Introduction
What government should or should not do needs to be of fundamental concern to public managers. In mixed economies there must be some demarcation between those activities that fall in either the public sector or the private sec- tor. The dividing line varies between different nations at different times, but, in the last two decades of the twentieth century, it definitely moved away from the public sector and towards the private sector. This transfer of resources and functions to the private sector obviously affects those who work in the public sector or rely on it in some way. If a public activity is less valued by the com- munity, if activities historically provided by governments are being marketized, the rationales for doing these things are of obvious interest to public managers.
All government activities require organization and staff – the public or civil service. But the operations of the bureaucracy, its theories and principles, are not well understood and there is a curious ambivalence towards it by the citi- zenry. At the same time as there are demands for governments to do more, and to do so more effectively and efficiently, the public services are often seen as parasitic on the private sector. Rather than being seen as an instrument of the people, the public service is regarded with suspicion both for its power and for red tape, delay and inefficiency. At the end of the twentieth century, there seemed to be great uncertainty as to the role of the public sector.
Since the mid-1970s, most OECD nations have undertaken a reassessment of the role of their public sectors. Those who believe in the model of the free market as the basis for a more dynamic economy argue that governments are currently involved in activities which are inappropriate and that the size and role of government must be cut back drastically. The current debate on the role of government mainly concerns its economic aspects: should it provide the goods and services it does, or should some be handed to the private sector?
Should it subsidize or regulate to the extent it does? Such questions also raise the very political matter of how various members of the community perceive and value the things government does.
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Governments have a variety of roles and their full scope is not easily meas- ured. It is no exaggeration to say the public sector affects the entire economy and society. Without a legal framework to enforce contracts, private business activity would not work. Regulations, taxes, permits, infrastructure, standards, conditions of employment all affect decisions made in private markets. The public sector is a large purchaser of goods and services from the private sector.
Government redistributes income from better-off members of the society to those who are not. The public sector has a crucial role to play in determining real living standards which depend for most people on government services – the quality of schools, hospitals, community care, the environment, public transport, law and order, town planning, and welfare services – at least as much as the quality of consumer goods and services.
It is increasingly realized that good government is needed for economic development. As Stiglitz argues (2001, pp. 346–7):
There is a ‘special responsibility’ for government to create the institutional infrastructure that markets require in order to work effectively. At a minimum, this institutional infra- structure includes effective laws and the legal institutions to implement them. If markets are to work effectively, there must be well-established and clearly defined property rights;
there must be effective competition, which requires antitrust enforcement; and there must be confidence in the markets, which means that contracts must be enforced and that antifraud laws must be effective, reflecting widely accepted codes of behavior.
The debate is now not whether governments should have no role, but what that role should be.
There is a broader ideological subtext behind particular arguments about the public sector. The 1980s saw an extensive debate about privatizing public enter- prises, starting in the United Kingdom. This might be regarded as a narrow debate about government business activities, but the positions of the participants were fundamentally determined by how they viewed the public sector in a gen- eral ideological sense. The same broad debate may be behind attempts to reform public sector management and to control spending better. The trend towards a market-based public sector may reflect concerns about the role of government, as much as worries about the efficiency and effectiveness of the bureaucratic model (Chapter 2).
The 1980s debate over the public sector became, at times, an intense ideo- logical struggle in some countries, one in which the last vestiges of socialism were to be rooted out by new Right governments (Isaac-Henry, Painter and Barnes, 1997). Opposition to change was no less intense as public sector work- ers, unions and supporters tried to maintain government activities at their pre- vious levels. The Reagan and Thatcher governments of the 1980s led the way, but were only part of sustained theoretical and practical attacks on the com- mand or bureaucratic part of society in favour of the market principle.
However, as the reforms continued through changes of government it became clear that party-political considerations were only a minor part of the public 72 Public Management and Administration
management reforms. It is noteworthy that successive governments did not lead a return to traditional bureaucratic administration. As Farnham argues in rela- tion to the Blair government in the UK, ‘New Labour thus appears to be build- ing on the New Right legacy and has no wish to return to former systems of traditional public administration or high public spending’ (1999, p. 252). Once reform started, in most countries it continued even when new governments were elected from either Right or Left.
The attacks on the scale, scope and methods of the public sector gave cre- dence to measures to reduce government and change its management.
Governments wishing to cut the public sector have found a responsive chord from a community seemingly disillusioned with bureaucracy, even if it wanted no cuts in services. Responses in polls to questions as to why the US federal government is distrusted stress poor performance rather than that governments are doing too much; more than 80 per cent say government is wasteful and inef- ficient (Nye, 1997, p. 6). To be fair, this feeling of anti-governmentalism should be extended to parties and political processes more generally than the public services alone (Nye, Zelikow and King, 1997). However, the lack of support for bureaucracies and public servants meant that these were useful scapegoats for governmental problems; any moves to reduce the size of government or the power of the bureaucracy face little effective opposition.
As will be seen, there are various theories for deciding which functions should be provided by government. Some argue that only goods or services that cannot be provided by markets should be provided by governments. Others argue, however, that as government is the embodiment of the will of the peo- ple as expressed through the political process, there should be no limits to its scope.
