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A generation ago, activists carried picket signs outside defense contractor Lockheed Martin’s offices to protest American involvement in Vietnam. Thirty years later, many of those same activists are middle-aged Baby Boomers waging a new War on Poverty, and they often find themselves on the same side as their old enemy. Through experimental programs in devolution—sending authority from Washington to the states and from state capitals to local agencies—private firms like Lockheed Martin are entering the welfare arena. This is possible because of the 1996 Federal Welfare Reform Law, which allows states to design their own welfare programs and select new service delivery providers.

Long known for its penchant for pushing the welfare reform envelope, Wisconsin was the first state to privatize entire parts of its welfare delivery system. State officials initiated competition between county governments and private agencies for service delivery rights, and sixty-three counties won the right to administer the Wisconsin Works (W-2) program. But although only nine private firms won contracts, they serve the majority of welfare cases in the state. For example, Milwaukee holds 80 percent of the state's caseload, and five private agencies administer welfare in that region.

As an added incentive, contractors can earn profits through administrative efficiency and program effectiveness. In November 1998, W-2 agencies applied for their first share of these returns. The Milwaukee agencies earned more than $8 million in profits and more than $2 million in community reinvestment money.

Many people are not cheering this turn of events. Wisconsin Senator Gwen Moore, a former welfare mom, has expressed concerns: "This is public money, and it is the role of the legislature to make decisions about how funds should be distributed, not CEOs of companies." Democrats in Wisconsin have even argued for a cut in state welfare spending—likely a first for them.

Wisconsin's experiment is the most dramatic case study in devolution, and it brings performance issues to the forefront—should we be more concerned about who is paid, or why they are paid? Indianapolis Mayor Steven Goldsmith, arguably the nation's leading public advocate for privatization, wants the government to focus on outcomes rather than inputs. Whether others will follow suit is the crucial welfare issue for the next decade.