Peter Grace knows 2,478 ways to cut the deficit.

PETER GRACE KNOWS 2,478 WAYS TO CUT THE DEFICIT

IN HIS State of the Union address, President Reagan once again masterfully blasphemed Washington by suggesting that the federal budget can indeed be cut, sharply and swiftly, without shearing any of those manifold government services the American people are presumed to demand.

This is blasphemy to the high-powered media, the majordomos of Congress, and some of the President's own men. Yet there stands the President, amid the current tax-raising phlegmatics, serenely, purposefully continuing to flout the received wisdom, frustrating every congressional bigwig who ever sought to finance the purchase of a few more votes. The President brushes aside even his own economic panjandrums as well--Martin Feldstein, David Stockman, and all. Then, is the President mad? Not at all. He has merely been listening to J. Peter Grace.

Peter Grace is the king of man who, at age seventy, Indian-wrestles fellow chairmen of the board at his desk, showers in the evening to save time getting to work in the morning, wears a pistol (for terrorists), and, as a Democrat, took out a full-page ad in the New York Times to support President Reagan's tax cuts. He was selected as the President's man to clean the Augean stables, as chairman of something inelegantly dubbed the President's Private Sector Survey on Cost Control.

Mr. Grace was an obvious choice for the job. Fiercely competitive and energetic in business, he is the chairman and chief executive officer of W. R. Grace & Co., Inc. He is America's senior corporate chief executive officer, having been in that job since 1945. Being given to speaking his mind on politics, Mr. Grace is near to fanatical about the federal deficit and the future of the nation. One observer claims Peter Grace would have made a good Pope, such is the man's faith in the timeless Irish Catholic verities. (In fact, he does hold many high offices in the laity.)

Mr. Grace has intense numerical proclivities. He is a famed connoisseur of figures. His motto is, "Figures don't lie.' In business, he finds the study of financial data most rewarding. The overseer of a company with more than 180 product lines and plants all over the world, Mr. Grace loves to tack huge financial spreadsheets on hotel corridor walls, the better to see the big picture. The text of one recent speech contained nothing but page after page of numerical tables. He even disdains the use of adjectives and adverbs in corporate prose, such is his philosophical attachment to the naked truth of unadorned statistics.

"When it comes to numbers, he's like a kid with a toy,' explains Duncan Bailey, Mr. Grace's chief numbercruncher and staff liaison with the commission. "He likes to play with them, try new relationships, look at them in different ways. We find some surprising things by taking publicly available numbers, pulling them apart, and adding them to other numbers.'

Peter Grace did not always thus amuse himself; as a young man he was a playboy. He is the grandson of William Russell Grace, who emigrated from Ireland in 1846 to escape the potato famine. William ended up later in Latin America, where he parlayed Peruvian bird droppings (fertilizer) into a multimillion-dollar industrial concern, best known for its steamship line. Thus, Peter Grace grew up in a household of 48 servants, went to Yale, played polo and hockey, and took pretty young debutantes with clipped accents out on his sailing yacht. The young Peter Grace had no interest in the family business. When he graduated from Yale in 1936 he did manfully try a stint in the mailroom. But polo was more fun, and he stayed away from the business until 1945, when his father, J. Peter Grace Sr., suffered a stroke. Since then, transformed by the weight of the office thrust upon him, he took a moribund $200-million company and built it into a $3.9-billion conglomerate.

After poring over mountains of government statistics, a task he regards as a pastime, Peter Grace has in the last few years come to know a thing or two about the federal budget. In fact, he now knows precisely 2,478 things about the budget. Let any naysaying congressman try to stump Mr. Grace with that killer line: "Please, sir, give us an example'--leaning forward, squinting here--"of exactly where you think you can actually cut the budget, heh, heh.' Mr. Grace will tell him where, with knife-point accuracy.

Indeed, Mr. Grace declares, to the astonishment and disbelief of the gallery, that the budget can be cut by $424 billion, right now, in the span of three short years, without eliminating needed services (gasps from the benches). If these cuts were made, the deficit would shrink to $135.7 billion in 1985 and $62.6 billion by 1995. (It takes time for the effects to be felt.) By the year 2000 the deficit would be down to $37 billion. These projections have been calculated by Data Resources, Inc., Otto Eckstein's respected econometric forecasting shop.

