Course:

Public Governance and Leadership

Name:

Lena Bringenberg

First Management Reform Wave in

Great Britain ­ The Great Problems of

Transforming Public Administration

with "New Public Management"

Reforms

---

Structure

1. Introduction: 4-5

2. New Public Management and its specific style in Anglo-Saxon countries

2.1. The concept of NPM: 5-7

2.2. The specific NPM model used in Great Britain: 7-8

3. The UK′s political system (before and after Thatcher′s reforms)

3.1. Government: 8-9

3.2. Public administration: 9-10

4. The Conservative era: Implementation of "New Public Management" concepts and how

they transformed Britain′s public sector: 10

4.1.Reasons for the emergence of NPM reforms: 11

4.2. Reforms implemented in the British public sector: 11

4.2.1. Reforming the financial system: 11-12

4.2.2. Privatisation and the creation of regulatory agencies: 12

4.2.3. Internal or quasi-markets and the creation of

"Next Steps" agencies: 12-13

4.2.4. Organisational restructuring: 13-14

4.2.5. Review of performance: 14

4.2.6. Client orientation: 15

4.2.7. New management style in the public sector: 15

4.2.8. Individual performance-related pay and short-term

contracts: 15-16

4.2.9. Change of the public Service ethos: 16

4.2.10. Shift in power from professionalism to general managers: 16-17

4.2.11. From elected to appointed officials: 17

5. What went wrong? ­ Problems of the Thatcher reforms: 17-18

---

5.1. Tension between centralisation and decentralisation: 18-19

5.2. Reduction of public sector employees and expenditures? 19-20

5.3. Reforming the social policy sector: 21

5.4. Increase in corruption and loss of an ethical code of conduct: 21-22

5.5. Unintended change of the governance system: 22-23

5.6. Managing through contracts? 23-24

5.7. Useful target-setting? 24

5.8. Democratic accountability: 24-25

5.9. Transferability of public sector concepts to the private sector? 25-26

5.10.

Downsizing the public sector so it loses effectiveness: 26

5.11.

Loss of professionalism: 26-27

5.12.

Next Steps agencies: 27

5.13.

Division of government and its public administration: 27-28

5.14.

Difficulties with regarding citizens as customers: 28

5.15.

Privatisations ­ always beneficial? 28-29

6. Conclusion: 29-31

Appendix

1. Images

Table A: Trends in Public Sector Employment, UK 1991-2005: 34

Table B: Continuity and Change in the Public Services.

Public-sector workforce 1978-1993: 35

Table C: Total managed expenditure as % GDP 1967-2008: 35

Table D: Public Sector net investment as % GDP 1967-2008: 36

2. Case study: the failed railway privatisation

2.1. Overview of the British railway privatisation: 36-37

2.2. Privatisation of British rail: 37

2.3. Problems with the privatised railway: 37-40

---

1. Introduction

The 1980s in Great Britain are referred to as the "decade of Thatcherism" (Moran, 2005: 17),

named after their characteristic and very influential Conservative Prime Minister Margaret

Thatcher. Her government produced revolutionary changes which not only completely

transformed economic life, but also fundamentally reorganised the government′s tasks and

functions, as well as the structure of the civil service. These grand, all public sector divisions

encompassing reforms are referred to as the First Management reform wave, in which market

forces, as well as management concepts from the private sector were enthusiastically

implemented in the public sector (see Moran, 2005: 17-20).

In the 18 years of Conservative Government in the UK under first Margaret Thatcher (1979-

1990) and later her successor John Major (1990-1997), the traditional structure, working

procedures, culture and image of the public sector were transformed under the slogan: "New

Public Management" (NPM). The long-term influences of these reforms are today referred to

as the Thatcher legacy, and are hotly contested in academic research, but also public opinion.

Some regard Thatcher and her reorganisations as the saviours of the British economy, because

starting from an impoverished and chaotic basis, they turned the economy into a model that

many European neighbours would later on seek to emulate. However, by this "saving" of the

economy, she also greatly cut back the "large" and "incompetent" public sector, thus

replacing the citizen-friendly Welfare State with the rather harsh market economy of the

private sector. For others, Thatcher thus introduced a system where the core democratic

values of equity and fairness were lost and "a tiny minority enriched themselves while

millions worked under the treat of dismissal" (Moran, 2005: 17-20). Most importantly,

however, they criticise the missing of the large impact on performance enhancement,

effectiveness, and efficiency that was claimed, but never achieved by the public management

reforms.

