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NPO-Management

René Andeßner
Dorothea Greiling · Rick Vogel Editors

Public Sector
Management in
a Globalized World
NPO-Management

Herausgegeben von
D. Witt, München, Deutschland
D. Greiling, Linz, Österreich
Das Management von Non-Profit-Organisationen (NPO), insbesondere des Dritten
Sektors – neben Staat und Privatwirtschaft – wird zunehmend von der betriebs-
wirtschaftlichen Forschung untersucht. In dieser Schriftenreihe werden wichtige
Forschungs- und Diskussionsbeiträge zu diesen gemein- oder bedarfswirtschaft-
lichen Betrieben präsentiert, die von Verbänden, Vereinen, Stiftungen, öffentlichen
Betrieben bis zu Großhaushalten reichen. Die Veröffentlichungen wenden sich
gleichermaßen an Theoretiker und Praktiker.

Herausgegeben von
Professor Dr. Dieter Witt Professor Dr. Dorothea Greiling
Technische Universität München, Johannes Kepler Universität Linz,
Dienstleistungsökonomik Institut für Management Accounting
mit Seminar für Vereins- und
Verbandsforschung (SVV)
René Andeßner · Dorothea Greiling
Rick Vogel
(Eds.)

Public Sector
Management in
a Globalized World
Editors
René Andeßner Rick Vogel
Johannes Kepler Universität Linz Universität Hamburg
Österreich Deutschland

Dorothea Greiling
Johannes Kepler Universität Linz
Österreich

NPO-Management
ISBN 978-3-658-16111-8 ISBN 978-3-658-16112-5 (eBook)
DOI 10.1007/978-3-658-16112-5

Library of Congress Control Number: 2016955166

Springer Gabler
© Springer Fachmedien Wiesbaden GmbH 2017
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Foreword

On 2 and 3 July 2015, the 15th International Symposium on Public Sector


Management took place at the University of Hamburg, Germany. A
group of international researchers from four continents came together to
discuss the promises and challenges of “Public Sector Management in a
Globalized World“.
Globalization has triggered rapid growth in trade, global financial trans-
actions and cross-country ownership of economic assets. Its welfare im-
pacts on today’s societies are controversially debated. A rising number
of issues are too complex to be tackled solely at the national state’s level.
The climate change, the sovereign debt crisis, the new generation of
international terrorism, the euro crisis and the current refugee crisis
demonstrate that joint public policies are necessary. The national context
of governance is eroding.Globalization therefore affects the abilities of
governments to act in the public interest, and there is a pressing need to
reform the existing procedures of international decision-making.
As a consequence, the size, functions and modi operandi of the public
sector in a globalized world are emerging topics in the academic dis-
course on public management. Hence, the presentations and discussions
at the symposium put the focus on the consequences of various effects of
globalization on public administrations and public enterprises. Findings
from several countries (e.g. Austria, Botswana, Canada, Estonia, Germa-
ny, Italy, Japan, the U.K. and the U.S.) were presented and linked to
broader implications for the public sector and beyond.
The contributions to this volume document enhanced versions of the
papers presented at the symposium. They reflect a broad range of topics,
conceptual approaches and empirical settings. Since the authors have
different disciplinary backgrounds within the social sciences, the volume
at hand is decidedly interdisciplinary.
An excellent introduction to the symposium’s general topic is provided
in Ian Macdonald’s paper. The author discusses two main questions:
First, what exactly is the meaning of a globalized world? Second, in
what manner and to what degree can public management operate within,
and shape, a globalized world? He points out that globalization is an
VI Foreword

ambiguous concept with a lot of heroic promises that create a globaliza-


tion mystique.
The subsequent contributions mirror the variety of the aspects of public
management in a globalized world. Since all contributions are preceded
by a brief abstract, we refrain from giving further summaries here. How-
ever, there are some recurring topics that are mentioned in several pa-
pers:
An increasingly globalized environment has manifold effects on the au-
tonomy and empowerment of government at different state levels in Eu-
rope and North America. The collaboration between different state levels
has to be reformed, but this process is influenced by an inherent tension
between an intended smoothly running global governance and reinforced
local or nation-wide autonomy tendencies.
Furthermore, political decisions on the international level are increasing-
ly criticized for being too far away from everybody’s life. So, a call for
strengthening direct citizen participation (e.g. within the context of a
smart city project in London) seems to be justified. Citizen engagement
and citizen participation make it possible to implement the principle of
“thinking global and acting local”, taking different cultural identities into
account.
Public service providers (e.g. state-owned enterprises, electric utility
companies, hospitals, universities) are challenged to actively position
themselves in a globalized environment. Changes in funding procedures
and structures, in the processes of service provision and in the use of
new information technologies are triggered and require responses by
public managers. Additionally, the organizations are under increasing
pressure to demonstrate the public value they create and to improve their
reporting. This includes not only the presentation of a holistic picture of
their activities, but also the use of extended information for an improved
decision-making.
Changing funding structures in times of tight budgets are also a chal-
lenge to universities in general and in particular to the organization of
academic symposia. The 15th International Symposium on Public Sector
Management and the present publication would not have been possible
Foreword VII

without the financial support of Rödl & Partner, Cologne, SV Spar-


kassen Versicherung, Stuttgart, VKU Verband kommunaler Unterneh-
men, Berlin, and WILHELM TRUSTED ADVISORS, Zürich. We are
very grateful for this support.
We are also indebted to the team of Rick Vogel and Silke Boenigk at
University of Hamburg, the host of the symposium. Special thanks go to
Julia Asseburg who did a wonderful job “behind the scenes” before,
during and after the event. We would also like to thank all participants
who contributed to the symposium with their presentations and with
substantial discussions and comments. The articles published in this vol-
ume have benefited greatly from the feedback by peers at the symposi-
um, as well as from friendly reviews afterwards.
The publication process was organized by René Andeßner and his team
at the Johannes Kepler University Linz, Austria. We give thanks to Jef-
frey Campbell, Michaela Gassner and Melanie Kiss for technical assis-
tance and language edition. Likewise we thank the publishing house
Springer Gabler for publishing this in-collection and for all kinds of sup-
port we received during the publication process.
Finally, we dedicate this book to Prof. H. Ian Macdonald and Prof. Dr.
h.c. mult. Peter Eichhorn. They initiated the symposium nearly 20 years
ago and have remained its masterminds until this day.

René Andeßner, Dorothea Greiling & Rick Vogel


Content

Foreword V

The Mythology of Public Sector Management 1


in a Globalized World
H. Ian Macdonald

University Funding in a Globalized World: 15


A Step Back to the Roots?
René Andeßner, Dorothea Greiling

Globalization and Public Administration: 39


A Conceptual Framework
Sheila Bergeron-Barrows, David Barrows

Federal States instead of National States 51


Peter Eichhorn

Welfare-oriented Social Accounting 59


Diana Eerma, Peter Friedrich

Information and Communication Technology 95


as a Driver for Institutional and Organisational
Changes in Austrian Hospitals
Daniela Haugeneder

Europeanization or New Public Governance? – 111


Reinventing Italian intermediate institutions under pressure
Hiroko Kudo
X Content

Public Value Performance: What Does It Mean to 135


Create Value in the Public Sector?
Timo Meynhardt, Steven A. Brieger, Pepe Strathoff,
Stefan Anderer, Anne Bäro, Carolin Hermann, Jana
Kollat, Paul Neumann, Steffen Bartholomes, Peter Gomez

Resilient Public Service Provision after the Global 161


Financial Crisis: The Case of Botswana
Dorothy Mpabanga

Missing the Big Picture on State-Owned Enterprises: 203


Quality of Aggregate Holdings Reporting of Public
Administrations and Reform Implications
Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

Historical Backgrounds about the Developmental 227


Difference of Electric Utilities in Germany and Japan:
Municipalization and Concession
Toru Sakurai

Smart City Projects and Citizen Participation: 249


The Case of London
Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

List of Editors and Authors 


The Mythology of Public Sector Management
in a Globalized World

H. Ian Macdonald

Summary: This article provides an overview of the symposium topic. The


title - Public Sector Management in a Globalized World – suggests much
and promises more. However, there are two implicit assumptions that
must be challenged at the outset. First, what exactly is the meaning of a
globalized world? Second, in what manner and to what degree can pub-
lic management operate within a globalized world and to what extent
can it influence the shape of that world? The scope for research into this
broad topic will depend essentially on the answers to those two ques-
tions, and the latitude which the answers provide for exploration of that
world.
Keywords: Symposium Overview, the Symposium Topic: Mythology or
Reality?, Examples as Test Cases, the New Global Public Management
(NGPM)

1 Introduction
In 1998, Professor Peter Eichhorn and I launched the first of fifteen
symposia which together constitute the story of our particular interna-
tional dialogue. That first event took place in Professor Eichhorn’s then
academic home – Mannheim University – and since that time has visited
York University in Canada (twice), returned once to Mannheim, met in
various ports of call in Germany and Austria, as well as venturing into
Japan and Estonia. The result is not only a significant academic network
that has explored a variety of creative topics, but a collegial community
that has nourished both our personal and professional lives.
Among the novel and even frontier topics that we have tackled under the
broad rubric of The New Public Management (NPM) are Entrepreneur-
ship in the Public Sector: A Contradiction in Terms?, Public Govern-
ance for Public Service, Public Management and Public Marketing: Is
© Springer Fachmedien Wiesbaden GmbH 2017
R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_1
2 H. Ian Macdonald

There a Connection? and others. I know that many of us have been in-
spired to pursue these topics in subsequent research programs and other
international meetings and symposia.
Each year, throughout our journey among those fifteen symposia, I have
tried to provide an overview of the symposium topic to set the stage and
to provide a context for the papers to follow during the two days of for-
mal meetings. At the same time, I have sought to introduce a degree of
academic skepticism about the topic, and today is no exception. The title
– Public Sector Management in a Globalized World – suggests much and
promises more. However, there are two implicit assumptions that must
be challenged at the outset.
First, what exactly is the meaning of a globalized world? Second, in
what manner and to what degree can public management operate within
a globalized world and to what extent can it influence the shape of that
world? The scope for research into this broad topic will depend essential-
ly on the answers to those two questions, and the latitude which the an-
swers provide for exploration of that world.
On the first question (What is the meaning of a globalized world?), it is
surprising what little attention has been paid in the literature and in pub-
lic discussion to a definition of that term. The Concise Oxford Diction-
ary tells us that globalization “pertains to or embraces the whole of a
group of items.” Consequently, the application of the term need not be
universal. It can refer to an extended group of nations or to an agreement
among a particular group of institutions – both public and corporate –
but there is scant guidance beyond that. As a result, the concept has giv-
en rise to a certain mythology and to an overriding assumption that it is a
universal principle that must guide all international relationships and
transactions. In fact, as illustrated by some of the examples which I will
describe today, it is more often than not an empty shell.
On the second question, it is difficult, if not impossible, to design a pub-
lic management framework in support of the globalized objectives. This
has resulted in numerous disappointments and frustration along with:

x self-serving bureaucracies;
x intensification of international hostility;
The Mythology of Public Sector Management 3

x false expectations for the private and corporate world which must
live within the globalized umbrella in terms of public policy;
x costly experiments without compensating results.
In other words, global governance offers an heroic objective which faces
a functional challenge that is virtually impossible to sustain under any
system of public management. Over many years, research into public
management practice and techniques has revealed that they are highly
indigenous. Public management develops and grows from a response to
both local and national values and expectations. Even modern theories
such as the New Public Management must respect those values and ex-
pectations. For example, it is difficult to transfer the form, style and sub-
stance of any Public-Private-Partnership from one jurisdiction to another
without considerable modification and adaptation. To do so may be
courting disaster. I trust that the following five illustrations will provide
ample evidence of this proposition.

2 International Agreements
The modern history of ambitious international agreements is a story of
failed endeavors or results that have fallen far short of hopes and expec-
tations. The League of Nations should have been a model of a successful
international organization, a virtual phoenix risen from the ashes of
World War One.
What happened to the determination that the so-called Great War would
be the war to end all wars? And yet, it was doomed from the outset. The
terms of the peace settlement virtually guaranteed that economic disarray
would follow in its wake. Those responsible for its operation – both po-
litical and bureaucratic – were unable to withstand the new nationalistic
movements not only in Europe but in North America and other parts of
the world. Moreover, it did not succeed because there was not a real will
to succeed. And the public management, closeted in Geneva, was inca-
pable of providing the means to implement even the most modest of the
League’s objectives.
In many respects, the story of the United Nations has been no different.
Guided by the lessons from the failed League of Nations experiment, the
4 H. Ian Macdonald

U.N. was more explicit both in its governance and in the enforcement of
its agreements. However, it was too often frozen by the frosty atmos-
phere of the cold war and then, ironically, so often strangled by a bu-
reaucracy more Machiavellian than responsible. Driven more by theory
than by practical objectives, programs were frequently self-defeating.
Nowhere was that more evident than in the work of allied agencies such
as the IMF and the World Bank. For so many years, the World Bank did
irreparable harm in Africa by insisting on the privatization of state-
owned institutions in order for them to qualify for financial assistance.
Eventually, in 2007, the World Bank admitted that it had been wrong
about that insistence and reversed its direction. The real issue was not
relative public versus private efficiency but corruption, with the result
that corrupt practices were merely transferred from the public to the pri-
vate sector with no real improvement.
It is fair to say that more restrictive regional agreements have fared better
because regional objectives were more clearly defined and attainable.
The most significant examples are the European Economic Community
(EEC) and the North American Free Trade Association (NAFTA). From
the outset, it was clear what obstacles would exist and those obstacles
were faced objectively and with determination. My favorite EEC exam-
ple dates from the negotiating process for the Treaty of Rome in 1959.
From the outset, the original partners realized that the achievement of a
common agricultural policy would pose a fundamental problem. Indeed,
it was the remaining challenge when all other items had been agreed
upon, with a deadline of December 31, 1959, looming. Failure to agree
would doom the whole agreement. The chosen device was simply to
declare the clock to be stopped, frozen at December 31, 1959, until
agreement was reached.
Similarly, the partners in NAFTA recognized from the outset that there
were significant differences in the three parties – Canada, Mexico and
the United States. Although imperfect, allowances were made in the
terms of agreement, the governance protocols, and the operational pro-
cedures to accommodate the obvious differences in size, characteristics
and the significant disparity in productivity among the three partners.
The Mythology of Public Sector Management 5

However, in terms of public management, these two examples are quite


different. The EEC is sustained by a legislative governing body and a
powerful bureaucracy. NAFTA proceeds on a more ad hoc basis with its
governance and its functional responsibilities in the hands of those re-
sponsible for trade matters in the three jurisdictions. As a result, it is
more flexible and adaptable to both political and economic changes. I
suggest that a comparative study of these two institutions would make
for a fascinating public management research paper.

3 International Practices: The Canadian Experience


Another and reverse consequence of the globalization mystique leads to
complications in national and local public management. This is the set-
ting of international benchmarks or standards which may, or more often
may not, suit the individual circumstances of a particular nation. What
follows are three examples from Canadian experience affecting both
public policy and public management.
The first case refers to an instance of the reform of Canada’s Competi-
tion Act, which had been created and periodically revised in the long
shadow of neighboring experience in the U.S.A. The background begins
with the Hart-Scott-Rodinu Act of 1976 in the United States, which pro-
vided U.S. regulators with extraordinary power to investigate and sus-
pend corporate mergers that appeared to be a threat to corporate competi-
tion. In intervening years, the global result was actually negative as nu-
merous countries chose not to make a national model out of the U.S.
practice; that included Canada. However, in February 2009, the Gov-
ernment of Canada announced its intention to adopt a merger review
process based on the U.S. model, a procedure that, as indicated, had been
the subject of universal criticism over a number of years. The objections
were based on the lengthy and expensive delays to proposed mergers.
Often those delays had a costly global consequence as well when they
involved significant American companies operating in the global mar-
ketplace. In the 2009 proposed revision to the Competition Act in Cana-
da, competitors would face a virtual replica of the American procedures.
It became clear that Canadian public servants and the Canadian legal
community were split in their opinion about the new legislation. As well,
it became evident that bureaucrats in the Competition Bureau could re-
6 H. Ian Macdonald

quire the submission of a variety of additional information without court


approval. Lengthy debate resulted in a more moderate process, but the
lesson was that global practices, particularly those of other influential
nations, should be borrowed with caution.
The second case is what is known as the Trans-Pacific-Partnership
(TPP), born in 2005 with four founding members. Now there are twelve
members, including the U.S.A. and Canada, while Taiwan and South
Korea are hovering on the sidelines coveting membership. The agenda
today consists of the lingering issues that have slowed down progress of
this significant trade agreement. We should all watch these events with
particular attention because they demonstrate the dilemma of globaliz-
ing: the more inclusive the agreement, the less independence for the
partner countries but the greater the global imprint.
In the process, a number of interesting global issues arise as a by-product
of the evolving trade agreement: (1) the role of China; (2) the world-
wide issue of food; (3) the linkage effects on NAFTA; and (4) the trade
model for the global future.

x China: In the case of China, we are talking about the second largest,
if not the largest, economy in the world after the United States.
Whether China remains in or out, there will be a significant result
globally. If China stays out, we can be sure that it will mount strenu-
ous trade competition for the TPP which could undercut its potential
achievements; if China joins, it could have a dominating influence
on the shape of the TPP and even distort its direction.

x Agriculture: In most cases, and certainly in the case of Canada, agri-


cultural policy determines the ultimate acceptability of membership
in such agreements and is the test case of sacrificing independence
for global impact. The recent EU-Canada Comprehensive Trade and
Economic Agreement has already doubled the amount of cheese and
milk products permitted into Canada from the EU. How long can
Canada continue its protection of its supply management system?

x NAFTA: Meanwhile, Canada is in the process of negotiating changes


to some long standing issues within the NAFTA agreement, particu-
larly “Buy American” practices and arrangements for the mobility of
The Mythology of Public Sector Management 7

professionals across borders. This could become a less delicate dip-


lomatic negotiation if arrangements within TPP can assist those
within NAFTA and vice versa.

x The Global Future: The evolution of TPP has considerable im-


portance for the global future should it be perceived as the model for
the world as a whole. However, there is no guarantee of that because
a number of bilateral negotiations are underway at the same time.
The balancing act between the bilateral and the multinational re-
mains, as it has always been, except that it is now being played out
in the prominent Asia-Pacific region.
Complicating all of this for Canada is a recently released independent
think tank report entitled: “North America: Time for a New Focus.” The
proposal aims to achieve a more effective partnership among the three
partner nations while recognizing that the price to be paid is diminished
autonomy. The trade game for Canada is a risky venture at this time.
Juggling three major trade agreements simultaneously - North America,
Europe and Asia Pacific – could be a source of strength in global terms
as much as a source of weakness. But it reinforces the proposition that
there is no one standard model of globalization.
The third case is that of International Financial Reporting Standards
(IFRS). This global idea was the product of a belief, following the Enron
fiasco in the U.S.A. and other disasters deemed to be the product of in-
adequate accounting standards and financial statements, that the interna-
tional economy could benefit from standardized accounting practices. At
that time, I was serving on two corporate boards in Canada where we
were obliged to participate in this venture. It became apparent quite
quickly that there was an inherent dilemma. In Canada, we were already
ahead of the standards proposed for universal application; as a result,
these would have represented a backward step for us, as well as a costly
practice to implement. It really amounted to keeping two sets of books,
one, our own superior standard, and the other, the universal standard.
When I concluded my corporate work, I lost track of the outcome but it
is now abandoned. However, it demonstrated one of the huge problems
of globalization: the resulting whole may well be less than the sum of the
parts.
8 H. Ian Macdonald

4 Climate Change
It would be generally agreed that there is no greater challenge to govern-
ing in a globalized world than the issue of climate change. The climate is
the product of discussions made throughout the world with no overriding
way of coordinating policies to confront such problems or even encour-
aging policy at all. The example of the so-called Kyoto Accord provides
little encouragement for those seeking global solutions.
Moreover, the issue of climate change is, in a sense, a by-product of the
underlying question of economic growth and use of natural resources. It
is over forty years since the publication, in 1972, of The Limits to
Growth with its predictions of the ultimate disappearance of non-
renewable resources. It is also the by-product of the conflict between
environmental degradation and economic growth. Even steady state eco-
nomic production would still not provide for the reduction of pollution
necessary to slow down climate change.
Climate change is the symptom of the environmental problem, but eco-
nomic growth is the underlying source of the problem. The task of deal-
ing with economic growth is compounded by the fact that we are rapidly
approaching a world of eight billion people with huge differential stand-
ards of living throughout that world. How do you tell nations such as
China to accept a future where its citizens will be denied the standards of
living which we, in the West, regard as our entitlement? And who could
make such a declaration and enforce such a policy? The world may still
be globalizing but that fact only magnifies the reality that global govern-
ance will not provide for the solution to the economic-environment di-
lemma. Does that mean there is no hope of progress?
The only hope is for a variety of world leaders to conduct campaigns of
moral suasion. For that reason, the initiatives of Pope Francis this year
will continue to attract widespread interest. As reported in The Guardian
Weekly last February: “This year, the Pope will issue a lengthy message
on the subject to the world’s 1.2 billion Catholics, address the U.N. Gen-
eral Assembly and call a summit of the world’s main religions. The rea-
son for such activity …is the Pope’s wish to directly influence this year’s
current U.N. climate meeting in Paris, when countries will try to con-
clude twenty years of fraught negotiations with a universal commitment
The Mythology of Public Sector Management 9

to reduce emissions.” In addition, according to the same source: “Francis


will meet other faith leaders and lobby politicians at the U.N. General
Assembly in September, when countries will sign up to new anti-poverty
and environmental goals.”
Of course, that very declaration contains an internal contradiction. To
relieve poverty while reducing environmental degradation would surely
be accomplished only by a massive reduction of income and a reduced
standard of living for millions of people. The Pope has recognized this
by arguing for a “radical new financial and economic system to avoid
human inequality and ecological devastation.” This is the ultimate chal-
lenge to a globalized world, one not likely to be met without some form
of global governance which in itself is equally unlikely. Therefore, is it
possible to devise a series of partial solutions which, in combination,
might improve the global outlook?

5 Think Globally, Act Locally


For a number of years, various political leaders, philosophers and aca-
demics have invested increasing hope in the concept of: “think globally,
act locally”. In the absence of global governance, capable of agreeing
upon and enforcing global standards, can we encourage various national
and local initiatives that together would add up to global improvement?
The theory is that, rather than ignore local constraints, those constraints
could be modified and thereby contribute to combined improvement. I
became well aware of this possibility during my service as volunteer
chair of The Commonwealth of Learning (1994-2003), responsible for
assisting with the provision of open learning and distance education
throughout the fifty-four members of the Commonwealth of Nations.
Our task was to work, with the support of the national governments, at
the local level to contribute to the Millennial Goals for Education. In
such situations, the global goals had immediate meaning for boys and
girls, young adults and older adults with immediate benefits. This, of
course, was a win-win situation both for local populations and the global
community.
Unfortunately, those are not always the conditions under which we are
operating. More often than not, we are dealing with what, in English, we
10 H. Ian Macdonald

call a NIMBY situation (not in my back yard). And so the argument


runs: that is great policy for my neighbors, but not for me. I approve that
power-line provided it is not located near me. I welcome gas-fired gener-
ation of hydroelectricity provided the gas plants are not located in my
community. By all means, let us find the means of reducing carbon
emissions as long as it does not result in a tax for me.
However, the most important example is the world food shortage which
may prove to be an even greater global challenge than climate change.
According to the U.N., the world production of food is now surpassed by
the world’s consumption as we live off food reserves. Meanwhile, popu-
lation grows at a staggering rate and income inequality continues to en-
large. This is a global problem without a global solution. The outcome
will be the product not even of national policy but only of countless local
decisions. Nowhere is this more abundantly clear than in Canada. We
still possess some of the best agricultural land in the world but it is being
gobbled up by new developments, both housing and commercial, at a
staggering rate. This is particularly true in the periphery of Toronto –
Canada’s fastest growing city now known as the condo capital of the
world. Building, both vertical and horizontal, is appearing all over the
landscape, diminishing food-growing areas not only for Canadians but
also as part of the world food supply. Such local decisions at the micro
level make it impossible to establish a desirable policy at the macro
(global level). And yet, as Canada’s population grows from the forces of
immigration, it would appear to be inevitable. I am reminded of a con-
ference on urban planning which I attended many years ago in the old
Soviet Union. I asked the chief planner for the City of Moscow what the
growth target was for the City. Eight million was the reply. How many
people are now living in Moscow I asked, to which he responded – thir-
teen million. And that had occurred in the most centrally planned econ-
omy in the world. How did that happen was my next question, to which
he replied: “Well, the people kept coming.”
Macro-micro dilemmas, as exemplified by the food problem, are capable
of modification as illustrated by the current Trans-Pacific Partnership
challenge to national decision-making. To participate in such an agree-
ment would require numerous concessions and loss of control, for exam-
ple, over agricultural policy; that could be costly. However, such is the
The Mythology of Public Sector Management 11

price of admission to a regional trade arrangement. It is hard to imagine


such concessions in the area of climate regulations or land-use to serve
the constraints of an external agreement.

6 The Diversity of Global Models


The term – globalized world – in the title of this Symposium permits a
number of interpretations. It need not imply a universal global model and
governing structure. Rather, it can refer to any one of three models at
least:
1. a regional model;
2. a collection of a number of non-regional nations;
3. a significant shift in national public policy in recognition of global
opportunities.

I will describe two examples of such initiatives.

6.1 Canadian Pursuit of Global Value Chains


Formal recognition of this concept is a relatively new characteristic in
the study of international procedures, and I will quote, somewhat exten-
sively, from The Institute for Research on Public Policy’s Summary of
Chasing the Chain: Canada’s Pursuit of Global Value Chains by Daniel
Koldyk, Lewis M. Quinn and Todd Evans of Export Development Cana-
da. The conventional wisdom is that Canada’s trade continues to be
dominated by the United States to the exclusion of global opportunities.
This study challenges the notion that current practice is a continuation of
a long-standing pattern.
“Canadian businesses are more engaged with overseas markets and less
dependent on the United States than is commonly believed. The conven-
tional narrative is that only a modest (albeit growing) share of Canadian
international commerce occurs outside the U.S. But this view often relies
only on analysis of customs-based export data which do not capture well
Canada’s broader participation in global value chains.”
12 H. Ian Macdonald

The study “…provides a more comprehensive and accurate view of Can-


ada’s economic links with the rest of the world. The analysis presents a
fuller picture of Canada’s value added exports, outward investment, for-
eign affiliate sales and business strategies.
Canadian controlled businesses, much like those in other countries, are
changing the way they participate in the global economy by adopting a
more diversified business model that EDC calls “integrative trade”. Can-
ada is thus increasingly engaging with overseas value chains. Our for-
eign affiliate sales in the U.S. are already exceeded by those in other
overseas markets, and our sales in emerging markets alone are projected
to surpass our sales in the U.S. by 2018. Canadian foreign affiliates are
delivering a wide range of services and not simply producing goods. In
fact, the value of Canada’s foreign affiliate services sales has overtaken
that of goods production and is twice as large as service exports.
Interviews with supply chain executives provide further evidence of
these trends, leading the authors to conclude that the integrative trade
approach is here to stay. This does not necessarily mean replacing “on-
shore output” with “offshore output”. Doing business well abroad also
means doing it well here at home. Moreover, some critical production
tasks cannot be performed offshore and some activities are being brought
back onshore after failed experiments abroad. Canadian companies con-
tinue to serve the U.S. market in various ways – through exports, foreign
investment and affiliates. In non-U.S. markets the dynamics are rapidly
changing: there companies now rely much more on outward investment
and foreign affiliates. This approach allows them to increase production
efficiency, capture consumption growth in emerging markets, tap South-
South trade networks and overcome barriers to market access.
Overseas activities can increase revenue, generate follow-on exports and
contribute to the Canadian economy through profit repatriation (which is
subject to Canadian taxes). They can also support Canadian jobs in the
front office, on the shop floor, in research and development, and in a
wide range of professional services such as accounting, consulting and
legal services. That said, better data are needed to improve our under-
standing of these issues and how they should shape public policy.”
The Mythology of Public Sector Management 13

I predict that we will be hearing more and more about this topic. Unlike
governments, businesses have a freer hand in exploring new global initi-
atives without being under the harsh glare that helps to illuminate public
policy formation.

6.2 FIFA
As soon as I made that declaration in the preparation of this paper, an
example of corporate capitalism that is actually a public sector-private
sector hybrid hit the headlines: that strange creature known as FIFA
which is, perhaps, a global institution without equal and even beyond
comparison. It is really a modern form of old-fashioned mercantilism
only on a global scale. The national football associations are the front
line delivery system of governmental ambitions and mutually self-
serving practices. Indeed, it is “management of a globalized world” on a
formidable scale, featuring high seas pirates in modern dress.

7 Public Management in a Globalized World


How then does traditional public management adapt to this still globaliz-
ing world? The quick response is with great difficulty. The New Public
Management has followed two practices in pursuit of making public
delivery systems more business-like:

x applying business efficiency practices within government;


x out-sourcing service delivery to private hands in the form of con-
tracts, privatization or public-private-partnerships.

Clearly these practices face limitations in truly global organizations such


as the U.N. or the World Bank where more traditional bureaucratic pro-
cedures are still followed, with the added complication of providing for
international diversity within the bureaucracy.
In organizations of more limited global application, particularly with a
corporate component such as I illustrated, there is greater scope for man-
agement innovation and the application of guiding benchmarks and new
best practices. However, the papers that are to be delivered in this sym-
posium, over the next two days, provide ample scope for examining the
14 H. Ian Macdonald

ways in which public management can be adapted to the globalized


world. I hope that my overview has set the stage for those papers, con-
vinced you that there is a high degree of mythology about the true nature
of globalization, and challenged all of us to seek the development of a
NGPM – a New Global Public Management discipline.
University Funding in a Globalized World: A
Step Back to the Roots?

René Andeßner, Dorothea Greiling

Summary: Universities face a range of globalization challenges that


create new environmental conditions. This situation serves as a motiva-
tion to take a closer look at their mix between public and private income
sources. With a specific focus on the field of teaching we address three
main aspects: the ties between the type of good of the university services
and the corresponding funding structures, the developments that push
universities towards an increased diversification of income sources (es-
pecially in those countries where universities are publicly funded to a
very high degree) and - as Austria is an excellent example for such a
country - the consequences for the Austrian university system.
Keywords: globalization challenges, university funding, income diversi-
fication, universities under reform pressures

1 Introduction
In the past decades, public universities have experienced substantial
changes in their environments, structures, strategies and processes which
have led to considerable modifications of their role and functions as well
as of the values of higher education (Parker 2011, p. 440). Their culture
has moved towards a market-driven enterprise culture in line with the
new managerialism of the New Public Management (NPM) (Lucas 2006;
Parker 2011). Public universities are continually transforming towards
hybrid organisations, which are competing globally to attract students
and researchers.
As a consequence they place an emphasis on efficiency and effectiveness
in order to deliver value for money. NPM was accompanied by higher
concentration on output and outcome accountability and an increase in
the universities’ autonomy – often coupled with declining public funding
and an increase in student enrolment in many OECD countries (Brügge-
© Springer Fachmedien Wiesbaden GmbH 2017
R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_2
16 René Andeßner, Dorothea Greiling

meier 2005, p. 384). The greater emphasis on managerialism has a sig-


nificant impact on the universities’ governance structures. In many coun-
tries there is a trend towards a greater centralisation of decision-making
power and an increase in the number of professional managers and ad-
ministrative staff.
The move towards public universities as enterprises is reflected in con-
siderable changes in the funding structures. Common trends are a decline
of public money, a growing share of funds allocated through competition
and a shift away from input-based funding in favour of an output-based
scheme. Lump sum budgets increase funding based on formulas or nego-
tiated contracts and the pressure to attract sponsors and donors grows. A
rising need for third party funding coming from industry or foundations
also indicates that university funding is getting more diversified (Ester-
mann/Bennetot Pruvot 2011).
This situation serves as a motivation to take a closer look at the mix be-
tween public and private income sources at universities. For practical
reasons, we put a specific focus on the field of teaching and our paper
addresses three main research questions:

x Which ties do we observe between the type of good of university


services and the funding structures of universities?

x What pushes universities towards an increased diversification of


income sources, especially in countries where universities are pub-
licly funded to a very high degree?

x Which consequences result for universities in Austria, serving as an


excellent example for a country whose university system is existen-
tially reliant on public money?
In the following, section II presents universities as service providers in
the context of changes in the underlying perceptions of public sector
reforms. Section III investigates the respective character of a given uni-
versity service and outlines its connection with the funding structure.
The subsequent section IV takes a short empirical look at the differences
in selected countries regarding the reliance on student fees. The students’
support systems in European higher education are addressed as well.
University Funding in a Globalized World 17

Section V outlines the reform pressures on universities which have tradi-


tionally relied on a high degree of public funding. Austria, a good exam-
ple for such a situation, is discussed in section VI showing the current
challenges that Austrian universities face with respect to the strategic
(political) demand for an increase in the private funding of university
education. So far Austria seems – in an increasingly globalised universi-
ty market – to be much more hesitant than its Anglo-Saxon counterparts
in embracing the competition for more and more heterogeneous private
funds.

2 University in changing role models of the state


Significant changes in the role models for how the public, private and
non-profit sectors work together have become apparent in recent years.
They can be described as a shift from a traditional bureaucratic coordina-
tion (through very detailed process-oriented legal regulations) to the
brave new world of “New” Public Management and the alternative mod-
el of public governance. While NPM is in line with the contract state,
public governance pursues more closely the idea of a facilitating or ena-
bling state: a polycentric network of different actors works together for
providing public services (Löffler 2009, pp. 219; Mastronardi 2007, pp.
148).
One slogan within the NPM model is separating steering from rowing.
The state is responsible for public service provision but different options
are available to accomplish this task. The state as producer of public
services is just one of many. A second possibility is that the tasks are
carried out by a (legally semi-) autonomous state agency. A third variant
is that state-owned enterprises, private non-profit or private for-profit
enterprises are commissioned to perform the services. (Röber 2013, p.
18).
Regarding universities, at least three alternatives can be identified (An-
dessner 2014, p. 42):

x Universities as semi-autonomous agencies within the public admin-


istration: Ministries of Science and Research have extensive over-
sight rights and monitor the behaviour of the university via a myriad
18 René Andeßner, Dorothea Greiling

of legal regulations. In Austria this type was the predominant one for
public universities until the implementation of the University law
(UG) 2002.

x Universities as state-owned enterprises: With respect to the legal


form, universities can choose between public law legal forms (e.g.
public law associations, public law foundations) or private law legal
forms (charities, public and private limited companies). Compared to
the first alternative universities are more autonomous. Currently,
Austrian universities are public law associations sui generis, mean-
ing they are regulated by a public university-specific law.

x University in the ownership of private non-profit entities or for-


profit enterprises: In this case the state is at least involved as a regu-
lator (and resource provider) but does not have ownership rights.
The latter rest within the private or third sector.
With respect to the financing of the university sector, these three alterna-
tives correspond with different degrees of reliance on state funding.
From the first alternative to the third, the extent of public funding de-
creases. While in the case of semi-autonomous agencies funding via the
state budget is predominant, private universities rely often to a high de-
gree on income from private sources (e.g. student fees, income from
foundations and alumni networks, endowment funds). Universities as
state-owned enterprises present a mixed or hybrid type. In Central Eu-
rope state-funding is still the dominate type but a trend towards a more
and more diverse funding structure has emerged (Estermann/Bennetot
Pruvot 2011, pp. 8). In Austria as well, public universities’ shift from
semi-autonomous agencies to state-owned enterprises went along with
the expectations that the financially autonomous universities would act
in a more business-like fashion.
NPM has resulted in a myriad of (sometimes over-bureaucratic) con-
tracts, formula-based budgeting and (sometimes over-board) perfor-
mance reporting obligations for universities. The emphasis is on the en-
trepreneurial mode of universities. Universities are regarded as business-
es with a high degree of financial autonomy. Students are regarded as
customers. Public, non-profit and private universities are competing on a
University Funding in a Globalized World 19

global level for students and top researchers. University rankings are
important, and accreditations play an important role, signaling to stu-
dents and resource providers the quality of the products of “research”
and “teaching”. This goes along with a certain degree of standardisation,
intense competition and a certain degree of uniformity as to what type of
research is regarded as marketable or publishable. Universities are com-
plementing their core services with publishing houses, spin-offs, tech-
nology transfer services, market-priced student housing services, etc.
While the NPM-role model is in line with the market logic and a neo-
liberal attitude towards education and research as a commodity, the pub-
lic governance model is rather in line with ideas coming from public
policies. Like NPM, public governance goes along with a new division
of labour between public, non-profit and private actors. While NPM
emphasises on competition, vertical segregation and autonomy, public
governance stresses the virtues of cooperation. Public governance advo-
cates collaborative actions by multiple stakeholders, working smoothly
together in service delivery networks for the greater public benefit
(Schuppert 2011, p. 33). Traditional hierarchical top-down command or
contracting structures are replaced by participatory democratic decision-
making structures involving all crucial stakeholders. This offers the
chance of employing the innovative and creative capabilities of all
stakeholders for the common good. The idea of public governance is
bringing citizen responsibility, democratic participation and political
ideas back to the public discourse.
One key assumption of public governance is that societal problems are
complex and can only be addressed appropriately by joining together
different stakeholder groups. Within public governance the role of the
citizen is a much more active one than in NPM. Public governance
stresses that complex and difficult public tasks call for collaborative
actions by multiple actors (public, non-profit, and commercial) (Greiling
2014). Each actor contributes according to his or her abilities and capa-
bilities.
Looking at the governance structures, principal-agent relationships of
NPM are replaced by polycentric network collaborations. Governance is
always multi-actor governance. This is in line with a multi-stakeholder
20 René Andeßner, Dorothea Greiling

approach which may work if all actors act as stewards for the public
benefit.
With respect to the steering of universities in Central Europe, public
governance is much less prominent than NPM. Elements of public gov-
ernance can be found in stressing the contributions of universities as an
important player in the societal welfare production, the increasing em-
phasis of networking and the rising importance of being well connected
to crucial stakeholders. (Scientific) advisory boards, collaborative net-
works between the (local) industries and alumni networks may serve as
examples for an institutionalised involvement of relevant stakeholder
groups in the university context. Regarding university funding, the idea
of public governance stresses the importance of diversified resourcing.
Each partner in the stakeholder network should contribute according to
his or her (financial) capabilities. The benefits arise from resource-
pooling and a diversified resource basis. While NPM stresses the im-
portance of market-generated income, public governance has a much
broader understanding of resources. However, both models go along
with a shrinking share of state-financing for universities.

3 Type of good and funding of university services


Universities offer a variety of services which can be divided into three
main categories: research, teaching and other services.
Scientific research has the character of a public or collective good. No-
body can be excluded from a public good. Collective goods are club
goods for a specific group of recipients; they are non-rival.
According to Brunner (2014, p. 18) it is within the nature of scientific or
basic research that not only a single person or enterprise profits from it.
On the contrary, its results, published in scientific (peer-reviewed) jour-
nals, increase the knowledge of all interested persons and not only the
knowledge of the group who paid directly for the research activities. As
a consequence the problem of free-riding occurs, and without state-
financing or state subsidiaries the provision of scientific research is be-
low the welfare optimum.
University Funding in a Globalized World 21

The more applied research is, the more it conforms to the specific indi-
vidual interests and the less the free-rider problem occurs. Applied re-
search has many more elements of a private good because those who pay
for it normally want exclusive user rights. Often there is a ban against
the results being published in publicly accessible journals, and the
knowledge created has a lot in common with consulting services. Ap-
plied research can be the starting point for addressing more fundamental
research issues, which has the consequence that positive external effects
might also arise (Brunner 2014, p. 19).
That one has to separate scientific research from applied research by
their very nature is also reflected in the ongoing debate about rigor or
relevance. Applied research is regarded as the type of research which
addresses the current challenges of industries or other societal stakehold-
ers on a much more practical level. Research results which meet the cri-
teria of rigor share much more characteristics of a club or collective good
as they are only of interest to an often small number of members within
the academic community.
Teaching is also more in line with a private good, as it can be exclusive
and is to a large extent marketable. Students gain individual or private
benefits through their studies in the form of individual acquisition of
knowledge and competences. This should lead to improved opportunities
on the labour market and higher earnings (Hölzl 2013, p. 189).
Today, Europe is already facing a shortage of highly skilled labour with
an appropriate university education. A huge gap exists between the Lis-
bon millennium aims for Europe to be the most competitive and dynamic
knowledge-based economy in the world, capable of sustainable econom-
ic growth with more and better jobs and greater social cohesion (see
Lisbon Declaration of the Lisbon European Council of 23 and 24 March
2000) and today’s reality of university graduates. In those cases where
students’ willingness to pay for tertiary education is below the societally
appropriate level, governments intervene with incentives or subsidiaries
for tertiary education. Then tertiary education becomes a merit good. The
decision for providing a merit good is highly political and also influ-
enced by ideological components (Appelt/Reiterer 2004, p. 18).
22 René Andeßner, Dorothea Greiling

The nature of the different goods provided by universities has an imme-


diate influence on the financial structures:

x Scientific research can – as outlined above – only be funded by ex-


ternal subsidies or internal redistribution (cross-financing through
surplus income of other departments). In many cases the main re-
source provider is the state, supplemented by grants of private foun-
dations or other private institutions supporting research.

x Applied research can be offered commercially and with the objective


of gaining surpluses. Income generated from applied research may
be used for cross-subsidising other areas.

x The funding of teaching often has a mixed structure. Tuition fees


(paid by students) are augmented to a varying degree by tax-payers’
money and private grants. Basically, every funding mixture is possi-
ble, from a non-chargeable offer up to a profit-generating tuition fee.
Depending on a university’s strategic orientation and a country’s politics
towards university funding, three basic models can be differentiated:

x Model 1 – entrepreneurial university: The university relies fully or


predominately on self-generated funding from sales of their services
(in the form of applied research and tuition fees). This income can be
supplemented by private donations. Here, the mobilisation of univer-
sity alumni associations for resourcing plays an important role. In
addition, capital incomes which are generated by university endow-
ments or incomes from university foundations are also of some im-
portance. Public money or state subsidies are not of essential im-
portance.

x Model 2 – diversified university: The funding of the university is


based on all three financial sources. Self-generated, public and pri-
vate grants contribute all in a more or less balanced way to the finan-
cial basis.

x Model 3 – state-dependent university: The university is mainly fi-


nanced by public funds. Self-generated and private grants are of no
or only minor importance.
University Funding in a Globalized World 23

These three models are ideal types. They serve as an illustration that
university funding can be positioned in the triangle of self-generated
(market) incomes from sales (e.g. in form of tuition fees or income from
applied research), public subsidiaries and private funds. Many European
universities are state-financed. The average amount of public funding
within the EU is about 72.8% (Estermann/Bennetot Pruvot 2011, p. 27).
The ideal-type models do not provide detailed information about the
allocation of the self-generated funds or in which form the public or pri-
vate funders allocate their grants or subsidies. The practice of fund allo-
cation can change essentially, although the amount of coming from one
income source remains the same. With respect to taxpayers’ money,
there are fundamental changes how the money is allocated to universities
in Austria. Traditionally, Austrian universities got money for personnel,
infrastructure and goods needed. The focus was on input financing.
Nowadays, public money is increasingly allocated on the basis of an
indicator-based lump sum budget (bmwfw 2014, p. 53). Thus, changes in
the allocation mechanism need not necessarily result automatically in a
decrease of the relevance of one particular income source.

