For more than a decade, information technology has been transforming American business and remaking the global economy, creating Herculean efficiencies. But the one place slow to respond to the digital revolution is government. It has yet to streamline its transactions and disseminate information efficiently, let alone flatten its bureaucracy or restructure its organizations, in the way that electronic technology has made possible in corporate America.

Now, however, information technology is like a big wave curled over government and about to break. Presidential candidates George W. Bush and Al Gore have promised, if elected, to make digitizing federal government departments a priority. A few leading-edge states and cities are already launching interactive websites that overflow with useful information and efficiently deliver services. High-tech companies, including the one I chair, are inking important agreements with all levels of governments to bring them up to twenty-first-century speed. Public sector spending in the U.S. to accomplish this, predicts the Gartner consulting group, will rocket from an already significant $1.5 billion to $6.2 billion by 2005.

Digitizing government promises to have hugely positive consequences. It will allow us to shrink expensive, bloated public sector workforces through automation. It will boost government's efficiency and make it more responsive to citizens and businesses. But we shouldn't underestimate the ferocious resistance that such transformations will unleash. Public employee unions won't want to see their power diminished. Bureaucrats will stonewall before they allow their empires to shrink. It will take real political leadership to explain the potentially epochal benefits of e-government and create a consensus for change.

The expanded choice and convenience that information technology has already given consumers in the private sector is bound to change their expectations about government services. No so long ago, for example, you'd rush to the bank on Friday afternoon to cash your check. If you didn't make it before 3:00, too bad: the bank closed for the weekend. Now, the automated teller machine gives you access to your money 24 hours a day, every day, while cutting your bank's cost from around $2.93 to 27 cents per transaction. Thanks to the Internet you can buy virtually anything online, from anywhere in the world, at any time, and have it quickly delivered to your doorstep. The newly empowered consumer is starting to wonder why government is often so dysfunctional and sloth-like in comparison.

The answer, of course, is that government is a monopoly, so it doesn't feel the competitive pressure to innovate that businesses feel every day as they struggle to prosper in the marketplace. Change comes slowly to government. So while private industry began to automate back-office functions in the 1950s, entering payroll or accounting data into big, mainframe computers, government only timidly began this kind of automation in the sixties, the era when Ross Perot made his fortune by using computers to process Medicaid claims under government contract. But remarkably, even this relatively primitive automation didn't really kick into gear in government until the mid-1980s.

Backroom automation is still going on and has produced significant savings. Last year, the federal government delivered more than three-quarters of its payments through electronic funds transfers (EFT) instead of paper checks. When they complete their conversion to EFT, the feds will save hundreds of millions a year in reduced paperwork. Recently, West Virginia put all of its 45,000 state employees on a single $1.6 million online payroll system. Instead of wastefully shuffling paper reports back and forth between each state agency and the auditor's office, payroll clerks log on to the Internet to do data entry and correct mistakes. Potential savings to the state: $250,000 a year.

In the mid- to late 1990s, a few pathbreaking governments and agencies began to draw on information technology's remarkable power in a second way: to analyze and use government-collected data more effectively and disseminate it easily and quickly.

Law enforcement is a big beneficiary of the computer-enhanced use of information. Famously, in 1994, the New York Police Department under Mayor Rudolph Giuliani rolled out Compstat, a computerized system for tracking crime statistics—perhaps the key tool, experts believe, in Gotham's remarkable crime-busting success. Other cities, such as New Orleans, have followed New York's lead and set up Compstats of their own, winning impressive reductions in crime. Texas just launched a computerized Medicaid Fraud and Abuse Detection System that searches for suspicious patterns of behavior among providers and patients. In its first nine months, it turned up nearly $3 million in suspected overpayments that fraud investigators had missed. Chicago has newly outfitted its meter maids and traffic cops with sophisticated hand-held computers that they can use to check license-plate numbers against a database of parking scofflaws. The city is now booting 1,100 vehicles weekly, a 40 percent increase over last year. Many law-enforcement agencies have installed mobile computers in police cruisers to tap into traffic violation and felony-warrant data. In the near future, they'll also allow cops to match downloaded mug shots to suspects. DNA "fingerprinting" information has gone online, too, and in time will allow cops to match samples against a vast national database, as in the U.K.

