New Public Management

Anwar Shah, Program Leader, Public Sector Governance, World Bank Institute

ashah@worldbank.orgWorkshop on Performace Accountability and Integrity

Mostar, December 4, 2007

Perceived Problems of Government

• Too bureaucratic• Too big• Too inefficient, ineffective• Unaccountable, lack of transparency• corruption

Core of “New Public Management”

• Not what government ought to do.• But how to do it better• Sometimes advanced as the best solution to

government’s key problems– Builds on principal-agent models and new-

institutional economics

Basic Elements of New Public Management Strategies

• Strategic planning• Incentives• Flexibility• Results

Strategic Planning

• From incremental to comprehensive look at government activities

• How: devise a plan for future• Goal: produce consensus of government’s

direction

Incentives

• From authority and control to markets and results

• How:– Create semi-autonomous agencies– Write contracts to structure government work

• Goal: replace top-down control with bottom-up focus on results

Flexibility

• From rule based to results based accountability

• How: employee empowerment, market based incentives

• Goal: free employees to do what they know is right.

Results

• From focus on inputs to results• Defining results but how?

– Outputs: government activity- service delivery– Outcome: impact of government activity

• How: measure, reward results• Goal: fundamentally transform

government’s operations

Performance Results Chain Application in Education

Enrollments, student-teacher ratio, class size

Educational spending by age, sex, urban/rural; spending by level; teachers, staff, facilities, tools, books

Improve quantity, quality, and access to education services

Program objectives Inputs Intermediate inputs

Winners and losers from government programs

Informed citizenry, civic engagement, enhanced international competitiveness

Literacy rates, supply of skilled professionals

Achievement scores, graduation rates, drop-out rates

Outputs Outcomes Impact Reach

Alternative New Public Management Frameworks

• Letting managers manage: operational flexibility and freedom – few rules more discretion

• Making managers manage. Accountability for results. Contracts/work program agreements based upon pre-specified output and performance targets and budgetary allocations new civil service framework

• Subsidiarity principle• Competitive service delivery and benchmarking• Incentives for cost efficiency (including capital

use)

Tools for Results Oriented Management—external, citizen focus

Question for results-oriented management Management tool

The entire process driven

by a citizen focus:

Contract information—what is the final product we must produce and what do we receive to produce such product?

Performance-based budget

How do we know how we are doing in terms of the contract, and in terms of other producers from whom we can learn?

Benchmarking

How much does it cost to produce such product (the complete cost)? How can we produce the product better so we can be sure of meeting and exceeding our contract obligation and receiving rewards?

Activity-Based Costing (and others)

How do we report our results? Full reporting using accrual accounting

How do we manage the new reporting, production, and contract obligations we have, as well as run a citizen friendly administration?

Balanced Scorecard

All these tools are connected to Total Quality Management and such devices used to create a results and participation culture, and work effectively where roles emphasize results.

Civil service paradigm under resulted oriented management

Current culture• Rigid rules• Input controls• Top-down accountability• Low wages and high perks• Life-long and rotating

appointments• Intolerance for

risk/innovation

NPM• Managerial flexibility• Results matter• Bottom-up accountability• Competitive wages but

little else• Contractual and task

specialization• Freedom to fail/succeed

The Practice of New Public Management

• Letting managers manage– New managerialism in USA. Australia– Autonomous agency model in UK– Alternative service delivery framework in

CanadaMaking managers manage– New contractualism in New Zealand– Client’s charter in Malaysia

The Canadian Approach

• Getting Government Right Through Alternate Service Delivery Approach

Alternative Service Delivery FrameworkAlternative Service Delivery Options

PublicInterest

TestRole of

GovernmentTest

JurisdictionalAlignment

Test

BusinessPrinciples

Test

ExternalPartnership

Test

Yes

Yes

Yes

No

No

AbandonAbandon

RealignRealign

PartnerPartner

RestructureRestructure

ImproveImprove

Service SheddingPrivatization - divestiture -

regulatedEmployee Takeover

Public Partnership -devolution - shared services

Line Organization

Contracting Out - franchising -licensing

Government Owned/ContractorOperated

Private, Not-for-profit Agency -self-help - volunteers

Public/Private Partnership

Crown Corporation -departmental corporation

Special Operating AgencyUtility

No

No

Yes

Yes

An Example: Education grant to Encourage Competition and Innovation

Allocation basis among local governments: School age population (ages 5-17)Secondary distribution to providers: Equal per pupil to both public and private schoolsConditions: Universal access to primary and secondary education regardless of parents’income, improvement in educational outcomes. No conditions on the use of grant funds.Penalties: Public censure, reduction of grants fundsIncentives: Retention of savings

