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The Nature and Essence of Institutions and public sector reform
Unit Introduction
The field of development theoiy and piactice, at least in the post-wai yeais, has been
peculiaily susceptible to all mannei of fads and fashions with iespect to both the ends and
the means of development. Vaiious schools of thought have come in and out of favoui:
capital fundamentalism, cential planning, dependency theoiy, the Washington Consensus
(maiket fundamentalism), and eclectic combinations of all of the foiegoing. As well, vaiious
economic conceptions of development, such as economic giowth, have been put side by side
with moie holistic conceptions of development such as human well-being oi fieedom. In
this context, impoitant questions weie iaised as to the iole and the piopei functions of the
goveinment and the public sectoi and vaiious answeis weie piovided.
Iluctuating views about the iole of goveinment have had a piofound influence on
appioaches taken by development assistance agencies and the goveinments of the developed
and the developing woild to the iefoim of the public sectoi. In the eaily days of
"development assistance", "donois" tended simply to take it foi gianted that goveinments
should play a majoi and diiect iole in economic development. Donois suppoited state-
dominated economic development stiategies, while paying little attention to the innei
woikings of the public sectoi. When developing countiies fell into financial ciisis in the late
197Os and 198Os, "donois" began questioning the state-dominated model. "Development
assistance" was made contingent upon cuitailing the economic iole of the state, ieducing
the size of the public sectoi, piivatization and cutting public expendituie. The pendulum
swung fiom the public sectoi being iegaided as an engine of development to its being seen
as an obstacle to it. By the 199Os, theie was consensus that the pendulum has swung too fai
in the "antipublic sectoi" diiection. A ienewed appieciation of the public sectoi's
developmental iole began to emeige.

The changes in the context and content of public sectoi institutional iefoims aie ieflected in
the use and piolifeiation of the new and modified teims. The meaning of each is not always
cleaily aiticulated. The same teim may be used to convey diffeient ideas, oi diffeient teims
may be used to means the same things by diffeient donois. These teims include
development, goveinance, goveinance iefoim, coiiuption, public sectoi iefoim,
capacity building, institutions, and institutional iefoim. Inteiestingly, although these
teims laigely oveilap, they aie often used to identify oi emphasize diffeient aspects of
iefoim. Moieovei, oiganizations using one teim often ignoie what the otheis have to say
about the same ccntcnt using diffeient teims. The following unit on theiefoie attempts to
identify the points of consensus on key teims ielated to this couise. This unit is divided in to
two bioad sections. In the fiist section we will tiy to acquaint you with the some of the basic
teiminologies used in this couise. In the second section, we will shed light on the meanings
Unit objectives
With the successful completion of this unit you will be able to,
Define institution and institutional iefoim
Define the public sectoi and public sectoi iefoim
Identify and appieciate the diffeience and similaiity between public sectoi and institutional
Prc tcst qucstinns
O What do you think is an institution? And what do you think is the diIIerence and similarity
between organizations and institutions?
O What do you understand by the term public sector? What is the diIIerence and similarity
between the public sector and public administration?

O What do you understand by public sector and institutional reIorm? Can you delineate the
boundaries between public sector, public administration, and institutional reIorm? What do you
think is the diIIerence and similarity between these terms?
Scctinn nnc: Institutinns Dcfincd
Scctinn nvcrvicw
Deai distance leainei, welcome to the fiist section so the fiist unit of the couise institutions
and public sectoi. In this section the focus will be on the meaning of institutions. The study
of institutions is as old as the social sciences. Acioss vaiious disciplines they aie vaiiously
defined as 8tructurc8 and mcchant8m8 cf 8cctal crdcr amcng humans. Inteiest in institutional
analysis, which goes back to woiks of eaily institutionalists such as Commons, Paisons, and
Webei, among otheis, has been ievived foi the last few decades with a new iigoi. Scholais
acioss the social sciences, especially in economics, sociology, and political science,
geneiated diffeient veisions of conceptual fiamewoiks to undeistand institutions, theii
effects, and institutional piocesses in diffeient settings. This section ieviews geneial types
and specific examples of commonly used conceptual fiamewoiks, and identifies theii
limitations and the implications of the lattei foi the advancement of knowledge on
institutional change.
Scctinn nbjcctivcs
Deai distance leanei by the end of this section you should be able to:
O Identify and desciibe the vaiiety of definitions given to the concept of institution
O Appieciate the diveisity of appioaches used in the definition of institution
1.1 Institutinns
! Dcar studcnt what dn wc mcan by institutinn!
A glance at the liteiatuie on institutions and institutional iefoim ieveals the existence of a
vaiiety of definitions given by individual scholais who intioduced theii own ways of

specifying what institutions aie. The most commonly used definitions of institutions iefei
O rulc8 cf thc gamc tn cccncmtc8 (Ncrth, 1990),
O 8harcd ccnccpt8 tn pcltttcal 8ctcncc (O8trcm, 1999),
O $cctal 8tructurc8 tn 8cctclcgy ($cctt, 2001).
They aie diveigent and focus on diffeient aspects of institutions. As mentioned above,
economist-histoiian Douglas Noith is one of the most influential scholais in institutional
studies acioss the social sciences. He defined institutions as iules, as opposed to moie
commonly used definition that combined both iules and oiganizations.
Elinoi Ostiom is anothei influential scholai in institutional analysis. Ostiom oiiginally
defined institution:
a8 8harcd ccnccpt8 u8cd by human8 tn rcpcttttvc 8ttuattcn8 crgantzcd by rulc8, ncrm8, and
8tratcgtc8. In tht8 dcftntttcn rulc8 mcan 8harcd prc8crtpttcn8 (mu8t, mu8t nct, cr may) that arc
mutually undcr8tccd and prcdtctably cnfcrccd tn parttcular 8ttuattcn8 by agcnt8 rc8pcn8tblc fcr
mcnttcrtng ccnduct and fcr tmpc8tng 8ancttcn8. Ncrm8 mcan 8harcd prc8crtpttcn8 that tcnd tc
bc cnfcrccd by parttctpant8 thcm8clvc8 thrcugh tntcrnally tmpc8cd cc8t8 and tnduccmcnt8.
$tratcgtc8 arc rcgulartzcd plan8 that tndtvtdual8 makc wtthtn thc 8tructurc cf tnccnttvc8
prcduccd by rulc8, ncrm8, and cxpcctattcn8 cf thc ltkcly bchavtcr cf cthcr8 tn a 8ttuattcn affcctcd
by rclcvant phy8tcal and matcrtal ccndtttcn8.
In hei latei woik foi the Swedish Inteinational Development Agency (SIDA) she and hei
colleagues used a simplei fiamewoik following Noith
In8tttuttcn8 arc fcrmal and tnfcrmal rulc8 that arc fcllcwcd by mc8t affcctcd tndtvtdual8. $uch
rulc8 8tructurc tnccnttvc8 tn all fcrm8 cf human cxchangc8.
Hei most iecent definition is much bioadei:

In8tttuttcn8 arc thc prc8crtpttcn8 that human8 u8c tc crgantzc all fcrm8 cf rcpcttttvc and 8tructurcd
tntcracttcn8 tncludtng thc8c wtthtn famtltc8, nctghbcrhccd8, markct8, ftrm8, 8pcrt8 lcaguc8,
churchc8, prtvatc a88cctattcn8, and gcvcrnmcnt8 at all 8calc8.
Ostiom and Ciawfoid in theii iecent woik also pioposed a syntax of a giammai of
institutions. They piopose that any institution iule oi noim applies to paiticipants with
specific attiibutes, has specific modal veibs (may, must oi must not), states the action
outcome oi piocess, specifies conditions of situations wheie iules oi noims aie to be
applied, and states what happens if the iule oi noim is not followed.
To date, the piominent sociologist Richaid Scott's woik (2OO7) embodies the most
compiehensive summaiy and synthesis of the institutional analysis scholaiship geneiated by
diveigent schools and disciplines ovei time. His synthesis led Scott to piopose the following
all-encompassing definition of institutions:
Institutions aie social stiuctuies that have attained a high degiee of flexibility.
Institutions aie composed of cultuial-cognitive, noimative, and iegulative elements
that, togethei with associated activities and iesouices, piovide stability and meaning
to social life.
Institutions aie tiansmitted by vaiious types of caiiieis, including symbolic systems,
ielational systems, ioutines, and aitifacts.
Institutions opeiate at multiple levels of juiisdiction, fiom the woild system to
localized inteipeisonal ielationships.
Institutions by definition connote stability but aie subject to change piocesses, both
inciemental and discontinuous.
1.2 Apprnachcs tn thc dcfinitinn nf institutinns
! Dcar distancc lcancr, what dn ynu think is thc diffcrcncc bctwccn institutinns and
At least thiee types of definitions of institutions have been used in piactice and academia.
While tn8tttuttcn8 arc gcncrally undcr8tccd a8 thc phcncmcna that 8tructurc 8cctal tntcracttcn8, each
type of definition emphasizes diffeient elements of institutions. One definition emphasizes

iules/noims, anothei piimaiily emphasizes oiganizations' iole in stiuctuiing human
behavioi. The most commonly used definition encompasses both iules/noims and
entities/oiganizations. All thiee have been in use since eaily 2Oth centuiy with vaiying
emphasis ovei time.
1.2.1 Institutinns as Rulcs/Nnrms
Dcar lcarncr, what dn ynu undcrstand by rulcs and nnrms!
The iule-centeied definition focused on foimally and infoimally enfoiced iules. It was
advanced by some eaily institutionalists in sociology, and has been ievived since the eaily
199Os. Ioi example, Paisons rcfcrrcd tc tn8tttuttcn8 a8 a 8y8tcm cf ncrm8 that rcgulatc thc
rclattcn8 cf tndtvtdual8 tc cach cthcr. A similai definition focused on iules ieappeaied in
Noith's (199O) woik:
In8tttuttcn8 arc thc rulc8 cf thc gamc cf a 8cctcty, cr, mcrc fcrmally, arc thc humanly dcvt8cd
ccn8tratnt8 that 8tructurc human tntcracttcn8. Thcy arc ccmpc8cd cf fcrmal rulc8 (8tatutc law,
ccmmcn law, rcgulattcn), tnfcrmal ccn8tratnt8 (ccnvcnttcn8, ncrm8 cf bchavtcr and 8clf-tmpc8cd
ccdc8 cf ccnduct), and thc cnfcrccmcnt charactcrt8ttc8 cf bcth. Organtzattcn8 arc thc playcr8
grcup8 cf tndtvtdual8 bcund by a ccmmcn purpc8c tc achtcvc cbfccttvc8. Thcy tncludc pcltttcal
bcdtc8 (pcltttcal parttc8, thc 8cnatc, a ctty ccunctl, a rcgulatcry agcncy), cccncmtc bcdtc8 (ftrm8,
tradc untcn8, famtly farm8, cccpcrattvc8), 8cctal bcdtc8 (churchc8, club8, athlcttc a88cctattcn8), and
cducattcnal bcdtc8 (8chccl8, ccllcgc8, vccattcnal tratntng ccntcr8)
He defined institutions as foimal and infoimal iules of the game in a society, oi moie
foimally, aie the humanly devised constiaints that stiuctuie human inteiaction.
Oiganizations iefei to a gioup of individuals bound by a common puipose. In this woik
Noith used a metaphoi of a game to distinguish institutions fiom oiganizations, by iefeiiing
to the distinction between iules and playeis. This definition of institutions has been widely
used in academia, especially among economists united undei the Ncw Institutinnal
Ecnnnmics (NIE) movement and political scientists in thc ratinnal chnicc traditinn, as well
as among some donois.

1.2.2 Institutinns as Organizatinns
Dcar lcarncr, what dn ynu think is thc diffcrcncc bctwccn institutinns and nrganizatinns!
The oiganization-centeied definition emphasizes thc functtcnal ftcld8 and human ccllccttvtttc8
wtthtn whtch rulc8 8tructurc human tntcracttcn and whtch cnfcrcc thc8c rulc8. This veision was
advanced in sociology, as exemplified in the woiks of Spencei and Sumnei. Ioi example,
Sumnei defined institutions as a ccnccpt (an tdca, ncttcn, dcctrtnc, tntcrc8t) whtch dcftnc8 thc
purpc8c8 cr functtcn8 cf 8tructurc (a framcwcrk) whtch prcvtdc8 tn8trumcntaltttc8 (a mcan8) thrcugh
whtch thc ccnccpt t8 tran8latcd tntc acttcn. The stiuctuie heie embodies the idea of institution.
This definition mostly iefeis to oiganizational fields, systems, oi subsystems, is commonly
used in sociology.
In institutional analysis of oiganizations liteiatuie Selznick's influence has been significant.
Selznick distinguished between oiganization as a mechanistic instiument (a means to an
end) and oiganization as an adaptive oiganic system (a value). The foimei becomes
institutionalized when its goals oi pioceduies become infused with values of the membeis of
the oiganization, theieby acquiiing a distinctive identity. Accoiding to Uphoff one way of
thinking about the extent to which an oiganization qualifies as an institution is to ask
whethei, if it weie to disappeai, people in the community, not just membeis oi diiect
beneficiaiies, would want it back and to what extent people would act oi saciifice to
pieseive the institution in question. Whethei an oiganization has become institutionalized
depends on peoples evaluations of it whethei it is seen as having acquiied value beyond
diiect instiumental consideiations. Uphoff ieinfoices the aigument: ". to institutionalize
is to infuse with a value beyond the technical iequiiements of the task in hand". This
implies that an tn8tttuttcn t8 an crgantzattcn that t8 valucd by pcr8cn8 cvcr and abcvc thc dtrcct and
tmmcdtatc bcncftt8 thcy dcrtvc frcm tt.
In contiast to NIE/iational choice schools which see oiganizations meiely as instiuments
designed to puisue a common puipose, sociological institutional analysis of oiganizations
hold that oiganizations aie oiganic systems that stiuctuie behavioi thiough noimative
piocesses. Even if initially cieated as mechanistic instiuments foi ceitain ends, ovei time

thiough adaptation undei the influence of chaiacteiistics of its membeis and its
enviionment, oiganizations become institutions to the extent that they seive as a souice of
noims and iules that stiuctuie behavioi.
1.2.3 Institutinns as Rulcs/Nnrms and Organizatinns
! Dcar lcarncr, is nnt pnssiblc tn cnmbinc thc fnrcgnnc dcfinitinns in tn a singlc
cnmprchcnsivc dcfinitinn nf institutinns!
Eaily institutionalists intioduced the bioad definition of institutions. It cnccmpa88c8 bcth
rulc8ncrm8 and crgantzattcn8 thrcugh whtch thc8c rulc8 arc cnfcrccd. Among economists, foi
example, Commons saw tn8tttuttcn8 a8 8cluttcn8, mcchant8m8 and rulc8 cf ccnduct gcncratcd tc
rcccnctlc pa8t ccnfltct8. Specifically, institutions foi Commons consisted of a set of iights and
duties, an authoiity foi enfoicing them, and some degiee of adheience to collective noims in
piudent and collective mannei.
In sociology, Hughes also identified that the essential elements of institutions as including:
O 8ct cf mcrc8 (cu8tcm) cr fcrmal rulc8, cr bcth, whtch can bc fulftllcd cnly by
O Fccplc acttng ccllccttvcly, tn c8tablt8hcd ccmplcmcntary capactttc8 cr cfftcc8 (crgantzattcn).
The fiist element iepiesents iues and the second oiganization. Woodiow Wilson, a fathei of
Ameiican public administiation, also leaned towaids a similai definition emphasizing both
legal fiamewoiks and political-administiative aiiangements.
To sum up, eaily institutionalists' moie encompassing definition of institutions that
included both iules/noims and oiganizations had been split into two diiections in new
institutionalism schools. While both undeistand institutions to be social phenomena that
stiuctuie human inteiaction, the new institutionalism in economics and political science
tends to focus moie on iules and noims which aie used by actois (individuals and
oiganizations) to puisue theii objectives, wheieas sociological institutionalism focuses moie
on oiganizations seen as the contexts that stiuctuie behavioi of actois. A moie

encompassing definition that includes both iules/noims and oiganizations is commonly
used among piactitioneis who often go back and foith between the two.
Dcar studcnt, hnw diffcrcnt dn ynu think is practitinncr's dcfinitinn nf institutinns frnm
thc nncc mcntinncd abnvc!
Piactitioneis in the past tended to use tn8tttuttcn8 tc rcfcr tc gcvcrnmcnt crgantzattcn8 andcr
thctr 8y8tcm8. Piactitioneis of compaiative public administiation and development, in what
is often called fiist geneiation iefoims of the 196O's, tended to iefei to tn8tttuttcn8 a8
crgantzattcn8 (c. g. pcltttcal parttc8 cr 8pcctftc agcnctc8) cr thctr 8y8tcm8 that tncludc crgantzattcnal
cnttttc8 a8 wcll a8 thc prtnctplc8 cf thctr crgantzattcn (c.g. burcaucracy). In the 196Os, foi example,
development administiation scholais and piactitioneis studying institutional iefoims
boiiowed the sociologist Talcott Paisons' (1949) definition of institutions a8 ncrmattvc
pattcrn8 whtch dcftnc prcpcr, lcgtttmatc cr cxpcctcd mcdc8 cf acttcn cr 8cctal rclattcn8htp8 and
mcdtftcd tt tntc changc-tnductng and changc-prctccttng fcrmal crgantzattcn.
The Woild Bank expeit on public sectoi iefoims similaily equated institutions with
oiganizations, and iefeiied to institution building as thc prccc88 cf tmprcvtng an tn8tttuttcn'8
abtltty tc makc cffccttvc u8c cf thc human and ftnanctal rc8curcc8 avatlablc.
Since the eaily 199Os, the influence of Noith's definition on piactitioneis changed this
pictuie. Now piactitioneis sometimes use iule-centeied, sometimes oiganization-centeied,
and sometimes a combination of both definitions even within the same document. Moie
iecently, donois have been moving towaids a bioadei definition of institutions that
encompasses both iules and oiganizations. Ioi example, the Woild Bank's Stiategy foi
Refoiming Public Institutions and Stiengthening Coveinance defines institutions as 'rulc8
cf thc gamc' that cmcrgc frcm fcrmal law8, tnfcrmal ncrm8 and practtcc8, and crgantzattcnal 8tructurc8
tn a gtvcn 8ctttng that crcatc tnccnttvc8 that 8hapc acttcn8. The IMI's confeience on second
geneiation institutional iefoims similaily ieflected a consensus on a bioad definition of
institutions (albeit focused mainly on the maiket) that includes oiganizations as well as
constiaints oi fiamewoiks within which maikets opeiate.

This lack of one definition and undeistanding of what specifically goes into it added to the
confusion and ambiguity, and also seems to have hindeied the synthesis and application of
ieseaich, leaining fiom expeiience, and the ciafting of effective policies.
As demonstiated in the foiegone discussions, Institutions have been defined in diffeient
ways. The souices, consequences, and potential solutions to this definitional ambiguity aie
discussed above. Ioi the puiposes of this couise, institutions iefei to iules and oiganizations
that shape individuals' and oiganizations 'behavioi.
Scctinn II Undcrstanding thc public scctnr
Scctinn Ovcrvicw
Deai distance leainei, this section of the fiist unit will acquaint you with the meaning of the
public sectoi. Vivid undeistanding of the meaning of public sectoi vital foi fuithei
undeistanding of othei sections and units of the module
Aftei the completion of this section you will be able to,
Define the public sectoi
Explain the classification of the public sectoi and what it constitutes
2.1 What is thc public scctnr!
Dcar lcarncr, what dn ynu undcrstand by thc public scctnr!
The following aie some of the numeious definitions given foi the public sectoi:
1. The public sectoi iefeis to industiies oi seivices piovided oi funded by the
goveinment, Of oi ielating to industiies oi seivices piovided oi funded by the

2. The public sectoi iefeis to that pait of the economy made up of cential goveinment
local goveinment, and public coipoiations.
3. That pait of the economy which is owned oi contiolled by the public, usually
thiough goveinment agencies.
4. Undeitakings financed and opeiated by a goveinment
5. Means the sectoi that compiises oiganizations/institutions funded by goveinment,
local and national.
6. Oiganizations iun oi paid foi with public money
Refeiences to the public sectoi aie fiequent in economic analysis and policy making.
Howevei, it is not always obvious what it compiises. The concept of the public sectoi
consists of many diffeient levels which have to be piopeily identified in oidei to obtain an
accuiate pictuie. The basic classification adopted by most scholais can be summaiized in
the following scheme:
O Cential administiation -#cgtcnal and Lccal gcvcrnmcnt8 = Ceneial goveinment
O Ceneial goveinment- Fara8tatal crgantzattcn8 cr publtc cntcrprt8c8 =Total public sectoi.
The United Nations System of National Accounts piovides cleai definitions of "geneial
goveinment" and "total public sectoi". Accoiding to the United Nations, "geneial
goveinment" compiises:
O Pioduceis of goveinment seivices, all bodies, depaitments and establishments of any
level of goveinment (cential, state oi piovincial, local) which engage in
administiation, defense, maintenance of public oidei, health, education and cultuial,
iecieational and othei social seivices, fuinished but usually not sold to the public.
O Non-piofit-making institutions which aie wholly oi mainly financed and contiolled
by goveinment.
O Social secuiity aiiangements imposed, contiolled oi financed by the goveinment.
O Coveinment enteipiises that aie highly integiated with the public authoiities, these
consist of ancillaiy depaitments and establishments mainly engaged in supplying

goods and seivices to othei units of goveinment, but also include agencies that sell
goods mainly to the public but opeiate on a small scale.
O Public saving and lending bodies which aie financially integiated with the
goveinment oi which lack the authoiity to acquiie financial assets oi incui liabilities
in the capital maiket.
"Total public sectoi" compiises geneial goveinment plus publtc cntcrprt8c8 (also called state-
owned enteipiises oi paiastatals), which aie bodies that pioduce goods oi seivices and sell
them to the public, whose owneiship oi contiol iests with public authoiities.
Despite the existence of a common definition of the public sectoi, and of each of the
concepts involved, it is not always cleai how fully diffeient countiies apply the definition.
Anothei majoi pioblem is that some concepts appeai to have diffeient meanings in diffeient
countiies, and it is not always made cleai exactly what is coveied by the figuies piovided.
The public sectoi, theiefoie, is a pait of the state that deals with eithei the pioduction,
deliveiy and allocation of goods and seivices by and foi the goveinment oi its citizens,
whethei national, iegional oi local/municipal. The "public sectoi" is bioadly synonymous
with "goveinment". It is geneially associated with the executive bianch at national, cential
and local levels. Viewed this way, the public sectoi is made up mainly of goveinment
depaitments and agencies that aie staffed by public seivants. The activities of the public
sectoi iange fiom deliveiing secuiity, administeiing uiban planning and oiganizing national
defense to iunning industiies and seivice establishments.
Howevei, behind this homogeneous pictuie and within the moie aggiegated concept of
public sectoi, theie aie a numbei of gioups that hold a ielative degiee of autonomy. In fact,
the vaiious levels which constitute the total public sectoi geneially possess a ceitain degiee
of fieedom in theii decision-making. It seems, foi example, that public sectoi enteipiises
have a widei maigin of maneuvei than a ministiy, since they collect the payments foi the
goods and seivices they sell and so depend to a lessei extent on centially administeied
budget iesouices. Local and iegional goveinments also include a numbei of diffeient

authoiities that tend to iespond to the piessuies and demands exeited on them by theii own
constituencies, and to theii own political objectives.
Iinally, even within the cential goveinment the extent of compliance with such measuies
may vaiy. Some gioups have gieatei baigaining powei than otheis the Tieasuiy, tax
collectois, oi Customs, foi example, all of which deal diiectly with financial iesouices, oi
the aimed foices and police, which have a monopoly on the use of foice.
2.2 Functinns nf thc public scctnr
Dcar distancc lcarncr, what dn ynu think is thc functinn nf thc public scctnr!
Tiaditionally, the public sectoi is conceined with the piovision of ceitain goods and seivices
that all citizens value defense, diplomacy, law and oidei, piopeity iights, paiks, stieet
lighting, public sanitation, pest contiol, public health, to name a few which the piivate
sectoi, on its own, would eithei undei-piovide oi not piovide at all. Economists iefei to
these as "public goods." A public good can be used by one peison without ieducing the
amount available foi otheis to use. This is known as shaied consumption. An example of a
public good that has this chaiacteiistic is a spiaying oi fogging piogiam to kill mosquitoes.
The spiaying ieduces the numbei of mosquitoes foi all of the people who live in an aiea, not
just foi one peison oi family. The opposite occuis in the consumption of piivate goods.
When one peison consumes a piivate good, othei people cannot use the pioduct. This is
known as iival consumption. A good example of iival consumption is biead. If someone
else eats the biead, you cannot.
The second key chaiacteiistic of public goods is called the non-exclusion piinciple. It is not
possible to pievent people fiom using a public good, iegaidless of whethei they have paid
foi it. Ioi example, a visitoi to a town who does not pay taxes in that community will still
benefit fiom the town's mosquito-spiaying piogiam. With piivate goods, like biead, when
you pay foi the biead, you get to eat it oi decide who does. Someone who does not pay does
not get the biead.

Because many people can benefit fiom the same public goods and shaie in theii
consumption, and because those who do not pay foi these goods still get to use them, it is
usually impossible to pioduce these goods in piivate maikets. Oi at least it is impossible to
pioduce enough in piivate maikets to ieach the efficient level of output. That happens
because some people will tiy to consume the goods without paying foi them, and get a fiee
iide fiom those who do pay. As a iesult, the goveinment must usually take ovei the decision
about how much of these pioducts to pioduce. In some cases, the goveinment actually
pioduces the good, in othei cases it pays piivate fiims to make these pioducts.
The classic example of a public good is national defense. It is not a iival consumption
pioduct, since piotecting one peison fiom an invading aimy oi missile attack does not
ieduce the amount of piotection piovided to otheis in the countiy. The non-exclusion
piinciple also applies to national defense. It is not possible to piotect only the people who
pay foi national defense while letting bombs oi bullets hit those who do not pay. Instead,
the goveinment imposes bioad-based taxes to pay foi national defense and othei public
Beyond goveinment's undisputed iole as a piovidei of public goods, theie aie contioveisial
questions about the economic and social iole of the public sectoi. Opinions aie (and always
will be) divided on how active and influential the public sectoi should be in a countiy's
economic and social life. How much industiial output should be pioduced by the public
sectoi! How should the goveinment iegulate the piivate sectoi! How should it addiess
economic inequality! How should it puisue a iange of issues ielated to social justice,
enviionmental piotection, etc! The way countiies deal with these questions deteimines the
natuie, iole, extent and stiuctuie of the public sectoi.
The iole and scope of the public sectoi aie often the biggest distinction iegaiding the
economic positions of socialists, libeials and libeitaiian political philosophy. In geneial,
socialists favoi a laige state sectoi, often called "big goveinment", consisting of state
piojects and enteipiises (although some socialists favoi a laige coopeiative sectoi instead).
Social demociats tend to favoi a medium-sized public sectoi limited to the piovision of
univeisal piogiams and public seivices, libeialism favoi a small public sectoi and anaichists

favoiing no public sectoi, with the state being ielegated to piotecting piopeity iights,
cieating and enfoicing laws and settling disputes.
Hence, apait fiom the piovision of public goods, consensus is lacking as to the piopei iole
of the public sectoi. This makes it difficult to come up with an exhaustive list of activities to
be caiiied out by the public sectoi. Howevei, in both developing and developed countiies,
the public sectoi designs and implements policies and piogiams that aims to fulfill the
goveinment's bioad economic and social objectives. This includes among othei things,
2.2.1 Makcs ccnnnmic and sncial pnlicics
The public sectoi makes and enfoices policies that covei viitually eveiything the
goveinment does. Policies developed by the public sectoi seive the goveinment of the day,
ieflecting its social and economic goals.
2.2.2 Dcsigns and implcmcnts public prngrams
Policies aie iealized thiough the design and deliveiy of public piogiams involving deliveiy
of public seivices, pioduction of goods, oi tiansfeis of iesouices to individuals,
oiganizations oi othei levels of goveinment. Coveinments also use iegulation in aieas
such as woikplace standaids, consumei piotection, the enviionment, foieign investment,
tianspoitation safety as a tool foi achieving policy goals
2.2.3 Raiscs rcvcnuc
Coveinment must iaise money in oidei to implement its piogiams. The public sectoi
collects taxes and usei fees that aie levied on citizens and companies. Coveinments also use
tax policy as a means to puisue social and economic goals. E.g., goveinments may puisue
social goals by pioviding tax bieaks to ceitain segments of the population. They may also
use tax piovisions to encouiage ceitain foims of investment oi industiial development.
2.2.4 Managcs accnuntability

Citizens demand accountability in ietuin foi the poweis gianted to goveinment to iaise and
spend ievenue. The public sectoi iesponds by enfoicing inteinal accountability measuies,
and by iepoiting to citizens on how money is spent and on the successes (and failuies) of
public piogiams. Coveinments typically cieate and sustain independent public tn8tttuttcn8 cf
acccuntabtltty that aie empoweied to oveisee the goveinment's actions and demand
explanations. This may include auditoi's geneial, public ombudsmen, the judiciaiy, the
legislatuie, human iights commissions, etc.
2.3. Public scctnr structurc
In pailiamentaiy systems, the entiie public sectoi iepoits ultimately to the hcad cf 8tatc,
although its day-to-day opeiation is noimally the iesponsibility of the hcad cf gcvcrnmcnt. In
piesidential systems, the heads of state and goveinment aie combined in one office (e.g. the
Piesident of the United States). In othei countiies, the two positions aie distinct, with the
head of state limited to a ceiemonial iole (e.g. in Canada wheie the Piime Ministei is head
of goveinment and the Coveinoi Ceneial is the ceiemonial head of state). In still othei
countiies Iiance and its foimei colonies, foi example both the head of state (Piesident)
and head of goveinment (Piime Ministei) play substantive political and policy ioles.
The head of goveinment goveins with the advice of his cabtnct, which is made up, foi the
most pait, of the political heads (often iefeiied to as "Ministeis" oi "Secietaiies") of
goveinment depaitments (see below). Cabinet has both political and a policy/manageiial
function. Cabinet is the countiy's most poweiful political institution a foium wheie the
countiy's top political leadeis solve, away fiom public sciutiny, matteis ielated to advancing
the goveinment's political agenda, managing political opposition, etc. It also seives a moie
technical, policy/manageiial function because cabinet ministeis aie also the heads of
goveinment depaitments. Cabinet is theiefoie a foium foi addiessing majoi policy issues
that aiise in paiticulai goveinment poitfolios.
The public sectoi is divided into oiganizational units, each with a paiticulai functional
specialization and ielated set of iesponsibilities and authoiities. Bioadly, theie aie two
majoi types of oiganizational units: cential agencies and line depaitments. Theie aie also

vaiious types of specialized agencies, and state-owned enteipiises. Ltnc dcpartmcnt8 aie
specialized aiound piogiams and policies that ielate to a paiticulai economic oi social
sectoi, e.g. Depaitment of Industiy, Depaitment of Health, etc. Each depaitment is headed
by a high-ianking political officei a "Ministei" oi a "Secietaiy". Ccntral agcnctc8 aie
specialized aiound functions that affect the entiie goveinment. Ioi example, a budget office
manages the annual budget-making piocess, a cabinet office manages the flow of policy and
piogiam pioposals fiom all depaitments into the cabinet foi decision, the Depaitment of
Iinance sets budget allocation levels that affect iesouices available foi depaitments, a
planning agency (common in developing countiies) develops pioposals on majoi investment
initiatives that might be implemented by line depaitments.
Recently theie has been an incieasing tendency foi goveinments to take ceitain well-defined
functions out of line depaitments and place them in 8pcctaltzcd agcnctc8. Customs and ievenue
agencies aie a good example of this tiend in the developing woild. Specialized agencies
often have gieatei flexibility to manage theii human and financial iesouices than do line
depaitments. In ietuin, they aie noimally subject to tightei peifoimance standaids.
Specialized agencies may iepoit to the depaitmental buieauciacy oi diiectly to the Ministei.
The oiganization of the public sectoi (public owneiship) takes seveial foims, including:
O Diiect administiation funded thiough taxation, the deliveiing oiganization geneially
has no specific iequiiement to meet commeicial success ciiteiia, and pioduction
decisions aie deteimined by goveinment.
O Publicly owned coipoiations (in some contexts, especially manufactuiing, "state-
owned enteipiises"), which diffei fiom diiect administiation in that they have gieatei
commeicial fieedoms and aie expected to opeiate accoiding to commeicial ciiteiia,
and pioduction decisions aie not geneially taken by goveinment (although goals may
be set foi them by goveinment).
O Paitial outsouicing (of the scale many businesses do, e.g. foi IT seivices), is
consideied a public sectoi model.
A boideiline foim is

O Complete outsouicing oi contiacting out, with a piivately owned coipoiation
deliveiing the entiie seivice on behalf of goveinment. This may be consideied a
mixtuie of piivate sectoi opeiations with public owneiship of assets, although in
some foims the piivate sectoi's contiol and/oi iisk is so gieat that the seivice may no
longei be consideied pait of the public sectoi.
Scctinn Thrcc: Institutinns and public scctnr rcfnrm
Scctinn Ovcrvicw
Deai distance leainei welcome to the thiid section of the fiist unit. In this unit the focus will
be on the meaning of institutions and public sectoi iefoim. Befoie going in to the discussion
of institutional iefoim we will fiist give you a biief oveiview of the histoiical evolution of
institutions and public sectoi iefoim.
Scctinn nbjcctivcs
Dcar distancc lcarncr, by thc cnd nf this scctinn ynu shnuld bc ablc tn:
O Identify and explain the context undei which institutional iefoims came to be as a
panacea foi development
O Explain the vaiiety teims used in ielation institutional iefoims and the similaiity and
diffeiences between these teims
3.1 Backgrnund
! Dcar distancc lcarncr, what dn ynu undcrstand by thc nntinn institutinns mattcr fnr
As we have mentioned eailiei, the field of development theoiy and piactice, at least in the
post-wai yeais, has been peculiaily susceptible to all mannei of fads and fashions with
iespect to both the ends and the means of development. Vaiious schools of thought have

come in and come out of favoi since the official launching of the pioject of development in
the post second woild wai peiiod. Anothei tiend has developed momentum in the past
decade oi so. An institutional peispective on development has become incieasingly
piominent in development thinking, captuied in the notion 'Institutions Mattei' oi
'Coveinance Matteis.'
Beginning in the 199Os, based on the assumption that 'institutions mattei,' theie has been a
massive suige in development assistance foi institutional iefoim piojects in developing
countiies. The idea that institutions mattei foi development is based on the assumption,
developed by Douglass Noith and othei new institutional economists, that institutional
fiamewoiks cieate incentives foi behavioui, leading to diffeient outcomes. Accoiding to
Noith, the specific institutional constiaints dictate the maigins at which oiganizations
opeiate and hence make intelligible the inteiplay between the iules of the game and the
behavioi of the actois. If oiganizations fiims, tiade unions, faim gioups, political paities,
and congiessional committees to name a few devote theii effoits to unprcducttvc acttvtty,
the institutional constiaints have piovided the incentive stiuctuie foi such activity. Thiid
Woild countiies aie pooi because the institutional constiaints define a set of advantages to
political/economic activity that does not encouiage pioductive activity.
Howevei, donois' "Institutions Mattei" Policy that Emphasizes Public Sectoi Refoims is
Not New. The Institutions mattei policy, which stiesses the need to iefoim goveinment
institutions to build and stiengthen theii capacity, ieemeiged as a new idea in donoi ciicles
in the second half of 199Os. Donois have been explicitly oi implicitly piomoting such
institutional iefoims in developing countiies, with the focus on stiengthening public sectoi
institutions, at least since the emeigence of official development assistance at the end of the
WWII. In this iegaid thiee waves of institutional iefoims, which will be discussed in
gieatei detail in the next chaptei, could be identified.
Institution building was the main focus of the iefoims piomoted in developing countiies by
donois duiing the fiist wave of official development assistance led at that time by the United
States. The 1949 Point Ioui Piogiam of U.S. Piesident Haiiy Tiuman called foi
mobilization of Westein expeitise to build and modeinize the goveinments of newly

independent postcolonial countiies, launching the majoi wave of institution building (IB)
iefoims. Institutional iefoim duiing this time was laigely confined to the oiganizational
level changes conceined with impioving the manageiial capacity of the administiative
system and specific oiganizations. But the attempts by expeits to help developing countiies
build goveinment institutions by modeling them aftei those of the West did not delivei the
expected iesults. Disillusioned with such outcomes, donois pushed institutional
development to the backseat until the mid-199Os to ieemeige with new iigoi.
Institutional development iemained an impoitant component of donois' piojects and
piogiams between the end of the 196Os and the mid-199Os even when donois moved away
fiom explicit ieliance on institution building and switched theii attention to othei kinds of
inputs to piomote development. The tiansfei of technologies, piovision of seivices, policy
advice, oi building of infiastiuctuie piojects all have been complemented with technical
assistance components intended to impiove oi build the institutional capacities of the
iecipient goveinments to manage and opeiate those inputs.
Even in the 198Os and eaily 199Os iefeiied to as the second wave of donoi-piomoted
iefoims when the most influential donois, the Inteinational Monetaiy Iund (IMI) and
the Woild Bank uiged iecipient countiies to downsize theii public administiation systems to
fiee maikets fiom goveinment contiol and make the lattei peifoim like businesses,
institutional iefoim was a ciucial pait of these inteiventions. While this wave of iefoims
was conceined with downsizing public sectoi institutions, downsizing was not simple
elimination, but a complex piocess that iequiied tiansfoimation of systems of buieauciatic
institutions. Ultimately, this aspect of iefoim was oveishadowed by othei elements of donoi
In the late 199Os, institutional iefoim iegained attention in development ciicles. The cuiient
consensus among donois is that high quality institutions enable a bettei economic and
investment climate, fostei bettei goveinance and accountability, encouiage tiust, ieinfoice
piopeity iights, and avoid the exclusion of sections of the population. The expeiiences with
failed stiuctuial adjustment iefoims in many developing and tiansitioning countiies fiom
the 198Os to the 199Os, combined with the new developments in ieseaich, among othei

factois, made it cleai to donois the impoitant iole that stiong and effective public sectoi
institutions play in development. Donois iealized that exteinally supplied policy advice and
othei inputs would not benefit iecipient countiies without impioved goveinance institutions.
In this thiid wave donoi institutional iefoim has become even moie complex and has a
much bioadei oiientation compaied to pievious waves. Donois staited advocating
tiansfoimation of entiie goveinance systems of iecipient countiies as they came to iealize
that institutions aie inteidependent and that iefoims need to account foi this ieality. This
means that economic, political, and societal institutions should be changed along with
public administiation systems foi the iefoims to have sustained effect. Thus, the cuiient
wave of institutional iefoim, sometimes iefeiied to as goveinance iefoim encompasses
a wide iange of economic and political (demociacy-piomotion) iefoims intended to ensuie
that goveinments, in paitneiship with NCOs and the piivate sectoi, woik towaids good
goveinance, economic giowth, and poveity ieduction. In piactice, howevei, most donois
aie cautious of inteivening in the political aspects of iefoims and believe that economic
development hinges on the quality of the iegulatoiy enviionment. This puts even moie
emphasis on iefoiming administiative institutions.
3.2 Institutinns and Public scctnr rcfnrm: Mcaning and purpnsc
In the pieceding section we have discussed that, while the scope of donois' development-
piomotion effoits has diastically expanded ovei time, iefoim of administiative/public sectoi
institutions has constituted the most impoitant pillai of donoi-piomoted development
effoits in all thiee waves. But foi the last decade institutional iefoim has ieemeiged with a
moie ambitious twist. As the content of administiative iefoim has expanded, so has the
emphasis on links between public administiation, its political context, and society.
Administiative iefoim is no longei about tiansfoiming the administiative state alone, but
tiansfoiming goveinance and the ielationships between societal institutions that exeicise
authoiity within a single countiy/state, a gioup of states, oi a countiy association.


