Table of Contents and Concluding chapter from:

1. Introduction

2. Stagnation for Most, Decline for Many

3. Getting Into This Mess

4. Getting Out of This Mess: Invest and Reinvent

5. A Life Cycle of Learning: The School Years

6. A Life Cycle of Learning: After High School

7. Policies to Improve Workplaces

8. Reinventing Workplace Regulation

9. Ending Public Housing as We Know It

10. Gilding the Ghetto, Not!

11. Reinventing Disability Policy

12. Politics

13. Lessons Learned

Chapter 13: LESSONS LEARNED

Over the last quarter century, the U.S. labor market has led the industrialized world in job creation. At the same time, however, wages have stagnated for many Americans and declined markedly for those at the bottom.

Social scientists do not fully understand what has caused these trends. Some portion of the problem is due to the three-way reinforcing system of rigidity in workplaces, schools, and government programs. A vast number of workplaces rely on rigid top-down hierarchies, where front-line workers are largely expected to follow their bosses' commands. Many schools support this system: they teach obedience when doing boring and repetitive work, but do not emphasize higher-order problem-solving skills. Government programs close the cycle by typically relying on rigid top-down rules and regulations.

Regardless of the causes, we have a new economy with new challenges and new opportunities. The facts of the new economy must inform our policy decisions. To take one example, as inequality increases, it becomes increasingly difficult to protect poor children without policies to raise the productivity and wages of the bottom sector of the labor market. As a second example, with computers common at work, physical disabilities are much less likely to be obstacles to productive employment.

The solution to the problem of stagnating wages and productivity can be seen in the nation's most productive workplaces. These workplaces typically train all workers in the skills needed to work together to solve problems for customers. Moreover, they combine this training with incentives and work structures that promote such problem solving. The result is that high school graduates as well those with advanced education can be highly productive, earn decent wages, and have interesting work.

This model of the new American workplace has several implications for social policy. First, it informs schools and other training providers about the skills on which they should focus, such as working in teams and searching for and solving problems systematically. As a corollary, the certifications provided by high schools or created by industries must certify these skills. Finally, at workplaces where employees are empowered to solve problems, regulators can build on these skills and work structures to achieve the goals of their regulations.

The Keys to Improvement

The new workplace model also suggests a way of organizing the provision of government services that is very different from the traditional U.S. model. Rigid hierarchies, with their detailed command-and-control rules for workers and suppliers, no longer produce world-class quality in the private sector. Government must also move away from its reliance on similar regulations when dealing with its agencies, employees, and partners. Instead, it must create partnerships that combine fewer command-and-control regulations with greater accountability for results.

Incentives and Accountability

The formula for improved incentives that reappears throughout this book is to hold service providers accountable to their clients. For this model to work, the clients must have meaningful choices so they can switch away from unsatisfactory providers or meaningful levels of political power to change the quality of services they receive.

Choice is only meaningful if clients have the information to judge whether service providers are likely to provide the services clients will value. To enhance accountability to citizens, the federal government has a role in collecting and disseminating information (typically on the Internet) on the results and value added of different service providers (Box 13.1 -- omitted).

Although no performance measurement is perfect, appropriate accountability and incentives can usually replace the bulk of existing command-and control regulations. With accountability instead of regulation, each service provider can choose the best means of achieving its customers' goal. Even when regulations retain a role, service providers with a record of success should earn deregulation from most rules. This conditional deregulation is itself an incentive to provide high-quality service.

For example, under this proposal, schools will report student achievement of standardized goals as measured by widely used and well-rounded assessments, as well as student achievement of widely recognized skill certifications. These measures will be standardized to measure schools' value added, not just the quality of their incoming students. Parents will see these data and be able to influence schools through local governance institutions such as the PTA and the local school board. When this influence is unsatisfactory, parents and students will be able to change schools through vouchers good at local public schools (public school choice).

Colleges and other education and training providers for adults will also report student achievement of skill certifications. In addition, the national labor market information system will report placement rates and earnings of graduates (including a comparison to pretraining earnings). Students will have access to these performance measures. Even low-income students should be able to exercise choice because of skill vouchers (scholarships) and flexible loans.

