Public Sector Management: Beyond the Hype - Page 4

Value for Money Auditing

The purpose of management, whether it be in the public or the private sector, is to add value. More successful management adds a greater margin of value than the less successful. The performance of management can, therefore, be judged in terms of the amount of value that is added. The new managerialism introduced into the public sector was an attempt to create the incentives, information systems and infrastructure which would enable the maximisation of added value.

All of this is quite unexceptional until we enquire more closely about what we mean by "value". This throws into relief the question, how comprehensive is the concept of value contained within the framework of value for money auditing or the more recent concept of "best value"?

To understand the issues involved in this line of enquiry it is necessary to set out some foundations. As is well known the value for money framework encompasses the notions of economy, efficiency and effectiveness. A whole industry of generating indicators of the 3 Es, (to which I have contributed) has emerged (6). Focus has tended to concentrate upon efficiency indicators of performance and in particular the more easily measurable dimensions of efficiency. The measurable tends to drive out the immeasurable and the short run displaces the long run. Financial measures of performance frequently dominate non-financial qualitative indicators (7).

It is the intention that most value for money studies or discussions of best value practices ignore the problematic nature of efficiency. But what is efficiency and do the indicators of performance reflect it? There are two dimensions to efficiency. First, there is technical efficiency. Whatever the public sector is producing is it doing so at least cost? Second, there is allocative efficiency. Does anyone value what the public sector is doing? What values do they place on public services?

Most value for money studies have focused upon the first set of issues: the search for least cost production. This is of course an important quest and the National Audit Office; the Audit Commission for England and Wales and the Accounts Commission for Scotland have achieved considerable success in identifying areas in which massive resource savings can be achieved. The present value of the technical efficiency savings run into hundreds of millions of pounds. It is in this area that the techniques of the new managerialism have a contribution to make. But it is only one side of the efficiency coin. There remains the worry that the public sector is producing services at least cost but that they are not necessarily producing those services that service users actually want. In other words the value that users place on those services is less than the cost of producing them. But how do we know? That is the essence of the problem. How can we elicit some sense of the values that individuals place on public services?

This is a troublesome question because whose values are to count? Is it the values of those who directly use the public services? Surely not, because third parties indirectly benefit from most public services. And what about future generations and those who do not currently use the services but retain an option demand to use them at some point in the future? Some might respond by arguing that these problems only arise because the services are supplied through the public service. If they were privatised and marketed then there would be no problem. Consumers would readily place monetary values on them. This, however, is a weak response and which ignores the well documented arguments that emphasise the failure of markets to perform efficiently. Markets, for example, fail to assign the values of future generations and it would require a highly sophisticated market to assign option values to public services.

An associated set of issues arises from questions about whether or not the pursuit of economy, efficiency and effectiveness drives out equally important and cherished values. What about the values embodied in the system of governance of public services - equity, distributive justice and administrative justice? What is happening to the core values of the UK public services and hence to the public's trust in the system of government and public administration? Without going into much detail, a few examples will give substance to the point. Sir Robert Armstrong, in the evidence he give in the spycatcher trial in Australia in 1986, was being accused of being "economical with the truth" - a phrase first used by Edmund Burke in 1796. There has been Nolan followed by the Scott enquiry into the sale of arms to Iraq. Today, as a result of the Scott enquiry the concept of "sophistry" has been injected into our language and will, almost inevitably, gain a popular currency. There is much sophistry practised by some of the proponents of managerialism. What is, however, at issue is the building of trust and confidence in government and the governance of public services. The NPSM has upset traditional lines of accountability. Unelected boards and the blurring of responsibilities have weakened democratic control and trust. Without this trust society becomes impoverished.

The UK system of public administration, no matter how imperfect it appears on the surface, has taken over 100 years to evolve trust. That trust can be destroyed in a much shorter space of time. One of the problems is that the managerialist reformers have imported from North America a wholly inappropriate framework within which to judge the performance of the British public sector. That is the public choice school, which assumes that public sector bureaucrats act opportunistically to serve their own interests at the expense of the public interest. This denies the values of public service embodied, in the Weberian notion of the "civil servant".

Diversity in the values of the direct users of public services; potential users; and indirect beneficiaries plus the unrepresented and unknown values of the unborn leave public sector managers with a challenge. How should these values be weighed up when making decisions about the quality and level of provision of public services?

One way of resolving this problem is to make active use of local government. Efficient government is local government. To many this might appear to be a perverse statement, especially if they have been brought up with the idea that any local authority which spends outside of the nationally set standards must be inefficient. What local government does, however, is to enable public services to match up with local preferences. The problem of making available uniform public services when preferences are diverse, is not eliminated by active local government, but it can be greatly reduced.

What this demands is a greater tolerance from central government to allow local diversity in the provision of statutory public services, provided that some minimum national standard is met and to allow local government to spend locally raised funds to meet locally determined needs. In other words, we need to be much more imaginative in our use of local government and how we regulate it and not simply view it as an agency of central government. Local government becomes an integral instrument of efficient governance.

An associated set of issues relate to the effectiveness of public services. We are not simply interested in the process indicators of efficiency. It is the valuation of outcomes that are ultimately of primary importance and our discussion so far has identified the problems of deciding upon whose values are to count when evaluating outcomes. That, however, is only one problem facing the manager of public services. A prior problem is how to bring about desirable outcomes. This presupposes that in the world of public policy analysis that we have the knowledge to solve the problems of poverty; inner city decay; unemployment; crime etc etc. Clearly this is not the case. Indicators on policy effectiveness are few and far from informative. In most areas of policy analysis our understanding of input/output/outcome relationships is extremely imperfect. How then can we hold public sector managers to account when the degree of service complexity and uncertainty is so great?

Next Steps Agencies

The previous set of questions are particularly relevant in the context of developments within the framework of the Next Steps Agencies. It will be recalled that the creation of agencies was predicated on the assumption that there was a clear division between policy formulation, which was the province of Ministers, and implementation of policy, the responsibility for which can be assigned to some agency either inside or outside of government.

This somewhat simplistic model of governance has, however, been challenged. The simple agency model assumes that the CEO of an agency is held responsible for operational failures whilst Ministers are held responsible for policy failures. This is, however, an artificial separation of policy and implementation. Ministers approve the framework for an agency along with its strategic service plans and performance indicators. The separation of responsibilities model assumes that Agency heads implement policy in a mechanistic and neutral manner. There are, however, value sensitivities in the implementation of any policy.

The outcomes of a managerial process are valued in the policy arena which means that there must be shared responsibilities between Minister and Agency chief executives for running the service.

One of the "buzz" words in the battery of management techniques is the creation of more flexible organisations called "boundaryless organisations". Organisations are reconstituting themselves by breaking down the old boundaries that divided up structures into traditional functions and responsibilities. In this case, however, it would appear that new artificial boundaries are being erected between the responsibilities for policy and its implementation.

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