The need for a public sector
By convention, the economy is divided between the private and public sectors.
The public sector is defined by one author as ‘engaged in providing services (and in some cases goods) whose scope and variety are determined not by the direct wishes of the consumers, but by the decision of government bodies, that is, in a democracy, by the representatives of the citizens’ (Hicks, 1958, p. 1). This defi- nition does not capture the full scope of public sector activity, but it does contain the key point that the public sector is the result of public, political decision- making, rather than involving market processes. Governments are command- based – they can force people to comply – whereas markets are voluntary.
Stiglitz (1989, p. 21) argues there are two distinguishing features of govern- ment, or the State:
The State is the one organization membership of which is universal, and the State has powers of compulsion not given to other economic organizations. Individuals choose to be members of clubs, they choose to buy stock in a corporation, they choose to work for The Role of Government 73
one firm or another . … But by and large, individuals do not view the country in which they live to be a matter of choice, and, having chosen to live in a particular country, they become subject to the State. The fact that membership is compulsory gives the State a power of compulsion which other organizations do not have. … More generally, all trans- actions between parties other than the State (other than theft and ‘accidents’) are voluntary.
Stiglitz goes on to argue (p. 22) that while governments have this power of coercion, in democratic societies ‘government relies for the most part on vol- untary compliance’. Despite this, it is universal membership and compulsion that makes government fundamentally different from the private sector. The private sector does have ways of forcing compliance, with contracts, for exam- ple, but in legal activities the allowable force is through the legal system pro- vided by government. Even privately provided mediation or arbitration relies, in the end, on the government legal system.
However, the question must be asked if there is any need for a public sector at all. If the normal mechanism of exchange is through the market, what are the possible functions of government? According to Musgrave and Musgrave (1989, pp. 5–6), the prevalence of government ‘may reflect the presence of political and social ideologies which depart from the premisses of consumer choice and decentralised decision making’. Also, ‘the market mechanism alone cannot perform all economic functions’ and, without government, markets will not work for the following reasons:
(i) There must be no obstacles to free entry [to markets] and consumers and producers must have full market knowledge. Government regulation or other measures may be needed to secure these conditions. (ii) They may also be needed where competition is inefficient due to decreasing cost. (iii) More generally, the contractual arrangements and exchanges needed for market operation cannot exist without the protection and enforce- ment of a governmentally provided legal structure. (iv) … Problems of ‘externalities’.
arise which lead to ‘market failure’ and require solution through the public sector. … (v) Social values may require adjustments in the distribution of income and wealth which results from the market system and from the transmission of property rights through inheritance. (vi) The market system … does not necessarily bring high employment, price stability, and the socially-desired rate of economic growth. Public policy is needed to secure these objectives. (vii) Public and private points of view on the rate of discount used in the valuation of future (relative to present) consumption may differ.
These points provide some rationale for government intervention, particularly the notion that markets do not work well under all circumstances. Markets are undoubtedly powerful and can provide a system of allocation and distribution for many goods and services, without the intervention of governments. But markets cannot do everything.
Although the private and public sectors are usually seen as quite separate, the division of the economy into two mutually exclusive sectors may be artifi- cial (McCraw, 1986). There is so much interaction between the two that setting up a strict dichotomy is rather misleading. It could be argued that the modern capitalist economy is a ‘thoroughly mixed system in which public and private sector forces interact in an integral fashion’ and the economic system is ‘neither 74 Public Management and Administration
public nor private, but involves a mix of both sectors’ (Musgrave and Musgrave, 1989, p. 4). The private sector relies on government for infrastructure and the system of laws, without which markets could not operate. Government relies on the private sector for the production and supply of goods and services, and for tax revenue. The interaction between sectors is more subtle than simply seeing them as separate and necessarily antagonistic.
Private and public management
The argument for a specialized form of management in the public sector rests on there being sufficient differences from the private sector and its manage- ment. At a time in which theories, techniques and working conditions in gov- ernment clearly derive from the private sector, the question of difference becomes particularly important. There are several reasons why the two sectors are not the same, and cannot be the same.
First, in a way not characteristic of the private sector, public sector decisions may be coercive. Citizens can be forced to comply with decisions, pay taxes, have their property compulsorily acquired, and are subject to sanctions deriv- ing in the end from the coercive powers of the state. Not all public activities are coercive, but those that are need to be carried out more carefully than in the pri- vate sector. Private enterprises have more freedom to be arbitrary. They can charge different customers different prices, they can refuse to deal with them, they can ignore normal procedures.
Secondly, the public sector has different forms of accountability from the private sector. While company management is theoretically accountable to shareholders, the public employee is accountable to the political leadership, par- liaments, the public, and to various parts of the judicial system. Accountability is also a problem in the private sector (Chapter 13). It is, however, likely to be less certain and more uneven in its application in the public sector.
