Abstract
It is always difficult to make a disputatio unfold in a continuous and uninterrupted manner. We have to trust that a reader interested in a particular line of debate will be willing to follow it despite interruptions. Such is the case with the excellent discussion of the role of public administration in the “great recession”. It was initiated in the January 2012 issue with Richard Green’s contribution titled “Plutocrcay, Bureaucracy and the End of Public Trust”. Responses to Green followed in the April 2012 issue from Anne Khademian, and Michael Potter.
But receiving no more responses to Green, the May 2012 issue featured a contribution on a wider, indeed a sweeping topic–“The Future of Public Administration: Challenges and Opportunities” by Ali Farazmand. It was followed in the July issue by still another topic, “ ‘Great Books’ of Public Administration, 1990-2012, Revisiting Sherwood’s Survey in the Wake of Reinventing Government” by David Kasdan. Any number of persons have indicated that they want to respond to Kasdan’s contribution, but for now the presses must inexorably roll on.
So while we await them, or others that may come in response to Farazmand’s sweeping challenge, we have received a belated response to Richard Green’s January contribution on public administration and the recession. It comes from Laurence Lynn and is provocative enough to have been worth the wait, and to evoke a rejoinder from Green. If you are interested in this topic, but are hereby just being made aware of it, we invite you to jump in. It is never too late. (Oh–also standby for the promised responses to Kasdan). Meanwhile the editor will strive to continue explication of the somewhat tortured, but illuminatingly evocative, path of disputations.
Anne Khademian is a superb scholar and a nice, civilized person. I agree with the essence of her rejoinder to Rick Green’s essay “Plutocracy, Bureaucracy, and the End of Public Trust.” I am not so nice, however. I found Green’s essay more a screed, and a non sequitur at that, than a well- constructed and convincing argument. This rejoinder explains why.
What Is Green’s Argument?
Green’s focus is the financial crisis of 2008-2009. As I understand him, he claims that the profession of public administration must accept its share of the blame for the financial crisis of 2008-2009, a share that is considerable. He supports this claim with evidence, derived primarily from two official investigations, that the crisis was an avoidable result of human action and that public administrators were among the actors who could and should have foreseen and prevented it. Because they did not, Americans’ trust in their government was seriously damaged. In addition, we have had continuing economic instability whose causes and consequences are central to the campaign leading up to the 2012 presidential election.
Green’s reasoning is based on his evident belief in the power of ideas: The ideals and theories to which public administrators are exposed in their professional education have an important bearing on how they conduct themselves as practicing professionals. Therefore, he says the profession must change its approach to regulatory administration, specifically, regulation of the financial sector, as well as remove public choice theory from its intellectual tool kit and restore “the Constitutional model” of governance to prominence.
This summary does not convey Green’s passion. “We contributed mightily to this disaster,” he says. The profession’s silence in the face of its own failures is shocking. We should have reacted with outrage. In summary, “most of us in [public administration], individually and collectively, were stunningly silent before [the financial crisis] occurred, and remain so in the aftermath. This cannot continue!”
Green is right about many things. He is wrong or confusing about many other things. In the end, his argument falls apart because it is not sustained by a discernible logic or convincing evidence.
It will be useful to look more closely at what Green has said.
Where Is Green Right?
America’s governance of its financial system is indispensable to economic growth, commerce, and wealth accumulation not only in our country but around the world. The system should serve a public good because, when properly regulated, its products and services constitute a public good: accurate, widely diffused information, flexible banking service, and investment products and opportunities whose risks are transparent, all of which enable our capitalist system to flourish. Instead, from something resembling a public-regarding system, it has become essentially an exploitable opportunity for unprecedented wealth accumulation by privileged elites, with increases in economic inequity that threaten democratic stability and, especially following the Supreme Court’s Citizens United decision, a dangerous threat to our liberty.
Is there a far-too-powerful plutocracy subverting the public interest in financial regulation, as Green claims? Yes. The existence and disproportionate power of a plutocracy is now well documented in the literature of the financial crisis, the deregulatory trends leading up to it, the history of the Dodd-Frank legislation, the Obama administration’s “banks now, people later” policies on financial regulatory reform, and the behavior of key financial actors (think Jamie Dimon) since. Although there are certainly those who disagree with this narrative, the plutocrats as a genre are crooks and thieves.