4 Student fees and support system in higher education:


an international comparison
This section concentrates on the funding options for university teaching.
With the exception of fully commercially oriented universities, teaching
in general is perceived as a merit good. However, the degree of merito-
risation can differ greatly. In some countries (public) universities are
only entitled to collect or negligibly low tuition fees or none at all due to
respective state regulations. In other countries, students contribute sub-
stantially (and over time at an increasing percentage) to the funding of
their studies. The pressures on students for financing their tertiary educa-
tion by paying tuition fees is sometimes absorbed by non-refundable
scholarships or student loans, tax reliefs and family allowances for the
students’ parents.
Comparing countries, there is a great variation in the financing structures
for teaching. This suggests that the extent to which teaching is consid-
ered a merit good differs. This is caused by countries’ traditions, eco-
24 René Andeßner, Dorothea Greiling

nomic conditions (e.g. the financial situation of a government) and ruling


political ideologies corresponding to political majorities.
Table 1 presents results for some selected European states which partici-
pated in the project “National Student Fee and Support Systems in Euro-
pean Higher Education” of Eurydice (European Commission 2015). For
the purpose of an extended international comparison the EU data are
complemented with information about the USA and the 2014 tax and
contribution ratio of the respective country (the corresponding sources
are indicated subsequent to the table).
Although the findings demonstrate only country-specific trends and
tendencies, the table shows quite clearly that differences exist between
the countries under review. To be sure, for a closer look one would need
much less aggregated data which take country-specific regulations for
university funding more into account.
The results demonstrate that countries with no or low tuition fees and a
considerable support system have the highest tax and contribution levels.
These countries have implemented a solidarity model which is based on
the following idea:
Higher education leads to higher incomes. A system with a progressive
tax rate causes higher tax payments for academics and higher tax earn-
ings for the state. In conclusion, the invested money is returned to the
state with a time delay via higher taxes for people with a university de-
gree. This system only works if students stay in the countries where they
have studied and have a job. If these conditions are met academics sup-
port students of the next generation with their tax payments (Hölzl 2013,
p. 191).
USA(2) England Netherlands France Denmark Germany Austria

Max. 11,377
Fees
common 6,369 10,742 1,906 no fees no fees no fees
First Cycle
Min. 189
Max.
Fees
common 7,105 5,051 1,906 no fees no fees no fees
Second Cycle
Min. 261
Max. 4,281 6,472 5,500 9,413 8,040 8,952
Need-based
common 5,352
Grants
Min. 1,203 120 60
Max. 6,472 9,000 8,952
Merit-based
University Funding in a Globalized World

no no no
Grants
Min. 1,203 1,800 60
Tax-benefits for parents no no yes no yes yes
Family allowances no no yes no yes yes
Tax and contribution ratio
27.5 34.9 38.4 47.6 51.5 39.7 43.8
2014 in % of GDP (1)
Table 1: National Student Fee and Support Systems in European Higher Education.
Main source of the table: European Comimssion 2015
(1) Source: http://wko.at/statistik/eu/europa-abgabenquoten.pdf
(2) Source USA: https://secure-media.collegeboard.org/digitalServices/misc/trends/2014-trends-college-pricing-report-final.pdf
Fees First Cycle USA: $ 7,142 (1 EUR = 1,12 USD), Fees Second Cycle USA: $ 7,968 (1 EUR = 1,12 USD)
25
26 René Andeßner, Dorothea Greiling

5 Publicly funded universities under reform pressures


The university sectors of countries operating according to the solidarity
model are currently confronted with extensive calls for reforms. There
are several reasons for this, including the following:

x Globalisation also takes place in the university sector and leads to


global competition for universities (Pérez-Esparrelles/Torre 2012, p.
55). Increasing international mobility, intensifying competition be-
tween universities of different nations, and also a growing interna-
tionality among the graduates has been undermining the solidarity
model. In the future, students will presumably often not pay taxes in
the countries where they studied cost-free or by paying only very
moderate tuition fees.

x The (increasing) indebtedness of public households and the resulting


interest burden increasingly restrict the capacity of education policy
to take an active role. If private sources of financing are not explored
as an opportunity to compensate for the increased expenses the sys-
tem is in danger of being underfunded. This leads to unacceptable
teacher-student ratios and an insufficient quality of supervision, po-
tentially combined with high drop-out-rates and increasing average
study times.

x NPM and the connected economisation of the state, as well as the


trend towards autonomous agencies and state-owned enterprises af-
fect universities. Elements such as performance orientation, decen-
tralisation, contract management, competitive structure and bench-
marking are advocated to an increasing extent for the university sec-
tor. (Lanzendorf/Pasternack 2009). The traditionally self-governed
world of academia is being replaced more and more extensively by
the model of universities as a business. High tuition fees serve as a
quality signal that the chosen university offers excellent study pro-
grams.

x The university sector is also confronted with competing ideologies.


In principle, the model of the enabling state is open to various ideo-
logical interpretations. Ruling politicians might come to quite differ-
ent interpretations as to what this means for funding university
University Funding in a Globalized World 27

teaching. Conservatives will most likely rely to a greater extent on


student tuition fees. Social-democratic governments might put a
higher emphasis on the free access to university education and there-
fore focus on the merit good side of university education.
In most European countries the state still plays a fundamental role in
financing universities but as a consequence of the aforementioned as-
pects there is a tendency for the extent of student-financed tuition fees to
increase. This trend is well-documented in the report "Financially Sus-
tainable Universities II" which was commissioned by the European Uni-
versity Association (Estermann/Bennetot Pruvot 2011, especially pp.
27).

6 Finance structure and reform trends in Austrian uni-


versities
The situation described above applies to Austria. This country's universi-
ty sector consists of 22 public universities, which have legal independ-
ence. They were founded by the federal government. Private universities
are approved, but they often have a public or semi-public founder due to
their legal structure: examples include a federal state, a diocese or the
chamber of commerce. Private universities (in the proper sense) exist,
but are so far fairly insignificant considering the number of their student
members.

6.1 Initial situation


The basic financing structure of the Austrian university sector is illus-
trated by the following figure:
28 René Andeßner, Dorothea Greiling

5%
1%
4%
lump sum budget

16% student fees

revenues/ reimbursement of
costs (§ 26 und 27 UG)
1%
reimbursement of student
fees

university executive
education fees
73%

Figure 1: Structure of revenues in the performance agreement period 2010 - 2012, shown
as a percentage of total revenues
Source: bmwfw 2014, p. 66.

73% of the financial resources are assigned to the Austrian universities


as a lump sum budget, based on a triennial service level agreement. Four
fifths are given as a lump sum grants, and one fifth is formula-based. At
this point the indicators "active studies" and "acquired external funding"
are of central significance. 16% of the universities´ income is acquired as
third-party funds, basically for income from research and development
activities. 73% of these funds (11.7% of the total revenues) originate
from publicly funded research programs. Only around 27% (4.3% of the
total revenues) are mobilized from private companies, associations and
foundations.
4% of the revenue is distributed to the universities as a substitute for the
abolished student fees. Austrian universities charged tuition fees between
2002 and 2008 in the amount of € 728 per year. A very large portion of
these annual fees were suspended by law in 2008, just a few days before
a general election. As a consequence, nowadays only 1% of the universi-
ties' income is generated by tuition fees. These are paid by students from
non-EU-countries or students who exceed the standard duration of study
by more than two semesters.
University Funding in a Globalized World 29

A further 1% of the income is collected by specific teaching programs in


continuing education that are subject to a fee.
The other income (5% of the total revenue) includes donations and spon-
sored contributions. In 2013, all Austrian universities mobilized a cumu-
lative sum of € 13.8 Mio. So far the activities represent nothing more
than "the first sprouts" in this field, even if the activities can be very
successful in some specific cases.
All in all public funding makes up a total of approximately 88-90%, and
the private part (commissioned research, tuition fees, donations and
commercial activities combined) contributes approximately 10-12% to
the universities' funding. Austrian universities therefore still depend on
the state for their very existence and are extremely reliant upon its gov-
ernmental support. Their financial perspectives are consequently bound
to a great extent to the financial situation of the state.
The state, in turn, is currently under massive pressure to consolidate its
budget and obviously does not plan to expand its financial engagement
in the university area. This is apparent with one glance at the national
finance framework for 2016-2019, the financial forecast of the Republic
of Austria for the next four years (see especially § 2 BFRG 2016-2019).
Here, a total of € 4.3 Billion is set aside for the area of science and re-
search, the annual rate of increase is about 0.7%, and the total nominal
increase over four years is approximately 3%. In comparison, the pro-
jected increase in the allowance for the general pension system is 17%
for the same time period – a clear reflection of an overly aging popula-
tion. “Aging populations are pushing up health bills, so education – an-
other huge chunk of government spending – loses out; and since the so-
cial benefits of primary and secondary education are clearer than those of
tertiary education, universities tend to suffer the most.” (The Economist
2015, p. 12).
Even though the crucial significance of science and research is empha-
sized repeatedly in the political discourse on innovation, the Austrian
universities cannot hope for more funds from the state. It is therefore
increasingly important for them to mobilize more private capital, in line
with the international trend.
30 René Andeßner, Dorothea Greiling

6.2 Reform approaches


A first option to increase the share of private financing would be the re-
introduction of student tuition fees. Back in 2012, the Austrian Ministry
of Science, Research and Economy had prepared a detailed scheme of
financing teaching on the basis of average costs per (limited) place to
study in order to a react to the internationally unacceptable high teacher-
student ratios and the quality-endangering underfinancing of some study
programs (Mayer 2014, pp. 129). This situation arises, for example, in
business administration programs. Due to the fact that study program-
oriented public payments would lead to considerable additional costs, the
plans of the Ministry were not implemented. It was argued that those
additional funds could not be mobilized on such a short notice (bmwfw
2014, p. 63).
Taking this into account, tuition fees, with which students contribute
substantially to the cost of the study programs, are a feasible alternative.
According to the human capital theory, private gains arise due to the fact
that university graduates are better paid than those without a university
education (Hummelsheim/Timmermann 2010). The society at large
gains via positive external effects (which are very challenging to meas-
ure) due to the fact that the percentage of knowledge workers rise who
pay higher taxes than most without a university degree.
However, the Austrian discussion about the reintroduction of student
tuition fees is still not very intensive. Some stakeholders in the debate
discuss the subject emotionally (Hölzl 2013, p. 187) and in an antagonis-
tic way. In general, there is still a broad consensus that the access to uni-
versities should be cost free but it is waning.
Another option to mobilise additional funds is the area of executive edu-
cation. Taking into account the European commitment to life-long learn-
ing, there is room for universities to establish themselves in a greater
extent as centres for life-long learning. If one compares university fees to
those of for-profit providers, it becomes obvious that the fee levels of
universities are quite moderate. Currently, income from executive educa-
tion is not an important income source for universities. This can partly be
explained by the fact that universities of applied sciences (frequently in
cooperation with private providers) are often more prominent in this
University Funding in a Globalized World 31

market while universities put a much stronger emphasis on research.


Most Austrian universities have some short-comings with respect to
professional infrastructure for executive education. An expansion of
these activities could have the positive effect that this would also be a
way to create regular offers for alumni, who are coincidently a very im-
portant target group when it comes to the expansion of fundraising.
This brings us to a third option the increase of donations and sponsoring
income. Donations are of particular importance for research funding.
Donors also support the modernisation of teaching theatres or other
kinds of infrastructure as wells as the purchase of teaching material.
In general, fundraising offers some interesting options. However, the
current level of fundraising is very moderate in Austria:

x As already mentioned the general public regards the funding of uni-


versities as a public task which should be tax-financed by the Feder-
al government. Austrian citizens are used to the solidarity model. As
a consequence, there is no general willingness to pay more for sci-
ence and research. Hence the willingness to donate to universities is
also very low. The tradition of tax-financed funding leads to a
crowding out of income from fundraising. Due to the nature of dona-
tions, the donor does not receive the financial services equivalent to
the donated amount, and it is even more difficult to communicate the
corresponding benefit than in the case of tuition fees, which have at
least a private good component.

x Like other European countries (Pérez-Esparrelles/Torre 2012, p. 57)


Austria lacks a culture of private philanthropy and is an under-
performer when it comes to foundations (Meyer et al. 2010, p. 41).
This reflects the fact that the current tax laws and other legal regula-
tions are still not favourable.

x In most cases Austrian universities do not have (sufficient) staff


units specialised in fundraising. Therefore universities lack experts
in that field. Without fundraising professionals, it is difficult to carry
out fundraising activities (e.g. capital campaigns) in a structured
way. The tight university budgets make it difficult to establish fund-
32 René Andeßner, Dorothea Greiling

raising units, which could also be important drivers for networking


with alumni.

x University endowments are normally irrelevant as an income source


in Austria due to the long tradition of state-financing. There are only
very few initiatives on a decentralized level. They are an exception
and not a growing trend.
Summing up, university fundraising is in its infant years in Austria. It
will be a long time till it is able to contribute substantially to the univer-
sity income, a lesson which can be learned from the frontrunner coun-
tries with respect to university fundraising.

6.3 Discussion and perspectives for Austrian universities


Universities face the same globalisation pressures as other areas of socie-
ty. The current situation at universities is influenced by the growing in-
ternational mobility of students and researchers and by increasing com-
petition between universities, which is in line with the NPM-model. Ad-
ditionally, the increasing number of private universities, which are acting
more and more globally, still contributes to that process. Furthermore,
enormous improvements in information technology, including extensive
options of virtual and long-distance teaching, support the globalisation of
university education.
These trends create new environmental conditions for universities and
increase the pressure for them to act in a more entrepreneurial way. To-
day’s politicians' willingness to regard a university education as a merit
good is decreasing. Consequently, universities are confronted with the
challenge of generating more income besides public sources. This espe-
cially affects those countries – like Austria – with traditionally (nearly)
exclusive reliance on state funding. To a certain degree this means –
especially in Central Europe – a step "back to the roots". Medieval uni-
versities relied to a large extent upon private income paid by students.
Depending on the local sovereign, this income may have been supple-
mented by some subsidies granted by the respective ruler.
University Funding in a Globalized World 33

Hence, a key question is how Austrian universities can intensify their


private funding under the current circumstances and to gain more money
from private individuals and institutions.
Firstly: To achieve the goal of increasing private funding requires that
fundraising is regarded as a priority. To establish it in a professional
manner, personnel and an appropriate infrastructure is needed (Haibach
2008, pp. 83)
Secondly: While fundraising activities need time, the re-introduction of
(moderate) tuition fees for undergraduate, graduate and executive educa-
tion might be a short-term option. As outlined above, there is still much
room for Austrian universities to intensify their activities in the area of
executive education. The political debate about tuition fees will be as
controversial as in the past. In the Austrian case, mental barriers hamper
acceptance of the findings of human capital theory that university educa-
tion has more in common with a private good than with a public good.
The Austrian solidarity model is becoming more and more outdated if
one takes into account the trend towards the aforementioned globaliza-
tion which is facilitated by the possibilities of e-learning and blended
learning as well as the international mobility of students. In a transition
period, the change to tuition fees may negatively affect middle class
parents. Tax progression is a challenge for them. At the same time, they
have to find the money to pay for the tuition fees for their sons and
daughters. If a new system is going to be established, they could envi-
sion themselves as the losers of the reform.
Thirdly: Alumni activities have to be improved. Alumni should not only
be regarded as former students but also as representatives of the universi-
ty in society, as a key target group for executive education programs and
as potential donors. Their willingness to involve themselves (financially
and otherwise) at their former alma mater depends (at least to some de-
gree) on how they remember their undergraduate and graduate years.
Former students who suffered under the unacceptable teacher-student
ratios might not have the best memories. Nevertheless, Alumni are an
important human capital resource of a university that should implicitly
be addressed.
34 René Andeßner, Dorothea Greiling

In our paper we argued that one has to differentiate between the funding
of research and other university services which have more elements of a
private good. If the public or collective good component is dominant, as
in non-applied research, it should be financed by taxpayers' money. To
rely that this part of a university’s portfolio could be financed by cross-
subsidies is highly unlikely or would limit to a great extent the amount of
research which could be carried out.
If one shares the opinion that the private financing of the university sec-
tor should be increased (which not all stakeholders of the discussion do),
a number of challenges, demonstrated by the Austrian case, arise. Espe-
cially in teaching, it will be crucial to fix tuition fees that balance the
goals of strengthening the financial basis of the universities on the one
hand and assuring equal access to higher education on the other. Other-
wise the proposed reforms will not be politically accepted in Austria.
Some reforms will need time and additional investments (for example a
fundraising-infrastructure). They only show positive results after a cer-
tain period. However, remaining inactive would mean accepting a pro-
gressive under-financing of the sector. This is particularly true for a
country with an increasing number of enrolled students in which state
subsidies do not sufficiently reflect this indicator.
Looking at funding systems applied in other countries should be a main
goal for Austria. This is a typical benchmarking approach. "Latecomers"
can definitely learn from the "frontrunners", by analysing which reforms
– inspired by the thought of NPM – were successful and at the same time
being aware of unintended negative consequences. Furthermore, it would
be desirable that the Austrian discussion about educational policy be
more fact-driven and less driven by emotions and competing ideologies.
Finally we can conclude that the case of the Austrian universities seems
to represent an outstanding example for a situation in which specific
processes of globalization in both the public sector and the private act as
drivers of change and force the institutions as well as the state to leave
traditional and familiar procedures and search for new innovative paths
to be fit for the future.
University Funding in a Globalized World 35

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Globalization and Public Administration:
A Conceptual Framework

Sheila Bergeron-Barrows, David Barrows

Summary: What is the relationship between public administration schol-


arship and the study of globalization? This paper addresses this question
by presenting the intellectual history of both public administration and
globalization. Contemporary public administration posits a number of
alternatives theories and approaches. These include: Plato’s Philoso-
pher King, Confucianism merit-based, Weber/classical, Marx, New Pub-
lic Management, Network governance and Aristotelian values analysis.
We argue that these approaches can be unified in a grand theory of pub-
lic administration in a global environment.
Keywords: New Public Management, Network governance, Values anal-
ysis, Globalization

1 Introduction
Political theory/philosophy and public-sector management are not syn-
onymous. Political theory is a branch of philosophy. Political theory
addresses fundamental issues of governance and the framework for hu-
man interaction. The extremes of political theory are Marxist collectiv-
ism and Libertarian (Hayek). Collectivism versus libertarianism repre-
sents fundamental differences in the role of individuals and the agglom-
eration of individuals. Social agglomeration is predicated on the benefits
of group interaction. In political theory this is manifested as the role of
the state in implementing collective action. The libertarian point of view
argues that there is danger in the collective and that the state, by its ac-
tions, reduces the freedoms of the individual. These philosophical differ-
ences are reflected in the works of Rawls and Nozick (Nozick 1974;
Rawls 1971).

© Springer Fachmedien Wiesbaden GmbH 2017


R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_3
40 Sheila Bergeron-Barrows, David Barrows

Public sector management is the implementation of the prevailing socie-


tal political theory. Public sector management is derived from political
theory. We argue that public-sector management concepts such as the
New Public Management (NPM), Public-Private-Partnerships (PPP), etc.
are not theories in themselves. Rather, they are mechanisms for the im-
plementation of the prevailing political/philosophical societal paradigm
(Barrows et al. 2012).
The impact of modern globalization has resulted in greater pressures on
the state and, therefore, on public-sector management. Public sector
management is always competitive and comparative. The economic im-
perative of scarce resources requires competition amongst societal units.
This does not preclude the potential benefits of societal collaboration.
The beginning of public administration is the tribal unit. Humans form
tribes for reasons of security, risk minimization, social interaction and
enhanced economic well-being. Globalization has redefined the societal
unit from contiguous geographically to global. Modern globalization has
altered the perception and reality of both time and space.
In order to implement the prevailing political theory it is necessary to
construct appropriate public sector paradigms. Plato’s Philosopher King
was developed during the period of the Greek city state. Public admin-
istration was rudimentary. A philosopher king may be feasible in a socie-
ty with limited technology, short lifespans and chronic shortages of basic
necessities. The Chinese Confucianism merit-based public service was
developed in order to administer a large geographic entity. This required
decentralization in administration. The ability to read and write was an
important element in the effective implementation of decentralized na-
tions. Weber’s/classical, robotic, approach to public management recog-
nized the enhanced complexity of public administration as a result of the
Industrial Revolution. Public administration based on nepotism was sub
optimal. Therefore, the requirement for rules based mechanism to ensure
a neutral and professional public service. Machiavelli’s principal-agent
theory recognized and that the role of the public official with respect to
the political hierarchy is complex. Public officials must ensure their in-
dividual longevity and success in order to function effectively. This cre-
Globalization and Public Administration 41

ates the classic principle – agent problem; that is, to ensure that public
officials operate in the best interest of the principal.
New Public Management (NPM) is a bureaucratic response to the pres-
sures of globalization and enhanced competition. NPM as a tool is predi-
cated on a political philosophy which values private sector activities. The
objective in NPM is to ensure that the state retains ultimate control of
critical service delivery and regulatory functions. The role of the private
sector in a specific activity is, therefore, an empirical construct based
upon a benefit – cost calculation with respect to the efficiency and effec-
tiveness of service delivery and regulatory implementation (Bar-
rows/Wesson 2007).
Network governance is a response to complex issues. There is a funda-
mental distinction between issues and problems. Problems, by definition,
are solvable. War is a problem. Once the decision to engage in hostilities
has been made, the solution to the problem is relatively simple: Win the
war. Issues, on the other hand, are complex and are not amenable to
problem solving. Healthcare is an issue not a problem. If healthcare was
a problem it would have been solved by now. Healthcare is an issue
around the world because there is no unique solution. Healthcare is an
issue which must be managed. The management of healthcare as an issue
is impacted by many variables.
Aristotelian values analysis lies at the nexus between political theory and
public management. Public management is impossible without a political
paradigm. Aristotelian analysis argues that societal values must be well
understood and articulated in order to successfully implement public
management. The famous statement by President Kennedy: ”ask not
what your country can do for you, ask what you can do for your country”
is a succinct expression of societal values and, indeed, was the basis for
the creation of the United States Peace Corp.

2 Globalization
Modern globalization was characterized by the rise of maritime Europe-
an empires in the sixteenth and seventeenth centuries. This period has
been described as the Golden Age of globalization. During the golden
42 Sheila Bergeron-Barrows, David Barrows

age there were few restrictions on immigration, there were no passports,


networks of alliances were created through diplomacy.
The current era of globalization is characterized by improved transporta-
tion and lower communication costs. Tariff barriers and other inhibitors
of trade have been decreased through multilateral trade liberalisation
agreements. Diplomacy has evolved with the creator of multilateral insti-
tutions such as United Nations, the World Trade Organization, the World
Intellectual Property Organization, World Health Organization, the IMF
and the World Bank.
It is important to understand that globalization is an instrument to
achieve broader societal objective. Globalization is, therefore, a means to
an end and not an end in itself. International competitiveness should be
designed to enhance societal wellbeing. The definition of societal well-
being can, of course, differ by country and geographic region. Economic
growth is the foundation for expenditures on infrastructure, health and
education in order to produce a high and rising standard of living.
Wealth and income redistribution policies are ineffective in the absence
of economic development. Some definitions of competitiveness are
based upon driving down costs to the lowest common denominator, by
hollowing out corporations and by shifting operations to lower cost ju-
risdictions. In the long term this approach is unstainable. Long-term eco-
nomic growth, leading to enhance societal well-being, requires the crea-
tion of wealth on a consistent basis. We observe that successful globali-
zation requires an emphasis on human rights in the broadest sense.
The Solow, or neoclassical, growth model assumes a trained labor force
is in place, an existing capital stock is available, technological develop-
ment will continue to occur and that the necessary socio-political institu-
tions exist (Solow 1956).
However, the Solow model has difficulty in determining the rate of tech-
nological enhancement. As well, Michael Porter, de Soto and others have
commented that it is inappropriate to assume that the necessary condi-
tions for economic development are consistent across nations. The rule
of law, economic freedom, health, education and infrastructure are pre-
conditions for economic growth and development to occur. As a result
Globalization and Public Administration 43

the process of economic development may be truncated with the result-


ing health, education and income redistribution issues Schumpeter’s
analysis suggests that economic growth and development is a dynamic
which results in a process of creative destruction. Creative destruction
continually transforms societies and requires that the nation state develop
the capabilities to adapt and respond to these dynamic changes (Bar-
rows/Smithin 2010).
Initiating and sustaining economic growth are different enterprise. The
initiation process requires a limited range of often unconventional re-
forms that do not necessarily overly tax the existing institutional capacity
of the society. Sustaining economic growth is in many ways more diffi-
cult. Over the longer-term sustainable development requires the creation
of institutions which facilitate the resilience required to absorb shocks
and to maintain sustainable development.
Competitors and collaborators are no longer confined within the same
community or even the nation-state. As a result, the requirement for in-
ternational rules and regulations becomes increasingly necessary to en-
sure global growth.

3 Expanded role of the state


Wagner's law suggests that the development of industrialized society
leads to an increased share of public expenditures in the country's GNP.
This increasing share is the result of enhanced living standards which
require greater demands for rules and regulations to mitigate risks to
living standards. For example in the United States, “… for the overall
government sector from 1930 to 2012, receipts increased from 11.1 to
26.4 percent of gross domestic product (GDP) and expenditures rose
from 12.1 to 35.6 percent of GDP“ (Schuyler 2014). As a result of this
increase in government activity there is greater concern for value for
money. It is not simply acceptable to increased government expenditures
and assume that societal problems will be addressed. It is necessary to
undertake cost-effectiveness and cost-benefit analysis to ensure that pro-
grammatic and policy initiatives increase the benefits to society relative
to the cost of these programs and policies.
44 Sheila Bergeron-Barrows, David Barrows

4 Impact of superior governance


The impact of superior governance is well understood in the growth and
development community (Helliwell et al. 2014). Data from the Gallup
World Poll assesses the extent to which superior governance contributes
to explaining the levels and changes in life evaluations in 157 countries,
over the period 2005 - 2012. Results indicate that people are more satis-
fied with their lives in countries with better governance quality, but also
the actual changes in governance quality since 2005 have resulted in
large changes in quality-of-life. The 10 most improved countries in terms
of delivery quality changes between 2005 and 2012, when compared to
the ten countries with most worsened delivery quality, are estimated to
have increased average life evaluations by as much as would be pro-
duced by a 40% increase in per capita incomes (The Gallup World Poll
Americas 2015). We have conducted an analysis which correlates gov-
ernment transparency (Transparency International) and the Human De-
velopment Index (HDI) created by the United Nations. The correlation
indicates a Pearson correlation coefficient of 0.7354. This indicates a
moderate positive correlation between government transparency and the
United Nations’ HDI (Woolcock 2014).
Private sector managerial concepts, such as benefit – cost analysis, total
quality management, customer service and team building have been in-
troduced into public management to promote more efficient and effective
government. It is important to understand that the New Public Manage-
ment (NPM) is not a theoretical concept. Rather, NPM is a response to
the international challenges of globalization.
Fiscal constraints and the need to be globally competitive have forced
governments to examine the feasibility of alternative service delivery
(ASD) paradigms. The philosophy with respect to the use of private-
sector tools and techniques occurs at a higher level. This is the funda-
mental discussion with respect to the role of the private sector in society.
The utilization of the NPM is based upon the conclusions that that have
drawn with respect to the use of private-sector tools and techniques in
public sector governance.
Globalization and Public Administration 45

The NPM is predicated on three forms of efficiency:

x Technical efficiency: doing the most work with the fewest resources;
x Allocative efficiency: allocating resources to the right place, doing
the right job;
x Dynamic efficiency: being able to use new technologies and adopt
new ways of operating.

Misunderstanding efficiency can lead to two errors:

x Inappropriate cuts that end up costing much more than they save.
Cuts are made even when the negative consequences of the cuts
outweigh the savings; cuts to funding or staff are easily measured,
but the resulting reduction in service quality or accessibility is more
difficult to quantify;
x Inappropriate privatization or outsourcing.

An understanding of psychology and other social science disciplines can


enhance effectiveness and can lead to the development of different poli-
cy instruments that better motivate desired behavioral change or that are
more cost-effective than traditional policy tools. For example, it has been
demonstrated that psychological may impede savings. These frictions
include present bias, complexity, inattention, and temptation.
Behavioural approaches to address these issues include, providing de-
faults (automatic enrollment and contribution escalation), requiring an
active choice, simplifying the enrollment process, providing individuals
with planning aids, making commitment savings products available, and
dividing savings into different partitions. Another behaviorally approach,
the use of informed savings interventions – reminders – has a similar
impact to providing financial incentives but is virtually free (Madrian
2014).
There has been a revolution in the field of predictive data analytics. This
is based upon the significant computational advancements in the field of
big data analysis. Standard statistical methods of estimation utilize mod-
els based upon an assessment of covariance in order to determine the
accuracy of fit and the subsequent suitability of model projections. Big
46 Sheila Bergeron-Barrows, David Barrows

data analytics utilizes the extensive data sets that are available to gov-
ernment, at all levels, to assess patterns of causal relationships. It has
been argued that this approach is the equivalent of “data mining” and is
not theoretically based. On the other hand, governments have access to
databases which available for analysis and which do not suffer from
privacy issues.
For example, the Mayor's Office of Data Analytics (MODA) is New
York City's civic intelligence center. MODA aggregates and analyzes
data from across City agencies, to more effectively address crime, public
safety, and quality of life issues. The office uses analytics tools to priori-
tize risk more strategically, deliver services more efficiently, enforce
laws more effectively and increase transparency (The Mayor’s Office of
Data Analytics 2015). MODA has worked with New York City Fire
Department to update the Risk Based Inspection System. The system is
an algorithm that directs inspections to over 300,000 buildings in the
City. By re-weighting the inspection criteria to identify buildings that
have similar characteristics MODA has created a more accurate risk
map. The result is a reduction in response time to inspect the buildings in
the worst conditions by nearly two-thirds.
NPM implies that there may be best practices which can be benchmarked
internationally. This has led to the creation of numerous benchmarking
initiatives by international agencies such as the OECD. The OECD Pro-
gramme for International Student Assessment (PISA) is a triennial sur-
vey to evaluate education systems worldwide by testing the skills and
knowledge of 15-year-old students (OECD 2015).
Students representing more than 70 countries participated in the most
recent assessment in 2012. A significant finding was that the United
States ranked 35 while Vietnam ranked 17. This appears to be counter-
factual based upon the differential level of economic development be-
tween the United States and Vietnam.
One potential scenario to understand these rankings might be as follows:
“The United States does a superb job in the education of elite and aver-
age students. However, there is an enormous underutilization of human
Globalization and Public Administration 47

capital at the lower socio-economic category. Perhaps Vietnam has done


a better job in the education of all ranges students.”
The OECD has conducted an assessment of “Public spending on family
benefits in cash, services and tax measures, in percent of GDP”. This
benchmarking assessment is interesting but of no value in the develop-
ment of social policy development. The United Kingdom has the highest
percentage while the United States is second from the bottom. It is im-
possible to determine from this analysis the efficacy of UK spending
with respect to that of the United States.

5 Leader versus solution driven paradigms


Plato argued that the “philosopher king” represented the ideal approach
to the development and implementation of public policy. Leader driven
change remains the dominant paradigm with respect to public manage-
ment. This approach is based upon implementation through linear pro-
jects intended to introduce ‘best practice’
A belief in ‘right policies and solutions’ reinforces traditional bureau-
cratic structures based upon the ideals of top-down leadership. Tradi-
tional public administration (Weber) is based on politically provided
inputs with services monitored through bureaucratic oversight (Bar-
rows/Kist 2013).
Managers ensure that rules and procedures are followed. The system for
service delivery is hierarchical and ccompetition amongst elected leaders
is intended to provide overarching accountability.
Solution driven adaptation is more complex than leader driven public
management. Solution drive adaptation involves iterative changes in the
ways in which agents interact.
These interactions generate new ideas and interventions that grow in
influence over time, fostered by an expanding set of leaders. Sustaining
structured adaptation requires flexible processes, engaging multiple
agents, constant feedback and continuous adjustment.
48 Sheila Bergeron-Barrows, David Barrows

Complexity theorists offer an explanation for why governments might


become less effective under leader driven change. Leader driven organi-
zations become overly-controlled entities which are ineffective in the
face of complex challenges.
Top down ‘implementation by edict’ does not work if the problems are
complex. These issues require interaction, creativity and adaptability
throughout implementation, such that solutions can be found and fitted to
the evolving context.
The role of leadership becomes one of coaching, shaping the process and
ensuring that the system does not descend into chaos or become rigidly
ordered. These leadership solutions involve many agents, with multiple
leaders fostering these achievements to unfold iteratively over time.
This approach emphasises experimentation to find solutions, the adapta-
tion of solutions to context, identification of new problems, and expan-
sion of engagement.

6 Public values management


Public values offer an overarching paradigm which encompasses the
array of theories with respect to globalization and public management.
Aristotelian governance entails the cultivation of good citizens. Empow-
ered citizens are involved actively in solution driven public management
(Bowles 2014).
Modern mechanism design, NPM, contract theory, principal-agent para-
digms and behavioral economics are the tools for the implementation of
public values.
Globalization and Public Administration 49

References
Barrows, David and Tom Wesson (2007), Business Planning and the
New Public Management, in: Stand und Perspektiven der öffentlichen
Betriebswirtschaftslehre II, ed. by Dietmar Bräunig and Dorothea Greil-
ing, Berlin, pp. 451-458.
Barrows, David and John Smithin (2010), Fundamentals of Econom-
ics for Business, 2nd Edition, Singapore.
Barrows, David, H. Ian McDonald, A. Bhanich Supapol, Olivia Dal-
ton-Lez and Simone Harvey-Rioux (2012), Public–Private Partnerships
in Canadian health Care: A Case Study of the Brampton Civic Hospital,
in: OECD Journal on Budgeting, vol. 12, no. 2, pp.1-14.
Barrows, David and Holger Kist (2013), The Resilience of Economic
Clusters: The Role of Innovation Incubators, in: ZögU, special issue no.
43, pp. 117-129.
Helliwell, John F., Haifang Huang, Shawn Grover and Shun Wang
(2014), Empirical Linkages between Good Government and National
Well-Being, National Bureau of Economic Research, Working Paper no.
20686, Cambridge, http://www.nber.org/papers/ w20686.pdf (accessed:
04.02.2016).
Madrian, Brigitte C. (2014), Applying Insights from Behavioral Eco-
nomics to Policy Design, National Bureau of Economic Research, Work-
ing Paper, no. 20318, Camebridge, http://www.nber.org/papers/
w20318.pdf (accessed: 04.02.2016).
Nozick, Robert (1974), Anarchy, State, and Utopia, New York.
OECD (2015), The Programme for International Student Assessment,
http://www.oecd.org/pisa/aboutpisa/ (accessed: 04.02.2016).
Rawls, John (1971), A Theory of Justice. Harvard University Press.
50 Sheila Bergeron-Barrows, David Barrows

Schuyler, Michael (2014), A Short History of Government Taxing and


Spending in the United States, The Tax Foundation, Fiscal Facts no. 415
(Feb. 2014), Washington D.C., http://taxfoundation.org/sites/taxfound
ation.org/files/docs/FF415.pdf (accessed: 04.02.2016).
Solow, Robert M. (1956), A Contribution to the Theory of Economic
Growth, in: Quarterly Journal of Economics, vol. 70, no. 1, pp. 65 - 94.
The Gallup World Poll Americas (2015), Washington, D.C., Gallup
World Headquarters.
The Mayor’s Office of Data Analytics (2015), New York City.
http://www.nyc.gov/html/analytics/html/home/home.shtml (accessed:
04.02.2016).
Woolcock, Michael (2014), Culture, Politics, and Development, the
World Bank Policy Research Working Paper, no. 6939, pp. 9-15.
Federal States instead of National States

Peter Eichhorn

Summary: In the 19th and 20th century, national states were a dominant
force, but it seems that a reorganization of the states in the 21st century
is taking place, created by both internal and external reasons. What
could legislation in a new adjusted system look like? The author search-
es for an approach following the hierarchical structure of sovereign
rights.
Keywords: Communities of states, confederations, decision-making au-
thorities, de-nationalization, enforcement legislation, functional states,
sovereignty

1 Introduction
The chosen topic is usually addressed by political scientists and legal
scholars. They focus on legal or factual structures and processes and
examine norms, types and sets of rules of the political-administrative
system and its current developments. Basically, they deal with polity and
politics.
The focus of interest in this article lies more on aspects of policy. The
author considers whether a business management approach can help the
states to “manage” the transition from national states towards a federa-
tion of states.

2 National states in distress


There are two remarkable developments that can be observed. On the
one hand, within many national states, ethnic and language groups rise
and strive for their own statehood. The Kurds who live in Turkey intend
to split from the state with the goal of governing and ruling themselves,

© Springer Fachmedien Wiesbaden GmbH 2017


R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_4
52 Peter Eichhorn

possibly together with the Kurds residing in the massive border regions
between Iraq, Iran and Syria. On a smaller scale, those movements are
observable globally, for example in Sudan and Ethiopia, in Canada, Chi-
na and India. In Europe the Basques, Catalans and Scots have been try-
ing to become independent, as well. All of them share a common dissat-
isfaction about the (from their perspective) outdated concept of a nation-
al state. The legislation, even if it is federally organized, is said to not
care enough about peculiarities and ideas of ethnic groups. As minori-
ties, they claim independence from the majority with regard to their own
language, cultural life, practice of religion, pre-school and school educa-
tion, legislative self-determination and local autonomy.
On the other hand, many national states face an additional challenge
which, due to external developments, stems from global economization,
logistics as well as information and communication technology. People,
capital, firms, goods, as well as services, energy, (property, usage, pa-
tent, copyright) law and disposal (for instance of radioactive waste) have
long surpassed national borders, and continue to do so. Some local econ-
omies virtually live on in- and out-commuters, imports and exports,
transit and development aid (for instance in Sub-Saharan Africa) while
respective national states degenerate to ‘functional states’. They ‘func-
tion’ or manage their tasks only due to support like international cooper-
ation, international trade agreements, supporting free trade zones and
even common currencies.
As a result, national states seem to break up because of both internal and
external reasons. The traditional scheme of nationally limited collective
or partially state-run elections, parliamentary legislation and executive
governments and administrations is beginning to disintegrate. By means
of de-nationalization, states inevitably lose sovereignty rights, because
on the one hand they give it away “upwards”, i.e. to bigger institutions,
on the other hand “downwards”, i.e. by granting them to minorities. In
democratic countries, more and more voices and publications can be
noticed that question the conventional model of democracy, using the
term ‘post-democracy’. However, it remains unclear what a solution
could look like. Can proven principles of separation of powers, of a con-
stitutional state (legality and legitimacy), of representative democracy
and local self-government be retained in a new system?
Federal States instead of National States 53

3 Cascading legislative process as solution


It seems quite clear that national states are outdated in an international
world with (hopefully fruitful) intercultural exchange between ethnicities
and peoples. The future will probably bring communities of states. Pos-
sible forms of such a community are alliances of states, organized as
federal states. Former national states would become partially sovereign
members of autonomous confederations, which consist of three layers,
with three additional layers of local government. These confederations
are characterized by gradual competencies of legislation.
As the first layer, on top of the confederations, the central Parliament
and government are responsible for all legislation, but content-wise re-
stricted to constitutional laws (in particular human rights, rights of free-
dom and fundamental rights), state objectives (e.g. security, legality,
equality, informational self-determination) and state principles (such as
the welfare state imperative, social obligations of property, taxation ac-
cording to economic capacity, right to legal recourse). The parliaments
and governments on the second layer (comparable to the central legisla-
tive bodies in unitary states (e.g. France) or federal states (e.g. Austria))
determine the deduced political strategies in government programs at
first, followed by the legislative form for all legal matters. The enforce-
ment legislation is managed by the third layer (comparable to the state
parliaments in federally organized states (e.g. the Bavarian Landtag in
the German federal state system)). This opens up enough leeway for the
inclusion of groups that want to integrate and the peculiar interest of
separatists.
The political and administrative dimensions, processes and structures are
also organized in accordance with this legislative cascade. In case of
large confederations with many member states, the central confederation
parliament will entail many delegates. Since the confederation govern-
ment on the first layer including the ministries and other top-level au-
thorities are primarily in charge of the constitution, objectives and prin-
ciples of the confederation, comparably small departments are sufficient.
They compile the desired conditions and objectives and concentrate on
holistic thinking and consensus-making. Public tasks in the sense of
functions and functional areas, which normally dominate in ministries
54 Peter Eichhorn

and technical authorities in general, should be a negligible part of the


confederation government’s tasks.
The (second) layer below takes care of political strategies. The state par-
liaments, state governments and state agencies – all medium-sized –
decide how the guidelines of the confederation can be realized. The
‘how’ relates to basic, long-term and sustainable developments. Alterna-
tive means of action are to be provided and refined in a process includ-
ing, of course, party dispute and competition to other member states.
The lower (third) layer is mainly concerned with enforcement legislation
of the regional parliaments and regional governments and with the ad-
ministrative implementation into concrete measures. For these operative
and output-oriented tasks, many big-sized executive authorities and su-
pervisory departments are needed. However, the enforcement legislation
can work with small parliaments.
With increasing proximity to the addressees of the legislation, the sup-
porting and demanding, factual and financial, individual and collective,
spatial and temporal issues gain intensity. Depending on the population
density, the public trichotomy described above continues on a local lev-
el. Metropolises or megacities are primarily concerned with development
objectives, the bigger cities within them primarily with strategies for the
infrastructure and the municipalities and smaller communities concen-
trate on public services and facilities.

4 A model of federal public hierarchy


Simply put, the confederation makes originative decisions about the de-
sign of objectives and the future of the community of states. The result-
ing political strategies are up to the individual states. Their respective
federal member states manage the translation into operative measures.
The actual implementation then happens on a municipal level – again
starting with objectives and future development up to strategic decisions
and operative measures locally.
The European Union could be designed this way. Instead of the dichot-
omy in confederation and member states – which act as sovereign na-
Federal States instead of National States 55

tional states for the most part – a tripartite public hierarchy with clear
federal structures and responsibilities of the confederation, the member
states and their federal states should be implemented. This would enable
a political-administrative system aimed at decisions instead of tasks.
Transparency and efficiency would be enabled because the constitution
of the confederation includes a framework of rules. Examples: The legis-
lation of the confederation overrules the legislation of the member states,
and this legislation overrules the legislation of their federal states; the
organs of the confederation are responsible for foreign and defense poli-
cy; the government also decides about the costs and the financing of the
legislation; the taxation system avoids mixed financing; the public budg-
ets must be balanced every year and public wealth has to be maintained;
legal disputes regarding the decision-making authority are ruled by a
constitutional court of the confederation.
The following section describes exemplary decision-making authorities
of the states in regard to the educational system (Ad 1) and the utility
sector (Ad 2).
Ad 1: The confederation as the spearhead defines compulsory education,
structure of schools, general objectives of learning and education, core
subjects, requirements for being a teacher and standards for the school
supervisory board. The member states decide on strategies to realize
these guidelines, especially about the mix of public and private schools,
general and vocational schools, schools for children, juveniles and adults
and the respective admission requirements. A more market-economy or
more planned-economy approach to steering the schools and the school
management would most likely also be a part of the schooling strategy.
The federal sub-states then manage the details of the implementation.
Here, the focus would be on needs, quality criteria for subjects and
teachers, support measurements, incentive structures, social mobility for
and integration of students, examination requirements, study results,
comparison of education approaches, pedagogic reforms etc. On the
local, communal level, decisions about the choice of subjects, location of
schools, buildings, sport facilities, infrastructure, school board and
school administration, costs, financing, performance and competitiveness
are made.
56 Peter Eichhorn

Ad 2: The utility sector is also organized in a three-layer system, just like


any other area of life. The confederation focusses on the objectives of
their energy policy, i.e. the share of different energy sources (petroleum,
coal, gas, electricity, district heating, nuclear power, renewable energies)
and the storage, as well as its energy efficiency objectives, the desired
distribution of public, industrial and domestic use of energy, the waste
disposal including its storage and the energy taxation. The member states
are primarily concerned about the energy development, supply risks,
regulation of networks, public and private utility companies and sustain-
able energy efficiency. The federal sub-states regulate and coordinate the
activities of the utility sector (especially generation and usage). Finally,
the local communities take care of location decisions, the extension of
distribution networks (e.g. for district heating) and programs to set con-
crete energy efficiency objectives (e.g. by means of heat insulation).

5 Effects on politics and administration


On the one hand, the approach laid out here points to the pressure of
national states to open themselves by limiting their outdated demands for
sovereignty and becoming federal and international. On the other hand, it
becomes clear which transformations would have to be faced if tradi-
tional state competencies, processes and structures were to be aban-
doned. The political-administrative way of thinking and acting concern-
ing public tasks and task fulfillment – often embellished by laws of na-
ture or ideology – should be replaced. Parliaments, governments and
administrations and even the citizens should be guided by objectives,
strategies and implementations. This approach, which has been long and
deeply rooted in business management, is still the exception in the public
arena.
Most legislation, government politics and administrative actions typical-
ly involve justifications for public intervention and arguments against
public deregulation and liberalization. There is a characteristic chain of
arguments: requirements and legitimacies for projects are quoted, as well
as criteria for privileges and burdens, interpretation, application and fi-
nally results for the people concerned and deadlines for the legal force.
In short, administrations mainly live in the judicial world of thought and
language and primarily use legal instruments.
Federal States instead of National States 57

In contrast to that, business management focusses on decision-making.


Which objectives should be reached how and by whom and when? Deci-
sions must be made about goal setting, goal relations and goal agree-
ment, about strategic planning and concepts as well as the implementa-
tion through steering and supervision. The citizen as the main recipient
would welcome this kind of policy-forming. However, it has to be noted
that politicians and parties, lobbying and administration only reluctantly
talk about goals and strategies, as they could be measured by them. Non-
binding statements and promises are by far more popular!
The plea in favor of more management in the public arena requires its
economization and therefore hopefully also its disentanglement and de-
bureaucratization. Also: the structural reform towards more federal sys-
tems could stop an exaggerated emphasis on nationhood.

