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Why reform publicadministration?

What are the lessons from two decades

of reform?

What is the effect of opengovernment?

Has focusing on publicsector performance helped?

What is the effect of structural change?

Do market-type mechanismshelp?

What about modernisingpublic employment?

What about the future?

For further information

Where to contact us?

Public Sector Modernisation:The Way Forward

Introduction

Governments have made major changes to the way they managethe public sector in the past two decades, privatising commercialactivities such as telephone services, cutting red tape and makinggovernment more transparent and responsive to citizens.

Budget worries triggered reform in many countries, but the underly-ing pressure for change came from social, economic and techno-logical developments which left governments increasingly out ofstep with society’s expectations.

Most public administrations have become more efficient, moretransparent and customer-oriented as a result. But perhaps surpris-ingly, these changes have not reduced governments’ influence insociety – indeed, government now has a different but larger pres-ence in OECD countries than 20 years ago.

And governments are under constant pressure for more change, ascitizens’ demands of government keep on growing. The publicexpect more openness, better quality service delivery and solutionsto more complex problems, but without losing any of their existingsocial entitlements.

The major challenge for 21st century governments is to find newgains that will enable them to meet these demands while remainingwithin tight expenditure limits. For the next 20 years, policy makersface hard political choices. Since most governments cannotincrease their share of the economy, in some countries this will putpressure on entitlement programmes such as pensions, health careor education.

inal part of a series looking at how governmentsublic sectors to the changing needs of society.ered open government, modernising publicg organisational structures, governing forrnising accountability and control.

for Economic Co-operation and Development

Policy BriefPublic Sector Modernisation: The Way Forward

This Policy Brief looks at the way the public sectorhas changed over the past 20 years, and what thatexperience can teach governments to help them dealwith the challenges of the next two decades. ■

Why reform public administration?

Attitudes towards public administration in OECDcountries have changed significantly in the past20 years. In the decades after 1945, government tookon the role of a near-monopoly provider of utilitiessuch as power and water, of services such as health-care, social welfare and education, and of transportinfrastructure and services.

This traditional model helped deliver unprecedentedprosperity and security in many OECD countries andis still in use in some of them. However, its ability toadapt to political, social and economic change wasincreasingly called into question.

From the early 1980s onwards, the public becameincreasingly concerned about the quality of the ser-vices they received and the choices available to them.It was clear that some of the open-ended, demand-driven commitments of the traditional model in areassuch as healthcare were leading countries into finan-cial crisis. The need to respond to technologicalchange, notably in communications, also imposedincreasing costs on government.

At the same time, changes in the international econ-omy were limiting governments’ freedom to managetheir national economy and determine the size andscope of government activity. It was no longer politi-cally or economically tenable to use an ever-increas-ing share of the national economy to fund expandingpublic responsibilities. Many governments thereforedecided to reduce the size of their public sector, orradically alter its structure.

Some of the results of these reforms are perhaps sur-prising. While society’s expectations of governmenthave changed, they have not diminished; in fact, ifanything they have increased. So after 20 years ofreform, government is more, not less present in OECDcountries, although its role and the mix and modes ofgovernment interventions have changed significantly.

For example, many governments have privatisedstate monopolies on basic household services suchas energy, water and telephones. But they haveinstead acquired new responsibilities to create and

regulate markets to provide these services, as well asnew ones such as the Internet.

Many reforms were driven by pressure to reduce pub-lic expenditure, and in most OECD countries spend-ing has now stabilised; however, the upwardpressures on public expenditure remain. Pension,education and health spending are rising, and ageingpopulations are likely to exacerbate the problem.Improved cost-effectiveness cannot resolve thesepressures; politicians face hard and unpopularchoices in some countries if long-term difficulties areto be avoided. ■

What are the lessons from two decadesof reform?

Two decades of public sector reform have broughtmany positive benefits. Today, governments in mostOECD countries are more efficient, more transparent,more customer-aware, and more focused on perfor-mance than 20 years ago.

Nevertheless, the reality of reform has not lived upto the rhetoric. In many cases, reforms have not pro-duced the changes in behaviour and culture neededto sustain them over the longer term. Indeed, somereforms have produced unintended consequences,and have damaged underlying public sector and gov-ernance values.

Another key lesson is that modernisation efforts mustbe tailored to each individual country’s context, needsand circumstances if they are to succeed. The samereforms have very different effects in different countries.

Governments also need to understand the dynamicsof their own public administration system beforethey can design appropriate reform strategies. Theymust also remember that public governance and pub-lic administration are intrinsically linked.