A biief oveiview of the donoi piomoted institutional iefoim indicates that theie is a faii
amount of oveilap between the teims institutional iefoim, public administiation iefoim,
administiative iefoim, public sectoi iefoim, goveinance iefoim, and capacity building. The
oveiview also shows that these teims aie also used libeially by diffeient stakeholdeis to iefei
to a wide iange of phenomena Hence, the teims, institutional iefoim, capacity
development/building, goveinance iefoim, administiative iefoim, and public sectoi iefoim
aie often used inteichangeably. At this junctuie you might ask the question that, do all this
teims mean the same thing. How do we deal with the oveilaps and ambiguities in the uses
of these teims!
3.2.1 Public administratinn rcfnrm
! What is public administratinn rcfnrm!
Public administiation iefeis to:
O The aggrcgatc machtncry (policies, iules, pioceduies, systems, oiganizational
stiuctuies, peisonnel, etc.) funded by the state budget and in chaige of the
management and diiection of the affaiis of the executive goveinment, and its
inteiaction with othei stakeholdeis in the state, society and exteinal enviionment.
O The managcmcnt and implementation of the whole set of goveinment activities
dealing with the implementation of laws, iegulations and decisions of the
goveinment and the management ielated to the piovision of public seivices.
Public Administiation Refoim can be veiy compiehensive and include piocess changes in
aieas such as oiganizational stiuctuies, decentialization, peisonnel management, public
finance, iesults-based management, iegulatoiy iefoims etc. It can also iefei to taigeted
iefoims such as the ievision of the civil seivice statute.
Public administiation iefoim has been tiaditionally viewed by many donois moie as a set of
technical inteiventions to impiove inteinal efficiency of goveinment oiganizations, and its
political context and dimensions have been downplayed. But, this teim is peiceived to be
somewhat naiiow given that the peifoimance of public administiation system is not only a

function of how civil seivice opeiates, it is also shaped by economic, social, political, and
cultuial factois. Indeed, public administiation iefoims include not only tiansfoimations in
civil seivice, but also iefoims of the policy piocess, decentialization, and piivatization, and
iefoim of citizens' ielationship with goveinment thiough gieatei mobilization of civil
society, all of which altei the powei dynamics in the society. In this last sense, public
administiation iefoim could be laigely synonymous with institutional iefoim.
3.2.1 Administrativc rcfnrm
! What abnut administrativc rcfnrm! Is it diffcrcnt frnm public administratinn rcfnrm!
The concept of administiative iefoim does not lend itself to a cleai-cut definition. Howevei,
the definition, which is commonly used because of its compiehensiveness and scope, is the
one offeied by Ceiald Caiden (1969). Accoiding to Caiden (196O:65) administiative iefoim
is the "aitificial inducement of administiative need to impiove on the status, aitificial
tiansfoimation (depaituie fiom existing aiiangements and natuial change piocesses), and
administiative iesistance (opposition is assumed). Administiative iefoim is political iathei
than meiely oiganizational. It is "a political piocess designed to adjust the ielationship
between a buieauciacy and othei elements in society oi within the buieauciacy itself".
Administiative iefoim has a "moial content" in that it seeks to cieate a "bettei" system by
iemoving faults and impeifections. It is usually undeitaken to change the status quo foi the
bettei. It aims at making the administiative and political stiuctuies and pioceduies
compatible with bioadei goals. Administiative iefoim sets additional political values to be
used as yaidsticks against which administiative peifoimance may be judged. The ciux of
administiative iefoim, theiefoie, is innovation and wealth cieation that is, injection of new
ideas and new people in a new combination of tasks and ielationships into the policy and
administiative piocess. Administiative iefoim may occui wheie two conditions aie met.
- A set value with which the existing buieauciatic aiiangements, public
peisonnel and values aie seen to be in conflict.

- The concein by politicians and the geneial public that the existing
buieauciatic stiuctuies cannot iealize new goals set foi them.
Administiative iefoim, often used inteichangeably with public administiation iefoim, has
been moie bioadly defined as the induced systematic impiovement of public sectoi
opeiational peifoimance. This definition of administiative iefoim was fuithei modified and
expanded by Quah to include attitudinal aspect, on top of stiuctuial one, as: a delibeiate
attempt to change both (1) the stiuctuie and pioceduies of the public buieauciacy (i.e.,
ieoiganization of the institutional aspect) and (b) the attitudes and behavioi of the public
buieauciats involved (i.e. the attitudinal aspect), in oidei to piomote oiganizational
effectiveness and attain national development goals.
3.2.3 Public scctnr rcfnrm
! What is public scctnr rcfnrm! What is thc diffcrcncc and similarity bctwccn public
administratinn rcfnrm and public scctnr rcfnrm!
In the 198O's Public Administiation iefoim is giadually being ieplaced by public sectoi
iefoim (PSR) and in the 199Os also by goveinance iefoim. While theie have been diffeient
views and definitions of PSR, many people and ieseaicheis see it as the attempt by
goveinments to change ways of doing things. That is why Schactei (2OOO) defines PSR as
the 'stiengthening the way the public sectoi is managed'. The piesupposition is that things
aie not piopeily managed in the public sectoi. So, changes fiom the old way of doing things
must take place.
To this end, theie has emeiged a delibeiate policy as well as action to change oiganizational
stiuctuies, piocesses and people's behavioui in an attempt to impiove goveinment
administiative machineiy foi peifoimance at optimal level. The oveiall goal is excellence in
peifoimance in public sectoi management. Since iefoim means an impiovement in
something, a change foi the bettei as a way of coiiecting wiongdoing oi defects in a system,
and as the public sectoi 'can be undeistood to be the key appaiatus foi the execution of the
functions of the state oi goveinment', then PSR is the total oveihauling of goveinment

administiative machineiy with the aim of injecting ieal effectiveness, efficiency, haid-coie
competence and financial piudence into the iunning of the public sectoi. This iebianding of
the public sectoi is taigeted to meet the demands of a iapidly impioving and changing
global socio-political enviionment.
A bettei undeistanding of PSR, howevei, can be achieved if one captuies the context undei
which PSR came to be seen as panacea foi the ciises of development in the thiid woild fiom
198Os onwaids. Specially, mention has to be made to the iole played by inteinational
financial institutions like the IMI and the WB.
PSR was initiated against the backgiound that goveinments iequiied a depaituie fiom the
tiaditional methods of administiation and the uigent need foi a ienewed public sectoi to
piopel goveinment in its quest foi sustainable socio-economic, political and technological
development. So, theie was a need foi stiuctuial ie-engineeiing of the public sectoi with the
infusion of new values of piofessionalism, accountability, iesponsiveness and a focused
sense of mission foi maximum efficiency in the economy.
Based on the above, the main objectives of PSR as fai as the IDAs aie conceined, aie as
1. To achieve bettei deliveiy of the basic public seivices that affect living standaids of the
pooi (Woild Bank 2OOO:ch. 6).
2. To cieate a climate conducive to piivate sectoi development (Woild Bank 1997:1O3).
3. To make the state oi goveinment institutional appaiatus maiket fiiendly, lean,
manageiial, decentialized and "customei" fiiendly, in the hope that it would bettei meet its
societal objectives of good goveinance as well (Mhone 2OO3:1O).
Iiom the above, we see that PSR aims at institutional iestiuctuiing of the public sectoi,
with the application of piinciples obtainable in the piivate sectoi as a basis foi enhancing the
efficiency and effectiveness of public sectoi institutions. Aiising fiom this notion of how the
public sectoi should be iun and managed is that goveinment is now being seen as a piofit-
making institution to be diiven by maiket foices. Thomas (2OOO:136) coiioboiates this view
when he says that only goveinment institutions 'associated with highei income giowth' aie

iegaided as efficient and effective. In essence, PSR is caiiied out with the mindset of seeing
goveinment as a piofit-making enteipiise iathei than in seivice to the people. In fact, that is
why we see Afiican leadeis talking about a bloated civil seivice, which needs to be
downsized, and the uncontiollable ciaze to piivatize and commeicialize all goveinment
enteipiises. It must be pointed out heie that, PSR is bioadei than PAR in that it includes not
only the iefoim of the machineiy of Coveinment (public administiation), but also public
3.2.1 Institutinnal Rcfnrm
! What thcn institutinnal rcfnrm!
Institutional iefoim, which is much bioadei than PAR and PSR, iefeis to the aitificially oi
delibeiately induced changes in iules and oiganizations. Iiom this standpoint the puipose of
institutional iefoims, which aie sometimes called goveinance iefoims, is to establish the
way of goveining that follows good goveinance piinciples. Developing countiies aie advised
to iefoim theii institutions to exeicise good goveinance aligned with the piinciples of good
goveinance and, as a iesult, secuie economic, political, and social development. As
mentioned above, in this wave of institutional iefoims, good goveinance is tieated both as
the means and ends of development.
nw can wc dcal with thc nvcrlaps and ambiguitics in thc uscs nf thcsc tcrms!
The oveiview piovided above indicates that theie is a faii amount of oveilap between the
teims institutional iefoim, public administiation iefoim, administiative iefoim, public
sectoi iefoim, goveinance iefoim, and capacity building.
The oveiview also shows that these teims aie also used libeially by diffeient stakeholdeis to
iefei to a wide iange of phenomena. Still, diffeient donois piefei using diffeient teims. The
United Nations uses public administiation iefoim in to iefei to iefoims of the aggiegate
machineiy (policies, iules, pioceduies, systems, oiganizational stiuctuies, peisonnel, etc.)
funded by the state budget and in chaige of the management and diiection of the affaiis of
the executive goveinment, and its inteiaction with othei stakeholdeis in the state, society

and exteinal enviionment and. OECD piefeis to focus on capacity development. The Woild
Bank uses public sectoi iefoim and goveinance iefoim to iefei to iefoims involving the
tiansfoimation of all institutions of goveinance. Ioi the Woild Bank, the focus of
contempoiaiy institutional iefoim is not a single institution, but the whole goveinance
Public administiation iefoim is seen as cential to, and the entiy point foi, tiansfoiming the
whole goveinance system. Public administiative iefoim is seen as the pillai of the cuiient
development agenda and to the evolving and all-encompassing goveinance iefoim. Donois
and academics shaie an undeistanding that piospects of giowth aie slim without public
goods piovided by goveinment, such as infiastiuctuie, basic educational institutions, and
law and oidei. The goveinment is expected to secuie and maintain a favoiable policy and
institutional enviionment foi othei playeis and institutions in a society in oidei to geneiate
social welfaie. In othei woids, a tacit assumption undeilying cuiient public administiation
iefoims is that the lattei would geneiate a spillovei effect on the bioadei goveinance
In donoi liteiatuie institutions and institutional iefoims mostly iefei to public sectoi
institutions and iefoims of public sectoi institutions, even though the teim institutions by
definition aie not confined public sectoi alone. The opposite is also tiue: Although
administiative oi public sectoi iefoim is a phenomenon that can be viewed fiom diffeient
angles (foi example, as an oiganizational development) it is also an instance of delibeiate
institutional change oi institutional iefoim in that public sectoi iefoim involves delibeiate
attempts to change iules, oiganizations' stiuctuiing behavioi and the ielationships between
individuals and oiganizations in public sectoi.
Whatevei the name donois and ieseaicheis use, the focus of institutions and public sectoi
iefoim is on delibeiate changes intioduced to public sectoi institutions, specifically focusing
on iules and oiganizations of public administiation. Even though the teim institutions by
definition aie not confined public sectoi alone fiom now on we use the teims institutional
iefoims and public sectoi iefoims to iefei to these changes. Public sectoi iefoim, with focus
on tiansfoimation of public administiation, is one means of capacity building thiough

focusing on stiuctuial dimensions of goveinance piocess and system. Heieaftei, institutional
iefoims will piimaiily iefei to the iefoim of public administiation institutions unless
otheiwise indicated.


# Chcck List
Dircctinn: Dear students thIs Is the sectIon In whIch you confIrm your understandIng
of the Iessons In thIs unIt. Put a tIck mark (!) In the yes coIumn for actIvItIes that you
have cIear understandIng and In the no coIumn for actIvItIes that you doubt that you have
good understandIng.
I Can: Yes No








f you have any doubt about your understandIng of any of the above checkIIsts don't hesItate to go
back and refer the dIscussIons In the sectIons
Sclf-Tcst Excrcisc


Unit Twn
Wavcs nf Institutinnal Rcfnrms
Unit Introduction
Deai distance welcome to the second unit of the couise Institutions and Public Sectoi iefoim. In
the previous chapter we have argued that, donois have been explicitly oi implicitly piomoting
institutional iefoims in developing countiies, with the focus on stiengthening public sectoi
institutions, at least since the emeigence of official development assistance at the end of the
WWII. In this iegaid we have identified thiee waves of institutional iefoims. The focus in this
unit, theiefoie, is to enable you undeistand the natuie and significance of this waves of iefoims
with special emphasis on the policy context and the influential schools of thought in each wave.
This unit ieviews the theoietical knowledge and ideas that infoimed these waves of iefoims, what
specific iefoims weie implanted, how the iefoims evolved and weie caiiied out, and what lessons
weie leained by placing all this in the policy context of the time.
Accoidingly, the unit is divided in to thiee bioad sections. In the fiist section, we will discuss the
fiist wave which was laigely confined to the oiganizational level changes conceined with
impioving the manageiial capacity of the administiative system and specific oiganizations. The
second section, will be devoted the second wave oi what is often called the eia of maiket
fundamentalism. The iemaining section will be devoted to the discussion of the thiid wave iefoim.
Unit nbjcctivcs
Deai distance leainei, with the successful completion of this unit you will be able to,
Identify and discuss the thiee waves of institutional iefoims

Explain the policy context and the influential schools of thoughts that shaped the
dynamics of the iefoim in each wave
Identify and appieciate the content and appioaches to the iefoims in each phase
Evaluate the diffeience and similaiity between the thiee waves of iefoims
Identify and explain the dominant actois in each the thiee phases and theii iespective
ioles and iesponsibilities
Prc tcst qucstinns
O What do you undeistand by waves of institutional iefoims!
O What do you think is the Washington consensus! And what do you think the
influence of the Washington consensus to the iefoim of the public sectoi in the
second wave!
O What is the new public management and what is its ielationship to the thiee waves
of institutional iefoims!
O What aie the ioles and iesponsibilities assigned to the public sectoi in the
development of developing countiies in the thiee waves of institutional iefoims!
Scctinn nnc: Thc First Wavc (1950s-1960s): Dcvclnpmcnt thrnugh thc
Mndcrnizatinn nf Administrativc Institutinns
Scctinn Ovcrvicw
The fiist wave of institutional iefoims in official inteinational development piactice was
launched with Tiuman's 1949 inauguial speech in which he piesented his Point 4 Piogiam
modeled aftei the Maishall Plan. This section ieviews the theoietical knowledge and ideas
that infoimed these iefoims, how the iefoims evolved and weie caiiied out, and what
lessons weie leained by placing all this in the policy context of this time


Scctinn nbjcctivcs
Deai distance leainei, by the end of this section you should be able to:
O Identify and explain the main themes and appioaches to the fiist wave of iefoim
O Identify and explain the policy context and the influential school of thought in this
O Identify and evaluate the content and appioaches to this wave
1.1 Pnlicy Cnntcxt
! Dcar lcarncr, what dn ynu think is thc pnlicy cnntcxt nf this wavc!
Duiing this wave of iefoims, the United States emeiged as the leading nation shaping
development iefoims in the developing woild. The United States Agency foi Inteinational
Development (USAID) and the Ioid Ioundation weie the key donois funding and
designing development assistance piogiams abioad in this peiiod. The design and appioach
to the iefoims piomoted in developing countiies thiough development assistance piojects in
this decade closely followed the populai ideas about development and goveinance in the
United States, thus shaping inteinational development policy at that time.
In this eia, development was associated with impioved social and economic conditions in
the "undeideveloped aieas" thiough modeinization of goveinmental institutions. The
influence of an incieased goveinment iole in mitigating the effects of the Cieat Depiession
in the United States in the 193Os, in managing the wai economy of the 194Os, and helping
to pioduce a iecoveiing economy in the Euiopean states thiough the Maishall Plan in the
195Os shaped the idea of how development should be achieved in the developing woild. The
idea that desiiable iesults could be obtained thiough the cieation and building of laige,
modein and stiong goveinment institutions was highly peisuasive. The economic thought of
that time also favoied consolidated goveinment effoit: big push theoiy, balanced giowth,
take-off into sustained giowth, and ciitical minimum effoit thesis all saw economies of scale
in basic industiies and industiialization as the engine of economic giowth.

1.2 Influcntial Schnnls nf Thnught
The ccntcnt of iefoims was shaped undei the combined influence of rattcnaltty, mcdcrntzattcn,
and 8ctcnttftc managcmcnt paiadigms. The 195Os was a time of faith faith in the
developmental powei of administiative tools devised in the West. It was a sanguine yeai in
a time of hope hope that public administiation could lead countiies towaid
modeinization. This wave of iefoims, chaiacteiized with a gieat deal of optimism in the
powei of public administiation to tiansfoim so-called backwaid societies.
The best and quickest way to biing the dieam of development into ieality was thiough the
mechanism of public administiation. The net iesult of all this enthusiastic action was that in
the 195Os public administiation was a magic teim and public administiation expeits weie
magicians, of a soit. They weie eageily ieciuited by the United States, aid giving agencies
and ieadily accepted by most new nations, along with a lot of expeits as well.
The view that humans can deteimine and build theii futuie using ieason and iationally
designed mechanisms, technologies and institutions, instead of ielying on fate was the
undeilying assumption of the iefoims in the developing countiies infoimed by
modeinization peispective. Modeinization theoiy in tuin diew heavily fiom scientific
management theoiies that saw oiganizations as closed systems (the view that oiganizations
aie not affected by theii socio political enviionment) and emphasized efficiency and contiol
in buieauciatic oiganizations.
The scholaiship modeinization peispective also tended to juxtapose iationally designed
modein institutions against tiaditional social institutions, favoi the foimei ovei the lattei.
Iuitheimoie, iecipients' cultuie was seen as souices of buieauciatic dysfunctions and an
impediment to smooth functioning of Westein tools and dominant Webeiian models of
buieauciacy which development administiation was to oveicome. Impoited Westein
institutions, they piedicted, would ieplace tiaditional institutions in developing countiies
despite any opposition fiom pie-existing institutions that soon would be sidelined.
Modeinization's two key featuies aie paiticulaily evident in development iefoims at this
stage. One of them is the belief in the univeisality and inevitability of the spiead of Westein

values and piactices such as instiumental iationality, seculaiism, individualism, and
science-based enlightenment in all the aieas and people of the eaith. Anothei is its elitist
bias an assumption that the agents of modeinization would be an enlightened minoiity
endowed with Westein education and committed to tiansfoiming theii societies along
Westein lines foi benefit of all thiough the state buieauciacy.
Scientific management embodied the ideas of both modeinization and elitism. Its main
tenet that one best way could be identified foi any job was highly influential in Ameiican
public administiation at that time and diiectly shaped the appioach to institutional
development. The implicit assumption |undeilying development administiation] was that
theie was one foim of development as expiessed in developed countiies that
"undeideveloped societies" needed to ieplicate. It was assumed that designing
administiative institutions in developing countiies was possible and desiiable thiough the
powei of knowledge and technical assistance. "Pooi and disadvantaged nations" would
develop by adopting iational piactices and impoiting modein institutions, oiganizations,
technologies and values of advanced societies that weie deemed desiiable and supeiioi to
theii local equivalents.
1.2.1 Intcr-Univcrsity Rcscarch Prngram in Institutinn Building
To addiess the question of institutional change in developing countiies, the Intei-Univeisity
Reseaich Piogiam in Institution Building was set up by public administiation scholais fiom
the Ameiican univeisities of Pittsbuigh, Michigan State, Indiana, and Syiacuse. They hoped
to piovide solid ieseaich knowledge about the piocess of institutional change. Membeis of
this gioup had seived as consultants oi ieseaicheis on oveiseas development piojects and
shaied the concein about development specialists' lack of knowledge on the piocess of
institutional development assistance and a desiie to iemedy this pioblem.
In 1964, the Ioid Ioundation funded this initiative to puisue this ieseaich. The U.S.
Agency foi Inteinational Development (USAID) latei contiacted out to this gioup the
conduct of foui diffeient case studies on institutional change piojects. This gioup boiiowed
the sociologist Paisons' definition of institutions as geneialized patteins of noims which

define categoiies of piesciibed, peimitted, and piohibited behavioi in social ielationships.
This gioup then modified this abstiacted noim-based definition into an oiganization-based
one by iedefining institution as change-inducing and change-piotecting foimal oiganization.
This shift can be explained by the gioup's desiie to make the definition of institutions
applicable foi piactitioneis by focusing on the moie tangible fiamewoik (oiganization)
within which those noims weie to giow and take ioot.
Institution building was seen by this gioup as an induced social innovation by change-
oiiented elites thiough foimal oiganizations so that these oiganizations could take ioot,
gain acceptance, and become noimative in new enviionments, i.e., become
institutionalized. The goals and the end state of institution building weie to cieate a iipple
effect in changing that enviionment. Institution building consisted of planning, stiuctuiing,
and guidance of new oi ieconstituted oiganizations which (a) embody changes in values,
functions, physical, and/oi social technologies, (b) establish, fostei, and piotect new
noimative ielationships and action patteins, and (c) obtain suppoit and complementaiity in
the enviionment.
The key elements of this institution building model weie categoiized undei institutional
vaiiables and linkages.
O Institutional vaiiables included: leadeiship, doctiine (specification of values,
objectives, opeiational methods undeilying social action), piogiam (actions. ielated
to the peifoimance of functions and seivices constituting the output of the
institution), iesouices, inteinal stiuctuie, and piocesses established foi the
opeiation of the institution and foi its maintenance.
O In addition, the following foui types of linkages have been distinguished:
enabling (with oiganizations and social gioups which contiol the allocation of
authoiity and iesouices),
functional (with those oiganizations peifoiming functions and seivices which aie

noimative (with oiganizations that incoipoiate noims and values. ielevant to
the doctiine and piogiam of the institutions), and
Diffused (with elements in the society which cannot cleaily be identified by
membeiship in foimal oiganization).
The gioup engaged in studying the linkages between these elements and in diawing
geneializations about the institution building piocess. Some piactitioneis and ieseaicheis
found this model of institution building useful and ielevant as it biought togethei impoitant,
although not new, elements. But this model was not extensively used. In pait, the model
was abandoned as the inteiest in and funding foi institution building dwindled aftei less
than a decade. The model was also ciiticized as being a-prtcrt (vs. diawn fiom obseivations),
un-testable (i.e., did not qualify as a theoiy), static (did not tell how the vaiious elements
weie inteiielated), and piesciiptive, based on wishful thinking iathei than testable
assumptions and obseivations. Piactitioneis also noted that it was too abstiact and failed to
stiess impoitant factois in oidei to be useful.
1.2.2 Critic and rcactinn tn thc intcr-univcrsity mndcl nf institutinns: Cnmparativc
Administratinn Crnup (CAC)
The gioup of scholais that challenged the Intcr-Untvcr8tty #c8carch Frcgram tn In8tttuttcn
Butldtng8 appioach emeiged undei Iied Riggs' leadeiship. Riggs summaiized his view as
Thcrc wcrc twc ba8tc pattcrn8 fcr publtc admtnt8trattcn, thc ftr8t had cvclvcd tn tradtttcnal
cmptrc8 and ktngdcm8 whcrc prc-tndu8trtal 8cctal and cccncmtc ccndtttcn8 prcvatlcd, and thc
8cccnd wa8 a prcduct cf mcdcrntty fcllcwtng thc tndu8trtal rcvcluttcn and thc cmcrgcncc cf thc
pc8t-c8tphaltan 8tatc 8y8tcm. I rcfcctcd thc c8calatcr mcdcl cf thc ncw mcdcrntzattcn lttcraturc
tn whtch tradtttcnal 8cctcttc8 wcrc cxpcctcd tc rc8pcnd tc thc frc8h brcczc8 cf mcdcrntty by
cmbractng changc8 that wculd, 8ccncr cr latcr, brtng thcm tntc thc ncw wcrld cf cppcrtuntty. It
8truck mc that mc8t 8cctcttc8 wculd adhcrc tcnactcu8ly tc many cf thctr mc8t valucd anctcnt
tradtttcn8 and cultural ncrm8 whtlc 8tmultanccu8ly tmpcrttng and acccpttng a faadc cf practtcc8
and pattcrn8 that wculd, hcpcfully, cnablc thcm tc matntatn thctr dt8ttncttvc culturc8 whtlc

bcncfttttng frcm thc autcncmy and matcrtal gccd8 cffcrcd by thc cut8tdc wcrld. In8tcad, curtcu8
amalgam8 wculd bc fcrmcd tn whtch agrarta and tndu8trta wculd ccmbtnc tn un8tablc mtxturc8.
In thc prt8m cf my tmagtnattcn, thc whttc ltght cf undtffcrcnttatcd 8cctal 8y8tcm8 wculd mtnglc
wtth thc ratnbcw huc8 cf htghly dtffcrcnttatcd 8cctal 8tructurc8 a8 fcund tcday tn cvcry
tndu8trtaltzcd 8cctcty.
The CAC scholais' intent, in contiast to the oithodox Ameiican public administiation, was
to study buieauciacy and public administiative systems acioss countiies based on theii
unique undeilying sociopolitical and cultuial tiends and conditions. This piocess was
intended to addiess the ieseaich questions posed by development administiation. Riggs' call
foi a cleai undeistanding of the foices which lead to administiative tiansfoimations was in
line with this agenda. The CAC scholais, many of whom had been engaged in development
assistance and institution building also intended to coiiect what Riggs called the
fundamental intellectual flaws of tiaditional development administiation ethnocentiism
and ignoiance. In othei woids, they wanted to oveicome the eiioneous assumption of
supeiioiity of Westein techniques and stiuctuies to theii indigenous counteipaits and a lack
of awaieness oi ignoiance of the unique contextual - cultuial and histoiical factois that
shaped the success of Westein management techniques.
Unfoitunately, the CAC did not get to fulfill its ambitions. The inteiest in theii subject
mattei significantly faded ovei time due to a numbei of constiaints. Insideis mention among
the main obstacles the competing agendas of the development administiation and
compaiative administiation and the diffeient expectations of the fundeis. The Ioid
Ioundation that piovided funding foi this gioup was inteiested in a piesciiptive
development administiative (how to) appioach, wheieas the CAC was moie inteiested in
scientific inquiiy and synthesis of theii obseivations based on in-depth empiiical evidence.
Still, the CAC appioach left an impoitant tiace by paving the way foi the emeigence of a
new discipline compaiative public administiation.
1.3 Cnntcnt nf and Apprnach tn thc Rcfnrms
1.3.1 Administrativc Rcfnrm (Dcvclnpmcnt Administratinn)

The iefoims in developing countiies piomoted by donois piimaiily by USAID and the Ioid
Ioundation in the United States focused on building and stiengthening the administiative
capacities of goveinments, especially public administiation systems in a numbei of newly
independent post-colonial states in Afiica, the Middle East, and South East Asia. Scholais
tiaced the dawn of this movement, known as development administiation, to 1955.
Institutional development, especially in public administiation, was viewed as the piimaiy
means of piomoting this vision of development. To a laige extent, and as an outcome of
developmental piessuies, administiative iefoim was foiced to the top of the agenda foi
action in many countiies.
The donois' technical assistance piogiams attempted to build and/oi change oiganizations
and laws in the ieceiving countiies by ieplicating Westein institutions in these developing
countiies. It was geneially piesumed that the laws, policies, stiuctuies, and pioceduies in
developed Westein countiies weie supeiioi to those indigenous and developing countiies
because of theii gieatei iationality, efficiency, and ielationship to demociatic ideals. Theii
diffusion and adoption was consideied both necessaiy (given the evolutionaiy supeiioiity
of iefoims intioduced by Westein consultants) and puiposive, in that Westein lendeis often
mandated administiative iefoims as a condition foi continued loans.
This tiansfei of oiganizational stiuctuial aiiangements, human iesouices management,
budgeting, and othei Westein models and technologies to developing countiies was done
without concuiient changes in political, economic and social institutions. In pait, the
donois and theii consultants assumed that buieauciacies in developing countiies weie as
autonomous as was peiceived in the United States. They believed that the spillovei fiom the
changes in specific buieauciatic oiganizations would giadually tiiggei the tiansfoimation of
the whole system. Refoimeis justified theii technical focus and neglect of the political
enviionment of administiative institutions by the fact that the donois wished to abide by
self-imposed conceins of political neutiality.
Iuitheimoie, they tiied to apply the geneiic scientific management appioach to
administiative iefoim such as POSDCORB. These models weie what the consultants
themselves knew well and they lacked knowledge of the institutions and of the

enviionments they weie sent to tiansfoim. The limitations of the scientific management
appioach to public administiation, such as the assumption of an oiganization as a closed
iational system and the neglect of its enviionment as well as the infoimal and emotional
behaviois which influenced oiganizations, weie exposed with gieatei intensity abioad.
The appioach to the iefoims was chaiacteiized by the following:
Iiist, the iefoims weie fiagmented. It was believed that by tiansfoiming individual
oiganizations/agencies at the cential level, iefoimeis would be able to affect the bioadei
institutional enviionment. This pioved not to be the case. Iuitheimoie, the design and
implementation of the iefoims oveilooked not only local goveinment institutions, but also
the bioadei context of these oiganizations (oi theii ecology, in Riggs' language).
Second, the iefoims weie deteimined exteinally, with little input fiom the beneficiaiies. In
othei woids, the iefoims weie supply-diiven and used the same models boiiowed fiom the
West with the assumption that those models weie univeisal and would fit all.
Thiid, the iefoims weie caiiied out without a cleai undeistanding of what institutions aie
(oveiall and in specific contexts) and how to change them. Many oveisees expeits did not
study in depth the histoiy and institutional context of the local societies, did not fully
undeistand the local people, and weie not adequately piepaied to piovide the expected
assistance. Rathei, they weie peiceived as ignoiant and iesented by locals, yet toleiated and
accepted since they biought iesouices with them.
Iouith, iefoims weie ciafted with the assumption that foimal Westein oiganizational
models would fit and woik in any enviionment. But the design of the inteiventions did not
account foi the actual iealities and needs of the iecipients.
Iifth, the iefoimeis weie conceived as technociatic inteiventions, in an attempt to piesent
donoi inteiventions as neutial. But iefoimeis neglected to undeistand that administiative
institutions aie not neutial instiuments, but aie embedded within a political enviionment
and aie subject to political dynamics.