References
Eichhorn, Peter (2016), Mehr Management im öffentlichen Dienst, 2nd
edition, Hamburg.
Zippelius, Reinhold (2010), Allgemeine Staatslehre / Politikwissen-
schaft, 16th edition, München.
Welfare-oriented Social Accounting

Diana Eerma, Peter Friedrich

Summary: This article highlights the methodological basis of the wel-


fare-oriented social accounting developed by the authors. It comprises
an ex-post analysis and a bookkeeping approach to determine the wel-
fare contribution of an economic unit by using the willingness to pay
approach to evaluate flows and stocks. This social accounting is demon-
strated for the Faculty of Economics and Business Administration of the
University of Tartu in Estonia for the year 2006. The authors show how
the current social net benefit and the social capital for that year are
determined. Extensions of the welfare-oriented accounting to the whole
university, to a type of social benefits and social costs accounting, an
assessment center accounting, a type of product unit oriented social
accounting, and a shareholder oriented social accounting are discussed.
Management applications for faculty are mentioned. The authors discuss
the possibilities and limits of welfare-oriented social accounting as well.
Keywords: Welfare-oriented social accounting, ex-post analysis,
bookkeeping, welfare theory, management applications of welfare-
oriented social accounting, extensions of social accounting, social capi-
tal

1 Introduction
For more than 40 years (Eerma 2014), approaches for identifying the
contributions of single economic units to the success of society have
existed, called social accounting. However, they are only partly oriented
to social success in the sense of looking for situations that signal an in-
crease in the welfare of society. This is due to different schools, tradi-
tions and thoughts of dealing with activities of public economic units,
especially public enterprises. Three main concepts of orientation for
activities of public enterprises compete. The first is based on conven-

© Springer Fachmedien Wiesbaden GmbH 2017


R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_5
60 Diana Eerma, Peter Friedrich

tional welfare theory and attempts to answer the question of how public
enterprises should behave in order to contribute to welfare maximisation
(Blankart 1980; Bös 1986; Rees 2006; Brown/Sibely 2008; Institute of
Public Utilities Regulatory Research and Education 2012; Frisch-
mann/Hogendorn 2015). The second school considers public enterprises
as a means for public policy to accomplish specific objectives (Thiemey-
er 1975; 1978; Thiemeyer/Cox 1990). According to Ritschl (1925; 1970)
and Hirsch (1992), the third argumentation refers to a dual economy, in
which the public sector has to safeguard the sustainability of society and
the private sector has to organise production, with rather limited external
effects.
These different schools of thoughts are also reflected in social account-
ing. Extended social accounting with respect to the third approach (the
dual economy approach) is missing. Attempts which stem from Business
Administration and “Betriebswirtschaftslehre” literature are more asso-
ciated with the second approach of expressing social success by means
of specific objective attainments.
Some firms want to express how they influence internal and external
stakeholders by effects not expressed in commercial accountings. This
leads to social audits (Schmitz 1980) mostly in the form of reports and
the listing of advantageous and sometimes disadvantageous effects. To
put the focus on showing that the knowledge and stock of labour is of
special value to a firm or the society, human accounting (Hermansson
1964; Brummet 1969; Flamholtz 1971; Neubauer 1974; Conrads 1976)
was evolved. Corporate social accounting considers the social effects of
public and private firms and takes different forms depending on the way
the social value of effect is measured, e.g. by cost effectiveness and utili-
ty analysis (Linowes 1986; Abt 1972; Monsen 1972; Elliot-Jones 1973;
Eichhorn 1974; Mühlenkamp 2007). Sometimes indicators or functions
of indicators are used to signal social advantages and disadvantages in
social indicator analysis (Dierkes 1974; Mintrop 1976; Fischer-
Winkelmann 1980; von Wysocki 1981; Schmitz 1980; Schauer 2007).
The social indicator analysis also includes citizen values analysis
(Schwalbach/Schwerk 2008; Schwalbach/Schwerk/Smuda 2009), meas-
uring effects on the jurisdiction city and its population by extending
profits and losses by financial effects occurring to the city. Social ac-
Welfare-oriented Social Accounting 61

countings are often used to stress the social responsibility of firms


(Kaplan/Norton 1996; Savitz/Weber 2006; Ates/Büttgen 2011). The
special social accountings point to sector-relevant evaluations. They
exist for environmental, health and education issues, which sometimes
deal with economic units or measures or special effects (O’Connor 2006;
Kaya/Yayla 2007; Bebbington et al. 2010).
These attempts show three main weaknesses. The public goals are not
fixed and are sometimes mixed with private ones, or only those are con-
sidered which seem to be positively achieved. Another weakness is that
the public goals are mostly not determined in a comparable way and
there is no standardised ex-post analysis available to book and to meas-
ure social success in social accounting in a previous period. The existing
ex-post analysis and bookkeeping systems do not refer to social account-
ing.
Economic (national) accounting (Brümmerhoff 2008; United Nations
2008) comprises an ex-post analysis directed to identify production
measured in income of sectors and of a country by national accounting.
National wealth accounting serves to determine the value of assets and
liabilities as well as financial transactions of a country. Social success is
only partly identified by economic accounting and is not shown for indi-
vidual economic units. Commercial accounting (Needles/Powers/Cros-
son 2013) also offers an ex-post analysis concentrating on profit and loss
identification and the change in wealth of an individual economic unit
such as a firm. Instead of social success, only commercial success is
shown. Therefore, essential elements of social success such as accumula-
tion of knowledge are not considered. Cameralistic accounting (Monsen
2002) is applied to check whether public plans formulated in financial
and fiscal terms, e.g. a budget plan, are realised exactly and as planned
and how the realisation proceeds. Social success is not verified in terms
of achieved social goals.
Recently, an ex-post analysis was developed for a welfare-oriented so-
cial accounting for a university faculty (Eerma/Friedrich 2012; Eerma
2014, and sources cited therein) enabling a social accounting which also
offers ex-post analysis. Therefore, the authors show within this article:
62 Diana Eerma, Peter Friedrich

x the features of the welfare-oriented social accounting and its exten-


sions in progress,
x management applications of this approach,
x some limits and merits of the approach.

This article is structured as follows. The second section introduces the


welfare-oriented social accounting. The third and fourth sections point to
extensions. The fifth section is devoted to management applications. The
authors discuss limits together with conclusions in the last sections.

2 The Welfare Basis of Welfare-oriented Social Ac-


counting
The second goal-oriented approach ends up in thousands of goals for
individual economic units depending on different economic situations
for social success, which cannot be compared. The only way is to define
a constitutional and legal framework based on religious and ideological
beliefs of economic units that determines the political, administrative,
fiscal and financial goals, horizontal and vertical coordinative compe-
tences, competition goals, environmental and personal goals which are
tolerated by society and set by decision makers having the competence to
fix such goals (Eichhorn/Friedrich 1976). The resulting goal-oriented
social accounting is used as a test of whether the goal achievements of
actions stay within this framework of tolerance. Social accounting based
on such goal packages are in many cases not normative in the sense of
what ought to be good for society but only in the sense whether goal
fulfilment meets some decision makers' wishes.
One way to resolve this difficulty is to define one goal that is to express
all goal attainments in one goal achievement. That was done with na-
tional accounting (Brümmerhoff 2008; UN 2008) where all goods pro-
duced in a society are accounted, expressed approximately by their mar-
ket value and the related income caused. However, it provides no social
accounting for individual economic units and some relevant goals, e.g.
environmental ones, are not considered in income attainment.
Welfare-oriented Social Accounting 63

In welfare economics, there are mainly two ways to express whether an


economic situation is socially successful or not. One is to postulate that
society’s welfare depends on the welfare or utility of all the individuals
in the society (Usher 2003). The other one is to define a welfare function
whereby welfare depends on the provision of economic subjects with
goods and the general situation of economic subjects in society. Individ-
ualistic types of such welfare function (e.g. the Bergson Function (1938)
(see Figure 1)), show the social welfare depending on the utility of the
individuals, but socially weighted. According to this weighting, one may
define a socialistic welfare function (see Figure 1) if all utilities of indi-
viduals should have the same size. Welfare functions are paternalistic if
only the evaluations of a dictator, a politburo, an oligarchy, priesthood, a
noble class or citizens with full-rights are considered. Welfare functions
may result from votes (Mueller 2003), political bargaining and negotia-
tions, prevailing beliefs and ideologies, and related and specified in laws
and statues of decision makers, etc. They may concern the welfare of
special groups of a population such as a welfare function according to
Rawls (2001), which is to improve the situation of least-well off mem-
bers of society (see Figure 1). Others enlarge the variety of variables like
capabilities of individuals to consume or considering uncertainty. Some
authors choose the income as variable to express utility and correct these
incomes by factors considering the income distribution to formulate a
welfare function, e.g. the average income multiplied by the Gini coeffi-
cient or the Atkinson index (Foster/Sen 1996) or the income a randomly
selected person would achieve (Theil index, Theil 1967). However, these
income-based welfare functions exclude a lot of evaluations and aims, as
mentioned previously, and concentrate mainly on income distribution
aspects. They are on the one hand very specific (e.g. for a country com-
parison) and on the other hand aggregated and cannot serve as a basis of
an economic subject-oriented social accounting. The so-called happiness
functions concern the collective well-being of citizens, however, depend-
ing on goods, social circumstances and personal features.
To avoid these difficulties, the authors follow the first welfare orienta-
tion ideology to base their social accounting. In a society of two persons
(see Figure 2) (u1 and u2, two groups) starting from a situation as de-
scribed by point A to point B, both persons benefit from a move. There-
fore, the society of u1 and u2 is benefiting and the welfare of society
64 Diana Eerma, Peter Friedrich

increasing. As illustrated in Figure 2, only a small range of solutions


according to Pareto lead to a higher welfare. Often, a movement like
from A to B shows u2 better off than u1, who is suffering a loss. Howev-
er, if u2 can compensate the loss of u1 and a net win is achieved, the
society's welfare is improved according to the Kaldor-Hicks test. The
range of solutions is widened and comprises the area between the possi-
ble solution curve and the red line. It shows which utilities and their
combinations are attained if these situations in a society are feasible.
Therefore, a possibility to measure welfare increases is to concentrate on
the space shown by the Kaldor-Hicks test area. This method is chosen to
identify welfare increases by the net benefit analysis (Mishan 1980;
Kleinewerfers 2008).
However, the problem of how to express the utility of the economic units
is unresolved. The basic idea is to let the individuals express what they
are willing to sacrifice to achieve a gain in utility or to avoid a loss in
utility. Then the individuals themselves transform goals into a utility
measure. The willingness to pay approach normally determines a sum of
money the individuals pay for receiving advantages or to avoid losses.
The u1 and u2 are transferred into willingness to pay and are aggregated
(see Figure 2). There are two main ways to express the willingness to
pay. The usual one is in money, which is mostly used in net benefit anal-
ysis and another one could be in time, which is very rarely used (Frie-
drich 1991). In both ways, a social accounting can be developed which is
welfare-oriented, but is not dependent on measuring special goals for
evaluations. Therefore, a very generally applicable social accounting is
developed.
Some basic methodological decisions have to be made. At first, it should
be expressed how to measure the willingness to pay. The willingness to
pay is demonstrated by amounts actually paid, by amounts which eco-
nomic units are willing to pay before they have to sacrifice services and
payments for advantages resulting from external effects. There is also a
willingness to pay not to lose factors of production, to avoid through
factor price exploitation of factor owners and to pay against negative
external effects. This leads to the following basic equation (1):
Welfare-oriented Social Accounting 65

consumer surplus
+ turnover
+ monetary value of external effects*
- producer surplus (as factor price distortion)
- costs
- monetary value of external effects

Social Net Benefit (SNB)

* winners' willingness to pay in money or time


* losers’ willingness to pay in money or time

If there are no external effects and no factor price distortion one receives
a sum showing the consumer surplus and the usual producer surplus. Its
maximisation leads to marginal cost pricing (Brown/Sibely 2008). How-
ever, in social accounting one is not interested in determining optimal
situations, but in measuring the welfare of mostly sub-optimal situations
(in Figure 2 within the Kaldor-Hicks space). Optimal solutions in the
sense of a welfare function maximum are mostly situated at the north-
eastern margin of the possible welfare situation curve (see Figure 1).
Direct social benefits are measured by consumer surplus and turnover
related to the economic unit operations. Some social benefits are meas-
ured indirectly. Income increases, monetary value of time savings, de-
crease of costs, e.g. of self-instruction, less compensation from insur-
ance companies, reductions in contributions of other institutions, or
higher values of shadow prices, higher values based on hypothetical
demand functions (Flores 2003), increases in property values and higher
leases express a higher ability to pay for external effects of the economic
unit operations because of improved services. Social costs incurred are
determined by costs and factor distortion oriented producer surpluses.
Methods used to identify social benefits serve to measure external social
costs as well.
Second, the group of people, economic units, etc. whose welfare should
be measured should be determined. That is rather complicated as the
nation-wide welfare of Estonians, EU-wide or global welfare or regional
or municipal welfare could be measured. The willingness to pay ap-
66 Diana Eerma, Peter Friedrich

proach uses prices, and some of the services also refer to other states,
which are partly determined on a national or EU-wide basis, and Europe-
an capital markets are becoming more and more integrated. The region
where changes in welfare occur is mainly the one in which the econom-
ic unit is embedded by its performance operations, delivery and pro-
curement activities.
Third, the resulting situation if no activities occur, e.g. the economic
unit under investigation is not active – is important for measuring its
welfare contribution. Assuming such a kind of alternative situation is
critical because in a commercial bookkeeping system the alternative
situation is that of non-existence of the firm mostly with profit of
zero. In the case of a public office, there could be another institution that
takes over the duties. The true welfare contribution would consist of
the difference of net benefit to the next less advantageous organisa-
tional solution. As an approximation, it is assumed that the public
office social net benefit vanishes, if it does not exist.
Fourth, because economic units work together to create social success,
rules to assign social success to economic units must be available.
These deferrals should be made according to the volume of activities the
economic units share in production. Related to this problem is the ques-
tion of which sequence of effects should be taken into account. In order
to reduce information problems, the authors consider the sequences of
transactions and effects that are more directly linked to the economic
unit. This automatically restricts the number of people and the size of
the considered region in the social accounting as well.
Fifth, long-term activities of the economic unit existing more than one
period lead to stocks of social benefits (so-called social assets). The long-
lasting social costs occurring more than one period result in social liabili-
ties (Friedrich 1991; Eerma/Friedrich 2012; Eerma 2014). The current
social effects existing in the year of ex-post analysis are related to flows
called current social benefits or current social costs. Due to data availabil-
ity and the principal organisation of the authors’ welfare-oriented social
accounting, the period of ex-post analysis is chosen as one year.
Welfare-oriented Social Accounting 67

Sixth, there are two organisational ways to define the social accounting
approach based on the willingness to pay approach. One can develop a
totally new social accounting approach. A second way starts from equa-
tion (1). The willingness to pay can be rearranged.
turnover commercial
- costs accounting
consumer surplus
+ value of positive external effects additional
- producer surplus as distortion on factor markets social
- value of negative external effects accounting

Net Benefit
A part of the willingness to pay is already considered in commercial ac-
counting, which allows developing an additional social accounting system
that supplements the existing commercial one. The following connections
exist:
(2) Welfare-oriented social accounting = an additional social account-
ing + commercial bookkeeping
(3) Current social net benefit = additional social success operating
statement + commercial profit and loss account
(4) Total social balance = additive social balance + commercial bal-
ance
The social accounting consists of the commercial accounting and of that
part of social accounting not considered in commercial bookkeeping,
called additional social accounting.
An adaptation of the chart of commercial accounts (revenues and ex-
penses) to identify correctly profit and stocks assets, liabilities, etc. is
needed. For the additional social accounts, a chart has to show the cur-
rent social benefits and current social costs and social benefits as stocks
(social assets) and social costs as stocks (social liabilities). The additional
social accounting also applies double-entry bookkeeping. There is a social
68 Diana Eerma, Peter Friedrich

cash account that assembles the counter bookings. Special deferral ac-
counts are necessary to defer the social benefits and social costs that are
caused by other economic units involved in transactions indicating the
part of willingness to pay which is not due to the economic unit under
investigation. In the chart, social assets, social liabilities, current social
benefits and current social costs appear. There are technical accounts
comprising opening balances, final social balance, final total social bal-
ance, the social success operating statement, and the deferral accounts for
stocks and current social benefits and current social costs. The stock ac-
counts are defined according to types of long-lasting benefits (e.g. social
assets) and social costs. The current social benefits and current social
costs are defined according to the operations of the economic unit.
In both parts – the commercial and the additional social accounting –the
welfare-oriented ex-post analysis starts with an opening balance of the
final stocks of the past period. With respect to the commercial part, the
revenues and expenses are booked in stock and current accounts. The
remainder of the current accounts end up in the profit assessment ac-
count, and the resulting profit is transferred to the final commercial bal-
ance. The remainder of the stock accounts also end up there. In the addi-
tional social part, some commercial stocks not considered in commercial
accounting might be added, e.g. old book stocks of the university library.
Then the transactions with respect to stocks are booked as well and de-
ferrals take place. The booking of the transactions implying current ben-
efits and current accounts follows. Deferrals are made. The remainders
of the current social benefits and current social costs are collected within
the social success operating statement and the current social net benefit
determined. The latter is booked to the final social balance as well as the
remainder of the stock accounts. In a last step, the final social balance
and the commercial balance are aggregated to a total social balance (see
Table 1). The commercial assets and the social assets appear there, as
well as equity capital, the commercial liabilities, the social liabilities, the
net social capital and the current social success, thus showing the contri-
bution of the respective economic unit to the social welfare, e.g. in Esto-
nia.
Welfare-oriented Social Accounting 69

Pareto Bergson
Socialist valuation

u1

Rawls

u2

Possible welfare situations

Figure 1: Welfare determination by welfare functions


Source: Authors’ compilation.

A Pareto
C

u1

Kaldor-Hicks Test, the win of


the winner is larger than the
loss of the loser, the loser is
better off after the
compensation than before

u2

Possible welfare situations

Figure 2: Welfare situations of individuals


Source: Authors’ compilation.
70 Diana Eerma, Peter Friedrich

3 Applications of the Welfare-oriented Social Account-


ing

3.1 The Welfare-oriented Social Accounting as an Information


Tool for Current Social Net Benefit
The total final social balance (see Table 1) offers information about the
additional current net benefit on the basis of the welfare-oriented ex-post
analysis and the developed bookkeeping approach. The current social net
benefit of the Faculty of Economics and Business Administration of the
University of Tartu shows a tendency to fall as the number of students is
falling in the course of Estonian population development. This also
shows that the willingness to pay reflects the influence of many social
goals and aspirations, etc., which are not covered if a simple goal analy-
sis of the university in terms of keeping the number of university real
estate constant, etc. prevails in the framework of a balanced scorecard
analysis. Our welfare-oriented results are – as far as the authors know –
the only ones gained using a welfare-oriented ex-post analysis of the
total activities for a past period.

3.2 Measurement of Social Capital by Welfare-oriented Social


Accounting
The Economic Welfare-Oriented Social Accounting also provides infor-
mation about social capital related to the economic unit under considera-
tion. The commercial real capital (fixed and working) and the financial
capital are shown in the commercial balance. The net private capital is
the former one reduced by the liabilities resulting in equity capital, re-
serves and profit – the profit would then be used for investments. The
social capital of the economic unit results from the additional willing-
ness to pay, which is not demonstrated in commercial bookkeeping.
Social capital constitutes an infrastructure (Westlund 2006, p. 8) like a
network with links and nodes. Goods, etc. (flows) are transmitted and the
nodes can represent actors (Westlund 2006; Grüb 2007) constituting
economic units. There are similar definitions like culture concentrating
on shared values and beliefs (Parts 2009; Kaasa 2013) or by North
Welfare-oriented Social Accounting 71

(1990) on the players, without emphasising networks. Other authors


include both and call them institutional capital (Hardin 1999; Krishna
2000). Definitions of social capital are different (Westlund 2006, p. 39;
Kaasa 2013), e.g. human capital. Social capital is interpreted as access to
network-based resources, generalised trust, or norms and values (Fran-
zen/Pointner 2007). Social capital can be treated as a stock such as an
investment (Westlund 2006). However, networks are difficult to measure
and to add up in total or in parts. Aggregation (Dasgupta 2002) is men-
tioned as one of the main problems with social capital. Social capital has
some capital features. It shows vintages, it has to be maintained
(Prusak/Cohen 2001), it enables positive or negative impacts on econom-
ic units, (Grüb 2007) and rewards. It undergoes changes (Riemer 2005).
The willingness to pay approach provides the welfare-oriented values to
aggregate social capital.
Social capital is related to all additional social bookings of transactions
connected to rents and the indirect evaluation methods. They include
internal social capital and partly the external social capital. An explicit
division between human capital and other forms of social capital is not
made. Knowledge about and integration into a network can reflect hu-
man capital but at the same time the network-oriented social capital.
Therefore, the authors differentiate between the capital forms that are
privately stated in commercial accounting and social capital as the other
category. The economic welfare-oriented approach allows detecting the
social capital of the economic unit. Net social capital results as the dif-
ference between social assets and the social liabilities leading to the re-
mainder of the social cash account representing net social capital plus the
current social net benefit. The willingness to pay approach is used to
aggregate the different forms of social capital. Social capital varies from
type to type of economic units according to the willingness to pay meth-
ods applied for identification of social capital.
72 Diana Eerma, Peter Friedrich

IIFT7401 Total Social Balance


IFT711 Commercial Balance
IFT711 Commercial Assets IFT711 Commercial Liabilities
1. Non-current assets 71.515 1. Net assets, capital 72.714
2. Financial assets 0 2. Liabilities 3.023
3. Current assets 3.222
4. Accrued income 1.0
IIFT7301 Additional Social Balance

IIFT7301 Additional Social Assets 0 IIFT7301 Additional Social Liabilities 0


IIFA0101 Value of buildings 0 IIFL4001 Stock of previous net benefits 0
IIFA0111 Value of assets not booked 36.328 IIFL4011 Accidents 0
IIFA0201 Knowledge of baccalaureate 3.238 IIFL4021 Emissions, etc. 0.710
IIFA0211 Knowledge of master 1.093 IIFL4101 Future financial obligations 0
IIFA0222 Knowledge of doctor 0.544 IIFL4201 Closing down consultancy 0
IIFA0231 Knowledge Open University 6.615 IIFL4301 Loss of staff 0
IIFA0242 Knowledge vocational training 0.354 IIFL4401 Loss of res. by political act. 0.020
IIFA0251 Knowledge teaching staff 0.031 IIFL4501 Employment losses 0
IIFA0261 Knowledge of Scientists 0.030 IIFL4511 Reduced infrastructure 0
IIFA0301 Lasting research results 11.400 IIFL1001 Soc. cash (add. Soc. capital) 42.387
IIFA0312 Incr. intern. cooperation: 0.603 IIFV3101-3612 Value adjustment: 10.170
capacity
IIFA0321 Incr. research capacities: staff 1.426
IIFA0331 Incr. research capacity: equipment 0.160
IIFA0341 Incr. research capacities: buildings 0
IIFA0351 Incr. research capacities: 0.094
library
IIFA0361 Contribution to research centres 0
IIFA0401 Capacity to consult firms 1.060
IIFA0411 Capacity to consult government 0.901
IIFA0421 European funds 0.060
IIFA0501 Dev. Estonian language 1.915
IIFA0511 Increased Employment 2.724
IIFA0521 Increased infrastructure 3.500
IIFA0601 Changes of profits of other firms 1.554
IIFA0612 Increase of tax receipts 4.594
IIFW3001- Value adjustment: 0.147
3511
IIFB4871 Additional net
benefit 25.084
154.108 154.108

Table 1: Total social balance (commercial and additional social balance), (in m. EEK)
Source: Authors’ compilation.

The identification of social capital was applied to the Faculty of Eco-


nomics and Business Administration of the University of Tartu
(Eerma/Friedrich 2012), and the Faculty of Mathematics and Computer
Science of the University of Tartu (Eerma 2014) for the year 2006. It
was also performed for the European College at the University of Tartu,
and the University of Tartu Pärnu College and University of Tartu Narva
College for the same year. The social capital of the Faculty of Econom-
ics of Business Administration (see Table 1) was about 42 million EEK
and the current net benefit about 25 million EEK. For the Faculty of
Welfare-oriented Social Accounting 73

Mathematics and Computer Science social capital was about 50 million


EEK and current net benefit about 18 million EEK (Eerma 2014). For
the year 2006 the college at Pärnu achieved a social capital of about 41
million EEK and a net benefit of about 7 million EEK. The European
College at Tartu showed a social capital of about 8.6 millions of EEK
and an approximate current net benefit of 1.2 million EEK. The authors
also considered the college at Narva (but only with their economics-
oriented activities) with a social capital of about 4 million EEK and a net
benefit of 4 million EEK. The cluster of the Faculty totalled a social
capital of about 96 million EEK and net benefit of 38 million EEK.

4 Extensions of Welfare-oriented Social Accounting

4.1 Similar other Clustered Economic Units and a Total Aggre-


gated Economic Unit or Holding
The following extensions of welfare-oriented social accounting concern
work in progress. They also signal possible applications of welfare-
oriented accounting to the reader.
For similar economic units like a college dominated by teaching eco-
nomics, the analyst can apply the chart of accounts and bookkeeping
rules for a university faculty to the whole college. This was practiced
with the Pärnu College and the European College at Tartu. Although
these institutions show less orientation to research, they can easily be
handled by our social accounting. In the case of a college dominated by
teaching economics the analyst can apply the approach of the chart of
accounts and bookkeeping rules for the faculty to the whole college.
Application difficulties arise when individually quite different economic
units get aggregated, e.g. to the total university. No severe problems
cause the commercial part of social accounting. Commercial bookkeep-
ing is available for the total university. The additional social accounting
part has to consider much more and different activities of the various
faculties and central offices. With some faculties the evaluation methods
remain similar to those applied to the Faculty of Economics and Busi-
ness administration, e.g. the faculties of mathematics, social sciences,
74 Diana Eerma, Peter Friedrich

theology, philosophy, education, languages, law, and geography. Other


faculties cause additional evaluation difficulties such as medicine, chem-
istry, physics, and biology. Another split of additional social benefits and
social costs becomes necessary. The split should separate social benefits
and social costs between faculty, central offices and the outside world.
Additional accounts have to be introduced. The central office deferred
parts of additional social benefits and social costs have to be entered in
the success statements and balances of central offices in addition to so-
cial benefits and costs, which only appear there.
The delineation of an aggregated cluster or a trust such as a university
causes problems. Which organisational units should be aggregated to the
total university? Should it comprise the hospitals, university pharmacy,
university press, real estate business, sports club, kindergarten, founda-
tions, student homes, Genome centre, and perhaps the colleges: Europe-
an College and at Pärnu, Narva, Viljandi, and Türi? The degree of ag-
gregation with respect to institutions (cluster members, e.g. integrating
faculties) and activities influences the charts of accounts and the results.

4.2 The Type of Social Benefit and Social Cost Accounting


A type of social benefit and social cost accounting could be based on an
aggregated accounting for the whole cluster, e.g. university, on the so-
cial accounting of one economic unit, e.g. faculty or college, or on the
social accounting for the whole trust, e.g. university, or on the trust but
using the charts of the members, e.g. faculties.
There are common problems for these attempts. The types of social
benefits and social costs have to be defined. They might refer to the
tasks of cluster, e.g. the university, or to the interests of special institu-
tions, e.g. clients, ministries, groups; they may be assigned to the tasks of
economic units as cluster or trust members such as faculties; they might
be depicted according to special evaluation methods or oriented to spe-
cial effects. New current operation statement accounts and balances
have to be defined for the types.
The evaluated data concerning the transactions collected in the commer-
cial part and additional social part are to be assigned to the types. Special
Welfare-oriented Social Accounting 75

distribution keys concerning commercial revenues and additional social


benefits should assist these assignments. Similar keys refer to commer-
cial costs and additional social benefits and additional social costs.

4.3 The Assessment Centre-oriented Accounting


An assessment centre welfare-oriented social accounting can be devel-
oped based on a disaggregated trust social university social accounting,
e.g. a university; it may concern an internal social accounting of a trust
member, e.g. faculty or will be formulated for one holding office, e.g.
central university office.
For all three possible versions, the definition of an assessment centre
becomes necessary. The controller may determine as a centre, e.g. for a
university, a chair, an institute, a faculty or department, a central office, a
participation, the clinics, projects, educative programmes, etc. The splits
of additional social assets, social liabilities, additional current benefits
and social costs as well as commercial items to centres, should be ac-
complished through distribution keys. These keys have to be long-term in
order to compare the assessed net benefits of different periods. Deferral
difficulties cause public–private partnerships or cooperation and joined
actions between central offices and other organisational units.
A decentralized faculty structure is favourable for the development of an
assessment-oriented social accounting of a university.

4.4 The Type of Product Unit-oriented Social Accounting


A product unit oriented, welfare-oriented social accounting should allow
calculating the current net benefit and the social capital with respect to
products. Unit products accounts should be assigned to the trust, (e.g. the
whole university). They serve to enter product-related bookings. Such an
approach may also refer to a cluster member only, e.g. a faculty or even
on the basis of an assessment centre.
The definition of an output causes problems. Should it be a service deliv-
ered to other economic units, an intermediate internal product or services
procured, special operations or self-produced instalments, e.g. university
76 Diana Eerma, Peter Friedrich

labs? One also needs distribution keys when joint social benefits or so-
cial costs of services occur. Deferral criteria directed to products be-
come necessary. The developer of the type of product unit oriented so-
cial accounting is challenged by assignment of stocks to products.

4.5 Stakeholder-oriented Social Accounting


Stakeholder-oriented accounting directed to welfare-oriented accounting
is very seldom (Tsimopoulos 1989). The shareholders interested in the
trust as such, e.g. the university, may provide the basis to define share-
holder directed accounts, in which the bookings have to take place. The
bookkeeping approach may also deal with the shareholders of one cluster
member only, e.g. a faculty. Moreover, the social accounting may refer
to one shareholder only, e.g. a ministry or a holding.
The resulting bookkeeping system depends on the kind of cluster, e.g.
kind of university, and in particular on the type of stakeholders, e.g. min-
istries, politicians, municipalities, students or firms. New accounts for
current net benefits, social capital, balances, etc. are needed for the dif-
ferent stakeholders. Special splitting keys and deferral criteria with re-
spect to shareholders have to be introduced.
One must bear in mind that the shareholder's willingness to pay is not
measured, but which part of the total willingness to pay (welfare) is re-
lated to the respective shareholder is determined.

5 Management by Welfare-oriented Social Accounting


The extensions of welfare-oriented social accounting point to manage-
ment applications. The type of social benefit and social cost social ac-
counting draws attention to some particularly interesting social benefits.
By means of product unit oriented accounting, managers can highlight
the social importance of some services. Within a cluster, an economic
unit might demonstrate its contribution to the welfare caused by the clus-
ter. The role the economic unit plays for a stakeholder can also be
shown. Some public enterprises are able to underline that a commercial
loss can be compensated by an additional social net benefit and is acting
in the general economic interest in terms of EU subsidisation regulation.
Welfare-oriented Social Accounting 77

As the welfare-oriented approach was developed within a project about


university management, the authors debate its possible applications for
universities. In universities complex core operating processes, determi-
nation of production by expert processes, joint production, e.g. teaching
and research, and social evaluation dominate (Greiling/Kirchhoff-Kestel
2014). The universities have to call public attention to their social suc-
cess in order to create understanding of their financial requirements, etc.
The welfare-oriented measurement is helpful because it shows social
success of a broad group of citizens interested in the university devel-
opment, although of those stakeholders who are not mainly interested in
special features, e.g. education of cheap labour. The kind of social suc-
cesses attributed to tasks, the types of benefits, the centres of benefits,
the benefits of products, benefits to shareholders and the size of social
capital related to the university can also be used to inform the public
supporting negotiation with the owner, parliamentarians, politicians,
ministries stakeholders, etc. Internally, the control of social benefits and
social costs can be facilitated in the course of time or by comparisons
with other universities. It also assists the monitoring of social benefits
and social costs of assessment centres such as institutes chairs, faculties,
etc.
Management decisions can be facilitated such as fixing fees for “Open
University”, fees for consulting programmes and financial participation
of the university in projects attracted by institutes or chairs. The social
success per student may be calculated as well. These issues can be tack-
led in the framework of the product per unit social accounting. The as-
sessment centre social accounting shows chances and problems with
respect to social successes of faculties. Decisions to allocate financial
means to faculties, investments or research activities can be based on
information from the assessment-centred social accounting or the types
of social benefits and costs accountings.
For internal coordination, the assessment centre provides accounting
information about monitoring behaviour, incentive measures, sanctions,
performance evaluation and social success-oriented budgeting and per-
formance-based resource allocation. The different types of social wel-
fare-oriented accounting increase the transparency of processes and point
to causalities for social successes.
78 Diana Eerma, Peter Friedrich

Determination of social results and assessment of stocks is supported by


welfare-oriented accounting, e.g. the product unit social accounting. The
social value of self-manufactured equipment may be determined. Social
depreciation rates can be determined, e.g. by social net benefit type or
product unit type accounting. The university can stress its importance by
advertising its social capital and the social success of programmes, re-
search activities, etc.
The university provides information and data for rankings, external sta-
tistics, and social successes for different projects and activities due to the
requirements of ministries and the EU. Moreover, the welfare-oriented
accounting terms can serve as a common language for different academic
cultures, ministries, teachers and professors, researchers and external
members in decision-making councils and bodies (Greiling/Kirchhoff-
Kestel 2014).
How the managers of a university react to the introduction of such a
welfare-oriented accounting remains an open question. The consequenc-
es depend very much on relation of the welfare-oriented social account-
ing to the prevailing management concept, the management tasks, their
fulfilment, managers’ decisions on finance and resources and the incen-
tive system for them. Managers might feel disturbed in their manage-
ment games. They might prefer a balanced scorecard-based social ac-
counting, where they can influence the kind of goals and give their own
social weights to the goals' achievements. Results of welfare-oriented
social accounting are not always welcomed if managers negotiate with
creditors, trade unions, etc. Willingness to pay directed social accounting
considers not only the wishes of managers, but of many individuals,
economic units and organisations and authorities who are willing to pay
in favour of or against activities. Its results might not sufficiently stress
the managers’ arguments and factors relevant for their negotiations.
Other actors who want to achieve radical changes of society are in fun-
damental opposition to welfare-oriented social accounting, e.g. socialist
groups, Islamic and other non-individualistic or non-democratic or radi-
cal environmentalist zealots and organisations. In addition, economists
and economic policy makers who look for optimal solutions might not be
Welfare-oriented Social Accounting 79

happy with the ex-post analysis as it is normally applied to identify non-


optimal situations.
If welfare-oriented accounting is only used for public relations, it might
not have many effects but supports the position of the university in so-
ciety or the reputation of a faculty. To compare faculties of different size,
the social success could be related to the size of staff, the size of budget,
the number of students, the investment budget, etc. Such relations are
important for some faculties which are relevant for the future of society
(e.g. theology, physics, mathematics) but for which the present willing-
ness to pay is relatively low. If absolute social success matters in budget
distribution, the big faculties with many students might be in a favoura-
ble position. It is rather complicated to show the consequences of wel-
fare-oriented social accounting on management components. How pro-
fessors and staff react depends very much on the relationship between
social success and related payments of income, the access to resources
and research means and to additional staff as well as on the reputation
gained from high social success. As there is no management theory
available explaining and predicting the actual management processes in a
university, an incidence and shifting theory of introduction of welfare-
oriented social accounting is missing. How the Estonian management
reacts to such possibilities cannot be estimated because of so-called uni-
versity reforms.
EU declarations, rules and directives (e.g. European Directive on Envi-
ronmental Impact), national laws (e.g. Budget Codes) and fiscal stress
increase the demand for a social welfare-oriented management. To over-
come difficulties with respect to the type of information gathered and
to apply the same evaluation standards to all institutions involved, certain
regulations are required, similar to those concerning commercial
accounting. These regulations can be introduced by a law how to per-
form social welfare-oriented accounting or by a law and amendments
concerning public bookkeeping and budgeting. To enable comparable
results this may relate to the bookkeeping of universities and colleges as
well.
The annual costs of the developed social accounting are relatively low. If
the chart is available, it requires a workload of one week per month for
80 Diana Eerma, Peter Friedrich

economists familiar with the approach. There are small investment costs.
The principle development is already done (Eerma/Friedrich 2012;
Eerma 2014). An economist together with an expert for the respective
faculty might need one month to determine the chart and kinds of book-
ings for a faculty. To develop this for the whole university might be a
project lasting one year for a small team consisting of economists, an
expert of the central university administration and bookkeeping, and of
the medical faculty.
The concept of welfare-oriented social accounting is developed for inter-
nal auditing. Whether it should be used for external auditing (e.g. court
of auditors) has to be decided when all features of the bookkeeping ap-
proach have been designed. An aggregated version of the additional so-
cial success operating statement, the additional social balance and the
total social balance should be published.

6 Critics of Welfare-oriented Social Accounting


The social success definition used fits well to the needs of university
accounting. It comprises the willingness to pay of society and a wide
range of stakeholders and covers advantages as well as disadvantages to
society. A comprehensive social success measure is needed as much
internal and outside exchange and coordination is not based on market
exchange in money terms. Horizontal and vertical transfers of goods and
money, commands by managers, and external effects occur internally,
but also in relation to other economic units. To consider such transac-
tions in a bookkeeping approach, the evaluation methods of benefit-cost
analysis offer the most developed evaluation scheme. One of the main
advantages of the welfare-oriented social accounting approach is the
possibility of comparing and integrating social successes of institutions
such as faculties, the university, and a university system.
Some limitations are associated with this tool. As the bookkeeping sys-
tem uses welfare theory based evaluations, it is related to the individual-
istic welfare theory. The role of social groups (e.g. administrators, trade
unions, entrepreneurial associations) in determining the content of so-
cial welfare is seldom emphasised and considered mostly in their will-
ingness to pay. Therefore, the values identified by the willingness to
Welfare-oriented Social Accounting 81

pay approaches do not necessarily reflect the relevant evaluation of


powerful groups in actual society on which actions are based. The will-
ingness to pay approach serves as a normative guide stick used to find
out a possible improvement of welfare refers to value judgements of
individualistic welfare, economic causes of welfare change, consumer
sovereignty and Pareto improvements (Adler/Posner 2006; Brent
2006). As willingness to pay normally signals winners and losers from
a change, e.g. receiver of a service and tax-payers, compensation tests
such as Kaldor-Hicks test (Hicks 1939; Kaldor 1939) are applied. Fur-
ther discussions provoke the assumption of constant marginal utility of
money, which means ignoring the fact that an Estonian kroon (euro)
may stem from a rich or poor household, points to a strong assumption.
Some suggestions debated in literature recommend introducing a
weighting of net benefits of income groups, special restrictions con-
cerning citizens of special income groups or following a capability
approach (Sen 2001; Anand 2011). These attempts lead to indicator
approaches not used here. Moreover, the willingness to pay is also
influenced by the existing income distribution and its changes. There-
fore, willingness to pay also implicitly refers to changes in income
distribution (Friedrich 1969, see also move from A to C in Figure 2).
However, the net benefit based evaluations used in the bookkeeping
approach need improvement, as they allow determining social success
ex-post systematically. There are difficulties to determine the welfare of
a specified group by identifying the willingness to pay of this group – the
so-called isolated welfare – (Friedrich 1971) as the system of prices also
reflects the evaluation of other individuals and groups negotiating on
markets. Therefore, one has to refer to a national basis. The social suc-
cess determination of an economic unit is problematic in a small country
such as Estonia, as the economy is embedded into the European Union
and the price determinations within the common market.
The problem of alternative situations still needs more attention. The
“with and without” rule has to be more precisely specified. The situation
without the respective economic unit can be totally different with respect
to substituting economic units in different regions. For public economic
subjects there is some substitution for its activities. In commercial
82 Diana Eerma, Peter Friedrich

bookkeeping this problem is not as challenging as the commercial suc-


cess is a firm’s internal success and not that of society.
Another problem is related to the basic evaluation equation and the se-
quence of transactions as the authors mainly concentrate on the immedi-
ate transactions. The consumer surplus is the rent the receiver of a ser-
vice achieves and the “producer surplus” in the interpretation applied
here is the rent the factor using economic unit achieves from using their
power to fix factor prices at their favour. If all transactions are included,
the whole chain of changes of these values including turnover, the costs
and the external effects has to be determined.
Impact analysis is needed to verify the changes in willingness to pay.
There are impacts where the impact itself expresses the change of the
willingness to pay. They comprise most of the market-oriented direct
valuation methods mentioned. In addition, many of the indirect evalua-
tions are of this type. For some willingness to pay identifications the
analyst has to determine at first an effect followed by a monetisation to
fix the willingness to pay.
Immediate effects, which come about through activities of the university,
have to be distinguished from non-immediate effects caused by reactions
of other economic units to impacts on the university activities. The au-
thors considered in particular immediate effects expressing willingness
to pay and they also included non-immediate effects causing changes of
willingness to pay, such as environmental and economic as well as fiscal,
managerial, juridical and political effects. They occur to different eco-
nomic subjects, different authorities, and in different regions. Therefore,
considerable difficulties interfere with identifying these effects by con-
ventional methods applied in economics and regional science (Feng et al.
2000). All these methods are useful to some extent when measuring the
financial and economic effects, and the corresponding willingness to
pay. They are many times too complicated, too time-consuming and too
costly to detect the items occurring in the willingness to pay equation
and to be booked, although – as mentioned before – our evaluation equa-
tion concentrates mostly on immediate effects. There should be a de-
tailed CGE model (Donaghy 2009; Dixon/Jörgenson 2013) including the
Welfare-oriented Social Accounting 83

public and educational sector of Estonia, which is not available for Esto-
nia.

7 Development Needs of Welfare-oriented Social Ac-


counting
University activities within one year normally do not change the whole
structure of the economy; they influence the general economic and fiscal
results, and the structure of the host region, e.g. district, municipality, or
neighboured regions or a sub-state (Land, province). The effects are felt
in private sectors but also in the public sectors, e.g. federal, state and
municipal administrations. For such investigations, the so-called taxo-
nomic location choice approach or location choice approach is applica-
ble. It is to identify the economic and fiscal effects of localisation of
public or private economic units (Friedrich 1985; Wonnemann 1989;
Bernstein 2014) in Germany and China. In contrast to CGE-models,
crowding-out effects capture changes in behaviour and market reactions.
The approach provides possibilities to adapt parameter values oriented to
the specifications of an individual project located in a specific region
without referring to economic or political equilibrium theories. For the
quantification of effects, formulae for the measurement of financial and
fiscal effects of location settlement or faculty activities have been
evolved, based on a macroeconomic multi-region multi-sector model.
Some non-immediate effects, such as changes of taxes, grants, incomes,
and employment, which express changes in willingness to pay or which
are used to account for the willingness to pay could be estimated by this
kind of model. Unfortunately, there is not such a model available for
Estonia. Therefore, the analyst has to look for the effects of economic
faculties of university or research institutes such as in Siegen, Bamberg,
Erlangen, towns of similar size to Tartu.
Further research is necessary to identify more precisely the direct and
indirect willingness to pay methods improving the identifications of ef-
fects, the determination of depreciation values for knowledge, the as-
sessment of consumer surpluses for individual services, the methods to
evaluate stocks and the allocation of pre-services to faculties, colleges
and the university. Out of the many possibilities to define consumer sur-
84 Diana Eerma, Peter Friedrich

pluses (Brent 2006), the Marshall variation is chosen mainly because of


data problems. Recent new approaches (Flores 2003) should be incorpo-
rated. As for some transactions, there is a need to apply a yardstick to
several methods for identifying the willingness to pay, to avoid the dan-
ger of double counting. The formulae used to account the willingness to
pay should be checked. Relations and constants may vary from year to
year to some extent. Legal possibilities to improve the database of infor-
mation should be evolved, as welfare-oriented social accounting is at its
starting point.
Depreciation percentages and methods are oriented primarily to the
physical depreciation of the buildings, instalments, etc. or to rates used
in commercial accounting. Additional research on depreciation of social
stocks become necessary to determine the depreciation of knowledge
stocks, research results, cooperative relations, research, capacities, con-
sulting capacities, etc. and the depreciation of social liabilities like de-
preciations to emissions, staff losses, accidents, etc. needs further inves-
tigation. For the sake of simplicity, the authors applied straight-line de-
preciation. For some social assets, a geometric method might fit better,
etc. with knowledge. With respect to the additional social part, more
sophisticated criteria to split social benefits and costs and to allocate
them to the institutions causing the social net benefit should be available.
Then, the conventions of deferral become evidently much more specific
and complicated. One solution, similar to that in national accounting, is
that the social success caused is proportional to the number of production
factors involved in production, e.g. expressed in monetary terms by the
income. A high income paid by the faculty related to some services pro-
vided together with other economic units points to a high causation of the
benefits initiated by faculty. Therefore, we oriented our deferral percent-
ages to this criterion. However, one can also try to apply some higher
shadow prices if the faculty is not substitutable in a chain of providers
(e.g. if it has some patents or monopoly rights, showing that the universi-
ty’s importance is extraordinarily high).
The division between long-lasting social benefits and long-lasting social
liabilities which symbolise stocks and current social benefits and current
social costs causes problems of assignment of periodically overlapping
transactions to a period. This leads to the balance theories dealing with
Welfare-oriented Social Accounting 85

the questions of how to identify the social success in a particular moment


(organic balance theory by Le Coutre (1921)), the comparability of social
success between periods (dynamic balance theory by Schmalenbach
(1926)) and the social success in terms of stable prices (organic balance
theory by Schmidt (1921)). Alternatively, the analyst looks at social suc-
cess from other aspects such as kind of social assets, value at liquidation,
sources of finance of social success, and outputs of the faculty. As the
bookkeeping comprises an ex-post analysis, the problem of the social
discount rate which bothers benefit-cost analysis is not relevant. As long
as future expectations about incomes, etc. are behind the willingness to
pay, the discounts are made by the economic units expressing their will-
ingness to pay. It is not the task of the analyst to discount. Further re-
search with respect to the extensions proposed has already been dis-
cussed.
The social success varies with the development of prices and the sum of
money available to be used to express the willingness to pay. Therefore,
the social success fluctuates according to the business cycle, inflation,
monetary policy, exchange rate movements and foreign trade develop-
ment, etc. How far is the social success of different periods comparable?
Benefit-cost analysis recommends doing the assessment in constant real
prices. A kind of split between social success caused by inflation and the
remaining one has to take place.

