Northeastern Political Science Association

Public Entrepreneurship & Subnational Government Author(s): Donna Wilson Kirchheimer Source: Polity, Vol. 22, No. 1 (Autumn, 1989), pp. 119-142 Published by: Palgrave Macmillan Journals Stable URL: http://www.jstor.org/stable/3234849 . Accessed: 19/09/2011 16:00
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Public Entrepreneurship & Subnational Government* Donna Wilson Kirchheimer

LehmanCollege-CUNY

The entrepreneurial spirit is usuallyassociatedwithprivate and not public institutions. Thisarticle, however,arguesthat government's responseto the much expandedsocial role it took in the 1930sand 1960s is best understoodas a kind of experimentation akin to entrepreneurship. UsingNew Yorkas a case study, the author as an develops the elementsof a theoryof public entrepreneurship institutionalresourcein intergovernmental relations. is Associate Professor of Political Science Donna WilsonKirchheimer at the City Universityof New York'sLehman College. She has publishedpreviouslyin Political ScienceQuarterly,Public Administration Review, and other leadingjournals. The capacityof governmentto achieveits promisesis a politicaltouchstone of the welfarestate. As the serviceresponsibilities of U.S. government expanded in torrents of new social legislation in the 1930s and 1960s, public liability also grew. Critics of the federal social role have doubted that governmentcould realizethe many new goals it accepted and warned of growth without purpose, overload, and stagnation.' Studieshave revealedthat, in salientcases, resultswereindeedmeagerin comparison to original policy goals.2 The "henny penny" school of
*The author acknowledgesand is grateful for researchsupport from the Columbia Councilfor Research in the Social Sciences. University 1. Samuel H. Beer, "Political Overload and Federalism,"Polity 10 (1977): 5-17. MichaelJ. Crozier,SamuelP. Huntington,and Joji Watanuki,The Crisisof Democracy (New York:New York University Press, 1976),pp. 8, 9, 64, 115. 2. Daniel P. Moynihan,MaximumFeasibleMisunderstanding (New York: The Free Press, 1970),pp. 75, 168, 170;MarthaDerthick,New TownsIn-Town(Washington, DC: Polity Polity 1 Number I XXII, Number Volume XXII, Fall 1989 Fall 1989

120 PublicEntrepreneurship social grantsoverloaded federalismhas chargedthat intergovernmental state and local governmentsand drained their political vitality.3And was swift and extensive,it was decriedas unconwhereimplementation trollablespendingand grantsmanship gone wild.4 Alternativestudies examinedthe institutionalresources-the flexibility and self-correctingopportunities--of public institutions, treating this as a test of theirabilityto effect changeand reactto new problemsin new ways.6This analysis pursuesthat route and asks whethergovernhas beennot universal ment'sresponseto new social responsibilities stagnation, but ratheran experimental grapplingwith new opportunitiesto createand regulatenew social functions.It tests the idea of entrepreneurship in particularas an institutionalresourcethat could enable subnational governmentsto cope with overloadof social policy. The concept used hereincludesthreedimensions:entrepreneurial of entrepreneurship supply, all of function, and entrepreneurial identity, entrepreneurial which are used to analyze subnationalinstitutions.This study also eximpleplores whetherprivatizationcan be a vehicle of entrepreneurial is only a tool for mentationof social policy, i.e., whetherprivatization cutbackor can be used to foster expansionof nationallyfinancedsocial as an institutional functions. To test the idea of entrepreneurship York New of the case on draws the City, which adresource, analysis ministersa more than one billion dollar social servicesbudgetthat grew overtwo decadesthroughfederalintergovernmental grants. dramatically I. The Idea of Entrepreneurship is ubiquitous. Proponents of The general notion of entrepreneurship behindeconomicgrowth,and force the to be it believe driving capitalism Ronald President its invoke Reagancalled this "the age mystique. they

Urban Institute, 1972); Samuel H. Beer, "The Adoption of General Revenue Sharing," Public Policy, 24 (Spring, 1976): 127-195; Jeffrey L. Pressman and Aaron B. Wildavsky, Implementation, 3d ed., (Berkeley: University of California Press, 1984); Charles Murray, Losing Ground (New York: Basic Books, 1984). 3. Lawrence D. Brown, James W. Fossett, and Kenneth Palmer, The Changing Politics of Federal Grants (Washington, DC: The Brookings Institution, 1984), pp. 54-55, credit Richard Nathan for citing Henny Penny, the nursery rhyme chicken who thought the sky was falling. 4. Martha Derthick, Uncontrollable Spending for Social Services Grants (Washington, DC: The Brookings Institution, 1975), p. 4. 5. Samuel P. Huntington in The Crisis of Democracy, p. 196. 6. Ralf Dahrendorf in Ibid., p. 194.

DonnaWilsonKirchheimer 121

of the entrepreneur," and he praisedthe "bravemen and women" who come from "hardy risk-takingstock" and expand the economy by "creatingnew businesses,newjobs and new wealth.This is the magic,he said, "that is and always has been at the heart of America'seconomic " strength. as it relatesto privateeconomicgrowth, The idea of entrepreneurship, refersordinarily to a combiningof the factorsof productionin waysthat change the production of goods and services either quantitativelyor In familiarusage, it is understoodas startingnew organizaqualitatively. tions, introducinggoods and services, applying technologicalinnovations, and taking the risks necessaryto seek out new opportunities.But has not despiteits ubiquityand long history,the idea of entrepreneurship led economists to a generally accepted theory of entrepreneurship.' Definition has been so problematical that the study of entrepreneurship has been likened to hunting the "heffalump."9Partial theories have developed, however, and it is possible from research on the private economyto derivethe conceptsof entrepreneurial identity,entrepreneurial function, and entrepreneurial supply.'? who start Entrepreneurial identityis usuallyunderstoodas individuals smallbusinessesand performall functionsthemselves.Someresearchers, can be institutionalized however,arguethat managerial entrepreneurship in large specializedorganizationswhich need new venturesin order to is adapt and survive." Recent studies even attest that entrepreneurship not exclusivelydirectedtoward marshallingoutside resources;the concharacterizes cept of "intrapreneurship" intracorporate activitythat fills an entrepreneurial role inside a large organization.'2 Theories of entrepreneurial function, which developed in the early 18thcentury,directattentionto the roles of risk bearing,mobilizingfactors of production,and continuingmanagement.Entrepreneurial func-

7. RonaldReagan,"Speechat St. John'sUniversity, New YorkCity, March28, 1985," New YorkTimes,29 March1985,p. B4. See also GeorgeGilder,TheSpiritof Enterprise (New York:Simonand Schuster,1984). 8. Robert F. Hebert and Albert N. Link, The Entrepreneur (New York: Praeger Publishers,1982). 9. Peter Kilby, "Hunting the Heffalump," in Peter Kilby, Entrepreneurship and EconomicDevelopment (NewYork:FreePress, 1971),pp. 1-42. A. A. Milne'sWinniethe Pooh felt he just mustsee whata heffalump was like, but thoughhe set a Cunning Trap,he nevercaughtone. 10. CalvinA. Kent,DonaldL. Sexton,and KarlH. Vesper,eds. Encyclopedia of Entrepreneurship (EnglewoodCliffs, NJ: PrenticeHall, 1982). 11. Rosabeth MossKanter,TheChangeMasters (NewYork:SimonandSchuster,1983). 12. Gifford Pinchot III, Intrapreneuring (New York: Harperand Row, 1985).

