Discuss the theoretical bases for the New Public Management (NPM) model and evaluate whether it is better than the traditional public administration model to manage the public sector. Support your position with real-life examples.

University Degree Business and Administrative studies

PUAD A322F

Name: Lam Fung

Student ID: 10476789

Question No.: 2

Question 2: Discuss the theoretical bases for the New Public Management (NPM) model and evaluate whether it is better than the traditional public administration model to manage the public sector. Support your position with real-life examples.

There are various differences in the traditional public administration model and New Public Management model to manage the public sector. In order to determine which of these two models is better, it is worth to discuss the theoretical bases for the NPM model and then compare the major differences between these two models. According to Hughes, there are two major principles of NPM: (1) it is market-based; (2) it aims to move away from bureaucracy as an organizing principle. The first principle consists of three theoretical bases namely public choice theory, principal-agent theory and transaction cost theory, while the second principle is private management.

In the market-based principle, public choice theory refers to the economic theory that applied to the bureaucracy that all human behavior is dominated by self-interest. There is an assumption that individuals are rational who always seek the biggest possible benefits and the least costs in their decisions, while discourage from certain activities if they get loss and attracted towards certain activities if they get rewards. Instead of being motivated by the public interest, bureaucrats are like anybody else who are assumed to be motivated by their own interest. As a result, bureaucratic failure exists as bureaucrats are regarded as to maximize their own utility at the cost of their agency; maximizing their own welfare and neglect the public interest. In general, the best outcome would be a maximum role for market forces and a minimal role for government. In economic view, if the role of government in goods and services supplying could be reduced and run by the natural market, the economy would benefit. (PUAD notes)

The Principal-agent theory in the market-based principle refers to two major problems: the conflicts of interest and the problem of asymmetric information between the goals of agents in private firms and principals. The interests of agents and principals diverges attribute to the issue of accountability and the effects on organization. Thus in order to make balance between both interests, principals attempts to find incentive schemes for agents to act in the interest of principals such as given contracts that specify their obligations and rights. For example, shareholders may wish to seek the maximum profits while agents might just want a long term-growth or higher salaries for themselves but it is not a necessary for agents to maximizing profits for the benefit of the shareholders. Thus obligations and rights should be specified in the contract.

Moreover, multiplicity of principals with diverse objectives is another problematic issue. For example, sometimes it is hard to determine who the principals are and what their wishes are. If the principals are the entire public that with diffused interests, it is difficult for the agents to follow what their principal might want them to do. In addition, there is no influence from the profit motive and no market in shares. Agents’ behavior cannot be ensured in fulfilling principals’ wishes and cannot well perform if there is no adequate means provided. In order to reduce the agency problem, a transparent contractual ...

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The transaction cost theory in the market-based principle refers to the heavy cost to justify internalizing the service. Thus government or principals should find the best way of organizing the production and provision of good and services by considering the task should be provided in-house or be contracted out to reduce administrative costs and sometimes provide competition between government and the public. (PUAD notes)

There has been much change from traditional public administration to NPM such as (1) Hands-on professional management: it refers to active, visible, discretionary control of organizations from named persons at the top free to manage while the accountability requires clear assignment of responsibility for action but not diffusion of power. (2) Explicit standards and measures of performance: it refers to the definition of goals, targets, indicators of success, preferably expressed in quantitative terms, especially for professional services while the accountability requires clear statement of goals. (3) Greater emphasis on output controls: it refers to the resource allocation and reward linked to measured performance; break-up of centralized bureaucracy-wide personnel management while the justification for this is the need to stress results rather than procedures. (4) A shift to disaggregation of units in the public sector: its function is to create manageable units, separate provision and production interests, gain efficiency advantages of use of contract or franchise arrangements inside as well outside the public sector (5) A shift to greater competition in the public sector: it move to a term contracts and public tendering procedures in order to lower the costs and achieve a better standards. (6) Stress on private sector styles of management practice: it could help to move away from military-style public service ethic, greater flexibility in hiring and rewards and greater use of performance review techniques. (7) Stress on greater discipline and parsimony in resource use: it could cut direct costs, raising labor discipline, resisting union demands and limiting compliance costs to business(PUAD notes)

The traditional public administration which focuses on passive and rule following that bureaucracy is no longer appropriate. Instead, the new public management of business principles to the public sector mainly focuses on efficiency; goals achieving and active become up to date. First, NPM is focuses on active professional management but not just monitoring operations in previous. Senior managers are expected to manage their colleagues and designate the organization’s goals, mission and objectives, which could provide long term strategies in order to enhance efficiency and effectiveness of the organization. Second, managers are just following the routine works but lack of goal achieving. Instead, they have to take the role to achieve specific goal by establishing clear objective, setting explicit standards and requires measuring the performance. Thus incentive reward and penalties should be inter-related to their performance for effectiveness and efficiency. Third, output control is of greater significance than processing, thus financial management should be improved that the budgets need to reflect what is to be delivered and use of resources should be right to the goals that have to be achieved. Fourth, flexibility in organization like disaggregation of large organization into small entities could facilitate control and management. Thus managers could easily implement or determine policies. Fifth, a flexibility of staffing should be adopted to renew the old day’s lifetime tenured employment. Recruitments to the public service are based on one’s ability rather than seniority. Thus it could help find the best person to suit particular position. Sixth, privatization and contracting out of government tasks provide competition to the public in one hand could reduce the size and role of government and on the other hand could stimulate competition in the marketplace. (PUAD notes)

The traditional bureaucracy in Hong Kong was a clear and rigid hierarchy in structure that the lower levels are responsible to upper level for tasks that were assigned. Members of the public service work are standardized. Public servants enjoy life-tenure and there is no threat of dismissal and career was also rewarded by generous retirement benefits. Under these conditions, traditional bureaucracies are no longer gain effectiveness and efficiency, private sector management have been introduced to the public sector in order to sooth the financial problems with growing demand of services. Since 1999, Hong Kong government has been put much measure in a series of Civil Service Reform under financial, personnel and performance management. For financial management, Hong Kong Government introduced the Trading Fund Ordinance in 1993 to allow the Company Registry, Lands Registry, Office of Telecommunications Authority, Post Office, the Electrical and Mechanical Services Department to operate in a commercial basis. Thus government departments could be transforming in to organizations that rely more to the public and reduce the resources that government used in order to strengthen the effectiveness. (Head of Efficiency, 2005) Moreover, The Chief Executive launched an Enhanced Productivity Program (EPP) in 1998 policy address by achieving both short-term quantified productivity gains and a lasting improvement in public sector productivity by a combination of reduced growth in baseline expenditure, reviews of major spending areas, and changes in the management framework intended to secure a more proactive resource management culture. Second, the personnel management: on 1 June 2000, in order to increase flexibility of appointment system, the government introduced a new entry system and terms of appointment for new recruits, as are result, more civil service posts were filled by non-civil service contract staff. Finally, the performance management: for judging the success or failure of the programs, performance indicators were developed that rewards and punishments are linked to review the performance. The ‘Target-based management’ in one hand could help government to manage for results and on the other hand could provide a clear objective to service department. (EPP, 2005)

Superficially, New Public Management provide a new standard for public service operate, however, there is no standard formula for which model, the traditional model or the new model of public management to work better. Still there have criticisms in the new public management. The first criticism of NPM is that giving public managers more authority to manage programs may lead to centralized decision making by public managers rather than encouraging decentralization in public organizations.(, , ) Second, NPM encourage the use of private sector management techniques, however, most public service have distinct political, ethical, constitutional and social dimensions and these factors make the public sector different from the private sector. Moreover, public sectors are of more complex objectives, more intricate accountabilities.( , ) Thirdly, although NPM provides transparency for the public sector, however, corruption behavior could hardly be eliminated, as increasing managerial autonomy to the public manager has brought a fuzzy accountability and higher risk for them to corrupt. Moreover, increasing freedom of management for the public sector manager allows more chance for unethical behaviors. (,) Fourthly, NPM may inappropriate introduce to developing countries since government in these countries may lack of expertise and have unreliable information system. Moreover, developing country governments often have little experience in the operation of markets, thus they may not mature enough to implement NPM as it relies much on market-oriented. For example, developing countries may not have the administrative capacity to undertake privatization successfully. (Polidano 2001)

In conclusion, the evidence shows new public management approaches can be useful to governments and should be seriously considered. But NPM is not a final solution to all of the problems of public administration in modern governments. As traditional model of public administration lacks efficiency under contemporary conditions while there is still criticisms and limitations of NPM, it is better to solve problems in a specific way that is to select some items from the NPM menu to fill in the shortfall of the traditional model.

Reference:

PUAD notes: New Public Management.
Kaboolian, L., 1998. The new public management: Challenging the boundaries of the management vs. administration debate. Public Admin. Rev., 58: 189-193.
Khademian, A.M., 1998. What do we want public managers to be: Comparing reforms. Public Admin. Rev., 58: 269-273.
Maor, M., 1999. The paradox of managerialism. Public Admin. Rev., 59: 5-18.
Savoie, D.J., 2002. What is Wrong with the new Public Management. In: Public Management: Critical Perspectives, Osborne, S.P. (Ed.). Routledge, London, pp: 263-272.
Singh, A., 2003. Questioning the new public management. Public Admin. Rev., 63: 116-119.
Barberis, P., 1998. The new public management and a new accountability. Public Admin, 76: 451-470.
Doig, A., 1997. The privatisation of the property services agency: Risk and vulnerability in contract-related fraud and corruption. Public Policy Admin., 12: 6-27.
Enhanced Productivity Programme EPP (2005) Available at