Lesson Objectives:- Cabinet departments
- Independent executive agencies
- Independent regulatory agencies
- Government corporations
- Government ownership of private enterprise
The major structures of the government bureaucracy have a distinct relationship to the president, and they have their own internal organization as well as goals and powers.
The first of those structures is the Cabinet Department, which refers to any one of the fifteen major departments of the executive branch. Another way to describe them in management terms is as a Line Organization. That means that in the federal government, each Cabinet Department of the executive branch is an administrative unit that is directly accountable to the president.
Each cabinet department was created as the need arose, with the State department being the oldest and the Homeland Security department being the latest one to be added. The president can request new departments, but Congress must approve them.
The president has some control over the departments because he can appoint or fire the heads in charge. However, he does not have control over the permanent employees who are hired within the departments because they are committed to the goals of their department and often resist change.
Another structure in the federal bureaucracy is the Independent Executive Agency. An Independent Executive Agency is a federal agency that is not part of a cabinet department but reports directly to the president. Such a federal agency like the Environmental Protection Agency is created and then Congress decides its location within the bureaucracy.
The third major structure of the federal bureaucracy is the Independent Regulatory Agency, which is an agency outside the major executive departments charged with making and implementing rules and regulations within a specific area.
The Interstate Commerce Commission (ICC) was the first such independent regulatory agency put in place in 1887 to exercise control over rapidly growing business, and the industrial sector.
Later, other regulatory agencies were created such as the Federal Communications Commission.
Eventually, the Interstate Commerce Commission was abolished in 1995 and replaced by the Surface Transportation Board, establishing that agencies can be created and abolished according to need.
Congress felt the need to create regulatory agencies because of the complexities involved in carrying out certain laws in the public interest. Regulatory agencies have the effect of all three branches of government - legislative, executive, and judicial. They make laws that they then enforce, and they also settle their own disputes.
The president appoints and the Senate approves the heads of agencies or members of agency boards. But, these officials do not report to the president.
There are problems with the system, however, such as Agency Capture. That is when an industry being regulated by a government agency gains direct or indirect control over agency personnel and decision makers.
This has actually resulted in benefits to the industry rather than to the public interest. Making decisions in the interest of industry often results in less competition, higher prices, and fewer choices.
Deregulation is the removal of regulatory restraints. Regulations are put in place and then other administrations remove them. For instance, when President Carter appointed a chair to the Civil Aeronautics Board, he deregulated airline fares and routes.
Under President Clinton, the Interstate Commerce Commission was eliminated, resulting in deregulation of banking and telecommunications industries. At the same time, extensive regulations were put in place to protect the environment. President George W. Bush then weakened those regulations.
Leading up to the financial crisis that occurred in September of 2008, inadequate regulation of the financial industry played a vital role. President Obama reregulated the banking industry, resulting in a financial regulation plan of 2010.
A Government Corporation is an agency of government that administers a quasi-business enterprise. These corporations are used when government activities are primarily commercial.
The most famous example is the U.S. Post Office. It works differently from a private corporation in that it does not pay taxes and does not have shareholders.
There are times when the federal government can take control of a corporation. When a company goes bankrupt, federal regulations over how that is conducted are handled by a judge. When banks fail, the government has to take control through the FDIC and continue providing services to the bank's customers.
The government also has the ability to purchase stock in corporations. When the FDIC had to take control over Continental Illinois in 1984, it took years to find a buyer. That rescue was used as a blueprint for what happened in 2008. The massive bank bailout actually resulted in the government's ownership of businesses, banks, automobile companies, and even AIG. Even though it was unpopular, the government recovered its investment and even made money on the deal.
Freddie Mac and Fannie Mae are government-sponsored enterprises. When the housing market collapsed, Freddie Mac and Fannie Mae went under. The government seized control of them in something like a bankruptcy and now they are government-owned. Also, they are profitable now and all profits go to the U.S. Treasury.