Journal of Comparative Policy Analysis: Research and

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The Impact of Fiscal Crisis on Public

Administration Reforms in Europe

Tiina Randma-Liiv & Walter Kickert

To cite this article: Tiina Randma-Liiv & Walter Kickert (2017) The Impact of Fiscal Crisis on
Public Administration Reforms in Europe, Journal of Comparative Policy Analysis: Research and
Practice, 19:2, 91-99, DOI: 10.1080/13876988.2017.1286781

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Journal of Comparative Policy Analysis, 2017
Vol. 19, No. 2, 91–99, https://doi.org/10.1080/13876988.2017.1286781

Introduction

The Impact of Fiscal Crisis on Public

Administration Reforms in Europe
TIINA RANDMA-LIIV* & WALTER KICKERT**
*Public Management and Policy, Ragnar Nurkse School of Innovation and Governance, Tallinn University of
Technology, Tallinn, Estonia, **Department of Public Administration, Erasmus University Rotterdam,
Rotterdam, The Netherlands

The world economy continues to grapple with the aftermath of the deepest and most
widespread recession in over half a century. The global financial and economic crisis,
followed by fiscal crisis, led most Western governments to plan and implement austerity
measures in order to cope with the concurrent problems of lower revenues and high public
deficit and debt. This did not only influence the delivery and quality of public services,
but also the way public administration itself functions. Even though the economic figures
show signs of restoring economic growth, the influence of fiscal stress on public admin-
istration and management is likely to continue for several years to come.
This special issue aims to identify both systemic reform trends in public administration as
well as changes in patterns of public management occurring during the retrenchment and
immediate years following the cutbacks. Fiscal crisis can provide an opportunity for policy
change since it delegitimizes long-standing policies underpinning the status quo. Europe
offers an interesting context for examining the impact of the fiscal crisis on public adminis-
tration because it involves countries which were hit by the fiscal crisis to a different degree.
The large-scale comparison of 14 European countries presented in this issue allows us to
conclude that more substantial reforms were carried out in countries most severely hit by the
crisis and/or where administrative reforms were conditioned by the international financial
assistance. That is why the articles in this issue look at the countries which were hit the hardest
by the crisis, including Estonia, Italy, Ireland and Latvia.
At the same time, fiscal crisis and changes in public administration do not necessarily
go hand in hand. Although the popular saying calls for not wasting “a good crisis” and
using it for carrying out long-awaited changes and structural reforms, several academics
have noted that because of the time pressure involved in curbing budget deficits, policy
makers’ attention has been diverted from comprehensive and time-consuming preparation
and implementation of structural reforms. The argumentation for and against the reforms
during the era of fiscal crisis presents a central puzzle that this special issue addresses. The
main claims around this puzzle are outlined below.

Correspondence Address: Tiina Randma-Liiv, Akadeemia tee 3, Tallinn 12618, Estonia. Email: tiina.randma-liiv@ttu.ee

© 2017 The Editor, Journal of Comparative Policy Analysis: Research and Practice
92 T. Randma-Liiv and W. Kickert

One Side of the Puzzle: Crisis Instigates Administrative Reforms

One stream of the existing literature indicates that the fiscal crisis and its immediate
aftermath intensify the perception of the need for reforms in public administration (see, for
example, Pollitt 2010; Tompson 2010; Peters et al. 2011; Vis et al. 2011; Green 2012).
The governments’ motives for public administration reforms during the era of fiscal stress
can be placed into three groups.