Mr. Grace worries that the present fat deficit, counted at $195.4 billion for fiscal 1983, will bloat out to $1,966 billion by fiscal 2000--only 16 years away. (A note for the nonchalant: Income taxes would have to be more than doubled to cover such a deficit.) A stickler would complain that the $195.4-billion figure for 1983 is actually a gross understatement of the problem. To find the true deficit, one has to add in the annual amounts needed to cover Social Security and government pension obligations. If that is done, the true deficit climbs to $381.5 billion for 1983, and reaches an elephantine $3,811.5 billion by the year 2000.

Most economists believe that a persistent big deficit sabotages economic recovery, for to finance it, the Treasury must go a-borrowing in the credit markets, elbowing businessmen aside and shoving interest rates higher. Bank credit is financed by savings deposits of various sorts, and in 1983 federal borrowing amounted to nearly 140 per cent of net savings--four times the proportion of a decade ago. Reason enough why real, after-inflation interest rates are historically high, at 7.8 per cent (the norm is 1 to 3 per cent).

The higher rates retard business investing and consumer spending for homes and cars. But high interest rates are lucrative for depositors. Investors worldwide rush to buy dollars and invest them in Treasury bills and bank certificates of deposit. The stampede makes dollars scarce and hence overvalued. Overvalued dollars make U.S. exports expensively uncompetitive overseas, swamping the trade balance. Among Washington money men, the overvaluation also raises the scenario of a doomsday dollar dive if investors wake up one morning and decide the overvaluation can't last; their panicked pullout would shrivel the pool of credit and send interest rates rocketing.

Deep supply-siders, led by Treasury Secretary Donald Regan, dispute the deficit's import. The dollar is strong, they say, because foreigners see America as the safest haven for their money. And it is a fact in their favor that economic recovery usually lowers a deficit, as tax revenues rise and unemployment claims fall. But even if the "deficits don't matter' school did win a technical point, the deficit would still matter, because the movers on Wall Street, in the Federal Reserve Boardroom, and elsewhere believe that it does and behave accordingly.

Polls say the voters don't give a damn about the deficit as long as the economy booms. Maybe so, but a lingering fat deficit invites a bust. Suppose the Fed loosens up more on the money supply, aiming to keep interest rates from rising. Inflation stirs, inflation fears are uncapped, the stock market slumps, and the Fed reacts by screwing down the valves again, halting the economy dead in the water. Wall Street quivers at this nightmare, and won't be placated till the deficit is vanquished.

It is no surprise, then, that the deficit dominates economic talk, domestic and foreign, serving as the Democrats' election-year wet blanket and the Europeans' dueling handkerchief. The damned thing pervades, cutting across every issue. It becomes the all-purpose neat excuse. Example: Flamboyantly disingenuous congressional kibitzers now ask, How dare President Reagan propose $8 billion in new aid for Central America when the budget is already $195 billion in the red?

The talk about the deficit is queerly inverted, even in the mouths of otherwise sensible sorts. The usual fiscal discourse ignores the simple definition of a budgetary deficit as an excess of expenditures over receipts, with the remedy suggested in the definition (i.e., cut expenditures). Instead, the discourse becomes a snoresome, hopelessly inevitable budgetary liturgy, imitating the nature of a mystical rite. (No wonder the public is put off by the debate.) It begins with the Invocation to Alarums: The deficit is ballooning, yes. It is then followed by the Confession of Sin: True, Congress has spent much money (all necessary, however). The main passage of the ritual is the familiar Litany of Political Verities, rehearsed in slow, cynical monotones: No, you can't even decrease the increase, because somebody somewhere might accuse you of a lack of compassion. Thus the feeble ceremony is concluded by the Benediction for Higher Taxes. Amen, brother.

Eh bien. When President Reagan named Peter Grace chairman of his new budget-study commission, back on February 18, 1982, the President bade him and his men go forth like tireless bloodhounds. The President asked Mr. Grace to command troops of corporate volunteers--accountants, staff officers, management experts--who would stalk the government's red-tape jungle, sniffing out inefficiency. In order not to add to the problem it was investigating, the commission would be funded privately, the President decreed, by corporate donations of time and money. Such a scheme had worked in California under his governorship, and it would work again in Washington. It was one of the President's pet projects, but some of his political hirelings in the White House objected that serious budget-cutting proposals would be considered gauche and impolitic by the many corpulent diners at the government's trough; budget fat makes good gravy. (When an early meeting of the commission was announced, an unnamed White House politico smirkingly told the Washington Post he hoped they'd hold the meeting in Siberia.)

