Reforming the Public Sector

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"Reforming the public sector" is a slogan prevailing in economic discussions since the last, say, two decades. The fact that it is being discussed since that long points to the many obstacles to its implementation (in developing and developed countries alike) but nevertheless, the importance of this issue remains unchallenged.

The point of departure for a debate on the reform of municipal administrations is marked by dwindling public resources. Many local administrations have to face the fact that rising demands with regard to the services local citizens wish to see delivered by local authorities and/or a decrease of available funds needed to produce these services have led to financial imbalances. In a first response to these imbalances, many local authorities tried (and still try) to cut expenditures. Public servants were dismissed, investments in infrastructure were reduced, services not considered essential (for example public libraries) were abolished and so on. On the other hand, efforts were made to raise public revenue. Charges, fees and prices for public services were increased and, wherever possible, one tried to source other public funds on federal and national level.

However, it became obvious that this strategy was too defensive in nature. Local governments exclusively following this recipe were in danger of provoking a downward spiral: a decrease in the quality of service delivery and increased service charges were also raising production costs for local enterprises and reducing the attractiveness for outsiders wishing to start business in this particular community. Thus, with a certain time-lag, local economic growth would become sluggish, further diminishing the local tax base and aggravating the situation for the local finances.

As a result of this experience, new concepts emerged under the heading New Public Management, trying to improve efficiency and effectiveness of public administrations. Efficiency means producing a given set of services or goods with less resources, whereas effectiveness intends to produce more services and goods with a given amount of resources. For example, in the case of the public library mentioned above, one would improve its efficiency if its normal operation were to be maintained with only one instead of two librarians. On the other hand, one would improve its effectiveness, if one doubled for example its business hours without employing more staff.

In general, the philosophy of New Public Management is to import concepts of the business world into local administrations. The following aspects are essential:

• Result orientation: Traditionally, public servants work according to administrative rules, trying to follow them as correctly as possible. These rules normally define procedures. For example, the issuing of number plates for cars depends on whether the applicant presented his or her ID-card, the driving-license and other documents. Whether the quality and the speed of their work is to the satisfaction of the local citizen is not of interest, what counts is the following of the procedure (the input) and not what comes out of this (the result). Under the concept of New Public Management, the situation changes: results are defined that have to be achieved, such as "100 new jobs created in the community" or "500 number plates issued within one month". Thus, the point of view changes: it is now the benefits for the community that come into the focus of administrative activity, whereas formerly the focus was merely on the following of bureaucratic procedures.
  

• Client orientation and participation of citizens: This aspect is closely related to the first one. Under the concept of New Public Management, client orientation means that the users of services offered by local administrations are seen as clients. As the saying "Client is King" implies, this results in an upgrading or empowerment of the users of services. As a client he or she may demand good and timely service delivery (as in private business) but as an ordinary citizen using the services that the local representatives of the "State" are generously offering, this is far more difficult. Participation of citizens is more far-reaching. This term means that local people have a saying in, for example, the local development plans for real estate or the building of a new road. Participation results in improvements of planning processes, as local know-how and ideas are mobilized, thus raising the effectiveness of local implementing agencies. It also produces consensus with regard to important decisions and improves legitimacy of the municipal authorities.
  

• Decentralizing decision-making in local administrations: Decentralization can mean many things. In this context, it relates to the internal decision-making processes within local administrations. Typically, technical and financial competencies are separated. The decision on whether or not the municipal authorities realize a start-up course for local business entrants is normally not with the Head of Department for Local Economic Development (or any public servant with equivalent tasks) but with the Treasurer or a commission entitled with decision-making powers on financial resources. Very often, procedures are cumbersome and slow. Under new reformist concepts, technical and financial competencies are unified. In our example, it would mean that the Department for Local Economic Development is attributed a global budget and takes decisions on expenditures basically on its own (but within the ceiling of the budget and in accordance with the policies of the local government). This is meant to speed up procedures, to improve quality of decision-making and to motivate the personnel in local administrations.
  

• Contract management: In most developed and in some of the developing countries, many "typical" services used to be implemented by entities directly owned by the local administration, such as refuse collection for example. However, in recent years "outsourcing" has become a popular instrument: certain services, instead of being delivered by a public company or entity, are delivered by a private company acting on behalf of the local administration. The purpose is to become more efficient (because private companies are working under conditions of competition and act more flexibly) and to become more effective (as private companies try to maintain their position in the market by keeping the customer satisfied). Therefore, contract management has become an important task for local administrations. This includes the clear definition of terms of reference, duration, reporting, quality indicators and financial resources available for the task. After entering into a contract, contract monitoring - observing the quality and speed of contract implementation - becomes a necessary activity.

In theory, the above said sounds logical and good. However, in trying to implement it, there are several constraints and difficulties that use to come up and that need to be avoided in order to turn the reform into a success:

One is related to human resources development. Public servants used to simply following orders have to be turned into persons that act responsibly and really like taking decisions. In order to achieve this, one has to create a new, entrepreneur-like culture within local administrations that needs to be encouraged from the higher ranks of the administration. However, it is not only a matter of culture. People have to be trained in techniques they did not need before. For example, if budget responsibility is really to be decentralized within the administration, heads of department and their staff have to be trained in book-keeping, cost-calculation and legal issues.

The other has to do with participation within the local administration. Any reform will spur resistance, in this case even more since it will change the balances of power. A good way of building consensus, of creating alliances among those who want reform and of overcoming opponents is trying to let the local administration staff participate actively in the reform process. One may, for example, conduct a seminar to inform on the objectives of the reform and ask for proposals of how best to achieve them, when to begin and what priorities to set and so on.

The third aspect relates to contract management. The hiring of a company may not result in more efficient and more effective services, if the market does not function. If a company is awarded a contract just because of its boss being a good friend of the head of department, then the result might be quite the opposite. It is recommendable, from a certain contractual amount upwards, to do the awarding on the basis of a public or a restricted tender and to let a commission rather than an individual person take the decision. This creates competition and transparency.

And the last point: reforming public institutions is always difficult and one might be tempted to get stuck in details or certain aspects that do not function well. At certain points, one may not see the forest but only trees. In order to avoid this, there needs to be a realistic and still sufficiently ambitious plan, setting several parameters for change (for example: "Until the end of this year we have a fully operational one-stop-shop for all business people") that have to be monitored continuously.

More of Reforming the Public Sector

• "Supporting Municipalities for Local Economic Development" - how does Local Government stimulate LED?

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