Reading material on the

Course

Governance and Institutional

Reform

Courses Code: GaDs3035

2016/2023
 Introduction of the course

This course is designed to enable the students to understand the dimensions

of governance and its relationship with institutional reform. Furthermore, it

enables the students to know the reform initiatives and reforms taken place in

Ethiopia. It addresses the question of why governance and institutional

reforms are important and needed.

This course covers;

 new programs of governance,

 institution, institutionalism,

 approaches under institutionalism,

 state-building, entrepreneurial-state,

 new paradigms of public management and service delivery, and

 reform that emerged in the past decade to supplement and facilitate

market reform.

It also includes:

 governance and good governance, institutions, democracy, capacity,

corruption (meaning, manifestation, and approaches in combating),

 framework and issues of global institutions (e.g., UN, World Bank, IMF,

etc.)

 as well as their reforms needed and rationales for global governance,

international financial architecture and state failure.

 It explores the relation between governance and institutional (public

sector) reforms, service delivery and E-Governance; Governance to

Government links, Government to Business links and Government to

Citizens links.

 It deals with effective service delivery and customer care in public

institution; performance measurement systems of public sectors. Lastly,

it explores the dynamics of public sector reform system that is being

carried out in Ethiopia as well as other world (i.e., the science of it) and

its impact in the national development endeavor of the country.

Chapter One

Governance, Institutions and Institutional Reforms

Section One: Understanding Governance

1.1. Governance and Governance Reform

One can distinguish a neutral definition of governance from its normative definition,

although these two sometimes overlap. The neutral and broader notion of governance is

commonly used by academics and some donors.

 It refers to the way authority or power is exercised, which encompasses

the environment, participants, rules, and processes of governing society.

Participants of the governance process, in this view, include not only government

(political and administrative) institutions, but also private and societal institutions that

all together influence how society is governed.

 Governance thus connotes the idea that the government is no longer the

sole player in society, and that other interdependent private, non-profit,

societal (community), and international institutions and organizations share

authority in making and implementing decisions on public matters.

 Governance, thus, became a prominent concept which evolved from narrow

public sector management to encompass a broad range of related political

issues such as corruption, security, human rights, and the role of formal and

informal institutions.

The emergence of this term reflects the changes in and the dynamics among the means

of exercising authority; it is a reaction to the trends associated with globalization and

devolution as well as economic liberalization and the reduction of the role of welfare

state. These changes created new opportunities and incentives, and altered previously

stable power relationships organized around governments‘ formal authority. The

increasing turbulence brought in new types of shareholders wanting to participate in

decision-making (e.g., civil society organizations) at multiple levels of government,

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ranging from local communities to relationships of global scale, thus affecting the

bargaining shares of the existing players.

This distinction between government and governance and the new role of government in

the current context is very important here. Government is the term conventionally used

to refer to a formal institutional structure with authoritative decision-making powers.

Governance is used to refer to the changing processes and practices of governing which

involve multi-agency partnerships, a blurring of responsibilities between public and non-

public sectors, a power dependence between organizations involved in collective action,

the emergence of self- governing networks and the development of new governmental

tasks and tools.

The previous emphasis on government was also weakened with the realization that more

self- governance through decentralization and participation can enhance efficiency and

mitigate the growing costs of control. As a result, the traditional concept of

government as a controlling and regulating organization for society is argued to be

outmoded. Instead, governance without government is becoming a dominant pattern in

industrial democracies under global and domestic pressures from international capital

markets, supranational organizations, the private sector, and strengthened civil society

and interest groups.

Governance reform from this standpoint refers to a wholesale transformation of

interdependent political, administrative, as well as private, nonprofit, and even societal

institutions. This term conveys an understanding that institutions are interdependent

and that reform need to account for this reality. This, at a minimum, means that

changing economic or political institutions alone will not be sustainable unless public

administration systems are also reformed.

The narrower and more normative definition of governance is commonly used by major

donors, such as the World Bank and United Nations;

 It refers to what governments should do. For example, the World Bank defined
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 governance as:

 The exercise of authority through formal and informal traditions and institutions for

the common good,

Thus encompassing:

(1) the process of selecting, monitoring, and replacing governments;

(2) the capacity to formulate and implement sound policies and deliver public services, and

(3) the respect of citizens and the state for the institutions that govern economic and social

interactions among them.

The UN Committee of Experts included in governance ―public administration and civil service,

rule of law, human rights, macroeconomic policies and regulatory frameworks and transparent

and participatory decision-making processes. The normative definition overlaps with the term

good governance. Good governance refers to a set of idealized principles and guidelines for

reforms that IDA draw from best practices of the OECD countries‘ experiences and their own

ideas of how governments should function.

These principles include:

o formal checks and balances, competition within civil service and among other

institutions, and contested elections

o rule of law, efficiency and accountability of the public sector, and tackling corruption

o policy making and allocation of resources based on consensus in society that accounts

for the voices of the poorest and the most vulnerable

o democratic accountability, fundamental freedoms, service delivery for all, due process

rights and security

o democratic governance; transparency, pluralism, citizen involvement in decision- making,

representation, and accountability and

o Rule of law, responsibility, openness, integrity, efficiency, accountability and

transparency.

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The World Banks

Instrument to measure the quality of governance by the following six parameters more or less

captures the principles mentioned above:

voice and accountability to citizens,

political stability and lack of violence, crime, and terrorism,

government effectiveness,

lack of regulatory burden,

the rule of law, and

control of corruption.

From this standpoint the purpose of institutional reforms, which are sometimes called

governance reforms, is to establish the way of governing that follows good governance

principles. Developing countries are advised to reform their institutions to exercise good

governance aligned with these principles and, as a result, secure economic, political, and social

development. As mentioned above, in this wave of institutional reforms, good governance is

treated both as the means and ends of development.

A. Approaches to Analyzing Governance and Institutional Reforms

It is important to note here that two major definitions of governance have gained currency in

the rapidly growing academic and policy literature on the subject.

In the most popular one, used by the World Bank and most other United Nations

institutions, governance is defined as ―the manner in which power is exercised in the

management of a country‘s economic and social development.

Essentially, governance, as conceived by these multilateral organs, emphasizes

leadership—the manner in which political (state) leaders manage, use, or misuse power—

to promote social and economic development or to pursue agendas that undermine such

goals.

Good governance is conceived from a process perspective with emphasis on:

 rule of law,

 accountability,

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  participation,

 transparency, and

 human and civil rights. These elements are indistinguishable from governance elements

of a mature liberal democracy.

A second approach to defining governance focuses on sharing authority for public management

between state and non-state organizations. Jan Kooimans (1993:2) and other European

researchers define sociopolitical forms of governing as ―forms in which public or private

actors do not act separately but in conjunction, together, in combination, that is to say, co-

arrangements.

The school therefore views governance as forms of multi-organizational action rather than

exclusively state actions. An important difference from the first approach is that governance

is judged as good or bad by both processes as well as by outcomes: the use of state and non-

state institutional resources to solve social problems.

This approach is also referred to as the partnership approach to governance. For many others

Governance is approached, as it has always been understood in the political science literature,

as the fundamental rules that regulate the relationships between rulers and the ruled, the

rules-in-use, or constitutive choice rules and operating at deeper levels of analysis than

collective and operational choice rules. The legal community refers to these constitutional

rules as ground-norms.

Although primarily associated with the analysis of the state, Governance is a

generic term that can be applied to all forms of human organizations— economic, cultural,

religious, or military.

The advantage of this third approach is that it enables us to suspend judgment on whether or

not democratic reform is good or bad governance.

A process-only approach seems to equate democratic change to good governance. But we know

that governance might actually decline in some important respects under democratization—

especially if the crucial institutions supposed to perform specific functions are weak or

lacking. Process and outcomes are important in this approach, but from a process perspective

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governance can be classified in terms of the quality of the fundamental rules of the political

game. While democratic governance promotes rules that ensure the fundamental equality

between rulers and the ruled, autocratic forms assume and reify inequality between them.

But the primary criteria for distinguishing between good and bad governance is the outcomes

of policies promoted by public organs. Good governance results from the activities of public

sector institutions as they work with other societal organizations to formulate public policies

and programs, which are implemented to improve the people‘s welfare, reduce poverty, and

realize other public and societal goals.

B. Governance Indicators

The increasing emphasis on good governance as a determinant of development and as a

development objective in itself has created demand for indicators to measure the quality of

governance and by one recent estimate there are now some 140 user-accessible sets of

governance indicators, comprising literally thousands of individual indicators. This has in turn

led to the production of several governance-indicator manuals‘/ guides‘.

Commonly, these guides distinguish between governance indicators that are constructed from

objective facts and indicators that are perceptions based.

International investors, donors and decision makers generally tend to rely mainly on

perception-based governance indicators.

This is partly due to the fact that the data required to construct facts-based indicators are

often lacking for developing countries, and partly because the numbers that exist for those

countries are considered to be lacking credibility.

Furthermore, the data that are used to construct facts- based indicators often only reflect

on formal de jure realities, and not the very different de facto realities on the ground.

Fact Based Governance Indicators

The following are instances of fact based governance indicators:

A.The European bank for reconstruction and development (EBRD)-World Bank Business

Environment and Enterprise Performance Survey compiles the experiences of more than

10,000 firm managers in 1999 and 2002. The managers were asked to estimate the share of

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annual sales ‗firms like yours‘ typically pay in unofficial payments to public officials.

B.The International Crime Victim Survey (ICVS) is designed to produce comparable data on

crime and victimization across countries, using a combination of computer-assisted telephone

interviewing techniques in developed countries and face-to-face surveys in developing

countries. Since 1989, more than 150 surveys have been done in over 80 different countries.

The ICVSs only provide information on the incidence of corruption from a household

perspective.

Perception Based Governance Indicators

The most widely used perception-based governance indicators, which cover a large number of

countries, are:

A. The International Country Risk Guide (ICRG) provides ratings for 140 countries based on

financial and economic risk assessments, and assessments of political risk. It also offers one-

year and five-year assessments with projections in best case‘ and worst case‘ scenarios.

B. Freedom House provides annual ratings of political rights and civil liberties in 192 countries.

It rates both a country‘s political rights and its civil liberties on a scale from 1 (best‘) to 7

(lowest‘).

C.The Corruption Perception Index (CPI) is published annually by Transparency International.

The 2007 index includes 180 countries. The CPI assesses the degree to which public officials

and politicians are believed to accept bribes, take illicit payment in public procurement,

embezzle public funds, and commit similar offences. The index ranks countries on a scale from

10 (completely clean‘) to zero (completely corrupt‘), according to the perceived level of

corruption by business people and country analysts. It is a composite index drawing on

corruption-related data from expert and business surveys carried out by a variety of

independent institutions.

D.The Country Policy and Institutions Assessment (CPIA) is produced annually by the World

Bank‘s country teams. The purpose is to assess the quality of the borrowing countries‘ policy

and institutional frameworks for fostering poverty reduction, sustainable growth and

effective use of development assistance. These assessments have been used since 1977 to

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help guiding the allocation of interest-free loans and grants by the Bank‘s IDA to the poorest

countries.

The Bank‘s country team gives a score of 1 to 6 to a country for each of in total 16 criteria. To

enhance consistency of ratings across countries, the Bank now provides the assessment teams

with detailed questions and definitions for each of the six rating-levels. Moreover, before the

country ratings are finalized, an extensive Bank wide benchmarking and vetting process is used

to avoid bias and to counterbalance the natural tendency of country teams to make their

countries look better.

E.The Worldwide Governance Indicators (WGI) produced by the World Bank Institute since

1996 (often referred to as the KKZ Indicators named after their creators). Alongside with

Transparency International‘s CPI, the WGI have played a leading role in putting governance

and corruption on the agenda in developing countries. Due to the large number of sources used

to developing the WGI, the country coverage is very large (212 countries and territories in

2007).

Section Two: Institutions and Institutional Reforms

Institutions: Approaches and definitions

A glance at the literature on institutions and institutional reform reveals the existence of a

variety of definitions given by individual scholars who introduced their own ways of specifying

what institutions are.

The most commonly used definitions of institutions refer to:

 Rules of the game in economics (North, 1990);

 Shared concepts in political science (Ostrom, 1999);

 Social structures in sociology (Scott, 2001).

They are divergent and focus on different aspects of institutions.

As mentioned above, economist-historian Douglas North is one of the most influential scholars

in institutional studies across the social sciences. He defined institutions as rules, as opposed

to more commonly used definition that combined both rules and organizations.

Elinor Ostrom is another influential scholar in institutional analysis.

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Ostrom defined institution: as shared concepts used by humans in repetitive situations

organized by rules, norms, and strategies.

In this definition rules mean shared prescriptions (must, must not, or may) that are mutually

understood and predictably enforced in particular situations by agents responsible for

monitoring conduct and for imposing sanctions.

Norms mean shared prescriptions that tend to be enforced by participants themselves

through internally imposed costs and inducements.

Strategies are ―regularized plans that individuals make within the structure of incentives

produced by rules, norms, and expectations of the likely behavior of others in a situation

affected by relevant physical and material conditions.

To date, the prominent sociologist Richard Scotts work (2007) embodies the most

comprehensive summary and synthesis of the institutional analysis scholarship generated by

divergent schools and disciplines over time. His synthesis led Scott to propose the following

all- encompassing definition of institutions:

 Institutions are social structures that have attained a high degree of flexibility.

 Institutions are composed of cultural-cognitive, normative, and regulative elements

that, together with associated activities and resources, provide stability and meaning to

social life.

 Institutions are transmitted by various types of carriers, including symbolic systems,

relational systems, routines, and artifacts.

 Institutions operate at multiple levels of jurisdiction, from the world system to

localized interpersonal relationships.

 Institutions by definition connote stability but are subject to change processes, both

incremental and discontinuous.

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 Approaches to the Definition of Institutions

At least three types of definitions of institutions have been used in practice and

academia. While institutions are generally understood as the phenomena that structure

social interactions, each type of definition emphasizes different elements of

institutions. One definition emphasizes rules/norms, another primarily emphasizes

organizations‘ role in structuring human behavior. The most commonly used definition

encompasses both rules/norms and entities/organizations.

Institutions as Rules/Norms

The rule-centered definition focused on formally and informally enforced rules. It was

advanced by some early institutionalists in sociology, and has been revived since the

early 1990s. For example, Parsons referred to institutions as a system of norms ―that

regulate the relations of individuals to each other.

A similar definition focused on rules reappeared in North‗s (1990) work:

 Institutions are the rules of the game of a society, or, more formally, are the

humanly devised constraints that structure human interactions. They are composed

of formal rules (statute law, common law, regulation), informal constraints

(conventions, norms of behavior and self-imposed codes of conduct), and the

enforcement characteristics of both. Organizations are the players: groups of

individuals bound by a common purpose to achieve objectives. They include political

bodies (political parties, the senate, a city council, a regulatory agency); economic

bodies (firms, trade unions, family farms, cooperatives); social bodies (churches,

clubs, athletic associations); and educational bodies (schools, colleges, vocational

training centers)

He defined institutions as formal and informal rules of the game in a society, or more

formally, are the humanly devised constraints that structure human interaction.

Organizations refer to a group of individuals bound by a common purpose. In this

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work North used a metaphor of a game to distinguish institutions from organizations,

by referring to the distinction between rules and players. This definition of institutions

has been widely used in academia, especially among economists united under the New

Institutional Economics (NIE) movement and political scientists in the rational choice

tradition, as well as among some donors.

Institutions as Organizations

The organization-centered definition emphasizes the functional fields and human collectivities

within which rules structure human interaction and which enforce those rules. This version was

advanced in sociology, as exemplified in the works of Spencer and Sumner.

For example, Sumner defined institutions as a concept (an idea, notion, doctrine, interest)

which defines the purposes or functions of structure (a framework) which provides

instrumentalities (a means) through which the concept is translated into action. The structure

here embodies the idea of institution. This definition mostly refers to organizational fields,

systems, or subsystems, is commonly used in sociology.

In institutional analysis of organizations literature Selznicks influence has been significant.

Selznick distinguished between organization as a mechanistic instrument (a means to an end)

and organization as an adaptive organic system (a value). The former becomes institutionalized

when its goals or procedures become infused with values of the members of the organization,

thereby acquiring a distinctive identity.

In contrast to NIE/rational choice schools which see organizations merely as instruments

designed to pursue a common purpose, sociological institutional analysis of organizations hold

that organizations are organic systems that structure behavior through normative processes.

Even if initially created as mechanistic instruments for certain ends, over time through

adaptation under the influence of characteristics of its members and its environment,

organizations become institutions to the extent that they serve as a source of norms and rules

that structure behavior.

Institutions as Rules/Norms and Organizations

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Early institutionalists introduced the broad definition of institutions. It encompasses both

rules/norms and organizations through which those rules are enforced. Among economists, for

example, Commons saw institutions as solutions, mechanisms and rules of conduct generated to

reconcile past conflicts. Specifically, institutions for Commons consisted of a set of rights and

duties, an authority for enforcing them, and some degree of adherence to collective norms in

prudent and collective manner.

In sociology, Hughes also identified that the essential elements of institutions as including:

 A set of mores (custom) or formal rules, or both, which can be fulfilled only by

 People acting collectively, in established complementary capacities or offices

(organization).

The first element represents rules and the second organization. Woodrow Wilson, a father of

American public administration, also leaned towards a similar definition emphasizing both legal

frameworks and political-administrative arrangements.

To sum up, early institutionalists‘ more encompassing definition of institutions that included

both rules/norms and organizations had been split into two directions in new institutionalism

schools. While both understand institutions to be social phenomena that structure human

interaction, the new institutionalism in economics and political science tends to focus more on

rules and norms which are used by actors (individuals and organizations) to pursue their

objectives, whereas sociological institutionalism focuses more on organizations seen as the

contexts that structure behavior of actors. A more encompassing definition that includes both

rules/norms and organizations is commonly used among practitioners who often go back and

forth between the two.

Practitioners in the past tended to use institutions to refer to government organizations

and/or their systems. Practitioners of comparative public administration and development, in

what is often called first generation reforms of the 1960‘s, tended to refer to institutions as

organizations (e.g. political parties or specific agencies) or their systems that include

organizational entities as well as the principles of their organization (e.g. bureaucracy). In the

1960s, for example, development administration scholars and practitioners studying

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institutional reforms borrowed the sociologist Talcott Parsons‘ (1949) definition of

institutions as normative patterns which define… proper, legitimate or expected modes of

action or social relationships and modified it into change-inducing and change-protecting

formal organization. The World Bank expert on public sector reforms similarly equated

institutions with organizations, and referred to institution building as ―the process of

improving an institutions ability to make effective use of the human and financial resources

available.

Since the early 1990s, the influence of North’s definition on practitioners changed this

picture. Now practitioners sometimes use rule-centered, sometimes organization-centered,

and sometimes a combination of both definitions even within the same document. More

recently, donors have been moving towards a broader definition of institutions that

encompasses both rules and organizations.

This lack of one definition and understanding of what specifically goes into it added to

the confusion and ambiguity, and also seems to have hindered the synthesis and

application of research, learning from experience, and the crafting of effective

policies. As demonstrated in the foregone discussions, Institutions have been defined in

different ways.

The sources, consequences, and potential solutions to this definitional ambiguity are

discussed above. For the purposes of this course, institutions refer to rules and

organizations that shape individuals‘ and organizations‘ behavior.

Institutional Reform:

Institutional reform, which is much broader than PAR and PSR, refers to the artificially

or deliberately induced changes in rules and organizations. From this standpoint the purpose of

institutional reforms, which are sometimes called governance reforms, is to establish the way

of governing that follows good governance principles. Developing countries are advised to

reform their institutions to exercise good governance aligned with the principles of good

governance and, as a result, secure economic, political, and social development. As mentioned

above, in this wave of institutional reforms, good governance is treated both as the means and
14
ends of development.

Section Three: Understanding the Public Sector

What is the Public Sector?

The following are some of the numerous definitions given for the public sector:

The public sector refers to industries or services provided or funded by the

government; Of or relating to industries or services provided or funded by

the government.

The public sector refers to that part of the economy made up of central

government local government, and public corporations.

That part of the economy which is owned or controlled by the public,

usually through government agencies.

Undertakings financed and operated by a government.

Means the sector that comprises organizations/institutions funded by

government, local and national.

Organizations run or paid for with public money.

References to the public sector are frequent in economic analysis and policy making.

However, it is not always obvious what it comprises. The concept of the public sector

consists of many different levels which have to be properly identified in order to obtain

an accurate picture. The basic classification adopted by most scholars can be

summarized in the following scheme:

 Central administration +Regional and Local governments = General government

 General government+ Parastatal organizations or public enterprises =Total public sector.

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 According to the United Nations, ―general government comprises:

o Producers of government services; all bodies, departments and establishments of

any level of government (central, state or provincial, local) which engage in

administration, defense, maintenance of public order, health, education and

cultural, recreational and other social services, furnished but usually not sold to

the public.

o Non-profit-making institutions which are wholly or mainly financed and controlled

by government.

o Social security arrangements imposed, controlled or financed by the government.

o Government enterprises that are highly integrated with the public authorities;

these consist of ancillary departments and establishments mainly engaged in

supplying goods and services to other units of government, but also include

agencies that sell goods mainly to the public but operate on a small scale.

o Public saving and lending bodies which are financially integrated with the

government or which lack the authority to acquire financial assets or incur

liabilities in the capital market.

Total public sector comprises general government plus public enterprises (also called

state- owned enterprises or parastatals), which are bodies that produce goods or

services and sell them to the public, whose ownership or control rests with public

authorities.

Despite the existence of a common definition of the public sector, and of each of the

concepts involved, it is not always clear how fully different countries apply the

definition. Another major problem is that some concepts appear to have different

meanings in different countries, and it is not always made clear exactly what is covered

by the figures provided.

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The public sector, therefore, is a part of the state that deals with the production,

delivery and allocation of goods and services by and for the government or its citizens,

whether national, regional or local/municipal. The ―public sector‖ is broadly synonymous

with ―government.

It is generally associated with the executive branch at national, central and local levels.

Viewed this way, the public sector is made up mainly of government departments and

agencies that are staffed by public servants. The activities of the public sector range

from delivering security; administering urban planning and organizing national defense

to running industries and service establishments.

Functions of the Public Sector

Traditionally, the public sector is concerned with the provision of certain goods and

services that all citizens value – defense, diplomacy, law and order, property rights,

parks, street lighting, public sanitation, pest control, public health, to name a few –

which the private sector, on its own, would either under-provide or not provide at

all. Economists refer to these as public goods.

A public good can be used by one person without reducing the amount available for

others to use. This is known as shared consumption. An example of a public good that

has this characteristic is a spraying or fogging program to kill mosquitoes. The spraying

reduces the number of mosquitoes for all of the people who live in an area, not just for

one person or family. The opposite occurs in the consumption of private goods. When

one person consumes a private good, other people cannot use the product. This is known

as rival consumption. A good example of rival consumption is bread. If someone else eats

the bread, you cannot.

The second key characteristic of public goods is called the non-exclusion principle. It is

not possible to prevent people from using a public good, regardless of whether they

have paid for it. For example, a visitor to a town who does not pay taxes in that

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community will still benefit from the town‘s mosquito-spraying program. With private

goods, like bread, when you pay for the bread, you get to eat it or decide who does.

Someone who does not pay does not get the bread.

Because many people can benefit from the same public goods and share in their

consumption, and because those who do not pay for these goods still get to use them, it

is usually impossible to produce these goods in private markets. Or at least it is

impossible to produce enough in private markets to reach the efficient level of output.

That happens because some people will try to consume the goods without paying for

them, and get a free ride from those who do pay.

As a result, the government must usually take over the decision about how much of

these products to produce. In some cases, the government actually produces the good;

in other cases it pays private firms to make these products. The classic example of a

public good is national defense. It is not a rival consumption product, since protecting

one person from an invading army or missile attack does not reduce the amount of

protection provided to others in the country. The non-exclusion principle also applies to

national defense. It is not possible to protect only the people who pay for national

defense while letting bombs or bullets hit those who do not pay. Instead, the

government imposes broad-based taxes to pay for national defense and other public

good.

Beyond government‘s undisputed role as a provider of public goods, there are

controversial questions about the economic and social role of the public sector. Opinions

are (and always will be) divided on how active and influential the public sector should be

in a country‘s economic and social life. How much industrial output should be produced

by the public sector? How should the government regulate the private sector? How

should it address economic inequality? How should it pursue a range of issues related to

social justice, environmental protection, etc? The way countries deal with these

questions determines the nature, role, extent and structure of the public sector.

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Hence, apart from the provision of public goods, consensus is lacking as to the proper

role of the public sector. This makes it difficult to come up with an exhaustive list of

activities to be carried out by the public sector. However, in both developing and

developed countries, the public sector designs and implements policies and programs

that aims to fulfill the government‘s broad economic and social objectives. This includes

among other things,

Makes Economic and Social Policies

The public sector makes and enforces policies that cover virtually everything the

government does. Policies developed by the public sector serve the government of the

day, reflecting its social and economic goals.

Designs and Implements Public Programs

Policies are realized through the design and delivery of public programs involving

delivery of public services, production of goods, or transfers of resources to

individuals, organizations or other levels of government. Governments also use

regulation – in areas such as workplace standards, consumer protection, the

environment, foreign investment, transportation safety – as a tool for achieving policy

goals.

Raises Revenue

Government must raise money in order to implement its programs. The public sector collects

taxes and user fees that are levied on citizens and companies. Governments also use tax policy

as a means to pursue social and economic goals. E.g., governments may pursue social goals by

providing tax breaks to certain segments of the population. They may also use tax provisions

to encourage certain forms of investment or industrial development.

Manages Accountability

Citizens demand accountability in return for the powers granted to government to raise and

spend revenue. The public sector responds by enforcing internal accountability measures, and

by reporting to citizens on how money is spent and on the successes (and failures) of public
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programs. Governments typically create and sustain independent public institutions of

accountability that are empowered to oversee the government‘s actions and demand

explanations. This may include auditor‘s general, public ombudsmen, the judiciary, the

legislature, human rights commissions, etc.

Public Sector Structure

In parliamentary systems, the entire public sector reports ultimately to the head of state,

although its day-to-day operation is normally the responsibility of the head of government. In

presidential systems, the heads of state and government are combined in one office (e.g. the

President of the United States). In other countries, the two positions are distinct, with the

head of state limited to a ceremonial role (e.g. in Canada where the Prime Minister is head of

government and the Governor General is the ceremonial head of state). In still other

countries– France and its former colonies, for example – both the head of state (President)

and head of government (Prime Minister) play substantive political and policy roles.

The head of government governs with the advice of his cabinet, which is made up, for the most

part, of the political heads (often referred to as ―Ministers or ―Secretaries) of

government departments (see below).

Cabinet has both political and a policy/managerial function. Cabinet is the country‘s most

powerful political institution – a forum where the country‘s top political leaders solve, away

from public scrutiny, matters related to advancing the government‘s political agenda, managing

political opposition, etc. It also serves a more technical, policy/managerial function because

cabinet ministers are also the heads of government departments. Cabinet is therefore a forum

for addressing major policy issues that arise in particular government portfolios.

The public sector is divided into organizational units, each with a particular functional

specialization and related set of responsibilities and authorities.

Broadly, there are two major types of organizational units: central agencies and line

departments. There are also various types of specialized agencies, and state-owned

enterprises. Line departments are specialized around programs and policies that relate to a

particular economic or social sector, e.g. Department of Industry, Department of Health, etc.

20
Each department is headed by a high-ranking political officer – a ―Minister‖ or a ―Secretary‖.

Central agencies are specialized around functions that affect the entire government. For

example, a budget office manages the annual budget-making process; a cabinet office manages

the flow of policy and program proposals from all departments into the cabinet for decision;

the Department of Finance sets budget allocation levels that affect resources available for

departments; a planning agency (common in developing countries) develops proposals on major

investment initiatives that might be implemented by line departments.

Recently there has been an increasing tendency for governments to take certain well-defined

functions out of line departments and place them in specialized agencies. Customs and revenue

agencies are a good example of this trend in the developing world. Specialized agencies often

have greater flexibility to manage their human and financial resources than do line

departments. In return, they are normally subject to tighter performance standards.

Specialized agencies may report to the departmental bureaucracy or directly to the Minister.

The organization of the public sector (public ownership) takes several forms, including:

Direct administration funded through taxation; the delivering organization generally has

no specific requirement to meet commercial success criteria, and production decisions

are determined by government.

Publicly owned corporations (in some contexts, especially manufacturing, "state-owned

enterprises"); which differ from direct administration in that they have greater

commercial freedoms and are expected to operate according to commercial criteria, and

production decisions are not generally taken by government (although goals may be set

for them by government).

Partial outsourcing (of the scale many businesses do, e.g. for IT services), is considered

a public sector model.

A borderline form is:

 Complete outsourcing or contracting out, with a privately owned corporation delivering

the entire service on behalf of government. This may be considered a mixture of private

sector operations with public ownership of assets, although in some forms the private

21
 sector's control and/or risk is so great that the service may no longer be considered

part of the public sector

Section Four: Why Institutions Matter for Development?

Why institutions matters for development?

As we have mentioned earlier, the field of development theory and practice, at least in

the post- war years, has been peculiarly susceptible to all manner of fads and fashions

with respect to both the ends and the means of development. Various schools of

thought have come in and come out of favor since the official launching of the project

of development in the post second world war period. Another trend has developed

momentum in the past decade or so. An

institutional perspective on development has become increasingly prominent in development

thinking, captured in the notion 'Institutions Matter' or 'Governance Matters.'

Beginning in the 1990s, based on the assumption that 'institutions matter,' there has been a

massive surge in development assistance for institutional reform projects in developing

countries. The idea that institutions matter for development is based on the assumption,

developed by Douglass North and other new institutional economists, that institutional

frameworks create incentives for behavior, leading to different outcomes. According to

North, the specific institutional constraints dictate the margins at which organizations

operate and hence make intelligible the interplay between the rules of the game and the

behavior of the actors. If organizations – firms, trade unions, farm groups, political parties,

and congressional committees to name a few – devote their efforts to unproductive activity,

the institutional constraints have provided the incentive structure for such activity. Third

World countries are poor because the institutional constraints define a set of advantages to

political/economic activity that does not encourage productive activity.

However, donors‘ ―Institutions Matter‖ Policy that emphasizes public sector reforms is not

new. The Institutions matter policy, which stresses the need to reform government

institutions to build and strengthen their capacity, reemerged as a new idea in donor circles in

the second half of 1990s. Donors have been explicitly or implicitly promoting such institutional

22
reforms in developing countries, with the focus on strengthening public sector institutions, at

least since the emergence of official development assistance at the end of the WWII. In this

regard three waves of institutional reforms, which will be discussed in greater detail in the

next chapter, could be identified.

Institution building was the main focus of the reforms promoted in developing countries by

donors during the first wave of official development assistance led at that time by the United

States. The 1949 ―Point Four Program of U.S. President Harry Truman called for mobilization

of Western expertise to build and modernize the governments of newly independent

postcolonial countries, launching the major wave of institution building (IB) reforms.

Institutional reform during this time was largely confined to the organizational level changes

concerned with improving the managerial capacity of the administrative system and specific

organizations. But the attempts by experts to help developing countries build government

institutions by modeling them after those of the West did not deliver the expected results.

Disillusioned with such outcomes, donors pushed institutional development to the backseat

until the mid-1990s to reemerge with new rigor.

