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The Yellow Pages Test

Let Your Fingers Do the Walking

by Steven Goldsmith

very day, the private sector introduces new products, improves old ones, expands services and reduces costs. Government, on the other hand, generally becomes less responsive and more expensive. Federal spending has skyrocketed since 1960. Yet almost no one would say that government is more responsive than it was 40 years ago.

Why are private-sector companies in general more efficient, more customer-oriented and more innovative than government? The answer is that private-sector companies are in competition and will go out of business if customers don’t like the goods and services they offer. No matter how successful a company is today, if it loses touch with its customers’ needs, or charges too much, someone will steal its customers away tomorrow.

Government, which has a lock on the delivery of a wide range of services, is not only a monopoly, but a particularly effective form of monopoly: Government cannot go out of business. Every citizen of the United States, like it or not, is a customer for government services—and a new customer is born every eight seconds. Poorer Americans, especially, are customers for government services and cannot afford to go elsewhere.

Government controls revenue. If more money is needed to provide a given service, government can and will raise taxes to pay for it. While the private sector has to persuade people to make purchases, government simply takes dollars. General Motors would never close a plant if it could seize the assets of people who do not buy its cars.

Government is allowed to spend more than it takes in. While some states and cities are required by law to enact balanced budgets, most government entities are not—including the federal government. And even governments that by law must balance their budgets nevertheless avoid doing so by borrowing, deferring capital spending and employing questionable bookkeeping devices. Private companies and families can only deficit-spend in the short term before going bankrupt; government thinks it can go into debt indefinitely.

Government delivers "essential services." Whenever reform-minded managers or elected officials exert pressure to reduce costs, status-quo managers can mount an effective defense by pointing to the essential nature of their task. A call for budget cuts in a municipal Department of Public Safety, for example, could be countered with the claim that the streets would be less safe. An attempt to slow the growth of education spending might be met with the challenge, "Aren’t our kids worth a few extra dollars a month?" This is a strategy that resonates powerfully with the people, who have neither the time nor the inclination to scour budgets to see if savings are possible without cuts in service quality.

There is, however, a way to cut government excesses without reducing the quality of essential services: competition. By adopting the competitive spirit and methods of the marketplace, government can both trim its budgets and provide more efficient services for taxpayers. Competition does not necessarily mean privatization. That is why Indianapolis prefers the term "marketization." It is competition in the marketplace, and not privatization per se, that produces value for customers. When services are moved into the marketplace, or markets are created for their delivery, efficiency and service quality are improved and cost is reduced.

In Indianapolis, city workers compete with the private sector to provide municipal services. It is not the city workers who make for inefficiencies in government. Rather, the restrictions within government itself are usually to blame for the high cost and low quality that many have come to expect from government services. Too often the government traps good people in bad systems. If the systems are changed and the workers are liberated from bureaucratic constraints, they can compete against private-sector service providers, and often win. But not every government service is eligible for competition.

The Yellow Pages Test

To determine whether competition is needed and will probably be successful, the administration performs a core-service analysis. Services that relate to government’s core mission, like police protection, are distinguished from services that are ancillary to government’s central policy concerns—for example, microfilming and printing. Competition is more desirable and more likely to be successful when the service is not part of government’s core mission. If competition is desirable, the administration assesses whether it is feasible by performing what it calls the "Yellow Pages test." If the city Yellow Pages show that several firms now provide services that the city is also providing, then competition is possible. The presence of private service providers also indicates that the market has established performance standards that can be written into contracts.

The core-service analysis and the Yellow Pages test result in focusing resources on activities that the government does well and getting out of businesses that are better performed privately. For instance, workers and management both agreed to get out of the businesses of laying concrete, putting up roadside fences, and, in some cases, picking up litter, because they realized that they could not be competitive in those areas. These decisions have allowed them to concentrate on work in which they clearly outperform the private sector.

