Can institutional reform effectively deal with the problem of bureaucratic corruption and inefficiency?

Corruption is present in all societies but some are more damaged by it than others. It erodes public confidence in political institutions and leads to contempt for the rule of law.  Corruption distorts the allocation resources, inflates public procurement and undermines competition.  Nonetheless societal definitions of what constitute a corrupt act may vary.  

        Assessing the organizational efficiency of the public sector is also quite difficult.  First, unlike private organizations, public organizations have no single performance indicator – such as profits or market share – that can be used to compare across different types of organizations or products.  Few organizations in the public sector work for profits, and the outputs of organizations such as an audit body are used only by other organizations in the public sector.

        Second, public sector organizations are often responsible for goods with low contestability and measurability.  In such circumstances it is generally impossible to find performance measures that satisfy the ideal qualities of consistency, comparability, clarity and relevance.  Efficiency in the public services is a measure of resources expended relative to the output produced by these resources.

The World Bank’s 1983 World Development Report identifies the following six causes of inefficiency: (1) inappropriate macroeconomic policies such as ineffective exchange rates and excessive borrowing; (2) distorted incentives; (3) low yielding investments; (4) investment delays and rising costs; (5) low capacity utilization; (6) poor maintenance.  They have proposed that these problems can be traced to the responsible organizations within which reform strategies should be anchored. 

Public organizations are criticized not only on the basis of their record of performance but also for social and economic problems of the country.  For instance, Balassa et. al (1986) would blame most of the problems in Jamaica on its crime-driven political system and state capitalism.  They also found that Latin American state owned enterprises are notoriously inefficient and contribute substantially to many of the problems hindering economic growth such as public sector deficits, domestic and foreign borrowing and misallocation of resources.  They also believe that state capitalism and corruption go hand in hand.  They have therefore called for the Latin American states to eliminate regulation, promote divestiture as a prerequisite for economic growth.

Directors of hierarchical firms attempted to coordinate internal resource allocation without the benefit of the price mechanism. This initiated a process of political decision-making that may have enhanced the goals of the emergent political figures but which led to inefficiency.  

Despite cultural differences, there existed widespread dissatisfaction with many processes within the public sector.  A number of countries were ready to change the processes that led to inefficiency and waste. Positive political theory, according to Moe (1984:739), had not contributed much to our understanding of public bureaucracy.  Significant steps toward a positive theory of hierarchies were taken – but by economists, not political scientists. Coase (1970s) wrote some especially influential notions. (1) Economic organizations are best understood by comparing their efficiency to that of the market (2) The real world is not characterized by perfect competition thus organizational arrangements are best understood in terms of the transaction costs inherent in any system of exchange (3) these relationships are contractual in nature, and the firm is best understood as founded upon a distinct kind of contractual arrangement.

Hood has outlined the main doctrines of institutional reform in the “New public management model”(1994:131).  They are as follows:

• More emphasis on private sector managerial styles and practices.  Justified by the need to use “proven” private sector techniques, this involves a move from military style public service ethic and to flexibility in hiring and rewards.    
• A movement towards greater competition in the public sector.  This involves a shift towards contracts and public tendering and is justified as using rivalry as the key towards lower costs and better standards. (It should be hastily noted that given the nature of some public enterprises, e.g. the issuance of passports or the Inland Revenue Department, competition with other firms may result in waste).
• Explicit standards and measures of performance.  This suggested the use of clearly defined goals and preferably quantitative indicators of success.  
• Hands on professional Management.  This in essence means allowing managers to manage using ’active visible discretionary control of organizations”.  This increases accountability, as there is clear responsibility for action or inaction.
• A shift to disaggregation of units into the public sector. In order to create manageable units and to gain efficiency advantages of franchise arrangements inside and outside the public sector, large entities are broken up into ‘corporatized’ units.  These products are funded separately and dealing and dealt with on an arms length basis.
• A stress on greater discipline and parsimony in resources use.  This means cutting direct costs, resisting union demands, raising labor discipline, limiting compliance costs to businesses.  This is justified by the need to check resource demands of the public sector and to “do more with less”.
• A greater emphasis on output controls.  Resources are directed to areas according to measured performance, because of the need to ’stress results rather than procedure’.            

Critics of the methods of institutional reform outlined above have noted that these methods of control over public enterprise, and for our purposes corruption and inefficiency, are too reliant on the strength of the market.   There are instances in which such market centered or private-sector-focused constructs will fail. In fact the concept of the market has been criticized as being too theoretical in nature.   G. Miller (1992: 26) examined causes of market failures that would impact on the market’s ability to contain inefficiencies and corruption:

Monopoly power. In a competitive market, no individual has the capacity to influence equilibrium price.  But the temptation for the monopolist is to increase prices in order to increase profits.  Many governmental organizations operate as monopolies.

