New paradigms and pragmatic responses
The bureaucratic model created hierarchical organisations based on uniform standards for service. The need to improve effectiveness, efficiency and accountability drove many countries to implement innovative practices that would improve public-sector performance. This led to a modernisation of public-management structures and good governance. This caused a change in paradigm, referred to as “new public management” (NPM), which gave greater autonomy to managers and provided incentives for results-based management. This in turn has led to important reforms including the creation of executive agencies, the introduction of semi-contractual models with central government bodies and performance-related pay. This trend had a major impact in redefining the role of the State, which began to focus less on providing services and more on a leadership role that offered global strategic frameworks for markets. Market mechanisms were also used in the provision of services within the public sector. Strategic and preventive management of human resources served to strengthen the capacity of the State and to enable it to exercise its new functions.
Practice has shown that public administration requires its own techniques and instruments. While the NPM model shifted the emphasis in public administration reforms and governance, it did not always provide a clear response to the needs of public administration and often failed to address transparency in governance. Moreover, the NPM model focused on efficiency, sometimes at the expense of effectiveness. The need to create institutions and procedures intrinsic to the state to minimise trade-offs and face new challenges became apparent. As a result, the second wave of reforms emphasised the evaluation of results and sought to strengthen the link between the key processes of public sector management (budget, human resources management, audits) and results, with a particular focus on accountability. The role of regulatory reform increased in importance as it began to be recognised as an instrument of policy implementation. For instance, OECD economies introduced a system of checks and balances to define new rules as well as extensive mechanisms for updating and filtering existing regulation in the interest of consistency. Fiscal consolidation has increased the pressure on public administration. The crisis has affected the balance between the State, markets and society, and has led governments to assume greater responsibilities.
The current priority is to improve the capacity for strategic outlook, collective commitment and flexibility of resources to achieve greater coherence in policy action and recover sustained long-term development. Countries rely more than ever on a culture of performance. This makes it necessary to improve competitiveness and expand the range of options in providing services in order to improve public sector efficiency and promote greater participation of users in the design and delivery of public services. The spread of new technologies has opened the window to new opportunities. Technological change has provided new tools to manage information and improve
Communication – two basic elements in the provision of public services. This requires innovative and effective solutions in collaboration with citizens and businesses. The public sector must become more agile and improve its productivity without additional costs while relying more on e-government, telematics in government and the strategic management of human resources. New technologies also provide opportunities to transform the public sector into a “transparent entity” that facilitates citizen participation and improves the provision of services focused on users’ needs.8 Latin American countries are now better positioned than ever to reform their public sectors.
The countries of the region weathered the financial crisis well thanks to prudent decisions taken in recent years. For this reason, they now have the financial strength and credibility needed to undertake long-term reforms. The three Latin American G-20 countries – Argentina, Brazil and Mexico, enjoy the privileged position of participating in the construction of a new economic order and forming part of a group of countries that seek excellence in policy making (Box 2.2).
To create States able to meet development needs, Latin American countries do not necessarily need to follow the same path travelled by today’s developed countries. the last twenty years in Latin America have left a legacy of experiences that constitute a good basis for learning and to continue advancing. it is important to avoid the reproduction of management tools without taking into account institutional differences. it is necessary to learn, adapt and innovate.
Latin America has been a pioneer in the field of public policy, especially in social sectors. Latin America also pioneered programmes that provide conditional cash transfers to poor households as an incentive to adopt certain patterns of behaviour that would improve their living conditions, opportunities and social capital. After almost a decade since their introduction in many Latin American countries, conditional transfers are now being implemented in Africa and Asia. As shown in Figure 2.3, the degree of coverage varies by country, though a significant percentage of the total population can benefit, as is the case of the current programmes in Ecuador, Brazil and Mexico, among others.
Due to fiscal constraints, many reforms sought to mobilise private resources in order to increase the efficiency and coverage of public policies. The countries of Latin America were early proponents of the creation of social investment funds, public-private partnerships, subsidised schools and private social protection systems. These
initiatives were meant to bridge the wide gaps in the financing and management capacity of public policy by incorporating the private sector on the supply side. While not all of the experiences were successful, they have left a legacy of teachings that constitute a good base for further improving public policies. the three main conclusions from these experiences are: i) private provision does not absolve the authorities of their responsibility in developing these policy areas, ii) public service delivery by private providers raises a number of problems between principals and agents that should be properly solved with incentives and effective monitoring, and iii) public-private partnerships and other systems with external involvement should be evaluated according to the same principles as other elements of public policy.
The experience of OECD economies shows that there are no shortcuts nor is there only one path to developing an effective and transparent public sector. The road to public sector reform is long, rocky and requires prolonged cumulative efforts. Too often, political candidates promise sweeping changes in the public sector through very simple measures and many governments come to power with the promise of starting public sector reform from scratch, dismissing the work of their predecessors.