Institutional development remained an important component of donors‘ projects and programs

between the end of the 1960s and the mid-1990s even when donors moved away from explicit

reliance on institution building and switched their attention to other kinds of inputs to

promote development. The transfer of technologies, provision of services, policy advice, or

building of infrastructure projects all have been complemented with technical assistance

components intended to improve or build the institutional capacities of the recipient

governments to manage and operate those inputs.

Even in the 1980s and early 1990s – referred to as the second wave of donor-promoted

reforms when the most influential donors, the International Monetary Fund (IMF) and the

World Bank urged recipient countries to downsize their public administration systems, to free

markets from government control and make the latter perform like businesses, institutional

reform was a crucial part of these interventions.

While this wave of reforms was concerned with downsizing public sector institutions,

23
downsizing was not simple elimination, but a complex process that required transformation of

systems of bureaucratic institutions. Ultimately, this aspect of reform was overshadowed by

other elements of donor policies.

In the late 1990s, institutional reform regained attention in development circles. The current

consensus among donors is that ―high quality institutions enable a better economic and

investment climate, foster better governance and accountability, encourage trust, reinforce

property rights, and avoid the exclusion of sections of the population. The experiences with

failed structural adjustment reforms in many developing and transitioning countries from the

1980s to the 1990s, combined with the new developments in research, among other factors,

made it clear to donors the important role that strong and effective public sector institutions

play in development. Donors realized that externally supplied policy advice and other inputs

would not benefit recipient countries without improved governance institutions.

In this third wave, donor institutional reform has become even more complex and has a much

broader orientation compared to previous waves.

Donors started advocating transformation of entire governance systems of recipient countries

as they came to realize that institutions are interdependent and that reforms need to account

for this reality. This means that economic, political, and societal institutions should be changed

along with public administration systems for the reforms to have sustained effect.

Thus, the current wave of institutional reform, sometimes referred to as governance reform –

encompasses a wide range of economic and political (democracy-promotion) reforms intended

to ensure that governments, in partnership with NGOs and the private sector, work towards

good governance, economic growth, and poverty reduction. In practice, however, most donors

are cautious of intervening in the political aspects of reforms and believe that economic

development hinges on the quality of the regulatory environment. This puts even more

emphasis on reforming administrative institutions.

Public Administration Reform

The concept of administrative reform does not lend itself to a clear-cut definition.

However, the definition, which is commonly used because of its comprehensiveness and
24
scope, is the one offered by Gerald Caiden (1969).

 According to Caiden (1960:65) administrative reform is the artificial

inducement of administrative need to improve on the status, artificial

transformation (departure from existing arrangements and natural change

processes), and administrative resistance (opposition is assumed).

 Administrative reform is political rather than merely organizational. It is ―a

political process designed to adjust the relationship between a

bureaucracy and other elements in society or within the bureaucracy itself‖.

 Administrative reform has a ―moral content in that it seeks to create a

―better system by removing faults and imperfections.

 It is usually undertaken to change the status quo for the better. It aims at

making the administrative and political structures and procedures compatible

with broader goals. Administrative reform sets additional political values to be

used as yardsticks against which administrative performance may be judged.

 The crux of administrative reform, therefore, is innovation and wealth creation

that is, injection of new ideas and new people in a new combination of tasks and

relationships into the policy and administrative process. Administrative reform

may occur where two conditions are met.

 A set value with which the existing bureaucratic arrangements, public personnel

and values are seen to be in conflict.

 The concern by politicians and the general public that the existing bureaucratic

structures cannot realize new goals set for them.

Administrative reform, is used interchangeably with public administration reform, has

been more broadly defined as ―the induced systematic improvement of public

sector operational performance.

This definition of administrative reform was further modified and expanded by Quah to

include attitudinal aspect, on top of structural one, as: a deliberate attempt to change

25
both

(1) The structure and procedures of the public bureaucracy (i.e., reorganization of the

institutional aspect) and

(2) The attitudes and behavior of the public bureaucrats involved (i.e. the attitudinal

aspect), in order to promote organizational effectiveness and attain national

development goals.

Public administration refers to:

 The aggregate machinery (policies, rules, procedures, systems, organizational

structures, personnel, etc.) funded by the state budget and in charge of the

management and direction of the affairs of the executive government, and its

interaction with other stakeholders in the state, society and external

environment.

 The management and implementation of the whole set of government activities

dealing with the implementation of laws, regulations and decisions of the

government and the management related to the provision of public services.

Public Administration Reform can be very comprehensive and include process changes in

areas such as organizational structures, decentralization, personnel management, public

finance, results-based management, regulatory reforms etc. It can also refer to

targeted reforms such as the revision of the civil service statute.

Public administration reform has been traditionally viewed by many donors more as a

set of technical interventions to improve internal efficiency of government

organizations, and its political context and dimensions have been downplayed. But, this

term is perceived to be somewhat narrow given that the performance of public

administration system is not only a function of how civil service operates; it is also

shaped by economic, social, political, and cultural factors. Indeed, public administration

reforms include not only transformations in civil service, but also reforms of the policy

process, decentralization, and privatization, and reform of citizens relationship with

26
government through greater mobilization of civil society, all of which alter the power

dynamics in the society. In this last sense, public administration reform could be largely

synonymous with institutional reform.

Public Sector Reform

In the 1980‘s Public Administration reform is gradually being replaced by public sector

reform (PSR) and in the 1990s also by governance reform.

While there have been different views and definitions of PSR, many people and

researchers see it as the attempt by governments to change ways of doing things.

That is why Schacter (2000) defines PSR as the strengthening the way the public

sector is managed‘. The presupposition is that things are not properly managed in the

public sector. So, changes from the old way of doing things must take place.

To this end, there has emerged a deliberate policy as well as action to change

organizational structures, processes and people‘s behavior in an attempt to improve

government administrative machinery for performance at optimal level. The overall goal

is excellence in performance in public sector management. Since reform means an

improvement in something, a change for the better as a way of correcting wrongdoing or

defects in a system; and as the public sector can be understood to be the key apparatus

for the execution of the functions of the state or government‘, then PSR is the total

overhauling of government administrative machinery with the aim of injecting real

effectiveness, efficiency, hard-core competence and financial prudence into the running

of the public sector. This rebranding of the public sector is targeted to meet the

demands of a rapidly improving and changing global socio-political environment.

A better understanding of PSR, however, can be achieved if one captures the context

under which PSR came to be seen as panacea for the crises of development in the third

world from 1980s onwards. Specially, mention has to be made to the role played by

international financial institutions like the IMF and the WB.

27
PSR was initiated against the background that governments required a departure from

the traditional methods of administration and the urgent need for a renewed public

sector to propel government in its quest for sustainable socio-economic, political and

technological development. So, there was a need for structural re-engineering of the

public sector with the infusion of new values of professionalism, accountability,

responsiveness and a focused sense of mission for maximum efficiency in the economy.

Based on the above, the main objectives of PSR as far as the IDAs are concerned, are

as follows:

 To achieve better delivery of the basic public services that affect living

standards of the poor (World Bank 2000:ch. 6).

 To create a climate conducive to private sector development (World Bank

1997:103).

 To make the state or government institutional apparatus market friendly, lean,

managerial, decentralized and ―customer‖ friendly, in the hope that it would

better meet its societal objectives of good governance as well (Mhone 2003:10).

From the above, we see that PSR aims at institutional restructuring of the public

sector, with the application of principles obtainable in the private sector as a basis for

enhancing the efficiency and effectiveness of public sector institutions. Arising from

this notion of how the public sector should be run and managed is that government is

now being seen as a profit-making institution to be driven by market forces. In essence,

PSR is carried out with the mindset of seeing government as a profit-making enterprise

rather than in service to the people. In fact, that is why we see African leaders talking

about a bloated civil service, which needs to be downsized, and the uncontrollable craze

to privatize and commercialize all government enterprises. It must be pointed out here

that, PSR is broader than PAR in that it includes not only the reform of the machinery

of Government (public administration), but also public enterprises.

28
 Institutional reforms /Governance reforms or institutional capacity building

reforms/

The overview provided above indicates that there is a fair amount of overlap between

the terms- institutional reform, public administration reform, administrative reform,

public sector reform, governance reform, and capacity building. The overview also shows

that these terms are also used liberally by different stakeholders to refer to a wide

range of phenomena. Still, different donors prefer using different terms. The United

Nations uses public administration reform in to refer to reforms of the aggregate

machinery (policies, rules, procedures, systems, organizational structures, personnel,

etc.) funded by the state budget and in charge of the management and direction of the

affairs of the executive government, and its interaction with other stakeholders in the

state, society and external environment and. OECD prefers to focus on capacity

development. The World Bank uses public sector reform and governance reform to

refer to reforms involving the transformation of all institutions of governance. For the

World Bank, the focus of contemporary institutional reform is not a single institution,

but the whole governance system.

Public administration reform is seen as central to, and the entry point for,

transforming the whole governance system. Public administrative reform is seen as the

pillar of the current development agenda and to the evolving and all-encompassing

governance reform. Donors and academics share an understanding that prospects of

growth are slim without public goods provided by government, such as infrastructure,

basic educational institutions, and law and order. The government is expected to secure

and maintain a favorable policy and institutional environment for other players and

institutions in a society in order to generate social welfare. In other words, a tacit

assumption underlying current public administration reforms is that the latter would

generate a spillover effect on the broader governance environment

In donor literature institutions and institutional reforms mostly refer to public sector

29
institutions and reforms of public sector institutions, even though the term institutions

by definition are not confined public sector alone. The opposite is also true: Although

administrative or public sector reform is a phenomenon that can be viewed from

different angles (for example, as an organizational development) it is also an instance of

deliberate institutional change or institutional reform in that public sector reform

involves deliberate attempts to change rules, organizations‘ structuring behavior and

the relationships between individuals and organizations in public sector.

Whatever the name donors and researchers use, the focus of institutions and public

sector reform is on deliberate changes introduced to public sector institutions,

specifically focusing on rules and organizations of public administration. Even though

the term institutions by definition are not confined public sector alone from now on

we use the terms institutional reforms and public sector reforms to refer to these

changes. Public sector reform, with focus on transformation of public administration,

is one means of capacity building through focusing on structural dimensions of

governance process and system. Hereafter, institutional reforms will primarily refer

to the reform of public administration institutions unless otherwise indicated

30
 UNIT TWO

WAVES OF INSTITUTIONAL REFORMS

Unit Introduction

Welcome to the second unit of the course Governance and Institutional Reforms.

In this chapter we have identified three waves of institutional reforms.

The focus in this unit, therefore, is to enable you understand the nature and

significance of this waves of reforms with special emphasis on the policy context

and the influential schools of thought in each wave. This unit reviews the

theoretical knowledge and ideas that informed these waves of reforms, what

specific reforms were implanted, how the reforms evolved and were carried out,

and what lessons were learned by placing all this in the policy context of the time.

Accordingly, the unit is divided in to three broad sections. In the first section,

we will discuss the first wave which was largely confined to the organizational

level changes concerned with improving the managerial capacity of the

administrative system and specific organizations. The second section will be

devoted to the second wave or what is often called the era of market

fundamentalism. The remaining section will be devoted to the discussion of the

third wave reform.

Unit Objectives

 Identify and discuss the three waves of institutional reforms

 Explain the policy context and the influential schools of thoughts that

shaped the dynamics of the reform in each wave

 Identify and appreciate the content and approaches to the reforms in each phase

 Evaluate the difference and similarity between the three waves of reforms

 Identify and explain the dominant actors in each of the three phases and

their respective roles and responsibilities

31
 Section One: The First Wave (1950s-1960s): Modernization of

Administrative Institutions

Section Overview

The first wave of institutional reforms in official international development practice

was launched with Truman‘s 1949 inaugural speech in which he presented his Point 4

Program modeled after the Marshall Plan. This section reviews the theoretical

knowledge and ideas that informed these reforms, how the reforms evolved and were

carried out, and what lessons were learned by placing all this in the policy context of

this time.

Section Objectives

Dear distance learner, by the end of this section you should be able to:

o Identify and explain the main themes and approaches to the first wave of

reform

o Identify and explain the policy context and the influential school of thought in

this wave

o Identify and evaluate the content and approaches to this wave

The First Wave (1950s-1960s): Modernization of Administrative Institutions

A. Policy Context

During this wave of reforms, the United States emerged as the leading nation

shaping development reforms in the developing world. The United States Agency

for International Development (USAID) and the Ford Foundation were the key

donors funding and designing development assistance programs abroad in this

period.

The design and approach to the reforms promoted in developing countries through

development assistance projects in this decade closely followed the popular ideas

about development and governance in the United States, thus shaping international

32
 development policy at that time.

 In this era, development was associated with improved social and economic

conditions in the underdeveloped areas through modernization of governmental

institutions. The influence of an increased government role in mitigating the

effects of the Great Depression in the United States in the 1930s, in managing

the war economy of the 1940s, and helping to produce a recovering economy in the

European states through the Marshall Plan in the 1950s shaped the idea of how

development should be achieved in the developing world.

 The idea that desirable results could be obtained through the creation and building

of large, modern and strong government institutions was highly persuasive.

 The economic thought of that time also favored consolidated government effort:

big push theory, balanced growth, take-off into sustained growth, and critical

minimum effort thesis all saw economies of scale in basic industries and

industrialization as the engine of economic growth.

B. Influential Schools of Thought

The content of reforms was shaped under the combined influence of

Rationality,

modernization, and

scientific management paradigms.

The 1950s was a time of faith – faith in the developmental power of administrative

tools devised in the West.

This wave of reforms, characterized with a great deal of optimism in the power of

public administration to transform so-called ―backward societies. The best and

quickest way to bring the dream of development into reality was through the

mechanism of public administration. The net result of all this enthusiastic action was

33
that in the 1950s public administration was a magic term and public administration

experts were magicians, of a sort.

The view that humans can determine and build their future using reason and rationally

designed mechanisms, technologies and institutions, instead of relying on fate was the

underlying assumption of the reforms in the developing countries informed by

modernization perspective. Modernization theory in turn drew heavily from scientific

management theories that saw organizations as closed systems (the view that

organizations are not affected by their socio political environment) and emphasized

efficiency and control in bureaucratic organizations.

The scholarship modernization perspective also tended to juxtapose rationally designed

modern institutions against traditional social institutions, favor the former over the

latter. Furthermore, recipients‘ culture was seen as sources of bureaucratic

dysfunctions and an impediment to smooth functioning of Western tools and dominant

Weberian models of bureaucracy which development administration was to overcome.

Imported Western institutions, they predicted, would replace traditional institutions in

developing countries despite any opposition from pre- existing institutions that soon

would be sidelined.

Modernization‘s two key features are particularly evident in development reforms at

this stage.

One of them is the belief in the universality and inevitability of the spread of

Western values and practices such as instrumental rationality, secularism,

individualism, and science-based enlightenment in all the areas and people of the

earth.

The other is its elitist bias, an assumption that the agents of modernization

would be an enlightened minority endowed with Western education and committed

to transforming their societies along Western lines for benefit of all through the

34
 state bureaucracy.

Scientific management embodied the ideas of both modernization and elitism. Its main tenet

that one best way could be identified for any job was highly influential in American public

administration at that time and directly shaped the approach to institutional development.

The implicit assumption [underlying development administration] was that there was one form

of development as expressed in developed countries that underdeveloped societies‖

needed to replicate. It was assumed that designing administrative institutions in developing

countries was possible and desirable through the power of knowledge and technical

assistance.

Poor and disadvantaged nations would develop by adopting rational practices and importing

modern institutions, organizations, technologies and values of advanced societies that were

deemed desirable and superior to their local equivalents.

I. Inter-University Research Program in Institution Building

To address the question of institutional change in developing countries, the Inter-

University Research Program in Institution Building was set up by public administration

scholars from the American universities of Pittsburgh, Michigan State, Indiana, and

Syracuse. They hoped to provide solid research knowledge about the process of

institutional change. Members of this group had served as consultants or researchers

on overseas development projects and shared the concern about development

specialists‘ lack of knowledge on the process of institutional development assistance and

a desire to remedy this problem.

This group borrowed the sociologist Parsons‘ definition of institutions as generalized

patterns of norms which define categories of prescribed, permitted, and prohibited

behavior in social relationships.

This group then modified this abstracted norm-based definition into an organization-

based one by redefining institution as change-inducing and change-protecting formal

organization. This shift can be explained by the group‘s desire to make the definition of
35
institutions applicable for practitioners by focusing on the more tangible framework

(organization) within which those norms were to grow and take root.

 Institution building was seen by this group as an induced social innovation by

change-oriented elites through formal organizations

o So that these organizations could take root,

o Gain acceptance, and

o Become normative in new environments; i.e., become institutionalized.

 The goals and the end state of institution building were to create a ripple effect

in changing that environment. Institution building consisted of planning,

structuring, and guidance of new or reconstituted organizations which (a) embody

changes in values, functions, physical, and/or social technologies, (b) establish,

foster, and protect new normative relationships and action patterns, and (c)

obtain support and complementarity in the environment.

The key elements of this institution building model were categorized under institutional

variables and linkages.

 Institutional variables included: leadership; doctrine (specification of values,

objectives, operational methods underlying social action); program (actions…

related to the performance of functions and services constituting the output of

the institution); resources; internal structure, and ―processes established for

the operation of the institution and for its maintenance.

 In addition, the following four types of linkages have been distinguished:

 enabling (with organizations and social groups which control the

allocation of authority and resources),

 functional (with those organizations performing functions and

services which are complementary),

 normative (with organizations that incorporate norms and values…

36
 relevant to the doctrine and program of the institutions), and

 Diffused (with elements in the society which cannot clearly be

identified by membership in formal organization).

The group engaged in studying the linkages between these elements and in drawing

generalizations about the institution building process. Some practitioners and

researchers found this model of institution building useful and relevant as it brought

together important, although not new, elements. But this model was not extensively

used. In part, the model was abandoned as the interest in and funding for institution

building dwindled after less than a decade.

The model was also criticized as being a-priori (vs. drawn from observations), un-

testable (i.e., did not qualify as a theory), static (did not tell how the various elements

were interrelated), and prescriptive, based on wishful thinking rather than testable

assumptions and observations.

Practitioners also noted that it was too abstract and failed to stress important factors

in order to be useful.

III. Critic and Reaction to the Inter-University Model of Institutions:

Comparative Administration Group (CAG)

The group of scholars that challenged the Inter-University Research Program in Institution

Building approach emerged under Fred Riggs‘ leadership. Riggs summarized his view as follows:

There were two basic patterns for public administration,

 The first had evolved in traditional empires and kingdoms where pre-industrial

social and economic conditions prevailed, and

 the second was a product of modernity following the industrial revolution and the

emergence of the post-Westphalian state system.

I rejected the escalator model of the new modernization literature in which traditional

societies were expected to respond to the fresh breezes of modernity by embracing

changes that would, sooner or later, bring them into the new world of opportunity. It

struck me that most societies would adhere tenaciously to many of their most valued
37
ancient traditions and cultural norms while simultaneously importing and accepting a

façade of practices and patterns that would, hopefully, enable them to maintain their

distinctive cultures while benefitting from the autonomy and material goods offered by

the outside world. Instead, curious amalgams would be formed in which “agrarian” and

“industrial” would combine in unstable mixtures. In the prism of my imagination, the

white light of undifferentiated social systems would mingle with the rainbow hues of

highly differentiated social structures as found today in every industrialized society.

The CAG scholars‘ intent, in contrast to the orthodox American public administration,

was to study bureaucracy and public administrative systems across countries based on

their unique underlying sociopolitical and cultural trends and conditions. This process

was intended to address the research questions posed by development administration.

Riggs‘ call for a clear understanding of the forces which lead to administrative

transformations was in line with this agenda.

The CAG scholars, many of whom had been engaged in development assistance and

institution building also intended to correct what Riggs called the fundamental

intellectual flaws of traditional development administration – ethnocentrism and

ignorance.

In other words, they wanted to overcome the erroneous assumption of superiority of

Western techniques and structures to their indigenous counterparts and a lack of

awareness or ignorance of the unique contextual - cultural and historical factors that

shaped the success of Western management techniques.

Unfortunately, the CAG did not get to fulfill its ambitions. The interest in their subject

matter significantly faded over time due to a number of constraints. Insiders mention

among the main obstacles the competing agendas of the development administration and

comparative administration and the different expectations of the funders. The Ford

Foundation that provided funding for this group was interested in a prescriptive

development administrative (how to) approach, whereas the CAG was more interested in

38
scientific inquiry and synthesis of their observations based on in-depth empirical

evidence. Still, the CAG approach left an important trace by paving the way for the

emergence of a new discipline comparative public administration.

C. Content of and Approach to the Reforms

I. Administrative Reform (Development Administration)

The reforms in developing countries promoted by donors primarily by USAID and the

Ford Foundation in the United States focused on building and strengthening the

administrative capacities of governments, especially public administration systems in a

number of newly independent post-colonial states in Africa, the Middle East, and South

East Asia.

Scholars traced the dawn of this movement, known as development administration, to

1955. Institutional development, especially in public administration, was viewed as the

primary means of promoting this vision of development. To a large extent, and as an

outcome of developmental pressures, administrative reform was forced to the top of

the agenda for action in many countries.

The donors‘ technical assistance programs attempted to build and/or change

organizations and laws in the receiving countries by replicating Western institutions in

these developing countries. It was generally presumed that the laws, policies,

structures, and procedures in developed Western countries were superior to those

indigenous and developing countries because of their greater rationality, efficiency, and

relationship to democratic ideals. Their diffusion and adoption was considered both

necessary (given the evolutionary superiority of reforms introduced by Western

consultants) and purposive, in those Western lenders often mandated administrative

reforms as a condition for continued loans. This transfer of organizational structural

arrangements, human resources management, budgeting, and other Western models

and technologies to developing countries was done without concurrent changes in

political, economic and social institutions.

39
In part, the donors and their consultants assumed that bureaucracies in developing

countries were as autonomous as was perceived in the United States. They believed

that the spillover from the changes in specific bureaucratic organizations would

gradually trigger the transformation of the whole system. Reformers justified their

technical focus and neglect of the political environment of administrative institutions

by the fact that the donors wished to abide by self-imposed concerns of political

neutrality.

Furthermore, they tried to apply the generic scientific management approach to

administrative reform such as POSDCORB. These models were what the consultants

themselves knew well and they lacked knowledge of the institutions and of the

environments they were sent to transform. The limitations of the scientific

management approach to public administration, such as the assumption of an

organization as a closed rational system and the neglect of its environment as well as

the informal and emotional behaviors which influenced organizations, were exposed with

greater intensity abroad.

The approach to the reforms was characterized by the following:

First, the reforms were fragmented. It was believed that by transforming individual

organizations/agencies at the central level, reformers would be able to affect the

broader institutional environment. This proved not to be the case. Furthermore, the

design and implementation of the reforms overlooked not only local government

institutions, but also the broader context of these organizations (or their ecology, in

Riggs‘ language).

Second, the reforms were determined externally, with little input from the

beneficiaries. In other words, the reforms were supply-driven and used the same models

borrowed from the West with the assumption that those models were universal and

would fit all.

40
Third, the reforms were carried out without a clear understanding of what institutions

are (overall and in specific contexts) and how to change them. Many oversees experts

did not study in depth the history and institutional context of the local societies, did

not fully understand the local people, and were not adequately prepared to provide the

expected assistance. Rather, they were perceived as ignorant and resented by locals,

yet tolerated and accepted since they brought resources with them.

Fourth, reforms were crafted with the assumption that formal Western organizational

models would fit and work in any environment. But the design of the interventions did

not account for the actual realities and needs of the recipients. Fifth, the reformers

were conceived as technocratic interventions, in an attempt to present donor

interventions as neutral. But reformers neglected to understand that administrative

institutions are not neutral instruments, but are embedded within a political

environment and are subject to political dynamics.

Sixth, donors tended to focus more on inputs, neglecting the actual outcomes of the

reforms and assuming, without evidence, that the reforms would generate the expected

outcomes. Little thought was given as to what kind of unintended consequences the

reforms would generate.

II. The Law and Development Reform

Along with development administration that intended to transform administrative

institutions, a law and development initiative emerged, focused on transforming legal

and judicial institutions. The law and development movement was also funded by USAID

as well as by the Ford Foundation.

It engaged professors from leading law schools in the United States. The dominant

assumption underlying this initiative was that the reform of the legal and judicial

systems, just as the reform of the administrative systems for the development

administration movement, would lead to social change and modernization in developing

countries.

41
Both movements shared a similar approach to institutional reforms based on the

following assumptions. First, institutions in developing countries could be changed by

external agencies via adopting or modifying formal laws and organizational structures.

Second, modeling them after Western institutions would work without regard to the

local context, because the knowledge about the existing institutions is lacking and/or

the imported institutions are superior.

D. Assessment of the Outcomes of the Reforms

Practitioners and researchers involved in institutional administrative reforms in various

countries observed that the institution building which focused on building and

developing public administration institutions rarely achieved expected outcomes.

Numerous studies undertaken by comparative public administration scholars showed

that such reforms produced more failures than successes.

Moreover, some institutional reforms generated unforeseen negative side effects, as

they facilitated the use of government resources and foreign aid by unpopular

regimes and post-colonial political leaders to promote and serve their personal and

political interests. What reformers overlooked was that: Administrative techniques

when transplanted or installed can be bent to the interests of established elites or

survive as formalisms without producing new capabilities or substantive reforms. Even

when new, rationalized capabilities are produced with the help of foreign technical

assistance, they can be used to enhance regime objectives, which few observers would

define as developmental.

Those state institutions that had been getting technical assistance, instead of

demonstrating the expected improved performance, exhibited dysfunctional features

such as political repression, economic stagnation, flourishing corruption and enduring

poverty. Administrative development and development administration has become

euphemisms for autocratic, frequently military, rule that, admittedly, sometimes

induced industrialization, modernization and even economic growth. But this occurred

42
at a great cost in the welfare of the rural and urban poor and substantial erosion

if not deletion of political freedoms associated with liberal democracy.

These changes rendered the centralized and elitist social engineering approach to

development of the 1950s increasingly irrelevant; and along with that, development

administration and comparative public administration lost their appeal. By the mid-

1970s, the focus of the reforms promoted by the United States started to shift away

from government institutions. Policy makers, disillusioned with the outcomes of the

reforms, lost interest in administrative reforms. Increasing criticism of big, inefficient,

and corrupt governments and the ascendance of the neoclassical economic paradigm also

significantly influenced Western social sciences and development.

The reforms generated invaluable lessons for practitioners and researchers of

administrative institutions reforms.

The first wave of reforms made it clear that reformers could not transform the

governments and societies of developing countries by transforming select government

organizations. Overall, this wave of reforms challenged all the assumptions that

informed the approach to reforms.

The period from the 1960s to the 1970s was a time of reflection and of a search for

better ways of promoting development. It was observed that administrative reform –

artificial inducement of change against resistance in human systems – is an extremely

difficult process; it often challenges the status quo and faces resistance from

bureaucrats who are expected to implement those reforms.

Administrative reform requires long timeframes and a significant commitment of

resources that many developing countries cannot always afford, and it is hard to

evaluate the results or even to grasp their significance.

A series of conferences in the United States and elsewhere that brought together

practitioners and academics to discuss what could be learned and improved in

43
administrative reforms arrived at the following conclusions. Three major points could be

highlighted from those deliberations. First, administrative reform has to be country

specific: the universal formula for administrative reform, based on foreign (i.e.,

Western) models, concepts, and ideas, is unlikely to work in developing countries, unless

it is adjusted for the local ecology.

Second, administrative reform is more than changes in management: it is concerned not

only with organizational performance per se but with improving the performance of the

whole public sector. Thus, administrative reform is a broader process that has to

account for its ecology (in Riggs‘ words) – i.e., its political and social context and the

dynamics among these forces, in order to accomplish its purpose. The third point that

emerged from the experiments that administrative reform requires changing not only

formal laws, organizations, and procedures, but also attitudes, mindsets, and the

cultures of those involved.

The problems in the first wave of institutional reforms also have resulted from a

number of other oversights. The elitist, managerial, top-down and technocratic

approaches failed to involve local stakeholders in the process and account for the

political aspects of the reform. In addition, little attention was paid to promoting

internal capacity to keep the central governments accountable. Development assistance

was directed towards central governments, but neglected constitutionally democratic

processes and other stakeholders, including local governments and grassroots

organizations.

The experiences with the first wave of institutional reforms identified at least two

major knowledge gaps –

One on the nature of institutional change and

Another on the nature of the very institutions that reformers were trying to

transform.

44
Both practitioners and researchers learned that they did not understand how

bureaucratic institutions change and/or how they can be transformed. Development

administration experts and scholars admitted that they had tried to help developing

countries to modernize their administrative institutions without knowing what their

existing institutions were and how to change them.

Practitioners and researchers also found that they had a poor understanding of the

local contexts and of the very institutions they were trying to change. In developing

countries, it was much easier to adopt laws and formal organizational structures than to

institutionalize corresponding behavior. Formal administrative structures in these

entities often served as façades, while the actual behavior remained a latent function

of other institutions and other contextual (historical, cultural, and like) factors, which

were not sufficiently understood by Western practitioners and academics.

All of these factors combined to contribute to the loss of this movements momentum.

The experiences taught a sobering lesson that the experts sent to help

―underdeveloped areas did not have the knowledge and the skill to relieve the suffering

of these people but the lesson was wasted. Both practitioners and researchers chose a

tactic of hiding their heads under the sand, until these lessons came to haunt them a

few decades later. Practitioners decided that focusing on more tangible projects had

better payoffs. The mainstream policy sciences chose to live with the false assumptions

about the universal applicability of Western knowledge, and marginalized those who

challenged this view.

Section Two: The Second Wave of Reforms (1980s and Early 1990s): The

Downturn of Government Institutions and the Market as the New

Driver of Development

Section Overview

The period between the 1980s and the early 1990s was the height of the second wave

of institutional reforms. In contrast to the first wave of reforms, intended to build

government institutions, this one was concerned with cutting and downsizing
45
 government institutions and capitalizing on the energy of market institutions to bring

about development. How did this wave come about and how was it carried out? What

theories and ideas informed the content and approach to reforms? How did it play out

in practice? What lessons were learned and to what extent were lessons incorporated

from the previous wave of reforms? This chapter addresses these questions. In order

to address the public sector reforms of this wave the section is divided in to three

broad sub-sections. The first part is devoted the discussion of the policy and political

context of the reforms. In the second part we will discuss the content of reforms

followed by in the third part on the outcome of the reforms.

The Second Wave of Reforms (1980s and Early 1990s): The Market as the

New Driver of Development

Policy Context of the Reform and background

In this period the International Monetary Fund (IMF) and the World Bank (WB) emerged

as the most influential IDA shaping this wave of public sector reforms. During this time,

the reforms promoted by these IDA in developing countries were dedicated to freeing

markets from governments regulatory grip. It was believed that unleashing the private

sector creative energy would induce growth. During this wave of reforms, development

was primarily measured by the level of economic growth driven by the private sector

rather than by government, as had been previously assumed.

This wave of public sector reforms which were curtailed as part of the broader

macroeconomic restructuring intended to cut down the size and influence of

government bureaucracy on the economy and adopt principles and practices from

private sector management. The expected outcome of these reforms was to secure a

small and efficient government bureaucracy.

