Public organizations: what makes them work? how are they changing? how can the Bank support reform?

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Public organizations what makes them work? how
are they changing? how can the Bank support
reform?

• Flagship Course on Governance and Anticorruption
• World Bank
• December 1-3, 2003
• Geoffrey Shepherd

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Outline of Presentation

• I. Introduction
• II. Organization theory
• III. Public organizations are different
• IV. The new model of public administration
• V. Changes in public organizations
• VI. Public organizations in developing countries
• VII. The Bank and organizational reform
• Selected references

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I. Introduction public organizations matter

• Three management mechanisms for public
  administrations
• public finances how the money is controlled
• civil service how people are managed
• organization how activities are coordinated.
• Taking a deeper look at organizations
• Questioning the engineering view (top-down).
• Questioning the economic view (rational economic
  actors).
• Another view institutions and politics matter.

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I. Introduction organizations and governance

• An organization (hierarchy) is a system of
  consciously coordinated activities or forces of
  two or more persons.
• Organizations are social systems, hence complex.
• Public organizations (bureaucracies) are the
  states agents for public collective action.
• Studying public organizations goes to the heart
  of governance and corruption issues
• public organizations deliver public services with
  more or less efficiency, equity, honesty, and
  accountability.

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I. Introduction this presentation

• We know
• more about private than public organizations, and
  
• more about public organizations in developed than
  developing countries.
• This presentation aims to provide
• a sense of how people think analytically about
  organizations, including what is more specific to
  the public sphere and to poorer countries,
• a sense of how public organizations are changing,
  and
• some ideas on how Bank staff can better
  contribute to organizational reform.

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II. Organization theory a branch of social
science

• Organization theory has blossomed since the
  1930s.
• It primarily covers the private sphere and the
  North Atlantic.
• Organization theory has many competing schools of
  thought.
• There is not a dominant paradigm.
• But there is a generally held view of
  organizations, in effect, as living, evolving
  social systems.
• Sociology and politics, rather than engineering
  and economics, have driven OT.

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II. Organization theory some common ground

1. Organizations have the characteristics of living,
   evolving systems.
2. There is a great variety of types of
   organization, responding to different and
   changing needs and environments.
3. The external authorizing environment i.e. who
   influences what the organization does and
   provides its resources is important and
   complex.
4. Rationality is bounded progress is often by
   trial and error.
5. Worker motivation is complex, extending beyond
   economic incentives into their social and
   personal needs.
6. The formal trappings of organizations stated
   goals and rules are only part of the story.
   Organizations also have a non-formal life an
   organizational culture which is vital in
   determining the actual tasks undertaken, the
   sense of mission, and organizational
   effectiveness.

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III. Public organizations are different a
comparison
A. Private organizations B. Public organizations
1. Organizational rationality is bounded, and progress is often by trial and error. Similar, but uncertainty may be less.
2. Worker motivation is complex, extending beyond economic incentives into social and personal needs. Similar the people are no different.
3. Organizations have a non-formal organizational culture key to determining the actual tasks and the sense of mission. Similar.
4. Organizations have the characteristics of living, evolving systems. Much less so they are born, allowed to change and allowed to die much less easily.
5. There is a great variety of types of organization, responding to different and changing needs and environments. There is a smaller variety. A ministerial hierarchy with large, wholly public sub-organizations is the dominant form.
6. The external authorizing environment i.e. the external influences on what the organization does and how it does it is important and complex. Centralized control of resources and regulation of personnel and procedures mean considerably less managerial autonomy from the external environment.
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IV. The new model of public administration
historical drivers

• Emergence of the model in the North Atlantic and
  Japan in the 19th Century based on fundamental
  social changes.
• Revolutionary political demands for equality and
  probity to replace custom, privilege, and
  corruption.
• The industrial revolution economic demands for a
  stable regulatory framework.
• Growth in the size of government.
• Rationalism and science as new tools to manage.

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IV. The new model of public administration
characteristics

• Limited government (checks and balances)
• Constitutional separation of powers, coalition
  government.
• Semi-autonomous public administrations
• Self-regulation within structural and procedural
  constraints.
• Hierarchical organization of administrations (Max
  Weber)
• meritocracy
• specialized agencies within a hierarchical
  command structure
• financial planning and control
• codified records.

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IV. The new model of public administration
intended outcomes (1)

• The problems politicians have to solve
• authority,
• delegation,
• credibility.
• Delegation to public administrations the
  principle-agent problem
• Reducing the costs of administering
  patronage-employment systems (the US).
• Encouraging efficiency and loyalty to the public
  interest by structuring careers.

