Walter McClure, Chair of the Center for Policy Design
incentives in major social systems to ensure
that self-interest serves the public interest
A Civic CaucusReview of Minnesota’s Public Policy ProcessInterview April
This is a report of
a Civic Caucus interview between Dan Loritz, chair, Civic
Caucus; Paul Gilje, executive director, and Walter McClure,
chair of the Center for Policy Design. McClure advocates
major restructuring of the nation's big social systems,
including education, health care, criminal justice, and welfare.
An essential element in restructuring, McClure contends, is to
develop built-in incentives for individuals and organizations to
serve the larger public interest while at the same time those
individuals and organizations pursue their respective
The Civic Caucus is
conducting several interviews the past months on how Minnesota
public policy issues are raised, shaped, discussed, and
resolved. McClure recently authored a paper titled:Architecting
Large Social Systemsin which he advances what
he calls "a more systematic approach to policy design." It
elaborates on the points made in this interview and can be found
on the Center's
received a BA in philosophy and physics from Yale in 1959 and a
PhD in theoretical physics from Florida State in 1967. His
dissertation research, on nuclear cluster theory, was performed
at the University of Tübingen in Germany.
In 1969 he switched from physics to
health care reform policy for reasons, he says, having to do
with "relevance". He worked at InterStudy under Paul Ellwood's
leadership from 1969 to 1981, at which time he left to start the
Center for Policy Design. He directed the Center until his
retirement for medical reasons in 1990. He still serves as board
chair for the Center of Policy Design. At InterStudy he worked
with colleagues on the HMO strategy for health care reform,
among other tasks drafting much of the federal legislation.
At the Center for Policy Design he has
developed a general theory of why organizations do what they do,
and a set of methods to strategically redirect their behavior
toward the goals society desires of them. With these methods he
and his colleagues at the Center developed a health care system
reform strategy to get better care for less, and developed a
National Health Insurance proposal consonant with this strategy.
He assisted Medicare, Pennsylvania and Cleveland to implement
the first step of the strategy, severity-adjusted outcomes
assessment of providers, before his reluctant retirement for
medical reasons. He has recently become active again.
The Civic Caucus is
reviewing how well community organizations are preparing
specific, innovative proposals to address critical public policy
problems. Among questions we've been raising:
* Do too many proposals seem to be
addressing symptoms instead of underlying causes?
* Are proposals actionable, not just
expressions of a problem that needs to be solved?
* Are the most critical questions
Our interview today with Walter
McClure highlights additional dimensions:
* The need for self-correcting change,
in which responsible individuals and organizations have built-in
incentives to follow self-interest to produce results in the
* Concentrate on the "big stuff", changing large social systems,
not just achieving incremental improvement.
Need to restructure big social systems.
At the heart of Walt McClure's thinking is a conviction that
intentional major restructuring is needed in the nation's large
social systems, including education, health care, criminal
justice, and welfare. He says we must "architect", or redesign,
our large systems that are chronically under-performing. States
and the nation certainly are devoting significant attention and
money to these systems, but, he contends, performance falls far
below public expectations.
Some benefit results from improvements
here and there. Most current efforts at improving these
large systems' performance fall into what McClure refers to as
"continuous system improvement", although at times he refers to
some of these less charitably as "omnibus tinkering".
Nevertheless, he doesn't want to diminish the significance of
looking everywhere to raise system performance by any possible
improvement, big or small.
But organizations can be trapped from
making substantial change by the larger system in which they
operate. The common deficiency in the improvement approach
is that individual organizations operate within a larger system.
For example, providers operate within the larger health care
system, schools within the larger education system, etc., and
these larger systems ("macrosystems" as he terms them) are not
neutral or passive, as too many people, including policymakers,
think and as a result simply overlook them.
In fact, the structure of these larger
systems places powerful incentives on the organizations within
them, which incentives that actually largely determine their
behavior, and the organizations have little or no choice about
it, McClure says. Those that follow the incentives prosper,
those that act against them suffer, and will fail if they
persist. If the incentives of a macrosystem align with the goals
that society desires of that system, all is well and good:
organizations will prosper by chasing those goals. But if a
macrosystem's incentives for its organizations are anti-aligned
with the goals society desires, then big trouble results:
organizations who pursue the goals desired by society suffer and
perish, while organizations that perform against society's
goals, as the anti-aligned incentives reward, prosper.
For good or ill, since an organization
cannot change the larger macrosystem by itself, it must follow
the incentives placed on it by that macrosystem or it isn't
around long. The moral of this story for policy: If the
incentives of a macrosystem align with goals, great: make sure
that that macrosystem's structure is well-maintained. But if the
incentives are anti-aligned, bad news: policy must fundamentally
redesign, or "architect" that macrosystem so the incentives
become correctly aligned.
