World Public Sector Report 2001 - Globalization and the State

E c o n o m i c &

WORLD PUBLIC SECTOR REPORTGlobalization and the State

2001

United Nations

So

cia

l Aff

air

s

ST/ESA/PAD/SER.26

WORLD PUBLICSECTOR REPORTGlobalization andthe State2001

DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS

United NationsNew York, 2001

NOTESymbols of the United Nations documents are composed of capital letters combined withfigures. Mention of such a symbol indicates a reference to a United Nations document.

The designations employed and the presentation of the material in this publication do notimply expression of any opinion whatsoever on the part of the Secretariat of the UnitedNations concerning the legal status of any country or territory or of its authorities, orconcerning the delimitation of its frontiers.

A United Nations PublicationPublication No.: ST/ESA/PAD/SER.26Sales No.: E.01.II.H.2ISBN No.: 92-1-123145-0Printed in the United States of AmericaDecember 2001

Copyright © United Nations, 2001All rights reserved

iii

PREFACE

It is increasingly being acknowledged that the State is a key actor inthe development process. It has a major role to play in makingglobalization work for all; in alleviating poverty and income inequality;in advancing human rights and democracy; in protecting theenvironment and promoting sustainable development; and inmanaging violent conflict and combating international crime. Overall,public administration has a vital role to play in the quest for peace,greater freedom, social equity and sustainable development. Statescan either guarantee people�s freedom and a measure of socialjustice, or can hold back development. How the public sector isstructured, administered and operated, as well as what policies arepursued, has therefore a great impact on people�s well-being.

In light of the above, and in compliance with Recommendation No. 9of the Fifteenth Meeting of the Group of Experts on the United NationsProgramme in Public Administration and Finance, which was endorsedby the Economic and Social Council*, the United Nations Departmentof Economic and Social Affairs has decided to establish a recurrentpublication entitled "World Public Sector Report". This Report, which willbe published every two years, intends to review major trends and issuesconcerning public administration and governance. It will analyze thechallenges faced by governments in reforming particular areas of theirpublic sector, and highlight best practices in public administrationand/or national reforms, which may serve as a useful reference toother countries modernizing their public administration systems.

The purpose of the World Public Sector Report is to provide policymakers, scholars, and the civil society with relevant information, dataand research findings on issues related to the public sector. It is alsointended to facilitate the discussion of relevant public sector issues inthe agenda of the United Nations inter-governmental bodies such asthe Economic and Social Council. The Report will be articulated in twomain parts. The first part will be devoted each time to a specific themeof relevance to public administration and development coveringdifferent regions and countries, and the second part will elaborate onthe conceptual issues and the measurement of different dimensions ofthe public sector.

The theme that has been chosen for this inaugural issue of the Reportis "Globalization and the State". The choice has been dictated partlyby the controversy which still surrounds this subject, and partly by the

PREFACE

* Pursuant to resolution E/2001/45 of the Economic and Social Council (ECOSOC) dated 20December 2001, the Group of Experts on the United Nations Programme of PublicAdministration and Finance was renamed "Committee of Experts on Public Administration".

iv

WORLD PUBLIC SECTOR REPORT: GLOBALIZATION AND THE STATE

need to underscore the importance of strengthening the State and itsinstitutions in a globalizing world. The present volume is the confluenceof inputs from many different sources. It has drawn on the work andviews of eminent world personalities and institutions, as well as thereports of the Meetings of Experts in Public Administration and Finance,which bring together a representative group of noted practitionersand scholars from every part of the world. In this way it has beenpossible to shed, on all the problems reviewed in this Report, the lightof different perspectives emanating from different regions.

It is hoped that this Report will enrich the contents of the debate onglobalization, and broaden the range of participants. The discussionon this crucial issue and its relation with the development process willcontinue in the years to come. We believe it is important that in thisdebate the relationship between globalization and the action as wellas reaction of the State be seriously evaluated. This Report is thereforea contribution to this effect.

Nitin DesaiUnder-Secretary Generalfor Economic and Social Affairs

v

FOREWORD

Managing the public sector in today's environment of constantchange, particularly in view of globalization, has become anincreasingly demanding challenge for national decision makers, policyadvisors, service delivery managers and civil servants at large.

The functions and role of the State have been transformedsubstantially. The general configuration of its responsibilities haschanged and this has introduced important modifications both in thepolicy arena and in the State�s requirements for high-level skills,qualitatively and quantitatively. Overall, the course of change pointsto a shift of focus away from hands-on management and the directproduction of services and goods towards strategic planning with aview to the establishment and maintenance, refinement and reform ofan enabling framework for private enterprise and individual initiative.A parallel shift has moved the State�s centre of gravity and with it thelocus of power. Decentralization, debureaucratization andderegulation are adding to the importance not only of localgovernment, but also of non-state actors on whom significantfunctions are devolved or outsourced. At the same time, a range oftasks and policy decisions, traditionally handled by nationalbureaucracies in their respective capitals, is being increasinglytransposed to an inter-governmental or supranational level as a resultof increased flows between countries of goods, capital, labour andinformation. Increasingly, the State is called upon to act as "linking pin"of processes of planning, consultation, negotiation and decision-making involving diverse actors, State and non-state, at different levelsof governance. The State is the hub of activities connecting multiplepartners and stakeholders from very varied fields, regions, cultures,occupations, professions and interests.

It has also become apparent that the benefits of globalization havebeen so far uneven. Experience suggests that one of the main causesof the crises plaguing developing countries and the inability of some ofthem to integrate in the world economy is state capacity deficit.Globalization is certainly presenting many opportunities, includingforeign direct investment, trade, access to information technology;however, only countries that have in place an effective publicadministration, solid political and economic institutions, adequatesocial policies and a committed leadership can ensure that all sectorsof society benefit from greater integration into the world economy. In

FOREWORD

vi


order to make full use of the opportunities provided by globalization,as Part One of the Report maintains, developing countries need,among other things, to reinvest in their public sector and enhance theircapacity for policy analysis, formulation and implementation.Arguably, what countries need most in order to enable people toenjoy the benefits of globalization is to focus on strengthening theirinstitutions, develop human resources capacity, and achievetechnological adequacy � with a view to capturing the economicgains which globalization may bring and to mitigating its social costs.As Part Two shows, States with robust and far-reaching public sectoractivities are those which have best succeeded in achieving bothgoals. It is hoped that some of the suggestions contained in this Reportmay assist policy makers in developing appropriate strategies in thisdirection.

Guido BertucciDirector,Division for Public Economicsand Public Administration, DESA

vii

ACKNOWLEDGEMENTS

ACKNOWLEDGEMENTS

This first issue of the World Public Sector Report, on Globalization andthe State, was prepared by a team of the Division for Public Economicsand Public Administration (DPEPA) of the Department of Economicand Social Affairs (DESA). Under the overall responsibility of the Directorof the Division, Mr. Guido Bertucci, Mr. Demetrios Argyriades and Ms.Adriana Alberti were editor in chief and editor respectively of theentire Report, and contributed to Part I. A number of staff members ofthe Division also contributed in various degrees, including LarryWillmore who prepared Part II of the Report. The following externaladvisors provided valuable material, feedback and advice in thepreparation of this Report: G. Bouckaert, Gerald Caiden, NaomiCaiden, O.P. Dwivedi, Joachim Hesse, Michael Illner, Moses Kiggundu,Bernardo Kliksberg, Derry Ormond, José Sulbrandt, and Gérard Timsit.External editing, and layout and graphic design were provided byAngel Antonio García and Adolfo I. Vargas respectively.

CONTENTS

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix

GLOBALIZATION AND THE STATE

PART ONE

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Chapter I - The many facets of globalization . . . . . . . . . . . . . . . . . . . . . . . . . .7

1. Globalization: an overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71.1. Globalization: a complex phenomenon, involving a variety of

global trends and tendencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

2. What is driving globalization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92.1. Trade and investment liberalization policies . . . . . . . . . . . . . . . . . . . .92.2. Technological innovation and the reduction in communication

and transportation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102.3. The role of entrepreneurship in accelerating globalization . . . . . . . .132.4. International social networks: increase in number and strength . . . .13

3. The global village: economic and social dimensions of globalization . . . . . . . . . .143.1. Economic globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143.2. Social globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

4. The opportunities of globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .174.1. Greater economic opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .174.2. Greater global social awareness and opportunities for

democracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

5. Current trends and challenges affecting public administration in a globalizing world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

5.1. Alleviation of poverty and inequality . . . . . . . . . . . . . . . . . . . . . . . . .185.2. Advancement of human rights and democracy . . . . . . . . . . . . . . . . .215.3. Protection of the environment and sustainable development . . . . . . .225.4. Mobility of workers and migration . . . . . . . . . . . . . . . . . . . . . . . . . . .235.5. Demographic trends: ageing population and impact of HIV/

AIDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .245.6. Bridging the digital divide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .255.7. Combating international criminal networks . . . . . . . . . . . . . . . . . . .26

6. Too much or too little globalization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

ix

CONTENTS

Chapter II - The impact of globalization on the State . . . . . . . . . . . . . . . . . .29

1. How is globalization affecting the role and functioning of the State? . . . . . . . . .291.1. The role of the State in domestic and international governance . . . .291.2. The role of the State in multi-layered governance . . . . . . . . . . . . . . .31

2. Redesigning the State in the 1980s and 1990s . . . . . . . . . . . . . . . . . . . . . . . . . .322.1. Privatization and deregulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .342.2. Market-like mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .352.3. Decentralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .352.4. Debureaucratization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

3. New Public Management and its main tenets . . . . . . . . . . . . . . . . . . . . . . . . . . .363.1. Let the managers manage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .373.2. Empowering citizens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .383.3. New responsibility mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . .383.4. Introducing business principles into public affairs . . . . . . . . . . . . . .383.5. Downplaying the concept of �public service� . . . . . . . . . . . . . . . . . . .393.6. Promoting professional ethics in the public sphere . . . . . . . . . . . . . .393.7. Performance management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .393.8. Performance budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

4. Regional perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .414.1. Western Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .414.2. Eastern and Central Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .434.3. Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .444.4. Arab States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .464.5. Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .474.6. Latin America and the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . .50

5. Lessons learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .535.1. Failure to take into account history, local institutions and

cultural variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .555.2. Why have some States not been able to seize the benefits of

globalization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Chapter III - Reinforcing state institutions and social policies . . . . . . . . . . .63

1. Making globalization work for all . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63

2. New global dynamics require a fresh approach to the State . . . . . . . . . . . . . . . .632.1. What is meant by an intelligent, democratic State . . . . . . . . . . . . . .652.2. The relationship between intelligent, democratic States

and free markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .672.3. The role of the State in creating an enabling environment for

the private sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .682.4. Fostering partnerships between the State and civil society . . . . . . . .70

x


3. Creation of a strong and democratic institutional framework . . . . . . . . . . . . . .733.1. Democracy, freedom and participation . . . . . . . . . . . . . . . . . . . . . . . .733.2. Making democracy meaningful . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .753.3. The rule of law and public trust . . . . . . . . . . . . . . . . . . . . . . . . . . . .763.4. Strengthening and modernizing national judicial systems . . . . . . . .763.5. Strengthening and modernizing national parliaments . . . . . . . . . . .793.6. Promoting effective decentralization . . . . . . . . . . . . . . . . . . . . . . . . .80

4. The importance of strengthening social policies in an era of globalization . . . . .814.1. Reinforcing social capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .844.2. Public services for everyone: a desirable goal . . . . . . . . . . . . . . . . . . .854.3. Establishment of an information system to design and monitor

social policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .864.4. Inter-organizational management of social programmes . . . . . . . . . .864.5. Toward decentralizing social services . . . . . . . . . . . . . . . . . . . . . . . . .874.6. Community participation: a strategic key for renewing the

social institutional framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . .884.7. The focus of social management . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89

5. The case for robust multilateralism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93

6. The need for a balanced approach to globalization . . . . . . . . . . . . . . . . . . . . . . .96

Chapter IV - Strengthening the administrative capacity of the State . . . . .97

1. The management of change: the State as a �learning organization� . . . . . . . . . .97

2. Enhancing leadership skills and strategic planning capacities . . . . . . . . . . . . . .99

3. Fostering capacity-building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1003.1. Building cognitive capacity in the face of globalization . . . . . . . . . .101

4. The need for performance standards for management development . . . . . . . . .1034.1. Purposes of performance measures . . . . . . . . . . . . . . . . . . . . . . . . .104

5. The need for top-level managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105

6. Competencies needed to meet the challenges of globalization . . . . . . . . . . . . . .106

7. Public service professionalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1087.1. Transparency: a generalized demand . . . . . . . . . . . . . . . . . . . . . . . .1097.2. Managing diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109

8. Organizational responses for human resources development . . . . . . . . . . . . . .111

9. Technology and reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1149.1. Information technology: its promise and potential for reform . . . . .1149.2. Delivering on promises: coping with the digital divide . . . . . . . . . . .117

Footnotes - Chapter IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120

xi

CONTENTS

Chapter V - Looking towards the future . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121

1. What went wrong? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121

2. Reforms must be home-grown and made to fit real needs . . . . . . . . . . . . . . . . .121

3. Making democracy meaningful: the need for a strong, strategic State . . . . . . .122

4. The State as linking pin: a strong supportive centre . . . . . . . . . . . . . . . . . . . . .122

5. Building the essential competence for an intelligent, democratic State . . . . . .123

6. Reinforcing core public service values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124

7. Assisting developing countries with institution-building . . . . . . . . . . . . . . . . .124

8. Building networks among public services: the United Nations can help . . . . .125

9. Helping developing countries to cope with complexity and change . . . . . . . . . .125

10. Making globalization an instrument of inclusion . . . . . . . . . . . . . . . . . . . . . . .126

BOXES

I.1. The world according to Keynes in 1919 . . . . . . . . . . . . . . . . . . . . . . . .8I.2. Different views on globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9I.3. What is globalization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10I.4. Defining and measuring foreign direct investment . . . . . . . . . . . . . .15I.5. Poverty in an unequal world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19III.1. Declaration of the Millennium Assembly of the UN . . . . . . . . . . . . . .67III.2. A compact for the new century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69III.3. The Administration and Cost of Elections project (ACE) . . . . . . . . . .74III.4. Information technology and the courts in Australia . . . . . . . . . . . . . .79III.5. Yerevan Declaration on Decentralization . . . . . . . . . . . . . . . . . . . . . .81IV.1. The United Nations Online Network in Public

Administration and Finance (UNPAN) . . . . . . . . . . . . . . . . . . . . .102IV.2. How did the internet develop? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

GRAPHS

I.1. Declining sea transportation costs since 1920 in US$ . . . . . . . . . . . .11I.2. Declining air transportation costs since 1930 in US$ . . . . . . . . . . . .11I.3. Declining telecommunications costs since 1930 in US$ . . . . . . . . . . .11I.4. Top 15 countries in computers-in-use year-end 2000 & 2001 . . . . . . .12I.5. Tax revenues as % of GDP, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . .20I.6. Population living below US$1 per day in developing

countries in 1990 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

xii


II.1. Taxes as share of GDP (%), 1994-98 . . . . . . . . . . . . . . . . . . . . . . . . . .33III.1. Proportion of countries with democratic governments (%) . . . . . . . . .73III.2. Share of government budget spent on basic services (%) . . . . . . . . . .84III.3. World Health Indicators 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92

References - Part One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127

PART TWO

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .137

Defining and measuring the size of the State . . . . . . . . . . . . . . . . . . . . . . . . .139

1. Conceptual framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1391.1. The State as regulator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1391.2. The State as tax collector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1401.3. The State as producer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1401.4. The State as consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1421.5. The State as provider of cash transfers and subsidies . . . . . . . . . . . . . .1441.6. Measuring the size of the public sector . . . . . . . . . . . . . . . . . . . . . . . . . .144

2. Measures of the size of government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1452.1. Government and public sector employment, 1990 and 1997 . . . . . . . . . .1462.2. Government consumption, 1990 and 1997 . . . . . . . . . . . . . . . . . . . . . . . .1492.3. Central government expenditure, 1990 and 1997 . . . . . . . . . . . . . . . . . .1512.4. Central government tax revenue, 1990 and 1997 . . . . . . . . . . . . . . . . . .153

3. Determinants of the size of government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1543.1. Economies of scale in government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1543.2. Income per capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1563.3. Globalization and size of government . . . . . . . . . . . . . . . . . . . . . . . . . . . .1573.4. Changes in the size of government . . . . . . . . . . . . . . . . . . . . . . . . . . . . .158

4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1594.1. How can the size of the public sector be measured in theory? . . . . . . . .1594.2. How can the size of the public sector be measured in fact? . . . . . . . . . .1604.3. What accounts for observed variation in the size of the public sector? . .161

FIGURES1. The public sector in the 1993 System of National Accounts

(SNA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1412a. 1990 Ratio of government employment to population . . . . . . . . . . .1502b. 1997 Ratio of government employment to population . . . . . . . . . . .1502c. Government employment as % of population . . . . . . . . . . . . . . . . . .1503a. 1990 Ratio of public sector employment to population . . . . . . . . . . .1503b. 1997 Ratio of public sector employment to population . . . . . . . . . . .1503c. Public employment as % of population . . . . . . . . . . . . . . . . . . . . . . .150

xiii

CONTENTS

4a. 1990 Ratio of government consumption to GDP (PPP prices,percentages) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153

4b. 1990 Ratio of government consumption to GDP (domestic prices,percentages) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153

4c. 1997 Ratio of government consumption to GDP (domestic prices,percentages) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153

5a. 1990 Ratio of central government expenditure to GDP . . . . . . . . . .1565b. 1997 Ratio of central government expenditure to GDP . . . . . . . . . .1566a. Small territory: economies of scale in government . . . . . . . . . . . . . .1586b. Large territory: economies of scale in government . . . . . . . . . . . . . .1587. Openness and central government expenditure (total) . . . . . . . . . .1608. Openness and central government expenditure (modern state

functions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1609. Openness and central government tax revenue . . . . . . . . . . . . . . . .160

TABLES1. Government and public employment as a percentage of

population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1472. Government consumption as a percentage of GDP . . . . . . . . . . . . .1523. Central government expenditure as a percentage of GDP,

domestic prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1544. Central government expenditure by type and by function, as

percentage of all central government expenditure, 1997 . . . . . . . .1555. Central government tax revenue as a percentage of GDP, 1990

and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .157

Technical AppendixTABLES

A1. Dependent variables used in regressions . . . . . . . . . . . . . . . . . . . . .163A2. Independent variables used in regressions . . . . . . . . . . . . . . . . . . . .164A3. Regression of government employment/population ratios on

country size and other variables . . . . . . . . . . . . . . . . . . . . . . . . . .165A4. Regression of government consumption/GDP ratios on country

size and other variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .166A5. Regression of central government expenditure/GDP ratios on

openness and other variables . . . . . . . . . . . . . . . . . . . . . . . . . . . .167A6. Regression of central government tax revenue/GDP ratios on

openness and other variables . . . . . . . . . . . . . . . . . . . . . . . . . . . .168A7. Regression of components of central government taxes/GDP

ratios on openness and other variables, 1990 . . . . . . . . . . . . . . . .169A8. Regression of components of central government taxes/GDP

ratios on openness and other variables, 1997 . . . . . . . . . . . . . . . .170A9. Regression of changes in central government expenditure/GDP

and taxes/GDP ratios on changes in openness, income and other variables, 1990-1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .171

xiv


Statistical AppendixTABLES

B1. Government consumption as a percentage of GDP, 1990 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173

B2. Central government expenditure as a percentage of GDP(domestic prices, 1990 and 1997) . . . . . . . . . . . . . . . . . . . . . . . . . .177

B3. Central government tax revenue as a percentage of GDP, 1990 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .180

Footnotes and References - Part Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183

xv

CONTENTS

PART ONE

PART ONE

To be sure, globalization offers many oppor-tunities for people across the world - in par-ticular, greater economic liberalization andincreased social and political interdependence- but it also implies costs. Economic openness,foreign direct investment, and transfer of tech-nologies promise a number of benefits toboth developed and developing countries.Free trade promotes specialization among dif-ferent regions, allowing them to apply theirown comparative advantages. It also ex-pands the consumption opportunities of coun-tries by allowing the efficient interchange ofgoods and services. Free trade provides op-portunities for developing countries in that itopens new markets for export and attracts for-eign capital, which aids development. Foreigndirect investment can lead to a transfer of tech-nologies and know-how, increasing domesticproductivity and employment levels.

As inferred in chapter I, increased interde-pendence, which has been made possible inpart by the advancements in information andcommunication technologies and the reduc-tion of transportation costs, has provided peo-ple with new tools to support and dissemi-nate the universal values of democracy, hu-man rights, transparency, and alleviationof poverty. Information and communicationtechnologies are also contributing to the in-tegration of the fastest growing developingcountries in the global economy. It remainsto be demonstrated, however, whether in-formation technology has the potential to al-low countries to leapfrog stages of econom-ic growth and to modernize. Finally, chapterI highlights the opportunities and costs thatglobalization entails, as well as the chal-lenges that public administration systems arestill facing in a globalizing world.

lobalization, although not anew phenomenon, is unques-tionably of paramount signifi-cance for all countries, developed

or developing, rich or poor, large or small. Whatis globalization? How is globalization af-fecting the role and functions of the nation-State? Is globalization "good" or "bad"? Is therea universal understanding of its potential orits costs? Can all societies benefit from glob-alization? Are all States adequately pre-pared to enable their people to seize the op-portunities of globalization while minimiz-ing its negative effects? How should publicadministration systems be redesigned inview of the changes occurring at the globallevel?

Part One of this Report deals with globalizationand the State, and comprises five chapters.This Part attempts to answer the above stat-ed essential questions, as well as others, inan objective and clear fashion, based on ob-served experience and the views of prominentexperts on the matter. The following para-graphs present a synthesis of the contentsof Part One.

In order to assess the opportunities thatglobalization brings in its trail, chapter I be-gins with an overview of the subject. Muchhas been written on this complex phenome-non in recent years, albeit in contrasting terms.Conflicting views have resulted in a dis-cernible trend to demonize or sanctify glob-alization, ascribing to it attributes which itclearly does not possess. Chapter I analyzesthe significance of globalization, which inessence is still an ill-defined concept, and de-scribes its major facets.

3

INTRODUCTION

G

Part One

Introduction


as a consequence of economic restructuring,thus preventing that all benefit from global-ization.

The lessons of the past also point to the ba-sic fallacy of top-down, externally-induced,supply-driven reforms, which have beenoverly influenced by models not always per-tinent to the needs of the recipient countries,taken insufficient cognizance of cultural di-versity and tended to play down the role ofthe socio-economic environment in differentcountries and regions. Furthermore, chapterII underlines that, in order to be successful,reforms must be "home-grown", broadly intune with the prevalent culture and "owned"by the people concerned. The Report isstrongly in favour of a "trade in high-levelskills" and an exchange of experience amongall Member States of the United Nations. Ittakes the view, however, that transfers of skillsand experience produce sustainable out-comes only when they correspond to an ef-fective demand from the recipient country andwhen the country�s government remains incontrol of the process of adjustment, adap-tation and reform.

Chapters III and IV look to the future, andbuild on lessons learned from the experienceof twenty eventful years. They explore thequestion of how to make globalization workfor all and how to reform the State so thatpeople can fully benefit from greater integrationinto the world economy. Experience suggeststhat one of the main causes of the crises plagu-ing developing countries and the inability ofsome of them to integrate into the world econ-omy is state capacity deficit. In fact, only coun-tries that have in place an effective publicadministration, solid political and econom-ic institutions, adequate social policies (es-pecially social safety nets) and a committedleadership can ensure that all sectors of so-ciety benefit from globalization, including for-eign direct investment, trade, and access toinformation technology. To fully integratein the world economy, developing countriesneed to modernize their public sector and en-hance their capacity for policy analysis, pol-icy formulation and implementation. High pri-ority should be given to capacity-building of

Despite the great opportunities that global-ization presents, not all countries have beenable to take full advantage of it. Experiencehas shown that some countries have faredmuch better than others, while some havenot benefited at all. In view of the unevendistribution of the benefits of globalizationworldwide, chapter II explores the impact ofglobalization on the State and the past re-forms in public administration or responsesto globalization in Western Europe, Easternand Central Europe, Asia, Arab States,Africa, and Latin America and theCaribbean. The purpose of this analysis is toassess whether past policy prescriptions, es-pecially in developing countries and countriesin transition, have fostered greater devel-opment and have allowed people to fullytake advantage of globalization. The substanceof the regional perspectives included in thischapter has been drawn from studies con-tributed by specialists in preparation for theFifteenth Meeting of Experts on the UnitedNations Programme in Public Administrationand Finance, which took place in New Yorkin May 2000.