122 PublicEntrepreneurship tions vary, however, in theory and operation, in different times and places, and accordingto the disciplineof the analyst, be it economics, sociology, psychology,anthropology,or politicalscience.An important dispute concerns the centrality of the entrepreneurialfunction to economic growth. Joseph Schumpeterstressed the importanceof innovating human agents, but some modern theorists consider ena residualcategory.13 trepreneurship Theories of entrepreneurial supply from the Weberiantradition in sociology emphasizethe role and impactof a communityethic, such as of an ideology or religiousbelief. In contrast,psychological explanations are random indibelief that entrepreneurs supply follow Schumpeter's vidualswith a "flash of genius"and an atavisticwill to powerand David WhiledifMcClelland'semphasison a personalneed for achievement.14 ferent analysts give different weights to the environmentalconditions which influence the elasticityof supply, there is a general recognition and can channelthe choicesof individuals that social and legal structures that positive and negative sanctions can influence entrepreneurial behaviorand its successor failure.15 From such partialtheoriesit is possibleto constructconceptsof entrepreneurialidentity, function, and supply which are testable in subnawill not test for of socialpolicy. This investigation tional implementation the most common definition of entrepreneurial identity and will not searchout individualsof superhuman perqualitieswho single-handedly functions.It will test insteadfor entrepreneurial form all entrepreneurial public institutions where roles are specializedamong various persons whose identitieschange over a long period. The inquirywill test these functions:(1) startingand managdefining elementsof entrepreneurial new services,(2) applyinginnointroduce which new organizations ing to seek out vative strategiesto mobilize resources,and (3) risk-bearing conditionsthat encourage new opportunities.In addition,environmental behavior in public institutions will be the supply of entrepreneurial on how privatizationcould facilitate will center and assessed, questions public entrepreneurship. have a two-sided Normative attitudes on private entrepreneurship
13. Joseph A. Schumpeter,Capitalism,Socialismand Democracy(London: George (Cambridge, Allen and Unwin, 1947),pp. 131-34; The Theoryof EconomicDevelopment MA: HarvardUniversityPress, 1934),p. 93. 14. David McClelland,TheAchievingSociety (Princeton,NJ: D. Van NostrandCo., 1961), pp. 205-300. Also see Everett E. Hagen, On the Theory of Social Change (Homewood,IL: DorseyPress, 1962). NoneconomicFactorsin 15. Bert F. Hoselitz, "EconomicGrowthand Development: EconomicDevelopment,"AmericanEconomicReview,47 (1957):39.

DonnaWilsonKirchheimer 123 character. Entrepreneurs are admired for performingvital economic but their image is tarnishedby their recklessbehavior,which functions, may skirtthe limits of acceptableconductand cut too close to the legal edges. Nevertheless, successful entrepreneursare not wantonly self destructive;they cushion the risks they take and adjust their environmentsto maximizetheirchancesof achievement. The studyof publicenshould therefore question not only the risks assumed, trepreneurship which could imply errant behavior, but also ways that risks may be cushionedto enhanceprobabilityof success,i.e., behaviorthat could be constructive. II. Entrepreneurial Identityin the Public Sector The question is whetherresearchon the public sector has advanceda theory of entrepreneurial identityand whetherthat theorypertainsonly to individualsor also to institutionsin which differentpeople perform functions over time. Further, has empirical research entrepreneurial sightedthe entrepreneurial heffalumpin subnationalagencieswhichimplementsocial policy? Social scienceliterature has appliedthe term "politicalentrepreneur" to political leaderswho were national figuresor heads of state, such as Gandhiand Lenin. Their entrepreneurial functionswere defined as the ability to organizea following in orderto gain accessto state resources and to redirectand exploit existingresourcesand infrastructure.'6 Influential individualsin the U.S. national political process have also been termed "policy entrepreneurs,"'7 while researchoutside the U.S. has documentedentrepreneurship in noncapitalisteconomies.'8 individualshave, moreover, been recognizedin the Entrepreneurial U.S. executivebranch,wherethey have carveddomainsof influencethat sometimesspannedpublicand privatestructures. Theseluminaries stand out as brightbut solitarysuperstars who by dint of personalityassertenroles. Researchon national agencies has spotlighted, for trepreneurial
16. David E. Apter, The Politics of Modernization (Chicago:Universityof Chicago Press, 1965),p. 71; W. F. Ilchmanand N. T. Uphoff, ThePoliticalEconomyof Change of CaliforniaPress, 1981),p. 204. (Berkeley: University 17. John W. Kingdon,Agenda,Alternatives, and PublicPolitics (Boston:Little,Brown and Co., 1984),pp. 188-93. 18. On Yugoslavia and the SovietUnion;see AbramBergson,"Entrepreneurship under LaborParticipation," and HerbertS. Levine, "On the Natureand Locationof EntrepreneurialActivityin Centrally PlannedEconomies: The SovietCase," in JoshuaRonen,Entrepreneurship (Lexington,MA: LexingtonBooks, 1983), pp. 177-267. On Hungary;see KalmanRupp,Entrepreneurs in Red (Albany:StateUniversity of New YorkPress, 1983).

