First Management Reform Wave in Great Britain

  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: 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? 5.10.

5.11.

5.12.

5.13.

5.14.

5.15.

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 (19791990) 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

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“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).

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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

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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 selfinterest (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 (19901997). 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

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rule clearly utilised marketising and minimising strategies to reform its public sector (see Pollitt/Bouckaert, 2004: 188).

Marketising can be defined as instituting as many so called market type mechanisms (MTMs) as possible within the system of administration and law. This means that public sector organisations are made to compete with each other, in order to increase efficiency and userresponsiveness, whereas costs have to be extremely reduced. The result is among others a penetration of the administrative system by the culture, values and practices of the market sector (see Pollitt/Bouckaert, 2004: 188).

Minimising, on the other hand, means to hand over as many hitherto public functions and activities to the market sector as possible (through privatisation and contracting-out). The Conservative governments, for example, minimised the public sector by privatising major social security services and even prisons, and by introducing internal market mechanisms in the remaining public tasks; thereby letting the administrative system dwindle to a shadow of its former self. Today, the British governance system is thus referred to as a “hollowed-out” state (see Pollitt/Bouckaert, 2004: 188).

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

3.1. Government

Great Britain’s system of government has been referred to by academics and policy-makers for decades as the so called “Westminster model”, whose key characteristics include parliamentary sovereignty, unity and territorial integrity, accountability through free and fair elections, majority party control over the executive, strong Cabinet government dominance, doctrine of ministerial responsibility, and non-political officials. After the Conservative reforms, some key characteristics of this specific government model were changed, but many features remained in place. For example, the political system was before 1979 and is still today majoritarian and adversarial, with a first-past-the-post electoral basis, and two main parties (Conservative and Labour), which rotate in office; as well as a number of minor parties. All parties were (and are) characterised by tight party discipline, resulting in executive dominance of the legislature (see Richards/Smith, 2002: 274-275).

The legislature is made up of two chambers: The Lower House (House of the Commons) and the Upper House (House of Lords). Party discipline in the Lower House is strong, thus the government can in normal times get almost all its programmes and proposals through, especially as the Upper House can only delay and not reject government legislation. This specific nature of the British system explains why the radical and often unpopular Conservative reforms could be pushed through by the government, despite sometimes strong public resistance (see Pollitt/Bouckaert, 2004: 292).

As the majority party was very powerful in the Westminster system, it provided for a closed and elitist system of policy-making. However, its closed nature was justified through the principle of ministerial responsibility and periodic elections. The concrete process of

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