EMERGING ISSUES

The New Governance and the Tools of Public Action: An Introduction

Source: Fordham Urban Law Journal, June 2001 v28 i5 p1611(64).

Title: The new governance and the tools of public action: an
introduction.
Author: Lester M. Salamon

Subjects: Public policy (Law) - Management
Locations: United States

Electronic Collection: A80634920
RN: A80634920

Full Text COPYRIGHT 2001 Fordham Urban Law Journal

In economic life the possibilities for rational social action, for planning,
for reform--in short, for solving problems--depend not upon our choice among
mythical grand alternatives but largely upon choice among particular social
techniques ... techniques and not "isms" are the kernel of rational social
action in the Western world. (1)

Far-reaching developments in the global economy have us revisiting basic
questions about government: what its role should be, what it can and cannot
do, and how best to do it. (2)

INTRODUCTION: THE REVOLUTION THAT NO ONE NOTICED

A fundamental re-thinking is currently underway throughout the world about how
to cope with public problems. (3) Stimulated by popular frustrations with the
cost and effectiveness of government programs and by a new-found faith in
liberal economic theories, serious questions are being raised about the
capabilities, and even the motivations, of public-sector institutions. Long a
staple of American political discourse, such questioning has spread to other
parts of the world as well, unleashing an extraordinary torrent of reform. (4)
As a consequence, governments from the United States and Canada to Malaysia
and New Zealand are being challenged to reinvent, downsize, privatize,
devolve, decentralize, deregulate and de-layer themselves, subject themselves
to performance tests, and contract themselves out.

Underlying much of this reform surge is a set of theories that portrays
government agencies as tightly structured hierarchies insulated from market
forces and from effective citizen pressure and therefore free to serve the
personal and institutional interests of bureaucrats instead. (5) Even
defenders of government among the reformers argue that we are saddled with the
wrong kinds of governments at the present time, industrial-era governments
"with their sluggish, centralized bureaucracies, their preoccupation with
rules and regulations, and their hierarchical chains of command." (6)

Largely overlooked in these accounts, however, is the extent to which the
structure of modern government already embodies many of the features that
these reforms seek to implement. In point of fact, a technological revolution
has taken place in the operation of the public sector over the past fifty
years both in the United States and, increasingly, in other parts of the
world; but it is a revolution that few people recognize.

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 tools of public action, in the instruments
or means used to address public problems. Where earlier government activity
was largely restricted to the direct delivery of goods or services by
government bureaucrats, it now embraces a dizzying array of loans, loan
guarantees, grants, contracts, social regulation, economic regulation,
insurance, tax expenditures, vouchers, and much more.

What makes this development particularly significant is that each of these
tools has its own operating procedures, its own skill requirements, its own
delivery mechanism, indeed its own "political economy." Each therefore 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
qualified borrowers. In the process, commercial lending officers become the
implementing agents of government lending programs. Since private bankers have
their own world-view, their own decision rules, and their own priorities, left
to their own devices they likely will produce programs that differ markedly
from those that would result from direct government lending, not to mention
outright government grants.

Perhaps most importantly, like loan guarantees, many of these "newer" tools
share an important common feature: they are highly indirect. They rely heavily
on a wide assortment of "third parties"--commercial banks, private hospitals,
social service agencies, industrial corporations, universities, day-care
centers, other levels of government, financiers, construction firms, and many
more--to deliver publicly financed services and pursue authorized public
purposes. The upshot is an elaborate system of third-party government in which
crucial elements of public authority are shared with a host of
non-governmental or other-governmental actors, frequently in complex
collaborative systems that sometimes defy comprehension, let alone effective
management and control. In a sense, the "public administration problem" has
leapt beyond the borders of the public agency and now embraces a wide
assortment of "third parties" that are intimately involved in the
implementation, and often the management, of the public's business.

Take, for example, the system for delivery of publicly financed mental 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 federal or
state bureaucrat even comes in 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 delivery of mental health
services: it also contracts out the contracting out of mental health services.
(7) It does so through a "master contract" with a private, nonprofit local
mental health authority called ADAPT, Inc. (8) ADAPT, in turn, handles all
dealings with more than twenty other local agencies that deliver mental health
services in the Tucson area with funds provided by state and federal programs.
(9) Although this may be an extreme case, the phenomenon it exemplifies has
been a central part of public sector operations for well over a generation
now.

What is involved here, moreover, is not simply the delegation of clearly
defined ministerial duties to closely regulated agents of the state. That is a
long-standing 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 of a far more
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 and the sheer scale and complexity of current government
operations, a major share--in many cases the major share--of the discretion
over the operation 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 States, where
hostility to government has long been a staple of political life, and where
the expansion of governmental programs consequently has had to proceed in a
highly circuitous way. (10) Contracting arrangements invented to fight the
Revolutionary War and later elaborated to handle the far more complex tasks of
product development during World War II were thus quickly expanded in the
aftermath of that war to fields as diverse as agriculture, health, space
exploration, and social services. (11) Grants-in-aid, loan guarantees, social
regulations, insurance, and other indirect instruments have expanded as well.
(12) As Donald Kettl has reminded us, "[e]very major policy initiative
launched by the federal government since World War II--including medicare and
medicaid, environmental cleanup and restoration, antipoverty programs and job
training, interstate highways and sewage treatment plants--has been managed
through public-private partnerships." (13)

Reflecting this, a study of a cross-section of United States communities
carried out by this author in the early 1980s found that the majority of the
government-financed human services available at the local level was already
being delivered by private nonprofit and for-profit organizations as of that
date, and this was well before the advocates of "privatization," contracting
out, and "reinventing government" had proposed it. (14) In particular, as
shown in Table 1, government agencies delivered only forty percent of these
publicly funded services while private agencies--both nonprofit and
for-profit--delivered sixty percent. (15)

Instead of the centralized hierarchical agencies delivering standardized
services that is caricatured in much of the current reform literature and most
of our political rhetoric, what exists in most spheres of policy is a dense
mosaic of policy tools, many of them placing public agencies in complex,
interdependent relationships with a host of third-party partners. Almost none
of the federal government's more than $300 billion annual involvement in the
housing field, for example, bears much resemblance to the classic picture of
bureaucrats providing services to citizens. Rather, nearly $190 billion takes
the form of loan guarantees 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 form of housing vouchers administered by semi-autonomous local
housing authorities to finance housing provided by private landlords (17) (see
Table 2).

