Forum on Economic Reform
In recent decades the alliance of neoclassical economics and neoliberalism has hijacked the term “economic reform”. By presenting political choices as market necessities, they have subverted public debate about what economic policy changes are possible and are or are not desirable. This venue promotes discussion of economic reform that is not limited to the one ideological point of view.
The Rise and Demise of the New Public Management
Wolfgang Drechsler (University of Tartu and Tallinn University of Technology, Estonia)
© Copyright: Wolfgang Drechsler 2005
Within the public sphere, the most important reform movement of the last quarter of a century has been the New Public Management (NPM). It is of particular interest in the post-autistic economics (pae) context because NPM largely rests on the same ideology and epistemology as standard textbook economics (STE) is based (for my take on this, see Drechsler 2000), and it has had, and still has, similar results. Already more on the defensive within public administration (PA) than STE is within economics, NPM also shows that such major paradigm shifts in theory and policy may actually happen. In addition, it occasionally appears that pae-oriented scholars have overlooked the fact that some features in public management reform, state organization, and the economic interpretation of state functions that they advocate – from “Good Governance” to “efficiency” as a goal in itself – actually belong into the “other camp” and by and large have a disastrous effect on “industrial” and “developing” countries alike, although the consequences for the latter are much more severe.
NPM is the transfer of business and market principles and management techniques from the private into the public sector, symbiotic with and based on a neo-liberal understanding of state and economy. The goal, therefore, is a slim, reduced, minimal state in which any public activity is decreased and, if at all, exercised according to business principles of efficiency. NPM is based on the understanding that all human behavior is always motivated by self-interest and, specifically, profit maximization. Epistemologically, it shares with STE the quantification myth, i.e. that everything relevant can be quantified; qualitative judgments are not necessary. It is popularly denoted by concepts such as project management, flat hierarchies, customer orientation, abolition of career civil service, depolitization, total quality management, and contracting-out.
NPM comes from Anglo-America, and it was strongly pushed by most of the International Finance Institutions (IFI’s) such as the World Bank and the IMF. It originates from the 1980s with their dominance of neo-liberal governments (especially Thatcher and Reagan) and the perceived crisis of the Welfare state, but it came to full fruition in the early 1990s. NPM is part of the neo-classical economic imperialism within the social sciences, i.e. the tendency to approach all questions with neo-classical economic methods.
In advanced PA scholarship itself, especially – but not only – in Europe, NPM is on the defensive by now, if taken as a world view (i.e. an ideology), rather than as one of several useful perspectives for PA reform (i.e. part of a pluralistic approach). The question here is more whether one favors post-NPM (anti-NPM) or post-post-NPM, Weberian-based PA, the latter being the most advanced, and the most sophisticated, and now called the Neo-Weberian State (NWS). What was an option ten years ago is not an option anymore today. I would say that in PA
• in 1995, it was still possible to believe in NPM, although there were the first strong and substantial critiques
• in 2000, NPM was on the defensive, as empirical findings spoke clearly against it as well
• in 2005, NPM is not a viable concept anymore
Yet, in many areas, both of scholarship and of the world, as well as in policy, NPM is very alive and very much kicking. It is, therefore, necessary to look both at the concept itself and at the reasons for its success.
Basic Problems of the New Public Management
As important and, though more rarely, as successful as several NPM-inspired reforms of the public sector might have been and still may be, what one notices first when looking at the public and private spheres is the difference, not the similarity. The state is denoted primarily by its monopoly of power, force, and coercion on one side and its orientation towards the public good, the commonweal or the ben commune, on the other; the business world legitimately focuses on profit maximization. NPM, however, as it has been said, “harvests” the public; it sees no difference between public and private interest. The use of business techniques within the public sphere thus confuses the most basic requirements of any state, particularly of a Democracy, with a liability: regularity, transparency, and due process are simply much more important than low costs and speed.
This low-cost and speed imperative is directly related to the main battle-cry of NPM, efficiency, which is invariably defined much too narrowly in NPM – perhaps, this misunderstanding is even defining, and systemic to, NPM. Efficiency is a relative concept that is based on context and appropriateness: it is efficient to achieve a certain effect with a minimum of resources. But this effect, in the case of the state, is denoted by several auxiliary but necessary conditions such as the ones mentioned above; it is never profit maximization. (It could be argued that most activities carried out by the public sector are there precisely because no direct profit or gain can be made.) If you go for savings and neglect context and even the actual goals, you will not be efficient but rather the ultimate wastrel. (Not for nothing are wastrels and misers considered to be the same type of sinner in Dante’s Hell.) This misunderstanding of the concept of efficiency and the depolitization that comes with it are typical symptoms of technocracy and bureaucracy, which NPM professes to oppose but which, as Eugenie Samier has demonstrated, it rather fosters. (2001) As a result of this insight, we are currently witnessing a fundamental shift of emphasis in PA discourse, and even practice, from efficiency to effectiveness, i.e. in effect from getting something done cheaply to actually accomplishing one’s goal.