Accompanying this article are areas of marketization in which Indianapolis government was able to be competitive in the provision of services (for example, trash collection) and areas that were best left in private hands (for example, printing and copying). So far, city workers have won 25 percent of the competitions and split responsibility with the private sector in another 20 percent. City workers tend to win bids when the service is labor-intensive, and private contractors tend to win when the service is technological or capital-intensive. In competitions, government units have several advantages: They do not pay taxes, do not have to make a profit, and can borrow money at lower rates. The private sector has the advantage of already having proved itself in the competitive environment. Competition puts these advantages to work for the benefit of all city residents. Stephan Fantauzzo, Executive Director of Council No. 62 of the American Federation of State, County, and Municipal Employees, noted, "By bringing city workers into the bidding process, we’ve been able to save jobs, improve services, and save taxpayers millions of dollars."

The cooperation that competition has engendered between the administration and the union was highlighted in a 1996 report on labor-management relations issued by the U.S. Department of Labor: "Although Indianapolis receives much attention for its competitive initiatives . . . the structured, cooperative relationship pervading city operations is the unsung hero of the service and cost improvements." One reason for this cooperation is that for many competitions—including those for wastewater treatment, trash collection, and mowing in city parks—the city has provided its workers with private consultants to help them prepare their competitive proposals. Another important factor has been the incentive pay that city workers receive when they outperform their contracts. Fantauzzo notes, "Our employees have probably done better than any other government employees in he country."

In August 1996 The Indianapolis News published a letter from Steven Quick, president of a local AFSCME union. Quick looked at the differences brought about by the Goldsmith administration from the line workers’ point of view: "City workers are empowered now to do their jobs better. We participate in the purchase of equipment, materials and tools [and] even had a say in designing snowplowing and trash collection routes.

"Goldsmith got rid of ineffective or unnecessary supervisors and kept managers who had better skills and abilities to work with workers to get things done. As a result, the number of grievances is way down.

"What distinguishes Indianapolis is the hard stuff—increased communication, better (not more) management, empowerment of workers, incentives rather than threats and an attempt to be a real partner in the process."

Competition has unleashed the creative spirit in city government. Employees at all levels are working to be more responsive to customers and more efficient in delivering services.

Indianapolis’ competition program has won accolades from around the country. Los Angeles Mayor Richard Riordan declared, "Indianapolis is on the cutting edge of a new way to run government." A recent Columbia University study concluded: "The people of Indianapolis have seen their city undergo a dramatic change for the better over the past three years under the leadership of Mayor Stephen Goldsmith."

The program is considered so significant that it has become the subject of four case studies written for the Harvard Business School and the Kennedy School of Government at Harvard University.

The city’s competition program has also been recognized with several national awards. In 1994 the city’s efforts won the program award from the National Council for Public-Private Partnerships. In 1995, they won the Innovations in American Government Award from the Ford Foundation, the Exemplary State and Local Award from Rutgers University, and the Pioneer Institute’s Better Government Competition. Because of the program’s success, in 1995 Governing magazine named Mayor Goldsmith Public Official of the Year. The magazine noted that the Mayor’s "ability to rethink and redirect the way government works has moved Indianapolis to the top of the list of innovative cities." In 1995 the Free Congress Foundation also gave the Mayor the Founders Freedom and Governance Award. Financial World named Indianapolis one of the ten best-managed cities in the nation in 1995. The Indiana Chamber of Commerce named Indianapolis the 1995 community of the year.

In 1996 the competition program won the Special Recognition Award from the Public Employees Roundtable.

Hundreds of mayors, governors and officials from the United States and abroad have visited Indianapolis to learn about the city’s competition program. As noted in Warfield’s Business Record, "Indianapolis in known across the country as the city that re-introduced competitiveness into municipal services." In both 1995 and 1996 Indianapolis hosted conferences for local governments interested in replicating the Indianapolis competition model.

Perhaps The New York Times said it best when it noted that the Mayor’s competition program has taken the city from "Indy-a-No-Place" to "Indy-a-First-Place." NJ

Stephen Goldsmith is the mayor of Indianapolis.


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