by Jonathan Boston
New Zealand's public sector reforms have sparked world-wide fascination and acclaim. Not only have they won high commendations from international agencies such as the OECD and the World Bank, but they have also figured prominently in political debates over public management reform in many countries, developed and developing alike. For more than a decade, leading academics and delegations of politicians and civil servants from around the world have made the long pilgrimage to Wellington to investigate New Zealand's new model of public management and draw inspiration for their own domestic reform endeavors. And still they come--from countries as diverse as Canada, Denmark, Hungary, the Netherlands, South Korea, Sri Lanka, Sweden, and Thailand. Meanwhile, former New Zealand public servants and others with detailed knowledge of the Antipodean reforms have been crisscrossing the globe proclaiming the merits of the new model and advising on how it can be implemented in foreign capitals.
What has prompted this remarkable interest in the New Zealand model of public management? What have the reforms really achieved? And what have been some of the problems and pitfalls?
Explaining the international curiosity is relatively easy. It has been founded, in the first place, on the theoretical coherence and internal consistency of changes instituted in New Zealand. Unlike the public sector reforms in several other jurisdictions, such as Britain and Canada, reforms in New Zealand were not simply a pragmatic, ad hoc, or ideologically driven response to perceived deficiencies. Rather, they represented the fruit of detailed analyses of the weaknesses of the existing administrative apparatus and a systematic effort to craft an integrated and fresh approach of public management based on the insights of public c hoice theory and the new institutional economics, especially "agency theory" and "transaction cost analysis." The key principles and design features of the new policy framework were formulated and articulated largely within the public service, most notably by the Treasury. Indeed, in an usual development, the Treasury published a comprehensive blueprint for the new-look public service in a volume of post-election briefing papers presented to the fourth Labour government in late 1987. This remarkable document--entitled "Government Management"--quickly became the reformers' "Bible"; it provided the basic conceptual framework for the subsequent reforms at both central and local government levels, including major changes in human resource management, financial management, performance management, and organizational design.
But if overseas observers have been impressed with the theoretical foundations and elegance of the New Zealand model, they have been equally struck by the scope and scale of the reform agenda. Since the mid-1980s, almost every aspect of the public sector has been reshaped, if not radically transformed. Key changes have included a thorough-going program of corporatization, commercialization, and privatization; a major restructuring of the "core" public service with the aim of separating the provision of policy advice from policy implementation and the purchasing function from the provision of services; the devolution of human resource management to the chief executives of individual departments and agencies; the introduction of an output-based system of appropriations and a shift from cash-based to accrual accounting; the development of a new system of strategic management and the integration of it with the budgetary process and performance-management regimes; and the imposition of much more exacting monitoring, reporting, and accountability mechanisms.
International interest in the New Zealand model has also been sparked by the innovative nature of some of the reforms and the willingness to experiment. For instance, New Zealand was the first country to place every departmental head (or "chief executive" as they are now called) on fixed-term, performance-based contracts and to require them to have signed annual performance agreements with their respective portfolio ministers. Moreover, it scored a first in making a distinction, for financial management purposes, between the government's "purchase" interest and its "ownership" interest. It was also at the forefront of moves to introduce accrual accounting and capital charging within the public sector, and was the first country to produce comprehensive financial statements on an accruals basis, including a consolidated balance sheet and an operating statement for the entire state sector. The passage of the Fiscal Responsible Act in 1994, which obliges governments to pursue "prudent" fiscal policies, was also novel when it was introduced.
Perhaps above all else, New Zealand's reforms have been unusual in the extent to which they have embraced the "new contractualism." This has involved establishing more explicit, contract-like relationships at all levels of government (that is, between ministers and departments, between departments and non-departmental public bodies, and within departments) and making a concerted attempt to replicate market-type mechanisms within the public sector. Thus, every year ministers and their senior departmental advisers negotiate a "purchase agreement" that specifies what outputs each department is required to produce, the service standards that will be expected, and the resources that will be made available. Similarly, purchasing or funding bodies, such as the Health Funding Authority and the Foundation for Research, Science and Technology, negotiate annual contracts with a range of provider organizations, both public and private. Not all these contracts are legally binding, and even when they are, a general reluctance to enforce them via the courts has been evident. Nonetheless, the effort to create internal markets and contestable provision, coupled with the increased reliance on explicit contracts within and between public agencies, represents a major departure from the previous dependency on "implicit" or "relational" contracts and the use of hierarchical authority (i.e., the policy instruments that typify traditional bureaucracies).
But what has this plethora of reform actually achieved? A great deal of caution here is required. On the one hand, there can be little doubt that local practitioners and outside observers alike have found many virtues in the new model. For instance, the New Zealand reforms have received enthusiastic endorsement from leading academics such as Professor Allen Schick of the Brookings Institution, and they have been widely praised for the improvements achieved in productive efficiency, service quality, transparency, and managerial accountability. Moreover, it is difficult to find any senior policy adviser or manager within the New Zealand public service who would wish to return to the former centralized, inflexible, input-driven, rule-bound policy regime.
