Reforming the State: Managerial Public Administration in Latin America 9781685854195

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Reforming the State

REFORMING THE S TATE Managerial Public Administration in Latin America edited by

LUIZ CARLOS BRESSER PEREIRA AND

PETER SPINK

b o u l d e r l o n d o n

Published in the United States of America in 1999 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 www.rienner.com

and in the United Kingdom by Lynne Rienner Publishers, Inc. Gray’s Inn House, 127 Clerkenwell Road, London EC1 5DB www.eurospanbookstore.com/rienner

© 1999 by Lynne Rienner Publishers, Inc. All rights reserved

Library of Congress Cataloging-in-Publication Data Reforming the state : managerial public administration in Latin America / edited by Luiz Carlos Bresser Pereira and Peter Spink. p. cm. Includes bibliographical references and index. ISBN 1-55587-374-X (alk. paper) 1. Latin America—Politics and government—1980– 2. Organizational change—Latin America. 3. Administrative agencies—Latin America—Management. 4. Civil service reform— Latin America. 5. Government productivity—Latin America. I. Bresser Pereira, Luiz Carlos. II. Spink, Peter. JL959.5.073R443 1999 352.3'098—dc21 99-24072 CIP

British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library.

Printed and bound in the United States of America

∞

The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1984. 5 4 3 2 1

Contents

1 2

3 4 5 6

Foreword, Fernando Henrique Cardoso Preface

Managerial Public Administration: Strategy and Structure for a New State Luiz Carlos Bresser Pereira

On the Design of the State: A Principal-Agent Perspective Adam Przeworski

The Global Revolution: Reforming Government-Sector Management Donald F. Kettl

The Complementarity of Economic Restructuring and Rebuilding the State in Latin America William Glade

Possibilities and Political Imperatives: Seventy Years of Administrative Reform in Latin America Peter Spink

From Bureaucratic to Managerial Public Administration in Brazil Luiz Carlos Bresser Pereira v

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15 41 75 91 115

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CONTENTS

Democratic Governability in Latin America at the End of the Twentieth Century Joan Prats i Català

147

Bibliography The Contributors Index About the Book

183 201 203 213

Foreword Fernando Henrique Cardoso

The global scenario in which we currently live is one that presents new challenges to societies and nations. We are experiencing a phase of worldwide reorganization, not only of the economic system but of the political system itself. In view of this phenomenon, nation-states must be restructured to enable them to face the challenges inherent in this current global environment. It is imperative to ponder the risks and opportunities offered by the globalization process realistically and creatively, for only thus will it be possible to transform the state in such a manner that it will be capable of adjusting to the new demands of the contemporary world. This is an exercise that no government can shirk without placing its prospects of national development in jeopardy. To reform the state does not mean to dismantle it. On the contrary, reform could never entail destruction of the administrative and political decisionmaking systems, much less lead to a lessening of the state’s regulatory capacity or of its power to steer the process of change and to set its course. To change the state means, above all, to set aside visions of the past, visions of a paternalistic welfare state—a state that, due to circumstances, focused largely on direct intervention in production of goods and services. Today, all are well aware that the production of goods and services can and should be handed over to society, to private enterprise, with substantial gains in efficiency and lower costs to consumers. The notion of a state that adapts to enable itself to face the challenges of the contemporary world must not be confused with the lack of a competent and effective government capable of setting a course for society or at least of heeding courses proposed by society that require more consistent political and administrative action; nor can it be seen as inertia in the vii

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face of administrative systems built up previously in Latin American countries, systems that centered on corporatism and welfare or on direct government intervention in the production of goods and services. There is no doubt that nowadays, in addition to this role of illuminating the nation’s course and pointing out goals compatible with society’s aspirations, the state must also focus on providing its people with such basic services as education, health care, safety, and sanitation. However, to successfully carry out this monumental task and to effectively meet society’s growing demands, the state must be restructured. And to achieve such restructuring, it must adopt management criteria with a view to reducing costs, seek to enhance dialogue with society as a whole, define priorities democratically, and insist on results. Many tend to confuse administrative reform with mere congressional approval of legislation that lends the state a more competent and more activist appearance. It is perfectly clear that congressional approval is essential to redefinition of the state’s role, above all because many changes require amendments to the constitution. However, actually redefining the state to enable it to truly meet its contemporary goals is a long process. It involves the profound change of a mentality deeply rooted in practices that have crystallized concrete interests. These practices and interests are not necessarily negative. Nonetheless, when the environment changes, persisting interests that cannot respond to the challenges of a new era do play a politically negative role. Such interests may in fact be altruistic or legitimate when viewed from a certain angle. But when we look at them from the wider view of society as a whole, we will see that they are no longer justifiable. The state must yield to certain of society’s pressures, but society must also learn to converse with the state in a manner suitable to the aims of the population. To carry forward this interaction between state and society requires leadership; it requires a gradual process of persuasion. Ultimately, in any democracy, legitimate power is that power sanctioned by the vote, by society’s exercising its citizenship. Thus, neither bureaucracy itself nor those portions of civil society that have not passed the ballot test are empowered to lead changes. What they do have is an obligation to prepare for debate, to exert pressure on those who govern. But decisionmaking legitimacy must remain in the hands of those voted into power. This is the very essence of democracy, the essence of republicanism. This means that here in Latin America we must prepare our administrations to overcome outdated bureaucratic models—to adopt management techniques capable of introducing the quintessential notions of quality, productivity, results, and employee responsibility into our culture of civil administration. We are currently experiencing a moment of transition from a welfare and paternalistic administrative model—which later took a step ahead and

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turned bureaucratic, in the Weberian sense of the word—to a new model in which a competent bureaucracy is no longer sufficient to achieve the proposed ends. Present requirements call for something much more complex: state administration that is not only efficient, but guided by social values and capable of communicating freely with the people. This transition is one of the great challenges of the contemporary world, one to which all state leaders must devote themselves if reorganization of government administration is to be achieved. This transition will be neither possible nor feasible without the participation of government employees. Those who view the civil service as a focal point of resistance to change are mistaken. The civil service cannot be seen as a repository of the old, outdated, antiquated, and archaic; government bureaucracy includes numerous examples of competence and excellence, and these qualities must be encouraged so that they can serve as a model to the administrative structure as a whole. Reform will be successful only if it is supported by leaders within the civil service. In this regard, I do not refer to the union leaders who are linked to the most harmful forms of corporatism, but rather to the opinion leaders who are willing to set aside any remaining traces of patronage, the spoils system, and corporatist favoritism that occur in certain areas of public administration. We must do away with the notion that civil servants are a privileged class. Actually, the privilege that civil servants do have is that of serving their fellow citizens and of receiving compensation in the form of admiration on the part of the society as a whole. Such admiration cannot, of course, be limited to a few words of commendation; it must also be expressed in terms of appreciation of civil service careers and better pay for civil servants. However, this cannot be accomplished overnight. Working conditions in the civil service will improve as a result of economic stabilization; the return to wage indexing championed by some would serve only to refuel inflation and penalize the poorest strata of the population. There is no other way for a country to grow than by increasing its productivity and thus its wealth while simultaneously ensuring that those who actively participate in building the nation enjoy a growing share of the benefits. The need to reform is undeniable. It is clear that we must reappraise the work of civil servants and, ultimately, the work of the state itself. I am confident that the discussion in this volume will contribute in an important way to a deeper understanding of the major challenges that Latin American nations face as a result of accelerating economic globalization and advancement of the scientific and technological revolution. One thing is certain: we must achieve comprehensive public administration reform if we are to be in a position to face this gigantic challenge.

Preface

In the 1980s, a focus of concern among social scientists and government leaders was the crisis of the state—a state perhaps overgrown, captured by private interests, and at the same time losing its autonomy vis-à-vis the process of globalization of the world economy. In the 1990s, however, that attention turned to state reform, particularly the reform of public management, reflecting a recognition that the neoliberal approach—coordination of the economy according to a market focus and reducing the state to a minimum role—was not realistic, corresponding neither to the aims of society nor to the needs of national economies. In this context, the issue of reconstructing the state and reforming its civil service became crucial. This book addresses the subject of state reform, starting from a basic hypothesis: the end of this century is marked by a new theoretical and practical framework for public management, a “managerial” approach that replaces the previous “bureaucratic” perspective. The managerial approach, also known as “the new public management,” starts from the position that contemporary democratic states are not merely institutions designed to ensure property rights and contracts, but rather are instruments for the formulation and implementation of strategic public policies for their societies, in both the social and the scientific and technological domains. In order to achieve its goals, the state must put in place modern managerial practices without losing sight of its eminently public functions. “Managing” differs from “controlling” almost as much as “making things happen” differs from “preventing things from happening.” This perspective, developed in corporate management, also applies to public management. It is not, however, the sheer transposition of idealized models of the corporate world; instead, it is the acknowledgment that the new functions of the state in a globalized world require new competence, new managerial strategies, and new institutions. xi

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The chapters here were presented in an earlier form during a seminar held in Brasília in 1996, hosted by Brazil’s Ministry of Federal Administration and State Reform and the National School of Public Administration (ENAP), and supported by the United Nations, the Latin American Centre for Development Administration (Centro Latinoamericano de Administración para el Desarrollo; CLAD), and mainly by the Inter-American Development Bank. The seminar allowed the exchange of experiences and the identification of trends in Latin America, comparing them with recent reform experiences elsewhere. During the seminar, other contributions were recognized and incorporated into the discussion, and these also are reflected in the book. A foreword by Brazilian president Fernando Henrique Cardoso opens the book, just as he opened the seminar, recognizing both the need for changes aimed at a managerial administration and the challenges represented by those changes. Then Luiz Carlos Bresser Pereira, Brazil’s minister of science and technology, introduces the themes to be debated, focusing on how to reconstruct and rethink the state in a global context. In Chapters 2 and 3, Adam Przeworski and Donald F. Kettl discuss the goals and dilemmas of state reform. For Przeworski, the target of reform is to establish institutions that will reinforce the ability of the state apparatus to do what it has to do while preventing it from doing what it should not do. He asserts, from the “principal-agent” model, that a well-functioning government requires a bureaucracy that is effectively supervised by elected politicians, who, in turn, must be accountable to the public. Confronting neoliberal thinking, Przeworski concludes that, given such a system, the economy of a moderately intervening state would perform better than that of an economy coordinated solely by automatic market adjustments. Kettl recognizes that the theme of reform is popular worldwide and that few governments have failed to try reform. Nevertheless, he points out and discusses two persistent and related problems: the search for ways to build states and public administrations that work better and cost less, and the issue of deciding what the state has to do and what it should not do. Very often, he recognizes, short-term tactics to reduce costs and limit activities hamper the achievement of long-term results, preventing the necessary focus on the core of government activities and public administration. William Glade (Chapter 4) and Peter Spink (Chapter 5) analyze the subject of reform specifically from the perspective of the Latin American experience. For Glade, there are three ongoing, parallel processes of change in the region. The first one, democratization, eventuates from the strengthening of civil society, the role of which is increasingly important in terms of transmitting information, defining problems, and affecting the quality of the actors engaged in program implementation. The second

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process—a consequence of economic restructuring—is growing liberalization and privatization. Finally, the need for new types of services to protect citizens, consumers, and the environment and to support the functioning of markets brought about the third process of change, the establishment of regulatory mechanisms and agencies. The initial responses of governments in the region to these changes are seen by Glade as positive. Spink offers a longitudinal study of administrative change strategies in Latin America. He points out that the results of the major systematic reform programs have not been fully satisfactory (with a few notable exceptions), in contrast with the many experiences of more gradualist or incremental strategies. He also points out that, in spite of the relatively heterogeneous character of reform concepts and practices in the early 1960s, currently the region has a spreading homogeneous vision of state reform as an essentially technical issue. In this regard, he warns of the risk of disregarding the fact that reform issues are primarily political and also of the possible consequences of a lack of discussion of alternative strategies. In Chapter 6, Bresser Pereira focuses on Brazil, highlighting the need for reforming or rebuilding the state, and presenting the basic outline of the reform efforts launched by the Cardoso administration. He maintains that state intervention, in addition to still being necessary in the domains of health, education, culture, and technological development, must also support national economies so that they may become internationally competitive. Whereas the neoliberal reforms removed the state from the economy, the social-democratic approach aims to increase and deepen the state’s financial and administrative capabilities to implement government decisions. A more efficient state, argues Bresser Pereira, is an imperative in the context of globalization, which has sharpened competition among countries. As a consequence, the bureaucratic model of public administration has become obsolete, and public bureaucracies are increasingly moving toward a managerial approach. Bresser Pereira proposes and describes in detail the establishment of new institutions—“executive agencies” and “social organizations”—to carry out necessary tasks under management contracts and with broad autonomy. The implications of this constantly evolving domain of state reform are examined in the last chapter (Chapter 7) by Joan Prats i Català. Prats i Català points out the growing importance of new configurations around the subject of governability. All over the world, from 1950 to 1975, bureaucratic reforms geared to rational approaches of “administration for development” were emphasized, but beginning in the mid-1970s there was a gradual movement toward new approaches that emphasized the importance of public policies, of their effective implementation and evaluation. The complexity of democracy and of the interorganizational relationships within the public service makes political and administrative reform complementary;

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thus, recent programs include support for structuring political parties and strengthening electoral processes. From this context emerges the broad subject of governability, which includes not only government and public administration, but also new forms of relationships with civil society. * * *

Although all of the authors are optimistic regarding new public practices and the continuous presence of the state in the delivery of services, the book also reflects the general tenor of the discussion among the participants at the seminar—the doubt and disagreement as well as the differing political stands. Debate notwithstanding, however, the concept of a minimal, residual state vis-à-vis the market found little support. Whatever the participants’ understanding of globalization—whether in purely economic or also in political terms—there was consensus that the demands for state efficiency and effectiveness with regard to both its internal and its external roles now go beyond the traditional scope of bureaucratic practices. Deepening the professional character of public administration and establishing competent and relatively autonomous bureaucracies are still priorities; but these bureaucracies must not retreat to the rational-legal model of administration based on centralization and the formal control of procedures. According to all those present at the seminar, the ongoing reform processes in Latin American countries are admittedly complex. There are contradictions to be worked out, and it is necessary to take into account new partners in the debate. Increasingly, the inherent plurality of many Latin American societies will show its presence; reform processes involve multiple possibilities for action at both state and local levels. The transfer—either for reasons of belief or because of a shortage of resources at the national level—of activities from the national government to various elected local governments encourages and produces new forums for debate on the effectiveness of public management, encompassing not only different levels of government but also community organizations. The latter, which for years were some of the few available spaces for discussion of the relationship between public management and citizenship, acquire a growing and important role in the provision of social and scientific services by participating in a partnership between society and the state. Although the twentieth-century state tried to protect social rights by hiring state bureaucrats to provide social services directly, the state of the twentyfirst century may guarantee those rights primarily by hiring public, nonstate organizations that are more competitive, more efficient, and better controlled by society.

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As this century ends, the deepening awareness of the need for more effective action is an essential characteristic in many areas and organizations, but in the public domain it has become an imperative. This book is intended to contribute to the debate toward that end.

Luiz Carlos Bresser Pereira Peter Spink

1 Managerial Public Administration: Strategy and Structure for a New State Luiz Carlos Bresser Pereira In the 1980s, following the end of the international debt crisis, the theme that caught the attention of politicians and policymakers all over the world was structural adjustment—fiscal adjustment and market-oriented reforms. In the 1990s, although structural adjustment remained a major objective, the emphasis has changed to the reform of the state and particularly to administrative reform. The central question now is how to rebuild the state— how to redefine a new state in a global world. This change of focus definitely can be seen in Brazil. One of the major reforms to which the Cardoso administration is committed is administrative reform. Early in his first term, President Fernando Henrique Cardoso decided to transform the old bureaucracy that managed the civil service into a new Ministry of Federal Administration and State Reform. Chosen as the minister, I proposed adding administrative reform to the constitutional reforms, dealing with taxes, social security, and state monopolies, that were already defined as a priority by the new government. The immediate response of civil servants, intellectuals, and the press was highly negative. Yet after a few months, support emerged, coming from state governors, mayors, business executives, the press, and finally from the public. Suddenly administrative reform was considered crucial, demanded not only internally but also by foreign investors and multilateral financial agencies. The constitutional amendment was widely debated and sent to Congress in August 1995. Its passage was followed by the publication of a white paper (Brasil 1995) on the administrative reform—Plano Diretor da Reforma do Aparelho do Estado— proposing a change in Brazilian public administration from a bureaucratic administration to a managerial one. This change became a national issue. What caused this new interest in the reform of the state, particularly of the state apparatus? What is the content of the reform? Is it merely part of 1

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the neoliberal ideology or a necessary course for managing the contemporary capitalist state? What is the relation between the managerial strategy and the structure of the new state that emerged out of the crisis of the 1980s? These are some of the questions that I address herein, knowing very well that my answers are limited and provisory. REFORM OF THE STATE AS A MAJOR CONCERN

There are many reasons for the increasing interest state reform is receiving in the 1990s. Most important, people realized that structural adjustment was not enough. Since the mid-1980s, highly indebted countries have engaged in fiscal adjustment, trade liberalization, privatization, and deregulation. The outcome was positive to the extent that the acute features of the crisis were overcome: balance of payments came under control, inflation rates fell everywhere, and countries recovered some creditworthiness. But growth did not resume. The neoliberal assumption behind the reforms—the assumption that the ideal was the minimal state, committed only to guaranteeing property rights, leaving to the market the full coordination of the economy—proved unrealistic. First, in no country is there political legitimacy for such a minimal state, not even if education, health care, and compensatory social policies are added to its role. People demand more from the state. Second, it soon became apparent that the assumption that state failures are necessarily worse than market failures was just a form of dogma. The limitations of state intervention are self-evident, but their strategic role in contemporary capitalism is so great that they cannot be ignored or eliminated, as neoliberal thinking assumes. As Adam Przeworski (1996: 4) observes, the neoliberal view, popular in the 1980s, that “even in the absence of ‘traditional’ failures, markets are efficient now appears dead, or at least moribund.” In the 1990s, it became increasingly clear that the basic cause of the great crisis of the 1980s—a crisis that only the East Asian and Southeast Asian countries were able to avoid until the late 1990s—was a crisis of the state: of its monetary policy, its mode of intervention, and its bureaucratic form.1 So, if the option of a minimal state is not realistic and if the basic factor underlying the economic crisis is the crisis of the state, there can be only one conclusion: the solution is not to let the state wither but to rebuild it, to reform it. Such reform will probably mean shrinking the state, limiting its role as a producer of goods and services and, to a lesser extent, as a regulator; but it may also imply increasing the state’s role in financing public nonstate organizations that will compete to provide social services and in promoting international competitiveness for local industries. Reform of the state involves political aspects related to promoting governability—the political capacity of the government to represent and to be

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an intermediary between different interest groups so as to guarantee legitimacy and political power for the administration’s decisions—and economic and administrative aspects leading to improved governance—the effective capacity the government has to transform its policies into reality. Among the reforms designed to increase governance, the economic reforms that reduce the public debt and promote public savings, particularly fiscal adjustment and privatization, are the major reforms. Yet recently, administrative reforms of the civil service, to make it more compatible with contemporary capitalism, started receiving more attention. The explanation is simple: people are becoming increasingly aware that bureaucracy is inconsistent with the demands that civil society places on governments in contemporary capitalism. People demand much more from the state than it can deliver, and the immediate reason for that gap is not only fiscal as James O’Connor (1973) pointed out, nor just political, as Samuel Huntington (1968) stressed.2 It is also administrative. Economic and political resources are by definition scarce, but this limitation may be partially overcome by their efficient use by the state. When citizens cannot count on the market, that is, when resource allocation through the market is not feasible given its distorted character or incompleteness, a proficient public administration can reduce the gap between social demands and their fulfillment.3 There is, however, a broader reason for the interest in reforming the state and particularly public administration: the increasing relevance of protecting the public patrimony (res publica) from “privatization” or, in other words, from rent-seeking activities. The state is meant to be public, and so are public nonstate organizations (or nongovernmental organizations). Certain goods, such as a protected environment, are meant to be public. The protection of the state as long as it embodies the res publica is a basic right—one that could be called a “public right” and that began to be defined only at the end of the twentieth century as the latest in a long list of rights. For example, in the eighteenth century, Enlightenment philosophers and the British courts defined civil rights, which in the next century were incorporated by liberal (in the European sense) politicians in the constitutions of all civilized countries. In the nineteenth century, political rights, particularly universal suffrage for men, were defined and implemented in most countries by democrats. In the first half of the twentieth century, socialists defined social rights, which were introduced in the constitutions of all countries by social-democratic political parties.4 The emergence of the welfare state to enforce social rights and the increasing role the state assumed in promoting economic growth and international competitiveness in this century fostered an immense increase in the state as res publica. It also fed the greed of individuals and groups who would harness the state to their special interests. The privatization of the tax burden (the main form of the res publica) was now the main objective of rent seekers.

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It is not by accident that almost simultaneously a Brazilian socialdemocratic political scientist first wrote about the “privatization of the state” (Martins 1978) and a conservative U.S. economist (Krueger 1974) defined “rent seeking.” They were referring to the same problem. If the historical realization of the need to protect the individual from an oligarchic state took place in the eighteenth century, and if ensuring the democratic rights of political participation and protecting the poor and the weak from the rich and the powerful occurred in the nineteenth century, the importance of protecting the public patrimony only became dominant in the second half of the twentieth century. These writers were acknowledging that it was necessary to protect the res publica and define another basic right—the public right that all citizens have—that what is meant to be public should indeed be public. In other words, this right guarantees that state property be available to everybody, instead of being the object of rent seeking, instead of being privatized.5 When the protection of public rights started to become a dominant concern in the world, three things became increasingly clear: the republic had to be refounded; the reform of the state gained a new priority; and democracy and bureaucracy—the two institutions created to protect the public patrimony—should be changed: democracy should be improved by becoming more direct and the bureaucratic public administration should be replaced by a managerial public administration. PATRIMONIALISM AND BUREAUCRACY

Privatizing the state, or mixing the private and the public patrimony, was the defining characteristic of governments in precapitalist and predemocratic societies. Patrimonialism meant the inability or reluctance of the prince to distinguish the public patrimony from his private possessions. With the rise of capitalism and democracy, a clear distinction between res publica and private possessions developed. Democracy and bureaucracy emerged as the main institutions aimed to protect the public patrimony against the privatization of the state. As a political device, democracy guarantees civil rights against tyranny, asserts the political rights of electing and being elected, provides social rights to protect citizens against exploitation, and affirms public rights in relation to the public patrimony. As an administrative institution, bureaucracy uses the principles of a professional civil service and of an impersonal, formal, legal, and rational administrative system to combat nepotism and corruption. In the nineteenth century, the emergence of bureaucracy as a replacement for the patrimonialist forms of administering the state represented great progress. This process’s main analyst—Max Weber (1922)—was

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quite vigorous in pointing out the superiority of rational-legal authority over patrimonialist power. Yet in the twentieth century, when the state increased its social and economic role, the basic strategy adopted by bureaucracy—the hierarchical and formalistic or legal control of procedures— proved inappropriate. This strategy was effective in avoiding corruption and nepotism, but it was slow, expensive, and inefficient. It made sense in the time of the eighteenth-century liberal state—a small state concerned with the protection of property rights, a state that needed a parliament to define the laws, a judicial and police system to ensure their enforcement, an armed force to protect the country against foreign enemies, and a finance ministry to collect taxes. It did not make sense anymore when the state had added to its role the provision of public education, health, culture, social security, science and technology incentives, infrastructure investments, and environmental protection. Instead of three or four ministries, fifteen or twenty were required. The tax burden, instead of representing 5–10 percent of gross domestic product (GDP), grew to 30–60 percent of GDP. And in response, a new form of administration emerged—a managerial public administration that built on huge practical and theoretical advances in business management made in the twentieth century without losing its specific character as a public administration. This administration focused not on profit but on the public interest. Not only must the new public administration avoid nepotism and corruption, but also it must efficiently provide public and semipublic goods that the state was committed to produce directly or finance indirectly. If, in developed countries, individual (civil and political) and social rights were reasonably protected, public rights were not: the res publica was the object of all sorts of threats. In addition to moderate nepotism and corruption, new forms of private appropriation of the public patrimony emerged. Businesspeople obtained unnecessary subsidies and tax renunciations, the middle class secured special entitlements, and civil servants were often working inefficiently or just not working but were protected by strict tenure laws. In developing countries—where in the twentieth century a developmentalist state emerged instead of the welfare state—the situation was much worse: individual and social rights often remained unprotected, and nepotism and corruption infiltrated the bureaucracy, which was marked by privileges and redundancies. Whereas in the nineteenth-century liberal state, bureaucracy was a device to ensure property rights, including the appropriation of the economic surplus by the emerging capitalist class, in the developmentalist state bureaucracy was a form of surplus appropriation by a new middle class of bureaucrats or technobureaucrats. In the liberal state, the price of entrepreneurship was the concentration of income in the hands of the bourgeoisie through market mechanisms, but in the developmentalist state the economic surplus was shared by the capitalist and bureaucratic

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classes, who used the political control of the state to enrich themselves. If in the developed countries the res publica was not well protected by a bureaucracy inefficient in administering the welfare state, the public good was still less protected in developing countries, where the bureaucratic class was engaged not only in building the state but also in partially replacing the bourgeoisie in the capital accumulation process and in the private appropriation of the economic surplus.6 MANAGERIAL PUBLIC ADMINISTRATION

Managerial public administration emerged in the second half of the twentieth century as an answer to the crisis of the state, as a form of coping with the fiscal crisis, as a strategy of making the administration of the huge services the state took on less expensive and more efficient, and as a device to protect the public patrimony from corruption. Since the 1960s or at least the early 1970s a widespread dissatisfaction with bureaucratic public administration developed.7 Both outcome- and citizen-oriented, managerial public administration assumes that politicians and civil servants are entitled to a limited degree of trust; it uses as strategy decentralization and incentive for creativity and innovation; and it controls public managers through the device of management contracts. Whereas bureaucracy is process-oriented, strictly defining legal procedures to hire personnel, purchase goods and service, and satisfy citizens’ demands, managerial public administration focuses on results. Bureaucracy concentrates on processes, notwithstanding the lack of efficiency involved, because it believes that this is the safer way to avoid nepotism and corruption. Because bureaucrats realize that punishing deviations is often difficult, if not impossible; they prefer to prevent them through strict legal means. Finally, since it lacks clear objectives—it is extremely difficult to define performance indicators for state agencies—bureaucracy has no other alternative but to control legal procedures. In contrast, managerial public administration assumes that nepotism and corruption are to be fought, but rigid procedures are not necessary to do so. Rent seeking is usually a more subtle and sophisticated way of privatizing the state than patrimonialism and demands new counterstrategies. Managerial administration, which involves decentralization, the delegation of authority and responsibility to public managers, and the strict measure of achievement according to agreed-upon performance indicators, is not only a more efficient way of managing the state but is more effective in fighting the new forms of state privatization. Bureaucracy is concerned with perpetuating itself, but managerial public administration is citizen-oriented. As Michael Barzelay and Babak D.

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Armajani observe (1992: 8), “A bureaucratic agency is focused on its own needs and perspectives; a customer-driven agency is focused on customer needs and perspectives.” Modern bureaucracy arose in the nineteenth century during a moment when the power of the state still had to be affirmed against feudal or regional powers. Actually, the rise of the national state took place in Europe through the absolute monarchies, where a patrimonialist bureaucracy played a central role. Modern capitalist bureaucracy evolved from such a patrimonialist bureaucracy and distinguished itself by clearly discriminating the public from the private patrimony but remained very close to its ancestor when the question was to affirm the power of the state. That is why bureaucracies tend to be self-absorbed. Besides promoting their own interests, they are primarily interested in asserting the power of the state—the “extroverse power”—over citizens.8 In contrast, managerial public administration assumes that this power is not being seriously challenged anywhere in developed and semideveloped countries.9 Thus, civil service should not be self-absorbed but oriented to assisting citizens. In order to control outcomes in a decentralized way, bureaucracy requires a certain degree of trust in politicians and public officials—a limited trust, a confidence that is continuously being checked by the control of results, but nevertheless a confidence that allows for delegation, for the possibility of ensuring the public manager the freedom to choose the more appropriate means to achieve the preestablished goals instead of defining them and the respective procedures in the law. This confidence does not exist in bureaucratic administration. And expecting such trust is unacceptable to neoliberal reasoning, given its radically pessimistic view of human nature. Yet, without some degree of trust it is impossible to secure cooperation, and even if administration is a form of control, it is also a form of cooperation. The radical pessimism of neoliberals helps to validate their conclusion about the minimal state but makes no sense when the minimal state is merely an unrealistic mental construction and the modern state is a reality that must be efficient and effectively managed. THE POSSIBILITY OF NEOLIBERAL REFORM

The managerial approach to public administration emerged in Britain after Margaret Thatcher’s Tory government took power in 1979, leading some interpreters to view this approach as an intrinsically conservative one. A series of programs—the “Efficiency Units” program with the scrutiny reports, the “Next Steps” program with the executive agencies, and the “Citizens Chart” program—were able to make the civil service in Britain more flexible, decentralized, efficient, and citizen-oriented. The traditional civil service there was profoundly and successfully transformed, lost its bureaucratic features,

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and gained managerial ones.10 But this was not only a conservative phenomenon, for similar reforms took place in New Zealand, Australia, and Sweden while social-democratic governments were in office. David Osborne and Ted Gaebler (1992), who coined the expression “reinventing government,” described administrative reforms in the United States that had taken place since the early 1970s and had originated not in the federal government but rather in municipal and state administrations. The goal of transforming federal public administration according to the managerial approach took place in 1992, when Democratic president Bill Clinton transformed the idea of reinventing government into a government program, the “National Performance Review.”11 In France reforms in the same direction started in 1989, when a social democratic prime minister, Michel Roccard, was in office. In Brazil the first attempt in direction of a managerial administration dated from 1967—long before neoliberal ideas, born in the 1980s crisis of the state, came out.12 Managerial public administration is seldom identified with neoliberal views for another reason. Managerial techniques were often introduced simultaneously with structural adjustment programs designed to resolve the fiscal crisis of the state. As Barbara Nunberg (1995: 11) observes, “The first reform phase, commonly called ‘cutback management,’ consisted of measures to curb public spending and civil service staff in response to fiscal constraints.” This was true in Britain, Canada, Australia, New Zealand, Japan, and the United States. It is now true in Latin America, including Brazil, where administrative reform is substituting managerial for bureaucratic public administration but where expenditure cuts are also essential to the program.13 The combination of managerial reforms with structural adjustment usually provokes strong reactions from civil servants. As an indignant British civil servant once said, “more efficient really means cheaper” (Plowden 1994: 4). Mixing fiscal adjustment with neoliberalism does have a historical explanation. Neoliberalism arose as a reaction against the fiscal crisis of the state and so became identified with expenditure cuts, or downsizing the state. But social-democratic administrations soon realized that fiscal adjustment was not just an ideological proposal but a necessary condition for any strong and effective government. This fact plus the obvious superiority of managerial over bureaucratic public administration led governments of all ideological tendencies to get involved in administrative reforms, which usually have a twofold orientation: expenditure reduction in the short run and increased efficiency through managerial orientation in the medium run. This kind of reform faces the risk of being seen as hostile to civil servants, which discourages them from becoming involved. In Britain, where reform went farther than anywhere else, this was and still is the most difficult problem the government faces. The reform was possible for two reasons:

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9

because in the late 1970s senior civil servants and major civil service consultants were aware that a reform was badly needed, and because Margaret Thatcher was determined to reduce public administration costs. These facts created a coalition between government and top civil servants. Yet this coalition was fragile, given the obvious negative attitude Thatcher and her associates had toward the civil service.14 Political reactions against managerial public administration have an obviously ideological origin, of which Christopher Pollitt’s book Managerialism and the Public Service (1990) is a good example. Managerialism is seen by Pollitt as a set of ideas and beliefs that privilege management itself, the objective of continuously increasing productivity, and the orientation to the consumer. Fernando Luiz Abrucio (1997), in a survey of managerial public administration, contrasts this “pure managerialism” that he calls the “new public administration” with the “public service–oriented” approach favored by Pollitt, which offers an alternative to the British model. In my opinion, Pollitt’s view is just an attempt to update the old bureaucratic model rather than a managerial alternative. The idea of opposing consumer orientation (pure managerialism) to citizen orientation (reformed managerialism) makes no sense. A crucial reform program undertaken by the British government was the Citizen Chart. The citizen is also a consumer. Any successful managerial public administration has to see the individual both in economic terms, as a consumer (or a user), and in political terms, as a citizen.15 REFORMING STATE STRUCTURE

As I have shown, managerial public administration involves a change of management strategy, but any new strategy must be put to work in a reformed administrative structure. The general idea is to promote decentralization and delegation of authority. It is also necessary to be more specific, defining clearly the sectors the state operates and the types of ownership and kinds of administration suited to the state sector. Any modern state oversees four sectors: the strategic core, the exclusive activities, the nonexclusive services, and the production of goods and services for the market. First, in the strategic core, law and policies are defined and their enforcement is assured. The core comprises parliament, the courts, the presidency or prime minister, cabinet ministers, top civil servants, major local authorities, and governors and their secretaries when the political system is federal. Second, exclusive activities directly guarantee that laws and public policies are followed and financed. The armed forces, police, and tax collection agency—the traditional functions of the state—and also regulatory

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REFORMING THE STATE

agencies, which finance, foment, and control social services and social security, are part of this sector. Thus, exclusive activities should not be identified with the classical liberal state, which consists of the police and the armed forces. Third, nonexclusive services are those that the state can provide, but because they do not involve the use of the extroverse power of the state, can also be provided by the private and the public nonstate (nongovernmental) sectors. This sector comprises educational, health, cultural, and scientific research services. Finally, the production of goods and services sector is formed by stateowned enterprises. Given that these four sectors exist in some form in every state, reform of state bureaucracy must consider three questions: What type of administration should prevail in each sector in the new state that is forming in the 1990s? What kind of ownership is preferable? What kind of institution should be developed? The answer to the first question is straightforward: managerial public administration must be adopted. Yet a caveat is necessary: in the strategic core, where effectiveness is often more relevant than efficiency, updated bureaucratic characteristics still have a place. An essential strategy in reforming the state apparatus is to strengthen the strategic core, to fill it with highly competent, well-trained, and well-paid civil servants who share the ethos of serving the citizen. In this area, career and tenure provisions should still hold but become more flexible than they currently are. In the area of exclusive activities, management should become decentralized; in the nonexclusive services sector, management will be not merely decentralized but autonomous: civil society will share control with government. The ownership question is essential. In the strategic core and in the exclusive state activities sectors, ownership will be state ownership. In contrast, in the production of goods and services sector, there is an increasing consensus today that ownership should be private, particularly when the market is able to control business enterprises. When there is a natural monopoly the question is not so clear, but even in that case an effective and independent regulatory agency will permit private ownership in the goods and services sector. In the realm of the nonexclusive services, however, decisions about ownership are more complex. States and citizens may assume that health, education, and cultural activities are supposed to be financed or developed by the state, either because they involve basic human rights (education, health) or because they imply sizable externalities (education, health, culture, scientific research). However, since they do not involve use of state power, there is no need for them to be state-controlled. A third option is to adopt public nonstate ownership (in Anglo-Saxon terminology, “nongovernmental” ownership):

MANAGERIAL PUBLIC ADMINISTRATION

11

“public” in the sense that they are devoted to the public interest, that they are of and for everybody, that they are not profit-oriented; “nonstate” because they are not part of the state apparatus. In the United States, all universities are public nonstate organizations. They may be called “private” or “state controlled,” but the “private” ones are not profit-oriented and the “state-controlled” schools do not have civil servants. They are partially financed or subsidized by the state—the “private” ones less than the “state-controlled” ones—but they are all independent bodies controlled by boards that represent civil society and—in minority form—the government. In the United Kingdom, universities and hospitals used to be state-controlled entities but are now “quasi-autonomous nongovernmental organizations” (QUANGOS). They were not privatized; they were changed from state control to public control. Thus are three possibilities for ownership of nonexclusive services: they may remain state controlled, they can be privatized, or they may be subsidized by the state but controlled by society, that is, be transformed into public nonstate organizations. Bureaucracy and statism incline toward the first alternative; radical neoliberalism opts for the second course; and modern social democracy or social liberalism (liberal democracy in the American sense) chooses the third way. Managerial public administration is incompatible with the first alternative and lives with difficulty with the second; it is perfectly coherent with the third one. Here the state is viewed not just as a producer (as in bureaucracy) or as a regulator that guarantees contracts and property rights (as the neoliberal credo says) but also as a “financier” (or “subsidizer”) of nonexclusive services. The subsidy may be given directly to the public nonstate organization through the budget (in Brazil such institutions are called “social organizations”) or, in a more radical change, it may be given directly to the citizen in the form of vouchers. Despite the switch from bureaucratic to civilian control, these areas will continue to be state-financed because contemporary society, notwithstanding the neoliberal offensive, holds that these activities should not be left to the tender mercies of market coordination. Two main institutions will be used to implement this reform: in the realm of exclusive activities, “executive agencies” will be created, whereas the nonexclusive activities will be delegated to “social organizations.” The executive agencies will be part of the state, whereas the social organizations will be part of the public nonstate sector, that is nongovernmental organizations that are authorized by the parliament to share the state budget. The tool that the strategic core will use to control the exclusive activities and the nonexclusive services is the management contract. Both executive agencies and social organizations will be decentralized. In the agencies, the minister will choose the chief executive officer and will negotiate a management contract with that person; in the social organizations the chief

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executive officer will be chosen by the board; in this case the role of the minister will be to sign the management contracts and to control outcomes. The management contracts will provide means for the agency or social organization to fulfill its personnel, material, and financial needs and will clearly define targets and respective performance indicators for each organization. CONCLUSION

After the great crisis of the 1980s, a new state is being built in the 1990s. Extensive reforms will enable this state to fill roles the market cannot. The objective is to build a state that responds to the needs of its citizens, a democratic state in which bureaucrats respond to politicians and politicians to the voters in an accountable way. To accomplish that, essential moves include political reform to increase the legitimacy of government; fiscal adjustment, privatization, and deregulation to reduce the size of the state and improve its financial health; and administrative reform to provide the means for good governance. In this chapter I described the features of this last reform—the reform of the state apparatus—a reform that will allow for a managerial public administration in the public sector. NOTES

1. I extensively discussed this theme in Bresser Pereira (1988), Bresser Pereira, Maravall, and Przeworski (1993), and Bresser Pereira (1996a). 2. For a recent discussion of governability and demands on the state, see Diniz (1995). 3. On the subject, see the recent contributions of Stiglitz (1995) and Przeworski (1995). 4. T. H. Marshall (1950) wrote the classic essay on social rights. 5. Note that the concept of “privatization of the state” or of “privatization of the public patrimony” should not be confused with the privatization of state-owned enterprises—the sale of part of the public patrimony to private owners. Privatization in this sense is a regular sale—not a vicious private appropriation—of an asset that society concludes should be in private and not public hands. 6. I developed the idea of the emergence of a bureaucratic or technobureaucratic class in two books published in Brazil in the 1970s. In A Sociedade Estatal e a Tecnoburocracia (1981) I collected my general or theoretical essays on the subject; in Estado e Subdesenvolvimento Industrializado (1977) I concentrated my attention on the role of this new class in association with the capitalist class in running the developing countries where bureaucratic-capitalist regimes had emerged. 7. As Ostrom (1973: 15) says in The Intellectual Crisis in American Public Administration, “the sense of crisis that has pervaded the field of public administration over the last generation has been evoked by the insufficiency of the paradigm inherent in the traditional theory of public administration.”

MANAGERIAL PUBLIC ADMINISTRATION

13

8. Note that the nation-state, or country, encompasses the state and civil society. The state is the unique organization that holds extroverse power—the power of imposing law and taxes over civil society, that is, over a structured group of citizens that are not directly part of the state, but are simultaneously the object of state power and the source of government legitimacy. 9. Except by illegal activities or associations, such as the Mafia. In developing countries, there is also the threat represented by several types of fundamentalism. 10. The best analysis of the British experience I know was written by a sociologist from the University of Warwick, commissioned by British unions. Fairbrother (1994) wrote a moderately critical analysis. See also Tomkins (1978), Pyper and Robins (1995), Nunberg (1995), and Plowden (1994). For a radically critical approach, see Pollitt (1990). 11. For an evaluation of this program see Kettl and Dilulio (1994, 1995). In their papers Kettl and Dilulio (1994, 1995) and Dilulio (1995) compare Clinton and Gore’s “reinventing government” program with the Republican “Contract with America,” which they label an “erasing government” program: a truly neoconservative, cutback program. 12. The reform was launched in the Castelo Branco administration, through the Decreto-Lei 200, that allowed for a radical decentralization of Brazilian public administration, including state-owned enterprises. On the subject see Beltrão (1984) and Martins (1995). Hélio Beltrão was involved in the reforms in 1967 and later, in 1998, became Minister of Federal Administration, launching a desburocratization program. Yet after the transition to democracy in 1985, the reform was abandoned. The new democratic government unsuccessfully attempted to restore a full bureaucratic system. 13. After the failure of the attempt to restore a bureaucratic system in Brazil in 1995, the reform-oriented Cardoso administration proposed and is implementing a administrative reform according to the managerial approach (Ministry of Federal Administration and State Reform 1995; Bresser Pereira 1995, 1996b). 14. As Plowden (1994: 10) notes, “The Prime Minister herself repeatedly made clear her view that anyone with talent and enterprise would not be in the civil service, but would be in the private sector making money.” 15. The idea of opposing a consumer orientation (defined as conservative) to a user orientation (defined as social democratic) makes a little more sense if we define the consumer as an individual who pays for the services he or she gets from the state, whereas the user’s needs are financed by the state.

2 On the Design of the State: A Principal-Agent Perspective Adam Przeworski

In framing a government to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed: and in the next place oblige it to control itself. —James Madison, The Federalist Papers, no. 51

The goal of state reform is to build institutions that will empower the state apparatus to do what it should while impeding it from doing what it should not. Thus, before discussing state reform, one must first address the question, “What should the state do?” In this chapter, I begin with a brief recapitulation of debates about the proper role of the state in the economy, and only then do I address the issue of state reform. First, I briefly review the history of controversies concerning the relationship between the state and the economy, examining the consequences of the economic theory of incomplete markets and imperfect information for our understanding of this relationship. Then I examine three classes of principal agent relations: between governments and private economic agents (regulation), between politicians and bureaucrats (oversight), and between citizens and governments (accountability). I conclude that the quality of state performance depends on the institutional design of all these mechanisms and that well-designed institutions will allow and induce governments to intervene in the economy in a way that would be superior to the behavior of a noninterventionist state. To summarize the argument that leads to this conclusion, recent economic analyses show that markets are not efficient and that state intervention can improve on market allocations. The state has an important role to play not only in ensuring material security for everyone and pursuing other social goals but also in promoting economic development. Nothing guarantees, however, that state intervention will be in fact beneficial. Operating 15

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under limited information and subjected to pressures from special interests, public officials may not know how to or may not want to engage in actions that promote the general welfare rather than their own or that of their private allies. Hence, the task of state reform is, on the one hand, to equip the state with instruments for effective intervention and, on the other hand, to create incentives for public officials to act in the public interest. Some of these incentives can be generated by the internal organization of the government, but structure alone is not sufficient. If the government is to perform well, the bureaucracy must be controlled by elected politicians who, in turn, must be accountable to citizens. In particular, politicians must use the private knowledge that citizens have about the functioning of the bureaucracy to monitor bureaucrats, and citizens must be able to discern who is responsible for what and sanction them appropriately, so that governments that perform well remain in office and those that do not are retired. If these accountability mechanisms are well designed, an economy in an interventionist state will perform better than markets left to themselves. A disclaimer is necessary. Many of the problems entailed in designing state institutions arise because elected politicians and appointed bureaucrats have interests and goals of their own. I am not claiming that all public officials are motivated by their private interests. I know that many are concerned about the public welfare: indeed, there are good grounds to believe that many people enter public service because they want to serve the public. But the functioning of institutions cannot depend on the goodwill of the people who populate them. As Madison puts it: The aim of every political constitution is, or ought to be, first to obtain for rulers men who possess most wisdom to discern, and most virtue to pursue, the common good of the society; and in the next place, to take the most effectual precautions for keeping them virtuous whilst they continue to hold their public trust. (Federalist Papers 51)

THE STATE AND THE ECONOMY: CONTRASTING PERSPECTIVES

To understand the rationale for state reform, one needs to look back at the debates about the proper role of the government in the economy. These debates run around in circles in which arguments about market failures are countered by claims about regulatory failures. As one reviews the history of these controversies, they appear almost as a boxing match, with the state and the market alternatively on the ropes. In a standard neoclassical model of the economy, there are markets for everything, now and for the future; everybody knows everything and

ON THE DESIGN OF THE STATE

17

everybody knows the same things; and there are no public goods, no externalities, no transaction costs, and no increasing returns. Since under these assumptions the market generates the first best allocation of resources, there is no place for the state in this framework. State intervention, in any form or fashion, is but a transfer of income, and transfers of income, by making rates of return diverge from the competitive allocation, reduce incentives and misinform about opportunities. This conclusion follows directly from the model of the economy: since the state has nothing to contribute, anything it does is pernicious. The market wins round 1. Yet the very fact that this model has to be characterized at least in part negatively—by the absences of public goods, externalities, transaction costs, and monopolies—indicates an immediate problem. In the presence of these “failures,” markets no longer allocate efficiently. This was the observation that underlay the doctrine of state intervention enshrined in the 1959 Bad Godesberg Programme of the German Social Democratic Party (SPD): “markets whenever possible, the state when necessary.” The general prescription that emerged from this observation was that markets should be left alone to do what they do well, that is, allocate private goods in those cases when the private rate of return does not deviate from the social rate, whereas the state should provide public goods, facilitate transactions, correct externalities, and regulate monopolies due to increasing returns. Round 2 goes to the state. Neoliberals attacked this view in several ways: (1) by arguing that, in the absence of transaction costs, market imperfections can be efficiently dealt with by the market under a suitable reassignment of property rights (Coase 1960); (2) by pointing out that the notion of market imperfections, including public goods, is unclear and that no theory specifies these imperfections or goods ex ante (Stigler 1975); and (3) by remarking that even if the market fails to act efficiently there is no guarantee that the state would do any better (Stigler 1975; Wolf 1979). Neoliberals maintain that prescriptions for state intervention are based on a naive model of an omniscient and benevolent state. They claim that the reason for state intervention is the same as for any other economic action: private self-interest. Hence, although the state is necessary for an economy to function, it can and does damage the economy. According to Richard Posner, here lies the fundamental dilemma of economic liberalism: “The economist recognizes that government can do some things better than the free market can do but he has no reason to believe that democratic processes will keep government from exceeding the limits of optimal intervention” (Posner 1987: 21). Indeed, analyses of the downfall of Keynesianism presented in the mid1970s, whether from the left (Habermas 1975), the center (Skidelsky 1977), or the right (Stigler 1975), were almost identical: the state became powerful, and for this reason it offered an attractive target for rent seeking

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by private interests (Buchanan, Tollison, and Tullock 1980; Tollison 1982). As a result, the state was permeated by special interests, private logic prevailed, and the internal cohesion of state interventions disintegrated. Thus Round 3 ends with the state on the ropes. The goal of “constitutional” economics became to disable state interventions, particularly those that discriminate among private projects, respond to current economic conditions, or directly transfer incomes. Thus, for example, in Posner’s (1987: 28) view, “a government strong enough to maintain law and order, but too weak to launch and implement ambitious schemes of economic regulation or to engage in extensive redistribution, is probably the optimal government for economic growth.” The neoliberal institutional prescription is to prevent the state from being able to intervene because the very potentiality that the state could do something is sufficient to cause economic damage. Neoliberal institutional technology for limiting the state includes (1) reducing the size of public administration, (2) reducing the size of the public sector, (3) insulating the state from private pressures, (4) relying on rules rather than allowing discretionary decisions, and (5) delegating decisions subject to dynamic inconsistency to independent bodies that have no incentives to yield to political pressures. Public administration should be reduced because the state is “bloated” and the productivity of public services is allegedly lower than that of the private sector.1 The public sector should be privatized because governments are supposed to be more responsive to political pressures from the public than are private firms. The state should be “insulated” from political pressures so that it would not fall prey to rent seeking by private interests. Economic policy should be governed by rules, such as the gold rule or the balanced-budget amendment in the United States, that would eliminate discretion and thus overcome the suboptimality due to dynamic inconsistencies (Kydland and Prescott 1977). Finally, an alternative to rules is to delegate important policy decisions, particularly in the monetary realm, to institutions that are independent from political pressures and thus have no incentives to yield to dynamic inconsistencies (Cukierman 1992). Yet the view that, even in the absence of “traditional” failures, markets are efficient, now appears dead, or at least moribund. The inefficiencies originating from the absence of some markets and from imperfect (more accurately, endogenous) information are both more profound and devastating than the imperfections that blemish the neoclassical market.2 In a recent summary, Joseph Stiglitz (1994: 13) puts it bluntly: The standard neoclassical model—the formal articulation of Adam Smith’s invisible hand, the contention that market economies will ensure economic efficiency—provides little guidance for the choice of economic systems, since once information imperfections (and the fact that markets

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are incomplete) are brought into the analysis, as surely they must be, there is no presumption that markets are efficient.

