International Public Administration Reform : Implications for the Russian Federation: Country Reform Summaries

February 2003

Nick Manning/Neil Parison Page 1 11/22/2004 International Public Administration Reform Country Reform Summaries.doc International Public Administration Reform : Implications for the Russian Federation : Country Reform Summaries

ACKNOWLEDGMENTS ...... 9

BACKGROUND ...... 11

1: AUSTRALIA...... 12 OVERVIEW ...... 12 The sequence of reforms ...... 12 Reformers' concerns...... 13 INSTITUTIONAL STARTING POINTS...... 14 Constitution/political system...... 14 Structure of Government...... 15 Central agencies and reform management...... 16 Politicization...... 17 REFORM ACTIVITIES...... 17 Summary ...... 17 Reforms to the organizational structure of government ...... 18 Cutting back the programs undertaken by government...... 19 Civil service and personnel reforms ...... 20 Budget process changes...... 23 E-government...... 25 REFORM OUTCOMES...... 26 2: BRAZIL...... 29 OVERVIEW ...... 29 In regional context ...... 29 Reformers' concerns...... 29 INSTITUTIONAL STARTING POINTS...... 31 Constitution/political system...... 31 Structure of Government...... 31 Central agencies and reform management...... 32 Politicization...... 32 REFORM ACTIVITIES...... 34 Summary ...... 34 Reforms to the organizational structure of government ...... 34 Cutting back the programs undertaken by government...... 35 Civil service and personnel reforms ...... 36 Budget process changes...... 39 E-government...... 41 REFORM OUTCOMES...... 41 Mixed results...... 41 Some concrete gains ...... 42 3: CANADA...... 44

Nick Manning/Neil Parison Page 2 11/22/2004 International Public Administration Reform Country Reform Summaries.doc OVERVIEW ...... 44 The sequence of reforms ...... 44 Reformers' concerns...... 44 INSTITUTIONAL STARTING POINTS...... 47 Constitution/political system...... 47 Structure of Government...... 48 Central agencies and reform management...... 50 Politicization...... 51 REFORM ACTIVITIES...... 51 Summary ...... 51 Reforms to the organizational structure of government ...... 52 Cutting back the programs undertaken by government...... 54 Civil service and personnel reforms ...... 55 Budget process changes...... 56 E-government...... 57 REFORM OUTCOMES...... 57 4: CHILE ...... 59 OVERVIEW ...... 59 The sequence of reforms ...... 61 Reformers' concerns...... 61 INSTITUTIONAL STARTING POINTS...... 62 Constitution/political system...... 62 Structure of Government...... 64 Central agencies and reform management...... 64 REFORM ACTIVITIES...... 64 Reforms to the organizational structure of government ...... 64 Cutting back the programs undertaken by government...... 64 Civil service and personnel reforms ...... 65 Budget process changes...... 65 E-government...... 66 REFORM OUTCOMES...... 66 5: CHINA...... 67 OVERVIEW ...... 67 The sequence of reforms ...... 67 Reformers' concerns...... 69 INSTITUTIONAL STARTING POINTS...... 69 Constitution/political system...... 69 Structure of Government...... 70 Central agencies and reform management...... 72 Politicization...... 73 REFORM ACTIVITIES...... 73 Summary ...... 73 Civil service and personnel reforms ...... 73 Budget process changes...... 75 E-government...... 76

Nick Manning/Neil Parison Page 3 11/22/2004 International Public Administration Reform Country Reform Summaries.doc REFORM OUTCOMES...... 76 6: FINLAND...... 77 OVERVIEW ...... 77 Reformers' concerns...... 77 INSTITUTIONAL STARTING POINTS...... 77 Constitution/political system...... 77 Structure of Government...... 78 Central agencies and reform management...... 79 Politicization...... 80 REFORM ACTIVITIES...... 80 Summary ...... 80 Reforms to the organizational structure of government ...... 80 Cutting back the programs undertaken by government...... 81 Civil service and personnel reforms ...... 82 Budget process changes...... 84 E-government...... 86 REFORM OUTCOMES...... 87 7: GERMANY ...... 89 OVERVIEW ...... 89 The sequence of reforms ...... 89 Reformers' concerns...... 90 INSTITUTIONAL STARTING POINTS...... 90 Constitution/political system...... 90 Structure of Government...... 93 Central agencies and reform management...... 95 Politicization...... 95 REFORM ACTIVITIES...... 95 Summary ...... 95 Transparency and accountability ...... 97 Reforms to the organizational structure of government ...... 97 Cutting back the programs undertaken by government...... 98 Civil service and personnel reforms ...... 98 Budget process changes...... 100 E-government...... 100 REFORM OUTCOMES...... 101 8: HUNGARY...... 102 OVERVIEW ...... 102 Reformers' concerns...... 102 INSTITUTIONAL STARTING POINTS...... 102 Constitution/political system...... 102 Structure of Government...... 103 Central agencies and reform management...... 106 Politicization...... 108 REFORM ACTIVITIES...... 109

Nick Manning/Neil Parison Page 4 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Summary ...... 109 Reforms to the organizational structure of government ...... 109 Cutting back the programs undertaken by government...... 109 Civil service and personnel reforms ...... 109 Budget process changes...... 111 E-government...... 111 REFORM OUTCOMES...... 111 9: NETHERLANDS...... 113 OVERVIEW ...... 113 The sequence of reforms ...... 113 Reformers' concerns...... 114 INSTITUTIONAL STARTING POINTS...... 114 Constitution/political system...... 114 Structure of Government...... 115 Central agencies and reform management...... 117 Politicization...... 118 REFORM ACTIVITIES...... 118 Summary ...... 118 Reforms to the organizational structure of government ...... 118 Cutting back the programs undertaken by government...... 118 Civil service and personnel reforms ...... 118 Budget process changes...... 118 E-government...... 118 REFORM OUTCOMES...... 118 10. NEW ZEALAND ...... 118 OVERVIEW ...... 118 The sequence of reforms ...... 118 Reformers' concerns...... 118 INSTITUTIONAL STARTING POINTS...... 118 Overall ...... 118 Constitution/political system...... 118 Structure of Government...... 118 Central agencies and reform management...... 118 Politicization...... 118 REFORM ACTIVITIES...... 118 Summary ...... 118 Reforms to the organizational structure of government ...... 118 Cutting back the programs undertaken by government...... 118 Civil service and personnel reforms ...... 118 Budget process changes...... 118 E-government...... 118 REFORM OUTCOMES...... 118 11. POLAND...... 118 OVERVIEW ...... 118

Nick Manning/Neil Parison Page 5 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The sequence of reforms ...... 118 Reformers' concerns...... 118 INSTITUTIONAL STARTING POINTS...... 118 Constitution/political system...... 118 Structure of Government...... 118 Central agencies and reform management...... 118 Politicization...... 118 REFORM ACTIVITIES...... 118 Summary ...... 118 Reforms to the organizational structure of government ...... 118 Cutting back the programs undertaken by government...... 118 Civil service and personnel reforms ...... 118 Budget process changes...... 118 E-government...... 118 REFORM OUTCOMES...... 118 12. SOUTH KOREA...... 118 OVERVIEW ...... 118 The sequence of reforms ...... 118 Reformers' concerns...... 118 INSTITUTIONAL STARTING POINTS...... 118 Constitution/political system...... 118 Structure of Government...... 118 Central agencies and reform management...... 118 Politicization...... 118 REFORM ACTIVITIES...... 118 Summary ...... 118 Reforms to the organizational structure of government ...... 118 Cutting back the programs undertaken by government...... 118 Civil service and personnel reforms ...... 118 Budget process changes...... 118 E-government...... 118 REFORM OUTCOMES...... 118 13. UK...... 118 OVERVIEW ...... 118 The sequence of reforms ...... 118 Reformers' concerns...... 118 INSTITUTIONAL STARTING POINTS...... 118 Constitution/political system...... 118 Structure of government...... 118 Central agencies and reform management...... 118 Politicization...... 118 REFORM ACTIVITIES...... 118 Summary ...... 118 Reforms to the organizational structure of government ...... 118 Cutting back the programs undertaken by government...... 118

Nick Manning/Neil Parison Page 6 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Civil service and personnel reforms ...... 118 Budget process changes...... 118 E-government...... 118 REFORM OUTCOMES...... 118 POSTSCRIPT...... 118 14. USA...... 118 OVERVIEW ...... 118 The sequence of reforms ...... 118 Reformers' concerns...... 118 INSTITUTIONAL STARTING POINTS...... 118 Constitution/political system...... 118 Structure of Government...... 118 Central agencies and reform management...... 118 Politicization...... 118 REFORM ACTIVITIES...... 118 Reforms to the organizational structure of government ...... 118 Cutting back the programs undertaken by government...... 118 Civil service and personnel reforms ...... 118 Budget process changes...... 118 E-government...... 118 REFORM OUTCOMES...... 118 GLOSSARY OF COUNTRY-SPECIFIC TERMS...... 118

BIBLIOGRAPHY...... 118

Tables

TABLE 1 EXECUTIVE BRANCH CIVIL SERVANTS IN BRAZIL, 1988-1994...... 37 TABLE 2 PERSONNEL EXPENDITURES OF SELECTED BRAZILIAN STATES...... 39 TABLE 3 EMPLOYMENT IN THE GERMAN PUBLIC SECTOR ...... 98

Boxes

BOX 1 FEDERAL GOVERNMENT DEPARTMENTS IN CANADA...... 49 BOX 2 PROVINCIAL GOVERNMENT DEPARTMENTS IN CANADA ...... 49 BOX 3 CABINET COMMITTEES IN THE CANADIAN FEDERAL GOVERNMENT ...... 50 BOX 4 AGENCIES IN CANADA ...... 53 BOX 5 CABINET MINISTRIES IN CHILE ...... 64 BOX 6 REFORM CHRONOLOGY IN CHINA...... 68 BOX 7 SUBNATIONAL GOVERNMENT IN CHINA ...... 69 BOX 8 DEPARTMENTS OF THE STATE COUNCIL IN CHINA ...... 71 BOX 9 ORGANIZATIONAL STRUCTURE OF GOVERNMENT IN FINLAND ...... 78 BOX 10 GERMAN FEDERAL MINISTRIES AND PUBLIC AGENCIES WITH ADMINISTRATIVE RESPONSIBILITIES 93 BOX 11 FORMS OF CABINET DECISIONS IN HUNGARY ...... 103 BOX 12 COMPOSITION OF GOVERNMENT IN HUNGARY ...... 104 BOX 13 LOCAL GOVERNMENT IN HUNGARY ...... 106 BOX 14 RESPONSIBILITIES OF CENTRAL AGENCIES IN THE NETHERLANDS ...... 117

Nick Manning/Neil Parison Page 7 11/22/2004 International Public Administration Reform Country Reform Summaries.doc BOX 15 SEQUENCE OF REFORMS IN NEW ZEALAND ...... 118 BOX 16 MINISTERS IN NEW ZEALAND ...... 118 BOX 19 MINISTRIES IN POLAND ...... 118 BOX 20 CENTRAL AGENCY RESPONSIBILITIES IN POLAND...... 118 BOX 17 MINISTRIES IN KOREA...... 118 BOX 18 STRUCTURE OF THE CIVIL SERVICE IN KOREA ...... 118 BOX 21 KEY REFORM MILESTONES IN THE UK...... 118 BOX 22 CABINET MINISTERS IN THE UK...... 118 BOX 23 THREE PHASES OF REFORM IN THE USA...... 118 BOX 24 DEPARTMENTS IN THE US EXECUTIVE...... 118 BOX 25 MAJOR AGENCIES AND COMMISSIONS IN THE US EXECUTIVE...... 118

Nick Manning/Neil Parison Page 8 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Acknowledgments

This paper was prepared by Nick Manning and Neil Parison, with Yelena Dobrolyubova, Kathy Lalazarian, Jana Orac and Jeffrey Rinne, based on a series of country reform summaries that were prepared by the following experts:

Australia: Geoff Dixon, Geoff Dixon & Associates, Canberra Brazil: Geoffrey Shepherd, Sector Lead Specialist, Public Sector, World Bank and Jeff Rinne, Public Sector Group, World Bank Canada: Gord Evans, Senior Consultant, Institute of Public Administration of Canada Chile: Geoffrey Shepherd, Sector Lead Specialist, Public Sector, World Bank China: John P. Burns, Professor, the University of Hong Kong with Chau- Ching Shen, Senior Financial Management Specialist, World Bank Finland: Seppo Tiihonen, Senior Public Sector Specialist, World Bank Germany: Dr. Elke Löffler, Public Sector Consultant, Birmingham, UK Hungary: Georgy Gajduschek, Researcher, Hungarian Institute of Public Administration with Jean-Jacques Dethier, Senior Economist, World Bank Netherlands: B.J.S. Hoetjes, Professor and Senior Research Fellow, University of Maastricht and Netherlands Institute of International Relations, Clingendael New Zealand: Graham Scott, Principal, Graham Scott (NZ) Ltd. And Executive Chair, Southern Cross Int. Ltd.; Lynne McKenzie, MD, Southern Cross Int. Ltd. Poland: Helen Sutch, Sector Manager, World Bank; Michal Dybula, Research Analyst, World Bank; Ryszard Jerzy Petru, Consultant, World Bank, Jacek Wojciechowicz, External Affairs Officer, World Bank; Marcin Przybyla, Research Analyst, World Bank South Korea: Hakyung Jeong, Director, Planning and Coordinating Unit in the Civil Service Commission of the Korean Government; Dae-Ki Kim, Senior Financial Economist EASFS, World Bank; Kookhyun Kim, Director General, Ministry of Government Administration and Home Affairs; and Jeff Rinne, Public Sector Group, World Bank UK Jeremy Cowper, Head, Modernizing Government Secretariat, Cabinet Office, United Kingdom Government USA: William P. Shields, Jr., Program Associate, National Academy of Public Administration with J. William Gadsby, Director, Management Studies Program, National Academy of Public Administration

The paper has also benefited from many discussions with World Bank staff and others.

This paper was prepared by the World Bank Russia public administration reform team at the request of the Russian Federation Government. World Bank task managers for the Russia public administration reform work are Neil Parison and Nick Manning. The Sector Managers responsible for providing oversight and guidance were Shekhar Shah

Nick Manning/Neil Parison Page 9 11/22/2004 International Public Administration Reform Country Reform Summaries.doc and Helga Muller; together with Sector Directors Pradeep Mitra and Cheryl Gray, and Country Director Julian Schweitzer. Internal peer reviewers were Robert Beschel and Dana Weist.

Comments on the paper are very welcome and should be forwarded to Nick Manning ([email protected]) or Neil Parison ([email protected]).

This paper does not reflect the views of the World Bank or its Executive Directors. Further, contributions provided by serving civil servants to the individual country reform summaries represent their personal opinions only and do not necessarily reflect the views of the Governments of the countries in question.

Nick Manning/Neil Parison Page 10 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Background

This report presents country reform summaries for fourteen countries : Australia, Brazil, Canada, Chile, China, Finland, Germany, Hungary, Netherlands, New Zealand, Poland, South Korea, the UK, and the USA. The countries were selected by representatives of the Russian Federation Government. The request by the Government to the World Bank Russia public administration reform team was that the paper should cover both countries that faced similar administrative reform challenges to those facing Russia, but also some countries that faced different problems but had achieved results felt to be of interest and relevance.

This paper is a companion to the summary paper "International Public Administration Reform : Implications for the Russian Federation" (also produced in response to the request from the Russian Federation Government). Both papers focus, roughly, on the reform concerns and activities of governments in the 14 countries selected over the last 15 years. Given that it is in the nature of administrative reforms that their beginning and end is a little difficult to discern exactly, this period has been interpreted relatively freely. The paper has also deliberately focused on central or federal government, although noting some of the major reform developments have been and continue to be at provincial, regional or municipal level.

Nick Manning/Neil Parison Page 11 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 1: Australia

Geoff Dixon, Geoff Dixon & Associates, Canberra

Overview

The sequence of reforms

Australian public sector reforms at the national level occurred in two phases. The first phase (in the second half of the 1980s) focused on achieving increased financial flexibility for program agencies and the introduction of a results focus. The second phase (in the 1990s) sought to extend this flexibility to human resource management, and provided also for measurement of full costs through accrual budgeting, and for the introduction of more market-oriented modes of operation.

Phase 1 of the reforms was triggered by the 1983 Labor Government’s desire to introduce an expensive social reform agenda without putting additional pressure on the budget deficit. This meant cutting programs inherited from the previous Government in order to make room for the new spending measures.

However the new Government had little confidence in the capacity or the willingness of the federal public service of that time to advise on or implement the desired restructuring of public spending. Even before winning the election, the new incoming Government had announced a reform strategy for the public service.

Phase 1 of the reforms was intended to shift the focus of the bureaucracy from the routine renewal and disbursement of budget appropriations, which in the past had been largely unchanged from year to year, towards the results being achieved from these ‘entrenched’ expenditures (results which were hitherto largely unknown) and towards ways of spending budget funds better.

Phase 1 of the reforms therefore involved providing for increased financial flexibility for government departments, a more certain operating environment for government departments through the introduction of rolling forward estimates based budgeting, and an increased focus on identifying program objectives and reporting program outcomes.

This altered the focus of the annual budget preparation from the financing of existing government programs to the improvement of those programs. Successive annual budgets in the mid 1980s introduced large numbers of savings measures in parallel with new spending measures. These greatly improved the compositional and operational efficiency of the budget. They also enabled new spending measures to be introduced consistent with meeting an onerous deficit reduction target imposed in the context of the collapse in world commodity prices in the mid 1980s.

Nick Manning/Neil Parison Page 12 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Phase 2 of the public sector reforms was intended particularly to achieve increased efficiency in the delivery of government goods and services through the introduction of commercial principles. These included contestable contracts, more flexible personnel management, and service delivery agreements based on the full resource cost of providing the service (determined on accrual accounting principles).

Reformers' concerns

For the previous hundred years, Australia's public service had operated in an environment of regulation, central controls, wage complexity and a culture focused on rights and entitlements. Substantial improvements in financial flexibility had been made in the first phase of reforms leading up to the mid 1990s. However, when the Liberal government came to power in 1996, it was confronted by an Australian Public Service (APS) that still displayed major legislative and procedural inflexibilities.

The costs of many government processes were high because a culture of rules and regulation had developed as a result of dependence on outdated and overly prescriptive and centralized legislative frameworks. Those managers in the APS who were working to find innovative solutions to improving performance were hamstrung by these formalized requirements.

The findings of three whole-of-government benchmarking projects illustrate this point. The public service tested itself against best practice organizations in the private sector, and in state and overseas governments, to assess how it was performing. The benchmarking projects examined human resource management practices, leadership, and financial management. The findings revealed a number of deficiencies. For example it cost almost $28 million a year to administer selection processes in the APS, which represented a unit cost three times higher than private sector best practice, and the focus of APS managers was on process not results. In addition APS leaders rated poorly in terms of how they communicated, the level of trust they exhibited, and their overall strategic management ability. Less than half of the core Commonwealth agencies knew their full product or service costs, and professional financial skills were not valued.

These benchmarking projects showed that as regards efficiency and quality of management the Commonwealth agencies lagged behind practice in some other government jurisdictions, and even further behind the best of private sector practice.

One of the key aims of the Government which came to office in 1996 was to reduce the burden of regulation on business and the community. Legislative regulation and administrative processes were known to impose significant costs. The Small Business Deregulation Task Force established by the Government in 1996 found that:

'(S)mall business feels besieged by Government demands, and the psychological impact of the burden (of regulation) cannot be over-estimated'.

Government accordingly began introducing measures to reduce or simplify regulation. Deregulation was claimed to lead to significant benefits for consumers : in the financial

Nick Manning/Neil Parison Page 13 11/22/2004 International Public Administration Reform Country Reform Summaries.doc sector, deregulation led to consumers enjoying lower prices and more services; in telecommunications productivity increased, service quality improved, and prices fell; and airlines’ ticket prices were substantially reduced.

Institutional starting points

Constitution/political system

Federal government

The Australian federation has a three-tier system of government based on the Westminster system: • At the national level the Legislature (the House of Representatives and the Senate), the Executive Government, and the Judiciary are, under the Constitution, responsible for matters of national interest as defined in the Constitution; • At the State and Territory level a Legislature, Executive Government and Judiciary are, under the relevant statutes, responsible for other matters; and • At the city, town, municipal and shire level there are approximately 900 local government bodies that are the responsibility of the state governments.

Australia is an independent nation but retains (purely ceremonial) constitutional links with Queen Elizabeth II. In addition to the Queen, there is a Governor-General and six State Governors. Under the Constitution, the Governor-General's powers and duties include summoning, proroguing and dissolving Parliament, assenting to Bills, appointing Ministers, setting up Departments of State and appointing judges. By convention, however, the Governor-General acts only on the advice of Ministers in virtually all matters and the appointee to the office is selected on the advice of the Government. The six State Governors perform similar roles in their States.

The powers of the Federal Parliament are laid down in a written Constitution. State Parliaments are subject to the provisions of this as well as to the provisions of their own State Constitutions. The Australian Constitution can be changed only by a majority of voters in at least four of the six States, as well as an overall national majority of voters. Power to change State Constitutions lies with the State Parliaments and in most states requires endorsement by the people voting at referendums. Broadly, the division of powers between the Federal and State Parliaments follows the American model of federalism. Powers exercised by the Federal Parliament and Government are specified, leaving all other unspecified powers to the States. A Federal law overrides any State law not consistent with it.

The Federal Parliament is bicameral, having two chambers: the House of Representatives (Lower House) and the Senate (Upper House). The Constitution requires membership of the Australian House of Representatives to be, as nearly as practicable, twice that of the Senate. Elections for the House of Representatives are held at least every three years. The Senate has an equal number of members - 12 - from each State, although it operates on party lines rather than representing State interests. A Government need not command

Nick Manning/Neil Parison Page 14 11/22/2004 International Public Administration Reform Country Reform Summaries.doc a majority in the Senate. A system of Cabinet or "responsible" government based on the British Westminster tradition is practiced. The party or coalition of parties commanding a majority in the House of Representatives becomes the government and provide the ministers (including the Prime Minister), all of whom must be members of the Parliament. The Minister remains collectively responsible to the Parliament, and through it to the electors, for Government actions. If the Government ceases to command a House of Representatives majority, it is obliged either to go to an election or resign.

Under the Westminster system the Government is empowered by Parliament to make and administer policies. The basis of Parliamentary control of the Government is Parliamentary approval of the annual budget (together with supplementary budget estimates later in the fiscal year). While the lower house always passes appropriation bills while the Government has a majority, they are subject to sometimes intense scrutiny by estimates committees of the Senate.

State and local governments

All State Parliaments except Queensland are bicameral, with two Houses of Parliament. Under the federal Constitution, State Governments are responsible for powers not administered by the Federal Government. These include education, transport, law enforcement, health services and agriculture.

The powers of local government vary from State to State and are the responsibility of State Governments under the relevant legislation. In general they include town planning, construction and maintenance of local roads, water, sewerage and drainage systems, supervision of building, administration of weights and measures and other regulations, and the development and maintenance of community facilities.

Some local government bodies operate public business undertakings such as transport systems or gas and electricity reticulation. The powers of local government normally derive from legislation enacted by their State parliaments and their operations usually are subject to supervision by a department of their State Government. Finance for their undertakings is obtained through property rates and from the Federal and State Governments.

Structure of Government

The Prime Minister and other Ministers are appointed from the parties that control a majority in the House of Representatives. The Prime Minister decides on the division of responsibilities between Ministers, and allocates portfolios. Ministers are given specific powers and functions under legislation, as well as the broad power to oversee the running of government Departments and agencies.

The Prime Minister chairs the Cabinet, which is a forum for collective decision-making by senior Ministers and the key policy-making agency of the Federal Government. The convention of collective responsibility of Cabinet for all decisions of the government prevents individual ministers or the prime minister from acting without the support of

Nick Manning/Neil Parison Page 15 11/22/2004 International Public Administration Reform Country Reform Summaries.doc their ministerial colleagues. Where necessary, legal effect is given to decisions of the Executive by the Executive Council, a formal body presided over by the Governor- General and usually attended by two or three Ministers of State, although all Ministers and Parliamentary Secretaries are members. Similar procedures of Cabinet decision- making are followed by Australia's State Governments.

Policy advice and the implementation and administration of core Federal Government programs are undertaken by the APS, and six State and two Territory Public Services. A Minister of State is accountable to Parliament for each department's functions and activities. Under the Minister is the head of a department. At the federal level he/she is appointed by the prime minister and is responsible to the minister in charge of the department. In the Federal and State Governments there are three broad categories of government institution: those serving directly the respective Parliaments; Departments of State for whose operations, in all respects, individual Ministers are responsible to their Parliament; and others including statutory agencies, corporations, tribunals and commissions. At the Federal level there are fifteen departments of state.

Public servants are apolitical, providing objective advice on alternative policy options and their consequences.

At the federal level a group of senior public servants has been identified as a senior executive service (SES). This is a mobile cadre of senior executives who have broad management expertise, shared public sector values, and broad experience of discharging public service responsibilities. The purpose of the SES is to prevent the management of individual departments from becoming ‘in-grown’ and to promote policy coordination between departments.

Central agencies and reform management

The Expenditure Review Committee of Cabinet (ERC) is responsible for budget preparation. It reviews new spending and savings proposals by individual portfolios in considerable detail. In the case of savings proposals it fine-tunes the proposals to minimize adverse political fall-out. The principle of collective cabinet responsibility ensures a high level of contestability of new spending proposals - ministers have every incentive to test the spending proposals of their colleagues in order to maximize the pool of uncommitted budget funds available for their own proposals.

For the same reason there is pressure on individual ministers to come up with savings options in their portfolio.

In Phase 1 of the reforms the Cabinet Office played a key role in enforcing the rule that portfolios could not lodge new spending proposals for ERC consideration unless they also lodged portfolio savings proposals (to the level specified in the annual budget circular). In enforcing this, the Cabinet Office received strong backing from the Prime Minister’s Office (to overrule special pleading by portfolio ministers that there were no savings options available in their portfolio). ERC decided which (if any) of the savings options from each portfolio were include in the budget.

Nick Manning/Neil Parison Page 16 11/22/2004 International Public Administration Reform Country Reform Summaries.doc

The introduction of rolling forward estimates based budgeting ensured that ERC discussion focuses only on new policy measures, and not on the level of funding for existing policies. Funding levels for existing programs are already contained in the forward estimates approved in previous budget cycles. This provides the baseline budget for the policy review process, which is the main task of the budget preparation cycle. Cabinet discussions therefore focus almost entirely on policy changes to the baseline budget. This enables ministers to spend considerable time on refining policy settings.

Resulting spending and savings decisions are entered into the forward estimates and become part of the baseline for subsequent budget preparation rounds.

Politicization

The top echelon of the federal public service is to some degree politicized. Thus when the Liberal Government was elected in 1996 one third of departmental secretaries were replaced. Below this level the APS is largely depoliticized. Senior staffing adjustments consequent on a change of government extend down only one or at most two levels within government departments.

Under the Westminster model (which broadly underlies the Australian system of government) public servants are responsible to ministers, ministers are responsible to Parliament, and Parliament is responsible to the people. In reality, however, Chief Executive Officers (CEOs) of departments are now employed on the basis of performance contracts, and take substantial personal responsibility for the performance of their department.

It should also be noted that Australian officials are technically public servants (who are responsible to the elected government) rather than civil servants (who are responsible to a monarch or head of state). Under the constitution the Australian Governor General formally appoints the government following an election and public servants are responsible to that government, rather than to the Governor General.

Reform activities

Summary

Phase 1 of the Australian reforms at the federal level consisted of five major changes: 1. Identification of program objectives and outcomes by each federal department. This involved a) preparation of annual reports of achievements against those objectives by each department and b) introduction of a requirement for all programs to be formally evaluated on a five year rolling basis, with the evaluation program being prepared in consultation with the Department of Finance and each program evaluation being forwarded to the Minister of Finance. 2. Increased operational flexibility for departments. This was achieved by progressively combining the line item details in departmental budgets. This enabled departments to use budget funds in the most cost-effective manner and

Nick Manning/Neil Parison Page 17 11/22/2004 International Public Administration Reform Country Reform Summaries.doc avoided ‘end of year spend-ups’ in the former narrow budget categories. This was accompanied by provisions for carry-over and bring-forward of budget funds between budget years, and an efficiency dividend of 1.25% of running costs per annum that forced agencies to put the new flexibilities to good effect. 3. The introduction of rolling forward estimates based budgeting. This involved preparation of forward estimates of the cost of each program, which became the starting point for preparing each year’s budget for that program. As a result, budget preparation focused on policy improvement rather than the re-negotiation of funding levels for each program. Successive budgets in the second half of the 1980s introduced large numbers of savings options that improved the targeting of programs and freed up funds for new policy measures and for the reduction of the budget deficit. 4. The introduction of commercial operating principles within the public sector. This involved three key steps: • establishment of prices for goods and services supplied by public agencies: these prices reflected the real cost of resources used in their production and ensured that decisions to consume government goods and services were sensitive to the resource cost of supplying the good/service; • re-direction of budgetary appropriations from the agencies supplying the service to the agencies consuming the service (the supplying agencies were no longer directly funded from the budget but indirectly via payments for the service from the consuming agency); this involved an element of deregulation since the supplying agencies were no longer responsible for regulating the use of the services; and • the removal of restrictions on public sector agencies purchasing inputs from private rather public sector suppliers or selling outputs to the private as well as to the public sectors. 5. A reduction in the number of federal departments from 27 to 16 in 1987. This reduction was intended to allow greater flexibility in resource allocation due to the larger management units that were created. A program of asset sales and privatization accompanied this.

Phase 2 of the reforms consisted of four further sets of changes 1. Introduction of new public service legislation to provide departments with greater freedom in human resource management to match the financial freedoms progressively accorded agencies since the 1980s. 2. Further incorporation of a results focus in budgeting through the basing of the budgets on outputs, together with increased accountability for heads of departments for the delivery of these outputs. 3. Further outsourcing, the creation of arms length service provider agencies and continuation of the privatization program. 4. Introduction of accrual budgeting, in order to ensure that pricing and use of public sector outputs reflected the full resources used.

Reforms to the organizational structure of government

Nick Manning/Neil Parison Page 18 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Given the importance of Parliament in oversight of the administration of the public service, a separate statutory regime is provided for the departments that service the Parliament. This is in order to protect their independence.

Where public sector service organizations required an arms length relationship with a federal department, an executive agency was created. The transfer of government services to the private sector through privatization, commercialization, corporatization, or outsourcing allowed market conditions and consumer choice to influence service delivery. For services that are contestable, market mechanisms are likely to generate competitive pressures for improved delivery and reduced costs; and lead to increased demand and pressure for better services from service users/clients.

In September, 1997, the Prime Minister launched Centrelink, a "one-stop shop" integrating customer access to government services previously provided across a number of portfolios, and described it as "probably the biggest single reform undertaken in the area of service delivery during the past 50 years." The establishment of Centrelink was designed to secure the separation of policy from service delivery.

The principles underlying the establishment of Centrelink were: • to improve customer service and access; • to enable quicker decision making; and • to support achievement of greater value for money by linking client services previously provided by different agencies.

In practice, the scope of Centrelink’s business activities is determined by the strategic partnership arrangements it can establish with government policy agencies. Centrelink is unique in that it is not funded under the federal budget through appropriations. Its operating funds are derived entirely through those government agencies that purchase its services. Centrelink currently delivers payments and services for five Commonwealth departments, the Australian Taxation Office, and State Government Housing Authorities. Services range from income support and employment services to family and veterans’ payments.

The Commonwealth Ombudsman reported a 23 percent reduction in complaints from citizens in March 1998, compared to the previous year, which suggests that the organization is achieving its desired outcomes. In the first two years of its operation it was expected to return savings to government of $97.5 million (Australian), and $141.5 million (Australian) each year thereafter.

In contrast to most other countries, Centrelink is not part of the Department of Social Security, but is a statutory authority created within the Social Security portfolio, and accountable directly to the Minister for Social Security. Similar agencies in other countries are established within a "parent" department (PUMA 1998a).

Cutting back the programs undertaken by government

Nick Manning/Neil Parison Page 19 11/22/2004 International Public Administration Reform Country Reform Summaries.doc For most of the last 15 years Australian Federal governments have followed two objectives: a favorable financial balance (in order to diminish debt); and smaller government (to allow more room for private sector growth). Over both phases of reform there has been extensive outsourcing to the private sector of services previously provided ‘in house’. The Liberal Government elected in 1996 was particularly committed to the introduction of market sector mechanisms, including outsourcing, and the restriction of government activity to its strategic public purpose.

In the seven years, from August 1990 to August 1997, the total Australian workforce has expanded by 342,000, while public sector employment has declined by 257,000. This has occurred across all levels of government, with the Commonwealth leading the way with a reduction of 29%.

Over the same period, State government employment, by far the largest sector, has dropped by 11% and local government by 7%. Some of this reduction has occurred as governments have increasingly commercialized, completely or partly privatized, or outsourced functions that are either commercial by nature, or not the core business of government.

In 1990 public employment in the APS comprised about 2.4% of the total workforce. By 1997, that figure had fallen to 1.9%. The underlying size of the APS after the impact of transferring functions out of the APS has fallen from 156,654 in 1987 to 126,390 at the end of 1997. The APS has reduced in size by almost 12% between June 1996 and December 1997.

However staff cuts have not been cheap – a reduction of 23,000 jobs at the Federal level in the four years since mid 1995 cost more than US$300 million in redundancy packages.

Civil service and personnel reforms

Public sector reforms since the mid 1980s have progressively reduced centralized controls over program agencies in financial, and subsequently human resource, management.

Within agencies, HRM incentives were initially based on performance contracts and bonuses (with mixed success). This was superseded under the recent purchaser-provider arrangements by agreements with agencies to provide defined levels of outputs and services. Contracts with CEOs are seen as particularly important in ensuring good performance, achieved through clearly pinpointing responsibility with the CEO for under-performance in relation to these agreements.

Under Phase 1 of the reforms large numbers of budget lines for different categories of operating costs were combined. Financial devolution has avoided end of year ‘spend- ups’ in narrow budget categories and encouraged a sense of pro-active and results- focused resource management.

Nick Manning/Neil Parison Page 20 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Under Phase 2 of the reforms the general emphasis was on allowing agencies freedom to manage. Service wide approaches are confined to codes of conduct and accountability for observing them rather than prescriptive rules about employment conditions or financial management. HRM reforms have replaced inflexible HRM rules by a simpler and more direct relationship between employer and employee. This reflects the circumstances of each government agency and the realities of the Australian labor market, rather than APS wide norms of a previous era.

The aim of Phase 2 of the reforms was to give departmental secretaries increased freedom to manage their staff and their programs, while increasing their accountability to their minister. Ministers are in turn accountable to their Cabinet colleagues under the principle of collective Cabinet responsibility, and to Parliament for the use made of the funds appropriated by Parliament. Departmental secretaries are also required to provide an annual report to their minister for presentation to Parliament.

In 1998 a number of reforms to the public service legislation were introduced. These included: • establishing a new set of APS values; • establishing a new code of conduct, a breach of which will be grounds for misconduct proceedings; • a scheme for the protection from victimization and discrimination of public servants who "blow the whistle"; • allowing agencies to choose the source from which they select their entry-level recruits; • adopting a policy that all APS vacancies may be accessed persons outside the public service, provided they satisfy citizenship, health, security and other requirements – unless an agency determines that on the grounds of costs and operational efficiency the vacancy should be restricted to APS applicants only; and • devolving to agencies the power to determine the qualifications or other conditions to be satisfied for appointment, promotion or transfer.

The legal requirements for proper financial management by Executive Government are set out in the Auditor-General Act 1997, the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997 (these three acts replaced the Audit Act 1901). This legislation outlines: the appointment, powers and duties of the Auditor-General; the specific financial responsibilities of Secretaries (Chief Executive Officers) of government departments and heads of Commonwealth statutory authorities and Commonwealth-owned companies; the duties of accounting officers; and auditing and inspecting. These are supplemented by the Public Service Act 1999.

The new Public Service Act ensures that all employment decisions are exercised without patronage or favoritism. This is backed up by directions to departmental secretaries from the Public Service Commissioner.

Under the Public Service Act 1999 the Public Service Commissioner is required to report annually to Parliament on the State of the Service, including an evaluation of the

Nick Manning/Neil Parison Page 21 11/22/2004 International Public Administration Reform Country Reform Summaries.doc extent to which agencies have incorporated the APS Values and the adequacy of their systems and procedures for ensuring compliance with the Code of Conduct. The report includes trends in the size and composition of the public service, and an evaluation of the extent to which the service has maintained the standards of public administration.

Statutory responsibilities of the Public Service Commissioner include: • an involvement in various employment decisions relating to Senior Executive Service (SES) staff; • implementation of machinery of government changes; • conducting inquiries, evaluations and reviews of human resource management practices; • investigation of whistle-blowing disclosures by public servants. • promoting and upholding the merit principle; • developing human resource management policies and practices in recruitment, selection, mobility, conduct, performance, redeployment and retirement; • fostering leadership; and • promoting and reporting on workplace diversity in the APS.

• The Merit Protection Commissioner occupies an independent office established under the Public Service Act 1999 and located with the Public Service and Merit Protection Commission (PSMPC). The Merit Protection Commissioner has a key role within the APS in providing independent external review of actions affecting individual APS employees. This role supports the policy of the Australian Government that APS agencies should achieve and maintain workplaces that encourage productive and harmonious working environments. It also supports the specific legislative obligation of agency heads, included within the APS Values, to provide a fair system for review of decisions for APS employees. The Merit Protection Commissioner also plays an important role in supporting adherence to other APS Values and the APS Code of Conduct.

The Merit Protection Commissioner's functions are not limited to the APS. On a fee-for- service basis, the Merit Protection Commissioner may perform a wide range of employment-related functions, including for State and Territory departments and authorities, local government bodies, private corporations and bodies and for Commonwealth authorities whose employees are not engaged under the Public Service Act.

The 1997 Public Service Act extended certain flexible workplace arrangements prevailing in the private sector to the public sector. Under Phase 2 of the reforms government departments and agencies can individually determine pay in accordance with market considerations and the circumstances of their individual agencies. However service level contracts specify the level of budget funding to be made available.

The Public Service Act includes a code of conduct for public servants, protection of ‘whistle blowers’ and enhanced transparency through reports of the Public Service Commissioner. The code of conduct is contained in the public service legislation and is

Nick Manning/Neil Parison Page 22 11/22/2004 International Public Administration Reform Country Reform Summaries.doc therefore enforceable by law. The Public Service Commissioner monitors the extent to which agencies support the code of conduct in the public service legislation and issues guidelines on service wide values and codes of conduct. However this is a facilitative rather than a regulatory role. The Financial Management and Accountability Act 1997 provides the legal framework for maintaining ethical standards in budget execution.

Budget process changes

Budget reform in Australia can be divided into two phases. Phase 1 relates to the introduction of a performance focus, increased management flexibility for program agencies and rolling forward estimates based budgeting. Phase 2 relates to the contracting out of service delivery, greater freedom for departments in human resource management, identification of budget outputs and the introduction of accrual budgeting.

Under Phase 1 reforms performance budgeting was introduced, based on the regular publication of performance indicators for each program, together with associated program objectives. This was supplemented by regular set piece evaluations of each significant program. The resulting information on program outcomes formed the basis of saving and spending options in subsequent budget rounds.

Intensive policy review over a series of annual budgets in the late 1980s and the 1990s led to great improvements in the composition of the budget. Major improvements in operational efficiency were also secured through imposing an annual efficiency dividend on each portfolio together with an annual requirement to produce portfolio savings options.

By the mid 1980s not only had much of the social agenda been introduced, but also the budget deficit had been turned around to a sizeable surplus. This involved cutting poorly targeted or inappropriate programs in order to make room for new spending priorities. It reflected a change in agency focus under the reforms from narrow funding issues to the core objectives of programs and more cost-effective way of achieving these objectives.

The scale of this structural adjustment in public spending attracted international attention.

Phase 2 of the reforms occurred from the mid 1990s. This was driven by the Liberal Government’s desire to increase the operational efficiency of the Federal bureaucracy by further exposing it to commercial principles and pressures. It also reflected the failure under Phase 1 of the reforms to relinquish centralized staffing controls as rapidly as centralized financial controls (the Public Service Act of the time prescribed detailed rules for staff management which were increasingly out of sympathy with the flexibility with which departments could use budget funds).

Whereas the first round of reform focused primarily on the composition of government spending, the second round focused on operational efficiency of public service provision. This involved further privatization and outsourcing, further staff cuts, the introduction of

Nick Manning/Neil Parison Page 23 11/22/2004 International Public Administration Reform Country Reform Summaries.doc accrual accounting and further devolution of financial and staffing management to departmental heads.

The aim of the latter is to give more freedom to departments in managing inputs, while ensuring control through increased accountability of the heads of departments (the role of which becomes closer to that of a private sector chief executive officer) and an enhanced facilitation role for the Public Service Commissioner.

In particular, the 1999–2000 Budget represented a major shift in the way the Government budgets and manages its resources. For the first time the budget was explicitly based on program agency outputs and accrual accounting principles, in conjunction with service delivery contracts for program agencies. The accrual framework also places outcomes and outputs — or results and deliverables — at the center of how agencies plan, budget, manage and report. Under the accrual framework, agencies are resourced for the price of their outputs. The agency output price includes full costs, such as depreciation and employee leave entitlements, and also reflects its cost to government of capital.

Agencies are also now responsible for developing and maintaining their own forward estimates of program costs. However, the Department of Finance and Administration (DOFA) retains responsibility for quality assurance in relation to the accuracy of these estimates and advising Government on an agency's performance against its outcomes. The new framework enables the Government to link the full cost of its outputs to planned outcomes. It also exposes the Government to a greater degree of public scrutiny and accountability.

The Charter of Budget Honesty Act 1998 aims to improve the Commonwealth Government's accountability for fiscal policy formulation. The Charter requires Federal governments to release an annual fiscal strategy statement (usually with each budget) based on the principles of sound fiscal management. The statement must: • Specify the government's long-term fiscal objectives within which shorter-term fiscal policy will be framed; • Explain the broad strategic priorities on which the budget is or will be based; and • Specify the key fiscal measures against which fiscal policy will be set and assessed.

The Charter also sets out the Commonwealth government's fiscal reporting requirements. The Charter provides for comprehensive economic and fiscal outlook reports at the time of each budget, at mid-year, and prior to elections. Among other things, each economic and fiscal outlook report must contain: fiscal estimates for the budget year and the following three financial years; the economic and other assumptions used in preparing those fiscal estimates; and a statement of risks that may have a material effect on the fiscal outlook. The Charter also requires that a final budget outcome report be released after the end of each financial year.

Nick Manning/Neil Parison Page 24 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The introduction of accrual budgeting builds on the above standards of fiscal transparency and accountability. The Accrual Information Management System (AIMS) is the Commonwealth's central budgeting and reporting system. AIMS provides: • Complete budget and forward estimates functionality, from the collection of agency data to development of budget documentation; • Central appropriation and cash management; and • Whole-of-government and General Government Sector (GGS) reporting of actual results.

With the implementation of AIMS, DOFA’s primary responsibility has moved from the agreeing budget estimates with government agencies to the quality assurance of estimates prepared by the agencies themselves. AIMS is completely decentralized, and agencies are now responsible for the accuracy and input of their own budget estimates.

In the early 1990s, a Uniform Presentation Framework was agreed among the Commonwealth and all States. This requires each jurisdiction to produce a uniform set of fiscal reporting tables. In addition, the Commonwealth and States have agreed to Uniform Public Sector Accounting Standards that require all jurisdictions to compile a standard set of financial statements using recognized accounting standards.

Australia's fiscal framework is consistent with the principal areas of the IMF Code on Fiscal Transparency: • Clarity of roles and responsibilities; • Public availability of information; • Open budget preparation, execution and reporting; and • Independent assurances of integrity.

E-government

The Government's Online Strategy complements the outcomes/outputs budgeting framework introduced in 1999-2000. This sets a timetable for agencies to deliver information via the Internet; put services online and undertake procurement by electronic means. Recently the final components of the policy, legal, security, IT access and information frameworks have been put in place to enable the secure and private transaction of business electronically and the provision of information online which is easy to access, navigate and search.

The key elements of this new framework are: • Government Online Strategy (2000) • Commonwealth Electronic Procurement Implementation Strategy (2000) • Framework for National Co-operation on Electronic Commerce in Government Procurement (1999) APCC • Guidelines for Commonwealth Information Published in Electronic Format (1999) DOFA • Electronic Transactions Act (1999) Privacy Act (1988) Privacy Amendment (Private Sector) Bill.

Nick Manning/Neil Parison Page 25 11/22/2004 International Public Administration Reform Country Reform Summaries.doc

Reform outcomes

A key lesson from the reforms pursued is that a budget process that actively improves program and policy settings can generate a much greater increase in welfare than a budget process that is focused purely on compliance and financial control.

Phase 1 of the Australian reforms in the mid 1980s attracted international attention due to the large-scale re-prioritization of spending achieved by successive annual budget cycles. At the same time the aggregate budget outcome was transformed from deficit to substantial surplus.

At the level of individual program agencies, it took quite a long time for a results focus to develop. However the constant pressure in successive budget preparation cycles to identify savings options (i.e. to spend funds more cost effectively) resulted both in better-designed programs and reduced levels of associated operating costs. Taken together, these greatly increased the benefits generated by each budget dollar.

DOFA took a highly pro-active role in explaining the new management philosophies and techniques to the program agencies. Over time agencies developed strong internal resource allocation systems that enabled close scrutiny of the effectiveness of internal activities, and reallocated funds internally where effectiveness was low. Annual budgets focused much more on policy improvement : it is likely that the gains were orders of magnitude larger than those delivered by the earlier, compliance based, budget processes.

Phase 2 of the reforms (particularly the introduction of accrual budgeting) has also received international recognition, due to the scale of the transition involved. Phase 2 has the potential to further reduce the resources required to deliver public goods and services due to the introduction of appropriate costing procedures and competitive pressures.

However, the jury is still out on the scale of the benefits. It is clear that there have been some problems in introducing accrual budgeting. It also remains to be seen whether individual departments have fully developed the skills needed to manage service contracts with arms length suppliers well enough to keep costs below levels that were achieved under Phase 1 reforms.

The thrust of Phase 1 of the public sector reforms was to make the bureaucracy more responsive to its political leaders and to refocus agencies on results. This has largely been achieved. From August 1990 to August 1997, public sector employment in Australia has declined by 257,000. The thrust of Phase 2 has been to deliver results more economically, and the changes are still bedding in.

Phase 1 of the reforms shifted the focus of the budget process from the precise level of funding of multiple budget lines for existing programs to the improved targeting of programs and broader issues of better program design. Program agencies became much more focused on the objectives of their programs and on better ways of using budget

Nick Manning/Neil Parison Page 26 11/22/2004 International Public Administration Reform Country Reform Summaries.doc funds so as to increase the impact, rather than on negotiating the maximum funding possible with the Department of Finance.

Elimination of the line item detail for the operating costs of each department enabled departments to use budget funds much more cost effectively and avoided ‘end of year spend-ups’ in the former narrow budget categories. This was reinforced by provisions for carry-over and bring-forward of budget funds between budget years, and an efficiency dividend of 1.25% of running costs p.a. that forced agencies to put the new flexibilities to good effect.

Rolling forward estimates based budgeting provided a more certain operating environment for planning program changes. It also allowed budget preparation to concentrate on policy issues rather than disputes over level of funding for programs which were often ineffectively targeted.

The results of the commercialization initiatives in Phase 1 has been far reaching, with user charging becoming the norm for relations between public sector agencies, and in supplying many services to the public.

The ability in the mid 1980s to move the budget bottom line from deficit to surplus while at the same time introducing a range of new social measures was an achievement that would not have been possible under the old, input focused, approach to preparing and executing the budget. It was directly attributable to improved compositional and operational efficiency of the budget.

This was achieved through a reduction in focus on budget process and increased attention to budget outcomes. Essentially the focus of the budget preparation was transformed from negotiating the funds required for existing programs to negotiating whether each program could be targeted better and delivered more efficiently.

Across the board cuts driven from above by macroeconomic crises were replaced by bottom up, detailed, policy proposals for savings, developed by program agencies themselves, that were examined in depth, refined and precisely targeted to achieve reductions in spending with minimum damage to the government’s key results areas.

By minimizing the cost of fiscal restraint in terms of damage inflicted in program results areas the government is likely to have proceeded further with expenditure consolidation than political constraints would otherwise have allowed.

However the reform encountered problems. While some public sector agencies (such as the Department of Social Security) moved quickly to the new results focus, others took a much longer time. Moreover, in reporting on program performance it was often difficult to disentangle program outcomes from the effect of changes in the program environment. Some of the program evaluations lacked incisiveness.

A further shortcoming of Phase 1 was that the reforms were driven from the budget side. While there was some increased flexibility in human resource management (for example

Nick Manning/Neil Parison Page 27 11/22/2004 International Public Administration Reform Country Reform Summaries.doc staff numbers were no longer a Department of Finance control point) real change awaited Phase 2 of the reforms.

Phase 2 of the reforms is building on the achievements of Phase 1. The focus under Phase 2 on program outputs as well as outcomes is tightening up some of the looseness in performance reporting under Phase 1. The freedom for each department to determine its own wages and employment policy is belatedly matching the budget flexibility introduced under Phase 1.

On the negative side it appears that contracting out of services, which is a feature of Phase 2, does not necessarily lead to lower costs. While in principle the purchase of services should make costs more visible, and competition for the contract should force costs downward, there is also a need for departments to learn new contract management skills. Where slimmed down departments do not have the time or experience to manage contracts pro actively, the cost effectiveness of programs may not be increased by arms length delivery arrangements.

It is too early to assess the value of accrual budgeting. Its purpose is partly to ensure that users of government services take the full resource costs of providing the services into account in determining their consumption levels. However if the pattern of resource use is largely unchanged after the introduction of accrual budgeting it is harder to justify the increased complexity and subjectivity of the budget process. In this regard the ‘jury will be out’ for a while yet.

The reduction in central control enjoyed by program agencies in Phase 2 could have resulted in waste or misuse of resources had these elements of managerial flexibility not been introduced in an environment in which program agencies were already performance focused and had already developed strong internal financial management and performance improvement skills.

Nick Manning/Neil Parison Page 28 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 2: Brazil

Geoffrey Shepherd, Sector Lead Specialist, Public Sector, World Bank and Jeff Rinne, Public Sector Group, World Bank

Overview

In regional context

Brazil’s administration is, compared to many of its neighbors, fairly well endowed with middle- and higher-level professionals, thanks to ministry-by-ministry merit-based career systems, a reasonably effective senior executive service, and comparatively appropriate reasonable pay levels. In addition, informal networks may serve to reinforce the effectiveness of the higher cadres. However, the civil service remains fragmented as a result of the career rules and salary systems. For instance, horizontal (inter-ministry) mobility and promotion are severely restricted and the competitiveness of salaries with the private sector has eroded since the mid-1990s. Pay scales are compressed. Levels of capability and professionalism vary significantly between ministries.