Should there be greater concern for the public interest in financial system regulation, as Green urges? Absolutely. Many aspects of the system, such as over-the-counter trading, are unregulated, and regulatory enforcement policies are not strong enough to prevent systemic abuse.
Do the professional regulators—the public administrators—bear partial responsibility for the crisis? Yes, although this answer must be qualified.
As Green notes, financial affairs are exceedingly complex. Regulation involves eight distinct regulators: the U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Commodity Futures Trading Commission (CFTC), the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), and the Office of Thrift Supervision (OTS).
1
Although less emotive language might have been used, it is not inaccurate to say that American regulators “failed miserably,” as Green insists. A member of the Fed’s Board of Governors said in May 2012, Neither the statutory framework for, nor supervisory oversight of, the financial system adapted to take account of the new risks posed by the broader trend. On the contrary, regulatory change for the 30 years preceding the crisis was largely a deregulatory program, designed at least in part to address the erosion of banks’ franchise value caused by the rapid growth of credit intermediation through capital markets.
2
The commission report on which Green relies noted that we do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it. To give just three examples: the Securities and Exchange Commission could have required more capital and halted risky practices at the big investment banks. It did not. The Federal Reserve Bank of New York and other regulators could have clamped down on Citigroup’s excesses in the run-up to the crisis. They did not. Policy makers and regulators could have stopped the runaway mortgage securitization train. They did not. In case after case after case, regulators continued to rate the institutions they oversaw as safe and sound even in the face of mounting troubles, often downgrading them just before their collapse. And where regulators lacked authority, they could have sought it. Too often, they lacked the political will—in a political and ideological environment that constrained it—as well as the fortitude to critically challenge the institutions and the entire system they were entrusted to oversee.
These are unqualified judgments that regulators failed.
Is the Constitutional model needed in the governance of the financial sector, as Green also insists? Again, without question. But then it is true that the Constitutional model should inform all of American public governance and all public administration education and training efforts.
Where Is Green Confusing or Confused?
The following paragraph from Green’s (2012) essay is confusing: The wealth and power of these [financial] firms. … with their highly trained professional cadres and tiers of executives, can hardly be understated. The regulatory infrastructure of the country (state and federal) was and is no match for them. If anything, where regulators were not already co-opted to industry purposes, they were cowed into submission and/or acquiescence by their own political leadership. (p. 19, italics added)
Hang on! Did Green not tell us that these overmatched, co-opted regulators, cowed by their own political leadership, no less, were the enemy—us—who must be “blamed “mightily?” In telling us that, does Green not do just what he says in the quotation above cannot be done: understate the influence of plutocrats? Real power over the financial system, it seems to me, is dangerously unbalanced against the regulators. Why, then, blame those who crouch in their bloody trenches with gaping wounds inflicted by the howitzers of the Jamie Dimons of the world?
Green says that the financial crisis has contributed to the decline in American’s trust in their government and its institutions. The fact is that Americans’ trust in their government, as calculated by the Pew Center for the Press and the Public, began around the time of Lyndon Johnson’s escalation of the war in Vietnam and continued, with rare periods of limited recovery, until it reached all-time lows in the months leading up to Obama’s election. The recovery of trust was barely noticeable following Obama’s election and certainly has not been improved by subsequent events. Those events include the financial crisis, the state of the economy and unemployment, the toxic relations between the two parties, and the divisiveness created by Obama’s Affordable Care Act. Disentangling the effects of the financial crisis on these already low levels of trust would be exceedingly difficult, and Green has not attempted it.
Green says that the origins of New Public Management (NPM) are in the Reagan administration and that the financial crisis 28 years later is the fruit of NPM’s tree. The term new public management was first used in a published article in 1989; it was and remains a term more familiar to Europeans than to Americans. That a single member of the finance committees of Congress, with their bias against regulation, has ever heard the term is unlikely. Dislike of regulation, a staple of conservative doctrine for decades, began its long run in American politics during the Nixon administration.