Therefore, if reform is to be successful, it must take awhole-of-government approach that sees publicadministration and governance as part of an intercon-nected whole. Changes in one part of the system willaffect other parts, often in unintended ways. It is nogood measuring public sector performance by resultsif ministries and politicians do not use the informationwhen making decisions.

But perhaps the most important lesson from theexperience of the past two decades is that reform is

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Policy BriefPublic Sector Modernisation: The Way Forward

continuous. As societies keep changing, govern-ments must keep adapting.

Among the most significant changes of the past20 years, which will continue to be important forfuture reform, are more open government, a focus onpublic sector performance, reforms to accountabilityand control, reallocation of resources in response tochange, the introduction of market-type mechanismsand reform of public employment systems. ■

What is the effect of open government?

A major cultural shift in most OECD countries hasbeen the move towards more open government. Theidea that public information depends on what govern-ment chooses to reveal is being replaced by the prin-ciple that government must have a valid publicinterest reason for withholding information.

But open government is not just a case of willingnessto reveal information; it also means ensuring that gov-ernment services are accessible to the public, andmaking government more responsive by enabling citi-zens to participate in decision making.

Both government services and information are morereadily accessible to citizens today than 20 years ago.Some 90% of OECD countries have a Freedom ofInformation Act and an Ombudsman office, and morethan half have citizens’ charters. Governments aremore user-friendly, there is less red tape and manyservices are delivered online.

The OECD’s work also shows that greater opennesscan have a positive effect on performance. Greateropenness to scrutiny of the budget process, forexample, can help contribute to sounder publicexpenditure. Open government also means cleanergovernment – effective public scrutiny helps maintainhigh standards of integrity.

More open government can thus strengthen the legiti-macy and credibility of the government and help itrespond to ever increasing public expectations formore accessible, high-quality services and informa-tion. A significant challenge now facing governmentsis balancing the need to ensure greater national secu-rity with the need to preserve openness.

Consultation, and even active participation in decisionmaking does not mean that governments should sur-render their responsibility for making final decisions.To do so would undermine the established ministerialaccountability mechanisms of representative govern-ment, which is a key pillar of governance.

And openness in itself does not necessarily improvegovernance, nor does it override all other public val-ues. It should be balanced against other values of effi-ciency, equity, and responsibility. ■

Has focusing on public sector performance helped?

Improving performance has taken on a new urgencyin recent years as governments face mountingdemands on public expenditure, coupled with calls

Figure 1. Is it common that politicians use performance measures in decision making?

Source: OECD/World Bank Budget Practices and Procedures Database, 2003.

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Policy BriefPublic Sector Modernisation: The Way Forward

for higher-quality services and a public increasinglyunwilling to pay higher taxes.

This has led governments to focus on the resultsachieved by various public sector operations, ratherthan the resources allocated to them, as was the casein the past. The idea is that politicians and public ser-vants will use this information to make better deci-sions and improve performance for the future. Manygovernments, however, are still struggling to ensurethat information about results, once gathered, is actu-ally used. Politicians generally do not make much useof performance information, with the exception ofministers with responsibility for the department deliv-ering the target. Some 72% of OECD countriesinclude non-financial performance data in the budgetdocumentation presented to the legislature, but inonly 19% of countries do politicians in the legislatureuse this information in decision making.

Governments have been more successful in introduc-ing performance management. The idea is to givemanagers the authority, and the incentive, to makedecisions and manage resources in the way that theyjudge best suited to producing the desired outcomes.This requires government to focus on performance, toclarify organisational objectives and to motivate pub-lic officials to achieve them.

Governments should, however, beware of overratingperformance-based systems’ power to achievechange. A key challenge is balancing the increasedmanagerial flexibility needed to operate such systemswith continued accountability and control. Too muchflexibility could lead to abuse and mismanagement; toolittle can give rise to an inefficient and unresponsivepublic service.

At the same time, both public servants and politiciansmust be given motivation and incentives to change,otherwise performance information becomes a merepaper exercise. This is a long-term process: it takestime to change behaviour and to see the benefits ofthis approach emerge.

One problem is how to integrate performance budget-ing and management into a country’s traditionalaccountability system. Governments need to controlhow public resources are used, but also have to allowmanagerial flexibility if the new management systemsare to work.

Devolving management and focusing on perfor-mance can create problems of control. Public sector

agencies and managers must have clearly definedresponsibilities, or the potential benefits of devolvedauthority will be lost. But central agencies dealingdirectly with government are vulnerable to politicalpressure and may find it difficult to give genuineauthority to devolved managers. At the worst, centralagencies may view output controls and measures asan additional level of control rather than a replacement.

