I’ve just been discussing with a colleague what sort of crisis we are in and what the effects for Public Management Reform are likely to be. Lots of people are discussing what the financial crisis means for public services and public management, without stepping back to think about what sort of crisis the public sector (internationally) faces?
The big issue for me is not the public sector financial crisis per se, but what caused it? Only by understanding that can we start to understand the possible reactions to it.
At two extremes we can have two sorts of fiscal crises of the state: endogenous (e.g. caused by excessive growth in spending not matched by tax increases resulting in structural deficits) or exogenous (e.g. caused by an economic crisis resulting in a collapse in tax receipts coupled with increased demands, like unemployment costs).
The mid-1970s fiscal crises were arguably a result of both of the above – the over-expansion of the state in the 1950s and 60s resulting in the growing ‘fiscal crisis of the state’ (O’Connor 1973) which was exacerbated by the mid-1970s oil and economic crisis. This was state failure compounded by market failure.
The current crisis is very different. We have had thirty years of public sector reform and attempts at ‘doing more for less’. Public expenditure as a proportion of national wealth has more or less stabilised across OECD countries (OECD 2005). Whilst some countries have had structural deficits, most haven’t and public financial controls and taxation policies have been far more effective. Those that have had structural deficits over recent years (e.g. the UK) have been mostly comparatively small. The same is true for most long-term accumulated public debt (e.g. Germany), where before the current crisis things were more or less under control.
What is different about the current crisis, especially when compared to the mid-1970s, is that this is mostly an exogenous crisis of spectacular market failure that is impacting upon the state and public provision and not in any sense caused by the latter. The extra burdens on public finances have been caused by the resulting collapse in tax revenues coupled with extra demands for bail-out and stimulus spending, as well as the inevitable effects of the recession on transfers and welfare services.
So much for the economics – what about the politics? Albert Hirschman, analysing long-term US political sentiment, detected ‘long-waves’ of public sentiment switching between a focus on individual, market oriented, solutions and collective, state oriented, ones (Hirschman 2002 ). Very crudely, this sort of analysis could be applied to the last period as follows: post WWII we saw a prolonged period in which collectivist solutions predominated, up until the 1970s crises. After a short interregnum a new, individualist, market-oriented, zeitgeist emerged represented by Thatcher and Regan and (the predominant interpretation of) ‘New Public Management’. So the question is now – after the spectacular market failures of the past couple of years are we entering a new shift in engagements in which, despite the current fiscal crisis, collectivist solutions re-emerge as the dominant paradigm? Does the current short-term fiscal crisis simply mask a fundamental shift in public attitudes and culture or not? Has it, for example, diverted popular anger at the failure of the banks and refocused it on state failure? It is perhaps too early to tell, but the answer is surely a crucial one to understanding what sort of responses to the current fiscal crisis will prove appropriate.
For example, if we are not entering a new phase but will simply see a continuation of the 1980s onwards zeitgeist, then the reaction to the fiscal crisis could be even stronger moves towards individualistic and market-orientated public management reforms – swingeing cutbacks, more privatisation and outsourcing, more internal marketisation, more direct charging for public services; etc. All of this motivated by a desire for a short-term fiscally conservative correction in the public finances and avoidance of tax increases.
If, on the other hand, there is an emerging more collectivist zeitgeist, in reaction to the market failures, we could expect to see less desire to dismantle collective provision and more willingness to, or at least tolerance of, collective shouldering of the burden of increased long-term public debt through tax increases and more modest public expenditure controls. We could expect to see notions like ‘public value’, co-production, social cohesion and solidarity, come to the fore and public management reform more focussed on participation, collective action and citizen engagement. We could also perhaps expect to see some old values like basic competence, minimum but equal standards of service, due process and other such ideas gain traction.
Hirschman, A. O. (2002 ). Shifting Involvements: Private Interest and Public Action, Princeton University Press.
O’Connor, J. (1973). The Fiscal Crisis of the State. New York, St. Martin’s Press.
OECD (2005). Modernising Government – The Way Forward. Paris, OECD.