A WEEKLY COMMENTARY
Year Twenty-One ... Number Two ... January 11, 1974
APPOINTED MANAGERS - THE NEW RULING CLASS
THE FEDERAL CORPORATION
"The issue will no longer be who is the candidate in an election - any charismatic can be president if he can take and deliver orders." So wrote a correspondent who recalled that "a new ruling class whose ascent to power was inevitable, was predicted by James Burnham over 30 years ago in his book, The Managerial Revolution. He identified 'managers' as a new type of professional with command of essential skills quite distinct and towering above the capabolities needed for fairly routine jobs. Rule over the United States would be obtained through state ownership and control, with appointed managers rather than elected officials in control."
The current denigration and mistrust of elected officials, from the President of the United States on down to the Mayor of a city, has been brought about to a large extent because managers have been trained and are ready to take over, and the government itself has been restructured in such a way that the take-over by the new ruling class seems not only logical, but desirable.
This new breed of "managers" was conceived, nourished, developed, trained and poured into public management positions by the use of funds supplied by foundations -- Ford, Rockefeller, Carnegie, Alfred P. Sloan, etc. The funds were used to finance special courses at colleges and universities where these new "managers" were trained. Post-graduate courses were often provided by such management-minded organizations as the Council on Foreign Relations (Henry Kissinger being an excellent example of such a trainee.) The 1313 Conglomerate was able to train, unionize, and provide a job-placement service for such public management categories as City Managers, Metro Managers, Regional Council Officials, etc.
And Big Business began to provide the top-echelon of managers for this new kind of government.
When the federal Bureau of the Budget was restructured and expanded to become the Office of Management and Budget, then the Revolution was won. Looking back :-
In 1972 and the early months of 1973, the Great Controversy between the Congress and the Executive had to do with the impoundment of funds which had been appropriated by the Congress for specific uses, and which the Office of Management and Budget refused to spend as directed. The real reason for the impoundments had nothing to do with trying to cut down on expenses and live within the federal budget; rather, OMB had not yet placed its stamp of approval on any specific Planning, Programming, Budgeting System (PPBS) for the particular expenditure which had been designated by Congress. OMB wanted it understood that it, the OMB, was the managerial control center between the all-powerful Central Government and the subservient State, County and local governments. The Congress could -- and should -- appropriate the money, but OMB would determine just how, where, and when, the money would be spent.
Of course, Congress was angered, and most rightfully so. Its authority was being taken from it by a new, upstart bureau which the Congress had only recently permitted the Chief Executive to establish as a Management Center. There was a Congressional move to require formal Senate approval of any man selected to head OMB. But the move was defeated, and the controversial Roy Ash was named OMB Director.
Shortly after this impoundment controversy had come to a boil, the whole affair was drowned by the Watergate overflow. Then came the alleged energy crisis. Meanwhile, OMB continued to grow and increase in power and importance.
As an example, we quote from a recent column by the eminent Edith Kermit Roosevelt:
Washington -- The beleaguered administration faces a new charge of "big business bias" with the disclosure that the Office of Management and Budget, headed by a former big conglomerate head, would contract out to private industry much of the vast bulk of military base operations. The services to be replaced are now performed by 185,000 military personnel and career civil servants at 74 installations. The military presently has control of these operations in order to "run a tight ship" in time of war or other national emergency. But under a still unpublished proposal by OMB, the military would have to go through a contractor at each base, who would control the support functions. The effect would be to civilianize vital support functions with a resulting erosion in the command responsibilities of Navy, Air Force, and Army.
The OMB proposal not only covers such support services as comissary, food service, postal service and base hospitals but also extends to more sensitive matters such as law enforcement, transportation and base supply. Also embraced under the new plan are transient aircraft maintenance, computers and audiovisual services.
A number of military men are privately voicing objections to the OMB plan to their Congressmen. Obviously, security and the prevention of sabotage become more difficult when a non-military, private party is involved. Each of the three Services is expected to provide its initial official responses to OMB's proposed schedules for contracting out by the end of this month.
Meanwhile, Rep. Jerome R. Waldie (D-Ca.), who secured a copy of the text of OMB's proposal, has charged in a press conference here:
"OMB's proposal was understandable and perhaps even inevitable in view of the previous background of Roy Ash, now head of OMB. Ash was the former Chief Executive for Litton Industries, a major corporate contractor of services to the military, and among those corporations most likely to receive any new contracts to provide the base operational support services."
