Demos Quarterly

Issue 7/1995 Demos Quarterly is published by

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Contents

OVERVIEWS Governing by cultures 1 Perri 6 Seven maxims on the future of government 27 Geoff Mulgan Suspicious minds: public distrust of government 37 Simon Atkinson The limits of government 49 Sir Roger Douglas States of inertia: are governments slaves to history? 55 Richard Rose How government makes community 71 Steven Rathgeb Smith

GLOBALISATION Global watch: retooling governments 79 Derry Ormond and Daniel Blume The paradox of power: globalisation and national 93 government David Goldblatt Public services on the world markets 99 Helen Margetts and Patrick Dunleavy Demos 7/1995

SERVICES More to learn from business 109 James Woudhuysen Back to direct government? 127 Diana Leat Close encounters of the digital kind 139 William Heath

TOOLKIT Riding tandem: the case for co-governance 145 Jan Kooiman and Martijn van Vliet Regulation: an owner’s manual 153 Matthew Bishop Ethos in government: the ideas of Norman Strauss 163 Geoff Mulgan The grey and the good: government ethics around the world 167 Ben Jupp Governing by numbers 175 Tom Bentley and Rebecca Stanley

REGULARS Vital statistics 185 Rebecca Stanley and Tom Bentley Graphic government 195 Governing forms 199 Ruling ideas: books about government 201 Signs of the times 213 Media watch 215 Demos projects 219 iv Demos Missionary government

Over the last 15 Years, governments around the world have been engaged in frenetic reform – focusing on competition and incentives, indicators and new technologies. Often these reforms have sharply improved performance. But in many areas they have now reached the limits of their effectiveness. In part that is because they have failed to understand the complexity and range of human motivations – which financial incentives alone cannot address. In part it is because, as recent experience has shown, government cannot be effective unless both the public and its own employees genuinely understand and trust in its core ethos. In this collection, we argue that in the next phase of reform governments need to pay far more attention to these questions of culture. For, despite fashionable warnings that governments’ powers are in irre- trievable decline, they can achieve much – but usually only where they are able to influence the cultures of their employees, their beneficiaries and their citizens. For example, it is possible to reduce crime and the fear of crime – but not without public involvement, and not by relying on changing the ‘tariffs’ of crime by manipulating sentencing policy. Education can be improved, but only by improving pupils’ motivations and finding ways to influence parents to invest more time and energy. People can become healthier, but only if top-down programmes are accompanied by changes in lifestyle. The environment can be improved, but only if taxes and regulations are matched by citizens taking responsibility for waste reduction or energy efficiency.

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Some politicians understand this, albeit from very different per- spectives. In the USA, both New Gingrich and Bill Clinton have talked about government’s mission to change the cultures of single mothers or the unemployed. Here in Britain Shadow Chancellor Gordon Brown has picked up Francis Fukuyama’s ideas about building a high trust economic culture among firms, and Thatcherism was in important respects a project to change the cultures of family life, enterprise, bureaucracy and national pride – with success in some fields and failure in others. The next phase of ‘missionary government’ requires us to take their ideas further. It requires us to understand that governments cannot function well without missions to influence cultures. In this Demos Quarterly, we therefore examine precisely what this means. We look at the impact of globalisation and of technology; at the lessons to be learned from business; and at how governments now need to work in partnership with other agencies and other governments. In the past culture was something invoked to explain why policies failed. In the next decade and beyond, it will be both a central goal and a key tool. Recent reformers concentrated on governing by numbers. The challenge today is to learn how to govern by cultures.

vi Demos Governing by cultures Perri 6

‘Economics is the method, but the aim is to change the soul’ (Margaret Thatcher)

By the 1990s the British public sector spent over 40% of GDP (more than 4 times as much as it did a century ago) and employed the equivalent of over 4 million full-time staff, again vastly more than a century ago. This vast engine presides over many areas of life, from policing to families, money to water quality. Yet, when asked about its role, most people still think of managing the economy, control of exchange rates and interest rates, government borrowing and levels of taxation. The big debates about government in the twentieth century – ‘How big should government be, as a proportion of national wealth? By how much should it abridge liberty?’ – have all been conducted under the assumption that the overriding goals were to increase national economic wealth and welfare. By contrast, until at the earliest the nineteenth century, the tools of government that fascinated politicians, commentators and many citizens were those that enhanced the capacity of the nation state in war and imperial aggrandisement. Then as now, the big debates – the national siege economy and later the imperial preference versus free

Perri 6 is Research Director at Demos.

Demos 1 Demos 7/1995 trade, the costs of maintaining a global naval and military capacity – were about alternative means of achieving national power. From the perspective of the twenty first century, the economistic view of government’s powers in the twentieth century may come to seem as obsolete as the military and imperial view of earlier centuries. We may come to see the role of government in far broader ways, and to see the narrowness of the current and largely economistic conventional wisdom, which holds that the global integration of markets has drastically diminished the power of governments and blunted the tools at its disposal. Government is most effective when is has a clear mission. The mission of governments at least in western Europe and north America in the twenty first century must be to facilite the development of high trust of self-organisation. Its service provision and regulation, its own culture and its size should be derived from that mission.

Size isn’t everything For two centuries, the debate about government that has fired the greatest passion has been the one about how big it should be as a proportion of all economic activity. Directly related have been the question about how many services it should provide and which should be left for private action. These questions are still at the heart of the concerns of Libertarian Right politicians like Newt Gingrich in the USA1 and Alan Duncan in Britain,2 and of thinkers on the traditional Social Democratic Left like J. Kenneth Galbraith in the USA3 or even moderate centre Left politicians like Frank Field in Britain.4 These competing visions and claims for radical re-sizing will remain part of political debate. Yet it has become clear in the wake of the collapse of communism, the meltdown of the ‘Swedish model’ and the collapse of the 1981–3 Mitterand experiment on the one hand, and the chronic failures of the US to sustain both an effective and affordable system of either state education or private health care or even law and order, that size isn’t everything. Clearly, a state that is too big or too small overall doesn’t work, but there is a range within which states as diverse as Japan and the Netherlands are perfectly viable. The size of the state, in our case,

2 Demos Governing by cultures depends partly on the proportion of elderly in the population and the nature of its social insurance system. The prospects for Republican radicalism about the size of the federal state in the USA look bleak, and here, a divided Conservative Party and an increasingly centrist Labour Party suggest that large-scale shifts in either direction in the crude volume of state activity may be off the agenda for some years. Although a minority on the Left continue to imagine that government can achieve anything if it has the will and the popular support, and a minority on the intellectual Right still believe that all the tools available to government are blunt, recent practical reform efforts have been dominated by more pragmatic attempts to improve the tools and scale up the capacities of government to use them. The ‘new public management’ has attracted governments from the left and the Right across the world. The advocates of these ideas stressed that they were borrowing ‘re-engineering’and ‘quality management’from business and trying to adapt them for public sector contexts. Following American public management gurus, David Osborne and Ted Gaebler,5 let us call this the ‘Reinvention Programme’ and its proponents,‘the Reinventers’. In almost every OECD country, the Reinventers have brought about upheavals in the civil service in at least the following ways:

splitting policy-making and purchasing from implementation and service provision; re-designing regulation of service providers; increased use of regulatory agencies; decentralisation of responsibility for delivery; hiving-off of service delivery responsibilities to dedicated agencies; formalisation of contractual relationships within the public sector and between the state and private suppliers; greater managerial or purchasing authority and monitoring; increased roles for various kinds of performance measurement, monitoring and audit, not least by central agencies over local government and other sub-national public agencies such as the police, health and training bodies;

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identifying and building up the importance of specific service standards: for example, the Citizen’s Charters; and the use of incentives linked to performance measurement as the main instruments for changing behaviour – which I shall call ‘the incentives paradigm’.

The Programme was adopted with equal vigour in the 1980s by both the Centre Left (most notably by Al Gore and Bill Clinton’s Democrats,6 and in the leadership of Australian and New Zealand Labour parties) and the Centre Right (as in the case of the UK). Although the Centre Left Reinventers stressed partnerships with the private sector and citizens and deregulating to enable public action at the lowest level, and the Centre Right laid their emphasis on having- off and contracting-out subject to greater central state surveillance, the scope of agreement was substantial. The slogan of both Centre Left and Centre Right was that governments of all levels should be ‘enabling authorities’ that ‘empowered’ citizens, producers and consumers a like. At first, the results looked dramatic. There were major improvements in efficiency and effectiveness. But the time is now ripe for a more sober appraisal of what was achieved.

Evaluating the revolution The Reinventers were partly right and partly wrong. They succeeded in improving how government does whatever it does. Health care, the issuing of driving licences and the administration of benefits are probably better managed than ever before. Yet this was never going to be enough. Both the Libertarian Right and the Social Democratic Left justly criticised the Reinventers for failing to understand that reforming government is not just a matter of improving the machinery, but of more basic questions of political goals and purposes. Equally fundamentally the Reinvention Programme, by focusing on the internal workings of government, ignored the wider cultural consequences of what government does, and, when it did address culture, did so solely in terms of financial incentives.

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I shall argue that this cultural deficiency is crucial to understanding how governments can evolve in the future.But,first,what is the legacy of the Reinventers?

The legacies of Reinvention Five sets of problems have been left behind by these programmes of institutional reform. The first is distrust, or falling public confidence in the integrity of public services. There is now ample evidence, summarised by Simon Atkinson in this Quarterly, of falling trust in local and national government, in the judiciary and police, even though trust levels for some groups, such as GPs, have remained high. Second, there are related problems of ethos. Certainly, public concern about the possibility that Reinvention has eroded a valuable ‘public service ethic’ is one of the factors behind public distrust. But equally important is inertia: the ethos of many government bureaucracies has survived almost unchanged. Indeed, some Reinvention measures have reinforced the caution and rigid hierarchy classically associated with government bureaucracies. Giving new powers to financial auditors and reinforcing the authority of financial managers often creates a culture of risk aver- sion. In most countries, the promises of bonfires of government manuals, books of regulations and granting real discretion to managers to inno- vate and find the best way of achieving policy goals,have amounted to little. Performance-related pay may have spurred some to greater effort, but by concentrating on individual achievement, it has also tended to undermine the team spirit on which effective organisational culture depends. The third problem is one of expectations: as James Woudhuysen argues in this Quarterly, citizens expect more from government, and more opportunities to influence government decisions, yet government services are clearly not meeting the standards expected. Reinvention policies (like the Citizens’ Charters) have often done more to fuel expectations than to satisfy them. Fourth, there is a problem of steerage. The new models have brought more complex problems of steerage, and not only amongst the flotilla

Demos 5 Demos 7/1995 of executive agencies, quangos and regulatory bodies. Drawing on contemporary continental European experience, Kooiman and van Vliet argue that what they call ‘co-governance’ has made for greater complexity in the governance of many problems, calling at once for greater humility in government about what it can solve alone and greater ambi- tion in its external relationships. Effective steerage now requires governments to work together more than ever before. But when this is seen by citizens as eroding national sovereignty, it can contribute to problems of trust. The fifth problem is one of controlling transaction costs. The Rein- vention Programme has made some aspects of government much costlier to carry out. All the writing of contracts, monitoring and surveillance of contractors, the audit, regulation and performance measurement is expensive. As Margetts and Dunleavy stress, governments now buy services from service providers that operate globally and not always in highly competitive markets, making it more difficult for any single government to control and monitor their operations.

The new operating environment Few of the reformers have offered very convincing ideas about how to tackle these problems. But the difficulties of managing governance are also being exacerbated by a rapidly changing environment.

Technology The new communications and information technologies are, as William Heath shows in this Quarterly, improving governments’ capacities to act and at the same time empowering citizens and organisations to escape the surveillance of the state. The smart card, the Inter-Net, the fibre-optic cable, the integrated cable television, telephone, and electric power service, present new tools to help governments but also new problems. They have created opportunities for individuals and organisations to outstrip the competence of public agencies to control or survey them. Many systems permit data-set matching which can threaten the rights of citizens to privacy and confidentiality of personal information. The power of the

6 Demos Governing by cultures

‘delete’ key over the waste paper bin for the fraudster looking to cover his tracks and the reach of the modern for the hacker are as important as the anonymity of the white supremacist or pornographer on the InterNet escaping the short and technologically arthritic arm of the law.

Globalisation The globalisation of economic activity, of governance problems, of information flows and of organisations that provide public services creates some new problems even as it solves old ones. New kinds of information and greater efficiency savings from global competition may enhance the performance of government, but national governments face grave difficulties in controlling or regulating activity that transcends their borders. They face this particularly acutely when they purchase goods and services from far larger providers.

Values A third dimension of change is in values. Governments must now deal with a more fragmented, individualistic, demanding and undeferential public than previously. Mistakes are immediately amplified by the media and legitimacy has to be won rather than assumed.

After Reinvention: culture is the agenda Where, then, should reformers of the machinery of governments look next? One option is simply to go further along the current paths, with the more determined introduction of ‘re-engineering’methods into government. But this will do little to address the problems and the challenges of the new environment. Instead governments in the late 1990s and the next century must start where Reinvention left off. They must be agents of change in culture – or rather, in four cultures, namely, those of:

the nexus of agencies that now make up public sector itself; the network of organisations that governments steer, regulate, purchase from,influence,make grants to,award tax concessions to, etc.;

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the users of public services; and the wider public.

(I shall not enter the intellectual swamp of trying to define the term ‘culture’, Sufficient for the present purpose is the general idea that culture has to do with the basic beliefs, attitudes and behaviours of individuals. These govern their willingness to co-operate and compete, organise, and operate generally in a law-governed society.) The wider culture is now the centre of the agenda for government reform,because we now know from the findings of a wide range of recent research that culture is perhaps the most important determinant of a combination of long run economic success and social cohesion.7 The mistake of both statist Left and laissez-faire Right was to ignore this fact. In the long run, the societies that show the greatest economic dynamism and viable social cohesion are the ones where a culture of high trust enables individuals to create organisations readily, to take personal responsibility but also to sustain long-term co-operative relations in trading with and employing people who are strangers to them. The Libertarian Right failed to understand this because much of their intellectual paradigm was drawn from neo-classical and Austrian economics. It is to economic sociology, business studies, and political science that we need to look for this crucial insight. Creating and sustaining the cultural resources necessary to make privately based economic dynamism and social viability possible is the central task for a society. In other words the most important task of government is to make it possible for a society to organise itself. In traditional thinking about public administration, culture was something marginal, soft, lacking in rigour, intangible, hardly worth analysing. Government dealt in hard facts, with clear rules, using hard intellectual disciplines like economics and money accounting. The dominant organisational element was the Treasury and the institutional configuration for which it stood was the paradigm of sound government. If the word ‘culture’ was uttered in the same breath as ‘policy’, it usually meant opera houses, galleries, and state patronage of the arts. A government policy for the wider culture was either denounced as so

8 Demos Governing by cultures ambitious that only a totalitarian regime would attempt it, or else doomed to failure because government has neither the tools nor the capacities to influence culture. In the 1990s, this understanding is being turned on its head. It is precisely the ‘hard’, ‘objective’ tasks of macro-economic management, of maintaining low unemployment and a stable international political order based upon the balance of power, that governments have per- formed so poorly at. We have begun to recognise that government is, willy-nilly, always a powerful influence on the wider culture. Taking up two fifths of the economy, being the largest employer, government is necessarily a key player in many cultures. For example, policies toward local government such as capping can affect local cultures of civic pride and responsibility, perhaps by undermining willingness to stand for election as a councillor. Again, policies toward the benefit system, such as removing income support from 16–17 year olds, might have had the positive cultural effect of reinforcing families by throwing teenagers back on their parents for support, but they may also have contributed to family breakdown and to sub-cultures of teenage disaffection. Some have argued that for government to have an explicit cultural policy is illegitimate.Yet government cannot help but think of its policies in cultural terms, because attending to culture is a central part of understanding the consequences, intended or otherwise, of public policy. Indeed, a government with no vision of what impact it would like to bring about on the cultures of its own bureaucracy, the networks of organisations around it, the users of its services, or the wider public, is almost certain to be an ineffective one.We have seen in many countries during the 1980s and 1990s that, without a clear understanding of how cultures can be influenced, governments fail. Three examples suffice to make the point. The 1988 Housing Act failed to stimulate private renting to the degree that the government hoped, because the legislation did too little to build relations of trust between potential landlords and tenants; government exhortation campaigns to young people to abjure hard drugs failed because they spoke the language of officialdom and parental authority to a youth culture that had no respect for such things; the tax advantages provided on TESSAs and

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PEPs have done little to stimulate new savings, but merely induced those already saving to move their accumulated wealth from less to more tax efficient forms. Using government to bring about cultural change requires more than the simple withdrawal of the state combined with a few incentives for firms and individuals. Cultural change is a much more long term and complex task than was understood by those who spoke blithely of ending the ‘dependency culture’ by combining cuts in welfare with in-work benefits, or creating an ‘enterprise culture’ simply through privatisation, contracting-out and a little cash support for unemployed people to go into self-employment. Yet it is inescapable in almost every major policy area today. It is hardly realistic to hope that educational performance can be improved without a shift in the mentalities of parents and children towards valu- ing education and investing time and energy in it. Equally, efficient law and order policies must mobilise the commitment of people living in neighbourhoods. Environmental policies depend not only on taxes and regulations but also on stimulating people’s willingness to cut energy usage or to separate rubbish into different bags. Again, policies against unemployment have to address not only the economic barriers that prevent the long-term unemployed from taking such jobs as they may be offered, but also their own cultural and attitudinal handicaps. The heart of this problem is that Britain is still a lowtrust society, and most of these policies depend in some ways on trust. Consider, for example, the small firm sector. The family firm remained for too long the most common organisational form, because people remained unable to trust professional managers and unwilling to lose individual or family control. Because British small business entrepreneurs are rarely willing to share equity with people other than kin, they continue to rely heavily on such inefficient and costly forms of financing as overdrafts. Again, the vicious circles of low trust between labour and management brought British business into crisis in the 1970s,8 and little has been done in the 1980s and 1990s to foster the ‘social capital’ that sustains trust.9

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Pointing out the need for a culture of high trust and social capital is not an argument for more government,10 or for emulating Germany and Japan. Rather, it is an argument about how best to enable a viable capitalist social order to organise and sustain itself.11

Toward a better understanding of motivation To meet these challenges, government must design strategies that work with the full range of motivations found among its own bureaucracies, the organisations it steers, the users of its services and the wider public. A key failure of the Reinvention Programme was its reliance on the incentives paradigm of motivation, namely, that people respond to financial carrots and sticks because money is the main motivator, and therefore good policy design is a matter of getting the right balance of incentives. Generalising too widely from such examples of successful incentives as the sale of council housing or fiscal stimuli for the take up of private pensions, the Reinventers came to believe that they could buy almost any behaviour. Unfortunately, buying everything that one wants can be prohibitively expensive. For example, despite the use of incentives for decades to induce General Practitioners to work in the inner cities, their preference for a better lifestyle than is often on offer in central urban Britain has been more important. For all the new tax reliefs offered to charitable donors under Nigel Lawson’s Chancellorship, levels of giving have remained generally flat.12 The incentives paradigm worked with too crude a model of human motivation. A new programme for cultural change needs to work with the many grains of motivation. Table 1 summarises some of the best known motivations which affect the main cultures around public services that government needs to influence, other than the desire to maximise the balance financial rewards over penalties.(The table talks of ‘maximising’. Of course, most of us don’t maximise anything for very much of the time. In some cases, we achieve a certain acceptable threshold and then do not strive further – called ‘satisficing’ by economic theorists. In other cases, we may simply seek to achieve whatever improvement is possible – sometimes called ‘meliorising’.).

Demos 11 Demos 7/1995 allocation system es, but notes, greater arising from a fixed budgeta fixed all resource over budget market share for consumption of appropriateness regulatory authority;maximise authority of orchief executive or divisionalboard of chief executive or or board satraps; maximise autonomy professional tation on boards; divisional satraps special interests, to concentrate on eg proxies, secure ombudspeople including those of and producers servic service users policy makinigand sheddingimplementation or service tasks to othersprovision to the point of congested choice for autonomy producers and choice for consumers Table 1Table stake-holders other than financial gain for Motivations in public services ofTypes motivation Public bureaucraciesResources Maximise organisations Private Maximise turnover, Maximise Service users trust in Secure General public Power Maximise legal and Maximise authority Increase represen- of Limit power Choices Shaping agencies Maximise autonomy Increase range of the costs Control

12 Demos Governing by cultures tax or fee burden; tax or fee minise user and fraud producer user groups entitlement toservices making system provider-located services or producer poweror producer claimsof of decision producersbetween service different equity to criticismpreserve demarcationsoptimise balance lack of accountability (includingof leisure public support for optimise balance on the job) andleisure representativeness income in service involved (including of leisure on the job) leisure and income consumption for press between producers’ demander-located ‘co-operation’ equity between conceptions of rather than Burdencontrol Shed difficult clients Shed difficult clients, certainty Secure Limit total budget complex services of supply or or expenditure Legitimacy Minimise exposure Minimise criticism forComfort wider Secure monopoly; Secure Secure monopoly Secure Relative Minimise timestatus‘fair for Press n/a competition fair for‘ Press ‘or competition some Secure of conception gridlock Prevent rival between

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The tools of government for cultural change Given this broader understanding of motivation, what tools does government have for the task of enabling and stimulating a high trust self-organising culture? Of course, there are limits to the extent that government can ‘manage’ cultural change or bring it about by acting alone, but it is a myth that government is powerless. ‘Adapting and expanding some widely-used classifications from recent research,13 we may divide the tools of government into effectors, instruments that bring about change in society, economy or polity; collectors, instruments that collect financial resources from the wider economy; detectors, instruments that take information from the society according as it is desired by government; and selectors,or instruments that select, present, organise, manage and manipulate that information. Table 2 gives examples of all four. A richer way to think about the tools of government is to understand each tool by the type of power that it invokes. Table 3 classifies tools in this way, and gives some examples of the kinds of tools on offer to governments trying to influence cultures. The Reinventers tried to shift the main effectors away from direct government and toward regulation, purchasing and the use of incentives. Regulators now from a large industry, and on both the Left and the Right there are great and probably unrealistic expectations of what regulation can deliver.As Matthew Bishop points out, getting information about industries to be regulated, the costs and strategies of firms is costly, and regulators are often dependent on the industry itself for information, which leaves them open to being misled. Purchasing has run into similar problems, as Margetts and Dunleavy argue. Creating markets in many areas is neither straightforward nor likely in the short run to save money, as Leat shows in the case of home care for the elderly: indeed, in some areas, direct local government provision is being ‘re-invented’ to deal with the problems of market-creation. Reinventers’ emphasis on incentives may have had some perverse effects in the field of collectors. A declared aim of many Reinventers was to simplify the tax system. Some progress was made by the Thatcher and Reagan administrations in reducing the number of rates at which

14 Demos Governing by cultures resource budgeting resource New communications Regulation: mandation; permission prohibition; LeviesContract purchasingGrants-in-aid; matching grants Appeals guaranteesLoan expendituresTax bounties) Appeals (incl. Audit Barter Management review technology Scenario planning modelling Formal Table 2Table with examples Basic types of tools government Effectors deliveryInformation persuasion, (propaganda, demonstration example, etc.) training, projects, Direct taxationDirect government ownedGovernment Collectorscorporations Indirect taxation Requisition Service and charges fees information Purchasing analysis; Cost-benefit Inspection Detectors indicators Performance of redress Systems measurement Cost Selectors

Demos 15 Demos 7/1995 transparency projects transparency ethics transparency pay of codes models co-operation systems fundingconditionalentitlements and blameunity laws models role co-operation tration co-operation models transparency co-operation Table 3Table changing behaviour for tools open to government Power tool/TargetPower CommandBureaucracy Incentive instruction Persuasion performance Example training; Interaction leader role Redress competition complaints FieldClients regulationPublic output-related legal duties publicity tapers, demons- legal duties competition equal opport- moral praise courts exhortation leader leader role competition competition courts courts

16 Demos Governing by cultures direct taxes such as national income tax are levied. The goal of simplicity, however, conflicted with the aims of the incentives paradigm to create specific financial rewards and penalties for a wide range of specific behaviours. Indeed, Reinventers did frequently overhaul tax and benefit systems to create a great many specific incentives. In doing so, they may have eroded the clarity and the stability of the tax system, which con- tributes greatly to the currents of trust among citizens that sustain long term transactions. But the biggest change during the Reinvention years was the great expansion in the number and sophistication of the selectors – the various performance measurement techniques to help government to be effective. For example, systems of resource-based accounting, requisition of information by regulatory and audit agencies, and performance league tables were all central innovations of the Reinvention Pro- gramme.Yet governments remain very poor at measuring the cultures, the social capital and the extent of social trust among their populations of individuals or of organisations. As Bentley and Stanley point out, the vast majority of government measurement and organisation of information is geared still to monitoring financial flows, the activities of services, and in very crude terms, outcomes that are at best poorly related to the outputs of services. We can now see the case for a rather different focus on tools. One is redress which is centrally important in securing social trust. If one has no other reason to trust someone as a trading partner or as an employee, then the posibility of recourse to law must remain the only basis. Of course, a culture of too-ready redress rapidly becomes distrusting and people have every incentive to exploit the system of redress by using litigation to evade personal responsibility. The ever increasing liti- giousness of the USA is but one symptom of that country’s trust problems. Britain has suffered some of the same trends, but Britons have not found redress correspondingly easier. Indeed, Britain seems to have the worst of both worlds. A second is the power of government to persuade, which was often ridiculed by Reinventers as ‘idle moralising’.It was assumed that without incentives, persuasion was ineffective or even counter-productive

Demos 17 Demos 7/1995 and with them, unnecessary. Of course, persuasion alone is likely to be as feeble as the use of any other single tool.Yet it is increasingly important for governments to persuade their citizens not merely to behave in particular ways but to invest in social capital and social trust. We need to think more carefully about how to use all these tools of government for much bigger and longer-term purposes of cultural change. If communitarian thought has a useful message for those thinking about government, it is not to celebrate non-profit organisations as a solution to problems, but to set government the challenge of creating the trust necessary for a self-organising society and economic dynamism.

Policies for building cultures of trust Cultures cannot be built – only destroyed – very quickly. Policy recommendations for cultural change must therefore be long-term, slow- burning, micro-level interventions. This makes them rather less exciting than, say, short term proposals about interest rates, trade treaties, privatisations, or Next Steps agencies. But the search for drama in public policy is not particularly healthy. Dramatic policy changes are not always the most radical or even the most effective, however much they satisfy the need to show that ‘something is being done’.Indeed, they can induce instability that, over long periods of time, may erode social capital and trust in government itself. Therefore, I make no apology for offering micro-level, cumulative, slow-burn policy suggestions. For government to play its part in creating a culture of trust and trustworthiness, it must start with improving its own trustworthiness. Organisations tend to be trusted when their purposes are clear and acceptable, and when they treat their customers well. This involves three things. People must believe them to be doing so not merely to exploit them later (think of the high reputation of IBM). Organisations must offer restitution in the event that they might fail (think of Marks and Spencer’s ‘no quibble’ return policy). Thirdly, they must conduct their business according to basic principles of probity and fair dealing. For example, although few experts in broadcasting and health policy

18 Demos Governing by cultures accept the popular view, most of the British public considers the wait- ing list system of rationing in the NHS to be fair, and considers the BBC to be scrupulously impartial. Agencies of government too often fail these straightforward tests. Sir Douglas Hague has distinguished four strategies by which cultures can be deliberately changed: coercion, contagion, coaching and learning.14 In the case of coercion, circumstances such as the defection of consumers or the exercise of government command leave a culture with no option but to change. In the second case, individuals are introduced as catalysts or change agents to import an alien culture: bringing new management and staging takeovers are both examples of contagion. Where outside assistance is called in to provide coaching, the need for change is usually recognised within the culture. Finally, organisations can, of their own volition, learn as the primary route for cultural change. In practice, change is usually the result of a combination of these processes. The Reinventers tended to rely, despite their rhetoric of pluralism in management style and despite the large-scale use of private consultants in government, more heavily on coercion and contagion in reforming government than on coaching or learning. The Financial Management Initiative, which at once reinforced Treasury control and imposed new agents of financial control in many agencies, provides a paradigm example of both. Allowing coaching and learning requires slow-burn thinking about culture and greater trust in staff and other associated agencies which is not always common among the political elites bent on projects of rapid transformation. Indeed, the focus of many of the Reinventers on process re-engineering, total quality management and delivery in those parts of government that provide services may partially have undermined the capacity of organisations to learn more imaginatively. Too often they rushed to achieving service goals by buttressing traditionally hierarchical systems of management and Taylorist ideas of supervision, which can sap motivation and morale and reduce the flow of information. New models for managing cultural change that will promote learning from within and greater use of coaching will now have to involve taking longer time horizons for

Demos 19 Demos 7/1995 change. Systems of financial management that are geared to controlling expenditure – economy – are very poor at creating cultures of risk- taking and entrepreneurialism that bring about effectiveness. As Pollitt remarked, the 3E’s do not always march in step.15 Reluctant to use pilot projects either from impatience or a belief that pilots are always poor guides because of the Hawthorne effect (people perform much better in pilot schemes than they would if the system in use were the norm, just because they are being paid so much attention), British Reinventers often tried to bring about cultural change through across-the-board reforms, such as the National Curri- culum in education, or the internal market in the NHS. Even where health and educations systems were changed by allowing individual units such as schools and hospitals to ‘opt-out’ or GP practices to choose to become ‘fundholders’, early cohorts of those choosing the new structures were not treated as experiments to be evaluated and learned from before proceeding with an innovation, but simply as vanguards who would be followed by sluggards. The obvious effector instrument of long-term cultural engineering that policy makers reach for, when wanting to change hearts and minds, is schooling. However, it is important that education for cultural change is not simply another item on the curriculum or yet another goal for a school system that already has a surfeit of them, but the inte- grating and overarching concept in curriculum development. In the Anglo-American tradition, schooling is centred on the measurement of individual performance. ‘Copying’ is penalised, and ‘conferring’ on homework sharply discouraged. Even project or investigation based work is often still expected to be a solitary effort. The consequence of this is that many pupils and students emerge from full-time education with none of the skills of co-operation and teamwork that are required in the world of work generally, and which are especially important in the creating and sustaining of new organisational capacity. By contrast, in many Pacific Asian countries, the educational culture is very different, and consequences for economic performance are clear to all.16 However, persuasion in its many forms will be important. Exhorta- tion can be valuable in its own right. For example, the high levels of

20 Demos Governing by cultures private savings in Germany and Japan over recent decades do genuinely seem to have been partly a response to government propaganda about the important and value of saving. Again, programmes of training can – used together with other tools – be an effective way of using exhortation to change behaviour. For example, as Jupp notes, some governments have experimented with training civil servants in ethics and have found some success. Howard Gardner has stressed recently the importance of example in the activities of leaders and this is also important for government.17 The more government invests in its own trustworthiness, shows its leaders engaging in their communities, and shows in its own conduct of its affairs that it eschews both profligacy and dishonesty, the more it should be able to convince its own citizens to rely on these high-trust strategies. Simple things such as prompt payment by governments of invoices, or provision of complaints systems have been important in setting an example to the private sector. There is a role for government in stimulating a healthy ecology of private organisations, by facilitating both the birth of new agencies and the death of moribund ones. Programmes of purchasing, contracting, franchising, loan guarantees and grant-making should be reviewed regularly to ensure that they are not simply privileging incumbents. More radically, there is a strong case for imposing sunset clauses on many public agencies: the near-immortality of government agencies is legendary and must have damaging cultural consequences for organising capacity.18 This would also be an important element in government setting an example. The detectors and selectors of government are also important. Effec- tively to change cultures, governments must first learn to measure them.They might draw much more on recent research that has attempted to define, classify and develop instruments and questions to measure such cultures.19 No comprehensive and rigorous survey of the different organisational cultures within the civil service has been undertaken. Therefore, we still know too little about the cultural effects of the Reinvention Programme. Indeed, it was in the face of strong opposition from the Head of the Home Civil Service that the trades

Demos 21 Demos 7/1995 unions conducted their own survey on the limited cultural indicator of current morale.

Conclusion: toward the culture catalyst state From the pessimism of the high intellectual Right that all the tools of government are intrinsically blunt, and from the intellectual hyper- optimism of the Centre Right and Centre Left Reinventers that the restricted toolkit of the new public management would suffice to transform government, there is emerging a welcome recognition that government can effect real change, but subject to strict limits. It is in this context that governments need a richer understanding of why culture matters. A credible political project for government in the next decade can no longer be about managing government service better or about ‘rightsizing’ government. It must be about nothing less than changing the whole culture. In some respects this is nothing new.Thatcherite Conservatives in Britain certainly believed themselves to be engaged in changing culture. But what is striking about the Conservative programmes for cultural change is that – despite the rhetoric – they do not show the coherence of a grand cultural project. The enterprise culture and individualistic culture was lauded to the skies, except in the public sector, where the Financial Management Initiative and Treasury control often stifled it, and within the family, where cultures of hierarchy and authority were to be reinforced. Consumer rights were promoted in some public services through Citizen’s Charters, but half-heartedly for fear of stirring up expectations about change in the systems of rationing services. The New Right wanted and still wants a more radical and more coherent programme of cultural change, under which much of civil government can be closed down.20 Yet that movement has yet to articulate a clear conception of how the cultural dimension of their programme is feasible. As every serious nationalist has realised since the nineteenth century, attempts to combine nationalism and minimal government almost invariably fail, because public loyalty, legitimacy and support for government depend upon its willingness to solve the

22 Demos Governing by cultures problems that citizens present to it, or else to offer them something in return. If the Left wanted the security state and the Right the nightwatchman state, the challenge now is for a new settlement that creates more trust that the former and encourages more risk and personal responsibility than the second. Who will be the agents that could bring about this new settlement? Are politicians up to the challenge? Some will no doubt argue that the short-term, election timetable oriented nature of British politics prohibits slow-burn policy-making for long term cultural change: the electoral demand for the quick fix will override everything. Others will add that the apparent tendencies of the two main parties to converge in many areas of policy-making is another obstacle. In fact, the present political configuration presents an excellent opportunity for politicians to engage in long term policy thinking about culture, because they are not – as they have been in more polarised times – always fear- ful that their every innovation will be overturned when their rivals come to power. This is an historic opportunity to remake government on the better understanding of the simple fact that the most successful societies are those that can manage themselves. Re-imagining the state so that it can facilitate the society that organises itself in a milieu of trust is the new mission for government.

