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The decline of central government.


Private institutions, private individuals, and private decision making are taking over the reins once held by the world's great centers of power.

Recent headlines have often been dominated by news from Poland. There, a brave people undertakes the awesome challenge of transition to free political institutions, institutions for which the country's new leaders are, by their own admission, entirely unprepared.

Fifty years ago, Nazi tanks and Stukas were annihilating a Polish army that had proclaimed itself ready for anything. A bulletin of the Polish Information Service dated July 1, 1939, just 60 days before the blitzkrieg fell praised the late marshal Pilsudski for his foresight in building "one of the first-class military powers of Europe."

Of special pride to the Poles was their horse cavalry, to which they had committed more than a quarter of their 132 standing regiments. A military observer of the day termed the cavalry "the outstanding feature of the Polish Army." He wrote, "I should class this the best in Europe." And so it was. Regrettably, its skilled and courageous soldiers had prepared for the wrong war.

I am apprehensive that today's public service trainees, like those Poles, may be preparing for irrelevance.

A basic fact of our time is that the American federal government is losing its purchase on events. The government is becoming less and less relevant to the outcomes with which it busies itself. Only some of the causes of this declining influence are temporary, domestic, or reversible.

My contention is that America is not in decline, not necessarily, versus other nations. But American government, along with central governments everywhere, is in decline versus private institutions, private individuals, private decision making.

By now, many have detected--and many, for reasons I find distasteful, have welcomed--a declining influence of the American central government on world affairs. But the reality is that our central government is a diminishing factor in most outcomes, foreign and domestic. Moreover, this diminution is common to all central governments of our time, and it is going to continue steadily.

Last summer, I received a call from one of the country's top reporters, a White House and political correspondent for the Boston Globe. It was that time, he said. Time to write his annual "August" story about the sudden shutting down of Washington for the summer recess. But what struck him this year, he said, was that "it's been like August all year long." He meant that, to the extent Washington had been newsworthy at all, it was due to small issues, or non-issues, such as the Tower nomination, the flag desecration controversy, or the Jim Wright contretemps. Sen. Patrick Moynihan had spoken of the "hush" fallen over the city. David Broder had lamented "small stakes" government.

In the Globe, my friend ultimately wrote, "Thanks to a series of coincidences, Washington in 1989 has lost some of its ability to command attention, and with it some of [its] intoxicating allure.... [The] capital city's inflated sense of self-importance has been punctured this year." I agree, except that I don't think the situation is coincidental; although the puncture will surely be patched, I think a slow leak will persist over the long term.

The Boston Globe identified some of the causes of this "year of Augusts." One most certainly is the fiscal handcuffs into which Congress has slowly locked itself. After subtracting interest costs and untouchable entitlements spending, the discretionary share of the federal budget is down to about 40 percent. Of this portion, defense spending, cut for five straight years, has proven the easiest, almost the only, budget category Congress is capable of cutting meaningfully. But even the most reckless proposals for further defense cuts are small by comparison to the structural deficits the nation now runs.

The upshot is that massive domestic interventions of the sort studied and devised over the past quarter century have long since become extinct. For evidence, consider the President's long-awaited drug policy. Backed by overwhelming political momentum, the Administration and Congressional negotiators labored all year, scoured the budget for extra cash, and finally gave birth to--what?--$2.2 billion in additional spending, a mouse in the context of a $1.1 trillion budget. By contrast, the CETA program of the '70s was a $10 billion program in unadjusted dollars, roughly three times the total spending on today's consensus crisis problem.

This bind is not going to lessen; if anything, it will tighten in the decades ahead. Even though flattened spending and continued economic growth will gradually grind down the country's annual deficit, the brakeless locomotive of entitlement spending hurtles on. The demands of Social Security, Medicare, civil service and military pensions, and other open-ended obligations will continue to eat up any spare cash that restraint elsewhere might produce.

