(FORTUNE Magazine) – Listen to what Americans are calling their elected representatives: wimps, scoundrels, scalawags, and worse -- epithets that are starting to echo the uninhibited political rhetoric of earlier times. In polls, casual conversations, and letters to editors, people are saying they're mad as hell. And, as FORTUNE went to press, many seemed ready to make clear in the voting booth that they wouldn't take it anymore. Politicians complain that the voters are irrational whiners who want a lot of service but aren't willing to pay the bills. The voters are not so irrational. Government wastes a dismaying share of the money it gets. Yes, a democratic political system guarantees inefficiency, perhaps a great deal of it. And some of Washington's worst problems reflect broad failures of political leadership. But better management is absolutely essential, and long overdue. Whether you think government ought to be bigger or smaller, it certainly ought to do whatever it does well. American corporations with sloppy management have restructured and are much the better for it. Their managers and employees have suffered in the quest for greater competitiveness. Now it's time for government to restructure.

For months, FORTUNE interviewed many elected and appointed officials of both parties, academics, and other experts. Politically, they ranged from liberal to libertarian. We also assembled a group of them in Washington to explore what's wrong -- and right -- in government. We found wide agreement on fundamental principles for reform. They draw heavily on the tenets of restructuring as practiced by America's smartest companies over the past decade. You ask, why bother since everybody knows government can never change? Look again. Some little-noticed innovations in Washington are starting to show just how transferable these concepts are. In the corridors of the bureaucracy, one hears officials speaking in almost awed terms of how innovative companies such as Ford, Motorola, and Xerox have turned around their operations by delegating authority, fostering teamwork, pursuing quality relentlessly, and paying keen attention to the customer. And one sees government employees, down to the lowest levels, signing on enthusiastically to new programs. The budget debacle brought Washington's flaws into focus. Failure of political will may have been the root cause, but a solid dose of managerial discipline can help contain future damage by forcing the politicians to think more clearly about the task at hand. Interminable budget negotiations undermine effective management all down the line. Says Deputy Defense Secretary Donald Atwood, until last year vice chairman of General Motors: ''Each year every individual item is subject to debate. There's no continuity, and that's very disruptive.'' Former Defense Secretary Frank Carlucci agrees: ''Nobody can run a program reasonably when you don't know how much you're going to have to spend.'' A two-year budget would help stabilize planning and decision-making. It might also give Congress time for more genuine collaborative long-term strategizing with the President, if both were so inclined. Says Congressman Vic Fazio, a California Democrat who advocates a two-year cycle: ''The pace of change in government and society in general has quickened to the degree that we really need to be more contemplative in the budget process.'' The mechanics of budgeting, too, need drastic simplification. Says Brookings Institution senior fellow Alice Rivlin, the founding director of the Congressional Budget Office: ''The numbers of layers of committees and stages and steps in the process are too confusing and too complex, so you get endless wrangling.'' In the current system, an authorization committee such as the House Agriculture Committee initiates a bill that says what ought to be done and suggests how much to spend. Later, a different cast of characters on a House Appropriations subcommittee allocates the money. Rivlin would consolidate these now separate functions for each policy area into one, which she would call a program committee. This body would decide both what to do and how much to spend. ; Simply looking at budget items in relation to the nation's total output would help both the public and Washington concentrate on priorities and limits. One approach is advocated by Republican economist Herbert Stein and Indiana's Democratic Congressman Lee Hamilton, among others. They call for adopting a so-called gross national product budget. It would break down not just federal spending but all outlays -- including what governments, corporations, and individuals spend -- into percentages of GNP. For example: education 7%, defense 6%, and so forth. As Hamilton says, such a summary would show whether the distribution of GNP squared with national objectives, and thus give policymakers and the public a clearer guide to allocating resources. Sound budgeting also depends on a decent accounting system. Washington doesn't know where its money goes -- or even how much it has. Agencies and departments (we will refer to them all as agencies for shorthand) are not required to have uniform accounting systems or financial statements. Last year, during a debate on new drug-fighting initiatives, Richard Darman tried to find out for President Bush how much appropriated money remained unspent. America's top budget official was unable to learn the number. Darman's Office of Management and Budget is revamping or eliminating the government's 250 redundant and incompatible accounting systems. As recently as three years ago there were 400. Every agency now also has a chief financial officer, who is expected to improve financial