PUBLIC

ADMINISTRATION
LECTURE 4
 GOVERNANCE

• Governance is political steering and hence purposeful attempts

at coordinating individual action in order to achieve certain
policy goals

• Governance refers to collective settlement of social affairs in a

polity, including a broad range of different modes i.e.

• Hierarchical intervention (through govt. machinery)

• Non-hierarchical Intervention (co-operation b/w public & private

actors)
 CONTD.

• Governance refers to those measures that involve setting the

rules for the exercise of power and settling conflicts over such
rules
• Governance as a concept focuses on pattern of political
steering, that is, institutionalized relationship between public
and private actors, which facilitate in resolving social
problems
 CONTD.

• Word GOVERNANCE can be traced back to Greek verb

kubernan, which means to pilot or to steer
• Modes

• Governance by Hierarchy

• Governance by Market

• Governance by Network
 GOVERNANCE BY HIERARCHY

• It stresses on the role of formal rules and procedures that are binding for
public and private actors
• State has monopoly over use of force to bring private actors into
compliance with public policy
• State has the sanctioning power that exceed that of private actors, which
makes the relationship of private and public actors asymmetrical
• State plays key role in public policy making in this mode
• Hierarchy intervenes to produce and supply common goods e.g.
infrastructure, education or cleans air etc.
• Govt. defines the legal framework with out which no economic
activities could be realized
• However, this mode decouples the states from the policy needs of the
private actors
 GOVERNANCE BY MARKETS

• Is based on the idea that goods and services are allocated efficiently
with out intervention by the state
• Market provides individuals and corporate actors with an ideal setting
for exchanging resources based on PRICE
• Assuming that all the relevant information for the exchange of the
goods and services is also supplied with them
• Based on price market participant judge whether it is advantageous to
agree to a transaction or not
• Another assumption of the Market Governance is that the actors are
rational i.e. they seek to maimize their own well-being
 CONTD

• While maximizing their own well being, these actors are likely to
produce negative externalities that cause harm to third persons and
hence lower society's over all welfare
• State intervention is the best way for internalizing the effects of the
negative externalities
• State intervention is done by defining the basic rule and regulation to
make sure that markets function efficiently
• The deficiencies of market based governance can be tackled by further
strengthening the government hierarchy, by making more and more
rules
• Important to note that hierarchal definition of rules of the game
constitute basic requirement for the emergence and functioning
 GOVERNANCE BY NETWORK

• This mode is based on co-ordination between public and private actors

• Network are defined as stable sets of interdependent public and private
actors who interact informally to achieve distinctive but interdependent
goals
• The members of a policy network are linked to one another through the
exchange of policy relevant information, expertise and other additional
resources
• Policy networks provide the resources which are not available with in
the state apparatus for intervention in policy areas
• Policy networks can participate in the preparation of policy decisions by
executive or legislature i.e. policy drafting, help in implementation
• Government is likely to work more closely wit the groups offering the
most valuable resources
 CONTD.

• Governance by network not only works by means of horizontal co-

ordination between public and private actor, but also through “societal
self-governance” e.g private interest groups
• With the presence of such private interest groups, the opposing interest
are internalized with in the regulatory regime, which bring the activities
of private agents under a self-imposed discipline
• Examples – in many countries alcohol industry regulates itself when it
comes to advertising its products. In developed countries agricultural
industries achieve minimum quality standard by self regulation
• These pattern of non-hierarchy governance are based on negotiations
between involved actors
• Decision are not imposed in a top-down manner but are negotiated
 CONTD.