In addition, the improvement in fiscal stability since the economic stabilization of the mid-1990s has allowed the budget and financial management system to be used as an instrument of managerial control.

With these reasonable levels of human resources and financial control, Brazil’s federal ministries are effective, relative to their comparators in other countries of the region. However, ministries are marked by very different cultures and professional corps with distinct characteristics.

It is not clear how Brazil’s political system affects the capacity of civil servants and ministries to work without deferring excessively to particularistic pressures. Fragmented parties, coalition government, and the strong constitutional role of Congress and State Governors might all be elements expected to add to these pressures. There is evidence of strong political pressure affecting financial resource allocations. Yet it seems that Brazil’s administration does not face the same level of day-to-day politicization that some other countries in the region experience.

In spite of the overall capacity of the administration, by the standards of the region at least, its procedures, structures, and working cultures concentrate on form rather than results. This approach has been entrenched by almost seven decades of strongly hierarchical rules and the persistent failure of reform efforts to change that paradigm. There now appears to be some consensus in the government that it is time to transform a bureaucracy organized along Weberian lines into a more managerial organization.

Reformers' concerns

Nick Manning/Neil Parison Page 29 11/22/2004 International Public Administration Reform Country Reform Summaries.doc When the military exited government in 1985, the sentiment among Brazil’s new civilian leaders was that the state apparatus had escaped government control. Brazil’s Public Service Administrative Department (Dasp) required almost a year to discover that the nation’s direct administration and autonomous agencies employed approximately 570,000 employees. Meanwhile the Secretariat for the Control of State Enterprises needed that much time to report that 1,006,000 workers were employed in SOEs.1 To reassert central control over the civil service, a 1986 decree-law returned autonomous agencies to the direct fiscal oversight of the federal government, and their employees were placed under the federal civil service statute.2 In 1987 the National Register of Civil Servants was established to produce a regular accounting of the number of state employees and their job positions. Larger issues concerning the structure of Brazil’s public administration and the relationship between the state as employer and public employees were engulfed in the debates over a new constitution.3

Several articles of the new 1988 Constitution deal directly with public administration. Article 37 established public examination as the only path to a permanent position in the civil service.4 Civil servants hired through examination were entitled to security after two years of service; but a transitory amendment also conferred job security upon all the current occupants of permanent positions in the civil service—even those hired without examination—who had occupied their positions for at least five years.5 According to (Marcelino 1988, p.41), at the time the Constitution was drafted only 6% of federal public servants were estatuarios (with a right to job security) while 94% were celetistas (i.e., governed by the private sector labor code, CLT). Thus, the transitory amendment granted job security to thousands of state employees who were hired under the military government without passing a merit exam. Approximately 313,000 workers—nearly half of Brazil’s federal civil servants—were covered (Abrucio 1993, 16n; dos Santos 1997).6 It was dubbed the "happiness train" (trem de alegria).

The 1988 Constitution forbade use of the private sector labor code as a governing statute for civil servants in the state’s direct administration or autonomous agencies. Instead, the constitution mandated an alternative, single juridical code (RJU) to govern all public servants at all levels of government (i.e., federal, state, and municipal). The approval of Law no. 8.112 in 1990 satisfied this mandate. Several employee categories were then brought together under the same civil service statute. Those who had entered by exam (estatutários) and were previously covered by civil service Law no. 1.711/52 numbered approximately 150,000. There were also roughly 200,000 celetistas (not including those employed by SOEs) who had entered the civil service by exam, and another 313,000 who were conferred security through the "trem de alegria." In addition, approximately 55,000 workers were brought under the RJU, but had not entered by exam and had not worked at least five years for the state in 1988 (dos Santos 1997, 16n).

In the area of social security benefits, old and new guarantees were incorporated into the 1988 Constitution, including retirement based on time of service (instead of contribution), with no minimum age requirement. Benefits were equivalent to the full last salary, and any raises offered to active civil servants would automatically be conferred to pensioners, as well. The constitution provided no rules against "double and

Nick Manning/Neil Parison Page 30 11/22/2004 International Public Administration Reform Country Reform Summaries.doc triple dipping" (having more than one public sector salary and pension) or "cascades" of accumulations (perks accumulated into years of benefits).

In summary, reducing the federal wage bill was the central goal of the administrative reform by President Fernando Collor (1990-92). Changing the law to enable, and more recently to force, provincial governments to reduce their wage bills has been a central component of the Cardoso reform effort. One of the arguments for weakening the protections of civil service tenure was that by making it easier to remove those who did not perform their jobs well, the public’s perception of the civil service as a whole would improve.

Institutional starting points

Constitution/political system

Brazil’s constitution provides for three independent governing bodies: the Executive, Legislature, and Judiciary. Although the constitution has gone through many revisions and changes during the past 100 years, these basic structures have been retained ever since Brazil became a Federal Republic in the late nineteenth century.

Brazil is comprised of 26 states and one Federal District, where Brasilia, the capital of the country, is located. State governments exercise power in those areas not reserved to the Federal or municipal governments. There are over 5,500 municipalities in Brazil. State governors are elected by popular vote.

Brazil’s bicameral National Congress (Congresso Nacional) consists of the Federal Senate (Senato Federal), with eighty-one members (three for each state and Federal District) popularly elected to eight-year terms, and Chamber of Deputies (Camara dos Deputados), with 513 members popularly elected to four-year terms. Congress uses a committee system much like the United States; there are six Senate committees and sixteen House committees.

The four largest political parties of President Cardoso’s center-right alliance occupy more than 60% of the seats in the Brazilian Congress.

Structure of Government

• Ministry of Federal Administration and State Reform (created by President Cardoso and dissolved following approval of administrative reform amendment) • Ministry of Finance • Ministry of Industry, Commerce and Tourism • Ministry of Culture • Ministry of Health • Ministry of Communications • Ministry of Labor • Ministry of Science and Technology

Nick Manning/Neil Parison Page 31 11/22/2004 International Public Administration Reform Country Reform Summaries.doc • Ministry of Education and Sports • Ministry of Justice • Social Security Ministry • Ministry of Foreign Affairs • Ministry of Mines and Energy • Ministry of Environment, Water and the Amazon

The majority of federal civil servants are members of unions affiliated with the CUT union confederation.

Central agencies and reform management

President Cardoso’s ambitious administrative reform agenda was formulated in 1995 by the newly established Ministry of Federal Administration and State Reform (MARE). MARE’s internal Secretariat for State Reform was in charge of policy formulation, and of supplying other ministries with technical support to implement modernization and management improvement projects.

Within six months, the Chamber for the Reform of the State also was created to coordinate reform actions among ministries. The Chamber was comprised of ministers directly involved in the planning and implementation of reforms. It was headquartered in the Presidential Office.

In January 1999, MARE was merged (de facto as junior partner) with the Ministry of Planning and Budget, creating the Ministry of Planning, Budget and Management. For most of Brazil’s modern history, planning has been a strong ministry with budget formulation responsibilities (and separate from the Ministry of Finance).

Politicization

Brazil has a framework for senior political appointments to the Federal public administration, established in the 1980s, which puts some order into non-career political and senior appointments and has some characteristics of a senior executive service. These are referred to as DAS appointments (Comissao de Direccao e Assessoramiento Superior – Commission for Senior Administration and Expertise), a system overseen by the Ministry of Planning, Budget, and Administration.

The system provides a ceiling on political appointments and a seniority and wage structure as follows: • At the beginning of each Presidential term, Congress passes a law, based on a proposal by the executive (in turn based on proposals by Ministers) setting a ceiling to the number of DAS appointments the President may make. Currently there are around 17,000 DAS positions, 3.5 percent of all Federal public servants. Each Federal Ministry has its set quota of DAS positions. • The Minister may use these to make senior appointments at his/her pleasure ("cargos de confianza"). They do not carry tenure or any particular labor rights. Many of

Nick Manning/Neil Parison Page 32 11/22/2004 International Public Administration Reform Country Reform Summaries.doc those appointed are from the ranks of the Federal public service – i.e. they have a position in one of the many vertical "Careers"—and the DAS appointment does not affect their public-service status. Thus when the appointment comes to an end, they return to a normal career status. • DAS appointments can be made at six levels, going up from something like a UK Assistant Principal level to Secretary General (equivalent to permanent secretary or vice minister). • DAS appointments can be made from anywhere. In practice four-fifths are appointed from the public sector and one-fifth from the private sector. The public-sector share is higher in the bottom three levels, where appointments tend to be used to motivate good young people. The top three levels are used more intensively for political – or "confianza" – appointments. At the most senior level, DAS-6 – almost 150 of the government’s most senior appointments – 40 percent of appointments are from the private sector. • Qualifications and remuneration levels are spelled out for each level of DAS appointments. There is no examination for entrance into DAS (unlike all other Federal public servants), but de facto minimum qualifications are required. DAS appointees at the three higher levels, where the political appointments are concentrated, are overwhelmingly graduates (the minimum professional qualification is Curso Superior). There is no established selection procedure, though there may be more than one candidate considered for a post. • The DAS remuneration scale means that appointees get the highest remuneration in the Federal administration. (Those already in public service Career positions receive a supplement to their existing salary. Those from outside are fully paid.) There is a strong incentive for those in Careers to get a DAS position.

The DAS system is an instrument both for political appointments and for providing an extra incentive to promising career public servants (in a situation where the competitiveness of public-sector salaries has been eroding since the mid-1990s). The system is criticized as opening a door to patronage, but it creates a cap to the number of such appointments and also provides for transparency, standardization, and minimum qualifications in the process. It constitutes an informal senior career system, attracting good private-sector people into the public service and giving them and their senior career counterparts in DAS appointments the opportunity to establish a reputation, to circulate in senior ministry posts, and thereby to gain a measure of de facto stability (Bresser Pereira 1999). Thus some of Brazil’s Ministers come from these ranks. These virtues of the system may respond to Brazil’s particular labor-market circumstances: a well- developed pool of qualified human resources and the easy movement of people between senior jobs in the public, private, and academic sectors (which has perhaps developed in response to the job-market uncertainties engendered by Brazil’s economically unstable recent history).

Nick Manning/Neil Parison Page 33 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Reform activities

Summary

Brazil’s experience of administrative reform since the mid-1980s (i.e. after the period of military government) consists in several distinct phases, the most important of which have been: 1. The 1988 Constitutional reform aimed at re-introducing discipline in the Federal public sector. 2. President Collor’s efforts (1990-92) to cut back the size of the Federal government, in particular public employment. 3. An ambitious program under the first Cardoso administration (1995-99) to make service delivery more effective by changing incentives and structures along managerialist lines. 4. An equally ambitious attempt, initiated under the second Cardoso administration (2000-03), to use a planning mechanism to introduce program budgeting and associated managerial reforms

Reforms to the organizational structure of government

The MARE "Steering Plan for the Reform of the State Apparatus" (drafted during the first year of President Cardoso’s government) favored the Weberian administrative model for the State’s core institutions (i.e., legislature, ministries, etc.). However, state-owned companies that produce goods widely available in private markets lie at the opposite extreme, and the "Steering Plan" advocated privatization of all such enterprises. As for the vast arena of state activity between these two extremes, Minister Bresser Pereira, with President Cardoso’s support, argued fervently that these services should be administered by contracts according to a managerial model of administration.

The MARE "Steering Plan" proposed converting semi-autonomous agencies and foundations that perform exclusive activities of the state (e.g., regulation, inspection, public safety, basic social security) into "autonomous agencies" that would operate under a management contract. The director of each agency would be given wide-ranging freedom under the condition that she/he attain the agreed upon performance indicators. "Social organizations" rather than public foundations would provide non-exclusive services (e.g., universities, hospitals, museums). These organizations would operate as non-profit organizations under private law, but would receive specific authorization from the legislature to sign management contracts with the executive branch and would thereby earn the right to receive budgetary allocations. These non-profit organizations would constitute the "Non-State Public Sector."

To translate these managerial ideas into practice required that Brazil’s constitution be amended "in such a way as to eliminate existent constraints that block adoption of an agile form of administration with a greater degree of autonomy" (Brazil 1995, p.66). Whereas President Collor (after suffering a number of political defeats) belatedly identified the 1988 Constitution as a serious obstacle to his reform agenda, from the

Nick Manning/Neil Parison Page 34 11/22/2004 International Public Administration Reform Country Reform Summaries.doc outset of Cardoso’s presidency the need for a broad constitutional amendment was recognized.

With the election of President Fernando Henrique Cardoso in 1994, political debates concerning civil service reform were renewed.7 This time, the ideas were markedly different from the Collor period. This was, in part, because the stabilization policy (the "Real Plan") was highly effective, and the Brazilian policy agenda was no longer monopolized by fiscal crisis. The "Steering Plan for the Reform of the State Apparatus" produced by the Ministry of Federal Administration and State Reform (MARE) specified the objectives and guidelines for redefining Brazil’s public administration. (Minister Luiz Carlos Bresser Pereira was the principal author.) The Steering Plan asserts that "rigid hierarchical standards … controlling processes instead of results produced an administrative system shown to be stultified and inefficient and, therefore, incapable of coping with the magnitude and complexity of the challenges established by the process of economic globalization" (Brazil 1995, pp.9-10). The proposed solution is for the "State [to abandon] its role as executor and direct renderer of services, while preserving its task of regulator and provider or fosterer of such services" (Brazil 1995, p.17) These elements are indicative of a "managerial" (as opposed to Weberian) approach to public administration, the State as "helmsman" rather than "oarsman," focused on results rather than procedures, so as to be agile in the face of a rapidly-changing world.

The 1995-99 experiment has had limited impact to date. Few Executive Agencies and Social Organizations have been created, partly because the government was not prepared to provide priority in the flow of budget funds to such agencies. But it may also be the case that changing the management culture through changing the organizations was too threatening to existing interests in the bureaucracy. Organizational change of the type originally envisaged now appears to be in abeyance. Yet, while it did not move as far as it had hoped towards creating a results-oriented culture, the government’s reform efforts of 1995-99 did succeed in a recuperation of the effectiveness of the public administration (as well as of public financial administration), and they also succeeded in putting further performance-based managerial reform firmly on the agenda.

Fiscal decentralization to both states and municipalities went very far under Brazil’s 1988 Constitution. Many have argued that fiscal decentralization was not properly linked with a decentralization of responsibilities, and that this has been a key factor contributing to the Federal Government’s fiscal imbalances. As such, further fiscal decentralization was not contemplated as part of the Cardoso administrative reform. The "deconcentration" (though not decentralization) of federal civil servants was to be facilitated by the reform.

Cutting back the programs undertaken by government

The provisions of the 1988 Constitution, including strong fiscal decentralization, contributed to the federal government’s chronic deficit, which was aggravated by irresponsible state governments. President Fernando Collor (1990-1992) was the first directly-elected president in Brazil since the 1964 military coup. During the campaign, he promised to "kill the tiger of inflation with a single bullet." His plan was thin on details, but included a vigorous privatization program and deregulation. Public

Nick Manning/Neil Parison Page 35 11/22/2004 International Public Administration Reform Country Reform Summaries.doc employees were a frequent target of the president’s verbal attacks. Collor vilified "maharajas" (i.e., public servants with huge salaries). By combining the public’s perception of an inefficient public service with the powerful symbol of the "maharajas," Collor’s anti-statist campaign cast the federal bureaucracy as a morally indefensible, oversized behemoth generating huge government deficits (thereby fueling inflation) and contributing little to society in return.

Civil service and personnel reforms

The civil service reform plan under President Collor was quite simple. "Clearly, the predominant preoccupation was to dismantle certain elements of the state apparatus, shrinking it as much as possible" (Castanhar 1990, p.51). The Collor administration proposed to sell government-owned apartments and automobiles, etc. But the centerpiece of the reform was to reduce by 360,000 the number of federal employees. With the help of a few colleagues, Santana devised the reform program. A number of administrative agencies were dissolved by presidential decree; but these employed relatively few people. In order to meet the 360,000 target, Collor’s Secretary of Administration, João Santana, instructed each minister to cut 30% of his or her total staff.

All ministers were directed to present their personnel cuts to Santana’s office on June 18th and, in support of Santana, the President threatened to dismiss any minister who failed to meet the deadline (2 June 1990) Yet as the deadline approached it was apparent that the administration would fall well short of its goal. Santana and his aides then seized upon another instrument to reduce personnel expenditures. Even those with job security could be placed on compulsory leave (em disponibilidade). However, the Brazilian statute provided that a public employee placed on compulsory leave shall continue to receive a salary "until appointed to another position." Collor attempted to reduce the salaries of those placed on leave by issuing decree no. 99.300. However, the legislature voted to overturn this decree; and when Collor responded by re-issuing the same text as a new decree, Brazil’s Supreme Court (STF) declared Collor’s action unconstitutional.

On the heels of this defeat, Santana announced the need for a "very hard salary policy" to compensate for the financial effects of the STF decision (2 June 1990). The government froze the salaries of public employees until the end of 1990, which in Brazil’s highly inflationary environment had the effect of rapidly eroding the buying power of public employees’ salaries. The administration expected that this would constitute "yet another stimulus for people placed on compulsory leave … to choose dismissal." (Sussuna 14 June 1990). In a high inflationary environment the constitutional protection against salary reductions meant little. Eighteen months after Collor assumed the presidency salaries had lost 70% of their value (dos Santos 1997, p.48)

As might be expected, the "hard salary policy" had a very negative impact on the morale of public employees and led many of the most experienced and skilled civil servants (i.e., those with prospects for alternative employment) to resign their posts. By the time Collor was forced from office by impeachment, (dos Santos 1997, p.48) claims 112,000 civil servants had left or been fired from the state’s direct administration, autonomous agencies, and state-owned enterprises.8 Data from the SAF shows that the number of

Nick Manning/Neil Parison Page 36 11/22/2004 International Public Administration Reform Country Reform Summaries.doc employees plus vacancies eliminated from the federal administration reached 221,308 by March 1991. Both (dos Santos 1997) and (Abrucio 1993, p.47) agree that roughly 50,000 state employees were placed on compulsory leave during the Collor administration. These numbers fall well short of the 360,000 target, but are certainly significant. The following table demonstrates the impact of the Collor years (1990-92) on the number of public employees in Brazil.

Table 1 Executive Branch Civil Servants in Brazil, 1988-1994 Year Civil Servants* Total** 1988 705,550 1,442,660 1989 712,740 1,488,610 1990 628,300 1,338,160 1991 598,380 1,266,500 1992 620,870 1,284,470 1993 592,900 1,258,180 1994 587,200 1,197,460 SOURCE: references: Secretaria de Recursos Humanos, Ministério de Administração e Reforma do Estado (1995). (*) Includes central administration and autonomous agencies; excludes the military. (**) Includes employees of public enterprises.

The consensus among Brazilian scholars is that the quality of the civil service was seriously damaged during the Collor administration. "The experience during the Collor government of attempting to reduce pure and simple the number of civil servants, without objective criteria and in an authoritarian manner, was totally disastrous and ineffective from the point of view of improving the public service" (Abrucio 1993).9 Of course, improving performance was not the real intent of the reform. However, Brazil had developed pockets of skill and professionalism within the state, and these were not immune to the negative effects of the Collor reform. (Carneiro and Geraldo n.d., p.14) noted that "the signs of decline are visible … risk[ing] the dissolution of some ‘islands of competence.’ In general, the sentiment within the civil service is one of discouragement and generalized frustration."

As Collor’s administrative reform was widely considered a failure in Brazil, his successor, Itamar Franco, tried to turn back the clock. The former vice-president assumed the powers of the presidency in September 1992, following Collor’s impeachment on charges of corruption. One month later Franco issued a decree that dismantled the governmental structure Collor had implanted just two years before.10 Moreover, in June 1993 Franco created a Special Commission to investigate the dismissals of the Collor period. Sixty-seven thousand cases were submitted to the Commission for review. Eventually, Franco decided to issue decree n° 473 in April 1994, offering "amnesty" to all public employees fired during Collor’s administration. To claim some of the credit, Brazil’s Congress voted to convert this decree into law. The law covered employees of state-owned enterprises and all civil servants in the direct administration, autarchies or foundations dismissed between March 16, 1990 and

Nick Manning/Neil Parison Page 37 11/22/2004 International Public Administration Reform Country Reform Summaries.doc September 30, 1992 (the full length of Collor’s presidency). All these former employees were ordered reinstated to their prior jobs or to be offered an equivalent position.11

From the outset of Cardoso’s presidency, the need for a broad constitutional amendment was recognized. The proposed administrative reform amendment included the following elements: • It would permit public workers to be fired (even those with job security) for unsatisfactory performance, or to reduce an excessive salary burden. • The federal government would be prohibited from transferring resources to state or local governments to cover personnel costs. • When restructuring agencies or as an alternative to dismissals for excessive staffing, governments would be permitted to place workers on compulsory leave and pay salaries in proportion to their years of service. • The probation period for public employees (before achieving job security) would be extended from two to five years. • The requirements of the Single Juridical Regime (RJU) would be eliminated, allowing the government to hire workers under ordinary labor legislation. • Parity between the salaries of active and retired public sector workers would no longer be required, permitting pay raises for active workers without passing these on to pensioners. • Contracts between the state and designated organizations operating under private sector law would be expressly permitted for the provision of public services that are "non-exclusive" to the state. These organizations would be able to receive public resources in exchange for measurable performance targets. • A ceiling would be imposed on the earnings of public employees.

These constitutional changes threatened a number of significant benefits enjoyed by public employees in Brazil. However, in contrast to the Collor administration, President Cardoso and his Minister of Administration insisted they did not intend to shrink the overall size of the federal government. (In fact, the Federal Administration Secretariat concluded in a 1993 study that there actually was a shortage of 143,000 civil servants in the federal public administration (October 7, 1993.)) The MARE diagnosis held that federal civil servants were not overly numerous. They were poorly allocated, with too many in the middle ranks of the civil service and too few at the point of service. Instead, the proposed changes were to improve the professionalism of civil servants, increase the flexibility of public sector managers, and facilitate a sectoral and regional distribution of civil servants. Flexibility, coupled with the adoption of results-oriented control instruments and incentives for the performance and improvement of work routines and processes, was meant to improve state service delivery without increasing the amount of resources devoted to public administration.

Unlike the situation at the federal level, in a number of states and municipalities public employment payrolls exceeded the 60% threshold set by the Rita Camata Law. (See the table below.) Constitutional changes were meant to facilitate, even require, employment reductions by these state and municipal governments.

Nick Manning/Neil Parison Page 38 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Table 2 Personnel Expenditures of Selected Brazilian States Personnel expenditure Number of Personnel in State as % December 1996 of revenue Espírito Santo 77,000 92 Piauí 80,000 85 Alagoas 76,000 82 Rio Grande do Sul 271,000 81 Distrito Federal 130,000 81 Santa Catarina 115,000 80 Paraná 180,000 77 Minas Gerais 491,000 77 Pernambuco 134,000 74 Rio Grande do Norte 103,000 73 Rio de Janeiro 290,000 70 Goiás 143,000 66 Ceará 106,000 63 São Paulo 932,000 62 Paraíba 99,000 61 Bahia 190,000 57 Source: Fórum Nacional de Secretários de Estado da Administração.

Budget process changes

In 1999 President Cardoso was elected for a second Presidential term. (He had succeeded in obtaining a constitutional amendment allowing a one-time renewal of the President’s four-year terms.) His second term has been characterized by a continuing serious effort at performance-based administrative reform, but with a substantial change in the thrust of this. The 1995-99 experience of a partially failed reform, as well as many decades of administrative development, provide the context.

The 1988 Constitution, continuing Brazil’s tradition of serious planning – rather unique for the Latin America region – mandated a four-year plan, to run in tandem with the Presidential term. The 1996-99 Multi-Year Plan – "Brazil in Action"—was the first plan since the new Constitution to take this mandate seriously, if only because it was the first Plan prepared in a period of relative economic stability. The Plan was modest, centered on 42 Programs – most of them infrastructure projects – accounting for only a part of total public expenditure.

The success of this effort spawned a far more ambitious experiment; the 2000-2003 Multi-Year Plan entitled "Advance Brazil". One of the unique features of this Plan is that it is intended to drive a fairly ambitious public sector management reform with a gradualist approach to implementation. The almost "stealth" public management reform of the Plan contrasts sharply with the more explicit and ambitious managerialist objectives embodied in MARE’s Plano Diretor.

The 2000-2003 Multi-Year Plan seeks to reorganize the way government business is done around clearly defined programs, rather than frontally re-structuring organizations per se.

Nick Manning/Neil Parison Page 39 11/22/2004 International Public Administration Reform Country Reform Summaries.doc It can be inferred that the Plan’s implicit intent is to challenge the organization of existing agencies by putting the programs inside them. The main building blocks of the managerial reform in the Multi-Year Plan 2000-03 are as follows: • The government’s business is organized into programs, which stress the desired output, rather than the logic of production. Each Program is attached to one federal Ministry or agency, although many of these Programs will require actions in other ministries or at sub-national levels of government. In fact, these Programs can be seen as essentially putting existing public business into new boxes, while adding some new business (i.e., akin to incremental budgeting). For tactical reasons there was relatively little emphasis on cutting existing business. But the new boxes, as well as some of the newer Programs, emphasize a strategic approach that directs government attention to outputs and outcomes rather than inputs or processes. For instance, a transport corridor Program would emphasize the integrated multi-modal system that is needed to move goods or people from A to B, in contrast to a program to build, say, a road. Thus, in order to provide a more effective approach to satisfying the populace’s real demands, these Programs imply a challenge to existing government "production processes" and the organizations they fall into. • Programs provide a transparent basis for performance orientation. Programs have simple, self-explanatory titles, objectives, subsidiary actions necessary to obtain these objectives, and output indicators for these actions. This information is publicly available through the Internet. In turn, Programs and actions are clearly linked to required budgetary resources for the four-year Plan period. • The Program-based Plan is fully linked to the budget document. Although the 2000 and 2001 Budgets have adopted the same program basis as the Plan, it remains to be seen how the Plan and the annual budgets adjust themselves to each other over time as the budget execution diverges from the approved budget and thus from the Plan. There is also a question of actual fund allocations to Programs vs. organizational units. Except for those ministries such as Environment, which have adjusted their organizational structures to the Program structure, there may still be an effective disconnect between actual flow of funds (to the traditional organizational units) and the Plan allocations (to Programs). • The 2000-2003 Multi-Year Plan system is strongly committed to an evaluation system, but this has not yet been designed. The Planning Ministry intends to carry out the first round of plan and program evaluations in partnership with the Institute of Applied Economic Research (IPEA). • The Programs and their links with budget and expenditure management are supported by a series of Internet-based information systems. A management information system (SIG) provides information and feedback on Programs and their implementation to Program Managers, SPI, and Ministries, and is being extended to the public. Brazil is also well served by a series of integrated systems for budgeting and execution (SIAFI, SIDOR). • Managers are appointed for each Program. Working within the structure of a Ministry or agency, they have the responsibility for executing that Program, although in most cases this responsibility has not (yet) been matched with the necessary resources. Managers are appointed by the Ministry or agency within which the Program falls. They are usually drawn from existing senior staff and, typically,

Nick Manning/Neil Parison Page 40 11/22/2004 International Public Administration Reform Country Reform Summaries.doc continue to hold other line responsibilities (such as Director). The conditions under which the Managers work vary across Ministries and agencies. In some cases, Programs have been incorporated within existing organization charts, somewhat as if they were departments or divisions. In other cases, Managers find themselves as change agents, with few or no resources and with the task of using their access to information and moral authority to get other parts of the ministry or other federal or sub-national agencies to cooperate. In either case, to be effective, Managers often have to work across formal structures and through informal channels – across ministries, with sub-national governments, and so on. This often reflects the "matrix" natures of Programs, which are intended to produce outputs through coordinated actions among relevant sectors or sub-sectors (such as a transport corridor) rather than project outputs within a particular sector or sub-sector (such as a road). Thus the Program approach, often at odds with existing organizational structures, is implicitly designed to apply pressure to change those structures. Change is already emerging in some Ministries, such as Environment and Transport. • There is a strong training component. The Program approach and the role of the Manager are being strongly supported by the training activities of the National School for Public Administration (ENAP), as well as by the Planning Ministry itself.

Overall, while budget process reforms were not a direct part of the 1995-99 Cardoso reforms, they were central to the new initiative from 2000. The new Program-based system was introduced in 2000 at the same time that a Law of Fiscal Responsibility was passed. The two reforms together constitute, de facto, a number of elements of a medium-term-expenditure framework.

E-government

While developing e-government has not been a central piece of Brazil’s administrative reform efforts, Brazil is nonetheless a leading Latin American country in electronic government, both at the Federal level and that of some of the more advanced States (provinces). There is copious Internet-based information on federal government administration. For instance, MARE constructed a website with considerable information for public employees and the public more generally about employee numbers, civil service legislation, employee rights, etc.12 Brazil is one of the world’s most advanced countries in paying income taxes through the Internet. Some state governments have developed state-of-the-art citizen portals and "one-stop shops".

Reform outcomes

Mixed results

Brazil has an advanced public administration by Latin American standards, as a result of an administrative history that stretches back to the 19th Century. The march forward, however, has been punctuated by cyclical aberrations. Today’s public administration can be particularly traced back to developments beginning in the 1930s, when Getulio Vargas started to build up a professional civil service on traditional centralized, Weberian lines. The burgeoning discipline of this system was threatened by the more developmentalist

Nick Manning/Neil Parison Page 41 11/22/2004 International Public Administration Reform Country Reform Summaries.doc approach of subsequent Presidents, who pursued their ambitious import-substitution policies through building up enclaves and through planning. This approach contributed to a loss of administrative and fiscal coherence, and the public-administration provisions of the 1988 Constitution were designed to bring Brazil back to a reliance on bureaucratic principles. But the new measures so enshrined the tenure of public servants that, along with the general fiscal crisis, governments until the mid-1990s were obliged to concentrate on reining in the state. A return to relative fiscal stability, together with Brazil’s process of democratization, then encouraged the government to turn its attention to the efficiency of government rather than a sole concern with the fiscal burden that government represents.

It can be argued that Bresser Pereira’s heroic attempts (1995-99) to restructure the Federal government according to the policy-provider split failed because they did not really get the blessing of the center of government, which did not want to risk the fiscal indiscipline associated with the sprouting of Executive Agencies, etc. and because they did not capture the public imagination. The current managerialist reform experiment – program budgeting, program management, and something akin to a medium-term expenditure framework – grew out of a completely separate planning experiment undertaken in 1995-99. It is more cautious than Bresser’s and it more or less has the blessing of the government's financial-budget establishment, so it may be more likely to succeed. But like Bresser's, this is a technician's reform and is not designed to capture the public imagination.

Some concrete gains

On June 4, 1998, nearly three years after the executive branch first submitted its proposed administrative reform amendment to Congress, a small ceremony was held in Brazil’s Senate Chamber to celebrate the final passage of Constitutional Amendment No. 19. Although the political struggle to secure the 3/5 vote in the Chamber of Deputies and Senate (as required for a constitutional amendment) was long and difficult, when the administrative reform amendment was promulgated in June 1998, the final product had retained much of its initial character. The amendment provided permission to dismiss civil servants, even those with job security, if salaries should exceed 60% of net revenues (municipal, state, or federal). However, before an employee with job security can be fired, those without security must be dismissed. Plus, expenditures on politically appointed positions must be reduced by at least 20%. A worker with job security who is dismissed is entitled to an indemnity payment. In an effort to guard against politically motivated dismissals, the constitutional amendment requires that the position be extinguished for at least four years. (Creative job descriptions may be a simple way to escape this restriction, however.)

On October 29, 1998 Cardoso sent to Congress the lei complementar to fix the norms for firing civil servants for failure of performance. If two annual reviews in a row, or three times in the previous five, a worker receives an "unsatisfactory" rating, then he or she can be fired. The project also defines those who exercise exclusive activities of the state. These can only be fired after an administrative hearing, with full rights to defense. Civil servants placed on mandatory leave (disponibilidade) may be paid less than their full

Nick Manning/Neil Parison Page 42 11/22/2004 International Public Administration Reform Country Reform Summaries.doc wage. This article was included precisely to make lawful what the STF under Collor had determined was unconstitutional.

A special evaluation is also required at the end of three years before a public employee can receive job security. Arms-length contracts between public bodies and private organizations for the provision of public services are enabled. The stated goal of these contractual relationships is to confer greater managerial autonomy in return for clear performance targets. Complementary legislation is to set standards for performance evaluation, remuneration, responsibilities, etc.

In May 1998, the legislature approved Law no. 9.649, authorizing the President to decree the transformation of an autarchy or foundation into an "executive agency." The first "executive agencies" established under this statute were regulatory bodies (e.g., National Telecommunications Agency (ANATEL), National Electric Energy Agency (ANEEL), National Petroleum Agency (ANP)). While executive agencies are responsible for providing services that are the exclusive responsibility of the state, the legislature also approved Law no. 9.637 in 1998, providing a legal foundation for what Minister Bresser Pereira labeled "social organizations." These private organizations are empowered to enter into contracts with the government to provide services that are not exclusive to the state (e.g., cultural institutions).

The end to the requirement that federal, state, and municipal public employees be covered by a single labor statute (RJU) permits greater flexibility in terms of employee standards and pay, both between different federal government agencies, and between levels of government. Most notably, many employees would now no longer have a right to job security. Some state employees would retain standard civil servant protections. On August 11, 1999, the Chamber of Deputies approved the law defining the carreiras típicas de Estado ("core" civil servants such as judges, diplomats, and tax collectors). The vote was 414 in favor, 28 opposed, and 2 abstentions. The law defined 35 such careers. The bill then went to the Senate. Approximately 10% of the civil service will fall into these categories, or 50,000 of the 509,400 civil servants. end of legal requirement that executive, legislative, and judicial employees receive the same salaries for the same type of work.

Thus, an increase in pay for one group, whatever its effect on wage negotiations, will no longer lead to a constitutional challenge in the courts by other groups demanding the same increase.

Other achievements include the establishment of a salary cap that includes all forms of income. As described above, this cap, while now mandated by the constitution, has yet to be defined.

The government has been carrying out studies aimed at reviewing the way several federal organizations perform, and deciding, when appropriate, their extinction and transfer of their functions to other spheres of Government. At least four organizations have been closed.

Nick Manning/Neil Parison Page 43 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 3: Canada

Gord Evans, Senior Consultant, Institute of Public Administration of Canada

Overview

The sequence of reforms

Although public administration reform is a continuous process, Canada’s experience emphasizes that it does not proceed at a steady, incremental pace. In the last fifty years, there have been two periods of dramatic change. The first began in the mid 1960s, the second in the mid 1990s.

From the mid 1960s to the early 1970s, a significant redefinition of the public sector occurred with the creation of the welfare state. In this era, the country’s major social programs (e.g., Canada Pension Plan, medicare, unemployment insurance) were created and government involvement in the economy increased (e.g., creation of Petro Canada, establishment of the Foreign Investment Review Board).

By the mid 1980s, pressures to curtail government growth existed, but few concrete actions were taken. The 1985 Nielson Task force, drawn primarily from the private sector, recommended the elimination of over 1,000 government programs costing $7 billion, but few recommendations were ever implemented. In 1989, "Public Service 2000" was launched to renew the public service, but again the resulting changes were very modest. In contrast to New Zealand, Australia, and the United Kingdom, very little of the international enthusiasm for "new public management" had resonated in Canada.

Reformers' concerns

Fiscal pressures

Fiscal realities have driven the reforms. Real restructuring did not begin until 1994 with the launch of "Program Review." Unlike its predecessors, this reform initiative produced significant changes to the role and size of the public sector.

The latest reform effort, La Releve, was initiated in 1997 and is dealing with less controversial issues such as attracting and retaining skilled public servants. Increasing emphasis is also placed on e-government.

Restructuring has also occurred in Canadian provinces. Given Canada’s high level of decentralization, this is important as most direct services to citizens are provided at sub- national levels. Although implementation time frames have varied, the rationale for and progress of public administration reform approximated the federal experience.

In Alberta, one of Canada’s wealthiest provinces, the impetus may have been more ideological as the party in power was strongly committed to reducing the role of

Nick Manning/Neil Parison Page 44 11/22/2004 International Public Administration Reform Country Reform Summaries.doc government and its fiscal situation was relatively strong. In New Brunswick, a poorer province, reform was motivated by the fiscal situation and because the Premier of the day made restructuring a priority. In Ontario, Canada’s largest province, the governing party chose to combine restructuring with major tax reductions. As a result, Ontario was among the last provinces to achieve a budget surplus. For Quebec, the last province to embrace restructuring, the complexity of balancing the fiscal agenda with the governing party’s secessionist aspirations may have been responsible for the deferral. Whatever the differences, the result across Canada has been a major redefinition of the role of government.

Unquestionably, the fiscal objectives of the reforms have been met. The debate over whether the new public management truly provides a better model of public service continues. On the one hand, the public is expressing deep concerns over problems in the health care system. On the other hand, initiatives such as Ontario’s automated business registration process are very popular. Like New Zealand, the initial exuberance for change has given way to a period of caution and consolidation.

A clear loser in the transition has been the career public servant, who no longer enjoys guaranteed, lifelong employment and has fallen further behind private sector counterparts in terms of compensation and benefits. Another loser has been organized labor, as layoffs and alternative service delivery have decreased union membership.

The primary lesson learned from contemporary Canadian experience is that far-reaching public administration reform requires a confluence of conditions: • fiscal urgency; • political commitment; and • public support.

Of these, the driver in the case of Canada was certainly fiscal urgency. Without it, the public would not have supported significant reductions to government programs. Without public support, the political commitment would not have been sustained. Although it can be argued that rethinking the role of government was warranted, regardless of the particular economic climate, it is difficult to imagine that this would have been undertaken on such a grand scale without this incentive.

Policy management

The Public Service of Canada has also recognized the need to strengthen its policy capacity by ensuring that it has the ability to identify and address medium to long-term policy issues. The process of strengthening the government’s policy capacity and developing a vigorous policy community began in 1995 with the work of the Task Force on Strengthening the Policy Capacity of the Government of Canada, followed in 1996 by the Task Force on the Management of Horizontal Policy Issues. That same year, the Policy Research Committee (PRC), an interdepartmental group of Assistant Deputy Ministers from over 30 federal departments and agencies, was established and asked to prepare a report on the pressure points likely to arise in Canadian society by the year

Nick Manning/Neil Parison Page 45 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 2005 as a result of economic, demographic and social trends, and to identify knowledge gaps and develop a research plan to address those gaps.

The PRC report Growth, Human Development, Social Cohesion, released in October 1996, reflected the three overarching policy challenge themes that emerged during the exercise. Phase II of the Policy Research Initiative (PRI) saw the establishment of interdepartmental networks, each created around one of the report’s three main themes. A fourth internationally-focused network was formed and issued a report, Canada 2005: Global Challenges and Opportunities, in February 1997.

In April, 1997, the PRC issued its Progress Report containing the preliminary work plans of three research networks and the Knowledge-Based Economy and Society (KBES) pilot research project. The Global Challenges and Opportunities workplan was established in the fall of 1997. Inventories of current and planned research have been shared across government, creating new opportunities for cooperation and collaboration, and influencing departmental research plans. Linkages and research partnerships are also being actively pursued with the non-governmental research community.

In June 1997, a secretariat was established to facilitate the four networks’ work, to find innovative ways to disseminate research results, and to build partnerships and linkages with the broader policy research community in Canada and other countries.13

Although the PRI was established by the Canadian government independently of other countries’ initiatives, similar future-oriented policy research appears to be underway in several other countries. In particular, the United Kingdom’s effort with "joined-up government" follows this approach.

Improved accountability

To enhance program and service delivery across the federal government, Treasury Board Secretariat has also focused efforts on establishing and developing a results, or performance based, management culture. This has entailed a set of key initiatives including improving reporting and information to Parliament, developing better financial information, improving the delivery of affordable services, enhancing policy capacity and promoting continuous learning in the public service.

The objectives of this approach are to: • Change the focus of managing and reporting from activities and inputs to impacts and outcomes, that is, what impact the government has on Canadians and their society and the benefits provided; • Make reporting more transparent, by improving "results" reporting, accounting structures, and the measurement of costs; • Promote accountability frameworks that articulate relationships and accountabilities between and within government departments and agencies, other government organizations, alternative service delivery agents and the public, and

Nick Manning/Neil Parison Page 46 11/22/2004 International Public Administration Reform Country Reform Summaries.doc • Report annually to Parliament on the progress of its strategy to implement results- based management across the federal government.

Over the last ten years, the focus of reform has moved away from deregulation to deal with improving the quality of regulations and basic regulatory tools. The government is now focusing on regulatory management by looking more at results-based approaches to integrated policy objectives, to ensure that regulation is given the scrutiny that it deserves as a tool for implementing public policy.

The federal government now requires Departments to include a regulatory plan in their annual reports to Parliament on Plans and Priorities, and to report on the progress of these plans in a separate Performance Report to Parliament.

Retaining good staff

The La Releve initiative was launched by the Clerk of the Privy Council in close collaboration with the Deputy Minister community and with the help of a small task force of public servants to address issues of difficulty in retaining, motivating and attracting people essential to the work of the public service.

La Releve: A Commitment to Action was jointly signed and published in October 1997 by Deputy Ministers to describe the action underway to implement the key corporate and departmental human resource management strategies contained in their Human Resource Action Plans, linked to their business needs. These plans had been developed in the spring of 1997 by every Department and by many key functional groups such as science and technology, communications, comptrollership, human resources management, policy and informatics. Regional Federal Councils undertook action to address the human resources needs of regional employees including the facilitation of career development opportunities across departmental and sectoral boundaries.

Consultations on the workforce of the future were undertaken with almost 600 administrative and support employees nationally and the report Valuing Our People provided a wide range of pragmatic recommendations, which are in the process of implementation by Departments.

Institutional starting points

Constitution/political system

Canada’s original constitution, the British North America Act (1867), established Canada as a federal system where the provinces enjoyed significant powers. The Constitution Act (1982) repatriated the constitution to Canada and included the Charter of Rights and Freedoms. Canada's constitutional framework is not comprehensive and relies heavily on convention and interpretation by the Supreme Court.

Canada is a constitutional monarchy whose head of state is formally the Queen Elizabeth II, although in practice the Governor General, appointed by the Queen on the advice of

Nick Manning/Neil Parison Page 47 11/22/2004 International Public Administration Reform Country Reform Summaries.doc the Prime Minister serves in this role. Its parliamentary system is based on the Westminster model and is bi-cameral.

The House of Commons has 301 members. Each is directly elected and represents a single geographical constituency. The allocation of seats is primarily based on population (e.g., Ontario has 37% of Canada’s population and 34% of the parliamentary seats). The House of Commons is by far the more influential of the two houses.

The second chamber, the Senate, has 104 members. Membership is apportioned on a regional basis (24 each from 4 eastern provinces, Quebec, Ontario and western provinces, plus 2 from the territories and a small number of special appointments). Appointments to the Senate are made by the Governor General on recommendation of the Prime Minister. The Senate exercises very limited powers in practice.

With a constituency-based electoral system, most elections result in majority governments. Although minority governments occasionally exist, coalitions are extremely rare. Canada has relatively few political parties represented in Parliament compared to countries that use a proportional representation system. Currently, there are five (Liberals, Alliance, Bloc Quebecois, Progressive Conservatives, New Democratic Party). Each of the provinces has its own legislature and a constituency-based electoral system. There is not a direct relationship between federal and provincial political parties.

Currently, Canada is one of world’s most decentralized countries. The majority of public services are provided through provincial or municipal governments (health, education, social assistance, transportation, natural resources, police). Key federal responsibilities include defense, foreign affairs, trade, regional development and setting national policy standards.

Judicial interpretation of the Constitution has traditionally tended to favor the provinces, However, the federal government significantly increased its powers during the 1960s by establishing and funding national social programs, the trend since then has been an expansion of provincial powers. In fact, this was one of the outcomes of the 1994 Program Review where federal fiscal transfers to, and therefore influence over the provinces were significantly reduced. Another trend in governance is the increasing role played by supra-national institutions. In particular, the North American Free Trade Agreement plays a significant role in determining trade and trade-related policies.

Structure of Government

The executive council (full Cabinet) is headed by the Prime Minister and also comprises the Deputy Prime Minister, 20 departmental ministers, and an additional 14 junior ministers (secretaries of state, ministers with non-departmental responsibilities).

Nick Manning/Neil Parison Page 48 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Box 1 Federal Government Departments in Canada Agriculture & Agri-Food Industry Canadian Heritage Justice Citizenship & Immigration Labour Environment National Defence Finance National Revenue Fisheries & Oceans Natural Resources Foreign Affairs & International Trade Public Works & Government Services Health Solicitor General Human Resources Development Transport Indian Affairs and Northern Development Treasury Board

The Prime Minister determines the structure of the Government. It is not uncommon for new ministries to be created, restructured, or discontinued. The trend over the last decade has been to reduce the number of ministries.

The ten provincial governments are similarly structured, headed by a Premier and comprising individual ministries. Box 2 provides two examples. Box 2 Provincial Government Departments in Canada Ontario Alberta Agriculture, Food & Rural Affairs Aboriginal Affairs & Northern Development Attorney General Agriculture, Food & Rural Development Citizenship Children’s Services Community & Social Services Community Development Consumer & Business Services Economic Development Correctional Services Energy Economic, Development & Trade Environment Education Finance Energy, Science & Technology Gaming Environment Government Services Finance Health & Wellness Health & Long-Term Care Human Resources & Employment Intergovernmental Affairs Infrastructure Labour International & Intergovernmental Relations Management Board Justice and Attorney General Municipal Affairs & Housing Learning Natural Resources Municipal Affairs Northern Development & Mines Revenue Solicitor General Seniors Tourism, Culture & Recreation Solicitor General Training, Colleges & Universities Sustainable Resource Development Transportation Transportation

Canada also has approximately 5,000 municipal governments.

Canada’s system of cabinet government has evolved from a collegial system, where the Prime Minister was considered the "first among equals" to a prime ministerial system, where the Prime Minister seeks the advice of his colleagues, but ultimately takes the decision whether or not there is consensus. This trend is similar to what has been occurring in the United Kingdom.

Nick Manning/Neil Parison Page 49 11/22/2004 International Public Administration Reform Country Reform Summaries.doc There is no formal mechanism for developing or approving high-level government strategies. There are, however, two formal vehicles in which these strategies are expressed: the annual speech from the throne (summarizes legislative and policy priorities) and the annual budget speech (presents fiscal and policy strategies). The determination of policy priorities has often taken place at cabinet retreats, a two to three day session where the full cabinet meets and debates future government directions. The budget process, on the other hand, can be very secretive with key measures (particularly those involving tax changes) only known to the Prime Minister, Minister of Finance and a few senior ministers and officials.

The weekly cabinet meeting offers an opportunity to review cabinet committee recommendations, discuss strategic or contentious issues, and determine public communications plans. The majority of policy and financial review occurs in cabinet committees. Recommendations are forwarded from the committees to cabinet for ratification, unlike the United Kingdom where increasingly decisions are taken outside the formal cabinet structure (e.g., by correspondence from a committee chair). Box 3 Cabinet Committees in the Canadian Federal Government Economic Union – reviews major economic policy initiatives Social Union – reviews major social policy initiatives Treasury Board – oversees the annual estimates exercise and reviews fiscal impacts of individual issues Special Committee – reviews statutory issues, such as appointments Government Communications – proposes and coordinates communications strategies

The particular cabinet committee structure is not legislated and can be changed by the Prime Minister at any time.

Provincial governments tend to follow a similar approach, although several (e.g., Ontario and New Brunswick) use a Policy and Priorities committee, chaired by the Premier, as a senior committee in charge of priority setting and reviewing major policy issues. One unique approach to cabinet committees is being undertaken in Alberta where caucus members (members of parliament from the governing party who are not members of cabinet) lead various policy committees that include cabinet ministers and make recommendations directly to cabinet.

Central agencies and reform management

There is no one ministry or central agency responsible for public administration reform. The key central organizations include:

• Privy Council Office -the clerk (Cabinet Secretary) is the head of the public service • Treasury Board -is the employer • Public Service Commission -responsible for safeguarding merit principle • Canadian Centre for Management Development (CCMD) -leadership development.

La Releve is headed by the Clerk (Cabinet Secretary) of the Privy Council Office. In the federal public service, all Deputy Ministers (the senior official of each department) have

Nick Manning/Neil Parison Page 50 11/22/2004 International Public Administration Reform Country Reform Summaries.doc a dual accountability to the Prime Minister through the Cabinet Secretary and to their minister. In fact, performance contracts are negotiated between Deputy Ministers and the Clerk of the Privy Council. Accordingly, accountability for La Releve can be blended with overall accountability for performance.

Treasury Board Secretariat coordinates the business planning process and issues directives on human resources management across government. Business plans contain a public accountability dimension as they report results against objectives on an annual basis and provide the reports to the public.

The Public Service Commission and CCMD work to ensure that the human resources dimension of ensuring successful public administration reform is appropriately taken into account.

Politicization

At the federal level, the Public Service Commission exists to safeguard the merit principle. In fact, its mission is: "To ensure that the people of Canada are served by a highly competent Public Service that is non-partisan and representative of Canadian society".

It is also convention that the Head of the Privy Council, as the most senior public servant, will uphold and ensure adherence to the merit principle.

The Public Service Commission reports directly to Parliament and is mandated to safeguard the non-partisan public service. Its three commissioners are appointed for 10- year terms and can only be removed by joint resolution of House of Commons and Senate. Although there is occasional debate about the increasing power of the Prime Minister's Office, the civil service remains highly professional.

Reform activities

Summary

Unlike transition countries in Europe, there is not a single public administration reform (PAR) program in Canada. Rather PAR is implemented through a series of related initiatives. For instance, La Releve, headed by the Clerk of the Privy Council, has a human resources focus and is attempting to revitalize the public service. The "business planning" process is managed by Treasury Board and involves the various departments and agencies developing their annual estimate submissions (budget plans) within a strategic policy context. Emphasis is placed on performance measures and accountability.

The provinces have also implemented significant restructuring programs, coinciding with the introduction of business planning. These plans are available to the public and results against objectives are reported each year. Key elements of a business plan include: • Vision statement and strategic objectives;

Nick Manning/Neil Parison Page 51 11/22/2004 International Public Administration Reform Country Reform Summaries.doc • Core businesses; • Programs within core businesses; • Divestment strategies for non-core businesses; • Change strategies (customer-focused, e-government) for programs; and • Performance measures and results reporting.