Demos 23 Notes

1. Gingrich, N., 1995, To renew Hampden-Turner, C., and America,HarperCollins,New York. Trompenaars,F.,1993, Seven cultures 2. Duncan, A., and Hobson, D., 1995, of capitalism,Piatkus,London; Saturn’s children: how the state Gambetta, D., ed., 1988, Trust; making devours liberty, prosperity and virtue, an breaking cooperative relations, Sinclair-Stevenson, London. Blackwell, Oxford.; 3. Galbraith, J.K., 1992, The culture of contentment, Sinclair-Stevenson, Granovetter, M.S., 1985,‘Economic London: ch. 15. action and social structure: the 4. Field, F., 1995, Making welfare work, problem of embeddedness’, American Institute for Community Studies, journal of sociology, vol. 91, 481–510; London. reprinted in Granovetter, M.S., and 5. Osborne, D., and Gaebler, T., 1991, Swedberg, R., eds., 1992, The Reinventing government: how the sociology of economic life,Westview entrepreneurial spirit is transforming Press, Boulder, Colorado; the public sector,Plume,New York. Zucker, L.G., 1986,‘Production of 6. Gore, A., 1993, Creating a trust: institutional sources of government that works and costs less; economic structure, 1840–1920’,in report of the National Performance Bacharach, S., ed., 1986, Research in Review, Time Books, Random organisational behaviour,JAI Press, House, New York. Greenwich, Connecticut, vol. 8, 7. Fukuyama, F.,1995,Trust: the social 53–111. virtues and the creation of prosperity, 8. Fox, A., 1976, Beyond contract: work, Free Press, New York and Hamish power and trust relations,Faber and Hamilton, London; Faber, London. Putnam, R.D., 1993, Making 9. Fukuyama, F.,1995, Trust: the social democracy work: civic traditions virtues and the creation of prosperity, in modern Italy,Princeton Free Press, New York and Hamish University Press, New Jersey; Hamilton, London;

24 Demos Governing by cultures

Putnam, R.D., 1993, Making 14. Hague, D., 1993, Transforming the democracy work: civic traditions in dinosaurs: how organisations learn, modern Italy, Princeton University Demos, London: 3–4. Press, New Jersey. 15. Pollitt, C., 1993, Managerialism and 10. Contra Duncan, A., and Hobson, D., the public services, 2nd edn., 1995, Saturn’s children: how the state Blackwell, Oxford. devours liberty, prosperity and virtue, 16. Reynolds, D., 1995,‘Why are Asians Sinclair-Stevenson, London: ch. 1. so good at learning?’,35–36 and 11. Fukuyama, F.,1995, Trust: the social Goodman, R., 1995,‘Chasing virtues and the creation of prosperity, illusions: the real lessons from Free Press, New York and Hamish Japanese schools’,37–38, in Demos Hamilton, London. Quarterly 6: The age of Asia: learning 12. Marriott, R., and Jones, A., from the sunrise societies. forthcoming,‘The impact of tax 17. Gardner, H., with Laskin, E., 1994, policies on charitable giving’, Leading minds: anatomy of Non-Profit Studies,vol.1,1. leadership, Basic Books, 13. The distinction between effectors HarperCollins, New York. and detectors was introduced by 18. Hague, D., 1993, Transforming the Hood, C., 1983, The tools of dinosaurs: how organisations learn, government,MacMillan, Demos, London. Basingstoke. I have found it helpful 19. Coyle, D.J., and Ellis, R.J., eds., 1994, to add the two additional categories, Politics, policy and culture,Westview collectors and selectors. Salamon, L., Press, Boalder, Colorado. 1989, Beyond privatisation: the tools 20. Duncan, A., and Hobson, D., 1995, of government action,Urban Saturn’s children: how the state Institute Press, Washington D.C., devours liberty, prosperity and virtue, offers a slightly different approach Sinclair-Stevenson, London. to classifying the tools of government.

Demos 25

Seven maxims on the future of government Geoff Mulgan

How should we understand recent public sector reforms in historical perspective? Are they truly reinventing government or simply pushing further very old principles? And what might be a desirable and achiev- able vision for government in the next century? In this piece I argue that current reforms are primarily a further development of 18th century principles of government, and that the really interesting challenge for governments and public agencies in the next century is to transcend these principles and transform themselves into agencies which are not only far more adaptable but also far more mission-oriented. In other words, instead of the old tradition of state bureaucracy as an inert body weighting down on society – something that is simply there – we need to redefine how government can be built around its mission. First we need to ask whether government is needed at all. In the 1990s it has become fashionable to argue that government is in irre- trievable decline and that in the near or more distant future people will rule themselves without governments. This view can be found both on the green left and the new right. Its attractions are obvious. Few people enjoy the fact that governments can boss them around and occasionally in history new societies

Geoff Mulgan is Director of Demos.

Demos 27 Demos 7/1995 have been born out of the hope that they could avoid government alto- gether. Their founders tried to escape from the feverishly fought over territories of Europe into large, stateless spaces. Iceland in the middle ages (which developed the first modern parliament) and the USA a few centuries later (which developed many of the ideas of popular sovereignty and the separation of powers) are two obvious examples whose spirit has been paralleled by thousands of small scale com- munes and sects that have tried to cut themselves off from state power, whether in the early Christian era, the late 19th century or the 1960s. None achieved their dream for very long. Even Iceland and the USA are now highly governed societies, run by states consuming large shares of national wealth that guard for themselves important powers. Whether in the form of the large bureaucracies of the Roman or Persian Empires, or the equally large bureaucracies of the typical modern nation state, governments have been an inescapable part of life, a practical rebuke to the romantic, and still persistent, dream of a world in which government would wither away. So government is a constant, even if its forms and scales have changed dramatically. The lessons for leaders contained in tracts like Lao Tsu’s Tao te ching and Macchiavelli’s The Prince have lost little of their resonance today. No-one has found a way to preserve a modicum of social order, of prosperity or welfare, without some kind of governing authority. Perhaps more surprising is the persistence, and reappearance, of many of the forms of government. Late Imperial Rome for example used contracting out and engaged in large scale public sector job creation. Ancient China attempted to create a meritocratic civil service governed by sophisticated codes of conduct. Early 19th century utili- tarians in Britain pioneered most of the reforms associated with the new right in the 1980s – and in their time such things as privatised prisons and teachers paid according to results were commonplace. The only utilitarian proposal which has not resurfaced in recent years is the argument that public offices (such as the job of Director of the Prisons Service) should be sold on the open market, subject to some form of quality threshold.

28 Demos Seven maxims on the future of government

But behind these continuities there have been dramatic changes in terms of who government serves, what it governs and how. First, who does it serve? For most of history the state has been the means for one group individual or family to exercise power over others. The modern state by contrast is ostensibly answerable to the majority of its citizens. The Whig view of history sees this steady expansion of the stakeholders of government as a progressive process, and even if one holds to other views (such as that the state is in practice beholden to business, or to other well-organised interest groups), these do not dis- prove the basic fact that the modern state is democratic. The shifts in the primary concerns of the state away from war and towards economic security and welfare can only be understood as consequences of democracy. The same is true of the reframing of the techniques of government around such things as oversight by multi-purpose elected authorities and parliamentary committees. Much recent argument about government has concerned how to make it not only democratic in form but also in spirit: through forms of redress, charters, consultations, referendums and the use of opinion polls. Second, what does it govern? Government is predominantly territorial. It defines and exercises authority within a given space, the empire or the nation, even though that authority may sometimes be tenuously held (and was dependent in the past on the practical details of technologies, speed of communication, and speed of marching, etc). But today, when military invasion is no longer a direct concern for large areas of the world, the primacy of the territorial is disappearing. Sovereignty is shared between governments: tools are pooled in transnational agencies like NATO or the World Health Organisation; security comes to depend on mechanisms for mutual surveillance, whether of weapons systems of budget deficits. This is psychologically deeply challenging for people brought up to believe in classic national sovereignty. But it is part of the reality of governance at the end of the century, and helps to explain why it is decomposing into a series of multiple levels, some transational (like the World Trade Organisation of the European Union), some binational, some local, some specialist and some regional.

Demos 29 Demos 7/1995

Third, how does it govern? For European countries, there is a straight line of continuity that connects modern bureaucracies to the absolutist monarchies which, in the 17th and 18th Centuries, pioneered new forms of bureaucracy organised around military force, taxation to pay for the military and law to ensure internal order. It was under abso- lutism that the idea of government as a machine took hold, and with it a set of concerns about how to train officials, how to specify functions to enable the machine to work well,1 and how to design the system for maximum efficiency. Perhaps surprisingly, this is one respect in which little has changed. Although modern reformers present their ideas as a clear break with the past, this is misleading. Recent developments are better understood as a continued working through of enlightenment principles of rationality and of government as a machine. The machine ethos first expressed itself in: specialised divisions of labour, hierarchies of authority, rules describing the duties and rights of officers, impersonal relations and promotion based on merit. These ideas subsequently spread from government into business. Recent reforms in Britain and elsewhere have further sought to remove the scope for arbitrary or non-rational decisions. These have taken the form of: the tightening of financial and cost control; increasing central power over society via rules (for example seeking directly to influence behaviour within the family); the introduction of competition to improve efficiency and prevent political patronage; the use of rule- based regulators to replace minister’s political whims; the removal of direct political influence over such things as central banks and operational agencies. Each of these examples is a good expression of the car- dinal rules of utilitarian, rational impersonality, and current buzzwords such as ‘re-engineering’ simply take these further forward, helped as they are by the control capacities of information technology. Each embodies the idea that Jacques Derrida parodied as the post(all) state: concerned with delivering precisely defined packages (of schooling, health or social security) to precisely defined addresses. We are, in short, seeing not the reinvention of government so much as its evolution to a hypermodern variant – lean, effective, highly rational and tightly controlled. This model achieves considerable

30 Demos Seven maxims on the future of government efficiencies. Often competition can unleash hidden energies. But it has many obvious internal flaws. Huge energies may be devoted to ratio- nalising control over fields where in fact government has little direct leverage; the debates over macroeconomic policy are a case in point. Rationalisation of government can in practice corrode the cultures on which social order rests – relationships based on trust, commitment, loyalty. Reforms which make sense in micro terms – for example replacing station masters or parks wardens by video cameras – may prove irrational in macro terms if they undermine people’s sense of safety. The issue is not that societies have become ungovernable so much as that governments have inadequate or inappropriate capacities to govern.2 They still concentrate on the wrong tools and the wrong goals and then suffer from the disappointment that follows. They still seek to portray themselves as controllers of society, in charge of a rational machine, when in practice there are far too many variables at work, and far too many complexities for this to be credible. They see themselves solely as deliverers of programmes or solutions rather than as actors in a far more complex set of cultures and systems. Governments may evolve in many dimensions. Policy failure could lead them to become more authoritarian, more concerned with tight surveillance and social order. They could seek legitimacy by stigmatis- ing minorities and dividing social groups. But the decline of the territorial dimension in government may be leading us towards a rather more attractive model of government, some of whose features are partially visible in current reforms. It is a model that seeks a new balance between a rational, delivery model and a model of adaptability and learning. If the rationalist model is hypermodern, this model could loosely be termed postmodern. If the rationalist model accepts government as simply part of the fabric of things, this perspective demands that it has missions – real tasks by which it is judged. The following are its seven key dimensions: First, it is fractal. As the pre-eminence of the national level of government declines (because of the obsolescence of war at least within Western Europe and North America), forms of governance can appear

Demos 31 Demos 7/1995 and develop at many different levels. This is the real meaning behind the often misleading claims for a new pre-eminence of the local, the regional, the continental or the transnational. In fact similar patterns of relationship – such as fee-payer and provider relationships, relationships based on protection or regulation or relationships based on mutual aid or insurance – become feasible at a variety of different scales. Second, it is a broker and energiser.Whereas older states draw their authority from primary capacities – to defend the borders or to raise taxes to do things – the postmodern state is more like a broker or catalyst, working with cultures and persuasion and helping societies to organise themselves rather than being the organiser at the pinnacle of society. Their best resource is often information, their best strategy to manage and relay information, to enable others to organise, rather than simply distribute goods or money. Third, it is interactive. Whereas the older states were essentially speaking to their citizens, occasionally tempered by the response of electors, the postmodern state is interactive, communicating richly with its citizens, and permanently learning. If the paradigm of the old model was the TV advertisement devised by a Whitehall department, and broadcast to millions, the paradigm of the new is the service delivering agency engaged in permanent dialogue with its stakeholders. Fourth, it must develop and project an ethos. States today can no longer draw down an accumulated store of loyalty or authority. Instead they compete by articulating a clear and engaging ethos, rooted, at least for now, in national cultures. One implication of this shift to ethos is that election is not the only source of authority. Other bodies may be able to claim authority if they can display integrity and commitment to enduring human values. The slow process by which raison d’état is replaced by raison de humanité, also implies a moralisation of matters of governance. Fifth, it is a servant. States now understand their position better as servants than as masters, as dependent on underlying cultures of trust and commitment, as part of the base of society rather than its super- structure. The implication of a truly democratic culture is to make the state more dependent on its citizens rather than vice versa.

32 Demos Seven maxims on the future of government

‘Tomorrow’s project will be to foster states that can both be adaptive and mobilise trust, loyalty and commitment’

Sixth, it is less permanent. Its boundaries have never been clearly defined – responsibilities (for example for health, learning, employa- bility) shift between the private and public realm without much regard for the apparent logics of the economic theories of public goods. But

Demos 33 Demos 7/1995 this impermanence becomes more marked in terms of internal organisation. Good government has to be able to stop doing things: to prune programmes and spending commitments to ensure its capacity to adapt. The old fixities of the department of state, for example, can be replaced by more project based accounting (with rather stronger coor- dinating Treasuries appraising results by far more sophisticated quality of life indicators), by the use of resources directed to many different agencies, by task force and time-limited approaches to action. The capacity to purchase resources from a far wider range of places and sources, without regard for nationality, and the capacity to use competition in delivery, greatly enhances the abilities of government. Less fixity also encourages a more entrepreneurial culture within government. Seventh, it is an actor within systems. Modern public agencies work within complex systems – of values, technologies, environments – which they can shape and influence but rarely run. This requires quite new mindsets – such as the ability to work in partnership with non- profit and business organisations – and new models different from those we have inherited from the past. To cope with complexity these are more likely to be multidisciplinary, combining psychology, economics, logistics and social analysis in place of the dominance of a narrow quantitative economics. The promise of these seven features is to make government not only more effective in its operating environment but also less cold and clin- ical than the old rationalist enlightenment model was. Its promise is to achieve a greater adaptive capacity in government and make it easier for government to focus on mobilising its capacities to achieve its core missions. Of course, it would be wrong to overestimate the scope for change. It is the nature of government to be subject to inertia. So much depends on its prosaic predictability. No-one wants to experiment so much that they run the risk that the water will cease flowing, that the ambulances stop running, or that the traffic lights will go wrong. But even such solid things as governments have their revolutions, revolutions that involve far more than the replacement of one elite by another. Today’s most popular revolutions are the working out of an

34 Demos Seven maxims on the future of government

18th century project: the rationalisation of government. Tomorrow’s project will be to foster states that can both be adaptive and mobilise trust, loyalty and commitment.

Notes 1. Schaffer, B., 1973, in The Administrative Factor,Cassell. 2. Dror,Y.,1994, The Capacity to Govern, The Club of Rome.

Demos 35

Suspicious minds: public distrust of government Simon Atkinson

One of John Major’s objectives when he took office was to create ‘a nation at ease with itself’.Five years on, we can assess whether he has succeeded. One critical test is the relationship between British citizens and the state. MORI’s two State of the Nation surveys, carried out in 1991 and 1995 for the Joseph Rowntree Reform Trust, provide us with wide-ranging and detailed information about the perceptions of the British public, including the ways in which attitudes have changed. The emerging picture is far from positive.1 This article identifies the characteristics of the current malaise, and assesses the implications of growing public concern about the system of government.

The system of government For much of the post-aware period, observers have seen Britain as the model of a modern parliamentary democracy. In the early 1960s, the American political scientists Almond and Verba applauded its healthy and stable political culture.2 But by the early 1970s, signs of consensus about the system of government, at least among the public, had vanished. The 1973 Crowther Hunt Commission found the public evenly divided between those who thought the system basically worked well (48%), and those who wanted significant improvements (49%) (see

Simon Atkinson is a Senior Research Executive at MORI.

Demos 37 Demos 7/1995

Works extremely well and could not be improved Could be improved in small ways but mainly works well Could be improved quite a lot Needs a great deal of improvement Don't know (omitted) 80 Could be Works well improved

0 Year 1973 Year 1991 Year 1995 Source: JRRT/MORI

Graph 1 Which of the statements best describes your opinion on the present system of governing Britain? graph 1). This question was repeated in 1991, and revealed a sharp change in attitudes. By March 1991, the proportion expressing a positive view had fallen to one in three, with two-thirds voicing criticism. Since this measurement – taken taken a few months after John Major took office – the trend has accelerated. Three-quarters now believe that the system could be improved ‘quite a bit’ or ‘a great deal’ – three times the proportion who feel comfortable with the status quo. The feeling that change is needed runs through the whole population. This includes the old – who are traditionally less critical of the political system – as well as Conservatives, who show a particularly sharp increase in dissatisfaction: (see Table 1).

38 Demos Suspicious minds: public distrust of government

Table 1 Could be improved quite a lot/a great deal

1991 1995 Change %% Ϯ%

Total 62 75 +13 Gender Men 62 73 +11 Women 63 78 +15 Age 18–24 71 81 +10 25–34 65 74 +9 35–54 59 75 +16 55+ 60 75 +15 Class AB 54 66 +12 C1 62 75 +13 C2 66 79 +13 DE 65 81 +16 Party Support Con 37 54 +17 Lab 77 84 +7 Lib Dem 78 83 +5

Base: All Source: MORI/JRRT.

The political system Some argue that this growing call for change simply reflects a more sophisticated electorate, better able to express and articulate its views. State of the Nation suggests otherwise. There is little evidance that the electorate takes a close interest in how it is governed. As the figures below illustrate, knowledge of the different branches of the political system remains sketchy (see Table 2). In many of these areas – including their rights as citizens, the British constitution and how Parliament works – the amount of awareness claimed has actually fallen since 1991. Perhaps because of this low awareness, many are reluctant to express a view on how well the different institutions do their job. 57%

Demos 39 Demos 7/1995 Great deal/Great fair amount (%) (%) anything Just a little/hardly Never of (%) heard : All. Source:MORI/JRRT. Your rights as a citizenYour The Courts of the monarchy role Constitutional works Parliament The way local councilYour 33 representationProportional The British constitution 43 32 25 33 62 32 21 55 65 61 65 66 3 69 1 1 11 1 6 Table 2Table know about? you feel do you much, if anything, How The EuropeanUnionBase 19 64 5

40 Demos

Suspicious minds: public distrust of government

Union The European The

Satisfied Dissatisfied of Lords of

The House The

constitution

The British The

The way The

parliament works parliament

The courts The

of the monarchy the of

Constitutional role Constitutional

council each is doing its job these days? satisfied or dissatisfied with the way what extent you are To Your local Your 0

Source: MORI Source: 50 40 30 20 10 Graph 2 Graph

Demos 41 Demos 7/1995 feel unable to express an opinion on the British constitution, and only half have a view on the European Union and the House of Lords. As Graph 2 shows, it is the institution geographically cloest to the public – their local council – that is most highly regarded. This is followed by the monarchy and the British constitution, while Parliament, the Courts and the European Union receive rather lower satisfaction ratings. The relative popularity of local councils is instructive. MORI’s Consumer Concerns research for the National Consumer Council provides detailed information on public attitudes to local government services.3 Since 1991, people have become better informed about the services they provide, find authorities more approachable and, cru- cially, are more positive about individual local services. This includes parental approval of primary and secondary schools. There is little sign that the government – or the system of government – is receiving credit for these perceived improvements. At the macro level, high satisfaction ratings are conspicuous by their absence. It seems that people desire greatest change at the national level. Half agree that the present system of Government is out of date, more than twice as many as disagree (28%).

Parliament In 1991, 59% agreed that Parliament worked well, with only 16% dis- agreeing. Since then the consensus has vanished: only two in five (43%) are now positive, and 30% are critical. People in Scotland and Wales voice particular concern about the workings of Parliament. Even when the governing party has a small Commons majority, 52% feel that Parliament has too little control over what the Government does, and 63% believe that the Government can change individual rights too easily. Here we see citizens’ rights emerging as an important concern. Whatever their criticisms of the EU itself, people are far more likely to agree than disagree that, compared with Britain, rights are better protected elsewhere in the Union (42% agree versus 20% disagree). There is also a widespread feeling that the public play only a peripheral part in what the Government does between elections.

42 Demos Suspicious minds: public distrust of government

This dissatisfaction with the machinery of government is set against a backdrop of general low esteem for politicians, a trend observed by MORI and other polling organisations for many years. 12% believe that MPs work very hard (according to a 1992 MORI survey for the Sun), with only MEPs and estate agents scoring lower. In November 1993, in a poll for the Times, only 14% trusted politicians and 11%

In Britian, how much power would you say ordinary voters should have over government policies between elections? And how much power would you say ordinary voters do do have over government policies between elections? 60 Should have Do have

A little none at all A great deal Don’t know A fair amount

Source: MORI Graph 3

Demos 43 Demos 7/1995 government ministers to tell the truth – even fewer than ten years before. Interestingly this view relates only to politicians in general; in 1992 the public was broadly positive about the way their own MP did his or her job, despite their general criticisms. In the State of the Nation surveys, satisfaction with the local MP is unchanged (43% satisfied, 20% dissatisfied) over the last four years – despite the marked deterioration in general perceptions of the system.Apparently, antics in and around Westminster, rather than constituency work, are responsible for negative perceptions of MPs. MPs complain about their increasing burden of ‘pastoral’ work for their constituents, but these efforts may be crucial in preserving an MP’s reputation with an increasingly critical electorate. Perhaps because of the low esteem in which they hold politicians, the public have an acute sense of the standards they expect from MPs and ministers. If the proposals put forward by the Nolan Committee were made law, it would be one of the most popular acts ever passed by Parliament. Although there is a general feeling that MPs should be allowed to continue with a trade or profession, the vast majority (78%) feel that receiving payments for lobbying should be banned. 83% think that asking questions for money should prohibited. There is also widespread agreement that ministers (78%) and civil servants (70%) should not be allowed to take jobs with companies they have dealt with while working in Government. Only 27% believe MPs should be entrusted to implement these regulations, while 67% think they should be subject to legal control and regulated by an independent body. It will always be difficult for a system administered from Westminster to present itself nationally as an effective machine, representing the interests of people across the country, and offering sufficient opportunity for people to express their opinions. MORI’s community identity work for the Local Government Commission shows that people are strongly attached to neighbourhood and local town. As we have seen, local authorities are more favourably regarded than central government. The Socioconsult Monitor finds 81% agree that they “feel more and more remote from big political institutions”.4 This is reflected in attitudes to the devolution of power. There is growing public support

44 Demos Suspicious minds: public distrust of government for devolution to Scotland, Wales and Northern Ireland, although not, interestingly, to the English regions (which is opposed by 60%).

Constitutional change Proposals for constitutional change are welcomed– almost regardless of the details. National referendums– not seen in Britain since the 1970 – are supported by 77%, with only 19% saying the Government should decide all important issues. Three in four think that petitions with a million or more signatures should be able to trigger a public vote. There is also widespread support for a Freedom of Information Act (81%), a Bill of Rights and a written constitution (both 79%). There was more limited support for fixed-length parliaments (57% support, 18% opposed) and replacing the House of Lords with an elected second chamber (43% versus 24%). These findings suggest that constructive and coherent plans for constitutional reform presented to the electorate in 1996/97 will fall on more fertile ground than before. However, there are signs that much of the support for reform reflects a general feeling that change is necessary, rather than a call for wide-ranging constitutional reform. Knowledge of the political system remains low. Only 13% of the British public say they are very interested in politics (6% for those aged under 25). Also, some of the responses to the State of the Nation survey suggest that views are not entirely coherent. For example, 46% support changing Britain’s current electoral system to proportional representation and 19% oppose. Yet, when asked whether “we should retain the current voting system as it is more likely to lead to single party government”, 51% agree, while 32% oppose. This should provoke thought for those who believe the system is basically sound, and for those who advocate more comprehensive change. The evidence suggests that the public are concerned about the way the country is governed, the conduct of politicians, and opportunities for political participation. People continue to be involved in local activities.The number of people who have recently helped on fund- raising drives, made a speech before an organised group, been in touch

Demos 45 Demos 7/1995 with a councillor or MP or written a letter to a newspaper editor has remained steady over the last twenty years. Yet even among those actively involved in their local community, there is little evidence that more people are actively working to change the system of government. People get involved in issues that they feel strongly about – in the poll tax campaign or protests against exporting live ani- mals.But on many issues – even where there is widespread agreement that change is necessary – people do not feel strongly enough to get involved. Reformers should therefore reflect on which changes people are ready for, and which are supported in principle, but without a sufficiently deep-seated desire for change. Support for Nolan’s recommendations appears to fall into the former category, while electoral reform – at the present time – is in the latter. It is clear that radical reform, and its consequences, must be carefully thought out and presented to be positively supported by the electorate.

46 Demos Notes

1. In 1991, a nationally representative was conducted face-to-face, in sample of 1,034 adults was home, and data were weighted to the interviewed between 7–25 March. population profile. In 1995 a nationally representative 2. Almond, G., and Verba, S., 1961, The sample of 1,758 adults was Civic Culture, Boston, Little Brown. interviewed between 21 April and 3. Consumer Concerns, 1995, London, 8 May. Field work on both surveys National Consumer Council.

Demos 47

The limits of government Sir Roger Douglas

It has been my experience that politicians feel uncomfortable describing the proper limits of government. Even among our most free- market politicians I detect a reluctance to limit the power they have fought so hard to acquire. The question of where the proper limits of government lie has therefore been left to the philosophers. I see two broad traditions in political thought. One says the State is responsible for everything and should ensure that everyone has what they want. The other says the State should be responsible for nothing other than domestic and national security. Neither of these positions help a modern politician. The first is clearly false. The second is irrelevant in a democracy. My own political experience has shaped my own views on the proper limits of the State. I have been helped in this by spending years in opposition watching an arch interventionist at work.This left me with plenty of time to observe and think. I then had an unexpected couple of spells in government, during which I had an opportunity to deal with the financial crisis brought about by that interventionism.

Sir Roger Douglas was New Zealand Minister for Finance from 1984 to 1988. He now leads the ACT (Association of Consumers and Taxpayers).

Demos 49 Demos 7/1995

These experiences and a long family history of the Labour Party shaped my thinking, more than philosophy or indeed ideology. When I first entered Parliament I thought that governments could do almost anything. That was in 1969. Many of us believed in the ability and rightness of governments to pick winners in business and industry. I saw no promblem in their being actively involved in the market-place. I thought they could encourage economic growth by directing public money and private funds into selected sectors or industries.What they could not manipulate that way, they could control by statute and legislation. In my maiden speech I criticised the breweries for raising the price of beer and recommended that the government institute a form of price control. I also had a lingering regard for the policy of using import barriers to promote industrialisation, and so diversify an economy that was far too reliant on producing raw agricultural products. I was, as I say, a third generation member of the Labour Party. But over the years I developed a realisation that what government was doing might be well-meant but had the opposite effect to what was intended. It was the consequences of the policies that I had always supported that led me to rethink what governments should be doing to achieve our social objectives. I came to realise that government was a lousy manager. Before entering Parliament I’d been in business. I found that even a badly-run business was vastly superior to the best-run government department. I didn’t see why government departments should waste money in achieving their objectives any more than a business should. I saw too that when government got involved in management it lost sight of what it was trying to achieve. I always remember when Singapore Airlines were proposing to fly to New Zealand. The overriding concern, not only among the state-run Air New Zealand managers, but also the Transport Department, was with what competition would mean for the Air New Zealand. The concern certainly wasn’t about the best interests of New Zealanders, as you might expect at least from the Transport Department Managers.

50 Demos The limits of government

The reality is that when government runs enterprises they are run for the benefit of those who work in the enterprise. By contrast, private enterprises can’t succeed unless their customers are satisfied. Accordingly, I came to see that governments should get out of running enterprises unless there was open competition and unless the only money the enterprises received was direct from the consumer. The key to the efficient delivery of services was competition. In government’s role as a manager in the modern State,it must ensure best use of all the resources available. In other words, a government should only take a dollar of taxpayers’ money and spend it on their behalf, when that will return more than it would, had it been left in the taxpayer’s wallet in the first place. But that does not mean that the State would shirk its responsibilities in seeing that citizens get a fair deal. Ensuring that everyone gets a fair shake – that is, access to essential social services – is the government’s key role. But it can only concentrate on this if it gets out of running various state monopoly enterprises. As long as politicians are busy trying to run an airline, how can they be concerned whether the country has the best aviation industry in the world? They become locked into the means – running an airline – and lose sight of the objective – more efficient industry. It is this thinking that now informs my view on the provision of social services and it is the basis of my book Unfinished Business1 and the new political party ACT in New Zealand. In establishing our programme we have combined the best elements of what has traditionally been described as the Left and Right. The fundamental left-wing view is that health, education and pensions should be universally available and delivered by the State. The strength of the Left is their commitment to universal provision Their weakness is their commitment to monopoly government supply. The typical right-wing view is that services should be limited and they should be delivered by the private sector. The strength of this strategy is that it uses the energy of private enterprise. Its weakness is that it doesn’t answer the question: what happens to those who can’t pay? Why can we not have our cake and eat it too? Why can’t we have

Demos 51 Demos 7/1995

universal access to education, health and pensions, while taking full advantage of the private sector to provide them? If we ditch ideology, we can clearly provide for everyone, while offering them the dignity and benefits that competition and choice allow. Such an approach not only makes for good economics, it makes for good politics.Voters are not uncaring either. They are well aware of the need for the state to support those who, for whatever reason, do not have the resources to support themselves and their children. Government should limit itself to setting our fundamental social objectives and providing the rules and necessary income transfers to ensure that those objectives are fulfilled. For example, it should provide education grants to low income families, top-up private pensions and private health insurance.

52 Demos The limits of government

I do not see it as government’s role to run the airlines, raliways, ports, ship building industries, electricity generation, post office, schools, hospital. In fact if it does run these industries as monopolies, our fundamental social objectives will not be met. When I applied this thinking to New Zealand, I discovered that the only reason we had income tax was to provide education, health care and pensions for those who couldn’t afford it. I also found that if we did not have income tax, most people could provide for themselves. Moreover, if most people could save for their own retirement, contribute to their own children’s education, and buy their own health insurance, then income tax would be redundant. Income tax is just a racket which renders us dependent upon politicians and civil servants for our health care, education and pensions. We cannot continue to pass so much money and power to the politicians and civil servants, when their failure to provide our basic social objectives is so self-evident. I created the New Zealand ACT party to do something about it.

The traditional spectrum

Left Right

1. Everyone has access to high 1. Those who can afford it quality education, healthcare have access to high quality and superannuation education, healthcare and superannuation 2. The state must provide these 2. Competition and consumer services choice, the essence of private enterprise, deliver them

We say: ‘Combine Left 1 with Right 2’.

Note 1. Douglas, R., 1993, Unfinished Business,New Zealand,Random House.

Demos 53

States of inertia: are governments slaves to history? Richard Rose

God grant us the serenity to accept things we cannot change, courage to change things we can, and wisdom to know the difference. (Reinhold Niebuhr)

British politics often seems to combine the worst of two worlds. There is maximum talk of change, and a minimum of progress toward the optimal allocation of resources. Media politics has made words, not action, the stuff of everyday politics. TV news bulletins can turn around an issue four times a day and more than 1400 times a year – in the rhetorical sense at least. A Secretary of State can announce that she will do black, a parliamentary opponent calls for white, interest groups and experts will debate the relative virtues of blue or yellow – and the next morning British society will still have the same motley appearance. We get all the pain of disruption, with few of the benefits of innovation. The gap between appearance and reality is due to collective amne- sia. Because we have forgotten what government has done, we are unable to understand how much or how little government can do in the next week, the next legislative session or the next Parliament. Yet the inheritance of the past cannot be ignored, for the great majority of

Professor Richard Rose is Director of the Centre for the Study of Public Policy, University of Strathclyde.

Demos 55 Demos 7/1995 the policies carried out by British government today are the legacy of past governments. Members of the 1945-51 Labour Cabinet are now dead, but measures they introduced have been the legacy of every government since, Conservative or Labour. Edward Heath’s decision to lead Britain into Europe has introduced constraints on politicians that will be increasingly felt in the twenty-first century.