With the rise of the Internet, government has made easily available to anyone with a computer lots of the information at its disposal. Nearly every federal, state, and local government or agency has its own regularly updated website. Though a new Anderson Consulting study on e-government points out that less than 50 percent of the nation's government-published information is available online, the amount of data these websites are putting at one's fingertips is exploding. Citizens can use them to find out about everything from community-college courses to job openings to park locations. Businesses can look at them to discover local zoning ordinances and other business-relevant information.

The best websites provide useful information that until now was hard to obtain. Want to know how your kid's public school measures up academically? Texas parents can log on to a government website and compare schools' average scores on the state's standardized tests. Worried your surgeon is a hack? Rhode Island has just launched a searchable online database of the licenses of the state's doctors, dentists, and other health professionals that includes any licensing violations they might have accumulated, and the New York legislature has just voted to provide full educational data and malpractice suit information as well. Keen on avoiding food poisoning? New York City posts Health Department inspection results for the city's restaurants. The site averaged 45,000 hits an hour during its first day.

Giving citizens such easy, one-click access to important knowledge helps ensure accountability and consumer protection. The fear of having a health-code violation for vermin posted on a heavily trafficked website is more likely than city fines to spur a restaurateur to clean up his act. Arming parents with information about the performance of their kids' public schools lets them make smart educational choices and puts greater pressure on the poor public schools to get better.

The Internet's unique ability to disseminate information is another effective law-enforcement tool, too. Trying to make slumlords comply with local nuisance and housing codes, Toledo, Ohio, has just posted on its website a marvelous page called "Houses of Shame," listing the names and addresses of owners of ill-maintained, crime-plagued properties. Public humiliation has worked wonders: Governing magazine reports that seven of the first 12 landlords named to the House of Shame have brought their properties into compliance with the law within two months of appearing on the list; two others are hastily trying to sell their seedy buildings. "They don't like it, and they consider it harassment," remarks Mayor Carelton Finkbeiner—"but it was meant to embarrass them."

A very few state and local governments and federal agencies are beginning to use information technology in an exciting third way, turning to interactive websites and other high-tech inventions to automate and streamline day-to-day interactions with citizens and businesses, saving time and money—lots of it.

Substantial efficiencies are there to win. As American government vastly expanded its role during the second half of the twentieth century, mountains of paperwork and endless lines waiting to apply for or renew licenses, permits, and registrations became inescapable facts of life. "Our business is paper," Michigan secretary of state Candice S. Miller matter-of-factly explained a while back. "We are a business that does 18 million transactions a year. You want to think about why there are lines?" The wastefulness of all this is extraordinary. At the extreme end of the spectrum, a recent audit of the Brooklyn, New York, Office of the City Register (an office that handles real-estate documents) turned up close to 100 boxes of long-unprocessed papers, including $26 million in uncashed checks—costing the city more than a quarter of a million dollars in lost interest.

Government could save billions if it handled more of its business over the Net. Individuals and firms do about $600 billion a year in government transactions; less than 1 percent of it currently takes place online. Anderson Consulting estimates that every in-person or phone transaction converted to an online one saves government between $40 and $400 in paper and labor costs, which represents, according to other estimates, a 70 percent savings.

With such huge potential cost-cutting, it's small wonder that new high-tech firms—including such relative newcomers Netgov (the company I chair), govWorks, and the National Information Consortium, along with such older giants as Dell, IBM, and Hewlett-Packard—are rushing to build and maintain new, interactive websites to handle government transactions with the public. These technology companies, in lieu of fat up-front payment for building the sites, usually settle for a fee levied for each online transaction or for permission to sell ad space on the site. Some critics fear that the private companies might turn around and sell the personal information they obtain when running the sites; governments must reassure citizens that their confidential data remain tightly secure.