124 PublicEntrepreneurship example, J. Edgar Hoover at the Federal Bureau of Investigation, Hyman Rickoverin the Navy and Atomic EnergyCommission,'9Marriner Eccles at the FederalReserveBoard,20 and WilburCohen in the and In subnationalgovernof Welfare. Department Health, Education, is Robert in New York, but the most Moses ment, perhaps prominent others have been documentedelsewhere.21 in U.S. public instituWhen researchhas identifiedentrepreneurship in it in is than rather individuals, tions, usually fringeareasof the mixed which sell in goods and servicesfor profit in the economy, organizations cash market,chargefees, or raiserevenuethroughbond sales. The most and authorities,govcommonlyrecognizedspheresarepublicenterprises ernment stimulation of economic development, and public contracts in the U.S., however, Governments with profit-makingcorporations.22 have not often chosen these options as instrumentsof social policy.23 behaviorin the public sector includes Otherevidenceof entrepreneurial and the exprivate nonprofit organizationswinning local contracts24 In bureaucracies.25 in federal istence of entrepreneurial policy analysts administration strategies entrepreneurial prescribed addition,the Reagan for subnationalgovernments,such as charginguser fees, contracting but this idea relationships,and marketing,26 out, creatingpublic-private
Power Towarda Theoryof Bureaucratic 19. EugeneLewis, Public Entrepreneurship: (Bloomington,IN: IndianaUniversityPress, 1980). at the Fed (New Haven, CT: Yale UniversityPress, 20. Donald F. Kettl, Leadership 1986). A and Innovation: 21. See JamesonW. Doig and ErwinC. Hargrove,eds., Leadership in Government(Baltimore:Johns Hopkins BiographicPerspective on Entrepreneurs Bellavita, The Policy UniversityPress, 1987);and Arnold J. Meltsnerand Christopher (BeverlyHills, CA: Sage Publications,1983),pp. 16, 116-19. Organization 22. See for example,BruceL. R. Smith, TheNew PoliticalEconomy:ThePublic Useof the the PrivateSector (New York: John Wiley & Sons, 1975);Ira Sharkansky,Whither State? (Chatham, NJ: Chatham House Publishers, 1979); W. T. Stanburyand Fred (New York:PraegerPublishers,1982);R. Thompson,eds., ManagingPublicEnterprises in AmericanCities Scott Fosler and Renee A. Berger,eds., Public PrivatePartnership and DavidListokin,New Toolsfor (Lexington,MA: D.C. Heath, 1982);GeorgeSternlieb NJ: RutgersUniversity Press, 1981);and JacquesS. EconomicDevelopment(Piscataway, MA: MIT Press, 1980),pp. 32-49, 128-61. Gansler,TheDefense Industry(Cambridge, includehousingventuresand profit firmsin healthcare, nursinghomes, 23. Exceptions PerandTheoretical and day care. See Neil Gilbert,"Welfarefor Profit:Moral,Empirical 63-74. 13 Social Journal p. (1984): Policy, of spectives," A BehavioralTheoryof the Non24. DennisR. Young, If Not for Profit, for What?: MA: LexingtonBooks, 1983). on Based Sector (Lexington, Entrepreneurship profit (Berkeley:Universityof 25. Arnold J. Meltsner,Policy Analysts in the Bureaucracy CaliforniaPress, 1976),pp. 15-17, 36-48. DC: Interin Local Government (Washington, H. Moore, TheEntrepreneur 26. Barbara national City ManagementAssociation, 1983); John Tepper Marlin, ed., Contracting MunicipalServices(New York: John Wiley, 1984).

DonnaWilsonKirchheimer 125 of entrepreneurship was tied not to expansion, as in economic theory, but to contractionof public expenditure. In summary, a theory of entrepreneurial identity that encompasses both individualsand institutionshas not been advancedfor the public sector. Research has usually conceived of entrepreneurial identity as heroic personalityand has documentedit with increasing Schumpeter's studiesof entrepreneurial frequencyin publiclife. Empirical publicinstitutions are fragmentary. Nevertheless,their numberand varietysuggest that in the quest for the entrepreneurial heffalump, the unit of analysis must be not only individuals but institutionstoo. The followingsections test how a subnationalpublic institutionmay perform entrepreneurial functionsto implementintergovernmental social policy.

III. The Entrepreneurial Functionof StartingNew Organizations The first entrepreneurial functionis startingand managingnew organizations which introducenew services.The section below tests how this function was performedby a subnationalpublic institutionover a long the period. It examinesthe startof five publicsocial services,summarizes magnitudeof their subsidy, organization,and clientele, and notes their locus in the privatesector. As an avenuefor generatingand testingempirical measuresof entrepreneurial functions, it uses the case of New York City. Foster CareServices for Children New York State and City governmentshave subsidizedthe temporary care of homelessand neglectedchildrenin foster homes and institutions since the early nineteenthcentury.State grantswent to privatereligious and charitable organizations, whose boards of wealthy and socially prominentcitizenssucceededin lobbyingthe legislaturefor statutesthat paid for placementof needy children.Becauseof dominanceby subsidized privateagencies,City governmentdid not operatefoster care and adoptionprogramsuntil after World War II. The use of state statutory funds escalatedin the 1950s and 1960s, and after passage of the U.S. Social SecurityAct Amendmentof 1967, New York City becamethe top spenderof Title IVA funds for foster care at a level disproportionate to its population.By 1980, 32,000 childrenreceivedfoster careservicesand almost 8,000 entered placementannually. About 70 private nonprofit agencieswon contractswiththe City's HumanResources Administration

126 PublicEntrepreneurship The purtotalingover $200 million, in amountsup to $15 millioneach.27 chase patternwas almost exclusive;the directlyoperatedprogramhad a budget of only $10 million.

Day Care Servicesfor Children With some exception,publicsupportfor day carewas not allocateduntil the 1930sand 1940s,over a centurylaterthan foster care, and then only at a modestlevel. Explosivegrowthoccurredafterthe 1967Social Security amendment.Between 1971 and 1975, the numberof childrenserved grew from 8,000 to 43,000, the numberof centersfrom 120 to 428, and the day care budgetfrom $36 million to $150 million. The entirebudget, which remainedstable for over a decade, is contractedout, except for centraladministration. By 1982, the City's Human ResourcesAdministration, throughits Agency for Child Developmentcreatedin 1971,contractedwith almost300 privatenonprofitorganizations, includingparent and houses settlement community organizavoluntary agencies, groups, tions, to operateabout 350 centers.

Senior Citizen Centers Social group services for senior citizens expanded in the early 1970s under the same federal legislation as day care. By 1982, the Human Resources Administrationused $30 million under the Social Services Block Grantfor 180 centersthat providesocial, educational,and nutritional servicesto almost200,000personsover 60 yearsold. Overhalf the centers are contracted with private nonprofit sponsors, and most of those operateddirectlyare in public housing projects. In addition, the City's Departmentfor the Aging drawson the OlderAmericansAct to fund about $25 million in contractedcommunity-based programs.

27. See Dennis R. Young and Stephen J. Finch, Foster Care and Nonprofit Agencies (Lexington, MA: D. C. Heath, 1977); David W. Young, "Referral and Placement in Child Care: The New York Purchase of Service System," Public Policy, 22 (Summer 1974): 293-328. On all New York City agencies, see New York City Mayor's Office of Operations, Mayor's Management Report (New York City: Citybooks), biannual.