When some markets are missing, as they inevitably are, and information is endogenous, as it inescapably is, markets need not clear in equilibrium, prices do not uniquely summarize opportunity costs and can even misinform, externalities results from most individual actions, information is often asymmetric, market power is ubiquitous, and “rents” abound. These are no longer “imperfections”; there is nothing out there to be blemished, no unique market, but lots of possible institutional arrangements, each with different consequences. Moreover, some forms of state intervention are inevitable (Cui 1992). The economy can function only if the state insures investors (limited liability), firms (bankruptcy), and depositors (two-tier banking system). But this kind of state involvement inevitably induces a soft-budget constraint. The state cannot simultaneously insure private agents and not pay the claims, even if they result from the negligence of the insurer (“moral hazard”). If markets are incomplete and information imperfect, moral hazard and adverse selection render first-best allocations unreachable. Even the most ardent neoliberals admit that governments should provide law and order, safeguard property rights, enforce contracts, and defend citizens and borders from external threats. However, the economics of incomplete markets and imperfect information opens room for a much greater role for the state. The neoclassical complacency about markets is untenable: markets simply do not allocate efficiently. Even if governments have only the same information as the private sector, some interventions by governments would unambiguously increase welfare. Thus the state has a positive role to play. But Round 4 ends at best in a draw. All we know now is that there are important things the state could do. But the consequences of the neoliberal punch still linger: will the state do what it should and not do what it should not? PRINCIPAL-AGENT RELATIONS

Once we understand that markets are inevitably incomplete and economic agents have access to different information, we discover that there is no such thing as “the” market, only differently organized economic systems. The very language of “the market” subject to interventions by “the state” is misleading. The problem we face is not of “the market” versus “the state” but of specific institutions that would induce individual actors—whether economic agents, politicians, or bureaucrats—to behave in a collectively beneficial manner.

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Suppose your car has been making funny noises. You go to a mechanic, explain the problem, leave the car, and wait for the result. One day later, the car is ready, the mechanic tells you that the shock absorbers needed changing and that it took five hours, and you pay and drive out of the garage, the noise gone. You chose the mechanic, and you can reward him by going back to him if you are satisfied with the outcome or punish him by going somewhere else if you are not. But there are all kinds of things the mechanic knows that you do not: whether he wanted to do the best job possible or as little as he could get away with, if the car required a major repair or just a minor adjustment, if he in fact did the job in an hour or spent five. You are the “principal”; he is the “agent.” You hire the mechanic to act in your best interests, but you know that he has interests of his own. You can reward or punish him, but you will have to decide which to do with imperfect information, since he knows things you do not and does things you do not see. What can you do to induce the mechanic to work for you as best he can? When some markets are missing and when particular individuals have access to different information, relations between classes of actors are those of principals and agents, tied by explicit or implicit contracts. Agents have some information that principals do not directly observe: they know their own motivations, they have a privileged knowledge of their capacities, and they may have a chance to observe some things principals cannot. They also undertake some actions that are, at least partly, hidden from the principal. The generic problem facing the principal is thus the following: how to induce agents to act in the principal’s interest while meeting the “participation” constraint (providing agents with income (or utility) above the next best opportunity) and the “incentive compatibility” constraint (allowing agents to further their self-interests). You must pay the mechanic enough for him to want you to come back, and you must find a way to make him know that you will come back only if he has done a good job. The “economy” is a network of multifarious and differentiated relations between particular classes of principals and agents: managers and employees, owners and managers, or investors and entrepreneurs but also citizens and politicians or politicians and bureaucrats. The performance of firms, governments, and the economy as a whole depends on the design of institutions that regulate these relations. What matters is whether employees have incentives to maximize effort, whether managers have incentives to maximize profits, whether entrepreneurs have incentives to take only good risks, whether politicians have incentives to promote public welfare, and whether bureaucrats have incentives to implement goals set by politicians. Institutions organize all these relations: those that are purely “economic,” such as those between employers and employees, owners and managers, or investors and entrepreneurs; those that are purely “political,”

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such as relations between citizens and governments or politicians and bureaucrats; as well as those that structure state “intervention,” those between governments and private economic agents. For the economy to operate well, all these principal-agent relations must be structured appropriately. At the risk of being schematic, let me consider only three classes of such relations: (1) between the government (politicians and bureaucrats) and private economic agents, (2) between elected politicians and appointed bureaucrats, and (3) between citizens and elected politicians. To clarify the structure of the discussion, Figure 2.1 provides a map of these relations, with arrows pointing from the principals to the agents. The performance of an economic system depends on the design of all these relations: between the state and private economic agents, between politicians and bureaucrats, and between citizens and politicians. Private agents must benefit by behaving in the public interest and must suffer when they do not, and so must bureaucrats and politicians. I now discuss these three relations in turn. GOVERNMENT AND ECONOMIC AGENTS: REGULATION

The role of the state is unique since the state holds legally qualified coercive power: mandating or prohibiting some actions by law and changing relative prices via the fiscal system. For example, suppose that I buy cartheft insurance. I drive to my destination and have a choice to park a few blocks away from where I am going, in a place where the car is unlikely to be stolen, or park just in front, in a place where the car is more likely to be stolen. Given that I am insured, I take the risk and park in the more dangerous place. Now the state comes in: it taxes me and uses the tax revenue to place a police officer in the dangerous place. As a result, car theft is less likely, the insurance company loses less money, and my premium goes down, more than compensating for the increased tax. The state is inextricably present in my relation with the insurer: although our relation is Figure 2.1

Bureaucrats

(2)

Politicians

Map of Agent-Principal Relations

Government

(1) (3)

Private economic agents who are also citizens

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strictly “private,” it is shaped by the state. The state permeates the entire economy; it is a constitutive factor of private relations. Problems of institutional design cannot be avoided by throwing the state out of the economy. They must be confronted as such. Yet government intervention in the economy—what is referred to as “regulation” in the United States—is not simple even on paper, not to speak of practice. The generic problem is the following (Baron 1995). The regulated firm has information about some of its conditions, such as its cost of production or the demand for its outputs, that is superior to the information available to the government (the “regulator” understood in broad terms as elected politicians or appointed bureaucrats). Moreover, this firm undertakes some actions that the regulator cannot observe directly but can only either infer from outcomes or monitor at a cost. The regulator has a legal authority to set prices or rules. Once the regulation is issued, the firm decides whether to produce and how much. The regulator’s problem is then to set up the best trade-off between the rents of the firm and the surplus of consumers. Given hidden information and hidden actions, first-best regulation is not possible. The firm will always extract some rents. Thus regulation can be optimal only subject to the information available to the regulator: at most it is “second best optimal regulation” (Baron 1995: 14). Moreover, since any kind of state economic intervention has distributive consequences, different groups affected by regulation—firms, industries, employee consumers, or public action lobbies—have incentives to seek regulations that benefit them and resist those that hurt them. The regulators can in turn benefit privately by supplying the interventions sought by the private actors. These private gains may consist of being (re)elected, or of getting rich while in office or once out of office. As a result, regulation may induce clientelistic ties between regulators and regulated groups. In this way, regulation is “endogenous,” that is, it is supplied in response to the demand by the groups potentially affected by it. As an example, consider a situation simplified from A Theory of Incentives in Procurement and Regulation, by Jean-Jacques Laffont and Jean Tirole (1994, chap. 16): There are two periods. In period l, a firm that holds a natural monopoly has either high costs or low costs with some probabilities. A firm with high costs can invest to lower them, which would be socially beneficial. A good intervention—one that maximizes consumer surplus—is then one in which the government subsidizes investment if the firm has high costs in period 1 and the government does not pay for investment otherwise. A bad intervention is one in which the government fails to subsidize investment by a firm with high costs or the government subsidizes a firm with low costs and splits the rents with the

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firm.3 The institutional problem is then twofold: (1) how to enable the government to intervene in a good way and (2) how to induce it to act well. To be able to intervene in a good way, the government must have some information about the costs faced by the firm and must be either legally capable of setting the prices for the regulated firm (so that the cost of investment will be born by the consumers) or financially capable of subsidizing the firm out of tax revenues. Yet subsidies alone are not sufficient. Even if the investment is subsidized, either by consumers or directly by the state, the firm will not undertake it unless it is reasonably certain that the profit due to investment would not be confiscated once the costs are sunk. Suppose that the firm expects that the government may change and the new government will tax away the increased profits. Then the firm will not invest even if it were to receive the subsidy, and knowing that the firm will not invest, the optimal intervention for the period 1 government will be not to subsidize investment, even though it is socially beneficial.4 Hence, to be able to intervene well, the government must be committed not to confiscate profits of the firm during period 2. The problem of commitment stems from the moral hazard of the principal. Even though the government would want the firm to invest, once the firm does invest, the government will want to tax away its profits. Hence, agents cannot be sure that if they behave well, they will be rewarded. This problem is present in many principal-agent relations, including purely private ones, but it is inherent in political relations. The ultimate source of political sovereignty—exercised by the democratic process—rests with “the people,” in its eighteenth-century singular. And this implies that no government can fully precommit all future governments. An absolute guarantee of property rights is not possible. True, property rights can be, to various degrees, protected by the constitution. But constitutions cannot specify everything and must leave leeway for legislative discretion as well as judicial interpretation, and even though the process may be difficult, constitutions can be changed. The nationalization of the Chilean copper industry by a constitutional amendment in 1970 provides a telling example. Hence, property rights are inherently insecure.5 Moreover, even if the cost of this insecurity may be that resources are underutilized, commitment is not always optimal.6 For the danger is that a particular government will make a bad commitment, one that serves its own interests or those of its private allies rather than those of the nation. To return to our example, note that a commitment is socially beneficial only if the government had intervened well during period 1, that is, if it subsidized a firm with high costs. If the government had given a subsidy to a firm that had low costs to begin with, the firm would have gained rents at the cost of the public, and if all future governments are committed not

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to increase the tax on the firm, the new government will not be able to recuperate these rents. As Laffont and Tirole (1994: 620) observe, “The cost of commitment is that the government may identify with the firm and bind the nation to a bad outcome over the long run.” Thus there are good commitments and bad commitments.7 Imagine the following situation, taken from an article by Lars Calmfors and Henrik Horn (1985): Early in its term the government announces that if unions push wages up and create unemployment, it will not accommodate by expanding public employment. But come election time, the government will want to win and will employ. Thus, the initial announcement is not credible, unions push wages up, the government accommodates, and the outcome is suboptimal. The government must precommit itself, by rules or delegation, not to increase public employment on the eve of the elections, which is a good commitment. But suppose that the government did not precommit, unions pushed wages up, and the election time arrived. Now the government wants to expand public employment, but the unions anticipate that once reelected, the government will fire the new public employees. Hence, the government commits itself not to do so, perhaps by passing a law of “immovability” of public employees. This is a bad commitment. The difference in the temporal structure entailed in the two commitments is best illustrated by referring to Jon Elster’s analogy with Ulysses (1979). In the case of a good commitment, Ulysses anticipates in period 1 that he will hear the Sirens in period 2 and makes his decision before he hears the Sirens. In the case of a bad commitment, he has already heard them in period 1 and makes the commitment by yielding to their song. And if governments do bind themselves in response to the pressures from special interests, their commitment will not be optimal; hence, a central institutional issue of state reform is how to enable governments to make good commitments while preventing them from making bad ones. Even if commitments were made to implement good policies, it is not easy to make them credible. Pablo Spiller (1995) shows the difficulty of making credible commitments in different institutional contexts. In different countries, commitments are enforced by either (1) judicial review of decisions of regulatory bodies (prevalent in the United States, where 80 percent of decisions of the Environmental Protection Agency are contested in courts), (2) highly detailed legislation (Chile’s 1980 electricity regulation), or (3) contracts between the government and the firm that are enforceable under contract law (Bolivian Power Company since 1912). Spiller argues that without judicial review of regulatory decisions, the regulator has excessive discretion. He claims that this is distinctively true of Latin American countries (1995: 67): The basic reason for this delegation is that their constitutions provide for presidential “regulation” of laws. That is, for a law to be implemented it

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needs a presidential decree that regulates the law. Unless the regulation of the law is blatantly against the language of the statute, the regulation of the law is not subject to judicial review.

Hence, the only way in which Latin American legislatures can commit the executive is by writing extremely detailed legislation. But here a paradox appears: If the political system generates majorities and party discipline, then even such detailed legislation can be overturned when legislative majorities change. In turn, where the political system generates a highly divided party system—Spiller’s examples are Bolivia, Brazil, and Uruguay— such legislation is difficult to overturn once it is adopted, but it is also difficult to adopt. Throughout this chapter, I have used the example of government regulation of a monopoly. Yet the same considerations also apply to other forms of economic intervention, such as “social” regulation of health, safety, the environment, or employment (Baron 1995). State intervention can be superior to nonintervention when the institutional design allows governments to intervene in the economy: when governments have some information about private agents, when they have legal or fiscal instruments to regulate, and when the institutional framework allows credible commitments. Yet none of these conditions guarantees that governments will intervene in the public interest. The capacity of the state to intervene makes it an attractive target for influence by private interests, and its ability to commit opens the possibility of collusion. Hence, there are reasons to expect that the quality of state intervention in the economy depends on the internal organization of the state—in particular, on the relations between politicians and bureaucrats and on the design of the democratic institutions that determine whether citizens can control politicians. POLITICIANS AND BUREAUCRATS

In a democracy, the authority of the state to regulate the life of the society coercively is derived from elections. 8 Yet many of the functions of the state and all the services that the state supplies to citizens are delegated by the elected representatives to someone else, specifically to public bureaucracy. Delegation is inevitable. As D. Roderick Kiewiet and Matthew D. McCubbins (1991: 3) observe, “Desired outcomes can be achieved only by delegating authority to others.” Delegation raises the standard principal-agent problems. Since it is impossible to write legislation that would fully specify the actions of agents under all contingencies, the executive and the administrative agencies are left with a significant degree of discretion.9 But the objectives of

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bureaucrats need not be the same as those of citizens or of the elected politicians who represent them. Bureaucrats may want to maximize their autonomy or the security of their employment, render clientelistic favors to friends and allies, shirk in office, aggrandize their budgets (Niskanen 1971), or simply get rich—all at the expense of the public. Again, they have private information concerning the benefits and the costs of their actions, and they undertake actions that cannot be observed directly but only inferred from outcomes or monitored at a cost. Hence, delegation must inevitably give rise to agency costs. Indeed, given the discretion bureaucrats must enjoy, the question is how to avoid a regime of “policy without law,” as Theodore J. Lowi (1979: 92) described the U.S. political system. Some of the agency problems inherent in managing public bureaucracy are not different from those confronted by private organizations. Perhaps the foremost among them is the difficulty of providing incentives and eliciting information when the output depends on joint actions of multiple agents (Miller 1992: 128–158). Under such conditions, the principal can observe only the output of the team but not of individual members. The members, in turn, have incentives to shirk and to hide information. Bengt Holmstrom (1982) has shown that under such conditions, it is impossible to design an incentive scheme that simultaneously would be complied with, would generate the efficient amount of effort, and would balance the budget. Theodore Groves (1985), in turn, has demonstrated that no budgetbalancing incentive scheme can be devised that would induce the members to truthfully reveal their private information. The implication of these theorems for a public bureaucracy is that either the members of the team have to be overpaid, or some efficiency must be sacrificed. Yet public bureaucracies differ in some important ways from private ones. One difference stems from the difficulty of setting criteria by which not only individual agents but teams could be evaluated in the public sector. Although private firms often perform multiple tasks, to the extent to which they face a market constraint, their performance can be measured by financial criteria. But public bureaucracies are faced with multiple targets that are not simple to set and impossible to reduce to a single dimension.10 Suppose, as depicted in Table 2.1, that public clinics are instructed to see some number of healthy people as preventative care, to treat some number of patients who are sick, and not to spend more than their budgets allow.11 According to the criterion of maximizing the number of preventative visits, clinic A performs better than clinic B, which in turn does better than clinic C, so that A > B > C. According to the criterion of seeing the largest number of patients, C > A > B. According to the criterion of keeping expenditures low, B > C > A. Unless these dimensions can be weighted in importance, the performance of the clinics cannot be compared A > B > C > A—and no incentive system can be adopted to reward or punish the

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Table 2.1

Clinic

A B C

The Case of the Public Clinics Number of Preventative Visits 1100 1000 700

Number of Patients 2300 2000 2700

Money Spent as Percentage of Budget 128 100 112

performance of teams. Hence, the principal may prefer to set targets, such as 1,000 preventative visits, 2,000 patients, and no cost overruns. Clinic B will then be rewarded and the remaining two punished. Yet this solution may be inefficient: clinic B might have shirked in the sense that it could have attended to more people than the minimum set by the targets without exceeding the budget, whereas clinic C may be unjustly punished for having experienced an epidemic in its district. Another, albeit related, difference between private firms and public bureaucracies is that the latter are more frequently monopolies, which in turn implies that there are no comparative yardsticks by which their performance can be evaluated. As Tirole (1994) observes, the performance of management at Ford can be compared to that of General Motors, but this manner of measuring performance is not available when public agencies constitute monopolies. Faced with these difficulties, public bureaucracies are more prone to rely on conformity with rules than on incentives. This managerial style is called “bureaucratic” by the Brazilian Master Plan for Reform of the State Apparatus and “police patrol” by Matthew McCubbins and Thomas Schwartz (1984). It consists of an a priori control of processes as opposed to an a posteriori control of results (Brazil 1995: 43). Tirole (1994: 14) observes that “the central feature of a bureaucracy is that its members are not trusted to make use of information that affects members other than themselves, and that decisions are therefore based on rigid rules.” The principal establishes rules, such as “work from 9 to 5,” “do not use the telephone for private conversations,” “do not spend more than twenty minutes on a client,” and reporting requirements. Agents are judged by whether they are observed to conform to such rules and by what they report. Clearly, this is not a very effective mode of control: not only is it costly (the principals bear the costs of monitoring and of the time agents spend on filing reports), but it does not establish any direct relation between incentives and performance. Nevertheless, this is the way most public bureaucracies operate, and perhaps they have good reasons: if monitoring individual effort and eliciting private information are prohibitively expensive, reliance on rules may be the third-best option.

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What can be done to alleviate these agency problems?

1. Designing contracts. Even with the difficulties of monitoring individual efforts of team members, the principal can create incentives for the agents by (1) setting wage levels sufficiently high to attract agents of high quality, who have higher opportunity costs; (2) offering sufficient career advancement (which entails wage differentials); and (3) designing monitoring systems that will make job loss likely in the case of bad performance.12 2. Screening and selection. The recruitment to the public sector must be sensitive to costly signals, such as education, which indicate the potential performance of the agents. 3. Institutional checks. Kiewiet and McCubbins (1991: 33) point out that agents are often in a position to do more harm to the principal than to simply withdraw effort: embezzlement, insider trading, official corruption, abuse of authority, and coups d’état are all testaments to this fact. Whenever an agent can take actions that might seriously jeopardize the principal’s interests, the principal needs to thwart the agent’s ability to pursue such courses of action unilaterally.

Their solution is “institutional checks [that] require that when authority has been delegated to an agent, there is at least one other agent with the authority to veto or to block the actions of that agent.” 4. Creating multiple principals or multiple agents with dissonant objectives. Tirole (1994) observes that most governments are divided in such a way that it is not the task of any particular position or agency to maximize general welfare, yet their interaction is supposed to generate this effect. One example is the division between “spending ministries,” which are supposed to promote substantive goals, and the finance ministry, which is supposed to control spending. Tirole also argues for institutionalizing adversarial advocacy for particular policies and projects. His idea is that decisions are based on more information when this information is gathered by several agents, each of whom is charged to find arguments in favor of one policy or project, than when it is gathered by one agent charged to find the information relevant to all projects. 5. Creating competition, either between state agencies and private counterparts (for example, in delivering mail) or among state agencies in the exclusive sector. Although there are some costs due to duplication of effort and perhaps economies of scale, competition facilitates the measurement of performance and, if combined with the right incentives, enhances performance.13 6. Decentralization. This is a complex and controversial topic. Arguments in favor of decentralization typically rely on observing that local provision of public services enhances the accountability of the government

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by bringing it closer to the people it serves. Arguments against decentralization assert that it reduces the capacity of the government to reduce regional income disparities, that it requires higher administrative capacity (Haggard 1995),14 and that it can induce a soft-budget constraint in which the less efficient jurisdictions will be more highly subsidized by the central government.15 Moreover, as Remy Prud’homme (1995: 204) observes, “the decentralization of taxes and expenditures works against the decentralization of activities and is likely to lead to a concentration of growth in a few urban locations.”

The final, fundamental way in which public bureaucracies differ from private firms opens the possibility of more effective monitoring. State services are produced and delivered by a bureaucracy whose members are appointed by politicians. Citizens’ control over the bureaucracy can only be indirect, since democratic institutions contain no mechanisms that would allow citizens to sanction directly legal actions of bureaucrats. Citizens can, at most, consider the performance of the bureaucracy when they sanction elected politicians. As Delmer D. Dunn and John Uhr (1993: 2) observe, we do not even seem to know how to think about principal-agent relations involved in controlling bureaucrats: “it is by no means clear what place executive officials are meant to play as representatives of the people. Are they agents of the government or of the people?” Hence, although state bureaucracy is supposed to deliver services to citizens, it is accountable to politicians (or to other bodies appointed by politicians, such as courts or administrative oversight agencies). Yet precisely because state bureaucracy delivers services to citizens, they are best informed about its performance. Moreover, if politicians care about citizens’ welfare, then citizens have the same interests as the politicians, who are the principals, rather than the bureaucrats, who are the agents. The principal can thus rely on the information provided by the affected parties: in the terminology of McCubbins and Schwartz (1984: 167), this is the “fire alarm” form of oversight. It has two advantages: (1) it allows the principal to gather information at a lower cost than “police patrol” oversight, and (2) it provides better information, particularly about the most egregious violations by the agents. Even though the legal authority rests with the elected politicians, fire alarm oversight is a mechanism of accountability of the bureaucracy to the citizens.16 Fire alarm oversight requires institutional arrangements that would facilitate citizens’ monitoring of the bureaucracy, transmission of information, and sanctioning of violations. In fact, the Master Plan (Brazil 1995: 37) calls for creating “mechanisms that make feasible the integration of citizens into the process of definition, implementation and evaluation of public sector action.” The specific mechanisms the plan envisions include

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popular participation in the administrative councils of parastatal agencies (Brazil 1995: 43, 57) and a “system of receiving complaints and suggestions from the citizenry on the quality and efficacy of public services” (Brazil 1995: 58). One form in which fire alarm is exercised in some countries, notably Denmark, is through the office of an ombudsman equipped with independent investigative powers. Another way in which citizens can be empowered to control the actions of bureaucracy is by allowing individuals to contest bureaucratic decisions in the courts or some administrative tribunals, a practice frequent in the United States. To summarize the conclusions of the two previous sections, I argued that government intervention can be effective if the regulatory institutions are well designed and that politicians can better control bureaucrats if they solicit the cooperation of citizens. But the question that still remains open is whether politicians will want to intervene well and to control the bureaucracy. CITIZENS AND POLITICIANS

The problem citizens have is to induce politicians to enhance the general welfare, rather than to pursue their own objectives in collusion with the bureaucracy or with private interests.17 In many political systems, including democratic ones, bureaucracies appear to be autonomous, completely insulated from public scrutiny. Terry M. Moe (1990) offers a suggestive explanation of this pattern. Note first that in a democracy, bureaucrats can never be certain which political forces will control the government in the future, and they have reasons to fear that a future government will be less favorable to their interests than the current one. Hence, to protect themselves from the moral hazard of the principal—the possibility that their good behavior will not be rewarded by a future government—they seek to free themselves from any political control. In turn, the current government may fear that if it loses, the political forces that come into office will want to use the bureaucracy for their own advantage. Consequently, when the current government fears losing office, it has incentives to insulate the bureaucracy from political control, even at the cost of sacrificing its own influence over the bureaucracy. As a result, politicians and bureaucrats collude to make the bureaucracy autonomous, which implies that bureaucracy will not be well designed to further social objectives and that bureaucrats will have no incentives to promote them. Moreover, the principal-agent relation between the elected politicians and citizens is a very special one, without a parallel in the private world. Because sovereignty rests with citizens, they are the principals with regard

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to politicians they elect. But because the state is a centralized and coercive mechanism, it is the agents who decide which rules the principals must obey and who coerce them to comply. As Moe (1990: 232) puts it: “While citizens are nominally the superiors in this hierarchy, it is the legislators who actually hold public office and have the right to make law. Their role, as agents, is to exercise public authority, backed by the police powers of the state, in telling principals what to do.” Why, then, would politicians respond to citizens rather than collude with bureaucrats or some special groups to which they are beholden? Two answers to this question assert that under democracy, governments can be controlled by citizens because they are elected. In one view, the role of elections in inducing responsiveness is prospective; in the second view, it is retrospective. In the prospective view, parties or candidates make policy proposals during elections and explain how these policies would affect citizens’ welfare. Citizens decide which of these proposals they want to be implemented, and governments implement them. Thus, elections emulate the direct assembly, and the winning platform becomes the “mandate” for the government to pursue. Yet a striking feature of democratic institutions, highlighted by Bernard Manin (1995), is that politicians are not compelled to abide by their platform in any democratic system. In no existing democracy are representatives subject to binding instructions. No national-level democratic constitution allows for recall. Although provisions for impeachment and procedures for withdrawing confidence are common, they are never targeted at the betrayal of promises. Binding national referenda based on citizens’ initiatives are found only in Switzerland and, in more restrictive forms, in Italy and Argentina; hence, once citizens elect representatives, they have no institutional devices to force them to adhere to promises. And electoral terms tend to be long, on the average 3.5 years for legislatures and 4.7 years for presidents.18 Voters can punish politicians who betray mandates only at the time of the next election, after the effects of such a betrayal have been experienced. And since such retrospective judgments are inevitably tainted by the outcomes to which deviations from mandates have led and by the mere passage of time, citizens cannot enforce the adherence to mandates per se. Why, then, are there no institutional mechanisms to force officeholders to be faithful to their platforms? Historically, the main argument was that legislatures should be allowed to deliberate. People want their representatives to learn from one another. Moreover, when people are uncertain about their judgments, they may want representatives to consult experts. Another historical argument was that voters may not trust their own judgment. Not only may people be afraid of their own passions, but if they are

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rationally ignorant, they must know that they do not know. Presumably, elections establish the calendar for when the accounts are to be taken. As Walter Lippman (1956) wrote about citizens, “Their duty is to fill the office and not to direct the office-holder.” And Joseph A. Schumpeter (1942) admonished voters that they “must understand that, once they elected an individual, political action is his business not theirs. This means that they must refrain from instructing him what he is to do.” Hence, citizens may want to give the government some latitude to govern and evaluate the government’s actions at election times. Finally, institutions must allow for changing conditions. No electoral platform can specify ex ante what the government should do in every contingent state of nature: governments must have some flexibility in coping with changing circumstances. If citizens expect that conditions may change and governments are likely to be responsive, they will not want to bind governments by their instructions. For these reasons, democratic institutions should not contain mechanisms enforcing prospective representation. We choose policies that represent our interests or candidates who represent us as persons, but we want governments to be able to govern. As a result, although we would prefer governments to stick to their promises, democracy contains no institutional mechanisms that ensure that our choices will be respected. Yet even if citizens are unable to control governments prospectively, they may be able to do so retrospectively, if they can force governments to account for the outcomes of their past actions. Governments are “accountable” if citizens can discern whether governments are acting in their best interests and sanction them appropriately, so that those incumbents who act in the best interest of citizens win reelection and those who do not lose them. Accountability works through the anticipation by governments of retrospective judgments of citizens: looking ahead, governments choose policies and emit messages that they believe will be positively evaluated by citizens at the time of the next election (Downs 1957, Fiorina 1981, Manin 1995). As Hamilton (1987: 470) observed: There are few men who would not feel . . . zeal in the discharge of a duty . . . , when they were permitted to entertain a hope of obtaining by meriting . . . a continuance of them. This position will not be disputed as long as it is admitted that the desire of reward is one of the strongest incentives of human conduct: or that the best security for the fidelity of mankind is to make their interest coincide with their duty.

Even if they are motivated by self-interest, politicians will be induced to promote general welfare if they are forced to trade off extracting rents and losing office or not extracting rents and staying in office. Political institutions must (1) meet politicians’ participation (“self-selection”) constraint, that is, make it at least minimally attractive for people who have other

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opportunities to want to be (re)elected;19 and (2) meet the incentive compatibility constraint, that is, make it in the interest of politicians to do what citizens want them to do.20 Yet these conditions are not sufficient to enforce accountability of politicians to citizens. Several additional institutional conditions must hold if citizens are to be able to control governments:

1. Voters must be able to assign clearly the responsibility for government performance. Their ability to do so is limited when the government is a coalition. It is also limited when the presidency and the legislature are controlled by different parties. It would take an elaborate theory of government to figure out who is responsible for what under such conditions. 2. Voters must be able to vote out of office parties that have performed badly. This may appear to be a universal feature of democracy, but under some electoral systems it becomes next to impossible. Witness the continued tenure of the Christian Democrats in Italy or of the Liberal Democratic Party (LDP) in Japan. As Gianfranco Pasquino (1994: 25) puts it with regard to Italy, “governing parties seemed to expropriate the voters of the political influence by making and unmaking governments at all levels with very little respect for electoral results.” 3. Politicians must have incentives to want to be reelected. This condition becomes problematic when there are limitations on reeligibility, ubiquitous in presidential systems, and when political parties are not continuing. Martin Paldam (1991) observed that the coefficients of the function relating the probability of reelection to economic outcomes are higher when the party system is stable. 4. Voters must have some institutional instruments to reward and punish governments for outcomes they generate in different realms. Yet elections are inherently a blunt instrument of control: voters have only one decision to make with regard to the entire package of government policies.

Asymmetric information between governments and voters makes accountability particularly difficult to enforce. The standard view of how the accountability mechanism operates relies on “retrospective voting.” In this view, citizens set some standard of performance by which they evaluate governments: they decide to vote for the incumbent if their income increased by at least 4 percent during the term, if streets are safe, or if the country qualifies to the finals of the World Soccer Championship. They decide to vote against the incumbent if these criteria are not fulfilled. In turn, the government, wanting to be reelected and knowing the citizens’ decisions rule, does whatever possible to satisfy these criteria. The difficulty, however, is that observing outcomes alone is often insufficient to conclude whether the government is doing all it could to promote

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general welfare or is pursuing some private interests. Citizens care only about outcomes, but they also want to know if they are as well off as was possible under conditions that they do not fully observe. They must make judgments about the governments they face on the bases of what they do observe, and such inferences are easier under some conditions than others. Suppose that citizens do not notice some conditions that politicians do. Such conditions may include the contents of state coffers: are they full or empty?21 Or they may include the negotiating posture of international financial institutions: are they accommodating or adamant? For example, a government must decide whether to implement policy A, which is better for citizens when conditions are good, or policy B, which is better when conditions are bad. Suppose further that under either condition, the rents for the government are higher when it pursues B. A retrospective voting rule will work to enforce accountability if citizens know not only the actual result but also the counterfactual outcomes that would have transpired had the government done something else or had conditions been different. When people can infer whether the government did what it should have by looking at the actual outcome alone, retrospective voting will allow citizens to control politicians. Yet even if citizens have good theories about the effects of policies on outcomes, they may still be unable to judge if the government acted well. Suppose that voters do not know if the particular outcome transpired because conditions were good but the government sought rents, or because conditions were bad and the policy was appropriate to the circumstances. Then they cannot make any inference from the outcomes they experience or determine the quality of the government’s actions. No retrospective rule based on outcomes alone will work. If citizens are unsure about the objective conditions or about the causal relations between policies and outcomes, they must rely on other information to evaluate government’s actions. People may want to pay attention to explanations, forecasts, and promises. They may want to know who supports politicians financially, what the president’s brother does for a living, or what kind of a person the president really is. Practically anything can be of help: clues such as symbols and identities are instrumental in evaluating the government’s actions after the fact. Indeed, what may appear as “expressive” voting—oriented by symbols and identities—can be quite instrumental when people have no other information with which to judge government performance. What matters is that citizens can find information to help them determine the probability of a government’s behaving well. Adam Przeworski and Susan C. Stokes (1995) provide a list of the kinds of information that citizens can use in retrospective evaluations of governments. This list includes (1) motivations of politicians, (2) sources of financial support for

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parties and electoral campaigns, (3) private finances of politicians, (4) all the objective conditions observed by the governments, and (5) causal relations between policies and outcomes. People need not know everything on this list simultaneously. If they know that politicians are getting rich or that they are beholden to special interests, this information is sufficient to infer that the government is hurting their interests. If they know that politicians are selfless (and competent), they can infer that the government will behave well. If they know both the objective conditions and the effect of policies on outcomes, they can form unambiguous judgments. So citizens do not need to know “everything.” But they must know enough to make reliable judgments.22 Retrospective evaluations based on this kind of information will not ensure perfect behavior on the part of the government. Complete accountability is not possible. Moreover, citizens will punish some governments that in fact are acting in good faith, and they will not avoid rewarding some governments that are acting in bad faith. But if voters are well informed, they can at least reduce the risk of rent extraction. Thus, we must ask again, what institutional arrangements will alleviate these informational problems?

1. The first concerns the opposition. Citizens have two agents, not one: the incumbent government that chooses policies and the opposition that wants to become the government. The opposition is an agent of citizens since it wants to win office, and in order to win office, it must also anticipate the retrospective judgments that voters will make about the incumbents at election time. Anticipating these judgments, the opposition has incentives to monitor the government and inform (truly or not) citizens about bad performance of the incumbents. It can win elections if it persuades voters that the incumbent government was not responsive. Even if to begin with, citizens care only about outcomes rather than about the policies that generated them, the opposition can induce voters to care about policies if it succeeds in persuading them that different policies would have led to better outcomes (Arnold 1993). And if opposition parties inform citizens about the misdeeds of the government or just about the sources of their money, they lower the cost of information to voters. 2. The media have a particular role to play. They must not only inform but focus attention on the general conditions, rather than on particular interests. To reduce the possibility that a government would manipulate cycling majorities, voters must behave sociotropically: they must base their decisions on general states of the economy or the society, rather than be guided exclusively by their own conditions.23 3. The mechanisms of accountability are not only “vertical”—of elected politicians to voters—but also “horizontal”—of different branches

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of the government to each other (O’Donnell 1991). Elections are inevitably a plebiscitary device: however informed voters are, their choice is only to intermittently ratify or reject decisions made by competing and cooperating teams of their representatives (Bobbio 1989: 116). A deliberative and open legislative process forces the representatives to publicly justify the courses of action they advocate and to pool information they have: the legislative process is the occasion for spelling out the technical relations between policies and outcomes in concrete terms and in some detail. It not only forces the executive to justify and defend its actions to other organs of the government but also informs citizens. Decree powers, used obsessively in Peru, Argentina, and Brazil in the 1990s, short-cut this process and deprive citizens of the opportunity to learn about the quality of policies. By depriving the legislature of its deliberative function and the citizens of the information about the relative merits of alternative policies, decrees reduce the effectiveness of accountability mechanisms. Indeed, rule by decree should create a presumption that the executive is hiding from citizens, as well as legislators, some reasons for choosing particular policies. 4. Finally, even if all the standard institutions of democracies as we know them are functioning vigorously, they are not sufficient to ensure accountability and to enable citizens to enforce responsiveness on governments. Governments will always have private information about their goals, about some objective conditions, and about the relations between policies and outcomes. But the quality and the amount of information available to citizens to judge governmental actions can be enhanced by institutional innovation, by institutions independent of other organs of the government that provide citizens with information needed to improve their retrospective evaluation of governmental actions. Such institutions may include (1) an independent board to ensure transparency of campaign contributions, with its own investigative powers; (2) an independent auditing branch of the state, an auditor general (World Bank 1994: 32), in the vein of the Chilean controlaria; (3) an independent source of statistical information about the state of the economy; or (4) a privileged place for the opposition in overseeing the publicly owned media. These would be, to use the language of an Australian commission, “accountability agencies” (Dunn and Uhr 1993). CONCLUSIONS

Let me conclude with an example. It is widely reported that worldwide only about 40 percent of the funds allocated to targeted food subsidies end up as food in the mouths of the poor; the rest disappears along the way. Faced with this fact, we can react in two ways. First, we can conclude that

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since such programs are inefficient, they should not be undertaken. Second, we can reform the delivery systems, organizing incentives in such a way that only those who really need them will apply for the subsidies, that government agencies will be able to recognize their need, that citizens will be able to inform politicians whether those who need and only those who need subsidies receive them, and that the politicians will fear being thrown out of office if most of the money ends up in the wrong pockets. This second solution is both feasible and preferable. I do not claim that a first-best allocation is possible: the best food delivery programs spend about 20 percent on delivering them, and this cost is unavoidable. Some inefficiency is unavoidable since governments as well as citizens are constrained by information and transaction costs. The task of state reform is to make the government operate as well as it is possible under these constraints. The reform of the state should be conceived in terms of institutional mechanisms by which governments can control the behavior of private economic agents and citizens can control governments. The question of whether or not a neoliberal state is superior to an interventionist one cannot be resolved in general, since the quality of state intervention depends on the specific institutional design. But the neoliberal state is at best a benchmark against which to measure the quality of state intervention: given that market allocations are not efficient, disabling the state is not a reasonable goal for state reform. State intervention can be superior to nonintervention when the institutional design allows governments to intervene in the economy, enables politicians to control bureaucrats, and enables citizens to control governments. At the risk of repetition, it bears emphasis that all are necessary: Governments must be able to distinguish when their interventions would increase social rates of return and must have instruments of effective intervention. But governments themselves must have incentives to intervene well and must be subject to sanctions when they do not act in the public interests. The elected politicians must want to and be able to control bureaucracies, which are not subject to direct popular sanctions. Citizens must be able to discern good from bad governments and sanction them appropriately so that those incumbents who act well win reelection and those who do not lose their office. These conditions are stringent, and they can never be fully satisfied. But institutional design matters. The fact is that during the past 200 years we have thought little about the institutional design of democracy. Since the great explosion of institutional thinking, when the present democratic institutions were invented—and they were invented—there has been almost no institutional creativity. Except for the never-implemented provisions for workers’ comanagement in the Weimar Constitution, the discovery of proportional representation in the 1860s and of mass parties in the

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1890s were the last major political inventions. All democracies that have sprung up since the end of the eighteenth century, including the most recent ones, simply combine in different ways, often piecemeal, the preexisting institutions. Hence, there is lots of room for institutional creativity. NOTES

This chapter benefited from comments by Zhiyuan Cui, Gabriela Montinola, Susan Stokes, and Elisabeth Wood. 1. Presumably, the size of the government’s productive sector is optimal when the marginal product of the public and the private sector, with regard to the capital stock (Barro 1990) and employment (Findlay 1990), are equal. For econometric evidence that in many countries the state is too small under this criterion, see Ram (1986) and Cheibub and Przeworski (1994). 2. One way to think about incomplete markets is that we know that we will be making transactions in the future. In turn, a good way to think about imperfect information is that we learn from observing actions of others, including their willingness to buy and sell. 3. For example, the head of a regulatory agency subsidizes the firm, only to be hired as its vice president. 4. On the difficulties of designing optimal policies without a credible commitment, see Laffont and Tirole (1988). 5. The almost exclusive emphasis on the security of property rights is, in my view, misplaced. Investment is low in many countries not because of insecure property rights but because of the absence of institutions ensuring savers and investors against reasonable risks. 6. Using data based on interviews with entrepreneurs in twenty-eight countries, Weder (1995) found that the rate of economic growth is significantly lower where entrepreneurs report having to cope with unexpected changes in laws and where they do not expect governments to adhere to major policy pronouncements. 7. For an exchange on this point, see Przeworski and Limongi (1993), Elster (1995a) and Przeworski’s comment, and Elster (1995b) again. 8. In large measure, this section constitutes a commentary on the Master Plan of Reform of the State Apparatus (Brazil 1995). This document offers an exceptionally well-justified and clearly crafted design for reforming the Brazilian state apparatus. I refer to it as the Master Plan. For an analysis of the background of state reform in Brazil, see Martins (1995). 9. This is also true of courts. Shihata (1995: 221) observes, for example, that “while the legal codes of a country may deny a creative role for courts and refer them in the absence of text and custom to such sources as ‘natural law’ or ‘the general principles of morality,’ it is probably more useful to concede, as the Swiss Civil Code does, that in such cases the judge will rule according to the rules he would have established had he to act as a legislator.” For an analysis of problems inherent in the judicial reform in Latin America, see Rowat, Malik, and Dakolias (1995). 10. Tirole (1994: 4) cites as examples the difficulty of assessing the performance of the U.S. Department of State in “promoting the long-range security and well-being of the United States” or of the Department of Labor in “fostering, promoting and developing the welfare of the wage earners of the United States.”

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11. This example is modified from Roemer (1996:24). 12. These are recommendations originating from the World Bank (Haggard 1995). 13. Having just been told that I will have to wait three weeks for a new passport, I have no doubt that it would have taken less time if more than one agency issued them. This activity would have still remained an exclusive prerogative of the state but with some competition among state agencies. 14. Aedo and Larranaga (1994: 3) observe that these administrative requirements have impaired the progress of decentralization of social service delivery systems in several Latin American countries. 15. For more, see the article by Prud’homme (1995), especially comments by McLure and Sewell. 16. See also Haggard (1995: 41–42): “The ultimate check on government must come through institutionalized forms of participation. This may either be ‘corporatist,’ such as building in NGO participation in areas in which they have expertise, or ‘legislative,’ such as adopting forms of local governance in which citizen participation is maximized.” 17. This section relies on Manin, Przeworski, and Stokes (1996). 18. These are averages for all democracies in the world between 1950 and 1990. See Cheibub and Przeworski (1996). 19. For example, in Barrio’s (1973) seminal model of accountability, after-tax private incomes are larger when salaries paid to government officials are higher: a high salary for politicians increases the cost of job loss and, thus, the effectiveness of electoral control. 20. Remmer’s (1993) findings are ominous in this respect: In all the twentyone elections in Latin America between 1982 and 1990, the incumbent party’s vote share declined. The average decline was 13.1 percent, and the constant of regression on economic conditions was about -21. If people vote against the incumbents regardless of what they do, the incumbents do not have an incentive to do anything for them. 21. Bresser Pereira (1992: 4) reports that he was told that Brazil’s reserves were down to nothing only when he met President José Sarney after having accepted the nomination to be the Minister of Finance. 22. And people want to have this information. According to the World Values Study, around 1990, 89 percent of Argentines, 96 percent of Brazilians, 84 percent of Chileans, 82 percent of Mexicans, and 79 percent of U.S. citizens agreed: “Our government should be made much more open to the public” (Turner and Ecordi 1995: 478). 23. If voters are not sociotropic, then the incumbent governments can manipulate the agenda in such a way as to be reelected while hurting the interests of changing majorities (Ferejohn 1986). Dewatripont and Roland (1992: 703) demonstrated in the context of economic reforms that the government can get majority support in two rounds for what it cannot get supported in one round, even if voters know what the government will propose the second time. Their comment is disarming: “under majority rule, it is shown to be possible for the Government to obtain a majority vote for a reform scheme that intertemporally hurts majority interests. These results suggests that, in a dynamic context, democratic constraints should not be overestimated as an obstacle against efficiency-enhancing economic reforms.”

3 The Global Revolution: Reforming Government-Sector Management Donald F. Kettl

REFORM AROUND THE WORLD

Since the early 1980s, a global tidal wave of government sector reform has swept the world. Virtually every government has launched efforts to streamline government and make it more responsive. Governments everywhere have faced inescapable pressures to shrink their size. Never before in history has such a reform movement moved so far so fast. While reform has surged around the world, its causes have been anything but clear. Governments have often sought multiple and conflicting goals, but several themes continually surface. Reformers have committed themselves to making government more responsive. They have struggled to improve the quality and efficiency of government services and to reduce their cost. Most of all, they have committed themselves to reducing the size of government.1 What is remarkable is that the drive to shrink the state has become virtually universal, regardless of how large a government might be. States with large government sectors, like Sweden, launched reforms virtually at the same time as states with far smaller governments, like the United Kingdom. From Korea to Brazil, from Portugal to New Zealand, government-sector reform became a truly universal phenomenon. Citizens and their elected officials everywhere seemed simply to have concluded that their government, no matter its relative size, was too big and had to be reduced, that their government was too expensive and had to be made more effective and responsive. Indeed, history might record this as the first true effect of the information age, as intellectuals and government officials built on each other’s ideas to spread the government reduction gospel. 41

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Despite the universal appeal of reform, two dilemmas rest at its core. One is the drive to build governments that work better yet cost less. Short-term tactics to cut costs have often made it harder to improve results in the long run. The other is the question of deciding what government should do. Many reforms have focused on which pieces of government can be trimmed away. This campaign, however, defines neither what the core of government ought to be nor how to make it work. Discovering the best answers for state-sector reform will be impossible without carefully understanding the questions.

Twin Dilemmas

Works better and costs less. Nothing better frames the first dilemma than the U.S. effort to “reinvent” government. As a presidential candidate, Bill Clinton was fascinated by the best-seller Reinventing Government.2 When he became president in 1993, Clinton asked Vice President Al Gore to lead a six-month study to improve U.S. government. Gore’s effort produced a wide-ranging report.3 Although it was certainly not without its vocal critics, the reinventing government campaign produced sweeping results— more, in some cases, than the Clinton administration even expected.4 The U.S. effort, however, also underlines two important issues that confront reformers everywhere. First, political imperatives frequently have led reformers to seek quick and clear “wins.” Reforms never surface for their own sake; there is always a strong political imperative driving them. Once government officials announce a reform, pressures quickly build to produce results. Short-term success becomes important for building broader political support for the harder challenges to come. In the United States, as elsewhere, the Clinton administration promoted two measures of success: budget savings and fewer bureaucrats. Second, although clear results are critical for promoting reform, the search for quick budgetary wins has frequently undercut efforts for longterm performance improvements. Real state-sector reform involves hard work over a long period. In the United States, the drive for quick successes has focused on cutting the number of government employees—the very employees on whom the government would have to depend for long-term results. Enthusiasm for government reform quickly evaporates without some clear payoff, but the tactics to produce quick payoffs can make it far harder to produce results that stick. Government reformers have tried to produce both a cheaper and a more effective government. In practice, however, reformers find it difficult simultaneously to focus on short-term savings and long-term results; on immediate, radical change and continuous reform; on wrenching, tough, hard-headed decisions and tactics to motivate employees. Achieving

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effective and lasting reform requires finding a way to balance short-term political imperatives with long-term goals.