So don't heap blame on the people and
organizations in a malperforming macrosystem themselves.
"There are many brilliant, competent and highly motivated people
in all macrosystems whether they perform well or poorly - in the
education system, in the health care system, etc. The difference
is not the people, it is the incentives placed on them by the
macrosystem structure they operate in, that is, what performance
it rewards and what it punishes.
"You cannot change human nature, but
you can change the incentives of a macrosystem and then the same
people and their organizations will act differently," McClure
Therefore, change the incentives.
If a macrosystem rewards its organizations for performing as
society wishes and punishes them when they stray, "then we have
a well-performing system," McClure says.
No brow-beating is needed if the
incentives are aligned correctly. McClure contends that
organizations acting on their own volition under proper
incentives will function far better and with greater innovation
than policy outsiders could ever accomplish with orders.
Needed: system architects to design
new structures. McClure would like to see policy designers
become versed in "Large System Architecture". Large system
architecture has two essential components: (1) analyzing why
organizations do what they do, and (2) if they are not
performing as society wishes, designing and executing policy
strategies to alter their behavior.
To help others understand what he's
talking about, McClure cites the auto industry and the computer
industry. Those industries, he said, are able to keep giving
people products that are better for less cost. "Does anyone
think this is due to the virtue, altruism and purity of auto
executives? Or computer executives? ...If a car company can't
make a good car for the money, they are not around very
long...The same is true of the computer industry: no matter your
motives, if you can't make a better computer for less, you
aren't around long," McClure says.
But if you have a malperforming
macrosystem, Large System Architecture is simply a disciplined,
systematic way to identify its misaligned incentives and
redesign that macrosystem's faulty structure to replace them
with sound, well-aligned incentives.
Four principal tasks for the large
system architect. Under McClure's approach, the large system
architect has four tasks to arrive at a redesign strategy for a
poorly performing macrosystem:
Identifying societal performance goals for the system,
Comparing actual performance against goals,
Determining the underlying causes of system problems: the
incentives that drive actual performance and the structural
elements that generate these incentives, and
Designing a system structure that aligns incentives with
Implementation, not just coming up with a sound design, is the
other large part of the large system architect's job.
Large Social Systems,
has a more detailed discussion of both redesign and
implementation methods but the following are some points on
implementation he mentioned in the interview.
The preliminary step to implementation
is to have the redesign in hand. If you want to get there,
you must first know where you want to go. A redesign is simply a
plan or future model that details the proposed new structure for
a problem macrosystem that will align its incentives with goals.
Also as implementation action proceeds, the redesign plan helps
show whether things are moving toward or away from the desired
new structure, and allows course corrections where possible.
Unbalancing the status quo is the
first big step. McClure stresses that once the redesign is
in hand, it does no good to work on "backlogs" to unstick the
"log jam" that is the status quo. "We must find the 'front log'
and move that one...the step or action most likely to unbalance
the status quo holding the macrosystem in its present form, and
produce the most response in the direction of the redesign."
Persuasion is important. To move
the "front log", the architect must identify individuals and
groups with the power and motive to take the needed action, and
then persuade them to do so. A lot of educational work,
diplomacy and consulting assistance is needed to illustrate the
advantages of action and the disadvantages of inaction, he said.
If the action is taken, the situation shifts and a new "front
log" comes to the fore, which must subsequently be identified
along with the parties who now have the power and possible
interest to take the action to move this next "front log". And
so it goes, one "front log" after the next. After action is
taken, shifts in the macrosystem structure can be unpredictable
and some move the redesign forward, some back. The architect
runs after the fluid situation trying to choose "logs" that herd
the macrosystem toward the redesign model.
Leadership might be more important
than legislation. Often a coalition of public and private
leadership can produce better, faster, more agile progress, he
said, than trying to change the law. But, he cautioned, "in some
cases legislation, if done well, can help or be crucial."
Successful change also requires
keeping ahead on the battle of words. Architects and
supporters of change must be prepared to counter opposition with
"frequent and skillful informative rhetoric", McClure said,
because special interests will spend considerable effort and
money on propaganda and disinformation to muddy the waters and
twist the strategy to their own advantage not the public's.
Start small and build larger.
"Wherever possible, establish limited test beds first," McClure
advised, "to assess and refine a proposed redesign model, and
then gradually implement it more widely, always monitoring and
refining it along the way for emerging problems as you scale
For those who wish to promote it, a
Lesson on Redesign from Machiavelli. All policy analysts,
all private and public policymakers, and especially funders,
whether foundations or public agencies wishing to promote
redesign, McClure suggests, may want to reflect long and hard on
"There is nothing more difficult to take in hand, more perilous
to conduct, or more uncertain in its success, than to take the
lead in the introduction of a new order of things. For the
reformer has enemies in all those who profit by the old order,
and only lukewarm defenders in all those who would profit by the
new order, this lukewarmness arising partly from fear of their
adversaries, who have the laws in their favour, and partly from
the incredulity of mankind, who do not truly believe in anything
new until they have had actual experience of it."
