Political economy of civil service reform

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Political economy of civil service reform

• Nadeem Ul Haque

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Salient features

• Growth episodes do not last beyond 4 to 5 years
  (FDI and DI remain low)
• Growth Spurts driven by aid
• Structure of economy largely unaltered
  (dependence on agriculture/limited export and
  industrial diversification)
• Revenue mobilization weak (tax/GDPlt12)
• Declining education

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More common themes

• Declining institutionsquality of public sector
  and
• Growing polarizationpolitics unsettled
• Centralization of finance and admin
• Dominant role of the state
• Growth with disparities
• Missed opportunities for reform

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Pakistan story

• Country lurches from martial law to martial law
• Rentseeking remains constant
• Corruption indexes remain high
• GCRinstitutions and education

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Rentseeking architecture remains intact

• Land and property rights
• Coop
• Eminent domain
• Army
• Rollback and revival of public sector
• Resistance to deregulation and reform of
  institutions

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Markets and entrprenuership

• Controls
• Cartels
• Attitude to riskrisk management instruments
• Contract enforcement and legal institutions
• Not encouraged by establishment
• Perhaps the biggest impediment to poverty allev
  and growth

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Result

• Country risk remains high
• FDI though picking up remains low
• Domestic investment low
• Domestic savings lowland and KF
• People lack confidence in reform and economy

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Constant factor--Large Civil services

• Most poor and low middle income countries have
  this problem
• Hangover of state centered development
• Wash consensusprivatization and role of govt.
  But little to say of core civil service
• Fiscal corrections, wage bills, employment
  protection, growing populations

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20 year CSR history

• Motivated by budgetary considerations and
  remained focused on downsizing.
• Process reform
• Public expenditure reviews
• Procurement reviews
• Capacity building ---lots of training.
• Large credits---WB, UNDP and ADB
• No. of high priced resident consultants for many
  years

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results

• 63 percent of the respondents background was not
  accounted for in posting decisions.
• 60 percent no written job description.
• Determinants of training Connections 38
  percent, Seniority 27 percent and Relevance to
  assignment 35 percent.
• Out of those who have received foreign training,
  56 percent of the respondents are currently
  stationed in Islamabad. The implication is that
  those close to the power hub receive more foreign
  training. --connections

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results

• 80 percent of the respondents say that foreign
  training is better than domestic training.
  Junkets-as majority of them feel training does
  not help job.
• 93 percent feel that performance of Civil Service
  has deteriorated over the years, with 38 and 39
  percent respectively assigning it extreme and
  moderate degree of deterioration respectively.
• 93 percent feel that performance of Civil Service
  has deteriorated over the years,
• 60 percent think that general publics attitude
  towards civil service is disapproving

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More results

• Bribery in Civil Service to get things done
• Always/Often 65
• Seldom/Never 22
• Not sure 13
• 46 percent of respondents think that Civil
  Servants are not held accountable for corruption.
• On average 69 percent feel that previous reforms
  had an insignificant impact upon enhancing
  efficiency and reducing the level of corruption.

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Despite CSR and funding

• Ownership was not developed
• Incentives were not changed adequately
• CSR performance was not measured nor used for
  reform purposes.
• Morale remained low as expatriate consultants
  and Project Implementation Units led the reform

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Reform better in DCs

• UK, New Zealand and the US (see Box 3).
• Several important lessons
• Role ---regulation and management of the market
  and policy development
• Performance auditing and management.
• The Thatcher approach autonomous executive
  agencies with clear mandates and professional
  management is an example.
• The American Reinvneting Govenrment (REGO)
  movement --involvement in changing the
  bureaucracy toward the goals of the public sector
  reform.

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Gaming and incentives

• The civil servant incentives must be central to
  the reform process.
• incumbents settled into the current incentive
  system.
• For example, allowances gained form managing more
  departments, run more departments.
• if rewards are for committee work, the more
  committees the better!
• If customs and police position yield rentseeking
  positions, people will go there.
• Incumbents game the reform. Land and perks
  rentsseking
• Important to begin with a clear vision of
  incentives and their impact on the reform
  process.

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Wages in public sector

• Public wages decline in real terms over time
• For the sample as a whole, real wages declined by
  about 9 percent per annum
• Declines larger in poor countries
• Declining public-private wage differential On
  average 6 percent per annum
• Wage compression

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PS Employment!

