“The era of big government is over,” President Bill Clinton told Americans in his 1996 State of the Union Address, promising a “smaller, less bureaucratic government in Washington.” This was both true and untrue, depending on how one thought about the question. The number of employees working within the federal bureaucracy had undoubtedly declined substantially during Clinton's first term as President. On the other hand, the level of government spending had not radically changed, nor had the catalogue of functions for which government was responsible been reduced. What had certainly changed was the Clinton administration's attitude toward the means by which government work was to be done. The volume of work that was being transferred to private contractors and nonprofit organizations was growing steadily.

Clinton's statement represented a liberal concession to the new realities of governance. Almost two decades earlier, rising conservative forces began to threaten the structure of government as it had developed in most advanced democracies in the preceding half-century. The conservative challenge was pointed: State-owned businesses were to be divested – or privatized, to use a phrase popularized by the Economist magazine. The power of regulatory agencies would be sharply reduced. Government agencies would retreat from the business of directly producing health, education, and other social services. Private enterprise, working in lightly controlled markets, would take up responsibility for producing these services instead.

In the 1990s, many liberal policymakers attempted to absorb this conservative challenge by proposing a new way of thinking about government.