Monday, April 09, 2007

Changes in Public Administration and their Impact on Public Policy 4 - the New Zealand Model

Note to readers: This is one of a series of posts discussing changes in public administration and their impact on public policy. Each post has a full list of posts at the end. You may care to start at the introductory post and then follow through.

This post continues our discussion on changes in public administration and their impact on public policy.

In my Notes on Major Trends I began by looking at the rise of the welfare state at the end of the Second World War, then looked at the economic impact of the oil shocks during the seventies. This created global stagflation among developed countries (recession combined with inflation) that Governments struggled to deal with using previously successful policy instruments. This marked the end of the welfare state, setting the stage for new approaches to public administration.

I then went on to briefly discuss the development of the quality movement, standards based approaches and the associated rise in interest in measurement, things that were to become very important within public administration. In the following post, Publish or Perish, I looked at the development of citation indexes as a case study of the growing interest in, even obsession with, measurement.

This post continues our discussion, focused on the development of the New Zealand model, a model with global reach that typifies changing approaches to public administration.

The Rise of Thatcherism

The failure of previous policy approaches to address the problems of stagflation, continuing high interest rates and persistently high unemployment led to a search for new policy approaches.

In the Australian Treasury, for example, the persistent cry during the second half of the seventies was the need to "get the economic fundamentals right." Without this, we could do nothing else.

The revolution that was beginning to sweep away the old system of public administration including the welfare state is sometimes called Thatcherism.

Margaret Thatcher (and here) became Prime Minister of Great Britain in 1979, the first of a series of "conservative" (I have put conservative in inverted commas because the outcomes were far from conservative) world leaders including Ronald Reagan (1980) and Brian Mulroney in Canada (1984). Influenced by the ideas of Milton Friedman and a strong believer in free market forces, she began a process of winding back government involvement in the economy, of corporatisation and sale of Government business activities, of tight monetary and fiscal policy intended to destroy inflation.

The New Zealand Model: Introduction

While the overall change process is sometimes called Thatcherism, the purest expression of the overall approach - often called Rogernomics after the New Zealand Labour Party Finance Minister Roger Douglas -was to come in New Zealand. For a period, New Zealand was to become a major influence in global public administration, with New Zealand consultants fanning out to spead tha approach around the world.

New Zealand was an economic basket case when Labour came to power. Using ideas developed in the New Zealand Treasury Department, Douglas set out about a series of dramatic reforms. My concern here is not with the details of the reforms, but with the underlying model.

The Wikipedia article cited above suggests that a" major criticism of Rogernomics is that the reforms were undertaken without a detailed philosophical basis so it could be argued that the reforms were not fully completed."

It is true that the reforms were not fully completed, but I disagree that they lacked a detailed philosophical basis. In my view, the New Zealand model was by far the most clearly articulated reform model in the world. Further, while it did incorporate elements of what came to be known as neoconservative views, the model itself could be applied within a variety of idea sets.

Structure of the New Zealand Model

The most interesting thing about the New Zealand model was the way in which it drew together so many of the new elements in global thinking. To start with things that applied across the whole structure:

Accountability. Accountability was central. Government and ministers were responsible for overall policies and programs and were accountable to Parliament. CEOs of ministries and agencies were responsible to their minister. And so on.

Objectives. There should be clear and as much as possible measurable objectives. This applied to Government and ministers as well as those working for Government. If Government and ministers did not have clearly defined objectives, then how could agencies and CEOs have clearly defined objectives?

Inputs, outputs and outcomes. A clear distinction needed to be made between inputs, outputs and outcomes. Inputs were the resources required to deliver individual activities, outputs represented the immediate deliverables from those activities, outcomes the results from outputs. Government was concerned with outcomes. So a clear relationship needed to be established between inputs, outputs and outcomes.

Program approach. Because most outcomes (reduced crime, for example) required outputs from a variety of areas, there needed to be a program approach that integrated policies and programs across agencies. This was also required to accommodate the fact that while Government was responsible for outcomes, most minsters and agencies were really responsible for outputs that in combination determined outcomes.