However, Latin American countries should be willing to continue on the path that has been set, aware that public reform will not be the product of a single government or leader, but the constructive work of many political actors and stakeholders. In this process, policy makers should be aware of the many obstacles they will face, evaluating the costs and benefits in the short- and long-term. The centralisation of power is a good example of this. Due to the weight of presidential systems and the need for strong leadership to escape the crisis, Latin American countries have tended to concentrate decision-making power in a few actors in the executive branch. This is especially true in the area of fiscal management, where the balance of power between the executive and legislative branches largely favours the former. Even in countries where parliament has the final say on approving the budget, as in Brazil, the executive branch can substantially amend the budget during its execution and alter expenditure items. These provisions may have contributed to fiscal discipline, but have also introduced a high degree of discretionality, which could lead to abuse. Some authorities may also become particularly vulnerable to influences or pressures. Such risks could be mitigated by joint decision-making and by holding authorities more responsible for their decisions. Policy trade-offs will not be resolved only with legislation —however well designed it may be— but with modifications to the very functioning of public institutions. To achieve this, it is necessary to go beyond local solutions and reform the systems of public administration, or develop others that are more appropriate. Systems need rules to function, but they are also characterised by a series of incentives and institutional structures that determine human behaviour.
Well-structured public administration systems can generate the main asset for governance: trust between the state and society. Distrust is a persistent element in the relationship between citizens and the state in Latin America. Special interests are likely to influence legislation, regulation and administration, but distrust can extend
to basic state institutions like the judiciary, the legislature and the police. Distrust is very harmful for public administration not only because it makes the relationship between public agencies and the state difficult, but also because it increases the transaction costs with the government. Policy trade-offs must be carefully monitored with special attention to how institutional systems could overcome them, while at the same time increasing trust in public institutions.
The Process of Reform in Latin America
It is important to study not only what practices should be adopted to foster development, but also how these reforms are achieved. This is the dilemma of the process of reform, which can be best understood terms of a “reform cycle” in five phases: planning, dialogue, adoption, implementation, and sustainability.1 Although these phases do not always unfold in a sequential pattern, it is useful to distinguish between them to assess the relative strength of each player and reform efforts and avoid pitfalls in the future (Diagram 2.1).
1 See Dayton-Johnson, Londoño and Nieto-Parra (2011) for an analysis of the cycle of reorms in Latin America.
The Stylised Reform Cycle: Stages, Main Actors & Bottlenecks
In the planning phase, the actors identify the problem, design the policy and build the reform agenda. In Latin America, this stage tends to be a creative and disorganised process. Executives have a near monopoly in the formulation of policy proposals, and only occasionally receive input from other actors. Regarding political parties, the low levels of party institutionalisation and high party fragmentation have created clientelistic, weak and short-lived political parties. Non-programmatic parties present challenges for reform planning, as policies will lack ex-ante planning and consistency over time. Co-ordination failures can be improved by promoting an increased participation of technical agencies, international organisations, and political parties. The technocracy of bureaucracy improves the quality of the ex-ante evaluation and the design of reforms, while international organisations help identifying the bottlenecks in the reforms and disseminating information on different country experiences.
Once designed, there is generally an inclusive and comprehensive dialogue between the stakeholders of a reform. This provides a space for public deliberation and debate, which helps build political support for the reform. In some Latin American countries there have been recent efforts to improve party discipline. Additionally, recent administrations are taking advantage of media influence on public opinion by using “strategic communication” and “news management” techniques to increase public support for the reform. Indeed, presidents have reinforced a direct communication with the public. However, excessive pressure by the media and the public opinion to reform adversely affects the quality of policies, as incumbents might prioritise highvisibility in reforms.
The socio-economic context and the organisation of the reform agenda are key elements in the adoption phase. The reforms are adopted by the three powers of the State, although the involvement of different branches depends on the reform in question. The Latin American experience confirms that the economic context affects the chances of adopting policy reforms. In general, crises beget reform — though not necessarily of a structural nature — and launching a “package” of reforms can aid in the correct adoption of policy. The end of millennium crisis triggered fiscal responsibility and transparency frameworks (e.g., Argentina in 1999, Brazil in 2000, Colombia in 2003, Mexico in 2006, and Peru in 1999) and well-designed structural balance fiscal rules (e.g., Chile in 2001, and Colombia is in the process toward approval). In the financial policy-making front, some Latin American countries improved the regulation and supervision of financial systems in the aftermath of the banking crises of the past decade (e.g., Colombia in 1999, Peru in 1999, and Uruguay in 2002). Additionally, leadership and a high degree of legitimacy of the incumbent are crucial at this stage.
Once the policy is adopted, it must be executed and implemented in the implementation phase. On the one hand, the executive branch is responsible for implementing the approved policies, while the legislative branch monitors, reviews and investigates in detail the activities of the government. However, the power of interest groups, weak institutional structures, coordination failures between sub-national and national governments, and soft sub-national budgetary constraints have led to policy obstruction in Latin America. This distorts the overall quality of policies and increases the national deficit. Fulfilling its role as watchdog, the media exposes bad policy implementations, rendering actors accountable for their actions. Thus, the wide gulf between de jure reforms and de facto implementation serves to encourage Latin America to make significant institutional changes in the policy making process.
Ex-post evaluations of reforms must improve the sustainability of policies in Latin America. From a political standpoint, sustaining a policy is difficult because it challenges policy makers to maintain the policy until it has proven successful, and to prevent its reversal by the following administrations. Evaluations can help to sustain reforms that bear fruits beyond the political cycle and to facilitate changes to make policies more effective by learning from the implementation process. Increasingly in Latin America, independence in ex-post evaluations has been guaranteed by technocracy and international organisations, allowing for greater accountability and enhancing the legitimacy of the State throughout the policy making process. In spite of this, there is still room for improvement.
Source: Dayton-Johnson, J., J. Londoño and S. Nieto-Parra (2011), “The Process of Reform in Latin America: A Review Essay”, OECD Development Centre Working Paper, No. 304, Paris.