More generally, as reflected in Table 3, the direct provision of goods or
services by government bureaucrats accounts for only five percent of the
activity of the United States federal government. Even with income transfers,
direct loans, and interest payments counted as "direct government," the direct
activities of the federal government amount to only one-fourth (twenty-eight
percent) of its activities. Far larger in scale are other instruments of
public action--contracting, grants-in-aid, vouchers, tax expenditures, loan
guarantees, government-sponsored enterprises, insurance, and regulation, to
name just a few. Including just the $376 billion in net additions to deposit
insurance in 1999, and not the additional considerable 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 trillion as of Fiscal
Year 1999, two-and-a-half times higher than the roughly $1 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. This highlights another interesting feature of many of these more
indirect tools: they often do not show up on the government's budget, which
further helps to explain their attractiveness.

This reliance on third parties to deliver publicly funded services is not an
exclusively American phenomenon, however. It has also been a classic--if
largely overlooked--feature of the European welfare states, at least outside
of Scandinavia. In the Netherlands, for example, a fierce conflict between
secular and religious communities in the late 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 hands of private
schools, many of them religiously affiliated. (20) As government was enlisted
to assist in the provision of health care, social services, and even
humanitarian assistance overseas, this same model was replicated in these
other spheres, producing a widespread pattern known as "pillarization" under
which state resources are used to finance services delivered by private
institutions organized along religious and, later, ideological lines. (21) A
similar phenomenon is also apparent in Germany, where the Catholic doctrine of
"subsidiarity" has been enshrined in basic law, obliging the state to turn
first to the "free welfare associations" to address social needs before
enlisting state institutions. (22) Belgium, Ireland, Israel, and other nations
also exhibit a similar pattern. Even France, long known for its centralized
governmental structure and highly developed state welfare provision
dramatically increased its reliance on government contracts with private
nonprofit institutions during the 1980s to implement a major decentralization
of social welfare functions. (23) The upshot is that many countries in Western
Europe have nonprofit sectors quite a bit larger than that in the United
States, financed largely through grants and contracts from the state, as
reflected in Figure 1 below. (24)

I. THE NEED FOR A NEW PARADIGM

The proliferation of these new tools of public action has created new
opportunities to tailor public action to the nature of public problems. It
also has made it possible to enlist a wide assortment of different
actors--governmental as well as nongovernmental--in meeting public needs. At
the same time, however, this same development has vastly complicated the task
of public management. Instead of a single form of action, public managers must
master a host of different "technologies" of public action, each with its own
decision rules, its own rhythms, its own agents, and its own challenges.
Policy-makers likewise must weigh a far more elaborate set of considerations
in deciding not just whether, but also how, to act; and then how to achieve
some accountability for the results. And the public at large somehow must find
ways to make sense of the disparate actions that are then taken on their
behalf by complex networks of public and private actors. One of the central
conclusions of the new field of "implementation studies" that emerged in the
1970s, in fact, was that the convoluted structure of many public programs was
the source of many of the problems causing public programs to fall short of
their promise. (26)

Regrettably, however, existing concepts of public administration and public
policy offer little help in coming to terms with these dilemmas. Traditional
public administration remains preoccupied with the internal operations of
public agencies--their procedures for staff recruitment, budgeting, and task
accomplishment. Indeed, a cardinal tenet of the field has been that the
management of public affairs is best left to neutral professionals organized
in public agencies that are arrayed in hierarchical fashion and therefore able
to achieve the needed specialization of functions so crucial to effective
operations and democratic control. (27) Such concepts leave little room for
the proliferation of new forms of public action featuring the widespread
surrender of key elements of discretionary authority over the exercise of
public authority and the spending of public funds to a host of
non-governmental or other-governmental actors. "Much of the time, when
'government' does something, it is the [government] employees who really take
action," one recent text thus notes, conveniently overlooking the fact that in
the current era it is mostly government's third-party partners that take the
action instead. (28)

Nor does the new field of policy analysis that has recently gained prominence
offer much help. The central preoccupation of this field has been the
application of sophisticated techniques of microeconomics to the analysis of
public problems. Of far less concern has been the nitty-gritty of actual
program operations. Indeed, the implementation of public programs has long
been the "missing link" in the policy analysis worldview. (29)

Even the "new public management," (30) and the "reinventing government
movement" (31) that it helped spawn, have failed to improve much on this
record. To be sure, this line of thinking has made the use of alternative
instruments a major goal of public sector reform. (32) But to justify this
prescription, as we have seen, reinventing enthusiasts have embraced a
caricature of current government operations that overlooks the extent to which
such instruments already have been adopted. In the process, they downplay the
immense difficulties that these instruments entail and the strong possibility
that the reforms they are espousing may be the source, rather than the cure,
for the problems they are seeking to remedy.

What this suggests is that government does not need to be "reinvented," as the
new public management has suggested. That process is already well along. The
great challenge now is to find a way to comprehend, and to manage, the
reinvented government we have produced. For that, however, a new approach is
needed, one that acknowledges the existence and likely persistence of
"third-party government," and that focuses more coherently and explicitly on
the distinctive challenges that it poses.

