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Sorting out who should do what.

Many functions of government are absolutely the federal government's, but for other functions of government what's needed is strong community support.

A major area for radical change in public policy is a clearer distinction between federal and state responsibilities for the things that government does.

For example, the federal government should take full responsibility for reforming the health care financing system. That means controlling the growth of health costs and ensuring universal access to health care. It means setting up some kind of a system that will subsume Medicaid.

Meanwhile, states should take full responsibility for the "productivity agenda": improving work force skills, transportation and infrastructure. The federal government should devolve these programs to the states.

There are two lines of argument for this position. One relates to reviving the American economy and the other to restoring confidence in government.

The key to higher living standards is productivity. The key to productivity is investment. We need a more skilled and better equipped workforce if we are going to be a high-wage, high-productivity country.

A more productive society requires three things. First is get rid of the federal deficit. It has been draining our savings into unproductive uses. It lowers the general rate of investment. It makes us dependent for capital on other countries. Instead of saving ourselves, we have been borrowing the capital of other countries, in part because our government has been draining off our savings.

Eliminating the deficit would leave more of our domestic savings for private investment. But private investment is not enough. Besides eliminating the federal deficit, we must increase public investment, especially in reforming our education system and improving the skills of workers and improving the infrastructure of the country.

And we need to control health costs. That's not just a social policy, it's an economic policy. The rising cost of health care is an enormous drain on the economy and although we are now spending 13 percent of our gross national product on health care, we aren't buying a very good system, and expenses are rising rapidly. Millions of people are left out and many countries who spend less than we do per person get better results in terms of infant mortality and longevity.

A cut in the growth of health care costs by half by the end of the decade--a cut in the growth rate, not the cost--could save about 2 percent of our gross national product. That's more than the peace dividend would be even if defense spending is reduced more than current plans call for.

If the federal government tries to do all of this at once, I submit, it's unlikely to get done. Even with the peace dividend, even without new programs, a deficit in the federal budget will continue. After the recession is over and after the savings and loan crisis is dealt with, we will have a continuing annual deficit in the federal budget of about $200 billion and rising.

That gap at the federal level can't be closed while the federal government simultaneously undertakes new public investment and takes the lead in education, infrastructure and health reform. Moreover, the federal government can't manage all of that agenda well and at the same time manage our increasingly complex interrelations with the rest of the world.

Nor are all of those functions things that the federal government is good at or can affect very much.

We do absolutely need the federal government to handle certain national functions. A national system can be effective and uniformity is an asset for programs such as Social Security. I think it's true of health care financing as well.

But there are other functions of government for which we need mainly strong community support, adaptability of the program to local conditions, ability to experiment and to vary what is done and local accountability of people who are known to the voters if things do not go well.

Education is one of these. The schools will not get better because a president says they ought to. Schools will get better when parents and communities want better schools and work to get them.

Street crime, similarly. A czar in Washington, D.C., can do very little about crime in the streets. Communities have to want to create the conditions under which crime is less likely.

Economic development cannot be managed from Washington. That happens when governors and mayors and local people bring together the people who need to make it happen in business and labor and other parts of the community.

In these areas; uniformity and a national bureaucracy are basically liabilities and, moreover, to go on pretending that the federal government has a major role and that there are national solutions undermines credibility.

Candidates who do a lot of talking about education and street crime convey that they can do something about these things. But people know that just because Washington says so, not very much is going to happen that will affect the place where they live.

There is even a downside to everybody's favorite program, Head Start. It has been a wonderful success. The federal government was right in starting it, but the downside is that the federal government has created the impression that preschool education is Washington's business, not local communities' business, that the way to solve the problem of education for low-income children is to lobby in Washington for Head Start, not to do something in your own community.

Devolving these programs to the states is the major way that we can conceive of moving the federal government's budget from deep deficit toward surplus. Citizens would have much greater oversight of state-run programs since it would be clear who is in charge of what and where to work for change.

All this is going to take more taxes, but politicians must make clear what the money is to be spent for and assure the public that it will be spent well. It is very difficult just to advocate a general tax increase for something as vague as deficit reduction or general programs at the federal level.

However, a credible program of health care financing reform that would help everybody could get dedicated taxes for it. We may also need increased state taxes to improve the programs that could be handled mainly at the state and local level.

States have been more successful in raising taxes than the federal government, in part because it is clearer to citizens what they are buying with this money. But the states will need to make this even clearer, and will have to work together to solve their revenue problems.

Reasonable people can argue over the sorting out of what responsibilities should go to the states and what should remain federal. But it is clear we must start thinking hard about the organization of federal and state responsibilities or we will go on in the '90s with the continuation of the 1980s: a continuing drag of the federal deficit, too little public investment, a slow growth economy and very little confidence in government.

Federalism is one of the strengths of the American political system and the wise rethinking of the federal structure could use that strength to revitalize the American economy.

Alice Rivlin is the deputy director of the Office of Management and Budget. This article is adapted from a speech she gave to the Democratic Leadership Council when she was a senior fellow in Economic Studies at the Brookings Institution. Reprinted with permission from the October 1992 issue of The New Democrat.
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Title Annotation:marking the line between federal government and state government duties
Author:Rivlin, Alice M.
Publication:State Legislatures
Date:Feb 1, 1993
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