FORTUNE — Gavin Newsom, the former mayor of San Francisco and current lieutenant governor of California, thinks government technology is stuck in the past. His new book, Citizenville, outlines Newsom’s hope for a more open and technologically connected collaboration between the government and the governed. Fortune’s Adam Lashinsky interviewed Newsom about his book, the appeal of his ideas to small-government conservatives, runaway colleges costs, and other topics. What follows is a lightly edited transcript.
ADAM LASHINSKY: Citizenville, your book, is an attempt to, as you put it, radically rethink the relationship between citizens and government.
GAVIN NEWSOM: Yeah.
ADAM LASHINSKY: What do you mean by that?
GAVIN NEWSOM: Well, I think for me, wearing two hats, one as an elected official and one as a member of the community, a citizen, my sense of government today is that we’re treated as subjects, not citizens. That things are done to us, not with us. We’re not co-producers, and we’re not engaged in a narrative, day in and day out conversation with government. It’s a one-way conversation with one notable exception: during elections. All of a sudden people love us. They court us. They want our vote, they want our money, they want us to volunteer for whatever the cause is, the initiative or their own campaign. But right when that election’s over, those voices are turned down, amplified and engaged all of a sudden. Disappointed, we go back to this broadcast model: You vote; Guys like me decide. And that’s the framework and relationship that I think has to radically change.
ADAM LASHINSKY: And you think that digital technology in particular can be used to foster a two-way conversation.
GAVIN NEWSOM: Yeah. I think anyone recognizes [what] technology does, more than anything else, it democratizes voices. It allows people to share. Social media allows people to participate and to self-organize, as you saw in the Obama campaign in 2008: 35,000 self-organizing communities coming together. Something special is happening with the ability now for people to engage peer-to-peer directly and not necessarily wait for centralized institutions and permission to be able to navigate. And so the opportunity now to meet people where they are and to engage in that platform of real active citizen engagement as opposed to the inert citizenship that we have is what I’m promoting.
ADAM LASHINSKY: Why is it do you think — take the Obama campaign in 2008 as a perfect example. How is it that they did such a good job using social media in the campaign and then have done a really poor job of using it in the White House?
GAVIN NEWSOM: Yeah, and I think they’re struggling with it notably now when you look at just the latest examples of the sequester. They tried to continue that campaign then and tried to have an outside-in strategy with Congress on sequester. Republicans didn’t budge, and now they’re moving back to an inside-out game as opposed to an outside-in game. There used to be two traditional seasons: campaigning and governing. My argument is not just to keep the campaign apparatus, which is what Obama’s done with the organizing fraction, alive, but to create a governing construct after the campaign’s done. So my one critique of Obama — and I’m a huge supporter — is I wish he has governed as he campaigned. He’s been a bottom-up campaigner, but in many ways a top-down executive. And I think if you can meet between the two, if you can find a way to engage people bottom-up as you govern and engage in that two-way conversation that he effectively had during the campaign, then something magical can happen.
And I think you’re going to find — and this is just speculation for me — a real debate with the GOP now in this country about the Karl Rove model. We need to centralize our association with candidates with super-PACs and support the most electable versus the Newt Gingrich model that’s talking about small-town conservatism and going back to those traditional bottom-up roots of those Jeffersonian ideals of individual liberty and self-government. And in many ways, ironically as a Democrat, what I’m advancing and promoting is that model not that top-down centralized Karl Rove type model.
ADAM LASHINSKY: Not just a Democrat, but on some of the policy issues that you’ve been associated with over your career — gay marriage being the most prominent — you have nothing in common with the Republicans, and yet there’s a real kinship between what you’re saying here and what Newt Gingrich is saying.
GAVIN NEWSOM: Yeah, it’s interesting. You know, and Newt has actually reached out directly and we’ve had some interesting email exchanges on this. I joked with him, I said, ‘When you said something complimentary, I had to reread my book.’ It’s like, wait a sec. Oh, what have I done?
But, no, I admire at least the 21st century thinking. And the bottom line is technology is a platform for engagement. Steve Jobs, and you, of course, the living expert in understanding this, created that platform of engagement with private sector partners. Millions of people were able to partner with Apple and of course hundreds and hundreds of thousands of apps were designed and created because of that partnership. How can government think the same? How can we operate more as a convener, as a collaborator or coordinator, as a cultivator of ideas, as opposed to deliver those apps in every case. As a Democrat, that’s difficult because I’m so used to this idea that more is always better, that if you have a problem, we just need more of government, we need more money. And now I’m convinced that better is better, and we need to find a different relationship.