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Acknowledgement: This research was financed by the Estonian Re-


search and Innovation Policy Monitoring Programme, No 1.2.0103.11-
0005 (TiPS SV 3).
Information and Communication Technology
as a Driver for Institutional and
Organisational Changes in Austrian Hospitals

Daniela Haugeneder

Summary: Information and communication technology (ICT) supports


all businesses processes in the private and public sector. Rising costs
force the health care sector to apply ICT to reduce medical errors and
improve work efficiency. Implementing ICT changes the business pro-
cesses significantly which also results in organisational changes. Hospi-
tals as professional organisations employing high-educated physicians
face the challenge that ICT limits the autonomy and power of the physi-
cians which can result in resistance against ICT application. This paper
focuses on theories such as Professional Bureaucracy, Institutional
logics and the Contingency approach looking at the problem of the re-
sistance of professionals from the organisational perspective.
Keywords: Hospitals, information and communication technology, or-
ganisational change, organisational theories, professional organisations

1 Introduction
Information and communication technology (ICT) is an essential tool
which supports us in handling many parts of daily life properly, but still
changes our private and business lives significantly into an Information
Society (Webster 2014). According to Krcmar (2010) “information and
communication technology includes any available resource for saving,
processing and communication of information”. In the last decades, the
rapid development of ICT resulted in providing great amounts of infor-
mation available at any time and place which have to be processed by
ICT. The ICT landscape, consisting of multiple information systems, can
be found in all industrial sectors as well as in public and non-profit enti-

© Springer Fachmedien Wiesbaden GmbH 2017


R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_6
96 Daniela Haugeneder

ties like hospitals or universities. In the 1980s, ICT was already seen as a
driver for innovation to be more competitive by changing the established
work process (McFarlan 1984).
Main reasons for implementing ICT are cost reductions in terms of coor-
dination, communication and information processing and enhanced work
efficiency and productivity in all sectors (Behrendt 2009; Haas 2005;
Brynjolfsson/Hitt 2000). Decreasing medical and medication errors is an
additional driver to apply ICT (Carayon et al. 2009; Aarts/Ash/Berg
2007). In particular, the health care sector is facing great challenges due
to increased costs in the last years. Aging of the population and progress
in medical technology applications are regarded as the main reasons
(Riedel/Röhrling 2009). In Austria the health care costs rose from 8.4%
in 1990 to 10.8% of the gross domestic product (GDP) in 2013 (Statistik
Austria 2015). This consequently leads to significant investments into
ICT in the health care sector to improve the efficiency and competitive-
ness (Devaraj/Kohli 2000).
Besides the cost and efficiency improvements achieved through ICT, the
changing organisation in combination with ICT is an essential part which
has yet to be considered. ICT is able to enhance and facilitate business
processes and work tasks which results in changed organisational pro-
cesses (Brynjolfsson/Hitt 2000). The topic of organisational changes
with ICT is discussed intensively in the literature and dates back to the
1960s (Leavitt/Whislers 1958). Different aspects of organisational
change and ICT like innovations and their problems and changing work
practices are mentioned in the literature (Keen 1981; Brynjolfsson/Hitt
2000). Many of these studies are conducted in the private sector. Never-
theless, public entities like hospitals face different challenges in relation
to organisational change and ICT as well. A key for successful ICT im-
plementation is based on well-implemented ICT which improves clinical
performance and produces positive individual and organisational out-
come (Carayon et al. 2009). Medical staff members of hospitals have a
strong and distinct professional identity and are typical knowledge work-
ers (Alvesson 2001). Professionals execute complex tasks based on their
knowledge, controlling their own work which results in standardisation
of skills. This means, that they act quite independently from other col-
leagues but closely to their customers (Mintzberg 1979). Universities,
ICT as a Driver for Organisational Changes 97

schools, public accounting firms, engineering firms, hospitals and law-


yers are examples of professional organisations (Klatetzki 2012).
Professional organisations differ from traditional organisations due to the
organisational structure. Professional work can be defined by applying
theoretical and scientific knowledge to tasks tied to core societal values
such as health, justice or financial status. The work will be executed
autonomously and with exclusive control of their work, except by peer
representatives of the professional occupation (Leicht/Fennell 2001).
Autonomy is a key factor of professional organisations which implies
control over their work and administrative staff (Scott 1982). Another
crucial characteristic of professional organisations is the distribution of
power (Abbott 1988; Mintzberg 1979). Professional organisations are
structured in a highly decentralised fashion, working independently
which implies power of the professionals over the support staff (e.g.
nurses) (Mintzberg 1979; Scott 1982). Under the professional bounda-
ries, professional organisations in the case of the health care sector focus
on political and social power (Larson 1977). Professional organisations
apply different models of power. In the health care sector, the medical
staff has substantial power in gaining authority over their work and self-
control even if the power has been limited by political and social regula-
tions (Leicht/Fennell 2013; Scott 1982). Hence, changes in their work
practice are difficult to execute, because they limit their control and au-
tonomy as well as monetary rewards and status (Abbott 1988).
ICT significantly changed the work practices of medical staff in the last
decades. All work processes and decisions of the medical staff are com-
pletely protocolled in the IT systems and ICT often reengineers work
processes to enhance the efficiency. Strong ties to their professional and
occupational identity can limit the change of work processes and prac-
tices induced by ICT (Battilana/Casciaro 2013). Driven by the need to
implement and apply ICT, it is necessary to recognise human factors and
organisational issues of the medical staff to avoid resistance and improve
acceptance of the ICT (Carayon et al. 2009). Here, the main pressure
comes from the political and national environment due to rising costs, as
already mentioned above, in the form of reducing the power of the pro-
fessionals. The environmental and institutional changes of the health
98 Daniela Haugeneder

care providers by ICT are covered in literature by Scott and colleagues


(1983, 2000, 2008).
Nevertheless, the implementation process of the ICT and the innovations
changing the work processes in a professional health care organisation
have not been studied yet from the perspective of professional organisa-
tions. It is crucial to investigate if the medical staff is part of the imple-
mentation process and has the power to customise the ICT to their heter-
ogeneous professional standards or whether the organisation of the med-
ical staff have to adapt to the ICT. It can be seen as a non-determinant
trigger of organisational changes (Davidson/Chismar 1999). Battilana
and Casciaro (2013) assumed that the professional group status of physi-
cians implies that changes of work practices and organisational changes
can be executed as long as other physicians support these changes.
Members of the same profession have a higher legitimacy which results
in more acceptance of changes (Battilana/Casciaro 2013).
In comparison to the existing literature, the focus of this paper lies on
implementing ICT through technical engineers hired by medical staff
instead of regulative frameworks and environmental power in Europe.
Previous studies were conducted some years ago around 2000 in the
United States and Canada, focusing on changing institutional logics to
care logics and regulations and norms (Westbrook et al. 2013;
Dunn/Jones 2010; Scott 2008; Scott et al. 2000). Hence, two professional
organisations with leading expert knowledge in their field will be com-
pared in Austria. The Austrian health care system is part of the Bismarck
tradition and therefore operates under different regulatory norms than the
Canadian system which is part of the Baldrige system and the American
one which is much more market-oriented. All countries and associated
health care systems have different legal regulations which imply differ-
ent basic conditions and personal space for various work practices.
Hence, cultural and institutional differences between the different health
care systems relating to the organisational structure will be described in
further research.
Against this background, the guiding research question is: Are there
organisational and institutional changes for medical staff and physicians
due the implementation of ICT in the hospitals?
ICT as a Driver for Organisational Changes 99

2 Theoretical background
Referring to the research topic above, we choose the theory of Profes-
sional Bureaucracy, Institutional Logics and the Contingency theory, in
order to look at the problem from the organisational science perspective.

2.1 Professional bureaucracy


Physicians and IT-engineers are professionals and members of profes-
sional organisations. Professional organisations are highly decentralised
in their structure, applying their professional knowledge to their custom-
ers in a standardised way. Hence, there are few hierarchical levels estab-
lished (Hinings/Brown/Greenwood 1991). This leads to a strong coordi-
nating and control mechanism that allows standardisation and decentrali-
sation at the same time, which is called Professional Bureaucracy
(Mintzberg 1979). It generally defines the relationship between organisa-
tional structure and management control of professional organisations.
Professional Bureaucracy is characterised by a large operating core, con-
trolled by professionals where the standard control mechanism is the
standardisation of skills.
The power amongst professionals is based on their expertise and not on
their working position in the company. Managers of professionals are not
able to apply top-down control. Instead informal control by group coor-
dination and mutual adjustment is applied. In comparison, the support
staff like nurses is controlled in a top-down manner. The autonomy of
professionals in the operating core is derived from their work, which is
typically in great demand from the patients and customers (Mintzberg
1979; Abernethy/Stoelwinder 1990).
In relation to innovation and strategies in professional organisations, the
established ones come mostly from the individual professionals them-
selves or from professional associations outside, which often leads to
conflicts implementing for example other strategies or ICT. Hence, new
innovations and strategies need to be applied by the management infor-
mally and subtly to professional organisations (Mintzberg 1979). Nowa-
days, professional organisations are confronted with technical systems
supporting their daily work which reduces their autonomy and splits
100 Daniela Haugeneder

their work into simply executed steps. Moreover, the technical systems
pull the professionals into a closer working relationship with their col-
leagues and force them to work in multidisciplinary teams (Mintzberg
1979). However, professionals are concerned that applying ICT imper-
sonalises the relationship to their patients. Formerly, the ICT systems
were simple to use but nowadays the high developed systems lead to-
wards a hybrid structure of professionals (Mintzberg 1979).

2.2 Institutional logics


Institutional logics were introduced by Alford and Friedland (1985) de-
scribing contradictory practices and beliefs inherent in the institutions of
societies. It is able to define a meta-theoretical framework to analyse the
interrelationships between individuals, organisations, and institutions in
social systems by analysing how individual and organisational actors are
influenced by their situation in multiple social locations
(Thornton/Ocasio/Lounsbury 2012).
Greenwood et al. (2010) defined institutional logics as the “master prin-
ciples of society”. The institutions have a central logic and order includ-
ing material practices, organising principles and symbols which influ-
ence their individual and organisational behaviour (Friedland/Alford
1991; Thornton/Ocasio/Lounsbury 2012). Institutional logics are embed-
ded into a social and institutional context which both regularises behav-
iour and provides opportunity for change (Thornton/Ocasio 2013).
Hospitals are complex organisations with professional employees, both
on the medical and on the engineering side. Different stakeholders have
various interests and needs which create institutional complexity and
result in conflicting demands in hospitals (Dunn/Jones 2010). Profes-
sions are often subject to multiple logics because they operate in differ-
ent institutional spheres (Kratz/Block 2013). This leads to hybridisation
of the organisations due to different institutional logics applied
(Dunn/Jones 2010). Hybrid structures and organisations are a phenome-
non of modern societies (Pache/Santos 2012). The definition of hybrid
organisations is that they incorporate elements of different institutional
logics and organisational principles which are by nature contradictory
(Battilana/Dorado 2010; Pache/Santos 2012).
ICT as a Driver for Organisational Changes 101

On the one hand, public enterprises, like for example hospitals, have the
social goal to achieve treatment for all patients in best quality. Physi-
cians feel a strong occupational identity with their job following their
guidelines to help people to get healthy and offering the best treatment
for all. In respect to this, occupational identity is defined by a set of cen-
tral, distinctive, and enduring characteristics that personify the work
(Van Maanen/Barley 1984). On the other hand, they have to reduce the
costs driven by state and market forces. All hybrid organisations have to
find ways to deal with the multiple demands they are exposed to
(Pache/Santos 2012). The pervasiveness of hybrids is explained by the
increasing prevalence of pluralistic institutional environments which
means that there are different institutional logics which are not always
compatible with each other (Greenwood et al. 2011).
Hence, this research paper focuses on two different dominant competing
institutional logics. On the one hand, there is health logic in connection
to the medical staff and health care provision. On the other hand, engi-
neering logics arise due to the innovation of new work processes by ICT.
Both institutional logics have separately well-defined practices to exe-
cute their work tasks. The relationship between these two logics consists
of a lack of shared context and understanding (Bechky 2003). Each
group defined as an occupational community has their own wording
building up syntactic and semantic boundaries (Carlile 2004).
Nevertheless, both groups have the main goal of constituting good health
provision for the people. Medical staff applies their knowledge and expe-
rience to their patients to get them healthy. IT-engineers support the
medical staff by applying innovative ICT. Hence, both occupational
communities and their institutional logics have to transform their under-
standings and practices to collaborate with each other and face the chal-
lenges of new ICT innovations and ICT implementations in the hospital
for better treatment for the patients (Bechky 2003; Reay/Hinnings 2005).

2.3 Contingency approach


The contingency approach or contingency theory dates back to the 1950s
as a response to prior theories of management which emphasised one
best way before to organise despite the diversity of organisations
102 Daniela Haugeneder

(Weill/Olson 1989). Its position lies in the middle between two extreme
views. On the one hand, there are universal principles of organisation
and management. On the other hand, each organisation is unique and has
to analyse the situation separately (Zeithaml/Varadarajan/Zeithaml 1988,
p. 37). Summarised by Szilagyi and Wallace (1983) the contingency
approach can be described as “…attempts to understand the interrela-
tionships within and among organizational subsystems as well as be-
tween the organizational system as an entity and its environments. It
emphasizes the multivariate nature of organizations and attempts to in-
terpret and understand how they operate under varying conditions …”.
Hence, the contingency approach suggests that a number of variables
influence the organisation and its performance and effectiveness
(Entwistle 2011; Zeithaml/Varadarajan/Zeithaml 1988).
Contingency theory built on instrumental rationality resulting in that the
organisations analyse their technical environment and plan appropriate
strategies in anticipation of profitable benefits (Entwistle 2011). The
variables can be divided into external (competition, environment, eco-
nomic situation, laws and regulations etc.) and internal (strategy, compa-
ny size, products, leadership style, ICT etc.) ones (Vahs 2012; Kie-
ser/Walgenbach 2010; Weill/Olson 1989). The better the variables and
the organisation fit together, the better the performance and effectiveness
of the organisation (Greenwood/Hinings/Ranson 1975; Zeithaml/Vara-
darajan/Zeithaml 1988). Hence, it is important to identify essential con-
tingency variables for determining the most effective internal organisa-
tion design (Zeithaml/Varadarajan/Zeithaml 1988). Contingency theory
often focuses more on outcome and effectiveness of contingency varia-
bles than on changed processes.
Here, the examined contingent variable is ICT. There are several studies
about the impact of ICT in relation to the company’s performance in the
private sector (Umanath 2003; Fry/Slocum 1984; Staehle 1976). Never-
theless, there are no studies about professional organisations examining
the impact of ICT with respect to the performance of hospitals by im-
proving the processes and reducing the costs. The fit between the ICT
applied and the professionals in the hospitals has to be investigated ex-
amining the acceptance of the physicians relating to the applied ICT. The
literature discusses the topic of fit between ICT and organisations inten-
ICT as a Driver for Organisational Changes 103

sively regarding successful ICT implementations but not in the context


of professional organisations and changes of work practices (Livari
1992). ICT fit means in this context whether the ICT is adapted to the
organisational structure of professionals or vice versa.
Moreover, the contingency approach offers recommendations for adapt-
ing the organisation to the applied ICT (Scherm/Pietsch 2007). The or-
ganisational readiness of professional organisations could impact suc-
cessful ICT implementations (Khazanchi 2005). Misfits result in bad
performance of the organisation or resistance of the staff (Auer-
Rizzi/Reber 2007).
The correlation between organisation and the contingent variables is
strongly criticised in the literature because there could be other contin-
gency variables or external effects resulting in the performance of the
organisation which cannot be controlled by the contingency approach
(Kieser/Walgenbach 2010; Schreyögg 2008). Ku and Kubo (2007) argue
that ICT is rather a tool than a condition for organisational achievements
which interacts with different elements of the organisation to achieve
high performance (Ku/Kubo 2007). Moreover, the performance and ef-
fectiveness of organisations is often related to different contingent varia-
bles which have to be identified. This identification process has to be
done systematically because it is the key to explain contingencies and
reduce criticisms of the contingency approach (Zeithaml/Varadarajan/
Zeithaml 1988).

3 Research design
There are different studies about organisational and institutional changes
in health care organisations losing dominance and legitimacy done by
physicians in the United States. Healthcare organisations are changing
from professional dominance to managed care organisations (Scott et al.
2000). So far, the topic of technical engineers and medical staff, both
professionals, as two different subcultures working together by imple-
menting and applying ICT in hospitals is yet an under-researched topic
in Europe and particularly in Austria. Therefore, in order to get a deeper
insight into this topic, we chose to apply a qualitative research design
(Atteslander 2010).
104 Daniela Haugeneder

Based on a literature review on the topic of professional organisations in


general and hospitals in particular in combination with ICT changes, we
will conduct semi-structured interviews with the group of medical staff
and IT-managers in Austrian hospitals to get a deeper insight into the
organisational changes. The focus lies on which of the two professional
groups, medical staff or IT-engineers, have to adapt their work and or-
ganisational practices. On the one hand, medical staff could be forced to
change the organisational structures by losing power and expertise. On
the other hand, the IT-engineers have to customise the ICT to the medi-
cal staff’s wishes by reducing the power of engineering knowledge. In
both cases, one subculture of professional organisations has to be lim-
ited. The main points of the interview guideline will be questions about
which group of professionals is able to enforce their wills and which
professional organisation has to adapt their organisational structure. Ad-
ditionally, there are several groups in hospitals like nurses or the man-
agement who are also involved in the treatment processes and part of the
organisation which have to be interviewed as well. In short, is the organ-
isation and work task of the medical staff adapted to the implemented
ICT or is the ICT customised to their needs?
In each selected hospital, we will interview one person out of the medi-
cal staff and one person from the IT group to better compare their state-
ments. All interviewees are accustomed to applying ICT in their daily
work tasks. The interviewees will be coded and analysed applying the
qualitative content analysis by Mayring (2015).

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Europeanization or New Public Governance? –
Reinventing Italian intermediate institutions
under pressure

Hiroko Kudo

Summary: The Italian local government system has developed uniquely,


mainly because of a series of domestic policies as well as European fis-
cal constraints. After many years of discussion without any concrete
reforms, the Italian government decided to abolish the intermediate level
of local governments or the provinces in 2014, forced by the require-
ments of Treaty on Stability, Coordination and Governance in the Eco-
nomic and Monetary Union. The decision shows the first centralisation
efforts, after decades of decentralisation policies, following the Europe-
an Charter of Local-Self Government and managerial reforms typical to
New Public Management (NPM).
Keywords: intermediate local government, decentralisation, centralisa-
tion, New Public Management (NPM), New Public Governance, Euro-
peanization, domestic policy

1 Introduction
The Italian local government system, especially the intermediate prov-
ince and the Prefect, has been developed from its Napoleonic tradition
into a unique direction. This paper analyses the last 25 years of its re-
forms, beginning in the early Nineties, and tries to identify the reform
drivers from two dimensions; Europeanization (Graziano 2013), and
public management and governance rhetoric.
The first series of reforms was implemented in the field of public admin-
istration (Bertonazzi 1998) following international NPM trends and itself
was considered a “miracle”, since Italian public administration had been
considered too old fashioned to be reformed at the beginning of the
© Springer Fachmedien Wiesbaden GmbH 2017
R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_7
112 Hiroko Kudo

Nineties (Cassese/Franchini 1994; Cassese/Galli 1998). The pressure to


enter the Eurozone was the major motivation to reform the public fi-
nance during the second half of the Nineties (Bernasconi/Marenzi 1998;
Bianchi 1996; 1998; 1999; Majocchi 1997; 1998; 2000), and in order to
achieve the goals, it was necessary to implement public administration
reform, especially decentralisation reform.
Decentralisation reform has been indeed one of the major reforms in
Italy from the beginning of the Nineties, following the European Charter
of Local-Self Government. It has been promoted through political, ad-
ministrative and fiscal federalist movements (Brosio et al. 1994; Brosio
1995). In terms of political reform, it has been supported through various
electoral system reforms, which started in 1993 with local elections (di-
rect election of municipality mayors and provincial governors) and na-
tional election (additional member system). This was followed by insti-
tutional reform (Dipartimento della Funzione Pubblica 2001) and then
especially NPM-driven managerial reform of public institutions (Az-
zone/Dente 1999), during the second half of the Nineties.
The European integration procedure influenced Italian public administra-
tion reform, especially during the period of 1997-1998. Many significant
reforms were implemented, which included: delegation of functions
(Gambino/Guerino/Moschella 1998); simplification of procedure (Ar-
si/Coronas/De Luca 1998; de Caprariis/Vesperini 1998; Vandelli/Gardini
1999); managerial reform (Azzone/Dente 1999); and improving efficien-
cy and accountability (Dipartimento della Funzione Pubblica 2001).
Public administration reform was followed and completed with the pub-
lic finance reform of 1996-2001. This was a fruit of pressures to enter
the Eurozone. The reform included: fiscal reform (Majocchi 1997); taxa-
tion system reform (Bordignon 1997; Giannini/Guerra 1999; 2000;
Guerra 1997); local public finance reform (Fraschini 1998; 1999; Giarda
1995); and fiscal decentralisation (Arachi/Zanardi 1998; 2000; 2001;
Fausto/Pica 2000; Pica 1995; Zanardi 1999).
Italian decentralisation reform achieved its height with its constitutional
reform of 2001. This was considered to be a legitimating procedure of
the previous reforms and this was one of the characteristics, which dis-
Europeanization or New Public Governance? 113

tinguish the Italian decentralisation reform from the other reforms in


Europe. The reform introduced fundamental changes of the status of
ordinal Regions and changed the relationship between the State and the
Regions. It gave legislative power of the Regions, which created new
and numerous disputes between the Regions and the State, thus increas-
ing the power of Constitutional Court and its rulings. This was also
caused by the lack of clear definition of the Regional legislative compe-
tences (Kudo 2006).
One of the achievements of the constitutional reform was that it intro-
duced the European principal of subsidiarity into the Italian constitution.
It also delegated various functions from the state to the Regions, includ-
ing healthcare, education, and policing (Kudo 2006). Fiscal federalism
finally became part of the constitution. Thus, this process could confirm
the Europeanization; however, the implementation of the constitutional
reform has been rather slow, strongly influenced by frequent government
changes, thus by domestic matters.
The reform on province started with the “Delrio” Law, or Law N.56 of 7
April 2014. This issue has been in discussion for many years; however,
serious reform plans have never been introduced, because of strong polit-
ical resistance. Mainly because of financial reasons, the provinces would
be abolished, leaving only two levels of local administrations; Regions
and municipalities. The reform was an answer to be in line with the
Treaty on Stability, Coordination and Governance in the Economic and
Monetary Union and thus could be understood as a Europeanization pro-
cess of domestic policy; but, at the same time, it goes against the decen-
tralisation principle, reducing the local autonomy and centralising func-
tions. This recent Italian reform indeed contradicts the principle of sub-
sidiarity, even though the reform was an attempt to be in line with the
European requirements on public finance.
The paper analyses the various drivers of these Italian local government
reforms from two dimensions: Europeanization, and NPM and/or New
Public Governance. Literatures, laws and other legal documents related
to decentralisation policy are examined through these frameworks.
114 Hiroko Kudo

2 Literature review and theoretical framework


Why has decentralisation been one of the major policies in government
reforms? Decentralisation is considered one of the key characteristics of
NPM, as changing the decision-making structure as well as service de-
livery system is an important element of NPM. Decentralisation is also
associated with multi-level-governance, another characteristic of NPM
as well as policy strategy of European Union (EU).

2.1 Europeanization and domestic policy


The Council of Europe’s European Charter of Local-Self Government
(1985) had influenced the decentralisation policies of the member states.
Italy was not the exception to this tendency and continued to promote
decentralisation policy. This process can be understood as Europeaniza-
tion and there literature is emerging which analyses the impact of Euro-
pean integration and Europeanization on domestic political and policy
processes of the member states and beyond. This move toward studying
“top down” processes is needed to capture how Europe and the EU mat-
ter (Börzel/Risse 2000).
Theoretically speaking, there are two ways of conceptualizing the adap-
tation processes in response to Europeanization. From a rationalist insti-
tutionalist perspective following the “logic of consequentialism”
(March/Olsen 1998), the misfit between European and domestic process-
es, policies and institutions provides societal and/or political actors with
new opportunities and constraints in the pursuance of their interests.
Thus, it suggests that Europeanization leads to domestic change through
a differential empowerment of actors resulting from a redistribution of
resources at the domestic level. In contrast, a sociological institutionalist
perspective emphasizes a “logic of appropriateness” (March/Olsen 1998)
and processes of persuasion. European policies, norms, and the collec-
tive understandings exert adaptation pressures on domestic-level pro-
cesses, because they do not resonate well with domestic norms and col-
lective understandings. This perspective suggests that Europeanization
leads to domestic change through a socialization and collective learning
process, resulting in norm internalization and the development of new
identities.
Europeanization or New Public Governance? 115

Europeanization is mostly observed at policy dimensions. There are


more and more policy areas that are affected by European policy-
making. The implementation of European policies leads to substantial
changes in the policy fabric of the member states. Such Europe-induced
policy changes can affect the policy style, the general problem-solving
approach, the policy instruments used, and the policy standards set
(Knill/Lenschow 1998; Haverland 2000). Furthermore, according to
some authors, Europeanization leads to a redistribution of resources and
differential empowerment at the domestic level (Börzel/Risse 2000).
Related to the latter, existing formal institutions can provide actors with
material and ideational resources necessary to exploit European opportu-
nities and thus promote domestic adaptation. The European political
opportunity structure may offer domestic actors additional resources.
Europeanization is certainly an important framework to analyse the Ital-
ian decentralisation policies, as Italy is a member state and has been
adopting European decentralisation principles. However its rather unique
processes and recent decision to abolish the intermediate level of local
government and implement more centralistic reform are difficult to ex-
plain only with Europeanization (Graziano 2013). Thus, this paper intro-
duces the second framework: decentralisation in relation to public man-
agement and public governance theory.

2.2 New Public Management and New Public Governance


Many authors have focused their research efforts on the analysis of de-
centralisation and devolution processes, following the public governance
approach. This looked at devolving activities and responsibilities from
central to local governments and the relational features existing between
and within the different institutional levels (Ongaro 2006; Mussari 2005;
Hutchcroft 2001; Christensen 2000; Pollitt et al. 1998), but many of
them neglected the organisational aspects. The completion of the devolu-
tion process and the increasing use of the public governance approach
and the network theory have led to renewed interest on the part of schol-
ars and practitioners in the intermediate level of local governments, es-
pecially their organizational settings and public service provisions
(Agranoff/McGurie 2004; Sancton 2000; Bardach 1998).
116 Hiroko Kudo

Following the implementation of public sector reform based on NPM,


the dimension of public administrations, especially at the local level, has
prompted both practical and academic interest. At the political level, the
dimension of local governments has become very important, for two
main reasons: regional competitiveness and capacity to provide public
services.
In terms of public services, it is important to highlight the impact of the
devolution process especially on public administrations at the local level
(Fedele/Ongaro 2008; Grossi/Mussari 2008). First, the number of public
services to be provided by local governments has increased. Secondly,
the devolution process has also had an impact on the system of funding
local governments, which has changed from an indirect to a direct sys-
tem; that is to say, local governments are increasingly financed directly
by their citizens. As a consequence, many local governments do not have
sufficient financial resources to fund the provision of the services need-
ed. These changes are also accompanied by a demand for increasingly
complex public services, which are very difficult for a single local gov-
ernment to provide. These single administrations therefore need to resort
to agglomeration/merger processes or to delegate their functions to high-
er level of local governments in order to exploit their financial, material
and human resources more efficiently, with the aim of satisfying citi-
zens’ demand for increasingly complex services.
At the academic level, the decentralisation process has confirmed a new
interest in institutional models of governance among both public admin-
istrations operating at different levels and public administrations operat-
ing at the same level. All this interest has grown within a theoretical
framework known as “Public Governance” (Kettl 2000; Peters/Savoie
2000) and/or New Public Governance (Bovaird/Löffler 2003; Osborne
2006; 2010).
This attention to and interest in the intermediate level of local govern-
ments is due to the various advantages stated above. In particular, their
organizational settings and service provisions have been considered ca-
pable of generating advantages at political, administrative and citizen-
related levels. At a political level, working together is able to generate
more contractual and political power for the participants, for example, in
Europeanization or New Public Governance? 117

the agglomeration process, in relation to other local governments, levels


of government and private and public actors (Sancton 2000; Bardach
1998). At an administrative level, the advantages are both economic and
organisational. On the economic side, the most important advantages are
the economies of scale and scope. Furthermore, local public administra-
tions have access to a greater amount of financial resources for the per-
formance of their functions, with which to make investments that each
individual local government would not previously have been able to
afford (Blume/Blume 2007; Zuffada 2002). From an organisational point
of view, the agglomeration process and the reorganization of intermedi-
ate level of local governments represent an opportunity to eliminate
overlapping organisational structures and to specialise the workforce
operating in the local public administrations involved (Blume/Blume
2007; Zuffada 2002; Bardach 1998). At a citizen-related level, the most
important advantage/objective is to have public services of a higher qual-
ity at a lower cost (Sancton 2000; Moore 1995). Agglomeration process-
es, and the merger in particular, should also generate a higher level of
fiscal equivalence. In this case, all those who benefit from the provision
of a public service pay for that service (Casella/Frey 1992; Olson 1969).
Alongside the abovementioned advantages, there are also some disad-
vantages. First, at an administrative level the higher number of public
administrations involved in the process, the more important coordination
problems become (Barretta et al. 2008; Goldsmith/Eggers 2004). Fur-
thermore, the optimal area for efficient management of one public ser-
vice is not necessarily the most suitable area for another public service.
Therefore, the jurisdictional area created through a process of merging
local governments or the intermediate local governments may not be the
optimal area for efficient management of all the public services the new
authority is responsible for (Casella/Frey 1992). Political representative-
ness is another significant problem. The politicians who govern the enti-
ties resulting from the agglomeration processes are not directly elected
by citizens (Blume/Blume 2007). Finally, some disadvantages may also
exist for citizens, if agglomeration or intermediate level of local govern-
ment entails the homogenization of local public services. Although they
live within the territory of the local governments participating in the
process, citizens may be characterised by distinct socio-economic fea-
118 Hiroko Kudo

tures and therefore have different needs and require different public ser-
vices.
Thus, these theoretical backgrounds show importance of decentralisation
and its organizational settings, in relation to NPM. Furthermore, creation
and reinforcement of intermediate level of local governments and ag-
glomeration process have been promoted in order to improve public ser-
vices, thus following the New Public Governance rhetoric.

3 Italian local government reform in the EU context

3.1 Public administration and political reforms


The first comprehensive public administration reforms were implement-
ed in the Nineties. The pressure to enter Eurozone was the major motiva-
tion to reform the public finance, confirming the Europeanization, and in
order to achieve the goals, it was necessary to implement public admin-
istration reform and decentralisation reform. Since then, the decentralisa-
tion policy became a key element of the reforms. There are many studies
on this reform: among many, some dealt with simplification of adminis-
trative procedures; others dealt with decentralisation of institutions and
functions, for instance. Decentralisation reform has been one of the ma-
jor reforms in Italy from the beginning of the Nineties. It has been pro-
moted through federalist movement, political, administrative and fiscal.
Many authors pointed out the importance of decentralisation in various
fields.
In terms of political reform, it has been supported through various elec-
toral system reforms, which started in 1993 with local elections (direct
election of municipality mayors and provincial governors) with Law N.
81 of 25th May 1993 and national election (additional member system)
with Law N. 276 of 4th August 1993 and Law N. 277 of 4th August 1993
(Legge Mattarella). This system was replaced completely by Law N. 270
of 21st December 2005 n. 270 (Legge Carderoli). The latter abolished the
majority constituencies, kept closed list, introduced a block-voting sys-
tem which was nationwide-based for the House and regionally-based for
the Senate, and party-lists representation thresholds. This was followed
Europeanization or New Public Governance? 119

by institutional reform (Dipartimento della Funzione Pubblica 2001)


during the Nineties and then especially managerial reform of public in-
stitutions (Azzone/Dente 1999; Dipartimento della Funzione Pubblica
2001), during the second half of the Nineties.

3.2 Decentralisation policies and reforms


1990 New Local Government Law (Law N.142)
1993 New Local Election Law (Law N.81) (direct election of mayors
and governors)
1993 Local taxation reform (property tax)
1996-2001 Fiscal and taxation reform (fiscal federalism)
1997-1998 Local PA reform (simplification, delegation, managerial
reform, accountability)
1998 Introduction of Regional Productive Activity Tax (related to
Healthcare decentralisation reform)
2000 New Local Government Codes (D.LGS. N.267)
2001 Constitutional Reform on local governments
2014 Reform on provinces (Law N.56)

Table 1: Decentralisation reform in Italy


Source: Author’s compilation

The EU integration procedure influenced Italian public administration


reform, especially during the period of 1997-1998. Many significant
reforms were implemented, which included: delegation of functions;
simplification of procedure, managerial reform, and improving efficien-
cy and accountability. Public administration reform was followed and
completed with public finance reform from 1996-2001. This was a fruit
of pressures to enter the Eurozone as the first group, confirming the Eu-
ropeanization process in this field. The reform included: fiscal reform,
taxation reform, local public finance reform, and fiscal decentralisation.
Italian decentralisation reform was completed with its constitutional
reform of 2001 (Constitutional Law N. 4 of 18th October 2001). This was
120 Hiroko Kudo

considered to be a legitimating procedure of the previous reforms. The


reform introduced fundamental changes of the status of ordinal Regions
and changed the relationship between the State and the Regions. It gave
legislative power of the Regions, however, most important achievements
of the constitutional reform was that it introduced the EU principal of
subsidiarity into the Italian constitution. It also delegated various func-
tions from the state to the Regions, including healthcare, education, and
police (Kudo 2006). Fiscal federalism became finally part of the consti-
tution with this reform.
However, the implementation of the constitutional reform has been ra-
ther slow, strongly influenced by frequent government changes, thus by
domestic politics. In fact, after the constitutional reform proposal in early
2001, in June of the same year, a centre-right government came into
power. With the 2001 October referendum, the centre-left government
proposal passed. Then in 2005, further constitutional reforms were pro-
posed; in April 2006, a centre-left government came into power and a
June 2006 referendum did not pass the previous centre-right government
proposal (Kudo 2009). The following centre-right government (2008-
2011) was less active in this regard.
These reform processes and the major policies clearly followed the
NPM-driven reform processes as well as the Europeanization process.

3.3 EU policies and Italian domestic politics


It is possible do draw some observations. The first observation is about
Italian domestic political stances and reforms in line with EU policies
(Kudo 2009). During the late Nineties, there was strong promotion under
centre-left governments, which continued the promotion of decentralisa-
tion policy until 2001, interestingly under both centre-left governments
and centre-right governments. During the first years of the 2000s, there
was a general slowdown with centre-right governments. The Northern
League (Lega Nord) played an interesting role among central-right coali-
tion governments. It has been a historical coalitional partner in the cen-
tre-right governments and was a decentralisation driver (Giudici 2010),
and at the same time had anti-EU stance (Jori 2009).
Europeanization or New Public Governance? 121

It is also possible to observe that the EU pressure has been “utilized” by


Italian politics as “outside” and neutral pressure and as learning process,
especially at the sub-national government (Region) level. EU pressures
have been utilised by both political groups as “outside” pressure to con-
vince voters and have been comfortable scapegoats and a way of avoid-
ing “their” own responsibilities. Indeed, they offered a comfortable ex-
planation to the voters, which later created strong doubt and/or sceptical
views towards the EU (influenced, but cannot influence). This confirms
the rationalist perspectives of Europeanization (Börzel/Risse 2000), as
EU pressures have provided mainly Italian political actors with new op-
portunities in the pursuance of their own interests.
EU structural funds have played an interesting role as well; that is to say,
they have offered a rich learning process for the Regional administra-
tions and their managers. Through its exercise, competitiveness and net-
working power in Regions improved, accelerating a “hollowing out” of
the State (Kudo 2013). This, on the other hand, confirms the sociological
perspective of Europeanization (Börzel/Risse 2000). Europeanization in
this process leads to domestic change through collective learning, result-
ing in development of new identities.
In order to consider the Italian decentralisation, there is an historical
element to consider: the notion of “federalism” in Italy. A historian and
thinker of 19th Century, Carlo Cattaneo wrote first about “federalism” in
1850s. He mentioned a “United States of Europe”, referring to “Europe-
an” federalism (Vimercati 1991; Cattaneo/Bobbio 2010). Since the Ital-
ian Unification process was the constitution and institutionalisation of
the modern State, it is not easy to clarify the institutional identity of the
Regions with historical identity, which in turn could be a key for Italy to
be part of the EU. This might explain the unique characteristics of Italian
Europeanization, although this needs further study.

3.4 Domestic background of the recent reforms


There was a general welcome feeling for the Monti government (No-
vember 2011-April 2013), which ruled over Italy with austerity measures
and gaining respect from foreign countries, thus recovering self-
confidence of many Italians, who were fed up with the former Prime
122 Hiroko Kudo

Minister Berlusconi and his administrations. Many citizens thus wel-


comed this non-politician with high expertise and an international repu-
tation. However, later they started to be a bit reluctant to the policies of
this administration, because of its strict austerity measures. There were
also some doubts, especially among intellectuals, of the legitimacy of the
technocrat government, which was not the very first one in Italy.
When a new election was held in February 2013, after the Monti gov-
ernment resigned in December 2012, apolitical feeling was dominant in
the country, because of frequent party scandals (ITANES 2008). This
brought the success of a rather newly founded political group, the Five
Star Movement (Movimento Cinque Stelle, M5S) lead by Beppe Grillo,
a comedian famous for his social and environmental battle since the 80s
and its candidates. Most of them were freshman candidates with little or
no political experience, young and “normal”, that is to say, not coming
from politician families and/or the establishment. Meanwhile, the tradi-
tional parties lost their grounds: former central parties completely disap-
peared; central-right struggled with personal and organizational scandals;
and central-left paid for their poor campaign strategy. Even Northern
League, once a powerful opposition to the national politics, then strate-
gic coalition partner of various central-right coalition governments,
completely lost its appeal. Sceptical feelings towards bankers and finan-
cial experts dominated the society and “domination of capitalism over
democracy” has been criticized by the intellectual community.
After various attempts to form a new government failed, general scepti-
cal feeling towards party politics developed into high expectation for the
role of the President of the Republic, which led to an active debate on the
renewal of polity in Italy. Meanwhile, there was moderate expectation
for the Letta coalition government, mainly because of its formation, a
fruit of compromise among coalition partners. It was a central-left and
central-right coalition government with central-left Prime Minister and
central-right Vice Prime Minister. Thus it has a wide support back-
ground, which makes it difficult to govern. And this was the domestic
political background of the reform on provinces. This domestic political
situation fits into the rationalist perspectives of Europeanization
(Börzel/Risse 2000), as EU pressures have provided these political actors
Europeanization or New Public Governance? 123

with new opportunities in the pursuance of their own interests in their


party politics.

4 Current reform of provinces


Since 2014, the reform on provinces started with the Law N. 56 of 7th
April 2014, which decreed the abolition of provinces and substantive
institution of metropolitan cities (Vandelli 2014). This issue has been in
discussion for many years; however serious reform plans have never
been introduced because of strong political resistance. Political parties
have their bases at the provincial level and many productive activities,
including agriculture and commerce, are still managed at the provincial
level.
Provinces have had limited competences and thus have managed limited
budgets compared to municipalities and Regions. They have elected
president, elected parliament, president-nominated junta, and administra-
tive body with civil servants. The direct election of the president was
introduced with Law N.142 of 1990 and has been implemented since
then, and the cost of politics became a serious issue. Administrative cost
of provinces has never been a big issue, since it had been rather limited,
but unproportionally important political cost has.
Following the Treaty on Stability, Coordination and Governance in the
Economic and Monetary Union, thus, because of financial reasons, the
provinces would be abolished to cut political and administrative cost,
leaving only two levels of local administrations; Regions and municipali-
ties. However, in order to maintain and possibly improve the quality of
public services and their delivery, coordination and collaboration of mu-
nicipalities would be supported by the creation of metropolitan cities and
the promotion of unions and mergers of municipalities (Vandelli 2014).
This is because the government has been trying to maintain the public
services while trying to cut expenditure, based on public governance
rhetoric. The delegation of functions to Regions and municipalities, real-
ised through Constitutional Reform, would help this process of abolition
of the provinces, since they have already lost many competencies and
major functions are distributed to municipalities and Regions.
124 Hiroko Kudo

The Law N.56 of 7 April 2014 defines the detailed design of the future
of the intermediate level local governments, which would be metropoli-
tan cities and union of municipalities. Provinces would be abolished;
meanwhile small municipalities are encouraged to merge.
It is interesting to note that this institutional reform, which has been re-
peatedly discussed, but has failed many times over many years, is to be
realised, thanks to the pressures from the EU and for financial reasons,
not for the domestic political reasons and managerial requests. As dis-
cussed previously, major reforms in Italy have been indeed strongly in-
fluenced by the European integration process and seem to prove the Eu-
ropeanization; however, while rational perspective could be identified
through political actors, sociological perspective cannot be found in the
recent reform on provinces.
With the delegation of functions to Regions from the State, realised by
the Constitutional Reform, local offices of the States have been rational-
ised and reorganised under the office of Prefects. The futures of these
functions should be discussed during the reform process. This process
confirms the NPM-driven management reform, but has little to do with
Europeanization. Thus the recent reform process regarding intermediate
level of local governments in Italy shows various contradictions: abol-
ishment of provinces can be understood as a fruit of European financial
pressure, thus with Europeanization, it contradicts the decentralisation
policy and shows centralisation tendencies, abandoning thus the public
management rhetoric as well; reform on Prefects shows, on the other
hand, that it is rather independent from European policy, and is in line
with organizational rationalisation of public management.

5 Discussion
Provinces in Italy, as an intermediate local government unit, have
changed their functions and roles during the reforms. They have gained
more coordination functions from municipalities, and especially in met-
ropolitan areas, they were designed to become a new entity called “met-
ropolitan cities” (Vandelli 2014). The reform process was influenced by
the Constitutional Reform in 2001 and especially by the role of Regions.
Until then, the whole reform process can be explained with Europeaniza-
Europeanization or New Public Governance? 125

tion as well as NPM. However, the announcement to abolish provinces


in 2014 apparently contradicts the previous reforms and shows centrali-
sation tendencies, an opposite characteristic to NPM. Does this mean
that the Italian government abandoned NPM-based reform, or that the
European policies themselves now prefer centralisation over decentrali-
sation?
The Italian reform of provinces started thanks to external pressures,
mainly from the EU and for financial reasons. This is a similar process to
other major reforms, but with slightly different characteristics. Regard-
ing the Prefects, the previous reforms have had contradictory effects: on
one hand, they have less competences than before the Law N.142 of
1990; but on the other side, they have been regaining power through
important functions such as public security and civil protection, as well
as because of the changes in delegated functions. So far, reform on Pre-
fects has not yet started and it would be interesting to follow.
This recent reform process seems to confirm the general tendency of
Europeanization rhetoric dominance over domestic policy and of public
management, especially NPM and New Public Governance rhetoric.
Several elements, such as limiting autonomy at the municipality level
and centralisation tendencies, however, are not the results of NPM, but
can been seen among European policies. If the European policies have
abandoned the public management rhetoric in favour of financial and
fiscal reforms, could be an interesting issue, which requires further
study.

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Public Value Performance: What Does It
Mean to Create Value in the Public Sector?

Timo Meynhardt, Steven A. Brieger, Pepe Strathoff,


Stefan Anderer, Anne Bäro, Carolin Hermann, Jana
Kollat, Paul Neumann, Steffen Bartholomes, Peter
Gomez

Summary: Public administrations are required by law to contribute to


society, thus obliged to shape the common good. What value they have to
society is uncovered by their public value. This chapter provides an ap-
proach to public value management that is relevant for organizations,
NGOs, and governmental institutions, in order to systematically investi-
gate their contributions to society. Previous work on public value serves
as a good starting point, providing significant public value perspectives.
We follow this by a conceptual delineation of the public value concept
according to Timo Meynhardt, who roots the notion of value in psycho-
logical needs theory and thereby links public value directly to a conditio
humana. As cases in point, we identify and discuss two management
tools, the Public Value Scorecard (PVSC) and the Public Value Atlas.
We conclude with a short reflection on how public value can advance
public sector management.
Keywords: Public Value, Public Sector Management, Public Value At-
las, GemeinwohlAtlas, Public Value Scorecard, Common Good

1 Introduction
All along, public administration has been dealing with implicit or explic-
it assumptions about how to contribute best to the bonum commune or
common good (cf. Maier 1986, Waldo 1948/2007). In the late 20th cen-
tury, a new variation of this discourse was initiated and framed as the
public value approach (Moore 1995).
© Springer Fachmedien Wiesbaden GmbH 2017
R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_8
136 Timo Meynhardt et al.