Among the main factors that contributed to this shift were the rise of neo-liberalism

and the changing role of the state in the West. At the peak of the Cold War,

governments had greatly expanded. They were increasingly criticized for being overly
46
centralized, bloated (big), inefficient, and unresponsive to the demands of the changing

environment. In this context, proponents of the neo-liberal ideology argued that

markets are more flexible and superior to government institutions in producing social

welfare. The pro-market leadership in the United States and the United Kingdom (i.e.

the Reagan and Thatcher administrations) and the weakening and eventual dissolution

of the Soviet Union emboldened those advocating for the virtues of the minimalist

state. The failures of the previous development initiatives also lent support for this

shift. These earlier initiatives were seen as solely government-driven and their failure

was believed by the neo-liberals to have come as a direct result of too much

government.

A. Influential Schools of Thought

In contrast to the 1950s, this time around the public sector reforms were heavily influenced

less by public administration experts and specialists, but by economists who have populated

and influenced the leading development agencies at this time. During this wave neo-classical

economics established itself as the most influential discipline in the development community.

The theories aligned with the prevailing political sentiments at this time have been bolstered

at the expense of those who presented divergent views on the role of the state.

Modernization came under attack, as did Keynesian economics, while the Chicago schools‘ (the

intellectual basis of the neoliberal ideology) influence on policy makers increased. The

influence of the schools advocating the invisible hand of market forces as the driver of

economic development ascended across the social sciences disciplines, including in public

administration. The growing dissatisfaction with the actual embodiment of the Weberian

bureaucratic model in Western institutions also fueled the growing anti-government and anti-

bureaucratic sentiments.

Public choice theory has exerted prevailing influence on public administration since the 1970s.

Rational choice theories (RCT) assume that people are rational actors with clear and consistent

preferences, and that they act on their economic self-interests. The theories holding this

assumption are criticized for neglecting the competing and unclear preferences people hold, as

47
well as their other motives – besides economic self-interests – including those based on their

values and obligations.

Public choice literature is concerned with the problems of the free riders who take advantage

of the opportunities provided by government institutions. Drawing on the assumptions of

rational choice theory, bureaucracy came under particular attack as a self-serving category

that takes advantage of policy makers by virtue of controlling information (principal-agent

problem). The researchers of this school inferred that cutting down bureaucracy and

subjecting it to greater external checks and control is needed. The donors came to promote

this recipe, assuming that exposing government organizations to pressures and competition

would result in leaner and more efficient government institutions.

Most of the public sector reform programs that have taken place in developing

countries during this wave were introduced as part of the ―Washington consensus which

informed the Structural Adjustment Programmes (SAPs) of the World Bank in the

1980s.

The content of the reforms projected the main tenets of the Washington Consensus

and the New Public Management (NPM). While the language of IDA emphasized

macroeconomic policies, which is the main concern of the ―Washington consensus,

implementing them required eliminating, changing, and creating governmental

institutions so as to support those reforms, especially in the countries that did not have

market economies; this is where the NPM came in. In this manner, institutional

development was an essential component of this wave of reforms in policy, which is

supposed to be translated in to practice through the NPM.

The Washington Consensus

The key principles underlying this wave of reforms were captured in the so-called and

much discussed Washington Consensus, a term coined in the early 1990s by economist

John Williamson. He observed that political Washington embodied by the US Congress

and Presidents Administration, and the technocratic Washington embodied by the IMF,
48
World Bank, and the think tanks, converged which policies should be promoted in

developing countries to induce growth, a set of ten prescriptions that included:

Fiscal discipline, Redirect public expenditure, Tax reform, Financial liberalization,

Adopt a single, competitive exchange rate, Trade liberalization, Eliminate barriers to

foreign direct investment, Privatize state owned enterprises, Deregulate market entry

and competition, and Ensure secure property rights.

These policies referred to simultaneously initiating and implementing macroeconomic

reforms strategy.

The latter consisted of (1) liberalization of prices and elimination of trade barriers;

(2) Macroeconomic stabilization - the process through which inflation is brought under

control and lowered over time;

(3) Restructuring and privatization – the processes of creating a viable financial sector

and reforming the enterprises in these economies to render them capable of producing

goods for free markets and of transferring their ownership into private hands, and

(4) Legal and institutional reforms, needed to redefine the role of the state in the

economy, establish the rule of law, and introduce competition policies.

The IMF emerged as the chief authority on macroeconomic policy reforms, while the

World Bank initially assumed the greater role in promoting institutional reforms.

Between them, they set the tone in the development field, owing to their extensive

funding and their expanding in-house expertise. Backed by the U.S. presidential

Administration and the U.S. Treasury, the IMF was especially forceful in promoting the

tenets of the Washington Consensus through its conditionality loans. The IMFs role

became even more prominent with the fall of the Berlin Wall as the bankrupted

countries one after the other turned to the IMF for loans. The vastness of this task

strained even the IMFs financial resources, which is why the World Bank was brought in

to support the IMFs mission. Not surprisingly, this wave of reforms affected a large

49
number of countries in Africa, Asia and Latin America.

The reform of government institutions was given minimal attention; they were

overshadowed by the prevailing focus on revamping economic policies. In addition, these

reforms were not perceived to directly relate to macro-economic functions of the

government. The attention paid to public sector reforms was also minimal in view of the

perceived urgency of the political and economic reforms and the growing anti-

bureaucratic sentiments.

The most important reason why the reforms paid minimal attention to public sector

reforms is that donors naively assumed that effective institutions would fill in the

institutional vacuum once the macroeconomic reforms were implemented. This is not

surprising because this wave of reforms was shaped under the influence of the laissez

faire doctrine which holds that unleashing market forces would institutionalize the new

types of behavior and lead to more efficient institutions and more economic growth. In

sum, administrative reform was subsumed under this new market-oriented paradigm

during this wave of institutional reforms. The leading IDA argued that development is

best achieved not through government which, it was believed, actually hinders

development but through market forces that need to be freed from the grip of

government regulation via the right macroeconomic policies.

The New Public Management

The reform of the bureaucracy (public administration) during this wave was narrower in

scope than traditional administrative reform. The civil service system was the main

target of these initiatives; pay and employment, and within those, reducing numbers

were the chief concerns.

Little attention was paid to the improvement of its recruitment, management,

performance and ethos, while cutting its rules, regulations, and bureaucracy’s role in

policymaking constituted the crux of this wave of public sector reforms.

Although the ultimate goal of the reforms was to improve the institutions and
50
management capacity of the civil service by inducing principles and practices from the

private sector (the NPM), in practice the reforms have been largely limited to

downsizing through short-term cost containment measures such as employment cuts and

wage reforms.

At the same time, the broader term public sector reforms began to replace the

previously used administrative reforms. The former was more convenient and provided

more room for including reforms to public enterprises that did not comfortably fit

within the boundaries of traditional administrative reform. Thus, the scope of

institutional public sector reforms expanded to encompass the private and, indirectly,

the political institutions, via promoting deregulation, decentralization, downsizing and

structural reforms. These changes affected the context of the bureaucracy and the

distribution of power in society more than the previous wave of reforms.

The core paradigm which can be discerned as influential in the development of public

sector reforms in the 1980s and 1990s was that public sector provision was inefficient

and often ineffective; that it led neither to cost containment nor to quality

improvement. With the problems so defined, the paradigm extended to a belief that

the public and private sectors did not have to be organized and managed in

fundamentally different ways. Indeed that it would be better for the public services if

they could be organized and managed as much like the private sector as possible. The

focus of the NPM movement therefore, was on creating institutional and organizational

contexts which are to mirror what is seen as critical aspects of private sector modes of

organizing and managing. Public sector reforms taking place in Africa today build on

previous programs. However, they also fundamentally question the role and institutional

character of the State.

How can summarize New Public Management (NPM)?

In the literature on public sector and institutional reform, the NPM has been variously

called:

51
  Managerialism,

 new public management,

 market based public administration‘,

 entrepreneurial government,

 the new steering model etc.

It is a set of broadly similar administrative doctrines, which dominated the public

administration reform agenda of most OECD countries from the late 1970s. It captures

most of the structural, organizational and managerial changes taking place in the public

services of these countries, and a bundle of management approaches and techniques borrowed

from the private sector. The goal of the NPM is to implement the 3Es‘: efficiency, economy

and effectiveness David Osborne and Gaebler, in their book entitled Reinventing Government

(1992) identified ten defining characteristics of what they call Entrepreneurial Government

(EG), namely:

 promoting competition between diverse providers of goods and services

 empowering citizens by pushing control out of the bureaucracy

 measuring performance of their agencies focusing particularly on outcomes than

inputs

 driven by mission, not by rules and regulations

 redefining their clients as customers and offer them choices

 preventing problems rather than cure them after they blew out

 putting their energy in to earning money, not simply spending it

 decentralization of authority, embracing participatory management

 preference of market mechanisms than bureaucratic mechanisms

 Focusing on catalyzing all sectors- public, private and voluntary-in to action, not

52
 simply on providing public services, to solve societal problems.

Osborne and Gaebler‘s, EG, which is driven by the NPM and the New institutional economics

has the following characteristics:

1. Catalytic Government: acting as a catalyst influencing the private sectors actions to

solve societal problems

2. Competitive Government: encouraging competition to increase the level of performance

and minimize cost( e.g.: competition among public schools to improve quality of education)

3. Mission driven Government: Defining fundamental missions, developing budget system

and framing flexible rules to free public servants to pursue goals without being enslaved

by rules

4. Results oriented Government: focus on outcomes instead of inputs

5. Customer driven Government: spending is tied to results and for this purposes

resources are given directly to consumers to let choose appropriate providers at a

minimum cost

6. Decentralized Government: by decentralizing or getting authority down to the lowest

level, organizational functioning will be improved as information and communication and

decision-making would then be located at the actual site of the problem

7. Market oriented Government: by restructuring the market and leveraging the

decisions of the private sector, Government can accomplish more what it can do by

financing administrative programs

8. Community oriented Government: pushing control of many services out of the

bureaucracy in to the community

The notion of reinventing government, by Osborne and Gaebler was one of the most popular

works in the NPM movement, a perspective that underpinned the ideology of the anti-

government/ bureaucracy movement of the 1980s. A point succinctly summed by Osborne in

the following way:

53
We do not need more Government; we need better government. To be more precise we need

better Governance. Governance is the act of collectively solving our problems. Government is

the instrument we use. The instrument is outdated, and it is time to make it.

Although different interpretations exist as to what constitutes the core of NPM, the common

claim among proponents of NPM is the call for using the insights and principles that worked

well in the private sector such as competition, decentralization, flexibility, and pay for

performance to induce efficiency, economy, and effectiveness in the public sector. Their

major argument in favor of their approach is that traditional public administration institutions

are deficient.

It is said to be a global phenomenon. The NPM was first popularized in the United States, the

United Kingdom, Canada and New Zealand and spread its influence over public administration

reforms in other countries around the world, especially in the Commonwealth countries. OECD,

representing wealthy countries perspective, has been instrumental in developing and

disseminating best practices informed by NPM. The relative success of NPM in these

countries can be partly explained by the fact that it was launched on the basis of already solid

governing institutions. In these countries, constitutional democracy and the rule of law was

already firmly established. In addition, there has been a fair amount of adaptation of NPM

principles to realities of OECD countries that have adapted them as evident in the variation in

the content/scope, process, and outcomes of reforms observed in these countries. In

contrast, in many of the developing countries where these conditions did not exist, NPM‗s

contribution has been questionable.

From the forgone discussion, it seems apparent; the overall emphasis of the NPM is changing

bureaucracies into result-oriented organizations, in which managers would be accountable for

achieving targets and results. With NPM, reduction in the size of Government, reducing the

functional load of the bureaucracies, speed, results, and accountability soon become the

buzzwords. Historically bureaucracy has always been under attack as power grabbers,

secretive, rule bound, inward looking, and the like. In this respect, the criticism of

bureaucracy by the NPM does not seem something new. However, the contemporary objection
54
to bureaucracy by the NPM is unique in that, it represents a savage onslaught on bureaucracy

as the main source of mal-governance and the various social evils afflicting humanity at the

turn of the 21st century.

How can identify the major components of NPM?

The key components of NPM may be put into two broad categories – those that emphasize

managerial improvement and organizational restructuring, and those that emphasize markets

and competition. The basic foundation of the NPM movement, however, is the drive for

efficiency and the use of the economic market as a model for political and administrative

relationships in the public sector.

In addition, the institutional aspects of NPM derive from the ―new institutional

economics movement, which has a theoretical foundation in public choice, transaction cost and

principal- agent theories. These generated public sector reforms themes are based on ideas of

market, competition, contracting, transparency, and emphasis on incentive structures as a way

of giving more choice and voice to service users and promoting efficiency in public service

delivery.

The NPM has several interrelated components that cut across the traditional ways of

organizing governments. The first relates to the delivery of high quality services to citizens

(redefined as clients by the NPM). The consumers of services are re-conceptualized as

customers, not just passive recipients. Hence, serious attempts are being made to find out

what customers expect. In this regard, public sector organizations, for instance, in UK and

Singapore have set performance targets and attempted to measure performance and publicize

results for the wider public. The most dramatic of such initiatives is citizens ‘charter in

England, a global statement of the government‘s service quality improvement.

Improved efficiency is now the overriding aim of public sector reforms in most African

countries. It is thought that the State‘s capability, its ability to promote and undertake

collective action efficiently is overextended. Therefore, reductions and a refocusing of

55
the State‘s activities are needed to improve macroeconomic stability, as well as the

implementation of stronger incentives for performance. Furthermore, increased

competition in service provision, both with the private sector and in the public sector

itself, is required in order to raise efficiency. Consequently, governments should

concentrate their efforts less on direct intervention and more on enabling others to be

productive by providing ―core‖ functions such as safeguarding law and order; protecting

property rights; managing the macro-economy to promote and regulate the market;

providing basic social services and infrastructure; and protecting the vulnerable and

destitute.

Despite the move to reduce the role of the public sector, there is broad agreement

about the need to increase the capacity of the State. To do this, varieties of NPM-

inspired measures are used. These includes: the refocusing of public-sector functions

through staff reductions and changes in budgetary allocations; restructuring of public

organizations through the reorganization of ministries; decentralizing, delinking or

‗hiving off‘ central government functions to local governments or the private sector;

emphasis on private sector styles of management practice; marketization and

introduction of competition in service provision; explicit standards and measures of

performance; greater transparency; pay reform; and emphasis on outputs.

Approach to the Reforms

While the content of the public sector reforms had changed since the first wave, the

approach to the public sector reforms did not depart much from the accustomed

practices. In the same way as with the overarching macroeconomic reforms, public

sector institutional reforms, when they received attention, were limited mainly to

importing best practices and policies, and changing formal organizational and internal

rules and regulations with the help of external consultants paid by the donors. The

donors still assumed that the same set of policies would benefit every country

regardless of the individual countries‘ circumstances.

56
The key macroeconomic and political decisions were made by the donors with little

consultation with the beneficiaries. While the loan conditions constituted the new

element in the approach to the reforms promoted by IDA during this wave of reforms,

they were accompanied by technical assistance (TA) projects, which employed the same

approach to reforms as did the experts in the first wave of reforms. In addition, the

technical assistance segment is characterized by many problems of its own.

Since institutional reforms were focused mainly on changing formal institutional and

organizational frameworks and modeling them after those borrowed from the West,

copying and passing laws without regard to their institutionalization prevailed. Little

attention was paid to the human and organizational factors that should give meaning to

those laws. During this wave, donors still showed little regard for understanding

beneficiaries‘ needs; the reform agenda was externally determined. In fact, this

aspect has become even more pronounced during this wave of reform as the donors

influence grew along with the countries‘ need for external assistance. Beneficiaries still

did not have much input in selecting the content of the reforms in part because those

reforms came for free and was a condition for receiving the much-needed loans from

the donors. Despite the change in terminology from administrative to public sector

reforms, the fragmented and technical approach to reforms was still evident in the

piecemeal focus on the aspects of the changes that were easiest to implement in short

time frames. Pay and employment reforms in the civil service and the privatization of

public enterprises were carried out without a clear strategy to account for the broader

institutional context.

The increased use of conditionality to promote macroeconomic reforms, and along with

that the downsizing of the public sector, contributed to the deepening of these

problematic approaches to the public sector reforms. In addition, the other problems

present in IDAs previous wave of institutional reforms – poor understanding of the

beneficiaries existing institutions and how institutions change overall, as well as the

ignorance and ethnocentrism of the donors – combined with the recipients desire to
57
secure external legitimacy by adopting influential donors models and frameworks and

the desperation of their officials to find ways out from their crises, contributed to

the persistence and entrenchment of the discredited approach to the reforms

58
 Assessment of the Outcomes of the Reforms

The leading donors and independent observers agreed that overall this wave of reforms,

despite some successes, had failed to live up to its promises. The overall consensus

among observers of these reforms was that despite some bright spots, donors‘ aid

at times encouraged incompetence, corruption, and misguided policies. With the lack of

viable government or other alternative institutions to provide the rule of law and

enforce policies, the macroeconomic and public sector reforms created opportunities

for a few vested interests – the new entrepreneurs who emerged from former

government elites and their allies – to concentrate government assets in their hands,

and even tailor the new government regulations for their own benefit. These processes

closely tied newly emerging business sector and government elites together in illicit

informal networks.

Among the many critics of the IDA policies, former chief economist at the World Bank

Joseph Stiglitz (2000) faulted both the content and approach of the reforms

prescribed by the IMF for contributing to and furthering financial crises in developing

countries that followed its advice. He argued that the content of the reforms was

informed by outdated and simplistic economic models. They were also misguided because

they did not account for the peculiarities of each country. Moreover, the IMF‗s

approach to policy making furthered these problems and prevented it from adjusting

even when the mistakes became obvious. Other critics emphasized the contrast

between the IDAs macroeconomic policy outcomes with the approach that led to the

Asian miracle. East Asia‘s fast-growing economies owed their success in part to stable

government institutions and the active intervention of the state in promoting economic

development.

The outcomes of the reforms specifically targeting the inner working of the public

administration system, not surprisingly, also were not encouraging. As mentioned above,

the World Bank mainly focused on downsizing civil service and paid little attention to
59
institutional and capacity building aspects of the reforms. As a result, the failures and

negative unintended consequences of the big bang macroeconomic reforms, the

increased criticism of the IDA approaches, and successes of alternative models of

development combined to challenge the leading donors‘ minimalist state arguments.

Thus, those donors were forced to reconsider the assumptions informing their

development interventions.

What Lessons were learned from the Reforms?

Various soul-searching attempts on behalf of the donors generated valuable lessons,

most of which, not surprisingly, were not new; they painfully rediscovered the lessons

from the first wave of institutional reforms. Out of these the lessons which were taken

to heart were the following three:

1. Government Institutions Matter:

The donors underscored that without strong and capable government institutions,

markets cannot effectively function. The reform failures demonstrated that

governments in many developing countries did not have the skills, capacity, and

accountability to implement complex macroeconomic structural adjustment reforms

properly and make effective use of aid. They also noted that in corrupt environments,

those reforms, especially privatization of government assets in former socialist

countries, have been further derailed to serve private interests, which undermined the

already weak legitimacy of these governments.

Moreover, government institutions were also found essential for dealing with social

issues such as poverty and education that topped the donors and world leaders‘ agenda

in the last decade of the 20th century. The IMF, for example, recommended that the

transitional economies needed to keep pursuing sound macroeconomic policies (the

Washington consensus) and at the same time build the institutions required to underpin

a market economy.

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 2. One Size Does Not Fit All:

The one-size-fits-all approach was also challenged by all stakeholders. Instead,

understanding and tailoring reforms to specific contexts of recipient countries came

to be emphasized. The IDA learned that the reforms need to be tailored to a specific

context; and even that best practice in institutional development is a flawed concept.

3. Participation from Beneficiaries is Essential:

The reformers also noted the importance of beneficiaries‘ involvement in the design

and implementation of reforms to secure that the changes effected by interventions

sustain. Thus, instead of a supply of experts and equipment from abroad, reformers

started looking at the ways to improve local capacity by increasing the involvement of

the beneficiaries.

Section Three: The Third Wave of Institutional Reforms since 1997:

The Re-Emergence of Institutional Development and Government as a Facilitator of

Good Governance

A. Policy Context

A confluence of several factors influenced donors‘ decision to launch a new wave of

institutional reforms. One of the main contributors to this shift was the increasing amount of

evidence pointing at the limits of relying purely on market-regarding policies.

Contrary to donors‘ prescriptions, not all the countries that followed the Washington

Consensus prospered as a result of the reforms.

If anything, evidence from the Asian crisis, the experiences of transition from command to

market economy, and situation in much of the underdeveloped world provided examples of

human costs of neglecting the proper role of institutions.

The problems IDAs are facing in their own governing institutions further increased the

focus on institutional reforms. The OECD countries, similarly, had been experimenting

with large-scale institutional reforms trying to respond, among others, to the

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challenges of changing environments, the expanding globalization, and the fiscal crisis

of the welfare state. These reforms directly and indirectly influence the content and

approach to the reforms the donors promote in developing countries.

A set of other factors further highlighted the emphasis on the quality of governance

institutions. One of them is the growing concern with aid effectiveness. The donors

noted that the governments with better institutions made more effective use of

development aid, while in countries with poorly functioning government institutions aid

did not make much positive impact. The worldwide social issues and humanitarian

emergencies also drew attention to the capacity and quality of governmental

institutions. The widening income gap between countries and individuals, especially in the

poorer countries, and other pressing social issues such as education and health also

played a role in shaping the new content and approach to this new wave of reforms. The

adoption of the Millennium Development Goals targeting the reduction of poverty

necessitated sustainable development strategies that would take into account not only

economic growth, but also the social and political dimensions of development.

A distinct characteristic of the policy context of the current wave of institutional

reforms is that the major IDA involved in promoting institutional reforms are

converging in their assumptions on and approaches to the delivery of development

assistance. From the late 1970s until the late 1990s, the World Bank, IMF, and USAID

favored neo-liberal policies, while other IDA such as the UNDP and European

Commission (EC) tended to favor a more balanced approach accounting for both

government and market institutions. These differences among donors diminished in

several steps.

In sum, since 1997 the new consensus that emerged among IDA is that development

interventions need to secure good governance to generate political, economic, and social

development, and that building government‘s capacity via institutional

development/change is the prevailing approach/means of pursuing these ends.

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Another important but subtle change took place in this wave in the vocabulary of

donors. Most donors started talking more about capacity building and capacity

development, instead of the previous institution building and institutional development.

Who do you think the most influential IDA in public sector reforms during this

wave?

In this wave, the World Bank and the United Nations consider themselves the leading

among the IDA supporting public sector institutional reforms. Most other donors

involved in institutional reform, including the European Union (EU), Asian Development

Bank (ADB), United States Agency for International Development (USAID), UK‘s

Department for International Development (DFID), and Swedish International

Development Cooperation Agency (SIDA), have either a regional or bilateral focus and

narrower program scope, while the World Bank and UNDP have worldwide reach and a

broad reform agenda.

The World Bank emerged as the most influential think-tank and donor in institutional

and governance reform since the late 1990s. The World Banks public sector reform

agenda has been evolving over a period of time and became more focused since the late

1990s. Since then, the World Bank has changed its aim to align it with its mission of

reducing poverty as it was becoming increasingly apparent that its previous market-

oriented focus was not well-suited for promoting this mission. The World Bank exerts

greater influence on the actions and policies of developing countries and other donors

owing to its large grants and loans along with its extensive knowledge-generating

research network.

The United Nations historically focused on the institutional development of public

administration in its core support areas. Institutional development (ID) the process of

planned reforms undertaken to artificially change the existing and/or devise new

institutions has been tacitly accepted as a major effort [for UN] in promoting

consistent accelerated economic, social and political progress in developing countries

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since the emergence of the official development assistance field at the end of WWII.

In the last decade, when the institutional development movement reemerged, the UN

also re-established itself as the chief authority in public sector reforms among donors.

Within the United Nations, the Division for Public Administration and Development

Management of the Department of Economic and Social Affairs of the United Nations

(DESA) focuses on analytical work and policy setting reforms. UNDP, an important arm

of the United Nations, is involved in implementing public administrative reforms (PAR)

because it has a mandate to design programs with the highest long-term impact on the

poor and disadvantaged. Public administration is seen as most suitable tool for pursuing

this mandate. An efficient, responsive, transparent and accountable public

administration is a central part of democratic governance and the basic means through

which government strategies to achieve the MDGs can be implemented. Public

administration is incorporated within its Democratic Governance program.

Influential Schools of Thought

Two schools of thought that share similar assumptions influenced donors‘ public sector

reforms during this period more than other schools. One of them is New Institutional

Economics (NIE). It shaped the overall direction and rhetoric of leading donors‘ reform

policies. Another is New Public Management (NPM), which informed the specific details of the

public sector reforms.

By the 1990s, traditional theories of economic growth focused on labor, physical and

human capital accumulation as well as on technological change were found inadequate in

explaining the differences in economic growth among nations. At around the same time,

extensive research in NIE linking institutions to economic growth gained influence

among donors.

The NIE movement, sometimes referred to as new political economy, has had significant

influence in social sciences for the last few decades. The NIE emerged from extensive

borrowing and modification of assumptions and analytical tools from neoclassical

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economics and rational choice theory (RCT) to apply to research in political science,

public administration, and sociology.

According to Langlois (1986), the three themes underlying NIE are:

(a) a broader conception of the economic agent,

(b) shift of attention to economic processes from equilibrium states, and

(c) recognition that coordination of market activity is a matter of not only markets, but

also alternative institutional structures.

NIE influenced the leading donors‘ development policies through two sets of findings:

1. One on the role of equality and economic growth, and

2. The other one on the links between institutions and economic growth.

First, this school‘s claim that more equal distribution of income and wealth is conducive

to growth- run counter to the neoclassical economics which held that unequal income was

a prerequisite to growth. This finding, along with Amartya Sen‘s capability approach,

reinforced the poverty reduction and human development policies of the leading donors

like the World Bank.

NIEs claims that development depends on the quality of institutions also caught donors‘

attention just when donors needed it following the backlash of its previous wave of

reforms. Students of NIE argue that institutions present that missing link, which

explains the differences in economic growth across different countries, because

institutions determine how inputs technologies, investments, or policies are used.

For example, North (1990) described the role of institutions as follows: Third World

countries are poor because the institutional constraints define a set of payoffs to

political/economic activities that do not encourage productive activity. They also hold

that efficient institutions are those which provide the right incentives to individuals.

Such institutions are created through competition.

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The World Bank’s key policy documents that set the stage for the new wave of

institutional reforms draws predominantly from this strand of research. The research

used in World Bank‘s policy documents found that certain features of institutions -

accountability, efficiency in service delivery, transparency – are strongly correlated

with the long-term growth and poverty reduction. While there is agreement that good

quality institutions are necessary not only for economic development but also on other

grounds such as provision of human rights and democratic governance, and NIEs

contribution for the improved understanding of institutions has been notable, NIEs

research on institutions has been challenged for not being able to specify the nature

and causal relationships among the quality of institutions, functions of institutions, the

process of institutional reform, and outcomes of reforms.

The public sector is still expected to become leaner and perform more effectively in

fulfilling its core functions. The IDA‘s emphasis on incentives and competition following

the NIE scholars further reinforced the assumption that public sector institutions

need to be deregulated and exposed to greater competition and accountability internally

and from outside. It is implicitly assumed that the effectiveness of government

institutions is less a function of direct organizational development, but results from

changing incentives (rules of the game) that expose them to greater competition from

the private sector and demand from citizen-customers. In sum, the principles according

to which the private sector institutions operate, when applied to public sector

institutions, are expected to generate socially-beneficial incentives and behavior.

The New Public Management (NPM) movement in public administration and development

management, that shares assumptions of the political economy/NIE movement,

similarly has not been able to specify the nature and causal relationships among the

quality of institutions, functions of institutions, the process of institutional reform, and

outcomes of reforms.

Lacking clear understanding of causal relations, NPM draws from the institutional

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models and practices of OECD countries that serve as benchmarks for practitioners,

and emphasizes universal management standards as a remedy for problems of

developing countries. On the management side, the thematic core of development

management is today's version of NPM, exemplified by the OECD's approach to public

management reform, leavened with the strategies and tools associated with core

administrative functions (e.g., budgeting, human resources), organizational and systems

change, institutional structuring (e.g., decentralization, subsidiarity), promoting citizen

participation, and management training.

Interesting, NPM approach goes against donors‘ rhetoric (discourse) to tailor reforms

to the recipients‘ contexts.

From a theory perspective, this NPM core is problematic in that, to an important

extent, it constitutes a list of actions to be pursued rather than an analytically

integrated agenda that reflects a set of causal relationships. There are ongoing

debates around necessary and sufficient conditions, linkages, sequencing, and impacts.

The one-size-fits-all managerialism of NPM needs to be interrogated, and ultimately

nuanced, by "empirical studies covering diverse countries and regions, longer time

frames, and multiple dimensions of governance in order to review cross-national

similarities and differences in major reform trends, rationales, contexts, [and]

impacts". Given the tendency toward idealized thinking about development management

that NPM embodies, it is important to maintain a critical perspective on the underlying

factors that influence outcomes and impacts. In sum, the research informing donor

policies has been criticized as being partial and poorly suited for understanding, let

alone informing, the design and implementation of institutional reforms. While the key

problems on the way towards creating effective institutions involve intangibles such as

values and trust issues, the research informing donors‘ institutional reforms, namely

NIE and NPM movements, has been based on the set of assumptions on human behavior

that has little room for these factors.

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 1. The Content of and Approach to the Reforms

This wave of reforms is distinct from the previous ones in a number of ways: donors

changed not only the content of its reforms, but also are attempting to change the

approach to conducting their interventions to address their past shortcomings. The

content of the IDA‘s reforms shifted away from the market to promoting good

governance through sets of institutional reforms. Reforming administrative institutions

is seen as a chief mechanism for transforming other institutions in the governance

system. Unlike the reforms in 1950s, this time the state and government institutions

are seen not as direct providers of goods and services, but more as facilitators of

economic growth. The IDA now argue that the government‘s main responsibility is to

create the right conditions and incentives for the private sector and civil society, which

are seen as complementary players in the broader governance process along with the

government.

The IDAs new approach to institutional reforms, at least in policy documents, also

became more aligned with what they prescribe the recipient governments should do

towards their own citizens. The IDA are now trying to make their interventions more

participatory, beneficiary- driven, and tailored to each specific context, and they seek

to design systematic public service reforms coherently integrated with other

institutional reforms. It is assumed that this new approach will positively affect the

outcomes of the development interventions. Below, a brief overview of the key and

shared elements in the content and approach of the key IDAs public sector reforms.

Figure 1: The Vision for Public Sector Reforms in the Third Wave 140

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 Content of Public Sector Reforms

This wave of institutional reform differs from the previous ones in several aspects.

 The previous reforms paid attention to both changing rules and promoting the

capacity of organizations entrusted with enforcing those rules and emphasized

organizational capacity building (i.e. organizational development) over rule change.

 The current reforms tend to emphasize rule change over the development of

capacity to enforce those rules, and focus more on macro-

level/constitutive/governance institutions and on the relationships between public,

private and increasingly also nonprofit sectors.

 In contrast, the previous ones focused more on [meso-level] organizational rules and

resources.

 Second, the current reforms intend to change not only administrative or judicial

institutions, but also economic, political, and societal institutions that together make

up governance institutions.

 The focus of this wave therefore is on integrated governance reforms.

 Although the previous reform interventions often contained some components

targeting improvement of the effectiveness and capacity of government institutions,

those components have been disjointed, and since the 1970s subsumed under other

priority policies. Policy-makers in IDA are finally acknowledging that institutions are

interdependent and the reforms need to account for this reality.

