Alternative Responses to the Orange County Bankruptcy: an Inquiry Into the Images Underlying Theory Susan Hardie Macdonald Disse

Alternative Responses to the Orange County Bankruptcy: An Inquiry into the Images Underlying Theory Susan Hardie MacDonald Dissertation submitted to the Faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Public Administration and Public Policy Orion F. White, Chair Joseph Rees Gary Wamsley Karen Hult Michael Harmon August 18, 2000 Blacksburg, Virginia Keywords: Orange County bankruptcy, Civil society, Risk, Globalization Copyright 2000: Susan Hardie MacDonald Alternative Responses to the Orange County Bankruptcy: An Inquiry into the Images Underlying Theory Susan Hardie MacDonald (ABSTRACT) The bankruptcy of the government of Orange County, California in 1994 is treated as a case study depicting a potentially critical problem emerging for democracies. The analysis links financial and fiduciary perspectives by re-examining the actions of Orange County officials and citi- zens through three separate analytical frames: the dynamics of economic globalization; citizen engagement through the channel of civil society; and the theory of risk—both its nature generally and its financial aspect specifically. The conclusion reached is that globalization has made con- tingency and uncertainty ubiquitous and this indicates that the practice of governance in its public administration dimension should include a return to pragmatic, process approaches to policy and implementation. ii Acknowledgements Any student who has completed the myriad assignments required for a Ph.D. has many people to thank, but an adult student who has spent years away from the classroom can be especially sensitive to all of the people who have helped her along the way. This is especially true in my case. Space and time prevent me from mentioning each one individually; I shall merely ex- press my gratitude at the outset to members of the Center for Public Administration & Policy, the College of Architecture and Urban Affairs, the Department of Political Science, and several administrative offices at Virginia Tech for intellectual, financial and moral support during my so- journ in Blacksburg. I am profoundly grateful to each. I would like to recognize by name the members of my committee. Karen Hult was the first person with whom I spoke about the Orange County bankruptcy and over the past six years she has been generous with both her time and resources, sharing personal records from an earlier investigation with me, among other things. I would like to thank her not only for the many con- versations and insights, but also for her patience and understanding as I applied various organiza- tion theories to the bankruptcy. I would also like to thank her for a meticulous reading of my text. Gary Wamsley has helped me in numerous ways, but at least two stand out: he sup- ported me financially with an assistantship coordinating the visits of student-professionals from the Netherlands School of Government and he gave me several opportunities to explain cash management principles and the vagaries of derivatives to unsuspecting students in his budgeting classes. Both experiences were rewarding and I am most grateful to him for the opportunities. As director of the Center, Joe Rees not only allowed me to share his office for over a year, handling database assignments and learning web management skills, he also gave me the op- portunity to witness departmental administration from within. His discretion and diplomacy were complemented by a keen sense of caring, and I am profoundly grateful for his colleagueship and support. I am also thankful for numerous discussions about risk and helpful leads to the literature. Michael Harmon has been helpful to me in numerous ways, but I would like especially to thank him for his personal kindness and support, and his discerning sense of responsibility. In that one of my reasons for pursuing the Orange County bankruptcy was an acute dissatisfaction with facile explanations that merely blamed Citron, I am most appreciative of Michael’s critical account of responsibility. Finally, I am profoundly grateful to Orion White for supervising my dissertation and for spending untold hours with me, discussing the role of money in American society; micro / macro forces and their interaction in social analysis; psychoanalysis and the work of Jacques Lacan, and many other things. I deeply regret deciding, in the end, not to use Lacan in my dissertation. I iii found his treatment of the master signifier extremely helpful in coming to terms with the global economy, and I hope some day to pursue this in my writing. Above all, I wish to thank Orion for his engaging intellect and imagination as well as for his friendship. Certainly those within the academy are most directly involved in a student’s intellectual achievements and are most deserving of thanks, but often there are others who play important, albeit more indirect, roles. For me, it has been the nuclear family of my childhood. Their personal and financial support has been extraordinary. As important as their intended kindness, however, have been their unintended gifts. Throughout my life, my mother has provided strength when times were bleakest and this path toward the Ph.D. has been no exception. My father and brother have provided inspiration of a different sort. Both have certainly been supportive—one more with resources and innumerable insights into derivatives and other financial instruments, the other more with words. My father came of age during the depression and it instilled in him a keen sense of the value of money and an appreciation for economic rationality. Moreover, his determination and ingenuity in the face of adversity reinforced a belief in the individual. My twin brother, on the other hand, was disabled from birth with cerebral palsy. While he preceded me by over ten years with his doctorate, for him, it takes a village to survive every day. These con- trasting views of the individual and community, then, were ones on which I was raised. This dissertation represents, in an oblique and undoubtedly inadequate way, my humble attempt to re- spond to their diverse perspectives. It is therefore to them that I dedicate this work. iv To James – both of them. v Table of Contents Chapter I: The Bankruptcy as Democratic Conundrum ..........................................................1 Chapter 2: Civil Society .............................................................................................................15 The Problem as Civil Society Theorists Envision It...................................................................18 Intellectual Heritage.....................................................................................................................22 Responses to the Problem...........................................................................................................28 Problems with the Civil Society Literature.................................................................................41 A Fourth Approach ....................................................................................................................50 Concluding Observations ............................................................................................................54 Chapter 3: The Bankruptcy and its Origins ............................................................................57 The Basics...................................................................................................................................58 The National Context..................................................................................................................61 The California Context................................................................................................................65 More Change in the 1980s ..........................................................................................................67 The Seeds of the Bankruptcy Revisited......................................................................................70 The Convergence.........................................................................................................................73 Table 3:1 California County Revenue Changes 1978-1994 ..................................................74 Table 3:2 OCIP Portfolio Statement for April 30, 1994.......................................................75 The Voters...................................................................................................................................81 The Investigations’ Findings.......................................................................................................83 Other Responses.........................................................................................................................89 Concluding Observations ............................................................................................................90 Chapter 4: Risk Management....................................................................................................94 The Public Administration Context ............................................................................................95 Historical Origins ......................................................................................................................103 Applying Lessons to the Social Domain...................................................................................107

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