Radical ‑ but what is its value? John Halligan

The State under Contract
Jonathan Boston (ed)
Bridget Williams Books, $39.95
ISBN 0 908912 71 4

Public sector reform has been traumatising many countries for more than a decade. Because of the disruptions and the challenges of comprehensive reform to public sectors over an extended period, many of the reforms have yet to be properly institutionalised. There are also clear indications in some countries that a new phase of reform is under way in the mid‑1990s. Despite this sustained reform era, we know remarkably little about the impacts ‑ it remains unclear how effective these reforms have been.

There is clear evidence of efficiency gains and other improvements in public management but many aspects continue to be contested and debated. There is also no consensus about the appropriate package of reforms. Many strong similarities exist among the reforms of OECD countries such as Australia, Canada, New Zealand and the United Kingdom, but significant differences are also apparent.

Australia shows up well in international terms. It has attracted extensive international attention in the 1990s, being studied by the main reformers. It has not, however, received nearly the same interest or glowing reports as New Zealand. Of all the reformist governments in the immediate region (which includes the large Australian state systems) New Zealand is the boldest and most experimental, the one system that has truly been operating at the frontier. Looking more broadly, there is no doubt that New Zealand has caught the international imagination for its radically distinctive approach., It has been hailed for an uncompromising approach to reform through the application of a distinctive framework which appears to be unique.

Despite this international attention, is anyone replicating the New Zealand model? Specific reform have certainly been borrowed by other countries. Corporatisation and accrual accounting to take two examples, have exercised great influence in Australia. The application of a rigid and coherent framework which explicitly draws on certain types of economic theory has attracted admiration as well as scorn from those favouring a more pragmatic approach. However, there appear to be few takers for the New Zealand package of reforms.

The first remarkable feature, then, of the New Zealand experiment is that it is special in international terms. A second is the lack of systematic analysis and comprehensive evaluation of the experiment, although there is a burgeoning literature. To date however the great New Zealand experiment has yet to be the subject of a proper analysis. The last collection by two of the contributors to this volume, Jonathan Boston and John Martin and colleagues, came closest. No one appears to be prepared to take up the challenge of writing a book‑length assessment of the New Zealand system.

This study is not designed to fill this gap, although there is a suggestion that it is confronting the essence of the New Zealand reforms, namely “the new contractualism”, This forms one of a set of features identified by Boston (p.x) as worthy of highlighting in the “new model of public management” as espoused by New Zealand, the others being the application of agency theory to relationships within the public sector and “third party government” (competitive tendering and contracting out). It is useful to set contractualism within this broader context because of the close interrelationships between the three.

There is now broad acceptance among reformers in a number of OECD countries that the core public service has available a range of service delivery options. It can choose to provide the service itself, either within a department also responsible for policy (for example, Australia) or by another department (New Zealand); to assign implementation to an agency, possibly corporatised, in the broader public sector; to devolve the responsibility to another level of government (more common in federal systems); or to transfer the function to some form of private sector provision. Which option is chosen will depend on a number of considerations which include political will. Countries can opt to go largely private, mostly public or some mix of the two.

What was unimaginable 10 years ago has become commonplace. Aspects of policy advice are now subject to external inputs. Computer services are outsourced and a variety of other functions is the subject of multifarious provision. The horizons of public sector reformers have expanded greatly. Central to these considerations is the question of the contract or agreement between the purchaser and the provider of a service and the range of other defined relationships that have emerged.

What is the new contractualism? Contractualism is not unlike arrangements that have been used in the past. A major difference is the centrality accorded the principle and the increasing use of a range of contractual arrangements: purchase agreements, performance agreements, ownership agreements. These may exist between department heads and ministers, different public organisations, public and private organisations, to name some of the main possibilities which cascade down through the system. The relationships may be characterised in terms of purchasers and providers, and funders and regulators or purchasers.

As Boston (p.xi) indicates the purpose of the contract “is to specify as precisely as possible the requirements of the principal and to ensure that agents can be held to account for their performance”. He suggests that some in New Zealand are only mild versions of a contract (p81). Contractualism is not unlike historic arrangements: the difference today is that it has moved to the forefront, becoming a central element in public management. What distinguishes New Zealand is the all‑consuming embrace of these principles and this provides the point of departure for many of the chapters in this book.

This leads to the question of how this book contributes to our understanding of the state under contract. The book seeks to provide a collection of papers by academics of different disciplines and country specialisations, to stimulate discussion on the key issues and to offer “a range of perspectives on issues concerning the future shape and role of the state both in New Zealand and beyond”. In providing a number of perspectives on contractualism and related issues, there are several levels at which the collection might work.

The first is as an exposition of contracting and contractualism. We learn about different types of contract and levels and contexts in which they are being applied. The interpretations indicate that the broader philosophical, political and social dimensions of notions which have been more narrowly conceived within some form of economic theory. Keen observers of public sector reform such as Boston and Anna Yeatman remind us that contractualism is a growing force and will become more important. There is a growing reliance on the use of contracts and third parties. It is becoming a dominant force in public sector management in a number of countries.

The authors of the nine chapters are not committed supporters of contractualism, although several make it clear that they do not object to the use of contracts as such. Indeed Yeatman argues that “the new contractualism should be more adequately contractual” in employment relationships (p137), while others raise questions about criteria (for example, Boston p82) and point out its constraints and the extent of its application.