Chapter II examines the thrust and out-comes of this outreach and related policy trans-fers. It reviews both the substance of thesepolicy transfers and their effects on the ca-pacity of States to harness globalization. Italso attempts a synthesis of lessons drawnfrom the experience of countries in these re-gions during the past two decades. The re-gional perspectives show that while reducingthe role of the State in the economic sphereand making public administration more effi-cient have, in many instances, brought aboutpositive results, the retreat of the State fromthe social area and the weakening of state in-stitutions have not allowed people to fully ben-efit from globalization for a number of reasons.States with weak institutions do not providea stable and suitable environment to attractforeign investment, promote entrepreneurialcapacity and favour economic exchanges; theydo not create the conditions for the develop-ment of a vibrant civil society as they lack thecapacity to address the persisting problemsof poverty and inequality; they are unable toprovide social safety nets to those who suffer

4

three interrelated and complementary Statedimensions: institution-building; human re-sources development; and technological ad-equacy.

As suggested in chapter III, the response toglobalization resides on many levels. It re-volves around the concept of an "intelligent,democratic State", which does not imply "biggovernment" and is clearly antithetical to tra-ditional "bureaucracy", qualified as rigid,paternalistic, intrusive and authoritarian. Itis fully compatible with the emergence of freemarkets and a vibrant civil society, both ofwhich are predicated on the existence and de-velopment of institutional frameworks thatmaintain an enabling environment for pri-vate enterprise and other individual or col-lective creative pursuits. Intelligent demo-cratic States, as chapter III and IV show, aredoubly necessary: (a) on the national and sub-national levels, to secure the rule of law, pro-mote economic development, foster socialwelfare and ensure a more even-handed dis-tribution of both the costs and benefits thatflow from globalization; and (b) on the inter-governmental or supra-national level, to se-cure peace and stability, and promote the ruleof law in international relations. Related tothis concept are the needs for strategic re-sponses to globalization. These include in-stitution-building, reinforcement of socialpolicies, and enhancement of professionalismand ethics. Strengthening state institutionsand redefining the role of the State is para-mount to development and to enabling peo-ple to seize the opportunities of globalization.With or without globalization, the State, es-pecially in developing countries and countrieswith economies in transition, has a very im-portant role in financing or supplying basicsocial services, such as health, educationand adequate infrastructure (hospitals,schools, roads, etc.). The State should focuson development and redistribution in orderto empower people and to give them the in-struments to live a dignified life. At thesame time, the State should refrain from pro-ducing and providing goods and non-socialservices. The State could, in this respect, es-tablish clear rules and solid economic insti-tutions that allow the market to function prop-

erly. Interventions in the market shouldclearly be directed at correcting market fail-ures in relation to sound political objectives.

Chapter III maintains that an intelligent dem-ocratic State and free markets go hand in hand.In fact, contrary to what may be the commonbelief, economic globalization (e.g., freetrade) does not equal a laissez-faire govern-ment. Nevertheless, some political com-mentators take the position that globaliza-tion is incompatible with the Welfare State.Some urge the downsizing of government inorder to meet the demands of internationalcompetition, while others decry the "race tothe bottom" that globalization supposedly en-tails, and thus oppose globalization. Yet, log-ic and evidence suggest that these positionsmay not be correct for two reasons. First, in-ternational trade and investment, unlikeoligopolistic rivalry, is not a zero-sum game.In effect, trade benefits all countries be-cause it enhances the choices of the con-sumer and the quality of products. All par-ties to voluntary exchange gain. Second, theassumption that globalization reduces the sizeof government is not supported by evidence.The fact is that open ("globalized") econo-mies have larger, not smaller, government ex-penditure. However, there might be other rea-sons that explain the higher governmentexpenditure, such as the level of overall de-velopment of a country. As shown in Part Twoof this Report, the majority of the "globaliz-ers" actually registered increases in expen-diture and tax revenue. Therefore, there isno evidence that globalization weakens theState. On the contrary, increased globaliza-tion goes hand in hand with higher expen-diture. As such, globalization should not beused as an excuse to abandon the role of thegovernment in meeting the basic needs of thecitizens.

Chapters III and IV maintain that, while glob-alization has great potential, without ap-propriate domestic conditions the adjust-ment costs may be too high for vulnerablegroups in society. Both chapters also under-score that weak legitimization and a "dem-ocratic deficit" coupled with ineffectivenessin policy development and implementation

5

INTRODUCTION

account to some extent for weak represen-tation in global fora, of the rights, needsand interests of a large part of humanity wholive in developing countries. Though fully rec-ognizing the many limitations imposed by pow-er politics coupled with vast disparities inknowledge and technology, power andwealth, the present Report argues that as-sisting developing countries strengthen theircapacity could help redress the imbalancewhich has adversely affected their activeparticipation in global fora and in the worldeconomy.

Chapter IV explores what actions must betaken to raise the capacity level of the de-veloping countries and countries witheconomies in transition, and highlights theconcept of the State as a "learning organi-zation". It focuses in particular on enhanc-ing leadership skills and strategic planningcapacities; fostering capacity-building; andstrengthening cognitive capacity in the faceof globalization. It also emphasizes the needof performance standards for managementdevelopment; the need for top level managers;the competencies required to meet the chal-lenges of globalization; public service pro-fessionalism; organizational responses forhuman resources development; as well as thepromise and potential for reform of informationtechnology.

Chapter V pulls together the various elementsof the present Report, highlights its majorfindings, states its conclusions and underlinesthe substance of its proposals for action. Italso touches on the role that the United Na-tions and other international organizationscan play to further this objective.

In summary, this Report wants to emphasizethe importance of the role which the Statemust assume in the face of globalizationboth at the national and international lev-els. As forcefully expressed by the United Na-tions Secretary-General, Kofi Annan: themany "challenges that we confront todayare beyond the reach of any State to meeton its own. At the national level, we must gov-ern better, and at the international level, wemust learn to govern better together. Effec-

tive States are essential for both tasks, andtheir capacity for both needs strengthen-ing" (UN, 2000, Millennium Report, A/54/2000, para. 15). In fact, "notwithstanding theinstitutional turmoil that is often associat-ed with globalization, there exists no otherentity that competes with or can substitutefor the State. Successfully managing glob-alization, therefore, requires first and fore-most that States act in a manner consistentwith their dual role" � that they are respon-sible towards their own society and the plan-et as a whole (ibid., para. 43).

6


There is also no common understanding ofwhether it has produced a quantitative or aqualitative change in global economic and po-litical structures. Furthermore, globaliza-tion has often been used as a rhetorical de-vice to advance specific interests or agendasat the expense of others. That is to say, glob-alization has been invoked by different pres-sure groups as a concept justifying the ideasand actions of both its proponents and de-tractors.

Though there is some agreement amongscholars and experts that globalization is pro-ducing greater interconnections and inter-dependence, there seems to be little con-sensus on the degree of integration it engendersand on its pervasiveness. Different viewshave emerged on this issue. As way of sim-plification, four different positions can be ac-counted for: "The first identifies globalizationwith an increasing homogenization within theglobal system, which would ultimately leadto assimilation. The second � the �strongglobalization view�� contends that homogeneityremains highly unlikely within the global sys-tem, but that a range of qualitative andquantitative changes have combined to in-troduce a new condition, or set of processes,into world affairs that warrant the novel term�globalization�. The third position � the�weak� globalization perspective � maintainsthat many of the undoubtedly important de-velopments of recent decades signal a sig-nificant increase of internationalization with-in the international political economy that hascomplex but variable consequences for poli-tics, economics and society, but that has notushered in a distinctively new era in human

1. Globalization: an overview

lobalization is one of the most de-bated issues of our times elicit-ing both great enthusiasm anddeep concern. It has engen-

dered images of a peaceful borderless worldcharacterized by prosperity for all, or it hasbeen depicted as the progressive advancementof "frightening" multinational corporationsand their control over world-wide natural re-sources, manufacturing, finance and cul-ture. The image of globalization as a prom-ise or threat is, in fact, one of the most pow-erful and persuasive images of our times(Veseth, 1998). Yet, despite the vast litera-ture on this subject and the ongoing discus-sion, globalization remains an ill-definedconcept.

Some view it as the international system thathas succeeded the end of the Cold War, whileothers prefer to continue using the term "in-ternationalization" to describe the currentchanges in the international economy. Asthe Secretary-General of the United Nationshas observed, "some emphasize the in-creased mobility of factors of production,goods and services across borders and the re-sulting emergence of a truly global market.Others see primarily the results � and futurepotential � of an explosive progress in in-formation technology, while still others viewglobalization primarily from societal andcultural perspectives" (UN, 1999, A/RES/163). It is not clear, therefore, whether theterm �globalization� is generally "employed[to refer to] a historical epoch, a process, atheory, or a new paradigm" (Reich, 1998, p. 2).

7

THE MANY FACETS OF GLOBALIZATION

G

Chapter I

The many facets of globalization


1.1. Globalization: a complex phenomenon, involving a variety ofglobal trends and tendencies

Globalization is not a new phenomenon. In-terdependence and interconnections amongnations and peoples have a long history,which can be dated in parts of the world asearly as the XVI century, or even earlierduring the time of the Roman, Hellenistic andeven Persian Empires. The present processof increased international interconnectionsand technological innovation may be compared,in some respects, to the transformations ofthe mid XIX century to early XX century. Dur-ing that period governmental policies aswell as new technologies such as the telegraph,the steam engine, the railways and steam-driven vessels brought about a dramatic in-crease in world trade, international compe-tition and interdependence (ibid.). Viewed fromthis perspective, globalization may be con-sidered as an advanced stage of the histor-ical process of interdependence, which althoughcurrently accelerating with unprecedented mo-mentum, is by no means irreversible, as itwas not in the 1920s. Two world warsabruptly reversed the progress made in fos-tering international trade as autarchic sys-tems came to replace open economies, and,for decades, a political and ideological divideseparated peoples on all continents. Though,as with any historical process there may bea sudden change in the direction of events,in the next few years increased interde-pendence and cross-border integration, es-pecially in specific economic areas, are morelikely than not to continue given the com-mitment of many countries to further tradeliberalization.

Although it is not easy to define globaliza-tion, we shall refer to it as increasing andintensified flows between countries of goods,services, capital, ideas, information and peo-ple, which produce national cross-border in-tegration of a number of economic, social andcultural activities. Thus, globalization in-cludes a variety of trends and tendencies. Itis not a single process, but a combination ofdifferent processes. It has increasingly tak-en on a multidimensional character: not on-

affairs. The final � rejectionist � position de-fends the view that nothing of any great orirreversible significance has taken place"(Jones, 2000). Most observers have dis-missed the most radical views, i.e. that glob-alization is leading to assimilation or that itis not upon us. The crucial debate is thus be-tween the "strong" and "weak" globalizationpositions.

This chapter is aimed at shedding light onthe concept of globalization, analyzing whatit implies, and what opportunities it canbring to people around the globe, as well asthe costs it may entail. It also takes stock ofthe challenges affecting public administra-tion in an increasingly interconnected world.An overview of the main causes and char-acteristics of globalization will serve to high-light the complexities, as well as the chal-lenges and pressures that States are in-creasingly facing in a globalized world.

8

Box I.1

THE WORLD ACCORDING TO KEYNES IN 1919

The world depicted by John Maynard Keynes in 1919 in �The EconomicConsequence of the Peace� resembles, in many ways, an account fromour times: "What an extraordinary episode in the economic progress of manthat age was which came to an end in August 1914! The greater part of thepopulation, it is true, worked hard and lived at a low standard of comfort,yet were, to all appearances, reasonably contented with this lot. Butescape was possible, for any man of capacity or character at all exceed-ing the average, into the middle and upper classes, for whom life offered,at a low cost and with the least trouble, conveniences, comforts, andamenities beyond the compass of the richest and most powerful monarchsof other ages. The inhabitant of London could order by telephone, sippinghis morning tea in bed, the various products of the whole earth, in suchquantity as he might see fit, and reasonably expect their early deliveryupon his doorstep; he could at the same moment and by the same meansadventure his wealth in the natural resources and new enterprises of anyquarter of the world, and share, without exertion or even trouble, in theirprospective fruits and advantages; or he could decide to couple the secu-rity of his fortunes with the good faith of the townspeople of any substantialmunicipality in any continent that fancy or information might recommend.He could secure forthwith, if he wished it, cheap and comfortable meansof transit to any country or climate without passport or other formality,could dispatch his servant to the neighbouring office of a bank for suchsupply of the precious metals as might seem convenient, and could thenproceed abroad to foreign quarters, without knowledge of their religion,language, or customs, bearing coined wealth upon his person, and wouldconsider himself greatly aggrieved and much surprised at the least inter-ference. But, most important of all, he regarded this state of affairs as nor-mal, certain, and permanent, except in the direction of further improve-ment, and any deviation from it as aberrant, scandalous, and avoidable"

Source: Keynes, 1919, ch. 2.

ly economic, but also political, social andcultural. As such, we may speak of differentglobalizations or dimensions of globalization.

2. What is driving globalization?

The forces that lie behind globalization andwhich have interacted among them produc-ing greater interdependence and integra-tion, may be summarized as follows:

� Trade and investment liberalization poli-cies;

� Technological innovation and the reductionin communication and transportation costs;

� Entrepreneurship;

� Global social networks

2.1. Trade and investment liberalization policies

Technological innovation and entrepreneur-ship cannot alone explain the process ofglobalization. We should not forget that theimpetus towards greater economic integra-tion has stemmed from the efforts of gov-ernments to remove barriers to trade and in-vestment. Increased global integration in anumber of economic areas began to intensi-fy in the 1980s when many governmentssupported economic liberalization. "The lat-ter has included financial sector deregulation,the removal of controls over foreign ex-change and enhanced freedom of trade. Fi-nancial deregulation has resulted in the pro-gressive elimination of capital controls, theremoval of controls over interest rates, andthe lifting of traditional barriers to entry in-to banking and other financial services" (Ca-ble, 1995, p. 3).

State efforts to uphold free trade and to en-courage the reduction of trade barriers havebeen reflected in the eight successive nego-tiating rounds of the General Agreement onTrade and Tariffs (GATT), which culminat-ed in 1995 with the establishment of a mul-

tilateral trading system � the World TradeOrganization (WTO). The latter has not on-ly led to the reduction of barriers to trade ingoods, but has also proceeded to liberalize serv-ices and capital flows. The WTO has also fo-cused more closely on an ever-growing rangeof policy measures affecting the terms andconditions of market access, such as standardsand regulations, subsidy practices, and in-tellectual property rights (WTO, 1998 AnnualReport).

It is of great importance to underscore thepolitical source of economic globalization inorder to avoid interpreting this phenomenonas a deterministic force about which little canbe done. Economic globalization is not ablind force. It is still individual governmentsthat are setting the policies and the rules ofthe globalized economy. Thus, we should notforget that the State has played a pivotal rolein allowing greater interdependence andeconomic integration of specific activities

9


Box I.2 DIFFERENT VIEWS ON GLOBALIZATION

�Globalization is the inexorable integration of markets, nation-states andtechnologies to a degree never witnessed before -in a way that is enablingindividuals, corporations and nation-states to reach around the world far-ther, deeper and cheaper than ever before. Globalization is not simply atrend or a fad but it is, rather, an international system.� (Friedman, 2000, p. 9).

"Globalization is an increase in interconnections, or interdependence, a risein international flows, ... such that the world is, in some respects, becominga single place." (Mittleman, 2000, p. 3).

�Globalization is the internationalization of finance and production; accel-erating applications of transformational technologies; and the growinginterconnections among the people of the world.� (Jones, 2000, p. 21).

�Globalization is the growing interdependence of the world's people. Andglobalization is a process integrating not just the economy but culture,technology and governance.� (UNDP, 1999, Human Development Report, p. 1).

Economic globalization is "the increasing integration of input, factor, andfinal product markets coupled with the increasing salience of multinationalenterprises (MNEs) cross-national value-chain networks." (Prakash and Hart,2000, p. 2).

"Globalism is a phenomenon with ancient roots and globalization is aprocess of increasing globalism, now or in the past" (Keohane and Nye, 2000,p. 108).

"The economy is predominantly international, not global and thereforestates, although in a slightly different way, still play a central role in its gov-ernance.� (Hirst and Thompson, 1996, pp. 178-189).

through the elaboration and adoption ofmarket-oriented policies and regulations, atboth the international and local levels. Eco-nomic globalization can be said to resultfrom policy decisions made by individualcountries that allow global market forces tooperate.

The problem is which countries set the rules,whom do they favor and how can the leastpowerful also influence policy-making in theinternational arena, and do it in ways thatwill benefit them. Some countries do nothave as much leverage as others do in set-ting the international economic and politi-cal agenda due to significant power imbal-ances among nations that are reflected in in-ternational institutions. As a consequence,the present form of globalization is largelyshaped by the rules advanced by one part ofthe world � namely the most influential � andthese rules do not necessarily favour devel-oping countries and countries in transition.

2.2. Technological innovation andthe reduction in communicationand transportation costs

Technological innovation, as well as the con-stant reduction in transportation and com-munication costs is responsible for drasticallytransforming the ease, speed, quantity, andquality of international information flows, aswell as physical communications (Cable,1995). In particular, information technologyand multimedia communications are pro-ducing shrinkage of distance and accelera-tion of change. Due to technological ad-

vances in the past 70 years, transportationand communication costs have declineddrastically. The end of State monopolies - whereand when it has happened - and thereby theintroduction of greater competition in thetelecommunication sector, is also responsi-ble for a sharp decline in communication costs.

As shown in graph 1 below, the average costof freight and port charges per ton has de-creased from over US$ 90 to approximatelyUS$ 30 constant dollars between 1920 and1990. The decrease in average revenue perpassenger mile between the years 1920 and1990 has gone from US$ 0.7 to US$ 0.1 asshown in graph 2 below. Moreover, a three-minute call between New York and Londonhas decreased from almost US$ 300 to lessthan US$ 1 dollar over that period, as shownin graph 3 below, or it can be free over theInternet. The cost of computers has alsodramatically decreased over the past years,as well as that of wireless communications.This implies that many transactions can beprocessed in no time and at relatively low cost.

Indeed, there is no field of technologicalprogress, which has evolved more rapidly, inthe past 20 years than information technol-ogy (IT). Taking shape through the conver-gence of semiconductors, computers, tele-communications and software technologies,the information revolution has producedrapid and sustained falls in the cost of pro-cessing, storing and transmitting information.Thus, it promises to make the informationand knowledge base of humankind avail-able anywhere, anytime, in any language.Businesses and individuals, mainly in the de-veloped world, can now perform a wide num-ber of activities through the informationhighways in a matter of seconds. The grow-ing interest in this relatively new channel ofcommunication is reflected by the number ofInternet sites, which rose by 118% in only twoyears, i.e. between 1997 and 1999 (NUA, 1999).

During the past decade, two significant de-velopments have greatly accelerated theglobalization of information flows. The firstis that computers have invaded millions ofhouseholds. The second is the emergence

10


Box I.3 What is Globalization?

� Globalization is increased global integration and interdependence.

� It is not a totally new phenomenon.

� It has a multidimensional character: economic, political, social and cultural.

� It is characterized by unprecedented rapid flows of goods and services; private capital; circulation of ideas and tendencies; andthe emergence of new social and political movements.

Source: DPEPA/DESA, 2001.

and development of the Internet technologies.The former demonstrates that the role of com-puters has been extended dramatically, notonly as a tool for state and business organ-izations, but also as a household electronicappliance for information retrieval and pro-cessing, for education, for entertainmentand for communication. The latter leads toa great leap in the technical and humanability to access, interpret and use informa-tion. It presages the advent of a national in-formation infrastructure (NII) and a globalinformation infrastructure (GII) in the com-ing information age.

It has been estimated that in March 2000 therewere 400 million personal computers and about1 billion telephones in the world; 276 millionInternet users worldwide with a growth rateof roughly 150,000 persons per day; 220 mil-lion devices accessing the World-Wide Webwith almost 200,000 devices being addedevery day. Total world bandwidth (trans-mission capacity of computer networks or oth-er telecommunications systems worldwide)in 1996 amounted to 200 trillion bits per sec-ond. In 2001, there will be a bandwidth of9,000 trillion bits per second. It is also esti-mated that, 10 years from now, there will be 1billion personal computers and 3 billion tele-phones in the world.

Governments, organizations and businessenterprises are seeking to harness the Internetto advertise and disseminate information.There are millions of web-sites, homepagesand diverse documents on the Internet,which cover thousands of subjects. At pres-ent, web pages total 1.5 billion with almost2 million pages being added every day. IT hasgreatly stimulated the globalization of in-formation. Information flows on topics rang-ing from politics and business to sports cir-culate among organizations, cities, nations,regions and individuals day and night.

The Computer Industry Almanac has re-ported that:

� By the year 2002, 490 million peoplearound the world will have Internet access,that is 79,4 per 1,000 people world-wide;

� By the year-end 2005, 765 million peoplewill be connected to the Internet, that is118 people per 1,000;

� By 2010, Chinese online users are ex-pected to outnumber US users;

� NUA reports that 60 per cent of the worldonline population will be outside the US by2003.

11


Graph I.1.Declining Sea Transportation costs since 1920 in US$

(average cost of freight and port charges per ton)

0

20

40

60

80

100

1920 1930 1940 1950 1960 1970 1980 1990

Source: IMF, 1997

Graph I.2.Declining Air Transportation cost since 1930 in US$

(average revenue per passenger mile)

0

0.2

0.4

0.6

0.8

1920 1930 1940 1950 1960 1970 1980 1990

Source: IMF, 1997

Graph I.3.Declining Telecommunication costs since 1930 in US$

(3 minutes NY/London)

0

50

100

150

200

250

300

1920 1930 1940 1950 1960 1970 1980 1990

Source: IMF, 1997

N/A

N/A

The Internet (see graph I.4 below), as wellas other communication devices, such as thecellular phone and fax machines, have con-tributed to shrinking distance and time, andhave allowed people to connect and com-municate instantaneously. The option of be-ing able to access the Internet from specialmodels of cellular phones may also representa breakthrough in the communication sec-tor, especially for developing countries thathave not developed an extensive cable sys-tem and are now able to use cellular phonesin their daily work activities.

However, as in the case of economic global-ization, there is nothing deterministic aboutglobalization via the spread of IT technolo-gies and the Internet. It takes proper pub-lic policy frameworks to make it happen. Forexample, as mentioned above, States have apolicy choice to make in the area of deregu-lating their telecommunication sector. And,increasingly, geo-locating and firewall tech-nologies allow them to shape the freedom ofthe spread of the Internet. A careful trade-off between perceived advantages and dis-advantages is needed here. How to handlethe IT revolution promises to constitute one

of the most important policy decisions thata State will have to take at the beginning ofthe new millennium. The so-called digital di-vide is a by-product of underdevelopment, andlack of financial and human resources. It mustbe stressed though that public policy is alsoinstrumental in the present magnitude of thisdivide and in the pace at which it can bebridged.

IT opens new opportunities for increasedgovernment transparency, efficiency and ef-fectiveness of its services. It gives the citi-zens a powerful tool for conducting the pub-lic discourse, organizing themselves andchallenging, as the case may be, the exist-ing political parties, professional associa-tions, non-governmental organizations, andagencies of State administration � both lo-cally and globally.

IT is rapidly transforming all the sectors ofthe global economy. It helps to redefine suchconcepts as competitiveness, quality, deliv-ery, responsiveness and innovation. IT hasopened the way to advances in productivityby minimizing waste of raw materials,labour and time. With modern transporta-

12


Graph I.4. Top 15 Countries in Computers-in-Use Year-End 2000 & 2001

0

20

40

60

80

100

120

140

160

180

200

United States Japan Germany United

Kingdom

France China Canada Italy South Korea Brazil Australia Russia Spain Taiwan Netherlands

Year-End 2000(#M)

2000 % Share ofTotal

Year-End 2001Projected (#M)

Uni

ted

Sta

tes

Japa

n

Ger

man

y

UK

Fra

nce

Chi

na

Can

ada

Ital

y

Sou

th K

orea

Bra

zil

Aus

tral

ia

Rus

sia

Spa

in

Taiw

an

Net

herl

ands

Source: Computer Industry Almanac Inc., 2001

tion means such as jumbo jets and contain-er vessels and computerized reservationssystems, the globalization of production andservices has become a reality. Global infor-mation networks are rapidly transforming theways an enterprise operates. In the last 20years, both manufacturing and services havebecome increasingly globalized � a global pro-duction system has emerged. It goes with-out saying that IT is the central driver of thisnew world trend.

On the negative side, it must be said that theInternet is also being used in detrimental ways.It has become an easy communication devicefor all sorts of criminal and terrorist activi-ties. This shows that the Internet can be usedboth in social and "anti-social" ways. The In-ternet in fact, as any other device, is not a"good" or "bad" tool per se. It is a facilitator.Whether it has a positive or negative impacton society depends on how it is used � per-haps abused � and how its use is regulated.

2.3. The role of entrepreneurship inaccelerating globalization

Thanks to technological innovations andgreater economic liberalization, entrepre-neurs, especially multinational corporations,have taken full advantage of more open mar-kets to spread production processes all overthe world (WTO, 1999, Annual Report). Theopening up of economic opportunities allowsthe movement of foreign capital, technologyand management, largely from transna-tional corporations (TNCs), to host countryentrepreneurs and corporations. As nation-al economies open, mergers between businessesfrom different countries and purchases or in-vestment in equity of businesses in onecountry by owners from other countries arebecoming more common. Although TNCs arenot new economic actors, what has dramat-ically changed is the way they operatearound the world and their increased levelof economic power. According to the Com-mission on Global Governance, the numberof TNCs is presently estimated at 37,000 world-wide (Commission on Global GovernanceReport, 1995).

