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‘Public sector organizations’ are entities that have been formed to manage the policy and operating requirements that enable a government to achieve its goals of public governance. The term ‘public governance’ has been deﬁned as the management of a nation through the use of political power (Rainey 1991), or more simply put, answers the question: ‘How should government govern, and what should it do’ (Peters 1996, p. 19)? Such a broad deﬁnition of public governance permits a wide range of activities to be undertaken by public sector organizations as the administrative arm of government.
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The role and structure of public sector organizations depend on the choices made by governments over time and the traditions widely recognized within the system of government operating in a country. Public sector organizations can be structured as central agencies of government, service providers, government business enterprises (GBEs), regulatory bodies, watchdog agencies, and as quasi-government bodies. While many of these institutions have remained comparatively unchanged, the emergence of Next Steps agencies in the United Kingdom represents a signiﬁcant example of a new approach to the structure of public sector organizations. New Steps agencies operate under a form of contract that sets out the scope of their responsibilities and accountability to both government and clients, while related policy issues remain under the control of government.
In the 1930s, Mary Parker Follett suggested that there were signiﬁcant ‘similarities between the business of government and the government of business’ (Corkery 1989, p. 193) However, it took until the last two decades of the twentieth century for reform of public sector organizations to explore this notion through the application of private sector practices to the public sector. This reform process coincided with a shift away from a politico-economic ideology involving the pursuit of full employment, a focus on demand management within an economy, and intense government intervention, characterized by the principles expounded by John Maynard Keynes. In its place emerged the so-called, neoclassical model of economic management. Pioneered by Milton Friedman, this economic ideology centers upon the capacity of an economy to meet potential demand (supply-side economics), and the regulation of economic activity through the acceptance of market forces in place of government intervention. The neoclassical model is closely associated with the principles of smaller government pursued at ﬁrst instance, by national leaders Thatcher, Reagan and Mulroney of the United Kingdom, the USA, and Canada respectively.
By the early 1990s, the concept of reform of public sector organizations had gained a signiﬁcant international following. Often referred to as the New Public Management (NPM), the drive for reform was accompanied by emergence of the range of public sector organizations, an example of which is outlined above. The NPM was accompanied by a wave of privatizations in a number of jurisdictions, and by a rhetoric that espoused a new approach to the management of public sector organizations in terms of ‘doing more with less,’ ‘letting the managers manage,’ and ‘pursuing greater eﬃciency and eﬀectiveness.’ This rhetoric, often described as ‘managerialism,’ supported the application of private sector principles to the management of public sector organizations and translated into a variety of radical reforms in public organizations designed to support the philosophy of smaller government. These reforms included: reducing the number of public employees through ‘downsizing,’ outsourcing a variety of activities previously undertaken by public sector organizations, introducing budget reductions to enforce ﬁnancial restraint within public sector organizations, and selling government assets and entities to reduce the budgetary problems experienced by many governments.
Over this period, research into public sector organizations has examined the consequences of these reforms. The research has divided along lines that either support market-oriented reforms or seek to justify a return to more traditional models of public sector organizations. However, some recent research highlights the importance of strong citizen support for the public sector and attempts to put to rest the view that the ‘public-sector service is inherently inferior to private-sector service’ (Kernaghan 2000, p. 7). Organizational theory research in this area has also explored the consequences of adopting private sector organizational practices in the public sector. It is likely that the divergences of opinion about the relative merits of organizational performance in each sector will remain a source of intense debate and a matter of personal opinion.
1. The Rise Of The Public Sector Organization
A theory of a public sector organization might be ﬁrst found in the development of the democratic city-state described by Plato in The Republic. His concept arose from the notion that people are ‘not independent of one another, but need the aid and co-operation of others in the production of the necessities of life’ (Copleston 1962, p. 251). Livy (15 BC) also described a public sector that was involved in sophisticated risk management negotiations with the private sector, whose help was needed to save part of the Roman army stationed in Spain. However, evidence from Chinese scholars suggests that public sector organizations existed in that country in the Xia Dynasty, many centuries earlier than in Europe.
The origins of public sector organizations in the English-speaking world can be traced to the arrival of William the Conqueror on British shores in 1066. His administration led to the development of public institutions that supported the power and ﬁnancial strength of the monarch, through the development of the Common Law and the creation of the Doomsday Book, which recorded the ownership of land throughout the kingdom which then encompassed England. At this time, the accountability of these institutions was to the monarch, rather than the polity, demonstrating the nature of the public sector that existed during this period of feudal society.
The emerging role and structure of public sector organizations can be seen in their support of empires in the late Middle Ages and the transfer of traditional public sector roles and structures from the dominant power to a subordinate country. This transfer led to some commonality of ideals in public sector organizations that can be traced back to the inﬂuence of, or reaction against, periods of colonial rule of a nation. Bureaucratic traditions also became well-established features of public sector organizations, a factor that has been a source of criticism of public sector organizations and the subject of considerable theoretical and practical evaluation.