Fortunately, some progress has been made in developing 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 to it as "perhaps the greatest political revolution of
our times. (33) Frederick C. Mosher returned to this theme in 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
to one of arranging. (34) And this author, at around the same time, proposed a
wholly new focus for public management training and research concentrating on
the distinctive tools or instruments through which the public sector
increasingly operates. (35)

Despite some useful progress in formulating such a "tools framework," (36) and
the further proliferation in the use of diverse policy tools, however, most of
our political rhetoric and much of our public administration training remains
dominated by the image of the centralized bureaucratic state, as a recent
survey of public administration textbooks makes clear. (37)

The purpose of this article, and the book from which it is drawn, (38) is to
remedy this situation, to bring the new tools of public action that are now in
widespread use to the center of public and professional attention. In the
process, it suggests a new approach to public problem-solving for the era of
"third-party government" in which we find ourselves. I call this approach the
"new governance" to underline its two defining features. The first of these,
signified by use of the term "governance" instead of "government," is an
emphasis on what is perhaps the central reality of public problem-solving for
the foreseeable future--namely, its collaborative nature, its reliance on a
wide array of third parties in addition to government to address public
problems and pursue public purposes. (39) Such an approach is necessary
because problems have become too complex for government to handle on its own,
because disagreements exist about the proper ends of public action, and
because government increasingly lacks the authority to enforce its will on
other crucial actors without giving them a meaningful seat at the table. The
second feature, signified by use of the term "new," is a recognition that
these collaborative approaches, although hardly novel, now must be approached
in a new, more coherent way, one that acknowledges more explicitly the
significant challenges that they pose as well as the important opportunities
they create.

The purpose of this article is to outline this approach in more detail and to
introduce some of the basic concepts on which it rests. To do so, the
discussion falls into three sections. The first section introduces the major
features of the "new governance" paradigm and shows how they relate to
existing conceptualizations in the field. The second section then spells out
some of the basic analytics of the approach--what is meant by a "tool" of
public action, how tools can be assessed, and what dimensions of tools are
consequently most important. The final section then outlines some of the steps
that still are needed to put this approach into effect.

II. 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 history of
past thinking, changing emphases and incorporating new elements, but hardly
replacing all that has gone before. The result, however, is a new synthesis, a
new paradigm, that helps bring prevailing realities into better focus and
consequently clarifies some of the central dynamics at work. In particular,
five key concepts form the core of this approach, as outlined in Table 4
below. In this section we examine these five concepts and show how they relate
to existing approaches in the field.

A. From Agency and Program to Tool

At the heart of the "new governance" approach is a shift in the "unit of
analysis" in policy analysis and public administration from the public agency
or the individual public program to the distinctive tools or instruments
through which public purposes are pursued. As we have seen, such instruments
have mushroomed in both number and scale in recent decades. A central argument
of the "new governance" is that this has altered the nature of public
management and the pattern of public problem-solving in rather fundamental
ways, but ways that are only partly acknowledged in existing theories and
approaches.

This focus on the tools or technologies of public action differentiates the
"new governance" both from classical public administration and from the more
recent "implementation" school that emerged in the 1970s. For the former, the
central focus of public administration is on the operation of governmental
agencies. This reflects the origins of the public administration field in the
Progressive Era effort to legitimize government action to cope with the
increasingly apparent shortcomings of the unfettered market system. As
formulated by Woodrow Wilson, Max Weber, Frederick Taylor, Luther Gulick, and
others, the classical theory posited a new type of institution, the democratic
public agency, that would overcome the three major problems long associated
with government bureaucracy in the American mind--i.e., excessive
administrative discretion, special interest capture, and inefficiency. (40)
This was to be achieved through three principal devices: first, the
restriction of executive agencies to administration rather than policymaking;
second, personnel recruitment on the basis of technical competence rather than
political influence; and third, a set of "scientific" management principles
designed to ensure the efficient conduct of administrative work. (41) 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 agency as the basic unit of analysis, a sharp
distinction between the public and private sectors, a separation between
policy and administration, a preference for clear lines of administrative
responsibility and control, and an emphasis on the skills of command and
control.

Although these ideas have provided a workable framework for the development of
a relatively successful administrative apparatus in the American context, (42)
however, they take as given that the funding and provision of public services
typically are carried out by the same public entity. As a result, they apply
most clearly to only one of a range of possible forms that public action can
take--i.e., direct government. But as we have seen, this is no longer the
dominant form of public action at the present time.

This point became clear as early as the 1970s as efforts were made to explain
why the Great Society social programs of the 1960s were not living up to their
promise. The answer, a new school of implementation studies concluded, was not
that the classical theory was wrong but that the American political system was
failing to supply the conditions necessary for it to work. (43) Studies of
program implementation revealed that, instead of clear specification of
program objectives, sufficient authority to put programs into effect, and
reasonable attention to the management challenges that programs entailed,
administrators often were set adrift with only vague or conflicting guidance
about program purposes, insufficient authority to act, and little attention to
the administrative tasks that programs involved. (44) Especially problematic
was the highly indirect character of many of the Great Society initiatives.
The reason public programs were failing, students of implementation therefore
concluded, was not that America adhered too closely to the Progressives' ideal
and built too centralized an administrative state, 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. (45)

To remedy this, implementation theorists proposed to shift the unit of
analysis in policy work from the public agency to the individual public
program and to encourage clearer specification of program objectives and
greater attention to program management. (46) Far less clear, however, despite
numerous case studies, was what improved management really entails and how
this might vary systematically among the many types of programs that exist.
(47)

The "new governance," by contrast, takes a significantly different approach.
Rather than seeing programs as sui generis, the "new governance" finds
commonalities flowing from the tools of public action that they employ. It
thus shifts the unit of analysis from the individual program or agency to the
distinctive tools of public action that programs embody. Underlying this
approach is the notion that the multitude of different government programs
really embody a more limited number of basic 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 that will be part of
the cast during the all-important implementation process that follows program
enactment, and they determine the roles that these actors will play. Since
these different actors have their own perspectives, ethos, standard operating
procedures, skills, and incentives, by determining the actors the choice of
tool importantly influences the outcome of the process. This focus thus builds
on the insight of the implementation studies that the division between policy
and administration assumed in the classical theory does not seem to work in
practice, and that the process of program design does not end with legislative
enactment but rather continues into the implementation phase as well. In these
circumstances, it makes sense to focus attention on the decisions that shape
which actors have significant roles in this stage of the process. And this is
precisely what the "tools focus" of the "new governance" does. By shifting the
focus from agencies or programs to underlying tools, therefore, the "new
governance" provides a way to get a handle on the post-enactment process that
the implementation literature identifies as crucially important. Tool choices
significantly structure this process and therefore affect its results.

