THE TOOLS OF

GOVERNMENT

A Guide to the New Governance

Edited by

Lester M. Salamon

I With the special assistance of

Odus V. Elliott

OXFORD
UlUVllllS!TY PRESS

2002

l
I
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,
CONTENTS

i
i
Preface
i vii

! Directory of Participants

1 The New Governance and the Tools of Public Action:

An Introduction I Lester M. SalamOIl

2 Direct Government I Christopher K. Leman 48

3 Goverrunent Corporations and Government�Sponsored

Enterprises I Thqma.s H. Stanton and Ronald C. Mot 80

4 &anomie Regulation I wier M. Salamon Il7

5 Soda] Regulation I Peter J. May 156

.
,
6 Government Insurance J Ron f. Feldman 186

7 Public Information I !anel A. Weiss 217

8 Corrective Taxes, Charges, and Tradable Permits! Joseph J. Ccrdes 255

9 Contracting I StINe" J. Kelmtm 282

10 Purchase-of-Service Contracting I Ruth Hoogland DeHoog and

Lesrer M. S(Jlamon 31'

11 Grants I Dayid R. Beam and Timothy f. Conlan 34.

12 Loans and Loan Guarantees I Thomas H. Slama,1 381

13 Tax. Expenditures I Christopher H(NIard 41.

14 Vouchers I C. Eugene $tellerle and Eric C Twombly 445

15 Tort Liability I Petu H. Schuck 466

16 Managing Indirect Govemment I Donald F, Kf!tri 490

17 Financial Accountability in Indirect Government I John J. Lordan 511

18 Accountability Challenges of Third-Party Government

Paul L. Pamer 523

19 The Politics of Tool Choice I B. Guy Peters S52

20 Policy Tools and Democracy I Srnten Rarhgeb Smith rmd He/m Ingram 565

21 European E>.-perience with Tools of Government 1

Arthur B. Ringe/ing 585

22 The Tools Approach and the New Governance: Conclusion and

Implications I, Lester M. Salamon 600

Bibliography 611

Index 647 y
 CHAPTER ONE

The New Governance and the Tools of Public

Action: An Introduction

Lester M. Salamon

Jrt ewnomic lift the possibilities for rariona! sodal action, for planning, for reform­
in shorf, for solving problttnS-deptnd not upon our choice amot!g mythical grand
alternati� but largely upon choice amqng particular social techniques ... techniques
and not 'isms' are the kernal of rational social acrion in the Western world.'
- RoBeRT DAHL ANO CHARLES E. LlNO(JLOM, 1953

Far-rlUlOJing developments in the global economy have liS revisiting haJjc questions
about government: what its role should be, whar it can and Cl2nrlOr do, and how best
to do it.1 -WORLD BANK, 1997

1. INTRODUCTION; THE REVOLUTION THAT NO

ONe NOTICED

A ftuldamental rethinking is currently under way throughoul the world regarding how
to cope wilb public problems.l Stimulated by Popular frustrations with the COSI and
effectiveness of government programs and by a DewfoUnd faith in liberal economic
theories, striOllS questions are being raised about the capabilities, and even the moti­
vations, of public-se<:tor institutions. Long a staple of American political discourse,
such questioning has spread to other parts of the world as well, unleashing an e�'traor­
dinary torrent of reform.' As a consequence, governments from the Uolled States and
Canada to Malaysia and New Zealand are being challenged to be reinvented, downsized,
privatiud. devolved, decentralized, deregulated, delayered, 5ubjeaed t o performance
tests, and contracted out.
Unded)'ing much of this reform surge is a set-of theories that portrays government
agencies as tightly structured hierarchies insulated from market forces and from effec­
tive citizen pressure and therefore /Tee to serve the personal and institutional interests
of bureaucrats instead.' Even defenders of governmenl concede that we are saddled
with the "wrODg kind of governments" at the present time, industrial-era governments
"with !heir sluggish, ceDtralized bu.reaucracies, their preoccupation "'1th rules and reg-
ulations, and their ruerarchica1 chains of conunand. ,,�

largely overlooked i.o these accounts, i:)owever, is the exlc=nt to which the structure i
of modem government already embodies many of the features that these reforms seek
·i
to implement. In point 'of fact. a revolution has taken place in the "teclUloJogyn o f i
public action over the last fifty years, both io the United Slates and, increasingly, in !
other pans of the world.
The heart of this revolution has been a fundamental transformation not just in the
scope and scale of government action, but in its basic forms. A massive proliferation
has occurred in the 1'(lOis of public action. in the instrumCl1ts or means used to address
 2 public problems. Whereas earlier government activity was largely restricted to the direct
THE Too!..S OF delivery of goods or services by government bureaucrats, it now embraces a dizzying
GoVERNMENT array of loans, loan guarantees, grants, contracts, social regulation, economic ((:guI3-
tion, insurance, tax expenditures, vouchers, and'more.
What makes this development particularly significant is that each of these tools has
its own operating procedures, skill requirements. and delivery mechanism, ind�ed its
own "'polirical economy." Therefore, each imparts its own "twist" to the operation of
the programs that embody it. Loan guarantees, for example, rely on commercial banks
to extend assisted credit to quali6ed borrowers. In the process, commercial lending
i· officers become the implementing agents of government lending programs. Since pri­
vate bankers have their own worldview, decision rules, and priorities, left to their OWIl
devices they will likely produce programs that differ markedly from those that would
result from direct government lending, not to mention outright government grants.
Perhaps most important, like loan guarantees, many of these "newer" tools share a
signific.a.nt common feature: they are highly indirect. They rely heavily on a wide as­
sortment of "third parties" -commercial banks, private hospitals, social service agen­
cies. indusuial corporations, universities, day-care centers, other levels of government,
I financiers, and construction firmS-IO deliver publidy financed services and pursu�
publicly authorized pu.rposes. The upshot is an elaborate system of third-party govern­
ment in which crucial elements of public authority are shared with a host of nongov­
ernmental or other-governmental actors, frequently i n complex collaborative systems
that someriOles defy comprehension, let alone effective management and control. In
a sense, the "public administration problem" has leaped beyond the borders of
the public agency and now embrac es a wide as.sortm�nt of "third part.ies" that are
intimately involved in the implementation, and often the management, of the public's
business.
Take, for example, the system for delivery of publidy 61lanced meDtal health services
in Tucson, Arizona. Funding for such services comes from a variety of federal and state
government programs. However, no federal or state bureaucrat ever comes in contact
with any mentally ill person. Indeed, no fed�ral or state bureaucrat even comes in
1.
'
contact with any local government official or private agency employee who actually
delivers services to the mentally ill. Rather, the entire system is operated at two and
, three steps removed. The state of AriZona not only contracts out the dcliver)' of mental
,
(, i, health services, it also contracts out the contracting out of mental health services. It
. does so through a "master contract" with a private, nonprofit local mental health
a uthority called ADf\PT Inc. ADAPT, in turn, handles all dealings with more than
twenty other local agencies that deliver mental health services in the Tucson area with

;,1 funds provided by state and federal programs,' While this may be an utreme case, the
pattern it ex�mpLi6es has been a central part of public-seclor operations (or well over
I. �.
a generation now.
What is involved here, moreover, is not simply the delegati.on of clearly de.fi.ned
ruinisterial duties to closely regulated agents of the state. That is a long-moding feature
of government operations stretching back for generations. What is distinctive about
many of the newer tools of public action is that they involve the sharing with third­
party actors o f a far m6re basic governmental function: the exercise of discretion over
the use of public authority and the spending of public funds. Thanks to the nature of
many of these tools aod the sheer scale and complexity of current government opera­
tions, a major share-in many cases the major share-of the discretion over the opera­
tion of public programs routinely comes to rest not with the responsible governmental
agencies, but with the third-party actors that actually carry the programs out.
This development has proceeded especially far in the United Slates, where hostility
 10 government bas long been a staple of poliricaj life. and where the expansion of 3
governmental programs conse quently has had to proceed in a highly circuitous way.' CH I:
Contractiog arran gements lnvented t o fight the Revolutionary Wu and later elaborated INTJt.OOUCTlO�
to handle the faT more complex tasks of product devdopmem during World War II
were thus quickly expanded in the aftermath of that war lo'ficlds as diverse as agri­
culture, health. space exploration. and social services. Grants-tn-aid, loan guara ntees;
social regulations. insurance. and other indirect instruments have expanded as weU. As
Donald Kern has rem inde d us., "[EJver}' major policy initiative launched by the federal
government since World Wax II-including Medicare and Medicaid. environmental
deanup and restoranon, antipoverty programs and job training, interstate highwa�
and sewage trealment plaots-has been managed through public-private partner­
dtips.'·t
Reflecting this, a study of a cross section of u.s. co rnmWl ities carried out by the
present author in the early 1980s found that the majority of the government-financed
human services avaiJable at the 10ca11evel was already being delivered by private non­

profit and for-profit organizations as .of that date, and this was \veU before the advocates
of "privatization," contracting out," and "reinventing government" bad proposed it.
In parTicular. 3$ shown in Table I-I, gov errun ent agencies delivered only 40 percent of
these publicly funded semces, while p rivate agenc.ies-both nonprofit and for-profit­
delivered 60 percent.'O
Instead of the cenlralized hierarchical agencies delivering standardized services that
is caricatured in much of the current reform literature and most of our polilical rheto­
ric, what exim in most sph er es of poLicy is a dense masaic of policy tools. many of
them placing public agencies in complex. interdependent relationships with II ho st .of
third-party partners. AlmOSt none of the federal government's more than $300 billion
annua.1 involvement in the housing field, for example, bears much resemblance 10 the
dassic picture of bureaucrats providing services 10 citizens. Rather. nearly $190 billion

TAIU )·1 Share of Gov�ment-FII"ded HUmAn Services Delivered by Nonprofit,

For-Profit, arid GOYeI'fHneJ'lt Agencies in Sixte/!71 Comml.mjti�. 1982
(Weighted Average)"
-- ---
. . -- ...;�---..;.-----.;.--------- ---
. .--
''' .----.

I
PRO!'ORTION Of SERVICES De1JVI!RED BY

1 Field Nonpro/tts For-profits Goyt:mment TOlal

I
Social U.rvic:C5 "" '" 40% 100%

Employment/training 48 • " 100

Housing/community developmcnt 5 7 58 100

Health 41 " " 100

Atulc:uJturc 51 " !90

All "" 19% ".. 100..
-

- Fi!'lfC$ ue weighted by the s.;ale of &ovmun�!lL 'pmd;,,!: in the situ. PeTcen.-gu shown rfpnun! Ihe
Ihnt of aU rpending in �11 eil« l,.,un together thaI f"ill in the ."�Cljve cncgodts.

. w than O.S pn"«,nl.

SOVlICE: wIer M. s.itmon, PilM11m in Pu&lir StrY;�: Gol'(m."cnl·No"p�fi' RdMions in 1M Modun Wflfa,�
Sum (BaIlimOR: Johns Hopklru Unh>ttsity Press. 1�9S). p. 38.

L
 4 takes the form of loan gUllrantces to underwrite mortgage credit extended by private
commercial banks; another $114 billion takes the form of tax subsidies that flow to
homeowners through the income tax system; and more than $20 billion takes the [onn
of housing vouchers administered by semiautonomous local housing authorities to £�
nacee housing provided by private landlords (see Tab!e 1-2).
More generaUy, as refieCied in Table 1-3, the direct provision of goods or services
by government bUIeaucrats accounts for only 5 �rcent of the activity ofthe U.S. federal
government. Even wjth income transfers, direct loans, and interest payments counted
as "direct government," the direct activities of the federal goverrunent aruOW1t to only
" 28 percent of its activities. Far larger in scale are other instruments of public action­
"
contracting, grants-in-aid. vouchers, tax expe,ndltures, loan guarantees, govenunent·
sponsored enterprises, insurance, and reguJalioo, to name just a few. lnc\udiogjust the
$376 billion in oet additions to outstanding depmit insurance in 1999 a.nd not the far
larger amounts of pension, crop, and disaster insurance, a rough estimate would put the
total monetary value of these activities in the neighborhood of $2.5 trillio n as of fiscal
year 1999. two and a halftimes higher than the roughly SI trillion in direct activities in
which the federal government is engaged, and one and a half times higher than the
amounts recorded as outlays in the federal budget that year. TIlls highlights another

TADLE 1-2 U.S. Federal Housing Progral1lJ

fry Type of Tool, Fiscal Year
1999

Amount %
Typ< ($ 0115) of Tomi

hpendirures

Subsidies (Sec. 8) 21.1 6.3%

,
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;!
! .' Mortgage credit 0,' o.!%
I ,.'
!,
Public housing 6,0 1.8%
T
Rural bousing 0,6 0.2%

Veterans housing 1.6 Q.,5%

SUBTOTAL 29.7 ..".
,il
i Other
'It;
!,
"
' "
I
�
Loan guarUltee:; 187.6 56.4%

Direct loa.ns Ll 0.3%

,
d Tax expenditures 1I4A 34.4%

SUBTOTAL 303.1 91.1%

GRAND TOTAl. 332.8 100,0%

..
_ .
- .�-�

SOURCE: U.S. Office ofManagement and Budget,

Budget oj tile Ul1ited States Government, Fiscal
rear 2001; Analytical PN!pecrivcs (Washington,
D.C.: U.S. Government Printing Office, 20(0).
109-111,218-229,230-236.
 I
! 'fAIL! I-} Sco.Je Of u.s. Federal
Fi5a21 Year 1999
Government Activity, by Tool of Public Actiotl, 5

CH I:
i . . L.
.. =
iNTP.OoucnOl-oI
f Am'
•
(SIm.s) Percent

Direct government

Goods 2J')d suvices 186.8 5.'

iOGOUlC support 550.4 15A

lnt!rest 229 .7 64

Direct !0IU1I (obligations) 36.4 I.l

Subtotal, Direct 1005.3 26.1

lndirect government

Contracting 198.8 5�

Grants 286.4 8.0

Vouchers 251.0 7.0

Tax t:q>Cnditures 602.0 16.8

Loan guarantees (commitmenu) 252.4 7.0

Government-sponsored enterprises (loans) 109.2 11.4

Dcpos.it inSllran� (net additions) 376.l 10.5

!
,
Reg-.rlarlon 20Q..o 5.'
;
}
!
Subtou.!. Indirect 2575.9 71.9

� GRAND TOTAL 3581.2 100.0

Budget outlay. 1703.1 47.6

Other activity 1878.1 52.4

. "wo_ = •_0
__.
...

$OVRCE: Data on government contracting /TOIll General Services Administratiol), Federal Pro­

curement Data System, "Federal Contract Actions and Dollan. FY 1999" (www.fp&.gs.a.gov).
Data on regulation from U.S. Office of Management and Budget, hCoUS and Benefits of Regu­
lation 2000" (W\...w.whitehouU'.gov/omb/inforegl2000redreg.charu.pdf). Data on tu e).-,pendi.
tures, grants, loan guarantees, govemmenHponrored enterprises rrom U.s. Office of Manage­
man and Budget, AnQlytiCtd PasptClivts, Budgct ofthe United Statts �,"ent, Fiscal YMrZOOI
(Wadtil1gton, D.C.: U.S. Gov anment PrintiJlS Office, 2000), 109-1 Ll, J 84-185, 204. 2JO-2J7,
246. D�t� on depos:t insurance from Federal Depo$it Jnsurance Corporalion Wtb site ( www.
fdic.govlb.nklst.tistlcallstatistia). All other data from U.S. Office of Management and Budget,
Budgn of the Unirtd Sfafu GoWmmem, FlUai Yla( 2001 (Wub.i.ngton, D.C.: U.S. Government
Printing Office, 2(00), 342-373.

interestiog (eaturt of many of th� more indirect took they ofteo do not show up OD
the government's budget. which further helps 10 explain their attractiveness.
This reliance OD third parties to deliver publicly fW1ded services is Dot an exclusively
American phenomenon, however. It has also been a classic-if largely overlooked-
 6 feature of the European welfart states, al least outside Scandinavia. In the Netherlands,

THE TOOLS Of
for example, a fierce conllict between secular and religious commWlities in the late
GOVERNM.EI'oT nineteenth century over control of public education was resolved early in the twentieth
century by a compromise under which the state was called on to finance elementary
and secondary education but to leave the actual provision in the hand. of private
schools, many of them religiously affiliated. As government was enlisted to assist in the
provision o(health care, social services, and even humanitarian assistance overseas, this
same model was replicated in these other spheres, producing a widespread pattern
known as "pillariution" under which state resources are used to finance services de­
livered by pdvale institutions organi2.t'o along religious and, later, ideological lines,"
A similar phenomenon is also apparent in Germany, where the Catholic doctrine of
"subsidiarity" has been enshrined in basic Jaw, obliging the state to turn first to the
"free wdfare associations" to address sodal needs before enlisting state institl.ltionsY
Belgium, Ireland, Israel, and other nations also exhibit a similar pattern. Even France,
long known for iu centralized governmental structwe and highly developed state wel­
fare proviSion, dr3matically increased its reliance on government contracts with private
nonprofit institutions during the 19805 to implement a major decentralization of social
welfare functions.!l The upshot is that many co untries in western Europe have non­
profit sectors quite a bit larger than thaI ill the United States, financed largely through
grants and contracts from the state, as reflected in Figure l�l below.l�

i '
II. THE NEED FOR A NEW PARADIGM

The proliferation of these new tools of public action has created new opportunities to
tailor public action to tllC oature of public problems. It has also made it possible to
enlist a ....-ide assortment of different actors-govenuneotal as well as nongovernmen­
tal-in meeting public needs. At the same time, howevu, this development bas vastly
compl..icated u1e task of publie management. Instead of a single form of action, public
managers must master a host of different "technologies" of public action, each with its
own deci5ion rules, rhythms, agents, and challenges. Policymakers must likewise weigh
.. . a far more elaborate set of considerations in deciding not just whether, but ruse how,
,
" to act, and then how to achieve some accountability for the results. And the public at
I large must somehow find ways to make sense of the disparate actions that are then
i taken on their behalf by complex networks of public and private actors. One of the
I ::,
central conclusions of the new field of "implementation studies" that emerged during
i the 1970s, in fact, was that the convoluted structure of many public· progran;:l$ was Ihe
if source of many of the problems causing public programs to fall shon of their promise.'�

!i'I,"
Regrettably, however, existing concepts of public administration and public policy
offer little hdp in coming to terms with these dilemmas.Traditional public administra­
1" tion remains preoccupied with th.e internal operations of public agencies-their pro­
, '
I cedures for staff recruitment, budgeting, and cask accomplishment Indeed, a cardinal
tenet of (he fieJd has been that the manllgement of public affairs is bes· t left to neutral
professionals organized in public agencies that are arrayed in hierarchical fashion and
therefore able to achieve the needed specialization of functions s o crucial to effective
operations and democratic control.l� Such concepts leave little room for the prolifer­
ation of new forms of public action featuring the wholesale surrender of key elements
of discretionary authority over the exercise of public authority and the spending of
public funds to a host of nongovernmentru or other�gov�rrunental actors. "Much of
the time, wh�n 'government' does something, it is t he [government] employees who
really take action," one recent teXt thus notes. conveniently overlooking the fact rnat
r N",,",""" 12.6'10 7

! """'" 11.5� CH 1:
INTRODUcnON

f
10.5'"

u.s. ,).8'1to

I
7.2"

6.2"

•.9%

I
-�, 4.9'

22·CouDIry AVCI'l&C 4.8%

Split! 4.5"'"

[
•
AUlui• ,-""

3.7'10
f,
3.5%

I
3.'"