The Prince, 1532 AD
To those who wish to promote good
redesign: the key step is to encourage professional large system
architect groups who know how to do it. Large system
redesign has never been done successfully by legislators or
citizen groups. It requires too much specialized expertise and
far more time in research and development than legislators and
citizens can devote. One needs a profession of policy analysts
and researchers, he says, who specialize in study and
development of redesign for each problem macrosystem. These
experts do not replace continuous system improvement efforts;
they are a separate parallel effort working on a longer-term,
permanent redesign solution.
Note these experts only propose, he
says; they do not decide, policymakers decide. Just like a
house, he says; the architect proposes, the client decides. Such
an approach was used on the moonshot, he said; Congress didn't
try to design a rocket in committee, but instead created
specialists, NASA, and gave them the time and steady funding to
do the design and implementation under its oversight. In the
same way one needs to create large system architect groups.
The locally based Center for Policy
Design represents one prototype for large system redesign.
The Center for
a Minnesota-based non-partisan policy analysis and design group,
of which McClure himself is chair, is a prototype large system
architecture group, he said. The Center for Policy Design has
two main projects, public education system redesign, led
principally by Ted Kolderie, and health care system redesign,
led principally by McClure. These are two problem macrosystems,
the biggest items in state budgets, with faulty structure and
incentives which desperately need good redesign. The Center's
redesign strategies illustrate how redesigning macrosystem
structure can engender new incentives well aligned with goals:
Public education redesign:
An important part of the
proposed education strategy, he said, has been to broaden the
public school system to include chartered public schools as
well as district public schools, to open wide the public
system to new innovative schools and the incentive of
competition for students impossible under the old district
monopoly structure. The Center has many tools to assist
charterers and organizers of such schools, he said. The object
is not charter schools, it is good schools both district and
charter, and letting poor public schools, district or charter,
close for lack of students.
Health care redesign:
The proposed health care
strategy, he said, emphasizes informed consumer choice. "The
perverse incentives on providers in the present system reward
costliness independent of quality. By providing consumers new
objective information and incentives, unavailable and
unobtainable in the present system, the redesign enables and
rewards them to choose providers who offer better care for
less cost (the desired goal) at the expense of providers who
are costly or poor quality, creating powerful incentives on
providers to be better for less or lose patients."
A successful large system architect
group capable of redesign requires: (a) the right kind of
professional team, and (b) the right kind of funding.
Let's start with the right kind of team, McClure says. The key
ingredient is an experienced large system architect; they are
rare because they do not think just incrementally; they think
"outside the box". "Without this kind of lead thinker, you just
have just another conventional study group thinking useful
incremental system improvement but not knowing how to think
fundamental redesign. If you have a chronically poorly
performing system whose underlying structure and incentives are
anti-aligned with goals, incremental thinking won't do the job."
Larding incremental improvements -
like new technology, better training, command regulation, token
carrots and sticks, etc. - on top of strong, underlying faulty
incentives, which are actually the drivers of the bad
performance, will not alter those incentives. It may give you
some worthwhile short-term gains with great effort, but you
won't solve the problem until you correct those incentives by
fundamental redesign, and for that you need a system architect
This architect needs to find and bring
on an experienced veteran of the present system who knows how it
really works from the inside, invaluable knowledge for
developing the new design. He also needs to bring on a pro with
political savvy and tact, invaluable traits for implementation.
And these leaders will need support staff.
But it starts with the right large
system architect. Without that thinking, redesign doesn't occur.
You find such persons by their track records: their ideas (do
they seem both innovative and practical?), their commitment to
staying the course (redesign and its implementation take at
least a decade or two; are they still at it?), and above all,
their results (have they made worthy innovative change happen?).
A successful large system architect
group needs steady core support. Successful system change
can take years, "with not always much to show for it for some
time," McClure said "Kolderie and I have been at it more than
two decades." As Machiavelli observed, redesign has no private
constituency willing to pay for it. Consulting clients have
immediate needs for their organization, but not for their
macrosystem which they can't change by themselves; none will pay
for the long term study and analysis required to come up with a
redesign for a problem macrosystem.