In 1776, Adam Smith had suggested the traditional role of government should be limited to the protection of a nation from internal and external violence, the administration of a fair system of justice, and the development and maintenance of major public works. These principles found favor in the early nineteenth century and, more recently have attracted approval from those supporting contemporary neoclassical views. The Northcote–Trevelyan report in 1853 eventually led to a radical and inﬂuential restructure of the British civil service and provided the foundation of modes of public sector organization in the twentieth century.
It could be argued that in many jurisdictions public sector organizations enjoyed the peak of their inﬂuence in the economic boom years of the 1960s and 1970s. However, by the 1980s, the pressure for reform had begun as the changing economic ideology of governments and emerging budgetary pressures forced governments to re-examine the role of their public sector institutions.
2. The Nature Of A Public Sector Organization
It is the complex relationship between public sector organizations and government, which distinguishes this type of organization from those in the private and nonproﬁt sectors, regardless of the recent attempts to merge public with private sector management practices. Public sector organizations can be distinguished from other sectors by their accountability to the principles of public governance adopted by a government. It can be claimed that this accountability gives rise to an overriding management (including ministerial) culture that punishes mistakes and guarantees that few risks will be taken. In a democratic state, there is an expectation that the public sector is also accountable to the government, which is itself answerable to the electorate. In a more authoritarian state, the public sector can be expected to be accountable to the government alone, although in this environment, public opinion may remain an important countervailing force.
The issue of accountability to government and in turn, civil society, highlights another distinctive feature of public sector organizations: the decision-making complexity arising from the need to cater for the diversity of demands faced by public sector organizations. The challenges to the decision-making process emerge, ﬁrst, from the comprehensive legal requirements that bind the form and operation of public sector organizations. In addition, the demands of civil society, the intensity of competing interests within an economy, and the unpopular role of a number of public entities, all contribute to the decision-making complexity experienced by public sector organizations. For example, as societies have become more diverse and interest groups more inﬂuential, their competing demands make the role of both government and public sector organizations, more diﬃcult (Olson 1982). In the face of these tensions, there are suggestions that the emerging challenges of globalization require ‘the emergence of new forms of government’ (Metcalfe 2000, p. 122) able to conceptualize and respond to the increasingly varied and competing demands of public sector management.
Public scrutiny of the policies and operations of public sector organizations is also widespread. Formal scrutiny on behalf of government may occur through a systematic process of audit as well as periodic review by politicians and the judiciary. However, informal review by the media represents a major tension for public sector organizations whose performance may be the subject of intense media review at any time, for political purposes and ‘in the public interest.’ There are suggestions that this pressure makes the performance and decision processes of public sector organizations slower and more conservative as the managers of these organizations work to avoid public criticism of their organization and the government.
The decision-making processes used in the public sector may be seen as slower and more dilatory than other sectors because of the bureaucratic and accountability structures of government organizations. This perception was supported by Drucker who, in the late 1960s suggested that ‘any attempt to combine governing with ‘doing’ on a large scale paralyses the decision-making capacity’ (1969, p. 233). While this criticism may arise from a frustration with the speed with which public sector organizations move towards many decisions, it occurs because of a failure to recognize the impact of bureaucratic and political demands on the decision processes within government and public sector organizations.
The comparative absence of competition between public sector organizations and between public and private sector organizations has also been a distinguishing feature of public sector organizations, although there are exceptions to this rule, especially in the case of some GBEs that operate in a competitive business environment. As Osborne has commented: ‘Businesses typically exist in ﬁercely competitive markets, most public organizations don’t’ (1994, p. 137). Business performance is also built upon comparatively concrete targets such as overall proﬁtability, return on assets, return on owners’ funds, inventory turnover, and the maintenance of cash ﬂow.
Non-traditional performance measures such as assessing customer loyalty, the level of customer satisfaction, and relationship management have also been developed by some organizations seeking to enhance their market standing. However, there are a number of other performance criteria, such as timeliness, ability to operate within budget expectations, and perceived quality of implementing government policy, which might be substituted for proﬁt in public sector organizations. A customer service focus has been a feature of the reform of public sector organizations in the 1980s and 1990s, and remains high on the agenda of the US and UK governments.
The operating environment of a public sector organization has often been regarded as being in some way inferior to private sector organizations. This view, which has long been promoted in literature (Parkinson 1958) and the media, may have inﬂuenced public opinion against members of public sector organizations, a view that several governments are actively attempting to redress. The changing nature of the service requirements of many public sector institutions has also created pressure to move away from the generalist model of management. There is an increasing expectation that managers of these entities, in addition to their existing management skills, may ﬁnd they now need some of the skills possessed by many private sector managers. These capabilities include a working knowledge of sophisticated aspects of historical cost accounting, information technology, national and international ﬁnance, contract negotiation, sales and marketing, human resources management, and assessment of customer satisfaction.