How much does a hundred days add to half a century? Instant politics and instant journalism feed off each other. A newly appointed Cabinet minister has no difficulty picking up a brief assem- bled for a predecessor and telling the House of Commons, ‘I have decided this’, and explaining on television why ‘my’ choice is the best choice. Nor does he or she hesitate to be photographed opening a new bridge built after battles fought and won by a predecessor of another party.An aspiring politician learns that the best way to gain credit is to claim success for a policy the day it is announced – even though it may fail when finally implemented or never even be put into effect.1 The years leading to a general election are a time of great expectations. The opposition has a vested interest in saying that the future will be better than the present if it is elected. One way to do this is to proclaim that Opposition leaders are better than the government’s leaders. If the government is in disarray, as Labour was in 1979 or the Con- servatives are today, the publicity given the Prime Minister and Cabinet will underscore this point.2 Proclaiming new and better policies is a more substantial way of attracting votes. The government of the day is handicapped in proposing new policies, especially when it has been in office for several terms. Yet in campaigning for re-election as the Conservative leader, John Major anxiously pledged new policies, or at least new themes, like any out-of-office American politician on the presidential primary campaign trail. Opposition parties can devote more time to producing policies in the abstract because they do not face the legacy of problems left by an outgoing government. No sooner does a new government enter office than ministers start living a lie, pretending that just because the faces have changed,

56 Demos States of inertia: are governments slaves to history? everything has been transformed. President John F. Kennedy popu- larised the idea that in the first hundred days of office a new leader could remake government, ignoring that the original hundred days campaign, that of Napoleon returning from Elba, ended with his final defeat at Waterloo. Politicians inherit before they choose.When a newly elected government takes office, ministers are obliged to carry on all the policies enacted by their predecessors. Very few inherited measures are repealed.3 The great majority of public policies are carried forward by political inertia. Acts of Parliament authorise what government must do, government departments are organised to carry out laws, the Chancellor’s budget finances statutory commitments, public employees routinely go about their tasks as teachers, nurses or police, and ordinary citizens expect to receive benefits to which they are entitled. The revenue to finance inherited commitments is also produced by inertia. A new government does not have to enact new taxes; it can administer tax legislation dating back as far as Gladstone and Pitt.4 A newly elected British government does not have a tabula rasa on which to inscribe its policies. It inherits dozens of volumes of legislation committing it to policies affecting everything from agriculture to zoos. When Margaret Thatcher entered office, her government inherited more than three thousand statutes (see Table 1). Of these, one in seven had been enacted before Queen Victoria ascended the throne, more than a third had been in force since before 1900, and more than three-fifths since before the Attlee government left office in 1951. Laws create programmes, and programmes create spending commitments. In Inheritance in Public Policy, Phillip Davies and I have documented the durability of the hundreds of programmes that have collectively added up to total public expenditure since 1945.5 To do this the Centre for the Study of Public Policy required an Economic and Social Research Council grant to compile a line-by-line record from the annual audit reports of the Comptroller and Auditor General. The Treasury statements that attract most political attention are estimates for next year, not the accurate record of what was spent last year.

Demos 57 Demos 7/1995

Table 1 Persistence of laws from the past

In force in 1979 Cumulative Number % %

Pre 1760 132 4.0 4.0 1761–1836 215 6.4 10.4 1837–1900 866 26.0 36.4 1901–1918 192 5.8 42.2 1919–1945 479 14.4 56.6 1945–1951 200 6.0 62.6 1951–1964 438 13.2 75.8 1964–1970 284 8.5 84.3 1970–1974 195 5.9 90.2 1974–1979 328 9.8 100.0 Totals 3,329 100 100

Source: Denis van Mechelen and Richard Rose, Patterns of Parliamentary Legislation (Aldershot: Gower, 1986), Table 10.5.

Table 2 Effects of inheritance on British government

Programmes Public introduced All laws % Expenditure %

Before 1945 40 74 1945–1979 26 15 1980–1989 34 11

Source: Richard Rose and Philip L. Davies, Inheritance in public policy, Yale University Press, New Haven, 1994, Figure 5.3.

In 1990 three-quarters of public expenditure was devoted to measures introduced before 1945, such as primary education, old age pensions, and maintaining the army and the navy. Each year’s budget shows that the past is not dead (see Table 2). In an earlier generation, Conservative politicians embraced inertia. If government was on automatic pilot, there was little point in doing anything – a classic posture of conservatism. Labour politicians were

58 Demos States of inertia: are governments slaves to history? the opposite: they preached radical change, ignoring the constraints of time and money, and sometimes practicality. In the postwar era, however, Labour governments introduced fewer programmes than expected and Conservative governments introduced more. One reason for this, at least in the era of Wilson and Heath, is that when politicians expect the economy to boom, they are more inclined to introduce new measures. Another reason is that many inherited programmes have a builtin dynamic encouraging change. The legacy of the past is dynamic, not static – and change often occurs without choice. Major spending programmes for pensions, health and education confer entitlements to individuals if they meet simple eligibility criteria, such as age, educational qualification or ill health. Expansion in the elderly population has led to a ballooning of expenditure on pensions and health care. The post-war ‘baby boom’ increased spending on primary education, and greater demand has increased spending on secondary and university education. Improve- ments in quality have increased costs too. The NHS cannot run hospitals with the equipment of the 1940s, and the same is true of universities and secondary schools. The cost of servicing debt rises too, as each year the total inherited debt increases. Parliament and the Treasury do not follow the cumulation of spending commitments over a long span of time. Public expenditure is viewed as an annual cycle; attention is concentrated on striking a fiscal balance in the next twelve months. This logic was identified by Aristotle as that of the sophist: ‘The expense is not noticed because it does not come all at once, for the mind is led astray by the repeated small outlays, just like the sophistic puzzle, ‘If each is little, then all are little’. This is true in one way, but in another it is not, for the whole total is not little, but made up of little parts.’ The ‘Aristotle’ effect restricts greatly the scope for new spending initiatives in the 1990s. As Tony Blair recognised in his Mais lecture.‘The boundaries for changes in taxation and spending are much reduced’.6 How much can 100 days add to the inheritance of public policy? In arithmetic terms, the answer is ‘not much’, for it adds only half

Demos 59 Demos 7/1995 a per cent to the 18,625 days of the previous half century. If a general election in 1997 produces a new government that lasts four years, by the year 2001 it will have government Britain for only seven per cent of the postwar era. The Thatcher administration offers an extreme test of what a government can do to change its inheritance. Margaret Thatcher was an atypical Prime Minister, the first since Neville Chamberlain to have strong views about many public measures, and to insist that her colleagues act upon them.Winning three general elections gave her more than a decade in which to introduce new policies. Her strong political convictions made her ready to ignore conventional wisdom and protests from the ‘great and the good’.Combined with limitless energy these factors offered a chance to make changes on a scale unprecedented in this century. At the end of the most radical British administration since the 1906- 14 Liberal government, two-thirds of legislation on the statute books was inherited from predecessors. Because older programmes tend to be more expensive, 89 per cent of public expenditure in Thatcher’s last year was devoted to programmers introduced by ‘Socialist’ predecessors from Ramsay Macdonald to Ted Heath and Harold Wilson (see Tables 1 and 2). Changes can be introduced in public policy, but they take time. The drafting and enactment of major parliamentary legislation requires about two years, and another year to implement it.A measure to change the secondary school curriculum will require four or five years before the first pupils have followed it to its conclusion. No measure introduced today can shape the whole of a child’s education until the year 2010. Social security policies often have an even longer ‘turning’ time. An individual who started making national insurance contributions this year can expect to be drawing benefits in the second half of the twenty-first century. Paradoxically, the influence of politicians upon society is greater after they have left office than during their brief tenure. The National Health Service introduced in 1948 continues as the framework for health care in Britain 35 years after the death of Aneurin Bevan; the abolition of grammar schools by circular 10/1965 is still causing reverberations in

60 Demos States of inertia: are governments slaves to history?

British education. The Thatcher administration’s industrial relations acts will continue their impact in the next millennium. If the next British Parliament creates a Scottish Parliament,the consequences will be as long-lasting as they are uncertain. However, Cabinet ministers are usually concerned with doing something that makes their mark here and now, rather than initiating programmes that only flourish long after they have left office. Moreover, frequent reshuffling makes politicians concentrate on the short term. For a Cabinet minister, two years in one office is a long time, though it is not long enough to see a major bill from inception to implementation.

When can new policies be introduced? Politicians make choices under two very different sets of circumstances. In the Mills & Boon version, Cabinet ministers are forceful decisionmakers making policies as they wish.After all, is not Parliament sovereign, and are not Cabinet ministers the big beasts of the Whitehall jungle? A British Cabinet ministers is in a much stronger position than ministers in other countries, because one party has an absolute majority in Parliament. Examples of the free choice of politicans can be cited, for example, the Open University initiative of Harold Wilson.Yet the occasions are few when a politicians is offered a tabularasa, as was the case with television education at that time. The Chancellor’s budget is presented as a supreme instance of political choice. Yet the bulk of the money in the budget simply confirms taxing and spending commitments inherited from predecessors and substained by political inertia. Choice is strictly at the margin. A systematic analysis of tax changes since the 1950s shows that in the average year the budget alters 4.5 per cent of total tax revenue. When the cost of tax increases is subtracted from the value of tax cuts, the net annual impact is a reduction of 2.4 per cent in taxation. In short, about 98 per cent of each year’s tax revenue comes from laws and tax rates which are inherited. Moreover, the net effect of annual tax cuts is not a fall in total tax revenue. Tax revenue increases in real as well as current money terms, because taxes are buoyant: revenue rises with inflation,

Demos 61 Demos 7/1995 with increases in real incomes and spending on goods and services subject to VAT.7 The use of legislation to mandate controls, standards, procedures and expenditure on other institutions of British society dates back centuries. It has particular contemporary relevance in such fields as environmental protection and land use planning. Even when inherited spending commitments give a new government little room for manoeuvre, there is no fiscal cost constraint upon the legislation that a government enacts. The Thatcher administration could not significantly reduce spending commitments on welfare state measures. But it could use its parliamentary majority to introduce new policies in industrial relations, council house sales, privatisation, and local government. Yet legislation is not ‘cost free’.A controversial measure will not only stir up opposition in the House of Commons but also may create difficulties in implementation if it requires the cooperation of other agencies. The story of wage and price controls in Britain is an example of ineffective legislation and directives. The story of local government finance in the 1980s shows that new measures do not necessarily yield the revenue predicted. In the 1990s, this point is illustrated by problems in regulating prices, pay and profits in privatised public utilities. The debate over a minimum wage illustrates that even Labour leaders do not agree about what can be done by legislation. Electoral considerations meant that the Thatcher governments was not prepared to introduce radical reforms much talked about within free market circles, such as education vouchers, changes for university education or co-payment for medical treatment. Today, the European Union imposes additional constraints on what national governments can legislate. Ironically, government has the greatest scope for enacting new laws that would curb its own freedom of action. A simple majority vote in Parliament could bring in a meaningful Bill of Rights, a Freedom of Information Act or transform the electoral system. Yet the action by MPs over the Nolan Report is a reminder that governments are more anxious to preach the reform of society than to practice reform of the institutions that give them power.

62 Demos States of inertia: are governments slaves to history?

Many choices are not free but forced choices, due to abrupt changes in the policy environment or unexpected events. The market is the primary force for policy changes, creating turbulence strong enough to ‘blow off course’ individuals with as strong a grip on office as Denis Healey or Margaret Thatcher. Although the economy is the responsibility of British government, it is not under Cabinet control. In an increasingly open international economy, events and cyclical changes of major British significance are often determined by what happens in other countries, as illustrated by the collapse of the fixed exchange rate for the pound in 1992. The study of postwar Britain showed that in trade, industry, employment, energy and transportation inheritance was not the chief determinant of policies. The majority of programmes were introduced on an adhoc basis or through a trial and error process in which the pressure for government to ‘do something’ was continuous, but successive governments failed to develop programmes robust enough to continue from one decade to the next. In market-related policy areas, the typical programme stops as well as starts, because it has accomplished its purpose (a privatisation measure) or because it has failed to bring satisfaction.8 Employment policy is a good example of policymaking in circumstances not of a government’s choice.When unemployment rose in the 1970s political dissatisfaction in Westminster forced government to act. Since the problem was unprecedented, government adopted a trial and error search for a policy that might work. The Labour government’s first efforts were temporary palliatives to reduce the number officially unemployed or offer ‘make work’ activities. The Thatcher government thought it had the right theory, and stopped Labour’s programmes. When its initial employment policies failed to stop the rise in unemployment it abandoned them and introduced new measures.9 Since then, dissatisfaction has been controlled by persistently high unemployment becoming tolerated as normal or unavoidable. Unexpected and dramatic events often force a government to act when it is unprepared and does not know what the consequences of action will be. For example, British policy in Northern Ireland in the late 1960s was one of ‘indirect rule’, with Westminster attempting to

Demos 63 Demos 7/1995 pressure the Ulster Unionists to reform a system that had sparked off Catholic demonstrations and Protestant counter-demonstrations. That policy collapsed in violence in August 1969, and the British government was forced to send troops. What followed was a trial and error or ‘pillar to post’ search for something that would work, with many rapid shifts in policy, for example, from internment of Catholics to suspension of the Stormont Parliament. The compound effect of small annual changes is less likely to force choice, because at no point in time does anything dramatic or unexpected happen. If the implications of gradual change are undesirable, no minister will want to risk his or her political career by being the bearer of bad news. The gradualness of incremental change tends to make it familiar and tolerated. Social security is a textbook example of ministers avoiding the unwanted consequences of political inertia. The rising fiscal cost of financing pensions can be calculated with actuarial precision for a generation a head. But the time horizon of a minister for social security is a year or two. The short-term political incentives are to do nothing, avoiding the obloquy of cutting benefits and raising national insurance contributions. As one American politician told an official who showed him a long term forecast of the fiscal pressures of pensions.‘I wasn’t elected to solve the problems of the year 2010’.

‘When programmes persist for decades or generations, an ounce of prevention is worth a pound of trial and error’

Stratagems for policymakers No politician likes to be silent, and silence invites the charge that ‘not enough’ is being done. A serving Cabinet minister who cannot influence events can still grab headlines by taking credit for inherited policies maintained by the force of inertia. If a programme includes indexed increases in benefits, here is an annual opportunity to claim credit for raising them. In opposition, the easiest thing to do is to denounce the government of the day for its mistakes. This requires no resources and limited

64 Demos States of inertia: are governments slaves to history?

understanding. A shadow minister can simply assert ‘the government is a failure’ and ‘something must be done’. If asked what should be done,a circular answer can be given,‘Replace that shower with our party’.But a stream of invective does not prepare a shadow minister for dealing with these problems after entering office. Consensus-mongering is a politically sophisticated way of making policy. A shadow minister (or any minister not cast in the Thatcherite mould) can listen attentively to MPs, experts and pressure groups. Parliamentary committees provide a venue where people with diverse knowledge and interests can exchange ideas, identify their points of agreement and disagreement, and sometimes come up with an agreed report registering cross-party consensus. In an earlier era, royal commissions also served this function. Consensus is no proof of effectiveness, but broad political support for a programme is a good argument for any politician to take an initiative.

Demos 65 Demos 7/1995

Think tanks now play a role in promoting policies. The Institute for Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute have made their names by consensus-breaking, thinking the unthinkable about the scope for market initiatives in Britain. The Institute of Public Policy Research (IPPR) has not only produced detailed policy proposals, but is also engaged in consensus-mongering, involving non-Labour Party members in its work, such as the Commission for Social Justice under Sir Gordon Borrie. While the IPPR network is hardly non-partisan, it goes well beyond the narrow constraints of the old policy-making subcommittees of the Labour National Executive Committee.10 When programmes persist for decades or generations, an ounce of prevention is worth a pound of trial and error. Because inherited programmes have a preemptive claim upon public expenditure, it is important to consider the long-term impact of new programmes, as well as their initial cost estimates. The Treasury could be asked to take a long term view of costs in a minute of explanation attached to each pending bill – and the numbers could also be scrutinised by the National Audit Office. If an Act of Parliament will last for generations, draft legislation should be subject to very full scrutiny.A worthwhile public investment would be to offer opposition MPs the services of a parliamentary draughtsman, so that shadow ministers could be confronted with the difficulties of putting principles into practice before they enter government. A parliamentary draughtsman would not tell an Opposition spokesperson what to do,but rather help to reveal whether the Opposition knew how to do what it wanted to do. A Treasury official on loan to the House of Commons library could readily cost various options that the Opposition was considering. Those shadow ministers who used it would be doing themselves, their party and the nation a public service. More systematic use could be made of comparison in evaluating current policies and searching for alternatives. Comparing what happens in Britain with a theoretical ideal may be interesting, but it is speculative. Comparing British achievements with those of other

66 Demos States of inertia: are governments slaves to history? countries allows evaluation of how well or badly British government is doing. For example, if British unemployment is about average among OECD nations, then part of the problem is the state of the world economy – and this will not be changed by a general election result. It also focuses attention upon countries doing much better than the international average, as having policies potentially worthy of emulation. A comparison of health conditions raises the awkward question: if the National Health Service is the best in the world, why do eleven other OECD countries have a better rate of infant mortality, and why is the life expectancy of women better in 16 other OECD nations? Comparisons can also be made within Britain. For example, if the life expectancy of men is five years less than that of women, why aren’t more resources devoted to helping men live longer? When there is agreement at Westminster that something must be done, lessons can be sought within the United Kingdom or abroad.11 British government is ill designed to learn from national experience because it is a unitary state; Germany and America can draw lessons in the laboratory of federalism. Scotland too is ignored as a source of lessons, most notably in the debate about English education reform. The Labour doctrine of universalism in benefits often has uniformity as a corollary, and Conservative governments also show a low tolerance for variations between local authorities in policies or spending. Unfortunately, current attention to other countries is often no more than an exercise in manipulating positive or negative symbols. Opponents of proportional representation (PR) have pointed to Italy as an example of a bad government with PR, and proponents point to Norway and Sweden as good governments with PR. Germany is the fashion country of the moment, but few British policymakers know German and fewer still understand how its policy process works. For example, dissatisfaction with the low skills in Britain led politicians and civil servants to scour the continent for ways to train workers to internationally competitive standards. The British government announced it was adopting the German model – but ignored that to do so required qualified Meisters to lead training. Hence, we now have a policy of training without trainers.12

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A moving consensus The inertia of public policy is a force in motion, moving in a predictable direction. Even though the ordinary Cabinet minister may be unable to reverse the direction of public policy, he or she can at least understand it, and behave in ways consistent with its thrust. After all, as Michael Oakeshott has noted, ‘To try to do something which is inherently impossible is always a corrupting enterprise’.13 In a very real sense, the bad news is the good news: the persistence of inherited policies meets the needs and desires of a substantial por- tion of the electorate.14 The ordinary British family depends upon public policies at all stages of its life, from education and health care in childhood through social security in old age. In their everyday life, people want continuity, not disruption. They do not want school examinations to depend upon the result of a general election, or the views of a current Secretary of State. Old people could not buy a pension or medical insurance if there were a radical reform in entitlements to social security or the health service. Nor do people want society divided into two groups, the over-40s paying higher taxes and guaranteed health and social benefits into the middle of the twenty- first century, and a younger generation paying lower taxes and being told to look after themselves and live with the consequences. The radicalism of the Thatcher government showed that, up to a point, British people will accept some changes once in twenty years. But Thatcher’s downfall showed the limits of that acceptance. Today, the Conservative government faces the consequences of having abandoned conservatism under Thatcher. One part of the government cries forward (or, in the case of Europe, back) while the other seeks to con- solidate past gains and get rid of past errors. John Major is torn in opposite directions. The leader of the Labour Party must balance competing forces too. Tony Blair has tried a novel combination. Whereas previous leaders, rhetorically at least, claimed to be radical when addressing the nation’s problems, they were conservative with the party organisation. Blair’s first priority, building on initiatives of Neil Kinnock, has been to make Labour ‘literally a new party’.15

68 Demos States of inertia: are governments slaves to history?

A change of government at a general election offers opportunities for a new government to admit mistakes of the past. But the worse the situation it inherits – for example, the need to reform the functions, finance and boundaries of local government simultaneously – the more difficult and time-consuming it is to get rid of the legacy. Moreover, changes in the economic climate can blow a new government off course. The record of the next Labour government is less determined by conference resolutions or the wishes of the party leader than by whether it takes office during an economic boom or slump. A boom would offer Labour spenders more scope for action: a slump would force changes under duress. In public policy, Blair has donned the mantle of a conservative, promising to maintain all that is best in British life, including most popular elements of the Thatcher legacy. To remove any doubts about this, he flew to Australia to proclaim the message to an audience of Rupert Murdoch moguls and minions. Under Blair, Labour has been hesitant to launch new policies, especially expenditure commitments that could cause tax increases. In his Mais lecture, Blair declared,‘I am an unashamed long-termist’. This leaves open whether the path from the short to the long term will be a gradual amendment of existing policies, or a trial and error search. Long-termism rejects the hedonism of Keynes, who famously pro- claimed, ‘In the long run we are all dead’. When Keynes voiced his familiar epigram, the formidable Joan Robinson replied,‘No, Maynard, in the long run each of us is dead’.A ready awareness of the connec- tions between past, present and future can be found in subjects as homely as botany. To live with the inheritance of public policy, Britain needs fewer specialists in making policy by sound bites and more trained in forestry, or at least having the temperament to plant trees.

Demos 69 Notes

1. See Pressman, J and Wildavsky, A, 9. Rose, R., and Page, E.C., 1990 ‘Action 1973, Implementation,University of in Adversity: Responses to California Press, Berkeley. Unemployment in Britain and 2. See Rose, R., 1995,‘A Crisis of Germany’, West European Politics, Confidence in British Party 13(4), 66–84. Leaders?’, Contemporary Record, 10. See Social Justice, 1994, London, September. Vintage. 3. See Rose, R., 1984, Do Parties Make 11. Rose, R., 1993, Lesson-Drawing in a Difference? 2nd ed, London, Public Policy: a Guide to Learning Macmillan, 87ff. across Time and Space,London and 4. See Rose, R., and Karran, T, 1987, Chatham, NJ, Chatham House. Taxation by Political Inertia, 12. Rose, R, and Wignanek, R., 1990, London, Allen and Unwin Trainers? How Germany avoids 5. Rose, R., and Davies, P.,1994, Britain’s Supply-Side Bottleneck, Inheritance in Public Policy,London, London, Anglo-German Yale University Press. Foundation. 6. Financial Times, 23 May, 1995 13. Oakeshott, M, 1951, Political 7. For detailed evidence, see Rose, R. Education,Cambridge,Bowes & and Karran, T., 1987, Taxation by Bowes. Political Inertia,London,Allen and 14. Rose, R., 1989, Ordinary People in Unwin, ch. 7. Public Policy,London,Sage,chs 1 8. Rose, R and Davies, P,1994, and 8. Inheritance in Public Policy, 15. The Times, 24 July 1995. New Haven,Yale University Press, chs. 8 and 9.

70 Demos How government makes community Steven Rathgeb Smith

Proponents of privatisation, contracting for services and devolution to local communities hope to improve the efficiency of public services, free local governments and community organisations from excessive government regulation, and allow greater citizen participation in the determination of community needs. The success of privatisation and devolution hinges upon the capacity of local communities to organise effective responses to social need. Non-profit community organisations are concrete manifestations of local co-operation and can spur additional co-operation by enlisting community residents in activities that build long-term ties and relationships. The norms and networks of co-operation are the essence of social capital – a term currently receiving widespread attention on both sides of the Atlantic. Its chief proponent, Robert D. Putnam, argues that non-profit organisations – from the Elks Club to sports associations and the Parent Teachers’ Associations (PTAs) to coalitions addressing poverty and substance abuse – have the potential to create social capital. He contends that localities with higher levels of social capital will have more effective government, more satisfied citizens, and higher levels of economic development. Like de Tocqueville, Putnam suggests

Steven Rathgeb Smith is Assistant Professor of Public Policy at the Sanford Institute of Public Policy at Duke University, USA.

Demos 71 Demos 7/1995 that non-profit organisations can have a stimulative effect on civic engagement and citizen empowerment: voluntary associations government; over time,policy-makers respond positively to citizen demands creating even higher levels of citizen engagement and satisfaction.1 Putnam has recently called attention to the decline of social capital in the United States. Long-standing community organisations such as PTAs, the Boy Scouts, local chapters of the Red Cross, and the League of Women Voters have experienced sharp drops in membership in the last twenty five years. Moreover, Americans are far less satisfied with their government and much more distrustful of their fellow citizens. Despite the proliferation of community organisations and public-private initiatives. America has more non-profit community organisations than ever, but a more vibrant civic culture has not emerged.2 In this article, I offer explanations for this discrepancy. While privatisation and devolution have fuelled the creation of many new community organisations, many are ill-suited to create social capital, because of internal weaknesses, external political problems in the community, and a lack of institutional support. Government policymakers can help local community organisations to build social capital; but a reliance on local co-operative action by volunteers is no substitute for other social and health programs.

The challenge of building social capital through community organisations Social capital exists in relations between individuals and organisations within a community.3 A PTA provides resources to a local school. A volunteer sports club offers recreational opportunities and helps to create networks among community residents.A neighbourhood watch organisation fights crime but also develops neighbourhood ties which lay the foundation for more co-operative activities: festivals, parades, and social functions. These organisations are concrete manifestations of social capital. Many community organisations are created by government and private foundations, and their establishment does not require the

72 Demos How government makes community existence of social capital, though they may create it over time. For instance, many day care programs, homeless shelters, child abuse programs, and drug treatment agencies are funded by government and staffed by paid professionals. In practice, many community service organisations are poorly posi- tioned to build social capital. Norms of trust are most likely to develop if disparate members of the community are linked in a horizontal network of ongoing relationships.Voluntary associations are ideal vehicles for building social capital, cutting across social cleavages and bring individuals together. Repeated contact promotes greater co-operation based upon trust. By contrast, organisations with segregated horizontal networks, such as country clubs, are unlikely to build social capital across the community, although they might build trust within groups. Many service organisations, such as child welfare organisations, are unable to create generalised social capital because they do not have horizontal networks of citizens from diverse parts of the community. Many government funded agencies have little or no membership available to the community at large. Another type of community organisation is that created by a group of concerned citizens in response to a perceived need, for example a local youth program created by neighbourhood residents. Initially these organisations tend to be quite loosely structured. Over time, however, because of the demands of public and private funders, they become more hierarchical, with self-perpetuating boards and narrow membership. Consequently, their long-term potential for creating social capital is limited. The downturn in state support for community social and health organisations creates serious obstacles to building social capital.When agencies are uncertain about their future, they tend to be very turf- conscious and thus reluctant to cooperate with other agencies. However, the effects of funding cuts are not entirely negative. They can encourage community agencies to seek support from local businesses, individuals, and government. Strategies include the creation of new affiliate organisations, joining local service organisations such as the Chamber of Commerce, and the innovative use of volunteers.Yet these

Demos 73 Demos 7/1995 efforts – while important – generally do not involve extensive and regular contact with the rest of the community. Neighbourhood associations are organised to represent the interests of a neighbourhood or city block, in land use, transportation, social services, and crime prevention. Many cities such as Minneapolis, Hampton, Virginia, and Portland, Oregon extensively involve them in the municipal decision-making process. In some cities they have garnered de facto veto power over major city policies. They can play a vital representative function. But they cannot always build social captial, and in the worst cases may undermine the ability of local government to act in the broad public interest. They tend to represent the interests of middle-class, predominantly white homeowners. They often oppose low-income housing programs and increases in rented housing. Through aggressive political advocacy, they can influence a city’s community development agenda to the detriment of poor people and non-profit housing corporations.4 By contrast, community coalitions and partnerships are usually broad initiatives which bring together individuals from across a local- ity. Thousands have been established in the last twenty years. Among the best known is the Atlanta Project, started by Jimmy Carter to attack poverty and related social problems. This may work to prevent crime, drug and alcohol abuse and AIDS, and to foster economic development. These coalitions appear ideal for building social capital, given their diverse, predominantly volunteer membership. Nonetheless, they often suffer from an inability to attract and retain members. Although trust can eventually substitute for them, creating and sustaining cooperation for collective action initially requires adequate material incentives.5 Coalitions frequently begin with much fanfare and enthusiasm. But the maintenance of an adequate cadre of volunteers requires tangible benefits including new services and programs, grants for activities, and the promise of substantive policy change, especially where adequate public services are lacking. Many coalitions find providing the right incentives difficult because of scarce resources, which partly reflect

74 Demos How government makes community political and fiscal constraints of local government institutions. The agends of many coalitions often requires these institutions to either change their policies or to fund new programmes. Local governments are often unable to respond to coalition goals and priorities because of the decline in federal support for cities, and widespread resistance to tax increases. Many local governments have weak political structures and leadership, and are unable to act on coalition demands.Also, many coalitions, even those with federal funding, are free-standing organisations with little direct connection to local government. As a result, municipalities have scant investment in the success of the organisation. Coalitions with independent boards provide an initial opportunity for citizen participation, but over time they encounter problems sustaining cooperation because they lack a mandate for change and the power and institutional support necessary to implement their policy and programme agenda. Building social capital requires responsive public policies. Without fiscally sound and politically responsive local government, community groups will have great difficulty building social capital. Local government can provide funding for coalition programs. It can also provide seed grants, in-kind assistance such as free space and access to technical assistance, and help to raise private funds. Political support can also provide the legitimacy needed for coalitions to attract volunteers. Under the right circumstances, local government can push a coalition to act. Acting quickly with political backing and resources can be critical to building social capital. Many coalitions suffer from long delays in making decisions. As planning stretches into months and years, volunteer members – the crucial building blocks of social capital – can start to fall away. Herein lies a basic dilemma of coalitions and other organisations staffed by volunteers: building social capital takes time, but citizen volunteers have short-term horizons. Trust will only emerge if coalitions can keep individuals long enough to develop bonds of co-operation. The most successful social capital builders are those with good leadership, institutional support, sufficient resources, and appropriate organisational structures. These allow coalitions to move quickly, provide

Demos 75 Demos 7/1995 tangible benefits for member participation and bring together diverse members of the community. The coalition movement presents risks. In a political environment supportive of privatisation and devoluton, coalitions unable to achieve their goals can contribute to citizen cynicism about collective action, policy reform and government responsiveness. Voluntary associations based upon unrealistic expectations may unintentionally undermine local democracy. This risk underscores the need for policy-makers to be cautious about community organisations and their role in rebuilding communities. Volunteer based organisations build more co-operation, but doing so is an arduous, complex task requiring a delicate balance of skilled leadership and sustained external support. Even if coalitions are successful in forging more co-operation, this may not have much impact on the target problem. Antidrug coalitions have often struggled with their pro- grammatic agenda: coalition volunteers tend to be interested in short- term benefits such as festivals and politically popular programs, which may be at odds with effective strategies against substance abuse. The lesson to be learned from anti-drug coalitions is that building social capital – while a worthy goal – should not be a substitute for other policy initiatives. Drug treatment and prevention programs are an important part of an overall attack on substance abuse. Volunteer coalitions may help create awareness of the problem but cannot, by themselves, effectively address substance abuse. This applies equally to other policy areas. Economic development in distressed communities requires substantial can aid these efforts by building social capital but economic development will not proceed if it is solely dependent on voluntary efforts. Policy-makers should also be careful to avoid undermining social capital building in local communities. Deliberate efforts to create social capital by government – such as coalitions and other community organisations – are fragile enterprises that can be easily damaged by restrictive regulations, inconsistent and contradictory technical assistance, and delays in funding. Citizen volunteers will quickly exit a program if it appears that their time is being wasted.

76 Demos How government makes community

Social capital and the future of the welfare state The capacity of communities to address social problems is central to the debate on the future of the welfare state. In the United States, Republicans argue that cuts in federal social programs will be com- pensated by increased local community support. But the record of recent community efforts to address social problems shows that building community capacity requires sustained support government. Social capital can lead to more active citizenship and greater participation in local civic affairs; but by itself it cannot solve our social problems. Indeed, long-standing strategies to aid people in need are the necessary conditions for more active co-operation in local communities. As the re-evaluation of the welfare state continues throughout advanced industrial countries, policy-makers should take note of the need for policies which maximise the strengths of the public and voluntary sectors.

Demos 77 Notes

1. Putnam, R.D., 1993, Making politics: the role of community democracy work, New Jersey, development corporations in a Princeton University Press. changing policy environment’, 2. Putnam, R.D., 1995,‘Bowling alone: unpublished manuscript, and America’s declining social capital’, Fainstein S.S., and Hirst, C., 1994, Journal of democracy, 6(1), ‘Neighbourhood organisations and 65–79. community planning: the case and 3. See Coleman, J.S, 1990, Foundations context of the Minneapolis of social theory,Gambridge, experience’,unpublished Massachusetts Harvard University manuscript. Press. 5. Wilson, J.Q., 1973, Political 4. See Goetz, E.G., 1995,‘Race, class organisations,New York,Basic and local community development Books.

78 Demos Global watch: retooling governments Derry Ormond and Daniel Blume

Despite economic difficulties, chronic unemployment, social divisions and environmental problems, the quality of many citizens’ lives has improved steadily as a result of growth, low inflation and technological development. Citizens travel more, enjoy more leisure time, choose from a growing range of goods and services, and live longer, healthier lives. Surely governments must be doing something right. So why do media reports, public opinion surveys and electoral trends show widespread disillusion and dissatisfaction with governments? A 1991 Times Mirror survey of citizens in the UK, France, Spain, Germany Italy and the USA found deep disenchantment with politics and government. Large majorities in each country were disappointed in their representatives, and considered government ‘usually inefficient and wasteful’.1 More recently,electoral turn outs have fallen in some countries. Corruption scandals have further eroded public trust in several countries. Citizens seem to be asking whether they can trust their governments at all.

