January 21, 2011
WITH 2010 BEHIND US, WHERE IS PUBLIC POLICY HEADED?
The Aspen Institute this week published Public Works president Eric Schnurer's analysis of public policy in the wake of the 2010 elections. The piece represents the third of three companion pieces Schnurer wrote for Aspenia, the journal of the Aspen Institute's European center in Rome - and the fourth election cycle in a row that Aspen has asked Schnurer to interpret the country's direction. The two previous articles - published by Aspenia Online - offered pre- and immediate post-election analyses and were included in Orange Alerts in November (they're still available on our website). The latest, full-length piece lays out Schnurer's view of the future as neither "more government" nor "less government" but different government. (The Italian title below is probably translatable by all, but certainly will be comprehensible by the end of the piece.)
There is no shortage of commentary on the short-term causes and consequences of the 2010 elections. Let's try to take a small step back in order to gain a longer view of the future.
My previous biennial election assessments for Aspenia have dwelt on the continued lack of progress by both parties, Democrats and Republicans alike, in articulating a new vision of the role of government in the 21st Century and what that might mean for public policy. For roughly a decade, as their platforms grew increasingly irrelevant, voters essentially started flipping a coin and dividing roughly 50-50 between the two parties, leading to extremely tight popular and electoral vote splits between George W. Bush and his two successive Democratic challengers (Al Gore and John Kerry) and the closest party division in Congress for the longest period of time in American history. Such a structure could have led to either a new synthesis and bipartisan cooperation, on one hand, or implacable trench warfare, on the other. We now know that the voters wanted the former but got the latter, and so became angrier and more disenchanted.
MORE GOVERNMENT, LESS GOVERNMENT, OR "DIFFERENT" GOVERNMENT?
In the last three elections, Americans have become more assertive in pressing their demands for change. It was a commonplace within hours of the polls closing this November to observe that the country has now had three "change elections" in a row. Again, this suggests one of two interpretations: Either the worldviews of millions of Americans have gyrated radically between right-wing Bushism to left-wing Obamania and then back to an even-more-right-wing Tea Party ideology within just a few years, or else voters are flailing wildly between two fixed choices, neither of which satisfies them. Obviously, the latter is the more likely explanation. It would be a mistake to conclude that voters now are demanding a more conservative government any more than two years ago they were demanding a more liberal government. The post-election spin that President Obama did too much and the voters are demanding less may conveniently fit the GOP mantra of "less" everything, but the better bet is not that Americans want less or more but that they want different.
Clearly, voters want lower taxes. Who doesn’t? And just as clearly, Americans are alarmed – from the Democrats’ viewpoint, rather ironically after eight years of Republican profligacy under George W. Bush – by rising levels of debt for two wars, the bailouts, health care, and, well, everything else. But the fact remains that the public opposes virtually every form of actual spending cut imaginable. In a recent Bloomberg poll, Americans were given a list of 12 ways to reduce the federal budget deficit; no more than roughly one-third of voters was willing to “strongly consider” any of them. The two top-scoring items were actually both tax increases: allowing the Bush tax cuts to expire for the wealthiest, and lifting the cap on earnings subject to payroll tax – hardly pages from the Republican playbook. Nothing else garnered serious consideration from even one-quarter of the public, including defense cuts, unemployment insurance limits, and privatizing or in any way changing the benefit structures of Medicare or Social Security. Except for raising income taxes on the middleclass – in which interest was, of course, near-zero – Americans showed least interest of all in cutting “federal spending on roads, bridges and public transportation.”
Countless polls at the state level in the last year echo these findings: Voters uniformly accept that states face the worst budget crises in their lifetimes, but they overwhelmingly oppose cuts in spending on everything from education to health care to park maintenance. (The only clampdown that seems to garner somewhat significant support almost anywhere is to reduce government employee pensions – and, even there, the enthusiasm is fairly muted, likely by the recognition that, especially in this economy, there but for the grace of God go the rest of us.)
How, then, to square the circle of more programs and lower taxes? Cutting waste, fraud and abuse, of course – a conceit (or should I say deceit) in which Republican politicians in particular are all-too-happy to indulge the public. My firm specializes in helping states to eliminate waste, fraud and abuse, and I think it’s safe to say that, at the extreme, governments can reduce their operating costs by about 5% a year; in comparison, most states are facing deficits in the range of 20-40%, while the federal deficit today exceeds 10% – not of government spending, but of the entire gross domestic product.