3. Public Sector Organizations And The New Public Management
The causes of the drive to reform public sector organizations are multiple. They can be traced to the political pressures faced by governments in the early 1980s, which began to ﬁnd that budgetary constraints emerged, full employment had become an apparently unattainable goal, inﬂation was more diﬃcult to manage than expected, and the ideology of economic management had begun to change. The model of demand management enunciated by Keynes came to be replaced by the more rational, market forces model, or supply-side economics, an ideology that also found favor in developing new policies for deﬁning the relationship between public sector organizations and their respective governments and polities. However, reform can also be attributed to the need for politicians to be seen to be doing something constructive to please both the polity generally as well as the ﬁnancially powerful private sector.
As noted earlier, the most contentious reform of public sector organizations focuses on the reengineering of the public sector within the philosophies espoused by those promoting the concept of the NPM. At its extreme, the emergence of the NPM has seen a shift in the focus of government from seeking policy advice and implementation, to a drive for a more ‘eﬃcient and eﬀective’ public sector based on performance principles more commonly associated with the business sector. The accompanying rhetoric includes the goals of ‘economic competitiveness, doing more with less, building faith in government and strengthening community and civil society’ (Gore 1999, p. 1). Across the Atlantic, the goals of the British Government have been expressed as targets in ﬁve key areas of public service, namely:
forward looking policy making;
public services focused on needs of users;
quality public services;
the use of technology to support a modernized
public service; and
a move to value, rather than denigrate, public
service (Her Majesty’s Government 1999).
From an organizational point of view, these emerging trends have resulted in a number of signiﬁcant changes to many public sector organizations. Because of the range of ways in which public sectors are structured, these trends vary in their importance. In many public sector organizations, attaching private sector salary levels to senior executives who are appointed under contract for a speciﬁc term has tended to increase the politicization of public sector organizations and has changed their traditional relationship with the government.
The contracting out of activities previously under- taken by public sector organizations has had the potential to reduce their knowledge of particular markets and aﬀect their ability to enter contractual arrangements. One of the main areas of risk is ensuring that the legal and operational sophistication possessed by private sector organizations, is matched by those acting on behalf of the public sector. Contracts are required which take account of possible contingencies arising during the life of a contract. Because these contracts exist between the public sector and private sector, in some jurisdictions there are increasing numbers of cases where the transparency usually associated with public contracts is increasingly hidden behind the barrier of ‘commercial in-conﬁdence,’ perhaps to the detriment of the polity through the diminution of public review.
The outcomes of the reform process have been mixed and are subject to widely varying interpretations. The reform process is not an event; it represents a continuum of change in public sectors in most countries, where the pressures of globalization, technological change, reduction in government debt, and emergence of aspects of the neoclassical approach have taken hold. As a result, it is not possible to evaluate the precise cost-beneﬁt of public sector reforms presently, nor is such an evaluation likely to be very reliable in the future. Some public sector organizations have reduced their regulatory control within the economy, while others have found it necessary to consider a re-regulation process. The contracting-out of activities within some public institutions has provided both beneﬁts and costs to government and civil society, an experience that is likely to be mirrored within private sector organizations that have undergone similar reengineering processes. Major experiments in social change such as that attempted in New Zealand have led to complex outcomes for both public and private sector organizations, the merits of which remain widely debated.
4. Future Directions
As the twenty-ﬁrst century begins, it is clear that public sector organizations will continue to experience the tensions that arise between the demands of government, business, and civil society. The basic role of public sector organizations may not change dramatically, although governments may ﬁnd themselves under intense pressure to meet the demands of rapidly aging societies, to reduce the inequities apparent from contemporary versions of globalization and to manage the consequences of emerging e-business trends.
Current trends to downsize public sector organizations as part of a dedication to the goals of smaller government will force these entities to work towards further ﬁnancial and operating eﬃciencies, to achieve higher service quality standards, and to emulate private sector organization structures. However, it is unlikely that these organizations will gain any relief from the responsibilities of public governance.
The tensions between organizational theory and public sector practice can be expected to continue to be a source of academic review and public scrutiny as speciﬁc events cause governments and public sector organizations to reexamine their role. For example, reregulation of certain markets, a requirement for public investment in previously privatized businesses, and a range of potential responses to the combined eﬀects of e-business and globalization are examples of major challenges for public sector organizations. These demands are likely to increase as the structure of these organizations continues to be aﬀected by the combined eﬀects of downsizing, outsourcing, budgetary restrictions, and the decentralization of organization structures inherent in the moves towards electronic government.
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