By EDWIN FEULNER

Life is about grades.

At some hospitals, newborns are graded on a 10-point scale as soon as they enter the world, with 10 going to the healthiest. School, of course, is where we really learn about grades with the A-through-F system.

When we work, grades generally come in the form of performance reviews. When we play, grades steer us toward the best plays and movies – and help us distinguish fine restaurants from the local hash house. Even the afterlife has grades, according to most religions. If you earn a good grade, you go to heaven. If not, you’d better pack a fan. It seems everything has grades – except government. Sure, the Heritage Foundation and George Mason University’s Mercatus Center have for years rated the effectiveness of government programs. But the government has never graded itself.

Until now. President Bush – the first chief executive with an MBA – has decided that government needs to check its performance to see if your tax dollars are being well spent. “From the beginning of my administration, I have called for better management of the federal government,” the CEO-in-chief said in his Feb. 4 budget message. “Now, with all the new demands on our resources, better management is needed now more sorely than ever.”

Unfortunately, the grades issued in the government’s first management report card were embarrassing. When it came to finances, for example, 21 of the 26 major executive agencies, including the Treasury, Justice and Defense departments, were given “red lights” under a “traffic light” scoring system – as was the agency that did the grading, the Office of Management and Budget. Only the National Science Foundation got a green light. I’m sure many cynics would say they aren’t surprised by these results. But at least it’s a start. And the best is yet to come. The system eventually will be used to help determine how much money the agencies should get in the federal budget. In other words, the better-managed agencies will get more money, the more poorly-managed ones less. The same goes for the people who run these agencies. Mitchell Daniels, the president’s budget director, says he wants to link the annual bonuses of agency executives to their job performance – just like most organizations do. That would be a major step in the right direction. For years, people have been hearing stories about dumb regulations and dumber bureaucrats, creating situations that never should be found outside the novel, “Catch-22.”

You know what I’m talking about. Some paper-pusher buys $800 hammers for the Pentagon. A department secretary can’t e-mail an employee one floor away because his agency’s technology is outdated. My favorite: A NASA probe built to explore Mars fails, costing billions. Why? One team designed part of the probe with English measurements (feet, inches). while another used the metric system. Before, these examples of government incompetence would, at best, become jokes for late-night talk shows. Most people would just shrug it off as something that’s out of their control, like the weather.

Not President Bush. He believes government can be run like good business, which means agencies and people must be held accountable for the money they receive and the results they produce. And he wants a system to track which agencies are improving and which aren’t before they get more money.

Sounds like a grade A idea to me.

EDWIN FEULNER is president of The Heritage Foundation.