The New Contractualism?
eds Glyn Davis, Barbara Sullivan and Anna Yeatman
ISBN 0 7329 4442 2
Contracts have long been an integral part of the private sector but have been increasingly extended to new fields in the delivery of public services and the organisation of relationships between individuals and groups in civil society. Contractualism has assumed centrality in New Zealand and the United Kingdom and increasingly in Australia, leading to the characterisation of the “contract state”.
The use of contracts also has a history within government, which raises the question of what is different about the present situation. There is the sheer extent of the new applications in different fields. And contractualism is becoming a feature of relationships within and outside government. As Jonathan Boston indicates in his chapter, the term “contract” is being used for many forms of agreement and arrangements that include the traditional legal document as well as instruments for defining relationships, covering corporate objectives, citizen charters, employment contracts and performance agreements.
Its use is closely associated with other features of public management in the 1990s — the roles of principal and agent, purchaser and provider and the process of agencification — as the means of linking the separated functions. The context of contracts is marketisation and the rationales are influenced by the desire to contract the public sector, downsize departments and reduce the number of public servants while creating operational conditions that evade capture (by clients, subordinates, interests etc).
This book takes as its starting point the question posed in the title to examine the meaning of the expanding reach of contracts into new dimensions of social life and government. The collection consists of 16 essays. A range of fields is represented, from economics and law to political science and anthropology and covering inter alia domestic rights, children, indigenous people, educational markets and public administration. The book concentrates on new areas for contracts rather than areas where contracts have been established. The authors include advocates and protagonists of contractualisation plus several who acknowledge its growing importance (perhaps grudgingly) and the need to improve the process. Some of the important questions posed by those studies relate to contractualism’s defining characteristics, potential, durability, limitations and significance for governance.
The new contractualism (NC) serves as a point of departure for the contributions. The discourse about the new contractualism has been most informed by Anna Yeatman, one of the editors, although her chapter in this book is not the fullest elaboration of her views (other treatments being available in earlier publications, including the chapter in the useful companion volume edited by Boston, The State under Contract). Barbara Sullivan’s introductory chapter does, however, provide a succinct summary of Yeatman’s position.
Contracts are negotiated on the basis of individualised and informed consent for both persons and organisations with transparency and accountability being general conditions of the process. But the new also reflects the extensions of contracts to fresh realms and the impact on governance where the contract becomes a fundamental component of relationships.
The lineage of contractualism is examined in several chapters, with the strands ranging from the social contract of political theory to law and economics. Barry Hindess’s historical perspective depicts contractualism as “a complex set of phenomena involving the convergence of several distinct lines of development within contemporary liberalism”. (p14) One theme is the historical shift from status to contract and then more recently towards individualism. But the basis of Yeatman’s argument is that “contractual personhood” reflects status and that the contract individualises it. Old (distinguished often by inequalities) and new (but still mainly embryonic) forms of contractualism coexist. The future lies with enhancing “individualised contractual capacity” through the state’s programmes.
The potential range of contractualism is evident from a series of chapters that examine issues which can only be touched on here. For Judy Cashmore NC provides a framework for analysing the changing status of children (under the old contractualism they were not recognised) and concludes that there is potential for NC. In domestic contracts Marcia Neave doubts that they will enhance women’s role but recognises that if contractualism is irresistible legal techniques for improving women’s position under domestic contracts need to be examined.
Margaret Wilson considers the shift from the classic conception based on the collective contract to individual contracts of employment as a result of the advent of the Employment Contracts Act. The legislation fails the test of the new contractualism, at least as it is envisaged by Yeatman, because of the bargaining inequalities. The constraints on employees’ capacity to exercise choice and therefore to participate meaningfully in the process of reaching agreements would need to be removed.
David Hogan contests the view that contractualist principles, whether old or new, can be readily justified and focuses on the arguments of neoclassical economics which he sees as reducing contracts to consent and consent to choice. In reviewing the question of parental choice in education in a contract state, he argues that social context including inequalities cannot be separated out from the marketplace in practice. Other chapters by McHugh and Rowse take up the role of contracts in intercultural contexts.
Geoffrey Brennan’s economic theory of contracts recognises the importance of contracts but argues that contracts are only one of several instruments (another is trust) for facilitating exchange. Contractualism should not be automatically identified with economics (and particularly new institutional economics), according to Graham Scott, simply because of the mode of its emergence in New Zealand, which he attributes to a conjunction of several factors. The conclusion is that contractualism would have spread regardless of the influence of economic theory but the extent of its impact undoubtedly reflects the New Zealand attention to developing the theoretical framework. The uniqueness of this reliance compared with the rest of the world was highlighted by Allen Schick in his 1996 review of the New Zealand model in which he attributed the emphasis to “new institutional economics [which] takes self-interest to its logical conclusion: all economic relations are implied or explicit contracts between parties that have different interests but cooperate for their own purposes.”