management, handle inventories and property in a businesslike way, and take a stab at strategic planning. And if Congress agrees, as seems likely, OMB expects that by 1994 all 14 Cabinet departments, NASA, and the Environmental Protection Agency will have audited financial statements. OMB has a little-known ally in the Private Sector Council. This group of 150 big corporations and trade associations banded together in 1984 to offer assistance on financial management problems to any government agency that asked. The companies lend top officials, often their CFOs, for several days a month. The council has so far undertaken more than 200 projects in 22 agencies; 175 are completed. Its biggest success to date was in the Treasury Department, where executives from 35 companies produced a comprehensive study of cash management systems that led to a $15 billion reduction in working capital and over $9 billion in interest savings during the past five years. For example, the group suggested the public be allowed to pay fees, fines, and duties with credit cards. That alone has saved the government over $70 million since 1987, mostly by bringing the money in faster. In a separate project, executives from Ford and other companies suggested ways the Naval Supply Systems Command could shorten lead times for delivery of material inventories. The Navy took the advice, and the cost of inventories on hand dropped by several billion dollars. Congressional meddling fouls up more than budgeting. Congress has strayed from its historical role of helping to set an overall direction for the nation. Instead, in the name of oversight, it too often busies itself with micromanagement -- mucking with the petty details of policy execution. The agencies won't ever function well unless Congress gets off their backs. Oversight overkill is most evident at the Pentagon, though every agency is afflicted. Almost all of the 38 congressional committees ride herd on defense. Deputy Defense Secretary Atwood says he spends 30% to 40% of his time responding to these committees. Former Defense Secretary Carlucci at times spent as many as four out of five days testifying on Capitol Hill. Says Carlucci, a seasoned veteran of numerous government jobs: ''It's increasingly difficult for a senior manager to achieve his goals, because Congress tends to vest authority in an executive's subordinates while holding him responsible for any results.'' One of his pet peeves: Congress expects the Defense Secretary to ensure the integrity of the contracting process but denies him full control over the department's auditing division. Micromanagement can cost plenty. For example, conferees from the House and Senate write target prices for crop subsidies into a new farm bill -- not just for the coming year but for the next five years. Even if market conditions change and a lower price seems called for, the only way the Secretary of Agriculture can avoid squandering taxpayer funds is to ask for new congressional legislation with a revised target. That rarely happens. All that congressional fidgeting prompts government to grow in size and scope. Paul O'Neill, CEO of Alcoa and a participant in FORTUNE's conference, saw the problem firsthand when he was deputy director of OMB. Says he: ''Behind the micromanagement has to come audit staff, enforcement staff, and armies of people to police what Congress has done.'' The proliferation rarely improves the quality of service, and usually diminishes it. As O'Neill says, ''If I tried to run my company the way we are trying to run this country, I would have to be every place every minute of my life.'' Congress should return to a genuine long-range oversight role. Says Alice Rivlin: ''It ought to think of itself more as a board of directors.'' One reason Congress has trouble focusing on the big issues -- and it's especially true in the House -- is that members are too conscious of the need to keep constituents happy for the always-upcoming elections. More and more voices are being raised in favor of lengthening or otherwise modifying congressional terms. Congressman Fazio spoke up for a four-year House term at FORTUNE's conference: ''Congress is guilty of risk aversion, and is perhaps too dominated by the political process. I get constantly asked, 'Are you running again?' '' Fazio would still have elections every two years -- staggering the terms so that half of the members ran in each cycle. Another way to inhibit micromanagement would be to shrink the congressional infrastructure. As standing subcommittees have proliferated, from 125 in 1950 to 226 today, so have the number of power centers from which press-hungry legislators can make noises by bothering program administrators. Says Edmund Muskie, former Senator and Secretary of State: ''People on the Hill reach out for power wherever they can find it. There is a continuing inclination to step in somebody else's turf.'' Muskie does not think all the meetings lead to better laws. ''I was chairman of more subcommittees than I could handle efficiently,'' he admits. Many critics take aim at the profusion of congressional staffers, both for committees and individual legislators. Rather than helping Congressmen master issues, the critics say, staff members become a form of shadow government -- writing bills and setting agendas that their supposed bosses wouldn't necessarily set for themselves. Says Senator Alan Simpson, a Wyoming Republican: ''They sit in the morning and watch every news show and read every paper, then suddenly run to the floor and say to their Congressmen, 'My God, we can't afford not to speak on this today.' '' Presidents share in the blame. Says Congressman Hamilton, who participated in