byGraham Scott

Lessons from Public Management Reform in New Zealand; are they relevant to developing and transition economies?

Brown Bag Seminar

World Bank

25 October 2001

OutlineOutlineOutlineOutline

• Highlights of what occurred

• How the system evolved over the 1990s

• Key lessons from experience

• Reflections on their relevance to DTEs

Elements of New Zealand’s Public Elements of New Zealand’s Public Sector Management ReformSector Management Reform

Elements of New Zealand’s Public Elements of New Zealand’s Public Sector Management ReformSector Management Reform

• Independent central bank• State-owned Enterprise reform• Privatisation• Structural re-organisation of government

institutions• Results-based management and financial framework• Redefining roles of ministers, CEOs & central

agencies• Crown entity accountability• Fiscal transparency and responsibility

Key LegislationKey LegislationKey LegislationKey Legislation

• State Enterprises Act

• State Sector Act

• Public Finance Act

• Reserve Bank Act

• Crown Research Institutes

• Fiscal Responsibility Act

• Acts on devolution of many public services

EvaluationEvaluationEvaluationEvaluation

• More effective budget processes

• Better aggregate fiscal control

• Better prioritisation

• Improved efficiency

• Much improved transparency

• But 10 years on there are old lessons to remember and new challenges to face

Taking Stock 15 Years LaterTaking Stock 15 Years LaterTaking Stock 15 Years LaterTaking Stock 15 Years Later

• What to make of the persistent criticisms by commentators of lack of attention to:– capability esp. senior H.R.

– ‘collective interest’ of government

– public service ethics

– transaction costs

– retaining senior people

Swimming strongly but losing the Swimming strongly but losing the wavewave

Swimming strongly but losing the Swimming strongly but losing the wavewave

• Mid 1990s agendas were not addressed with vigour– crown entities– networks and cross-cutting issues– Top level HR – output pricing– policy capability– strategic management was only half

addressed

Relevance to DTEsRelevance to DTEsRelevance to DTEsRelevance to DTEs

• Very different conditions but many similar issues:–many problems are similar

–many solutions are similar technically

– the requirements for successful reform have much in common

• (Note: The next 3 slides were prepared 10 years ago in reference to New Zealand and are very familiar in

Bank client countries today )

Problems with Government Problems with Government Organizations in N.Z. -1985Organizations in N.Z. -1985Problems with Government Problems with Government Organizations in N.Z. -1985Organizations in N.Z. -1985

• “Massive economic waste” in state enterprises

• Confused responsibilities of ministers, boards, entity managers and civil servants

•Structures that: – suppressed information

– encouraged concealed cross-subsidies

– created conflicts of interest e.g. policy, regulation, service

– weakened performance incentives e.g. lack of focus

Problems with Government Organisations(2)Problems with Government Organisations(2)

• Accounting systems that:

– did not measure resource use

– created incentives for poor resource use

– ignored asset and liability information and management

– destroyed incentives to perform

–over-centralised decision-making

•Few sanctions for poor performance

•Control systems that:

Requirements for ImplementationRequirements for ImplementationRequirements for ImplementationRequirements for Implementation• Widespread acceptance of the problem

• Political commitment to solve it

• Leadership from the top of the bureaucracy to empower change agents below

• Vision of end-point of reform

• Major communications programme

• Early results and address real problems

• Manage transitional risks

• Be prepared to persist for years

Developing and Transition Developing and Transition EconomiesEconomies

Developing and Transition Developing and Transition EconomiesEconomies

• NZ’s reforms responded to specific circumstances

• NPM techniques add to the reform tool kit but are not a packaged solution

• They can be technically demanding and vulnerable to errors in detailed design and implementation

• The conditions for success are site-specific

New Zealand’s Lessons of New Zealand’s Lessons of ExperienceExperience

New Zealand’s Lessons of New Zealand’s Lessons of ExperienceExperience

• NPM requires being very clear about roles, relationships, freedoms and accountabilities

• Learn from the hard edges of accountability to refine and strengthen principles and procedures

• Improve the capability of ministers through information, advice, decision processes and personal development

New Zealand Lessons of ExperienceNew Zealand Lessons of ExperienceNew Zealand Lessons of ExperienceNew Zealand Lessons of Experience

• Effective specification of performance and reaching agreements requires some sophistication and learning over time

• Skills, systems, culture and the softer aspects of good management are critical for high performance

• The skills, commitments and values of top management is also critical

New Zealand Lessons of ExperienceNew Zealand Lessons of ExperienceNew Zealand Lessons of ExperienceNew Zealand Lessons of Experience

• The impulse for excellence must come from within an organisation and cannot be imposed from the outside

• Strong policy capability is essential as you cannot manage your way out of a failing policy

• Robust strategic management processes are needed to establish clear purpose and direction and knit political and administrative planning into a coherent whole - and to move on to new agendas

Why is it so hard to get major Why is it so hard to get major reform in many D&TEs?reform in many D&TEs?

Why is it so hard to get major Why is it so hard to get major reform in many D&TEs?reform in many D&TEs?

