Chapter 13

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Bernie Madoff and the SEC

Bernie Madoff’s Ponzi scheme may have cost investors up to $65 million

Many organizations failed after Madoff ‘s crimes discovered

Securities and Exchange Commission had numerous complaints that it failed to follow up on properly

Subsequent SEC analysis claimed errors due to inexperienced staff

A painful reminder that we depend on regulatory agencies to protect us

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Bernard Madoff

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Organization Matters Laws passed by Congress are implemented by

the government’s bureaucracy

Bureaucracies play central role in today’s governments and society as a whole

Organization of a particular bureaucracy depends on its political demands and needs of its clients

Organization also affects a bureaucracy’s ability to accomplish its work

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The Development of the Bureaucratic State

American public concerned with size of bureaucracy

Government at all levels grow enormously during 20th century Society increasingly more complex Attitudes towards regulation of business

and government’s role in social welfare changed

Ambitious bureaucrats have expanded organizations to add responsibilities

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Not So Big by Comparison

Compared with other Western democracies, U.S. government relatively small Most of these countries offer more

welfare and social service benefits to citizens

Taxes in these countries proportionately higher

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Can We Reduce the Size of Government?

Even incumbents “run against the government”

Many Americans lack confidence in government and believe it wastes money

Serious budget cuts require significant reductions in programs Proposed reductions of specific programs

face opposition and are politically risky8

Can We Reduce the Size of Government?

Debate on reductions in bureaucracy shaped by ideology and size of budget deficit Reagan saw small government as

enhancing personal freedom Obama sees government as a way to

promote equality and protect citizens

Not always good politics to downsize government An upside to providing a benefit to citizens

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The Organization of Government

Bureaucracy in Washington actually a collection of smaller bureaucracies

Departments cover broad areas of government responsibility

Independent Agencies stand alone, some controlled by president and some self-governed regulatory commissions

Government Corporations perform services that could be provided by private sector but Congress believes should be done by government

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Figure 13.1

Bureaucrats at Work

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The Civil Service National bureaucracy almost 2.8 million

civilian employees Diverse jobs make up 2% of U.S. workforce

Senior Executive Service top level

Most hired under civil service Pendleton Act (1883) designed to reduce

patronage with merit hiring

Pay and benefits of federal jobs compare favorably with private sector

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Figure 13.2

Diversity Lags

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Figure 13.3

Good Jobs, Good Benefits

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Presidential Control over the Bureaucracy

Civil service and other reforms insulate government workers from party politics

Presidents appoint about 3,000 people to high-level positions Around 1,000 require Senate confirmation

Pluralism can pull agencies in directions contrary to president’s wishes

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Bureaucratic Policymaking

Agencies make policy when Congress authorizes them to administer a program

Regulations established to carry out laws create policy

Congress has prerogative to override regulations it dislikes

Congress can punish agencies by cutting budgets, altering programs, or holding up Senate confirmations 16

Administrative Discretion

Administrative regulations legally binding

Critics of bureaucracy complain agencies granted too much discretion

When agency directives from Congress vague, bureaucrats develop policy details Greatest discretion to agencies involved

in domestic and global security

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Rule Making Administrative process that results in

issuance of regulations Allows interested parties to comment on

proposed rules

Regulations often require individuals and corporations to act against own self-interest Freedom versus order

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And Now for a Real Challenge:

Regulate the World Some scientists fear global warming an

emergency Debate exists over long-term implications International cooperation needed because

greenhouse gas emissions know no borders

U.S. concerned about fairness of any enforcement

China resistant to any regulation or enforcement

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Land and Sea Yearly Mean Temperature, 1880-2000

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Administrative Policymaking:Informal Policies

Difficult to define precise values and goals rationally

Many related goals incompatible

“Best” policy may be one on which most people can agree

Constraints of competing policy objectives, opposing political forces, incomplete information, and pressures of time sometimes result in incrementalism

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The Culture of Bureaucracy

Interactions with bureaucrats sometimes frustrating because they are inflexible or lack authority to get things done Sometimes flexibility limited by legal

requirements and need to treat everyone equally

All bureaucracies have norms that guide behavior Sense of mission affects decisions about

agency objectives

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Problems in Implementing Policy

Paper policies must be put into practice with processes May not do what they were designed to do Trial-and-error common

Difficulties emerge when policies unclear or involve many different agencies and layers of government Implementation sometimes by contracts

with private sector or not-for-profits

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Los Angeles Smog

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Mortgage Relief

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Problems in Implementing Policy

The many obstacles to effective implementation mean patience and analysis essential ingredients to policymaking

So, implementation a gradual process where trial and error eventually lead to policies that work

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Reforming the Bureaucracy:

More Control or Less? Administrative reforms have

taken many forms over the years Deregulation Competition Performance standards

No magic bullet

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Deregulation Reduced government role lets market forces of

supply and demand take over

Popular with conservatives

Considerable deregulation in 1970s and 1980s

Difficult with health and safety issues One way is to allow companies flexibility in how to

meet standards Can also require more transparency and

accountability

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Competition and Outsourcing

Conservatives want government to act more like businesses

Some believe if agencies are not as efficient as private sector, service should be given to private sector

Competitive bidding for services to administer programs common

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Performance Standards Holding agencies accountable for reaching

quantifiable goals Government Performance and Results

Act sets requirements

Concern that if agencies set own goals, will set them to easily achievable levels or that show agency in best light What an agency thinks it can achieve

versus what would be most valuable to achieve

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