But even by the standards of business efficiency, NPM cannot be said to be successful from today’s perspective. We have no empirical evidence that NPM reforms have led to any productivity increase or welfare maximization. At best, one may say that “Several years of attempts and experiences of public management reforms in western Europe and other OECD countries give evidence of relative failure rather than success.” (van Mierlo 1998: 401; see Manning 2000, section “Did it work?” on global evidence along these lines – this is the web-page of the World Bank!) The catchword promises have empirically not been delivered – flat hierarchies are a matter of appropriateness and depend in their suitability entirely on context; taking the citizen merely as customer takes away her participatory rights and duties and thus hollows out the state; the abolition of career civil service will usually let administrative capacity erode; depolitization – and thus de-democratization – leads to the return of the imperial bureaucrat (in its worst sense, disguised as the entrepreneurial bureaucrat – same power, less responsibility); and contracting-out has proven to be excessively expensive and often infringing on core competences of the state as well as on the most basic standards of equity. Total Quality Management is actually not necessarily an NPM concept; it can be just as well used elsewhere and was actually always understood to be part of a well-working PA; project management may frequently work, but as a principle and in the long run, it is more expensive and less responsible than the traditional approach.
But even if we take a more narrow definition of state, if the 1990s have shown anything, it is the remarkable resilience of the state. Indeed, since 1989, we have more states than ever; the breakup of the Soviet Union and Yugoslavia, as well as of Czechoslovakia, are striking European examples. What one thus has seen, at least in part, is the re-emergence not only of statehood, but even of the nation state.
Moreover, the EU, paradigm for times to come in all of Europe, is a state structure, constitutional crisis or not. There is a complex discussion about the legal “stateness” of the EU, but it certainly is a state if one uses a functional definition, which is what matters for PA and which is what is done here. What is more, the EU is a Continental “state”, organized and working along Continental, viz. French and/or German, lines.
Further, the state is not only as capable to act and as necessary as it ever was – the tools that challenge it, such as the new ways of communication and organization, have at the same time immensely increased its powers. Most importantly, key economic and development issues of today, sustainability, dynamic development, innovation, and technology, actually foster the role of the state in economic growth. (See Reinert 1999) The Schumpeterian, innovation-based world cannot be imagined without a capable state actor. If we follow Carlota Perez’ theory of Techno-Economic Paradigm Shifts (2002), then we are now entering the synergy phase of the Information and Communication Technology (ICT) surge – or Kondratieff –, which requires a particularly active state with strong administrative capacity.
And after all, these insights form much of the basis of the EU’s main development program, the Lisbon Stragegy, which puts innovation as the basis of national and EU development, thus absolutely requiring a capable state. Even in light of the current crisis of the EU, as well as of the problems of the Lisbon Strategy’s implementation and ongoing dilution, the centrality of this agenda remains undiminished. One may even say that since it was primarily the fears of the effects of Globalization (and the functional elite’s disregard of those fears) which caused the crisis, the one strategy that addresses the causes and potential sources of those problems is more important than ever. And there is not much of an alternative anywhere – as Ha-Joon Chang says, the “plain fact is that the Neo-Liberal ‘policy reforms’ have not been able to deliver their central promise – namely, economic growth,” and that the “developing” countries grew better under the “bad” policies of 1960-1980. (2002: 128)
Fashion and Rhetoric
Public sector reform is in fashion and no self-respecting government can afford to ignore it. How a fashion is established is one of the most intriguing questions of public policy. Part of the answer lies in policy diffusion brought about by the activities of international officials (whose zeal for administrative reform mysteriously stops short at the door of their own organizations), by meetings of public administrators, academics, and the so-called policy entrepreneurs. (Wright 1997: 8)
the international vocabulary of management reforms carries a definite normative ‘charge’. Within the relevant community of discourse … the assumption has grown that particular things – performance management, TQM … and so on – are progress. To be progressive one has to be seen to be doing things to which these particular labels can be stuck. … Suggesting, for example, that an existing or new activity would be better placed within an enlarged central ministry or as a direct, state-provided service, becomes an uphill struggle – it is ‘beyond the pale’, not the done thing. (Pollitt and Bouckaert 2004: 201)
