Public Service Efficiency

Reframing the Debate

Rhys Andrews, Tom Entwistle

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781135012243
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

The current economic and political climate places ever greater pressure on public organizations to deliver services in a cost-efficient way. Focused on the costs of service delivery, governments across the world have introduced a series of business like practices – from performance management to public-private partnership – in the belief that these will increase the efficiency of their public services. However, both the debate about public service efficiency and the policies and practices introduced to advance it, have developed without a coherent account of what efficiency means in this context and how it should be realized. The predominance of a rather narrow definition of the term – very often focused on the ratio of inputs to outputs – has tended to polarise opinion either for or against efficiency agenda.

Yet public service efficiency, more broadly conceived, is an inescapable fact of the public manager's task environment; indeed in the past, the notion of efficiency was central to the emergence of the field of public administration. This book will recover public service efficiency from the relatively narrow terms of recent debates by examining theories and evidence relating to technical, allocative, distributive and dynamic efficiencies.

In exploring the relationship between efficiency and democracy, this book will move current debates in public administration forward by reflecting on the trade-offs between the different dimensions of efficiency that public organizations confront.

1 Introduction

DOI: 10.4324/9780203749159-1

The global financial crisis of the early twenty-first century has led to renewed attention being paid to the size and cost of the public sector. Draconian cuts in public expenditure to reduce budget deficits have been imposed in many countries, and questions have been raised about the scale and scope of the state’s responsibilities. Central to these debates has been the question of the efficiency of public services, and the ways in which those services might be able to fulfil the same duties as before but with a much-reduced budget. These concerns about public service efficiency are not new. The issue of cost-effectiveness was a prominent theme shaping the growth of the New Public Management (NPM) reforms of the 1980s and 1990s (Aucoin 1990). In fact, even during the boom years of the ‘noughties’ many governments retained a keen interest in efficiency savings in the public sector, particularly given the large investments in public service improvement that were made during the period (Gershon 2004). Now, in the new era of fiscal austerity, questions about the ways in which public services can be made more cost-effective have become increasingly urgent as governments grapple with large budget deficits and sluggish economic growth.

In this book we aim to offer a more nuanced account of public service efficiency than is typically presented in either policy debates or scholarly work on the topic. Our basic argument is that efficiency in the public sector is not just about maximizing the quantity of production outputs and minimizing the cost of production inputs; it also comprises the quality of production outputs, whether some citizens should receive more or better quality outputs on the grounds of need, whether current output should be reduced to support investment in future service production, and the fit between the types of output produced and the outputs citizens want. In making the argument that there is more than one dimension (or face) of efficiency, we seek to establish that efficiency is a broader and more important concept than is often acknowledged within the contemporary literature on public administration. Moreover, we claim that the multi-faceted nature of efficiency is familiar to practitioners of public management. Indeed, we suggest that one or other of the faces of efficiency we consider is actually at the heart of most policies and managerial strategies for improving public services, and that the management of the tensions between the different dimensions remains one of the most important tasks in democratic public administration.

The idea that efficiency is an important goal for public service organizations is not an especially controversial one. However, in seeking to advance a richer understanding of the concept of public service efficiency we also aim to demonstrate that efficiency is actually a core administrative value for public managers and policy-makers. For many public administration scholars, the notion that efficiency has a place within the lexicon of public service values is anathema to the idea of a democratic public administration; the public values characteristic of public administration in a democracy simply do not include keeping an eye on the bottom line, so to speak. One of our aims in this book is therefore to illustrate the ways in which an expanded conception of efficiency can capture how the daily work of public managers involves decisions about the use of scarce resources that have implications for the public good as a whole.

In developing our arguments within the book, we do not claim that efficiency is either the only or, even, the most important, administrative value within the public sector. Rather we seek to expand and update the concept of public service efficiency for a time in which questions about the cost of the public sector are once again very much to the fore. Although we draw upon economic theories in developing our ideas about the efficiency challenge in the public sector, the book is not written as a text in public economics. Nor, though we draw upon ideas from political theory, is it written as a text in political science. Instead, given the intersection of disciplinary concerns and the practical import of our arguments, we locate our work within the field of public administration, which Hood (1990: 107) describes as ‘the study of institutional arrangements for the provision of public services’.

In the following sections of this introductory chapter we set out the conceptual and empirical terrain that is covered in the book and discuss the origins of the concept of public service efficiency within the public administration literature. We reflect on its evolution from being the principle at the heart of scientific public administration to its rejection by democratic theorists of government. We outline why we believe an expanded notion of efficiency can still illuminate some of the big questions in public administration and describe four faces of efficiency that we believe guide the actual conduct of public policy and administration within a democracy. We then summarize the main chapters of the book in which we introduce the public sector efficiency problem, theories and evidence on the four faces of efficiency, and the management of the tensions between each dimension of efficiency within a democratic setting. The book therefore brings together a wide range of ideas about the problems, policies and prospects of public service efficiency, and provides the most thorough reflection to date on how it has been, and should be, pursued.