ADAM LASHINSKY: And in your book you have specific examples of how the government could do a better job using digital technology. For example, you’d like government at all levels to emulate what Yelp has done with restaurants…
GAVIN NEWSOM: Well, I love competition. You know, I come from the private sector. I have 17 small businesses, about 1,000 employees. And I honestly say that not to impress, but to impress upon you a mindset of entrepreneurialism in the context of competition. I’m forced to be entrepreneurial. I’m forced to be adaptive and nimble and flexible in my rule-making within my organization because of the nature of a competitive environment. In government, we’re not.
But what I argue for in this book is more openness and transparency, and that Yelp-like transparency creates an openness and engagement, where the rating system — And I’m in the restaurant business, and when Yelp came along, it was disruptive. All of a sudden now we have citizen Yelpers, not just the expert critics, and all of a sudden we’re getting hit on all different sides and supported on all different sides. And so as a consequence, we had to get better because we’re naked. We’re more transparent. We’re living now in a glass neighborhood, in a world where technology is opening up everything. And so taking that framework of engagement so that we can begin to rate our DMV services compared to your DMV services in your neighborhood, or rate the interaction at the Recreation and Parks Department with your interaction, we’re able to compare and contrast and measure our efficacy in a way that I think will only elevate the quality of service.
ADAM LASHINSKY: Now, this is an eminently sensible idea. Are there any governments that are doing it?
GAVIN NEWSOM: Surprisingly, small examples all across the country, but not at mass scale. You’re seeing in New York some really interesting work done, Rachel Sterne [Chief Digital Officer for the City of New York] and Mayor Michael Bloomberg. You’re seeing in places like Manor, Texas, a town of 5,000 people, where there’s the new lab that’s called Manor Labs, where they’re actually creating civic currency, where you’re getting reputational dollars that are being used offline by restaurants and other businesses that give discounts for people that are actively participating in their community and celebrating that active citizen engagement.
So you’re seeing these contours of change. Websites now or app stores that are existing in cities large and small, including San Francisco and Boston and all throughout this country, where people can literally download services as you would download Angry Birds on your Android or iPhone platform. You’re able to actually do things on crime mapping, transit mapping, other wonderful quality services for government delivery of municipal service.
ADAM LASHINSKY: But the irony it seems to me here is that if this democratization of technology is going to happen, it’s going to take leadership. So none of the things that you’re talking about for example exist at a statewide level in California.
GAVIN NEWSOM: Boy, there’s a clay layer in ever respect, a bureaucracy. I mean, we haven’t been able to break this on the state level in any significant way. And that’s why my book really argues if you’re going to be bottom-up, you might as well start at the bottom, and that cities — where cities are truly laboratories of innovation, states laboratories of democracy and —
ADAM LASHINSKY: [Cities are] much closer to their citizens than state governments are.
GAVIN NEWSOM: Exactly. And you know this: Proximity confers some legitimacy, and people tend to have a stronger relationship with the local elected [officials]. They love or hate them. There’s more emotion. But it’s less ideological. I always said as a former mayor, ‘mayors make lousy ideologues and ideologues make terrible mayors.’ But you move up to the state level, state as large as California, it’s tribal. It’s the Democratic plan for this, the Republican plan for that, and there’s more of a frame of tripping up the other side to win the news cycle. You’ve certainly seen that in Washington, DC. And as a consequence, we’re still building out big IT systems, we’re still doing multi-year procurements. In the state of California, our DMV, our Department of Motor Vehicles, is on 40-year-old technology. The backbone of that system is literally 40 years [old] — our payroll system, same thing. And we’ve been patching together and iterating based on an old model, while the rest of the world is moving mobile, local, social, and of course into the cloud.
ADAM LASHINSKY: It’s funny that you describe the California government as having the same legacy technology problems that an old corporation would have. I mean, it sounds like a very difficult problem frankly to replace 40-year-old technology at the state level, very expensive, I would think.
GAVIN NEWSOM: Yeah. It’s two things. It’s not just the mechanism of buying the next latest, greatest shiny object and technology. It’s also a cultural shift. Because again we’re still buying systems and delivering a vending machine model of government. David Kettle wrote a wonderful book years and years ago, a political science, making the case that government operates more like a vending machine. You put in your dollar taxes and you get out limited choices. You get police, fire, health care, education, national defense. And if you don’t like what you get, well, tough luck. You can shake the machine, you can protest and complain, but that’s the framework of engagement.
