Annual International Conference on Governance, Public Services and Administrative Reform

ISSUES

Public sector reform

Historical background in the UK

Public sector reform has a long history in the United Kingdom which substantially pre-dates the election of a Labour Government in 1997. For the purposes of this conference it is sensible to confine the historical background to the main highlights of reform over the period from the election of the Wilson Labour Government in 1964 to the election of the Blair Labour Government in 1997. Political historians may wish to trace the story further back to the election of the Attlee Labour Government in 1945 or even the election of the Asquith Liberal Government in 1906, but that would overdo the historical dimension.

Harold Wilson led Labour into power in 1964, and with a larger majority in 1966, on a political programme which sought to associate his party with ‘the white heat of technology’, a programme to enable the British economy and British society to catch up with the modernisation which was being successfully pursued on the Continent of Europe. Those were the days of Royal Commissions – for example, the 1968 Fulton Report which led to the establishment of a Civil Service Department and the 1969 Redcliffe-Maud Report which produced a blue-print for the reform of Local Government that was only partially implemented by the Conservative Administration under Edward Heath after 1970.

The Heath Administration from 1970 to 1974 and the subsequent Labour Administrations under Harold Wilson (1974-76) and James Callaghan (1976-79) were a period of economic and political upheaval. Although a self-conscious ‘moderniser’, Edward Heath was forced by industrial unrest into a policy U turn in 1972 and subsequently into an emergency General Election, which his party lost, on the issue of ‘who governs?’ in February 1974.

Harold Wilson in his third and fourth Administrations lacked the political will or the necessary level of Parliamentary support to go in for further modernisation, although he did manage to hold a national referendum on Britain’s membership of the European Community in 1975 which resulted in a two to one multi-party majority for the pro-European campaign. By the time that James Callaghan succeeded Harold Wilson as Labour Prime Minister in March 1976, the country faced ‘stagflation’ (a malign combination of high unemployment and high inflation) and in the autumn of that year the British Government felt obliged to go to the IMF for a stand-by facility to keep the economy afloat. The initiative worked and gradually, with the help of a Parliamentary pact between the Labour Government and the Liberal Party (1977-79), the economy began to revive. However, there was not much opportunity or political will for political or public sector reform.

With the election of a Conservative Government under Margaret Thatcher in 1979, British politics became increasingly polarised. The first step of real consequence was the decision in 1979 to abolish British exchange controls, which opened up the British economy and exposed Sterling to global market forces. It meant that those who operated in the internationally traded sector of the British economy were exposed to much more global competition. At the same time the inflationary problem, which had bedevilled the British economy since the early 1970’s, was addressed with a tightening of monetary policy and a tax raising Budget in 1981. The combined squeeze in monetary and fiscal policy exacerbated the sharpness and depth of the 1981-83 recession and contributed to a significant rise in unemployment from which the civil service and the public sector were not immune.

Such shock therapy might have failed in other circumstances, had it not been for the split in the Labour party, the consequent creation of ‘the Alliance’ between the Liberals and the newly formed Social Democrats, and the almost equal division of the non-Conservative vote which enabled Margaret Thatcher and the Conservatives to win a landslide majority in the 1983 General Election. This enabled her to claim a mandate for more radical policies based upon extensive privatisation and public sector reform. Among the most significant political developments during the mid to late1980’s were the defeat of a civil service strike, the defeat of a miners’ strike, the sale of Council houses and the growth of ‘popular capitalism’ by selling shares at attractive prices in the public utilities, the abolition of the GLC and the Metropolitan Counties, and the introduction of Next Steps Agencies which put the delivery mechanisms of public policy to some extent at arm’s length from central Government.

By the time that Margaret Thatcher was ousted by her Cabinet colleagues in 1990, the landscape of British politics had been transformed. Monetarism had replaced Keynesianism as the weapon of choice for controlling inflation; trade union representation had declined to less than half the total work force; and the state industrial sector had been reduced by two thirds compared with 1979. The main economic legacy of Thatcherism was a smaller public sector and more competitive private sector. The political legacy was more polarised politics and a more centralised and powerful state.

After John Major and the Conservatives had won the General Election in 1992, it was little surprise that progress with public sector reform was not, and could not be, much of a priority for a tired and embattled Conservative Administration. The main reason was the civil war within the Conservatives on Europe which had dogged the party for many years, but which became much more lethal after September 1992 when Sterling was ignominiously ejected from the Exchange Rate Mechanism of the European Monetary System. The closest thing to ‘a big idea’ during John Major’s premiership was the Citizen’s Charter which was announced in 1991. This nudged the debate about public sector reform towards contractual relationships between the providers and the users of public services in Britain, but did little to improve either quality or choice.

New public management

International influences

New Public Management (NPM) has been essentially an academic label for what has been presented as a new approach to managing the public sector. It is a set of ideas which, in Britain at least, has been influenced by the lessons of the past – notably by the technocratic managerialism of the late 1960’s, the corporate managerialism of the early 1970’s, the fiscal austerity of the late 1970’s and early 1980’s, and the drive towards a smaller but stronger state of the mid to late 1980’s.