Standards Based. Consistent with the emphasis on measurable objectives and outcomes, standards based approaches were central across all of Government and beyond. Where appropriate, Government mandated standards. However, the process to be followed in achieving those standards was a matter for those responsible for delivery.

Clear definition of roles. Government wore different hats that needed to be clearly defined. Government provided services to people that linked in turn to different needs and outcomes. In providing those services, Government purchased outputs from both public agencies and the private sector. Where Government acquired services from its own agencies, it was both an owner and a purchaser. As an owner it needed to get a return on the capital invested. As a purchaser, it wanted the best value for its money.

Service purchase contracts. Where the agency was providing services to Government, the Government entered into an agreement with that agency to purchase an agreed package of services for an agreed period. In short hand terms, this came to be known as the purchaser/provider model.

Agency independence. Consistent with standards based approaches, agencies had operational freedom to achieve their objectives, subject to achievement of financial performance targets (the ownership role) and any service delivery requirements as laid down in their service delivery contracts (Government as purchaser role). Previous central requirements such personnel administration or procurement were abolished. Agencies had control of their own funds including retention of interest on cash and of profits subject to any agreed dividend requirements.

Accrual accounting. Government agencies at all levels needed to report to Government on their operations in terms of Government's role as owner (profit & loss statement, balance sheet, cash flows) and as service provider (cost, value for money). To assist this, accrual accounting was made mandatory. In turn, this allowed for the creation of a total Government balance sheet listing all assets and liabilities.

Market focused. A key part of the model was the attempt to use market disciplines to encourage efficiency.

In applying the model all Government ministries and agencies were broken into three groups depending on their customers and market positions.

Contestable markets: Agencies supplying good or services to external markets for a market determined price were turned into state owned enterprises and ultimately sold.

External service provision, no market: Agencies supplying services, regulation of aviation for example, remained in Government ownership but became stand-alone entities and charged for their service so as to recover costs plus a return on capital. This was meant to be fully transparent to those being charged. In practice some element of subsidisation might still be required because of externalities. In this event, the subsidy in fact represented a Government purchase from the agency.

Government as customer. Where the Government was the sole purchaser, then the ministry or agency became a service provider with a single customer. In theory, this separation allowed Government to consider alternative purchases, introducing a degree of potential competition. For example, New Zealand might choose to outsource defence in whole or part to Australia, paying Australia for the service. Or buy economic advice from sources other than the New Zealand Treasury.

I said that the model could be applied in a variety of systems. The starting point here is Government values and objectives. This then determines the cascade effect through the whole Government system.

As a simple example, you might choose not to sell state owned enterprises because you classified them as strategically or socially significant. In that event, you might need to pay the enterprise an extra amount as a subsidy. This would be identified and treated as a purchase of a service linked to the strategic or social objective.

I will discuss the application and spread of the model in my next post in this series.

Copyright and Citation Details

The material is this series is copyright Jim Belshaw. However, it may be copied or quoted with due acknowledgment.

The following should be used for citation purposes if referring to the overall series: Jim Belshaw, Changes in Public Administration and their Impact on the Development of Public Policy, Ndarala Group, 2007 with a link to the introductory post.

If citing this post, Jim Belshaw, "Changes in Public Administration and their Impact on the Development of Public Policy 4 - the New Zealand Model", in Jim Belshaw, Changes in Public Administration and their Impact on the Development of Public Policy, Ndarala Group, 2007 with a link to this post.

Series Posts

Changes in Public Administration and their Impact on the Development of Public Policy 1 - Introduction, 20 March 2007.

Changes in Public Administration and their Impact on the Development of Public Policy 2 - Notes on Major Trends, 26 March 2007.

Changes in Public Administration and their Impact on the Development of Public Policy 3 - Publish or Perish Case Study, 6 April 2007.

Changes in Public Administration and their Impact on the Development of Public Policy 4 - the New Zealand Model, 9 April 2007.

Changes in Public Administration and their Impact on the Development of Public Policy 5 - Application and Spread of the New Zealand Model, 10 April 2007.

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