2.4'1>

2.4'Ji>
I
" .

I.,'"

Huogar'f
r Slovald.
I
M=io:o �::..:� ________�___ _�

0% ' '''' "..

'leUR!! 1-1 No np rofi t share of toud employment, by country; 22 counrries; 1999.

Civil Society: Dimension of the
SOllree: Lester M. Salamon et aL, Global
Nonprofit Sect or (Baltimore: Johns Hopkins Institute for Policy Studies,
1999), p. }4,

in the curre nt era it is mostly government's third-party partners that lake the action
instead.!'
Nor does the new field of policy analysis that recently hAS gained prominence offer
much help. The central preocOlpation of this 6e1d has been the application of sophis­
ticated techniques of microeconomics to the aoalysjs of public problems. or fur less
concern has been the nitty-gritty of actual program operations. Indeed, the implemen­
lation of public programs has long been the "missing link" in the policy analysis world­
view.!1
Even the "new public management" and the "reinventing government" movement
thai it helped spawn have failed 10 improve much on this record. To be sure, this line
o( thinking has made the use of alternative inSlTUwents a major go � of public sector
reform.!' However, to justify this prescription, as we have see n, reinventing enthusiasts
bave embraced a C<lricarure of current government operations that overlooks the extent
to which such instruments have aiready been adopted. In the process, they dowoplay
the i.mmense difficuJties that these instruments entail and the strong possibility that
the refonns they an: espousing may be the source, rather than the cure, for the problems
they are seeking to remedy.

L
...
.

8 VV'hat this suggests is that government does not need to be "reinvented," as the new
THE TOOl.-S Of public management has suggested. That proce� is already well advanced. The great
GoVWJME'NT chaUenge now is to find a way to comp rehend, and to manage, the reinvemed govern­
mem \\fe have produced. For that, however, a Dew approach is neded, one that ac­
knowledges the existence and likely persistence of "third-party government," and th at
focuses more coherently and explicitly on the distinctive challenges that it poses.
Fortunatdy, some progress has been made in de velopin g such an approach. A half
century ago. for example, Robert Dahl and Charles Lindblom called attention to the
rapid innovation in techniques of social intervention already in evidence, referring 10
it as "perhaps the greatest political revolution of our times,"20 Frederick C. Mosher
returne d to this theme during the early 1980s, emphasizing our failure to take sufficient
account of the extent to which the federal government in the United States had changed
its role from one of doing co one of arranging,21 The present author at around the same
I time proposed a wholly new focus for public management training and research con­
?'
centrating on the distinctive tools or instruments through which the public sector
increasingly operatesY
Despite some useful progress in fonnulating such a "tools framework,"?) and the
I.: further proliferation in the use of diverse policy tools, however, most of our political
, rhetoric and mudl of our public administration training remains dominated by the
I,
in13ge of the centralized bureaucratic state, as a recent survey of public administration
textboob makes clearY
The purpose of tois book is to remedy this situation, to bemg the new tools of public
action that are now in widespread use 10 the cenler of public and professional anemion.
To do so, the discussion builds on an earlier volume that first elaborated on Ihe concept
of lools of government.2! Where that volwne focused 0[1 only six tools, however, this
one extends the analysis to many mo re. In addition, the present volume supplements
the discussion of iodividual tools with an analysis of some of the overaTching i ssues
thai the proliferation of tools of government action raises.
In the process, this book suggests a new approach to public problem solving for the
era of "third-party government" in which we rmd ourselves. I caU this approach "the
I· new governance" to underline its' two defining features. The firST of these, signified by
I use of the term "governance� instead of "govemm<!ut," is an emphasis on what is
i' perhaps the central reality of public problem solving for the· foreseeable future­
,
namely, its collaborative nature, its reliance on 11 wide array of third parties in addition
to government to address public problems and pursue public purposes." Such an ap­
proach is necessary, we will argue, because problems have become too complex for
government to handle on its own, because disagreements exist about the pro�r ends
of public action, and because government increasingly lacks the authority to enforce
its will on other crudal actors without giving them a meaningful seat at the table. The
secot!d feature, signiRed by the use of the tenn "new, " is a recognition that these col­
laborative approaches, whiJe hardly novd, must now be approached in a new, more
coherent way, one that more explicitly acknowledges the significant challenges that they
pose as well as the important opportunities they create.
The balance of this introduction outlines this approach in more detail and introduces
some of the basic concepts on which it rests. To do so, the discussion falls into three
major sections. The first section introduces the major features that form the heart of
this "new governance" paradigm and shows h ow they relate to existing conceptuali­
zations in the field, The second section then spells out some of the basic analytics of
the appr oach- wha t is meant by a "tool" of public action, how tools can be assessed,
and what dimensions of to oh are conseque ntly most important. Finally, the third sec-
r
rion examines fhe implications that flow from th is analysis and tlo."Piains the fonnal of 9
the rest of the book. CH I:
INTRODUCTION

III. THE NEW GOVERNANCE PARADIGM

Like any new approach to a topic as old as public administration, the "new governance"
is hardly entirely novel. Rather, it builds on a rich hislOry of past thinking. changing
emphases, and incorporating new clements. b ut hudly replacing all that has gone
before. The rtsuJI, how ever, is a new synthesis. a new paradigxn, that brings prevailing
realities in tO better focus and conseque ntly makes more sense of some of the central
dynamics at work. In particutar; five key concepts form the core of this approach, as
outlined In Table 1-4 below. In this section we examine these five concepts and show
how they relate to eristiog approaches in thl': field.

From Agency a"d Program tel Tool

At the heart of the new governance approach is a shih in the �unit of aDaly$is� in policy
analysis and public adrni..oistration from the publi c agency or the individual public
program to the distinctive tools or in5trument.5 through which public purposes are
pursued. As we have seen, such instruments have mushroomed in both number and
scale in r«ent decades. A central argument of the "new governance " is that this has
altered the nature of public manage men t and the pattern of publk problem solving in
tather fundamental ways, but ways that are only partl)' acknowtedged in existing the·
ories and approaches.
This focus on the tools or technolOgies of public action differentiates the new gov·
ernance both from classical publi c administration and from the mOfe recent "imple­
mentation" schoollhat emerged during the 19705. For £he former, the central focus of
public administration is on the operation of governmental agencies. This reilects the
origins of the public administration field in the Progressive-era effort 10 legitimite
government a ctio n to cope with the increasin gly apparent shortcomings of the unfet­
tered market system. As formulated by Woodrow Wilson, Max Weber. Frederick Tay­
lor, Luther GuJick, and others, the classicaJ theory posited a new type of institution,
the democratic public a gen.cy, that wouJd overcome the duet major problems long
associated with government bureaucracy in the American mind-that is, excessive
administrative discretion, special-interest captllIe, and inefficiency. This was to be

T""L� 1·4 The Nr:w Governance Paradigm

-.-,-

CI4JSiazl Public
Io.dministrD.tion

Tool

Hierarchy Network

PtIblic vs. priv3te Public + priville

Comm3nd 3nd control Nego\jation and pcrsuuion

Management sk:iU� Enabkmellt skills

_________"" ____
" .,- _Ad....
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 10 achil:ved thrOUgh three principal devices: first, the restriction of ex�cutive agencies ro
THE TOOLS OF administration rather thall policymakingj second, personnel recruitment on the basis
GOYERNME!'lT of technical competence rather than poli tical influence; and third, a set of "scientific"
management principles designed to ensure the efficient conduct of administrative
workll Although subsequent work has refined and elaborated on these ideas. the basic
principles have remained largely intact, fixing on public administration thinking a focus
on the public agucy as the basic unit of analysis, a sharp distinction betweeo the public
and private sectors, a separation between policy aDd administration, a preference for
i dear lines of administrative responsibility and comrol, aDd an emphasis on the skills
I'
i' , of command and control.
I While these ideas have provided a workabk framework for the development of a
,
rdatively successful administrative apparatus in the American conto."t, however,:I& they
take as given that the funding and provision of public services are typically carried out
by the same public entity. As a result, they apply most clearly to only one of a range
of possible forms thaI public action can take (i.e., direct government) . However, as we
have seen, this is no longer the dominant form of public action at 'the preseht time.
I ', This point became clear as earJy as the }970s as efforts were made to explain why
I, the Great Society social programs oflhe 1960s -..vere not living up to their promise. The

i· answer, a Jle\¥ school of implementation studies concluded. was not that the classical
theory was wrong, but thaI the American political system was failing to supply the
conditions necessary for it to work.I� Instead of clear �pediication of program objec­
tives, sufficient authority to pUI programs into effect. and reasonable attention to the
management challenges that programs entailed, studies of program implementation
revealed thai administratoT$ were often set adrift with only vague or conflicting guid­
ance about program purposes, insufficien t authority to act, and little attention to Ihe
administrative tasks !hat programs lnvolved.:JO Especially problematic was the highly
indirect character of many of the Great Society initiatives. rhe reason public programs
were failing. students of implementation therefore concluded. was not thaI America
adhered 100 closely to the Progressives' ideal and built too centralized an administrative
stale, as "privatization" advocates now contend, but that it departed too extensively
from this ideal and created programs that resembled Rube Goldberg cartoons instead.
with multiple actors linked together in often implausible decision sequences.
To remedy this. implementation theorists proposed to shift the unit of ana1ysis in
policy work from the public agency to U)e individual publk program and to encourage
clearer specification oC program objectives and greater attention 10 program manage­
ment. Far less dear, however, despite nwnerous case studies, was what improved man­
agement really entails and how this might vary systematicaDy among the many types
of programs that exist.):
The "new governance,n by contrast, takes a significantly different approach. Rather
than seeing programs as sui generis, the new governance finds commonalities fiOllling
from the tools of public action that they employ. It thus shifts the unit of anaJysis from
the individual program or agency 10 the distinctive tools or techoologies that programs
embody. Underlying this approach is the notion that the multitude of different gov­
ernment programs really embody a more li.mited nwnber of bask tools or instruments
of action that share common features regardless of the field in which they are deployed.
Among other things, these tools define the set of actors who will be part of the cast
during the all-important implementation process that follows program enactment, and
they determine the roles thai these actors will play. Since these different actors have
their own perspectives, ethos, standard operating procedlU"es, skills, and incentives, by
determining the actors the choice of 1001 impol1andy influences the outcome of the
process. Thus, this focus buiJds on the insight of the i.z;nplementation Sludies that the

j
 division between pol icy and administration assumed in the classical theory does not II
seem to work in practicr. and that the process of program design does no! end with CH I :
legislative enactment but rather continu es into the implementation phase as well. Under INTltODucnON
these circumstances. it makes sense to focus ;lltention on the decisions that shape v,Ihich
actors have significant roles in this stage of the process. and this is pre ci..sdy what the
�lo01s focus" of the new governance does. By shifting the focus from agencies or pro­
gnms 10 underlying tools. therefore, the oew gov·ernan ce provides a wayto gel a handle
on the poslenactrnent process that the implementation literarure identifies as c[uciaUy
importa.nt. Tool choices significantly st ructure this process and therefore affect its re­
sults.
Because of this, however. tool choices are also not just technical decisions. Rather,
they are profoundly politiro/: they give some actors, and therefore some perspectives,
an advantage ill detennining how policies are carried out. This is especiaUy critical
given the degree of discretion that the implementation literature suggesls is left to trus
stage of the prOCeSS. The choice of tool thus hdps determ ine bow this discretion will
be used and therefore which int erests will be most advantaged 3S a result. For this
reason, the choice: of tool is often a central part of the political battle fhat shapes public
programs. What is at stake in these battles is not simply the most efficlent way to solve
a particuJar public probJem, but also the relative influence thaI various affected interests
will havt in shaping the program's postenactment evolution. 1ndeed, it may well be
the case that the need to involve particular actors is what importantly determines which
too! is chosen.
Such choices are also importantly shaped by cultura1 norms and ideological predis­
positions, and they, in turn, affect public attitudes toward the state." A strong pro­
mmer bias underlies too! choices in the United States, for example. whereas western
Europe is much more wary of the market and much more favorably inclined toward
the state.. At the same time, such cultural norms are hardly irrun utable. To the contrary,
debates over the appropriate techniques of social intervention-over block grants vs.
categorical grants, direct government vs. contracting out, public eoterprise vs. economic
regulation-forms the core of much of our political discotlrSl!.
Jf tool choices are fundamentally political choices, however, they are aJso operational
choices with signiDcan-t impUcations for the management of publk affairs. Different
lools involve different management tasks and therefore require different management
knowledge and skills. The operation of a grant-in-aid program is significantly different
from the operation of a regulatory program and this differs, in turn, from the operation
of a voucher. Whatever generic skills of public management roay exist, they must be
supplemented by skills peculiar to the various tools being employed if public programs
are to be effective. However. this requires a body of literature and a type of training
that is geared to the characteristics of the differenl lools, which is precisely what the
new governance seeks to provide.

From Hierarchy to Nttwork

In sh ifting the focus in pubUc problem solving from agencies and programs to generic
tooll, !.he new govtmana also shifts the anention from hierarchi c agenc.ies to organi­
zational netwo,b. The defining characteristic of many of the most widely used, and
most rapidly expanding. tools. at we have seen, is their indirect character, their estab­
lishment of interdependencie5 betv.'een public 3gencits and a host of third-parl)' actors.
As a result, government gains important allies but loses the ability to exert complete
control over the operation of its own programs. A variety of cnmplex exchOUlges thus
come into existence between government agencie� and a "'-ide variety of public and
 I

12 private institutions that are written into the operation of public programs. Under these

THE TOOLS Of
circumstances, the traditional concerns of public administratiOD with the internal
GOV�NMEN'r operations of public agencies-their person nel systems. budget.ary procedu[cs orga­ .

nizational strucrures, and institutional dynamics-have become far less central to pro­
gram success. At least as mportant have become the internal dynamics and eJ.."temal
i

relationships of the host of third parties:-Iocal governments, hospitals, universities.

clinics, community development corporations, industrial corporariont, landlords. com­
mercial banks, and many more- that now also share with public authorities the re­
. "

, sponsibility for public programs operations .

.,
Nor only does this broadening of the focus from p ublic ageoc ies to "nen"orks" of
organizations differentiate the new governance from traditional public administration,
it also differentiates i.t from the "'privatization" and "rei.nventing governmen.t " per­
spectives that have surfaced in recent years.
Both of these smools of thought ackoowledgc the imponance of indire(t forms of
government action. More than that, they both advocate it, the former as a '''a), to replace
goverrunent and the latter as a way to incentivize it.
In neither case, however, is the use of third parties viewed as particularly problematic.
Privatization theories, for example, actually view reliance on the private sector to deliver
public services as more likely to serve public interests than reli4Ilce on public agencies
themselves. This is so, privatization advocates argue, because the civil service protec­
tions designed to insulate bureaucrats from political. pressures insulate them as well
from the citizens they are supposed to serve and consequently free them to pursue
their self-interests instead.33 Under these circumstances, "rhe key to effective govern ­

ment" becomes "privatizationH-redudng the size of the public sector, shifting re�
sponsibilities to the private sector, and establishing "private sector alternatives that are
more attractive to the current supporters of government programs.�Joo
The reinvention school and the "new public maaagemcnt" of which it is a part take
a different tack. For these theories, contracti.ng out and other forms of indirect gov­
ernment are less ends in themselves than a means to improve internal agency man­
agement by fordng public managers to compete.); Reinventers thus have an incentive
to downplay the extent to which such indirect devices are already being used and to
minimize the difficulties to which they give ri se An internal contradiction thus creeps
.

intO the new public management prescription because managers are simultaneously
encouraged to tike more responsibility for the resuJts of their 3C1ivity and obliged to
surrender significant shares of the authority for achieving those TesuJts to third-party
implemente:rs.
Tbe "new govemance," by contrast, shifts the focus of attention much more ex-plicitly
from tile internal workings of public organizations to the networks of actors on which
they increasingly depend.. While acknowledging the advantages such networks can
bring, howe�r, it also acknowledges the considerable challenges they pose. As such it
builds on (WO other bodies ofmeory "principal-agent meory" and "network theory."
Principal-agent theory is part of a broader body of concepts designed to explain the
existence of organizations i.n a market system.14 What is relevant for our purposes here
is the insight this theory provides into one of the central paradoxes that arises in
relationships between principals and agents in contractual or other third�party arrange­
ments of the sort that th.i.rd-PilI£}' government entails. Despite the apparent influence
that the principals in such relationships widd by virtue of their conlTol of the purse
strings, it rums out that the agents fTequently end up with the upper hand. This is so,
principal-agent theory explains, because the agents in such relationships rypically have
more information than their principals about what they are doing with the disC1"l!tion

,
,
I that is inevitably left in their hands. They therefore have Significant opportunities to

(,
"shlrk� their duties and subject tne principals to the -moral hazard" of having to rely 13
on agents whose competence and diligena: the prim:ipal C3.MOt fully know. The only CH I:
way for principals to avoid this is to secure betteI information about how the agents iNTROOUcrJON
are performing, but this involves cosu. Therefore, every principal has to find an equi-
librium between the level of connol II would like and the level it can afford. Moreover,
the more disparate the goals and characteristics of the princip al and the agent, the more
information will be needed and the more cosuy a given tquilibriwn is likely to be.
Under tbes.: circumstmces, "who pays the piper" may not really �caU the lune" at all,
al least not "Without considerable effort.
What network theory adds 10 this insigbt is the observation that the principals 10
such relationships may have difficulry getting their way even when the agents shal"C
their basic goa ls. This body of meory was d�eloped to explain the complex.ities of
policymaking in many modern democracies, where power is splintered among nu­
merOUS divergent groups. However, it can also bdp explain the challengcs of policy
implemcntation as well, especially where indirect tools are used. In such situations,
network theory argues. the standard relationship among actors is one of i.n(erde�n­
d�nce. As a consequence, no singl� actor, including the stat�, can enforce its will. This
is �speciaJly true, network theory emphasizes. because of {OUT crucial attributes thai
commonly characterize poUcy networks, making th� tasks of ner.-.'ork management in
general, and the tasks of managing indirect tools in particular, especially demandlng:l7

First, (heir plurifonniry-the filet that they engage a diverse range of organiutions
and organiz.ariona1 types, many of which have limited experience o;:ooperating with
each other and Uroited knowledge of each other's operating styles;

Second. their sdf-rejerrntiality-the fact that c:ach actor has its own interests and
frame of reference and tberefore approaches the relationship with II different �t
of perspectives and incentives;

Third, their asymmetric inrudependl'l1ciC5-llle fact thaI aU the aclors in a network,

including the slate, are dependent on each other but rarely in a fully symmetrical
way. Ev� when aU the parties want the same thing, therdore. they may still not
be able to cooperate fully because they may nol a.I1 want it "With the same urgency,
in the same sequence, or at the same time; and
Final/y. their dynami$m-the fact that all of these features change over time even
as the network seeks to carry out its mission.