2.4. International social networks:increase in number and strength

Modern technology, transportation, andtelecommunications are transforming, inmany ways, how organizations and people op-erate, cooperate and interface. From a socialpoint of view, new technologies have facili-tated greater global integration and aware-ness through the establishment of worldwidenetworks. Concern for democracy, humanrights, the environment, and poverty is be-ing enhanced by the birth of cross-border so-cial and political networks, whose membersare non-state actors such as non-govern-mental organizations (NGOs) as well as pri-vate persons who want to participate in pub-lic matters, locally and globally.

To be sure, the growing role of non-statetransnational actors adds a novel dimen-sion to globalization. TNCs are becomingincreasingly powerful actors within the in-ternational arena due to their growing eco-nomic power. The creation of internationalorganizations, such as the WTO, bringsabout new influential institutional actors inthe global landscape. Furthermore, thegreater role of global civil society is anoth-er distinctive feature of globalization, par-ticularly if we consider its increasing rele-vance in the international policy agenda andprocess (Ostry, 2000). International NGOs workto aggregate global values and interests likethe protection of human rights. Some NGOswork to protect the interests of nationalgroups affected by global forces.

The increased relevance of non-state globalplayers, such as TNCs and international so-cial networks, has set in motion much dis-cussion about the role of the State and its gov-ernance capacity in a globalized world, andwhether it will be able to manage effective-ly a diverse range of pressures. In fact, theState is increasingly being pulled in differ-ent directions, and must respond to de-mands, which come from local, as well astransnational groups. Strengthening theState�s networking capacity will be crucial ina complex and interconnected world. Somesee an emerging role for the State as an "or-

13


The State is increasingly

being pulled in different

directions, and must

respond to demands,

which come from local,

as well as transnational

groups

chestrator", catalyst of ad hoc alliances of di-verse capacities and of diverse skills possessedby these many actors for achieving ad hoc de-velopmental goals.

3. The global village: economic and social dimensions of globalization

3.1. Economic globalization

Economic globalization is mainly character-ized by the rapid expansion of internationaltrade, foreign direct investment and capitalmarket flows. The last 50 years have seen tradeexpand faster than output by a significant mar-gin, increasing the degree to which nationaleconomies rely on international trade in over-all activity (WTO, 1998, Annual Report). Thedecline in transportation costs and technologicalinnovation, in particular the Internet, havecontributed to an increase in the volume oftrade, financial flows and speeded-up eco-nomic transactions by decreasing the time andmethods of delivery and payment of goods andservices. In addition, the declining trans-portation costs have led to a greater mobili-ty of people across borders and have signifi-cantly augmented tourism world wide, aswell as a growing migration of workers.

Economic globalization is characterized by:

� Flows of labour, goods, and capital acrossnational borders;

� The emergence of global production arrange-ments mainly through the activities of TNCsand related foreign direct investments;

� The emergence of globally integrated mar-kets for goods, services and capital.

The increase in international trade is reflectedin the following data:

� On an annual basis, merchandise exportsgrew by 6 per cent in real terms from 1948to 1997, compared to annual output growthof 3.7 per cent. Put differently, trade multi-plied by the factor 17, while GDP grew ap-

proximately six-fold during this period. In thecase of manufacturers, trade multiplied 30times, while GDP grew eight-fold (ibid).

� Among rich or developed countries theshare of international trade in total output(exports plus imports of goods relative to GDP)rose from 27 to 39 per cent between 1987 and1997. For developing countries it rose from10 to 17 per cent (World Bank, 2000, WorldDevelopment Indicators).

Foreign direct investment (FDI), which is re-lated to investments made by firms in for-eign countries to establish and run businessoperations, has also greatly increased.

� US firms invested US$ 133 billion abroadin 1998, while foreign firms invested US$ 193billion in the US.

� Overall world FDI flows more than tripledbetween 1988 and 1998, from US$ 192 bil-lion to US$ 610 billion, and the share of FDIto GDP is generally rising in both developedand developing countries.

� Developing countries received about aquarter of world FDI inflows in 1988-1998on average, though the share fluctuatedquite a bit from year to year (World Bank,2000, World Development Indicators). Between1980 and 1997, private capital flows to de-veloping countries as a group soared to $140billion from $12 billion.

� The report on financing for developmentprepared for the UN Secretary-General,notes that during the period 1993 to 1998,20 countries accounted for over 70 per centof all FDI inflows to all developing countries.It further notes that the majority of low-in-come countries have been largely bypassedby private finance from abroad � least de-veloped countries as a group received 0.5 percent of world FDI inflows in 1999. On the oth-er hand, firms from developing countriesthemselves increasingly invest abroad. FDIfrom developing countries increased from 2per cent of total FDI outflows in the early 1980sto 10 per cent at the end of the millennium(UN, 2001, A/55/1000). For African coun-

14


Declining transporta-

tion costs have led to

a greater mobility of

people across borders

and have significantly

augmented tourism

world wide, as well as

a growing migration of

workers

tries this is a double blow. Not only the in-flow of FDI is relatively miniscule, espe-cially outside primary commodities, but it hasbeen estimated that 40 per cent of Africanprivate wealth is held overseas (UnitedKingdom, 2000, para. 153).

� Foreign exchange trading in the world�s fi-nancial centers exceeds 1 trillion US dollarsa day, a multiple of 50 times or more of theamount of daily world trade and greaterthan the total stock of foreign exchange re-serves held by all governments (Cable, 1995, p. 4).

� The liberalization of capital movements cou-pled with information technology advanceshas made it possible to transfer largeamounts of capital across national bordersin seconds.

A major transformation has also occurred inthe territorial organization of economic ac-tivity. The way multinational corporations op-erate across borders has in fact greatlychanged. The pattern of production has as-sumed a truly global nature in that the pres-ent organizational structure of companies hasbecome increasingly horizontal. This impliesthat the production process does not take placevertically within the same corporation andthat finished products are then exported. In-stead, manufacture of the various componentsof a product takes place in different regionsof the world, either through affiliates orthrough outsourcing to foreign companies. Forexample many American products are nolonger manufactured within the same com-pany nor within the same country. The com-ponents may be produced in India, while someparts are assembled in Mexico and others inBulgaria, and then sold in the US or othermarkets around the world. This interna-tionalizes the local labour markets and re-wards with quality jobs and wealth-creationopportunities the concentrations of highly ed-ucated skilled, networked professionals, a factthat has profound public policy implications.

3.2. Social globalization

Globalization of technologies has enabledinexpensive, instantaneous communication

and massive diffusion of information affect-ing styles of politics, culture and social or-ganization. The globalization of technologyhas contributed not only to the explosivegrowth of information exchange via the In-ternet, but also to the expansion of educa-

15


Box I.4

DEFINING AND MEASURING FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) occurs when an investor based in one country(the home country) acquires an asset in another country (the host country)with the intent to manage that asset. The management dimension is what dis-tinguishes FDI from portfolio investment in foreign stocks, bonds and otherfinancial instruments. In most instances, both the investor and the asset it man-ages abroad are business firms. In such cases, the investor is typically referredto as the "parent firm" and the asset as the "affiliate" or "subsidiary".

There are three main categories of FDI:

� Equity capital is the value of the multinational corporation's investment in shares of an enterprise in a foreign country. An equity capital stake of 10 per cent or more of the ordinary shares or voting power in an incorporatedenterprise, or its equivalent in an unincorporated enterprise, is normally considered as a threshold for the control of assets. This category includes both mergers and acquisitions and "greenfield" investments (the creation of new facilities). Mergers and acquisitions are an important source of FDI for developed countries, although the relative importance varies considerably.

� Reinvested earnings are the MNC's share of affiliate earnings not distributed as dividends or remitted to the MNC. Such retained profits by affiliates are assumed to be reinvested in the affiliate. This can represent upto 60 per cent of outward FDI in countries such as the United States and theUnited Kingdom.

� Other capital refers to short or long-term borrowing and lending of funds between the MNC and the affiliate.

The available statistics on FDI, which are far from ideal, come mainly fromthree sources. First, there are statistics from the records of ministries and agen-cies which administer the country's laws and regulations on FDI. The requestfor a license or the fulfillment of notification requirements allows these agen-cies to record data on FDI flows. Typically, re-invested earnings, intra-compa-ny loans, and liquidations of investment are not recorded, and not all notifiedinvestments are fully realized in the period covered by notification. Second,there are the FDI data taken from government and other surveys which eval-uate financial and operating data of companies. While these data provideinformation on sales (domestic and foreign), earnings, employment and theshare of value added of foreign affiliates in domestic output, they often arenot comparable across countries because of differences in definitions andcoverage. Third, there are the data taken from national balance-of-pay-ments statistics, for which internationally agreed guidelines exist in the fifthedition of the IMF Balance of Payments Manual. The three main categories ofFDI described above are those used in balance-of-payments statistics.

Source: WTO, 1996, Report on "Trade and Foreign Direct Investment".

tion opportunities and the constitution of trans-national networks. Information, which hadbeen the monopoly of the few, is becoming ac-cessible to wider and more diverse audi-ences. The relative ease of accessing infor-mation has increased citizens� ability toshare views, to become aware of their rights,to make their demands known and to increasetheir influence generally. As a consequence,citizens are joining together to demand im-proved levels of services and higher standardsof behaviour from their governments. Pub-lic opinion moves to the forefront as a basisof the legitimacy of governments.

The reduction in transportation costs over re-cent decades, especially air and train fares,has significantly facilitated the movement ofpeople around the globe and has allowed agreater awareness of international issues. Peo-ple nowadays have greater access to andknowledge of other cultures, as well as so-cial problems and issues. Social protest hasalso taken on a different form. It is not anylonger confined to one particular country orto local issues; it transcends national borders.The recent events in Genoa at the G8 sum-mit, in Prague in September 2000 at the In-ternational Monetary Fund and World Bankmeeting, and in Seattle at the World TradeOrganization meeting in 1999, are examplesof these new forms of transnational organ-ized movements and of globalization itself.

International and regional organizations,such as NGOs and transnational networks,based on shared interests rather than on geo-political similarities have proliferated in thelate XX century. NGOs, however, are by nomeans an "invention" of the past decades (somenotable NGOs, such as Save the Children,were founded at the beginning of the XX cen-tury, while others even earlier as in the caseof the International Red Cross, which wasfounded in 1868). What has changed is per-haps the increasing number of NGOs and theirgrowing political leverage. Four decades ago,there were fewer than 1,000 NGOs, whichoperated mostly at the local level. Now at thebeginning of the XXI century, the United Na-tions reports that almost 30,000 NGOs op-erate internationally. Moreover, NGOs are be-

ing increasingly invited to many global forasuch as United Nations conferences andmeetings and the recent World EconomicForum held in Davos, Switzerland or the re-cent G8 meeting held in Genoa, 2001. In oth-er words, NGOs are becoming actively involvedin policy dialogues.

Although NGOs are generally undertakingremarkable tasks and advancing relevant worldcauses such as the alleviation of poverty,the protection of children�s rights, or theprotection of the environment, NGOs havealso been criticized for a number of reasons.It has been said that some compete againsteach other and, once institutionalized, becomeclosed to new ideas and positions. It has al-so been argued that powerful NGOs aremainly based in developed countries andmay not be as transparent and accountableas they expect other public and private agen-cies to become. But most fundamentally, itshould not be forgotten that, despite their rel-evance in articulating and expressing a di-versity of interests and concerns, NGOsshould not be confused with political parties,as they are not democratically elected.Therefore, their opinions and positions re-garding different social and political issuesare not representative of the people�s will, asthey have not received a mandate to repre-sent them. However, increased access of itsmembers to information and networkingcreates a pressure for increased relevance andimproved internal governance of NGOs. Thisis bound to make them more responsive tothe changing global circumstances and to theopinion of their constituencies.

Social globalization is a phenomenon whichposes new challenges for the nation-State. Infact, the State becomes increasingly involvedin a web of intricate interests and needs inorder to respond to a growing number of de-mands on issues which are not solely limit-ed to its territory. This requires the State tohone its role as mediator and develop newskills to deal with diversity.

16


Four decades ago,

there were fewer than

1,000 NGOs, which

operated mostly at the

local level. Now ...

almost 30,000 NGOs

operate internationally

4. The opportunities of globalization

4.1. Greater economic opportunities

Greater economic openness, foreign direct in-vestment, and transfer of technologies pres-ent potential opportunities for economicgrowth. Free trade promotes specializationamong different regions, allowing them to ap-ply their own comparative advantages; italso expands the consumption opportuni-ties of countries by providing increased op-portunities to buy goods and services fromother countries.

It is very important to keep in mind that in-ternational trade is not a zero-sum game withabsolute winners and absolute losers. On thecontrary, trade benefits all countries becauseit enhances the choices of the consumer andthe quality of products. If competitive, itlowers prices and raises real wages. It is al-so worthwhile to underline that contrary towhat is commonly believed, "countries are notin any degree in economic competition witheach other", or that "any of their major eco-nomic problems can be attributed to failuresto compete on world markets" (Krugman, 1994,p. 6). Firms compete; countries do not. "If theEuropean economy does well, it need not beat the expense of the United States; indeed,if anything a successful European economyis likely to help the U.S. economy by providingit with larger markets and selling it goodsof superior quality at lower prices" (ibid.). More-over, the evidence is very strong that real GDPgrowth is related mainly to domestic pro-ductivity growth, not to balance of trade orto productivity relative to competitors. "Eventhough world trade is larger than ever be-fore, national living standards are over-whelmingly determined by domestic factorsrather than by some competition for worldmarkets" (ibid.). Trade is largely static, whileproductivity, which is driven by technicalchange, is dynamic and for that reason is pri-marily responsible for economic growth.Therefore, focusing on international com-petitiveness may lead to unwise decisions ondomestic, as well as foreign policies.

Economic globalization has also providedopportunities for developing countries inthat it opens new markets for export and at-tracts foreign capital, which aids development.Economic globalization is also conducive toa transfer of technologies and know-how,which increases productivity. Foreign in-vestments in developing countries have al-so increased employment. Another positiveeffect of globalization is greater competitionamong firms, which has benefited con-sumers who have access to products at in-creasingly lower prices.

"Integrating with the world economy is a pow-erful vehicle for growth and poverty reduc-tion in developing countries, but it would bestill more powerful if the rich countries fur-ther increased the openness of their owneconomies� (Stern, 2000, p. 5). In fact, weshould recognize that many sectors like tex-tiles and agriculture, which could provide re-al new opportunities for developing countries,have not been liberalized. We should also rec-ognize the concern about intellectual prop-erty rights, and the use of anti-dumpingpractices, which seem to discriminateagainst producers in developing countries.

4.2. Greater global social awarenessand opportunities for democracy

The widespread use of modern communica-tion devices � such as the Internet � and themedia have meant a greater awareness of hu-man rights violations, child labour abuses,corruption, and violence. The advancementsin information and communication tech-nologies and the reduction of transporta-tion costs, have provided people with new toolsto support and disseminate the causes ofdemocracy, human rights, transparency, andalleviation of poverty. This increased aware-ness has led to international pressure on spe-cific countries to abide by certain rules anddemocratic values. In some ways, it may besaid that globalization is a positive processin that it forcefully brings to the attentionof the international community abuses andundemocratic practices. Due to technologi-cal advances, non-state actors have beenable to form effective global alliances, which

17


The evidence is very

strong that real GDP

growth is related mainly

to domestic productivi-

ty growth, not to bal-

ance of trade or to pro-

ductivity relative to

competitors

are not subject to control on the part of re-pressive national governments and act as ad-vocates of specific policies.

The new information age is also widening therange of information available to anyoneanywhere, enhancing and modernizing theexchange and sharing of information, train-ing and education. The potential of on-lineeducation for reaching individuals living inremote areas is of great importance, especiallyfor developing countries. Greater access toeducation is in fact a basic prerequisite forpeople to be able to participate in a well-in-formed way in public life and make informeddecisions. Information technology, the satel-lite, the cellular phone and the global mediaare also contributing to the integration of thefastest growing developing countries in theglobal economy. The future expansion and useof these technologies may further increasesuch opportunities. "From struggles aroundhuman rights, the environment and workersstrikes around the world to genuinely triv-ial pursuits, the Internet has emerged as apowerful medium for non-elites to commu-nicate, support each other�s struggles and cre-ate the equivalent of insider groups at scalesgoing from the local to the global" (Sassen,1998, p. 12).

5. Current trends and challenges affecting publicadministration in a globalizing world

Despite the immense advancements in allspheres of human activity, the increasedglobal wealth, and the opportunities un-leashed by globalization, the world todaystill faces great challenges. These in turn af-fect public administration in a number of ways.The State and its institutions are, in fact, in-creasingly subject to pressure both from thedomestic and international arena. New chal-lenges and old threats suggest that theState, especially in developing countries,needs to be strengthened and to operate dif-ferently from the past. The challenges thatare affecting how the State operates andthat call for major innovations in public ad-

ministration are manifold. Poverty, in-equality, civil wars, and the spread of dead-ly diseases, including HIV/AIDS, are com-promising the prospects of many developingcountries for a better future. It is importantto emphasize that all of these problems arenot caused by globalization, as some may ar-gue, but rather by local under-developmentthat does not allow people to take full ad-vantage of the opportunities of integratinginto the world economy.

Furthermore, while it is true that globalizationcarries many opportunities in its trail, it isalso true that it has costs for the peoplewho are integrating into the world economy.Every change has adjustment costs. However,refusing to embark on a process of changeon these grounds is short-sighted. Technicalchange also entails costs, which are even high-er than those produced by globalization, butnot for this reason has it been or should itbe rejected. "Modern technology and in-creasing economic integration have been apositive force in eradicating poverty and de-velopment throughout times" (Sen, 2001). Thus,"the predicament of the poor across theworld cannot be reversed by withholdingfrom them the great advantages of contem-porary technology, the well established effi-ciency of international trade and exchange,and the social as well as economic merits ofliving in open, rather than closed, societies� what is needed is a fairer distribution ofthe fruits of globalization" (ibid.). In otherwords, integrating into the world economyhas costs, but not integrating has greater costsin terms of lost opportunities. The challengethen is how to ensure that people can ben-efit from globalization, while minimizingthe costs of adjusting to a changing domes-tic and international environment (UN,2001, A/56/127-E/2001/101).

5.1. Alleviation of poverty and in-equality

It is becoming increasingly evident that sofar globalization has benefited only a rela-tively small number of countries and that someregions of the world are still not integratedinto the world economy. Moreover, as may be

18


Integrating into the

world economy has

costs, but not integrat-

ing has greater costs in

terms of lost opportuni-

ties

seen in the next chapters, some States havenot yet adapted to increasing interdepend-ence and as a consequence many have suf-fered from the adjustment costs of globalization.As stated by Helleiner at the 10th Raul Pre-bisch Lecture organized by the United Na-tions Conference on Trade and Developmentin December 2000: "The challenge � both atthe national and global levels � is, throughconscious policy choices, to make the new glob-alized system ... work for maximum humanwelfare. The task before us all is to make glob-alization functional, to �civilize� it" (Hellein-er, 2000, p. 5). In order to turn globalizationinto an opportunity for all, we need a newvision for the future, a vision that goes be-yond what Soros calls "market fundamen-talism" (Soros, 2000). In fact, "in recentdecades an imbalance has emerged betweensuccessful efforts to craft strong and well-en-forced rules facilitating the expansion ofglobal markets, while support for equally validsocial objectives, be they labour standards,the environment, human rights or povertyreduction, has lagged behind" (UN, 2000, Mil-lennium Report, A/54/2000). It is becomingquite clear that, while globalization hasgreat potentials, without appropriate do-mestic conditions it can have negative effectsfor many people.

Eradicating poverty and ensuring sustain-able development should form the raisond�être of public administration. Half theworld, nearly 3 billion people, lives on lessthan US$ 2 a day while the richest 20 percent of the global population receive more than80 per cent of the global income. Inequalitystill persists between countries in the worldat large, while intra-country inequality of-fers a mixed record, with some countriesand regions improving their condition, whileothers have fallen into greater inequality. Ac-tually, whether inequality is increasing or notis besides the point. As stated by Nobel Prizewinner Amartya Sen: "the basic concernsrelate to the massive levels of inequalityand poverty � not whether they are also in-creasing at the margin" (Sen, 2001).

It is a fact that a significant part of hu-manity does not have the capacity to influ-

ence its own living environment, let alone theinternational political arena. The impressivetechnological advances only benefit a smallproportion of the world�s population. De-spite globalization, many of the poorestcountries remain marginalized from worldtrade and investment. Social and economicpolarization is still widely spread. Therefore,it may be said that a sophisticated, global-ized, increasingly affluent world currently co-exists with a marginalized global under-class (Commission on Global GovernanceReport, 1995, p. 139).

But how is poverty and inequality in the de-veloping world linked to globalization, andis it a consequence of globalization per se?According to some observers economic glob-alization leads to a �race to the bottom�characterized �by the progressive movementof capital and technology from countrieswith relatively high levels of wages, taxationand regulation to countries with relativelylower levels� (Spar and Yoffe, 2000, p. 37).This is said to force countries to reducewages and social spending. However, otherobservers have maintained that globalizationhas favoured higher standards in the protectionof working conditions and environmental

19


Box I.5

POVERTY IN AN UNEQUAL WORLD

The world has deep poverty amid plenty. Of the world's 6 billion people, 2.8billion - almost half - live on less than $2 a day, and 1.2 billion - a fifth - live onless than $1 a day, with 44 percent living in South Asia. In rich countries, fewerthan 1 child in 100 does not reach its fifth birthday, while in the poorest coun-tries as many as a fifth of children do not. And while in rich countries fewerthan 5 percent of all children under five are malnourished, in poor countries asmany as 50 percent are.

This destitution persists even though human conditions have improved more inthe past century than in the rest of history - global wealth, global connectionsand technological capabilities have never been greater. But the distributionof these global gains is extraordinarily unequal. The average income in therichest 20 countries is 37 times the average in the poorest 20 - a gap that hasdoubled in the past 40 years. And the experience in different parts of theworld has been very diverse. In East Asia the number of people living on lessthan $1 a day fell from around 420 million to 280 million between 1987 and1998 - even after the setbacks of the financial crisis. Yet in Latin America, SouthAsia, and Sub-Saharan Africa the numbers of poor people have been rising.And in the countries of Europe and Central Asia in transition to marketeconomies, the number of people living on less than $1 a day rose more thantwenty-fold.

Source: World Bank, 1999/2000, World Development Report.

On the contrary, governments of openeconomies tend to spend a significantly larg-er portion of their GDP and collect the ad-ditional taxes needed for this task. Openingto the world economy might be accompa-nied by a reduction in the size of governmentonly if policy-makers believe that small gov-ernment is a condition for open markets. Inreality, there is no evidence in the decade ofthe 1990s that openness led to a reductionin the size of government.

The majority of the "globalizers", then, ac-tually registered increases in expenditure andtax revenue. Therefore, there is no evidencethat globalization weakens the State. The ILOhas reached the same conclusions and hasemphasized that "up to now some of thecountries with the most open economieshave the highest levels of social spending (forexample, most of the Nordic countries, Aus-tria, Germany, the Netherlands). Open na-tional economies in the global economy do nothave to have lower social spending. On thecontrary, a higher level of social protectionwould appear to be necessary in countries thatare more exposed to external risks or haveto undergo difficult structural adjustments"(ILO, 2001, p. 45). In this respect, it is im-portant to anticipate that the State will havea very significant role to play in a globaliz-ing economy. For the citizens to take advantage

standards, as well as higher wages thanthose offered by local employers. By refus-ing to operate under specific conditions,some corporations have contributed to the im-provement of working and environmental stan-dards.

The relationship between globalization anddevelopment is quite complex and should beanalyzed in a non-ideological, impartial way.First of all, openness to foreign trade is farfrom being the only or most important fac-tor in fostering development (actually, tradeis a small factor in the economy), nor is glob-alization solely responsible for creating dis-parities between rich and poor. As a matterof fact, human development, the reductionof poverty and increased output of goodsand services depend on national policies, asmuch as or more than the international en-vironment. Therefore, domestic policies,both in developing and developed countries,are greatly responsible either for their pooreconomic performance or for the persistinggap between rich and poor.

As shown in Part Two of this Report, the cross-section evidence on the relationship betweenopenness and the size of central govern-ments, as measured by expenditure and tax-ation, shows that there is no conflict be-tween openness and government expenditure.

0

10

20

30

40

50

60

Graph I.5. Tax Revenues as % of GDP, 1999

Source: OECD, 1999.

20


Mex

ico

Sou

th K

orea

Japa

n

Uni

ted

Sta

tes

Aus

tral

ia

Turk

ey

Irel

and

Por

tuga

l

Spa

in

Sw

itzer

land

New

Zea

land

Icel

and

Brit

ain

Hun

gary

Can

ada

Cze

ch R

epub

lic

Ger

man

y

Pol

and

Net

herla

nds

Nor

way

Lux

embo

urg

Ital

y

Aus

tria

Bel

gium

Fran

ce

Finl

and

Den

mar

k

Sw

eden

of the opportunities of globalization, they needaccess to high quality education, health care,information and communication technolo-gies (ICT), social safety nets, and infra-structure. The role of government is to se-cure for the citizens affordable access tothese services.