FORTUNE's conference: ''Micromanagement arises because the President has not consulted with Congress, has not been sensitive to it, and has overridden ; it. So the only way Congress can participate in policy is to pass micromanagement legislation. The solution is to improve the consultative process.'' The President needs to sound out congressional leaders before a specific bill is under negotiation, not after. A President who articulated a clear vision of where he wanted to go, both to the public and to the federal legislators, would almost certainly find common ground with Congressmen of both parties. Says Alcoa's O'Neill: ''There is no doubt that the President needs to lead in the old-fashioned, Jeffersonian sense of educating, informing, and not simply being a leader by getting in front of the crowd every time it moves.'' The Chief Executive also has to lead the managers of his own turf. Not that he should try to manage, any more than Congress should attempt it. ''Presidents are not elected on the basis of their management skills,'' says William Niskanen, director of the libertarian Cato Institute in Washington, who took part in our conference. ''The only one who ever came to the presidency with a reputation for management was Hoover. That is not an encouraging example.'' But the Chief has to set the right tone. George Bush has a warmer feeling toward public service than did his two predecessors. And he speaks glowingly about ''quality management,'' as he did when presenting a Malcolm Baldrige Award to Xerox last year. But the President could make more frequent visits to departments. He should also ensure that his lieutenants know what he wants to achieve and that his agency heads know how to delegate. Says Marc Landy, a senior fellow at the Gordon Public Policy Center at Brandeis University and a participant in FORTUNE's conference: ''The President must put in place people who think like the division managers of a large company, rather than guerrilla warriors trying only to forage the most resources for their agency.'' Having put such people in place, he should make room for them in the White House. But the President has the same impediment as Congress -- a surplus of staffers who second-guess managers in the trenches. Says Lloyd Cutler, who was counsel for President Carter and joined FORTUNE's conference: ''The White House staff is larger than ever before, and more and more the agencies become outer movements of the planets.'' One way to make sure the President and his executives are on the same wavelength, says Cutler: Secretaries of the major departments ought to attend morning White House staff meetings. The President must take the lead in pushing down authority and responsibility. There is no one government, but rather hundreds of separate agencies, each with a different mandate and appropriate style of work. Some need to be highly bureaucratic -- they are production shops, sending out checks as at Social Security. Others, like the National Security Council, are more entrepreneurial -- they do nothing but formulate policy. Part of the government's problem has been in trying to impose system-wide rules on hiring, pay, promotion, and organizational style. Government managers, like corporate managers, are slowly realizing that they have to delegate authority all the way down to the production line or service delivery level. Many are deeply frustrated that their flexibility is so limited. Says James Cortese, a manager of financial operations at McClellan Air Force Base near Sacramento, California: ''The system ties you to obsolete civil service rules, and then tells you to contract tasks out to private industry because it is more efficient. Managers should be able to manage without shackles.'' Cortese has been unshackled. In his big supply depot at McClellan, a revolutionary (for government) two-year-old productivity gain-sharing plan covers 1,700 civilian employees. These people help figure out efficient methods of working. They do multiple tasks and get bonuses equal to half of any savings from more efficient operations -- measured by comparing current costs with those of the previous year. The so-far-successful experiment throws out traditional job classifications and rigid government pay grades. The new system was designed together with the American Federation of Government Employees and used the nearby General Motors-Toyota joint venture as a model. Other agencies are getting more flexibility in setting white-collar pay standards. In 1988, the National Institute of Standards and Technology in Maryland -- the outfit that administers the Baldrige Award -- jettisoned rigid pay grades for its scientists and technicians in favor of wider bands. It also began awarding raises based on merit rather than time served. NIST offsets the extra costs by not giving raises to poor performers. One major result: The agency is a lot more competitive now with universities and private industry. Says director John Lyons: ''We now have the speed and flexibility to do what it takes.'' The innovative programs have important champions at the top of the bureaucratic pyramid. Connie Newman, director of the Office of Personnel Management (OPM), which oversees almost all federal hiring and pay systems, is unequivocal about what to do: ''First we have to better define who are our customers and what are their expectations.'' This no-nonsense administrative veteran, who wears a calculator watch and whose desk sports a Trumanesque THE BUCK STOPS HERE sign, has no doubt how this refreshing idea will best be accomplished: ''Supervisors and managers are going to have to be more willing to share power, and to ask employees what needs to be done.''