NPM was a label affixed to Thatcherite administrative reforms, inspired by a turn to neoliberal politics, of Whitehall countries beginning in the 1970s. The coinage eventually became associated with almost any instrumental administrative reform initiative that seemed to involve something “new” in the 1990s. NPM’s only clearly recognizable push in the United States was by the administration of George W. Bush, without, however, recognizable success. Ironically, however, some of NPM’s instruments, such as use of third-party agents, deinstitutionalization, and devolution of authority had been practiced at all levels of U.S. government going back many decades. Green is beating the profession with the wrong stick, like swatting flies with a toothbrush.
Green also says that the profession remains enamored of the incorrect notion that “government can be run like a business,” but he provides no evidence. I do not believe the profession of public administration is in thrall to the idea, associated with the progressive-era scientific management movement that government should be run like a business. Perhaps Green has documented this charge elsewhere, but I do not think it is justified.
Green (2012) goes on to say, by way of prescription, Public administrators must pursue effectiveness in protecting rights, in responding to citizens and engaging them in coproduction of public policy as well as public services, in providing minority access and to redress grievances, while at the same time promoting prosperity and public welfare in frugal and efficient manner for current and future generations. (p. 140)
There are several problems here.
Green’s characterization of the public interest reads like the program of that one-time “fad”—Green has contempt for the profession’s faddishness—“New Public Administration” or the Blacksburg Manifesto. These are essentially the views of a European social democrat or a contemporary American liberal or a public administration scholar who believes in the politics–administration dichotomy. There is nothing wrong with these views per se. But Green (2012) is confusing when he quotes with approval Anne Khademian: In order for regulatory agencies to maintain their independence over time, they must maintain a vigilant relationship not only with the Chief Executive, but with Congress and its “quirky” political dynamics (pp. S136-39). They need to be proactive with these supervising branches in order to maintain their powers as well as their vitality in adapting their regulatory frameworks to changing conditions. (p. 137)
Regulators can push a doctrine, as Green advocates, or they can be politically astute and retain their influence, as Khademian counsels, but probably not both.
These changing conditions Khademian refers to occur not only in financial markets but also in politics. In our constitutional scheme, administrators are not given the responsibility for defining the public interest. That is the role of the political branches: legislatures and elected executives. Public administrators take an oath to protect and defend a Constitution that empowers policy makers, not “unelected bureaucrats,” to determine and give expression to “the public will.”
Where Is Green Wrong?
Green (2012) is wrong on several issues.
It may be argued, … that our elected officials, political appointees, powerful business interests, and a public feverish for riches overwhelmed anything the public administration might do to avert it. But the government reports and related literature discussed below conclude otherwise. (p. 111, italics added)
Is this right? No, it is not. The two reports reach the exact opposite conclusion. 3
The commission report says, for example, that “there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner. The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages …” (Financial Crisis Inquiry Commission, 2011, p. xvi, italics added). The Fed is governed by political appointees, the most prominent of which, in this story, is Alan Greenspan, legendary financial wizard. The commission report goes on as follows: “We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis” (p. xviii). Furthermore, “We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction” (p. xxv).
What about government and its administrators? The commission report says, We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets. … key policy makers—the Treasury Department, the Federal Reserve Board, and the Federal Reserve Bank of New York—who were best positioned to watch over our markets were ill prepared for the events of 2007 and 2008. (Financial Crisis Inquiry Commission, 2011, p. xxi)
“Ill prepared” and “inconsistent” are not synonyms for “key cause” or “prime example.”
The other report on which Green bases his conclusions, the Senate Report, is based on case studies, three of private sector entities—one of Washington Mutual Bank (the famous WAMU); one of two private credit rating agencies, Moody’s and Stand and Poor’s; and one of two investment banks, Goldman Sachs and Deutsche Bank—with a fourth case being the government’s OTS. Based on the case studies, this report identifies four causative factors for the crisis: (a) lenders introduce new levels of risk into the U.S. financial system, (b) credit rating agencies label the new financial instruments safe, (c) federal banking regulators fail to intervene and insist on safe lending practices and risk management, and (d) investment banks spread the risk through creating structure investment products based on the unsafe loans. “Together,” the report says, “These developments produced the crisis.” The OTS didn’t produce it.