 This, at a minimum, means that changing economic or political policies and even

institutions alone will not be sustainable unless public administration systems are

also reformed.

 By the same logic, administrative reform is no longer about transforming the

administrative state per se but transforming governance, the relationships between

societal institutions that exercise authority within a single country/state, a group of

states, or a country association.

 Today’s institutional reforms focus not on a single institution, but the whole
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 governance system.

Public administration is now seen as central to governance reforms, especially in the

countries with the weakest government capacity. For example, public sector reform is

now in the heart of the World Bank‘s overarching agenda of improving governance,

which falls into three broad areas rule-based operation of the government itself to

improve the supply of public goods, voice and accountability for citizens to demand

better public services, and more efficient and effective regulation of the private

sector to improve its competitiveness.

Similarly, the UNDP treats public administration reforms as central part of its

Democratic Governance program.

The redefinition of development as a matter of high quality rules of the game resulted

in a confluence of administrative changes with the rule of law reforms, both in terms of

content and methods. Rule of law is the continuation of the previously tried and

abandoned rule and development field concerned with improving the capacity of the

judiciary. Now rule of law is a part of the broader public sector reforms. Moreover, this

field of practice regained greater influence among donors. If law and development was

promoted mainly by the US aid community, this time rule of law is deemed as an

essential component of institutional reforms by almost all IDA. Rule of law is appealing

to IDA because it is considered essential for promoting economic growth by attracting

investors, as well as for democracy.

In sum, in terms of the content of reforms, this time donors are trying to focus on a

large set of institutional transformations under the governance agenda that emphasizes

the facilitative role of public administration.

Approach to the Reforms

IDA‘s approach to institutional reforms shows a radical departure from the old approach, but

mainly in policy rather than in practice. This change in approach is reflected in the following

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areas.

Focus on Outcomes Rather Than On Outputs

In contrast to the previous wave of public sector reforms, this time donors are

attempting to focus not only on the general idea of cutting government‘s size and role

and infusing more competition through privatization, but also on specific features of

NPM such as individual performance and outcome-orientation in public management.

These elements are promoted in the place of inputs, process, and public service

culture/ethos that characterized traditional public administration.

In other words, projects and programs of the donors are to be evaluated against their

impact on the overall governance environment. The recipients are therefore required to

develop long-term country level institutional development strategies and link donor

projects to them, instead of simply relying on ad-hoc supply-driven aid. Example of such

country level-strategies are Poverty Reduction Strategy Papers (PRSP) and

Comprehensive Development Framework (CDF).

Efforts to Tailor Reforms to Their Context

Meanwhile, IDA has been increasingly emphasizing the need to adjust reforms to the

specifics of each country thorough better understanding the recipients‘ needs. This

lesson has been vividly highlighted owing in part to the failures that followed the one-

size-fits-all approach of the Washington Consensus reforms promoted by the IDA a

decade earlier.

The realization that best practices may not work if not tailored to the local context and

the importance of a clear understanding of the problems and desired outcomes prior to

interventions have influenced the IDA‘s approach. For the first time OECD countries,

similar to what developing countries have been undergoing for a few decades, also

experimented with best practices borrowed from other contexts. Performance-based

budgeting and NPM reforms popularized through New Zealand‘s successful example

have been tried in many countries, but led to different and not always desirable
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outcomes even in OECD countries.

Emphasis on Participation and Local Ownership

Furthermore, IDA has been trying to re-orient their policies to make the institutional

reforms more demand-driven. It is assumed that fostering local participation, voice, and

ownership will improve not only the beneficiaries‘ aid effectiveness, but also will

strengthen the quality of institutions and local capacity and accountability of

authorities. Although the World Bank still intends not to interfere in political matters

of the recipient states, this new approach implicitly and indirectly embraces the

political nature of the reforms and the need to change the existing distribution of

power for the public sector reforms to succeed. The World Bank, however, has

reservations when it comes to popular participation in macroeconomic policy (both

monetary and aggregate fiscal). It perceives that participation in these areas can be

easily captured by special interests, and are best carried out by organization [by

qualified experts with technical expertise] insular from the exigencies of everyday

politics.

In sum, the traditional top-down and externally-determined approach to the reforms,

which consisted of the transfer of skills and formal elements of institutions or

organizations to developing countries, designed and implemented by foreign experts, is

falling out of favor, at least in policy rhetoric. Instead, the IDA came to recognize that

to make aid effective they need to tailor the reforms to beneficiaries‘ specific needs

and make lending support locally-driven and owned. The current consensus is that IDA

should help developing countries build government institutions capable of making sound

policies themselves without relying on external advisors, only through such institution-

building will countries be able to achieve the ultimate goals of poverty reduction,

inclusion, environmental sustainability, and private sector development.

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 UNIT THREE

GLOBAL AND REGIONAL INSTITUTIONAL REFORMS

Unit Introduction

Dear students, welcome to Unit three. In this unit you will be introduced about

Frameworks and issues of Global Governance, Global institutional architecture and

reforms such as United Nations systems reforms and Bretton woods institutional

reforms. It also explains about some regional institutional reforms such as African

union system reforms and European Union system.

Unit Objectives

With the successful completion of this unit, you will be able to;

 Define what Global Governance is all about.

 Explain the nature and scope of Global institutional architecture and reforms

 Describe United Nations systems reforms, African union and European Union

system.

 Understand Bretton woods institutional reforms.

Frameworks and issues of Global Governance

Global Governance

The idea or concept of global governance has gone from the ranks of the unknown to

one of the central orienting themes in the practice and study of international affairs

Sometimes the term global governance has been used as just a synonym for

international organizations. More often, however, it is used to capture the complexity

and dynamism of the many collective efforts by states and an increasing variety of

non-state actors to identify, understand, and address various issues and problems in

today‘s turbulent world.

In 1995 the Commission on Global Governance, an independent group of prominent

international figures, published a report on what reforms in modes of

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international cooperation were called for by global changes following the Cold War‘s

end.

The commission defined governance as ―the sum of the many ways individuals and

institutions, public and private, man-age their common affairs. It is a continuing

process through which conflicting or diverse interests may be accommodated and

cooperative action may be taken. It includes formal as well as informal arrangements

that people and institutions have agreed to or perceive to be in their interest

(Commission on Global Governance 1995: 2)

With regard to the relationship between governance and government, the two

concepts are not identical. As James Rosenau (1992: 4) put it: Both refer to

purposive behavior, to goal- oriented activities, to systems of rule; but government

suggests activities that are backed by formal authority, by police powers to insure

the implementation of duly constituted policies, whereas governance refers to

activities backed by shared goals that may or may not derive from legal and formally

prescribed responsibilities and that do not necessarily rely on police powers to

overcome defiance and attain compliance. Governance, in other words, is a more

encompassing phenomenon than government. It embraces governmental institutions,

but it also subsumes informal, nongovernmental mechanisms whereby those persons

and organizations within its purview move ahead, satisfy their needs, and fulfill their

wants.

Thus, global governance is not global government; it is not a single world order; there

is no top-down, hierarchical structure of authority, but both power and authority in

global governance are present in varying ways and to varying degrees.

Based on reviewing the evolution of the concept, Thomas Weiss and Rorden Wilkinson

(2014) conclude, ―We understand global governance as the sum of the informal and

formal ideas, values, norms, procedures, and institutions that help all actors states,

IGOs, civil society, and TNCs identify, understand, and address trans-boundary

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problems.

It therefore encompasses international law and international organizations created

by states, but goes well beyond them, because today‘s world is far more complex and

far less state-centric, with a wide variety of actors and governance mechanisms.

It is the collective effort by sovereign states, international organizations, and other

non-state actors to address common challenges and seize opportunities than

transcend national frontiers.

In nutshell, Global governance is a purposeful order that emerges from institutions,

processes, norms, formal agreements, and informal mechanisms that regulate action

for a common good. Global governance encompasses activity at the international,

transnational, and regional levels and refers to activities in the public and private

sectors that transcend national boundaries. In this conception of global governance,

cooperative action is based on rights and rules that are enforced through a

combination of financial and moral incentives. In the absence of a single authoritative

institution or world government structure, global governance is comprised of

elements and methods from both the public and private sectors.

In other words, the concept global governance is the way that it enables us to look at

international organization (IO) the long-term process of organizing collective efforts

to deal with shared problems past, present, and future.

The concept of global governance has ancient roots, but contemporary conceptions

are very much a product of developments since the Cold War‘s end. Who governs the

globe? Is an essential question to answer, as are also the questions of who get what,

―who benefits, and with what consequences (Avant, Fennimore, and Sell 2010b).

Because global governance is also dynamic, the study of it is the study of how changes

have occurred in efforts to deal with shared trans- boundary problems, how changes

are occurring, and even how changes could or should occur in the future.

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 Rationales for the Need of Global Governance

The emergence of the concept of global governance in the 1990s accompanied the

growing awareness of the rapid pace of a number of systemic changes taking place in

the world, as well as the rapid proliferation of issues and actors and the inadequacy

of existing international organizations to provide solutions to many problems. These

changes include globalization, technological advances, the Cold War‘s end, and the

growth of transnationalism. Separately and collectively, they have fundamentally

altered global politics at the same time that they have contributed to the increased

need for global governance.

Globalization

Since the late 1980s, what had initially appeared to be simply growing

interdependence among states and peoples has become something much more

fundamental a complex multidimensional process of economic, cultural, and social

change. Particularly noticeable is the rapid pace of change, the compression of time

and space, and the scale and scope of interconnectedness. More broadly, however,

globalization can be defined as ―a historical process involving a fundamental shift

or transformation in the spatial scale of human social organization that links distant

communities and expands the reach of power relations across regions and continents.

In its contemporary form, globalization is unprecedented in the degree to which

economic markets, cultures, peoples, and states have become linked, thanks to

improvements in transportation and communications that speed the movement of

ideas, goods, news, capital, technology, and people, and to deregulation and

privatization of businesses, finance, and services in many countries.

Globalization has spurred the proliferating networks of nongovernmental

organizations (NGOs) and financial markets, linking like-minded people and investors,

as well as the unwelcome, often illegal actors terrorists and drug traffickers. It has

contributed to the homogenization of culture with the global spread of ideas and

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popular culture. It has also contributed to heterogeneity, with the reassertion of

ethnicity and nationalism in many parts of the world in reaction to globalization. Civil

wars and conflicts in some of the world‘s poorest regions, such as Somalia and Mali,

ripple outward through the flows of asylum seekers and illegal migrants to richer

countries.

The effects of globalization change the significance of the borders of states and the

very nature of world politics. They mean that states no longer have a monopoly on

power and authority. They increase the recognition of transnational problems that

require global regulation in some form. The consequence has been a huge growth in

transnational, regional, and global forms of public and private rulemaking and

regulation since the early 1990s. This includes expanded jurisdiction of existing

IGOs like the Inter- national Maritime Organization, networks of cooperation among

government agencies such as the Financial Action Task Force that link government

experts on money laundering, as well as private standard-setting initiatives such as

that by the Forest Stewardship Council.

While globalization affects all spheres of human activity—economic, social, cultural,

technological, environmental, and political not all peoples or areas of the world are

equally affected. Some critics charge that globalization has deepened global

inequality between the haves and have-nots, especially those living on less than a

dollar a day. Undoubtedly, globalization has created winners and losers between

countries and also within countries. Given both the detrimental and the beneficial

effects of globalization, the question is how globalization will be governed is essential

to search a remedy. Yet it is also important to recognize that further globalization is

not inevitable. Globalization has both coincided with and contributed to the growth

of transnationalism and the deregulation and privatization shift, all of which can be

linked to the revolution in global communications and transport.

Technological Changes

Globalization would not have been possible without major technological changes in
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both transport and communications that permit the movement of people and goods

rapidly over great distances and move information, images, written words, and sound

by telephone, Internet, television networks, and various forms of social media.

Today‘s container ships and tankers carry many times the tonnage faster and at lower

cost than ever before. The ease and lower cost of contemporary jet travel have

contributed to the flow of international tourists.

Moving people and goods more cheaply and easily is facilitated by the technological

advances in communication. From the mid-nineteenth- century development of the

telegraph, through to the telephone, radio, film, television, photocopying, satellite

communications, faxing, cell phones, the Internet, e-mail, and social media, the

advances have had an enormous impact on global politics and governance. The

technological revolution in communications also gives more people access to major

international news sources such as CNN, BBC and Al Jazeera. Transnational

communications allow citizens all over the world to exchange ideas and information

and to mobilize like-minded people in support of a particular cause in virtual real time.

The cascade of events from Tunisia to Egypt to Yemen, Jordan, Bahrain, Morocco,

Libya, and Syria during the Arab Spring in 2011 owed much to people‘s use of

Internet-based social media such as Facebook and Twitter and the inability of

authoritarian governments to block the flow of images and information. Both the

transportation revolution and the communications revolution have aided the formation

of transnational groups, social movements such as those on behalf of women, and

networks.

The Cold War’s End

The end of the Cold War was brought about by the collapse of Soviet- supported

communist governments in Central Europe, symbolized by the fall of the Berlin Wall in

1989, and the disintegration two years later of the Soviet Union itself into fifteen

separate, independent states. The fax machine and television were important in

transmitting images and information across the Iron Curtain into Poland,
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Czechoslovakia, Hungary, East Germany, and other countries. The Cold War‘s end

marked the ending of one historical era and the beginning of another. The

international system shifted from a bipolar structure to a post–Cold War structure

that was simultaneously unipolar, dominated by a single superpower (the United

States of America), and a nonpolar, networked system of a globalized world.

Although the Cold War‘s end contributed to the so-called third wave of

democratizations in formerly communist states, Latin America, and Asia, it also

removed the support of one or the other superpower from many weak states in Asia

and Africa, unleashing a long string of deadly conflicts in the former Yugoslavia,

Somalia, Afghanistan, and elsewhere. At the same time, it opened new political space

for states and non-state actors—space for pursuing new types of cooperation in

ending those very conflicts, expanding the scope and reach of human rights norms,

and reducing barriers to trade and investment. In short, it produced a series of new

governance challenges as well as possibilities for developing new forms of

governance.

Expanding Transnationalism

Contributing to the Cold War‘s end and benefiting from increased democratization,

accelerating globalization and the advances in technology and transport is the growth

of transnationalism—the processes through which individuals and various types of

non-state actors work together across state borders. It is exhibited in the activities

of global civil society, NGOs, transnational advocacy networks, and transnational

social movements.

The spread of democracy has bolstered the growth of civil society in countries where

restrictions on citizens‘ groups have been lifted. Civil society groups communicate

with each other domestically and cross-nationally, creating new coalitions from the

local to the global. These transnational civil society groups permeate numerous issue

areas, including the environment, human rights, economic development, and security.

Their demands for representation in processes of global governance contribute to the

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increased need to reform existing international institutions and to find new ways to

incorporate non state actors into global governance. Systemic changes inevitably have

a variety of consequences for states and for state sovereignty. The increased need

for global governance magnifies the importance of multilateralism as a core process

as well as the importance of leadership and different strategies used by states and

non-state actors. Knowing global needs is rarely enough to explain how and why a

particular governance outcome was chosen. Accordingly in the next in the coming sub

titles of this unit, we are going to discuss about reason and factors instigating

reforms in different international institution.

Global institutional Architecture and Reforms

United Nations System Reforms

The origin of the United Nations (UN)

UN replaces the League of Nation, which was formed at 1919 after W.W I. The

League was unsuccessful to prevent the outbreak of W.W II. UN initiated by

President Franklin Delano Roosevelt of the United States and PM Winston Churchill

of Britain. Therefore, after W.WII- 50 countries met at San Francisco and signed

the United Charter. UN officially existed in 24, Oct 1945. United Nations (UN),

international organization of countries created to promote world peace and

cooperation. The UN was founded after World War II ended in 1945. Its mission is

to maintain world peace, develop good relations between countries, promote

cooperation in solving the world‘s problems, and encourage respect for human rights.

The UN is an organization of countries that agree to cooperate with one another. It

brings together countries that are rich and poor, large and small, and have different

social and political systems. Member nations pledge to settle their disputes

peacefully, to refrain from using force or the threat of force against other

countries, and to refuse help to any country that opposes UN actions. The UN is the

result of a long history of efforts to promote international cooperation. In the late

18th century, German philosopher Immanuel Kant proposed a federation or ―league‖

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of the world‘s nations. Kant believed that such a federation would allow countries

to unite and punish any nation that committed an act of aggression. This type of union

by nations to protect each other against an aggressor is sometimes referred to as

collective security. Kant also felt that the federation would protect the rights of

small nations that often become pawns in power struggles between larger countries.

Despite this failure, the idea of a league did not die. The first commitment to create

a new organization came in 1941, when U.S. president Franklin D. Roosevelt and British

Prime Minister Winston Churchill announced the Atlantic Charter, in which they

pledged to work toward a more effective system to keep world peace and promote

cooperation. In 1942 representatives of the Allies—the World War II coalition of 26

nations fighting against Germany and Japan—signed a Declaration by United Nations

accepting the principles of the Atlantic Charter. The declaration included the first

formal use of the term United Nations, a name coined by President Roosevelt. A year

later, four of the Allies—the United States, the United Kingdom, the Soviet Union,

and China—agreed to establish a general international organization.

Since World War II, the United Nations has been the center-piece of global

governance. It is the only IGO with global scope and nearly universal membership, and

its agenda encompasses the broadest range of governance issues. The UN is, in fact,

a complex system with many pieces. Among its functions are the creation of

international law, norms, and principles; it has created other IGOs within the UN

system such as the UN Environment Programme, as well as countless other

committees and programs; it has sponsored global conferences and summits. It serves

also as a catalyst for global policy networks and partnerships with other actors. The

UN, in short, is the central site for multilateral diplomacy, and the UN General

Assembly is center stage. The establishment of the United Nations in the closing

days of WWII was an affirmation of the desire of war-weary nations for a general

international organization that could help them avoid future conflicts and promote

international economic and social cooperation. The UN Charter and the core principles
81
that it incorporates as well as the principal organs were patterned after those of the

League of Nations: the Security Council, General Assembly, Secretariat, and

International Court of Justice. The UN Charter remedied a major gap in the League

Covenant by creating the Economic and Social Council (ECOSOC) and it carried the

mandates system forward under the Trusteeship Council.

The UN is a complex system with many parts and many functions, making it the

centerpiece of global governance since its inception, despite its many weaknesses.

Other IGOs have been created within the UN system, such as the UN Conference on

Trade and Development, and the International Atomic Energy Agency, as well as

countless programs and committees. It has sponsored global conferences and

summits; it serves as a catalyst for global policy networks and partner- ships with

no state actors. Among the core elements of the UN system are nineteen specialized

agencies, including the first two public international unions: the ITU and UPU. The

number and nature of such specialized and functional organizations has greatly

expanded over the course of the past century and many are not linked to the UN

system.

The Expansion of Functional and Specialized Organizations

The establishment of single-function IGOs to address specific issues such as health,

economics, trade, labor issues, and environmental threats mirrors a pattern carried

over from national governments. Over time, other organizations have been created to

address still more specialized problems in response to the emergence of new issues

and unmet needs. Thus the numbers of functional and specialized IGOs have

increased exponentially since the mid– nineteenth century.

Staying above politics, however, is not always possible, since the issues such IGOs

deal with are not merely technical, but can touch at the core of state sovereignty and

deeply political concerns, especially as rules and regulations expand. Nonetheless,

they retain their functional, specialized character and are important elements of

global governance, forming the institutional core for governance activities

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on a given set of issues. The founders of the UN envisaged that functional agencies

would play key roles in activities aimed at economic and social advancement.

Therefore, Articles 57 and 63 of the UN Charter call for the affiliation with the

United Nations of various specialized organizations established by separate

intergovernmental agreements with wide international responsibility‖ in

economics, health, food, educational, and cultural fields. Today, the nineteen

specialized agencies formally affiliated with the UN through agreements with

ECOSOC and the General Assembly, like the UN itself, have global rather than

regional responsibilities, but have separate charters, memberships, budgets, and

secretariats as well as their own interests and constituencies. There are also a

significant number of functional organizations within the UN system that are not

classified as specialized agencies, as they have been established by the UN itself and

report to the Security Council or General Assembly. And there are a wide variety of

other specialized, functional organizations. Some are regional in scope; others have

been formed by countries with shared interests in specific issues.

Table 3.1 Functional Intergovernmental Organizations (representative)

83
Specialized Functional Other Regional

Agency Of UN Organizations Functional Functional

Related to the Organizations Organizations

United Nations

 Food and  Food and  Internatio  African

Agricultur Agricultur nal Coffee Developme nt

al e Organizati Bank (ADB),

Organizati Organizati on (ICO),  Arab

on (FAO). on (FAO),  Internatio Monetary

 Internatio  Internationa nal Whaling Fund

nal civil l Atomic Commissio (AMF),

aviation Energy n (IWC),  Economic

organizatio Agency  Northwest Community of

ns (ICAO), (IAEA), Atlantic West

 Internatio  Internatio Fisheries African

nal fund nal Labour Organizati States

for Organizati on (NAFO), (ECOWAS)

agricultura on (ILO),  Organizati ,

l  Internatio on of  Mekong

developme nal Petroleum River

nt (IFAD), Maritime Exporting Commissio n

 Internatio Organizati Countries (MRC)

nal labor on (IMO), (OPEC),  Pan

organizatio  Internationa  World American

ns (ILO) l Trade Health

 Internation Telecommuni Organizati Organizatio n

al monetary c ations on (WTO). (PAHO)

fund (IMF) Union (ITU),

84
 Internatio  UN High

nal Commissione

maritime r for

organizatio Refugees

ns (IMO) (UNHCR),

 Internation  Universal

al Postal

telecommun Union

ic ation (UPU),

Union (ITU)  World

 United Health

nations Organizatio

educational, n (WHO),

scientific  World

and cultural Meteorologic

organization al

(UNESCO) Organization

 United (WMO).

nation

Industrial

Developmen

Organizatio

ns (UNDO)

etc.

85
 Persistent Organizational Problems and the Need for Reform

Over the UN‘s seven-decade history, there have been many efforts at reform.

Indeed, one longtime observer has called this ―a constant refrain never finished,

never perfected‖ (Luck 2007: 653). In the 1970s, the focus was on improving

coordination of economic and social programs in the UN system; in the 1980s, calls

for financial reforms dominated the agenda; since the early 1990s, managerial

reforms, improvement of the UN‘s ability to support different types of peace

operations, and Security Council reform have been among the major issues. The UN is

still hamstrung by pre–Cold War structures, redundant agencies, inadequate personnel

policies, lack of accountability and transparency, limited resources, and the inability

to meet the needs of a changing world. There is some rationality for necessity of UN

reform:

Security Council

The key ingredients for serious UN reform, as a former UN official notes, ―will

require major concessions from powerful and weak countries alike‖ and a willingness

to ―rise above their own current sense of entrenched rights and privileges and find a

grand bargain‖ (Brown 2008: 6,8). Structural Reform of the Security Council Virtually

everyone agrees that more states should be added to the Security Council. The

permanent members underrepresent the majority of the world‘s population; Europe is

overrepresented at the expense of Latin America, Africa, and Asia; China is the only

third world and Asian country among the permanent members; both Germany and

Japan contribute more financially than do Russia, China, the UK, and France, yet have

no guaranteed role. In addition to geopolitical and systemic changes, there is greater

normative value placed on diversity, equity, and representation today than in 1945.

Thus, changing the formal membership, it is said, is a necessary step to increasing, or

to halting the loss of, the legitimacy of the Council and of its resolutions.

Thus the first key issue is the size and composition of the Council‘s membership. Yet

86
if its size is increased to enhance its representativeness, it must still be small enough

to ensure efficiency. A second issue concerns whether or not to continue the

distinction between permanent and nonpermanent members. Closely related is the

question of whether new permanent members will have veto power. Some proposals

would give no veto power to the new permanent members; others would limit veto

power of all permanent members.

There are three likely African candidates, for example (Nigeria, Egypt, and South

Africa). Countries such as Italy and Pakistan that know a rival is more likely to

be a candidate (Germany and India respectively) tend to oppose adding permanent

seats. Some observers have even suggested that any new Security Council members

not be states at all but rather regional bodies. This could mean replacing France and

Britain with a rotating EU seat (something the European Parliament has already

endorsed) and including the African Union and other bodies. In short, there is no

agreement precisely because the issue of Security Council representation is so

important.

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Table 3.2: The Debate over Security Council Reform

Agend Representation Veto Power Efficiency

a For

debat

 More  Eliminat  Size should be

permanent e large enough to

members to entirely. allow greater

better reflect representation,

current  Reduce scope but small

geopolitical and for its use to enough to

economic Chapter VII preserve the

realities decisions. ability to act.

 Proposed  Proposed size:

additions:  Retain for twenty to

Germany and current P-5, twenty- five

Japan, one to two but don‘t give members

members each to new

from Africa, Asia, permanent

and Latin America; members.

alternatively,  Give to

replace France all

and the UK with an permane

EU seat and add nt

other regional members

bodies Eliminate all

permanent seats

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 Coordination and Management

The problem of multiple agencies engaged in similar tasks with no coordination has

plagued the UN system almost from the beginning, in part because the founders

designed the organization to be decentralized, as this would increase the capacity of

different groups to participate while minimizing the potential for politicization. As

John Ruggie (2003: 303) states,

―It is not designed as a matrix at all but as a set of deeply rooted columns

connected only by thin and tenuous rows. Nothing that has transpired since 1945 has

transformed that fundamental reality.‖ Yet, increasingly, as a result of globalization,

issues no longer fit into clear sectorial or regional boundaries. A major step toward

coordination among the many UN entities that deal with economic and social

development was taken with the Millennium Development Goals.

Coordination and management issues have also plagued UN efforts to deal with

humanitarian crises since the early 1990s. Typically, there is a functional division of

responsibilities: the UNHCR manages refugee camps, UNICEF handles water and

sanitation, the WFP is responsible for food supplies, and the WHO handles the health

sector. In a number of situations, peacekeeping forces have been mandated to

safeguard relief workers and supplies. The presence of large numbers of NGOs often

complicates the task of coordination. Donor countries pushed the General Assembly in

1991 to appoint a humanitarian coordinator and a humanitarian affairs department to

remedy the problems, but neither was given power over other agencies, nor over

staff and resources. Integrating Non-state Actors

The increasing involvement of NGOs and private businesses with UN programs and

activities demonstrates another area of needed reform: how to better integrate non

state actors into the UN system. Today, regionalism and globalism coexist with

minimal friction outside the security area, and regional organizations have

proliferated even more rapidly than global ones. They have become increasingly

important pieces of the global governance puzzle. Its participants resolved to create
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a global civil society forum to deal with UN institutions, member states, and other

institutions (Alger 2007). Non state actors now play a substantial role in

supplementing the limited financial resources of the UN system. Thus, greater

participation by no state actors is a persistent issue for the UN. The lesson was

amplified by the realization in 1944–1945 that recovery and rebuilding after World

War II would require more capital than war-ravaged countries alone could expect to

rise. The decolonization process and the tripling of the number of states in the 1950s

and 1960s would make development assistance the major priority for the World Bank

by then the Inter-national Bank for Reconstruction and Development (IBRD).

Recognizing the importance of reducing barriers to the flow of goods and capital and

the value of international economic cooperation for its own well-being, the United

States furnished the vision of an open international economy, the leadership to

establish institutions, and the money to assist others. Henry Dexter White, chief

international economist at the US Treasury from 1942 to 1944, and British economist

John Maynard Keynes presented competing plans for economic governance at a

conference held in Bretton Woods, New Hampshire, in 1944.

In an effort to provide an independent, countervailing balance to US economic power,

Keynes proposed a world central bank capable of regulating the flow of credit; he also

favored the creation of a new international currency to facilitate lending to countries

experiencing liquidity problems. White argued for a weaker agency that would

promote the growth of international trade but preserve the central role of the US

dollar in the international economy and white‘s plan prevailed.

The newly formed International Monetary Fund (IMF) would not be a world central

bank, but would promote economic growth by providing financial stability for

countries facing short-term balance-of-payments difficulties and thereby stimulating

international trade. Over time, the US view about conditionality for assistance would

also prevail and be greatly strengthened in the 1980s.

Ideas about how governance of trade should proceed likewise differed. At the
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Bretton Woods meetings, a comprehensive body, the International Trade

Organization (ITO), was proposed to provide a general framework for trade rules and

a venue for ongoing trade discussions. Trade governance in the ITO negotiations

developed the General Agreement on Tariffs and Trade (GATT) as a temporary

arrangement. Despite its lack of organizational character, GATT became the major

venue for trade negotiations from 1949 to 1995, with an interim committee for

coordinating international commodity policy and a small secretariat of 200 persons.

The World Trade Organization succeeded GATT in 1995 as the world‘s comprehensive

trade organization, with infrastructure for dispute settlement that goes far beyond

anything envisaged in the 1940s.

The three Bretton Woods institutions were designed to address systemic weaknesses

in economic governance and promote a liberal economic order. The World Bank and

IMF are UN specialized agencies, but until the late 1990s they operated largely

independent of the UN system. The WTO has not become a specialized agency, but

has an arrangement whereby its director-general participates in the UN Chief

Executives Board—the entity for coordinating the disparate agencies within the UN

system.

The World Bank and Development Financing

During the 1950s the World Bank shifted its focus from postwar reconstruction in

Europe to development in Latin America, Asia, and later Africa, lending funds with

interest to states proposing major economic development projects. The Bank

generates these funds from member-state contributions and from borrowing in inter-

national financial markets. The loans are designed to complement private capital by

funding projects that private banks would not support, such as infrastructure (dams,

bridges, highways), social services (education, health care), and government

restructuring. Unlike private banks, the World Bank attaches conditions to its loans in

the form of policy changes it would like to see states make to promote economic

development and alleviate poverty.

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To aid the Bank in meeting the needs of developing countries, the International

Finance Corporation (IFC) was created in 1956, the first of four subsidiary

organizations of the World Bank Group. The IFC provides loans to promote the growth

of private enterprises in over 100 developing countries, providing typically no more

than 25 percent of the total estimated costs. Working with over 750 financial

institutions, its 184 members provide about a third of the financing provided by

international institutions to the private sector. Another Bank family member, the

Multilateral Investment Guarantee Agency (MIGA), established in 1988, was meant to

further augment private capital‘s contribution to less developed countries by insuring

investments against losses. Such losses may include expropriation, governmental

currency restrictions, and losses stemming from civil war or ethnic conflict. In 1960,

the establishment of the International Development Association (IDA) provided no-

interest―soft (concessional) loans to the poorest countries, with repayment schedules

of fifty years.

Today, about eighty countries are eligible for this concessional lending based upon

GNP per. IDA funds have to be continually replenished or added to by major donor

countries. Currently, the World Bank‘s 188 members together with its affiliates such

as the IDA provide over $30 billion annually to 100 countries for more than 300

projects. Since the 1950s, there have been major shifts in development strategies

that are reflected in money allocated to different sectors such as agriculture,

transportation, or education. At times the World Bank, the IMF, and the UN itself

have been at the forefront of articulating new strategies, and at other times they

have responded to changes initiated by both the bilateral donor community and NGOs.

During the 1950s and 1960s, the World Bank emphasized large infrastructure

projects (dams, electric facilities, telecommunications).

In the 1970s, the Bank shifted to a basic needs orientation, funding projects in

health, education, and housing geared to improve the economic needs of the

masses. During the 1980s, the mantra became private sector involvement, followed by

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sustainable economic development. In the 1990s, the focus shifted to good

governance. Of these various changes, two trends have had the most profound

impact.