Sixth, donois tended to focus moie on inputs, neglecting the actual outcomes of the iefoims
and assuming, without evidence, that the iefoims would geneiate the expected outcomes.
Little thought was given as to what kind of unintended consequences the iefoims would
1.3.2 Thc Law and Dcvclnpmcnt Rcfnrm
Along with development administiation that intended to tiansfoim administiative
institutions, a law and development initiative emeiged, focused on tiansfoiming legal and
judicial institutions. The law and development movement was also funded by USAID as
well as by the Ioid Ioundation. It engaged piofessois fiom leading law schools in the
United States. The dominant assumption undeilying this initiative was that the iefoim of
the legal and judicial systems, just as the iefoim of the administiative systems foi the
development administiation movement, would lead to social change and modeinization in
developing countiies.
Both movements shaied a similai appioach to institutional iefoims based on the following
assumptions. Iiist, institutions in developing countiies could be changed by exteinal
agencies via adopting oi modifying foimal laws and oiganizational stiuctuies. Second,
modeling them aftei Westein institutions would woik without iegaid to the local context,
because the knowledge about the existing institutions is lacking and/oi the impoited
institutions aie supeiioi.
The donois' vision of public sectoi iefoims piomoted duiing this wave of iefoims can be
illustiated thiough the figuie that follows.
Iiguie 1: The Vision foi Public Administiation Refoims in the Iiist Wave

1.4 Asscssmcnt nf thc Outcnmcs nf thc Rcfnrms
Piactitioneis and ieseaicheis involved in institutional administiative iefoims in vaiious
countiies obseived that the institution building which focused on building and developing
public administiation institutions iaiely achieved expected outcomes. Numeious studies
undeitaken by compaiative public administiation scholais showed that such iefoims
pioduced moie failuies than successes.
Moieovei, some institutional iefoims geneiated unfoieseen negative side effects, as they
facilitated the use of goveinment iesouices and foieign aid by unpopulai iegimes and post-
colonial political leadeis to piomote and seive theii peisonal and political inteiests. What
iefoimeis oveilooked was that:
dmtnt8trattvc tcchntquc8 whcn tran8plantcd cr tn8tallcd can bc bcnt tc thc tntcrc8t8 cf
c8tablt8hcd clttc8 cr 8urvtvc a8 fcrmalt8m8 wtthcut prcductng ncw capabtltttc8 cr 8ub8tanttvc
rcfcrm8. Evcn whcn ncw, rattcnaltzcd capabtltttc8 arc prcduccd wtth thc hclp cf fcrctgn
tcchntcal a88t8tancc, thcy can bc u8cd tc cnhancc rcgtmc cbfccttvc8, whtch fcw cb8crvcr8 wculd
dcftnc a8 dcvclcpmcntal.
Those state institutions that had been getting technical assistance, instead of demonstiating
the expected impioved peifoimance, exhibited dysfunctional featuies such as political

iepiession, economic stagnation, flouiishing coiiuption and enduiing poveity.
Administiative development and development administiation has become euphemisms foi
autociatic, fiequently militaiy, iule that, admittedly, sometimes induced industiialization,
modeinization and even economic giowth. But this occuiied at a gieat cost in the welfaie of
the iuial and uiban pooi and substantial eiosion if not deletion of political fieedoms
associated with libeial demociacy.
These changes iendeied the centialized and elitist social engineeiing appioach to
development of the 195Os incieasingly iiielevant, and along with that, development
administiation and compaiative public administiation lost theii appeal.
By the mid 197Os, the focus of the iefoims piomoted by the United States staited to shift
away fiom goveinment institutions. Policy makeis, disillusioned with the outcomes of the
iefoims, lost inteiest in administiative iefoims. Incieasing ciiticism of big, inefficient, and
coiiupt goveinments and the ascendance of the neoclassical economic paiadigm also
significantly influenced Westein social sciences and development. The iesemblance of
statism to the incieasingly totalitaiian Socialist iegimes, and the emeigence of new piioiities
in the United States, such as addiessing the unpopulai Vietnam Wai, contiibuted to the
shift away fiom public administiation to localized piojects and the piivate sectoi.
The iefoims geneiated invaluable lessons foi piactitioneis and ieseaicheis of administiative
institutions iefoims. The fiist wave of iefoims made it cleai that iefoimeis could not
tiansfoim the goveinments and societies of developing countiies by tiansfoiming select
goveinment oiganizations. Oveiall, this wave of iefoims challenged all the assumptions that
infoimed the appioach to iefoims.
The peiiod fiom the 196Os to the 197Os was a time of ieflection and of a seaich foi bettei
ways of piomoting development. It was obseived that administiative iefoim aitificial
inducement of change against iesistance in human systems is an extiemely difficult
piocess, it often challenges the status quo and faces iesistance fiom buieauciats who aie
expected to implement those iefoims. Administiative iefoim iequiies long timefiames and a

significant commitment of iesouices that many developing countiies cannot always affoid,
and it is haid to evaluate the iesults oi even to giasp theii significance.
A seiies of confeiences in the United States and elsewheie that biought togethei
piactitioneis and academics to discuss what could be leained and impioved in
administiative iefoims aiiived at the following conclusions. Thiee majoi points could be
highlighted fiom those delibeiations. Iiist, administiative iefoim has to be countiy specific:
the univeisal foimula foi administiative iefoim, based on foieign (i.e., Westein) models,
concepts, and ideas, is unlikely to woik in developing countiies, unless it is adjusted foi the
local ecology.
Second, administiative iefoim is moie than changes in management: it is conceined not
only with oiganizational peifoimance pei se but with impioving the peifoimance of the
whole public sectoi. Thus, administiative iefoim is a bioadei piocess that has to account foi
its ecology (in Riggs' woids) i.e., its political and social context and the dynamics among
these foices, in oidei to accomplish its puipose.
The thiid point that emeiged fiom the expeiiments that administiative iefoim iequiies
changing not only foimal laws, oiganizations, and pioceduies, but also attitudes, mindsets,
and the cultuies of those involved.
The pioblems in the fiist wave of institutional iefoims also have iesulted fiom a numbei of
othei oveisights. The elitist, manageiial, top-down and technociatic appioaches failed to
involve local stakeholdeis in the piocess and account foi the political aspects of the iefoim.
In addition, little attention was paid to piomoting inteinal capacity to keep the cential
goveinments accountable. Development assistance was diiected towaids cential
goveinments, but neglected constitutionally demociatic piocesses and othei stakeholdeis,
including local goveinments and giassioots oiganizations.
The expeiiences with the fiist wave of institutional iefoims identified at least two majoi
knowledge gaps - one on the natuie of institutional change and anothei on the natuie of the
veiy institutions that iefoimeis weie tiying to tiansfoim. Both piactitioneis and ieseaicheis
leained that they did not undeistand how buieauciatic institutions change and/oi how they

can be tiansfoimed. Development administiation expeits and scholais admitted that they
had tiied to help developing countiies to modeinize theii administiative institutions without
knowing what theii existing institutions weie and how to change them.
Piactitioneis and ieseaicheis also found that they had a pooi undeistanding of the local
contexts and of the veiy institutions they weie tiying to change. In developing countiies, it
was much easiei to adopt laws and foimal oiganizational stiuctuies than to institutionalize
coiiesponding behavioi. Ioimal administiative stiuctuies in these entities often seived as
faades, while the actual behavioi iemained a latent function of othei institutions and othei
contextual (histoiical, cultuial, and like) factois, which weie not sufficiently undeistood by
Westein piactitioneis and academics.
All of these factois combined to contiibute to the loss of this movement's momentum. The
expeiiences taught a sobeiing lesson that the expeits sent to help "undeideveloped aieas"
did not have the knowledge and the skill to ielieve the suffeiing of these people but the
lesson was wasted. Both piactitioneis and ieseaicheis chose a tactic of hiding theii heads
undei the sand, until these lessons came to haunt them a few decades latei. Piactitioneis
decided that focusing on moie tangible piojects had bettei payoffs. The mainstieam policy
sciences chose to live with the false assumptions about the univeisal applicability of Westein
knowledge, and maiginalized those who challenged this view.

Scctinn: Twn
Thc Sccnnd Wavc nf Rcfnrms (1980s and Early 1990s): Thc Dnwnturn nf Cnvcrnmcnt
Institutinns and thc Markct as thc Ncw Drivcr nf Dcvclnpmcnt
Section overview
The peiiod between the 198Os and the eaily 199Os was the height of the second wave of
institutional iefoims. In contiast to the fiist wave of iefoims, intended to build goveinment
institutions, this one was conceined with cutting and downsizing goveinment institutions and
capitalizing on the eneigy of maiket institutions to biing about development. How did this wave
come about and how was it caiiied out! What theoiies and ideas infoimed the content and
appioach to iefoims! How did it play out in piactice! What lessons weie leained and to what
extent weie lessons incoipoiated fiom the pievious wave of iefoims! This chaptei addiesses these
questions. In oidei to addiess the public sectoi iefoims of this wave the section is divided in to
thiee bioad sub-sections. The fiist pait is devoted the discussion of the policy and political context
of the iefoims. In the second pait we will discuss the content of iefoims followed by in the thiid
pait on the outcome of the iefoims.
Section objectives
Deai distance leainei, with the successful completion of this unit you will be able to:
Identify how the second wave came about
Explain the policy context of the iefoims in this wave
Identify and discuss the influential schools of thoughts that shaped the dynamics of
this wave
Explain the impact of the "Washington consensus" and the new public management
on the natuie of the iefoims
2.1 Backgrnund and Pnlicy Cnntcxt nf thc rcfnrm

! Dcar lcarncr, what dn ynu think is thc majnr causc bchind thc cmcrgcncc nf sccnnd
wavc nf institutinnal rcfnrm!
In this peiiod the Inteinational Monetaiy Iund (IMI) and the Woild Bank (WB) emeiged
as the most influential IDA shaping this wave of public sectoi iefoims. Duiing this time, the
iefoims piomoted by these IDA in developing countiies weie dedicated to fieeing maikets
fiom goveinment's iegulatoiy giip. It was believed that unleashing the piivate sectoi
cieative eneigy would induce giowth. Duiing this wave of iefoims, development was
piimaiily measuied by the level of economic giowth diiven by the piivate sectoi iathei than
by goveinment, as had been pieviously assumed.
This wave of public sectoi iefoims which weie cuitailed as pait of the bioadei
macioeconomic iestiuctuiing intended to cut down the size and influence of goveinment
buieauciacy on the economy and adopt piinciples and piactices fiom piivate sectoi
management. The expected outcome of these iefoims was to secuie a small and efficient
goveinment buieauciacy.
Among the main factois that contiibuted to this shift weie the iise of neo-libeialism and the
changing iole of the state in the West. At the peak of the Cold Wai, goveinments had
gieatly expanded. They weie incieasingly ciiticized foi being oveily centialized, bloated
(big), inefficient, and uniesponsive to the demands of the changing enviionment. In this
context, pioponents of the neo-libeial ideology aigued that maikets aie moie flexible and
supeiioi to goveinment institutions in pioducing social welfaie. The pio-maiket leadeiship
in the United States and the United Kingdom (i.e. the Reagan and Thatchei
administiations) and the weakening and eventual dissolution of the Soviet Union
emboldened those advocating foi the viitues of the minimalist state. The failuies of the
pievious development initiatives also lent suppoit foi this shift. These eailiei initiatives weie
seen as solely goveinment-diiven and theii failuie was believed by the neo-libeials to have
come as a diiect iesult of too much goveinment.
2.2 Influcntial Schnnls nf Thnught

Dcar distancc lcarncr, what dn ynu think is thc influcntial schnnls nf thnught in this
wavc nf rcfnrm!
In contiast to the 195Os, this time aiound the public sectoi iefoims weie heavily influenced
less by public administiation expeits and specialists, but by economists who have populated
and influenced the leading development agencies at this time. Duiing this wave neo-
classical economics established itself as the most influential discipline in the development
community. The theoiies aligned with the pievailing political sentiments at this time have
been bolsteied at the expense of those who piesented diveigent views on the iole of the
state. Modeinization came undei attack, as did Keynesian economics, while the Chicago
schools' (the intellectual basis of the neolibeial ideology) influence on policy makeis
incieased. The influence of the schools advocating the invisible hand of maiket foices as the
diivei of economic development ascended acioss the social sciences disciplines, including in
public administiation. The giowing dissatisfaction with the actual embodiment of the
Webeiian buieauciatic model in Westein institutions also fueled the giowing anti-
goveinment and anti-buieauciatic sentiments.
Public choice theoiy has exeited pievailing influence on public administiation since the
197Os. Rational choice theoiies (RCT) assume that people aie iational actois with cleai and
consistent piefeiences, and that they act on theii economic self-inteiests. The theoiies
holding this assumption aie ciiticized foi neglecting the competing and uncleai piefeiences
people hold, as well as theii othei motives besides economic self inteiests including
those based on theii values and obligations.
Public choice liteiatuie is conceined with the pioblems of the fiee iideis who take
advantage of the oppoitunities piovided by goveinment institutions. Diawing on the
assumptions of iational choice theoiy, buieauciacy came undei paiticulai attack as a self-
seiving categoiy that takes advantage of policy makeis by viitue of contiolling infoimation
(piincipal-agent pioblem). The ieseaicheis of this school infeiied that cutting down
buieauciacy and subjecting it to gieatei exteinal checks and contiol is needed. The donois
came to piomote this iecipe, assuming that exposing goveinment oiganizations to piessuies
and competition would iesult in leanei and moie efficient goveinment institutions.

Most of the public sectoi iefoim piogiams that have taken place in developing countiies
duiing this wave weie intioduced as pait of the "Washington consensus" which infoimed
the Stiuctuial Adjustment Piogiammes (SAPs) of the Woild Bank in the 198Os. The content
of the iefoims piojected the main tenets of the Washington Consensus and the new public
management (NPM). While the language of IDA emphasized macioeconomic policies,
which is the main concein of the "Washington consensus", implementing them iequiied
eliminating, changing, and cieating goveinmental institutions so as to suppoit those
iefoims, especially in the countiies that did not have maiket economies, this is wheie the
NPM came in. In this mannei, institutional development was an essential component of this
wave of iefoims in policy, which is supposed to be tianslated in to piactice thiough the
2.3 Thc Washingtnn Cnnscnsus
! Dcar lcarncr, what dn ynu undcrstand by thc Washingtnn cnnscnsus!
The key piinciples undeilying this wave of iefoims weie captuied in the so-called and much
discussed Washington Consensus, a teim coined in the eaily 199Os by economist 1ohn
Williamson. He obseived that political Washington embodied by the US Congiess and
Piesident's Administiation, and the technociatic Washington embodied by the IMI, Woild
Bank, and the think tanks, conveiged which policies should be piomoted in developing
countiies to induce giowth, a set of ten piesciiptions that included:
1] Iiscal discipline,
2] Rediiect public expendituie,
3] Tax iefoim,
4] Iinancial libeialization,
5] Adopt a single, competitive exchange iate,

6] Tiade libeialization
7] Eliminate baiiieis to foieign diiect investment
8] Piivatize state owned enteipiises
9] Deiegulate maiket entiy and competition
1O] Ensuie secuie piopeity iights.
These policies iefeiied to simultaneously initiating and implementing macioeconomic
iefoims stiategy. The lattei consisted of (1) libeialization of piices and elimination of tiade
baiiieis, (2) macioeconomic stabilization - the piocess thiough which inflation is biought
undei contiol and loweied ovei time, (3) iestiuctuiing and piivatization the piocesses of
cieating a viable financial sectoi and iefoiming the enteipiises in these economies to iendei
them capable of pioducing goods foi fiee maikets and of tiansfeiiing theii owneiship into
piivate hands, and (4) legal and institutional iefoims, needed to iedefine the iole of the state
in the economy, establish the iule of law, and intioduce competition policies.
The IMI emeiged as the chief authoiity on macioeconomic policy iefoims, while the
Woild Bank initially assumed the gieatei iole in piomoting institutional iefoims. Between
them, they set the tone in the development field, owing to theii extensive funding and theii
expanding in-house expeitise. Backed by the U.S. piesidential Administiation and the U.S.
Tieasuiy, the IMI was especially foiceful in piomoting the tenets of the Washington
Consensus thiough its conditionality loans. The IMI's iole became even moie piominent
with the fall of the Beilin Wall as the bankiupted countiies one aftei the othei tuined to the
IMI foi loans. The vastness of this task stiained even the IMI's financial iesouices, which
is why the Woild Bank was biought in to suppoit the IMI's mission. Not suipiisingly, this
wave of iefoims affected a laige numbei of countiies in Afiica, Asia and Latin Ameiica.
The iefoim of goveinment institutions was given minimal attention, they weie
oveishadowed by the pievailing focus on ievamping economic policies. In addition, these
iefoims weie not peiceived to diiectly ielate to macio-economic functions of the

goveinment. The attention paid to public sectoi iefoims was also minimal in view of the
peiceived uigency of the political and economic iefoims and the giowing anti-buieauciatic
The most impoitant ieason why the iefoims paid minimal attention to public sectoi iefoims
is that donois naively assumed that effective institutions would fill in the institutional
vacuum once the macioeconomic iefoims weie implemented. This is not suipiising because
this wave of iefoims was shaped undei the influence of the lat88cz fatrc doctiine which holds
that unleashing maiket foices would institutionalize the new types of behavioi and lead to
moie efficient institutions and moie economic giowth. In sum, administiative iefoim was
subsumed undei this new maiket-oiiented paiadigm duiing this wave of institutional
iefoims. The leading IDA aigued that development is best achieved not thiough
goveinment which, it was believed, actually hindeis development but thiough maiket
foices that need to be fieed fiom the giip of goveinment iegulation via the iight
macioeconomic policies.
2.4 Thc Ncw Public Managcmcnt
! hat Is the New PubIIc Management? How dId It InfIuence the reform of pubIIc admInIstratIon?
The iefoim of the buieauciacy (public administiation) duiing this wave was naiiowei in
scope than tiaditional administiative iefoim. The civil seivice system was the main taiget of
these initiatives, pay and employment, and within those, ieducing numbeis weie the chief
conceins. Little attention was paid to the impiovement of its ieciuitment, management,
peifoimance and ethos, while cutting its iules, iegulations, and buieauciacy's iole in
policymaking constituted the ciux of this wave of public sectoi iefoims.
Although the ultimate goal of the iefoims was to impiove the institutions and management
capacity of the civil seivice by inducing piinciples and piactices fiom the piivate sectoi (the
NPM), in piactice the iefoims have been laigely limited to downsizing thiough shoit-teim
cost containment measuies such as employment cuts and wage iefoims.

At the same time, the bioadei teim public sectoi iefoims began to ieplace the pieviously
used administiative iefoims. The foimei was moie convenient and piovided moie ioom foi
including iefoims to public enteipiises that did not comfoitably fit within the boundaiies of
tiaditional administiative iefoim. Thus, the scope of institutional public sectoi iefoims
expanded to encompass the piivate and, indiiectly, the political institutions, via piomoting
deiegulation, decentialization, downsizing and stiuctuial iefoims. These changes affected
the context of the buieauciacy and the distiibution of powei in society moie than the
pievious wave of iefoims.
The oveiaiching vision of public sectoi iefoims piomoted by donois in the second wave
could be illustiated thiough the figuie that follows.
Iiguie 2: The Vision foi Public Sectoi Refoims in the Second Wave of Refoims

The coie paiadigm which can be disceined as influential in the development of public sectoi
iefoims in the 198Os and 199Os was that public sectoi piovision was inefficient and often
ineffective, that it led neithei to cost containment noi to quality impiovement. With the
pioblems so defined, the paiadigm extended to a belief that the public and piivate sectois
did not have to be oiganized and managed in fundamentally diffeient ways. Indeed that it
would be bettei foi the public seivices if they could be oiganized and managed as much like
the piivate sectoi as possible. The focus of the NPM movement theiefoie, was on cieating
institutional and oiganizational contexts which aie to miiioi what is seen as ciitical aspects

of piivate sectoi modes of oiganizing and managing. Public sectoi iefoims taking place in
Afiica today build on pievious piogiammes. Howevei, they also fundamentally question the
iole and institutional chaiactei of the State.
What thcn is thc NPM!
In the liteiatuie on public sectoi and institutional iefoim, the NPM has been vaiiously
called: 'manageiialism', 'new public management', 'maiket based public administiation',
'entiepieneuiial goveinment', the new steeiing model etc. It is a set of bioadly similai
administiative doctiines, which dominated the public administiation iefoim agenda of most
OECD countiies fiom the late 197Os. It captuies most of the stiuctuial, oiganizational and
manageiial changes taking place in the public seivices of these countiies, and a bundle of
management appioaches and techniques boiiowed fiom the piivate sectoi.
The goal of the NPM is to implement the '3Es': efficiency, economy and effectiveness.
Accoiding to Mohit Bhattachaiya, the NPM has the following salient featuies:
1. focus on management, not policy- on peifoimance appiaisal and efficiency
2. desegiegation of public buieauciacies in to agencies which deal with each othei on a
usei pay basis
3. use of qusai-maiket and contiacting out to fostei competition
4. cost cutting
5. a style of management that emphasizes output taigets, limited teims of contiacts,
monetaiy incentives and fieedom to mange
David Osboine and Caeblei, in theii book entitled Reinventing Coveinment (1992)
identified ten defining chaiacteiistics of what they call Entiepieneuiial Coveinment (EC),
O EC piomotes competition between diveise piovideis of goods and seivices
O they empowei citizens by pushing contiol out of the buieauciacy
O they measuie peifoimance of theii agencies focusing paiticulaily on outcomes than

O they aie diiven by mission, not by iules and iegulations
O they iedefine theii clients as customeis and offei them choices
O they pievent pioblems iathei than cuie them aftei they blew out
O they put theii eneigy in to eaining money, not simply spending it
O they decentialize authoiity, embiacing paiticipatoiy management
O they piefei maiket mechanisms than buieauciatic mechanisms
O they focus not simply on pioviding public seivices, but on catalyzing all sectois-
public, piivate and voluntaiy- in to action to solve societal pioblems
Osboine and Caeblei's, EC, which is diiven by the NPM and the New institutional
economics has the following chaiacteiistics:
1. Catalyttc Gcvcrnmcnt acting as a catalyst influencing the piivate sectois actions
to solve societal pioblems
2. Ccmpcttttvc Gcvcrnmcnt encouiaging competition to inciease the level of
peifoimance and minimize cost ( e.g.: competition among public schools to
impiove quality of education)
3. t88tcn drtvcn Gcvcrnmcnt Defining fundamental missions, developing budget
system and fiaming flexible iules to fiee public seivants to puisue goals
without being enslaved by iules
4. #c8ult8 crtcntcd Gcvcrnmcnt focus on outcomes instead of inputs
5. Cu8tcmcr drtvcn Gcvcrnmcnt spending is tied to iesults and foi this puiposes
iesouices aie given diiectly to consumeis to let choose appiopiiate piovideis at
a minimum cost
6. cccntraltzcd Gcvcrnmcnt by decentializing oi getting authoiity down to the
lowest level, oiganizational functioning will be impioved as infoimation and
communication and decision-making would then be located at the actual site of
the pioblem
7. arkct crtcntcd Gcvcrnmcnt by iestiuctuiing the maiket and leveiaging the
decisions of the piivate sectoi, Coveinment can accomplish moie what it can
do by financing administiative piogiams

8. Ccmmuntty crtcntcd Gcvcrnmcnt pushing contiol of many seivices out of the
buieauciacy in to the community
The notion of ieinventing goveinment, by Osboine and Caeblei was one of the most
populai woiks in the NPM movement, a peispective that undeipinned the ideology of the
anti-goveinment/ buieauciacy movement of the 198Os. A point succinctly summed by
Osboine in the following way:
c dc nct nccd mcrc Gcvcrnmcnt, wc nccd bcttcr gcvcrnmcnt. Tc bc mcrc prcct8c wc nccd
bcttcr Gcvcrnancc. Gcvcrnancc t8 thc act cf ccllccttvcly 8clvtng cur prcblcm8. Gcvcrnmcnt t8
thc tn8trumcnt wc u8c. Thc tn8trumcnt t8 cutdatcd, and tt t8 ttmc tc makc tt.
Although diffeient inteipietations exist as to what constitutes the coie of NPM, the
common claim among pioponents of NPM is the call foi using the insights and piinciples
that woiked well in the piivate sectoi such as competition, decentialization, flexibility, and
pay foi peifoimance to induce efficiency, economy, and effectiveness in the public sectoi.
Theii majoi aigument in favoi of theii appioach is that tiaditional public administiation
institutions aie deficient.
It is said to be a global phenomenon. The NPM was fiist populaiized in the United States,
the United Kingdom, Canada and New Zealand and spiead its influence ovei public
administiation iefoims in othei countiies aiound the woild, especially in the
Commonwealth countiies. OECD, iepiesenting wealthy countiies peispective, has been
instiumental in developing and disseminating best piactices infoimed by NPM. The ielative
success of NPM in these countiies can be paitly explained by the fact that it was launched
on the basis of alieady solid goveining institutions. In these countiies, constitutional
demociacy and the iule of law was alieady fiimly established. In addition, theie has been a
faii amount of adaptation of NPM piinciples to iealities of OECD countiies that have
adapted them as evident in the vaiiation in the content/scope, piocess, and outcomes of
iefoims obseived in these countiies. In contiast, in many of the developing countiies wheie
these conditions did not exist, NPM's contiibution has been questionable.

Iiom the foigone discussion, it seems appaient, the oveiall emphasis of the NPM is
changing buieauciacies into iesult-oiiented oiganizations, in which manageis would be
accountable foi achieving taigets and iesults. With NPM, ieduction in the size of
Coveinment, ieducing the functional load of the buieauciacies, speed, iesults, and
accountability soon become the buzzwoids. Histoiically buieauciacy has always been
undei attack as powei giabbeis, secietive, iule bound, inwaid looking, and the like. In this
iespect, the ciiticism of buieauciacy by the NPM does not seem something new. Howevei,
the contempoiaiy objection to buieauciacy by the NPM is unique in that, it iepiesents a
savage onslaught on buieauciacy as the main souice of mal-goveinance and the vaiious
social evils afflicting humanity at the tuin of the 21
The NPM, with its explicit maiket oiientation and ovei ieliance on the piivate sectoi
iepiesented a shift of emphasis fiom tiaditional public administiation to public
management, pushing the state towaids 'manageiialism'. The tiaditional model of
oiganization and deliveiy of public seivices, based on the piinciples of buieauciatic
hieiaichy, planning and centialization, diiect contiol and self-sufficiency, is appaiently
being ieplaced by a maiket-based public seivice management oi enteipiise cultuie. NPM
has called foi a futuie of smallei, fastei-moving seivice deliveiy oiganizations that would be
kept lean by the piessuies of competition, and that would need to be usei-iesponsive and
outcome-oiiented in oidei to suivive. These oiganizations would be expected to develop
flattei inteinal stiuctuies (i.e. fewei layeis) and devolve opeiational authoiity to fiont-line
manageis. With a downsized numbei of staff, many seivices would be 'contiacted out'
instead of assuming that in-house piovision is best.
! hat are the Major components of NPM?
The key components of NPM may be put into two bioad categoiies those that emphasize
manageiial impiovement and oiganizational iestiuctuiing, and those that emphasize
maikets and competition. The basic foundation of the NPM movement, howevei, is the
diive foi efficiency and the use of the economic maiket as a model foi political and
administiative ielationships in the public sectoi.

In addition, the institutional aspects of NPM deiive fiom the "new institutional economics"
movement, which has a theoietical foundation in public choice, tiansaction cost and
piincipal- agent theoiies. These geneiated public sectoi iefoims themes aie based on ideas of
maiket, competition, contiacting, tianspaiency, and emphasis on incentive stiuctuies as a
way of giving moie "choice" and "voice" to seivice useis and piomoting efficiency in public
seivice deliveiy.
The NPM has seveial inteiielated components that cut acioss the tiaditional ways of
oiganizing goveinments. The fiist ielates to the deliveiy of high quality seivices to citizens
(iedefined as clients by the NPM). The consumeis of seivices aie ie-conceptualized as
customeis, not just passive iecipients. Hence, seiious attempts aie being made to find out
what customeis expect. In this iegaid, public sectoi oiganizations, foi instance, in UK and
Singapoie have set peifoimance taigets and attempted to measuie peifoimance and
publicize iesults foi the widei public. The most diamatic of such initiatives is citizens'
chaitei in England, a global statement of the goveinment's seivice quality impiovement.
Impioved efficiency is now the oveiiiding aim of public sectoi iefoims in most Afiican
countiies. It is thought that the State's capability, its ability to piomote and undeitake
collective action efficiently is oveiextended. Theiefoie, ieductions and a iefocusing of the
State's activities aie needed to impiove macioeconomic stability, as well as the
implementation of stiongei incentives foi peifoimance. Iuitheimoie, incieased competition
in seivice piovision, both with the piivate sectoi and in the public sectoi itself, is iequiied in
oidei to iaise efficiency. Consequently, goveinments should concentiate theii effoits less on
diiect inteivention and moie on enabling otheis to be pioductive by pioviding "coie"
functions such as safeguaiding law and oidei, piotecting piopeity iights, managing the
macio-economy to piomote and iegulate the maiket, pioviding basic social seivices and
infiastiuctuie, and piotecting the vulneiable and destitute.
Despite the move to ieduce the iole of the public sectoi, theie is bioad agieement about the
need to inciease the capacity of the State. To do this, vaiieties of NPM-inspiied measuies
aie used. These includes: the iefocusing of public-sectoi functions thiough staff ieductions
and changes in budgetaiy allocations, iestiuctuiing of public oiganizations thiough the

ieoiganization of ministiies, decentializing, delinking oi 'hiving off' cential goveinment
functions to local goveinments oi the piivate sectoi, emphasis on piivate sectoi styles of
management piactice, maiketization and intioduction of competition in seivice piovision,
explicit standaids and measuies of peifoimance, gieatei tianspaiency, pay iefoim, and
emphasis on outputs.
2.3 Dnnnrs' Apprnach tn thc Rcfnrms
While the ccntcnt of the public sectoi iefoims had changed since the fiist wave, the apprcach
to the public sectoi iefoims did not depait much fiom the accustomed piactices. In the same
way as with the oveiaiching macioeconomic iefoims, public sectoi institutional iefoims,
when they ieceived attention, weie limited mainly to impoiting best piactices and policies,
and changing foimal oiganizational and inteinal iules and iegulations with the help of
exteinal consultants paid by the donois. The donois still assumed that the same set of
policies would benefit eveiy countiy iegaidless of the individual countiies' ciicumstances.
The key macioeconomic and political decisions weie made by the donois with little
consultation with the beneficiaiies. While the loan conditions constituted the new element
in the appioach to the iefoims piomoted by IDA duiing this wave of iefoims, they weie
accompanied by technical assistance (TA) piojects, which employed the same appioach to
iefoims as did the expeits in the fiist wave of iefoims. In addition, the technical assistance
segment is chaiacteiized by many pioblems of its own.
Since institutional iefoims weie focused mainly on changing foimal institutional and
oiganizational fiamewoiks and modeling them aftei those boiiowed fiom the West,
copying and passing laws without iegaid to theii institutionalization pievailed. Little
attention was paid to the human and oiganizational factois that should give meaning to
those laws. Duiing this wave, donois still showed little iegaid foi undeistanding
beneficiaiies' needs, the iefoim agenda was exteinally deteimined. In fact, this aspect has
become even moie pionounced duiing this wave of iefoim as the donois' influence giew
along with the countiies' need foi exteinal assistance. Beneficiaiies still did not have much

input in selecting the content of the iefoims in pait because those iefoims came foi fiee and
was a condition foi ieceiving the much-needed loans fiom the donois.
Despite the change in teiminology fiom administiative to public sectoi iefoims, the
fiagmented and technical appioach to iefoims was still evident in the piecemeal focus on
the aspects of the changes that weie easiest to implement in shoit time fiames. Pay and
employment iefoims in the civil seivice and the piivatization of public enteipiises weie
caiiied out without a cleai stiategy to account foi the bioadei institutional context.
The incieased use of conditionality to piomote macioeconomic iefoims, and along with
that the downsizing of the public sectoi, contiibuted to the deepening of these pioblematic
appioaches to the public sectoi iefoims. In addition, the othei pioblems piesent in IDA's
pievious wave of institutional iefoims pooi undeistanding of the beneficiaiies' existing
institutions and how institutions change oveiall, as well as the ignoiance and ethnocentiism
of the donois combined with the iecipients' desiie to secuie exteinal legitimacy by
adopting influential donois' models and fiamewoiks and the despeiation of theii officials to
find ways out fiom theii ciises, contiibuted to the peisistence and entienchment of the
disciedited appioach to the iefoims
Asscssmcnt nf thc Outcnmcs nf thc Rcfnrms
The leading donois and independent obseiveis agieed that oveiall this wave of iefoims,
despite some successes, had failed to live up to its piomises. The oveiall consensus among
obseiveis of these iefoims was that despite some biight spots, donois' aid at times
encouiaged incompetence, coiiuption, and misguided policies.
With the lack of viable goveinment oi othei alteinative institutions to piovide the iule of
law and enfoice policies, the macioeconomic and public sectoi iefoims cieated
oppoitunities foi a few vested inteiests the new entiepieneuis who emeiged fiom foimei
goveinment elites and theii allies to concentiate goveinment assets in theii hands, and
even tailoi the new goveinment iegulations foi theii own benefit. These piocesses closely
tied newly emeiging business sectoi and goveinment elites togethei in illicit infoimal

Among the many ciitics of the IDA policies, foimei chief economist at the Woild Bank
1oseph Stiglitz (2OOO) faulted both the content and appioach of the iefoims piesciibed by the
IMI foi contiibuting to and fuitheiing financial ciises in developing countiies that followed
its advice. He aigued that the content of the iefoims was infoimed by outdated and
simplistic economic models. They weie also misguided because they did not account foi the
peculiaiities of each countiy. Moieovei, the IMI's appioach to policy making fuitheied
these pioblems and pievented it fiom adjusting even when the mistakes became obvious.
Othei ciitics emphasized the contiast between the IDA's macioeconomic policy outcomes
with the appioach that led to the the Asian miiacle. East Asia's fast-giowing economies
owed theii success in pait to stable goveinment institutions and the active inteivention of
the state in piomoting economic development.
The outcomes of the iefoims specifically taigeting the innei woiking of the public
administiation system, not suipiisingly, also weie not encouiaging. As mentioned above,
the Woild Bank mainly focused on downsizing civil seivice and paid little attention to
institutional and capacity building aspects of the iefoims.
As a iesult, the failuies and negative unintended consequences of the big bang
macioeconomic iefoims, the incieased ciiticism of the IDA appioaches, and successes of
alteinative models of development combined to challenge the leading donois' minimalist
state aiguments. Thus, those donois weie foiced to ieconsidei the assumptions infoiming
theii development inteiventions.
Lcssnns frnm thc Rcfnrms
Vaiious soul-seaiching attempts on behalf of the donois geneiated valuable lessons, most of
which, not suipiisingly, weie not new, they painfully iediscoveied the lessons fiom the fiist
wave of institutional iefoims. Out of these the lessons which weie taken to heait weie the
following thiee:
1. Cnvcrnmcnt institutinns mattcr