This is more than just talk. In her own agency, Newman has started weekly ''director's hour'' sessions. Any employee can sign up to ask questions of the top boss and make suggestions. OPM has also surveyed applicants at government job information centers around the country to learn how they felt they were treated by employees. The agency is conducting the experimental programs at McClellan and NIST, and sponsors similar projects in five other government organizations. Officials in OMB also talk enthusiastically about how they are pushing down authority. OMB last year presented a special award to the Internal Revenue Service center in Ogden, Utah, for extraordinary improvement in productivity and employee involvement. At this center, the IRS's largest, 5,700 employees process 26 million tax returns a year. Morale scraped bottom in the early 1980s during an ill-conceived cost-cutting program that calculated the hours required to process returns and compared all ten centers nationwide, fostering a spirit of somewhat desperate competition -- not to mention anxiety and anger among taxpayers who are treated badly as a result. When Robert Wenzel became director of the center in mid-1986, he redirected attention to the quality of work, with the cooperation of the National Treasury Employees Union. The center formed quality-improvement teams to tackle specific production bottlenecks and actively encouraged employees to suggest workplace improvements. One suggestion that was adopted: Every employee who writes a letter to a taxpayer personally signs it and includes his or her phone number. Says Wenzel: ''We've given our employees ownership of that letter. They now feel, 'This is my case and I'm responsible for it, so when I sign my name to it I'll be sure it's accurate.' '' In 1986, 40% of those letters included errors, from miscalculations to spelling mistakes. . Today less than 8% do. On average it took four contacts to resolve a dispute with a taxpayer. Now it takes two. To promote such successes, the Bush Administration has put new emphasis on a not-yet-well-enough-known OPM operation called the Federal Quality Institute, whose staff has tripled to 30 this year. The institute was set up to promote ''total quality management,'' or TQM, a buzz-phrase with a strong message: Focus on customers, both external and internal; get employees involved in finding quality improvements through teamwork; measure the improved quality; and continually train your people. Deadly cliches, except when they're brought to life. The institute advises agencies that want to change their ways, and serves as a clearinghouse for ideas. Its appointed head is a compact fireball of a man named John Franke. A former Assistant Secretary of Agriculture, Franke enters his office whistling loudly and often jumps up and slaps his palms on the table when he can't talk fast enough to make all his points. A great salesman for a tough sell. ''If you've never thought about your customers it's hard to figure out what their needs are,'' he avers. ''In Agriculture we never thought of our field managers as our customers. It never occurred to us that these guys had good ideas, because everybody knows all good ideas come out of Washington.'' Roughly 10% of all nonmilitary federal workers are involved in active TQM efforts like the one at Ogden. Will total quality spread? Not if the President doesn't get powerfully behind it -- and even then don't expect it to happen fast. Says John Sturdivant, president of the American Federation of Government Employees (AFGE), which represents 700,000 workers in 67 federal operations: ''I don't sense that TQM has really moved down to the workplace, where you are actually delivering a product to the customer, the taxpayer. I'm also concerned that among managers this is perceived to be just the latest flavor of the month.'' The Office of Personnel Management and OMB have themselves been responsible for excessive centralization and inertia in the past, and both will need to push much harder to bring about real change. But there's a constituency for it on the shop floors. Despite his reservations, Sturdivant does not oppose the idea, and employees appear to like it. Bureaucrats, no less than corporate workers, much prefer working smart to working dumb. Better practices also hinge on a more rational system of rewards. Pay ) policies for rank-and-file government employees are almost medievally rigid. The main criterion for increases