Public Sector Reform

1. Public Sector Reform

2. Objectives • Public Sector Reform • motives • conceptual framework • results and key features • remaining tensions

3. Management in Government “First comes the initiator or leader to render society possible, then the organiser or administrator to give it permanence. Administration, or the management of affairs, is the middle factor of all social activity, unspectacular but essential in its continuance.” (Gladden,1972)

4. The on going evolution of public management • Public Administration • a paradigm • New Public Management (NPM) • was there ever such a thing? • Post New Public Management • what are the current incentives for change? • what form are those changes taking?

5. The on going evolution of public management Prior to 1980 • PUBLIC ADMINISTRATION • constitutional and institutional design • professional career public servants • focus on inputs and processes • A desire for: • Increased management discretion & authority • Clear organisational objectives • Improved accountability • Control over the management of the State

6. Public Administration Governments should organise themselves by the hierarchical, bureaucratic principles most clearly set out by Weber (1947). There should be ‘one best way’ of working based on scientific management principles with detailed procedures set out in comprehensive operational manuals. (Taylor, 1911) Bureaucratic delivery – once involved in a policy area, a government should also become the direct provider of goods and services.

7. Public Administration A political / administrative dichotomy in which the administration is an instrument merely to carry out instructions, while matters of strategy and policy are the preserve of the political leadership. (Wilson.941) The motivation of public servants is assumed to be the public interest, in that service to the public would be provided selflessly.

8. Public Administration Public administration is seen as a special kind of activity that required a professional bureaucracy that is neutral, anonymous, employed for life (with quite special conditions), and able to serve any political master equally. Tasks involved in the public sector are administrative in character in that they involve following instructions issued by others without having personal responsibility for the results.

9. Impetus for Change • The size, scale and burden of the public sector in society. • Changes in economic theory – a decline in the Keynesian emphasis on the role of the government and rise of a more free-market focus of neo-classical economics. • The impact of changes in the private sector, including increasing globalisation. • Changes in information and communication technologies, including the freedom and scope of information access.

10. The on going evolution of public management 1980 to 2000 • NEW PUBLIC MANAGEMENT • focus on economy and efficiency • outputs • the purchase dimension • A desire for: • whole of government view • public service ethos • citizen focused service delivery

11. Public Sector Reform - Motives The advent of economic pressures that resulted in growing public indebtedness and a requirement to restrain and reduce public sector expenditure. A growth in consumer awareness and expectations that fuelled a decline in public confidence in the effectiveness of public policies and the quality of public services. This, in turn, led to calls for “government that works better but costs less” (Gore, 1993). A recognition that, while governments may become smaller in size, they still play a crucial role in facilitating national wellbeing and prosperity.

12. Public Sector Reform - Motives A general ideological shift to the right which reinforced calls for a smaller public sector and greater reliance on market mechanisms such as contracting out, corporatisation and privatisation. A desire by politicians for greater insight into, and control over, the activities of public sector agencies. A desire for an improvement in the transparency and accountability of the executive to the legislature (Parliament).

13. Public Sector Reform – Conceptual Framework Public choice theory Transaction cost economics Agency theory ‘Managerialism’

14. Public Choice Theory Public choice theory assumes that public servants operate on the basis of self-interest in an environment of multiple, and often conflicting, goals. In effect, this theory views the political process as inefficient and lacking the stabilising influence provided by the ‘invisible hand’ in the open market system.

15. Transaction Cost Economics : “an examination of the comparative costs of planning, adopting and monitoring task completion under alternative governance structures” (Williamson, 1985, p. 2) It is therefore argued that the production and exchange of some goods and services are more suited to an open market while others are “much better suited to hierarchical or rule-governed organisations, such as a public bureaucracy” (Boston et al., 1996, p. 23)

16. Agency Theory Agency theory views social and political life as a series of ‘contracts’ in which one party (the principal) enters into an agreed relationship (i.e. a contract) with another party (the agent) under which the latter agrees to undertake a task or deliver goods or services in accordance with the terms of the contract. However, the very nature of, and need for, the agreement is predicated on different levels of knowledge and will, to a greater or lesser extent, involve the agent acting beyond the vision and direct control of the principal.

17. Neo-Classical Economics An assumption of individual rationality Individuals are assumed to be the best judges of their own (economic) interests and will act rationally in pursuit of their goals. They are therefore capable of deciding how much of a particular good or service they want, and how much they are prepared to pay for it. They should therefore be given as much freedom as possible to develop their own strategies to achieve that.

18. Neo-Classical Economics An elaboration of models from that assumption Quite elaborate empirical models can then be developed on the basis of individual rationality – especially using techniques drawn from rational choice and/or game theory. Their application to politics takes the form of public choice theory.