Quickly the project came to be known as the Grace Commission, after the irascible Mr. Grace, a man who tends to dominate anything he tackles by his energy and the force of his personality. When Naderites and Democratic congressmen started barking at the commission, Mr. Grace coolly dispatched them. Representative William Ford of Michigan was the loudest howler. First he fretted that letting corporate volunteers study Environmental Protection Agency records was tantamount to putting foxes in the chicken coop. (In fact, the EPA had control over commission access.) But what really bent Ford's nose was a report on the excesses of the Civil Service. Representative Ford, you see, chairs the House Post Office and Civil Service Committee. Mr. Grace to Representative Ford: "When you stick a pig, it screams.'

Bloodcurdling pig screams echoed down the Washington Mall as the Grace Commission began to release its findings in 1983. One task force proposed, for instance, that military commissaries be shut down. The military press ranted, and Defense Secretary Weinberger agreed that the matter needed "more study.' This was typical, and predictable.

A listing of the commission's executive committee reads like an honor roll of blue-chip corporate America, names like Frank Cary, chairman of IBM; William Agee, chairman of Bendix; John W. Hanley, chairman of Monsanto; and 157 other top-ranking executives. They remanded some two thousand of their employees to root in government files for evidences of mismanagement. The volunteer inspectors ended up writing 47 hefty blue-bound reports, many of them two inches thick, all chock-full of fascinating detail. They wrote 23,000 pages in all, suggesting budget cuts ranging from half a million dollars to $59 billion. All the work was done at a cost of $75 million in donated manpower, equipment, and materials, plus $3.3 million in cash contributions. Corporations footed the entire bill. Not a cent of the money came from the Federal Government.

Of course, on those television roundtable shows where star journalists chat about the week's events, everyone who's with it, who's properly attuned, knew for a fact, didn't he, that Peter Grace could not have succeeded here, that this indignant Republican to-do about "waste, fraud, and abuse' is only campaign blather meant for the rubes in Indianapolis. Remember Reagan on the rubber-chicken circuit. guys, Chicago, 1980? He said cleaning up waste, fraud, and abuse could cut as much as 2 per cent from the '81 budget, 7 per cent by '85. Nothing happened. There, you see: QED, it can't be done. In sophisticated company, serious talk of rooting out "waste, fraud, and abuse' is almost as embarrassing as confessing a close relationship with God.

It being understood that waste, fraud, and abuse is a "phony' issue, a Republican theological shibboleth, then it follows that if one goes through the budget stripping out all the waste, fraud, and abuse there is, one might, with a whole lot of luck, reduce the $195-billion budget deficit by a minuscule billion or two--strictly small potatoes. "Nearly every stone has been turned over,' claims David Stockman, President Reagan's Carterite budget architect, in a Fortune magazine article. He adds this kicker: After all, The People demand big government. Even George Will understands.

So does Tom Brokaw. He says Reagan has cut the guts out of the social safety net already, so that, as Dan Rather tells us, we have uncounted millions sleeping on the streets, destitute, in filthy rags. Absolute facts, ma'am. And now Mr. Reagan wants to cut more!

Then let it be noted that in fact social spending has increased under Reagan. One could even venture that most Republicans are aware of poverty, and Republicans, most of them, are decent enough to care about the well-being of poor people as much as Democrats do. Peter Grace has no intention of cutting a cent of aid to the needy. But the specter is incessantly raised by budgetary gourmands to scare all away from the very idea of cutting any part of the budget.

Never mind, though. It is philosophically requisite for big spenders to believe that cutting the budget is ipso facto obscene because it is anti-Keynesian, and actually what we need to do is increase it. Voila . . . back to the inescapable conclusion: taxes, and more taxes.

Oh, call it "revenue enhancement' if you prefer, but whatever the moniker, it's the smart thing to do. In the Senate, Republican Robert Dole and Democrat Pat Moynihan slide across the floor dancing a lewd slow dance together, tax-hikers extraordinaires in political liaison dangereuse. Cheek to cheek, they cast narrow remonstrating glances at the President for not leading the tax-raising fox-trot.

If President Reagan stands stubborn on the matter of raising taxes, Peter Grace offers him succor: "Median family income taxes have increased from $9 in 1948 to $2,218 in 1983,' he says. "That's runaway taxation at its worst.' Mr. Grace contends that any meaningful tax increases would have to come out of the hide of lower- and middle-income people, because 90 per cent of all personal taxable income is generated below the level of $35,000 a year.