DonnaWilsonKirchheimer 127

Home AttendantServices New York City's home attendantprogramserves adults who are aged, disabled, or handicappedand providespersonalcare such as cleaning, in a patient's home. By 1982, the proshopping, and meal preparation gram servedover 27,000 people and its budgetof over $300 million accountedfor far more than its proportionate shareof Medicaidfunds for is a personalcare in the nation. The Human ResourcesAdministration of servicesfrom nonprofitorganizations, with contracts heavypurchaser up to $15 million.

Services for the Homeless In New York City, in 1988, 5,000 familiesincluding12,000childrenaccounted for two-thirds of the homeless population living in publicly financedsheltersand hotels. The numberof homelessfamiliestripledin five years, and expenditures jumped to over $100 million. Emergency shelters are run directly by the Human ResourcesAdministrationin facilities such as state armories, former City hospitals, and public schools. Very unusual for New York City's social service system, the profit-makingsector was also tapped, and over 20 hotels were used. In 1985, over 100 nonprofit agenciesrespondedto the City's request for wereselectedto rehabilitate proposals,and 24 contractors buildingsand serve 1,500 family membersand 500 individuals,about half in permanent housing and half in temporaryshelter.Destitutefamiliesqualified underAid to Familieswith DependentChildren(AFDC), and New York City claimedsheltercosts as emergencyassistance. In sum, the sheer magnitudeand complexityof these new organizations and new servicesindicatethe dynamicperformanceof this entrepreneurialfunction by public institutionsover a long period. IV. The Entrepreneurial Functionof ApplyingInnovativeStrategies The second entrepreneurial functionis applyinginnovativestrategiesto mobilizenew resources.This sectiondevelopsand tests the followingentrepreneurial strategiesin the case of New York City social services:the exercise of dynamic legal and fiscal skills, forming intergovernmental agreements,matching open-end federal grants, diversifyingstatutory funding sources, and creatingpurchaseof serviceagreements with nonprofit organizations.

128 PublicEntrepreneurship Application of CreativeSkills New York State and City agenciesidentifiedopportunitiesfor program in federallaw whichhad gone unnoticedor underutilized in development the other many jurisdictions.Through 1970s, public agenciesdeveloped the creative decision-makingand administrativecapacity to interpret federallaw, establishsystemsof fiscal control, and adaptservicecontent to requirements of federalgrants. Institutionalentrepreneurship can be tracedto a successionof individualsholding differentpositions, for enskills were specializedamong many personsin more than trepreneurial one publicagency.Morestrikingthan the largenumberof entrepreneurof an entrepreneurial ial personalities,however,is the persistence pattern of institutionalbehaviorfor over a decade.

Agreement Intergovernmental To obtain a flow of federalfunds, agreementhad to be reachedamong New Yorkstate, New YorkCity (includinstitutions: threegovernmental and Budget, and operatingagening the Mayor, Office of Management cies such as the Human ResourcesAdministration),and the Region II Office of the U.S. Departmentof Health, Education and Welfare, located in New York City. Their concurrencewas key because each possesses distinctareas of authority.New York City governmenthas a range of delegatedpowersunderNew York state's social servicesystem whilemost otherstateshad and local administration, of state supervision had conferred The New Yorkstatelegislature directstate administration. social servto contract on state and local executiveagenciesthe authority is ices, and in New York City each contract approvedannuallyby its is significantnot The role of the federalgovernment Boardof Estimate.28 only in the releaseof funds and approvalof state plans, but also because of federallaws. it can impose penaltiesfor misapplication Matching Open-EndFederal Grants Creativeuse of national legislationstartedwith a close readingof the public assistancetitles of the U.S. Social SecurityAct. It was discovered

City Council 28. New YorkCity's Boardof Estimateincludedthe Mayor,Comptroller, elected. all five and presidents, borough President,

DonnaWilsonKirchheimer 129 for Foster Care Servicesfor Children Table I. Expenditures in New York City (Dollarsin Millions)
STATUTORY AUTHORITY FEDERAL STATE CITY TOTAL

U.S. Social Security Act Title IVA-Foster Care Titles XIX, XX N.Y. State Legislation Total

90a

10 0 100

45 5 50 100

45 5 50 100

180 20 100 300

aDollars are rounded to nearest 5 million. Source: New York City, Human Resources Administration. Consolidated Services Plan, Federal Fiscal Years 1982-1984. Planned expenditures for FFY 1982, p. 17.

that the 1967amendment insertedin few wordsthe authorityfor statesto receiveunlimitedfederalfunds, with statesmatchingone dollarfor every three federal dollars, and to contract privately for service delivery. Although the grant was categorical,the legislativelanguage spoke to broadgoals of preserving, the rehabilitating, reuniting,or strengthening and self-care; family; maximizingself-support,personalindependence, and reducingand preventingdependency.Intendedbeneficiarieswere also broadly defined, includingpast, actual, or potential recipientsof public assistance. Thus, the main characteristicsof federal policy design-a high federalmatch, open-endmulti-yearfunding, and broad definitionsof servicecontent and targetpopulation-were incentivesto statesto expandsocial services,subjectonly to HEW's approvalof their proposed plans. After 1967, HEW condoned expansion and use of privateagencies. The financialbenefitto New YorkCity of usingfederalgrantswas significant. The foster care case is illustrative.As Table I shows, one-third of the City's $300 million budgetfor foster care was paid by the federal government.This amount was achieved by claiming that about twothirdsof the City's programqualifiedfor fundingunderthe U.S. Social covered one-half of New York's SecurityAct. Federalreimbursements Title IVA claims, with the remainderdivided evenly betweenstate and City. Prior to federal legislation, New York City subsidizedsome social servicesfrom the City tax levy, and it could use this amount to attract the sharesthat each municipalservice matchingfunds withoutdisrupting claimed of City tax resources.To the extent that the City could hold sharesstableand increaseexpenditure for all services,intergovernmental grantswere a political advantagein expandingsocial services.

130 Public Entrepreneurship Table II. Diversification of Intergovernmental Grants for Human Services in New York City
STATUTORY FUNDING SOURCE U.S. SOCIAL SECURITY ACT SERVICEa TITLE TITLE TITLE IVA XX XIX N.Y. STATE LEGISLATION CITY ONLY OTHER TOTAL

Foster Care Day Care

180b *

*C * 0 120

100 0

20

0 *

300 160

SeniorCitizenCenters ProtectiveServicesfor Children Home Attendant Shares Federal State City

0 0 0 % 50 25 25

0 0 300 %% 50 25 25

30 0 0

0 20 0 % 0 50 50

0 0 0 % 0 0 100

* 0 0 %o varies varies varies

30 20 300

75 12.5 12.5

aDollarsin millions. bDollarsroundedto nearest10 million.

C*denotes under 10 million.

Source:New York City, Human Resources Consolidated ServicesPlan. Administration, for FFY 1982,p. 17. FederalFiscalYears1982-1984, Plannedexpenditures

The City was able to expand each service by choosing to use open-end federal grants which had the security under existing law of unlimited multi-year funding for eligible beneficiaries. After the flush of initial expansion, however, the volatility of growth in these entitlement grants put pressure on administration to control costs, and a second period of intensive regulation developed. Diversification of Statutory Funding Sources New York City supported a one billion dollar network of about thirty social services by using over a dozen statutory funding sources, such as those detailed in Table II. This complex funding pattern emerged from a series of innovative financial strategies that the state and City governments pursued over two decades. The biggest obstacle to use of Title XX to satisfy community needs for social services was the imposition of a national ceiling in 1972. To develop a range of services and compensate for

DonnaWilsonKirchheimer 131 the cap, state and City officials diversifiedfederalfundingstreams.Since the ceilingprotectedits fiscalliability,federallaw gave stateswidediscretion in selectingthe servicemix. In this respect,TitleXX was an earlyexample of the block grant system. In the New York State Plan, foster care, day care, and senior centers all qualifiedfor Title XX. New York City's problemwas that foster care costs alone wouldexhaustthe allocation.The decisionwas to put priority on day care and senior centersand, when the cap was reached,to shift foster care into Title IVA, leavingless than 5 percentin Title XX. The foster care shift demonstrateshow New York City government succeededin givingpriorityto day careby protectingits intergovernmental aid, despite its low priorityin federaland state policy. Federaland state law made day care only an option, with some exceptions,while it mandatedfoster care for all childrenin need. Federaland state foster care funds were open-endedin the 1970s. Lack of alternatesourcesincreasedthe claim of day careand seniorcenterson Title XX. Fostercare had alternatestreamsbecauseit was mandatedas an emergency protective servicethat had been in the public sector longer. By reservingTitle XX for prioritiesthat were local but not nationalor statewide,the City used it as funding of last resort. Most counties in New York state supported foster care from Title XX becauseof its low 12.5 percentlocal match, but New York City's choice of Title IVA cost doublein local tax monies. Most New York counties, as well as otherjurisdictions,did not elect this fundingstrategy,and left unmet any potentialneed for public day care. Commitments to day careand seniorcentersclaimedabout 85 percent of Title XX funds. The two constituencies, the old and the young, had to compete for a fixed allocation, and the City awardedboth claims and froze their relative proportionsthrough subsequentnational increases and reductions.This modusoperandiresembled the paritysystemamong municipaluniformedservices:police, fire, and sanitation. Priority on day care and senior centers constrainedthe City from financingnew servicesfrom Title XX. The largestgrowthin home care for low incomepersons,for example,was from creationof a new service called home attendant,which drew funding from the personalcare option under Medicaid(Social SecurityAct Title XIX) which was openend. Whenthe numberof homelessfamiliesexplodedin 1982,New York City and state governmentsfound in federal statutes that emergency assistancecould be reimbursedfor poor families who qualified under Aid to Familieswith DependentChildren(SocialSecurity Act Title IVA). rent was paid to ownersof privatehotels, and the state and Emergency City negotiated for extension of the reimbursableemergencyperiod.

132 Public Entrepreneurship

Ironically, the result was that rent for emergency shelter could be many times higher than welfare rent allowed for permanent housing. Although the Reagan administration succeeded in slashing funds for permanent housing for poor families, emergency shelter assistance, only a stop-gap measure, remained an entitlement claimable under AFDC.

Purchase of Private Services U.S. state and local governments purchase extensive services from the private nonprofit sector for programs for the aging, physical rehabilitation, mental health, long-term care, youth employment, child welfare, and day care for children.29In a contracting system, government draws up specifications, including content and period of service and the resources allotted, which must in turn be approved by the legislature or an executive agency subject to a legislative authority.30 A contract may purchase the entire output of an organization or may reserve particular units such as beds or caseload slots.3' Both methods contrast with a voucher system in which government has no contract mechanism for oversight and relies on whatever public licensing standards exist, as well as on consumer choice, the latter being limited by informational scarcity and geographic immobility.32 Today, New York City purchases over 80 percent of its social services budget of more than one billion dollars from private nonprofit agencies, and much of the remainder is for central administration to regulate the contracts. Thousands of contracts are renewed annually to hundreds of
29. Arnold Gurin, "Government Responsibility and Privatization: Examples from

and and the Welfare FourSocialServices,"in Privatization State,ed. SheilaB. Kamerman Alfred J. Kahn(Princeton,NJ: PrincetonUniversityPress, 1989),pp. 179-206;David J. Wars(New York:Harperand Row, Rothmanand SheilaM. Rothman,The Willowbrook State (Berkeley: Agenciesin the Welfare 1984),pp. 154-74;RalphM. Kramer,Voluntary Universityof California Press, 1981); Ruth Hoogland DeHoog, ContractingOut for Human Services(Albany:State Universityof New York Press, 1984);David C. Willis, "Purchaseof Social Services:Another Look," Social Work,29 (November/December Contract 1984):516-20;KennethR. Wedel, et al., eds., Social Servicesby Government Its Future "PrivateWelfare: A. Gronbjerg, Publishers,1979);Kirsten (NewYork:Praeger 1983):773-93. Scientist,26 (July-August in the WelfareState," AmericanBehavioral Out: For What?With Whom?" 30. JamesFerrisand ElizabethGraddy,"Contracting 1986):332-44. PublicAdministration Review,46 (July-August 31. Susan Rose-Ackerman,"Social Services and the Market: Paying Customers, Vouchersand QualityControl," ColumbiaLaw Review, 83 (October1983):1405-1438. 32. Dennis R. Young and RichardNelson, Public Policy for Day Care of Young Children(Lexington,MA: D. C. Heath, 1973),pp. 65, 67, 101-102.

Donna WilsonKirchheimer 133

nonprofitagencies.New York City now has a maturecontracting system which evincesthe need for long-termregulation. A contractmechanism to Citygovernment in regulatgives advantages ing privateprovidersover the long termby offeringa meansof accountability and protection from uncontrolledcost and inadequatequality. Before the contractingroute was chosen for home attendantsin the mid 1970s, the City allowed independentindividuals to work directly as employees for patients. This system was less expensivebut was abandoned principallybecauseit did not give the City an adequateaccountability mechanismfor monitoringexpenditures,enforcingservicestandards,providingtraining,and planninggeographicdispersionaccording to need. Some officials also believedcontractswere a relativelyflexible tool of administration. Whilefuturereductionsare still programmatically and politicallydifficult, cuts in contractsare believedto be more feasible than in civil service.Contracting is thus a cushionagainstfutureuncertainty, and privatization of service provision is a risk-aversion strategy. When New York City first devised servicecontracts,they contained few specificrequirements for qualityand performance. Duringthe rapid start-upof a giant new system,it can be expectedthat an open definition of servicecontentwouldbe desirable.Throughthe 1970s,as learningadvanced, organizationssettled down, evaluation and monitoringdeveloped, and competitionamong public officials focused on the issue, the need for enhancedregulationof servicecontent becamemanifest. The contractmechanismprovidesan importantvehicle. It is a publiclyvisible, legally enforceableinstrumentwhich is an accessiblepoint of conover the insertionof service trol, and it providesa focus for bargaining standards.The burst of regulatoryfervor became as intense in the late 1970sas the expansionary impulsewas earlier.The capacityof oversight and contracts becamean importanttool of control agenciesmultiplied, that enhancedthe authorityof governmental regulators. V. The Entrepreneurial Functionof Risk Bearing innovation comes, however, with risks attached. This Entrepreneurial section develops the third entrepreneurial function of risk bearingand assesseswhetherthe risk bearingfunctionof entrepreneurship can be an institutionalresourcefor flexibilityand creativityin the public sector. The section tests the following risks which lurk in the unsureenvironment of the intergovernmental system: future federal disallowance,retrenchment of federal legislation or allocations, loss of local tax resources,and political blame for quality, quantity,and cost.

134 PublicEntrepreneurship Risk of FederalDisallowance The decisionto use intergovernmental grantsexposedpublic officials to is the dangerof future disallowthese future uncertainties,and among ance if audits detecta misuseof federalstatutes.The state and City had to scrutinizelegislativelanguageand decipherwhich activitiesa federal A myriadof legal distinctions to reimburse. agencywas legallypermitted had to be satisfied, and fiscal trackingsystemswere installedto report expendituresin the categoriesdefined by law. The risk of noncompliance was real and was compoundedby the magnitudeof the new enterprise, for financialpenaltiescould put a large hole in future budgets. To use federallaw, the implementing agencyhad to resolvea host of legal and fiscal details, each of which had major consequences.To be for example,foster placementhad to resultfrom a federallyreimbursed, judicial determinationthat remainingat home would be contraryto a child's welfare. This legal condition was met by channelingover 5,000 deadlinesand childrena yearthroughFamilyCourtpursuantto required documentation.For the home attendantprogramto qualifyunderMedicaid, the City could authorizeattendantsonly pursuantto a physician's from orderand thus had to separatethat servicefor 27,000 beneficiaries Title XX's similar services, which could be authorizedby nonmedical of a series of categoricaland block personnel. Meeting requirements grants generated systemic complexities which frustrated consumers, systemswere advocates, and staff alike. Rube Goldbergadministrative often the only ones that could be federallyaccountableand reimbursed. The price of entrepreneurial expansion was thus a labyrinththat was have in order to public servicesto meet social needs at all. necessary Risk of FederalRetrenchment At the time of each service'sgreatestexpansion,the type of federalaid selected was open-endedmulti-yearentitlementgrants. Futurefunding was thus more securethan in the case of fixed projectgrants,whichare aid predictablyshort term and unstable. But while intergovernmental made possiblethe explosivegrowthof social services,the strategyhad a double edge. The City's use of federalaid exposedit to risk of cutbacks in federallaw. In fact, the social servicesboom in New York City halted abruptlywhen new national legislationtook effect in 1972. Becausea numberof states took advantageof the 1967amendment,the bill to the federal governmentmushroomedfrom about $350 million in 1969 to $1.7 billion in 1972. This fantasticgrowth alarmeda majorityin Con-

DonnaWilsonKirchheimer 135

gress who cappedthe allocationat $2.5 billion nationallyand dividedit amongstatesbased on population.Stateswhichhad spentlittle woke up to windfallallocations,but New Yorkhad to retrench.New York'sallotment of about $200 million was a sharp drop from its $588 million plannedlevel. Private purchasewas not, however, the main culpritthat ended the boom. The state of Illinois becamenotoriousfor purchasing traditional state functions from other state agencies in order to offset its budget deficit with new federal money. It was principallythe Illinois use of in which HEW's approvalinvolvedhelp public purchasearrangements, from the administrationof a RepublicanPresident for a Republican governor,that led to the chargethat spendinghad run amok. In 1981,the OmnibusBudgetReconciliation Act (OBRA),introduced convertedTitle XX into the Social Servby the Reaganadministration, ices BlockGrantand cut it 20 percent.The City's decision,however,was not to retrench.Instead,it again diversifiedfundingsourcesand paid a highermatchto protectits priorities.The City shiftedprotectiveservices for abused and neglectedchildreninto a state statute which mandated open-end services, but reimbursedonly 50 percent. In this case, the City's priorityon day care and seniorcenterscost quadruple the match underTitle XX. Even this expensiveshift was not sufficientto maintain day care at its pre-OBRAlevel, and New York Mayor EdwardKoch authorizedabout $20 million in an unmatchedCity tax levy. The timing of federal retrenchment was fortuitous for New York City, coinciding with a mayoralelection year and occurringsufficientlyafter the City's fiscal crisis. The City's budget was balancedaccordingto standardaccountingprinciples,and new controlsand economicrecoveryhad rebuilt tax revenues.

Risk of Losing Local TaxResources The City's entrepreneurial expansionof social servicesran the risk that, even if local tax revenuescould initiallycover matchingfunds, the City could, in the event of a futurecrisis, be unableto continue.This potential becamerealityin New York City when the fiscal crisis hit in 1975. During the Beame mayoral administration,significant cuts reduced many City agencies,but the core social serviceslevel was basicallymaintained. The City's commitmentof local resourcesto social serviceswas thus sustained for over a decade, spanningthree mayoral administrations, despitecrises of scarcityin both local and federalfunds.

136 PublicEntrepreneurship Risk of Blamefor Quality, Quantity,and Cost When governmentis assigneda new servicefunction, it is also given a new liability. Financing a new program, whether delivered through to ensurethat public or privatesectors, carriesthe visible responsibility quality, quantity, and price meet the standardsof the organizedpolicy community. A potential for backlash arises from doing anything. Federalsocial legislationis born in controversy,and the clash between continuesduringimplementation. and cost controllers servicedemanders of the City's fostercaresystemrelateto its Ironically,the maincriticisms own entrepreneurialsuccess. The cost of a large system and the children'slengthof stay wereprincipalproblemstowardwhichthe state and City governmentsdirectedefforts in the late 1970s. Passage of the New York State ChildWelfareReformAct in 1979, for example,recogif preventive serviceswerenot nizedthat foster carecould be overutilized available for intact families. While open-end Medicaidfunds enabled New York City to increasehome attendantsin responseto demand,the program'selasticity also provoked criticismof its escalatingcosts; the City served more people with more hours per patient than other localities. High attentionthereforefocused on establishingadministrative cost controls. VI. Entrepreneurial Supply If entrepreneurial identity lies only in heroic luminaries,there is little need to explainsupplyexceptas biology explainsmutation.Becausethis as morethan a sportof nature,the inquiryconceivesof entrepreneurship also and is of complex. question supply crucial, is seen as an interIn one view of economictheory, entrepreneurship economic and conditions between variable growth. prior vening Economic conditions, noneconomicconditions, and governmentincentives whichcan encourageeconomicgrowthalso foster the supplyof enA similaridea can be which is interactivewith growth.33 trepreneurship behaviorin of The sector. in the supply entrepreneurial public posed a of conducive of web the result as be seen can institutions politipublic which also influence and growth conditions, legal cal, social, economic, of government. In empiricalanalysis, the difficulty arises of defining and measuring concrete dependent and independent variables. Factors which are
33. Paul Wilken, Entrepreneurship (Norwood, NJ: Ablex Publishing Co., 1970), pp. 75, 261, 276, 280.