• The political imperative of protecting employment
  
• Stabilization at the expense of public-sector
  efficiency
• Fiscal restraintwage bill frozen
• Employment not reduced even increased
• Average wage reduced

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HRM in the public sector

• Hierarchical, unified, and non-meritocratic
  structures
• a pyramid of hierarchical grades
• Salary scales reward length of service and the
  accumulation of experience
• Generalized, political uniform wage Setting
• Perks and other emoluments

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HRM in the public sector

• Training limited, not integrated, not current
• Backloaded, immobile pensions
• Aged immobile public sectors
• Unproductive but Opportunity for reform

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What incentives to reform?

• Declining wages
• Increasing differentials with Private sector
• No Promotion incentives
• No mobility
• Old and untrained
• Why not protect, what you have!

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NO CSR

• Move away from thinking one comprehensive CSR
• More of a CSR process
• Agency by agency.
• Tackle downsizing after efficiency gains in key
  agencies

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Incentives matter

• public servant, implies selfless,
• Information costly and asymmetric
• Hence we have to seek a way to motivate incentive
  compatible contracts
• P1 (Incentive Compatibility) Effort not directly
  observable, rewards based on observables (output,
  monitoring)

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Peer review and monitoring

• Much of PS work involves, multitasking, Teamwork
  and answering to a number of masters
• Role for peer review monitoring and team based
  rewards
• Career concerns like tournaments
• Convex wage structures

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Devolution and decentralization

• Many principals incentive contracts should be
  supported by
• hard transparent missions (constitutionally
  determined)
• devolution to self-selected and motivated agents
  and
• decentralization in the form of direct payment
  and management by beneficiaries.

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Heterogeneity

• L1 large, uniform and monolithic (uniform pay
  scales, standardized increments and promotion
  policies) public sectors (of the post colonial
  and progressive eras) may not be amenable to
  incentive compatible contracting given the
  heterogeneity of public sector tasks.
• No perks

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Public service

• L2 Public service still an important incentive
  for joining the public sector if the public
  sector is public service oriented
• (Allocation of talent) Public sector orientation
  (rentseeking, powerhoarding) will attract the
  commensurate talent
• Good people will attract good people

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Critical mass

• For reform to succeedallocation of talent may
  need to change
• Incentives may need to be aligned towards
  attracting the desired group
• Consequently, incentive reform may have to be
  early.

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Signaling and Credibility

• L3 Good performance in the public sector can be
  an important market signal for future employment
  if the public sector is recognized to be credibly
  efficient and skill enhancing
• Training and opportunity for signaling quality

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Missions and autonomy

• L4 Clear (legislated or well publicized)
  missions for governments agencies help overcome
  the common agency problem but only if these
  missions can be pursued with adequate autonomy
• Focus--The mission of each agency must be carried
  out with focus on a few measurable tasks.
  Additional tasks, though politically desirable,
  must be resisted.
• Eg CB

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Decentralization, delegation and devolution

• L5 The public sector provides a variety of
  services to many different subsets of society.
• decentralized to allow maximum interface, both in
  terms of evaluation and payment, between the
  immediate beneficiaries of the service and the
  providers public service

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Beyond Economics

• L6 Professionalization
• Mission and tasks under scrutiny of the
  profession.
• Professionals face additional discipline by
  professional peer pressure and incentives of
  external professional mobility
• Protects autonomy
• Skills

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Openness and mobility

• To attract the best professionals and to keep
  them under peer review, the public service jobs
  at all levels must be open to external
  competition. Similarly, public sector employees
  should be encouraged to seek jobs in the market.

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Leadership

• Reform of the public sector at every level and in
  every agency has to be built around leaders who
  have the drive, vision, knowledge, and risk
  taking abilities.
• Leadership at every level
• Leaders only as good as his team

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What is a leader?

• A leader must be able to build an organization
  beyond her self and her tenure.
• She should be judged by the professional quality
  of her team and their commitment to change.
• Additionally, has she built a dynamic learning
  organization that will continually accept change?

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Summary

• Break uniformity Build reform outward from key
  agencies
• Initiate reform in autonomous agencies with
  competent empowered leaders
• Missions, focus and performance objectives must
  be developed early
• Incentives tied to mission and performance goals

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Summary

• Leaders develop teams--professionalize
• Incentives HRM developed to allow team
  development
• Develop inward and outward mobility
• Pensions and portability
• Build downsizing through these using the aging
  profile of the agency

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Summary

• Reform a long term process to be driven by
  efficiency gains
• Understand incentives
• Parallel processes will not work
• Argues for REGO type reform
• With forms of new managerialism thrown in
• Downsizing and savings will follow!

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Role of donors

• Donors consultants and policymakingcrowding out
  domestic talent?
• Brain drain (khan and Haque)
• PIUs and development fundingcrowding out social
  contract goods
• Public servant distracted
• Are donors really building capacity?

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• Autonomize