• Reliance on negotiations for development and implementation

of public policy, distinguishes this mode of governance from
the classical approaches
• It emphasizes on mutual trust and complementarity of
resources that are expected to result in reciprocal actions
• Networks are relatively loosely coordinates yet stable mode of
governance, bring out the exchange of resources that can’t be
reflected in price i.e. intangible goods e.g tacit knowledge or
competencies
• In case conflict arises , actors try to resolve it by negotiations
rather forcing the affected actor to leave the network
FROM HIERARCHY TO MARKET AND
THAN TO NETWORK GOVERNANCE
• during 1960s and 1970s the focus was on improving the and increasing
the capacities of hierarchy govt.
• During all this time governance corresponded to government, which
was hierarchical steering of society through state interventions
• However, with the emergence of unexpected societal conflicts and
economic problems in 1960s & 1970s the interventionist state came
under attack
• Hierarchy based governance failed to provide solution for the emerging
social and economic problems of modern state
 CONTD.

• Consequently top-down policy-making based on command-and-control

instruments and coercive techniques of policy implementation were
perceived as old fashioned and ineffective for increasing public welfare
• The pattern of extended hierarchical governance increasingly
challenged by implementation and evaluation research which revealed
huge deficit with regards to bureaucratic approach
• Meanwhile, Neo Liberal parties took over govt. in UK and USA, which
questioned the increasing involvement of govt. in policy formulation
and implementation
• This coincided with the market liberalization and privatization of state
monopolies at the international and EU level
 CONTD

• during 1980s a new trend emerged that is characterized by political

attempts to reduce hierarchy governance and instead rely on market co-
ordination
• This meant that Govt. no longer provides goods and services themselves
but reduce their role to establishing regulatory frameworks for
provisions for these goods and services by private actors
• ‘The interventionist state’ to ‘regulatory state’
 CONTD.

• global wave of privatization in areas such as postal service,

telecommunication, railways and common goods previously provided
and managed by state
• Privatization often went hand in hand with creation of regulatory
agencies
• Deregulation, privatization and administrative reforms practically
‘rolled back’ the state. The interventionist role of the state changed, it no
longer provided common goods and services rather enable them to be
provided
 CONTD

• Growing influence of the market mechanism led to the rise of NEW

PUBLIC MANAGEMENT (NPM)
• NPM assigns to elected officials only the role of defining long-term
policy goals.
• Idea of Competition was applied to the delivery of public services
• Competition brought the idea of benchmarks and other bases for
comparison, which is at odds with the classical understanding of public
administration
 CONTD.

• 1990s onwards, mode of governance gradually started to shift form

Market Governance to Network Governance
• This shift was primarily driven by the acknowledgment of the need for
more cooperation between public and private actors
• The emergence and growth of policy networks as new form of
governance is interpreted as the result of two developments

• Loss of internal Sovereignty - Societal differentiation and fragmentation and

increasing organizational complexity, summed it up that Govt. can no longer
intervene in societal processes, rather it needs to rely on societal actors
• Loss of external Sovereignty – globalization, global integration of markets
took to the point where National Govt. had to co-ordinate with broad range
of public and private actors operating at domestic and international level
 EXISTING MODE

• It is important to understand that all these three modes of governance

co-exist
• Different policy challenges require different modes of governance
• The overall responsibility for providing common goods and services
still and would always be with the state
• State has the power, resources which the societal actors don’t have that
is why still the state has the central role in formulation and
implementation of public policies
 TYPES OF GOVERNANCE

• Interventionist Governance
• Regulated Self-Governance
• Cooperative Governance
• Private self-governance
• Following two points are the criteria on which the above types
are suggested
• Degree of co-operation between public & private actors in policy-
making
• Distinction between hierarchical and non-hierarchical modes
REGULATED SELF-GOVERNANCE

• Regulated self-governance means that participation of society takes

place on the basis of clearly formalized & institutionalized procedures
• Although state still play a dominant role in final decisions on policy
contents and regulatory arrangements
• Regulated self-governance can only be achieved under the ‘shadow of
hierarchy’
 CO-OPERATIVE GOVERNANCE