First is the reorientation toward support of the private sector in the 1980s.

While the World Bank‘s founding Articles of Agreement supported private

investment, the Bank was prohibited from making loans without government

guarantees until the IFC was established. The Bank now strongly supports private

sector involvement and privatization of government-owned industries in the

expectation that growth will trickle down and everyone will eventually benefit. Second

are the changes consistent with the sustainable development goals. The Bank became

more open to involving NGOs in planning and executing projects in the 1990s in order

to change individual lives. And the Bank began to recognize that sustainable

development, whether through public or private funds, requires good governance. But

in the early 1990s, the term governance was left purposefully vague or defined

very narrowly because of fear that the Bank‘s neutrality and a political mandate would

be jeopardized. Not until 1995, governmental corruption mentioned as an inhibitor of

development. When the staff framed the issue in economic terms that corruption had

negative effects on development they were able to establish their case. But

developing good governance and rooting out systemic corruption require a long-term

commitment that the Bank has had difficulty sustaining, since it has a history of

making disbursements even when there is evidence of corruption in its own projects

(Weaver 2008: 108–113). Thus the World Bank has increasingly addressed political

issues, promoting sound governmental management and anticorruption measures.

The International Monetary Fund

Originally, the IMF‘s purpose was to lend money to countries to meet short-term fluctuations

in currency exchange rates, thus enabling member states to establish free convertibility

among their currencies and maintain stable exchange rates. Funds to meet temporary

balance-of-payments difficulties were allocated by quotas.

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Members contributed to the Fund according to quotas negotiated every five years.

These were paid both in gold and in local currency (later, so-called special drawing

rights provided added liquidity). Members could withdraw funds according to the

amount contributed, with a onetime service charge of three- quarters of a percent on

each transaction plus a charge based on length of time the money was borrowed.

These arrangements were typically for twelve to eighteen months. While quota

restrictions have been relaxed, the IMF still meets this need through ―standby‖

arrangements. From the beginning, the IMF‘s Executive Board allowed countries with

greater involvement in international finance and larger quota shares to also wield

more votes. The result is that the five largest vote-holders can shape IMF policy, not

only in terms of overall policy direction but also with respect to particular loans.

Beginning with the 1982 Mexican debt crisis, the IMF took on the role of

intermediary in negotiations between creditor and debtor countries, then became

involved in bailouts and structural adjustment lending. It took the 1998 Asian

financial to demonstrate that all crises are not alike and that the IMF‘s prescriptions

were not always correct. Still, through the 1980s and 1990s, the IMF requirements

for structural adjustment lending required recipients to institute economic policy

reforms or achieve certain conditions (referred to as conditionality) in return for

financial assistance. The conditions are aimed at overcoming structural bottlenecks in

countries‘ domestic economies and governmental policies, as well as stimulating trade

liberalization and private sector involvement. In other words, the diverse range of

suggested policies all which are compatible with liberal economic norms.

IMF Reform

In the wake of the 1997 crisis, the IMF set up systems to improve monitoring of the

international financial system, so-called fire alarms, to better anticipate financial

meltdowns. It also set up a credit line to provide another account from which

countries in trouble could draw, despite some opposition by Germany and other ―tight

money European countries. As part of the negotiation on the credit line, the IMF put

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in place a system whereby governments would be expected to divulge details of their

national accounts that had previously been confidential. For those more eager to

trade on global capital markets, even more information was expected. However, the

IMF has resisted providing specific credit scores on countries, although enough

information is now available to draw fairly specific inferences. Following the 2008

financial crisis and the elevation of the G-20 as a key part of global economic

governance, proposals were put forward to significantly increase the quotas, and

hence the votes, of G-20 members that were considered underrepresented on the

IMF Executive Board. Specifically, reforms agreed to in 2010 will double the quotas,

while shifting about 6 percent of quota shares from overrepresented to

underrepresented member countries and still another 6 percent to dynamic emerging-

market and developing countries.

With that realignment, China would become the third largest member country in the

IMF, and Brazil, China, India, and Russia would be among the ten largest shareholders

in the Fund. At the same time, the quotas and voting share of the poorest member

countries would be preserved. Despite acceptance in March 2015 by 147 IMF member

states, representing 77 percent of voting shares, however, the reforms had yet to be

approved by the US Congress, leaving in doubt whether the quotas will be realigned in

the near future.

Governance of Trade: From GATT to the WTO

The third part of the Bretton Woods system was the stillborn International Trade

Organization. The General Agreement on Tariffs and Trade took its place in 1948; its

members (called contracting parties) were initially the largest developed countries,

excluding the Eastern bloc and the Soviet Union as well as most less developed

countries. With the accession of China and Russia and others in this century, WTO

membership has reached 160. In 1995, the WTO replaced GATT as the arbiter of

trade rules, providing a formal organization for trade for the first time. It

incorporated the general areas of GATT‘s jurisdiction, as well as expanded

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jurisdiction in intellectual property and services through the Agreement on Trade-

Related Aspects of Intellectual Property Rights (TRIPS) and the General Agreement

on Trade in Services (GATS). In all, WTO trade rules include over sixty agreements

and decisions.

The WTO and Its Critics

With a wide range of goods and services under its jurisdiction and strengthened

dispute settlement mechanisms, the WTO has become a lightning rod for groups from

both developed and developing countries who see the organization as the culprit in the

negative consequences of economic globalization, usurping state sovereignty and

domestic interests and favoring the interests of major developed countries over poor

countries. Even though each WTO member has a voice through the consensus

procedure, decisions often involve ―unequally matched states against one another in

chaotic bouts of negotiating which has seen developed countries secure more of the

economic opportunities they already have while offering developing countries very

little of what they actually need‖ (Wilkinson 2014: 2).

Still others point out that although some developing states participate in the WTO‘s

dispute settlement system, the vast majority do not, because of the considerable

cost of proving injury from the trade policies of another country and the reluctance

to retaliate against a major power should a decision be rendered in their favor. At a

more general level, many are critical of the effects of reducing barriers to trade and

making the world more ―globalized.‖ Scholars‘ some-times question whether the world

is globalizing and even more so whether it should be (Veseth 2010). Among activists,

anti- globalization NGOs are major opponents of WTO activity, charging that the

WTO‘s power to make regulations that have consequences and settle disputes with

authoritative measures is an intrusion on national sovereignty. They are also critical

of the lack of transparency in WTO procedures.

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In addition, there is a widely held perception that the organization is captive to

the demands of rich governments and big MNCs. To other NGOs, the WTO‘s

adherence to the interests of free trade undermines the application of labor and

environmental standards. Thus, labor movements and environmental groups have

joined the opposition, believing that the WTO privileges economic liberalization over

social values. The environmental groups argue that the trade rules need to be more

environmentally friendly and urge the examination of environmental implications

before WTO accords are passed. In 1996, the WTO rejected negotiations with labor

groups, referring the promotion of labor standards to the ILO instead, where

compliance procedures are generally loosely enforced. In contrast, labor groups from

the developed world have lobbied for the WTO to take up the labor-friendly agenda,

since the WTO has the power to institute trade sanctions for labor violations.

Some Regional Institutional Reforms

Regions and regional organizations have emerged as major forces in international

politics. Hence the study of international organizations and global governance includes

the many regional and sub-regional organizations in Europe, Asia, Africa, the Middle

East, and the Americas; their efforts to address security, economic, environmental,

and human rights issues; and the interactions between and among global and regional

organizations. For the purpose of this course, this module only focuses only on the

regional institutional reforms of Africa and European respectively.

Africa’s Union institutional reforms

The OAU, placed in a longer term of historical current, is a manifestation of the Pan-

African movement which originated in the USA during the late 19th century. In the

USA, thousands of blacks, with African origins found it intolerable to bear the

agonizing experience of racial discrimination and alienation. Some of their prominent

leaders, namely WEB Du Bois (1868- 1963) and Marcus Garvey (1885-1940) raised a

flag of revolt against the then prevailing injustice and chose to speak for the entire

black race which was leading a dehumanized existence. They subordinated the
97
immediate problems of American blacks to a grand and enlarged vision of Pan-

Africanism, which, in essence, stood for the unity and dignity of the black race.

At the 1945 meeting of the Pan-African Congress in Manchester, England,

participants issued the Declaration to the Colonial Peoples, supporting the right of

political freedom and self-government. In the late 1950s, under the initiative of

Kwame Nkrumah, president of newly independent Ghana, a pan-African forum for

independent countries began to take shape based on an underlying sense of

continental unity. Prior to the birth of the OAU, there was an inter-state politics in

Africa which was characterized by growing rivalry between the Casablanca and

Monrovia group of states.

The Casablanca group vehemently opposed colonialism, racism and neo-colonialism. On

the top of this, they were sympathetic towards the Soviet Union due to concrete

soviet support their activities. Moreover, this group had a radical approach involving

the creation of the federation African states with joint institutions with a joint

military command. In the other hand, Monrovia group, was constituted by the

Brazzaville group like most moderate Francophone states such as ivory coast, Gabon,

Senegal etc. in the meantime, there were neutrals members like Ethiopia, Liberia and

Somalia which were neutrals towards rivalry of Casablanca and Brazzaville group. It

stood for the protection of national sovereignty, territorial integrity and

independence of its members. It defends the principle of mutual non- interference in

inter-state relations. In addition to this, they support western cooperation in the

process of promoting development.

However, these groups had a lot in common. These commonalties were backed by the

mediatory efforts of uncommitted states like Ethiopia gave birth to the organization

of African unity (OAU) in Addis Ababa, Ethiopia in May 1963. Accordingly, the leaders

of thirty-one newly independent African states established the Organization of

African Unity. It was conceived as a loose association based on voluntary cooperation,

whose resolutions would carry moral rather than legal obligations. Three overriding

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principles guided the organization. First, all states were sovereign equals. Each state

would have an equal say, with no greater weight given to larger or more powerful

states. Second, states agreed not to interfere in the domestic affairs of fellow

members. Third, territorial borders were sacrosanct, with no room for alteration in

the status quo. No longer did states want to be dominated by outsiders, risk border

changes that would unleash ethnic rivalries and invite outside intervention, or cause

the independence leaders to lose their privileged positions.

So at the outset, the OAU was designed as a voluntary organization limited by its

founding principles. Over time, each of these principles has been compromised.

Although all states are legally equal, there was implicit recognition that some states

are able to provide stronger leadership—such as Nigeria, Ghana, Kenya, Algeria,

Egypt, or South Africa. The principle of noninterference in domestic affairs was also

violated, most often during the 1990s, when human rights violations were condemned

by other states. On a few occasions the OAU also supported changes in state

boundaries, for example when Eritrea gained independence from Ethiopia.

Designed as a weak intergovernmental forum, the OAU did enjoy some notable

successes. OAU members used the Assembly of Heads of State, in particular, as a

forum for mediating disputes among states. The OAU sponsored for the first time an

ad hoc, all-African military force to help establish law and order in Chad in 1981. At

other times, members turned to the UN or to sub-regional organizations such as the

Economic Community of West African States for dispute resolution or to organize

regional military forces for a specific action. The OAU played a significant role in at

least nine cases of securing troop withdrawals, using its diplomatic pressure to

influence both African states and outside powers. The liberation of South Africa

from white minority rule, a central OAU goal, was achieved in1994.

On economic and development issues, however, the OAU was largely silent, essentially

deferring to the UN‘s Economic Commission on Africa. Since the conditions under

which the OAU was founded had changed and the organization‘s weakness contributed
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to Africa‘s marginalization in international politics, the OAU was replaced by the

African Union in 2002, following two years of negotiations. Although unity remains an

aspiration, the AU is designed to meet the challenges of a world characterized by

economic globalization and democratization where African leaders need stronger

institutions to respond to African problems.

The AU carried over some of the OAU‘s overarching principles, including sovereign

equality of states and respect for existing territorial borders. Additional principles

found in its constitutive act strengthen the organization to respond more effectively

to Africa‘s problems.

First, AU members may intervene in the affairs of other states in ―grave

circumstances, namely war crimes, genocide and crimes against humanity.‖ This is a

radical departure from the OAU, although the vague language is open to varying

interpretations. Second, to support democratization, AU members pledge support for

good governance, democratic principles, and respect for human rights, explicitly

rejecting political assassination and unconstitutional changes of regimes. Unlike the

OAU, the AU can suspend or expel illegitimate governments and has done so,

reinstating states when the governments are stabilized—a provision analogous to the

OAS‘s democracy mandate.

Third, resolving disputes peacefully and prohibiting use of force are a key principle.

The AU Constitutive Act also links this peace and security principle with economic

development, noting that the latter depends on the security of states and people.

Fourth, achieving balanced social and economic development is a key principle,

although the AU‘s role is only vaguely defined in its charter.

The principles behind the AU, then, are more progressive than those of the

former OAU. Leaders pledge to hold free elections and to allow opposition parties

to campaign freely; sovereignty is no longer a shield to hide gross misconduct. Yet

while these objectives and pledges have been favorably received, their application
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has been uneven. Some scholars explain these new principles ―have been

internalized unevenly by the AU‘s member states‖ and the move from

nonintervention ―to what is now commonly referred to as the doctrine of non-

indifference has been slow. That shift (states care and may act) has made it

necessary for the AU to have operational capability to address cases of large-

scale human rights violations and threats to democratic governments.

The AU has undertaken several other measures to strengthen the democratization

and governance agenda. In 2003 the African Peer Review Mechanism was created, a

voluntary group of experts who work alongside governments and civil society groups

to review the government‘s performance on democracy, good governance, and the

rule of law. Following an investigation and a report, the expert panel makes

recommendations for improvement. While states are not legally bound to implement

the suggestions, and many states may not have the resources to do so, the process

for those participating carries moral authority and signals commitment by African

states to the new agenda, with over a third of the AU‘s members participating. That

commitment was reinforced in the AU Commission‘s 2009– 2012 strategic plan and

the 2011 summit, which emphasized Africans‘ ―shared values.‖ In addition, the

Charter on Democracy, Elections and Governance entered into force in 2012, bringing

together in one legal document members‘ commitments to democracy and governance.

What the major institutional reforms made by African Union?

Modern slavery, conflicts, terrorism, resource contestations and localized strife including

those associated with herdsmen versus farmers over grazing land, rising inequality and poverty

are some of the most notable manifestations of Africa‘s governance, development and peace

and security challenges. Similarly, Africa is furthermore beholding budding gratitude as of

varied global players, over its roles, impact and reflectivity in international discourse. The AU

is in charge for move on a united continental agenda and has settled an aspiring plan equally

revealed in the Agenda 2063, which is predictable to lead to an

integrated, prosperous and peaceful Africa, driven by its citizens and representing a dynamic
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force in the international arena‘. However, the continental body has lingered weak for

resolution for the reason that of insufficient political will, a mismatch between its ambition

and realistic technical capacities; and overwhelming dependence on voluntary donor support for

the implementation of its decisions, programs and overall mandate. Such, is the circumstance

of the conclusion on the Institutional Reform of the AU that was embraced in the course of

the 27th Ordinary Session of Assembly of Heads of States held from 17 to 18 July in Kigali,

Rwanda.

The continuing reform of the AU is extensive as well as moved on the road to an

institutional wide transformation. Consequently, here are numerous as well as not

essentially jointly strengthening aspects to the reform, which from time to time make

it challenging to coherent consistently. The 2017 report by the President Paul Kagame

on the institutional reform of the AU is responsible for an advantageous footing for

sympathetic, in comprehensive terms, the space as well as central elements of the

institutional reform. The documents are dependable in bestowing five precarious

areas of the current institutional reform of the AU.

The first side of the reform is to realign AU‘s institutions. Presently, the AU

institutions embracing of the Commission, organs, agencies and committees are a

multifaceted grid of far-reaching, occasionally elusively understood and actually

fragmented organizational structures. The existing reform progression has shown

that there are currently eight Commission directorates, 31 departments and offices

along with 11 AU organs, 31 specialized technical agencies (STAs) and 20 high-level

committees. The disjointed feature of these institutions has directed to doubling of

energies, waste of resources and restricted optimization of staff capacities, in an

institute that is continuously branded by an absence of capable staff.

The AU‘s reform process is pursuing to intensification organizational enactment through an

audit of institutional bottlenecks and inefficiencies as well as re-evaluates the size and

capabilities of AU Commission structures. Moreover, AU organs, and agencies such as the New

Partnership for African Development, the African Peer Review Mechanism (APRM), the Pan-
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African Parliament, Peace and Security Council and judicial institutions are to be reviewed and

strengthened. Except for NEPAD and APRM, the current reforms are entirely communicative

that is projected through these institutions.

The NEPAD is projected to be entirely incorporated into the Commission as the AU

development agency accountable for providing the development way out to Africa‘s

governance, peace and security challenges. The catastrophe to success- fully monitor

the execution of strategic decisions made by AU Heads of State and Government residues a

serious gap in realizing structural efficiency. Consequently, the APRM will be held

together to pathway an enactment and supervise checking and assessment in vital governance

areas on the continent. The second vital of the reform is to reduce and deepen the focus of

the AU to key priorities with a continental scope. Thus, the institutional reform program

suggests that the AU should focus on four main strategic priorities, namely political affairs,

peace and security, economic integration and Africa‘s global representation and voice.

As currently founded, the AU is pursuing to contrivance an incredible obligation by bidding to

proceed the principal in the seven ambitious goals delimited in the Agenda 2063, namely

promoting a prosperous Africa based on inclusive growth and development; an integrated

continent, politically united and based on the ideals of pan-Africanism and the vision of

Africa‘s renaissance; an African of good governance, democracy, respect for human rights,

justice and the rule of law; a peaceful and secure Africa; Africa with a strong cultural

identity, common heritage, shared values and ethics; Africa whose development is people-

driven, relying on the potential of African people, especially its women and youth, and caring

for children; and Africa as a strong, united and influential global player and partner. Despite

the fact these ambitious goals are significant to the continent; the AU can unable to have the

reasonable benefit to attain the goals on its own effectively. The continental organization has,

for instance, fought to answer to humanitarian emergencies, enforces long- term post-conflict

reconstruction and development or in fact promotes a blue economy through the development

and implementation of Africa‘s Integrated Maritime Strategy. An imperative sub-division of

implementing the AU priorities, thus, is the basic to endorse, improve and endure partnerships.

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RECs/RMs, member States, research institutions, civil society and other continental

institutions, are further- more crucial to reprioritization of the AU‘s focus in line with the

principle of subsidiarity and comparative advantage. The UN system, international financial

institutions, bilateral partners possibly will moreover show indispensable and basic roles. Yet,

AU‘s leadership and clarity of desire and needs will be vibrant in connecting the assets of

these different actors in completing the progression of its central four priorities under the

reform plan, however correspondingly, in meeting those that transcends them but are

dependable on the Agenda 2063.

The third primacy of the AU institutional reform plan is the imperative of relating

the AU to its citizens: this is projected to be realized through the advancement of

women and youth quotas in the recruitments, electoral processes and appointment

across the AU system. It also contains inspiring the involvement of the private sector

to support the AU vigorously. Other enlightened plan has been projected, intended at

endorsing continent-wide public goods and services such as rolling out of the African

passport to citizens, as well as the realization of free movement of persons as well

as the establishment of a free trade area across Africa.

The fourth primacy connects to the need to manage the business of the AU

efficiently at both political and operational levels. Politically, there is an increasing

emphasis by the AU Assembly on enlightening its working methods including through

reshuffling its agenda and through the acknowledgment of better synchronization

with the RECs. Furthermore, the role of the embarrassment of allies will endure to be

mandatory in realizing AU‘s ambitious goals. But, there is a political consent between

AU member States that the roles of partners would need to be better coordinated,

limited and more aligned with AU‘s needs. At the functioning level, the interior

governance structures of the AU Commission require rethinking. In this high opinion,

the request to encirclement a further rigorous merit-based nomination process for

the election of the AU Commission Chairperson, Deputy Chairperson and the

Commissioners pre-dates the current reform. Unquestionably, there are several other
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encouraging organizational cultures regarded as by some extremely proficient,

overreached and under- remunerated staff within the AU Commission. Yet, the total

system residues pathetic in its bureaucracy, experiences inadequate staffing and has

been criticized by its member States for deficient performance across all levels of

the Commission.

The fifth and the greatest imperative priority is the journey for endorsing the

financial autonomy of the AU. The ambition for expectable and amplified funding to

the AU from its member States was a precarious driver to the comprehensive

reform agenda of the Union.

The financial over-dependence of the AU on external donors is not a new discourse.

The variety of Africa‘s challenges implies that the AU alone may not continuously

have the financial resources to address them exclusively. Nevertheless, the over-

dependence on external donors have made an institution that absences the

responsibility to its member States, is a wide opening to the deviating and sometimes

inconsistent interests from donor States/partners, and possibly will have made the

institution defenseless to the risk of negative consequences including but not limited

to possible espionage.

In 2016, the AU Assembly of Heads of State and Government completed a crucial

decision on financing the Union. AU member States fixed to institute a 0.2% levy on

all eligible imported goods into the continent. The conclusion was heralded by, inter

alia, a Summit decision in January 2015, where member States promised to give 100%

of the Union‘s budget; 75% of the Union‘s programme budget and 25% of the Union‘s

budget towards peace support operations.33 The AU Summits of July 2015 and

January 2016, respectively, also reiterated this decision on the financing of the

Union. It looks the space of the unending reform is to structurally transform the AU

into an organization that is: assembled on applicable institutional design, made of

capable bureaucrats, decisively attached to its citizens and capable of self-reliantly

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finance most of its activities. Especially, the institution will be projected to reach

political accord and backing from its member States.

The European Union System

The EU is a unique entity that has become deeply institutionalized and involves far more

commitment than any other regional organization. Whereas the initial steps involved only six

Western European states, today twenty-eight states are full members. The EU‘s development

embodies a process of integration, where steps taken in one area have spilled over into others

over time. It encompasses aspects of both supra nationalism (sometimes also referred to as

federalism) and inter-governmentalism. European Union development has involved both the

widening of membership and the deepening of ties among the member states, integrating

economies and societies more closely, and expanding the authority of community institutions

over the member states. Much of the policymaking in Europe today is common or EU policy,

made in Brussels through EU institutions.

The EU affects the daily lives of its more than 500 million citizens, most of who can

now move freely between member states and carry EU passports. The EU commands

18 percent of world GDP, and citizens in nineteen member countries use the euro,

launched in 2002, as their currency. The EU‘s development has transformed

governance in Europe, influencing everything from regulations on the habitat of birds

to voting in the World Trade Organization; with its own legal system, parliament,

bureaucracy, currency, and court, its complex institutions resemble those of nation-

states. It has also altered global politics and governance.

Institutional Reform of European Union

Regional political and economic integration in (Western) Europe began in part as an

effort by European leaders to find ways to overcome the national rivalries that had

led to two devastating world wars in the first half of the twentieth century. The

United States was committed to promoting democracy and a more open international

economic system to replace the protectionism, competitive currency devaluations, and

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other policies that had marked the rivalries among European powers (and excluded US

businesses from European markets).

The Soviet threat added impetus to strengthening the war-weakened countries, as

did internal threats from strong communist parties in France and Italy. A desire to

enmesh the Germans in international agreements that would prevent them from posing

future threats to European security was another motivating factor. The United

States added incentives through post– World War II Marshall Plan requirements that

the European governments cooperate in developing a plan for utilizing aid, formulate a

joint effort rather than submit a series of national requests, and create an

international organization to administer the aid to the sixteen participating countries.

Security threats, economic incentives, and visions all played a part.

So, too, did economic interests of powerful sectors, particularly in the French and

German economies (notably heavy industry and agriculture), along with trends in the

post–World War II international economy (notably rising trade and capital flows

among the industrialized countries), which led governments to look for ways to

respond to new opportunities for promoting economic gains.

The European Coal and Steel Community: The birth of European integration occurred in May

1950 with a proposal by then–French foreign minister Robert Schuman to place Franco-

German coal and steel production under a common ―high authority. This meant accepting

recently defeated Germany as an economic equal and handing over authority for both

countries‘ key coal and steel industries to a supranational authority. The result was the

European Coal and Steel Community, established in 1951 with six member states (France,

Germany, Italy, Belgium, Luxembourg, and the Nether-lands). Great Britain rejected an

invitation to join, because of strong sentiments in both major political parties against loss of

sovereignty and national control over coal and steel. The ECSC was successful enough in

boosting coal and steel production that the six member states agreed in 1958 to expand their

cooperation under the European Atomic Energy, Community and the European Economic

Community. The founding documents of these three organizations form the constitutional
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basis of the European Union. The governing institutions of the three have been merged.

The Treaties of Rome: Euratom and the Common Market.

The Treaties of Rome represented recognition that the community could not develop the coal

and steel sectors in isolation from other economic sectors. One treaty committed members to

creating a common market over a period of twelve years through removal of all restrictions on

internal trade; a common external tariff; reduction of barriers to free movement of people,

services, and capital; the development of common agricultural and transport policies; and the

establishment of the European Social Fund and European Investment Bank.

The second treaty created Euratom to establish a common market for atomic energy.

In 1962, the Common Agricultural Policy (CAP) came into existence, with a single market for

farm products and guaranteed prices for farmers. In 1968, two years ahead of schedule, they

completed an industrial customs union and had removed enough internal barriers to trade to

agree on a common external tariff with nonmember countries and to form a single negotiating

party in international trade talks. In 1969, governments agreed on the principles of economic

and monetary union, both of which were regarded as essential to achieving political union,

although the sovereignty that would be lost with monetary union was particularly difficult for

them to contemplate at the time. Despite disagreement over whether economic or monetary

union should come first, they did agree to begin efforts toward controlling exchange-rate

fluctuations and coordinating their national economic policies.

Enlargement: Slow economic growth in the 1970s stalled any deepening of European

integration, but there was movement on another front. In 1973, the community‘s first

enlargement took place with the accession of Great Britain, Ireland, and Denmark (Norwegian

voters rejected the accession agreement their government had signed). Later in the 1970s, a

strong desire to bolster the new democracies in Greece, Spain, and Portugal provided political

impetus for their accession. In 1994, the decision was made to admit Finland, Sweden, and

Austria. Then, in anticipation of further enlargements to former Soviet- bloc states in Eastern

Europe, the European Council delineated conditions for new members, including respect for

democracy, rule of law, and human rights, protection of minorities, a functioning market

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economy, and a demonstrated capacity to implement past and future EU rules and legislation.

These so-called Copenhagen conditions have provided benchmarks for candidate countries as

well as incentives for making the requisite changes in their economies, political systems, and

laws. Three further enlargements, in 2004, 2007, and 2013, brought in eleven Eastern

European and two Mediterranean countries. The EU now encompasses much of the continent

and far greater diversity.

Deepening integration:

The process of deepening European integration has entailed completing the creation

of a single market, expanding the range of common policies, the establishment of the

European Union itself, and the monetary union and single currency. It has involved

four additional treaties and a number of institutional changes.

In 1987, European Community members took their most important step since the

Treaty of Rome with their adoption of the Single European Act (SEA), which

established the goal of completing a single market by the end of 1992. This meant a

complicated process of removing all remaining physical, fiscal, and technical barriers

to trade, harmonizing different national health, food-processing, and other

standards, varying levels of indirect taxation such as value-added taxes, and removing

barriers to movement of peoples such as professional licensing requirements.

The changes, however, allowed banks and companies to do business throughout the

community; allowed EC residents to live, work, and draw pensions anywhere in the EC;

and ended monopolies in sectors such as electricity and telecommunications. They also

included a number of important institutional changes such as greater power for the

European Parliament (EP). Even before the SEA‘s 1992 deadline for completing the

single market, the twelve members signed the Maastricht Treaty on European Union,

calling for ―an ever closer union among the peoples of Europe.‖ The original European

Community became one of three pillars of the new EU.

The second pillar comprises Common Foreign and Security Policy (CFSP), while the third

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includes justice and home affairs—new areas of common policy. Both the second and third

pillars, however, remain largely matters for individual governments or, at best,

intergovernmental agreement. Maastricht also gave impetus to European monetary union with

agreement to institute a single European currency in 1999, and created a nascent European

citizenship with a common passport and rights to live and vote wherever citizens liked. It

included further institutional changes as well.

Ratification of the Maastricht Treaty encountered problems when Danish voters rejected it in

a referendum; it was also put to a referendum in France, where it narrowly passed.

Following agreement that Denmark could opt out of certain provisions in the treaty, Danish

voters passed a second referendum. This, however, was a wake-up call to EU leaders that

deepening integration was not accepted by all of Europe‘s citizens and prompted debate about

the democratic deficit‖ within the EU, whereby most decisions have been made

by governmental leaders and bureaucrats without direct input from voters.

Three additional treaties have dealt with enlargement and institutional reform.

The Treaty of Amsterdam, which was signed in 1997 and came into force in 1999,

gave a green light to further enlargement and dealt with issues such as social policy,

immigration, asylum, the environment, and consumer protection. In 2003, the Treaty

of Nice entered into force, bringing changes important to an enlarged and more

democratic EU such as increasing the number of seats in the European Parliament,

modifying the weights in the EU‘s system of qualified majority voting, and limiting the

number of commissioners to one per state. An EU constitution was then drafted in

2002–2003 to address more of the structural problems anticipated with the 2004

enlargement, but was rejected by referendums in France and the Netherlands in

2005, effectively killing it.

The 2007 Lisbon Treaty incorporates many of the draft constitution‘s provisions

designed to improve the efficiency of institutions and make them more democratic. It

also provides the EU with international legal status, enabling it to sign international

treaties or be a member of other IGOs, and made the EU Charter of Rights legally
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binding on members. The Lisbon Treaty was rejected by Ireland‘s voters in 2008

but approved in 2009 after changes were made.

In addition to the current Structures of European Union such as European Commission

(supranational, executive, and bureaucratic body of the EU), Council of the European Union

(make decisions on law and policy), Council of Ministers (key body for major EU initiatives such

as concluding the single market, monetary union, enlargement, foreign policy issues,

constitutional reform, and the European debt crisis), Parliament (the voice of EU citizens

which is directly elected by voters in the member states) and European Court of Justice

(power to rule on the constitutionality of all EU law). There is different European Union

specialized and agencies that have been created over the years as the scope of European

integration and needs have required. These include the European Police Office, or Europol, to

facilitate police cooperation since the opening of borders between member states; the

European Central Bank, created in 1998 in conjunction with the creation of the single currency

and catapulted to greater visibility with the Eurozone crisis after 2008 and the European

Investment Bank, set up in 1958 to provide long-term finance for capital development

projects.

Common policies of European Union?

EU common policies: Beginning with trade and agriculture, the EU has moved progressively into

more and more areas of policy, ranging from fisheries and food safety to transport,

competition, social policy, regional development, monetary policy and common currency,

environment, justice and home affairs, external relations, and human rights. Three different

approaches have been used to advance common policies: mutual recognition of different

national standards, community directives establishing standards frameworks, and

harmonization of standards (the most difficult, since this requires agreeing on a new common

set of standards).

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 CHAPTER FOUR

THE DYNAMICS OF PUBLIC SECTOR INSTITUTIONAL REFORMS

Unit Introduction

In the previous units you were introduced to the evolution of public sector institutional

since the official launching of the project of development since 1950s. The previous

units, have given you a perspective as to the nature and evolution of institutional

reforms.