Governments may gain the biggest efficiencies by using the Net for procurement. Typically, when government needs to buy something or contract with a vendor, it advertises in a local paper or in business publications—at least when the process is truly open. Buying media space is pricey, though, so government purchasers as a rule don't run many ads, and few responses come in. It's all too common to get a subpar deal that drives up the cost of government.

Internet procurement allows government to create a better market, reaching a much larger group of vendors. After Dallas started to use the Net for procurement, the city received 17 or 20 bids on some requests, on which it used to get two or three. Orange County, California, has done even better by procuring over the Net: from seven or eight bids on a solicitation in the pre-Internet days, it now gets as many as 70 bids. When governments are sellers, the technology-expanded marketplace is no less a boon. New Jersey cities sell tax liens via the Internet, significantly increasing the number of potential buyers.

A larger pool of vendors, drawn from a wider geographical area, means heightened competition, and that means that government gets a bigger bang for its buck. "We get better-quality product," Dallas chief information officer Dan McFarland recently told American City and County. The price is usually cheaper as well. Last year, Pennsylvania purchased nearly 1 million tons of road salt for $30 million through an Internet auction (run by a private firm), saving $2.5 million. Private sector firms that have switched to Internet procurement report savings of up to 70 percent. If Ford can save $1,000 on each car it produces through e-procurement, imagine the savings for government at an equal level of efficiency.

The Internet substantially reduces the cost and fuss of licensing and registering. For 2 percent of the fees for each transaction, IBM designed and hosts a fancy site for the state of Arizona that residents can use, credit card in hand, to re-register their cars online in three minutes instead of the exasperating 45 minutes it once took at the Department of Motor Vehicles. For the 15 percent of re-registrations done online, the state has sliced its processing costs from $6.60 to $1.60 per car, pouring back $1.7 million a year into state coffers. In Maryland, members of 40 professions can renew their licenses online; last year, 40 percent of the state's professionals due for renewal did so, shaving upward of $2 million off the usual processing costs. In Georgia, accountants and real-estate agents, among other professionals, get a 25 percent discount if they register online; even with the discount the state has saved $350,000 a year. Instead of nervously traveling to an often-distant auditorium to sit down for their two-day licensing exam, nurses across the country can now take the national test by computer at their school's computer center.

Registering and licensing are just two of the many different transactions government is starting to handle online. These days, you often can log on to the Internet to pay parking tickets, apply for permits, and register for—or even take—classes at state universities. On the federal level, in 1998 nearly 25 million Americans filed their taxes with the IRS electronically. The Postal Service lets residents file change-of-address forms on the web. Companies can in many cases submit regulatory filings online with the Federal Communications Commission, the Securities and Exchange Commission, and other agencies.

What about folks who can't afford computers? The typical Internet user in the U.S. makes more than $50,000 a year; in some states, less than 20 percent of the population surfs the web. Isn't there a risk that many people will find themselves missing out on digital-era efficiencies?

Fairfax County, Virginia, one of the most electronically advanced governments in the country, has a clever solution. The county has installed touch-screen kiosks in 18 locations, including libraries and shopping malls, where computerless citizens can do most of the things others are doing on its state-of-the-art website: pay tickets, download forms, and look up all kinds of information. The county is also setting up an interactive voice response system to handle over the phone many of the transactions that it has put online.

Fairfax County's example illustrates an important fact: the Internet isn't the only new, digital tool for streamlining government interactions with the public. States and cities have started to issue "smart cards," electronically encoded with data unique to the cardholder, to recipients of public assistance, who can use them to access a range of benefits with a minimum of bureaucratic fuss.

New information technology has sped up rush hour by streamlining government's transactions with commuters. In many cities, "Metro Passes" get you on public buses and subways with a swipe through a computerized till, which debits the fare from the electronically encoded balance on the card. There's no more waiting in line to purchase a token. For highway tolls, electronic "E-Z Passes"—tiny transponders that drivers hang in their windshields—do the same thing, ending tollbooth traffic snarls. Taking further advantage of such "smart" passes, San Diego has experimented successfully with congestion pricing—drivers pay extra during peak traffic hours—to untangle horrendous traffic snarls on an eight-mile stretch of highway outside of the city.