What is public service efficiency?

The efficiency of the public sector is an issue that is rarely out of news headlines in democratic countries across the world. Calls to reduce government spending, improve the productivity of public officials and make the public sector more business-like have been a popular refrain in the developed world throughout the post-war period (Downs and Larkey 1986). Our focus in this book is not on ideologically inspired questions about the size of the state, what constitutes public sector waste or the relative failings of government versus business. Rather, we are interested in exploring theories and evidence on the efficiency with which vital public services are produced, distributed, planned and allocated. By public services, we mean the systems for the production of public goods for which government is held accountable. These systems can be thought of as policy (or institutional) fields, such as education, health or defence, or specific public organizations, such as schools, hospitals or military units. Decisions that have efficiency implications are made by policy-makers with responsibility for the design of large-scale reforms and by administrators with responsibility for the strategic management of public services. In exploring public service efficiency within these settings, our book is therefore firmly located within the discipline of public administration.

The early history of public administration studies is replete with scholarly concern for the measurement and management of the efficiency of public services (e.g. Walker 1937). However, much of this early interest in efficiency reflected a belief that scientific control of the quantity of production inputs and outputs was needed to eliminate ‘waste’ in the public sector, and that this goal was the primary value shaping the work of public officials (Mosher 1968). This emphasis on scientific control reflected the notion that the management of public and private organizations was essentially governed by the same universal principles. Drawing upon the ideas of Frederick Taylor, the founding fathers of the discipline of public administration, like Luther Gulick and Lyndall Urwick, devoted their attention to thinking and writing about the ways in which the labour process within government could be made more efficient. Largely absent from this Taylorist discourse was the notion that the democratic underpinning of public administration meant anything more than a responsibility to spend taxpayers’ money as sparingly as possible.

For scholars steeped in political science, the connection between politics and the bureaucracy within a properly functioning political system implied a set of democratic principles of administration that were much more substantive than merely controlling the costs of government. According to Dwight Waldo, in particular, efficiency was only one among many administrative values within government, and nowhere near the most important value at that. Instead, democratic ideals, such as service to the public and citizen involvement and participation in government, should take precedence within public administration. Thus, rather than being technical specialists whose function was to improve the ratio of production inputs to outputs, public administrators had a duty to design and implement policies that were somehow responsive to, and even shaped by, public needs and demands.

Waldo’s critique of the anti-democratic implications of the science of administrative efficiency continues to dominate contemporary debates about the place of efficiency within public administration (Denhardt and Denhardt 2011; Suleiman 2003); something which the cost-cutting emphasis of NPM has done little to dispel. Beck Jorgenson and Andersen (2011: 336), for example, argue that even in the UK ‘the home of NPM… The dangers of one-sided values and of efficiency crowding out other – classical – values were pointed out’. Despite this on-going hostility towards the value of efficiency, there is an alternative view, which suggests that there are inclusive, far-sighted and democratic elements of the concept of efficient public administration that can guide public managers’ decisions about the most appropriate allocation of scarce resources (Grandy 2009; Rutgers and van der Meer 2010).

Rather than downgrading or dodging the efficiency question, our argument in this book is that values such as distributive and intergenerational justice and citizen satisfaction are considerations that should be included within the rubric of a concept of public service efficiency. To reject the pursuit of efficiency as somehow anathema to the aims of government, is to ignore the interplay between democratic values and the hard facts of budgetary constraint and scarce resources that characterize the practice of public administration. In fact, economic theory tells us that market efficiency itself encapsulates more than just the reduction of production costs.

The four faces of efficiency

The annals of economics are replete with discussions about the ways in which properly functioning markets are the most efficient means for supporting a productive economy. According to Samuelson and Nordhaus (2005: 7), markets provide an answer to three ‘fundamental’ questions societies face when confronting the challenge of economic organization: ‘what commodities are produced, how these goods are made, and for whom they are produced’. This implies that there is a productive (how) dimension to market efficiency, a distributive dimension (for whom) and an allocative dimension (what). A fourth question – when to produce, either now or in the future – can be added to this list, as confirmation that efficiency is not simply static but also has a dynamic longer-term dimension. Economic theory suggests that each of these questions will be answered most efficiently in markets under conditions of perfect competition. Consumers will purchase the goods which most satisfy their preferences, those goods will be produced as cheaply as possible by profit-maximizing firms, whilst resources will be automatically directed to the most socially rewarding uses through the free movement of the factors of production. Freely determined interest rates will take care of the balance between current and future consumption.