Should the profession of public administration—you know, American Society for Public Administration (ASPA), National Association of Schools of Public Affairs and Administration (NASPAA), National Academy of Public Administration (NAPA), and their members and institutions—volunteer to mightily share the blame for the 2008-2009 financial crisis?
Emphatically not! My surmise is that, by far, most of the professional public administrators in the eight regulatory agencies and the Department of the Treasury were educated in business schools or economics departments and had specialized training in finance and its regulation; few were graduates of NASPAA schools and programs. Unless Green has evidence to the contrary, then, his indictment of our profession has no merit. 4
Further undermining Green’s claim is that the seven public regulators are governed by political appointees, many on fixed, staggered terms. Most are constituted to be independent of executive branch supervision, although not of ideological bias. One private agency has a large board comprising public, private, and industry members. Although a large literature confirms the discretionary power of “street-level bureaucrats,” their political supervisors are responsible for the highly consequential policy making of their organizations.
When the Queen of England wanted to stick it to the probable culprits in the financial crisis in Great Britain, she did not address the staff of the Financial Services Authority. She addressed her question, “How could we miss such a big thing?” to the experts of the London School of Economics and Political Science.
Should the profession of public administration abandon—say by a prohibition in NASPAA accreditation standards—the teaching of public choice theory at the master’s level?
No. I do not know what Green means by “public choice theory”—he does not say—but that view is bizarre.
The late Canadian academic Peter Aucoin (1990) made the interesting argument that [t]his public choice paradigm emphasizes the role to be played by political authorities as elected representatives in governance. It does not admit to a policy/administration dichotomy that would carve out spheres of responsibility for politicians on the one hand and bureaucrats on the other. (pp. 126-127)
In other words, public choice theory is our kind of theorizing.
To abandon public choice theory would be, in effect, to abandon a major and fruitful research tool of the profession, political economics, in the training of professionals in public administration. This body of models and ideas is as well a major and fruitful research tool of the profession: Global and domestic financial markets are driven by self-interest and an understanding of how interest-based theories and models work and their applications are essential to regulate them. Neoliberal policies are a major contender for public support among politicians worldwide; being able to analyze them is essential to serving the public interest. To avoid being dazzled by “the quants,” one must understand what they are up to.
Green scolds his colleagues, especially those concerned with regulatory administration, for failing to grasp the differences between the public and private sectors. From Frank Goodnow to today’s emphasis on public service values, a literature that documents and celebrates the differences that are both wide and deep exists. Unless Green means to have us purge all thoughts of using choice and competition to promote public sector efficiency and performance or to punish impure thoughts about self-regulation or cooperative regulation, his opinion must be dismissed. 5
How Should the Profession Respond to Green’s Challenge?
Of all the professions whose failings over a long period contributed to “the catastrophe,” Green selects arguably the least culpable, his own profession of public administration, for his obloquy. For what sins? Public administrators were among the better-intentioned but fallible human beings who, tormented by the cross-pressures of accountability, were found bleeding in the wreckage of our financial system. The practicing Jackasses, dissemblers, reactionaries, thieves, mountebanks, sycophants, incompetents, sociopaths, clueless risk managers, Ayn Rand ideologues, and bottom feeders of, say, law, business administration, financial services, politics, accounting, auditing, consulting, and so on are, I suppose, to be dealt with, one hopes with bright Green passion, by their own teachers, mentors, scholars’ associations, guardians of the faith, and ethical gurus. Meanwhile, we in public administration will don our sackcloth and barbed wire underwear and proclaim “public choice theory is unconstitutional.”
Should ASPA or NAPA send a letter to someone with similar expressions of contrition? No. Here is a better idea: The profession should petition the following to apologize for creating the crisis and opposing solutions: the ex-chief executive officers of Lehman Brothers and Merrill Lynch; Jamie Dimon; Alan Greenspan; the quants (you know who you are), the “too-big-to-fail” banks’ boards of directors, compensation committees, and auditors; the finance faculty at the University of Chicago’s business school; and the Republican National Committee.