Derry Ormond is the Head of Service and Daniel Blume is an Administrator for the Public Management Service (PUMA) of the Organisation for Eco- nomic Co-operation and Development (OECD). Any opinions expressed here are their own, and do not represent the views of the OECD or its member countries.

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International pressures have also dramatically changed the scope for government action, even on traditionally domestic issues. OECD governments’ ability to deal with their persistent budget deficits by increasing taxes is limited in part because of the international economic costs of higher tax rates. The increasing influence of international forces has evoked much hand-wringing about the undermining of national policy flexibility and even sovereignty. Such fears, while important, can be short-sighted. Globalisation offers opportunities as well as challenges for governments. For example, treaties can reduce environmental threats and co-operation scientific research can be more effective than acting alone. But national governments are not adequately equipped for international policy co- operation to reap the benefits of globalisation: they cannot continue in their present style. In response, across the OECD, the outlines of new forms, structures and roles of government are emerging.

A shared agenda is taking shape At the public Management Service (PUMA) of the OECD, we have been observing convergence in public management reforms in response to common problems. In part, this convergence is due to a growing recognition that an effective public sector is crucial in securing the conditions for economic development and social cohesion, by:

establishing the legal environment for business, regulation, providing services, organising redistribution of income, taxes and tax reliefs, altering patterns of demand, influencing national economic efficiency and the rate of technological and organisational innovation, influencing the costs of unpriced resources like the environment, and affecting production decisions and costs.2

80 Demos Global watch: retooling governments

Governments are making progress in becoming more responsive to their citizens and more cost-effective. They are also learning from business about producing quality services, but the comparison with business is only partly right, because they operate in the very different context of democratic public service. The most common and powerful reforms are those based on ‘managerialist’ principles of:

devolved, discretionary management consumer choice responsiveness, and competition among service providers. These trends are by no means universal, and there is no consensus about ‘best models’ of reform, because politics, values, institutions and management differ greatly between countries. Nevertheless, common trends are apparent.

Responsiveness 22 of the 25 OECD nations reported initiatives in 1994 aiming to improve relations with their citizens and enterprises, including more consultation with their ‘customers’. For example, Denmark annually surveys its citizens’ perceptions of public services to measure performance, image, citizen satisfaction and priorities. Canada is the latest among several countries to issue a draft ‘Declaration of Quality Service’,setting out standards for public services.3

Less government Many legislatures, including most recently those in Canada and the USA, are asking, what should governments do? Are there activities better left to the private sector, non-profit agencies, or other levels of government? All but four of the 25 OECD countries reported initiatives in 1994 limiting the size of government.4

Devolving responsibility, increasing accountability Devolving operational management ensures flexibility and space for innovation for the best use of resources (subject to improved emphasis

Demos 81 Demos 7/1995 and reporting on performance and results) is at the heart of the initiatives referred to as ‘New Public Management’.Explicit or implicit contractual arrangements have become common in OECD states, but raise new issues of accountability and control.

Regulatory co-operation and reform Reducing the quantity and cost, and improving the quality of regulation has become increasingly important. International pressures have been crucial in this respect. Extensive and unwieldy government regulations affect both private sector productivity and public sector performance, undermining competitiveness and innovation. However, improvements are being made. Most governments now consult more frequently on proposed regulations with those affected; many are exploring cost-effective alternatives to regulation, such as information disclosure, incentives, voluntary agreements, and self-regulation.5 As we discuss in detail below, regulation is increasingly conducted internationally.

Mixing public and private When the private sector produces publicly financed goods and services, competition is probably most effective where there are clear goals and results can be effectively monitored under contracts. Public sector providers may be better at responding to non-economic criteria and ensuring political control and accountability, particularly where political compromises leave objectives ill-defined or conflicting.6

Market mechanisms Competition is being used to improve efficiency, economy, quality and choice. Reforms range from:

creation of internal markets (for example with user charging, choice of suppliers, autonomy of commercial entities, and separation of purchasers and providers); to

82 Demos Global watch: retooling governments

greater involvement of non-government suppliers (through contracting-out, privatisation, or partnerships).

For example, the Australian Department of Administrative Services, which provides printing, property, transport and other services to Australian government departments, began a process of commerciali- sation in 1987. By opening up to competition through devolved funding to client agencies, releasing agencies from obligatory use of its services, and restructuring its operations, the department was able to reduce staffing levels by 34%. It moved from an operating loss of 10% of the value of its transactions to near break-even over three years.7 The lesson is that efficiency improves where markets are competitive or contestable. Governments in the OECD have not limited themselves to contracting with domestic providers. American health maintenance organisations are now providing health care to Australians and Italians are building roads in the UK. The EU treaty requires governments to open procurement practices to bids from beyond national borders. However, benefits from market mechanisms are not automatic. There is still much to learn about the conditions under which they function best.Where there is a clear case for government involvement, the key problem is designing the best mix of instruments, from regulation to organisational changes, to induce efficiency.8 For example, OECD governments intervene in commercial fishing to prevent over-exploitation of stocks and consequent unprofitability. Their efforts, however, have illustrated the problems of traditional regulation and the benefits of regulation that works with the market. Initially, governments sought to limit individual catches, vessel size, or the length of the fishing season. But this approach proved inefficient, as fishermen increased the resources used to maximise the volume of fish caught within the regulatory constraints. More recently, a PUMA study of Australia, Canada, Iceland and New Zealand found that these governments are granting fishermen Individual Tradable Quotas and producing better results. Furthermore, these measures resulted in fewer fishermen and vessels in an industry where excessive activity

Demos 83 Demos 7/1995 had created environmental and commercial problems; they resulted in no increase, and in some cases a reduction, in the costs and difficulties of policing total catch limits; and a decrease in administrative and programme costs.9

Rebuilding trust For all this reform, citizens too often remain unaware of what their governments do. Danish citizen surveys consistently find that users of social services think more highly of those services than non-users. Government’s image problem has not been helped by recent corruption scandals or perceived inequities. Many governments are putting a new stress on values and ethics, including high standards of performance, fairness, transparency, honesty, openness, and democratic accountability. A number of countries (including Denmark, the Netherlands, New Zealand, Norway, and the UK) have established ethics review commissions. Moreover, emphasising performance measurement and publishing results is increasing transparency and accountability.

Significant challenges remain Deficits Continuing budget deficits limit OECD governments’ flexibility. Despite stronger legal frameworks and more use of market mechanisms, the fiscal positions of most OECD governments have weakened since 1989. For the OECD as a whole, the general government deficit peaked at 4.5% of gross domestic product (GDP) in 1993 (and 6.5% in Europe). There have been slight improvements recently, but many uncertainties remain. International pressures now play a greater role in efforts to control deficits. The Maastricht treaty rules on membership of the European single currency set global budget deficit targets for every participating country of no more than 3% of GDP and debt levels no greater than 60%. This enables governments to make unpopular spending cuts as a result of international obligations. Nevertheless, demands created by ageing populations, among other pressures on expenditure, will require further efforts. Gross OECD

84 Demos Global watch: retooling governments government debt is projected to rise from 68.5% of GDP in 1993 to 74.1% by 1996. Unless taxes are increased, this will entail cuts in spending, because net interest payments will rise from 2.6% of GDP in 1989 to 3.2% in 1996.10

Performance Extensive work on performance measurement and improved management has already been done. Although there has been much progress, more work is needed on improving performance and making the best use of the data reported. Despite improvements, performance evaluations often highlight weaknesses and difficulties such as unclear objectives, measurement of activity rather than output or outcome and measurement of the wrong things, all of which create distorted incentives.

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Accountability Devolving and decentralising authority to lower levels of government or to local government creates new managerial challenges. As responsibility for decision-making moves down the hierarchy, it may be unclear whom to hold accountable, and how. Performance may be difficult to measure, increasing the difficulty of holding managers responsible for results without micro-managing from the centre. Local managers focus on satisfying their direct customers (the users), and a weakened centre risks losing the ability to co-ordinate policies and priorities and to ensure adequate consideration of their indirect customers – the taxpayers.

Cohesiveness of public service Reforms have raised concerns about an erosion of a government-wide perspective and of traditional public service values. In particular, greater diversity and local innovation may conflict with the goal of horizontal equity, because different tiers or localities of government provide different services for people in identical circumstances. On the other hand, different communities and consumers may have legiti- mately different preferences.

Acting jointly National governments must now work more closely not only with local and supra-national governments but also with other national governments. This need for joint action may challenge traditional conceptions of sovereignty in policy-making and requires delicate balancing of conflicting interests. Regional and local governments also increasingly col- laborate across national borders – e.g. Pas de Calais and Kent, within the Benelux countries, between local governments and the European Union.

Facing the future co-operatively To address these challenges, governments are finding international co-operation essential to deal effectively with such spill-overs as

86 Demos Global watch: retooling governments industrial development in one country that creates environmental side-effects in another, or immigration policies that cause shifts in labour markets and wage rates across countries, or efforts to stem drug abuse that affect crime rates internationally. International treaties and organisations have formalised links among countries, but they also create challenges of policy co-ordination. Increased flows of capital between nations have only strengthened these links, creating a corre- sponding need for sound frameworks and clear rules in order to maximise benefits. This requires new forms of governance. Various instruments of co-ordination are available to government, including:

financing techniques such as co-ordinated development aid or joint research funding, monetary instruments such as exchange rate co-ordination, trade instruments such as tariff level adjustments and imposition of trade embargoes, and even joint military strategies.

Scott Jacobs has argued that regulation lends itself well to co-operation.11 The complex relationships involved in regulation are articulated in agreements, treaties and co-operative activities, both formal and informal, including supra-national institutions such as the EU, multilateral agreements (the North American Free Trade Agree- ment, the Technical Barriers to Trade Agreement in the GATT,or decisions of the OECD Council), and bilateral agreements such as the Australia–New Zealand Closer Economic Relations agreement.12 The growing numbers of environmental treaties provide an example of increasing policy linkages between countries. Over half of the 140 multilateral environmental treaties adopted since 1921 were con- cluded after 1973.13 Globalisation is also affecting sub-national governments. For example, they now commonly share in drafting and implementing rules made at international levels, and they also enter directly into cross-border regulatory agreements, such as in negotiations among Canadian provinces to reduce provincial trade barriers,

Demos 87 Demos 7/1995 among Australian states to recognise New Zealand products and occu- pational standards, and among European regions on agreements to protect river basins.14

‘Governments must create systems for continuous learning and adjustment’

National governments must improve their capacities for managing complexity. Intergovernmental co-operation – though often described as reducing discrepancies and harmonising approaches – has in fact amplified complexity by introducing new multiple actors, processes and uncertainties. In response, new institutional forms of co-operation are developing. Partnerships between governments – such as sharing of testing requirements for new drugs between Sweden, Canada, and Australia – are replacing national decision-making. There are decentralised networks among regulatory decision-makers and implementers, such as the 144 national regulators who set international food standards in the FAO-WHO Codex Alimentarius Commission. Although highly desirable, this is very difficult for national administrations to manage, because informal responsibilities are shared among governments, issues are often technical, and information is not consistent or easily available. Governments must learn to organise such networks more efficiently, and develop new management approaches for planning, assessment and oversight. Trust and mutual confidence are among the most important conditions for success in co-operation. Despite increasing interdependence, many argue that there remains a ‘trust deficit’ among OECD countries. Governments, they say, have many reasons not fully to trust one another to execute their promises. Trust is needed among administrators, politicians and the general public. Co-operation should be pre- ceded by familiarisation with each other’s administrative styles and processes, better communication and public openness, and administrative quality control processes. The OECD offers many examples,

88 Demos Global watch: retooling governments such as the Test Guidelines Programme in the Environment Directorate, of how trust can be built and sustained between countries as a foundation for co-operation. New information technologies – such as satellite broadcasting and the Internet – mean that few countries can operate in complete isolation. These technologies could increase governments’ transparency and accountability as well as their effectiveness. Canada, for example, is now establishing a bulletin board on government performance measures. Using the Internet, the Canadian government is seeking international exchange of information about best practice. However, the new communications technologies present new challenges. Some governments worry about the loss of administrative control over information flows, the diffusion of power and loss of control over policy-making as the role of independent media expands. To respond to these pressures, governments must establish processes to ensure that citizens receive clear information on policy proposals, decisions, and their effects, and that they can give their views to accountable decision-makers. Government may emphasise the need for ‘control’and undervalue the benefits of ‘influence’. Government effectiveness in dealing with international problems may be enhanced by co-operation across borders, even as its control over the tools of policy action is reduced.15 National governments will maintain their own styles, but they can still learn much from each other. Public management reforms are partly driven by shared international pressures, but national responses to these pressures will vary. International co-operation is as much about mutual learning about the tools of policy action as moving toward joint or supra-national governance. This happens in a number of ways.

Networks of politicians and civil servants Government officials regularly meet to exchange experiences and pool information. For example, PUMA supports several senior government networks on issues such as regulatory reform, budgeting, management of the civil service, performance management, and management by

Demos 89 Demos 7/1995 centres of government, and a committee of officials from all 25 member countries meets twice a year to discuss policy innovations.16

Cross-national comparisons Comparative data is important in assessing the strengths and weaknesses of public management and identifying ways forward. PUMA’s work on public sector pay, the number of civil servants and indicators of quality of regulatory systems are examples of this.

Case study reviews Through the OECD, representatives of several countries may agree jointly to review particular managerial systems or programmes in use among member countries, and OECD staff also conduct studies. PUMA also recently produced a case study of Portugal’s public sector reform strategies. Such studies can help countries to see what works and what does not, and allow them to apply these to their own situations.17

Conclusion Even if intergovernmental co-operation improves public sector efficiency, effectiveness and responsiveness, citizen dissatisfaction will not be easy to reverse. New and perhaps greater challenges loom. Govern- ment budgets will be subject to competing pressures from service demands, environmental problems and demographic changes such as the rising numbers of dependent elderly people and the proportion- ately smaller workforce from which taxes can be raised to finance public services. Political tension will increase as these complex issues are fought over by various interests; scientific and technological advances will also create new policy problems and tensions. The co-operative approaches described above and the genuine improvements to public management are unlikely to suffice.18 More will be required in at least three areas. First governments must create systems for continuous learning and adjustment as institutions and conditions change. For example, Sweden

90 Demos Global watch: retooling governments has an Ombudsman who reports to Parliament annually on emerging key issues that require attention, which helps build the consensus. Can this example be built upon? Independent neutral commissions or institutions could have a role in focusing attention, setting agendas and encouraging action. Second, governments must improve their capacity to manage policy- making and to make coherent decisions that meet long term needs and balance conflicting interests. Third, to regain citizens’ trust and combat cynicism, governments must communicate better their aspirations, their limits, and the reality of what they do.They must,in particular,clarify the values by which they operate, demonstrate their commitment to honesty, fairness, openness, high standards of service, and respect for democratic accountability. This requires much more than improvements in management. Meeting these challenges calls for sustained political will, example and leadership.

Demos 91 Notes

1. The pulse of Europe: a survey of 12. Jacobs S., 1993 Regulatory political and social values and cooperation for an interdependent attitudes, 1991, New York, Times world,Paris,OECD,p.17. Mirror Center for The People & 13. Haas, P.M.,Keohane, R., and The Press. Levy, M., eds., 1993, Institutions for 2. Serving the economy better, 1991 the earth: sources of international PUMA, OECD, 7. environmental protection, 3. Public management developments: Cambridge, Massachusetts, update, 1995, PUMA, OECD. MIT Press, p. 6. 4. Public management developments: 14. Jacobs S., 1993, Regulatory update, 1995, PUMA, OECD. cooperation in an interdependent 5. Governance in transition, 1995, world,Paris,OECD,p.17. PUMA, p. 83. 15. Jacobs, S., 1993, Regulatory 6. Serving the economy better, 1991, co-operation for an interdependent PUMA, p. 14. world,Paris,OECD,p.23. 7. Governance in transition, p. 140. 16. PUMA, 1995, Governance in 8. Governance in transition, pp. 44–54. transition: public management 9. Property rights modifications in reforms in OECD countries,Paris, fisheries, 1992, PUMA Market-type OECD. mechanisms Series No. 3. Paris. 17. PUMA, 1995, Public management 10. OECD economic outlook,Vol. 57, reform strategies in Portugal: a case June 1995. study, Paris, OECD. 11. Jacobs, S., 1993, Regulatory 18. As pointed out in Dror,Y.,1994 cooperation for an interdependent The capacity to govern, The Club world,Paris,OECD,p.15. of Rome.

92 Demos The paradox of power: globalisation and national government David Goldblatt

The politics of globalisation The idea of globalisation has been around long enough for much of its original explanatory potential to be drowned in hype and tarnished by overinflated claims. Extreme positions, often associated with neo- liberals, argue that we now live in a world where national economies are immersed in a sea of global flows and overrun by global economic actors. These claims provide tempting targets for sceptics. For all the increases in global trade and communications, most human social action remains restricted. Contemporary forms of international activity may actually be smaller in scale than in the late nineteenth and early twentieth century. National economies and cultures are surprisingly resilient. Nation states remain both the site of general political legitimacy and the locus of considerable powers. Claims of diminished governmental capacity are not the consequence of a global economic order, but a politician’s excuse for policy failure. Globalisation, on this reading, serves not as a tool of analysis but as an ideological fig-leaf for governments’ abandonment of the tools available, and transfer of power from the democratically legitimised sphere of politics to the unaccountable realm of the market.

David Goldblatt is a Lecturer at the Faculty of Social Sciences at the Open University.

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Much debate over the impact of globalisation is hampered by:

imprecise definitions of globalisation; lack of attention to the evidence; confusions over the meaning of state sovereignty and autonomy; over-generalisation of the experience of different states; and undifferentiated analysis of the many tools of governance available.

In this article I try to remedy some of these problems and provide a framework for a more realistic assessment of the impact of globalisation on the tools of governance in advanced capitalist societies.

What is globalisation? Globalisation denotes a shift in human organisation and interaction to a transcontinental or inter-regional level. It does not mean that social interaction occurs on such a vast scale that everyone is effected, everywhere. Social relationships are stretched across time and space so that day-to-day activities are increasingly influenced by events on the other side of the globe. The practices and decisions of highly localised groups and institutions can have global reverberations. Globalisation is a multidimensional phenomenon applicable to various forms of social action – economic, political, cultural – and sites of social action, like the environment. Each form of globalisation has its own logic, dynamics and geogra- phy.We can distinguish between them in a number of ways:

their geographical extent; the intensity and velocity of flows and interactions; the degree to which flows and interactions affect the power of national and local actors; the degree to which global networks are institutionalised; the patterns of hierarchy and inequality within networks; and

94 Demos The paradox of power: globalisation and national government

the modes of interaction within global networks, which may be cooperative, competitive or conflictual. Globalisation is not exclusively economic, is not a final end-point for social organisation, and does not necessarily erode national differences or make national actors powerless and irrelevant.

How much globalisation has there been? Global patterns and flows have always straddled territorially delimited networks of power emanating from state institutions. States have always been constrained by external actors and extensive networks of power. Although they have claimed the sovereign right to legislate for and rule over a given territory, this claim has rarely corresponded with their actual capacity to determine and implement public policy. Nevertheless, contemporary forms of globalisation exceed those of the pre-modern era and the nineteenth century in extent, intensity and impact. Since World War II new forms of multinational and multilateral politics have been established involving states, inter-governmental organisations (IGOs), transational pressure groups and international non-governmental organisations (INGOs). In 1909 there were 37 IGOs and 176 INGOs. By 1989 there were nearly 300 IGOs and 4262 INGOs. In the mid-nineteenth century two or three conferences and congresses per annum were sponsored by IGOs; today the number is nearly 4,000. Whatever their historical origins, most environmental issues have only recently reached government agendas. Today states face the destruction of global commons, global demographic expansion and resource consumption, transboundary pollution and an increasing enmeshment of foreign and domestic policy. Culturally, the last forty years has seen a unique explosion in the scale of infrastructure and the volume and intensity of cultural traffic. International telephone calls are growing at 30% a year, with telephones and telex supplemented by satellite, cable systems, and the Internet. International (or perhaps American) penetration of music, film and television markets steadily climbs, although earlier eras saw equally extensive, if slower, diffusions of ideas and practices.

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In economics, the evidence is mixed. International labour migration has not quite reached the levels of the great Asian movements of the nineteenth century, or the transatlantic migrations of the early twentieth. Ratios of international investment to GDP in Western countries have not yet risen to the heights of late imperial economies before World War I. Nonetheless, rates of international migration and levels of foreign direct investment continue to rise, locking national economies into uniquely complex and extensive chains of production and investment. More and more, states and peoples are enmeshed in flows of labour and capital. Constant price data shows that by the early 1970s the proportion of trade to output in Western states had surpassed that of the gold standard era, and is now somewhat larger. If we remove government expenditure from GDP,and compare size of trade with the remaining national economic activity, the difference is even greater. Previously untraded products, like services, are increasingly tradeable. A growing number of national economies are caught up in global flows of trade. The size, openness and integration of international financial markets has exploded in the last twenty years. Foreign exchange trading, international bank lending, bond and derivatives markets easily exceed the global reach and impact of their gold standard predecessors. Multi- national corporations (MNCs), while clearly rooted in national bases and less than fully global in their organisation and orientation, have created unique forms of global economic interaction.Accounting for a third of world output, 70% of world trade and 80% of international investment, they also facilitate increasingly intensive patterns of international technology transfer and are key players in global financial markets. Most MNCs have 20–30% of their assets, sales and profits in foreign locations, representing enormous international commitment and great sensitivity to international changes.

Does globalisation limit what governments can do? What are the implications of these changes for the tools of governance? What impact do they have on the autonomy, sovereignty and

96 Demos The paradox of power: globalisation and national government democratic legitimacy of nation-states? First, they rarely make any particular tool completely obsolete. Instead they affect the costs and benefits of using a given tool. For example, national governments may still invoke protectionist restrictions on trade. But the benefits of doing so are reduced by the increasing dependence of national firms and markets on imported inputs, and the costs increase as states become more tightly enmeshed in international free trade commitments, which give substantial retaliatory powers to participants. Similarly, governments may pursue fixed or managed exchange rate policies through central banks and legal regulations. But the interest rate costs of doing so have climbed as the exit options available to capital increase. Second, power is relative. It is less important to ask whether globalisation has reduced the powers of nation states than to examine how the powers of other social actors are affected in relation to them. For example, states retain the capacity to institute capital controls, and probably possess more powerful bureaucratic tools than they did thirty years ago. But because the alternatives open to investors have grown even faster, this tool is relatively less effective. Similarly states have an increasing capacity to police their borders and survey their populations, but faced with a massive expansion in international travel and the increasing pressures of immigration from the East and the South, they are less able to do so. Governments have never been better equipped to censor the media, and to control, intervene in and distort information flows. However, technological change has simultaneously rendered national borders more permeable and national cultures more open to external influences. Third, we should examine tools of governance together, and not in isolation. Almost any government policy will involve a combination of different tools. Globalisation is more likely to make particular packages more or less effective than to constrain individual tools. Some suggest that globalisation of financial markets has made high government borrowing more problematic and forced sharp reductions in welfare expenditure. This may be true where governments are borrowing to finance general reflation or to fund what markets see as uncon- trollable welfare expenditure (Italian state pensions, for example).

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Where borrowing is tied to tight fiscal polices, however, or to massive rearmament programmes (the Reagan administration), then international financial markets appear more willing. Globalisation thus has more complex and diverse consequences for the tools of governance and the autonomy of nation states than sim- plistic models allow. Legal sovereignty is, with the exception of EU and NATO members, effectively undiminished. Treaties and international organisations like the International Court of Human Rights have infringed upon it. But without a real shift in power, sovereign claims remain formally intact, though normatively challenged and practically threatened. In this sense both the neo-liberals and their critics are right. Nation states remain immensely powerful, perhaps more so than ever before. They have access to huge economic resources, sophisticated bureaucracies and new technologies of information-gathering, manipulation and control. But globalisation is not just a fig leaf; it is an economic, cultural and political fact, although its impact may not be greater than in its previous forms. Why then does the autonomy, democratic accountability and legitimacy of nation-states seem so uncertain? Perhaps because for three or four decades Western states had sufficient power, relative to national and international actors, for governments to deliver enough of their electoral programmes to secure legitimacy for the states themselves and for the distribution of power in which they operated. But only just. The smallest shift in relative power between states and markets has shown that the autonomy of elected governments was always constrained by other sources of unelected and unrepresented power.

This article originated from work with David Held, Tony McGrew and Jonathan Perraton on the ESRC funded research project, ‘Globalisation and the advanced industrial state’.

98 Demos Public services on the world markets Helen Margetts* and Patrick Dunleavy†

The last fifteen years have seen a connected range of administrative changes across OECD countries, sometimes labelled the New Public Management. In Britain, radical contracting out strategies have pulled private sector producers into public services on an unprecedented scale. Most contracting out in the past has taken place in a single country context, but under the programme of change currently underway, public services production is increasingly international. New Public Management changes fall into three categories: competition, disaggregation and incentivisation. Competition components establish competing sources of supply by splitting up purchasers and providers, and contracting provision out Disaggregation creates quasi- governmental and single function agencies to take over local services production from municipalities (and health authorities in the UK). Central governmental functions in the UK have been parcelled up and allocated to Next Steps Agencies, which aim to create executive autonomy. Incentivisation includes pay differentiation, performance related pay and privatisation. The most enthusiastic reformers of the 1980s were Britain, the United States, New Zealand, Australia, South Africa and Hong Kong.

*Helen Margetts is Lecturer in Politics at Birkbeck College, University of London. †Patrick Dunleavy is Professor of Government at the London School of Economics.

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All the reforms are based on the idea that public organisations should be run, where possible, along private sector lines. Incentivisation especially replaces a public service ethic with ‘revenue-maximisation’incentives analogous to the profit motive. To see where these changes are leading contemporary public sectors, it is worth considering concurrent trends in private services production.

Outsourcing, public and private In the private sector, organisational, economic and technical pressures for the globalisation of services production have existed for some time. New ‘service products’ (such as financial futures and complex forms of asset holding) are less country specific than hitherto. Corporations are increasingly able to create and manage demand for standardised service packages. Technological change makes it more possible for service providers to operate across national boundaries. Information technology has facilitated the creation of new products and more targeted marketing of existing goods and services. New forms of organisation have emerged, with large numbers of subordinate units handled by a single central core. The private sector version of disagregation allows large organisations with near-global market presence to clone large numbers of ‘minimum replicable units’, providing a standard service beneath the umbrella of powerful brand names or affiliations. Radical outsourcing strategies are popular, with companies contracting out administrative tasks in order to focus on their core business. Management gurus often encourage companies to develop their ‘core competencies’, and to evaluate ‘every service activity in its value chain and its staff overheads, determine if it is ‘best in world’ at that activity, and, if it is not, consider outsourcing the activity to the best- in-world supplier’.1 Following this strategy, Nike Inc. the sports cloth- ing ‘producer’is basically a research, design and marketing organisation. Its compound annual growth rate is ascribed to the fact that, even when number one in its market, Nike out-sourced 100 per cent of its footwear production. The firm sought to provide its greatest value at the pre-production (research and development) and post-production

100 Demos Public services on the world markets

(marketing and sales) levels, while ‘closely overseeing the quality and responsiveness of its production units’. Large corporations such as Nike pay careful attention to their core competencies, constantly shifting and redefining core functions through mergers, partnership deals, vertical integration strategies and strategic alliances. These trends have led to a radically new kind of internationalisation of services.An international restaurant chain with standardised outlets in every country such as MacDonalds would not have seemed credible fifty years ago. What might core competencies mean for governments? In several countries (New Zealand, Scandinavia, the United States and Australia), governments are adopting radical outsourcing strategies. Britain is the world leader in contracting out public services production. In local government, compulsory competitive tendering now affects not just blue-collar ancillary services (refuse collection, office cleaning, housing maintenance etc), but also white-collar services (legal advice, account- ancy, engineering design, etc). Since 1991 contracting out of central government functions has been compulsory, and agencies are man- dated to meet the Efficiency Unit’s ever higher market testing ‘targets’. There have been few efforts in the public sector to identify ‘core competencies’.Indeed, some of the disaggregation elements of the New Public Management seem to work against it. Next Steps agencies involve considering the wholesale privatisation of functions through the ‘prior options review’, before market testing of their component blocks is considered.‘Market testing’ parcels up functions seen as suitable for contracting out, which are then either offered exclusively to the private sector for tender or much less often subject to competition between contractors and an in-house, civil service bid. Rather than identifying core competencies, the strategy seems to be to ‘see what is left’ – discovering core competencies by residualisation. By default, market testing proponents take writing contracts as the new ‘core competency’ of government. Current trends could herald two different future scenarios. The architects of market testing in the UK evidently anticipate a small core of Whitehall civil servants as intelligent customers and strategic inno- vators. How services will actually be provided is not entirely clear, but

Demos 101 Demos 7/1995 they seem to envisage decentralised nets of producing agencies, mostly small diversified corporations operating in specialised but highly competitive markets.At a local level voluntary organisations and nonprofits are stressed as key service providers, with local authorities playing a steering role. Even policy advice, which many consider the epitome of Whitehall’s ‘core competency’,is under consideration for market testing. However, there is an alternative and less attractive scenario, in which public service production is carried out in specialist oligopolistic trans-national corporations. Defence procurement, and health care drug purchasing, are well-studied cases of multi-national corporations with intense concentrations of specialist professional knowledge producing and marketing an endless stream of innovations to governments, who have extreme difficulty in monitoring or evaluating them. Increasingly, urban services and public utilities are dominated by large multi-national corporations. We have chosen to focus on an area where most western governments until very recently were big players, keen to encourage innovation and new technology; an area which underlies a vast range of modern governmental activities in tax collection, service delivery and the regulation of behaviour. This area is the provision of large-scale information systems in central government.

The privatisation of government information systems production From the 1950s to the 1970s government agencies, both military and civilian, played a critical role in developing large-scale IT systems. But during the 1980s and 1990s, information systems have been identified as a prime candidate for outsourcing by British ministers and US agencies. UK public sector agencies have now overtaken private sector companies in terms of the percentage of information technology work that is outsourced. Central government agencies now outsource on average 25 per cent of IT operations, higher than the European private sector average of 7 per cent. In response to outsourcing by both sectors a burgeoning global computer services market has developed. Technological developments

102 Demos Public services on the world markets have prompted mergers with telecommunications companies and computer hardware and software firms. Over 50 per cent of the market share is dominated by three major players – Hoskyns (now owned by the French company Cap-gemini Sogeti) and the American corporations AT&T Istel and Electronic Data Systems (EDS). The IT sector clearly qualifies as an oligopolistic market. Within this market, only the largest companies can compete for government information technology contracts. Many government computer systems are unique because of their size, dealing with large subsets of the whole population. Privatisations of this kind of government work involve transferring large numbers of staff, and therefore are subject to the European Union’s Transfer of Undertakings (Pro- tection of Employment) (TUPE) regulations (1981). In 1993, the entire IT Office of the Inland Revenue was offered for tender in a contract worth £1 billion for the first five years – Europe’s largest data processing outsourcing deal. 2000 Inland revenue staff were to be transferred to the successful company, so that only the largest companies were invited to tender. Electronic Data Systems (EDS), the largest computer company in the world, won the contract and now manages all the Inland Revenue’s information technology operations. Similarly, when the IT arm of the Department of Transport (DVOIT) was privatised in 1993, only the largest companies could contemplate handling its massive workload, a database covering all UK car drivers and owners and requiring daily updating. The Department of Transport offered the agency for sale for £5.5 million, at the same time putting out to tender service contracts for information technology services worth £70 million. EDS won both contracts from a shortlist of three. Again, under TUPE the 320 DVOIT staff who transferred to EDS retained their existing terms and conditions of employment, a major liability for any purchaser. If any company were set to fulfil the globalisation of public services scenario it would be EDS, which started in the 1960s as a data processing company. Like many other computer companies EDS moved from hardware to software to computer services, eventually moving into the new and lucrative ‘systems integration’ market. Systems integration

Demos 103 Demos 7/1995 involves ‘knitting together’ an alliance of software and hardware. For companies which previously made specific hardware or software products, systems integration represented a major shift from manufacturing to services. Systems integrators often aim to develop expertise in a wider range of their clients’ ‘systems’ than just information; they see information systems as intertwined with other service functions. EDS is now signing contracts with private clients under which it will take on systems development at no cost; in return it takes a percentage of the customer’s business gains. Its first contract of this type in Europe was with the Swedish retail group Kooperativa Forbundet, from which EDS expects to earn $1 billion over the next 10 years. The contract involves the two companies working together on a new information technology strategy. In 1993 the managing director of EDS-Sicon said that this type of contract would account for 70 per cent of his company’s growth in the next five years. Thus when EDS bids for an IT deal, its long-term aim will be to control a wider range of functions and to share profits. EDS is now an established player in UK government IT. It has run three out of four DSS computer centres since the 1980s; supplied hardware, software and support services to the Royal Airforce; provided systems integration for the Child Support Agency; and as we have seen has taken over the IT Office of the Inland Revenue and the DVOIT. The company has expressed strong interest in the planned privatisation of the Information Technology Services Agency of the DSS, in the Home Office’s National Identity Card Scheme, and in the Chessington Computer Centre. With a mission to ‘Be the Best in Class Customer Service Provider’, EDS has a global turnover of £5,670 million and a net worth of $12 billion. In 1991 EDS purchased the UK company SD-Sicon, which had good contacts with government customers. EDS has contracts at all governmental tiers in several other countries, including the US, the European Parliament and New Zealand.