Window of Opportunity for Reforms

Politicians, public sector leaders, management consultants as well as academics have
pointed to the window of opportunity that the crisis may open for previously impossible
and/or postponed reforms: a socio-economic, an institutionalist, an ideational and a risk-
avoidance perspective could be considered here.
First, a socio-economic approach predicts that socio-economic features provide func-
tional demands on the political system that are likely to translate into substantial reform
once they are perceived as systemic or involving existential threats. Crises can create
significant reform opportunities, both by demonstrating the unsustainability of the status
quo and by disrupting the interest coalitions that have previously resisted reforms
(Tompson 2010). Economists and business management scholars tend to rely upon an
incentive-based view by arguing that a crisis in finances or resource flows forces change,
as only when faced with problems do people seek new approaches (Kelman 2006). Given
the pressures triggered by the fiscal crisis and its aftermath, this perspective predicts
structural reforms as almost inescapable and immediate outcomes of the crisis.
Second, the institutionalist approach explains continuity and incremental public admin-
istration reform trajectories for “normal times”. As argued by historical institutionalists
(for example Thelen 1999), government decisions tend to be path dependent, unless there
is a “critical juncture” in the equilibrium which provides the basis for a new equilibrium.
Crisis may create such a critical juncture at which it is possible to divert from the original
path of incremental development and initiate structural reforms (Drazen and Grilli 1993;
Vis et al. 2011). For example, Vis et al. (2011, pp. 338‒339) argue:

Although tremendous pressures for reform have been accumulating in the past
decades, these typically do not translate into drastic reform because of the various
institutional and political forces that work against them. A crisis, in the sense of an
indubitable threat of breakdown, is assumed to set these forces free and bring about,
more or less instantaneously, radical reforms.

Third, an ideational perspective emphasizes that ideas assume a transformative capacity

under extreme conditions such as in an environment affected by fiscal crisis. As crisis
causes uncertainty and urgency, it is likely to foster the acceptance of previously unaccep-
table ideas to transform public administration radically and rapidly (Béland and Cox 2011).
Fourth, crisis has been argued to increase change agents’ willingness to accept the risks
of change. For instance, Tompson (2010) claims that in normal circumstances, when there
is no threat of immediate losses, the combination of loss aversion and the endowment
effects lead individuals to overestimate the risks and underestimate the benefits of reform.
Consequently, when faced with a crisis that threatens their existing endowments, people
 Introduction 93

may become less risk-averse. Altogether, a sense of crisis is argued to make it easier to
consider radical options and more fundamental reforms than is possible in “normal times”.

Crisis as a Consequence of Government Failure

If there is a crisis, there may be manifest evidence that the old patterns of public
administration were not effective and there is a need for new approaches (Peters et al.
2011). Several studies have argued that the occurrence of the financial crisis was, among
other factors, caused by systemic failures in governance and public administration,
including, for example, problems of vertical and horizontal coordination in government,
inadequate regulation of financial institutions, shortcomings in principal‒agent relation-
ships, and fragmented steering and control mechanisms (Pollitt 2010; Peters et al. 2011;
Green 2012; Lodge and Hood 2012; Potter 2012).
By acknowledging the variety of government failures leading to crisis, governments
bear partial responsibility for the consequences and are expected to learn from their
failings. Potter (2012, p. 370) invites public administration scholars and practitioners to
“take an opportunity to understand what public administration could have done to prevent
or mitigate this crisis and should do to prevent similar future regulatory failures”. This is
likely to lead to structural reform proposals to address these deficiencies in order to
improve the existing system, to avoid the occurrence of similar crises in the future and
to help to achieve longer-term fiscal sustainability (Cepiku and Savignon 2012). For
example, Green (2012) suggests reconsidering the New Public Management
(NPM) approach based on market mechanisms, self-regulation and result-orientedness.
Several studies (e.g. Peters et al. 2011; Green 2012) conjecture that the occurrence of a
crisis should lead to streamlining steering systems in government in order to address the
immediate necessity to keep government expenses under control and to carry out austerity
measures.

