A research project supported by the European Commission
FP5: Energy, Environment and Sustainable Development
Key Action 4: City of Tomorrow and Cultural Heritage
Thematic Priority 4.1.2: Improving the quality of urban life
Contract No: EVK4-2002-0095
www.watertime.org
[email protected]
Public Sector Reform: a literature review
Author:
Institution:
Date:
Andrés Sanz, with the support of Rebeca García
(Observatorio Español de Privatizaciones) UCM
ERL-UCM
09/05/2003
Deliverable no.:
Work Package: 1
Summary
Public sector reform, a wide-spread phenomenon, includes the set of changes that the public sectors,
especially in developed countries, have been following over the last thirty years. This paper
summarizes the changes in the last decades in developed countries and the factors that have been
more influential in the public sector reform, focusing on two of them: New public management and
the scope of the public sector. The paper finishes by raising some questions to be taken into account
in Water time concerning this issue.
Introduction
Public sector reform a wide-spread phenomenon, includes the set of changes that the public
sectors, especially in developed countries, have been following over the last thirty years.
As result of the recessions in the 1970s and early 80s the thrust of academic, social and political
debate shifted from market to government failures. The revision of the state role in societies raises
questions about its scope, size, budgeting, management, taxes, and also about the role of citizens
and stakeholders. Many papers have been published on the subject of public sector reforms from
very different approaches (economic, political, social, public finance, welfare state crisis,
environmental, public management focus). They have included extensive and comprehensive case
descriptions of country-specific developments in civil service systems and treatment of the political
WaterTime partners:
PSIRU, School of Computing and Maths, University of Greenwich, UK
ERL, Universidad Complutense de Madrid, Spain
Tampere Institute of Environmental Engineering and Biotechnology (IEEB), Finland
International Water Affairs, Hamburg, Germany
Nomisma, Bologna, Italy
Eötvös József College, Hungary
Coordinator: PSIRU, CMS (M257), University of Greenwich, Park Row, London SE10 9LS, U.K.
www.watertime.org
context, public opinion, domestic reform experiences, effects of privatisation and deregulation, and
the impact of managerial trends sweeping across affluent societies around the globe. Most
strikingly, the majority of research on public sector reform lacks serious assessment of the effects
on the reform process of the direct external constraints, such as economic internationalisation and
EMU. The focus is almost exclusively on endogenous challenges and the effect of theories such as
new public management. (Hemerijck, A. and Huiskamp, 2002).
In the 1960’s the principal changes in the public sector were aimed at increasing the
effectiveness and efficiency of the public sector budgeting cycle. New budgetary techniques (PPBS,
Zero budgeting) were implemented with the objective of “more with less” . It was taken for granted
that the state’s functions regarded economic development, economic policy and income
redistribution and citizens rights in terms of public provision and production of health, education,
electricity, transports, roads,…
The Changes in the last decades of the twentieth century
In the last decades of the twentieth century the following changes in society and in economic,
political and social environment appeared, (Sanz, A).

Globalisation
Governments must simultaneously deal with the global and domestic environment. A new
function emerges: identification and analysis of the implications of globalisation on the
decision making. It became necessary to take into account the interdependence of local,
national and international issues. Information and adequate techniques to effectively link
public policy goals at local level and the defence of national interest at global level were
required for this new function.

New information technologies
They have had a crucial impact on all public sector aspects especially in policy
developments and programs and service delivery.
Policy developments require an effective and efficient management of a huge and varied
amount of information. Citizens can easily access relevant information and, as a result, both
individual and interest groups ability to influence government is greater than it was in the
past.
New IT permits cheaper delivery of public services more closely adjusted to individual
needs.
28/07/2017
Page 2
www.watertime.org

Fiscal pressures
Public debt and budgeting deficit growth became one of the main causes for concern in
developed countries in the 80’sand as a result the “more with less” approach hadn’t solved
those problems. So, governments were obliged to adopt new more severe measures such as
the elimination of the non essential activities and programs, the creation of new
organizational structures, the privatisation of provision and/or production of public goods
and services, the rethinking the role and functions of government and the private sector
(profit and non profit).
Within this framework it is necessary to answer the following questions:
o ¿What are the primary functions that only the government can perform effectively
and efficiently?
o ¿What is the appropriate government role in relation to private sector and NGOs?
o ¿What are the affordable long-term programs?
o ¿What could the new consensus between government and the citizen’s role be?