It’s tempting to see in these polls an immature desire by the public (which politicians of both parties exploit) to have things both ways. But it’s also just possible that they cloak a much more sophisticated demand – to have things a different way: Might it not be that the public somehow expects someone to figure out a way the public sector can actually deliver more in services, with more customer choice, and do it for less? Preposterous – except that the technological advances of the last few decades have allowed consumers to demand that the private sector do exactly that.
BEYOND THE OLD IDEOLOGY: THE FACEBOOK MODEL
The evolution of technology provides a useful metaphor for the obliviousness of both parties today. Republicans frequently, and not particularly inaccurately, cast Democrats as pushing large-scale, one-size-fits-all, centrally-directed schemes for solving society's problems - rather like the mainframe computers that promised a brave new world around the time today's "liberalism" was taking shape in the Truman, Kennedy and Johnson eras. The Republican alternative is that great breakthrough for freedom, the stand-alone PC of the Reagan era: Smaller, less expensive, freed not just from the tyranny of central control but from all connections whatsoever, conservatives might see this as the modern analog to that early American ideal, the yeoman farmer, clearing the wilderness and feeding his family by himself in splendid isolation. In fact, in an early book before both his rise to the Speakership and the advent of computer networks and the Internet, Newt Gingrich suggested that the solution to poverty was to eliminate government programs and instead give all poor people a PC, with which they could make it on their own. (Of course, he also argued that the Jedi Knights were able to succeed far beyond NASA's wildest dreams because they similarly relied on technology and individual initiative rather than bureaucracy; cynics pointed out that another difference between Luke Skywalker and NASA bureaucrats was that the former is fictional.)
Today, however, both visions - the mainframe and the standalone PC - are terribly dated. At this point in the conversation, college students invariably know where I'm going with this - "It's the cloud" - and as more Americans realize this, a new political paradigm and political consensus will emerge. In "the cloud" - the new computing and business model, of which perhaps the best-known example is Facebook - both the centralized "mainframe" (or, at least, its modern equivalent, the server farm) and the individual PC play complementary roles. As Anatole France would have written had he read Gingrich, rich and poor alike are now free to sleep under a bridge (or wherever they want) with their PCs - because they can remain interconnected. Individual entrepreneurial Jedis design and launch all sorts of fabulous "apps" that people want nowadays - but they are able to do so only because there is a public infrastructure: the "backbone" provided by an entity like Facebook. Both the backbone and the individual apps are necessary for this economic and social world to exist.
Some may object that this metaphor proves too much: Facebook is not a government but a private company. But let's look at that a little closer: Putting aside that it is essentially just the latest incarnation of the Internet, which wouldn't exist to begin with if not for the federal government, Facebook is an example of that increasingly-rare phenomenon in the virtual age: the natural monopoly. (In the book from which the recent film The Social Network is drawn, Mark Zuckerberg, on first meeting Sean Parker, explains Facebook's business strategy by relating the example of Baylor University in Texas, which had its own on-campus social network and resisted Facebooks' entry, to which Facebook responded by entering every other school within a 100-mile radius. "Within days, the Baylor social Web site was history.") Unlike just about any other private monopoly, however - and despite a valuation that has made Zuckerberg and a few others billionaires - Facebook has never made a profit, and probably never will. An unprofitable monopoly that, according to Business Week, "holds an approval rating close to that of the IRS," Facebook is, essentially, a form of government that is privately owned. This hardly undercuts the main point - you need a backbone that's a natural monopoly (and, as a result, susceptible of abuses that eventually lead to calls for more democratic, transparent governance) in addition to all the yeoman entrepreneurs with their apps - but it does underscore a related, emergent reality: The dividing line between public and private enterprises is surprisingly thin, and getting thinner.