Efficiency Savings through Administrative Change

In the literature on cutback management, a number of categorizations of the cutback
strategies have been put forth (for a literature review, see Raudla et al. 2015). The most
basic categorization distinguishes between across-the-board cuts (also called “cheese-
slicing”, “decrementalism” or “proportional cuts”) and targeted cuts (also called “prior-
ity-setting”). The middle way between cheese-slicing and political priority-setting are so-
called “efficiency measures” (also dubbed “productivity measures” and “efficiency gains”)
aimed at making efficiency savings that enable the governments to “do more with less”.
Administrative reforms can be seen as part of “efficiency savings”. Not only has the
government to deal with the crisis itself; citizens, politicians and various interest groups
may see public administration reforms as part of the solution to the crisis. Politically and
organizationally, efficiency measures can be considered the most preferred method for
achieving savings as they avoid real cuts, and sound less threatening and more technical
compared to straight cutbacks (Pollitt 2010). The need for efficiency savings is based on
the potential conflict between fiscal and political considerations during the era of austerity.
While the fiscal logic is to make large cuts, the political logic is that cuts are profoundly
unpopular and possibly beyond the limits of political feasibility (Pollitt 2010). The
implication is that politicians may prefer efficiency savings over straight cutbacks by
94 T. Randma-Liiv and W. Kickert

insisting that money-saving changes in public management patterns can be crafted in ways
that would preserve or even improve public service quality, efficiency and effectiveness
(“gain without pain”).
Efficiency savings usually require considerable innovation, both organizational and
technological changes. As argued by Overmans and Noordegraaf (2014, p. 104):
“Innovative austerity management goes further than the sure restoration of fiscal balance.
The aim is to lower expenses by delivering products faster, working more closely with
partners and by using technical innovation”. Whatever the means of efficiency savings
are, their overall ambition is to rebalance revenues and expenditures through adminis-
trative change rather than fiscal measures.

The Flip Side of the Puzzle: Crisis Hinders Administrative Reforms

However, the assumption that crisis encourages reforms is controversial. Several authors
(for example Levine 1979; Cayer 1986; Pollitt 2010; Peters et al. 2011) offer the
antithetical approach by arguing that crisis inhibits change. Such skepticism is based on
arguments related to the political context, time pressure, availability of financial and
human resources, and organizational climate during the fiscal stress.

Political Context
The issue of internal change in public administration usually tends to be of low political
salience. Consequently, governments with limited political capital may opt to concentrate
on fiscal consolidation rather than structural administrative reforms. Moreover, in the era
of crisis, the citizens’ attention can be focused upon practical and more tangible issues
related to pensions and unemployment, and corresponding reforms in particular policy
fields, which leaves little social demand and political attention for public administration
reform. In addition, politicians may see crisis as an opportunity for reform, but also as a
threat to the existing order. Carrying out structural reforms in the government apparatus is
itself disruptive, and attempting to implement institutional change in the midst of the crisis
may lead to confusion and failure (Peters et al. 2011). Finally, politicians may realize that
reforms will also need to be presented as desirable in the long-term perspective and not
merely as unavoidable cuts in public expenditure, as reforms justified chiefly as responses
to fiscal pressure can be difficult to sustain when the pressure ceases (Pollitt 2010).

Time Pressure
Structural administrative reforms need years rather than weeks or months if they are to be
properly planned and implemented (Pollitt 2010). Crisis, however, instills urgency in the
public and among the political and administrative elites. Because of the time pressure
involved in curbing budget deficits, policy makers’ attention can be diverted from more
comprehensive and time-consuming reform efforts, and the focus of the government is
likely to be on short-term measures rather than on structural reforms (Cepiku and
Savignon 2012). In a crisis context, people face time and workload pressures that reduce
their ability to explore new approaches and change, leading to rigidity in decision making
(Kelman 2006). Moreover, rushing fundamental reforms through is likely to lead to
 Introduction 95

mistakes, unnecessary expenditures, resistance to change, and consequently to reduced

rather than increased efficiency and effectiveness (Pollitt 2010).