Capitol Hill Democrats dream of income tax increases, but even if obtainable these would be no answer. Income tax hikes large enough to fund deficit reduction plus domestic initiative would be self-defeating, economically and at the polls. Tax indexing, a fundamental triumph for governmental integrity, has ended "stealth" tax increases and closed another door to federal expansionism.

A rising fraction of the money Washington does have is provided by the aforementioned payroll tax. All its proceeds are being spent currently. Its "trust funds" are untrustworthy; in fact, they are mythical. Sometime in the '90s, when it becomes apparent that this most regressive of all taxes, already the biggest tax payment for the majority of Americans, is providing zero security to its payors, that there is no real money in the drawer, the next tax revolt will surely occur.

Payroll tax relief may be accompanied by some moderation of entitlement spending, but on a net basis the fiscal noose will probably tighten another notch. Creative federal service could eventually shrink to designing the ideal check-writing software.

Already the effects are showing up. Foreign-assistance spending, Congress' other pet target, is at postwar lows. After deducting payments to the most favored nations of Israel and Egypt, Washington has virtually nothing left to give the rest of the world. Japan has surpassed us in foreign aid spending. President Bush's trip to Eastern Europe last year underscored the cupboard's essential bareness; any romantic encounters between the United States and East Bloc freedom seekers are likely to be Dutch treat.

Richard Fisher, a bright young Texan, left government after distinguished service in the Carter administration for what he found the more stimulating areas of capital management. He recently commented, "[T]he federal effectively a poorly run business, and like any business suffering under the weight of anemic cash flow and excessive contingent liabilities, its influence is waning."

The public policy marketplace began to react even before most people in Washington were alert to their predicament. The first and most interesting sign was the reemergence of state governments. To an extent, Reagan policies aimed at devolving power to the states were responsible, but Congress thwarted or diluted most of these. In truth, the change was more de facto than de jure.

Across the board, states have reclaimed the policy initiative. They are innovating, reforming, regulating, and yes, taxing and spending in ways that Congressional liberals can only envy. The Bush drug policy, it turns out, calls in actuality for two to three times more new spending by states and localities than by what we used to call Uncle Sugar.

The states' resurgence does not even stop at the water's edge. In trade, the State and Commerce departments frequently find themselves spectators to bilateral deal making by governors. As of this year, more states are maintaining field offices in Tokyo than in Washington. Kentucky has recently floated an $80 million bond issue in Japan, yen-denominated.

Let's suppose for a moment that these trends can be arrested. Maybe a real implosion of the Soviet empire will produce a "peace dividend" well beyond the cuts of the past five years. Maybe the boom of the '80s will become even louder in the middle-aged, productive, high-income '90s. Maybe Washington will summon the courage to bell the entitlements cat and come into some "mad money" once again. Will it make a difference? Will central government become central again?

I think not. Still bigger forces are taking us elsewhere.

Let's start, as great trends usually do, in the world of ideas. Robert Heilbroner, who wrote to my generation of students on the merits of Maoism, now writes, "The contest between capitalism and socialism is over: capitalism has won." Earlier, Jean Francois Revel commented from France, "Anymore, when we want a Marxist for a debate over here, we have to import one from an American university."

The wholesale rout of Marxism as a credible economic theory has greatest importance, of course, for those enslaved millions who have endured its practice. But the behavior of free nations will be affected as well. Even before the abandonment of central planning by the East Bloc, Western governments were rearranging their policies away from central planning. The American tax-rate cuts of 1981 and 1986 touched off a furious round of modeling. Fifty-five countries have reduced their top rates, and only two have raised them, since 1984.

Privatization of parastatal industry is now the rage worldwide. Many LDCs are moving even faster than the multilateral lenders, who underwent their own conversion earlier in the decade, prod them to move.

Finally, as my Hudson Institute colleague George Gilder has depicted in a brilliant new book, technology, led by microelectronics, is irresistibly pulling decisions downward and outward from central authorities of all kinds. Capital can evade and escape the clutches of the state. It already moves in international commerce in amounts rivaling the annual U.S. federal budget every day.