The role of government. The second dilemma focuses on what government should do. Reformers have struggled to make cuts wherever they could; the state has been defined by whatever is left after this process. In the United Kingdom and New Zealand, this led to years of privatizing stateowned enterprises.5 In the United States, which had a far smaller government sector to begin with, the catch-up game produced a far less orderly process: tossing over the gunwales of the ship of state anything that could be hoisted, dragged, or shoved overboard. The game has predominantly been a negative one. In some countries, policymakers have been more orderly in planning strategically what the state should or could jettison. Other nations have followed the U.S. example of profound pragmatism. Most nations have focused on trimming the size of government, using a wide variety of mechanisms: 1. 2. 3. 4. 5. 6. 7. 8.

limits on the size of the public sector privatization commercialization or corporatization of public bodies decentralization to subnational governments deconcentration within the central government use of market-type mechanisms new roles for central management bodies other restructuring or “rationalization” efforts6

These approaches have unquestionably fueled extraordinary reforms, but their limits have already emerged. In New Zealand, which started first and moved the farthest, some public officials have wondered out loud whether the government has been reduced too much. Cutting government, at best, is only a partial answer. Sooner or later, reformers must answer the question they typically avoid at the beginning. However they reduce government, they must decide what government should do with what is left. What are the core and irreducible functions of government? At some point, reform must move from a negative to a positive theory of government. The only real questions, in fact, are how long it takes government officials to turn to it and whether they face it forthrightly. The two dilemmas have scarcely restrained reformers or slowed what has truly become a global revolution. Reformers have pressed for ambitious, often breathless reforms. In the pages that follow, I explore the global Sweeping Ambition

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revolution: the central ideas that have driven it; the changes in government process on which it is built; and the changes in government-sector organizational structure it has employed. All of these reforms lead to the biggest and most important question: the search for ways to ensure res publica, the use of the state to promote the public interest.7 I conclude by examining the critical but unanswered questions that have often plagued the longterm success of reforms. IDEAS

Government reform is nothing new. In fact, if there is anything more ageless than government itself, it is the effort to improve it. But this global government reform revolution is different in two ways. First, this revolution spread quickly around the world. Although the Westminster countries (notably New Zealand, Australia, and the United Kingdom) typically receive credit for starting first and pushing farthest, the reform movement has been remarkably global: in developed and developing nations, the urge to shrink the size of the state and improve its performance spread in a worldwide tidal wave. Opinion leaders everywhere fed off ideas generated by reformers. Government reformers, meanwhile, quickly copied ideas they found attractive. Just why this movement had such quick global appeal is an important and unanswered question; research on this intriguing puzzle has lagged behind the effort to convert skeptical government officials. Second, the revolution built on a central idea, christened “managerialism”: the existing government structure no longer met government’s needs. In particular, the traditional bureaucratic hierarchy, with its rulebased procedures and the rigidity it generated, seemed no longer serviceable. Citizens complained about authority-bound bureaucracies that were unresponsive; about inflexibility that proved daunting to tackle; about duplicate programs and organizations that made coordination impossible; and about government agencies that seemed more in business for themselves than in service to citizens. Even though carefully developed theories of authority and hierarchy had been the keystones of modern government for well over a century, reformers were eager to bulldoze them aside. They sought to replace authority and rigidity with flexibility and the focus on structure with improvements to process. But more than anything else, the reformers built their revolution on the erosion of the theory of authoritybased bureaucratic hierarchy that had for so long dominated government management. This is a revolution of ideas as well as of policy. But deep within the revolution of ideas is a profound conflict over the course of the struggle. Does the key to government reform lie in sweeping outdated, nonsensical

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barriers out of the way of hard-working, well-meaning government managers? Or does it lie in transforming the basic incentives of government managers, to force them from the relative comfort of government monopolies into competition that will sharpen their skills and improve their results? Virtually everyone argues that public managers need more flexibility to do their jobs and that existing patterns of hierarchy and authority get in the way. Public officials, however, have chosen very different approaches to introducing that flexibility. In some countries (notably Australia and Sweden), government reformers preached the need to “let managers manage.” Existing policies and practices create their own reality, analyst Peter M. Senge (1990) argues, which makes managers reactive, chained to standard operating procedures, and limited in vision. Focusing managers on problems to be solved and then giving them flexibility to solve them promotes organizations that can adapt and governments that work better.8 Let managers manage and evaluate their results carefully, reformers contend, and flexibility can replace rigidity. It is a call, as Philip Howard asserts in his 1994 study of regulation in the United States, for a return to common sense.9 At the core of the let the managers manage approach is customer service: making the needs of citizens, not the convenience of bureaucrats, the focus of government activity. Citizens around the world have frequently complained about long lines, insolent treatment, arbitrary rules, excessive paperwork, intrusive investigations, and even occasionally the need to bribe officials to receive services to which they are entitled. Existing bureaucracy too often gives managers the authority to exercise capricious power, and it hinders well-meaning officials from doing their jobs as well as they would like. Customer service focuses managers on providing service instead of managing programs, on serving citizens instead of the needs of the bureaucracy. It plays off the “works better” side of the “works better and costs less” dilemma. In Australia, the government has focused far more on providing “quality as the customer defines it.” Government officials began assessing how citizens judged their contacts with public agencies: their timeliness, accessibility, reliability, responsiveness, and cost. In the twelve months prior to July 1992, for example, 72 percent of the people surveyed reported that they had been treated “well” or “very well” in their dealings with government agencies. The tax office, for example, set goals for accuracy of advice provided, timeliness of the response, accessibility of the staff, and relevance of support.10 In the United States, the Clinton administration led a drive for 214 federal government agencies to define customer Approaches to Flexibility

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service standards.11 One region of the federal Social Security Administration was recently judged as having the best customer service, handily defeating several private companies well-known for their treatment of customers.12 As the Clinton administration’s report put it: We have to reorganize to be responsive where we serve customers; we’ve been organized for top-down control. We have to train employees to deliver results to customers; they’ve been trained to follow what Vice President Gore calls “mind-numbing rules.” We have to have systems designed to please customers; up to now, we’ve had systems that were designed to please bosses, headquarters, and management committees.13

The let the managers manage philosophy builds on a philosophy of “continuous improvement” to replace the urge for control. The philosophy, in turn, is an outgrowth of the “total quality management” movement championed by W. Edwards Deming (1986).14 It argues that working constantly to enhance service delivery, building up from the bottom instead of down from the top, and establishing a system of cooperation among government workers from different agencies are the keys to real improvements in service. Other countries, however, have followed a notably different course. In nations like New Zealand and the United Kingdom, leaders have pursued a philosophy of “making the managers manage”: Simply letting managers manage would not be enough, they believe. Most government agencies and programs are monopolies. Without market competition, there is no real incentive for managers to manage better. The only sure way to improve government performance is to change the incentives of government managers by subjecting them to market forces. In the United Kingdom, for example, the Thatcher government launched a reform christened “Next Steps.” Home departments would frame policy, but two-thirds of the civil service would be removed from these departments and placed in agencies. The agencies would have contracts specifying what they were to do and performance standards by which their work would be judged. Performance agreements and targets provided the foundation for a radical change in the Whitehall system. Each of the agencies focused much more on improving customer service.15 The Major government has since moved to privatize as many of the Next Steps agencies as possible. New Zealand has moved even more radically to transform its government sector. Senior government officials have been hired on performance agreements to manage agencies whose work is defined in purchase-ofservice agreements. Perhaps no other nation on earth has been more aggressive in selling off state-owned enterprises to the private sector and subjecting its remaining government programs to market competition.

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Clear performance goals shape agency functions. Top managers are rewarded based on their performance, and they can be sacked for inadequate performance. In the end, it is the market—and the agency’s performance against market standards—that determines the agency’s success.16 The reforms in these two nations, in particular, have carefully followed economic theory: that government, as a monopoly, is inherently inefficient; that it tends to grow and get flabby; and that its performance suffers as a result. Government’s critics have typically argued that government is not so much wasteful in itself but that any monopoly, public or private, is inefficient, and that this inefficiency can only be remedied through competition.17 Both the United Kingdom and New Zealand have self-consciously followed these theories through aggressive privatization of state-owned enterprises. They have contracted out (or outsourced) many activities kept under government control.18 They have worked to move from the measurement of outputs (the activity of government agencies) to outcomes (the results of this activity). Other mechanisms have been devised to markettest government programs, such as requiring government workers to compete for their own positions in a bidding process and introducing far more extensive cost accounting systems. All of these systems combined have focused sharply on transforming the incentives to make managers manage. Many nations have also introduced business-process reengineering into both the letting versus making managers manage approaches to streamline and improve government programs.19 Reengineering requires a fundamental reassessment of what an organization is doing and how it is trying to do it. It begins when managers consider their customers, their competition, and the need to change and continues through radical redesign of work to ensure that customers’ needs are met. Frequently, it is supplemented by fundamental changes in organizational structure (such as eliminating whole layers of middle management and creating flatter organizations) and by investment in new information technology. Unlike traditional public management, which has tended to focus on organizational structure as the key building block, reengineering concentrates on process; everything else is secondary to what it takes to get the job done effectively. In government, however, simply defining the job is a constant and often changing challenge. On one level, of course, letting managers manage, making managers manage, and business-process reengineering all include extremely useful ideas. Indeed, what is fascinating about these reforms is just how much ideas have mattered. The reforms have been a marriage of deep theoretical thinking coupled with profound pragmatism. Strategic Conflicts

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Many nations, moreover, have successfully used pieces of each of these approaches. But it would be a mistake to think that these approaches constitute a menu of interchangeable options. At their core, they are fundamentally different. Like the “works better and costs less” dilemma, the driving philosophy of each approach frequently argues for tactics overtly hostile to other approaches. Letting managers manage is at its core an empowering philosophy. It aims to break down restrictions on managers’ flexibility. Making managers manage, on the other hand, seeks to transform the restrictions on managers. Managers have great freedom in solving administrative problems. But instead of simply depending on their own professional sense of how best to serve customers, managers must meet externally imposed goals and tough, marketlike competition. Businessprocess reengineering, finally, tends to reject the continuous improvement piece of letting managers manage in favor of dramatic and fundamental change. It builds on the stark market competition of making managers manage to drive reform. It also insists on a new level of top-level, marketbased control for government agencies, however. These strategic conflicts create a very useful catalog of approaches to government reform. They classify likely sources of conflict, in both conceiving approaches and producing results. And they identify why the conflicts matter. In particular, they point to these fundamental questions:

1. Emphasis. Traditional administrative reforms have focused on organizational restructuring. Many recent government sector reforms, by contrast, have transformed procedure. Where should the balance lie? 2. Accountability. Traditional administration has built a system of accountability to top-level officials. Recent government sector reforms have relied on market-based mechanisms. How can the efficiency goals of the market be balanced with the need of elected officials to hold those to whom they delegate power legally accountable for results? 3. Bottom line. Traditional administration has tended to judge on the basis of process—if managers do what the law asks them to do in ways the law asks them to do it, they are presumed to be doing well. Recent government sector reforms have pushed assessment more to efficiency. How can the traditional focus on process accommodate the drive for efficiency? 4. The role of public employees. Traditional administration relied on government workers to do government’s work. Recent government-sector reforms have rejected the assumption that traditional government work needs to be done by the government—or, if the work is to be paid for by government, that government workers need to do it. How should the government’s human resource system be transformed to accommodate the changing nature of public work? 5. The role of citizens. Traditional administration tended to treat citizens as clients—government employees were presumed to know best what

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citizens needed, and citizens were passive recipients of public services. Recent government-sector reforms have moved to treat citizens as customers. But because the definition is often deceptively fuzzy, who is the “customer”? What role do citizens need to play to make this work? How does the customer service movement affect public services to which citizens are legally entitled? 6. Core. Traditional administration tended to define public services as those things that only government could or should do. Recent governmentsector reforms have blurred the boundaries. Is there a core beyond which government should not be reduced? And how can this core be defined? An examination of the process and structure of government, along with a reexamination of the nature of res publica, or the public interest, provides insight into these tough questions. PROCESS

Even if the government sector management revolution has swept the globe, it is deceptively difficult to gauge its results or prescribe which reforms work best. In part, this is because enthusiastic embrace of the reforms has often outstripped efforts to measure results and because many of the ideas are attractive in design but so bluntly collide with existing practice that they raise big but often hidden problems. Nowhere is this more true than in the process-based reforms at the core of the “new public management.” These reforms directly but subtly confront the conventional wisdom of government management that organizational structure matters most; get the structure right and results surely will follow. The problem is that few organizations can directly control and manage the programs for which they are responsible. So great are the overlaps and interdependencies among programs and policies that coordination among disparate units is the foundation for effective management. These units can be different agencies within government or private and nonprofit organizations that serve as the government’s partners. Thus, no single organizational structure can fully solve the most important problems. A variety of process-based reforms have been developed to fill the gaps. The movement toward market-tested public management relies heavily on measuring the performance of government. Creating incentives to pursue efficiency also requires establishing some way to judge alternatives. Does a program work well? Would an alternative work better? These core questions hinge on gauging results and using the assessment of results to guide Performance-Based Management

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policy decisions. Customer service, moreover, relies heavily on presenting citizens-as-customers with enough information to make intelligent choices. Performance assessment, therefore, is the foundation on which most reforms build. Governments in New Zealand and the United Kingdom have, since the mid-1980s, aggressively developed performance goals and measured results against those goals. Australia has taken a slightly different tack by focusing on the evaluation of programs. The Swedish government has worked toward audited annual reports. The French have defined “responsibility centers” in which to establish who is responsible for what. Other governments have experimented with different approaches, but the effort to measure results and use those measures to guide policy decisions is critical to the global public management revolution. Performance measurement, as typically used, relies on agency managers working through a series of steps:

1. Mission. In a democracy, the mission comes from outside an entity, from policymakers and the laws they establish. A health agency might work to prevent illness and help cure the sick; a transportation agency might seek to ease the transit of goods to market and of workers to jobs. The mission is in part a legal construct and in part a cultural construct, defining the norms and basic behaviors in the agency.20 2. Goals. These flow directly from the mission and, like the mission, evolve from legislated goals and the way policymakers interpret them. In seeking to prevent illness, for example, a health agency might seek to immunize its population against communicable diseases. A transportation agency might seek to create a high-speed highway system. 3. Objectives. Put differently, how do agency managers move from the general to the particular, from the broad and often vague goals of legislation to the particular guidelines that shape the actions of middlelevel and frontline administrators? The manager of a health agency might seek to immunize all children entering elementary school. The transportation agency manager might seek to construct highways linking the five largest cities. 4. Output measures. Managers must define specific, clear, and easily measurable indicators of progress toward objectives. Health care managers can count the number and percent of children who actually are immunized. The transportation manager might count the number of miles of highway actually built. Output measures typically gauge activity and the volume of services produced. 5. Outcome measures. Such assessments compare results with goals to assess the effectiveness of programs. Health care managers can examine how immunization has actually improved the health of children, and transportation

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managers can study how new highways have improved the movement of goods to market and workers to their jobs. In the end, performance measurement seeks to judge how efficiently an agency translates its inputs (tax dollars and civil service employment, in particular) into outputs and how effectively those outputs match the program’s goals. The commitment to assessing results may be the cornerstone of the global government reform movement. The most advanced nations readily acknowledge that they have many problems yet to solve. Many other nations have yet to begin. Experience so far identifies several critical problems.

Outcomes or outputs. The dilemma is simple and direct. What matters most about the performance of government agencies is whether they solve the problems for which they were created. Police agencies were created to make citizens safe, health agencies to make people healthy. These agencies ultimately are successful only to the degree to which citizens are safe, and people are healthy, so the logic of performance measurement drives inexorably toward outcome measurement. However, progress toward these broad goals includes many factors that government agencies themselves cannot control. Many social factors can produce crime, regardless of what police do. And citizens’ behavior can hurt or help the progress toward good health, regardless of the actions of health agencies. This argues for measuring outputs, those things that agencies can control, and leaving the more complex assessment of outcomes to social scientists. Government managers naturally are nervous about being judged—and punished—for results they cannot control. Elected officials and citizens simply want problems solved and rarely have patience for arguments about the complexity of the causes of and solutions to public problems. On one level, this is a false problem, for two reasons. First, output measurement is the fundamental building block for all agency performance measurement systems. Second, the whole process is immensely complex. The Australians, for example, freely admit that they have been at the task of reform for ten years and have yet to get it right. Moving to a robust set of outcome measures is a project for decades, not months. It often makes sense to begin with output measures and allow the system to mature. Foreign nations have produced different answers to this puzzle. New Zealand officials are quite explicit in arguing that the system should be limited to output measures. That, they say, keeps the system firmly grounded and allows clear analysis of who does what. The British government, likewise, has focused on outputs. In Canada and Australia, however, the government has broadened the focus to assessing outcomes, although output measurement remained the basic building block.

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Outcome measures unquestionably are critical. Yet whether programs work hinges not only on the performance of individual bureaucrats but even more on the interconnections among complex policy systems. Citizens need to know how those interconnections work if a national legislature is to oversee policy effectively. This makes a compelling case for developing good outcome measures. At the same time, however, we need to assess how well managers manage. Even if few government managers can directly control the outcomes of their programs, we and they need to understand their contributions to those outcomes. This makes a compelling case for developing good output measures. Thus the dilemma: To concentrate on what government managers can accomplish risks missing the big picture. A narrow output-based system that focuses only on counting activities could be little better than the current input-based system that concentrates on spending money and processing paper. No one involved in the long chain that constitutes most federal programs ought to be allowed to escape careful thought about their own contribution to a program’s ultimate results. But to concentrate on these broader policy issues can allow the participants in the implementation chain to escape personal responsibility for their own contributions. If a measurement system focuses on outcomes and if no manager along the way can be assigned clear responsibility for producing those outcomes, it can become deceptively easy for everyone to point the finger at everyone else for problems that develop. That, of course, is precisely the problem with much of the federal government’s current management practices. Performance measurement therefore needs to proceed on two different levels: assessing outputs, for purposes of shaping managers’ behavior; and assessing outcomes, for purposes of making policy decisions. These two levels are, of course, interconnected. Outcome measures can help improve managers’ strategies, and output measures can provide important clues to the source of outcome problems. But any system of performance-based management needs to be firmly rooted in this understanding: output and outcome measures provide different clues to different questions; they involve managers in very different ways; and they create different incentives for behavior. The distinctions between output and outcome measures can seem extremely arcane. But to muddy the distinctions or fail to sort out the levels properly (that is, to use the wrong kinds of measures for the wrong kinds of problems) can undermine the system and encourage its players to create new kinds of games. We do not need, however, to make an either/or choice. The problems involved in creating a performance measurement system are certainly substantial. Putting such a system in place takes a long time and is never

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really finished. But the value added by moving past a focus on inputs toward even simple measures of outputs is so great that the complexities should not blind us to the good that performance-based management can accomplish.

Levels of administration. The logic of performance measurement leads policymakers naturally to assess the performance of agencies as a whole. Indeed, the performance contracts of the top officials of New Zealand government agencies explicitly seek to assess the manager’s effectiveness in leading the agency. The British “Next Steps” agencies have developed specific objectives and indicators for judging each agency’s success.21 In practice, however, there are four different levels at which to gauge performance: the agency, program, work group, or individual. The agency might be the natural focus. It has the advantage of having a head who can be held directly responsible for its performance. But policymakers frequently want to know how well the programs they create are working. In some countries, notably the United States, the choice of which agency into which to put a new program is frequently far less important than the creation of the program itself. Some government agencies become, as a result, little more than holding companies for a vast range of only slightly related programs. In these cases, the program can be the most logical building block of performance measurement. Even if a manager can adequately determine how well a program is working, however, it can be deceptively difficult to determine why and who is responsible for results. Good strategic planning translates broad goals into specific responsibilities, but such planning can be very difficult in the government sector because goals evolve and outside political pressures can warp the logical top-down plan.22 The Australians, therefore, have focused on evaluating the overall performance of programs and then, as part of a broader civil service reform, the performance of work groups within agencies. Since the work of complex organizations increasingly involves teams, measuring the performance of those teams has allowed top managers in Australia to assess the connection between administrators’ behavior and the results they produce. Indeed, the measurement process is part of a broader system of motivating employees. As one government report explains, “Performance management focuses on the need to draw together and integrate individual and team performance to achieve organizational goals.”23 In the end, however, officials interested in assigning responsibility for results and measuring how well those results have been achieved contend that performance measurement systems ultimately must focus on individuals. On one level is abstract theory: if market-based incentives are to motivate behavior, they have to be real to the individuals for whom the

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incentives are created. On another level is practical reality: both political and managerial pressures focus on determining who is responsible for producing which results. Individual performance assessments and pay-for-performance plans are eternally popular yet always difficult to create and manage. At lower levels, for all the reasons just explored, setting and measuring results remains hard. Especially in New Zealand and the United Kingdom, contracts have come to shape the work and rewards of top officials.24 Thus, performance measurement has been employed most at the individual level for top-level officials and at the program and team levels for lower-level officials.

Risk. The basic goal of performance management is to measure how effectively managers translate political goals into practical results. Uncertainty typically protects them from close scrutiny. Goals are often vague, results hard to determine, and the particular contributions of managers to the process hard to gauge; forcing managers to be more explicit about what they want to do and what progress they are making is extremely risky for them. The process, moreover, requires that policymakers define their goals more clearly in advance. There frequently is great comfort in setting multiple, even conflicting goals and then sorting them out later. Managers can determine which goals can be realized and which cannot. And elected officials can selectively intervene in the management process to force managers to set the balance among conflicting goals that the elected officials most favor. If elected officials have to write goals that allow managers to measure results, they will lose some of the political flexibility previous systems granted them. Solving these problems requires taking at least two steps. One is promoting strong and effective leadership by top agency officials, especially political appointees, to help shape goals, analyze results, and protect employees from sniping. Another is constructing incentives that reward superior performance. This second step, in particular, would require substantial time and a major reform of the civil service system.

Purpose of performance measures. The budding U.S. system requires agencies to develop performance measures for their programs; it does not suggest what policymakers ought to do with those measures. The system, however, is likely to evolve just as the more advanced systems in Australia, Great Britain, and New Zealand have. Policymakers, armed with information about which programs work best and which perform worst, use that data in framing their budget decisions. Indeed, since the fundamental logic for performance measures is to understand better the connection between inputs (including the budget) and results, it would be inconceivable for that knowledge not to flow backward into resource allocation decisions.

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The knowledge would be most useful in making expenditure decisions at the margin, where many programs compete for scarce dollars.25 The uses of performance measurement, however, extend much further. When coupled with the strategic planning exercises that form the first steps of the assessment process, performance measures can help agency managers determine how to improve results. Key to the process is not only gauging outcomes but also determining who is responsible for certain results. The process can therefore help identify weak spots in the chain of production and hint at possible improvements. All this requires a sophisticated system of performance measurement, and the full potential of such a system lies beyond even the most currently advanced system. But it does suggest that further progress could yield better results. Pitfalls. As promising as the performance measurement approach is, it has several pitfalls.

1. The Superman fallacy. Textbook descriptions of performance management, coupled with glowing descriptions of successes abroad (often emphasizing the positives without assessing the costs), can lead analysts, managers, and elected officials to promise more than the process can deliver. Enough evidence has accumulated to suggest performance management’s genuine potential. But the evidence also shows just how hard it is to design a good process, to use the results effectively, and to nurture it over time. Performance-based management has to begin with a heavy dose of modesty that must continually be reinforced. 2. Ducking outputs. If managers are confronted with an inescapable imperative to develop performance measures, it is tempting to set the hurdles so low that they can easily be jumped with little change in routine. They can be tempted to retreat back to inputs or choose output measures that make sense only inside the agency and are indecipherable to outside observers. This process, like any process, can become a game, and its players have incentives to rig it so they win. 3. Irrelevance. Managers can develop full-blown performance measures but fail to integrate the information into the key management decisions of their agencies. If managers approach the performance measurement process as an unfortunate intrusion into their “real” work, as a “have-to” step that must be done but then can be ignored, it will provide employment for some consultants but have little real impact. Performance measures will improve management only if they evolve into performance management— if output and outcome measures are integrated into the basic information systems and management strategies of government agencies. 4. Exuberance. The reverse can be equally dangerous. In their enthusiasm to improve operations, managers can put excessive trust in the measures.

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Performance measurement can provide valuable clues about what works and what doesn’t, but it cannot explain why. Hard-pressed managers can easily be tempted to hide behind the measures or use them to duck tough strategic choices. It is easy to jump to conclusions that the process does not support.

Measurement versus communication. Performance measurement is about improving the quality of communication in the political system more than about measurement itself. It is a way to talk better about what results government programs produce and, therefore, to make better decisions about what ought to be done, how much ought to be spent in doing it, and how the work could be done better. It is more useful, in fact, to work toward performance-based management than performance measurement. This change in terms underlines the broader purposes that performance measures must serve if they are to be effective. Performance-based management can help everyone in the process think more strategically. It can help government managers focus on how to do their jobs better and explain to elected officials how they are trying to translate legislative goals into results. It can help elected officials weigh competing claims for scarce resources and put the money where it will do the most good. And, most important, it can help citizens understand better what value they receive for the taxes they pay. Put simply, performance-based management is about political communication. It has value only to the degree to which it improves that communication. Despite all its problems, performance measurement has become the single most important piece of the global management revolution. The replacement of traditional authority with market-based incentives might be the driving idea, but performance measurement has been the engine. It is the mechanism that focuses market and marketlike behavior and allows policymakers to determine what return they receive for the money they spend. Focusing government services on customers is the critical piece in transforming government-sector management to a market-based orientation. Moreover, given the often great difficulty of developing truly sophisticated outcome measures, assessments of customer satisfaction have sometimes proved to be a useful proxy for government performance.26 The logic is simple. Because most government programs are monopolies, citizens have little choice in where or how to receive the services. For reformers around the world, it is not privatization per se that introduces efficiency. Rather, competition for customers supplies efficiency incentives Customer Service

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for service providers, public or private. Privatization puts public services into private markets and, the argument goes, increases competition, improves customer choice, and enhances efficiency. Where government retains the management of certain services, focusing government’s service providers on the needs of citizens-as-customers instead of the needs of bureaucrats-as-managers provides a substitute for competition. In authority-based organizations, the culture dictated “obedience—the imperatives of a chain of command, and to the demands of a highly controlled task,” as management consultant James Champy puts it. In transformed organizations, the “new authority lives in our markets and usually appears in the form of our customers.”27 In this case, although Champy is writing about private-sector organizations, the common focus on customer service in both private and public organizations is noteworthy. Critics have sometimes contested the customer-service focus in government. Government, they say, is not a business, and private-sector models and metaphors are misplaced and dangerous.28 No one, however, could object to public servants who work hard to deliver services in a more responsive way. Which taxpayer would not want shorter lines, friendly faces, and better service? In the United States, the Customs Service has worked to improve its processes to clear shipments at the border. In the United Kingdom, customer service increasingly drives the management of the national railroads. The Australians are proud of how the customer-service focus has improved the management of care for the aged. The South Korean government is aggressively using customer service to force fundamental changes in traditional bureaucracies. All of this, of course, presumes that one can clearly identify who the customer is. Critics have complained that the customer-service approach undermines the political accountability of career administrators by substituting customers’ wants for policymakers’ judgments. Separating this legitimate concern from the unquestioned value of focusing government managers on citizens’ needs instead of their own requires defining, far more carefully, the varieties of government customers. In fact, there are four different approaches to identifying the “customers” of government around the world. Each approach, moreover, carries with it a different perspective on management and politics (see Table 3.1).29 Too often, reformers seize on the customer-service concept, rely on it in making promises to citizens, use it as the basis for forcing bureaucratic change, but fail to deal with the conflicts inherent in the strategy. First, customers can be viewed as service recipients. This, indeed, is the foundation of the customer-service approach, and it builds directly on the let the managers manage philosophy and on the “works better” approach as well. From making lines shorter to framing public programs so they better serve citizens’ needs, this customer-service approach seeks

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Table 3.1 Approaches to the “Customers” of Government and Perspectives on Management and Politics “Customer”

Service recipients Service partners Citizens as taxpayers Policymakers

Perspective

Responsiveness Effectiveness Efficiency Accountability

responsiveness. This is the approach to customer service that reformers most often employ and promote. It is so sensible, in fact, that it often seems as if there are no other alternatives. But, in fact, there are three other approaches that raise very different issues. Second, customers can be seen as partners in service provision. To a far greater degree than government policymakers typically consider, many government workers never confront citizens-as-customers but instead spend most of their time working with other government officials. This tends to be especially true of national governments and officials in federal systems, like the United States and Australia. Their job is to seek coordination by building partnerships with other government officials, at the same or other levels of government, to make programs work better. These partners are intermediate customers of government programs; the programs do not work well unless these partnerships are seamless. Such partnerships produce rules, process forms, administer grants, frame policy, and coordinate programs across agency boundaries. In social welfare programs around the world, for example, managers increasingly are establishing “one-stop shopping” centers that gather in one location different programs—job training and placement, welfare payment, child care, health care, education, and transportation programs—to improve coordination among the programs and to ease citizens’ access to them. Like the view of customers as service recipients, this tactic follows the let the managers manage approach. Unlike that approach, however, the tactic seeks to secure effectiveness by improving coordination among related programs serving the same citizens. And unlike that approach, which concentrates on citizens as the target, this tactic focuses on helping other government agencies and managers to do their jobs better so that citizens are better served.30 Third, as taxpayers, customer-citizens seek efficiency. Indeed, citizens’ demands for smaller government and lower taxes provide the bedrock for the global government reform movement and the fuel for elected officials’ attacks on existing bureaucracy. There is scarcely a taxpayer anywhere in the world who thinks he or she does not pay enough tax—or that government could not produce better results with fewer tax

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dollars. Indeed, reformers in some nations, especially the United States, have forced broader changes by first slashing government revenue. There is, of course, a paradox here. As service recipients, citizens rarely think government does enough; as taxpayers, citizens usually believe that taxes could be cut and that, if services must be cut to pay for tax cuts, the government ought to begin by eliminating wasteful programs. “Waste,” however, lies in the eye of the beholder: one taxpayers’ idea of “waste” often proves to be another citizen’s cherished service. This paradox has several important implications. Although customer service is universally popular, its precepts inevitably put government officials into impossible situations. Citizens everywhere demand much more and want to pay far less. The customer-service movement can encourage them to believe this is possible. The efficiency movement drives elected officials to cut government programs. Privatization has become a politically attractive alternative to cuts. It does not force government to choose which programs to eliminate but only to find those that the private sector can deliver instead. With privatization, citizens can continue to receive services for which they are willing to pay, and government officials do not have to make hard choices about cutting programs. From Portugal to New Zealand, this strategy has been widely employed. In the United States, which had a relatively small government sector to begin with (and thus fewer programs to privatize), the decade-long battle over cutting government has demonstrated just how tough a head-on attack can be. Finally, as policymakers and overseers of government performance, elected officials seek accountability. The theory about the relationship among citizens, elected officials, and career bureaucrats in a democracy is old and fundamental: citizens vest their power in elected officials; elected officials frame policy and delegate the responsibility for implementing it to bureaucrats; and bureaucrats are accountable to citizens, through elected officials, for their performance in managing those programs. This theory and longtime practice creates a top-down relationship (from policymakers through managers to frontline workers). The customer-service movement, however, anticipates a bottom-up relationship (from citizens to frontline workers up to policymakers). Despite the widespread enthusiasm for customer service, the movement creates a real tension in how bureaucrats are held accountable. Customer service creates a direct relationship between citizens and bureaucrats. It encourages bureaucrats to exercise their discretion in ways that better serve citizens (and it is hard to object to that). But in the process, the customer-service movement can subordinate the traditional legal, political, and practical relationship between elected policymakers and bureaucrats. This subordination raises important challenges that the customer-service movement in government has yet to resolve. Instead of asking bureaucrats

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to look up the chain of command, ultimately to elected officials, to guide their action, it asks them instead to look out to citizens to shape their fundamental decisions. How should bureaucrats switch from top-down command-and-control to bottom-up responsiveness? What should bureaucrats do if citizens’ demands and elected officials’ expectations conflict? What should elected officials do if they find that customer-service-oriented bureaucrats are paying more attention to their customers than to policymakers’ wishes? And how will elected officials react if they discover that their traditional role as the “fixer” of bureaucratic problems, which in most democracies is an important link to voters, has been supplanted by problem-solving bureaucrats? Bureaucratic corruption further muddies the issue. Customer service relies on vesting bureaucrats with more discretion for problem solving. In many nations, however, especially in the developing world, top officials have long sought to constrain bureaucratic discretion to minimize corruption. The Korean government, for example, has discovered the tension between granting bureaucrats more discretion to serve citizens and imposing more rules (and constrain discretion) to break a long tradition of bureaucratic corruption.31 Most customer-service initiatives directly conflict with anticorruption campaigns. All of these caveats are not to suggest that the customer-service movement is a bad idea. Indeed, citizens around the world have made it clear that they expect better, cheaper, and more responsive government. Customer service is far more important than its critics allow but also far more complex in operation than its proponents frequently realize. Launching, focusing, and maintaining customer-service reform requires skilled attention to trade-offs that, if not carefully managed, could undermine both its ambitious goals and the broader reform movement. Most nations launching major reform initiatives have included civil service reform in the package. 32 The changes have included revolutionary performance measurement and customer-service initiatives. Few government employees could have managed such changes without significant training and reformed personnel systems. The changes were cultural (designating citizens as “customers” to be served instead of “clients” to be managed), technical (including development of output and outcome measurement systems and the strategic planning to guide them), and financial (including incentive systems to promote performance). The shift to more market-based systems would have been huge in any case. In many countries, however, the changes came in the midst of a more fundamental downsizing of the government sector. This downsizing threatened or actually sacrificed the jobs of many government employees. Indeed, Human Resources

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strong demands from both citizens and elected officials to reduce the size and cost of government had fueled many of the government reform movements. Civil servants frequently were the first targets of the reduction movement. U.S. vice president Al Gore’s “reinventing government” program set a target for reducing federal employment by 252,000 (later raised by Congress to 272,900), a reduction of about one-eighth. The civil service in the United Kingdom shrank by even more—nearly 30 percent—in the fifteen years of the Margaret Thatcher–John Major reforms. In many nations launching major changes, turnover among civil servants has been high. The reforms often ended the certainty of future employment, introduced new financial rewards, and challenged managers with a new imperative to manage better. The very nature of government work changed—and in the process, the morale of government employees often suffered. The British–New Zealand model imposed changes, created new flexibility, imposed new demands for results along with incentives for reaching them, and transferred many government programs to the private sector or to new government agencies. Old approaches based on a single civil service system for the entire government gave way to more flexible agencybased systems, with responsibility devolved from the central civil service agency to agency managers. Individualized work and performance contracts have replaced the rule- and process-based systems of work. Management at all levels of government agencies changed radically. In Britain, moreover, the role of the unions representing government workers has shifted as well, with the focus of representation moving from a broad umbrella group to the workplace.33 The Australian model proceeded very differently, with a fundamental transformation of human resources as the keystone for a much broader reform movement. Civil service reform has been far more central to the Australian reform movement, and civil service reform has focused particularly on “developing the main resource of the [public] Service, its people. The strong positive attitudes and commitment which public servants have to a better Public Service need to be brought more clearly to the forefront and used to underpin a real culture of continuous improvement.” The system seeks “to focus on individual performance and adding value in what they do, thus helping people achieve their agency’s objective and continuously improve their agency’s performance.”34 On one level, the distinction is as basic as that between making managers manage and letting managers manage. The Australians have concentrated on improving the skills of their managers through training and reshaping the civil service system to encourage performance. On a deeper level, the difference comes from the scale and scope of change. The Australian effort has been huge, but in the United Kingdom and New Zealand, elected officials have sought a much more fundamental reduction in the size of the state and far more radical changes in the mechanisms the state uses to manage its programs.

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Although the variety of strategies is as broad as the countries launching reforms, two basic strategies frame the basic options. More radical and rapid change, based on individual performance contracts and accompanied by significant privatization, characterizes the British–New Zealand model. More gradual and continuous change, based on broader evaluations of agency performance, occurs in the Australian model. In neither case is the course easy. Managing morale problems, finding workers with the skills to cope with significantly greater responsibilities and a more results-oriented focus, contending with greater demands and lower resources, and steering radical change are skills that public managers increasingly need. Although new employees trained in the private sector can provide some of these skills, there is the additional need of inculcating the sense of public interest into workers used to serving the more narrow profit motive. The fundamental choice lies in organizing the structure in which employees use their skills. Regardless of the strategy chosen, solving the human resource problem requires tackling the problem of motivation—and realizing that monetary incentives alone cannot supply the direction that workers need. The best private employers around the world look on their employees as assets, not costs. They focus on their people as the most important tool for carrying out their mission.35 This need to motivate creates a genuine dilemma for reformers. On the one hand, the reforms seek smaller and more efficient governments, driven by market-based incentives and sometimes staffed by managers with significant private-sector experience. On the other hand, the job of managing government is more than just a production function. It requires a sense for and a sensitivity to the public interest. As one observer of the British reform warns, “Individualism, and the ‘survival of the fittest’ through the market mechanism, do not accord with a desire for the public good.”36 Genuine reform must constantly seek a balance between honing new mechanisms to provide efficiency while retaining a sharp focus on the ageless questions of res publica. The sheer scale and scope of most government-sector reforms are nothing short of staggering. Managers are being asked to do what they have never done before. Indeed, sometimes they are asked to do what no one has ever done before. They are asked to do far more with much less and to do so quickly and under great political pressure. They must transform old systems to meet new problems and adapt new methods to old systems. These changes inevitably impose enormous strain on the management systems and the people struggling to run them. “The resulting solution,” warned The Capacity Question

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one British expert, “usually, and understandably, takes the form of a ‘bolton’ addition to existing arrangements, and there is often a significant under-estimate of the degree of change required to get people to work differently, and the effort required to make that change stick.”37 In part, the solution requires those advocating the let managers manage approach to recognize the political demands driving the process, the need for sure change toward clear results, and the role that new incentives can play. It also requires those favoring the make managers manage option to realize that reforms cannot simply be imposed. They require time to take hold, investment in the people and technology (including information technology, which often proves especially troublesome), and constant care. Announcing the change is the easy part. Making it stick requires sustained, hard work; a recognition that the whole process cannot simply be launched to fend for itself; and that long-haul success depends on securing the people, technology, and processes to sustain it. Some of the world’s most aggressive reformers have painfully learned that starting a reform without feeding it produces only half a revolution. And “half a revolution is not better than none,” argues U.S. management analyst James Champy. “It may, in fact, be worse.”38 STRUCTURE

In the past, governments typically sought to reform their operations by reorganizing their structures. During the twentieth century, reformers pursued greater efficiency by aligning agencies with like missions, processes, or clients or grouping agencies that served the same geographic area. The tactics varied but the strategy remained constant: policymakers decided what government ought to do; management experts worked to structure organizations to do it as effectively and efficiently as possible.39 The global government reform revolution, however, has taken a very different tack. Some countries have followed some of the more traditional tactics. Vice President Gore’s National Performance Review, for example, proposed consolidating law enforcement training facilities being operated by different departments. But most tactics followed the changes sweeping the private sector: flattening the overall organization by eliminating bureaucratic layers, especially in middle management; devolving authority for decisions to lower bureaucratic levels; and decentralizing operations, including sending operations to the area-based organizations. Flattening has often been the first step, as part of broader reduction in government spending and employment. It has promoted the shift from traditional authority to market-based controls. Devolution has been the central tactic.

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The justification for devolution is straightforward, as the Australian government has explained: “the authority to make administrative decisions had been held at too high a level; and devolution would lead to a significant improvement in management practices.”40 If the goal is to let (or make) managers manage, they must have the authority to do so. Of course, finding the right balance between headquarters and field operations has plagued administration for thousands of years. It proved one of the stickiest problems of running the far-flung Roman empire. But devolution has played out differently in the global government-sector revolution: the reforms give lowerlevel government managers more responsibility for decisions, but at the same time they hold the managers accountable (through performance measures) for their exercise of that authority. Thus, the quid pro quo is much more explicit than in previous reforms: more flexibility in exchange for more sophisticated methods of control through performance measurement. The structural changes, moreover, are byproducts of the devolution rather than ends in themselves, as was typically the case in previous reforms. Reformers have relied on two kinds of devolution: from central to line agencies and within agencies.41 The first kind of devolution has transferred financial and budgetary authority from central authorities (like the budget office and treasury) to managers in operating departments. It has also given agency managers far more flexibility in designing personnel systems better matched to their particular needs. Uniform and rigid budgetary and personnel rules had often hamstrung managers. Making the system more pliant allowed managers to make “our own decisions about how we deploy our resources,” as one Australian manager reported.42 Devolution to agencies, however, has often proceeded more quickly than devolution within agencies. The case is the same, but the enthusiasm with which the reforms have been deployed has proved far more varied. The British social security administration delegated enormous responsibility to district managers, from recruiting employees to managing their budgets and organizing their offices. Top officials even granted district managers a budget with freedom to decide how to spend it, including how many people at which levels. This is a rare example of slow devolution within an agency. Business plans have guided personnel decisions within the performance management system.43 The Rationale for Devolution

Devolution has marched ahead amid substantial decentralization of work to lower-level units. In fact, devolution and decentralization are closely linked. The terms are similar and often mistakenly used interchangeably. In both theory and practice, however, they are very different, as the Australians have Devolution and Decentralization

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definitively defined them. Devolution is the transfer of decisionmaking capacity from higher levels in the organization to lower levels; that is, it is about who is best placed in an organization to make decisions. Decentralization is the redistribution of functions or tasks from central units in the organization to more widely dispersed units; that is, it is about where in an organization functions are best carried out.44 In short, devolution is about who has responsibility for decisions; decentralization is about who carries them out.45 Devolution can proceed without decentralizing functions. Problems have often developed in keeping responsibility closely held at the top while decentralizing operations, which sometimes produces a mismatch of expectations and authority and makes it hard for frontline workers to develop a customer-service focus and tailor services to the problems to be solved. Too much decentralization can eliminate career paths for civil servants, economies of scale for operations, and the institutional knowledge that makes organizations work.46 Effective reform requires matching responsibility with action. The failure to balance devolution and decentralization can undermine results and erode the workforce that, over time, must produce results. 47 Moreover, when top officials devolve decisions to lower-level officials, problems sometimes develop. Top officials sometimes do not trust their colleagues’ ability to manage and solve problems. British officials have sometimes found it tempting to resort to controlling, not empowering behavior. And when problems occur, it has also been tempting to pull delegated authority back to the center. The dilemma is how to delegate clear responsibility for decisions while retaining accountability for results. 48 Whipsawing between delegation and re-regulation is scarcely an answer; that can only confuse responsibility and undermine performance. In short, successful devolution requires defining the responsibilities of central and operating agencies in clear and unambiguous terms and then working hard to avoid eroding the responsibilities that devolution assigns. Australian managers have identified six “critical success factors” that promoted effective devolution (see Table 3.2). These success factors mirror the letting the managers manage approach; making the managers manage countries would not focus quite as sharply on the organizational processes implicit in the factors. But Table 3.2 does highlight very important points. First, successful devolution requires finding a balance between central and line operations. Second, central managers must concentrate on leadership and communication. Third, maintaining the balance requires constant maintenance. Fourth, the management reforms are not part of a menu of options but are, instead, an integrated collection of tactics that Devolution and Leadership

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Factors Critical to Effective Devolution

Critical Success Factor

Top management commitment

Communication Training

Effective management information systems

Focus on clients (customers) Evaluation

Description

Strong commitment and communication about the benefits of devolution from the chief executive down through the management ranks Strong vertical communication throughout management ranks to staff and horizontal information sharing among those with devolved responsibilities Comprehensive formal and on-the-job training in devolved functions Networked personnel and financial information systems to automate previously centralized services. Such systems can increase productivity and provide a means for meeting accountability and reporting requirements Creating a provider/client relationship between central service provider and line management. User-charging for centralized corporate services instrumental to making central service providers more client focused Formal and informal evaluation of devolution efforts to help identify root causes of problems

Source: Devolution of Corporation Services, quoted in U.S. General Accounting Office 1995a: 58.

reinforce each other. Selective implementation of some tactics is likely to undermine the effort. Fifth, the entire process requires very different capacity than existing management. That capacity must be created and nurtured. These demands challenge reformers and contrast sharply with previous reform strategies. Earlier efforts allowed top officials to identify what seemed the most efficient organizational structures, institute the reforms, and reap the gains. The global reform revolution, however, requires far greater vision by top officials and constant nurturing of the process. Indeed, winning and sustaining the support and leadership of top officials has often proven to be one of the most important missing pieces of the reform movement. MISSING PIECES

The underlying ideas drive the global revolution with uncommon elegance: give managers more flexibility, let (or make) them manage, hold

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them accountable for results, and incorporate more market testing. These propositions flow directly from arguments about what motivates government workers and generations of work on microeconomics. However, it is important to remember that everything truly interesting about microeconomics comes in probing the gaps, in theory and practice, surrounding the basic theory of the pursuit of self-interest. So, too, with government reform. Many of the most important and troubling elements of governmentsector reform flow from pieces missing from the overall approach. Most nations that have journeyed down the reform path have discovered that the movement has radically transformed democracy. The fundamental premises of the movement are simple enough, even relatively conventional: Elected officials, acting on behalf of the voters, make policy and delegate the implementation of that policy to administrators. The delegations are broader than in the past; administrators are held accountable by performance measurement. Performance reports provide elected officials with a way of overseeing the effectiveness of administrators’ actions. In a nonparliamentary system like the U.S. one, the challenges of bureaucratic control are even greater. Members of Congress are notorious for simultaneously paying little attention to most administrative issues while being hypersensitive to selected administrative details of keenest interest to their constituents. This system puts a heavy focus on symbolic actions. Government by contract, however, distances administrators from control of many symbols while forcing a more precise look at performance measures. Governing this system requires developing new links between policymaking and policy implementation while simultaneously redefining existing roles. It logically requires devising a system by which elected officials more directly hold managers responsible for results. That in turn would allow voters to hold elected officials responsible. The U.S. system is now especially well designed to shift and diffuse blame. There are thus important and mostly unexplored risks in the nation’s tentative steps toward managerialism. In Westminster-style systems, the policymaking/policy administration line is inevitably fuzzier, since elected legislators head the major administrative agencies. Elected officials do not enjoy the same advantage that presidents and members of Congress do in the United States. U.S. officials can blame each other for problems of performance. Government by contract, along with the rest of managerialism, has sought to divide policymaking more clearly from policy administration. Governing this system requires redefining existing roles, but in a way different from the U.S. case. Either way, the movement toward managerialism, contracts, and performance measurement raises huge challenges for the behavior of elected Managers and Elected Officials

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officials and for the operation of democracy. In their enthusiastic rush to reform, many of the movement’s leaders have not carefully thought through what they are getting themselves into, how they would have to change their own behavior, what capacity they would need to play their new role, and how all of these changes would affect the sinews of democracy. The mechanics of performance measurement and customer service can trap managers into a mechanistic view of the reform process. Strategic planning, construction of indicators, measurement process, and reporting requirements can easily become ends in themselves. But because the fundamental purpose of the process is not to produce measures but to improve results, it is far more useful to think of performance-based management, not performance measurement. To allow the performance process to focus narrowly on measurement too often leaves the key decisions to the measurers. Moreover, performance-based management serves managers best when incorporated seamlessly into the government’s other major decisions, especially budgeting. Performance-based management can help everyone in the process think more strategically. Government managers will focus on how to do their jobs better and explain to elected officials how they are trying to translate legislative goals into results. Elected officials will find it easier to weigh competing claims for scarce resources and put the money where it will do the most good. And, most important, citizens will better understand what value they receive for the taxes they pay. Put simply, performance-based management is about political communication. It has value only to the degree to which it improves that communication. This communication occurs on three different levels: Performance, Results, and Budgets

1. Within the agency. Agency managers inevitably have a great deal of discretion. They need to chart which problems will get their strongest attention and how best to go about solving them. The tighter resources (money, people, and technology) are, the more important it is to solve these problems well. 2. Between the agency and the central executive offices. Key agency decisions inevitably percolate up to the central budget office and the president or prime minister. Some decisions are budgetary: How much should an agency spend on which programs and how should money be distributed among agencies and programs? Some are programmatic: Which new initiatives ought to be launched? And some are managerial: Which problems ought to be attacked first and how? Performance-based management can never resolve the questions; no information system or data analysis can

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ever resolve what are fundamentally political judgments. But it can provide additional useful information that, on the margin, can help lead decisionmakers to smarter decisions. And it is on the margins—given scarce money and even more scarce time—that the most critical decisions are always made. 3. Among agency managers, ministers, and parliamentarians. Elected officials cannot be uninvolved bystanders or arms-length participants in the performance management process. Yet experienced countries like New Zealand have discovered that ministers and parliamentarians often are tempted to distance themselves from the chain of responsibility. Successful performance management systems hinge on careful integration of politics and management. Elected officials are the ultimate audience for agencies’ performance measures. The measures offer great potential for improving legislative oversight (it is easier to ask good questions about results if results-based information is readily available). And they offer great potential for enhancing congressional budgeting (it is easier to target scarce budgetary dollars on important problems if elected officials know which programs are most likely to deliver solid results). Performance management confronts additional problems in incorporating nongovernmental partners into the governing process. Downsizing pressures have increasingly reassigned governmental activity to private-sector contractors, nonprofit organizations, grantees (especially in federal systems), and citizens. It is hard enough to measure the performance of government organizations. When a substantial part of governmental activity lies outside the direct control of government managers, however, the job becomes much harder. Government managers lose control over goals, indicators, and measurement processes. The more government builds nongovernmental partnerships to do its work, the harder the job of assessment becomes. Private-sector companies, of course, face many of the same problems. Indeed, private-sector outsourcing has grown substantially over the last decade as companies, faced with their own demands to shrink costs and improve efficiency, have trimmed their operations and have come to rely more on their own contractor networks. And their experiences suggest one approach to obtaining leverage over nongovernmental partners. Organizations that engage in significant and successful outsourcing realize that they must construct a new capacity to act as smart buyers: to determine in advance what they want to buy; to define specifications carefully enough so that suppliers know what to provide; and to gauge the product so that the buyer can assess the quality of what has been bought.49 Many organizations in Leverage over Nongovernmental Partners

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general, and government agencies in particular, do not have this capacity. There frequently are few career paths for procurement managers, or where they exist, they are not prestigious and remunerative enough to attract the government’s best workers. Careful management of these new governmental reforms requires the cultivation of new capacity, which is why governmental reform must go hand-in-hand with human resources reform. And, in the end, it all must be focused squarely on achieving the public interest. ACCOUNTABILITY AND THE PUBLIC INTEREST

The introduction of performance measurement as part of the managerialism-government reforms is much more than a new wrinkle. Accompanying the delegation of policy implementation is a mandate to be more customerfocused, to concentrate more on outputs and outcomes than inputs. To the degree to which this actually happens, it stands traditional notions of accountability on their head. The emphasis on customers and results focuses administrators much more directly downward, toward citizens, than upward, toward elected officials. Indeed, the prevailing argument is that the new customer focus will improve the quality and reduce the cost of services. But it also transforms the relationship between elected officials and administrators: at the least by introducing new standards by which administrators can assert independence from policymakers; at the most by uncoupling the patterns of information about results and leverage over administrative outputs that elected officials are most accustomed to using. It is impossible to underestimate just how radical a transformation in democratic accountability this is. Policymakers in all countries count on gaining influence over administrative action, even detailed administrative decisions, by using their control over inputs, especially budgets. Performance-based contracting requires these officials to take a step back from the methods of control they have been using, to place their trust in the contracting process, and to learn how to use performance measurement to supplement or replace previous tactics. Thus, government reform, whether the New Zealand performance contract for government officials, the U.S. approach to contracting out, or one of the many other models developed elsewhere—radically transforms the nature of democratic accountability. It introduces an important bottom-up influence to traditional top-down control. It demands that administrators perform a new role and build a very different capacity to fill it. And it requires elected officials to change they way they think and act toward bureaucratic control. Managerialism and its collection of reforms have sought to divide policymaking more clearly from policy administration. Historically, this has

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been a difficult problem, which has played itself out very differently in different countries. Regardless of the system, however, the reforms focus on having elected officials take greater responsibility for shaping the direction of policy and learning to trust the contract and performance measurement processes to deliver the goods. A recurring theme throughout this chapter has been the need to build new administrative capacity—government workers with different skills, supported by new information technology and by new management processes. Managing a performance-based contract system is very different from managing a more traditional authority-based system. To control the former effectively requires a conscious effort to identify the capacity needed and how to create it. Skipping this stage can lead to failure. As one analyst pessimistically wrote, “Countries most in need of administrative reform are least able to implement it.”50 Effective reform requires building the capacity to pursue it. Capacity

The reforms, furthermore, require moving from a negative view of government (Which pieces can be privatized, streamlined, or abolished?) to a more positive view (What should government do and how can it best do it?). They also require defining and strengthening government’s core. As much as reformers incorporate private-sector models into government operations, government is not and never will be a business. In a democracy, its fundamental job is pursuing the public interest. It promotes critical values of fairness, justice, equity, and due process.51 Government exists, and has always existed, precisely because citizens have found that the market cannot serve all of their needs and goals, especially goals like equity and responsiveness. To protect and promote these goals, government must have the capacity and support to manage its inherently governmental functions. Defining the term “inherently governmental functions” has daunted analysts for years.52 Government used to define its role in terms of what only it could do or what elected officials wanted it to do. But reformers have been trying to shrink government wherever possible. The private sector can now produce virtually any government good or service, from police and fire protection to prisons and schools. Given the power of the private-sector model and the political need to mount reform, the temptation arises to push the private sector into anything it can do without first asking whether it should do it. Effective reform requires ensuring that only government does what government must do. The Boundaries of Government

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Government reform is still an experiment in most places where it has been deployed. The deeper issues are what effects it truly has on the size of government; on the capacity government requires to fulfill its job; and on the fundamental mechanisms of elected democracy. In tackling all these questions, performance measurement is central. It helps illuminate the government’s results and helps ensure that government promotes the public interest, however the often messy debates over government and its results may define res publica. And that is perhaps the greatest value of performance management. The managerialism movement and its contract-based variants grew out of a profound public dissatisfaction with government, its programs, its performance, and its governance. But both through design and political reality, its creators quickly came to realize that it was not a machine that could be turned on and left unattended. Government’s job, to secure the public interest, builds on deciding first what government should do and then on how best to do it. Performance measurement can help improve both processes. As Alice Rivlin, director of the U.S. Office of Management and Budget, pointed out, public management reform has increasingly become important around the world in renewing confidence in democracy.53 Careful management requires measurement of results. The measurement of results, in turn, transforms public debate. As local government officials in Phoenix, Arizona, have told me, once armed with information about the cost and performance of contractors and city workers, government officials could no longer make decisions simply on the basis of political favoritism or logrolling. Of course, performance data do not always rule or even prove hugely influential. But they do introduce a brand-new political variable that could not be ignored by citizens or elected officials. Neither does this mean that contracting out services and implementing performance measurement lead more surely to good government. They do tweak the decisionmaking and administrative processes in ways that respond to the problems that created them. Democracy and Markets

NOTES

1. A very useful survey was produced by the U.S. General Accounting Office (1995a). 2. See Osborne and Gaebler (1992). 3. See Gore (1993). 4. See Kettl and Dilulio (1994), especially Chapter 2. See also Kettl and Dilulio (1995). 5. For an examination of the New Zealand experience, see Boston et al. (1991); and Boston (1995). On the United Kingdom, see Campbell and Wilson (1995).