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IV. The new model of public administration
intended outcomes (2)

• Checks and balances tempered authority to govern
  with mechanisms for credible commitment
• Checks and balances impose structural and
  procedural constraints (red tape) on public
  organizations.
• Increasing the credibility of politicians
  promises (achieving political legitimacy)
• Semi-autonomous public administrations set limits
  to subsequent political interference.
• Replacing patronage/privilege systems by merit
  systems.
• Re-defining loyalty in merit terms.

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IV. The new model of public administration
unintended outcomes?

• The greater the checks and balances, the greater
  the power of interest groups (and their influence
  over public organizations).
• Creating autonomous public organizations also
  promoted public-sector corporatism.
• Autonomy in public organizations, together with
  structural and procedural constraints do not, per
  se, encourage efficiency.

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IV. The new model of public administration
political variants in advanced countries

• The parliamentary variant the executive (and its
  nested public agencies) subordinate to the
  legislature
• Public agencies formally answer to one principal.
  
• Decisiveness is favored at the expense of
  resoluteness.
• The presidential variant the executive and the
  legislature are independent (separation of
  powers)
• Public agencies formally answer to up to two
  principals and informally to interest groups.
• Resoluteness is favored at the expense of
  decisiveness.

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V. Changes in public organizations older
challenges

• The growth of government and the growth of the
  bureaucratic machine
• A dramatic increase in the scope and size of
  government since the early Nineteenth Century has
  progressively exacerbated the principal-agent
  problem.
• The call for greater efficiency and flexibility
• The costs of hierarchical organization, perceived
  from the beginning of the Twentieth Century.
• The growth of special interests
• Continued growth in the Twentieth Century has
  threatened the effectiveness of government.

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V. Changes in public organizations newer
challenges

• The growth of citizen voice
• Progressively stronger electorates, in terms of
  their knowledge and ability to organize, have
  however made the control problem potentially more
  soluble.
• A crisis of trust and the rise of accountability
• An apparent erosion of trust in recent decades
  has led to demands for more formal forms of
  accountability, and it may have undermined
  social capital within the public
  administration.
• Better management, better information
• Improved management technologies, including the
  falling cost of information, make the control
  problem potentially more soluble.

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V. Changes in public organizations early
responses

• Problems of poor control and inflexibility have
  led to a constant experimentation with new
  organizational techniques, including those that
  use economic incentives.
• Performance-related pay.
• Special-purpose, quasi-independent agencies
  (agencification).
• Decentralization.
• Budget reform (e.g. program budgeting).
• The dilemma of reform
• The dilemma trading off control and flexibility.
• The progress slow.

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V. Changes in public organizations the New
Public Management

• Recent, more systematic efforts to make public
  administrations more accountable, efficient, and
  responsive.
• The core techniques borrow from the managerial
  methods of the private sector.

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V. Changes in public organizations core
techniques of the NPM

• Privatization.
• Quasi-market competition (and contractualization).
  
• Management, relational, and personnel contracts
  competition between public agencies inter-agency
  fee charging out-sourcing.
• Performance orientation changing the
  accountability relationship from an emphasis on
  inputs and legal compliance to one on outputs.
• Results-oriented budgeting, full-costing of
  products.
• Devolution of discretion. Devolution of decision
  making reducing the burden of hierarchical rules
  and fostering greater discretion at lower points
  in the hierarchy.
• Agencification, decentralization of
  personnel-management.
• Specialization by splitting policy making and
  policy implementation, service financing and
  service delivery.
• Executive agencies, hospital trusts.
• Client-focus reporting to and "listening" to the
  clients of the public sector.
• Citizens Charter e-government, participative
  budgeting.

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V. Changes in public organizations a NPM
revolution?

• Not yet
• We are still in an experimental stage, and the
  jury is still out.
• The successes
• The public face of organizations has changed most
  in New Zealand and the UK.
• The challenges
• Contracting and accountability mechanisms are
  difficult to apply where products are difficult
  to specify.
• NPM techniques often have high transactions
  costs.
• Some believe that NPM undermines trust.