Green’s urgent appeal for the profession to focus on improving regulatory education, particularly in the financial sector, confronts us with a dilemma analogous to the issue: Should we save the whales, the rain forests, and the women of Congo or Americans without the means to obtain adequate health care? Resources are scarce: How do we confront competing moral obligations?
In that light, with regard to Green’s appeal to the profession, my response is this: Give regulatory management, whether it concerns the financial sector, health care, the economy, the pharmaceutical industry, the insurance industries, the communications industry, civil rights enforcement, environmental protection, or immigration, a proportionate share of the profession’s attention. But do not give the financial sector a privileged share of that attention.
In the education of professionals for public service, after all, public administration has no comparative advantage in fields such as finance. Emphasis on high constitutional principle complements, but cannot be a substitute for, technical expertise, relevant experience, and temperament: a balance of nerve and passion for excellence in that particular field. An emphasis on compliance, transparency, and the maintenance of public trust is as important to the education of business and finance professionals as it is to public administration, and educators in those professions are better able to relate such principles to the operating realities of professional life.
The Real Challenge to Our Profession
I do not think the events of 2008-2009 pose any kind of challenge to the profession of public administration. If we had had more financial regulation courses in our degree programs15 to 25 years ago, when practicing public administrators now in positions of responsibility were in school, it would not have changed the course of events since the housing bubble burst one single iota.
There are, however, challenges to our profession that we and we alone have the wit and wisdom to confront. Consider the utter collapse of Madisonian politics. Madisonian eliberation is virtually impossible in far too many of our legislative bodies, Congress especially. In addition, and related to that, the Supreme Court is now a political branch. That development totally upends traditional thinking about the meaning of the rule of law. Public administrators are public servants, but what does public service mean when the very foundation of the Constitution’s creation, compromise among factions, and the very principle of administration, balance, and one of the two great founding values, justice, are disregarded by Abraham Lincoln’s party and its appointees to the court? If corporate bribery is protected speech, as the Court has ruled, then what standards of equity and fairness should guide administration? Let us grapple with that. How do you “run a constitution” when it is in the hands of Grover Noquist, Antonin Scalia, Jamie Dimon, and Fox News?
Leave economic regulation to the professions that are competent to confront the technical complexity of modern economies and finance. Our responsibility, service on behalf of liberty and justice, is no longer operative, and, God forbid, if arch-conservatives gain control of the executive branch, and the protection principle is terminated, as Bush tried to do with the Working for America Act, we can collectively kiss our sorry professional butt goodbye.
But our profession is not prepared for this challenge to governing values. We have regarded Alexander Hamilton as our favorite Founding Father and Thomas Jefferson as our spiritual guide. James Madison, however, makes many of us squirm. Professionals in the field need to understand to their fingertips what Madisonian democracy means and why it is the keystone of our Constitution. Federalist 51 should be memorized. As one of our late and too little remembered scholars, John Millett (1954), has said, Are administrative agencies … to be regarded as a “fourth branch” of government? … I believe that they have no such exalted status. Rather, they are a kind of subordinate echelon of government subject in our scheme of things to the supervision of legislature, chief executive, and judiciary. … The administrator in the public service is concerned with all three, and ignores any one branch only at his peril. So it seems to me that the politics of public administration is concerned with how administrative agencies in our government are kept subject to popular direction and restraint in the interests of a free society, through the operation of three coordinate branches. (pp. vii-viii)
Alexander Hamilton has been credited, without evidence, as saying, “The people are an ass.” What he assuredly did say is that energy in the executive must be tempered by a due regard for the people in a republican sense, thus ensuring their “safety”—his word—from what we now call “executive overreach.” Public administrators must not pursue a public interest they alone define. The public interest is defined by the public and, in our system of government that means the institutions established pursuant to Constitutional principles of delegation and accountability. In public service, no element of administrative integrity is more important.
One more thing: With regard to Green’s essay, public administration as a profession is too often given to self-loathing. This cannot continue!