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6. OECD (1995: 13). 7. In an unusually focused way, Brazil’s government reform effort has focused on this issue. See Brazil (1995). 8. See Senge (1990), especially p. 231. On the creation of learning organizations, see Kettl (1994a). More broadly, see Barzelay and Armajani (1992). 9. Howard (1994). See also Australia (1995). 10. Australia (1992: 387, 396–397, 410). 11. Clinton and Gore (1995). 12. Bishop (1995: 3–4). 13. Clinton and Gore (1995: 3–4). 14. See Deming (1986) and Aguayo (1990). 15. See Campbell and Wilson (1995: 45–47). See also Kemp (1990). 16. See Scott, Bushnell, and Sallee (1990). 17. For a sample of these arguments, see Niskanen (1971); Savas (1982); and Blais and Dion (1991). 18. The United States has perhaps even more aggressively moved to outsourcing of government goods and services. 19. For one of the principal statements of this movement, see Hammer and Champy (1993). Champy has since reconsidered many of the arguments originally published in this book. See Champy (1995). 20. See Wilson (1989), especially Chapter 6. 21. See Greer (1994: 68–75). 22. For an excellent guide to strategic planning in government, see Bryson (1991). 23. Australia (1995: 3). 24. Greer (1994: 77). 25. Beeton (1987: 89). 26. Beeton (1987: 89). 27. Champy (1995: 75–76). 28. See, for example, Frederickson (1992: 13); Moe (1993: 46–48); Rosenbloom (1993: 503–507); and Moe (1994: 111–122). 29. This discussion follows material first developed in Dilulio, Garvey, and Kettl (1993: 49–54). 30. This approach follows a new approach to organization theory christened “network theory.” For an exploration of this approach, see Nohira and Eccles, (1992). 31. Hahm and Plein (1997). 32. Regarding Latin America, for example, see Amjad et al. (1994). 33. Fairbrother (1994). 34. Australia (1995: 1). 35. Tyson (1989: 76); U.S. General Accounting Office (1995b); Kettl and Dilulio (1995); and Wyatt Company (1995). 36. Tyson (1989: 76). 37. Exley (1989: 46). 38. Champy (1995: 3). 39. A superb review of where reorganization has worked best is Thomas (1993). 40. Quoted in Australia (1992: 89). 41. See Australia (1992), Chapter 3, for an excellent analysis of these reforms. 42. Australia (1992: 92). 43. Fairbrother (1994: 78–79, 162–163). 44. Australia (1992: 89).

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45. Australia (1992: 111). 46. Australia (1992: 105). 47. U.S. General Accounting Office (1995a: 57–58). 48. Fairbrother (1994: 36–37). 49. For an application of this process to government, see Kettl (1993). 50. Caiden (1994: 111). 51. Two very useful views on this topic are Appleby (1945) and Allison (1992). 52. For one effort, see U.S. General Accounting Office (1991). See also Boston (1995). 53. OECD (1996).

4 The Complementarity of Economic Restructuring and Rebuilding the State in Latin America William Glade During the 1980s and 1990s, two processes have been moving on more or less parallel tracks in Latin America: structural adjustment in the economy and reform of the administrative apparatus of the state. The former has received by far the larger amount of attention, both in policymaking and in policy analysis.1 In the larger context in which both are occurring, a third process is observable: democratization, composed of a variety of measures to strengthen civil society and increase the possibilities for using what the European Union refers to as the principle of subsidiarity. It was in Chile that the silent revolution in economic policy began, to use the apt term coined by the Inter-American Development Bank.2 There, both sets of changes began in the 1970s. Since then, the literature on Chilean stabilization and restructuring experience has become voluminous, reflecting the widespread interest, both pro and con, engendered by this trailblazing experiment. Many assessments were simply impelled by a scholarly curiosity to learn more about the innovative path on which the Chileans had embarked. After 1982 Mexico began comprehensive liberalization and privatization programs as an integral part of its stabilization therapy, thereby reversing the policy course of more than fifty years. This, too, came in for a great deal of close scrutiny by supporters and opponents of liberalization as well as those motivated by purely intellectual concerns. The same may be said of the accelerated opening of the Argentine economy during the 1990s, which was followed by economic reforms in Peru that in some ways were a reply to the liberalization that had earlier been implemented at the end of the 1940s and in the early 1950s.3 There are also systematic observations and analyses of other countries where economic restructuring has been either less sweeping or stalled or, 75

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as in Venezuela, thrown off course and reversed, at least until quite recently. What has been notable, however, is how asynchronous has been the reform of the state compared with the project of economic restructuring. There are fewer searching analyses of current efforts and no satisfactory comprehensive surveys, such as we find for restructuring. At the same time, the total volume of literature on reforms of the state apparatus is even greater than that on restructuring, albeit stretched out over several decades and of a very different character.4 That this is the case stems from the fact that state reform did not begin just recently, and the most reforms have usually involved fairly modest alterations rather than major overhauls. Consequently, in this rather substantial body of analyzed experience, there are a good many useful insights into what furthers and resists structural reformation as well as instructive findings about how a reform program can be advanced and how various efforts have worked out. See, for example, the early work of Lawrence S. Graham on civil service reform in Brazil or Albert O. Hirschman’s memorable work on “reform-mongering.”5 The more recent episodes of administrative reform, however, which have typically been framed in terms of decentralization, downsizing, and sometimes democratization, have been both less ambitious and less closely studied than their economic policy counterparts. Carried out on a piecemeal basis, the general aim of these reforms—which in the broadest sense have involved a shift from public administration to public management— has been, at least ostensibly, to make decisionmaking processes more transparent and responsive to a broader range of needs in the polity; to increase accountability and efficiency in implementation; and, as part of restructuring, to prioritize public outlays more carefully, increase the efficiency of revenue collection, and economize on the use of public-sector resources within the tight fiscal constraints imposed by macroeconomic stabilization. The intimate connection between structural adjustment in the economy and the administrative reforms that rebuild the state is suggested by the place that the prioritizing/economizing imperative has within the former and the conditions consequently imposed on the latter. The more sparing use of fiscal resources, for example, and their redirection from operations that have now been transferred to the domain of the tax-paying private sector are essential to meet a vast array of claimant social needs, to repair the neglect of decades. The social deficit about which so much has been written of late results from years of underinvestment, as fiscal resources were diverted from social investment to cover such things as parastatal operating deficits or were absorbed in financing overblown and inefficient administrative bureaucracies. In actuality, however, the complementarity between the economic restructuring and state reform extends far beyond this.

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I explore these complementarities to shed additional light on the rationale for changing the role of the state in Latin America. As the state withdraws from its erstwhile entrepreneurial role in favor of the private sector and leaves the process of managing political systems increasingly to the emerging civil society, there is a vast area of social responsibility to be managed effectively and complex transactional frameworks to be designed and administered if the promise of economic restructuring is to be realized. As the twentieth century ends, for example, there is recognition that the long neglect of social investments has jeopardized accumulation of the social and human capital on which secular advances in productivity ultimately rest. And the maldistribution of economic rewards for which Latin America has gained such notoriety has increasingly come to be seen as not just a problem of social equity, important though that consideration is, but also a condition inimical to sustained economic advance.6 ROOTS OF ADMINISTRATIVE DYSFUNCTION

As mentioned above, the reform of the state and of its wide-angle projection into the economy through regulatory agencies and parastatal enterprises is by no means a new topic. Although the grandfather of all development assistance programs, the Marshall Plan, had no need to be overly concerned with the institutional framework of economic reconstruction in Europe beyond encouraging transnational policy consultation and cooperation in planning, designers of contemporary technical assistance programs under Point Four and similar auspices quickly recognized that institution building, generally around the fringes of the public sector, lay at the very heart of what they were about.7 In the name of modernization, important innovations were made to strengthen organizational capacity in a number of fields, as in the servicio units that were established in Latin American countries, often with foreign technical and economic assistance, to handle a variety of development functions, unencumbered by the entrenched ways of the core institutions of public administration.8 Although the case was not widely studied in Latin America at the time, Puerto Rico’s “Operation Bootstrap” in the 1940s and 1950s depended in substantial measure on a far-reaching overhaul of the machinery of public administration and on the leadership provided by planning authorities and the Government Development Bank.9 No small contribution was made, as well, by the island’s ability to import a stable fiscal and monetary environment, along with a legal framework adapted to the needs of modern business enterprise and a reliable system of legal administration. In time, awareness of the role of administrative modernization in laying down the conditions for successful economic performance became

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more widespread, as when the World Bank turned from its initial emphasis on reconstruction to the more difficult and elusive agenda of development. One of the earliest Latin American country studies performed by a World Bank mission, the uniquely candid and critical Report on Cuba singled out dysfunctional operations of the public sector as a major impediment to growth and dwelt at length on the need for corrective action.10 At least passing reference was made in a number of the other early World Bank country studies to a need to reconfigure the governmental agencies and policies most central to the development effort in order to mobilize and coordinate all available public-sector resources for the attack on economic backwardness. The strengthening of fiscal systems (in their design and administration) and the improvement of monetary policies were, typically, centerpieces of policy recommendations that encompassed a broad range of organizational domains.11 For that matter, redesign of the public sector had in no few Latin American cases antedated the postwar preoccupation with development. The decentralized agencies and autonomous enterprises, to use Mexican terminology, that began to appear in the 1930s and 1940s were originally devised as institutional bypasses that could carry out particular functions more efficiently than would have been possible had they been lodged in the core machinery of government. Special legal dispensations characterized their operations in a number of respects, giving them, at least at the outset, more flexibility in procedural matters and more leeway in the development of organizational strategies. In some cases, this foundational versatility even allowed institutional missions to be redefined in rather basic and desirable ways as time went on. The Chilean Economic Development Agency (CORFO), for instance, began life as an agency charged with reconstructing a regional economy that had been badly damaged by an earthquake. It went on to become one of the premier industrial development banks of South America, a kind of hybrid of investment banking and a state holding company somewhat along the lines of Austria’s National Industrial Holding (OIAG). Similarly, CORFO’s rough counterpart at the other end of Latin America, the Nacional Financiera of Mexico, was actually created to strengthen the stock market—an interesting mission in what purported to be the high tide of revolutionary consolidation and renovation. Only fifteen years later, it had become a leading industrial development agency, earning high marks and international respect for the professionalism of its management and the integrity of its operations. In more or less the same era, the Mexican Federal Electricity Commission was begun to handle some relatively modest programs of rural electrification, but in two and a half decades it evolved into a commanding entity in charge of the entire national electricity grid.

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By the mid-1940s, national steel mills had been added to the state’s portfolio in a number of countries, to be joined over the years by a set of state petroleum enterprises, the first of which was actually set up in Argentina in the 1920s; state railway companies; flagship airlines; regional development agencies; electric power utilities; a host of special-purpose state owned banks; and mining giants like the Bolivian Mining Corporation (COMIBOL), the Chilean National Copper Corporation (CODELCO), and the Companhia Vale do Rio Doce, the largest of them all. State-owned insurance companies, chemical companies, ship lines, and a slew of others ranging from film financing institutions and a highly regarded aircraft manufacturer to marketing companies and hotel chains joined the lists in the half century that spanned the 1930s to the 1970s. Alongside the exceedingly broad coverage of the supposedly strategic undertakings, new regulatory bodies abounded. Altogether, the opportunities multiplied for the capture of regulatory agencies and parastatals that James Q. Wilson and others have explored so tellingly and for instigating the rent-seeking behavior that grew so luxuriantly in the bureaucratic and political brambles of the continent.12 In effect, the parastatals often became pathways for privileged access to the policy machinery of the state for bureaucratic and private interests. Further, the multiplication of organs of state intervention, both direct and indirect, constituted a seemingly irresistible invitation to corruption. Long before the International Labour Organization (ILO) and scholars discovered the informal sector in the precincts of African and Latin American cities, there was a lively informal sector at work, based on the production and distribution of official favors, thanks to which public policies and, indeed, the policy process were de facto privatized years before anyone thought of privatizing public-sector assets (and liabilities).13 Self-enrichment by public functionaries and their private-sector confederates, the weakening of the fiscal system, and even assorted means for “regularizing” the flaws in the system, as in the trens da alegria (trains of joy) in Brazil, all came to be judged more harshly in public opinion when general austerity sharpened the contrast between insiders and outsiders. Against this backdrop, the economic restructuring and state reform episodes of recent years can be thought of as having ended (at least in part) the Babylonian captivity of the state to which the import-substituting industrialization (ISI) era led. The point of recounting this development is not to replay one of the major and most familiar features of twentieth-century policy history but rather to call attention to several important respects of the context within which administrative reform is taking place today. In particular, both the dimensions and character of the problems to be resolved and the likelihood

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that current policy outcomes will be positive derive from this institutional genealogy. REFORM STRATEGIES

The first consideration in reform strategy has to do with the kind of problems to be tackled and comes from the very nature of what came into being over the past decades. Succinctly put, the unintended outcome of this loosely patterned evolution is that the market failures for which interventionist measures were conceived as remedies have been joined by a full complement of public-sector failures, the further remediation of which constitutes the principal task of the current restructuring of the state and its entrepreneurial-regulatory penumbra. The state grew ever more complex in its structure without a corresponding enhancement of the oversight capacity of either the executive or legislative branches, to say nothing of a judiciary that does not, for structural reasons, exercise effective surveillance over the other branches. State organizations were launched in response to immediate policy needs but without any “environmental impact” assessment to track and tally the consequences thereof for either the business environment or the political economy of policy formation. Yet in most cases, important externalities were generated in the process of state expansion that affected the environment both positively and negatively. Varied as the situations were that gave rise to the era of state-managed development, the fact is that the proliferation and diversification of the parastatal sector and the organs of economic regulation far outstripped the capacity of public authority to monitor and control them. The piling up of transaction costs, on account of the burden of regulation and the complicated official procedures that afflicted most of Latin America, has been widely remarked and even plays a major explanatory role in one interpretation of the rise of the informal sector.14 But the problems were more deep rooted than that and more pernicious. Because accountability and democratic responsiveness were already lacking in the core processes of governance, the expansion of the apparatus of state simply compounded the impact of the principal-agent problem in the economy. At the highest level, this translated into a planner’s preference function that, in the typically centralized administrative structure, was essentially exclusionary: it was unreflective of a large portion of the population that was for all practical purposes disenfranchised, unresponsive to the needs of the lower income strata and smaller firms, and inattentive to the situation of most rural and provincial towns and cities in the distribution of such things as infrastructure investments. The notoriety of governmental inefficiency and corruption

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severely eroded the credibility of public policy and encouraged tax evasion as citizens came to feel that they were not getting value for money from their public sectors. With the “thickening of government,” as one recent study in the United States has labeled the layering of bureaucracy,15 a problem obviously not confined to Latin America, opportunities for goal displacement multiplied, the enforcement of organizational integrity grew ever more unmanageable, and eventually the cost of maintaining a self-aggrandizing structure of administration mounted to unsustainable levels. The very cumbersomeness of the state apparatus tended to diminish governability.16 Further, as the United States and other countries have discovered, given the strategic position of the “state bourgeoisie” vis-à-vis the policy process, it has proven easier to divest the state of its direct economic role than to pare back and reshape the larger administrative apparatus to which the parastatal sector has been appended. Consequently, as the parastatal/regulatory structure sprawled across the political landscape, transparency diminished, accountability tended to drop out of sight, and the unwieldy organizational landscape was seeded with the potential for bureaucratic maneuvering to forestall fundamental change. What did clearly grow amid this loss of coherence in the administrative machinery of government was the supply of rent-generating niches.17 And when neither market nor administrative discipline could be applied and a soft budget constraint was de facto widespread, the end result was a structural instability that Rudiger Dornbusch and Sebastian Edwards labeled “macroeconomic populism.”18 With so many fiscal resources required to meet the investment requirements of state-owned, capital-intensive sectors, to cover operating deficits, and to finance patronage schemes, the real social investment needs tended to be pushed aside. Ultimately, the profligacy, waste, fraud, and mismanagement engendered by the soft-budget constraint redounded to the detriment of even basic public investment programs, which had to be scaled back or financed by foreign borrowing. By the 1980s, the structure’s internal contradictions grew to such a scale that the system was no longer viable. Some idea of the cost overburden imposed by the inflation of nonproductive expenditures and the rise in transaction costs can be gained from the adjustment costs that several Latin American economies have had to reckon with in the process of economic opening. The fact that economic restructuring and administrative reform originate in the same set of circumstances is no doubt the reason that the World Bank, whose interest in administrative reform subsided after the 1960s, is today supporting programs in more than two dozen countries around the world to streamline the state and improve public management, including the following:

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• civil service reforms • the introduction of improved public accounting and fiscal control systems • the development of better financial management and information systems • reforms in the administration of law • audit mechanisms • performance monitoring to evaluate outputs and not just inputs • altered training and management systems to deal with the characteristic evasiveness of bureaucracy • the introduction of congressional scrutiny of the executive branch • decentralization of functions to state and local governments to counter the habit of administrative centralism • the introduction of competition into the public sector to enhance accountability

All these changes are aimed at building institutional capacity and evince the recognition by the Bank that, ultimately, restructuring involves not only changing the contours of the economy but also reconfiguring the administrative system. Mindful of the ever-present tendency of public agencies to backslide and the difficulty of effecting permanent improvements in parastatals, the Bank has also encouraged privatization wherever possible as a safeguard against the behavioral recidivism that seems endemic in public bureaucracies. In Argentina, for example, the spread of privatization is credited with having significantly reduced the amount of corruption. The complementarity of shared origins in the hindrances to improved performance, whether economic or administrative, has also led both the World Bank and the Inter-American Development Bank to support a considerable variety of programs to improve the efficiency of social expenditure; to support the development of modern information, documentation, and legislative reference services for national legislatures; to modernize state-level administration (in Brazil); to develop integrated budget systems that provide instant access to budgetary data and information on public credit and to install paperless public accounting systems (in Argentina); and to simplify customs administration and establish continuing communication between customs officials and brokers throughout the country (in Chile). On their own, governments have begun to eliminate redundant legislation, abolish various kinds of governmental monopolies (as in the export of coffee and sugar in Brazil or in the commercialization of wheat in the same country). In short, although economic structure and administrative efficacy have interacted to produce a wide range of problems in years past, the shared origins of the problems point to complementary solutions. The relation between structural adjustment and administrative reform is, in other words, equally interactive.

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A second constraint in reform strategy, however, and one that operates more beneficently than the first, is that the massive structural changes and institutional developments that were associated with the policies of statemanaged development did result in significant improvements, over several decades, in real factor productivity in several of the major economies of the region, as Angus Maddison and his collaborators have shown.19 Offsetting the drag of public-sector failure, in other words, was the buildup of human and organizational capital that took place in the wake of the myriad policy-induced institutional changes. Even within the public sector, for example, the successes of such organizations as the Vale do Rio Doce Company (CVRD) and Brazilian Aerospatial Enterprise (Embraer), Venezuelan Oil Corporation (PDVSA), the Fundacion Bariloche of Argentina, CORFO in Chile, Mexican Industrial Development Bank (NAFINSA), and others attest to a growing capability in the public sector. Thomas Trebat’s judgment of the Brazilian parastatal sector, although realistic in pointing out shortcomings, nevertheless recognized the considerable number of instances in which performance was at least satisfactory.20 Meanwhile, the recuperative powers and resilience of so many economies in the aftermath of the debt crisis, the notable shift toward manufacturing exports, the rise of outward foreign investment by Latin American companies, and, indeed, the ability to carry out privatization programs so successfully all point to a maturation of private-sector organizational capacity behind the shelter of ISI policies.21 The possibilities of such a system have often been overlooked in the prevailing negativity that colors much of the policy analysis of recent times, especially the retrospective assessments of the era now ended. In this respect, the postwar experience of Italy is particularly relevant as a correction of perspective, for in a country that was plagued with red tape and bureaucratic inertia, an extensive interventionist pattern that reflected both indirect and direct intervention, clientelism, rent-seeking, an extraordinarily high rate of political turnover, and corruption, the economy nevertheless achieved a high growth rate for years, overtaking the far more mature and, one would have supposed, better-endowed British economy in the region’s aggregate size and per capita product rankings. The assessments of the World Bank specialists who prepared the trenchant analysis of Bureaucrats in Business cannot be disputed, but the ensemble of policies with which parastatal expansion and the piling up regulations were associated, in Latin America as in Italy, also turns out to have been a reasonably fertile seedbed for the development of human and social capital—and for moving resources from traditional uses into branches of production with more potential for dynamism.22 Such appears to have been the case in Italy, and it has certainly been true in Latin America, where the institutional territory has been almost totally revamped over the past half-century. To be sure, the costs seem to have mounted over the years in relation to the benefits yielded in some

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areas of institution building, but it is possible to say that the nongovernmental sector has finally outgrown the need for subsidies and special encouragement and is able to operate more effectively in a less fettered environment. Further, considering the pace and sweep of some of the reforms of recent years, in notable contrast to the reform attempts of the 1960s, the human and organizational resources along with the information resources available to the major Latin American governments these days and the policy learning that has evidently taken place of late all augur for a relatively optimistic view of the prospects for substantial reform of the public sector. Quite properly, the emphasis of recent years has been placed on deregulation and control in order to free the market to do its work more effectively. Yet, close scrutiny of what has been going on and of what is needed for satisfactory operation of the new economic structures shows that alongside deregulation has developed a related process that has major implications for rebuilding the state: namely, the need to develop a new regulatory framework that is more attuned to the needs of a complex industrial system. This additional facet of complementarity takes several forms, among them the need for environmental protection; for product standards to protect consumer health and safety (and meet the more exacting demands of expert markets as well); to enforce competition where the opening of the economy does not establish contestable markets (especially in the nontraded goods-producing sector); to oversee “public utility” industries that are privately operated; to enforce transparency in capital markets by requiring more disclosure of verified financial information; and to ensure the stability and integrity of the financial sector by exacting better management from financial intermediaries whose operations have already got them into deep trouble in Mexico, Brazil, Venezuela, and Argentina, for example. By the same token, most countries are still in need of new regulatory systems to revitalize their social security programs, to deal with the seemingly intractable problems of health care, to deliver educational services that meet the evolving needs of the labor market and with greater efficiency, and to provide the healthy and safe work environments that the major industrial economies increasingly demand and impose as a condition for receiving imports from newly industrialized, developing countries. REASONS FOR REFORM

There are three paramount reasons for effecting these public management reforms. First, for years overextended bureaucracies have absorbed a substantial portion of the funds allocated to the production and delivery of social services. Little is gained if the resources saved through the privatization of enterprises are consumed instead by maladroit administration.

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Second, like the prerequisite of environmental regulation, preconditions relating to working conditions have already begun to appear in, say, U.S. commercial relations with Mexico through the North American Free Trade Agreement (NAFTA) and European Union relations with central European states. One can be absolutely certain that, prodded by well-organized interests within industrially advanced economies, this type of “social” conditionality will spread in the future, covering more fields and being enacted by more countries, and be applied far more rigorously than it is today. Hence, corresponding adjustments in the regulatory regimes of exporting countries will be a sine qua non for success in today’s global economy, given some countries’ penchant to raise charges of social dumping to curtail imports from suppliers like those in Latin America. Third, the installation of systems to monitor compliance with the new sets of regulations is part and parcel of the agenda for administrative reform. All too often modernization has been a Potemkin village. Unless there are effective implementation measures, the redesign of public management will yield relatively few positive results. There are two other special areas of state reform that are central to a successful negotiation of the postrestructuring environment. One is the administration of justice. As economies open and both product and capital flows increase and at the same rate as the trade in services, the costs of adjudication, both directly and indirectly as a component of risk premiums, will figure ever more importantly as an element in transaction costs. Timeconsuming delays in legal processes, corrupt and arbitrary decisions tied to preferential treatment of some litigants, and other defects all inflate the costs of doing business from a social point of view and thereby reduce competitiveness differentially, falling with particular severity on the smaller and medium-sized firms that may be important as employment generators but that can ill afford to buy protection from the system of courts. That the poor and even middle class are likewise disadvantaged simply contributes additional weight to the social inequity that has become increasingly troublesome in country after country. 23 As the new institutional economics has convincingly demonstrated, though this finding was anticipated long ago in the work of John R. Commons, the reliability and efficiency of the transactional framework and the procedures it provides for litigation contributes a number of important externalities that partly determine what Harvey Leibenstein called X-efficiency, a construct that refers to factors and conditions that in a diffused way bear on systemic operating efficiency. The second area involves the design of the administrative system as a whole. Fiscal decentralization has come to be recognized as desirable on economic grounds as well as for reasons of strengthening democracy and renewing the structure of public management by bringing it closer to the

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grass roots. The diminution of administrative centralism has become something of a mantra, and there are reasons to move cautiously in implementing the devolution of functions to lower-level entities. Yet movement is essential, and it is encouraging to note that both the Inter-American Development Bank and the World Bank have taken steps to hasten the process, as in the latter’s loans to sets of revolving funds in support of municipal development.24 The essence of institutional development—in the sense of building organizational capacity—is reflected in the goal of enabling municipal governments to raise funds on the capital markets to finance public works projects on their own, a goal that implies redesigning revenue systems, building local capability in public budgeting, and implementing project evaluation and management. Socioeconomic inequality, which inhibits formation of the social consensus on which democratic policy stability must ultimately rest, has been exacerbated by the tendency in many places to underallocate resources to regions away from the main metropolitan concentrations, with the result that immense quantities of natural resources and human capital are left underdeveloped for want of adequate infrastructure. In short, there are many things to be done to increase the adequacy of the central fiscal structure, on both the revenue-gathering and the expenditure side. Efficiency in fiscal administration is still substandard despite sporadic efforts since the 1950s, largely gestural in retrospect, to strengthen the system and improve its impact on the economy.25 But until the benefits of reform reach out to encompass the multitude of provincial governments and communities where most people live in most countries, enabling local providers to respond more effectively and increasing opportunities for local participation, the already counterproductive inequalities are likely to intensify, accountability to remain low, and substandard performances to be perpetuated.26 Without, for example, vigorous participation in allocative decisions, many regions are certain to remain underserved by the telecommunications services that are crucial to fostering development, to lack the means of transport adequate for supporting a vital regional economy, and to continue to suffer deprivation in their opportunities to accumulate human and organizational capital. Meanwhile, interregional disparities will continue to mount and people will deal with them in the only ways possible, either by reconciling themselves to life amid deprivation and incurring the high opportunity costs of underutilized resources or by migrating to the already overcrowded urban areas. In this, as in so much else, the economic and governmental improvements go hand in hand. NOTES

1. Economic restructuring has tended to dominate the picture because of its relation to resource availability, on which everything else depends.

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2. Economic restructuring to create market-friendly economies has typically consisted of (1) tighter fiscal policy to reduce the deficit and restraint in monetary policy to assist in macroeconomic stabilization; (2) deregulation of prices, including interest rates and exchange rates; (3) trade liberalization; (4) reduction or elimination of subsidies; (5) privatization; and (6) drastic reduction in controls and regulations on domestic and foreign investment and on business operations in general. 3. See Irurozqui (1952). 4. The antecedents of state restructuring are old indeed and go back, in Spanish America, to the Bourbon administrative reforms of the eighteenth century and, in Brazil, the Pombaline reforms in the same general era. With independence, public organization changed again but, in Spanish America, entered a protracted period of deterioration and disorganization. Some improvements took place in several countries as the nineteenth century wore on, most notably in Chile and Argentina, and in Uruguay the early years of the present century brought the installation of the first welfare state in the Americas. The setting up of central banks by the Kemmerer missions in 1923–1933 represented major improvements in public management, and various forms of technical assistance that began in the 1940s can also be read as improvements in public administration. 5. One of the earliest outside glimpses of the administrative territory was provided in Ebenstein (1945), but after that a sizable body of description and analysis was published. For a more or less representative sample, see Davis (1958); Daland (1963); Riggs (1964); Daland (1967); Graham (1968); and Hirschman (1973). See also the abundant literature on development administration, a typical example of which is Thurber and Graham (1973). The Latin American Development Administration Committee’s occasional papers series contain many useful insights from the experience of the 1960s and 1970s. 6. See, for instance, the conference organized under the auspices of the InterAmerican Development Bank on “Inequality as a Constraint on Growth in Latin America,” summarized by Birdsall and Sabot (1994). 7. There is repeated recognition of this in the earlier literature, as in Sadler (1954); Mosher (1957); Glick (1957); Domergue (1961); Weidner (1964); Sufrin (1966); and Mosher (1966). 8. The same logic was used in setting up decentralized and semiautonomous organizations such as regional development agencies and parastatal enterprises. 9. See, for instance, Chase (1951). 10. Economic and Technical Mission to Cuba (1952). 11. In keeping with the temper of the times, there was a general acceptance of the inevitability of an expanding public sector. Ever since Bismarck, social welfare functions had become increasingly respectable and expected in industrial/ urban societies. The age of cartels and trusts had bred a public anxiety about uncontrolled big business and justified the growth of regulation. Some states, such as France, had transferred their dirigiste tradition to the modern age. The breakdown of capitalism in the 1930s and the rise of Keynesianism, to say nothing of the stagnationist viewpoint of the 1930s, all accorded the state a permanently larger role in macroeconomic management and led to government commitments to full employment policies in the postwar era. Developments in the 1930s and 1940s also created a widespread acceptance of economic planning, one that was seemingly validated in the Marshall Plan, and the growing influence of social democracy and sundry Marxian political views added to the intellectual/political climate that, in developing countries, placed state action at the center of developmentalism. 12. Wilson, ed. (1980, 1989).

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13. Public exasperation with the swelling volume of corruption has been a force in redefining state functions and administrative processes. In several major countries, among them Brazil, Mexico, and Venezuela, corruption has become a major political issue in recent times. 14. De Soto (1989). 15. Light (1994). As Light observes, the evolution of the public sector has brought more layers of management between the top and bottom of government, with more administrative units and functionaries at each level. In 1960, for example, senior management consisted of four layers: secretary, under secretary, assistant secretary, and deputy assistant secretary. By 1992, the number of layers had tripled and, to cite only one example, the number of assistant secretaries had grown from eighty-one to 212. Thanks to the bureaucratic insulation, accountability declines, information flows become increasingly distorted, and guidance from above tends to evaporate on the way down. 16. Three kinds of crowding-out are distinguishable in this overexpansion of the state and parastatal sectors: a fiscal crowding out that was manifested in the excessive absorption of public revenues to cover current operating expenses of parastatals and the core bureaucracy, a monetary crowding-out that came from the demands of the parastatals and the borrowing of the government itself on local and foreign credit markets, and an institutional crowding-out that derived from the proximity of the high functionaries to the policy process, which enabled them to dominate the policy agenda and overshadow other, competing interests in the formation of policy. 17. Buchanan, Tollison, and Tullock (1980), explore an analytical terrain that sheds a great deal of light on the distortions in resource allocation occasioned by systems of this sort. 18. Dornbusch and Edwards (1989). 19. Maddison et al. (1992). 20. Trebat (1983). Similarly, Tendler (1968) reached a cautiously positive judgment in her early study of a key part of the parastatal sector. 21. No doubt the gains in the parastatal sector, behind all the epiphenomenal defects, were also substantial. The Argentine Oil Company (YPF), for example, epitomized the problems of bureaucratic mismanagement; in almost every respect it fell short of international industry performance standards. Yet, once privatized, it was very quickly rehabilitated by private capital and management, so that in relatively short order it regained profitability and sallied forth to acquire overseas operations. 22. World Bank (1995). 23. Dakolias (1996) provides suggestive insights into how the situation might be improved. 24. A typical example is the loan of Inter-American Development Bank funds to Ecuador’s Banco del Estado for capitalizing a revolving loan fund for municipalities to use in support of public works, securing technical assistance for training municipal authorities in the management of public works, and the like. An interesting feature of the financing is the requirement that the borrowing central government restructure its revenue transfer system to make the shifts of funds from central government to municipalities more transparent and guidable by specific guidelines. 25. See, for example, Eichengreen, Hausmann, and von Hagen (1996). 26. Given the international pressure to remove discrimination in government procurement, it may well be that decentralized purchasing would result in benefits

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to local suppliers. There is a fair amount of evidence that administrative concentration tends to increase the cost and to decrease the effectiveness of demands directed toward the bureaucracy by the provincial population and that local resources that could contribute to development tend to be overlooked in the planning process.

5 Possibilities and Political Imperatives: Seventy Years of Administrative Reform in Latin America Peter Spink In November 1996, the Centro Latinoamericano de Administración para el Desarrollo (CLAD) held its first Interamerican Congress on the topic of state reform and public administration. For most of the invited speakers and the more than 700 researchers and practitioners who had come from all over the region to present their ideas, the linking of “public administration” with “state reform” was natural. Few would question the predominant view that government effectiveness in relation to urgent social and developmental issues should be framed within the equally urgent need to re-size the state. Virtually without exception, Latin American countries are at present engaged in processes of state reform. Programs under such titles as “Modernization of the State” and “Public Sector Modernization” are being financed throughout the region by the World Bank, and between 1990 and 1995, the Inter-American Development Bank (IDB) approved some 100 or more programs in which “strengthening” and “reform of the state” components were present. Earlier in 1996, the UN General Assembly had adopted a revised resolution on public administration and development. 1 Among the twenty clauses that form the resolution, the UN invited the Bretton Woods institutions to assist member states involved in economic restructuring programs to pursue national policies aimed at improving the development and management of their human resources; in addition, it oriented its own agencies to focus activities on government capacity for policy development, administrative restructuring, civil service reform, human resource development, and public administration training. The theme of state reform is also present in countless local seminars and country-based public administration journals, supported in discussion by academics, practitioners, and bilateral and multilateral agencies, where 91

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it is being broadened to include both new approaches to the organization of public services and the recognition of the importance of civil society. Thus, programs planned for the second half of the 1990s by the IDB already include reference to the strengthening of civil society (as well as the executive, legislative, and judiciary branches of government), and there are a number of significant World Bank publications discussing the role of nongovernmental organizations (NGOs) in participatory development.2 Such news might lead to the assumption that having emerged from the economic crisis of the 1980s into the relative peace of widespread democracy and new regional economic initiatives, Latin America was back on the road to development with a clear and effective set of reform strategies, supported and approved by the current best thinking within the leading international agencies. The objective of this chapter is to place this assumption in check by showing that it reflects a shallow appreciation of the implications of continuous Latin American involvement with administrative reform over a period of seventy years. What a more appropriate approach to reform might be is outside the specific focus of this chapter and part of a wider set of questions about government action and development. In this chapter I do, however, suggest that a more detailed examination of the history of attempts at public administration reform must at least raise serious doubts about the optimism and direction of current activities. In noting the contrast between the conclusions derived from country-specific histories, where administrative reform can be seen against the background of political events, and those provided by successive generations of regional general reform models, I argue for a socialconstructionist approach to reform in which theories of action are seen as narratives produced within an interorganizational matrix of shifting institutional relations. The resulting “current view,” it will be suggested, is far more a consequence of the increasingly restricted scope of policy brokers than it is a critical analysis of the conclusions of reform experiences. STUDYING ADMINISTRATIVE REFORM IN LATIN AMERICA

I base my conclusions in this chapter on a seventeen-country study of administrative reform activities in mainland Latin America (Argentina, Chile, Uruguay, Paraguay, Brazil, Bolivia, Peru, Ecuador, Colombia, Venezuela, Panama, Costa Rica, Nicaragua, Honduras, El Salvador, Guatemala, and Mexico).3 These countries have different geographical and economic insertions and market structures and are of varying size, yet they share many partial links and commonalties that keep their dissimilarities within reasonable limits. For example, Lawrence S. Graham (1990) has pointed to

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the centrality of the state both in role and concept. For North Americans, state is normally a word that refers to the middle tier of government action and the place where people live (as in the state of Vermont). For many northern Europeans it hardly appears in conversation—it is governments, not “states,” that are responsible for actions. In Latin America, political regimes tend almost without exception to concentrate political and administrative power within an “executive,” or presidential system, with very little role for a legislature, which arrangement, despite analytical attempts to the contrary, continues resiliently (Linz and Valenzuela 1994a). It is this distant fused space where executive, legislator, politician, and public administrator merge into authority figures with rights of office and discretionary powers and have to be approached in roundabout ways for favors, that characterizes much of Latin America’s collective representation and concern for “the state” and its role. The study of the state and public administration in Latin America has several distinguishing characteristics when comparing it to other contexts of public sector reform. The first of these is that the process of political separation from Europe or, specifically, Spain and Portugal, took place before the developmental constructs of the late twentieth century were socially formed (Sachs 1992). Thus terms like “decolonization,” “rich-poor,” or “emerging nations” were not to be found in the political debates and public discourse of many of those who were active in nearly 200 years of successive attempts to change Latin American societies. Indeed, the Bourbon reforms in the 1760s and the presence of Charles III’s Visitador Galvez, whose role was reorganizing administrative structures in the colonies, can be seen as providing an early lesson on the unintended consequences of reform. Galvez’s actions generated widespread resistance among the local-born elites and were a substantial factor in stimulating the independence movements. Whether Galvez can be held responsible or not, Latin America has certainly made administrative and state reform into a major agenda item of political and intellectual discussion, investing in studies, seminars, and political promises to act in relation to the state and administration. The direct and indirect financial investment has been immense, as Gerald E. Caiden (1991: 262) comments: The most important fact about Latin America over the past four decades has been the stubbornness with which it has pursued administrative reform, despite so many failures and disappointments. Possibly nowhere else in the world have so many governments announced bold, imaginative reform plans to achieve so little in practice.

Latin America has also had its own universities, schools, and institutes for at least a century and in some cases much longer. The first universities,

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essentially theological faculties but nevertheless providing an important basis for local intellectual debate, opened in Lima and Mexico in 1551. By the middle of the next century, universities had been created in Bogotá (1580); Cordoba, Argentina (1613); Sucre, Bolivia (1621); Yucatan, Mexico (1624); Quito, Ecuador (1622); Ayacucho, Peru (1677); and Guatemala City (1676). By 1650, Bogotá already had four universities or institutes of higher education. Brazil would be the last country to develop its own seats of higher learning but even there schools, faculties, and later universities were in place by the early part of the twentieth century. Consequently, Latin American elites have had access to and have often participated in leading-edge centers of technical and scientific research. With its own lawyers, economists, social scientists, and administrators and referent organizations such as the Economic Commission for Latin America and the Caribbean (CEPAL) and the Social Sciences Latin American University (FLACSO), Latin America could not be described as a passive receiver of “official public sector wisdom.” Any study of public administration is almost by definition comparative. In order to be able to think about how a specific phenomenon is structured—for example, government and public administration in country A— it is necessary to develop some mechanism that differentiates it from other, similar phenomena. Given that most countries tend to have only one public administration—at least in formal or institutional terms—its form and character only emerges when compared to that of another country. The difficulty is in how this comparison is made. Is it to be based on the question, “What is different between A and B?” or is the question in fact “Where is B different from A?” The difficulty with the second, apparently equally innocent form of questioning is that if by any chance A is construed as being “better” than B, the follow-up question becomes “And how can B resolve this problem?” The force of this supposition can easily be demonstrated by considering the general disbelief that would greet the statement that there was nothing intrinsically wrong with public administration and the state in Latin America. To describe the process of reform from the 1930s to the present day requires bringing together three aspects of reform. The first, more straightforward, is the public history of administrative reform in each country as reported in source documents and congress papers. This provides access to the way in which reform actors talk about what was done, where, for what reason, and to what end. The second dimension brings in the political, social, and economic contexts of the reforms, which, depending on the period, can be national, regional, or international. Thus, the political context of Paraguay after Alfredo Stroessner is simply national, whereas the various social emergency funds of the 1980s have as a background the general Latin American crisis of the same period. The third dimension refers

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to the strategies of public administration reform that are made available at any one time and that circulate as current best practice or as a favored intervention technique among a number of agencies, both inside and outside the region. It is very easy to become overly ambitious in gathering background material and examples of reform. Each step opens up more and more possibilities, and once the move is made from general descriptions to specific public-sector changes and laws, there is a potentially neverending supply of case material. I have decided to concentrate on those events that institutional actors refer to when they talk to each other about administrative reform and provide self-reports of their own reform actions, histories, and wishes. Especially useful were documents developed by Eduardo Lamas for the Instituto Centroamericano de Administración Publica (ICAP) in 1969, various local conferences on administrative reform in the 1960s and 1970s, and meetings held under the auspices of CLAD and the Spanish INAP during the 1980s (CLAD 1979, 1992; INAP 1985, 1987, 1988). Comparative studies are less frequent and do not cover many countries (for example, Wahrlich 1974; Hammergren 1983; Salgado and Valdés 1984; Kliksberg 1984; Chaudhry, Reid, and Malik 1993; RAP 1994), but a number of specific country studies exist. Curiously, administrative reform has not been discussed much in the principle area studies journals. (Hopkins 1974 is one of the few general attempts at reviewing research and theory that is well worth rereading in 1997.) About 200 locally printed books, articles, and mimeo reports, containing more than 400 specific country references to public administration reform activities, histories, and plans, were used in writing this chapter. Paraguay had the least coverage (five sources), but most countries had ten to fifteen references, and some, especially Brazil, Colombia, Mexico, and Venezuela, numbered more than twenty-five mentions. On the broad economic and political spectrum of Latin America, the period in which the analysis begins (from the 1930s onwards) marks the time when many of the traditional oligarchies of raw material and agricultural producers and their exporting agents and suppliers came under pressure as the basis of the export-import model broke down. This happened first during World War I, when there was a high demand for raw materials but no reverse supply of finished goods, and later in the Depression when there was no demand for the former. For many years, raw materials had flowed outward, and finished goods had flowed in. Commerce, finance, and the land held the power, and a small urban professional class represented the voice of liberalism. The gradual move to import substitution industrialization (ISI) meant industry and an urban workforce. However, this change did not take place in any way analogous to the rise of the industrial entrepreneur in nineteenth-century Europe, whose relation with the industrial working class was to play such a decisive

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part in the emergence of the modern northern European state (see Polanyi 1944). In Latin America the reverse was the case: In reality, the business spirit of the industrial bourgeoisie in the capitalist countries was, in Latin America, a characteristic of the state, especially in the periods of specific impulse. The state occupied the place of a social class, whose appearance history needs but has had little success. (Galeano 1994: 228)

Working-class movements were present on the continent, largely brought by immigrant workers as part of their own traditions of labor organization. Between 1910 and 1925 there was a surge of anarchosyndicalist movements, and the response by the traditional oligarchies and new military professionals was severe. At best, governments in this period could be called “cooptative democracies” (Skidmore and Smith 1992), in which ruling elites involved the newer middle-class politicians within various liberal regimes. Latin American liberalism, without a strong middleclass ascension as an economic power and with the urban professionals dependent on rural elites, was more rhetoric than action and was certainly not strong enough to face the consequences of the Great Depression. As Peter Calvert and Susan Calvert (1990) comment, between 1930 and 1933 armed forces had overthrown or forced changes in the governments of Argentina, Brazil, Bolivia, Chile, Ecuador, El Salvador, Guatemala, Honduras, Panama, and Peru, and in various others such as Uruguay, presidents assumed considerable powers. By the end of World War II ISI was the dominant theme, especially for those countries whose size made the raw material export model impossible to sustain. By the end of the 1950s in many places, rapid urban development and industrialization was under way along with a growth in middleclass incomes and an increase in the size of the urban proletariat. Conditions in rural areas in the 1950s, however, remained largely the same, and slowly but surely problems of land reform started to emerge in those countries with a large rural labor force. The state that would assume an active role in business initiatives through raising tariff barriers, setting import restrictions, and furthering investment in state and private enterprises would also restrict, with rare exceptions, the emergence of autonomous urban trade unions, worker-based political parties, and rural reforms. The breakdown of the populist model in the beginning of the 1960s led to a very active, if not chaotic, period of political organization in many countries, fired by discussions on development and by different approaches to economic and social planning. The newer ISI model was exposing class conflicts and unresolved social questions regarding income distribution. In many places the consequence would be a politicized military, not within a party but almost always as a party, with a theory of order

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and development, of planning and national sovereignty, antileft and against any group that would not accept the need for a managed society. The pattern of development led by these various coalitions around the armed forces has been described by Guillermo O’Donnell as bureaucratic authoritarianism (1973) and by others as military developmentalism (Calvert and Calvert 1990). Not until well into the 1980s could Latin America look at itself as a set of countries where governments were a result of relatively free elections that, significantly, a very large percentage of their populations were experiencing for the first time. DEFINING ADMINISTRATIVE REFORM

For the purposes of this chapter, I make no assumption about the specific or correct term to be used in referring to the organizational consequences and actions surrounding the development of the state and public administration. Indeed, I assume that the various definitions and redefinitions of such a term used within Latin America are themselves worthy of inspection. To place these within context, it is helpful to identify some of the more general trends in definition that have been articulated internationally over the years. During the period leading up to the early conferences under the aegis of the United Nations in the late 1960s and early 1970s, the term in use was “administrative reform.” The UN report on its 1971 Brighton conference defined this well: Programs of major administrative reform are frequently essential to set up the necessary administrative capabilities for economic and social development and for carrying out government functions in general. . . . Major administrative reforms are defined as specially designed efforts to induce fundamental changes in public administration systems through system-wide reforms or at least through measures for improvement of one or more of its key elements, such as administrative structures, personnel and processes. (UN 1971)

Since then, the term has been subdivided and stretched to include specific administrative procedures, personnel systems and local change programs, structural adjustment types of civil service review and reform, mixed capacity building and thematic change programs within the public sphere, and major constitutional reforms of the state. This change was noted in the report on the 1981 UN Bangkok Conference on Enhancing Capabilities for Administrative Reform in Developing Countries: Perhaps as a result of the frequent use of the phrase in recent years, there is a tendency to assume a commonly shared view of administrative

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reform. However, a closer examination will show considerable variation in what is meant or referred to as administrative reform. There is also a marked absence of any clear-cut criteria to distinguish administrative reform from other activities such as administrative improvement, administrative change and administrative modernization. (UNDTCD 1983:4)

Louis Hammergren’s (1983) summary of available definitions reflects this period well: “planned or at least premeditated systematic changes in administrative structures or processes aimed at effecting a general improvement in administrative output or related characteristics.” By the 1990s the term administrative reform had been stretched even further and could be frequently found absorbed within “state reform” or “public sector modernization.” The result has been an inclusive process by which new events are added to old, forming an institutional archaeology of administrative concerns. In his 1991 review, Caiden noted sixteen major areas included under the title of administrative reform: 1. 2. 3. 4.