Pointers and problems for the future If government computer systems do point the way, the globalisation scenario looks almost inevitable. Even if they remain an isolated case,

104 Demos Public services on the world markets computer systems form such a crucial part of contemporary administrative development that the implications for other policy areas are immense. In the new world of minimalist governmental organisations overseeing mega-contracts with huge global players, government procurement rules and strategies will become crucial. But the history of government contracting points to several worrying features of this ‘core competency’ of government. The traditional government solution to the problems and risks of contract specification has been to award contracts to a few oligopolistic contractors which develop long term relationships with government agencies. When one small group of professionals concentrates exclusively on regulation, while a second much larger and better paid group in the corporate sector concentrates on production, development and research, gradients of influence and status emerge within the profession. Regulatory or contract monitoring work is lower status, less interesting and less well paid than working for producing companies. Staff migrate in response to these incentives, and government will have extraordinary difficulty retaining the competence to understand complex areas like large-scale IT systems, let alone to manage or assess new developments. Of course governments can hire consultants, but in an oligopolistic market consultants are tied to the corporate giants producing services. For example, the EDS employees working on the Inland Revenue contract will be highly trained specialists, while the contract management team at the Inland Revenue will be generalists. Contract management is not regarded as a prize position for a civil service high flyer. Currently the staff at the Inland Revenue’s Information Technology Office have detailed knowledge of the computer systems that EDS will manage, having worked on their development. Over time, however, this expertise will rapidly date and diminish. Private sector companies calculate that on average, five per cent of a contract value should be devoted to subsequently managing the contract. For the Inland Revenue/EDS contract this proportion is only 0.4 per cent (according to National Audit Office figures). A second problem concerns the general nature of government contracting rules. Normally if one private company places a contract with

Demos 105 Demos 7/1995 another, the first will not concern themselves directly with the second’s profits, as they get the best price for job and the right level of service. But government’s rules usually reflect a Victorian obsession with pre- venting undue profit at the taxpayers’ expense. They place a premium on suppliers of goods or services not deriving super-normal profits from government contracts. In negotiation public agencies will often try to ensure that the contract is specified to give the tightest possible profit margins to the contractor. This creates strong incentives for companies delivering products outside a competitive market or over long time periods to search for profit surrogates. Cutting costs only makes sense if the contracting company gets to keep the efficiency savings, but this is exactly what most government contracting is designed to prevent. Attractive profit surrogates for an oligopolistic company include maximising contract length, building in proprietary or unique technologies to maximise the chances of winning future contracts, ‘gold-plating’ contracts, avoiding regulation by hiding costs and understating profits (eg overcharging for spare parts or additional work), and most importantly enlarging the company’s role in the agency to influence the policy decisions of the government ‘client’.As soon as it has won and set up a government contract, a rational company will pursue these strategies to the full, shaving its quality levels to stay safely below penalty levels, and genuinely improving quality only when enlargement of the company’s role seems possible or when contract renewal is imminent. In this context, J.B. Quinn’s core competencies’ argument advises firms to develop outsourcing partnerships only with non-competing companies: ‘To maintain its position from a strategic viewpoint, the company’s selected focus must control some crucial aspects of the relationship between its suppliers and the market place … And it must defend itself from big purchasers attempting to vertically integrate into its turf’.2 Quinn also stresses that most key innovations in company strategy come from interactions between clients and suppliers, making it important for clients to control them:‘It is well known that a high percentage – about two-thirds in the industries studied – of all innovation occurs at the customer-supplier interface’. Perhaps for these reasons

106 Demos Public services on the world markets the number of contracts that US banks sign with computer companies like EDS rose throughout the 1980s but have now started to fall. In the case of the Inland Revenue, there are grounds for anxiety. EDS will initially work to very low profit margins, but this may change as it consolidates its position. EDS may also hope to develop profit surrogates, such as negotiating the implications of future taxation changes for IT systems, or extending their role within the Inland Revenue to encompass non-IT areas, in any function which they can run profitably. This preference for vertical integration raises doubts about whether EDS and the Inland Revenue are actually potential competitors. Policy innovation in the 1990s is highly reliant on technological change. The Demos Quarterly 4, Liberation Technology, described a cor- nucopia of innovative uses for IT in the public sector. Policy change may also result from the matching of data and the integration of systems. The possibility of merging the tax and social security systems has been mentioned by legislators on several occasions. However, there are currently no links between the two systems, and any data transfer between the two departments is downloaded to magnetic tape and transferred manually.Were such a move to be contemplated, the advice on how to do it would be most likely to come from EDS, currently the only organisation with detailed knowledge of information systems in both the Inland Revenue and the Benefits Agency. For government, rather than EDS, to retain control of policy change there needs to be a new division within the department to liaise with EDS, to understand their operations and to keep track of technological developments.

Conclusions Government contracts will remain distinctive from private sector ones. Outsourcing within public agencies is also distinctive from the private sector in that radical outsourcing continues to grow. (In IT services, for example, British central government agencies are on track to catch up with the United States, where outsourcing of IT averages 50 per cent). The global commodification of public service packages is still embryonic. We are likely to see standardised administrative solutions

Demos 107 Demos 7/1995 spreading across countries in the next decade. This prediction does not depend on the enthusiasm with which NPM reforms are implemented. There are already strong incentives for companies with significant expertise to prepare for such a future. For example, when the Home Office recently announced that national identity cards are now seriously under consideration, EDS had been ‘quietly preparing for years’.Again the company is in a good position, having developed the only smart card system currently operational, in Los Angeles county. Government’s capacity to influence its own environment in key policy areas remains its central ‘core competency’. Yet its regulatory or procurement strategies have remained among the most distinctive features of public administration across countries. In the United States spiralling procurement regulations have been heaped on government agencies in an attempt to retain a competitive market. The British government is a world leader in contracting out public services production, but there has been no concurrent development of procurement capacities in the central state.Apart from writing the contracts, in what other functions do governments (as opposed to private corporations) excel and retain a comparative advantage? Certainly the UK government can never again be a world leader in IT development. It remains to be seen whether it can be ‘best in world’ at writing contracts.

Note 1. Quinn, J.B., 1992, Intelligent enterprise: a new paradigm for a new era, New York Free Press.

108 Demos More to learn from business James Woudhuysen

‘You queue everywhere nowadays’, the West Indian woman told me, ruefully, in the Post Office just north of Blackfriars Bridge. On a Monday morning, there were plenty of grilles to talk to but only one public service employee available. To send a small parcel by Datapost to Japan took a whole five minutes. Not for the first time, the chorus of Don’t start me talking, an old Sonny Boy Williamson blues, came to mind. Lamenting the unexplained absence of his partner, Williamson gave a gritty grunt to the words Minutes seemed like hours, And hours seemed like days … The service at my local Post Office is nothing, as they say, to write home about. That is why, despite the financial success of Britain’s state- run mails, some want to privatise them. Already the Dutch could give the Post Office a run for its money on the UK market. So customer service is nowadays a factor not only in privatisations, but also in international competitiveness. That is why governments, whether in Europe or North America, should be interested in it. Trade in services has grown dramatically in recent years. Much of the world’s

James Woudhuysen is head of worldwide market intelligence in consumer electronics at Philips, the Netherlands. He is also Professor of Design Management at De Montfort University, Leicester.

Demos 109 Demos 7/1995 foreign direct investment is in services. Increasingly, we can expect the market to compute the value-for-money performance of every British post office – or hospital – on a world scale. In this article, I explore some of the similarities and differences between public and privately-organised services. I discuss why and how consumers of private services have become more attuned to standards of service. Drawing upon the positive and negative experiences which the private sector has had in services, I conclude that the defects of public services are not congenital. They are rooted, like those of the private sector, in the priority given to market forces over investment.

Behind the resentment of public service standards In educational services, the Government published its first Parent’s Charter in 1991. In 1994, it sent a new Charter, a 30-page colour glossy booklet, to every home in England – regardless of whether it had children in it. From the attempts by local councils to win Charter Marks for parks and gardens, to the Department of Transport’s infamous ‘Cones Hotline’ (1991), government has made the charter mentality a religion. But results, if we look at the proportion of British people having confidence in the civil service, Parliament and the legal system, have been mixed (see Table 1 overleaf). Confidence is but a proxy for customer satisfaction with government-supplied services. In the case of education, however, levels of satisfaction have clearly declined over the past decade (see Table 2). There is a kind of Customer service deficit in many branches of British government. American talk of the empowerment of customers and staff, the news that some police will no longer visit the victims of burglaries but will rather deal with their cases by phone – these have not set happy precedents. Many who use the state sector, and quite a few who need not, now feel the customer service deficit acutely. Over the past few years, value for taxpayers’ money in public services has emerged as just about the only issue that the parliamentary parties and their Town Hall counterparts really get worked up about. With taxation given the political

110 Demos More to learn from business

1993 1983 1995

onarchy

The m The

Trade unions Trade

The press The

Education system Education

ivil service ivil

The church The

ent

Parliam

Legal system Legal The police The

Dramatic fall in confidence in national institutions. (% having either ‘a great deal’ great ‘a either (% having Dramatic fall in confidence national institutions. ed forces ed 0

Gallup/The Henley Centre, Planning for social change 1995/96. for Planning Gallup/The Henley Centre,

80 60 40 20 Arm 100 Table 1 Table a lot’or ’quite o confidence in institutions) Source:

Demos 111 Demos 7/1995

Table 2 ‘On the whole, would you say that you are satisfied or dissatisfied with your children’s education (the education your children are getting today)?’

Today 1988 1984

Satisfied 34 39 48 Dissatisfied 46 40 31 Don’t know 20 21 21

Source: Gallup.

prominence it has received in the 1990s, resentment about poor service from the state has increased. Another reason for resentment is that the service available from the private sector has broadly improved while public sector standards have declined. I say ‘broadly’,because it would be hard to argue that major break-throughs have really take place in mass retailing, catering or leisure. Even the service given by British Airways has levelled off from the heady peaks of late 1980s, and the service dispensed by BAA at Heathrow has certainly declined. Nevertheless, the perception is that the private sector provides better service than the public; that, even if good service can only be found in Savile Row, state services will never come up to that level. Yet, there are no intrinsic reasons why public sector service should compare badly with that delivered by the private sector. In the Keynesian 1950s and 1960s, British public servants identified with what they did, and standards of service were reasonable. What seems to determine the overall quality of British public services today is not the fact that they are public, but that, like privately-delivered services, they are operated in a weak economy. In America and Germany, the productivity and effectiveness of both kinds of services is generally higher than in Britain. What, though, can government learn from the experience of the private sector in customer service? Unmistakeable though it is, the play of market forces is modified in the public sector.It would be foolish,

112 Demos More to learn from business then, naively to try to graft techniques from the private sector on to the public. Social security offices do not especially want from claimants what the private sector used to describe as ‘repeat business’ and now enthuses about as ‘customer loyalty’.Similarly, while ultra-commercial leisure venues like Planet Hollywood or the Hard Rock Cafe seem positively to encourage queues, nobody enjoys queuing for services financed by deductions from their gross earnings. Still, the dilemmas of customer service in the private sector tell a story which anybody interested in government needs to heat. Reveal- ingly, that story begins not with service suppliers, but with the holistic view customers now take towards standards of service.

The emergence of common customer benchmarks One of the fascinating, if often unnoticed developments of the past decade is the way in which consumers in the West have grown more sophisticated about customer service. Through their exposure to a wide range of environments – McDonald’s Barclays Bank – consumers have, consciously or unconsciously, built benchmarks, by which they measure service. These benchmarks, which cover queuing-times, prices and etiquette, are now applied to every kind of service supplier. Thus admission to a cinema’s compared, at least in a back-of-mind fashion, with getting a shoe repaired. Henley research gives a hint of today’s exacting requirements: tracking 2000 British consumers between 1989 and 1994, it confirms that the demand for better service in shops has enjoyed a steep rise (see Table 3). It is not hard to see how this situation has come about. More and more of us work in the service sector, and even manufacturers have to add services, or a call-free telephone number, to their products. Many people have first-hand experience of delivering service themselves, and are thus prone to criticise poor service in others.

‘The dilemmas of customer service in the private sector tell a revealing story that governments need to hear’

Demos 113 Demos 7/1995

Table 3 Consumers are every more demanding (% citing important).

60 1994 1991 50 1989

Lower Service prices Product Productrange equality

Source: The Henley Centre, Planning for social change 1994/95.

Holidays overseas, together with international business travel, have also worked in the same direction. So, too, has successful interaction with computers: although a simple PC display does not quite consti- tute the fielding of a service, PC users register the speed with which information is imparted, transactions are executed and benefits accrue, and bring their experience at the screen to bear later – when they encounter services which are conveyed personally. Another factor tending to universalise our yardsticks for service is word-of-mouth accounts of it. The dinner-table narrative about ‘my worst day ever’ at Heathrow Paddington or on the buses is important. In Britain, perhaps 200 million personal recommendations of products and services are made each year (see Table 4). The final and perhaps most important source of demand for better service relates to what can be termed Pre-Millennial Tension: the sense

114 Demos More to learn from business

Table 4 Average number of people recommended to, UK

Whisky 2.17 Sound and vision manufacturer 1.43 Sound and vision retailer 1.32 Instant coffee 0.84 Investment 1.71 Car insurance 1.08 Tour operator 2.13 Travel agent 1.53 Car 2.84 Loan 2.54 Lager/beer 2.15 Electronic goods 2.55

Source: The Brann/Henley Loyalty Survey 1994. people have of society and lives being more at risk than in the past. In a climate where the consequences of today’s actions are widely feared, consumers feel insecurities even at the point of purchase. In response, manufacturers have turned to augment their basic products with services which play to people’s fear of risk. The new consumer services offered by manufacturers insure the product buyer against product breakdown, or are designed to make the personal finances associated with purchase a more stable, user-friendly affair. The gospel of product augmentation, long preached by the American marketing guru Philip Kotler, has been imprinted on the public mind as the expectation that every product may or should have some kind of service attached to it. In America, indeed, no less than 80 per cent of supermarket products have a call-free 800 number printed on them. From cars to appliances, service has become a way of life to manufacturers. Here, at least, market niches are plentiful. Moreover, because services lock customers into long-term, ‘loyal’ relationships, such niches are, for the most part, highly profitable. The many facets of today’s consumer sensitivity toward service ought to be obvious to government. However, they are by no means

Demos 115 Demos 7/1995 obvious to private service suppliers – even when the latter are not manufacturers lately diversifying into services, but service specialists through and through. Too often, companies calibrate their quality of service against that offered by their direct rivals alone. Banks for example, worry above all about building societies, and tend to neglect the Woolworth’s outlet next door. They make this mistake; but for the cosmopolitan, time-pressed consumer, it’s all the same. Matters go further. Consumers don’t just generalise their experience of service across different supplier sectors, but across different means of accessing the same basic service. In this sense, much of the discussion about teleshopping, just like that about self-service multimedia terminals in local Town Halls, misses the point. These new technologies will not substitute for old ones, but will work symbiotically with them. Why? Because the technologies of access represent more than a simple means only to suppliers afflicted by tunnel vision. In the course of a day, the consumer will use any combination of technologies that gets the job done, or that suits the mood of the moment (see Table 5). For government, there are important lessons here. Private-sector suppliers of services are often afflicted by patronising, ‘technology push’ visions of consumers. Too often, they find themselves concerned with channels, not users. It would be a shame for government to make the same error.

The role of Information Technology In the private sector, both manufacturers and service providers have high hopes of new, low-cost ‘killer’ distribution channels. Both want them to help build durable relationships with loyal customers, for in recessionary times the struggle for new customers no longer looks as attractive as once it did. But in the race for customer loyalty, it can still take a bank twelve minutes to sell an existing customer a mortgage over the phone. Tomorrow’s electronic channels – complete with electronic forms, video telephony and on-screen lists of goods and services sorted by price and brand – will probably demand the same kind of effort on both sides. Electronic channels may appear as cheap, labour- saving alternatives to conventional distribution; but in practice work

116 Demos More to learn from business

Table 5 Lessons from retailing: the correct conception of staffed outlets, self-service terminals, home and work.

Home Phone

Different kinds of shopping trip TV

Mail

Interrupted Uninterrupted commutes commutes

Outlet-based Work Phone SSTs

Conversation PC a mobile phone Other public-access SSTs Mail Asking, browsing, ‘trying on’, ordering, journeying – throughout!

Source: The Henley Centre Media Futres Study 1994/95.

around them is very labour-intensive. A recent study of the ‘cost per word’ to consumers of various Japanese media has found that it has been rising, not falling. The evidence suggests that ‘killer’ channels exist only in the fevered imaginations of corporate planners and tech- nologists. Consumers take a more sober view. Sobriety can turn to exasperation, however, when information technology (IT) is prominent in unhappy service experiences. When IT is obviously present but its merits are not, people can feel depersonalised and cynical about the investment that has been made.When a member of staff reports that a computer is ‘down’, or that a printer (dismissively referred to by the IT industry as a ‘peripheral’) has jammed, it is easy to get annoyed. In service, IT promises easier, more universal access. Yet all too frequently, and especially in Britain, it is introduced to cut staff costs. At my local Boots, for example, an unattended EPOS terminal flashes up, in green capitals, the legend Staff nearby will be pleased to help you. But

Demos 117 Demos 7/1995 profitability considerations ensure that there are often no staff available. This is what ‘downsizing’. Business Process Re-engineering and the spread of IT can lead to in customer service. Just like the smile on a walter’s face or the cup of coffee at the hair- dresser, no amount of IT can make up for fundamentally poor levels of service. But people on the receiving end of bad IT-based services rarely associate mishaps with myopic or penny-pinching management further up the line. In the heat of the moment, it takes a generous, humanistic spirit not to blame the employee in front of them – as long-suffering employees of British Rail will freely attest. In a rational moment, it is clear that the management information is at fault. But an empty stomach or a missed connection do not encourage rationality. Customers, however, will continue to grow more discerning about service.More and more,they are able to detect when queues have merely been re-located, rather than abolished. They are not fooled by hype about IT, and have, by the million, already discovered that ‘surf- ing the Net’ can often feel more like queuing the Net. Their benchmarks in the realm of IT are just as comprehensive, and as fierce, as they are at Pizza Hut or Little Chef. With or without IT, there are disturbing messages for governments here. In dealings with the private sector, consumers have the possibility, at least in theory, of ‘taking their custom elsewhere’. In the public sector, by contrast, consumers usually meet no choice at all. There is nowhere else to go for a London ambulance. No amount of ready cash will get one out any faster; so if a two-tier NHS already exists, its further consolidation could prove politically explosive. Older people in Britain already complain that they did not fight the Second World War to meet this kind of service. When ‘the consumer’ is a voter, things can become very sticky indeed – and IT, paradoxically, can make them stickier still.

Private sector achievements and pratfalls The past decade has seen not only tougher customers, but also growing recognition of this trend by business. Management bibles with

118 Demos More to learn from business titles like Total customer service sell by the million. Some insights have been achieved, even if many more remain for the future. One of the better examples of the literature on the subject is Ron Zemke and Dick Schaaf’s The service edge.1 The authors begin with a strong emphasis on listening, strategy definition, measurement and staff – issues which are highly relevant to the public sector. It is worth summarising the first part of their analysis (see Table 6). They go on to make further recommendations. They suggest that managers play the customer for a day and incognito, conduct what retailers now describe as ‘mystery shops’ on their own staff. They also note that successfully recovering from making an error can pay divi- dends with customers. Their approach is again worth summarising (see Table 7). Two points are worth noting here. First, staff know all about and fear ‘mystery shops’, just as they fear being named as a perpetrator of poor service. The measurement of service, then, can be akin to surveillance; and staff themselves can participate in this.A young ski instructor ‘on probation’ whispers the entreaty ‘Please say something nice about me’. In every hotel room, maids meet another customer questionnaire

Table 6 Service delivery and error recovery (1)

Listen to, understand and respond to customers Define superior service and establish a service strategy i. deliverable ii. continually communicated iii. differentiated iv. get 1% better at lots of things, not 100% at one Frequently measure the same thing by shift, site and time of day; though the customer defines good service, the measures must be meaningful and generalisable by staff Select and train so they do not need authorisation all the time; gain praise and rewards; are provided internal Hotlines

Source: Zemke and Schaaf (1989).

Demos 119 Demos 7/1995

Table 7 Service delivery and error recovery (2)

Monitor customer Expectation, Experience and Evaluation of that experience Perform ‘mystery shops’ on your own company and its rivals Realise that there are no errors made by customers, but that your own error, if properly corrected, can be a chance to increase loyalty Feelings of inconvenience or annoyance on the part of a customer demand a personal apology and urgent ‘reinstatement’ When such feelings are compounded by those on the supplier, a sense of victimisation can be unleashed: counter by empathy, symbolic atonement and follow-up for closure and authenticity.

Source: Zemke and Schaaf (1989). staring out at them, ready to make trouble if filled out critically. In this respects, monitoring customer service can, with staff, rub on just those late-1990s insecurities we have already mentioned. Second, research by Tarp Europe, tracking customer loyalty, rein- forces Zemke and Schaaf’s argument about the significance of ‘error recovery’. According to Tarp, consumers are more likely to buy something again when a mistake is put right than if there were no problems in the first place (see Table 8). In the literature of the management of design, further discoveries have been made. Work by Sisodia in the USA has identified a number of ways in which the design of service locations – from car rental outlets to bowling alleys – can be managed so as to improve performance. Here, supplemented by a Henley addendum on ‘Nail Points’,are the key areas to inspect (see Table 9). In a similar vein, research by Rob Waller in Britain and Fisher and Sless in Australia has shown how a professional approach to the design of forms – whether printed or displayed on-screen – can save customer and staff time. Anyone who has ever made a mess of a US Immigration Service form allowing entry to America (complete with tiny print assuring the reader that the impenetrable boxes conform to legislation mandating simplicity in form design) will know what a

120 Demos More to learn from business

Table 8 A well-handled complaint can increase repur- chase intentions (%).

Those with Those with no problems no problems that were satisfactorily dealt with 100

good Branch Air travel repair Car rental Consumer banking Appliance

Source: Tarp Europe 1994.

Table 9 Where design can improve customer service environments

Lines of interaction Designing places/comuncations for meeting customers directly Lines of visibility Arranging exactly how much hi-tech and hi-touch customers get to see Fail points Organising the places/communications where defects are most likely to occur Nail points Using IT to build lessons from mistakes into the system, ending future errors Hail points Where customers can be surprised, delighted and impelled to pass the word.

Source: Sisodia (1992)/The Henley Centre.

Demos 121 Demos 7/1995

Table 10 Information design as a means of improving forms in service organisations

Work of the information designer delineation and sequencing of user’s tasks understanding of skills and time demanded of users display of clear, logical branching structure for questions, prompting users always to move forward and never back improvement in language content by focus group testing of word- only prototypes before words-and-graphics ones, iterated over three or more cycles listening to users, mediating in prolonged intra-company disputes over forms, collaborating with copywriters Aims: 1. to minimise user errors 2. to minimise the staff time spent compensating for errors Typical savings: £5 per form completed

Source: Waller, Fisher and Sless/The Henley Centre. service these Anglo-Saxon information designers themselves have rendered (see Table 10). Finally, research into telephone use by companies and consumers, by Melanie Howard at the Henley Centre, has shown both the massive amount of ‘inbound’ calls taken by British business, and the shortfall in ‘outbound’ calls made by them to check up on customer satisfaction. Just between 1992 and 1994, British consumers grew markedly more willing to receive calls, in their own homes, from companies (see Charts 11 and 12). Clearly the private sector has a growing body of expertise about customer service which government can learn from. For example: the personal handling of inbound telephone calls is, as Howard has shown, a matter of speed, friendliness and repeatability (see Table 13). Yet although insights like these are sometimes turned into practical achievements, firms still make massive pratfalls as does government. Tourism specialists, for instance, lose customers every day through

122 Demos More to learn from business IT Outbound calls Inbound calls Finance Utilities Retail Travel Other Auto Consumer Teleculture 2000. Teleculture 0 50 500 450 400 350 300 250 200 150 100 Table 11Table sector by (100,000s). calls per company, Average Source:

Demos 123

Demos 7/1995 ost

Fairly happy Fairly happy Very frequently use frequently

ost

Clothes shop m shop Clothes

frequently use frequently

Restaurant m Restaurant

of your car your of

anufacturer

ost

Dealer bought car from car bought Dealer

recently used recently

Tour operator m operator Tour

savings account savings

Building society - society Building

bank - bank

Current account Current

ost

frequently use frequently

ost

Clothes shop m shop Clothes

frequently use frequently

Restaurant m Restaurant

of your car your of

anufacturer

M ost

Telebusiness 1994Telebusiness PSC 1992

Dealer bought car from car bought Dealer

recently used recently

Tour operator m operator Tour

saving account saving

Building society - society Building Bank - Bank The Henley Centre, Telebusiness Survey 1994/The Henley, Planning for Social Change. for Planning Survey 1994/The Henley, Telebusiness The Henley Centre, 0

90 80 70 60 50 40 30 20 10 100 account current Table 12Table you to contact companies/shops the following be for know/not you applicable.) would happy How don’t – base excludes very/fairly happy phone? (% saying by Source:

124 Demos More to learn from business

Convenience Cordiality Consistency

Answered quickly Talking to... Did what they said they would

Get straight Helpful through to Every time someone who can help Professional Same level of Call service Achieve objective Transfer once, Knowledgeable result if at all Reliable/ Friendly predictable No need to repeat

People who... Informative queuing system

Source: The Henley Centre, High Street Teleculture

Figure What customers want when they call a company

poor service.In many industries the urge to answer an anonymous telephone call, rather than deal with the individual customer on the other side of the reception desk, is still great. Perhaps the biggest disas- ter in the making, given the alacrity with which business has begun to favour it as a channel for customer service, concerns the private sector’s use of the telephone for recorded messages, or what is termed ‘voice mail’. IT companies were among the first to install elaborate voice mail systems. But, as a consequence, it is now very difficult to talk to a real IT person on the phone. A string of instructions is issued about which numbers to press on a touchtone phone; but listening to this can be an interminable affair, worse even than muzak played through a handset. Confidence that messages will be heard, let alone acted upon, is not great. There is growing suspicion that voice mail is just another way of re-locating queues. Governments and town halls prone to enthusing about the Internet should take note of this.Nobody will take seriously the promise of a more responsive state, based on E-mail communications

Demos 125 Demos 7/1995 sent by John or Joan Citizen,ifpublic sector standards ofservice through the plain old telephone do not improve.

Conclusion No matter how hi-tech the new channels for customer service appear, the customer will eventually reach a human being to converse with. In the public as in the private sector, service comes down, in the end, to staff. The $64,000 question is how to motivate staff to provide better service, at a time when fewer of them are being asked to do more, for little extra pay, than ever before. For government as for companies, there ought to be little mystery about customer service. In technical terms, nearly all the lessons learned by the private sector can be applied, with suitable adjustments, to the public sector. The issue for both sectors is the economic means and the political will to invest in customer service: to invest in the pay, working conditions, design and IT infrastructure that are all necessary if management bibles are to become reality. The investment must stress the real, in-depth training of staff. That, not selling more private services or saving money on existing pubic ones, is what genuine customer service is all about. Particularly in Britain, where profitability is low by comparison with the rest of the West, the private sector often takes a short-term but brutally realistic attitude to service. Bottom-line considerations can still make it wise to rip off a customer in the here and now, rather than worry about the fact that he or she may never come back. That is the way with British business. Clearly, much will have to change if government in this country is ever to do any better.

Note 1. Zemke, R., and Schaaf, D., 1989, The service edge, New York, New American Library.

126 Demos Back to direct government? Diana Leat

Quality and markets in public purchasing The New Public Management stressed creating competitive markets in public purchasing, in pursuit of responsiveness, choice, quality, value- for-money, flexibility and efficiency. Direct provision by government was, its advocates argued, intrinsically inefficient. But are some services unsuitable for market treatment – not for ideological, but for strictly practical reasons? This article suggests that some markets may actually undermine the goals they are designed to deliver. It examines a field in which government has tried to set up markets in public purchasing, with at best uneven results, and draws lessons for reformers. The case study is domiciliary care or homecare (‘care in the community’) for the elderly, but the findings and implications of the argument run far more widely into such fields as security and healthcare. The first problem for reformers is often to create a market. New Public Management reformers usually say that difficulties at this stage are just teething problems at best, or at worst reflect ideological resistance and protectionism. However, sometimes problems of market creation may result from the problem of ensuring quality. Contrary to the simple-minded

Dr Diana Leat is a Senior Research Fellow at Demos and also at the Policy Studies Institute and the City University Business School.

Demos 127 Demos 7/1995 prescriptions of Total Quality Management, achieving quality presents different problems in each service area. Poor quality socks are still socks. But poor quality, unreliable security or social care is just not security or care at all. There are some fields where flexibility for purchasers and security for providers, market competition and quality control, are in conflict with each other. Understanding these conflicts is crucial to moving beyond the New Public Management models.

Creating a market in homecare Some reformers have been frustrated by the slow pace of market creation in social care. Much of this is due to purchasers’ and users’ lack of trust in the quality of care offered by private and voluntary agencies. Before 1993, local authorities in Britain provided most social care for elderly and disabled people directly. Quality was – albeit imper- fectly – a matter for internal management accountability. Now care is supposed largely to be purchased from private and voluntary organisations. Quality must be ensured through specifications in explicit contracts, inspection and complaints systems. Setting up the market and running contracts is already costly, but guaranteeing quality adds even greater cost burdens. Moreover, quality control can raise potential providers’ costs of entering the market, so reducing competition, choice and innovation. One final irony: purchasers’quality controls may recreate the previous local government style of provision and control. De-governmentalised services are effectively re-governmentalised – by a roundabout route and at great expense. In the NHS and Community Care Act 1990, the government had two aims: to shift provision from residential to domiciliary care; and to encourage a flourishing, competitive independent sector. The underlying goals were choice for purchasers and users, flexibility, quality, value-for-money and efficiency. The strategy assumed that a flourishing competitive independent sector would provide a wide variety of services, enabling provision to be led by the needs of users, offering them choice, and offering the purchasers choice, flexibility, and value- for-money.

128 Demos Back to direct government?

Dilemmas of creating a market Yet, eighteen months after the Act was implemented, little had changed in the balance of provision. Official statistics for 1994 show that 40% of meals and only 5% of homecare contact hours were delivered or served by the independent sector under contract.1 Why so little success in market making? Did the continuing dominance of local authority provision reflect ideological resistance and protectionism, teething problems, or more fundamental difficulties? True, there was cultural resistance within local authority social services departments (LASSDs) to becoming purchasers, especially from the private sector. Many thought social care and profit-seeking mutually incompatible.2 But this was a small part of the story. The first obstacle was that before 1993, independent organisations operated on a small scale in geographical and client group niches. Government seemed to assume that homecare is basically like residential care because both have low entry costs and depend on female semi- and unskilled labour, and that homecare would respond rapidly to increased public sector demand, much as residential care did in the 1980s. But there are fundamental differences with residential care. Homecare is even more labour intensive, designed to be flexible and discontinu- ous. Moreover, users are not ‘captive’ and there are no fringe benefits for providers (such as a home and living expenses, as well as an equity hedge).3 Gradually government recognised that more was needed to create a market. It issued exhortation and guidance, and provided purchasers with money. The main tool for ensuring that local authorities purchased from the independent sector was the Special Transition Grant (STG), a ring-fenced sum reflecting the transfer of responsibility for care from the benefits system to local government; 85% of it had to be spent on care bought from the independent sector. But purchasers could not purchase what did not exist, and so the Department of Health (DoH) invited LASSDs to bid for project grants to encourage independent sector homecare services. Both STG and project grants illustrate the dilemma for the reformers. What had been seen as a matter of encouraging purchasing and

Demos 129 Demos 7/1995 driving hard bargains over price and quality became the more difficult task of making a market. This involved intervening to ‘rig the market’ in favour of the sector, using what looked remarkably like community development – both ideologically uncomfortable to central Govern- ment. It also involved not doing certain things – regulation, for example – for fear of discouraging market entry or increasing costs that might threaten the viability of fragile new providers. In short, quality control conflicted with market stimulation.

‘The attitude was frequently: “Voluntary organisation? that’ll do nicely”’

In-house services were there, known and trusted and, in some departments,‘centrally purchased’.Where the purchaser-provider split was not fully developed, care managers saw using in-house services as less risky, and without cost to the budget, so that they could in effect get more care for their money. This became even more important in the latter part of 1994–5 when financial constraints and new Govern- ment guidance required that the cost of any homecare package was restricted to the cost of residential care minus charges to users. So, market-making conflicted with budget control. Inevitable teething problems? Perhaps. But there were other tensions between goals and market means. LASSDs could choose to buy either bespoke care – ‘spot purchasing’ – or off-the-peg care in bulk – ‘block purchasing’.Neither was wholly sat- isfactory. In pursuit of flexibility, competition and responsiveness, most chose spot purchasing. However, flexibility for purchasers and users often meant insecurity for providers, because spot purchases do not easily guarantee them the volume needed to cover overhead costs of administration, management and training for care workers. It also deprived them of the financial security they needed to risk hiring large, stable pools of care workers sufficient for flexible response. Spot purchasing encouraged providers to rely on part-time self- employed care staff, paid only for hours actually worked. Recruiting

130 Demos Back to direct government?

people to work on such conditions is not easy. Increasing their hours is often difficult because the people willing to accept such work usually have other domestic commitments. Low hourly rates, usually including travel time, compounded difficulties in staff recruitment and retention. Yet these rates reflected purchasers’ pursuit of value-for- money. Providers sought to maintain agency status in order to reduce VAT costs, but this reduced purchasers’ ability to monitor and control

Demos 131 Demos 7/1995 quality. In short, the goals of flexibility, choice, competition and value- for-money conflicted with flexibility and quality control. Block purchasing, on the other hand, required predictions of demand, when purchasers were supposed to be ‘user-led’. Moreover, it locked purchasers into deals with a few providers, reducing flexibility, choice and perhaps value-for-money. It also required high levels of trust in often unknown and untested providers, whereas spot purchasing enabled purchasers to build trust purchase by purchase. One way to fill the ‘trust gap’ would have been regulation of homecare. Ministers firmly rejected various pleas for it, partly because it sat uncomfortably with the general drive for de-regulation, and partly for fear of damaging a new and fragile market. This left a vicious spiral with trust at its eye. In order to create a market, purchasers had to be encouraged to purchase. A major obstacle was lack of trust. Trust could be increased, and transaction costs reduced, by national regulation, but it was feared that this would dis- courage new market entrants, reduce flexibility, and raise producer costs and prices.