• Policy decisions are the result of bargaining processes, both private &
public actors participate on equal standing
• Public and private actors together define the rule of the game
• ‘Joint Policy Making’ replaces the hierarchical interventions with
voluntary agreements
 PRIVATE SELF-GOVERNANCE

• Provision of public policy completely depends on the governance of

capacity of private actors
• Hierarchies mediate, moderate between conflicting interests, stimulating
communication and co-ordination between different actors
• State still provides the complementary governance contribution
• Public actors provides the legitimacy to the private governance by
officially acknowledging he outcome of private governance
 DYNAMICS OF GOVERNANCE

• Internal dynamics of good governance—that the people of

that country, including minorities, are satisfies with the
manner in which the government conducts public affairs and
manages public resources.

• External dynamics of good governance—that other

countries feel a government manages its affairs with the
international norms of good governance, especially in terms
of the human rights of its citizenry.
 GOOD GOVERNANCE

• Central to creating and sustaining an env which fosters strong

and equitable development
• Good Governance hails empowerment, individual freedom,
creativity and self-governance framed by democratic
participation, transparency and accountability
• Good governance refers to an empirically observable politico-
administrative way of public policy-making, reforming and
organizing
 VARIOUS DEFINITIONS

• UN Secretary-General Ban Ki-Moon

“To be a healthy and thriving democracy needs a real
political opposition in which everyone can express himself
freely and without fear of being intimidated. This is also good
governance.”
 UNITED STATES

The Bush administration’s Principles of Good Governance

outlines five key principles of good governance used to
determine which countries will qualify for development
assistance under the Millennium Challenge Account:
free and fair elections
independent judiciary and the rule of law
freedom of speech and press
absence of corruption
government investment in basic social services
“These principles constitute the foundations of modern
democracy and create the underpinning to establish capital
markets and spur foreign and domestic investment.”
 EUROPEAN UNION

• The European Commission’s five principles of “good

governance”: openness, participation, accountability,
effectiveness and coherence, reinforce those of subsidiary
and proportionality regarding the rules, processes and
behavior that affect the way in which powers should be
exercised in Europe.
•

The European Commission, White Paper on European Governance

 AFRICA

• Governance is a concern and a concept coined in the North. It started as a

condition by which recipients can gain access to development resources,
coinciding roughly with a period of dwindling aid resources and
hardening political attitudes in donor countries.

• Calls for democratic elections were justified by donors as a legitimate

area of intervention using the argument that they are the best way to
secure the social consensus and acceptability necessary for the successful
implementation of sustainability of economic reform programs.

A. Kruiter, Good vernance for Africa: Whose Governance? (Maastricht:

ECDPM,1996)
 ASIA

• According to the UN Economic and Social Commission for the Asia and
Pacific:
• The term "good governance" is increasingly used in development literature.

• Bad governance is regarded as one of the root causes of all evil within our
societies.

• Major donors and international financial institutions are basing their aid and
loans on the condition that reforms ensure "good governance."
• Good governance is participatory, consensus oriented, accountable,
transparent, responsive, effective and efficient, equitable and inclusive, and
follows the rule of law.
 PRINCIPLES

• Participatory, consensus oriented, inclusive

• Accountable with free and fair elections
• Transparency
• Freedom of speech
• Responsive, effective, efficient, and equitable
• No corruption
• Follows the rule of law
• Government investment in basic social services
 CONTD.

• It covers three basic domain

• public governance
• policy making
• policy implementation and administration organizational set up
 PARTICIPATION

• Broader participation in decision making

• Freedom of association and speech
• Assumption is that through broader participation results information
exchange & transparency, which leads to more just and equitable
allocation of resources, which in return reduces the poverty
• Generally participation has three aspects
• Access to Information
• Participation in Decision Making
• Access to Justice
• It argued that Government processes improve through public
involvement
 RULE OF LAW