• It isn’t easy anywhere

• Corruption & Patronage undermine rational management

• Lack of tradition of professionalism in public policy and management

• I.E. stable wealth destroying institutions as per Douglass North

• Developed countries began reforms without these handicaps

Common problemsCommon problemsCommon problemsCommon problems

• Wrong diagnosis - wrong solution

• Unfocused, over-ambitious plans

• Fascination with gimmicks

• Leadership wedded to the status quo

• Disincentives for making changes

• Donor distortions and distractions

• No partnership between officials and advisors to effect change

Is there an answer?Is there an answer?Is there an answer?Is there an answer?• Creating an enabling environment for ‘technical

reforms’ to public management requires action to affect the constitutional relationships and political and bureaucratic cultures– political reform e.g. Thailand constitution– professional civil service – transparency

• Donor financed PSMR can influence change in these only at the margin

• Take the opportunities that arise - there is no universal best sequence for reform

Is there an answer (2) ?Is there an answer (2) ?Is there an answer (2) ?Is there an answer (2) ?

• PSM loan conditions are often disappointing - the PSAL basis for supporting reform has somewhat better incentives.

• Bank should pull out of a PSAL if top leadership loses commitment to the plan

• TA and capacity building can be over emphasized and often do not address the real obstacles - be more selective

• In spite of all this some do succeed• Need to Persist over a long time

ENDEND ENDEND

EvaluationEvaluationEvaluationEvaluation Big shifts in priorities

Public sector staff numbers halved

Cash requirements for operating departments dropped 3-4% in one year alone

Better control of aggregate expenditure (GE/GDP trend reversed)

Accountability and transparency vastly improved

EvaluationEvaluationEvaluationEvaluation

• Improvements needed in:

– Performance agreements

–Human resource management

– Incentives

–Autonomous organisation accountability

• Sharp break in expenditure trends

– 6% fall in exp./GDP 1991-1994

Generic Features of New Public Generic Features of New Public Management SystemsManagement Systems

Generic Features of New Public Generic Features of New Public Management SystemsManagement Systems

• Clarification of roles

• Clear performance objectives

• Professional non-partisan civil service

• Delegated responsibilities for management

• Extensive performance information

Generic Features of New Public Management SystemsGeneric Features of New Public Management SystemsGeneric Features of New Public Management SystemsGeneric Features of New Public Management Systems

• External scrutiny of the performance

• Customer focus

• Market-type mechanisms

• Organisational forms and functions to strengthen performance and accountability

Net Public Debt as a Percent of GDP

0

10

20

30

40

50

60

1971/72 1975/76 1979/80 1983/84 1987/88 1991/92 1995/96

Years

State Enterprise Reform (1)State Enterprise Reform (1)State Enterprise Reform (1)State Enterprise Reform (1)

• High costs, poor service and fiscal risk

• New law to cover all enterprises

• Single objective is to be a successful business

• Non commercial functions removed

• All subsidies and restrictions removed

• Incorporated under same laws as private sector companies

• Shares owned by ministers

State Enterprise Reform (2)State Enterprise Reform (2)State Enterprise Reform (2)State Enterprise Reform (2)

• Experienced business people put on boards• Clear business plans agreed to each year by

minister in ‘statement of intent’• Boards accountability statement put before

Parliament each year• Ministry of Finance monitors performance• Independent audit

State Sector Act 1988State Sector Act 1988State Sector Act 1988State Sector Act 1988

• Clarified roles and responsibilities of Ministers and Chief Executives

• Annual performance agreements

• Chief Executive on 5-year performance-based contracts

• Chief Executives gained powers to hire, manage performance and set salaries

Chief Executives Performance Chief Executives Performance AgreementsAgreements

Chief Executives Performance Chief Executives Performance AgreementsAgreements

• Between Ministers on behalf of the Government and Chief Executive of a department

• Key Results Areas: commitments to strategic objectives linked to the Government’s strategy

• Output requirements in performance agreements

• Capability, management requirements and standards in performance agreements

Public Finance Act 1989Public Finance Act 1989(and Amendments)(and Amendments)

Public Finance Act 1989Public Finance Act 1989(and Amendments)(and Amendments)

• Developed the definition of performance

• Removed many administrative controls

• Made Chief Executives responsible for departmental financial management

• Established departmental and government wide reporting requirements

• Redefined the appropriation process

Government Financial StatementsGovernment Financial StatementsGovernment Financial StatementsGovernment Financial Statements

• Annual audited accounts on accrual basis for all public entities

• Consolidated statements for whole government entity

Fiscal Responsibility Act 1994Fiscal Responsibility Act 1994Fiscal Responsibility Act 1994Fiscal Responsibility Act 1994

• Imposes medium and long term fiscal framework– Budget Policy Statement

– Fiscal Strategy Report

– Economic and fiscal updates and forecasts

• GAAP throughout government

• Principles of responsible fiscal policy

• Full disclosure before an election

Crown EntitiesCrown EntitiesCrown EntitiesCrown Entities

• Hospitals, schools, regulation and investigation bodies

• More distant from ministers than departments and not commercial SOEs

• Can have conflicting objectives, functions and constituencies

• Accountability frameworks not properly developed to reflect this complexity and the generic model was not well developed