What we’re arguing for — I’m arguing for in this book, is government as a platform; again, that Steve Jobs mindset. A framework of abundance, not scarcity; again, ability to allow people to do things for themselves not necessarily have government do it for them. The point being this: I’m not arguing for e-government. That’s going to happen [naturally]. We’re going to finally get the latest website, and you’re going to be able to download a form eventually. But it’s about a different relationship. It’s more of a “we” government. It’s about a division of labor, and it’s about a different kind of engagement where you’re not petitioning government again to do things for you. We’re creating a mechanism for people to do things for themselves.
ADAM LASHINSKY: You’re a big fan of both games and contests as a way of getting people involved in government. The title of your book, Citizenville, is a play on Farmville, the Zynga game.
GAVIN NEWSOM: Yeah.
ADAM LASHINSKY: Are you concerned that it’s faddish or not that substantive, as opposed to real solutions?
GAVIN NEWSOM: Well, I think any way you can meet people where they are and educate and entertain [them] I think it’s a healthy thing. And I’ve been just mesmerized by how many people are playing games, not just young folks. I mean, if you’re 8 to 18 you’re spending 53 hours a week on online entertainment media, and if you’re a 42-year-old woman, you’re a face of online gaming now in this country. So it’s not just the kid in the basement playing some games. It’s the rest of us. And so you’re seeing Games for Good now, literally a nonprofit organization that’s advancing social constructs and games where we educate people to get more engaged and you allow people to learn in that process and find ways where they can actually trigger their own passions and find their own points of engagement in non-traditional ways. And so I don’t think it’s exclusively the solution, but it’s one of many things — the policy tool kit — this is one tool in that tool kit where I think people should reach out.
Just a final point on that. You know, I remember as a kid I learned more from watching that Bill on Capitol Hill, Schoolhouse Rock, than frankly in my seventh grade social studies textbook.
ADAM LASHINSKY: It made it fun for you.
GAVIN NEWSOM: Made it fun. And so how do you do that in a way where it’s constructive, where you can feel you’re engaged, and for example, participating in your municipal budget. And you get deeper into the budget and understand the tradeoffs in a nuanced way and try to humanize them as only games possibly could do by putting personality behind numbers.
ADAM LASHINSKY: And similarly, you had a fascinating observation about how Solyndra might not have happened if the government took a different approach. Explain.
GAVIN NEWSOM: Yeah, I’m not a big fan of the Solyndra-type, picking winners and losers model. And my —
ADAM LASHINSKY: Which is big loans by Department of Energy to a handful of perhaps promising –
GAVIN NEWSOM: Yeah. And we said, “Well, Solyndra, you’ve got some interesting technology. Here’s a half a billion dollars of taxpayers’ money.” I’m not — I don’t subscribe to that. I want to only pay for performance. If I’m a taxpayer, I want to reduce my risk and I want to increase the reward. So why not put a prize up. Say, “Here’s what we’re trying to achieve, and anyone out there who wants to achieve it — private sector, public, wherever — if you can achieve it, we’ll pay. But if you don’t we’re not out-of-pocket.” And it’s the old idea — anyone who fly fishes — I love fly fishing. My daughter is actually named Montana. I got married in Montana — too much information — but it’s a point of real passion. But you fly fish, you’ll notice it’s the strongest fish that rises to get the fly. But you see all these other fish rising, and you get the benefit of all the ingenuity, you’re going to see that of course when we get commercial flights that Richard Branson is advancing —
ADAM LASHINSKY: Commercial space flights.
GAVIN NEWSOM: Space flights. I mean, the ability to do that came from an X Prize — Peter Diamandis X Prize program. And that was a classic case where 25-plus million was spent for a $10 million prize. And all of this other technology was advanced, but only one person won. And at the end of the day, we’re all beneficiaries.
ADAM LASHINSKY: And the quote, unquote “losers” of the competition benefit as well. They’ve developed technology they now have an opportunity to sell.