In PA, the problem is that on the one hand, experts are hired both on the basis of fashionability and of their capacity to suggest change, not to say that things should remain as they are – the main reason why international consultancy has gone strongly for NPM. On the other hand, for politicians it is very practical to turn to experts, because it alleviates them from the pressure to, first, find out what the proper decision should be and, second, to implement possibly unpopular measures. Under the cloak of efficiency, NPM specifically returns decision-making to the allegedly expert bureaucrat, therefore removing political control, and that also means political responsibility, from the political sphere. “It may be convenient for politicians to hide behind the smoke-screen of managerial decision and autonomy, but this hardly adds to the democratic quality of decision-making.” (Wright 1997: 11)
For many a politician, the safest and most attractive-looking move is to follow fashion – and the weaker, the more insecure he is, the more this is the case. (“A statesman is a politician who uses expert advice but does not depend on it.”) These are “the symbolic and legitimacy benefits of management reform. For politicians, these benefits consist partly of being seen to be doing something. … They may gain in reputation – indeed may make a career out of – ‘modernizing’ and ‘streamlining’ activities.” (Pollitt and Bouckaert 2004: 6) Rhetoric is what satisfies the demand; it does not mean that one has to do anything. The problem is only that at some point, in the not too long run, the demise of the state will progress too far, the public will realize that there are delivery problems, and not only public trust will erode even more.
The Weberian Model
The counter-model to NPM, indeed its bête noire, is what is called “Weberian PA”. This label is highly problematic, as NPM presents a caricature of it and thus builds up a paper tiger. Its namesake himself, the great German sociologist and economist Max Weber, did not even particularly like the model of PA so described; he only saw it, rightly, as the most rational and efficient one for his time, and the one towards which PA would tend. That this is by and large still the case 80 years later if one looks at the model rather than at its caricature is something that would have probably surprised him quite a bit. (He also described, almost clairvoyantly, the NPM system, which for him was the most dehumanizing of organizational forms; see Samier 2001.)
Apart from the caricature, for Weber, the most efficient PA was a set of offices in which appointed civil servants operated under the principles of merit selection (impersonality), hierarchy, the division of labor, exclusive employment, career advancement, the written form, and legality. This increase of rationality – his key term – would increase speed, scope, predictability, and cost-effectiveness, as needed for an advanced mass-industrial society. (Weber 1922: esp. 124-130) And although we are well beyond such a world – and in what we may or may not call the “network society” –, these, or almost all of these, are not obsolete criteria, but in fact, they are exceedingly close to most of the recent large-scale principles of PA reform agendas worldwide, including the European Administrative Space’s main standards of reliability and predictability, openness and transparency, accountability, and efficiency and effectiveness (SIGMA 1998: 8-14). Most certainly, they are closer to responsible PA reform than the catchwords of NPM.
Regarding the specter of the ancien régime of traditional bureaucracy, part of almost every era’s and country’s folklore as it seems, it is important to realize that in general, “publicness / public sphere – politics – administration … will remain, in spite of all modernization, a culturally-founded tension. Thus, the critique of bureaucracy will remain permanent as well.” (Laux 1993: 345) Yet, the alternative to bad PA – what “bureaucracy” is in common parlance – is not the abolition of PA, but good PA, one that works for state, society, and economy alike.
“The direct correlation between the capabilities of government and countries’ development … is based on vast historical evidence. The most powerful nations’ strength and ability to create and distribute wealth cannot be explained without acknowledging the central role of public institutions.” (Echebarría 2001: 1) And this is not limited to the “First World”. Ever since the study by Evans and Rauch of 35 “developing” countries (1999), we also know empirically that Weberianism, especially the Merit principle, “significantly enhance[s] prospects of economic growth.” (748) And these findings have been backed up most recently by the fact that Weberianism has worked very well indeed in the transition states of Central and Eastern Europe, in that the ranking of their economic and social success, especially if one looks at Hungary, is not by accident very similar to that of their Weberianness.
