A Primer on Public Management
Center for Democracy, Development, amd
the Rule of Law
Summer Fellows Program
“It’s not the business plan but the
execution”
--attributed to Goldman Sachs
X-axis
Industrial policy
Wealth redistribution
Activist Functions
Addressing externalities
Education, environment
Regulating Monopoly
Overcoming imperfect information
Insurance, financial regulation
Social Insurance
Intermediate Functions
Providing pure public goods
Defense, Law and order
Property rights
Macroeconomic management
Public health
Improving equity
Protecting the poor
Minimal Functions
The Scope of State Functions
Strength of State Institutions
Two Dimensions of Stateness
Scope of State Functions
The Quality of Government
Strength of State Institutions
Stateness and Economic Growth
Quadrant I
Quadrant III
Scope of State Functions
Quadrant II
Quadrant IV
Does the Size of Government Matter?
Strength of State Institutions
The Stateness Matrix
United States
Japan
France
Former USSR
Turkey
Brazil
Sierra Leone
Afghanistan
Scope of State Functions
Strength of State Institutions
USSR/Russia
USSR 1980
Russia 2013
Russia 2000
Scope of State Functions
Strength of State Institutions
China
China 2013
China
2003
China
1978
Scope of State Functions
Strength of State Institutions
New Zealand
2000
1990
Scope of State Functions
1981
What Is Good Government?
•
•
•
•
It is more than the absence of corruption
Governments need to do things
Hence they need capacity
Where does capacity come from?
–
–
–
–
Resources
People
Education
Organizational culture
Why is Public Administration So
Difficult?
• Central issue of all organizational theory is
delegated discretion
• All organizations need to delegate authority
– To take advantage of local knowledge
– To make use of expertise
– To respond quickly
• But delegation means loss of control
Two Approaches to Organizational
Theory
• Economists’ approach
– Man is homo economicus
– Incentives matter
– Principal-agent framework
• Social capital approach
– Man as social animal
– Norms and bonding over incentives
Principal-Agent Theory: Private Sector
Shareholders
Board of Directors
CEO
Senior Management
Workers
Principal-Agent Theory: Public Sector
The People
President
Legislature
Bureaucracy
Implementing organizations
Making the public sector more like the
private sector
• New Public Management (NPM)
• Adding an exit option and competition
– Vouchers, school choice
• Wage decompression
• Separating the policymaker from the
implementer
• Public expenditure tracking surveys
What these innovations have in common
• All can be subsumed under principal-agent
framework
– Use a monitoring-and-accountability
framework
• All try to affect agents’ incentives
• All try to mimic market mechanisms
• But: Do they work?
Limitations of Principal-Agent
• If you can’t measure, you can’t hold
accountable
• Agents not motivated by incentives alone
• Multiple principals
• Authority often flows from agents to
principals
– Need for bureaucratic autonomy
Rules v. Discretion
• Delegation is necessary
– No set of rules can anticipate all circumstances
– Expertise often resides with low-level agents
– Agents are often closer to local knowledge
• But can you trust the agents?
– Klitgaard: corruption = discretion minus
accountability
• How do you build trust in government?
How to Build Trust
•
•
•
•
Constrain agents with strict rules
Monitoring and accountability
Socialization
Education, especially professional
education
High
What Can Be Measured?
Quadrant II
Quadrant III
Quadrant IV
Low
Specificity
Quadrant I
Low
Transaction volume
High
Specificity
High
Monitorability of Public Sector Outputs
Aircraft maintenance
Telecoms
Central banking
Railroads
Highway maintenance
Foreign affairs
Court systems
Primary school teaching
Low
University education
Low
Preventative medicine
Guidance counseling
Transaction volume
High
Moral Motivation
• Human beings are not simply homo
economicus
• Are social animals as well
• Motivated by pride, self-respect, group
solidarity, other norms
• Importance of social capital
A Third Type of Capital
Physical
Capital
Human
Capital
Social
Capital
3/24/2016
25
Networks of Trust
3/24/2016
26
An Organizational Culture
3/24/2016
27
Where does social capital come from?
• In traditional societies:
– Kinship, shared culture, repeated interaction
• In modern societies
– Education, particularly professional education
– Shared goals and standards
– Leadership!