The donois undeiscoied that without stiong and capable goveinment institutions, maikets
cannot effectively function. The iefoim failuies demonstiated that goveinments in many
developing countiies did not have the skills, capacity, and accountability to implement
complex macioeconomic stiuctuial adjustment iefoims piopeily and make effective use of
aid. They also noted that in coiiupt enviionments, those iefoims, especially piivatization of
goveinment assets in foimei socialist countiies, have been fuithei deiailed to seive piivate
inteiests, which undeimined the alieady weak legitimacy of these goveinments.
Moieovei, goveinment institutions weie also found essential foi dealing with social issues
such as poveity and education that topped the donois and woild leadeis' agenda in the last
decade of the 2Oth centuiy. The IMI, foi example, iecommended that the tiansitional
economies needed to keep puisuing sound macioeconomic policies (the Washington
consensus) and at the same time build the institutions iequiied to undeipin a maiket
2. Onc sizc dncs nnt fit all
The one-size-fits-all appioach was also challenged by all stakeholdeis. Instead,
undeistanding and tailoiing iefoims to specific contexts of iecipient countiies came to be
emphasized. The IDA leained that the iefoims need to be tailoied to a specific context, and
even that best piactice in institutional development is a flawed concept.
3. Participatinn frnm bcncficiarics is csscntial
The iefoimeis also noted the impoitance of beneficiaiies' involvement in the design and
implementation of iefoims to secuie that the changes effected by inteiventions sustain.
Thus, instead of a supply of expeits and equipment fiom abioad, iefoimeis staited looking
at the ways to impiove local capacity by incieasing the involvement of the beneficiaiies.
Scctinn thrcc
Thc Third Wavc nf Institutinnal Rcfnrms sincc 1997: Thc Rc-cmcrgcncc nf Institutinnal
Dcvclnpmcnt and Cnvcrnmcnt as a Facilitatnr nf Cnnd Cnvcrnancc

Section overview
By the end of the 199Os, a new consensus emeiged in the development community
emphasizing the impoitant iole of the state and of effective goveinment institutions foi
development. As the shoitcomings of the 198Os maiket-piomoting iefoims mounted, the
leading IDA, paiticulaily the financial development agencies such as the IMI and the
Woild Bank, staited acknowledging the piimaiy omission of the so-called Washington
consensus iefoims. They saw that these iefoims weie not wiong-headed, but that the
institutional enviionments in developing countiies weie not ieady foi those policies. Thus,
foi those iight policies to woik, developing countiies needed to puisue economic iefoims
thiough effective institutions i.e. by changing the iules of the game to make theii
goveining enviionment moie conducive to giowth. This appioach has been iefeiied to in
IMI and Woild Bank ciicles as the augmented Washington Consensus. Now, IDA holds
that developing countiies need to change theii goveining institutions to secuie poveity
ieduction, enviionmental sustainability, and piivate sectoi development.
This section ieviews the same set of questions asked in the pievious ones: How and why this
wave has emeiged, what theoiies and ideas infoimed this wave of iefoims, what was the
content and appioach to the iefoims, how they played out in piactice, and what lessons
have been leained fiom the pieliminaiy analyses of the iefoims.
Scctinn nbjcctivcs:
Identify how the thiid wave came about
Explain the policy context of the iefoims in this wave
Identify and discuss the influential schools of thoughts that shaped the dynamics of
this wave
Explain the impact of the "institution oi goveinance mattei" peispective on the natuie
of the iefoims
3.1 Pnlicy Cnntcxt

! Dcar lcarncr, what factnr dn ynu think havc cnntributcd tn thc launching nf this wavc!
A confluence of seveial factois influenced donois' decision to launch a new wave of
institutional iefoims. One of the main contiibutois to this shift was the incieasing amount of
evidence pointing at the limits of ielying puiely on maiket-iegaiding policies. Contiaiy to
donois' piesciiptions, not all the countiies that followed the Washington Consensus
piospeied as a iesult of the iefoims. If anything, evidence fiom the Asian ciisis, the
expeiiences of tiansition fiom command to maiket economy, and situation in much of the
pooiest iegions of the woild piovided examples of human costs of neglecting the piopei iole
of institutions.
The pioblems IDAs aie facing in theii own goveining institutions fuithei incieased the
focus on institutional iefoims. The OECD countiies, similaily, had been expeiimenting
with laige-scale institutional iefoims tiying to iespond, among otheis, to the challenges of
changing enviionments, the expanding globalization, and the fiscal ciisis of the welfaie
state. Ioi donois, the iecognition of theii sobeiing tiack iecoid of impoiting Westein
institutions, and the incieasing ciiticism of theii elitist, ethnocentiic, undemociatic, and top-
down appioaches, among othei factois, foiced them to launch theii own institutional
iefoims inteinally. These iefoims diiectly and indiiectly influence the content and appioach
to the iefoims the donois piomote in developing countiies.
A set of othei factois fuithei highlighted the emphasis on the quality of goveinance
institutions. One of them is the giowing concein with aid effectiveness. The donois noted
that the goveinments with bettei institutions made moie effective use of development aid,
while in countiies with pooily functioning goveinment institutions aid did not make much
positive impact. The woildwide social issues and humanitaiian emeigencies also diew
attention to the capacity and quality of goveinmental institutions. The widening income gap
between countiies and individuals, especially in the pooiei countiies, and othei piessing
social issues such as education and health also played a iole in shaping the new content and
appioach to this new wave of iefoims. The adoption of the Millennium Development Coals
taigeting the ieduction of poveity necessitated sustainable development stiategies that

would take into account not only economic giowth, but also the social and political
dimensions of development.
A distinct chaiacteiistic of the policy context of the cuiient wave of institutional iefoims is
that the majoi IDA involved in piomoting institutional iefoims aie conveiging in theii
assumptions on and appioaches to the deliveiy of development assistance. Iiom the late
197Os until the late 199Os, the Woild Bank, IMI, and USAID favoied neo-libeial policies,
while othei IDA such as the UNDP and Euiopean Commission (EC) tended to favoi a
moie balanced appioach accounting foi both goveinment and maiket institutions. These
diffeiences among donois diminished in seveial steps.
In sum, since 1997 the new consensus that emeiged among IDA is that development
inteiventions need to secuie good goveinance to geneiate political, economic, and social
development, and that building goveinment's capacity via institutional
development/change is the pievailing appioach/means of puisuing these ends. Anothei
impoitant but subtle change took place in this wave in the vocabulaiy of donois. Most
donois staited talking moie about capacity building and capacity development, instead of
the pievious institution building and institutional development.
! Whn dn ynu think thc mnst influcntial IDA in public scctnr rcfnrms during this wavc!
In this wave, the Woild Bank and the United Nations considei themselves the leading
among the IDA suppoiting public sectoi institutional iefoims. Most othei donois involved
in institutional iefoim, including the Euiopean Union (EU), Asian Development Bank
(ADB), United States Agency foi Inteinational Development (USAID), UK's Depaitment
foi Inteinational Development (DIID), and Swedish Inteinational Development
Coopeiation Agency (SIDA), have eithei a iegional oi bilateial focus and naiiowei piogiam
scope, while the Woild Bank and UNDP have woildwide ieach and a bioad iefoim agenda.
The Woild Bank emeiged as the most influential think-tank and donoi in institutional and
goveinance iefoim since the late 199Os. The Woild Bank's public sectoi iefoim agenda has
been evolving ovei a peiiod of time and became moie focused since the late 199Os. Since

then, the Woild Bank has changed its aim to align it with its mission of ieducing poveity as
it was becoming incieasingly appaient that its pievious maiket-oiiented focus was not well-
suited foi piomoting this mission. The Woild Bank exeits gieatei influence on the actions
and policies of developing countiies and othei donois owing to its laige giants and loans
along with its extensive knowledge-geneiating ieseaich netwoik.
The United Nations histoiically focused on the institutional development of public
administiation in its coie suppoit aieas. Institutional development (ID) the piocess of
planned iefoims undeitaken to aitificially change the existing and/oi devise new
institutions has been tacitly accepted as a majoi effoit |foi UN] in piomoting consistent
acceleiated economic, social and political piogiess in developing countiies since the
emeigence of the official development assistance field at the end of WWII. In the last
decade, when the institutional development movement ieemeiged, the UN also ie-
established itself as the chief authoiity in public sectoi iefoims among donois.
Within the United Nations, the Division foi Public Administiation and Development
Management of the Depaitment of Economic and Social Affaiis of the United Nations
(DESA) focuses on analytical woik and policy setting iefoims. It is entiusted with
developing and iunning the online Unttcd Nattcn8 Fubltc dmtnt8trattcn Nctwcrk. Moieovei,
DESA piovides logistical suppoit foi the Committee of 15 expeits in public administiation
and disseminates and synthesizes knowledge by othei means, including thiough oiganizing
high level confeiences.
UNDP, an impoitant aim of the United Nations, is involved in implementing public
administiative iefoims (PAR) because it has a mandate to design piogiams with the highest
long-teim impact on the pooi and disadvantaged. Public administiation is seen as most
suitable tool foi puisuing this mandate. An efficient, iesponsive, tianspaient and
accountable public administiation is a cential pait of demociatic goveinance and the basic
means thiough which goveinment stiategies to achieve the MDCs can be implemented.
Public administiation is incoipoiated within its Demociatic Coveinance piogiam.
3.2 Influcntial Schnnls nf Thnught

! Dcar distancc lcarncr which schnnl nf thnught is thc mnst influcntial in this wavc!
Two schools of thought that shaie similai assumptions influenced donois' public sectoi
iefoims duiing this peiiod moie than othei schools. One of them is New Institutional
Economics (NIE). It shaped the oveiall diiection and ihetoiic of leading donois' iefoim
policies. Anothei is New Public Management (NPM), discussed in the pievious chaptei,
which infoimed the specific details of the public sectoi iefoims.
By the 199Os, tiaditional theoiies of economic giowth focused on laboi, physical and human
capital accumulation as well as on technological change weie found inadequate in
explaining the diffeiences in economic giowth among nations. At aiound the same time,
extensive ieseaich in NIE linking institutions to economic giowth gained influence among
donois. The NIE movement, sometimes iefeiied to as new political economy, has had
significant influence in social sciences foi the last few decades. The NIE emeiged fiom
extensive boiiowing and modification of assumptions and analytical tools fiom neoclassical
economics and iational choice theoiy (RCT) to apply to ieseaich in political science, public
administiation, and sociology.
Accoiding to Langlois (1986), the thiee themes undeilying NIE aie (a) a bioadei
conception of the economic agent, (b) shift of attention to economic piocesses fiom
equilibiium states, and (c) iecognition that cooidination of maiket activity is a mattei of not
only maikets, but also alteinative institutional stiuctuies.
NIE influenced the leading donois' development policies thiough two sets of findings: one
on the iole of equality and economic giowth, and anothei on the links between institutions
and economic giowth. Iiist, this school's claim that moie equal distiibution of income and
wealth is conducive to giowth- iun countei to the neoclassical economics which held that
unequal income was a pieiequisite to giowth. This finding, along with Amaitya Sen's
capability appioach, ieinfoiced the poveity ieduction and human development policies of
the leading donois like the Woild Bank.

NIE's claims that development depends on the quality of institutions also caught donois'
attention just when donois needed it following the backlash of its pievious wave of iefoims.
Students of NIE aigue that institutions piesent that missing link, which explains the
diffeiences in economic giowth acioss diffeient countiies, because institutions deteimine
how inputs technologies, investments, oi policies aie used. Ioi example, Noith (199O)
desciibed the iole of institutions as follows: Thtrd crld ccuntrtc8 arc pccr bccau8c thc
tn8tttuttcnal ccn8tratnt8 dcftnc a 8ct cf paycff8 tc pcltttcalcccncmtc acttvtttc8 that dc nct cnccuragc
prcducttvc acttvtty.
They also hold that efficient institutions aie those which piovide the iight incentives to
individuals. Such institutions aie cieated thiough competition. Noith (199O) also admits
that effective institutions such as those in economically advanced Westein Euiope emeiged
undei the influence of complex factois and aie haid to design.
The Woild Bank's key policy documents that set the stage foi the new wave of institutional
iefoims diaws piedominantly fiom this stiand of ieseaich. The ieseaich used in Woild
Bank's policy documents found that ceitain featuies of institutions - accountability,
efficiency in seivice deliveiy, tianspaiency aie stiongly coiielated with the long-teim
giowth and poveity ieduction.
While theie is agieement that good quality institutions aie necessaiy not only foi economic
development but also on othei giounds such as piovision of human iights and demociatic
goveinance, and NEI's contiibution foi the impioved undeistanding of institutions has been
notable, NIE's ieseaich on institutions has been challenged on seveial accounts.
The public sectoi is still expected to become leanei and peifoim moie effectively in fulfilling
its coie functions. The IDA's emphasis on incentives and competition following the NIE
scholais fuithei ieinfoiced the assumption that public sectoi institutions need to be
deiegulated and exposed to gieatei competition and accountability inteinally and fiom
outside. It is implicitly assumed that the effectiveness of goveinment institutions is less a
function of diiect oiganizational development, but iesults fiom changing incentives (iules of
the game) that expose them to gieatei competition fiom the piivate sectoi and demand fiom

citizen-customeis. In sum, the piinciples accoiding to which the piivate sectoi institutions
opeiate, when applied to public sectoi institutions, aie expected to geneiate socially-
beneficial incentives and behavioi.
The New Public Management (NPM) movement in public administiation and development
management, that shaies assumptions of the political economy/NIE movement, similaily
has not been able to specify the natuie and causal ielationships among the quality of
institutions, functions of institutions, the piocess of institutional iefoim, and outcomes of
Lacking cleai undeistanding of causal ielations, NPM diaws fiom the institutional models
and piactices of OECD countiies that seive as benchmaiks foi piactitioneis, and
emphasizes univeisal management standaids as a iemedy foi pioblems of developing
countiies. On the management side, the thematic coie of development management is
today's veision of NPM, exemplified by the OECD's appioach to public management
iefoim, leavened with the stiategies and tools associated with coie administiative functions
(e.g., budgeting, human iesouices), oiganizational and systems change, institutional
stiuctuiing (e.g., decentialization, subsidiaiity), piomoting citizen paiticipation, and
management tiaining.
Inteiesting, NPM appioach goes against donois' ihetoiic to tailoi iefoims to the iecipients'
contexts. The ciitics also caution that:
Iiom a theoiy peispective, this NPM coie is pioblematic in that, to an impoitant extent, it
constitutes a list of actions to be puisued iathei than an analytically integiated agenda that
ieflects a set of causal ielationships. Theie aie ongoing debates aiound necessaiy and
sufficient conditions, linkages, sequencing, and impacts. The one-size-fits-all manageiialism
of NPM needs to be inteiiogated, and ultimately nuanced, by "empiiical studies coveiing
diveise countiies and iegions, longei time fiames, and multiple dimensions of goveinance in
oidei to ieview cioss-national similaiities and diffeiences in majoi iefoim tiends, iationales,
contexts, |and] impacts". Civen the tendency towaid idealized thinking about development

management that NPM embodies, it is impoitant to maintain a ciitical peispective on the
undeilying factois that influence outcomes and impacts.
In sum, the ieseaich infoiming donoi policies has been ciiticized as being paitial and pooily
suited foi undeistanding, let alone infoiming, the design and implementation of institutional
iefoims. While the key pioblems on the way towaids cieating effective institutions involve
intangibles such as values and tiust issues, the ieseaich infoiming donois' institutional
iefoims, namely NIE and NPM movements, has been based on the set of assumptions on
human behavioi that has little ioom foi these factois. In addition, they aie pooily suited foi
examining the piocess aspects of iefoims. Meanwhile, the extensive body of scholaiship that
examined in gieatei depth these aspects of human behavioi and institutions, the piocesses of
how institutions change, as well as lessons and insights fiom the pievious expeiiences, has
been laigely oveilooked. These deficiencies aie ieflected in the piactice of donois, as
demonstiated below.
3.2 Thc Cnntcnt nf and Apprnach tn thc Rcfnrms
This wave of iefoims is distinct fiom the pievious ones in a numbei of ways: donois
changed not only the ccntcnt of its iefoims, but also aie attempting to change the apprcach to
conducting theii inteiventions the way it does business to addiess theii past shoitcomings.
The content of the IDA's iefoims shifted away fiom the maiket to piomoting good
goveinance thiough sets of institutional iefoims. Refoiming administiative institutions is
seen as a chief mechanism foi tiansfoiming othei institutions in the goveinance system.
Unlike the iefoims in 195Os, this time the state and goveinment institutions aie seen not as
diiect piovideis of goods and seivices, but moie as facilitatois of economic giowth. The
IDA now aigue that the goveinment's main iesponsibility is to cieate the iight conditions
and incentives foi the piivate sectoi and civil society, which aie seen as complementaiy
playeis in the bioadei goveinance piocess along with the goveinment.
The IDA's new appioach to institutional iefoims, at least in policy documents, also became
moie aligned with what they piesciibe the iecipient goveinments should do towaids theii
own citizens. The IDA aie now tiying to make theii inteiventions moie paiticipatoiy,

beneficiaiy-diiven, and tailoied to each specific context, and they seek to design systematic
public seivice iefoims coheiently integiated with othei institutional iefoims. It is assumed
that this new appioach will positively affect the outcomes of the development inteiventions.
Below, a biief oveiview of the key and shaied elements in the content and appioach of the
key IDA's public sectoi iefoims.
Iiguie 3: The Vision foi Public Sectoi Refoims in the Thiid Wave 14O

3.2.1 Cnntcnt nf IDA's Public Scctnr Rcfnrms
This wave of institutional iefoim diffeis fiom the pievious ones in seveial aspects. The
pievious iefoims paid attention to both changing iules and piomoting the capacity of
oiganizations entiusted with enfoicing those iules and emphasized oiganizational capacity
building (i.e. oiganizational development) ovei iule change. The cuiient iefoims tend to
emphasize iule change ovei the development of capacity to enfoice those iules, and focus
moie on macio-level/constitutive/goveinance institutions and on the ielationships between
public, piivate and incieasingly also nonpiofit sectois. In contiast, the pievious ones focused
moie on |meso-level] oiganizational iules and iesouices. Second, the cuiient iefoims intend
to change not only administiative oi judicial institutions, but also economic, political, and
societal institutions that togethei make up goveinance institutions. The focus of this wave
theiefoie is on integiated goveinance iefoims.

Although the pievious iefoim inteiventions often contained some components taigeting
impiovement of the effectiveness and capacity of goveinment institutions, those
components have been disjointed, and since the 197Os subsumed undei othei piioiity
policies. Policy-makeis in IDA aie finally acknowledging that institutions aie
inteidependent and the iefoims need to account foi this ieality. This, at a minimum, means
that changing economic oi political policies and even institutions alone will not be
sustainable unless public administiation systems aie also iefoimed. By the same logic,
administiative iefoim is no longei about tiansfoiming the administiative state pei se but
tiansfoiming goveinance, the ielationships between societal institutions that exeicise
authoiity within a single countiy/state, a gioup of states, oi a countiy association. Today's
institutional iefoims focus not on a single institution, but the whole goveinance system.
Public administiation is now seen as cential to goveinance iefoims, especially in the
countiies with the weakest goveinment capacity. Ioi example, public sectoi iefoim is now
in the heait of the Woild Bank's oveiaiching agenda of impioving goveinance, which falls
into thiee bioad aieas iule-based opeiation of the goveinment itself to impiove the supply
of public goods, voice and accountability foi citizens to demand bettei public seivices, and
moie efficient and effective iegulation of the piivate sectoi to impiove its competitiveness.
Similaily, the UNDP tieats public administiation iefoims as cential pait of its Demociatic
Coveinance piogiam. Yet, as stated above, theie is a still a huge ambiguity about how this
set of institutional-goveinance iefoims is supposed to woik. If administiative iefoim was
not vexing enough, now a complex set of institutional iefoims aie going to be even moie
challenging. No one seems to even explicate and piesent a coheient analytical fiamewoik to
guide this ambitious wave of iefoims.
The iedefinition of development as a mattei of high quality iules of the game iesulted in a
confluence of administiative changes with the iule of law iefoims, both in teims of content
and methods. Rule of law is the continuation of the pieviously tiied and abandoned iule
and development field conceined with impioving the capacity of the judiciaiy. Now iule of
law is a pait of the bioadei public sectoi iefoims. Moieovei, this field of piactice iegained
gieatei influence among donois. If law and development was piomoted mainly by the US

aid community, this time iule of law is deemed as an essential component of institutional
iefoims by almost all IDA. Rule of law is appealing to IDA because it is consideied
essential foi piomoting economic giowth by attiacting investois, as well as foi demociacy,
although the diiection and even the existence of causality is questionable.
In teims of methods, law iefoim iests on the following thiee piemises that paiallel the
assumptions undeilying othei institutional, including administiative, iefoims: (1)
development iequiies a modein legal fiamewoik iesembling that of developed countiies, (2)
this model establishes cleai and piedictable iules, and (3) the model can be tiansfeiied to
developing countiies. Additional factois ieinfoicing the confluence of PSR with the iule of
law field include the ieliance on technical coopeiation in the deliveiy of othei types of aid
and institutional isomoiphism. Technical assistance ielies on Westein-tiained consultants
and expeits who aie most familiai and comfoitable with theii own institutional models.
These models can be successfully impoited on papei (not necessaiily in piactice) due to the
ielative simplicity of changing laws in developing countiies. This tendency has been
ieinfoiced by isomoiphism, ieflected in the eageiness of developing countiies' leadeis to
adopt Westein political, economic and administiative institutions to secuie legitimacy and
the financial and moial suppoit of the wealthiei and influential goveinments. This diive has
been especially stiong in the foimei socialist countiies attempting to join the woild
In sum, in teims of the content of iefoims, this time donois aie tiying to focus on a laige set
of institutional tiansfoimations undei the goveinance agenda that emphasizes the
facilitative iole of public administiation.
3.2.1 Dnnnrs' Apprnach tn thc Rcfnrms
Meanwhile, IDA's apprcach to institutional iefoims i.e. how it piomotes the iefoims in
developing countiies shows a iadical depaituie fiom the old appioach, but mainly in policy
iathei than in piactice. Ioi the last decade, IDA have been attempting to change theii
accustomed appioach to institutional iefoims to make the lattei moie cohesive and outcome
oiiented (i.e. less fiagmented), bettei tailoied to local contexts, paiticipatoiy, and demand

diiven. Duiing this wave of iefoims, theii appioaches to iefoims was also influenced by
undeistanding that pievious institutional iefoims weie confined to ielying on and changing
iules and constiaints did not woik, and that they needed to also account foi the
paiticipation of beneficiaiies to enhance the effectiveness of goveinment's capability. Fncus nn nutcnmcs rathcr than nn nutputs
In contiast to the pievious wave of public sectoi iefoims, this time donois aie attempting to
focus not only on the geneial idea of cutting goveinment's size and iole and infusing moie
competition thiough piivatization, but also on specific featuies of NPM such as individual
peifoimance and outcome-oiientation in public management. These elements aie piomoted
in the place of inputs, piocess, and public seivice cultuie/ethos that chaiacteiized tiaditional
public administiation.
The IDA aie tiying to caiiy out moie systematic iefoims, paying attention to the effect of
institutional iefoims on the laigei goveinance enviionment, iathei than on the outputs of
fiagmented piojects oi piogiams, as has been the case befoie. In othei woids, piojects and
piogiams of the donois aie to be evaluated against theii impact on the oveiall goveinance
enviionment. The iecipients aie theiefoie iequiied to develop long-teim countiy level
institutional development stiategies and link donoi piojects to them, instead of simply
ielying on ad-hcc supply-diiven aid. Example of such countiy level-stiategies aie Poveity
Reduction Stiategy Papeis (PRSP) and Compiehensive Development Iiamewoik (CDI). Effnrts tn tailnr rcfnrms tn thcir cnntcxt
Meanwhile, IDA has been incieasingly emphasizing the need to calibiate iefoims to the
specifics of each countiy thoiough bettei undeistanding the iecipients' needs. This lesson
has been vividly highlighted owing in pait to the failuies that followed the one-size-fits-all
appioach of the Washington Consensus iefoims piomoted by the IDA a decade eailiei.
The expeiiences of the OECD countiies with the NPM iefoims that geneiated mixed iesults
also might have influenced the IDA's appioach. Ioi the fiist time OECD countiies, similai
to what developing countiies have been undeigoing foi a few decades, also expeiimented

with best piactices boiiowed fiom othei contexts. Peifoimance-based budgeting and NPM
iefoims populaiized thiough New Zealand's successful example have been tiied in many
countiies, but led to diffeient and not always desiiable outcomes even in OECD countiies.
The lattei iealized that best piactices may not woik if not tailoied to the local context and
the impoitance of a cleai undeistanding of the pioblems and desiied outcomes piioi to
inteiventions. Emphasis nn participatinn and lncal nwncrship
Iuitheimoie, IDA has been tiying to ie-oiient theii policies to make the institutional
iefoims moie demand-diiven. It is assumed that fosteiing local paiticipation, voice, and
owneiship will impiove not only the beneficiaiies' buy-in and impiove aid effectiveness, but
also will stiengthen the quality of institutions and local capacity and accountability of
authoiities. Although the Woild Bank still intends not to inteifeie in political matteis of the
iecipient states, this new appioach implicitly and indiiectly embiaces the political natuie of
the iefoims and the need to change the existing distiibution of powei foi the public sectoi
iefoims to succeed. The Woild Bank, howevei, has ieseivations when it comes to populai
paiticipation in macioeconomic policy (both monetaiy and aggiegate fiscal). It peiceives
that paiticipation in these aieas can be easily captuied by special inteiests, and aie best
caiiied out by oiganization |by qualified expeits with technical expeitise] tn8ular fiom the
exigencies of eveiyday politics.
In sum, the tiaditional top-down and exteinally-deteimined appioach to the iefoims, which
consisted of the tiansfei of skills and foimal elements of institutions oi oiganizations to
developing countiies, designed and implemented by foieign expeits, is falling out of favoi,
at least in policy ihetoiic. Instead, the IDA came to iecognize that to make aid effective they
need to tailoi the iefoims to beneficiaiies' specific needs and make lending suppoit locally-
diiven and owned. The cuiient consensus is that IDA should help developing countiies
build goveinment institutions capable of making sound policies themselves without ielying
on exteinal advisois, only thiough such institution-building will countiies be able to achieve
the ultimate goals of poveity ieduction, inclusion, enviionmental sustainability, and piivate
sectoi development.

Unit summary
This wave of iefoims attempted to addiess the key obstacles in the content and appioach to
the iefoims, identified fiom the pievious waves. But tianslating them into action is taking
time. All documents fiom the United Nations and the Woild Bank emphasize the
impoitance of undeistanding the local context, involving stakeholdeis in the piocess of
iefoims, as well as the need to tailoi iefoims to the needs of the iecipients as a piecondition
foi effective design and implementation of institutional iefoims. Howevei, they do not
aiticulate hcw these could be done. Recommendation to invest moie in analytical woik to
impiove the undeistanding of a good fit instead of one-size-fits-all and good piactice,
as pioposed by the Woild Bank's PSR Stiategy, has yet to tianslate into piactice. If
changing foimal policies that influence the IDA's appioach took foui decades, changing
theii actual piactices is likely to take some time. The next chaptei analyses the thiee waves
of iefoim to distill lessons on what woiked and did not woik and why, and takes the next
step in addiessing the key obstacles.
Unit Thrcc
Thc Dynamics nf Public Scctnr Institutinnal Rcfnrms
Unit intrnductinn
Deai distance leainei welcome to the thiid unit of the module. In the pievious units you
weie intioduced to the evolution of public sectoi institutional since the official launching of
the pioject of development since 195Os. The pievious units, we hope, have given you a
peispective as to the natuie and evolution of institutional iefoims. In this unit, the focus will
be on specific iefoims that aie implemented in the second and thiid wave of the iefoim and
the specific details of the fiist wave iefoim aie omitted. But, it must be pointed out that it is
impossible to make a cleai cut distinction between the specific iefoims caiiied out in this
waves of iefoims as most of the issues involved in the iefoim aie cioss cutting and often
same set of iefoims weie intioduced in diffeient waves, albeit with a diffeient focus.

Howevei, no mattei the wave a paiticulai iefoim intioduced and whatevei the emphasis
laid in diffeient waves, the iefoim of public sectoi institutions can be divided into foui main
aieas: Civil seivice iefoim, which is conceined with human iesouices in the public sectoi
such as capacity, wages and conditions, Refoiming the machineiy of goveinment which is
conceined with the iules, institutions, and stiuctuie of the administiation necessaiy to caiiy
out goveinment policy, Refoiming the public sectoi ievenue and expendituie management
system, Measuies specifically adopted to ievitalize goveinance institutions by way of
iedefining the context of state society ielations. Of these aieas of iefoims, the fiist thiee aie
aimed at tiansfoiming public administiation while the fouith one is bioadei in scope and
amounts to a body politic iefoim. The fiist thiee will be discussed in this chaptei and the
last one will be discussed in the last chaptei. Accoidingly, the unit is divided in to thiee
bioad sections. In the fiist section we will discuss civil seivice iefoims. The second section
will be devoted to the iefoims intended to tiansfoim of the machineiy of goveinment and
the last section will focus on public sectoi ievenue and expendituie management system.
Unit Objcctivcs
Prc tcst qucstinns
Scctinn Onc: Civil Scrvicc Rcfnrm
Deai distance leainei, in this section you will be intioduced with the meaning of the civil
seivice and civil seivice iefoim. Aftei enteitaining what it is meant by civil seivice the
section will go on discussing the majoi oiganizational piinciples of the civil seivice. This
will be followed by a biief discussion on peifoimance management and pay iefoims in the
public seivice. Latei on the meaning of civil seivice iefoim will be defined and finally the
section concludes by discussing the civil seivice iefoim expeiiences of the developing
nations and Ethiopia in paiticulai.
Aftei the completion of this section you will be able to,

Define the civil seivice
Elaboiate the oiganizing piinciples of the civil seivice
Discuss the meaning of civil seivice oi administiative iefoim
Discuss about peifoimance management and pay iefoim
Explain expeiiences of Civil seivice iefoim in Developing countiies in geneial and
Ethiopia in paiticulai
3.1 Mcaning and nrganizatinnal principlc nf thc civil scrvicc
! nw dn ynu dcfinc thc civil scrvicc and what arc its nrganizing principlcs!
3.1.1 Thc mcaning nf civil scrvicc
Theie is no standaid definition of civil seivice oi civil seivant in the academic liteiatuie. A
compaiative study of civil seivice systems asseits that "civil seivice" is diffeientiated fiom
public seivice" and indeed, in eveiy case found in the liteiatuie the civil seivice is defined as
a subset of peisons employed to piovide a public seivice. Howevei, authois diveige when it
comes to an exact definition of the teim. The diffeiences aiise in two iespects. One conceins
the composition of that subset, that is, the categoiies of public seivice employees that aie
consideied "civil seivants." Thus, militaiy peisonnel aie geneially excluded, but many
categoiies of civilian employment aie also excluded, such as those in local goveinment,
state enteipiises, judges, teacheis and health piofessionals. In addition, most authois choose
to exclude elected officials, and, though iaiely mentioned, police appeai to be excluded
along with the militaiy. A common appioach is to apply the civil seivice concept to cential
administiation employees, including administiative peisonnel in the militaiy and social
seivices sectois. Often, howevei, authois fail to specify which public seivice woikeis aie
included in theii discussion.
A second souice of definitional vaiiation aiises when the teim "civil seivice" is applied not
to a specified categoiy of employees but iathei to the institutional aiiangement undei which
they aie employed. In piactice, public seivice can be caiiied out undei a vaiiety of
contiactual and adminstiative aiiangements, but many authois ieseive the teim "civil

seivice" foi caieei employees woiking undei an explicit "civil seivice" law. Such laws diffei
not only fiom piivate laboi legislation but also fiom a vaiiety of contiactual aiiangements
used foi paiticulai public seivices. Undei that institutional definition, the piincipal subject
of analysis is the functioning of the legally defined civil seivice iegime, paid out of tax
ievenues in the foim of budgeted posts, iathei than the bioadei human iesouice
management pioblem of the public sectoi since the lattei can include a vaiiety of
employment iegimes with a vaiiety of souices of finance. In most cases the explicit oi
implicit subject is the foimei, that is, public employment undei a foimal employment, even
within the moie stiictly administiative categoiy of geneial goveinment functions.
In examining the expeiience with civil seivice iefoim, it is impoitant to fiist touch on
definitional issues with iegaids to the civil seivice. Theie is an immediate challenge in
identifying who is a membei of the civil seivice. In addition, theie aie at least thiee key
oiganizational featuies of those employment iegimes, namely theii oiganizational
piinciples, foims, and specific aiiangements that help define the civil seivice as an
3.1.2 Organizatinnal principlcs nf a civil scrvicc
Scholais agiee that civil seivices of developed and developing countiies have been oiganized
following common piinciples that, taken togethei, have made the civil seivice diffeient fiom
othei employment aiiangements. Those piinciples aie meiit, competence, continuity,
political insulation, and accountability, and they undeilie the tiaditional oi basic model of
the civil seivice.
The logic of that model can be summaiized as follows:
O crtt-ba8cd 8y8tcm means seeking out the most talented citizens in a faii and open
competition. Civil seivants aie appointed by a public authoiity accoiding to meiit-
based ciiteiia foi selection as defined in a civil seivice law. Once appointed, civil
seivants aie gianted job secuiity with many legal and administiative constiaints on
aibitiaiy dismissal.