Financial Resources
The fiscal situation may constrain governments’ ability to pursue reforms, as new reforms
are usually initiated by previously uncommitted resources. Organizations which are forced
to cut their operational or program costs are not likely to accumulate funds for preparing,
piloting and carrying out reforms (Cayer 1986; Pollitt 2010). Moreover, addressing the
banking crisis, boosting the economy and implementing labor market policies consumes
considerable resources, leaving the funding of structural administrative reforms in the
background. The difficulty with structural reforms is that the costs tend to be incurred up-
front, while the benefits take longer to materialize (Pollitt 2010). Governments will thus
have to show considerable capability in creating the fiscal space needed to bear the short-
term costs of structural reforms. Such a temporal pattern of reforms does not look
attractive to governments fighting for savings, even if the reform is projected to save
money in the long run. A weak fiscal position can also make it harder to find resources to
provide adequate compensation or transitional arrangements for those who will lose from
reform. As Pollitt (2010, p. 18) argues, “Reforms cannot be lubricated with new money,
and objectors and recalcitrants cannot be ‘bought off’ with generous compensations or
comfortable alternative jobs”

Human Resources
Initiating structural reforms calls for making rational decisions at a time when there are
limited human resources for enhancing the rationality of decision making. “The hard,
detailed work of choosing reforms which are do-able, which fit the local context, which
can be defended politically and which are sustainable over time – this demands strong local
knowledge and equally strong public service motivation” (Pollitt 2010, p. 25). However,
several studies have shown a negative correlation between cutbacks and motivation (for
example Ingraham and Barrilleaux 1983; Levine 1984; Cayer 1986). If employees perceive
their employer to have violated their trust (an assumption that hard work, good performance
and loyalty would be rewarded by employment security and fair benefits), the so-called
“organizational citizenship behavior” will be affected by reducing employee morale and
commitment and consequently the likelihood of reforms succeeding (see Kelman 2006). In
addition, Levine (1979, p. 180) argued already in the 1970s that when public organizations
need the analytical capacity the most, they may not be able to afford it. The preparation of
reforms requires high-level expert advice at the time when the best experts are overburdened
and/or demotivated. During the retrenchment, organizations are likely to fall short on
critically needed competencies but are at the same time unable to hire people with the
necessary knowledge and skills. Furthermore, the cutback situation puts civil servants under
pressure, as they need to fulfill extra tasks related to cutbacks and crisis more generally (see
Lodge and Hood 2012; Savi and Cepilovs 2016) as well as to fill in the gaps left by layoffs
or a hiring freeze. It is, therefore, difficult for civil servants to find the additional time and
energy needed for the preparation and implementation of reforms.
96 T. Randma-Liiv and W. Kickert

Organizational Climate
The entire organizational climate during cutbacks has been argued to be unsupportive of
changes and innovation (Pollitt 2010). Reforms require risk-taking, but civil servants who
fear for their jobs and income are less likely to take risks. Perceiving that the penalty for
wrong decisions during a crisis is very high, public sector managers see little need to
critically evaluate institutionalized practices and belief systems (Levine 1984). The “threat
rigidity” approach claims that when faced with a crisis, people do not seek new
approaches, but they rather prefer relying upon familiar and habitual behavioral responses
(Staw et al. 1981). The organizational capability and flexibility to innovate, involve and
otherwise reward all critical employees is diminished during retrenchment, as most
organizational energies are directed toward cutting back activities and programs
(Ingraham and Barrilleaux 1983, p. 395). Personnel cuts and innovation have even been
considered antithetical, the former occurring in an environment which is contrary to
reform (West 1986). Downsizing can disrupt workplace relationship networks that are
conducive to organizational learning and improvement (Fisher and White 2000). In
addition, managing structural reforms requires cooperation and partnership both within
and between organizations. However, cutbacks produce less favorable and less coopera-
tive attitudes as survivalist techniques take precedence over the needs of the organization
(Levine 1984; Cayer 1986; Peters et al. 2011; Lodge and Hood 2012). Also, relationships
with unions are likely to deteriorate during retrenchments by developing a confrontational
approach (Cayer 1986) and having a negative effect on potential reforms.
All in all, by taking these two streams of argument together, the question remains
whether the fiscal crisis can be considered a “change event” (Pollitt and Bouckaert 2011)
that is likely to put pressure on governments in terms of public administration reforms.
Figure 1 summarizes the two streams of literature arguing for and against administrative
reforms during the fiscal crisis.