5. 6. 7. 8. 9. 10. 11. 12. 13.

14. 15. 16.

scope and activities of the administrative state national planning, agenda setting, and performance indicators organization and structure of the machinery of government rule of law mechanisms such as constitutions, accountability, and the right to be informed public policymaking professional delivery of government program services public budgeting and financial administration public employment (practices and conditions) public regulation (safeguards and practices) preservation and maintenance of public capital general services (consistency, performance, and standardization) public enterprises (impact on economy and return on investment) public management practices (organization and methods, de-bureaucratization, efficiency, and quality) public ethics (honesty, professionalism, anticorruption) public participation (voluntarism and complaint handling) institutionalization of reform (research and development, training, agencies, and schools) EARLY REFORMS

The choice of “seventy years” for the title of this chapter is not random. The civil service personnel reforms in the United States had hardly begun and the concepts of rich countries versus poor countries and developed versus underdeveloped had still to be coined when the Kemmerer missions

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first appeared in Latin America (Drake 1989; Siedel 1994). These financial commissions, named after their U.S. organizer, Edwin Walter Kemmerer, visited Colombia (1923, 1930), Chile (1925), Ecuador (1926–1927), Bolivia (1927), and Peru (1931). Their aim was to advise host governments on various aspects of currency reform and banking and to make various recommendations on the organization of accounting controls. Using as a reference the U.S. General Accounting Office, Latin American countries set up various offices of the “Controller General of the Republic.” Budget management had specific consequences for administrative reform because it was the emphasis on the importance of practical procedures for budget control that laid the basis for the professionalization of this area. Later, when organization and methods units began to appear as an aid to efficiency, they were initially subordinated to the budget offices. Attempts to introduce practices related to human resources and merit systems with tenure began to follow in the 1930s, in Brazil through constitutional reforms (1934), Argentina (1937), Colombia (1938), Paraguay (1944), and Panama (1946). These changes received a big stimulus from U.S. public administration career reforms but were also part of the early dissemination of personnel management practices. Many, if not all, of these experiences were to become negative, as clientelist practices returned to undermine merit systems. The degree to which personnel issues have not been resolved can be seen in the constant presence of basic personnel administration and career issues in reforms of the 1980s and in the conclusion of several recent World Bank studies (cf. Chaudhry, Reid, and Malik 1993; Nunberg and Nellis 1995). After the 1940s, efficiency questions began to appear. Offices of organization and methods were set up in many countries, reporting either within the judicial system (as subordinate to administrative law), to budget and finance offices (with some success), or later to the general presidential office as this gathered shape and consistency. By the 1950s, administrative training and institution-building approaches were stimulated by the example of the Marshall Plan (1948–1951). The Brazilian Public Administration School (EBAP) in 1952 and Escuela Superior de Administratión Pública de América Central (ESAPAC, which became Instituto Centroamericano de Administración Pública [ICAP]) in Costa Rica in 1954 were followed by many administrative staff colleges and training centers that later would become national institutes of public administration (INAPs) and national schools of public administration (ENAPs). Much of the administrative training and advisory work of the 1950s were influenced both by a rationalist model of efficiency and by the clear separation of politics from administration. Introduced by Woodrow Wilson in his 1887 essay on public administration, such separation was a concrete strategy of John Willoughby in the U.S. Department of General Administration.

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Beatriz Wahrlich has commented (1974, 1984) on the influence of James Gullick’s POSDCORB (planning, organizing, staffing, directing, coordination, reporting, and budget) model as a creed for describing the administrative role, and I. Perez Salgado (1996) has drawn a parallel with Henri Fayol’s 1925 general treatise on administration. Many formal legal instruments, decrees, and normative descriptions of public organizations within the region still carry a description of jobholders’ duties and responsibilities couched in these terms. Although the U.S. influence is evident, the separation of government from administration, with the resulting ordered codes of administrative practice, fitted well within another and rarely mentioned feature of Latin American administrative life: its legal structure. This owed much to Napoleon Buonaparte and the Code Civil. Independence movements do not necessarily need models in order to exist but are certainly influenced by them if they do exist. In the early 1800s, there were two possible examples of sufficient stature to serve as potential foundations for debate: the newly independent United States and postrevolutionary France. Because of the Anglo-Saxon influence in North America, political development was confined to the county and state level, concentrated on a small strip of the Atlantic coast with consciously very restricted federal functions. There had never been a strong colonial “center,” and there was no need to provide one; ideologically the founding fathers were moving in a different direction. Their constitution was widely copied but not their legal system. The French had removed a center and created a new one, along with a model of state that concentrated and subordinated the powers of regional and local government. This was a model that mirrored Latin American history. What is more, it was expressed within a language and legal framework that shared with Spain and Portugal the Romanist tradition. The colonial audiencias had also assumed responsibility for administrative surveillance; law and administration were linked. For Napoleon, creating a system of administration required drafting the rules and procedures of that system. Part of it was derived from the earlier Roman pattern with its clear lines of military command, but French practice of the time was not only restricted to the basic “written” law. The laws of “customs” were also strongly established, bringing different traditions and practices from one part of France to another. Napoleon moved to clarify the whole of law, resolving conflicts between the written and the customary across all aspects of French life. The Code Civil spread both forcefully—as Napoleon placed more and more of Europe under French hegemony—and through identification as it was taken up by former colonies in Latin America. Comparative law scholars Konrad Zweigert and Hein Kötz (1987: 117) comment:

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The newly founded states of Latin America needed national and unifying civil codes; the only available model was the French Code Civil. Spanish law was out of the question as being the law of the previous colonial power; in any case it was neither codified nor uniform even in Spain where local customary laws survived. In contrast the French Code Civil was the product of the Great Revolution, rooted in a world of ideas on which the Latin Americans had frequently drawn to justify their own struggles for independence. In its compactness and terseness of phrase the Code Civil was far ahead of any other model, and furthermore it was so full of traditional concepts and ideas, especially from Roman law, that its reception represented no breach with the legal institutions familiar to the Spanish and Portuguese settlers. The civil codes of the Latin American States are consequently heavily influenced by the Code Civil, though to different degrees.

The Latin American adaptations of the “Code Civil” produced a situation in which public law and administrative law determine the orientation given to most administrative actions and specify what can be done, whereas in countries influenced by the Anglo-American model much of administrative and personnel action is covered by existing common law, and moves from case to case are guided by the limits of what cannot be done. The recognition of such potential differences in posture toward order and the form in which it is specified and controlled is essential in understanding why, for example, so much of Latin American public administration reform consists of detailed administrative models or functional codes that have to be enacted in legislation or enshrined in extensive constitutions. The Code Civil for the Latin American countries does not cause things by itself and of itself. A product of its circumstances, it forms part of the continuous adaptations of steering systems within Jürgen Habermas’s model (1984), offering the world an instrumental rationality for the ordering of events. The adoption of the Civil Code both provided a link with the past and expressed a desire about the future, but in so doing it also rendered explicit ways of thinking about that future and bringing it about. Those commentators who would later criticize Latin American reform as “too legal” would forget that “legal” is a quality and not a quantity. THE MAJOR REFORM DECADES

Efficiency, effectiveness, good management, and trained staff provided a general background to the emerging public administration schools and institutes and to the early seminars of the postwar period. This laid the basis for what would prove to be a major reform period and for the effective construction of the “administrative reform debate” in the early 1960s. Several strands are present: the first appearance of UN advisers in public

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administration to carry out diagnoses and make recommendations; CEPAL’s influence and emphasis on planning for national development (Prebisch 1964; CEPAL 1965; Iglesias 1992) with the consequent necessity of a reorganized public service to implement plans; and the widespread introduction of program budgeting, in many cases through the U.S. Agency for International Development (USAID) (Colombia, Ecuador, Paraguay, Bolivia, Venezuela, Chile, Uruguay, Peru, Brazil, and Central America (Flores and Nef 1984). USAID is itself a symbol of this period, having been formed out of President Dwight D. Eisenhower’s International Cooperation Administration and Development Loan Fund by President John F. Kennedy in 1961, within the Alliance for Progress formalized in the Punta del Este Charter (Lowenthal 1991; Robertson 1994). Various factors combined in the 1970s to fix a new concept of public administration reform. Concern with integrated approaches to development had been a theme not only of the intellectual and democratic left but also of the technocratic right, especially that part linked to or within the modernization movements of the armed forces. Integrated approaches required articulation and coordination, and soon the word “system” was introduced on a broad scale to refer to mechanisms of planning, budgeting, finance, personnel, and supply that spanned different agencies yet were linked to a central unit. Administrative reform became the reference word for global changes in structure and personnel that were designed to support national plans and that sought to bring public administration under control by providing structural coherence, functional specificity, and adequate personnel practices with overall budgeting and planning requirements. In a number of cases, such as Argentina, Bolivia, Brazil, Chile, Ecuador, Peru, and Uruguay, this evolution was directly linked to military regimes and their own peculiar brand of developmental theory. But it was also an approach stimulated by the language of “planned change” present both in development agencies and in business and public administration schools under the “organizational development” banner. Attempts at reforms in Mexico and Venezuela are further examples from countries that were not following the military route. The early 1980s were characterized by financial crisis (see CEPAL 1985; Rosenthal 1989) and the mid-1980s by the specific new administrative reform model developed to deal with the crisis at the country level: structural adjustment programs. Structural adjustment models—later to become the “governance” approach (Dia 1993)—had to do with adjusting public-sector budgets to better reflect per capita income and tax levels, removing state control from public-sector enterprises, opening up economies, and reducing the role of the state (Felix 1992). They were frequently coupled with semi-independent and somewhat contradictory social investment funds (Siri 1992; Glaessner et al. 1994). As the 1980s became the

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1990s, the result was often a very restricted view of public administration reform under the heading of civil service reform, with a concentration on reduced numbers, streamlined hierarchies, and better managerial salaries. Venezuela continued to be an exception. Terms such as “downsizing,” “re-engineering,” or “rolling back the state” were being introduced from the competitively hawkish and increasingly neoliberal world of business administration. Although not completely a product of World Bank thinking, they became largely associated with the Bank because of its strategy of financial investment for debt resolution (Eguren 1990). This view of reform had considerable influence on a newer approach that had been emerging gradually in seminars and working parties, without doubt stimulated by the Venezuelan experience with the Presidential Commission for the Reform of the State (COPRE), the work of the UN Development Programme to support the CLAD technical office in Caracas, the general return to democracy within the region, and the growth of new forms of economic cooperation. The result was a shift away from the topic of public administration as such and toward the state (Faletto 1989; Klicksberg 1992; Oszlak 1992; CLAD 1992; RAP 1994). Reform of the state became a broad process of reflection on state and society that integrated and expanded on both global administrative reform and the more specific civil service personnel reforms. By incorporating the widespread attempts at decentralization and the enactment of municipal legislation, it has also led to reflections about the nature of civil society and new forms of social organization. In a significant move, the Inter-American Development Bank added to its more traditional lending role a major technical assistance program to modernize the state and strengthen civil society. The World Bank has also developed specific strategies for improving dialogue with nongovernmental organizations following recognition of the ineffectiveness of hard-line policies in dealing with sustainable development, hunger, and poverty (cf. Serageldin, Cohen, and Leitmann 1994; Binswanger and Landell-Mills 1995). Reform of the state is currently taking many forms, one of which involves moving from a bureaucratic conception of public administration to what is being termed “managerial public administration” (Bresser Pereira 1996b). Practitioners involved in this process see it as having gradually taken shape over a number of years. An earlier alert in this respect came, somewhat prophetically, in the opening address at the 1971 UN conference in Brighton, when Lord James Fulton, head of the British reform commission, referred to the fact that public servants were increasingly being involved in “running things” (UN 1971). As a result, managerial qualities were being called for to “supplement—and sometimes to supersede—those associated with the older tasks and methods” (UN 1971: 273). Managerial public administration seeks to provide a different perspective

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for considering state reform and, in particular, is behind current reform efforts in Brazil. Although reduction in public control of business, the widespread attempts at decentralization of central government, and increased municipal responsibility for service provision have often been a practical consequence of a lack of funds rather than a conscious political desire, the gathering coherence around state reform does suggest that at this broad level a new theory of action is being generated. But how new is it? And what is likely to be its fate? Financial management, organization and methods, personnel administration, management capacity, staff training, organizational design, and the development of regulatory mechanisms and agencies are the areas in which reform has taken place. The overall framework has grown and expanded—from procedures to departments to organizations to the state and, most recently, through NGOs to civil society—but this has been largely an add-on process. Along the way, small sections within budget departments have become work study offices; training schools have grown and become integrated with personnel administration into national civil service departments; and national centers of reform have been created along with their respective commissions and moved from finance through planning and the presidential office, in many cases becoming ministries of their own. The emphasis has shifted from improvements in procedures to the reform of the state, from the practical and the concrete to the symbolic (Spink 1992). At the same time, the more recent models still insist that budgets should be controlled, that efficiency and method studies are vitally important in service provision, that personnel administration procedures are required in order to recruit, select, promote and pay staff properly; that training is relevant or that organizations should be examined and redesigned; and that mechanisms for coordinating and processing information are necessary. All these elements and many others that have been acquired along the way can be found in the action plans of the most recent approaches. Apparently, past lack of success has led not to a reflection on why change did not prove effective but, on the contrary, to the argument that something else needed to be included, that a wider canvas was required with greater powers and scope. It is this inclusiveness that leads to what can be called the technicalvoluntarist view of reform, in which there is an assumption of a clear and correct approach to administration (which is separate from government and politics), which will be effective if leaders have the will and public servants the willingness to put the prescribed approach into practice. Adjustments to the technical approach are made so as to increase its capacity and range, and newer and more centrally placed agencies are recommended as a way of guaranteeing the importance of reform and encouraging willingness.

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If attention is directed to the individual countries and especially to the historical context of the region, a different image of reform appears. Although reform of the state may be the version that circulates within the reform community, it is only one among various possible narratives that compete for space and resources. To begin with, the various descriptions of trends mentioned so far have considered reform as visible, coordinated, and planned actions that can be described as having an overall purpose. As a result, they normally downplay, if not ignore, the everyday processes of administrative actions and improvements; the world of doing things a little better, of trying a different approach. Thus, for example, the representatives from the Central American countries who gathered in Costa Rica in 1970 (ICAP 1971) to discuss reform and hear reports from Brazil, Peru, and Venezuela were all in agreement about how little Central America had done in the way of reform. Yet several of those present were from countries that had already experimented with a number of smaller and more local actions. One of those, Costa Rica, never introduced a specific administrative reform until the late 1980s, when it joined the state reform movement, and even then only in a partial manner. However, in the forty or so intervening years since the Constitution of 1949, it developed its public sector; created new areas of service; and conducted a myriad of small and local improvements in the area of administrative efficiency, organization, and training. There was never an explicit agenda; rather these measures were part of an ongoing emphasis by practitioners and ministers from different and competing parties working in noncoordinated and frequently contradictory ways. The same description can be applied to Chile, which until 1973 also had never carried out administrative reform. Nevertheless, many local actions took place in one ministry after the other, in a relatively autonomous manner with very idiosyncratic personnel rules and methods for dividing ministries and posts between parties. The process was one of gradual improvement, with attendant conflicts and setbacks over many years. Argentina also presents a similar story of local incremental actions following the recommendations of the original National Council for Rationalization in 1933. In all cases, this adaptive process generated significant results. In contrast, in countries that had made major attempts to generate large-scale global and planned reforms, the reverse was the case. Examining the reform history of each country alongside its major political developments shows that systematic and coordinated attempts to reform public administration in a major way have never been successful

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during periods of pluralistic and democratic government. They may be and have been attempted, but their results have not been even a fraction of what is expected. When major reforms have been attempted in periods of military rule, suspension of civil guarantees, and extreme presidentialism (as in Argentina, Bolivia, Brazil, Chile, Ecuador, Peru, and Uruguay during the late 1960s, 1970s, and in some cases the 1980s), the results have been different, at least in the short term. Laws, systems, agencies, and other practices have all been rapidly rearranged. Thus Brazil’s reform commissions began life in the early Getúlio Vargas period of military rule but ran into stalemate during the constitutional period, even though the entire reform group was able to preserve institutional and international support. In 1967, three years after the military coup, the reform would finally emerge as Decree Law 200. In Argentina, Comisión Presidencial de Administración (COPRA) generated national systems for administration in the mid-1970s, and Chile’s Comisión Nacional de Reforma Administrativa (CONARA) announced itself a few months after the coup that ousted Salvador Allende, with a massive tome published in 1976. Uruguay and Bolivia had made unsuccessful attempts at linking administrative reform with national planning in the turbulent 1960s before major reforms were announced in the 1970s. Peru’s military claimed a direct developmental link with CEPAL and attempted to distance itself from other regimes, but here again the circumstances were exceptional. Venezuela, however, has been a major center for discussion of administrative reform since the events of 1958, yet despite a vast array of commissions and agencies (Comisión de Administración Pública [CAP], Coordinaderia de Planificación [CORDIPLAN], COPRE, Plan de Reforma Institucional del Estado [PRIE]) and some of the more important theoretical work on the nature of reform, its global attempts have been far less than successful. What action that has taken place has been, once again, incremental. Colombia never developed a “reform school,” maintained contact with a variety of different agencies and missions, and created a number of commissions and agencies, but the results that did emerge from 1950 to 1980 were sporadic actions caused by the muddling interaction of different interests of various governments and microlevel attention to specific ministries. In itself, the presence of military governments or of dictatorships does not guarantee reform. Thus, circumstances made reform quite irrelevant in Paraguay under Stroessner and Nicaragua under Anastasio Somoza. Indeed, any efforts to accept foreign advisers and pay lip service to reform probably had more to do with the preconditions of financial aid. In El Salvador, Panama, Honduras, and Guatemala, the pattern was more varied, but turbulence affected possibilities for change. There were isolated

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actions in the 1960s and early 1970s, but little happened as wars and the growth of strong internal regimes linked to elitist groups created extreme conditions within which any planned action would have been difficult. If reform as a major and global intervention into an ongoing state of affairs has had a questionable past, placing activities aimed at the middle and micro-level of change and improvement of public administration as the framework for study—and not reform and modernization as such— brings forward a very different set of examples for discussion. In this respect, Costa Rica and Chile (before 1973) have already been mentioned, as has Colombia. In Mexico, despite various commissions and agencies, most results were also partial and incremental. In the late 1970s, Mexico even had the advantage of its then President José López Portillo having previously presided over the administrative reform commission. And the 1979 de-bureaucratization in Brazil, even though it took place in the twilight of that country’s military period, managed to produce some major effects through its multiple incremental changes in administrative procedures, some of which survived for a considerable period. Despite its difficulties, the Venezuelan COPRE did serve as a model for an approach to stimulating broad discussion about the role and nature of state and government in a way that could interest presidents and ministers. There are examples in Guatemala, after the return to civilian governments in the 1980s, when an attempt was made to integrate different sectors and groups through a series of overlapping development councils. Hardly any attention has been paid to the 1980s Nicaraguan experience under the Sandinista government (for a very useful view, see Graham 1987). More recently, local government legislation, such as the 1994 decentralization and popular participation laws of Bolivia, has opened up paths for exploring practical relationships among government, local authorities, civil society, the state, and citizens. This variety of experiences and potential conclusions, bounded by historical and political feasibility, stands in marked contrast to the emerging and apparently hegemonic narrative of the reform of the state. There is evidence to suggest that year by year, period by period, there has been a gradual narrowing of the reform theme and of narratives that surround public administration actions, from the very heterogeneous 1930s and 1940s to the remarkably homogeneous 1990s. Even in the early 1960s, countries still varied considerably in their strategies for developing public administration, without appearing to be particularly concerned about the differences between what they and others are doing. Indeed, at times variation was seen as a plus (for example, in Ecuador in the 1970s). In the 1990s, there is much more public agreement, and the overwhelming majority of institutional representatives report their adherence to the reform of the state. In the same way, the wide variety of terms used over the years

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to describe both actions and agencies has gradually been reduced; more and more frequently spokespeople place their reports within a common frame of concepts. Without doubt, the Punta del Este Charter in 1961, with its major support for development administration, and the CEPAL emphasis on national development plans, which always included administration, played an important part in the process, as did the availability of funds. But the process was already beginning before the 1960s and would continue into the 1990s as the World Bank and the IDB unwittingly assumed the role of underwriting the official reform narrative. THE CONSTRUCTION OF NARRATIVES: HISTORY AS PAST AND THE FUTURE AS NEW

The “order and progress” theme, much discussed in relation to Latin American countries, has a marked implication for the way in which modernity is faced (Faoro 1994). Modernization as the great leap forward into a precisely defined future through the firm use of correct techniques is very different from the conflictual and contradictory historically rooted process of social groups, communities, and societies operationalizing their moral orders. The former has clearly been present in the way that the official reform narratives have emerged, strengthening an increasingly broad, turnthe-page-of-history view of administrative reform while ignoring the potential advantages that incremental experiences might bring. This process manifests itself in many ways, of which the selective mentioning of what is taking place and in what circumstances is merely one. Another example comes from the names given to major conferences and seminars. As has been mentioned, UN organizations held major interregional seminars on administrative reform in 1971 (Brighton, England), 1981 (Bangkok, Thailand), and 1985 (Beijing, People’s Republic of China), in addition to specific workshops at the area level. More recently, the theme of decentralization has appeared, for example, in a seminar held at Santa Cruz de la Sierra, Bolivia, in 1993 that covered metropolitan governance. The World Bank, IDB, and CEPAL have also been active, holding specific seminars and expert meetings on aspects of public administration reform. However, these various events have rarely, if ever, been given an order of sequence, being reported simply as meetings, seminars, and workshops at certain times and places. These events organized by international groups stand in marked contrast to another sequence of congresses, seminars, and meetings set up by representative agencies and the institutional actors of the Latin American countries themselves, frequently with external support. Thus the I Encontro

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Interamericano de Administração para o Desenvolvimento took place in Rio de Janeiro, Brazil, in November 1964, hosted by the Interamerican School of Public Administration at the Fundação Getúlio Vargas (FGV). The event was held in the spirit of the Punta del Este Charter, to study the problems that affect public administration in the countries of the Latin American continent. Among the reasons given for the event were “the need to adapt the techniques and processes of public administration to the peculiarities of the Latin American problematic” (ICAP 1971: 4). In July 1970, the Primero Seminario Regional de Reforma Administrativa took place at ICAP Costa Rica. In December 1973, the Primeiro Seminario Interamericano de Reforma Administrativa was held in Rio de Janeiro at the FGV, with a follow-up in Oaxtepec, Mexico, the following year. In 1974, Bogotá, Colombia, and Escola Superior de Administración Pública (ESAP) hosted the Primero Seminario Latino American de Administración Pública. Among the results was the “Compromisso de Bogotá,” which asserted the need to “fight against ideological and technological dependence produced by the adoption of models that don’t respond to the situation and interests of Latin America, for which it is necessary to define a separate doctrine and specific norms that can be applied to our countries.” In addition, further support was given by the Associación Latino Americano de Administración Publica (ALAP) for the creation of CLAD. CLAD had been formally created in 1972, as a result of the initiatives of Mexico, Venezuela, and Peru, and its board included representatives of the governments of member countries.4 Chile, Bolivia, the Dominican Republic, Ecuador, and Jamaica joined shortly afterward, followed by Argentina, Barbados, and Guyana, with Brazil, Colombia, Costa Rica, Guatemala, Paraguay, Trinidad and Tobago, and Uruguay acting as observers by 1976, when the board met for its fourth meeting under the presidency of Chile (1975–1976) in Santiago. Even though the board met regularly, the first truly open event took place only in 1979 in Mexico: the Primero Colloquio del CLAD sobre experiencias nationales en Reforma Administrativa. Thus from 1964 to 1979, at the height of the wave of public administration reform throughout Latin America, no fewer than five extremely important “first” events occurred in the area—five times in which, for symbolic if not for political reasons, everybody started all over again. Finally in 1996, CLAD created an open category of individual membership and held its first Congresso Interamericano del CLAD sobre Reforma del Estado y de la Administración Publica in Rio de Janeiro. If congresses and seminars play an important role in confirming emerging narratives, their elements are constructed from the theories that are espoused about reform and from the analyses that are made of failures and successes. Virtually all the documents consulted in the study describe

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the problems that public administration was facing in their respective countries or within the various regions or subregions. Tellingly, these descriptions almost always say: “look how much is wrong.” The answer is usually provided in terms of what is good or right. Thus, why it went wrong and what this might mean in terms of the relationship among public administration, the executive, the legislature, society, and citizens are rarely examined by the social and institutional actors, academics, and practitioners who populate the reform arena. It is extremely rare to find comments such as the following by George Reid referring to the complex and personal nature of the pay structures in Uruguay, in which multiple salary supplements combine to generate different levels of monetary rewards: “It does not necessarily follow that public employees hired in this context perform their tasks less efficiently than would those hired under a simpler and less readily circumvented civil service pay structure” (Chaudhry, Reid, and Malik 1993: 62). Similarly, when examining the theories and explanations for reform that have emerged within and taken an active part in the evolving reform debate, it is the technical-voluntarist assumption of how to get it right that has overshadowed any discussion of political appropriateness. Political theories of reform, while present in the political science literature, are rarely discussed at seminars. There other sets of theories provide the basis for debate. These can be broadly grouped around four recurring concepts: “quantity,” “competence,” “strategy,” and “power.” Quantity theories can be summed up by the word “too”: too much, too little, or too late. Here the emphasis is on noting errors of scale, timing, and support that affect the dimensions of reform. Reform itself is not questioned and is therefore assumed to be valid. A similar understanding is present in the second set of views. Competence theories tend to be of two kinds, benevolent or extremely stereotypical. In the former, found in development administration, skills and knowledge need to be increased for reform to be more effective. Today, nearly all the countries in the region have their national schools of public administration influenced by either English, French, or U.S. models of staff training. The negative or stereotypical version of competence covers those arguments and authors for whom cultural determinism, or a generic Latin American lack of will, makes administrative efficiency and change impossible; a view summed up by the questions, “What do you expect?” Strategy theories are at the heart of reform narratives and form the frameworks for reform programs. Technical in approach, they draw in elements from organizational development, organizational design, personnel administration, organization and methods, system theory, planning, and financial management. The history of strategy theories resembles a technical toolbox to which more and more items are added; rarely are items

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rejected, and rarely does a previous item return to priority status once new items are added. Thus, personnel legislation and the creation of career and merit systems are still part of the wider state reform strategy even though there is no evidence of any successful broad-based implementation of such systems. They have had their moments of priority, the most recent being alongside the structural adjustment programs under the World Bank title of civil service reform, and will never disappear from the scene. Power theories are derived in part from elements of the previous two and have been present both directly or between the lines of many an adviser’s report, especially in discussions of the importance of government support. They form the “voluntarist” part of the technical-voluntarist assumption. Their almost exclusive concern is the importance of providing positive sanction and priority for a technical area that is essential, yet is not seen as politically attractive. Generally democratic, they can at times, such as during periods of military developmentalism, provide support for authoritarianism in relation to reform. Even Kemmerer and his staff would admit that a strong government did not hurt the cause of reform. Robert Siedel (1994) cites a 1927 Kemmerer mission memo in Ecuador that argued: “It would not be wise to reestablish constitutionality until such a time as would enable the provisional government to fully reorganize its various departments.” Other, milder versions of power theories abound but certainly have in common the idea that strong government is a necessary requirement to “drive” reform. These are included in the set of technical-voluntarist theories because their primary argument is that the technical theory is correct and that politics can get in the way. They are political only insofar as they recognize the presence of political factors; at heart they are technical because they require these factors to be held at bay. With such a variety of theories available, it is not surprising that the reform arena gives the superficial appearance of debate and discussion. Yet all the groupings mentioned have in common the direct or indirect support for reform as a technical narrative. Political theories remain very much a minority within the reform arena. Based on a process view of social and economic action, they emphasize the nature of the contradictions present and argue that it is only through these and because of these that change will take place, which, more likely than not, will take its own gradual and conflictual route and time. One such group emerged in Brazil in the early 1960s within the same institution and as a counterpart to the dominant technicians of the FGV (Guerreiro Ramos 1970; Mello e Souza 1994), and others include Guillermo O’Donnell (1978) and Oscar Oszlak (1981). Lawrence S. Graham (1990) is one of the few observers who has consistently emphasized the theme of public administration; others have focused on specific dimensions (for example, Geddes 1991; Mainwaring, O’Donnell, and Valenzuela 1992; Przeworski 1989; Schneider 1993; Spink 1987).

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The concept of managerial public administration has two clear tendencies within it, of which the more political (developed, for example, by Brazil’s minister for state reform, Luiz Carlos Bresser Pereira 1996) is held by a minority, in contrast to the vast majority who see, in recent reforms in Britain and New Zealand, the clear benefit of transferring good business practices to the public sector, transforming the latter into a set of market relations largely to be left alone by a “rolled-back” state.5 TRUNCATED ADVOCACY COALITIONS

A tendency to build dominant reform models based on the technicalvoluntarist assumption within an ever-increasing spiral of complexity, without providing space for the critical assessment of previous approaches to reform or of “reform” itself, must throw doubt on the current crop of reform ideas, independently of their individual and autonomous merit. To what extent has the reform debate, as well as the circumstances through which narratives are created in an evolving interorganizational and crossnational matrix of actions and arenas, generated a self-censoring process that has unwittingly limited the range of discussion? The implicit rules of diplomacy that bind bilateral and multilateral agencies, as well as general courtesy and a lack of knowledge, may make it difficult or unlikely for technical and advisory staff to make specific comments about internal political affairs and their relationship to social and economic contradictions. It is rare, for example to see evaluation or project documents consider explicitly the implications of policy change through the electoral process and the way in which one or the other party might be more or less favorable to reform. Frequently reform histories are provided in totally ahistorical form, with dates and occurrences totally disconnected from the social and political events of the time. Equally, seminars and meetings with official status avoid considering the political implications of reform because they have to reach conclusions that are acceptable to all, couched in terms that are technically correct. In the same way and certainly since the Kemmerer missions, Latin American governments and their agencies have been attentive to the areas in which programmatic aid has been made available, and their technical staff have been constantly productive in generating policy and project documents that meet development needs. The various administrative reform events and techniques brought into the region through the Alliance for Progress serve as a sufficient and early example. Improving administration, like many other developmental topics, implies projects, requires staff, and offers opportunities for careers, both within and across agencies and national boundaries. It is a theme that

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interests people and generates debate and discussion. Governments and presidents create and offer ministerial posts to their colleagues to act in this area, and there are various referent organizations at regional, subregional, and international levels in which it is possible to take part and through which contact can be made with colleagues in other countries. As the spiral has increased, so the number of actors and institutions involved has increased, and their involvement in the maintenance of “reform” as a socially constructed narrative has deepened. There is plenty to be done, there are plenty of problems, and given the broad, all-encompassing definitions of reform, there is room for all. Paul Sabatier and Hank C. Jenkins-Smith (1993) have described an advocacy coalition approach to the formation of public policy within a specific arena. Although working primarily within the framework and focus of domestic policy, they have shown how such coalitions tend to form over longer periods of time than that of specific governments and involve a large and diverse set of actors who come to share values and causal assumptions about how to realize them; this process might be called the “construction of conventional wisdom.” Advocacy coalitions show, they suggest, a nontrivial degree of coordinated activity over time and seek to translate their beliefs into public policies or programs (in goals, directives, and the empowerment of administrative agencies). To the extent that different advocacy coalitions are able to compete for space and attention, brokerage will provide a minimum of reflexivity within which the contradictions between narratives can be partially resolved. What happens when there are subtle yet self-imposed restrictions on the range of questions permitted, when the availability of significant resources is seen as related to a particular viewpoint, or when potential brokers are themselves drawn into the dominant coalition? It seems possible to argue that the result is likely to be a restrictive process generating a truncated advocacy coalition lacking in reflexivity. In the case under study, I have shown how the heterogeneous nature of different reform approaches has been gradually confined to a relatively homogeneous framework for reform. Such a narrowing process has led to the future replacing the past as the object of analysis, to amnesia about the conditions in which major reforms were effectively implemented, and to a setting in which resource opportunities and technical neutrality could preempt certain areas of debate. Organizational and interorganizational processes, especially of an institutional kind, contain within them references to wider patterns of social action. Thus if narratives as symbol systems contain structures of signification that can be mobilized to legitimize the sectional interests of hegemonic groups (Giddens 1979), then perhaps a different set of explanations can be made available once the truncated nature of the current advocacy coalition framework of reform is recognized.

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Thus, taking as an example the much debated importance of merit systems, what would be an alternative approach within an incremental and historically specific framework? If it can be assumed that positions of influence, command, and sanction with public services are of interest to elite groups, it follows that the mechanisms by which such posts are filled will reflect the socially legitimated options open to elite groups to gain access to posts. Pierre Bourdieu and Jean-Claude Passeron (1977) have shown how patterns of acquisition and reproduction of social and economic capital create mechanisms of access and control. Meritocracy, far from being considered as a technical definition of equality of opportunity, which civil service procedures either have or aspire to create, might, within an alternative perspective, require analysis of the social meaning attached to merit itself, including the mechanisms by which such “merit” is guaranteed. Understanding public administration within the lived-in world of everyday practices, part of and not independent from the contradictions of development, may provide an alternative starting point to the question of reform and to the issue of “reform” itself. Certainly the past still has much to teach the future in this respect. NOTES

1. Fiftieth Session, Agenda Item 12, Resolution 50/225, adopted by the General Assembly at its 112th plenary meeting on 19 April 1996. 2. See Bhatnagar and Williams (1992) and World Bank (1996). 3. The study is titled “Reforming the Reformers: the Saga of the State and Public Administration in Latin America” and is being supported by the Swedish International Development Cooperation Agency (SIDA). I would also like to acknowledge the help given by library and archive staff at the ICAP, the Benson Collection at the University of Texas-Austin, SIDA, and the FGV. 4. The only CLAD members not included in this study are Barbados, Cuba, Spain, Grenada, Guyana, Jamaica, and the Dominican Republic. 5. This unfortunate term was much in use in World Bank circles and documents until quite recently.

6 From Bureaucratic to Managerial Public Administration in Brazil Luiz Carlos Bresser Pereira

The reform of public administration proposed in 1995 by the government of President Fernando Henrique Cardoso may become known as Brazil’s second administrative reform, after the effort in 1936. Or even the third, if one considers the 1967 reform worthy of the name, even though it was later reversed. The 1967 reform should be viewed more as a trial run for the processes of decentralization and bureaucratic restructuring. The current reform is based on the concept of managerial public administration as a response not only to the grave crisis of the state that marked the 1980s but also to the process of economic globalization. These phenomena are felt throughout the world and demand a new definition of the state and its bureaucracy. The crisis of the state demanded that it be reformed and rebuilt, and the process of globalization required a redefinition of state functions. Prior to the integration of world markets and productive systems, one of the fundamental objectives of states was to protect their respective economies from international competition. In the wake of the process of globalization, the possibility of the state playing this role has diminished dramatically. Its new role is to help the national economy to carve out an internationally competitive niche for itself. Regulations and intervention are still necessary in education, health, culture, technological development, infrastructure, and other areas, but this intervention is targeted not only at offsetting the distributive imbalances generated by the global market but principally at preparing economic agents for competition at the world level.1 The difference between the neoliberal and social democratic reform proposals centers on the fact that the former desires to withdraw the state from the economy, whereas the second seeks to enhance the governance of the state or, in other words, enable the state to intervene effectively whenever the market is unable to coordinate economic activity appropriately. 115

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In this chapter, I concentrate on the administrative aspects of state reform. Though, above all, the state is the image of society, I view it here as subject and not as object—an organism that requires enhanced governance so that it may act more effectively and efficiently in the benefit of society. The problems at the root of the state’s incapacity to govern effectively are not caused by “excess democracy” or the exorbitant weight of social demands, but rather by the lack of a political pact, a coalition of classes occupying the center of the political spectrum.2 Here, we assume that the political problem implicit in governing capacity was temporarily resolved with the return to democracy and formation of the “democratic-reform pact of 1994,” made feasible by the success of the Real Plan and the election of President Cardoso.3 This pact did not definitively resolve the problems of the state’s incapacity to govern since, by definition, these are chronic. However, it did provide the government with the political conditions needed to occupy the political and ideological center and, with broad popular support, propose and implement state reform measures. Following a brief section in which I analyze both the grave crisis of the 1980s as a crisis of the state and the responses of Brazilian society to that crisis, I present a short diagnosis of the crisis of the Brazilian bureaucratic public administration and its myths. After that, I define the principles of the state reform designed to initiate the process of establishing managerial public administration in Brazil and, in light of the redefinition of its functions, I specify the most appropriate forms of proprietorship for the different activities now performed by the state. In terms of the redefinition of the state’s functions, I both distinguish among three forms of proprietorship—public-state, public-nonstate, and private—and divide the state’s current activities into four sectors—strategic core, activities pertaining exclusively to the state, competitive or nonexclusive social services, and production of goods and services for the market. CRISIS AND REFORM

In Brazil, perception of the nature of the crisis and, later, of the imperative need to reform the state was a haphazard and contradictory process that occurred as the crisis itself unfolded. Between 1979 and 1994, Brazil lived through an unprecedented period of high inflation and per capita income stagnation. It was only in 1994, with the advent of the Real Plan, that the nation finally managed to stabilize prices and create the conditions required for renewed development. The fundamental cause of the economic quandary was the crisis of the state that, notwithstanding the reforms already achieved, has yet to be fully overcome. The crisis dates to 1979 and the beginning of the second oil shock. The basic characteristic of the crisis

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is the state’s loss of capacity to coordinate the economic system in a manner complementary to market forces. The crisis is defined simultaneously as a fiscal crisis, a crisis in the system of state intervention, a crisis in the bureaucratic system of state administration, and, in its initial stages, a political crisis. There were three stages to the political crisis: first, the crisis of the military regime—more specifically, a crisis of legitimacy; second, the populist attempt to return to the 1950s—a crisis of adaptation to the democratic system; and, finally, the crisis that led to the impeachment of Fernando Collor de Mello—a moral crisis. The fiscal or financial crisis was marked by the loss of public credit and by negative rates of public savings.4 Accelerated by the process of economic globalization, the crisis of the system of state intervention revealed the demise of the protectionist model of import substitution industrialization. Though this model had attained considerable success in fostering the industrialization process that spanned the period from the 1930s to the 1950s, it finally ran its course as of the 1960s. This was evident in the dearth of competitiveness on the part of a considerable share of Brazilian companies and in the failure of efforts to create a welfare system that would be comparable to those of European social democracies. Finally, even before bureaucratic public administration could be fully implemented, it became mired in a crisis of unprecedented proportions in 1988. The crisis of the system of bureaucratic public administration began during the military regime, partly because it was incapable of eliminating the concept that the state was somehow the property of a privileged few. In addition, the military government, instead of consolidating a professional bureaucracy through redefinition of careers and public competitive civil service examinations to fill high-level vacancies, preferred the shorter path of recruiting such administrators through state companies.5 The opportunistic strategy adopted by the military regime—the option for contracting high-level administrators through the state companies—contradicted the terms of the 1936 reform by making creation of a strong civil service unfeasible. However, starting with the 1988 Constitution, the situation worsened as the pendulum swung to the opposite extreme: excessive bureaucratic rigidity. The consequences of the survival of the concept that the state is in some way the privileged domain of a powerful elite, coupled almost perversely with an extremely rigid bureaucracy, have been the high cost and low quality of Brazilian public administration.6 The response of Brazilian society to the four aspects of the state crisis was uneven. The first was the response to the political crisis: in 1985, the country completed its democratic transition; in 1988, the transition was consolidated with adoption of a new constitution. With regard to the other three aspects—the fiscal crisis, exhaustion of the interventionist model,

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and the growing inefficiency of the state apparatus—the new regime that took office in 1985 accomplished very little.7 Indeed, the first response involved a classic case of backsliding and only aggravated the problems. In the case of the fiscal crisis and the system of state intervention, the banner raised by the victorious political forces was the populist development philosophy of the 1950s, and the bureaucratic mindset of the 1930s once more came to dominate public administration. FROM BUREAUCRATIC TO MANAGERIAL ADMINISTRATION

Based on the principles of administration of the Prussian army, classic bureaucratic administration was implemented in the major European countries toward the end of the nineteenth century and in the United States at the start of the twentieth century. In Brazil, administrative reform was fostered by Mauricio Nabuco and Luis Simões Lopes. The concept was that described by Max Weber, which focused on the principle of professional merit. Bureaucratic public administration was adopted as a substitute for socalled patrimonial administration. In this concept that defined absolute monarchies, the meanings of public and private tended to intermingle and often became confused. The state is understood as the property of the king. Nepotism and political patronage—and, often, outright corruption—were the norm. Patrimonial administration proved to be incompatible with industrial capitalism and the parliamentary democracies that arose in the nineteenth century. For capitalism to work, there must be a clear distinction between the state and the market. Democracy can only exist when society, composed of the citizenry, is viewed as separate from the state and simultaneously in control of the state. Consequently, it became necessary to create a type of administration founded not only upon a clear distinction between public and private but also upon a separation between the politician and the public administrator. This marked the birth of rational-legal, modern, bureaucratic administration. Classic bureaucratic public administration was adopted because it was superior to patrimonial administration. However, the assumption that it would necessarily be more efficient proved to be untrue. At the moment in which the small liberal state of the nineteenth century definitively gave way to the large social and economic state of the twentieth century, it became evident that the new administrative model did not guarantee rapidity, good quality, and low cost in the services rendered to the public. Rather, bureaucratic administration is sluggish, expensive, and self-serving, with little or no orientation to meeting the demands of citizens.

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This was not a particularly serious problem in small states charged only with guaranteeing property and contracts. Only four ministries were needed in the liberal state: justice, responsible for the police; defense, including the army and navy; finance; and foreign relations. The most important public service was the administration of justice, and the judiciary branch was charged with this task. Efficiency, therefore, was not an overriding concern. In contrast, the great social and economic state of the twentieth century assumed responsibility for a growing number of social services: education; health; culture; social security and social assistance; scientific research; and aspects of the economy such as regulation of the internal economic system and of international economic relations, stability of the currency and financial system, and the supply of public and infrastructural services. Thus, efficiency was transformed into a core concern. At the same time, expansion of the state was a response not only to pressures exerted by society but also to the growth strategies of the bureaucracy itself. The problems are not limited to growth, expanding structures, and the complexity of the bureaucracy but even extend to the legitimacy of the bureaucracy in the framework of citizenry demands. After World War II, bureaucratic values were reaffirmed, but at the same time, public administration felt the first impact of business administration. In all governments, the concepts of decentralization and enhanced administrative flexibility gained ground. Nevertheless, reform of public administration only gained momentum in the 1970s, parallel to the outbreak of the crisis of the state. Consequently, the 1980s witnessed a veritable revolution in the public administration of the developed countries as they moved toward a system of managerial public administration. The countries in which changes were most profound were the United Kingdom, New Zealand, and Australia.8 In the United States, this revolution occurred principally at the level of municipalities and counties and is vividly described in the book Reinventing Government by David Osborne and Ted Gaebler (1992). Inspired by advances in business administration, managerial public administration is now moving to center stage.9 The general guidelines of this new form of public administration have gradually developed into the following: (1) political decentralization with transfer of resources and responsibilities to regional and local political levels; (2) administrative decentralization,10 through delegation of authority to public administrators transformed into increasingly more autonomous managers; (3) organizations with few hierarchical levels, no longer structured like a pyramid; (4) assumption of limited trust, but not total mistrust by citizens; (5) a posteriori control of results, instead of rigid, step-by-step control of administrative processes; and (6) administration based upon meeting the needs of the citizenry.