Because of this, however, tool choices are also not just technical decisions.
Rather, they are profoundly political: they give some actors, and therefore
some perspectives, an advantage in determining how policies will be carried
out. This is especially critical given the degree of discretion that the
implementation literature suggests is left to this stage of the process. The
choice of tool thus helps determine how this discretion will be used and
therefore which interests will be most advantaged as a result. For this
reason, the choice of tool is often a central part of the political battle
that shapes public programs. What is at stake in these battles is not simply
the most efficient way to solve a particular public problem, but also the
relative influence that various affected interests will have in shaping the
program's post-enactment evolution.

Such choices are not entirely free, however. Rather, cultural norms and
ideological predispositions importantly shape them, and they in turn affect
public attitudes toward the state. (48) A strong pro-market bias underlies
tool choices in the United States, for example, whereas the United Kingdom is
much more wary of the market and much more favorably inclined toward the
state. (49) At the same time, such cultural norms are hardly immutable. To the
contrary, debates over the appropriate techniques of social intervention--over
block grants vs. categorical grants, direct government vs. contracting out,
public enterprise vs. economic regulation--form the core of much of our
political discourse.

If tool choices are fundamentally political choices, however, they are also
operational choices with significant implications for the management of public
affairs. Different tools 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 may exist, they must be
supplemented by skills peculiar to the various tools being employed if public
programs are to be effective. But this requires a body of literature and a
type of training that is geared to the characteristics of the different tools,
which is precisely what the "new governance" seeks to provide.

B. From Hierarchy to Network

In shifting the focus of public problem-solving from agencies and programs to
generic tools, the "new governance" also shifts the attention from hierarchic
agencies to organizational networks. The defining characteristic of many of
the most widely used and most rapidly expanding tools, as we have seen, is
their indirect character, their establishment of interdependencies between
public agencies and a host of third-party 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 complex exchanges thus comes
into existence between government agencies and a wide variety of public and
private institutions that are written into the operation of public programs.
In these circumstances, the traditional concerns of public administration with
the internal operations of public agencies--their personnel systems, budgetary
procedures, organizational structures, and institutional dynamics--have become
far less central to program success. At least as important have become the
internal dynamics and external relationships of the host of third
parties--local governments, hospitals, universities, clinics, community
development corporations, industrial corporations, landlords, commercial
banks, and many more--that now also share with public authorities the
responsibility for public programs operations.

Not only does this broadening of the focus from public agencies to "networks"
of organizations differentiate the "new governance" from traditional public
administration, however; it also differentiates it from the "privatization"
and "re-inventing government" perspectives that have surfaced in recent years.

Both of these schools of thought acknowledge the importance of indirect forms
of government action. More than that, they both advocate it, the former as a
way to replace government 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 reliance on public agencies themselves. This is so,
privatization advocates argue, because the civil service protections 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. (50) In these circumstances, "the key to
effective government" becomes "privatization"--reducing the size of the public
sector, shifting responsibilities to the private sector, and establishing
"private [sector] alternatives [that are] more attractive" to the current
supporters of government programs. (51)

The reinvention school and the "new public management" of which it is a part
take a different tack. For these theories, contracting out and other forms of
indirect government are less ends in themselves than a means to improve
internal agency management by forcing public managers to compete. (52)
Reinventers thus have an incentive to downplay the extent to which such
indirect devices already are being used and to minimize the difficulties to
which they give rise. An internal contradiction thus creeps into the new
public management prescription as managers are simultaneously encouraged to
take more responsibility for the results of their activity and obliged to
surrender significant shares of the authority for achieving those results to
third-party implementers.

The "new governance," by contrast, shifts the focus of attention much more
explicitly from the internal workings of public organizations to the networks
of actors on which they increasingly depend. While acknowledging the
advantages such networks can bring, however, it also acknowledges the
considerable challenges they pose. As such, it builds on two other bodies of
theory: "principal-agent theory" and "network theory."

"Principal-agent theory" is part of a broader body of concepts designed to
explain the existence of organizations in a market system. (53) 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 arrangements of the sort that
third-party government entails. Despite the apparent influence that the
principals in such relationships wield by virtue of their control of the purse
strings, it turns out that the agents frequently end up with the upper hand.
This is so, principal-agent theory explains, because the agents in such
relationships typically have more information than their principals about what
they are doing with the discretion that is inevitably left in their hands.
They therefore have significant opportunities to "shirk" their duties and
subject the principals to the "moral hazard" of having to rely on agents whose
competence and diligence the principal cannot fully know. The only way for
principals to avoid this is to secure better information about how the agents
are performing, but this involves costs. Every principal therefore has to find
an equilibrium between the level of control it would like and the level it can
afford. The more disparate the goals and characteristics of the principal and
the agent, moreover, the more information will be needed, and the more costly
a given equilibrium is therefore likely to be. In these circumstances, "who
pays the piper" may not really "call the tune" at all, at least not without
considerable effort.

What "network theory" adds to this insight is the observation that the
principals in such relationships may have difficulty getting their way even
when the agents share their basic goals. This body of theory was developed to
explain the complexities of policy-making in many modern democracies, where
power is splintered among numerous divergent groups. But it also can help
explain the challenges of policy implementation as well, especially when
indirect tools are used. In such situations, network theory argues, the
standard relationship among actors is one of interdependence. As a
consequence, no single actor, including the state, can enforce its will. This
is especially true, network theory emphasizes, because of four crucial
attributes that commonly characterize policy networks, making the tasks of
network management in general, and the tasks of managing indirect tools in
particular, especially demanding:
* First, their pluriformity--the fact that they engage a diverse range of
organizations and organizational types, many of which have limited
experience cooperating with each other and limited knowledge of each
other's operating styles;

* Second, their self-referentiality--the fact that each actor has its own
interests and frame of reference and therefore approaches the relationship
with a different set of perspectives and incentives;

