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Understanding Public Sector Performance in Transition Countries – an Empirical Contribution

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Understanding Public Sector Performance in Transition Countries – an Empirical Contribution UNDERSTANDING PUBLIC SECTOR PERFORMANCE IN TRANSITION COUNTRIES – AN EMPIRICAL CONTRIBUTION June 30, 2003 Poverty Reduction and Economic Management Unit (ECSPE) Europe and Central Asia Region Document of the World Bank Acknowledgements This report was prepared by James Anderson, Gary Reid, and Randi Ryterman. We are grateful to Fabiano Bastos for research assistance. We are also grateful to Sebnem Akkaya, Sandra Bloemenkamp, Jit Gill, Joel Hellman, Allister Moon, Helga Muller, Ekaterine Vashakmadze, and Tony Verheijen for comments on earlier drafts, and to the peer reviewers Steven Knack, Barbara Nunberg, and Andrew Stone for valuable comments. We are also grateful to participants in the review meetings of both the concept paper and the final report. The report draws on surveys and earlier reports undertaken each of the three countries under study. We are grateful to the teams that prepared the reports, especially to Azamat Abdymomunov, Dorel Abraham, Bogdan Cosmaciuc, Ivan Dianiska, Phyllis Dininio, Yuri Gerasimchuk, Olga Gyarfasova, Eugen Jurzyca, Sebastian Lazaroiu, Maria Mamlouk, Gustav Mathiek, Amitabha Mukherjee, Emilia Sicakova, Bert Specter, Kathy Stermer, Daniela Zemanovicova, and Pablo Zoido-Lobaton, and to the survey research firms that collected the data, M-Vector (the Kyrgyz Republic), CURS (Romania), and Focus (the Slovak Republic). We are also grateful to our partners in some of these endeavors, the United States Agency for International Development (USAID), and Management Systems International (MSI). Lastly, we are grateful to the more than 3,000 households, 1,200 enterprise managers, and 1,050 public officials who participated in the surveys. ii Table Of Contents Executive Summary ........................................................................................................ vii Methodological Findings ............................................................................................. viii Policy Findings ...............................................................................................................ix Chapter 1. Introduction.................................................................................................... 1 Chapter 2. Three Contrasting Cases............................................................................... 5 History of State Administration...................................................................................... 6 Economic Development .................................................................................................. 7 Social Cohesion............................................................................................................... 9 Civil Liberties ............................................................................................................... 10 Legal Traditions ............................................................................................................ 12 External Factors ............................................................................................................ 12 Conclusion.................................................................................................................... 13 Chapter 3. The Performance of Public Sector Bodies................................................. 15 The Dimensions of Public Administration and Performance ....................................... 17 Empirical Evaluation..................................................................................................... 24 Empirical Results .......................................................................................................... 28 The Universal Importance of Meritocracy.................................................................... 35 Creating an Enabling Environment through Administrative Procedures ..................... 36 The Surprising Lack of Importance of Performance Management............................... 36 Implications for Reform Sequencing............................................................................ 38 Quality and Integrity are Not Always Driven by the Same Factors ............................. 39 Chapter 4. The Public-Private Nexus............................................................................ 41 The Market for Influence .............................................................................................. 43 Evaluating Impact on Performance............................................................................... 48 A Demand-driven, Not Supply-driven, Approach to Complaint Systems.................... 58 Conclusions and Recommendations ............................................................................. 67 Chapter 5. Lessons for Bank Operations ..................................................................... 69 The 10 Most Important Lessons ................................................................................... 69 Implications for the Design of Public Sector Reforms ................................................. 70 Conclusion.................................................................................................................... 71 Annex 1. Special Issues in the Analysis of the Performance of Public Sector Bodies ........................................................................................................................................... 73 Econometric Issues ....................................................................................................... 73 Subjective perceptions and self-assessments ................................................................ 75 Summary of Recommendations for Improving this Methodology............................... 77 iii Estimation of the full model, including financial management.................................... 78 Survey Questions on Public Sector Performance and its Factors ................................. 85 Annex 2. Special Issues in the Analysis of the Public-Private Nexus ........................ 92 Country-Specific Regressions Explaining the Decision to Make Political Party Contributions, Join Business Associations, and Lodge Complaints............................. 95 References...................................................................................................................... 105 Endnotes......................................................................................................................... 111 iv List of Figures Figure 1. A Framework of Institutions, Performance, and Feedback................................ 3 Figure 2. NGOs by Country.............................................................................................. 11 Figure 3. Foreign Aid........................................................................................................ 13 Figure 4. Government Effectiveness................................................................................. 14 Figure 5. Performance Index............................................................................................. 19 Figure 6. Personnel Management Systems ....................................................................... 20 Figure 7. Performance Management Systems .................................................................. 21 Figure 8. Administrative Systems ..................................................................................... 22 Figure 9. Financial Management System......................................................................... 23 Figure 10. Intermediate Inputs and the Production of Performance................................. 25 Figure 11. Performance in Three Disparate Countries ..................................................... 34 Figure 12. Concentration of Influence .............................................................................. 44 Figure 13. Incidence of Bribery........................................................................................ 45 Figure 14. Membership in Business Associations ............................................................ 48 Figure 15. Firm Financing of Political Parties.................................................................. 46 Figure 16. Use of Complaint Systems .............................................................................. 46 Figure 17. Quality of the Judicial System......................................................................... 47 Figure 18. Mechanisms of Influence................................................................................. 49 Figure 19. The Decision of the Firm................................................................................. 50 Figure 20. Complaint Systems and Complaints............................................................... 59 Figure 21. Collaborators, Victims, Avoiders, Enforcers .................................................. 64 List of Tables Table 1. Economic Indicators ............................................................................................ 8 Table 2. Social Indicators................................................................................................... 9 Table 3. Ranking of Countries Based on the Factors that Affect Public Sector Performance .............................................................................................................. 14 Table 4. Summary Statistics on Key Variables in Public Sector Performance ................ 27 Table 5. Explaining the Level of Performance ................................................................
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