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VI. Public organizations in developing countries
superficial similarities

• Superficially, the issues look similar for more
  advanced and less advanced countries.
• Less advanced countries have pursued similar
  formal arrangements a legally-determined
  hierarchy of agencies, with even tighter
  procedural rules.
• There is a similar debate on the tensions between
  hierarchy and efficiency (and the merits of NPM)
  , with similar efforts to modify rules to
  encourage more efficiency.
• But the similarities are often superficial
• Public organizations typically perform poorly in
  developing countries

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VI. Public organizations in developing countries
different politics

• Proposition 1 the control (principal-agent)
  problem is more acute in developing countries
  democratic control is often weak, even in many
  nominally democratic countries
• Patronage politics (and sometimes predatory-state
  politics) are more likely to prevail.
• Kinship ties and other ties of mutual obligation
  tend to be stronger than professional ties.
• Proposition 2 politics and ideology in today
  developing countries have led to over-sized,
  often corporatized public sectors, thus
  undermining organizational performance.
• Origins of large public sectors in
  developmentalist ideologies.
• Sustained in many regions by governments becoming
  employers-of-last-resort.

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VI. Public organizations in developing countries
different outcomes

• These political conditions often lead to a
  conflict between announced and effective rules
• Announced rules favor a hierarchical ordering of
  public agencies and their rules-base operation.
• Effective rules may favor quite different
  objectives such as bureaucratic survival,
  patronage, or corruption.
• This organizational informality makes it more
  difficult for public organizations to function
  effectively in the public interest.
• By the same token, these conflicts make island
  solutions attractive for instance autonomous
  agencies that heads of states are better able to
  protect from political interference.

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VI. Public organizations in developing countries
what makes for good performance?

• Results from a study on building sustainable
  capacity in public organizations in developing
  countries show the importance of organizational
  culture and managerial autonomy in good
  performance
• A broadly shared sense of mission improves
  performance.
• Management emphasizing performance,
  participation, flexibility, teamwork, problem
  solving, and equity improves performance.
• Clear signals about performance expectations
  (work to be accomplished, rewards and sanctions)
  improve performance.
• Organizations with some autonomy in personnel
  matters are more able to set and reward
  performance standards.

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VI. Public organizations in developing countries
NPM to the rescue?

• We are not sure.
• We should be careful not to make facile
  assumptions.
• Implementing NPM solutions in less advanced
  countries will face the same challenges as in the
  more advanced countries.
• The NPM is, a priori, no more effective against
  organizational informality than the hierarchical
  model.
• Indeed, based on historical antecedent, rules may
  need to precede discretion.

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VII. The Bank and organizational reform
comprehensive approaches

• Comprehensive reform functional analysis
  (strategic planning)
• The technique review agency mandates discover
  overlaps and redundant and unjustified missions
  redefine mandates, visions, missions implement
  the new scheme.
• Comprehensive reform promoting performance
  orientation
• Performance pay, results budgeting, etc.
• Outcomes I am not aware that the engineering
  approach (fix the formal goals and the formal
  command structure) and the economic approach
  have, in isolation from other OT approaches,
  produced good results.

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VII. The Bank and organizational reform
selective approaches

• Selective reform I agency graduation (new,
  universal rules applied to selected graduating
  agencies)
• Agencies graduate to better availability of
  resources when they demonstrate that they can
  manage them properly.
• This approach has some historical antecedents
  (e.g. the UK and US), but Bank-supported reform
  efforts have often been frustrated by politics.
• Selective reform II enclaved (or autonomous)
  agencies (new, non-universal rules in selected
  agencies).
• Agencies are re-organized (e.g. tax authorities)
  or created (e.g. Project Implementation Units)
  partly outside of the hierarchical and normative
  structure.
• This reform is controversial. It has proven the
  most practicable and effective option because the
  organizational approach has been a broad one. But
  such reforms may not prove durable and can
  balkanize the state.

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VII. The Bank and organizational reform towards
a better understanding

• Learning from organization theory
• Bounded rationality.
• Worker motivation.
• Informal aspects of the organization.
• Developing the political analysis
• Understanding how political institutions
  determine the structure and rules of public
  administrations.

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VII. The Bank and organizational reform existing
tools

• Israel (1987) reforming public organizations in
  developing countries.
• Wilson (1989) a framework for understanding
  public organizations (largely in the US).
• Moore (1995) a framework for reforming public
  organizations (using US cases).
• Wade (1997) a comparison of different Indian and
  Korean organizational approaches to irrigation
  administration.
• Word Development Report 2004 a framework for
  assessing how product, client, and politics
  characteristics determine public service-delivery
  modes.