As the very last argument, doesn’t information and communication technology (ICT) change this? In a world of e-governance, isn’t Weberianism, new or old, hopelessly obsolete? As all research on the subject matter has shown – although this is perhaps the most fashionable field of research, and thus the one with the worst overall results –, it is not. The written form does not become less real if it takes the form of an e-mail or a website rather than of a letter or physical ledger; in a way, perhaps more so, because it is more accessible. Hierarchy and subsidiarity, control and information flow, but also standardization and the division of labor were never as easy as with ICT. The hierarchy issue is the one that may be debated, but it, too, has several sides, including that it may be communication and not layers that truly matters in a network society, and that the principle of subsidiarity actually requires a hierarchical organizational set-up. (See Drechsler 2005b)
The Neo-Weberian State
• Reaffirmation of the role of the state as the main facilitator of solutions to the new problems of globalization, technological change, shifting demographics, and environmental threat
• Reaffirmation of the role of representative democracy (central, regional, and local) as the legitimating element within the state apparatus
• Reaffirmation of administrative law – suitably modernized – in preserving the basic principles pertaining to the citizen-state relationship, including equality before the law, legal security, and the availability of specialized legal scrutiny of state actions
• Preservation of the idea of a public service with a distinct status, culture, and terms and conditions
• Shift from an internal orientation towards bureaucratic rules towards an external orientation towards meeting citizens’ needs and wishes. The primary route to achieving this is not the employment of market mechanisms (although they may occasionally come in handy) but the creation of a professional culture of quality and service
• Supplementation (not replacement) of the role of representative democracy by a range of devices for consultation with, and direct representation of, citizens’ views (…)
• In the management of resources within government, a modernization of the relevant laws to encourage a greater orientation on the achievements of results rather than merely the correct following of procedure. This is expressed partly in a shift from ex ante to ex post controls, but not a complete abandonment of the former
• A professionalization of the public service, so that the ‘bureaucrat’ becomes not simply an expert in the law relevant to his or her sphere of activity, but also a professional manager, oriented to meeting the needs of his or her citizen/users (99-100)
What I would propose, quite in Weber’s sense, is that this is not only a classification or analytical model, it is also once again a normative one: An administrative system generally works better, of course depending on time and place, the closer it is to the NWS. We have seen why, I think.
Good Governance: The Back Door
This being realized, it is now important to beware of the “thief that cometh in the night.” NPM may be in demise – but what about the currently ever-so-popular concept of Good Governance? Arising, once again, in the 1980s in the International Finance Institutions (IFI’s), this was a positive extrapolation from the negative experiences that these organizations had had in the “developing” countries by observing that financial aid seemed to have had no effects. From this, they deduced an absence of institutions, principles, and structures, the entirety of which was called “Governance” – and “Good Governance” when they worked well. A good idea as such – but the provenience, the same as with NPM, may make us halt, and rightly. (See Doornbos 2004)
By and large, the term “Governance” has by now become a more or less neutral concept that focuses on steering mechanisms in a certain political unit, emphasizing the interaction of state (First), business (Second), and society (Third Sector) players. “Good Governance”, on the other hand, is not at all neutral; rather, it is a normative concept that again embodies a strong value judgment in favor of the retrenchment of the state, which is supposed to yield to Business standards, principles, and – not least – interests. In that sense, “Good Governance” privileges the Second over the First Sector, even in First Sector areas.
The Hatter … had taken his watch out of his pocket, and was looking at it uneasily…. “Two days wrong! … I told you butter wouldn’t suit the works!” he added, looking angrily at the March Hare.
“It was the best butter,” the March Hare meekly replied. (Carroll 1865)
As this implies,
‘Good’, like its superlative, is often a relative term, meaning ‘good of its kind’, or for its standard purpose, whatever that may be. Failing such a reference, the judgment of goodness is indeterminate, and cannot be applied or debated without risk of confusion. [Thus, the March Hare’s statement is right in that the butter was best] as butter goes, no doubt, but not as a mechanical lubricant. (Heath1974: 68 N5)
The same is true, of course, regarding the “Good” in “Good Governance”: It is not good in any general or generalizable sense, but as pertains to what most of the IFI’s in the 1980s thought was good – a perspective that today is probably not shared by many experts anymore, including those within the IFI’s themselves. And indeed, what the respective IFI’s held to be good in the 1980s was neo-liberalism, the Free Market as a world view, and thus the retrenchment of the state.
Within the state sector itself, many of the principles of “Good Governance” are therefore identical with NPM. And while a unitary definition of the concept never existed, not even within the respective individual IFI’s, “good” principles usually encompassed such concepts as transparency, efficiency, participation, responsibility, and market economy, state of law, democracy, and justice. Many of them are indubitably “good” as such, but all of them – except the last one, which is the most abstract – are heavily context-dependent, hinging not only on definition and interpretation, but also on time and place. Critics from the “developing” countries thus often saw and see the demand for “Good Governance” as a form of Neo-Colonialist Imperialism and as part of negative Globalization, since it demands the creation of institutions and structures before economic development, while all wealthy countries of the “West” established them only afterwards.