Re-creating quality control To overcome this trust deficit, LASSDs began re-introducing quality control by drawing up lists of accredited providers. Under the old system of direct provision, accreditation was not needed, because purchaser and provider were the one and the same and the democratic process was supposed accredit that provider. In reality, of course, there were other providers and even some ‘purchasing’ from voluntary organisations by way of grant aid for services often to the very vulnerable. Because these few organisations were known to staff and members, they were informally ‘accredited’. Their voluntary status encouraged trust in the organisations and in the quality of their services, as well as a laissez-faire approach to monitoring and accountability. The attitude was frequently: ‘Voluntary organisation? That’ll do nicely’. Market-making changed this cosy informal approach. Accreditation seemed a natural solution to four new problems:

132 Demos Back to direct government?

Scale of purchasing: external provision of homecare became mainstream and large-scale in funding and numbers of clients. LASSDs were no longer dispensing gifts to organisations on the more or less explicit understanding of some return, but purchasing services, for consumption by others, under contract from providers. For-profit provision: proprietary for-profit firms had to be involved on a much larger scale than ever before.Yet many LASSDs did not trust for-profit providers, for various reasons. Numbers of transactions: there were more providers than previously, largely because of the widespread use of spot purchasing. Both the number of spot contracts and the number of competing providers required some form of control to take the place of personal knowledge, close relationships and trust. New skills: the government wants a shift from residential to domiciliary care. Homecare now involves much more than shopping and cooking for relatively able users, but encompasses a range of services enabling those on the margins of admission to residential care to remainat home. This calls for more varied and demanding skills.

Accreditation, then, provides a reason to trust providers, when older systems of ensuring trustworthiness and quality – either direct management or personal contact – are no longer usable. But accreditation brings new problems and can conflict with other goals.

‘The homecare experience points up some limits of the New Public Management’

Costs of market quality control Accreditation effectively limits market entry. In homecare, controlling market entry is a costly and imperfect way to ensure quality. First, unlike residential care, there is no body of legislation or ‘good practice’ to draw on. Drawing up standards is costly for purchasers. Moreover,

Demos 133 Demos 7/1995 to avoid inflexibility, homecare standards must take account of the variety of tasks involved, and range of types and sizes of providers. For example, a domestic cleaning service to a few users may, without sacri- ficing quality, be very different from providing homecare for a larger numbers of terminally ill people. Next, there are enforcement costs. Homecare takes place behind closed doors in hundreds of locations every day. Inspection would be unrealistically costly. Some authorities therefore focus on characteristics of organisations which can be inspected. But this raises two problems. First, inspecting homecare organisations is like inspecting residential homes when the residents are all away. Second, relying on organisational characteristics assumes that the relationship between inputs and outputs or between organisational characteristics and quality of care are known, which they often are not. But who should set standards? If purchasers alone set them, they may be too high for some small and mediumsized providers, and often unen- forceable. Therefore, some would argue for consultation with providers to ensure that they feel they ‘own’ the standards. This risks the charge of provider-led services, exactly what the market was supposed to overcome. Accreditation standards have to take account of providers’ costs in meeting them. If they are too high, providers will not enter or even exit the market, and consumers will lose continuity – and therefore quality – of care. This is the conundrum at the heart of the homecare market: quality control is at once the bedrock of trust that makes purchasers willing to buy and clients cooperate, and also the rope that can strangle it, by reducing both choice and flexibility. Moreover, regulation can make ‘independent’ providers resemble the statutory providers they are supposed to replace, because they will face the same costs and constraints. Paradoxically,some markets actually restrict responsiveness to users. Markets require contracts and contracts mean insurance. Many independent sector homecare providers pride themselves on their responsiveness to users’ needs. But some are now discovering that flexibility – for example, lifting someone over 5 stone in weight or staying on after the contracted time – may invalidate insurance claims.

134 Demos Back to direct government?

Markets can even be inefficient. For example, pursuing flexibility and value-for-money, purchasers want to buy very small units of care – for example, half an hour – which are not economically viable for providers. Therefore, they must pay for a whole hour, effectively dou- bling the price and reducing value-for-money. Lack of co-ordination is another source of inefficiency. For example, one purchaser buys one hour of care from one provider to supply service in an area; another purchaser wants to purchase half an hour of care in the same area and approaches another provider not knowing that the first provider already has a care worker in the area at the required time. At best, two care workers spend time travelling to the area (entailing costs for the provider organisations or for the care workers); at worst, the purchasers pay for at least two hours of service when, with co-ordination, they could have paid for one and a halfhours. Yet local authorities are not permitted to merge to benefit from economies of scale. All this explains why some care managers now argue that a better quality, more flexible and efficient services could be provided if they could directly hire a pool of care workers, guaranteed a certain number of hours’ work per week and accountable directly to the purchaser and user. This, they argue, would allow co-ordination and efficient utilisa- tion of care worker hours, reliability and continuity of care, and development of experience in particular needs. By contrast, they suggest, purchase in the market hinders co-ordinated and efficient use of care workers’ time, at best permits only indirect accountability and discour- ages reliability, continuity and development of specialist experience. In short, re-governmentalisation is back on the agenda. The old LASSD homecare service may yet be re-invented, not because it was perfect but because it balanced reasonably well the conflicting goals. More fundamentally, ensuring quality in services is quite different from ensuring quality in goods, and homecare is a very particular kind of service. It involves co-production between producer and consumer; the relationship is inter-dependent and reciprocal. Care staff are inte- gral to production and quality. Homecare is dynamic, interactive and immediate. Flexibility is not just desirable but essential. Homecare services are decentralised; they take place behind closed doors without

Demos 135 Demos 7/1995 direct support and supervision, and are not easily inspected. Homecare often involves intimate tasks for increasingly vulnerable, and sometimes confused, people. This is why it is doubtful that quality and flexibility can be secured by formal written standards. Rather, we need a culture of quality and flexibility in purchaser and provider organisations – a large and difficult task, where spot purchasing has undermined continuing close relationships. Block purchasing from a few providers would reduce co-ordination and quality control problems, but would sacrifice flexibility, choice, competition and value-for-money. Whichever style of purchasing is used, creating a market is at best an imperfect way to achieve the policy goals.

Conclusion The homecare experience points up some limits of the New Public Management. The difficulties are not just teething problems. In some services, creating markets in public purchasing raises fundamental difficulties. Oddly enough, there have always been true markets in homecare, at least for the wealthy, alongside government support. But where:

trust problems are serious; the available means of ensuring quality quickly begin to undermine competition, choice or flexibility; and yet without such quality control, buying cannot be done effectively or with public support, creating markets in public purchasing can be a less effective solution than direct provision. Of course, some sort of market can be forced into existence, but it will be costly to run and will, over time, tend towards patronage in buying and scandal in provision. In some degree, these conditions occur in all markets; sometimes, as in homecare, they are severe. Homecare is probably not alone in fea- turing this grim combination. Similar problems will likely be found in policing, probation work, prisons, and perhaps some healthcare markets. Before embarking on creating markets in government contracts in these areas, reformers should learn from the homecare experience.

136 Demos Notes

1. Department of Health, 1994, 3. Leat, D., 1993, The Development of Statistical bulletin, August, HMSO, Community Care by the Independent London. Sector, London, Policy Studies 2. Hardy, B., 1992,‘Hares and Tortoises’, Institute. Community Care,3rd September.

Demos 137

Close encounters of the digital kind William Heath

How will computer networks affect government? Consider two examples of the information superhighway delivering services in 2010. Mr Jones is 79 and lives at home. He is fit enough to care for himself, but needs help with the shopping. His feet hurt, and he has forgotten his nephew’s birthday. While looking for a card he has just found an old Premium Bond certificate. There’s a ring at the door and it’s familiar face. The government call them Citizen’s Friends, cynics call them electronic parish priests but he calls the woman – who wears a uniform and has an ID badge – by her first name. She carries a portable computer with a mobile data connection, similar to the IBM systems first installed in police cars in 1994. He puts his voluntary smart ID card in the PC, authorising her to use the net on his behalf. They check his pensions payments and bank balance, and then his larder, and she places an order with the supermarket using the pensioners’ home delivery option, billed to the local authority. She books a chiropodist’s visit from the health centre, which authorises the expenditure.

William Heath is a partner in Kable, the independent publishing and research group specialising in government’s use of computers and telecommunications.

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Mr Jones shows his friend the Premium Bond certificate, and she quickly checks to see if the numbers have come up in the last 10 years – they haven’t. She then arranges for the certificate to be reallocated to Mr Jones’s nephew, and they compose a card and send it to him in Australia. Mr Jones withdraws his ID card and the session is finished. Mr Jones remembers the time when all these things were dealt with by different offices. He once counted up all his local council’s phone numbers from a leaflet dropped through his letter box; there were over 200, mostly for services he had never heard of. Meanwhile, Mrs Smith is running a small business. She is expanding and looking for new markets, and she needs to register for VAT. She’s also having trouble with her employees; she’s not sure their tax and insurance is right, and they are complaining that their screen lay- outs do not meet EU ergonomic standards. Her computers have access to the net, but her business adviser is the real expert at using the system. He sifts through government statistics and research about emerging markets, presents the options, orders what she wants and then prints it out. He takes her through the rules on VAT registration and they consult some case studies. She clearly needs to register, so he fills out the form on screen, she authorises it and they receive confirmation and a registration number within minutes. He then adjusts the accounting system so that VAT is calculated automatically and paid by direct debit. This takes a few moments. After this they check that all employees’ national insurance and tax is being correctly calculated and paid. Next he downloads the ergonomics rules (2700 pages in 17 lan- guages) and they decide that, judging from past cases, it is a grey area. She leaves it, but asks him to send a job description to the recruitment agencies just in case, and their terms and conditions are starting to arrive as he packs up to leave. Years before, Mrs Smith worked for the newly merged Small Businesses Federation. She remembers her amazement that over half the problems reported by small businesses arose from dealings with government of the kind that she has just accomplished so easily. And

140 Demos Close encounters of the digital kind that was back in the mid-1990s, when political parties continuously pledged their commitment to small businesses. She remembers how ineffective this commitment had proved. At the time she had compiled a table of every public organisation with special programmes for small businesses. As well as the Department for Education and Employment, the Department for Trade and Industry, HM Customs and Excise, the Inland Revenue, the Department for Social Security, the Health and Safety Executive and practically every arm of local government, it had included TECs and LECs, enterprise agencies, Business Links, universities, Chambers of Commerce, EU bodies … the list seemed to go on for ever. Strangest of all, no small business she knew of had heard of a tenth of the bodies concerned, let alone of the programmes so lovingly and expensively targeted at them. These scenarios may be fanciful, but from a technical point of view they are quite straightforward. Everything in them is feasible in 1995. What is difficult is to rethink what government does – the services it provides, or its collection of taxes – from the point of view of the customer or taxpayer, and to recast the government machine accordingly. The ‘information superhighway’ raises a series of difficult issues for government. These include free speech, the future of British culture. social equality, and the mechanics of democracy. The background has been drummed into us ceaselessly. The Internet empowers individuals. For less than £1000 you can buy a personal computer and a year’s access to the net. You can e-mail friends and contacts all over the world. At almost no cost you can encrypt everything so fiendishly that GCHQ couldn’t crack it, let alone your business competitors or parents. The net is sometimes a bit slow, but you can discover the most extraordinary facts from an endless variety of sources.

‘Government must facilitate universal access and free speech’

This is all very useful if you are a model student of life, keen to do the best for your self, colleagues, local community and country. It is

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also very useful if you are an obsessive pressure group or an independent-minded libertarian mounting a mischievous private challenge to society’s values.And, of course, it is very useful for the ruthlessly exploita- tive individual or organisation that has given up conforming to the law. The two key areas in which government must facilitate the development of information services are universal access and free speech. It is impractical to legislate for everyone to be on the superhighway, but competitive pricing and a range of public service alternatives through schools, libraries and other networks should ensure that access is comprehensive. As Camelot’s installation of systems for the National Lottery shows, this can be done very quickly. Government intervention on content should be restricted to pre- venting incitement to racial hatred, protection of minors, and activities such as money laundering that are already illegal. However, the widespread availability of secure encryption threatens a fundamental change in the balance of power between the individual and the state, which has always held trump cards in the snooping game. It was recently revealed that the UK government was funding a

142 Demos Close encounters of the digital kind

‘key escrow’ project similar to the now discredited US ‘Clipper’ chip programme. It seeks to ensure that government held a ‘key’ to any scrambled message. Widespread availability of encryption will have unpalatable side- effects, but it is time to grow up. Trying to control encryption technology is wrong in principle and unworkable in practice, and it is right to seek controls based on current search and seizure and disclosure laws. It is on this basis that, for example, regulation of financial services already takes place. Government’s role in the unfolding information superhighways drama will undoubtedly be limited.Although US government funding started the Internet, the network’s huge appeal now has very little to do with government. It is the anarchy, inherent security and ‘give-away’ culture of the Internet that make it so exciting. One wonders whether government involvement would inevitably spoil it for everyone. What is it all going to cost? In the financial year 1995/96 government investment in IT will be £2.3bn for the civil service alone, 11% of Whitehall’s running costs. With the National Health Service, education, local government, police and courts, state spending on information systems is approaching £10bn a year, almost £200 a head for every man, woman and child. Elaborate procedures exist to ensure value for money. Procurement is generally conducted according to strict World Trade Organisation and European Union rules. Prices and contractor performance are scrutinised before, during and after systems are installed, by the client department and by the government’s auditors and expenditure watch- dogs. Money will not be saved by adopting further elaborate procedures. A more likely solution, unpalatable as it may be, is massive reduction of the scale of government. Staff reductions do not automatically have merit, but it is interesting that while Britain’s largest companies have reduced staff numbers by between 40% and 70% Whitehall, with much huffing and puffing, has changed by a few per cent a year. The impact of new information systems on government services will be greater than is yet acknowledged. Government information

Demos 143 Demos 7/1995 systems are still largely in the hands of experts. But for the first time we have Ministers, Shadow Ministers and senior advisers who are appraised of the issues and competent in actually using new information technology. It is time for them to rethink how government can use information systems to bring services to different groups of customers. Much has been made of the transformation of British government since 1979. But future administrations face the task of completely re-engineering the government machine. This will include fundamental changes in staff numbers, organisational structure and physical loca- tion. To ensure success, it must involve setting out aims by client group and measuring progress at the point of service delivery. This will be difficult for any party to do. There will be massive resistance from vested producer interests. But consumers, who may not be effective lobbyists, cast large numbers of votes.

144 Demos Riding tandem: the case for co-governance Jan Kooiman* and Martijn van Vliet†

New problems ask for a new look at governance As modern societies become ever more diverse, dynamic and complex, government institutions find it ever more difficult to perform effectively. Basic social needs have been satisfied for the great majority. In this sense the welfare state has fulfilled its promises. But pressing new problems such as environmental pollution, the return of massive unemployment and the apparent inability to deal with poverty in the developing world present great problems for governments. The usual policy instruments and methods of intervention are not suited to their nature and scale. As a result, the effectiveness and legitimacy of government institutions have come under severe pressure. Governments’ apparent failure to deal with the pace of change in modern societies has led to a strongly diminished faith in their capacities, but not to a diminished need for collective problem solving. Relationships between states and their environments, between citizens and their governments, and between public and private sectors have changed considerably under these new conditions. We believe that there are more attractive and feasible responses than either the

*Jan Kooiman is Professor of Public Administration and Management. †Martijn van Vliet is a Lecturer in Public Management at the Erasmus University of Rotterdam.

Demos 145 Demos 7/1995 state withdrawing from its traditional responsibilities, or the simple belief that society can govern itself without the state. In this article, we discuss the current crisis of governability, its origins, and new ideas for dealing with the problems and opportunities thrown up by diversity,complexity and dynamism in modern societies.We also examine empirical examples of new interactions between government and society, public and private, which represent new ways to match of needs with capacities. These new forms of interaction we call ‘co-management’ and ‘co-governance’. Our discussion of governability reflects our desire to shift emphasis away from ‘societies and their spokesmen’ as the framers of problems and needs, and ‘governments and their allies’ as the solvers of such problems. Ungovernability arises from the fact that neither group is able to deliver the goods, each having brought the other to a standstill.

Ungovernability revisited Since the mid-1970s the spectre of ungovernability has haunted the modern state. Citizens realise that the bureaucratic state delivering goods and services has not fulfilled its promises. In Anglo-Saxon nations and on the European continent, the capacity of governments and politics in general to cope with social problems is thus cast into doubt. This sense of ungovernability exists in ‘social-democratic’, ‘corporatist’and ‘liberal’welfare states. Beyond broad agreement that there is a problem,there is no consensus on how western societies can solve it.We believe that this is partly due to the conceptual division between ‘governments and their capacities’on the one hand and ‘societies and their needs’ on the other. The debate over governability has been conducted as if governments and societies acted independently and as alternatives, and has not been about ‘joint’ or shared arrangements between government and other agents in society.

The governance crisis in the 1970s The end of the Bretton Woods system marked the end of continuous economic growth in the West.When unemployment grew and persisted,

146 Demos Riding tandem: the case for co-governance welfare expenditure rose, and Keynesian intervention proved ineffective. The late seventies and early eighties were characterised by ‘stag- flation’, and by a financial crisis of the state, both major indicators of ungovernability. In the late 1970s, the dominant view diagnosed an overburdened state, resulting from an overload of societal expectations and responsibilities. This was combined with a cynical analysis of the internal dynamic of state bureaucracy and the way individuals make use of government services. Government intervention was viewed as disturbing the market mechanism, rather than an instrument for dealing with injustice and market failure.

Governability today Although Western economies recovered in the 1980s and 1990s, governability remains an issue. Since the mid-1980s public concern over the environment has also grown. The crucial internal issues with which Western societies are now confronted are clear: how can we combine economic development with eco- logical concerns, and how can we prevent the permanent exclusion of certain parts of the population from economic prosperity? These complex issues are at the heart of the governability question of the 1990s. They are collective in nature. However, as analysis of the implementation of social and environmental policies makes clear, government cannot do the job alone.1 Our thesis is that in contemporary western societies any politics that relies exclusively on the state or the market will fail. Solving the problem of governability should be seen not as the combination of social needs and government capacities, but rather as the balancing of social and political needs on the one hand with social political capacities on the other.2

‘The standard distinction between politics and implementation is now redundant’

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The answer to the current imbalance is to be found at the interfaces of political, administrative, business and non-profit institutions. We would argue for new forms of political and social interaction in which government intervention is combined with the self-governing capacities of an ‘active society’.3 At the macro level in most modern states these interactions have a static and highly institutionalised form.We therefore see the greatest potential in shared responsibility for problem solving at the intermediate (meso) levels of different sectors and in local and regional cadres. One tool for sharing responsibility is the covenant.

Covenants The covenant has become an important instrument in the ‘target groups strategy’ for implementing the Dutch national environmental policy plan. This strategy is designed to stimulate negotiation and deliberation between organised branches of trade and industry and government, and stresses that these groups share responsibility for environmental protection. Sustainable development combines a preventive and source- oriented approach to environmental problems. Such an approach cannot be implemented by governments making rules unilaterally, but depends on the co-operation of economic agents. The strategy thus represents a response to the serious enforcement problems and high administrative costs of the previous policy, which was implemented unilaterally by the government, and involved a costly loss of flexibility for the market sector. Advantages of covenants include the speed with which they can be established, their inherent flexibility, and most importantly their morally binding character and capacity to stimulate responsibility through the endorsement by stakeholders of commonly agreed standards. Covenants have been criticised by environmentalists for not being sufficiently binding on big business, which was thought to have excessive bargaining power over government. However, after a period of experimentation. Covenants have become more formalised and insti- tutionally embedded, and made more legally binding. Recent covenants such as those related to the heavy metal industry and the oil and gas exploration and production sector include clear objectives, a timetable,

148 Demos Riding tandem: the case for co-governance monitoring and evaluation procedures.Although environmental organisations may not participate in the negotiations, the greater openness of the process provides greater opportunity for them to monitor it from the outside. Research shows that cooperation and covenanting are most successful when there is

agreement that there is a pressing and concreate problem to be solved; shared understanding of mutual interdependecies; willingness and power to accept a degree of uncertainty in outcome shared responsibility and leadership

A good example is the recent shift of responsibility for policy implementation from the national to local levels in the Dutch fishing industry. This sector exemplifies an area where the need for governance is generally acknowledged but where the establishment of a workable management system presents huge problems. Most fishermen agree with the government that stock management is necessary to prevent overfishing, but agreement on the actual measures required had never been reached. Because of the extent of overfishing in the North Sea, total allowable catches have been negotiated at a European level since the late 1970s. Previously the Dutch government had allocated quotas to individual fishermen, which could then be sold or leased. Although most fishermen acknowledged the need to prevent overfishing, the individual choice was often between exceeding quotas or shutting down operations. As a result, quotas became increasingly difficult to enforce, and the Dutch government found itself imposing a battery of supplementary regulations, involving itself in the running of the industry to an extent which it would prefer not to have, and denying the fisherman the flexibility which they felt they needed in order to operate efficiently. In 1993 a new co-management regime was introduced, transferring responsibility for quota management to management boards elected

Demos 149 Demos 7/1995 by groups of fishermen. The Fisheries Directorate, having withdrawn from micro management of the industry, developed a regulatory function, while making it clear to the industry that it would impose compulsory measures if the fishermen did not comply with the new regime. Responsibility was thus shifted from the macro level to intermediate institutions, with the government prepared to intervene only in the last resort. This is easier to achieve at the meso or industry level than at macro institutional, that is national and international, settings. Co-governing arrangements can be found in many countries in areas such as job creation, urban regeneration, environmental protection and resource management.

Lessons for governance Governability is not simply a question of the state meeting society’s demands, but a balance between social and political needs, capacities and responsibilities. The idea that the state is the sole institution capable of tackling these needs, results in the neglect of the problem-solving and opportunity- creating capabilities of business and voluntary organisations. The state is the body best able to organise and mobilise other social institutions. Governments play this organising role more effectively if, as far as possible, they refrain from implementation responsibilities. The standard distinction between politics (policy preparation) and implementation (technical execution) is now redundant. It is time to explode the myth that the state deals with general interests and the market with private ones. Interests are often mutual or at least partly shared. This is better realised at intermediate or industry levels than at the macro level of national governments and nationally organised interest groups. Cooperation between governmental and private agencies involves

the division of tasks and responsibilities, partly voluntary, partly enforced a mutual understanding of the seriousness of the situation

150 Demos Riding tandem: the case for co-governance

political and social leadership that stimulates and supports experimentation and innovation.

These new tools must be embedded in ‘co-governance’. Despite the seriousness of the governability crisis, we are not advocating radical, large scale,‘blue-print’ reforms. We recommend innovations of a pragmatic and co-operative nature. Such measures are innovative in the sense that the formulation of problems and opportunities and the development of solutions and strategies, are part and parcel of the same coordinated process between the partners involved. This mutuality is the necessary condition for co-governance initiatives.

Demos 151 Notes

1. Ranging from Pressman J. and der Umweltpolitik (enforcement Wildavsky A. Implementation: How problems in environmental policy). Great Expectations in Washington 2. Kooiman, J., ed, 1993, Modern are Dashed in Oakland University of Governance,London,Sage. California Press: Berkeley, and 3. Etzioni, A., 1991, The Spirit of Mayntz R., 1978, Vollzugsprobleme Community,New York,Crown.

152 Demos Regulation: an owner’s manual Matthew Bishop

Old Labour’s Clause Four is dead, and the Tories’programme of privatisation is almost at an end. Nevertheless, government’s role in the economy will be hotly debated for decades to come. One of the buzzwords in this debate will be ‘regulation’,a rarely defined, much misunderstood, and highly controversial concept. In the last ten years Britain has undergone a wideranging programme of regulatory reform. After defining regulation this article offers ten maxims for policy makers, and assesses the likelihood of their being adopted.

What is regulation? Broadly defined, regulation is government action to control activities in which it is not directly involved. It does not include direct provision of services, even when these services are contracted out, or the use of taxes or tax breaks to influence private-sector behaviour. Regulation can mean simply passing a law prohibiting or limiting an activity, discretionary measures like ad hoc ministerial directives, or oversight of behaviour by an agency onestep removed from government, such as a utility regulator.

Matthew Bishop is British economics correspondent at The Economist newspaper, and co-editor with John Kay and Colin Mayer of The Regulatory Challenge, Oxford University Press, Oxford, 1995.

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This is not the same as self-regulation in the private sector (for example of solicitors by the Law Society), which is often a voluntary response to market forces, though governments sometimes use self- regulation within a statutory framework, for example in the City after the 1986 Big Bang. The idea of the state controlling something without direct involvement is attractive to both ends of the political spectrum. To the Left, regulation offers the chances to extend the state’s role far less expensively, controversially, (and, arguably, inefficiently) than through nationalisation. While opposing privatisation, the left has been inspired by the government’s ability to pursue social objectives, like providing public telephones in remote locations, through regulation. Under a Labour government regulation might be used, for example, to control the salaries of corporate executives, to advance ‘better’ environmental behaviour, and to promote competition throughout the economy. Intriguingly, the Right also draws inspiration from the experience of the utility regulators. Where the left sees them as a model for extending the reach of government, the Right regards them as a way to reduce the state’s role in sectors where it cannot (for now, at least) escape a continuing presence. Utility regulators allowed the government to alle- viate the problems of monopoly power, while freeing it from actually running the firms. The Right is likely to advocate a similar regulatory role in a privatised welfare state. For instance, quality of provision by private firms in healthcare might be secured by a regulator (Offcolour?). Or the government might require people to buy a personal pension or an insurance policy providing cover against the costs of unemployment, sickness or long-term care. However, many on the Right are ambivalent about regulation.While conceding that it is sometimes unavoidable, they would prefer to have as little of it as possible. Thus some would advocate using tax breaks or encourage people to buy insurance, instead of making it mandatory. Others will go further, saying that the state should simply cease providing welfare, leaving it to individuals to decide how much they spend on insurance, pensions and so on.

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Opportunities and constraints For several reasons the potential for effective regulation is likely to grow in the next two decades. Enhanced information technology will greatly improve regulators’ ability to gather and analyse data, although in industries such as financial services, where IT is increasingly embedded in products, the regulated will have a continuing incentive to stay one step ahead of their regulator. Over time, regulators will understand their industries better, particularly as stability returns after a period of privatisation and liberalisation. Growing international co-operation in trade, particularly through the World Trade Organisation, may lead to the establishment of global of regional regulators. This is likely to encourage a focus on economic questions capable of technical regulatory solutions, and to strip out the local political goals that often hamper national regulation. The attack on state aid within the European Union, for example, should make it easier to introduce pan-European regulation based on narrow competition grounds, as is already the case with merger policy. While subsidiarity demands that nations remain free to pursue political goals such as helping the poor to buy water in regulated industries, this kind of international regulation will increasingly mean that governments have to use other tools, such as tax relief and benefits, to do so. Politics will nevertheless remain a constraint on effective regulation. No technical regulatory system is beyond dispute, and there will always be losers who use the political process to fight the regulator. Measuring the success of regulation is also difficult. Politicians with priorities other than economic efficiency will find it easy to criticise regulators, particularly if they can wheel out sobbing victims, like home owners and pensioners, for the cameras.

‘Regulation should address market failures; it should not ignore, replace or block market forces’

On the other hand experience in the UK has shed light on when regulation can and cannot work, and how best to do it. The scope for

Demos 155 Demos 7/1995 politicking would be further reduced if there was better independent analysis. The forthcoming enquiry into regulation by the Parliamentary Public Accounts Committee promises to be immensely helpful, and should be repeated and widely imitated elsewhere.

Lessons for policy makers A number of lessons can be learned from past experience.

Regulation should address market failure Although governments can regulate everything from the age of homo- sexual consent to the hunting of foxes and the behaviour of neigh- bours, it should only regulate economic activity when there is evidence of market failure. In developed economies the most common market failures are monopoly (eg, in the privatised utilities), unequal information (eg, pension companies knowing more about the product and its suitability than their customers) and externalities, where an activity imposes costs or benefits on people other than those directly involved (eg, environmental damage). Some argue that a market fails if it does not provide essential services to all who need them, however poor (eg, water, electricity, letter delivery), although this could be seen as a social and not an economic issue.

Market failure is a necessary condition for regulation, but not a sufficient one This is often overlooked, particularly by the Left. For regulation to make sense, the costs of market failure must exceed the costs of regulation.

Regulation can be very expensive The costs fall into several categories. There are administrative costs. Don Cruickshank, head of Oftel, is paid £123,000 a year for regulating the telecommunications industry, and has a large staff housed in expensive offices.A recent study by the London Business School found that the direct cost of regulating UK financial services is nearly £90m

156 Demos Regulation: an owner’s manual a year (in America it is £500 m). There are also considerable indirect costs, often many times larger than the direct ones. These include utilities’ compliance costs, market distortions and, fundamentally, the fact that regulation is often done badly.

Regulation is hard to do well It is often ineffective, often because the market failure being addressed is not properly defined. Because clear definition is frequently difficult, regulation tends to be designed to avoid past problems rather than anticipate future ones. For example, the Monopolies and Mergers Com- mission has made several attempts to sort out ‘complex monopoly’ in the brewing industry, recently requiring a number of brewers to sell pubs, yet it has struggled to demonstrate the precise form of market failure. Problems also arise from lack of attention to the real nature of the failure. For example, before privatisation, politicians assumed that the entire electricity supply industry was a natural monopoly. Now, it is clear, large parts of the industry can be operated by competing firms. Where market failure stems from unequal information, the regulator may, like the customer, lack the information needed to do the job well. In some cases, regulators will never be as fully informed as those they are regulating, because information is costly and time consuming to collect. Financial services regulators seem especially blighted by this problem, particularly when overseeing areas of rapid innovation such as derivatives markets. However, even the utility regulators have greatly underestimated the scope for efficiency improvement, enabling firms to earn unexpectedly large profits. Spending money on collecting more information is not always sensible. In the recent row over pension funds after the Maxwell affair, it is not clear that the big bureaucratic regulator that was initially proposed, collecting annual reports from every fund, would be any more effective than the slimmed down, information-light body that we can now expect. Market forces may also militate against effective regulation. Those being regulated can often pay better salaries, and hire more able people, than the regulator.

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Regulation should work with the grain of the market being regulated Although it should address market failure; it should not ignore, replace or block market forces. Markets tend to evolve, often both rapidly and dramatically. Regulation that does not allow for this can stifle innovation and lock in market failures.For example,before privatisation many of the utilities were statutory monopolies, protected from competition. Since privatisation, competition has emerged in telecoms, gas and electricity, if not (yet?) in water. Regulators should also be careful not to impose a rigid view of what customers want. Before privatisation British Telecom had a statutory monopoly in producing telephones, and supplied one basic model. Since deregulation, the private sector has flooded the market with a wide range of different phones, tailored to customer needs. If politicians do make the welfare state more reliant on regulated private provision, they should ensure that users of welfare have the greatest possible choice in the services they receive and the contributions they make to pay for them. Market forces can mitigate the problems of unequal information. For example, though it is now widely claimed that publicly owned utilities were obviously inefficient and that the regulatory regime was far too lax, it did not actually look that way at the time.We now know dif- ferently largely because of Britain’s novel regulatory system, first used to oversee BT’s prices. This sets prices limits for a five year period, allowing firms to earn ‘reasonable’ profits if they perform satisfactorily, and much higher profits if performance is better than expected.When prices are reviewed after five years, unusually high profits will signal to the regulator that the estimates should be raised, and tougher price caps set in future, giving customers a better deal. The key to this system is the utilities’ right to keep extra profits earned while a given price cap is in force. Remove the carrot (as in ‘rate of return’ regulation, popular in America, which restricts the profits a firm can earn), and the firm will turn in lower profits. In the long run the customer will do worse. Labour’s current plan to share ‘above-reasonable’ profits between the utility and its customers recognises the importance of offering

158 Demos Regulation: an owner’s manual market incentives to produce efficiently. However, its planned tax on ‘windfall profits’ undermines the utilities’ belief that they will be allowed to keep extra profits. Labour also wants to weight the law against hostile takeovers, which are another expression of market forces. Yet Trafalgar House’s recent bid for Northern Electric alerted the regulator to the fact that price controls were not tough enough, prompting him to make them tougher. Regulation might also harness market forces in controlling excessive pay awards to company bosses. Institutional shareholders, such as insurers and pension funds, currently fail to control these excesses, though in theory they are the market players who should do so. Government could tackle this in several ways, for example by setting a top incomes policy. But it would do better to focus on improving the performance of the shareholders, by requiring firms to vote on executive pay at AGMs, and forcing them to disclose how the institutions voted, and by making the institutions more accountable to the members of the public whose money they invest.