An economy more creatively destructive than the free-market theorist Joseph Schumpeter ever envisioned dissolves and reforms industries faster than government can regulate by business: the Chinese are more at risk from disinvestment and curtailed tourism than from any sanction George Bush could impose.

Natural resources and geographic position, the main historic objectives for which mighty central power has been assembled and employed, are less and less relevant to the production of wealth. A silicon chip is one percent raw material and 99 percent mental input. Barren rocks off the Asian mainland, half a globe away from their biggest markets, now house the earth's most dynamic economies.

As one totalitarian state after another has learned, their essential power to atomize society and isolate their population is ineffective before the arsenals of taxes, phones, and modems that now enable humans everywhere to reach each other, within and across national boundaries.

In this world, attempts to reconstruct greater central authority will wash downstream against an overwhelming current. Paul Johnson has observed, "Scientific genius, for good or for ill, impinges on humanity far more than any statesman or warlord." The science of the late 20th century impinges against the statesman and against the warlord on behalf of the small, the nimble, the decentralized, the private.

Churchill, describing the nonstop activism of the first Gladstone government, called it the "Golden Age, when Liberalism was still an aggressive, unshackling force."

In this framework of aggressive unshackling" lies the continued viability of government in an age of liberalism more golden, because it is more global, than Churchill imagined. Active policies that liberate, enable, and empower individuals will be needed and, I think, demanded.

To cite only a few examples, centralized action is needed to create the liberating infrastructure of the era ahead. Fiber-optic cable, connecting every home and workplace, will be the REA and the interstate highways of the next century, and it will unleash individual potential in massive degree. The digital network, a revolutionary force multiplier for small units of all kinds, must first be created by the standardization, deregulation, and perhaps direct investment of the federal government.

An entire empowerment agenda of vouchers, private ownership, and free choice awaits enactment. The federal government should forget about micro-management in areas like education and transportation and attack the R&D deficiency that impedes adoption of new technologies. At less than $50 per employee, education invests in R&D only one percent of the average for all business, and 1/600th the investment of high-tech businesses. Instead of wasting billions on urban mass transit in an increasingly suburban society, the federal government could fund hardware and software development aimed at maximizing the efficiency of the national transportation system.

Our educational shortcomings not-withstanding, the Americans of coming years will be the best-educated, best-informed, and technologically most powerful individuals the world has known.

These Americans will be less and less prone to be herded into unions, political parties, or other group identities for the convenience of experimenting paternalists. They will make their own decisions with declining guidance from government at any level. Government that sees these citizens not as objects of therapy but as persons of innate dignity will be relevant government. Government that measures its success by the scarcity, not the annual increase, of its dependent clients can still be active government. Government that constantly searches for ways to attract, liberate, and incentivize human talent will be successful government.

A leading Democratic pollster recently emerged from a series of focus groups to say, "[P]eople were not expressing pro- or anti-Washington views. They just don't care. Washington is not a factor in their consciousness." He had glimpsed the future.

Secretary of State George Schultz once said to a few of us that he sometimes felt like the ant on a log in a rushing river. He said, "The ant runs and runs, believing he is rolling the log. But he's really just running to stay out of the creek."

Kurt Vonnegut proposed in Jailbird that the presidential limousine be outfitted with a toy plastic steering wheel, to remind whoever was president that he could only pretend to drive.

These are not the images I wish for federal government in our country. But if Washington is to avoid irrelevance, and an eon of Augusts, it will be because its oncoming leadership brings great creativity and due humility to the task of "aggressively unshackling" the energies of free beings everywhere.

PHOTO : Mitchell E. Daniels, Jr., is the president and CEO of the Hudson Institute.
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Author:Daniels, Mitchell E., Jr.
Publication:Saturday Evening Post
Date:Mar 1, 1990
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