* Third, their asymmetric interdependencies--the fact that all the actors
in a network, including the state, are dependent on each other, but rarely
in a fully symmetrical way. Even when all the parties want the same thing,
therefore, they still may not be able to cooperate fully because they may
not all want it with the same urgency, in the same sequence, or at the same
time; and

* Finally, their dynamism--the fact that all of these features change over
time even as the network seeks to carry out its mission. (54)

Far from automatically sharing the same objectives, as the privatization and
reinventing paradigms tend to assume, the actors brought into the operation of
public programs through indirect tools thus typically have goals, operating
styles, skills, worldviews, incentives, and priorities that, even with the
best of intentions, often differ widely from each other. As a consequence, the
task of securing concerted action becomes a major administrative challenge. In
these circumstances, the hopeful assumptions of the reinventing government
school that government can move easily from a "rowing" to a "steering" role
are far from assured. (55)

What the "new governance" and its "tools approach" add to this network theory
is a clearer understanding of the commonalities 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 will play. When policy-makers choose a loan guarantee, for
example, they choose a network that involves a structured interaction between
a public agency and the commercial banking system. When they select a
grant-in-aid, by contrast, they choose a different network that engages state
and local governments. By shifting the focus from hierarchies to networks and
specifying more precisely the kind of network a program embodies, the "tools
approach" of the "new governance" thus can offer important clues about the
kinds of management challenges that particular programs will confront.

C. From Public vs. Private to Public & Private

In moving the focus of public management and policy analysis from the program
and 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 management 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 responsiveness to the democratic will of
the people. Public agencies thus are imbued with sovereignty, the power to act
on behalf of the public. (56) Many of the central precepts of classical public
administration flow from this central premise and are designed to ensure that
the administrative officials so empowered do in fact respond to the public's
will and not the partial will of some private group. Without this clear
differentiation, accountability for the spending of public funds and the
exercise of public authority becomes impossible and the public sphere is
polluted by the intrusion of private interests. Keeping private interests and
private organizations at arms length thus becomes a central motivation of
organizational design.

This notion of a sharp divide between the public and the private sectors also
figures prominently in the privatization theories. Here, however, it is the
protection of the private sphere 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 is
therefore to shrink the state and allow the private sector to take up the
slack. (57)

Many of the new tools of public action defy these precepts rather
fundamentally, however. Instead of a sharp division between the public and
private spheres, they blend the two together. This is not to say that 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. But collaboration replaces competition as the
defining feature of sectoral relationships. Rather than seeing such
collaboration as an aberration or a violation of appropriate administrative
practice, moreover, the "new governance" views it as a desirable by-product of
the important complementarities that exist among the sectors,
complementarities that can be built upon to help solve public problems. (58)
For example, the state enjoys access to resources that are often critically
needed by private, nonprofit groups. For their 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 it does
best--raising resources and setting broad societal directions--while using
nonprofit organizations for what they do best--delivering services at a human
scale and innovating in new fields--important public advantages can thus be
gained.

Similar synergies exist, moreover, with the private business sector. (59) So
long as due attention is given to the management challenges they entail,
cross-sectoral partnerships thus can yield important dividends in terms of
effective public problem-solving. Rather than viewing 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.

D. From Command and Control to Negotiation and Persuasion

In emphasizing the shift from programs run by public agencies to cooperative
action orchestrated through complex networks, the "new governance" also
underlines the need for a new approach to public management. In this it also
differs from both traditional public administration and the new privatization
theories.

Traditional public management, with its focus on the operation of public
agencies, emphasizes command and control as the modus operandi of public
programs. This assumes that public action is carried out by hierarchically
organized agencies whose central spinal chord is the chain of command. Such
centralized control is, in fact, vital to the preservation of democratic
accountability. Much of traditional public administration thus is preoccupied
with clarifying lines of control and centralizing authority.

The privatization school, by contrast, downplays the need for administrative
management altogether. Instead, it posits the market as a superior mechanism
for achieving coordination and advancing public goals. Market competition, in
this view, replaces public decision-making and obviates the need for
administrative control. (60)

The "new governance" rejects both of these approaches and suggests a third
route for achieving public purposes in the world of third-party government
that now exists. Unlike the privatization school, it emphasizes the continued
need for public management even when indirect tools are used. This is so
because private markets cannot be relied on to give appropriate weight to
public interests over private ones without active public involvement.
"Government's relationships with the private sector are not
self-administering," one expert on privatization has thus noted; "they
require, rather, aggressive management by a strong, competent government."
(61) Even the World Bank, long known for its market-oriented economic policies
and endorsement of privatization, recently has had to acknowledge that
"Institutions Matter," as the title of a recent Bank publication puts it. (62)
"An effective state," the Bank noted in the 1997 edition of its influential
World Development Report, "is vital for the provision of the goods and
services-and the rules and institutions--that allow markets to flourish and
people to lead healthier, happier lives. Without it, sustainable development,
both economic and social, is impossible." (63) In fact, even the process of
privatization itself has been found to require "strong political commitment
and effective public management." (64)

While stressing the continued need for an active public role, however, the
"new governance" acknowledges that command and control are not the appropriate
administrative approach in the world of network relationships that
increasingly exists. Given the pervasive interdependence that characterizes
such networks, no entity, including the state, is in a position to enforce its
will on the others over the long run. In these circumstances, negotiation and
persuasion replace command and control as the preferred management approach,
not only in the setting of policy but in carrying it out. (65) Instead of
issuing orders, public managers must learn how to create incentives for the
outcomes they desire from actors over whom they have only imperfect control.
Indeed, negotiation is even necessary over the goals that public action is to
serve since part of the reason that third parties are often cut into the
operation of public programs is that such clarity cannot be achieved at the
point of enactment.

All of this suggests a new body of administrative "doctrine" that makes
collaboration and negotiation legitimate components of public administrative
routine rather than regrettable departures from expected practice. Reconciling
such an approach with long-standing prohibitions against excessive
administrative discretion will be no easy task, but interesting examples of
how this can be done already are apparent in such approaches as negotiated
regulation and cooperative contracting.

