by Graham Scott

1. Lessons from Public Management Reform in New Zealand; are they relevant to developing and transition economies? by Graham Scott Brown Bag Seminar World Bank 25 October 2001

2. Outline • Highlights of what occurred • How the system evolved over the 1990s • Key lessons from experience • Reflections on their relevance to DTEs

3. Elements of New Zealand’s Public Sector Management Reform • Independent central bank • State-owned Enterprise reform • Privatisation • Structural re-organisation of government institutions • Results-based management and financial framework • Redefining roles of ministers, CEOs & central agencies • Crown entity accountability • Fiscal transparency and responsibility

4. Key Legislation • State Enterprises Act • State Sector Act • Public Finance Act • Reserve Bank Act • Crown Research Institutes • Fiscal Responsibility Act • Acts on devolution of many public services

5. Evaluation • More effective budget processes • Better aggregate fiscal control • Better prioritisation • Improved efficiency • Much improved transparency • But 10 years on there are old lessons to remember and new challenges to face

6. Taking Stock 15 Years Later • What to make of the persistent criticisms by commentators of lack of attention to: • capability esp. senior H.R. • ‘collective interest’ of government • public service ethics • transaction costs • retaining senior people

7. Swimming strongly but losing the wave • Mid 1990s agendas were not addressed with vigour • crown entities • networks and cross-cutting issues • Top level HR • output pricing • policy capability • strategic management was only half addressed

8. Relevance to DTEs • Very different conditions but many similar issues: • many problems are similar • many solutions are similar technically • the requirements for successful reform have much in common • (Note:The next 3 slides were prepared 10 years ago in reference to New Zealand and are very familiar in Bank client countries today )

9. Problems with Government Organizations in N.Z. -1985 • “Massive economic waste” in state enterprises • Confused responsibilities of ministers, boards, entity managers and civil servants • Structures that: • suppressed information • encouraged concealed cross-subsidies • created conflicts of interest e.g. policy, regulation, service • weakened performance incentives e.g. lack of focus

10. Problems with Government Organisations(2) • Accounting systems that: • did not measure resource use • created incentives for poor resource use • ignored asset and liability information and management • Control systems that: • destroyed incentives to perform • over-centralised decision-making • Few sanctions for poor performance

11. Requirements for Implementation • Widespread acceptance of the problem • Political commitment to solve it • Leadership from the top of the bureaucracy to empower change agents below • Vision of end-point of reform • Major communications programme • Early results and address real problems • Manage transitional risks • Be prepared to persist for years

12. Developing and Transition Economies • NZ’s reforms responded to specific circumstances • NPM techniques add to the reform tool kit but are not a packaged solution • They can be technically demanding and vulnerable to errors in detailed design and implementation • The conditions for success are site-specific

13. New Zealand’s Lessons of Experience • NPM requires being very clear about roles, relationships, freedoms and accountabilities • Learn from the hard edges of accountability to refine and strengthen principles and procedures • Improve the capability of ministers through information, advice, decision processes and personal development

14. New Zealand Lessons of Experience • Effective specification of performance and reaching agreements requires some sophistication and learning over time • Skills, systems, culture and the softer aspects of good management are critical for high performance • The skills, commitments and values of top management is also critical

15. New Zealand Lessons of Experience • The impulse for excellence must come from within an organisation and cannot be imposed from the outside • Strong policy capability is essential as you cannot manage your way out of a failing policy • Robust strategic management processes are needed to establish clear purpose and direction and knit political and administrative planning into a coherent whole - and to move on to new agendas

16. Why is it so hard to get major reform in many D&TEs? • It isn’t easy anywhere • Corruption & Patronage undermine rational management • Lack of tradition of professionalism in public policy and management • I.E. stable wealth destroying institutions as per Douglass North • Developed countries began reforms without these handicaps

17. Common problems • Wrong diagnosis - wrong solution • Unfocused, over-ambitious plans • Fascination with gimmicks • Leadership wedded to the status quo • Disincentives for making changes • Donor distortions and distractions • No partnership between officials and advisors to effect change

18. Is there an answer? • Creating an enabling environment for ‘technical reforms’ to public management requires action to affect the constitutional relationships and political and bureaucratic cultures • political reform e.g. Thailand constitution • professional civil service • transparency • Donor financed PSMR can influence change in these only at the margin • Take the opportunities that arise - there is no universal best sequence for reform

19. Is there an answer (2) ? • PSM loan conditions are often disappointing - the PSAL basis for supporting reform has somewhat better incentives. • Bank should pull out of a PSAL if top leadership loses commitment to the plan • TA and capacity building can be over emphasized and often do not address the real obstacles - be more selective • In spite of all this some do succeed • Need to Persist over a long time

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21. Evaluation • Big shifts in priorities • Public sector staff numbers halved • Cash requirements for operating departments dropped 3-4% in one year alone • Better control of aggregate expenditure (GE/GDP trend reversed) • Accountability and transparency vastly improved

22. Evaluation • Improvements needed in: • Performance agreements • Human resource management • Incentives • Autonomous organisation accountability • Sharp break in expenditure trends • 6% fall in exp./GDP 1991-1994

23. Generic Features of New Public Management Systems • Clarification of roles • Clear performance objectives • Professional non-partisan civil service • Delegated responsibilities for management • Extensive performance information

24. Generic Features of New Public Management Systems • External scrutiny of the performance • Customer focus • Market-type mechanisms • Organisational forms and functions to strengthen performance and accountability

26. State Enterprise Reform (1) • High costs, poor service and fiscal risk • New law to cover all enterprises • Single objective is to be a successful business • Non commercial functions removed • All subsidies and restrictions removed • Incorporated under same laws as private sector companies • Shares owned by ministers

27. State Enterprise Reform (2) • Experienced business people put on boards • Clear business plans agreed to each year by minister in ‘statement of intent’ • Boards accountability statement put before Parliament each year • Ministry of Finance monitors performance • Independent audit

28. State Sector Act 1988 • Clarified roles and responsibilities of Ministers and Chief Executives • Annual performance agreements • Chief Executive on 5-year performance-based contracts • Chief Executives gained powers to hire, manage performance and set salaries

29. Chief Executives Performance Agreements • Between Ministers on behalf of the Government and Chief Executive of a department • Key Results Areas: commitments to strategic objectives linked to the Government’s strategy • Output requirements in performance agreements • Capability, management requirements and standards in performance agreements

30. Public Finance Act 1989(and Amendments) • Developed the definition of performance • Removed many administrative controls • Made Chief Executives responsible for departmental financial management • Established departmental and government wide reporting requirements • Redefined the appropriation process

31. Government Financial Statements • Annual audited accounts on accrual basis for all public entities • Consolidated statements for whole government entity

32. Fiscal Responsibility Act 1994 • Imposes medium and long term fiscal framework • Budget Policy Statement • Fiscal Strategy Report • Economic and fiscal updates and forecasts • GAAP throughout government • Principles of responsible fiscal policy • Full disclosure before an election

33. Crown Entities • Hospitals, schools, regulation and investigation bodies • More distant from ministers than departments and not commercial SOEs • Can have conflicting objectives, functions and constituencies • Accountability frameworks not properly developed to reflect this complexity and the generic model was not well developed