Far from automatically sharing the same objectives, as the privatization and reinventing
paradigms tend to assume, (he actors brougbt into Ine operation 'of public programs
through indirect tools thus typically have goals, operating styles, skills, wortdView5,
incentives. and priorities that, even with the best of intentions. often differ widely ITom
each other. N a consequence, Ihe task of securing cotlcerted action becomes a major
administrative chaUenge. Under these orCUInstaDce$, the hopeful assumptions of the
reinventing government school that government can move easily from a "rowing" to
a "steering" role art far from aS$ured.l&
What the "new govemaJlce" and its "tools approach" add to this network theory is
a dearer understanding of the commonaUties of various network arrangements. In a
sense, tools significantly structure networks: they define the actors that are centrally
involved in particular types of programs and the formal roles they wiU play. When
policym3kers choose a loan guarantee, for exampl�, they choose. a network that involves
a struc tured .interaction between a public agency ;md the commercial banking system.
\"Ihen they select a grant-in-aid, by contrast, they choose a different nehvork that
engages state and local governmenu. By shifting the focus from hierarchies to networks
 14 and specifying more preciseJy the kind of network a program embodies, the "tools
THr TooLS OP approach" of the new governance thus can offer importaot clues about the kinds of
GOVERNMThI, management chaUenges that particular programs will COOfrOIl[.

.,
From Pllblic V$. Private to Public + Private

, , In mo.mg the focus of public management and policy analysis from the progr-am and
t
the agency to the tool and the network, the new governance also brings-a new perspective
to the relationship between government and the other sectors. Traditional public man­
agement posits a tension between government and the private sector, both for-profit
and nonprofit. The public sector is distinguished, in this view, by its monopoly on the
legitimate use of force, which it acquires by virtue of its resJXlnsiveness to the demo­
cratic will of the people. Public agencies thus are imbued with sovereignty, the power
to act on bebalf of the public.lO Many of the central precepts of classical public admin­
istration flow from this �otra1 premise and are designed to ensure tbal the adminis­
trative officials so empowered do in faci respond to the public's will and not the parliaJ
will of some private group. WithoUl lhis dear differentiation. 3ccountability for the
spending of public funds and the exercise of pubtic au!horit)' becomes m i possible and
the public sphere poUllfed by the intrusion of private wterests. Keeping private interests
and private organiz.ations at arm's length thus becomes it central motivation of orga­
nizational design.
This notion of a sharp divide between the public and private sectors also figures
prominently in the privatization theories. Here. however. it is the protection of the
private spherl! from the intrusion of the state that is the object of concern. In this view,
the expansion of the state inevitably comes at the expense of the private sector, both
for-profit and nonprofit. The best way to preserve a healthy market system and private
voluntary sector therefore is to shrink the state �nd aUow the private sector to take up
the slack...o
Many of the new tools of public action ddy these precepts rarner fundamentally,
however. Instead of a sharp divisjo� between the public and private spheres, theyblend
the fWO together. This is not to say tbat sectoral differences are blurred, as is often
suggested. A central precept of network theory, after all, is that the participants in a
network retain important elements of their individuality. However, collabora.tion re­
places comperirion as the defining feature of sectoral relationships. Rather than seeing
such -:-ollaboration as an aberration or a violation of appropriate administrative practice,
moreover, the new governance views it as a desirable byproduct of the important com­
plementarities that exist among the sectors, complementarities that can be built upon
to help solve public problems.'! For example, the state enjoys access to resources that·
are often critically needed by private, nonprofit groups. For tbeir part, nonprofit groups
are often already actively involved in fields that government is newly entering. By
combining the actions of the two, utilizing the state for what il does best-raising
resources and setting broad sociera1 directions-while using nonprofit organizations
for what they do best-delivering services at a human scaJe and innovating in Dew
fields-important public advantages thus can be gained.
Simila.r synergies exist, moreover, with the pt"ivate business .seClOr.U So long as due
attention is given to the management challenges they entail, cross-.sectoral partnerships
thus can yield important divideods in terms of effective public problem solving. Rather
than viev,>ing such interaction as a "fall from grace" that undermines the purity of the
respective sectors. the "new governance" views it as a source of opportunity instead.

J
Front Conlmand and COlltrol 10 Negotiation and Persuasion 15
Ci 1 :
In emphasizing the shift from programs run by public agencies CO cooperative action
INTllonUC'nON
orchestrated through complex networlu, the "new govemance also underlines the need
"

for a new approach to p ublic management. In this also it differs from both traditional
pubUc adm inistrati on and the new privariz.ation theories.
Tnditional public management, with its focus on the operation of public agencies ,

emphasiw coml11twd and control as the modus operandi of public programs Tbis .

assumes th at public action is carried out by hierarchicaUy organited agencies who�

central spinal chord is the chain of command. Such centra1iz.ed connol is, in fact. vital
to the preservation of democratic accoWlubUity. Much of Inditional public adminis­
tration thus is preoccupied with clarifying lines of control and cenualizing authority.
The privatization school. by contrast. downplays the need for administrative man­
agement altogether. I ostead it posits the market as a superior mechanism for achieving
,

coordination and advanCing public goals. Market competi ti on. in this view, replaces
pubUc decis.ionmaking and obviates the need for administrative conO'o1.4)
The "new governance" rejecu both of these approaches and suggt,SIS a third route
for achieving public purposes in tbe world of third party gO\'erwnent that nm" exists.
-

Unlike the privatizatioo school, it emphasius the con tinued netd for public manage­
ment even when indirect tools are used. This is so because private markets cannot be
Jelied on 10 give appropriate weigbt to public interests over private ones without active
public involvement. "Government's relationships with the private sector are Dot self­
administering," one expert 00 privatization has thus oted� "they requ ir e rather. ag­
n ,

gressive management by a strong. competent government."" Even the World Bank,

long known for iu market-oriented ecoDomic policies and endorsement of privatiza­
tion, has had to acknowJedge recently that "Institutions Matter: as the Litle of a recent
World Bank publication puts it.U "AIl effectve state.� the World Bank noted in tbe 1997
i

edition oftts inilueotiaJ World Development Repon, "i5 vital for the proviSion ofthe goods
and services-and the rules and institutions-mat allow markets to 60urish and peopJe
to lead healthier, �appier lives.Wi thout ii, sustainable development. both economic and
social. is impossible."" In [act. even the process of privatization itself has been found to
require strong political commitment and effective public managemenL"'J
"

While stressing the continued need for an active public role how�ver, the new gov
, ­

ernance acknowl edges that command and control are not the appropriate administra­
tive approach in the world of network relationships that incr�asingly exists. Given the
pervasive interdepen�enc.e that charaClerizes such networks, no entity. including the
state, is in a position to enforce its will on the others over the long nUl. Und er these
circumstances. negotiation and p�sua.sjol1 replace command and control as the pre­
ferred managemCllt approach. not only in the setti ng of policy but in carrying it out.�
iDstead of issuing orders, public managers must learn how to create incentives for the
outcomes they desire from actors over whom they have only imperf�CI control. Indeed.
negotiation is even necessary oyer the go�Is that public acrion is to serve since part of
the reason that third parties are often CUt into the op era ti on of public programs s
i that

such clarify cauoot be achi eved at the point of enactment.

All of this suggests a new body of administrative doctrine that makes coUaboration
" "

aod negotiation legitimate comp OneD. LS of public administrative routine rather than
regremble depanures from expected practice. Reconciling such an approach with long­
standing prohibitions against excessive adminisuative discreti on will be no easy task.,
but interesting e.:r::?omples of how this can be done are already appareut in such ap­
proaches as negotiated regulation and cooperative contracting, as s ubsequent chapters
of thi5 book will show.
-- � - I
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16 From Management Skills to Enablement Skill.s

,
THE TOOLS OF
" Finally, because of the shift in emphasis from command and control (0 negotiation
GoVER.NMtNT
and persuasion. the world of third-party government necessitat� a significantly differ­
. , ent skill set on the pan of public managers and those with whom they interact. Both
traditional public administration and the "new public management'" emphasize essen­
tially mllnagemrnt skills, the skills required to manipulate la rge numb!rs of people
arrayed hierarchically in bureaucratic organlutions. For traditional public administra­
tion, these are essentially the conrrol skills summarized nicely by Luther Gulick in the
cbssic administrative acronym POSOCORB-Planning, Organizing, Staffing, Direct­
I'
,. ing, Coordinating, Reporting, and Budgeting.�' The new public management moves
:
'; the emphasis considerably from control to performance, bue it remains preoccupied
: �'! with imerna! ageocy managemer'lC and with we manager as the key to success. Under
this body of thought, the path to successful p ublic-sector performance is to introduce
business manag.:mem practices intO the public sector, freeing managers to manage but
subjecting them to increased competition and holding them accountable for results.»
Unlike both traditional public adminisO'atioo and the new public management, the
"new governance" shifts the emphasis froOl managemt;1H skills and the control o f large
bureaucratic organizations to enobteme11t skills, the skills required to engage partners
arrayed horizontally i.n networks. to bring multiple stakeholders together for a common
end in a situation of interdependence. Three rather different skills thus move into the
center of attention as n consequence of this shift:

Activation Skills
In the first place, the new goveroance requires ncrivation jklh,
i the skills required to
activate the networks of actors increasingly required to address public problems.'l Many
of the new governance tools create OPPOriunities for third parties to take: part in public
problem solving but do not mandate that these opportunities be raken. Public mallage("S
therefore must perform a mobiliz.atioo and activation role, marketing the new oppor­
tunities and encouraging the pottnti'al partners to step forn>ard and play their roles.
i
Thus, competent cootraC1Ors must be ideotified aod encouraged to bid in purchase­
of-service programs; banks must be con\�n(fed to ptlrticipare in loan guarantee schemes;
and private indiv:i,duals and corporations must be made aware of tax expendi�es. In
none of these cases can participation be taken for granted. Rather, it must often be
co�ed and cajoled. One of the great challenges in purchase·of·service contracting, for
example. has been to ensure an adequate supply of vendors \villing to compete on the
government's terms," and similar problems have con(yonled loan guarantee programs
as well. Those ultimately responsible for program success therefore often find them­
selves in the unaccustomed position not of withholding desired suppon but rather of
t
trying to mobilize appropriate partners to accept i t.
I
" Moreover, the task of activating networks for public problem solving is not an ex­
clusively governmental function. Other actors can also often take the initiative. In some
cases, these are nonprofit organizations or community groups mobilized by grassroots
activists who bring the other stakeholders to the table.Sl lncreagngl.y, private founda­
tiolls have played this tole in the United States. either ori their own or in cooperation
with corporate and commwtity partners. Rather than wait for government to aet, n
i
oilier words, prh·ate institutions an� taking the initiative instead. nus proliferation of
a sense of responsibility for activating problem-solving networks is, in Net, one of the
more hopeful facets of the "new sovernance.�
Orcht5trntion Skilli 17

In addition t o activating networks, the new governance requires managers who cao 01 I:

then sustain them. This caUs for QrcheStrarion skills. the skills required of a symphony II'mlODUCTIQN
conductor. Essentially, a conductor's job i! to get a group ofskiUed musicians to (Xr·
form a gjven work in !ync and on cue SO that the result is a piece of m usic rather than
:l. cacophony. Clearly, the condUCTor cannot do this by playing ill! of the instruments,
Rather, he or sbe must tease the music out of I.he musicians, setting the tempo and
conveying an interpretation, but nevertheless remaining wichin the bounds set by the
physical capacities of the instruments (and the musicians) not to mention the m�lody
pr�scribed in the score. The conductor thus is an �nabJer rather than a doer, but his
or her interpretation aod skill can neverthel6s determine whether a given orchestra
plays poorly or well.
Orchestration, therefore, does nOI mean command and confrol, nor is the orches­
trating role an exclusively govcrrunental one any more than is the activation one. In·
deed, in major systems acquisition projects, government contractS out the orchestrating
role to II. g�neral contractor who then mobili:z.es subcontractors to produce the com·
ponents of the system. In recent years, this modd has been applied as weU to humao
service contracting. In fact, defense contractors such as Lockheed Martin have drawn
on their experience in orchestrating the production of complex weapons system to bid
successfully on contracts to orchestrate the complex n�lWork.s of day care, drug abuse
counseling, mental health service, job-search, health, job placemeot, and related service
providers required to move welfare recipients into jobs and keep track of the results.�
Beyond tbis, however, other actors can also lift the baton even withoul this kind of
governmental imprimafur. What is needed to � effective is not simply command of
resources-whether bnancial or legal-but also the intangibles of knowledge, vision.
.
persuasiveness, and community respect.

Modulation Skil/$
Finally, the new governance requires the sensitive modulatioo of rewards and penalties
in order to elicit the cooperative behavior required from the interdependeot players in
a complex tool network.. Urban economic deveJopmem specialists have referred to this
as enoughsfn(ln$1Jip-lhe provision ofjust enough,subsidy to get private parties to make
investments in run-down areas they might avoid, but not so much that it produces
windfn.u profits for doing \...hat the developers would have done anyway. lnevitably, as
we hav� seen, third-party government leaves substantial discretion over the exercise of
public authority and the spending of public funds in the hands of a variety of Wrd
parlies over which public officials have at best limited control. Under these circum·
stances, the central challenge for public m anagers is to decide what combination of
incentives and pen alties to bring to bear to achieve the outcomes desired. E.xussive use
of authority can clearly backfire if paItneTS choose not to "play" or to disguise their
activities in ways that "principal-agent theory'" predicts. On the other hand, insufficient
accountability can invite complete disregard of public g03ls. Public managers in !.he
era of the new governance are consequently �rennially confronted with the dilemma
of deciding how much authority or subsidy is "enough" and how mucb i$ roo much.
Eugene Baroach and Robert Kagan recognized this point clearly in their classic anal·
ysis of the proble m of regu.latory enforcemenl. Rather than lhe classic "tough cop,"
Bardach and Kagan suggest regulatory enlorcement may actually be more successful if
it promotes the concept of the "good iDspector,� the inspector who understands when
forbearance rather than rigid enforcement best achieves regulatory compliance, and
who hos the discretion to adjust regulatory enforcement accordingly.n Similar notions
=r
;

'1"d '
, Ijl 18 are also evident in endorsements o f new types of contracting stressing cooperation as
'I'H1; Tool..5 -Of opposed to classic competitive bidding.� Insteild of narrowing Ihe range of adminis-
GovtRNMENT trative discretion left to the "street-level bureaucrat,"S7 in other words, the "new gov:
eroance� calls for broadening that discretion and equipping the public official with the
5kills and un derstanding needed to exercise this discretion in a way that advances
program objectives.
The growing ust: of emire "suites" of tools in particular programs oD ly accenruates
the need for this modulating, enoughsmamhip approach to program implementation
and enforcement. With rich medleys of instruments at their command, public managers
can assemble highly targeted blends of incentives and disincentives specially tailored to
the circumstances at hand. WhlJe this opens opportunities for abuse, it also creates the
potential for trwy effective management of public programs. To � effective, however,
this approacb requires site-level managers who can cope with the discretion involved,
and who have a well-developed feel for what constitutes the appropriate mixture of
penalties and rev.---ards required to gel a given job done.
Therefore, as with other facets of the Dew governance, the enablement skills required
",.jjJ vary with the type of tool being used. The task of securing the concurrence of
industrial firms with the operation of an air poUution control program is likely to differ
markedly from the task of enlisting financiers to take advantage of a tax credit for low­
income housing. This points up again the importance of tool-specific knowledge to the
operation of the third-party arrangements that now exist. However, it also underlines
the fact that the new tools of public action, far from reducing the demands 00 public
management, may increase them instead, necessitating more sophisticated management
skills, requiring greater exercise of discretion, and calling for better information on
performance and results. All of this suggesfS nol the withering away of public admin·
,,
istration, as privatization theories tend to asswne, but its transformation and refine­
I '
ment instead.

Summary

In short, the proliferation of tools of public action has necessitated a new approach to
public problem solving, a new gQv�rnance chat recognizes both the collaborative char­
acter of modern public action and the significant challenges that such collaboration
entails. Central to this new governance is a shift in the basic paradigm guiding action
011 public problems. instead of focusiDg exdusiveJy on public agencies or public pio­
grams, the new governance moves the focus of attention to the distinctive tools or
technologies used to address public problems. Underlying this shift is a recognition
that different tools have their own characteristic features that impart a distinctive twist
to the operation of public programs. Tools importantly structure the postenactment
process of policy definition by specifying the network of actors that will play in)portaDt
roles and the nature of the roles they will perform. Under these circumstances, the
whole character of public management has to change. Instead of command and control,
it must emphasize negotiation and persuasion. In place of Olanagemenl skills, enable­
ment skills are increasin gly required instead. Far from simplifying the task of public
problem solving, the proliferation of tools has importantly complicated it even while
enlarging the range of options and the pool of resources pctentially brought to bear.
All of this makes the development of a systematic body of information about the
dynamics and characteristics of the different tools of public action aU the more urgent.
IV, B U I L D I N G THE K N O WLED G E BASE: 19
BASTe ANALYTICS Of I :
INTRODUCT!ON
The new governance thus caUs attention to the new world of public problem solving
that has been ushered in by the proliferation of tools of public action over the past half
century or more. Rather than res.isting this trend. like the traditional public adminis·
tration, or Wlcritically celebrating it, like the reinventing gov�rnment school. however.
the new governance caUs for the development of a systematic body of knowledge that
can help policymakc:rs, public managers, and others engaged in the incuasingly col�
laborative business of public problem solving take advantage of the special opportu­
nities and cope with the special chaUenges that these new tools email. Ln the process it
directs oW" attention to the characteristic feah!res of the different tools and at the often
complex networks ofillteraction on which many oftheOl depend.
But which features of the different tools are most impol1ant? How can 10015 be
analyzed and compared? Which facets are likely to have the biggest effects? And which
effects are mosl important? Clearly, if the "new governance" and the "tools framework"
on which it rests are to be more than mere metaphors. they must offer meaningful
Mswers to these questions.. Therefore. it is necessary to tum froro the ralionaJe for the
�new governance" and the general features thaI characterize it to a more detailed ex­
ploration of its analytical core.

Definitiotl and Classification: The Basic Buildirlg Blocks

As a firs! step in this direction. it may b� useful to specify more precisely what is meant
by a " tool" or Uinstrument" of public action.
This is no simple task since lools have multiple
f�atures and can be defined at any of a number of 90X I-I A Tool of Public Action
0'''
levels of abstraction. For our purposes here, how­
ever, the most basic descriptive level 5e�ms most A 1001 of publiC action is an identifiable method
appropriate. Therefore, as used h ere rl rool. or in­ through which collective ac tion s
i structured to address

a public problem.
stntment, ofpublic amon can be defined ru "'I iden­
tifiable method through which collective acriDn is
structuud to address a public problem.)' Several features of this definition afe particularly
notable:

1001 is assumed to have cenain common /erlwreJ that make

In the first place. each
all features.
it "identifiable." Th.is is not to say thaI an tools of a particularrypoe share
In addition 10 their common, or defining, features, tools aha have doign features
that can vary from one embodiment of the tool 10 another. For example, all grants·
in-aid involve paymenu from one level of goverrunent 10 either another level of
government or a private entity, but different granI programs can vary in the level
of specificity with whicb they define eligible purposes, in tbe range of eligible
recipients, in how funds are distributed. and in many other �atures.

Second, tools "structure" action. What this means is that the relationships that
tools foster are not free·form or transient. Rather. they are instihltionalized. Thus,
tools are "institutions" in the sense emphasized by students of the "new institu·
tionalism" (i.e .• they are regularized panerns of interaction among individuals or
organizations).!Q They define who is involved in the operation of public programs,
wbat their roles are, and how they relate to each other. Thus, they importantly
-

20 shape the set of considerations that effectively come to bear jn the all-importa
THE Tool£ Of implementation phase of policy.
GoVeRNMENT Finally, the actioD that i$ structured by tools is "coUective action" aimed at r

spending to "'public problems," This s

i
different from saying that tools structu
only governmeot actioo. Other entities are also often involved in the actioD th
is structured by the tools of public action.