The public value lens is above a narrative or performance notion for


public administrations that links traditional ideas on how to legitimize
public action with contemporary notions of entrepreneurship (Me-
ynhardt/Diefenbach 2012; Kearney/Meynhardt, in press). Public value
creation can be seen as a contemporary attempt to articulate how organi-
zations contribute to the common good. This is resonating around the
globe and is stimulating a number of different concepts (cf.
Bryson/Crosby/Bloomberg 2015).
Depending on the cultural, political, and legal context (e.g. Westminster
style or German Rechtsstaat), the public value discourse has various
responses and practical implications. A common denominator is the em-
phasis of a public administration’s value to society and the necessity to
actively ”manage” within predefined levels of discretion. O’Flynn inter-
preted the public value discourse as “a way of thinking which is post-
bureaucratic and post-competitive allowing us to move beyond the nar-
row market versus government failure approaches.” (2007, p. 353)
As a result, ideas of networked governance, co-production, or public
entrepreneurship are conceptualized as means to help better define and
ultimately manage the ends of public administration (cf. Stoker 2006). In
a sense, public value management is an attempt to deal with the rift be-
tween politically defined ends and administrative means, thereby rejuve-
nating the focus on the common good in the public sector (Cros-
by/Bryson 2005).
In this chapter, we provide a short overview of different perspectives
within the public value literature. The main part is devoted to introduc-
ing one approach in some detail – the public value concept according to
Timo Meynhardt (2009a; 2015; Meynhardt/Bartholomes 2011), which
Bryson, Crosby, and Bloomberg (2014, p. 450) characterize as “an im-
portant but far less well known approach.” Our aim is to show how pub-
lic managers can use Meynhardt’s public value approach to reflect value
creation the in the public sector.
Public Value Performance 137

2 Theoretical background

2.1 The public value debate


Public value research as a distinct field dates to 1995, with Mark
Moore’s seminal book Creating Public Value: Strategic Management in
Government (1995). Moore presented a normative theory of strategic
management in the public sector, to help public managers to increase the
value, to the public, of the organizations that are supposed to serve to
them. His approach is somewhat analogous to a shareholder value orien-
tation in the private sector when he asserts that “the aim of managerial
work in the public sector is to create public value just as the aim of man-
agerial work in the private sector is to create private value” (Moore
1995, p. 28) – at a time when the general zeitgeist was very critical of
government’s capacity to solve society’s problems, and public manage-
ment thinking was embracing new public management ideas, which (of-
ten) involved shrinking the state. Against this background, seeing the
public sector as a value-creating mechanism was a reminder of the im-
portance of the collective. However, Moore (1995) also points out that
his work is grounded in earlier work by public management scholars
such as Dwight Waldo (1948/2007), according to whom public man-
agement is involved in political (and value-laden) dynamics.
Since the publication of Moore’s book 20 years ago, the research field
has evolved: Public value research frequently appears in major public
management journals, and a number of special issues (e.g. International
Journal of Public Administration 2009, Public Administration Review
2014) and edited volumes (e.g. Benington/Moore 2011;
Bryson/Crosby/Bloomberg 2015) have been published on public value.
In Germany, a special issue of the journal Organisationsentwicklung –
Zeitschrift für Unternehmensentwicklung und Change Management was
dedicated to public value in different sectors (Meynhardt 2013), and the
term was included in both the International Encyclopedia of Civil Socie-
ty (Meynhardt 2009b) and the Handbuch zur Verwaltungsreform (Hand-
book of Public Administration Reform) in Germany (Meynhardt 2011).
This approach has also been applied to public management practice,
most notably in the UK, where it was embraced by the Blair administra-
138 Timo Meynhardt et al.

tion and even became part of the BBC’s mission statement (Crabtree
2004). In Germany, public value ideas were also welcomed to reconcile
traditional notions of public administration and management principles
imported from the private sector (Hill 2006; 2007; Meynhardt 2008;
2009a; 2009b; Meynhardt/Metelmann 2009). Hill (2006) argued that
after the lean state and the activating state, the value-creating state is
needed (Hill 2006, p. 82). For Stoker (2006), public value could even
serve as an “emerging paradigm” for networked governance.
Germany’s Federal Labor Agency (FLA), Europe’s biggest bureaucracy,
has used the approach to demonstrate its value to the public, which goes
beyond mere task fulfillment (Meynhardt/Metelmann 2009;
Weise/Deinzer 2013). In Austria, the public broadcaster ORF systemati-
cally evaluates its activities against a public value measure (Unterberger
2013). German Schools Abroad, a highly prestigious school, evaluated
its public value on a global scale (WDA 2014). Another example is the
Public Value Award for public baths in Germany, which was initiated in
2010 to better appreciate and better legitimize public baths (Ochsenbau-
er/Ziemke-Jerrentrup 2013). The Goethe Institute applied this methodol-
ogy to determine its public value creation (Meynhardt/Maier/Schulze
2010).
This wealth of published research and practical applications has made
the field more diverse, and it has been noted that there is uncertainty
about what public value is and what the most important elements of the
public value literature are (Williams/Shearer 2011). We follow the recent
categorization of major theoretical approaches according to Bryson,
Crosby, and Bloomberg (2014; 2015). They distinguish between Mark
Moore on Creating Public Value, Barry Bozeman on Public Values, and
work concerning Psychological Sources of Public Value by Timo Me-
ynhardt (Bryson/Crosby/Bloomberg 2015, pp. 2-11). We will now give
concise overviews of the work by the main protagonists – Moore, Bo-
zeman, and Meynhardt (Bryson/Crosby/Bloomberg 2014; 2015). We
will also describe Meynhardt’s psychological approach in more detail,
since it provides the theoretical basis for the Public Value Scorecard
(PVSC) and the Public Value Atlas (in German: GemeinwohlAtlas) we
will then present.
Public Value Performance 139

2.2 Creating public value according to Mark Moore


As noted, Mark Moore’s book (1995) marked the beginning of the public
value research field. Importantly, Moore (1995) makes clear, at the out-
set, that his theory is a normative theory of managerial behavior. Thus,
he is not concerned with explaining observed managerial or organiza-
tional behavior or with making recommendations for organizational is-
sues. Moore’s focus is on what individual public managers should do. To
help public managers identify opportunities to increase public value, he
provides them with a strategic management framework – the strategic
triangle – that is based on the notion that strategic management in the
public sector must align three components: First, any strategy must be
substantively valuable, which means that public value is produced. Sec-
ond, the strategy must be considered politically legitimate by the author-
izing environment, which is composed of individuals and groups that can
control flows of resources (e.g. authority, money, co-production, etc.)
that are needed for achieving valuable results. Third, the strategy must be
feasible in terms of operational capacity, i.e. the organization must be
capable of delivering the stated results (Moore 1995, p. 71). The strate-
gic triangle supports managers in evaluating strategies from all three
perspectives and “helps them maintain a sense of purposefulness that
allows them to challenge and lead their organizations toward the produc-
tion of greater public value” (Moore 1995, p. 72).
Moore’s work (1995) has been generally well received, particularly con-
cerning describing tactics and behaviors of the process of creating public
value. However, there has also been harsh criticism, including questions
whether it is a theory at all. Rhodes and Wanna (2007) have criticized
the approach for being incompatible with (Westminster style) democra-
cy, as public managers are given a political role even though they are not
elected. In 2013, Moore published the follow-up book, Recognizing Pub-
lic Value, which is mainly concerned with measuring public value per-
formance. Here, he further develops the strategic triangle into his version
of a public value scorecard by providing a generic public value account
and concrete checklists (Moore 2013). Interestingly, to date, Moore has
provided neither an explicit behavioral concept of value nor one of the
public – two key terms of his approach.
140 Timo Meynhardt et al.

2.3 Public values according to Barry Bozeman


In contrast to Moore’s managerial perspective, Bozeman’s work is more
concerned with the societal level (Bryson/Crosby/Bloomberg 2014;
2015). This is evident in Bozeman’s definition of public values as “those
providing normative consensus about the rights, benefits, and preroga-
tives to which citizens should (and should not) be entitled; the obliga-
tions of citizens to society, the state, and one another; and the principles
on which governments and policies should be based” (Bozeman 2007, p.
17).
A central theme in Bozeman’s approach is the idea of public-value fail-
ure, describing situations in which neither the market nor the state pro-
vides the necessary outputs and conditions to achieve public values (Bo-
zeman 2002). Thus, Bozeman’s approach focuses on values held in soci-
ety and whether these are met, regardless of the delivering organization’s
status as either public or private (Meynhardt 2009a; 2009b). To consider
collective values in policy-making decisions Welch, Rimes, and Bo-
zeman (2015) propose a public value mapping process, a four-step pro-
cess that involves the identification of public values, the assessment of
public value failures and successes, the actual mapping of values, and the
consideration of public value as well as market failures and successes.

2.4 Creating public value according to Timo Meynhardt


The psychology-based public value approach was first mentioned by
Meynhardt in 2007 and further detailed in his article Public Value In-
side: What is Public Value Creation? (2009a). Unlike Moore’s (1995)
and Bozeman’s (2002; 2007) approaches to public value, Meynhardt
provides a basis for a more refined conception of value: He not only
anchors public value in a relational approach to values and embeds it in
an ontological foundation in basic human needs, but also relates it to a
notion of public that is rooted in individuals’ representations and inter-
pretations. Put simply: Public value reflects basic needs, and basic needs
form the fundament for public value.
In a first step, Meynhardt forms a relational notion of values (Meynhardt
2009a; 2015). He rejects both subjectivist (i.e. value is not determined by
factors external to a subject or dependent on object’s properties) and
Public Value Performance 141

objectivist (e.g. values are independent of a subject’s evaluation and


mere characteristics of an object) conceptions. He makes this distinction
by following Heyde (1926), who describes value as the result of a rela-
tionship between subject and object. Hence, value exists neither inde-
pendently of an evaluating subject nor independent of an object with
certain characteristics that is evaluated. For instance, a car (object) does
not unfold its qualities in a magical way without an individual (subject),
who evaluates and values the qualities it brings into his or her life. The
use of a car to facilitate life or its aesthetic appeal is therefore inscribed
into the relationship (value), and rooted neither solely in the object nor in
the evaluating subject. Values are therefore created in an active process.
But on what basis do subjects evaluate objects? Can we outline common
ground to systematize this notion of value? Given this alignment of val-
ues to an individual’s evaluation, we can find support in psychological
basic needs theories. According to this theoretical perspective, human
experience and behavior result from a set of basic needs, which human
beings aim to satisfy in order to live healthily (Deci/Ryan 2000). Epstein
(2003) outlines four basic needs, which are nowadays firmly established
in psychological knowledge: the need for positive self-evaluation, the
need for maximizing pleasure, the need for gaining control and coher-
ence, and the need for positive relationships. This fundamental structure
underlying human personality allows us to trace back subjective evalua-
tions. They are triggered whenever an object is forceful towards the basis
of subject’s evaluation – the four dimensions of basic psychological
needs. The dimensions are displayed in Table 1, along with their central
themes. Furthermore, the need dimensions are translated into basic value
dimensions (Meynhardt 2009a; 2015). Empirical support for the outlined
structure was found in a study with Germany’s Federal Labor Agency
(Meynhardt/Bartholomes 2011), demonstrating that such a holistic per-
spective goes beyond mere task fulfillment; it appreciates the full range
of being human.
142 Timo Meynhardt et al.

Basic need for… Translation into a motivation Basic value


for… (examples) dimension
… positive self- • … positive self-concept and Moral-ethical
evaluation self-worth
• … consistent relationship
between self and environment
• … feeling of high self-esteem
(in social comparison)
… maximizing pleasure • … positive emotions and Hedonistic-
and avoiding pain avoidance of negative feelings aesthetical
• … flow experience
• … experience of self-efficacy
owing to actions taken
… gaining control and • … understanding and control- Utilitarian-
coherence over one’s ling environment instrumental
conceptual system • … predictability of cause-and-
effect relationships
• … ability to control expecta-
tions to cause desired outcomes
… positive relationships • … relatedness and belonging- Political-social
ness
• … attachment, group identity
• … optimal balance between
intimacy and distance
Figure 1: Relation between basic needs and basis value dimensions
Source: Adapted from Meynhardt 2009a.

Against this background, Meynhardt (2009a) relates this individual pro-


cess of valuation to his notion of the public. Since knowledge about the
public can never be complete and depends strongly on the evaluating
individuals’ experiences, Meynhardt develops the public as an internal-
ized fiction, because people cannot help but generalize experiences and
to act “as if”. According to him, public value is the subjectively per-
ceived value creation in the relationship between an object (e.g. an or-
ganization) and the public as indispensable fiction. This active public
value making process is driven by the evaluating individual’s basic
needs. Thus, public value creation comes into being when people per-
ceive a positive contribution to what they regard as society, societal or-
Public Value Performance 143

der or those values representing it. At best, such a perception serves as a


resource for the individual’s life and strengthens a sense of personal
identity and belonging. In this view, public value is a matter of attitudes
linking the individual and society, describing the societal dimension of
human life.
This approach provides a microfoundation for the public value debate by
relating the construct to an ontology of being human. Furthermore, it
overcomes the distinction between private and public in respect to value
creation. Demands in the private sector may differ greatly from demands
in public administrations. However, Meynhardt’s value conception pro-
vides a basis for both sectors, regardless of whether the objects being
evaluated are products, services, investment opportunities, or organiza-
tions. The question then is how these objects create or destroy public
value for society along the four dimensions – always in the eye of the
beholder. In this vein, a new model of corporate entrepreneurship in the
public sector was developed, which stipulates the public value dimen-
sions as the primary outcome dimension (Kearney/Meynhardt, in press).

3 Public Value Scorecard (PVSC)

3.1 A management tool to measure public value creation


Following these theoretical assumptions, public value redefines how
organizational behavior can contribute to individual as well as societal
well-being. Therefore, the concept of public value creation offers not
only a new theoretical perspective in the discourse of organizational
legitimacy (Suchman 1995), but also reveals the relationship between an
organization and its public and the potential for improvements. In other
words, the concept of public value can help organizations to better en-
gage with their community and to benefit from this.
Independently of what organizations address by dealing with societal
demands, their managers should measure and analyze public value driv-
ers, understand what they should stop doing, what they should keep do-
ing and what they might start doing.
144 Timo Meynhardt et al.

As stated before, according to Meynhardt’s (2009a) conception, public


value must be perceived subjectively in order to exist, and should there-
fore be evaluated on the same level or, as Talbot (2006, p. 7) puts it,
“public value is what the public values.” Thus, organizations need a tool
that can be integrated into management systems in order to assess their
current public value creation, as perceived by their relevant public(s).
Value measurement must be linked to individuals’ perceptions and inter-
pretations, otherwise the measures would have no meaning. Yet, this
approach must not be equated with measuring individual values. Public
value evaluations by individuals solely indicate how individuals assess
an object’s public value, for instance, a certain project, action, or initia-
tive.
The scorecard approach provides a set of measures to consider impacts
in several areas simultaneously. The great advantage of a scorecard is
that it provides a fast yet comprehensive view of organizational perfor-
mance (Kaplan/Norton 1992). In that sense, “the scorecard brings to-
gether, in a single management report, many of the seemingly disparate
elements of a company’s competitive agenda” (Kaplan/Norton 1992, p.
73).
Building on Kaplan and Norton’s (1992) Balanced Scorecard, Moore
(2003; 2013) also introduced a scorecard for measuring public value,
which was basically the same as his strategic triangle. Yet, Moore’s ver-
sion is only concerned with organizations in the public and non-profit
sectors, primarily related to a U.S. context, i.e. not considering the Euro-
pean traditions (Westminster style or German Rechtsstaat), where simi-
lar processes have long taken place.
Meynhardt (2015), on the other hand, introduces a very different Public
Value Scorecard that focuses directly on de facto public value creation
along the four theory-based basic public value dimensions: moral-
ethical, hedonistic-aesthetic, utilitarian-instrumental, and political-social.
Within the instrumental-utilitarian dimension, Meynhardt additionally
incorporates a fifth dimension (financial-economic), since management
practitioners are unlikely to accept frameworks without a financial
measure. To sum up, by using the Public Value Scorecard, “a manager
(or an institution) can now more systematically address the trade-offs
Public Value Performance 145

between financial and nonfinancial goals and can better identify societal
needs and concerns” (Meynhardt 2015, p. 157).
The Public Value Scorecard has been used in private as well as public
organizations. The German soccer club FC Bayern Munich (Ber-
inger/Bernard 2013; Meynhardt/Strathoff/Beringer/Bernard 2015) as
well as Fresenius Medical Care (Armsen/Moeller/Lampe/Gatti 2013), a
leading provider of dialysis products and services, have identified their
public values by using the Public Value Scorecard. Within the public
sector, the FLA discovered, through the Public Value Scorecard that
public value creation and customer satisfaction are not the same
(Weise/Deinzer 2013). We will now outline how other public managers
could benefit from utilizing this management tool.

3.2 How public sector managers can use the Public Value Score-
card
Public managers can use the Public Value Scorecard in various ways and
in many fields. In the following, we present the five inquiry techniques
on using the Public Value Scorecard, which Meynhardt (2015) presented
in his article Public Value: Turning a Conceptual Framework into a
Scorecard. The Public Value Scorecard can be applied via five different
inquiry techniques: prioritizing, screening, surveying, exploring, or sens-
ing. The data collection methods may vary but the presented five dimen-
sions of the Public Value Scorecard always remain constant. Finally,
each method provides either a public value score or a profile (Meynhardt
2015).
Version 1: Prioritizing
This Public Value Scorecard forces its respondents to rank the five value
dimensions in a specific context concerning opportunities and risks.
Thus, it presents 18 questions that refer to different situations: six ques-
tions deal with a general assessment, six address the short-term perspec-
tive, and six the medium-term and the long-term perspective. Each re-
spondent is asked to rank each of the given value statements according to
their relative importance from 5 (highest importance) to 1 (lowest im-
portance). Together, this version of the Public Value Scorecard is based
146 Timo Meynhardt et al.

on a survey consisting of 90 items (18 x 5). Completing the question-


naire takes approximately 15 to 20 minutes.
The gathered data leads to a pentagonal profile, thereby focusing man-
agement attention to perceived opportunities and risks of public value
creation within the five value dimensions. The illustrating scorecard can
be easily computed from the ranking results (Meynhardt 2015). Public
sector managers should label the pentagonal edges according to their
context and interest (see Figure 2). Typically, the defined labelling fits,
but concerning public sector management issues, an adjustment of the
profitability dimension may be useful.
Version 2: Screening
This Public Value Scorecard consensus allows to build in a dialogical
communication setting. A common method is to set up facilitated group
discussions, for instance, in workshops with specific target groups to get
insights about their perceived public value creation. In such workshops,
public sector managers can let participants evaluate for instance prospec-
tive projects in relation to each of the five value dimensions (Meynhardt
2015). Beforehand, it might be useful for public sector managers to char-
acterize the value dimensions according to key indicators in the given
public organizational contexts.
This screening methodology of the Public Value Scorecard has been
used since 2010 to select Germany’s best public bath concerning public
value creation (Ochensbauer/Ziemke-Jerrentrup 2013). Besides this pub-
lic sector award, the same approach has been applied for a global Public
Value Award, open for any organization and student around the globe
(iF 2015).
Public Value Performance 147

Figure 2: Public Value Scorecard


Source: Adapted from Meynhardt 2015.

Version 3: Surveying
This Public Value Scorecard is adapted for use in large-scale surveys.
Since it is very difficult for public sector managers to force thousands of
respondents to rank public value depending on different statements, the
indicators can be adapted into a question battery with Likert scales from
1 to 6, which we will discuss in some detail in the next section. Such
large-scale surveys enable public sector management to ask different
stakeholder groups to assess their specific public value creation and to
gain comparable data. Descriptive and inference statistics may then be
used to examine new relationships and dependencies of public value
creation, giving public sector managers new insights into their work’s
worth (Meynhardt 2015).
148 Timo Meynhardt et al.

Version 4: Exploring
This Public Value Scorecard represents a hybrid between qualitative and
quantitative approaches. It builds on the value knowledge guide (Me-
ynhardt 2004) and is the most demanding for the respondent. Its applica-
tion is especially interesting and relevant for decoding the frames in
which a public organization’s public value is perceived. In other words,
how and under which circumstances do respondents interpret the behav-
ior of a public organization concerning its public value? Therefore, the
guiding question for public management in this approach is: What makes
our organization valuable to society?
Version 5: Sensing
Taking into account the new possibilities of big data analysis, this Public
Value Scorecard presents an inquiry technique for social media data,
such as provided by Twitter, Facebook, Google+, or blogs (Meynhardt
2015). The developed machine-learning algorithm makes public value-
related content in big data visible for managers. It automatically detects
given statements and interprets to what extent they are attached to the
public value dimensions. Furthermore, it evaluates the statements as
positive, negative, or neutral. The great advantage of such an approach
for public management is its real-time sensing of public value dynamics
(Meynhardt 2015).

4 Public Value Atlas (GemeinwohlAtlas)

4.1 Giving a voice to society


In 2014, the Center for Leadership and Values in Society of the Univer-
sity of St. Gallen published the first Public Value Atlas for Switzerland.
The Public Value Atlas is aimed at making transparent the public value
of important firms, non-governmental organizations (NGOs), and public
administrations and ranks these according to their public value. Follow-
ing the scorecard’s logic, it is designed for very large samples.
Public Value Performance 149

A representative sample of the Swiss population comprising nearly 4,500


people was asked to evaluate the public value of 62 organizations across
various sectors – given that the respondents knew the organization well
enough.
The respondents assessed each organization via an online survey along
the four aforementioned public value dimensions. We used a previously
validated single-item measure (cf. Meynhardt/Bartholomes 2011) to
evaluate each dimension: moral-ethical (Organization behaves decently),
hedonistic-aesthetical (Organization contributes to the quality of life in
Switzerland), utilitarian-instrumental (Organization does good work in
its core business), and political-social (Organization contributes to social
cohesion in Switzerland). The respondents indicated how well each or-
ganization fulfills their basic human needs by answering the items on a
six-point Likert scale, ranging between 1 (disagree) and 6 (agree). Ac-
cordingly, a higher satisfaction of personal needs leads to a higher public
value (Meynhardt 2009a). The public value of one organization was
calculated from the unweighted mean across all public value dimensions.
All organizations were then ranked in decreasing order of their overall
public value score. However, since matters of analysis differ, the Public
Value Atlas allows one to reconfigure the weights of the public value
dimensions. This results in a new order that is valid for the specific anal-
ysis.
The first Public Value Atlas has enjoyed broad attention throughout so-
ciety, represented not only by heavy media coverage, but also by avid
interest from organizations in the study, leading to a deeper understand-
ing of the results. Furthermore, results yielded strong relevance for so-
ciety: 68% of the Swiss respondents were concerned that too little atten-
tion is devoted to the common good in their country. And those who
believed that the Swiss public administration usually pays interest to the
common good reported a higher life satisfaction (Me-
ynhardt/Strathoff/Brieger 2015).
These developments paved the way for the second data collection, which
followed a year later. In 2015, the number of organizations had been
doubled and complemented by important multinational corporations. The
subsequent results led to the second Public Value Atlas for Switzerland
150 Timo Meynhardt et al.

and allowed us to observe first developments in public value over time.


Furthermore, the first Public Value Atlas for Germany was published in
2015; more than 7,800 people evaluated the public value of 127 national
and international organizations, of which 16 were public sector organiza-
tions.
In both countries, the results indicated the topic’s great relevance (de-
tailed results and a detailed description of the study design are available
for Switzerland at www.gemeinwohl.ch and for Germany at
www.gemeinwohlatlas.de). The Public Value Atlas makes transparent
organizational contributions to society by providing an empirical data-
base for the discourse on how organizations contribute to the common
good. Thus, it gives the public a voice, fosters the dialogue within socie-
ty and among stakeholders, and increases awareness for public value
creation. What is and is not considered to be valuable for society is left
to the public’s perception. The evaluation lies in the eye of the beholder;
thus, it is an emotional-motivational process that is intentionally open
(Meynhardt 2009a).

4.2 How public sector managers can use the Public Value Atlas
Since the Public Value Atlas uncovers what organizations contribute to
society and what is appreciated most about them, it stimulates reflection
about an organization’s place in society.
The public value concept fosters a broader perspective on performance in
the public sector, a perspective that is more challenging, because it goes
beyond complying with given processes or meeting budget restrictions
(Meynhardt 2009a). In doing so, it explicitly calls for a more active role,
fostering self-initiative and entrepreneurship.
Furthermore, it confronts public sector managers with the question
whether their actions bring value to society, which is far more difficult to
measure than mere financial performance. The latter is one of many as-
pects that inform public sector managers about their value creation.
Thus, it is not sufficient to solely refer to the facts – for instance the in-
vestments made – when analyzing what makes public administrations
valuable for society. The Public Value Atlas provides a measure that
Public Value Performance 151

could be translated into internal key performance indicators, which oper-


ationalize the societal perspective not captured in citizen or customer
satisfaction.
There is not always a direct link between investing and creating public
value. Investments made for instance to increase internal security do not
automatically translate into citizens feeling safe. The value of such in-
vestments and the question whether the efforts paid off in the end, de-
pend on the public’s perception (Meynhardt 2008). Interestingly, the
public value lens sheds new light also on the debate about advantages
and disadvantages of modern cameralistics vs. double bookkeeping. A
comparison reveals that cameralistics provides a perspective that favors
public value creation more easily than double bookkeeping (Me-
ynhardt/Schulze 2010).
Public sector managers can use the results of the Public Value Atlas as a
starting point to find out whether their actions contribute to public value.
It may be interesting to reflect on the public value dimensions on the
organization’s self-perception and its strategy. Public managers could
derive fruitful hints for pertinent questions, such as: For whom do we
(the organization) want to create which kind of value? Do we really cre-
ate value by fulfilling our legal mandate? How can we discover frictions
and tradeoffs between political goals and public value concerns? Differ-
ent approaches towards answering these questions could be examined by
considering the Public Value Atlas. For instance, potential results could
reveal that the core business activities are appreciated by the public, but
that the organization’s contribution to social cohesion is considered low.
Another promising approach might be to examine the dimensions from
different perspectives such as age or gender differences, employment
status, family status, or distance to the organization. It would allow for
differentiated statements regarding specific effects of certain dimensions.
We will now provide an overview of the public sector results and will
discuss the results for Germany’s Federal Labor Agency in some detail.
The German Public Value Atlas indicates that the public sector is highly
rated by Germans: Fire department (5.72), German Federal Agency for
Technical Relief (5.45), German Federal Police (5.07), Federal Constitu-
tional Court (5.06), Die Dritten (TV program) (4.91), ARD (4.67), ZDF
152 Timo Meynhardt et al.

(4.52), Techniker Krankenkasse (4.50), AOK Baden-Württemberg


(4.40), AOK Bayern (4.26), German Armed Forces (4.23), Barmer GEK
(4.17), DAK-Gesundheit (4.12), Federal Government (4.07), Germany’s
Federal Labor Agency (3.57), and the European Central Bank (3.49).
In the overall ranking, every public sector organization lies either in the
middle (7 organizations) or in the best-performing group (9 organiza-
tions) of the public value atlas. The average public value score of the
public sector is 4.51. Compared to the average public value score of all
other organizations (3.76), the total difference is 0.75, resulting in an
effect size of dCohen = 1.23. With a dCohen above 0.8, reflecting a large
effect size (Cohen 1988), the public sector outperforms the average of all
other 111 organizations. Within the 16 public sector organizations, the
fire department marks the peak, and is contrasted by the European Cen-
tral Bank on the other end. In line with the fire department’s high public
value score, the German Federal Agency for Technical Relief, the Ger-
man Federal Police, and the Federal Constitutional Court follow on the
second, third, and fourth place, respectively. One could speculate that
this reflects a strong sense of safety in the German population. In the
fifth, sixth, and seventh place, the public television programs are tied
together and are followed by health insurance organizations, with the
German Armed Forces eleventh. The fourteenth and fifteenth places are
held by the Federal Government and the Federal Labor Agency. Of the
16 organizations, only two are below the average of all organizations in
the public value atlas (3.85): Germany’s Federal Labor Agency and the
European Central Bank. This implies that public sector managers in
these organizations should consider the following: First, how public val-
ue creation can be communicated to society; second, how the own organ-
ization can contribute better to the common good than it already does.
If public sector managers use the results of the Public Value Atlas, they
should consider the differentiation in the evaluation of the four public
value dimensions. The German Public Value Atlas shows that contribu-
tion to social cohesion is the least appreciated public value dimension
across all public organizations, except for minor deviations. This is an
important finding for all public health insurance organizations. Surpris-
ingly, this is not the case for the Federal Government, displaying its
strengths in the contribution to social cohesion and life quality, but less
Public Value Performance 153

so regarding moral conduct. The highest-rated organizations in the pub-


lic sector, on the other hand, not only perform well on the moral-ethical
dimension, but also on the other dimensions, and especially in perform-
ing their core businesses.
This cross-organizational comparison on the various public value dimen-
sions reveals interesting insights for public sector managers. Based on
these findings, further in-depth analyses can help public sector managers
to examine how an increase of value for society can be maintained and
how their efforts need to be adjusted. The Public Value Atlas offers mul-
tiple opportunities for analyzing public value performance. Besides the
general results (which are presented on the websites), public sector man-
agers can also contact the Public Value Atlas team to undergo an in-
depth analysis for their organization by considering further information
based on individual-level variables that are not presented in the Swiss
and German Public Value Atlas websites.

5 Conclusions
The public value discourse in public administration over the past 20
years indicates a renewed interest in the roles of state institutions in soci-
ety. Public value thinking provides a narrative and potentially a case for
a more active, entrepreneurial role for public managers. It spells out what
management in a public administration would mean, both beyond the
traditional Weberian idea of bureaucracy and a new public management
notion that would call for importing private sector models of efficiency.
Public value brings the question of effectiveness to the forefront: Public
administration exists owing to a legal obligation to serve and enhance the
common good. In this sense, public value reminds us of public admin-
istration’s reason for being.
Such a reminder was warmly welcomed in times when state institutions
were under attack. However, it is not just about the idea of rebalancing
and reorienting public administrations towards a positive force in socie-
ty. The public value discourse calls for an understanding of entrepre-
neurship in the public sector, which is perhaps the biggest challenge
ahead. Bearing in mind the poor performance of the Federal Labor
Agency in Germany’s first Public Value Atlas in 2015 it becomes clear
154 Timo Meynhardt et al.

how difficult it is to help “translating” new performance imperatives in a


way that is appreciated by society – be it a communication problem or a
far deeper-reaching public value challenge – is a tough top management
challenge. What is at stake is far more than reputation; it is about the
very license to operate in a constantly contested world of uncertainty and
complexity. It has also been short-sighted to operationalize and legiti-
mize public administration’s existence only by its legal mandate. Public
value asks for actual positive impacts on people’s minds and hearts. It
will be hard for a public administration to legitimize its operations with-
out acknowledgement from society. It’s not just a pun: public value is
what the public values – it is a call to face verification by people. Who
else could be the final arbiter when it comes to common good in a secu-
larized world?
Evidently, the task at hand is to better conceptualize subjectivity’s role in
constructing the common good. While Moore’s approach (1995) and
Bozeman’s framework (2002; 2007) opened the doors for a public value
discourse, only a behavioral foundation allows for rigorous empirical
work. Without confronting the sphere of pre-rational and value-loaded
dispositions, public administration runs the risk of alienation from its
citizenry. Public value thinking provides the opportunity to harness the –
to date often unseen – value an administration creates for society. Clear-
ly, it provides a compass for public sector leaders concerning strategic
challenges, which requires entrepreneurial spirit within a given legal
mandate (Meynhardt/Metelmann 2008).
Meynhardt’s theorizing may among others be a candidate to advance our
understanding of how psychological factors determine public administra-
tion’s impacts on our living conditions.
Public sector managers must constantly question their activities in order
to understand how they can create value for society. Thus, it is important
to engage in public dialogue. This should form the basis for a shared
understanding of public values. What is valuable for society varies over
time and across cultures. Therefore, it cannot and should not be com-
pletely determined, but – along Kant’s notion – should rather be under-
stood as a regulative idea of living together (Meynhardt 2009a). None-
theless, we should seek out an approximation in the sense of a shared
Public Value Performance 155

understanding of what is seen as valuable for society at a certain point in


time. This is an iterative process and can only be achieved in dialogue.
Schuppert (2010) suspects that public value management could be an
appropriate means to frame it.
In this process, the Public Value Scorecard – among others – provides a
useful instrument to weigh future decisions and analyze likelihoods and
risks of public value contribution goals. Thus, building on basic human
needs as a frame of reference, the Public Value Scorecard fosters a holis-
tic view of managerial actions by considering societal needs. However,
public value cannot simply be created; activities must have an impact
and must be acknowledged at the individual level (Meynhardt 2009a).
Critics might argue that organization’s public value cannot be recognized
by the public, but who if not society is in the position to know what is
valuable for society? In this view, there are no public value laymen. The
Public Value Atlas condenses collective opinions and takes them to
heart. In doing so, it does not dictate to organizations how to behave or
how to change; nonetheless, public sector managers may see and use the
Public Value Atlas as a starting point to become aware of their influence
on society and to think about how they can contribute to a joint coevolu-
tion.

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Resilient Public Service Provision after the
Global Financial Crisis: The Case of Botswana

Dorothy Mpabanga

Summary: The paper assessed the extent to which government of Bot-


swana was resilient in the provision of public services after the 2008
global financial crisis. The paper used a purposely sampled quantitative
survey method and secondary data sources. Findings suggest the gov-
ernment provided public services due to the country’s long-standing
history of good macro-economic management and monetary policy.
However, one of the major negative effects was the budget deficit be-
tween 2009 and 2011, which the country experienced for the first time in
its history. Foreign exchange reserves and other sources of revenue were
used to compensate for the budget deficit. Findings suggest positive pub-
lic perceptions of a government that has managed the economy and fi-
nancial resources well after the financial crisis. The majority of re-
spondents agreed with the government's decision to freeze the creation of
new positions. However respondents felt government should have filled
vacancies, adjusted public servants salaries, privatized non-performing
enterprises and outsourced more public services. The paper suggests
enhancing sustainability through reduction in expenditure during budg-
etary constraint and a focus on efficiency and effectiveness through mon-
itoring and evaluation of policies and programs.
Keywords: financial crisis, resilience, Botswana, public finance, service,
sustainability

1 Introduction
The 2008 global financial crisis affected private and public sectors in one
way or another. This paper assesses the effects of the financial crisis on
public service provision in the context of a developing country. The
2008 financial global crisis has forced governments in both developed
© Springer Fachmedien Wiesbaden GmbH 2017
R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_9
162 Dorothy Mpabanga

and developing countries to re-think their priorities in order to remain


relevant and continue serving citizens and maintain reasonable levels of
sustainable growth and development. Organizations in the global econ-
omy have had to face the reality of the financial crisis by re-organizing
their strategic and operational plans in order to survive in the turbulent
and competitive international environment created by the financial crisis.
Government around the globe, including Africa, had to continue to pro-
vide economic and social services to the public despite reduction in rev-
enue and budgetary cuts. Governments, particularly in developing coun-
tries, had to respond to international pressures to cut expenditure and
provide more with less. However, some governments were able to sur-
vive the 2008 financial crisis and this paper explores the extent to which
the government of Botswana remained resilient in public service provi-
sion after the financial crisis.
The paper commences by reviewing the literature after the 2008 financial
crisis in both developed and developing countries and how these coun-
tries remained resilient in service provision during this period. The sec-
ond part of the paper assesses public sector financial management in
Botswana and the ability of the government to provide economic and
social services after the crisis. The third section presents and discusses
findings from the purposely sampled quantitative survey and the last
section summarizes major findings and concludes by suggesting areas
for future research.

2 The 2008 global financial crisis


Connolly and Wall (2010) assert that the global financial crisis com-
menced in 2007 and was caused by an increase in mortgages sold in the
USA resulting in borrowers’ inability to re-pay and service their loans
and this led to banks' reluctance to lend, resulting in an increased cost of
borrowing. The increase in the cost of borrowing escalated to increases
in interest rates, leading to difficulty in loan repayments in the USA and
this financial crisis spread to other countries and thus affected the global
financial markets (Connolly/Wall 2010, p. 535). According to Muga-
ruara (2011, p. 225) the financial crisis was triggered by liquidity short-
fall in the USA’s financial markets and the banking system and the crisis
spread to Europe. Mugarura (2011, p. 227) further points to the Asian
Resilient Public Service Provision after the Global Financial Crisis 163

financial crisis which occurred in 1997/98 and asserts that it was caused
by weak internal macro-economic failings such as corruption, weak tra-
ditional banking practices and inadequate financial regulations. In the
case of the UK, the collapse of the banking system was partly due to the
lack of appropriate pro-active regulatory involvement, poor regulatory
oversight and poor supervision in the financial system (Mugarura 2011).
According to Bancel and Mittoo (2011, p. 180) the global financial crisis
was the most severe crisis since the great depression and its impact var-
ied widely across countries as well as across firms within a country. The
two authors further argue that other firms survived the crisis by enhanc-
ing their competitive position while others were hard hit.
As pointed out by Stiglitz (2001) the global financial crisis has affected
the manner in which governments operated and carried out their daily
activities. For example, there have been changes in priorities in public
policy and program development where governments are forced to
choose what development projects to implement and prioritize projects
to set aside due to tight revenue combined with efforts to reduce ex-
penditure. This has led to governments reacting to global pressure to re-
structure their economies, reduce the public size and the public wage bill
(Stiglitz 2001). Furthermore Stiglitz (2001) posits that social effects of
the financial crisis have been immense, including reduction in revenue
for governments, hence reduction in social benefit programs, rejection of
salary increments for public servants to help cope with the increase in
the cost of living, (inflationary salary adjustment), and cuts in training
and development budgets.
The challenges brought by the financial crisis forced governments to
adjust the way they did business in order to continue providing public
services by re-directing and re-evaluating their priorities to remain rele-
vant in serving the public and being responsive to the call to change after
the 2008 financial crisis. Multiple tools and techniques were used to
combat and deal with challenges associated with managing the public
sector and continue to provide services after the financial crisis. Many
governments around the world had to develop, adapt and apply stringent
tools and measures in order to survive after the crisis. As pointed out by
Mugarura (2011, p. 225) globalization has introduced the concept of
global solutions for global problems. International financial institutions
164 Dorothy Mpabanga

including the World Bank/IMF devised some tools and techniques and
advised governments to adopt them in order to resiliently manage their
economies and the public sector during and after the financial crisis.
Globalization has also contributed to the springing up of many ideas and
policy recommendations on how to reform and make the public sector
efficient and effective in serving public interest. Stiglitz (2001) argues
that neo-liberal economic policies of the International Monetary Fund
based on flawed concepts forced governments to downsize and reduce
public spending and were wrong options to help countries cope with
societal problems. Other policy recommendations include the concept of
new public management, which emerged in the 1980s as a blue print to
reform governments (Stiglitz 2001).
Bancel/Mittoo (2011) assert that in the case of France, the effect of the
global financial crisis was not as much as in other countries in Europe,
mainly because France had a strongly regulated financial sector and
banking system. According to Bancel/Mittoo (2011, p. 194) firms in
France were able to survive the crisis because they had high internal
funding, low short term debt and high cash rations. They argue that firms
with high financial flexibility experienced a milder impact from the fi-
nancial crisis because of their financial strength and the low cost of bor-
rowing they experienced during the crisis. In the case of the United
Kingdom, Connolly and Wall (2010) argue that the government used
private public partnerships (PPPs) in order to reduce public sector bor-
rowing and to transfer risk to the private sector. According to the two
authors, the global financial crisis affected the UK’s government invest-
ment through PPPs and infrastructural development through PPPs de-
clined after 2007 as the crisis affected the banking systems which almost
collapsed under factors including liquidity constraints, high cost of bor-
rowing, falling PPP asset value and lack of funding for PPPs (Connol-
ly/Wall 2010, p. 540). In the case of Germany, the government took
drastic measures in 2008 to deal with the financial crisis by passing a law
to stabilize the financial markets and restored confidence in the banking
system and declared the State to guarantee on all savings of German
citizens (Giustiniani/Thornton 2011).
Hughes (2015, p. 174) asserts that Australia was one of the few countries
that were able to escape the global financial crisis due to the govern-
Resilient Public Service Provision after the Global Financial Crisis 165

ment’s ability and strategy to continuously reform the public service


since the 1970s for excellence in service delivery. Hence the Australian
government was prepared when the global financial crisis emerged and
was in a better position to survive, in part due to an increase in exports to
China and existing principles of management in government (Hughes
2015). Australia is considered the best in the world in public sector man-
agement in excellence in service delivery, managing expenditure very
well, reforming public financial and personnel management. Hughes
posits that these factors prepared the Australian government for resili-
ence in service provision and her ability to survive the 2008 financial
crisis.
African governments did not escape the effects of the 2008 global finan-
cial crisis in relation to the management of government budgets and pro-
vision of public services. Many governments in the continent had to take
stringent measures in order to strive to deliver public services, formulate
and implement development programs and at the same time sustain so-
cio-economic development and growth. The financial crisis forced gov-
ernments to operate within stringent budgets and prioritize resource allo-
cation to various sectors of the economy. In the case of Uganda, Muga-
rura (2011) asserts that liberalization of financial markets resulted in
increased incidence of corruption and currency counterfeit. According to
Mugarura (2011, p. 226) the government of Uganda had to intervene
when the global financial crisis hit the country by bailing out failed
banks in order to prevent the collapse of the whole financial system. He
argued that liberalization in Uganda led to corruption which undermined
government development programs as funds were diverted to other activ-
ities including kickbacks, rigging of bids and bribes. Mugarura suggests
that before countries can liberalize the economy, especially in develop-
ing countries, they need to ensure that effective institutions are estab-
lished in order to support liberalization and early government control is
necessary to prevent market failure.
As stated by Busieka (2013) African governments were forced into cost-
cutting measures including postponing public sector reforms in response
to the global economic crisis. Busieka (2013) posited that the South Af-
rican government was able to withstand the financial crisis and acceler-
ated public sector reforms, increased the size of government and estab-
166 Dorothy Mpabanga

lished a stimulus package to rescue struggling private firms despite pres-


sures to cut government expenditure. One of the factors contributing to
South Africa’s reliance after the financial crisis was the sound financial
policies that existed in the country prior to the crisis (Busieka 2013). He
further alluded to the fact that most African government had to deal with
inability to meet salary obligations and declined to adhere to the demand
for salary hikes due to diminished revenue. The refusal by some gov-
ernments to increase salaries resulted in strikes across the continent in
countries such as Nigeria, Kenya, Zimbabwe and Malawi (Busieka 2013,
p. 5). Busieka further asserts that other countries in the continent which
were better placed to deal with the financial crisis included Uganda,
Tanzania and Mauritius as these countries responded swiftly to the crisis.
The following section assesses the reliance in public service provision
after the 2008 financial crisis in the context of Botswana.

3 Public service provision in Botswana after the global


financial crisis
The 2008 global financial crisis has affected many developing countries,
including Botswana. Botswana is one of the few countries in Africa that
has been blessed with natural resources, particularly diamonds, which
have served as the main source of revenue for the country since they
were discovered in the 1970s (Salkin et al. 1998). Botswana was under
the British administration until the country gained independence in 1966
and the country inherited undeveloped public administration structures
and processes (Hope/Somolekae 1998). It was through the mineral reve-
nue from diamonds that the government invested heavily in socio-
economic development, and this led to Botswana experiencing one of the
highest economic development and growth rates in the 1980s (Salkin et
al. 1998). The government developed and established various adminis-
trative systems and structures and formulated policies and programs to
guide development of different sectors of the economy. The government
used the bureaucratic model of government inherited from the British
colonial government and reformed it over the years to become one of the
well- established public services providers in the continent. In an effort
to enhance the efficiency and effectiveness of the growing public service
and other supportive structures, the government adopted and used vari-
Resilient Public Service Provision after the Global Financial Crisis 167

ous strategies and techniques including the re-organization and re-


structuring of ministries and their functions, decentralization and per-
formance management systems (Botswana Government 2003).
The government’s priority was to develop the nation and to provide so-
cial services in health, education and social welfare benefit sectors and
infrastructural development in road, dam, building construction and to
establish public enterprises to provide water, electricity, transport and
telecommunications services. In addition the government had to develop
human capital in order to take up employment in the public sector as the
government is the largest employer in the social and economic services
sector. Botswana is one of the few countries in Africa which has experi-
enced stable political and economic development and growth and has in
the process emerged with positive attributes, some of which have con-
tributed the country’s resilience in many areas including political and
economic stability and surviving the 2008 global financial crisis. Many
countries in Africa experienced a variety of problems including political
and economic instability, corruption, inefficient public service and pub-
lic enterprises and these challenges prompted international institutions
such as the World Bank/IMF to imposing stringent measures to re-
structure through structural adjustment programs (Harvey 1996; Tangri
1999). Botswana is one of the few countries in Africa which have avoid-
ed these tribulations. Botswana has established a positive image in the
continent and globally including the following.

x A stable economic and political environment.


x Prudent macro-economic management and good monetary policy.
x Foreign exchange reserves which are able to cover up to 18 months
of imports of goods and services.
x A peaceful and united nation.
x Excellent policy formulation and development mechanisms and
structures.
x Good rating in the global governance index.
x Well-established legislative framework, regulations, policies and
guidelines.
x Well-developed administrative structures, systems and processes.
168 Dorothy Mpabanga

x Endowed with natural resources, especially diamonds, beef and tour-


ism.
x Good credit rating in Africa (Botswana Government 2015).

3.1 Public sector reforms


As pointed out above, the government established various public institu-
tions to provide social and economic services to its citizens. This was
accompanied by employment of public servants in order to carry out the
responsibility of policy formulation and program implementation on
behalf of their ministries and independent departments. As the size of the
public service increased due to rapid socio-economic growth experienced
by Botswana, the demand for better service delivery became a concern of
both the public and government (Hope 1998). There were complaints
about the ineffectiveness and inefficiency of public institutions, and this
led to the government introducing various reforms from the 1980s in
order to enhance service delivery and program implementation (Botswa-
na Government 2003). Some of the major reforms include the job evalu-
ation which was conducted to motivate public servants, work improve-
ment teams were introduced in order to instill the spirit of teamwork
amongst public servants, weeding out government of deadwoods and
contract employment for senior government officials and the establish-
ment of the national productivity center and performance management
system. Public sector reforms of the 1990s included the adoption of per-
formance management systems (PMS) which introduced the strategic
planning process in the public service (Botswana Government 2003).
PMS was adopted in order to enhance accountability and service deliv-
ery through the development of mission, vision and value statements and
strategic plans at ministerial levels. In addition, strategic plans, key per-
formance and results areas were established as well as persons responsi-
ble for each strategic objective at departmental and individual levels.
Personal development plans were introduced in order to enhance capaci-
ty of employees to deliver better services. In an effort to further reform
and transform the public service, in 2005 the government introduced a
balance score card (BSC) in order to plan and deliver public services
using the four perspectives of the financial, customer, processes, and
Resilient Public Service Provision after the Global Financial Crisis 169

learning and growth. Public sector reforms were also accompanied by


reforming the budgeting process from traditional cash based budgeting to
accrual and results-based budgeting systems (Botswana Government
2009). These performance and financial management reforms were ac-
companied by performance audits and monitoring at employee, depart-
mental and ministerial levels. Different committees were established in
order to monitor and audit public service performance for example the
inter-ministerial committees and performance improvement forces (PIC
Force) (Botswana Government 2003).