The dominant trends arising from business planning include customer-centred restructuring where groups of services from different ministries are provided from one location (one-window approach) and e-government where transactions with citizens or businesses are completed electronically at a kiosk or over the internet.

The dramatic changes undertaken through Program Review are still being digested. Although the trend continues to establish special, self-financing operating agencies (e.g., Canada Customs and Revenue Agency), Canada has not undertaken a radical restructuring along the lines of New Zealand.

A concern at all levels of government is that the public sector is no longer viewed as a desirable employment choice : e.g., enrolment in university public administration programs has been declining; public opinion polls indicate that government is perceived as being less relevant; high rate of public executives leaving for private sector. Increasingly, attention is turning to ensuring that the future public service can maintain the traditionally high standards of policy advice and program management.

Reforms to the organizational structure of government

Agency creation

Throughout the 1970s and 1980s, managerial flexibility became associated with fiscal indiscipline as budgets and the number of government programs expanded, despite efforts to introduce stronger accountability systems. With the severe cutbacks of the 1990s, flexibility became almost exclusively associated with finding savings. The current trend is again towards more management flexibility but within a stronger results-based framework; i.e., less central control over inputs, but high level of scrutiny of achieved results. With healthy budget surpluses and pressure again increasing for program expansion, the prevailing flexibility/accountability balance will be tested.

One area where flexibility and accountability are being combined is in the creation of special operating agencies. These agencies are exempt from certain administrative regulations (e.g., staffing directives), in exchange for which clear indications of results must be provided.

The classification of agencies is set out in Treasury Board statutes. This covers a wide range of types from those that form integral parts of ministry operations to autonomous crown corporations. Currently, there are 18 special operating agencies, 82 crown corporations, and 235 other types of agencies. Examples include:

Nick Manning/Neil Parison Page 52 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Box 4 Agencies in Canada Special Operating Agencies Other Types of Agencies Passport Office Canadian Food Inspection Agency Translation Bureau Canadian Nuclear Safety Commission Canadian Security Intelligence Service Crown Corporations Canada Pension Appeals Board Atomic Energy of Canada Coal Mining Safety Commission Bank of Canada Environmental Impact Review Board Canada Mortgage and Housing Corp. Executive Compensation Advisory Group Canada Film Development Corp. Free Trade Commission Canadian Broadcasting Corporation Great Lakes Water Quality Canadian Wheat Board Library of Parliament Farm Credit Corporation National Energy Board National Gallery of Canada National Film Board Petro Canada National Research Council Via Rail Parks Canada

Accountability is provided through legislation, inasmuch as acts that apply to federal departments (e.g. Financial Administration Act, Public Service Staff Relations Act) are applied to certain of these agencies).

In Ontario, accountability between the agency and the parent ministry is enforced through memoranda of understanding that set out the obligations and service standards to be met by the agency. In addition, a standing committee of the legislature exists to review the operations of Ontario’s agencies, boards and commissions.

As part of the restructuring that took place in the mid-nineties, most Canadian jurisdictions have reviewed the mandate and need for their numerous agencies. As a result, many traditional agencies have been eliminated or restructured. At the same time, new agencies are being created as self-financing areas of government activity are converted to special operating agencies. Another trend is the partial or complete privatization of crown corporations. For example, publicly traded shares can be purchased in Petro Canada, Canadian National Railways, or Air Canada.

Decentralization

Canada has long been a highly decentralized country. Pressures continue to be exerted from the provinces for further decentralization (e.g., for employment training). Decentralization is viewed in some quarters as a means of responding to Quebec's desire for more autonomy. However, other provinces now echo these demands. For instance, Ontario recently decided to withdraw from the federally provided income tax collection service and set up an independent provincial agency.

The current trend towards increased provincial power, to some degree, results from the major cuts in fiscal transfers to the provinces that occurred in the mid-90s under program review. As mentioned earlier, these cuts decreased the federal government's policy leverage over the provinces in social spending areas. More recently, with large federal budget surpluses, the funding transfer cuts to the provinces are being partially restored. It is unclear how this will affect the federal government's influence over social policy.

Nick Manning/Neil Parison Page 53 11/22/2004 International Public Administration Reform Country Reform Summaries.doc

At the provincial level, there is a trend towards devolution of service delivery to the municipal level. In Canada, municipalities are created under provincial legislation and do not have any constitutional authority. Typically, a provincial municipal affairs ministry exists that negotiates any delegation of authority or assignment of responsibilities to the municipal level. Municipalities are able to raise their own revenue through property taxation and user fees.

Cutting back the programs undertaken by government

In fiscal year 1993/94, the federal deficit stood at $42 billion, or 5.9% GDP. By 1994/95, net public debt had reached $546 billion, or 72.8% GDP. The annual public debt interest payments had reached $42 billion, or 35% of program spending. Worse, by February 1995, public debt charges had increased by $7.5 billion beyond the previous year’s forecast owing to rising interest rates. At this time, Canada was just beginning to emerge from its worst recession since the 1920s. In the public’s mind, future prosperity was linked to the restoration of fiscal responsibility. Program Review was the government’s response.

In the February 1994 budget, the government set an objective of reducing the deficit to $24.3 billion, or 3% GDP, by 1996/97. This set the deficit on its first sustained downward track in 23 years. To accomplish this, a 3-year expenditure reduction target of $29 billion was set. Measures included cutting 45,000 civil service jobs, reducing provincial government transfers $4.5 billion, eliminating 73 government boards, commercializing or restructuring 47 others, ending agricultural and transportation subsidies, and reducing business subsidies by 60%.

The process involved both the administrative and the political levels. Its objective was "to identify the federal government’s core roles and responsibilities and allocate resources to priority areas in order to provide effective, affordable, government." Notional budget reduction targets between 5 and 60% were set. To guide the process, departments were instructed to review their operations against six questions: Is a public interest involved? Is this something the federal government should be doing? Can this be transferred to the provinces? Could this be done by the private sector? Can this be made more efficient? Is this affordable?

An officials committee chaired by the clerk of the privy council (cabinet secretary) reviewed proposals to meet the target with each department. This was followed by a cabinet committee review and then a review by the full cabinet.

From a fiscal perspective, the results were highly successful. By 1997/98, the budget was in surplus. For 1999/2000, the budget surplus has risen to $12.3 billion while program spending accounted for only 11.5 percent of GDP, the lowest level in 50 years. Forecasts through to 2006 indicate continuing surpluses of over $10 billion annually against a backdrop of significant tax cuts.

Nick Manning/Neil Parison Page 54 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The program was also successful in terms of communications. By using fiscal urgency as a backdrop, public support for the cuts and restructuring was maintained. Thus, public administration reform was linked to issues that the public believed were vital to the future prosperity of the country. Moreover, the budget provides one of the strongest communications vehicles in Canada to drive this point home. Although Program Review's undoubtedly achieved fiscal and public relations success in the mid-nineties, a robust debate has ensued within Canada on the outcome of fiscally-driven reforms; i.e., whether service quality (especially health care) has been unduly disadvantaged to achieve fiscal objectives (especially tax cuts).

Civil service and personnel reforms

There are 186,314 core federal public servants, excluding military and independent crown agencies. Over the last four years, the public service has declined by 39,000 employees (17.4%). Most of the reductions were realized in National Defence (cuts in civilian employees), Human Resources Development (transferred to provinces), and Public Works & Government Services (alternative service delivery). No further significant reductions are anticipated in the near term.

In Canada, the federal government only represents a fraction of the entire public sector. In terms of government employees, the federal public service contains 33%, the provincial governments 30%, and municipal governments 37%. In addition, the public sector includes crown corporations, the armed forces, and the broader public sector (e.g., schools, universities, hospitals).

Reductions have also occurred at the provincial level. In 1995, the Ontario Public Service comprised approximately 81,200 employees. It has since been reduced by 21% to 64,000.

In Canada, civil service legislation establishes a broad policy framework, with a high reliance on regulation and directives as the means of establishing, changing and implementing rules and standards. This contrasts with many European jurisdictions that have very detailed civil service laws. Key Canadian legislative milestones include: • 1918 Civil Service Act empowered Civil Service Commission to implement merit- based system; • 1961 Civil Service Act revisions created Public Service Commission and assigned employer responsibility to Treasury Board; and • 1967 Public Service Employment Act recognized senior public servants as a distinct corporate management group.

In addition to public service acts, both federal and provincial jurisdictions have additional legislation governing labor relations and financial administration. Additional legislation may also exist with respect to political activity of public servants, freedom on information, public disclosure of executive salaries, and conflicts of interest.

Nick Manning/Neil Parison Page 55 11/22/2004 International Public Administration Reform Country Reform Summaries.doc One significant difference between Canadian and European jurisdictions is in the scope of the law. In Canada, all public employees within departments and departmental agencies are considered public servants. In Europe, the term civil or public servant often refers to a professional cadre of employees and not to those who provide administrative support.

Revamped compensation policy for executives was introduced in 1998 to address problems with recruitment and retention of senior executives. It ties the job rate to periodic comparisons with the private sector and links increases to individual performance. 10-15% of total compensation for executives results from "at risk pay" for achieving performance goals.

For unionized positions, pay policy is derived from labor relations law with specifics being negotiated in collective agreements.

Budget process changes

An Expenditure Management System (EMS) was implemented alongside Program Review to ensure that the scrutiny of roles, programs and priorities in Program Review became a regular part of departmental expenditure culture. All policy reserves were eliminated, ensuring an ongoing review of lower and higher priorities. During the period of expenditure cuts, new priorities funded in the budget had to come through reallocation – i.e. through expropriation of some portion of Program Review savings. Initiatives funded between budgets had to come from reallocation within sponsoring ministries.

The whole commitment of modernizing government for the 20th century has led to a number of initiatives and horizontal reviews that are leading to ongoing reform of programs and framework policies (regulatory reform). In addition, improved efforts in expenditure planning and accountability have been implemented. These include the improved Reporting to Parliament Project (including performance reporting); new approaches to business planning; and modernization of results-oriented performance management information supporting systems.

Key documents for planning and reporting on performance are: • Departmental business plan; • Report on plans and priorities; and • Departmental performance report.

Various systems of performance measurement have been in use since the late 60s, beginning with PPBS. The more elaborate versions of program budgeting have been abandoned because of difficulties in operationalizing and sustaining the reporting systems. The commitment to improving performance measurement and results reporting is one legacy from this era that has endured.

Two major changes in financial management for the future are modern comptrollership and accrual accounting. Currently, an Independent Panel on Comptrollership, comprising

Nick Manning/Neil Parison Page 56 11/22/2004 International Public Administration Reform Country Reform Summaries.doc private and public sector experts, is advising Treasury Board on improvements.14 Partial and modified accrual accounting has already been implemented and full accrual accounting is to be introduced in 2001 as part of a broader Financial Information Strategy. These two initiatives are intended to ensure that modern financial accounting practices are implemented as part of a broader approach to strengthening accountability across government.

E-government

The Canadian government has committed that by 2004 Canada will: "be known around the world as the government most connected to its citizens, with Canadians able to access all government information and services on-line at the time and place of their choosing." (Throne Speech quoted in Secretariat 2000). Service Canada is an e-government initiative providing one-stop telephone or internet access to more than 1,000 government programs and services. By December 2000, all government departments will have on- line capacity for information, programs, and forms

Ontario has won several international awards for its e-government initiatives. For example, Ontario Business Connects allows new businesses to register over the internet. 70% of business registrations now occur in this manner and the service enjoys a 95% customer satisfaction rating. Service Ontario is a public/private partnership with IBM that allows the public to use a centrally located electronic kiosk (e.g., in a shopping mall) to obtain drivers’ licenses, pay parking fines, obtain hunting and fishing licenses, submit changes of address for a variety of functions such as health cards, and several other government services.

Reform outcomes

The impact of public administration reform in Canada is difficult to assess since it has never existed as a separate, distinct program. For instance, the coupling of restructuring with fiscal restraint and downsizing makes it impossible to say whether a particular action resulted from a desire to modernize government or simply to save money. In Canada, it is more useful to focus on overall results rather than a particular program. Here, experience suggests that periods of radical change (two in the last fifty years) need to be followed by periods of consolidation.

As noted above, the last major period of change occurred during the mid-nineties with Program Reviews. Unquestionably, these reviews achieved their fiscal objectives. Clearly, these reviews paralleled or drove a rethinking of the role of government and the ways in which government services could be provided. If gauged today, the perceived benefits of the government’s improved fiscal situation would likely produce a positive verdict on the impact of restructuring.

There have certainly been significant achievements in terms of creative partnerships with the private sector and exploiting technology. Nonetheless, it remains an open question as to whether all of this change will ultimately produce "more" for "less". If the goals of the rhetoric are to be achieved, an ethic of continuous improvement needs to be instilled in a

Nick Manning/Neil Parison Page 57 11/22/2004 International Public Administration Reform Country Reform Summaries.doc public service able to attract and retain bright, young, creative employees. Any impoverishment of public service capacity and professionalism will adversely affect service quality. Accordingly, this concern increasingly preoccupies those planning the medium-term directions for public administration reform in Canada.

With the increase in contracting out services that were previously provided by public servants, the management of contractual relationships has become a high administrative priority. Treasury Board oversees contracting policy and has set four criteria to guide awarding of contracts: • Stand the test of public scrutiny; • Ensure pre-eminence of operational considerations • Support strategic, long-term objectives (e.g., regional development); and • Comply with international trade obligations.

At the provincial level, contracting out has been widely embraced. Services such as building security, snow removal, vehicle license testing, janitorial, and catering are just some of the functions provided on a contractual basis by the private sector that were formally provided by public servants.

Contract management skills are viewed as an increasingly important core competency of civil servants. Criticism has been made that the public service is not yet equipped to properly manage the volume or nature of this form of alternative service delivery.

Nick Manning/Neil Parison Page 58 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 4: Chile

Geoffrey Shepherd, Sector Lead Specialist, Public Sector, World Bank

Overview

Chile’s public administration may be the most professional and capable in Latin America. The government possesses a strong capacity to monitor public employment and resource use within its various ministries and to enforce centrally determined civil service policies. With this firm grounding in a "Weberian" civil service model, recent democratic governments have launched initiatives to reform and improve the efficiency, effectiveness, and transparency of Chile’s public administration. The Chilean case shows that "effective public institutions are not created out of a pure act of political goodwill, but by the accumulation of experience and capabilities over long periods" (Marcel 1999). It also shows a long sequential development - albeit punctuated by cyclical factors - culminating in the introduction of important reforms in the 1990s, in the style of New Public Management.

A professionalized public service began to develop early on in Chile's post-independence history. As the size of government has increased and its role has changed, this professionalism has been vital in maintaining good government. But there has been a political cycle of deterioration and remedial action. On two occasions - in the 1930s and the 1970s - following some decades of rapid expansion of government and an accompanying loss of discipline and control, strong, sometimes authoritarian, governments have labored to re-discipline the public administration. For the last few years, Chile’s public administration has been progressively exposed - more than any other country in the region - to performance-oriented reforms. These reforms represent a response to the rigidities that can result from effective controls, and strong democratic pressures for better government have fueled them.

Chile’s public administration was born in the context of the liberal, minimalist state that evolved soon after independence. Under an authoritarian form of civilian government, the administration was hierarchically organized, a financial-management system was introduced, and rules were established to professionalize the civil service. These modernizing measures came earlier and proved more effective and durable than in most other Latin American countries.

But the operating environment for the public administration deteriorated from the end of the nineteenth century. As Congress came to play a larger role, increasing patronage began to undermine the public administration. At the same time, a newly emerging middle class and a growing urban working class were demanding less minimalist government. The increase in public services was accompanied by an uncontrolled expansion of government agencies, employment, and spending. To regain control of the public administration, the government took a number of centralizing measures in the 1930s: strict civil service rules were introduced to limit patronage, strong hierarchical financial controls (such as centralization of tax collection and accounting in a Treasury)

Nick Manning/Neil Parison Page 59 11/22/2004 International Public Administration Reform Country Reform Summaries.doc were established, and a strong Comptroller General with extensive ex-ante control powers was introduced.

From the late 1930s, the Chilean state took on a socially and economically more developmentalist role. Much of this carried out by creating a number of autonomous agencies (for planning, service delivery, infrastructure development, and so on) as legal "exceptions" made by the executive in order to avoid interference by the legislature. These new agencies became the dominant form of public agency in Chile. But their proliferation also contributed to growing problems in the public administration. Indeed, successive governments after the 1930s lacked the power to check the progressive loss of financial control, the proliferation of agencies, the loss of coherence and discipline in the public service, and the growth in patronage practices that accompanied the growth of the public sector. Still, governments were able to make some modest compensating gains through the improvement of the skills-base of public servants, rationalization of budget procedures, and improvement in the public administration's capacity for self-diagnosis.

From 1973 to 1990 Chile was governed by a military dictatorship, headed by General Augusto Pinochet. Chile had formerly enjoyed a long tradition of democratic politics, but the military seized power on September 11, 1973, shut down the legislature, and later banned all political parties and political activity. The new government sought to turn back the frontiers of the state, but as much as anything else it changed the way the state did business - from owner and service provider to regulator, and from centralized to decentralized service provider. To accomplish this, the authoritarian regime benefited from a professionalized civil service (which came under much pressure from the harsh fiscal adjustments of the mid-1970s and most of the 1980s). But to sustain the reforms, the government also had to deal with the severe public administration problems it inherited. It carried out a number of reforms to: centralize financial control within the executive and reduce the influence of interest groups; unify civil servant pay scales and strengthen meritocratic rules; and decentralize activities or devolve them to the private sector.

In 1986 the government formalized into law the distinction between policy-making ministries and autonomous agencies providing services, thus creating a system akin to Sweden’s and to some of the innovative elements of public administration introduced in the UK and New Zealand in the 1980s. These reforms led to a system characterized by the combination of a centralized, rigid control of resources (i.e. inputs) with decentralized implementation - budget execution, personnel management and procurement. Chile’s decentralized implementation, which is uncharacteristic of many developing countries, makes the public administration more dependent on the honesty and dedication of its civil servants. This reformed system was largely effective, but more in macro-economic control than in allocation of resources or delivery of services, because of its reliance on input controls.

On October 5, 1988 Chileans were asked in a plebiscite whether then President Pinochet should lead the country for another eight-year term. The victory of the "No" vote (54.7%) marked the start of Chile’s transition back to democracy. It led to free presidential elections in December 1989. Patricio Alwyn of the Christian Democratic

Nick Manning/Neil Parison Page 60 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Party (PDC) won the election, supported by a 17-party coalition. Since March 1990 Chile has been governed by a president and legislature chosen though free elections.

The new democratic government sought to devolve further public services to the private sector, improve the performance of regulatory agencies, and resuscitate some social services. It also came to realize the need for a more performance-oriented style of public administration to address the rigidities arising from hierarchical decision-making, the emphasis on input controls, and the ambiguity in public sector objectives. Characteristic of the analytical but pragmatic approach to reform typified by previous reform efforts, the government has gone about reform in a gradualist, step-by-step manner.

In December 1993, Eduardo Frei Ruiz-Tagle, son of the former president, was elected to succeed Patricio Aylwin. Like Aylwin, Frei was a member of the Christian Democratic Party, and the candidate of the center-left Concertación alliance. He triumphed with a remarkable 58% majority in a field of seven presidential candidates.

A participative form of strategic planning was introduced in 1993. In 1994, modernization agreements between the President and individual agencies were introduced. These were substantially fulfilled and are now being extended. In the same year, experiments in performance-based pay were introduced in some agencies, and covered all agencies by 1999. In 1995, budget-based performance indicators were introduced (covering 67 agencies and 291 indicators by 1996). At the end of 1996, agencies started producing annual performance reports and a system of evaluating public programs was introduced. These reforms have been accompanied by substantial increases in the resources applied to training.

In January 2000, Ricardo Lagos, of the Concertación alliance like Frei (but from the Socialist Party), was elected to succeed Frei as president. Lagos assumed office in March 2000 to begin a six-year term. His government announced its desire to modernize the public sector by creating "a State in service of the citizen."

The sequence of reforms

Civic virtue has long been a feature of Chilean public life. However, the Pinochet regime’s insistence on centralization and hierarchy was a reaction, probably well justified, to the indiscipline that followed on the developmentalist expansion of the state in the immediate previous decades.

The strong but cautious movement towards performance-oriented management in the 1990s was perhaps an inevitable reaction to the "excessively" Weberian approach of the Pinochet regime, but it was also driven by the expectations unleashed by democratization: Chile’s citizens, like none others in Latin America, have been vocal in demanding better government services.

Reformers' concerns

Nick Manning/Neil Parison Page 61 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The concerns of the military dictatorship, headed by General Augusto Pinochet, were significantly ideological. The challenge was to change the way that the state did business - turning it from an owner and service provider to regulator, and from centralized to decentralized service provider.

The more recent concerns of the Lagos government are: • Restructuring the State’s administrative apparatus to make it more flexible, efficient, and effective, including through the introduction of new information and communication technologies; • Redefining the functions and relations between the President’s Secretariat, the Ministry of Planning and Cooperation, the budget department, and the Subsecretariat for Regional Development; • Reformulating mechanisms for citizen control and citizen participation, with particular emphasis on transparency; • Deepening decentralization and administrative deconcentration.

Institutional starting points

Constitution/political system

Chile’s current democratic system differs in several important respects from the system that operated prior to 1973. The Pinochet regime wrote a new constitution and decreed additional laws designed to restructure the democratic game. Subsequent elected governments have tried to rescind many of these changes, but their efforts have stalled in the Senate, where the government has been unable to muster the necessary two-thirds majority. The 1980 Constitution allowed the outgoing military regime to appoint nine senators, thereby giving the conservative opposition a effective veto against any proposal to reform the political system.

Chile’s 1925 Constitution created a six-year term for the executive, without the possibility of immediate reelection. The 1980 Constitution lengthened the presidential term to eight years. But after the victory of the "No" in the 1988 plebiscite, the government and opposition agreed to an exception: the first president elected after the dictatorship would serve only four years. In February 1994, at the end of Aylwin’s presidency, the Congress voted to amend the constitution to establish a six-year presidential term without the possibility of immediate reelection.

Prior to 1973, legislative power was vested in a bicameral National Congress composed of an upper house (the Senate), with 45 members, and a lower house (Chamber of Deputies), with 150 members. Senators were elected for eight-year terms and deputies for four years. The legislature was abolished after the 1973 coup and substantially redesigned before the Pinochet regime held elections for a new National Congress in December 1989.

The Chamber of Deputies now has 120 members elected from 60 voting districts. Two representatives are elected from each district. Deputies are elected from party lists to four-year terms and may be reelected. The 1980 Constitution called for a Senate with 26

Nick Manning/Neil Parison Page 62 11/22/2004 International Public Administration Reform Country Reform Summaries.doc elected members and nine appointed members. However, following the 1988 plebiscite the democratic opposition negotiated a constitutional amendment to increase in the number of directly elected senators from 26 to 38. Senators serve eight-year terms and can be reelected. Half of the elected Senate is renewed every four years.

The President of the Republic appoints two senators (one former minister and one rector of a public university); three are chosen by the Supreme Court (two former justices of the Court and one former Controller); and four are chosen by the National Security Council (one former Commander-in-Chief of the army, another from the navy, a third from the air force, and a former director of the national police). Until December 1997 all of these appointed senators were chosen while Pinochet was still president.

Chile is a unitary republic, divided into 13 regions. Each region is administered by an "intendent" appointed by the president. The intendent is the "natural and immediate agent of the President." He/she is responsible for the coordination and oversight of public services, and the maintenance of public order. The intendent serves only with the favor of the president and can be replaced at any time.

Each of Chile’s 13 regions is further subdivided into provinces. A governor, also appointed by the president, administers these 51 provinces. Governors take their instructions from the intendent, but serve only at the pleasure of the president.

Elected local government operates at the municipal level (comunas). There are over 300 municipalities in Chile. During the Pinochet regime, locally elected officials were removed and replaced by centrally appointed municipal leaders. In 1991 the Congress approved an amendment to replace these appointed officials with directly elected representatives. By law, local governments are composed of a municipal council (elected via proportional representation) and a mayor. Municipal authorities are elected to four- year terms. The number of council members varies, from six in smaller municipalities to ten in the larger ones. The law establishes that the council member who receives the most votes on the party list that receives the largest number of votes is elected mayor, provided that he or she obtains at least 35 percent of the total vote. If this requirement is not met, the municipal council selects the mayor from among its own number by a majority vote.

Municipalities have autonomy to administer their own finances. The sources of municipal finance include transfers from the regional government in which the municipality is located, local fines and fees, and the municipality’s participation in the Common Municipal Fund. This fund receives a percentage of monies (stipulated in law) from diverse revenue sources. The money collected is then distributed between Chile’s varied municipalities according criteria of size and equity.

It is the mayor’s responsibility to propose a communal plan, a budget, investment programs, and zoning plans to the municipal council for approval. The mayor also appoints delegates to remote areas of the community. The municipal council approves local ordinances and regulations and oversees the work of the mayor.

Nick Manning/Neil Parison Page 63 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Structure of Government

The President appoints a cabinet of 19 ministers. These appointees do not require legislative approval and can be replaced at the pleasure of the President. The Controller General of the Republic is another presidential appointee, but the President’s choice requires the approval of the Senate. Once approved the Controller General cannot be removed, but he/she must retire at the age of seventy-five.

Box 5 Cabinet Ministries in Chile Agriculture Justice Defense Labor Economy, Development, & Reconstruction Mining Energy National Resources Finance Planning & Cooperation Foreign Relations Public Education Health Public Works Housing & Urbanization Secretary General of Government Interior Secretary General of the Presidency Transportation & Telecommunications

Central agencies and reform management

A Committee of Ministers for State Reform was created to lead the Lagos state reform program. The Committee includes representatives of the Ministry of Interior and Ministry of Finance. The Secretary General of Government chairs the Committee. It is supported by Consultative Committees, which look to build consensus with business leaders, civil servants, universities, and other actors directly involved or potentially affected by the reform program.

Reform activities

Reforms to the organizational structure of government

The 1986 legal distinction drawn between policy-making ministries and autonomous agencies providing services is very distinctive, placing Chile alongside Sweden in the use of legally defined autonomous agencies for service provision.

Cutting back the programs undertaken by government

The Pinochet government transferred a number of former state activities to the private sector. President Lagos has not pushed for further privatization, but has advocated means to foster greater competition between private and public entities for the delivery of key services where the government retains an important role in ensuring equity and a certain level of service delivery.

Chile has turned to private markets to enhance the efficiency with which a number of publicly financed goods are provided. The government has turned over substantial activities to the private sector in education, public health, housing and social security. In

Nick Manning/Neil Parison Page 64 11/22/2004 International Public Administration Reform Country Reform Summaries.doc addition, the central government has fostered inter-jurisdictional competition as part of its strategy to employ competitive pressures wherever feasible by decentralizing substantial portions of the first three of these activities.

Civil service and personnel reforms

Following the 1973 coup, the military government made sharp cuts in public employment. Within 15 months after assuming power, employment in the Ministry of Housing and Urban Development was reduced by over 27,500 workers, or more than three-quarters of its 1973 level. During 17 years in power, the Pinochet government cut central government employment by firing employees, transferring certain central government functions to local governments, and by privatizing public enterprises.

The Pinochet government enjoyed both the authority and the capacity to discharge employees. There was no need to turn to voluntary departure programs to achieve significant retrenchment.

Since the return to democracy, Chile’s new civilian governments have not made significant personnel reductions a goal of reform. In fact, these presidents have sought to expand health and education services.

As part of the Pinochet government’s employment reduction strategy, salary improvements were delayed until employment reductions were achieved so as to reduce the fiscal cost of the increases, as well as the political cost of retrenchment. The government committed itself to improving salaries once cuts were carried out. Early on, the Pinochet government replaced public employee wage setting practices with a unified set of pay scales, the Escala Unica de Remuneraciones (EUR). Only when public employment approached levels low enough to satisfy the central government (after 1980) was the EUR adjusted upward sufficiently to raise public employee remuneration in both real terms and relative to the private sector.

While 1981 saw improvement in public sector wages, only after 1984 did the Government begin a sustained policy of lifting public employee salaries relative to their private sector counterparts. In 1985, with the recession behind it and public employment at acceptable levels, the government began a prolonged policy of increasing public sector wages under the EUR.

Budget process changes

The Pinochet government forced central government agencies to reduce their resource usage (personnel resources in particular), while keeping their mandates intact. The government annually reduced each Ministry’s available positions, and limited labor expenditures, overtime, and numbers of hours of contractor work. All of these restrictions could be enforced by already existing and effective control mechanisms. The limits were effectively enforced by Chile’s well-functioning Controller’s Office.

Nick Manning/Neil Parison Page 65 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The Controller’s Office continues to play a crucial role under Chile’s democratic governments. However, President Lagos seeks to use performance budgeting as a "carrot," as well as a "stick," with the possibility of additional resource allocations contingent upon high performance.

E-government

The Frei and Lagos governments have made a strong push to adopt electronic government. Chile has already launched on-line government procurement15, and Lagos has promised the creation of a "Single Window" for citizens to access information about government services.

Reform outcomes

Chile’s public administration enjoyed a reputation for integrity and professionalism before the 1973 military coup. This public administration capacity has been an important foundation for subsequent reform initiatives.

The Pinochet government succeeded in privatizing many activities and cutting the number of public employees. The eventual success of the government’s pro-market economic policies also meant that subsequent elected presidents were more amenable to maintaining and extending the role of the private sector in certain areas where the government had a responsibility to ensure that services were/are delivered.

Under Presidents Frei and Lagos, Chile has clearly moved swiftly in the area of electronic government. It is too early, as yet, to judge the government’s efforts at performance-based budgeting. It should be noted, however, that Chile’s public sector possesses two characteristics that will be very important if the reform is to succeed: (i) a strong rule-based public administration, and (ii) well-established and well- functioning audit institutions.

Nick Manning/Neil Parison Page 66 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 5: China

John P. Burns, Professor, the University of Hong Kong with Chau-Ching Shen, Senior Financial Management Specialist, World Bank

Overview

Since 1978, China has carried out significant reforms; for example, encouraging foreign investment, giving greater autonomy to state-owned enterprises, and decentralization and decollectivization of agriculture. As a result, the country has been heading toward a more, pluralistic market-style economy. It was clear, however, that this movement toward a market economy necessitated administrative reforms to be carried out as well. As a result, the government sought to streamline administrative functions in the local and central governments, to restructure the function of government and to restructure the civil service.

The need for administrative reform is illustrated by the example in 1991 of there being at least seven agencies within the State Council responsible for agriculture and rural development: the Ministry of Forestry, the Ministry of Agriculture, the State Administration of Land Management, the Ministry of Water Conservation, the Ministry of Commerce, the Supply and Marketing Cooperatives and the Ministry of Light Industry (Burns 1993). Such overlapping and duplicating responsibilities required that the government take the matter of public sector restructuring seriously. After the Chinese Communist Party (CCP) endorsed a market economy for China in 1992, the need for administrative reform to transform institutions established for a centrally planned economy became all the more urgent. More recently, further restructuring such as the establishment of a nationwide social security system has been required to prepare China for entry into the WTO.

The sequence of reforms

The initial reforms were of the economic system and date from late 1978 when the CCP decided that economic development should receive high priority. Economic reform since then has been continuous if uneven. First to be reformed was agriculture, which was de- collectivized. Other reforms followed including price decontrol. Reform of state-owned enterprises has been ongoing although progress has been much slower.

Administrative reform has clearly followed economic reform and has been aimed to re- structure the state to match the changes in the nature of the economic system.

Nick Manning/Neil Parison Page 67 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Box 6 Reform chronology in China 1980 Deng Xiaoping puts reform of the leadership system and legal system on the CCP's agenda 1982 New Constitution promulgated 1987 Reform of the civil service system announced along with new political reforms including the separation of some party and government functions; improving the legal system; improving the system of 'multi-party dialogue' with the country's eight CCP-controlled 'democratic parties' 1988 Fifth round of administrative reforms begun (mainly downsizing) Ministry of Personnel set up to carry out civil service reforms. (Previously it had been established inside an expanded Ministry of Labor and Personnel). 1989 Mass demonstrations in Beijing; Leadership struggle and Zhao Ziyang is unseated as Party Secretary General; Authorities react by halting or slowing political and administrative reform (Zhao had been closely identified with the political and administrative reforms) 1992 CCP announces its commitment to a market economy 1993 (March) Sixth round of administrative reforms begun (October) new Civil Service Regulations promulgated This round of administrative reform focused on re-structuring the government for a market economy. This involved: a. Strengthening macro-economic management functions and agencies (such as banks, taxation, audit, statistics collection agencies, and setting up new agencies to regulate newly established stock markets, etc.) b. Transferring economic production functions to enterprises and abolishing government departments with economic production functions. Parts of many government departments were corporatized. c. Downsizing The reform was carried out first at the central level, and then at each lower level of administration 1996 Sixth round of administrative reforms conclude 1998 Seventh round of administrative reforms begun, similar to the administrative reforms of 1993-96, changing government functions, removing economic production functions including corporatization, and further attempts to downsize. 2001 Seventh round of administrative reform anticipated to conclude.

Authorities in China usually pilot test reforms, especially economic reforms, before they announce them. For example, such pilot tests of household contracting in agriculture were carried out in Anhui province in the late 1970s before they were announced as official policy for the rest of the country to follow. Similar pilot tests were carried out for state-owned enterprise reform before general announcements were made. This permitted experimentation and changes to the policy. After evaluating the results of pilot tests, authorities would announce the policy in general terms with considerable latitude given to local authorities to carry it out, and make adjustments as they went.

However, for administrative reform, publicity sometimes comes first. Because of the sensitive nature of downsizing, for example, pilot tests are unlikely. Public support for administrative reform is much less critical. However, in the case of some civil service reforms, pilot testing was used. Shenzhen, next to Hong Kong, was a pilot civil service test site. It began experimenting with civil service reform after the government's intention to carry it out was announced in 1987 but before the Provisional Regulations on Civil Servants was promulgated in 1993.

Nick Manning/Neil Parison Page 68 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Reformers' concerns

The overarching reform ambition has been to restructure the state to support a market economy. There is perhaps some increasing concern to improve the quality of services and to strengthen accountability. China's strengthening legal system and an investigative (but still very much officially controlled) media have had an impact on public service performance. The central government has used its control over the media to investigate instances of misadministration and illegality at local levels. An increasing number of citizens have used the legal system to sue the government over administrative abuses. China began administrative restructuring as it became clear that it could not sustain its trend toward a market economy without implementing such reforms.

Institutional starting points

Constitution/political system

China has 23 provinces (sheng), 5 autonomous regions (zizhiqu), and 4 municipalities (shi). Box 7 Subnational government in China

Provinces (sheng)16 Autonomous regions Municipalities (shi) (zizhiqu) Anhui Jiangsu Guangxi Beijing Fujian Jiangxi Nei Mongol Chongqing Gansu Jilin Ningxia Shanghai Guangdong Liaoning Xinjiang Tianjin Guizhou Qinghai Xizang (Tibet) Hainan Shaanxi Hebei Shandong Heilongjiang Shanxi Henan Sichuan Hubei Yunnan Hunan Zhejiang

In 1949 the People's Republic of China was founded, with CCP Chairman Mao Zedong as its leader.17 The current chief of state is President Jlang Zemin (since 27 March 1993) and the Vice President is Hu Jintao (since 16 March 1998). The Head of government is Premier Zhu Rongji (since 18 March 1998), with Vice Premiers Qlan Qichen (since 29 March 1993), Li Lanqing (29 March 1993), Wu Bangguo (since 17 March 1995), and Wen Jiabao (since 18 March 1998).

The State Council is appointed by the National People's Congress (NPC) and coordinates approximately 30 ministries and commissions, 18 organizations, and 6 offices.18

The National People’s Congress is the highest law-making body in China. The Congress has the power to amend, enforce or supervise the constitution. It also approves national

Nick Manning/Neil Parison Page 69 11/22/2004 International Public Administration Reform Country Reform Summaries.doc economic and social plans, and passes the state budget. The Congress, however, rarely opposes decisions made by the State Council. The Congress also has the right to send recommendations to the various ministries and commissions and to ensure these are dealt with by these bodies.

The congress is comprised of approximately 3000 deputies who are indirectly elected by delegates of provincial level people's congresses. The following eight committees work under the National People’s Congress and its Standing Committee:

Law Committee Nationalities Committee Internal Affairs and Justice Committee Education, Science, Culture and Health Committee Foreign Affairs Committee Overseas Chinese Committee Environment Protection Committee Finance and Economy Committee.19

Formally the National People's Congress ranks above four other state bodies: the State Council, the Central Military Commission, the Supreme People's Court and the Supreme People's Procuratorate.

Structure of Government

The State Council is the executive body of the Chinese government. Under the supervision of the Communist Party, the State Council formulates rules, makes policy decisions and coordinates the work of the various state organs. It is responsible for the day-to-day administration of the country. It formulates the tasks and responsibilities of the ministries and commissions, supervises local government administration and directs and administers the affairs of everything from education, culture, public health and family planning to civil affairs, judicial matters and public security. The State Council employs approximately 50,000 people.20

The State Council ranks above ministries, state commissions, and ministry-level corporations and companies. The State Council has approximately 22 ministries subordinate to it. Each ministry is headed by a minister and staffed by bureaucrats.

There are also a number of State Commissions under the State Council. These are coordinating structures that act in a similar way to the ministries and have similar authority, but tend to play a more supervisory and policy-setting role.21

In 1998, the State Council was restructured, with the new departments divided into four groups: (i) Macro-Control Departments; (ii) Specialized Economic Management Departments; (iii) Education, Science, Technology, Culture, Social Security and Resources Management Departments; and (iv) the State Administrative Departments.22

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Box 8 Departments of the State Council in China Specialized Economic Management Macro-Control Departments Departments State Development Planning Commission Ministry of Information Industry High-Level Business Discussion Organ State Commission for Science, Technology and State Economic and Trade Commission Industry for National Defense The Ministry of Finance State Bureau of Forestry People’s Bank of China State Bureau of Radio, Film and Television Ministry of Railways Education, Science, Technology, Culture, Social Ministry of Communications Security and Resources Management Departments Ministry of Construction Ministry of Science and Technology Ministry of Agriculture Ministry of Education Ministry of Water Resources Ministry of Labor and Social Security Ministry of Foreign Trade and Economic Ministry of Land and Resources Cooperation All China Sports Federation State Economic and Trade Commission Ministry of Personnel including: State Administration of Coal Industry State Administrative Departments State Administration of Machine/Building Ministry of Foreign Affairs Industry Ministry of National Defense State Administration of Metallurgy Ministry of Culture Industry Ministry of Health State Administration of Internal Trade State Family Planning Commission State Administration of Textile Industry State Ethnic Affairs Commission State Administration of Light Industry Ministry of Justice State Administration of Petrochemical Ministry of Public Security Industry Ministry of State Security State Administration of Petrochemical Ministry of Civil Affairs Industry Ministry of Supervision State Power Industry Corporation National Audit Office

The National People's Congress elects both the President and the Vice-President for a term of five years, with no more than two five-year terms served consecutively.

The President has the ability to appoint and remove from positions the premier, vice- premiers, state councilors, ministers and other high ranking officials, as long as such decisions are in accordance with the decisions taken by the National People’s Congress. The current President Jlang Zemin also holds the position of CCP General Secretary and chairman of the Central Military Affairs Commission. The CCP and the People’s Republic of China are in theory separate and distinct entities. In practice, however, the Communist Party plays an extremely dominant role in government, and the Party’s approval is needed for all important government decisions.

The Civil service (gongwuyuan) includes only managers, administrators, and professionals (or 'white collar workers') working for government agencies. Political positions in the State Council or cabinet (Premier, Vice Premiers, etc.) are included in the civil service. The civil service excludes all blue-collar workers and support staff such as clerks and secretaries, and all education and healthcare workers, including teachers, doctors, and those working in research institutes (even where such institutes may be

Nick Manning/Neil Parison Page 71 11/22/2004 International Public Administration Reform Country Reform Summaries.doc attached to a government agency). The civil service also excludes the military. This definition was laid down in the Provisional Regulations on Civil Servants in 1993. The civil service numbers approximately 5.5 million people. It is a unified service stretching from the central government to provinces, prefectures, cities, counties, and towns and townships throughout the country. The civil service is managed by specific separate rules and regulations, the most important of which are the 1993 Provisional Regulations.

Central agencies and reform management

The CCP exercises formal overall control of the Chinese political system. Leadership of the CCP is centralized in the seven-member Standing Committee of the Politburo, which is elected by the Central Committee, a powerful body of approximately 200 full and 150 alternate members.

The full Politburo numbers 21 members, individuals who have concurrent posts in either the central party and state bureaucracies, the military, or provincial level bureaucracies. Day to day work of the Politburo is handled by the Secretariat. The CCP exercises the highest political authority in the land, a role acknowledged in China's Constitution. Key central-level CCP organizations include the Central Committee, the Central Military Affairs Commission (also headed by President Jiang Zemin), and the Central Committee for Discipline Inspection, the Party's main anti-corruption agency.

The Central Committee of the CCP is highly structured and includes the following agencies: • General Office of the CCP Central Committee • Publicity Department (which handles Party propaganda and manages the state controlled media) • Organization Department (which manages the careers of all leading officials, including civil servants) • United Front Work Department (which builds support for Party policies from among non-Party members) • International Liaison Department (which liaises with communist parties overseas) • Party School of the CCP Central Committee • People’s Daily and other Party-owned media.

The central party apparatus supervises similar institutions at local level.

The agency responsible for the design and implementation of government re-structuring is the Party’s State Commission on Public Sector Reform (SCPSR), which is chaired by the Premier. The SCPSR's functions include: (i) making policy on administrative reform; (ii) approving central government reorganization plans; (iii) setting organizational and personnel establishment quotas for central and provincial government agencies; (iv) preparation of draft administrative regulations for state institutions; (v) vetting draft regulations of local government committees, which perform broadly the same functions as the SCPSR within their jurisdiction. (Burns 1993)

Nick Manning/Neil Parison Page 72 11/22/2004 International Public Administration Reform Country Reform Summaries.doc In addition to the SCPSR, many other agencies are involved in administrative reform. For example, the Party's Organization Department and the Ministry of Personnel have been responsible for reform of the civil service. Top-level policy groups and the Ministry of Finance and the People's Bank of China have been responsible for the reform of public finance.

Politicization

China’s civil service makes no distinction between political appointees and career civil servants : the system includes the top administrative positions (President, Vice President, Premier, Vice Premiers, State Councilors and all Ministers). The CCP manages the civil service system directly, appointing, transferring and dismissing leading civil servants through the nomenklatura system. Chinese civil service implements party policy. (Burns 1993, p.356)

Reform activities

Summary

In an effort to provide more responsive local fiscal management to support the varying local needs of the growing Chinese economy, in the late 1980’s and early 1990s, the government began to decentralize government decision-making to those it felt who had the best information to make appropriate decisions, such as local governments, producers and consumers (Burns 1993, p.349). Local leaders had begun to question central government decisions related to local matters, and during the 1980s, the government began to restructure its decision-making process decentralize public finance, foreign trade, and personnel administration.

The 1980s saw increased negotiation between the center and local governments over remittances. The central government began contractual relationships with the provincial governments, thus enabling the provincial governments to bargain over their remittances to the center. This enabled economically sound provinces to limit their contributions.

Local governments were also given greater power over their personnel administration. Previous to 1984, territorial party committees selected leading personnel two administrative levels below; after 1984 this system changed to where committees were allowed to select leaders only one administrative level below. Provincial party committees were also given more authority to appoint and transfer leading personnel under the nomenklatura system (Burns 1993, p.351).

Civil service and personnel reforms

The Chinese government conducted major organizational reforms in 1982, 1988, 1993 and 1998 that involved heavy streamlining of government agencies. For example, in 1982, authorities reported that they cut the number of State Council agencies from 100 to 61 and the number of employees from 51,000 to 30,000. In the 1988 restructuring, officials reportedly reduced the number of ministries and commissions from 45 to 41, the

Nick Manning/Neil Parison Page 73 11/22/2004 International Public Administration Reform Country Reform Summaries.doc number of directly subordinate bureaus from 22 to 19 and the number of State Council employees from about 50,000 to 44,000. Many of the cuts in 1993 were made at the local level. Significant cuts were also reported beginning in 1998. The hope was that many of the laid-off staff would enter the growing private sector. However, in spite of sustained effort to cut the number of government employees, the State Bureau of Statistics has reported continuous growth of government employment during these years.

The government also sought to achieve a change in the age composition of the civil service through establishing mandatory retirement ages at 60 for most men, and at 55 for most women (Burns 1993). This had the effect that, comparing 1982 to 1987, for example, the average age of ministers had fallen from 67 to 59, and of governors from 65 to 55.

According to the 1993 Provisional Regulations on Civil Servants: (i) civil servants are to be recruited into the service through open, competitive examinations, rather than through labor allocation; (ii) civil servants are to be paid according to levels of compensation paid to managers of economic enterprises; and (iii) the content of training for civil servants was to be revamped to meet the needs of a market economy (Burns 1993, p.355).

The policy is that civil servants should be paid at levels commensurate with those paid to managers and professionals with similar levels of responsibility in the state-owned enterprise sector. Pay policy also provides for performance-based pay. Civil servants who receive 'excellent' and 'competent' ratings in annual performance appraisals are eligible for salary increments and bonuses. Because most civil servants receive these ratings (at least 85 percent according to official policy and practice) the increment and bonus systems are not in practice very discriminating or likely to provide any incentives for a performance-based orientation on the part of civil servants.. Moreover, bonuses are relatively small. Further, the civil service salary range is highly compressed: the base salary ratio of top to bottom is only 5.6:1 and may be only 3:1 if all benefits are included. China's relatively low salaries are accompanied by continuing relatively high rates of administrative corruption.

China’s civil service does not value political neutrality. The Provisional Regulations on Civil Servants require that civil servants be selected in part based on merit. Additional criteria include moral integrity, which includes commitment to the CCP’s policies. The relative weight assigned to political considerations has varied over time. Such considerations have become more important during periods of political crisis and appear to be more important for party positions (such as party secretaries) than for government positions. Performance evaluations in China, like those in most performance-oriented countries also place great emphasis on ability and work-related achievements.

As China's 'cadre responsibility' system has been implemented in recent years many local government officials have signed performance contracts with explicit quantifiable targets forming a central part of the contract. The government pays bonuses on fulfillment of these targets. Examples of performance contracting can be found at county and township level and in China's municipalities where Mayors of cities have signed such contracts

Nick Manning/Neil Parison Page 74 11/22/2004 International Public Administration Reform Country Reform Summaries.doc with environmental protection bureau chiefs. The latter contracts specify targets for clean air and water in many cases.

Official policy requires civil servants to conform to a code of conduct laid down in the Provisional Regulations on Civil Servants (Article 6) and to codes of conduct laid down in numerous Party documents. These require civil servants to abide by the Constitution, laws and regulations; execute their public duties in accordance with laws, regulations and policies of the state; 'to maintain close ties with the people, listen attentively to their opinions, accept their supervision and strive to serve the people'; safeguard security, honor, and the interests of the state; obey orders; maintain confidentiality and protect state secrets; and 'be fair and honest and work selflessly in the public interest' (Article 6). Article 31 of the same regulations explicitly forbid civil servants from 'spreading views which are harmful to the government's reputation, organizing or joining an illegal organization, organizing or joining an anti-government activities such as a meeting, demonstration or show of strength or organizing or participating in a strike.' Apart from the anti-strike provisions, most governments would probably not tolerate this prohibited behavior.

Training for senior civil servants is provided by various agencies including the National School of Administration and the Central Party School both located in Beijing. The training infrastructure also includes 'cadre' and party schools established at all levels of the administrative hierarchy. Education levels of leading officials in China have risen dramatically in the past 20 years. Currently more than 80 percent of all those working at ministry, bureau, and division level of the central government are university graduates. Official policy gives a high priority to training and local governments in particular are now buying training opportunities for their employees from among universities in China and from overseas and regional providers.

Budget process changes

In the 1990s, the government has undertaken reforms of the budgetary system. In particular it has encouraged local governments to undertake zero-based budgeting. Most budget authorities continue to base budgetary planning by assuming a continuation of current policies.

Accounting reform in China has been underway for quite a few years. Since July 1993, China has moved from planning oriented accounting system to a market driven system. Several accounting standards in line with the International Accounting Standards have been issued and have become effective, and many more are either in draft or in the process of review. The goal of the accounting reform for the near future in China is to come up with one set of accounting standards applicable to all business sectors and which are in line with internationally accepted standards (such as IAS). China is not on a cash- based system, and has moved to double-entry bookkeeping. All entities are required to use accrual accounting.

Nick Manning/Neil Parison Page 75 11/22/2004 International Public Administration Reform Country Reform Summaries.doc E-government

As in most other countries, the public sector in China has lagged behind the private sector in the use of electronic government. Part of the problem is the relatively limited access to computers that still characterizes most of China. Still, Internet access is growing quickly and currently is estimated at more than 20 million people. Some local governments have websites (e.g., Shanghai Municipality) and some central government ministries and commissions; especially those that deal with the economy, trade, and foreign investment. Contacting the Ministry of Foreign Relations and Economic Cooperation via the Internet is very easy. Most central government agencies are now computerized.

Reform outcomes

China has realized the need to reform its administrative system to complement its move toward a market economy. Although China has effectively decentralized and has eliminated many public sector agencies and positions, accountability and transparency of the government are areas where China must focus, especially in view of the requirements of the WTO.

The government has laid off a large number of its public servants to meet changing needs in the public sector. The civil service is slowly, but noticeably, moving toward a more merit-based system.

Nick Manning/Neil Parison Page 76 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 6: Finland

Seppo Tiihonen, Senior Public Sector Management Specialist, World Bank

Overview

The aim of the public administration reforms which have been actively pursued in Finland since the late 1980s, has been to modernize the Finnish administration in order to meet the challenges that globalization places on the Finnish economy. The main emphasis has been on improving the competitiveness of the economy. Deep economic depression in the early 1990s and Finland’s participation in the European integration process (with accession to the European Union (EU) membership in 1995) all paved the way for intensifying the reforms which had been started in the late 1980s. The reforms involved all sectors of public management: structures, management, budgeting, regulation policy, administration, personnel policies and technology.

Finland increasingly relies on market mechanisms in public administration. There has also been extensive privatization.

The goals of public administration reform have been widely accepted in Finland. The general principle in public management reforms – that is, emphasis on market-oriented methods as well as on securing economy and efficiency − have remained very much the same since the late 1980s.

Reformers' concerns

Deep economic depression in the early 1990s led government to look for possible reductions in the public sector wage bill. Finland’s bid for accession to the EU also led to a further intensification of the reform process.

In 1998 the Government published a report The Government Resolution: High-Quality Services, Good Governance and a Responsible Civic Society that set out some broad guidelines for the reforms. The Government emphasized that it felt itself to be caught between the challenges of globalization and the demands of citizens, all in the context of decreasing economic resources.