According to documents in the California Legislator's possession "the proposal has the approval of the highest levels within the Office of Management and Budget." Presumably, the highest levels would be Director Ash.
Significantly, the OMB proposal calls for all work to be contracted out by one contractor per base, eliminating any possibility that small, specialized companies would be able to compete for a portion of the work. This ensures that the contracts will go to such corporate giants as ITT, RCA, and, of course, Ash's former company, Litton.
Ash's former conflicts of interest have long been a subject of criticism on Capitol Hill.
Some of them are detailed in a paper entitled "The Case Against Roy Ash" that was inserted in the Congressional Record on Feb. 26 of last year by Sen. Les Aspin (D-Wis). The compendium reads in part:
"The Washington Star-News Pentagon reporter, Orr Kelly, recently obtained a copy of the minutes of a meeting between top Navy personnel and Litton officials, including Ash. According to this record, written by an Admiral in attendance, Ash threatened -- as part of Litton's attempt to heist approximately $400 million in bailout funds which the company needs to pay for its miserable performance on the five-ship program -- to go over the heads of Navy officials and take his case to John Connally and the White House. With Litton still trying to grab $400 million in bailout funds, and Ash, its former chief executive, publicly expressing an interest in the Navy's budget, Ash's conflict of interest is hard to ignore." (Note: The Defense Department is currently preparing a suit against Litton for failure to fulfill its defense contracts. Ash's conflict of interest seems really to be in conflict with the Nation's best interests- Ed.)
Obviously, Navy officials and professional service men are concerned first and foremost with providing for the proper defense and security of this Nation and not in guaranteeing the profits of an individual conglomerate. Hence, some big commercial interests would like to see their responsibilities downgraded. What is worth emphasizing too, is that this contracting out of government functions has nothing to do with genuinely free enterprise in the traditional sense. What is being created under the OMB proposal are inefficient "cost-plus" contracts which guarantee profits for those companies who are awarded the contracts.
Furthermore, past conversions demonstrate that corporations submit bids which show an initial savings in comparison to the number of dollars spent on the Civil Service function. Then after the first year of having a function contracted out, the costs increase substantially in the succeeding years. The result is that these increased costs of the contractor erase any initial military cost savings which might have been realized.
The idea of "big business" taking over the management of United States defense establishments carries some ominous overtones which spell danger to our Nation, and to what's left of our government itself. However, before offering further comment on the strange circumstance of OMB making such a proposal, we should like you to read one more article which further demonstrates the scope and area of activities being taken over by OMB.
If Nixon had any special plan to fight unemployment, under normal circumstances such a plan would be announced by Nixon himself, or by his press secretary, or perhaps by the Labor Secretary if he and the President were in agreement on the plan. Under no circumstances would one expect to hear a Deputy Director of the Budget telling the Nation what "Nixon's Plan" is going to be. Nevertheless, the following article was released by Associated Press for publication in dailies of Dec. 26, 1973. The following is reprinted from the Santa Cruz (Calif.) Sentinel of that date:
Washington (AP) -- The Nixon administration plans to step up federal spending quickly next year to create new jobs if unemployment reaches close to six per cent, Deputy Budget Director Frederic V. Malek says. Malek said plans to inject money into the economy might include increasing the rate of federal construction or military procurement. The injection would be made if the jobless rate, now 4.7 per cent, approaches "the high ends of our estimates," he said. Administration economists have said the fuel shortage could push the jobless rate close to six per cent next year.
Malek also told the Associated Press that the fiscal 1975 defense budget will have to go up, possibly as much as $5 billion. The new federal budget over-all will be tight, in the range of $300 billion, and carry a sizable deficit, he said:
Excerpts from the interview:
Q. Because of the energy crisis, it appears the federal budget deficit is going to be larger than you originally thought. About what will be the size of the deficit in fiscal 1975?
A. First of all, the deficit is not going to be influenced that much by the energy crisis. In fact, the impact is going to be less than one per cent. It's less than a $3 billion impact, when you take into account added unemployment benefits plus the funds for energy research and development, plus a couple of hundred million for cost of living adjustments because of price increases.