E. From Management Skills to Enablement Skills

Finally, because of the shift in emphasis from command and control to
negotiation and persuasion, the world of "third-party government" necessitates
a significantly different skill set on the part of public managers and those
with whom they interact. Both traditional public administration and the "new
public management" emphasize essentially management skills, the skills
required to manipulate large numbers of people arrayed hierarchically in
bureaucratic organizations. For traditional public administration, these are
essentially the control skills summarized nicely by Luther Gulick in the
classic administrative acronym POSDCORB--Planning, Organizing, Staffing,
Directing, Coordinating, Reporting, and Budgeting. (66) The "new public
management" moves the emphasis considerably from control to performance, but
it remains preoccupied with internal agency management and with the managers
as the key to success. Under this body of thought, the path to successful
public sector performance is to introduce business management practices into
the public sector, freeing managers to manage but subjecting them to increased
competition and holding them accountable for results. (67)

Unlike both traditional public administration and the new public management,
the "new governance" shifts the emphasis from management skills and the
control of large bureaucratic organizations to enablement skills, the skills
required to engage partners arrayed horizontally in 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 a consequence of this shift:

1. Activation skills. In the first place, the "new governance" requires
activation skills, the skills required to activate the networks of actors
increasingly required to address public problems. (68) Many of the "new
governance" tools create opportunities for third parties to take part in
public problem-solving but do not mandate that these opportunities be taken.
Public managers, therefore, must perform a mobilization and activation role,
marketing the new opportunities and encouraging the potential partners to step
forward and play their roles. Thus, competent contractors must be identified
and encouraged to bid in purchase-of-service programs; banks must be convinced
to participate in loan guarantee schemes; and private individuals and
corporations must be made aware of tax expenditures. In none of these cases
can participation be taken for granted. Rather, it must often be coaxed and
cajoled. One of the great challenges in purchase-of-service contracting, for
example, has been to ensure an adequate supply of vendors willing to compete
on the government's terms, (69) and similar problems have confronted loan
guarantee programs as well. Those ultimately responsible for program success,
therefore, often find themselves in the unaccustomed position not of
withholding desired support but rather of trying to mobilize appropriate
partners to accept it.

Moreover, the task of activating networks for public problem-solving is not an
exclusively 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. (70) Increasingly, private foundations have played this role in the
United States, either on their own or in cooperation with corporate and
community partners. Rather than wait for government to act, in other words,
private institutions are taking the initiative instead. This proliferation of
a sense of responsibility for activating problem-solving networks is, in fact,
one of the more hopeful facets of the "new governance."

2. Orchestration skills. In addition to activating networks, the "new
governance" requires managers who can then sustain them. This calls for
orchestration skills, the skills required of a symphony conductor.
Essentially, a conductor's job is to get a group of skilled musicians to
perform a given work in sync and on cue so that the result is a piece of music
rather than a cacophony. Clearly, the conductor cannot do this by playing all
of the instruments. Rather, he or she must tease the music out of the
musicians, setting the tempo and conveying an interpretation, but nevertheless
remaining within the bounds set by the physical capacities of the instruments
(and the musicians), not to mention the melody prescribed in the score. The
conductor is thus an enabler rather than a doer, but his or her interpretation
and skill can nevertheless determine whether a given orchestra plays poorly or
well.

Orchestration, therefore, does not mean command and control. Nor is the
orchestrating role an exclusively governmental one any more than the
activation one is. Indeed, in major systems acquisition projects, government
contracts out the orchestrating role to a general contractor who then
mobilizes subcontractors to produce the components of the system. In recent
years, this model has been applied as well to human 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 networks of day care,
drug-abuse counseling, mental health service, job-search, health, job
placement, and related service providers required to move welfare recipients
into jobs and keep track of the results. (71) Beyond this, however, other
actors also can lift the baton even without this kind of governmental
imprimatur. What is needed to be effective is not simply command of
resources--whether financial or legal--but also the intangibles of knowledge,
vision, persuasiveness, and community respect.

3. Modulation skills. Finally, the "new governance" requires the sensitive
modulation of rewards and penalties in order to elicit the cooperative
behavior required from the interdependent players in a complex tool network.
Urban economic development specialists have referred to this as
enoughsmanship--the provision of just enough subsidy to get private parties to
make investments in rundown areas they might avoid, but not so much as to
produce windfall profits for doing what the developers would have done anyway.
Inevitably, as we have 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 third parties over which public officials
have, at best, limited control. In these circumstances, the central challenge
for public managers is to decide what combination of incentives and penalties
to bring to bear to achieve the outcomes desired. Excessive use of authority
clearly can backfire if partners 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 goals.
Public managers in the era of the "new governance" are consequently
perennially confronted with the dilemma of deciding how much authority or
subsidy is "enough," and how much is too much.

Eugene Bardach and Robert Kagan recognized this point clearly in their classic
analysis of the problem of regulatory enforcement. (72) Rather than the
classic "tough cop," Bardach and Kagan suggest that regulatory enforcement
actually may be more successful if it promotes the concept of the "good
inspector," the inspector who understands when forbearance rather than rigid
enforcement will best achieve regulatory compliance, and who has the
discretion to adjust regulatory enforcement accordingly. (73) Similar notions
also are evident in endorsements of new types of contracting stressing
cooperation as opposed to classic competitive bidding. (74) Instead of
narrowing the range of administrative discretion left to the "street-level
bureaucrat," (75) the "new governance" calls for broadening that discretion
and equipping the public official with the skills and understanding needed to
exercise this discretion in a way that advances program objectives.

The growing use of entire "suites" of tools in particular programs only
accentuates the need for this modulating, enoughsmanship 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. Although this
opens opportunities for abuse, it also creates the potential for truly
effective management of public programs. To be effective, however, this
approach 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 rewards required to get a given job done.