Markets often develop their own solutions to market failure These may be more effective than regulation. The clearest examples are in financial services. Banks overcome the natural wariness of their customers by creating a large asset base which shows that they will not easily go bust. They also build reputations for trustworthiness which, if damaged, would reflect badly on all their employees. Thus, in principle, all employees have an interest in ensuring that customers are well treated, and that unequal information is not exploited. This peer pressure is not infallible, however, as recent mis-selling of pensions by sales-staff with lucrative short-term bonus schemes shows. Market forces can even limit the abuse of monopoly power, because large monopoly profits give an incentive to other firms to find ways into a market. For example, British Gas’s high prices for industrial customers attracted entry by competitors as soon as the market was liber- alised. This has important implications. Had profits been regulated

Demos 159 Demos 7/1995 more aggressively there would have been less incentive for new entrants, and thus fewer competitive pressures in the industry.

Regulation can worsen market failure People often believe that through regulation the government is ‘looking after’ a market, and are less vigilant as a result. Regulation can also give rise to ‘moral hazard’.For example, because the government regu- lates financial services, people expect firms not to fail and believe that the government has a moral obligation to bail them out if one does.

Regulation should reflect the principle of subsidiarity The level at which government should regulate is likely to dominate future debate. From an economic perspective, the level of regulator should stem directly from the extent of the market failure, following the principle of ‘subsidiarity’ – that government should be conducted at the most local level consistent with its effectiveness. Consider three areas where regulation is advocated on ‘environmental’ grounds – global warming, water quality, and noise. Externalities from activities producing greenhouse gases have a worldwide impact (global warming) and can only be properly regulated on a global scale, for example by international treaty.Water quality, on the other hand, is a problem with no obvious externalities, and arises from local or national monopolies limiting customer choice. Lastly, noise pollution can easily be regulated by local government.

Regulation works best when its objectives are clear, simple and limited Again, this point is illustrated by the utilities in Britain. The nation- alised industries were required to pursue the ‘public interest’, which included everything from serving the customer to promoting macroeconomic stability. Not surprisingly, their management lacked direction, and the firms suffered considerably from political interference. Now they pursue the single goal of making profits, subject to limited and explicit regulation.

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Establishing the credibility of the current regulatory regime depended heavily on creating regulators one step removed from government, able to resist short-term political pressures. Regulatory directors were typically appointed for five years and given the explicit brief of capping prices and promoting competition. Despite this improvement utility regulation has not been an unqual- ified success. Regulators have experienced conflict between promoting competition and regulating monopoly prices: two objectives may be one too many. They were also left to resolve tricky political questions fudged by the government before the sell-offs. For example, Ofwat had to decide how much new infrastructure was needed in the water industry, and how much customers ought to pay for it. Worryingly, Labour appears to favour adding new objectives to the regulators’ brief, including controlling executive pay and treating workers and customers well. This might appear sensible and fair, but threatens a return to the fudge that caused so much damage before. Where the government has political, rather than economic, concerns about a market, it should address them through the political process, and not leave them to the discretion of regulators. However, given that intervention should work with the grain of the market, it should be wary of this kind of distortion. If it is concerned that the poor have access to eg, telephone services, it would do better to use other tools, such as grants or tax cuts, so that they can buy phone services in an undistorted market.

Regulation is easy to create, but hard to dismantle Beneficiaries of regulation can form powerful vested interests. For evidence look no further than the huge industry of economists, lawyers, accountants, academics and technical experts that now services the utility regulators.

Conclusion These rules of thumb provide the foundation for a sensible, consensual system of regulation and an effective role for government in economic activity.

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What are the chances that they will be taken up? Few of them are mainstream opinion among today’s politicians, in Britain or anywhere else. But regulation will remain at the centre of debate, and its internationalisation, where driven by economic efficiency, should reduce political distortion as national political obsessions are cancelled out in negotiations. How fast will this happen? National politicians will resist it, as will business and consumer interests who benefit from current regulatory rules. The extent to which firms operating regulated industries become global will be a crucial factor. At present, partly because many regulated industries were recently state-owned monopolies, regulated firms tend to be national. There are already signs that this is changing, with joint ventures and strategic alliances emerging in telecommunications and commercial airlines, and moves by French and American water companies and American healthcare and electricity firms towards buying up their British counterparts.Voters in many countries are increasingly concerned about the power of multinational companies over their lives. As these firms extend their reach to life’s necessi- ties, whether the supply of water or hospital beds, the pressure for effective regulation, at all levels, will be increasingly hard to resist.

162 Demos Ethos in government: the ideas of Norman Strauss Geoff Mulgan

It is relatively easy for governments to perform their basic functions. But what gives a government coherence, and real effectiveness? What enables it to be in power rather than just in office? And how can it cope with the huge complexity of different signals, pressures and information that bombards a modern government? According to Norman Strauss, who worked in the Downing Street Policy Unit in the early 1980s, the key is to manage its ethos.An ethos is a unifying vision, that brings together a set of clearly comprehensible principles and a narrative account of what the government aims to achieve. Ethos provides, in other words, a tool for the ‘regeneration of coherence’. The first task for any government, and indeed any complex organisation, is to define this precisely and rigorously. This is usually far harder than putting together a manifesto or programme. It requires a fundamental understanding of the organisation’s own culture, and of its operating environment. It demands skills for the high order integration of what may seem to be conflicting information and incompatible interest groups. The ethos may be hard to define but it is relatively easy to see when a government has such an ethos: it means that its response to a new situation is relatively predictable, and that its principles are transparent to everyone from a Cabinet Minister to a local official.

Geoff Mulgan is Director of Demos.

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Having defined its ethos, a government has a very powerful tool: a guide to priorities and resources, a common identity and purpose that binds people together. If properly constituted, the ethos also provides a decision tool which can then be used to analyse the various components of government. These can range from the architectures for delivery, which consist of departments, agencies and policy programmes, to the base of tools and techniques which may include purchaser- provider splits and performance measures. When new problems arise they do not have to be considered from scratch. In this sense, the ethos is a variety or complexity reducing tool. This is where the visionary combines with the practical. In Strauss’ formulation there are three layers of strategy that need to be coherent:

The meta- or grand strategy of ethos, vision, ethics, transformation. The core strategy of management, controls, rules, budgets, initiatives and monitoring. The base strategy of routine repetitive operations, data processing.

Much of the problem of recent government has arguably been an overemphasis on the middle level and weakness on the meta-strategy. Other leaders have often been strong on the grand strategy but unin- terested in how this pans out through the machinery of government. Few have a sufficient sense of the base – the precise routines and cultures of everything from a secondary school to a job centre. If all of these elements can be achieved, what should be the overall elements of a credible ethos, the glue to hold it all together? In some respects the goals are relatively clear. In a democracy, the achievement of the maximum satisfaction of the maximum number provides a rough rule of thumb, although there are innumerable different ways of interpreting this. A well-defined ethos should also, in Strauss’ view, directly resonate with the best qualities of its society – the ‘genius’ of its culture and aspirations. It should make sense of the past and set out a roadmap into the future. Ideally too it should stretch people, and

164 Demos Ethos in government: the ideas of Norman Strauss perceptions of what is possible, rather than simply accepting things as they are. Within firms the clarification of the core ethos often comes from systematic interviews with key staff to define the key words and concepts by which they define their higher goals. Within a democracy, by contrast, the generation of ethos is the task of competing parties, and is far more complex than within large firms which tend, in practice, to be dictatorships with few checks and balances. Strauss makes many recommendations as to how governments can better manage their ethos: a department for the opposition (as in Australia) to assist practical policy making; competing policymaking teams within the heart of government to maintain creativity; fixed terms for officials: and a proper training college for politicians and others. The key feature of the idea of ethos is that it places culture at the heart of government. It shows that good government is not just a matter of making the trains run on time. It also requires the capacity to set goals – and to lead. Indeed, according to Strauss, the extent to which governments are clear about what they are doing and why may be one of their most important contributions to a wider sense of security. But the most important idea is that the system must fit the most desirable ethos of the major populations and their aspirations. Today, according to Strauss, ‘government is party ideology executed by Whitehall bureaucracy. This is not how one would define government today if one were given permission to design it afresh’.

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The grey and the good: government ethics around the world Ben Jupp

Government ethics are being rethought around the world. Spectacular defeats for the governing parties in the last Canadian and French general elections were partly attributable to concerns over government ethics. In Britain, a 1993 MORI poll found that only 14% of the public ‘generally trusted politicians to tell the truth’.Civil servants were only trusted by 37%. Faced with similar disquiet, governments around the world are introducing new legislation and guidelines (see page 169). The standard approaches are openness, regulation and monitoring. But further measures – such as ethical auditing, training and new forms of accountability – may be needed to create an ethical culture. Openness about the financial interests of politicians and civil servants, and about government information, aims to enhance public trust and encourage office holders to regulate their own behaviour. Only Belgium, Canada and South Africa have yet to require MPs to register their interests. A number of countries, such as Ireland, now also disclose the interests of top civil servants. However, openness regulations do not guarantee compliance. Italy has the most stringent regulations in Europe covering politicians registration of interest, but they were widely disregarded before 1993. Declaration of interest requirements are also criticised as discouraging able people from accepting posts, due to their concerns about privacy.

Ben Jupp is a Researcher at Demos.

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Freedom of Information legislation has been passed in all Scandinavian countries, France, Greece, America, Australia and New Zealand, is pending in Ireland and at discussion stage in Japan and Hungary. However, Maurice Frankel, of The Campaign for Freedom of Information states, that,“An act may not be sufficient. That depends on how widely exemptions in the national interest can be interpreted and whether the public are charged high rates for enquiries”. Regulations covering conflicts of interests for politicians and civil servants vary widely across the world. Restrictions on politicians’ outside interests vary from a complete ban on outside employment in India and strict regulations in Finland, to virtually no restrictions in Germany and Canada. Most countries prohibit politicians from working in the civil service. Restrictions reflect the balance between fears that parliamentarians put personal interests above the public interest, and the perceived need for them to understand different sectors of the economy. Civil servants usually work under tighter regulations than legislators. These typically cover outside employment, gifts, use of confiden- tial information, employment after leaving government, and broader obligations of obedience, neutrality, and working in the public interest. Remarkably it is illegal for civil servants in Hong Kong to have a higher standard of living than would be expected on their regular salary, unless they can explicitly account for legitimate external sources of income. Tensions remain between the civil servants’ obligations to work for the best interest of the public and of the governing party’s ministers. These issues are hard to solve by regulations because problems occur in such a wide variety of situations. One response has been to introduce codes of professionalism and ethics. The Association of Public Administrators in America drew up a professional code in 1984 to help civil servants use discretionary power, followed by the Canadian association in 1986. The new British Civil Service Code explicitly requires civil servants not to use public resources for party political purposes and to uphold the impartiality of the civil service. However, a recent MORI survey found that 85% of British civil servants want a code of ethics.

168 Demos The grey and the good: government ethics around the world

Monitoring mechanisms designed to pick up unethical behaviour include independent commissioners and whistleblowing legislation. The American Office of Government Ethics and the Canadian Ethics Counsellor police their conflict of interest codes. The new British Parliamentary Commissioner for Standards is responsible for overseeing the compilation, maintenance and greater accessibility of the register of members’ interests and is entitled to initiate investigations of MPs, while in New Zealand an ombudsman has been appointed to monitor freedom of information. Whistleblowing legislation in America, New Zealand and some states in Australia aims to protect employees who report unethical behaviour from discrimination. Some Federal Departments in America give whistleblowers 25% of any money which is recovered from reported fraud. In 1990 the Head of the British Home Civil Service stated that he was opposed even to the creation of an independent body to which a civil servant could report matters of concern. However, Tony Wright MP is putting forward a Private Members Bill to protect whistleblowers in the civil service, which is expected to be passed.

New Methods Openness, regulation and monitoring may reduce wrongdoing, but are increasingly seen as inadequate for creating a culture which encourages people to behave as ethically as possible, rather than as unethi- cally as they can get away with. Ethics and value audits, ethics training, and new systems of accountability are coming into use. Ethics and Value Audits gauge staff opinions in order to formulate realistic and targeted ethics policies using questionnaires, open ended interviews, case studies. In Canada, 319 civil servants were interviewed in 1993 and 1994 to inform the 1995 Auditor General Ethics Framework proposal. Christine Henry argues that for ethics policies to be successful, the values must be owned by the workforce, but many codes of ethics are imposed from the top. Ethics and value audits are one way of increasing such ownership.1

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Ethics training aims to help employees understand how regulations and codes of ethics can be put into practice. Dun and Bradstreet trained their 40,000 staff after the company faced legal actions arising from its selling practices.“We had made the incorrect assumption that everyone understood our values”, according to the ethics vice-president Bill Redgate. The US office of Government Ethics now insists that every federal employee receives ethics training and an annual retrain- ing session. The American Associate of Public Administrators also insists that all accredited public administration university courses include an ethics component. Unclear accountability structures in new, devolved public sector management organisations create concern about ethical standards. The New Zealand government has introduced a new code of civil service ethics to offset this problem. However, new forms of accountability involving users and taxpayers are more important than codes in ensuring trust and ethical behaviour. The experience of governments that substantially changed the bureaucratic mentality of some public services in the 1980s suggests that to change a culture requires more than charters and codes, although these have a place. Introducing new people and organisations from other sectors, training and changes in management and resource allocation structures were required. A similar scale of measures should be expected in order to introduce an ethical culture.

Note 1. Christine Henry (ed), Professional Ethics and Organisational Change in Education and Health, 1995, Edward Arnold.

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Australia Conflicts of interest have been high on the political agenda since the 1979 Committee of Inquiry concerning Public Duty and Private Interest. In the 1990s, separate government agencies, such as the Taxation Office, developed codes of ethics covering their specific activities. Whistle- blowing legislation is currently being proposed at the national level following state laws in South Australia and New South Wales.

Canada In 1994, the code of conduct for public office holders was extended and an ethics counsellor appointed. The 1988 Lobbyist Registration Act was amended in 1995 to restrict the activity of lobbyists. In May, the Auditor General recommended a ‘Framework for Ethics in Government’ covering principles, leadership, empowerment of civil servants to act in the public interest, transparency in decision making, ethics training, and whistleblowing. Debate continues about whether a code of ethics should be introduced for parliamentarians.

Denmark Guidelines for the voluntary registration MPs interests were issued by the parliamentary president in June 1994, and the ethics debate is now focusing on the relationship between civil servants and ministers.

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European Union Current ethical concern focuses on MEPs with ‘assistants’ paid for by other interest groups and private companies and on fraud in the European Commission. A study on the use of whistleblowing to combat fraud will be completed in December.

France Following a spate of financial scandals, the French government has stated that the requirement on MPs to declare assets and interests is to be enforced more rigorously. A parliamentary committee has also proposed tightening limitations on the type of outside employment which MPs can hold.

Ireland The July 1995 Ethics in Public Office Act requires Ministers, senior civil servants and MPs to publicly register financial interests. An independent commission is being established to oversee registration and investigate complaints. A freedom of Information Act has cross party support and a draft version is currently being considered by cabinet, to be presented to parliament in mid-1996.

Italy In 1993, parliamentary immunity was lifted for MPs. Over half the 1992 MPs have been investigated on corruption charges since then.

Japan In an attempt to reduce unethical links between politicians and business, the December 1992 Public Disclosure of Assets Act requires MPs to report all assets, and titles and salaries of posts with private companies or organisations, and the state has been partially funding political parties since 1993. Further planned measures are a Freedom of Information Act and a tightening of the civil service regulations concerning links with the private sector.

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Netherlands The Civil Service Act is being amended to reduce conflicts of interest for civil servants, including registering and banning some external activities. A new code of conduct for police service, and guidelines on business partnerships are being developed. These measures are being supplemented by monitoring of recruits, training and performance assessments.

New Zealand The 1990 Public Service code of Conduct emphasised the need for civil servants to work in the public interest. Essays covering ethical conduct have also been circulated to all civil servants and a Whistleblower protection. Act has been passed.

Singapore A new civil service corporate statement in Singapore, launched in August, brings together ethical conduct and of organisational goals. Lee EK Tieng, head of the civil service, states that,“after thirty years of success there is a danger of complacency setting in and this is the when the need for leadership is greatest.”

South Korea Since 1993, when civilian president Kim Young Sam came to power, MPs have been required to declare their interests; in an attempt to change the political culture away from that of the previous military regime.

Spain A ‘law of incompatibilities’ was passed earlier this year requiring MPs, senior civil servants and police to disclose their tax forms to an ombudsman.

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Taiwan US legislation on conflicts of interest has been used as a model in Taiwan, leading to the 1993 Law Governing Public Functionaries, including declaring financial interests and placing MPs assets in trusts.

United Kingdom Following the first Nolan Report, there have been votes in July and November to ban MPs from advocacy for fee paying outside interests, require disclosure of bands of MPs’ outside earnings deriving from membership of the commons, to establish a Parliamentary Commissioners for Standards, and ensure that parliamentary order papers will show whether an MP has a relevant interest when signing early day motions, tabling written questions, or amendments. The civil service code has been redrafted, explicitly requiring civil servants not to use resources for party political purpose and to uphold the impartiality of the civil service.

United States of America New adminstrative rules for federal government employees were enacted in 1992 covering lobbying and post-government employment and established principles of ethical conduct were supplemented with detailed standards for ethical conduct covering financial interests, impartiality, misuse of position and outside activities. Department are drawing up specific standards from the federal rules and are now required to give ethical training to all their staff. The legislators each have a house Ethics Committee. Congressmen where banned from receiving payment for speeches or articles in 1991. The Senate Select committee of Ethics provides, on average, thirty rulings each year interpreting the law which act as a detailed guide for conduct.

174 Demos Governing by numbers Tom Bentley and Rebecca Stanley

Between 1985 and 1990, the number of performance indicators (PIs) published by the British government increased tenfold, from 250 to 2500.1 A huge range of information tells us how our schools, hospitals and local authorities are performing. Or does it? Few measures really assess the outcomes of policy or the impact that government has on our lives. Instead, most measure cost and administrative efficiency. In this article, we argue that the paradigm of the ‘three Es’ is now outdated.We survey a range of new techniques for monitoring and assessing performance, and suggest a new paradigm, which truly measures the difference government makes to the problems it tries to solve. In the 1980s, PIs were presented as tools to make government more responsive, transparent, and accountable. The reforms gave us more information, and some improved efficiency. For the New Public Management (NPM), there were three primary criteria of government performance: efficiency, economy, and effectiveness, or the ‘three Es’. It was assumed that indicators would automatically show how different agencies and departments perform. In fact, PIs cannot provide a defini- tive picture unless an organisation’s overall priorities are clear. As education officers, hospital trust managers and local government executives have discovered, the three Es do not always work in harmony. In particular, effectiveness can be undermined by cost-cutting and

Tom Bentley and Rebecca Stanley are Researchers at Demos.

Demos 175 Demos 7/1995 restructuring even if they make organisations cheaper and more efficient.

Inputs and outputs Many PIs, such as the Audit Commission’s Local Authority Perform- ance Indicators, use input and output figures, such as expenditure per pupil, percentage of older people helped to live at home, and percentage of 999 calls answered within target time. Inputs measure the resources needed to provide a service, like staff, buildings, equipment. Outputs measure activity: number of crimes cleared up, enquiries answered, or patients treated.2 Counting, but not costing inputs and outputs is a relatively simple, and therefore popular exercise. For example the Danish government publishes Local Authority Key Data, detailing the performance of waste disposal, benefit administration, childcare and other services, using input and output measures. In the US, Vice President Al Gore recommended that federal government introduce output measures in all activities to improve the current system, after he found that only nine of 103 federal agencies could link their strategic plans to intended goals.3

The performance of measures PIs are not always designed to measure impact. For example, the Audit Commission stresses that its Local Authorities results are not a full picture of performance, but intended to pose questions and spark public debate. Yet many PIs fail even to achieve this. One authority that recently published its annual performance figures, received only one response to double page advertisement in a newspaper with 455,000 readers. The average response rate in English countries is five.4 One reason for this is that, as The Economist recently argued, the public would need to be experts in local government finance to work out whether a low council tax bill resulted from efficient and effective service delivery, or from government grants.5 As well as being accurate and clearly presented. PIs must be interpreted, explained and widely debated if they are to mean anything to the general public.

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Increasingly, policymakers are realising that the success of policy initiatives depends upon the cultures of organisations and service users which they affect. Sadly, the three Es paradigm has little to say about culture. Understanding and measuring the cultures of government employees, service users, voters and taxpayers will be an increasingly important task for government. PIs which cannot do this will thus be of limited use.

A new paradigm Some measurement techniques have become more sophisticated; for example, the National Audit Office’s value for money audits, and the measures of quality used by Next Steps and the Citizens Charter. However, none have gone beyond the basic three Es paradigm, to measure ‘value added’. In the commercial world, value added measures compare the cost value of inputs with the sales value of final output. The claims of governments are far too complex and varied to be measured only in cash terms. But an indicator showing the outcomes achieved for the inputs used by governments in a given field would provide better measures of government effectiveness. Many outputs of government are not traded. To develop alternative measures of value we must look at the final outcome – the difference made to people’s lives – and compare it with the resources consumed. For example, in education value added could be assessed by looking at pupils’ attainment – GCSEs, NVQs, A levels – and comparing it with the resources used, such as teacher time, materials and so on. Recent research by the Institute of Education shows that in order to do this an accurate measure of pupil intake is required as a baseline figure against which the school’s effectiveness can be measured. In education, this requires attention to socio-economic factors such as income, family size, and ethnicity, all of which are strong predictors of a child’s achievement.6 In different policy fields other baselines will be required, but to assess value added indicators showing the starting point for government action must be devised.

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Without controlling for external factors in this way, government will continue to make spurious assumptions from the information that it gathers. For example, judgements of the difference that programmes for the unemployed make cannot be made from the data currently col- lected. The number of people who find jobs during or after Jobclubs, Training for Work, or Restart does not tell us the contribution made by the programme to the outcome. So how can we measure the different kinds of value that governments attempt to create and promote?

Steps in the right direction Some recent initiatives could help governments to develop the value added paradigm.

Resource-based accounting The Treasury recently published a White Paper introducing resource- based accounting to government departments.7 As well as allowing clearer analysis of costs and capital spending, resource-based accounting places greater emphasis on outputs, aims and objectives. Ministers will have to demonstrate to Parliament how their programmes have contributed to achieving the Department’s objectives. Resource-based accounting should make it easier for Parliament to scrutinize departmental spending and hold ministers to account.

Aggregating information Despite the serious defects of school and hospital league tables, aggregated performance data can be useful. Such figures must be compared with past performance, with commonly defined benchmarks, or with similar organisations. The danger of aggregated data is that misleading comparisons will be made using over-simplified data or comparing organisations which are not alike. But sometimes aggregation is necessary and useful. For example, the OECD now aggregates the environmental performance of national governments, and has developed

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indicators which allow comparison and effective regulation of environmental policy. Nevertheless, comparing services, countries and countries presents problems. League tables do not explain why differences occur. But more sophisticated techniques, like value added measures, could explore differences between ‘raw materials’ such as the varying abilities and socio-economic resources of school children. For example, the London

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Research Centre reports on the performance of London Boroughs, sup- plementing PIs with information which explains differing performance and contextualises the results.8 To improve the performance of measurement we need meaningful indicators and rigorous evaluation.

Innovations The scope for improving PIs has not been exhausted by these developments. Some private sector innovations could be used by government.

Social audits Social audits aim to measure an organisation’s social impact and involve extensive consultation with stakeholders – customers, employees, and members of the wider public. The Body Shop, Traidcraft, Shared Earth and Happy Computers have all undergone social audits developed with the New Economics Foundation, and published the findings.9

Quality of life Businesses planning to relocate have looked to quality of life measures to help them make such decisions. Indicators range from the number of historical buildings in an area to the compostion of housing and distance from amenities.10 Other measures try to capture how people feel about themselves and the area they live in. Research has shown that in quality of life people value social and environmental variables more than commonly used economic indicators. A sense of identity, good quality housing, strong community networks, and good air quality all score highly, a fact which government should take seriously. Oregon, in the US, uses such measurement as a basis for assessing state government performance. A system of benchmarks has been agreed through public meetings, citizen surveys and consultation with business and experts, including targets for educational attainment, access to healthcare, crime and teenage pregnancies.11 In health care, economists have developed measures of quality of life and of life expectancy resulting from medical treatment. One such

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measure is the Quality Adjusted Life Year (QALY), which measures a patient’s quality of life by asking them and their doctors about their mobility, pain, anxiety, and ability to look after themselves.An indexed statistic is derived to summarise all of these, enabling comparison of treatments by examining the QALYs yielded over a patient’s life. We still know little about the effectiveness of many treatments offered by

Demos 181 Demos 7/1995 the NHS, and even less about their impact on quality of life over time. QALY scores are becoming available for treatments ranging from controlling schizophrenia to hip replacements and Health Authorities, increasingly aware of this research, and facing severe financial constraints, may use the findings when deciding which treatments to use.

Measuring culture It is often thought that culture cannot be measured. In fact, a range of techniques have been developed to gauge the values and beliefs of groups and organisations, and their effects on behaviour. Research by James Hampton has shown how people’s general social outlook, including their views on authority, the value of competition and the importance of family, affects their work lives through their capacity to work in teams and support colleagues, their unwritten rules of cooperation, and their attitudes to risk.12 Using repeated questionnaire surveys and qualitative evaluations we can measure culture change, which is often crucial to an organisation’s effectiveness. For example, the University of Central Lancashire developed its own ethics and values audit, which it used as a tool to develop its overall aims and objectives, and to encourage people to behave ethically.13

Performance Indicators and accountability PIs can increase people’s interest and engagement in government activity, but only if they are involved in setting the objectives which indicators monitor. Often developed inside organisations, some are used to control quality and improve performance. Others, imposed from outside, are designed to make public agencies accountable to citizens.14 This second kind will be taken more seriously by voters, and thus mean more, if service objectives are worked out in consultation with service users and taxpayers. Effective PIs must be clearly defined, relevant, and properly explained. Rather than reducing performance to a single aggregate figure or index, government should use a wide range of techniques to

182 Demos Governing by numbers help assess the impact of public provision. The new target of performance measurement should be the value that government adds.We need rigorous, independent research to establish baselines that allow true comparison of like with like, and accurate assessment of impact. Used comprehensively and honestly, these techniques could dramatically improve the performance of indicators.

Demos 183 Notes

1. Jackson, P.M., 1995,‘Reflections on 9. Zadek, S.,‘Making business more Performance Measurement in Public socially accountable’ Cooperative Service Organisations’,in Jackson, News, 24th January 1994. P.M., ed., 1995, Measures for Success 10. Strohm, P.,1994,‘Pin-pointing in the Public Sector, CIPFA. paradise’, Estates Gazette, Issue 9435, 2. Carter, N., Klein, R., and Day, P., 3rd September; 109. 1995, How Organisations Measure 11. See both Gore, A., 1994, and Success: the use of performance Coombes, P., et al, 1994, Quality of indicators in government,London, Life and Some Considerations for Routledge. Pyrmont/Ultimo,The People for 3. Gore, A., 1994, Creating Government Places and Spaces. that Works Better and Costs Less: The 12. Hampton, J., 1982,‘Giving the Gore Report on Reinventing Grid/Group Dimensions an Government,New York,Times Operational Definition’,in Douglas Books, 72. (ed) Essays in the Sociology of 4. Jackson, P.M., 1995; 8. Perception,London,Routledge and 5. The Economist, 1994,‘Funny Money’, Kegan Paul. 7th May; 34. 13. Henry, C., Ed., 1995, Professional 6. DFE, 1995, Value Added in Ethics and Organisational Change in Education: a briefing paper from the Education and Health,London, Department for Education. Edward Arnold. 7. HM Treasury, 1995, Better 14. Pollitt, C., and Bouckaert, G., Eds, Accounting for the Taxpayer’s Money: 1995, Quality Improvement in The Government’s Proposals – European Public Services, Concepts, Resource Accounting and Budgetting Cases and Commentary,Sage. in Government, HMSO. 8. London Research Centre, 1995, Performance Indicators in London boroughs 1993/4.

184 Demos Vital statistics Rebecca Stanley and Tom Bentley

A recent MORI poll for the First Division Association (FDA) found that 76% of FDA members thought that the changes in the civil service were not well managed. 68% thought that Performance Related Pay was detrimental to the improvement and management of the civil service, and 85% wanted a professional code of ethics for civil servants to guide their conduct.1 Research by the Public Service Privatisation Unit shows that up to 1991 local authority service contracts given to private contractors were three times as likely to be terminated or cause problems than those retained by DSOs.2 Britain spends almost five times as much on diplomacy in Western Europe as it does on diplomatic representation in Central and Eastern Europe.3 The British Government spends £63.4 million a year on paper, and a further £67 million on printing. The DSS alone spent £53 million on printing and stationery last year.4 In the US,Vice President Gore’s project on reinventing government found that of 103 federal agencies, only nine could link their strategic plan to any form of specific intended results or impact.5

Rebecca Stanley and Tom Bentley are Researchers at Demos.