Given this definition, it is possible to distinguish Tools from both programs and pc
icies, two otber concepts commonly used to discuss policy 3<:tion. Tools are 1U0:
general than programs. Programs thus embody tools, applying them to the circun
stances of a parlicula r field or problem. A single tool therefore can be used in mar
different programs in many differeD! fields. Typically, a program embodies a sing.
tool, a1though increasingly, as we will see below, programs are coming to embody emil
suiles of tools, A central premi�e of the tools approach is thaI panicular tools impa..
similar pressures aDd have similar operating requirements wherever they happen to b
applied.
If tools are typicaUy Q"lOfe general than programs, they are typically less general tha
policies, Policies are essentially collections of programs operating in a similar field 0
aimed at some general objective. The programs comprising 3 policy can all utilize
single tool (e.g., multiple grants-in-aid) or multiple tools. An interesting question tha
1001s analysis raises is whether some tools are more appropriate for some policy ob
jectives than others, an issue we rerurn to below.
Om: other distinction worth making is thaI between internal tools and external tool.!
Internal l(lols refer 10 the procedures that governments use to handle their own intema
operations. Included here would be basic procedures for personnd recruitment, humal
resource management, budgeting, and procurement for the supplie� that governmen
needs w operate. External 1001$, by contrast, are those used to affect society at large
not just me government. The focus of this book, and of the "new governance" approach
is on the latter'type of tools, those that seek to affect society and not just the interna
workings of government.

Tools as Bundlu ofAttributes

From what has been said, it should be. clear that while the concept of a too! of public
action is rdatively StIaightron"ard, in reality tools are often quite complex. An}' given
tool is really a "paclcage" that contains a number of different eJ�ment.s. These include:

A type of good Dr activity (e.g., a cash or in-kind paym�nt, a restriction or prohi�

bition, the provision of information);

A delivery vehicle fM this good or activity (e.g., through a 1030., an outright grant,
a voucher, the direct provision of a service, or the tax system);

A de/;,'err systt:m, that is, a set of organizations that art engaged in proYiding the
good, service. OT activity (e.g., a goverruncnt agency, a nonprofit organization, a
local government, a for-profit corporation); and

A set ofroles, wherherformal or informal, defining the relo.tionships among the enrities
that comprise the delivery system.

These multiple facets oaturally complicate the task of sorting and describing tools, as
we will see more fully below. Tools can be classified according to any of the diffe.rent
facets-the nature of the good or sen�ce, the delivery veh..ic!e, the nature of the delivery
system. This means that no single classHication of tools is possible. dassification
schemes will differ depending on v.rhich facet is used as the basis. Table 1-5 illusttates
 the most commonly used tools compare 10 each 21
lit this point by portraying bow some of
other descriptivel)' in terms of these four features. Thus, for aampJe, loan guarantees CH 1:
provide casb delivered through a loan by commercial banks operating according ro a INTRODUCTION
,-
set of rules that st ipul a te the conditions uoder which the government will reimburse
n
the ba nk if the loan becomes uncollectable. By contrast, direct loans provide cash
"
through loans delivered by a government agency.

,'-
The Clwflenge of Classijican'on
ce
,- This multidimensionality of policy tools naturally complicates the task of describing

'Y and soniog them. This is particularly true in view of the fact thai unlike tools tD the
I, physi cal world, such as hammers, saws, and screwdrivers, the too!s of public action
-, rarely appear in pUre form. Rather, they corne bundJed in particular programs, many
n of which combine more than one tool, and aU of which bring diff�rent approaches to
< the design issues that each program must address. Beyond tlus, there s
i occasionaUy
ambiguity about which features of a tOo) are truly the defining features and which are
desigl1 features that
"

"
X the can vary with particular manifestations. For example, some
ob�ervers treat "block grants,� a form of grant-in- aid that defines eligible purposes
, fairly broad1y, as a separate tOol from "categorical gral1ls," which define eligible activ­
'.
" ities more narrowly. Other observers, however, consider this distinction inconsequen-
tial.liO
Coupled with the considerable ingenuity that has cbaracteriud the design of puhlic
action in recent years, the muJtidimensionality of individual tools has made it difficult
J to reach consensus even on the nwnber of tools that exist. Thus, Savas identified ten
different arrangements that can be used just for the provision of public services, the
u.s. Office of Management and B udget's Catalog ofFederal Assurance identifies sixteen

TABL.!! I·S Common Tools of Public Action: Defining Features

== ."- '
= • " . , ....,.,---
. -
Tw' ProducrlActiviry Vehicle Delivery Systm!

Direct government Good or service Direct pro\ision Publk agency

Socia! regulation ?whibitioo Ruie Public agency/regulatee

Economic regulatioD fair prices Entry and nUt controls Reguhuory commission

Contracting Good or service Centract and cash payment Business, nonprofit organization

Gram Good or service Grant award/cash payment Lower level ofgoyunment, Donprofit

Direct loan Cash Lc� Public agency

Loan guarantee Cash Lc" Commercial bank

lnsun,na Prol«tion Insurance policy Public agency

I
Tax expenditure Cash, incentjves Tu Tax system

Fees, charges Financial penalty Tu Tax »'Stem

Liabiliry law Social protectioos Tort law Coun system

Government corporations Good or sen�c<,: Direct provisionJ1oan Quasi-public agency

1 Vouchen Good or service Consum<':T �Ub5idy Public: 3gencylconsumer

-

-I
e
m ,
,,..
,

L
 U dislinct tools. Osborne and Gaebler recorded tbirty·si.x, and E. S. Kirsc.hen ofthe Netb-
.
I ,. erlands identified no fewer than sixty-three."
THE TooLS OF
GoVERNMENT Complicating matters further is the {act that toob are often mislabeled. sometimes
deliberately. For example, President Roosevelt insisted on including a symbolic em­
ployee contribution in the Social Security program so that this program couJd be char­
acterized as "in5uran�," which was easier to seU politically, even though it lacks most
of the defining features of insurance (current recipients receive their benefits from
current wage earners not from their prior conuibutions to the truSI fund). This mis­
labeling, whether deliberate or inadvertent, can play havoc ....
>i th efforu 10 characteriu
tools and analyze their consequences.
All of this makes it difficult to reach clear consensus about the types of tools that
exist. Several different classifications ar� availabl� in the literature, but each uses a
slightly different tool dimension as the basis for its grouping. Thus, Hood, in one of
the earliest schemes, soned tools in tcnns of two major dimensions: (1) the role of
government for which they are used (i.e., detecting vs. effecting) ; and (2) the govern·
mental resource they enlist (i.e., nodality, treasure, authority, or organization).el
,, Mc.Donn�ll and Elmore focused instead on the StrlJTegy ofinten-oft1on that goverDm�nt
,
, uses, producing a fow-fold division of tools into (1) mandates, (2) lnducem�nt.s. (3, ca­
pacity building, and (4) system changing." Schneider and Ingram elaborated on this
with a classification thai focu$l's on the beha�rs that programs seek to modify, leading
to a fivefold distinction among: (I) authority tools, (2) incentive tools, (3) capacity
tools, (4) symbolic or bOM-atory tools. and (5) learning took ... Finally, Evert Vedung
returned recently to a scheme first developed by F. C. J. van der Doelen and identified
three dasse$ of tools-carrou, sticks, and sermons-based 00 th� atent of forc� that
�ach involves.'u Giv�n this diversity. some anal�ts have begun to question whether the
concept of a policy tool is risorous enough to support any serious analysis.�
Our approach, by cOntrasl, is 10 recognize this diversity not as a drav;back of the
tools approach, but as a strength. The fact is that tools have multiple dimensions in
tenns of which they can � compared and contrasted, and particular tools may be alike
along some dimensions and different along others. This means that multiple classifi·
cations of tools are entirely appropriate since different classifications will highlight
diff�rtnt facets. Thus. fools can b� sorted in a two-step process: first. basic descriptive
(eatures can be used (0 define different tools; Ilfld second, various dimensions can then
be identified in terms of which various fools so defined can be grouped together for
analytical purposes.
But which dimensions are the most appropriate to use? Since the toots approach
argues that various tool dimensions have significant consequenc�s for how programs
operate and what results th�y produce, the answer to this question depends, first, on
which outcomes are of particular inlerest to us; and second, on which tool dimensions
our th eori�s suggest might affect them. Our approach to sorting lools therefore must
be to focus on these two faCtors.

Evaluating Tools: The Criteria

So far as the first step in this process s

i concerned, t.h� field of policy analysis has
identified three crit�ria in terms of which public interventions are typicalJy assessed:
effectiveness, �fficiency, and �quity. The policy implem�m"tion and political sci�nce
Iitetarure suggest rwo oUler crit�ria that also seem highly german�: manageability and
political Iegitirnacy. Taken together, this gives us five criteria in terms of which the
consequences of tools can be assessed. Let us look briefly al each of these.

i
,
 Effeaiveness 23

Effectiveness is the most basic criterion for gauging the success of public action. It O! 1 :
essentially measures the eXlent to which an activity achieves its intended objectives. INTRODUCTION

Although considerations of cost can enter into this judgment, effectiveness judgments
afe cypically made inde�ndent of costs. Using this criterion, the most ef
fective tool is
the one that !!lost reliably allows action on a public pcoblem to achieve lIS m
i ended
purposes.
Gauging the effectiveness of public action is far from easy, howe\'e.r. For one thing.
as we have seen, program purposes are often quite ambiguous, either because precise
indicators are technically difficult to locate or because Conflicts exist aboUi what really
is me priocipaJ purpose. Indeed such ambiguity s
, i almost chronic in fragmented po­

litical systems like that in the United States, where multiple perspectjves have ample
opportunities to influence the definition of program objectives. This makes the choice
of tool aU the more imponant because ambiguity at the point of enanment p ushes the
specification of program purposes intO the implementation process, where the choice
of tool can have an even more decisive impact.
The effectiveness of different tools also varies with the circumstances. Not just the
narure of the tool, but also the nature of the circumstances therefore must be considered
when making tool choices. One of the major tasks of the tools approach, in fact, is to
specify the circumstances under which particular tools are likeJy to be most effective.
The tool of contracting has great advantages, for example, where a competitive market
exists for the goods and services that government wants to buy. However this is often
,

not the case, so that the adoption of the contracting tool in such circumstances can
lead to great disappointments. Since other considerations are often involved in tool
choices, the new governance can hardly avoid such dilemmas. However, it can at least
darify the risks and point up the tradeoffs involved.

Efficiency
VVh.e.re effectiveness focuses exclusively on results, a second criterion-efficie.ncy­
balances results against costs. The most efficient tool may not be the most effective
one. Rather, it is the one that achieves the optimum balance between benefits and costs.
The costs that are relevant to a j udgment about the efficiency of a tool are not only
the ones that show up on the ledger of the government that authorizes the program,
however. The costs imposed on nongovernm ental institutions are also relevant, and
for some tools these are far more immense Regulation, for example, places heavy
· .

compliance costs on private b usinesses that never show up in the balance sheet of
gove rnment Indeed, with severe fiscal pressures on governments, there is a strong
incentive 10 utiliu tools that have precisdy this effect. This suggests the need for a
"double balance sbeet" to assess the efficiency of various lOols, one focused on the costs
10 government alone and one focused on the costs to other social actors as well.

&,uity
A third cruciaj criterion in terms of wltich the consequences of tools can be judged is
equity. The criterion of equity has two different meanings, however. The first of these
involves basic fairness-the distribution of benefits and costs more or Tess evenly
among aU illose eligible. A tool that facilitates the distribution of program benefits
evenly acroS$ the country thus can be considered equitable in this "fairness" sense.
However, equiry also has a different connotation relating to "redistribution," to
channeling benefits disproportionately to those wbo lack them. Achieving such redis­
tribution is, in fact, one of the principal rationales for public action. In this view,
 2. government exists in part te remedy past inequalities and ensure equal opportunity

THE. TooLS OF and access to all. Students of poliC}' thus distinguish befween distributive programs,
GOVERI'lMENT which essentially distribute benefits evenly among a class of recipients; and redi5triburive
programs, which tilt the benefits toward the disadvantaged.·' Some tools might be more
likely to serve such redistributive goals than others.

Manageabilil)!

10 addition to the classic economic criteria of effectiveness, efficiency, and equity, recent
research on program implementation suggem the importance of manageability, or
"impiementability," as an additional criterioo in terms of which to assess tools. ImpJe­
mentabili1:y refers to the ease or difficulty involved in operating programs. The more
complex and convoillted the tool, the more sC'parlltC' actors arC' involved, the more
difficult it is likely to be to manage. Some tools are more cumbersome to operate than
others. While they may promise great efficiency and effectiveness in theory, they are
Wllikely to deliver it in practiu because of tbe managerial difficulties they pose. It was
for this reason that Jeffrey Pressman and Aaron Wildavsky idenlified implementability
as the "first rule" of program design.63 Generally speaking, this presumably means
choosing sm
i pler more direct tools
, .

Legitimac)' and Policiro/ Fetlsibility

FinaUy, tool choices can also affect the political feasibility and perceived legitimacy of
public action. They do this, in the first instance, by helping to determine which actors,
and hence which interests, get to shape program implementation, and therefore wbich
are most likely to support or oppose program passage. Clearly, no maner what the
prospects for eff�riveness, a program that cannot win political support cannot make
headway.
Beyond this, tool choices can also affect broader public perceptions of the legitimacy
of public action. M we have seen, some approaches are considered more legitimate
than others in particular national settings regardless of their teclmical advantages.&"
Quite apart from such national stYles, the choice of tool can affect the perceived legit ­

imacy of public action in other ways as weU. For one thing. some tools I"r!ay facilitate
accountability for the exercise of public authoriry or the spending of public funds better
than others, a maner of some importance in a democratic society where such account ­

ability is highly valued So, too, tbe choice of tool can affect the exreOl to which the
public can perceive a link between the taxes they pay and the services they receive. 'Ole
more this link is attenuated or broken, the greater the degree of alienation between
government and citizens and the greater the risk to democratic participation.7l1 Tool
choices thus can affecl the overall sense of legitimacy that goYenunenl enjoys in the
eyes of citizens.

Key Tool Dimenjio1l5

I
d Armed with this set of criteria, it is possible to identify more precisely which tool
I
dimensions are Ukdy to be most important, and lherefore how best fa classify tools
for analytical purposes. Rather than focus on a single dimension that can work for all
purposes, however, the discussion above suggests the need for a range of dimensions
in terms of which tools can be compared and contrasted. Tools can differ from eaen
other along one dimension and be similar along others. Only in this way will it be
possible to clarify the full matrix of choices that policymakers face and the significant
tradeoffs that exist among them.
More specifi.cally, five key tool dimensions seem most likely to have implications for

"
.-

the kinds of (ons�uences identified above. These are nOl, of course, the only tool 25
dimensiom that might bC' imponanL Nevertheless, they usefully illustrate the analytical CH 1 ;
power thai the "new governance," and its roo\..\: framework. possess. il'/TR.ODlJCTlON

Degree of Coerciveness
Perbltps the most salieDt of these dimensions h.as to do with the nature of the activity
that a tool embodies. and particularly with the degree of coercion thaI it utiliu.s.
Essentially, this dimension measures the extenf
to which Q tool restrict! individual (If grOtcp bdlavior 'ox 1-2 Coercion
......... '\.0_
as opposed to merely rncouraging or di5Couraging it.
This coerciveness dimension is pro babl y the Coercion melUU(u the extent to which 1I 1001 restricu
most common basis for classifying tools in the lit­ individual or group behavior as oppowl to merdy
encouraging oc dheouraging iL
erature.'1 Economists in partic uJar consider this di·
OlC'nsion important since it essentially measures the
e>.1ent 10 which a tool involves a deviation from reliance on the ma rket as a mechanism
10 allocate resources and senle social roles. Such deviations ate commonly viewed by
economislS 15 inappropriate exa:pl where "market imperfections" make them imper­
ative.72
The coerciveness of lools is also of concern 10 politkal.Kientists. TIus is 50 because
coercion has implications not only (or Ihe operation of the market. but abo for the
operation of the political system, and especially for the preurvation of democracy. Of
particular concern is the degree of infringement on individual liberty that a tool entails.
In a political democracy, all such infringem�1S an� viewed with skepticism and al(
c:.xpect� to be undertaken only with clear popular aUfhority. As we bave sten, much
of the daUlc theory of public administration. with its stress on the distinction betwt'en
politics and adminis!]"8Iion. look shap e in response to this concern 10 root adminis­
lIative authority dearly in dWlocratic decisiorunaking. The more coercive tile (001, the
grealer the infringement 00 individual iberty,
l the grea.ter the potential threat to po­
litical legitimacy. aod therefore t he greater the burden of proof on those advoca ting
the progra.m embodying it.
Although aimosl all government action involves at least some degree of coercion.
there are considerable differences among tools in the extent to which they rely on it.
This is apparent in Table 1-6, \"hich groups the various tools of public action in terms
of the degree of coercion Ihey utilize. Thus:

At the low end of the coerciveness scale are lort Liability, tax expenditures, and
public informat.ion campaigns. All of the� essentially rely 00 the voluntary co­
ope ration of individuals and groups for their effects, although as Chapter 7 shows
even infonnation tools can involve considerable coercion if informatioo crosses
the border into indoctrination.

