Transcript Principles of State-Owned Enterprise Reform 1985

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
Outline
• Highlights of what occurred
• How the system evolved over the
1990s
• Key lessons from experience
• Reflections on their relevance to
DTEs
Elements of New Zealand’s Public
Sector Management Reform
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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
Key Legislation
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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
Evaluation
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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
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
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
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
)
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 crosssubsidies
– created conflicts of interest e.g.
policy, regulation, service
– weakened performance incentives
e.g. lack of focus
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
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
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 sitespecific
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
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
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
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
Common problems
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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
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
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
END
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
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
Generic Features of New Public
Management Systems
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Clarification of roles
Clear performance objectives
Professional non-partisan civil service
Delegated responsibilities for
management
• Extensive performance information
Generic Features of New Public Management Systems
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External scrutiny of the performance
Customer focus
Market-type mechanisms
Organisational forms and functions to
strengthen performance and
accountability
Net Public Debt as a Percent of GDP
60
50
40
30
20
10
0
1971/72
1975/76
1979/80
1983/84
Years
1987/88
1991/92
1995/96
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
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
State Sector Act 1988
• Clarified roles and responsibilities of
Ministers and Chief Executives
• Annual performance agreements
• Chief Executive on 5-year performancebased contracts
• Chief Executives gained powers to hire,
manage performance and set salaries
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
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
Government Financial Statements
• Annual audited accounts on accrual basis
for all public entities
• Consolidated statements for whole
government entity
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
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