3.2 New Public Management and neo-liberal economics


In order to further enhance public service provision and delivery of eco-
nomic services, additional reforms were introduced including the con-
cepts of privatization, liberalization, commercialization and the use of
public-private partnerships (PPPs) (Botswana Government 2000). These
private sector-like management styles were adopted in order to promote
the private sector’s involvement in public service delivery. Through pri-
vatization came outsourcing and contracting out of public services,
commercialization of telecommunication services and the creation of a
competitive market economy. The privatization policy was developed in
2000 and a master plan in 2005 in order to guide the privatization pro-
cess. The privatization and procurement regulatory advisory agency was
established in order to advise, support and guide government, to identify
and assess through feasibility studies on projects and services how best
to privatize, outsource, contract out and to facilitate the bidding and pro-
curement processes. Adopting NPM resulted, for example, in outsourc-
ing non-essential public services such as gardening, cleaning, catering
and laundry services, maintenance of government vehicles, contracting
out some medical services to the private sector and the use of PPPs to
construct government office blocks (Botswana Government 2015). The
above reforms changed and somewhat transformed public service man-
agement to strategic planning with decentralization, an on-line HR man-
agement system, participation of the private sector through privatization
with the objective of enhancing service provision (Botswana Govern-
ment 2009). In addition, reforming the public service introduced public
170 Dorothy Mpabanga

service values, charters and standards in order to guide the public in ex-
pectations for government services.

3.3 Challenges of New Public Management


Though the above reforms have had positive outcomes, for example the
use of strategic planning and management in the public service as well as
enhancing accountability in performance management, there remained
some challenges, including the following.

x Poor service delivery.


x Lack of capacity in project and program implementation, monitoring
and evaluation.
x Poor work ethic and low levels of productivity.
x Increasing incidences of corruption, especially in the procurement
process.
x Inefficiency and ineffectiveness of government (Botswana Govern-
ment 2015).

3.4 Public financial management after the crisis

3.4.1 Government budget


As mentioned earlier, the global financial crisis affected many countries
in terms of reduced budgets and prioritizing the provision of social and
economic services. Botswana was also affected by the 2008 financial
crisis, especially in experiencing budget deficits for the first time since
the 1970s. Botswana has over the years enjoyed a positive financial envi-
ronment due to earnings from diamond exports and prudent macro-
economic management of mineral revenue. Table 1 below indicates gov-
ernment revenue and expenditure since the global financial crisis. The
table indicates an increase in total government revenue and grants except
during the 2009/10 financial year. However the figures indicate an in-
crease in government total expenditure throughout the financial crisis,
except for a slight decline in 2010/11. For example, the recurrent ex-
penditure increased throughout the crisis period and this contributed to
Botswana experiencing budget deficits for a consecutive period after the
Resilient Public Service Provision after the Global Financial Crisis 171

crisis, from 2008/09 to 2011/12 (Bank of Botswana 2015). It is worth


noting that this was the most noticeable impact of the 2008 crisis on the
overall government budget due to total expenditure exceeding total reve-
nue and grants.
2007/08 2009/10 2011/12 2013/14
Total Revenue & Grants 28629.6 30023.1 38486.0 48951.3
Tax revenue 25831.2 26773.9 35533.1 44306.3
Non-Tax 2221.0 2480.4 2420.1 4319.3
Grants 577.4 768.8 532.8 325.7
Total Expenditure 24821.9 39489.2 38667.5 41729.7
Recurrent 18578.7 25731.8 28836.2 33219.8
Development 6547.8 13005.7 9955.7 8908.7
Net-Lending -304.6 751.7 -124.4 -398.8
Overall Surplus (+)/Deficit (-) 3807.6 -9466.1 -181.4 7221.6
Financing of Surplus/Deficit -3807.6 9466.1 181.4 -7221.6
Foreign -93.4 6442.3 87.5 -66.4
Domestic -3714.2 3023.8 94.0 -7155.2
Bank -4019.0 4398.2 -84.0
Other 304.8 -1374.4 178.0

Table 1: Government budget summary: (P million) 2007-2014


Source: Bank of Botswana 2015, p. 69.

3.4.2 Foreign exchange reserves


As shown in table 2 below, the budget deficit was financed through for-
eign reserve savings which had accumulated over the years due to the
country’s history of prudent management of national resources and a
supportive monetary policy. The existence of a positive financial envi-
ronment prior to the global financial crisis enhanced government’s abil-
ity to continue providing economic and social services during the crisis.
2007 2009 2011 2013
Foreign currency reserves 9790 8558 8100 7600
(USD)
Balance of payments (P mil- 10694 -4563 3430 1340
lion)
Table 2: Foreign Currency Reserves (USD): 2007-2014
Source: Bank of Botswana 2015, p. 59.
172 Dorothy Mpabanga

3.4.3 Government expenditure


As shown in the table 3 below, the total government expenditure by gen-
eral, social and economic services and government spending did not
decline after the global financial crisis except declining slightly during
2010/11. The majority of the spending was on the provision of general
public and social services, particularly in the education and health sec-
tors with the construction of schools and provision of specialized health
care services (Bank of Botswana 2015).
Period 2007/08 2009/10 2011/12 2013/14
General Public Services 7041.8 9737.0 9826.3 11244.5
including Defense
Social services 11898.9 17969.2 17205.7 18844.1
Education 6224.2 9299.9 8379.9 9456.0
Health 2639.1 3372.1 4381.1 4531.1
Food and social welfare 586.7 727.1 719.1 1660.0
Housing, urban and regional 1880.8 3480.4 2861.6 1989.5
development
Other community and social 568.0 1089.8 864.0 1207.5
services
Economic services 3671.1 8388.5 8498.3 7954.8
Agriculture, forestry, and 843.4 1185.0 1289.4 1749.7
finishing
Mining 105.0 768.6 729.8 -137.1
Electricity & water 872.3 1857.2 2522.4 3429.2
Transport 1371.2 3489.6 3074.5 1800.4
Others 479.1 1155.1 882.1 1112.5
Transfers 2210.1 3394.6 3137.2 3686.4
Deficit grants to local
authorities
Interest on public debt 248.4 369.8 586.6 687.5
TOTAL EXPENDITURE 24821.9 39489.2 38667.5 41729.8

Table 3: Functional Classification of Government expenditure (P million): 2007-2014


Source: Bank of Botswana 2015, p. 70.

3.4.4 Economic growth


As shown in table 4 below, one of the major effects of the financial crisis
was on the growth of the economy, where the economy contracted from
8.3 per cent in 2008 and to a negative growth of 7.8 per cent during
2009. In addition the crisis affected the GDP per capita, which declined
Resilient Public Service Provision after the Global Financial Crisis 173

from 6.3 per cent in 2007 down to 2.0 per cent in 2008. The worst effect
of the crisis on GDP per capita was in 2009 when it declined to -9.5 im-
mediately after the crisis (Bank of Botswana 2015). The global financial
crisis also affected the country’s inflation as shown in table 4 below,
which increased from 10.7 per cent in 2007 to 16.7 per cent in 2008 and
declined to 2.8 by May 2015 (Bank of Botswana 2015). The last time the
country experienced similarly high annual inflation was in 1986 when it
was 16 per cent (Salkin et al. 1998).
Period 2007 2009 2011 2013 2015
May
GDP at constant market prices 8.3 -7.8 6.2 5.9
GDP excluding mining 14.5 5.0 7.9 5.2
GDP per capita 6.3 -9.5 4.2 3.9
Excluding mining 12.4 3.0 5.9 3.2
Annual Inflation per cent 10.3 5.4 7.1 6.7 2.8
Table 4: GDP growth (constant 2006 prices) and Inflation: 2007-2014
Source: Bank of Botswana 2015, p. 6.

3.4.5 Employment
As shown in table 5 below, the overall formal sector employment in
private, public enterprises and public sectors experienced a steady
growth despite the 2008 financial crisis. The only period total formal
employment declined was in 2010 when it declined from 384 633 to 361
267. A significant increase in employment was in local government,
mainly because of the self-help employment program (Ipelegeng: self-
reliance)which was introduced in 2009 in order to create jobs for the
unskilled and semi-skilled labour force in the country. The self-help
program was designed in order to address high unemployment of un-
skilled labour and to generate income for the unemployed poor in the
society. It is worth noting that the government was advised by the
IMF/World Bank to reduce the size of the public sector, particularly after
the global financial crisis when the country experienced prolonged budg-
et deficits for the first time in its history (Botswana Government 2015).
As shown in the table 5 below there was steady growth in employment in
government as government adopted the policy of freezing the establish-
ment of new positions. However, the rate of unemployment has re-
mained high in the country at 19.8 per cent in 2014 and it is one of the
174 Dorothy Mpabanga

biggest challenges facing the country, particularly youth unemployment


(Botswana Government 2015).
Period 2007 2009 2011 2013
Private and Parastatal 187 588 193 499 203 812 208 732
Government 88 521 96 167 103 056 104 541
Local government 25 869 94 968 72 009 86 257
Of which Ipelegeng - 66 806 43 651 60 623
Total 301 978 384 633 378 877 399 530
Unemployment (%)* 23.8 17.5 17.8 17.3
Table 5: Formal Sector Employment: 2007-2014
Source: Bank of Botswana 2014, p. 26; Malema 2014; ILO.

3.4.6 Salaries and wages after the financial crisis


As demonstrated in table 6 below, the average monthly salary and wage
earnings increased steadily in the government and private sectors after
the 2008 financial crisis. It is worth noting that the government did not
increase public servants' salaries after 2008 despite demands from trade
unions across the country to increase salaries and wages to compensate
for the increase in prices of goods and services, which affected the over-
all cost of living. The government informed public sector trade unions
and the public that salaries would not be adjusted or increased because of
budgetary constraints (deficits) due to the 2008 financial crisis. The gov-
ernment and trade unions were involved in contracted labour disputes in
2011 over salary increments and this resulted in Botswana experiencing
one of the longest strikes in the history of the country (Mmegi 2011).
Trade unions and the government have been negotiating since 2011
through the Bargaining Council and in 2014/15 an agreement was
reached to increase public servants' salaries by 6 per cent (Botswana
Guardian 2015). The salary increment was possible due to the improve-
ment in the government budget and the reduction in the deficit from the
2012/13 financial year as shown in table 7 below. There are variations
between payments to citizens and non-citizens as international workers
have to be given more pay and benefits in order to be recruited and re-
tained. It is worth noting that the monthly wage earned by employees
under the self-help program is very low, as shown in table 6 below,
compared to wages earned by others in government. This program is
administered by local authorities on behalf of the central government and
Resilient Public Service Provision after the Global Financial Crisis 175

was designed to provide modest income earnings for the unskilled poor
segments of the society. Due to high employment in the country, this
program has attracted poverty-stricken semi-skilled unemployed seg-
ments of the society, who have joined this program because they have no
alternative source of income.
Period 2007 2009 2011 2013
Monthly Wage Earnings
Citizens
Private & Parastatals 2942 3287 4392 4678
Local government 3294 3700 4478 4501
Including Ipelegeng - 1366 1970 1677
Central government 3928 5230 5992 7120
Total Citizens 3275 3939 4911 5442
Including Ipelegeng - 3293 4360 4661
Non-Citizens
Private & Parastatals 8894 9344 12275 13760
Local government 8364 14633 17221 16029
Central government 5479 10806 11758 13226
Total Non-Citizens 8584 9584 12315 13733
All sectors 3417 3990 4746 5009
Table 6: Employee Average Monthly wage earnings by sector & citizenship (Pula):
2007-2014
Source: Bank of Botswana 2014, p. 27.

The following table demonstrates the government budget and the deficits
experienced since the financial crisis and foreign exchange reserves and
other sources of revenue which were used to help the government cope
after the financial crisis.
Period 2007/08 2009/10 2011/12 2013/14
(Pula)
Total Revenue & Grants 28629.6 30023.1 38486.0 48951.3
Total Expenditure 24821.9 39489.2 38667.5 41729.7
Overall Surplus (+)/Deficit(-) 3807.6 -9466.1 -181.4 7221.6
Foreign currency reserves 9790 8558 8100 7600
(USD)
Table 7: Summary of Government budget: 2007-2014
Source: Bank of Botswana 2015; Botswana Government 2015.
176 Dorothy Mpabanga

4 Research methods
The purpose of this paper is to assess the extent to which the government
of Botswana provided public services after the 2008 global financial
crisis. This paper achieves this through a qualitative survey and docu-
mentary data analysis. Primary data was collected by quantitative means
through semi-structured survey questionnaires with open-ended ques-
tions. As shown in table 8 below, public perceptions were sought from
various categories of respondents in order to give their views regarding
public service provision after the 2008 global financial crisis. The survey
results are used to assess public perceptions on the impact of financial
crisis on the provision of social and economic service and respondents’
beliefs on how the government has managed the socio-economic services
after the crisis. In addition, the paper examines the critical success fac-
tors that supported the government’s ability to be resilient in providing
public services under such a turbulent global environment. These ques-
tions were asked using the Likert five point scale of agreeing or disa-
greeing to statements. SPSS software was used to analyze survey data
and frequencies were used to present data. A total of 100 survey ques-
tionnaires were distributed to respondents and there was a very good
response rate as 81 out of the 100 questionnaires administered were re-
turned as shown in the table below. The convenient non-random sam-
pling method was used to administer the survey questionnaire between
June and July 2015 in the capital city of Gaborone. Table 8 shows almost
a balance by gender as 54.5 percent of respondents were male and 45.7
per cent were female. Survey data was also collected by age group, em-
ployment status and educational level in order to obtain diverse views
across different strata of the purposely sampled population.
Resilient Public Service Provision after the Global Financial Crisis 177

Attribute Frequency (#) Percent (per cent) Cumulative


Gender
Male 44 54.3 54.3
Female 37 45.7 100
Total 81 100
Age Group
18-35 49 60.5 60.5
36-55 25 30.9 91.4
56-65 7 8.6 100
Total 81 100
Employment Status
Employed 50 62.7 62.5
Unemployed 30 37.0 100
Not Stated 1 1.2
Total 81 100
Educational Level
High School or Below 28 34.6 35.4
University Graduate 51 63.0 100
Not Stated 2 2.5
Total 81 100
Table 8: Respondents Attributes
Source: Author’s compilation.

The survey questions obtained opinions, perceptions, and beliefs of the


public on public service provision after the 2008 financial crisis. Re-
spondents were asked to state the extent to which they agree or disagree
on the following dimensions. In addition respondents were also asked to
rank the performance of government ministries and departments and
indicate how well the government has managed the economy since the
2008 financial crisis. A total of 22 government ministries and independ-
ent departments were obtained from the 2015 Botswana telecommunica-
tions telephone directory. The dimensions used in the research questions
were obtained from the literature reviewed (Stiglitz 2001; Bancel/Mittoo
2011; Hughes 2015; Heneman et al. 1988; Schaubroeck et al. 2008).
• Public sector budgeting and financial management after the global
financial crisis.
• Public service reforms.
• Public service provision.
178 Dorothy Mpabanga

• Critical success factors that enhanced government’s resilience in


public service provision after the financial crisis.
• Performance of government ministries and departments.
• Public service motivation.
• Human capital development.
In addition to primary data, documentary data sources obtained from the
government documents such as the national development plan, the budg-
et speech, central Bank’s annual report and the monthly financial statis-
tics on the following dimensions.
• Government budget (revenue and expenditure).
• Government income and expenditure by social and economic sector.
• Foreign exchange reserves.
• Employment.
• Inflation (changes in the cost of living).
• Average monthly salaries and wages.
• GDP growth and GDP per capita.

One of the limitations of this research is that a qualitative survey method


was used to obtain public perceptions regarding public service provision
after the 2008 financial crisis. The survey data was augmented by using
documented data sources obtained from the central bank’s financial sta-
tistics, the national budget speech and the national development plan.
Documented data sources covered the period before and after the global
financial crisis from 2007 to 2014. The second limitation is the use of
purposeful non-random sampling as opposed to other vigorous random
sampling methods. This will affect the generalization of findings of this
research as respondents might not be representative of the population.
Thirdly there are limited sources of similar studies conducted in the local
context to compare these findings regarding assessing the extent to
which Botswana was resilient in public service provision after the 2008
financial crisis. This limitation was mitigated by using experiences of
other African countries such as Uganda and South Africa in order to
compare Botswana’s resilience in dealing with and surviving the 2008
global financial crisis.
Resilient Public Service Provision after the Global Financial Crisis 179

5 Findings
The following section presents data and discusses findings to answer the
main research from respondents’ perceptions question regarding the ex-
tent to which the government of Botswana resiliently provided public
services despite the 2008 financial crisis. The data is presented and find-
ings are discussed according to the main research questions.

5.1 Public sector budget and financial management after the 2008
financial crisis
Public sector financial management is normally one of the areas affected
by any financial crisis. The 2008 global financial crisis posed budgetary
constraints, high borrowing costs and reduced revenue for many gov-
ernments including Botswana. As it emerged in the literature reviewed,
multiple suggestions were made to help governments to survive the fi-
nancial crisis including controlling government size and wage bill as
well efficiency in government spending. One of the objectives of this
research was to investigate the efforts made by the Botswana govern-
ment to control government expenditure after the financial crisis, par-
ticularly in the provision of social and economic services and the overall
management of public finances. Respondents were asked to indicate
their views regarding management of the national budget and controlling
public finances after the 2008 global financial crisis.

5.2 Managing the national budget


The majority of respondents were positive about the government’s ef-
forts to prudently manage national resources during the financial crisis.
For example, when asked whether government allocated the national
budget prudently since the crisis, 60.4 per cent supported this statement
while 65.4 per cent said the government responded well to the 2008 fi-
nancial crisis. However, 51.9 percent said government did not make
efforts to reduce the public expenditure since the financial crisis. Inter-
estingly almost 70 per cent felt that government spent less (69.1 per cent)
during the financial crisis and 70.4 per cent agreed that government was
very careful when spending public money during the crisis. In addition,
180 Dorothy Mpabanga

72.9 per cent disagreed that government was very wasteful with public
money during the crisis.

5.3 Public expenditure


Documented analysis confirms a continued increase in total public ex-
penditures after the 2008 financial crisis, particularly increased spending
in the provision of social and economic services (table 1). The continued
spending by government on general, social and economic services after
the financial crisis contributed to the country experiencing budget defi-
cits for the first time during the 2008/9 and 2011/12 financial years
(Bank of Botswana 2014, Botswana Government 2015). The financial
crisis also affected government revenue, particularly during the 2009/10
financial year, mainly due to a decrease in mineral revenue (Botswana
Government 2015). This situation was exacerbated by reduction in for-
eign reserves due to low interest rate earnings on reserves (Botswana
Government 2015). In this case the government continued to increase
recurrent expenditure despite reduced revenue and grants after the finan-
cial crisis as shown in table 1. The only period during which the gov-
ernment slightly reduced spending was during the 2010/11 financial year
when total expenditure went down from P39489 million in 2009/10 to
P383417 million (Bank of Botswana 2014).

5.4 Reducing the size of the public service after the financial crisis
As pointed out by Stiglitz (2001) international institutions such as the
World Bank and the IMF were advising governments around the globe to
cut public budgets, reduce government size and freeze employment in
order to reduce the government wage bill. One of the objectives of this
research was to explore the extent to which the government of Botswana
adhered to suggestions to control/curb government expenditure and re-
duce the public wage bill by freezing employment and not adjusting
salaries of public servants.

5.5 Freezing of employment


When asked to indicate if the government made a good decision to re-
duce its size by freezing the creation of new positions after the global
Resilient Public Service Provision after the Global Financial Crisis 181

financial crisis, the majority of respondents agreed (66.7 per cent) with
the government’s decision to freeze the establishment of new positions.
Surprisingly 74.1 per cent disagreed with the government’s decision not
to fill existing vacancies. Documented data indicates that total employ-
ment increased steadily from 301 978 in 2007 to 399 530 in 2013 (Bank
of Botswana 2015). In addition, employment figures in central govern-
ment increased steadily after the financial crisis, from 88 521 in 2007 to
104 541 in 2013 (as demonstrated in table 5). It is worth noting that total
employment increased after the financial crisis as a result of the self-help
employment program which was introduced by the government in 2009
in order to create jobs for semi- to unskilled labour (Botswana Govern-
ment 2015). However, the effects of the financial crisis were felt in local
government, where employment decreased from 94 968 in 2009 to 62
049 in 2010 and increased to 60 623 in 2013 (Bank of Botswana 2015).
Employment in the self-help program was also affected by the financial
crisis as employment under the program decreased from 66 806 in 2009
to 32 957 in 2010, though this figure increased to 60 623 in 2013 when
the economy recovered from the crisis.

5.6 Freezing salary and wage increment


One of the effects of global financial crisis was the increase in inflation,
which affected the cost of living, giving salaries and wages a reduced
purchasing power. In some instances governments, especially in devel-
oping countries, could have been tempted to agree to demands from pub-
lic servants to increase salaries. As pointed out by Busieka (2013) some
African countries such as Nigeria and Kenya had to deal with strikes
because of government refusal to increase salaries after the financial
crisis. One of the aims of this research was to explore respondents’ views
regarding the manner in which the government of Botswana handled
public servants' salaries and wages after the financial crisis. Freezing
salary and wage was one of the measures suggested by international
institutions to reduce the government’s bill (Stiglitz 2001).
Respondents were asked to state their views regarding government’s
decision not to adjust public servants' salaries after the financial crisis.
An overwhelming 75.3 per cent were against the government’s decision
not to adjust public servants' salaries after the crisis. Secondary data
182 Dorothy Mpabanga

suggests an overall increase in average earnings in central government


and across all sectors (private and public) before (2007) and after (2013)
the financial crisis (Bank of Botswana 2015). However, it is important to
note that the government did not adjust public servants' salaries after the
financial crisis to respond to the increase in the cost of living despite
demands by public servants to do so because of budgetary constraints
and this resulted in one of the longest strikes in the country (Mmegi
2011).

5.7 Human resource development


Human resource development is one of the macro-economic sub-sectors
a country could use to enhance its competitiveness and deliver services.
As shown in table 1 Botswana has, after gaining independence, invested
heavily in educating her nation as made evident by the education sub-
sector receiving the largest allocation in the national budget under social
services (Bank of Botswana 2015). One of the research questions was to
seek respondents' views regarding government expenditure on human
resource development after the financial crisis. When asked whether the
government should spend more on human capital development, an over-
whelming 86.5 per cent of respondents agreed that government should
spend more on educating the nation. Botswana has continued to invest
heavily in training and educating the nation and this trend has continued
into the millennium. This commitment is evident in the country’s budget
allocations over the years where more than 20 per cent of the national
budget was allocated to the ministry of education, skills and develop-
ment (Botswana Government 2003; 2015). In addition, the government
developed the training and localization policy in the 1970s after the
country gained independence and used mineral revenue to fulfill this
objective. A large number of those surveyed (86.5 per cent) felt that the
government should continue investing in developing its human resources
despite reduced revenue after the 2008 financial crisis. Documented data
indicates reduced spending on education after the financial crisis particu-
larly from the 2010/11 to 2012/13 financial year.
Resilient Public Service Provision after the Global Financial Crisis 183

5.8 Government’s resilience in service provision after the financial


crisis

5.8.1 Provision of social and economic services


The government’s resilience in the provision of social and economic
services after the global financial crisis was one of the main areas this
research investigated, as well as the ability of government to continue
providing services in the midst of the financial crisis, especially faced
with the fall in foreign exchange reserves and reduction in earnings from
mineral revenue. Secondary data suggests an overall increase in total
revenue and grants after the financial crisis except during the 2009/10
financial year (Bank of Botswana 2014; Botswana Government 2015).
However, total expenditure increased throughout the financial crisis ex-
cept during 2010/11, particularly spending on general, social and eco-
nomic services as shown in table 3. Government expenditure on general
public services decreased slightly from 9737 billion pula in 2009/10 to
9685 the following year (Bank of Botswana 2014).
The results of this survey indicated that most of the respondents (75.3
per cent) felt the government introduced new policies and programs
since the crisis while 69.2 per cent agreed that government should spend
public funds on social benefit programs. Interestingly, 74.8 per cent dis-
agreed that government is wasting money on social benefit programs.
One such social benefit program which was introduced in 2009 after the
financial crisis was the self-help employment program designed to bene-
fit the semi- to unskilled segments of the society by creating jobs for
them (Botswana Government 2015).
The majority of respondents supported the government’s move to in-
crease investment in the provision of economic services including the
decision to invest in infrastructural development (80.2 per cent) and in
utility public enterprises (81.5 per cent). It is surprising that respondents
supported the government’s increased investment in utility services de-
spite the fact that public enterprises that provide services in the water,
electricity, air and rail transport are not performing efficiently and effec-
tively in providing these services to the public (Botswana Government
2015). The country and the public are overwhelmed by regular power
184 Dorothy Mpabanga

cuts, water shortages that last for days and the national airline that is
failing to provide reliable and efficient air travel services. The national
railway service stopped providing passenger rail transportation service a
few years ago despite the government’s continued investment in the
railway public corporation which is not operating efficiently and effec-
tively, particularly in providing passenger rail services (Botswana Gov-
ernment 2005).

5.8.2 NPM: Privatization and PPPs


As mentioned earlier in this paper, privatization and public-private-
partnerships were used as alternative ways to enhance service delivery
and to improve the efficiency and effectiveness of public institutions.
Privatization and the use of PPPs are some of the new public manage-
ment and neo-liberal economic policies and concepts recommended by
international organizations. NPM has been used successfully by some
developed countries such as Australia and New Zealand in transforming
their public service to attain excellence in service delivery (Hughes
2015). The government of Botswana has applied NPM tools such as
performance management, the scorecard, privatization and PPPs in an
effort to enhance accountability, efficiency and effectiveness of the pub-
lic service in policy and program delivery.
Respondents were asked to indicate their views regarding privatization,
outsourcing and the use of PPPs as alternative ways to enhance service
delivery and reduce public expenditure after the 2008 financial crisis.
The majority of respondents were highly supportive of the idea of gov-
ernment to outsource more services (85.1 per cent), use PPPs to reduce
government spending (71.5 per cent) and that government should privat-
ize non-performing public enterprises (77.8 per cent). In addition, 70.4
per cent of respondents believed that government used alternative
sources of service delivery like outsourcing cleaning, laundry, catering
and gardening services since the financial crisis.

5.8.3 Improving service provision through outsourcing


One of the positive aspects of new public management is to involve the
private sector in delivering public services through outsourcing and con-
Resilient Public Service Provision after the Global Financial Crisis 185

tracting out with the objective of enhancing efficiency and effectiveness


in service delivery. Respondents were asked to indicate if outsourcing
has improved service delivery and enhanced efficiency in government.
The majority of respondents (56.8 per cent) were of the view that out-
sourcing has not improved service delivery while 35.8 per cent believed
incidents of corruption have increased since the 2008 financial crisis. A
high number of respondents (76.5 per cent) felt that government should
outsource more non-essential services in order to improve service deliv-
ery. In addition respondents felt that the government was not careful
when using the procurement processes to reduce public expenditure as
53.1 per cent agreed to this statement, while 64.2 per cent felt govern-
ment was not careful in project implementation and monitoring since the
2008 financial crisis. However, only 53.0 per cent agreed that govern-
ment has spent more money through the procurement and outsourcing
processes since the financial crisis.

5.9 Sustainability in public service provision after the financial


crisis
Sustainable management of public finances is one area that is associated
with public sector finance. Sustainability refers to the ability of the gov-
ernment to maintain or sustain its expenditure in the long term before
exhausting national coffers or savings in the form of foreign exchange
reserves. Botswana has over the years managed the national budget and
developed good macro-economic and monetary policy to manage the
country’s resources. This is evident from the large earnings from foreign
exchange reserves, which have accumulated and grown to USD 9790
before the financial crisis (Bank of Botswana 2014). However, the for-
eign exchange was affected by the global financial crisis and declined
from USD 9118 in 2008 to USD 7600 in 2013 (Bank of Botswana 2014).

5.9.1 Sustainability in management of the national budget


Most of the respondents felt that government was managing the national
budget in a sustainable way (65.4 per cent) and that the country’s finan-
cial resources were managed in a sustainable way (56.8 per cent). Evi-
dence from secondary data sources point to unsustainability of public
186 Dorothy Mpabanga

spending as government increased recurrent expenditure leading to


budget deficits after the financial crisis (Bank of Botswana 2014).

5.9.2 Sustainability in public expenditure


Respondents also believed that public expenditure on the provision of
social and economic services was sustainable. For example 63.0 per cent
of respondents agreed spending on education was sustainable, spending
on health was sustainable (65.5 per cent), and that spending on infra-
structure was sustainable (50.6 per cent). However, respondents were of
the view that government expenditure on some social and economic ser-
vices was unsustainable. For example only 35.8 per cent agreed that
spending on utility corporations was sustainable, while 50.7 per cent
disagreed. In addition only 32.1 per cent of respondents agreed that gov-
ernment spending on social benefit programs was sustainable, while 56.8
per cent disagreed. An overwhelming majority of respondents were of
the view that the government wastes national resources (71.6 per cent).
Surprisingly, 77.7 per cent of respondents disagreed that government
spent money like there is no tomorrow. However, the majority of re-
spondents supported government programs to empower Batswana (74.0
per cent) and spending money to reform the public service (59.3 per
cent).

5.10 Excellence in service provision after the crisis

5.10.1 Performance of government ministries, independent de-


partments and utility corporations
One of the major objectives of NPM is to promote excellence in service
delivery where entrepreneurship is introduced in doing government
business by involving the private sector. As this research explores provi-
sion of public services after the 2008 financial crisis, one of the research
questions was to request respondents to rank government ministries in
terms of the best in service delivery. Respondents were asked to rank 22
ministries and independent departments from one to ten, one being best
performer to 10 being the worst performer. The following table shows
the best performer to be the ministry of Trade (11.1 per cent) and the
Resilient Public Service Provision after the Global Financial Crisis 187

worst performer to be the Ministry of Minerals, Energy and Water Re-


sources (64.2 per cent). This might be explained by the inefficiency and
ineffectiveness of energy (electricity) and water sectors in proving the
nation with power and water services. The power and water utility cor-
poration are performing badly in terms of service provision as the coun-
try is in dire shortages of electricity and water and this compromises
productivity, investment and affects the overall quality of life as the pub-
lic has to survive with no electricity and water for days. As shown in the
graph below most ministries were ranked as average performers.
Best Performing Ministry in Service Delivery Ranked
1-3
1. Ministry of Trade 1: 11.1%
1-3: 40.0%
2. Ministry of Local Government and Rural De- 1: 4.9%
velopment 1-3: 29.1%
3. Independent Electoral Commission (IEC) 1: 4.9%
1-3: 28.3%
4. Ministry of Finance and Development Planning 1: 2.5%
1-3: 28.%

Worst performing Ministry in Service Delivery Ranked


8-10
1. Ministry of Minerals, Energy and Water Re- 10: 64.2%
sources 8-10: 75.3%
2. Ministry of Education and skills Development 10: 19.8%
8-10: 40.8%
3. Ministry of Transport and Communication 10: 0
9: 8.6%
8-9: 24.6%
7-9: 39.4%
Table 9: Ministry’s ranking in service delivery
Source: Survey data, June-July 2015, by Dorothy Mpabanga, Gaborone, Botswana.

5.10.2 Best department in service delivery


The researcher used an open-ended question to ask respondents to list
government departments from one to three in terms of the best and worst
in service delivery. The results are shown in the table and graph below.
188 Dorothy Mpabanga

The best in service delivery is the Ministry of Labour and Home Affairs
and the worst in service delivery is the Ministry of Health.
Best departments in Service delivery Listed as Best

1. Department of Labour and Home Affairs 18.5 %

2. Department of Youth and Culture 13.6 %

3. Department of Lands and Housing and Office of 11.1%


the Ombudsman

Listed as worst departments in Service Delivery Listed as Worst

1. Ministry of Health 21.0%

2. Local Government 19.8%

3. Ministry of Education & Skills Development 14.8%

Table 10: Ranking of departments in service delivery


Source: Survey data, June-July 2015, by Dorothy Mpabanga, Gaborone, Botswana.

5.10.3 Motivation to serve the public


Respondents were asked questions regarding extrinsic motivation of
public servants to serve the public and to provide services to the public.
Extrinsic motivation and public servants pay:
A high number of respondents felt that public servants who perform their
duties well should get a pay increase (83.9 per cent) and a higher number
said salary increase should be strictly based on performance (77.8 per
cent). Interestingly, 85.0 per cent felt that high performers and low per-
formers seem to get the same pay rise. Though 50.6 per cent of respond-
ents agreed that government should not adjust public servants during a
financial crisis, an overwhelming 82.8 per cent agreed that government
should adjust public servants' pay to provide for increases in the cost of
living. This is a reflection of the effects of the 2008 financial crisis on
the cost of living as prices of goods and services increased, for example
inflation increased from 10.3 per cent in 2007 to 16.3 per cent in 2009
(Bank of Botswana 2015).
Resilient Public Service Provision after the Global Financial Crisis 189

Intrinsic motivation to serve the public:


Regarding intrinsic motivation, 88.8 per cent of respondents felt that the
government should hire people who enjoy serving the public and that the
public sector needs leaders who inspire and commit to service delivery
(88.8 per cent). In addition, respondents felt that government should hire
leaders and supervisors who inspire and engage staff (85.1 per cent).
Interestingly, 44.4 per cent of respondents were of the view that people
who are motivated by high salaries belong to the private sector while
58.0 per cent agreed that government should hire people who are not
motivated by high salaries. This is very interesting because hiring people
who are motivated to serve the public will enhance service delivery,
particularly if people with the motivation to serve the public are hired
mainly to middle and higher management, as they will inspire employees
at the lower ranks ‘to walk the walk’.

5.11 Managing excellence in public service after the financial crisis


A high percentage of respondents (90.1 per cent) were of the view that
government should hire supervisors who praise staff for successful per-
formance and respondents agreed that supervisors should reward good
performers (95.1 per cent), nurture good performers and talent (93.8 per
cent), and implement HR policies fairly, consistently and transparently
(92.6 per cent). In addition, 83.9 per cent of the respondents surveyed
believed that supervisors should not protect poor performers while 84.0
per cent were adamant that supervisors should explicitly confront and
immediately deal with poor performers and supervisors should stop re-
warding poor performers (81.4 per cent). One of the major achievements
of the Australian government was the creation of excellence in service
delivery by committing and implementing reforms like no other county
in the world (Hughes 2015). Botswana could also learn from Australia’s
experience by “walking the reforms talk”. Training and development
was viewed as an important aspect in improving delivery of services as
evidenced by 91.4 per cent of respondents who agreed that government
should train and develop staff to deliver better services, and 85.1 per cent
said leadership should be coached and mentored to walk the talk. In ad-
dition 90.2 per cent felt that staff should be trained and developed in
order to do their best in their work.
190 Dorothy Mpabanga

5.12 Post-NPM and managing the economy after the financial crisis
The post NPM era and the 2008 financial crisis period were assessed in
this research by asking respondents' views regarding issues relating to
the post-NPM era and government’s management of the economy after
the crisis. Respondents were asked the extent they agreed or disagreed
with statements relating to the reforming the public service after the cri-
sis, including retrenchment, engaging citizens on issues of national con-
cern, acting in public interest during a financial crisis and management
of the economy since the 2008 crisis. About of half of those surveyed
felt government should not re-trench employees after the 2008 financial
crisis, as 50.6 per cent of respondents disagreed with this statement.
Most of the respondents agreed that government must engage citizens
more on issues of public concern (88.9 per cent) and that government
must act in public interest during financial crisis (87.7 per cent). In addi-
tion, respondents agreed that government should be more careful when
spending public money (88.9 per cent) and were of the view that gov-
ernment should spend less during financial crisis (77.0 per cent). A high
number of respondents agreed that the government should be more care-
ful with financial management when resources are scarce (90.1 per cent).
Surprisingly, only one third (29.6 per cent) of respondents agreed that
government should increase public servants' salaries in times financial
crisis, while almost half of those surveyed disagreed with this statement
(49.5 per cent). This indicates a concern among the public surveyed that
government should manage national resources in a sustainable manner
during a crisis.

5.13 Managing the economy after the 2008 financial crisis


As shown in the table 11 below, overall the majority of respondents felt
that the government managed the economy well (86.4 per cent) after the
financial crisis. Respondents also felt the government managed the na-
tional budget well (75.2 per cent). However slightly over half of re-
spondents felt the government managed public spending well (56.7 per
cent), while almost 40 percent (38.3 per cent) said that government man-
aged public spending poorly. Therefore overall, those who were sur-
veyed felt the government did a good job in managing the economy and
did not do well in managing public spending and reforms.
Resilient Public Service Provision after the Global Financial Crisis 191

Government: E V W N P T M
Managing 6.2% 33.3% 46.9% 8.6% - 95.1% 4.9%
the economy (77) (4)
Managing 4.9% 22.2% 48.1% 19.8% - 95.1 4.9
the national (77) (4)
budget
Managing 1.2% 18.5% 37.0% 30.9% 7.4% 95.1 4.9
public (77) (4)
spending
Managing 6.2% 25.9% 28.4% 24.7% 9.9% 95.1 4.9
public sector (77) (4)
reforms

Table 11: Perceptions about Management of the Economy after the crisis
Source: Survey data, June-July 2015, by Dorothy Mpabanga, Gaborone, Botswana.
Agenda:
E= Exceptionally well
V= Very well
W= Well
N= Not well
P= Poorly/not well at all
T= Total (%) (n=81)
M= Missing

6 Discussion and conclusions


The section that follows summarizes findings from this research accord-
ing to the four main research questions by use of primary and secondary
data. The survey firstly explored public sector budgeting and financial
management after the financial crisis and secondly assessed public sector
reforms and resilience in service provision after the crisis. Thirdly the
critical success factors that sustained public service provision after the
crisis was assessed. Finally, efforts made by the government to attain
excellence in managing the economy after the 2008 financial crisis were
investigated.

6.1 Managing the national budget


Findings from primary data suggest that majority of respondents were of
the view that government allocated the national budget prudently
(60.4%) and responded well to the financial crisis (65.4%), while sec-
192 Dorothy Mpabanga

ondary data sources suggested government increased expenditure and


this contributed to the country experiencing budgetary deficit after the
financial crisis (Bank of Botswana 2015).

6.2 Reducing public sector size / Freezing employment after the


crisis
Empirical data indicates that respondents supported the government’s
efforts to freeze creation of new positions in the public service (66.7%),
while secondary data sources suggests a steady increase in employment
after the financial crisis from 301 978 in 2008 to 399 530 in 2013 (Bank
of Botswana 2015). However, primary data revealed that those surveyed
were against the government not filling existing positions (74.1%).

6.3 Freezing salaries and wages increment


The majority of those purposely sampled disagreed with the government
decision not to adjust salaries and wages of public servants (75.3%) to
compensate for an increase in the cost of living after the crisis while
secondary data sources suggest a steady increase in average earnings in
the private and public sectors (Bank of Botswana 2015).

6.4 Human resource development


The research revealed that an overwhelming number of respondents sup-
ported the government’s efforts to invest in the training and development
of the country’s human capital as over 80 per cent agreed to the state-
ment. Secondary data also shows the government allocating the largest
share of the budget to educational services (Bank of Botswana 2015).

6.5 Provision of social and economic services


Almost 70 per cent of respondents supported the government spending
money on the provision of social benefit programs and an overwhelming
80 per cent supported the government’s investment in economic services
including investment in utility enterprises. However 77 per cent felt the
government should privatize non-performing public enterprises. Second-
ary data revealed increased expenditure on social and economic services
Resilient Public Service Provision after the Global Financial Crisis 193

through the financial period and this resulted in the country experiencing
budget deficits from 2009 to 2012 (Bank of Botswana 2015).

6.6 NPM and neo liberal economics


The findings of this research suggest 85.1 per cent of those who were
purposely sampled supported the government’s efforts to outsource ser-
vices to the private sector, though 56.8 per cent were of the view that
outsourcing has not improved service delivery. There were also concerns
from over 60 per cent of respondents who felt government should en-
hance projects and program implementation, monitoring and evaluation.

6.7 Sustainability in management of national budget after the


crisis
The majority of those sampled felt that government is managing the na-
tional budget in a sustainable manner including expenditure on educa-
tion, health and infrastructural development.

6.8 Managing the economy after the crisis


A very high number of respondents felt that government managed the
economy (86.4 per cent) and the national budget (75.2 per cent) well
after the crisis, while government scored lower in managed spending
(56.7 per cent) and reforms (60 per cent).

6.9 Success factors contributing to resilience in service provision


after the crisis
One of the major findings from this research is that the government of
Botswana was able to resiliently provide public services despite the 2008
financial crisis. The provision of public services mainly was made possi-
ble firstly because of the positive macro-economic environment which
existed prior to the occurrence of the financial crisis. As mentioned ear-
lier in the paper, Botswana had over the years established a good macro-
economic foundation by prudently managing the country’s resources and
the economy very well. Before the emergence of the 2008 financial cri-
sis, the country had critical success factors including a stable political
194 Dorothy Mpabanga

and economic environment, accumulation of foreign exchange reserves


due to good monetary policy and prudent management of mineral reve-
nue as well as established and supportive administrative structures and
legal environment. Therefore these pre-existing factors contributed to
government’s resilience in public service provision and the mineral rev-
enue accumulated over the years enabled government to sustain the
economy against external shocks such as the 2008 global financial crisis.
As evident from documented data, the country has accumulated foreign
exchange reserves of USD 9790 by 2007 before the commencement of
the global financial crisis (Bank of Botswana 2015), although by 2013
the reserve had decreased to USD 7600. In addition, sustainability of
public finances after the financial crisis was made possible by the coun-
try reserving surpluses during times of abundance as well as through
prudent management of national finances. The only period the country
experienced prolonged deficits was after the 2008 financial crisis as the
government made efforts to continue to general, social and economic
services and thus increased expenditure, resulting in deficits in the midst
of the crisis. As evident in tables 12 and 13 below, empirical data col-
lected revealed positive public perceptions where those surveyed felt the
government responded well to the crisis, managing the economy and the
budget well. Respondents also supported the government’s decision to
freeze employment after the financial crisis though respondents felt gov-
ernment should have filled vacant positions. Respondents also supported
government spending on social services including investment in human
development. As shown in table 13, secondary data on financial man-
agement revealed increased spending on social services and reduced
government revenue due to reduction in revenue from diamond exports
and this resulted in a budget deficit after the crisis for the first time in the
country.
Resilient Public Service Provision after the Global Financial Crisis 195

Botswana: Public Sector Public Per- Per-


Success Reforms ceptions** cent
Factors Resilient (%)
Service (N=81)
Provision
Political & 1970s/80s Financial
economic Re-organization, Manage-
stability. Job evaluation, ment 60.4%
Peaceful & Work improve- Government
united nation. ment teams allocated
Good fiscal (WITS), decen- national 65.4%
management. tralization, budget pru-
Least corrupt dently after
country. the crisis.
Government
responded
well to the
crisis.
1990s/2000s Employ-
New Public Man- ment 66.7%
agement Supported
Privatization, freezing of
Outsourcing. employment
Economic Performance after the
and Social Rank Score Management crisis. 74.1%
Indicators* systems (PMS).
Balance Score Government
Card (BSC), should have
Re-engineering of filled vacant
processes positions.
Corruption 2000-2015 Salary In-
Perception 31/175 63/100 Results based crement
Index (2014) 49/71 79 manage- Did not 75.3%
Financial 51 ment/Accrual support
Secrecy Index 79/142 4.06/7 financial man- govern-
(2011) agement, ment’s deci-
Open Budget 0.633 e-government/e- sion not to
Index services, adjust sala- 80%
(2010) 118/187 Public-Private ries.
Global Com- Partnerships
petitiveness medium (PPPs). Human
Index (2012- Reform Out- Develop-
2013) comes ment
Human De- Strategic plan- High support
velopment ning, Alignment for invest-
196 Dorothy Mpabanga

Index of national plan, ment in


(2011) national vision, human de-
Human De- and ministerial velopment.
velopment mission and ob-
(2011) jectives, perfor-
mance based
reward system
(PBRS).
Judicial Inde- 25/142 5.4/7 Social Ser-
pendence vices
(2012-2012) 68 0.66 Supported 70%
Rule of Law increased
(2010) spending on
social ser-
vices.
After NPM Managing
Poor service the Econo-
delivery. my
Poor M & E. 86.4%
Poor work ethic. Government 75.2%
Low levels of managed the 56.7%
productivity. economy 60%
Increasing inci- well.
dents of corrup- Managed the
tion in the pro- budget well.
curement process Managed
and public admin- spending
istration. well.
Inefficiency and Managed
ineffectiveness reforms well.
Table 12: Botswana: Resilient Service Provision Before and After the 2008 Global Fi-
nancial Crisis
*Source: Transparency International 2015; ** Survey data June- July 2015, by Dorothy Mpabanga,
Gaborone, Botswana; Botswana Government 2009.
Resilient Public Service Provision after the Global Financial Crisis 197

Before the Financial Crisis After the financial crisis

2008/9 2010/11 2012/13 2013/14


Total Revenue & Grants 30455.1 31909.4 41657.8 48951.3
Total Expenditure 35150.7 38417.5 40736.1 41729.7
Overall Surplus (+)/Deficit (-) -4695.6 -6508.0 921.7 7221.6
Foreign currency reserves (USD) 9118 8117 7800 7600
Social services 15609.4 17110.2 17236.8 18844.1
Economic services 7438.1 8330.4 8212.9 7954.8
DGP Growth (constant market prices) 3.9 8.6 4.3 5.9
%
Annual Inflation (%) 16.7 6.2 7.5 6.7
Unemployment 17.3
Total monthly average wage: citizens 3558 4344 5071 5442
Total monthly average wage: Non- 8993 10040 14182 13733
citizens

Table 13: Government Budget before and after the Financial Crisis: 2007-2014
Source: Bank of Botswana 2015; Botswana Government 2015; ILO.