Changing social fabric
Increasing changes in the social fabric happened by the end of the twentieth century,
redefining the political agenda and requiring the constant re-examination of resource
allocation among expenditures programs. Some aspects to be emphasized could be:
o Aging of the population
o Increasingly high levels of education
o Increasing social and cultural heterogeneity as a result of migration
o High rate of women’s participation in labour market
o Structural unemployment
The above-mentioned aspects had a great impact on the amount and composition of public
expenses. Increasing citizen health, education, social services, retirement provisions
demands are irreconcilable with budgetary restrictions and citizens expectation are, as a
result, frustrated.

Public administration reforms
Most developed countries in the 80’s started public administration reforms, largely
supported and inspired by international institutions such as the World Bank, the
International Monetary Fund, the OECD,… Taking into account the global environment in
which the government decisions are taken, these reforms not only affect the country in
which they are developed but also the reform process in other countries.
We can find some common features in those reforms, such as.
28/07/2017
Page 3
www.watertime.org
o The notion of citizen as client
o Splitting public policy decision and implementation
o Focus on quality of services
o Decentralization and devolution
o Privatisation
o Shrinking Civil Service
o Outsourcing
There are various author explanations of public sector reform genesis, the factors that have been
more influential, can be summarised as follows (Hemerijck, A. and Huiskamp) :

The economic consequences of drastic increases in the size of and expenditures in the public
sector (and the welfare state)

The new public management ideas and reinventing government

The political factor of the emergence of neo-liberal ideas and governments throughout
affluent societies in the 1980’s.

