possess (or have the incentives to acquire) the information necessary to identify, explicate, quantify, and evaluate the real-world consequences of these and alternative proposals. Even when Congress can identify the first-order effects of the laws that it enacts, these direct impacts seldom exhaust the laws’ policy consequences. Indeed, first-order effects of policies usually are less significant than the aggregate of more remote effects that ripple through a complex, interrelated, opaque society.

When policies fail, it is usually not because the congressional purpose was misunderstood. More commonly, they fail either because of faulty policy design or—what may amount to the same thing—because Congress did not fully appreciate how its purposes would be confounded as the policy ramifications became evident in the real world. (Implementation difficulties are discussed in
chapter 8
.) Often, however, this knowledge about future effects can be gained only through the public’s active participation in the policymaking
process at the agency level, where these implementation issues are most clearly focused and the stakes in the correct resolution are highest.

Judicial process
. The courts are far less influential in the design and implementation of public policy than Congress and the agencies are. In principle, they are not to consider the merits of policies but only their legality. (In practice, they sometimes do, particularly in the Supreme Court.
²¹
) Nevertheless, judicial review can have substantial policy consequences.

Except in the rare case where an important public policy is challenged on constitutional grounds—the Affordable Care Act,
²²
for example—the courts’ main powers are to interpret statutes and regulations, and to assure that agency actions do not transcend the scope of the congressional delegation of authority. Judicial interpretations of statutes can elucidate their meaning, in some cases fundamentally transforming it. As political scientists have shown, the federal courts sometimes interpret ambiguous provisions to allow private enforcement of public law in ways that substantially alter the nature and meaning of the schemes that Congress has enacted and that agencies administer.
²³
And judicial review of agency regulations sometimes changes agency policy,
²⁴
although reviewing courts uphold the agency in the vast majority of cases or remand the case to the agency so that it can exercise its policy discretion under the correct legal standard.
²⁵

By and large, however, courts readily acknowledge in their opinions that as a matter of relative institutional competence and capacity,
²⁶
they are in a poor position to second-guess congressional and agency decisions entailing technical judgments or normative trade-offs. Except in the rare case where constitutional values are at stake or when a statute invites closer judicial scrutiny, the most that reviewing courts are supposed to do is to ensure that the agency remains within its statutory authority and avoids “arbitrary and capricious” regulations. The courts’ engagement with any particular substantive policy issue is only episodic and narrowly bound by the litigation’s facts, which are often atypical, unrepresentative of the world in which
policy must be implemented. For these reasons, moreover, the reviewing courts’ principal remedy is a very limited one: to remand the matter to the agency to review the matter anew, sometimes several times in a back-and-forth that can stretch over many years.
²⁷

The difficulty of controlling discretion is not confined to administrative agencies. Concerns about widespread perceptions of excessive judicial discretion in criminal sentencing led Congress in 1984 to establish the U.S. Sentencing Commission within the judicial branch to issue sentencing guidelines that until 2005 were thought to be mandatory.
²⁸
The commission’s work has been contentious from its inception, with many federal judges opposing the guidelines in part because of the difficulty of regulating judicial discretion in this area given the large number of factors that judges have traditionally taken into account in their sentencing decisions, which in turn led to troubling disparities in the sentences meted out to criminals. One dramatic indicator of how difficult it is to control discretion through such regulation is that more than twenty-five years after the Sentencing Commission began its work, disturbing disparities remain.
²⁹
Some thoughtful reformers like Philip Howard argue that improving government performance requires allowing policy implementers to exercise more discretion, not less.
³⁰

Other processes
. Occasionally, Congress or the president will establish a special, usually bipartisan and professionally staffed, body to advise it on particular policy decisions; in some cases, this body’s recommendations may even be made legally binding. This highly unusual arrangement is usually created when the policy decisions being considered are especially sensitive politically and Congress is willing to pass the decisive responsibility for these hot potatoes on to a special body. The most important successful examples of this institutional innovation are the National Commission on Social Security Reform, which reported back to Congress in 1983; the Base Realignment and Closure Commission, whose recommendations are by law difficult to overturn; and electoral redistricting commissions in certain states. Unfortunately, however, such committees are often unsuccessful—for example, the Kerry-Danforth Entitlement Reform
Commission (1993), and the Breaux-Thomas Medicare Commission (1997). The Simpson-Bowles National Commission on Fiscal Responsibility and Reform (2010) has had little effect, although it may yet have some influence on future legislation. At a minimum, effectiveness requires that such commissions be used very rarely; in order to garner public and congressional support, the public must see them as very rare exceptions to the conventional policymaking process.

