A Primer on Public Management

Center for Democracy, Development, amd the Rule of Law

Summer Fellows Program

--attributed to Goldman Sachs

“It’s not the business plan but the execution”

The Scope of State FunctionsM

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Two Dimensions of Stateness

Scope of State Functions

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Stateness and Efficiency

Scope of State Functions

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Quadrant I Quadrant II

Quadrant III Quadrant IV

The Stateness Matrix

Scope of State Functions

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USSR

Japan

BrazilSierra Leone

United States

France

Turkey

Afghanistan

USSR/Russia

Scope of State Functions

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USSR 1980

Russia 2000

Russia 2010

China

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China 1978

China 2005

China 2011

New Zealand

Scope of State Functions

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1990

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 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

Legislature President

Bureaucracy

Implementing organizations

How is the Public Sector different from the Private Sector?

• Public agencies not allowed to retain earnings

• Public agencies can’t reallocate factors of production

• Public agencies must follow goals not of their own choosing

• Public agencies not subject to market discipline

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

• Multiple principals

• Principals want contradictory things

• Public agencies are monopoly suppliers that can’t go out of business

Public Sector Outputs

Low Transaction volume High

Low

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Quadrant I Quadrant II

Quadrant III Quadrant IV

Monitorability of Public Sector Outputs

Low Transaction volume High

Low

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Hig

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Central banking

Aircraft maintenance

Primary school teaching

Highway maintenance

Preventative medicine

Telecoms

Guidance counseling

Foreign affairs

Railroads

University education

Court systems

Finally,

• 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

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A Third Type of Capital

Physical Capital

Human Capital

Social Capital

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Networks of Trust

04/20/23 23

A Corporate Culture

04/20/23 24

Trust networks critical to flat organization...

04/20/23 25

And to Outsourcing

Final ProductFinal Product

DesignDesign

ManufacturingManufacturing

CEOCEO

ManufacturingManufacturingPersonnelPersonnel

MarketingMarketing

DesignDesign

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!

Education Reform

• Economic approaches– Vouchers, school choice– Testing and individual accountability

• Social capital approaches– Raise salaries; improve professional standards

• Fundamentally a political issue– Teachers’ unions, low incentives to solve issue

Community-Driven Development

• Program design– Designed to foster social capital– Bypasses traditional institutions– Relies on participation and bottom-up input

• Problems– Expensive and highly labor intensive– Encompasses ambitious social engineering

goals

Conditional Cash Transfers

• Transfers to poor require school attendance

• Programs designed for sustainability– Goal is increased human capital– Often built-in evaluations

(Progresa/Oportunidades)

• Problems– Programs develop their own constituencies– Can be used in clientelistic ways