But hark, Walter Mondale says tax the rich, by Jesse! Mr. Grace demurs: If government took all taxable income beyond the $75,000 tax bracket that wasn't already taxed, the booty would only amount to $17 billion, enough to run the government for a single week.

Mr. Grace then raises his hand to make this point: A third of income taxes owed escapes collection in the underground economy, already at $500 billion a year and rising as tax rates become confiscatory. The next third of taxes is wasted through bureaucratic inefficiency, as revealed by the Grace Commission. The final third of taxes goes to pay the federal debt and transfer payments. Mr. Grace's conclusion is that all income-tax revenues are spent before one nickel goes to pay for the services that are supposedly in such hot demand by The People.

What is missing from the whole lugubrious debate is this simple fact, uncovered in exhaustive detail by the Grace Commission: The government is the worst-run enterprise in America. Thus it is the thesis of the Grace Commission that the country can save that $454 billion simply by curbing outright, blatant, casebook mismanagement, without ripping the social safety net, nor even cutting some government services that many people, libertarians especially, would deem unwarranted on principle.

To begin, here is a random sampler of this mismanagement. Read and be outraged:

--The Health and Human Services Department has been paying Medicare benefits to 8,500 dead people.

--A Mississippi supplier bought a gravity timer from the sole manufacturer for $11 and sold it to the Navy for $256--a 2,227 per cent markup.

--The Minority Business Development Agency didn't notice when a management consulting firm used part of its $4-million MBDA grant to rent a townhouse and two cars for its executives, buy unauthorized gifts for its employees, and promote "questionable activities.' The firm also neglected to pay some $315,000 in federal and state taxes, consulting fees, and salaries.

--It costs the Veterans' Administration from $100 to $140 just to process a single medical claim, while the average for private insurance companies is $3 to $6 per claim.

--But the VA is a paragon of efficiency in letter-writing. It requires only twenty days to finish a letter. Compare with Health and Human Services, where a single piece of correspondence needing the signature of the Secretary takes 47 days to get done and involves about sixty people.

--The Army spends $4.20 to issue each payroll check, compared to the private-sector cost of $1. This wastes $40 million a year.

--Some unsuspecting citizens open their mailboxes to find 29 or more copies of pamphlets with titles like How to Serve Nuts, because the Government Printing Office uses out-of-date, duplicate, and incorrect mailing lists to post its myriad free publications. The lack of centralized, correct mailing lists costs an estimated $96 million a year.

Say, is this Ubanga or the Central Banana Republic we're talking about? No, it's glittering Washington, and you're paying the tab. How does one get a firm hold on such maddeningly diverse ways of wasting taxpayers' money? The Grace Commission has broken down the inefficiencies by government agency and by function. For simplicity's sake, here are some specific categories of inefficiency, and what the Grace Commission thinks ought to be done to get things in shape.

Information Processing

The Federal Government uses 17,000 computers, operated by 250,000 employees. But they are mostly obsolete-- on average, they are twice as old as computers in private business. Half of them are so old they can no longer be supported by the manufacturer. And these ancient computers can't tie in with each other. Beyond that, government decision-makers mostly don't know what information they need, where to get it, or how to analyze it. Witness the results:

--The Social Security Administration's computers stay four to six weeks behind in issuing new Social Security cards, and the agency has a three-year backlog in posting retirement contributions. It is unable to process the 7.5 million new claims each year on time or correctly.

--Some 20 per cent of all tax returns for 1978--that's right, 1978--have yet to be entered into the IRS computer system, a twenty-year-old dinosaur that predates most modern computer technology. Delinquent accounts are therefore at $23.2 billion and growing.

--Though the Urban Mass Transportation Administration spent $10 million to buy new computers to keep track of the $25 billion in grants it hands out, the agency has been unable to close its accounting books since 1979. No account reconciliations have been possible since 1977. The UMTA has no central ledger showing who owes what to whom. Despite the computers, the agency must do its financial data by hand.

--The cost of the Army's business computer systems can only be estimated (at $1.5 billion), because the Army simply doesn't know how much it has spent on these computers, what kinds of computers it has, where they are, how many there are, or whether they should be replaced.