In addition, in OECD countries with highly delegatedsystems, managers have heavy responsibilities forperformance, strategy, the deployment of human andfinancial resources, internal control and accountabil-ity. This burden can defeat managers unless centralagencies ensure that the control, while effective, isnot unnecessarily restrictive.

Reform initiatives, in theory, seek to delegate author-ity, increase flexibility and relax input controls. AcrossOECD countries in general, however, there are widedifferences in how this has been introduced and thereis a continuing struggle to find the right balancebetween control and flexibility. ■

What is the effect of structural change?

The pressure for change has forced governments tocontinually adjust their structure and reallocateresources. Structural change, however, should not beundertaken lightly. Dividing responsibilities betweennew agencies, for example, risks fragmenting govern-ment into a series of autonomous entities lacking acommon purpose or ethos. This can undermine acountry’s capacity for whole-of-government policymaking and accountability.

Nor should established organisations be dismantledlightly. They provide stability and continuity whileallowing officials to build up the reputation, capacity,knowledge and relationships necessary for address-ing complex public policy problems. If these are lostthrough radical restructuring, it takes a long time torebuild them, and meanwhile governments run therisk of underperforming. Governments need to under-stand the strengths and weaknesses of their existingsystems and build on their strengths, if they are tomaintain a functioning public service.

Being able to adjust the public sector organisations ina timely manner is essential for a modern govern-ment. Modern accounting and information technologyhave made possible arm’s-length management of

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Policy BriefPublic Sector Modernisation: The Way Forward

more types of agencies, better tailored to their spe-cific responsibilities. Innovative administrative struc-tures, decentralised management and market-styleservice delivery should improve results. Nevertheless,these actions may not reduce the size of centralagencies, particularly as governments need tostrengthen co-ordination by the centre in the newsystems.

The deeply ingrained disposition towards coping withchange by increasing the budget is no longer sustain-able. The strategic use of the budget process hasemerged as a powerful management tool in recentreforms, both for reallocating resources and for driv-ing management changes. Thus, the budget process,which has been used to force cutbacks, has alsohelped put the focus on efficiency and effectiveness.The need for reallocation will continue as govern-ments respond to changing pressures and politicalpriorities. ■

Do market-type mechanisms help?

The use of market-type mechanisms is increasing inOECD countries, although there are marked countrydifferences in this respect. Governments have intro-duced mechanisms to improve public sector effi-ciency, for example, contracting out of services(outsourcing), public-private partnerships (PPPs) and

voucher systems. The evidence that market-typemechanisms can secure such efficiency gains is sub-stantial. However, the decision to use these mecha-nisms needs to be made on a case-by-case basis andthe specific design of these instruments is critical totheir successful application.

Also, the ability to maintain key governance princi-ples needs to be considered as an inherent part of thedecision to adopt market-type mechanisms. Theseprinciples include accountability, regularity, transpar-ency, and the availability of avenues for redress.

Outsourcing has grown significantly over the past twodecades and has become a mainstream element ofmodern public administration in many OECD coun-tries. As you can see from Figure 2, however, thereare country variations; the outsourcing of central gov-ernment services is much greater in English-speakingand Nordic countries than in continental Europeancountries.

Outsourcing has sometimes encountered opposition,either due to the public’s view of “the role of govern-ment” or the resistance by affected governmentemployees, unions and their political allies. Govern-ments must improve their ability to manage these fac-tors, as the use of outsourcing can be expected toincrease in the future.

Figure 2. Outsourcing of Central Government ServicesRelative Index: 0 = Lowest; 1 = Highest

Source: OECD Secretariat calculations based on Government Finance Statistics Data, 2003.

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Policy BriefPublic Sector Modernisation: The Way Forward

The use of PPPs is less extensive than many wouldexpect. In the United Kingdom, where they are usedthe most, they have stabilised at around one-tenth oftotal annual capital procurement. They are mostappropriate for large-scale projects such as highwaysthat involve extensive maintenance and operation.Fundamental to the success of PPPs is the appropri-ate allocation of risk between the government and theprivate partner. A common problem is that govern-ments maintain the majority of the risks.

Vouchers redeemable for a particular service up to aset value are increasingly being used in OECD coun-tries. They are a useful means of allocating social ser-vices in a manner sensitive to demand. But there arethree governance concerns: they may provide con-sumer choice at the expense of equity; they can exertupward pressure on public expenditure; and there is arisk that suppliers will focus only on high-yieldcustomers. ■

What about modernising public employment?