MISSIONS

Legislation defines, with more or less specificity, the mission that an administrative agency is to discharge. Traditionally, each agency was given a single mission—for example, protecting the integrity of securities markets, or promoting homeownership—to pursue. Since the 1960s, however, Congress has enacted five kinds of statutes that transcend this single-mission focus. First, it has established agencies to engage in “social regulation” promoting workplace safety, environmental protection, equal opportunity, consumer protection, and the like. This social regulation is applied across the board to
all firms
in the economy (unless exempted). The enormous diversity among these firms, vastly greater than among firms in a single industry subject to traditional economic regulation, has made these agencies’ regulatory missions more difficult to achieve. Second, Congress has adopted laws that apply across the board to
all agencies
(unless exempted) and in effect multiply the number and variety of missions (or constraints) that each agency must discharge (or satisfy). These laws include the National Environmental Policy Act, the Paperwork Reduction Act, the Government in the Sunshine Act, the Federal Advisory Committee Act, the Regulatory Flexibility Act, the Civil Rights Act, and the Freedom of Information Act, among others. The OMB has added other such constraints, such as the cost-benefit analysis requirements discussed in
chapter 2
. Third, Congress often assigns multiple missions to a single agency. This inevitably divides the agency’s limited resources, which may render both missions less effective. But the missions may conflict in a deeper sense: they may to some
degree actually be inconsistent with one another. Many economists, for example, believe that Congress diluted the Fed’s ability to single-mindedly pursue its original task of regulating monetary policy to combat inflation when it later required the Fed to also maximize employment, which can be inflationary. In another example, the centrality of the Justice Department’s prosecutorial function arguably had made it a poor agency to administer clemency petitions.
³¹
Fourth, Congress sometimes assigns similar missions to multiple agencies—for example, dividing antitrust policy between the Federal Trade Commission and the Justice Department,
³²
and dividing federal banking regulation among no fewer than five agencies (the Fed, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, and the Consumer Financial Protection Bureau). (Again, this does not include the extensive regulation of state-chartered banks by state authorities.) Finally, Congress sometimes establishes what one legal scholar calls “offices of goodness”—for example, offices for privacy and civil liberties in the Office of the Director of National Intelligence and the Department of Justice—in hopes of limiting the agencies’ potential abuses of authority by providing various forms of advisory input into their decisions.
³³

For present purposes, the important point about this multiplication of missions (and constraints) is that it greatly complicates and protracts agencies’ decision processes, increases the likelihood of interagency conflict and policy incoherence, and injects many more hard-to-resolve policy trade-offs into their policy choices. The impasse over the final version of the Volcker Rule, discussed in
chapter 8
, exemplifies these interagency difficulties.

INSTRUMENTS

Whatever the government decides to do can be done in many different ways by employing any one or combination of a variety of policy instruments. Each of these instruments involves a distinctive incentive system, imposes distinct informational demands, triggers distinct legal
structures and operating procedures, exhibits a distinct dynamic of accountability, and generates a distinct constellation of political factors. Each possesses its own characteristic advantages and disadvantages, and thus entails a distinctive set of trade-offs.

So diverse are these instruments and so common are their deployments by policy makers today that this development, in political scientist Lester Salamon’s words, is “a revolution … in the ‘technology’ of public action … not just in the scope and scale of government action, but in its basic
forms
. A massive proliferation has occurred in the
tools
of public action, in the
instruments
or means used to address public problems.”
³⁴
This revolution, Salomon notes, has shifted critical focus from the agency or the program to the instruments used by government to pursue its policy goals.
³⁵
In an edited book,
The Tools of Government
, Salamon and his contributors distinguish more than a dozen distinct policy instruments that government can and does use.

1. Direct bureaucratic administration
.
³⁶
This is the delivery or withholding of a good or service by government employees. When we think of government programs, this is the paradigm that we almost always have in mind, yet it is an anachronistic image of what government typically does. In fact, direct bureaucratic administration accounted for only 5.2 percent of federal government expenditures in 1999; even if income transfers, direct loans, and interest payments are included as “direct government,” it amounts to only 28.1 percent. Nor does this pattern simply reflect the privatization, contracting out, and reinventing government initiatives of the 1980s and 1990s. Even in 1982, direct government administration accounted for only 39 percent of government-funded human services, with over 60 percent delivered by nonprofits and for-profit firms.
³⁷
Chapter 10
discusses the bureaucracy in detail.

2. Government corporations and government-sponsored enterprises
.
³⁸
A government corporation is a government agency owned and controlled by government, and is set up as a separate legal entity distinct from the rest of the government. It is often used for activities
that are expected to be revenue producing and thus self-sustaining, so they are “off-budget”—not subject to the appropriations and budget limitation that restrict ordinary government agencies and thus not accountable to Congress in the same way. A government-sponsored enterprise (GSE), in contrast, is government chartered but privately owned. In return for certain statutory privileges, including tax benefits and regulatory exemptions, as well as reduced borrowing costs (because of an implied government guarantee), a GSE is confined by its charter to serving specified market segments through a limited range of services.

In recent years, the most important GSEs have been the two largest—the Federal National Mortgage Association (FNMA, or “Fannie Mae”), and the Federal Home Loan Mortgage Corporation (FHLMC, or “Freddie Mac”). They evolved from a small government agency created in 1934, to a large and powerful duopoly owned by private and public investors in the 1970s, to insolvency and federal conservatorship in September 2008, reporting to the Federal Housing Finance Agency in the Department of Housing and Urban Development. These GSEs, which enjoyed a line of credit at the U.S. Treasury, and thus a government guarantee, failed spectacularly after 2007, a development whose staggering policy significance is discussed in
chapters 5
and
8
.