Institutional starting points

Constitution/political system

Finland is a constitutional and strongly parliamentary democracy. Parliament holds the legislative power and determines state finances. The President of the Republic and the Government exercises the executive powers. The members of government must have the confidence of the Parliament. The judicial powers are exercised by independent courts of law, with the Supreme Court and the Supreme Administrative Court as the highest instances.

Nick Manning/Neil Parison Page 77 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Finland has reformed its Constitution during the last two decades with the new Constitution agreed in March 2000. One of the main goals of the constitutional reform process was to strengthen further the parliamentary system of government. The new Constitution increases the legislature's powers to initiate legal changes. Procedures for regulating presidential decision-making procedures are specified more precisely, while the Government, responsible to Parliament and dependent on the confidence of Parliament, is given a greater role in presidential decision-making.

In relation to the formation of the Government, the practical effect of the new Constitution is to transfer the appointment of the Prime Minister from the President to Parliament. This will ensure that the composition of the Government will reflect, as directly as possible, the results of the parliamentary elections and the spread of opinion in Parliament. The new Constitution marks the end of the President's leading role in the formation of the Government.

Structure of Government

In Finland, the public service is defined as the services that are rendered through the state and municipal administrations (and including the army, healthcare, and education). The civil service is not considered a separate entity from the public service.

Finnish Governments are often multi-party Governments given the nature of the Finnish party structure. Since the Second World War, no single party has been I a position to be able to form a majority Government alone. Most Governments have comprised four or five parties. The present Government has five parties.

By law, the maximum size of the Finnish Government is 18 Ministers. However, there can be ministers without portfolio in the Government although this is very rare. Most ministries have only one minister, but the tasks of some ministries have been divided for two or even three ministers. There are 12 ministries in Finland - a number that has remained unchanged for decades (see Box 9 below). Box 9 Organizational structure of government in Finland Prime Minister's Office Ministry of Agriculture and Forestry Ministry of Foreign Affairs Ministry of Transport and Communications Ministry of Justice Ministry of Trade and Industry Ministry of the Interior Ministry of Social Affairs and Health Ministry of Defense Ministry of Labor Ministry of Finance Ministry of the Environment. Ministry of Education

Ministries prepare and implement decisions made in joint sessions composed of the President of the Republic and the Council of State (the Government). Traditionally, the decision-making in the Finnish Government was collegial in nature, but following the administrative reforms carried out in the 1990s, the ministries have become increasingly independent within their own policy domains.

Nick Manning/Neil Parison Page 78 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The ministries are quite small. At present, the number of civil servants working in the ministries totals altogether about 5,000. That total has increased by one thousand over the last decade, but the total number of civil servants has decreased notably. The main reasons for the growth of the size of ministries are that agencies working under the ministries have been abolished in the 1990s and consolidated into ministries; together with Finland’s accession to the EU in 1995.

The abolition of central agencies was a crucial step away from the old Swedish-type agency model towards a system of ministerial administration. The earlier centralized and uniform State administration has now to a degree given way to a more diverse and decentralized structure. The decentralization of central government has led to increased variations between sectors in organizational structures, and operational and financing arrangements.

Central agencies and reform management

Recent moves towards a parliamentary system of government have raised the position of the Prime Minister’s Office to that of the central coordinating body in the government. The Prime Minister’s Office now actively co-ordinates political work in both Government and EU matters. EU matters were transferred from the Ministry of Foreign Affairs to the Prime Minister’s Office in July 2000.

The Prime Minister’s Office is composed of two parts: the political secretariat of the Prime Minister (at present five persons) and a unit that is similar to the Cabinet Office in the UK. This unit is composed of permanent civil servants whose task it is to ensure that decision-making by the President of the Republic and the Council of State proceeds smoothly, and to assist the Prime Minister by providing operational and administrative services. It is also responsible for the preparation of legislation. The civil servants working in this office do not have any substantial co-ordination role in the decision- making of the Government. The political secretariat advises the Prime Minister in his role as a Prime Minister and provides political services for the Prime Minister.

The Ministry of Finance is responsible for budgetary and economic questions, for public management matters and for personnel policies.

The Ministry of Finance and the Prime Minister’s Office are the main co-ordination centers in the Finnish Government. In the 1990s, the traditional power structure amongst the ministries changed, however. Ministries now enjoy more independence and the old collegial decision-making tradition in the Government has lost significance. The Ministry of Finance ceased its detailed ex ante control of the budgetary process, personnel policies and resource management. Although the reforms have radically decreased the amount of detailed steering power of the Ministry of Finance, its position as the central co-ordination body has not been diminished. The Ministry of Finance remains responsible for drawing up the policy framework for overall economic and financial policies.

Nick Manning/Neil Parison Page 79 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The Prime Minister chairs Government Committees, including the Cabinet Committees on Economic Policy, Foreign and Security Policies, Cabinet Finance Committee and European Union Affairs.

Politicization

Finland is one of the few countries in Europe that does not have a system of political state secretaries reporting to and advising Ministers, although the possibility of introducing a system of political state secretaries similar to that in most European countries has been discussed frequently.

Political nominations of individuals for positions within the civil service increased in the 1970s and 80s. Traditionally, recruitment policy for the civil service has assumed the need for a representative bureaucracy. It was considered that the political views in the administration should be broadly similar to the views held in government and society.

However, in the 1980s,opposition to use of political nominations increased because merit-based politically neutral civil servants felt they were increasingly less able to advance in their careers. In the 1990s, the number of political nominations diminished substantially. Competence and merit became the key elements in the appointment of civil servants.

Reform activities

Summary

The present wave of administrative reforms started in the late 1980s. The reforms were introduced systematically, first adopted at the agency level and in municipalities. Subsequently, regional administration and central agencies working under the ministries were reformed in more comprehensive way. In summer 2000, the Government launched wide reforms in the whole central administration, particularly in the ministries and in the working processes of the Government.

Reforms to the organizational structure of government

Creating new agencies

Attempts to reform central government had been discussed for decades, and at the end of the 1980s, the reforms finally started. The structural reforms have been perhaps the most visible reforms.

This restructuring has decreased the size of the central administration. Nearly all ministries and other bodies in central government have undergone various reforms. Some of the traditional semi-autonomous agencies have been closed down and turned into 'development centers'. Their tasks have been transferred to the ministries, to other agencies and to newly established agencies as well as to regional and local government.

Nick Manning/Neil Parison Page 80 11/22/2004 International Public Administration Reform Country Reform Summaries.doc User charges and contracting out

In Finland, the responsibility for the delivery of public services is shared between the central government and municipalities (including joint authorities formed by municipalities). In order to cut expenditure and to improve the efficiency of services, both these sectors have made some use of contracting out and have placed a greater reliance on user fees since the late 1980s. In 1993, the Government emphasized market-oriented forms of operation in its Decision In-Principle on Reforms in Central and Regional Government. The government stated that, "as a rule, the customer is paying, and can freely choose the producer or service. The producer, in turn, carries out the order in line with the customer’s wishes and quality demands, and the money available. Government services will be made chargeable and placed on a competitive footing with each other and with open sector services. As a rule, all outputs other than those under public law must be produced on commercial principles as a chargeable services and using a net-budgeting system, through either a public enterprise or a company."

The conversion of agencies into enterprises, the establishing of off-budget enterprises and in many cases limited stock companies, represents a major use of market mechanisms in the Finnish public administration. In addition, user charges have gained ground after the adoption of the 1992 Act. The government policy has been to apply market-testing to support services and, in some cases, to the final outputs of government agencies.

Municipalities and their joint authorities have increasingly turned to competitive tendering as financial conditions facing municipalities became more stringent as a result of the economic recession. In particular support functions and some maintenance of infrastructure have been opened up to competition in a number of municipalities. However, overall, the majority of these functions remain in-house.

It is also noteworthy that the principles of competitive tendering have been applied to specific local government functions only. Key services, the core functions of the local government sector, such as welfare services, have remained mostly unchanged. There have been no far-reaching measures to subject the provision of these services to market principles.

Cutting back the programs undertaken by government

It is clear that as a result of the deep recession in the early 1990s, the government was obliged to make tough decisions to cut expenditure in the public sector. As a result of the decisions of Prime Minister Aho’s government in 1991-1995, the total reduction in annual expenditure was about 6 per cent of GDP in 1995 as compared to 1991 (FIM 34.5 billion).

The savings implemented by Prime Minister Aho’s Government fell most heavily on transfers to local governments and households. Responsibility for funding social security became increasingly more a responsibility borne by employees.

Nick Manning/Neil Parison Page 81 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The next Government of Prime Minister Lipponen (1995-1999) continued the policy of reducing the budgetary deficit by making net cutbacks in expenditures. Between 1991 and 1999, successive governments have reduced public expenditure in 1999 by about 8 per cent of GDP in 1999 compared to 1991 (FIM 60 billion).

The policy now is that central government total spending should be kept constant in volume terms over the government’s term of office. The government will seek in addition to ensure a structural surplus in central government finances and to reduce the central government debt ratio by the end of its electoral term to below 50% of GDP. Given economic growth was very strong (around 4-5 per cent a year) in the late 1990s, these targets are not regarded as very ambitious.

Civil service and personnel reforms

Downsizing

The number of personnel in central government decreased from 27,000 to 24,000 between 1991 and 1996. Where state administration still employed 215,000 people in 1988, by 2000 the number of personnel employed fully or partly through State budget funds was only 124,000. The total decrease is about 90,000 people, i.e. 43 per cent Although the number of personnel in central government has decreased by approximately 3,000 persons, their relative share in overall central government staff numbers has risen from 13 to 20 per cent.

Delegation of personnel management

The actions of state civil servants are regulated and guided by numerous provisions, guidelines and principles. Overall, during the last few years, the aim has been to increase the authority and responsibility of the operating units in order to improve the flexibility and efficiency of administration. The differences between the public and the private sectors have diminished.

Personnel policy has been made more flexible, competitive, active, decentralized and streamlined. The goal has been to make full use of personnel and resources. Arrangements for negotiating and agreeing terms and conditions of employment were reformed in the 1990s. In 1990, the transfer of posts from one agency to another became possible.

Personnel policies follow the principles defined in a Government Decision-In-Principle of Future Personnel Policies in 1991. Under this decision authority for personnel management, earlier largely vested at central level, was delegated to the agencies. The central regulation of personnel numbers has ceased and agencies now cover their operating appropriations from their net budget.

Recruitment and merit

Nick Manning/Neil Parison Page 82 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The terms of state employment relationship, in particular job security and pensions and working-time systems have been brought closer to those in the private sector.

In 1997, the Government adopted principles on the appointment and selection procedures applied for the higher-level civil servants (senior civil service) but there have not been any developments that demarcate a group of senior civil servants as a distinct managerial class.

Merit has traditionally been the most important nomination criteria for most civil servants. Section 125 in the new Constitution contains the main provisions on the general qualifications for public office and other grounds for appointment. "The general qualifications for public office shall be skill, ability and proven civic merit." This paragraph is similar to that in the previous Constitution dating back to 1919. However, as the extent of political nominations for positions within the civil service illustrates, merit can be interpreted both professionally and politically. Political merit includes party affiliations, work in party offices and trade unions. Since the 1960s, there has been a wide discussion on the relative value of professional merit and political merit in nominations. Political merit became dominant in the 1980s, but by the 1990s, professional merit became dominant.

In 1997, the Government decided to revise the criteria and procedures for the selection of Government officials. According to the decision, qualifications are of two types: statutory and general. Statutory qualifications consist of a higher academic degree, expertise, proven managerial ability and managerial experience at senior government level. General qualifications include ethics, extensive experience, teamwork and communications, language proficiency, development potential. Leadership skills are seen as being an increasingly important general qualification for senior civil servants.

Pay reform

The traditional pay system provides that the salary of a civil servant consists of a basic salary as set out in an approved salary schedule and supplemented by a cost-of-living supplement and age bonuses. The cost-of-living supplement is 6 to 9 per cent of the basic salary. Age bonuses are paid in accordance with a six-stage scale based on 3-18 years of service in the public sector or in a corresponding professional field. The age bonuses are calculated as a percentage of the basic salary and the maximum total is 25 per cent. In 1998, approximately 92 per cent of all civil servants worked under this traditional pay system.

According to the principles of the collective agreement of 1993, pay policies and systems in government departments and agencies are to be changed so as to ensure that pay is based on the demands of the job, personal performance and skills, and effectiveness. The negotiating and bargaining system has been changed to give departments and agencies a freer hand in agreements on changes in pay policy and other agency-specific employment terms.

Nick Manning/Neil Parison Page 83 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The aim of the reforms has been to seek to relate base pay more closely to job requirements, individual work performance and professional skills. Agencies are responsible for setting the right pay level and its relation to the wages and salaries in other sectors of state administration.

The demands of a particular job are evaluated using an evaluation framework that agencies either purchase or develop themselves. Individual work performance and professional skills are to be assessed to determine the personal component of remuneration. The personal component forms between 25-50 per cent of the total pay based on the demands of the job. Pay factors based exclusively on formal indicators such as years of service and such like are now rarely used.

At the end of 2000, approximately 80 per cent of central government employees worked in an agency where the pay systems were being developed according to the above principles. However, at present, personnel working under these reformed salary systems account for only approximately 8 per cent of all public sector employees.

Ethics

The State Civil Servants’ Act contains provisions that are important in determining ethical norms of conduct. The Personnel Strategy of the State, approved in autumn 1995, refers to high ethical standards and provides guidelines for agencies that they use when drawing up personnel strategies applicable in their own units. Additional guidelines on ethics and personnel strategy are included in the Government Resolution on High-Quality Service, Good Governance and a Responsible Civic Society. No code has been compiled for the whole of state administration.

According to the Government Resolution on the Reform of the Selection Qualifications and Selection Procedure of Top Civil Servants (1997), the most important values in state administration are: independence, impartiality, objectivity, reliability of administrative operations, openness, a principle of service, and responsibility.

Budget process changes

Flexibility within constraints

One of the most important strategies in public sector reforms in the past ten years has been the adoption of flexibility accompanied by strengthened accountability for management. The introduction of budget reforms began with three pilot agencies in 1988. In 1990, the first government agencies drew up their budgets on the new model. By 1995 the whole central government was formally operating in line with a principle of decentralization in which line ministries have the authority to allocate resources to their administration within given budget guidelines decided by the Government.

Medium term budgeting

Nick Manning/Neil Parison Page 84 11/22/2004 International Public Administration Reform Country Reform Summaries.doc In 1992, the budget proposals of all ministries and government agencies were for the first time based on personnel and expenditure ceilings set by the Government. This new budgeting procedure based on budget ceilings is one of the cornerstones in Finnish budgeting reforms. The Government adopted the first ceilings in 1990. In this system of budgeting the Government sets politically binding budgetary ceilings for the ministries in February for the following year and for two years thereafter. The purpose of these budget ceilings and guidelines is to create an expenditure cap in budgetary planning that may not be exceeded. On the other hand, the ministries receive more responsibility in allocating the funds for each agency under their control and have full responsibility for steering and controlling the budget process in their field. More discipline as well as efficiency was also gained by budgeting the operating appropriations of ministries and agencies into two-year transferable allocations which cannot be exceeded in any circumstances without the permission of Parliament.

This process allows the Government to integrate the process of multi-year budgetary planning and strategic planning in the ministries into the annual budget process. The system of top-down expenditure ceilings has enhanced budgetary discipline in the ministries and increased efficiency in the use of existing resources. The budget ceilings have restrained bottom-up expenditure demands. Overall, the new budgeting system has had a significant effect on both the productive and allocative efficiency of public expenditure.

The system of budget ceilings was however been criticized from the parliamentary perspective: members of Parliament considered it to be inappropriate that they were given no opportunity to participate in the process of setting the budget ceilings. Thus, in March 2000, the Government submitted the budgetary appropriation guidelines for the next four years to Parliament for the first time.

Reporting

An important area in the budgetary reforms concerns financial control and evaluation. The most important steps were taken in the early 1990s when ex ante budget controls were replaced with ex post reporting, auditing and evaluation. The change from a centrally steered and detailed administration system of ex ante financial control was one of the cornerstones of the centralized budgetary traditions in Finland. It gave responsibility to the ministries and agencies in the implementation of their budgetary appropriations.

In 1998, the government accounting system was changed to business accounting based on accrual concepts.

Each ministry is responsible for assigning targets to the administrative units in its branch of administration. Preliminary formulations of the targets are included in the budget proposal submitted to Parliament. A number of budget items were combined during the reform process into larger appropriation items to allow more flexibility and efficiency.

Nick Manning/Neil Parison Page 85 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The result management system has proved to work well, in principle, though the State auditors and the State Audit Office have noted some shortcomings. The main improvements needed are better information about results important for political control and deficiencies in the various chains of accountability.

The government has reformed the system of monitoring and reporting on the effectiveness of organizations within the state administration. All ministries are required to draw up an annual report covering the whole of their sphere of government. This report is a tool of accountability for operations in the ministries own remit, and for their impact. Specifically, it aims to meet the needs of political decision-makers. These reports are utilized when Government reports to Parliament of its activities every September. In the future it is intended that the system will be developed so that the reports include more information on progress in the effectiveness, quality and economy of the services activities of the agencies and the ministries.

The majority of public welfare services are produced through municipal self-government. The State, which is a part-financier, does not interfere in the way in which the services are produced, but does monitor service quality. The municipalities are felt to be in a better position to take into account the viewpoints of citizens and customers.

Transparent costings

Efficiency is encouraged by the use of a cost attribution system that reduces bias in resource usage by managers at all levels. The process started in 1991 with the introduction of a pensions charge on wages and salaries in agencies. It was continued with attribution to the agencies of several minor, centrally financed services in 1993. A system of charging market-level rent for state-owned office premises was introduced in 1994 and this system was extended to other premises in 1995. The remaining costs not attributed to agencies are mainly costs related to the use of capital (interest charge on non-fixed assets and cash requirements, certain asset-related service charges), where only a calculated rate-of-return requirement is applied.

In reforming the internal structures of central government, there has been a distinct tendency to make the financial and personnel operations of the main ministries and other central government departments function more flexibly and to provide an independent authority and a clearer responsibility for their performance. Detailed forms of control are abandoned and regulatory functions, other than those in necessary policy-making, have been trimmed down. At the same time, central government functions better suited to other units, particularly at the regional and local level, have been moved to local authorities, privatized and transferred into the public enterprises and companies.

E-government

Finnish legislation on freedom of information has recently been reformed. The Act on Openness of Government Activities, which entered into force on 1 December 1999, was intended to stimulate and encourage good information management practice, allowing individuals and organizations to supervise the exercise of public power and the use of

Nick Manning/Neil Parison Page 86 11/22/2004 International Public Administration Reform Country Reform Summaries.doc public funds. The Act contains provisions on the right of access to information, the duty of an authority to promote access to information and good practice on information management, and secrecy obligations.

An Act on electronic services in administration was passed in early 2001. Finland was the first country in the world to launch an act on electronic services in administration. The basic aim of the law is to improve the smooth and rapid functioning of services in the administration, as well as to secure data security. The act contains provisions on the rights, duties and responsibilities of administrative authorities and their customers in the context of electronic services. In addition, the act contains provisions on the key requirements for the electronic identification of persons. Authorities and agencies with adequate technical, financial and other resources shall offer to the public the option to send an electronic message to designated electronic addresses or other designated devices for the processing or handling of matters. Furthermore, the authority shall offer the public the option of delivering notifications, accounts and other comparable documents and messages electronically. The authorities may sign their decisions electronically.23

According to a survey conducted by the Ministry of Finance in early 2001, 90% of all agencies provide web services. The total number of agencies in the survey was 130. 52 per cent of all agencies offer application forms and other forms in their web services. The number of interactive customer services is 29 but at the same time 37 agencies are developing new interactive services.24

Every agency is responsible for developing their own electronic services. There have been and there still are several projects ongoing. By September 2000 only three services had been developed to use electronic ID cards, but there are more than 100 different pilot schemes and projects in different fields within the Finnish public administration sector for creating new electronic services for citizens and corporations.

Electronic forms used by authorities are also available in the web.25 A project coordinated by the Ministry of the Interior has produced a common gateway to the electronic forms of authorities. At present it can be used for delivering the forms, but the electronic ID card will open new possibilities, for example services like tax returns, applications for changes in tax cards, registration as a job-seeker at an employment office, etc. There are now 380 forms and about 200,000 users have used the service in two years.

Reform outcomes

For a number of decades the Finnish economy was characterized by fast growth combined with sensitivity to international cyclical fluctuations. Because of the economic recession in the early 1990s, the financial deficit in central government finances relative to GDP deteriorated to a record 11 per cent of GDP in 1993 and 1994, and the debt-to- GDP ratio as defined in EMU terms escalated to 59½ per cent in 1994. At the time, Finnish institutions and production structures were unable adequately to adjust to the demands of the new operating environment, where movement of capital had become freer. The 1990s slump gave urgency to structural changes that became increasingly inevitable as Finland progressed towards an open economy and further integrated with

Nick Manning/Neil Parison Page 87 11/22/2004 International Public Administration Reform Country Reform Summaries.doc the European Community. Administrative reforms were a part of these larger structural reforms.

The Finnish economy is now growing fast again – between 1994 and 1998 GDP grew at an annual average of about 5 per cent. The present Government's aim is to safeguard the budgetary balance, to reduce the debt-to-GDP ratio in government finances to below 50 per cent by 2003, and to reduce overall public sector consolidated debt to roughly 35 per cent of GDP.

These positive economic developments are a result of reforms in different sectors. The Ministry of Finance has emphasized that public administration reforms must be integrated into the broader economic and structural policy reforms. The co- ordination of these policies has succeeded because the Ministry of Finance is responsible for all these sectors and all Governments have been committed to this policy of fundamental change.

Although the basic reforms have succeeded, a number of failures and setbacks have also occurred. The reforms were started at the local level and at the agency level, and while broadly speaking these have been reasonably successful, the central government level of administration, especially in the ministries, has been slow to respond. The structure of Ministries, and the agencies under the jurisdiction of the ministries, has not been reformed in any fundamental way. The delegation of decision-making power from the ministries has not accompanied by a reduction in the number of civil servants in the ministries or any delayering. There has been significant delegation of decision-making authority from the level of the government. The Government Plenary Session made a decision in 2,511 matters in 1987. In 1997, the number of matters to be decided was only 676.

Outside of the central ministries, results management, increased managerial flexibility and the delegation of general decision-making and of personnel policies to the agency level have improved efficiency considerably.

Nick Manning/Neil Parison Page 88 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 7: Germany

Dr. Elke Löffler, Public Sector Consultant, Birmingham, UK

Overview26

The New Public Management approaches pursued in New Zealand and the UK have evoked little interest in the central or federal governments of some major and successful economies, notably Germany and Japan. Public demand for service improvements in Germany was considerably less than in the UK and other New Public Management countries, arguably at least partly because the baseline of public service quality was perceived by citizens as higher. As a result, there was no real perceived need to engage in radical public sector reforms in Germany. Furthermore, the strong legalistic tradition of the German public administration, when taken together with the strong position of trade unions and staff councils and the decentralized structure of the German federalist system, also encouraged gradual reforms, and gradual reforms based on pilots and employee involvement.

In Germany, the public management agenda of the early 1990s was dominated by the Unification process and related public sector transformation policies that imposed the structure and principles of West German public administration on the new Laender, the former East Germany. Only later, with the fiscal crisis that resulted from Unification was there some wider interest in New Public Management approaches within the German public sector. There has since been a degree of bottom-up experimentation with certain elements of New Public Management reforms at local levels in Germany. Subsequently the Laender, as well as some Federal agencies, have shown some interest in pursuing managerial reforms. But given the more equal balance between the legislative, judicial and executive branches in the German system as compared to Westminster-system countries, the pursuit of managerial reforms should not have been expected to – and did not in practice – override the prevailing fundamental legal and political processes in the German system.

The sequence of reforms

The public administration reforms that have taken place in Germany have been "bottom- up" with no co-ordination between local authorities or levels of government. They have been shaped by the "New Steering Model" - a comprehensive performance management system that encourages public sector organizations to define their outputs more clearly, place unit managers on performance contracts, and show a customer orientation with more flexible resource allocation and greater reliance placed on outsourcing, contracting-out and privatization. Local authorities, in particular large cities, are most advanced with regard to the implementation of the New Steering Model. They are followed by the Laender. The former and present federal government have recently implemented some few elements of the New Steering Model.

Nick Manning/Neil Parison Page 89 11/22/2004 International Public Administration Reform Country Reform Summaries.doc There are many reasons for this 'bottom up' sequence of reforms. One major institutional obstacle for any constitutional reform of the civil service law is the situation in parliament where more than 40 per cent of MPs are civil servants. Arguably, they have little interest civil service reforms that could undermine their own job security.

Although some had expected this to provide a stimulus to restructuring, the move of the federal government from Berlin to Bonn did not in the end lead to any radical restructuring of federal ministries and agencies.

Some Laender governments such as Schleswig-Holstein started the reform process by developing a comprehensive mission statement based on wide employee participation. The mission statement guided the reform process and ensured the support of employees. Other Laender governments also sought agreements with trade unions or staff councils in order to ensure acceptance on behalf of the staff. The Laender and federal governments have published their reform programs on their respective websites; but administrative reforms on the whole are not an issue that engages much public interest.

Reformers' concerns

Following Unification, there was a strong political desire to reduce the combined number of federal employees as well as the number of employees at Laender and local levels in the former East Germany.

There was also – and to some extent, still is - interest in using pay to motivate better performance and in encouraging work flexibility within the civil service. Performance pay is used in the postal and telecommunications services, but recent provisions that would allow for performance-related pay at the federal and Laender levels have not been used to any significant extent. This is understood to be because of concerns that the performance appraisal systems might not be sufficiently robust to support the scheme, and because of concerns about possible consequential employee legal action. Currently, pay is centrally fixed through a seniority system.

Patronage is an acknowledged problem in public enterprises where party membership is the key qualification for management posts, but this does not appear to be a major political issue.

Institutional starting points

Constitution/political system

The Federal Republic of Germany is a federal state. Powers are distributed between the Federation, the 16 Laender (states), and local government. The Federation, as well as the Laender, have separate administrative structures. Each of the Laender has its own constitution, a democratically elected parliament, a government, administrative agencies and independent courts. Germany’s constitution and all Land constitutions guarantee the right of every local authority to govern its own affairs, on their own responsibility.

Nick Manning/Neil Parison Page 90 11/22/2004 International Public Administration Reform Country Reform Summaries.doc As Head of the Federal Government, the German Chancellor stands well above other ministers. The presidency, however, is a largely symbolic office.

Germany’s constitution states that ministers have the autonomy to lead their department within the "policy guidelines" defined by the Chancellor. The difficulties that may thus arise for "positive coordination" among ministries have received significant attention (Lehmbruch 1995).

The bottom-up style of administrative reforms in Germany is built into the public sector architecture of Germany. The implementation of policies and programs and the provision of the necessary administrative infrastructure are the constitutional responsibility of the Laender and to a large extent of local government. Thus, Germany’s federal government plays only a modest role in the administration of public services. Education and police are the responsibility of the Laender, which also implement the large bulk of federal legislation on behalf of the Federation. Local authorities extensively provide public services, including social services, which are based on federal and Land legislation. The role of the Federal Government in the administration of (social) services is largely limited to issuing regulations. Yet, the fact that the Federation controls most of the relevant public service legislation also implies that only the Federal Government, with Parliament, does have the power to build a new framework for facilitating administrative reforms in Germany.

The German Bundestag (Parliament) is the parliamentary assembly representing the people of the Federal Republic of Germany. It is elected directly by the people every four years. It may only be dissolved prematurely under exceptional circumstances, the final decision lying with the Federal President. The Bundestag’s main functions are to pass laws, to elect the Federal Chancellor and to keep check on the government.

The Bundesrat (Senate) represents the sixteen states and participates in the legislative process and administration of the Federation. In contrast to the senatorial system of federal states like the United States or Switzerland, the Bundesrat does not consist of elected representatives of the people but of members of the state governments or their representatives. Depending on the size of their population, the states have three, four, five or six votes, which may only be cast as a block.

The Bundestag has a number of parliamentary committees, whose meetings are not usually open to the public, and which undertake the extensive preparatory work for legislation. Similarly, it is in the committees that Parliament scrutinizes and controls Government activity. The Bundestag’s committees correspond to the Federal Government’s departments and range from the Committee on Foreign Affairs and the Committee on Labour and Social Affairs to the Budget Committee. Any citizen may directly address requests and complaints to the Petitions Committee of the German Bundestag.

From 1949 until the end of the 12th legislative term in 1995, more than 7,500 bills were introduced in parliament and 4,600 of these passed. Most bills are initiated by the Federal Government, the others coming from members of the Bundestag or from the

Nick Manning/Neil Parison Page 91 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Bundesrat. They receive three readings in the Bundestag and are usually referred to the appropriate committee once. The final vote is taken after the third reading. A bill (unless it entails an amendment to the constitution) is passed if it receives a majority of the votes cast. Those which affect the functions of the states also require the approval of the Bundesrat.

Members of the Bundestag are elected in general, direct, free, equal and secret elections. They are representatives of the whole people; they are not bound by any instructions, only by their conscience. In line with their party allegiances they form parliamentary groups. Freedom of conscience and the requirements of party solidarity sometimes collide, but even if in such a situation a member feels obliged to leave his party he keeps his seat in the Bundestag. This is the clearest indication that members of the Bundestag are independent.

The relative strengths of the parliamentary groups determine the composition of the committees. The President (Speaker) of the Bundestag is elected from the ranks of the strongest parliamentary group, in keeping with German constitutional tradition.

Members of the Bundestag are paid remuneration ensuring their independence and reflecting their status as MPs. Anyone who has been a member of the Bundestag for at least eight years receives a pension upon reaching retirement age.

More than half of all bills require the formal approval of the Bundesrat. This applies especially to bills that concern vital interests of the states, for instance their financial affairs or their administrative powers. No proposed amendments to the constitution can be adopted without the Bundesrat’s consent (two-thirds majority). In all other cases the Bundesrat only has a right of objection, but this can be overruled by the Bundestag. If the two houses of parliament cannot reach agreement a mediation committee composed of members of both chambers must be convened, which in most cases is able to work out a compromise.

In the Bundesrat state interests often override party interests; voting thus may not reflect party strengths in the Bundesrat. This points to an active federalism. The Federal Government cannot always rely on a state government where the same party is in power to follow its lead in every respect, for each state has its own special interests and sometimes takes sides with other states who pursue the same aim, irrespective of the party they are governed by. This produces fluctuating majorities, and compromises have to be made when the parties forming the Federal Government do not have a majority in the Bundesrat.

The Bundesrat elects its president from among the minister-presidents of the sixteen states for a twelve-month term according to a fixed rotation schedule. The President of the Bundesrat exercises the powers of the Federal President in the event of the latter’s indisposition.

Overall, the federal system with its multi-level decision-making only allows for gradual changes in priorities.

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Structure of Government

The Federal Government, the Cabinet, consists of the Federal Chancellor, who is chairman of the Cabinet and head of government, and the federal ministers. The Chancellor alone chooses the ministers and proposes them to the Federal President for appointment or dismissal. He also determines the number of ministers and their responsibilities. Certain ministries are mentioned in the Basic Law: the Federal Foreign Office as well as the Federal Ministries of the Interior, Justice, Finance and Defense. The establishment of the three latter ministries is a constitutional requirement. The Chancellor sets the guidelines for government policy. The federal ministers run their departments independently and on their own responsibility but within the framework of these guidelines. In a coalition government, the Chancellor must also take account of agreements reached with the other party in the coalition.

For this reason, the German system of government is often referred to as a "Chancellor democracy". The Chancellor is the only member of the government elected by parliament, and he alone is accountable to it. The German system does not assume ministerial accountability to Parliament in contrast to Westminster-type systems. The accountability of the Chancellor to Parliament may manifest itself in a "constructive vote of no confidence", which was introduced by the authors of the Basic Law in deliberate contrast to the Weimar constitution. Its purpose is to ensure that opposition groups who are in agreement only in their rejection of the government but not do not agree on an alternative program are not able to overthrow the government. A Bundestag vote of no confidence in the Chancellor must at the same time be a majority vote in favor of a successor.

Chancellors of the Federal Republic have often exercised the prerogative to reshuffle the cabinet and to redistribute administrative responsibilities. The present Cabinet of the Schroeder government comprises 15 ministries, including the Chancellery. The structure of government varies slightly between the Laender, partly depending on Coalition agreements. Most federal ministries also exist on the Laender level.

Box 10 German federal ministries and public agencies with administrative responsibilities Ministry of the Interior Responsible for civil service law, pay negotiations, collective bargaining for public employees and workers as the representative of state-employers and issues related to the information society. Ministry of Finance Determines the administrative and program budget for the Federation and manages the financial relationships with the Laender and local authorities; also co-ordinates expenditure management with lower levels of government. Federal Administrative Agency Service center for all federal ministries.

Nick Manning/Neil Parison Page 93 11/22/2004 International Public Administration Reform Country Reform Summaries.doc In Germany there is a very clear formal distinction between civil servants (Beamte), who exercise public authority or state powers (around 40 % of public employees), and the remaining state employees (Angestellte) and manual workers (Arbeiter), who are subject to private sector labor laws. Civil servants (Beamte)are regarded as agents of the State, and are accountable under public law. Non-civil servants are regarded as simply performing a profession in the public sector of the economy, or within the public services funded by the state budget. In practice, however, the boundaries between the two categories of service have become increasingly blurred. However, the core elements of the German civil service are relatively uniform for public servants at all levels of government, with the term "public servant" (Verwaltungsmitarbeiter) being used as a generic term which includes civil servants (Beamte) as well as public employees (Angestellte) and manual public workers (Arbeiter). The Federation has the right to determine the legal status of all public servants according to article 75, paragraph 1 of the constitution, and to make decisions relating to pay and pensions for civil servants according to article 74a, paragraph 1 of the constitution. Unlike other federal states such as Canada and the United States, Germany has one single unified civil service. This is justified by the need to avoid destructive competition between vertical administrative levels as well as between Laender or local authorities.

The prevailing philosophy of the civil service is enshrined in the German constitution by "reserving to civil servants the right to act on behalf of the state" (article 33, paragraph 4 of the constitution) and by emphasizing the traditional principles of the professional civil service (article 33, paragraph 5 of the constitution). Some features widely seen as typical include lifetime occupation, an appropriate salary according to the "maintenance" principle (Alimentationsprinzip), impartiality, political neutrality and moderation, dedication to public service, no right to strike and accepting special disciplinary regulations.

The special status of Beamte is defined by the constitution, enshrined in a series of special codes known as the Beamtenrecht, not as employees but as civil servants of the German State. Under the ‘Leistungsprinzip’, Beamte take an oath of loyalty to the German constitution and in theory are not paid for the work they do, but given financial compensation for their duties to the State. Thus they do not receive a salary as such (nor are paid overtime) but receive a separate form of remuneration simply known as ‘Besoldung’(or ‘pay’). The Beamte also have a protected employment status, with a series of specific rights under the ‘Alimentationsprinzip’. This provides for the maintenance of the civil servant from confirmation of appointment to death, including total security of employment to retirement age at which point Beamte receive a pension equivalent to 75% of their final pay. They are also exempt from paying social security contributions.

Beamte are also excluded from collective bargaining although they are allowed to join trade unions. There are some 45 special Beamte associations that recruit exclusively from this group and are affiliated to a central confederation, the Deutschen Beamtenbund (DBB). In contrast to Beamte, the Arbeiter and Angestellte groups of public servants

Nick Manning/Neil Parison Page 94 11/22/2004 International Public Administration Reform Country Reform Summaries.doc have employment contracts like private sector employees; can join unions affiliated to the DGB (the main German union confederation) or the DAG (German White-collar Workers Union), and are allowed to strike.

Overall there is extensive trade union membership in the public sector. Union density is twice as high as in the private sector.

In the traditional German civil service system, a civil servant can only be appointed to the basic grade of one of the classes according to formal educational qualifications - for example an Abitur-examination (A-Level) and three or four years studies at a Fachhochschule (University of Applied Sciences) for the executive class. Subsequently, the civil servant can be promoted to the highest grade of the executive class, but in general not to a grade of the administrative class without further formal qualification (such as a university degree or a similar diploma as part of in-service training courses).

Central agencies and reform management

In contrast to centralized Westminster countries, public sector reforms in Germany cannot be executed from a Ministry or agency. In most cases, legal or even constitutional changes are necessary so that the Parliament (Bundestag) and the Senate (Bundesrat) have to be involved.

In 1995 the Federal Government issued a Cabinet Resolution to establish the "Lean State Advisory Council." The Advisory Council was comprised of experts of politics and economics from the Federal Laender and local offices. During its two years in existence, the Advisory Council submitted 15 resolutions on specific public management topics. With another Cabinet Resolution in 1996, the federal government targeted a number of federal facilities for dissolution, merger or reorganization.

Politicization

The upper levels of the federal civil service are extremely politicized. It is not uncommon for higher-level civil servants to leave their posts or take leave when a change in administration occurs (Pollitt and Bouckaert 2000).

Reform activities

Summary

At the federal level, German administrative reforms have been characterized by incrementalism rather than fundamental change. The federal government launched a "Lean State" initiative in 1995, which led to the elimination or reorganization of a few government agencies. When the current Social Democratic Party (SPD)-Green coalition government came to power in October 1998 under Chancellor Gerhard Schroeder, the "Lean State" slogan was replaced with the guiding principle of the "Enabling State." The

Nick Manning/Neil Parison Page 95 11/22/2004 International Public Administration Reform Country Reform Summaries.doc change of label was intended to emphasize that the new government was opposed to the simple retreat of the State as a means for modernizing public administration.

The most notable management changes have taken place at the local level (Pollitt and Bouckaert 2000). With unification, the eastern part of Germany focused on enacting the rule of law, while in the western part, there were modest experiments with the New Public Management. The Joint Local Government Agency for the Simplification of Administrative Procedures (KGSt) launched a "New Steering Model" in 1991, which is a comprehensive performance management model characterized by a strong vision of customer orientation, flexible resource management and clear lines of accountability.

The elements of this "Steering Model" that local governments and some Laender have adopted are: • Definition of outputs (products); • Cost calculation of administrative products; • Performance contracts for unit managers; • More flexible resource allocation (carry-overs, transfers between spending categories); • Reporting systems to monitor the achievement of goals (controlling); • Customer orientation through perception surveys, one stop shops, complaint management; and • Outsourcing, contracting-out and privatization.

Public administration reforms in Germany are typically based on pilots and experiments. This allows gradual reforms to be pursued and corrections to be made if necessary.

The entry point for many reforms has been at local government level. The successful marketing of the New Steering Model for efficient, effective and customer-oriented public service management by the KGSt encouraged a focus on performance management at the local and Land levels of government. The main pressure to introduce performance management in public authorities with a formal bureaucratic culture stemmed from increasing budget deficits after Unification. However, it proved difficult to sustain motivation for performance management as well-performing local authorities often suffered from further cut-backs or their Land government transferred additional tasks without the appropriate financial resources.

Since the budget laws of the Federation and Laender remain based on the principles of specificity and annuality, pilot experiments related to devolved resource management at local government level require waivers. By the mid-1990s, most Laender Parliaments granted individual local governments experimental clauses that enable them to depart from existing legal requirements for a limited period. During this period, they are under the control of the respective Land Ministry of the Interior. Although some Laender Ministries tend to handle the procedure in a restrictive way, the innovation has helped to test and evaluate alternatives and to prepare changes in the budget laws.

Nick Manning/Neil Parison Page 96 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Local government modernization has had repercussions on some Land administrations. After a successful struggle with the federal government for deregulating the federal framework law regarding universities the Laender have now started to give their universities more autonomy and the same is expected to be likely to happen eventually in the case also of schools.

The introduction of a performance review system is now being piloted in several federal ministries. Based on defined and agreed targets, the performance of each organizational unit is defined in co-operation with its director. The results are determined by an efficiency assessment and quality measurements. If the results fall short of the defined targets, then corrective action will be taken and the organization will be subject to another review.

Transparency and accountability

Germany is lagging behind other OECD countries when it comes to increasing the transparency of the public sector. At present, no freedom of information law exists yet for the Federation but some Laender (Berlin, Brandenburg and Schleswig-Holstein) have recently passed freedom of information laws and other Laender (NorthRhine Westphalia) are likely to follow.

The Anglo-Saxon concept of accountability does not transfer easily to the German administrative system. So far, most internal and external audits still focus on probity issues even though some Audit Courts on the Laender level (e.g., Baden-Wuerttemberg and Hessen) also perform value for money audits. Many local authorities have established impressive performance monitoring systems but have been hesitant to make the performance data available to the public. The same applies to various benchmarking activities at the local level.

Reforms to the organizational structure of government

The new public management approach of creating special purpose semi-autonomous agencies is mainly to be found at the Laender and local levels since the latter are mainly responsible for service delivery. In Germany, it has long been normal for municipalities to transfer competences to communal enterprises with widely delegated tasks for such purposes as vehicle parks, cleansing, drainage, slaughterhouse and stockyards, museums and theatres or to joint municipal special-purpose organizations (Zweckverbände) for energy and other public utility and local passenger transport undertakings.

Because of the fiscal crisis after Unification, Laender governments reinforced the move to delegate services to local levels. Nevertheless, the principle of subsidiarity, a particular feature of German constitutional law, had always ensured that the bulk of federal and Laender programs were passed to local government for implementation. As a result, very few federal and only a limited number of Laender agencies have been established to take action at the local level.

Nick Manning/Neil Parison Page 97 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The extensive delegation of tasks to local government has created a high interdependence between state and local government. On the one hand, local authorities enjoy wide freedom to shape local life and a sound bargaining position in their negotiations with the state that has to resort to local government in order to implement its policies. On the other hand, local government continues to be dependent on the state due to state regulation and supervision. Furthermore, a large proportion of local government revenue consists of state grants. In Germany, the local finance reform in 1969 marked the turning point from raising revenues through local taxation to a complex system of shared taxes between the federal, Laender and local level.27

Cutting back the programs undertaken by government

The financial crisis of the 1990s increased the scope of contracting-out and privatization to health and social services. A form of compulsory competitive tendering has existed in Germany since 1932 in the form of regulations for the tendering of public services (VOL) and regulations for the tendering of building works (VOB) that create competition among private sector providers. The detailed regulations are compulsory for the federal and Laender administration and are strongly recommended to municipalities. Even though the New Steering Model encourages market testing, only a few municipalities test their services in the private sector.

Civil service and personnel reforms

Downsizing

Following Unification, federal government staff was reduced from 652,000 in 1991 to 526,431 in 1997. Staff in local government has been reduced considerably. At the federal, Land and communal levels, cuts in staff having employee status are regulated by collective agreements. For civil servants, reductions of 1.5 % per year were achieved through attrition (PUMA 1998a). Civil servants’ work contracts cannot be broken as civil servants enjoy guaranteed lifelong employment.

Table 3 Employment in the German public sector 1991 1992 1993 1994 1995 1996 1997 Federal 652,000 625,000 602,900 577,600 546,300 533,169 526,431 Government Laender 2,522,000 2,452,000 2,462,000 2,481,000 2,478,000 2,429,884 2,401,665 Communities 1,990,000 1,986,000 1,874,000 1,792,000 1,715,000 1,739,261 1,683,521 Total 5,164,000 5,063,000 4,938,900 4,850,600 4,739,300 4,702,314 4,611,617 Note: Figures exclude federal railways and indirect public service, include part time and full time staff Source: references: PUMA database (1991-1995), data for years 1996,1997 from Statistisches Bundesamt.

The size of the public sector in Germany is in the medium range compared to other OECD member countries. The policies of downsizing and employment freezes have already had the further effect that the average age of the workforce is increasing dramatically.

Nick Manning/Neil Parison Page 98 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Pay reform

The traditional pay system for civil servants (Beamte) consists of a number of grades in each of the four classes of the career structure. Public employees (Angestellte) are located on the same pay scale, with the exceptions of magistrates and university lecturers. Each grade is related to a fixed basic salary plus increments every two years based on a seniority allowance. Other increments to the basic salary have only been provided for certain types of functions irrespective of individual results and performances. Similar regulations have been applied to public employees and workers.

Overall, the flexibility of traditional pay schemes is extremely low. As far as public employees and workers are concerned (as opposed to civil servants), collective bargaining between the Minister of the Interior, as the representative of state-employers, and the trade unions determines the national pay levels. German trade unions in the private and public sectors adhere to countrywide pay agreements with the result that there is no flexibility for agency-specific pay contracts. Decisions on pay increases for civil servants have to be agreed by Parliament and regulated by statute.

The Civil Service Reform Law of 1997 opened up the opportunity for the Federation itself and for the Laender to introduce financial incentives "for those staff members whose performance is higher than others". The principle of cost neutrality in relation to performance-based promotion systems implies that the faster promotion of some well- performing civil servants has to be compensated by the slower promotion of other civil servants. Interestingly, the Federation as well as most of the Laender are hesitating to introduce performance-related pay systems (PRP), either as bonus or as extra pay. They seem to be very uncertain about the validity of their appraisal systems. In practice these systems tend to lead to an inflation of the performance marks awarded.

Ethics

Due to the strong legalistic tradition of the German public administration there continues to be a strong focus on the prevention and fight against corruption through legal measures. A sophisticated body of disciplinary law supports this, with special provisions for high-risk functions such as customs and police. The competencies of the disciplinary courts have recently been transferred to the administrative courts.

Even though there has been a discussion about the implications of New Public Management for ethics in the public sector in the light of widely publicized corruption scandals in the City of Cologne, codes of conduct are not an issue in the German public administration. The introduction of codes of conduct at agency level would be inconsistent with a professional ethos that considers ethics as an issue for the public service as a whole. In addition, codes of conduct could not remain at an informal level, and there would be pressure to ensure their consistency with the framework of civil service law.

Nick Manning/Neil Parison Page 99 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Budget process changes

In Germany, budget reforms have focused on cost accounting and measurement of outputs. However, the definitions of the outputs of administrative activities are relatively undeveloped. In general, local authorities are much more advanced than the Laender and federal levels of government. Some local authorities started to integrate output information into their financial reporting in order to deliver better information about budget implementation to elected local politicians.

A cost accounting system for the federal administration was developed by the Federal Ministry of Finance (with assistance of an external consultant) based on the experience gathered in a large number of projects in the federal administration. The Budget Law also now makes mandatory the Federation’s use of cost accounting in all suitable areas. In 1998 Cost and Results Accounting (CRA) was introduced in more than 20 authorities or ministries.

In contrast to the moves to output-based financial reporting, budget formulation in the German public sector remains strongly input-focused. However, flexibility in budget execution has been increased through a significant reduction in the number of headings and relaxation on moving money between the headings within the "aggregate budgets framework".

Decentralized resource management is an important element of the New Steering Model. This implies the transformation of the sub-units of local authorities or agencies into "responsibility centres". In this transformation, the responsibility for the management of resources (essentially personnel and finance), which is traditionally vested in powerful central departments, is devolved to the business units of the public authority. Unit managers are given one aggregate budget in return for specified performance contracts.

In reality, however, a number of local authorities and agencies have moved to aggregate budgets at the same time as making overall budget cut-backs, so that overall de facto managerial flexibility decreased. Unit managers also claim that they cannot be held accountable for the increase of mandated public services over which they have no control. Thus, the establishment of sophisticated performance monitoring systems at the local, Land, and recently, federal levels of government, has brought about greater transparency but has not necessarily improved managerial accountability.

E-government

The federal government launched an e-government initiative in September 2000. The objective is to make all services of the Federation available on the Internet by 2005. This includes services for citizens, business and other levels of government. The Laender governments have launched similar e-government initiatives.

Nick Manning/Neil Parison Page 100 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Reform outcomes

The principal outcomes of the "Lean State" exercise under Chancellor Kohl were a reduction and streamlining in the number of Federal authorities, a more flexible budget law, and a reverse in the staff increases brought about by Unification.28

Despite the reductions in numbers achieved, the constitutionally guaranteed status of German civil servants remains unchanged; and performance related pay in the state administration has not to any significant extent yet been implemented.

Elements of the "New Steering Model" have been applied in a growing number of large cities and Laender. However, there are a number of indications that the enthusiasm for these reforms has waned considerably (Pollitt and Bouckaert 2000). Meanwhile, the managerialist New Steering Model is being complemented in German local governments by the new leitbild of governance-oriented models of local government as a community developer.

Nick Manning/Neil Parison Page 101 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 8: Hungary

Georgy Gajduschek, Researcher, Hungarian Institute of Public Administration with Jean-Jacques Dethier, Senior Economist, World Bank

Overview29

Hungary’s transition had a strong focus on developing the necessary arrangements for constraining the executive within a democratic system of governance, with the creation of the Ombudsman, the Constitutional Court, and the State Audit Office. Hungary also put much emphasis on decentralization. In 1990, local authorities in municipal governments were granted more power and autonomy to take decisions on local matters. Such an emphasis allowed municipal governments to strengthen the process of service delivery to its citizenry.

Although decentralization and administrative streamlining had been fairly successful, the OECD noted in 1998 that Hungary’s debt burden was quite substantial: "A fundamental burden on the Hungarian economy is the fact that, besides the inherited external debt, a substantial volume of internal state debt has accumulated over the past years. Measures are being taken to improve the balance of public finances and to eliminate the causes of its decline. The planned reduction of the central budget deficit necessitates a fundamental rethink of the roles and responsibilities of the state, and development of a public sector in line with the capacities of the Hungarian economy." In addition, the OECD noted that "the reduction of the role and responsibilities of the state necessitates rationalization of the activities, responsibilities and institutions that were formerly financed by the state, and the transfer of certain tasks currently performed by the state to non-governmental organizations and/or the private sector." (PUMA 1998b)

Subsequent attention paid to the role and cost of public sector activities have reduced the debt burden significantly and it now plays a less dominant part in determining reform priorities.

Reformers' concerns

Hungary has placed large emphasis on preparing for accession to the European Union, and public administration reform and development of administrative capacity across government to be able fully to apply the acquis communautaire plays a prominent role in this effort. Harmonization with EU laws and creating a favorable environment for the private sector by means of public sector administrative streamlining are accordingly areas of particular concern within Hungary.

Institutional starting points

Constitution/political system

The present Constitution of the Republic of Hungary was adopted in October 1989. The new Constitution is an amended version of the fundamental law introduced in 1949. The

Nick Manning/Neil Parison Page 102 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Constitution lays out the fundamental organization structure of the state, protections for human rights, and citizens’ rights and obligations. Since the constitutional change, Hungary has been an independent, democratic country governed by the rule of law as a parliamentary republic. The unicameral Parliament is elected through direct secret ballot and is the primary holder of state power. In practice though it appears recently to have been the Cabinet ad particularly the Prime Minister which plays the decisive role. Hungary is a unitary state.

