Can This Hoosier Fix America?

(Editors Note: This is an extended, online-only version of the story that appears in the Dec. 13 issue of Business Week.)

Fact one about Stephen Goldsmith, the neoconservative Indianapolis mayor who has emerged as George W. Bush's top domestic-policy adviser: He says he's not necessarily angling for a spot in a possible Bush Cabinet. Fact two: Most Republicans don't see how he could avoid it.

Although Goldsmith will be out of a job at year's end when his term expires, Hizzoner claims he's immune to Potomac Fever. "I don't see myself" as a Cabinet official, he told a friend recently. "I want to do things."

That, to Goldsmith, means burnishing his reputation as an iconoclastic reformer, a record the ex-prosecutor acquired by transforming Indianapolis into a laboratory for free-market ideas. In two terms, Goldsmith axed hundreds of patronage jobs and insisted that city agencies compete against private firms for contracts. To halt downtown decay, he gave business tax abatements and other inducements to reinvest in the area -- despite charges that the incentives were corporate giveaways. He set aside $1 billion to rejuvenate decaying neighborhoods. And he also pushed to let religious organizations provide social services.

That put Goldsmith, 53, on the Texas governor's radar. Unlike many Bush campaign advisers, who are longtime family associates, Goldsmith met the candidate just two years ago when the mayor journeyed to the Lone Star state on a book tour. Bush was immediately attracted by their shared philosophy of activist, results-oriented government. When Bush began his run for the White House, Goldsmith found himself in charge of his new friend's domestic-policy task force. His charge: finding ways to put the "compassion" in the Texas conservative's domestic platform.

In general, that means a greater government role than Newt Gingrich Republicans envision. "We're different," Goldsmith observes. "As conservatives, we're market enthusiasts, but we don't share the illusion that the market will solve all of our problems."

CONCEPT COLLECTOR. While other top Bush policy advisers, such as foreign affairs adviser Condoleeza Rice and economic guru Lawrence Lindsey, are respected academics, Goldsmith readily admits he is more a collector of novel policy concepts than a visionary. "Condi and Larry have more talent" in their areas of expertise, Goldsmith admits. "I'm better at taking people's ideas."

That's what he's been doing for the past year. In thousands of phone calls, e-mails, and face-to-face meetings with task forces studying issues including education, crime, the workforce, welfare, and legal affairs, Goldsmith has collected innovative ideas that have been tried far beyond the Washington Beltway. Some of the ideas Bush has presented -- like a call for funneling federal antipoverty grants to local religious organizations -- are vintage Goldsmith. So it was no accident that Bush journeyed to Indianapolis on July 22 to give his "Armies of Compassion" speech, a paean to the superiority of community-based social outreach over supposedly hidebound federal programs. If this stirs memories of former President George Bush's "thousand points of light" plea for voluntarism, Goldsmith is unapologetic. George W.'s brand of noblesse oblige will be "a million points of light," he jokes.

A wiry father of four who gets by on four hours of sleep and is famous for sharing his ideas with friends via late-night e-mail, Goldsmith is "interested in public office only for the change he can initiate," says Mitch Daniels, a GOP operative who now works as a senior executive at Eli Lilly & Co.

In two terms as mayor, Goldsmith has delivered plenty. His outsourcing of city services and other budget cuts saved taxpayers $400 million -- and an overwhelming majority of residents tell pollsters that those services have improved. Indianapolis businessman Al Hubbard, a Bush classmate at Yale, says the candidate sees his favorite mayor as "someone who is thought-provoking, creative, and an independent thinker."

CHURCH SERVICE. Goldsmith says his marching orders from Bush were simple: "Bring forth bold thoughts -- the best that good conservative thinkers are thinking." Among those embraced by Bush: new programs to assist 1.3 million children whose parents are imprisoned, a "compassion capital fund" to provide seed money for nongovernment neighborhood projects, and $8 billion in tax credits for charitable donations to private and religious institutions that fight poverty in their own communities.

According to Goldsmith, government's most important contribution might just be tax rate cuts. Goldsmith opposes targeted incentives such as the Clinton Administration's child-care tax break. He says broad-based reductions are preferable because they give families the option to choose whether to use extra cash to "hire a babysitter, get better day care, or move to where there is greener land."

But some of his policies have been controversial. Take his devotion to faith-based social activism. Indianapolis' Front Porch Alliance, created in 1997 to deliver social services through religious organizations, has been embraced by Bush as a model for national policy. Front Porch backers claim taxpayers have saved millions in administrative costs, but critics charge that services to the poor have declined since churches took over welfare functions. Goldsmith says that it's "too early to reach a conclusion."

Still, his "go with what works" approach has made Goldsmith popular. He was reelected in a landslide four years ago, and his current job approval rating is 64%, according to the Hoosier Poll. But he lacks the warmth and charisma of his friend The Candidate -- a weakness that no doubt contributed to his defeat in his run for governor in 1996. "Steve is a bright, guy, but he's unable to hide his disdain for people who aren't quite as savvy as he," says Brian S. Vargus, director of the Indiana University Public Opinion Laboratory. "A number of people regard him as arrogant."

Goldsmith clearly doesn't share much of Bush's good ole boy joviality. Says Goldsmith chum Mitch Daniels: "He's a disciplined person not given to frivolity, and [unlike Bush] is not comfortable with the backslapping side of politics."

Still, as Bush adapts more of Goldsmith's prescriptions into his campaign message, the whispers grow louder that Goldsmith is destined to serve if Bush reaches the White House. And even though he says he doesn't want to make the move, the idea of taking the Indianapolis experiment nationwide must be awfully tempting.

By Richard S. Dunham in Indianapolis

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Can This Hoosier Fix America? (extended)

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