Beyond these three efficiency-boosting uses of information technology—to automate back-office functions, to disseminate information and use it more effectively, and to streamline and automate typical government business with the public—there's a fourth, far more radical, way government can exploit digital technology. So far, though, it's mostly on the horizon. But used to its full potential, information technology could enable us to restructure government dramatically, reducing its size by an order of magnitude while at the same time making it serve the interests of citizens and businesses with a market-like efficiency. Were this to happen, it would be a transformation every bit as dramatic and positive as the restructuring of the U.S. economy in the Reagan and Bush Sr. years.

That epic experience carries an important lesson for e-government's future. Remember that, when corporate America spent $1 trillion on computer hardware in the eighties and early nineties, the big productivity boost it expected didn't materialize at first. Firms were just using the new digital gizmos to automate existing processes—basically what most e-government initiatives have done so far—instead of rethinking their practices from the ground up to draw fully on technology's productivity-enhancing might.

But with hungry Asian competitors threatening their marketplace dominance, American firms began to innovate fiercely. They used digital technology to flatten porcine bureaucracies, getting rid of layers and layers of middle managers, whose function had been to package and forward information that computers could package and route much more efficiently. They transformed their inventory and distribution systems with computer-aided just-in-time delivery. And they used the technology to improve quality by giving line managers and workers more responsibility. After painful corporate downsizing and restructuring, U.S. firms emerged lean and muscular, producing better products at lower cost, faster, more flexibly, and often more closely tailored to the individual customer's wants.

What would a similarly bold use of technology mean for government? First, it would avoid automating archaic processes or needless regulations. As a recent report from IBM's Institute for Electronic Government put it, "[Government] can become hugely efficient at doing the wrong thing."

I learned this lesson the hard way as mayor of Indianapolis in the 1990s. I was determined to reduce the time it took to issue a building permit and sought a way to streamline the antiquated and time-consuming system of chasing down yellowing records. A well-intentioned middle manager, aware of my penchant for outsourcing government activities, hired an outside engineering firm to computerize the permit area with the greatest backlog: drainage approvals.

Twelve months and $600,000 later, we'd sped things up only slightly. I confronted the owner of the engineering company and asked him about the anemic results. He responded calmly that he had accomplished exactly what we had asked him to do: review drainage permits and help put them online. Had we asked him to improve the permit time as a whole, he would have given us a host of suggestions, among them having building plans and permit applications submitted together electronically and then processed concurrently by the relevant bureaucracies—easy to do with computers. He would have advised us to reduce the number of permits builders needed. Three years later, we had consolidated permits and initiated concurrent reviews. Waiting times fell by two-thirds.

This is a new-millennium approach that states and cities have just begun to take in their dealings with would-be entrepreneurs. Starting a business isn't the easiest thing to do in many U.S. locales. Before an entrepreneur can open his doors, he must navigate a maze of licenses and permits issued by agencies on all levels of government. Between figuring out the right forms and waiting for approval, it can take months to get started. To start a business in heavily regulated New York City means spending nearly $10,000 on expediters to get things moving. "That's real money to a new, small business," notes Hudson Institute regulatory expert Irwin M. Stelzer.

Smart governments want to revolutionize this obsolete, pre-information-age approach to entrepreneurship. Suzanne Peck, chief technology officer for Washington mayor Tony Williams, proposes "cradle to grave" online services for businesses. What might this mean? Imagine, says Allan Dobrin, New York City's Commissioner for Information Technology, if everything an entrepreneur needed to launch a new business were in one place in cyberspace—a "virtual agency," accessible on your city's website. It would override time-wasting bureaucratic boundaries. The entrepreneur would fill out just one online form, press a button, and the computer would instantly fill out all the applications for the requisite city, state, and federal licenses and permits. "You'll put in your electronic signature, your credit-card number to pay the fees, and you'll be done," says Dobrin.