This research paper analyses the reasons for this ineffectiveness, and the sometimes even

negative influences of the supposedly failed first management reform wave on the state′s

performance. Hereby it will be assessed if the causes are to be found in the private sector

management techniques and their application to public sector organisations (in form of the

New Public Management concept), or if rather the specific kind and context of British reforms

was problematic, and rendered the techniques unfeasible and impractical.

To this end, the reform process in Britain, starting in 1979 with the election of the

Conservatives, until the change of government to Labour in 1997, will be analysed. The first

part of the paper will give an overview of the New Public Management concept, its major

components and the reforms it proposes for the public sector. In this context, the specific form

of NPM that was implemented in Great Britain will be introduced: the radical pursuit of the so

called "marketiser" and "minimiser" strategies, which primarily aimed at introducing the

market concept of open competition to state agencies and at minimising public sector costs

and size.

Following this introductory part of the concepts, an overview will be given about British

government and public administration before the Conservative reforms: the famous

4

---

"Westminster model" and the "Whitehall bureaucracy" (closely related to the classical

"Weberian" bureaucratic model). Furthermore, the major transformations of both concepts

that took place in the Conservative era will be briefly explained. The following section will

then introduce some of the most important reform initiatives of the Thatcher and later Major

decades, especially to the public sector′s structure and tasks.

Based on the concrete reform elements, their problematic effects and outcomes will be

analysed. In this part, the question why the reforms failed to achieve their intended purpose

will be answered. Lastly, a conclusion will summarise the major results of the research paper

and deal with the question, why the first management reform wave in Great Britain can be

overall described as failed. As an example of a disastrous reform, the privatisation of the

British railway will be introduced in the appendix, for those readers interested in more detail

in concrete failures of the first management reforms.

Because the number of changes the Conservatives introduced in Great Britain is beyond the

scope of a short research paper, this study focuses primarily on the management reforms in

the public sector (meaning primarily a concentration on central government and its

administration, as well as to a lesser extent local government and public corporations). At

some points, also changes in policies are mentioned, because in many reform sectors it proved

almost impossible to separate them from the management reforms. However, only regarding

the management reforms is still too large a task, especially as they are very broad in their

scope and intensity. Therefore, this paper does not mention, and furthermore not analyse all of

them in depth, but rather focuses on selective reform elements, such as privatisations or the

creation of hybrid organisations (private, as well as publicly managed institutions). Lastly, it

has to be noted that only the negative effects of the public management reforms are examined,

thus giving a very one-sided picture of the Conservative government era, as positive and

successful reform results are not mentioned, although they certainly existed.

In short, this research paper will focus on the overall problems arising from the

implementation of NPM reforms in Britain′s public sector and try to give an explanation for

their occurrence.

2. New Public Management and its specific style in Anglo-Saxon countries

2.1.

The concept of NPM

New public management (NPM) is a global reform movement and a feature of international

trends in state and public administration since the late 1970s. It fundamentally transformed

almost all industrial countries′ public sectors, however in very different ways. The concept is

inspired by a particular set of economic theories and normative values whose main focus is on

increasing efficiency. Some of its main characteristics are increased market orientation,

devolution, managerialism and the use of contracts. The Anglo-Saxon nations, among them

the UK, were among the first and most radical implementers of the new reform movement,

whereby they focused especially on its marketing features (see Christensen/Laegreid, 2002:

1).

5

---

NPM mainly developed as a contrary concept to the traditional "Weberian" bureaucratic

model of administration, which had been used in almost all industrial countries′ public sectors

in one form or the other since the end of the First World War. The NPM model attacked the

characteristics of the "Weberian" bureaucracy (which were, among others, hierarchy,

professionalism, uniformity, and thus predictability) as residual elements of an unresponsive,

inefficient, inflexible and non-innovative (thus risk-avoiding) state machine that could no

longer satisfy the aspirations of society. NPM′s major aim was thus to transform the public

sector′s bureaucratic components, in order to enhance the performance of government and

especially its administration, its efficiency and effectiveness, as well as making it more

responsive to client needs. To this end, the reform concept proposed to transfer managerial

techniques and business-centred practices from the private to the public sector (see

Farnham/Horton, 1996: 21-31).

Unlike the bureaucratic model, NPM did not provide a closed concept for public

administration procedures. It rather emphasised the use of different approaches, which were

related to the situations and tasks they were supposed to perform in a complex public

administration; thus rejecting the idea a consistent and homogeneous public sector (see

Budäus/Conrad/Schreyögg, 1998: 3-4). Therefore, NPM is a collective term, under whose

banner numerous very different reform attempts are subsumed.