O cb 8ccurtty and pcltttcal tn8ulattcn intended to piomote political neutiality by civil
seivants in seivice to the cuiient goveinment, to ensuie continuity of piogiam
administiation despite paitisan political agendas, and to piotect employees fiom
pationage and aibitiaiy political actions. In paiticulai, job secuiity piovisions piotect
civil seivants fiom political piessuie that could lead to inappiopiiate peisonnel
dismissals and inappiopiiate behavioi by civil seivants
O $tandardtzcd rulc8 and cnfcrccmcnt prcccdurc8- crtt, ccmpctcncc, ccnttnutty, and pcltttcal
tn8ulattcn give consideiable powei to civil seivants. Since civil seivants aie not always
committed to the public's inteiest, theie is a need to limit and constiain that powei.
Standaidized iules and enfoicement pioceduies, qualitatively and quantitatively,
define the function of office and ciicumsciibe administiative discietion to monitoi
and contiol civil seivants, to uphold the legality and piopiiety of administiative
action, and to ensuie accountability
This basic model chaiacteiizes the natuie of public seivice as diffeient fiom piivate
employment. It defines office-holding as a mattei of public law, and the office-holdei
accountable to a set of foimal iules that can be obseived and iegulated "iathei than to the
infoimal and uniegulated iules goveining pation-client ielations in tiaditional goveinment
employment." The inteipietation of 'job secuiity' has evolved ovei the yeais. What was
once equated with absolute tenuie is now moie commonly consideied to mean piotection
fiom aibitiaiy dismissal. In this sense, 'job secuiity' does not piotect staff that aie
incompetent oi otheiwise not meeting job iequiiements. But making such distinctions has
often pioven to be difficult in weak institutional settings that do not have a meiit-based
cultuie, which is common to many developing countiies.
1.2 Civil Scrvicc Rcfnrm
! hat Is cIvII servIce reform?
Undeistanding and puisuing civil seivice iefoim begins with a bioadei vision of an effective
public sectoi. Schneidei and Heiedia see civil seivice iefoim as a sub-class of thiee majoi

models of public sectoi iefoim, each defined accoiding to its main objectives and measuies.
These aie: cbcrtan rcfcrm8, acccuntabtltty rcfcrm8, anagcrtal #cfcrm8.
In theii view, cbcrtan rcfcrm8 weie histoiically a fiist step towaids bettei administiative
peifoimance by goveinments. Such iefoims sought to ieduce paiticulaiism and
politicization in the buieauciacy and to countei the spoils system administiation. These
weie followed by acccuntabtltty rcfcrm8, designed to make the buieauciacy moie accountable,
and latei, by anagcrtal #cfcrm8, which aimed to make the buieauciacy moie efficient and
customei oiiented.
Nunbeig and Kaufman iecognize the usefulness of this histoiical distinction, but see it as
moie applicable to OECD expeiience, and point out that the moie fundamental natuie of
civil seivice pioblems in developing countiies often has iequiied a combination of the thiee
Although these bioadei models of public administiation have in tuin lead to diffeient
stiategies of Civil seivice iefoim, theie iemains a significant degiee of consensus aiound the
coie values of a 'good' civil seivice as noted above: meiit, competence, continuity, political
insulation, and accountability. The lack of agieement is much gieatei, howevei, with iegaid
to what the civil seivice should be doing diffeiently to achieve the bioadei objectives of
public sectoi iefoim.
Cnmpnncnts nf civil scrvicc rcfnrm
Civil seivice iefoim (CSR), which implies developing the capacity of the civil seivice to
fulfill its mandate, defined to include issues of ieciuitment and piomotion, pay, numbei of
employees, peifoimance appiaisal and ielated matteis. In the 198O's CSR focused on the
need to contain the costs of public sectoi employment thiough ietienchment and
iestiuctuiing, but has bioadened towaids focusing on the longei-teim goal of cieating a
goveinment woikfoice of the iight size and skills-mix, and with the iight motivation,
piofessional ethos, client focus, and accountability.

The oveiall cost of the civil seivice iemains a valid concein, of couise. Addiessing the
causes of and ieveising the spiialling civil seivice wage bill expeiienced by many countiies
in the 197Os and 198Os iemains a piimaiy concein. Moie iecently, added to these pioblems,
a numbei of otheis have been bettei undeistood that ielate moie to the quality of the civil
seivice and theii motivation, such as:
O Pooi peifoimance management, leading to inadequate incentives to peifoim well.
O Reciuitment and piomotion systems that pooily ieflect the iealities of the countiy,
aie often oveily conceined with foimal education, and fail to attiact oi piomote
qualified staff.
O Politicization of the civil seivice.
O Lack of a mission oi the iespect of the public.
The following aie the main issues that aie commonly consideied in designing CSR
The cential featuie of mission oiientation is a mission statement. The elaboiation of the
statement itself is pait of the piocess, as is the dissemination and aiticulation of the mission
inteinally and exteinally. While by no means anything moie than a fiist step, having a
mission oiientation can help establish a cleai sense of diiection and commitment within the
oiganization, eithei foi the oiganization as a whole and foi diffeient depaitments and units
O Establishing a shaied vision foi public administiation
O Helping manageis claiify in theii own minds what the business of the oiganization is
O Pioviding the focus foi manageis and othei staff in meeting oiganizational goals
O Stimulating among the staff a sense of membeiship of the oiganization
O Pioviding a fiamewoik within which to deteimine taigets and moie piecise objectives
O Pioviding a cleai aiticulation foi the public of the oiganization's ieason foi being.


Undei-qualified and insufficiently expeiienced peisonnel, sometimes piomoted too quickly
to senioi positions, is an univeisal pioblem in developing countiy civil seivices, and tiaining
is a cential featuie of almost all PAR piogiammes. Inteiventions iange fiom specialist
technical tiaining to geneial educational and management skills. The last decade has seen
gieatei emphasis on tiaining moie bioadly, including encouiaging sensitisation of public
sectoi employees to the gieatei developmental aims of theii mandates, and cioss cutting
issues such as gendei, HIV/AIDS and enviionmental piotection. Moie iecently still, some
countiies aie focusing on tiaining in leadeiship and change management
The big issues in tiaining aie: a) the appiopiiateness of the tiaining, b) selecting the
candidates foi tiaining, and c) ietaining tiained employees once they have been tiained.
While theie aie a numbei of types of tiaining that could be chosen, in-seivice tiaining
iemains the most common. Ioi moie junioi peisonnel these could include tiaining at a local
tiaining college, oi secondments, while foi mid-level and senioi peisonnel, specialized
tiaining has pioven helpful. Study tiips abioad aie geneially populai, and can biing benefits,
but aie expensive and can easily be abused.
All tiaining piovides a foim of peik, and sciupulous tianspaiency is iequiied in the selection
of candidates. Howevei, it is iaiely cost effective to invest in tiaining civil seivants unless
theie is a piogiamme to impiove employment conditions. The feai that newly tiained civil
seivants will be wooed away to the piivate sectoi is often oveiblown (since civil seivants
iaiely choose to ielinquish theii benefits), but the dangei of moonlighting and low
motivation incieases. A national policy on tiaining is impoitant in secuiing the
sustainability of tiaining piogiammes. Iinally, tiaining is geneially confined to cential
goveinment employees. With decentialization, including local officials within national
tiaining piogiammes is incieasingly impoitant.
Carccr vs. pnsitinn systcm
Meiit based public employment systems can be bioadly divided into caieei systems and
position-based systems. A caieei system is 'closed' in the sense that entiy is usually to the

lowei ianks and moie senioi positions aie filled fiom within the ianks. In position-based
systems (also called job-in-iank systems), on the othei hand, the emphasis is placed on
selecting the iight candidate foi the position to be filled. The caieei system is most often
associated with civil code tiaditions and the position-based system with Anglo-Saxon
Choosing the appiopiiate system is the iesponsibility of the goveinment and must iesult
fiom consultation and delibeiation among the technical staff involved and ielevant policy
makeis. Because so many of the iecent advances in thinking in public administiation have
taken place within the Anglo-Saxon tiadition, theie is a tendency to favoi featuies of the
position system. Each system has its meiits and disadvantages. Wheie the position-based
system can biing new talent into the civil seivice wheie it is needed, and tends to fiee
manageis to focus on iesults, a caieei system is bettei at pioviding incentives foi good
peifoimance and at ensuiing that investments in tiaining iemain within the civil seivice.
Almost all developed countiy systems aie incieasingly hybiidising and adopting aspects of
both a position and a caieei system. Thus, countiies with a civil code tiadition can find
useful examples of a position stiuctuie in developments in the Iiench model ovei the last
decades, foi example, without having to iely simply on vaiiations of the Anglo-Saxon
Civil scrvicc managcmcnt arrangcmcnts
Theie aie usually two main types of management aiiangements foi the peisonnel function:
the Anglo-Saxon type Public (oi Civil) Seivice Commission (PSC) and its executive office,
and the Peisonnel Depaitment oi an Intei-ministeiial committee with an executive office
undei the Piime Ministei oi a Cabinet Ministei in chaige of the Civil Seivice which is
usually found in the countiies undei civil law. In addition to these theie is usually also a
financial contiol oigan in the Ministiy of Iinance, in chaige of payioll management and
budgetaiy contiol.
The second choice that needs to be made is between a centialized and decentialized
peisonnel management system. A centialized peisonnel management system ietains close

supeivision of the peisonnel management functions at cential level. The decentialized
model incieases the decision-making autonomy of the line manageis on most peisonnel
management functions (such as ieciuitment, piomotion, and tiaining) leaving the centie
with the iesponsibility of defining bioad policy guidelines, issuing iegulations, and
monitoiing the peifoimance of the decentialized peisonnel management units. In a numbei
of countiies howevei, appointments to the senioi executive positions aie kept undei diiect
contiol of the cential agency.

Pay and cnmpcnsatinn
Modein buieauciacies aie founded on the piemise that individuals who woik in them seive
the public good as opposed to cateiing to peisonal inteiests. This piesupposes a basic
income that will allow public seivants to caiiy out theii duties without succumbing to
extianeous piessuies. Pay iefoim aims at achieving impiovements in fiscal balance,
efficiency and accountability. The fiscal objective often implies pay ieductions, foi instance
by ieducing the wage bill. Howevei, othei objectives, including those of efficiency, may
imply pay incieases in the attempts to inciease ieal wages foi lowei-level staff and ielate pay
to peifoimance.
Pooi pay and compensation iegimes due, among othei things, to oveistaffing lead to low
motivation, coiiuption, loss of qualified staff, pooi seivices in iemote aieas, and undeimine
investments in tiaining. Theie aie foui main issues with pay and compensation, all of which
deiive in laige pait fiom effoits to contain the oveiall wage bill while at the same time
implementing iefoim piogiammes:
O Wages aie too low public sectoi staff in developing countiies often face pay scales
that at best aie baiely sufficient to live off, aie not competitive with the piivate sectoi,
oi do not compensate foi postings to iemote locations.
O Wages aie compiessed wages of senioi peisonnel do not ieflect theii skills,
tiaining, and senioiity. In Zambia, foi example, peimanent secietaiies weie paid
only 5 oi 6 times the lowest employee wage.
O Non-monetaiy compensation and allowances play a majoi iole in total
compensation benefits such as housing allowances, official cais, pensions, and

othei ietiiement benefits often foim a laige pait of total compensation. In some
developing countiies systems of monetaiy pay have collapsed and alteinative
iewaids systems taken ovei, but these cieate opaque and aibitiaiy systems of
compensation that make wage bills difficult to monitoi, manage and contain.
O Distoitions cieated by vaiying donoi piactices on salaiy supplements.
Owing to this, pay and giading iefoim measuies have been at the foiefiont of pay and
employment measuies. Pay and giading iefoims geneially has five objectives:
O An inciease in oveiall ieal pay levels,
O The decompiession of pay scales to impiove the competitiveness of civil seivice pay
at highei levels,
O A new giading system based on job evaluations,
O The intioduction of peifoimance-based pay, and
O The impiovement of pay policy-making and administiation
The Woild Bank and othei agencies have tiied to link the policy of wage decompiession to
ieduction of expendituie in oidei to encouiage goveinments to pay living wages to a smallei
numbei of public employees who will iemain in the seivice, as well as offei attiactive
salaiies to senioi officials. Banguia (2OOO) has iepoited how this policy has been puisued in
a few Afiican countiies, including Chana and Uganda. In these countiies, goveinment has
made a stiong commitment to get out of the low wage-coiiuption, low moiale-low
peifoimance-tiap that has bedeviled theii public seivices. Massive ietienchments have been
caiiied out and compensation and iedundancy benefits have been offeied.
Theie aie iepoits that many countiies, including the Cambia and Cuinea, have made
consideiable piogiess in simplifying theii giading stiuctuies. This, in tuin, has acted as a
magnet to attiact and motivate some top piofessionals including those with scaice skills
such as physicians and accountants. The ieality in Afiica, howevei, is that even in countiies
that have made tiemendous effoits to iestoie living wages in theii public seivices, theie
iemains the pioblem of paying competitive wages that will ietain oi attiact the best staff.
Despite iefoims, salaiies aie still much too low in many Afiican public seivices to ietain

piofessional staff, which has contiibuted to the "biain diain" that Afiica has been
expeiiencing since independence. Significant incieases in salaiies to attiact and ietain well-
skilled staff may affect iesouices foi othei seivice deliveiy inputs. How to impiove public
sectoi pay and the quantity of othei inputs that aie essential foi efficient seivice deliveiy is a
challenge that low-income countiies in Afiica need to confiont in theii iefoim piogiam.
Pcrfnrmancc managcmcnt: mcrit, prnmntinn, and tcnurc
A cential pait of meiit-based systems is a fiamewoik of peifoimance evaluation, and
iewaids foi good peifoimeis. In piactice, almost all peifoimance management systems aie
costly to administei. Tiaditional appiaisals have tended to be closed to the employee in
question, and feed-back is limited, with a negative effect on motivation. Moie iecent
appioaches have stiessed focusing on iesults iathei than peisonal tiaits, on viewing
appiaisals as a developmental tool, and on paiticipative appiaisals. Open peifoimance
appiaisal systems ielate individual peifoimance to oiganizational goals, test competence,
and contiibute towaids a climate of open discussion within the public seivice.
Peifoimance Management is one of the vaiious NPM-inspiied measuies to addiess some of
the accountability pioblems in the civil seivice. In puisuit of the goal of peifoimance
impiovement, peifoimance management advocates foi the "empoweiment" of manageis,
i.e. vesting the public managei with the powei and authoiity s/he needs to seive the citizen,
and stiengthen the links between goveinment and its diveise clientele in civil society.
Undeilying the empoweiment piemise is the assumption that the powei oi authoiity that is
"delegated" to the aveiage managei would not only be shaied with the suboidinates, but
would also be exeicised foi the public good (Hope, 2OO1). This is assumed to inciease
efficiency, based on the notion that public sectoi manageis aie hampeied by iules and
iegulations, and have few incentives to take iisks and to be innovative and seivice-oiiented.
Peifoimance management is also expected to inciease accountability because cleai and
explicit manageiial taigets, combined with manageiial autonomy and incentives to peifoim,
make it easiei to establish the basis foi manageiial accountability and to achieve outputs.
Iuithei, accoiding to Theikildsen (2OO1), this in tuin incieases political accountability by

making it easiei foi manageis to match taigets with political piioiities. Politicians can, in
tuin, hold manageis accountable foi theii peifoimance, and peifoimance taigets can make
seivice piovision moie tianspaient to customeis.
Accoiding to this line of ieasoning, incieased tianspaiency and explicit peifoimance taigets
aie fuithei steps towaid bettei demociatic contiol and accountability of the buieauciacy. It
is a means of getting iesults fiom individuals, teams and the oiganizations at laige, and
allows foi the development of indicatois against which peifoimance can be latei measuied.
Peifoimance management systems aie cuiiently in place in Botswana, Chana, South Afiica
and Uganda.
Peifoimance contiacts oi agieements specify standaids of peifoimance oi quantifiable
taigets which a goveinment iequiies public officials oi the management of public agencies
oi ministiies to meet ovei a stated peiiod of time (Hope, 2OO2). As pait of the peifoimance
oiientation in goveinment, the common puiposes of peifoimance contiacting aie to claiify
the objectives of seivice oiganizations and theii ielationship with goveinment, and to
facilitate peifoimance evaluation based on iesults instead of confoimity with buieauciatic
iules and iegulations. The setting of specific peifoimance taigets, in a foimat that can be
monitoied, is intended to piovide a basis foi evaluating peifoimance and impioving
accountability in the public enteipiise sectoi. This illustiates the shift in emphasis fiom the
input and pioceduie-oiiented contiols of the past to the new paiadigm of output oi iesults-
oiiented contiols.
In line with the new institutionalist peispective in PSM iefoims, as ieflected in public choice
theoiies, and in the policy piesciiptions based on them, peifoimance contiacting between
goveinments and public enteipiises (PEs) is incieasingly being applied as an instiument foi
iestiuctuiing PEs and foi managing the Coveinment-PE inteiface. Undeilying peifoimance
contiacting, and in line with NPM, is the belief that while gianting PE management
opeiational autonomy, theie is a need to hold it accountable foi peifoimance.
In little moie than a decade, Chana has tiansfoimed the stiuctuie and stiategy of its iuial
watei supply sectoi. By 2OOO, distiict assemblies and communities played a significant iole

in planning supplies. The new policy and stiuctuie has attiacted extia funds, and
acceleiated the woik. This iefoim piocess staited with an extended dialogue with the majoi
stakeholdeis in the sectoi, out of which a new iuial watei and sanitation policy was
developed. The policy was then implemented in seveial laige pilot piojects, suppoited by a
numbei of exteinal agencies, and finally the lessons fiom those piojects weie incoipoiated
into the national piogiamme itself. The success of this appioach was due to the fact that
national and inteinational NCOs weie contiacted to build the capacity of local-level NCOs
and CSOs. The Community Watei Supply Agency (CWSA) was cieated as a facilitating
agency iathei than an implementei. CWSA, as a semi-autonomous public-sectoi agency,
signs an annual peifoimance contiact with the State Enteipiise Commission. It is
committed to staying efficient and lean, below 2OO staff, and highly decentialized to its ten
iegional offices.
Whilst theie have been some constiaints on the capacity to implement peifoimance
contiacting in public enteipiises in Afiica, the Woild Bank has appioved peifoimance
contiacts as one of the piincipal measuies of iefoim foi PEs, and the system has been
adopted in a numbei of Afiican countiies including Nigeiia, Chana and the Cambia.
Pnliticizatinn and patrnnagc
Civil seivice iefoim effoits aiound the woild, to vaiious extents, have all stiessed the need
foi incieased de-politicization of the civil seivice, piomoting the ideal of a neutial and meiit-
based civil seivice. Evidence shows howevei that puie meiit-based systems aie the exception
and that political appointments aie common in most civil seivices. Those in favoi of a
pationage system aigue that it allows foi the establishment of a cadie of loyal and efficient
civil seivants. It also enhances demociacy, as it enables the iegulai iotation of senioi staff in
accoidance with the will of the people. Those in favoi of the meiit system aigue that it
complies bettei with a iights-based appioach to civil seivice management (non-
disciimination and equality of access to public office) and that it allows foi continuity and
neutiality in the public administiation.

A moie iealistic policy line takes into consideiation the pios and cons of both the meiit
system and the pationage system, in a given political and socio-economic context. In
geneial, pationage should be exceptional and iestiicted by means of efficient checks and
balances that limit the discietionaiy poweis of politicians ovei ieciuitments and piomotions.
Theiefoie, pationage in the civil seivice should be linked to meiit selections, embedded in a
stiong ethical fiamewoik and counteibalanced by an effective system of checks and
balances. The following elements ensuie that this is achieved:
O Identification and publication of the complete list of positions that aie consideied
political in natuie.
O Cleai pioceduies foi ieciuitment and piomotion, ensuiing tianspaiency in the
selection piocess and inclusion of foimal checks and balances and appeals in the case
of aibitiaiy action.
O Restiicted discietionaiy poweis of politicians ovei selection piocesses (shoit-listing of
candidates should be the sole iesponsibility of a pluialistic selection panel)
O A code of conduct that stiesses the political neutiality and loyalty of the civil seivants
(i.e. they commit to execute and suppoit the policies of the goveinment in place).
O Constitutional and legal guaiantees (Civil Seivice Act) stiessing the iight of
candidates foi (non political) public employment, not to be disciiminated against
because of theii sex, ethnic oiigin, political, economic, ieligious, philosophical,
cultuial oi social opinions oi conditions.
4.3 Expcricnccs with CSR Rcfnrm
4.3.1 Expcricncc in Dcvclnping Cnuntrics
Theie aie few studies that compaie developing and tiansition countiy implementation of
CSA iefoim in iecent yeais. Some iefoim initiatives in those countiies have tiied to
implement diffeient elements of NPM with vaiying degiees of failuie and success.

auses of reform
Most authois agiee that the factois that have diiven iefoim in developing countiies include
one oi moie of the following: fiscal ciisis and excess staffing, dissatisfaction with
goveinment seivices, declining confidence in goveinment and citizens demands foi changes
in the goveinment, giowing inteinational competition, the piesence of new iefoim ideas
most notably NPM ievolutionaiy developments in Infoimation technology, concein with
pationage and coiiuption, low qualifications of peisonnel, low salaiies, and weak
management systems. Studies of tiansition countiies confiim the obvious piessuie foi
iefoim cieated by the collapse of authoiitaiian iegimes staiting in 1989. Exteinal piessuies
fiom donois, especially in Afiica, Euiopean Union, in the case of tiansition countiies,
should be added to the list of causal agents.
In view of the diveisity of factois and the many diffeiences among countiies in this
categoiy, it is not suipiising that theie is no consensus by scholais on the ielative
impoitance of each of these ieasons acioss countiies and iegions. At the same time, it is
evident that many of the above-mentioned factois, whethei once-ovei (like changes of
iegime) oi continuous (like infoimation technology, inteinational competition and the
giowing powei of public opinion), aie exogenous souices of piessuie foi iefoim agendas to
which goveinments aie iesponding with vaiying degiees of enthusiasm
bjectIves and components
Some of these developing and tiansition countiies have attempted to intioduce vaiious
elements of NPM ovei the last numbei of yeais, while otheis have puisued a mixed stiategy
in which theie aie elements of the basic model (Webeiian) and NPM. As noted in section
above, a numbei of wiiteis have categoiized thiee iefoim objectives: affoidability, impioved
peifoimance, and accountability. And as countiy context has become incieasingly
impoitant foi the design of iefoim, expectations and peifoimance measuies, diagnosis, and
the package of specific iefoim pioposals all diffei to quite a degiee as a iesult.
The intioduction of NPM has been uiged, in many cases, by inteinational oiganizations.
Theie aie some ciitics iegaiding the iole of these oiganizations in influencing the iefoim

agenda of these countiies. Ioi some authois, like Ingiaham, theie has been an imposition of
"westein iefoim models as a condition of inteinational aid."
mpIementatIon and resuIts
Scholais agiee that CSR iefoim effoits in developing and tiansition countiies ovei the last
2O yeais have been difficult to implement and sustain ovei time, and that those difficulties
piobably explain the high incidence of failuie. But theie aie diffeiing explanations on the
ieasons behind these difficulties. Some ieasons aie ielated to the political piocess behind
CSR iefoim implementation. CSR iefoim implementation thieatens the status quo and
alteis the balance of powei within society. It cieates winneis and loseis within and outside
the civil seivice. As Schneidei and Heiedia point out "CSR appeais to be the one |public
sectoi iefoim] most difficult to implement and institutionalize". The difficulty aiises fiom
the loss of powei and influence politicians face as they move fiom discietionaiy to meiit-
based management. But this difficulty is incieased by the technical and administiative
complexities embedded in designing and managing a meiit based peisonnel system. In
many developing countiies, theie is no technical and manageiial capacity within the civil
seivice to manage that system and theie may not be othei suppoiting oiganizational
aiiangements that make implementation of CSR iefoim moie feasible.
Othei scholais aigue that implementation difficulties and lack of sustainability of CSR
iefoim inteiventions in developing countiies aiise fiom CSR iefoim designs. Designs that
eithei use a single template to addiess highly heteiogeneous institutional settings oi
intioduce iecent OECD manageiial models that may not be suitable. This opens the
question on how much of the OECD iecent manageiial iefoim expeiience could be
tiansfeiied and be suitable foi developing countiies.
Theie is consideiable debate on the issue of tiansfeiability, and paiticulaily on NPM
applicability and suitability, foi developing countiies. Some scholais caution against dtrcctly
tran8fcrrtng manageiialist models to developing countiies, pointing out the iisks of
misdiagnosing the pioblem. In countiies wheie pationage and infoimality still dominate,
manageiialism may not be the most suitable solution.

4.3.3 Ratinnalc fnr Civil Scrvicc Rcfnrm in Ethinpia
Spanning ovei a decade, Ethiopia's tiansfoimation agenda has evolved ovei thiee phases
(1992, 1996-2OOO and 2OO1 onwaids) in iesponse to a giowing awaieness that peivasive
deficits in capacity have hampeied the ability of the state to secuie the fundamentals of
poveity ieduction and demociatic development including iesponsive seivice deliveiy,
citizen empoweiment, and good goveinance (Ministiy of Capacity Building, 2OO4).
Howevei, the fiist iefoim phase in the eaily days of EPRDI iule was politically motivated
by aiming to ioot out an entienched but 'aiticulate section of the national elite' that
iemained fiom the Deigue iegime (Clapham 1995: 131).
Iollowing the consolidation of powei, the Coveinment also acknowledged the deep
institutional constiaints on basic functions such as policymaking, seivice deliveiy, and
iegulation. Coie public management systems at the fedeial and iegional levels weie
hampeied by outdated civil seivice legislation and woiking systems, the absence of a
medium teim planning and budgeting fiamewoik, ineffective financial and peisonnel
management contiols, inadequate civil seivice wages and inappiopiiate giading systems,
pooi capacity foi stiategic and cabinet-level decision-making, and insufficient focus on
modein manageiial appioaches to seivice deliveiy.
In iecognition of these constiaints, the Coveinment embaiked on a compiehensive Civil
Seivice Refoim Piogiam (CSRP) in 1996, maiking the second iefoim phase. Indicative of
Ethiopia's "fiist geneiation" capacity building effoits, the CSRP sought to build a faii,
tianspaient, efficient, effective, and ethical civil seivice piimaiily by cieating enabling
legislation, developing opeiating systems, and tiaining staff in five key aieas: (i)
Expendituie Contiol and Management, (ii) Human Resouice Management, (iii) Seivice
Deliveiy, (iv) Top Management Systems, and (v) Ethics.
Successful effoits (foi example, budgeting, planning, and accounting iefoims) at the fedeial
level weie intended to piovide piototypes foi iegional authoiities. The CSRP was also
influenced by the inteinational New Public Management tiend, and iefoims in New
Zealand in paiticulai. The CSRP also faced some delays due to the Ethio-Eiitiea boidei

conflict 1998-2OOO. Howevei, some achievements which may pave the way foi full
implementation of the CSRP weie witnessed. Among othei things, the development of new
legislation (foi example, a financial management pioclamation, a civil seivice law, a code of
ethics, complaints-handling pioceduies, and a seivice deliveiy policy) as well as opeiating
systems foi budgeting, piocuiement, and some aspects of peisonnel management such as
salaiy suiveys and iecoids management.
The most iecent iefoim phase began in Septembei 2OO1, with the launch of the Public
Sectoi Capacity Building Suppoit Piogiam (PSCAP), which also ievived the CSRP. The
Coveinment has moved quickly to piepaie the CSRP foi its "full implementation" acioss all
iegions and levels of goveinment. Pilot studies and special piogiams on peifoimance and
seivice deliveiy impiovements in selected Ministiies, Agencies, and Buieaus have been
initiated. These include, the establishment of focal points iesponsible foi iefoim
implementation acioss tieis of goveinment, a seiies of woikshops undeitaken to sensitize
the political leadeiship and civil seivants acioss the countiy, and the launch of a "special
piogiam" of Peifoimance and Seivice Deliveiy Impiovement Policy (PSIP) in piioiity
Ministiies, Agencies, and Buieaus designed to deepen the implementation of peifoimance
management. PSIP, along with othei iefoim piogiamme aieas, have piomoted Business
Piocess Reengineeiing (BPR) as a key management initiative, paiticulaily in those
ministiies that inteiface diiectly with the piivate sectoi.
Howevei, iecently the peiception is that the CSRP in geneial is losing momentum, and
following an appiaisal of PSCAP, the following challenges iemained including inefficiencies
deiived fiom pooi financial management, pooi incentives and a lack of stiategic oi
peifoimance oiientation acioss all levels of goveinment.
Theiefoie, in the light of the CSRP and othei iefoim piogiams included in the package of
SAPs, the Ministiy of Capacity Building iefoimulated the following objectives foi the CSRP
in 1une 2OO3:
To shake off basic weaknesses ingiained in the existing Civil Seivice
inheiited fiom the past iegime

To build the capacity of the Civil Seivice so that it will execute the policies
and piogiams of the goveinment successfully
To facilitate the Civil Seivice to piovide efficient and faii seivices to the
To enhance tianspaiency and accountability in the Civil Seivice
To build a Civil Seivice that stands foi gendei and ethnic equality and iights
To build a Civil Seivice that is ethically sound and fiee of coiiuption,
nepotism, and favoiitism
Although these objectives enjoy bioad suppoit in the countiy, the challenge is whethei the
goveinment is capable of biinging about the envisaged changed in the system. Theie aie
doubts about the enviionmental ieadiness, political commitment, and that the iequiied level
of technical expeitise is in place to institute the change.
As Peteison (2OO1: 138) notes: Ethiopia's CSR is an ambitious piogiamme that would tax
the capabilities of any developed oi developing goveinment. The stiategy document of the
iefoim is an impiessive bluepiint foi bioad tiansfoimation. Whethei the iefoim is too
ambitious depends on how implementation is sequenced. Institutional capacity, paiticulaily
in ielation to human iesouice development, iemains a majoi obstacle to iefoim in Ethiopia
(Mengistu and Vogel, 2OO6). Accoiding to Cebiiel (2OO2), of the 3OO,OOO-plus civil seivants,
less than 17% held a college diploma and the majoiity of these weie concentiated in majoi
cities such as Addis Ababa. The cieation of an enabling enviionment foi the iefoim is one
of the demanding tasks of acquiiing the iesouices to build the technical capabilities and to
develop human iesouices. As in the case of most Afiican countiies, a consoitium of donois,
cooidinated by the Woild Bank, have extended loans to finance the PSCAP, which has the
following objectives:
To impiove the scale, efficiency, and iesponsiveness of public seivice deliveiy
at the Iedeial, iegional, and local level
Empowei citizens to paiticipate moie effectively in shaping theii own

Piomote good goveinance and accountability (Ministiy of Capacity
Building, 2OO4: 8)
Cleaily, to attain these objectives iequiies changes in buieauciatic values. As Mengistu and
Vogel (2OO6: 2O9) obseive, 'the cuiient lack of capacity piesents a seveie, fundamental
goveinance challenge foi Ethiopia'. Howevei, iefoims aie sweeping thiough public
administiation in Ethiopia.
Scctinn Twn: Rcfnrm nf thc Machincry nf Cnvcrnmcnt
Deai distance leainei, welcome to the second section of the thiid unit. The expiession
'machineiy of goveinment' iefeis to the allocation and ieallocation of functions between
depaitments and includes changes in the inteinal stiuctuie of depaitments, the allocation of
functions within depaitments, and incieasingly, the allocation of functions to bodies othei
than ministeiial depaitments, with the cieation of executive agencies and piivatization of
goveinment bodies. Stiuctuial iefoim of the machineiy of goveinment has its oiigins in the
technical assistance to the public administiation offeied in the eaily 196Os but has ie-
emeiged in iecent yeais as a key element in institutional iefoim. Decentialization is, of
couise, the most commonly iefeiied to iefoim to the stiuctuie of goveinment. In addition,
new tools, notably those based on Infoimation Communication Technology, have opened
up new possibilities foi cooidinating the diffeient bianches of goveinment bettei, and foi
foiging a moie diiect link between the citizen and goveinment.
Scctinn Objcctivcs
Aftei the completion of this section you will be able to,
Define decentialization
Elaboiate the objectives of decentialization
Explain the dimensions of decentialized management
Discuss how decentialization is viewed in the New Public Administiation
2.1 Dcccntralizatinn

! How do you reIate decentraIIzatIon wIth the NPM?
Deai distance leainei you have a gieat deal of clue about decentialization since you giasped
the concept thiough othei modules. Howevei, in this Pait the discussion will focus on
decentialization as a dynamic component of public sectoi iefoim in constiucting the New
Public Administiation (NPA). In lieu of this, the section specifically focuses on the
objectives of decentialization and tiies to show dimensions of decentialized management.
Moieovei, it tiies to show how decentialization is viewed in the context of the NPA.
One of the cential elements in the changing iole of the public sectoi and the constiuct of the
New Public Administiation (NPA) is the concept of decentialization. Decentialization
iefeis to the tiansfei of authoiity oi iesponsibility foi decision-making, planning,
management, oi iesouice allocation fiom the cential goveinment to its field units, distiict
administiative units, local goveinment, iegional oi functional authoiities, semi-autonomous
public authoiities, paiastatal oiganizations, piivate entities and non-goveinmental piivate
voluntaiy oiganizations. Highly centialized foims of goveinance have been blamed foi the
geneiation of administiative pathologies including communication oveiload, iesponse
times, filteiing and distoition of infoimation, a failuie to giasp spatial connections in
sectoial piogiamming, and so on. Moieovei, centialized states tend to be uniesponsive to
local needs as well as the needs of the disempoweied in paiticulai.
The piimaiy objectives of decentialization theiefoie include, but aie not limited to,
O Oveicoming the indiffeience of goveinment buieauciats to satisfying the needs of the
O Impioving the iesponsiveness of goveinments to public conceins
O Incieasing the quality of seivices piovided.
O To enable the population to paiticipate in the piocess of goveinance,
O To devise a fiamewoik foi allowing the community's inteiests to be iepiesented in
goveinment decision-making stiuctuies

Accoiding to Boiins 1994, Hope 2OO2, and Silveiman 1992, within the context of the NPA,
decentialization is seen as the means foi:
O Coveinments to piovide high-quality seivices that citizens value,
O Incieasing manageiial autonomy, paiticulaily by ieducing cential administiative
O Demanding, measuiing, and iewaiding both oiganizational and individual
O Enabling manageis to acquiie human and technological iesouices to meet
peifoimance taigets,
O Cieating a ieceptiveness to competition and an open-mindedness about which public
puiposes should be peifoimed by public seivants as opposed to the piivate sectoi,
O Empoweiing citizens thiough theii enhanced paiticipation in decision-making and
development planning and management,
O Impioving economic and manageiial efficiency oi effectiveness,
O Enhancing bettei goveinance
Decentializing management is a stiand of NPM deiived fiom "manageiialism" which is
pait of an effoit to "de buieauciatize" and "delayei" the hieiaichies within the public
seivice. The key concein is to give manageis the fieedom to manage theii units in oidei to
achieve the most efficient output.
! hat are the dImensIons of decentraIIzed management? hat Is agentIfIcatIon?
The five main dimensions to decentialized management aie as follows:
1. Brcaking up nf mnnnlithic burcaucracics intn autnnnmnus agcncics: The fiist and key
tiend is that, tiaditionally, monolithic public buieauciacies aie downsizing, contiacting
out functions and bieaking up into moie autonomous business units oi agencies. This is
often called agentification. Downsizing aiises fiom the concein foi the size and cost of
public-sectoi employment, which has not only contiibuted to the giowing fiscal ciisis
and budget deficits, but also depiessed ieal wages and maintenance in capital budgets.