Thirdly, the public service manager must cope with an outside agendalargely set by the political leadership. This is different from an organization where the shared motivation at all levels of the organization is to make money. The pres- ence of political authority ‘is more than simply an influence on public strategic management; it is a defining characteristic’ (Bozeman and Straussman, 1990, p. 214). Politicians may require action that detracts from good management practice, can change their minds frequently and require administrative actions to be taken for quite blatant political reasons. Having to follow a political agenda and a sometimes unresponsive or even hostile administration can lead to conflict between the bureaucracy and the politicians. This is not to say that working to a political agenda is any less rational than is a money-making one. It is that the political agenda makes management in the public sector different. Having a large part of the agenda imposed by politicians reduces the scope of action of a manager.
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Fourthly, the public sector has inherent difficulties in measuring outputor efficiency in production. It lacks ‘bottom-line’ criteria analogous to profit in the private sector. In government there is rarely agreement on goals or measures of them, nor can it be assumed that everyone in the organization will abide by either. The difficulty of measuring performance in the public sector, whether of individuals, groups or whole organizations, permeates management as a whole.
Measurement and evaluation are possible in the public sector, but are more dif- ficult and perhaps less meaningful. The lack of suitable measurement may enable parts of the public service to perform no useful function and to evade scrutiny. This might occur in the private sector too, but is much less likely.
Finally, the public sector’s sheer size and diversitymake any control or coor- dination difficult. Somehow governments and their advisers try to coordinate the activities of the largest and most complex part of society’s activities.
Coordination must be political and is never easy.
There are major differences between the sectors. The question is whether these differences between them are, first, enough to require a specific form of management and, second, to require a traditional administrative model and not a managerial model. On the first point, it must be concluded that the public sec- tor is sufficiently different and needs its own form of management, not just that borrowed from the private sector. Flynn, for example, argues that managing public services is different from managing services in the private sector (1997, p. 12). Allison, too, argues ‘public and private management are at least as dif- ferent as they are similar, and … the differences are more important than the similarities’; further, ‘the notion that there is any sufficient body of private management practices and skills that can be transferred directly to public man- agement tasks in a way that produces significant improvements is wrong’
(1982, p. 29). There may be advantages in adapting and using some practices pioneered in the private sector, but the basic task is different in each sector.
However, the second point does not necessarily follow. Even if it is argued that the sectors are different, this does not mean that the traditional adminis- trative model is the only valid way of managing in the public sector (see Ranson and Stewart, 1994, pp. 270–1). The development of public manage- ment is a recognition that the task of public servants is now managerial and not administrative, that a form of management can be developed bearing in mind the differences between the sectors.
‘Government’ and ‘governance’
There is an important distinction to be made between ‘government’ and ‘gov- ernance’. Government is the institution itself, where governance is a broader concept describing forms of governing which are not necessarily in the hands of the formal government. Corporate governance, for example, refers to how the private sector structures its internal mechanisms to provide for accountability to 76 Public Management and Administration
its stakeholders; while government may be involved in this through the com- pany law, there are aspects which it does not control. As Keohane and Nye argue (2000, p. 12):
By governance, we mean the processes and institutions, both formal and informal, that guide and restrain the collective activities of a group. Government is the subset that acts with authority and creates formal obligations. Governance need not necessarily be con- ducted exclusively by governments. Private firms, associations of firms, nongovernmen- tal organizations (NGOs), and associations of NGOs all engage in it, often in association with governmental bodies, to create governance; sometimes without governmental authority.
They also argue that, with globalization, governance is becoming more diffuse and that instead of governments having a monopoly over issues of governance there are many players. As they argue (2000, p. 37):
Rulemaking and rule interpretation in global governance have become pluralised. Rules are no longer a matter simply for states or intergovernmental organizations. Private firms, NGOs, subunits of governments, and the transnational and transgovernmental networks that result, all play a role, typically with central state authorities and intergovernmental organizations. As a result, any emerging pattern of governance will have to be networked rather than hierarchical and must have minimal rather than highly ambitious objectives.
The concept of governance is appropriate for public management as opposed to the narrower concept of government. Good governance tries to do more than
‘mere efficient management of economic and financial resources, or particular public services; it is also a broad reform strategy to strengthen the institutions of civil society, and make government more open, responsive, accountable and democratic’ (Minogue, Polidano and Hulme, 1998, p. 6). The best way of managing a particular policy issue may be to work with in partnership with the private sector, or privatize a function or by use of regulation. Direct provision by government and the bureaucracy is not precluded, it rather depends on the circumstances where the best form of governance might be found.
Market failure as the basis for public policy
Although the sale of goods and services is the basis of a capitalist society, there are some circumstances where markets may not provide all the goods and serv- ices that are desired, or may do so in ways which adversely affect the society as a whole. The market mechanism alone cannot perform all economic functions;
public policy is needed ‘to guide, correct, and supplement it in certain respects’
(Musgrave and Musgrave, 1989, p. 5). Market failure is one way in which gov- ernment action can be justified (Walsh, 1995, pp. 6–12). Theories and models can be developed which state that government action should only occur where markets fail, providing governments would do a better job in those particular circumstances. Some of those goods or services which markets may not provide The Role of Government 77