GAVIN NEWSOM: Exactly. So why doesn’t government do more of that? We’re doing — Challenge.gov does exist and the President, to his credit, advanced the ability for agencies to actually submit a portion of their budget on a discretionary basis. First prize is 3 to $5 million, some as high as $15 million. But what about being as bold as the problems are big on something like HIV and AIDS? Peter Diamandis and I had this conversation, the originator of the X Prize. I mean, put a billion dollars up. It’s audacious. And, you know, there’s certainly risk. But put a billion dollars up for someone not to figure out a better way to manage the problem, where we’re spending $10-plus billion every single a year to manage it, but to solve it. Government’s so good at managing things, sometimes not so good, but we’re better at managing things. We’re not good at solving things. I think we have to create a pattern interrupt, as they say in psychology, to the way government operates. Technology could begin to do it, but also cultural shift in terms of our expectation, as well.
ADAM LASHINSKY: I want to take on a couple of big California issues. The first is, in the era of the first governor Brown, higher education reached its pinnacle in California.
GAVIN NEWSOM: Yeah.
ADAM LASHINSKY: We are nowhere near that today.
GAVIN NEWSOM: Yeah.
ADAM LASHINSKY: And what do we need to do to get back to that situation?
GAVIN NEWSOM: We were in the future business, you know. It had been half a century we created this master plan for higher education, community college system, a state system, and then the crown jewel, the UC system. But we put so much sand into the gears of that conveyor belt for talent over the years with massive cuts. The UC system, just to put it in perspective — and that’s UC Berkeley, UCLA, all of these crown jewels in this country and for that matter crown jewels in the world — just in the last few decades we have pulled so much money away that those universities, the entire system, is only supported by about 11% of its budget with public money. It’s increasingly been privatized. We’ve doubled tuition since 2007, more than tripled it since 2001. And the big fear now is we’re not meeting the work force needs, particularly in the tech world. The biggest complaint I get as lieutenant governor is from all these technology companies in and around the Bay Area, parts of San Diego and the region, that can’t find enough talent because we’re not conveying enough talent.
ADAM LASHINSKY: But from a funding perspective, what’s the solution? Because we’ve just had to go to heroic efforts to get more revenue into this state just to solve budget problems.
GAVIN NEWSOM: Just to stabilize after taking $2 billion out in the last 18 months for higher education, now we’re stabilizing, but at this lower base. So we’re going to have to re-engage in the organized effort that we engaged in a half century ago when Governor Brown was at the helm, his father in this case. And that was engage the business community. Because the whole master plan was designed for what purpose? The workforce needs of the future. So you’ve got to ask yourself the question and answer the question we don’t even ask, and that is, “What world are we living in? What are the trend lines that define the world we’re living in? And what are the needs today in a world that’s moving not just mobile, local, social and cloud, but in a world where sensors and artificial intelligence and robotics and additive manufacturing and 3D printing and all of these new tools of technology, and the conversions are the same, where we’re going to need more scientists, more engineers, more researchers, more talented people with critical thinking skills. And how do we design a system that can convey that talent and meet those needs?”
ADAM LASHINSKY: Well, do you want them to write a check? Is that what you’re saying?
GAVIN NEWSOM: Well, it’s difficult. The old days of companies being able to operate locally and contribute locally I think are over in many ways. Someone described the other day most companies in California sort of hovering over the state, because we’re so multinational. I remember we had a big labor dispute out here when I was mayor in the hotels. And I asked — I remembered the old black-and-white movie days. I said, “Well, let’s get cigars and some martinis, and let’s lock ourselves into a room and we’re going to get this hotel strike done with labor unions.” So I invited everyone together. They said, “Well, there’s no way we could fit them in the mayor’s office, 14 hotels.” I said, “What’s that? 14 owners.” They said, “Just the opposite. It’s HR folks, it’s the owners representing different REITs and funds.”
Turns out I didn’t know in my 401k I own most of those hotels, the labor unions owned them. And so we had 150 people in a room. And it was a recognition that the world’s changed, that we don’t operate geographically where we were. Which is not inherently a bad thing in a globalized economy, but there has to be a different kind of engagement. So I’m not looking for businesses per se to write checks but to help us design a system where we’re actually meeting the needs of a work force and re-engage the public in making a priority again for higher education as an economic engine, as an economic frame.
ADAM LASHINSKY: But given that you’ve laid out the case I think very clearly that higher education in California needs more money or at least to have money not taken away from it, then you either have to take it away from someplace else or raise taxes. Again.