The Grace Commission argues that, for starters, some $20 billion can be saved over a three-year period by straightening out the computer mess. The commission recommends naming a manager to oversee computer operations throughout the government; hiring competent professionals; upgrading the obsolete systems; and using common payroll, personnel, property-management, and other such systems throughout the government. And if the government went even further in closing its information gap, by such means as figuring out what information it needs and then setting up mechanisms to get it, some $78 billion could be saved.

Asset Management

Any businessman worth his P&L statement knows how to manage financial assets, mainly by putting idle money in interest-bearing accounts, and timing his own payments to avoid costing himself interest. Another way is to cut down the "float' that offers free credit as a payment takes its time getting to its destination. The Federal Government, however, is ignorant of these common techniques. Because of this, it loses millions of your dollars a year. Consider the evidence:

--In 1982 the Justice Department seized $317 million in the form of cash and of property, such as dope-smuggling planes. But the captured cash, $79 million of the total, wasn't put into interest-bearing bank accounts. Instead, the Justice Department just let it sit. Non-cash assets are allowed to depreciate to as little as 65 per cent of their value before they are sold off.

--At the Transportation Department, some $473 million in recent grants was paid to contractors an average of 13 days sooner than necessary, costing the government $13 million in interest payments. If payments were made only when due, and bills collected promptly, the department could save $144 million per year.

--The State Department squandered some $17 million over a three-year period by failing to acquire foreign currency before it was actually needed. (And when the dollar weakens, State should delay buying foreign currency.)

--Some $635 million could be saved over three years if the government used direct deposit for the 48.3 million payments it makes each month. This would allow the money to remain on deposit longer.

--The Education Department could generate some $4.68 billion in cash-flow improvements and $1 billion in interest savings over three years merely by making loans to students in increments rather than in lump sums. Consolidating the student-loan programs could return at least $290 million per year to the Treasury.

In spite of a daily cash flow of $6.8 billion, the Federal Government obviously hasn't got a handle on the management of its financial assets. The Grace Commission says the government could save up to $79 billion if it ran its asset management as business does.

Personnel

The Federal Government employs nearly three times the number of high-grade white-collar workers found in the private sector. They tend to be overpaid and underworked, given to absenteeism and job-hopping. They get 35 per cent more vacation time than private-industry workers and health benefits that cost $134 a month per family, versus the private-sector average of $93. They like to file such things as on-the-job injury claims (6.3 per cent of federal employees filed in 1980, versus 1.7 per cent of private-industry employees).

--In 1981, a typical year, Postal Service workers took an average of nearly nine sick days each, versus the 5.3-day average in private enterprise. This lost 21,734 workweeks, at a cost to the taxpayers of $652 million.

--The Department of Energy has one supervisor for every three employees, twice the number of supervisors in the rest of the Federal Government, not to mention the private sector. Just bringing the Energy Department into line with the rest of government would save a tidy $19 million over three years.

--The Education Department overpays nearly 30 per cent of its workers, since that many are "overclassified' and there hasn't been a classification audit since the department was formed in 1980. Education Department employees don't mind. Nor do they complain about cost-of-living raises. The average increase was 17.3 per cent in 1980 and 27.3 per cent in 1981.

--Government pensions are twice as generous as private ones, and military pensions are 600 per cent higher than those in the private sector. These pensions are sweetened by lavish cost-of-living increases, such that between 1977 and 1981, civil-service pension pay rose by 50 per cent. Between 1973 and 1982, the government handed out more than $200 billion in pension checks to civil-service and military retirees. These costs will more than double over the next decade, rising to $500 billion, not including an unfunded pension liability of a trillion dollars over that period. (For example, there are a million retired railroad workers and only 450,000 active workers in the Railroad Retirement System--that is, 2.2 retirees per worker. The system already has an unfunded liability of $30 billion and will run out of funds sometime before next year.)

--To decide how much to pay its workers, the government surveys salaries in the private sector. But this "comparability survey' covers only a quarter of federal jobs and excludes 95 per cent of companies in major industries. Thus the survey is biased toward high salaries. The average blue-collar salary is 8 per cent higher in government enterprises than in private industry. In any case, about half of all federal job-classification standards are more than ten years out of date, with excessively detailed requirements and time-consuming procedures.

--One government study determined that word-processing operators weren't as skilled as regular secretaries, so it cut word-processing pay by $3,000 a year. The predictable result was that word-processing operators disappeared from federal word-processing pools, only to turn up as secretaries. Some word-processing centers went idle for lack of operators. Productivity fell.