7 Conclusion
The paper assessed the public service provision after the 2008 global
financial crisis in public Botswana. On the overall, it emerged from doc-
umented data analysis that the government was able to be resilient in the
provision of social and economic services after the 2008 financial crisis.
This was also supported by respondents’ perceptions from the analysis of
the survey where respondents felt government has managed the economy
and the national budget well. Secondary sources revealed that govern-
ment was able to be resilient in service provision due to the environment
existing prior to the 2008 financial crisis. Botswana has over the years
managed its diamond revenue carefully and has established good finan-
cial management and governance principles. For example, one of the
good qualities the country is known for is the prudent macro-economic
management and well-endowed foreign exchange reserves that can cover
up to 18 months of imports of goods and services (Botswana Govern-
ment 2015). In addition, a stable economic and political environment, a
supportive legislative framework as well as good credit standing accord-
ed by international financial rating institutions such as Standard & Poor
198 Dorothy Mpabanga

enhanced the country’s ability to withstand the crisis. In addition, con-


tinuously reforming the public service in financial management, perfor-
mance and strategic management, re-engineering processes, privatization
and reforming governance structures to promote accountability and
transparency has helped the country survive the crisis. Primary data re-
vealed that the government was able to manage the economy and the
national budget well during the crisis by investing in social and econom-
ic services, though respondents were concerned with government’s ca-
pacity to implement, monitor and evaluate projects and programs.
However, the research revealed that despite the positive environment
that existed at the time of the crisis, the 2008 financial crisis has affected
the national budget through reduction in mineral revenue and increased
government spending leading to Botswana experiencing budget deficits
from 2008-2011. The effect of the financial crisis was also felt in high
unemployment and reduced buying power due to the high cost of living,
as the government did not agree to increase salaries due to budget defi-
cits. Despite the above negative effects, the financial crisis did not dis-
courage the government from providing general, social and economic
services to the public. This resilience was made possible by the positive
macro-economic environment that existed prior to the crisis which facili-
tated and supported the government’s ability to handle and deal with the
financial crisis. Therefore, the prudent macro-economic management,
accumulation of foreign exchange reserves and a strong financial stand-
ing existing prior to the crisis helped the government continue to provide
public services in the midst of the global financial crisis. One of the ma-
jor areas the government needs to improve was the poor services provid-
ed by some public enterprises, particularly the water and electricity utili-
ties. The government also needs to enhance capacity in project and pro-
gram implementation, monitoring and evaluation. Future research should
use qualitative and qualitative approaches with vigorous random sam-
pling methods in order to enhance generalisation of findings.
Resilient Public Service Provision after the Global Financial Crisis 199

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Missing the Big Picture on State-Owned En-
terprises: Quality of Aggregate Holdings Re-
porting of Public Administrations and Reform
Implications
Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

Summary:
In the context of current debates on sustainable public service provision,
austerity, debts, and cutback management, the governance and manage-
ment of and in State-Owned Enterprises (SOEs) is imbued with special
relevance. An aggregate holdings report (AHR) is an important tool for
public administrations to provide accountability for SOEs and the neces-
sary overview of the institutional structures of the core administration
and SOEs. This study analyses the quality of AHR in Austria, Germany,
and Switzerland on the basis of a quality model with 175 criteria. Find-
ings show that public administrations in many cases do not meet the
identical requirements from theory and practice. Laws on AHR are nec-
essary to ensure the realization of policy goals. First, the study provides
a conceptual contribution for assessing AHR and for future research on
the issues of the model categories. Second, empirical insight into quality
patterns of AHR is provided. The model enables one to answer questions
which are often raised in the reform debates, such as, “which AHR can I
use as a reference to further develop my own AHR?” The study offers
valuable new insights which can enhance sustainable management and
control of SOEs.
Keywords: Aggregate Holdings Report, Public Corporate Governance,
Quality, State-Owned Enterprises

1 Introduction
Reforms in the provision of public services with new institutional ar-
rangements have made State-Owned Enterprises (SOEs) increasingly
relevant in many countries. Newer and older studies for different coun-
tries demonstrate the significant role of SOEs in terms of their economic

© Springer Fachmedien Wiesbaden GmbH 2017


R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_10
204 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

relevance as well as their relevance for providing public services (Bruton


et al. 2015; Millward 2011). Worldwide, SOEs represent approximately
10% of global GDP and joint sales of $3.5 trillion (Bruton et al. 2015).
For instance, empirical studies for Germany show that 50% of the em-
ployees in the public sector do not work in the core administration but in
in SOEs and comparable public organisations. SOEs undertake more
than half of the public sector’s investments and the debt ratio of SOEs is
often even higher than in the core administration (Bertelsmann Founda-
tion 2008; 2013). For other European and non-European countries, stud-
ies show similar tendencies (Millward 2011). The governance and inte-
grated management of core administration and SOEs is a crucial issue on
a national and international level: not only for public management re-
search, but also for the big societal issues such as sustainability, debt
crises, cutback management, and citizen engagement (OECD 2015;
Kwon et al. 2013; Osborne 2014).
The changes in the institutional arrangements of public service provision
have led to different requirements in accountability and transparency.
Steering and control deficits have raised discussions in various countries
about the accountability of SOEs (OECD 2015; Grossi et al. 2015;
Verhoest et al. 2012). The Organisation for Economic Co-operation and
Development (OECD) requires the ownership entity to publish an annual
AHR on SOEs (OECD 2015, sec. VI, C). Among other requirements, it
is especially necessary to examine how public administrations report on
the public service mission, the performance, debts/credits, and the gov-
ernance of their SOEs (Verhoest et al. 2012, Grossi et al. 2015). To ad-
dress these challenges, an AHR prepared and published by the public
administration is the necessary basis for citizens to obtain a systematic
overview of the spending of funds by SOEs and thereby understand the
effects of the SOEs on the sustainable provision of public services in
their city (Verhoest et al. 2012; OECD 2015). AHRs are seen as an in-
strument for establishing transparency, providing fundamental infor-
mation, and thus increasing the steering and control possibilities for the
system of holdings management and the overall public administration’s
strategic management. For public administration and policy making, an
AHR has to provide a complete overview of the enterprise portfolio and
single SOEs to organise public service provision in a holistic, outcome-
oriented and sustainable way as well as to identify future potentials
Aggregate Holdings Reporting of Public Administrations 205

(OECD 2015). Furthermore, AHRs are an important tool for enhancing


public relations work of public administrations and SOEs, especially due
to the holistic overview of public tasks provided for citizens by SOEs.
Thus, the information which should be disclosed in AHR and also the
following discussion on the quality of AHR are important and urgent
issues for researchers and practitioners.
Despite this relevance and in contrast to the analysis of the diffusion of
other instruments, studies on AHR by public administrations are sparsely
available and especially internationally comparative studies are missing.
To date, there has only been one study which assesses AHR on a local
level in three countries based on the first quality model with 75 criteria
(Papenfuß 2014). In the last years, there has been an increasing trend
toward comparative international research which focuses on broad sam-
ples and comparisons between different levels of government. Addition-
ally, there have been significant international developments in the re-
quirements for the governance of SOEs such as frameworks, regulations,
and directives e.g. by the EU, OECD, and World Bank, which should be
taken into account. Against this backdrop, the aim of this paper is to use
a quality model to assess the quality of AHR in Austria, Germany, and
Switzerland.

2 Theoretical Conceptualisation and Derivation of the


Quality Model
SOEs are defined as enterprises where the state has significant control
through full, majority, or significant minority ownership (OECD 2015).
In this context, the definition should also include enterprises where mu-
nicipalities and other government levels/public administrations have
significant control.
The OECD’s Guidelines on Corporate Governance of State-Owned En-
terprises, which were published in 2005 and revised in 2015, state that:
‘The ownership entity should develop aggregate reporting that covers all
SOEs and make it a key disclosure tool directed to the general public, the
legislature and the media. This reporting should be developed in a way
that allows all readers to obtain a clear view of the overall performance
and evolution of the SOEs. In addition, aggregate reporting is also in-
206 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

strumental for the ownership entity in deepening its understanding of


SOE performance and in clarifying its own policy.’ (OECD 2015, sec.
VI, C).
In line with the literature, we define quality of AHR as properly fulfilling
theoretical and practical requirements and fitness for use by practitioners
(International Organisation for Standardization/ISO 9000:2015, 3.6.2;
Bovaird and Löffler 2003; Crosby 1992; Juran 1988). The enhanced
model developed for this study consists of 13 major categories with 175
criteria (see Appendix). The criteria of the quality model on AHR are
derived from the concept of accountability and a combination of theo-
ries, and practitioners’ demands (see Figure 1).
Aggregate Holdings Reporting of Public Administrations 207

Theoretical and Practical Requirements Model Categories

Mitigation of Information Asymmetries 1. General


Agency Theory between Citizens, Politicians, Administration Information*
etc. and SOEs

Property Rights Information Access on Clear Property


2. Organisation
Theory Rights, Responsibility and Responsibility Chart and
Structures within SOEs Summary Table
Stakeholder Appropriate Information about SOEs for All 3. Financial
Theory Relevant Stakeholders Ratios*

Forming Confidence and Trust by Disclosing 4. Personnel /


Stewardship Crucial Information on SOEs Staff*
Theory
Transparency and Diversity Requirements 5. Corporate

Quality of AHRs
(European Commission 2009, 2011, 2012; Goals
European Parliament and the Council 2006a,
2006b, 2014a, 2014b) 6. Financial
EU Relationships
“The ownership entity should develop btw.
consistent reporting on SOEs and publish City and SOE
annually an aggregate report on SOEs”
OECD (OECD 2015, VI, C)
7. Public
Need for Disclosing Financial Information, Service
Corporate Goals, Public Subsidies, Provision Ratios
World Bank Relationships betw. SOEs and other Bodies,
Management Board, Ownership Structure, 8. Management
Public Service Provision Board
(World Bank 2014)
9. Supervisory
Various content-related Demands for Body
Scientific Information Access on SOEs such as Public
Literature Purpose, Goals, Financial Figures and 10. Audit
Relationships, Board and Audit Information Information
. SOE information.
Categories marked with * appear in both dimensions: aggregate and individual
Other categories only occur in the dimension on individual SOE information

Figure 1: Derivation of Aggregate Holdings Reports Quality Model Criteria and


Categories
Source: Authors’ compilation.

In the perspective of Agency Theory, delegating tasks to different public


sector organisations leads to increased information asymmetries between
principals such as the public administration and agents such as the SOEs.
208 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

Here, possible opportunistic behaviour of the agent can appear (Hodges


et al. 1996). Thus, AHRs therefore have to minimize information asym-
metries in neuralgic fields between agents and principals (Van Slyke
2007; Whincop 2005). Especially in areas where monitoring of SOEs is
difficult and opportunistic behaviour is particularly likely to appear,
AHRs need to provide carefully targeted information. Access to neces-
sary information must be granted to all principals without high expendi-
ture, delay, distortion or loss in order to enable effective and comprehen-
sive management.
Stewardship Theory places higher emphasis on actors’ mutual alignment
with overall objectives and assumes cooperative, collective, and pro-
organisational behaviour. Here, intrinsic motivation, cooperation, trust-
worthiness and open information exchange are underlying motives for
action (Van Slyke 2007). AHRs are necessary to develop trust between
different actors through transparent communication and reporting (Davis
et al. 1997). This could be achieved by disclosing information on public
purpose fulfilment and strategic, outcome, and operative goals.
In perspective of Property Rights Theory, clear rights, responsibilities,
and obligations of relevant actors of SOEs have to be displayed in AHR
(Klein et al. 2012; Demsetz 1967). Thus, AHR must clearly show which
actors have which property rights. This includes information on respon-
sibilities of individual persons and committees within the management
board and supervisory body but also clear responsibility structures for
controlling and reporting on SOEs.
Stakeholder Theory demands that all stakeholders need to be adequately
informed about SOEs with low effort and without distortion and delay
(Donaldson/Preston 1995; Bryson 2004).
In addition to those theoretical requirements, the quality model criteria
have also been derived from relevant requirements from international
organisations such as the OECD, EU, and World Bank but also from
scientific literature:
General Information / Organisation Chart and Summary Table: Among
others, the OECD, the European Commission and the World Bank re-
quire aggregate and individual information on SOEs to be disclosed.
Aggregate Holdings Reporting of Public Administrations 209

Direct and indirect holdings with majority interest and share capital,
balance sheet totals as well as turnover and employee information should
be displayed in organisation charts and tables (OECD 2015; World Bank
2014; European Commission 2011; Bovens 2010; Whincop 2005).
Financial Ratios and Relationships between Public Authority and SOE:
Financial and operational results of SOEs as well as costs to fulfil the
public purpose should be disclosed. In particular, this includes balance
sheet totals, total investments, capital and asset structure, profit situation,
expected liabilities, as well as several other relevant financial ratios but
also financial relationships between public administration and SOEs
(OECD 2015; World Bank 2014; Wong 2004; Whincop 2005).
Personnel / Staff: SOE staff structure and relevant gender equality as-
pects like representation of women on boards, further management lev-
els, and in the whole staff should be disclosed in AHR (European Par-
liament and the Council 2006a, 2014a; European Commission 2012;
Bovens 2010).
Corporate Goals and Public Service Provision Ratios: Corporate goals,
strategic, operative, and especially outcome goals as well as the public
purpose of the SOEs should be stated. AHR should also disclose public
service provision ratios and sustainability and environment-related in-
formation (OECD 2015; European Parliament and the Council 2014a;
World Bank 2014; Schedler and Proeller 2010; Jung 2014; Wong 2004).
Management Board and Supervisory Body Information: The disclosed
information should include the names, and detailed statements on com-
pensation structure. Furthermore, board/body member qualifications,
selection process and board diversity should be displayed and explained
(OECD 2015, sec. VI, A; Tricker 2012; European Commission 2009;
European Commission 2011).
Audit Information: Regarding the international discussions on audit of
SOEs, it is especially important that AHR disclose the external auditing
companies of the last years as well as a statement on the independence of
auditors and on the separation of audit and consulting (OECD 2015;
Tricker 2012; European Parliament and the Council 2014b; European
Parliament and the Council 2006b).
210 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

3 Research Approach and Methodology


The new model consists of 175 criteria in 13 categories (see Table 1 and
Appendix). It can be fulfilled by using tables and only little written in-
formation to avoid information overload.1 The criteria have been ap-
praised for relevance and discussed with practitioners. Criteria which did
not meet the relevance appraisal have been deleted from the final model.
A criterion was coded as “fulfilled” if at least 70% of the respective
SOEs within an AHR fulfilled this criterion. In related research in other
fields, both weighted and unweighted disclosure indexes have been used
to measure disclosure. Both approaches to measuring disclosure have
their weaknesses. For example, using an unweighted disclosure index
faces criticism for its fundamental assumption that all items are equally
important to all information users. However, the use of a weighted dis-
closure index is also strongly criticized because it may introduce a
stronger bias towards a particular user orientation or user demand for
single criteria. In this study, different user groups will attach different
importance to individual model criteria, e.g. based on their background,
position, function and aims. To prevent this kind of potential bias, this
study uses the unweighted disclosure index approach. This is supported
by the argumentation that unweighted scores reduce subjectivity. There-
fore, the items are numerically scored on a dichotomous basis.
In the study, the quality model is used to assess the quality of available
national and local AHR in Austria, Germany, and Switzerland. The AHR
were identified on the webpage of the coordinating public administration
(here: ministry or city). If no AHR could be identified with this proce-
dure, the public administrations were contacted in order to receive the
documents.

1
The board structure varies among the countries. In Austria and Germany,
SOEs are organised on the basis of the Two Tier-System, whereas in Switzer-
land, the One Tier-System is used. In the Two Tier-System, the management
board is responsible for managing the enterprise. The supervisory board super-
vises and advises the members of the management board and is involved in
decisions of fundamental importance. In the One Tier-System, both functions
are combined in one board. However, the model is applicable for both systems.
Aggregate Holdings Reporting of Public Administrations 211

4 Results for the National Level


For all three countries, national AHRs are available which range between
19 and 45 out of 175 possible points (see Table 1). Even though none of
the reports reached the full overall score, individual categories of the
model such as the overview on aggregate financial ratios, corporate
goals, and financial relationships between public administrations and
SOE were nearly fulfilled in some reports. Overall, the analysed reports
put an emphasis on disclosing financial information whereas information
on personnel and audit were disclosed least. There is a great discrepancy
in the quality of AHR concerning financial ratios, organisation
chart/summary table, public service provision ratios as well as superviso-
ry body and management board information. The Swiss report receives
the lowest scores but leads the three-country sample regarding corporate
goals and public service provision ratios.
Max.
Dimension Category Points Variation
AT DE CH Mean Mean in %
possible Coefficient
Aggregate General Information 5 2 2 1 1.7 33.3 28.3
Information Organisation Chart / Summary
14 1 7 0 2.7 19.0 115.9
about the Table
Investment Overview of Financial Ratios 18 15 2 0 5.7 31.5 117.4
Portfolio Overview of the SOE Personnel 24 3 0 0 1.0 4.2 141.4
SOE in general 5 2 3 1 2.0 30.0 40.8
Corporate Goals 6 1 1 4 2.0 33.3 70.7
Financial Relationships btw. Publ.
6 6 0 2 2.7 44.4 93.5
Information Adm. and SOE
on Financial Ratios 43 12 10 4 8.7 20.2 39.2
Individual Public Service Provision Ratios 3 0 0 2 0.7 22.2 141.4
SOEs Management Board 6 0 3 0 1.0 16.7 141.4
Supervisory Body 8 0 5 2 2.3 29.2 88.1
Personnel / Staff 28 3 2 2 2.3 8.3 20.2
Audit 9 0 1 1 0.7 7.4 70.7
Overall Points 175 45 36 19 33.3 19.0 32.3
AT - Austria | DE - Germany | CH - Switzerland

Table 1: Overview of the results on national AHR


Source: Authors’ compilation

Overall, the analysed national AHRs offer different strengths and weak-
nesses. The Austrian offers transparent display of financial relationships
between public administration and SOEs and receives all possible 6
212 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

points in this category. Among other details, the report lacks important
information on corporate goals (1 out of 6 points), personnel (3 points in
each dimension), and does not give any information on public service
provision ratios, audit, management board and supervisory body. The
German report provides a comprehensive summary table and organisa-
tion chart on all SOEs and reaches 7 out of 14 points here. Also, supervi-
sory body, management board and general SOE information are dis-
closed in a transparent way. However, the report lacks information re-
garding aggregated overview of financial ratios (2 out of 18 points), cor-
porate goals, audit, and personnel. The Swiss report discloses owner
goals in a transparent and exemplary way and contains distinct ratios on
public service provision (2 out of 3 points), which is unique among the
sample. However, the disclosed information for individual SOEs is not
uniform across the whole SOE portfolio, which makes internal and ex-
ternal comparisons more difficult. Also, the report lacks a lot of infor-
mation, especially in the aggregated section on the whole SOE portfolio.
For Austria, a law for preparing and publishing AHR could be identified
whereas a Public Corporate Governance Code (PCGC) which recom-
mends AHR is available for Germany. PCGC are important instruments
which aim at establishing the role of public administrations as share-
holders of SOEs with more precision and can also foster SOE transpar-
ency (OECD 2015; Grossi et al. 2015; German Federation 2009; Tricker
2012).

5 Results for the Local Level


In addition to a report of one Austrian city, 77 AHRs of 81 German cities
with more than 100,000 inhabitants could be identified. The Austrian
report of the city of Innsbruck receives 26 points. Here, disclosed finan-
cial information on individual SOEs amounts to 12 points whereas the
other 14 points are evenly spread among the other categories and do not
allow for a statement of specific strengths. For Germany, local AHRs are
available for a broad scale of cities with low effort on the cities’ web-
sites. On average, the German local reports receive 42.4 out of 175 pos-
sible points and offer a wide range of criteria and category fulfilment
(see Table 2).
Aggregate Holdings Reporting of Public Administrations 213

Max.
Mean Variation Max.
Dimension Category Points Mean
in % Coefficient Reached
Possible

Aggregate
General Information 5 1.7 34.0 68.0 4
Information
about the
Organisation Chart / Summary Table 14 7.4 52.9 38.2 13
Investment
Overview of Financial Ratios 18 3.1 17.2 126.4 13
Portfolio
Overview of the SOE Personnel 24 1.4 5.8 211.2 15
SOE in general 5 2.1 42.0 53.3 4
Corporate Goals 6 2.4 40.0 46.0 5
Financial Relationships btw. Publ.
6 1.9 31.7 115.0 6
Adm. and SOE
Information
Financial Ratios 43 14.6 34.0 49.6 27
on Individual
Public Service Provision Ratios 3 0.4 13.3 215.1 3
SOEs
Management Board 6 1.2 20.0 58.0 4
Supervisory Body 8 2.9 36.3 61.1 6
Personnel / Staff 28 2.9 10.4 84.8 12
Audit 9 0.5 5.6 160.9 3
Overall Points 175 42.4 24.2 35.7 112

Table 2: Analysis of all AHR of 77 German cities


Source: Authors’ compilation

The cities of Darmstadt (112), Berlin (79), and Hannover (79) lead the
local sample and, among other city reports, provide examples that are
worth following for further developing AHR in Germany, but also inter-
nationally. The column “Max. Reached” (see Table 2) shows the best
results for individual categories and illustrates that the model is no theo-
retical illusion.
In Germany, most municipalities are obligated to create and publish
AHR by their respective municipal laws (e.g. Municipal law Baden-
Württemberg § 105, 2b; GemO Hessen § 123a, 3) which can be a reason
for the good availability of AHR on the local level in Germany. For Aus-
tria or Switzerland, no comparable laws could be identified on local lev-
el.
214 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

6 Conclusions, Implications for Policy Making, and Re-


search Perspectives
The study provides important and empirical evidence on the quality of
national AHR in Austria, Germany, and Switzerland on the national and
local level. For the scientific debate on accountability and transparency
on SOEs, the study provides a concrete model for assessing AHR and
future research on the issues of the model categories. For practitioners,
the developed criteria model and the results of this study can be used for
international benchlearning among public administrations to measure
and increase the quality of AHR. Empirical results show that, despite
individual examples that are worth following, the quality of AHR does
not meet the derived recommendations. The current situation prevents
citizens and other relevant stakeholders from obtaining a necessary and
important overview of SOEs, especially on the local level. This overview
is an important and supplementary tool for prioritizing and improving
the decisions about the sustainable provision of public services and for
managing cutbacks. In the perspective of agency theory, AHR do not
sufficiently reduce information asymmetries and prevent the principals
from observing the action of the agents. Regarding property rights theo-
ry, the reports do not sufficiently inform which actors have which prop-
erty rights. With respect to stewardship theory, the public administra-
tions often do not make use of the chance to develop trust in important
fields and according to stakeholder theory, information rights of relevant
stakeholders are not adequately implemented. Existing good practice
examples enable benchlearning among public administrations and could
give support to actors engaged in pushing for improvements and public
sector management reforms. AHR could prove to be a helpful driver for
the public sector management reforms on a national but especially on an
international level.
Researchers and policy makers on all governance levels which aim at
developing public corporate governance standards should especially
place more emphasis on the analysis of laws on AHR. Our results show
that laws are necessary to ensure effective implementation of AHR as a
policy goal. Also, effective sanction mechanisms of laws to prevent non-
disclosure and bad quality of AHR should be analysed. In order to
achieve a better overall view on the public service provision, AHR
Aggregate Holdings Reporting of Public Administrations 215

should also contain basic information on administration-funded NPO in


individual policy areas and refer to respective documents with more de-
tailed information.
Future studies should analyse determinants for diffusion and quality in
more detail and the use and effects of the reports. Longitudinal studies
should be conducted in order to better understand the development and
underlying motives for aggregate holdings reporting. Especially for some
German cities, it would be helpful to understand more about the reasons
for the comparably high quality of their AHR. Furthermore, studies
which analyse how laws have to be designed in order to increase the
diffusion and quality of AHR would be enriching. Also, how different
groups use AHR should be analysed. More countries should be analysed
for an even broader international comparison.
Ensuring quality in aggregate holdings reporting on SOEs is relevant for
the “big issues” of public administration, public management, and public
policy making on all government levels.

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Appendix
Quality Model for the Analysis of AHR

Dimension 1: Aggregate Information About the Investment


Portfolio
Nr. Criteria Nr. Criteria
... in comparison with min. 2
General Information 31
previous years
Total profit transfer from
1 Release Date 32 SOE to public
administration
Total number / legal forms of
2 33 ... compared to last year
SOEs
Changes in the holdings
... in comparison with min. 2
3 portfolio (eg Privatisation, 34
previous years
Remunicipalisation)
Date of acknowledgement by
Total loans / guarantees to
4 responsible political body (eg 35
SOEs
local council)
Note on subsidiarity principle
5 36 ... compared to last year
for private law SOEs
Organisation Chart and Summary ... in comparison with min. 2
37
Table previous years
Overview of the SOE Personnel /
6 Organizational / summary table
Staff
Total number of employees
7 ... contains portions of the city 38
in SOEs
220 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

... contains height of share


8 39 ... compared to last year
capital
... in comparison with min. 2
9 ... contains in-house operations 40
previous years
Comparison to the core
10 ... also includes indirect holdings 41
administration
... majority-owned direct
11 42 ... compared to last year
holdings marked
... majority-owned indirect ... in comparison with min. 2
12 43
holdings marked previous years
... contains all holdings (for Total number of women in
13 44
summary table) top management
... contains balance sheet totals
14 of the respective SOEs (for 45 ... compared to last year
summary table)
... contains the sales of the
... in comparison with min. 2
15 respective SOEs (for summary 46
previous years
table)
... contains the employee number
Total proportion of women
16 of the respective SOEs (for 47
in top management
summary table)
... contains the share capital of
17 48 ... compared to last year
each SOE (for summary table)
... includes the shares of the city ... in comparison with min. 2
18 49
in the SOEs (for summary table) previous years
Overview of SOEs by business Total number of women on
19 50
sectors supervisory bodies
Overview of Financial Ratios 51 ... compared to last year
... in comparison with min. 2
20 Balance sheet totals of the SOEs 52
previous years
21 ... compared to last year 53 Total proportion of women
Aggregate Holdings Reporting of Public Administrations 221

on supervisory bodies
... in comparison with min. 2
22 54 ... compared to last year
previous years
Total results (profit / loss offset) ... in comparison with min. 2
23 55
of all SOEs previous years
Total number of women on
24 ... compared to last year 56 leading lower hierarchy
levels
... in comparison with min. 2
25 57 ... compared to last year
previous years
... in comparison with min. 2
26 Total of SOEs investments 58
previous years
Total proportion of women
27 ... compared to last year 59 on leading lower hierarchy
levels
... in comparison with min. 2
28 60 ... compared to last year
previous years
... in comparison with min. 2
29 Total subsidies to SOEs 61
previous years
30 ... compared to last year
Dimension 2: Information on Individual SOEs
Nr. Criteria Nr. Criteria
SOE in General 120 ... compared to last year
... compared to min. 2
62 121
Contact details (phone or email) previous years
Link to website or notice that no
63 Public Service Provision Ratios
website available
Note to the office etc. which is
exercising the shareholder
64 122
function / is represented at Overview on relevant key
shareholder meeting performance indicators
222 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

All other shareholders and their


65 respective shares in the SOE 123
listed ... compared to last year
... compared to min. 2
66 124
Statement on compliance previous years
Corporate Goals Management Board
67 Subject matter of the SOE 125 Name of all members
68 Public purpose explained 126 Total remuneration
Strategic and operational Individual remuneration for
69 127
objectives each member
Fixed and variable
remuneration listed or note
70 128
that there are no such
Outcome goals components
... financial goal formalized
71 (name of the key figures, not the 129 Total pension plans for all
expression) members
... output and outcome objectives
72 formalized (name of the key 130 Pension plans per individual
figures, not the expression) member
Financial Relationships Between City
Supervisory Body
and SOE
Cash inflow from public
administration to SOE (grants, Note on forming of
73 131
franchise fees and guarantees) or supervisory board or waiver
explanation of no inflows declared
74 ... compared to last year 132 Name of all members
... in comparison with min. 2
75 133
previous years Function of all members
Cash outflow from SOE to Responsibilities and
76 134
public administration (profit profession of all members
Aggregate Holdings Reporting of Public Administrations 223

transfer, reflux in the household)


or explanation of no outflow
Supervisory committees
77 135
... compared to last year listed or absence declared
... in comparison with min. 2 Indication whether
78 136
previous years compensation is paid or not
Financial Ratios 137 Total remuneration
Individual remuneration for
79 138
Annual result each member
80 ... compared to last year Personnel / Staff
... in comparison with min. 2
81 139
previous years Number of all employees
82 EBIT 140 ... compared to last year
... compared to min. 2
83 141
... compared to last year previous years
... in comparison with min. 2 Number of part-time
84 142
previous years employees
85 ROI 143 ... compared to last year
... compared to min. 2
86 144
... compared to last year previous years
... in comparison with min. 2 Number of trainees /
87 145
previous years apprentices
88 Return on equity 146 ... compared to last year
... compared to min. 2
89 147
... compared to last year previous years
... in comparison with min. 2 Number of women in the
90 148
previous years total staff
91 Equity ratio 149 ... compared to last year
... compared to min. 2
92 150
... compared to last year previous years
93 ... in comparison with min. 2 151 Proportion of women in the
224 Ulf Papenfuß, Lars Steinhauer, Benjamin Friedländer

previous years total staff


94 Provisions 152 ... compared to last year
... compared to min. 2
95 153
... compared to last year previous years
... in comparison with min. 2 Number of women on the
96 154
previous years second hierarchical level
97 Pension provisions 155 ... compared to last year
... compared to min. 2
98 156
... compared to last year previous years
... in comparison with min. 2 Proportion of women on the
99 157
previous years second hierarchical level
100 Borrowed capital 158 ... compared to last year
... compared to min. 2
101 159
... compared to last year previous years
Number of women at the
third hierarchical level (or
102 160
... compared to min. 2 previous declaration that no third
years level exists)
Leverage (borrowed capital to
equity), alternatively debt ratio
103 161
(borrowed capital to total
capital) ... compared to last year
... compared to min. 2
104 162
... compared to last year previous years
Proportion of women at the
third hierarchical level (or
105 163
... compared to min. 2 previous declaration that no third
years level exists)
106 Investment rate 164 ... compared to last year
... compared to min. 2
107 165
... compared to last year previous years
Aggregate Holdings Reporting of Public Administrations 225

... compared to min. 2 previous


108 166
years Average age of total staff
Capitalisation ratio (fixed assets
109 Audit
to balance sum)
Aggregated overview of all
audit companies or
110 167
examiners (or declaration
... compared to last year that there is no audit)
Auditors listed for all SOEs
111 ... compared to min. 2 previous 168 (or declaration that there is
years no audit)
Depreciation rate (depreciation Starting time of auditors
112 169
to fixes assets) work
Total cost of the audit (or
113 170 declaration that there is no
... compared to last year audit)
... compared to min. 2 previous
114 171
years ... compared to last year
... compared to min. 2
115 172
Note on the use of annual result previous years
Separate disclosure of audit
116 173
Sum of all sponsoring activities fees and consulting fees
117 ... compared to last year 174 ... compared to last year
... compared to min. 2 previous ... compared to min. 2
118 175
years previous years
Five greatest sponsoring
119 activities with volumes and
beneficiaries
Historical Backgrounds about the Develop-
mental Difference of Electric Utilities in
Germany and Japan: Municipalization and
Concession

Toru Sakurai

Summary: After the Fukushima Nuclear Accident the question has been
raised whether a new electricity generation, supply and distribution sys-
tem should be introduced in Japan. It seemed that Germany gives us an
alternative model, in which municipal electric utilities have played and
play an important role in quantitative and qualitative aspects. However,
in Japan this has not been the case.
This paper intends to seek the historical roots of such a difference, by
comparing the development of each first electric utility company in
Germany and Japan and the role of concession contracts and public
charge in each municipality.
Keywords: concession, electric utility, financial interest, municipaliza-
tion, public interest, regulation

1 Introduction
Four years have passed since the Fukushima nuclear power plant acci-
dent occurred. What kind of electricity generation, supply and distribu-
tion system should be made continues to be argued to the present.
There are two issues at stake in this matter. One is about the shift of en-
ergy mix from fossil fuel or atomic to renewable energy. The other is
about shifting the generation, supply and distribution system from inte-
gration to unbundling.

© Springer Fachmedien Wiesbaden GmbH 2017


R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_11
228 Toru Sakurai

The two issues are combined in one issue, i.e. from integrated to decen-
tralized power supply.
However, the Japanese government is about to reopen a nuclear power
plant that had been closed after the Fukushima incident and liberalize
retail and generation without unbundling.
In tackling the two issues, Germany is an alternative model for Japan in
two points: firstly its energy policy, which intends to abolish all nuclear
electric power plants by the end of 2022, and secondly it is argued that
most regional electric utilities are owned and managed in the form of
Stadtwerke by municipalities. One could argue that Stadtwerke, which
seemed to succeed in tackling the above-mentioned two issues, should be
introduced into Japan (Dewit 2015).
Would such an introduction be possible? There are quantitative and qual-
itative differences in German municipal electric utilities and Japanese
ones.
Indeed, Stadtwerke had and have been playing an important role not only
in generating and distributing electricity to their end users, but also in
supplying public services such as gas, water and transport altogether in
the form of Stadtwerke. Remunicipalizations, which occurred during the
2000’s in Germany after privatizations and liberalizations, have
strengthened their role, while Japanese municipal electric utilities have
played a minor role in generating electricity (1.1% in 2012) and no role
in distributing it. Moreover, they are managed separately from other
public services.

2 Research question and framework

2.1 Research question


At first, two questions should be distinguished: Why were and are mu-
nicipal electric utilities in Japan so much smaller than in Germany, and
why did and do Japanese municipal electric utilities not take such a form
as the German Stadtwerke? This paper focuses its attention on the first
question, although the two questions may be interrelated.
Municipalization and Concession 229

However, the answer to the first question could be easily determined. It


is the fact that, during and after the Second World War, municipal elec-
tric utilities in Japan played no part in distributing electricity. To be pre-
cise, with the central state electric industry control act and with the es-
tablishment of a state monopolistic company, the Japan Power Genera-
tion and Transmission Company (Nihon Hassouden: JPGT), all electric
distribution utilities, private and municipal, were integrated into nine
regional private electric distribution companies. After the Second World
War, with the liquidation of JPGT, nine private regionally integrated and
monopolistic electric companies were established, and municipal electric
utilities were not restored, although the concerned municipalities had
joined in a politically strong movement and campaigned for their restora-
tion.
Indeed, though not as in Germany (see table 1), also in Japan, municipal
electric utilities were growing partly owing to municipalizations from the
early 1900’s to the 1930’s. The number of the publicly owned electric
utilities was growing and the share increased from 1.7%, in 1907 to
16.6% in 1937 (see table 2). The percentage of electricity generated by
the publicly owned entities was only 5.1% in 1907, 6.5% in 1913, and
18.6% (based on the number of electric lights), or 8.2% (based on con-
tracted electric power) in 1937 (Electric Bureau 1907; Electric Bureau
1915; Editorial Committee 1969).
1900 1913 1927 1928 1929 1932 1933
Reich 13.1 15.6 14.8
0 0.3 27.3 28.1
Länder 12.8 11.3 11.4
other public bodies 0.7 2.2 11 9.2 10.2 11.4 10.2
municipalities 22.3 37.6 20.5 20.9 20 13.4 13.9
public private mixed 0 17 29.2 28.4 31.6 36.2 27.2
private 77 42.9 13.4 14.6 12 12 10.6
total 100 100 100 100 100 100 100

Table 1: Development of German electric utilities: public or private


Source: Tano 2003, p. 165.
230 Toru Sakurai

number of electric utilities share of


Fiscal year
private public public
1907 116 114 2 1.7%
1910 201 195 6 3.0%
1915 510 485 25 4.9%
1920 648 608 40 6.2%
1930 732 622 110 15.0%
1935 788 665 123 15.6%
1937 731 610 121 16.6%

Table 2: Development of Japanese electric utilities by ownership


Source: made from Editorial Committee 1969, pp. 14-15.

Thus, the question of why German municipal electric utilities were also
so much larger after the Second World War arises. According to Ambro-
sius (1984, pp. 121-122), on the national level, electric power was gener-
ated by the three large groups like RWE, Veba and Viag, but on the local
level municipal electric utilities had an important role in distributing
electricity. Indeed, in West Germany in 1952. The electric utilities whose
sales amounted to 500 MWh and more, numbered 731, of which 483
were public enterprises and 75 were public and private mixed enterprises
(Arakawa 1955, p. 130, the original source is VDEW). In 1985, 190
public enterprises whose public ownership were more than 95%, ac-
counted for 14.1% of power generation and 432 public enterprises for
33.2% of electric distribution (CEEP 1987, p. 42).

2.2 Framework
Electricity utilities developed firstly as small power stations in a block of
cities, secondly as allied enterprises with the enlargement of distribution
areas, increasing power generation and necessity of long distance trans-
mission, and lastly developed into centralizations, irrespective of their
being private or state-owned companies. From this electric technical
development theory (Wolff 1932), both Germany and Japan are atypical.
As Stier (1999, pp. 71-72) stated, compared with the British and French
system German electric utilities are not as interfered with by the central
government.
Municipalization and Concession 231

All in all, an answer to the question could be generally given by stating


that German electric utilities were developed under strong self-
governance of municipalities. Conversely, Japanese were developed
under strong central state control.
However, that should be answered concretely based on the historical
development. The key point is the connection between concession and
municipalization. A concession could give birth to municipalization as
the present remunicipalization seems to indicate (VKU 2012, p. 8).
Below, let us compare the first electric utilities, private companies in
both countries, and explore which role the corresponding municipality
played in each establishment.

3 Development of the German first electric utility com-


pany and concession

3.1 Establishment of the first electric utility company in Germany


The first public electric utility company in the world was, it was said,
created on September 4, 1882, when Edison Illuminating Company,
which Thomas Alva Edison had established on December 17, 1880, be-
gan to sell electricity to the public at the Pearl Street in New York (Con
Edison 2015).
Two years later, on 8 May 1884, the first one in Germany, AG Städ-
tische Elektrikitäts Werke (AGStEW), was established by Deutsche Edi-
son Gesellschaft für angewandte Elektrizität (DEG, German Edison
Company, later AEG) with three million German Marks in Berlin (Vat-
tenfall 2015a). “From 15 August 1885”, so written by Vattenfall
(2015b), “it had its own power plant at Markgrafenstraße 44 at Gendar-
menmarkt”. DEG was in turn established, supported by bankers, Sul-
zbach brothers and the National Bank in Berlin, as well as by a German
machine manufacturer, Emil Rathenau, who in 1881 had watched an
experiment of Edison’s incandescent lamp at the World Exhibition in
Paris and gotten an exclusive license for it in Germany (Bewag 1934, p.
208).
232 Toru Sakurai

DEG was renamed Allgemeine Elektrizität-Gesellschaft (AEG) in May


1885 and consequently AGStEW was also renamed Berliner Elektrizität-
Werke (BEW) in October of the same year, when AGStEW entered into
the ten-year contract for the management, construction and supply with
AEG. BEW was furthermore renamed Städtische Elektrizitätswerke Ber-
lin (StEW) after City Berlin municipalized BEW on October 1st of 1915,
and after its corporatization in November 1923 it changed its name once
more to Berlin Städtische Elektrizitätswerke (Bewag).

3.2 Development of the operations, capacities and prices

3.2.1 Development of the operations and capacities


As mentioned above, the operation of the electricity generation began on
August 15th of 1885 at Markgrafenstraße 44 in Gendarmenmarkt. Today,
the house number is 35, where a building stands with an inscription that
reads “the first German public power station, the CENTRALSTATION
MARKTGRAFENSTRASSE, drawn up by Oskar von Miller and Emil
Rathenau, began operation on 15.8.1885 in the court of this property, the
former Markgrafenstrasse 44” (translated into English by Sakurai).
The first important customer was the royal theater (150kW). The number
of customers was only 28 in 1885, 158 in the next year, but increased to
over 1,000 (BEWG 1934, p. 21). Consequently, the power plant output
also increased from 540 kW in 1885, to 855 kW in 1886 and to 7,165
kW in 1890, the cable network from 42 km to 50 km and 502 km and the
power generation from 43,130 kWh, to 396,000 kWh, and 4,680,050
kW. Furthermore, after the 1890s electricity consumption increased not
only for the use of lighting owing to urbanization (the population in Ber-
lin was 774 thousand in 1870, 1,123 thousand in 1880 and 1,888 thou-
sand in 1990 (Sekino 1997, p. 63)), but also for the use of industrial
power (power consumption). In 1894, the power consumption came to
occupy 10% of the total amount of electricity; in 1898 this had reached
50% in large part due to the power supplied to the tram service in Berlin,
which began in 1896. In 1900 lighting consumption accounted for only
10 % (BEWAG 1934, p. 30).
Municipalization and Concession 233

Edison's low-voltage and direct-current dynamo was not sufficient to


meet the increased electricity consumption demand. Therefore, another
power station was built in 1896 at Schiffbauerdam in the city, and two
alternating current power stations in the suburbs. Alternating electricity
transmitted from those was changed into direct current electricity and the
voltage for normal houses was changed from 110V to 220V.

3.2.2 Development of prices


The electricity price of AGStEW and BEW was classified into two
kinds: one for incandescent lamps and one for arc lamps. With incandes-
cent lamps as the main lamp type, the price around 1884 was constituted
from four parts: firstly, the base price per year (6 Mark) , secondly, the
rental price for a counter per year (15 Mark), thirdly, the price by quanti-
ty for a 16 candle lamp (50W) per hour (4 Pfennig: it corresponded to 80
Pfennig/kW and finally, the discount corresponded to the amount of
electricity used, from 5% to 25% (Herfort 1984, p. 463, Table 1).
This price decreased gradually. For example, the base price per year
decreased from 6 Mark to 5 Mark in 1890, 2 Mark in 1893 and was fi-
nally abolished in 1896 when kWh as a unit of measure was introduced.
Also the price by quantity was reduced from 80 Pfennig/kWh, to 72
Pfennig/kWh in 1891, 60 Pfennig in 1896 and to 40 Pfennig in 1904
(Herfort 1984, p. 463 and BEWAG 1934, pp. 209-216). Such electricity
price reductions occurred everywhere in Germany at that time; the price
level in Berlin was about 10 Pfennig/kWh lower. According to Zängl
(1987, p. 21), the average price per kWh was about 70 Pfennig by 1886,
about 60 Pfennig in 1902/03 and 50 Pfennig in 1913.
The reductions were due to the competition with gas utilities. At the
same time, however, it should not be overlooked that Berlin City regu-
lated by concessions, as demonstrated below.
234 Toru Sakurai

3.3 Concession contract and its roles

3.3.1 Concession contract between Berlin City and BEW


Berlin electric utilities were, as shown, operated by a private company.
However, based on the concession the City contracted with the company,
the city gave it the exclusive right to operate within a certain area in the
city, and in exchange the city had the right to permit building power
stations and other facilities as well as setting the price of electricity.
Moreover, the city levied compensations. To put it more concretely, the
first contract between the city council and the DEG company was made
on February 6th/19th 1884, in which the city gave DEG the exclusive right
to build networks on the public road. The DEG accepted the responsibil-
ity to supply electricity at a certain price to all inhabitants in the permit-
ted area (within an 800 meter radius from the royal house) and to pay
10% of total revenues as compensation to the city.
Why was such a concession contract made? BEWAG (1934) explained
the reasons from both sides: the private company, DEG and the city,
Berlin.
DEG had two options: installing closed blocking stations in every block
of houses where demands for lighting arose, or supplying public electric-
ity which could not be implemented without the city’s approval to use
public roads, because the exclusive right of the roads (Wegerecht) be-
longed to the city. DEG reportedly chose the economically better latter
option.
The city council discussed endlessly whether to own and operate an elec-
tric utility or to let a private company operate it. Finally, it decided
against the former, because it intended to avoid the risk. According to
Wolff, one of the risks was a negative influence of operating an owned
electric utility in addition to the gas utility, which was already owned
and operated by the city. The governor at that time said, “all benefits
come to the city of Berlin, and all risk goes to a private company” (Wolff
1931, p. 82).
Municipalization and Concession 235

This concession contract served as a model for standard municipal elec-


tric utilities in Germany. In the following years, many concession con-
tracts were signed by German cities and towns (Tegethoff 1984, p. 415).
By 1915, when the electric utility was municipalized, the concession
contract (including any additional contracts) had been renewed four
times.
By the time of the second contract on August 25th, 1888, supplying area
had enlarged from an 800 m radius to a 5 km radius. At the same time,
the company was obligated to build a second and a third power station
that could be purchased by the city at the earliest on October 1st, 1892
and to expand the cable networks on the same day. The city added an-
other compensation into the contract: 12.5% of net income in addition to
the 10% of total revenue (BEWAG 1934, pp. 15, 210).
In the additional contract on May 16th/24th, 1892, the following items
were settled: the approval of setting cables over the area that was permit-
ted by the second contract, the prohibition of installing new power sta-
tions with the exception of the existing three and those under construc-
tion and the limiting the capacity of the existing power stations to 27,000
horse power.
In the third new contract of March 14th/April 1st of 1899, the term of the
contract was set for October 1st of 1915, as AEG and BEW desired a
longer-term contract. The following points were settled:

x Enlargement of the electricity supplying area to the entire city.


x Approval of improving the power station in the city to 42,500kW
and of building a new power station - outside the city - with a maxi-
mum capacity of 37,000kW.
x Duty to take over the alternating power station at Oberspree from
AEG and, accordingly, to take over the contracts of supplying elec-
tricity with 10 communities in the northern and eastern parts of Ber-
lin and with the Imperial Railway Administration.
x Approval of the exclusive right of supplying electricity to the Berlin-
er tram.
236 Toru Sakurai

x Setting up the rate of compensations from 12.5% to 25% of net in-


come.
x Adapting the industrial power price to the public lighting, reduction
of install-checking fees from 10% to 4%, and possibility to let the
company reduce the normal price by a maximum of 10% in the case
that the net income exceed 12.5% of share capital.