Figure1. The impact of fiscal crisis on public administration reforms

Motives for reforms

Window of opportunity
Addressing crisis
Efficiency gains
Fiscal crisis
Deficit Debt Public administration
Fiscal consolidation reforms?

Obstacles to reforms
Political context
Time pressure
Financial resources
Human resources
Organizational climate
 Introduction 97

The Impact of Fiscal Crisis on Public Administration: Empirical Evidence from

Europe
This special issue sheds light on the above-mentioned puzzle of public administration
reforms during the time of fiscal crisis by presenting empirical evidence collected in a
variety of European countries. It draws on the outcomes from research compiled within
the Coordinating for Cohesion in the Public Sector of the Future (COCOPS) project
“Coordination for Cohesion in the Public Sector of the Future”, Work Package 7 “The
global financial crisis in the public sector as an emerging coordination challenge” (2011‒
2014).
The articles on Italy (by Di Mascio et al. 2016) and Ireland (by MacCarthaigh and
Hardiman 2016) argue that these two countries stand out as exemplary cases for “reform
versus non-reform” discourse during the fiscal crisis. Both countries were very severely
hit by the global financial crisis, and their responses were influenced by the conditionality
of financial assistance from the Troika of the IMF, the European Central Bank and the
European Union. However, the two countries responded very differently to the crisis. On
the one hand, the Irish case (MacCarthaigh and Hardiman 2016) shows that extreme
economic conditions can provide a political opening for advocates of state restructuring.
The financial crisis entailed a new emphasis on structural reform of public administration,
since even though these were not detailed in the loan program by the Troika, they were
driven by the urgent need to achieve cost savings and efficiency gains. As a result, the
Irish government carried out a major structural reform within its administrative system,
and also fundamentally altered the Irish public service bargain.
On the other hand, the Italian case (Di Mascio et al. 2016) demonstrates that the short-
term perspective of the response to the crisis may not only be neutral toward adminis-
trative reform, but it may even freeze the implementation of ongoing systemic reforms.
Domestic factors in Italy, most notably government instability but also lessons drawn from
the previous crisis experience, reinforced the orientation towards a single-loop approach
by the Italian government ‒ the almost exclusive focus on short-term cost-cutting mea-
sures during the crisis. In addition, by pressing for short-term crisis containment rather
than structural reforms, the EU has been an obstacle to, rather than a spur for the public
personnel reforms in Italy. By instilling in domestic actors a sense of urgency, the
European Commission steered reforms away from long-term modernization efforts and
toward short-term spending cuts. These two contradictory case studies entail lessons for
understanding the malleability of policy choice during fiscal austerity, and how state
policy choices in response to crisis are framed and implemented.
The comparative study of Estonian and Latvian executive agencies by Savi and
Cepilovs (2016) turns attention to the impact of fiscal crisis on street-level bureaucrats.
Both countries experienced sharp cuts in public personnel expenditures resulting in
diverse public service gaps which eventually led to burdens on citizens, hence turning
out neither equal nor fair for the target groups. The evidence from both Baltic countries
shows that centrally forced cutbacks shifted vast burdens to street-level bureaucrats who
eventually assumed the role of key policy actors when securing the delivery of public
services during fiscal crisis. This, however, resembles more a coping strategy by indivi-
dual agencies than structural reform of public service delivery.
The special issue concludes with a comparative study of the responses of 14 European
governments to the fiscal crisis (Randma-Liiv and Kickert 2016). It is found that fiscal
98 T. Randma-Liiv and W. Kickert

crisis and public administration reforms are not necessarily closely connected. In the
majority of cases, the fiscal crisis did not have an instant effect of triggering structural
public administration reforms or substantial shifts in existing reform trajectories (with the
exception of Ireland). The crisis intensified the pressure to reform public administration to
some extent, but the European governments’ responses to crisis predominantly followed a
combination of straightforward cutbacks and incremental change. The evidence from
European countries thus shows that fiscal crisis provided neither a “change event” nor a
“critical juncture” in the ongoing process of administrative reforms.

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