If globalization has exerted negative effectson certain countries, it is because manycountries lag in developing a strong insti-tutional framework, as well as solid social poli-cies and networks to cope with negative ex-ternalities, as discussed in the followingchapters. External factors, such as the glob-al trading environment, are also crucial increating greater opportunities or in posingconstraints on a country�s economic growth.Once more, the trading rules have so far ben-efited more the industrialized countries thanthe less developed ones. For example, the Eu-ropean Union has lifted barriers on importof raw materials from Africa, but not on re-fined products, which would compete with lo-cal European products. As stated in akeynote address by United Nations Under-Secretary-General and Executive Secretaryof ECA, K.Y. Amoako: "For all the talk on freetrade, the World Bank estimates that hightariffs, anti-dumping regulations and tech-nical barriers to trade in industrializedcountries cost sub-Saharan African coun-tries $20 billion annually in lost exports. Inother words, we lose more because of tradebarriers than we gain because of aid! If richcountries want unfettered access to our mar-kets, we require that they open their mar-kets to us so that we can earn, rather thanbeg, our way out of poverty. Democratization,transparency, accountability and good gov-ernance at the national level must be repli-cated at the international level!" (Amoako,2000, p. 1).

In the words of Secretary-General of theUnited Nations, "we should be concernedabout jobs, about human rights, about childlabour, about the environment, about the com-mercialization of scientific and medical re-search. We should also be concerned aboutthe desperate poverty in which so many peo-ple in developing countries live. But global-

ization should not be made a scapegoat fordomestic policy failures. The industrializedworld must not try to solve its own problemsat the expense of the poor. It seldom makessense to use trade restrictions to tackle prob-lems whose origins lie in other areas of pol-icy. By aggravating poverty and obstructingdevelopment, such restrictions often make theproblems even worse. Practical experience hasshown that trade and investment often bringnot only economic development, but higherstandards of human rights and environ-mental protection as well. Indeed, the peo-ple in developing countries generally insiston higher standards, once they get thechance to do so" (Annan, The Wall Street Jour-nal, Nov. 24, 1999).

5.2. Advancement of human rightsand democracy

Globalization and greater openness to the worldeconomy can benefit fully a country and itspeople only in the presence of solid democraticinstitutions, which help redistribute thegains from open trade and from greater ex-change. However, despite the progress madeby many countries in building democratic in-stitutions and protecting human rights,democracies are still fragile in some regionsof the world and protection of minorityrights is not guaranteed. In some parts of theworld, civil society at large and especially mi-norities are still not fully integrated intothe social and economic fabric of the coun-tries they live in. Many suffer from dis-crimination, deprivation of basic rights, andabuse from the authorities. Promotingdemocracy and, in many cases, democratizationis a pre-requisite to ensuring the respect ofhuman rights, but it is not sufficient. Prop-er values and broad encompassing interestof the governments is needed. Freedom ofspeech, association, assembly, religion, andpolitical participation, among others, arecornerstones of a constitutional democracy.Freedom from arbitrary arrest, unlawful de-tention, let alone torture and slavery, are rec-ognized as inalienable universal rights.

Advances have been made in this field in thepast decades especially since the 1980s when

21


We should be con-

cerned about jobs,

about human rights,

about child labour ...

But globalization

should not be made a

scapegoat for domes-

tic policy failures

Kofi AnnanUnited Nations

Secretary-General

the so-called "third wave" of democratizationspread to many parts of the world. So far anincreasing number of countries have ac-knowledged and recognized the rights con-tained in the Universal Declaration of Hu-man Rights adopted by the United NationsGeneral Assembly in 1948. Yet, there are stilltoo many cases of human rights violationsin many parts of the world. This poses a greatchallenge to national and international gov-ernance institutions.

5.3. Protection of the environmentand sustainable development

Environmental degradation poses signifi-cant challenges to public administrationsworld-wide. Economic liberalization and thelifting of barriers to trade and commerce inmany countries around the world has pro-vided the corporate sector with greater op-portunities for investment and profit, aswell as higher access to new markets, espe-cially in the developing countries. The open-ing up of "new frontiers" has, however, alsoaccelerated the depletion of natural re-sources and has produced higher levels of in-dustrial pollution. Although, as is wellknown, environmental degradation is not aconsequence of globalization per se, greateraccess to and exploitation of previously pro-tected areas is creating further risks for theenvironment. Worldwide unsustainable con-

sumption patterns, especially in the G-8countries, is resulting in increasingly high-er demands of energy. Examples of environ-mental degradation can also be found in theformer centrally planned economies of East-ern Europe. The challenge with which Statesare confronted, in this respect, is to combineopenness to the world economy with policiesaimed at protecting the environment.

�Already 20% of the world�s population con-sumes 86% of its total resources, while thepoorest 20% of the population consumes on-ly 1.3% of these same resources. ... Eachyear between 5 and 7 million hectares of agri-cultural land are lost as a result of soildegradation or urbanization. Another 16 to20 million hectares of tropical forests are sac-rificed as a result of inadmissible practices.More than 1 billion people have no access toclean drinking water. About 2.8 billion peoplehave no access to sanitary facilities. Tangibleevidence of these problems includes the qual-ity of our air, the taste of our water, and thevast expansion of congested living areas anddespoiled countryside� (Ospina, 2000, p. 32).

Though there is still much discussion aboutthe entity of human-induced climate change,experts agree that industrial pollution andthe emission of fossil fuels are damagingour global ecosystem. According to a recentReport of the United Nations Intergovern-mental Panel on Climate Change (IPCC)"available observational evidence indicatesthat regional changes in climate, particularlyincreases in temperature, have already af-fected a diverse set of physical and biologi-cal systems in many parts of the world (UN,2001, IPCC, p. 3). The report, to which nu-merous scientists and a great number of ex-perts worldwide contributed, also states that"climate changes during the 21st century havethe potential to lead to future large-scale andpossibly irreversible changes in Earth sys-tems resulting in impacts at continental andglobal levels" (ibid., p. 6). Events such asdroughts, floods, avalanches, heat wavesand windstorms are subject to increase. Nat-ural systems at risk include glaciers, coralreefs and atolls, mangroves, boreal and trop-ical forests, polar and alpine ecosystems.

22


Graph I.6. Population living below US$1 per day

in developing countries in 1990 and 1998

Number of peoplebelow US$1 a day

(millions)Poverty Rate (%)

19901998

(estimate) 19901998

(estimate)

East Asia 452.4 278.3 27.6 15.3

Excluding China 92 65.1 18.5 11.3

South Asia 495.1 522 44 40

Sub-Saharan Africa 242.3 290.9 47.7 46.3

Latin America 73.8 78.2 16.8 15.6

Middle East & N.Africa 5.7 5.5 2.4 1.9

Europe & Cent Asia 7.1 24 1.6 5.1

Total 1276.4 1198.9 29 24

Source: OECD, 2000

Because of their vulnerability, it is the poor-est and least adaptable parts of the world thatwill suffer most from climate change in thenext 100 years. "Most less-developed regionsare especially vulnerable because a larger shareof their economies are in climate-sensitive sec-tors and their adaptive capacity is low dueto low levels of human, financial and natu-ral resources, as well as limited institution-al and technological capability" (ibid.). Ac-cording to the IPCC report, the damagesthat could derive from climate change are man-ifold, including:

� Decreased water availability for populationsin water-scarce regions;

� Dangers for human health, i.e. increase invector-borne diseases such as malaria intropical countries, or heat stress morbidityand mortality in North America;

� Decrease in agricultural production, es-pecially in Africa and Latin America;

� Widespread increase of flooding for manyhuman settlements;

� Rising sea levels, which will affect partic-ularly Small Island States resulting in thedisplacement of millions of people;

� Collapse of many eco-systems (ibid.).

The IPCC report concludes that, despitethese negative previsions, there is hope forthe future provided that environmental poli-cies are sustained. In particular, it is strong-ly recommended that climatic risks be includedin the design and implementation of na-tional and international development ini-tiatives. Countries have the capacity to re-duce global warming and to reverse envi-ronmental degradation. But it is essential thatall countries uphold the commitments madeat summits in Rio and Kyoto. In this respect,"the ten-year review of the decisions of theRio Summit in 2002 will provide an histor-ical opportunity to the global community toreinvigorate the spirit of Rio. This 2002Summit must address the major challengesto sustainable development, particularly the

pervasive effects of poverty on a large pro-portion of the Earth�s inhabitants, juxta-posed with excessive and wasteful con-sumption and inefficient resource use thatperpetuates the vicious circle of environ-mental degradation and people�s impover-ishment" (UNEP, 2000, Annual Report, p.5).The "Malmö Declaration", which resultedfrom UNEP�s First Global Ministerial Envi-ronment Forum in Sweden in May 2000,stated that: "We can decrease poverty byhalf by 2015 without degrading the envi-ronment, we can ensure environmental se-curity through early warning, we can betterintegrate environmental consideration ineconomic policy, we can better coordinatelegal instruments and we can realize a vi-sion of a world without slums" (UNEP, 2000,First Global Ministerial Environmental Fo-rum). However, whether these goals will beachieved or not largely depends on the po-litical leadership and will of the developedcountries � who are the greatest consumersof energy and polluters � as well as of the de-veloping world.

5.4. Mobility of workers and migration

The increase in migration of workers, espe-cially from developing countries to the de-veloped world, is posing serious challengesto public administration systems around theglobe. Although migration is by no means anew phenomenon and is actually less extensivethan in the past, it should not be underes-timated and deserves to be addressed froma developmental approach. States must be-come more attuned to these new realities andfind incentives to retain skilled workerswithin their borders, while also ensuringthat social networks are in place to supportworkers who suffer sudden unemployment.It is known that globalization has producedgreater economic insecurity, especiallyamong vulnerable groups of society in bothdeveloped and developing countries. Peoplefear losing their jobs as companies can eas-ily relocate to regions of the world where wagesare lower. Although this is a serious socialproblem in the short-run, governments canplay a significant role in providing relocation

23


It is known that global-

ization has produced

greater economic

insecurity ... It is also

important to keep in

mind that in the long

run the benefits deriv-

ing from restructuring

the economy more

than compensate for

the costs of transition.

grants and in promoting re-training pro-grammes for the unemployed. It is also im-portant to keep in mind that in the long runthe benefits deriving from restructuring theeconomy more than compensate for the costsof transition.

It is also worthwhile noting that although cap-ital crosses borders rapidly, the same cannotbe said for labour. In fact, even thoughlabour has become more mobile, it is only theskilled workers who have legal access toand can benefit from a globalized economy.The migration of skilled workers representsa problem because of its "brain-drain" effecton developing countries, whereas the mi-gration of unskilled workers is a quite con-troversial issue in political and social terms.As indicated by the Executive Secretary ofECA: "Several hundred thousand highly ed-ucated Africans live and work abroad, whileAfrica spends $4 billion of its Overseas De-velopment Assistance (ODA) per annum onbuying foreign expertise. Over 100,000 ex-perts from developed countries are current-ly employed in Africa. The brain drain is de-stroying the core of Africa�s knowledge-pro-ducing institutions and universities. Very fewof these academic refugees are going to themore flourishing countries within the conti-nent, most of which have adopted restrictiveapproaches to immigration at times border-ing on xenophobia� (Amoako, 2000). In somecountries, high unemployment rates andpessimism regarding the prospects for im-provement in the foreseeable future have ac-celerated a wave of emigration, which is cre-ating problems at both the country of originand destination.

Migration and brain-drain have taken on pro-portions which compromise the prospects ofmany developing countries to build a betterfuture, and also victimize the individuals con-cerned. The countries witness the loss ofscarce high-level skills developed at highcost. For migrants themselves, the time-con-suming process of trying to obtain a visa mayonly be the start of a protracted journeythrough the uncharted seas of an informaljob market, in which they are all too oftenvictims of exploitation. The employment sit-

uation in many developing countries andneed for high-level skills constitute a press-ing problem, to which the countries affect-ed and the international community must turntheir attention; both are vitally concerned withthese questions. Another critical questionin many developing countries, but also in thewestern world, is related to the workingconditions in many multinational corporationsand local firms.

5.5. Demographic trends: ageingpopulation and impact of HIV/AIDS

It is crucial that public administration remainsvery aware of what is taking place on the de-mographic sphere so as to adjust itself andits services accordingly. In mid 2000 theworld population reached 6.1 billion and iscurrently growing at the annual rate of 1.2per cent or an increase of 77 million peopleper year. Particularly rapid growth is expectedamong the group of 48 countries classifiedas least developed.

One of the most alarming health crises is re-lated to HIV/AIDS, which is threatening toreverse a generation of accomplishments inhuman development. Some 50 million peo-ple have been infected with HIV since the ear-ly 1970s; 16 million have died. The impactof the HIV/AIDS epidemic is worsening interms of increased morbidity, mortality, andpopulation loss.

Globally, the number of elder persons (60 yearsand older) will more than triple, increasingfrom 606 million today to nearly 2 billion by2050. At the same time, international migrationis projected to remain high during the XXIcentury with the more developed regionsexpected to continue as net receivers of in-ternational migrants on an average gain ofabout 2 million per year over the next 50 years.Because of low fertility, this migration hasa significant impact on population growth inthe more developed regions.

These demographic trends are posing a se-rious challenge to national and internation-al governance systems. In developing coun-tries, governments will have to deal with a

24


Migration and brain-

drain have taken on

proportions which

compromise the

prospects of many

developing countries

to build a better future

wide range of problems related to the expo-nential increase in population and the prop-agation of deadly diseases. In the developedworld, administrative systems will have toundertake a number of reforms in order tomeet the needs of the increasing number ofelderly and an increasingly diverse society.

5.6. Bridging the digital divide

Information technology opens new vistas forhumankind. IT promises to improve ourstudy, work and leisure. IT offers possibili-ties to broaden and accelerate the global in-tegration of information networks, of economicactivities, and of social, political and culturalpursuits. Currently, however, many developingcountries and countries with economies in tran-sition are only passively integrated, if atall, into the global economy. The unequal ac-cess to IT is creating what is known as thedigital divide generally between rich andpoor countries and also within countries.

Technological penetration is still very low indeveloping countries and in recent democraciesif compared to the developed world. In thisrespect, only those who have access to the In-ternet and a variety of communication devicesare globally connected, whereas a great partof the world cannot reap the benefits of glob-alization and are left at its margins. Manydeveloping countries are still struggling tohave nation-wide electricity, and infra-structures are still inadequate. In addition,the cost of computers is, in relative terms,very high for many inhabitants of the de-veloping world. Most enterprises in these coun-tries have neither the capacity nor themeans to be active players in the globaliza-tion process.

The digital divide, however, is not a phe-nomenon which characterizes exclusivelydeveloping countries. An increasing gap inopportunities is also being witnessed inmany industrialized countries due to this di-vide. It is mostly the young middle classwho have access to information technology,whereas the poor as well as the older gen-erations are being left out of the informationrevolution with great repercussions on their

employment opportunities. Recent surveysindicate that, in the industrialized world, typ-ical network users are middle-class, youngadult or adolescent, and male. The poor, dis-abled, older or poorly educated have not beenintroduced into the new technology and maycontinue to be excluded from it. In many de-veloping countries, access to the Internet re-mains a distant dream. Knowing how to ac-cess the Internet, as well as to master computersoftwares and other communication devices,is today a must in the skilled work place. Welive in a society in which information is pow-er and wealth is based on knowledge.

On a more positive note, modern informationtechnology offers both countries and individualsdramatic opportunities to leapfrog into thefuture, speeding up their economic and so-cial development. While many developedcountries have spent enormous sums in-vesting in IT, many of the resulting IT prod-ucts and services have now become availableat prices that may soon be affordable to en-terprises and households in the developingcountries. The current trend of IT towardsdistributed processing and network com-puting is also very much in favour of devel-oping countries because it provides themwith low cost and low risk � as well as highbenefit � strategies to develop their informationcapacity and thus participate in the globalinformation society.

With rapidly declining costs for both computersand telecommunications, it has been possi-ble to place computer power on the desktopsof individuals and to communicate with any-one anywhere. This has given rise to a trendof end-user and network computing, whichallows an organization to take an evolu-tionary instead of revolutionary strategy.By means of wireless technology, developingcountries are now able to quickly build upbasic data-communication networks and in-formation infrastructures with less invest-ment, without having to wire thousands ofmiles of cables.

Because of the shift from mainframe to per-sonal computers and networking (access tothe Internet), IT can now provide more off-

25


The unequal access to

IT is creating what is

known as the digital

divide generally

between rich and poor

countries and also with-

in countries

the-shelf software and user-friendly interfacesbetween people and machines; these havegreatly reduced the cost of applications de-velopment and eased users� training. Previ-ously, the introduction of a new generationof computer and data-communication systemsin developing countries would have taken placeseveral years after their initial use in the de-veloped countries. Now, because of IT advances,acquiring new computers and software takesonly a few months. The challenge States arefacing is how to close the digital gap and cre-ate the opportunities for a wider participa-tion of all people in the information age.

5.7. Combating international criminal networks

The speed and ease of transactions throughthe Internet as well as the greater opennessof national borders have also been used innegative ways by criminal organizations, in-cluding terrorist groups. Corruption has al-so taken on a transnational dimension, andtrade has extended to the illicit commer-cialization of women, children and human bodyorgans. Oftentimes, the Internet is beingused to facilitate such "transactions�". More-over, due to the many advances in technol-ogy and communication devices, criminals havebeen able to trade in illicit drugs andweapons with greater ease than ever.

The threat that international crime, partic-ularly terrorism and drug traffic, pose to theworld and increased interdependencebrought by globalization should not beoverlooked. Terrorism, in addition to thecriminal taking of innocent life, can desta-bilize societies by undermining confidence ingovernment institutions and inspiring fearin the population. Drug traffic results in un-told harm to individuals and the consequentlosses of human capital. Given their nature,only States can combat these terrible crimes.The State, with all its institutions, has no doubta pivotal role to play in this fight.

6. Too much or too little globalization?

"The problem is not that we have too muchglobalization but rather too little" (UN,2000, Millennium Declaration, A/RES/55/2).The benefits of globalization have been un-equally distributed and many people have beenmarginalized from this process. Even incountries that have integrated into theworld economy not everybody has benefitedfrom globalization as States were not preparedto cope with some of its negative effects.

Thus, the foremost preoccupation should beto ensure that the benefits of globalizationare evenly spread throughout the developedand the developing world, while addressingits negative effects. The problem is notwhether to go global, but rather how to glob-alize. In other words, globalization has thepotential of increasing prosperity and humandevelopment for all, but this is predicated onhow it is pursued. In turn, this depends ondemocratic processes being in place at the sub-national, national and international levels,as well as on the balance of power and meas-ure of equality among the world�s nations.

Indeed, globalization may be said to bringgreater opportunities to many countries pro-vided specific conditions are met. It can fos-ter prosperity, only if free trade principles arenot upheld at the expense of consumers�health and the environment and if profits arenot gained at the expense of workers� basicrights. That is to say, greater market open-ness cannot be divorced from a profound de-bate about common social goals and com-plementary policies. Human dignity and thepromotion of enhanced quality of life shouldbecome an integral part of the internation-al policy agenda. Accordingly, globalizationcannot mean the abandonment of all thingsto market forces. In other words, "the eco-nomic sphere cannot be separated from themore complex fabric of social and political life,and sent shooting off on its own trajectory.To survive and thrive, a global economymust have a more solid foundation in sharedvalues and institutional practice. It must ad-

26


The threat that interna-

tional crime, particular-

ly terrorism and drug

traffic, pose to the

world and the

increased interdepend-

ence brought by glob-

alization should not be

overlooked

vance broader and more inclusive social pur-poses" (UN, 2000, Millennium Report,A/54/2000, p. 3).

As emphasized in the Bangkok Declarationof February 2000, "globalization can be a pow-erful and dynamic force for growth and de-velopment. If it is properly managed, the foun-dations for enduring and equitable growthat the international level can be laid. For that,it is essential to persevere in the search forconsensual solutions through open and directdialogue that takes account of the fundamentalinterests of all (UNCTAD X, 2000, BangkokDeclaration).

�With globalization there is a growing needfor binding international regulations, a needfor international conventions and institu-tions that cover cross-border transactions�(Beck, 2000, p. 130). Appropriate regula-tions and conventions should ensure that glob-alization does not limit the freedom of peo-ple around the globe, but rather empower themto unleash their creative forces. But for peo-ple to be able to seize the benefits of global-ization another set of conditions should bemet, i.e. basic needs must be satisfied.

This is especially true in developing countrieswhere people can actively take part in theworld trading system and benefit from therapid transformations that mark the begin-ning of this millennium, but only if the qual-ity and access to education and health areensured; if physical infrastructures, includ-ing transport and communication networks,hospitals and water systems are built or im-proved; if poverty amidst plenty is reduced;and if the technology gap is narrowed � thatis to say, if people have greater opportuni-ties to make choices. As argued by Sen,"what people can positively achieve is in-fluenced by economic opportunities, politicalliberties, social powers, and the enablingconditions of good health, basic education, andthe encouragement and cultivation of ini-tiatives" (Sen, 1999/a, p. 5). In this respect,the State has a very important role to play.

It should be kept in mind that globalizationdoes not have the same impact everywhere

and that its effects vary according to domesticconditions, in particular to whether a coun-try has in place adequate institutions.Therefore, to label globalization in absoluteterms as either a totally positive or negativephenomenon is a reductive approach. Itshould not be demonized nor sanctified, norshould it be used as a scapegoat or a panaceafor all the major problems that are affectingthe world today.

In this context, "what we need is a better un-derstanding of how to translate our valuesinto practice, and how to make new instru-ments and institutions work more effective-ly" (UNEP, 2000, Annual Report, p. 1). Thisnow brings to the fore important questions.What is the role of the State in a globaliz-ing economy? How is globalization affectingthe role and functioning of the State? Havethe reforms aimed at reducing the role of gov-ernment and reshaping State bureaucracy inmany developing countries helped them toseize the benefits of globalization? What in-stitutional structures and policies are bestsuited to cope with globalization? What arethe responses that States, as well as re-gional and inter-governmental organizationshave provided and can provide for the futurein order to cope with the many challenges glob-alization is posing? These issues are ad-dressed in the following chapters.

27


Globalization ... should

not be demonized nor

sanctified, nor should it

be used as a scape-

goat or a panacea for

all the major problems

that are affecting the

world today

setting and regulation and, therefore, con-sultation and formal negotiations on a glob-al or regional scale. Many of the problems af-flicting the world today - such as poverty, en-vironmental pollution, economic crises, or-ganized crime and terrorism - are in effecttransnational in nature, and cannot be dealtwith only at the national level, nor by Stateto State negotiations. As the Secretary-Gen-eral of the United Nations, Kofi Annan, de-clared: "No State and no organization can solveall these problems by acting alone. Nor how-ever, should any State imagine that otherswill solve them for it, if its own governmentand citizens do not apply themselves whole-heartedly to the task. Building a twenty-firstcentury safer and more equitable than thetwentieth is a task that requires the deter-mined efforts of every State and every indi-vidual" (UN, 2000, Millennium Report, A/54/2000, para. 369).

Greater economic and social interdependenceseems to affect national decision-makingprocesses in two fundamental ways. It callsfor a transfer of decisions to the internationallevel and, due to an increase in the demandfor participation, it also requires many de-cisions to be transferred to local levels of gov-ernment. "This implies that public policiesare undertaken at different levels" (Sul-brandt, 2000, p. 3). Thereby, globalization en-tails complex decision-making processes,which take place at different levels, name-ly sub-national, national and global, pavingthe way to a growing multi-layered systemof governance.

1. How is globalization affecting the role and functioning of the State?

uch discussion and debate intoday�s policy fora are beingdevoted to the theme of glob-alization and its impact on the

State. Scholars and policy makers have ex-pressed concern regarding the role of the na-tion-State in the new millennium, and its ca-pacity to adapt to and manage effectively rap-id change as well as to respond to the manychallenges of economic and social interde-pendence. In particular, two issues are be-ing increasingly addressed: whether global-ization is weakening the role of the State andwhether it will eventually lead to the end ofState sovereignty. This chapter exploresboth topics, and analyzes why some countrieshave benefited from globalization while oth-ers have lagged behind.

1.1. The role of the State in domestic and international governance

The lifting of trade barriers, liberalization ofworld capital markets, and swift technolog-ical progress especially in the fields of in-formation technology, transportation andtelecommunications, have vastly increasedand accelerated the movement of people, in-formation, commodities and capital. Corre-spondingly, they have also broadened the rangeof issues which spill over the borders of na-tion-States requiring international norm-

29

THE IMPACT OF GLOBALIZATION ON THE STATE

M

Chapter II

The impact of globalization on theState


functions include safeguarding peace andsecurity within and outside national bor-ders; providing justice; ensuring the respectof minority rights; formulating and imple-menting policies; providing public goods; en-suring social stability and welfare; and reg-ulating and arbitrating the market.

