Economic Policy-Making.

lower levels) is the same as that of the company.  The private

sector bureaucrat maximises their utility by maximising

company profits.

In most parts of the public sector however, the profit

motivation is absent.  The bureaucrat will still aim to

maximise their utility.  While Downs claims that this is put

into practice through distorting of information,

discriminatory response to orders and analysing policy options

in terms of self-interest, Niskanen argues that a bureaucrat's

utility is best-maximised simply by maximising their budget.

This brings about increases in salary, power etc. and

increases promotion prospects.  It is also essential as it is

expected by the government that budget increases will be

demanded.

The reason that it is possible for bureaucrats to successfully

request budget increases is, according to Niskanen, due to an

informational advantage on the part of the bureaucrat.  Due to

the nature of the public sector, the costs and benefits of its

work are very hard to evaluate.  The 'value' of a teacher or

doctor is hard to quantify, especially given the difficulty of

measuring consumer demand for their services, and whether the

cost of the defence force represents value for money is also

impossible to determine.

But "not only is the information required to evaluate the

costs and benefits of collective goods inherently defective,

what does exist is much more readily available to the

bureaucrats producing the collective good than to

politicians...[who] have limited information on what quantity

and quality of services citizens want, what they are actually

getting, and what the cost of producing such services really

is."  (Levacic, 1987, 169).  For this reason, bureaucrats have

a considerable advantage in arguing the need for budget

increases.  In addition, the government committees that

oversee each department tend to be made up of members most

affected by the workings of that department.  For instance, an

agriculture committee will include several representatives of

rural constituencies with an interest in budget increases for

the Ministry of Agriculture.

The result of this is that "the interaction between budget-

maximising bureaucrats with monopoly power and fragmented

sponsors characteristically produces a radical oversupply of

agency outputs."  (Dunleavy, 1991, 159).  Bureaucrats will

supply to a level that maximises their own, rather than

society's, utility.  This does not necessarily mean that the

bureau is being inefficient in its production, though that may

be the case, but that it is producing output beyond the social

optimum.  In conclusion, "...all bureaucrats everywhere seek

to maximise their budgets by radically oversupplying outputs."

(Dunleavy, 1991, 161).

However, both Downs and Niskanen have been heavily criticised

in both the construction of their theories and their

conclusions.  The inclusion of publicly-minded traits in

Downs's bureaucratic motivation prevents it from being a true

public-choice theory.  His assertion of five personality types

seems highly subjective and incompatible with an economic

theory of bureaucracy.  Indeed Downs accepts that his five

types are simply based on his judgement, but then claims that

any types developed will fit in with his theory.  This is

certainly questionnable, as two of his laws on bureaucratic

behaviour are dependent on this set of five types (see

Dunleavy, 1991, 168).

Perhaps the most important criticism of Niskanen's model can

be seen in what Dunleavy terms a "collective action problem."

(Dunleavy, 1991, 174-181).  Bureaus are obviously made up of

huge numbers of staff, each of which will have their own

unique utility functions.  Consequently, the best way for a

bureaucrat to get their own desires fulfilled, by an increased

budget, is by pursuing an individual strategy.  This is also

the least likely to be effective, especially among lower-

ranked workers.

Collective-action is more likely to work than an individual

strategy, but this inevitably comes up against the free-rider

problem, whereby an individual sees their own effect on the

overall outcome as tiny, and therefore has little incentive to

bear the costs of the collective-action, when it will not

affect the chances of a beneficial outcome.  On this basis,

there is an incentive for every individual to leave the

collective action to their colleagues, and therefore no one

takes part in the collective action.

Another problem is that while the effects of an increased

budget will most benefit the lower ranks and more vulnerable

staff, the chances of having an effect increase with rank, the

costs of working towards a budget-increase also increase with

rank, and the top ranks already have other ways of boosting

their positions.  For this reason, those most likely to

succeed in gaining a budget increase are least likely to push

for one, and those most likely to push for one are least

likely to succeed in their aims.  In fact, top level

bureaucrats may well have utility levels decreased by budget

increases, as they will have a more complex bureau to oversee

and the burden of reorganising a bigger department will

primarily fall on them.

Niskanen's ethnocentricity in drawing universally valid

conclusions from his specific study of the Pentagon in the USA

is highlighted by Jackson: "His model is the product of his

own introspection and experiences as a bureaucrat operating

within a particular institutional environment and within a

specific culture at a single moment in time."  (1982, 133).

Jackson goes on to point out important differences between the

situation of a bureaucrat in the US and in the UK.  

While the very different approaches of the two models have

been noted, both the Downs model and the Niskanen model are

further criticised for grouping all bureaucracies together as

hierarchical line bureaucracies, and for analysing each level

of the bureaucratic structure as operating in the same way and

to the same extent.  Downs applies the same analysis to

decisions taken at the inter-departmental level as he does to

the processes within departments.  Niskanen hardly discusses

that level of bureaucracy at all, which is a very serious

oversight on his part.

The failings of each of these two public choice models are

therefore clear.  Although Dunleavy does go on to propose an

alternative model from within the public choice framework

(which I sadly do not have the time to expand on in this

essay), his concluding comment on the Niskanen and Downs

models does lend support to the notion that 'public choice

models of bureaucracy are theoretically flawed and empirically

inaccurate.':  "It is significant that two such disparate

pieces of public choice work, standing at opposite ends of the

methodological and value spectrum, share common basic defects

(albeit in different forms)."  (Dunleavy, 1991, 172).

Despite the obvious inadequacies of public choice models, the

solutions derived from them have been an essential basis for

government policy in the UK over the last 15 years.  Public

choice theory, rooted as it is in the neoclassical free-market

philosophy, was espoused from the start by the radical right

government of Margaret Thatcher, that came into power in 1979.

This is illustrated early on by the quote used at the start of

this essay, and the effects of such policies can be seen by

the fact that "In 1976 there were nearly three-quarters of a

million civil servants in the UK central government service;

by 1985 there were fewer than 600,000, a drop of nearly 20

percent."  (Dunsire & Hood, 1989, 2).

Public choice "solutions" are principally concerned with

removing the information advantage of the bureaucrat, and with

tackling inefficiency within bureaucracy, caused by the lack

of competition and profit requirements.  As Harrison explains,

introducing greater efficiency came up against four problems:

"First, those responsible for running the public sector...had

little time to devote to ensuring that the services for which

they were responsible were efficiently run....Second, most of

the public sector was run according to administrative rather

than market rules...Third, most parts of the public sector

were under no threat from alternative providers...Fourth, few

parts of the public sector could be measured in ways that

would allow judgements to be made on the efficiency with which

they were performed."  (Harrison, 1989, 146).

Of all the policies of the Thatcher government with respect to

the public sector, it is the privatisation programme which

undoubtedly sticks in most people's minds.  With few

exceptions (British Rail and the Post Office are the main

ones), almost all of the major public utilities were

transferred into private ownership through share flotations

during Thatcher's time as Prime Minister.  As well as raising

government revenue, privatisation was supposed to improve

efficiency in these industries, by placing them fully within a

market situation, with profits as their motivation.  As with

many private monopolies, most of these industries required

regulatory bodies to ensure that the consumer wasn't exploited

by the lack of competition.  In addition, where possible, the

privatised companies were opened up to competition through

deregulation policies.  Mercury and cable telephone networks

began to compete with British Telecom for instance.

So has privatisation led to greater efficiency within these

industries?  In many ways this is difficult to measure.  It is

certainly true that almost without exception, profits are

higher now than they were before privatisation, especially in

British Telecom and British Airways.  But whether standards of

service have remained as high, after privatisation, is more

debatable.  One way that British Telecom have cut significant

costs has been through a deterioration of maintenance work.

Public call boxes have been worst hit by this.  The

punctuality and quality of service provided by Hoverspeed

under British Rail was markedly better than Hoverspeed's

performance today, though prices in real terms have gone up

significantly.  So perhaps privatisation has not been as

beneficial to the public as it was claimed to be.

Another important way in which the government has attempted to

reduce costs within the public sector is by the policy of

contracting-out.  While accepting that certain services need

to be financed by the government, Niskanen explains that

"private firms could bid to manage the postal services, the

fire protection services, the terminal air traffic control

system or, possibly, even the police services in a local

community."  While not as yet taken to this level, the idea

that private firms could provide public services has been at

the heart of government policy.  "Contracting-out" has been

effected in almost all areas of the public sector, bringing

about substantial savings.  From the provision of refuse

collection for local authorities to catering and cleaning

contracts within government and the NHS, private companies

have been invited to bid for contracts.

By 1986 within central government, "84 per cent of cleaning,

82 per cent of maintenance, and 73 per cent of laundry

services had been contracted out..."  (Harrison, 1989, 194).

This initially led to substantial savings, but as Harrison

explains, the savings made steadily fell after a high-point in

1981/82.  One of the possible reasons for this is suggested by

Dunsire and Hood: "...the savings actually made would depend

upon the contract terms arrived at, rather than on the hopeful

calculations of the budgeteers."  (1989, 11).  In many

instances, far fewer bids were received from potential

contractors than had been expected by the government, and the

in-house bids from the current service providers were often

successful, leading to little or no savings in costs.  This

was particularly true within the NHS where private contractors

argue that "in-house bids...have not been properly costed and

by a variety of means,...authorities have made it hard for

private firms to compete."  (Harrison, 1989, 198).

According to Downs, "The larger an organization becomes the

weaker is the control over its actions exercised by those at

the top", and "the larger any organisation becomes, the poorer

is the co-ordination among its actions."  (1967, 143).  The

view that large organisations are inherently less efficient is

at the centre of public choice theory, and has been evident in

the policies adopted in dealing with such organisations within

the public sector.  This has been evident both in the breaking

up of large organisations into their smaller constituent

parts, and the hiving-off of certain departmental services

into smaller agencies.

In the Ibbs report (1988), plans were made that "agencies

should be established to carry out the executive functions of

Governments within a policy and resources framework set by a

Department."  (quoted in Harrison, 1989, 156).  It was

believed that this could bring about substantial savings.

Many such agencies have been created, and the next phase of

government policy in this area involves the privatisation of

most of these agencies, ranging from the Royal Mint to the

Employment Service.  This proposal was set out in the 1993

White Paper, so obviously its effects have yet to be felt.

However the division of large organisations into smaller, and

hopefully more efficient, parts has been very evident

throughout the 1980s.  The huge Department of Health and

Social Security was split into two departments, and both

British Rail and the Post Office were re-organised with

separate divisions being created to deal with their various

services.  In the case of British Rail for instance, separate

sections were set up for dealing with freight, Intercity

travel and Regional Railways.  "...these changes were designed

to provide better service to the consumer (by creating more

contact points and by putting decision-makers in much closer

touch with the customer)."  (Harrison, 1989, 165).  Whether or

not this has been successful is again hard to measure.

Trying to emulate the methods of private firms has led to

General Managers within the structure of the NHS, with many of

these appointments coming from private industry, to "improve

the efficiency and effectiveness of the...health services."

(Levacic, 1987, 181).  It has also led to attempts to improve

staff motivation, by introduction of private incentives such

as performance related pay.  This has been introduced for NHS

management but has been met with a mixed response.

Most of the "solutions" discussed have been concerned with

greater efficiency, privatisation and the introduction of

private sector methods and motivations to the public sector.

How has the supposed information advantage of the bureaucrat

been tackled?  The government's flagship in this field is

undoubtedly the Citizens Charter.  This sets out levels of

service that the public should be able to expect, and actual

service is then measured against this.  Targets are set for

the efficient running of trains and the acceptable length for

coneing-off a section of motorway.  But has this new level of

open government had any practical implications?  One criticism

of the charter is that there are too few methods of redress

within the system.  Does knowing that the roadworks should not

continue for seven miles in any way alleviate the

inconvenience when they actually do?  Giving someone the right

to catch an efficient train may seem somewhat hollow if no

such service actually exists.

Nevertheless, use of performance indicators has increasingly

become a central part of government policy.  These began to

appear in 1983 within the DHSS, "covering such areas as

clinical services, [and] finance...to produce statistics on

costs per case treated, length of hospital stay...and the

like."  (Levacic, 1987, 182).  Under John Major, such

indicators have been applied to schools, with annual

publication of "league tables".  These compare factors such as

exam results and absentee rates between schools.  Together

with increased possibilities for competition between schools,

the aim is to improve standards.

However, such indicators have received widespread criticism.

Unless they are genuinely comparing like with like, they are

surely limited in their validity.  Given that schools find

themselves in different areas, where pupils may have different

educational needs and may come from a wide variety of

backgrounds, the possibility of true comparability is very

limited.  The effect of such comparisons is also feared, as

those schools that perform well in the league tables will

cream off the best pupils, leaving the rest in increasingly

run-down, under-funded and demoralised 'sink-schools'.

Overall then, the evidence of public choice solutions within

the British public-sector is very mixed, both in terms of the

actual level of implementation of such policies and in terms

of the desirability of them.  In many instances it is

questionable whether trying to model the workings of the

public sector on the private firm is at all possible, given

the very different type of services provided.  The very nature

of public sector provision is that it is supposed to be run in

the interests of the public, and for this reason, trying to

model it towards profit-maximisation is wholly unsuitable.

The notion that information advantage on the part of the

bureaucrat can be alleviated through public choice policies is

also questionable, as the very nature of specialist work is

that it can only be carried out by specialists and therefore

only they will truly know the costs of it (in health or

dentistry for instance).  Finally, the essay question itself

may be seen to be flawed, as if public choice theory is

'flawed' and 'inaccurate', on what criteria should the success

of its "solutions" be measured?

3499 words

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