is time served; merit and performance are not factors. Dispensing with automatic pay raises would improve motivation and presumably productivity, and even the unions don't seem to oppose such a move in theory. AFGE accepted the suspension of the inflexible ''general schedule'' of pay increases as part of the promising gain-sharing experiment at McClellan Air Force Base. But the unions will probably try to use any reform proposal as a lever for higher pay, especially if workers don't get productivity bonuses. Any revitalization of the federal bureaucracy will also depend on talented and committed managers -- and they are fleeing. Inflation-adjusted pay at the top levels fell 35% between 1969 and 1989, reports the National Commission on the Public Service, headed by Paul Volcker, former chairman of the Federal Reserve Board. Administrators of mammoth programs are making peanuts. For example, the director of the $8-billion-a-year Farmers Home Administration earns just $78,200. Managers other than Cabinet secretaries cannot earn more than members of the House, now paid $96,600. Cabinet secretaries earn $107,300. In contrast, top British civil servants receive up to $176,000. The Volcker Commission sensibly recommended a raise for senior executives of 25% immediately and more later. An absolute limit to promotion may do even more damage. Too many presidential appointees are taking positions that should be reserved for experienced and deserving career veterans. Today practically all top jobs -- more than 3,000 -- are filled by appointment. The average tenure of appointees has dropped to around two years, half what it was in the 1950s. The number of appointees ought to be dramatically cut. After all, how well would your company run if interlopers perpetually captured the rungs atop most career ladders? The Volcker Commission points out that new governments in Britain, France, and Germany each install fewer than 100 appointees, though they often make more sweeping policy changes than in the U.S. Transients bring neither devotion nor experience to top management posts. Says Congressman Hamilton: ''You cannot manage a Cabinet department if you are there only for a year or two. It is just too big and too complicated.'' Volcker himself believes we are now seeing stark evidence of damage wrought by excessive appointments. The sorry disarray at the scandal-ridden Department of Housing and Urban Development, he says, ''is an example of too many young, inexperienced political people getting involved and pursuing their own agendas.'' The most radical solution to Washington's ills is to simply shrink the monster -- do what corporations do, and decentralize authority. It's no shock to hear that proposed by the Republican Administration. ''We're big on devolution,'' says OMB executive associate director Frank Hodsoll. ''In programs like education, some aspects of housing, highways, and others, given the diversity in our country, you're better off having the states decide, within certain parameters.'' What is surprising is that many moderates and liberals agree. Says Rivlin: ''We must think about what the federal government does well -- like defense -- or where national uniformity is important. But where diversity and citizen participation are important -- like in education, housing, child development, economic development -- each of those is better handled by an effective state or local government.'' The reduction in federal funds in the past ten years also meant states had to learn to do more on their own, and do it more efficiently. Now, she says, the country can take advantage of that increased efficiency. Adds Lee Hamilton: ''State governments are in many respects the source of innovation and creativity in government today.'' With voter disgust at record levels, Washington is beginning to show signs of remorse. ''Our very competence to govern is in question,'' lamented Representative James H. Scheuer (D-New York) on the floor of the House during the pitiful and seemingly endless budget squabbling in early October. ''It is the very institutions of government that people think are failing them, and indeed we are failing them.'' But, Congressman Scheuer, you are not doomed to keep doing so. Change has a growing army of advocates, both inside and outside of government. If ever there was a moment to begin a major overhaul, it is now. The Poles, the Czechs, and the Brazilians can make their governments more responsive. Can't we?