Since its birth, the State has guaranteed in-ternal and external security; underpinned thelaw; funded national welfare systems; pro-vided the structures for popular representation;instituted public accountability; and built theframework for economic and social activities(compromise between the public and pri-vate sectors). During the last century, the re-sponsibilities of the State have expanded inall these areas. "The need to supply collec-tive public goods, to manage externalities andto provide for minority needs will persist evenin a world of expanded globalization" (Jones,2000, p. 268). There is no evidence that glob-alization will reduce the relevance of such func-tions. If anything, it makes them even morenecessary.

Thus, the image of a borderless world in whichthe State has little or no relevance is inmany ways misleading. As a matter of fact,two realities co-exist. One is the so called bor-derless virtual world where geography doesnot count, and communication and businesstransactions can occur in a matter of seconds.The other world is that of the everyday lifeof people in which borders still count, localrealities are still complex and very differentamong themselves, and most fundamental-ly where social and economic problems stillneed to be addressed. "The State will persistbecause the need for the State has grown, butalso because the local resource pools and so-cioeconomic problems on which States arebased are undiminished" (ibid., 2000).

Only the State can guarantee, through in-dependent courts, the respect of humanrights and justice, promote - in tandem withother actors - the national welfare, and pro-tect the general interest. Its role is also fun-damental in operating the intricate web ofmulti-lateral arrangements and inter-gov-ernmental regimes. It is still States, collec-

The fact that cooperation and regulation arerequired on many levels as a consequence ofthe complexities and transnational nature ofpresent world issues has led a number of schol-ars to predict the "end" of state power. Someargue that the State may only adjust toglobalization, but not have an active role init. Some believe that the State will becomeobsolete. Ohmae, for example, suggests that"nation-States are no longer meaningfulunits in which to think about economic ac-tivity ... In a borderless economy, the unitsthat do make sense are ... region states"(Ohmae, 1995, p. 132).

Despite the many concerns about the loss ofsovereignty, the State remains the key actorin the domestic as well as international are-nas. The popular assumption that the emer-gence of global civil society, and increasinglevels of cross-border trade, finance and in-vestment flows turns the nation-State intoan anachronism is wrong. In the internationalarena, closer cooperation and concerted ac-tion among States represent an exercise ofState sovereignty. Such concerted actiondoes not necessarily weaken States; rather,it can strengthen them by making the externalenvironment more stable and by giving themgreater scope to expand their exchanges ina variety of fields. Moreover, globalization with-out effective and robust multilateralism isbound to lead to crisis because markets areneither inherently stable nor equitable. Themany "challenges that we confront todayare beyond the reach of any State to meeton its own. At the national level we must gov-ern better, and at the international level wemust learn to govern better together. Effec-tive States are essential for both tasks, andtheir capacity for both needs strengthen-ing" (UN, 2000, Millennium Report, A/54/2000, para. 15). We need to remember andfully appreciate that the entire edifice set upfor global governance is currently under-pinned by nation-States and driven by theinitiatives which they undertake.

In the domestic arena, the State assumes agreat number of functions which cannot beperformed by any other actor and will not beless relevant in a globalized world. Such

30

The popular

assumption that the

emergence of global

civil society, and

increasing levels of

cross-border trade,

finance and

investment flows turns

the nation-State into

an anachronism is

wrong

tively or singly, that set the rules of thegame, that enter into agreements with oth-er States, and that make policies whichshape national and global activities, and theagenda of integration; though this is true inprinciple, in reality the problem of inadequacyin capacity of individual States has becomeclearly pronounced. This means that someStates have more political leverage in shap-ing the international agenda whereas othershave a less active role, as is the case for manydeveloping countries.

Moreover, as pointed out in Part Two of thisReport, globalization does not reduce thesize of the State in terms of expenditure. Ev-idence suggests that the countries that haveembraced globalization, are also those whichregister higher rates of public expenditure.The argument that globalization produces areduction of the Welfare State and thereforea cut in social spending is not supported byevidence. On the contrary, as discussed fur-ther on, an intelligent, democratic State isneeded to redistribute the benefits of glob-alization and to minimize the costs thatsome segments of the population may bear.

To put it more simply, globalization may re-quire that the State improve its capacity todeal with greater openness, but it does notseem to undermine its sovereignty or itsfundamental role within the national and in-ternational landscapes. To be sure, the Stateremains central to the well-being of its citi-zens and to the proper management of so-cial and economic development. The State isalso responsible for adopting policies whichare conducive to greater economic integra-tion. We should not forget that further glob-al integration can be reversed by state poli-cies inimical to openness, as occurred betweenthe two World Wars. Globalization does notreduce the role of the nation-State, but re-defines it given the pressures and respons-es it must give at the local, national and in-ternational levels. It has modified the mean-ing of sovereignty but not undermined it.

Experience shows, however, that globaliza-tion does not affect all countries in the sameway. In general, and as recently experienced,

if it is true, for instance, that the negativeexternalities of a financial crisis in one re-gion of the world affect other regions aroundthe globe, it is also true that some countriessuffer more than others because they lack thecapacity to contain the adjustment costs ofglobalization. In order to understand whataccounts for these differences, it is crucial toexplore what administrative reforms have beenimplemented around the world in recentyears, and whether they have strengthenedstate capacity to ensure that the benefits ofglobalization are evenly spread among thepopulation.

1.2. The role of the State in multi-layered governance

"Globalization pressures, including economicintegration, fiscal discipline and democrat-ic governance, have forced governance in-stitutions to redefine their role of universalprovider as one that encompasses the rolesof catalyst, enabler, gatekeeper, consensus-builder, mediator and negotiator. As such, glob-alization has led to the development of newroles, relationships and partnerships amonggovernment, citizens and business, andheightened the influence of the public on gov-ernance policies and institutions. Citizens areachieving greater input into government de-cision-making; central governments are de-centralizing to local government levels; andgovernments are partnering with civil soci-ety and the private sector in the delivery ofprogrammes and services. Many examples in-clude: government-sponsored national poli-cy consultations, local service deliveryschemes, joint decision-making councils, andother innovative partnership arrangements"(UN, 2000, ST/SG/AC.6/2000/L.6).

Increasingly, the State is called upon to actas linking pin of processes of planning, con-sultation, negotiation and decision-makinginvolving diverse players, State and non-State, at different levels of governance. It isthe hub of activities connecting multiplepartners and stakeholders from very variedfields, activities, regions, cultures, professionsand interests. Adding to the complexities ofbringing these together, is what may be de-

31


Increasingly, the State

is called upon to act as

"linking pin" of

processes of planning,

consultation,

negotiation and

decision-making

involving diverse

players, State and non-

State, at different levels

of governance

scribed as the decline of traditional author-ity structures and the decreased effectivenessof the old top-down command. The differen-tiation of needs, technologies, skills, ideolo-gies and interests has carried in its trail awide diffusion of power on almost every lev-el. The compact, monocratic pyramidalstructures, which constitute the legacy of XVIII century thought no longer representthe prevalent reality of the contemporary worldof public administration. These structures cer-tainly do not sufficiently respond to its con-cerns and cannot meet its needs in an effective,timely and user-friendly fashion.

Moreover, as already stated, the State willincreasingly need to function on three lev-els:

� The sub-national level, as a result of a processof devolution of functions to local level gov-ernment structures, or even non-State actorsoperating within bounds established by theState and under its supervision;

� The national, or central government lev-el; and

� The international level, where an entire ed-ifice set up for global governance is slowlytaking shape, but is clearly underpinned bynation-States and driven by the initiativeswhich they undertake.

In this respect, the State will need to establishspecific bodies, which can be entrusted withensuring an effective network among thesedifferent levels, and to possess the necessaryskills for multi-layered governance.

2. Redesigning the State inthe 1980s and 1990s

In recent years several countries have im-plemented a number of reforms in their pub-lic administration which, in many cases,have improved their position to properlyfunction in a global context as indicated inthe regional perspectives. Nonetheless, theunderlying indispensable element of im-proving human resources and strengthening

State capacity have not received the same at-tention as economic liberalization.

The reforms initiated in the mid 1980s withthe support and leadership of the BrettonWoods institutions introduced a new publicadministration paradigm and macro-eco-nomic policy framework. These reformssought to reduce the role of the State in pro-duction, as well as in service delivery and toencourage the deregulation of public enter-prises. The emphasis was on maintainingmacro-economic stability, lowering inflation,cutting deficit spending, and reducing the scopeand cost of government. The reforms relat-ed to the functioning and role of the Statein the economic sphere, have in many in-stances, produced positive results. The pri-vatization of public enterprises producing goodsand services has reduced the role of theState in areas where the private sector hasoften shown to be a better alternative, withthe exception perhaps of basic services of in-frastructure where the State has an intrin-sic responsibility and interest (e.g. law andorder, including prisons, courts, public safe-ty, among others). In the developed world, theend of State monopolies in many areas hasresulted in greater competition, lower pricesand wider choices to the consumer.

On the administrative side, New PublicManagement (NPM) and reinventing gov-ernment have been effective tools in im-proving the efficiency of the public sector andin reducing costs. Notwithstanding some ofthe positive results derived from these reforms,the retreat of the State in social areas(health care, education, housing) has been detri-mental for many developing countries. Un-der pressure from structural adjustmentprogrammes, which were aimed at achiev-ing economic stability (by reducing hyper-in-flation, reducing the budget deficit, etc.),many States chose to cut back programmesparticularly in the social area. Perhaps a bet-ter solution would have been to seek to im-prove tax collection or increase sources of in-come through equitable taxation. Just by at-tacking non-compliance and fraud in taxcollections, many developing countries couldhave dramatically increased their income. How-

32


The underlying

indispensable element

of improving human

resources and

strengthening State

capacity have not

received the same

attention as economic

liberalization

ever, that would have implied a strong po-litical will in favour of such measures andalso the existence of effective public admin-istration systems, as well as greater capac-ity which many countries lacked.

The lessons of experience have shown the lim-itations of the structural adjustment pro-grammes and pointed to the need of broad-ening the agenda of public sector reform. Ithas become apparent that macro-economicadjustment and stabilization were not suf-ficient to address the fundamental problemsin governance and public management,which were of a political and institutional na-ture. What is more, the net effect of these ad-justment policies has been a regrettable neg-lect and further serious weakening of strate-gic institutions, notably the civil service, incountries where the process of "building theState" was still incomplete. The errors of theseways are currently, if belatedly, gaining in-creased recognition.

To make globalization fully viable and acceptedworld-wide the drawbacks in the social areamust be corrected, and this implies rein-forcing state capacity. Opening up to theglobal economy brings costs and benefits. Somegain and some lose by either improving theirlot or losing their jobs. The more effective andconfident a State, the more it can focus oncompensating losses caused by globalizationand technical change. The absence of an ef-fective public administration can often con-strain States from participating in the glob-al economy because they fear the adverse ef-fects of globalization on vulnerable segmentsof the population. The reform of public serv-ice would give States a better opportunity toglobalize. A strong, democratic State andglobalization go hand in hand.

The anatomy and impact of NPM and relatedState reforms in both the developed and de-veloping countries are briefly explored below inorder to give a more clear picture of its meritsand drawbacks in helping developing countriesto meet the challenges of the new millennium.

Many administrative reforms that haveshaped the international policy agenda of the

past two decades originated in the West-minster-system countries (Australia, NewZealand, the United Kingdom and Canada)and the United States, which may rightly beconsidered as the foremost exponents ofNPM. This wave of reforms first started inthe UK in 1979 with the electoral victory ofthe Conservative Party, which produced a ma-jor agenda shift towards reducing the role ofgovernment in the economic life. The elec-tion greatly altered the status and range ofitems on the government agenda and this,in turn, forcefully brought public managementissues onto the governmental agenda(Barzelay, 1998).

Because of their importance, capacity foroutreach and technological prominence, theWestminster-system countries have exertedcollectively a considerable influence on ad-ministrative developments worldwide.These countries are exceptional in manyways. They are all highly developed, demo-cratic, stable and prosperous. They share acommon language and, in spite of their dif-ferences, a core of common values and tra-ditions, which have profoundly marked theiradministrative systems. They also share a com-bination of attributes and benefits thatmany other countries still manifestly lack. Home-grown in this environment, the pop-ular "New Zealand" model was soon adopt-ed widely in this group of countries and hassince been exported to other parts of the worldwith varying degrees of success. There is no

33


Graph II.1. Taxes as share of GDP (%), 1994-98

0 5 10 15 20 25 30

High incomecountries

Middle-incomecountries

Low-incomecountries

Source: World Bank, 2000.

denying the merits and the considerable in-fluence of this model during the past twodecades. To a greater or lesser extent, all ofthe countries concerned experienced an ero-sion of confidence in government during the1980s and early 1990s. Where once the pub-lic welcomed or at least acquiesced in gov-ernment initiatives, the mood graduallyswung in the opposite direction. A numberof factors accounted for this change of atti-tude towards government and its role in theeconomic and social sphere. The first was aresponse to the global recession, which be-gan in the mid 1970s, and was predicated onideas fundamentally hostile towards theState (Sulbrandt, 2000, p. 34). The second fac-tor, which was related to the first, was theneed to reduce unnecessary costs and ineffi-ciencies.

The rising costs of government and of the pub-lic budget coupled with inefficient services,led to strong criticism of the State as producerof goods and services. The burden of socialwelfare, as the population aged, produced atransformation in attitudes. This was artic-ulated by the New Zealand Minister of Fi-nance in her 1991 budget speech: "The re-design of the welfare state is integral to ourstrategy for growth ... The only sustainablewelfare state is one that is fair and afford-able. Our current system is neither. Real wel-fare is created by people and familiesthrough their own efforts. Our redesigned wel-fare state will support those efforts and as-sist those who cannot assist themselves"(Boston, Dalziel and St. John, 1999).

Often couched as a critique of "bureaucracy"and "big government" this new approachportended a veritable shift of paradigm re-garding the role of the State and the dischargeof its functions. The reforms which it en-gendered sought to reduce the scope of theState, eliminate its role as producer of goodsand services, downsize the public service, pro-mote deregulation and decentralization, andrecast the role of government especially asregards service delivery, macro-economicgovernance, and the private sector. Re-markably, what started as a policy to copewith growing budget deficits and cure ram-

pant inflation during the 1980s developed in-to a campaign "to roll back the State". Thiswas defended on moral and ideological, as wellas pragmatic grounds. The mounting costsof social programmes in Western Europeanand other industrialized countries led todoubts on the wisdom and sustainability ofpost Second World War welfare pro-grammes.

The need to enhance efficiency in the pub-lic sector and to cut public costs was ac-companied by a series of measures, includ-ing privatization, deregulation, and the in-troduction of market-like mechanisms inthe public sector. The broad appeal of theseconcepts is nothing less than staggering,and although, to be sure, the measure of suc-cess varies from country to country, the ex-tent to which the principles themselves havebeen accepted may be taken as indicative ofa worldwide trend. This trend may havebeen influenced by the convergence of val-ues in which multilateral agencies, the me-dia and civil society have played a part. Ithas been manifested in the uneven but ob-servable decline of traditional authoritystructures; the flattening of hierarchies; andthe pressure from the people to have a voiceand for that voice to count.

Four very common targets of reorganiza-tion of the State have been implemented inmany countries and advocated around theworld: privatization and deregulation, mar-ket-like mechanisms, decentralization, anddebureaucratization.

2.1. Privatization and deregulation

In a pattern replicated in several States, sub-stantial cuts in benefits were attempted,and steps initiated to privatize delivery of pub-lic welfare services, including education andhealth care, but also experimenting withprivate courts and prisons, and private po-lice forces. In New Zealand and elsewhere,shrinking the social programmes was onlypart of a much broader design of limiting theState through decentralization, devolution andtransfers of power. Privatization and variousforms of outsourcing were added in an attempt

34


Remarkably, what

started as a policy to

cope with growing

budget deficits and

cure rampant inflation

during the 1980s

developed into a

campaign "to roll back

the State"

to reduce public employment and, in this man-ner also, the burden of taxation. "Privatiza-tion included both industries previously seenas 'strategic' (such as steel, coal or airways)and utilities where there was previously apresumption of natural monopoly (such as gas,electricity and telephones). The privatizationof the water companies and of the railwaysmarked the high water mark of this processin the UK" (Ferlie, 1998, p. 6).

Potentially far-reaching have been reform pro-posals developed under the label "law and eco-nomics". The overriding purpose is to promoteefficiency and maximize the creation ofwealth. This is pursued by eliminating lawsimposing restrictions on business and by re-ducing the penalties that corporations payfor negligent behaviour. Inspired, to a largeextent, by lawyers and economists of theUniversity of Chicago, the thrust of these pro-posals has been to circumscribe the role ofgovernment, restrict government spending,replace progressive income tax with a flat ratetax, and otherwise arrest and/or reverse a trendthat neo-liberal economists - otherwisecalled "supply-siders" - trace to the Great De-pression, the New Deal and the effects of twoWorld Wars (Clark, 1998).

2.2. Market-like mechanisms

"Where core functions (often social policyfunctions) were not privatized, a range of mar-ket-like mechanisms were introduced tomimic the effects of the market. This wouldinclude periodic market testing of services (suchas groups within the civil service) against in-vitations to bid from outside contractors. Itwould also include attempts to set up inter-nal market mechanisms within health care,social care, education and even university set-tings, although these experiments reportedmixed success" (Ferlie, 1998, p. 6).

2.3. Decentralization

Decentralization has been another very sig-nificant reform of the State which receiveda boost from the decline and fall of militarydictatorships and totalitarian regimes, forwhich centralization and tight controls had

represented conditions of survival, or key con-stituent elements of their ideological basis.In these countries, the quest for moredemocracy has been coupled with attemptsto abandon a highly centralized, tightly con-trolled, often paternalistic and authoritari-an bureaucratic system in favor of one ex-emplifying the merits of individual initiativeand citizen participation in the affairs ofgovernment. "Almost by definition, a high-ly centralized system of government is lessdemocratic than one in which there is a net-work of local and regional authorities com-plementing the national authority withclearly delineated powers and responsibili-ties" (UNDP, 1997, Regional Bureau for Eu-rope and the CIS, p. 23).

In Western Europe, specifically, the tenden-cy away from centralized control received apowerful boost from the process of integra-tion into the European Union. In an attemptto address and resolve the problem of dis-tribution of functions and resources amongthe several layers of government, the Euro-pean Union elaborated a principle which isvery simple but clear. The principle of sub-sidiarity plainly states that every functionmust be assigned to the lowest level at whichit can be discharged effectively. This meansin practice that any decision to allocate a func-tion or responsibility at a higher level mustbe capable of being defended or explained ongrounds that it could not be done effective-ly at a lower level.

2.4. Debureaucratization

"Debureaucratization", often through re-en-gineering and deregulation, has been a pre-ferred strategy in pursuit of efficiency. Con-cerned with promoting cost-consciousness, ef-ficiency and effectiveness in the public serv-ice, NPM was also geared to affirm therights of private citizens as consumers andclients vis-à-vis state organizations, whichtoo often have been marked by closure, out-datedness and paternalistic indifference tothe wishes of the public. In all the countriesconcerned, transparency, accountability andpublic service integrity have made a power-ful comeback. In part, this has been due to

35


"Debureaucratization",

often through re-

engineering and

deregulation, has been

a preferred strategy in

pursuit of efficiency

pressures from the public to put an end to atradition of secretiveness and obscurantism,which has long been associated with theethos and the practice of bureaucracy. Thestress on accountability has been linked toan effort to bring policy and administrationback to the source - the citizen - to whom itbelongs, and to account for efficient expen-diture of public funds. In other words, therehas been an effort to bring government clos-er to the individual citizens, making it moreintelligible, as well as more accessible, clip-ping away its prerogatives, cutting its staffdown to size, empowering the public and widen-ing the latter�s choices. The right of the pub-lic to know and even to be involved in the de-sign and practice of public policy has beenreaffirmed. This is a development whose im-plications have only been apparent in recentdecades. Such also is the objective of the re-lated re-engineering. Its quintessentialmethod has been defined as follows: "Ques-tion everything; throw out all perceived as-sumptions and conventional wisdom; look forbreakthrough strategies; focus on customers,radical change, nimble organizations andinformation technology" (Kettl, 1995, p. 41).

The focus on radical change, nimble organ-izations, as well as customers� preference isunmistakable. It must be emphasized, how-ever, that some of these approaches have al-so been embraced by movements of reform,in several parts of the world, which have beenleft untouched by the reinvention tide.

This development, however, not unlike theparallel trend towards privatization and out-sourcing, did not come without its risks.There is some reason to fear that mergingthe two spheres - private and public - mighthelp create a world in which the public goodmight no longer remain the paramount ob-jective. Allied to this consideration was con-cern over what NPM, with its accent on re-duction of centralized procedures, mightbring in its wake: greater emphasis on out-puts, separation of purchasing andproviders' roles, the development of con-tractual mechanisms of accountability anddeparture from lifetime career employment(Hood, 1991). For a time, some of those

trends were criticized �for opening the doorto the re-politicization of public administra-tion, retreating from the traditional normsof public accountability by impeding politi-cal oversight of the bureaucracy, and allow-ing the possible incursion of administrativecorruption, should public managers realize... that they could secrete their own wrong-doing. Public propriety should not be sacri-ficed on the altar of economic efficiency, norshould more businesslike public adminis-tration be allowed to breach the common lawduty to act fairly in making administrativedecisions which affect legitimate rights, in-terests and expectations" (Caiden, 2000, p.12).

3. New Public Managementand its main tenets

The outcome and legacy of New Public Man-agement or "reinventing government" - itsNorthern American variant - have beenrather mixed, but its influence persists. Thishas been demonstrated at several global fo-ra, where it has been accorded considerablesalience. Thus, in its invitation to the 2001Annual Conference in Athens, the Interna-tional Association of Schools and Institutesof Administration introduced the Confer-ence theme "New Trends and New Tech-niques: Implications for Education andTraining" with the following commentaryon the role of NPM: "The New Public Man-agement is an example of globalization at work.It has promoted a powerful technologicalrevolution, and diffused a set of valuesamong the public services of nation-States,sub-national units, international and supra-national bodies. Across all these spheres ofgovernance, it has re-vitalized the identityof public administration as a profession andscholarly discipline. It has helped to alter thebalance of power within administration, aswell as between officials and civil society. Itprovides an object lesson about the natureand effects of globalization on governance inthe opening decade of the twenty-first cen-tury" (IASIA, 2001, Annual Conference).

36


The right of the public

to know and even to

be involved in the

design and practice of

public policy has been

reaffirmed

NPM and "reinventing government" havegreatly enriched the language of managementwith several new terms and graphic ex-pressions. Here are some of the most current:

� Results over process;

� Downsizing, now "rightsizing";

� "Lean and mean";

� Contracting out, off-loading or outsourcing;

� Steering rather than rowing;

� Empowering rather than serving; and

� Earning rather than spending (Freder-ickson, 1996).

Manifestly, NPM is destined to continue toexert a measure of influence on administrativedevelopments. Arguably, this influence maygo beyond the sphere of methods and tech-niques into the realm of values. It is boundto play a role in the ongoing attempts to ad-vance the cause of good governance, notablyin the least developed countries. It is important,therefore, to understand the context, thestrengths and the limitations of NPM in or-der both to reap the full yield of its benefits,but also to avoid repeating the mistakes ofearlier attempts to spread its principles todifferent parts of the world.

3.1. Let the managers manage

"Let the managers manage" has been the move-ment�s slogan. Simple, direct and catchy,this motto, often coupled with the related apho-rism that "management is management",exerts a strong appeal. The need for flexibilityand freedom to maneuver, which these state-ments convey, makes some sense in a worldwhere changes and discontinuity have becomefacts of life; where rigid structures areviewed as things of the past; and whereadaptability, creative problem-solving and rap-id response to contingencies are sine qua nonconditions of survival and success. It mustbe pointed out, however, that criticisms of ruleshave often served as a subterfuge to brush

aside or undermine important institutionaland legal safeguards in areas of vital concernto vulnerable segments of the population. Itis not accidental that the rise of manageri-alism has frequently coincided with attackson organized labour and attempts to curb itsinfluence.

The quest for cost-effectiveness through nov-el styles of management and forms of or-ganization has also given prominence to a mod-ified profile of the good public manager. Theprofile is not new, but has immensely gainedin currency and popularity since the publi-cation of Osborne and Gaebler�s bestseller onReinventing Government (1992). In this andother writings, the "entrepreneurial manager"is lionized, in contrast to the stereotyped andmaligned conventional "bureaucrat". Theprofile is consistent with the promotion of anew prototype: hard-nosed and business-like, but also proactive, creative, focused ontasks, results-oriented, but friendly to the pub-lic. Of course, this is the antithesis of the in-different, overly cautious and rules-addict-ed bureaucrats, stereotyped by the proponentsof reform. However, to suggest that these arerepresentative of anything but a minute pro-portion of today�s public servants, especial-ly in the countries to which the critique wasaddressed, could hardly be considered a fairand accurate statement.