In this unit, the focus will be on specific reforms that are implemented in the second

and third wave of the reform and the specific details of the first wave reform are

omitted for the want of space. However, it must be pointed out that it is impossible to

make a clear cut distinction between the specific reforms carried out in this waves of

reforms as most of the issues involved in the reform are cross cutting and often same

set of reforms were introduced in different waves, albeit with a different focus.

However, no matter the wave a particular reform introduced and whatever the emphasis

laid in different waves, the reform of public sector institutions can be divided into four

main areas: Civil service reform, which is concerned with human resources in the public

sector such as capacity, wages and conditions; Reforming the machinery of government

which is concerned with the rules, institutions, and structure of the administration

necessary to carry out government policy; Reforming the public sector revenue and

expenditure management system; Measures specifically adopted to revitalize

governance institutions by way of redefining the context of state society relations. Of

these areas of reforms, the first three are aimed at transforming public administration

while the fourth one is broader in scope and amounts to a body politic reform. The first

three, which are largely influenced by the NPM movement, will be discussed in this

chapter and the last one (integrated governance reforms) discussed in the last

chapter. Accordingly, the unit is divided in to three broad sections. In the first section

discuss civil service reforms. The second section devoted to the reforms intended to

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transform of the machinery of government and the last section focus on public sector

revenue and expenditure management system.

Unit Objectives

Dear distance learner, by the end of this unit you should be able to:

 Define the civil service and explain experiences of Civil service reform in

Developing countries in general and Ethiopia in particular

 Elaborate on the objectives of decentralization reform and explain the

dimensions of decentralized management

 Evaluate the role of privatization in public sector reform and explain

the forms of privatization reforms has taken in the specific context of

developing countries

 Identify and explain reforms aimed at aimed improving public service

delivery and the specific forms they have taken

 Explain the context and the specifics of public sector financial management

reforms

Section One: Civil Service Reform

Meaning and Organizational Principle of the Civil Service

The Meaning of Civil Service

There is no standard definition of civil service or civil servant in the academic

literature. A comparative study of civil service systems asserts that;

 Civil service is differentiated from public service and indeed, in every case found in

the literature the civil service is defined as a subset of persons employed to provide

a public service. However, authors diverge when it comes to an exact definition of

the term.

The differences arise in two respects. One concerns the composition of that subset,

that is, the categories of public service employees that are considered civil servants.

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Thus, military personnel are generally excluded, but many categories of civilian

employment are also excluded, such as those in local government, state enterprises,

judges, teachers and health professionals.

In addition, most authors choose to exclude elected officials, and, though rarely

mentioned, police appear to be excluded along with the military.

A common approach is to apply the civil service concept to central administration

employees, including administrative personnel in the military and social services sectors.

Often, however, authors fail to specify which public service workers are included in

their discussion.

A second source of definitional variation arises when the term ―civil service is applied

not to a specified category of employees but rather to the institutional arrangement

under which they are employed.

In practice, public service can be carried out under a variety of contractual and

administrative arrangements, but many authors reserve the term ―civil service

for career employees working under an explicit ―civil service law.

Such laws differ not only from private labor legislation but also from a variety of

contractual arrangements used for particular public services. Under that institutional

definition, the principal subject of analysis is the functioning of the legally defined

civil service regime, paid out of tax revenues in the form of budgeted posts, rather

than the broader human resource management problem of the public sector since the

latter can include a variety of employment regimes with a variety of sources of finance.

In most cases public employment under a formal employment even within the more

strictly administrative category of general government function.

In examining the experience with civil service reform, it is important to first touch on

definitional issues with regards to the civil service.

There is an immediate challenge in identifying who is a member of the civil service. In addition,

there are at least three key organizational features of those employment regimes, namely

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their organizational principles, forms, and specific arrangements that help define the civil

service as an institution.

Organizational Principles of Civil Service

Scholars agree that civil services of developed and developing countries have been

organized following common principles that, taken together, have made the civil service

different from other employment arrangements.

Those principles are:

 Merit,

 Competence,

 Continuity,

 Political insulation, and

 Accountability, and They underlie the traditional or basic model of the civil service.

The logic of this model can be summarized as follows:

Merit-based system:

 Means seeking out the most talented citizens in a fair and open competition.

Civil servants are appointed by a public authority according to merit-based

criteria for selection as defined in a civil service law. Once appointed, civil

servants are granted job security with many legal and administrative

constraints on arbitrary dismissal.

Job security and political insulation

 Intended to promote political neutrality by civil servants in service to the

current government, to ensure continuity of program administration despite

partisan political agendas, and to protect employees from patronage and

arbitrary political actions. In particular, job security provisions protect civil

servants from political pressure that could lead to inappropriate personnel

dismissals and inappropriate behavior by civil servants.

Standardized rules and enforcement procedures-

 Merit, competence, continuity, and political insulation give considerable power to

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 civil servants. Since civil servants are not always committed to the public‘s

interest, there is a need to limit and constrain that power.

 Standardized rules and enforcement procedures, qualitatively and

quantitatively, define the function of office and circumscribe administrative

discretion to monitor and control civil servants, to uphold the legality and

propriety of administrative action, and to ensure accountability.

This basic model characterizes the nature of public service as different from private

employment. It defines office-holding as a matter of public law, and the office-

holder accountable to a set of formal rules that can be observed and regulated

rather than to the informal and unregulated rules governing patron-client relations in

traditional government employment.

The interpretation of job security‘ has evolved over the years. What was once equated

with absolute tenure is now more commonly considered to mean protection from

arbitrary dismissal. In this sense, job security‘ does not protect staff that are

incompetent or otherwise not meeting job requirements. But making such distinctions

has often proven to be difficult in weak institutional settings that do not have a merit-

based culture, which is common to many developing countries.

Civil Service Reform

Understanding and pursuing civil service reform begins with a broader vision of an effective

public sector. Schneider and Heredia see civil service reform as a sub-class of three major

models of public sector reform, each defined according to its main objectives and measures.

These are:

Weberian reforms,

accountability reforms,

Managerial Reforms.

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In their view, Weberian reforms were historically a first step towards better

administrative performance by governments. Such reforms sought to reduce

particularism and politicization in the bureaucracy and to counter the spoils system

administration.

The accountability reforms, designed to make the bureaucracy more accountable and

Managerial Reforms, which aimed to make the bureaucracy more efficient and

customer oriented.

Nunberg and Kaufman recognize the usefulness of this historical distinction, but see it

as more applicable to OECD experience, and point out that the more fundamental nature

of civil service problems in developing countries often has required a combination of the

three approaches.

Although these broader models of public administration have in turn lead to different

strategies of Civil service reform, there remains a significant degree of consensus

around the core values of a good‘ civil service as noted above: merit, competence,

continuity, political insulation, and accountability. The lack of agreement is much

greater, however, with regard to what the civil service should be doing differently to

achieve the broader objectives of public sector reform.

Components of Civil Service Reform

Civil service reform (CSR), which implies developing the capacity of the civil service to

fulfill its mandate, defined to include issues of recruitment and promotion, pay, number

of employees, performance appraisal and related matters.

In the 1980‘s CSR focused on the need to contain the costs of public sector employment

through retrenchment and restructuring, but has broadened towards focusing on the

longer-term goal of creating a government workforce of the right size and skills-mix,

and with the right motivation, professional ethos, client focus, and accountability.

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The overall cost of the civil service remains a valid concern, of course. Addressing the

causes of and reversing the increasing civil service wage bill experienced by many

countries in the 1970s and 1980s remains a primary concern. More recently, added to

these problems, a number of others have been better understood that relate more to

the quality of the civil service and their motivation, such as:

 Poor performance management, leading to inadequate incentives to perform well.

 Recruitment and promotion systems that poorly reflect the realities of the

country, are often overly concerned with formal education, and fail to attract or

promote qualified staff.

 Politicization of the civil service.

 Lack of a mission or the respect of the public.

The following are the main issues that are commonly considered in designing CSR

programmes.

Mission

The central feature of mission orientation is a mission statement. The elaboration of

the statement itself is part of the process, as is the dissemination and articulation of

the mission internally and externally. While by no means anything more than a first

step, having a mission orientation can help establish a clear sense of direction and

commitment within the organization, either for the organization as a whole and for

different departments and units by:

 Establishing a shared vision for public administration

 Helping managers clarify in their own minds what the business of the organization is

 Providing the focus for managers and other staff in meeting organizational goals

 Stimulating among the staff a sense of membership of the organization

 Providing a framework within which to determine targets and more precise

objectives

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  Providing a clear articulation for the public of the organization‘s reason for being.

Training

Under-qualified and insufficiently experienced personnel, sometimes promoted too

quickly to senior positions, is an universal problem in developing country civil services,

and training is a central feature of almost all PAR programmes. Interventions range

from specialist technical training to general educational and management skills. The big

issues in training are: a) the appropriateness of the training; b) selecting the candidates

for training; and c) retaining trained employees once they have been trained. While

there are a number of types of training that could be chosen, in-service training remains

the most common. For more junior personnel these could include training at a local

training college, or deployment, while for mid-level and senior personnel, specialized

training has proven helpful. Study trips abroad are generally popular, and can bring

benefits, but are expensive and can easily be abused.

All training provides a form of perk, and scrupulous transparency is required in the

selection of candidates. However, it is rarely cost effective to invest in training civil

servants unless there is a program to improve employment conditions. The fear that

newly trained civil servants will be wooed away to the private sector is often overblown

(since civil servants rarely choose to relinquish their benefits), but the danger of

moonlighting and low motivation increases. A national policy on training is important in

securing the sustainability of training programs. Finally, training is generally confined to

central government employees. With decentralization, including local officials within

national training programs is increasingly important.

Civil Service Systems

Career vs. Position

Merit based public employment systems can be broadly divided into career systems and

position-based systems. A career system is ‗closed‘ in the sense that entry is usually

to the lower ranks and more senior positions are filled from within the ranks. In
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position-based systems (also called job-in-rank systems), on the other hand, the

emphasis is placed on selecting the right candidate for the position to be filled. The

career system is most often associated with civil code traditions and the position-based

system with Anglo-Saxon traditions.

Choosing the appropriate system is the responsibility of the government and must

result from consultation and deliberation among the technical staff involved and

relevant policy makers. Because so many of the recent advances in thinking in public

administration have taken place within the Anglo-Saxon tradition, there is a tendency

to favor features of the position system. Each system has its merits and disadvantages.

Where the position-based system can bring new talent into the civil service where it is

needed, and tends to free managers to focus on results, a career system is better at

providing incentives for good performance and at ensuring that investments in training

remain within the civil service.

Almost all developed country systems are increasingly hybridising and adopting aspects

of both a position and a career system. Thus, countries with a civil code tradition can

find useful examples of a position structure in developments in the French model over

the last decades, for example, without having to rely simply on variations of the Anglo-

Saxon tradition.

Civil Service Management Arrangements

There are usually two main types of management arrangements for the personnel

function: the Anglo-Saxon type Public (or Civil) Service Commission (PSC) and its

executive office, and the Personnel Department or an Inter-ministerial committee with

an executive office under the Prime Minister or a Cabinet Minister in charge of the

Civil Service which is usually found in the countries under civil law. In addition to these

there is usually also a financial control organ in the Ministry of Finance, in charge of

payroll management and budgetary control.

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The second choice that needs to be made is between a centralized and decentralized

personnel management system. A centralized personnel management system retains

close supervision of the personnel management functions at central level. The

decentralized model increases the decision-making autonomy of the line managers on

most personnel management functions (such as recruitment, promotion, and training)

leaving the centre with the responsibility of defining broad policy guidelines, issuing

regulations, and monitoring the performance of the decentralized personnel

management units. In a number of countries however, appointments to the senior

executive positions are kept under direct control of the central agency.

Pay and Compensation

Modern bureaucracies are founded on the premise that individuals who work in them

serve the public good as opposed to catering to personal interests. This presupposes a

basic income that will allow public servants to carry out their duties without succumbing

to extraneous pressures. Pay reform aims at achieving improvements in fiscal balance,

efficiency and accountability. The fiscal objective often implies pay reductions, for

instance by reducing the wage bill. However, other objectives, including those of

efficiency, may imply pay increases in the attempts to increase real wages for lower-

level staff and relate pay to performance.

Poor pay and compensation regimes due, among other things, to overstaffing lead to low

motivation, corruption, loss of qualified staff, poor services in remote areas, and

undermine investments in training. There are four main issues with pay and

compensation, all of which derive in large part from efforts to contain the overall wage

bill while at the same time implementing reform programs:

 Wages are too low – public sector staff in developing countries often face pay

scales that at best are barely sufficient to live off; are not competitive with

the private sector; or do not compensate for postings to remote locations.

 Wages are compressed – wages of senior personnel do not reflect their skills,

training, and seniority. In Zambia, for example, permanent secretaries were

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 paid only 5 or 6 times the lowest employee wage.

 Non-monetary compensation and allowances play a major role in total

compensation – benefits such as housing allowances, official cars, pensions, and

other retirement benefits often form a large part of total compensation. In

some developing countries systems of monetary pay have collapsed and

alternative rewards systems taken over, but these create opaque and arbitrary

systems of compensation that make wage bills difficult to monitor, manage and

contain.

 Distortions created by varying donor practices on salary supplements.

Owing to this, pay and grading reform measures have been at the forefront of pay

and employment measures. Pay and grading reforms generally has five objectives:

 An increase in overall real pay levels;

 The decompression of pay scales to improve the competitiveness of civil

service pay at higher levels;

 A new grading system based on job evaluations;

 The introduction of performance-based pay; and

 The improvement of pay policy-making and administration

The World Bank and other agencies have tried to link the policy of wage decompression

to reduction of expenditure in order to encourage governments to pay living wages to a

smaller number of public employees who will remain in the service, as well as offer

attractive salaries to senior officials. Bangura (2000) has reported how this policy has

been pursued in a few African countries, including Ghana and Uganda. In these

countries, government has made a strong commitment to get out of the low wage-

corruption, low morale-low performance-trap that has bedeviled their public services.

Massive retrenchments have been carried out and compensation and redundancy

benefits have been offered.

There are reports that many countries, including the Gambia and Guinea, have made
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considerable progress in simplifying their grading structures. This, in turn, has acted as

a magnet to attract and motivate some top professionals including those with scarce

skills such as physicians and accountants. The reality in Africa, however, is that even in

countries that have made tremendous efforts to restore living wages in their public

services, there remains the problem of paying competitive wages that will retain or

attract the best staff. Despite reforms, salaries are still much too low in many

African public services to retain professional staff, which has contributed to the

―brain drain‖ that Africa has been experiencing since independence. Significant

increases in salaries to attract and retain well-skilled staff may affect resources for

other service delivery inputs. How to improve public sector pay and the quantity of

other inputs that are essential for efficient service delivery is a challenge that low-

income countries in Africa need to confront in their reform program.

Performance Management: Merit, Promotion and Tenure

A central part of merit-based systems is a framework of performance evaluation, and

rewards for good performers. In practice, almost all performance management systems

are costly to administer. Traditional appraisals have tended to be closed to the

employee in question, and feed-back is limited, with a negative effect on motivation.

More recent approaches have stressed focusing on results rather than personal traits,

on viewing appraisals as a developmental tool, and on participative appraisals. Open

performance appraisal systems relate individual performance to organizational goals,

test competence, and contribute towards a climate of open discussion within the public

service.

Performance Management is one of the various NPM-inspired measures to address some

of the accountability problems in the civil service. In pursuit of the goal of performance

improvement, performance management advocates for the ―empowerment‖ of managers,

i.e. vesting the public manager with the power and authority s/he needs to serve the

citizen, and strengthen the links between government and its diverse clientele in civil

society. Underlying the empowerment premise is the assumption that the power or
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authority that is ―delegated‖ to the average manager would not only be shared with the

subordinates, but would also be exercised for the public good (Hope, 2001). This is

assumed to increase efficiency, based on the notion that public sector managers are

hampered by rules and regulations, and have few incentives to take risks and to be

innovative and service-oriented.

Performance management is also expected to increase accountability because clear and

explicit managerial targets, combined with managerial autonomy and incentives to

perform, make it easier to establish the basis for managerial accountability and to

achieve outputs. Further, according to Therkildsen (2001), this in turn increases

political accountability by making it easier for managers to match targets with political

priorities. Politicians can, in turn, hold managers accountable for their performance, and

performance targets can make service provision more transparent to customers.

According to this line of reasoning, increased transparency and explicit performance

targets are further steps toward better democratic control and accountability of the

bureaucracy. It is a means of getting results from individuals, teams and the

organizations at large, and allows for the development of indicators against which

performance can be later measured. Performance management systems are currently in

place in Botswana, Ghana, South Africa and Uganda.

Performance contracts or agreements specify standards of performance or quantifiable

targets which a government requires public officials or the management of public

agencies or ministries to meet over a stated period of time. As part of the

performance orientation in government, the common purposes of performance

contracting are to clarify the objectives of service organizations and their relationship

with government, and to facilitate performance evaluation based on results instead of

conformity with bureaucratic rules and regulations. The setting of specific performance

targets, in a format that can be monitored, is intended to provide a basis for evaluating

performance and improving accountability in the public enterprise sector. This

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illustrates the shift in emphasis from the input and procedure-oriented controls of

the past to the new paradigm of output or results-oriented controls.

In line with the new institutionalist perspective in PSM reforms, as reflected in public

choice theories, and in the policy prescriptions based on them, performance contracting

between governments and public enterprises (PEs) is increasingly being applied as an

instrument for restructuring PEs and for managing the Government-PE interface.

Underlying performance contracting, and in line with NPM, is the belief that while

granting PE management operational autonomy, there is a need to hold it accountable

for performance.

In little more than a decade, Ghana has transformed the structure and strategy of its

rural water supply sector. By 2000, district assemblies and communities played a

significant role in planning supplies. The new policy and structure has attracted extra

funds, and accelerated the work. This reform process started with an extended

dialogue with the major stakeholders in the sector, out of which a new rural water and

sanitation policy was developed. The policy was then implemented in several large pilot

projects, supported by a number of external agencies, and finally the lessons from

those projects were incorporated into the national programme itself. The success of

this approach was due to the fact that national and international NGOs were contracted

to build the capacity of local-level NGOs and CSOs. The Community Water Supply

Agency (CWSA) was created as a facilitating agency rather than an implementer.

CWSA, as a semi-autonomous public-sector agency, signs an annual performance

contract with the State Enterprise Commission. It is committed to staying efficient

and lean, below 200 staff, and highly decentralized to its ten regional offices.

Whilst there have been some constraints on the capacity to implement performance

contracting in public enterprises in Africa, the World Bank has approved performance

contracts as one of the principal measures of reform for PEs, and the system has been

adopted in a number of African countries including Nigeria, Ghana and the Gambia.

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Politicization and Patronage

Civil service reform efforts around the world, to various extents, have all stressed the

need for increased de-politicization of the civil service, promoting the ideal of a neutral

and merit-based civil service. Evidence shows however that pure merit-based systems

are the exception and that political appointments are common in most civil services.

Those in favor of a patronage system argue that it allows for the establishment of a

cadre of loyal and efficient civil servants. It also enhances democracy, as it enables the

regular rotation of senior staff in accordance with the will of the people. Those in favor

of the merit system argue that it complies better with a rights- based approach to civil

service management (non-discrimination and equality of access to public office) and

that it allows for continuity and neutrality in the public administration.

A more realistic policy line takes into consideration the pros and cons of both the merit

system and the patronage system, in a given political and socio-economic context. In

general, patronage should be exceptional and restricted by means of efficient checks

and balances that limit the discretionary powers of politicians over recruitments and

promotions. Therefore, patronage in the civil service should be linked to merit

selections, embedded in a strong ethical framework and counterbalanced by an

effective system of checks and balances. The following elements ensure that this is

achieved:

 Identification and publication of the complete list of positions that are

considered political in nature.

 Clear procedures for recruitment and promotion, ensuring transparency in the

selection process and inclusion of formal checks and balances and appeals in

the case of arbitrary action.

 Restricted discretionary powers of politicians over selection processes (short-

listing of candidates should be the sole responsibility of a pluralistic selection

panel)

 A code of conduct that stresses the political neutrality and loyalty of the civil
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 servants (i.e. they commit to execute and support the policies of the

government in place).

 Constitutional and legal guarantees (Civil Service Act) stressing the right of

candidates for (non-political) public employment, not to be discriminated

against because of their sex, ethnic origin, political, economic, religious,

philosophical, cultural or social opinions or conditions.

Experiences with CSR Reform in Developing Countries

There are few studies that compare developing and transition country

implementation of CSA reform in recent years. Some reform initiatives in those

countries have tried to implement different elements of NPM with varying

degrees of failure and success.

Causes of Reform

Most authors agree that the factors that have driven reform in developing countries include

one or more of the following:

 Fiscal crisis and excess staffing,

 Dissatisfaction with government services,

 Declining confidence in government and citizens demands for changes in the government,

 Growing international competition,

 The presence of new reform ideas –

Most notably NPM revolutionary developments in Information technology, concern with

Patronage and corruption,

Low qualifications of personnel,

Low salaries and weak management systems.

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Studies of transition countries confirm the obvious pressure for reform created by the

collapse of authoritarian regimes starting in 1989. External pressures from donors, especially

in Africa, European Union, in the case of transition countries, should be added to the list of

causal agents.

In view of the diversity of factors and the many differences among countries in this

category, it is not surprising that there is no consensus by scholars on the relative

importance of each of these reasons across countries and regions. At the same time, it

is evident that many of the above-mentioned factors, whether once-over (like changes

of regime) or continuous (like information technology, international competition and

the growing power of public opinion), are exogenous sources of pressure for reform

agendas to which governments are responding with varying degrees of enthusiasm.

Objectives and Components

Some of these developing and transition countries have attempted to introduce various

elements of NPM over the last number of years, while others have pursued a mixed

strategy in which there are elements of the basic model (Weberian) and NPM. As noted

in section above, a number of writers have categorized three reform objectives:

affordability, improved performance, and accountability. And as country context has

become increasingly important for the design of reform, expectations and performance

measures, diagnosis, and the package of specific reform proposals all differ to quite a

degree as a result.

The introduction of NPM has been urged, in many cases, by international organizations.

There are some critics regarding the role of these organizations in influencing the

reform agenda of these countries. For some authors, like Ingraham, there has been

an imposition of ―western reform models as a condition of international aid.‖

Implementation and Results

Scholars agree that CSR reform efforts in developing and transition countries over the

last 20 years have been difficult to implement and sustain over time, and that those
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difficulties probably explain the high incidence of failure. But there are differing

explanations on the reasons behind these difficulties. Some reasons are related to the

political process behind CSR reform implementation. CSR reform implementation

threatens the status quo and alters the balance of power within society. It creates

winners and losers within and outside the civil service. As Schneider and Heredia point

out ―CSR appears to be the one [public sector reform] most difficult to implement and

institutionalize‖. The difficulty arises from the loss of power and influence politicians

face as they move from discretionary to merit-based management. But this difficulty is

increased by the technical and administrative complexities embedded in designing and

managing a merit based personnel system. In many developing countries, there is no

technical and managerial capacity within the civil service to manage that system and

there may not be other supporting organizational arrangements that make

implementation of CSR reform more feasible.

Other scholars argue that implementation difficulties and lack of sustainability of CSR

reform interventions in developing countries arise from CSR reform designs. Designs

that either use a single template to address highly heterogeneous institutional settings

or introduce recent OECD managerial models that may not be suitable. This opens the

question on how much of the OECD recent managerial reform experience could be

transferred and be suitable for developing countries.

There is considerable debate on the issue of transferability, and particularly on NPM

applicability and suitability, for developing countries. Some scholars caution against

directly transferring managerialist models to developing countries, pointing out the

risks of misdiagnosing the problem. In countries where patronage and informality still

dominate, managerialism may not be the most suitable solution.

Civil Service Reform in Ethiopia

Spanning over a decade, Ethiopia‘s transformation agenda has evolved over three phases

(1992, 1996-2000 and 2001 onwards) in response to a growing awareness that pervasive
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deficits in capacity have hampered the ability of the state to secure the fundamentals

of poverty reduction and democratic development including responsive service delivery,

citizen empowerment, and good governance (Ministry of Capacity Building, 2004).

However, the first reforms phase in the early days of EPRDF rule was politically

motivated by aiming to root out an entrenched but articulate section of the national

elite‘ that remained from the Dergue regime.

Following the consolidation of power, the Government also acknowledged the deep

institutional constraints on basic functions such as policymaking, service delivery, and

regulation. Core public management systems at the federal and regional levels were

hampered by outdated civil service legislation and working systems; the absence of a

medium term planning and budgeting framework; ineffective financial and personnel

management controls; inadequate civil service wages and inappropriate grading systems;

poor capacity for strategic and cabinet-level decision- making; and insufficient focus on

modern managerial approaches to service delivery.

In recognition of these constraints, the Government embarked on a comprehensive Civil

Service Reform Program (CSRP) in 1996, marking the second reform phase. Indicative

of Ethiopia‘s first generation capacity building efforts, the CSRP sought to build

a fair, transparent, efficient, effective, and ethical civil service primarily by creating

enabling legislation, developing operating systems, and training staff in five key areas:

(i) Expenditure Control and Management,

(ii) Human Resource Management,

(iii) Service Delivery,

(iv) Top Management Systems, and

(v) Ethics.

Successful efforts (for example, budgeting, planning, and accounting reforms) at the

federal level were intended to provide prototypes for regional authorities. The CSRP

was also influenced by the international New Public Management trend and reforms in

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New Zealand in particular.

The CSRP also faced some delays due to the Ethio-Eritrea border conflict 1998- 2000.

However, some achievements which may pave the way for full implementation of the

CSRP were witnessed. Among other things, the development of new legislation (for

example, a financial management proclamation, a civil service law, a code of ethics,

complaints-handling procedures, and a service delivery policy) as well as operating

systems for budgeting, procurement, and some aspects of personnel management such

as salary surveys and records management.

The most recent reform phase began in September 2001, with the launch of the Public

Sector Capacity Building Support Program (PSCAP), which also revived the CSRP. The

Government has moved quickly to prepare the CSRP for its ―full implementation‖

across all regions and levels of government. Pilot studies and special programs on

performance and service delivery improvements in selected Ministries, Agencies, and

Bureaus have been initiated.

These include;

the establishment of focal points responsible for reform implementation across

tiers of government;

a series of workshops undertaken to sensitize the political leadership and civil

servants across the country; and

the launch of a ―special program of Performance and Service Delivery

Improvement Policy (PSIP) in priority Ministries, Agencies, and Bureaus designed

to deepen the implementation of performance management.

PSIP, along with other reform programme areas, have promoted Business Process

Reengineering (BPR) as a key management initiative, particularly in those ministries that

interface directly with the private sector. However, recently the perception is that the

CSRP in general is losing momentum, and following an appraisal of PSCAP, the following

challenges remained including inefficiencies derived from poor financial management,

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poor incentives and a lack of strategic or performance orientation across all levels of

government. Therefore, in the light of the CSRP and other reform programs included

in the package of SAPs, the Ministry of Capacity Building reformulated the following

objectives for the CSRP in June 2003:

 To shake off basic weaknesses ingrained in the existing Civil Service inherited

from the past regime

 To build the capacity of the Civil Service so that it will execute the

policies and programs of the government successfully

 To facilitate the Civil Service to provide efficient and fair services to the

public

 To enhance transparency and accountability in the Civil Service

 To build a Civil Service that stands for gender and ethnic equality and rights

 To build a Civil Service that is ethically sound and free of corruption,

nepotism, and favoritism

Although these objectives enjoy broad support in the country, the challenge is whether

the government is capable of bringing about the envisaged changed in the system. There

are doubts about the environmental readiness, political commitment, and that the

required level of technical expertise is in place to institute the change.

Ethiopia‘s CSR is an ambitious programme that would tax the capabilities of any

developed or developing government. The strategy document of the reform is an

impressive blueprint for broad transformation. Whether the reform is too ambitious

depends on how implementation is sequenced. Institutional capacity, particularly in

relation to human resource development, remains a major obstacle to reform in

Ethiopia.

According to Gebriel (2002), of the 300,000- plus civil servants, less than 17% held a

college diploma and the majority of these were concentrated in major cities such as

Addis Ababa. The creation of an enabling environment for the reform is one of the
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demanding tasks of acquiring the resources to build the technical capabilities and to

develop human resources. As in the case of most African countries, a consortium of

donors, coordinated by the World Bank, have extended loans to finance the PSCAP,

which has the following objectives:

 To improve the scale, efficiency, and responsiveness of public service

delivery at the Federal, regional, and local level;

 Empower citizens to participate more effectively in shaping their own

development; and

 Promote good governance and accountability (Ministry of Capacity Building,

2004: 8).

Clearly, to attain these objectives requires changes in bureaucratic values. The current

lack of capacity presents a severe, fundamental governance challenge for Ethiopia‘.

However, reforms are sweeping through public administration in Ethiopia.

Section Two: Reform of the Machinery of Government

The machinery of government‘ refers to the allocation and reallocation of functions between

departments and includes changes in the internal structure of departments, the allocation of

functions within departments, and increasingly, the allocation of functions to bodies other

than ministerial departments, with the creation of executive agencies and privatization of

government bodies.

Structural reform of the machinery of government has its origins in the technical assistance

to the public administration offered in the early 1960s but has re-emerged in recent years as

a key element in institutional reform. Decentralization is, of course, the most commonly

referred to reform to the structure of government. In addition, new tools, notably those

based on Information Communication Technology, have opened up new possibilities for

coordinating the different branches of government better, and for forging a more direct link

between the citizen and government.

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Reform of the Machinery of Government

Decentralization

Dear learner you have a great deal of clue about decentralization since you grasped the

concept through other modules. However, in this Part the discussion will focus on

decentralization as a dynamic component of public sector reform in constructing the New

Public Administration (NPA).

In lieu of this, the section specifically focuses on the objectives of decentralization and

tries to show dimensions of decentralized management. Moreover, it tries to show how

decentralization is viewed in the context of the NPA.

One of the central elements in the changing role of the public sector and the construct

of the New Public Administration (NPA) is the concept of decentralization.

Decentralization refers to the transfer of authority or responsibility for decision-

making, planning, management, or resource allocation from the central government to its

field units, district administrative units, local government, regional or functional

authorities, semi-autonomous public authorities, parastatal organizations, private

entities and non-governmental private voluntary organizations.

Highly centralized forms of governance have been blamed for the generation of

administrative pathologies including communication overload, response times, filtering

and distortion of information, a failure to grasp spatial connections in sectoral

programming, and so on.

Moreover, centralized states tend to be unresponsive to local needs as well as the

needs of the disempowered in particular.

According to Borins 1994, Hope 2002, and Silverman 1992, within the context of the

NPA, decentralization is seen as the means for:

 Governments to provide high-quality services that citizens value;

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  Increasing managerial autonomy, particularly by reducing central

administrative controls;

 Demanding, measuring, and rewarding both organizational and individual

performance;

 Enabling managers to acquire human and technological resources to meet

performance targets;

 Creating a receptiveness to competition and an open-mindedness about

which public purposes should be performed by public servants as opposed to

the private sector;

 Empowering citizens through their enhanced participation in decision-

making and development planning and management;

 Improving economic and managerial efficiency or effectiveness;

 Enhancing better governance

Decentralizing management is a strand of NPM derived from managerialism which is

part of an effort to ―de bureaucratize‖ and ―delayer‖ the hierarchies within the public

service. The key concern is to give managers the freedom to manage their units in order

to achieve the most efficient output.

What are the dimensions of decentralized management? What is agentification?

