By privatizing state-owned monopolies and deregulating whole industries, governments the world over have brought market forces to bear on electricity, telecommunications, and other economic activities formerly carried out in the public sector. This increased market pressure has in turn raised productivity as organizations in once-sleepy fields apply performance-enhancing tools long employed by private enterprise.

Governments, though, are frequently less willing to privatize or deregulate activities such as law enforcement, tax collection, public administration, and, in many countries, education and health care. Here they understandably give precedence to social rather than financial objectives. As a result, public-sector organizations in difficult-to-privatize areas of the economy usually can't discontinue expensive services, dismiss underperforming staff, seize offshoring opportunities, or offer the high salaries needed to attract top talent from the private sector.

But this lack of alternatives needn't lead to indifferent performance. Public-sector organizations have ample opportunity to raise their productivity. Like companies in the private sector, they can apply innovative practices in areas such as information technology and purchasing (see "Boosting government productivity"). More broadly, they can address the causes of poor performance by redesigning themselves. The private sector's experience shows that organizational redesign, when done right, can dispel inertia and...