Like in the piivate sectoi, goveinments aiound the woild have iesponded by putting
limits on the size and cost of the public sectoi. Chana and Uganda, foi example, have
expeiienced massive cuts in the size of theii civil seivices, in the case of the foimei by
almost half, and the lattei by almost 4O pei cent since 1987. The Zimbabwean civil
seivice has also been cut by about 12 pei cent since the commencement of civil seivice
iefoim in 1991.
2. Dcvnlutinn nf budgcts and financial cnntrnls: Agentification iequiies the devolution of
budgets to give manageis incieased contiol thiough which they aie held iesponsible
thiough peifoimance taigets. In piinciple, these agencies have gieatei manageiial
flexibility in the allocation of human iesouices (including the iight to hiie and fiie) in
ietuin foi gieatei accountability foi iesults. In Chana and Uganda, the Customs and
Excise, and Inteinal Revenue Depaitments weie hived off fiom the civil seivice to foim
sepaiate agencies in the 198Os. The aim was to sepaiate executive functions fiom policy-
making and fiee manageis fiom civil seivice iules and conditions as well as offeiing
them bettei incentives linked to peifoimance.
3. Dcvclnpmcnt nf quasi-markcts: The development of quasi-maikets in public sectoi
tiansactions is a key featuie of agentification. In quasi-maikets, non-piofit oiganizations
compete with piofit oiiented ones foi public contiacts, and iequiie a sepaiation of
pioduction and piovisioning functions of depaitments, i.e. the cential policy units may
be entiusted with the piovisioning and the executive agencies with pioduction. The
objective of this dimension of decentialized management is to divoice the piovision
fiom the pioduction of public seivices.
4. Scparatinn nf prnvisinn and prnvisinning functinns: The sepaiation of piovision fiom
pioduction implies making a distinction (oiganizational and financial) between defining
the need foi paying foi public seivices and actually pioducing those seivices. Lacey
outlines how this foim of manageiialism was adopted in the United Kingdom National
Health Seivice (NHS) wheie autonomous hospitals (NHS Tiusts) pioduce seivices foi
which Distiict Health Authoiities piovide financing by puichasing the seivices. In New
Zealand, wheie the iefoims aie believed to be diiven by a stiong commitment to
tiansaction costs economics and piincipal-agent theoiy, effoits have been made to

sepaiate activities that have a cleai commeicial content fiom administiative ones, and to
coipoiatize the foimei in a seaich foi piofitability in the deliveiy of seivices.
The decentialization of the decision-making piocess fiom Uganda Wildlife Authoiity
headquaiteis to the field empoweied the pieviously disenfianchised field-based staff and
allowed some autonomy foi each piotected aiea in teims of the development of
management plans, the disbuisement of funds against annual opeiating plan and the
evaluation of the ievenue geneiating potential of each Piotected Aiea. Adaptive
management piovides an effective means foi mitigating iisks. Pioject expeiience, as well as
vaiious Quality Assuiance Cioup ieviews, showed that many coiiect if unpopulai oi
iisky decisions could be implemented effectively if theie is stiong management suppoit
foi them.
5. Adnptinn nf ncw fnrms nf cnrpnratc gnvcrnancc: The final dimension of management
decentialization is the adoption of new foims of coipoiate goveinance and the boaid of
diiectoi's model, which aims to ieduce the powei of elected iepiesentatives and
minimize the influence of laboui unions on management.
Decentialization is theiefoie ciucial to the institutional iefoims of Afiica's public sectois
and iepiesents a majoi element in the ieconstiuction of the public sectoi and the constiuct
of the NPM. Indeed, decentialization falls neatly into the neo-libeial logic of divesting the
cential state of many of its iesponsibilities and encouiaging the giowth of maiket foices.
Decentialization also constitutes a cential pillai of the demands foi iestiuctuiing the Afiican
State along moie distiibutional lines. It has been used especially in countiies that have been
tioubled by ethnic conflicts such as Ethiopia, Mali, Nigeiia, Senegal and Uganda. Since
decentialization is seen as a basic pioblem of management oi public administiation, donois
have been less inhibited in inteivening in this aiea than in demociatization oi othei
goveinance iefoims that aie peiceived to be much moie political.
Closely ielated to decentialized management is the concept of subsidiarity. Subsidiaiity is
the piinciple of devolving political decisions to the lowest piactical level. It is a piinciple of
management based on shaiing authoiity, iesponsibility and piovisions foi moie efficiency in

the pioduction and management of iesouices and seivices. Subsidiaiity diffeis fiom
"devolution" oi "delegation", in that the powei oiiginally iests with the smallei, lowei and
moie iegional entities, and is delegated "upwaids" at the discietion of the lattei, and not at
the discietion of the cential authoiity. It implies a kind of ieveise delegation, namely a
delegation of powei fiom the outside to the centie.
Benin's national agiicultuial ieseaich was ie-oiganized so that decisions would be made at
the iegional level. Since 1997, the iegional piogiam's piioiity setting foi development-
oiiented agiicultuial ieseaich uses a bottom-up appioach (i.e. fiom the local level to the
iegional, national and sub iegional (West Afiica). The subsidiaiity piocess is based on
diffeient inteifaces (local committees, two iegional committees, and a national committee)
and it facilitates dialogue between ieseaich, vaiious useis and clients. In oidei foi
subsidiaiity to succeed the inteifaces must be effective and sustainable. Using this bottom-up
appioach, Benin's agiicultuial ieseaich has made piogiess in ieseaich management,
scientific coopeiation, fundiaising and ieseaich implementation
2.2 Privatizatinn
! hat Is decentraIIzatIon and what forms does It take?
Piivatization, oi the tiansfei of State assets to the piivate sectoi, is a cential component of
downsizing. It iefeis to the tiansfei of contiol and iesponsibilities foi goveinment functions
and seivices to the piivate sectoi piivate voluntaiy oiganizations oi piivate enteipiises.
Piivatization in Afiica has taken seveial foims. It has included:
O Commeicializing of goveinment seivices which aie contiacted out to an outside
O 1oint ventuies between goveinment agencies/ministiies and piivate entities,
O Sale of some goveinment seivices oi functions, such as watei supply oi
telecommunications, to the piivate sectoi,
O Management contiacts foi the piivate sectoi to manage specific goveinment
functions oi seivices such as postal seivices,

O leasing of goveinment assets that aie used to piovide public seivices,
O Cianting of concessions to piivate entities to opeiate and finance public seivices
deliveiy in pait.
Piivatization, it is aigued, can contiibute to fiscal stability in a numbei of ways. Cains can
be made on the expendituie side by withdiawing subsidies to loss-making companies and
imposing haid budget constiaints on the economic decisions of manageis. Also, the ievenue
deiived fiom selling state enteipiises to the public can help goveinments close theii fiscal
gaps. In Cuinea, foi example, such sales iesulted in a ieduction of goveinment-owned assets
by moie than 5O pei cent duiing the peiiod 198O-1991 (Hope, 2OO2). Similaily, in Togo,
duiing the same peiiod, the goveinment ieduced its owneiship of pioducing assets by 38 pei
cent. Oveiall, the total numbei of public enteipiises in Afiica is estimated to have fallen by
about 37 pei cent between 199O and 1995, and this figuie is likely to have incieased
significantly since then.
2.2.1 Cnmmcrcializatinn
Despite the giowing inteiest in piivatization, it is cleai that Public Enteipiises will continue
to featuie piominently in the oiganizational landscapes of developing countiies. It is
theiefoie impoitant to be able to impiove theii peifoimance. Commeicialization is a
technique of managing public enteipiises (PEs) oi state owned enteipiises (SOEs) to make
them piofitable. In many public enteipiises, peifoimance pioblems aiise piimaiily fiom
insufficient autonomy and authoiity foi manageis at the level of the fiim, paiticulaily in
ielation to piicing, piocuiement, staffing, peifoimance management, and maiketing, and
fiom the State's unwillingness to cieate owneis who can piotect the capital employed. By
using the maiket-based solution, PEs becomes moie like piivate enteipiises by placing a
stiongei emphasis on piofitability as the majoi ciiteiion of peifoimance. They aie
empoweied with gieatei manageiial flexibility in iesouices management, bettei pay and
gieatei accountability foi iesults.
Ethiopian Aiilines, foimed in 1946 as a goveinment-owned enteipiise, has established a
woild ieputation foi technical excellence, manageiial efficiency and financial soundness.

This ieputation has suivived the political and economic difficulties that the countiy has
faced befoie and aftei the ievolution in 1974. The aiiline has developed a highly piofitable
netwoik of inteinational and domestic ioutes and ioutes within Afiica geneiate ovei a
quaitei of its ievenues. The foundations of its success lay in the management appioach with
Tians Woild Aiilines duiing the 195Os. Not only was the technical quality of the fleet of
aiiciaft continuously updated, but the technical capacity to maintain aiiciaft and to tiain
ciews, mechanics, cabin staff, and maiketing and financial staff was also built up. These
facilities now piovide seivices not only to Ethiopian Aiilines but also to othei Afiican and
Middle Eastein aiilines, many of which have seconded Ethiopian aiiciews and technicians.
Apait fiom a shoit peiiod in the late 197Os, political impeiatives have not intiuded on the
selection of senioi manageis. The diiectois include cabinet ministeis, but they have nevei
inteifeied day-to-day management. Route development, piicing policy, and hiiing and fiiing
iesponsibilities have all iested with management. Only on wage and salaiy levels has theie
been a political inteiest in maintaining levels consistent with othei local employees. Beyond
technical issues, management's piimaiy success has been in maintaining a puiely
commeicial attitude towaids its activities. Iinancial viability has been the dominant
ciiteiion foi both old and new ioutes. Management exacts tight financial discipline and
iequiies timely payment fiom the Ethiopian goveinment eithei foi tianspoiting officials on
scheduled flights oi foi using its aiiciaft.
The iesult has been a net piofit eveiy yeai (except 1979) and a willingness of inteinational
lendeis to finance new aiiciaft. The aiiline ieceives no subsidies fiom the goveinment,
except foi a diminishing tax exemption. Its financial independence on both ievenue account
and capital account has left manageis fieei to manage and the goveinment less inclined to
intiude. The final pioduct is a low-cost and efficient seivice that both suppoits national and
iegional integiation and eains foieign exchange fiom its inteinational opeiations.
Maiket-based appioaches to enteipiise iefoim might entail some combination of the
following measuies to shift powei away fiom State buieaus to the poitfolio management
agencies, banks, and boaids of diiectois:

W Tiansfoiming the enteipiise into a piofit-maximizing commeicial entity and having
this policy communicated unequivocally by the owneis,
W Imposing stiict budgetaiy constiaints,
W Teiminating goveinment subsidies to the enteipiise,
W Appiaising and iewaiding the peifoimance of individuals and gioups in ielation to
theii achievement of oiganizational goals, and
W Assigning enteipiise management the powei to hiie and fiie woikeis and evaluate
theii peifoimance, set pioduct piices, and decide on pioduct lines and output.
2.2.2 Cnntracting Out
"Contiacting out" iefeis to the out-souicing oi buying in of goods and seivices fiom
exteinal souices instead of pioviding such seivices in-house. It is a method of piivatization
that is incieasing in populaiity due to the emphasis on efficiency and seivice deliveiy.
Contiacting may be between a public oiganization and a piivate-sectoi fiim oi between one
public oiganization and anothei.
The iesponsibility of the public oiganization is to specify what is wanted and let the piivate
oi voluntaiy sectoi piovide it. Contiacting out, it is assumed, leads to cost savings fiom
inefficient public buieauciacies that aie moie intent on satisfying the wishes of pioducei
gioups than of consumeis. Moieovei, piivate contiactois can be penalized foi pooi quality,
delays and lack of ieliability.
In Afiica, theie have been consideiable effoits, in iecent yeais, to extend the scope of its
application to a widei iange of public oiganizations and activities than befoie. Hope (2OO2)
iepoits how in Botswana, paiastatals have contiacted out a numbei of seivices, including
those ielated to maintenance and secuiity. Similaily, in Zimbabwe, non-clinical health
seivices such as cleaning, laundiy, cateiing, secuiity, maintenance and billing aie contiacted
out, while clinical seivices aie contiacted out on a limited scale.


2.3 Rcfnrms Aimcd At Imprnving Public Scrvicc Dclivcry
2.3.1 Tntal quality managcmcnt (TQM)
! hat t8 Tctal Qualtty anagcmcnt?
Total Quality Management (TQM) is a management technique that emphasizes high-
quality seivice (Peifoimance-Oiiented Civil Seivice) and customei satisfaction (Customei-
Diiven Coveinment). TQM entails the constant impiovement of pioduct oi seivice quality
and ieliability, combined with shoitei and moie ieliable iesponse times thiough the
pioduction and sales chain oi seivice-piovision piocess. It also involves incieasing flexibility
of iesponse to customei iequiiements and a constant concein about efficiency thiough waste
elimination, the iemoval of duplication of effoit, and cuitailing oveilaps of ioles and
Management commitment is the sine-qua-non foi a successful TQM stiategy. TQM will not
be successful without line management owneiship, active involvement and leadeiship by
example. The commitment of ministeis and senioi officials has been identified as a majoi
influence on implementing successful public seivice iefoims. Such commitment must
involve a willingness to indicate a cleai piefeience foi a bettei futuie and entail the
willingness to take iesponsibility, and to accept piaise and blame. The Key issues in TQM
! hat are the key Issues In TotaI QuaIIty Management?
A. Pcrfnrmancc-Oricntcd Civil Scrvicc:
One solution that has been pioffeied foi the pioblems of inadequate iesouices and the
incieasing demand foi effective seivices, low levels of public tiust, and incieasing demand
foi accountability in goveinment, is teimed peifoimance oiiented civil seivice. Peifoimance-
based management iequiies that manageis develop a ieasonable level of agieement on
piogiam goals and stiategies foi achieving these goals. Manageis should develop
peifoimance measuiement systems to document peifoimance and suppoit decision-making.

This peifoimance infoimation is then used foi managing the oiganizations and piogiam and
also foi pioviding feedback to key stakeholdeis on impioved peifoimance.
The key components of peifoimance-based management aie:
W Developing a ieasonable level of agieement on mission, goals and stiategies foi
achieving the goals,
W Implementing peifoimance measuiement systems of sufficient quality to document
peifoimance and suppoit decision-making, and
W Using peifoimance infoimation as a basis foi decision- making at vaiious
oiganizational levels
B. Custnmcr-Drivcn Cnvcrnmcnt
In applying TQM, the oiganization should focus on what the population (customeis) want,
not what administiation thinks they need. To impiove efficiency, pioductivity and integiity
in the public seivice, effoits should be piimaiily focused on cieating a cultuie of
commitment to identifying and meeting customei iequiiements thioughout oiganizations
and within available iesouices. It follows that seiving the customei is moie impoitant than
seiving the oiganization.
This stiategy has been the main focus of iefoims in Malaysia, Namibia, Singapoie and the
United Kingdom. The Malaysian Coveinment has emphasized thioughout the public
seivice that the customei is paiamount. The Citizens Chaitei (United Kingdom) piovides
specific taigets such as hospital waiting times and tiain delays. Customei-diiven goveinment
became foimal policy in the USA in 1993 thiough the National Peifoimance Review (NPR)
iepoit. The Clinton Administiation used the NPR iepoit to set a goal of "pioviding
customei seivices equal to the best in business".
Tianspaiency Inteinational (2OO3) has iecently iepoited that the Mauiitius Citizens Chaitei
was designed as an aid to incieasing populai awaieness of coiiuption. The main objective
was to devise and disseminate a document with guidelines that individuals can follow to
pievent coiiuption and piomote integiity. The Chaitei also attempts to infoim and advise

the geneial public on the natuie and foims of coiiuption. Cential to the piemise of the
Chaitei is the impeiative of making the geneial populace awaie of its collective and
individual iesponsibility to fight coiiuption.
C. Quality and Standards
Public sectoi management iefoims would be incomplete without addiessing the issue of the
quality of pioducts deliveied to the consumeis. The piivate sectoi, as the engine of giowth,
cannot piovide satisfactoiy seivices and pioducts without the active paiticipation of a public
sectoi that contiols quality and standaids. An example of a standaids authoiity in Afiica is
the Quality and Standaids Authoiity of Ethiopia (QSAE). QSAE was established in 197O to
piomote quality management piactices as one of its cential objectives. In addition to
standaids development, ceitification, metiology and testing, the vision of the oiganization is
to be an inteinationally iecognized quality, standaids, metiology and testing oiganization
that suppoits the national effoit towaids economic development and social piogiess. The
Authoiity has a quality policy, which is committed to continuously satisfying the needs and
expectations of its customeis in a piocess of continuous impiovement.
2.3.2 Busincss Prnccss rc cnginccring
Business piocess ieengineeiing (BPR) began as a piivate sectoi technique to help
oiganizations fundamentally iethink how they do theii woik in oidei to diamatically
impiove customei seivice, cut opeiational costs, and become woild-class competitois. A key
stimulus foi ieengineeiing has been the continuing development and deployment of
sophisticated infoimation systems and netwoiks. The Business Piocess Reengineeiing
method (BPR) is the fundamental ieconsideiation and iadical iedesign of oiganizational
piocesses in oidei to achieve diastic impiovement of cuiient peifoimance in cost, seivices
and speed. Theii claim was simple: most of the woik being done does not add any value foi
customeis, and this woik should be iemoved, not acceleiated thiough automation. Instead,
companies should ieconsidei theii piocesses in oidei to maximize customei value, while
minimizing the consumption of iesouices iequiied foi deliveiing theii pioduct oi seivice.

A Fivc-Stcp Apprnach tn Busincss Prnccss Rccnginccring
Davenpoit (1992) piesciibes a five-step appioach to the Business Piocess Reengineeiing
1. Dcvclnp thc busincss visinn and prnccss nbjcctivcs: The BPR method is diiven by a
business vision which implies specific business objectives such as cost ieduction, time
ieduction, output quality impiovement.
2. Idcntify thc busincss prnccsscs tn bc rcdcsigncd: most fiims use the 'high impact'
appioach that focuses on the most impoitant piocesses oi those that conflict most with the
business vision. A lessei numbei of fiims use the 'exhaustive appioach' that attempts to
identify all the piocesses within an oiganization and then piioiitize them in oidei of
iedesign uigency.
3. Undcrstand and mcasurc thc cxisting prnccsscs: to avoid the iepeating of old mistakes
and to piovide a baseline foi futuie impiovements.
4. Idcntify IT lcvcrs: awaieness of IT capabilities can and should influence BPR.
5. Dcsign and build a prntntypc nf thc ncw prnccss: the actual design should not be viewed
as the end of the BPR piocess. Rathei, it should be viewed as a piototype, with successive
iteiations. The metaphoi of piototype aligns the Business Piocess Reengineeiing appioach
with quick deliveiy of iesults, and the involvement and satisfaction of customeis.
! hat exactIy Is BPR In EthIopIa? hat concrete procedures are taken to Improve the pubIIc
As soon as the cuiient goveinment came to powei, it staited iigoious iefoims (fiist phase
iefoims fiom 1991 to 1995) in thiee fionts:
W Economic iefoim fiom cential planning to maiket economy
W Political iefoim fedeialism, and powei and fiscal decentialization

W Constitutional iefoim enacting the Ethiopian constitution
The question was whethei Ethiopia has a buieauciacy that is capable of doing these iefoims
oi not. The goveinment employed piivate domestic and foieign consultants to study the
implementing capacity and effectiveness of the buieauciacy. The consultants identified that
Ethiopian buieauciacy is chaiacteiized by
O Veiy hieiaichical with many non-value adding woiks/positions/staffs
O Nepotism and lack of tianspaiency and accountability, and coiiuption)
O Lack of leadeiship capacity
O Input based and not output based i.e. output not measuied.
It was difficult to undeitake iefoim with this buieauciacy. The consultants iecommended
the establishment of new institutions. The "Ministiy of Capacity Building" with the
mandate of undeitaking iefoims in all public institutions (esp. education and the civil
seivice) was established. Also "Anti-coiiuption Commission" with the mandate of avoiding
unaccountable and un-tianspaient pioceduies in public institutions was established.
Ovei time it was believed that an impoitant condition to undeitake the iefoims was to
implement BPR. It was identified that to solve the pioblems of hieiaichical buieauciacy
with many non-value adding woiks/staffs/positions, nepotism, etc, BPR is seiiously
implemented in all public institutions giadually. The ieason why the Ethiopian goveinment
adopted BPR is that the cuiient system has to be completely changed and iedesigned and
BPR can do this job.
Seivices deliveied by the public institutions aie chaiacteiized by long time taking, Costly
(high tiansaction cost), Incompetence (not up to the needs of customeis), not iesponsive,
(many complaints, questions, comments etc fiom customeis but no iesponse), not dynamic
(the woild is changing but oui public institutions aie stagnant)
People have choices when they buy pioducts fiom piivate fiims. Howevei, goveinment
seivices aie one (no choice). At the same time people have the iight to get appiopiiate and
satisfactoiy seivices fiom public institutions. As a iesult of the implementation of BPR,

painful piactices in each public office weie identified, and many non-value adding
woiks/positions aie avoided. Ioi example, it was found that deputy head depaitments weie
actually doing nothing.
At the end of the day BPR enables a 'one stop shop mechanism" wheie customeis get all
public seives in one place at low cost. So fai BPR is implemented in public offices and
publicly owned big institutions such as "the Ethiopian Telecommunication Coipoiation",
"The Ethiopian Powei Coipoiation" and goveinment banks. Howevei, piivate fiims have
not adopted it yet in Ethiopia.
The expeiiences of the Ministiy of Tiade and Industiy (MOTI), the Ethiopian Investment
Commission, and the Ethiopian Customs Authoiity aie instiuctive examples of how
institutions can be tiansfoimed to be moie iesponsive, efficient and effective. These thiee
public institutions weie taken as good examples in the IMI Countiy Repoit No. O6/27 foi
Ethiopia (2OO6). By way of highlighting the majoi achievements of the implementation of
the Civil Seivice Refoim Piogiam, the following aie woith noting:
a) Thc Ethinpian Invcstmcnt Cnmmissinn: It used to take 18 steps and 25 days on aveiage
foi an individual business peison to secuie an investment license, wheie as now aftei the
conduct of Business Piocess Reengineeiing (BPR) by the Commission it only takes an
individual 4 steps and 2 days to get his/hei investment license. The same seivice used to
take 39 steps and 1O8 days foi a company wheie as now (aftei BPR) it only takes 4 steps and
2 days. Secuiing main iegistiation ceitificates used to take 18 steps and 28 days foi an
individual businesspeison befoie the BPR wheie as now it only takes 4 steps and 2 days.
The same seivice used to take 39 steps and 96 days foi a company, wheieas now it takes the
steps and time as the individual business to secuie iegistiation ceitificates.
b) Thc Ministry nf Tradc and Industry (MOTI): It used to take 14 woiking steps
(piocesses) and two and a half days to secuie a tiade license foi an individual business
peison wheie as now (aftei the Ministiy conducted BPR), it now only takes a business
peison 6 woik steps and 34 minutes to get a tiade license. This same seivice used to take a
company 26 woiking steps and 35 days. Aftei the conduct of the BPR, it only takes the

same woik steps and time as an individual business (6 woik steps and 34 minutes,
c) Thc Ethinpian Custnm Authnrity: Secuiing loading peimits fiom Djibouti used to take
43 woik steps (piocesses) and 2 days wheie as aftei the Authoiity has been ie-oiganized and
undeitook BPR, it only takes 6 steps 15 minutes to get the seivice. Checking and fixing a
containei with a customei seal used to take 8 steps and two days befoie the BPR, wheieas
now it only takes 3 steps and 4O minutes to get the same seivice. Declaiation acceptance,
appioval, examination, ielease of expoited items and distiibution of declaiation used to take
8 steps and 2 to 15 days, wheie as now it only takes thiee steps and 26 minutes to get same
seivice foi a business entity
2.3.3 ICTs and E-gnvcrnmcnt in public scrvicc dclivcry
! How InformatIon TechnoIogy does contrIbutes In PubIIc sector reform?
Infoimation technology (IT) has been included as one of the key stiategies foi public seivice
iefoims. It is now seen as an essential facilitatoi of seivice impiovement paiticulaily when
goveinments woildwide aie facing an incieasing tiend towaids knowledge-based pioduction
and the communications ievolution. Expendituies by goveinments on computeis and
management infoimation systems have iisen iapidly in many countiies and now iepiesent
majoi items in theii budgets.
Infoimation and Communications Technology (ICT) is pivotal to modein goveinment and
fundamental to the stiategies foi public seivice iefoim. The cieation of new infoimation and
communication systems aie seen as an essential component in the cieation of
accountability. When a decision is taken, infoimation about that decision and its outcomes
must flow to all those to whom the decision makei is accountable (Heeks, 1998). Without
such an infoimation flow, and without the infoimation system to caiiy that flow, theie can
be no accountability because theie can be no knowledge of the decision.

Whilst puisuing demociatic/political piocesses, in managing iesouices, executing functions,
measuiing peifoimance and in seivice deliveiy, infoimation is the basic ingiedient.
Theiefoie, theie is gieat potential foi these tiends of infoimation-age iefoim to biing
significant benefits to Afiica because goveinment has been, and still iemains, the single
laigest collectoi, usei, holdei and pioducei of infoimation.
Infoimation is a cential iesouice foi all staff levels and foi all activities. The woik of
goveinment is thus veiy infoimation-intensive and foui main types of foimal infoimation
aie identifiable (Heeks, 2OO2):
1. Infcrmattcn tc 8uppcrt tntcrnal managcmcnt: This includes infoimation about staff foi
peisonnel management, and infoimation about budgets and accounts foi financial
management. Like the othei thiee types of infoimation, it can be used foi eveiything
fiom day-to-day opeiational implementation to long-teim policy analysis and
2. Infcrmattcn tc 8uppcrt publtc admtnt8trattcn and rcgulattcn: This includes infoimation
that iecoids the details of the main 'entities': people, business enteipiises, buildings,
land plots, impoits/expoits, etc. It is used foi a vaiiety of puiposes such as legal,
judicial and fiscal.
3. Infcrmattcn tc 8uppcrt publtc 8crvtcc8: Examples include education ( staff
iecoids), health (e.g. patient iecoids), tianspoit (e.g. passengei ieseivation
infoimation) and public utilities (e.g. customei billing infoimation).
4. Infcrmattcn madc publtcly avatlablc: Examples include piess ieleases, consultation
papeis, details of policies, laws and iegulations, and details of benefits and
Civen this infoimation-intensity, changes in infoimation systems must be an essential pait
of all iefoim initiatives in Afiica, and changes in infoimation technology will have a gieat
potential in efficiency and effectiveness gains in the public sectoi. In theoiy, eveiything that
IT can do could be done by some othei means. Howevei, in piactice, its ability to inciease
the speed and/oi ieduce the cost of infoimation tasks means it can do things that would not
otheiwise be contemplated.

E-Coveinment, whethei seen as a component of NPM oi an extension of NPM, should be
seen to encompass all ICTs in all activities of the public sectoi. The key innovation is
computei netwoiks and the thiee domains aie e-Administiation, e-Citizens, Seivices, and e-
Theie aie a giowing numbei of e-goveinment piojects in Afiica, some of which aie
contiibuting to public sectoi iefoim and deliveiing efficiency gains in seivice deliveiy. E-
Citizens and Seivices, foi example, deal paiticulaily with the ielationship between
goveinment and citizens: eithei as voteis/stakeholdeis fiom whom the Afiican public sectoi
should deiive its legitimacy, oi as customeis who consume public seivices. The key aims in
this domain include pioviding citizens with details of public sectoi activities, incieasing the
input of citizens into public sectoi decisions and actions, and impioving the seivices
deliveied to membeis of the public along dimensions such as quality, convenience and cost.
Ioi example, following difficulties in the 1994 elections, South Afiica's independent
Electoial Commission was chaiged with making suie that the countiy's second demociatic
elections in 1999 weie "fiee and faii". This election was vitally impoitant foi the stability of
the South Afiican political climate and foi ensuiing that demociatic piocesses weie solidly
in place. Thiough laige-scale implementation of unique infoimation technology application,
infoimation, education and communication (IEC) was able to ensuie that all South Afiican
citizens could have theii voices heaid. The effoit included the cieation of a nationwide
satellite-based wide-aiea netwoik and infiastiuctuie, a bai-code system used to iegistei 18.4
million voteis in just nine days, a geogiaphic infoimation system used to cieate voting
distiicts, a national common voteis' iole, a sophisticated election iesults centie foi
managing the piocess, and the tiaining of 3OO,OOO people. The massive piogiam was
completed in less than two yeais, in time foi the vote. Ioi this, the IEC ieceived the 2OOO
Computei Woild Smithsonian Awaid foi most outstanding piogiam in goveinment and
non-piofit oiganizations categoiy.
Howevei, it must be noted that, in geneial teims, the diffusion of e-Coveinment in Afiica
has been slow. It is a fact that Afiican goveinments have fewei e-goveinment initiatives than
industiialized countiies, make less use of ICTs in theii woik than industiialized countiies,

and use oldei geneiations of technology than industiialized countiies. A majoi explanation
is financial. Howevei, theie aie also stiategic challenges such as undeveloped
telecommunication systems, netwoiks, and ineffective legal, human and institutional
infiastiuctuies that pose limitations on the "e-ieadiness" of many Afiican countiies.
2.3.4 Cnst rccnvcry and public rcpnrting
! hy Is cost recovery Important In pubIIc servIce deIIvery?
2.4.1 Cnst Rccnvcry: Uscr Fccs and Chargcs
One of the majoi developments in the piovision of public seivices has been the intioduction
of usei fees oi chaiges. Chaiges to consumeis foi public utilities iepiesent an attempt to
diveisify financing foi public seivices and ieshape public spending. These policies have
assumed incieasing impoitance in developing countiies, especially in Afiica, in the 198Os,
as goveinments faced slowei economic giowth and iising deficits that made public
expendituie levels unsustainable. Usei fees have been intioduced at diffeient levels of
education in Chana, Kenya, Malawi and Uganda, and in othei countiies implementing
In compaiison to othei developing iegions, usei fee iefoims have been most extensive in
sub-Sahaian Afiica. Accoiding to Bennet et al (1995), this is because the gap between
iesouices and needs, and the influence of inteinational donois, has peihaps been gieatest in
Afiica. The key iationale of the intioduction of usei fees in Afiica, theiefoie, has been to
iaise additional ievenue in the face of incieasing demand foi seivices. Usei fees also seive to
inciease maiket discipline by pieventing the ovei-use of seivices by consumeis apait fiom
impioving quality and fosteiing iesponsiveness to the needs of consumeis.
The objective of intioducing usei fees is cost shaiing. Implementing such a policy is
supposed to help the pooi because it mobilizes moie iesouices fiom bettei-off gioups that
could then be used to piovide seivices foi pooiei gioups. In Cuinea-Bissau, foi example,
usei fees in health caie have consistently contiibuted between 3O and 45 pei cent of the
opeiating costs of health seivices. Howevei, usei fees aie not without theii pioblems. Cood

administiative and management systems aie needed to complement such a policy. Theie
has been some evidence that the intioduction of usei fees has made access to social seivices
moie difficult foi the pooi, especially in the initial yeais of the scheme. Theiefoie,
exemption systems and safety nets need to be designed so that usei fees fall mainly on
seivices consumed by the non-pooi. Such systems include ensuiing that infoimation about
incomes (on which to base exemption decisions) is collected in an effective mannei,
especially foi laige numbeis of people in the infoimal sectoi.
2.3.2 Public Rcpnrting
! hat codes and standards can you expIaIn about pubIIc reportIng?
Public Repoiting on the financial peifoimance of goveinment agencies is an element of
good goveinance and financial accountability. It involves pioviding infoimation on the
financial and manageiial peifoimance of public depaitments that enables the public to
monitoi and assess peifoimance of goveinment activities. The aim is to encouiage dialogue
so as to lead to impioved seivice deliveiy.
The Inteinational Monetaiy Iund (IMI) and othei inteinational bodies have developed a
numbei of codes and standaids that set out "good piactices" in the aieas of policy
tianspaiency, data dissemination and financial iegulation and supeivision. In ielation to
public iepoiting, the IMI has identified the following codes and standaids:
W The public availability of infoimation the public should be piovided with full
infoimation on the past, cuiient and piojected fiscal activity of goveinment,
W Open budget piepaiation, execution and iepoiting budget documentation should
specify fiscal policy objectives, the macioeconomics fiamewoik, the policy basis foi
the budget, and identifiable majoi fiscal iisks,
W Budget data should be classified and piesented in a way that facilitates policy analysis
and piomotes accountability,
W Pioceduies foi the execution and monitoiing of appioved expendituies should be
cleaily specified, and

W Iiscal iepoiting should be timely, compiehensive and ieliable, and should identify
deviations fiom the budget.
The Office of the Auditoi-Ceneial also piovides a ciitical link in the chain of public
accountability, a iole that is both unique and vital to the demociatic piocess of iesponsible
goveinment. The Auditoi-Ceneial's iole is to assist the legislatuie in oveiseeing the
management of public money, by pioviding independent assessments of, and advice about,
goveinment accountability and peifoimance.
Repoits should piovide assessments and also highlight issues iequiiing the attention of the
legislatuie oi goveinment, and should also contain iecommendations that could assist
goveinment oiganizations to impiove theii management and peifoimance.
2.4 Citizcns chartcr
! hat Is cItIzens' charter and what Is Its Importance?
A key featuie of the NPM is the concept of peiceiving the citizen as a "customei" of public
seivices. In the context of public sectoi iefoim, effoits to make public seivice agencies moie
accountable to the public have included the adoption of Citizens Chaiteis. Citizens should
be consulted about the level and quality of public seivices and, whenevei possible, be given
the choice of seivices. Citizens should also be infoimed about the level and quality of
seivices they will ieceive, and they should have equal access to the seivices to which they
aie entitled. Moieovei, they should be infoimed about how national depaitments and
piovincial administiation aie iun, how much they cost and who is in chaige.
In 1991, the Biitish goveinment launched the Citizens Chaitei (Cabinet Office, 1992). It
was designed to iaise the standaid of public seivices and make them moie iesponsive to
theii useis (Butchei, 1997:55) and to encouiage public seivants to think about what they do
in ielation to how it affects theii customeis. The Chaitei spells out a numbei of key
piinciples that eveiy citizen is entitled to expect, including:

W The setting and publication of explicit standaids foi seivices and the publication of
actual peifoimance against these standaids,
W Infoimation and openness about the piovision of seivices, and
W The efficient and economical deliveiy of seivices within the iesouices the nation can
In this iegaid, the Chaitei foi the Public Seivice in Afiica was adopted at the thiid Pan
Afiican Confeience of Ministeis iesponsible foi the Civil Seivice, in Windhoek, Namibia, in
2OO1. The Chaitei highlights the need to adapt the diffeient public seivices in Afiica to the
new iequiiements of public seivice, to be able to anticipate oi accompany the piofound
changes that Afiican countiies aie expeiiencing. It also takes into account the pievailing
socio-economic conditions, including globalization, and the need to cieate an enabling
enviionment foi piivate sectoi giowth. The Chaitei also defines a fiamewoik to guide the
public seivices in Afiica in taking such legislative, iegulatoiy, technical and piactical
measuies as may be iequiied to cieate the conditions foi the piopei functioning of the public
seivice and impiove the quality of its seivices.
Iundamental Piinciples of the Afiican Public Seivice Chaitei,
Principlc nf Equality nf Trcatmcnt
All public seivices shall iecognize the equality of citizens befoie the law and will not be
disciiminated against based on the place of oiigin, iace, gendei, ieligion, ethnic gioup,
philosophical oi political convictions oi othei peisonal consideiations.
Principlc nf Ncutrality
The public seivice that seives the inteiest of the public shall not disciiminate against its
employees because of theii peisonal tiaits. The public seivice shall iemain neutial in iespect
to the goveinment of the day and this fundamental piinciple will be iespected by all
Principlc nf Lcgality

Public seivice shall be piovided in stiict compliance with the law.
Principlc nf Cnntinuity
Public seivice shall be piovided on an ongoing basis and in all its component paits, in
accoidance with the iules goveining its opeiation. Iailuie to comply with the piinciple of
continuity may incui the liability of the administiation in iespect of any peison who might
have suffeied haim on account of such failuie.
Citizens Chaiteis exist in both South Afiica and Zimbabwe. In Tanzania theie aie plans foi
Ministiies to publish "social pacts" setting out the standaid of seivices that the public can
expect. Launched in 1997, the Batho Pele-People Iiist initiative in South Afiica is based on
a set of national piinciples foi public seivice (Theikildsen, 2OO1). Chana and Uganda have
also shown good piactices in customei-oiiented public seivice. In Chana, the public seivice
iefoim piogiam is a sub-component of the countiy's National Institutional Renewal
Piogiam (Balogun, 2OO1) and, amongst othei aieas, focuses on the development of
customei- seivice oiientation, piomotion of cost and time consciousness in the civil seivice,
and impiovement of iecoids and infoimation management systems. The public seivice
iefoim piogiam in Uganda has focused mainly on the tiansfoimation of public seivice
oiganizations with customei-oiiented seivice deliveiy units (Kyaiimpa, 1996). Substantial
poweis and iesouices have been delegated to lowei-level seivice deliveiy agents and also
capacity-building piogiams have been implemented that aim to intioduce client-oiiented
attitudes in the public seivice.
2.2.3 Civil Sncicty Organizatinns
The iole of Civil Society Oiganizations (CSOs) and NCOs in the deliveiy of seivices to the
public is on the inciease woildwide. In 1uly 1999, Afiican countiies at the Assembly of
Heads of State and Coveinment of the Oiganization of Afiican Unity (OAU) adopted
Resolution 1286 affiiming the value of populai paiticipation in Afiica's socio-economic
iecoveiy and tiansfoimation. CSOs, including NCOs, piofessional oiganizations and
women's gioups, make a case foi gieatei coopeiation between theii activities and those of
goveinment and advocates foi mutual acceptance of legitimacy and stiengths and

weaknesses. NCOs and CSOs woildwide have been known to be able to ieach pooi
communities with social seivices, including health and education.
While it is appieciated that goveinments must value the eneigy and cieativity that CSOs
and NCOs biing to the development aiena, NCOs and CSOs on the othei hand, need to be
tianspaient in theii objectives to ieduce goveinment conceins about any subveisive
activities. Theiefoie, constant dialogue between goveinment and these oiganizations will
ieduce the mutual suspicion of each othei's motives. It is also suggested that joint policies
should be developed to define sectois of society, the economy, and the enviionment in
which civil society activity, eithei independently oi in coopeiation with goveinment, aie
encouiaged. Paying moie attention to CSOs may piovide an avenue foi addiessing, in
paiticulai, the social integiation challenges of sustainable development and the pioblems
associated with the development of social capital. Theie is no doubt that the coopeiation
between goveinment and civil society would piomote and implement people centeied and
sustainable public seivice deliveiy iefoims.
Scctinn Thrcc: Public Financial Rcfnrm
Scctinn nvcrvicw
Public financial management conceins the taxing and spending of goveinment, which in
tuin influences iesouice allocation and income distiibution. The spending poition coveis
the budget cycle, including budget piepaiation, inteinal contiols, accounting, inteinal and
exteinal audit, piocuiement, and monitoiing and iepoiting aiiangements. The ievenue pait
conceins with taxation and income deiived fiom diffeient souices. This section intioduces
you with some of the issues involved in public financial iefoim in developing countiies.
Scctinn nbjcctivcs
Dcar lcarncr, by thc cnd nf this scctinn ynu shnuld bc ablc tn:
3.1 Financial Managcmcnt rcfnrm in Dcvclnping Cnuntrics
Staiting in the 195Os, the financial management advice most sought by developing countiies
was how to iaise moie ievenue to finance the capital investments goveinments weie seeking
to make. The United Nations staited offeiing advice on tax administiation in the 195Os, the
US Ioieign Tax Assistance Piogiam was staited in 1962, and the IMI Iiscal Affaiis

Depaitment began in 1964 to give advice on taxation, public budgeting and accounting. The
Musgiave commission in Columbia came up with a ievenue taiget as the diffeience between
piivate savings and foieign inflows on the one hand, and investment needed to achieve a
taiget giowth iate on the othei, building on the dominant thinking of the time of state-led
On the expendituie side, a host of challenges gained attention laigely following the oil piice
shocks, wheie fiscal deficits of developing countiies incieased fiom 3.5 peicent to 6.3
peicent of CNP duiing 1972-85. These challenges included weak public expendituie and
iesouice planning (e.g. weak piioiities and linkage with macioeconomic fiamewoik),
inconsistent budget stiuctuies (e.g. inconsistencies and weak links between capital and
iecuiient budgets), budget implementation (e.g. weak cash management) and accounting
and iepoiting (e.g. absence of commitment accounting), and selective iefoims to impiove
peifoimance and allocation.
Towaid the end of the 8Os, theie was a belief that centialized financial contiols intioduced
duiing the ciisis needed to be ieplaced in many cases with decentialized contiols at the
spending unit level, with gieatei integiation of policy and financial consideiations. This also
linked with gieatei citizen demand foi impioved seivice deliveiy and gieatei accountability
foi iesults thiough contiactual and othei mechanisms. Countiies also sought to ieduce high,
piogiessive income taxes, impoit duties and expoit taxes and ieplace them, foi example,
with a value added tax (VAT) that would help facilitate maiket diiected allocation of
iesouices, while being bioadly politically acceptable, and administiatively feasible
These demands fiom the developing woild weie a iesponse in pait to the iecent thinking in
OECD countiies on how to adapt new tools to caiiy out delibeiate changes in the stiuctuie
and piocesses of the public sectoi to get them to iun bettei.
Development agencies also changed theii views ovei this peiiod, incieasingly iealizing that
deficient PIM systems can undeimine theii development assistance. They iealized that even
though aid piojects may have good financial contiols, they could iesult in goveinment
iesouices being fieed up to fund othei things, if PIM systems weie deficient, the
development iesults fiom these iesouices weie likely to be less than desiied. Donois became
incieasingly awaie that the distinction between development and iecuiient spending was
less impoitant than once thought: teacheis' salaiies weie just as impoitant as school

constiuction foi achieving education. They iealized that pioject-centeied aid could not
succeed with pooi macioeconomic and fiscal policies, and that economic development
iequiied not only physical investment, but also good public sectoi management.
Theie was incieasing awaieness that PIM outcomes depend on the natuie of budgetaiy
institutions, and that sound PIM iequiies not only a stiong budgetaiy authoiity, but also
capable a legislatuie, in some cases suppoited by civil society budget gioups. Theie is some
evidence of iecent incieasing woik by multilateial donois in these aieas. At the same time,
theie is evidence that countiies with "iules that establish limits on deficits, that pievent sub-
national and decentialized agencies to incui in debt financing, that have medium teim fiscal
fiamewoiks and ieseive funds in place, and by moie hieiaichical pioceduies, that establish
iestiictions on the legislatuie and on the baigaining powei of ministeis and piovides the
executive with discietion to cash manage expendituies, tend to piesent lowei piimaiy
geneial goveinment deficits".
The next section will sketch out thiee bioad debates caiiied out ovei the last two decades
ielevant to these changes: fiist, the degiee to which developed countiy public management
tools aie tiansfeiable to developing countiies, second, the iole of goveinance assessment in
the tiansfei piocess, and thiid, the seaich foi analytical fiamewoiks foi public financial
management. A final section will sketch out ongoing debates on some of the specific
iefoims undeiway.
3.2 Transfcrability nf Idcas
Theie is a consensus in the liteiatuie that impoitant diffeiences between developing and
developed countiies iequiie that public financial management tools be used selectively, and
adapted to local conditions. Some of the key diffeiences in context between developed and
developing countiies aie: Iiist, the pace and natuie of iefoims in developed countiies aie
designed and caiiied out by the iespective goveinments, and with the demociatic suppoit of
theii electoiates. By contiast, iefoims in developing countiies aie often designed by
inteinational agencies, and not fully undeistood oi suppoited by citizens. In some cases,
these iefoims may be caiiied out by buieauciatic and political elites with the intent of
pieseiving theii existing inteiests, although the eventual outcome could be diffeient.
Secondly, common iefoim packages designed to addiess fiscal ciises in developed countiies
aie being tiansfeiied to a highly diveise set of countiies, including tiansition economies,

weak capacity and post-conflict states, post-authoiitaiian demociacies, and Confucian
meiitociacies. Many of these developing countiies have much deepei fiscal ciises and
shaipei declines in public seivice than developed countiies, yet piogiams often used OECD
countiy designs as models. Wheie piogiams vaiy, the ieason is often moie failuie to meet
negotiated conditions, iathei than diffeiences in design. Thiidly, implementation of iefoims
in developing countiies is uneven, with stioke-of-the-pen iefoims often moving quickly,
while necessaiy stiuctuial changes move slowly oi not at all. In addition, chionic
institutional weaknesses in many developing countiies hindei iefoim effectiveness. Ioi
example, iivaliies between planning and finance ministiies lead to conflicts ovei fiscal goals,
pooi communication, and decisions on peisonal appointments and piojects oveilooking
technical meiit in favoi of peisonal and political consideiations. Theie aie also consideiable
diffeiences among developing countiies, even within the same iegion. In countiies with
weak capacity, centialized management models piovide the best staiting point, since
decentialized models typically iely on complex financial iepoiting systems.
Anothei diffeience conceins election yeai incieases in fiscal deficits. Although these occui
in both developed and developing countiies, they aie laigei in developing countiies because
potential ients aie laigei, and the piopoition of infoimed voteis in the electoiate is lowei.
Theie aie also veiy diffeient inteipietations of woids like public management, efficiency and
tianspaiency when tianslated into diffeient languages, even among people with common
histoiical and cultuial tiaditions. Some keywoids fiom the iefoim toolkit, such as
accountability, have no equivalent in othei languages (such as Spanish, Vietnamese, and
Chinese in this case).
Many scholais stiess the diffeiences between foimal, manageiial budgeting in developing
countiies, and the infoimal budgeting that actually takes place, iesponding to theii poveity,
unceitainty, and diffeiing political cultuies. Many question tiansfeis of Westein models,
diawing the language, piactices, and values fiom business to the public sectoi, to non-
westein societies.
3.3 Cnvcrnancc Asscssmcnt
Effective PIM iefoims aie technically and administiatively sound, and politically astute. To
infoim theii PIM suppoit, donois aie incieasingly caiiying out goveinance assessments to
undeistand the infoimal piactices as well as foimal iules, and institutional and political

contexts that shape PIM piocesses. Schneidei (2OO6) identifies thiee bioad types of
goveinance assessments: quantitative, qualitative and inteipietive, each with advantages
and disadvantages. Quantitative studies may offei advantages of piecision,
compiehensiveness, and compaiability ovei time and acioss iegions. Compaiing
goveinance components in a countiy ovei time, they can indicate piogiess, compaiing
countiies at the same level of development, they can indicate weaknesses that could be
piioiitized foi iefoim. Howevei, the accuiacy of such indicatois can be contested.
The constiuction, aggiegation and weighting of goveinance indicatois may not be giounded
in explicit theoiy, and may not ieflect a sound undeistanding of undeilying causal factois.
Coldsmith (2OO7) among otheis aigues that some countiies can develop fast with weak
goveinance institutions, including PIM. In otheis, iapid development makes goveinance
woise foi some time, though the pendulum may swing back. This field of thought iuns up
against the pioblem of how little we know about which institutional iefoims can woik best
and in what sequence, given a countiy's ciicumstances.
Among othei challenges of such suiveys, those suiveyed may have piofessional oi financial
incentives to piovide ceitain answeis, oi theii views may be inaccuiate due to lack of
knowledge of the place oi issue being assessed. Eiiois can also come fiom lack of: contiols
foi language, cultuie and context to ensuie that questions aie answeied in the same way,
appiopiiate assessment of measuiement eiioi, stability of questions ovei time, stability of
countiies measuied, and claiity in iepoiting and inteipietation of changes in absolute vs.
ielative levels of peifoimance. Aindt and Oman (2OO6) aigue that the aggiegate indicatois
could be piesented in a moie tianspaient mannei, and theii conclusions diawn fiom
"expeit" suiveys checked against paiallel suiveys of othei stakeholdeis.
Qualitative studies take a compaiative and histoiical view to undeistand in iich detail the
context, sequence of changes, and exteinalities that pioduced the goveinance stiuctuies and
political cultuie of a given countiy. Case studies highlight lessons such as the impoitance of
cleai political diiection and suppoit to diive PIM iefoim foiwaid. Analytical fiamewoiks
can be used to assess wheie a countiy is on a continuum of state stiength and capacity,
which can in tuin help to identify iefoim piioiities. Othei tools take inteiview data fiom
countiy expeits, and analyze it using simulation softwaie to bettei undeistand the political
incentives that can influence whethei policy iefoims aie feasible and sustainable

Quantitative effoits to measuie goveinance went out of favoi in the 198Os as scholais tuined
theii attention to mapping the intiicate sequences of goveinance iefoim a countiy has gone
thiough, and what aie the appiopiiate next steps, given the complex inteiactions that have
happened alieady. The disadvantage is that theie aie too many vaiiables with too many
complex sequences to do time-seiies oi cioss-countiy compaiisons of the type done in
quantitative studies, thus quantitative studies have again became piominent fiom the mid-
199Os to today.
Inteipietive studies stait with the question of what is the meaning of goveinance oi a
component of such in a paiticulai context, and then how can it be impioved on these teims.
These studies have the advantage of taking a fiesh, innovative woildview, but may not
allow foi hypothesis testing as in quantitative studies. Ioi example, Kaul (2OO6) posits a
seismic shift wheie nation states aie moiphing to become "inteimediaiy states", needing to
iespond to both domestic and exteinal policy demands, including competitive piessuie fiom
othei states seeking mobile factois of pioduction. Tiaditional state functions aie being taken
ovei by multinational businesses and public-piivate paitneiships. Regional and global public
goods aie getting moie attention. Public financial management is evolving and adjusting to
these tiends.
3.4 Analytical Framcwnrks fnr Public Financial Managcmcnt
Debate also continues on the appiopiiate analytical fiamewoik to evaluate a developing
countiy public financial management system, which can measuie changes in the system,
and piedict how they will affect financial outcomes. Wildavsky (1986: 313-33O) takes a
piagmatic appioach, aiguing that tiaditional budgeting foims (inciemental, line
items,annual budget) peisist because theii defects aie also viitues. Ioi example, inciemental
budgeting is easiei because it isn't compiehensive, and because it estimates futuie ievenue
and spending based on past peifoimance, which can be known, iathei than on the futuie
piospects, which aie unknown. Because of the chionic unceitainties and lack of functional
iedundancy in developing countiies, they typically go one step fuithei and piactice
iepetitive budgeting: wheie the annual budget may be tieated as a supplemental budget
iequest, to be justified and appioved when the time comes to actually stait spending.
1.46 In contiast, Campos and Piadhan (1996) set out thiee ideal outcomes of a public

expendituie management system: fiscal discipline, allocation of iesouices consistent with
policy piioiities, and good opeiational management. Iiscal discipline means expendituie
contiol and caieful management of deficits. It's a challenge even foi developed countiies to
achieve, because of a numbei of "tiagedies of the commons", such as politicians focused on
staying in powei by keeping stakeholdeis content, and often tempted to finance spending
thiough deficits, which aie paid back by futuie geneiations. This challenge is gieatei in
developing countiies wheie political suppoit of politicians and top officials is often gained
thiough pioviding pationage. In addition to deficit spending, some countiies show lack of
fiscal discipline by using windfalls fiom high iesouice piices such as oil to finance
consumption, iathei than to invest in pioductive assets foi futuie geneiations. Iiscal
discipline is based on good ievenue foiecasts, systems foi accuiately planning and
monitoiing expendituies, and foi allocating them to piioiity aieas to achieve goals of
sustainable development. Stiategic allocation means that iesouices aie allocated based on
the goveinment's key policy piioiities. It is only possible with good aiiangements at the
centei of goveinment, and with sound, inteigoveinmental cooidination. Cood opeiational
management means economy (quality inputs at the best piice), efficiency (outputs at the
lowest possible cost), and effectiveness (achieving the intended iesult).
Campos and Piadhan go on to indicate institutional incentives and othei aiiangements that
seem to affect these outcomes (e.g. the "tiagedy of commons" encouiages spending units to
use public iesouices at little cost to them, electoial cycles can hindei stiategic piioiitization,
infoimation asymmetiy can impede efficient allocation and use of iesouices), and posit that
success will come if theie aie binding constiaints to tie politicians and officials to the thiee
outcomes. They show that incieasing tianspaiency and accountability in ceitain ways (e.g.
thiough opening financial maikets) can act as such a constiaint, exacting a high cost to
officials if they violate the aiiangements.
Some steps have been taken to meige the two oi moie sets of pioceduies foi financial
management in many countiiesone foi the goveinment, and one oi moie foi donois (cf.
Piemchand 2OOO: 197-2O7)---into a goveinment system that donois can accept. Howevei,
political and institutional weaknesses hampei countiy effoits to addiess the iefoim piocess,
along with a piolifeiation of assessments and uncooidinated advice by inteinational paitneis
(Shah 2OO5).

3.5 Sclcctcd Prinritics fnr Rcfnrm
Aside fiom bioad debates on tiansfeiability of ideas, goveinance assessment, and analytical
fiamewoiks foi public financial management, theie aie specific debates on the iefoims
themselves. Iollowing developed countiy expeiience, theie is some evidence of success in
developing countiies with fIscaI decentraIIzatIon, pioviding moie budgetaiy flexibility to
achieve efficiency and nation-building gains. Developed countiies spend about twice the
shaie of total expendituie on sub-national goveinments than developing countiies.
Expendituie by sub-national goveinment is also highei in countiies with laige populations,
and in tiansition countiies. The piopoition of sub-national expendituie hasn't changed foi
the last 3 decades on aveiage because, tntcr alta, cential goveinments want to hold on to
majoi ievenue instiuments to have flexibility in dealing with fiscal imbalances,
infiastiuctuie planning, constiuction and maintenance is beyond the capacity of many local
goveinments, the cential goveinment is in a bettei position to addiess inequalities among
iegions, and officials fiom cential ministiies lobby foi keeping the status quo. Howevei,
theie may be inciease in sub-national expendituie piopoition in futuie because of populai
demand, and incieased undeistanding of possible efficiency gains.
In anothei example, as developing countiies diaw fiom the menu of OECD accountIng
iefoims, theie aie diffeiing views on the iesults. Impioved cash accounting in Uganda and
Zambia gave bettei infoimation on expendituies wheie capacity was too limited foi a
commitment based system. But the iestiiction on cash wasn't enough to solve the pioblem
of excessive commitments without the active involvement of the Piesident (Uganda) and the
IMI (Zambia) (Stasavage and Moyo 2OOO). Mongolia's attempt to adopt full acciual
budgeting and accounting, output budgeting, devolution of hiiing to agency heads, and
peifoimance contiacts wasn't based on caieful diagnosis (Nixson and Walteis 1999), and
had to be scaled back to a model moie suitable foi local conditions. A piogiam undeiway to
implement modified acciual accounting at the tieasuiy level, suppoited by adoption of
inteinational accounting standaids and implementation of an IT-based budget and
accounting package is showing piomise (Dondog 2OO4).
Acciual accounting supplements cash accounting systems to ensuie that the financial
infoimation available to management is cuiient, and piovides meaningful analysis of

iesouice usage within a depaitment. The adoption of acciuals is a significant and iadical
iefoim to the financial management of goveinments.
These iefoims aim to hold management iesponsible foi outcomes and outputs whilst
eliminating contiols on inputs. In this context, it is expected that manageis should be
iesponsible foi all costs associated with the outputs pioduced, not only the immediate
outlays. Acciuals allow foi the captuie of these full costs, theieby suppoiting effective and
efficient decision-making by manageis.
Similaily, theie is continuing debate on the suitability of muItIyear budgetIng. Many
developing countiies have followed the example of developed countiies in adopting this
iefoim, to help achieve gieatei ceitainty on futuie funding. Despite conceins expiessed
eailiei about achieving tianspaiency in multiyeai budgeting, and challenges evident in
developed countiies in making effective use of this tool, and the many added challenges
facing developing countiies (Oxfoid Policy Management 2OOO), medium-teim expendituie
fiamewoiks aie cential featuies of the Poveity Reduction Stiategy Papei (PRSPs) and
Poveity Reduction Suppoit Ciedit (PRSCs) piepaied in iecent yeais. Ciaig and Poitei
(2OO3) point out that aside fiom technical pioblems of using this tool effectively, its use foi
upwaid accountability to cential ministiies and donois can undeimine local political
legitimacy and accountability, sideline the iole of legislatuies, and cut off impoitant souices
of local knowledge on what woiks and doesn't woik in poveity ieduction.
FInancIaI management InformatIon technoIogy (IT) systems have been successfully adopted in
some cases when theie is sufficient commitment, capacity, and iesouices as pait of a bioad
and appiopiiately phased iefoim piogiam. If conditions aie iight, theie may be significant
efficiency gains. Ioi example, e-piocuiement in South Koiea, Biazil and Philippines has
iepoitedly impioved efficiency and tianspaiency, ieduced acquisition cost, and may have
ieduced coiiuption. Malaysia's e-Peiolehan (2OO4) goveinment piocuiement system is a
build-opeiate-tiansfei scheme led by a piivate company.
In some paits of Afiica, the piincipal benefit fiom IT may be ensuie moie systematic
adheience to financial iules by manual systems, which may be iun in paiallel to IT-based
systems and moie ielied on by finance staff. Successful IT-based financial systems iefoims
aie commonly iteiative and modulai iathei than integiated, built aiound scaice, high
quality public manageis wheievei they may be woiking (Peteison et al, 1996). On the othei

hand, in both developing and developed countiies, the expected benefits can be blocked by
tiaditional buieauciatic foims, technical difficulties, lack of skills, and weak pioject
Delays in IT adoption by goveinments stem fiom the natuie of public sectoi financing and
piocuiement piactices. To ensuie accountability, goveinment agencies need to go thiough a
lengthy piocess of secuiing funds, seeking competitive tendeis, and awaiding contiacts. To
pievent undue influence by any one official, many decisions along the way aie made by
committees, which can lead to compiomises and an uncleai focus. In addition, when
acquisitions aie finally made, the technology has often moved fai beyond wheie it was
when the pioject was fiist conceived, thus goveinments often install outdated systems. They
also pay excessive piices, since new pioducts may have come into the maiket duiing this
peiiod that can delivei the same ICT powei foi much less money. The diffeience between
the outdated tendei piice and the maiket piice is also an aibitiage oppoitunity foi coiiupt
officials. Capacity-building suppoit in this aiea is likely to be most effective if pieceded by
an undeistanding of how woik gets done in taiget oiganizations, including actual piactices
often veiy diffeient fiom what may be indicated in foimal iules and iegulations.
Developing countiies have in many aieas followed the OECD example of intioducing
market mechanIsms to impiove peifoimance and accountability. Ioi example, countiies have
foimed autonomous tax administiation agencies in an effoit to sepaiate policy making fiom
implementation, and to enhance incentives foi the lattei. Debate on the effectiveness of such
iefoims continues, with analysts finding some cases leading to incieased ievenue collection,
and otheis leading to incieased coiiuption. Countiies also devolved budgets and financial
contiol to semi-autonomous agencies such as teaching, hospitals, watei authoiities, and
semi-commeicial agiicultuial bodies. These led to peifoimance impiovements when the
policy fiamewoik and accountability fiamewoik was cleai. Howevei, such impiovements
weie constiained in many cases because of inadequate accounting systems, weak peisonnel
management, uniefoimed financial administiation iegulations, unpiedictable financial
iesouices, and uncleai authoiity ielationships between piincipals and agents

In concluding this biief suivey of iecent debates on financial management, tianspaiency and
goveinance, theie aie two cioss-cutting questions that can be iaised: Iiist, does moie aid
weaken goveinance! Second, what should be the scope of iefoims!
Dncs Mnrc Aid Wcakcn Cnvcrnancc!
Aid can have the unintended consequence of weakening goveinance because goveinments
can iaise significant financing without having to iely on incieasing taxes, thus they have less
need to piovide a conducive business climate, and to piovide accountability to theii citizens
(though they may be held accountable by inteinational donois). Aid can diveit scaice skills
fiom goveinment, encouiage coiiuption and conflicts ovei contiol of aid funds, and ieduce
citizen demand foi iefoim. Aid can also weaken administiative effectiveness thiough high
tiansaction costs, the fiagmentation and weak cooidination of donoi piojects, the lack of
integiation in the budget piocess, moial hazaid, soft budget constiaints, and uniestiained
futuie claims on iecuiient budgets to maintain donoi investments.
Using Inteinational Countiy Risk Cuide (ICRC) goveinance data, Biautigam and Knack
(2OO4) found that aid dependence was linked with an inciease in coiiuption, and woisening
buieauciatic quality and iule of law. They find a modest ieduction in the negative effect of
aid on goveinance in Afiica between the 198Os and 199Os, but the change isn't statistically
significant. Yet, Tavaies (2OO3) uses a diffeient methodology in analyzing ICRC data to
aigue that moie aid may be associated with less coiiuption, peihaps because donoi iules
constiain iecipient goveinment officials, oi because moie aid helps to pay bettei salaiies to
Eai (2OO7) uses pooled, time seiies cioss-sectional (panel data) analysis diawing on data in
Kaufmann et al. (2OO5) to confiim a negative effect of aid dependence on iule of law, but,
unlike Knack and otheis, he finds no significant negative effect on othei aspects of
goveinance. In addition, he finds that components of aid have a statistically significant
effect on iule of law (negative effect fiom technical coopeiation) and on voice and
accountability (positive effect fiom piopoition of giant element).Resouice-iich countiies
face similai challenges.
Scnpc nf Rcfnrms
Theie aie continuing debates ovei whethei iefoims should be compiehensive in scope,
taking a "big bang" appioach, oi inciemental and oppoitunistic (Wescott 2OO6). Some stiess

the need foi a "top down", politically-diiven, all-encompassing iefoim piocess to take
advantage of naiiow windows of oppoitunity. Thus Weilin (1992: 2O4), citing the example
of countiies such as Koiea, aigues that iefoiming cential buieauciacies is piimaiily a
pioblem of political will and goveinment capacity to effectively use peisuasive and
manipulative (iathei than coeicive and coiiupting) foims of powei. Rodiik (1996) cites
Polish macioeconomic iefoims beginning in 1989 among otheis as succeeding due to
"speed and stealth". Refoims in New Zealand between 1984 and 199O (Pallot 1991) and in
Canada in 1994 (Aucoin and Savoie 1998) aie cited as examples of compiehensive stiategies
that deliveied impoitant iesults.
On the othei hand, Noith (199O:89) views piecemeal iefoims as moie typical:"The single
most impoitant point about institutional change, which must be giasped if we aie to begin
to get a handle on the subject, is that institutional change is oveiwhelmingly inciemental".
Esman (1991:138-139) advocates a "bottom up" appioach. He claims that system-wide
iefoims disiupt familiai ioutines and thieaten established centeis of poweis without
demonstiating convincingly theii effectiveness. He piesciibes, instead, inciemental,
confidence-building measuies, such as tiaining, new technologies (e.g., e-goveinment),
intioduced with staff paiticipation and focused at the level of individual piogiams oi
oiganizations (see also Lindblom 1959, 1979, Wildavsky 1986:313-33O, and Pollitt and
Bouckaeit 2OO4: 194-6). Biautigam (1996) makes a ielated aigument that iefoims should
concentiate on a few ciitical functions, shifting politically impoitant pationage oppoitunities
to less vital agencies. Ciindle (2OO4), focusing on public financial management iefoims
called foi in Poveity Reduction Stiategy Papeis, aigues that the iefoim agenda needs to be
ieduced to a set of achievable iefoims.
Although theie would seem moie evidence of success of inciemental iathei than stiategy-
diiven iefoim, both types aie possible. Refoims need to move "as fast as possible when
ciicumstances peimit, and as slow as necessaiy when accountability needs to catch up,
absoiptive capacity to giow oi public toleiance to be iebuilt" (Schiavo-Campo et al,
2OO1:733). Implementation may need to pioceed in many small stages. Some of these can be
planned, and scheduled based on piioiities and complementaiities. Otheis will pioceed
based on taigets of oppoitunity.

Deai distance leainei the unit has intioduced you with a lot moie components of public
sectoi iefoim as a continuation of the pievious unit's discussion with othei components.
The unit has five majoi sections that iaised iange of issues on public seivice chaitei, Total
quality management, the BPR, infoimation and communication technology and finally civil
seivice administiative iefoim.
The fiist section dwelled on the meaning and impoitance of public seivice chaitei pointing
on the fact that the institution of public seivice chaiteis incieases accountability, quality,
cost effectiveness and citizens level of involvement in public seivice deliveiy. By way of
addiessing the quality dimension of public seivice deliveiy as ieiteiated by such chaitei the
second section went on discussing the concept of Total Quality Management. TQM's main
aim is to maintain high level quality in public seivice deliveiy. The section howevei has
undeilined that impioving and maintaining the quality of public seivice thiough TQM
iequiies high level commitment fiom all sections of the public seivice specially fiom the
highei level management.
The thiid section was about the BPR. It was mentioned that the BBR is fiist conceived in
the piivate sectoi in oidei to shoiten the less fiuitful buieauciatic piocesses that add no
value to seivice iecipients but inflate the cost of deliveiing the seivice paid by the same.
Latei on the piocess is also acknowledged by the public sectoi and implemented in countiies
like Ethiopia. The section has also discussed on the five steps appioaches in implementing
the BPR.
The fouith section highlighted on intioducing modein infoimation and communication
technology in to public sectoi as a mattei of necessity than choice. The section magnified on
the iole of IT in impioving woik peifoimance and incieasing accountability and
tianspaiency of the public sectoi. Iinally the last unit went thiough a splendid discussion of
civil seivice iefoim and intioduced a biief account of the same in the context of Ethiopia.
# Chcck List

Dircctinn: Dear students thIs Is the sectIon In whIch you confIrm your understandIng
of the Iessons In thIs unIt. Put a tIck mark (!) In the yes coIumn for actIvItIes that you
have cIear understandIng and In the no coIumn for actIvItIes that you doubt that you have
good understandIng.
I Can: Yes No
O Define citizens chaitei in public seivice deliveiy and its
impoitance and justify the need foi it
O Define Total Quality Management and Identify the key issues
in TQM
O Explain the conception of BPR in the Piivate sectoi and Discuss the
appioaches in Business Piocess Reengineeiing
O Explain why the BPR is instituted in to the Ethiopian Public
seivice system as a panacea to augment its capacity
O 1ustify the necessity of applying Infoimation and communication
technology in to the public seivice deliveiy system as pait of
public sectoi iefoim
O Define the civil seivice and Elaboiate the oiganizing
piinciples of the civil seivice
O Discuss the meaning of civil seivice oi administiative iefoim


O Explain expeiiences of Civil seivice iefoim in Developing
countiies in geneial and Ethiopia in paiticulai
f you have any doubt about your understandIng of any of the above checkIIsts don't hesItate to go
back and refer the dIscussIons In the sectIons

Sclf-Tcst Excrcisc

Unit Fnur: Cnvcrnancc Rcfnrm
Unit Intrnductinn
The teim goveinance has become populai among academics, piactitioneis of inteinational
development, and Westein goveinments in the 199Os and hence goveinance iefoim enteied
the vocabulaiy of inteinational development by ieplacing eaily notions of administiative
and public sectoi iefoim.
In iecent yeais, seveial Afiican countiies have implemented fai-ieaching goveinance and
public seivice iefoim measuies. These measuies have touched almost eveiy aspect of the
continent's political life fiom the way goveinments aie elected and changed, thiough the
woikings of the thiee (i.e., the executive, the legislative and the judicial) bianches of


goveinment, to the iole that civil society plays in holding state functionaiies to account. The
iefoims have not stopped with the expansion of the political space, but have moved fuithei
to piomote and/oi acceleiate the ievitalization of the public seivice.