Cultural factors of the need felt for higher quality services, citizens participation, better
public accountability, transparency and responsiveness of the civil service to the citizens.
New public management
OECD Public Management Committee (PUMA) argue (OECD 1996) that new public
management (NPM) constituted a paradigm shift in administrative thinking. PUMA affirm that
countries’ reform strategies have many points in common. They are aimed at both improving
performance of the public sector and re-defining its role in the economy. Key reform thrusts are: a
greater focus on results and increased value for money, devolution of authority and enhanced
flexibility, strengthened accountability and monitoring, client-and service-orientation, strengthened
capacity for developing strategy and policy, the introduction of competition and other market
elements and changed relationships with other levels of government.
PUMA, and other international organizations and authors assertion is not the only point of
view. There are many authors that analyse this phenomena reaching different conclusions. Howlett,
for example, states that this wave of reforms first occurred in the 1980s and 1990s in western
Europe and the U.S., the distinct tendency was to assume a greater trend towards convergence in
this area than is presently acknowledged, and to attribute this to the triumph of ideological factors
such as neo-liberalism, first in the most advanced industrial countries, then spreading through
28/07/2017
Page 4
www.watertime.org
international institutions to the less developed ones. Central to this argument was the assertion that
neo-liberal preferences for small states and enhanced markets were codified in a new administrative
paradigm, the “New Public Management” (NPM) which contained a series of prescriptions for
administration – privatization, contracting out, down-sizing and regulatory reform – whose
successful In many countries, these kind of reforms are often attributed to, or blamed upon, the
notions contained in NPM thinking, but the role of administrative ideas is only one of a possible set
of factors explaining such changes, and there are serious questions as to the coherency of NPM
theory and hence its ability to drive administrative change. The diverse responses to NPM
initiatives, coupled with doubts about the coherence of this potential administrative paradigm itself,
suggest that the phenomenon of administrative reforms in the 1980s and 1990s is not well
understood and that additional theoretical and conceptual work remains to be done aiding the
analysis of this important era of administrative history.
Lynn questions the NPM as the common basis of the reforms. Many accounts of global
governance reform go beyond listing its ostensible causes to identifying patterns or configurations
of changes in governance into which one might read a deeper significance. The most popular and
most reductionism of these accounts declare the emergence of a “new paradigm” of governance and
public management. Governments are, according to this story, increasingly adopting as a goal the
replacement of “administrative, hierarchical, and professional cultures” by a “private, commercial,
market culture”. The notion of convergence is reinforced by the visibility and influence, owing in
part to the Internet and to aggressive marketing, of organizations such as the OECD and its public
management service, the International Institute for Administrative Sciences, the National Academy
of Public Administration and its Alliance for Reinventing Government, and the International Public
Management Network, with its journal and annual conferences and workshops. Such official and
professional influence is often far from disinterested. Many of these organizations and scholars
have tended to embrace the economics-oriented ideology behind the so-called New Public
Management. The proclamation of new paradigms often seems more opportunistic than scholarly,
more rhetorical than analytical, the goal being to propagate the faith more than to foment careful
examination of evidence. Whatever one thinks of that ideology, the activities of its promoters may
create the misleading impression that convergence on market-oriented governance is more of a
reality than the facts, if we had enough of them, would warrant.
Gruening tries to answer three key questions raised by the international discussion of the NPM:
which theoretical origins underlie NPM?, is NPM new? And does NPM stand paradigm change?.
We can summarize NPM:
28/07/2017
Page 5
www.watertime.org
Undisputed characteristics:
Accountability
Budget Cuts
Vouchers
Performance
Auditing
For
Performance
Privatization
Customer Concept
(One-Stop-Shops,
Case management)
Strategic
Decentralization
Planning/
Management
Separation of
Provision and
Production
Competition
Performance
Measurement
Changed
Management
Style
Outsourcing
User Charges
Freedom to Manage Improved
Accounting
(Flexibility)
Personnel
Management
(Incentives)
Separation of
Improved
Politics and
Financial
More Use of
Information
Technology
Administration
Management
Other characteristics:
Legal
Rationalization
Policy Analysis
Budget/Spending
of
and
Constraints
Jurisdictions
Evaluation
Democratization
Improved Regulation
Rationalization or
Streamlining of
Administrative Structures
and
Citizens Participation
28/07/2017
Page 6
www.watertime.org
Organic PuMa
Rational PuMa
Pol. Analysis
Discourse
Communitarianism
Constitutionalism
NPA
Transactions Costs
Poperty-Rights
Principal-Agent
Austrian School
Public Choice
Neoclassical PA
Classical PA
Budget Cuts
X
Privatization
Sep. Prov./Prod.
Contracting Out
User Charges & Vouchers
Customer Concept
Competition
Fexibility for Management
Sep. of Pol. & Admin.
X
Acc. for Performance
X
Decentralization
X
Performance Measurement X
Impr. Acc. & Financial Mt. X
Performance Auditing
X
Strategic Planning & Mt.
Management Styles
Personnel Management
Use of IT
Legal Spending Constraints
Improved Regulation
Rationalzt. of Jurisdictions X
Rationalzt. adm. Structures X
Analysis and Evaluation
Democratization & Particip.
X X X
X X
X
X
X
X
X X
X
X
X
X
X
X
X
X
X
X X X X
X
X
X
X
X
X
X
X
X
X X
X
X
X X X
X X
X X
X
X X
X
X X
X X X
X X X
X X
X X
X
X
X X
X X
X X
X
X
X
X
X
X X
X X
X X
X
X X
As we see in the table below a lot of theoretical origins or influences on NPM are not new. Some
are almost a hundred years old. Although theoretically old some aspects were practically tested
(large scale) for the first time with NPM. From the concept of Kuhn’s paradigm we can assert that
NPM is not a new paradigm for the political and administrative sciences. The scientists of these
sciences are far from any agreement on discipline wide system.
In any case NPM has been and currently has a considerable influence on public sector management
and, as a result, on urban water management.
28/07/2017
Page 7
www.watertime.org
Scope of public sector
One of the most important questions in public sector reform is the analysis of optimum
public sector size and tasks. What are the private and public sector roles and partnership?.
At least six questions can be asked according to Lane (2000):
1. What is the proper place of governmental authority in society? Or how much private autonomy
are we to recommend? (The problem of individual freedom).
2. What proportion of the total resources of society should be left to government choice as public
consumption and investment? And how much should be turned over to private choice? (The
allocation problem).
3. How large should the governmental budget be? Or how much private income should be generated
without governmental influence in the form of transfers? (The distribution problem).
4. How much of the goods and services provided by government should also be produced by
government? (The production problem).
5. How much of the means of the production should be owned by government? (The ownership
problem).
6. How much of the workforce should be employed in governmental organisations? (The problem
of bureaucracy).
Stressing the allocation, production and distribution of public/collective goods is, according
to Lane, a fundamental characteristic of the public finance approach. The distinction between the
public and private sector is based mainly on economic criteria. However, a crucial element has been
left out in this approach. How are collective decisions arrived at in the public sector? What is the
logic of interest representation in the public sector? These questions are addressed in the
institutional approach. Here political criteria are applied to define the demarcation of the public and
private sector, stressing the importance of the process of interest representation and the role of
institutions.
We are going to focus on the public finance approach. According to Stiglitz (2002) the market
failures approach provided the unifying theory that was missing in earlier accounts of the role of
government, identifying areas in which markets by themselves fail to provide efficient outcomes.
But while the market failures approach has dominated normative theoretical discussions over the
past half-century, it has confronted three problems:

Limitations to the market failure approach: the pervasiveness of market failures.
It is now recognized that market failures are pervasive - markets do not result in
28/07/2017
Page 8
www.watertime.org
(constrained) Pareto efficient outcomes whenever markets are incomplete or information
is imperfect, that is, always.

Limitations to the market failure approach: government failures
Some of the seemingly public failures may be a consequence of inherent limitations of
government, but some can be rectified. While there has been some progress in
identifying some of the inherent limitations, much less progress has been made on
understanding how to mitigate their consequences.

Limitations to the market failure approach: why are seemingly Pareto improving reforms
not adopted?
In many cases, the government exacerbates market failures; in some cases, there would
seem to be reforms which would be Pareto improving which cannot be effected, though
simplistic analyses would suggest that such reforms would be unanimously agreed upon.
The last issue we are going to deal with in this epigraph is the privatisation and the
appropriate scope of public production. Leaving public provision aside, one of the major policy
issues has been the role of government in production.
Agency theory suggests that there are parallel problems in large organizations whether they
are in the public or private sector. The one general theorem on privatization, that of Sappington and
Stiglitz (1987), suggests that the conditions under which privatization adequately resolves problems
of public interest are closely parallel to those of the fundamental theorems of welfare economics,
e.g. no externalities, complete markets, and perfect information. While volumes described the
lower average performance of public bodies supplying particular services, that literature did not
adequately address the question of why it was that some of the most efficient firms were in the
public sector, and whether there were particular practices which might easily be imitated that
accounted for their greater efficiency.
28/07/2017
Page 9
www.watertime.org
Public sector reform and Watertime
The public sector reform movement surely has influenced the urban water cycle, where can be
implemented. It would be interesting to analyze al least the following aspects in the case studies:

The approach of the decision makers is to focus on the client or citizen point of view.
This focus is relevant because the goals of decisions depending on whether are we trying
to satisfy a client demand or whether we are trying to comply with citizen right. A
citizen, as a member of a community (nationally, provincially, and locally), possesses
certain rights and entitlements and is bound by certain duties and obligations. A client,
on the other hand, need not be a citizen but by necessity is a direct recipient of a service

Privatization and outsourcing. In Watertime we are going to analyze 29 cities. In some
cases the privatization has been carried out. What factors have led to the privatization
decision? What is the outsourcing volume and what factors have the decision makers
taken into account to externalize the production? Is there a common pattern in the
privatization and outsourcing decision making?

