The Department of Homeland Security has too few incentives to protect Americans from terrorism. Testifying recently before Congress, Michael Chertoff, the Bush administration’s new Secretary of Homeland Security, admitted that his department often fails to adequately collect, piece together, and share intelligence information. (This same problem has afflicted the entire U.S. government in its failure to detect terrorist attacks as far back as September 11, 2001 and has not been corrected.) The situation is unlikely to improve because the massive Homeland Security bureaucracy has a poor incentive structure.

Some in Congress are frustrated that the department spends too much time, effort, and money developing responses to possible terrorist attacks and not enough on preventing them in the first place. The department, however, is merely reacting to incentives the Congress has provided. Local hospitals, paramedics, and police and fire departments are slated to provide the first response to any terrorist attack. These “first responders” form powerful lobbies that insist on receiving their cut of the homeland security funding pie. Under the guise of fighting terrorism, they often try to garner more federal funds to improve general local services.

Most of their representatives in Congress are only too happy to oblige, doling out pork to local interest groups right and left. The result has been a Homeland Security budget that distributes spending around the country rather than concentrates it in the few large American cities that might actually be the targets of terrorism. To demonstrate that problem, Christopher Cox, Chairman of the House Homeland Security Committee, introduced legislation to allocate homeland security funding on the basis of risk. The Senate is also considering such a measure.

With all due respect to the residents of Fargo, North Dakota, Islamic terrorists half way across the world probably do not have their city on a target list. Countless other small and medium-sized towns across the country are in the same favorable situation.

So despite Chertoff’s pledge to distribute funding on the basis of risk instead of politics, rampant political pressures are inherent in any government activity and especially in the government’s efforts to provide security. Where “national security” is allegedly at stake, the public’s fear can be manipulated to pad budgets and information can be withheld from public and media scrutiny—thus eliminating the “embarrassment factor” that sometimes impedes government agencies from squandering the taxpayer’s dollars.

In contrast to terror response, terror prevention—that is, the intelligence functions of the Homeland Security Department—has few powerful grassroots constituencies providing support. Thus, despite rhetoric to the contrary, the department’s imbalance between response and prevention will probably continue.

Another roadblock to better intelligence is the sheer size of the Homeland Security bureaucracy. The department was cobbled together from 22 federal agencies, all with different cultures and methods of operation. Parallel to the government’s 15-agency intelligence community—of which Homeland Security is a part—the department is just too large and has too many parts to share and integrate intelligence information adequately.

Yet unfortunately, Chertoff seems about to mimic those that have gone before him in trying to solve the problem dramatically highlighted on 9/11—poor intelligence sharing among government bureaucracies. Like the 9/11 Commission and the Commission on the Intelligence of the United States Regarding Weapons of Mass Destruction, Chertoff is thinking about adding bureaucracy instead of streamlining it. He hinted to Congress that he might create a departmental intelligence chief.

But adding more bureaucracy will exacerbate problems with intelligence sharing and coordination, not lessen them. The government’s failure to consolidate and streamline its intelligence function could result in another ugly 9/11-like surprise. The enemy is no longer an equally ponderous foreign government, but small, agile terrorist cells that can run circles around large security agencies.

Sadly, although the new Homeland Security chief has pledged to reform the badly performing department, he and his congressional overseers probably don’t have the incentives to do so.