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VII. The Bank and organizational reform managing
the process

• A comprehensive approach to reform is unlikely to
  work because of the bounded rationality of reform
  designers.
• The reform of complex social systems requires a
  more incremental and flexible approach.
• In practice, the incremental approach might mean
  the following approaches to projects and policy
  advice
• Create the right scale of action for reforms and
  establish mechanisms for consequent adjustment of
  project design start small use pilots go
  agency by agency build on what exists, rather
  than invent new things do not expect progress on
  all fronts at the same time.
• Incorporate local expertise in reform design and
  implementation understand that problems are
  institutional before they are technical.
• Emphasize implementation empower local project
  management put enough resources into supervision
  and supervise locally.

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Selected references (1)

• Israel, Arturo (1987), Institutional Development
  Incentives to Performance, Baltimore John
  Hopkins University Press
• Past attempts at institutional reform in World
  Bank projects have proved systematically more
  successful in certain sectors rather than others.
  
• This is because organizations differ by
• specificity of product and
• degree of contestability in production.
• Low-specificity-low-competition activities
  operate under enormous disadvantages.
• The specificity of a public organizations
  objectives and the competition it faces are not
  immutable.
• Surrogates for specificity can be introduced
  through personnel incentives and training,
  professionalization of staff at all levels, and
  changing the role of managers.
• Similarly, competition surrogates
  (contestability, in current terminology) can be
  created.
• The training and visit system of agricultural
  extension provides an example of a successful
  application of these principles.

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Selected references (2)

• Wilson, James Q. (1989), Bureaucracy What
  Government Agencies Do and Why They Do It, New
  York Basic Books
• Reviewing a sizeable literature on public
  agencies in the US, this book suggests that to
  understand agency performance, one needs to ask
• 1. How each organization performs its critical
  tasks, i.e. provides the solution to the key
  problem (rather than what are its goals)
• 2. How the organization gets widespread
  endorsement of how the critical task is defined
  its sense of mission
• 3. How the organization acquires sufficient
  freedom of action and external political support
  to do its work.

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Selected references (3)

• Moore, Mark H. (1995), Creating Public Value
  Strategic Management in Government, Cambridge
  Harvard University Press
• This book addresses four questions that have long
  bedeviled public administration What should
  citizens and their representatives expect and
  demand from public executives? What sources can
  public managers consult to learn what is valuable
  for them to produce? How should public managers
  cope with inconsistent and fickle political
  mandates? How can public managers find room to
  innovate?
• The book recommends specific, concrete changes in
  the practices of individual public managers how
  they envision what is valuable to produce, how
  they engage their political overseers, and how
  they deliver services and fulfill obligations to
  clients.
• The framework for strategic analysis of
  organizational problems emphasizes
• public value why people will be better off with
  reform
• authorization legitimacy, support from the
  external authorizing environment
• feasibility operational capacity, technology,
  resources, organization (incentives).

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Selected references (4)

• Wade, Robert (1997), "How Infrastructure Agencies
  Motivate Staff Canal Irrigation in India and the
  Republic of Korea", in Ashoka Mody, ed.,
  Infrastructure Strategies in East Asia the
  Untold Story, EDI Learning Resource Series,
  Washington, D.C. the World Bank
• This paper seeks to explain the different
  performance of two public agencies, in India and
  Korea, in administering technologically-similar
  irrigation systems by comparing the incentives
  to which principals and agents respond and the
  compatibility of these incentives with
  organizational objectives.
• The paper uses Herbert Simons (1991) framework
  postulating four main sources of motivation
• authority
• rewards (which works to the extent that
  performance can be measured and relates to the
  individual rather than the group)
• organizational identification esprit de corps
  and
• peer pressure (which depends on how much
  individual rely on group performance and on the
  ease of monitoring).
• Indias irrigation agency performs worse than
  Koreas because, comparatively, it fails along
  all these lines and Koreas succeeds.

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Selected references (5)

• World Bank (2003), World Development Report 2004
  Making Services Work for Poor People,
  Copublication of the World Bank and Oxford
  University Press
• Public services in developing countries too
  frequently fail the poor the rich gain an undue
  share of public services, there are financial
  leakages in services to the poor, and service
  quality is often poor.
• But services to the poor can be made to work by
  ensuring that the key relationships between the
  triangle of policy makers, providers, and poor
  people (citizens) works.
• Product characteristics (the degree of product
  homogeneity, the ease of monitoring, pro-poor
  nature of service) and the nature of local
  politics (whether clientelist or pro-poor)
  determine which of these key relationships are
  emphasized whether government provides or
  finances (through contracts), whether central or
  local government is the more appropriate
  principal, the extent of client oversight.

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geoffreyshepherd_at_msn.com