--The VA has a hospital construction staff of eight hundred, while the Hospital Corporation of America does the same work with a staff of fifty. As a result of overstaffing, it takes the VA seven years to finish a project, versus two years at the HCA. Administrative costs are 8 per cent, versus 2 per cent in the private sector.

The Grace Commission says the government could save a neat $58 billion over three years by such things as raising the retirement age to 62 (it now can be as low as 55 for civil service and forty for the military), imposing early-retirement penalties, offering more reasonable cost-of-living adjustments, and redesigning the job-comparability surveys and the job-classification system. More savings would come just from bringing government pay and work customs into line with those in private business.

Procurement

One-fifth of the federal budget goes for buying equipment and supplies. In fiscal 1982, for instance, procurement totaled nearly $160 billion, with more than three-fourths of that sum going for Defense Department purchases. Add to the total some $88 billion in inventories that government agencies hold stored all over the country in hundreds of locations.

To do all the federal shopping, some 130,000 federal procurement officers take part in about 18 million "procurement actions' per year. They do all this while entangled in more than eighty thousand pages of regulations, plus twenty thousand new pages of revisions each year.

Here are examples of what federal procurement has wrought:

--The Navy's Training Equipment Center in Orlando paid $511 for bulbs that cost 60 cents in the grocery store.

--The Navy paid $100 last year for aircraft simulator parts that cost a nickel at the hardware store.

--Costs for 25 major weapons systems that were started between 1971 and 1978 have risen an average of 323 per cent. One reason is that defense contractors typically underbid on contracts--sometimes as much as 80 per cent below true costs--to get government work. Then, as they proceed, they double and even triple the cost estimates. But by then it is too late to do anything about it.

--The government compounds the cost-overrun problem by allowing a defense contractor that underbids to become the government's monopoly supplier of a system or product for up to twenty years. During that time, the contractor has a free hand to raise and re-raise the price as much as he pleases. Costs are typically doubled and tripled again by these monopoly contractors.

--When the Agency for International Development bought 399 cars and trucks for projects in the Middle East, an audit found that five were missing; 93 had been diverted to personal or nonproject use; 84 had been sitting idle in parking lots, some for two years; and many of the remaining vehicles had been commandeered by host-country government officials for their private use.

--The U.S. Coast Guard pays $100 per week for the use of an office trailer, while the Environmental Protection Agency pays $100 per day to the same supplier for the identical trailer. The EPA's unwitting generosity is blamed on the way the agency deals with its suppliers, and on the fact that the contractor forgot to mention that the $100 was a weekly rate, not a daily one.

More than $28 billion could be saved in procurement over a three-year span, says the Grace Commission, if the government would tighten up its procedures. It could cure cost overruns by using two competing contractors for production of things like weapons systems; by spreading procurement funding over several years to allow better monitoring; and by purchasing spare parts from a source other than the manufacturer (who tends to mark up spare parts outrageously). Federal agencies should also hold smaller inventories, in line with the practice in private business, and they should consider past performance when deciding on a bid award, and ride herd on bidders' cost estimates.

Privatization 

The Federal Government is the world's largest (and worst-run) conglomerate. It is at once the nation's largest insurer, lender, borrower, hospital-system operator, power producer, landowner, tenant, holder of grazing land and timberland, grain owner, warehouse operator, ship owner, and truck-fleet operator.

This unnatural situation evolved from the assumption that only government can provide some services. That might have been true years ago when the feds got into most of the businesses they run today. But now it is often nonsensical:

--In the 1860s the government decided to provide cheap food for soldiers in isolated frontier outposts by setting up government grocery stores--the military commissaries. Nowadays, a wild frontier town like Washington, D.C., has six commissaries; San Francisco and San Antonio have five each; there are four each in San Diego and in Norfolk. The government has 358 commissary stores, 238 of them in the continental United States, duplicating private supermarkets, but without the profit motive. The result is an uncompetitive and inefficient government grocery chain with annual sales of $4.2 billion, at an annual cost to taxpayers of $597 million.

--Europe and Japan are beginning to cut into the U.S. monopoly on outer space, because semi-private companies like Arianespace can undercut NASA. If the U.S. is to compete in this growing high-tech business, it should let private companies in on space launches, especially since, by the government's own estimates, it won't be able to meet the commercial demand for space launches in this decade.

--The Department of Energy operates 123 hydroelectric dams and 622 substations, supplying 45 per cent of the nation's hydroelectric power. But revenues aren't enough to cover the federal investment, the pricing doesn't make sense, and the account books are a mess.