The Hungarian Parliament adopts the Constitution, with any amendment requiring the votes of two thirds of all Members of Parliament. The Constitution has been amended 15 times between 1989 and the end of 1999.

Structure of Government30

The president is elected by a majority of the Parliament. The Parliament (Országgyüles) is the central institution of the legislative branch. There are 386 members of the Parliament; 176 elected by majority vote from single-seat constituencies, 152 elected by party list vote (5% barrier) from 20 multi-seat constituencies, and 58 awarded to achieve proportional representation. The Parliament makes its decisions in the form of Acts or Parliament Resolutions. A Resolution can refer solely to the Parliament and its organs but not to citizens.

The Constitutional Court consists of 11 judges who are elected by two-thirds vote of the National Assembly. Members of the Supreme Court are nominated by the President of the Supreme Court, who is nominated and appointed by the President of the Republic, and elected by a two-thirds vote of the National Assembly.

The government of Hungary is comprised of the Council of Ministers, which directs the executive and makes its decisions on its regular weekly meetings. The Prime Minister heads the Council of Ministers. The Prime Minister is nominated by the President, and is elected by majority vote of the National Assembly. The Council of Ministers is recommended by the Prime Minister, and appointed by the President.

The constitution dictates that the executive branch is headed by the Cabinet and as such is the main policy decision-making body. The cabinet consists of the Prime Minister and Ministers (composed of two or more coalition parties represented in Parliament). However, Ministers do not have to be members of parliament themselves, and have equal weighted votes in cabinet decisions.

Decisions of the cabinet may appear in four forms: draft bills; cabinet decrees; ministerial decrees; and cabinet resolutions. Box 11 Forms of cabinet decisions in Hungary Draft bills If subsequently passed by Parliament, draft bills become legal Acts. Cabinet decrees These are legally binding decisions and policies of the government. Many cabinet decrees provide the detailed regulations supporting Acts. Ministerial decrees Particular ministers issue decrees within the scope of their authority.

Nick Manning/Neil Parison Page 103 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Cabinet resolutions Such resolutions are legally binding only for central government institutions, and determine the objectives and activities to be undertaken by the responsible minister.

Parliament defines the list of ministries. The Government issues decrees regulating the scope of responsibilities and competencies of the ministers and coordinating their activities, and determining the structure of the ministries.

Cabinet committees prepare decisions and are the coordinating and supervisory bodies of the Government. The Government can create standing committees and ad hoc committees.

Box 12 Composition of government in Hungary Prime Minister Minister of Justice Minister of Agriculture and Regional Development Minister for National Cultural Heritage Minister of Defense Minister of Social and Family Affairs Minister of Economics Minister of Transport and Water Management Minister of Education Minister Without Portfolio for PHARE Program Minister of Environmental Protection Minister Without Portfolio in Charge of Civilian Minister of Finance National Security Services Minister of Foreign Affairs Minister Without Portfolio in Charge of Prime Minister of Health Minister's Office Minister of Interior Minister of Youth and Sports

The civil service system in Hungary was established by the Act on Civil Service No.: 23 in 1992. Civil servants are those who work in the offices (bureaus) of central and local government. Public servants are employed by other budget organizations. Thus, for instance, teachers, doctors, and nurses in publicly owned schools and health care facilities are public rather than civil servants. The Act on the Legal Status of Public Servants No 32 of 1992 regulates this. The armed forces constitute a third main category of public employees.

An amendment to the Civil Service Act was approved by Parliament in 2001. This amendment introduced a number of significant changes:

• Provision for a significant increase in salaries which will gradually decrease the gap between salaries in the public and private sectors; • Setting up a small senior civil service consisting of around 300 persons with greatly increased salaries and protection from removal from their positions for a period of five years after appointment; • Reducing the number of civil servants by around 10% through ceasing to classify support employees such as secretaries, typists, drivers and janitors as civil servants.

State secretaries and deputy state secretaries assist a minister in the performance of his duties. A political state secretary deputizes for the minister and can represent the minister in Parliament at the plenary and committee meetings. A political state secretary holds office until the expiry of the term of the government. A political state secretary

Nick Manning/Neil Parison Page 104 11/22/2004 International Public Administration Reform Country Reform Summaries.doc may attend the meetings of the Government if required to do so to deputize for the minister, but without any right to vote.

An administrative state secretary, who is mandated for an indefinite period, is the head of the Minister's office. An administrative state secretary may substitute for the minister in the absence of the political state secretary, with the exception of the plenary sessions of the Parliament. An administrative state secretary has three to five deputies, appointed by the minister. A deputy state secretary is responsible for the direct management of one or more departments of the Ministry.

Not all central government personnel work within ministries. There are two other forms of central public administration organizations: "organs with nation-wide competency", and ministerial offices; together with regional and local and deconcentrated organs of central government bodies.

"Organizations with nation-wide competency" have responsibility for carrying out specific tasks in a given field of activity. They may be established by Parliament or by the government. In most cases, they are immediately responsible to the Cabinet rather than to an individual member of the government (although some are immediately accountable to Parliament). The most important such entities are:

Central Statistical Office; National Technical Development Committee; Office of Reparation; Office for National and Ethnic Minorities; National Office for Standards; National Patents Office; National Office of Nuclear Energy; National Office of Physical Education and Sport; Governmental Control Bureau.

Ministerial offices have no separate legal powers from those of the ministry. They are units held at arms length from the mainstream organizations of ministries in order to implement specific policies efficiently.

Hungarian settlements are classified by law into villages, towns, cities of county status, and the capital and its districts. A total of 3,158 local governments are operating in Hungary in 19 counties.

Nick Manning/Neil Parison Page 105 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Box 13 Local government in Hungary type number percentage of the population villages 2,899 36.5 % towns 214 26 % county towns 22 19.9 % Budapest, comprised of 23 1 17.6 % districts and having a special legal status

There is no hierarchical relationship between county and local municipalities. The difference is in their scope of activities. County level municipalities provide public services that are not provided by the local municipalities.

The municipal system is fragmented. About 55% of the municipalities represent settlements with less than a thousand citizens. Many consider that small local governments are ineffective and likely to be less professional than their larger counterparts. However, the local communities of small settlements seem to be more satisfied with the activity of their municipality than those of larger settlements ("Governance and Public Administration in Hungary" 2000).

Central agencies and reform management

Policy development is normally undertaken at the Ministry level, although there have been at various times a number of entities responsible for cross sectoral policy development, including the Commissioner for the Modernization of Public Administration in the Prime Minister’s Office (now replaced by the Public Administration and Regional Policy Department in the Prime Minister’s Office) and the Commissioner for Ethnic Minority Issues.

At the ministry level, policies generally take the form of decrees and are often high quality in a legal sense, but occasionally impractical. Each ministry has a strategic planning and policy research division mainly comprised of lawyers and generally called the ‘Law Formulation Division’. These are supplemented by sectoral research institutes (although the number of these has been decreasing over recent years) but these are generally staffed by technical specialists who might not provide the necessary strategic overview.

Policy management arrangements are determined by the Cabinet Standing Order No 12 of 1998. This requires that both the public sector and interest groups are widely consulted on draft policies before they are submitted to Cabinet. The process of policy co-ordination itself is quite efficient and undertaken by the Prime Minster’s Office. However, this process does not include validation of whether the policies are consistent with national strategies, or whether they contribute towards the mandate of the government. Although the State Office of Control (KEI) in the Prime Minister’s Office has the mandate to monitor government wide performance, this has tended to be in relation to specific areas such as corruption or statutory compliance.

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Cabinet Standing Orders require that at least two options should be evaluated and submitted to Cabinet and that policies should be submitted in two stages: first to define the overall policy framework and second to submit the detailed policy (generally legislation). In reality, the initial framework is often overlooked and Cabinet presented simply with a draft decree.

The Administrative State Secretaries meeting, chaired by the Administrative Secretary in the Prime Minister’s Office, screens submissions to Cabinet and decides which papers will be abandoned, reworked or submitted to the Cabinet. This meeting is considered highly efficient in ensuring that the Cabinet only reviews proposals that have the full agreement of all ministries. In reality around 75% of the proposals viewed at the Administrative Secretaries meetings are submitted directly to the Cabinet, with the remainder generally returned to the responsible ministry for rework. This is generally owing to disagreement, and the need for greater consultation, or the need for greater cost and/or impact assessment to be undertaken.

The Government Agenda is prepared on a six monthly basis and co-coordinated by the Legal Department (secretariat) in the Prime Ministers Office. Agenda items and decisions from previous meetings, including actions are circulated to Ministers, Administrative and Political State Secretaries, within twenty-four hours of the cabinet meeting. Ministers are then required to respond, normally, within 15 days, although in practice timescales can be much shorter, around 5 days. The Prime Minister’s Office Legal Department has bespoke Lotus based software to record and track decisions, in order to inform and chase ministries that are late in submitting their proposals.

At the ministry level some State Secretaries, such as Education, have a secretariat department to co-ordinate the paperwork and track policy decisions. There are similar secretariats in each division, overseen by a Deputy State Secretary.

The Cabinet Standing Orders state that it is necessary for appropriate consultation with interest groups to occur in policy formulation. In practice, Hungary has a strong tradition for open consultation and some Governments have perhaps displayed a tendency to over- consult, extending the policy development period. Interest groups have recourse to the Constitutional Court for questioning the legality of a decision. There have been a number of examples recently of cases where Ministries have placed their initial proposals on their website, to aid the process of consultation, both with other ministries and with external stakeholders/interest groups.

Key central agencies include the Prime Minister's Office (PMO). The latter has responsibility for assisting the Prime Minister to develop policies, strengthening and coordinating the activities of the Government and ministries, organizing government meetings and circulating decisions, and supporting the work of the ministers without portfolio and political state secretaries of the Prime Minister's Office. The administrative head of the PMO is a minister without portfolio. Under the PMO, the Cabinet Office which is headed by a Political State Secretary, provides day-to-day assistance to the Prime Minister.

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The PMO includes eight Political State Secretaries who report directly to the Prime Minister. They oversee special activities of the PMO including the development of policy for administrative reform.

The Government Control Office (GCO) has been performing efficiency assessments (often with an anticorruption perspective) since 1995. These efficiency assessments are aimed to audit the efficiency of the implementation of major public investment projects and programs, the spending of budgetary funds and the performance of government functions. These assessments differ from traditional financial/economic and compliance assessments in that they are performed by expert groups comprised of civil servants of ministries, often in co-operation with professionals of business or non-profit oriented organizations affected by the subject of the audit. GCO requires the audited organizations to prepare action programs concerning the implementation of the proposals made in the course of the efficiency assessments.31

Performance and policy implementation efficiency reviews and audits are carried out by the National Audit Office (NAO).

Politicization In principle, Hungary differentiates between political appointees and professional civil servants. The minister and the political state secretary are clearly political appointees. Their functions, rights and obligations are regulated in a separate law. The Civil Service Law defines the types of political advisors that may work in a ministry. Political advisors should not represent more than one per thousand employees and are employed for only the term of the minister.

However, strong anecdotal evidence exists, supported by some statistical data, that the public managerial positions are the spoils of party politics, and that managerial positions greatly depend personally on the minister. Only one out of ten administrative state secretaries has spent more than 4 years (a government term) in office. In fact, 61% of the administrative state secretaries have spent less than two years in office. The Civil Service Act makes such practices possible given that it allows managerial positions to be terminated any time without reason.

The recent amendments in 2001 to the Civil Service Law and the provision to establish a 'Senior Civil Service" of a few hundred senior civil servants who would hold this status for several years, would have a significantly greater salary, and could not be removed by the next government may turn out to have been a key development in securing depolitization

Nick Manning/Neil Parison Page 108 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Reform activities

Summary

About every second year the government adopts a resolution on the modernization strategy and on the necessary next steps. The resolution is published in the Hungarian Gazette. Some of its elements are more actively "advertised" by the public relations division of the Prime Minister office or that of the ministries. In practice, however, the media and the public have taken little interest in public administration reform, regarding it as a technical issue with minimal and indirect impact on everyday life.

There are some nascent attempts to introduce public service standards into central government institutions. This will entail setting monitorable standards for key services. A customer service and information center has been established in one county. Local governments are also experimenting with this approach in four areas (public education, health, social/welfare and communal services), drawing from experience with the Citizens’ Charter in the United Kingdom (PUMA 1998b). Further development of this approach will require enhanced managerial flexibility coupled with increased accountability. This is somewhat at odds with the highly legalistic tradition.

There are also some initial moves towards increasing transparency and towards requiring declarations of assets for officials in senior or sensitive positions.32

Reforms to the organizational structure of government

Hungary has placed considerable reform weight on the decentralization process. In 1990, local authorities and municipal governments were granted more autonomy and this has led to improvements in service delivery. However, the share of local governments in the total budget has decreased since the establishment of local governments.

The roles of the central agencies increased after the election in 1998. The Prime Minister’s office became a more powerful player in policy management and progress chasing.

Cutting back the programs undertaken by government

Many large service-providing entities have been privatized since the beginning of the transition process, including the energy sector. However, there are few private providers in health care or education, although some church groups and other non-profit organizations are playing an increasing role. Local governments vary widely regarding their use of market solutions for public service delivery, although private contractors usually provide such services as garbage collection.

Civil service and personnel reforms

Until the amendments to the Civil Service Law approved in 2001, the system differentiated between four categories of civil servants. Officials with at least a bachelor

Nick Manning/Neil Parison Page 109 11/22/2004 International Public Administration Reform Country Reform Summaries.doc level degree were placed in Class I, officials with secondary school education in Class II, clerical workers, such as typists in Class III, and manual workers in Class IV. Each class contained several grades. A civil servant was (and is) typically promoted to the next grade after each three years of working experience in public administration. The 2001 amendments stipulated that now only officials in Class I and Class II would be classified as civil servants and covered by the Civil Service Law.

Hungary has attempted to make a number of significant reductions to its civil service, with a three percent reduction from 1996 to 1997, for example. In 1995, the government ordered 15 % reductions in ministry employment, to be achieved in two tranches, but in practice this level of reductions was not really attained, nor sustained if actually attained. Employment reductions could not be demanded of the local governments, but budget transfers were reduced from 8.8% of GDP in 1994 to 4.6 % in 1997.

Presently the number of civil servants is approximately 112,000 (although this will reduce by around 14,000 once the reclassification of Class III and Class IV civil servants as provided for in the amendments to the Civil Service Law approved in 2001 have been fully implemented. There have not been dramatic changes in the number of civil servants in the past decade, except in 1995, when the attempt (largely unsuccessful) was made to decrease the number of civil servants at the central government level 15%. Since then the number of civil servants has been modestly but gradually increasing, partly to meet the transitional and ongoing requirements for EU accession.

Pay budgets are devolved to over 3000 employer institutions, which are able to use savings from vacancies to raise wages up to a limit of 20 percent of a given civil servant’s salary. Thus, there is a strong incentive for managers to reduce staff numbers and retain vacancies. There is a concern with the low level of public sector pay compared to the private sector, however. Civil service pay in 1997 was 10% than the private sector average, and public sector pay was 39% less. The pay at the local government is 40% lower than the national average, compared to 17 percent less in the central government.

The 1992 Civil Service Law provide the legislative underpinning for a merit based civil service system. This was the first such comprehensive law in the region. The Act introduces all the relevant elements of a merit based civil service system including political neutrality and protection from political interference, a strictly defined career and remuneration system, personnel appraisal system, and training. Since 1992, the Act has been amended several times.

The Government in 2001 moved to amend the law in order to make the civil service career system more closed. This would restrict the possibilities for lateral entry and place a strong emphasis on career development. This is referred to as a 'civil service life career' system.33 The intention would be to offer stability and predictability of expectations for each civil servant, with each key phases from entry into the service through to retirement guaranteed and financed by the state. Expectations and arrangements for remuneration, benefits, and continued training would be clarified. It would be accompanied by some

Nick Manning/Neil Parison Page 110 11/22/2004 International Public Administration Reform Country Reform Summaries.doc reduction in the scope of the legal civil service, limiting it to managers and the personnel carrying out the core activities of the public administration in exercising the state power.

The changes, if introduced, would be accompanied by some reduction in the discretion used in recruiting senior categories of personnel and a greater reliance on competitive procedures. Training would emphasize those areas of administration that are related to Hungary’s accession to the European Union. Currently responsibility for training and staff development policies is scattered. For example, both the Public Administration and Regional Policy Department in the Prime Minister's Office and the Ministry of Interior are responsible for aspects of training policy.

Budget process changes

The ‘Law on the Public Finance System’, enacted in 1992 and subsequently modified and supplemented, regulates the budget preparation process in Hungary. The organic budget law fixes strict deadlines for certain steps in the planning stage.

Budget preparation can be divided in two stages: the development of budgetary guidelines and the preparation of a detailed budget draft for parliamentary approval. The first stage ends with the formal approval of the guidelines by the parliament in June, and the second one when the draft is submitted to parliament by the end of September. The first stage begins in January when the Ministry of Finance starts to elaborate a proposal for the budgetary guidelines and the spending ministries at the same time commences to prepare their budget requests. An amendment to the organic budget law in 1999 now obliges the parliament to pass a resolution on the budgetary guidelines by 15 June. The budgetary guidelines contain the economic program of the government, information on the underlying macroeconomic assumptions and the main trends of the budget policy. This covers the next three years and sets out non-binding fiscal targets for the total expenditures and the overall deficit of the government, as ratios to GDP.

Hungary has moved to double-entry book-keeping which is generally followed by all public organizations.

E-government

The government established the position of the "Government Commissioner for Information Technology" within the PM’s Office in 2000. The Commissioner is responsible for the projects aimed at establishing an e-government and e-local government system.

Reform outcomes

Hungary has carried out a series of centrally designed and coordinated programs to streamline administrative laws even as it has continued to maintain a large and active government involvement in the economy.34 The aim of this modernization of Hungary's

Nick Manning/Neil Parison Page 111 11/22/2004 International Public Administration Reform Country Reform Summaries.doc administrative system was to establish an executive branch that serves the democratic political system and the rule of law, and to provide an appropriate administrative environment for a market-based economic system. Government effectiveness in Hungary is deemed to be quite high, and was ranked first out of 20 transition countries in the EBRD Governance Index (World Bank 2000, p.50).

Three main stages of the modernization process can be identified. The "great adjustment" took place roughly in 1989-1990. The adjustment created a democratic political system and a market economy. Great changes were necessary and perhaps made possible partly due to political euphoria and strong initial consensus among the political actors. The subsequent period was one of accumulating experience. Now, the agenda includes a focus on addressing the consequences of the earlier reforms. The overly decentralized administrative system is regarded by many as ineffective, and early zeal in deregulation and entrepreneurial encouragement has given way to a more measured concern to distinguish between entrepreneurial and criminal activities.

Nick Manning/Neil Parison Page 112 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 9: Netherlands

B.J.S. Hoetjes, Professor and Senior Research Fellow, University of Maastrciht and Netherlands Institute of International Relations, Clingendael

Overview

In the Netherlands, as in the majority of EU countries, most public employees have the status of civil servants. This means that they are governed by a civil service law (public law) and its secondary legislation and not by the general labor laws that apply to the private sector. Wage negotiations, however, have been made similar to market conditions by introducing eight different sectors, for which separate wage contracts are negotiated with the trade unions.

The Netherlands public service is less closed than the German system for example, with many external consultants and social scientists working in the Dutch ministries. The Netherlands system of consultative and advisory councils provides numerous channels for outside ideas to enter the public sector.

During the 1980s, promoting greater integration, efficiency, effectiveness and coherence in government was a central policy issue in the Netherlands. Since that time, attention has shifted to reductions in the overall size of government. In the 1990s this led to privatization policies and to the autonomization of parts of the administration. The administration of social security was entrusted to an autonomous agency, and the Pension Fund for Civil Servants (among the world’s largest institutional investors) was privatized. The central government also sought to transfer responsibilities to lower levels of government.

The sequence of reforms

The reform of Dutch public administration was not guided by a full-scale, explicit master plan or program, but took the form of a series of efficiency measures inspired broadly by new public management ideas. The first major measure was in 1983; ‘operation 2%’ aimed at a 2% reduction of central government personnel each year. In 1986 the annual target was put at 3%.

From 1989 onwards, contracting-out was introduced more systematically, involving private sector bodies carrying out public tasks on a contract basis. ‘Autonomization’ of government services was pursued in parallel, with the transformation of many traditional government departments into semi-public agencies (zelfstandige bestuursorganen). There are 163 of these at present. In 1996 the Ministry of the Interior issued legal regulations on this topic responding to the widespread growth of ‘autonomous bodies’ that had taken place.

Labor negotiations in the public sector were decentralized in 1993.

Nick Manning/Neil Parison Page 113 11/22/2004 International Public Administration Reform Country Reform Summaries.doc In the early 1990s, issues of control, fraud, and integrity became politically significant, and the then Minister of the Interior took a leading catalytic role. Since then, strengthening financial control of government, and improving ethics, responsibility and restoring public confidence, have become major issues for the Dutch government and the Dutch public administration. Most recently, after a series of scandals, incidents and accidents, law enforcement has become a source of public and political concern.

Personnel reduction targets remain in place, but in practice since 1996 public sector employment has been increasing after the decline of the 1980’s. In 2001, a 5% growth of public sector employment is expected.

Reformers' concerns

Concern about the overall size of public sector employment and the fiscal weight of the wage bill have been the major drivers of reforms. In EU politics, the reduction of public expenditure became a priority, and as a result the reform of Dutch administration became a major goal of government policy under different prime ministers (Lubbers, Kok) and different coalitions (christian-democrats, liberals, social-democrats). Many efforts have been made to reduce the size of the Netherlands’ central government. This has been accompanied by a concern to reverse the loss of public respect for the public sector, particularly following several major scandals.

Politically, during the 1980’s, ideological controversies subsided, and political attention and discussion focused more on administrative performance. The goals of policy became less of an issue than the means of implementation - i.e. efficiency and effectiveness. On this technical level, the growth in semi-autonomous agencies has created some political and managerial anxiety, with an underlying concern that political control and the accountability of administrators to elected representatives had been weakened.

Competition between the public sector and the private sector for personnel has become an increasing problem, particularly at senior management levels and in Information Technology.

Institutional starting points

Constitution/political system

The Netherlands is a unitary state, but highly decentralized, characterized by consensual, multi-party, politics, and a quasi-corporatist tradition of consultation. The head of government is the Prime Minister. However, the Dutch Prime Minister is only primus inter pares, and far less powerful than a British Prime Minister or German Chancellor. Constitutionally the Prime Minister is entrusted only with the task of chairing the cabinet. He or she cannot, for example, remove a minister or reshuffle the cabinet. Nevertheless, the Prime Minister is the de facto the leader of the government and acts as negotiator in conflicts.

Nick Manning/Neil Parison Page 114 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Parliament consists of two chambers, both of which are elected for four-year terms. The Second Chamber, or lower house, has 150 members directly elected by proportional representation through a national party-list system. The First Chamber is made up of 75 members elected by the members of 12 (directly elected) provincial assemblies. Since no single political party has ever obtained an outright parliamentary majority in Dutch history, forging a viable government usually requires lengthy negotiations involving multiple parties.

Significant political and fiscal decentralization has changed the relationship between the national government and local governments. Provincial and municipal authorities have been given responsibility for implementing national policies, with national government providing the necessary financial resources. The consequence is that local and provincial authorities receive approximately 90% of their budgets from the national government. The Financial Relations Act of 1996 redistributed financial resources among municipalities.

Structure of Government

The number of ministries in central government has remained constant at 13 for many years. The changes that have taken place were always made during the cabinet formation process and were less inspired by motives of public management than by political considerations among the parties forming the coalition.

In the policy fields of the various ministries, increasingly tasks have been entrusted to a growing number of semi-autonomous agencies (zelfstandige bestuursorganen). In foreign affairs, there is the National Committee on Development. In agriculture and fisheries there are 32, and in the transport and water sector there are 48. In total and as noted above, in 2001 there were 163 such agencies..

The number of provinces is 12. At the local government level, however, the number of municipalities has decreased steadily and dramatically, from about 1,200 at the end of World War II to about 500 in 2001.

Major trade unions are social-democratic (FNV), protestant-christian (CNV), and liberal (medium and higher personnel Unie-MHP). Trade union membership in general has decreased dramatically since the 1980’s, probably as the result of sustained economic growth and some softening of ideological distinctions. There are some signs that there might be a resurgence of interest in trade unionism but that has yet to emerge in any increase in membership.

Government decision-making takes place in the Council of Ministers, comprising 15 ministers and 20 Secretaries of State. In some ministries (Foreign Affairs, Interior), a minister without portfolio assists the substantive minister (e.g. for Development Cooperation, Metropolitan Areas).

Decisions for cabinet ratification are prepared in Cabinet Committees (sub-Councils). These serve to coordinate proposals from several ministries and allow for a major input

Nick Manning/Neil Parison Page 115 11/22/2004 International Public Administration Reform Country Reform Summaries.doc from the civil service into policy proposals. In 2000, there were 12 sub-councils, e.g. for Economic Affairs, for European and International Affairs, Social and Cultural Policy, or Spatial Planning and Environment.

In preparing policy proposals, extensive consultation takes place with interest groups and NGOs. The Dutch system of consociational democracy operates with more than 130 advisory bodies in all policy fields. In 1993, a Study Committee reported on the streamlining of this system, and the 1996 "Act to Revise Advisory Bodies" established 24 advisory bodies in 1998. Two are general (Socio-economic Council, Scientific Policy Council), 12 roughly correspond to the ministries, 7 offer consultation on specialized issues (legal, veterinary, banking), and 3 on administrative issues (e.g. the Electoral Council).

In the Netherlands, according to the Civil Service Act of 1929, ‘a civil servant is he/she who is appointed to be employed in the public service’ (art. 129). In common usage, however, the term ‘public service’ is broadly equivalent to ‘public sector’, i.e. all activities/personnel paid from the public treasury, including both the ‘civil service’ (i.e. the body of government personnel in charge of public policy) and the ‘subsidized sector’ (e.g. schools, hospitals).

The Civil Service Act gives broad outlines for selection, pay scales, discipline, recruitment, pension, and dismissal, but actual personnel management and personnel policy is under the competence of individual ministries and agencies separately. In practice, therefore, there is considerable fragmentation of personnel policies and a competition between government organizations on the labor market, involving differences in prestige, career prospects and working conditions (within the broad outlines of the Civil Service Act).

The legal status of civil servants has come closer to the conditions in the private sector. Wages and other terms and conditions used to be determined unilaterally by the minister of the Interior, but since 1993 they have become subject to negotiation with the trade unions through collective agreements (collectieve arbeidsovereenkomst) on a decentralized basis. There is now no single wage contract for the whole public service. Separate negotiations determine the agreements for eight sectors: central government, provinces, water boards, municipalities, public education, police, judiciary, and the military. As a consequence, since 1993, there are no over-all data available about public sector employment. Only very recently, in 2001, the ministry of the Interior published an over-all view of public sector labor market developments.

According to constitutional law, the government of the Netherlands consists of the council of ministers and the Queen/King. Its members are not members of parliament. The Queen/King has immunity, and the ministers are responsible to Parliament.

Parliament has two chambers. The First Chamber is elected indirectly (via the Provincial parliaments) and acts as a Chamber of ‘reflection’ (legislative proposals accepted by the Second Chamber have to pass through the First Chamber for a ‘second thought’). The

Nick Manning/Neil Parison Page 116 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Second Chamber has 150 members and is directly elected every four years under a system of proportional representation.

Central agencies and reform management

Box 14 Responsibilities of central agencies in the Netherlands Ministry of the Interior Directorate General for Management and Personnel Policy • co-ordination of personnel policy; salary negotiations, number of posts, job descriptions, training and staff development • initiation of modernization schemes Directorate General for Public Administration • co-ordination of relations between the different layers of government, including decentralization • co-ordination of the policy on information technology in government Office for the Senior Public Service • providing career development instruments Directorate General for Security and Intelligence • integrity protection in the public service

Ministry of Finance • financial management and control (including over reorganization)

Ministry of Justice • regulatory policy and reform including legal regulation of the public service. For matters of civil service discipline, however, the Ministry of Interior is responsible.

During the 1990s, the Dutch academic community played an important role in developing the Dutch "New Steering Model," which promoted many of the themes of the New Public Management. In the field of public personnel, a piecemeal series of policy reforms intended to increase collaboration between ministries, to improve quality through management development, and to increase mobility within the public service, were introduced. It should be noted, however, that there is no comprehensive, centrally directed, reform program. The Ministry of the Interior is in charge of overall coordination, but with rather mixed results.

For all measures, the Dutch government took great care to publicize its intentions beforehand, if only to gain the support of Parliament. Where parliamentary support was not needed, the reports from committees of inquiry concerning contentious policy proposals, such as privatization or changes in the wage negotiation system for the public sector, were more forthright. After publication of a report and the ensuing discussion in the media, including the specialized media (journals, seminars) for the public sector, the ‘right climate’ could be created for a new policy step. Publicity beforehand was instrumental in the reforms, reassuring the public of the government’s good intentions and creating general support. During reforms, considerable effort is given to explaining the changes internally within the public service, by means of approaches such as articles, interviews, seminars, and training courses.

Nick Manning/Neil Parison Page 117 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Politicization

Officially, public service posts are not subject to a "spoils system". In practice however, the distribution of seats in parliament is taken as the baseline for the distribution of higher-level posts in the civil service. In particular, mayors, Commissioners of the Queen, municipal secretaries, and senior positions in the ministries (directors-general, directors) and agencies (directors) are distributed on party basis. There are few non-party members in these senior positions.

Reform activities

Summary

Within the ministries, financial transparency, control and accountability improved during the ‘90s. For the semi-autonomous agencies, however, control diminished. The law concerning Publicity of Administration ensures public access to government documents. In practice, much depends on the activism of investigative journalists and/or the willingness of individual public servants to act as (anonymous) "whistle-blowers" or "information leaks".

In legislative terms, two laws have made the public service increasingly cautious in its behavior. The Ombudsman Law of 1981 and the General Administrative Law Act of 1992. The former enables the Ombudsman to investigate into the behavior of national ministries, autonomous agencies, water boards, provinces and a number of municipalities (i.e. the large cities). In practice, the Ombudsman has focused on national ministries and the police, and the four major cities have each appointed their own Ombudsman. The institution of the Ombudsman is highly active and in 1996 more than 8000 matters were dealt with. Its public reports draw considerable attention in the media and in the public service.

However, the General Administrative Law Act has probably been more important for public service performance, since it makes all government decisions liable to appeal in a regular, independent court of law. Instead of having a separate channel of administrative appeal in specialized courts, since 1992 all Courts have created Chambers for administrative matters as a part of the ordinary judicial system. In practice, the General Administrative Law Act has enabled groups of citizens to fight any policy decision in court. Since this entails a huge burden of juridification in the courts, most government institutions have created ‘preliminary committees of appeal’ to handle citizens' appeals in different fields of policy, including on personnel issues (re- organization, transfer and dismissal etc.). The Act has widened the possibilities for appeal, and has slowed down the pace of internal reform and re-organization in the public service.

A final factor affecting the performance of the Dutch public service has been the large number of parliamentary inquiries into ‘policy failures’ or ‘crisis management’. As ideological controversies receded, parliament has increasingly asserted itself by publicly investigating disasters, crisis, and accidents, focusing on the involvement and the

Nick Manning/Neil Parison Page 118 11/22/2004 International Public Administration Reform Country Reform Summaries.doc responsibility of government and the public service. Recent examples include: the failure to make, and implement a contract for the printing of new passports; the failure to control and monitor criminal organizations involved in drugs trade; the handling of an airplane crash on Amsterdam-Southeast; the handling of the Dutch army involvement in Srebrenica (former Yugoslavia); and the government response to a major fireworks’ explosion in the town of Enschede. The ‘investigation culture’, therefore, has made public servants increasingly cautious and reluctant in taking initiatives and responsibilities.

Reforms to the organizational structure of government

In the early 1990s semi-privatized services were introduced into the Netherlands public sector. Since the first agencies were launched in 1994, their number has gradually grown to the present level of 163. According to the Coalition Agreement of 1998 that formed the new government, the introduction of business-like elements in public management will be continued.

Cutting back the programs undertaken by government

Contract management was started in the late ‘80s, under conditions of economic growth. In several large contracts, such as infrastructure, open-ended arrangements caused considerable financial losses to the public treasury, which were, however, politically "accepted", however grudgingly. In the late ‘90s, and early 2000s, there is growing concern about controllability of contracts and their ultimate profitability for the citizen and the treasury. Marketization of energy, for example, is taking place much more cautiously than has been the case for telephone services.

In spite of the culture of decentralization, in the fiscal field only the real estate tax offered financial expansion for the municipalities (i.e. the major municipal tax base, with the maximum rates fixed by national decision). Service delivery followed the established line of municipal involvement and national financing, plus an increasing role for semi- autonomous agencies, for example in the field of social security administration.

Civil service and personnel reforms

During the ‘90s, the automatic financial promotion (annual ‘step upward’ on the scale) was gradually replaced by a system of financial promotion by good performance-only (if not good: stable salary, reduction of salary only in cases of exceptionally bad performance) and rewards for very good performance. In the semi-autonomous agencies, lump sum financing enabled management to offer financial incentives comparable to the private sector.

During the ‘80s, young managers were promoted more easily than before, but because of the lack of inter-ministerial mobility and difficulty of dismissal, an increasing group found itself "stuck at the top". The Office for the Senior Public Service was established to handle this problem.

Nick Manning/Neil Parison Page 119 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Since reduction targets were not specified, but rather proposed annually by the ministry of Finance to the other ministries, the outcome depends on the inter-ministerial negotiations, where outside factors (strikes, social unrest) also play a role. In education, police and health care, for example, reductions proved much more difficult to achieve than in defense (especially after the Cold War). Nevertheless during the ‘80s, the growth of the public service came to a standstill, and picked up again in the late ‘90s, albeit slowly.

The Civil Service Act provides the framework for the rights (material and immaterial) and the duties of the public servants – with considerable variation of wages/labor conditions. Recently, the uniform civil service discipline has received increasing attention.

The merit system, ensuring a regular assessment of work performance for every public servant, was kept in place with three provisions: (i) automatic salary increases were made more and more dependent on satisfactory/good performance; (ii) promotion because of very good performance became easier; (iii) new ideas of personnel policy (‘employability’, ‘competence management’, and ‘re-training schemes’) were introduced.

The introduction of "market-like" features in public personnel policy in the Netherlands has made public servants’ life considerably less secure. Dismissal of civil servants of grounds of re-organization has become possible (accompanied by a relatively generous pay-after-dismissal policy, depending on the length of service), which is a revolutionary break with the past. Pay scales and pension arrangements are still in place, but wage agreements over the 1990s have made public service less attractive than private business, especially in the higher income brackets. For the subsidized sector and the agencies, lump-sum financing offers more freedom of pay policy, but also insecurity of future budgets. Under conditions of overall economic growth and a tight labor market, the private sector can absorb excess labor from the public sector. Nevertheless, painful internal choices have to be made in the public service, since overall public expenditure is not allowed to grow as a percentage of GDP.

In spite of a traditionally high reputation of integrity, several "accidents" occurred showing that integrity can never be taken for granted. The Lockheed scandal of 1977 affected the husband of the (then) Queen, and during the 1980s, several corruption cases occurred at the local level (social security "brokerage"). The minister of the Interior, in 1991 started an integrity campaign of awareness and "cleaning-up" at the municipal level. Parliamentary investigation into crime-fighting also brought to light some corruption cases in the police force. The Intelligence Service was put in charge of "integrity management" for the Dutch public service, offering lectures, seminars, ethical codes, and practical advice to government services. In 1999, the Ministry of the Interior published a policy paper "Trust and Responsibility", making clear that new public management ideas can and should undermine the integrity of the public service culture. The paper stressed the importance of public ethics and integrity (public interest, impartiality, and reliability in the separation of private and public interests).

Nick Manning/Neil Parison Page 120 11/22/2004 International Public Administration Reform Country Reform Summaries.doc In 1995 a Senior Public Service (Algemene Bestuursdienst, ABD) was introduced in the Netherlands. This comprises the group of 350 civil servants in the top three salary scales (secretaries general, directors general and directors of three major directorates) of central government. The aim of this initiative is to increase mobility among senior public servants, to implement a management development policy for the group and in this way more actively manage the quality of the senior service for the long term.

The Minister of the Interior is responsible for the initiative and is also formally responsible for public service appointments in these salary scales. A small Senior Public Service (SPS) office, led by a Director-General for the SPS, is responsible for implementation of the policy. All policy initiatives are developed in close co-operation with the secretaries-general and the departmental personnel services. A formal evaluation was carried out in 1997. The results on mobility have been good. The office has filled about 90 vacancies, 40 per cent of which have been interdepartmental and 40 per cent of the total have been of a horizontal, rather than vertical nature. The Senior Public Service’s efforts, however have to take into account the informal politicization of the higher public service in the Netherlands.

Budget process changes

The Ministry of Finance actively promotes the introduction of output-based budgeting. The Dutch government accounts until now follow a reservation system for budgeting, and a cash and capital-based system for reporting. However, the Ministry of Finance over the last five years has promoted an accounting system more similar to private business, i.e. output-related financing. Within government, units have to formulate and specify their intended services/products (output) and estimate the costs to be made for the production of these outputs. This system is also to facilitate public-private partnerships. It is the ministry’s ambition to achieve a complete transition of the public sector to a system of output-financing. Currently the old system still prevails, but ministries increasingly clarify the relations between policy, finances and performance, in the presentation of their budgets.

E-government

Since the mid-80’s, Dutch public administration has been in the process of introducing electronic information technology internally, following the lines of the private sector, and also increasingly stimulated by EU policies and programs. Nevertheless, the process did not make much headway until the mid- ‘90’s – even today, the different regional police bodies have different computer systems, blocking effective communication in crime- fighting. On the other hand, tax returns can be handed in electronically since 1995. Since 1998, within the Ministry of the Interior, the Minister for Metropolitan Areas and Minorities has adopted electronic government as a key task.

Reform outcomes

In terms of efficiency and service to the public, the privatized services (energy, public transportation) have seemingly become more expensive and less reliable for the citizens,

Nick Manning/Neil Parison Page 121 11/22/2004 International Public Administration Reform Country Reform Summaries.doc in spite of an increase in commercial publicity and advertising, and an effort to improve their image and change their internal corporate culture. The present climate of public opinion is increasingly negative about quick and drastic privatizations, and might even be in favor of returning several monopolistic services to public/state companies. Other government services, e.g. taxation services, have managed to improve both their internal efficiency and their communication with the services – even though they were not privatized. The police service, on the other hand, has lost much of its former positive image, due to drastic cutbacks.

Overall, performance of the Dutch public service improved in some areas and deteriorated in others. The image of the public service, and therefore the expectations from the public, has gone down since the early 1980’s. Increasingly, government service has become a second-choice career for students – even in University Departments of Public Administration, students prefer careers in private business rather than the public service. Only recently, during the mid-1990s, are there some signs that the tide is turning.

One interesting consequence of the reforms is that the quasi-corporatist system of interest group consultation by government, based on the old consociational democracy, became less prominent. The distance between government and interest group increased as lobby groups, such as those in agriculture, no longer were given co-responsibility of policy- making. The Landbouwschap was abolished in 1995. On the other hand, the views of the trade unions and of the employers on major issues of economic policy converged somewhat. Trade unions in the Netherlands proved remarkably flexible, and willing to agree with moderate/low wage increases, re-training schemes, lay-offs, and cuts in public expenditure. This so-called ‘polder model’ of consensus policy-making greatly facilitated privatizations and public sector reforms. Only very recently, there have been some signs of restlessness in some trade unions (e.g. railways), which may slow down further efficiency measures and public sector reforms.

In addition, as noted above, the public service has reason to be increasingly cautious. The over-all impact of the reform measures over the last 20 years have made the Dutch more aware of the weaknesses of their public service system. On the one hand, this implied an increasingly critical comparison between public performance and the private sector performance, followed by recognition of the limits of this comparison. It also implied an increasing willingness to entrust ‘public’ tasks to private or semi-private entities, and to work towards a further streamlining of the public service. As a result, the growth of government came to a standstill, which by itself is a remarkable feat of ‘stopping the super-tanker’.

However, satisfaction with government did not grow. Issues of service quality towards the citizen (reliability, cost) and public control remain under discussion/controversy, and recently issues of public integrity have been added. Personnel mobility between the public and the private sector has certainly increased. Within the public service, there is a feeling of being unjustly treated as scape-goats and of exhaustion from continuous change and re-organization, especially among the older generation. For the younger generation of university graduates, their willingness to be flexible and their interest in a

Nick Manning/Neil Parison Page 122 11/22/2004 International Public Administration Reform Country Reform Summaries.doc career path that takes them through several ministries is stronger. For this group, the new recruitment arrangements, with introductory programs, internships, offer good prospects to create a more integrated, flexible, outward-oriented public service in the Netherlands.

One remaining concern is in relation to the 163 autonomous administrative authorities. These have raised a potential problem with regard to the principle of ministerial responsibility. A framework Act has been announced that will provide a minimum set of rules on the structure of these autonomous authorities, the appointment and dismissal of their management, and their financial and operational accountability to the Minister.

Nick Manning/Neil Parison Page 123 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 10. New Zealand

Graham Scott, Principal, Graham Scott (NZ) Ltd and Executive Chair, Southern Cross Int. Ltd.; Lynne McKenzie, MD, Southern Cross Int. Ltd

Overview

The New Zealand reforms were directly stimulated by economic and fiscal conditions. A fiscal crisis in 1984 involving a stagnant economy, high national debt, 20% devaluation and an exchange rate crisis led to a search for ways to reduce public spending. An attempt by ministers in 1985 and 1986 to scrutinize spending highlighted the poor information base for decision-making and the perverse incentives for heads of departments. Criticisms of the prevailing arrangements included concern that the input based information system was largely useless for making effective decisions, and that incentives encouraged managers to protect and expand resources. For example heads of departments were paid partly on the number of staff they employed. Ministers certainly found the bureaucracy unresponsive and there were concerns about the quality of policy advice.

Input controls restricted managerial discretions required to improve performance and also provided a place to lay blame for poor performance. Agencies faced conflicting objectives, roles and responsibilities that made it difficult to hold them accountable for the achievement of any objectives, for example, commercial and non-commercial functions were often placed together.

Staff quality was variable, and restrictive employment conditions out of step with private sector conditions favored inside appointments and made the public service unattractive. At the same time, public sector employment arrangements encouraged costly wage settlements.

Not all the problems were seen as bureaucratic. Ministers saw the budget as a game where the winner extracted the greatest increase in resources (Scott and McKenzie 2001).

Overall, government was an inefficient and sometimes ineffective supplier of many goods and services that were considered better provided by the private sector such as telecommunications, railways, airline services, construction, farming and forestry. For the twenty years to 1986, the government invested $5,000 million of taxpayer’s money in the departmental trading activities of the Lands and Survey Department, Forest Service, Post Office, State Coal Mines and the Electricity Division of the Ministry of Energy. In 1986 these organizations managed asset values of over $20 billion but made no net after tax return to shareholders (Douglas and Callen 1987, p.234; Jennings and Cameron 1987).

Strikingly the reforms were designed and implemented by elite inside group of politicians and central agencies in a top-down fashion. There was no great pressure for change from citizens - and 1984 to 1990 reforms unpopular particularly with people

Nick Manning/Neil Parison Page 124 11/22/2004 International Public Administration Reform Country Reform Summaries.doc displaced from the public sector and with the left wing of the Labour party. Extensive use was made of management consultants and other external experts for specialist advice on areas such as privatization and restructuring

The sequence of reforms

Sequencing was determined by fiscal aims and attention was paid to the areas of largest gain. As the reforms provided managers with freedom to manage in return for accountabilities under the Public Finance Act, the timing of the employment reforms and the finance reforms was necessarily closely related.

Box 15 Sequence of reforms in New Zealand date reform 1986 onwards Corporatisation and privatisation of state owned enterprises 1986 onwards Restructuring large conglomerate ministries 1988 State sector employment reforms 1989 Public finance and accountability reforms late 1980s Health sector decentralized to area health boards late 1980s Education sector decentralized school administration to local trusts 1990s Education sector decentralized financial management 1993-1999 Health sector reforms with split of funding, purchasing and provision 1999 to date Refinements considered for Crown entities 2000 Education sector decentralized financial management reversed by Labour/Alliance government 2001 Health sector returned to district health board model under Labour/Alliance government

These internal reforms were accompanied by other, external changes. The Official Information Act 1982 increased the availability of information held by public sector organizations. It has been widely used by the opposition, media, interest groups and the public to obtain information on performance and other matters. The increasing use of judicial review through the courts has placed decisions taken by government under a spotlight. Public organizations are more aware of need to follow good processes in making decisions. Increasing demands for participation in government decision-making by Maori people has led to greater consultation requirements.

Reformers' concerns

Fiscal problems were the stimulus for the reform program. The new arrangements saw appropriations strictly adhered to and better recording and management of government finances including contingent liabilities.

One aspect of the fiscal problems related to the overall government wage bill. High wage costs rapidly flowed through the public sector with ease due to complex comparabilities between different groups of public sector employees. Performance was not linked to pay and rigid job classifications and pay scales removed freedom for managers to set pay levels and use performance based pay.

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There was a concern that the some public sector organizations provided the services that they wanted to and were not responsive enough to ministers, and that Chief Executive Officers (CEOs) and senior management appointments were too long term and rigid. It was difficult to appoint new people with fresh approaches, and the formal appointment process favored inside appointments and made public sector unattractive to private sector people.

Some particular targets were identified. The lack of clear objectives, focus, roles, and responsibilities in large conglomerate government organizations, and the confused mix of functions such as policy, funding, purchasing, provision within the same organization gave rise to conflicting objectives.

Institutional starting points

Overall

The reforming government that held office from 1984-1990 built its agenda for change in New Zealand on a very particular foundation. The political system allowed government considerable scope to implement reforms with no tradition, in the early 1980s, of coalition governments.35 There was a tradition of government stability, with few governments serving less than their full term. The political system attracted competent politicians, and the public service had competent and effective central agencies particularly in the Treasury. The Treasury led the reforms in 1980s and was well positioned to do so. The State Services Commission led changes to the public sector labor arrangements.

There was also a sufficient core of competent managers within the public sector to implement the reforms and an adequate supply outside the public sector of required skills such as trained accountants. Staff in the public and private sectors was well informed and had a reasonably high level of compliance with the law compared to many other countries.

For several historical reasons, there was a low level of trade union influence in the public sector and they had little ability to resist change. There had been no compulsory membership of trade unions.

Most critically, there was a strong tradition of discipline. The public service had a solid track record of complying with budget, management and reporting requirements to a reasonable standard. This was accompanied by a tradition of career public servants with obligations to serve the government of the day, rather than a domination of political appointments in senior roles. There were also low or minuscule levels of corruption and it was not a culturally accepted practice.

The reforms were accepted by successive governments from different parties. Even the 1999 Labour/Alliance government which has distanced itself from the 1980s reforming Labour governments, has confirmed it will retain the legislative cornerstones of the

Nick Manning/Neil Parison Page 126 11/22/2004 International Public Administration Reform Country Reform Summaries.doc reform although it has made changes to employment relations legislation which has the potential to strengthen the role of trade unions.

Constitution/political system

New Zealand is an independent state; a monarchy with a parliamentary government. Queen Elizabeth II (of the United Kingdom) has the title Queen of New Zealand.

In 1840 many Maori chiefs signed the Treaty of Waitangi thereby exchanging their territorial sovereignty for the guarantees of the treaty. New Zealand was recognized as a British colony from this date however there have been many arguments over exactly how it became a British colony.

New Zealand’s Constitution Act of 1986 consolidates the main elements of New Zealand’s statutory constitutional law under five parts corresponding to the Sovereign, the Executive, the Legislature, the Judiciary and the Governor-General. The New Zealand government describes the functions of the Crown and Governor-General as follows:

"The Governor-General is the representative of the Sovereign in New Zealand and exercises the royal powers derived from statute and the general law (prerogative powers). The powers of the Governor-General are set out in the Letters Patent 1983, and it is for the courts to decide on the limits of these powers. The Governor-General’s main constitutional function is to arrange for the leader of the party with the most support in Parliament to form a government.

The Crown is part of Parliament and the Governor-General’s assent is required before bills can become law. The Governor-General is required, however, by constitutional convention and the Letters Patent, to follow the advice of ministers. In extraordinary circumstances the Governor-General can reject advice if he or she believes that a government is intending to act unconstitutionally. This is known as reserve power." (Joseph 1993, p.26).

New Zealand has experienced recent constitutional reform, however. In 1992, a referendum was held on electoral reform. The referendum was in two parts: (i) voters could choose between electoral reform or maintaining the existing first-past-the post system; and (ii) voters could choose between four options preferred: supplementary member, single transferable votes, mixed member proportional or preferential voting. Eighty-four percent of those voted elected change. A clear preference was for mixed- member proportional representation (MMP) which received 70.5 percent of the votes for change.36

New Zealand has a small single chamber legislature (120 MPs), and the majority, which since the introduction of MMP is formed by coalition parties, dominates the legislature. Since MMP was introduced in 1996 coalition governments have ruled. Previously, Prime Minster and Cabinet were able to force through changes with the support of their MPs.

Nick Manning/Neil Parison Page 127 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The shift from a strong majoritarian executive to a coalition has required more compromise and consensus within coalition parties.

Formally, the parliament meets in answer to a summons from the Governor-General. The Speaker, elected by the House, is the presiding officer, maintaining order in proceedings and ensuring the Standing Orders (rules of procedures for the House) are complied with (Statistics New Zealand 1999).37

Structure of Government

The state sector includes the New Zealand Public Service, which is made up of 39 government departments, plus Crown entities and SOEs. The state sector also includes the New Zealand Police and the New Zealand Defense Force. The Public Service is characterized by relatively small departments that have clearly defined roles in policy advice, service delivery, regulatory or sectoral funding functions (Statistics New Zealand 1999).

Local Government in New Zealand comprises:38

• 12 Regional Councils • 74 Regional Authorities • 154 Community Boards • 6 Special Authorities • 22 District Health Boards.

New Zealand’s local government is largely independent of its executive government. A Local Government Act sets out its functions and duties. Local government falls into three categories: (i) regional; (ii) territorial; and (iii) special purpose authorities. Income is usually independent of the central government however the 22 district health boards are funded by central government. Local taxes make up the majority of local government income.

Local authorities hold three-year terms. Local authorities are required to publicize and receive public submissions of important decisions.

Line Ministries and departments, in their reformed slimmed down role, are responsible for decision making on policies, purchasing of services, design and management of service "contracts" and managing "contracts" with Crown entities (executive agencies) and other providers. Many service contracts are between government entities. They specify what is required however they are not usually regarded as formal contracts to be enforced through courts. As many involve the long term supply in bilateral monopoly relationships, the identification of mutual objectives and the management of potential conflicts are important aspects of making these arrangements work well.