Style and language shaped the substance toproduce a powerful message, which claimedto address the issues of the XXI century. Hereare some of its main tenets:

� Emphasis on results; stress on performancemeasurement, monitoring and evaluation;

� Accent on cost reduction and hence on"cutback management", reflective of con-cerns in a period of recession;� Insistence on the need to shrink the scopeof government;

� Promotion, to that end, of privatization, out-sourcing or off loading, and decentraliza-tion of state-provided services and othergovernment functions considered non-es-sential;

37


It is important ... to

understand the context,

the strengths and the

limitations of NPM in

order both to reap the

full yield of its benefits,

but also to avoid

repeating the mistakes

of earlier attempts to

spread its principles to

different parts of the

world

� Focus on core competencies and top prioritytasks;

� Devolution of decisional responsibilities, asfar as possible closer to the end user;

� Partiality not only for practices and meth-ods, but also for the language and values ofthe private sector, partly in an attempt to "de-bureaucratize" public administration, butmostly on the assumption that, in some cas-es, the private sector can provide cost-effec-tive services and enhance competition;

� Consistent with that theory, "client- ori-entation" and designation of citizens as "val-ued customers";

� Emphasis on "empowerment" of users andstakeholders, and "participative management".

3.2. Empowering citizens

"Empowerment" of the citizen also forms amajor plank in the managerialist platform.It is hypothesized that citizens around theworld are chafing under burdensome bu-reaucratic rules, which restrict their rangeof options and access to quality services(Frederickson, 1996). It is assumed, accord-ingly, that privatization, outsourcing of pub-lic services and debureaucratization are av-enues that lead not only to greater citi-zen/consumer satisfaction, but also to morefreedom and more complete democracy. In oth-er words, "managerialism" has pitted "rules-bound administration" against the more ef-ficient entrepreneurial, "results-oriented"management. "Public administration" isswiftly being replaced by the more trendy"management" in many schools� curriculaand even the vocabulary of public organiza-tions (e.g., human resources management).

3.3. New responsibility mechanisms

New responsibility mechanisms were de-signed, public servants were assigned "directresponsibility for their conduct, not merelya derivative responsibility through theirminister and parliament" (Spigelman, 1999,p. 7). Significantly now, accountability covers

omissions as well as commissions, i.e., fail-ure to act in order to stop a wrongdoing. �Awhole new range of mechanisms has comeinto force to review and correct the deci-sions of public administrators, thereby end-ing the defence of compliance with instruc-tions or merely �following orders�. Indeed, thisnewly emerging doctrine of administrativeresponsibility goes well beyond the boundsof public administration to the broad field ofgovernance� (ibid, 1999, p. 9).

3.4. Introducing business principlesinto public affairs

The underlying assumption that "manage-ment is management" casts doubt on the va-lidity of any major difference in the mannerin which public affairs and private enterpriseought to be run. Where a parting of ways hasbeen perceived as plausible, the "manageri-alists" suggest that public affairs be conducted,as far as possible, on business principles. Thepremise that all management is grounded ineconomics has also correspondingly obscuredthe important role that law, psychology, po-litical theory, ethics and other social sci-ences must play in both the study and prac-tice of public administration/management. Afocus on the evils of government monopolycombined with "bureaucracy bashing" havesignalled the transition from public admin-istration to public management. A seniorresearch fellow of the Cardiff BusinessSchool explained the change of paradigm inthe following terms: "In contrast to public ad-ministration, the new paradigm is concernedwith the economics rather than the politicsof service provision, emphasizes governmentfailure rather than market failure, and is skep-tical about the capacity of bureaucracy to pro-vide services efficiently and effectively"(Boyne, 1996, p.679).

The belief that "management is manage-ment" and private sector practices are superiorto the public sector�s is not exactly new. Itis possible to trace it back to the XIX cen-tury. From Scientific Management to TotalQuality Management, many performanceimprovements and related reforms had theirsource in private industry. However, NPM and

38


The premise that all

management is

grounded in economics

has also

correspondingly

obscured the important

role that law,

psychology, political

theory, ethics and other

social sciences must

play in both the study

and practice of public

administration/manage

ment

the reinvention movement have carried thisidea one step further, arguing "that govern-ment should not only adopt the techniquesof business administration, but ... also adoptthe values of business" (DeLeon and Dern-hardt, 2000).

3.5. Downplaying the concept of"public service"

Drawn to their logical conclusion, publicchoice and its derivatives "have tended to re-ject concepts like �public spirit�, �public serv-ice� and so forth" (Kamensky, 1996). The im-plications are far-reaching. On the prag-matic level, this has led to major reforms inNew Zealand, the UK, the USAand other coun-tries. The thrust of these reforms has beento separate political advice from policy im-plementation, thus also re-establishing theold and much maligned policy administrationdichotomy. However, more fundamentally,these measures have purported not only toredraw the boundaries, but also to alter thepurposes of the civil service profession. In-deed, it might be fair to ask whether the veryconcept of a "public service profession"makes any sense to the advocates and dis-ciples of public choice.

3.6. Promoting professional ethicsin the public sphere

Revisiting and redefining the ethical di-mension of the public service profession hasbeen a major facet of NPM reforms, whichhave been taking place in a number of coun-tries. Everywhere, the civil service appearedto be in the process of losing its former co-hesion and even its sense of identity. The agen-da for reform purported to recast the mouldof public officialdom, "putting the peoplefirst", and to radically transform the style ofpublic management.

Putting the people first did not merely entailbringing the government closer to the publicit served. It meant treating people as valuedcustomers, rather than as charges. It also sig-nified making government officials "less re-mote and more responsive", but also less "bu-reaucratic" and more "entrepreneurial", or re-

sults-oriented (Caiden, 2000). To achievethese goals, the Government in the UK adopt-ed a strategy whose keystones were inclu-siveness and integration. Its programme hasbeen centered on five commitments:

� �Policymaking: we will be forward-looking indeveloping policies to deliver results that mat-ter, not simply reacting to short- term pres-sures.

� Responsive public services: we will deliv-er public services to meet the needs of citi-zens, not the convenience of serviceproviders.

� Quality public service: we will deliver ef-ficient, high quality public services and nottolerate mediocrity.

� Information-age government: we will usenew technology to meet the needs of citizensand business, and not trail behind techno-logical developments.

� Public service: we will value public serv-ice, not denigrate it� (ibid.).

3.7. Performance management

Emphasis has been placed on performancemanagement and inspection. Four princi-ples for performance management and in-spection have been advocated:

� �Encourage a whole systems approach: Wewill put the focus on assessing improve-ments in the effectiveness and value formoney of a whole system, such as the crim-inal justice system, not just in its constituentparts.

� Move from counting what goes in to assessingwhat is being delivered: We will keep a tightrein on the management of resources. But wealso need to know what is being achieved withthe money spent. The targets for governmentdepartments, as far as possible, are ex-pressed either in terms of the end results orservice standards, and we are working to de-velop measures for all levels of governmentwhich support this approach.

39


The agenda for reform

purported to recast the

mould of public

officialdom, "putting the

people first", and to

radically transform the

style of public

management

� Intervene in inverse proportion to success:The government is not afraid to take actionwhere standards slip, but we do not want torun local services from the center. Where serv-ices deliver results, we will give themgreater freedom to innovate.

� Use the right information at the right lev-el: We want managers to use performancemeasures to monitor and improve their or-ganizations. We do not want them to feelswamped by information overload or bu-reaucratic requests for irrelevant data. Wewill use new technology to take a morestreamlined approach to managing infor-mation in the public sector� (ibid, p. 37).

Consistent with this approach was a new stresson measuring and monitoring performancein the public service. This can be found in allWestminster-system countries, albeit with cer-tain differences.

In Canada, for instance, it has been predi-cated on the belief in the need for strong pol-icy capacity and non-partisan professional-ism as the essential preconditions of quali-ty performance and quality service delivery.By contrast, in New Zealand, a more radicalapproach, based on NPM precepts, de-coupledservice delivery from policy advice, and em-ployed non-tenured executives, performancecontracting and annual purchase agree-ments (Davis, Sullivan and Yeatman, 1997).

However, it is probably in the United Statesthat standard-setting, benchmarking andemphasis on measuring, monitoring andevaluating performance have been devel-oped the most during the past decade. Abold step in this direction was taken in theform of the Government Performance and Re-sults Act of 1993, by which Congress has pre-scribed consultation and planning to identi-fy agency and programme goals and annu-al reporting on performance. Joseph Wholeyhas described the intentions and purposes ofthe new performance-based managementsystem as follows: "The required planning andperformance measurement, and the possibilityof increased managerial flexibility in returnfor accountability of results, are intended to

improve management, improve programmeperformance, improve accountability, sup-port policy decision making, and improve pub-lic confidence in government ... With minorexceptions, federal agencies� strategic plans,annual performance plans and annual per-formance reports are and will be public doc-uments." (Wholey, 1999, p. 293).

3.8. Performance budgeting

Over the years, what has emerged in thisprocess is a major reform of the 1990s,namely performance budgeting, which is aconcept linking performance informationwith budget. Much still needs to be accom-plished to clarify and strengthen the linksbetween planning and budgeting structures,and presentation in performance planning,measurement and cost accounting. Key chal-lenges include continued lack of credibleand useful performance information, difficultiesin achieving consensus on goals and meas-ures among various stakeholders, dissimi-larities in programme and fund reporting struc-tures, and limitations of information and ac-counting systems.

When viewed collectively, these past initia-tives suggest three common themes:

� First, any effort to link plans and budgets mustexplicitly involve the legislative branches;

� Second, the concept of performance budg-eting will likely continue to evolve. There isno single definition that encompasses the rangeof needs and interests of federal decision-mak-ers; and

� Third, performance budgeting cannot beviewed in simplistic terms. In most cases, re-source allocation cannot be mechanicallylinked to results.

Ultimately, the promise of any performancebudgeting initiative lies in its potential to in-fuse performance information and bench-marks into budgetary deliberations, therebychanging the terms of the debate from sim-ple inputs to expected and actual results (US,GAO, 1999, GAO/AIMD/GGD-99-67, pp. 4-5).

40


Much still needs to be

accomplished to clarify

and strengthen the links

between planning and

budgeting structures,

and presentation in

performance planning,

measurement and cost

accounting

In summary, the "efficient", "managerial"State, advocated and implemented in severalcountries - especially in the Anglo-Saxonworld - has focused on efficiency in the be-lief that procedural and structural reformsmake it possible to have a government thatworks better and costs less. This approachprojects the State as the object of reinven-tion ("reinventing government"), which im-plies re-engineering the civil service struc-tures. Although efficiency is extremely rel-evant, it cannot be the only guiding princi-ple of State action, and it must always be bal-anced with considerations of public interest.Efficiency must be seen as a means to im-prove State activities, not as its ultimate goal.

4. Regional perspectives

The reforms which have been widely advo-cated in the past two decades in many partsof the world, have produced different re-sults across the globe. What started as a re-form movement to cure high public deficits,reduce the excesses of the Welfare State andmodernize the public sector in the West wassoon applied to other regions of the world,which had a very different set of historical,political and cultural experiences. It may besaid that two different worlds co-existed.One was the world of the rich nations whosepopulation had ample access to education,health services, clean water, unemploymentbenefits, and social security. The other onewas the world characterized by abject pover-ty with a lack of education, no access tohealth services and a lack of basic infra-structures to deliver social services. In oth-er words, one had in place adequate institutionsand conditions for specific reforms whereasthe other lacked the basic infrastructures andpre-requisites. Reducing the role of govern-ment and cutting spending on educationand health services did not produce thesame results in countries which already hadsubstantial levels of education and goodhealth systems in place and in countrieswhich, to begin with, did not have such con-ditions.

In trying to redress economic and socialproblems many developing countries lookedat - or were induced by financial institutionsto do so - how developed countries were tack-ling rampant public deficits, economic crises,etc. Thus, they went directly to "how-to-do-things", namely to new managerial ap-proaches, without the solid institutional, so-cial basis already in existence in the devel-oped world. This is why one of the most em-inent proponents of the managerial State inthe developing world and one who understandsits relationship with the developmentprocess, namely former Brazilian MinisterBresser Pereira stated that: "If the propos-al of a minimum State is not realistic, andif the basic factor behind the economic cri-sis is the crisis of the State, there is only onepossible conclusion: not to whither with theState, but to rebuild it" (Bresser Pereira, 1998).

If one aims to adopt managerial reform asa way to improve the performance of the pub-lic sector and its capacity to service the cit-izens, one must ensure that the basic con-ditions for the operation of a managerialpublic sector exist. Otherwise one wouldhave a tool without the necessary politicaland social conditions which would enable thistool to work successfully. Let�s briefly see howthe past reforms have affected the differentregions of the world.

4.1. Western Europe

It is worthwhile noting that in Western Eu-rope privatization, deregulation, de-bu-reaucratization and decentralization have beencarefully managed and coordinated with thegoals of the Welfare State and the provisionof social services for all. In fact, policy mak-ers in the region have devoted much energyto find ways to reconcile their acquired so-cial structure and benefits with fiscal frugality,efficiency, and greater participation as wellas innovation. Thus, it might be said that West-ern Europe has been trying to reconcile theirpro-active social policies and strategies(namely, "the what-should-the-State-do"),with new ways to implement these policies(namely, "the how-to-do-it").

41


What started as a

reform movement ... in

the West was soon

applied to other regions

of the world, which had

a very different set of

historical, political and

cultural experiences

There can be little doubt that national ad-ministrative and civic cultures in Western Eu-rope have been profoundly marked byshared traditions, legacies and institutions,some indeed going far back to the days of theRoman Empire. Of these, the Etat de droit,the bureaucratic model and a penchant forlegalism and centralization, more pro-nounced in some countries than in others, standout. These are now called into question in theform of ongoing reforms, which, predictably,present commonalities and differences.Strategies for reform try to avoid the errorsof the past, leading governments to take asegmented approach to reform, that is to sayto attempt the change of institutions in rel-ative isolation instead of seeking to addressthe modernization of public administrationfrom a global perspective. Excessive relianceon form, and the letter of the law, and a cor-responding failure to address the substancein order to produce effective change in prac-tice, may represent another legacy which Eu-ropean Union countries share and whichthey now endeavour to correct.

This shift away from the past is not unre-lated to the influence of managerial think-ing on policy development and administra-tive practice in most Western Europeancountries. It has been manifested in theadoption of new practices, but also in achange of values. Everywhere, increasingreliance on "outsourcing" goes in tandemwith rethinking of past methods of recruit-ment, administration and career developmentof public servants. Everywhere, there ismore emphasis on "output over process","lean government", "value for money" and "cus-tomer orientation" (Timsit, 2000).

This shift in orientation has been accompa-nied by parallel moves in the direction of de-centralization, deconcentration, and priva-tization, as well as other forms of devolutionof power which, taken collectively, repre-sent a marked departure from the stronglycentralized, and rather paternalistic State ad-ministration of former days. An increasingemphasis on openness has also come with morereliance on networks, both national and in-ternational, and partnerships with non-

State actors, including private firms andother civil society entities.

In the process of reform and the means em-ployed for this purpose there is pronouncedconvergence. This has been especially sig-nificant in budgetary processes and the re-orientation of civil service policies, chiefly inthe direction of mobility, performance pay andincentives for efficiency and effectiveness.There has been renewed emphasis on the im-portance of professionalism and profession-al ethics, and measures have been taken tosafeguard the citizen/consumer from mal-administration and the abuse of power.

Such convergence of residual differencesamong the several partners of the EuropeanUnion is noteworthy. These differences areapparent on at least two levels: approachesto globalization and administrative culture.More than their opposite numbers in the "an-glo-saxon" countries, the governments andpeoples of continental Western Europe areconscious of the adjustment costs related toglobalization. The problems and the down-sides of these trends and developmentsshould not be overlooked: they include job in-security, and for some groups, feared dete-rioration of the physical environment. Suchdangers and such challenges point clearly tothe importance, the core functions and theleading role of the State through its publicadministration.

It is interesting to note that while the Eu-ropean Union predates the recent spread ofglobalization, its institutions and policieshave been an excellent tool in taking advantageof the opportunities of globalization. TheEuropean Union is the most elaborate regionalsystem of transnational integration. Forsome observers, the variety of economic andsecurity arrangements represent an ad-vanced form of globalization, but for others,they represent a way to limit the effects ofglobalization, i.e., a way of combining pow-er and authority to contain and manageglobal forces through cooperation, whichwould be impossible to do for individual States.Some believe that such integration weakensnational sovereignty, while others see the Eu-

42


Western Europe has

been trying to reconcile

their pro-active social

policies and strategies

(namely, "the what-

should-the-State-do"),

with new ways to

implement these

policies (namely, "the

how-to-do-it")

ropean Union as the rescuer of the nation-State, particularly the smaller ones, forwhich it is difficult to survive in a world oflarge groupings and organizations.

4.2. Eastern and Central Europe

In barely a decade, the countries of this re-gion have attempted a triple transforma-tion from a single-party State to a pluralistdemocracy; from a centrally planned econo-my to a free market economy, and from sub-ordination to independent statehood. Few hadthe wherewithal or an "institutional memo-ry" commensurate to this task. Not surpris-ingly, the pace and particular modalities ofthis transition process have differed from coun-try to country. Significantly, however, one isable to detect many shared characteristics,which suggest a common pattern of politicaland social change. These features include far-reaching deconcentration and decentraliza-tion, and the emergence of distinct spheresof economic and political life and privatiza-tion. Related to the above, was the overallpurpose to restore and to reinforce respectfor the rule of law.

This was no easy task. Reform had to con-tend with understandable, but still damag-ing anti-State attitudes. The transforma-tion process depended for success on supportfrom the public sector, which was at once thetarget and agent of reform. This called forcareful strategies combining structure withflexibility, continuity with change. In spiteof the complexity of the process and the dis-tinctive patterns which emerged in particu-lar countries, it is possible to distinguish fourmajor phases in the transition process:

� Transformation: overhauling the old struc-tures;

� Consolidation: in the measure that the"shock therapies" and "big bang" approach-es lost their appeal, design for the long-term, capacity reinforcement and imple-mentation of critical policies became in-creasingly important;

� Modernization: the quest and need toadopt "best practices" characterized thisstage; and

� Adaptation to the standards and practicesof the world community, and adoption of thetenets of the acquis communautaire, forthose countries which aspire to join the Eu-ropean Union.

While, in the initial period, the overall con-ditions were characterized by volatility, theend of the decade brought with it indicationsof growing consolidation in most of the coun-tries concerned. This was especially true ofthe political sphere, where the process of in-stitutionalization of a framework for demo-cratic governance may be considered almostcomplete, and the outline of a new pluralis-tic political order is becoming increasingly ev-ident.

A similar assertion may be applicable to theeconomic sphere. While the economic policiesstill face numerous hurdles, the structuralfoundations of the new market economies haveslowly begun to emerge. After nearly adecade of experimentation, the countries ofthe region are still searching for a model ofeconomic development. Most of them aregrappling with economic stabilization and re-structuring. Significantly, however, the ear-lier unconditional support for neo-liberalprinciples has been replaced by more dif-ferentiated and cautious approaches. Forthe public sector at large, in the new mar-ket economies, the prospects for reform onthe basis of pragmatic and realistic objectivesappear substantially improved. �However, thetasks ahead are demanding, particularly inlight of conditions for accession to the EuropeanUnion and the Council of Europe, which re-mains a major goal for several regionalStates� (Palankai, 1995).

Far more than the political and economic con-texts, the overall social predicament con-tinues to be problematic. Continued unem-ployment on a substantial scale, increase ofabsolute poverty, crime and widening in-come disparities are some of the downsideswhich the transition process has carried in

43


While, in the initial

period, the overall

conditions were

characterized by

volatility, the end of the

decade brought with it

indications of growing

consolidation in most of

the countries

concerned

its trail. Cutbacks in social expenditures, andprivatization have meant that social bene-fits have either been scaled down or have dis-appeared altogether. With social safety netsvisibly disintegrating in many countries, in-dividuals are confronted with the pressingneed to make major personal adjustments inan environment which is rapidly changingin fundamental ways. On the positive side,by contrast, one can emphasize the emergenceof a new triangular relationship betweenState, society and the individual, together withthe rise of an active civil society.

A difficult transition has demonstrated thecritical interdependence of economic per-formance, institutional stability and social-ly sensitive policies; all three are very im-portant, though it might well be argued thateconomic performance conditions the successof the other two. In the last analysis, how-ever, one-sided reform processes can becounterproductive. Experience shows thedangers of top-down shock treatments and"big bangs" as ways of bringing change. "Ex-ternally-induced" reforms likewise haveproven risky. Such was the case, for in-stance, of the "supply-led" approaches pro-moted by some international lending insti-tutions, which focused on economics buttended to neglect the social, institutionaland legal dimensions of change.

Countries are now beginning to rely more on"internally-induced reforms", in the measurethat they have come to recognize and developtheir potential for reform in this particulardomain. This, of course, does not rule out for-eign advice and assistance, but puts them ina new perspective. One of the limitations offoreign assistance, which soon became ap-parent, was that it overlooked the problemsand complexities of implementation, especiallyin a turbulent context. Experience demon-strates the importance and priority of build-ing domestic capacity. Progressive rein-forcement of the necessary legal and insti-tutional bases, modes and forms of public ac-tivity, as well as human resources, may bethe better way to proceed and to accommo-date the criteria of the acquis communautaire,for those countries who wish to do so.

In all too many cases, uncritical adoption of"Western" forms and standards has clearlynot availed the countries of Eastern andCentral Europe, and the Commonwealth ofIndependent States (CIS). This was exemplifiedby decentralization and deregulation re-forms, which resulted in confusion, over-lapping jurisdictions and fragmentation of thelocal government landscape. When thedearth of professional competence at the lo-cal level especially is also taken into ac-count, it should be easy to surmise why re-ality lags behind the normative ideal. Anothercase in point is the tacit, unavowed, yetwidespread "one-size-fits-all" concept thatoften went together with the notion of "glob-al convergence" (Hesse, 2000, p. 19).

"Only now is it being recognized that, with-in the environments of Central and EasternEurope, �rowing�, as well as �steering� is need-ed to keep the boat afloat, as even the mostattentive steering is conditional upon the day-to-day success of those implementing publicpolicy. To go even further, the rigid introductionof business approaches in public adminis-tration, as advocated by New Public Man-agement, may well prove disastrous in [stillunstable] systems based on a continental Eu-ropean tradition, where either the preconditionsmay not be in place yet, or where they arerejected due to the inherent logic of the ap-proach. Particularly problematic is the all toolimited ability of over-rigid managementsystems to cushion the impact of unre-strained market behaviour. To copy specificadministrative cultures seems no answer tothe problems at hand" (ibid., p. 20). In ad-dition, only recently the need for civil serv-ice legislation has begun to receive the at-tention which it deserves. This is one areawhere the requirements of EU accessionhave helped and where external assistancecould prove especially helpful.

4.3. Asia

Attempting to condense, in a few pages, theadministrative experience and history of re-form in Asia is an impossible task. Of all theworld�s regions, Asia is at once the largest,most populous and most diverse. Accord-

44


A difficult transition [in

Eastern European

countries] has

demonstrated the

critical

interdependence of

economic

performance,

institutional stability and

socially sensitive

policies

ingly, the quest for overall patterns and gen-eralizations is often fraught with dangers. Com-monalities and differences exist, but must beviewed with caution and interpreted with care.

Perhaps one commonality of East and SouthAsia that singles these sub-regions out is along and strong tradition of government au-thority and state administration. Both regionsalso, but China especially, have known thenegative outcomes of the collapse of gov-ernment. In China, the country with theoldest administrative heritage, a bureau-cratic culture goes back, almost without in-terruption, to the Qin dynasty (221-206 BC).Competitive examinations tied to the meritprinciple represent the legacy of the Han dy-nasty, which reigned from 206 BC to 220 AD.It gave birth to the idea of a bureaucratic elite- the mandarin class - in the service of theEmperor and of the State. Over time, this con-cept exerted a strong catalytic influence inthe region and beyond.

British-governed India exemplified the suc-cessful application of this "elite" idea in ad-ministrative reform, which in the XIX cen-tury produced the Indian Civil Service in tan-dem with a centralized, monolithic, stratifiedand strictly hierarchical administrativestructure. In spite of profound transforma-tions after the Second World War, some of thesetraits and institutional legacies survive, andhave been replicated in many of the countriesof South Asia.

East, South and Southeast Asia emergedfrom the Second World War and its tumultuousaftermath deeply changed. East Asia andSoutheast Asia were the scene of costly andprotracted civil strife or wars of national lib-eration. In South Asia, independence came,almost overnight, with a massive flow ofrefugees, perhaps the largest exodus of peo-ple the world has ever seen. The difficulttasks of rehabilitation and nation-building werefurther complicated by manifold divides of lan-guage, caste, religion and creed. In spite of allthese problems, Asia as a whole experiencedin the 1950s, 1960s and 1970s a veritable trans-formation, on a monumental scale, affectingthe lives of close to a half of humankind.