There are five main dimensions to decentralized management. Such as:

1. Breaking up of monolithic bureaucracies into autonomous agencies

(agentification):

The first and key trend is that, traditionally, monolithic public bureaucracies are

downsizing, contracting out functions and breaking up into more autonomous business

units or agencies which are often called agentification.

Downsizing arises from the concern for the size and cost of public-sector employment,

which has not only contributed to the growing fiscal crisis and budget deficits, but also

depressed real wages and maintenance in capital budgets. Like in the private sector,

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governments around the world have responded by putting limits on the size and cost of

the public sector. Ghana and Uganda, for example, have experienced massive cuts in

the size of their civil services, in the case of the former by almost half, and the latter

by almost 40 per cent since 1987. The Zimbabwean civil service has also been cut by

about 12 per cent since the commencement of civil service reform in 1991.

2. Devolution of budgets and financial controls:

Agentification requires the devolution of budgets to give managers increased control

through which they are held responsible through performance targets. In principle,

these agencies have greater managerial flexibility in the allocation of human resources

(including the right to hire and fire) in return for greater accountability for results. In

Ghana and Uganda, the Customs and Excise, and Internal Revenue Departments were

hived off from the civil service to form separate agencies in the 1980s. The aim was to

separate executive functions from policy-making and free managers from civil service

rules and conditions as well as offering them better incentives linked to performance.

3. Development of quasi-markets:

The development of quasi-markets in public sector transactions is a key feature of

agentification. In quasi-markets, non-profit organizations compete with profit oriented

ones for public contracts, and require a separation of production and provisioning

functions of departments, i.e. the central policy units may be entrusted with the

provisioning and the executive agencies with production. The objective of this

dimension of decentralized management is to divorce the provision from the production

of public services.

4. Separation of provision and provisioning functions:

The separation of provision from production implies making a distinction (organizational

and financial) between defining the need for paying for public services and actually

producing those services. The decentralization of the decision-making process from

Uganda Wildlife Authority headquarters to the field empowered the previously

disenfranchised field-based staff and allowed some autonomy for each protected area

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in terms of the development of management plans, the disbursement of funds against

annual operating plan and the evaluation of the revenue generating potential of each

Protected Area. Adaptive management provides an effective means for mitigating

risks. Project experience, as well as various Quality Assurance Group reviews, showed

that many correct — if unpopular or risky — decisions could be implemented

effectively if there is strong management support for them.

5. Adoption of new forms of corporate governance:

The final dimension of management decentralization is the adoption of new forms of

corporate governance and the board of director‘s model, which aims to reduce the

power of elected representatives and minimize the influence of labour unions on

management.

Decentralization is therefore crucial to the institutional reforms of Africa‘s public

sectors and represents a major element in the reconstruction of the public sector and

the construct of the NPM. Indeed, decentralization falls neatly into the neo-liberal

logic of divesting the central state of many of its responsibilities and encouraging the

growth of market forces. Decentralization also constitutes a central pillar of the

demands for restructuring the African State along more distributional lines. It has

been used especially in countries that have been troubled by ethnic conflicts – such as

Ethiopia, Mali, Nigeria, Senegal and Uganda. Since decentralization is seen as a basic

problem of management or public administration, donors have been less inhibited in

intervening in this area than in democratization or other governance reforms that are

perceived to be much more political.

Closely related to decentralized management is the concept of ‗subsidiarity’.

Subsidiarity is the principle of devolving political decisions to the lowest practical level.

It is a principle of management based on sharing authority, responsibility and provisions

for more efficiency in the production and management of resources and services.

Subsidiarity differs from ―devolution or delegation‖, in that the power originally

rests with the smaller, lower and more regional entities, and is delegated ―upwards‖

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at the discretion of the latter, and not at the discretion of the central authority. It

implies a kind of reverse delegation, namely a delegation of power from the outside to

the centre.

Benin‘s national agricultural research was re-organized so that decisions would be made

at the regional level. Since 1997, the regional program‘s priority setting for

development-oriented agricultural research uses a bottom-up approach (i.e. from the

local level to the regional, national and sub-regional (West Africa). The subsidiarity

process is based on different interfaces (local committees, two regional committees,

and a national committee) and it facilitates dialogue between research, various users

and clients. In order for subsidiarity to succeed the interfaces must be effective and

sustainable. Using this bottom-up approach, Benin‘s agricultural research has made

progress in research management, scientific cooperation, fundraising and research

implementation.

Privatization

Privatization, or the transfer of State assets to the private sector, is a central component of

downsizing. It refers to the transfer of control and responsibilities for government functions

and services to the private sector – private voluntary organizations or private enterprises.

Privatization in Africa has taken several forms. It has included:

 Commercializing of government services which are contracted out to an outside agency;

 Joint ventures between government agencies/ministries and private entities;

 Sale of some government services or functions, such as water supply or

telecommunications, to the private sector;

 Management contracts for the private sector to manage specific government

functions or services such as postal services;

 leasing of government assets that are used to provide public services;

 Granting of concessions to private entities to operate and finance public

services delivery in part.

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Privatization, it is argued, can contribute to fiscal stability in a number of ways. Gains

can be made on the expenditure side by withdrawing subsidies to loss-making companies

and imposing hard budget constraints on the economic decisions of managers. Also, the

revenue derived from selling state enterprises to the public can help governments close

their fiscal gaps.

Commercialization

Despite the growing interest in privatization, it is clear that Public Enterprises will

continue to feature prominently in the organizational landscapes of developing

countries. It is therefore important to be able to improve their performance.

Commercialization is a technique of managing public enterprises (PEs) or state owned

enterprises (SOEs) to make them profitable.

In many public enterprises, performance problems arise primarily from insufficient

autonomy and authority for managers at the level of the firm, particularly in relation to

pricing, procurement, staffing, performance management, and marketing; and from the

State‘s unwillingness to create owners who can protect the capital employed. By using

the market- based solution, PEs becomes more like private enterprises by placing a

stronger emphasis on profitability as the major criterion of performance. They are

empowered with greater managerial flexibility in resources management, better pay and

greater accountability for results.

Market-based approaches to enterprise reform might entail some combination of the

following measures to shift power away from State bureaus to the portfolio

management agencies, banks, and boards of directors:

• Transforming the enterprise into a profit-maximizing commercial entity and

having this policy communicated unequivocally by the owners;

• Imposing strict budgetary constraints;

• Terminating government subsidies to the enterprise;

• Appraising and rewarding the performance of individuals and groups in relation

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 to their achievement of organizational goals; and

• Assigning enterprise management the power to hire and fire workers and

evaluate their performance, set product prices, and decide on product lines and

output.

Contracting Out

Contracting out refers to the out-sourcing or buying in of goods and services from

external sources instead of providing such services in-house. It is a method of

privatization that is increasing in popularity due to the emphasis on efficiency and

service delivery. Contracting may be between a public organization and a private-sector

firm or between one public organization and another.

The responsibility of the public organization is to specify what is wanted and let the

private or voluntary sector provide it. Contracting out, it is assumed, leads to cost

savings from inefficient public bureaucracies that are more intent on satisfying the

wishes of producer groups than of consumers. Moreover, private contractors can be

penalized for poor quality, delays and lack of reliability.

In Africa, there have been considerable efforts, in recent years, to extend the scope

of its application to a wider range of public organizations and activities than before.

Hope (2002) reports how in Botswana, parastatals have contracted out a number of

services, including those related to maintenance and security. Similarly, in Zimbabwe,

non-clinical health services such as cleaning, laundry, catering, security, maintenance

and billing are contracted out, while clinical services are contracted out on a limited

scale.

Public Service Delivery Reforms

Total Quality Management (TQM)

Total Quality Management (TQM) is a management technique that emphasizes high-

quality service (Performance-Oriented Civil Service) and customer satisfaction

(Customer-Driven Government). TQM entails the constant improvement of product

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or service quality and reliability, combined with shorter and more reliable response

times through the production and sales chain or service-provision process. It also

involves increasing flexibility of response to customer requirements and a constant

concern about efficiency through waste elimination, the removal of duplication of

effort, and curtailing overlaps of roles and responsibilities. The Key issues in TQM

are:

Performance-Oriented Civil Service

One solution that has been proffered for the problems of inadequate resources and

the increasing demand for effective services, low levels of public trust, and increasing

demand for accountability in government, is termed performance oriented civil service.

Performance-based management requires that managers develop a reasonable level of

agreement on program goals and strategies for achieving these goals. Managers should

develop performance measurement systems to document performance and support

decision-making. This performance information is then used for managing the

organizations and program and also for providing feedback to key stakeholders on

improved performance.

The key components of performance-based management are:

• Developing a reasonable level of agreement on mission, goals and

strategies for achieving the goals;

• Implementing performance measurement systems of sufficient quality to

document performance and support decision-making; and

• Using performance information as a basis for decision- making at various

organizational levels

Customer-Driven Government

In applying TQM, the organization should focus on what the population (customers)

want, not what administration thinks they need. To improve efficiency, productivity and

integrity in the public service, efforts should be primarily focused on creating a culture
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of commitment to identifying and meeting customer requirements throughout

organizations and within available resources. It follows that serving the customer is

more important than serving the organization.

This strategy has been the main focus of reforms in Malaysia, Namibia, Singapore and

the United Kingdom. The Malaysian Government has emphasized throughout the public

service that the customer is paramount. The Citizens Charter (United Kingdom)

provides specific targets such as hospital waiting times and train delays. Customer-

driven government became formal policy in the USA in 1993 through the National

Performance Review (NPR) report. The Clinton Administration used the NPR report to

set a goal of ―providing customer services equal to the best in business‖. Mauritius also

designed Citizens Charter as an aid to increasing popular awareness of corruption. The

main objective was to devise and disseminate a document with guidelines that individuals

can follow to prevent corruption and promote integrity. The Charter also attempts to

inform and advise the general public on the nature and forms of corruption. Central to

the premise of the Charter is the imperative of making the general populace aware of

its collective and individual responsibility to fight corruption.

Quality and Standards

Public sector management reforms would be incomplete without addressing the issue of

the quality of products delivered to the consumers. The private sector, as the engine of

growth, cannot provide satisfactory services and products without the active

participation of a public sector that controls quality and standards. An example of a

standards authority in Africa is the Quality and Standards Authority of Ethiopia

(QSAE). QSAE was established in 1970 to promote quality management practices as

one of its central objectives. In addition to standards development, certification,

metrology and testing, the vision of the organization is to be an internationally

recognized quality, standards, metrology and testing organization that supports the

national effort towards economic development and social progress. The Authority has a

quality policy, which is committed to continuously satisfying the needs and expectations
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of its customers in a process of continuous improvement.

Business Process Reengineering

Business process reengineering (BPR) began as a private sector technique to help

organizations fundamentally rethink how they do their work in order to dramatically

improve customer service, cut operational costs, and become world-class competitors. A

key stimulus for reengineering has been the continuing development and deployment of

sophisticated information systems and networks. The Business Process Reengineering

method (BPR) is the fundamental reconsideration and radical redesign of organizational

processes in order to achieve drastic improvement of current performance in cost,

services and speed. Their claim was simple: most of the work being done does not add

any value for customers, and this work should be removed, not accelerated through

automation. Instead, companies should reconsider their processes in order to maximize

customer value, while minimizing the consumption of resources required for delivering

their product or service.

Davenport (1992) prescribes a five-step approach to the Business Process Reengineering

model:

1. Develop the business vision and process objectives: The BPR method is

driven by a business vision which implies specific business objectives such as

cost reduction, time reduction, output quality improvement.

2. Identify the business processes to be redesigned: most firms use the 'high

impact' approach that focuses on the most important processes or those that

conflict most with the business vision. A lesser number of firms use the

'exhaustive approach' that attempts to identify all the processes within an

organization and then prioritize them in order of redesign urgency.

3. Understand and measure the existing processes: to avoid the repeating of

old mistakes and to provide a baseline for future improvements.

4. Identify IT levers: awareness of IT capabilities can and should influence BPR.

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 5. Design and build a prototype of the new process: the actual design should

not be viewed as the end of the BPR process. Rather, it should be viewed as a

prototype, with successive iterations. The metaphor of prototype aligns the

Business Process Reengineering approach with quick delivery of results, and

the involvement and satisfaction of customers.

What exactly is BPR in Ethiopia? What concrete procedures are taken to

restructure the public sector?

As soon as the current government came to power, it started rigorous reforms (first

phase reforms from 1991 to 1995) in three fronts: Economic reform – from central

planning to market economy; Political reform – federalism, and power and fiscal

decentralization; Constitutional reform – enacting the Ethiopian constitution. The

question was whether Ethiopia has a bureaucracy that is capable of doing these reforms

or not. The government employed private domestic and foreign consultants to study the

implementing capacity and effectiveness of the bureaucracy. The consultants identified

that Ethiopian bureaucracy is characterized by: very hierarchical with many non-value

adding works/positions/staffs; nepotism and lack of transparency and accountability,

and corruption; lack of leadership capacity; and input based and not output based – i.e.

output not measured.

It was difficult to undertake reform with this bureaucracy. The consultants

recommended the establishment of new institutions. The ―Ministry of Capacity

Building‖ with the mandate of undertaking reforms in all public institutions (esp.

education and the civil service) was established. Also ―Anti-corruption Commission‖

with the mandate of avoiding unaccountable and un-transparent procedures in public

institutions was established.

Over time it was believed that an important condition to undertake the reforms was to

implement BPR. It was identified that to solve the problems of hierarchical bureaucracy

with many non-value adding works/staffs/positions, nepotism, etc; BPR is seriously

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implemented in all public institutions gradually. The reason why the Ethiopian

government adopted BPR is that the current system has to be completely changed and

redesigned and BPR can do this job.

Services delivered by the public institutions are characterized by long time taking,

costly (high transaction cost), incompetence (not up to the needs of customers), not

responsive, (many complaints, questions, comments etc from customers but no

response), not dynamic (the world is changing but our public institutions are stagnant).

People have choices when they buy products from private firms. However, government

services are one (no choice). At the same time people have the right to get appropriate

and satisfactory services from public institutions. As a result of the implementation of

BPR, painful practices in each public office were identified, and many non-value adding

works/positions are avoided. For example, it was found that deputy head departments

were actually doing nothing.

So far BPR is implemented in public offices and publicly owned big institutions such

as ―the Ethiopian Telecommunication Corporation‖, ―The Ethiopian Power

Corporation‖ and government banks. However, private firms have not adopted it yet in

Ethiopia. The experiences of the Ministry of Trade and Industry (MOTI), the Ethiopian

Investment Commission, and the Ethiopian Customs Authority are instructive examples

of how institutions can be transformed to be more responsive, efficient and effective.

These three public institutions were taken as good examples in the IMF Country Report

No. 06/27 for Ethiopia (2006). By way of highlighting the major achievements of the

implementation of the Civil Service Reform Program, the following are worth noting:

a) The Ethiopian Investment Commission: It used to take 18 steps and 25 days on

average for an individual business person to secure an investment license, whereas

now after the conduct of Business Process Reengineering (BPR) by the Commission it

only takes an individual 4 steps and 2 days to get his/her investment license. The

same service used to take 39 steps and 108 days for a company whereas now (after
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 BPR) it only takes 4 steps and 2 days. Securing main registration certificates used

to take 18 steps and 28 days for an individual businessperson before the BPR

whereas now it only takes 4 steps and 2 days. The same service used to take 39

steps and 96 days for a company, whereas now it takes the steps and time as the

individual business to secure registration certificates.

b) The Ministry of Trade and Industry (MOTI): It used to take 14 working steps

(processes) and two and a half days to secure a trade license for an individual

business person whereas now (after the Ministry conducted BPR), it now only takes

a business person 6 work steps and 34 minutes to get a trade license. This same

service used to take a company 26 working steps and 35 days. After the conduct of

the BPR, it only takes the same work steps and time as an individual business (6 work

steps and 34 minutes, respectively).

c) The Ethiopian Custom Authority: Securing loading permits from Djibouti used to

take 43 work steps (processes) and 2 days whereas after the Authority has been re-

organized and undertook BPR, it only takes 6 steps 15 minutes to get the service.

Checking and fixing a container with a customer seal used to take 8 steps and two

days before the BPR, whereas now it only takes 3 steps and 40 minutes to get the

same service. Declaration acceptance, approval, examination, release of exported

items and distribution of declaration used to take 8 steps and 2 to 15 days, whereas

now it only takes three steps and 26 minutes to get same service for a business

entity.

Building on some of the Progress made in the aforementioned organizations, the

government is aggressively implementing BPR in all public sector organizations

throughout the country since 2008. While the reform is very much in vogue, it remains

to be seen how much progress is achieved.

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 3.6.1. E-government Reforms

Information technology (IT) has been included as one of the key strategies for public service

reforms. It is now seen as an essential facilitator of service improvement particularly when

governments worldwide are facing an increasing trend towards knowledge-based production

and the communications revolution. Expenditures by governments on computers and

management information systems have risen rapidly in many countries and now represent major

items in their budgets.

The creation of new information and communication systems are seen as an essential

component in the creation of accountability. When a decision is taken, information about

that decision and its outcomes must flow to all those to whom the decision maker is

accountable and without such an information flow, and without the information system

to carry that flow, there can be no accountability because there can be no knowledge of

the decision. Whilst pursuing democratic/political processes, in managing resources,

executing functions, measuring performance and in service delivery, information is

the basic ingredient. Therefore, there is great potential for these trends of

information-age reform to bring significant benefits to Africa because government has

been, and still remains, the single largest collector, user, holder and producer of

information. Information is a central resource for all staff levels and for all activities.

The work of government is thus very information-intensive and four main types of

formal information are identifiable:

1. Information to support internal management: This includes information about

staff for personnel management, and information about budgets and accounts for

financial management. Like the other three types of information, it can be used

for everything from day-to-day operational implementation to long-term policy

analysis and planning.

2. Information to support public administration and regulation: This includes

information that records the details of the main entities‘: people, business

enterprises, buildings, land plots, imports/exports, etc. It is used for a variety of

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 purposes such as legal, judicial and fiscal.

3. Information to support public services: Examples include education (e.g.school

staff records), health (e.g. patient records), transport (e.g. passenger

reservation information) and public utilities (e.g. customer billing information).

4. Information made publicly available: Examples include press releases, consultation

papers, details of policies, laws and regulations, and details of benefits and

entitlements.

Given this information-intensity, changes in information systems must be an essential

part of all reform initiatives in Africa, and changes in information technology will have a

great potential in efficiency and effectiveness gains in the public sector. In theory,

everything that IT can do could be done by some other means. However, in practice, its

ability to increase the speed and/or reduce the cost of information tasks means it can

do things that would not otherwise be contemplated.

E-Government, whether seen as a component of NPM or an extension of NPM, should be

seen to encompass all ICTs in all activities of the public sector.

The key innovation is computer networks and the three domains are

 e-Administration,

 e-Citizens, Services, and

 e-Society.

There are a growing number of e-government projects in Africa, some of which are

contributing to public sector reform and delivering efficiency gains in service delivery.

E-Citizens and Services, for example, deal particularly with the relationship between

government and citizens: either as voters/stakeholders from whom the African public

sector should derive its legitimacy, or as customers who consume public services.

The key aims in this domain include providing citizens with details of public sector

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activities; increasing the input of citizens into public sector decisions and actions; and

improving the services delivered to members of the public along dimensions such as

quality, convenience and cost.

For example, following difficulties in the 1994 elections, South Africa‘s independent

Electoral Commission was charged with making sure that the country‘s second

democratic elections in 1999 were free and fair. This election was vitally important

for the stability of the South African political climate and for ensuring that

democratic processes were solidly in place.

Through large-scale implementation of unique information technology application,

information, education and communication (IEC) was able to ensure that all South

African citizens could have their voices heard. The effort included the creation of a

nationwide satellite-based wide- area network and infrastructure; a bar-code system

used to register 18.4 million voters in just nine days; a geographic information system

used to create voting districts; a national common voters‘ role; a sophisticated election

results centre for managing the process; and the training of 300,000 people. The

massive program was completed in less than two years, in time for the vote. For this,

the IEC received the 2000 Computer World Smithsonian Award for most outstanding

program in government and non-profit organizations category.

However, it must be noted that, in general terms, the diffusion of e-Government in

Africa has been slow. It is a fact that African governments have fewer e-government

initiatives than industrialized countries; make less use of ICTs in their work than

industrialized countries; and use older generations of technology than industrialized

countries. A major explanation is financial. However, there are also strategic challenges

such as undeveloped telecommunication systems, networks, and ineffective legal, human

and institutional infrastructures that pose limitations on the ―e-readiness‖ of many

African countries.

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 Cost Recovery: User Fees and Charges

One of the major developments in the provision of public services has been the

introduction of user fees or charges. Charges to consumers for public utilities

represent an attempt to diversify financing for public services and reshape public

spending. These policies have assumed increasing importance in developing countries,

especially in Africa, in the 1980s, as governments faced slower economic growth and

rising deficits that made public expenditure levels unsustainable. User fees have been

introduced at different levels of education in Ghana, Kenya, Malawi and Uganda, and in

other countries implementing SAPs.

In comparison to other developing regions, user fee reforms have been most extensive

in sub- Saharan Africa. This is because the gap between resources and needs, and the

influence of international donors, has perhaps been greatest in Africa. The key

rationale of the introduction of user fees in Africa, therefore, has been to raise

additional revenue in the face of increasing demand for services. User fees also serve

to increase market discipline by preventing the over- use of services by consumers

apart from improving quality and fostering responsiveness to the needs of consumers.

The objective of introducing user fees is cost sharing. Implementing such a policy is

supposed to help the poor because it mobilizes more resources from better-off groups

that could then be used to provide services for poorer groups. In Guinea-Bissau, for

example, user fees in health care have consistently contributed between 30 and 45 per

cent of the operating costs of health services. However, user fees are not without

their problems. Good administrative and management systems are needed to

complement such a policy. There has been some evidence that the introduction of user

fees has made access to social services more difficult for the poor, especially in the

initial years of the scheme. Therefore, exemption systems and safety nets need to be

designed so that user fees fall mainly on services consumed by the non-poor. Such

systems include ensuring that information about incomes (on which to base exemption

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decisions) is collected in an effective manner, especially for large numbers of people in

the informal sector.

Public Reporting

Public Reporting on the financial performance of government agencies is an element of

good governance and financial accountability. It involves providing information on the

financial and managerial performance of public departments that enables the public to

monitor and assess performance of government activities. The aim is to encourage

dialogue so as to lead to improved service delivery.

The International Monetary Fund (IMF) and other international bodies have developed

a number of codes and standards that set out ―good practices‖ in the areas of policy

transparency, data dissemination and financial regulation and supervision. In relation to

public reporting, the IMF has identified the following codes and standards:

• The public availability of information – the public should be provided with full

information on the past, current and projected fiscal activity of government;

• Open budget preparation, execution and reporting – budget documentation

should specify fiscal policy objectives, the macroeconomics framework, the policy

basis for the budget, and identifiable major fiscal risks;

• Budget data should be classified and presented in a way that facilitates policy

analysis and promotes accountability;

• Procedures for the execution and monitoring of approved expenditures

should be clearly specified; and

• Fiscal reporting should be timely, comprehensive and reliable, and should

identify deviations from the budget.

The Office of the Auditor-General also provides a critical link in the chain of public

accountability, a role that is both unique and vital to the democratic process of

responsible government. The Auditor-General‘s role is to assist the legislature in

overseeing the management of public money, by providing independent assessments of,

and advice about, government accountability and performance. Reports should provide
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assessments and also highlight issues requiring the attention of the legislature or

government, and should also contain recommendations that could assist government

organizations to improve their management and performance.

Citizens Charter

A key feature of the NPM is the concept of perceiving the citizen as a ―customer‖ of

public services. In the context of public sector reform, efforts to make public service

agencies more accountable to the public have included the adoption of Citizens Charters.

Citizens should be consulted about the level and quality of public services and, whenever

possible, be given the choice of services. Citizens should also be informed about the level and

quality of services they will receive, and they should have equal access to the services to

which they are entitled. Moreover, they should be informed about how national departments

and provincial administration are run, how much they cost and who is in charge.

In 1991, the British government launched the Citizens Charter. It was designed to raise

the standard of public services and make them more responsive to their users and to

encourage public servants to think about what they do in relation to how it affects

their customers. The Charter spells out a number of key principles that every citizen is

entitled to expect, including:

• The setting and publication of explicit standards for services and the

publication of actual performance against these standards;

• Information and openness about the provision of services; and

• The efficient and economical delivery of services within the resources the

nation can afford.

In this regard, the Charter for the Public Service in Africa was adopted at the third

Pan African Conference of Ministers responsible for the Civil Service, in Windhoek,

Namibia, in 2001. The Charter highlights the need to adapt the different public

services in Africa to the new requirements of public service, to be able to anticipate or

accompany the profound changes that African countries are experiencing. It also takes
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into account the prevailing socio-economic conditions, including globalization, and the

need to create an enabling environment for private sector growth. The Charter also

defines a framework to guide the public services in Africa in taking such legislative,

regulatory, technical and practical measures as may be required to create the conditions

for the proper functioning of the public service and improve the quality of its services.

Fundamental Principles of the African Public Service Charter;

(i) Principle of Equality of Treatment: All public services shall recognize the

equality of citizens before the law and will not be discriminated against based on

the place of origin, race, gender, religion, ethnic group, philosophical or political

convictions or other personal considerations.

(ii) Principle of Neutrality: The public service that serves the interest of the

public shall not discriminate against its employees because of their personal

traits. The public service shall remain neutral in respect to the government of

the day and this fundamental principle will be respected by all administrations.

(iii) Principle of Legality: Public service shall be provided in strict compliance

with the law.

(iv) Principle of Continuity: Public service shall be provided on an ongoing basis and

in all its component parts, in accordance with the rules governing its operation.

Failure to comply with the principle of continuity may incur the liability of the

administration in respect of any person who might have suffered harm on account

of such failure.

Citizens Charters exist in both South Africa and Zimbabwe. In Tanzania there are plans

for Ministries to publish ―social pacts‖ setting out the standard of services that

the public can expect. Launched in 1997, the Batho Pele-People First initiative in

South Africa is based on a set of national principles for public service. Ghana and

Uganda have also shown good practices in customer-oriented public service. In Ghana,

the public service reform program is a sub- component of the country‘s National

Institutional Renewal Program and, amongst other areas, focuses on the development of
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customer- service orientation, promotion of cost and time consciousness in the civil

service, and improvement of records and information management systems. The public

service reform program in Uganda has focused mainly on the transformation of public

service organizations with customer-oriented service delivery units. Substantial powers

and resources have been delegated to lower-level service delivery agents and also

capacity-building programs have been implemented that aim to introduce client-oriented

attitudes in the public service.

Civil Society Organizations

The role of Civil Society Organizations (CSOs) and NGOs in the delivery of services to

the public is on the increase worldwide. In July 1999, African countries at the

Assembly of Heads of State and Government of the Organization of African Unity

(OAU) adopted Resolution 1286 affirming the value of popular participation in

Africa‘s socio-economic recovery and transformation. CSOs, including NGOs,

professional organizations and women‘s groups, make a case for greater cooperation

between their activities and those of government and advocates for mutual acceptance

of legitimacy and strengths and weaknesses. NGOs and CSOs worldwide have been

known to be able to reach poor communities with social services, including health and

education.

While it is appreciated that governments must value the energy and creativity that

CSOs and NGOs bring to the development arena, NGOs and CSOs on the other hand,

need to be transparent in their objectives to reduce government concerns about any

subversive activities. Therefore, constant dialogue between government and these

organizations will reduce the mutual suspicion of each other‘s motives. It is also

suggested that joint policies should be developed to define sectors of society, the

economy, and the environment in which civil society activity, either independently or in

cooperation with government, are encouraged. Paying more attention to CSOs may

provide an avenue for addressing, in particular, the social integration challenges of

sustainable development and the problems associated with the development of social
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capital. There is no doubt that the cooperation between government and civil society

would promote and implement people centered and sustainable public service delivery

reforms.

Section Three: Public Financial Management Reform

Section Overview

Public financial management concerns the taxing and spending of government, which in

turn influences resource allocation and income distribution. The spending portion

covers the budget cycle, including budget preparation, internal controls, accounting,

internal and external audit, procurement, and monitoring and reporting arrangements.

The revenue part concerns with taxation and income derived from different

sources. This section introduces you with some of the issues involved in public

financial reform in developing countries.

Public Financial Management Reform

Financial Management Reform in Developing Countries

Starting in the 1950s, the financial management advice most sought by developing countries

was how to raise more revenue to finance the capital investments governments were seeking to

make. Much of the discussion focused on how to raise investment needed to achieve a target

growth rate building on the dominant thinking of the time of state-led development. On the

expenditure side, a host of challenges gained attention largely following the oil price shocks,

where fiscal deficits of developing countries increased from 3.5 percent to 6.3 percent of GNP

during 1972-85. These challenges included weak public expenditure and resource planning (e.g.

weak priorities and linkage with macroeconomic framework), inconsistent budget structures

(e.g. inconsistencies and weak links between capital and recurrent budgets), budget

implementation (e.g. weak cash management) and accounting and reporting (e.g. absence of

commitment accounting), and selective reforms to improve performance and allocation.

Toward the end of the 80s, there was a belief that centralized financial controls

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introduced during the crisis needed to be replaced in many cases with decentralized

controls at the spending unit level, with greater integration of policy and financial

considerations. This also linked with greater citizen demand for improved service

delivery and greater accountability for results through contractual and other

mechanisms. Countries also sought to reduce high, progressive income taxes, import

duties and export taxes and replace them, for example, with a value added tax (VAT)

that would help facilitate market directed allocation of resources, while being broadly

politically acceptable, and administratively feasible

These demands from the developing world were a response in part to the recent

thinking in OECD countries on how to adapt new tools to carry out deliberate

changes in the structure and processes of the public sector to get them to run

better. Development agencies also changed their views over this period, increasingly

realizing that deficient PFM systems can undermine their development assistance.

They realized that even though aid projects may have good financial controls, they

could result in government resources being freed up to fund other things; if PFM

systems were deficient, the development results from these resources were likely to

be less than desired. Donors became increasingly aware that the distinction between

development and recurrent spending was less important than once thought: teachers‘

salaries were just as important as school construction for achieving education. They

realized that project-centered aid could not succeed with poor macroeconomic and

fiscal policies, and that economic development required not only physical investment,

but also good public sector management. There was increasing awareness that PFM

outcomes depend on the nature of budgetary institutions, and that sound PFM

requires not only a strong budgetary authority, but also capable a legislature, in some

cases supported by civil society budget groups. There is some evidence of recent

increasing work by multilateral donors in these areas. At the same time, there is

evidence that countries with rules that establish limits on deficits, that prevent sub-

national and decentralized agencies to incur in debt financing, that have medium term
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fiscal frameworks and reserve funds in place, and by more hierarchical procedures,

that establish restrictions on the legislature and on the bargaining power of ministers

and provides the executive with discretion to cash manage expenditures, tend to

present lower primary general government deficits.

The next section will sketch out three broad debates carried out over the last two

decades relevant to these changes: first, the degree to which developed country

public management tools are transferable to developing countries; second, the role of

governance assessment in the transfer process; and third, the search for analytical

frameworks for public financial management. A final section will sketch out ongoing

debates on some of the specific reforms underway.