Crown entities (executive agencies) usually have either service delivery functions or regulatory functions. Service delivery agencies make decisions on delivering the outputs

Nick Manning/Neil Parison Page 128 11/22/2004 International Public Administration Reform Country Reform Summaries.doc specified in the service agreements. Some regulatory agencies have special functions requiring a degree of independence from government, e.g. Commerce Commission, Privacy Commissioner, Human Rights Commissioner, Race Relations Commissioner.

Ministers of the Crown are appointed by the Governor-General on the advice of the Prime Minister and must be members of Parliament. Collectively, they form the executive arm of government whose principal decision-making body is Cabinet, which is chaired by the Prime Minister. All major decisions are taken through the Cabinet process and Cabinet meetings are confidential.

All ministers are members of the Executive Council which is the highest formal instrument of government and is the institution through which the government as a whole advises the Governor-General, normally by recommendations to make Orders in Council. Apart from Acts of Parliament, Orders in Council are the main method of implementing government decisions requiring force.

The Cabinet is the central decision-making body of the executive, whose role is to take decisions in areas which include: (i) policy issues; (ii) spending proposals; (iii) proposals for new legislation or the making of regulations; (iv) areas which involve a number of government departments; (v) international treaties and agreements.

Cabinets have committees with a variety of roles. The Shipley administration undertook some fresh thinking about the cabinet committees and took steps in the direction of a two-tiered cabinet. When Jenny Shipley became Prime Minister in 1997, she initiated substantial changes in the operation of the cabinet and its subcommittees. Several strategy committees were set, as well as four ministerial teams covering related areas across all the portfolios (economic; enterprise and innovation; social responsibility; justice and security). A committee of powerful ministers known as the ‘gate-keeping ministers’ dealt with significant fiscal matters. Problems with fiscal control in New Zealand and internationally have provided valuable lessons for governments. Some of the worst situations in the formation of fiscal policy in the 1980s can be attributed in substantial measure to poor decision-making processes. The gate-keeping ministers were the Prime Minister, deputy Prime Minister, and the treasurer and finance ministers. They provided a spending limit for four ministerial teams that between them covered all the government portfolios. The gate-keeping ministers kept an eye on the shape of the budget as it emerged. Once they agreed on an issue, it was most unlikely to be overturned in the cabinet.

The new government elected in 1999 reversed these developments and established a larger number of committees. How well this structure works remains to be seen. Economic development is separated from finance, expenditure and policy, which is a novel conception. Following controversy over the policy to target services based on racial identification, the "closing the gaps" committee was disbanded.

There are many more ministers than members of cabinet.

Nick Manning/Neil Parison Page 129 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Box 16 Ministers in New Zealand39 Prime Minister Minister of State Services Minister of Defense Deputy Prime Minister Minister for Sport, Fitness and Minister for SOEs Minister for Arts, Culture and Leisure Minister of Tourism Heritage Minister of Energy Minister of Veterans Minister for Economic Minister of Fisheries Affairs Development Minister of Forestry Minister of Commerce Minister for Industry and Regional Minister of Research, Science and Minister of Development Technology Communications Minister of Finance Minister for Crown Research Minister for Information Minister for Accident Insurance Institutes Technology Minister of Revenue Minister of Labor Minister in Minister for the Minister of Social Services and Charge of Treaty of Waitangi Environment Employment Negotiations Minister for Biosecurity Minister of Foreign Affairs and Minister of Corrections Minister of Broadcasting Trade Minister for Courts Minister of Transport Minister of Justice Minister for Disarmament and Minister of Housing Minister of Health Arms Control Minister of Pacific Island Minister of Conservation Minister for Land Information Affairs Minister of Local Government Minister of Immigration Minister of Women’s Minister of Agriculture Minister for Senior Citizens Affairs Minister for Trade Negotiations Minister of Police Minister of Youth Affairs Minister for Trade Negotiations Minister of Internal Affairs Minister of Statistics Minister of Education Minister of Civil Defense

Central agencies and reform management

The central agencies in New Zealand have been traditionally very powerful. The 1984 government had a reformist Finance Minister who was strongly supported by the Treasury and a reformist Minister of State Services who was supported by the State Services Commission. The Treasury, with intellectual and political power and high capacity, became a powerful and competent reform agency. The politicians, sup[ported by these central agencies, were able to have an impact on a simple and relatively small government, and a tractable and homogenous public administration.

Politicization

As noted, even the most senior officials have traditionally been appointed on merit and heads of public sector agencies report to ministers. In the case of State owned enterprises, boards reported to two shareholding ministers, the Minister of State Owned Enterprises (SOEs) and the Minister of Finance. Crown entities with boards reported to their responsible minister. Formal reporting and audit requirements were detailed in the Public Finance Act 1989, the State Owned Enterprise Act 1986 and the Fiscal Responsibility Act 1994.

Against this context of minimal patronage, the reforms have further increased depoliticization through reducing direct political interference in program delivery. The process of specifying what outputs and other interventions will be undertaken to meet government goals, what this will cost, transparent reporting on performance, and the

Nick Manning/Neil Parison Page 130 11/22/2004 International Public Administration Reform Country Reform Summaries.doc contracting process and use of service agreements to record expectations, makes the choice of service delivery arrangements a more rational efficiency question. Clear roles and responsibilities for ministers, CEOs and boards also contribute to the low politicization. Clear legislative provisions cover ministerial powers of direction for Crown entities and role with SOEs.

A strong audit function, with annual audits of government accounts and of the service delivery and financial statements of all government entities, and wide access to information, also act as deterrent on poor practices. Opposition parties make extensive use of these facilities to probe government decision making processes.

Reform activities

Summary

Distinctively, reforms in New Zealand were driven by four principles (New Zealand Treasury 1987, p.55): 1. Clarity in objectives, roles, responsibilities, and avoidance of conflicting objectives. 2. Freedom to manage - managers need to be able to make effective resource allocation decisions not hampered by inappropriate input controls. 3. Effective assessment of performance and adequate information flows to assess performance. 4. Accountability - incentives and sanctions must be in place to modify behavior and managers must be accountable for the decisions they make.

All of these principles can be found in all elements of the reforms, but the developments in accountability were perhaps the most dramatic. The system of accountability introduced in 1988 struck a new deal for all chief executives who received managerial freedoms in return for accountability for delivering results. Cabinet on the recommendation of the State Services Commissioner appoints CEOs. The State Services Commissioner manages employment conditions and performance reviews. The State Services Commissioner, under the State Sector Act, undertakes performance management of CEOs for ministries and departments. The key tool for this has been the CEO’s performance agreement with the minister, monitored by the Commissioner. The Commissioner co-ordinates feedback from ministers, central agencies, self reports from CEOs and other information in the annual assessments of the CEOs of departments and ministries.

Accountability demanded clarity - and a distinction was drawn between purchase performance (supply of goods and services) and ownership performance (maintenance and development of capability, financial performance, risk management). Roles and responsibilities were also clarified. Ministers became purchasers of services on behalf of the government, rather than advocates for their departments or ministries at the cabinet table. Chief executives were responsible for the performance of their departments or ministries, rather than being administrators hampered by heavy central controls.

Nick Manning/Neil Parison Page 131 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Accountability requirements were tailored to types of government entities. Three types of organizations were differentiated: 1. Core government - the departments and ministries; 2. State owned enterprises - commercial businesses where the government had little or no purchase interest; and 3. Crown entities - an eclectic collection of organizations that were neither core government agencies nor State owned enterprises.

Accountability is always against some pre-specified standard. Clear ex ante specification of performance was required at all levels including appropriations linked to outputs, outputs linked to government goals, and CEO performance linked to the performance of their department or ministry. For Crown entities, a Statement of Intent setting out expected service and financial performance and a purchase agreement formed the ex ante specification. For State owned enterprises, a Statement of Corporate Intent covering the scope of business and expected financial performance formed the ex ante specification.

Accountability also requires certainty that information on which to judge performance will be forthcoming. Improved information was generated for decision making at all levels and for accountability. Monitoring and reporting of performance was stepped up. This includes regular reporting and monitoring of finances by the Treasury, monitoring of performance against the purchase agreement by ministers or their agents, and monitoring of performance by select committees based on annual audited reports to parliament on service and financial performance. Government is also obliged to report on its financial performance against principles of fiscal responsibility.

It is important to keep the question of how market-like government has become in some perspective. There is little contestability operating for ministry and department services. Apart for the ministerial advice from their offices and special inquiries, ministers rarely go outside their ministries and departments for services.

The purchase agreements and CEO performance agreements function more as ways to clarify performance expectations than as formal contracts for services. Executive agencies (Crown entities) have a variety of arrangements depending on their structure (e.g., whether there is a board) and on their functions (e.g. some have a large degree of independence from government). If they supply outputs to government, they have an agreement with the appropriate minister.

The State Owned Enterprises Act requires the specification and pricing of goods or services which the government requires them to provide to any persons. This is usually minor as SOEs tend to supply to the public on a commercial basis.

The role of the market in the reform of government activities operated most strongly through the privatization of government activities in the 1980s and 1990s. Competition does not have a strong role in many of the remaining government activities apart from outsourcing and providing goods and services to government entities. The education and health sectors are dominated by public providers for core services. The 1996 health

Nick Manning/Neil Parison Page 132 11/22/2004 International Public Administration Reform Country Reform Summaries.doc reforms anticipated greater competition but changes to the policy design, the domination of public sector monopolies and other issues confined competition to small areas such as residential care for the aged and some community health services.

Competition has a role in some smaller areas such as the Crown Research Institutes which compete for research funding.

Reforms to the organizational structure of government

Restructuring was undertaken including privatization of commercial functions, corporatization of other commercial functions not privatized, breaking up of conglomerate ministries with various permutations on the basic pattern of separating policy, funding, purchasing, provision, monitoring and audit.

Fiscal decentralization has been accompanied by the development of a monitoring role for the Treasury, which includes monthly monitoring of whole of government financial position. Large amount of service delivery moved out of conglomerate ministries into private sector or SOEs or Crown entities (e.g., schools and hospitals).

Cutting back the programs undertaken by government

The government of New Zealand now is responsible for dramatically less direct service delivery than in 1988. Privatization was in the first wave of reforms and extensive contracting out has followed.

Prior to the reforms, the government’s trading activities were large in scale, accounting for about 12 per cent of GNP and 20% of investment (Spicer, Emanuel and Powell 1996, p.9). The government of 1984 moved rapidly to place businesses in the form of state owned enterprises. Many were privatized over the next decade. Many State owned enterprises were among the entities which were privatized, including Air New Zealand, Petrocorp, Postbank, Shipping Corporation, Government Supply Brokerage Corporation (NZ) Ltd, Maui/Synfuels, New Zealand Rail Ltd, Government Computing Services Ltd, Tourist Hotel Corporation of New Zealand Ltd, and Telecom Corporation.

Politics played a large part in decisions on what to privatize and when during the 1990’s. By 2000, 18 state owned enterprises remained in existence. Many are small enterprises, with the larger ones being in the areas of electricity generation, grid transmission services, postal services, and television.

Civil service and personnel reforms

The reforms focused on changing the conditions of employees delivering government services to create more flexibility to appoint on merit and reward performance. Many employees were moved to executive agencies and state owned enterprises, and in consequence had wages that compared to the private sector, but much less job security Market forces drove rightsizing in the corporatized and privatized functions.

Nick Manning/Neil Parison Page 133 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The net effect was that employment in public service declined between 1988 and 1994 from 88,000 to 37,000. In consequence there were some difficult industrial relations.

Three key pieces of legislation underpinned the civil service and personnel reforms. The State Sector Act 1988 empowered CEOs. The State Services Commissioner became adviser on personnel rather than a central employer. CEOs received full discretion for human resource management within their agencies. This represented a remarkable change and the consequence is that New Zealand is one of the very few OECD countries that does not have a legally defined group of staff as the civil service, relying on the general labor laws to regulate public sector employment (World Bank 2001).

The Public Finance Act of 1989 introduced accruals accounting, a strong focus on outputs and outcomes, rather than inputs and activities.

The Employment Contracts Act 1991 increased flexibility to tailor contracts to individuals, and applied to private and public sector employees.

Pay policy has also been radically reformed. The Higher Salaries Commission sets pay levels for specified positions such as parliamentary officers and judges. The State Services Commissioner sets pay levels for CEOs on approval of ministers. CEOs set pay levels for staff. The number of staff receiving salaries of over $100,000 is reported in annual reports and this creates pressure to keep pay down. There is intense media scrutiny of public sector pay levels.

However, since CEO pay levels are not benchmarked to private sector, the pool of applicants can be lower than ideal. The original intention was to have the public and private sector pays levels more comparable. State owned enterprises tend to have higher pay levels then core government sector as they compete more in the private sector for staff.

In May, 1990, the State Services Commission issued a "Public Service Code of Conduct" The State Service’s Code of Conduct established three principles of conduct which all public servants are expected to observe: 1. Employees should fulfill their lawful obligation to government with professionalism and integrity; 2. Employees should perform their official duties honestly, faithfully and efficiently respecting the rights of the public and their colleagues; and 3. Employees should not bring their employer into disrepute through their private activities.

Each public servant is expected to have read and understood its contents.

Provision was made in the State Sector Act 1988 for the creation of a senior executive service. Individuals would be designated members, transferred around ministries and departments and trained for senior management positions. This has not been a success. It has not been supported by CEOs or actively promoted by the State Services

Nick Manning/Neil Parison Page 134 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Commission. CEOs expressed dissatisfaction with investing in people they lost to the organization. Although this is a narrow and shortsighted view, it is a powerful one.

Budget process changes

The reforms introduced output budgeting; accrual accounting; and devolved financial management with financial and service performance reporting, and auditing of finances and of service performance. These requirements are set out in the Public Finance Act 1989. The transition to this system was staged but very rapid and was mostly in place by 1990. Over time the quality of the specification and reporting has been refined, although there is room for improvement in areas such as: • Better specification by government of their desired outcomes; • Better output specification possible including better costing; and • Better explanation and analysis to support the linkages between outputs to outcomes and the linkage of other interventions to outcomes. Explanations are required in the budget documents but these are sometimes statements of assertion.

The Fiscal Responsibility Act (1994) law sets out requirements for reporting and monitoring of fiscal and economic policy by specifying particular reports which must be provided to the Parliament over the budget cycle. The Act requires specific fiscal indicators to be reported and forecast over a three-year planning period and to be published and updated at regular intervals.

A budget policy statement must be published no later than 31 March each year. (The fiscal year begins on 1 July). This sets out: • The government's long-term fiscal objectives, in particular with regard to operating expenses, revenues, deficits and the levels of government debt and net worth (the net equity on the government's consolidated balance sheet). • The government’s explicit intentions for the same fiscal aggregates for the budget year and the following two financial years. • The government’s broad strategic priorities for the coming budget. • The government’s assessment of the consistency of its fiscal intentions and long- term fiscal objectives with the principles of responsible fiscal management and previous budget policy statements. These principles are: 1. The government must run operating surpluses until debt falls to sustainable levels 2. Once sustainable debt levels had been reached the government must run zero operating balances over time 3. The net worth of the government must be sufficient to buffer adverse circumstances over time 4. The government must manage fiscal risks prudently 5. There must be predictability and stability in tax rates over time.

The Act also stipulates that the Treasury prepares economic and fiscal updates at specified times: • When the budget is presented;

Nick Manning/Neil Parison Page 135 11/22/2004 International Public Administration Reform Country Reform Summaries.doc • In December each year; • Four to six weeks before the day of each general election; and • At the time that the supplementary estimates for appropriation are presented to the Parliament.

A fiscal strategy report must be tabled with the budget and include: • Comparison of the fiscal forecasts in the economic and fiscal updates with the government's objectives as set out earlier in the budget policy statement; • Fiscal outlooks with projections of trends covering at least the next ten years; and • Comparisons of progress against the fiscal objectives set out in the budget policy statement.

Inconsistencies between the budget policy statement and/or the fiscal strategy report and the immediately preceding statement or report, must be explained and justified by the government.

Ministries and departments have purchase agreements with the minister in charge of the Vote they receive funds from. These agreements set out the outputs to be provided and the specifications for those outputs including quality and cost. CEOs are additionally accountable for performance on these agreements through the performance agreement they have with the minister responsible for their ministry or department.

E-government

Government in May 2000 approved an Electronic government vision statement. The aim is for citizens to be able to access government information and services, and participate in democratic processes, electronically.

The government is beginning to publish cabinet papers on its website, and almost all government entities have websites. Many set out what is being consulted on and provide for citizen input. Some provide access to services through the site such as the Companies Office, which permits rapid transactions e.g., to search names and register companies.

Reform outcomes

The impact of the reforms is at several levels.

The fiscal impact has been dramatic. Following the reforms, the government moved from a severe fiscal crisis, to attain a positive net worth in less than four years. Large increases were avoided in the public sector wage bill. The government has been running a surplus on both cash and accrual bases. While the system helped politicians achieve their fiscal goals, it requires political will and supporting policies to maintain a favorable fiscal position. CEOs treat the parliamentary appropriations as "electric fences" and breaches are extremely rare.

Nick Manning/Neil Parison Page 136 11/22/2004 International Public Administration Reform Country Reform Summaries.doc In the civil service, the results have been significant although the impact on outputs is less obvious. Performance based pay is widely used, but the CEOs of ministries and departments are still predominantly drawn from the public sector. There is an increased ability to appoint new people due to shorter contract terms but there are still problems with attracting a large body of high caliber candidates for these positions, as they are not as attractive as private sector positions to many people. There are some concerns over lack of attention to developing talent in senior management ranks within the public sector. SOE and Crown entity sectors appear to be able to attract qualified candidates, as the pay is higher.

As regards policy flexibility and responsiveness, Ministers have expressed satisfaction with the public management arrangements. Even the 1999 Labour/Alliance government which campaigned on making changes to the public sector has stated that it will not alter the fundamental building blocks of the State Services Act, SOE Act, Fiscal responsibility Act and Public Finance Act, although it has modified employment law to increase the potential role of trade unions.

Significant gains have been made in accountability improvements at the level of the whole of government and for each government agency. There is still room for further gains by making information more relevant to consumers and public. The financial systems in the departments and ministries are considered sound. An Audit Office report in 1997/98 indicated general satisfaction with the financial and service performance information, and the control systems. All 44 departments received unqualified audit reports.40 Reviews by consulting firms recorded satisfactory results for the quality of monthly financial reporting, purchasing practices, cash management, control policies for physical assets, and accuracy of output class descriptions, although there were concerns about information at a lower level including costing information for management purposes.41

Budget requirements are integrated into the purchase agreements which record what ministries and department will provide for the money expended. The CEO performance agreements include a requirement to deliver on the purchase agreements thereby linking the budget requirements into the CEO performance requirements. Transparent specification of organizational performance ex ante and reporting on achievements ex post with comprehensive auditing requirements provides the foundation for chief executives to link their accountabilities to ministers to the performance management arrangements in their organizations by focusing review and rewards on success in priority areas.

Transparency more generally has increased through much broader availability of performance data. This is widely used by parliamentary select committees, opposition parties, the media and interest groups. However, it is not always in a form that is particularly relevant and easily understood by consumers and the public.

Ministers are better informed. The output basis for information is far superior to input information. Ministers are better positioned for making decisions on funding. Government organizations are more able to assess impact of outputs and other

Nick Manning/Neil Parison Page 137 11/22/2004 International Public Administration Reform Country Reform Summaries.doc interventions on outcomes but there is still room for much gain in this developing area of public sector management.

Efficiency gains in the departments and ministries have been noted in a recent OECD report. "The core public sector has been reduced substantially in terms of both its share of expenditures and employment. Given that higher levels of outputs have been produced with lower levels of inputs, productivity has increased, costs have come under better control due to accounting changes and many departments have attained departmental surpluses".42 A review by Allan Schick in 1996 also indicated efficiency gains (Schick 1996) although Schick suggested some areas requiring attention.43

After reviewing several reports on departmental efficiency, Petrie and Webber concluded that there is "a wide consensus that the reforms have resulted in an improvement in the efficiency of the core public sector…" (Petrie and Webber 2001, p.28).

There have however been no comprehensive studies of efficiency gains across a wide selection of departments and ministries, so it is not possible to quantify the level of gains.44 However, capital is used more efficiently because of the imposition of a capital charge. A 1993 Price Waterhouse survey of ten departments concluded: "there are sufficient examples of the way in which the charge has influenced behavior to state unequivocally that the concept has been successful."45 Careful investment approaches to capital developments are encouraged by the practice of producing business cases that are scrutinized by the Treasury and incorporated into the annual budgeting process.

Operational efficiency has also improved significantly in privatized and corporatized entities.46 There have been few comprehensive studies of efficiency in Crown entities, despite about one third of the government’s budget being spent by these organizations.47 In a comprehensive study of performance before and after corporatization, (Spicer, Emanuel et al. 1996, p.171) found increased levels of operational efficiency as measured by sales/assets and other output input ratios, increased levels of profitability, and high performance compared to listed public companies or companies in the same industries. The study noted that deregulation as well as improved corporate governance contributed to the gains.

Some figures indicate the scale of change in the state electricity and coal industries: Electricity Corporation of NZ’s return on assets moved from around 13% 1980-1985 to 20% 1988-1990. GWh of electricity sold per employee moved from around 3-4% in 1980-1987 to 7% by 1990. There were 6000 employees in 1987 and only 3913 by 1990. Profitability increased at the same time as it reduced the average sales price per kWh. In real terms price per kWh fell from 4.90c in 1988 the first year of corporatization to 4.70c in 1990.

Coal Corporation increased coal production per employee from the end of State coal era, with a production rate of 820 tonnes per annum in 1987, to 2,482 tonnes per annum by 1991. Earnings before interest and tax were frequently in the negatives in the State Coal era, and as high as -$10M. By 1991, it was around $15M. Sales volumes remained steady and the real price of coal decreased from a high of $90 per tonne in the State coal

Nick Manning/Neil Parison Page 138 11/22/2004 International Public Administration Reform Country Reform Summaries.doc era to around $50 per tonne in 1991. The gains in profitability were due to cost reductions.

Other examples are Telecom productivity rising 85%, prices dropping 20% and NZ Post productivity rising 120% with a turnaround from a loss of $38M to a profit of $43M. Rail moved from a $77M loss to a $41M profit with a drop in prices of 50% (Douglas 1993, p.181).

Across seven of the larger SOEs from 1988- 1992 revenue rose by 15.5% to $5.9B, after tax profits rose from $262M to $1023M, staff numbers fell from 67,600 in 1987 to 31,500 in 1992 and the dividend contribution to the State by 1991/92 was $700M (Douglas 1993, p.181).

Overall, the 1991 Government sponsored Steering Group review noted that: "The framework is sound and substantial benefits are being realized" (Steering Group 1991).

Some fresh problems have emerged however. Little attention was paid to the arrangements for autonomous agencies while the focus lay on attending to higher priority fiscal matters. Difficulties have emerged over time, including problems with the manner in which ministers interacted with these organizations, lack of clarity over their degree of autonomy, some financial issues and concerns over the expenditure of some entities, and poor use of the formal accountability documents. This has resulted in work to prepare a Crown Entities Act to set out roles, responsibilities and accountabilities more clearly.

The increased management autonomy has led to some instances of expenditure by government agencies that have attracted adverse political and public comment, such as spending on air travel, payouts to departing CEOs, and failed implementations of IT systems. These are not however widespread phenomena.

Some commentators and some politicians have expressed concerns about an erosion of a public service ethos and a loss of continuity and institutional memory (Schick 1996). There has also been some speculation that fragmentation may be undermining policy analysis, but this would need to be tested and considered against a counterfactual.

Nick Manning/Neil Parison Page 139 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 11. Poland

Helen Sutch, Sector Manager, World Bank; Michal Dybula, Research Analyst, World Bank; Ryszard Jerzy Petru, Consultant, World Bank, Jacek Wojciechowicz, External Affairs Officer, World Bank; Marcin Przybyla, Research Analyst, World Bank

Overview

The Polish government undertook a complex and comprehensive restructuring of public administration and public finance. This required complex legislation and was effectively implemented in 1999.

The underpinning of the reforms has been provided by restructuring the country into gminas, voivoids and poviats, giving local authorities more responsibility for service delivery. Decentralizing functional responsibilities has reduced central government employment

The sequence of reforms

From 1 January 1999, a new administrative division of Poland was implemented. The new administrative structure of the country began with the reintroduction of new layers - 'poviats', an intermediate level of subnational government. The number of voivodships, or regional governments, was reduced from 49 to 16. Gminas, the most local form of elected government, were retained.

Reformers' concerns

The "four reforms" introduced in 1999 sought to restructure public administration, education, health service, and pensions. The scale of these reforms was second only to the "shock therapy" of very tough economic measures introduced in 1989.

Administrative reforms were driven by subsidiarity within a unitary state structure. Decentralization of state functions was the main challenge after the events of 1989. Rebuilding self-government at borough (gmina) level, and reestablishing local budgets, separate from the State budget and based significantly on local revenues, was paramount. The creation of two additional levels of self-government: powiats (counties) and voivodships (regions), followed from this.

The need for a competent and respected central civil service was the other reform driver of administrative reform.

Subsidiarity and a respected, professional civil service were both significant aspects of the EU accession agenda.

Nick Manning/Neil Parison Page 140 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Institutional starting points

Constitution/political system48

Poland was the first country in Central and Eastern Europe to break out of communist rule.49 This move started in early 1989 with discussions, which became known as the "Round Table Negotiations", between the Communist dominated authorities and the opposition. The legalization of the Solidarity trade union and an agreement to hold partially free elections on 4 June 4 1989 followed.

This was the prelude to the development of a new system of government with a legal parliamentary opposition. Other developments included the creation of a position of the President as head of state, and a second chamber of Parliament, the Senate. All the contested seats in the June 1989 elections were won by the representatives of Solidarity, who formed the first non-communist government in the region since World War II.

There are many political parties operating across the entire political spectrum; five parties or political coalitions are represented in the current Parliament.

The National Assembly - made up of the two chambers of Parliament, the Sejm and the Senate - approved the final draft of the country's first post-Communist constitution 2 April 1997. After the Supreme Court upheld the validity of the referendum, and President Aleksander Kwasniewski signed it into law, the new constitution went into effect on 17 October 17,1997.

The long-awaited constitution, the result of several years of intensive debate and negotiations spanning five administrations across the entire political spectrum, is the country's 10th since Poland's first Constitution of 3 May 1791.

Legislative power in Poland is centered in the popularly elected bicameral National Assembly. The upper chamber is a 100-member Senate; the lower chamber the 460- member Sejm The President is popularly elected to a five-year term, and acts as head of state, approves Sejm nominations for the Prime Minister (head of government), and has limited decree power on many issues. The Prime Minister chooses the Council of Ministers (cabinet), and is responsible to the Sejm and to the president for administering the government.

The President is elected by universal suffrage to a five-year term, for a maximum of two terms. The President is the commander-in-chief of the military forces. The most recent parliamentary elections took place 21 September 1997, held according to the election law requiring a minimum of 5% of the vote for representation in the Parliament. 69 seats from a national list are proportionately allotted in the Sejm to all parties winning more than 7% of the general vote, thus promoting the consolidation of smaller parties.

The Constitution vests legislative power in the Sejm and the Senate, executive power in the President and the Council of Ministers, and judicial power in courts and tribunals. Thus the Sejm shares its legislative function with the Senate; simultaneously, it is part of

Nick Manning/Neil Parison Page 141 11/22/2004 International Public Administration Reform Country Reform Summaries.doc the governmental system in Poland. The legislative competence of both Chambers is not symmetrical. The Constitution provides the Sejm with a dominant role in the legislative process. This does not apply to statutes which amend the Constitution or statutes which permit the ratification of international treaties, on the basis of which the Republic of Poland delegates certain competence of the State organs to an international organization or international body. In the case of the statutes in question, neither the opinion of the Sejm nor that of the Senate enjoys superiority guaranteed by the Constitution.

The inequality of the two Chambers of the Polish Parliament is also expressed in the fact that only the Sejm is vested with the right to control the Council of Ministers. The Sejm and the Senate, sitting jointly in the instances provided for in the Constitution, act as the National Assembly.

The Constitution shapes a delicate system of balance between the particular powers of the State, which is described as a parliamentary-cabinet system with a slight inclination towards the presidential system. Only the Parliament can pass statutes to which the Constitution grants a special role in the system of sources of law as regards the determination of the legal position of the citizens. The dominance of the Sejm over the Senate in the legislative process is constitutionally guaranteed; the Sejm may also (by a three-fifths majority vote, in the presence of at least half of the statutory number of Deputies) reenact a statute that has been referred by the President for reconsideration.

The Senate, in addition to the Sejm, is a legislative organ of the State. The Senate can propose legislation, as well as the Sejm. Within 30 days after the Sejm submits bills to it, the Senate examines the bills passed to it (unless the bills are urgent in which case the Senate has a seven day window to examine the bill), and either accepts the bill, introduces amendments, or rejects it. If the Senate makes amendments that have financial implications for the state budget, it must indicate how these are to be met.

Structure of Government

The government is subject to the control of the Sejm. Members of the government and the Council of Ministers bear full political responsibility to the Sejm; the latter may also hold the members of the Council of Ministers constitutionally accountable to the Tribunal of State.

The accountability of the Council of Ministers to the Sejm is underpinned by the possibility of a vote of no confidence towards the whole government or its particular members. The Sejm may also grant a vote of confidence whenever the Prime Minister demands it to do so. The government is dismissed in the event of a vote of no confidence or when a vote of confidence has not been granted to the Council of Ministers. Art. 158 of the Constitution sets out detailed rules of procedure, stating that the vote of no confidence towards the government has to be passed by a majority vote of the statutory number of Deputies on a motion on this subject moved by at least 46 Deputies. Such a motion should also specify the name of a candidate for a new Prime Minister. In effect the vote of no confidence is synonymous with the appointment of a new Prime Minister, and therefore must be "constructive".

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The Council of Ministers (the government) is the supreme policy-making and executive body. The Council of Ministers consists of: • The President of the Council (i.e. the Prime Minister) • The Vice-President or Vice-Presidents of the Council, if any • Ministers, each of whom must “administer a given branch of the state administration” and • Presidents of commissions and/or committees, which, by law, carry out tasks of the supreme authorities of state administration (a category that does not yet exist, except for the Committee of Scientific Research.

"Ministers without portfolio" can also be appointed to the Council of Ministers. (The Prime Minister and Deputy Prime Ministers can combine their position with a position of minister).

Meetings of the Government are regularly attended, without the right to participate in the decision-making process, by the Secretary of the Council of Ministers, by persons entitled to do so by virtue of specific statutes (e.g. President of the Supreme Chamber of Auditors), by persons designated by the Prime Minister (e.g. the Government's Press Spokesman), and by representatives of concerned national entities invited to participate in a meeting or part of a meeting.

With the Prime Minister's consent, a member of the Council of Ministers may, for an agenda item requiring highly specialized knowledge, benefit from the assistance of an adviser, without that person having the right to participate in decision making.

In the Prime Minister’s absence, the Deputy Prime Minister (or, if the position has not been created in the government, a minister) is delegated by the Prime Minister to preside over Council meetings. A secretary of state or under secretary of state in a ministry may be delegated to act in the absence of a minister. Substitute-ministers may take part in the debate but they may not vote. However, it is rare that Council decisions are made by voting; they are usually made by consensus.

Organization of the work of the Council of Ministers has not been legislatively regulated, except for a long forgotten decree of 1918, which was never abolished. Rules in this area are shaped by standing orders of the Council. The personality of the Prime Minister plays an important role in the way the Council is organized. Traditionally, the Council meets at least every week. Under the first post-1989 Prime Minister, meetings were lengthy and detailed.

Nick Manning/Neil Parison Page 143 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Box 17 Ministries in Poland50 Chancellery of the President Ministry for Environment Chancellery of Prime Minister Ministry of Labor and Social Policy Ministry of National Education Ministry of Agriculture and Rural Development Ministry of Finance Ministry of the Treasury Ministry of Foreign Affairs Ministry of Justice Ministry of Economy Ministry of Interior and Administration Ministry of Culture Ministry of Health Ministry of Telecommunications Ministry of Transport Ministry of National Defense

Local self-governments in Poland have been functioning since 1990 in 2,489 gminas. The creation of gminas after the fall of communism has proved a great success. The reforms have introduced two new levels of self-government and significantly reduced the central government's administrative presence at the sub-national levels. The state has decentralized responsibilities and financial capacities to 308 democratically elected local self-governments at the poviat level and to the authorities of 65 urban gminas that were granted poviat rights. The reforms have also radically reduced the number of existing voivodships from 49 to 16, with this act enabling them to create regional development policies.

Starting on January 1, 1999, the voivodship (regional) councils (Sejmiks) become responsible for the development and implementation of regional economic policies. Like poviats (county) and gminas (commune), they are independent legal identities with independent budgets. As a result, the reforms have brought about a significant decentralization of both public authority and public finance. A new system of public finance makes the budgets of all public administration entities more transparent and accountable to the electorate.

Elections to new three-tier local governments took place on 11 October 1998. 52,000 communal councilors, 9,000 poviat-level local government officials and 1,000 provincial administrators were chosen.

Gminas run nurseries, kindergartens, elementary schools, libraries and cultural centers and maintain local roads. A general responsibility clause provides that gminas are responsible for all public matters of local significance that have not been reserved by law for other entities and authorities. Gminas' own tasks focus on meeting the collective needs of communities for public services. Gminas also perform tasks delegated to them by the central government and state administration and which remain under state supervision. These responsibilities may be placed on gminas by law or through voluntary agreements with state agencies. The law provides assurance that gminas will be provided with the funds necessary to carry out these delegated tasks.

Poviats constitute the second tier of local self-government. There are 308 poviats (county-level governments) and 65 urban gminas (larger towns) endowed with poviat rights (by assuming poviat functions, poviat infrastructure, and poviat budget authority). The poviat self-government is responsible for local issues that, due to the subsidiarity and

Nick Manning/Neil Parison Page 144 11/22/2004 International Public Administration Reform Country Reform Summaries.doc proportionality principles, cannot be ascribed to gminas. Poviats are large enough to maintain efficiently many of the everyday institutions of public life, such as secondary schools, general hospitals, as well as poviat police and fire stations, sanitary inspectorates and tax offices. They are small enough - on average 80-100 thousand inhabitants - to place the administration and the control over these institutions in the hands of the citizens that they serve.

The poviat has also been made small enough to encourage citizens to take an active role in local electoral politics; and large enough to utilize citizens' public involvement on a broader scale, taking advantage of non-governmental organizations and other forms of civic activity.

Unlike the gmina, which is responsible for all matters that have not been explicitly assigned to the other levels of government, the poviat implements only those tasks that have been clearly defined for it in the law. Thus, there is no dependence between the poviat and the gmina: each of them execute separately defined public tasks and responsibilities.

The sixteen new voivodships are quite large, with populations ranging between approximately 1 and 5 million, and an average population of approximately 2.4 million. Democratic voivodship self-governments have independent legal identities, their own budgets and extensive powers in the area of economic policy.

Councils known as Sejmiks (regional parliaments) are the decision-making bodies of voivodship self-governments. They are elected in general elections. The Sejmiks, in turn, elect governing Boards to exercise the executive authority in self-governing voivodships. Boards are headed by the elected Marshals.

Poland’s civil service corps is divided into: (i) civil servant employees who hold employment contracts; and (ii) civil servants who are appointed

Nick Manning/Neil Parison Page 145 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Central agencies and reform management

Box 18 Central agency responsibilities in Poland51 Organization Tasks and Responsibilities Chancellery of the Prime Responsibility for conceptual work in the area of public administration reform Minister Deregulation preparation Control over implementation of reforms Promotion of reforms Co-ordination of international aid Ministry of the Interior Evaluation of local representatives of the government administration and Administration Control over central/local government relations Department of Public Control over territorial-administrative division of the country Administration Co-operation of different levels of administration Governmental Center for Preparation of long-term strategies of economic and social development Strategic Studies Assessment of reform implementation Evaluation of current trends in economic and social situation of the country Programming and co-ordination of regional policies implementation Ministry of Finance Control over state budget process Control of public expenditure Financial management improvement Committee for European Co-ordination of Poland's preparations for integration with the European Union Integration Civil Service Office Promotion of civil service Government employment policy Civil service training

Politicization

Although the civil service is in principle neutral, merit-based, and permanent, significant hiring and firing happens at the beginning of the political term. Politically motivated appointments for crucial posts usually follow the nomination of a minister. At the end of the ministerial term, political figures and senior public servants, whose nominations were mainly political, can be seen trying to find soft landings in the management of the State controlled enterprises or in the private sector.

Reform activities

Summary52

Under the Act on "Branches of the Government Administration" passed in September 1999, 32 branches of administration were outlined covering the major sectors. The Act confirmed that ministers would be responsible for overall sector policy and strategy, and not managerially responsible for the work of specific ministries and central offices. The act strengthens the position of the Prime Minister, who can re-assign responsibility for sectors between ministers, leaving technical units tied to a given sector rather than a ministerial office.53

In addition, the Civil Service Law outlines the division of labor and responsibilities between director-generals (who manage civil servants in a ministry or office), the Head

Nick Manning/Neil Parison Page 146 11/22/2004 International Public Administration Reform Country Reform Summaries.doc of the Civil Service (who manages the civil service as a whole), and the Prime Minister (who issues relevant regulations).54

The government is in process of simplifying administrative procedures at various levels of government, and reforming the system of public finance (with the Law on Public Finance), as well as delegating new powers to democratically elected local and regional authorities.

Reforms to the organizational structure of government

Through the transfer of powers from the central to local communities and the development of the first level of local government (administrative decentralization), service delivery has improved as the new division of labor removes the responsibility of the central government from the day-to-day operation of public administration and development. Local and regional governments have the opportunity to operate freely, only subject to the center’s legal review.

The delegation of powers down to lower levels of self-government is accompanied by decentralization of public finances. In December 1998, parliament passed the interim Law on Revenues of Territorial Self-Government Entities for the Years 1999 and 2000 and the Law on Public Finance. Both Laws contribute to the introduction of a clear and transparent assignment of financial responsibilities to particular entities. They seek to match financial resources to the tasks delegated to territorial self-government entities.

Cutting back the programs undertaken by government

Government policy reforms have seen a significant education sector reform, with changes in the curricula, and the closing down of a number of small, local schools and arranging transport for their students. Vocational schools and secondary technical schools were also eliminated. An additional level of education, the "gimnazjum", has been added.

There has been some limited privatization in the health sector. New financing arrangements have seen the introduction of a new referral system, with contractual relationships established between hospitals and other service units and the Health Funds. The reform was heavily opposed due to the lack of support of the doctors and nurses.

Civil service and personnel reforms

A new Civil Service Act came into force in July 1999. This legislation unified all staffs employed within the Government, who were previously governed by several overlapping pieces of legislation. The Act was consistent with the new Constitution, and satisfied the European Commission’s requirement that all citizens have equal access to employment in the civil service.

The aim of the new Act is to develop a Civil Service Corps, with a modified salary and promotion scheme, to provide stronger performance incentives and to encourage transparency in public administration.

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The Act defines the civil service corps as employees working in clerical posts within the governmental administration, e.g. at the Prime Ministers Office, ministries, central agencies, voivodship offices, and other offices of regional entities of government administration, also at the Government Strategic Studies Center.55 The civil service corps includes most people employed in clerical posts at headquarters, inspectorates and other organizational units forming the "supportive apparatus" for the managers of unified services, inspections, and some voivodship and poviat functions.

The civil service corps is divided into two groups: civil service employees (employed on the basis of an employment contract) and civil servants (employed on the basis of appointment). Anybody of Polish nationality, who has not been convicted of an intentional offence, has the necessary qualifications and a sound reputation, may become a civil service employee. The law has converted existing staff, employed in clerical posts within the governmental administration, into civil service employees. Staffs appointed under an earlier Civil Service Act (of July 5, 1996) have become, civil servants within the meaning of the current Act.

Vacancies must now be advertised, (usually in the “Civil Service Bulletin”) and new recruits normally secure a contract for a maximum of three years. During this “preparatory service”, a special commission evaluates their performance. The commission determines whether the employee will remain in the position or be terminated.

Applicants for an appointment as a civil servant must be: civil service employees; have completed preparatory service; have at least two years work experience in the civil service; have a master or equivalent university degree; have at least one foreign language; and be in the military reserve or otherwise not liable to conscription. Assigning points to all applicants for general positions creates a ranking list, and the Head of Civil Service appoints those persons who are at the leading positions on the ranking list. The number of nominated persons is determined by the limit of nominations established for the given year in the Budget Act.

Very senior posts in the civil service are filled through competition. This recruitment method is used for Cabinet Secretary, general director of an office, director (deputy director) of a department (or an equivalent unit at a ministry or central agency), or director (deputy director) of a division (or an equivalent unit) at a voivodship office. The competitions are managed by the Head of Civil Service with the help of competition teams appointed especially for this purpose.

The Prime Minister is responsible constitutionally for supervising the civil service, although the central agency responsible for civil service matters is the head of Civil Service. The Civil Service Council advises the Prime Minister generally on issues regarding the civil service, as well as offers opinions on Head of Civil Service position candidates. The Council consists of 16 members, half of whom have substantive civil service-related knowledge, and the other half of whom are representatives of all

Nick Manning/Neil Parison Page 148 11/22/2004 International Public Administration Reform Country Reform Summaries.doc parliamentary caucuses. The Council members (including its Chairman) are nominated by the Prime Minister.

Wages of civil service employees are determined based on estimated average wages across the public sector. Wage increases are negotiated every year in a Tripartite Commission with participation of public sector employees, trade unions and government and then presented in the Budget Bill.

Wages for managers in the civil service consist of two parts: basic salary and functional allowance. Both components are calculated in the same way - as an estimated average wage in the public sector with a multiplier determined by the President.

In 1997, Parliament passed a law restricting areas of activities where public officials can participate. Under such law, officials are: (i) banned from holding stocks or shares in companies; and (ii) places an obligation to declare the size of their financial assets, property, business capital, as well as that of their next of kin.

Budget process changes

An annually adopted statute that contains the specification of revenues and expenditures of the State for a year shapes the central government budget process. Only government can introduce a draft Budget into the Sejm and must do so according to the constitution.

The Constitution contains a fiscal responsibility provision: the increase in spending or the reduction in revenues from those planned by the Council of Ministers may not lead to the adoption by the Sejm of a Budget deficit exceeding the level provided in the draft Budget. Moreover, the Budget cannot cover a budget deficit by contracting credit obligations to the State's central bank. It is also prohibited to contract loans or provide financial guarantees that would engender a national public debt exceeding three-fifths of the value of the annual gross domestic product.

The process of adopting the budget statute and the examination of the report presented by the Council of Ministers on the implementation of the Budget together with information on the condition of the State debt is of particular importance as regards the Sejm's authority to control government activities. The consideration of the report is - according to the Constitution - one of the major premises of granting or refusing to grant approval of financial accounts submitted by the Council of Ministers.

Additionally, the Sejm examines a report submitted by the Council for Monetary Policy on the achievement of the purposes of monetary policy. The Council presents those guidelines "to the attention of Sejm" simultaneously with the submission of the government's draft Budget.

The Sejm analyses the report on the performance of the Budget together with the opinion of the Supreme Chamber of Control whose activity forms an institutional guarantee of the controlling function of the Parliament. Furthermore, the Sejm or its organs, and in

Nick Manning/Neil Parison Page 149 11/22/2004 International Public Administration Reform Country Reform Summaries.doc particular parliamentary committees, may order the Supreme Chamber of Control to exercise its powers in a particular case.

The Law on Revenues of Territorial Self-Government Entities is the major legislative act that determines the nature of self-government bodies' revenues.

E-government

The Polish government has several useful web pages outlining the structure of government, with web pages dedicated to individual ministries.

Reform outcomes

Public administration reform in Poland had been undertaken with great dynamism. The government had been determined to push forward fundamental changes in the political and financial structure of the state in a remarkably short time. The government realized public administration reform, supporting the three social sector reforms, needed to go hand in hand with the economic transformation that Poland has been undergoing since 1989.

In 1990 local self-government at the gmina level was introduced. This marked the first phase of public administration reform and proved to be a great success. The preparations for the next phases were instigated in the years 1991 - 1993. However, the four following years saw the abandonment of public administration reform. Once a post-solidarity coalition returned to power, the newly formed government of Prime Minister Jerzy Buzek made the reform of the state its fundamental and most important objective.

Nick Manning/Neil Parison Page 150 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 12. South Korea

Hakyung Jeong, Director, Planning and Coordinating Unit in the Civil Service Commission of the Korean Government; Dae-Ki Kim, Senior Financial Economist EASFS, World Bank; Kookhyun Kim, Director General, Ministry of Government Administration and Home Affairs; and Jeff Rinne, Public Sector Group, World Bank

Overview

In December 1997 Kim Dae Jung was elected President of the Republic of Korea. At that time the country was beset by its most severe economic crisis since the Korean War. The Korean won lost over 50% of its value against the US dollar during the last two months of 1997. In the aftermath of this balance of payments crisis Korea’s GDP fell 5.8% in real terms in 1998. The economy has since begun a strong recovery. Korea’s GDP grew 10.2% in 1999.

President Kim’s election was a milestone for democracy in Korea. It marked the first time that an opposition party candidate has won the presidency. President Kim’s predecessor, Kim Young Sam, was elected in 1992 after joining the ruling party of the Roh Tae Woo government. Kim’s victory, however, was a narrow one. As candidate of the National Congress for New Politics, Kim received 40.8% of the vote, just 2% more than Lee Hoi Chang, candidate of the renamed ruling party, the Grand National Party. Kim’s narrow victory was aided by an alliance with Kim Jong Pil of the United Liberal Democrats. Subsequent defections from the Grand National Party have helped to consolidate Kim’s position in the 273-member National Assembly. However, Kim must hold together a diverse coalition in Korea’s unicameral Assembly, a task made more difficult by the fact that Korean politics is still marked by regionalism and a personalist style of politics in which political forces often coalesce around individuals more than around policy issues.

In the face of these challenges, since the inauguration of President Kim Dae Jung, the administration has restructured government on three occasions: in 1998, 1999 and 2001.

The sequence of reforms

The first government restructuring was undertaken immediately following the inauguration of the new government in February 1998. The stated intentions of the restructuring were: (i) to reinforce democracy and openness; (ii) to enhance private sector development and to promote the productivity and competitiveness of the government; and (iii) to respond to the economic crisis.

The restructuring saw the Planning and Budget Commission established under the President to strengthen Presidential leadership, replacing the arrangements under which the budget function was split between the Planning and Budget Commission under the President and the Budget Administration under the Ministry of Finance and Economy (MOFE). This reform had been proposed previously but the then opposition party

Nick Manning/Neil Parison Page 151 11/22/2004 International Public Administration Reform Country Reform Summaries.doc blocked its establishment as it was concerned about excessive strengthening of presidential power.

At the same time, the Prime Minister's responsibility for policy coordination and evaluation of the cabinet was strengthened by upgrading the former Administrative Coordination Office. A new Office for Government Policy Coordination was given the task of planning and implementing the government's deregulation policies.

The restructuring attempted to rationalize departmental mandates. The Ministry of Government Administration and the Ministry of Home Affairs were integrated into the Ministry of Government Administration and Home Affairs. Trade responsibility was transferred from the former Ministry of Trade, Industry, and Energy (MOTIE) to the Office of the Minister for Trade (OMT) which was newly established under the Ministry of Foreign Affairs and Trade (MOFAT). Also, the Ministry of Information and the Ministry of Political Affairs I & II were eliminated to make the central government smaller, and the Government Legislation Agency (GLA) and the Patriots and Veterans Administration Agency (PVAA) were downgraded from the ministerial level to the vice ministerial level. Some new agencies were also created.

This first government restructuring reduced administrative expenses, but tensions remained concerning functional overlaps between ministries and a more comprehensive restructuring was not feasible due to resistance from the large opposition party. These first reforms focused on structural change rather than operational systems. Public opinion held that government had protected itself from the dramatic restructuring that the crisis had caused in the private sector - seemingly feeling that the pains of the economic crisis were not being shared equally.

A second government restructuring in May 1999 sought to address this concern directly, and pressed for reductions in the workforce to signal that pain was being shared. A more robust approach to rationalization was adopted, and this was coupled with a clear concern to transfer some service delivery responsibility to the private sector and local government.

The Ministry of Planning and Budget (MPB) under the Prime Minister was finally established by merging the Planning and Budget Commission and the Budget Administration. A Civil Service Commission was established under the President to protect merit and neutrality in the appointment of civil servants. A Government Information Agency (GIA) was established. The restructuring saw a slight increase in the number of central government organizations but the number of cabinet members was decreased from 21 to 18, and the number of high-level posts and public officials was cut back significantly.

A third and more modest government restructuring was introduced in January 2001. The Ministry of Finance and Economy (MOFE) and the Ministry of Education were upgraded to the deputy prime minister level, and the Presidential Commission on Women’s Affairs was transformed into Ministry of Gender Equality. Deputy prime minister positions were reintroduced to coordinate economic policy and human resources development.

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Following these major restructuring exercises, the focus of government reforms is moving from the "hardware" of reform to the "software" of basic operating systems. Key to these reforms is changing the incentives faced by public officials so that they emphasize both competition and merit.

To attract more qualified personnel and to raise professionalism and competitiveness, Korea's civil service career system was opened to lateral entry at more senior levels through the introduction of the Open Position System (OPS) in 1999. 131 positions at assistant minister director general grades will be open to outside candidates whenever a position is vacant. The Civil Service Commission was established in the second government restructuring in May 1999, to maintain some oversight and to prevent favoritism.

Some elements of performance pay have been introduced, and some semi-autonomous agencies have been established at arms-length from line ministries, balancing greater managerial freedom and flexibility with strengthened accountability for results. Agency heads are appointed by open recruitment, and employed on 3 year contracts. They are paid on a performance basis and work within an annual operational plan set by the supervising ministry. The Act on the Establishment and Operation of Executive Agencies came into effect in 1999 and by 2000 10 agencies had been established, including the National Medical Center, Auto-license Testing Station, National Visual Media and Publishing Center, and the Defense Public Information Agency.

The government has also introduced Public Service Charters. Nearly 600 Public Service Charters are published by nearly 300 agencies from central and local governments, presenting performance targets and standards for the agency and the compensation to be provided if they are not achieved.

The Presidential Advisory Council for Anti-corruption was also established to coordinate policies and develop practical measures. The Framework Act on Anti- corruption including a code of conduct for public officials and protection of whistle- blowers is now pending in the National Assembly.