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THE TWO ADMINISTRATIVE REFORMS

In Brazil, the idea of managerial public administration has a long history. It first took form in the administrative reform in the 1930s and was at the root of the second reform in 1967. The 1936 creation of the Public Service Administrative Department (DASP) marked introduction of the principles of classic bureaucratic administration. 11 Creation of DASP not only marked the nation’s first administrative reform, with implementation of the system of bureaucratic public administration, but also affirmed the centralizing and hierarchical principles of the classic bureaucracy.12 However, with creation of the first semiautonomous government agency in 1938 came the initial sign of managerial public administration. At that point, the idea arose that public services in the “indirect” administration should be decentralized, instead of being subjected to the whole array of bureaucratic demands of the “direct,” or central, administration. The first attempt to achieve managerial reform of Brazilian public administration occurred at the end of the 1960s, expressed in Decree-Law 200/1967. This movement was led by Amaral Peixoto and inspired by Hélio Beltrão, the pioneer of these ideas in Brazil. Beltrão participated in the 1967 administrative reform and, as minister of bureaucratic modernization from 1979 to 1983, promoted managerial reform. In 1979, he defined his National Program of Bureaucratic Modernization, a political proposal that sought, through the instrument of public administration, “to remove the user from the colonial condition of subject and endow him with the condition of citizen, the center of all of the state’s activities” (Beltrão 1984: 11). The reform initiated by Decree-Law 200 attempted to overcome bureaucratic rigidity and can be considered the first step toward managerial administration in Brazil. Based on the assumption that direct administration was necessarily rigid and decentralized administration more efficient, all emphasis was given to decentralization by granting greater autonomy to the indirect administration.13 Decree-Law 200 transferred government activities in the production of goods and services to semiautonomous agencies, foundations, public-sector companies, and joint capital companies and, in this way, confirmed and restructured a situation that in practice had already existed. The principles of administrative rationality were defined as planning and budget, decentralization, and control of results. Decentralized units were permitted to hire from outside the ranks of the civil service, just as any private company would obtain personnel. It was a moment of extraordinary expansion of state companies and foundations. A more flexible administrative approach was adopted in the pursuit of enhanced efficiency in the economic activities of the state. At the same time, the political alliance between the civilian and military technobureaucracy and the business community was reinforced.14

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However, Decree-Law 200 had unexpected and undesirable consequences. Permitting the contracting of employees without competitive civil service exams facilitated the survival of practices designed to benefit selfserving interest groups. By ignoring the need for change in the central administration—looked down on as “bureaucratic and rigid”—the process of competitive examinations, which would have encouraged careers at the highest levels of public administration, was stifled. The strategic core of the state was unduly weakened by an opportunistic strategy adopted by the military regime that, instead of concerning itself with the preparation of high-level public administrators selected through competitive public examinations, opted to contract the highest-level personnel through state companies.15 In this way, the administrative reform built into Decree-Law 200 was only half implemented and, therefore, failed. The political crisis of the military regime began in the mid-1970s and further aggravated the situation of the public administration in the sense that the state bureaucracy was identified with the authoritarian system already in a process of evident degeneration. RETURN TO THE 1950s AND 1930s

The democratic transition that occurred with the presidential election of Tancredo Neves, who died before taking office, and the presidential inauguration of José Sarney in March 1995 was not viewed as an opportunity for reforming the state apparatus. Quite the contrary, at the administrative level, it meant a return to the bureaucratic ideals of the 1950s and, at the political level, an attempt to return to the populism of the 1950s. Though democratic, the two parties in control of the transition were populist by nature. They had no idea—just as society itself also had no inkling—of the gravity of the situation through which the country was passing. The period was marked by a certain democratic-populist exhilaration based on an imagined possibility of returning to the 1950s, the golden years of Brazilian democracy and development. In the first two years of the democratic regime—the New Republic— the fiscal crisis and the need for radically revising the system of state intervention in the economy were simply ignored. It was imagined that renewed development and more equitable income distribution could be fostered through increases in public-sector outlays and a forced rise in real wages or, in other words, through a populist and therefore distorted version of Keynesian thought. The import substitution model was maintained. Wages and public sector expenditures increased. The result was the misadventure called the Cruzado Plan. An initially well-conceived plan was transformed into another classic case of populism. Soon after the plan’s

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failure, an attempt to achieve a fiscal adjustment was initiated during the brief period I spent at the Ministry of Finance (1987). However, bewildered at the outbreak of the crisis, society denied its support. Instead of adjustment and reform, the country fell under the sway of a conservative political coalition in the National Congress—the Centrão—and, as a result, plunged into a period of self-serving political populism in 1988 and 1989 that was, in reality, a “return to mercantilist capitalism.”16 Chapter 7 on public administration in the 1988 Constitution resulted from all of these contradictory forces. On the one hand, the Constitution was a reaction to the populism and self-serving political interests that reappeared with the advent of democracy.17 For this reason, the Constitution carried the principles of an archaic, bureaucratic public administration to the extreme, a highly centralized, hierarchical, and rigid public administration in which all priority is given to direct administration rather than indirect administration.18 The 1988 Constitution totally ignored new guidelines in public administration. The members of the Constituent Assembly and, in the broader sense, Brazilian society itself demonstrated an incredible lack of perception of what was truly new. They perceived only that the classic bureaucratic administration that Brazil had begun implementing in the 1930s had never been fully adopted. They judged that the state had adopted decentralizing strategies—semiautonomous agencies and public foundations—that simply did not fit within the classic professional-bureaucratic model. They recognized that decentralization had created spaces for patronage, principally at the level of states and municipalities, and that this had worsened following the return to democracy. They were unable to perceive that the more decentralized and flexible forms of administration specified by Decree-Law 200 were a response to the state’s need to administer its companies and social services in an efficient manner. They decided then to complete the bureaucratic revolution before even considering the principles of modern public administration. In so doing, they were apparently following a linear type of logic compatible with the idea that it would first be necessary to complete the mechanical revolution before participating in the electronic revolution. The constituent assembly resolved to adopt a “single juridical system” for all civilian public employees of direct public administration, semiautonomous agencies, and foundations. This system would then be equally applied to all: janitors and professors, maintenance personnel and medical doctors, receptionists and persons responsible for fostering cultural programs, and police and social servants. Ignoring the fact that its purpose was to protect the state and not employees, a rigid system of civil service job security was created. Such rigid competitive examination mechanisms were adopted that it became nearly impossible to shift already contracted

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employees into recently opened vacancies. When the assembly extended the new rules to the entire public administration, the semiautonomous agencies and public foundations lost all their autonomy. At the same time that examination procedures were changed, the 1988 Constitution permitted consolidation or creation of a series of privileges, which contradicted the rational-legal bureaucratic spirit then predominant. These privileges were both a tribute to the concept of government for the few still present in Brazilian society and a consequence of the influence of special interest groups that had intensified with the return of democracy. As a result, the principal actors on the national stage resorted to defending their specific interests as if these were the interests of society as a whole. The worst of these privileges was a system of retirement with full pay and without relation to the length of employment. This, plus the institution of special retirement systems that made it possible for civil servants to retire at an early age—about fifty years old—and, in the case of university professors, to accumulate various retirement benefits, had a brutal impact on the cost of the state social security system and created a prodigious fiscal burden for society.19 A second privilege was the transformation, in a single act, of 400,000 employees originally hired under the terms of ordinary labor legislation into civil servants subject to civil service legislation and entitled to job stability and full retirement benefits.20 The bureaucratic backsliding that occurred in 1988 can in no way be attributed to failure of the decentralized and flexible approach taken to public administration by Decree-Law 200. Though some abuses of procedures were obviously committed, either in terms of excessive autonomy for state companies or the self-serving utilization of semiautonomous agencies and public foundations (in which there was no requirement of public selection processes for hiring), it would not be correct to affirm that these distortions caused the backsliding. First, above all else, they were the result of a mistaken vision of the then current concept of the nature of public administration held by the democratic forces that had overthrown the military regime. Since the Brazilian democratic transition occurred in the midst of a crisis of the state, the crisis was mistakenly identified by democratic forces as, among other things, a result of the process of decentralization that the military regime sought to implement. Second, the backsliding was a consequence of the political alliance that democratic forces formalized with the traditional system of self-serving government, a patrimonialist, political group always ready to renew in order not to change. Third, retrenchment resulted from resentment on the part of the old bureaucracy at the manner in which the central administration had been treated during the military regime: the time had arrived to strengthen the power of the center and restore the purity of the bureaucratic system. This bureaucratic vision was centered at the former Secretaria de Administração

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Federal (SAF), the bulwark of bureaucratic reaction not only to modern public administration but also to the closed pressure groups that appeared within the civil service system.21 A fourth reason for backsliding was the privatization campaign accompanying the entire process of democratic transition, which led the members of the Constituent Assembly to increase bureaucratic control over state companies. The result was a loss of the autonomy granted by Decree-Law 200. In summary, the return to bureaucracy that marked the 1988 Constitution was a reaction to the patronage that dominated the country at the time but also an affirmation of the privileges of special interest groups and political favoritism. In addition, it grew out of the defensive posture of the bureaucracy, which, feeling unjustly accused and cornered, resolved to react irrationally. Despite the fact that Brazilian public administrators are by and large competent, honest people imbued with a sense of public service, these circumstances contributed to a loss of prestige on the part of the nation’s public administration. The aforementioned qualities—evinced by the civil service since the 1930s when professional public administration was first implemented in Brazil—were among the keys to the strategic role that the state played in Brazilian economic development. Creation of basic industry in the 1940s and 1950s, the adjustments of the 1960s, development of infrastructure and installation of the capital goods industry in the 1970s, a new adjustment and the financial reform of the 1980s, trade liberalization in the 1990s—none of these would have been achieved were it not for the competence and public spirit of the Brazilian bureaucracy.22 RECENT EVOLUTION AND PERPLEXITY

The fiscal crisis and the crisis in the system of state intervention were first perceived in 1987. At that moment, in the wake of failure of the Cruzado Plan, Brazilian society perceived that the nation was out of step with history, that a return to the nationalism and populism of the 1950s was not only a sham but above all an impossible undertaking. 23 However, the members of the 1988 Constituent Assembly did not perceive the fiscal crisis, much less the crisis of the state apparatus. Thus, they were unable to recognize the need for rebuilding the state, for recovering public savings, for designing new, less straightforward instruments of state intervention in which competition would play an essential role. They did not discern the urgent need to build an administration that would be professional, efficient, and always oriented toward meeting the demands of the citizenry. Only after the episode of hyperinflation in 1990, at the end of the Sarney administration, did society awaken to the dangers of the crisis. As a

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consequence, economic reform and fiscal adjustment gained new momentum in the Collor government. And it was precisely that contradictory, if not schizophrenic administration—destined to drown in a sea of corruption—that took the first steps in the direction of reforming the economy and the state. It was the Collor administration that adopted the process of trade liberalization, the most successful and important reform adopted by the country since the crisis first began. At the same time, privatization was given priority standing. The Collor administration also moved decisively toward a fiscal adjustment, adopting measures of a permanent nature and canceling a substantial portion of internal public debt. However, insofar as public administration is concerned, the approach taken by the Collor administration was clearly misguided. Just as in the battle against inflation, in this area also the government was doomed to failure as a result of an erroneous diagnosis of the situation and of a simple lack of technical competence. Failure stemmed principally from the ruinous attempt to reduce the state apparatus by firing employees and abolishing government entities without first fostering constitutional reform to ensure the legality of these measures. In the final analysis, aside from a drastic reduction in civil service wages, the government’s intervention in public administration further disorganized the already precarious bureaucracy; denied public-sector employees any sense of prestige; and subjected them to accusations of responsibility for practically all the nation’s problems while stigmatizing them as representatives of special interest groups. In fact, pressure groups are a negative characteristic of all segments of Brazilian society.24 At the start of the Itamar Franco administration, Brazilian society began to acknowledge the crisis in public administration. However, a great deal of perplexity and confusion remained. In this stage, an important document was prepared by the Center of Studies of Contemporary Culture (CEDEC) for the National School of Public Administration (ENAP). A summary of the diagnosis was presented in the introduction, written by Régis de Castro Andrade (Andrade 1993: 26): The administrative crisis is evinced by low capacity in the formulation, information, planning, implementation and control of public policies. The list of deficiencies in the nation’s public administration is dramatic. Civil servants have lost motivation and all professional or existential perspectives that would attract them to their positions. Most of them have not been included in career plans. The upper levels are not entitled to job stability. Training institutions do not achieve their objectives. Wages are low.

For the most part, the diagnosis was correct but still contained a fundamental failing. According to the document, the underlying evil to be attacked was “the intense and generalized concept of government for the

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privileged few that dominates the political system,” and the goal was that of establishing a bureaucratic public administration, “a system of public administration cleansed of political privilege, in which civil servants conduct themselves according to the criteria of public ethics, professionalism and efficacy” (Andrade 1993: 27). There is no doubt as to the importance of professionalization of the civil service and compliance with the principles of morality and public interest and no denying the value of planning and administrative rationality. However, the writers of this document did not perceive that by reaffirming classic bureaucratic values, they were invalidating the very objectives proposed. They did not recognize the need for radical modernization of public administration, a modernization that can only be generated by taking a managerial perspective. As Hélio Beltrão affirmed (1984: 12), “There is a curious inclination among us to reason, legislate and manage for an imaginary country that is certainly not ours; a country dominated by the fascinating exercise of abstract planning, by the optical illusion of centralized decisions.” When we begin working with myths or an imaginary country, our capacity to affect reality diminishes radically. The truth is that the 1993 ENAP document expressed a bureaucratic ideology that dominated Brasília from the democratic transition (1985) to the end of the Itamar Franco administration. This bureaucratic perspective resulted in transformation of Fundação Centro de Formação do Servidor Público (FUNCEP) into ENAP, based on the model of the Ecole Nationale d’Administration (ENA) in France. The next step in reform was creation of the career of public manager (specialists in public policy and governmental management), a sorely needed career for the nation’s high-level public managers. However, this measure concentrated on criticizing a past marked by privileged interest groups instead of turning its eyes to the future and to the modernity of a world in a process of constant change, rapid globalization, and increased competitiveness.25 From this bureaucratic point of view, the document issued by the National Association of Specialists in Public Policy and Government Management (1994: 7–8), which is composed of public government managers, affirmed: “The true problem to be coped with is the burdensome legacy of a process of civil servant recruitment and allocation simultaneously marked by a lack of criteria, patronage and heterogeneity in its constitution.” Obviously, this is a serious problem clearly noted by the document, but it is an old problem that, though it must be resolved, cannot be viewed as the foundation for a reform proposal. In a statement that I think is more useful for the future of reform, this contradictory and wide-ranging document also affirmed that the reform of the state in Brazil must reflect emerging circumstances, including the following:

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New managerial paradigms: the rupture with centralized, formalized and pyramidic hierarchical structures and systems of Taylor-type controls reflect a veritable managerial revolution already underway. This demands incorporation of new references for public administration policies, virtually burying the traditional bureaucracies of the past and opening the way to a new and modern State bureaucracy. (1994: 3)

TWO BUREAUCRATIC MYTHS: CAREERS AND DAS

To the extent that the 1988 Constitution reflected a process of bureaucratic retrenchment, it was shown to be unrealistic. At a time when the country urgently needed to reform its public administration so that it would not only be more efficient but would provide services of higher quality by moving closer to the private labor market, the constitution did precisely the opposite. Public service became more inefficient and more expensive and, at the same time, totally estranged itself from private labor. This divorce between the two sectors was caused not only by the privileged system of public-sector retirement, but also by the requirement of an exclusive legal system for public-sector employees. This system eliminated employees who had been contracted on the basis of ordinary labor legislation and, parallel to this, created a system of tenure that made it almost impossible to hold civil servants accountable for their job responsibilities. Job stability is a characteristic of bureaucratic administrations. It was an appropriate manner of protecting employees and the state itself from the influences of the privileged classes that dominated precapitalist regimes. In the imperial period in Brazil, for example, when a government fell from power, the normal practice was not only to remove those holding upper-echelon positions but to eliminate huge contingents of ordinary government workers. However, job stability bears a cost. At the same time at which it impedes adaptation of staff to the real needs of public service, it also makes it impossible to implement a system of public administration founded upon incentives and punishments. This may have been acceptable at a time when a privileged class dominated government actions and the services of the liberal state were limited. However, as the state expanded and took over a broad range of services for the citizenry, the need for efficiency became a fundamental concern. At the same time, the influence of the privileged classes not only declined in power but was transformed from a value into a mere practice. The consequence has been that firing public-sector employees for political reasons has become socially unacceptable. In addition, if the act of firing an employee for political reasons were made

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impossible—as it would be by the measures contained in the constitutional amendment proposed in 1995 by President Fernando Henrique Cardoso— there would be no more reason to preserve the system of rigid job stability that is characteristic of the classic bureaucracies.26 In Brazil, stability was not restricted to those careers that are specific to the exercise of state powers but was extended to all civil servants and has been understood in such a manner that inefficiency, lack of motivation, and outright indolence cannot be punished by dismissal. The result has been a marked increase in inefficiency. As noted in the document released by the National Association of Specialists in Public Policies and Government Management (1994: 19): With respect to the question of stability, the system of acquiring and preserving this right must be reexamined while maintaining—correctly, it should be added—the principle that civil servants can only be dismissed through judicial or administrative proceedings that ensure them ample opportunity for defense, a more agile and flexible and less burdensome stance must be adopted for this administrative process.

The great merit of the 1988 Constitution was that it made public competitive civil service examinations obligatory for hiring of all public-sector employees. There is no doubt that this represented a major step in the right direction, since it made politically motivated job distribution much more difficult. However, even here, the Constitution went too far. Although correctly eliminating the nefarious process of internal examinations, it also made it impossible to promote employees internally. A simple internal promotion, long a mechanism of significant importance to the private sector, became unfeasible in the public sector. There are positions for which it would be more appropriate to adopt a flexible system of selection—albeit equally public and transparent—but even in such cases, all the formalities of public competitive examinations were maintained. Semiautonomous agencies, foundations, and even joint-capital companies were obligated to employ the same system of civil service examinations, instead of being required simply to select their employees through public, transparent hiring mechanisms. Internal promotions were limited exclusively to upper mobility within a predetermined career structure. This was based on the assumption that implementation of a classic bureaucratic system would demand definition of a formal system of bureaucratic upward mobility that would start with public competitive examinations and be subject to a long process of successive training periods, performance evaluations, and formal examinations. However, bureaucratic careers worthy of the name were never created within the Brazilian civil service system. In Brazil, the only area in which one can truly speak of well-defined careers is the military.27

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In the strict sense, a bureaucratic career lasts for an average of thirty years. At the end of this period, the civil servant in question should have earnings about three times higher than at the start of his or her career. Climbing the ladder to the highest career level takes at least twenty years.28 Obviously, there is no longer any room for this type of career in a technologically dynamic society immersed in the third Industrial Revolution. However, the 1988 Constituent Assembly, federal civil servants, and even the nation’s politicians were unable to recognize this fact. They insisted on affirming that definition of careers, coupled with a corresponding system of training and evaluation, would resolve most of the problems of Brazilian public administration. The truth is that the concept of career has become Brasília’s greatest myth. Although the need for well-defined careers is widely heralded, the system itself does not believe in its own preaching but, in fact, even undermines these careers in practical terms.29 Destruction of the career system has resulted from the introduction of performance bonuses that have radically reduced the percentage difference between initial and final earnings. Though this difference should be somewhere near 200 percent to 300 percent, in recent years it has dropped into the range of 20 percent, except in the case of military careers. For example, a look at the career of National Treasury auditors shows a difference of only 6 percent over the average-length career. The difference has dropped to 26 percent for the recently created career of public administration managers. As a result, the differences originally intended to distinguish between one career level and another have become little more than job descriptions. Why has this happened? Simply put, because not even Brasília believes in its own myth. In a world immersed in a process of accelerated technological transformation, in which technical competence no longer bears a relation to the age of professionals, young civil servants are simply not willing to wait twenty years to reach the top of their careers. Consequently, since it was not possible to eliminate the different career stages, reduce the minimum periods during which a person is obligated to remain at a specific level, or increase the wages for different careers, the most practical thing to do was to reduce wage differentials by raising the earnings of the lower levels. However, this does not mean that careers do not exist within the Brazilian public administration. As was so well analyzed by Ben Ross Schneider (1994, 1995), careers do exist, but they are more personal than formal careers. These are highly flexible careers occupied by the civil servants who form the state’s professional elite. They circulate very rapidly among the different administrative entities and, upon retirement, normally migrate to the private sector. If Schneider were to add that occupation of these Comissão de Direção e Assessoramento Superior (DAS) positions

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(commissioned posts of the Brazilian state) is an integral part of this unstable and flexible system, based more on merit than he initially assumes, we would have a good image of the system of informal careers that exists within the upper Brazilian bureaucracy. This system could be improved through adoption of a modern concept of career that would include wideranging mobility, the possibility of rapid upward movement for the more talented civil servants, “Y”-shaped structures that give equal value to both authority and advisory positions, training versatility, and acceptance of highly differentiated profiles among those targeted by the training process. The relation between DAS and careers leads us to another of Brasília’s bureaucratic myths: that DAS constitute an evil unto itself. Some would consider this a constant form of undermining the career system by permitting contracting of incompetent personnel without the need for competitive examinations. The truth is that, by permitting an adequate system of public service wages, the DAS positions—75 percent of which are occupied by civil servants, as is shown in Table 6.1—are actually a type of much more flexible career based on merit. Brasília is a veritable DAS market in which ministers of state and high-level public managers with available DAS positions dispute among themselves for the best of the government’s civil servants. If the plan now in the elaboration stage is put into effect, an increasingly larger number of DAS positions would be reserved for public servants. As a result, the DAS system—already a factor of importance to the public administration—would be transformed into a strategic instrument of managerial public administration. Table 6.1 provides a good image of the upper levels of the current federal administration in the executive branch. Average earnings vary from R$2,665 for DAS-1 to R$6,339 for DAS-6. The average percentage of DAS positions held by civil servants drops from 78.5 percent at the level of DAS-1 to 48.4 percent for DAS-6. Educational levels increase as one moves up the DAS ladder from DAS-1 to DAS-6, and the number of positions held by women decreases. In overall terms, there are now 17,227 DAS positions, representing about 3 percent of total active government employees. Brasília employs various myths to justify the inefficiency and low quality of federal public service. At the same time, however, it reveals that it lacks a clear civil service policy. As it endlessly repeats its myths—the positive myth of the career concept and the negative myth that DAS employees are necessarily evil—the Brazilian public sector is unable to improve simply because it is attempting to adopt a system that is being abandoned in all parts of the world in favor of managerial public administration. For precisely this reason, it is unable to make the transition to a modern, efficient public administration, controlled by results and focused on meeting the needs of the citizen-client. Instead, as we near the end of

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Table 6.1

Occupants of DAS Positions Number of Employees

DAS-1 7,206 DAS-2 5,661 DAS-3 2,265 DAS-4 1,464 DAS-5 503 DAS-6 128 Total average 17,227

Average Females Age (%) 41 42 44 46 48 50 42

45.2 39.0 36.0 28.8 17.3 16.4 39.5

Higher Civil Education Servants (%) (%) 50.8 61.8 71.0 81.3 86.1 85.9 61.0

78.5 77.7 71.4 65.4 60.6 48.4 75.5

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Average Earnings (R$) 2,665 3,124 3,402 4,710 6,018 6,339 3,112

Source: Ministry of Federal Administration and Reform of the State (1995). Note: Includes earnings specific to both position and function; only effective employees are included in the calculation.

the twentieth century, it continues to toy with an outdated and unrealistic ideal of implementing a type of public administration justified in Europe during the age of the liberal state, as an antidote to the pressures of privileged special interest groups. THE TWO OBJECTIVES AND THE SECTORS OF THE STATE

The inauguration of the Fernando Henrique Cardoso administration in 1995 marked a new opportunity to reform the state in general and, more specifically, the state apparatus and its personnel. This reform had the following objectives: over the short term, facilitate fiscal adjustment, particularly at the state and municipal levels, where there is an evident problem of overstaffing; and over the medium term, make public administration more efficient and modern, focusing its attention on serving the needs of the citizenry. The fiscal adjustment was to be achieved mostly by eliminating employees in those areas where there is excess staff, clearly defining wage ceilings, and altering the system of retirement. The latter change involved increasing the required period of service and the minimum age for retirement while stipulating that civil servants spend a minimum period within public service to be entitled to retirement. In addition, the amount of retirement benefits was made proportional to the period of contribution. These three measures required constitutional change. Reducing the number of employees is still a target at the state and municipal levels and not at the level of the federal government since the problem of excess staffing did

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not exist at the federal level. Changes in wages and the retirement system were applied at all levels. A system of voluntary resignation was created as an alternative to layoffs to reduce excess staff and was widely utilized. In such a system, the administrators choose the specific employee population targeted for reduction and propose that a percentage of these workers resign voluntarily in exchange for indemnity payments and training in preparation for shifting to the private sector. In light of the imminent possibility of being released and of the advantages inherent in the system, a substantial number of employees generally participate in the program.30 However, modernization and enhanced efficiency on the part of the public administration could only be achieved over the medium term through a complex reform project that, at one and the same time, sought to strengthen the direct public administration—the “strategic core of the state”—and to centralize public administration into “autonomous agencies” and “social organizations” controlled through management performance contracts. Consequently, the proposed reform could not be classified as centralizing, as occurred in 1936, nor as decentralizing, as was intended in 1967 nor, once again, as centralizing, as in the 1988 Constitution. In other words, the proposal attempted to break out of the cyclical process that has long characterized Brazilian public administration (Pimenta 1994), altering periods of centralization with others characterized as decentralization. The proposal sought to strengthen the administrative competence of the center while enhancing the autonomy of agencies and social organizations. The link between the two was the management performance contract that the strategic core had to learn to define and control and that agencies and social organizations had to learn to execute.31 The state reform proposal recognized the existence of four sectors within the state: (1) the strategic core of the state, (2) services that are exclusively provided by the state, (3) nonexclusive or competitive services, and (4) goods and services produced for the market. Within the strategic core, laws and public policies are defined. It is a relatively small sector that, in Brazil, comprises the federal level of the president of the republic, ministers of state, and the higher-echelon employees of the different ministries who are charged with defining public policies; and the federal courts, led by the Federal Supreme Court and what, in Brazil, is similar to the public prosecutor’s office. Corresponding strategic cores also exist at the state and municipal levels. Activities exclusive to the state are those in which the power of the state to legislate and tax is exercised. They include the police, the armed forces, inspection and regulatory entities and those responsible for funding transfers, such as the Unified Health System, the unemployment compensation system, and so forth. The nonexclusive or competitive services of the state are those that— though they do not involve the power of the state—are performed or assisted

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by the state because they are considered highly relevant to human rights or because they involve foreign economic matters that cannot be adequately remunerated by the market through a system of service charges. Finally, production of goods and services for the market is carried out by the state through joint-capital companies that operate in public service sectors or sectors considered to be of a strategic nature. For each of these sectors, I consider (1) the nature of state property and (2) the best type of public administration. I now examine the first problem. Figure 6.1 summarizes the relations among the four sectors of the state, property, and type of administration. STATE PROPERTY AND PRIVATIZATION

At the strategic core and in those activities specific to the state, property must, by definition, belong to the state. Aside from the traditional instruments—approval of laws (legislature), definition of public policies (presidency and upper-echelon ministry employees), and issuance of decisions and agreements (judicial branch)—the strategic core will also employ a new instrument only recently introduced into public administration: the management performance contract. Through this contract, the strategic core will define the objectives of the state’s executive entities and respective performance indicators. At the same time, it will guarantee the personnel, material, and financial resources required to achieve the stated objectives. The executive entities will be “autonomous agencies,” in the sector of activities that are exclusive to the state, and “social organizations,” in the sector of nonexclusive services of the state. As a matter of principle, activities that are exclusive to the state should be organized through the system of “autonomous agencies.” The head of the autonomous agency will be named by the respective minister with whom the management contract is negotiated. Once objectives and performance indicators have been determined, the head of the agency will be free to manage the budget allocated to the agency’s activities. He or she will have the autonomy required to manage personnel in aspects related to hiring, dismissal, and payment and will only effect acquisitions on the basis of the general competitive principles. At the other extreme, production of goods and services for the market should be concentrated in the private sector. The ongoing privatization process is based on the assumption that companies will be more efficient if they are controlled by market forces and privately managed. In turn, this assumption is the basis for the principle of subsidiarity: the state should control only those activities that cannot be controlled by market forces. Aside from this, the fiscal crisis in which the state is mired has stripped it of its capacity to accumulate forced savings and invest in state-controlled

Publicizationa Privatization

Nonstate public

Source: Brazil, 1995. Master Plan of the State Reform. Note: a. Transfer to nonstate public sector.

Production for the Market State-owned corporations

Nonexclusive Services Schools, hospitals, research centers, museums

Decentralized Units Police, regulation, inspection, development of scientific and cultural initiatives, social security

Exclusive State Activities Strategic Core Congress, superior courts, presidency, heads of ministries

State

Forms of Property

Private

Bureaucratic

Managerial

Administration

Figure 6.1 Sectors of the State, Forms of Property, Administration, and Institutions

Private corporations

Social organizations

Executive and regulatory agencies

Policymaking secretaries Management contracts

Institutions

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companies. Consequently, it is now advisable to privatize certain activities. Privatization is the policy in keeping with the conception that the modern state should be a regulatory state and funding transfer agent, instead of the executor state. Companies can be controlled by the market, which is dominated by the principle of exchange. The principle of transfer, which rules the state, does not apply adequately to the world of business. It is for this reason, together with the principle of subsidiarity, that these companies must be privatized. However, in the case of natural monopolies in which market forces cease to operate, the best form of management is not obvious. Here, privatization must be accompanied by a very careful process of price and quality regulation. And in those monopolistic sectors in which large profits can be earned—a type of forced savings—and reinvested in the sector itself, careful thought is needed. In these circumstances, it might be more interesting to maintain the company as the property of the state. This was done in the large-scale infrastructural projects implemented in Brazil from the 1940s to the 1970s. Finally, the principle of subsidiarity is also open to discussion in the case of strategic sectors such as petroleum, in which a more rigid type of state regulatory control that could imply state proprietorship might be appropriate. Indeed, the Brazilian government has decided to maintain Petrobras under state control. NONSTATE PUBLIC PROPERTY

Finally, I analyze the case of the nonexclusive activities of the state and propose that the form of dominant property should be nonstate public property. Contrary to what most people think, there are more than two relevant forms of property—public and private—as would seem to be suggested by the classic legal division between private and public law. In reality, there are three types: (1) private property, concentrated in generating profits (business) or private consumption (families); (2) state public property; and (3) nonstate public property. This confusion stems from the fact that public law was confused or identified with state law, whereas private law has been understood as encompassing nonprofit, nonstate institutions that, in fact, are public.32 In other words, public must not be confused with state. Public space is broader than that reserved to the state. At the level of responsibility, what is state property is always also public. However, in practical terms, this is not true. The precapitalist state was private since it existed to meet the needs of the prince. In the contemporary world, the public was conceptually separated from the private, despite the fact that the private continually attempts to appropriate the state.

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Property that pertains to all and exists for all is public. The institution that has authority to legislate and tax is a state institution, as is the property that is an integral part of the state apparatus and is ruled by administrative law. Property is private when it is focused on profit or individual or group consumption. Based on this concept, though subordinated to civil law, a foundation governed by private law is a public institution, to the extent that it is focused on the general interest. In principle, all nonprofit organizations are or should be nonstate public institutions.33 When nonprofit organizations are considered this way, we could continue to use only the two classic forms of property, public and private, but with two qualifications. First, public property would be subdivided into state and nonstate, instead of being identified simply with state property. Second, private law institutions focused on the public interest and not on private consumption would not be considered private, but rather as nonstate public institutions.34 Acknowledgment of the existence of nonstate public space has become particularly important at a time in which the crisis of the state has further deepened the state–private sector dichotomy, leading many to imagine that the only alternative to state property is private property. Privatization is an adequate alternative when the institution is capable of generating all the necessary revenues through sales of its products and services and the market is capable of assuming coordination of its activities. Whenever these conditions are not present, there will be room for the nonstate public institution. In addition, at a time when the crisis of the state demands reexamination of state-society relations, the nonstate public space can serve as intermediary, facilitating the appearance of forms of direct social control and partnerships, with new perspectives for democracy. As Nuria Cunill Grau (1995: 31–32) notes: The introduction of the “public” as a third dimension that goes beyond the dichotomous vision based on absolute opposition between “state” and “private” is undoubtedly linked to the need for redefining relations between the state and society. The public, “in framework of the State” is not something definitive, but rather a process of construction that, in turn, presupposes an active public social sphere in its task of influencing state decisions.

In the sector of services not exclusive to the state, property should be nonstate public as a matter of principle. It should not be property of the state because it does not involve use of the power of the state. However, it must be public to justify the subsidies received from the state. The fact that it is nonstate public, in turn, mean that activities should be controlled by a combination of market and state forces. State control, however, must necessarily be preceded and completed by direct social control, derived from the power of the councils of administration formed by the institution

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in question. And market control will be exercised in charging for the entity’s services. In this way, society will permanently bear witness to the validity of the services rendered, at the same time as it establishes a system of partnerships or comanagement arrangements between the state and civilian society. At the federal level, the most important nonexclusive state services are universities, technical schools, research centers, hospitals, and museums. The reform proposal would transform them into a special type of nonstate entity called “social organizations,” that is, entities that formalize a management contract with the executive branch and gain parliamentary authorization to participate in the public budget. The increase in the nonstate public sphere that is proposed here does not in any way imply privatization of state activities. Quite to the contrary, it involves broadening the democratic and participatory character of the public sphere while subordinating it to a renewed and expanded public law. As Tarso Genro observes (1996: 3): The social reaction caused by exclusion, fragmentation and the emergence of new modes of community life (that seek to redeem citizenship and the social dignity of the group by influencing the state) has generated a new non-state public sphere. Consequently, a new Public Law has emerged as a response to the impotence of the state and its mechanisms of political representation. A Public Law in which the rules are sometimes formalized and sometimes not, but which seeks a comanagerial process combining direct democracy—based on voluntary participation— with the political representation foreseen by the written norms rooted in the will of the State.

Transformation of services that are not exclusive to the state into nonstate public property and its definition as a social organization will be achieved through a “transformation program” that should not be confused with privatization, since these new entities will preserve their public character and financing from the state. The process will ensure that these entities have a public character but are governed by private law, providing them with the necessary greater administrative and financial autonomy. It will be necessary to abolish the current entities and replace them with public foundations governed by private law and created by individuals. This will make it possible to avoid classification of such social organizations as state entities, as happened in the case of the private law foundations instituted by the state and, consequently, subject to all state restrictions. The new entity will be temporarily assigned the properties of the abolished entity. The current employees of the entity will be placed at the disposal of the new entity, and new employees will be hired on the basis of ordinary labor legislation. Acquisitions will be made through the use of the

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public tender system, though it is possible that a specific procedure will be created for these entities. Control of state funding for the social organization will be exercised through management contracts that will be subject to inspection by both the appropriate supervisory control organization and the Budget Court. MOST APPROPRIATE TYPES OF ADMINISTRATION

The general objective of administrative reform is to shift from a bureaucratic public administration to managerial public administration. However, such large-scale change cannot be achieved from one day to the next, nor should it happen at a uniform speed in the various sectors of government. Managerial public administration must build upon the foundations of bureaucratic public administration. Instead of demolishing the former system, reform should take full advantage of its positive aspects while discarding elements that are no longer useful. Such bureaucratic institutions as competitive examinations, public selective hiring, a universal system of earnings, formally structured careers, and a system of training should be effectively implemented since, despite the bureaucratic ideology that raged in Brasília from 1985 to 1994, they have yet to function as they truly should. However, these institutions must be marked by the necessary degree of flexibility so as not to conflict with the principles of managerial public administration. Above all, they must not impede a system of merit-based rewards that is not dependent on seniority, nor should they increase restrictions on the initiative and creativity of public administrators in managing their human and material resources. As Oscar Oszlak observes (1995), priority must be given to designing training to meet the needs and programs of the new managerial state, instead of subordinating it to the various career levels, as bureaucrats would have it. Of course, the combination of managerial and bureaucratic principles will vary from one sector to another. The major qualities of bureaucratic public administration are its security and effectiveness. For this reason, in the strategic core, where these characteristics are of overriding importance, they must be preserved. In the other sectors, in which the need for efficiency is fundamental because of the large number of employees and citizens-clients or users involved, the weight of bureaucratic public administration must diminish until it practically disappears. As Roberto Cavalcanti de Albuquerque (1995: 36) observes: “It is doubtful whether this new paradigm [that Albuquerque terms “government’s business paradigm,” in contrast to the “political-administrative management paradigm”] should entirely replace the political-administrative management model, particularly in those entities that directly exercise powers conferred upon the State.”

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Reform of public administration will be achieved in three ways: (1) institutional-legal changes, through which laws are altered and institutions are created or modified; (2) cultural evolution, based on a shift from bureaucratic values to managerial values; and (3) changes in management. First it will be necessary to alter the constitution, laws, and regulations. In a country in which the legal system is based on Roman and Napoleonic law, any reform of the state must necessarily imply sweeping modifications to the legal system. Second, the cultural dimension of the reform means burying once and for all the concept of government controlled by a privileged elite, as well as making a transition from bureaucratic to managerial culture. I have already stated that this concept of the privileged political class no longer exists in Brazil as a value, but only as a practice. However, I was imprecise in this affirmation since practices are also part of cultural reality. Though vehemently repudiated, government based on pressure groups, political favoritism, and self-interest still exists. Condemnation will not suffice to fully eradicate this type of precapitalist culture. It must be punished. The step forward represented by the transition to managerial culture is a complex process but is already occurring. The entire 1995 debate on the reform of the constitutional chapter on public administration was a process of cultural change. Third, making changes in management will be the most difficult stage. Brazilians must put new managerial ideas to work and offer society a public service that is effectively cheaper, better controlled, and marked by higher quality. Here, two strategic tasks will be creation of autonomous agencies at the level of activities exclusive to the state and formation of social organizations in the nonstate public sector. Initially, laboratories supported by the Ministry of Federal Administration and State Reform will be required in order to test the new administrative practices. Following that, it is to be hoped that the units to be transformed and the respective strategic nuclei will take the reform initiative. THE OUTLOOK FOR REFORM

In the year after the process was initiated, I can clearly affirm that the outlook in relation to reform of public administration is highly positive. In early 1995, when the problem was first raised by the new federal administration, society’s initial reaction was a lack of belief, even irritation. I found myself in the eye of the storm. The press adopted a skeptical, even openly aggressive attitude. Various persons came forward to suggest that I should speak less and accomplish more, as if it were possible to change the Constitution without first fostering wide-ranging debate. I attributed this reaction to a natural sense of resistance to what is new. I had proposed a

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new topic, a theme never so widely debated in the past and one not even included in public discussions during the Constituent Assembly. Furthermore, it was not one of the major points brought forward during the 1994 presidential campaign and was included in government programs only marginally. In short, it was a question that was not on the government’s agenda.35 However, a second factor must be added to the simple idea of resistance to what is new. According to Adam Przeworski (1995), success in reforming the state depends on the citizens’ capacity to hold authorities accountable. It must be emphasized that Brazil’s political culture has always been more authoritarian than democratic. Historically, the state has never been seen as standing shoulder-to-shoulder with society through the bonds of a social contract, but rather as an entity somehow above society. As Luciano Martins (1995: 35) observes, “political responsibility for management of public resources was rarely demanded as a right of the citizenry.” The truth is that the principle expressed in the phrase no taxation without representation is entirely foreign to Brazilian political culture. Thus, it was no surprise that the initial reaction to the proposals was so negative, even when they were still being formulated. However, following several months of government insistence on discussing such questions as civil servant job stability, the work regime of the public sector, the social security system, and wage ceilings, expressions of support started to emerge from governors, mayors, the press, public opinion, and the highest levels of the public administration. By the end of 1995, people were convinced that it would not only be possible to obtain congressional approval for the constitutional reform, but that the reform was essential to state and municipal fiscal adjustment and of fundamental importance to the transition from a sluggish and inefficient bureaucratic public administration to a decentralized, efficient managerial public administration focused on meeting the citizenry’s needs. Resistance to the reform was concentrated only at two extremes: the lower and middle civil service levels, unions, and political party representatives of self-interest groups, who claim to stand for the interests of the left; and the surviving self-serving political elite in fear of losing some of their accumulated privileges, many of whom are close supporters or even relatives of right-wing politicians. The support of upper levels of the bureaucracy is essential to the success of reform, and this support has been forthcoming. In England, for example, reform only became possible when the highest levels of British public administration decided that the time had come for reform and that a strategic alliance with the Conservative Party, which came to power in 1979, would be convenient for these purposes. In an even broader sense, the reform must attract the support of those members of society who are convinced that the country must necessarily follow this path, and this no

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doubt includes the highest levels of the public administration. As João Geraldo Piquet Carneiro (1993: 150) notes, in two earlier federal administrative reforms (1936 and 1967), the decisive action of an elite group of administrators, economists and politicians—independently of whether they were of an authoritarian bent or not—in tune with the theme of modernization of the state, was of essential importance. And among them, they came to a common diagnosis that the existent structures were insufficient to institutionalize the reform process.

Following a natural period of uneasiness in relation to the new ideas, this support has come forward. It is based on the generalized conviction that the model implemented in 1988 was unrealistic and, instead of resolving problems, has generated only increased deterioration. The great enemy is not only the privileged political elite but also the blind “bureaucratism” that has appeared in its wake. The objective of creating a bureaucratic public administration is still alive, for this task was never brought to a successful conclusion; however, in 1995, it became clear that to achieve this end, the nation would have to march in the direction of a managerial public administration that not only encompasses but takes a more flexible approach to classic bureaucratic principles. NOTES

An earlier version of this chapter appeared in Revista do Serviço Público (Bresser Pereira 1996b). 1. As Fernando Henrique Cardoso notes (1996: A10), “globalization has changed the role of the State. . . . The emphasis of governmental intervention is now almost exclusively targeted at making it possible for national economies to develop and sustain structural conditions of competitiveness on a world scale.” 2. For a critique drawn from Huntington of the concept of the capacity to govern as related to the balance between the demands placed on government and its capacity to meet them (1968), see Diniz (1995). 3. To me, it is clear that, as Frischtak (1994: 163) notes, “the crucial challenge resides in achieving that specific form of coordination of the state apparatus with society in which it is acknowledged that the problem of efficient administration cannot be dissociated from the political problem.” However, I do not focus attention on this question. 4. Public credit should not be confused with government credibility. Public credit exists when the state merits credit on the part of investors. A state can merit credit while the government is denied credibility. The opposite can also occur: a government may enjoy credibility in a state that has no credit as a consequence of a fiscal crisis. 5. This concept was mistaken for managerial public administration. Hiring bureaucrats through state companies made it impossible to create stable bodies of

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civil servants who would operate in a framework of flexible careers in which upward movement would be more rapid than in traditional careers. The emphasis here is on operation within a career context. According to Santos (1995), a group of technicians, with heterogeneous origins and backgrounds, more commonly identified with the so-called technocracy that reigned particularly in the 1970s took on the role of agent of the state bureaucracy. With roots in academic circles, the private sector, the state companies themselves and a variety of government entities—this technocracy supplied qualified staff for the higher administrative echelons of the federal administration.

For more on the subject of this state technocracy, see the classic works of Martins (1973, 1985) and Nunes (1984). 6. In the words of Nilson Holanda (1993: 165): The managerial capacity of the Brazilian State has never been so fragile. In recent years and, particularly, since the founding of the New Republic, the situation has gone through a process of gradual deterioration. And, at present, both in and outside government, there are no proposals capable of attaining the objective of reversing this tendency over the short or medium term.

7. An exception to this is the reform of the national financial system in the period from 1983 to 1988. This process was marked by elimination of the Banco do Brasil “movement account”; creation of the Secretariat of the National Treasury; elimination of parallel budgets, particularly the “monetary budget”; and implementation of an excellent system of computerized monitoring and control of expenditures, the Integrated System of Financial Administration (SIAFI). These reforms, which were accomplished by a remarkable group of bureaucrats led by Mailson da Nóbrega, João Batista Abreu, Andrea Calabi, and Pedro Parente, are described in Gouvea (1994). 8. The best analysis of the English experience that I am aware of was written by a university professor at the request of the British civil servants’ unions (Fairbrother 1994). 9. Osborne and Gaebler’s book is just one of several important works on managerial public administration. Among others, I should mention Barzelay and Armajani (1992), Fairbrother (1994), Kettl and Dilulio (1994). In Brazil, aside from the writings of Hélio Beltrão, there is also a pioneering article by Nilson Holanda (1993). 10. The French call administrative decentralization “deconcentration” to distinguish it from another policy that they term “decentralization.” 11. More precisely, the Federal Council of the Civilian Public Service was created in 1936 and replaced by DASP in 1938. 12. DASP was abolished in 1986 and replaced by the Secretariat of Public Administration of the Presidency of the Republic (SEDAP). In January 1989, this entity was also eliminated and incorporated into the Secretariat of Planning of the Presidency of the Republic. March 1990 witnessed creation of the Secretariat of Federal Administration of the Presidency of the Republic (SAF), and between April and December 1992, this entity was incorporated into the Ministry of Labor. In January 1995—the start of the Cardoso administration—SAF was transformed into the Ministry of Federal Administration and State Reform (MARE). 13. According to Bertero (1985: 17),

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underlying the decision to expand public administration by granting increased autonomy to the indirect administration is recognition that the direct administration had been unable to respond in an agile, flexible, ready and creative manner to the demands and pressures of a state that defined itself as oriented to development.

14. This alliance was conceptualized and described in various manners in the 1970s. Cardoso referred to it as “bureaucratic rings” (1996); Guillermo O’Donnell used the expression “bureaucratic authoritarian regime”; I have always preferred the term “technobureaucratic-capitalist model”; and finally, Peter Evans popularized the concept “triple alliance” (Guillermo O’Donnel 1973; Bresser Pereira 1981; Evans 1979). 15. This was done despite the fact that Decree-Law 200 contained references to high-level administrators (Article 94, part V) and creation of a DASP Training Center (Article 121). 16. I examined this phenomenon in an article written in tribute to Caio Prado Jr. (Bresser Pereira 1989). The first Brazilian government document to define the fiscal crisis was Plano de Controle Macroeconômico (Macroeconomic Control Plan) (Brazil 1987). 17. The military regime always sought to avoid these two evils. In general, it was successful in these efforts. The interest groups and system of patronage—the instruments through which the philosophy of government for a privileged few is most clearly expressed—existed within the central administration of the military regime. However, they were the exception and not the rule. With the democratic transition, the situation changed. The two victorious parties, Partido do Movimento Democrático Brasileiro (PMDB) and Partido da Frente Liberal (PFL), simply divided up available public service positions as the spoils of their victory. The boards of directors of the state companies, traditionally occupied by technicians, were also subordinated to the dominant political interests. 18. According to Marcelino (1987: 11, cited by Pimenta 1994: 155), “the objective was clearly to strengthen and modernize the direct administration. This grew out of a diagnosis that—whether justified or not—a type of escapism or flight to the indirect administration had occurred.” 19. However, these privileges did not arise by chance. They were part of the concept of government that Brazil inherited from Portugal. Luiz Nassif notes (1996): Analysis of Brazilian economic formation shows that one of the worst aspects of the Portuguese political legacy was the dream of total security that became so deeply rooted in Brazilian social culture. At the level of individuals, the most complete expression of this syndrome was the dream of early retirement and public sector employment.

20. In fact, the constitution required only institution of the single juridical system. The law determined that this single system would be applicable only to civil servants. In some municipalities, the law determined that ordinary labor legislation would be used. Aside from this, in Article 19 of the Ato das Disposições Constitucionais Transitórias (ADCT), the Constitution granted stability to workers governed by ordinary labor legislation who had more than five years of government employment but did not transform them into occupants of public job positions. Quite the contrary, to achieve this status it required that they be submitted to “competitive confirmation examinations.” In these examinations, time of service is considered as a positive point in the calculation of the final result. The Supreme Court

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has granted several injunctions denying efficacy to state laws that repeated the model of federal legislation, transforming workers governed by ordinary labor legislation into employees subject to civil service legislation. However, up to the present, no one has seen fit to question the constitutionality of Law 8.112, a monument to the existence of special interest pressure groups. 21. Pimenta notes (1994: 161): In the period under analysis, the principal role of SAF was to ensure the process of strengthening and expanding the direct administration, while defending the interests of the civil service by influencing elaboration of the new Constitution, or by ensuring that what was defined in 1988 would effectively be implemented.

22. With respect to the competence and public spirit of the Brazilian high level bureaucracy, see Schneider (1994) and Gouvea (1994). I wrote the prefaces for both of these works in 1994, before I even imagined being minister of federal administration. 23. It was at that moment, from April to December 1987, that I occupied the Ministry of Finance. Though always associated with the national, development-oriented current of thought, I immediately diagnosed the fiscal crisis of the state and proposed the fiscal adjustment and tax reform required to cope with the problem. A report on this experience is found in Bresser Pereira (1992). 24. Technical incompetence in economic stabilization efforts became clear in the government’s inability to diagnose high inflation as inertial inflation that required specific remedies combining both orthodox and heterodox approaches. 25. A good example of this bureaucratic ideology is found in a wide-ranging analysis elaborated by a young manager, Aldino Graef (1994), involving “a proposal of democratic administrative reform.” 26. In this case, the only possible justification would be ideological, as expressed by Gurgel (1995: 85): The idea of a more flexible approach to public service job stability by preserving stability only for those functions understood as being specific to the state, confuses State with Republic. It fails to perceive that, above and beyond the state, the functions designed to meet public needs or rights are functions separate from what is private and must be carried out in an independent and egalitarian manner. These functions must be performed impersonally and in such a way as to be protected from social and political pressures. . . . The question of the impunity of indolent civil servants or the problem of excess staff cannot be used to support a measure that would jeopardize one of the principles of the modern bureaucracy.

27. A career system also existed within the diplomatic community. However, with the introduction of performance bonuses in 1995, the scope of a diplomatic career was severely restricted. As a consequence, it took on the same character as other civilian careers. 28. In France, for example, end-of-career wages are approximately two and a half times the initial wages of an ENA graduate, once additional amounts paid for occupying managerial positions were deducted. 29. For example, according to Abrucio (1993: 74), “in the Brazilian federal public administration, the question of career plans is essential in the sense that most Brazilian civil servants have no well-defined professional horizon.” In this study, the author presents a realistic listing of the obstacles to the existence of

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careers. However, the study fails to perceive—just as most people failed to perceive at the time—that the obstacles are rooted less in the impact of the privileged political classes and incompetence of political leaders and more in the dramatic technological changes that have occurred in the world, with all their very profound implications in terms of the reformulation of the public administration. 30. The first important and highly successful experience of this type in the Brazilian public service occurred in 1995 at Banco do Brasil. The bank had 130,000 employees. It came to the conclusion that 50,000 could be classified as subject to release and, consequently, offered indemnity payment so that 15,000 would resign voluntarily. After a period of considerable perplexity in which unions intervened with a series of court orders issued by lower court judges imbued with the bureaucratic spirit, the policy was declared legal and a total of 16,000 employees came forward for voluntary resignation. 31. Pimenta (1994: 154) says: During the entire Brazilian republican period, institutionalization of the administrative function of the federal government has occurred in cyclical fashion. . . . In the period from the 1930s to the 1950s, Brazil experienced a process of organizational centralization in the public sector, in which the direct administration and civil servants contracted on the basis of specific legislation predominated. The period from the 1960s to the 1980s was marked by decentralization through expansion of the indirect administration and contracting of employees on the basis of ordinary labor legislation. The process initiated by the 1988 Constitution reflected an intention of centralizing once again (specific legal system for government employees).”

32. As Bandeira de Mello (1975:14) explains, to the jurist the distinction between private or public property is more than a matter of semantics. It reflects submission to a specific legal regime: a regime of commutative balance between equals (private regime) or a regime of unilateral supremacy characterized by the exercise of special prerogatives of authority and special limitations on the exercise of such prerogatives (public regime): To judge whether an activity is public or private is merely a matter of knowing to what type of legal regime the activity is subordinated. If the regime attributed to the activity by law is public, then the activity is public; if the attributed regime is that of private law, then the activity will be considered as private or, in other words, one that is not the task of the state. In summary: it is not the objective of the activity nor its nature that determines when the activity is public or private, but rather the regime to which the law subordinates the activity.

I recognize this fact when considering nonstate public property to be governed by private law; it is public from the point of view of its objectives, but private from the legal angle. 33. “Are or should be” because a formally public nonprofit entity may, in fact, be such. In this case, we are dealing with a false public entity. Cases such as this are common. 34. These institutions are improperly called “nongovernmental organizations” to the extent that political scientists in the United States generally confuse government with state. It is correct to speak of nonstate organizations or, more explicitly, nonstate public institutions.

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35. To be more precise, items such as the review of public-sector job security were included in the constitutional amendment proposals put forward by the Collor administration. For the most part, they were the fruit of the work carried out by more enlightened sectors of the bureaucracy concerned with providing that administration with a better program as it entered its second phase of government, subsequent to a broad ministerial restructuring.