Therefore support must come, if it is
to come, from public-interest funders: foundations, or
government agencies, or endowment of the architect group by
private donors committed to the public interest generally or to
improving the particular large system that the architect group
is working on. Financial support for redesign must recognize the
time requirements of redesign (recall Machiavelli): tangible
design study and progress may take some years, full
implementation some decades. Short term grants, even large ones,
by foundations, agencies or concerned individuals are just not
helpful if the group does not have adequate core support:
meaning adequate assured, steady long-term funding that will
stay the course. A large grant uncertain of renewal in a year or
two is useless, McClure says; you can't bring on staff and train
them up and then have to let them go because your funder is off
to the next big thing; that is an utter and costly waste of time
and effort. (The alternative is off-mission consulting to
support your staff, which utterly destroys the mission with
irrelevant marketing and project work, he says.) The group needs
steady annual funding of a size the funder can sustain and
guarantee in five to ten year increments.
This kind of core support will support
the initial study and design work that no one else will pay for,
and additionally the unpaid educational work of implementation
(seeking parties who can be interested to help move each "front
log" as it comes to the fore). If parties can be interested in a
particular front log, then core grants can often be
significantly augmented with on-mission consulting and project
contracts for assistance to those parties at least for that
front log. But then funding is needed to interest parties for
the next front log, who may be the same or different, so there
is usually a hiatus in project funding between one front log and
the next. In short, without core support, the group simply
cannot stay on-mission.
Foundations could be the secret weapon and key to better
policy design, not only for continuous system improvement but
particularly for system redesign. Support from government
agencies tends to be slow, inflexible, and unreliable. Private
foundations offer the most promising source because they can be
agile, imaginative and in it for the long haul...if they choose.
McClure suggests the Twin Cities and Minnesota have a
particularly able, active foundation community. He would like to
see them work together more, think beyond the conventional,
think more broadly and strategically, aware not only of their
own activities but each other's and aware particularly of which
of the community's and state's macrosystems need what kind of
help. He would like them to be aware of who is targeting gifting
for the various kinds of help needed and suggests that someone
in our foundation community ought specifically take on this task
of routinely gathering and publicizing this strategic update. He
would like foundations to be aware of the distinction between
public consumption gifting and public investment gifting, making
sure there is plenty of the latter, and aware of the difference
between short-term investment gifting and riskier long-term
The most assured agile core support
would be endowments. But the whole concept of large
system redesign is not well-known, and therefore is unfamiliar
to most potential private or public donors. As Machiavelli
observed, it takes a donor of uncommon vision to see the
potential -- great pay-off but uncertain success -- of an
innovative approach with which most people have not had
Redesign is long-term and risky, as
Machiavelli observed, impossible on short-term grants, not
guaranteed of success in any given length of time. However,
McClure believes foundations and donors should take that
risk because redesign offers the only way to achieve substantial
lasting success with problem macrosystems: it is the only
approach that addresses correcting the underlying anti-aligned
incentives that actually drive these systems' malperformance. He
believes the more architect groups at work on a problem system
and the longer they work on it, the more likely a successful
redesign can emerge and be implemented.
"Redesign is the one approach that
addresses the diagnosis rather than the symptoms", he says. If
it eventually succeeds, redesign offers the biggest bang for the
foundation or donor buck, returning much more to public
well-being and prosperity than it ever cost in investment
gifting. A couple of foundations or donors might want to team up
to provide core support to a promising redesign group working on
a large system that is one of their gifting targets.
Redesign is a long-term investment by
the foundation community that should proceed in parallel with
other shorter-term efforts. Redesign
should proceed in parallel
(what Kolderie calls the split-screen approach) with efforts to
ameliorate symptoms because there is nothing else in the
meantime. But symptom curing alone can't address the diagnosis
and end the symptoms. Foundations should see that both efforts
are proceeding apace.
Foundations and donors wanting to
support redesign: bet on the architect, not the proposal.
McClure says the key to successful redesign is an excellent
large system architect. Funders should seek out such individuals
by their track record until they find one the funder feels
confidence in. "If the track record is there, then that
individual is worth betting on for the long haul", McClure
advises. Proposals mean little because with experience about
what is working and what isn't, they all need modified and more
new proposal writing, a great waste of scarce skilled time; the
good architect will have plenty of ideas how to best alter
course if something isn't working. Funders shouldn't wait for an
architect to come to them, but go out and look for them and ask
how can they help, McClure suggests. Then steadily work with
them to supply what they need to build and maintain a proper
group. Simply keep posted on effort and progress; stop funding
only if and when effort and progress no longer appear effective
The Civic Caucus
is a non-partisan,
tax-exempt educational organization. The Interview Group
includes persons of varying political persuasions,
reflecting years of leadership in politics and
business. Click here
to see a short personal background of each.
S. Adams, David Broden, Audrey Clay, Janis Clay, Pat Davies, Bill
Frenzel, Paul Gilje (executive director), Dwight Johnson, Randy Johnson, Sallie
Kemper, Ted Kolderie,
Dan Loritz (chair), Tim McDonald, Bruce Mooty, Jim Olson, Paul Ostrow, Wayne
Popham, Dana Schroeder, Clarence Shallbetter, and Fred Zimmermany,