The second strength is the consideration of the issues surrounding contractualism. The study is more than anything about the problems, risks and costs associated with this trend: the underlying theme is the limitations of the new contractualist model. The authors offer a range of critiques of the state under contract. For example, Trebilcock reviews the options for the provision of public goods and the limitations in practice of non‑public sector possibilities. Other treatments include legal, accountability and management problems.

Major issues of accountability and responsibility are raised where there is indirect government. Thus Martin argues that “the more we fragment the structure of government by replacing command hierarchies with networks of contracts, the more we call into question the nature of responsible government by attenuating the responsibility of elected representatives” (p38). Bob Gregory demonstrates that the uniform application of an approach to public sector reform that is conceived in terms of production tasks is highly problematic. It may work well for agencies based on production principles, but not for those (the majority) based on other principles (defined as procedural, craft and coping) and may even lead to increased corruption. He argues that “if accountability is wanted, then it is much better to have production and procedural organisations than craft and coping ones. And if goal displacements are to be overcome, then it is better to have production rather than procedural modes of management” (p61).

The possibilities for the future core public service depend as much on “what” questions (should government undertake this function?) as well as “how” questions (what mode of delivery?). Boston’s treatment concentrates on the contracting out of policy advice, traditionally regarded as the main preserve of the senior civil service. Although bureaucratic advice has become vulnerable to competitors, Boston’s analysis indicates that there are limits to how far a sensible government will take its reliance on external agents.

The question of whether Crown‑owned companies and state‑owned enterprises should be subject to judicial review is discussed by Mai Chen. Her conclusions offer little solace for those wishing the courts to play a more interventionist role in seeking decisions which comply with the public interest. She concludes that the courts cannot play a role in questions of social responsibility; rather, they are limited to ensuring that organisations that are delegated trading functions by Parliament should be free of interference by politicians in their operations.

There is also a more speculative strand to the collection which appears in a number of the studies: the interest in pursuing extensions to or radical applications of contract principles, Boston focuses on radical proposals for dispensing with public service advisers. Davis and Gardner consider whether politicians should have agency theory applied to them, concluding that it is problematic. They question whether the principal agents model can work effectively in employment relations.

There are two weaknesses in the book. First, the comparative side is not handled with confidence. It purports to offer a “broader international orientation” and claims to explore “state‑sector reforms in Australia, Canada and the United States” in some chapters. However, it is difficult to extract much about these countries of broader relevance, and there are relatively few insights about their reforms.

Australian reforms receive passing reference. Of the North American countries, the public sector reform at the national level in the United States was retarded (compared with other countries) until the advent of the national performance review of 1993, while Canada has had difficulty in developing a coherent and sustained focus for change. The latter country receives the odd mention but it is difficult to extract any worthwhile or fresh judgements about its considerable but mixed experience. The rich United States experience with contracting out and third government is certainly worth close attention and Don Kettle is one of the best placed to comment, but his chapter here is not the most relevant of his work. His concern with the limitations of performance management (the need for more effective communication than a mechanistic focus of analysts on measurement) is useful, but otherwise the chapter is substantially another commentary on how the United States system of government tends to preclude major reform.

A strength is also a weakness: the inclination to focus on critiques, debates and speculations about contractualism is also a limitation on the overall treatment. In the end one expected rather more on New Zealand. Most studies in this book talk around the issues rather than assist us in comprehending the New Zealand case. We do not end up knowing much about either the shape or the role of the state. The book does not take us very far in confronting its applications in New Zealand: how contractualism is working in practice. Despite (or perhaps because of) the speculations and the discussions of a few cases, we do not acquire a clear sense of the deficiencies which are resulting from the comprehensive use of contractualism.

There is also the question of coming to terms with the New Zealand model, which is either explicit or implicit in several chapters. For many observers the most interesting question is also the most challenging: how do we interpret the results of the New Zealand model? As Martin recognises: “It has unquestionably assisted the achievement of considerable efficiency gains, if for no other reason than to require agencies to attempt to articulate the purpose for which they exist” (p37). This is hardly a rationale for such a model. Many OECD countries can claim to be achieving “efficiencies” by one means or another. We need something more concrete about the extent to which New Zealand’s accomplishments can be attributed to its system and how this might offer advantages (as well as costs) over other variants, such as the more pragmatic Australian approach.

What does all this add to? As the authors of chapters constantly remind us, contractualism is with us and is becoming more important. There is no doubt that a number of countries is proceeding down a similar track as New Zealand and that the contract state is likely to become the dominant element of public management for some time. Although contractualism is not as far as advanced in Australia and is unlikely to go as far as New Zealand, it is moving rapidly in that direction. New Zealand has been in the vanguard, but a number of experiments at the state level in Australia clearly indicate that being the most radical does not necessarily ensure success. Yet the New Zealand experiment has been firmly grounded and, importantly, has survived changes of leaders and governments. We are still waiting for the definitive study of the most radical experiment in public sector reform.

In the meantime this book provides a satisfying introduction to issues on or linked to the new contractualism.

John Halligan is Professor of Public Administration at the University of Canberra. He specialises in the comparative study of public sector reform and coauthored Political Management in the 1990s (OUP, 1992) and Political Leadership in an Age of Constraint (Allen & Unwin 1992 /University of Pittsburgh Press 1993).

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