Donna Wilson Kirchheimer 137

thought to stimulate individual private entrepreneurs have not received comparable research attention regarding the U.S. intergovernmental sector. Such factors for future testing include the incentives of public financial and legal institutions, government investment in research, accessible channels for mobility, social values that condone change and confer respectful status, and an expectation of reward for individual abilities. Explanations of municipal fiscal change have, however, tested numerous other independent and dependent variables in many intergovernmental programs.34For example, to explain the determinants of use of intergovernmental grants for public housing and urban renewal, the physical characteristics of cities were found important.35 To explain the use of general revenue sharing, it was found that disincentives in grant structure, specifically short terms, fixed appropriations, and no guarantee of renewal, produced wait-and-see implementation.36A city's use of federal grants for traditional municipal services, defining "dependency" on federal aid, was impelled by fiscal pressure, municipal discretionary authority, and a high level of political organization and conflict.37 The most important determinants of change in the functional scope of categorical and general assistance in municipalities were federal aid and state mandates.38 In sum, research on growth of subnational government suggests that key independent variables include federal grant incentives, state mandates, discretionary authority, fiscal resources, economic needs of the population, and a high level of political organization and conflict. These among other factors can be considered potentially conducive to entrepreneurial supply, which is seen to be interactive with the growth of subnational government. Beyond identifying empirical variables is the need to conceptualize the role of entrepreneurial supply in the play of intergovernmental relation34. Terrence J. McDonald and Sally K. Ward, The Politics of Urban Fiscal Policy (Beverly Hills, CA: Sage Publications, 1984). 35. Richard D. Bingham, Public Housing and Urban Renewal (New York: Praeger Publishers, 1975). 36. Richard P. Nathan, Allen D. Manvel, and Susannah E. Calkins, Monitoring Revenue Sharing (Washington, DC: The Brookings Institution, 1975), pp. 204-205; Richard P. Nathan and Charles F. Adams Jr., Revenue Sharing: The Second Round (Washington, DC: The Brookings Institution, 1977), pp. 35-46; Robert M. Stein, "Municipal Public Employment: An Examination of Intergovernmental Influences," American Journal of Political Science, 28 (November 1984): 636-53. 37. James W. Fossett, FederalAid to Big Cities (Washington, DC: The Brookings Institution, 1983). The study excludes AFDC and Medicaid in New York City. 38. Robert M. Stein, "The Political Economy of Municipal Functional Responsibility," Social Science Quarterly, 63 (September 1982): 530-49.

138 PublicEntrepreneurship as an institutional ships. How can recognition of entrepreneurship resourceof subnationalgovernment add to our understanding? Political scientistshave discoveredtremendousvariabilityin implementationof national policy, and their explanationshave highlightedthe importance of subnationalconditions.39 Statesand localitiesexhibitdifferentconfigurationsof interests,and organizational elites vary in their perceptions and responses.Some have been aggressiveand creativein taking the initiative to exerciseopportunitiesin federalgrant structure.Recognition as an institutionalresourcereinforcesthe conceptof of entrepreneurship subnationalgovernmentas a potentiallyenergeticforce that can maximize and not stagnateunder federalpolicy expansion. An importantquestion regardingentrepreneurial supply concernsits relationshipto public expenditurechange and privatization.Privatization is typically prescribedto contractthe size of government,but the present analysis associates privatizationwith expansion of the welfare state. How can privatization promotepublicgrowth?How can the idea of entrepreneurial supply help to explainthis paradox?Thereare three hypotheticaladvantagesof privatizingprovisionof public services:administrative,fiscal, and political. First, the availabilityof a privatenetworkcan make expansionoperationally feasible. Wherea function began under privateauspices, there are people in privateorganizationswho occupy the policy space before governmentis assigned responsibilityand who are able to performit. Speedy initiation is also a plus, because privategroups can frequently find offices, staff, and programsfasterthan one centralagency.In addican producegeographicspreadand reachall ethnic tion, decentralization and special needs groups in a program'sconstituency. Second, implementationthrough the private sector can bring initial savings that using any new, young, low seniority, nonprofessional,or nonunionized workforce can promise. It is assumed from economic will producea throughprivateorganizations theorythat implementation initial will lower cost.40 which environment Nevertheless, competitive a mature the over endure not contracting decades, and, may savings

39. Jeffrey L. Pressman,FederalProgramsand City Policy (Berkeley:Universityof in the Study CaliforniaPress, 1975),p. 70; ThomasJ. Anton, "Decayand Reconstruction Relations,"Publius, 15 (Winter1985):65-97; RobertJ. of AmericanIntergovernmental of New YorkPress, (Albany:StateUniversity Management Agranoff, Intergovernmental 1986). 40. E. S. Savas, Privatizing the Public Sector (Chatham, NJ: Chatham House Publishers, Inc. 1982); Charles L. Schultze, The Public Use of the Private Interest DC: The BrookingsInstitution,1977). (Washington,