Reformers' concerns

The government has propelled the reforms with the stated intention of strengthening "democracy, the market economy and productive welfare." Clearly a desire to invigorate the civil service has been evident, coupled with a concern that government must not be seen as cushioned from the harsh economic realities that followed the downturn. Customer service is becoming more prominent as a driver of reforms and public pressure is ensuring that anti-corruption measures are a priority.

Institutional starting points

Constitution/political system

Nick Manning/Neil Parison Page 153 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The Republic of Korea has a presidential system of government, with powers shared between the president and a 273-member unicameral legislature. The leading political parties include Grand National Party (GNP), United Liberal Democrats (UDL), and Millennium Democratic Party (MDP). The current ruling party is the MDP.

Korea’s Constitution dates from 1948, and was last revised in 1987. The ROK is divided into nine provinces, and has six administratively separate cities (Seoul, Pusan, Inchon, Taegu, Kwangju, Taejon).

The government reform program needs strong support from the National Assembly. In the three government restructurings of February 1998, May 1999 and January 2001, the reform-related measures were stipulated in the Government Organization Act.

Structure of Government Box 19 Ministries in Korea Agriculture and Forestry Government Administration and Home Affairs Planning and Budget Health and Welfare Commerce, Industry, and Energy Information and Communication Construction and Transportation Justice Culture and Tourism Labor Maritime Affairs and Fisheries Education National Defense Environment Science and Technology Finance and Economy Unification Foreign Affairs and Trade Gender Equality

The civil service is divided into two categories: national civil servants and local civil servants, each appointed by their respective governmental bodies, and regulated by both national and local statutes. The local government civil service system, however, follows the main structure of the national civil service system.

Career civil servants have strong legal protection from dismissal and are expected to make a life-long commitment to the service. The career service is subdivided into three categories: General Service, Special Service, and Technical Skill Service.

Civil servants who work in the area of technology, research and advisory or general public service administration are classified as General Service.

The Special Service category includes Judges, Public Prosecutors, the Foreign Service, the Police, the Fire Service, and the Educational Service. Each Special Service has its own laws because it is desirable for them to be employed, classified, and paid differently from the General Service due to the unique nature of their work.

Civil servants who perform routine technical work or blue-collar service are classified as Technical Skill Service. This includes railway workers, postal workers, and word- processor workers. The General Service and the Technical Skill Service are further divided into occupational groups.

Nick Manning/Neil Parison Page 154 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The following table displays statistics for each of these categories of national civil servants. Box 20 Structure of the civil service in Korea56 Career Total career civil servants 544,336 General Service 90,917 Special Service Educational Service 291,252 Police, Fire Service 95,375 Foreign Service 1,432 Others 1,691 Technical Skill Service 63,669 Non-career Total non-career civil servants 3,982 Political Service 99 Excepted Service 2,402 Labor Service 1,481 Total civil servants 548,318

Central agencies and reform management

Since 1963, the Ministry of Government Administration (MOGA) had been a central personnel agency in Korea. The Ministry of Government Administration and Home Affairs (MOGAHA) was established by the consolidation of the MOGA and the Ministry of Home Affairs (MOHA) in 1998 and was the central agency responsible for the civil service system. The Civil Service Commission (CSC) was established in 1999 to provide some independent oversight of merit. Responsibilities for personnel policy and screening of appointments for civil servants have been transferred to the CSC from the MOGAHA.

The CSC makes and develops the basic policies for personnel management and pay, and examines the enactment and amendment of personnel-related laws and Presidential decrees. It reviews the appointment and promotion of the senior civil service, and develops, implements, and maintains the "Open Competitive Position System." The CSC consults on the selection of senior civil service positions that are to be made subject to open competition and specifies the requirements and qualifications for the positions. The CSC also inspects personnel actions and supervises personnel management in Executive Agencies.

MOGAHA undertakes workforce planning, analyzing the medium and long-term supply and demand for labor. It recruits lower grade civil servants and manages welfare incentives, including housing, loan arrangements, and pensions. It also has training responsibilities. The MOGAHA has two affiliated organizations: the Central Officials Training Institute (COTI) and the Appeals Commission. The COTI, a civil servant training institute, provides courses for general training, specialized training, and forums on the national agenda. It also tries to promote international cooperation through Executive Development Programs. The Appeals Commission established to protect the rights of civil servants operates as a quasi-judicial body in making administrative rulings on appeals against disciplinary actions including dismissal, suspension, and reprimand.

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Civil servants in the career service retain their positions during a change of government. In general terms, no civil servants can be dismissed from service against their will without being first subjected to formal disciplinary actions. However, civil servants at the most senior grade may be dismissed without formal disciplinary action.

Civil servants are restricted from soliciting on behalf of political parties and cannot engage in other political activity including standing for public office.

Reform activities

Summary

Administrative reform has been linked to other democratizing reforms central to Kim’s overall political agenda. Democratizing reforms were meant to make the bureaucracy more accountable. More radical reforms followed in the wake of the 1997 balance of payments crisis.

In response to the East Asia economic crisis, President-elect Kim Dae-Jung formed the Government Administration Reform Committee on January 7, 1998. The Committee consisted on 22 members. After public hearings and consultations with each government branch, the Committee finalized the government restructuring program on February 18, 1998. The revised Government Organization Act was approved by the National Assembly and took effect on February 28, 1998. The Act aims at producing a small but efficient and powerful government, with decentralized authority and a consumer orientation, flexible in response to social change.

Most recently, the Korean government awarded grants to 19 research institutes in universities and the private sector to analyze the management structures of the central government. This was the first time that Korea’s government had asked private sector management teams to design an overhaul of government functions and structures. Following a four-month review of the functions, structures, and performance of ministries and other agencies of the central government, these teams drafted proposals that they submitted to the government for review. The main recommendations were as follows: • Open 30% of senior government positions to outside candidates; • Decentralize recruitment authority for lower-level officials (grade 6 and below) from the central personnel agency (MOGAHA) to the ministries; • Introduce an executive agency system managed by contracted professional managers and experts; • Integrate entrance examinations for higher foreign service and administrative service; • Reinforce anti-corruption regulations; • Publish plans and results of ministerial performances, including expenditure records; • Introduce a double-entry booking system to enhance financial and managerial transparency;

Nick Manning/Neil Parison Page 156 11/22/2004 International Public Administration Reform Country Reform Summaries.doc • Improve information and technology management systems to promote a knowledge- based society; • Expand the provisions of the Public Service Charter to enhance service quality.

President Kim’s government has enforced registration and declaration of assets for elected officials and high-ranking public servants.

In September 1999 the government created the Presidential Advisory Council for Anti- Corruption. The Council drafted the Framework Act on Anti-Corruption including a code of conduct for public officials and protection of whistle-blowers, etc.

The Government Information Disclosure Act aims to ensure access to government information. The law provides the public with the right to request any government document, except those related to national security, defense, and other information that can be used against the national interests. Ministries and agencies should rule on the appropriateness for public release and provide the requested information within 15 days. Anyone whose request is rejected can file an appeal.

Reforms to the organizational structure of government

The new Kim administration reduced the number of cabinet ministers from 21 to 17, and minister-level officials from 33 to 24. While the number of ministries and government officials is being reduced, this does not translate directly into staffing reductions as some agencies such as the Ministry of Labor and the Food and Drug Administration are to be strengthened through a reallocation of manpower.

Some 10 Executive Agencies have been established, at arms length from their supervising ministry.

Cutting back the programs undertaken by government

During the three restructuring processes, 208 high-level posts were eliminated. Some entities were abolished and others reduced in scope through deregulation, merging bureaus and divisions performing similar functions, and the privatization of some functions. Many functions were transferred to local government to strengthen its autonomy and responsibility. In addition, the regional agencies of the central government were consolidated or abolished.

In respect to workforce reductions, the government decided on a plan for reducing the number of governmental employees, which would decrease the 163,599 central governmental civil servants by 15.9 percent, except for police officers and schoolteachers. This reduction is unprecedented. However, resistance from civil servants was counterbalanced by the larger problem of private sector unemployment and some public clamor for government restructuring.

Nick Manning/Neil Parison Page 157 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The primary means of employment reduction was early retirement. Each ministry was given one year within which they were to lay off employees, and was prohibited from all recruitment and promotion during that time. Subsequently, government introduced "Total Workforce Control System" in 1998 to cap the expansion of government workforce permanently. This entailed a workforce ceiling prescribed through a Presidential Decree, totaling 273,982, excluding priority groups such as schoolteachers and public prosecutors. Local governments were, in principle, to be responsible for their own restructuring, following the central government model. However, in practice the local governments were strongly guided through control of local grant money. Consequently, local government restructuring followed processes similar to that of the central government.

Civil service and personnel reforms

The major civil service reforms include the introduction of the Open Position System (OPS) in 1999, facilitating lateral entry into some senior positions. The Civil Service Commission oversees this system, as part of its mandate to promote the flow of personnel between the private and the public sectors, and to improve competence.

Ministers must designate 20% of positions in Grade 3 or higher in their agency as open competitive positions, and establish qualification requirements in consultation with the CSC. Selection boards determine the appropriate candidate, and civilians are appointed to these positions on contract. If a civil servant is selected, they are appointed through promotion, transfer, change of occupational series, or special employment. A civil servant appointed at a open competitive position can not be transferred for three years.

A personnel performance appraisal system introduced in 1995 has been extended to performance pay programs. For those above Director-General level, under the Annual Merit Incremental Program each minister will decide the amount of performance-related salary by appraising each employee’s performance.

For those at the level of division director and below, the Performance Bonus Program operates grants a lump sum bonus to employees with favorable job performance ratings.

The statutory bases for the pay system are the National Civil Service Act, the Civil Service Pay Regulations, and the Civil Service Allowance Regulations. The wage bill for civil servants (excluding local government's employees) in the 2000 was 18% of the annual expenditure budget. The elements of the pay budget are the basic salary (45%), allowances (33%), and welfare expenses (22%).

Budget process changes

Korea adopted multi-annual budgeting in 1998. The government developed a Medium- Term Fiscal Plan, which lays out indicative targets for fiscal investment, sources of revenue, budget balance, etc. The Plan is also revised annually and adjusted to accommodate changes in economic conditions.

Nick Manning/Neil Parison Page 158 11/22/2004 International Public Administration Reform Country Reform Summaries.doc A number of channels exist to incorporate a wide range of public opinion into the budget process. These include: i) a system in which interest groups can assess the performance of their concerned ministry, ii) public debates on budgetary policy for major spending areas, and iii) budgetary conferences of mayors and provincial governors. Other sources of feedback to enhance budgetary efficiency include the National Assembly’s account statements and reports by the Board of Audit and Inspection.

Special accounting arrangements have been established for government enterprises operated in the form of corporations. The special accounting system is applied to railroads, communication, and grain and procurement businesses. Since January 2000, the Executive Agencies (23 agencies at present) were affected by the Act on the Establishment and Operation of Executive Agencies. The executive agency’s business is regarded as a government enterprise.

A cash-based system is used, and only railroad, communication, grain and procurement, and the executive agencies have moved to double-entry book-keeping. There are no generalized pilots of full accrual accounting.

E-government

Korea’s new Online Procedures Enhancement for Civil Applications (OPEN) publishes procedures for civil applications through the Internet for citizens to have easy access to them and monitor the selection process.

To provide customer-oriented public service, One-Stop Processing of Civil Affairs is being implemented. In the past, people had to visit several agencies to complete civil affairs, but now different kinds of services can be obtained at one location.

Reform outcomes

In the wake of the Asian economic crisis, the Kim Dae Jung government succeeded in cutting 9,084 public employees in 1998 and 7,973 the following year. As a complement to these employee reductions, the government has crafted a “total government workforce control system.” The new system limits the total number of employees of the whole central government in advance. Under this system, employees will be allocated among ministries and administrations (vice-ministerial-level agencies) based upon presidential priorities and service demands set forth in presidential decrees.

A new performance pay system has been established, though it is too early to judge its impact.

The Regulatory Reform Committee was established under the President Kim in April 1998. The Committee is a standing body in charge of examining regulations and setting the basic direction of regulatory reform policy. The Committee is composed of the Prime Minister and a private individual as joint chairmen, private sector representatives and a few public officials. The Committee selects a particular area for regulatory improvement every year and notifies the ministries of the related guidelines. The Committee identifies

Nick Manning/Neil Parison Page 159 11/22/2004 International Public Administration Reform Country Reform Summaries.doc its own tasks based on the guidelines and establishes a comprehensive regulatory improvement plan, receives approval from cabinet and the President, announces it to the public, and implements the plan.

In the first year of operation, the Committee eliminated 5,430 (48%) administrative regulations and improved 2,411 (22%) of the 11,125 administrative regulations in existence. In 1999, the Committee eliminated 503 (7.4%) of the remaining 6,820 regulations. In 2000, the Committee has focused more attention on regulatory quality.

Registration and disclosure of assets for elected officials and high-ranking public servants has been enforced. In September 1999 the government created the Presidential Advisory Council for Anti-Corruption. The Council drafted the Framework Act on Anti-Corruption including a code of conduct for public officials and protection of whistle-blowers, etc.

Nick Manning/Neil Parison Page 160 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 13. UK

Jeremy Cowper, Head, Modernizing Government Secretariat, Cabinet Office, United Kingdom Government1

Overview

UK reforms can be characterized within two broad phases. From the early 1980s until 1997, reforms were driven by a concern to introduce competitive and contractual challenges into public services. This entailed a strong push towards delegation of managerial responsibility resulting in discrete, focused management units with strengthened accountability for performance. This first phase corresponded to the period from the economic crisis of the 1970s and the election of the Conservative Thatcher government in 1979, to the election of the Blair government in 1997.

The post-1997 phase has built on this towards a system based more on partnership and collaboration between different parts of the public sector. The focus has shifted from outputs to outcomes, and there is a drive to take a longer-term view in policymaking and a consumer view in service delivery.

The main elements of this second phase are: devolution of power to Scotland, Wales and Northern Ireland; reform of the House of Lords; Freedom of Information legislation; reform of market-based structures in the National Health Service; legislation to modernize local government for example replacing compulsory competitive tendering with requirement to consult local people about the provision of “Best Value” in services, changing executive structures and extending powers to plan for community well-being; and comprehensively reviewing all government expenditure and priorities, resulting in the system of Public Service Agreements.

The sequence of reforms

It is not really accurate, except in retrospect, to talk of the changes from 1979-97 as a reform program. While underlying themes are observable, the individual elements were introduced piece-by-piece, rather than planned as a coherent program. It reflects a pragmatic, progressive approach. Most of the changes, for the civil service at least, were introduced by administrative action without recourse to legislation. This made for great flexibility and reduced the need, for example, to argue a philosophical approach through Parliament. The setting up of the executive agencies was very influential, with three quarters of civil servants now working in agencies. This can be seen as the catalyst for the introduction of market-testing and standard setting within central government - but it was not introduced with that in view.

The underlying theme, to make the public sector more efficient, had broad public support although there was extensive opposition to privatization. Public administration per se and

1 The views expressed in this section represent the personal opinions of the author and should not be construed as representing the views of the UK Government.

Nick Manning/Neil Parison Page 161 11/22/2004 International Public Administration Reform Country Reform Summaries.doc particularly the details of civil service reforms has not been of significant interest to the public, though the state of the National Health Service and schools certainly has. Measurement of performance and publicizing of results in these services has been promoted by both Conservative and Labour governments.

The Labour government has been particularly active in publicizing its reforms, with modernization and the delivery of results that matter a key theme. However, the government has done little to publicize reform processes as such, but instead has focused on changes the public will notice, such as making open commitments to improvements in health services and schools and reporting on them, and pointing to specific examples of changes in public services. In that sense, although the plans and vision have been clearly laid out and explained, government is simply proceeding pragmatically with reforms and expecting that people will realize the value of the process once they have benefited from its results.

Box 21 Key reform milestones in the UK Phase 1 1979 Introduction of efficiency scrutinies - reducing the scale of the public sector by questioning and redefining the role of the state. Privatizations and, managerially, a focus on efficiency and economy. 1982 The Financial Management Initiative within the Civil Service, with requirements on managers to take more responsibility for planning and managing their own budget and measuring their output. 1984 Requirement imposed on local government to submit service provision to Compulsory Competitive Tendering. 1988 The Efficiency Unit report, Improving Management in government: the Next Steps, followed by the announcement from Mrs. Thatcher of the policy to restructure the civil service into management units to deliver executive functions, with managerial responsibilities delegated to a Chief Executive, with direct accountability to the Minister for delivering specified performance targets. Implementation of Next Steps policy led to break- up of national pay and grading systems in the Civil Service and major developments in financial management, e.g. commercial-style accounting in agencies. Executive activities reviewed in a 5-yearly cycle. 1991 The launch of the Citizens Charter, a policy to improve public services by introducing standards of service and measurement their achievement; and to respond better to service users. 1991 The introduction of Competing for Quality: the formal requirement on central government to review its activities with a view to using competition for supply as a means to improve quality, effectiveness and value for money. 1991 Within the National Health Service, organizational changes based purchaser/provider split. 1993 Announcement of policy to introduce Resource Accounting and Budgeting across government. Phase 2 1999 The Modernizing Government White Paper set out the government’s overarching approach to the reform and modernization of public services and administration. Announced as a long- term program covering all 5 million public servants across the public sector. Main themes; “joined-up government” and collaboration; focus on the user and on outcomes; using information technology to change the nature and delivery of services; re-establishing the value of public service. Program based on five commitments: • to make policy making more evidence-based • to make services more responsive, more coherent public and focused on the user;

Nick Manning/Neil Parison Page 162 11/22/2004 International Public Administration Reform Country Reform Summaries.doc • to deliver high quality, efficient public services; • to introduce information age, on-line government including the first corporate IT strategy for government; • to value and reward public service with a program of Civil Service reform and greater diversity in recruitment.

Reformers' concerns

Like many industrialized countries, the United Kingdom suffered from high inflation and low growth during the 1970s. Economic hard times led to pressures to reduce public spending as a proportion of GDP and to reduce the Public Sector Borrowing Requirement as a means to stimulate greater economic activity.

Margaret Thatcher’s diagnosis of the country’s ills had direct implications for the public sector. The state was regarded as too big and involved in inappropriate areas; the private sector was clearly preferred to the public sector; and the civil service was considered to be overly bureaucratic and unhelpful, with its own agenda. This critique of the public sector led to a strong acceptance of “managerialist” ideas for reform. From 1979 to 1983 the primary goals of reform were greater efficiency and economy, including staff reductions. Senior business figures were invited to play key roles in public sector reform.

The Next Steps policy of 1988 was based on an analysis that civil service managers lacked incentives to deliver quality services and were impeded rather than helped by centralized bureaucracy. Policy was to free managers in return for tighter accountability. For local government, the 1980s model was an imposed requirement to contract out.

Autonomous agencies were a source of some concern with worries about the proliferation of non-departmental public bodies or “quangos” and about their performance.

Institutional starting points

The UK has a tradition of a single strong central agency in the HM Treasury. It also has a strong tradition of single party majority, with Westminster-style, first-past-the-post electoral arrangements.

Under the Anglo-Saxon administrative tradition, UK public administration is very little based on statute, so changes were carried through administratively rather than through new laws. This is a major factor in allowing a flexible and pragmatic approach.

There was extensive trade union membership in the public sector, although it was declining from before the time of major downsizing, with changes in terms and conditions.

Constitution/political system

Nick Manning/Neil Parison Page 163 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The UK is a unitary state with some limited devolution to regional jurisdictions (establishment of the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly) since the election of the Blair administration in 1997. Central government has enjoyed sweeping powers to constrain the activities of local governments. Thus, in practice, the UK remains a highly centralized state, although the current administration has a clear view on the need to strike a balance between clear central direction and responsiveness to local needs, and the need for the center to step in when services fail and to encourage managerial freedom.

The UK’s political system is strongly majoritarian. In this first-past-the-post electoral system, two main parties (Conservative, Labour) in the lower house dominate electoral politics. A single party, with strong party discipline, provides the political base of the Prime Minister. “The unusual dominance of a single party form of executive under the British system gives governments an equally unusual ability to realize their reform desires, even when these are controversial in Parliament or unpopular in the country” (Pollitt and Bouckaert 2000).

The upper house of Britain’s legislative branch, the House of Lords, may delay, but cannot block passage of legislation approved in the House of Commons. The House of Lords is being reformed to weaken its hereditary basis.

Structure of government

The public service of the UK generally refers to the central government, both civil servants and others in non-departmental public bodies (“quangos”) and public corporations, as well as local government including social services and teachers, the National Health Service, the police and armed forces.

The civil service refers to the staff of all of the central government departments working for Ministers and for the executive agencies of government departments. Civil servants carry out the work of the government under the direction of Ministers and advise Ministers on policy. The UK civil service is non-political. When Ministers and the government change, civil servants remain to serve the government of the day. Not included in the civil service are members of the armed forces, teachers, officers working for local authorities, the police, those working for the National Health Service or for non- departmental public bodies (“quangos”), or remaining nationalized industries/public corporations like the Post Office.

Formally, the government comprises a body of Ministers responsible for the conduct of national affairs and the day-to-day business of heading the departments of state. Ministers (currently 109) are appointed by the Queen on the advice of the Prime Minister, whom she appoints on the basis of being the leader of the party that commands a majority in the House of Commons. Ministers co-ordinate their work through the Cabinet (22 members) and Cabinet Committees and within departments.

The executive consists of (i) the government – the Cabinet and other Ministers; (ii) government departments and agencies, (iii) local authorities; and (iv) public corporations.

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Parliament has three elements, the Queen, the House of Lords and the House of Commons. These elements are constituted on different principles and meet together only on occasions of symbolic significance. The agreement of all three elements is normally required for legislation (but that of the Queen is given as a matter of course).

There are 22 Cabinet Ministries in the government, plus 8 other Ministerial departments (and 24 non-ministerial departments). Within departments there are approximately 135 executive agencies. There are a total of 465,000 civil servants, over 70% of whom are in executive agencies.

Apart from the civil service, UK central government consists of about 300 "quangos" (non-departmental public bodies) and public corporations (Post Office, BBC), totaling another 500,000 public employees.

Box 22 Cabinet Ministers in the UK57 • Prime Minister, First Lord of the • Secretary of State for Transport, Treasury and Minister for the Local Government and the Civil Service Regions • Deputy Prime Minister and First • Secretary of State for Health Secretary of State • Secretary of State for Northern • Chancellor of the Exchequer Ireland • President of the Council and • Secretary of State for Wales Leader of the House of Commons • Secretary of State for Defence • Lord Chancellor • Chief Secretary to the Treasury • Secretary of State for Foreign and • Secretary of State for Scotland Commonwealth Affairs • Leader of the House of Lords • Secretary of State for the Home • Secretary of State for Trade and Department Industry • Secretary of State for • Secretary of State for Education Environment, Food and Rural and Skills Affairs • Secretary of State for Culture, • Secretary of State for the Media and Sport International Development • Parliamentary Secretary, Treasury • Secretary of State for Work and and Chief Whip Pensions • Minister without Portfolio and Party Chair

Local (municipal) government is directly elected in the UK. In England, metropolitan districts, London boroughs and unitary councils, some provide all local services. In other areas, responsibilities are shared between county, district and in some cases, parish councils. Local government officers serve all elected members, of whatever party. There are about 1.2 million local government employees. Approximately 90% of local budgets are funds channeled from central government. Responsibility for education is split between central and local government, as is that for health services and the police.

Nick Manning/Neil Parison Page 165 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Education and health services each account for some 1.2 million public servants, with a further 400,000 police and armed forces.

The government has introduced a major program of local government modernization since 1997. The Local Government Acts of 1999 and 2000 provide mechanisms for: • Councils’ decision-making processes to be efficient, transparent and accountable; • Continuous improvement in the efficiency and quality of the services for which they are responsible (the “Best value” policy); • The active involvement and engagement of the community in local decisions; and • Local authorities to have the powers to work with other bodies to ensure that resources are deployed effectively to improve the well-being of their area.

Central agencies and reform management

There are two major departments at the center of government: the Cabinet Office and the Treasury. However, the Prime Minister's Policy Unit in No. 10 Downing Street, although formally part of the Cabinet Office, has a strong identity of its own. Each of these has a role in coordinating the activities of other departments.

Ministers in charge of departments have formal responsibility for the discharge of government business. The three central organizations’ coordinating activities follow from their particular responsibilities: • No. 10 Downing Street provides support and advice to the Prime Minister on all government business. It gives strategic direction to departments on the basis of the Prime Minister’s views and orchestrates the presentation of government policy. • The Cabinet Office aims to ensure that the government delivers its priorities. It does this by supporting collective consideration of key issues by Cabinet and its Ministerial Committees, and by working with departments to modernize and co- ordinate government, aiming at excellence in policy making and responsive, high quality public services. • The Treasury manages public spending and aims to get the best public service outputs and outcomes for the resources the country can afford. It pursues this by setting spending plans; agreeing departmental objectives and targets in Public Service Agreements and Service Delivery Agreements; and promoting cross-departmental work where it is likely to deliver better value for money.

Some of the oldest central functions are core activities such as the Treasury’s management of the relationship with Parliament on public spending matters and the role of the Cabinet Secretariat in supporting collective government. The center also manages some cross-cutting support services including managing pension arrangements (Cabinet Office) and accountancy advice services (Treasury’s Financial Management Reporting and Audit Directorate). Some smaller central agencies include the Office of government Commerce that provides purchasing advisory services.

Nick Manning/Neil Parison Page 166 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Much of the recent growth and development of the center of government has been in activities that are designed to add value to the work of individual departments. The center provides strategic direction by ensuring that departmental objectives are aligned with the government’s overall strategic priorities; and that the wider public is well informed on the government’s actions. Public Service Agreements (PSAs) set out the key objectives and targets for each department.

Strategic direction also means the center taking the lead on policy issues which span a number of departments, for example social exclusion, drugs strategy and women’s issues. More generally the center promotes policy coherence and rigor, through central mechanisms for coordination of government business and collective knowledge, and resolution of disputes.

The center aims to support departments in delivering improvements in performance for the end users of services. This includes developing tools and advice (e.g. Civil Service reform, better business planning, use of the Excellence Model, Charter Mark, benchmarking and leading the drive to electronic government) and facilitating corporate learning (e.g. through peer review and policy evaluation).

The center also challenges departments to make sure their approach to key issues is robust (e.g. Better Quality Services, consumer focus, Service Delivery Agreements and impact of regulations). The center has a continuing role in ensuring that standards such as those set out in the Civil Service Code, are maintained.

A report published in 2000 by the Cabinet Office’s Performance and Innovation Unit, "Wiring It Up", listed three preconditions for effective intervention by the center of government: • It should not try to do everything itself but should draw upon the expertise and knowledge from business units and beyond; • It needs to understand the business units well enough to avoid destroying value by the wrong sort of intervention; • It needs the right sort of skills, e.g. facilitation, cross-cutting working.

The center must be clear about its own objectives and must be able to communicate them to the rest of government. It has to be selective in its interventions, because the individual units in the three central organizations are mostly very small and should not second-guess everything departments do; and, more importantly the primary responsibility for delivery still rests with individual departments.

The center aims to: • Work in partnership with departments wherever relevant; • Limit the number of new initiatives; • Introduce new activities only where they add value; • Think carefully about delivery/implementation; and • Take account of departments’ needs, especially in terms of timing and timetable.

Nick Manning/Neil Parison Page 167 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The civil service reforms of the 1980s enjoyed strong political and ideological leadership from the then Prime Minister, Margaret Thatcher. She appointed a businessman to report to her as head of the new Efficiency Unit. HM Treasury led on privatizations. When Mrs. Thatcher announced the government’s policy for creating executive agencies in 1988, she took the innovative step of appointing an official to report directly to her as Project Manager, giving him responsibility to take the reforms through. This official was moved from the Treasury to head the Office of Public Service (then the Office if the Management of the Civil Service), in the Cabinet Office; and these two departments were the main agents of change. One of the principal consequences of the Next Steps policy was the delegation of responsibility for civil service pay and grading matters from the Treasury, first to agencies and then to departments, with the residual central responsibilities passed from the Treasury to the Cabinet Office. The following Prime Minister, John Major, also took a personal interest in reform policy, and announced the Citizens Charter policy, but he was less directly involved in implementation.

The current Modernizing Government program is championed by the Prime Minister, Tony Blair, but led by Cabinet Office Ministers who report to him. Sir Richard Wilson, the official head of the service, leads civil service reform. This leadership from an official rather than a politician is a corollary of the political impartiality of the UK civil service. The Chancellor of the Exchequer and the Chief Secretary to the Treasury have led on the Spending Reviews and the introduction of the Public Service Agreements that are a key component of current reform. Ministers in the Department of Health, the Department for Education and Employment and the Department of the Environment, Transport and the Regions have led on the parallel reforms in the health service, education and in local government respectively. Parliamentary Select Committees have taken an interest in and reported on all aspects of the reform program.

Politicization

The UK civil service has developed into a permanent, impartial (non-political), merit- based body that works to serve the elected government of the day. Approximately 80 Special Advisers (political appointees) work directly for Ministers and can and do act politically. Local government staffs serve all elected officials. There is a model contract for Special Advisers setting out the principal terms and conditions of their employment.

Reform activities

Summary

Managerial flexibility has been a touchstone of the New Public Management reform agenda. The Next Steps agency model was posited on the idea that managers who were freer of external constraints would be more effective at delivering results and getting better value for the resources invested, within a close framework of accountability. The key freedoms sought had to do with personnel management – recruitment, pay and grading and training for the particular job to be done; and financial regimes, looking for more flexibility within budget heads and between years. During the 1990s the UK

Nick Manning/Neil Parison Page 168 11/22/2004 International Public Administration Reform Country Reform Summaries.doc abandoned national civil service uniformity on pay, recruitment (within framework set by Civil Service Commissioners), grading, and training. Official heads of department and executive agency chief executives are directly accountable to the Minister for results. (In practice, some agency chief executives account to the head of department or another senior civil servant.) Heads of department, Accounting Officers, and Agency Chief Executives are accountable to Parliament via the Public Accounts Committee for the proper use of resources.

The targets for executive agencies opened up civil service performance data to Parliamentary and public scrutiny in ways not seen previously. However, there is some question whether the level of detail published on targets and achievement actually enhances real scrutiny. There may be too much. In a number of executive agencies, there has been noticeable change in the nature of performance measures year-on-year, as officials have tried to identify those that are the most effective. This has caused problems in plotting performance variation between years.

Clarity of expectations regarding agency outputs has not always led to an improved focus on the policy goals of the Minister. In part the system of Public Service Agreements seeks to remedy this by providing an overarching framework of policy objectives for the government and the individual Ministry, within which the targets for the agency activity make a direct contribution to the delivery of the desired outcomes. The fact that the number of targets in the PSAs has been reduced in the second round reveals a determination to avoid proliferation; and work is in hand to develop a performance information strategy to measure progress towards outcomes

The National Audit Office (NAO) oversees central government expenditure and (with the Audit Commission) health expenditures. The Audit Commission oversees performance of local government and the education and health authorities. Independent regulators also have a role in certain sectors (e.g., the Office for Standards in Education (OFSTED) in the education sector).

Not all reforms have been internal to the public service. Various external influences have shaped the reform program, including the increasing coherence of the European Union, encouraging cross-country comparisons of governance and services, and the dramatic increase in the use of the Internet. The developing role of the Audit Commission, reporting on the performance of the local government and health sector and publishing league tables, and of the NAO, auditing government and reporting to the Public Accounts Committee, coupled with greater scrutiny by Parliamentary Select Committees, has empowered the public to monitor service quality and demand improvements. Legislation on Freedom of Information is also pushing in this direction, but this influence should not be overstated: as yet it is far less important than the publishing of league tables of performance. Similarly, in the longer term the passing of the Human Rights Act has significant implications for public administration, but has shown little impact yet.

Nick Manning/Neil Parison Page 169 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Reforms to the organizational structure of government

Approximately 75% of all civil servants now work in executive agencies. However, this is not tantamount to decentralization since they remain part of government departments and directly accountable to the Minister for their performance. Government authority in the UK remains highly centralized. However, the Labour government’s approach to service delivery has been clearly articulated: services that meet the needs of citizens not the convenience of service providers; and a determination to strike the right balance between intervening where services fail and giving successful, organizations more scope to manage and excel.

Cutting back the programs undertaken by government

In the 1980s in local government, the UK relied on compulsory, competitive tendering and a strong preference for private sector supply where practical, whether through strategic contracting out or market testing. There is currently more emphasis on public/private partnerships. Organizational program reviews in central government (Better Quality Services) and local government (Best Value) have now been adopted.

Within the civil service, all activities are subject to a quinquennial organizational review to determine the best structure and arrangements for the function, first introduced a part of the Next Steps policy. Whereas under the previous administration there was an order of preference in the available options, i.e. abolition, privatization, strategic contracting out, market testing, agency status, there is currently a more pragmatic approach and a level playing field. Central government is also subject to the Better Quality Services initiative, to test the best supplier of services.

Local government in England is subject to a program called Best Value. The Local Government Act of 1999 placed a new duty on local authorities. To meet this duty, the authority is required to consult local people, review all its functions periodically, measure its performance and produce a performance plan that will be audited by an independent auditor. Local authority services are also liable to inspection - and the Secretary of State can take action to remedy failing services. In reviewing its functions, the authority is required to consider whether it should be exercising the function, its objectives in doing so, its performance, how competitive that is and to consult other authorities for comparison. In summary, the approach is: challenge, compare, consult, compete and collaborate.

Since the election of the Labour government, there has been a clear shift away from a contractual paradigm to one based more on partnership, and the delivery of broader outcomes, seeking collaboration between organizations within the public sector and beyond in pursuit of government goals.

Nick Manning/Neil Parison Page 170 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Civil service and personnel reforms

There is very little civil service legislation in the UK. The current Labour government has announced its intention to introduce a Civil Service bill and create statutory footing for civil service; but no timetable has been set.

From 1970, in response to the “Fulton” report on the civil service, a “Senior Open Structure” was recognized as a senior management group, more likely to move between departments. A 1994 White Paper, Taking Forward Continuity and Change, noted the greater diversity and reduced uniformity of the civil service, following such measures as the establishment of executive agencies and delegation of managerial and financial responsibilities. It proposed the recognition of a wider group of around 3,000 of the most senior posts to represent the cohesiveness of the Service and to maintain and promote shared values. This Senior Civil Service (SCS) came into being in 1995. Unlike other civil servants, each member of the SCS has signed an individual, indefinite contract with an employing department. They are responsible for serving the collective interest of government, with a focus and loyalty wider than their own department or agency.

The size of the civil service peaked in 1976 at 750,000. This total had fallen to 630,00 by the mid 1980s and 566,000 by 1990. By the turn of the century, the total had dipped to 465,000 before rising to 475,000 by 2000. This deep reduction was achieved through privatization, abolition of functions, contracting out and partnerships with the private sector.

All civil servants are recruited, promoted, and rewarded according to merit principles. The UK Civil Service Commissioners are charged with maintaining this principle and requiring departments to satisfy them that they have done so.

There is continuing pressure in 2000 to increase value for money and effectiveness across public sector. Modernizing Government committed the government to deliver high quality public services : “we will not tolerate mediocrity”. Government’s approach is to: • Review all central and local government services and activities over five years to identify the best supplier in each case; • Set new targets for all public bodies, focusing on real improvements in the quality and effectiveness of public services; • Monitor performance closely so that the right balance is struck between intervening where services are failing and giving successful organizations the freedom to manage.

All civil service pay includes some performance-related element. However, the amounts are a very small share of total civil service pay, partly reflecting a view of performance pay as divisive within the UK public sector.

Not all rewards are monetary. Under the Citizens Charter, a recognition scheme, the Charter Mark, was introduced and this has been further developed by the Labour government, which has placed a strong emphasis on recognition of excellence, new management tools (e.g. the European Foundation for Quality Management Excellence

Nick Manning/Neil Parison Page 171 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Model - EFQM), and on identifying and spreading good practice (Beacon schemes). Beacons operate both in local and central government and the key feature is that those recognized as beacons of excellence should be proactive in seeking to spread it to other public sector organizations.

Not all the quality schemes used in the public service are run by government. And although individual quality schemes concentrate on specific aspects of quality, they need not operate in isolation. The EFQM provides an overall framework for an organization’s activities, while Investors in People (good people management) and ISO 9000 look in more detail at different ways of improving aspects of performance.

Ministries and executive agencies have discretion on pay policy within the overall business plan agreed with HM Treasury. The Labour government is examining new proposals looking at the entire compensation pay package (e.g., work/life balance), and making use of comparative pay/benefits surveys.

Ethics is recognized and treated as important area in the UK. An independent Committee of Standards in Public Life makes recommendations to the Prime Minister. It was set up in 1994 to examine concerns about standards of conduct (and its remit was extended in 1997 to cover funding of political parties). The Committee has produced six reports: 1. MPs, Ministers and Civil Servants and Executive Quangos; 2. Standards of governance in local public spending bodies; 3. Standards of conduct in local government; 4. A review of action on the previous reports; 5. Funding of political parties; and 6. Further considerations on the first report and on special advisers.

The recommendations of the Committee have led to the establishment of the Parliamentary Commissioner for Standards and of the Commissioner for Public Appointments.

The civil service is embodied with a strong and coherent public service ethos. There is a high public sensitivity to conflicts of interest, which severely restricts political activity.

The Civil Service Code, introduced in 1996, was slightly revised recently. It is a concise statement of the role and responsibilities of civil servants, setting out the constitutional framework within which all civil servants work and the values they are expected to uphold. It forms part of the Civil Service Management Code, a much longer document setting out the central framework for the management of the civil service

Within the UK public service, there are now Codes of Conduct for Ministers, civil servants, Board members of advisory and executive quangos, staff of quangos and National Health Service Boards.

The UK civil service has now been imbued with performance management and business planning concepts for some years. More recently, the UK government has promoted a

Nick Manning/Neil Parison Page 172 11/22/2004 International Public Administration Reform Country Reform Summaries.doc shift toward a more open and diverse civil service personnel model, bringing in more staff and talent from outside.

The Head of the Home Civil Service submitted to the Prime Minister in December 1999 a proposed civil service reform program that is now under way. There are targets to increase the representation of women, those from an ethnic minority background, and those with a disability in senior posts.

There will be a radical new performance management system for the Senior Civil Service and reviews are in hand of such systems for other staff in all civil service organizations. Business planning, diversity awareness and leadership are other key aspects.

In part, this program is a response to a concern to improve performance of main civil service functions: delivery of services and development of policy. A new Center for Management and Policy Studies (CMPS) has been established in the Cabinet Office to act as central resource of knowledge, expertise, and evidence from around world to assist Ministers and civil servants in policymaking. Now subsumed within the CMPS, the UK Civil Service College remains the primary institution in Britain for in-service training.

Budget process changes

One of the key starting points of civil service reform during the 1980s was the introduction in 1982 of the Financial Management Initiative. This introduced more systematic resource planning and allocation on the basis of planned activity and the delegation of budgetary responsibilities to managers within departments. The Next Steps program from 1988 moved much further in this direction, tying the allocation of resources to each executive agency to performance against published annual output targets. This opened up much civil service activity to closer public scrutiny and provided a “bottom line” for performance, in return for managerial delegations. (Arguably there was more output information than could be usefully handled.)

Executive Agency managers pressed for financial reforms such as the capacity to move resources between budget heads and carry some resources over between years. The Executive Agency reforms led the way towards the introduction of “commercial-style” accounting. Three-year rolling public expenditure settlements were supplemented in the 1990s by fundamental (zero-based) review of government expenditure.

The reforms of the current administration are centered on the framework of performance management provided by the Public Service Agreements (PSAs), introduced following a Comprehensive Spending Review in 1997-8. These agreements are struck between Ministers in charge of departments and the Treasury. Taken together, the PSAs set out the government’s priorities for delivery and its spending decisions. Each agreement is based on a three-year resource allocation. It sets out the policy outcomes and objectives the department aims to achieve and the measures against which it will report. The number of objectives in the second round of PSAs has been reduced from 630 to some 160 as an attempt to simplify performance information overall and make it more useful, in part taking a lesson from experience of agency targets. All PSAs are published.

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Ministers account to a Ministerial committee, which is advised by the Treasury and Cabinet Office. A new performance information framework and strategy has been developed by these two departments and will be published during the spring of 2001. PSAs are underpinned by Service Delivery Agreements setting out more detail of how the department will go about its business. The PSAs provide the framework for business planning within departments and resource allocation to executive agencies and the setting of their performance targets, and are therefore reflected in the personal job plan of individual civil servants, including the head of the department. They provide a basis for assessing performance and determining some element of the department head's remuneration. The government has recently introduced a series of pilot Local PSAs with local authorities.

A system of Resource Accounting and Budgeting (RAB) is being fully introduced across all government from 1 April 2001. It involves producing the equivalent of the main financial statements from commercial accounts, in particular, a balance sheet and the equivalent of a profit and loss statement and using this as the basis for planning, controlling and reporting on public spending. It means public expenditure for all government departments will be managed on the basis of: (i) a resource budget measuring ongoing operations in accruals terms; (ii) a capital budget for new investment in accrual terms; and (iii) a combined cash requirement to cover the preceding two elements. There has been a careful preparation process, following the launch of the policy in 1993. Resource accounting was introduced in all departments from 1998-99. Resource accounts were published from 1999-2000 alongside Appropriation Accounts. The Spending Review 2000 was conducted on a resource basis. There was a dry run of the full accrual system across government in 2000-01. RAB will be fully implemented for 2001-02.

E-government

Information age government is one of the five priorities of the Modernizing government initiative (1999) of the Labour government.

The IT strategy for government has put in place cross-government co-ordination machinery on issues such as the use of digital signatures and smart cards, web sites and telephone call centers, and benchmark progress against targets for electronic services. The government’s E-strategy includes having all government services offered online by 2005 (currently 42% are available). Every citizen who wants it is to have access to the Internet by 2005. A key goal is to make the UK an ideal environment for e-business.

A senior official has been appointed as “E-envoy” to lead this aspect of reform, based in the Cabinet Office. Each department has an “information age champion” at official level.

The launch of UK Online – a portal to government services on line is underpinned by the concept of providing services to match the “life episodes” that happen in real life when clusters of public services are needed at one time (e.g. starting school, finding or changing a job, having a baby, suffering a bereavement, starting a business). This

Nick Manning/Neil Parison Page 174 11/22/2004 International Public Administration Reform Country Reform Summaries.doc consumer-focused approach is recognized as having considerable implications for the organization of public services.

Reform outcomes

One yardstick of the impact of the two phases of UK reforms is that, at the start, it would have been unthinkable for prisons to be run by a private company. By the end, it had been thought of and was being done, although not necessarily without elements of curiosity and hostility.

There has been a marked shift towards a contractual paradigm within government. This has been accompanied by a growth in the supporting regulations to arbitrate between the contracting parties – to the degree that some observers have pointed to regulation as the growth sector of public administration in the UK. The Modernizing Government initiative of the current Labour government has sought to build on this acceptance of contracting with a greater emphasis on collaboration and partnership, moving on in rhetoric at the very least from the managerial agenda of the 1980s to one which put the user of services and the outcomes they needed at the heart of further change.

The administrative reforms of the 1980s and early 90s strengthened the performance orientation of the public sector and increased technical efficiency. However, the public service ethos in the UK, as well as staff morale, may have suffered in the process. “League tables” for schools and hospitals have proved very popular with the public; but much other performance data goes unused.

To sum up, the 1980s saw the development of a model of public administration that was focused on the efficiency of business processes, on the idea of the distinction between policy and operations and the multiplying of performance indicators.

This model delivered significant advances and is still at the heart of further improvement. But in many respects this model can be said to have come up against limits. Recent government analysis identified problems in terms of horizontal co-ordination and of capacity to tackle the deep seated social problems that cut across traditional Ministerial and organizational portfolios. The analysis suggested the limitations of the paradigm for the new information age, IT environment; and raised questions concerning its impact on the motivation of public servants.

Modernizing Government was launched as an 8 to 10 year program. The UK has reached the end of year two. The UK seems to have adapted to a continuous process of public administrative reform since the start of the 1980s, learning and adjusting as it goes along. The pace is now hotter thanks to IT, and the need to restore trust in government and to manage an increasing flow of data and knowledge, and the restructuring in the Cabinet Office suggests that the UK is now more consciously looking outwards to learn and to share.

The new model that is taking shape is not so much driven by inputs of money or technology, or narrowly defined functional outputs, as it is by outcome, result for the

Nick Manning/Neil Parison Page 175 11/22/2004 International Public Administration Reform Country Reform Summaries.doc user in terms of their life or business and for the government in terms of social or economic or political change.

The new model is not based solely on aligning strategies, structures and systems but also on combining widely shared missions, adaptive processes and empowered people – and the right incentives. The Public Service framework and the powers of local authorities to work with a wider range of partners to promote community well-being are part of this.

Postscript

The June 2001 UK general election was won by the Labour party with Tony Blair remaining Prime Minister and leading his second administration. Soon afterwards he announced a number of organisational changes at the centre of government, including some within his own office, coupled with changes in Ministerial and departmental portfolios, designed to strengthen the effectiveness of government and its capacity to deliver its priorities. He also made a keynote speech in July 2001 setting out the themes of his approach towards the delivery of public services.

Changes at the centre included the setting up of an Office of the Deputy Prime Minister within the Cabinet Office. The Deputy Prime Minister chairs a number of key Cabinet Committees, oversees the delivery of manifesto pledges and deals with important cross- departmental issues including, for example, social exclusion. The Regional Co- ordination Unit, the Government Offices in the Regions and the Social Exclusion Unit report to the Deputy Prime Minister.

Three new units have been established to strengthen the Government’s ability to deliver change in public services:

• A Prime Minister’s Delivery Unit has been set up to ensure that the Government achieves its main objectives in the four key areas of public service identified in the Queen’s Speech: health, education, crime reduction and transport. The Unit will work closely with the Treasury to ensure that the agreed targets are achieved. The Delivery Unit reports to the Prime Minister. • A new Office of Public Services Reform has responsibility for advising the Prime Minister on taking forward the Government’s commitment to radical reform of the Civil Service and public services, including those provided by central and local government. The Unit is located within the Cabinet Office and reports to the Prime Minister though the Cabinet Secretary. • A Forward Strategy Unit has been established in Number 10 to do “blue skies” policy thinking on issues of current and future concern to the Prime Minister and to undertake strategy projects. The Unit will draw on the resources of the Cabinet Office’s Performance and Innovation Unit and work closely with departments.

Nick Manning/Neil Parison Page 176 11/22/2004 International Public Administration Reform Country Reform Summaries.doc All three units will bring in members from outside central government and draw in experience from beyond the public sector, thus building on one of the approaches of the first Blair administration.

Changes in Ministerial portfolios and the structure of departments provide for closer co- ordination of the Government’s priorities and take forward ideas of “joined-up” government. Changes include, for example:

• A new Department for the Environment, Food and Rural Affairs, focusing on green issues and the countryside. In addition to taking over responsibility for agriculture, the food industry and fisheries from the previous Ministry of Agriculture, Fisheries and Food, the new department has taken on the environment, rural development, countryside, wildlife and sustainable development responsibilities of the former Department of the Environment, Transport and the Regions (DETR). • The new Department for Transport, Local Government and the Regions gives more focus to the previous DETR's responsibilities for transport, as well as local government, housing, planning, regeneration, urban and regional policy. • The Department of Trade and Industry has taken over the Regional Development Agencies where they sit alongside the Department's regional economic responsibilities. The shared responsibility of the Department of Trade and Industry and the Foreign Office for British Trade International (trade promotion) has been reinforced by the appointment of a single Minister of State with lead responsibility for its work, holding office in both departments. • The Home Office has been streamlined to focus on tackling crime, reform of the criminal justice system and asylum. As part of this, the UK Anti-Drugs Co- ordination Unit has transferred into the Home Office from the Cabinet Office, and the Lord Chancellor's Department has taken on the Home Office’s previous wider constitutional responsibilities including Freedom of Information, Data Protection and Human Rights. • A new Department for Work and Pensions brings together the previous Department of Social Security and the Employment Service to establish a new the Working Age Agency (to be called Jobcentre Plus) with a single and clear line of Ministerial accountability. The Department combines the employment and disability responsibilities of the former Department for Education and Employment with the welfare and pensions responsibilities of the former Department of Social Security.

These changes show how the UK Government is taking forward its commitment to better, more coherent policy-making and delivery and to tackling cross-cutting issues.

The list of Ministerial portfolios as at July 2001 is as follows:

Prime Minister, First Lord of the Treasury and Minister for the Civil Service Deputy Prime Minister and First Secretary of State Chancellor of the Exchequer

Nick Manning/Neil Parison Page 177 11/22/2004 International Public Administration Reform Country Reform Summaries.doc President of the Council and Leader of the House of Commons Lord Chancellor Secretary of State for Foreign and Commonwealth Affairs Secretary of State for the Home Department Secretary of State for Environment, Food and Rural Affairs Secretary of State for the International Development Secretary of State for Work and Pensions Secretary of State for Transport, Local Government and the Regions Secretary of State for Health Secretary of State for Northern Ireland Secretary of State for Wales Secretary of State for Defence Chief Secretary to the Treasury Secretary of State for Scotland Leader of the House of Lords Secretary of State for Trade and Industry Secretary of State for Education and Skills Secretary of State for Culture, Media and Sport Parliamentary Secretary, Treasury and Chief Whip Minister without Portfolio and Party Chair

Also Attending Cabinet : Minister of State for Work Lords Chief Whip and Captain of the Gentlemen at Arms Minister for Transport

A few weeks after his election victory, Prime Minister Blair made a speech, under the heading called, Reform of Public Services (16 July 2001). This set out so clearly the approach the new Labour government intended to take in respect of the reform of administration and public services that extracts are reproduced below to show the current position in the UK:

“Let me start with an analysis of why our public services need radical improvement.

First expectations have risen enormously yet public services designed for a previous age find it difficult to respond. Unlike 1945, people don’t put up with the basics. In a consumer age, they expect quality, choice and standards and too often don’t experience them. Secondly, the demands on the systems have risen: more people live longer; more diseases are treatable; more go to nursery and to university; more people use public transport. Thirdly, there has been chronic under-investment that has run down the essential infrastructure, buildings, equipment, track and trains in transport. Fourth, staff recruitment is so much harder with employment at record levels and the spectrum of private sector jobs, many with higher pay, is so much greater; and where in many key public service jobs, there is real and growing stress. …

Nick Manning/Neil Parison Page 178 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Across all services there are three pillars to reform.

First, the role of the centre will be to set a framework of national priorities and then a system of accountability, inspection, and intervention to maintain basic standards across the country….

Secondly, however, within those national priorities, the essential structural change will be to… devolve power to the frontline professionals and set them free to innovate and develop the services needed.

Third, because front line staff will have more power, their terms and conditions of employment should be geared to proper recognition for the work they do, real incentives for better performance, higher morale and greater fulfillment. …. So our strategy for public service reforms is: national standards, local innovation and more and better rewarded staff.”