The appropriate personnel would review the applications at the same time on their computers, instead of sequentially. Ideally, instead of waiting months, the entrepreneur gets the green light in hours. New York wants to have this business-friendly system up and running soon. The city's digital plans for the future are "phenomenal—on the cutting edge," says Cathiliea Robinett of the Sacramento-based Center for Digital Government, and several other states and cities, including Pennsylvania, Washington State, Indianapolis, and D.C., are moving fast in the same direction.

Those that don't will eventually commit economic suicide, observes Janet Caldow, director of IBM's Institute for Electronic Government. Today's savvy high-tech entrepreneurs "want a government that can interact with them at the speed of commerce in their world," she stresses—and they'll look around at different cities and states until they find it. Illustrative of Caldow's point is DBS International, a firm that designs computer hardware for corporate customers. Seeking to expand its operations, the company just moved to Bethlehem, Pennsylvania, from Flemington, New Jersey, in part because of Pennsylvania's digital-speed business climate. "We closed the purchase on our building in the morning; we had a building permit by noon," DBS founder Bill Bachenberg told the New York Times. "In New Jersey, we'd still be waiting for a permit."

This is impressive stuff, but there is yet one more radical level of reform, as I learned when I set out to automate burglar-alarm permits in Indianapolis. I was troubled by the tedious process of having people fill out and mail in permit requests, which government workers would then have to spend time processing before mailing the approved permits back. I insisted that the system go online. Fortunately, the firm I hired to do it argued that we didn't need permits at all. Why not just require the companies that installed the alarms to register each one with the city over the Internet? Just like that, we peeled away a whole layer of bureaucracy. Imaginative use of technology removed a bureaucratic nuisance on home owners and still allowed the city to limit false alarms by threatening to cancel the registration of home owners who had too many.

The lesson I learned is that technological change gives us the opportunity and impetus to rethink government's role. After all, we often go on doing things the same old way, even if it isn't the best way to proceed, until we're jolted into trying something different. There are some things government doesn't have to do at all, as my burglar-alarm experience brought home to me. And the last four decades have taught us that government does many things poorly—from treating wastewater to building schools to helping the down-and-out. It makes more sense to turn these activities over to the market entirely or, in the case of providing social services to the needy, to hire successful faith-based institutions to do the job. The Information Revolution makes it markedly easier for government to contract out many services, for the continual flow of electronic information allows government to supervise contractors closely for quality and compliance. In Indianapolis, it allowed us easily to measure the speed and care with which Last Chance Towing removed abandoned vehicles from city streets.

Information technology offers enormous possibilities for informed civic participation, too. Some city and state governments are already using the Internet to foster citizen input. In Indianapolis in 1996, we set up a pioneering, award-winning website that featured the city's budget, polling places, and opportunities to contact city officials and express opinions. Madison, Wisconsin's new city website lets residents look up city ordinances and review council meeting minutes. Soon, they'll be able to give their two cents on city policy over the web. Senators Joseph Lieberman (D-Conn.) and Fred Thompson (R-Tenn.) have just kicked off an interactive website that solicits suggestions from voters on how the federal government can best take advantage of the Internet.

One state has gone even further. In the Arizona Democratic primary this past March, state residents for the first time could cast ballots over the Internet. Strikingly, nearly 40,000 Arizonans, almost half the total number of those who voted, did so. Though it raises the troubling specter of policy makers reacting unreflectively to instant feedback and polls, digital democracy is clearly the wave of the future.

Finally, the hallmarks of the New Economy—speed, innovation, vigorous competition, a dizzying array of consumer options, and a dedication to customer service—don't have to be foreign to government. A fully digitized government could provide public services as seamlessly and dependably as today's business world does. Such a government would customize itself to the individual's personal choices and convenience: a citizen would be able to define what information he wants from government, when he wants it, and how he will receive it. He'd be able to ask government for zoning notices, new building-permit requests, even crime reports in his particular neighborhood, and get them almost instantly via e-mail. Residents of a city or town could, if desired, receive e-mail reminders when their permits expired or other obligations became due.