I n a. "medium" category aIe a variety of tools that deliver subsidies of various SOrts.
The leasl coercive of these are vouchers. which deliver subsidies direct1y to con­
swners and leave it to lhem to do (or not do) what the program is seeking 10
encourage. Somewhat more restrictive are grants-in-aid, loan guarantees, direct
loans. aad contracting. which lend to exact more require.ments in rerum for the
subsi dies they offer. On the oUler border of this category are mandatory label in g
and corrective fees and charges which impose potential burdens on those who fail
,

to comply. These fees are still in some �se voluntary. however, since the ciliun
is still p ermitted (0 engage in the penalized behavior but has to pay a fine or tax
on it.
 ;j-
, ,
f/l,
'
1\ .
I
,
· !li 26 Finally, in the "highly coercive" category are socia! and economic regulations.. both
j:�' THf. TOOLS OF
of which impo� formal limitations on activities CODsidered undesirable.
.. ...�
'i'} GOVER.;"MENT
Based on the implementation literature reviewed earlier, it seems reasonable to hy­
j pothesize mal, other things being equal, the more coercive the tool. the more effective

1'..
i"
"'�, it is likely to be, and the more likely to yield redistributive results, as sho....
'T1 in Table
1-6. These (onsequences flow from the dearer authority these tools give governments
ql� to act, the limited leeway they allow private actors to deviate from specified program

"'�
,}:
)
purposes, and the limited COSIS thai governments incur in operating them since much
of the burden is imposed on external actors. Because of [his, these tools are also more
'I '
,. '" likely to generaU politica! support among those most eager 10 engage government in
k a particular form of sodal action.
'.'{ These features may he.lp to explain why the consumer and environmental movements
"'
" :: ,
' of the 1970s in the United States insisted on command-and-control regulatOry arrange­
ments, even though most academic economists cautioned against the use of this tool.
t,. , After years of political struggle against often-powerfu1 entrenched interests, advocates
i,"'�l :, of protection typically wanted tools that provided the maximum certainty that the goals
�.'' . '
4
, �. they sought would actuaJJy be achieved. Less coercive tools, �en when backed by
"
�'i , ' sophisticated economic theories, were often not able to provide this assurance.
A.
'i" The problem. however, is that coercive instrumenls purchase these advantages 31 a
;'l,' .'
relatively high price, as Table }·6 also shows. For one thing, th�y often entail a loss of
h!
" , efficiency. for society 31 large if not for government. This has been a central theme of
Ii' ..
,
, " :. economic critiques of social regulation: that the apparent efficiency this tool enjoys
" , from the poinl of view of government is misleading since it focuses exclusively on the
, ,
I government'S coStS, which are trivial, and overlooks the far mor� substantial costs such
regulations impose on the private seciOr. Critics acgue, in faet, that these SOda] costs

I,
TABLE \-6 Policy Tools Grouped by Degree of Coerciveness
- ,.- • -

UKEiY IMPACt'S

.' Dtgrte J/1UMrmive LrgitimllCY/

�;,
. I
.' of CO(rcivtness Tool; Efjectiwmr$$ EfficiDICY Equity Manageability Political Support
i;

Tort liability
WW information Low Moderate Low Moderate High
Tax cxpeuditllres
i'"
,
Vouchers
Insurance
, Gnmts-in-aid
)
Govemmenl
corporations
',; Muiiwm Loan guarantee, Moderate High Moderate Mode.rate Moderate
:'!
Direct loans
Contracting
Labding
requirements
Corrective taxC$

Economic regulation
High High High/Low High Low High/Low
Social regulation
- _. ."•
. .-

• 7
:m likelv be higher than necessary under regu lation because by replacing market de­ 27
cisions �ith administrative ones regwation sUfIendeN the market's efficiencies. The CH I:
solution, economists like Charles Schultze therefore have argued, i nol improved reg·
s INTltODucnON
walOry management but a cbange in the basic 1001 being used: in particular. a shift to
1m coercive tools That utiliz.e markellike incentive� and thm make "public uS(: ofpriv31e
interesl. "7)
Coercive tools can also be more difficult to mannge since lhey impose on adminis­
uative age ncies the difficult job of keeping abreast of literally thousands of decisions
made by hundreds of private entities in widely disparate settiogs. ru Schult ze has put
it, under social regulation "{sl ocial intervention becomes a race between the ingenuity
of Ihe regulalee and me loophole closing of the regulator, with a continuing �ansion
in the volwne of regulations as the outcome."7�
Finally, because they restricl human freedom, coercive tools are presumptively sus­
ped in liberal political regimes and therefore are vulnerable to political attack. As the
political movemenls leading to the enactment of these lools subside, as they frequently
do, therefore, the agencies administering them often find themselves face-to-face with
hostile vested interests determined to uS(: the full panoply of legal protections available
to them to rein in publ ic authority. To avoid being totally hamstrung, agencies often
find it prudent to reach some modlL> viwndi with the affecled interests. The result is
the well-known phen omenon of «agency capture" by those it is s«king to control."

Diuctl1e.5S
While the degree of coerciveoess is by far the most common basis (or differentiating
policy IDols in the literature, i! is by no means the only possible basis. To the contrary.
the implementation literature of the 19705 and 19805 points OUI a ttention to another
dimension that may be equally, or more. important, as the discussion above has already
suggested. This dimensioD has to do with the naOlre of tire delivery rysrem thai a tool
utiliz.es, and particularly its degree of directness.
Directness measures the extent to which the entity authorizing. financing, or inau­
gurating a collective activity is islvolved in carrying it out. Un derlying this concept are
two crucial observations: first. that any effort 10 cope \'11th 3 public problem is really
made up of a number of separate activities; and second, that these different aClivities
D�d Dot be carried out by the same entity. Thus, for example, it is possible to distin­
guish between the financing of a public semce and its delivery. Moreover, each of these
tan be handled either publicly or privately. This creates a minimum of four possible
combination:;, as shown in Table 1-7: (1) public finance and public delivery; (2) public
finance and private delivery; (3) priv31e finance and public delivery; and (4) private
finance al)d private delivery. The first of these, depicted in Cell A in Table J -7, repre­
sents the stereotypical view of how government operates: government raises revenues
thro ugh taxes and uses them 10 support the delivery of services to citizens by a gOY·
ernment agency. !u we have seen, h owever. this tu.rns out not to be the most common
p�ttern at all, certainly not 3t the national level in the United States. For one thing,
eyen whell the public sector is invo lved in both finance and service delivery, it is often
nO! the same level of government thai performs both functions. Rather, the federal
government may raise some or most of the revenues, bUI it then often shifts them to
Slate or local governments to finance the actual delivery of the servic es. Thus, ull A
itself becomes subdivided into four subcells. Alternatively, the public sector-either
nationa1 Or local-can raise tbe revenues but mel) contra ct with the private sect or to
deliver the services (Cell B). 'vVhat is more, the private eooties involved can be either
for-profit or Ilonprofit firms. Finall)', any of tl1CSC delivery mechanisms can be con�
 28 TABLE t · ' Patterns of Public Problem
Solving
THE TOOLS OF
_-·"v-" ·.IL •
GoVERNMEl'IT
FINANe!!

" ...
Deli ery Public Privare
h'
"
,

Public
(I) National A C
(2) Statellocal
,I· i
!.
Private
( 1 ) Nonprofit B D
(2) For-profit
... _. • -

I m�cted to a private system of finance. Thus, for example; a public agency can charge! a

f
user fte for the services it provides, in which case the finance is private but the delivery
public (Cell C of Table 1-7). Ahernativdy, special tax advantages can be provided for
private purchases of services such as day care (Cell D of Table 1-7). All of these are
! forms of public action in the sense that they engage governmental authority, but each
uti.li.zts this authority in a different way and for Ii different p�rt of the process.
Even this does not exhaust the range of combinations that is possible, however, since
rnising revenues and providing services are hardly the only actions that public problem
solving can involve. Some tools-such as regulations-do not involve services or fi·
nances at all, but rather restrictions. In others. the services themselves are financial
(e.g., the provision of mortgage finance for housing purchase). Imposing charges, cre­
ating inducemeDts, providing information. delivering benefits-aU ofthese as weH can
be used to promote public purposes. As a result, an extraordinary range of possibilities
exists for combining public and private institutions in public problem solving.
Given these possibilities, it should be dear that "directness" is a matter of degree
and that different tools can vary greatly in the degree of directness they embody. Gen­
erally spc'aking, me more the various functions involved in the opelaLioll of a public
activity arc carried out by the same institution, the more direct the tool. Thus, a direct
tool is one in which authoriz;ation, funding, andlor delivery are all carried out by
essentially the same governmental entity. Indirect tools parcel these vario\?-S functions
om to various other parties-semiaulonomOtfs agencies. oth�r levels of government.
commWlity groups, nonprofit organizations, commercial banks, hospitals, and others.
The more extensively fundions ate performed by "third parties," the more organiu­
tionally distinct and autonomous these third parties are from the authorizing body,
and the greater the discretion the third parties enjoy in the conduct of their functions.
the more ndirect
i the too!' Thus. for example, tax expendituc�s are typically more
indirect than contradS since they leave more discretion in the hands of citizens; how­
ever, grants are more indirect than tax e::"'Penditures because they surrender authority
to other sovereign units of government, and these typically have greater powers to
Rsisr. AU three of these are more indicect than service provision by government agen­
cies, bowever.16
Table 1-8 illustrates this point by ranking tools in terms of their relative degree of
directness. Thus, at the low end of the directness continuum are lort liability and grants,
while at the high end are direct goverruuent service provision, government corpora­
rions. and inform;uion campaigns that governments conduct themselves In betwun .

"
i
'�
; -------------------------------
 ;He tax expenditures (which leave considerable choice to ra::ipients but nevertheless arc 29
administered by the enacting governmenl), contracts, and, in the American context, CH I:
federal social regulations that make extensive use of state and local governments, It-.'1O
1t DUCTfON
Af, the grouping of tools here suggests, there is
some overlap between the degree of coerciveness 80X \-3 Directlless
and the degree of directness of a tool. This is so -
.
- --...
- .
---
--.
"---
-
.,
.---.
----
-
-�
-,

because the more coercive tools arc difficu lt to Dir«ll1ess measures (he extent to which the entity
implement through indirect delivery systems. allthoriting, financing, or inaugurating a public activity
However, this overlap s
i far from complete. For is involye<! in carrying i t OUI. A direct tool is ODe in

example, infonnation campaigns, one of the least which authorization, fundins, and execution are aU
carried out by e$Sentially the same entity.
coercive tools, are typically operated directly while
social regulation, the most coercive, often leave
ample opportunity for involvement by lower levels of government. Clearly, these two
tool dimensions tap different fa�ts of too! operations.
In classical public administration, a distinction between direct and indirect tools
makes little sen se since it is taken for granted that a publich- authorized and funded
program should be carried out by a duly constiruted, and staffed, public agency. Yet,
as we have seen, much of the growth of government action aver the last half century,
especiaUy in the United SlateS, has taken place through indirect tools- such as grants,
loan guarantees, tax expenditures. vouchers, and indirect regulation. The result, as
noted earlier, is an elaborate system of Mthird _party government" that vests a substantial
ponion of the discretionary authority over the spending of public funds and the opera­
tion of public programs in tlle hands of a variety of third-pany partners. Indeed, many
tools that operate directly in other countries take a more indirect form in the

HBLE 1-8 PolifY Tools Grouped by Degree of Directness

- � - ��__
____
__•
••
____
.. __
..__
__. �
'
....
..
. . . _WC2==�

Legitimacy/
Effemvenes... Efficiency Equity Managwbility Polirical Suppan

Tort liability
Grants
Loan guarantees
Low High Low Low High
Goverllmcnt-sponsortd
enterprises
Voucher$

Tax e:q>enditures
Contracting
Social regulation
Mediulri Labeling Low!Me-d. Medium Low High
requirements
Corrective laxes!
charges

Insurance
Di.rectlo;ms
Economic regulatioD
High Mtdium High High Low
Public Information
Government corporlllions
Dirtct government
----�
... ,. -- � ,-
.
- -
-
••-
. --------------------,
-
. ----
•.
•_
-
-
 ':" "
:- 1
1. , 1

I ii ,
; �: I:i
I I'"" 30 American context. Thus, for example, many European countries rely on public enter­
prise (0 bandJe the natural monopolies that often exist in public utility industries (e.g.,
THE TOOJ..5 OF
I "1'1'1:, GOVERNMENT electricity, telephones), whereas the United States tends to leave these businesses in

.
", ' I'
I !I,'
', .
private hands and subject them to economic reguJation. Tbe United States has also

: i ,.,' used morc indirect approaches in its social regulatory programs in such areas as the
en�ironment, worker safety, and health. While establisliliig national standards: these
"d l'! .
I
',iii programs leave much of the responsibility for implementation in the hands of state
and local governments and those being regulated.
" One reason for the popularity of third-party government appears to � the polirical
I 'I , � IIdvantages that indirect tools enjoy. In particular, indirect (ools provide important
I : ,j l opportunities to cut affected inlerests into a "piece of the actjon� when government
. \",;",, , programs threaten to infringe on their fields. The more fragmented political power is
'" in a country and the more contrOversial the issue, therefore, the more likely it will be
i 'II ' : that indirect devices are used. Thos, for example, in recent America.n experience:
':I t. !
I'� By usiog a cost-based reimbursement "voucher" whose proceeds flowed to exi�ting
hospitals, it was possibk to defuse the medical community's opposition to the
," creation of the federal Medicare program in the 196Os;

By relying on Joan guarantees instead of direct loans, it was possible to neutralize

I ,
commercial bank opposition to federal involvement in home mortgage lending in
"
I !.he 1930s; and

, By using grants and purchase-of-service contracts, it was possible to enlist research

! universities to mpport the expansion of federal involvement in scientific research.
aDd private nonprofit organizations to support. the expansion of federal involve­
,
r ment in social services for the poor.

Federal constitutional structures also contribute importantly to the widespread use

of indirect forms of 3c(ion. For much of American history, for example, the federal
government's authority \0 act on 3 wide range of domestic policy issues has been
contested thanks to constitutional provisions Umiting the federal role and a poUtical
StrUC[UIe and system of representation firmly anchored at !he state and local levels?'
Use of indireCt [ools-panicularly the grant-in·aid-has thus often been a political
and constitutional prerequisite for any federal involvement. State and local officials
have frequently resisted federal involvement unless that involvement is channeled
through them, and a meaningful degret: of discretion is left to them in the definition
of the policy substance. Interests opposed to federal involvement have often used their
influence at the state and local level to insist on a significant state aDd local role as a
way to retain some degree of influence over the implementation of policies with which
they disagree. Use of indirect tools thus becomes the basis for political compromise,
shifting the battle over the definition of policy from the enactment stage to the imple­
mentation stage where state and local officials, and the interests that are more powerful
at the state and local level, can play a more meaningful role. The use of indirect tools
for federal environmental and welfare policy is probably amibutable in substantial part
I' to this factor. I'
These political advantages ofindirect tools are hardly Wlique to the American con­
text, however. Rdiance on indirect instruments of public action is increasingly common
in other countries as wel], driven by historical traditions of"subsidiariry,"19 b}' a growing
diversification of social and political power, by dee�ning doubts about the capabilities
of state actiou alone to cope with complex social and economic problems, and by a
resulting inability of governments to secure sufficient authority to act on their own.iII
The politica! advantages of indirect lOols are not their onJy benefits, however. At
least three other benefits are often claimed for them:
 First, indirect IDOls can inject :I useful degree of compttitioo inro the provision of 31
public servlces, breaking the monopoly o f governmental agencies and thereby po- CH 1 :
tentiall)' improving �ervice quality and "customer orieotatiOD." jNTRODUCT10N

Second, indirect tools can provide access to talents and resources that are desper·
ately needed to cope with complex public problems, but that public agencies may
not command. These include technic.al talents (e.g university researchers. private
.•

servlce providers. loan officers) as well as financial and physical resources (existing
facilities, charitable contributions). lndirect tools therefore can e>..."tend the reach
of public agencies, making it possible for them to avoid costly start-up problems
and maximizing the energies that can be brought to bear on public problems.
Finally, indirect tools offer a greater degree of flexibility, making it easier for gov-
ernment to experimen t. to change course when needed, and thus to remain re-
sponsive to new needs. This s i so because the au thorizing government does not
have to create the entire administrative structure to operate an initiative.

While indirect tools may have important political and opuatiooaJ advantages., how­
ever, they also carry with them offsetting liabilities. For one trung, as Table 1-8 ruso
notes, they can be far less effective and far more difficult to n\anagc. This certainly
seems to be one of the central conclusions of the implementation literature of the 1970s
and 19805. In his 1979 study of the implem entation of thJee human service programs
in Massachusetts, for example, Stuart Chase found that the most serious implemen­
tation problem was the presence "of some player or players in the implementation
process whom the program manager does not cootrol but whose cooperation or assis­
tance is required.�·J Jeffrey Pressman and Aaron Wildavsky similarly found that even
clear specHic.ation of goals and general concurrenu on desired outcomes are no guar­
alllee of success when multiple actors are involved in executing a program. The sheer
mechanics of securing agreement at each stage of the process can still inject debilitating
delays. No wonder "more direct means for accom plishing . . . desired ends" is their
recommended "first rule ill program design ...·l
Experience with indirect tools of public action thus has ironicaUy provided new
reason to value bureaucracy. "The costs of bureaucracy-a preference for procedure
over purpo� or seeking the lowest conunon denominator-may emerge in a differen t
light," Pressman and Wildavsky thus note, "when they are viewed as part of the price
paid for predictability of agreement over time among diverse participants."" By inter­
nalizing transactions, minimizing the legruisms involved in complex contractuaJ ne­
gotiations with external actors. and providing a more stable framework for bargaining,
direct government offers distinct advantages for accomplishing complex tasks.M
These conclusiollS find considerable support, moreove r, in the new economic the­
ories of organization. According to these theories, the "principal-agent:' problems that
inevitably arise within organizations are even more severe in cross-organizational re­
lationships. This is so because having all of the factors of production in a single entity
. creates certain advantages:��
It permits a Olore creative reward structure to induce ageots to pursue the prin­
ci pal's objectives.

11 belps convey the expectation that aU involved should work to a common pur­
pose.

l! may help diminish the losses associated with breakdO\vns and deJays in bar­
gaioing.

When multiple organizations are involved in a given task, the ch ances increase that the
interests and va1ues of the principal and the agents will diverge. jhe more dispersed
 32 the authority, therefore, and the less the coincidence of interests and perspectives be­

THE Toou; or
tween principals and agents, the greater the risk of goaJ displacement and principal­
GoVERNMENT agent difficulties. Not just the e;..."tent of indirectness but also the type of third-party
partner a tool engages thus can affect the extent 10 which public purposes are achieved.
Public-sector managers of human service programs thus have traditionally shown a
preference for nonprofll contractors over (or-profit ones when service contracting has
been employed on the grounds that nonprofits are more likdy to marC' the objectives
of the puhlic sector. \IIlhere principa.ls and agents lack a share<! set of values Or world­
, . views, the task of ensuring that the principal's objectives are being served grows more
I I complex and more problematic.
Not only does the direclIless of tools have implicatiODS for the overall effectiveness
of programs, it also may have particular implications for their ability to promote equity
and redistribution goals. This is especially the cast" where the partners broUghf into the
operation of a public program by a tool Jack incentives to achieve these equity goals.
Yet, this is often the case with private businesses. As management theorist Regina
Herzlinger has pointed out, "when resources are given to providers who in turn have
the discretion to allocate the goods and services they produce . . . [the] providers \�ill
try to attract cotlsumers who will improve their measurable performance:'t{; In the
process, however, redistributive goals may be sacrificed as producers engage in "cream­
ing" 10 anracr berter-off clients. Whik public agencies themselves are hardjy imrmUle I

I
from these pressures, the risks appear greater with indirect tools.
Finally, while enjoying important inunediate political 'advantages, indirect tools also
suffer from certain longer-term political limitations. In partkular, they weaken the
perceived link between citizens and government by channdi.ng services financed by
public revenues to recipienls through private intermediaries or other levels of govern­
ment. In the process, the connection between the taxes citiz.ens pay and the services
they receive can become dangerously anenuated.11
in short, despite their advantages, indirect tools are especially difficult to manage.
Far from easing the public managemept problem. as is often supposed, they signifi­
cantly complicate it instead.

