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.
II.
III.
IV.
V.
VI.
VII.
Introduction
Organization theory
Public organizations are different
The new model of public administration
Changes in public organizations
Public organizations in developing countries
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
state’s 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.
2.
3.
4.
5.
6.
Organizations have the characteristics of living, evolving
systems.
There is a great variety of types of organization, responding
to different and changing needs and environments.
The external “authorizing environment” – i.e. who influences
what the organization does and provides its resources – is
important and complex.
Rationality is bounded – progress is often by trial and error.
Worker motivation is complex, extending beyond economic
incentives into their social and personal needs.
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.
– Citizen’s 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 organization’s 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 Simon’s (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).
India’s irrigation agency performs worse than Korea’s because, comparatively, it fails
along all these lines and Korea’s 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@msn.com
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