In this process of reconstruction and socio-economic development, varying models wereapplied. In India and Pakistan, a federal struc-ture of government and parliamentarydemocracy with commitment to the WelfareState were preferred. In China, Vietnam, Cam-bodia and Laos, by contrast, communist vic-tories took these countries to the path of so-cialist construction. Still, in almost every case,the State and central government werecalled upon to play a very major part in thedevelopment effort. Pervasive interventionthrough central planning mechanisms (e.g.five year plans) became the accepted strat-egy for modernization and agro-industrialgrowth.

Overall, the results of this drive were im-pressive, but the benefits to people in the coun-tries concerned uneven. South Asia, on thewhole, performed less well than East orSouth East Asia. During the last threedecades of the XX century, the per capita in-come of East Asian nations, excludingJapan, increased about four times comparedto South Asian countries. With an average in-come per capita of only US$ 309, the latter con-stituted, in 1993, the poorest sub-region on earth,the comparable figure for Sub-SaharanAfrican being US$ 555 (Haq, 1997, p. 33).

Though progress has been made on some frontsin a number of countries, this has seldom beenthe case of public administration where,generally speaking, Western solutions haveproved counterproductive or have not producedthe hoped-for results. The latest of these at-tempts at "externally-induced moderniza-tion" is NPM. The main planks on its plat-form, according to Dwivedi, are sound: accenton results; service to the public; delegationof authority; greater attention to cost and thequest for efficiency, notably through theadoption of private sector practices, such as"contracting out", and merit pay. What he ques-tions, however, is the NPM's market-drivenrhetoric and "reductionist approach": "Thisparadigm is based on the premise that, byreducing the opportunities for incompetenceand corruption, through narrowing downthe scope of government activities, a competent,transparent, effective and accountable gov-

45


Perhaps one

commonality of East

and South Asia that

singles these sub-

regions out is a long

and strong tradition of

government authority

and state

administration

ernance would emerge. The rationale ap-pears to be that, with less bureaucraticstructures, there would be only a few bu-reaucratic problems. Thus Asian nations, aswell as other developing nations are beingurged to have market-friendly governance andadministration. And since the field of de-velopment administration is posited more asa problem than a solution, New Public Man-agement, in the garb of development man-agement, is recommended as a cure-all med-icine" (Dwivedi, 2000, p. 9).

Of course, this does not mean, for Asia or oth-er regions, wholesale rejection of the prem-ises or precepts of NPM. Such a course, ac-cording to Dwivedi, would be not only unwise,but also impractical. We live in an age of in-ternationalization and global interdependence.For the developing countries, includingmany in Asia, this means continued reliance,to a large extent at any rate, on methods andtechnologies developed in the West. It can-not be overlooked, on the other hand, thatreform approaches are seldom value-free."Thus one emerging pattern, with global im-plications, is centered on the ideas of efficiency,the market and the myth of achievement,which are hallmarks of the Western, specif-ically American administrative culture"(ibid, p. 20). Its merits notwithstanding, thisadministrative culture tends to neglect im-portant political, social and legal dimen-sions. Its solutions are limited in face of thecritical concerns, which continue to bedevilmany developing countries.

In Asia overall, but in the larger countriesespecially, a strong State has been able to har-ness to its advantage the winds of change,diminish the costs of adversity and steerthe course of reform. Although it is an over-simplification to talk about a set of distinc-tive Asian values, certain traits and mentalattitudes have helped in this regard:

� First, in Asia there is less mental resist-ance to State intervention compared to partsof "the West", because Asia has a long posi-tive experience of the administrative State.Whether in South Asia (where the State isviewed as Ma-Baap - parents), or in East Asia

(where the States� proactive role helped theAsian Tigers achieve a remarkable econom-ic progress), the State is popularly viewed ashaving a major responsibility for socio-eco-nomic development. The Western approachfor a leaner, meaner and market-friendlystate administration may be given lip-serv-ice; however, the state apparatus is not go-ing to be downsized and emaciated, as hap-pened in parts of "the West";

� Second, there are some countries in the re-gion that view Western culture as based onan extreme form of individualism; thus var-ious attempts by the West to impose its val-ues, in the name of liberal democracy and su-premacy of the market are seen as yet an-other neo-colonial attempt to "modernize"Asians. From their perspective, the valueswhich seem most important to "the West" areless momentous worldwide. By contrast, thenotion of duty and community supporting fam-ily needs, respect for authority, and consen-sual decision-making (specially in East Asia)are rooted in Asian culture; and

� Third, despite the display of Western-ori-ented formal bureaucratic and political fea-tures of governance, the style of doing busi-ness will probably remain at variance withWestern models of governance.

4.4. Arab States

A somewhat specific situation developed inthe Arab States of Western Asia and in theNorth�African part of the Arab region. In mod-ern history, the Arab States, with the exceptionof Morocco, was a part of the Ottoman Em-pire for more than four centuries. TheFrench and the British colonial powers, un-der whose hegemony the geo-political bordersof most Arab countries were drawn, suc-ceeded the Ottoman rulers. Most of the Arabcountries achieved independence after the Sec-ond World War, although the struggle con-tinued until 1962 in the case of Algeria and1967 in the case of Aden. This sequence ofevents has had a substantial impact on thepolitical, economic and cultural life in the Arabsocieties. The concept of the State and therole of the state institutions (legislative and

46


Though progress has

been made on some

fronts in a number of

countries, this has

seldom been the case

of public administration

executive bodies, the judiciary, and militaryand security forces) were influenced by theOttoman and colonial experiences.

At the moment of independence, the state struc-tures in some Arab countries embraced therepublican form of government. This happenedin Algeria, Egypt, Lebanon, Sudan, Syria,Tunisia, Yemen, and later in Iraq and Libya,where republics emerged. In other Arabcountries the traditional forms of government- monarchies - persisted. Very different ide-ologies underpinned these systems of gov-ernance. None has delivered all the basic hu-man capabilities, though no one denies hugeprogress in several basic social developmentindicators throughout the region.

One of the hallmarks of the situation in theArab States is that by and large, the preferredmethod of attracting support from the peo-ple that has been practiced for decades by thegovernments is not through expansion ofpolitical participation, but rather by distri-bution of rewards. External sources of incomecontrolled by the governments (i.e. in the formof oil revenues, deposits of remittances, in-come from tourism, foreign aid, borrowings,and fees imposed on the transport of oil) en-abled them to make available to the keygroups of population a vast array of servic-es and benefits, at little or no cost. The sameexternal income sources allowed the Arab gov-ernments not to pursue vigorously the col-lection of taxes from citizens. Indeed, directtaxes on incomes, profits, and capital gainsin the Arab States were among the lowest inthe world.

The outside boundaries of this arrangementare becoming more and more visible. Withthe end of the Cold War, some externalsources of income have dried up. The real priceof oil is not necessarily increasing, at least,by far not at the rate that is able to meet thegrowing expenditure bill. Increased internaltaxation, reduction of public employment aswell as curtailment of basic services andsubsidies is starting to hit the urban middleclass � by far the most vocal group of the pop-ulation. Higher levels of education and thedemonstration effect of different political

arrangements are leading people to questionsome features of this situation. Participationin the community is becoming a value in it-self, regardless of the role it plays in thegreater scheme of things.

However, finding a remedy in such situationsis neither quick nor easy. Since the 1970s,the course of events has brought adjustmentto the functioning of many Arab govern-ments. The political systems began to openup in a way that has appeared to promise asignificant revival or introduction of demo-cratic practices. Whether this has happenedin the form of increased political participa-tion and alteration of power within the gov-ernance institutions, or in the form of an in-creasingly active civil society working to en-large the public space and defend basic free-doms � all these events have been most en-couraging steps.

While the process of reform is progressing slow-ly and has problems of its own, governmentreform has appeared on the agenda of manyArab countries. However, in view of the tra-dition of a ubiquitous State, a weak privatesector and the existing backlog of human ca-pabilities (e.g. education), especially in theless affluent Arab countries, the State doesnot appear to be stepping back from its tra-ditional role. In these circumstances, theemphasis in these countries is on increasingthe efficiency and effectiveness of its opera-tions.

4.5. Africa

It has been rightly said that, for Africa as awhole, the 1950s and 1960s were years of po-litical and economic advances, the 1970syears of relative stagnation, and the 1980swere years of decline or the �lost decade�. The1990s have been a mixed bag. (Kiggundu,2000). Gains in Uganda, Ghana, SouthAfrica and Mozambique were largely offsetby losses in the form of civil wars, human rightsabuses and state disintegration in Somalia,Angola, Liberia, Sierra Leone, Rwanda andthe Congos (ibid.).

47


While the process of

reform is progressing

slowly and has

problems of its own,

government reform has

appeared on the

agenda of many Arab

countries

The unparalleled severity of these repeatedcrises has served both to highlight the press-ing need for action in public service reform,and to illustrate the perils of hastily conceivedand poorly executed blanket solutions toproblems which, far from being a cure, quiteoften, on the contrary, aggravated the disease.Such were the Structural Adjustment Pro-grammes (SAPs) pursued by lending institu-tions during the 1980s, in an attempt to ad-dress the problems generated by the global re-cession, low commodity prices and the ensu-ing indebtedness of several African nations.

A negative approach, which viewed the pub-lic service chiefly as an impediment to pub-lic sector reform, had prompted the downsizingof both its staff and scope in country aftercountry. This tendency has been arrested. Thefocus has now shifted from retrenchmentand downsizing to capacity-building for ef-fective resource management and qualityservice delivery, financial accountability andefficient government. This new emphasis oncapacity throws light on the paradox of re-form. The greater its complexity and scale,the more demanding the claims for individ-ual skills and institutional strengths whichare required to make reform effective. Addedto the issue of competencies of public insti-tutions is that of legitimation, which to thisday remains particularly real in severalAfrican countries. It is against a backgroundof very mixed results of past reforms that re-cently demands have been advanced for a"smart-government" approach to public sec-tor reform. According to Moses Kiggundu, thekey components of "smart government" in-clude the following:

� �Introducing a broader and long-term ap-proach to reform relating it to the role of theState;

� Linking civil service reforms to such com-ponents as financial management, decen-tralization, sector-wide approaches, etc.;

� Adopting a long-term, system-wide pro-gramme approach to civil service and pub-lic sector reform;

� Undertaking strategic mobilization andutilization of scarce resources (financial, hu-man, institutional, technological, information,political, etc.);

� Selectively introducing NPM ideas andpractices to Sub-Saharan African developmentadministration;

� Persuading donors to avoid a "one-best-way"approach to reform and to embrace insteada home-grown creative mix of approaches, bestsuited to individual countries� (ibid.).

A few countries have taken initial steps andmoved towards the concept of "smart gov-ernment" by beginning a consultativeprocess, articulating a national long-term vi-sion and strategic framework for development.It appears, however, that for most of Sub-Sa-haran Africa, the promise of public sector re-form remains largely unfulfilled. Indeed, itis difficult to imagine how the public serv-ice will be reformed on a lasting basis with-out substantial improvements in governanceat large: integrity, accountability, trans-parency and adherence to the rule of law, aswell as the capacities and competenciesneeded to sustain them (ibid.).

Adoption of holistic, multi-faceted reformstrategies; closer coordination of macro-eco-nomic management with public sector reform;and the involvement of civil society in thisprocess represent the common traits of newconstructive approaches, which reflect someof the lessons learned as a result of theSAPs pursued during the 1980s.

It cannot be overstressed that credible reforms,and programmes that galvanize broad-basedsupport, must visibly address the really crit-ical problems, which touch the lives of mil-lions. In Sub-Saharan Africa, such burning is-sues include: how to cope with the AIDS epi-demic; the deficit in health care, education andsocial welfare services; and an inadequate ordeteriorating physical infrastructure of roads,transportation and communication networks,electricity supply, sanitation and clean water.

48


Adoption of holistic,

multi-faceted reform

strategies; closer

coordination of macro-

economic

management with

public sector reform;

and the involvement of

civil society in this

process represent the

common traits of new

constructive

approaches

Yet another set of problems represents thetragic legacy of years of civil strife, the de-cline of law and order, even the collapse ofStates, which characterized the 1980s and1990s. Most problems have a human face: mil-lions of refugees and internally displaced per-sons; half a million or more child soldiers, phys-ical insecurity, and rampant crime and oth-er forms of anti-social behaviour.

It is futile to expect efficient markets, let alonehealthy societies, to emerge where such con-ditions prevail. Redressing this situationcalls for concerted action of the State and civ-il society on many areas. It calls for demo-bilization, demilitarization, re-education andtraining of former fighters and other victimsof war; post-conflict confidence-building in mul-ti-ethnic or otherwise heterogeneous societies;support for restoration of regional securityand conflict management systems; and theoverall reinforcement of institutions (Kaldor,1995). All of the above demand initiativeand leadership, policy-planning, design andskillful implementation on an extensivescale. In turn, these call for strengtheningthe core of the State, as well as the difficulttask of reinforcing, modernizing and re-forming the public service.

As pointed out already, retrenchment anddownsizing had been the goals of reforms dur-ing the 1980s and early 1990s. The outcomesought, was to reduce the government�swage bill which, in a number of countries,represented as much as 75 per cent of the op-erating budget. This was no easy task, con-sidering the importance of government em-ployment for most African countries, wheregovernment remains the single largest em-ployer. This notwithstanding, a longitudinalstudy prepared by the Department of Eco-nomic and Social Affairs of the United Na-tions in 1992 cast a very different light onthe issue of public employment. This studyof civil services in 10 African countries re-vealed that cost and size are labels for deep-er concern, which barely address the issueof public sector effectiveness. When setagainst the need to offer basic services, en-sure law and order, collect revenue andmaintain the infrastructure, few of the coun-

tries concerned were found to be overstaffed.The vast majority of public servants were en-gaged in trying to meet the above essentialrequirements. Significantly, moreover, theirnumbers had not grown since 1980.

The study also found that, in the majorityof cases, public servants did not earn a liv-ing wage. Accordingly, the government wasunable to compete on the market for high lev-el skills, and equally incapable of enforcingthe requisite performance standards at theother end of the scale, even though there wasno shortage of the relevant skills. In sever-al African countries, governments were con-fronted with the difficult challenge of a pub-lic service at once understaffed and overstaffed:understaffed on the top management and pol-icy-advisory levels; overstaffed as regards mes-sengers and lower level clerks (ibid., 2000,p. 9). The study recommended that public sec-tor reform should concentrate on qualityand focus on profiling and planning for theneeds of the XXI century, rather than per-petuate the legacy of a distant colonial past.Capacity reinforcement is the commonthread that runs through current pro-grammes of public service reforms in a num-ber of African countries. Other than train-ing activities, these programmes have en-compassed a number of initiatives rangingfrom administrative records-keeping - whichseek to eliminate ghost workers - to per-formance bonus payment, and making civilservants more responsive to citizens� needs.

Democratization, decentralization, devolutionof responsibility, service delivery improvementand local government reform have been ma-jor components of the public service reformdrive undertaken by governments. Otherimportant dimensions have been: a ma-chinery for the redress of grievances and han-dling of complaints, and the promotion of bestpractices, professionalism and ethics, jobclassification and grading, staff perform-ance appraisal, human resources development,and leadership development. Priorities havediffered and the degree of success has obvi-ously not been the same in all the countriesconcerned. Available evidence indicates thatthe results of reform are mixed at best.

49


It cannot be

overstressed that

credible reforms, and

programmes that

galvanize broad-based

support, must visibly

address the really

critical problems, which

touch the lives of

millions

Though economy and efficiency have osten-sibly been in the forefront of public servicereform, such broader considerations as hu-man rights, the rule of law and citizen par-ticipation have recently made headway on theagendas of reform. These concerns go to thecore of the nation-State idea, the concept ofsound governance, and the role of civil soci-ety, among others. Ideally, the objective is help-ing to create an enabling environment of re-spect for private property, entrepreneurshipdevelopment and democratic government toallow people to take advantage of globaliza-tion.

As a process, democratization implied polit-ical, constitutional and administrative reforms.To those ends, many francophone African coun-tries convened national conferences with aview to discussing constitutional reformsleading to multi-party elections. Constitution-al commissions were established in somecountries, paving the way to pluralistic elec-tions. Experience demonstrates the com-plexity of the process of democratization,highlighting the critical role that national his-tory, culture and institutional infrastruc-ture play. Hence the importance of activitiesand projects designed to develop institu-tional capacity and competencies in themanagement and operation of democratic struc-tures (e.g. national assemblies, political par-ties, the administration of justice, and auditinstitutions). The role of civil society hasbeen highlighted in sector-wide approachesto public sector reform.

Looking to the future, the experience of re-form in Sub-Saharan Africa (SSA) points tothe many complexities of what visibly remainsa risky undertaking. It also has been madeapparent that there are no shortcuts, noquick fixes, no magic blanket formulas. In Sub-Saharan countries, current prevailing con-ditions are seldom conducive to effective re-form. In some cases, institutional weaknesscompounded by poverty, unemployment, cor-ruption, low levels of education, and religiousor ethnic divisions can effectively under-mine the best intentions and derail the en-tire process of reform. One of the most dis-turbing factors militating against progress

in the right direction is the relative weak-ness of Sub-Saharan Africa in relation to therest of the world. "Its share of global trade,capital flows, investments, technology,knowledge employment, and overall influenceis declining or stagnant. Individual SSAcountries have practically no voice in or-ganizations such as the World Trade Orga-nization. No SSA country is a member of G8,and apart from South Africa, none was in-vited to join the newly-formed G20. "Fur-thermore, Africa�s diplomatic institutionsare so under-resourced and badly organizedthat they are not in a position to defend theregion�s interests in the complex and fast chang-ing globalization" (Kiggundu, 2000, p. 34).

Continuing dependence of many LDCs in Sub-Saharan Africa on foreign multi-lateral andbilateral assistance is one of the visible man-ifestations of a pervasive weakness, whichcannot go away overnight. The real challengewill be that of developing institutional andstrategic capacities, not only for today�s butalso future needs. However, important as thoseneeds are, capacity reinforcement meansmore than technical training and modern-ization of equipment. Developing the re-quired core entails enhancing skills, as wellas cultivating new attitudes, beliefs andhabits, and the institutional frameworksthat make them come alive. Governmentsshould focus on strengthening public ad-ministration, leadership skills, strategicmanagement, operational efficiency and rap-id response to the stimuli of a complex anddynamic external environment.

4.6. Latin America and theCaribbean

A region of stark contrasts, Latin America andthe Caribbean shared with Africa the ef-fects of the slump in the world economy,which began in the mid 1970s. For Latin Amer-ica, as well as for the African continent, the1980s have aptly been described as the "lostdecade". Massive debt, increasing poverty andthe growth of unemployment, informal sec-tor employment, corruption and organizedcrime were phenomena that often marked it,and have not gone away (Sulbrandt, 2000,

50


Though economy and

efficiency have

ostensibly been in the

forefront of public

service reform, such

broader considerations

as human rights, the

rule of law and citizen

participation have

recently made

headway on the

agendas of reform

p. 4). Thus, the Economic Commission for LatinAmerica and the Caribbean reported in 1980that 35 per cent of the people in the regionlived below the poverty line. Only 10 yearslater, the proportion had increased to 41 percent, with 18 per cent below the absolute pover-ty level. By 1997, a slight improvement couldbe reported, with 36 per cent of the popula-tion below the poverty line (ECLAC, 1998).Poverty is multi-faceted. It comes with un-employment, which in the 1980s exceeded 10per cent of the active population. Its effectsare often compounded by the deteriorationof basic social services. Both health and ed-ucation suffered a major decline in thatdecade overall.The impact of these trends hasbeen unequally felt in the region. In some coun-tries the aged, women, children and the na-tive populations, in general, were amongthose worst hit. Although an upward move-ment began in the mid 1990s, it has nottouched appreciably the lives of the most vul-nerable. Besides, in the field of employment,more than half of the new jobs have been inthe informal sector, a pattern also observablein Africa. As in Africa, responses to these trendsin Latin America have featured the divesti-ture and downsizing of the State. Not sur-prisingly, however, the practices have differedfrom country to country, as has their degreeof success.

In the Latin American region as a whole, the1990s have been marked by substantial re-forms of the State, in the following directions:

� Democratization;

� Debureaucratization;

� Reduction of the scope of State interven-tion;

� Privatization and "marketization".

At the height of the Cold War, in the 1960s,1970s and even part of the 1980s, few wouldconsider the Latin American region as ahaven of democracy and freedom. What fol-lowed in the past decade has been nothingshort of a sea change. Pluralistic regimes andgovernments resulting from free elections

replaced military dictatorships from Guate-mala and El Salvador to Chile and Argenti-na. Concurrently, growing distrust in themodels of development of the early post Sec-ond World War produced a revolution instatecraft and public management. Thro-ughout Latin America, the prolonged economicrecession brought to the fore new doctrineswhich substantially transformed the hithertogenerally accepted objectives and modali-ties of state intervention. The role of centralgovernment increasingly underscored theneed for the maintenance of macroeconom-ic stability, the process of deregulation, tradeliberalization and reduction of the scope ofpublic administration. To some extent, thoseshifts and policy reforms reflected a con-scious attempt to adjust and to respond toperceived conditions in a globalized econo-my.

Deregulation and debureaucratization wenthand in hand with a process of decentralization,and the devolution of power to lower levelsof government and actors in civil society.Debureaucratization has taken many forms.Though traditional practices and norms diehard in many places, a paradigmatic shift isgradually transforming a hitherto closed,inward-looking, rules-bound and formalisticadministration into a more open system,that seeks to be responsive to citizens�demands,accepts the current challenges of globaliza-tion and technological progress, activelylooks for partnerships to accomplish its ob-jectives in close collaboration with private sec-tor groups or other non-State actors, and aimsat value-for-money.

It is needless to emphasize that such atransformation is still more in the makingthan palpable reality, more potential than ac-tual. One of the greatest obstacles in the re-quired transition from closed to open systems,in response to globalization and technologi-cal progress, lies in the continuing difficul-ty of governments to attract, retain and de-velop the new profile of manager and policyadviser, in short the new public servants thatnew conditions call for.

51


Poverty is multi-

faceted. It comes with

unemployment, which

in the 1980s exceeded

10 per cent of the

active population

Significant, in light of these conditions, is thepractice of developing Units of Policy Analy-sis in the Office of the President or similarestablishments, like the Secretariat of the Pres-idency in some countries. Their task hasbeen defined as that of analyzing and mak-ing recommendations for action in the differentsectors of policy, weighing in this regardsuggestions that may come either from civ-il society or the line Ministries.

It may be pointed out that, as in other re-gions, retreat of the State has been held inpart responsible for not shielding peoplefrom the negative effects that accompany glob-alization. The Chilean sociologist AndrésOpazo summed up the negative aspects of thesituation in Latin America in a UNDP report:

� Concentration of knowledge and wealth in thehand of small elites, whose priorities take of-ten little cognizance of "the plight of the millions";

� Continuing growth of spending for militarypurposes and "privatization of weapons",corruption, and drug trafficking;

� Deterioration of the environment; and

� Economic growth unaccompanied by agrowth of employment; thus adding to dis-parities in developed and developing coun-tries alike (UNDP, 1997, Bureau for LatinAmerica and the Caribbean).

Opazo concluded that the economic growthof Latin America not only lacked the "capacityto distribute", but also failed to generatesufficient accumulation. The effects of thosetrends, in his view, were apparent on the po-litical, social and administrative levels. "Thesocial abyss which fragments the region isparticularly clear in the large urban centers.The organization of the habitat is a faithfulreflection of the trend toward the disintegrationof society. The minority that concentrates thewealth is secluded in veritable paradises ...Their gardens are well protected by privatesecurity, their social life takes place there,they go to their own supermarkets, and theygo to equally conditioned and protected lo-cations on vacation. Perhaps more significantly,

they have another type of paradise available,the world�s tax havens, which constitutegenuine safe deposit boxes for the wealthy.In other areas, well-differentiated and with-out contact with the previous world, themass of the population survives, living in fave-las, tugurios or barrios populares, with ba-sic shortages, where informality predominates,drug addiction and crime proliferate, and thefamily disintegrates. Informality in the areaof the work force generates isolation andcompetitiveness in the struggle for an alwaysprecarious subsistence. The effect is the lossof the worker�s traditional dignity. The or-ganizations that previously provided identityand self-esteem to those workers have declinedquantitatively and qualitatively" (Opazo,1997, pp. 103-104).

This creates a chasm and a disconnection be-tween two worlds: one of the super-rich; theother of precariousness, poverty, exclusion andignorance is seen by many critics as essen-tially the product of a reductionist vision whichpotentially is destructive of culture, social cap-ital and democracy itself.

Some observers maintain that the AnglophoneCaribbean countries are faced with a para-dox; while some celebrate the triumph ofdemocracy, others, by contrast, lament asharp decline in governance. The sustainabilityof good governance in the region was raisedin 1992 by the West Indian Commission on"Social discontent"; it noted that, "in thewake of structural adjustment programmes,no sense could be made of the democratic tra-ditions West Indian societies have zealous-ly cultivated" (West Indian Commission,1992, pp. 493-494). In this regard, the Com-mission drew attention to the mood of grow-ing cynicism, normlessness and powerless-ness among the youth of the region. TheCommission concluded: "It is perhaps timethat we went a step beyond platitudinous state-ments to the effect that youth represent thefuture of the Caribbean." (ibid., pp. 378-379).