The question of contracts in government management is the focus of several chapters. Support for the contribution of contractualism to public management comes from chapters by Alex Matheson and Scott and Boston’s analysis of the evolution and success of performance agreements between the top decision-makers, the ministers and chief executives.
The good contract is defined by Matheson as one that appropriately balances specification and trust without overdoing the transaction costs or constraining the agent’s performance. He recognises two pathologies: the “MBO trap” in which objective-setting is pursued under the wrong conditions or to excess; and the danger of re-emergent regulation as a product of the “one size fits all” syndrome, leading to a “collective compliance burden” and possibly “organisational sclerosis”. Matheson is less convincing when he asserts that the greater effectiveness of parliamentary scrutiny in New Zealand is a product of information that derives from contracts. This is a case of the Schick argument that much of the New Zealand reform model is about good management; the expansion in information available to Australian parliamentarians derives from the emphasis on new public management and more effective reporting on a results basis.
There are several subjects that deserve a more extended treatment than they can receive within the limits of this book.
The responsiveness of service providers to consumers is an area identified by Boston as a manifestation of the new contractualism where there have been experiments with strengthening the citizens’ “contract” with the state. But it is only touched on in several chapters and by Linda McGuire in a discussion of total quality management in service delivery. In Australia, there is a need for an analysis of the various documents that have appeared in the Commonwealth and state departments and agencies. Davis notes “the contractualistic logic” involved in specifying outcomes and sanctions, the range of experiences with service charters and guarantees internationally and a few of the issues involved in charter agreement development and specification, and engaging the consumers in the process. Scott identifies a link between the new institutional economics idea of “credible promises” and Yeatman’s new contractualism as a device for empowering citizens and he recommends going beyond the basic charter approach of the United Kingdom and involving citizens in making choices about the design and process of service delivery.
The second gap is the lack of a systematic coverage of the problems of contract management with “privatised” (in the most general sense) or outsourced functions. The so-called third-party government has been a source of considerable debate in the United States where public-private relationships based on contracts are involved and problems with transaction costs and accountability have been apparent. The last decade in Australia has seen a huge expansion in the use of management and policy consultants and the delivery of a wide range of functions and services by non-government agencies under contract to government. This became a prominent issue in mid-1997 in Canberra following the decision to outsource computer systems at the national level (apparently trailing the United Kingdom where outsourcing of information technology is well-advanced). One consequence has been the loss of the work to the capital and its public sector but the apparent success of large private firms based outside Canberra. The spectre of globalised service production is becoming a further possibility as international companies make further inroads into service provision.
Politicians make an appearance as role-players in performance relationships, atheoretical thinkers and the rhetorical exploiters of people contracts. One ultimate expression of defining a relationship was Newt Gingrich’s “Contract with America”, outlined in the Davis chapter, which specified as the Republican party’s agenda a programme for bonding government and the people. Despite the claims that politicians have been influenced by public choice theory, the survey of agency theory by Catherine Althaus (with particular regard to the United Kingdom) and Scott’s New Zealand experience indicate that theory does not necessarily drive politicians. Politicians also appear as principals or the purchasers (as well as the owners) in Boston’s systematic examination of chief executives’ performance agreements. One concern of observers, the capacity of politicians to handle their responsibilities for contractual arrangements, is not however addressed. The New Zealand experiments with increasing transparency in some transactions (for example, the appointment of chief executives and the requirements to disclose the state of the economy under the Fiscal Responsibility Act) needs to be noted.
The question of NC as a new form of governance is one important sub-theme. According to Davis, NC “implies an emerging and distinctive type of governance” under which contracts are “a defining instrument” of the state. (p227) In the New Zealand case it involves a cascade of contracts which establish relationships between principals and agents. We are tantalised in the preface by the “possibility of a virtual government — networks of private suppliers, linked by contracts to a small, residual state” (pviii) but this idea is not developed, although the question of how far contractualism should be taken is raised by Davis. He observes that boundaries exist to applying the new contractualism that are social and ethical and with costs for accountability and political control and that determining their location will provide debates and conflicts over the extension of contracts in the future.
The new contractualism emerges somewhat inconclusively from the book in part because it is defined broadly and because some key issues are not developed sufficiently. One would have liked more on Yeatman’s argument about enhancing contractualism in new ways. However, a research agenda emerges, which suggests the need for more work on the conditions under which contracts work most effectively and on the more efficacious types of contracts, as well as studies of public-private agreements across several fields, the costs of and limits to contactualism and the impact of contractual dominance on governance.
As an edited collection, the book provides an exploration of the theme of contractualism, rather than a definitive statement and systematic treatment. It offers an excellent starting point for approaching the new contractualism. The virtue of this type of collection, notwithstanding some obscure discussion that contributes little to mainstream debate, is the excellent range of papers that offer important insights into facets of the subject. This is then an important book, for the relevance of its subject, the depth of much of the analysis and the strength of the contributors.
John Halligan is director of the Centre for Research in Public Sector Management at the University of Canberra.