Externalities. Whether an externality is positive or negative, a normal economic buyer will not consider the externality in purchasing the good.  Hierarchical firms partake of “political” authority to impose solutions without the inefficiencies of constant bargaining among participants.  Employees submit to this authority because they realize that in the long run, they will be better off in a system that has the authority to impose outcomes on everyone.  

Within this construct, the formulators of institutional reform hope to effect changes in the problematic areas of traditional management and apply some measures of control and accountability.

Gary Miller (1992:1) contends that since the inception of organizational theory, two distinct literatures on organizational controls have persisted.  One views organizational control as a mechanistic problem of designing incentive systems and sanctions so that self-interested and intrinsically unmotivated employees will find it in their own interests to work towards the organization’s goals.  Proponents of this school of thought are Frederick Taylor, the father of scientific management, and the contribution of economists through the ‘principal-agent theory’.  According to this theory, agents are perceived as having distinct tastes, which they pursue as rational maximizing individuals.  The principal’s job is to anticipate the rational responses of agents and to design a set of incentives such that the agents find it in their best interest to carry out the principal’s requests.  

The more organic view of organization, which is centered primarily in political science and organizational psychology, denotes that resource allocation results from the decisions of individual leaders.  Effective leadership is by no means automatic from this perspective.  While competitive market forces may tend to reward the more efficient leaders, other leaders may insulate themselves from the disciplining force of the market by political stratagems that result in governmentally enforced entry barriers or restrictions in the capital market.  The result of this was persistent inefficiencies within the hierarchy. The contrast is clear.  Economists assume that subordinates respond to incentive systems in a self-interested maximizing way.  

C. Hood examines the usefulness of cultural theory in analyzing control over public management, both as it relates to corruption and institutional reform.  He notes that the polar types of organization are termed hierarchist, egalitarian, individualist and fatalist.    The types of control linked to each of the four generic organizational ways of life are labeled contrived randomness, review, mutuality and competition. Contrived randomness links to the fatalist (high grid, low group) cultural bias; review (by authority) is a form of control related to the hierarchist (high grid, high group way of life; mutuality links to the egalitarian (low grid, high group) cultural bias; and competition is an approach to control related to the individualist (low grid, low group) way of life.

Through the use of contrived randomness, the behavior of organizations becomes unpredictable for employees and/or clients.  Scams such as Parkinson’s tax evasion system fails because it is uncertain when the bureaucracies will process claims.  Its aim is to discourage systematic co-operation in the form of corruption, subversion or other anti-system ‘networking’ activity.  

The same idea is expressed in a slightly different way in Rose-Ackerman’s (1978:183-6) model of the disorganized bureaucracy, in which procedures are inherently uncertain and changeable.  For her the element of contrived randomness may keep corruption down in some circumstances, because the key pressure points in a decision system harder to identify in advance.

        Mutuality means using a collegial group process to check individuals.  Perhaps the simplest example is the common practice of pairing police officers on patrol in an attempt to reduce the scope for corrupt behavior.  Although often used to check corruption, such controls are not explicitly included by Rose-Ackerman in her four models of bureaucracy. Mutuality makes co-operation and ‘groupism’, the central element of the control.

        Competition is most commonly used in attempts to contain costs and waste, improve quality and avoid concentration of power.  But it is not confined to neo-liberal, market-centered regimes.  For instance ideas of ideas of rivalry and ambition are often applied o even authoritarian governments.  Control also works through competition, for example in allocating grants or rationalizing scarce resources.

        Finally, the review method of control gives one set of people the power to judge, and direct others.  Competition, from such a perspective, needs to be refereed, unguided mutuality will simply produce deadlock and mere randomness cannot be a viable strategy of control except as part of the strategy of some ‘directing intelligence’.  Review links to a vision of good government stressing ‘leaderism’, the importance of sources of authority like law, command or expertise and the structures, which maintain them.

        No single polar type of control can be expected to have all-round superiority over the others.  Each is likely to have some strengths and weaknesses.  Where there exists strong information flows, mutuality is well suited to provide the redundancy and overlap needed but seems vulnerable to breakdown through free riding.  Competition provides strong incentives to outperform rivals, but is vulnerable to quality shading and degeneracy into cartels and organized crime domination.  Contrived randomness may generate excessive passivity, with insufficient incentives to innovate and develop.  Review is likely to be strong on integration and breaking deadlocks, but may experience asymmetry problems.

        Each polar type is likely to have its own path to failure or collapse, but achieving a stable balance among them is likely to be problematic and produce mutual repulsion.  If one model is emphasized, the others are likely to fail. C. Hood (1996:222) purports six hybrids that may be used to adjust to attempts at controlling bureaucracies: competition-contrived randomness, contrived randomness-mutuality, Mutuality-competition, Competition-review, Review-mutuality and review-contrived randomness.  These hybrids also have their paths to collapse or failure.

        The payoff of applying cultural theory to control over public administration is to confirm what is already known and to give a different perspective on the issue from other conventional approaches.  It also presents testable skepticism about the explicit or implied claim in much contemporary orthodoxy about the change in public management/institutional reform.  Bringing a cultural theory perspective to bear on the problem of control and oversight in public administration allows for a testable, fruitful way to extend our understanding of the design conditions for controls over public administration.   One major criticism of cultural theory however is the view that however sophisticated, it cannot be an adequate basis for a theory of management, because ultimately it has little to say about the central what-to-do questions of organization that management needs to be concerned with.   Additionally it has been posited that whatever its level of sophistication may be, the ‘theory’ is limited, ambiguous and perhaps even falsifiable.

        Speaking of a global shift to new public management or institutional reform implies both that there is a single old paradigm and a single exit route from it.  Traditional public management varies in ways that are likely to make substantial differences to the motive and opportunity to adopt measures for institutional reform.

        Powerful international organizations such as the OECD and the World Bank are committed to a view of international convergence on some single best practice model (Hood: 406).  In spite of Osborne and Gaebler’s claim that of a move to an ‘inevitable’ and global paradigm, the movement away from ‘progressive public administration’ in the 1980s and early 1990s was in fact far from universal.   For instance in the key case of China, some of the important public administration developments of the 1980s – looked more like a return to progressivism than away from it.

Even where the changes reflecting institutional reform is made, it does not necessarily follow that they will have similar results or were undertaken for the same reasons.  Individual countries have effected the change in their government sector to varying degrees.  There seems to be at least two serious obstacles to the emergence of a stable new paradigm in public management, the kind of stability that would be necessary for any long-term influence on corruption or institutional reform.  

        One is the difficulty of arriving at a convergent solution for good public management; the other is the propensity of polar approaches to public management to turn into ‘fatal remedies’ producing the opposite of the intended effect.

        Public management reformers do not set out with the intention of creating negative effects, but the possibility exists that contemporary public sector management may produce not just side effects but reverse effects.  First, the more reliance placed on any one polar approach to public management the more serious the blind spots become. Second, each polar approach will tend to antagonize those societies that prefer alternative approaches to public management, creating conditions for ‘provocation, ‘exploitation’ and ‘classification’.  

        If the arguments proposed earlier are correct, institutional reform seems likely to either become different things to different people in different societies (with each society adopting those aspects that will correct the inefficiencies as they see it) or embrace the different tenets of institutional reform sequentially, with emphasis shifting to different approaches as the awareness develops.  A society’s economic and political institutions may provide incentives and different opportunities for corruption and inefficiency.

 Any attempt at institutional reform must be comprehensive, pervasive, and sustainable in order to have long-term positive effects.  Reform requires the active participation and support of local and international organizations and groups.  It calls for a significantly different, subtle, and complex role for the government and government agencies.  It necessitates a gradual but steady breakdown of monopolistic powers and an elimination of market imperfections (if this is possible), and allows the competitive market forces a bigger influence in the making of economic decisions and allocation of resources to organizations.  It demands more effective use of the country’s scarce productive resources such as foreign exchange, public funds, investment capital, and technical and management skills.  Finally, it requires continuous systematic coordination among participating organizations.

   It is the view of this author that institutional reform is an ambitious attempt at correcting the anomalies within the public sector.  Improvements have been afforded with some elements of institutional reform, but any attempt at reform will have to be adjusted to fit different cultures and societies.  The “one size fits all” approach to regulation and/or reform has been proven to be a myth in many areas including structural adjustment.  The enforcement of anti-corruption legislation requires an efficient, predictable and accountable judiciary. The state of the country’s economy and of its public institutions will serve as catalysts or hindrances to institutional reform’s ability to cope in any great measure with bureaucratic corruption and inefficiency. Institutional reform’s success will therefore depend on the extent to which its tenets ‘fits’ the vast differences that exist in the societies that have embarked on its tenets.

BIBLIOGRAPHY

TEXTS

Hood, Christopher, Explaining Economic Policy Reversals, Open University Press (194)

Power, M, The Audit Society: Rituals of Verification, Chapters 1 &3

Miller, Gary J., Managerial Dilemmas: The Political Economy of Hierarchy Cambridge University Press (1992)

PERIODICALS/PHOTOCOPIES

Sue Crawford & Elinor Ostrom, A Grammar of Institutions, American Political Science Review Vol. 89, No.3 (1995)

Foster, Christopher Rival Explanations of Public Ownership (489-501)

Hood, Christopher, Control Over Bureaucracy Cambridge University, 1996

Hood, Christopher Contemporary public management: a new global paradigm? (406-416)

Kiggundu, M Managing Organizations in Developing Countries (256-287)

Moe, Terry, The New Economics of Organizations, American Journal of Political Science, 1984

OECD Policy Brief, The fight against bribery and corruption, 2000

INTERNET SOURCES

The definition of political corruption in China 

Operational inefficiency and poor service delivery 

---