On the other hand, hard data concerning the costs and benefits of many of the changes are lacking. To be sure, robust empirical evidence exists that confirms major gains in productivity and profitability as a result of the program of corporatization and privatization. The evidence in many other areas, however, is very patchy or much more equivocal.
One basic problem in this respect has been a lack of rigorous and systematic evaluation. Thus, although public sector reforms in countries like Australia and Canada have been subjected to reasonably thorough scrutiny both by government agencies and external evaluators, the same is not true in New Zealand. Indeed, efforts to undertake empirical research have been constantly thwarted by a lack of adequate funding. The prevailing attitude, especially within the Treasury, is that policy evaluation has little value and runs the risk of impeding the reform agenda, thereby preventing worthwhile innovation. The counterargument is that if proper evaluation is not undertaken, the overall merits of new policy initiatives cannot be established, at least not in an academically respectable fashion.
The failure to undertake systematic and comprehensive studies of key aspects of the reform program means that many of the consequences, both for good and ill, remain unclear. For example, robust data on the transaction costs associated with the new systems of contracting--that is, the costs of drafting, negotiating, monitoring, and enforcement--is lacking. Furthermore, the costs of the new, more exacting accountability mechanisms that apply to government departments and agencies have not been properly analyzed. There is a similar poverty of data, both qualitative and quantitative, concerning the costs and benefits of the new systems of performance management (including performance-based pay) and on the impact of the reforms on such matters as staff turnover, training, competency, and skill levels.
But despite the limited data available, it is evident that the reforms have by no means solved all the problems of public management and have left many grounds for dissatisfaction. Complaints to the Ombudsman concerning the actions of public agencies continue to increase, more than doubling since the outset of the reforms. Public confidence in and esteem for politicians and public servants, as measured by opinion polls, continue to decline. Corruption (in many guises) on the part of public officials has not been vanquished--though whether it has risen or fallen as a result of the reforms is probably impossible to establish. What can be said, however, is that for the first time in many decades, several very senior public servants have faced serious charges of fraud. Undoubtedly the worst example was that of Jeff Chapman, who was found guilty on numerous counts of fraud while holding the office of Controller and Auditor-General. Such behavior on the part of a person responsible for ensuring that public funds are deployed efficiently and effectively, and above all honestly, has done little to inspire confidence in the new model of public management. Perhaps the only consolation is that at least he was caught.
Evidence of corruption has probably been less important in influencing public attitudes toward the reforms than concerns about the quality and accessibility of public services. Throughout the period of reform, governments have pursued a strategy of fiscal restraint. As a result, public expenditure on the administration of the "core" public sector (i.e., the 40 or so departments) has fallen significantly, both in real terms and as a proportion of GDP. This has had a growing influence on the capacity of various departments to undertake their statutory obligations and to fulfill the terms of their purchase agreements. For citizens, the result has been reduced levels of service and, in some cases, the termination of services. For ministers, the consequences have been most visible in the difficulty that many departments have had in recruiting and retaining high-quality policy advisers.
It is not only the core areas of public administration that have suffered. Public expenditure has also been cut, at least in real terms on a per capita basis, in areas like social welfare, health, and education. This has resulted in greater poverty, longer waiting times for non-urgent medical treatment, higher user charges, and serious concerns about the quality of certain services (especially mental health services and social work services).
For public servants, one of the worst aspects of the reforms has been the constant process of restructuring. Since the mid-1980s, almost every department has been substantially reorganized and re-engineered. In many, if not most, instances, such restructuring has been implemented not just once but many times. The Ministry of Health, for instance, has been reorganized to one degree or another almost every year for more than a decade. These changes have been very costly, in both financial and non-financial terms. High-quality staff have been lost or else constantly distracted by the demands of management change. Large sums of taxpayer money have been paid out to compensate those employees who are made redundant. Many departments have suffered a serious loss of institutional memory and policy capability. And staff have been faced with repeated and often protracted periods of uncertainty, with obvious negative consequences for morale, commitment, and productivity.
The debilitating influence of these constant changes on the machinery of government has at last been recognized by ministers and senior officials. In his 1998 annual report, Michael Wintringham, the State Services Commissioner, spoke of New Zealand having "slipped" into a "restructuring culture--a culture in which we reach for the restructuring option instinctively, regardless of the nature of the problem we are trying to solve." He went on to argue that structural solutions should be adopted only when clear structural issues need addressing, and that greater weight should be placed on other policy instruments.
It remains to be seen, however, whether New Zealand policy-makers will be able to overcome their obsession with restructuring. If they cannot, they risk undermining many of the genuine benefits the new public management model has brought.
Jonathan Boston is Professor of Public Policy at Victoria University of Wellington, in New Zealand.