Citizens could keep close electronic watch on government's effectiveness. If someone wanted a pothole filled, he'd be able to send his request via the Internet directly to the work crew assigned to his neighborhood instead of to the central Department of Public Works. Performance measures would be instant and obvious to supervisors: how long did the citizen have to wait for a response and a solution to his problem?

To talk about e-government as if it were inevitable begs a huge political question, however: what about the resistance of the government workers whose jobs would become obsolete? Candidate Al Gore's technology advisor Robert Atkinson estimates that digitizing government could cut the size of the federal workforce by 25 percent over the next decade. The reductions could be even greater on the state and local level, where the public has 90 percent of its dealings with government. The labor unions are already up in arms. "Our view is that electronic tools should augment, not replace, government employees," Rebecca Feaster of the American Federation of State, County, and Municipal Employees recently told Fortune.

Of course, a decrease in the membership and the strength of public-employee labor unions doesn't mean that government workers, especially with their additional layer of civil service protection, are going to be oppressed. In fact, information technology will make the jobs of many government workers more interesting and less mechanical, just as technological changes in the private sector empowered line workers and made use of their hitherto untapped knowledge. In Indianapolis, for example, trash collectors wanted to have computer terminals installed next to their time clocks, so they could look at citizen complaints online and e-mail me directly with proposed solutions. They had all sorts of bright ideas about how to pick up garbage more efficiently.

Their supervisors, though, had little interest in shaking up the long-settled arrangements that justified their authority. And, in fact, foot dragging by agency satraps will be a key obstacle to realizing e-government's full potential. Each government bureaucracy tends to be a fiefdom, whose chiefs are fearful that the efficiencies information technology can bring will shrink their empires, their funding, and their power. As a group, such bureaucratic bosses tend to have a change-resistant mind-set. They tend, like corporate executives of yore, to look at the world from a producer rather than a consumer perspective, and even cooperating with other agencies doesn't come easily to them. For example, when the Small Business Administration tried to a set up a single point of Internet entry for small businesses to interact with all the government agencies they normally have to deal with, jealous agency heads reportedly sank this efficiency-boosting, consumer-friendly proposal without a trace. Gore advisor Atkinson is blunt about how things might change: "Only top-level leadership can overcome the resistance of government bureaucrats to potentially disruptive changes."

A hugely important political struggle looms, in other words, before e-government can achieve its true promise. With more than a quarter of government workers reaching retirement age over the next five years, determined political leadership can solve part of the problem of downsizing government simply through attrition. In addition, a thriving economy will make it easy for government to ease more of its workers into the private sector, where they might just "go out and make more money," as Virginia's secretary of technology Donald Upson recently remarked. But bold and resolute leadership on all levels of government will be essential to make the necessary downsizing and streamlining take place.

The best solution would be to appoint special officials with the power to override labor union and bureaucratic obstacles. Many states and cities have chief information officers, some of whom have considerable authority to push foot-dragging agencies and stubborn unions into the digital future. Candidate George W. Bush's call for a federal information czar to force government bureaucracies to change represents a key difference with his rival, who has shied away from such a bold recommendation—"apparently for fear of public sector unions," The Economist recently observed. Gore's squeamishness about union opposition is a major reason his reinventing-government crusade had such lackluster results: federal spending is at an all-time high, half of all federal agencies can't even produce auditable books, and, as the Wall Street Journal's Paul Gigot points out, the American Federation of Government Employees has 17,000 more members than it did prior to Gore's initiative. Ultimately, it's a philosophical difference that goes to the heart of contemporary politics: which is more important, a controlling government with legions of public employees, or the rights of citizens to have maximum control over their own lives?

The hurdles are real enough. But e-government is on the way, and it will change everything. Six years ago, e-government barely existed. Today, millions of Americans can enter the virtual halls of government from their homes and businesses. We need to ensure that when they get there, they find that e-government lives up to its promise of slashing red tape, shrinking bureaucracy, and giving individuals greater control of their lives.


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