--Federal agencies try to do everything in-house. The Defense Department has 11,700 employees doing such things as providing food service, maintenance, laundry service, firefighting, etc. Contracting out this kind of work would save $70 million a year at the Department of Defense.

The Grace Commission has found $28.4 billion of potential savings over three years through privatization. Of these savings, $20 billion would come from selling off the government's hydroelectric dams and substations, some $2.5 billion would come from selling off military commissaries, and the rest would come from contracting out services like VA hospital management and turning over redundant operations to the private sector.

Subsidies

The Federal Government handed out nearly $500 billion in 1983 to individuals, businesses, and other government agencies. The Department of Health and Human Services alone gives away two out of every five tax dollars--$269 billion last year. Not counting such earned entitlements as Social Security and VA benefits, the Federal Government offers 64 different welfare programs, costing close to $100 billion a year. In 1983, there were an estimated 22 million Medicaid recipients, 19 million food-stamp recipients, 4.1 million Supplemental Security Income recipients, and 11 million recipients of Aid to Families with Dependent Children. Aside from welfare, there are billions more in subsidies paid to industry and even foreign governments. Without debating the basic validity of some of those programs, here are a few of the obvious abuses:

--Food-stamp cheating amounted to $1 billion in 1981, 10 per cent of the whole program. It happens largely because recipients lie about their income and the government never checks.

--An estimated 206,100 aliens living abroad collect U.S. Social Security benefits. The average alien family gets $24 in benefits for every dollar paid in FICA taxes.

--Most of the subsidized mortgage loans made by the government in 1982 went to folks who could have bought homes without help. The typical mortgage revenue bond buyer had an income between $20,000 and $40,000. Some 53 per cent were among the more affluent families in their states, with several making over $50,000 a year.

--An audit revealed nearly $1 billion in rail-modernization money lying idle at the Urban Mass Transportation Administration because the agency has no system for awarding urban discretionary grants.

Some $59 billion could be saved over three years, according to the Grace Commission, by better management of subsidy programs. One recommendation is to tax subsidy payments above a certain income level or corporate tax bracket. Benefit programs ought to be consolidated, and agency accounting systems need to be improved to provide accurate, up-to-date information. The commission says poverty statistics should be redefined to include inkind transfer payments such as food stamps and Medicaid.

These broad management categories account for some $330 billion in savings over three years, 78 per cent of the total. The rest comes from applying the principles of good business management in diverse cases; for example, the Agriculture Department could save an extra $7 billion over three years by cutting out the overlap and duplication in its services; by shifting the FHA's activities from direct loans to loan guarantees and transferring its housing functions to HUD; by charging for such things as maps, soil survey reports, and firewood, all of which are now given away free; and by increasing user fees for grazing, recreation, and the like.

The Grace Commission calls for an Office of Federal Management to be set up in the executive office of the President. Such an office would guide and coordinate management of the government's $800-billion conglomerate. It would institute the kind of budgeting and strategic planning that large corporations practice, and develop common government-wide software for standardized receivables, payroll, pension-plan, and fixed-asset accounting.

After Peter Grace presented the final report to the President in a White House ceremony on January 16, the networks dutifully ran stories on the evening news, usually ending with the remark that here is another commission report to be filed away. Who, in an election year, was going to propose serious budgetary pigsticking? The New York Times wanly editorialized that the Grace Commission was "wishful, but worthwhile, on waste.' Some of the Grace Commission's recommendations are already being carried out, but three-quarters of them need congressional approval. Hence, the question lingers: Can it really be done? And we are led to the crux of the issue: psychology.

News that the government pays $30 million in Medicare checks to the deceased, and loses track of $10 billion in block-grant money, seems almost beyond reality, somewhere in the realm of the absurd. It makes neat newspaper filler material, American black humor, good for a chuckle over coffee. It's another little confirmation of what most Americans have suspected of the government since the time of Thomas Jefferson.

Upon reflection, the unreality of the abuses becomes as overwhelming and unimaginable as the sheer size of the expenditures. More discouraging still is the realization that this sort of thing has obviously been going on for ages. So one shakes one's head and flips the page. What's to be done? Nada, niente, rien du tout.

The irony is that something can indeed be done, if enough citizens believe it can be, and make their wish known in Washington. Only by the force of widespread dissatisfaction can Congress find the courage to stick some pigs. In this sense, Peter Grace's work has only begun.