Automaticity
A third key dimension in terms of wbich policy tools can be differentiated is the Jevel
of automaticity they embody. AUlomaticity measures the extenl l0 which a Tool utilizes
an existing administrative structure for its operations rather than creating its own
special 3druinistrative apparatus.
Tools that utilize the market, (or example, are
tax I."
Automaticity highly automatic. 'flUs would include corrective fees
-
.
- --- - - - - --
,•
•
••
- ----. '._, and charges or the "tradable permit" system au-
Automaticity measures the e:l."tcnt to which a tool thorized by the 1990 Clean Air Act Amendments."
ulilu.es an e:.Osting adminislrativc structure 10 produce Vouchers are aDother example of a market-based
its effect rather than having to create its own special tool: by placing purchasing power in the hands of
admiolSlrauve apparatus..
program beneficiaries ra ther than the institutions
that serve them, vouchers equip these beneficiaries
to make use of the mark�f rather than an administrative mechanism to select the
quantity and quality of services they will receive.
The market s
i Dot the only existing system that can be mobilized to carry out public
purposes, however. Others include the tax system, the private credit system, the court
system, and, to a les�r extent, the networks oflcxal governments and private, nonprofit
agencies. Where these existing systems are operational, important options exist for
structuring pubUc interventions in ways that build on them rather than having to

- ---· · · ------____ 1IiI

 '... - � -

establish 5('par.lIe administrative Structures. Therefore, a certain overlap exists between 33

the automaticity dimension and the directness dimension of tools. However, not all Of l:
automatic tools are indirect, and not aU indirect tools are automatic. For example, tax INTRODUCI10N
eAl'enditures are automatic but not wholly indirect, whereas contracting is indirect but
far from wholly automatic.
Table 1-9 belo....' arranges "uious 100is of public action in terms of their relianu on
automatic, Donadmininered processes. N this table shows, tools embodying fees and
charges. vouchers, or tax expenditures are relatively automanc. as is the use of the
existiJ'lg tort law systeJ!l to conttol environmental damage or ensure workplace sa(ery.
By contrast, social regulation. direct servi« programs, and government information
campaigns are at the low end of the 3U1omaticity spectrum. In between are tools such
as grants and contracting, which have some automatic features but operate within

I
essenuaUy administered systems.
U.ke the other tool dimensions we have examined, there is reason to believe thai the
automaticiry dimension has si gnificant implications for the performance of programs.
Indeed, in a 1972 book on the preconditions of public program success, economist
Robert Levine iden tifies this dimension as the single most important det erminan t of
public program success. Programs are most likdy to fall, Levine argued, when they rely
00 "highly ad.m.inistued systems." Instead, more reliance should be placed on "market ­
like and bargaining systems that combine the workable features of decentralization,
self.administration, personal «anomie or p oli tical motivation, and the gross applica­
tion of public policy rather than systems adntinistered in detail by public officials to
private clienteles according [0 plans laid out in detail by public planners,""
Economist Charles Schullte reached a similar conclusion in bis pioneering 1977
analysis of regulatory program•• criticizing prevailing regulatory approaches as inher­
ently inefficient because they utilize command and control techniques rather than re-

T....Ll 1 - 9 Policy Tools Grouped by Degree ofAutomaticity

---"--- "'-,--

UICE.l.Y IMPACTS

Economic regulation
Social. regulation
Direct government
Government corporations High Low High Moduate/Ulw High
Information
Direct loans
Insurana
-- ---.::::
:
Gnnu
Conlnlcting
Medium Loan guaTaJltee5 Modcnte High Modente Low Moderate
Labeling
requirement$

Vouchcu
Tax expenditures
High Corrective taxes! Low High Moderate/Low HigbJModerate Moderate
charges
Ton liability
.... = en •'_n
_ ..
..
'"_:;
••e •
 - -- ----- ;::z= -- •

,
i
34 lying on the automatic mechanisms of we marker to promote public objectives . lnsread
THE TooLS OF of prescribing what antipollution devices polluters must install to clear the nation 's
GOV'£R.'IMEl<.T rivers, for example, Schultze recofTUllends making "public use of priv31e interes'" by
imposing effluent charges that would give polluters an economic inctmive to 6nd the
lowest-cost way to meet environmental goak90
Because they make use of existiclg mechanisms, such as the market, automatic [ools
can also he expected to be more manQgeabl�. In a sense, they reduce rhe amount of
public managemenl that is necessary. substituting for it the comrol systems already
built inlO these existing systems-the market, the tax system, the court system, or the
private banking system.
For all their appeal, however, automatic tools have proved in practice to (aU sigoifi·
cantly shan of their promise. For one thing, there is reason to question how iffectil/C
they are. The great advantage of automatic tools is that they make it possible to enlist
existing systems in the pursuit of new objectives. However. this advantage is also the
source of serious problems since these systems typically have their own objectives and
dynamics. There is always a question. therefore. whether the public objectives will
redirect the existing system or the existing system'wiU co�opt. and distort, the public
objectives. After all, it is the failure of the I!X:isting systems that often necessitates public
involvement in the first place. For example, the demands ('Or environmental and safet),
regulati on grew directly out of disappoinunents with the effectiveness of tort law and
Ule court system to handle consumer and environmental problems.
The effectiveness of automatic tools thus depends on identifying the incentives that
can turn existing systems to desired public purposes. Ln practice this has proved to be
more difficult than often assumed. Economist Robert Levine, for example, acknowl­
edged "the hard barrier of our lack of knowledge about what inceotives work for
officials oflocal government. . . . "" The incentive structures offor-profit businesses are
presumably easier to fathom, but even here complicatiolls arise. Contracting, for ex­
ample, is assumed to be a fairly automatic tool because of its reliance Oil the private
market. However. this assumes that a competitive market actually exists for the goods
and services needed to address public problems. In fact, however, this critical prereq­
uisire is often lacking in government rontracring since government is often in the
position of purchasing goods and services that are Dot generally available on the opeo
market (e.g., military aircraft) in markets where the number of suppliers is highly
constricted. Complicating matters further s
i the fact that the desired outputs in public
programs are often difficult to specify and then to achieve (e.g., getting the most dis­
advamaged welfare recipients into permanent jobs). As manageme nt specialist Regina
Herzlinger has Doted, this makes it ex:tremely difficult to "structurlel enforceable con­
tracts with the private sector" and to exercise the control function that such contracts
require.'"
Similar problems have arisen with voucher programs. The effectiveness of vouchers
depends critically on the responsiveness of markets to the kind of demand that vouch er
recip ients will make and on the ability of voucher recipients to make wise decisions.
Both of these are often probl�matic, however, making vouchers potetitiaUy a source of
wiodfall profits for providers without making recipients signiiicantly bettet off.
Perhaps because of these problems, automatic tools also have political problems. On
the one hand. their reliance on existing structures lends them a certain political legit.
imacy. However. because th ey enlist institutions and p rocesses that have somewhat
different objectives, such tools can rarely attract the enthusiastic support of those push­
ing for a policy initiative. Environmental advocates thus have been reJuctant to embrace
the concept of tradable pollution permits for fear that this would legitimize the right
to pollute and create "hot spots" of heavy pollutioll in less desirable neighborhoods.
 Consumer advocates have similarly resisted the idea of weighing the value of a hwnan 35
life against the cost of protection in structuring approaches to workplace or consumer eH I:
safety Therdore. despite their claims to greater efficiency, automatic tools have ofteo
. INnODucnON
lacked a political constituency.
Finally, experience with automatic tools has raised some serious questions about
how easy they are to manage. Seemingly auto matic tools turn out to be far more
cumbersome to administer than advocates assume. Tradable permitting schemes, for
example, still require the establishment of initial threshold pollution leve.ls, the esti ­

mation of pollutioD charges that are consistent with prevailing technology aod industry
incentive structures, the collection of detailed information on actual poll ution levels,
and the maintenance and operation of a market in pollution rights." N. with the other
tool dimensions, therefore, this one too involves difficult uadeoffs in terms of the
criteria outlined earlier.

Visibility
The fourth rool dimension that seems likely to be important is the degree of visibility
a tool exhibits in the DormaJ policy review processes panicululy the budget process.
,

Obviously, this dimension is highly sensitive to the structure of the.$(" processes. Thus,
for example, countries that do not utilize a capital budget, like the United States, tend
to put direCt lending programs 8t a competitive disadvan tage by requiring that the full
vaJue of a loan show up on the operaring budget as an expenditure the year in which
the loaD is made.
Until chaoges wert made n
i 1990, this gave a rea.!
advantage to loan guarantee programs over direct .0 .. 1·5 Visibility
lending programs since the value o( loan guar�- •
•
- ---- ----------..;
--­

tets shows up on the budget only if and when they Visibility measures the extent 10 wh.ich Ibe resources
go into default Similarly, until the 1970$ in the devoted 10 a tool lOOW up in the nonna! government
United States no official record was kept of tax ex­ budgeting and policy review proccs.ses.
penditures. making them largely im;sible in the ;)0-
nua1 budget process." Not until the 19905, mo reover, were such tax eJqXnditures con·
sidered in the normal budget decisionmak.i.ng process.
While the visibility of tools may be affected by the accounting practices in place,
however, there arc still some general srructwaJ features of tools that affect their sWlding
along this dimension Table 1-10 thus offen a tentative grouping of tools in terms of
.

their degree of visibility. A5 shown there, insurance and regulatory lools are still rela ­

tively invisible, whereas direct government, grants, contracts, and vouchers tend to be
more visible. Loan guarantees and lax expenditures are examplts of lools that were
once largely invisible in normal budget processes in the Uniled Stales but have become
more visible in recent years as a result of accounting changes designed to bring them
into bener view. Similar changes have been under way for more than a decade to
increase the visibility of social regulatory programs by requiring economic impact anal·
yses before regulations go into effect.
Visibility has perhaps its greatest impact in the political realm. At a time of budgetary
stringency invisibility is a tremendous political asset. invisible tools therefore are tbe
,

easiest 10 pass. This may explain why regulation, loan guarantees, and tax subsidies
grew so massively in the 1970s and 19805. Although different in many respects all of ,

these tools shared a low level of visibility in the normal budgetary process. Tn the case
of loan guarantees, for example, until p assage of new credit budgeting procedures in
1990, only the projected losses from loan guarantee defaults wert carried on govern­
ment budgets, while the face value of the con tingent liabilities were relegllted to a spe<:iru
annex. A similar procedure is used with insurllnce programs. Ia the case of regulation,

hr
 ,
,

36

THE TOOlS OF
only th� direct cost of the regulatory agency personnel show
budget, whereas the indirect costs imposed all
UP
P in th e
b usinesses and h� �" �
:; �:���I �;;;�
I a ,re
�
' '::

GOVERNMI!NT invisible. Finally. in the case of tax expenditures, until the adoption of the Budget
Accounting Act in 1974, these weTe largely invisible as weU in the 'budget process,

it was until the early 1990s that lawmakers wefe required to take explicit '''",unt:
not �
of sucb tax expenditures in making annual budget decisions.
This dimension may also explain why corrective fees and charges have
limited head'Wo!.Y as vehicles for environmental control despite the advantages c:
mad"'I:��:m
for them as effic.ient mechanisms of public action. Unlike tax expenditures, which
essentially in�sible, corrective taxes and fees are highly visible and therefore huder
enact,
i visible toots so anractive politically, however, makes
The very kature that mak;es n
them problematic along other dimensions. Most obviously, the less visible the tool, the '
more difficult it is to hold accountable. This can have implications for the efficiency d
'"
p rograms embodying this tooJ. One of the centraJ criticisms of regulatory p"'go·",,, . .

for example, is that by keeping their true costs hidden, they impose burdens on
economy {hat are far greater than are needed to accomplish their purpose. Sunil,,,I,,,
tax e:..-penditures are sometimes accused of delivering windfall gains to taxpayers
would engage in a particular activity even io the absence of the subsidy.
embodying [ax subsidies therefore roay be highly inefficient, paying
behavior that would have occurred anyway. This same concern applies to .
programs. Far from preventing activities that entail risk-such as locating houses in
flood plains-insurance programs may inadvertently encourage them. However, their

TULE \.10 Policy Tools Grouped I:ry Degree of Visibility

- ...
. ... -
I.IKELY IMPACTS

Degree IIlustTative
(If Visibility Tools Effecrivenw Effic;ency Equity Manageability
Economic
regulation
Social
regulation
Low N/A Low Low Low High
Labeling
requirements
InsuTanc�

:\
Tart liability

Contracting
Information
I Medlllm camp3igru N/A Moderate Moderate Moderat� Moderate
Loan guarantees
Tax expenditures

Direct government
GOvernment corporation$
Grants-in-aid
High D irect loans N/A High High Low Low
Vouchers
Corrective :n..es/
c ha rges
-- --
 invisibility k�tp$ the inefficiencies of th� tools from being recogniud and 37
CH 1 :
of �se IIcwuntability problems. those opposed to public spending lend 1 0 JNTRODUC'rJQN
use of invisible IDols. On the other hand, those on the receiving end of public
naturally prefer to have their benefits delivered in the least visible form. What
in practice is that the StIonger the constituency, the leSS visible the 1001 it
10 be able 10 use'for any beoefits il reuives. This may explain why low-income
C\";lfa,, recipients receive their benefits througb highly visible grams�in-ajd. whereaS"

"lddle-class homeowners receive theirs through far less visible tax expenditures.
m.
i plications for the atent Ie which they are
ftc visibility of lools may also have m
equity goals because of the legitimacy attached to equity goals in tbe
,, arena. Therefore, the more visible the tool a program uses, the more likely the
�;
�;�
��
will be to serve redistributive goals. Conversely, the more special subgroups
';j
. �f the. population, such as oil-well owners or Jarge investors, are being targeted for
.-�'''''' benefilS, the more aftJ'active it will be to use less visible tools.
)
, ., .�

PROM ANALYTICS TO A CT I O N :
R P. $ O L V I N G THE PARADOX
OF THIRD·PARTY G OVERNMENT

The four dimensions identified above hardly exhaust the bases for dassifyicg different
of public action and analyzing their effeas. Further fruitful distinctions can be
ji,'�;""! for example, between tools that de.liver their benefits in the form of casb versus
deliver them "in kind'�; and behVeen those that operate through producers
those that deliver their �e.fits directly to coosumers.'" What is more. at this stage
,
the relationships between tool dimensions and tool consequences are more
",iri 'fh, Dature of plausible hypotheses than proven facts.
with the5� caveats, however, it should be clear thllt the "new governancen
;;S�I;'o.d', and the tools framework on which it rests, has considerable analytic power
a SOUfU' of insights uno the challenges of public problem solving in the era of thi.rd·
't:���:.���,�:7;:: Perhaps most fundamentally. the discussion has pointed up a critical
seems to characteriz.e contemporary efforts to respond 10 public problems.
t.�
\I;:���;:..�
paradox, very simply, is this: policymakers seem to be under increasing political
to $eltct those tools ofpublic action fhat are the mOlt difficult to mannge and thl!
to keep focused on their public objectives.
specifically, a variety of factors-the growing fragmentation ofp olitical power.
(he increased complexity of public problems, th� recent skepticism of government, the
with efficiency as the major criterion for public action-have put a
on tools that are indirect, invisible. and automatic. Such (ools have the ad·
of defusing political opposition to governmental action, recruiting new talents
to the tasks of public problem solving, and avoiding the eo.largemeo.t of
sector. At the same time. however, they have the disadvantage of vastly
the tasks of pubic
l management and risking the subvenion of public
. In a sense, we seem caught in a vicious circle n
i which disappointment with
acnoD yields forms of such action that seem most likely to further disappoint.
l1le future of collective efforts to respond to public problems will remain
unless this paradox can be resolved.
this to be pO.!isiblt. however, it will be necessary to move beyond slogans and
th� three critical chall�nges associated with the rise of third-parry gO\'ernment:
 38 The Management Challenge
THE TOOLS OF
The first of these is the manage ment challenge. Contrary to the hopeful assumptions
GoVERNMENT
of some, t.h.ird-party government poses immense management chaUenges , pl";rhaps far
more immense than those posed by lraditionaJ public administration. With power
dispersed and munerous semiautonomous entitles involved in the operation of publk
programs even straightfol"\\ ard tasks become difficult. Indirect tools require advanced
, '

planning of far more operational de tails thah is the case ....,th

. more direct tools. Marten
that couJd be" dealt with ioteroaUy on an ad hoc basis in direCi government have to be
.settled
in advance through legally binding ccnoacts uncler third-party government."
"

Similarly, incentives have to be devised sufficient to induce' des ired behavior but not
so substantial as to yield windfall gains; concurrence has (0 be secured at numerous
poims in complex decision chains; and disparate organizations have to be forged into
,
effective networks capable of integrated action. Each of these tasks requites not only
II I e."ttensive programmatic knowledge, but also considerable diplomatic skill as well as
detailed knowledge of the operational parameters of the differen t too!s and the internal
dynamics of the eotities that the tool engages. Also necessary is a sophisticated appre.
ciation of the context in which the tool is be.ing deployed and bow this compares to
the conditions required for the tool to function optimally.

The Accountability Challenge

Side�by-side with this management chaUenge is the accountabiliry challenge that third­
party government poses. As noted, many of the newer tools of public action vest sub­
stantial discretionary authority in entities other than those with u1tirnate responsibility
for the results. What is more, these other entities have their own autonomous sources
of authority that allow them to operate with considerable independence of the au­
thori.ting body: they include sovereign state and local governments, private commercial
banks, indeiXndent nonprofit organiiations, profit-seeking companies, and UJl.iveui­
ties. hospitals with powerful governing boards. Each of these enters its relationship with
governmental authorities on irs own terms, with its own expectations, objectives. and
bottom Une. What is more, as we hav.e seen, the choice afthe instrument that structures
I ,
these relationships is often dictated as much by poUtic.1l considerations as by the ap­
propriateness of the instrument for the purpose at hand. Under these circumstances,
classical notions of democratic 2ccounrabiJjty may need to be loosened and more plu­
ralistic conceptions deveJoped. However, this will require e}..'tensive education of aU
involved, new decisionmaking procedures. and new attitudes.

Tht ugitimaey Challengt

Finally, and perhaps most significantly for ail its political appeal third-parry government
,

roay ultimately pose even more serious challenges to popuJar support ofgovernmentthan

' .
did the bureaucratic m o del before it. Fundamentally, third-party government threatens
. .
to fray the link berween citiuns and the services they rec.eive in return for the taxes
they pay. rt does so by vesting much of the responsibility for delivering these services
in the hands of instiwoons other Ihan those that voted the programs and raised the
revenues for them. Under these circumstances, it is oot surprising that citizens might
i taxes are going and what they receive in return.
btgin to wonder where ther
 OB JECT1VES O F THIS BOOK 39

C11 1:
'''P''' of this book is to address th�se chaJJ�nges and thus help to r�soJ\'e th� INT1tODUCTION
P
that now confronts public problem solving. To do w, it seeks to develop three
��-.s ol'lu,o,,,,,dS' that ate critical to the "new governance" that is now oeeded:
First, toof knowledgt., that s
i . knowledge about the operating characteristics of the
differcnl tools, about the players they engage, and about how they strucrur� the play;
Second. d£Sig» knowledgt. that is. knowledge about how to match tools to the
probkrns being addressed in light of the objectives being sought and the political
circwnstAnces that exist; and
Third, operariNg knowledge, that is, knowledge about how best to operate the new
lnstruments [0 achieve these objectives in the most effective fashion .
. ,

:. :Structlm: of tile Presentation

TQ do this. this book is divided into three broad sections:
)Ovtntiew
In the lUst place, this introduction and a subsequent concluding chapter 8rc designed
to put the "ne'" govemanc�" approacb n i to perspective, to identify its central features,
'- and io explain bow it relates to other approaches to public problem solving.

: The hean of the book consists of 3 s�ries of chaplers focusing on patricular tools of
.
,

action now in widespread use, both in the Uniled Stales arid around the world.
fifteen such tools are examined in depth here. As noted in Table I - I I below,
direct tools such as direct governmenl service provision, goverrunent
direct loans, economic regulatiou, and information campaigns; as well as
•

tools RIch as grants. contracts, tax el,:penrutures, loan guvan tees, insurance,
regulation, \'ouchers, fees and charges. government-sponsored enterprises, and
law.