Is there a separation between politics and administration in this field? Does the decision
making system take into account the accountability for performance? Is evaluation and
policy analysis an integral part of urban water cycle management?

Democratization and participation. Are the participation mechanisms key elements in the
decision making process? What is the stakeholders influence in this sector?

Decentralization. We have to analyze whether the decentralization has been a constant
trend and the local level of government have increasingly more competences in the
decision making.
We are going to study the history of water decision making trying to infer some patterns. It
would be useful to study the influence of NPM in the different cases and ascertain if that movement
have had similar effects in all the countries.
28/07/2017
Page 10
www.watertime.org
REFERENCES
Caraley, D. Doing More With Less, Columbia University Press, New York, 1982.
Crenson, M., Ginsberg B. Downsizing Democracy: How America Sidelined Its Citizens and
Privatized Its Public, Baltimore, 2002
Dinsdale, G., , Citizen/Client Surveys: Dispelling Myths and Redrawing Maps, Canadian Centre for
Management Development, Ottawa, 1999
Esman, M., Government Works: Why Americans Need the Feds, Cornell University Press, Ithaca,
2000
Gruening, Gernod. “Origin and Theoretical Basis of New Public Management.” International Public
Management Journal. 4(2001): 1-25.
Hemerijck, A. and Huiskamp, R. Public sector reform under EMU A literature review European
Foundation for the Improvement of Living and Working Conditions, Dublín, 2002.
Howlett, M.. Understanding National Administrative Cultures and Their Role in Administrative
Reform: A Neo-Institutional Model of Administrative Styles Paper Presented to the International
Association of Schools and Institutes of Public Administration. 2002.
Huber, E. and Stephens J. Development and Crisis of the Welfare State: Parties and Policies in
Global Markets. University of Chicago Press, Chicago, 2001.
Jones, B., Reconceiving Decision-Making in Democratic Politics, University of Chicago Press,
Chicago, 1994
Komesar, N., Imperfect Alternatives Choosing Institutions in Law, Economics, and Public Policy,
University of Chicago Press, Chicago, 1997.
Kuhn, T. La estructura de las revoluciones científicas. Fondo de Cultura Económica. Mexico 1975
Lane, J.E. (Ed.), Public sector reform: Rationale, trends and problems, Sage, London, 1997.
Lane, J.E., The Public Sector: Concepts, Models and Approaches, Sage, London, 2000.
Lynn, L. GLOBALIZATION AND ADMINISTRATIVE REFORM: - What is happening in theory?
Public Management Review Volume 3, Number 2/August 2001
OECD. Governance in Transition: Public Management Reforms in OECD Countries. Organization
for Economic Co-Operation and Development, 1995, Paris
Osborne D. and Gaebler T., Reinventing Government, Penguin, New York, 1992.
Sanz, A, Tendencias actuales en la gestión pública canadiense. El presupuesto Federal para 19961997. Instituto de Estudios Fiscales, Madrid, 1996.
Sappington, D., Stiglitz, J.E., Privatization, information, and incentives. Journal of Policy Analysis
and Management 6 (4), 1987.
28/07/2017
Page 11
www.watertime.org
Stiglitz, J. New perspectives on public finance: recent achievements and future challenges, Journal
of Public Economics 86 (2002)
Tullock, G., Brady G. and Seldon A. Government Failure. A Primer in Public Choice. CATO
Institute, Washington, 2002
Wolf, C., Markets or Governments. Choosing between Imperfect Alternatives. MIT, Cambridge,
1993
28/07/2017
Page 12