The State Under Contract - The New Zealand Model

• Core public sector: culture shift from input controls to output accountability

• The new contractualism: examples - central bank governor, minister of finance

• Separation of policy and implementation; separation of financing/purchasing/provision

• Decentralized management with budgetary flexibility and autonomy

• Commercialization or privatization• Responsible fiscal management

Accountability for Results -Malaysian Approach

• Customer orientation through Client’s Charter (1993): transparency, service standards, measurement, feedback, redress

• Managerial flexibility with output accountability (1990)• Decentralized management• Partnership approach to service delivery; contestable

policy advice• comparative evaluation of service providers• Deregulation, commercialization, privatization and

partnership

Output Orientation under the Malaysian and NZ Models

• Program agreements monitored for achievement in outputs and impacts

• Output budgeting• Activity based costing • capital charging• Accrual accounting• Monitoring government’s net worth

Has NPM worked?

• Big positive impact on government operations in New Zealand, Malaysia and Canada

• Modest positive impact on government operations in UK and Australia

• Little impact in the USA

The Kiwi (NZ) Experience To Date• Remarkable results in performance

improvement: Deficit, Debt, Net worth• The New Contractualism at Local level:

Astonishing turnaround in Papakura• Some difficulties in social services• Political responsibility for bureaucratic

incompetence: The Tragedy at Cave Creek

The Canadian Experience To Date

• Deficit cut from 7.5% of GDP in 1993 to zero in 1998 and sustained surpluses thereafter.

• Number of departments reduced from 38 to 25• Civil service size reduced from 220K to 187K• Increase in spending on social services, justice,

and science and technology• Improvement in service delivery and citizen

satisfaction

Improving on NPM

• Citizen-centered Governance

Genesis of Citizen-centered Governance

Athenian Oath: “We will strive increasingly to quicken the public sense of public duty; That thus…we will transmit this city not only

not less, but greater, better and more beautiful than it was

transmitted to us”.

Key Elements of Citizen Centered Governance Reforms

• Citizens charter– Service standards– Requirements for citizens voice and choice

• Subsidiarity• Citizen oriented output budgeting

– Service delivery outputs and costs– Citizens report card on service delivery performance for

the previous year• Public sector as a purchaser through performance contracts

but not necessarily provider of services• Alternate Service Delivery Framework• Benchmarking

A ROAD MAP FOR CITIZEN-CENTERED GOVERNANCE

Program/ project

Inputs

Activities

Outputs

Reach

Outcomes

Impacts (goals)

2. Administration concerned with outputs.

2. Executive concerned with

outcomes

Legislature

1. Citizens

Clear roles

in the government production

process, 1.Bottom-

up, 2.Focused

on managing for results,

and 3.Evaluated in terms of

those results.

3. E V A L U A T I O N S

2. Outcomecontract

2. Outputcontract

3.Citizenevaluations

3. Internal and external Results and

process Evaluations

Citizen-centered governance: An Example - Switzerland

• Direct democracy provisions• Subsidiarity

CCG- Road Map to Wrecks and Ruins

• Underdeveloped bureaucracy argument• Input control systems not well developed• Corporatization and fragmentation - PMUs• Managerial discretion - opportunities for

abuse of public office for private gain• Fine for production and process tasks but

what about craft and coping organizations?

• Weak potential for contract enforcement• Weaker top-down accountability• Weak legislative accountability under separation

of executive and legislative branches• Moral hazard in social services provision• Political responsibility for bureaucratic

incompetence. The Tragedy at Cave Creek• Moral: look before you leapfrog?

CCG: towards a better tomorrow?

• Improved norms of conduct (Malaysia, UK)• Cultural shift from input controls to output and

accountability (New Zealand, Malaysia)• Encouragement of partnership, competition and risk

taking (Malaysia and Canada Alternative Service Delivery Framework)

• Greater bottom-up accountability• Design of incentives critical• In LDCs strong potential for improving public sector

performance • Moral: Leapfrog or meet a slow death

CCG - Road Map to Wrecks and Ruins or to a Better Tomorrow?

Leapfrog or Meet a Slow Death?• Bottoms up accountability is the key• Design of incentives critical• In LDCs strong potential for improving

public sector performance

Governance Structure: 20th Versus 21st Century

• Unitary• Centralized• Center manages• Bureaucratic• Command and control• Internally dependent• Closed and slow• Intolerance of risk

• Federal / confederal• Globalized & localized• Center leads• Participatory• Responsive and Accountable• Competitive• Open and quick• Freedom to fail/ succeed

Implications

• We keep trying because reform is eternal and– We never fully succeed– We can’t stop trying.

ROME - Road Map to Wrecks and Ruins ?

•Dilbert’s perspectives -This fad will also pass away.