Q. That's on the energy crisis. But, considering the budget as a whole and the other programs that have to be funded, you are still going to have a sizable deficit, aren't you?
A. We are going to have a deficit in fiscal 1975. It's really too early to say what the size of that deficit is going to be. The budget we're looking at now is in the $300 billion range. We have a range of $6 billion to $8 billion. The final determination of how much the budget is will depend on the latest economic data that is available, the latest advice of the President's economic advisers, and his determination of what the appropriate fiscal policy is, balanced aagainst the programmatic considerations. Along about early January we will be coming to a determination about what the total should be....
Q. What about national health insurance? How much is in the budget for that?
A. Well, the national health insurance won't have much of a budgetary impact in 1975. So we don't have to factor that into the budget very much. Let me tell you a couple of more things on the total size of the budget. We are predicating the 1975 budget on the fact that inflation is going to be the No. 1 economic problem. Therefore, we are trying to keep spending down. We are trying to come in with a very tight budget. Now, you might ask how a $300 billion range is consistent with a tight budget? We are going to have about $273 billion in expenditures in fiscal 1974. We've got built in, before we or Congress get a chance to work on the discretionary programs, about $25 billion increment in noncontrollables. What I mean by noncontrollables are those programs that are fixed by prior legislation. Individual entitlement programs are the biggest portion of that -- Social Security, medicare, medicaid, public assistance, veterans benefits, unemployment benefits, civil service retirement benefits and the like.
Q. It doesn't sound like you are going to have many new initiatives in fiscal 1975, except for the start of the national health insurance program, because of the tight budget situation.
A. There are a number of other things that are being considered for the President's State of the Union address. There are two ways to answer that comment. One, there are a heck of a lot of initiatives that we've already proposed that haven't been acted on yet that we think merit consideration . Among those is further action on the President's new federalism program, mainly, enactment of the four special revenuesharing acts. The other way of answering that is there are going to be some other new initiatives, some of which will come out in the State of the Union and others of which will come out in the budget ... We're considering welfare reform again ... There's the possibility of an urban mass transit revenue-sharing program, where we combine the city highway funds with the urban mass transit funds into a single fund and distribute on a proportionate basis to the cities and states.
Q. On the economy, is there any change in the administration's forecast of the economic impact of the energy crisis? Your economic advisers said recently there would be no recession, but unemployment might rise close to six per cent.
A. We firmly feel that there will not be a recession. We're trying to put together the budget in a way that helps avoid a recession. Now, that's somewhat contradictory to say, Well, we're keeping it down to avoid inflation but we're putting it together to avoid a recession. We're going to be watching very carefully the unemployment trends on a monthly basis. If we see we're approaching the top range of our estimates, we're going to do something to inject into the economy some stimuli. Our staff is working on a categorization of those kinds of things that can be done that can provide an injection into the economy ... And as we watch the economic trends that are developing- you might call this an unemployment watch-if we are approaching the high ends of our estimates, we are prepared to take those actions that will avoid unemployment going much higher .... I can't give you too many specifics on that, because it's something we're developing now....
SUMMARY: The Congress and the people customarily look to the President of the United States for the annual State of the Union Address and the Budget Report 'in accordance with the commandment laid down in the Constitution. But it seems that the President has been pre-empted by an assistant director of the Office of Management and Budget, a manager whose appointment need not be confirmed by the Senate, a man protected by executive privilege and responsible to no man other than his immediate superio, Roy Ash, who also is appointed to his czardom and is in no way responsible to the electorate or to the representatives of the electorate.
Similarly Roy Ash, as director of OMB, preempts the Presidency, the Pentagon and the Congress in laying down plans for the restructuring of American military bases. If you have been following the headlines, you will have noticed that appointee Henry Kissinger pre-empts the President in all foreign affairs, just as George Shultz speaks for the President in "Nixonomic" affairs, and William Simon in "energetics." And so on down the line. They speak, and the President approves. As our correspondent implied, it no longer matters who is President, any man will do if he can take and deliver orders, and approve orders given by the appointed managers who really run the show!
This seems to be the game plan:
Thus has developed the Federal Corporation, with its New Ruling Class operating through Appointed Managers. And our only worldly hope of liberation lies in the fact that the people at large are beginning to ask questions. May they ask the right ones, and demand the right answers!
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