Transferability of Ideas

There is a consensus in the literature that important differences between developing

and developed countries require that public financial management tools be used

selectively, and adapted to local conditions. Some of the key differences in context

between developed and developing countries are: First, the pace and nature of

reforms in developed countries are designed and carried out by the respective

governments, and with the democratic support of their electorates. By contrast,

reforms in developing countries are often designed by international agencies, and not

fully understood or supported by citizens. In some cases, these reforms may be

carried out by bureaucratic and political elites with the intent of preserving their

existing interests, although the eventual outcome could be different. Secondly,

common reform packages designed to address fiscal crises in developed countries are

being transferred to a highly diverse set of countries, including transition economies,

weak capacity and post- conflict states, post-authoritarian democracies, and

Confucian meritocracies. Many of these developing countries have much deeper fiscal

crises and sharper declines in public service than developed countries, yet programs

often used OECD country designs as models. Where programs vary, the reason is

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often more failure to meet negotiated conditions, rather than differences in design.

Thirdly, implementation of reforms in developing countries is uneven, with stroke-of-

the-pen reforms often moving quickly, while necessary structural changes move slowly

or not at all. In addition, chronic institutional weaknesses in many developing

countries hinder reform effectiveness. For example, rivalries between planning and

finance ministries lead to conflicts over fiscal goals, poor communication, and

decisions on personal appointments and projects, overlooking technical merit in favor

of personal and political considerations. There are also considerable differences

among developing countries, even within the same region. In countries with weak

capacity, centralized management models provide the best starting point, since

decentralized models typically rely on complex financial reporting systems.

Another difference concerns election year increases in fiscal deficits. Although

these occur in both developed and developing countries, they are larger in developing

countries because potential rents are larger, and the proportion of informed voters in

the electorate is lower. There are also very different interpretations of words like

public management, efficiency and transparency when translated into different

languages, even among people with common historical and cultural traditions. Some

keywords from the reform toolkit, such as accountability, have no equivalent in other

languages (such as Spanish, Vietnamese, and Chinese in this case).

Many scholars stress the differences between formal, managerial budgeting in

developing countries, and the informal budgeting that actually takes place, responding

to their poverty, uncertainty, and differing political cultures. Many question

transfers of Western models, drawing the language, practices, and values from

business to the public sector, to non-western societies.

Selected Priorities for Reform

Aside from broad debates on transferability of ideas there are specific debates on

the reforms themselves. Following developed country experience, there is some

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evidence of success in developing countries with fiscal decentralization, providing

more budgetary flexibility to achieve efficiency and nation-building gains. Developed

countries spend about twice the share of total expenditure on sub-national

governments than developing countries. Expenditure by sub-national government is

also higher in countries with large populations, and in transition countries. The

proportion of sub-national expenditure hasn't changed for the last 3 decades on

average because, inter alia, central governments want to hold on to major revenue

instruments to have flexibility in dealing with fiscal imbalances, infrastructure

planning, construction and maintenance is beyond the capacity of many local

governments, the central government is in a better position to address inequalities

among regions, and officials from central ministries lobby for keeping the status quo.

However, there may be increase in sub-national expenditure proportion in future

because of popular demand, and increased understanding of possible efficiency gains.

In another example, as developing countries draw from the menu of OECD accounting

reforms, there are differing views on the results. Improved cash accounting in

Uganda and Zambia gave better information on expenditures where capacity was too

limited for a commitment based system. But the restriction on cash wasn't enough to

solve the problem of excessive commitments without the active involvement of the

President (Uganda) and the IMF (Zambia). Mongolia's attempt to adopt full accrual

budgeting and accounting, output budgeting, devolution of hiring to agency heads, and

performance contracts wasn't based on careful diagnosis, and had to be scaled back

to a model more suitable for local conditions. A program underway to implement

modified accrual accounting at the treasury level, supported by adoption of

international accounting standards and implementation of an IT-based budget and

accounting package is showing promise.

Accrual accounting supplements cash accounting systems to ensure that the financial

information available to management is current, and provides meaningful analysis of

resource usage within a department. The adoption of accruals is a significant and

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radical reform to the financial management of governments.

These reforms aim to hold management responsible for outcomes and outputs whilst

eliminating controls on inputs. In this context, it is expected that managers should be

responsible for all costs associated with the outputs produced, not only the

immediate outlays. Accruals allow for the capture of these full costs, thereby

supporting effective and efficient decision-making by managers.

Similarly, there is continuing debate on the suitability of multiyear budgeting. Many

developing countries have followed the example of developed countries in adopting

this reform, to help achieve greater certainty on future funding. Despite concerns

expressed earlier about achieving transparency in multiyear budgeting, and challenges

evident in developed countries in making effective use of this tool, and the many

added challenges facing developing countries, medium-term expenditure frameworks

are central features of the Poverty Reduction Strategy Paper (PRSPs) and Poverty

Reduction Support Credit (PRSCs) prepared in recent years. Craig and Porter (2003)

point out that aside from technical problems of using this tool effectively, its use for

upward accountability to central ministries and donors can undermine local political

legitimacy and accountability, sideline the role of legislatures, and cut off important

sources of local knowledge on what works and doesn't work in poverty reduction.

Financial management information technology (IT) systems have been successfully

adopted in some cases when there is sufficient commitment, capacity, and resources

as part of a broad and appropriately phased reform program. If conditions are right,

there may be significant efficiency gains. For example, e-procurement in South

Korea, Brazil and Philippines has reportedly improved efficiency and transparency,

reduced acquisition cost, and may have reduced corruption. Malaysia‘s e-Perolehan

(2004) government procurement system is a build-operate-transfer scheme led by a

private company.

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In some parts of Africa, the principal benefit from IT may be ensure more

systematic adherence to financial rules by manual systems, which may be run in

parallel to IT-based systems and more relied on by finance staff. Successful IT-

based financial systems reforms are commonly iterative and modular rather than

integrated, built around scarce, high quality public managers wherever they may be

working. On the other hand, in both developing and developed countries, the expected

benefits can be blocked by traditional bureaucratic forms, technical difficulties, lack

of skills, and weak project management.

Delays in IT adoption by governments stem from the nature of public sector financing

and procurement practices. To ensure accountability, government agencies need to go

through a lengthy process of securing funds, seeking competitive tenders, and

awarding contracts. To prevent undue influence by any one official, many decisions

along the way are made by committees, which can lead to compromises and an unclear

focus. In addition, when acquisitions are finally made, the technology has often moved

far beyond where it was when the project was first conceived; thus governments

often install outdated systems. They also pay excessive prices, since new products

may have come into the market during this period that can deliver the same ICT

power for much less money. The difference between the outdated tender price and

the market price is also an arbitrage opportunity for corrupt officials. Capacity-

building support in this area is likely to be most effective if preceded by an

understanding of how work gets done in target organizations, including actual

practices often very different from what may be indicated in formal rules and

regulations.

Developing countries have in many areas followed the OECD example of introducing

market mechanisms to improve performance and accountability. For example,

countries have formed autonomous tax administration agencies in an effort to

separate policy making from implementation, and to enhance incentives for the latter.

Debate on the effectiveness of such reforms continues, with analysts finding some
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cases leading to increased revenue collection, and others leading to increased

corruption. Countries also devolved budgets and financial control to semi-autonomous

agencies such as teaching, hospitals, water authorities, and semi- commercial

agricultural bodies. These led to performance improvements when the policy

framework and accountability framework was clear. However, such improvements

were constrained in many cases because of inadequate accounting systems, weak

personnel management, unreformed financial administration regulations, unpredictable

financial resources, and unclear authority relationships between principals and agents.

Cross-Cutting Debates

In concluding this brief survey of recent debates on financial management,

transparency and governance, there are two cross-cutting questions that can be

raised: First, does more aid weaken governance? Second, what should be the scope of

reforms?

Does More Aid Weaken Governance?

Aid can have the unintended consequence of weakening governance because

governments can raise significant financing without having to rely on increasing

taxes; thus they have less need to provide a conducive business climate, and to

provide accountability to their citizens (though they may be held accountable by

international donors). Aid can divert scarce skills from government, encourage

corruption and conflicts over control of aid funds, and reduce citizen demand for

reform. Aid can also weaken administrative effectiveness through high transaction

costs, the fragmentation and weak coordination of donor projects, the lack of

integration in the budget process, moral hazard, soft budget constraints, and

unrestrained future claims on recurrent budgets to maintain donor investments.

Using International Country Risk Guide (ICRG) governance data, Brautigam and Knack

(2004) found that aid dependence was linked with an increase in corruption, and

worsening bureaucratic quality and rule of law. They find a modest reduction in the

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negative effect of aid on governance in Africa between the 1980s and 1990s, but the

change isn't statistically significant. Yet, Tavares (2003) uses a different

methodology in analyzing ICRG data to argue that more aid may be associated with

less corruption, perhaps because donor rules constrain recipient government officials,

or because more aid helps to pay better salaries to officials.

Ear (2007) uses pooled, time series cross-sectional (panel data) analysis drawing on

data in Kaufmann et al. (2005) to confirm a negative effect of aid dependence on rule

of law; but, unlike Knack and others, he finds no significant negative effect on other

aspects of governance. In addition, he finds that components of aid have a

statistically significant effect on rule of law (negative effect from technical

cooperation) and on voice and accountability (positive effect from proportion of grant

element).Resource-rich countries face similar challenges.

What should be the Scope of PFM Reforms?

There are continuing debates over whether reforms should be comprehensive in

scope, taking a ―big bang‖ approach, or incremental and opportunistic. Some stress

the need for a ―top down‖, politically-driven, all-encompassing reform process to

take advantage of narrow windows of opportunity. Thus Werlin (1992: 204), citing the

example of countries such as Korea, argues that reforming central bureaucracies is

primarily a problem of political will and government capacity to effectively use

persuasive and manipulative (rather than coercive and corrupting) forms of power.

Rodrik (1996) cites Polish macroeconomic reforms beginning in 1989 among others

as succeeding due to ―speed and stealth‖. Reforms in New Zealand between

1984 and 1990 (Pallot 1991) and in Canada in 1994 are cited as examples of

comprehensive strategies that delivered important results.

On the other hand, North (1990:89) views piecemeal reforms as more

typical:―The single most important point about institutional change, which must be

grasped if we are to begin to get a handle on the subject, is that institutional change

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is overwhelmingly incremental‖. Esman (1991:138-139) advocates a "bottom up"

approach. He claims that system-wide reforms disrupt familiar routines and threaten

established centers of powers without demonstrating convincingly their

effectiveness. He prescribes, instead, incremental, confidence-building measures,

such as training, new technologies (e.g., e-government), introduced with staff

participation and focused at the level of individual programs or organizations.

Brautigam (1996) makes a related argument that reforms should concentrate on a

few critical functions, shifting politically important patronage opportunities to less

vital agencies.

Anti-Corruption and Capacity Building Reforms

Anti-Corruption Reforms

A. Defining Corruption

Corruption is an important aspect of poor governance, and often defined as the abuse of

public office for private gain. This is a widely used definition applied by the World Bank

among others. This definition includes various forms of interaction between public

sector officials and other agents. Money is often involved, such as in bribery or

kickbacks for public procurement contracts. In other cases, however, the private gain

can be non-monetary, as in cases of patronage or nepotism. The definition also covers

acts where there is no interaction with external agents or external agents are not

explicitly implicated, such as the embezzlement of government funds, or the sale or

misuse of government property.

Corruption can also take place among private sector parties. Hence, an alternative

definition of corruption used by Transparency International (TI) is the misuse of

entrusted power for private gain. In contrast to the former definition which includes

only acts involving public sector officials, TI‘s definition also includes similar acts in the

private sector. For example, a subcontractor that bribes an official of another company

to obtain a contract would count as corruption under the TI definition. In addition to

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public sector corruption, the latter definition thus includes private-private corruption.

This type of corruption is understudied, despite the fact that it may reduce private

sector efficiency and hence hamper development.

The definition of corruption as abuse of public office has been criticized as being (i)

excessively legalistic and (ii) based on a Western ideal of separation of the public and

private which does not fit the cultural context of many developing countries. As for the

first criticism, the idea of abuse of office certainly implies deviation from some

standard. It does not follow from the definition itself that the standard is a legal one,

however. The standard could just as well be a moral one, where the proper role of

office holders is derived from fundamental ethical principles. The definition therefore

does not in itself depend on legal rules that may be incomplete or incidental. The

criticism of a basis in Western ideals is a matter of application, although the way the

definition is sometimes applied by donors has been informed by a Western idea of public

office. However, the definition does not in itself refer to a specific idea of public

office. In general, any well-functioning society must have some productive allocation of

tasks, to reap the benefits of organization and specialization.

Corruption and rent-seeking are not the same, though the two are often used

interchangeably. Rent-seeking is the socially costly pursuit of rents, for instance in

terms of monopoly rents or rents from natural resources. There is a degree of overlap,

where some acts of rent-seeking would also qualify as corruption. However, rent-seeking

does not necessarily entail misuse of position or power. In some borderline cases, these

types of activities may for instance entail a legitimate pursuit of a redistribution of

available rents. Corruption in this sense can thus be viewed as a violation of the basic

norms of any well-ordered society.

Various typologies of corruption have been suggested. The commonly used distinction is

between political corruption (state capture) and bureaucratic corruption. Political

corruption takes place at the highest levels of political authority. It involves politicians,

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government ministers, senior civil servants and other elected, nominated or appointed

senior public office holders. In other words, political corruption is abuse of office by

those who make the rules of the game, e.g. decide on laws and regulations, and the

allocation of resources in a society. These types of acts may include tailoring laws and

regulations to the advantage of private sector agents in exchange for bribes, granting

large public contracts to specific firms, or embezzling funds from the treasury. The

term grand corruption if often used to describe these types of acts, and reflects the

considerable sums of money that are frequently involved.

Most bureaucratic corruption takes place at the implementation end of public policies,

although it may in some cases have its roots in the planning and budgeting stages that

precede implementation. It involves appointed bureaucrats and public administration

staff at the central or sub-national levels. In simple terms, it comprises corrupt acts

among those who implement the rules made by top officials. This includes interaction

with private agents, such as demanding extra payment for providing government

services, speed money to expedite bureaucratic procedures, or bribes to allow private

actions that violate rules and regulations. It also includes interaction within the public

bureaucracy, such as bribes or kickbacks to obtain posts or secure promotion, or mutual

exchanges of favors. This type of corruption is often referred to as petty corruption,

which reflects the small payments often involved, though in specific cases and in

aggregate the sums may be large.

Political and bureaucratic corruption are clearly interrelated. Corruption at the top of

bureaucracies increases corruption at the lower levels. Political corruption is usually

supported by widespread bureaucratic corruption, in a pyramid of upward extraction.

And corruption in high places is contagious to lower-level officials, as these will follow

the predatory examples of, or even take instructions from, their principals. However,

there are also distinctions in the causes and consequences of political and bureaucratic

corruption. The priorities and means by which to approach the two may therefore be

different.
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 B. Entry Points for Governance Reform

Governance is often defined as the manner in which public officials and public

institutions acquire and exercise the authority to provide public goods and services,

including the delivery of basic services, infrastructure, and a sound investment climate.

The various entry points can be viewed in relation to the three dimensions of

accountability commonly employed. Before we go in to the discussion of the three

dimensions of accountability let us first define accountability.

In general terms accountability denotes a relationship between a bearer of a right or a

legitimate claim and the agents or agencies responsible for fulfilling or respecting

that right. The most basic accountability relationship is that between a person or

agency entrusted with a particular task or certain powers or resources, on the one

hand, and the principal‘ on whose behalf the task is undertaken, on the other.

Accountability, simply put, is a two-way relationship of power. It denotes the duty to be

accountable in return for the delegation of a task, a power or a resource.

This duty can be discharged in different ways, but the literature suggests that

accountability mechanisms generally operate according to a logic based around three

criteria:

Transparency requires that decisions and actions are taken openly and that

sufficient information is available so that other agencies and the general public

can assess whether the relevant procedures are followed, consonant with the

given mandate.

Answerability: denotes an obligation on the part of the decision-makers to justify

their decisions publicly so as to substantiate that they are reasonable, rational

and within their mandate.

Controllability refers to the existence of mechanisms to sanction actions and

decisions that runs counter to given mandates and procedures. This is often

referred to as a system of checks and balances or enforcement mechanisms. The

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 checks may take many forms, including shaming‘ and praise. Impunity is the

opposite of controllability: apportioning blame – and a corresponding punishment -

for harm done is a crucial component of accountability.

Vertical accountability refers to the methods by which the state is (or is not) held to

account by non-state agents through the relationship between citizens and their

political representatives. Vertical accountability can be subdivided in two dimensions:

First, downward accountability of political leaders to citizens through electoral

channels relates largely to the electoral (or political) accountability and secondly,

downward societal accountability to civil society and the media that monitor and address

actions of the state.

Horizontal accountability refers to the intra-governmental control mechanisms

between the legislature, the executive and the judiciary and between different sub-

entities of the executive, including Cabinet, line ministries and lower level

administrative departments and agencies. In addition to courts and parliamentary

oversight functions, this includes special institutions of restraint such as the auditor

general, anti-corruption commissions, human rights commissions, and the ombudsman.

Horizontal accountability where some government agencies oversee, control, redress

and sanction other government agencies are related to the centre box of public sector

management, i.e. the political-administrative system and. This includes accountability of

bureaucrats/civil servants/public employees to the political leadership.

External accountability refers to the relationship between governments and

international entities, including the World Bank and bilateral donors. To a large extent,

donor-supported anti- corruption efforts in developing countries have focused on

creating and improving institutions of horizontal accountability, such as anti-corruption

commissions, audit institutions, and so on. The effect of these types of interventions in

terms of reducing corruption has been rather disappointing.

To a large extent, donor-supported anti-corruption efforts in developing countries have

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focused on creating and improving institutions of horizontal accountability, such as

anticorruption commissions, audit institutions, and so on. The effect of these types of

interventions in terms of reducing corruption has been rather disappointing. A main

sticking point has been the unwillingness of corrupt governments to wholeheartedly

implement reforms that reduce their own opportunities for enrichment. Case in point is

experiences with independent anti-corruption commissions that have been set up in a

number of countries. Outside of Hong Kong and Singapore, these have rarely been a

success. A study of anti-corruption commissions in five African countries argues that

the ability of any anti-corruption commission to tackle contemporary, high level

political corruption is questionable. As a consequence of limited results from effort

to improve horizontal accountability, the World Bank and bilateral donors have begun to

emphasize reform that strengthens other types of accountability relationships, such as

societal accountability through civil society organizations and the media.

i. Anti-Corruption and the Nature of the State

Corruption is a symptom of deep-seated economic, political and institutional weaknesses.

Consequently, to curb corruption relevant measures include economic, political and

institutional reforms, and reforms of the incentive schemes in the public administration.

Political will is considered a necessary condition for implementing the reforms.

Policy measures, however, cannot be addressed properly without including the larger

question of the nature of the state that is supposed to implement the anti-corruption

policies. The analytical framework of neo-patrimonialism developed by French political

scientists (Blundo & Olivier de Sardan 2006; Bayart et al 1999; Chabal & Daloz 1999)

working on Africa provides a pessimistic view on the issue of political will to

implementing reforms.

Within this analytical framework corruption is understood as an integrated part of the

dominant elites‘ extraction and rent seeking practices. Because neo-patrimonial elites

are the main profiteers of widespread corruption, they have limited will for reform.
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Thus, any lasting effects of institutional and administrative reforms may be doubtful.

In this context, such reforms may even be aimed at securing the political and economic

power of the ruling elites.

To assume that all states and political leaders are predatory‘, however, as in the

literature referred to above and also in much of the public choice literature in the

context of developing countries, does not help in understanding why corruption is more

extensive in some countries than in others, in spite of fairly similar extent of state

interventions. Neither does it explain why countries with seemingly similar aggregate

levels of corruption, differ with respect to productivity and economic growth.

Bardhan (1997) argues that some African states in recent history have become

predatory in their rent extraction not because they are strong, but because they are

weak. The state cannot enforce the laws and property rights that provide the minimum

underpinnings of a market economy, leading to disloyalty and theft among public

officials.

In sharp contrast stand the strong East Asian states with their centralized rent

seeking machinery and their encompassing network with business interests, although

the level of corruption is quite substantial also in these countries. Credible

commitments to both domestic and foreign business interests may be an important

feature of the strength of these states.

Acknowledging these differences between centralized and decentralized corruption,

and the importance of predictability, getting rid of many of the public dysfunctional

regulations remains a major first step in anti-corruption policy, whatever the nature of

the state. Furthermore, both economists and political scientists seem to emphasize the

importance of institutionalizing various kinds of accountability mechanisms at different

levels of the government. However, it is important to recognize that some conditions are

profoundly difficult to change. In order to improve the chances of making a positive

difference in countries with weak governance and severe corruption, it is important to

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acknowledge that:

• Political will is often partial, qualified and temporary.

• Economic resources are usually seriously inadequate.

• Governance institutions often have significant weaknesses, and may require

a long time to improve.

The general message of the anti-corruption reformers, until recently, has been that

corrupt countries should replicate the institutions of clean countries. Thus, many

countries have adopted various Western institutions. The ombudsman, for example, is

a Scandinavian institution that has been reproduced in many developing countries, often

with limited success. There is now a growing consensus between researchers and

development practitioners on the importance of tailoring reforms to the particular

country context. These insights imply that there is no best practice‘ anti-corruption

reform that could be uniformly applied to all countries, and that there is no single

cross-country model of reform: The context matters. Local economic conditions,

institutional constraints, administrative capacity, culture and history are important

factors that must be taken into consideration when designing and implementing anti-

corruption reforms.

So what can policymakers do to combat corruption? According to Shah & Schacter

(2004) the answer lies in taking an indirect approach and starting with the root causes.

To understand why, they suggest a model that divides developing countries into high‘,

medium‘, and low‘incidences of corruption. They assume that countries with high‘

corruption have a low‘ quality of governance, those with medium‘ corruption have fair‘

governance, and those with low‘ corruption have good‘ governance.

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Because corruption is itself a symptom of governance failure, the higher the incidence

of corruption, the less an anticorruption strategy should include tactics that are

narrowly targeted at corrupt behavior and the more it should focus on the broad

underlying features of the governance environment. For example, support for

anticorruption agencies and public awareness campaigns are likely to have limited

success in environments where corruption is rampant and the governance environment

deeply flawed. In such environments anticorruption agencies are prone to being misused

as tools of political victimization. Such interventions are, according to Shah & Schacter,

more appropriate in a low‘ corruption setting, where the governance fundamentals are

reasonably sound and corruption is a relatively marginal phenomenon. Where corruption

is high and the quality of governance is correspondingly low, it makes more sense to

focus on the underlying drivers of malfeasance in the public sector – for example, by

building the rule of law and strengthening institutions of horizontal accountability. In

addition to courts and parliamentary oversight functions, this includes special

institutions of restraint such as the auditor general. In societies where the level of

corruption lies somewhere in between the high and low cases, Shah & Schacter suggest

that it may be advisable to attempt reforms that assume a modicum of governance

capacity - such as trying to make civil servants more accountable for results, bringing

government decision making closer to citizens through decentralization, simplifying

administrative procedures, and reducing discretion for simple government tasks such as

the distribution of licenses and permits.

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It may of course be argued that the categorization of countries as high, medium and

low corrupt is too broad and does not capture the large differences between countries

within each category. This critique might be accommodated by further fine tuning the

model suggested by Shah & Schacter, as illustrated in the next section. Their main

message, however, is that context matters, and that anti-corruption reforms must be

tailored to country realities.

ii. Politics Matters

Why do so many anti-corruption initiatives fail? Shah & Schacter (2004: 40) argue that

the lack of significant progress in fighting corruption can be attributed to the fact

that many anti- corruption programs are ‗simply folk remedies or one-size fits all

approaches and offer little chance of success‘. This is supported by Mungiu-Pippidi

(2006: 91) who argues that ‗[t]he problem is that both the assessment instruments

(which result in a descriptive ―anatomy of corruption‖) and the resulting anti-

corruption strategies seem to be simply replicated from one country to another‘.

Corruption in developing and post-communist countries has often been treated as an

engineering problem‘ and as such a phenomenon to be addressed through technocratic

toolbox‘ or textbook‘ solutions. There seems to have been an assumption that corruption and

its solutions could be fully specified in advance, and the required measures implemented on a

predictable timetable, over a fixed period. The technocratic approach, however, has

overlooked the fact that anti-corruption reform, though it has important technical aspects,

also is a social and political phenomenon driven by human behavior and local circumstances.

Many anti- corruption initiatives fail because they are non-political in nature, while most of

the corruption in developing and post-communist countries is inherently political. Moreover,

what is labeled corruption in these countries may not be the same phenomenon as corruption in

developed countries. In the latter, the term corruption usually designates individual cases of

infringement of the norm of integrity. In the former, corruption often means a mode of social

organization characterized by the regular distribution of public goods that mirrors the

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distribution of power within such societies. Few anti-corruption campaigns dare to attack the

roots of corruption in such societies as these roots lie in the distribution of power itself.

Instead, anti-corruption strategies are adopted and implemented in cooperation with the very

predators who control the government and, in some cases also the anti-corruption instruments.

Historically, it has been the political opposition, civil society, or even enlightened

despots who have promoted the greatest strides forward. When are circumstances ripe

for civil disobedience against political corruption and state capture? In situations where

most people are content with existing arrangements and do not feel that they

personally have anything to lose by corruption, one simply cannot fight state capture.

This also applies to situations where people feel powerless to change the system and do

not want to get hurt trying. Thus, it is best to attack such systems during economic

crises or other periods of societal stress. Great political turning points can also provide

a favorable environment. Civil society is potentially a more effective auditor and a more

credible ombudsman than public institutions in such societies.

Capacity Building

Capacity is the ability of individuals, institutions and societies to perform functions,

solve problems, and set and achieve objectives in a sustainable manner. Capacity

Development (CD) is, therefore, the process through which the abilities to do so are

obtained, strengthened, adapted and maintained overtime.

In the context of this understanding, institutional and administrative capacity can be

defined as the set of attributes related to both structural/systemic attributes and

human capital/resources that, collectively, define the organization's ability to perform

its mandated functions. Within the public service, typical aspects of capacity are the

quality of civil servants, organizational characteristics, the diffusion of ICTs among

organizational units, the intergovernmental relations, and the style of interaction

between government and its social and economic environment.

In the context of this definition, institutional capacity building can be defined as the
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provision of technical or material assistance designed to strengthen one or more

elements of organizational effectiveness. The elements of organizational effectiveness

include governance, management capacity, human resources, financial resources, and

service delivery. At the national level, institutional capacity is often used as shorthand

for a country‘s administrative and management capacity, particularly with respect to

implementing economic policy choices. At this level, it encompasses a wide range of

activities examples of which include the following:

 the making and enforcement of rules and laws, including judicial reforms;

 the ability to effectively plan government expenditure and the delivery of public

services at both the central and local government levels

 the establishment and operation of appropriate regulatory and/or prudential

frameworks for conducting productive business;

 the ability to collect the statistical information needed for effective policy

implementation;

 systemic capacity to absorb additional resources, including external assistance/aid;

 the effectiveness of agencies to fight corruption and enhance governance; and

 The protection of property rights.

Human resource capacity development, in turn, relates to the provision of a trained

work force; to the promotion of knowledge and skills that are required by a society to

acquire greater prosperity through the building of productive capabilities. Human

resource development can be perceived as both a process and a goal since it can be an

end in itself as it results in the realization of human potential and the development of

individual self-reliance.

CD is defined by the UNDP as the process through which individuals, organizations and

societies obtain, strengthen and maintain the capabilities to set and achieve their own

development objectives over-time. Individual-level capacity includes a person‘s skills,

experience and knowledge. Organizational-level capacity includes internal policies,

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arrangements, procedures and frameworks. Societal-level capabilities – also referred to

as an enabling [institutional] environment – encompass the rules of the game, which

include policies, legislation, power relations and social norms that shape interactions

among organizations.

The World Bank’s Strategy for Reforming Public Institutions and Strengthening

Governance defines capacity building as ―building effective and accountable

institutions to address development issues and reduce poverty in borrowing countries,

and emphasizes its importance as the core of the World Banks activity.

The Nexus between Capacity Building and Institutional Reform

As mentioned in the first unit, capacity development is used along with capacity

building, institutional development, public sector reform, and governance reform,

frequently to mean the same thing. For example, capacity development is understood as

building and strengthening human, organizational, institutional, and societal capabilities

in developing countries mainly focused on their public administration systems.

While this term is not new to the development assistance field, the currently

emphasized focus/scope and the means of improving capacity reflects the broader shift

in thinking about development. In terms of focus/scope of CD, donors switched from

individual- and organizational-level to broader societal and governance level. In the past,

technical capacity building with emphasis on individuals and organizations received more

attention, involving the simple transfer of knowledge or organizational models from

North to South. Donors did not pay as much attention to the broader context of their

interventions.

More recently donors came to emphasize macro-level components of capacity

development; i.e., building, developing, and transforming the very governance system and

its institutions that structure the behavior of individuals and organizations. Donors

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learned that the past focus on inputs, such as developing organizational capacity

through training and technology transfers and policy advice was not adequate when

institutions rules of the game that converted those inputs into desirable outputs

within a given governance system remained the same. In this sense, institutional

reform/development is part of capacity building efforts regardless of whether

institutions are defined as rules of the game or as organizations. But as mentioned

above, institutional development is sometimes used interchangeably with capacity

development.

This emphasis on institutional capacity building is conditioned by IDA‘s understanding

that: the heart of the problem in ―poor societies‖ is not the lack of funding or

technical know-how (the traditional components of aid), but a matter of governance and

the resulting inability to make good use of existing institutions and capacities. Thus, the

leading IDA now intend to focus more on helping developing countries to set up proper

incentive structures via institutional reforms that would in turn improve government

capacity.

Capacity development is now about strengthening the capability of government and the

internal demand for improved governance through strengthening the capacity of civil

society organizations and the private sector, although public sector reforms still are

recognized as an essential element of capacity development. Within the public sector,

donors‘ CD activities targeted developing countries‘ planning, resource allocation and

monitoring systems, including:

 statistics, public financial management, accountability systems, systems of

oversight, taxation, fiscal systems, monitoring and evaluation, planning systems,

budget management, procurement, and audit systems.

The challenge of capacity building for effective service delivery has preoccupied most

African countries since independence. There are a number of institutional and resource

constraints that have continued to work against African countries‘ capacity to

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meaningfully design and implement developmental interventions. Increasingly, there is

mounting recognition among African leaders that capacity development is at the centre

of development and that, without it, even past achievements could be reversed.

Similarly, there is growing self-examination in the West regarding the degree to which

aid, for example, is helping in strengthening capacity development in developing

countries. In the light of the above, many African countries have implemented various

reform packages aimed at improving the capacity of the public sector.

Effort to develop institutional and human resource capacity for improved public sector

performance, it is argued, can be addressed by focusing a number of interventions.

Important among these are three: one relates to the concern for improved

performance in public bureaucracy through modernization of methods, techniques and

procedures of work and more effective management of human resources. Another is the

process of change required within the government sector to sustain efficient economies

in the emerging context of globalization. The third is the increasing concern for

efficient and effective delivery of key public services through decentralization.

The achievement of the ideal system described above calls for a comprehensive

approach in which several parallel initiatives are undertaken at different points in the

State system. These various initiatives involve performance management, greater

participation in decision-making throughout an organization; supportive organizational

structures, information and financial management systems; and definitive instruments

for incentives and rewards for civil servants through proactive personnel management

as well as strong executive leadership development. In the light of this, many countries

and organizations have undertaken administrative reform. A sample of some of the most

prominent ones was discussed in the previous chapter.

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