GAVIN NEWSOM: Yeah, you’re right. Well, I hear you. I mean, you know, it’s interesting. You know, three years ago, Governor Schwarzenegger faced a bigger budget deficit than Governor Brown did last year, and he added money to the system. So you’re right, it’s a question of what you value. It’s what you prioritize. And if I’m a business community — I always find it ironic, all these board of regents meetings I have, I always said when California Chamber of Commerce is there getting arrested protesting, I’ll know that their number one priority actually is business. Because you can’t have an economic development strategy without a work force development strategy. And I think the business community should be most concerned about what’s happening in higher education and help us get the public support to prioritize that investment.
Final point, though. We also need to look at the tools of technology, to radically change the way we educate people as we radically change the way we govern from a less broadcast model of professor-to-teacher, this broadcast model of politician-to-citizen, treating you as a subject, to engaging you more creatively as Sal Khan has done in the Khan Academy. Flipping the classroom, coaches and mentors, not just professors now. Changing that relationship, getting rid of those rows of desks and those door — those bells that rang during Franklin’s time, Ben Franklin in this case, and changing the entire engagement structure. Khan Academy is one example, but Udacity University and Sebastian Thrun, Coursera, edX, the Western Governors’ Association, all changing with online education these tools of technology, individualized learning, and doing something that’s more customized to your unique needs and the way you learn versus this mass education, fast-food model of education.
ADAM LASHINSKY: It’s an interesting metaphor. When you were talking about protestors, you’re referring to the fact that students and others show up for these regents meetings and protest the tuition hikes. I have a sense from your conversations that business leaders are also upset about the state of education, but they’re not carrying signs and going —
GAVIN NEWSOM: I want them to show up. You know, I’ll help bail one of them out. [Laughter] I’m not being literal about being arrested, but my gosh, I want more guys with suits and ties. And, you know, figuratively and literally. I mean, I think we need to recognize that — I mean, at the end of the day, and I guess this is the reason I called this Citizenville. It’s about citizenship. It’s about active citizen engagement. It’s as nonpartisan a book as you can get or post-partisan because I could care less about the tribal nature of government today. Just not working anymore. People are increasingly dissatisfied, and they’re not longer interested. But they’re now more and more engaged peer-to-peer, directly.
But citizens, this notion of citizenship should connect all of us — rich, poor, eastern part of the country, northern part of the country, south. I mean, the whole idea that we’re all bound together, as Dr. King said, in this web of mutuality. We’re all American citizens, and we should focus on the things that bind us together. And the notion of active, engaged citizenship is a time-honored tradition in this country that de Tocqueville talked about so eloquently, that we’re uniquely civic in our orientation. This notion of that town square is a fundamental construct the Founding Fathers advanced, and we can now take it to another level using technology to amplify voices.
ADAM LASHINSKY: Very last thing. You’ve written a book where you went out and interviewed interesting people and wrote down what they said. You for a period of time had a talk show on television. I’ve read you’d like to have another talk show. Where will that talk show be and when will you announce it?
GAVIN NEWSOM: I don’t know. If you know anyone, I’m available and I’m cheap because I’m in government [laughter] so you can’t pay me. I’m a good deal. But I’d love to — what it allowed me — you know, I had a political talk show where I didn’t have any politicians on.
ADAM LASHINSKY: On Current TV, which you dropped when Al Jazeera was supplying Current TV.
GAVIN NEWSOM: When Al Jazeera did. Yeah, and it was just fun. And I had complete liberty of who to put on, so I was more interested in Carl Bass at Autodesk to talk about additive manufacturing so that I can frame a political engagement or not just talking about onshoring of old manufacturing jobs, but what’s the future of manufacturing, and get deep into genomics, synthetic biology, and sensors and artificial intelligence as I noted. And so that’s — yeah, it’s the kind of political show that I would like to watch and to the extent anyone was watching Current, maybe a few folks enjoyed it.
ADAM LASHINSKY: But it sounds like you enjoyed being the one asking the questions for a change?
GAVIN NEWSOM: Oh — I want your pen, I want your pulpit. It’s more like it. Back at you guys.
ADAM LASHINSKY: Well, it’s my observation that if this politics thing doesn’t work out, you’ve got something to fall back on.
GAVIN NEWSOM: I don’t know. Oh, I’ll need to. That allows me to be myself in politics. As long as you have something to fall back on, you can be authentic.
ADAM LASHINSKY: Thank you.
GAVIN NEWSOM: Thanks for having me.