Finally, according to another additional contract from February 15th,


1907, although the limiting capacity of power stations was abolished, all
expansion of existing and construction of new facilities for supplying
electricity remained under jurisdiction of the city and BEW had the re-
sponsibility to meet the entire electricity demand within the city.

3.3.2 Roles of concession contract: public interest and financial


interest
As shown in detail, the concession contract gave BEW the exclusive
right to operate as an electric utility. At the same time, it represented the
need for the city to play two roles. The one role was that of public utility
regulation that included operational and capacity regulation, price regu-
lation as well as universal service. The other was that of getting money
for financing the city budget.
Compensations from BEW were increased as shown in table 3: from
only 2.7 thousand (K) Mark in 1885, to 242 K Mark in 1890/91, 664 K
Mark in 1895/96 and 7,282 K Mark in 1900/01. The increase was at-
tributed not only to the increase of the revenue and net income of BEW
but also the compensation rate, which was raised in 1888 and 1898 re-
spectively as described above. It is worth noticing the comparative de-
velopment of dividends to shareholders and compensations to the city.
At the earlier stage, the amount of dividends was greater than that of
compensations, but the difference became smaller and reversed.
Municipalization and Concession 237

(thousand Mark, 1925 and 1930 thousand Renten Mark)

total
10% public
Dividends (A) profit quota payment to B/A (%)
charges
the city (B)

AGStEW
1884 67.5
1885 2.7 2.7
BEW
1890/91 810 193 49 242 29.9%
1895/96 1638 466 198 664 40.5%
1900/01 1953 1113 487 1600 81.9%
1905/06 3465 1920 1790 3710 107.1%
1910/11 6192 3799 3483 7282 117.6%
1915/16 4869 2954 2452 5406 111.0%
BEWAG
special lease total
Lease
Dividends (A) charges and payment to B/A (%)
payment
payment the city (B)
1925 1500 6463 - 6463 430.9%
1930 1500 14078 43169 57247 3816.5%

1 Dividends are calculated the share capital multiplied by the dividend


rate

2 Dividends of BEWAG was included in the total payment by the source,


but is here seperately presented

Table 3: Development of public charges by the Berliner electric utility


Source: made from BEWAG 1934, attached figure table 1.

In short, the two roles of the concession contract represent public and
financial interest of the city in the municipal electric utility. Both inter-
ests were often at odds and the attitude of Berlin City was argued as ex-
cessive financial interest. However, Wolff criticized this argument
(Wolff 1931, p. 83).

3.3.3 End of concession and municipalization


On April 8th, 1915, the Berlin city council decided to purchase the elec-
tric facilities of BEW and on October 1st of the same year, they were
municipalized and subsequently operated by Städtische Elektri-
zitätswerke Berlin (StEW), whose legal form was departmental enter-
prise (Regie).
238 Toru Sakurai

The municipalization was directly realized by the fact that the expiration
of the concession contract came and the city purchased the assets based
on the repurchase clause.
Why did the city not choose to prolong the concession contract, but ra-
ther took the path to municipalization? As one of the background mo-
tives, Tegethoff pointed out the influence of the First World War on the
political situation, in which public enterprises were a more favorable
legal form (Tegethoff 1984, p. 416). In contrast to that, Wolff explained,
as a general motive for municipalization, electric utilities came to play
an important role in the city’s management, which had had to cope with
the growing administrative demand from urbanization and industrializa-
tion. Moreover, he pointed out as specific reasons the unsatisfactory
experiment of the concession contract and the existence of the special
profits, which AEG had gotten from the monopolistic position in the
procurement of electric facilities (Wolff 1931, pp. 84-85).
In any case, it is worth noting that concession contracts had led to mu-
nicipalization. Moreover, it is important that the concession contract
remained even after the transformation of the municipal electric utility
from Regie, StEW into the business corporation, Bewag. The transfor-
mation, intended to consolidate the difficult financial situation of the
city, is understood as privatization, as the shares of Bewag were sold
except 30%. The concession contract concluded between the city and
Bewag prescribed that Bewag pay compensations in the amount of 2.24
Million RM (1.6 Million RM in the days of StEW) and the city had the
right to repurchase by June 30th of 1954.

3.4 National electric law and concessions by municipalities


The energy industry law that represented the first national law on the
electric utilities in Germany was issued on December 13th of 1935. The
formative feature was, according to Döring (2012, p. 144), that the ener-
gy industry was subject to supervision by the Imperial Economic Minis-
ter, but at the same time the law affected neither the problems with the
ownership, nor the kinds of enterprises in the industry (Döring 2012, p.
143). Consequently, the municipal electric company not only remained,
but also the concession and compensations were found to be still valid.
Municipalization and Concession 239

Article 12 conceded the way to the public road, and the rule on the con-
cessions was issued on March 4th of 1941 (Hammerstein/Hoff 2013, pp.
7, 13-14). There is another opinion that the law directed a centralized
character, because it was prohibited to introduce new compensations
which had not previously been levied (Stier 1999, pp. 472-473). After
the Second World War, in 1990, however, the prohibition was abolished
(Hammerstein/Hoff 2013, pp. 7-8).

4 Development of the Japanese first electric utility com-


pany and concession

4.1 The establishment of the first electric company in Japan


On July of 1883, the first public utility in Japan , the Tokyo Electric
Light Company (TELC, today: Tokyo Electric Power Company) was
established by an engineer, Ichisuke Fujioka (associate Professor at
Technical High School, later, President Toshiba Electric Company) and
influential financiers with 200 thousand Yen (TEPCO 1983, p. 6). With
the permission of the Interior Minister of the central government and the
governor of Tokyo Prefecture, TELC began to supply electricity with its
own power machine on July 5th of 1886.
It is a common feature of Germany and Japan that the first public electric
utility established and operated a relatively small-sized private company
in each capital.

4.2 Development of the operations, capacities and prices

4.2.1 Development of the operations and capacities


Its customers, based on the number of lamps, numbered only 138 in
1889, but increased in 1890 to 5,565, and in 1891 to over 10,000 (TEP-
CO 1983, pp. 9-10). Another number of the customers, based on the
number of households, showed the development of the demand: 83 in
1887, 169 in 1888, 930 in 1890, 3,515 in 1895, 5695 in 1900 and 11,963
in 1903. Demand for industrial power also gradually increased: 30 kW
(connected supply) in 1900 and 8,210 kW in 1903. With that, power
240 Toru Sakurai

plant output amounted to 47,600 kW, owing to the incandescent and


high-voltage Asakusa power plant near the center of the city and the
other hydroelectric power plants that were settled in Yamanashi and in
Fukushima far from Tokyo. The cable network expanded from 0.1 km in
1887, to 19.6 km in the next year, 75.1 km and 2.1 km in 1895, even to
216.1 km in 1900 and 332.2 km in 1903.

4.2.2 Development of prices


The electricity price for each lamp was contained in the lamp price cor-
responding to candela sizes, the installation price and the rental price for
equipment. In 1890, a 16 candela lamp cost 2.5 Yen, the installation
price 1 Yen and the rental price 1 Yen per year (Kato 2000, p. 48). The
price was very high, according to Tepco (1983, p. 11); in comparison,
the rice price per 1.8 kg was only 7 to 8 Sen (100 Sen = 1 Yen). On No-
vember of 1905, the lamp price was raised by 0.5 Yen to 3 Yen due to
the higher prices of coal.
The lamp price of TELC was very high compared with other cities in
Japan. Isoo Abe, Christian Socialist and later one of the founders of the
Japan Socialist Party, showed the lamp prices of three big cities, Tokyo,
Nagoya and Osaka, for example in the case of 16 candela lamp (3.0 Yen,
1.2 Yen and 1.3 Yen respectively), and criticized the high price of
TELC, saying. “In our country, most electric utilities are operated private
companies; municipalities give them permissions to operate the utilities
almost with no conditions, and the prices are high. In particular, the elec-
tric company in Tokyo can, due to a lack of interference from the city,
levy the high price that other municipalities have not even levied” (Abe
1908, p. 210). Also, in 1911, the Tokyo City Council criticized the high
level of the price and high level of the dividend (12%) (Tokyo City
Council 1935a, pp. 765-767).
Tokyo City had no instrument to regulate the electric prices.
The high level prices led to citizen initiatives against raising prices, and
hand in hand with another citizen initiative against a higher tram price,
these initiatives led to the municipalization of the tram that also operated
an electric utility, competing with TELC.
Municipalization and Concession 241

It was not until the advent of growing generating capacity from hydroe-
lectric power stations that price reductions were realized. However, full-
scale reductions resulted from the competition among TELC, the 1911
city-owned electric utility and another private company.

4.3 Later compensation contract, its role and size


Unlike Berlin, a concession contract between TELC and Tokyo City was
not concluded at the establishment. In fact, as mentioned above, the gov-
ernor of Tokyo Prefecture issued the permission in which only two sen-
tences stood; The establishment was permitted and details could be left
to negotiations between the government and the company until applica-
ble rules were in place, with the provision that permissions were neces-
sary in advance, if electric equipment was built on official grounds.
It is unfair to compare Tokyo Prefecture with Berlin City, not only be-
cause a prefecture was not a city, but also because a prefecture was a
subordinate organ of the central government and did not have such au-
tonomy as Berlin had. On October 1st, 1898, Tokyo City, of which the
governor was elected by citizens, was created.
Talks of a concession contract - to be precise, a compensation - began in
1909 in the Tokyo council, and lasted until 1912 (Tokyo City Council
Secretariat 1935a, pp. 563-573 and Tokyo City Council Secretariat
1935b, pp. 9-15).
However, the contract was different from that of Berlin in two points.
The one is that it neither gave exclusive rights to operate, nor did it regu-
late prices and equipment. It was introduced not in the public interest,
but for a financial interest, namely, instead of a pole tax, for which an
increase of the tax had not been permitted by the central government
(Tokyo City Council Secretariat 1935a, pp. 570).
And yet, the financial role was smaller than that of Berlin. This is the
second point of the differences. The compensation was to be set at 6% of
the net income of TELC, provided that it was 5% when the dividend
would be under 10%. In Berlin, the concession was 10% of total reve-
nues and 25% of the net income. It was argued by Isoo Abe and the To-
kyo Institute of Municipal Research (1928, p. 55) that compensations
242 Toru Sakurai

should be levied not on the base of the net income, but on the base of the
total revenues, because of the unclear character of the former.
Calculating the percentage of all kind of taxes and public charges to div-
idend in the Annual Report of TELC, its figure showed 4.5% in 1887,
8.9% in 1900, 12.7% in 1905 and 15.8% in 1910. After the conclusion of
the compensation contract, its figure increased slightly, to 20.8% in 1913
and 23.8% in 1915, however it did not exceed 26% until 1930 (see table
4). In Berlin, as mentioned above, the compensations exceeded the divi-
dend already in 1905, reaching over 100%.
(thousand yen)
Dividends Public
Fiscal year Revenues B/A (%)
(A) charges (B)
1887 23.3 10.8 0.5 4.5%
1890 102.5 0.0 2.4 -
1895 252.7 71.2 2.2 3.1%
1900 532.7 201.9 17.9 8.9%
1905 1,465.2 560.3 71.4 12.7%
1910 4,756.8 2,655.3 420.1 15.8%
1915 7,333.7 3,382.2 804.8 23.8%
1920 24,338.3 8,905.0 1,954.8 22.0%
1925 84,101.7 25,576.1 1,917.4 7.5%
1930 118,815.9 26,464.7 6,940.3 26.2%

Table 4: Development of public charges by TELC


Source: TELC, Annual Reports (cited from Tepco 2002).

Thus, compensation control gave Tokyo City very little power to regu-
late or control the private company. Tokyo City tried to regulate TELC
by using another measure: the 1911 municipalization of a competing
private company, the Tokyo Railway Company. As a consequence, elec-
tricity prices in Tokyo were significantly reduced through competition.
However, after the agreement in 1917, the supply areas of Tokyo munic-
ipal electric utility were restricted narrowly. In contrast, TELC grew
larger and its supply area developed also outside of Tokyo, even nation-
wide. This situation was one of the causes that led to even more weak-
Municipalization and Concession 243

ness and diminished power of the city. Another cause is the development
of national law about electric utilities.

4.4 Development of national law and end of compensation


contract
There was no national law on the electric utilities during the earlier stage
of the 1880s. In 1896, the Electricity Utilities Control Rule was issued,
but it intended to secure the public safety. However with the develop-
ment of the electric utilities Law in 1911, 1927 and 1931, the central
government had power to control as well as to improve the electric utili-
ties that showed monopolization in the form of five large nation-wide
private companies.
Lastly, the Electric Power Control Act was issued in 1938. Based on the
Act, on April 1st of 1939, a state monopolistic company, the Japan Power
Generation and Transmission Company (Nihon Hassouden: JPGT) was
established from October 1941 until February 1943. During this time all
electric distribution utilities, private and municipal, were integrated into
9 regional electric distribution companies. All cities and towns which
owned electric utilities opposed the integration of electricity distribution.
The compensations were transformed into public charges which the cen-
tral government paid instead of the nine regional distribution companies.
(Editorial Committee 1969, pp. 51-59).
However, municipalities have no power to collect compensations for the
use of the public road.

5 Conclusions
Let us draw conclusions, by comparing the developments of municipal
electric utilities in Germany and in Japan, particularly in each capital, in
Berlin and Tokyo.
Common developments found in each city were that the first electric
utility in both countries was established at the almost same period. Both
took - with the permission of the respective authority - the form of a
small-sized private company that developed rapidly.
244 Toru Sakurai

But even in these common aspects differences could be found, particu-


larly in the permission of each authority. In Berlin, the permission took
the form of concession from the beginning, after debating whether the
city should operate the electric utility directly or delegate it to a private
company. The concession contract had great power to regulate it not
only from the viewpoint of public interest, but also from that of financial
interest. The concession contract led to the municipalization.
However, in Tokyo, the permission was granted by the prefecture and
the central government. Although, also in Tokyo, the compensation con-
tract was concluded later, namely 29 years after the establishment of
TELC, the first electric utility, the city had very weak power to control
it. TELC became too big for the city to regulate through creating a com-
petitive situation by establishing its own municipal electric utility.
Today, German municipalities have concession rights to electric utilities,
whereas Japanese have none. The difference lies directly in different
contents of each electric law issued in the 1930s. However, as the back-
ground, it should be noted that there were differences in the form and
power of each municipal permission, which showed in turn a different
degree of community autonomy or self-government. Alternatively ex-
pressed, pursuing discussions on which kind of electric system should be
introduced in Japan might raise the question about self-government.

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Smart City Projects and Citizen Participation:
The Case of London

Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

Summary: We apply Arnstein’s ladder of citizen participation to a smart


city context, focusing in particular on the ‘Smart London’ case. With this
exploratory case study we contribute by setting out a replicable step-by-
step approach to assess a smart city plan vis-à-vis citizen participation.
Furthermore, this study investigates the link between the smart city am-
bitions of London and the concrete citizen participation levels of several
projects within their smart city strategy. From the qualitative coding and
classification we formulate a first proposition for further scientific elab-
oration on the relationship between the potential levels of citizen partic-
ipation in a smart city project and the way stakeholders are represented
in the project.
Keywords: smart cities, citizen participation, Ladder of Participation,
case research, London

1 Introduction
Urbanization is a major global trend that calls decision makers to action
with respect to sustainability and living conditions in metropolitan areas.
Currently, cities account for 54 percent of the global population, and
predictions range up to 66 percent for 2050 (United Nations 2014). The
top 600 largest cities already account for over 60 percent of the econom-
ic space, with the amount increasing year after year (McKinsey 2011).
Inspired by advances in such fields as engineering, technology, and par-
ticularly information and communication technologies (ICT), city au-
thorities all around the globe are looking for new, smarter ways to cope
with the challenges of urbanization. At the same time, many metropoli-
tan areas are gradually consolidating their positions as the beating hearts

© Springer Fachmedien Wiesbaden GmbH 2017


R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5_12
250 Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

of innovation, research, education, and politics, which increases their


influence on society and economy even more.
Citizen participation, defined as “involvement in any organized activity
in which the individual participates without pay in order to achieve a
common goal” (Zimmerman/Rappaport 1988), also seems to have be-
come a major topic for politicians and city administrators. London
School of Economics’ analysis of the recent Mayors Challenge proposals
(Bloomberg 2014) showed that mayors in Europe are focusing on citizen
involvement at scale, supported by means of new technologies. Mayors
of large cities openly commit to involve citizens in decision-making far
beyond their engagement in voting. For example, various new city-
citizen interaction channels are being exploited and explored to deal with
daily and street-level issues. This evolution towards more citizen partici-
pation is happening in a context where citizens are progressively consid-
ered active agents in policy making and execution. On the one hand,
citizens are more often called upon to contribute to public service deliv-
ery. Citizens, for their part, increasingly expect to be heard and consulted
by decision makers.
The combination of continued urbanization and increased requirements
for enhanced citizen participation continues to fuel the vision of the
‘smart city’. The term serves as an umbrella term for the ambition of
cities to prepare for the future by means of sustainable technology and
efficient use of resources, without compromising on citizen participation
(Caragliu et al. 2011). Unfortunately, its relative novelty, combined with
its prolific use as a buzz-word (Hollands 2008), has loaded the ‘smart
city’ concept with many unproven success statements, especially con-
cerning citizen participation. Therefore, the research aim of this study is
to explore how exactly smart city projects attempt to establish citizen
participation, and more specifically which types of citizen participation
they aim at.
To address this research question, we propose to start from the seminal
work by Arnstein (1969) regarding citizen participation. We have chosen
to investigate the case of London, UK, to document how various smart
city initiatives can be described using Arnstein’s framework. The choice
for London is based on the following arguments: (1) London is broadly
Smart City Projects and Citizen Participation 251

considered as one of the leading ‘smart cities’ in Europe, (2) the Greater
London Authority has publicly committed to a ‘smart city’ ambition by
publishing a Smart City Plan in 2013, (3) citizen participation is recog-
nized as an important success criterion in the plan, (4) relatively ample
information is publicly available on various ‘smart city’ initiatives in
London.
The scope of this paper is a single case study on ‘Smart London’. The
case study method has proven its usefulness, particularly in exploratory
research settings such as ours, as it allows for developing deep insights
in context-sensitive ways. For this paper, we rely on secondary data
sources available through the Internet.
From such exploration we can in the first place derive theoretical propo-
sitions for further scientific verification. In addition, we can evaluate the
appropriateness of our own methodological steps for future studies on
the value of smart city initiatives for increased citizen participation.
Overall, we aim thus to contribute to the body of knowledge in the areas
of public management, smart cities and citizen participation, and we
strive for relevance for both academics and practitioners.

2 Short Literature Overview

2.1 Smart City Concept


A number of initiatives and studies aiming to define the smart city con-
cept have taken place over the last few years. One frequently cited work
is that of Chourabi et al. (2012), who have developed a smart city
framework, encompassing 8 factors, internal and external to the organi-
sation, each influencing each other and the smart city initiative. Alterna-
tive smart city definitions can be found in Allwinkle and Cruikshank
(2011), Komninos et al. (2013), Lazaroiu and Roscia (2012) and in Nam
and Pardo (2011). Anthopoulos and Fitsilis’ (2014, p. 190) definition
puts ICT centre-stage: “an ICT-based infrastructure and services envi-
ronment that enhance a city’s intelligence, quality of life and other at-
tributes (i.e. environment, entrepreneurship, education, culture, transpor-
tation etc.)”.
252 Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

A recurrent element in almost all the definitions is the holistic nature of


smart city initiatives. They are usually ICT infused, if not driven, and
can tackle issues related to mobility, economy, energy, environment, e-
government, or a combination thereof (Caragliu et al. 2011). Smart cities
typically refer to the use of data analysis, social technologies and the
Internet of Things. In some cases smart cities adopt ‘open data’ strate-
gies, opening up data resources for third parties and citizens to use for
innovative new services. Citizens can be both users and sources of data,
fueling open data platforms.
Smart cities are found all over the globe. Examples include metropolises
such as Barcelona, London, New York, Rio de Janeiro, and Tokyo but
also middle-sized cities such as Amsterdam, Gent, Hamburg, Manches-
ter, Medellin, Santander, etc. The popularity of the concept has even
reached such proportions that questions are raised about the truthfulness
of some smart city claims (Hollands 2008; Van den Bergh/Viaene 2015).
Smart cities as defined by Chourabi et al. (2012) are essentially building
on the involvement of people and communities in the city. Indeed, digital
technology allows cities to engage with citizens in decision-making pro-
cesses (Paskaleva 2009). In some cases, the ‘smart citizen’ is placedcen-
trally in the project (Van den Bergh/Viaene 2015). In these circumstanc-
es smart city ambitions are proclaimed to be targeting high citizen partic-
ipation levels. The Smart London Plan, for example, states “Londoners
at the core” as its most important success factor, promising to involve
citizens in the development of the smart city concept (Smart London
Board 2013).

2.2 Citizen Participation


Citizen participation intention and success is very much dependent on
‘the eye of the beholder’. A paper by Cornwall (2008, p. 274) on practic-
es of citizen participation states: “The most transformational intentions
can meet a dead end when ‘intended beneficiaries’ choose not to take
part, or where powerful interest groups or gatekeepers within the com-
munity turn well-meaning efforts on the part of community development
workers to their own ends.” Furthermore a “sense of fatigue” after nu-
merous citizen participation efforts that always call on the same group of
Smart City Projects and Citizen Participation 253

people can arise, even up to a point where in practice the targeted citi-
zens can get cynical about citizen participation efforts (Cornwall 2008;
Creighton 2005). Another plea for caution with respect to citizen partici-
pation initiatives can be found in the work of Cupps (1977, p. 478) who
wrote that “in spite of the proven accomplishments of citizen groups in
some policy areas, there is growing body of data to support the conten-
tion that public participation which is automatic, or ill-considered can be
dangerously dysfunctional to political and administrative systems”.
Citizen participation is an umbrella term for multiple types of participa-
tion. In previous studies citizen participation has been classified by re-
searchers, of which many have drawn on the work of Arnstein (1969),
who describes eight levels on the ‘ladder of citizen participation’, rang-
ing from ‘no participation’ to ‘full citizen power’. Each level is typified
by increasing levels of democratic processes, paralleled with particular
managerial challenges. The Arnstein framework allows us to classify
various smart city initiatives regarding their intended citizen participa-
tion (see Table 1).
254 Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

Citizen Power Citizen Control Citizens have full managerial


power.

Delegated Citizens can have dominant


Power decision power.

Partnership Citizens can negotiate and


engage in trade-offs.

Tokenism Placation Citizens are asked for advice,


however without decision
power.
Consultation Citizens are being heard.

Informing Citizens are informed.

Non- Therapy Citizens are symbolically


participation involved.
Manipulation Citizens are educated and
manipulated without consent.

Table 1: The ladder of citizen participation,


Source: Arnstein 1969.

We have adopted the Arnstein model for reasons of its clarity, the fact
that it is robust, and its wide-spread application. Adaptations of it have
been used previously in the context of government participation, con-
sumer participation, learner participation and other contexts, proving its
use for classification of very different participation types.
A study on the levels of citizen participation in US cities in the begin-
ning of the 2000s, came to the following conclusion: “Finally, the exist-
ence of participation mechanisms appears to be a preliminary and neces-
sary condition to achieve participation goals in the satisfaction of public
needs, consensus building, and public trust. Participation in decision
making leads to better understanding and satisfaction of public needs and
the building of consensus on service goals, priorities, and performance
Smart City Projects and Citizen Participation 255

expectations.” (Wang 2001, p. 332) On top of that, Wang’s study con-


cludes that the levels of involvement, specifically in decision making,
are limited. The question is now, whether smart cities with their modern
technological means will be able to institutionalize those mechanisms for
participations, while not running into the pitfalls described above.

2.3 Smart London


We believe London provides a good case for addressing our research
question, given that London has been widely recognized as one of the
‘smart city’ pioneers that continues to commit to turning their vision into
a reality. Moreover, London has a publicly available and well-
documented Smart City Plan. This plan, openly endorsed by Mayor Bo-
ris Johnson, refers to citizen participation as being one of the main ambi-
tions of the city leadership (Smart London Board 2013). In addition, the
city meets the criteria that specify our research context as it represents a
growing economic metropolitan area that will continue to see its inhabit-
ant number increase (AT Kearney 2014). What is also important for this
study is that relatively ample information is publicly available on the
‘smart city’ initiatives in London. Mapping the publicized smart city
initiatives for the City of London on the ‘ladder of participation’ will
help us to answer our exploratory research question: how exactly smart
city projects attempt to establish citizen participation, and more specifi-
cally which types of citizen participation they are aiming at.
London’s Smart City Plan (Smart London Board 2013) sets the agenda
for the coming years. On the one hand it describes which initiatives will
be launched to contribute to London’s smart city ambition. On the other
hand, it pinpoints which measures will be used to evaluate its progress
and success. The plan mentions explicitly that feedback, ideas and col-
laboration in the process from all stakeholders is welcomed. The follow-
ing seven objectives are central to the Smart London Plan, each of which
is supported by a number of concrete projects:

x Londoners at the core…


x … with access to open data;
x leveraging London’s research technology and creative talent,
x brought together through networks,…
256 Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

x … to enable London to adapt and grow,…


x … and the City Hall to better serve Londoners’ needs …
x … offering a ‘smarter’ London experience for all.

3 Method and Results


In our research method, a three-phase procedure was followed, in which
subsequent steps focused on either exploration or confirmation of new
insights, which is a dynamic qualitative research procedure that continu-
ously combines developing new insights with verifying their face validi-
ty (Fox-Wolfgramm 1997; Flick 2002). Practically, we (all three authors)
worked for each research step first independently, and then in collabora-
tion. The independent work focused on exhaustiveness and the individu-
ally unbiased identification and interpretation of the data. The collabora-
tion phase focused on the integration and evaluation of various possible
interpretations. Several such iterations were done to reach three related
outcomes. These outcomes are (1) a robust (and reproducible) list of
sufficiently distinct smart city projects within the overall London smart
city strategy; (2) a reliable classification of these projects according Arn-
stein’s ladder of citizen participation; and (3) a set of emerged elements
that form the basis for our agenda for future research.
In the first phase, the three authors independently screened the strategic
smart city documentation of the city of London, and each identified the
distinct smart city initiatives. After an initial and independent screening
by all authors, an open discussion was held to evaluate how distinctions
can be made between various smart city projects that would be relevant
for the study at hand. This led to more explicit criteria for identification
and classification of distinct smart city projects. With these additional
clarifications, a second independent screening and classification round
was performed by all three authors.
In the second phase, the authors independently allocated the identified
projects to the levels of Arnstein’s ladder of participation. In total, this
resulted in 93 encodings (where a coding is an identified project and
related classification to the citizen participation ladder). These 93 encod-
ings could be grouped in 26 projects, where each project had been identi-
fied by at least two of the authors. Remaining encodings related mainly
Smart City Projects and Citizen Participation 257

to variants of and/or subparts of projects incorporated in the list. For


three projects, an additional distinction could be made regarding the
citizen participation classification given that multiple distinct stakeholder
types were addressed by the project. The list of the 26 projects and the
participation classification is shown in Table 2. Additionally, an open
discussion among the authors evaluated whether the ladder of citizen
participation was a suitable lens to study citizen participation in the spe-
cific context of smart city projects. This resulted in the identification of
additional, potentially relevant elements that were deemed important to
take into account for a sound analysis of smart city projects in the con-
text of citizen participation. Two elements emerged:
1. The categorisation is influenced by the assessment whether a smart
city project has a direct ‘citizen participation’ aim (i.e. citizen partic-
ipation is one of the end goals of a particular project), or whether a
project is enabling (or supporting) in order to make other projects
happen (i.e. the end goal of the project is to create the means neces-
sary for other smart city projects to succeed in creating citizen partic-
ipation (e.g. attracting funding or developing knowledge)).

2. Citizen participation levels can be different for distinct stakeholder


types per project. Therefore, we considered it relevant to make for
each project an extra coding regarding the potential and specific
beneficiaries of a smart city project, with two main classes: a direct
citizen focus (‘citizens at large’) or an indirect citizen focus (e.g.
through partners, such as businesses, schools, associations, local rep-
resentatives, public service providers, etc.). We considered the
Greater London Authority (GLA) as the main operator of the Smart
City strategy. This means that specific neighbourhoods (boroughs),
for example, are considered as a particular form of indirect citizen
representation.

In a third phase, emerged insights, analytic challenges, and remaining


open questions were discussed and evaluated in the context of the re-
search aims of this article. Concretely, all individual notes made during
independent coding and open discussions were revised and structured in
three main areas: (1) theoretical insights and the description of the final
coding and matching, (2) limitations and necessary steps for further vali-
258 Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

dation, and (3) further research avenues. The first area is discussed in the
next section, while the second and third areas are summarized in our
conclusion section.
Smart City Projects and Citizen Participation 259

Targeted primary
Project name Short project description Classification
stakeholder
Citizens can access information on where they can use city
1 Barclays Cycle Hire Informing All citizens
bikes, availability and use of bikes
A Customer Relationship Management system to ensure
Informing /
2 Care connect (NHS) effective management and tracking of requests, supported by All citizens
Consultation
a moderation and case handling service
Free WIFI in public
3 Free WIFI in public spaces Enabler (technical)
spaces
EU funded project to develop an urban platform based on
4 iCity Programme Enabler (technical)
data from public and private sources
Aim is to use technology to work in a more integrated way,
Silo Busting in
5 with joint projects and collaboration across Boroughs, and Partnership Boroughs
administration
service providers
Integrated way finding system helping people move around
6 Legible London Informing All citizens
the capital with over 1250 signs now installed
Level 39/ Catapult/
Accelerator space for finance, retail and future cities start- Enabler (incubator /
7 Urban Innovation
ups; examining options for smart city funding financing)
Centre
Listen London Listen London is a bespoke tool used to listen to social media Manipulation /
8 All citizens
Platform talk about London related issues Therapy
9 Informing All citizens
London Datastore Public availability of various datasets on London Application developers
10 Partnership
(e.g., businesses)
London Schools An interactive online map of London schools, patterns of Informing / All citizens informed,
11
Atlas attendance and future demand for school places. consultation some indicate schools
A public reporting tool on how city is performing and what
12 London's Dashboard Informing All citizens
City Hall and London boroughs are doing about it
All citizens (informing),
Use of apps and mobile phones to report quality issues in Informing /
13 Love Clean London some indicate pollution
cleanness of London streets and parks Consultation
(consultation)
Car plates are digitally recognized, and people get taxed Manipulation / All citizens (traffic
14 Plate recognition
based on care usage in London city centre Therapy users)
15 Virtualize city infrastructure to better manage supply and Therapy / Informing All citizens
Smart grid
demand (e.g. water, energy, road infrastructure, underground infrastructure builders
16 technologies Partnership
assets) across London and/or maintainers
Queen Elisabeth
17 Test bed and demonstrator area for smart technology Enabler (testing)
Olympic Park
Reducing white van IT trials, incentives for collaborative business models, and Businesses operating in
18 Partnership
deliveries project load sharing and customer communication London
Boroughs (when
Smart London Focused on shared open data store between GLA and
19 Partnership considered as
Borough Partnership Boroughs
independent entities)
Business and institutes,
Smart London Series of initiatives to mobilize entrepreneurs, researchers, Placation /
20 or citizen representatives
Innovation Challenge businesses and citizens to develop solutions Partnership
(e.g. boroughs)
A network to link London’s entrepreneurs and innovators Business and institutes,
Smart London Placation /
21 with the organisations already delivering and financing or citizen representatives
innovation Network Partnership
London’s new infrastructure and services. (e.g. boroughs)
Smart London an event to attract the global finance that will help emerging
22 Enabler (finance)
Investment Day solutions to be more rapidly commercialised
Smart London An online platform to enable Londoners to feedback, rate and Informing /
23 All citizens
Platform for feedback shape the type of experience they want to have consultation
An online research community between Londoners and City
24 Talk London hall including polls, discussions, live Q&A, surveys, and Consultation All citizens
focus groups
Team London - Citizens, mainly through
An online marketplace for flexible volunteering and working, Placation /
25 Micro-volunteering civil society partners
to increase the employability of young people (aged 16-24) Partnership
and work platform (e.g. sport clubs)
Centre and meeting space for citizens to discuss and learn
26 Tech City Institute Informing All citizens
how new technologies impact different parts of society
Tech City Stars / Citizens, in particular
Digital apprenticeships for young locals to address digital
27 Technology Therapy those who are in need of
skills gaps
apprenticeships particular skills
28 An online too that encourages users to submit innovative Consultation All citizens
Transport for London
technological ideas to help address London's core transport Partnership Application developers
29 - Innovation Portal
challenges (/Placation) (e.g., businesses)

Table 2: Overview of identified London smart city projects, including a classification


based on Arnstein’s ladder of citizen participation (1969).
Source: Authors’ compilation.
260 Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

4 Discussion
Based on the classification of the smart city projects, a distinction has to
be made between projects that have a direct citizen participation aim, and
projects that are enablers for other projects to be successful. Out of 26
projects, five were classified as enablers (Table 2; Projects 3, 4, 7, 17
and 22). These enabling projects focused on providing the necessary
supporting means such as financial capital, knowledge, testing environ-
ments, and technical hardware. Interesting examples are incubator struc-
tures in which other parties, such as businesses or research institutes, are
attracted. Without having a strict focus on the actual content of projects
and their citizen participation aims, such enabling projects have a multi-
plying focus in which a win-win environment is created for all parties
involved.
The other 21 projects could be categorised as having at least one goal
related to citizen participation. For several projects a double classifica-
tion was made, either due to the fact that the project focused on a range
of related participation types, or because various clearly distinct stake-
holder types were addressed, each with a distinct participation level.
A first observation of our classification scheme shows that none of the
projects was classified in one of the highest two levels of citizen partici-
pation (i.e. ‘citizen control’ and ‘delegated power’). Our main interpreta-
tion of this outcome is that for all projects, at least one of the following
three conditions was not fulfilled (in other words, in order to be consid-
ered a smart city project that focuses on ‘citizen control’ or ‘delegated
power’ we believe three conditions should be fulfilled): First, citizens
should be able to participate actively (and they should be aware of their
participation and of the goals of their participation – see further com-
ments below about the levels ‘manipulation’ and ‘therapy’). Second, the
input gathered from citizens (e.g., an electronic vote) should be binding
for the decision-making process of a city in order to cover the control
and delegation aspect of these participation levels. Third, participation
should have a widespread democratic character (e.g. not focusing on an
elite group of non-democratically-selected citizens). For instance, for
those projects for which citizens could decide themselves to participate
or not, no explicit information was found specifically geared to guaran-
Smart City Projects and Citizen Participation 261

tee a wide-spread democratic representation (i.e. a focus on all or a large


representation of all citizens). However, from a public services perspec-
tive, this could be assumed to be an important condition in order to talk
about actual citizen power. On the contrary, the identified smart city
projects mainly target particular groups, often with self-selection of the
participants. For example, Talk London is a project in which engaged
citizens can give their opinion on relevant issues in the London context.
However, such initiatives often only involve limited groups of highly
engaged citizens, or representatives of interest groups, in which broad
democratic justification is lacking.
In contrast, all other participation levels from the Arnstein reference
framework could be assigned multiple times to various projects. Broadly
speaking, three subgroups can be distinguished. In line with the broader
classification of Arnstein, one group mainly corresponds to the two low-
er levels of citizen participation, denoted together as “non-participation”
(Mainly “manipulation” and “therapy”, in some cases complemented
with a higher-level informing component) (Table 2: Projects 8, 14, 15
and 27). We decided to classify these projects in these categories for two
reasons. First, in these projects the target group has little or no choice,
or may even not be aware of the fact that their actions are registered
and/or directed. Typical examples are license plate recognition (and traf-
fic tax charging) when people drive through London (Project 15), or a
structured analysis of social media postings regarding London (Project 8:
Listen London Platform). Second, these projects aim at changing behav-
iours or attitudes of (groups of) individuals, which relates to Arnstein’s
formulation “to educate or cure the participants” (Arnstein 1969, p. 217).
Concretely, this means that technology is used to change behaviours
such as car use in the city centre, and use and management of utility
services such as water and electricity (Project 15). Therefore, we have
classified in the same category those projects that focus on educating
(groups of) citizens in the area of digital skills and awareness (Project
27).
A second, and the largest group of projects was classified as ‘informing’
and ‘consultation’, in the broader category of ‘tokenism’. These projects
(1, 2, 6, 9, 11, 12, 13, 23, 24, 26 and 28) are developed to give a voice to
engaged citizens with respect to specific city challenges, such as finding
262 Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

the right school (Project 11: London Schools Atlas), pollution (Project
13: Love Clean London project), or sharing ideas on improving transport
in London (Project 28: Transport for London – Innovation portal). Also,
broader discussion platforms are supported in which engaged partici-
pants can formulate topics themselves, and discuss them openly (Project
23: Smart London Platform for feedback; Project 24: Talk London). In
the same category we have classified a major customer relationship
management system, given the fact that it focuses on improving public
services, including providing better information and dealing with com-
plaints. The latter can be considered a particular form of ‘consultation’.
Another project that seems to be iconic – given that the city often refers
to it as a showcase – is London Dashboard (Project 12), through which
Londoners get up-to-date – but still updated at moments chosen by the
city itself – information regarding several key performance indicators
pertaining to decisions or quality of life in London. All the projects in
this second category combine various functionalities that inform citizens
or ask for their input. However, in Arnstein’s classification these projects
are limited to ‘tokenism’ as the gathered input is not binding for the de-
cision makers, nor does it give an indication of the extent to which par-
ticular problems are specific for a particular stakeholder type. Further-
more, they do not guarantee participation of citizens at large. Hence, we
considered active participation and awareness as a distinctive feature for
this group (compared to ‘manipulation’ and ‘therapy’), while the lack of
(1) binding impact on decision processes and (2) a broad democratic
representation distinguishes this group from the higher citizen participa-
tion level projects.
A third group of projects is classified as ‘placation’ and/or ‘partnership’
(Projects: 5, 10, 16, 18, 19, 20, 21, 25, 29). Most of these projects refer
to collaborations with institutes or organisations, in which these partners
take over a part of the actual deployment of the project. Straightforward
examples are projects in which collaborations with businesses are set up
in order to create a context in which it is profitable for an organisation to
deploy a part of the city’s smart city strategy. These can be well-known
partners, such as certain boroughs, departments, or companies that have
been active for a long time in London. In contrast, some projects leave
the exact choice of partners open, and aim to find the best partners
through open-market competition or tendering. It is important for all the
Smart City Projects and Citizen Participation 263

cases, however, that partners have certain degrees of freedom as to how


exactly to deploy the project. Hence, these projects have a higher level of
binding impact on the city’s decision making (compared to ‘informing’
and ‘consultation’), while in contrast to ‘citizen control’ and ‘delegated
power’ these projects are still lacking a wide-spread, direct democratic
emphasis.
Considering the overall classification based on levels of citizen participa-
tion, and contrasting it with stakeholder types addressed in the project
(Column 4 in Table 2), a proposition for further exploration can be de-
rived: The more a smart city project focuses on ‘placation’ and ‘partner-
ship’, the more indirectly citizen participation happens (e.g. through
business, institutes, or boroughs), while in contrast for ‘manipulation’,
‘therapy’, ‘informing’ and ‘consultation’ the focus is placed more direct-
ly on individual citizens. Despite the need for further investigation, this
main proposition of our analysis is derived from the fact that partner-
ships seem to be more likely when the counterpart (from the perspective
of the city) has sufficient organisational and technological capabilities.
With such actors as partners, it is more straightforward to set up, manage
and maintain sustainable relationships. Confirming this contingency
would have important consequences for the actual citizen participation
that is reached through smart city projects, and it would potentially un-
cover a paradoxical insight: higher levels of citizen participation are
targeted with particular projects, but in these projects citizens are repre-
sented in an indirect way. Hence, the consequence would be that, due to
more efficient deployment of smart city projects by building on available
organisational and technological capabilities, higher participation ob-
tained through new technologies might be compensated for by lower
participation as a result of longer channel of representation (i.e. indirect
participation through institutes, businesses, etc.). Further, more quantita-
tive research can clarify whether obtained gains based on technology are
only partially or completely crowded out by additional representation
complexity.
264 Jurgen Willems, Joachim Van den Bergh, Stijn Viaene

5 Conclusion
In this study we aimed at providing a first insight on how the popular
smart city concept could be a vehicle for higher citizen participation. We
have analysed a single case, which allowed us to make challenges in this
research area explicit, and to set concrete actions for further verification.
We discovered that the type of targeted primary stakeholder is a valuable
dimension that adds relevance to our classification. From contrasting
types of stakeholders with identified participation level, we made a first
proposition for further theoretical and empirical verification.
Our insights, being preliminary and exploratory, need further develop-
ment in multiple directions. Particularly from a methodological point of
view, we consider adding other cities and other relevant dimensions nec-
essary. This will allow for a more robust and generalizable development
of theoretical insights. Furthermore, we have limited ourselves to explor-
ing the relationship between smart city goals and the concept of citizen
participation. Incorporating more detailed managerial challenges and/or
conditions and factors for success as dimensions in our analysis would
also substantially increase the relevance for practitioners. Nevertheless,
we have completed a first step to create a better understanding of citizen
participation levels in smart cities, and how to analyse it.

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List of Editors and Authors

Dipl.-Psych. Stefan Anderer


CASiM & Dr. Arend Oetker Chair of Business Psychology and Leader-
ship, HHL Leipzig Graduate School of Management, Germany

Prof. Dr. René Clemens Andeßner


Institute for Public and Nonprofit Management, Johannes Kepler Uni-
versity Linz, Austria

Anne Bäro, M.Sc.


Dr. Arend Oetker Chair of Business Psychology and Leadership, HHL
Leipzig Graduate School of Management, Germany

David Barrows
Senior Fellow, Centre on Governance, Faculty of Social Sciences, Uni-
versity of Ottawa, Canada

Dr. Steffen Bartholomes


Center for Leadership and Values in Society, University of St. Gallen,
Switzerland

Sheila Bergeron-Barrows
Director Digital Marketing, Vector Media, Canada

Steven A. Brieger, M.A.


Research Center for Entrepreneurship Evidence, Leuphana University of
Lüneburg, Germany, & Center for Leadership and Values in Society,
University of St. Gallen, Switzerland

© Springer Fachmedien Wiesbaden GmbH 2017


R. Andeßner et al. (Eds.), Public Sector Management
in a Globalized World, NPO-Management,
DOI 10.1007/978-3-658-16112-5
268 List of Editors and Authors

Dr. Diana Eerma


Associate Professor, Faculty of Economics and Business Administration,
University of Tartu, Estonia

Prof. Dr. Dr. h.c. mult. Peter Eichhorn


OPINIO Research Institute Mannheim, Professor Emeritus, University of
Mannheim, and former President of SRH University Berlin, The Interna-
tional Management University, Germany

Benjamin Friedländer, M.Sc.


Junior Research Fellow at Leipzig University, Germany

Prof.em. Dr. Dr. h.c. Peter Friedrich


Senior Researcher, Faculty of Economics and Business Administration,
University of Tartu, Estonia

Prof. em. Dr. Peter Gomez


President of the Managing Committee of the Center for Leadership and
Values in Society, University of St. Gallen, Switzerland

Prof. Dr. Dorothea Greiling


Institute for Management Accounting, Johannes Kepler University Linz,
Austria

DI (FH) Mag. Daniela Haugeneder


Institute for Management Accounting, Johannes Kepler University Linz,
Austria
List of Editors and Authors 269

Dipl.-Psych. Carolin Hermann


Center for Leadership and Values in Society, University of St. Gallen,
Switzerland

Jana Kollat, M.A.


Institute of Corporate Development, Leuphana University of Lüneburg,
Germany

Prof. Dr. Hiroko Kudo


Faculty of Law, Chuo University, Tokyo, Japan

Professor H. Ian Macdonald


President Emeritus and Professor of Economics and Public Policy, York
University, Toronto, Canada

Prof. Dr. Timo Meynhardt


Dr. Arend Oetker Chair of Business Psychology and Leadership, HHL
Leipzig Graduate School of Management, Germany & Managing Direc-
tor of the Center for Leadership and Values in Society, University of St.
Gallen, Switzerland

Dr. Dorothy Mpabanga


Director and Senior Lecturer, Center of Specialisation in Public Admin-
istration and Management (CESPAM), Department of Political and Ad-
ministrative Studies, Faculty of Social Sciences, University of Botswana,
Gaborone, Botswana

Paul Neumann, M.Sc.


Center for Leadership and Values in Society, University of St. Gallen,
Switzerland
270 List of Editors and Authors

Jun.-Prof. Dr. Ulf Papenfuß


Professor of Public Management, Leipzig University, Germany

Prof. Dr. Toru Sakurai


Faculty of Business Administration, Kokushikan University, Japan

Lars Steinhauer, M.Sc.


Junior Research Fellow, Leipzig University, Germany

Pepe Strathoff, M.Sc.


Center for Leadership and Values in Society, University of St. Gallen,
Switzerland

Joachim Van den Bergh


Senior Research Associate, Vlerick Business School, Belgium

Prof. Dr. Stijn Viaene


Full professor and partner, Vlerick Business School, Belgium

Prof. Dr. Rick Vogel


Chair of Public Management, Faculty of Business, Economics and Social
Sciences, University of Hamburg, Germany

Dr. Jurgen Willems


Post-doc researcher, University of Hamburg, Germany