However, despite the great variety of different NPM concepts, the general reform model can

still be said to consist of four interdependent fields: 1. A new understanding of the overall

role, as well as the specific tasks of the state and its public administration, 2. External reforms

of structures, 3. Internal modernisation, and 4. Customer- or client-orientation (see Budäus,

2004: 941).

The first field intends to fundamentally change the traditional functions of the public sector,

as it questions the ability of the bureaucratic state to find solutions to modern problems, as

well as to finance "expensive" welfare services in the long term. Thus, NPM advises

government to reduce state expansion ("push the state back") by cutting as many of its

functions as possible (e.g. through privatisation), and to develop new, partly very innovative

forms of organisations (e.g. Public Private Partnerships) to minimise public expenditures and

introduce cost-effectiveness to the public sector. The only crux is the question, which core

tasks and duties should remain at state level and which can be outsourced to private firms (see

Budäus/Conrad/Schreyögg, 1998: 3-4). By crucially decreasing the role of the state and not

directly involving it anymore in especially economic processes, this first part of the NPM

concept marks the change from the dominant producing to an ensuring or providing state,

where the government only has to guarantee for the continuing provision of formerly publicly

provided tasks (see Budäus, 2004: 941).

The second field of the NPM concept deals with the reform initiatives that focus on the

conditions influencing the structure as well as the activity of the whole public sector. These

"external" alterations to the administration mainly consist of approaches to introduce market

forces and to thus create conditions for competition, while at the same time develop new

financing models for public goods and services (e.g. by asking the `consumers′ to pay), and to

create alternative options so clients enjoy a freedom of choice. As bases for this external

6

---

structural reform component of the NPM serve especially Niskanen′s public choice theory,

but also other New Institutional Economics (NIE) or organisational economics approaches,

for example principle-agent or transaction-cost economics (see Budäus/Conrad/Schreyögg,

1998: 3-4). NPM has inherited several values and perceptions, most importantly the narrow

model of human behaviour, which reduces individuals to "rational utility maximisers", from

the NIE-approaches. This model suggests that economic actors (in this case public managers)

are opportunistic, shirk responsibility, act with guile and are only driven by competitive self-

interest (i.e. by pursuing wealth, power, status, and other personal gains) (see Terry, 1998:

196).

The third field of the NPM concept deals with the interior reforms of structures, practices and

personal behaviour in public administrations. It is largely based on the so called

"managerialism", which consists of numerous different management approaches from the

private sector for reforming the public sector. Thus, interior reform can focus on very

different elements of change. Some countries concentrate on hard reform elements, and for

example introduce a cost and activity accounting system in order to review and thus enhance

performance and reduce expenditures, or they establish contract management to augment

competition and thereby increase motivation. Others focus on soft reform elements, e.g.

furthering human resource development by for example employing private sector managers in

the public services or improving civil servants′ training, or decentralising administrative tasks

to disperse hierarchical bureaucratic structures (see Budäus/Conrad/Schreyögg, 1998: 3-4).

Furthermore, public service delivery should be revolutionised by the introduction and fast

spread of information technology (see Farnham/Horton, 1996: 116).

The fourth NPM component encompasses a stronger orientation towards the customers

(traditionally citizens) of the public sector. This reform element involves especially the

change from the bureaucratic focus on the inputs and thus the administrative process, to the

more effective concentration on the outputs or outcomes. Such a result-driven public sector

was believed to lead to faster administration processes and greater customer satisfaction.

2.2.

The specific NPM model used in Great Britain

The public management reform movement took its toll on Britain mainly in the period from

1979 to 1997, when the Conservative party was in power; first under the lead of Prime

Minister Margaret Thatcher (1979-1990), and later on under her successor John Major (1990-

1997). During this time, many large-scale and radical reforms were implemented,

predominantly "top-down", i.e. having been conceived and carried out mostly by executive

politicians. Britain′s "managerial revolution" was thus strongly elite-, and not society- or

citizen-driven (see Pollitt/Bouckaert, 2004: 26).

In international comparison, Great Britain was not only one of the first countries to reform its

state structure; it was also one of the most radical, which is for instance nicely exemplified in

a framework developed by the scholars Pollitt and Bouckaert. Their categorisation classifies

different industrial countries′ New Public Management reform approaches in 4 groups:

maintain, modernise, marketise and minimise. Using this scale, the UK under Conservative

7

---