T.o..B L� 1 · 1 1 Tools of Govermneflt Action Covered

ill This Book

Direct Tools Indirect ToolJ

Direct government Social. regulation

Government corporations ContracLing

Economic regulation Loan guar�tees

Public information Gnnts

Direct loans Tax npenditures

Fe� and eharges
In.)uranct
Tort law
Vouchers
Government·.!pOnsored ell1erprises
-
,.
,

40 "For each such tool. the discussion below offers a detailed analysis prepared by a
leading authority and focusing on a common set of lopic.s. Thest lopics include:
THE ToOLS Of
GOV6RNMtNT The defining fearures of the tool, how the too) compares to others in terms of the
key fool dimensions identified above (coerciveness. directness. automaticity. aud
visibility), and what major design [Mrures and resulting variants of the tool exi.>t;
The atent and pattern o/rool use, including recent tIends, both in the United States
and e!stwhere;

The mechallics of tool operations, that is, the tasks wat the tool entails, the actors
it engages, and the roles these actors are typically called on to play;

The dynamics of tool selection, including the circumstances for which the tool- is
most appropriate and the political considerations that affect whether it is likely to
be selected;

The majcr mallagement challenges the tool poses and the way they can be handled;
,nd

The overall advantages and disadvantages of the tool for various purposes.

The result is II more comprehensive and thorough body of i.nfonnatioll on the major
tools of governmwt action than has heretofore been available, presented in a readable
format. aod designed to be accessible [0 sc.holars and practitioners alike.

Crosscurt1ng Chapters

jn addition to the overview material and the individual 1001 chapten. this book also
indudes a set of chapters examining the crucial crosscutting issues that the proliferation
of new tools of public action and the growth of lhird�paIty government have posed.
The.se include:
The special managemenr chaUenga of indirect government;

The problem of co.!t accounti:lg in third·party arrangeroents. where fixed costs have
to be allocated among mulliple activities;

The mOfe genera! accountability challenge that indirect government poses and the
ways it can be addressed;

The politics of 1001 choice;

The impact of third-parry government 00 democratic governance and citizen at�

rachment to the political system; and

The international experience. with aJteroative tools of public action_

Tools Workbooks
Finally, to supplement the discussion here, a series of Workbooks has been prepared on
the major tools. These workbooks contain documentary materials that help illustrate
bow particular tools operate. Each focuses on a particular program embodying a rool
and includ es materials such as the follo�g.:

The basic authoriring language for the program

Key facets of the legislative history surroWlding the program

The regulations issued to implement the program

Key program management documents (e.g., sample Requests fOf Proposals, pro­
posal rating sheets)

Study questions to direct attention 10 key decisions that had to � made in struc­
turing the tool for U� in the program
 Access 10 this workbook maleriaJ is avaiJable through the Internet at bttp:/lwww. 41
jhu.edu/-ccss/toolsworkbooks. CJi l:
Il'n"RODUCTION

VII. CONCLUSION

A Dew e.ra of public problem solving has dawoed in the United States and many olher
pans of the world. Instead of rdying exclusively on government to solve public prob.
iems, a host of other aCiOrs are being mobilized as weU. sometimes on their own
initiative, but often in complex partnerships with the stllte. In this new setting, tradi­
tional notions of public and private responsibilities are being turned on thei.r heads
and traditional conceptions of public administration rendered largely obsolete.
To cope with this new rea1ity, a new paradigm, a new conceplUalilation, is needed.
one that acknowledges the complex networks of interaction that now characterize our
efrons to deal with public problems, that appreciates the strengths these networks can
nlobiliu, but that also recognizes the challenges they entail.
We have argued that what we have called the new governance provides sucb a con·
ceplIlalizarion. The new governance focuses our attention on the wide array of tools
now being used to address public problems and 00 the divUst collectioo ofinstirutioJU
being activated in lhe process. In doing so, it aJens w to the increased substitution of
complex networks of organiz..ations for the rigid hierarchies of old to soJve public prob·
lenu and to the resulting need for enablement skills rather thao simple management
skills to cope with the resulting interdepeodencies. Far from simplifying the tasks of
policy management. tbe new governance thus �phasius the o
i creased difficultie5 it
now entails.
The new governance thus is a realistic framework for public dedsionmaking even
wbile it is an optimistic one. It celebrates lIle proliferation of tools ofpublic action aDd
the r�ulri.og activation of new parmers for "public work," while squue.ly acknowledg�
ing the challenges this creates. More than that, it offers eoncrele insights into the
operational requirements that these vario us tools impose. The result, we hope, \,,;,11 �
a bener basis bOlh for public understanding of the way the public sector WOrks and for
m
i proving the effectiveDess with which we address public problems. That, at any rate,
is our goat

NOTES

I . Robert A. Dahl and Charl('$ E. Lindblom. Poliril:>, &onomiC$, and Welfare: Pla,ming �nd
Poliri(o�eCl:momj, SySffflU Resolved infO Basi, Social Prowm {New York: Harper and Row, 1953),
6, 16.
2. World Bank, World DtvelOptI1UlT Rtpwt 1997: l1Je 5tnft' in Q ChangirlC World (New York:
Oxford UniYersity Pre.u, 1997). I.
}. World Balik. World Dtvelopmenr RqJOrt 1997; ThE Srak ill a Changing World (t991), 1-3.
Marcel Masse, "Economic, PoliticaJ, and TechnoloSical Pressures Shaping Public Sector Reform,"
ProcudiPlgs of the Canada-5ollth East Asia CoII9IJuium on Trafl1{ormiMg tht Pub/it: Secror(Onawa,
Canada: I",brute 00 Governance, 1993); [xma.!d KettI, "The Global Reyolu tioo in Public Man·
ilitment: Driving ThemH and. MiSlln i g Unb," Journal ofPolicy Analysis and Monogemtrrt Hi,
no. 3 (1 997): 446-462; Tim Plumptre, �Public Sector Rcfonn: An Itltemarional Per5pectiye,�
Procudingl 0/ the Canada-50uth EaJt Asia Colloquillm: Tran.<jonning tht Publi' Staor (Ottawa,
Canada: Institute on Governance, 1993); C. Pollitl, Monagtriajism and the P".blic Str"l'ice'Orlord:
Basil BlaekweU, 1990).
4. Shah,id J. Burld and GuiUenno E. Perry, Beyond the Washingron CotuenllU: Insn"rllrions
Mar-TIIr, World Bank Latin Americ.an and Caribbean Studies Y'iewpoinu (Wnhington, D.C.:
World Bank, 1998).
5. Included here is the "new institutionalism� associated with the work of Oliver Williamson
 42 and the public citoi(( theories usociated with the work of Gordon Tullock, See Oliver William"
son, Mllrktrs and JfimuchitS (N� York.: Free PreSj, 1975); Gordon Tullock, The Politics of
THE TOOLS OF
Burel/vcraey (Washington , D.C.: Public Affairs Press, 1965). For excellent summaries of these
GOVBRNMENT
theories and their application 10 public bure<Jucracy see Terry Moe. �The New Economics of
Organiz.ation," American Journal of Po/itimJ Science 18 (November 1984): 739-777; and Gerald
G�rvt')', Facing (nt BureauCl'tlo/(San Francis.::o: JO$.!ey-BilSS, 1993), 25-35.
6. David Oshome and Ted Gaehler. Reinventing Govtmmenr.: How tht Enrrtprrneurial Spirit
1$ Transforming the Public S�ctor (Reading, MA: Addison-Wesley, 1992), 48.
7. H. Brinton Milward and Keith G. Provw, "Measuring Network Structure, � Public Admin­
istrati011 76 (summer 1998): 387-407.
8. For an in teresting analysis of the impact of Amaica's �nonst.ate" tradition on the devel­
opment of public administration in the United States, see Richard j. Stillman, Preface to Public
Administration: A Search for Themes a.nd Direction, 2d ed. ( Burke, VA: Chatelaine Press, J 999).
9. Donald Kettl, Sharing Pawer: Pu.blic GoYerna.nce and Private Markets (Washington, D.C.:
The B rookings institution, 1993), 4.
10. uster M. Salamon, PRl"fnen in Public Service: GoYmlmenr-Ncnprofir Cooperation in th�
Mod�m Welfaft Slat/! (Baltimore : Johns Hopkins University Pre!.>, 1995), 88.
I L For a description of the Netherland� case, see Ralph Kramer, Vollmtary Ag�ncie5 in the
Welfare Slate (&rkdey: UniveT$ity of California Press, 198!), 19-36.
12. For a comparison of the German and U.S. systems, see wter M. Salamon and Helmut K.
Anbeier, ''The Third Route: Government-Nonprofit Collaboration in Germany and the United
States," Priyme Acritln lind the Public C()od, eds. Walter W. Powell and Elisabet.h S. Oemens (New
Haven: Yale Un ivef3ity Press, 1998). 15\- 162.
13. Claire Ullman, "Partneu in Reform: Nonprofit Organimtions and the Welfare State in
France,� in PriWlte Acrion and the Public Good, ecls. Powell and Clemens (1998), 163-l76.
14. Lester M. Salamon et al., Global Civil Society: Dimensions ofthe Nonprofit Sector(Baltimore:
Johns Hopkins Institute for Polic)" Studies, )999), \4.
is. See. for tx;U!lple, Jeffrey L. Pressman and Aaron B. WiJdavsky, ]lflp1emerllllrion (Berkeley:
University of California Pres&, 1973 ); D. Ketd, Sharing Power (1993), 4-5 .
16. For a useful summary of this conventional 'Nisdom, see Vincent Ostrom, The Intellectual
Crisis ofPublic Admini5tTllrion (University: University of Alabama Press, 1973).
·
17. Banon and Chappell, Pubiic Admini.>tration: Tiu Work of Govemmen r { l98S), ql10ted in
Richard Stillman, Prefau 10 Public Administration (l999), IS\).
18. Erwin Hargrove, "The MiMing Link: The implementation Challenge in Policy Research,�
working paver (Washington, D.C: Uroon Institute Press, 1975). 11 considerable body of "imple­
mentation- )iter::IIUTe has emerged in more rocem years, but, as noted below, it hu not system­
atically come to tmns with the array of new tools of public action either. See note 28 below.
19. See, for example, Mohan }(aul, "The New PllblicAdministration: Managemenlinflovarions
in Government,· Public AdminiwMioll and Development 17, flOS. 13-26 ( 1 997); Andrew Ma&s!:)"
MRnaging the Public S«ror: A Comparative ,A..nalysis of the United Kingdcm and the United Stares
(A.ldenhot. U.K.: Edward Elgar. 1993); Osborne and Gaebler, ReinYtnn'ng �'I'ernmmt (1992);
Owen E. Hughes, "New Public Management, � in IntcrnRtional Encyclopedia ofP«bll, Policy Rild
Administration, ed. Ja)' M. Sbafritz (Boulder: Westview Press, J 998), 1489-1490.
20. Roben Dahl and Ch�rles E. Lindblom, Politics, Economics. and We/fate (1953), 8.
21. Frede rick C. Mosher, "The Changing Responsibilities and Tactics of the Federal Govern­
ment." Public Admil1man'on
i RtI,;!:W 40 (NovemberfDecember 1980): 541-548.
22. Lester M. Salamon, "The Rise of Third-Party Government," Woshil1gTon p()$t (29 June
1980); md Lester M. Salamon, "RetitinkiHg PublkManagement," PublicPolicy 29, no. 1 (summer
1981): 255-575.
23. See, for example, Christopher C. Hood, The Tools ofGovernmtnl (Chatham, NJ; Chatham
HollSt Publishers, J983); Stepbeo H. Under and B. Guy Peters, "hom Social Theory 10 Policy
Dt'sign," /ouma/ ofPublic Policy 4, no. 3 (1984): 237-259; lorraine M. McDpMeU and Richard
P. Elmore, �Getling the Job Done: Alternative Policy Instnlments,- &i«carional Bvaluation and
Policy Anllly�iJ 9, no. 2 (summer 1987): 133-152; Stephell H. Linder and B. Guy Peters, "lnstru­
menu of Government: Pereepljons and Contexts," /oumlll of Public Policy 9. flO. 1 ( 1989):
 . . 35'-58; Don�ld Ketti, GO'Vtrnmrnt by Proxy: (Mi.s?)MtlriDg;n8 Federal Programs(Washington. D.C 43
·Congreuional Quarterly Press, 1988); Lesttr M. Salamon, ed., 1J�"d privatiZAtion: The Toou of
CH 1 :
Go-vtrnment Amon ('Na.shington, D.C: Urban Institute Press, 1989): Aone Schneider and Helen
lNn'tODUCTION
Ingram, "Behavioral Assumptions (If Polky Tooh," /O[m1tV ofPolitia 52, no. 2 (MOlY 1990): 510-
529; Muie·LouiK Btmelm:uu-Vide� Ray C. Rist, and Even vtdu,ng. eci'-., Carrot$, Sticks and
Smnoru: P,,/i'Y lrutTVmoIN and Their Evaluation (New Brunswick,
N,: Transaction Publuhc:n,
1998). Beyond Ihi$, $Oroe n i dividual too4 have attracted considerable aaeotion. For cample.
the too! of gnntli-in-aid ha.s bf:en thoroughly examined in a scrie$ of publications produced by
!he Advisory Committee on lntergovemmenlaJ �Iatioru during tht 19705 and tarty 19805 and
in U.S. Office of Management aDd Budget, MIIMgin8 FMtroi Altinona i" the 19SOs(Washington,
D.C: 1983). -Regulation- has been examined as a tool of pubJic ac:tion in I n umber of studies,
i..ncluding Char:ie$ Schultze, The Public Use of Priyare blterUf (Washington, D.C.: The Brookings
fnstitution, 1917); and Neil Gunningham, Henry Gnbosky, l1Id Darren Sinclair. Smart Regu-
11Irion: Designing EnYironmcnm/ PrJ/icy (Oxford: Oxford University Press, 1998).
, 2�. SO'erly Cigler, �A Sampling of introduclOry Public Administration Texts," Journal ofPublic
Affairs Education 6, no. 1 (January 2000): 48, 5 1 . For evidence that some headw�y is heiDI: made,
.see David L. Weimer and Aldan R. Vining, Po/ic,' Analysis: ConctplJ and Pracric:e. 3d ed. (Upper

