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 Functions Minimal Functions Intermediate Functions Activist Functions Providing pure public goods Defense, Law and order Property rights Macroeconomic management Public health Improving equity Protecting the poor X-axis Addressing externalities Education, environment Regulating Monopoly Overcoming imperfect information Insurance, financial regulation Social Insurance Industrial policy Wealth redistribution

Two Dimensions of Stateness Scope of State Functions Strength of State Institutions

Stateness and Efficiency Scope of State Functions Strength of State Institutions Quadrant IQuadrant II Quadrant IIIQuadrant IV

The Stateness Matrix Scope of State Functions Strength of State Institutions USSR Japan Brazil Sierra Leone United States France Turkey Afghanistan

USSR/Russia Scope of State Functions Strength of State Institutions USSR 1980 Russia 2000 Russia 2010

China Scope of State Functions Strength of State Institutions China 1978 China 2005 China 2011

New Zealand Scope of State Functions Strength of State Institutions

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 Specificity High Quadrant IQuadrant II Quadrant IIIQuadrant IV

Monitorability of Public Sector Outputs Low Transaction volume High Low Specificity High 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

10/2/ A Third Type of Capital Physical Capital Human Capital Social Capital

10/2/ Networks of Trust

10/2/ A Corporate Culture

10/2/ Trust networks critical to flat organization...

10/2/ And to Outsourcing Final Product Design Manufacturing CEO Manufacturing Personnel Marketing Design

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