19. Neo-Classical Economics A maximum role for market forces Economic rationalism includes the view, derived from these models, that private markets are both efficient and self-regulating. Services and goods able to be provided by markets, should be provided by markets.

20. Neo-Classical Economics A minimum role for governments Government interference with the self-regulating mechanisms of the market will be inherently inefficient and should, therefore, be minimised.

21. Managerialism A set of ideas drawn less from the theoretical world of the academic community than from the accumulated experience of practitioners and consultants. An underlying assumption of these ideas is the existence of a generic management discipline, or set of practices and rules, that can be applied equally to entities in the private and public sectors. ‘Management’ is seen as an activity, distinct from public policy, that “offers our society the best chance of material progress”. (Pollitt, 1998, p.47).

22. Public Sector Reform - Results the corporatisation, commercialisation or privatisation of a range of functions previously undertaken by agencies in the core public sector; the devolution of increased management responsibilities to the chief executives of public sector agencies; public sector agencies being subject to tighter ex ante performance specifications; stronger ex post accountability mechanisms involving a shift from input and process controls to an emphasis on results (expressed in terms of the outputs produced and outcomes achieved);

23. Public Sector Reform - Results the separation of commercial from non-commercial activities; the separation of responsibility for the provision of policy advice from responsibility for policy implementation and service provision; and all service provision being made as contestable as possible.

24. Public Sector Reform – Key Features a belief in the superiority of private sector performance management models that should, therefore, be adopted in the public sector; the performance of public service departments defined in terms of the goods and services they provide (their outputs) rather than the inputs they use and/or the processes they follow; a requirement that departmental financial and non-financial performance information be reported (and audited) in a Statement of Service Performance which for all significant outputs reports the quantity, quality, cost and, where relevant, time and location of delivery of the outputs;

25. Public Sector Reform – Key Features an implicit assumption that the impact of departmental outputs on the community (their outcomes) is the responsibility of relevant Ministers, not of departmental chief executives; an increase in the authority of departmental chief executives to purchase and manage inputs; a strong emphasis on ex ante specification of performance and ex post measurement and reporting of results;

26. Public Sector Reform – Key Features a series of cascading formal (as opposed to relational) contracts and performance agreements linking principals with agents designed to achieve the accountability of departmental chief executives and their managers; an avoidance of multiple accountability arrangements so that each ‘agent’ should only be accountable to one ‘principal’; the organisational separation of commercial and non-commercial activities and advisory, delivery and regulatory functions, as a guard against provider or bureaucratic capture;

27. Public Sector Reform – Key Features a general focus on increased economy and efficiency as: “doing more for less and achieving value for money became the objectives of this finance centred perspective on public management reform” (Aucoin, 1995, p.9)

28. Purchase and Ownership Interests An important feature of the public sector reforms was the separation of the government’s: purchase interest – which refers to the concern that ministers have for cost, quantity, quality, time and location of the outputs produced by departments, government entities and other providers; and the ownership interest – which reflects the human and organisational capital of departments and other government agencies and their ability to meet the demands placed upon them both now and in the future.

29. Purchase and Ownership Interests Although the underlying emphasis has been on ministers’ role as a ‘purchaser’ of goods and services, ministers are also the owners of the assets and capability by which most of those goods and services are produced.

30. Dimensions of Ownership Scott (2001) defines three dimensions of ownership: the capacity of government organisations to deliver goods and services in the present and in the future; the rights of direction by ministers; and the rights to residual surpluses or obligation for residual claims.

31. Capacity and Capability • The capability of government organisations can be assessed from: • the views of ministers; • changes in the level of performance achieved; • staff turnover rates; • benchmarks in respect of intellectual capital; • status of fixed assets; or • changes in risk profiles.

32. Capability and the financial statements • To comply with GAAP and international financial reporting standards it is necessary for public sector agencies to produce: • an operating statement and statement of service performance that report the full cost of output production together with their quantity, quality, time and place of delivery; and • a statement of financial position which captures the assets and liabilities of the organisation and, thereby, expenditure on items that will be available for the production of outputs, and commitments that will have to be met, in the future.

33. Capacity and Capability Because there is uncertainty about what services will be required in the future, the presence in a department of a healthy capability, together with plans to maintain it, provide ministers with some assurance against the provision of inadequate services in the future. Hence the ownership interest is more important in situations where there are few or no practical opportunities to acquire the services in question by contracting out to other providers. It also follows that any diminution in capability may be viewed as an under-costing of service provision in the present.

34. Capability and the financial statements It should follow that an understanding of the existence, age and condition of both tangible and intangible assets is critical to the ability of individual government organisations (and for the government as a whole) to be able to adequately provide for the continuing future provision of goods and services.