Saddle River, N.J.: Prentice-Hall, 1999), 196-.252; and H. G. Frederwon, The Spirit of Pu blic
Admil'listratiol'l (San Francis�o: Jossey-Bass, 1997), 4 - 1 1 , 78-96.
.25. s.a.Jamon, Beyond Privatizatlo71 ( 1 989).
26. 1 am indebted to George Frederickson for his sugge5tion to use the term "governance" to
depict wlm 1 earlier termed the "tools approach" to public problem solving. Fredericluon uses
the teMn ·sovemance- to refer to a broader array of phenomena than is intended by the term
hue-namely, the proces$el; of policy fonnation a5 well as implementation. The centr;lj id� of
mcltiple stakeholders involved in the task of governing remains the same, however. !U noted
bdow, 1 have addt<! the term �oew- 10 the term �govemance" to sUSSes! a greater consc1ousnw
about the comequcntts of choke:;; among tools and accompanying ac:totl. See George Freder­
idaon, The SpiriT ofPublic Adminisrn;,rion (1997), 18-96.
27. For a liuccinct liummary of the classical theory sec Ostrom, Tht Imd/tctlllli Crisis in Public
Administmriou (1 989), 20-41; Garvey, Fllong the Bwrellucracy ( 1 993), 18-23. Similar concerns
aJso lay behind the EUrOpelll development of adminislTltive theory, ali reflecte-d in the work of
Max Web-et; Stillman, Prtfaa ro Pwblic Administrflrion ( 1999). 109- 123.
28. For a vigorous defense of the America.o administrative state, ue Charles Goodsell, Tht
em for Bureaucracy: A Public Administration Poltmic, 3d ed. (Chatham, N.J.: Chatham Hou!e
Publlihers, 1994). For a diSCIusion of the continuiDg vitality of "direct government" as a tool of
government action, s ec Chapter 2 by Christopher Leman.
29. This line of argumen t also was evident in the public administration literature more gen­
erally. See, for exa.mple, Ostrom, The Intellectual Crisis ofAmeric;w PI/blic Admirlistrariorr (1989).
30. See., for example, PresSWM Md Wildav�ky, Impl.t:mcntorion (1973); Hargrove, The Missing
Link (Tuly 1975); Donald S. Vao Meter and Carl E. Va.n Horn, �The Policy Implementation
Proceu: A Conceptual FraUl�ork,n Administration A71d Socitry 6, no. 1 (February 1975) , 447-
474; Eugene Bardach, The lmpltmrntaticn Game: \.o.Ihar Happtns dfrtr It BiU Btcornts 0 Ulw
(Cambridge, Mas.s.: MIT Pr� 1977); Walter WilliamJ, The Impltmentlloo'l Pmpt.r:tivt: A Guide
for Managing Socidl Suviu Delivery (lkrkele")� University of Ctli!ornia Press, 1980): Robert T.
Nakamura and Frank SmallwQQd, The Poljri� ofPolicy Implr:menrdriol'l (New York: SL Martin's
P�ess, 1900); Daniel MI'lffianian and Paul Sa batier, Impltmenrotion And Publi, Polity (Glencoe,
Ill.: Scott, Foresman, 1 98;).
) \ . Implementation studies have generated numerous lists of factor, thought to influence
prognm success but with limited progress in cumulating these fimiin� into a more generalizable
body of th�ry. One attempt to �ummarize this literature identifies no (ewer than seventeeo such
facton that have so far bee.n ide ntified and need to be tlken into account. Included hcre ale such
facton as the clarity of the law, the adequacy of the cau.saJ theory embodted in it, the multiplicity
of decisions poinu, the characteristics of the implementing agencies, thc prcsence of an imple­
mentation entrepreneur, utd the adequacy of external review. Mlzm&riian and Sabatier, Imple­
menlarion dnd Public Policy (1983). For a genera.! discuuion pf the limited succe$S of implemcn-
 44 latian studies in generating testable theory, se<': Helen Ingram, "Implementation: A Review and
Suggested Framework," in Public Admini5tration: The Stare of the Discipline, eds. Naomi B. Lynn
THE TOOLS OF
and Aaron Wildavsky (Chatham. N.J.: ChatfJam House Publi!hers, 1990),463; Caliu:a, "Policy
GOVERNME"..,.
lmpleme)}t3tion." in Encydopedio of Policy Studi(..j, ed. Stuart Nagel (New York: Martel Iftkker,
1994), llS.
32. Michael HowleR. �PoliC)' lnSlnunenlS, Policy Styles, and Policy Implementation: National
Approache.s to Theorie5 of !llStrume.nt Choice," Polity Stt4di�s IOJ/rnal 19, no. 2 (spring 1991):
1-21.
33. For a discussion of these theories, see Moe, "The New Economics of Organization " (1984),
762-768; Garvey, Facing the Burecwerocy (1993), 26-33.
34. B. S. Savas, Privatizanon: Tht Key to Effective Government (Chatham, N.J.: Chatham House
Publishers, 1987); Stuart Butler, Privatizing Federal Spen.ding: A Strlltrgy to E/iminilit the Deficit
(New York: Univer5c Books, 1985).
35. S. j. Burki and G. E. Perry, lkyond fht Wtuhingron Comensus, 125. Osborne and Gaebler,
Reinvenring Governmenf ( 1998), 20. For 8 gener81 discussion of the new public mal'lagement
agenda of which the reinventing government pe�pective is a part, s� !(au], "The New Public
Admi)lisuation� (1997), 13-26; Larry Terry, "Administrative Leadership, Neo-Managerialism,
and the Public Management Movement" 58, no. 3 (May/JUJle 1998): 194-2000; Hughes> "New
Public ManagemenC (1998), J 490; Chrisopher Pollitt, MalUlgeriaiism and the Public Services;
Curs or Cultllral Change ;/1 the 1990s (London: Blackwell, 1993).
36. Moe> �New Economics of Organization" (1984), 749-757; John W. Pratt and Richard J.
Zeckhauser, °Princ:ipals and Agenu: An Overview," in Pn'ncipals and AgentJ: The StrQrtgy of
Bwinest, «15. John W. Pran and Richard J. Zeckhauser (Cambridge, MIIS.'l.: Harvard Business
School Press, 1991 [ 1985]).
37. J. A. de Bruijn and E. F. ten Heuvelhof, "Instruments for Network Mana8ement,� in
Managing Cornpkx Nctworb: Srraugi�s for !h� Public S!CtOI', eds. Walter J. M. Kicl{en, Erik-Hans
Klijn. and JooP F. M. Koppenjan (London: Sage PublicatiGM, 1997), 122-123.
38. W. J. M. Kicl{ert. E.-H. Klijn> and J. F. M. Koppenjan, Ulntroduction: A Management
Perspective on Policy Network5," in Managing Complex Nerworb, eds. Waiter J. M. Kkkert, Erik­
Hans Klijn, and JooP F. M. Kopptnjan (1997), 33.
39. Ronald Moe, �Exploriog the Limiu of Privatization," Public AdmillistJ'at1on Review
(NovemberlDecember 1987): 453-460.
40. As Ronald Reaga.1l PUI il in 1981, KWe have lei the state take away the things that were
once ours to do voluntarily." Fo! further discussjol) of this perspective ;u it a.pplies to U1C non·
profit s«:tor . see Lester M. Salamon and Alan J. Abramson, �The Nonprofit Sector," in The
Reagan Expen'ment, eds. John L. Palmer and lsabel V. Sawhill (Washington, D.C.: Urban Institute
Press, 1982), 223-224.
41. Fo r 3 discussion of the theoretical basis for government-nonprofit cooptration in thC!iC
Itrms, see Lester M. Salamon, Partnm in Public Service (1995), H-49.
42. See, for eX41Dlple, James Austen, The Collabonlrion Ch(lnengt.: How NonprofiN andBusineuts
Sucued through StTa.tetic AllianCQ (San Francisco: lassey-Bass, 2000); Reynold �, Give and
Take: A Candid ACCOI./TII of Corporate Philanthropy (Cambridge, Mass.: Harvud Busineu School
Press, 1999).
43. See, for example, Schult1..e. The Public Us� of Private Interest (1977).
44. Ketti, Sharing Power (1993), 6. See also Raben W. Bailey> �Uses and Misuses of Privati­
zation," in Prospects fer PrivlIrizaNar1; Proaedings ofthe American Academy ofPo/irjcal Science,
ed. Steve Hanke, 36, no. 3 (1987), ISO.
45. Budd and Perry, Bqol1d the Washingf()n ConsttUlIJ.· JlI.SriruriOI1S Matter (1998).
46. World Bank, World Developmenr Report (Washington, D.C.: World Bank Group, 1997), I.
47. Dennis Rondinelli, "Privatization, Governance, and Public Managemellt: The ChaUellges
.
Ahead," Bwinm Ilnd Ihe Conrempcrary World 10, no. 2 (1998); 167.
4S. Negotiation and persuasion operate within administrative agenciC!i as weI!, o( course. In
the ne'" governance, however, they are clearly the dominant form of management action.
49. Luther Gulick, "Notes on the Theory of Organization," in Papm on the Scienct ofAdmin-
istTatio", Ws. Luther Gulick and Lyndall Urwidt (New York.: mnituu for Public ....dminisIRtion. 45
(931), 13.
CH 1 :
SO. Set, for example. Hughes., �New Public Management" (1998). 1489-1 -490; Christopher
INTJIODUCTIoN
PoUitt. Managmaiism and the Publk SfflIia (1 993), 6-10.
Sl. W. /. M. Kickert and J. F. M. Koppcnjan, "Public Manago:ment and NetworkMaaagmlent:
....n Overview,� in Mr.nllpg Compb Nuwl]rb, e&. Kid::e;t t1. U. (991), SO.
S2. Sec, for cumpk, Ruth Hoogland DeHoog, "Human Service Contracting: Envirorunental.
Beha"iord, and Organiuliona! CoDdition�," Admiroistrarirm and Soci!;ty [6 (1985), 421_4>4.
5). For 11 diKussion of such civic initiatives, see Carmen Sirianni, Civic 11111"""riOll in Amrrica:
Community E.mpowmncm. Publil Policy. '/lid /l:e Movemrnl for Civi< Rm�i (Berkeley: Univer·
sity of California Press, 20(1).
54. Edward Skloot, " Privatiutio!l, Competition. and the Future of HurolJ\ Service�," Unpub·
lished paper prepared for delivery al Ihe Council on Foundations Conference, New Orleans (21
April 1999).
55. Bugene Bardach and Roben A. Kagan, Going by {hr Beok' The Problem of Regulo.rory
Unrea.sonablt"us: A Twentieth Cenlllry Fund R�ort (Philadelphia: Temple Uni versity Press,
1982). 123-151. Pete r May develops !his poinl more fully in Chapter 5.
56. See, for example. RUin Hoogland DcHoog. ""Competition, Negotiation, or Cooperlltion;
Three Modell for Servi� Contnacring.� Administration and Socitry 22. no. 3 (November 19901:
3 1 7-340.
51. Michlel Lipsky, Street-Level BUTMuCTacy(NI':'oOo' Yorl:.: RusseU Sag� Foundation, 1980).
58. This definition is quite similar to that suggested by Even VedUJ"\g. who defines public
policy illsuumenu u -the set of techn.iques by which governmental authorities wie.1d power in
attempling to elUure suppon and effect or prevent social chillnge.� Evert Vtdung, "Policy In·
nrumenu: Typologies and Theories,� in QuTO� Stich, tlrld Sermlms. tW. Bemdm.ns·Videc et
al. (1998), 21.
59. nus uuge is close 10 ,hal suggested by the "new iDstirutiooalism,ft p.1rticularly in econom­
ics. I\s economic hislorilJ\ Doug.lu North puts iI, instihllions arc ·regularities in repetitive in­
tnactions . . . CUltoms and rules that provide a set ofincenuves and djsincenti...u for individuall.­
Douglas Nonh, -Tht New InsrirutioDaJ Economics,· ]ollmol oflnstirurionai and ThtoreriC41 &0-
lIomiC$ 142 (I986): 231. For a broader discussion of the �"ew illstlfUlionWsm,� see Waller W.
Powel.l lnd Plu] j. DiMaggio. "lnuoduClion,� in The New InsOwrionll/i$m in Organimlional
Ional}'1j$, tds. Walter W. PoweU and Paul J. DiMaggio (Chiago: Vniversiry of Chicago Press,
1991), 1-40.
60. For an argument that the difference betWeen �block gran�" and "categorical grant!" is
not sufficiently great to warrant treating them as different lools, see Paul E. Peterson, Barry G.
Rlbe, aDd Kenneth K. Wong. Wh/!I/ Federalism Works (Washington, D.C.; The Brookings Insti·
tution, 1986), 21-23.
61. E. S. Savas, Privari:zatiOI1: The Key to Effecrivt Government, 62; O$bome and GacbJer, Rein­
renting Govemmenr, 21; E.. S. Kirubeo et ai, ECtJl10mic Pol,,, in Our Time (AlnSludam: North
HoUUld Publisrung. (964); Gillebler and Osborne, Rcim'('lIing G01'ernm�" (1992). For a general
discussion of the difficulties of comprehensive and authorhative lisu of policy tools. see Linder
t.nd Peters, -The Design oflnstruments for Public Polky: Groundwork for Empiriclll Ruear(:h,"
in Policy Thtory Ilnd Polity El'fliuariOtJ, cd. Stuart Nagd (WC$IpOn, Conn.: Greenwood Prtss.
1990), 103- I J9.
62. Christopher Hood, The T(1fI/s of Govtrnmt71t (1983).
63. Mc.OonneU and Elmore, "Allernative Policy instruments- (1987), 12.
64. Schneider and I.ngram, "Behavioral A1sumptions of Polk}' Tools" (1990), S14-S21.
65. Even. Vedung, �Policy instruments: Typologiti and Theories,� in Carrots. Srirb, lind Su­
mom, e<is. Br.rnelmans-Vidtc et aI. ( 1998), 21-S2. In the earlier version of this scheme, F. C. J.
VlIl der Dockn di... ided lOols into three ufamilies" base<! on the type of illiervelltion tht public
ketor IJses: ( I ) the legu family, (2) the economic family, 1lIld (3) �e cOfllmuni�tion5 fiunily.
SoCt P. C. J. Vln dtr Docleo. ]l1S1nmleolltn 1'00r tllergirbesparing (Enschede Netherlands: Uni"tr'
sitei! TWenle, 1 993) cited in I. A. de Bruijn and E. F. len Htuvclhof, �InslrumeOIJ for Network
Management,� in Managing Complex N�tworb, eds. Kickert el al. (1997). 00 the general pop-
 46 uladty of classifications using the degr� of coercion u the c.e"!.raJ ulteriOR, see Linder Ind
Peters, �The Design of [mtrumenu for Public Policy," 114.
THE TOOLS OF
66. Hans D�Bruijn and Hans A. M. Hufen, �The Tr3ditiOllal Approach to Policy Instruments,"
GOVERNMENT
in Pllblic Policy Instruments: Evaluating the Tools ofPublic AdminiJrrllril)n, eds. B. Guy Peters and
Frans K. M. van Nispen (Chehenham, U.K,: Edward Elgar, 1998).
67. Theodore Loyd, "iunerkan Business, Public Policy, Case Studies, and Political Theory,"
World Peliries 16 (1964): 677-715; Peterson, Rabe, and Wong, W'hen Fedtmlism Works, 15-20.
68. Pressman and Wildavsky, Implementation (1973), 143.
69. Howlett, "Po/icy Instruments, Policy Styles, and Policy Implementation,� Policy Studi�
}ournal J9, no. 2 (199l): 1-2L
70. Anne Larson Schneider and Helen Ingram, Policy Dtsign for �/I1ocrlUJ' (Lawrence: Uni.
versity PIess or Kansas, 1997), 5-7. 129-135, Stephen Rathgeb Smith and Michael Lipsky. NIJn'
profits for Hire: The Wdfarc Stare in the AgeofContTacting (Cambridge. Mus.: Harvard Univmiry
Press, ,1993). 207-2 1 ! .
i n of Instroments for Policy," J J 4, Vedung, KpoHcy lnslru.
71. Linder and Peters, "The Desg
meots: Typologies and Theories" ( 1 998), 35-36.
72. For a detailed discussion of the types of market failures that serve as rationales for publk
intervention, �ee Weimar and Viner, Policy Analysis (1999).
73. Charles Schultze, Public Use of Private Inurtst ( 1 977). For a fuller di5cu�on of these
market-oriented approaches. see Chapters 5 and 8.
74. Schu1tze, Public Usc of Private Jmc�r ( 1 977), 57.
75. On the phenomenon of regul:llory capture, see Merver Bernstein, Regu/llring Busi1U!S$ by
Independent Commission (Princeton: Princeton University Press, 1955).
76. Differences in degree of dlrectnes$ also exist within tool categories. Thus. for example.
block granlj are more indirect than cateSoricaJ grants. Simjiarly, contflCts for major military
ryS'tems are more indirect than contracts for the purchase of easily specified. off-the-shelf prod·
uets sil'lce more discretion ha5 to be left to the contractor in major systems acquisitions.
77. D aniel Elazar, American Federalum: Tile View from the States (New York: Thomas Y.
Crowell, 197.3), 3.
78. On environmental poliq.', see Nancy Kubasek, EnvirOl1mental Law ( Eng!e ..ood Cliff$, N.J.:
...

Prentice-Hall, 1990), 124-141. for a discussion ofthe role thilt Southern conservative opposition
played in the choice of a grant-iIl·aid with substantial state discretion for the nalion's basic welfare
program. Aid 10 Dependent Children, see Lester M. Salamon, Wdfnre: The Elusive ConltJUUs
(New York: Praeger. 1976).
79. Salamon and Anheier, "The Third Route: Government-Nonprofit 0::lllaboration in Ger·
many i\.nd the United State.s" ( 1 998), 151 - 1 62.
80. See, for example. L. J. O'Toole, K. I. Hanf, and P. L Hupe, "Managing Implementation
Processes in Networks," in Managing o,mplex Networks, eds. Kickert et al. (1998), 137.
8 1 . Gordon Chase, "Implementing a Human Services Progl'am: How Hard Will It Be?» Public
Policy 27 (fall 1979): 385-435.
82. Pressman and Wildavsky, Implementation ( 1 973), 143.
83. Pressman and Wildavsky. Impiementllriol1 (1973), 133.
84. Christopher 'Leman, nDirect Government: The Forgotten FWldamentaJ>� in Beyond Pri­
YllrUtlrion: The Tools ofGovemment Action, cd. Lester M. Salamon (1989). 3-38. For an update
of this analysis, see Chapter 2.
85. John W. Pratt and Richard '. Zeckhauser, Princpal
i s and Agents: An Overview� (1991),
"

J I. On the importance of coincidence of "worldviews" in potentiaJly minimizing principal·agent

problems, see William G. Ouchi, "Markets. Bureaucracies, and CJaD$,� Admil1istTarivl! Science
25 (March 1980): 129-140.
Qllarterly
86. Regina Huzlinger, A Managerial Anlllysis of Federal Income Redistribution Mechanisms:
'I The Government as a Factory, Insllrance Company, and Bank (Cambridge, MA: BaUing�r, 1979).
87. Smith and Lipsky, Nrmprofit$. for Hire (1993), 207-211; Schneider and Ingram, Policy
Design for Democracy ( 1 997) , 5-7, 129-135, For further elaboration of this point, see Chapter 20.
88. Under the tradable permit system, a target is set for the total lmou.nt ofpollution permitted
in an air quality district, but companies are free to purchase tights to tmit pollmants in exce�
 1����:��"'�U�:' :
"
;
;;
o;
m
' o' u. ' r bU$messt$ in th� same district. For a mor� detailed discll$5ion of
; � � � corrective fees and charges as 100)1 ofpublic action. see Chapler 8.
� :
. 'Robert A. Levine, Public Plallfling: Failure lmtf Rtdirtcrion (Nt,,, York: Basic Books. 1972),
CH I:
lfo,'Tlt.ODUcnON
.
90. Schuluc, The Pjjblic Un of PriYrl.tllnteral (1 977).
'f. 9). kviM, Pualk Planning ( 1 972), viii
92. Herzlinger, Managc-ill/ lu1.I1.iysis, I l l.
93. For lUI 10ll1ylii of the �dminjstrative chillenges entailed in the application of market-based
to cnI'ironmernal protection, set' National Academy of Public Administration, The Envi­
'< ''''jmm, GOtf rt> Marker: The impicnenrarion ofEconomic InantN�for Pollution Control (Wa:;h-
U].gton, D.C.: National Academy of Public Acminimation, July 1994).

I :��I:':: "�::;�
9<1. Until very recently, in fl.ct. tax cxpendirurcs did not show up in the regular budget doc-

:; ,�r,;:��:�::
\', i the early 1990$ when budget
in budget de .rC'!i. Thi5 changed n
ba
tNt both tax and spending decisjons had 10 � lueo into explicit account
:
budgetary decisions were made.
_ . . Most economists wouJd argue. fOf example, that cash benefits are more efficient than in­
��d b ulefits since they alJow beneficiaries 10 utilize resources where they value them tbe rom!.
HowC'Vct, in-kind toob such u vouchers and loan guuantecs have substantial political advantages
.�"tt they C3.Jl often mobiliu producer interests in �upport of panicuiar progra.ms and n("utralize
�ppon.ents who fc.at that recipient.! will squander benefits on pUnXlJeS other than those intended.
, �.... 96. Conswner-side Jubsidies IUcil a.s vouchers and ru expenditures ue thought to be morc
t""flicient beCAule thel' aDow consumers 10 shop for the best combination of service and cost.
Howe'Vu, producer·side subsidies such as granl!l and contracts rtrain the political edge because
rrhe'y arc more likel)· 10 srimuJal(" producer-side political support.
 The Tools of Government: A Guide to the New Governance
Lester M. Salamon, Editor
Oxford University Press

A major shift has occurred in the operation of the public sector in the United States and other countries over the last
five decades. At the heart of this change is the proliferation of new instruments of public action—loans, loan guar-
antees, regulation, contracts, cooperative agreements, reimbursement schemes, tax subsidies, vouchers, and many
more—many of which have in common a reliance on a host of third parties to implement public programs. The
adoption of these tools has transformed the public sector from a provider to an arranger of services, with profound
implications for the nature and content of public management and for democratic governance more generally.
Those involved in public administration must consequently learn not only the distinctive operating requirements of
the different tools but also new skills related to the management of complex collaborative relationships with private
contractors, regulated industries, nonprofit agencies, and other levels of government.

The Tools of Government provides a comprehensive treatment of the new tools of public action and the implications
they have for public management and policy design. An initial set of chapters describe the different tools, and ana-
lyze their patterns of use, the management tasks they entail, and the situations for which they are most appropriate.
Other chapters provide a general overview and examine the broader issues that this shift in the public sector role
from provider to enabler poses—such as the redefinition of public management, the problem of ensuring account-
ability in third-party relationships, new public and nonprofit management skill requirements, international experi-
ence with alternative tools, and the implications of the shift in public sector role for democratic governance. This
volume is a valuable resource for anyone interested in how government functions today, and how it seems likely to
function increasingly in the future

TABLE OF CONTENTS

Chapter 12. Loans and Loan Guarantees

1. The New Governance and the Tools of Public Thomas H. Stanton
Action: An Introduction 13. Tax Expenditures
Lester M. Salamon Christopher Howard
14. Vouchers
Part I: Major Tools C. Eugene Steuerle
2. Direct Government Eric C. Twombly
Christopher K. Leman 15. Tort Liability
3. Government Corporations and Government- Peter H. Schuck
Sponsored Enterprises
Thomas H. Stanton Part II: Key Issues
Ronald C. Moe 16. Managing Indirect Government
4. Economic Regulation Donald F. Kettl
Lester M. Salamon 17. Financial Accountability in Indirect Government
5. Social Regulation John J. Lordan
Peter J. May 18. Accountability Challenges of Third-Party
6. Government Insurance Government
Ron J. Feldman Paul L. Posner
7. Public Information 19. The Politics of Tool Choice
Janet A. Weiss B. Guy Peters
8. Corrective Taxes, Charges, and Tradable Permits 20. Policy Tools and Democracy
Joseph J. Cordes Steven Rathgeb Smith
9. Contracting Helen Ingram
Steve Kelman 21. European Experience with Tools of Government
10. Purchase-of-Service Contracting Arthur B. Ringeling
Ruth Hoogland DeHoog
Lester M. Salamon Conclusion
11. Grants 22. The Tools Approach and the New Governance:
David R. Beam Conclusion and Implications
Timothy J. Conlan Lester M. Salamon