As with other facets of the "new governance," therefore, the enablement skills
required will vary with the type of tool being used. The task of securing the
concurrence of industrial firms with the operation of an air pollution 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 out again
the importance of tool-specific knowledge to the operation of the third-party
arrangements that now exist. But it also underlines the fact that the new
tools of public action, far from reducing the demands on 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 suggests not the withering away of
public administration, as privatization theories tend to assume, but its
transformation and refinement instead.

F. Summary

In short, the proliferation of tools of public action has necessitated a new
approach to public problem-solving, a "new governance" that recognizes both
the collaborative character 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 on public problems. Instead of
focusing exclusively on public agencies or public programs, 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 post-enactment process of policy definition by
specifying the network of actors that will play important roles and the nature
of the roles they will perform. In 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 management skills, it must
require enablement skills. 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
potentially 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 all the more urgent.

III. BUILDING THE KNOWLEDGE BASE

A. Basic Analytics

The "new governance" thus calls 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 resisting this
trend, like the traditional public administration, or uncritically celebrating
it, like the reinventing government school, however, the "new governance"
calls for the development of a systematic body of knowledge that can help
policymakers, public managers, and others engaged in the increasingly
collaborative business of public problem-solving take advantage of the special
opportunities and cope with the special challenges that these new tools
entail. In the process, it directs our attention to the characteristic
features of the different tools and at the often-complex networks of
interaction on which many of them depend.

But which features of the different tools are most important? How can tools be
analyzed and compared? Which facets are likely to have the biggest effects?
And which effects are most 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 answers to these questions. It is therefore necessary to
turn from the rationale for the "new governance" and the general features that
characterize it to a more detailed exploration of its analytical core.

B. Definition and Classification: The Basic Building Blocks

1. Basic Definition

As a first step in this direction, it may be useful to specify more precisely
what is meant by a "tool" or "instrument" of public action. This is no simple
task since tools have multiple features and can be defined at any of a number
of levels of abstraction. For our purposes here, however, the most basic
descriptive level seems most appropriate. As used here, therefore, a tool, or
instrument, of public action can be defined as an identifiable method through
which collective action is structured to address a public problem. (76)
Several features of this definition are particularly notable:

In the first place, each tool is assumed to have certain common features that
make it "identifiable." This is not to say that all tools of a particular type
share all features. In addition to their common, or defining, features, tools
also have design features that can vary from one embodiment of the tool to
another. For example, all grants-in-aid involve payments from one level of
government to either another level of government or a private entity, but
different grant programs can vary in the level of specificity with which they
define eligible purposes, in the range of eligible recipients, in how funds
are distributed, and in many other features.

Secondly, tools "structure" action. What this means is that the relationships
that tools foster are not free-form or transient. Rather, they are
institutionalized. Tools are thus "institutions" in the sense emphasized by
students of the "new institutionalism," i.e., they are regularized patterns of
interaction among individuals or organizations. (77) They define who is
involved in the operation of public programs, what their roles are, and how
they relate to each other. They thus importantly shape the set of
considerations that effectively come to bear in the all-important
implementation phase of policy.

Finally, the action that is structured by tools is "collective action" aimed
at responding to "public problems." This is different from saying that tools
structure only government action. Other entities are also often involved in
the action that is structured by the tools of public action.

Given this definition, it is possible to distinguish tools from both programs
and policies, two other concepts commonly used to discuss policy action. Tools
are more general than programs. Programs thus embody tools, applying them to
the circumstances of a particular field or problem. A single tool therefore
can be used in many different programs in many different fields. Typically, a
program embodies a single tool, though increasingly, as we will see below,
programs are coming to embody entire suites of tools. A central premise of the
tools approach is that particular tools impart similar pressures and have
similar operating requirements wherever they happen to be applied.

If tools are typically more general than programs, they are typically less
general than policies. Policies are essentially collections of programs
operating in a similar field or aimed at some general objective. The programs
comprising a policy can all utilize a single tool (e.g., multiple
grants-in-aid) or multiple tools. An interesting question that tools analysis
raises is whether some tools are more appropriate for some policy objectives
than others, an issue I will return to below.

One other distinction worth making is that between internal tools and external
tools. Internal tools refers to the procedures that governments use to handle
their own internal operations. Included here would be basic procedures for
personnel recruitment, human resource management, budgeting, and procurement
for the supplies that government needs to operate. External tools, by
contrast, are those used to affect society at large, not just the government.
The focus of this article, and of the "new governance" approach, is on the
latter type of tools, those that seek to affect society and not just the
internal workings of government.

2. Tools as Bundles of Attributes

From what has been said it should be clear that although the concept of a tool
of public action is relatively straightforward, in reality tools are often
quite complex. Any given tool is really a "package" that contains a number of
different elements. These include:
* A type of good or activity (e.g., a cash or in-kind payment, a
restriction or prohibition, the provision of information);

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

* A delivery system, i.e., a set of organizations that are engaged in
providing the good, service, or activity (e.g., a government agency, a
nonprofit organization, a local government, a for-profit corporation); and

* A set of rules, whether formal or informal, defining the relationships
among the entities that comprise the delivery system.

These multiple facets naturally complicate the task of sorting and describing
tools, as we will see more fully below. Tools can be classified according to
any of the different facets--the nature of the good or service, the delivery
vehicle, the nature of the delivery system. This means that no single
classification of tools is possible. Classification schemes will differ
depending on which facet is used as the basis. Table 5 illustrates this point
by portraying how some of the most commonly used tools compare to each other
descriptively in terms of these four features. For example, loan guarantees
provide cash delivered through a loan by commercial banks operating according
to a set of rules that stipulate the conditions under which the government
will reimburse the bank if the loan becomes uncollectable. By contrast, direct
loans provide cash through loans delivered by a government agency.