35. Rights to direct organisations The rights of ministers to direct organisations varies according to the law associated with that organisation. For most government departments the right is largely unfettered (except in New Zealand for employment matters in the realm of the chief executives authority under the State Sector Act 1988). However for some departments ministers’ rights are constrained when the chief executive represents a statutory officer appointed by Parliament and/or with duties prescribed by legislation.

36. Residual surpluses and claims The Government has an interest in ensuring that its agencies are not incurring actual or contingent financial risks that will rest on the government’s consolidated financial statements and potentially be a drain on future government resources.

37. Decision making and accountability • The Government decides: • its outcome priorities and which outputs it purchases to achieve them; • the level of investment to be made in public sector organisations; and • the level of benefits that a department will distributer on its behalf. • Although authority for those expenditures will always be required from Parliament.

38. Decision making and accountability • Chief executives: • agree to produce certain outputs and have control over the resources required to do so; • have a clear idea of what is expected of them and can be held responsible if agreed performance standards are not met.

39. Decision making and accountability Good or bad performance will encourage the Government, where options exist, to change the mix and buy more from one provider and less from another.

40. Decision making and accountability • Accurate and complete financial reports are critical to this model: • for chief executives and managers to run their organisations efficiently; • for ministers, their advisors and the public to assess departmental and agency performance; and • to enable ministers in their role as purchaser to apply incentives in the form of rewards and sanctions.

41. The on going evolution of public management 2000 to … • POST NEW PUBLIC MANAGEMENT • focus on efficiency and effectiveness • outcomes • the purchase and the ownership dimensions Economic Crisis Remaining tensions ???

42. Remaining Tensions increased management autonomy and enhanced central control; control, accountability and ‘real work’; short term efficiency versus long term capacity; and measuring the immeasurable.

43. Increased management autonomy and enhanced central control While the reforms of the late 1980s gave departmental chief executives “unprecedented degrees of managerial freedom” (Scott, 2001, p. 1), that freedom was not unencumbered and has been the subject of ongoing debate.

44. Increased management autonomy and enhanced central control In 2008, the New Zealand Auditor-General’s critical review of performance reporting in the public sector concluded that the central agencies should play a more active role in both setting and monitoring performance reporting standards. In 2009 the new Government gave some form to this recommendation by requiring departments’ (normally) quarterly reports to their Minister to also be provided to the Treasury and State Services Commission who are then to, biannually, prepare a consolidated review for the Cabinet Expenditure Control Committee.

45. Control, accountability and ‘real work’ Departments’ external accountability requirements include reporting output measures in their Statement of Service Performance, the costs of outputs and output classes, and their contributions to targeted outcomes. Since 2004 they have also been required to report on organisational health and capability. However, these requirements may have more to do with making the activities of departments visible to Ministers, Parliament and the public than with effectively supporting managerial decision-making within those organisations.

46. Short term efficiency versus long term capacity The focus on increased efficiency in the production of public sector goods and services allowed little, if any, consideration to be given to the need to maintain organisational capacity and capability to produce goods and services in the future (Controller and Auditor-General, 1999). Note requirement of the public Finance Act 1989 to report on “the department’s organisational health and capability to perform its functions and conduct its operations effectively” (s. 40 (d) (iii))

47. Measuring the immeasurable Many of the functions retained in the core public service are there largely because they cannot be clearly specified in advance and subsequently monitored. If this had not been the case, they may well have been contracted out or corporatized. While defining and (quantitatively) measuring outputs has not always proved to be straightforward, defining and measuring their contribution to government outcomes is even more problematic. The measurement of outcomes often requires a less quantitative and more values-based approach that involves the use of judgement in respect of the “performance story”.

48. ‘Better Public Services’ Strategy Ministers need to align around and communicate a small number of critical, measurable and sector-wide results that reflect their priorities. Customer Focus Agencies need to re-shape service delivery models to better utilise new technologies and alternate modes of supply. The failure to do so is resulting in lost opportunities to learn from citizens and businesses and a tendency for government agencies to do too much themselves when others could provide the same, or better, services at better value.

49. ‘Better Public Services’ Coordination A lack of coordination exists between agencies whose roles overlap or duplicate each other. Complex economic, social and environmental issues require action that spans agency boundaries. Incentives to capture economies of scale The creation of too many small, focused agencies with operational autonomy has resulted in higher back office costs and incompatible systems.

50. ‘Better Public Services’ The pace of innovation Agencies have become accustomed to gaining increased government funding to meet cost pressures. They also need to better employ changing communication and information technologies. Leadership Agency heads need to function at a more strategic level. Leadership needs to occur horizontally as well as vertically. The sector needs to be more skilled at change management.