These ideas may have appeared to be timeless, but were usually a reflection of political and organisational fashion. In nearly all cases there have been periods of continuity punctuated by periods of robust intellectual challenge whenever the conventional wisdom was considered to have become ineffective. Thus in the war time preference for all encompassing states was challenged by the Austrian school led by Friedrich Hayek; the Keynesian belief in fiscal fine tuning was challenged by the monetarists of the Chicago school led by Milton Friedman; the consensus behind producer driven public services was challenged by the Virginia ‘public choice’ school led by Buchanan and Olsen; and the preference of high spending machine politicians was challenged by the so-called New Democrats led by Bill Clinton and Robert Reich.

Good governance

The OECD

Good governance has been an ideal to which many Governments and corporations have adhered since OECD Ministers first agreed to a set of principles in 1999. The principles, which were revised and up-dated in 2004, are non-binding and do not lay down detailed prescriptions for national legislation. However, they are supposed to serve as reference points for policy makers and market participants alike. They were designed to influence the ways in which corporations conduct themselves, the rights of shareholders, the role of stakeholders, the responsibilities of company boards, and to promote the principles of disclosure and transparency.

The principles of good governance have also been applied to the conduct of national Governments, especially those in receipt of development assistance and those which have sought membership of the European Union. For example, the so-called Copenhagen Criteria drawn up in 1992 required that states seeking to join the EU should show convincing commitment to market economics, representative democracy and human rights. More recently, President Obama in a major speech in Accra directed to the future of sub-Saharan Africa said that “development depends upon good governance” and urged the governments concerned to take greater responsibility for stamping out war, corruption and disease. In current circumstances the OECD glossary defines good governance as ‘characterised by participation, transparency, accountability, law and order, effectiveness, equity etc’ and in contextual terms refers to ‘the management of government in a manner that is essentially free of abuse and corruption and with due regard for the rule of law’.

Modernisation and reform in the public sector

A worldwide process

Modernisation and reform in the public sector is a process - some would say an imperative - in almost every polity in the world today. It can take many different forms and is driven by political, economic or psychological factors and sometimes a combination of all three. Equally, there can be a great deal of commonality in the ways in which different regimes have sought to modernise and in their motives for doing so. For example, among the roots of modernisation in various jurisdictions are the psychological appeal of new ideas, the need to reform traditional institutions and the practical imperative to improve the cost-effective delivery of public services.

In the United Kingdom since the mid-1990’s ‘modernisation’ has been a defining brand for New Labour. From the beginning it was a political project to help the Labour party to get elected by reassuring middle class floating voters that the Labour party had changed its spots and that it was safe to vote for a Labour party which had modernised its structures, attitudes and policies. The brand was in tune with the times, since far reaching changes in British society and in public expectations have required commensurate changes in Labour’s appeal to the electorate. For example, it has been difficult to persuade the public of the merits of old fashioned tax and spend policies as a basis for improved public services and the appeal of personalised public services has been slow to trump more traditional collectivist solutions.

When Labour Ministers published the original White Paper on Modernising government in March 1999, the key elements were:

For eight years (1999-2007) the prerequisites were (a) massively increased public expenditure financed largely by the proceeds of economic growth, and (b) serious reform of the working practices and methods of delivery used by civil servants and others involved in the delivery of public services. The latter implied a more contractual approach to service delivery via Public Service Agreements, Service Delivery Agreements, Performance Indicators, Capability Reviews etc. It was also predicated upon partnerships with voluntary and private sector institutions and with local government. Many techniques were borrowed or copied from the private sector which has provided much of the language and some of the key people involved in the delivery process.

Modernisation has been an eclectic process which has made use of ideas and techniques drawn from many quarters. There have been Task Forces and Reviews conducted by business people and others from outside central Government – for example, the Gershon Report on public procurement, the Lyons Report on asset sales and dispersal to lower cost locations or the Hampton Report on streamlined regulatory arrangements. There has been extensive use of information technology to deliver ‘commodity’ public services via call centres and outsourcing with cheaper methods of delivery. There has been a good deal of partnership working in inter-disciplinary teams with common objectives and sometimes single project budgets as well.

Modernisation under Labour has been both a rhetorical device and a matter of substance. Politically, it has been a convenient contrast with ‘the forces of conservatism’ and a good rallying cry for the Centre Left in a post-industrial, post-collectivist and post-ideological society. In practical terms, it has been an attractive goal and an effective method of operation for the delivery of public services – both a successful brand and a way of motivating all those whose job it is to serve the public.

The current phase of public sector reform

International Resource Constraints

The current phase of public sector reform in many jurisdictions is influenced by tight resource constraints which will be difficult to alleviate unless answers can be found under the general rubric of balancing citizen (‘customer’) rights with responsibilities and until economic growth returns to boost tax revenue and reduce the public sector deficit. In a document entitled Working together – public services on your side, Gordon Brown argued that the current economic recession should be a catalyst for further reform of the public services. In a more recent document entitled Building Britain’s Future, the British Prime Minister argued that the delivery of world class public services will involve ‘a radical dispersal of power’ with patients and parents ‘driving the system’ and benefiting from ‘real rights of redress where entitlements are not delivered’.

Ministers in the UK Government believe that progress in public services reform is most likely to be achieved on the basis of three principles:

Such an agenda suggests increased participation, co-determination and co-financing for the general public with a slightly reduced role for Ministers, civil servants and public expenditure which implies a ‘mixed economy’ of public services in a period of economic austerity.

Challenges for modernisers

The challenges for every nation

There will be many challenges for those who want to modernise in a climate of economic austerity. The challenges, which will face any incoming Government in nearly every part of the world, are likely to include: