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Why Most Developing Countries Should Not Try New Zealand's Reforms

Author: A Schick
Date: 1998
Size: 9 pages (40 KB)

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Summary

The New Zealand (NZ) model of public sector reform, in which managers work within a results-driven accountability framework, has attracted worldwide interest. But is it suitable for developing countries? This paper from The World Bank Research Observer argues that the greater the shortcomings in a country’s management practices, the less successful the NZ reforms will be. Instead, developing countries should consider sequenced, measured improvements to reduce informality and build managerial capacity.

The NZ model can be described as government by contract. Elements of reform strengthen contract-like relationships between government and ministers as purchasers of goods and services and departments and other entities as suppliers. The budget is an explicit statement of resource allocation and use. Performance agreements replace the traditional civil service ethic of trust and responsibility with accountability for expected results. These arrangements extend to policy advice, which ministers can obtain from external sources.

Most developed and developing countries have not implemented full scale NZ reforms, but have selected features to suit their current needs. While organisational performance has been enhanced, there are a number of caveats which must be considered:

• The NZ model emphasises matters that can be specified in contracts, such as the purchase of outputs. Inadequate attention is paid to things which do not fit into this framework, such as outcomes and government ownership.
• Contracting depends on self-interested action and can induce managers to take a checklist approach to responsibilities. This may go against government’s collective interest and weaken values of public service, personal responsibility and professionalism.
• Contract-like arrangements do not create arms-length relationships or enable governments to toughen insistence on performance. Governments usually have little choice but to contract with their own departments.
• Negotiating and enforcing contracts entails transaction costs. These have not been systematically studied in NZ.
• Formal contracts and internal markets were feasible for NZ because the country was already developed, with a robust market sector and mechanisms for enforcing contracts. These conditions are rare in developing countries, where informality is widespread.

To many developing countries, NZ is at the cutting edge of public management. But they will not get there by taking shortcuts. Instead, logical steps can help reduce informality and build managerial capacity in developing countries:

• Progress in the public sector requires parallel advances in the market sector. As long as the economy operates informally and property rights are not defined by contract, the government is not likely to install rule-based public management.
• Modernising the public sector means establishing reliable external controls on recruitment, spending and procurement. These are the building blocks of a formal, honest public sector.
• In the process of developing skills, trust and public-regarding values, politicians and officials must concentrate on the basic process of public management. They must abide by rules before creating them, and operate in centralised departments before becoming autonomous agencies.
• Once the basics have been mastered, the public sector should be organised through internal control, instead of external control or NZ-style management. This means systems are in place to ensure compliance with fair, workable, legitimate rules.

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Source: Schick, A., 1998, 'Why Most Developing Countries Should Not Try New Zealand Reforms', The World Bank Research Observer, vol. 13, no. 1, pp. 123-131