7 Democratic Governability in Latin America at the End of the Twentieth Century Joan Prats i Català

DEMOCRATIC GOVERNABILITY, INSTITUTIONS, GOVERNMENT ACTIONS, AND LEADERSHIP

Differences in opinion between many traditional politicians and their respective electorates, which observation has shown to be increasingly frequent, stem from politicians’ tendency to fulfill their own political agendas, regardless of whether these refer to minor issues from the past or to challenges and opportunities related to the future. Although such behavior may be excusable in times of long-lasting stability, it is senseless in times like the present, which can, without any exaggeration, be considered a period of true civilizational change. Not to say that we are witnessing the end of history, but we are, definitely, witnessing the dawn of a new historical era. During the 1960s and early 1970s, many people in the Latin countries of the Americas and Europe believed that they would witness the downfall of capitalism before the end of the twentieth century. Instead, it seems that this century will be marked by the downfall of communism, the victory of market economies, the predominance of liberal democracy and of great institutional and technological revolutions, globalization, streamlining, complexity, diversity, and interdependence. Now that we are standing on the threshold of the twenty-first century, it is easy to guess what lies on the other side of the doorstep: the turbulent emergence of an increasingly globalized, plural, complex, interdependent, and dynamic society in which challenges and opportunities will bear no similarity whatsoever to those following the Industrial Revolution. Within this new context, democracy and the market, triumphant for the first time in history, will have to survive direct confrontation with one another (Rosenau 1992; Dror 1994; 147

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Comissão de Gestão Assuntos Públicos Mundiais [World Public Affairs Commission] 1995; Sartori 1994). No responsibly governed country can do without a national strategy to position it within the emerging new world order, not even the Latin American countries whose loss of a role as international players has been noted in recent years. As history has clearly demonstrated, it is good to keep in mind that the hierarchy of nations resulting from the sweeping changes now under way will be quite different from what we see today. Countries that were able to develop the right national strategies will appear at the top of the list. The remainder will recede. The capacity to formulate national internal restructuring and international repositioning strategies will therefore be a matter of crucial importance. This capacity depends on a number of factors, three of which are pertinent to our discussion: (1) the existence of leaders with vision, able to form a coalition sufficiently strong to push through a structural reform program and overcome whatever resistance may crop up; (2) the country’s deepest institutional and cultural values, the true rules of the political, economic, and social games, internalized and applied by the various relevant players; and finally (3) the capacity to formulate and implement the public policies essential to facing challenges. These three factors interact in a way that determines the conceptual scenario to which this work responds. Within this theoretical scenario, “democratic governability” is seen as any democratic system’s capacity to govern itself and to face challenges and opportunities in a positive manner. Following this line of reasoning, democratic governability refers not so much to the attributes of a democratic regime as to the capabilities any given democratic society has at hand, not only to face challenges but to take advantage of opportunities. A democratic governability strategy is therefore a strategy aimed at building up capacities, which depend on interrelations among the existing institutional system (governance); capabilities of the current political, economic, and social players (governing actors); and on the quantity and quality of available transformational leaders. The concept of governability thus differs from that of governance, or the “institutional system” (formal and informal) that limits the action of governing actors (governmental and nongovernmental) relevant to authoritative determination and the allocation of public assets and resources. Such determination and allocation are achieved by political action and by the formulation and implementation of public policies. Governability also differs from “governing,” which entails not only politics itself but public policies and public administration as well (Kooiman 1993). The concepts of governance and governing are so intimately related that in Spanish there is only one word for the two: the old word gobernación (devoid of the authoritarian connotations recently applied to it and recovering its former true meaning). In fact, gobernación means the act of

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governing as well as the institutional system within which governing takes place. Governing never happens in a void or in total freedom but within a scenario of constraints and incentives that constitute government institutions. These institutions (governance) are the principal—but not the sole— determinants of governability. Moreover, equal institutional systems may feature greater or lesser degrees of governability (a greater or lesser capacity to deal with collective challenges and opportunities). In such cases, the cause of this diversity must be sought in the differences in governing actors’ capacities. The actors’ actions are limited by the institutional order, albeit not entirely; there is always some margin of autonomy in which actors can and should exercise their professional competence and moral accountability (Popper 1982). These capacities form the current makeup of the “politics, public policies, and public administration/management” trinomial. The more recent schools of thought postulate that this trinomial be considered as a whole. In contemporary societies, in which actors are at the same time autonomous and interdependent, to govern is ever less a question of producing goods and services and increasingly the act of guaranteeing that the actors comply with certain rules that encourage effective behavior in the face of challenges and opportunities presented by the social corps. Various authors hold that the challenges of contemporary governability lie more in the quest for better governance than in the quest for better governing (Metcalfe 1993; Osborne and Gaebler 1992). Other authors add to this general concept the idea that the value created by governments lies not only in the utility or individual satisfaction such public services seek to fulfill, but that apart from these, the social architecture in which individuals and groups seek to use such services must also be taken into consideration (Moore 1995). And last, governability also depends on leadership, which can be included in the role of government capacities. However, to my way of seeing, the added value that quality leadership provides is so great that it is worthy of discussion in its own right. I devote the last section of this chapter to the subject of quality leadership. Obviously, I refer to transformational leadership capable of mobilizing and guiding a collective learning process to develop the new thought models and actions that effectively meet forthcoming challenges (MacGregor 1979; Grindle and Thomas 1989; Heifetz 1994). END-OF-CENTURY CHALLENGES AND OPPORTUNITIES FOR LATIN AMERICAN DEMOCRACIES

Although they did get off to a very late start, Latin American countries have been making great efforts to adjust to the new realities of the emerging

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world order since the late 1980s. Apparently, the following are the key guidelines for these efforts (Iglesias 1992; UNDP 1993; Bradford 1994; Castañeda 1995):

1. committing to democracy and its advances, which implies in-depth changes in actors and their capacities as well as in the civil regime and culture that underlies and limits the actors’ behavior; 2. replacing mercantile capitalistic systems prevalent in the region with truly productive and efficient free-market economies, which requires not only sustained economic adjustment but also the development of capacities and institutions appropriate to modern market economies; 3. fighting poverty, reducing inequities in order to overcome dualization and populism, and building up a society that provides full citizenship—a society in which the law effectively guarantees the freedom of individuals and groups; 4. adapting economies to the global order by liberalizing trade, developing the capacity to deal with policies of competitiveness, and promoting regional economic integration with a view to enhancing the power of member countries within the global economic order; and 5. reforming the traditional populist state—large and arbitrary, but weak in the face of coalitions formed to protect private interests— in order to construct a state devoid of productive functions but strong enough to support the nation’s productive sector and enhance its competitiveness; in other words, building a government capable of offsetting market flaws and ensuring social cohesion.

All these processes run parallel to the emergence of new paradigms, according to which development problems will be addressed and priorities established. Among the Latin American governing classes in particular, there has been a growing awareness that the Washington consensus regarding structural adjustment and formal democracy are, in themselves, insufficient to ensure development, legitimacy, and governability. These three goals can only stem from true structural reforms, which, in this case, means a reform of institutionality, of the rules governing the game played by political, economic, and social actors. The emerging world order obliges us to develop the skills to play the new game and learn the new rules. As modern literature on reengineering and learning constantly reiterates, the most difficult part is not to grasp the meaning and to learn the new rules and skills—that is, to be capable of taking action. The most difficult part is to “unlearn”—to shed old ideas. Without leadership, this is not only difficult; it is impossible. Latin Americans

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should be proud to see new leaderships and reform programs cropping up in the region that constitute more than mere organizational and instru mental modernization and instead focus on a true refounding of government institutions. The introduction of new ongoing management teams, technologies, and competitors continues to be a fundamental resource for development. It is simply no longer possible to promote isolated reforms. Reforms must therefore be considered in the light of their compatibility with, and impact on, the institutional and cultural bases that serve to support them. The United Nations Development Programme (UNDP) and the Inter-American Development Bank (IDB), as well as a number of bilateral agencies, have recently been emphatically pointing out that without institutional development, there is no guarantee that any possible advances attained in public administration will be upheld. This same school of thought is also to be found in recent reports by various influential World Bank specialists (Edwards 1995). The change in focus—from organizational to institutional—stems from important changes in the theory of development, which I touch on only lightly in this chapter (North 1991; Hirschman 1992; Ostrom, Schroeder, and Wynne 1993; Barrow 1995; March and Olsen 1995, among a myriad of other authors). It must be kept in mind that the specific governance strategy (adopted by the UNDP as a whole and specifically by its Management Development and Governance Division), based on the concept of sustainable human development, has been transformed into an integrated strategy in which the economic, political, social, and environmental aspects of governability become inseparable and interdependent. There is a growing consciousness in the region that the greatest weakness of Latin American societies in regard to the challenges of current development is not so much a lack of natural, economic, or human resources, but the inadequacy and inefficiency of the institutions that manage the productivity of such resources. Latin Americans must change focus from resource development to the development of models capable of orchestrating cooperation and collective action and their corresponding valuation and cultural models. Development is thus no longer a question of improving existing organizations but a question of redefining or repostulating the rules of the game that determine which organizations and actors will participate and the position of each participant in the process of collective action. The problem of development is therefore no longer a problem of governing, but a problem of governance (Osborne and Gaebler 1992; Metcalfe 1993; Kooiman 1993). Upon adopting this new outlook, we can see very clearly that the volume of reforms still pending is truly frightening:

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1. Electoral systems must be adjusted and cleaned up to improve the image, organization, representativeness, and funding system of political parties. 2. Construction of a broad-based consensus that institutional reform cannot depend solely on the president’s leadership; it is essential to strengthen institutions and the organizational apparatus of national legislative bodies. 3. Eliminating corporatism will require a legal system capable of effectively guaranteeing economic and social liberties within a rule of law supported by an independent, effective, and responsible judicial branch. 4. Many countries will have to build up market institutions; clearly define and guarantee property rights and compliance with contract performance terms; formulate and implement trade laws and registers; carry out fiscal and tax administration reforms; regulate the securities market; ensure protection for free market competition and for consumer/user rights; implement effective financial-system monitoring; and develop new regulatory capacities consistent with market competition when privatization and the recommended deregulation have been concluded. 5. Poverty-reducing programs and funds need to be set up; public guarantees will have to be given that ensure universal access to certain essential services, above all, health and education; essential public services must be deregulated and the private sector encouraged to increasingly take over supply of said services; and social management capacities must be developed.

Although the list above is incomplete and lacks any chronological sequence, it is as frightening as it is meaningful. Hailing modernity, announcing loud and clear that reforms were virtually complete following adjustments, privatization, deregulation, and the lifting of trade barriers— as did some of our Latin American countries—is an act that lacks historical responsibility. In fact, all that was achieved was preparations for the first step, and many countries have not even managed to go that far. There is still a long and difficult, but very promising, path ahead of them. They must find true leaders and integrated national strategies capable of mobilizing and directing indispensable collective action. Democratic governability strategies will have to be adjusted to the specific conditions of each country. However, the common historicalinstitutional background of the countries justifies—and even demands— the creation of continental cooperation mechanisms. Although each country has its own resources, must face specific and particular challenges and opportunities, and establish its own strategy and differentiated priorities, it is also true that a large portion of the institutional goals can and should be shared. Apart from any other considerations, sharing experiences provides a wealth of knowledge.

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FROM DEBILITY TO THE QUALITATIVE INSTITUTIONAL LEAP IN THE HISPANIC WORLD

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It was probably Douglas C. North who was most insistent on the importance of institutions in conditioning economic income of countries over the long term. His interpretation of the different historical models implemented by England and the United States on the one hand, and Spain, Portugal, and Latin America on the other is well known and widely accepted. The colonization of Latin America was chiefly the work of Castile, which, institutionally speaking, consisted of a strongly centralized monarchy backed by a powerful religious, military, and civil bureaucracy, a nonexistent or feeble parliament, and no independent judicial power and featured extreme government interference in the economy, which was always subordinate to the interests of the state. With the loss of the Low Countries and diminishing profits from the Indies, the Spanish Crown faced a cycle of bankruptcies. To put an end to this cycle, the Crown resorted to the bureaucratic “thumb-screw” of taxation as well as confiscation and the reduction of property rights guarantees. In a country that had expelled the Moors and the Jews, whose bureaucracy imposed maximum taxes on land and maximum prices on wheat, and where the confiscation of traders’ profits could occur at any moment if the Crown so ordered, productive economic activities were clearly discouraged. The organizations that flourished were the army, the church, the judiciary, and civil bureaucracies, all subordinated to the Crown. The Crown and its bureaucracies, supported by those who held monopolies or patents granted by the Crown and by guild-controlled monopolies, formed a coalition that hampered development not only of the parliament and of law capable of overriding the King’s will, but of incentives necessary to the development of private enterprise. Neither property rights nor contract performance were legally defined or judicially guaranteed. In other words, strong economic interventionism and arbitrary power prevented the development of an autonomous and powerful civil society in the Hispanic world, and the liberal revolution was permanently frustrated and deferred. British institutions developed within a framework that clearly contrasts with that just described. For my purposes, it is sufficient to point out that the transfer of these ideas to the North American colonies produced an economic history characterized by a federal political system of checks and balances, by submission to the rule of law, and by a basic structure of property rights that in the long term encourages development of contracting, producing, and exchange—in other words, the creation of markets and economic development. Latin American economic history perpetuated the centralized bureaucratic tradition that was part of its Portuguese-Hispanic heritage. The following institutional characterization of the Mexican business scene during the past century will sound familiar to many:

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Strongly emphasized interventionism and the arbitrary nature of the institutional context forced all companies, urban or rural, to operate in a highly politicized manner, using patronage networks, political influence or family prestige to obtain subsidized credit; to impose any type of stratagem in recruiting workers, in the accumulation of debts or the performance of contracts, to evade taxes or elude the courts, or to defend or claim land ownership. Economic success or failure nearly always depended on the relationship between producers and political authorities. Small businesses, excluded from the system of corporate privileges and political favoritism, were obliged to operate in a permanent state of semiclandestinity, always on the margin of the law and at the mercy of local civil servants, never safe against possible arbitrary acts, devoid of protection when the rights or interests of the powerful were involved. (Coatsworth 1978: 94)

As Douglas North (1989) puts it, the diverging models established by England and by Spain and Portugal in the New World never converged, despite various (invariably unsuccessful) attempts at imitating or transferring institutions. An institutional scenario evolved in the United States that permitted the complex interpersonal exchange necessary to ensure political stability and to attract potential economic profits derived from modern technology. In Latin America, however, economic and political exchange is still largely governed by personal relations. There the institutional framework never aimed at political stability or at consistently making the most of the potential provided by modern technology. The debility of Latin American institutions makes it impossible to take full advantage of the potential offered by the wealth of natural and human resources to be found in the region (Borner, Brunetti, and Eder 1992). Fortunately, however, there is an increasing awareness of Latin America’s institutional deficit, and strategic national answers for institutional development are seen as absolutely indispensable components in strengthening democratic governability. It is true that neither the diagnosis nor the treatment are as yet very clear, convincing, or well aired, which is normal during times of true paradigmatic change. The most promising change currently taking place in Latin America is of a mental and cultural nature and is expressed by the emergence—still subject to conflict—of new economic, political, social, and corporate paradigms. These changes are also expressed in the discovery of differences between mercantile capitalism and a market economy; in consensus as to the need for an autonomous civil society; in acknowledgment of the value of free and competitive economic enterprise; in criticism of excessive red tape; in acknowledgment that the market does have flaws, especially in regard to social equality; in affirmation of the need for a new type of state, capable of supplying the goods and services that the market cannot supply efficiently or equitably, one that respects the constitution and the laws

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and can boast an independent and effective judiciary branch capable of fighting arbitrary power and its corollary, corruption, and of being held accountable for the exercise of legitimate discretionary power. Awareness that the roots of economic and social underdevelopment are institutional has already seeped down even to the populations of the various countries of the region. This fact was exemplified by a remark made by a very modest person in Honduras: “Sir, compare one individual Honduran with one individual Japanese: the Honduran is no worse than the Japanese. But if you compare two Hondurans with two Japanese . . . the difference between the two groups will be virtually equal to the difference in the two countries’ per capita income.” The profound folk wisdom manifest in this comment corresponds exactly to recent and more sophisticated findings in the field of the social sciences: I am speaking of neo-institutionalist approaches, be they to the economy, corporations, management, or politics. Within this type of approach, democracy is not seen merely as a system of political parties, elections, and mandates to exercise power—largely arbitrary—but as institutional order, based on an economically autonomous civil society that permits all its members to organize and express themselves publicly, a society in which individual and organizational freedom is founded more on the fact that everyone respects the same abstract rules than on influence peddling and personal relations. Latin American democracies are still fragile because their “liberal” component is not yet truly liberal. The key issue therefore is not how to import institutions from the North—an attempt predestined to resounding failure—but how to make local institutions evolve into renewed institutional systems that promote economic efficiency and social equity in compliance with suitable parameters of national valuation. It must be kept in mind that once the historic confrontation between capitalism and communism has drawn to an end, what we discover is an extremely rich variety of capitalist models with their corresponding institutional schemes; although many factors unite the so-called advanced industrial democracies, many factors also separate the Anglo-American, German, Scandinavian-European, Japanese, or Latin-European models. Institutional reforms, inevitably incremental, do not take place overnight, nor can they be created by decree. But the fact that they are necessarily incremental does not mean that reforms must necessarily be uniform in time. On the contrary; history shows that there are noncontinuous periods of acceleration and stability. Furthermore, no historical institutional development model is irreversible. There is no historic fatalism weighing on the Hispanic peoples. The institutional transformation of contemporary Spain, the great advances it achieved in all fields, and the new challenges it is preparing to face are an excellent subject for reflection—not a matter

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to be analyzed at this point, but one I do not wish to leave unmentioned, albeit only briefly. The predemocratic Spanish state resulted from a long history of centralism and political authoritarianism, strongly linked to a public and private capitalism that was highly corporatist and fundamentally isolated from the great historic international forces. The Franco regime was no more than the brutal expression of the radical incapacity of political, economic, and social actors to come to consensus on how to guide Spain’s modernization. Nonetheless, in 1959, General Francisco Franco decided to line Spain up economically with the advanced Western world—in Alfredo Stroessner’s opinion, Franco’s only mistake. Thus began a process of limited economic liberalization under strict authoritarian political control that, buttressing itself on Europe’s outstanding development and on the effectiveness of its own internal administrative legality, drove forward Spain’s great industrial, urban, and intellectual transformation. The country that Franco left upon his death (when multitudes of Spaniards undoubtedly paid him homage) was still an authoritarian country but one already inserted in a potentially democratic social-economic framework. The great merit of the leaders that played major roles in the Spanish transition to democracy was that they not only understood but persuaded their constituents as well that the common future in store for them was much more important than the differences that had kept them in opposite fields in the past. Juan Carlos, King of Spain, was splendid in his role as referee and promoter of this process, from which he gained democratic legitimacy for the monarchy. The overall result, in the midst of serious economic crisis, could hardly have been more spectacular. Spain advanced from autocracy to democracy; from centralism to a unique form of decentralization (the state of the autonomies) capable of institutionally integrating Catalan and Basque nationalism; from international isolation to membership in the North Atlantic Treaty Organization and in the European Union; from corporate capitalism to an increasingly globally integrated market economy; and from a police state to a welfare state, as shown by the elemental fact that public spending currently represents nearly 50 percent of gross domestic product (GDP). It became a country where the per capita income is close to that of England and Italy and that is ninth in the 1995 ranking of human development as determined by the UNDP. True, it has not been all smooth sailing. Today, in the mainstream of the European recession of the 1990s, on the threshold of a new cycle of economic expansion, other institutional transformations are necessary, and other leaders may also be necessary—leaders capable of renewing collective energy, of doing away with the remaining and still influential corporatist strongholds, and of facing corruption to consolidate democratic legitimacy. These problems are by no means exclusive to Spain; they exist

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in nearly all of so-called Latin Europe and are well-known to the more extended Hispanic family. If Latin Europeans and Americans share historical-institutional models, there is nothing more logical than that they also can and should contribute to the common progress of institutional development and democratic governability. THE ECONOMIC AND SOCIAL RELEVANCE OF DEMOCRATIC INSTITUTIONS

To establish solidly grounded national governability strategies, it is necessary to start with conceptual and theoretical assumptions that correspond both to experience and to the most promising social science theories. To begin with, I take a look at the Latin American countries and the most relevant multilateral organizations (UNDP, IDB, World Bank). Evaluation of previous experiences has led to a new intellectual consensus that considers institutional development as essential to democratic governability. No other region has tried so hard for decades to carry out administrative reforms as has Latin America. And no other has known so many frustrations. In the early 1980s, within a context of economic adjustment and formal democracy, technocratic administrative reform solutions lacked legitimacy. It was then that “public policies” were discovered, and the Latin American states’ bankruptcies were diagnosed as deficits in national capacity to formulate and implement public policies. The next solution appeared to be oriented toward national efforts and international aid with a view to strengthening these capacities. But the diagnosis continued to be mainly technocratic: the institutions were not the source of capacity deficits—the deficits were merely organizational (neither political thinkers nor the specialists had as yet established any difference between organizations and institutions). The recommended solution almost invariably consisted of reorganization and of management training and development. “Managerialism,” associated with public policies, was the prevailing orientation. However, toward the end of the 1980s, it had already become apparent that national capacities did not depend on the individual or organizational capacities of the public sector but, perhaps mainly, on designing new institutional arrangements to bring together the state, civil society, and the market. The issue then became “reform of the state,” which in turn implied redefinition and strengthening of civil society. Multilateral organizations also had the same experience. Today it is perfectly natural to acknowledge that mere adjustment and macroeconomic discipline are necessary but, at the same time, insufficient to ensure sustainable economic development. It is also acknowledged that sustainable democracy implies achieving higher levels of economic efficiency and

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social equity. The fact that the World Bank as well as the IDB and the UNDP have put governance themes center stage amid their concerns about development also points to the rediscovery of institutions and the impact they have on economic and social development. To properly understand the value and functionability of institutions, we must begin by distinguishing between institutions and organizations. Institutions are the rules of the social game or the set of restrictions subject to which a society molds individual and organizational interaction. Institutions evolved within a historical social context; they were not predesigned or constructed either by will or by decree. Each country has its own specific institutional system that, to a large extent, determines incentives for economic, political, or social interaction and the national potential for economic efficiency and equality. Efficiency and equity in human interactions depends not only on the institutions but on the organizations as well. Human interaction is not molded only by the rules of the game but also by the teams and organizations constituted for the game. The most characteristic feature of institutions is that they have no specific purposes; their function is to ease human interaction. Organizations have two characteristic features: they pursue specific ends and are, or can be, created directed, modified, or suppressed by will or by order. In other words, the problem for institutions is to determine whether to encourage or discourage economic efficiency and social equity—and to what extent. The problem for organizations is to know how to maximize their usefulness, either in compliance with the existing rules of the game or when the object is to change those rules. Institutionalism could only justify the importance attributed to institutions after introduction of the theory of trade-off costs. Institutions exist to reduce the uncertainties that crop up in human interaction. However, this affirmation is no help at all in clearing up the fact that there are institutions that encourage economic efficiencies and those that do not. The solution lies in recognizing that the institutions have great economic importance because they determine the trade-off costs that are high and getting higher in modern economies and because apart from this, they affect the costs of transformation. Any exchange has a trade-off cost, which consists of the resources necessary to measure the physical and legal attributes exchanged, plus the cost of monitoring and guarantees to ensure that the exchange is respected, plus a discount for uncertainty that reflects the degree of imperfection of the monitoring and the guarantee. The greater the potential for third-party interference—allowing said third party or parties to exert influence on the value of the attributes included in the function of utility of the buyer (which means the greater the arbitrary power, public or private)—the greater the discount rate. In other words, the greater the uncertainty of the

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buyer, the lower the value of the asset purchased. This principle explains the importance of “legal security” in economic history. The degree of uncertainty about the security of rights constitutes a critical distinction between the relatively efficient markets of developed countries and the limited markets of the past or of the current developing countries. Institutions also affect processing costs (that is, the land, labor, or capital resources invested in the transformation of the products’ attributes) because when an institutional framework is characterized as offering scant defenses or protection of property rights, the trade-off costs are high and also push up the costs of using technologies that employ scant fixed capital and do not entail long-term commitments. The existing institutional framework defines the opportunities that encourage the creation of business companies. Therefore, with property rights inadequately guaranteed or unprotected, obstacles to entrance on the market and monopolistic restrictions, entrepreneurs will tend to opt for short-term horizons and invest little fixed capital, and the companies will tend to be small. The most profitable businesses will be those in retail trade, redistribution activities, or the black market. Large corporations with substantial fixed capital will remain in the shade of governmental subsidies, tax shelters, and strong political protection or seek shelter under the umbrella of large foreign companies capable of controlling the internal political game and banking the corresponding costs. None of these familiar combinations will serve to encourage economic efficiency or social equity. The institutional limitations on exchange will exclude large parts of the population from the market and will condemn them to trade on the informal market or to subsistence. All the debate presented so far serves as a clear defense of liberal democracy as the most appropriate political form to encourage economic efficiency and social equity. Mancur Olson (1993: 572–573) recently pointed out that the necessary conditions for maximizing economic development are the same as those that are required for the existence of a sustainable democracy. An economy can only obtain all the potential gains from its investments and long-term contracts if it co-exists with a state sufficiently strong to last, and capable of preventing the violation of property rights and contract performance. Liberal democracy is the institutional political framework necessary to fulfill these two conditions.

Obviously, democracy is not feasible if the freedom and basic political and economic rights of individuals, including the leaders opposed to the group that is in power, are not protected. Liberal democracy will not work if there is no true rule of law. That is why there is no contradiction between public administration and the rule of law in a democratic state. It

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is the supreme value and the essential condition for development of a public administration that transcends mere efficiency-oriented managerialism. The importance of rule of law for mere economic growth has increasingly been highlighted in Robert Barrow’s most recent research (Barrow 1995). After analyzing growth-time and geographical series over long periods of time, he arrived at the conclusion that rule of law is the most meaningful variable for interpretation. However, it is curious that in these research studies, this variable has shown itself to be independent of the “political liberties” variable, which, when isolated, was not relevant in terms of economic growth, although it was meaningful in terms of distribution of income. In more recent studies, Olson more precisely established conditions under which authoritarian systems can become compatible with economic growth (Olson et al. 1995). But in both cases, legal security always appears as a necessary, although insufficient, condition for growth. These considerations aim only to point out the economic importance of institutions. They do not, by any means, affirm that in order to provide economic growth, democracy can be based exclusively on functionality. Historical experience to date shows that democracies that based themselves on an efficient market economy were able to sustain themselves and that the efficient markets associated with politically authoritarian orders tended to evolve toward democracy. But it would be rash to establish definitive connections between the two processes. In any case, it is our belief that democracy justifies itself, with no need to claim any advantage in terms of economic growth. The economic advantages of institutions within a context of democratic rule of law are simply one more piece of good news for democrats, even if to them democracy justifies itself above all because it is a morally superior project of civic coexistence and human development. This last affirmation requires a minimum settling of accounts with the positions of radical individualism professed by certain forms of liberalism and their corresponding political-logical versions. People everywhere are still experiencing times of exacerbated individualism and skepticism with regard to communities. The theory of human behavior that prevails in economics and in political science focuses on individuals and organizations, which tend to maximize their function of usefulness—interests and preferences—in view of a system of trade-offs within an institutional context considered exogenous to such trade-offs. Based on this view, which has prevailed and was carried to a more acute stage by the “public choice” school of thought, democratic governability consists, fundamentally, of competing, negotiating, constructing, and upholding coalitions and of formulating and implementing policies. Society is a balanced and stable aggregate of interests resulting from the relative power and position of key actors. The metaphor of trade-offs among individuals and organizations that maximize usefulness (fundamentally, if not

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exclusively, economic) began to prevail in the 1980s and allowed economic analysis to invade all the bounds of social life. Democracy would come to be analyzed as a “political market,” and the same view would also come to be applied to education and the family as well. I am not suggesting here that contributions derived from the application of economic analysis to social realities (until quite recently seen as extraeconomic) should be ignored. What I want is to refute the reductionism of certain analyses or the fact that they devote attention strictly to the economic dimension, to the possible result of simple trade-offs among maximizers of usefulness. I am aware of the important and positive contribution to democratic governability derived from the predominant “politological” approach: the metaphor of trade-offs raises aspects that are fundamental to political and social life. Besides, insisting on the construction of well-designed systems for the production of political trade-offs has done much to improve comprehension of, and to handle, collective action. But nevertheless, I believe that this view is useful only when duly modified and completed for the reasons listed below.

1. Insistence on seeking an efficient equilibrium, in Paretian terms, leads to emphasizing trade-offs among the existing actors and fails to take into consideration initial disparities related to wealth, power, and competition. Thus, by considering any initial position as acceptable, the quest for acceptable trade-offs is relinquished. Questions related to redistribution must thus be excluded from the agenda. And apart from this point, exaggerated importance is allocated to today’s citizens, to the detriment of citizens of the future. 2. One cannot assume that any and all exchanges are made voluntarily based on the logic of maximization. There are realms of personal dignity and liberty that are excluded from the logic of trade-offs, based on constitutional conventions and on images of personal and social identity itself. However, many trade-offs have a marginal relation to will and to the calculation of interests and can be considered appropriate or due since they are based on positions and on the actual concept of what is socially necessary (Walzer 1983). 3. Under certain circumstances, a political system based only on tradeoffs, even if it works perfectly from the technical point of view, could lead to undesirable results from the moral viewpoint (Polanyi 1944). An increasing number of political philosophers insist that the need for a moral criterion for collective action must be acknowledged. To them, democratic governability must not only promote balanced and stable trade-offs among unequal actors but also ensure that justice is done. This implies a quest for new forms of equilibrium between actors and interests, guided by an ideal of justice and solidarity that transcends mere social cohesion.

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There is no guarantee that the distribution of virtue is equal to the distribution of wealth, power, or competence (Sen 1989). 4. Right from the start, emphasizing trade-offs with a view to the maximization of one’s own interests has the advantage of being a practice coherent with real aspects of human nature. But it has the disadvantage of encouraging these same aspects of our nature. There are social philosophers who profess the idea that egotistical calculation is the basis of any and all healthy social construction. Others consider that such a basis is an evident self-limitation of human motivation. If we do not believe in the existence of immutable human nature, but rather assert that human nature is the result of an ongoing process of social evolution, the design of political institutions cannot be based on the assumption of unassailable human nature and must instead acknowledge the responsibility for building up institutions that encourage positive evolution aimed at improving the equilibrium between individual interests and general interests (March and Olsen 1995).

To my way of thinking, the above considerations seem especially important for democratic governability in Latin America. Given the existing levels (in general) of dualization and inequality and the populist, party-boss, corporatist, and authoritarian traditions that still prevail, the best manner of addressing the construction of democratic governability does not seem to be a theory of radical individualistic liberalism (sometimes called neoliberalism). Latin America is in need of a political and civil society metaphor that combines individual values and community values. Among other reasons, this is true because in most Latin American countries, the major task yet to be fulfilled is construction of the community itself. And this task cannot be undertaken without first building up institutions that, although they acknowledge the importance of markets, do not see them as a panacea. Developed markets may help but do not, in themselves, guarantee the construction of full, free, and responsible citizenship. To attain such citizenship, other supplementary values will be necessary—UNDP calls for sustainable human development. Democratic governability thus also constitutes building up a civic culture to which these values are relevant. Few authentic liberals were more vehement than Julio Maria Sanguinetti in denouncing the excesses of Latin American neoliberalism: The triumph of liberalism over communism is political, it is economic; but liberalism is a philosophy, not a doctrine. Nevertheless we have fallen into reductionism by conceiving of liberalism as mere economic policy because its victory occurred right at the peak of so-called neo-liberalism, a concept that begins with some interesting ideas about currency, proceeds to demand reduction and modernization of the state, and ends up

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with a glorified deification of the market. Thus, the religion of state is replaced by the religion of market. What was previously demanded of the former, is now demanded of the latter. The state cannot be a manufacturer, a hotel management business, a planner of private life to ensure individual happiness, without overstepping its natural functions, but neither can the market. If all regulations of economic life are eliminated and if the state is reduced to the bare minimum, it will not be able to ensure balance in the society or attend to the needs of the poor, which are morally acknowledged to be essential. (Sanguinetti 1994)

Stating things in these terms, the basic operational question is, How do we advance toward the consolidation of liberal market democracies in Latin America, taking the current situation as the starting point? To answer this question, processes of institutional change must be adequately understood. On this point, although there is not yet any complete and adequately verified theory, there are already sufficient contributions to provide for the creation of agendas and strategies more well founded than all those that were attempted, unsuccessfully, in the past. AGENTS, SOURCES, AND PROCESSES OF INSTITUTIONAL CHANGE

The problem for political leaders is not to know what is still to be done, but to know what must be done immediately. In the case of the political leaders, the answer constitutes a true minute-by-minute national political agenda, the very essence of the strategy of governability and institutional development specific to each country. Democracy, like the market, consists of eternally unfinished realities. Each moment in time has its own urgent task. The feature that distinguishes great political leaders from a multitude of citizens, professors, and nonconforming intellectuals is the capacity to make the right choice when allocating priorities. Institutional change may always depend on current supply and demand capacity or on the possible solution. The actors or agents of institutional change are the entrepreneurs or directors of social, political, economic, or military organizations or movements. An inevitable and realistic characterization obliges us to see these actors themselves, or their organizations and movements, as “maximizers of usefulness.” Maximization can take the form of having elections uphold the existing institutional framework or alter that framework—or any other of the possible combinations of these alternatives. Demand for alterations in the existing institutional framework will stem from social actors who hope to reap benefits from such change. However, the previous viewpoint is as inevitable as it is inadequate. In times of turbulence, above all, it is very difficult to know what is best for

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everyone. Information is always limited, and the first thought of any responsible actor will be to preserve social cohesion. Consequently, the final position of the actors in the face of institutional change will always, inevitably, be swayed by the actors’ perception of common interests as well as paradigms, cultures, ideologies, or identities predominant at any given moment. The sources from which the demand for institutional change spring are complex. Basically, they consist of changes in relative prices and changes in preferences. Prevailing ideologies and “cultures” play an important role. In the face of change, its implications will be interpreted based on the interests and power that the various social groups have at that particular moment. Social actors who feel threatened by the new challenges will attempt to impose a reading compatible with the status quo. They will dramatize the costs and minimize the benefits consequent to change and openly oppose it. At this point, transformational political-social leadership plays a fundamental role: great transformational leaders are personalities capable of providing their people with a sense of direction, of inspiring confidence, of collaborating to make a majority (or at least a sufficient coalition of actors) share the same consensus as to the benefits and costs of the necessary change. Leaders are the key factor in explaining differences in the speed or rhythm of institutional changes in countries subject to similar conditions. The demand for institutional change therefore derives from the perception that the new institutional arrangements will make it possible to generate gains—individual or collective—that would be impossible to generate within the current institutional framework. But the offer of institutional change depends on the capacity and will of the ruling political order to provide new arrangements. The ruling political order can be characterized as a political market, as an institutional framework of political exchanges or trade-offs. From this viewpoint, the efficiency of political markets depends on the quantity and quality of the trade-offs possible in each case. To carry democracy forward therefore implies opening up the decisionmaking process to the greatest possible number of individuals and social groups. The more poorly distributed the power to influence political decisions, the greater the difficulty in perceiving not only the costs and benefits of the proposed institutional changes but the costs and benefits of maintaining the status quo. However, the tasks inherent in any institutional project that aims to improve democratic governability do not end with application of the political participation framework. If the culture, preferences, interests, knowledge, and ideologies of the actors are so relevant, they cannot be considered exogenous to the process of democratic governability—as they are by the currently prevailing school of thought. A strategy of governability whose unwavering objective is to raise the standard of democratic civic culture must include the following actions:

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1. Create or support civic processes and organizations that ease the construction, preservation, and development of democratic identities; detect and take action against institutions and processes that produce identities unmistakably inconsistent with democracy. 2. Develop the capacities necessary for citizens and groups to behave in a manner consistent with the expectations derived from the rules of the democratic game, and to adjust the expectations themselves to the teachings of experience. These capacities cannot be prematurely taken for granted; they do not depend solely on political will and spontaneous learning; the production and distribution of these capacities must be distributed in an organized manner among the actors. 3. Develop, within the context of pluralism and freedom, shared experiences that serve to interpret events fundamental to history itself, that will lend them meaning and serve to outline future options. Democracy also needs political myths and consensual procedures if such experiences are to be produced, transmitted, and retained and to permit evolution through learning. 4. Develop an adaptable political system capable of facing tangential and changing demands. This presupposes political organizations with a great capacity for learning, experimenting, monitoring findings, evaluating and interpreting experiences, and passing on the lessons history teaches.

Because the demand for institutional change is based on the desire to reap benefits that are currently unavailable, it will always be specific to one certain time and one certain place; it will depend on the circumstances of each specific status quo. The same is true of offers of institutional change. Countless research projects have detected the factors that most affect the capacity and willingness of a specific political order to provide new institutional arrangements. Among these factors are the costs of the renewed institutional project; the stock of existing knowledge; the foreseeable costs inherent to implementation of the new arrangements; the constitutional order; the existing institutional arrangements; the governing behavioral code; conventional knowledge; and the net benefits to be garnered that the elite hope will be capable of preserving their positions of power and dominance. All these factors are already thoroughly discussed in a vast literature that we will not refer to herein for lack of space (Ostrom, Gardner, and Walker 1994). If we proceed with the conventional characterization of political orders as markets or as spaces of exchange, we will end up acknowledging that both are highly imperfect in various ways. The basic imperfection lies in the fact that the set of organizations or agents that possesses bargaining or decisionmaking power always excludes certain social sectors from representation. Apart from this fact, the quality of representation and the autonomy of the representatives also vary greatly. These circumstances weigh

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heavily when it comes time to explain why there are countries that manage to introduce changes in their institutions and countries that do not even attempt to do so. Faced with an important change in context, the relevant actors will respond by adjusting the outer boundaries of the existing institutional framework (which will not be changed) as long as the situation seems to provide “institutional equilibrium.” This situation occurs when organizational leaders (entrepreneurs) who have access to the decisionmaking process conclude that, in view of the force of each social actor and given the institutional arrangements in force, none of them stands to gain any clear advantages no matter what resources are invested in change. It must be noted that in this case, it is not the objective situation that determines the possibility of institutional change, but the subjective perception of directors and leaders and their corresponding capacity to take action. Institutional change occurs when fluctuations in relative prices or preferences lead one or both of the parties to a possible trade-off to perceive that they may obtain greater benefits if the terms of an agreement or contract are changed. In this case, attempts will be made to renegotiate the agreement or contract. But, because contracts and agreements are items in a hierarchy of rules, renegotiation of one of these rules will only be possible if the whole set of rules is renegotiated (or if a behavioral rule is violated). In this case, in order to obtain the desired benefit, one of the parties will have to invest resources in a change in the institutional framework of its contracts. The change in prices or in ideas will end up undermining the rules or institutions in force and eventually lead to their replacement (North 1991). Historically speaking, institutional change is inevitably “incremental.” Indeed, there are noncontinuous changes caused by wars, revolutions, conquests, national disasters, or other emergencies. There are moments of acceleration or of stagnation and stability in any process of change. What seems to lack any scientific or historical grounds whatsoever is the pretension that it is possible to create institutions—by revolution or by decree—capable of completely wiping clean the slate of the past. This is an unfounded notion stemming from social-constructionist rationalism that cannot even be applied to cases of apparently radical, victorious, and longlasting revolutions. No revolution can fail to build up coalitions, even though they may be difficult to preserve, when restructuring the formal rules and the system of rewards inherent to them. It is also difficult to maintain the ideological commitment of the masses that is necessary to overcome the problem of free riders. But changes in the formal rules do not ensure long-term coherent changes in informal rules and constraints. Many mutually incompatible informal rules survive for a long time because they actually help

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solve problems of trade-offs among the participants of the social game. Over time, these rules will lead to a new equilibrium of the institutional system—formal and informal—and to a final result that is more evolutionary than truly revolutionary. A large part of the success attained by advanced Western societies is due to the fact that they developed in the direction of institutional contexts that favored ongoing incremental change. In this case, the key is institutional and attitudinal changes that encourage greater representativeness for the actors, more autonomy for the leaders, and permanent debate between the two concerning any new institutional balances that may prove necessary. Political institutions (formal and informal) must evolve toward this framework that eases incremental change. When there are no such facilitating institutions, or when organizational leaders lack sufficient maneuvering power or freedom to negotiate because they lack legitimacy in the eyes of those they represent, the possibility of arriving at give-and-take solutions diminishes or completely disappears. When compromise in regard to attempts at institutional change proves impossible among a sufficient number of actors, there will be no solution to the problem but the most risky and costly of all: that of forming coalitions sufficiently strong to override the barriers to institutional change by means of mobilizing the society. Such high-risk action nearly always generates a coalition opposed to institutional change that will also mobilize in order to resist, with strikes or with violence and that may prevent establishment of a new equilibrium or a new institutional arrangement. Eventually, the process itself may become so acute that the country itself cannot take advantage of benefits that the institutional change allowed it to expect. REFORM OF THE STATE

After four decades of administrative reforms of a bureaucratic nature, shadows still make it difficult to see the few lights that do shine in spite of everything. Reform of the civil service was a true international movement. The extent of the frustrations can be evaluated by the silence of slogans and by the return—not always refreshed by new concepts—to public policies, public administration, administrative modernization, management of the public sector, and more recently to governance. However, as the saying goes, “appearances can be deceptive,” and no matter how many new terms are invented, they will not manage to hide the same old defeated practices. To ward off the risk, we must know why bureaucratic administrative reform has failed. Fortunately, there is no lack of diagnoses (Dror 1995; Kliksberg 1982; Caiden 1991; Salgado and Valdés 1984; Flores and Nef 1984; Prats 1994;

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etc.). Administrative reform failed, in the first place, because it was seen as a fundamentally technical operation, politically neutral, and indifferent to the political system in which it was to be implemented. This was not due to ingenuousness, but because reform was seen as a component of the development paradigm and of the theory of organizational efficiency that prevailed in the 1950s and 1960s. The belief that development was the necessary derivative of the mixture of financial and physical capital, science and technology, human capital, and organizational efficiency, all wisely managed by planning, responded to a conviction shared by two blocs that challenged one another during the Cold War. Apart from this, development was also based on the undoubtedly successful experience of the Marshall Plan in Europe and its apparent success in the countries that featured real socialism. Some of its most important collaborators received the Nobel Prize. But there are still very poor countries that are returning the loans they received for administrative planning and reform made on these lines. Right after World War II neither politics, public policies, institutions, nor social capital were considered relevant to development purposes, and organizational theory featured the bureaucratic paradigm. Bureaucratic organization was generally seen not as an organizational option, but as the model of organizational rationality in terms of effectiveness and efficiency. Bureaucracy also served to construct the welfare state in the West, and socialism in the East. The international administrative reform movement was ultimately a frustrated attempt to introduce bureaucratic rationality throughout the whole of the developing world. The result was that deep-seated bureaupathologies took root under the bureaucratic varnish, so much so that Max Weber himself would have found it quite difficult to recognize Latin American public organizations as bureaucracies. Bureaucracy is certainly compatible with democracy and with political authoritarianism. But it cannot fully develop any of its qualities and potentialities if the state lacks a bare minimum of autonomy in relation to pressure groups. The lack of this autonomy derailed nearly all attempts at administrative reform in Latin America. I recall one splendid project for implementation of the merit system in the civil service of a certain country that included the corresponding law, computerized personnel records, job descriptions, and even a performance evaluation system. On paper, it was an excellent project and was duly paid. Unfortunately, the project failed to take into account the fact that the country’s political equilibrium required that a large portion of appointments to public jobs be left to the discretionary will of the party oligarchy then in power. To what extent can the merit principle (essential to public service) be adopted without prior implementation of political reform in a state where patronage prevails?

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As of the mid-1970s, the development paradigm and the bureaucratic paradigm began facing crisis. It was soon discovered that politics and policies are important. Institutions were rediscovered, and social capital and civic culture were acknowledged as decisive components of the framework of incentives and constraints on organizational efficiency, both public and private. Organizational theory found itself in a bind: effectiveness and efficiency were no longer the product of one specific national model of organization. They depend on the organizational option or format most appropriate to the type of task to be carried out, on the context, on the technology available, and on other factors. These changes in paradigms are processes of intellectual adjustment to a world that, since the mid-1970s, has been undergoing changes at a historically unprecedented pace. The world is becoming increasingly global, competitive, interdependent, dynamic, complex, and diversified. Today’s heads of state are probably the most well-prepared of all time, but the difficulties of governing have increased to such an extent that the flaws of governability increased as well. Interdependence and dynamics make for more numerous surprises: despite improvements in forecasting tools, virtually everything important that occurs takes us by surprise, above all in Latin America, where no one ever foresaw the debt crisis, the tequilazo, or other events bred in this sea of contradictions. This incapacity to foresee the future wipes out illusions of planning. Although globalization has generated some universal cultural trends, as far as undeniable results are concerned it has only rendered obsolete all national pretensions of cultural uniformity. Minority and ethnic groups are constantly cropping up, claiming their right to be different. This situation entails a risk of fragmentation that can only be neutralized by developing cultural and political models capable of articulating diversity and complexity. The world of this end-ofcentury is a throbbing scenario of social experimentation. The prevailing metaphors are nearly all postbureaucratic: learning, flexibility, adaptational efficiency versus attributional efficiency; values and cultures versus regulations; and accountability for results versus regulatory control. At the moment, Latin America is running a grave risk as far as state reform is concerned. In the Anglo-American world—which does undoubtedly hold intellectual hegemony—bureaucracy is openly criticized. Such criticism was applied to Latin America in an overly mimetic manner, as if all Latin American countries—with the exception of Chile, and at certain times, Uruguay and Costa Rica—had at some time known true bureaucracies. The criticism thus tends to ignore context and to confuse reality with ideal type, bureaucracy, and bureaupathology. A false opposition is created between bureaucratic administration and managerial administration. The risk is great because the necessary managerialist reformism tends to ignore

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basic institutional aspects normally linked to bureaucracy, among them legal security, administrative impartiality, prohibition of arbitrary acts, and legal accountability of authorities and civil servants. Without these, there are no efficient markets. In developed countries such aspects are taken for granted, whereas in Latin America, the young democracies must develop, at the same time, an administrational managerial culture as well as rule of law. Faced with the growing wave of administrative modernization, Latin Americans should already have learned that (1) there is no meaningful and sustainable administrative progress without changes in the political system; (2) management technologies are not politically neutral; (3) there is no longer “one best way”—each national or local context calls for specific strategies and solutions; (4) the purpose of reforms is not only to improve attributional efficiency but to improve adaptational efficiency as well; (5) to do so, one must have integral analyses and strategies in well-ordered sequences, even though these may be translated into measures of selective reforms; (6) and reforms cannot be strictly organizational but must be institutional as well since they have the same ultimate purpose of changing social capital or civic culture. Certain writers have managed to grasp the essence of what must be learned. The most well-known are David Osborne and Ted Gaebler to whom the current problem does not consist of finding the best government, but the best governance. In Latin America, ever greater resistance to reform (and even to administrative modernization), and its inclusion among the broader frameworks of reform of the state or of governability, follow the same path—the path of best governance as Osborne and Gaebler proposed. Having come this far, it is necessary to explain certain concepts more clearly. Today, in Latin America, reform of the state tends to be addressed in terms of governability, which is not the same thing as political stability. It is a feature that sets apart certain societies, that allows them to face challenges. Without it there can be no development. Governability depends, fundamentally, on the existing formal and informal institutional structure (governance) and on the capacities and competencies of the governing actors. In Spanish, the word gobernación, by excluding authoritarian connotations, designates both aspects since it refers to both the institutions and the capacities. Reform of the state, seen from the viewpoint of governability, thus includes not only the reform of roles, organizational design, funding, procedures, and accountability of public organizations and their agents, but reform of the institutional system as well and of the corresponding civic culture that constitute the framework of incentives of public organizations. To progress, in terms of governability, means to advance, simultaneously, in capacities and in government institutions (gobernación). These are two

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quite different but closely interlinked goals: government capacities are organizational capacities that can be strengthened by means of strategies of planned change; the institutions (governance), however, are the result of learning or social evolution processes that we can and should influence but cannot plan out in advance. This distinction between what is organizational and what is institutional (Hayek 1973; Popper 1982; North 1991) is a key distinguishing factor in the establishment of strategies for state reform. STRENGTHENING POLICY FORMULATION AND MANAGEMENT CAPACITIES

Reform of the executive branch continues to be at the heart of state reform. The executive branch comprises the presidency, the cabinet (or ministries), and an enormous number of administration apparatuses that depend on them, including the government-owned business sector. Today, reform of the executive branch seems to have overridden the technocratic schemes of administrative reform and is now seen from the viewpoint of governability. In other words, it is now seen as one more component of necessary adjustments to the new development model. For this reason, executive branch reform currently and simultaneously involves political, economic, instrumental (or managerial), and institutional aspects. An extremely rich and heated debate is currently going on in Latin America, focusing on what political regime (institutionality) is most suitable for consolidating democracy. The basic starting point is universal acknowledgment that in two hundred years Latin Americans have advanced only a short way on the path to improved democratic institutions that could help overcome the problems of “agents” (above all, the risk that politicians and bureaucrats deviate from the course of general interests) (Przeworski 1996). Debate especially focuses on the pertinence of transforming the current regimes, nearly all presidential, into parliamentary regimes or at least into semipresidential regimes (Linz and Valenzuela 1994b; Sartori 1994). Ultimately, the issue is to find the regime or institutional arrangement most fitting to ensure not only the representativeness of the presidents, but the necessary support of the legislative branches as well. I will not go into the merits of this debate here, but I must point out that without representativeness and sufficient backing from the legislative branch, presidential action—and by extension, any action taken by the executive branch—will be considerably hampered. In Latin America, the type of political regime remains an open question, one that will inevitably reappear on the state reform agenda of many countries in coming years. During times of change in development models, the quality of presidential leadership is fundamental in determining the quality of the executive

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branch as a whole. Latin America will not overcome the challenges to its governability if it does not complete the process of building up a new development model suitable to current conditions of global competitiveness. This means new rules for the game, new actors, new balances of power, and new cultural paradigms. Construction of a new development model comprises the true Latin American state agenda. Presidents must know what portion of the task corresponds to their mandates. Furthermore, no one can afford to make any mistakes: no president will be able to take on the whole task because its historical scope is so broad that it will be a job for more than one generation. However, all good presidents must be perfectly well aware of which portion of the task cannot be left for future administrations. This is the sort of knowledge that constitutes the foundation for strategic guiding of government action—a type of knowledge that has nothing to do with traditional planning. State reform in Latin America thus demands strengthening the capacities of the presidency as an institution and as an organization. With this end in mind, the first step is to strengthen the capacity to mediate politicalsocial conflicts, by settling them or at least by guiding them in such a way as to prevent them from doing violence to either the institutional system or stability of the regime. The second step is to guarantee coherence in government actions—both among the various members of the executive branch and in dealings with the relevant civil society actors. This point presupposes the capacity to produce and communicate a reliable presidential image or agenda, based on consistent behavior and on competent image handling, that will ensure mobilization of a sufficient coalition of interests and opinions (Sulbrandt 1994). As Yehezkel Dror (1995) would have it, it is necessary to establish an essential distinction between governments’ service, execution, and management functions and their higher functions. The former are quantitatively more numerous and are the object of administrative modernization policies; the latter are the most important since they include all the functions related to changing the collective course to intervene in the historical process. All policies that lead to the construction of the new model and the new development capacities are clearly included in the functions of a higher order and are ultimately the responsibility of presidential authority. Strengthening the capacity to formulate and implement such policies is crucial to the future of the Latin American societies. To attain these objectives, it is necessary to transcend conventional notions of efficiency and effectiveness (although these are very important) and concentrate on the capacity to make the future take the desired course. This is the key objective of improvement of public policies. It is also the justification for the international reform movement, which aims to create

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more compact governments—governments that concentrate their efforts on the basic higher-order functions and delegate to other structures (independent agencies, the private sector, or decentralized administrations) the lesser service, execution, and management tasks. Drastic improvement in the capacity to make critical decisions concerning development can be achieved by starting with a policy-formulating model that takes the following aspects into consideration:

1. Policies must be part of a national strategy aimed at overcoming flaws in development by implementing a realistic vision. The objective, in this case, is to create a better link between long-term policies and immediate decisions with a view to gaining credibility and mobilizing support. To this end it is important to arrive at a difficult combination—a very precise awareness of the reality in which one is operating and of the profound historical processes that generated the rise and fall of nations. 2. Policies must respond to an agenda of critical issues (with special care not to fall into excessive urgency). Creativity must be introduced into the planning of political options, taking into account that present and future demands are increasingly further from the models and options that worked in the past. 3. Policy formulation based on a long-term view must necessarily incorporate the inevitable factor of uncertainty. Uncertainty turns all decisions into imprecise wagers against history and is the reason why policy formulation calls for a great deal of subtlety if one is to obtain advantages and reduce the risks of unexpected behavior. 4. Policy formulation must respond to one set of problems, to an integrated vision that caters to the interaction between decisions made in diverse sectors. Cohesion can be sought by using reasonably well-integrated teams of personnel such as budget offices and various coordination mechanisms. However, experience shows that the integral view is very difficult to achieve, and this fact underlines the need to adopt a broad-based system so that decisions can take into account interactions and broader repercussions, and the need to group several decisions to obtain synergetic effects. 5. Policies must respond to moral logic and affirm values with a view to enhancing the level of commitment and civic culture. 6. The formulation of quality policies must, in the broadest sense, give serious consideration to resources—economic and political, moral and civic, current and future—which implies improving the capacity to calculate the cost of policies and to define budgets. 7. Policymaking, especially in countries undergoing important selftransformation processes, must assign top priority to institutions and their evolution, including structures, processes, personnel, incentive systems,

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and cultural aspects. To this end, law plays a major role due to its double function. It constitutes policies’ framework of constraints, and is, at the same time, the key instrument of these same policies. 8. Successful formulation of policies depends largely on the intellectual participation of society as a whole, on a pluralist base. This participation is not merely a moral requirement; it is also a functional necessity in the formulation of policies because creativity is a diffuse process to which the governmental environment is not conducive. 9. In turbulent times like the present, the formulation of policies must cater to crisis management; crises provide opportunities to put into practice that which, in normal circumstances, would be impossible. Thus one of the goals of policy formulation must be to improve decisionmaking related to crises, always relying on improvisation, which is inevitable, but attempting to detect the areas most subject to crisis and improving the capacity of institutions and of the personnel in charge of crisis management. 10. In short, any policy formulation model must focus on the need to organize ongoing learning. To achieve this, systematic evaluation of the results stemming from important policies is indispensable. When complex, far-reaching policies are being evaluated, the results are not always reliable quality indicators; thus evaluation must be carried forward by means of critical examination of the hypotheses and processes that led to those policies.