THE EVER-THINNER LINE BETWEEN PUBLIC AND PRIVATE
Today, private businesses provide government functions from rule-setting to military intelligence -- not just services to governments like bad cafeterias and bill collection - and governments increasingly behave like businesses, providing, for instance, cheaper, more efficient loan servicing for student borrowers than can private banks. Liberals tend to resist the former and conservatives to try to stop the latter (my favorite example is when, 15 years ago, the Republican Congress forced the U.S. Post Office to stop providing more convenient and cheaper wrapping and photocopying services than private mail and package services) - but to do so is, in the words William F. Buckley, to "stand athwart history, yelling Stop." Buckley considered "yelling Stop" the essence of conservatism; it has become the essence of liberalism, as well. But, very simply, this is the direction history is moving - the boundaries between public, private, non-profit, and non-state actors are blurring and shifting - and both ideological camps need to come to grips with that.
Let's look at two examples of what this could mean - one pushed by the left, the other by the right, and both meeting an untimely demise in recent political debate. Conservatives argue for "privatizing" Social Security by transferring a portion of each taxpayer's current obligation from government control to private investment accounts managed by the taxpayer (with, of course, the advice, for a fee, of the private investment industry). This is hardly an outlandish concept: While elements of Social Security establish social insurance against disability and an income-transfer system providing, in essence, a guaranteed minimum income for the elderly poor, a significant portion consists solely of government-mandated saving for one's own retirement. It's one thing to argue that, in a free society, the government still needs to be able to require you to look after yourself because we're all necessarily financially interdependent; it's quite another to insist that the government needs to be the investment vehicle.
That said, there's good reason why, for most people, the government should be the investment vehicle. Social Security, the most popular and successful government program ever, may actually be its most "commercially competitive," as well: Sure, the stock market historically offers a higher return - although try telling that to most investors at the moment - but the Social Security Administration (SSA) is so efficient at administering this large-scale government program that it requires less than 2% of total funds to run it, whereas private investment firms take commissions many times that off the top. The result is that those higher stock market returns net out to roughly the same take as from SSA's T-bill investments once you factor in those investment advisor costs. Private accounts? Bring 'em on - but Americans should be able to choose to leave their money exactly where it is: with the government, safely invested in T-bills. For the basic retirement security most Americans want, the government program would be by far the best choice. Why not offer them that as a choice - instead of mandating it, as liberals would, or taking it away, as conservatives would?
FROM COP TO CO-OP
Private enterprise will increasingly find ways to move into "markets" previously the preserve the government. This isn't necessarily the unmitigated disaster that critics of outsourcing fear - in many cases, the world actually would be a better place if current government services could be provided through a mechanism other than an unprofitable and unpopular monopoly. Where a better competitive alternative emerges, it should be encouraged. But the fact is, sometimes that's actually the public sector - and that's why it's a travesty that the major liberal policy initiative of the past year - what became known as the "public option" in health care - earned at least as much scorn from conservatives as Social Security privatization has from liberals.
Governments, with their large economies-of-scale and a pre-existing structure for reaching all citizens - in other words, the backbone - can, and increasingly do, reduce what economists call "transaction costs" in aggregating citizens to drive better bargains. In this way, governments are moving from regulating to competing - from the role of cop to that of co-op. The prescription drug debate, for instance, has centered on using government not to mandate that drug manufacturers cut prices, but to aggregate consumer purchasing to drive prices down. The same approach could be applied to health insurance - and that's basically what a "public option" would have done. The main argument against the "public option," however, was that the government would artificially set prices low and unfairly compete private business out of business - but this is something we know a great deal about stopping: It's called unfair competition in the anti-trust literature - a classic example being Zuckerberg's strategy for extirpating Baylor's independent social network - and it can be applied to public just as much as private sector competition. Except that conservatives don't want it applied to private competition to protect the free market, either ...
OLD ROLES, NEW WORLD
An entirely different world of public policy is opening up in which old categories about what governmental or non-governmental entities can or should do are completely overturned, in which current ideologies are irrelevant to the realities. It is a world in which one could argue both for private Social Security accounts and private health insurance - and for public options to compete against them if they successfully can - not as a matter of compromising between, combining, or synthesizing today's left and right, as some conceive the path out of our current impasse, but as a coherent and different approach based on a 21st Century increasingly different from that which preceded it. Such debates, rather than Cold War-era bromides as to whether more centralized planning or the lone individual is the modern answer, would not only confront the challenges before the nation in the decades ahead - they also would engage the citizenry who have, at some level, "gotten" this for years. The real question rippling beneath the din of voter frustration in the 2010 elections - as in the last several before them - is when will our "leaders" get it, too?