• Laws, regulations and codes of conducts should be fair and enforced

impartially
• Special focus be given on protection of Human Rights, which can only
be done through effective enforcement of human rights related laws
• Institutional constrain in this regard should be dealt on priority basis
• Awareness about human rights and relevant law and legislation among
the general public makes violation difficult
 TRANSPARENCY

• Transparency is built on the free flow of information

• Processes, institutions and information are directly accessible to those
concerned with them
• It promotes openness of government action, decision-making processes,
and consultative processes among public sector and all stakeholders
• Lack of transparency leads to weak accountability & lack of
responsiveness and inefficiency, which compromises good governance
• Lack of Transparency leads to Corruption
• Institutional Corruption (policies that serve private interest)
• Administrative Corruption (unjust implementation of law)
 RESPONSIVENESS

• Institutions and processes should try to serve all stakeholders with in a

reasonable timeframe
• “Justice delayed is justice denied”
• Fire rescue reaching when the whole establish burnt to the ground
• Public Sector Organizations’ ability to respond promptly to the public
emergencies a big dis-satisfaction area
• Responsiveness of Government agencies play a very important role in
building a perception of particular political govt. in the masses
• This is one aspect of the Good Governance which can’t be faked.
 EQUITY

• All men and women have opportunities to improve or maintain their

well-being
• Equity represent fairness or what may be termed as equality of
outcomes
• Equity serves as guiding principle for economic and social development
planning
• Equity ensures that the resources are appropriated as per the needs to
the regions / sections of society
• Equity furthers the cause of poverty elimination and social up lift
 EFFECTIVENESS & EFFICIENCY

• Effectiveness is the quality of output

• Efficiency is input output ratio
• Outcome denotes impact of an action
• Output is what we do
• Processes and institutions produce results that meet needs while making
the best use of resources
• promotes efficient public delivery systems and quality public outputs
• Effectiveness and Efficiency of the public institutions is directly linked
with responsiveness
 ACCOUNTABILITY

• Decision-makers in government, the private sector and civil society

organizations are accountable to the public, as well as to institutional
stakeholders
• Central to the principle of accountability is information sharing and
transparency which should be promoted by governance structures
• accountability is hard to achieve especially in the absence of access to
information
 STRATEGIC VISION

• Govt. should have long terms perspective on governance and human

resource development
• A thorough understanding is essential of what is requires and why it is
require for strategic approach
• Its more about thinking in terms of impact of today’s action on future
generation
• Obsession for economic development should not lose sight of its likely
impact on future generations
• All forms of development should be sustainable
 IGR

• Intergovernmental relationships (IGR) are crucial to program

management.
• Federal govt. does not provide domestic public service directly
– implemented through complex arrangement of federal,
provincial and local governments. (e.g., public roads)
• This arrangement of public service delivery reflects
‘federalism’ as responsibilities are both divided and shared
among separate levels of government – each with legal and
fiscal authority.
 CONTD.

• Federal system divides power into central governments,

regional governments.
• Some shared responsibility, other areas of jurisdictions are
independent and well – defined.
• Federal govt. (independently): external affairs, defense,
national economy.
• All govts (jointly): education, public health, law and order,
public housing, public transit.
• IGR focus on all combinations of government relationships,
national-provincial, national-local, provincial-local, inter-local
relations.
CASE FOR FEDERAL INVOLVEMENT

• Administrative govts. (provincial and local) are better able to

tailor their programs to meet the needs of their residents then
why involve federal govt.?
• Federal-provincial relations: economic reasons:
• Need for uniformity:
- Uniformity of standards and regulations – efficiency of
national market. Uniform rules governing private sector – e.g.,
different corporate income tax:, economies of scale issue.
economic differences between regions.
- All citizens should enjoy similar benefits (jobs, housing,
health).
 CONTD.

• Direct spillovers: Actions taken or not taken by one provinces

can sometimes affect the residents of other provinces.
- e.g., contaminated water flowing to another province, one
province investing in their educational system leads others to
do so, as well as incomes rises, tax revenue for fed govt. rises.
- Without federal involvement states do not have the right
incentive to deliver an appropriate level of public service.
 CONTD.