Within most economies, the assumptions of perfect competition tend to hold often only with the support of government regulation. Indeed, it is the failure of real-world markets which economists usually regard as providing the rationale for government intervention within the economy. Such intervention may be limited to the establishment of institutions that uphold market competition, but in most countries extends to the provision of services to the general public that the market is unable to supply efficiently. Ironically though, while public service provision may be deemed necessary on the grounds of efficiency, there is no guarantee that government production will itself be any more efficient than the imperfect free market exchanges it replaces (or crowds out) (Moore 1995: 42). Governments everywhere therefore face a public sector efficiency problem, which must be addressed through the conscious application of policy instruments and management reforms designed to improve the functioning of public services.

Following Samuelson, we suggest that there are four main dimensions, or faces (Lukes 1974), of public service efficiency that are the object of public policy and administration within a democracy. The first, productive efficiency, relates to the maximization of outputs over inputs; the second, distributive efficiency, relates to the equity with which services are distributed between citizens given the budget constraints in the public sector; the third, dynamic efficiency, refers to the balance between present and future public service consumption; while the fourth, allocative efficiency, refers to the match between the demand for and supply of services. Within this book, we explore the role that each of these different dimensions plays in the theory and practice of public administration. In doing so, we also examine approaches to measuring and managing productive, distributive, dynamic and allocative efficiency.

Measuring and managing efficiency

Since government cannot rely on the free market for the efficient supply of public services, it must seek to manage the provision of those services as efficiently as possible. Within this context, it is conceivable that the skills, expertise and public service ethos of officials might be relied upon as the source of efficiency-enhancing practices. However, there is no prima facie reason for supposing that government employees can be trusted to use resources any more efficiently than their private sector counterparts, even if efficiency is espoused by them as a core administrative value. Or, put differently, the incentives for public managers and organizations to provide services as efficiently as possible must be designed into the service production system. Because efficiency must be managed, it becomes correspondingly essential that the results of those managerial efforts be susceptible to evaluation. In the public sector, there are no clear signals from the market that the services being produced are (in)efficient compared to those that are available to private firms, such as profitability, customer satisfaction, market share and, ultimately, bankruptcy. The development and use of appropriate measures of public service efficiency is therefore integral to its management.

The measurement of efficiency in the public sector is an issue that continues to exercise the minds of public economists and public administration scholars. Aside from the question of whether or not what is produced should be measured, debates about efficiency have largely been concerned with determining the best approaches to capturing relevant public service inputs and outputs. In contrast to the private sector that benefits from unambiguous indicators of market efficiency, there are few clear markers of what constitutes efficiency in the public sector. One consequence of this measurement ambiguity is the tendency to regard public service efficiency as simply the optimum ratio between the quantity of inputs and the quantity of outputs. This approach certainly has the merit of being susceptible to measurement and modelling using linear programming techniques, such as Data Envelopment Analysis and Stochastic Frontier Analysis. However, identification of an efficient production frontier often tells one very little about the quality of the public services being produced, whether some consumers should receive more of a service, whether the balance between current and future expenditures is about right or whether or not services are meeting customer demand.

The conceptual difficulties presented by the measurement of each of the four dimensions of efficiency are largely associated with the challenge of developing appropriate indicators of public service outputs. Inputs into the production of public services tend to be more easily conceptualized and measured. Indicators of the cost and volume of labour and capital required to produce public services are readily available and can be easily incorporated within the evaluation of public service efficiency. By contrast, the development of measures of public service outputs is a much more contested activity, principally because of the many perspectives on government activity held by the stakeholders in public service production. Politicians, public managers, professional groups and service users in general, all have different views about what constitute the purpose of public services, and hence have very different notions about what should be considered the main output of any given agency or programme.

Although public service stakeholders may differ in their opinion of what public purposes matter most, they are likely to be in agreement about those elements of public service output that are important to them, if to varying degrees. Broadly speaking, public service outputs have several dimensions that are integral to the four faces of efficiency we have identified: output quantity and output quality (productive); equality of opportunity and outcome (distributive); the physical, human, intellectual, social and natural capital that public services create (dynamic); and customer satisfaction and procedural justice (allocative). A variety of indicators can be used by public policymakers and managers to capture these aspects of efficiency, ranging from counts of the sheer number of clients served and efforts to assess output variations across social groups, to proxies for the contribution public services make to national economic growth and surveys gauging the satisfaction of service recipients. Critically, in developing such indicators, it becomes possible not only to analyse levels of public service efficiency, but also to evaluate the impact of policies intended to deliver improvements on each dimension.

Evaluation of the poli...

Table of contents

• Cover Page
• Half-Title Page
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• 1 Introduction
• 2 The public sector efficiency problem
• 3 Productive efficiency
• 4 Distributive efficiency
• 5 Dynamic efficiency
• 6 Allocative efficiency
• 7 Managing for efficiency in a democracy
• 8 Conclusion
• References
• Index