Friday, November 03, 2006

Changes in Public Administration - Notes

This post simply records in note form some of the major trends affecting public administration since 1945 for later reference.

The Welfare State

The term "welfare state" came into popular use in Commonwealth countries at the end of the second world war. The social hardship of great depression created a desire in Governments for action to protect citizens. This was aided by the work of John Maynard Keynes in discrediting elements of the previously dominant economic thought by showing, among other things, that economic downturns need not be self correcting, that Government policy actions based on the assumptions of classical economics. Neoclassical economics remained dominant at micro level (value and distribution) with Keynesian economics dominant when it came to explaining fluctuations in activity at macro or economy level.

The 1942 UK Beveridge Report is often referred to as a key report in defining the scope of the welfare state. It was certainly influential. However, in Australia and New Zealand elements of the welfare state had been evolving since European settlement and in the Australian context were encapsulated in the Deakinite social contract.

The end of the war saw a dramatic expansion in Government involvement in the economy in Europe and the Commonwealth countries including a significant expansion in Government benefits. State ownership, long a key belief especially of the various labour parties, saw expansion of Government owned activities together with nationalisation or attempted nationalisation of specific key industries especially in the immediate post war period. By the 1970s, Sweden, the Swedish model, was often held up as a welfare model as was Germany.

When I attended university in the 1960s the welfare state was still the dominant model as was the neoclassical micro/Keynesian macro split. However, by then elements of previous Australian thinking such as support for tariff protection were already in decline.

End of the Welfare State

The 1973 oil shock marks a critical date in the decline of the welfare state. The fifties and sixties had been decades of continuous economic expansion dependent in part on cheap oil. International trade grew in importance both in absolute terms and relative to the size of domestic economies. There was rapid expansion in international investment, especially by US companies. This was not always welcome, leading to the publication in 1968 of Jean-Jacques Servan-Schreibers' book The American Challenge.

By the end of the sixties the US economy was in a degree of difficulty with slowing economic growth and rising inflation. In 1971 Richard Nixon ended the convertibility between gold and the US dollar, effectively ending the Bretton Woods system that had underpinned global trade and currency arrangements since the end of the Second World war. The U.S. dollar was devalued by 8 per cent in relation to gold in December 1971 and devalued again in 1973.

Because the US currency was the main global currency and store of value, the decline in the value of the US dollar created tensions, especially among resource exporting countries. There had already been discussions among OPEC members and especially its Arab members on the need for higher oil prices. The Yom Kippur War (October 1973) triggered a combination of embargos and orchestrated price increases led by Arab countries, leading to a three fold increase in the price of oil by early 1974.

The effects of the oil shock were quite profound. Oil importing countries faced the combination of inflation and recession, with downturns feeding between countries, leading to stagflation that effectively lasted the rest of the decade. The traditional economic remedies including lowering interest rates were ineffective. Structural unemployment emerged especially among the young, leading to the effective abandonment of traditional full employment policies. Tightened Government revenues led to cut back in services. Economic competition among nations intensified.

The net effect was to lay a base for radical change in public policy and administration, changes that fed between countries.

Standards, the Quality Movement and the Importance of Measurement

On the surface, the evolving role of standards, quality and measurement are one of the most important but least understood elements in global change in public administration.

Program budgeting together with related concepts such as zero based budgeting emerged in the United States during the sixties.

Traditional approaches to public sector budgeting can best be described as incremental. You have existing activities, you estimate the expected costs of those activities, estimate what revenue you will have, decide what new things you want to do, want you are going to have to cut out to do it. So you start from what you do/have and then modify at the margin.

To meet defence needs in the US in the early sixties, Robert McNamara popularised the concept of program budgeting. Under this approach you grouped activities by programs, defined the outputs (results) you wanted to achieve from those programs, defined the inputs you needed to achieve those outputs. In theory, this approach made it much easier to analyse activities and set objectives and priorities.

A key problem lay in the specification of outputs in such a way that they could be measured. In some cases this was fairly easy, so many tanks for example, but in other cases this was far more difficult to measure.

A real problem here lay in the difference between outputs (the activity measurement) and outcomes (the impact of the outputs).

Take economic advice as an example. How do you measure the outputs? So many minutes to the minister? So many cabinet submissions? Then how do you measure the effect of that advice? In economic performance? But then how do you take into account the fact that the advice is only one small input into a total outcome?

Program budgeting reached Australia fairly early at university level, being part of the public finance course I did at the Australian National University as part of my Masters. However, it was not adopted until 1983 and then, at least as I see it, had considerable adverse outcomes in practice because of fundamental conflicts between the approach and the Westminster system.

The concept of a standard, an agreed specification that must be achieved or followed, has a long history. There are two linked concepts here, what is to be achieved and how it is to be measured. So again measurement is central. Standards are normally silent on how the standard is to be achieved. This does not matter so long as standards are met.

The international standards movement began because of the need to ensure compatibility in the technical arena but then extended into the management domain. From there it moved into the public policy arena.

As an example, the competencies movement in education that entered Australia in the 1980s was a direct outcome of the standards movement. But when it did arrive, its application was distorted by the desire of Government and its advisers to control inputs as well as outputs, thus mandating elements of what had to be done, not just what was to be achieved.

The rise of the standards movement was paralled by and linked to the rise of the international quality movement. Again, measurement was central.

The difficulty in all this emphasis on measurement - and it is all around us today - is that it is very hard to measure some things, especially where outcomes are long term.

I will continue these notes in a later post.


Anonymous said...

Jim, I graduated in 1976 so missed out on the "Program budgeting" concept. I will look into this area and educate myself.

Jim Belshaw said...

Lexcen, always glad to encourage self education!