Schools must motivate students, just as students and their families must provide incentives for the schools. Fortunately, this system creates appropriate incentives for students as well as for schools. Both students and employees will be able to achieve widely recognized certifications of their skills. Job applicants will be able to provide evidence of these certifications over the Internet to all employers. This certification system will provide incentives for students to work hard toward meaningful goals. (For other means in which the Internet can help reinvent policies, see Box 13.2. [omitted])

In many cases, the government is trying to provide incentives to employers, usually through detailed command-and-control regulations. If employees can hold employers accountable, workplace regulations can achieve both better results and lower cost. Employers who choose to opt out of the current command-and-control regulations should be accountable to employees for their success in meeting the goals of workplace regulations. Consider the example of safety. Employees will be able to see the workplace's safety records and safety plan. An employee committee will need to approve the safety plan for the workplace to be exempt from detailed command-and-control regulations. If employers do not achieve the goals of the regulations, employees will be able to call in regulators or disapprove the safety plan.

The government also needs to create incentives for its suppliers. Just as better measurement of employees' skills can help both employees and employers, better certifications of government suppliers' capabilities can help both suppliers and the government. Suppliers will be evaluated by Baldrige award criteria and related evaluations of their capabilities to improve quality and meet customer needs. These evaluations can benefit suppliers in their relations outside the public sector, as their certifications become more widely recognized.

Identical logic holds for government departments and partners of the federal government such as states or nonprofits. All these service providers can be evaluated by the Baldrige criteria and its derivatives. However an agency or business partner is producing a good or service, it should be rewarded for implementing systems that ensure increasing effectiveness over time. Public-sector executives, the president, Congress, and voters can then use the voting process, funding levels, and the promise of continued business to reward agencies that enhance their capabilities to improve quality and meet customer needs. Many of America's most successful private companies reward divisions and suppliers that have excellent programs to improve the quality and effectiveness of their operations. The federal government should build on this best practice. For example, the move from command-and-control regulation to deregulation should be accelerated for service providers having programs that lead to continuous improvement.

The formula of improved accountability applies to all the means the federal government uses to provide a good or service: direct provision by federal agencies, procurement of the good or service (perhaps by privatizing a current government function), providing vouchers or tax credits so that citizens can purchase the good or service themselves, or partnering with a state or local government. Partnering can occur with any combination of regulations, incentives for high effort, and incentives for good results. For example, until recently much federal aid to states and localities was in the form of matching grants. The federal government's matching of state and local funding of antipoverty and other efforts provided incentives for programs that had benefits outside the states.

Unfortunately, the block grants now popular with many in Congress do not include measures for accountability. Without accountability, the move from matching grants to block grants penalizes those states that try hard to help their disadvantaged citizens.

The Role of Vouchers

Choice is only meaningful if even low-income citizens have the purchasing power to choose alternative service providers. Thus, in many situations, vouchers or refundable tax credits can create such accountability to customers. With vouchers, citizens have a direct role in monitoring quality.

For example, skill vouchers (perhaps implemented as scholarships or refundable tax credits) can improve our system of adult education by providing the unemployed with choices over where to acquire skills. (School vouchers are more controversial than most other forms of vouchers because some versions may not increase choices for the poor, and because neighborhood schools can help create a true community among the nearby families.)

In addition, public housing authorities can be made accountable to residents for the quality of their housing. Recipients of housing subsidies will be able to penalize poorly run projects by using their flexible housing vouchers to move to other (often private) housing.

Similarly, providers of vocational rehabilitation services to the disabled can be held accountable for their success in providing value to their clients. First, clients should see labor-market outcomes such as changes in earnings of graduates (controlling for diagnosis). Clients should receive flexible rehabilitation vouchers that are valuable at any service provider so that they can provide market incentives for providers to give great service.

A variant of vouchers can make providers of vocational rehabilitation services accountable to the government and to taxpayers. If the value of the rehabilitation vouchers to the service provider rises when clients' earnings reduce government benefits, then the system is guaranteed to make both the government and the disabled clients better off.

Incentives for Citizens

We must improve incentives for citizens in their many roles. Federal employees must know that their ideas to improve efficiency or quality will not cost them or their colleagues a job. Disabled adults must know that taking a job will not lower their standard of living or deprive them of health insurance.

A converse to the theme of improved incentives is the importance of responsibility. Youths should stay in school. Parents have a responsibility to support their family. Disabled people who can work should work.

It is not appropriate to require responsibility for an outcome unless individuals are given the ability to achieve it. For example, a responsibility system implies that students should stay in school to achieve widely accepted skill certifications that employers will often require. This requirement is fair only if students have access to early childhood health care and decent child care so that they enter schools ready to learn. It is fair only if schools have adequate funding and if teachers and administrators have appropriate skills and incentives.

A responsibility system implies that teachers are accountable to parents and students for providing valuable skills and certifications; otherwise the students can exit to other schools and parents can vote a new school board. This is fair only if schools have adequate funding and teachers have appropriate training.

A responsibility system requires that many people with physical disabilities work for pay. This is fair only if they have access to the training, rehabilitation, transportation, special medical or workplace equipment, and other resources they need to work. Moreover, they must know that their income and health insurance will improve (instead of decline) as their earnings rise.

This mixture of incentives and responsibility reappears within the public sector. A true reinvention of government must ensure that every employee of the federal government has the training, incentives, and authority and responsibility continuously to improve how their work is done. Our citizens demand no less, and our citizens deserve no less.

Reinventing a Life Cycle of Policies

  The approach to reinvention outlined above applies to any area of policy, from pollution control to defense procurement. This volume has applied these lessons to labor market and social policy. In spite of its length, this volume has left out issues ranging from mandatory family and medical leaves to affirmative action. At the same time, the policies identified here describe a life-cycle approach to creating more and better jobs, with a strong focus on investing in children.

The starting point is literally before the child is born. We need to expand our prenatal and infant care programs so all children are born healthy, and all receive appropriate pre- and postnatal care. The good news here is that early interventions can greatly reduce the costs the government pays to care for premature infants.

These interventions must continue with increased access to high-quality child care so that children are ready to enter school. Universal access to child care has the additional benefit of reducing the barriers that single mothers face when they enter the labor force. No reform of welfare can succeed if poor mothers must pay for child care while they try to earn enough to support their families.

Excellent preparation up to age five does no good unless it is followed by excellent schooling. This book describes decentralized but powerful school reform so that children in all neighborhoods can attend good schools. The goal is to make schools more interesting and more useful to employers and (future) employees by stressing skills such as working in groups to solve interesting problems. The model proposed here couples decreases in command-and-control regulations with increases in accountability--accountability to state and federal funders and (most important) accountability to parents. This accountability, coupled with parental involvement, appears to be the key to long-term success. We must go beyond the skills needed for productive workers and build the skills needed for engaged citizens: from the craft of running a meeting to the deepest levels of critical thinking.

In some settings accountability to parents and students can be enhanced by permitting them to choose students' schools. The term "school choice" covers a range of programs. Some "choice" programs largely lower the costs for those families that already choose private schools. Because these families are disproportionately privileged, such programs can worsen school funding for the majority of our children.

We must ensure that choice programs do not primarily enhance privileged children's ability to choose. For example, on the opposite extreme, a minimalist choice program would give school vouchers largely to the disadvantaged currently attending public schools. This program ensures that choice expands while it targets incentives to areas where schools are performing worst. Because the nonpoor largely have effective school choice by choosing where to live, this form of choice maximizes the increment of effective choice for each dollar spent on vouchers.

A more expansive version of school choice permits students to choose among all existing public schools and encourages new charter schools to form. Finally, a version of school choice in which schools would not charge tuition above the value of the voucher, and in which schools would not cherry-pick students, would permit private schools to compete for students as well.

The United States is unique among its industrialized peers in having no means for high school students to forge the transition to good jobs. At the opposite extreme, German high school graduates typically receive a high-quality apprenticeship. They then earn roughly twice what their counterparts in the United States earn. Moreover, until the recession brought on by reunification, they had no higher unemployment. Although the German system could not translate directly to the United States, the potential for improvement is there. Thus, the proposals here include school-to-work programs so that youths are prepared for work and have jobs when they become adults. Improving these connections can both increase learning and motivation of youths in high school and improve productivity for businesses.

Programs linking high school to jobs for young adults are particularly important for youths growing up in our poorest neighborhoods. Thus, the strategy for improving ghettos stressed in this book does not involve continuing to bribe businesses to locate in the ghettos. Instead, we should create a system in which youths are confident that if they finish school, avoid crime, and avoid pregnancy, they can grow up to leave the ghetto.

To create this promise, high schools in poor neighborhoods need to partner with local governments, businesses, nonprofits, religious institutions, and others to find things for disadvantaged youths to do all day and all through the year. Moreover, these services must be integrated so that youths and disadvantaged families see a coherent system of assistance. The federal government and the states should offer the following deal to high schools in poor neighborhoods: If you can create these partnerships and provide this level of integration, then graduates of high school who avoid arrest and pregnancy will be guaranteed either a scholarship to college or an entry-level job.

Regardless of our success in moving people into the labor force, millions of workers will continue to quit or lose their job each year. This book describes a reemployment system that moves people from one job to the next with maximum transferability of job skills and without loss of health insurance or the value of pensions. A decentralized form of training loans and grants would replace the command-and-control training system of today. Flexible loans with repayment rates that are tied to future income should also increase access to education after high school for students of all ages.

When people enter the labor force, they enter workplaces subject to hundreds of command-and-control regulations from numerous levels of government. This volume presents a novel proposal for deregulation. This deregulation would not be for all employers, but only for those who voluntarily work with employees and their representatives to solve workplace problems. Each plan to replace current regulations would still need to meet strict standards and show good and continuously improving results. Moreover, employees themselves would approve alternative plans, creating a decentralized means of ensuring compliance.

If OSHA is the agency most hated by business, large public housing projects are perhaps the most hated government function. We must end public housing as we know it so that children are not trapped in some of the worst neighborhoods in the industrialized world. Housing assistance should be provided with housing vouchers that promote mobility and employment. As an important complement, the federal government should increase its efforts to search out housing discrimination; for example, by extending its use of matched black and white testers who apply for housing, rentals, or mortgage loans.

A little-realized fact in discussing labor market policy is that we are all just temporarily able-bodied. We must move to a disability system that rewards prevention of long-term work impairment. When disabilities occur, the system must remove the enormous disincentives for work that disabled people face. The proposal here suggests that total benefits for the disabled be reduced by fifty cents for each dollar they earn--ensuring that work always pays. Moreover, the disabled would be ensured of subsidized medical insurance forever, although the subsidy would decline as their earnings rose.

To couple flexibility with incentives for both the disabled and for service providers, assistance in vocational rehabilitation should be provided with vouchers that pay for results. An important insight of the analysis presented here is that it is possible to grant the 6 million working-age people already on the disability rolls very strong work incentives, because with this population there is no fear of inducing new entry onto the rolls. For many new entrants, particularly the younger and less seriously disabled, the system must move from a model of lifetime poverty-level stipends to a model of providing the assistance needed to work.

Investing in Our Future

Unfortunately, some of these policies cost money. The key to sensible social policy is to realize that it can cost less to improve the life of a child than to deal with the consequences of an impoverished and problematic childhood. Thus, investments in building a society with opportunity for all can repay themselves many times.

A second basic set of investments involve investments in learning. When a single agency, state, or city identifies a better way to serve its clients, others should benefit from this innovation. Conversely, no single agency captures all the benefits of its new ideas. Thus, the federal government has a key role in building the information infrastructure of the nation. Some of this infrastructure is literally wires, helping all citizens have access to the Internet. Much of this knowledge infrastructure is disseminating best practices: what educational policies work, what social policies work, what management policies work in the public and private sectors. Finally, this knowledge infrastructure must contain information on how to create new information. That is, the government must disseminate information on how to build policies that create knowledge about their own operation: policies designed for continuous improvement.

Continuous Improvement of These Proposals

  Many of the ideas proposed in this volume are novel and are not yet tested. Many ideas that appear sensible will not work in practice. Others ideas, such as the need for service integration, are as familiar in the prescriptive literature as they are ignored in practice.

What both the novel and the familiar ideas have in common is a need for learning and disseminating what works. We must learn what policies work, and we must learn how to implement those policies in the face of obstacles to integration, change, and so forth.

Concluding Thoughts

  Today, almost one in four children live in poverty. These rates are much higher for certain groups such as blacks and families headed by a single mother. With half of all marriages ending in divorce, no extended family is likely to be immune from these dislocations.

There is no ethical justification for children suffering on this scale in a land of plenty. Moreover, children are our future. Investing in them can pay off through higher living standards, lower crime rates, a lower burden on social services, and the higher taxes they will pay over their lives.

No single policy will reverse America's disappointing performance concerning poverty, teen pregnancy, and slow productivity and wage growth. Nevertheless, taken together, the policies described here can enhance the chances of all Americans to live prosperous, middle-class lives. These policies will increase the likelihood that children will be born healthy, enter school ready to learn, and stay there long enough to learn the skills they will need in the workplace of the future. Policy innovations in the labor market promise new entrants better prospects for finding a satisfying first job, and all workers a greater likelihood of smoother transitions between jobs and of continued learning on their jobs and throughout their careers. If successful, these policies will promote higher productivity and rising living standards, as well as make work more interesting for all.