Transcript The Scope of State Functions

A Primer on Public Management
Center for Democracy, Development, amd
the Rule of Law
Summer Fellows Program
“It’s not the business plan but the
execution”
--attributed to Goldman Sachs
X-axis
Industrial policy
Wealth redistribution
Activist Functions
Addressing externalities
Education, environment
Regulating Monopoly
Overcoming imperfect information
Insurance, financial regulation
Social Insurance
Intermediate Functions
Providing pure public goods
Defense, Law and order
Property rights
Macroeconomic management
Public health
Improving equity
Protecting the poor
Minimal Functions
The Scope of State Functions
Strength of State Institutions
Two Dimensions of Stateness
Scope of State Functions
Strength of State Institutions
Stateness and Efficiency
Quadrant I
Quadrant III
Scope of State Functions
Quadrant II
Quadrant IV
Strength of State Institutions
The Stateness Matrix
France
United States
Japan
USSR
Turkey
Brazil
Sierra Leone
Afghanistan
Scope of State Functions
Strength of State Institutions
USSR/Russia
USSR 1980
Russia 2010
Russia 2000
Scope of State Functions
Strength of State Institutions
China
China 2011
China
2005
Scope of State Functions
China
1978
Strength of State Institutions
New Zealand
2000
1990
Scope of State Functions
1981
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
President
Legislature
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
High
Public Sector Outputs
Quadrant II
Quadrant III
Quadrant IV
Low
Specificity
Quadrant I
Low
Transaction volume
High
Specificity
High
Monitorability of Public Sector Outputs
Aircraft maintenance
Telecoms
Central banking
Railroads
Highway maintenance
Foreign affairs
Court systems
Primary school teaching
Low
University education
Low
Preventative medicine
Guidance counseling
Transaction volume
High
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
A Third Type of Capital
Physical
Capital
Human
Capital
Social
Capital
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Networks of Trust
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A Corporate Culture
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Trust networks critical to flat
organization...
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And to Outsourcing
CEO
Design
Personnel
Design
Manufacturing
Manufacturing
Marketing
Final Product
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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