Demos 185 Demos 7/1995

The 1986 Public Expenditure White Paper contained about 500 performance indicators. By 1990 this had grown to 2500.6 The Ministry of Defence has recommended the introduction of performance related pay in the armed forces, linked to responsibilities and achievements. The Ministry has stated that assessments will not be based on performance in war.7 The Treasury emerged as one of the poorest performers in a league table of Whitehall Departments failing to pay their bills on time, only completing 82% of payments within the thirty day deadline. The worst department was the Crown Prosecution Service paying only 81.4% of bills within the target period. The top performer was the defence ministry, achieving 99.99% of payments within time.8 Earlier this year, the government of Orange county in California was declared bankrupt after risky investments failed. Having lost $1.7 million dollars on the financial markets, a rescue package of massive cutbacks to public services was prepared by the newly appointed chief executive officer. This included sale of assets such as public libraries, government buildings and correctional institutions, and the lay off of 1,040 country staff. The citizens of the country preferred this approach, substituting services with voluntary effort, than an increase of sales tax from 7.5% to 8%. Some areas within the country are planning to form themselves into new towns and contract out services such as fire and police, therefore reducing their dependence on cut-back country services.9 Gore’s investigations of US government discovered that procurement systems were surprisingly rigid for ashtrays. Nine pages of specifications and drawings described the colour, markings and polish of the ashtrays, down to the required number of cigarette rests each were to have. In addition, instructions were included for quality tests, to be applied to all ashtrays, entailing hammering the ashtray and counting the shattered pieces of any defective items.10

186 Demos Vital statistics

Central government agencies in the UK outsource an average of 25% of information technology operations compared to 7% in an average European company.11 The primary concern of Chief Executives of agencies in 1994 was the development and updating of performance indicators. 25% of their time was spent on achieving standards and targets. One third of Chief Executives said that they spent no time at all on customer service issues.12 Personnel practice in the US government is covered by 850 pages of personnel law, 1300 pages of official regulations on implementation, and 10,000 pages of guidelines in the Federal Personnel Manual. Michael Hesteltine recently announced an intitiative in the UK to cut government bureaucracy in the criminal justice system, GPs surgeries and in schools. If recommendations are implemented, form filling in doctor’s surgeries could be cut by 15 million individual forms.)13 In 1992 the DSS Income Support computer ‘crashed’ for a total of 883 hours.14 Under the Code of Practice on Access to Government Information, departments and public bodies have drawn up charging schemes where requests cause extra work. These vary across departments. The former Department of Education charged £50 flat rate for enquiries taking between 3–8 hours to complete and £150 for those taking 8–13 hours. The Department of Health allows one hour free for a request, after which £20 is charged per hours. The Central Office of Information charges £16 for basic enquiries that take between 10 and 46 minutes.15 The Ministry of Defence has had 60 cases of corruption investigated by MoD police in the past two years. In 1994, 85 out of 112 prosecutions for fraud resulted in a conviction. The scale of corruption ranges from procurement fraud involving suppliers to ‘misappropriation’ of cash. The

Demos 187 Demos 7/1995

National Audit office calculated that in 1993–4 the value of frauds being investigated was £22 million.16 Even with computerisation,Welsh Office officials have tripled in number from 766 in 1969–70 to 2,399 in 1991–2.17 The US Government is considering allowing the use of credit cards as an efficient way for citizens to pay taxes.18 It has been estimated that each year there are at least 1,000 cases of corruption in local government and the Civil Service. In 1994 there were approximately 100 known cases of corruption around the country, but Scotland Yard predicts that as many as ten times this number never get reported.19 White hall has 13 times more experts working on arms sales than monitoring fraud in the city.20 Only 27% of Britain’s EC officials and Civil Servants speak a second language.21 Between 1982/3 and 1991/2 around 100 civil servants per year were dismissed for inefficiency.22 The UK had 225,308 fewer civil servants in 1993 than in 1914.23 In 1994, 60% of the civil service worked in agencies. The 96 established agencies employed nearly 350,000 civil servants.24 Soon after World War II it was discovered that the Government was funding a full-time civil service position to light bonfires along the cliffs of Dover if the Spanish Armada was sighted in the English Channel.25 The number of women in senior civil service posts has increased by only 2% since 1992. This has largely been attributed to reductions in staff numbers rather than an influx of women into the senior positions. The Government has set at target of 15% of senior civil service posts being held by women by the year 2000.With the current rate of progress this is seen as unlikely to be met.26 60% of the Inland Revenue’s staff are female, yet no women hold any of the 22 senior staff positions. Other departments with no female senior staff include the Northern Ireland Office, the Central statistical Office and the Overseas

188 Demos Vital statistics

Development Agency. OPCS is the best performer in this area, with 23.5% of senior positions filled by women, followed by the Department of National Heritage and the Home Office with 16 and 15% respectively.27 67% of top civil servants and permanent secretaries attended either Oxford or Cambridge; less than 3% attended Manchester, Glasgow, Keele or the School of Slavonic and East European Studies.28 The Treasury pays £1,720,000,000 per year to retired civil servants in pensions.29 At the start of the 1990s, three quarters of public expenditure was devoted to programmes that had been introduced before 1945. Margaret Thatcher’s last year in Government was committed to spending 89% of public expenditure on programmes introduced by previous governments.30 Recent figures suggest that since 1979, £320 million has been spent by central government on advice from consultants dealing with privatisation and market testing. These figures do not account for total spending, since many departments did not provide the figures requested. From available figures, the Department of Transport is the biggest spender, accounting for £122 million in consultancy fees.31 London Business School has estimated the cost of direct regulation of British financial services at nearly £90 million per annum.32 The UK government’s income from privatisation sales reached a peak in 1992–3 at £8.46 billion, in 1994–5 income from sales was £6.3 billion.33 £4,927 was spent on installing a carved ‘taxpayers charter’ at Somerset House in London.34 The public sector borrowing requirement is projected to fall to £18.8 billion by 1999, compared to a peak of £45.3 billion reached in 1993.35

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A report by the World Development Movement revealed that at least £384 million of taxpayers money each year subsidises arms sales to countries such as Oman, Indonesia and Nigeria, constituting one fifth of the total value of British arms exports.36 The US federal government spends almost as much on guided missiles and ammunition as on elementary and secondary education. Annual expenditure on guided missiles and ammunition is $20.17 billion whilst education spending per annum is $21.12 billion.37 The UK ranked thirteenth in the OECD’s calculation of direct public expenditure on education during 1992. Spending approximately 11%, the UK met the OECD average, but spent less than countries such as Hungary (18%), the Czech Republic (15%), and the US (14%).38 Local Education Authority spending on school meals can vary as much as five times. 105% of Manchester’s schools budget was spent on meals,Whilst Croydon spent just 1.9%.39 The current NHS budget is £41 billion, approximately 6% of GNP,Some estimates calculate that by 2030, changing demographics could push spending on long-term care alone to 11% of GNP.40 Evidence shows that government campaigns against smoking and alcohol abuse have encouraged wider misuse than before.41 Campaigns against cannabis, LSD and glue sniffing have all been followed by increased use of these drugs.42 Government spending on roads has increased by £175 million between 1992/3 and 1995, while spending on rail transport has been reduced £1155 million.43 Employment in the criminal justice system has risen in all areas since 1984/5. The greatest growth has been in the number of Prison Officers, which rose by 41% in 1993/4. There were also 26% more civilian staff in the Police Service in 1993/4, while the number of Police Officers increased by only 6%.44

190 Demos Vital statistics

It will cost £11,000 more per year to imprison a young offender in the new American-style ‘boot camps’ than in a current youth detention centre.45 Housing investment by local councils fell from £6.7 billion in 1979–80 to £2.5 billion 1992–3.46 The General Audit Office in the US has found major blunders in department and agency accounting. The Internal Revenue Service overpaid $500,000 to vendors in just 280 transactions. NASA made accounting mistakes worth $500 million whilst the Army and Air force made accounting errors worth $200 billion.47 Since 1992 the most marked change in people’s attitudes to the NHS has been the rise in the numbers who now believe that they cannot trust it to look after the needs of their families. Only 19% of respondents in 1994 agreed strongly that the NHS could be relied upon, a fall from 27% in 1992. Those who disagreed strongly that provision could be relied upon, rose from 7% in 1992 to 15% two years later.48 There has been a 10% drop in the number of people who agree strongly that the government should spend more money on the NHS since 1989, from 82% to 72%. Support for increased spending on Child Benefit has fallen by 19% to 33%.49 MORI polls show that people in Britain believe that politicians and government ministers can be trusted even less to tell the truth than in the early eighties. Similarly, Gallup figures show 87% of respondents in 1994 agreed with the statement that MPs will tell lies if they feel that the truth will hurt their political careers. In 1985 this figure was 79%. Henley Centre data shows that only 25% of people in their survey felt that local councils could be trusted to be honest and fair.50 Citizens charters, launched to ‘empower’ citizens by explicitly defining their rights, have not achieved their objective, according to MORI. Public awareness of citizen’s rights, how

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Parliament works and the British constitution has fallen since 1991.51 81% of respondents in a Socioconsult Monitor poll stated that they felt ‘more and more remote from big political institutions’.52 GPs, banks and teachers are trusted more to be honest and fair more than the police, Inland Revenue and the Government.53 In 1994 the annual salary of an MP was roughly equivalent to that of an assistant chef in the House of Commons, at £31,687.54 The number of MPs involved in government was 111 in 1990, compared to just 42 in 1900.55 MPs in Italy face the toughest rules of disclosure of business interests compared to Spain, Britain, Germany, France and the US. The Spanish government is also trying to reduce corruption scandals by requiring senior civil servants, police officers, and MPs to disclose their tax forms for possible scrutiny every year, by courts, judges, tax inspectors, an ombudsman, but, interestingly, not by the public.56 In 1929, Prime Minister Ramsay MacDonald’s Cabinet was composed of two aristocrats, four middle class and 12 working class ministers. Five of these had been to public school. Prime Minister Thatcher’s Cabinet in 1979 contained three aristocrats, 19 ministers from the middle classes and no working class members. The overwhelming majority of these had attended public school (91%).57 317 of the 1,193 members of the House of Lords did not attend a single debate in 1993–94.58 The youngest eligible member of the House of Lords is 24 years old, the oldest is 97. The average of members is 65 years, for created peers the average is 71 years.59 There has been an increase in the number of women in the House of Lords from 4 in 1958 to 82 in 1995. This is now 6.9% of the total number of peers. There are 63 women MPs in the House of Commons (9.6% of all MPs) compared to 27 in 1958.60

192 Demos Notes

1. FDA News, 1995, August/September. 18. Gore, A., 1993; 116. 2. LGMB, CCT Information Service 19. The Guardian, 16th February, 1995. Survey Report No. 6, 1992. 20. Morgan, R., 1994; 146. 3. Source, Foreign and Commonwealth 21. Morgan, R., 1994; 145. Office, 1995. 22. Can Government Be Run like A 4. Treasury estimates for 1993–4. DSS Business?, 1994, CIPFA. figure for 1994–5. 23. Butler, D., and Butler, G., 1994, 5. Gore, A., 1993, From Red Tape to British Political Facts 1900–1994, Results: Creating a Government that Macmillan. Works Better and Costs Less,Times 24. Price Waterhouse, 1994. Books; 72. 25. Gore, A., 1993; 94. 6. Jackson, P.M., 1995, Measures for 26. Association of First Division Civil Success in the Public Sector, CIPFA, Servants, 1995. Public Finance Foundation; 7. 27. Association of First Division Civil 7. The Times, 27th March 1995. Servants, 1995. Women in the Senior 8. Daily Telegraph, 24 July; 1995. Civil Service, Press Release, 28th 9. New York Times, 10th and 28th March. March, 1995. 28. The Financial Times, 3rd August, 10. Gore, A., 1994; 27. 1995. 11. Margetts, H., and Dunleavy in this 29. UK Treasury. Demos Quarterly. 30. Rose, R., and Davies, P.L.,1994, 12. Price Waterhouse, 1994, Executive Inheritance in Public Policy,Yale Agencies; Survey Report 1994. University Press, London. 13. Gore, A., 1993; 21 and Cabinet 31. Milburn, A, MP,1995. Office, 1995. 32. See Bishop, M., in this Demos 14. Benefits Agency. Quarterly. 15. Cabinet Office, 1994, Open 33. Treasury Privatisation Division, Government, HMSO. 1995. 16. The Independent, 27th April, 1995. 34. UK Treasury. 17. Welsh Office. 35. The Henley Centre.

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36. The Guardian, 22nd May, 1995. Government’, Demos Quarterly 7, 37. Morgan, R., 1994; 14. Demos. 38. Figure 1, The OECD Observer, 1995, 52. See Atkinson, S., 1995. Demos No. 193, April/May; 7. Quarterly 7. 39. UK Department for Education. 53. Henley Centre, 1994,Volume 1; 92. 40. Mihill, C., 1995. 54. The Economist, 1994,‘A Nasty Smell 41. British Medical Journal 29, 1985. In Parliament’,24th September. 42. MacGregor, E.S., Drugs and British 55. Butler, D., and Butler, G., 1994. Society,London,Routledge. British Political Facts 1900–1994, 43. Henley Centre. Macmillan. 44. Home Office Research and Statistics 56. The Economist, 1994,‘The sour taste Department, 1995. of gravy’,5 November; 50. 45. The Guardian, 19th September, 1995. 57. Butler, D., and Butler, G., 1994. 46. Housing Finance Review, 1993, 58. House of Lords, 1995, Information Joseph Rowntree Foundation. Sheet No. 14, The House of Lords: 47. Gore A., 1993. Some Statistics,and Information 48. The Henley Centre. Sheet No. 7 House of Lords Annual 49. The Henley Centre. Business Statistics: Calendar Year 50. See Lord Nolan, Chairman, 1995, 1994, Journal and Information Standards in Public Life: The First Office. Report of the Committee on 59. House of Lords, 1995, Information Standards in Public Life,Volume 1: Sheet No. 14 and Women in the House Report, HMSO; 107–108. Henley of Lords: Assorted Facts as at 13.7.95, Centre for Forecasting, 1994, Journal and Information Office. Planning for Social Change 60. House of Lords, 1995, Women in the 1994/5. House of Lords: Assorted Facts as at 51. See Atkinson, S., 1995, The British 13.7.95, Journal and Information Citizen and the System of Office.

194 Demos Graphic government

General Government expenditure from 1890 to 1993 (As a percent of GDP)

1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 Source: ? Year

Demos 195 Demos 7/1995

Standard rate of income tax in the United Kingdom 1799–1994 (%) 50 There was no income tax in force in 1803 and from 1817 to 1842 The Lloyd-George budget of 1909 introduced progressively higher rates at different income 40 levels for the first time From 1974 the Standard Rate become the Basic Rate and high rates were applied to the higher income bands 30

0 – 9 1 4 4 1 – 7 5 9 5 7 8 0 3 2 7 9 9 8 8 8 9 9 5 9 9 7 2 1 1 1 1 1 9 3 1 1 1 0 1 5 8 9 1 Year 1 Source: B R Mitchell, British Historical Statistics

Changes in public spending as a proportion of general government expenditure 1979–1990 (%) Law Law and order 100 Social security Health 50 Environmental services Employment and training Transport Debt interest Defense 0

-50 and industry Housing -500 energy Trade, Privatisation Source: Public Expenditure, Cm 2519, Table 1.3

196 Demos Graphic government

Total local Government expenditure in England and Wales (£000’s)

70000000 Expenditure other than loans for capital works. Including the repayment of loans by various 60000000 local authorities to the L.C.C. Consolodated Loans Fund

50000000

40000000

30000000

20000000

10000000 0

1900 1910 1920 1930 1940 1950 1960 1965 1970 1975 1980 1985 1990 Year Source: Annual Abstract of Statistics

Demos 197

Governing forms

The market forum democracy (Demosthenes) The moral mandarinate (Confucius) The republic of the guardians (Plato) The imperial state (Caesar Augustus) The mercantile state (Henry VII) Leviathan (Thomas Hobbes) The contractual state (John Locke) The general will (Jean-Jacques Rousseau) Representative government (John Stuart Mill) The nightwatchman state Mark I (Matthew Arnold) The withering away of the state (Karl Marx) The professional public service government (Northcote-Trevelyan) The patrician warfare/welfare state (Count Otto von Bismarck) The ideal bureaucracy (Max Weber) The progressive federal state (Woodrow Wilson) The liberal welfare state (David Lloyd George) The Bolshevik revolutionary state (Vladimir Ilych Ulyanov, aka Lenin) The welfare state (William Beveridge) The pillarised state (Netherlands) The Great Society (Lyndon Johnson) The constitution of liberty (Friedrich von Hayek) The panoptic state (Michel Foucault) The nightwatchman state Mark II (Robert Nozick)

Demos 199 Demos 7/1995

The interest group state (Mancur Olson) The shari’a state (Ayatollah Khomeini et al) The enabling state (Paul Barker) The new federalism (Ronald Reagan) The hollow state (B. Guy Peters) Reinventing government (David Osborne and Ted Gaebler) The contract state (Ian Harden) The post(al) state (Jacques Derrida)

200 Demos Ruling ideas: books about government

Political tracts 1: From the Right To renew America Newt Gingrich Speaker in the US House of Representatives, Gingrich, argues that America must be reformed to prevent internal and international decay, and outlines six major challenges including replacing the welfare state with an ‘opportunity society’; decentralising government to state capitals and local governments; and balancing the federal budget, emphasising fiscal honesty about the cost of government programmes. Gingrich concludes with proposals to reinvigorate American culture which reflect his combination of qualified libertarianism, economic neo-liberalism and love of new technology. (1995, Harper Collins, New York)

Saturn’s children: How the state devours liberty, prosperity and virtue Alan Duncan and Dominic Hobson A political polemic by the Thatcherite MP and his collaborator on the despotism of egalitarian democracy. Communitarian thinking is accused of advocating the ‘goose-stepping’ of the State into every area of private

Demos 201 Demos 7/1995 life and liberty.Duncan and Hobson argue that high taxation and spending, are crushing individual freedom, creating poverty and insecurity and destroying economic prosperity. Moral values are eroded, crime is rising and individual responsibility has been replaced by dependency. Their solution is not to re-invent government, but to ‘liq- uidate’ it. They offer a twenty year plan for phasing out much of the machinery of civil government. (1995, Sinclair Stevenson, London)

Demosclerosis: the silent killer of American government Jonathan Rauch Rauch revives Mancur Olson’s argument that the ‘hyperpluralism’ and ‘parasite economy’ of pressure groups and interest groups is undermining economic growth, ratchetting up government spending, locking in spending to existing programmes and contributing to the gridlock in decision-making, and slowly destroying democracy. He proposes constitutional rules to limit the damage: requiring every new expenditure to be balanced by offsetting cuts, setting a word limit on the literal size of the body of law, imposing a balanced budget amendment, cutting subsidies and tax loopholes, subjecting all new programmes to much stricter tests, further deregulation to make pressure groups compete with one another and ending protectionism. (1994, 1995, Times Books, New York)

Political tracts 2: From the Centre-Left Deregulating the public service: can government be improved? Edited by John J. Dilulio, Jr. The central question that this collection addresses is: what can be done to achieve more responsive, accountable and cost-effective government in the USA? Practitioners, journalists and academics offer their analyses on deregulating the public service as tool to improve government. Some

202 Demos Ruling ideas: books about government of the problems faced in the US national, state and local government include loss of public trust, bureaucrat bashing, fiscal restraints, strained labour-management relations, and outdated information systems. Regu- lation, it is argued, is incompatible with innovation and employee productivity.The authors examine the sources of over-regulation; the lessons of deregulation in different agencies; the question of ethics in government; timing and whether deregulation alone is enough to improve public services. (1994, The Brookings Institution, Washington D.C.)

Improving government performance: an owner’s manual John D. Dilulio Jr, Gerald Garvey and Donald F. Kettl A short tract summarising the main proposals from the work of the Brookings Institution on ‘reinventing government’,ranging from deregulation to redesigning central-local relations, by way of technological change and new performance indicators. (1993, The Brookings Institution, Washington D.C.)

Reinventing government: how the entrepreneurial spirit is transforming the public sector David Osborne and Ted Gaebler This book is already a public management classic redefining the government debate on government from the question of size to what kind of government it should be. It argues that government should become entrepreneurial, but cannot simply be run like a business. Innovation, enterprise, competition, and consumer choice can be introduced, and government can be non-bureaucratic. Tackling waste is presented as a question of analysing the motivations of bureaucrats. This way, Osborne and Gaebler claim, the public can get better services without increases in taxes.A framework of 10 principles for reforming government is recommended, ranging from empowering citizens to form

Demos 203 Demos 7/1995 community owned government, to funding and measuring outcomes not inputs. (1991, Plume, New York)

From red tape to results: the Gore report on reinventing government Vice President Al Gore During 1993, US Vice President Al Gore coordinated a National Per- formance Review (NPR) to assess how the US federal government can become more responsive to its citizens. The aim was to reduce both the budget deficit and the lack of trust in government. The task of the NPR was to identify waste and find ways of eliminating it. Examples of over- regulation and unnecessary bureaucracy illustrate the recommendations made. These include ways of cutting red tape and regulation, decentralising decision-making, introducing changes to programmes, and the core proposal, to create a customer service contract to guarantee effective, efficient and responsive government. (1993, Times Books, New York)

Academic studies 1: changing policy Explaining economic policy reversals Christopher Hood Hood examines the apparent extinction during the 1980s of the economic policy ‘dinosaurs’ which had previously dominated OECD countries. The acceptance of the natural supremacy of such beasts as Keynesian full-employment policy, classical styles of business regulation, and traditional public sector management styles has been challenged by monetarism, deregulation and the New Public Management. Four general approaches are advanced for explaining policy reversals: a change in the ideological ‘climate’ of policy making; the emergence of ‘new predators and competitors’,through the formation of new political interests; changes in the policy habitat, seen in changes to social

204 Demos Ruling ideas: books about government structures; and self destruction of policies, perhaps due to unintended consequences of particular policy decisions. He develops a composite model for explaining these changes, investigates what type of extinction took place for each policy change, and evaluates how much of a shock the changes really were. (1994, Open University Press, Buckingham)

Modern governance: new government–society interactions Edited by Jan Kooiman Kooiman argues that the main change in governance, in contemporary society, has been the shift of government and society away from the public sector towards the private sector. New interactions between the state and society are identified in social welfare, environment, education and planning. New forms of governing have emerged, based on shared responsibility of the public and private sector working in partnership. Kooiman calls this ‘co-governance’,a new socio-political form of governing. The volume considers new balances between the state and market. New patterns of interaction can be analyzed at two levels. The first is concrete, searching for new models of governing such as co-governance. The second looks at changing patterns of governance, aiming to deal with the developments and structural characteristics of society, employing concepts of diversity, complexity and dynamics. (1993, Sage, London)

The future of the public services 2007 Office for Public Management This research report is the product of a project undertaken by the Office for Public Management, building two scenarios for the public sector in the year 2007. These contrast a nation at ease with itself with a stress- filled environment of self reliance. The first scenario is set in a nation that has had ten years of left-of-centre government. Economic growth has been steady, but unspectacular. The shape of public service has

Demos 205 Demos 7/1995 changed, with emphasis on personal responsibility growing. Social unrest is evident at the extremes of society, although economic growth has never been stronger. Europe has an influential role, having achieved some degree of harmonisation in policy. The second scenario considers the further decline in Britain’s economic position under a right of centre administration. Falling party membership and widespread social unrest prevail. Responsibility for public services remains in the hands of unaccountable quangos. Increased voluntary action by citizens is a response to the problems around them. The aim of building these scenarios is to provoke discussion amongst professionals and the public as to what public services should look like in the future. (1995, Office for Public Management, London)

Academic studies 2: implementation Bureaucracy: what government agencies do and why they do it James Q. Wilson Focusing on the US, Wilson aims to explain why government bureaucracies act as they do. He provides a detailed analysis of many areas of the US government, such as the CIA, regulatory commissions, and the Social Security Administration. He analyses the cultures and incentives that affect the work of bureaucrats, highlighting differences between the various arms government. Analysis of ‘bureaucracy’, he argues, should embrace detail rather than distil characteristics to a set of common denominators. At the end of the book he offers a comparative analysis of bureaucracies in different countries. (1989, Basic Books, New York)

Managerialism and the public services Christopher Pollitt In the second edition of this book, Pollitt examines the growth in the USA and UK of the ideology of managerialism and its influence on public services. The impact of managerialism upon different areas of

206 Demos Ruling ideas: books about government government is considered, including education, healthcare, the US federal government and the British civil service. Pollitt gives a critique of managerialism provides examples of alternatives to managerialism. Further extensive reform alternatives are considered such as; the public-service orientation, which aims to reinvigorate local government by restoring a sense of purpose which will motivate staff and management; and cultural approaches which deal with engrained attitudes and routines found in government. (1993, Blackwell, Oxford)

Quality improvement in European public services: concepts, cases and commentary Edited by Christopher Pollitt and Geert Bouckaert This is the first collection of work to focus on quality in the public sector, drawing together expertise from across Europe. An overview of concepts and methods used to manage quality improvements is given, demonstrating that the choice of framework will have political and organisational consequences. Case studies are used to illustrate the application of theoretical frameworks. Examples are drawn from public services in Western Europe, including the Dutch defence ministry, German local government and higher education in Sweden. (1995, Sage, London)

Beyond privatization: the tools of government action Edited by Lester M. Salamon assisted by Michael S. Lund The authors of this book offer a new approach to the study of public policy, focusing upon the tools and instruments that the public sector uses in its work. They argue that a technological revolution has occurred, with the rapid growth of new tools. Each of these tools is distinctive and has different consequences for the policy process. Success or failure of policy can therefore be understood as a product of the tools employed. A variety of tools such as loan guarantees, regulation and

Demos 207 Demos 7/1995 direct government are analysed, examining their nature use and the costs of employing them. (1989, The Urban Institute Press, Washington D.C.)

Street-level bureaucracy: dilemmas of the individual in public services Michael Lipsky This classic of public management and policy examines how people experience policies in street-level bureaucracies, such as schools, welfare agencies, and the police. The roles of discretion, culture and routines in service delivery are analysed, and Lipsky argues that these devices, developed to cope with caseloads, actually become the policies carried out. In his view the policy process is not best understood as a top down model imposed by legislators or high ranking administrators, but that the nuts and bolts of policy are forged by worker-client interaction at the point of service delivery. (1980, Russell Sage Foundation, New York)

Competition, contracts and change: the local authority experience of CCT Nirmala Rao and Ken Young This study assesses the impact and implications of CCT in Britain. It is based on research in ten local authorities, and examines initial responses to new contracting requirements, the experience of implementing the changes, the current position of different authorities, and the impact of CCT on political representation and the role of the councillor. The authors assess the implications of extending CCT into white collar services and the uncertainty posed by European Union legislation on the transfer of staff from local authorities to private contractors. They document changes in working practices arising from CCT, client- contractor relationships, and the consequences for accountability of contract-based service delivery. Finally, the study offers an overall

208 Demos Ruling ideas: books about government assessment of the transformation brought about by CCT,the prospects for further change, and the likelihood that any of it could be reversed. (1995, Joseph Rowntree Foundation, London)

Academic studies 3: history Cages of reason: the rise of the rational state in France, Japan, the United States and Great Britain Bernard S. Silberman This large and ambitious book attempts combines a comparative historical review of the apparatus of civil government in four countries since the eighteenth century with an attempt to fit the findings into frameworks derived from recent organisation theory. Silberman efficiently surveys projects for the reform of bureaucracy and distin- guishes the main types of ‘rationalisation’ project that his case studies exhibit. He argues that the differing characters of civil service forms are best explained largely by political struggles over how to overcome particular risks and uncertainities, such as problems of political succes- sion, of managing potential civil unrest, of pressures for political and educational equality, and the need to assert the publicly accountable character of the state. Even those who are not interested in Silberman’s theoretical efforts will find the book’s panoramic historical account valuable in understanding the evolution of modern government. (1993, Chicago University Press, Chicago)

The hidden wiring: unearthing the British constitution Peter Hennessy Hennessy’s latest work attempts to distinguish myth from constitutional reality. He argues that because of the flexibility and amorphous nature of British constitutional procedure, this can only be done by analysing its historical development – ‘…asking what happened, when, why, how and with what consequences’.Hennessy argues that ministers are in ever more danger of being swamped by the pace of events and

Demos 209 Demos 7/1995 unrealistic workloads. As well as chapters on parliament, monarchy, cabinet and civil service, the book contains sections on current contro- versies covering the Nolan Committee and revised civil service code, and the constitutionality of the recent Conservative leadership election. (1995, Victor Gollancz, London)

Academic studies 4: theory Making democracy work: civic traditions in modern Italy Robert D. Putnam In this acclaimed and significant study of social capital, Putnam asks why certain democratic governments succeed while others fail. Twenty years of research in Italy identifies reasons, for example, why the regional government in Puglia is inaccessible and frustrating to citizens whilst the that of Emilia-Romagna is courteous, efficient and effective. The framework for measuring institutional performance is described and different findings explored. Putnam finds that civic community con- structed from trust and cooperation between citizens is the key to good governance and prosperity, utilising the social capital of the community. (1993, Princeton University Press, New Jersey)

Do institutions matter? government capabilities in the United States and abroad Edited by R. Kent Weaver and Bert A. Rockman Through a number of cross-national studies Weaver and Rockman demonstrate the importance of institutions in the development of public policy. They compare the Parliamentary and Presidential systems of government in the UK and USA and delineate the influences upon governments’ capacities and capabilities. A sample of policy areas are analysed, including energy, the environment, and pensions. The editors conclude by assessing when and how institutions are important and considering institutional reform in the US. (1993, The Brookings Institution, Washington D.C.)

210 Demos Ruling ideas: books about government

The Foucault Effect: studies in govermentality Edited by Graham Burchell, Colin Gordon and Peter Miller This wide-ranging and thought-provoking collection includes two lec- tures and an interview with Foucault, and contributions from nine other scholars on the manifestations and future development of government activities, from welfare and risk management to security and social economy. It sets the different and varied practices and activities of government organisations, and explores the meaning and implications of ‘government rationality’: ways of thinking about the art of government and its reasons for existence. (1991, Harvester Wheatsheaf, Hemel Hempstead)

Professional ethics and organisational change in education and health Edited by Christine Henry Following a pioneering audit on ethics, values, morals and principles at a British university, this book examines the importance of professional ethics in education and health during periods of organisational change. Practical outcomes are formed by the audit framework, link- ing ethics to the development of mission statements, charters and codes. Finally, issues of equal opportunities and policy/practice mis- match are considered. (1995, Edward Arnold, London)

How organisations measure success: the use of performance indicators in government Neil Carter, Rudolf Klein and Patricia Day Carter, Klein and Day trace the history of performance indicators (PIs) in government from their 1960s origins to the present, looking at organisational politics, values and problems in designing new tools for government. Design and implementation issues are covered in case studies based on two years of research in areas including the criminal

Demos 211 Demos 7/1995 justice system, NHS, banks, and railways. They argue that the differences between public and private sector performance measurement have been overstated. (1993, Routledge, London)

Measures for success in the public sector: a reader Edited by Peter M. Jackson This recently published volume considers the foundations, issues and applications of performance measures in the public sector. Jackson puts the use of performance measurement into context by looking at the development of a public sector performance culture and the use of current measures such as value for money, local authority data and value added. Other contributors consider problems such the definition of performance and the needs of managers and policy makers. In the final section, authors consider the application of techniques in different policy areas, ranging from higher education to urban economic development and social services. (1995, Public Finance Foundation, London)

Rebecca Stanley and Tom Bentley are Reasearchers at Demos. Perri 6 is Research Director at Demos

212 Demos Signs of the times

Reinventing government Facilitating cultural change Nation state Syndicated states Rolodex Psion Series 3 The three Es Value added Managerialism Ethos Provision Customer care Deference Distrust Rightsizing Righttasking Club ethic Published codes Border patrol Internet search Governing by contracts Governing by cultures Patronage Open nomination Monologue Polylogue A Citizen’s Charter for each service A service for each citizen Heavy hand Light touch Quick fix Slow burn DSS EDS Globalisation Glocal Incompatible departmental cultures Incompatible e-mail software Prisons Service Group 4 Accountability Next Steps Annual pay review Performance-related pay Resign Sack the agency chief executive Sovereignty Co-governance Neighbourhood office Electronic town hall Income and expenditure account Resource-based accounting National plan Pilot project Timeserver Network server Jobsworth! Contractsworth? Inertia Inertia

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Media watch

In Whose Service? by Ivan Briscoe Published May 1995 An analysis of the current proposed schemes for national and community service for young people. Excerpted in The Guardian covered in the Times Educational Supplement and the specialist press.

Demos Quarterly, The Time Squeeze Published June 1995 A collection of essays and reports examining the shifting balance between most people’s work, family and social lives. The broad range of topics covered continue to generate interest. At the time the maga- zine was excerpted in a Guardian G2 cover story, covered in The Independent on Sunday, The Sunday Times (an imaginative piece by Julie Burchill following on from her equally well informed article referring to the Parks project), The Times, The Scotsman, The Herald, The Independent, The Guardian, The Sunday Telegraph,the Malvern Gazette and Ledbury Reporter, and numerous personnel and human resources magazines. The report was covered by most local radio sta- tions, many of which put together special voxpop programmes. It has subsequently been covered in many publications around the world and the phrase ‘time squeeze’ has been widely used.

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Taking Tax Out of Politics: seven maxims for tax policy in the late 1990s by Douglas Hague and Geoff Mulgan Published July 1995 Seven maxims to define tax policies in the years ahead – benchmarks against which parties’ promises and performance can be judged. Covered in The Daily Telegraph, The Times and The Independent.

Modernising Public Appointments by John Viney and Judith Osborne Published July 1995 Based on a study of the existing system, the authors set out detailed proposals for modernising Britain’s public appointments, introducing the best of modern business practice to the very different world of the public sector. The piece was excerpted in The Independent,and covered in The Observer and The Western Mail.

The Other Invisible Hand: remaking charity for the 21st century by Geoff Mulgan and Charles Landry Published July 1995 The final report from the Future of Charities and the Voluntary Sector project funded by CAF and the JRF. Covered in The Times, The Guardian, The Independent and various different trade magazines ranging from Third Sector to Charities Management.

Demos Quarterly, The Age of Asia: learning from the sunrise societies Published August 1995 Themed issue on the lessons to be learnt not only from the economic but also social successes of the east. Covered in articles in The Independ- ent and the Independent on Sunday,and also excerpted in The Straits Times in Singapore and the South China Morning Post in Hong Kong.

216 Demos Media watch

The piece by David Howell MP, which Demos also published as an extended essay, was covered in the Financial Times.

Where Have All the Women Gone? by Jane Grant Published August 1995 A working paper from the Seven Million Project. This paper examines the decline of traditional women’s organisations amongst younger women and suggests how they might adapt to encourage a younger audience. Covered in The Times.

Business Ethics: the new bottom line by Sheena Carmichael Published September 1995 As the ethics of business continue to come under public scrutiny this book examines the lessons to be learnt from North America and Europe in seeking effective ways of encouraging a more responsible corporate culture. Covered by the Sunday Telegraph, Financial Times, The Times and The Guardian, as well as in the specialist business press. The themes of the book were followed up in a one day Demos conference held at the QE2 Centre, Westminster.

Freedom’s Children: work relationships and politics for 18–34 year olds in Britain today by Helen Wilkinson and Geoff Mulgan Published September 1995 The final report from the Seven Million Project examining the changing needs and aspirations of the 18–34 age group and the impact these shifting values have on our current corporate, political and cultural institutions. As with the interim report, No Turning Back,this report generated an large amount of public and media interest. Published to coincide with a conference to launch the findings of the project the barrage of press coverage began with Helen Wilkinson running the

Demos 217 Demos 7/1995 gauntlet of Start the Week on Radio 4. This was followed by over twenty radio interviews shared between Helen and Geoff Mulgan over the next two days with a total of 38 radio interviews conducted to date. The report was also featured on the day by Channel 4 News, BBC World Television News and ITN’s News at One and News at Ten, and was used as the basis for programmes of Panorama, World in Action and Heart of the Matter, Print media coverage included articles, often more than one, in The Sunday Telegraph, The Sunday Times, The Independent on Sunday, The Observer, The Financial Times, The Daily Telegraph, The Guardian, The Times, The Daily Mail, The Daily Express, The Evening Standard, The Scotsman, The New Statesman and Society and The Spectator. The report has also been covered in the specialist press. All parties are now talking about the need to reconnect the young to politics and the British Youth Council and Activ88, the youth wing of Charter 88, have in their recent M Power registration campaign adopted almost all of Demos’ key recommendations for re-engaging the young in party politics.

The Society of Networks by Geoff Mulgan and Ivan Briscoe Published October 1995 A model for the separation of network and service provision with the infrastructure being owned jointly by the service provider. Covered in The Daily Telegraph and The Financial Times and in the specialist press.

General Press Perri 6, Demos’ Research Director, continues to be the focus of the Sunday Telegraph’s Diary page. The most recent reference to Perri’s unusual surname was entitled ‘Perri peculiar’. A lengthy feature on Demos was run in Observer Life. A feature in a Norwegian newspaper on Demos was illustrated with two naked sunbathers.

218 Demos Demos projects

The seven Million Project has now been completed; the final report Freedom’s Children: work, relationships and politics for 18–34 year olds in Britain today was published in September, to coincide with The Generation Game; Demos’ first major conference. Creative Cities – How cities can best mobilise their creative economic and social potential (with a group of local authorities in the UK and abroad). Business Ethics – how firms can put ethical principles into action. Supported by NatWest, the BBC, Northern Foods, Coopers and Lybrand and JRCT. Ownership and regulation of the Information Superhighway – new models to ease the multiplication of new telecommunications services (with Mercury). Europe – reconnecting European institutions to their key stakeholders. A cost/benefit analysis of options for parental leave (supported by the Tedworth Charitable Trust). ID Cards: how to design markets and regulation to ensure privacy as commercial and state cards multiply. The role of young men in society supported by the BT Forum.

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