FROM THE OFFICE OF PUBLIC AFFAIRS

I would like to begin my remarks today with a quote from Alexander Hamilton, our first Treasury Secretary, and a lawyer. In a 1778 letter to New York Governor George Clinton, Hamilton wrote:

"However important it is to give form and efficiency to your interior constitutions and police; it is infinitely more important to have a wise general council."

He continued, "You should not beggar the councils of the United States..." No wonder Treasury now employs around 1,800 counselors!

Of course, I have taken Hamilton's words out of context. He was referring to the Continental Congress as the "general council," spelled "C-I-L." He did not mean the term in the sense of a lawyer, as much as I would like to represent that he was speaking of an early predecessor to our colleague David Aufhauser.

Secretary O'Neill has called on all of the 160,000 men and women of the Treasury to make this a world-class organization. Central to that goal is working toward enhancing our productivity - giving taxpayers more and better services with less money spent. Our lawyers have special responsibilities for helping - and risks of hindering - that progress.

Our customers, the taxpayers of the United States, deserve world-class service for their dollars. Question: Are we providing it to them? Or to ask a question from Secretary O'Neill's results-oriented philosophy, how we do we know if we are providing world class service?

Are we close to that goal and getting closer, or are we moving in the wrong direction? We need criteria to measure our progress.

Allow me to propose a standard we might consider as we contemplate the meaning of "world-class" for Treasury: How do we compare to governments in other nations of the world?

Let me offer some context. One of President Bush's most important foreign policy initiatives this year is his "New Compact for Development," a plan to improve economic conditions in less developed nations.

The new compact increases accountability for rich and poor nations alike, linking greater contributions from developed nations to greater responsibility by developing nations.

In March, the President announced the compact at the Inter-American Development Bank, and the President and Secretary O'Neill expanded on the policy at the U.N. Conference on Financing for Development in Monterrey, Mexico.

At the IDB, the President stated that "good government is an essential condition of development.... Countries that live by these three broad standards - ruling justly, investing in their people, and encouraging economic freedom - will receive more aid from America."

He also directed Secretary O'Neill "to reach out to the world community, to develop a set of clear and concrete and objective criteria for measuring progress. And... [to] apply these criteria rigorously and fairly."

If we are to apply rigorously and fairly the criteria that we at Treasury are responsible for developing, we must apply them to ourselves as well. Is our government, is our department, and are the legal functions within our department ruling justly, investing in our people, and encouraging economic freedom? Are we doing what we can to improve productivity?

We are, after all, the U.S. Treasury, one of the principal economic policy and law enforcement organizations of the United States government. We have considerable influence in these matters.

Put another way, if we applied to our own Millennium Challenge Account, would we qualify for a grant? An interesting question, I think.

(And, by the way, if Congress does not act to raise the federal debt ceiling, perhaps a pertinent one.)

We are still in the early stages of defining the criteria for the new development assistance policy, so in truth, we cannot yet apply them rigorously. But I find the speculation worthwhile. In order to pursue the line of inquiry, I looked at several of the many indices that measure governance, corruption, human rights, and rule of law in the developed and developing world. So, how do we stack up?

One useful volume is the 2001-2002 Global Competitiveness Report from Harvard's Center for International Development. It uses the 2001 World Economic Forum Executive Opinion Survey results to compare 75 nations on the basis of 140 economic and governmental measures.

At first glance, the results are satisfying. The United States is ranked second in the world, after Finland, for both of the aggregate indices, "growth competitiveness" and "current competitiveness." But although we do well overall, there are a few disappointments in the detailed listings. There are a large number of measures in which we are not in the top quintile of rankings, and in a few cases, we are not even in the top half of all countries.

Within the categories for public sector performance and rule of law, we do relatively well. For example, we appear in the top decile with regard to protections for real and intellectual property rights, minimal administrative burdens for new firms, effectiveness of financial regulation and supervision, and perceived presence of tax evasion.

On the other hand, we are not in the top 20-percent of nations ranked for some rather important governance categories, including the business costs of corruption in government (state and local, I hope), perceived favoritism in the decisions of public officials, presence of organized crime, and the extent of distortive government subsidies.

But the most surprising result lies in one of the very few measures in which we fall below even the median for the countries surveyed. We are below the halfway mark for the perception of competence of public officials versus our private sector counterparts. Singapore ranks first. Finland is 15^th. Nicaragua is 37^th. The United States is 41^st out of 75 nations.

The survey is highly subjective, of course, and it relies on a poll of 4,600 business leaders, not a general sample of the citizenry. Furthermore, inter-country comparisons of the subjective data are arguably meaningless in many cases. There are countless caveats. Nonetheless, we should heed the results.

Why does the perception of our relative competence seem to differ so much from the perception of the relative results of our performance? Our performance is far from perfect, of course - we should be aiming for number one in every category, not merely top quartile or quintile.

But I suspect we would qualify for our Millennium Challenge Grant, or a World Bank loan, if we needed it - that is, we would qualify so long as we didn't send a public official to fill out the loan application! Or so it would seem.

Part of the perceived competence gap is, without a doubt, the extraordinarily high regard that exists for the American private sector, especially within the business community of the world. Of the eighteen categories in which we score first among all countries, most describe the flexibility and competitiveness of American businesses and business infrastructure, such as financial market and technological sophistication, venture capital availability, firm-level innovation, and customer service orientation.

Compared to the lightning speed and service of American businesses it is not surprising that our government can only suffer in a zero-sum comparison.

But that is of limited comfort to those of us who have spent large parts of our careers working to understand and improve government processes. And it cuts to the core of Secretary O'Neill's vision for this Department.

Just as we focus on enhancing infrastructure and productivity in the developing world with our Millennium Challenge grants, we must also bring these principles to bear on our own public sector performance. We must deliver value to the American people, not just effort.

Many economic observers, O'Neill and Greenspan among them, have said that private productivity growth is at the root of the nearly relentless U.S. economic expansion of the past decade.

How can we import that spirit of innovation into the public sector? How can we give taxpayers more value for less money? Businesses do it every day, year after year - surely it is not out of our reach.

How can we, in particular, as Treasury lawyers, enable our bureaus to work faster, more efficiently, and more effectively?

Unfortunately, lawyers are often viewed as the naysayers, indiscriminately applying the brakes on change, regardless of its merits.

As one California Attorney General said, "An incompetent attorney can delay a trial months or years. A competent attorney can delay one even longer."

But we can also use our detailed knowledge of the rules to enable innovation. For example, when Alexander Hamilton sought to create the first Bank of the United States, he used his legal training to argue its constitutionality, and he succeeded.

At Treasury we have seen both success and failure in advocating a legal agenda for progress. The Patriot Act passed expeditiously, and we have been quick to take advantage of it in the service of the American people. On the other hand, tax simplification proposals and indeed some tax regulations have been tied up - within the legal system -- for years.

These are questions for all of us to consider, especially, in Alexander Hamilton's phrase, the "wise general councils" among us.

Thank you.