Public servants are crucial to improving performanceand keeping pace with change. Reforms to publicsector employment in OECD countries have included:decentralising human resources responsibilities toincrease managerial flexibility; reducing publicemployment; introducing individually-tailored employ-ment contracts; performance-related pay; andchanges in how senior civil servants are managed.

In many countries, employment conditions of publicservants have moved away from the notion of specialstatus and become more like the private sector. A jobfor life is no longer the norm; instead there is anincreasing use of contract and casual staff, consul-tancy services and performance-related pay, now inuse in two-thirds of OECD countries.

The two main traditional ways of organising civil ser-vice systems – career-based and position-based – areboth under pressure: the former because it lacksadaptivity and the latter because it lacks collectivity.The modern environment needs both. Governmentsface a delicate balancing act between, on the onehand, ensuring that civil servants are responsible andaccountable and, on the other, encouraging teamwork and collective responsibility to maximise thechance of success in a complex policy area. Govern-

ments should understand the structural weakness oftheir existing systems and build on their strengthsrather than be countercultural. There are no easysolutions, but clearly governments need to pay moreattention to whole-of-government human resourcemanagement policies. Without the willing commit-ment of staff to a wider cause, modern public man-agement is hindered. ■

What about the future?

Twenty years of reform have seen significant changesin public sector management in OECD member coun-tries. Today their governments are generally moretransparent, accessible and customer-aware, moredevolved, more efficient, and more performance-focused.

But they have taken a variety of different roads to getthere. One of the main lessons from the reform experi-ence is that there is no single generic solution to theproblems of public administration. Countries comefrom different starting points, with different cultures,and face different problems, so the solutions mustalso be tailor-made to fit their circumstances.

One key question in that case is whether learningfrom other countries or developing common interna-tional standards are likely to be productive or evenpossible. However, there are clearly factors at workthat support the transfer of ideas, policies and eveninstitutional designs across borders. One area of suc-cessful systemic learning has been around nationalbudgeting systems. There is also a high degree ofagreement among OECD countries on the underlyingprinciple of open government. Increasingly, OECDcountries are also agreeing on codification and disclo-sure in areas such as economic reporting, nationalstatistics and fiscal policy. As globalisation proceeds,the range of international principles and standards onissues relating to public management will increase.The OECD has a role in brokering such agreements.

The “best practice” movement – the attempt toimprove by emulating successful techniques fromothers in the same business – is an attractive idea,but potentially misleading if not preceded by a thor-ough analysis of the problems being addressed, anevaluation of the effects and results of previousreform initiatives and a full knowledge of national con-text. Understanding how geographical, historical and

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Policy BriefPublic Sector Modernisation: The Way Forward

cultural factors affect different national settings is apotentially rich source of inter-governmental learning.The elaboration of this approach is a subject for futurework.

As governments move forward in deciding on futurereforms, the case for adopting a whole-of-govern-ment perspective is overwhelming. How these newreforms relate to government’s overall purposes andinterests, to general government rules and pro-cesses, and to the existing process for oversight and

democratic accountability must be thought throughbefore their implementation. ■

For further information

For further information about the OECD’s work onmodernising government please contact:Teresa Curristine,e-mail: teresa.curristine@oecd.org.Tel: (33-1) 45 24 18 52 ■

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Policy BriefPublic Sector Modernisation: The Way Forward

FRANCE

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For further reading

■ OECD (2005), Modernising Government: The Way Forward, Paris, ISBN 9264010491, €30, 236 pages.

■ Policy Briefs on Public Sector Modernisation available at www.oecd.org/publications/policybriefs:

Public Sector Modernisation (2003).

Public Sector Modernisation: Modernising Public Employment (2004).

Public Sector Modernisation: Changing Organisational Structures (2004).

Public Sector Modernisation: Governing for Performance (2004).

Public Sector Modernisation: Open Government (2005).

Public Sector Modernisation: Modernising Accountability and Control (2005).

■ OECD/World Bank Budget Practices and Procedures Database, available at www.oecd.org/gov/budget.

Where to contact us?

The OECD Policy Briefs are prepared by the Public Affairs Division,

Public Affairs and Communications Directorate.

They are published under the responsibility of the Secretary-General.

OECD publications can be securely purchasedfrom the OECD Online Bookshop

www.oecdbookshop.org

The OECD Policy Briefs are available on the OECD’s Internet site

www.oecd.org/publications/Pol_brief