Nick Manning/Neil Parison Page 179 11/22/2004 International Public Administration Reform Country Reform Summaries.doc 14. USA

William P. Shields, Jr., Program Associate, National Academy of Public Administration with J. William Gadsby, Director, Management Studies Program, National Academy of Public Administration

Overview

In the 1990s, many Americans believed that government had become too large and ineffective in responding to their needs. Many had “grown tired of new government programs initiated every year, with none ever ending. They were tired of senseless sounding government jobs, tired of larger and larger bureaucracies in Washington interfering more and more with their lives.” (Gore 1996)

Aside from the American public’s sentiment, there was general recognition that agencies focused on processes when implementing government programs, not on the goals or results those programs were designed to achieve. At the same time, many of the laws and regulations under which the government operated were arcane and burdensome, preventing agencies from taking advantage of innovative practices.

The sequence of reforms

The National Performance Review/National Partnership for Reinventing Government (NPR) undertook its initiatives in three phases.58

Box 23 Three phases of reform in the USA Phase I NPR began its work by identifying fundamental reforms to the 1993-1994 governmental process, including customer service and procurement. It considered downsizing to be a major objective, while identifying waste and opportunities for management improvement. Agencies were ordered to develop customer service plans. Phase II NPR redirected its focus from process reforms to the basic question of what 1995-1998 government should do. One reason for this refocus was the shift in congressional power from the Democrat to Republican party. Republicans ran on an agenda of rethinking the notion of “Big Government.” During this phase, NPR considered ways to devolve some authority and functions to state and local governments, and it proposed increased use of private entities to deliver services. User fees and agency reorganization were advocated and/or undertaken. Phase III NPR shifted its attention to “new ideas,” including efforts aimed to improve 1998-2001 chronically troubled agencies and those that would broadly appeal to Americans. Effective use of information technology and electronic government received particular attention during this phase, as did outcome measurement and one-stop access to government information.

In addition the Government Performance and Results Act (GPRA) was passed and signed into law in 1993. It placed a requirement on agencies to institutionalize their processes for strategic planning and measuring results.

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Reformers' concerns

The NPR objectives included a decreased workforce and elimination of ineffective programs, targets that would likely be embraced by the American public. These concerns were emphasized through a public relations effort launched by Vice-President Gore. Aside from traditional news shows, he appeared on numerous late night, entertainment-based programs.

Under Vice President Gore’s leadership, NPR lasted for eight years. At the outset, Vice President Gore convened “town hall” style meetings in several dozen agencies, and he drew on the organization and management expertise of private sector executives.

Several NPR objectives gained substantial traction through the lawmaking process. For example, procurement reform, considered to be a major objective, was codified in the Federal Acquisition Streamlining Act of 1994.

In these respects, the Clinton Administration announced the NPR program knowing that the issues to be addressed would resonate among the American public. It sought public support as it initiated the reforms.

Efficiency and effectiveness was also the concern behind a parallel congressional initiative in passing the GPRA. Several congressional committees—and committee chairmen, especially—view GPRA as a solid means of improving the efficiency and effectiveness of government programs. Senator Fred Thompson, Chairman of the Senate Committee on Governmental Affairs, stated, “Accountability begins with federal agencies effectively telling us what they’re trying to accomplish and whether or not they’re accomplishing it.”59

Institutional starting points

Constitution/political system

The USA is a democratic republic, comprised of 50 states and the District of Columbia. Two major parties currently dominate the political process: the Democratic and Republican Parties.

The United States Constitution establishes the American system of government. It provides for three distinct branches of the national government, which are both separate and interdependent. The legislative, executive and judicial branches are co-equal and have individual powers. They also have shared powers and each branch has some degree of oversight over the others

In addition, the Constitution established a federal system in which power is divided between the national and state governments. Powers that are not delegated to the national government by the Constitution are reserved to the states, unless these powers are prohibited by the Constitution. This federal system has two fundamental characteristics.

Nick Manning/Neil Parison Page 181 11/22/2004 International Public Administration Reform Country Reform Summaries.doc The first is the concept of indirect democracy. Citizens have the opportunity to vote for representatives to work on their behalf in government. Second, each level of government raises money through taxing citizens who live in the area it serves. Unless each government can provide for its own fiscal resources, it cannot act independently.

Structure of Government

The power of the executive branch is vested in the President of the United States, who is elected to serve a four-year term. He may not be elected more than twice. The President’s constitutional duties include serving as Commander-in-Chief of the U.S. Armed Forces, negotiating treaties with foreign nations, and ensuring that national laws are “faithfully executed.” This last duty is especially important in that it empowers the president to administer government programs through departments and agencies.

The legislative branch, the U.S. Congress, consists of the House of Representatives and the Senate. The Constitution places several powers within this bicameral national legislature, including the power to levy taxes, coin money, regulate commerce and provide for the national defense. In order to become law, legislation must be introduced in the Congress, passed by both chambers in identical form, and signed by the President. The House is composed of 435 members who are elected by popular vote to serve two- year terms. The House initiates all national revenue bills and the Speaker of the House is its presiding officer.

The Senate is composed of 100 members who are elected by popular vote to serve six- year terms. Two members are elected from each state. The presiding officer is the Vice President of the United States, but his only significant Senate duty is voting on legislation when there is a tie vote. The Majority Leader serves as a driving force behind defining the Senate’s agenda and moving legislation forward.

The Constitution provided for a Supreme Court to settle legal disputes among states or between states and the national government. The Court is composed of nine justices who are appointed for life with the confirmation of the Senate. The Constitution also allowed Congress to establish lower national courts, as it deemed necessary. Congress exercised this prerogative by establishing the federal court system with the Supreme Court serving as the final arbiter of legal dispute.

The judicial branch plays a critical role in protecting the rights and liberties guaranteed to U.S. citizens. As such, federal courts can strike down any act, at any level of government, if they determine that the act is unconstitutional and violates the nation’s fundamental, democratic principles. This concept of judicial review did not derive from the Constitution but from case precedent.

In addition to the national government, there are 50 state governments and one for the District of Columbia. The national and state governments share certain concurrent powers, such as the ability to tax and to make and enforce laws. Each also has exclusive powers that the other cannot abridge. In general, matters that lie entirely within state borders are the exclusive concern of state governments. However, state governments are

Nick Manning/Neil Parison Page 182 11/22/2004 International Public Administration Reform Country Reform Summaries.doc forbidden from passing any law that denies or erodes the fundamental rights guaranteed in the Constitution. When national and state laws conflict, the national law is considered supreme.

The Constitution does not specifically provide for localities, but they play a major role in the structure of government. It is at the local level where citizens typically have the most interaction with their government and where many basic services are directly delivered. More than 87,000 local governments exist in the United States and they take varied forms. County governments have broad responsibilities that may include administering environmental or social service programs, while special districts deal with a specific purpose, such as water or schools. In almost all cases, local governments are created by a state and are subservient to it.

The national government’s executive departments, and the bureaus within them, are the operating units for administering national programs and oftentimes delivering services. They are responsible for a wide array of programs, including health care financing, educational grant programs and agricultural subsidies. A secretary, nominated by the President and confirmed by the Senate, manages each department. He or she is aided by presidentially-nominated officials and career staff who work at the departments.

As a general proposition, departmental status is reserved for entities that administer a range of programs directed toward a common purpose of national importance (Moe 2001). The first national government had three departments—State, Treasury and War— to discharge its core functions. As scope of government has increased, so too have the number of departments, which now total fourteen. Together, they employ nearly 88 percent of all federal civilian employees, excluding those working for the U.S. Postal Service. The departments and their secretaries as of May 2001 are listed below. Box 24 Departments in the US executive Department of Agriculture Department of the Interior Department of Commerce Department of Justice Department of Defense Department of Labor Department of Education Department of State Department of Energy Department of Transportation Department of Health and Human Services Department of Treasury Department of Housing and Urban Department of Veteran’s Affairs Development

The President’s Cabinet is an informal institution that is based on tradition and precedent, not law. It consists of the executive department heads, the Vice President and other agency officials that the President chooses. For example, recent presidents have declared that the U.S. Ambassador to the United Nations and the Administrator of the U.S. Environmental Protection Agency would hold Cabinet rank.

How an individual president views the Cabinet determines its importance. Some have convened the Cabinet only on formal occasions, while others have used it as an important source of expertise. It can provide the president with information during the decision

Nick Manning/Neil Parison Page 183 11/22/2004 International Public Administration Reform Country Reform Summaries.doc making and policy making processes, and it can give advice on issues that crosscut departmental jurisdictions.60

In addition to executive departments, other organizational entities exist within the executive branch and play an active role in program administration. Agencies exist outside the departments yet are subject to the same laws unless individually exempted.61 Currently, there are approximately 60 agencies performing a range of functions. Congress and Presidents frequently create them to highlight concerns or settle jurisdictional disputes among departments.

Government commissions are noteworthy in two respects. There is usually some degree of detachment from the central management agencies, and there often is plural executive leadership (Moe 2001). A sample of agencies and commissions are listed below. Box 25 Major agencies and commissions in the US executive Central Intelligence Agency National Science Foundation Commodities Futures Trading Commission Nuclear Regulatory Commission Consumer Product Safety Commission Peace Corps Environmental Protection Agency President’s Council on Physical Fitness Federal Communications Commission President’s Council on Sustainable Development Federal Deposit Insurance Corporation President’s Interagency Council on Women Federal Election Commission Securities and Exchange Commission Federal Emergency Management Agency Small Business Administration Federal Trade Commission Smithsonian Institution National Security Agency Social Security Administration Selective Service System National Aeronautics and Space Administration U.S. Agency for International Development National Archives and Records Administration U.S. Equal Employment Opportunity Commission National Commission on Libraries and U.S. Federal Reserve Board Information Science U.S. International Trade Commission National Endowment for the Arts U.S. Office of Government Ethics National Endowment for the Humanities U.S. Postal Service National Labor Relations Board Voice of America National Performance Review

Central agencies and reform management

There is no single dominant central agency. Inter-agency groups collaborate on efforts aimed at bringing change to government operations. These groups draw together managerial, operational, financial, labor relations and systems technology experts throughout government. For example, the President’s Management Council is composed of Chief Operating Officers from the major executive departments and agencies. Among its responsibilities, the Council analyzes shared management issues, recommends ways to streamline agencies and identifies performance measures for some government functions.

Other inter-agency groups include the Chief Financial Officers Council, composed of departmental and agency Chief Financial Officers who discuss ways to improve financial management systems. The Chief Information Officers Council identifies opportunities to share information resources and supports the national government’s development of an information technology workforce.

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Politicization

There is a large proportion of political appointments in the civil service with significant change in staff following the election of a new President.

Merit principles prohibit government employees from using their official positions or influence to affect the results of an election or political nomination. They also prohibit government officials from discriminating against an employee or applicant for employment on the basis of political affiliation, and from coercing the political activity of any person.

The Hatch Act, initially adopted in 1929 and amended several times since, regulates the political activities of certain employees or office holders in the executive branch agencies and in positions within the competitive service not in executive agencies. 62 Employees are allowed to actively participate in political campaigns, except as prohibited, retain the right to vote, and express their political opinions. However, the Act prohibits them from being candidates for partisan political office, and it places some restrictions on the solicitation and acceptance of political contributions.

The Office of Government Ethics (OGE), a small independent agency, was established by the Ethics in Government Act of 1978.63 It exists to prevent conflicts of interest on the part of government employees, and to resolve conflicts when they do occur. In partnership with executive branch departments and agencies, OGE fosters high ethical standards for employees and strengthens the public's confidence that the government's business is conducted with impartiality and integrity. It also provides guidance to agencies on procedures for monitoring financial disclosure statements that key officials in the three branches are required to submit.

The purpose of the “Ethics in Government” program is to ensure that executive branch decisions are not tainted by any question of conflicts of interest on the part of the employees involved in those decisions. Because the integrity of decision making is fundamental to every government program, each agency head has the primary responsibility for the day-to-day administration of the program.

Each agency head selects an employee of that agency to serve as the designated agency ethics official. This individual and other agency staff are tasked with supporting the agency’s ethics program, collectively known as the executive branch’s “ethics community” with whom OGE primarily deals and to whom it communicates policy and regulatory changes.64

Reform activities65

Two separate yet interrelated programs shaped U.S. government reform during the past decade. Both emphasized performance management and holding executive departments

Nick Manning/Neil Parison Page 185 11/22/2004 International Public Administration Reform Country Reform Summaries.doc and agencies responsible for meeting defined results. As such, there was increased focus on “getting the job done” rather than on the processes used.

In 1993, President Clinton initiated the National Performance Review (NPR), later renamed the National Partnership for Reinventing Government, an interagency task force designed to reshape federal management. Its self-described mission was to “reinvent government to work better, cost less and get results Americans care about” (Office of the Vice President 1993). As a result of its recommendations, the initiative claimed savings of more than $136 billion and reduction in the federal workforce of more than 426,000 positions during its eight-year existence. Vice President Gore led the NPR effort.

The GPRA of 199366 (GPRA) set out a framework for promoting performance management in government by requiring departments and agencies to demonstrate accountability in measurable terms. It outlined a process of setting strategic goals and direction; defining annual goals and measures; and measuring and reporting on progress made. Embedded within the congressional structure, GPRA placed a renewed emphasis on linking planning and budgeting.

The GPRA requires departments and agencies to measure performance and results—not merely funding levels—to better track what taxpayers are getting for their dollars. Agencies are not only working to develop and use performance measures in program management; they also are working to integrate this information into budget and resource allocations in order to better determine the costs of achieving goals.

In parallel with these administrative reforms, the Freedom of Information Act67 allows any person to request access to existing, unpublished records of federal departments and agencies. The Act does not require agencies to create new records, collect information or conduct research to satisfy the request. No reason need be given for making a request, and the burden of proof is placed on the government should it wish to withhold the material. In this regard, certain records may be withheld in whole or part if they fall within one of nine exemptions enumerated in the Act, or meet other exclusions.

The Government in the Sunshine Act68 requires multimember federal agencies, whose officials are presidentially-appointed, to conduct meetings that are open to the public. Most agencies falling under the Act are independent regulatory boards and commissions. The Act lists ten exemptions for closing a meeting; they include the need to discuss national security matters or internal personnel rules and practices. Judicial review is permitted should an agency act to close a meeting.

Reforms to the organizational structure of government

Departments and agencies vary widely in their use of decentralized offices to deliver government services. There exist no generally applicable models on the design of field organizations, nor on the degree of authority given to field officials. In some agencies, regional directors have complete authority across all program areas. In others, secretary representatives are given little or no program authority; they often handle interagency or

Nick Manning/Neil Parison Page 186 11/22/2004 International Public Administration Reform Country Reform Summaries.doc intergovernmental relations.69 Overall, it is often argued that decentralized management can provide services more quickly and with a better understanding of local conditions.

Performance- or results-based organizations provide personnel and purchasing flexibilities to its heads. They also hold the agency head directly accountable for the organization’s performance. The degree to which departmental secretaries hold their managers accountable for their work—and how—varies among the agencies.

The Department of Education’s Office of Student Financial Assistance, the Commerce Department’s Patent and Trademark Office and the Federal Aviation Administration’s air traffic services office have been reorganized as performance-based organizations (PBOs). A PBO is a discrete management unit in which its executive is allowed greater personnel and purchasing flexibilities. The executive is then responsible for committing to clear objectives, specific measurable goals, customer service standards and targets for improved performance. The organization’s performance determines his or her pay and tenure.

The Bush administration appears to endorse the concept of PBOs, which it has renamed “results-based organizations” (RBOs). It proposed in May 2001 that the State Department’s Foreign Buildings Operation, which oversees international U.S. facilities, be converted to RBO status.70

Cutting back the programs undertaken by government

Circular A-76, issued by the U.S. Office of Management and Budget in 1966, outlines the processes that an executive agency should use when deciding whether to contract out or retain in-house activities not defined as inherently governmental (otherwise known as “commercial activities”).71 However, Circular A-76 is not a mandatory program, and departments and agencies have conducted few cost comparisons between retaining and contracting commercial activities. The Federal Activities Inventory Reform Act of 1998 sought to remedy some of these shortcomings by requiring agencies to submit lists of their commercial activities.72 However, it did not require them to undertake cost comparisons.

The National Performance Review offered numerous recommendations in 1993 to reform the government’s procurement processes, which had been regarded as cumbersome and duplicative. The Federal Acquisition Streamlining Act of 1994 incorporated many of these recommendations by revising and consolidating existing procurement statutes.73 Under the law, agency procurement officials may purchase goods more quickly through a simplified process if they meet the threshold of $100,000. Also, small purchases under $2,500 can be made in paperless transactions using a purchase card.

Civil service and personnel reforms

Title 5 of the United States Code outlines civil service functions and responsibilities.74 It includes definitions for the civil service, merit system principles, performance appraisals, pay rates and systems, administrative procedures, and other matters related to

Nick Manning/Neil Parison Page 187 11/22/2004 International Public Administration Reform Country Reform Summaries.doc government functions. Many of the Title’s provisions are discussed in the subsections below.

The Civil Service Reform Act of 1978 codified merit principles applying to federal government employees. It serves as the underlying law for the provisions contained in Title 5. In brief, these merit principles hold that: • Recruitment, selection and advancement should be determined solely on the basis of relative ability, knowledge and skills after fair and open competition. • Employees and applicants should receive fair and equitable treatment. • Equal pay should be provided for work of equal value. • Employees should maintain high standards of integrity. • The federal work force should be used efficiently. • Employees should be retained on the basis of adequacy of their performance. • Employees should be provided effective education and training in cases where such would result in better performance. • Employees should be prohibited from arbitrary action and prohibited from using their official authority or influence for the purpose of affecting the result of an election or nomination.

Employees should be protected against reprisal for the lawful disclosure of information which the employees reasonable believe evidences a violation of any law, rule or regulation, or mismanagement, a gross waste of funds, an absence of authority, or a substantial and specific danger to public health or safety.75

Each department and agency head is responsible for complying with and enforcing civil service laws and regulations, as well as for preventing prohibited personnel practices. In addition, the Office of Merit Systems Oversight and Effectiveness is responsible for promoting effective agency operation of human resources management (HRM) programs consistent with the merit system principles and avoiding prohibited personnel practices.76 Much of this work is accomplished by working with agencies to improve their internal HRM accountability systems. Specifically, models, data indicators, and a forum for information exchanges are developed and provided to help agencies assess themselves. The Office of Personnel Management has the leadership role in federal personnel management issues.

Between 1993 and 2000, the size of the national government’s civilian workforce decreased by approximately 15 percent, or 325,000 full-time equivalent employees.77 According to the National Partnership for Reinventing Government, reductions from 1993 to 1999 led to the smallest workforce in 39 years, with almost all Cabinet departments and large independent agencies reducing their workforces. For example, the Office of Personnel Management reduced its workforce by 55 percent during the period.

The main statutory pay system for federal “white-collar” employees is the General Schedule, which covers—with specific exemptions—most white-collar positions in the executive branch and certain legislative branch agencies.78 It consists of 15 grades, each broadly defined in terms of work difficulty, responsibility and qualifications required for

Nick Manning/Neil Parison Page 188 11/22/2004 International Public Administration Reform Country Reform Summaries.doc performance. A salary range of 10 steps is provided within each grade and advancement among the steps follows an established timetable. To qualify for the next higher step, an employee must demonstrate work at an acceptable level of competence. Employees demonstrating "high quality performance" may advance more rapidly through the rate range for their grades by being granted additional step increases, called “quality step increases.” An employee may receive only one such increase during any 52-week period.

In addition to the General Schedule, there are several other major pay systems. The Federal Wage System covers trade, craft and labor occupations in the federal government, and the Executive Schedule is designed for top officials in the executive branch. The Senior Executive Service System covers most managerial, supervisory and policy positions in the executive branch that are classified above the highest General Schedule level. There are six salary levels in this system.

In response to the growing need for pay reform in the Federal Government, Congress enacted the Federal Employees Pay Comparability Act of 1990 (FEPCA). FEPCA provides guidelines to achieve pay comparability between Federal and non-Federal jobs. The most far-reaching provisions of the Act were to change the way pay is set for the General Schedule (GS) and to maintain comparability by locality. It also calls for establishment of special pay plans for Senior Level (SL) employees (nonsupervisory and nonmanagerial employees classified above grade 15 of the General Schedule), administrative law judges (AL), members of the Boards of Contract Appeals (CA), certain law enforcement officers, employees in the Senior Biomedical Service, and police of the Bureau of Engraving and Printing and the United States Mint. FEPCA authorizes recruitment and relocation bonuses and retention allowances in special situations as well.

Budget process changes

In 1993, Congress enacted the GPRA to improve the effectiveness, efficiency and accountability of federal programs by having agencies focus their management practices on program results. GPRA seeks to help federal managers improve program performance; it also seeks to make performance information available for congressional policy-making, spending decisions, and program oversight. With regard to spending decisions, GPRA aims for a closer and clearer linkage between resources and results. GPRA can be seen as the most recent event in a now 50-year cycle of federal government efforts to improve public sector performance and to link allocations to performance expectations.79

GPRA requires each department and agency to develop strategic plans covering a period of at least 5 years. The strategic plan must include the mission statement; identify long-term general goals, including outcome-related goals and objectives; and describe how the agency intends to achieve these goals through its activities and through its human, capital information and other resources. Under GPRA, agency strategic plans are the starting point for agencies to set annual program goals and to measure program performance in achieving those goals. To this end, strategic plans are to include a description of how long-term general goals will be related to annual performance goals as

Nick Manning/Neil Parison Page 189 11/22/2004 International Public Administration Reform Country Reform Summaries.doc well as a description of the program evaluations used in establishing and reworking goals. Strategic plans must be updated at least every three years.

GPRA also requires each department and agency to prepare an annual performance plan that includes the performance indicators that will be used to measure “the relevant outputs, service levels and outcomes of each program activity” in an agency’s budget. The annual performance plan is to provide the direct link between strategic goals outlined in the agency’s strategic plan and what managers do day-to-day. GPRA then requires that each department and agency prepare an annual report on program performance for the previous fiscal year. In the reports, agencies are to review and discuss performance compared with the performance goals established in the annual performance plans. When a goal is not met, agencies are to explain the reasons the goal was not met, plans and schedules for meeting the goal, and, if the goal was impractical or not feasible, the reasons for that and the actions recommended.

GPRA incorporates critical lessons learned from previous efforts: • Past efforts failed to link executive branch performance planning and measurement with congressional resource allocation processes. GPRA requires explicit consultation between the executive and legislative branches on agency strategic plans. • Past initiatives devised unique performance information formats often unconnected to the structures used in congressional budget presentations. GPRA requires agencies to plan and measure performance using the “program activities” listed in their budget submissions. • Past initiatives were generally unprepared for the difficulties associated with measuring the outcomes of federal programs and often retreated to simple output or workload measures. GPRA states a preference for outcome measurement while recognizing the need to develop a range of measures, including output and non- quantitative measures.80

Where most with past initiatives did not link performance information developed within the executive branch with congressional processes, GPRA provides that agencies must consult with cognizant congressional committees and other stakeholders as strategic planning efforts progress. This requirement presents a most fundamental change, and perhaps its most significant challenge as legislative staff and executive branch officials seem to approach strategic planning consultations with very different expectations.81

In addition, the congressional committee structure requires executive officials to consult with at least four different committees about any given program—the authorization committees in the House of Representatives and the Senate (which establish and modify the program), and the appropriations committees in both chambers (which provide funds to run the program.82 GPRA consultative relationships with congressional committees are still developing. For most departments and agencies, these relationships are stronger than those with the appropriations committees. Demonstrated cases of congressional appropriations being based on GPRA plans are few.

GPRA has been implemented in phases, beginning with selected pilot projects in performance goals, managerial flexibility and performance budgeting. The first strategic

Nick Manning/Neil Parison Page 190 11/22/2004 International Public Administration Reform Country Reform Summaries.doc plans were submitted to Congress in 1997, and the second round of updated plans were submitted in 2000. All of the agencies have submitted annual performance plans as part of their budget justifications for fiscal years 1999, 2000, 2001 and 2002. Annual performance reports have gone to Congress for fiscal years 1999 and 2000.

E-government

The concept of electronic government varies according to the specific context. One broad-based definition regards it as “the use of technology to improve access to, and communication of, government information and services to employees, governmental entities, organizations, businesses and citizens.”83 Under this construct, electronic government raises such issues as electronic democracy, regulation of the Internet and intellectual property rights.

In 1996, President Clinton issued an executive order directing departments and agencies to refocus information technology and management to directly support their strategic missions.84 In this regard, they were to create Chief Information Officers, who would be responsible for designing, developing and implementing information systems in their agencies. In addition, the National Partnership for Reinventing Government played a role in creating Firstgov.gov, a free-access website that provides a centralized place to find information contained on national, state and local government websites.85 It connects 27 million web pages and more than 1,000 forms and services.

Most government documents can be found on individual government websites, including instructions for securing government-type services. The passport agency, for example, has detailed instructions on the steps needed to obtain or renew a passport, with listings of local offices and the estimated amount of time for processing a request. In addition, the Federal Motor Carrier Safety Administration has placed its business transactions— such as registrations, fees and fines—on the Internet. More than 60 percent of all transactions are processed through this means. This accurate and timely process has cut the turnaround time from 4 weeks for paper transactions to 20 minutes online, freeing up valuable resources for other purposes. An estimated 100,000 forms have been processed thus far.

Reform outcomes

In 1993, President Clinton and Vice President Gore launched the longest running management reform effort in the Federal Government’s history, the Reinventing Government Initiative. This effort was intended to create a Government that works better and costs less. In the past seven years, the Administration streamlined the workforce, eliminated obsolete programs and agencies, empowered its employees to cut red tape, and used partnerships to get results.

The National Partnership for Reinventing Government (NPR) claimed many successes in its efforts to streamline government and make it more “customer-friendly.” In addition to the substantial decreases in the government workforce, it provided a means for employees to cut red tape and use partnerships to get results. In all, NPR stated that

Nick Manning/Neil Parison Page 191 11/22/2004 International Public Administration Reform Country Reform Summaries.doc $111.8 billion in savings were made through 1999, including $54.8 billion through downsizing and $12.3 billion through procurement reform. NPR successes claimed include an improvement in public trust in the federal government by 9 percentage points over the 4 years to 1998 (Businesslike Government: Lessons Learned from America's Best Companies 1998).

NPR also took credit for the lowest level of civilian on-board employment for the executive branch agencies (post-office excluded) since 1961. However, it is important to note that the employee reductions reflected those who worked in full-time civilian government positions. Yet there are many more who provide government services, including contractors and employees at the state and local levels who implement federal mandates and grants. Indeed, one observer claims that the “true size of government” totals 16.9 million individuals, such as federal civilian employees, uniformed military, Postal Service officials, and contract, grant and mandate employees. (Light 1999)

Dr. Donald Kettl, Professor at the University of Wisconsin, tracked NPR from its inception. He gave the overall initiative a “B” grade through 1998, noting that substantial progress had been made but that much work lay ahead. He concluded NPR accomplished its goal of downsizing the workforce, though planning to match the downsized workforce with agency missions was weak. Procurement reform received an A and enhancing customer service a B+. (Light 1999)

Department and agency compliance with the Government Performance and Results Act (GPRA) continues, with many observers noting improvements in agency strategic plans, performance plans and results. The U.S. General Accounting Office, Congress’s investigative arm that evaluates federal programs and activities, found that each successive cycle of annual performance planning has seen improvements over prior years’ efforts. At the same time, several challenges remain for effective GPRA implementation. These include articulating and reinforcing a results orientation; coordinating programs that crosscut departments; understanding performance consequences of budget decisions; and ensuring that daily operations contribute to results. ("Major Management Challenges and Program Risks: A Governmentwide Perspective" 1999)

Nick Manning/Neil Parison Page 192 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Glossary of country-specific terms

Accounting Officer Accounting Officers are normally the most senior officials in a UK public body - the permanent head of a government department or chief executive of an executive agency. Accounting Officers have a personal responsibility for the propriety and regularity of the public finances for which he or she is answerable; for the keeping of proper accounts; for prudent and economical administration; for the avoidance of waste and extravagance; and for the efficient and effective use of all the resources in their charge. An Accounting Officer has particular responsibility to see that appropriate advice is tendered to Minister on all matters of financial propriety and regularity. If a Minister is contemplating a course of action which the Accounting Officer considers would infringe the requirements of regularity or propriety, he or she should set out in writing the objection to the proposal, the reasons for this objection and the duty to inform the Comptroller and Auditor General should the advice be overruled. If the Minister decides to proceed, the Accounting Officer must seek a written instruction to take the action in question. Ambtenarenwet The Civil Service Act in the Netherlands setting out the duties of public servants. Angestellte German state employees subject to private sector labor laws unlike the Beamte Beamte German civil servants that, in principle, have responsibility for undertaking all public functions that imply the exercise of state powers. Best Value Reviews A legal requirement on local government in the UK to consult local people, review all its functions periodically, measure its performance and produce a performance plan which will be audited by an independent auditor. In reviewing its functions, the authority is required to consider whether it should be exercising the function, its objectives in doing so, its performance, how competitive that is and to consult other authorities for comparison. Bundesrat The Senate in the Federal Republic of Germany representing the sixteen Laender and participating in the legislative process and administration of the Federation. In contrast to the senatorial system of federal states like the United States or Switzerland, the Bundesrat does not consist of elected representatives of the people but of members of the state governments or their representatives. Depending on the size of their population, the states have three, four, five or six votes, which may only be cast as a block. Bundestag The parliamentary assembly representing the people of the Federal Republic of Germany. Celetistas Federal public servants in Brazil whose employment is governed by the private sector labor code, (CLT). Citizens Charter UK policy to improve public services by introducing standards of service and measurement their achievement; and to respond better to service users. Compulsory Competitive Requirement imposed on UK local government to submit service provision Tendering to market testing. Crown Corporation A separate legal entity in Canada created by federal or provincial statute, generally with the intent of conducting revenue producing, commercial activities for the public good. Crown entities In New Zealand, semi-autonomous public organizations that are neither core government agencies nor state-owned enterprises. DAS DAS appointments (Comissao de Direccao e Assessoramiento Superior – Commission for Senior Administration and Expertise) are senior political appointments in the Federal public administration of Brazil, established in the 1980s, and have some characteristics of a senior executive service.

Nick Manning/Neil Parison Page 193 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Efficiency scrutinies UK reviews of public sector activities undertaken in the late 1970s and early 1980s aimed t reducing the scale of the public sector by questioning and redefining the role of the state. Estatuarios Federal public servants in Brazil with a right to job security Executive Agency In the U.K., a service operation within government that is granted more direct responsibility for results and increased management flexibility needed to reach new levels of performance. It is a form of semi-autonomous agency. Financial Management 1982 UK initiative to place requirements on managers to take more Initiative responsibility for planning and managing their own budget and measuring their output. Gminas One of three levels of subnational government in Poland. From 1 January 1999, a new administrative division of Poland was implemented. The new administrative structure of the country includes voivodships (regional governments), poviats (an intermediate level of subnational government) and gminas (the most local form of elected government). The gmina is the basic level of public administration introduced in 1990. The most important collective needs of a local community are met here. Rural gminas are headed by voits, urban gminas and gminas with townships headed by mayors, and larger towns are headed by presidents. Government An Act passed in 1993 in the USA providing a framework for promoting Performance and Results performance management in government by requiring departments and Act (GPRA) agencies to demonstrate accountability in measurable terms. It outlined a process of setting strategic goals and direction; defining annual goals and measures; and measuring and reporting on progress made. Embedded within the congressional structure, GPRA placed a renewed emphasis on linking planning and budgeting. La Releve A Canadian initiative to address issues of difficulty in retaining, motivating and attracting people essential to the work of the public service. Laender States of the Federal Republic of Germany. Lean State Advisory An advisory council established in 1995 by the German Federal Council Government, comprised of political and economic experts from federal and subnational levels to make recommendations on public management topics. National Partnership for See National Performance Review (NPR) Reinventing Government National Performance An initiative launched by US Vice President Gore with the aims of Review (NPR) decreasing the federal workforce and eliminating ineffective programs. New Steering Model A set of ideas originally propounded by Joint Local Government Agency for the Simplification of Administrative Procedures (KGSt) in Germany in 1991. The proposals encourage public sector organizations in Germany to define their outputs more clearly, place unit managers on performance contracts, and show a customer orientation with more flexible resource allocation and greater reliance placed on outsourcing, contracting-out and privatization. These ideas were also discussed widely in the Netherlands. Next Steps report 1988 UK report recommending the restructuring of the civil service into management units to deliver executive functions, with managerial responsibilities delegated to a Chief Executive, with direct accountability to the Minister for delivering specified performance targets. Implementation of Next Steps policy led to break-up of national pay and grading systems in the Civil Service and major developments in financial management, e.g. commercial-style accounting in agencies.

Nick Manning/Neil Parison Page 194 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Országgyüles The Parliament of Hungary. There are 386 members of the Parliament; 176 elected by majority vote from single-seat constituencies, 152 elected by party list vote (5% barrier) from 20 multi-seat constituencies, and 58 awarded to achieve proportional representation. Performance-based A PBO is a discrete management unit within the US executive in which the organizations (PBOs) agency head is allowed greater personnel and purchasing flexibilities. The executive is then responsible for committing to clear objectives, specific measurable goals, customer service standards and targets for improved performance. The organization’s performance determines his or her pay and tenure. The Bush administration has renamed these “results-based organizations” (RBOs). Poviats One of three levels of subnational government in Poland. From 1 January 1999, a new administrative division of Poland was implemented. The new administrative structure of the country includes voivodships (regional governments), poviats (an intermediate level of subnational government) and gminas (the most local form of elected government). Unlike the gmina, which is responsible for all matters that have not been explicitly assigned to other levels of government, the poviat can implement only those tasks that have been clearly defined for it in the law. There are 308 poviats which are headed by self-government officials (starosta) appointed by democratically elected poviat councils. Also 65 largest urban gminas have been endowed with poviat status. Procuratorate The Supreme People's Procuratorate is the highest legal supervisory organ in China. It supervises the activities of other state organs and officials and reports to the National People's Congress and its Standing Committee. Public Service A set of targets that government Departments in the UK must publish and Agreements (PSAs) against which they must monitor progress and publish the results in their annual reports. PSAs are designed to show the public what they can expect to get for their money. PSAs include commitments by the responsible Ministers to those who are affected by the public services. Whilst PSAs are set for each department, the Government as a whole agrees them. There are also some PSAs for a number of cross-cutting policy areas, where several departments are involved. Quango Term used in the UK to refer to "non-departmental public bodies", i.e. public sector organizations that lie outside of the usual ministry or departmental structures and subject to diverse accountability arrangements. A "quango" is officially defined as a body that has a role in the processes of national Government, but is not a government department or part of one, and which accordingly operates to a greater or lesser extent at arm's length from Ministers. Resource Accounting and A UK term referring to public sector accounting arrangements that produce Budgeting the equivalent of the main financial statements from commercial accounts, in particular, a balance sheet and the equivalent of a profit and loss statement. This is used as the basis for planning, controlling and reporting on public spending. Introducing Resource Accounting and Budgeting across government means that all government departments will be managed on the basis of: (i) a resource budget measuring ongoing operations in accruals terms; (ii) a capital budget for new investment in accrual terms; and (iii) a combined cash requirement to cover the preceding two elements. Resource accounting was introduced in all departments from 1998-99. Resource accounts were published from 1999-2000 alongside Appropriation Accounts. Results-based See: Performance-based organizations (PBOs) organizations (RBOs).

Nick Manning/Neil Parison Page 195 11/22/2004 International Public Administration Reform Country Reform Summaries.doc Sejm The lower chamber of the parliament in Poland. The upper chamber is the Senat. Self-standing managed A form of semi-autonomous agency introduced in the Netherlands organizations (zelfstandige bestuursorganen). Sheng The 23 provinces in China - singular and plural. Shi The 4 municipalities in China - singular and plural. Social Organizations Semi-autonomous bodies in Brazil, at arms-length from the executive, which receive specific authorization from the legislature to sign management contracts with the executive branch to receive budgetary allocations. Special Operating Agency In Canada, a service operation within government granted more direct (SOA) responsibility for results and increased management flexibility needed to reach new levels of performance. It is an example of a semi-autonomous agency. Throne Speech The speech from the throne is the term used for the opening of Parliament by the Governor General in Canada. This is the (usually) annual announcement of the government program. Similar terms are used in other Commonwealth countries and in the Netherlands. Voivodships One of three levels of subnational government in Poland. From 1 January 1999, a new administrative division of Poland was implemented. The new administrative structure of the country includes voivodships (regional governments), poviats (an intermediate level of subnational government) and gminas (the most local form of elected government). The voivodship is the largest administrative unit in the subnational organization of the state. There are sixteen voivodships (regions) in Poland. Voivodship can be also understood as the regional self-government (where Sejmik is the governing body) and as the area of activity of the central government appointee – voivod. Zelfstandige A form of semi-autonomous agency introduced in the Netherlands (Self- bestuursorganen standing managed organizations). Zizhiqu The 5 autonomous regions in China - singular and plural.

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October 13, 1993. Folha de São Paulo. Dean, Alan. 2001. The Organization and Management of Executive Departments. Washington, DC: National Academy of Public Administration. dos Santos, Luiz Alberto. 1997. Reforma Administrativa No Contexto Da Democracia. Brasilia: DIAP and Arko Advice Editorial. Douglas, R. 1993. Unfinished Business. Auckland: Random House. Effectiveness, Openness, Subsidiarity: A New Poland for New Challenges 1998. Warsaw: Chancellery of the Prime Minister of the Republic of Poland. Friel, Brian. 2001. Administration Plans First 'Results-Based Organization'. Government Executive. Kettl, Donald. 1998. Reinventing Government: A Fifth-Year Report Card. Washington DC: The Brookings Institution. Petrie, Murray and David Webber. 2001. "Review of Evidence on Broad Outcome of Public Sector Management Regime" (http://www.treasury.govt.nz/workingpapers/2001/01-6.asp). The Treasury. Wellington PUMA. 1998a. "Public Management Developments in Germany" (http://www.oecd.org/puma/gvrnance/surveys/report98/surv98de.htm). OECD. Paris PUMA. 1998b. "Public Management Developments in Hungary" (http://www.oecd.org/puma/gvrnance/surveys/report98/surv98hu.htm#A). OECD. Paris Radio Press China Directory 2001. Tokyo: Radio Press, Inc. Scott, Graham. 2001. Public Management in New Zealand: Lessons and Challenges (http://www.nzbr.org.nz/documents/publications/publications- 2001/public_management.pdf). Wellington: New Zealand Business Roundtable. Secretariat, Treasury Board. 2001. "Treasury Board Secretariat Organization". http://www.tbs-sct.gc.ca/wwa/struc_des_e.html. Access Date: July 21, 2001. Last Update: March 8, 2001. Spicer, B., D. Emanuel and M. Powell. 1996. Transforming Government Enterprises. Wellington: Centre for Independent Studies. World Bank. 2000. Anticorruption in Transition: A Contribution to the Policy Debate. Washington DC: World Bank.

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1 In 1986 the Dasp was replaced by the Secretariat of Public Administration (SEDAP). 2 Law n° 5.645/70. 3 With the recent return of democracy almost anything associated with the military regime was suspect. Thus, rather than revise the military’s 1967 Constitution, the Constitutional Congress set out to draft a new constitution from scratch. 4 Certification of passing an entrance exam is valid for two years, with extension possible for another two. 5 With job stability a worker could only be fired following a full administrative or judicial proceeding. 6 There was an even greater victory by the civil servant lobby in the Constituinte. Article 40 granted integral retirement to civil servants based on years of service, not age. State employees were thus entitled to retire early and receive full retirement benefits. Often the most highly qualified state employees retire early because they have employment opportunities elsewhere, and can still receive their state retirement. As a protection against inflation, any increase in the salaries of current civil servants are automatically granted to retirees, as well. Civil servants made no contribution to finance their retirement benefits until Constitutional Amendment no.3 was approved in 1993. Even afterwards, civil servants have not paid nearly what is required to cover the cost of their retirements. General revenues fund the difference. In 1993, according to the Social Security Minister, 41% of Social Security disbursements were for the pensions and retirements of civil servants. For every active civil servant, there were 1.5 retirees (October 13, 1993). 7 In October 1994 Fernando Henrique Cardoso won the presidential election on the first ballot with over 54 percent of the popular vote. His nearest rival, Lula da Silva received only 27 percent of the vote. 8 According to the System of Civil Personnel (SIPEC), the number of public employees in Brazil fell by 103,235 between 1990 and 1992, from 1,427,758 to 1,324,523. 9 See also (dos Santos 1997, p.47) 10 This decree was issued on October 19, 1992 and converted into a law by the Congress on November 19, 1992. 11 Law no. 8878 (approved 11 May 1994) applied to all those fired contrary to the regulations or protections of the constitution, as well as those removed "for political motives" or during "strike actions." 12 See: http://www.servidor.gov.br/ 13 The creation of a Policy Research Web Site (http://policyresearch.gc.ca) will also help to achieve these objectives. 14 Comptrollership "implies vigorous stewardship of public resources, a high standard of ethics, and provision for appropriate parliamentary oversight. To deliver affordable and high quality services to Canadians, managers need flexibility, incentives, and information." (Secretariat 2001) 15 See: www.compraschile.cl 16 China considers Taiwan its 23rd province. (Central Intelligence Agency 2000) 17 Details of the constitution were taken from http://www.usconstitution.net/china.html 18 Sources: ( Radio Press China Directory 2001, p.47; Central Intelligence Agency 2000) and http://www.asiadragons.com/china/government_and_politics 19 Source: http://www.insidechina.com/gover/congres.php3 20 Source: http://www.insidechina.com/gover/stcounc.php3 21 Source: http://www.insidechina.com/gover/stcounc.php3 22 Source: http://www.welcome-to-china.com/china/misc/87p.htm 23 See: http://www.om.fi/2838.htm 24 Examples of typical services offered currently by state agencies are: • Orders and inquiries (The Consumer Agency)

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• Submitting legal matters (Ministry of Justice) • Ordering maps (National Survey Board) • Booking leisure services and paying for them (National Board of Forestry) • User feedback of national participation projects (Ministry of the Interior, Department of Municipalities) • Electronic newspapers (Central Development Agency of the Social Welfare and Health Sector) • Television set notifications and ordering domain names (Telecommunications Administration Centre) • Marketplace of Statistical Information and StatFin (Statistics Finland) • Notifications on job vacancies; information on vacant jobs and educational opportunities (Ministry of Labour) • Virtual Finland (Ministry of Foreign Affairs) • Notification on change of address (Population Register Centre). The Prime Minister’s Office offers information on their www-pages (http://www.vn.fi/) on acts being drafted in the ministries. Parliament offers access to the drafts and also to the documents produced by Parliament (www.eduskunta.fi). All acts, regulations, juridical decisions and state agreements are published by the Ministry of Justice in a database available on the Internet (http://finlex.edita.fi/). A new act on making legislative acts public decrees that these are made free of charge on the Internet. The Ministry of Finance offers a Citizen’s Guide in the web (www.opas.vn.fi). It offers public administration services needed in different situations in life. This electronic guide also provides useful information to companies and communities. There is information from more than 100 authorities and communities. 25 See: http://lomake.vn.fi 26 Some of this material is from: (PUMA 1998a) 27 For a detailed description of the local finance system in Germany, see (Karrenberg and Münstermann 1994), 28 On the basis of the Cabinet Resolution dated 7 February 1996. 29 See also: (PUMA 1998b) 30 Source: http://www.polisci.com/world/nation/HU.htm 31 See "Examples of Recent Public Management Initiatives in Hungary" at: http://www.oecd.org/puma/focus/compend/hu.htmEthics 32 See: www.kancellaria.gov.hu/hivatal.index_e.html. 33 See: http://www.oecd.org/puma/focus/compend/hu.htm#Ethics 34 As determined by the recent EBRD Business Environment and Enterprise Performance Survey, Hungary has one of the most active governments, ranking 3rd (out of 20 countries) in the State Intervention Index (World Bank 2000, p.57) 35 This has of course dramatically changed with the introduction of the MMP system in 1996. 36 See www.elections.govt.nz 37 See also www.parliament.govt.nz 38 For further information on local government in New Zealand, see: www.lgnz.co.nz 39 Information taken from: www.executive.govt.nz/minister/index.htm 40 The Public Finance Act 1989 has more agencies defined as departments than the State Sector Act 1988 does. Not all 44 departments are under the influence of the State Services Commissioner. For example Police, Defence and the Parliamentary Services are not. 41 Reports conducted by consulting firms Coopers & Lybrand, Price Waterhouse Coopers and KPMG, cited in (Petrie and Webber 2001, p.12). 42 OECD, "Measuring Public Sector Productivity", PUMA/SBO (99) 6, paper prepared for the 20th annual meeting of senior budget officials, Paris, 3-4 June 1999, quoted in (Petrie and Webber 2001). Note that public service staff numbers fell from 67,600 in 1987 to 31,500 in 1992.

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43 Schick’s critique of the reforms has been analyzed at length in (Scott 2001) 44 There have been studies of small numbers of departments, for example, a 1996 study by J. Brumby et al, quoted in (Petrie and Webber 2001) considered average unit cost series for core processes in four departments since 1989/90. One department (Valuation) had a fall in average unit costs of 10-20% in nominal terms from 1989/90 to 1994/95. Two other departments (Income Support and Immigration Service) showed strongly declining average unit costs with rising volumes. The Immigration Service accommodated a 25+% output increase over three years within a 2% increase in nominal expenditure. The Income Support Service increased the volume of applications it processed by 60% over two years with barely any increase in operating expenses. The fourth department (Justice) showed no evidence of productivity gains before or after the reforms. The sample size and the difficulty of isolating causes for changes in productivity make it impossible to draw generalizations from these studies. 45 Price Waterhouse, "Capital Charging Regime for Government Departments: Survey of Benefits and Current Issues", July 1993, cited in (Petrie and Webber 2001). 46 Across seven of the larger SOEs from 1988- 1992 revenue rose by 15.5% to $5.9B, after tax profits rose from $262M to $1023M and the dividend contribution to the State by 1991/92 was $700M. NZ Institute of Economic Research studies quoted in (Douglas 1993, p.181). See also (Spicer, Emanuel and Powell 1996). 47 An exception is the pricing work on public hospitals using data envelopment analysis to plot a production frontier and provide information on relative efficiency for various services. 48 This section draws heavily from (references) (Effectiveness, Openness, Subsidiarity: A New Poland for New Challenges 1998) See also: http://www.kprm.gov.pl/menu/menubeng.html. See http://www.sejm.gov.pl/english/konstytucja/ek5.htm for a copy of the constitution in English. 49 See: http://www.kprm.gov.pl/ 50 See: http://www.kprm.gov.pl/menu/menubeng.html for individual web addresses of ministries. 51 Source: http://www.oecd.org/puma/sigmaweb/index.htm 52 This section draws extensively on: http://www.oecd.org/puma/focus/compend/po.htm 53 See: http://www.oecd.org/puma/focus/compend/po.htm 54 See: http://www.oecd.org/puma/sigmaweb/index.htm 55 See: http://www.kprm.gov.pl/menu/menubeng.html 56 Additional information concerning Korea’s Civil Service System, including compensation and allowances for civil servants is available at http://www.csc.go.kr/ 57 For a complete list of Ministerial Responsibilities including executive agencies, see the Cabinet Office website at: www.cabinet-office.gov.uk/central/2001/lmr0101frp.pdf 58 This three-phase construct is from (Kettl 1998) 59 Statement of Senator Fred Thompson, May 16, 2001. 60 The term cabinet can create some confusion. In the US sense cabinet does not imply collective accountability, in sharp distinction from the European and Parliamentary notions of cabinets/Councils of Ministers. 61 Very often, the terms “department” and “agency” are used interchangeably. Unless otherwise noted, discussion of governmental reform efforts generally does not distinguish between the two. 62 The Hatch Act, 53 Stat. 1147, amended in 107 Stat. 1001. 63 Ethics in Government Act, 92 Stat. 1824; 5 U.S.C. App 64 Information on the Office of Government Ethics and the text of applicable executive orders, statutes and regulations can be found at www.usoge.gov/usoge006.html. 65 See also “Public Management Developments in the United States: Update 2000. Http://www.oecd.org/puma/country/surveys2000/surv2000us.htm 66 The Government Performance and Results Act of 1993, P.L. 103-62 (107 Stat. 285)

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67 The Freedom of Information Act, 81 Stat. 54; 5 U.S.C. 552 68 Government in the Sunshine Act, 90 Stat. 1241; 5 U.S.C. 552b 69 See (Dean 2001) for a historical description of government decentralization and field organization. 70 (Friel 2001) 71 Circular A-76 and Congress have defined an inherently governmental function as one “that is so intimately related to the public interest as to require performance by federal government employees.” 72 Federal Activities Inventory Reform Act, 112 Stat. 2382, 31 U.S.C. 501 73 Federal Acquisition Streamlining Act of 1994, 108 Stat. 3242 74 See: www4.law.cornell.edu/uscode/ 75 92 Stat. 1113, 5 U.S.C. 2301. It can be accessed at http://www.opm.gov/ovrsight/msp.htm. 76 Prohibited personnel practices outline appropriate and non-appropriate means of conduct for government employees. See http://www.opm.gov/ovrsight/prohibit.htm for the full version of 5 U.S.C. 2302. 77 Table 17.3, Budget of the United States Government for Fiscal Year 2002. U.S. Government Printing Office, Washington, DC 2001. 78 Two other statutory pay systems apply to the Foreign Service and certain employees in the Veterans Health Administration. See 5 U.S.C., Chapter 53, Subchapter I, for how these salaries are established. 79 Past initiatives include: (i) reforms as a result of the first Hoover Commission’s efforts to downsize the post-World War II government; (ii) Planning-Programming-Budgeting System which begun in 1965 by President Johnson; (iii) Management Objectives initiated in 1973 by President Nixon; and (iv) Zero-based budgeting initiated in 1977 by President Carter. 80 GPRA defines outcome measures as an assessment of the results of a program activity compared to its intended purpose. Output measures, conversely, refer to the tabulation, calculation or recording or activity or effort, such as checks processed or students enrolled. 81 As identified in the United States General Accounting Office’s report “Performance Budgeting: Past Initiatives Offer Insights for GPRA Implementation”, March 1997. 82 Many departments and agencies in the executive branch administer programs that are authorized and funded by different congressional committees. The Environmental Protection Agency is one of the most complex; it must deal with more than 30 committees. 83 James Carroll, “Toward a Management Agenda for the Federal Government in the 21st Century: From the Administrative to the Entitlement to the Electronic State” (Draft). September 2000. 84 Presidential Executive Order 13011, “Federal Information Technology,” issued July 19, 1996. 85 See: www.firstgov.gov.

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