• Effects of policy induced mobility:

- People and firms are free to move to any region in response to
favorable policies
- Promotes competition and efficiency between govts.
- But causes inadequate delivery of welfare services. (e.g.
welfare induced migration leads govts. to deliver less than
desirable level of welfare benefits).
- So federal govt steps in to ensure adequate provision of
welfare service.
 CONTD.

• Inequality of resources:
- Poorer provinces still have to provide services for the needy.
- Federal government transfers funds to them as well as
redistributes between provinces.
- Direct transfers of cash benefits to lower income people.
- Grants to lower income provinces, districts, unions.
- Direct provision of public goods in poor communities.
 CONTD.

• Need for uniformity coupled with the spillover effect makes a

stronger case for federal role in policy. (e.g., lax provincial
regulation on safety of cars can result in indirect cost in
another region).

• Builds case for involvement of federal govt. over provincial.

Need for coordination at all levels. (disaster management for
floods).
 PROVINCIAL-LOCAL RELATIONS:

• Fiscal grants: local govt. provides domestic public service but

has limited taxing power and taxing base. Major revenue
source: provincial grants.
• Legislative connection: Local govts don’t have legislative
power, operate under provincial laws.
• Functional coordination (e.g., provincial education/health
depts supervise local districts).
 CONTD.

• Techniques of supervision:
- Require reports from local communities.
- Furnish advice and information, provide technical aid (larger
budgets, specialized equipment and personnel)
- Use coercive(use of force and threats) power (issue orders,
withhold grants, appoint or remove local officials, require
prior approval)
 MANAGERIAL IMPLICATIONS

• For managing IGR, two important tools – principal-agent

theory and negotiating.
• Principal-agent theory:
- Economic model for managing in an inter-organizational
setting.
- Relationship in which one party (principal) enters into an
agreement with another (agent), with the expectation that the
agent will choose actions that will produce outcomes desired
by the principal.
(Govt seeking private road contractors)
- Principal may lack required knowledge or they find the task
too large or complex to perform.
 PRINCIPAL PROBLEMS

Adverse selection: principals tend to hire lower quality agents

than desired.
- E.g., govt needs creative work done by pvt. firms.
- Govt. does not have information on company’s true worth.
Instead using rough indicators govt. gives out price. Price
serves as proxy of the quality of work desired and willingness
to pay.
- Agents true worth can be above or below that price. Highly
qualified agents find the proxy-based price to be too low. Less
qualified agents find the proxy-based price attractive and get
the contract.
 CONTD.

Moral hazard:
- Behavior by agent that is inefficient.
- Principal lacks complete oversight on agent’s actions.
- Actual behavior of agents is not entirely observable.
- Principal uses proxies to judge performance (reports,
timeliness, number of inductees)
- Agent’s efforts redirected towards proxy measures rather than
program goals.
- E.g., earthquake rehab centers offering psychological help,
contracted out to NGO’s.
 WHAT TO DO?

- Principal should design an incentive structure that will ensure

the agent to pursue principal’s objectives. How?
- Develop monitoring systems that induce agents to reveal as
much as info as possible.
- Points to remember:
- Costly monitoring leads to less of it – Information costs
should be low.
- Divergent interests of principal and agent lead to
administrative difficulties – goal congruency should be high.
 CONTD.

- Design of monitoring and incentive structure:

1. Agents information and action should both be monitored.
However, limited monitoring is better.
2. Use agents lost reputation or confiscated assets as an
incentive for him to perform well.
3. Work on long term relationships to ensure enforcement
despite limited monitoring.
4. Share costs or benefits with both parties – goals become
congruent. E.g., efficiency targets (principal passes on savings
to agent, or effectiveness targets (agent incentivized to deliver
quality deliverable