DonnaWilsonKirchheimer 139

system may not be able to rely on marketforces as the workforceages and professionalization or unionizationextendsto privateagencies.41 A can be importantpoliticaladvantages of rapidstartand decentralization privatizationas a techniqueof expansionthat can even inflate costs. If landlords,for example, learn of a government'sneed to open rapidly, price may escalate in a seller's market. Moreover,competitionamong providers may not developor produceflexibility,especiallyif the volume of needy cases exceeds capacity. It is difficult, for example, to close a foster home for the handicapped or terminatea contractfor neededday care. A mature private contractingsystem can thus present rigidities similarto those of public systems.Overthe long term, aggressive public regulationand competitionamongpoliticalofficials areimportantforces to control cost and maintainqualityin a matureprivatizedsystem. Dissatisfactionamongkey influentialscan enablea publicagencyto exercise contractorscan "end run" its attempts oversight;otherwiseentrenched to evaluateand reform. A thirdprivateresourcethat could encouragethe expansionof public is political. Private organizationscan give state and entrepreneurship local officials the cushionrequiredto assumethe risks of implementing federalsocial legislation. In New York City, privatesocial agenciesenjoyed multiple support. For decades, some of the City's wealthy and socially prominentcitizens servedon their boards. Second, many were affiliated with religious organizations.Third, some were an organizational base of the social work profession.42 Fourth, some organizations in social such as day care and senior participated policy movements, directaction, and appealsto citizens, which used mass demonstrations, These networkshad ties with legislativeand executive minorityrights.43 leaderswhom private agencies could impresswith the need for public servicesand with their own capacityto meet that need. A crucial mayoral resource is the ability to distribute jobs to geographicand ethnicgroupsto obtain supportof electedofficials, such as boroughpresidents,city Councillors,and state legislators.An important mediumof exchangewas the servicecontractwhichhad to be passed by the City Boardof Estimate.A politicaladvantageof privatization was its diffusion of consumerbenefits and contractedjobs across a wide politicalterrain.
41. C. J. Hein, "Contracting Services:Does It ReallyCost Less?"National Municipal CivicReview,73 (June 1983):321-26. 42. Richard D. Bingham, Professional Associations and Municipal Innovation (Madison:Universityof WisconsinPress, 1981). 43. CharlesR. Morris,TheCost of GoodIntentions(New York:W. W. Norton, 1980), pp. 56-82.

140 Public Entrepreneurship

What, then, can fuel a connection between privatization and growth of public social functions? This case suggests that privatizing a new public function can feed the supply of entrepreneurial behavior in a public institution. Private organizations can help a subnational government quickly find a delivery structure and mitigate the risks associated with expansion. A political climate shaped by private agendas can help indemnify public institutions against risk. Subsidy can strengthen constituencies in the private sector and make it in their interest to share the liabilities of expansion. As in the private economy, public entrepreneurship needs to adjust the environment to maximize chances of success, and privatized delivery can help to buffer exposure to risk. Can entrepreneurial supply be induced in a reluctant public institution? The case of shelters for homeless families suggests that entrepreneurial functions, such as the innovative use of federal grants, can indeed be stimulated by fiscal pressure, state mandates, court orders, and socioeconomic need below community standards. Can a subnational institution expand entrepreneurially in one policy sector at the same time that it contracts another? This occurred in New York City when, starting in the last years of the Lindsay Administration, cost controls constricted the AFDC caseload, although social services increased. Such selectivity in policy administration suggests that entrepreneurship is a deliberate and purposive activity. City officials confront a variety of imperatives in different policy sectors and choose among alternatives which win support or opposition from different interests.4 Thus a public institution can simultaneously display different behaviors across various sectors. VII. Conclusions This analysis generates elements of a theory of entrepreneurship as an institutional resource in the intergovernmental sector and develops the concepts of entrepreneurial identity, entrepreneurial function, and entrepreneurial supply. Entrepreneurial identity is seen to inhere not only in individuals, but also in public institutions in the performance of entrepreneurial functions such as: (1) starting and managing new organi7ations that introduce new services; (2) applying innovative strategies to mobilize resources, such as exercising creative managerial skills, forging intergovernmental agreements, matching open-end federal grants, diver-

44. Martin Shefter, Political Crisis, Fiscal Crisis (New York: Basic Books, 1985), pp. 3-9.

Donna WilsonKirchheimer 141 sifying funding sources, and purchasingservicesprivately;and (3) riskRisksof implementation in the inbearingto seek out new opportunities. federal include: federal tergovernmental retrenchsystem disallowance, ment, losing local tax resources,and blame for quality, quantity, and cost. The analysissees the supply of entrepreneurial behaviorin public institutionsas an intervening variablebetweenprior conditionsand the growth of government and asserts that economic conditions, noneconomicconditions,and government incentivesthat can encourage can of also foster the supply entrepreneurship whichis inpublicgrowth teractivewith growth. Is there reasonto think that entrepreneurship could be widespread in subnationalpublic institutions?It is possible that evidence of public institutionalentrepreneurship whenexpansionof may grow, particularly of intergoverngovernmentis associatedwith variableimplementation mental grants and with privatization.First, indigenousinterestsmake some states more hospitableto particular grants, and differentialreceptivity among states can produce variable initiative.4 Social services one-thirdof the states took grantsexemplifieduneven implementation; initiativein maximizingthe new grants, and they were geographically dispersedand had populationsof varyingsizes.46 Second, new social functionswerewidelyprivatized.By 1980, federal funds accountedfor 60 percentof the total revenuesof privatenonprofit social service organizationsnationally.47 Two out of three states use about one-thirdof their Title XX allocationsto purchasesocial services from privateorganizations.48 The resultantpatternin health and social welfarepolicy is a mixed economy in which public and privateroles are

blurred.49

Does recognition of entrepreneurial behavior imply its worth? In can be condoned or conprivate and public sectors, entrepreneurship
45. Helen Ingram,"Policy Implementation The Case of Federal throughBargaining: PublicPolicy, 25 (Fall 1977):499-526;MarthaDerthick,TheInfluenceof Grants-in-Aid," FederalGrants(Cambridge, MA: Harvard UniversityPress, 1970),pp. 214-15. 46. The boom in 1969-1972was generatedlargely(84 percent)by 16 states. Although New York was top spender,Californiaand Illinoisjumpedto $200 millioneach, and 13 statesused $20 to $55 millioneach. Even Delaware and Alaskaexpanded quicklyto levels that weredisproportional to theirpopulations. 47. LesterM. Salamonand Alan J. Abramson,TheFederalBudgetand the Nonprofit Sector(Washington, DC: UrbanInstitute,1982),p. 44; David A. Grossman,"The Nonprofit Sectorin the New York Area," CityAlmanac, 19 (Winter/Spring 1985-86):2-13. 48. Bill Benton, TraceyField, and Rhona Millar,Social ServicesLegislationvs. State Implementation DC: The UrbanInstitute,1978),pp. 109-112. (Washington, 49. SheilaB. Kammerman, "TheNew MixedEconomyof Welfare: PublicandPrivate," Social Work,28 (1983):5-9.

142 PublicEntrepreneurship risks can become bets won or wagerswith demned,and entrepreneurial has a doublethe devil. As in the privatesector, publicentrepreneurship It chaotic and uncontrolled,or responedged reputation. can be called The sive and flexible. ability of entrepreneurial public institutionsto of cushion the risks expansion,by regulationand privatization,for exis capable of purposive, ample, suggests that public entrepreneurship creative, and directive behavior, suggestingcapacity in some cases to grapplewith new public functions.