Inspired by, but in the end independently from, the development discourse, the terms “Governance” and – to a lesser, but still significant degree – “Good Governance” soon traveled into the parlance of general social science and policy discussions. The problem is that the underlying ideology has not fully been realized, and that “Good Governance” is often still thought to be good governance, even by otherwise quite sophisticated Third Sector representatives, especially from activist NGO’s, who view the concept as one that integrates them into First Sector processes. But no good governance, and no NGO participation either, is possible without a well-working government to begin with – and that means, among other things, no weakening of state capacity, and no NPM.
Actually, for a post-mortem of New Public Management (NPM), it may seem a bit early, seeing in how many places one still can get away with it. But in a very classical sense, the head of the movement – to avoid a more rhetorical metaphor from the animal kingdom – seems to have been cut off, or at least to have disappeared. In other words, it has become quite rare during the last five years, and is becoming rarer still, to see articles in the very top journals, or essays and keynote addresses by the very top PA scholars – especially in Europe, but also in the United States –, based on, or implicitly assuming the validity, of NPM.
In that sense, it is legitimate to speak of the demise of NPM, and to already investigate what stopped it – all the more interesting because of the lessons this may present for standard textbook economics (STE). Because after all, NPM was a formidable, genuine paradigm, backed by the self-logic of the profession, the mightiest donors, and most importantly, the zeitgeist, the sense of “coolness” it had, and the catering to prejudices – based as often on genuine grievances as on mere modern folklore – against bureaucracy and the state as such.
Here one can only speculate for the moment and look at the arguments against NPM presented before. One of the key reasons why it could not last is that PA is a very heterogeneous field of scholarship, combining scholars from a variety of backgrounds and a variety of contemporary disciplines, such as law, political science, and public administration proper. It was always possible to receive a chair, for instance, even if one was fundamentally anti-NPM. In addition, the field of PA as a scholarly discipline is quite small, and the pyramid of scientific prestige is very narrow at the top, so a few very senior scholars and a few key publications really can make a difference.
A third reason is that there were many PA scholars and practicioners from pre-NPM times who had never liked the concept, be it for good or – such in the case of Continental lawyers and old-fashioned bureaucrats – for bad reasons. They were only too willing to see it go, and they jumped at possibilities, like the Neo-Weberian State (NWS), to be modern yet not to give up their organizational principles. (This is why it is so important to see the post-post-NPM quality of the NWS, which is neither pre-NPM nor post-NPM in the sense of anti-NPM, and to take the “neo”-elements seriously.)
Before this background, the plain and empiricially observable fact that NPM simply does not work, even by its own strict set of criteria – that it does not deliver, that it does not create greater business efficiency, let alone state effectiveness, that it is expensive, disruptive, and in the end useless, that it is heavily ideological, overly simple, diametrically opposed to economic growth and especially development, and politically charged by a specific perspective, that of neo-liberalism – could have the effect that it toppled as a paradigm.
In comparison to economics, what that means is that what is usually a negative feature of PA, its interdisciplinarity and thus lack of clear method, and its small scope, were actually very beneficial in this case, because NPM never created, on the scholarly level, the kind of institutional rigidity that STE was able to achieve. It was always much more easy to make a career in PA as an anti-NPM scholar than it is as an anti-STE scholar in economics. But still, there were and even are a lot of vested interests in NPM, and thus, it may be encouraging from a Post-Autistic Economics perspective to see that a prevailing paradigm may fall – mainly, in the end, “just” because it does not work.
the years following the Washington Consensus were dominated by reforms based on the idea that less government is better, when the correct idea would have been that better government is better. Privatization, deregulation, decentralization, and simple cessation and abandonment of entire sectors of activity because of insufficient resources, marked the reform agenda. … in more than a few cases, the result was a rickety, disjointed government, defenseless in the face of problems for which it nevertheless remains responsible to society, and whose credibility has been undermined by the ideological devaluation that accompanied reform. (Echebarría 2001: 2, on Latin America)
The key to succesful PA reform, vital as it is not only, but also, for economic growth, as well as, if you will, for good governance, is to strengthen administrative capacity and competence of a responsive and responsible state. The optimal solution for this is a genuine post-post-NPM system, Weberian-based but with the lessons from NPM learned, which – and this is not less right for being a cliché – puts the human person into the center of administrative decision-making. And this is a Neo-Weberian State, with attention to the specific local reality, and with the final goal, as always, of the Good Life in the Good State. (See Drechsler 2003) PA, especially in Europe, is on the best way thither. It remains to be seen when, and how, economics can follow.
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