3. The Challenge of Classification

This multi-dimensionality of policy tools naturally complicates the task of
describing and sorting them. This is particularly true in view of the fact
that unlike tools in the physical world, such as hammers, saws, and
screwdrivers, the tools of public action rarely appear in pure form. Rather,
they come bundled in particular programs, many of which combine more than one
tool and all of which bring different approaches to the design issues that
each program must address. Beyond this, there is occasionally ambiguity about
which features of a tool are truly the defining features and which are the
design features that can vary with particular manifestations. For example,
some observers treat "block grants," a form of grant-in-aid that defines
eligible purposes fairly broadly, as a separate tool from "categorical
grants," which define eligible activities more narrowly. Other observers,
however, consider this distinction inconsequential. (78)

Coupled with the considerable ingenuity that has characterized the design of
public action in recent years, the multi-dimensionality of individual tools
has made it difficult to reach consensus even on the number 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
Budget's Catalog of Federal Assistance identifies sixteen distinct tools,
Osborne and Gaebler recorded thirty-six, and E.S. Kirschen of the Netherlands
identified no fewer than sixty-three. (79)

Complicating matters further is the fact that tools are often mislabeled,
sometimes deliberately. For example, President Roosevelt insisted on including
a symbolic employee contribution in the Social Security Program so that this
program could be characterized as "insurance," which was easier to sell
politically, (80) even though it lacks most of the defining features of
insurance. (81) This mislabeling, whether deliberate or inadvertent, can play
havoc with efforts to characterize 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 are available in the
literature, but each uses a slightly different tool dimension as the basis for
its grouping. Thus Christopher Hood, in one of the earliest schemes, sorted
tools in terms of two major dimensions: (i) the role of government for which
they are used (i.e., detecting vs. effecting); and (ii) the governmental
resource they enlist (i.e., nodality, treasure, authority, or organization).
(82) McDonnell and Elmore focused instead on the strategy of intervention that
government uses, producing a four-fold division of tools into: (i) mandates,
(ii) inducements, (iii) capacity-building, and (iv) system-changing. (83)
Schneider and Ingram elaborated on this with a classification that focuses on
the behaviors that programs seek to modify, leading to a five-fold distinction
among: (i) authority tools, (ii) incentive tools, (iii) capacity tools, (iv)
symbolic or hortatory tools, and (v) learning tools. (84) Finally, Evert
Vedung returned recently to a scheme first developed by F.C.J. van der Doelen
and identified three classes of tools--carrots, sticks, and sermons--based on
the extent of force that each involves. (85) Given this diversity, some
analysts have begun to question whether the concept of a policy tool is
rigorous enough to support any serious analysis. (86)

Our approach, by contrast, is to recognize this diversity not as a drawback of
the tools approach, but as a strength. The fact is that tools have multiple
dimensions in terms of which they can be compared and contrasted, and
particular tools may be alike along some dimensions and different along
others. This means that multiple classifications of tools are entirely
appropriate since different classifications will highlight different facets.
Tools thus can be sorted in a two-step process: first, basic descriptive
features can be used to define different tools; and second, various dimensions
can then be identified in terms of which various tools so defined can be
grouped together for analytical purposes.

But which dimensions are the most appropriate to use? Because the tools
approach argues that various tool dimensions have significant consequences for
how programs operate and what results they produce, the answer to this
question depends, first, on which outcomes are of particular interest to us;
and second, on which tool dimensions our theories suggest might affect them.
Our approach to sorting tools therefore must be to focus on these two factors.

4. Evaluating Tools: The Criteria

So far as the first step in this process is concerned, the field of policy
analysis has identified three criteria in terms of which public interventions
are typically assessed: effectiveness, efficiency, and equity. The policy
implementation and political science literature suggest two other criteria
that also seem highly germane: manageability and political legitimacy. Taken
together, this gives us five criteria in terms of which the consequences of
tools can be assessed.

a. Effectiveness

Effectiveness is the most basic criterion for gauging the success of public
action. It essentially measures the extent to which an activity achieves its
intended objectives. Although considerations of cost can enter into this
judgment, effectiveness judgments are typically made independent of costs.
Using this criterion, the most effective tool is the one that most reliably
allows action on a public problem to achieve its intended purposes.

Gauging the effectiveness of public action is far from easy, however. 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 about what the principal purpose really is. Indeed, such
ambiguity is almost chronic in fragmented political systems like that in the
United States, in which multiple perspectives have ample opportunities to
influence the definition of program objectives. This makes the choice of tool
all the more important because ambiguity at the point of enactment pushes the
specification of program purposes into the implementation process, in which
the choice of tool can have an even more decisive impact.

The effectiveness of different tools also varies with the circumstances. Not
just the nature 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 in which
particular tools are likely 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. Because other considerations are often involved
in tool choices, the "new governance" can hardly avoid such dilemmas. But at
least it can clarify the risks and point out the trade-offs involved.

b. Efficiency

Where effectiveness focuses exclusively on results, a second
criterion--efficiency--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 judgment 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 non-governmental institutions also
are relevant, and for some tools these are far more immense. Regulation, for
example, places heavy compliance costs on private businesses that never show
up in the balance sheet of government. Indeed, with severe fiscal pressures on
governments, there is a strong incentive to utilize tools that have precisely
this effect. This suggests the need for a "double balance sheet" to assess the
efficiency of various tools, one focused on the costs to government alone and
one focused on the costs to other social actors as well.

c. Equity

A third crucial criterion in terms of which 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 less evenly among all those eligible. A tool that facilitates
the distribution of program benefits evenly across the country can thus be
considered equitable in this "fairness" sense.

But equity also has a different connotation relating to "redistribution," to
channeling benefits disproportionately to those who lack them. Achieving such
redistribution is, in fact, one of the principal rationales for public action.
In this view, government exists in part to remedy past inequalities and ensure
equal opportunity and access to all. Students of policy thus distinguish
between distributive programs, which essentially distribute benefits evenly
among a class of recipients; and redistributive programs, which tilt the
benefits toward the disadvantaged. (87) Some tools might be more likely to
serve such redistributive goals than others might.

d. Manageability

In addition to the classic economic criteria of effectiveness, efficiency, and
equity, recent research on program implementation suggests the importance of
manageability, or "implementability," as an additional criterion in terms of
which to assess tools. Implementability refers to the ease or difficulty
involved in operating programs. The more complex and convoluted the tool, the
more separate actors are involved, the more difficult it is likely to be to