A series of clear and specific recommendations can be drawn from the model described above. The first and most important is the need to further professionalize the formulation of policies. The aptitudes essential for formulating good policies require the supplementary training of topnotch political analysts. This in turn leads to the need to strengthen and expand public policy research and training centers. Such centers must be independent and must play a double role: to produce valid knowledge on which the government can base actions and to fuel debate, learning, and social participation (as well as training staff for the present and future). Nor can one overlook the need to build up, within the various presidencies and some cabinets, units of political analysis under professionals worthy of politicians’ confidence, who know the realities of politics but whose actions are based exclusively on their technical competence and expertise. Such centers and units can be set up in networks for mutual cooperation and to promote ongoing debate that can enrich the overall process of social learning. A special case in the formulation of public policies is that related to “regulations.” There is consensus that one of the main weaknesses of Latin American states is their inability to produce regulations to meet the challenges inherent to the new development model. Current economic theory

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points out many cases in which good regulation can lead to better results than a lack of regulation. But poorly drawn up regulations can sometimes make things even more difficult. Therefore, Latin Americans have a dual problem: First, the capacities of the state must be built up, in technically well-founded cases, to produce and supervise the application of “good” regulations. Second, reformers must ensure that state agents—politicians and civil servants—are not only capable but concerned about acting in the public’s best interests. According to generally accepted regulatory theory (Baron 1995; Laffont and Tirole 1994), for state intervention to take precedence over nonintervention, state agents must have sufficient knowledge of the market to be regulated to allow them to organize the most suitable trade-off between companies and consumers. This often implies having the necessary legal authority to set prices or to grant subventions. It will also be necessary, once a suitable balance of interests is established, that the institutionality in force guarantee the long-lasting maintenance of commitments. Any flaw in these requirements can lead to a situation made worse by regulation than it would be without any regulation whatsoever. But even given the capacity to properly regulate and supervise, there is no guarantee of good regulation. Opportunistic behavior on the part of politicians, civil servants, companies, or specific consumer groups can lead to “bad” regulations. To avoid this risk, reformers must redesign the institutions of relations between citizens, politicians, and civil servants. Doing so was one of the main objectives of the administrative modernization policies being tried out in the 1980s in developed countries. Latin American countries find themselves in a paradoxical situation in regard to administrative modernization. They need to build up a truly merit-based public service and overcome the risk of arbitrary behavior on the part of administrative authorities by strengthening the rule of law, but also they must take into account the experience of developed countries and not repeat the model of bureaucratic administration. It is a colossal challenge, but not insurmountable, as demonstrated by the evolution of Chilean public administration. Allocating top priority to restructuring those parts of the public service responsible for higher-order government functions is an essential and extremely urgent task. Explaining the criteria for such restructuring exceeds the scope of this chapter, although it should be noted that the process requires considerable creativity and innovation (Ferez and Prats 1997). Latin America, without failing to take into account its specificity, must also get involved in the global movement that aims to transform public bureaucratic administration into public managerial administration. The guidelines for this movement are not only the managerial values of effectiveness and efficiency but other values such as disclosure and access to

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decisionmaking and resource-allocating processes as well as the key values of accountability and responsibility. The movement has produced extensive literature that includes high-quality works (Olsen 1991; March and Olsen 1995; Peters and Savoie 1998; Tomasini 1994; Bresser Pereira 1996b; Kettl 1996) as well as many works featuring apologetics and propaganda. The movement’s most positive proposals include trimming the state by means of privatization or at least “corporatization” of the governmentowned business sector; improving the budget and accounting systems, indispensable supports for efficiency policies; determining goals and evaluating results to support policies aimed at effectiveness; acknowledging administrators’ necessary discretion and passing over from a system that features rule-following responsibility to results-oriented responsibility; ensuring that ministers concentrate more on strategic functions and transferring the functions of providing goods and services to “agencies” subject to management contracts with the respective ministries; client-oriented service and extensive use of techniques to air public matters and keep the public well informed; subcontracting and the establishment of domestic markets or quasi-markets whenever possible; and establishing performance-rewarding techniques. Changing from bureaucratic to managerial administration involves enormous challenges. The key to this transformation is “accountability,” not only for compliance with rules but also for obtaining results. But the systems and the result-measuring techniques entail requirements that are very difficult to fulfill. In the United States, the law that implemented a dynamic program of results measurement in all federal government agencies in 1993 is producing important benefits, although it also led to new and unforeseen problems. Among them were those stemming from target publics with diverse outlooks, the lack of clarity in defining missions and goals, the formulation of multiple and contradictory goals, the diverse data required for evaluation and monitoring, the failure to take all the results into consideration and the true impacts of such failure, and the difficulty of measuring client satisfaction in markets subject to regulation. Paradoxically, I might conclude that the result-measuring systems are just as apt to misinform as to inform when the users of such systems are not fully aware of the systems’ subtle limitations. To advance toward the managerial system in which duly measured results are an effective incentive requires creating institutional frameworks and organizational conditions that make measurement systems feasible. This is a difficult and time-consuming task. To give some idea of how difficult it can be, one has only to consider what is required to build up a reliable performance evaluation system (Kravchuk and Shack 1996):

1. A clear understanding of the objectives of each program or multiprogram system must be formulated. This means beginning with knowledge

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of the organizational mission and strategies from which the main and secondary objectives will flow; only then can reformers develop specific measurements and standards to recognize and interpret results. 2. An explicit measurement strategy must be developed that includes the specific categories to be measured (input, products, results, etc.), the measurements specific to each category, the data to be considered, the procedure of data collection and filing as well as access to said data, and the data-producing system and specifications of the technological environment. All this must be directed to the construction of a system using indicators based on program effectiveness and efficiency. 3. Key clients and users in the measuring-system development phase must be not only consulted but truly involved, so that all are aware of the potential and limitations of the system ultimately established. Although this cooperation requires effort and hard work, it is indispensable to ensure credibility and to avoid misunderstandings in the future when it comes time to implement the system. 4. Program structure must be rationalized because no sensible measurement can be achieved when the program structure is irrational. In particular, this implies simplifying program imbroglios—situations in which programs and strategic goals are so entangled as to be ineffective or even harmful. The development of measuring systems thus provides the opportunity to solve a good many structural inconsistencies. 5. Multiple series of measurements must be developed when there are key users with diverse performance-data needs and interests. In many cases, program performance will be subject to sometimes conflicting interpretations. Reformers must take this fact—an inescapable part of the democratic political process—into consideration since the programs must address the data needs of all key users to avoid any distortion in the organizational learning process. 6. Client satisfaction criteria, expectations, and needs must be taken into consideration when designing the measuring system. This consideration must be present in the goal-setting phase as well as in the measurement-determination phase to prevent the creation of any gap between administrator satisfaction and client satisfaction in regard to the same program. 7. All projects face the challenge of being both complete and adaptable; the lack of one fact can make it impossible to draw inferences regarding performance. However, excessive data can irremediably overburden the system and make it excessively rigid. The prevailing criteria must be sufficiency and flexibility. Indeed, any system must feature some flexibility to allow for adjustments whenever program assumptions are modified or when evaluations or experience reveal inconsistencies in the system. Performance evaluation systems specialists always warn that measurements should not be seen as substitutes for either specialized knowledge or

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knowledge generated by direct program management. The organizational learning process cannot depend exclusively on “indicators.” All users must acknowledge the limits of such systems and develop additional sources of performance data. Performance measuring systems (especially in the case of large, complex, and diversified programs) must be seen, at the most, as supplementary to specialized knowledge stemming from direct experience. This expertise, along with an ethical commitment to the public interest, is the key to learning, adjustment, and ongoing improvement of public services (Kliksberg 1994). Latin America will have to include administrative modernization policies in its development policy agenda and, by doing so, will have to face an inevitable dilemma: the demands of managerial public service will lead to the introduction of accountability for results. But the difficulty and the cost of building these systems will, in many cases, lead to a reinvention of bureaucracy. This is, after all, the prevailing system for the organization of public service that deals with the higher functions of the state in countries such as Japan, Germany, or Israel; countries that escaped AngloAmerican ideological pressure and, or so it seems, with results that are not at all bad. Latin Americans will undoubtedly have to live a paradox: there is no escaping managerial administration, and the reinvention of bureaucracy also seems to be inevitable. LEADERSHIP FOR DEMOCRATIC GOVERNABILITY

Leadership is a vital component of institutional change. But the literature registers too many misunderstandings in regard to leadership, and this obliges me to make a few preliminary comments. In societies living in turbulent times such as the present, in which the new games and their rules demand detachment and relinquishing of some of the old aptitudes and mental models, merely transactional leaderships are insufficient. Such leadership does not produce social architecture capable of promoting the confidence or social capital needed to sustain institutional change. The major question facing current leaders is the following: How can a heterogeneous society featuring a large number of actors with conflicting interests, in which no one group can force the others to cooperate, find ways to advance toward more efficient and more equitable institutional arrangements? (Dove 1996). From the institutional viewpoint of democratic governability, leadership refers to functions and processes and not to people. History is moved by the action of impersonal forces. But the history of any specific society ends up being molded by the quality and number of people that society decides to place in charge of the process of change. This process never

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occurs on its own. Only historical determinists believe that it can be otherwise. Lacking the function of leadership, change will not be produced, or it will happen in a limited or inappropriate fashion. The emergence of new schools of thought, perceptions, and apprenticeships, a change in attitudes, or the acquisition of new aptitudes are processes that can develop more quickly and better when there are leaders at the helm. The function of transformational leadership is not limited to positions of high authority but must be extended to the whole of society. In pluralist and complex societies, leaders must be scattered throughout the society. To be a leader requires a personal decision—as much or more so than the formal position the person may occupy—to take on the function of placing oneself at the fore, of attempting to have foresight and a sense of direction, of building up and communicating confidence. This presupposes that the leader is well aware of the critical importance of governmental leadership. Some comparisons between types of leadership and levels of social capital (different from the names of the formal and informal institutional system) may be of interest (Putnam 1993; Fukuyama 1995). In societies with a high level of social capital, leadership tends to be plural, participative, and aimed at the future. In societies with a low level of social capital, leaderships tend to be short-sighted. In these latter societies, power is highly concentrated but also highly subject to the existing balance between actors, whose actions are based neither on confidence nor on strong civic traditions. Leadership tends to be either transactional or based on accommodations between actors who seek to avoid conflict. Transformational leadership will find it very difficult to emerge, smothered as it is by the virtual impossibility of identifying conflict and handling it in a positive fashion. First, the type of leader that institutional change demands must have vision. And to have this vision, the leader must (1) understand both the short- and long-term interests of a broad spectrum of social actors; (2) be imbued with a finely tuned perception of the balances inherent in current institutional arrangements; and (3) be sufficiently conscious of the impacts that current and future trends and forces of change will have on society. The decisive factor is not that the vision is innovative, but that it is hooked up to the interests and motivation of the public in general (Kotter 1990). Second, leaders for democratic governability must have legitimacy, which will provide conditions for effective communication between the leader and the public. Such communication depends much less on the leader’s communication skills than on whether or not said leader has acquired credibility. The legitimacy of leadership is thus not dependent on power (in fact, all leaders are holders of power, either current or potential, but not all those who hold power are leaders) but on the credibility and confidence it inspires in the public. These two things are not dependent on

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personal qualities but are the product of a perceived coherence in discourse, actions, and results. However, confidence in a leader does not always derive from the right reasons. The adjustment of expectations between leaders and their publics is necessary because explanations can make up for perceived inconsistencies (MacGregor 1979). Third, leadership for democratic governability requires the capacity to deal appropriately with conflict. If conflict is not allowed to emerge, public consciousness of the costs of upholding the status quo will not emerge either. Democracy is also an arena for the civilized acknowledgment and handling of conflicts. Democratic governability leaders do not flee from conflict. They use conflict as a stimulus for the process of development and social apprenticeship. To achieve this, they must develop the capacity to convert conflicting demands, values, and motivations into coherent flows of action that will compete with other alternative flows in the political arena. Vision and credibility help, but the capacity to manage conflict is critical. Institutional change generates conflict not only among actors but also inside individual actors as well. The uncertainty of change produces anxiety, which must be gradually mitigated by the learning of new models and by the acquisition of new aptitudes and a new security. If avoiding conflict can prevent change, uncontrolled conflict can generate excessive uncertainty, which in turn can translate into rejection of the leadership (Heifetz 1994). And finally, leadership for democratic governability must be capable of acting as a catalyst for the learning process and for social adjustment. The leader who wishes to catalyze institutional change must raise difficult issues and options that have no preestablished answers, which makes it necessary to initiate processes of social learning or apprenticeship. The capacity to promote and conduct these processes is perhaps the most important for the leadership needed at present. Social apprenticeship is a process of building up one’s own history in the face of difficult and problematic options, and this process requires disclosure, deliberation, and conflict. No international expert will be able simply to draw a magic solution out of a hat full of tools. But peoples and their leaders often fall into the temptation of seeking the magic solution. They fail to realize that true social apprenticeship does not consist of finding the right solution but is an ongoing process of questioning, interpretation, and exploration of options. Apprenticeship for institutional change corresponds to what Chris Argyris called “double-knot” learning: on the individual level, it requires that everyone personally examine the fears and desires underlying a certain model of behavior; at the organizational level, it requires employees to examine the policies, practices, or actions that protect them from threats and inconveniences but that, at the same time, prevent the organization from learning to reduce or eliminate the

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causes of those same threats or inconveniences. At the social level, this type of learning obliges the actors to understand how the existing institutional systems affect the fundamental values of social life (Argyris and Schon 1978). But social apprenticeship is not limited to mere intellectual understanding. Gaining consciousness of why we act in a certain manner, or of why there are certain policies or rules, is not sufficient to begin the process of change. Nor does true learning consist of accumulating information and data or in adding new information or solutions to the already existing collection. In moments of discontinuity, learning implies, above all, the replacement of information, models, values, aptitudes. It is essential to “unlearn” first. Latin America is experiencing change in its development model. Optimizing the potential of the new model demands a multitude of leaderships to direct this type of learning. All learning processes necessarily imply uncertainty and tension. One key function of leadership is the capacity to produce and control this emerging tension by fostering what Senge calls “creative tension.” In this type of tension, leaders force the social actors to accept reality, including the risks inherent in the status quo. This awareness generates the tension, anxiety, and conflict necessary for change in the direction of the vision—at first imprecise but reliable—of a new reality. It is the leaders’ job to sustain tension between current reality and the vision of the future without allowing conflict to create so much anxiety that paralysis results (Senge 1990). Social apprenticeship does not make institutional change any less complex, but it can improve the skills actors need in order to face the challenges of an environment undergoing accelerated and, in many cases, permanent change. In these environments, there is no finish line in view for learning and institutional development. One could hardly say that democracies are consolidated, that the markets are totally efficient, or that the societies are wholly equitable. Each generation will have to assume its own portion of responsibility in this endless reconstruction of history. It has been said, with good reason, that democracy only survives by means of ongoing recreation. The same is true of markets and of social solidarity institutions, as is demonstrated by the current replanting of the welfare state in several developed countries. This is because the institutions underlying such concepts can only exist in a state of ongoing evolution and reevaluation. Probably the most decisive challenge faced by leaders for democratic governability is precisely that of catalyzing the actions of social actors to ensure that such reevaluation occurs continually, because it is truly the basis of any learning process (Burns 1978).

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The Contributors

Luiz Carlos Bresser Pereira is Brazil’s minister of science and technology.

William Glade is professor of economics at the University of Texas– Austin.

Donald F. Kettl is professor of political science at the University of Wisconsin–Madison. Joan Prats i Català is director of the Governance Project (ESADE) at United Nations University. Adam Przeworski is professor of political science at New York University.

Peter Spink is professor of public management at São Paulo School of Public Administration of the Getúlio Vargas Foundation.

201

Index

Abreu, João Batista, 142n7 Abrucio, Fernando Luiz, 9, 144n29 Accountability: agencies, 36; in Brazil, 140; as citizen-government relation, 15, 30–36; through elections, 30–36, 39n20, 39n23; performance measurement and, 48, 70–72; as policymaker goal, 59 Administration: Brazilian crisis in, 117–118; customers as focus of, 7; dysfunctional, 77–80; fiscal, 86; historical improvements in, 87n4; of justice, 85; levels of, 53–54, 88n15 Administrative capacity, 62–63, 71 Administrative reform. See State reform Adversarial advocacy, 28 Advocacy coalitions, 112–114 Agency. See Principal-agent relations Allende, Salvador, 106 Alliance for Progress, 102, 112 Andrade, Régis de Castro, 125 Argentina: civil service reforms, 99; decree power, 36; economic structural adjustment, 75; incremental reform, 105; military rule, 96, 102, 106; privatization, 82; public accounting systems, 82; referenda, 31; regional congresses on reform, 109 Argentine Oil Company (YPF), 88n21 Argyris, Chris, 180

Armajani, Babak D., 6–7 Australia: civil service reform, 8, 61, 62; customer service, 45, 57, 58; decentralization, 65; devolution, 64–65; performance assessment, 50, 51, 53, 54; state reform, 44 Austria, 78 Authoritarian rule, 96, 160 Authority, 25–26, 31, 57 Autonomous agencies, 133 Autonomous enterprises, 78

Banco de Estado (Ecuador), 88n24 Bandeira de Mello, Celso Antônio, 145n32 Barbados, 109 Barrow, Robert, 160 Barzelay, Michael, 6–7 Beltrão, Hélio, 13n12, 120, 126 Bolivia: budget management, 99; commitments, 24–25; military rule, 96, 102, 106; national planning, 106; regional congresses on reform, 108, 109 Bolivian Mining Corporation (COMIBOL), 79 Bourbon reforms, 87n4, 93 Bourdieu, Pierre, 114 Brazil: accountability, 140; bureaucratic public administration, 121–127; bureaucratic support for reform, 140–141; careers, 127–131;

203

204

INDEX

civil service reforms, 99; corruption, 88n13; crisis (1980s), 116–118; decree power, 36; financial reform, 142n7; government commitments, 25; government monopolies, 82; incremental reform, 107; managerial reform, 8, 13n12; military rule, 96, 102, 106, 117, 143n17; outlook for reform, 139–141, 146n35; political theories, 111; Pombaline reforms, 87n4; privatization, 124; quality of public administration, 117, 142n6; reforms (1930s), 115, 120; reforms (1960s), 120; reforms (1990s), 124–131, 138–139; regional congresses on reform, 109; retirement systems, 123, 131–132, 143n19; social organizations, 11; state governments, 82; state reform, 41, 86n4, 115; trens da alegria, 79. See also Constitution of Brazil Brazilian Aerospatial Enterprise (Embraer), 83 Brazilian Public Administration School (EBAP), 99 Bresser Pereira, Luiz Carlos, 1, 39n21, 112, 115 Budget management, 99 Bureaucracy: autonomy, 30; corruption and, 4–5; economic structural adjustment, 8; elected officials and, 15, 25–30, 60, 67–68; firing for political cause in, 127–128; flexibility in, 45–47; inefficiency in, 5–6; layers of, 88n15; nature of, 6–7; pathologies in, 168; reinventing, 178; role of, 4; support for reform by, 140–141 Bureaucratic authoritarianism, 97, 143n14 Bureaucratic public administration, 118–119, 121–127 Bureaucratic rings, 143n14 Bureaucrats in Business (World Bank), 83 Business-process reengineering, 47

Caiden, Gerald E., 93, 98 Calabi, Andrea, 142n7 Calmfors, Lars, 24 Calvert, Peter, 96, 97

Calvert, Susan, 96, 97 Canada, 8, 51 Capacity, administrative, 62–63, 71 Capitalism: civil service compatibility with, 3; corporatist, 156; mercantilist, 122, 150, 154; triumph of, 147 Cardoso, Fernando Enrique, vii–ix; bureaucratic rings, 143n14; election of, 116, 131; firing of bureaucrats, 128; globalization, 141n1; Ministry of Federal Administration and State Reform, 1; reform proposals, 115 Careers, 127–131, 142n5, 144n29 Castelo Branco, Humberto, 13n12 Castile, 153 Cavalcanti de Albuquerque, Roberto, 138 Center of Studies of Contemporary Culture (CEDEC) (Brazil), 125–126 Central America, 105 Centro Latinoamericano de Administración para el Desarrollo (CLAD), 91, 95, 103, 109 Champy, James, 57, 63 Change, 167, 178–179 Chile: budget management, 99; bureaucracy in, 169; commitments, 24; customs administration, 82; Economic Development Agency (CORFO), 78, 83; economic structural adjustment, 75; incremental reform, 105, 108; military rule, 96, 102, 106; National Copper Corporation (CODELCO), 79; property rights, 23; regional congresses on reform, 109; state reform, 75, 175 Citizen Chart (U.K.), 7, 9 Citizens: as consumers, 9, 13n15; elected officials and, 15, 30–36; as focus of government activity, 45; role in democratic governability, 165; role in government of, 30–36, 48–49; as taxpayers, 58–59 Civic culture, 162, 164–165 Civil rights, 3 Civil service: administrative capacity, 62–63, 71; bureaucratic, 121–124; compatibility with capitalism, 3; downsizing, 60–61, 103;

INDEX

internationality of reform, 167, 175–176; promotions, 128–129; reforms, 7–9, 60–62, 111; resistance to reform, 140; stigmatizing of the, 125; in the strategic core, 10, 132; women in, 130 Civil society, 92, 103, 154, 155 Class, 6, 12n6 Clinton, Bill, 8, 42 Code Civil (Napoleon), 100–101 CODELCO. See National Copper Corporation (CODELCO) (Chile) Coercive power, 21 Collor de Mello, Fernando, 117, 125 Colombia, 99, 106, 107, 109 COMIBOL. See Bolivian Mining Corporation (COMIBOL) Comisión Nacional de Reforma Administrativa (CONARA) (Chile), 106 Comisión Presidencial de Administración (COPRA) (Argentina), 106 Comissão de Direção e Assessoramento Superior (DAS) (Brazil), 129–131 Commitments, 23–25 Commons, John R., 85 Communication, political, 56, 68–69, 179 Companhia Vale do Rio Doce, 79, 83 Competence theories, 110 Competition, 28, 115 Competitiveness, 150 Compromisso de Bogotá, 109 Conflict, 180 Constitution of Brazil: administrative reform, 1; bureaucratic rigidity in, 117, 122–123, 127; competitive exams, 128; job stability, 143n20. See also Brazil Constitutions: aims of, 16; property rights, 23; reforms, 99; Weimar, 37 Consumers, 9, 13n15 Contracts, 28, 54, 67, 132 CORFO. See Economic Development Agency (CORFO) (Chile) Corporatism, 152 Corporatization, 176 Corruption: bureaucracy and, 4–5; customer service and, 60; in Latin America, 80–81; as political issue,

205

88n13; privatization and, 82; in Spain, 156 Costa Rica, 105, 107, 109, 169 Creative tension, 181 Cruzado Plan, 121, 124 Cuba, 78 Cunill Grau, Nuria, 136 Customer service: corruption and, 60; as focus of managerial administration, 7, 45–46; identifying customers, 57–59; as performance assessment, 56–57; as process-based reform, 56–60; public services and, 49. See also Managerial reform; Performance-based management Customs administration, 82

Da Nóbrega, Mailson, 142n7 DAS. See Comissão de Direção e Assessoramento Superior (DAS) Decentralization, 28–29, 64–65, 78, 85–86, 108, 120 Decisionmaking, 164 Decree-Law 200 (Brazil), 120–121, 122, 123–124, 143n15 Decrees, 36 Delegating authority, 25–26 Deming, W. Edwards, 46 Democracy: as bulwark against patrimonialism, 4; commitment to, 150; conflict and, 180; consolidation of, 171, 181; decisionmaking and, 164; economic efficiency and, 159, 160; as institutional order, 155, 157–163; Latin American view, 150; markets and, 72, 147; ongoing recreation of, 163, 181 Democratic governability, 148–149, 152, 157, 162, 164–165, 178–181 Democratic-reform pact (1994) (Brazil), 116 Democratization, 75, 160 Denmark, 30 Development, 78, 86, 88n24, 112, 151, 159 Development Loan Fund, 102 Developmentalist states, 5, 83, 169 Devolution, 63–66 Dominican Republic, 109 Dornbusch, Rudiger, 81 Double-knot learning, 180–181

206 Downsizing, 60–61, 103 Dror, Yehezkel, 172 Ducking output, 55 Dunn, Delmer D., 29

INDEX

East Asia, 2 Economic agents, 15, 21–25 Economic analysis, 161 Economic Commission for Latin America and the Caribbean (CEPAL), 94, 102, 108 Economic Development Agency (CORFO) (Chile), 78, 83 Economic structural adjustment: bureaucratic response, 8; components of, 87n2; governance approach to, 102; insufficiency of, 2; Latin American view, 150; state-sector reform and, 75–77 Ecuador: budget management, 99; military rule, 96, 102, 106; power theories, 111; reform strategies, 107; regional congresses on reform, 109 Education, 152 Edwards, Sebastian, 81 Efficiency: economic, 159, 160; in fiscal administration, 86; as goal of reform, 48; job stability vs., 127; in Latin America, 99; as taxpayer goal, 58–59; under bureaucratic public administration, 119 Eisenhower, Dwight D., 102 El Salvador, 96, 106 Elected officials: accountability, 15, 30–36; bureaucrats and, 15, 25–30, 60, 67–68; citizens and, 15, 30–36; as customers, 59; differences with the electorate, 147; performance measurement and, 54–55 Elections: accountability through, 30–36, 39n20, 39n23; media role in, 35; as source of state authority, 25, 31 Electoral reform, 152 Elster, Jon, 24 Environmental Protection Agency (EPA), 24 Environmental regulation, 85 European Union (EU), 156 Exchange principle, 135 Executive agencies, 11 Executive branch reform, 171–172

Extroverse power, 7, 13n8

Fayol, Henri, 100 Federal Electricity Commission (Mexico), 78 Financial reform, 142n7 Fire alarm oversight, 29 First-best regulation, 22 Fiscal administration, 86 France, 8, 50, 87n11, 144n28 Franco, Francisco, 156 Franco, Itamar, 125, 126 Frishtak, Leila L., 141n3 Fulton, Lord James, 103 Fundacion Bariloche (Argentina), 83 Fundamentalism, 13n9 Future as object of analysis, 113

Gaebler, Ted, 8, 119, 170 Galvez, Visitador, 93 General Accounting Office (GAO) (U.S.), 99 Genro, Tarso, 137 Glade, William, 75 Globalization, 115, 141n1, 147–148, 149–152, 169 Goal displacement, 81 Goals of agencies, 50, 54 Gobernación, 148–149, 170 Gore, Al, 42, 61, 63 Governability: defined, 2–3; democratic, 148–149, 152, 157, 162, 164–165, 178–181; size of state apparatus and, 81; state reform, 170 Governance: approach to economic structural adjustment, 102; best, 170; defined, 3, 148–149; metropolitan, 108; multilateral organizations’ strategy for, 151, 158; social democratic approach to, 115 Governing, 148–149 Government: boundaries of, 71; business paradigm of, 138; citizen control of, 30–36, 39n16; commitments, 23–25; economic agents and, 15, 21–25; executive branch, 171–172; local, 39n16, 86, 108; thickening of, 81 Government Development Bank, 77 Graham, Lawrence S., 76, 92, 111 Great Britain. See United Kingdom

INDEX

Great Depression, 95, 96 Groves, Theodore, 26 Guatemala, 96, 106, 107, 109 Gullick, James, 100 Guyana, 109

Habermas, Jürgen, 101 Haggard, Stephan, 39n16 Hamilton, Alexander, 32 Hammergren, Louis, 98 Health, 152 Hirschman, Albert O., 76 Holanda, Nilson, 142n6 Holmstrom, Bengt, 26 Honduras, 96, 106 Horn, Henrik, 24 Howard, Philip, 45 Human interaction, 158 Human resources. See Civil service Huntington, Samuel, 3

Import-substituting industrialization (ISI), 79, 83, 95, 96, 117 Incentives, 26–27, 46 Incremental change, 167 Individualism, 160 Industrial Development Bank (NAFINSA) (Mexico), 78, 83 Inflation, 116 Informal rules, 166–167 Informal sector, 79 Information, 33–34, 39n21, 39n22 Information age, 41 Institutional checks, 28 Institutional development, 82; agents of, 163–167; democratic governability and, 157; historical basis for, 153–157; in municipalities, 86; need for, 148, 150–152, 170; processes of, 164–165 Institutions, democratic, 157–163 Instituto Centroamericano de Administración Publica (ICAP), 95, 99, 109 Inter-American Development Bank (IDB): civil society, 92, 103; governance, 158; institutional development, 82, 86, 151; reform programs and strategies, 91, 108; silent revolution in economic policy, 75

207

Interamerican School of Public Administration, 109 Interest groups, 143n17 International Cooperation Administration (ICA), 102 International Labour Organization (ILO), 79 Italy, 31, 33, 83

Jamaica, 109 Japan, 8, 33 Jenkins-Smith, Hank C., 113 Job stability, 127–128, 140, 143n20, 144n26 Juan Carlos, King of Spain, 156 Judiciary, 24–35, 38n9

Kemmerer, Edwin Walter, 99, 111 Kemmerer missions, 87n4, 98–99, 112 Kennedy, John F., 102 Kettl, Donald, 41 Kiewiet, D. Roderick, 25, 28 Kötz, Hein, 100–101 Krueger, Anne, 4

Labor unions, 61, 140 Laffont, Jean-Jacques, 22–24 Lamas, Eduardo, 95 Latin America: administrative dysfunction, 77–80; Castilian influence, 153; Code Civil (Napoleon), 100–101; conferences on reform, 108–109; corruption in, 80–81; democracy as seen in, 150; economic and state reform, 75–77; economic structural adjustment, 150; executive branch reform, 171–172; failure of reform, 167–171; globalization strategies, 148, 149–152; institutional development, 150–157; judicial review, 24–25; neoliberalist excesses, 162; reasons for reform, 84–86; regulations in, 174–175; reinventing bureaucracy, 178; strategies for reform, 80–84; studying reform in, 92–97; successes in state-managed development, 83–84 Leadership, 65–66, 148, 149, 163–167, 169, 178–181 Learning, 174, 180–181

208 Legal security, 159, 160 Legislative reform, 152 Leibenstein, Harvey, 85 Liberal states, 5 Light, Paul C., 88n15 Lippman, Walter, 32 Local government, 39n16, 86, 108 López Portillo, José, 107

INDEX

McCubbins, Matthew D., 25, 27, 28, 29 Macroeconomic populism, 81 Maddison, Angus, 83 Madison, James, 15, 16 Major, John, 61 Management contracts, 11–12 Managerial public administration: customer service as focus in, 7, 45–46; defined, 103–104; difficulty in changing to, 176–177; guidelines for, 119; international movement toward, 175–176; most appropriate forms of, 138–139; tendencies within, 112 Managerial reform: in Brazil, 8, 13n12; coordination of organizations in, 49; incentives, 46; state structure change, 9–12; strategies, 8–9. See also Customer service; Performancebased management; State reform Managerialism, 44, 70, 157 Managerialism and the Public Service (Pollitt), 9 Manin, Bernard, 31 Markets: democracy and, 72, 147; excesses, 162–163; institutional reform, 152; political, 164–165; production of goods and services for, 133–135; state role in, 15–19, 115 Marshall Plan, 77, 87n11, 99, 168 Martins, Luciano, 4 Mass parties, 37–38 Master Plan for the Reform of the State Apparatus (Brazil), 27, 29–30 Maximization of usefulness, 163 Measurement. See Performance-based management Media, 35 Merit systems, 114 Mexico: autonomous enterprises, 78; corruption, 88n13; economic structural adjustment, 75;

incremental reform, 107; public sector, 83;reform in the 1970s, 102; regional congresses on reform, 109; traditional economic system, 153–154 Military developmentalism, 97, 111 Military rule, 96, 102, 106, 117, 143n17 Ministry of Federal Administration and State Reform, creation of, 1 Missions, 50 Modernization, 108 Moe, Terry M., 30, 31 Monopolies, 25, 27, 47, 82 Morality, 161–162 Motivation, 62 Multilateral organizations, 157 Municipal development, 86, 88n24

Nabuco, Mauricio, 118 NAFINSA. See Industrial Development Bank (NAFINSA) (Mexico) Napoleonic code, 100–101 Narratives of reform, 105, 108–114 National Association of Specialists in Public Policy and Government Management (ANESP) (Brazil), 126, 128 National Copper Corporation (CODELCO) (Chile), 79 National Council for Rationalization (Argentina), 105 National Industrial Holding (OIAG) (Austria), 78 National Performance Review (U.S.), 8, 63 National planning, 106 National Program of Bureaucratic Modernization (Brazil), 120 National School of Public Administration (ENAP) (Brazil), 125 Neoliberalism: excesses of, 162; reform proposals of, 115; spending cuts and, 8; state role in economy, 17–19; terminology of, 103 Nepotism, 4–5 Network theory, 73n30 Neves, Tancredo, 121 New world order, 148, 150 New Zealand: civil service reform, 8, 61, 62; elected officials, 69;

INDEX

performance assessment, 46–47, 50–54; privatization, 43, 47, 59; state reform, 41, 44, 112 Next Steps program, 7, 46, 53 Nicaragua, 106, 107 Nonexclusive services, 10–12, 132–133, 134–138 Nongovernmental organizations (NGOs): bureaucratic oversight, 69–70; providing of services by, 10–11; public role of, 3, 39n16, 92, 103 Nonprofit organizations, 135–136 Nonstate public institutions, 136, 145n34 Nonstate public property, 135–138, 145n32 North America, 153 North Atlantic Treaty Organization (NATO), 156 North, Douglas C., 153, 154

Objectives of agencies, 50 O’Connor, James, 3 O’Donnell, Guillermo, 97, 111, 143n14 Olson, Mancur, 159 Ombudsmen, 30 Operation Bootstrap, 77 Order and progress theme, 108 Organizations, 158 Osborne, David, 8, 119, 170 Oszlak, Oscar, 111, 138 Outcome measures, 50–53 Output measures, 50, 51–53, 55 Oversight, 15, 25–30, 80

Panama, 96, 99, 106 Paraguay, 94, 99, 109 Parastatals, 79, 80–81, 83, 88n21 Parente, Pedro, 142n7 Partido da Frente Liberal (PLF) (Brazil), 143n17 Partido do Movimento Democrático Brasileiro (PMDB), 143n17 Pasquino, Gianfranco, 33 Passeron, Jean-Claude, 114 Patrimonialism, 4, 5–6 Patronage, 143n17, 168 Peixoto, Amaral, 120 Performance-based management: accountability and, 48, 70–72;

209

developing standards for, 49–51; effectiveness of, 6; as guide to policymakers, 54–55; levels of administration, 53–54; measurement difficulties in, 176–178; measurement vs. communication, 56, 68–69; nongovernmental partners and, 69–70; outcome vs. output measures, 51–53; pitfalls, 55–56; varieties, 46–47. See also Customer service; Managerial reform Personal relations, 154 Peru: budget management, 99; decree power, 36; economic structural adjustment, 75; military rule, 96, 102, 106; regional congresses on reform, 109 Petrobras, 135 Pimenta, Carlos César, 144n21, 145n31 Piquet Carneiro, João Geraldo, 141 Plano Diretor da Reforma do Aparelho do Estado (Brazil), 1 Platforms, 31–32 Point Four, 77 Police patrol oversight, 27, 29 Policy formulation, 172–174 Policymakers. See Elected officials Political markets, 164–165 Political parties, 33, 37–38, 112, 152 Political rights, 3 Political theories, 110, 111–112 Politicians. See Elected officials Pollitt, Christopher, 9 Pombaline reforms, 87n4 Populism, 121–122, 150 Portugal, 41, 59, 143n19, 154 Posner, Richard, 17, 18 Poverty, 150, 152 Power theories, 111 Prats i Català, Joan, 147 Presidential Commission for the Reform of the State (COPRE) (Venezuela), 103, 106, 107 Principal-agent relations: accountability, 15, 30–36; nature of, 19–21; oversight, 15, 25–30; regulation, 15, 21–25; types of, 15 Privatization: as alternative to cuts in services, 59; in Brazil, 124; corruption and, 82; of goods and

210

INDEX

services producers, 133–135; international movement toward, 176; in precapitalist societies, 4; of the state, 3–4, 12n5; of state enterprises, 43, 46–47, 82 Process, 48 Processing costs, 159 Procurement, 69–70, 88n26 Professional merit, 118 Profits, 23–24 Property: nonstate public, 135–138, 145n32; private, 135; rights, 23, 38n5, 152, 153, 159; state-owned, 133–134 Proportional representation, 37 Proprietorship types, 116 Prospective voting, 31–32 Prud’homme, Remy, 29 Przeworski, Adam, 2, 15, 34, 140 Public accounting systems, 82 Public choice, 160 Public credit, 117, 141n4 Public employees, 48. See also Bureaucracy Public policies, 172–174 Public rights, 3, 4, 5 Public Service Administrative Department (DASP) (Brazil), 120, 142n12 Public services, 49 Public spending cuts, 8 Puerto Rico, 77 Punta del Este Charter (1961), 102, 108 Purchase-of-service agreements, 46

Quantity theories, 110 Quasi-autonomous nongovernmental organizations (QUANGOS), 11

Real Plan, 116 Redistribution, 161 Reengineering of business processes, 47 Referenda, 31 Regional cooperation, 152 Regional integration, 150 Regulation(s), 21–25; environmental, 85; as government-private business relation, 15, 21–25; in Latin America, 174–175; need for framework for, 84; reform of, 152;

to promote competition, 115; working conditions, 85 Reid, George, 110 Reinventing Government (Osborne and Gaebler), 42, 119 Remmer, Karen, 39n20 Rent seeking, 3; counterstrategies against, 6; defined, 4; parastatals and, 79, 81; state as target for, 17–18 Report on Cuba (World Bank), 78 Res publica, 3–4, 44, 72 Retirement systems, 123, 131–132, 143n19 Retrospective voting, 34–35 Rivlin, Alice, 72 Roccard, Michel, 8 Rule of law, 160 Rules, 27, 166–167

Sabatier, Paul, 113 Salgado, I. Perez, 100 Sandinistas, 107 Sanguinetti, Julio Maria, 162 Santos, Luiz Alberto, 142n5 Sarney, José, 39n21, 121 Schneider, Ben Ross, 129 Schumpeter, Joseph A., 32 Schwartz, Thomas, 27, 29 Secretaria de Administração Federal (Brazil), 123–124, 144n21 Self-interests, 162 Senge, Peter M., 45, 181 Service partners, 58 Service recipients, 57–58 Siedel, Robert, 111 Silent revolution, 75 Simões Lopes, Luis, 118 Social apprenticeship, 180–181 Social capital, 178, 179 Social deficit, 76 Social Democratic Party (Germany), 17 Social democrats, 115 Social dumping, 85 Social equity, 158, 159 Social investment funds, 102 Social organizations, 11, 137–138 Social rights, 3 Social Sciences Latin American University (FLACSO), 94 Social Security Administration (U.S.), 46

INDEX

Social services, 84, 87n11, 152 Somoza, Anastasio, 106 South Korea, 41, 57, 60 Southeast Asia, 2 Spain, 153–154, 155–156 Spending cuts, 8 Spiller, Pablo, 24–25 Spink, Peter, 91 The state: bureaucratic inefficiency, 5–6; coercive power of, 21; economic role of, 15–19; expansion of, 87n11; intervention in the economy by, 22–25, 117; in Latin America, 93; need for new version of, 154–155; public expectations, 2–3; roles of, 115; structural change, 9–12 State reform: in the 1960s-1990s, 101–104; conferences on, 108–109; conflicts in, 47–49; cost vs. effectiveness, 42–43; defining, 97–98; devolution as tactic of, 63–66; economic structural adjustment and, 75–77; executive branch, 171–172; failures of, 167–171; historic, 87n4, 93–97, 118–119; incremental, 105, 108, 167; institutional development, 86; international organization role in, 91–92; narrowing of strategies for, 107–108; political implications of, 112–113, 140, 141n3; process-based, 56–60; revolution in ideas, 44–45; role of government defined, 43; social-constructionist approach to, 92; studying, 92–97; sustaining, 62–63; technical-voluntarist view of, 104, 111, 112; theories of, 109–112; universality of, 41, 44; varieties of, 60–62; ways of achieving, 139. See also Customer service; Managerial reform; Performance-based management State sectors, 9–10 State-managed development, 83–84 Stiglitz, Joseph, 18–19 Stokes, Susan C., 34 Strategic core, 9–10, 11, 49, 132, 133–135 Strategy theories, 110–111 Stroessner, Alfredo, 94, 106, 156

211

Structural adjustment. See Economic structural adjustment Subsidiarity, 135 Subsidies, 5, 36–37 Suffrage, 3 Superman fallacy, 55 Sustainable human development, 151, 162 Sweden, 8, 41, 45, 50 Switzerland, 31

Taxation, 5, 23, 152 Taxpayers, 58–59 Technobureaucratic-capitalist model, 143n14 Tenure, 127 Thatcher, Margaret, 7, 9, 61 Theory of Incentives in Procurement and Regulation, A (Laffont and Tirole), 22 Tirole, Jean, 22–24, 27, 28, 38n10 Total quality management, 46 Trade laws, 152 Trade liberalization, 150 Trade-off costs, 158–159, 160–161 Transfer principle, 135 Trebat, Thomas, 83 Trens da alegria, 79 Trinidad and Tobago, 109 Triple alliance, 143n14 Trust, 7

Uhr, John, 29 Underdevelopment, 155 Unions, 61, 140 United Kingdom: bureaucratic support for reform, 140; civil service reform, 7–9, 61, 62; customer service, 57; devolution, 64, 65; institutions, 153, 154; performance assessment, 46, 50, 51, 53, 54; privatization, 43, 46–47; size of state sector, 41; state reform, 44, 112 United Nations (UN): administrative reform conferences, 97–98, 103, 108; Development Programme (UNDP), 151, 156, 158, 162; General Assembly, 91 United States: civil service reforms, 61; customer service, 45–46, 57, 58, 59; performance assessment, 54, 176;

212

INDEX

policymakers vs. bureaucrats, 67; state reform, 43 Universities, 93–94 Uruguay: authoritarian rule, 96; bureaucracy in, 169; government commitments, 25; military rule, 102, 106; national planning, 106; regional congresses on reform, 109 U.S. Agency for International Development (USAID), 102 U.S. Customs Service, 57

Vargas, Getúlio, 106 Venezuela: corruption, 88n13; failure of reforms, 106; reform in the 1970s, 102, 107; reform in the 1990s, 103; regional congresses on reform, 109; structural economic adjustment, 76 Venezuelan Oil Corporation (PDVSA), 83 Voluntary resignations, 132, 145n30 Vouchers, 11

Wahrlich, Beatriz, 100 Washington consensus, 150 Weber, Max, 4–5, 118, 168 Weimar Constitution, 37 Welfare state, 3 Willoughby, John, 99 Wilson, James Q., 79 Wilson, Woodrow, 99 Women in the civil service, 130 Workers’ comanagement, 37 Working conditions, 85 World Bank: civil service reform, 111; development, 78; governance, 158; municipal development, 86; neoliberal terminology of, 103; nongovernmental organizations, 92, 103; reform strategies of, 108; statesector reforms, 81–82, 91; successes in state-managed development, 83 World War I, 95 World War II, 96, 119, 168

Zweigert, Konrad, 100–101

About the Book

Neoconservative proposals for a minimal state notwithstanding, it has become increasingly clear in Latin America (and elsewhere) that the state must in fact be strengthened and the civil service reformed. This book contributes to the debate about the optimum role of the state, advancing the managerial approach to improving state capacity as far more effective than the bureaucratic perspective. The authors explore general themes of managerial public administration and government reform, then focus on specific Latin American experiences and trends. Prominent throughout the book is the conviction that effective and efficient public policies require not only the action of the federal government, but also the active involvement of civil society and local governing bodies. Discussions of accountability, empowerment, citizenship values, new management instruments, and new institutions all point to the importance of a closer relationship between state and society in rebuilding the state to meet current and future challenges.

Luiz Carlos Bresser Pereira, Brazil’s minister of science and technology, is also professor of economics at the Getúlio Vargas Foundation. He served previously as minister of federal administration and state reform, chief of staff of the government of São Paulo, and in 1987 as finance minister of Brazil. His numerous publications include Economic Crisis and State Reform in Brazil: Toward a New Interpretation of Latin America, recipient of the Choice Outstanding Academic Book Award in 1996. Peter Spink is professor and coordinator of the Program in Public Management and Citizenship at the Getúlio Vargas Foundation’s São Paulo School of Business Administration.

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