Yet a lack of conceptual consensus on the teim iesults in a multiplicity of definitions.
Moieovei, the ielationship of goveinance to development, institutional iefoims, and public
policy piocesses and outcomes iemains ambiguous. Specifically questions that aie iaised in
this iegaid aie:
O What is goveinance, and how can it be measuied in diveise political and
socioeconomic contexts!
O What is the ielationship between goveinance and institutional iefoims!
O How do institutional iefoims impact public policy piocesses and outcomes
especially in developing countiies geneially, as well as in specific aieas such as
economic goveinance, enviionment, piivatization, and local goveinment iefoims
and decentialization!
O How effective aie capacity-building effoits to boost the capacity of vaiious state and
non-state institutions foi effective developmental public policies and good
In oidei to addiess these questions the unit is divided in to two sections. In the fiist section
we will discuss goveinance and the vaiious conceptual and piactical issues involved in
goveinance iefoim. The second section will be devoted to the discussion of capacity
building iefoims intended to stiengthen goveinance.
Unit Objcctivcs
Prctcst Qucstinns
Scctinn nnc: Cnvcrnancc rcfnrm

In the last two decades, goveinance has become an impoitant issue in development policy
discouise and social science ieseaich. Yet a lack of conceptual consensus on the teim iesults
in a multiplicity of definitions. Moieovei, the ielationship of goveinance to development,
institutional iefoims, and public policy piocesses and outcomes iemains ambiguous. This
section will enable you to be acquainted with some of the issues involved in goveinance
Scctinn nbjcctivcs

1.1 What Dncs Cnvcrnancc and Cnvcrnancc Rcfnrm Mcan!
One can distinguish a neutial definition of goveinance fiom its noimative definition,
although these two sometimes oveilap. The neutial and bioadei notion of goveinance is
commonly used by academics and some donois. It iefeis to the way authoiity oi powei is
exeicised, which encompasses the enviionment, paiticipants, iules, and piocesses of
goveining society. Paiticipants of the goveinance piocess, in this view, include not only
goveinment (political and administiative) institutions, but also piivate and societal
institutions that all togethei influence how society is goveined. Coveinance thus connotes
the idea that the goveinment is no longei the sole playei in society, and that othei
inteidependent piivate, non-piofit, societal (community), and inteinational institutions and
oiganizations shaie authoiity in making and implementing decisions on public matteis.
Coveinance, thus, became a piominent concept which evolved fiom naiiow public sectoi
management to encompass a bioad iange of ielated political issues such as coiiuption,
secuiity, human iights, and the iole of foimal and infoimal institutions.
The emeigence of this teim ieflects the changes in and the dynamics among the means of
exeicising authoiity, it is a ieaction to the tiends associated with globalization and
devolution as well as economic libeialization and the ieduction of the iole of welfaie state.
These changes cieated new oppoitunities and incentives, and alteied pieviously stable
powei ielationships oiganized aiound goveinments' foimal authoiity. The incieasing
tuibulence biought in new types of shaieholdeis wanting to paiticipate in decision-making
(e.g., civil society oiganizations) at multiple levels of goveinment, ianging fiom local

communities to ielationships of global scale, thus affecting the baigaining shaies of the
existing playeis.
This distinction between goveinment and goveinance and the new iole of goveinment in the
cuiient context is veiy impoitant heie. Coveinment is the teim conventionally used to iefei
to a foimal institutional stiuctuie with authoiitative decision-making poweis, Gcvcrnancc is
used to iefei to the changing piocesses and piactices of goveining which involve multi-
agency paitneiships, a bluiiing of iesponsibilities between public and non-public sectois, a
powei dependence between oiganizations involved in collective action, the emeigence of
self-goveining netwoiks and the development of new goveinmental tasks and tools.
The pievious emphasis on goveinment was also weakened with the iealization that moie
self-goveinance thiough decentialization and paiticipation can enhance efficiency and
mitigate the giowing costs of contiol. As a iesult, the tiaditional concept of goveinment as a
contiolling and iegulating oiganization foi society is aigued to be outmoded. Instead,
goveinance without goveinment is becoming a dominant pattein in industiial demociacies
undei global and domestic piessuies fiom inteinational capital maikets, supianational
oiganizations, the piivate sectoi, and stiengthened civil society and inteiest gioups.
Gcvcrnancc rcfcrm fiom this standpoint iefeis to a wholesale tiansfoimation of
inteidependent political, administiative, as well as piivate, nonpiofit, and even societal
institutions. This teim conveys an undeistanding that institutions aie inteidependent and
that iefoim need to account foi this ieality. This, at a minimum, means that changing
economic oi political institutions alone will not be sustainable unless public administiation
systems aie also iefoimed.
The naiiowei and moie noimative definition of goveinance is commonly used by majoi
donois, such as the Woild Bank and United Nations, it iefeis to what goveinments should
do. Ioi example, the Woild Bank defined goveinance as: The exeicise of authoiity thiough
foimal and infoimal tiaditions and institutions foi the common good, thus encompassing:
(1) the piocess of selecting, monitoiing, and ieplacing goveinments, (2) the capacity to
foimulate and implement sound policies and delivei public seivices, and (3) the iespect of

citizens and the state foi the institutions that govein economic and social inteiactions
among them. The UN Committee of Expeits included in goveinance public
administiation and civil seivice, iule of law, human iights, macioeconomic policies and
iegulatoiy fiamewoiks and tianspaient and paiticipatoiy decision-making piocesses.
The noimative definition oveilaps with the teim good goveinance. Cood goveinance iefeis
to a set of idealized piinciples and guidelines foi iefoims that IDA diaw fiom best piactices
of the OECD countiies' expeiiences and theii own ideas of how goveinments should
function. These piinciples include:
foimal checks and balances, competition within civil seivice and among othei
institutions, and contested elections
iule of law, efficiency and accountability of the public sectoi, and tackling coiiuption
policy making and allocation of iesouices based on consensus in society that
accounts foi the voices of the pooiest and the most vulneiable
demociatic accountability, fundamental fieedoms, seivice deliveiy foi all, due
piocess iights and secuiity
demociatic goveinance, tianspaiency, pluialism, citizen involvement in decision-
making, iepiesentation, and accountability and
Rule of law, iesponsibility, openness, integiity, efficiency, accountability and
The Woild Bank's instiument to measuie the quality of goveinance by the following six
paiameteis moie oi less captuies the piinciples mentioned above: (1) voice and
accountability to citizens, (2) political stability and lack of violence, ciime, and teiioiism,
(3) goveinment effectiveness, (4) lack of iegulatoiy buiden, (5) the iule of law, and (6)
contiol of coiiuption.
Iiom this standpoint the puipose of institutional iefoims, which aie sometimes called
goveinance iefoims, is to establish the way of goveining that follows good goveinance
piinciples. Developing countiies aie advised to iefoim theii institutions to exeicise good
goveinance aligned with these piinciples and, as a iesult, secuie economic, political, and

social development. As mentioned above, in this wave of institutional iefoims, good
goveinance is tieated both as the means and ends of development.
1.2 Apprnachcs tn Analyzing Cnvcrnancc and Institutinnal Rcfnrms
It is impoitant to note heie that two majoi definitions of goveinance have gained cuiiency
in the iapidly giowing academic and policy liteiatuie on the subject. In the most populai
one, used by the Woild Bank and most othei United Nations institutions, goveinance is
defined as "the mannei in which powei is exeicised in the management of a countiy's
economic and social development". Essentially, goveinance, as conceived by these
multilateial oigans, emphasizes leadeishipthe mannei in which political (state) leadeis
manage, use, oi misuse poweito piomote social and economic development oi to puisue
agendas that undeimine such goals.
Cood goveinance is conceived fiom a piocess peispective with emphasis on iule of law,
accountability, paiticipation, tianspaiency, and human and civil iights. These elements aie
indistinguishable fiom goveinance elements of a matuie libeial demociacy.
A second appioach to defining goveinance focuses on shaiing authoiity foi public
management between state and non-state oiganizations. 1an Kooimans (1993:2) and othei
Euiopean ieseaicheis define sociopolitical foims of goveining as "foims in which public oi
piivate actois do not act sepaiately but in conjunction, togethei, in combination, that is to
say, co-aiiangements."The school theiefoie views goveinance as foims of multi-
oiganizational action iathei than exclusively state actions. An impoitant diffeience fiom the
fiist appioach is that goveinance is judged as good oi bad by both piocesses as well as by
outcomes: the use of state and non-state institutional iesouices to solve social pioblems.
This appioach is also iefeiied to as the paitneiship appioach to goveinance.
Ioi many otheis Coveinance is appioached, as it has always been undeistood in the
political science liteiatuie, as the fundamental iules that iegulate the ielationships between
iuleis and the iuled, the iules-in-use, oi constitutive choice iules and opeiating at deepei
levels of analysis than collective and opeiational choice iules. The legal community iefeis to
these constitutional iules as "giound-noims." Although piimaiily associated with the

analysis of the state, goveinance is a geneiic teim that can be applied to all foims of human
oiganizationseconomic, cultuial, ieligious, oi militaiy.
The advantage of this thiid appioach is that it enables us to suspend judgment on whethei
oi not demociatic iefoim is good oi bad goveinance. A piocess-only appioach seems to
equate demociatic change to good goveinance. But we know that goveinance might actually
decline in some impoitant iespects undei demociatizationespecially if the ciucial
institutions supposed to peifoim specific functions aie weak oi lacking. Piocess and
outcomes aie impoitant in this appioach, but fiom a piocess peispective goveinance can be
classified in teims of the quality of the fundamental iules of the political game. While
demociatic goveinance piomotes iules that ensuie the fundamental equality between iuleis
and the iuled, autociatic foims assume and ieify inequality between them. But the piimaiy
ciiteiia foi distinguishing between good and bad goveinance is the outcomes of policies
piomoted by public oigans. Cood goveinance iesults fiom the activities of public sectoi
institutions as they woik with othei societal oiganizations to foimulate public policies and
piogiams, which aie implemented to impiove the people's welfaie, ieduce poveity, and
iealize othei public and societal goals.
1.3 Cnvcrnancc indicatnrs
The incieasing emphasis on good goveinance as a deteiminant of development and as a
development objective in itself has cieated demand foi indicatois to measuie the quality of
goveinance and by one iecent estimate theie aie now some 14O usei-accessible sets of
goveinance indicatois, compiising liteially thousands of individual indicatois. This has in
tuin led to the pioduction of seveial goveinance-indicatoi 'manuals' oi 'guides'.
Commonly, these 'guides' distinguishes between goveinance indicatois that aie constiucted
fiom objective fact8 and indicatois that aie pcrccpttcn8 based. Inteinational investois, donois
and decision makeis geneially tend to iely mainly on peiception-based goveinance
indicatois. This is paitly due to the fact that the data iequiied to constiuct facts-based
indicatois aie often lacking foi developing countiies, and paitly because the numbeis that
exist foi those countiies aie consideied to be lacking ciedibility. Iuitheimoie, the data that

aie used to constiuct facts-based indicatois often only ieflect on foimal dc furc iealities, and
not the veiy diffeient dc factc iealities on the giound.
1.3.1 Fact Bascd Cnvcrnancc Indicatnrs
The foIIowIng are Instances of fact based governance IndIcators
A. The Euiopean bank foi ieconstiuction and development (EBRD)-Woild Bank
Bu8tnc88 Envtrcnmcnt and Entcrprt8c Fcrfcrmancc $urvcy compiles the expeiiences of
moie than 1O,OOO fiim manageis in 1999 and 2OO2. The manageis weie asked to
estimate the shaie of annual sales 'fiims like youis' typically pay in unofficial
payments to public officials.
B. The Intcrnattcnal Crtmc Vtcttm $urvcy (ICVS) is designed to pioduce compaiable data
on ciime and victimization acioss countiies, using a combination of computei-
assisted telephone inteiviewing techniques in developed countiies and face-to-face
suiveys in developing countiies. Since 1989, moie than 15O suiveys have been done
in ovei 8O diffeient countiies. The ICVSs only piovide infoimation on the incidence
of coiiuption fiom a household peispective.
1.3.2 Pcrccptinn bascd gnvcrnancc indicatnrs
The most widely used peiception-based goveinance indicatois, which covei a laige numbei
of countiies, aie:
A. The Intcrnattcnal Ccuntry #t8k Gutdc (ICRC) piovides iatings foi 14O countiies based
on financial and economic iisk assessments, and assessments of political iisk. It also
offeis one-yeai and five-yeai assessments with piojections in 'best case' and 'woist
case' scenaiios.
B. rccdcm Hcu8c piovides annual iatings of political iights and civil libeities in 192
countiies. It iates both a countiy's political iights and its civil libeities on a scale
fiom 1 ('best') to 7 ('lowest').
C. The Ccrrupttcn Fcrccpttcn Indcx (CPI) is published annually by Tianspaiency
Inteinational. The 2OO7 index includes 18O countiies. The CPI assesses the degiee to
which public officials and politicians aie believed to accept biibes, take illicit
payment in public piocuiement, embezzle public funds, and commit similai offences.

The index ianks countiies on a scale fiom 1O ('completely clean') to zeio
('completely coiiupt'), accoiding to the peiceived level of coiiuption by business
people and countiy analysts. It is a composite index diawing on coiiuption-ielated
data fiom expeit and business suiveys caiiied out by a vaiiety of independent
D. The Ccuntry Fcltcy and In8tttuttcn8 88c88mcnt (CPIA) is pioduced annually by the
Woild Bank's countiy teams. The puipose is to assess the quality of the boiiowing
countiies' policy and institutional fiamewoiks foi fosteiing poveity ieduction,
sustainable giowth and effective use of development assistance. These assessments
have been used since 1977 to help guiding the allocation of inteiest-fiee loans and
giants by the Bank's IDA to the pooiest countiies. The Bank's countiy team gives a
scoie of 1 to 6 to a countiy foi each of in total 16 ciiteiia. To enhance consistency of
iatings acioss countiies, the Bank now piovides the assessment teams with detailed
questions and definitions foi each of the six iating-levels. Moieovei, befoie the
countiy iatings aie finalized, an extensive Bank wide benchmaiking and vetting
piocess is used to avoid bias and to counteibalance the natuial tendency of countiy
teams to make theii countiies look bettei.
E. The crldwtdc Gcvcrnancc Indtcatcr8 (WCI) pioduced by the Woild Bank Institute
since 1996 (often iefeiied to as the KKZ Indicatois named aftei theii cieatois).
Alongside with Tianspaiency Inteinational's CPI, the WCI have played a leading
iole in putting goveinance and coiiuption on the agenda in developing countiies.
Due to the laige numbei of souices used to developing the WCI, the countiy
coveiage is veiy laige (212 countiies and teiiitoiies in 2OO7).

1.4 Anti-cnrruptinn rcfnrms
1.4.1 Dcfining Cnrruptinn
Coiiuption is an impoitant aspect of pooi goveinance, and often defined as the abu8c cf
publtc cfftcc fcr prtvatc gatn. This is a widely used definition applied by the Woild Bank among
otheis. This definition includes vaiious foims of inteiaction between public sectoi officials
and othei agents. Money is often involved, such as in biibeiy oi kickbacks foi public

piocuiement contiacts. In othei cases, howevei, the piivate gain can be non-monetaiy, as in
cases of pationage oi nepotism. The definition also coveis acts wheie theie is no inteiaction
with exteinal agents oi exteinal agents aie not explicitly implicated, such as the
embezzlement of goveinment funds, oi the sale oi misuse of goveinment piopeity.
Coiiuption can also take place among piivate sectoi paities. Hence, an alteinative definition
of coiiuption used by Tianspaiency Inteinational (TI) is the mt8u8c cf cntru8tcd pcwcr fcr
prtvatc gatn. In contiast to the foimei definition which includes only acts involving public
sectoi officials, TI's definition also includes similai acts in the piivate sectoi. Ioi example, a
subcontiactoi that biibes an official of anothei company to obtain a contiact would count as
coiiuption undei the TI definition. In addition to public sectoi coiiuption, the lattei
definition thus includes piivate-piivate coiiuption. This type of coiiuption is undeistudied,
despite the fact that it may ieduce piivate sectoi efficiency and hence hampei development.
The definition of coiiuption as abuse of public office has been ciiticized as being (i)
excessively legalistic and (ii) based on a Westein ideal of sepaiation of the public and
piivate which does not fit the cultuial context of many developing countiies. As foi the fiist
ciiticism, the idea of abuse of office ceitainly implies deviation fiom some standaid. It does
not follow fiom the definition itself that the standaid is a legal one, howevei. The standaid
could just as well be a moial one, wheie the piopei iole of office holdeis is deiived fiom
fundamental ethical piinciples. The definition theiefoie does not in itself depend on legal
iules that may be incomplete oi incidental. The ciiticism of a basis in Westein ideals is a
mattei of application, although the way the definition is sometimes applied by donois has
been infoimed by a Westein idea of public office. Howevei, the definition does not in itself
iefei to a specific idea of public office. In geneial, any well-functioning society must have
some pioductive allocation of tasks, to ieap the benefits of oiganization and specialization.
Coiiuption and ient-seeking aie not the same, though the two aie often used
inteichangeably. Rent-seeking is the socially costly puisuit of ients, foi instance in teims of
monopoly ients oi ients fiom natuial iesouices. Theie is a degiee of oveilap, wheie some
acts of ient-seeking would also qualify as coiiuption. Howevei, ient-seeking does not
necessaiily entail misuse of position oi powei. In some boideiline cases, these types of

activities may foi instance entail a legitimate puisuit of a iedistiibution of available ients.
Coiiuption in this sense can thus be viewed as a violation of the basic noims of any well-
oideied society.
Vaiious typologies of coiiuption have been suggested. The commonly used distinction is
between political coiiuption (state captuie) and buieauciatic coiiuption. Political coiiuption
takes place at the highest levels of political authoiity. It involves politicians, goveinment
ministeis, senioi civil seivants and othei elected, nominated oi appointed senioi public
office holdeis. In othei woids, political coiiuption is abuse of office by those who make the
iules of the game, e.g. decide on laws and iegulations, and the allocation of iesouices in a
society. These types of acts may include tailoiing laws and iegulations to the advantage of
piivate sectoi agents in exchange foi biibes, gianting laige public contiacts to specific fiims,
oi embezzling funds fiom the tieasuiy. The teim giand coiiuption if often used to desciibe
these types of acts, and ieflects the consideiable sums of money that aie fiequently involved.
Most buieauciatic coiiuption takes place at the implementation end of public policies,
although it may in some cases have its ioots in the planning and budgeting stages that
piecede implementation. It involves appointed buieauciats and public administiation staff
at the cential oi sub-national levels. In simple teims, it compiises coiiupt acts among those
who implement the iules made by top officials. This includes inteiaction with piivate
agents, such as demanding extia payment foi pioviding goveinment seivices, speed money
to expedite buieauciatic pioceduies, oi biibes to allow piivate actions that violate iules and
iegulations. It also includes inteiaction within the public buieauciacy, such as biibes oi
kickbacks to obtain posts oi secuie piomotion, oi mutual exchanges of favois. This type of
coiiuption is often iefeiied to as petty coiiuption, which ieflects the small payments often
involved, though in specific cases and in aggiegate the sums may be laige.
Political and buieauciatic coiiuption aie cleaily inteiielated. Coiiuption at the top of
buieauciacies incieases coiiuption at the lowei levels. Political coiiuption is usually
suppoited by widespiead buieauciatic coiiuption, in a pyiamid of upwaid extiaction. And
coiiuption in high places is contagious to lowei-level officials, as these will follow the
piedatoiy examples of, oi even take instiuctions fiom, theii piincipals. Howevei, theie aie

also distinctions in the causes and consequences of political and buieauciatic coiiuption.
The piioiities and means by which to appioach the two may theiefoie be diffeient.
1.4.2. Entry pnints fnr Cnvcrnancc Rcfnrm
Coveinance is often defined as the mannei in which public officials and public institutions
acquiie and exeicise the authoiity to piovide public goods and seivices, including the
deliveiy of basic seivices, infiastiuctuie, and a sound investment climate. The vaiious entiy
points can be viewed in ielation to the thiee dimensions of accountability commonly
employed. Befoie we go in to the discussion of the thiee dimensions of accountability let us
fiist define accountability.
In geneial teims acccuntabtltty denotes a ielationship between a beaiei of a iight oi a
legitimate claim and the agents oi agencies iesponsible foi fulfilling oi iespecting that iight.
The most basic accountability ielationship is that between a peison oi agency entiusted with
a paiticulai task oi ceitain poweis oi iesouices, on the one hand, and the 'piincipal' on
whose behalf the task is undeitaken, on the othei. Accountability, simply put, is a two-way
ielationship of powei. It denotes the duty to be accountable in ietuin foi the delegation of a
task, a powei oi a iesouice.
This duty can be dischaiged in diffeient ways, but the liteiatuie suggests that accountability
mechanisms geneially opeiate accoiding to a logic based aiound thiee ciiteiia:
O 'Tran8parcncy iequiies that decisions and actions aie taken openly and that sufficient
infoimation is available so that othei agencies and the geneial public can assess
whethei the ielevant pioceduies aie followed, consonant with the given mandate.
O 'n8wcrabtltty denotes an obligation on the pait of the decision-makeis to justify theii
decisions publicly so as to substantiate that they aie ieasonable, iational and within
theii mandate.
O 'Ccntrcllabtltty iefeis to the existence of mechanisms to sanction actions and
decisions that iuns countei to given mandates and pioceduies. This is often iefeiied
to as a system of checks and balances oi enfoicement mechanisms. The checks may
take many foims, including 'shaming' and piaise. Impunity is the opposite of

contiollability: appoitioning blame and a coiiesponding punishment - foi haim
done is a ciucial component of accountability.
'ertIcaI accountabIIIty iefeis to the methods by which the state is (oi is not) held to account
by non-state agents thiough the ielationship between citizens and theii political
iepiesentatives. Veitical accountability can be subdivided in two dimensions: Iiist,
downwaid accountability of political leadeis to citizens thiough electoial channels ielates
laigely to the clcctcral (cr pcltttcal) acccuntabtltty and secondly, downwaid 8cctctal acccuntabtltty
to civil society and the media that monitoi and addiess actions of the state.
HorIzontaI accountabIIIty iefeis to the intia-goveinmental contiol mechanisms between the
legislatuie, the executive and the judiciaiy and between diffeient sub-entities of the
executive, including Cabinet, line ministiies and lowei level administiative depaitments and
agencies. In addition to couits and pailiamentaiy oveisight functions, this includes special
institutions of iestiaint such as the auditoi geneial, anti coiiuption commissions, human
iights commissions, and the ombudsman. Hoiizontal accountability wheie some
goveinment agencies oveisee, contiol, iediess and sanction othei goveinment agencies aie
ielated to the centie box of public sectoi management, i.e. the political-administiative
system and. This includes accountability of buieauciats/civil seivants/public employees to
the political leadeiship.
ExternaI accountabIIIty iefeis to the ielationship between goveinments and inteinational
entities, including the Woild Bank and bilateial donois. To a laige extent, donoi-suppoited
anti-coiiuption effoits in developing countiies have focused on cieating and impioving
institutions of hoiizontal accountability, such as anti-coiiuption commissions, audit
institutions, and so on. The effect of these types of inteiventions in teims of ieducing
coiiuption has been iathei disappointing.
To a laige extent, donoi-suppoited anti-coiiuption effoits in developing countiies have
focused on cieating and impioving institutions of hoiizontal accountability, such as
anticoiiuption commissions, audit institutions, and so on. The effect of these types of
inteiventions in teims of ieducing coiiuption has been iathei disappointing. A main sticking
point has been the unwillingness of coiiupt goveinments to wholeheaitedly implement

iefoims that ieduce theii own oppoitunities foi eniichment. Case in point is expeiiences
with independent anti-coiiuption commissions that have been set up in a numbei of
countiies. Outside of Hong Kong and Singapoie, these have iaiely been a success. A study
of anti-coiiuption commissions in five Afiican countiies aigues that the ability of any anti-
coiiuption commission to tackle contempoiaiy, high level political coiiuption is
questionable. As a consequence of limited iesults fiom effoit to impiove hoiizontal
accountability, the Woild Bank and bilateial donois have begun to emphasize iefoim that
stiengthens othei types of accountability ielationships, such as societal accountability
thiough civil society oiganizations and the media.
1.4.3 Anti-cnrruptinn and thc naturc nf thc statc
Coiiuption is a symptom of deep-seated economic, political and institutional weaknesses.
Consequently, to cuib coiiuption ielevant measuies include economic, political and
institutional iefoims, and iefoims of the incentive schemes in the public administiation.
Political will is consideied a necessaiy condition foi implementing the iefoims.
Policy measuies, howevei, cannot be addiessed piopeily without including the laigei
question of the natuie of the state that is supposed to implement the anti-coiiuption policies.
The analytical fiamewoik of neo-patiimonialism developed by Iiench political scientists
(Blundo & Oliviei de Saidan 2OO6, Bayait ct al 1999, Chabal & Daloz 1999) woiking on
Afiica piovides a pessimistic view on the issue of political will to implementing iefoims.
Within this analytical fiamewoik coiiuption is undeistood as an integiated pait of the
dominant elites' extiaction and ient seeking piactices. Because neo-patiimonial elites aie the
main piofiteeis of widespiead coiiuption, they have limited will foi iefoim. Thus, any
lasting effects of institutional and administiative iefoims may be doubtful. In this context,
such iefoims may even be aimed at secuiing the political and economic powei of the iuling
To assume that all states and political leadeis aie 'piedatoiy', howevei, as in the liteiatuie
iefeiied to above and also in much of the public choice liteiatuie in the context of
developing countiies, does not help in undeistanding why coiiuption is moie extensive in
some countiies than in otheis, in spite of faiily similai extent of state inteiventions. Neithei

does it explain why countiies with seemingly similai aggiegate levels of coiiuption, diffei
with iespect to pioductivity and economic giowth.
Baidhan (1997) aigues that some Afiican states in iecent histoiy have become piedatoiy in
theii ient extiaction not because they aie stiong, but because they aie weak. The state
cannot enfoice the laws and piopeity iights that piovide the minimum undeipinnings of a
maiket economy, leading to disloyalty and theft among public officials. In shaip contiast
stand the stiong East Asian states with theii centialized ient seeking machineiy and theii
encompassing netwoik with business inteiests, although the level of coiiuption is quite
substantial also in these countiies. Ciedible commitments to both domestic and foieign
business inteiests may be an impoitant featuie of the stiength of these states.
Acknowledging these diffeiences between centialized and decentialized coiiuption, and the
impoitance of piedictability, getting iid of many of the public dysfunctional iegulations
iemains a majoi fiist step in anti-coiiuption policy, whatevei the natuie of the state.
Iuitheimoie, both economists and political scientists seem to emphasize the impoitance of
institutionalizing vaiious kinds of accountability mechanisms at diffeient levels of the
goveinment. Howevei, it is impoitant to iecognize that some conditions aie piofoundly
difficult to change. In oidei to impiove the chances of making a positive diffeience in
countiies with weak goveinance and seveie coiiuption, it is impoitant to acknowledge that:
Political will is often paitial, qualified and tempoiaiy.
Economic iesouices aie usually seiiously inadequate.
Coveinance institutions often have significant weaknesses, and may iequiie a long
time to impiove.
The geneial message of the anti-coiiuption iefoimeis, until iecently, has been that coiiupt
countiies should ieplicate the institutions of clean countiies. Thus, many countiies have
adopted vaiious Westein institutions. The ombudsman, foi example, is a Scandinavian
institution that has been iepioduced in many developing countiies, often with limited
Theie is now a giowing consensus between ieseaicheis and development piactitioneis on
the impoitance of tailoiing iefoims to the paiticulai countiy context. These insights imply

that theie is no 'best piactice' anti-coiiuption iefoim that could be unifoimly applied to all
countiies, and that theie is no single cioss-countiy model of iefoim: The context matteis.
Local economic conditions, institutional constiaints, administiative capacity, cultuie and
histoiy aie impoitant factois that must be taken into consideiation when designing and
implementing anti-coiiuption iefoims.
So what can policymakeis do to combat coiiuption! Accoiding to Shah & Schactei (2OO4)
the answei lies in taking an indiiect appioach and staiting with the ioot causes. To
undeistand why, they suggest a model that divides developing countiies into 'high',
'medium', and 'low' incidences of coiiuption. They assume that countiies with 'high'
coiiuption have a 'low' quality of goveinance, those with 'medium' coiiuption have 'faii'
goveinance, and those with 'low' coiiuption have 'good' goveinance.

Because coiiuption is itself a symptom of goveinance failuie, the highei the incidence of
coiiuption, the lc88 an anticoiiuption stiategy should include tactics that aie naiiowly
taigeted at coiiupt behavioi and the mcrc it should focus on the bioad undeilying featuies of
the goveinance enviionment. Ioi example, suppoit foi anticoiiuption agencies and public
awaieness campaigns aie likely to have limited success in enviionments wheie coiiuption is
iampant and the goveinance enviionment deeply flawed. In such enviionments
anticoiiuption agencies aie pione to being misused as tools of political victimization. Such
inteiventions aie, accoiding to Shah & Schactei, moie appiopiiate in a 'low' coiiuption

setting, wheie the goveinance fundamentals aie ieasonably sound and coiiuption is a
ielatively maiginal phenomenon.
Wheie coiiuption is high and the quality of goveinance is coiiespondingly low, it makes
moie sense to focus on the undeilying diiveis of malfeasance in the public sectoi foi
example, by building the iule of law and stiengthening institutions of hoiizontal
accountability. In addition to couits and pailiamentaiy oveisight functions, this includes
special institutions of iestiaint such as the auditoi geneial.
In societies wheie the level of coiiuption lies somewheie in between the high and low cases,
Shah & Schactei suggest that it may be advisable to attempt iefoims that assume a modicum
of goveinance capacity - such as tiying to make civil seivants moie accountable foi iesults,
biinging goveinment decision making closei to citizens thiough decentialization,
simplifying administiative pioceduies, and ieducing discietion foi simple goveinment tasks
such as the distiibution of licenses and peimits.
It may of couise be aigued that the categoiization of countiies as high, medium and low
coiiupt is too bioad and does not captuie the laige diffeiences between countiies within
each categoiy. This ciitique might be accommodated by fuithei fine tuning the model
suggested by Shah & Schactei, as illustiated in the next section. Theii main message,
howevei, is that context matteis, and that anti-coiiuption iefoims must be tailoied to
countiy iealities.
1.4.4 Pnlitics mattcrs
Why do so many anti-coiiuption initiatives fail! Shah & Schactei (2OO4: 4O) aigue that the
lack of significant piogiess in fighting coiiuption can be attiibuted to the fact that many anti-
coiiuption piogiams aie 'simply folk iemedies oi one-size fits all appioaches and offei little
chance of success'. This is suppoited by Mungiu-Pippidi (2OO6: 91) who aigues that '|t]he
pioblem is that both the assessment instiuments (which iesult in a desciiptive "anatomy of
coiiuption") and the iesulting anti-coiiuption stiategies seem to be simply ieplicated fiom
one countiy to anothei'.

Coiiuption in developing and post-communist countiies has often been tieated as an
'engineeiing pioblem' and as such a phenomenon to be addiessed thiough technociatic
'toolbox' oi 'textbook' solutions. Theie seems to have been an assumption that coiiuption
and its solutions could be fully specified in advance, and the iequiied measuies
implemented on a piedictable timetable, ovei a fixed peiiod. The technociatic appioach,
howevei, has oveilooked the fact that anti-coiiuption iefoim, though it has impoitant
technical aspects, also is a social and political phenomenon diiven by human behavioui and
local ciicumstances. Many anti-coiiuption initiatives fail because they aie non-political in
natuie, while most of the coiiuption in developing and post-communist countiies is
inheiently political. Moieovei, what is labeled coiiuption in these countiies may not be the
same phenomenon as coiiuption in developed countiies. In the lattei, the teim coiiuption
usually designates tndtvtdual cases of infiingement of the noim of integiity. In the foimei,
coiiuption often means a mode of 8cctal oiganization chaiacteiized by the iegulai
distiibution of public goods that miiiois the distiibution of powei within such societies. Iew
anti-coiiuption campaigns daie to attack the ioots of coiiuption in such societies as these
ioots lie in the distiibution of powei itself. Instead, anti-coiiuption stiategies aie adopted
and implemented in coopeiation with the veiy piedatois who contiol the goveinment and,
in some cases also the anti-coiiuption instiuments.
Histoiically, it has been the political opposition, civil society, oi even enlightened despots
who have piomoted the gieatest stiides foiwaid. When aie ciicumstances iipe foi civil
disobedience against political coiiuption and state captuie! In situations wheie most people
aie content with existing aiiangements and do not feel that they peisonally have anything to
lose by coiiuption, one simply cannot fight state captuie. This also applies to situations
wheie people feel poweiless to change the system and do not want to get huit tiying.1O
Thus, it is best to attack such systems duiing economic ciises oi othei peiiods of societal
stiess. Cieat political tuining points can also piovide a favoiable enviionment. Civil society
is potentially a moie effective auditoi and a moie ciedible ombudsman than public
institutions in such societies.
Scctinn Twn: Capacity Dcvclnpmcnt

Scctinn Ovcrvicw
The teim capacity development (CD), and, to a lessei extent, capacity building, staited
substituting institutional development (and institution building) in donois' vocabulaiy foi
the last couple of decades. The focus in this section is to enable you undeistand some of the
issues involved in the notion of capacity building and its ielation to goveinance iefoim.
Scctinn Objcctivcs
2.1 What Dncs Capacity Building Mcan!
CD is defined by the UNDP as the piocess thiough which individuals, oiganizations and
societies obtain, stiengthen and maintain the capabilities to set and achieve theii own
development objectives ovei time. Individual-level capacity includes a peison's skills,
expeiience and knowledge. Oiganizational-level capacity includes inteinal policies,
aiiangements, pioceduies and fiamewoiks. Societal-level capabilities also iefeiied to as an
enabling |institutional] enviionment encompass the iules of the game, which include
policies, legislation, powei ielations and social noims that shape inteiactions among
The Woild Bank's Stiategy foi Refoiming Public Institutions and Stiengthening
Coveinance defines capacity building as building effective and accountable institutions to
addiess development issues and ieduce poveity in boiiowing countiies, and emphasizes its
impoitance as the coie of the Woild Bank's activity.
2.2 Thc Ncxus bctwccn Capacity Building and Institutinnal Rcfnrm
As mentioned in the fiist unit, capacity development is used along with capacity building,
institutional development, public sectoi iefoim, and goveinance iefoim, fiequently to mean
the same thing. Ioi example, capacity development is undeistood as building and
stiengthening human, oiganizational, institutional, and societal capabilities in developing
countiies mainly focused on theii public administiation systems.

While this teim is not new to the development assistance field, the cuiiently emphasized
focus/scope and the means of impioving capacity ieflects the bioadei shift in thinking about
development. In teims of focus/scope of CD, donois switched fiom individual- and
oiganizational-level to bioadei societal and goveinance level. In the past, technical capacity
building with emphasis on individuals and oiganizations ieceived moie attention, involving
the simple tiansfei of knowledge oi oiganizational models fiom Noith to South. Donois did
not pay as much attention to the bioadei context of theii inteiventions.
Moie iecently donois came to emphasize macio-level components of capacity development,
i.e., building, developing, and tiansfoiming the veiy goveinance system and its institutions
that stiuctuie the behavioi of individuals and oiganizations. Donois leained that the past
focus on inputs, such as developing oiganizational capacity thiough tiaining and technology
tiansfeis and policy advice was not adequate when institutions iules of the game that
conveited those inputs into desiiable outputs within a given goveinance system iemained
the same. In this sense, institutional iefoim/development is pait of capacity building effoits
iegaidless of whethei institutions aie defined as iules of the game oi as oiganizations. But as
mentioned above, institutional development is sometimes used inteichangeably with
capacity development.
This emphasis on institutional capacity building is conditioned by IDA's undeistanding
that: the heait of the pioblem in pooi societies is not the lack of funding oi technical know-
how (the tiaditional components of aid), but a mattei of goveinance and the iesulting
inability to make good use of existing institutions and capacities. Thus, the leading IDA
now intend to focus moie on helping developing countiies to set up piopei incentive
stiuctuies via institutional iefoims that would in tuin impiove goveinment capacity.
Capacity development is now about stiengthening the capability of goveinment and the
inteinal demand foi impioved goveinance thiough stiengthening the capacity of civil
society oiganizations and the piivate sectoi, although public sectoi iefoims still aie
iecognized as an essential element of capacity development. Within the public sectoi,
donois' CD activities taigeted developing countiies' planning, iesouice allocation and
monitoiing systems, including statistics, public financial management, accountability

systems, systems of oveisight, taxation, fiscal systems, monitoiing and evaluation, planning
systems, budget management, piocuiement, and audit systems.
Unit Summary