One may conclude that there are now nothreats to democracy. However, the "credibilitygap" that afflicts the institutions of govern-

52


One of the greatest

obstacles in the

required transition from

closed to open

systems, in response to

globalization and

technological progress,

lies in the continuing

difficulty of

governments to attract,

retain and develop the

new profile of manager

and policy adviser

ment in much of Latin America and theCaribbean has its source in their failure tomeet people�s aspirations and to respond tonew expectations. Perceptions of such rele-vance, integrity and effectiveness, and the pub-lic sector�s capacity to deliver public servic-es of an acceptable quality form a necessarybasis of government legitimation on whichthe vitality of democracy depends.

Nevertheless, it can be recognized that theoverall picture is not entirely negative. De-mocratically elected governments are now therule in the region, and a process of regionalintegration and greater economic opennessis taking place, real or perceived shortcom-ings notwithstanding.

5. Lessons Learned

What lessons can one learn from progress andsuccess recorded in some countries, but al-so admitted failures experienced in others?What can one do to avoid repeating past mis-takes? And lastly, can one pull the threadsof experience together and try to understandwhat countries need to do in order to bene-fit from globalization?

A systematic review and comparative analy-sis of lessons learned from the experience ofthe past two decades is long overdue. Thissystematic review and performance evalua-tion of policies and programmes should cov-er both the substance of the proposed reformsand the methods or modalities of their im-plementation, as well as both the principlesand strategies of recommended actions andthe delivery systems employed by donoragencies.

Mostly in the 1980s, but also in the early 1990s,"cutback management" was offered as the uni-versal remedy and the market was advocatedas the better way. Outsourcing, privatizationand partnerships were actively promotedand implemented. These approaches did lit-tle to make a dent in the poverty and inequalitythat persist in many developing countries.A growing sense of the urgency to addressthe issue of poverty has been reflected on the

agenda of the Third United Nations Conferenceon Least Developed Countries held in May2001, which linked the eradication of pover-ty to the promotion of good governance. Howinequality of power and wealth impacts onthe prospects for democratic governance isa related problem that must also be ad-dressed. Polarization between the extremesof poverty and wealth, power and power-lessness does not create conditions in whichconvergence of values becomes a possibility.A shared-values system underpinning theprocess of governance and administration, na-tionally and internationally, also becomes prob-lematical. In the absence of such underpin-nings, extremes may drift apart. Slowly butsurely, a process of vilification of the "otherside" begins, preempting all meaningful di-alogue. Gradually, coercion and repression be-come the rulers� response to what they per-ceive as a threat and define as lawlessness.

This may be already happening in a num-ber of countries. The trend has been de-scribed in by Loic Wacquant as the passagefrom the Welfare State to the "PenitentiaryState" (Le Monde, 7 December 1999). Suchperils notwithstanding, tolerance of in-equality has been a signal feature of policiespursued in several parts of the world duringthe past two decades.

In barely two decades, the "reinvention"movement and NPM have set the tone andcontents of the discourse on administrationand government in ways that sharply con-trast with the course of its development dur-ing the major part of the XX century. The pro-ponents of these tenets were able to carry theirmessage literally throughout the world.There can be little doubt that this measureof success is due, to some extent, to the con-gruence of their postulates with some of thecritical issues facing a number of governmentsin the wake of a global recession. It is equal-ly certain, however, that this measure ofsuccess owes much to the English language,in which the message was couched, and tothe messengers� capacity for outreach. Thethrust of their advocacy has underscoredthe importance of the three E�s of manage-ment: economy, efficiency and effectiveness

53


Integrity and

effectiveness, and the

public sector�s

capacity to deliver

public services of an

acceptable quality

form a necessary basis

of government

legitimation

(Harlow, 2000, p. 3). The butt of their critiquehas been the world of "bureaucracy" but, inthe last analysis, government interventionpredicated on Keynesian economics and theNew Deal ideology.

Nevertheless, there is something to be saidin favour of this new approach. It has reaf-firmed the rights of the individual citizenagainst a paternalistic and often overbear-ing, invasive State; a role for civil society, inthe broad scheme of governance; decentral-ization and devolution of power against theopposite tendencies of control and commandfrom the top; latitude for initiative and ex-perimentation; and freedom to move withoutpreemptive barriers. In spite of limitationsthat have become apparent over the years,NPM and "reinvention" produced some "val-ue added" in several parts of the world, in-cluding developing countries. On the opera-tional level, their distinctive contributionhas challenged one to question many tradi-tional practices and modify old ways. Thestrength of the proponents, it might well besaid, has lain in the simplicity of their ap-proach and message. The approach has beendirect, intentionally practical and cost-ef-fective. The focus on economy, efficiency andeffectiveness has been of help. These valueshave been widely diffused through the tech-niques of audit, which also opened ways fora broader, more pervasive and radical approachto the appraisal of performance in public or-ganizations, the quest for alternative meth-ods of public service delivery, as well astighter controls intended to promote andsafeguard integrity.

Many best-known reforms and innovations,which broadened the diversity of organiza-tional structures, can arguably be traced toan all-encompassing concern for cost-effec-tiveness. "Off-loading" and "outsourcing","re-engineering" and "performance con-tracting" are terms which represent a newproblématique, and, in a number of ways, aradical new approach toward the public sec-tor. Not surprisingly, the "pluses" are oftencoupled with "minuses". On the upside, thenew stress on "financial management initiative"may jolt senior executives and civil servants

at large into a more acute awareness of theirresponsibility for the proper deployment anduse of resources in their care. On the down-side however, there may be a certain dangerof sacrificing quality and equity to expedi-ency, and of seeking short-term gains at theexpense of long-term losses in the strengthand credibility of vital institutions. There isa latent risk of fostering an attitude of mindaccording to which the ends justify themeans. In the words of the former Director ofthe Royal Institute of Public Administrationof the United Kingdom, "to misquote Oscar Wilde,it looks as though tomorrow�s Whitehall man-ager will know the cost of everything, but thevalue of nothing" (Plowden, 1985, p. 408).

The dominance of economics in both the lan-guage and logic of NPM has been manifestand pervasive. It is best exemplified by theprominence accorded to the market paradigm.Thus, the State must "steer not row"; gov-ernment administration is "lean and mean"at best; citizens are consumers. The marketmetaphor has value insofar as it draws at-tention to the limits of State intervention, re-spect for the taxpayer and responsiveness tocitizens. But the analogy stops there. Con-temporary democracy is hardly a marketplacein any sense of the term. Citizenship is abirthright or is acquired through a legalprocess of naturalization. Equal participationin democratic processes is predicated on in-dividual rights enshrined in the constitutionor other legal enactments. In theory, at anyrate, no distinctions in this respect can be coun-tenanced. By contrast, the cash nexus gov-erns a customer�s access and relation to themarket. The measure of his or her worth isstrictly purchasing power. While both buy-ers and sellers may select one another ac-cordingly, by contrast a citizen�s access to serv-ices provided by the government is based onrights and needs. An intelligent democraticState is clearly not at liberty to favour or dis-criminate. It would be fair to argue, thus, thatwhatever its other merits, the market par-adigm has serious limitations when it comesto public management in democratic societies.The paradigm does little to highlight two ofthe cardinal values of democratic gover-nance: equality and inclusiveness.

54


In spite of limitations

that have become

apparent over the

years, NPM and

"reinvention" produced

some "value added" in

several parts of the

world

Notwithstanding the merits, what has becomeapparent is the manifest disparity and strik-ing disconnect between "working reality andformal doctrine" of NPM and related ap-proaches (Barberis, 1998, p. 451 et seq.).The disconnect is traceable to inherent con-tradictions between professed objectives andan eclectic creed which formed the under-pinnings of NPM. It would be fair to arguethat, contrary to claims advanced on its be-half, NPM is not so new, and not so public-oriented, and is so riveted on economics (andthe 3 E�s) as to frequently lose sight of therich contextual substance and cultural di-mension, which give the practice of man-agement distinct characteristics in each par-ticular case.

5.1. Failure to take into account history, local institutions and cultural variables

In spite of the belief implicit in the assertionthat "management is management", suchpractice differs widely according to the en-vironment within which it is set. Failure toaccord such differences due weight con-tributed substantially to erroneous policytransfers and "supply-led" reforms, often byinternational organizations, which "were ...unduly biased towards the economic ration-ale of the reform and overlooked basic legaland institutional adaptations" (Hesse, 2000,p. 15).

Compounding the proclivity to underesti-mate the diversity and complexity of na-tional conditions was what Professor Hessedescribed as the "illusion of global convergence"(ibid., p. 19). There was failure to see thatconvergence in some important areas (e.g.,technologies and methods) may well go handin hand with growing divergence in others(e.g., belief or value systems). Curiously, inlight of the current emphasis on respect fordiversity, globalization has often been por-trayed, in deterministic terms, as a one-waystreet. Likewise global society is often shownas invested with a hierarchy of cultures, ofwhich one culture is destined to triumph. Pro-fessor Rune Premfors of Stockholm Univer-sity critiqued this misconception: "The basic

normative ideal was the market and themeasures taken should include outright pri-vatization, and, where that was not feasible,the creation of markets or market-like con-ditions as an operative context for [almost]all public organizations" (Premfors, 1998,p. 143).

While granting certain merits in the NewZealand approach, Professor Premforsdoubted its ready exportability to otherparts of the world. He also questioned the ten-dency of some international agencies to as-sume a "linear homogeneous trend" in pub-lic service developments , "to interpret suchdevelopments solely in terms of conver-gence" and to show "a corresponding incli-nation against identifying and discussingany signs of divergence" (ibid.). Quoting F.Naschold and others, Premfors concludedthat "plurality of ... regimes makes it impossibleto derive and justify an immanent rankingof these regimes, or to presuppose that onesuch regime ... is necessarily more efficientthan others" (ibid., p. 145).

Belatedly, some organizations and experts grav-itate towards the view quoted by Premfors.Thus, two recent articles purporting to re-flect the views of the World Bank and Sig-ma/OECD respectively cautioned against in-vesting in NPM reforms. The former warnedthat countries characterized by informalmarkets and ineffective legal frameworks wereill-equipped to attempt such ambitious reforms.Addressing itself more specifically to Centraland Eastern Europe, the latter cautionedagainst too hasty an application of NPMprinciples in the region (Allen, 1999). A dis-tinguished American scholar stated that"Western devaluation of government dur-ing this historic era has contributed to ma-jor problems in the redesign of States inCentral and Eastern Europe" (Newland,1996).

Given the gravity of the crisis with which theworld is faced, it may be time to address thisparadox and arguably revise the policiespursued during the past decades. Though theyprovide a contrast to the prevailing views,voices from the developing countries and

55


In spite of the belief

implicit in the assertion

that "management is

management", such

practice differs widely

according to the

environment within

which it is set

the poor everywhere also deserve a carefulhearing. The world as a whole would ignorethem at its peril. The United Nations, the mosttruly representative of humankind, can playa leading role in sponsoring and facilitatingthe dialogue from which a greater convergenceof views on this subject can emerge.

The Fifteeth Meeting of the Group of Expertson Public Administration and Finance, in itsmost recent report, took a first step in thisdirection. It disclaimed the possibility or in-tention to "give a one-size-fits-all solution orany magic formula", preferring instead to pro-pose "potential strategies and reform pathsthrough methodological tools that seek to un-cover what are the essential functions thatthe State needs to fulfill, at what level, andto what extent" (UN, 2000, E/2000/66). Thereport also noted that: "an overly technocraticor purely economic growth approach to in-stitutional development divorces the insti-tutional strategy from the socio-economicand political environment, which it is meantto serve. Such approaches divest the state in-stitutions of the contextual elements of theirrelationship to the most vital social issues ofhuman degradation, poverty and wideningsocial and economic inequality, which pressespecially on developing countries and whichStates must address concurrently� (ibid.). Thereport acknowledged that �such strategies willnot solve problems of poverty and, in fact, mayexacerbate inequality, making it ever moreessential to invest in education, health, thereinforcement of social capital and enhanc-ing governance capacities� (ibid.). Similarly,a caveat was expressed regarding �the un-dermining of the States� moral and legal au-thority by the unquestioned ascendance of themarket economy and, more dangerously,prevailing attitudes towards this ascendan-cy which has legitimized the abdication of theState in crucial areas from which the Stateshould not retreat" (ibid., p. 11).

With respect to decentralization, it is worth-while noting that, after a number of failures,it has become apparent that "beefing up thecentre" is certainly not incompatible with de-centralization but that, quite on the con-trary, the former must precede sound

progress in the latter. What has also tran-spired from the experience of the past twodecades is that moves in the direction of de-bureaucratization, deregulation, decentral-ization and even deconcentration are sel-dom the result of purely technocraticprocesses, thoroughly studied decisions or ra-tional actors� choices. Rather, they flow fromconflicts among concerned stakeholders overthe distribution of functions, allocation of re-sources and the division of power. The out-come, in most cases, reflects a shift of influ-ence and decision-making power, which de-termines the thrust of reform. Thus, decen-tralization cannot succeed and work unlessa transfer of responsibilities comes withcommensurate powers and adequate re-sources, both human and material. This hasrarely been the case.

Likewise with deregulation and debureau-cratization, the centrality of power and pow-er distribution come into sharp relief as theprincipal factors of progress. Deregulation,for instance, has practical significance onlyin the measure that service delivery sys-tems conform as much as possible to the needs,interests and wishes of diverse clienteles, and,moreover, that such needs and wishes are as-certained periodically through genuinelyparticipatory processes. Creating and main-taining a business-friendly environment,through either deregulation or privatiza-tion, should be balanced with provisionssafeguarding citizens� rights to effective andaffordable options. This is especially impor-tant when it comes to vital services likehealth care, education and housing. Publicwell-being, safety and interest must come first.

It takes more than rhetoric to make the em-powerment of citizens a palpable reality. Ittakes transparent processes and calls forinformation dissemination and sharing thattruly minimize that secrecy and opaque-ness, which may be described as sources ofbureaucratic power (Timsit and Wiener,1980). According to Wildavsky, talking ofthe USA, this bureaucratic power is rapid-ly waning. Monopoly of information is driv-en out by the development of policy analy-sis. "All around the country, in think-tanks,

56


An overly technocratic

or purely economic

growth approach to

institutional

development divorces

the institutional strategy

from the socio-

economic and political

environment, which it is

meant to serve

consulting firms, universities, state and lo-cal governments, congressional staffs and else-where, there are rival teams of analysts whohave recently been or expect soon to be in gov-ernment. They know as much as those in thebureaucracy (or they used to know as muchor more). Virtually everything that officialscan say based on their expertise can be con-tradicted with conviction by these analystsin (temporary) exile. Consequently, public of-ficials can no longer say with confidencethat their views should carry special weightbecause they know so much more than theircritics" (Wildavsky, 1988, p. 254).

Potentially, this trend, supported and rein-forced by information technology, may welltransform the character of public adminis-tration, promoting citizen participation andautonomy, as well as efficiency and effec-tiveness, in many critical areas. It should bepointed out, however that, in the immediatefuture, this prospect is more plausible inthe affluent, advanced countries of the Northand West. By contrast, in a world where 90per cent of all computers are found in theOECD countries, where the continent ofAfrica accounts for barely one per cent of thetotal, where there are widening gaps be-tween skilled and unskilled, networked andisolated, this remains a distant prospect forthe bulk of humanity (UNDP, 1999, HumanDevelopment Report). Access to education andIT are critical to empowerment and democ-ratization, and governments have an im-portant role to play in this respect.

Political commitment, resources and distri-bution of power determine the course of re-form and, in the last analysis, target itsbeneficiaries. Some doubt has been ex-pressed about the extent to which the poorand disadvantaged have indeed been in-cluded in this category. A critic of "reinven-tion" did not hesitate to describe "re-engineeringtheory as a top-down shake-up; a micro-rev-olution to be ironically led by elites (the po-sitions of whom were vouchsafed by the giv-en)" (Fox, 1996).

Mutatis mutandis, a similar remark could bemade about deregulation and privatization.

In theory, it is intended to "debureaucratize"decision-making processes in given fields ofaction; to allow competition and thus lowerprices; to liberate consumers from "theshackles of the government" and to expandtheir range of choices; and to create for busi-ness a "user-friendly environment". It oftenworks that way. It cannot be overlooked,however, that more than half of humanity re-sides in countries where neither a bureau-cracy, in the Weberian sense, nor even a for-mal private sector of any size exist. For peo-ple who survive on less than 2 dollars a day,the alternative to state-provided services isfrequently no services. Furthermore, aspointed out by a prominent African scholar:"Social and transparent regulation, oropaque and one-sided regulation, regulationis always there. Markets don�t exist withoutit, since the forces that operate in the mar-kets are the expressions of social relationsthat the sect of pure economists have ban-ished out of sight. Markets (the economy ingeneral) are embedded in these relations. �Theclassicists - from Smith to Ricardo, thenMarx and much later Keynes - have shared,beyond the divergence of their visions, meth-ods and proposals, this recognition: that eco-nomics is political" (Amin, 1999, p. 183).Simply stated, regulations do not disappearwhen they cease to emanate from the Stateand its "bureaucracy". They simply changeidentity and form.

Evaluating outcomes has never been as easyas the professed objective of making thingswork better and cost less might suggest.Even such simple guidelines have promot-ed disagreements among responsible offi-cers and service practitioners. "Cutting costsimplies a strategy of downsizing and pro-gramme elimination; improving service sug-gests investment in personnel, training andtechnology" (Thompson and Ingraham,1996, p. 291).

It has been frequently overlooked that a de-moralized and poorly remunerated publicservant makes an unlikely candidate for suchinnovative partnerships, but rather a good can-didate for graft and corruption. When this be-came an issue and integrity propelled into the

57


For people who survive

on less than 2 dollars a

day, the alternative to

state-provided services

is frequently no services

limelight, the problem was approached, in dis-ciplinarian terms, as soluble essentiallythrough "anti-corruption strategies".

Once again, consideration of a complex, cru-cial question has been "driven by practi-tioners and private sector consultants ratherthan academics and theoreticians" (Kamen-sky, 1996, p. 251). The net result has arguablybeen a segmented, reductionist and instru-mental approach to the multi-faceted issueof public service ethics. Ethics has been"reinvented", as if Immanuel Kant and Aris-totle had never lived. Three millennia ofdiscourse and the wealth of global literatureon ethics, moral conduct, civic rights and ob-ligations, justice and human rights, fromConfucius and Ashoka to John Rawls (Sen,1999/a) somehow escaped the purview ofprivate sector "specialists" on ethics andethics infrastructures. All too frequently, theoutcome has been a view of ethics, in essentiallyinstrumental, utilitarian terms, as sub-sidiary to economy, efficiency and effective-ness. Human solidarity and cosmopolitanplurality, two values crucial to the future glob-al order have never been written into this equa-tion.

Abstracted from social reality, devoid of his-torical depth, bereft of conceptual analysis,such "ethics" have also been decoupled fromprofessionalism. The need to match thequest for rigorous ethical standards withthat of enhancing the status, learning, per-formance standards, competence and skillsof public servants was not internalized. Norwas it fully accepted that ethics, loyalty andmerit are conditional on attitudes which ac-cord the public service the role, considera-tion, rewards and prestige it deserves. As sub-sequently shown in the present Report, thisreductionist approach has, in the past fewyears, gradually given way to a more balancedview of ethics and professionalism in the pub-lic service.

Most people would agree that "ethics infra-structures", like any system of rules, de-pend for their effectiveness on the leadershipexample and competence of those assignedthe task of putting them into practice. It al-

so stands to reason that such normative en-actments and codes of ethical conduct donot or cannot operate in a socio-cultural vac-uum. Amartya Sen expressed this thoughtin discussing social choice and individual be-haviour: "A basic code of good business be-haviour is a bit like oxygen: we take an in-terest in its presence only when it is absent... What may not cause wonder or surprisein Zurich or London or Paris may, however,be quite problematic in Cairo or Bombay orLagos (or Moscow), in their challengingstruggle to establish the norms and institu-tions of a functioning market economy"(ibid., p. 264).

To produce the hoped-for impact, and to in-duce behavioural change in the required di-rection, codes of conduct must appeal to val-ues deeply ingrained in the environment orwidely shared. It follows from this premisethat the process of creating a code or set ofrules must go in tandem with the appropri-ate public service reforms, but also must besustained by a broad societal dialogue, withat least two aims in view: to elicit a consen-sus on public expectations of employee behaviourand to "indigenize" the code which, in all toomany cases, is of distant foreign extraction.The following conclusions on the lessons ofthe experience of the past 20 years flow fromthe observations made in this chapter, fromthe findings in the literature consulted andfrom the pertinent regional studies.

First that there is a need to restore and toreinforce a truly inter-disciplinary approachto development assistance in public admin-istration and governance. Particular atten-tion should be paid to the political, legaland socio-cultural context of projected in-terventions and reforms. There are sub-stantial differences between the commonlaw and civil law traditions, with far-reach-ing repercussions on administrative structuresand the way they operate. Celebration of di-versity, moreover, does imply that the culturaldimension should be accorded its dueweight. Lip service has been paid to theneed of building a culture of dialogue and re-spect. But it would be fair to say that, in thisregard at any rate, working reality has be-

58


Evaluating outcomes

has never been as easy

as the professed

objective of making

things work better and

cost less might suggest

lied the formal theory. Notwithstanding ex-tensive research on the impact of the envi-ronment and the range of management cul-tures, the findings in the literature, includ-ing the regional studies cited, do suggest thatinterventions have often proceeded on the un-spoken assumption that one-size-fits-all;

Second, that attempts at policy transfersshould proceed with caution. Proponents of"best practices" frequently overlook the factthat what works in one country may not nec-essarily work in another. It is relevant, to notein this regard that NPM-type reforms suc-ceeded best in countries with broadly congruentcultures and institutional frameworks pro-pitious for the task, but also with affinity tothose of the country of origin (e.g. Anglo-Sax-on countries). Where these conditions wereabsent or minimally present, as in parts ofEastern Europe and countries in transition,the results have been unfortunate. A typicalexample is privatization in countries wherea formal private sector was nonexistent orstill in its infancy. The damage, in such in-stances, has been compounded by strategiesand methods, which gave rise to such char-acterizations as "shock therapies" and "bigbangs";

Third, that incrementalism may be the bet-ter way. Attention should be paid to fashioningthe tools, appropriate methods, strategies andtechnologies that will, in due course, producesustainable outcomes. This entails capacity-building as a priority task. A primary con-cern should be to nurture skills and build theessential structures which make effectivechoices and ownership of change feasible onthe national level;

Fourth, that governments of countries recipientof international aid programmes assistedby civil society must be in control of theprocess of change. Making governments ir-relevant or, though involuntarily, creating animpression that others occupy the driver�s seathas all too often served to undermine democ-racy and strengthen the prevalent mood ofdisaffection and cynicism which has been ob-served in several regions;

Fifth, that rebuilding national ownership ofreforms and public trust, which drasticallydeclined in the past two decades, is urgent-ly needed. One of the major strategies, withthis objective in view, consists in reinforcingperformance and professionalism in the pub-lic service. This entails a combination ofcompetence, integrity, responsiveness toneeds and dedication to duty; it also pre-supposes capacity to monitor and evaluateperformance throughout; and

Sixth, that reinforcing the capacity of mul-ti-lateral agencies for policy advisory serv-ices and technical backstopping is required.Both undertakings should be highly profes-sional and truly client-oriented. Though thisappears self-evident, much of the criticismlevelled against the donor countries andagencies has emphasized the point that, con-trary to generally-accepted theory, manyprogrammes have not been demand-orient-ed, but rather supply-driven, that is to saymore responsive to the agencies, their part-ners and associates than to the recipientgovernments. Furthermore, they have beenpredicated on premises and principles some-what removed from the needs and realitiesof the countries which they were supposedto serve. Donor agencies should view them-selves as providers to and trustees of the coun-tries concerned, and their role as that ofsafeguarding these countries� long-term in-terests.

5.2. Why have some States not beenable to seize the benefits ofglobalization?

The lessons from the experience of the pasttwo decades contain important messagesparticularly relevant to the developing coun-tries and countries with economies in tran-sition, confronted as they are with the chal-lenging environment of a globalized societyand economy.

If, as some say, for many developing coun-tries the 1980s were "the lost decade" and the1990s a "mixed bag", at best, one may pre-sume that something went terribly wrong de-spite the good intentions and programmat-

59


Proponents of "best

practices" frequently

overlook the fact that

what works in one

country may not

necessarily work in

another

ic efforts spread over the last twenty years.Reducing the role of government in key so-cial areas and downsizing public services inmany developing countries, especially in theSouth and East of the world, as well as ne-glecting the important task of reinforcing po-litical and economic institutions, left manycountries unprepared to meet the challengesand rapid transformations of globalization.The "hasty retreat of the State" in the socialarea pursued during the 1980s and eventhe early 1990s has weakened States whichwere already fragile.

It is now being acknowledged that States withweak institutions are not well prepared toface the adjustment costs of globalization,whereas States with strong institutionshave the capacity to channel globalization totheir own advantage. As stated by Keohaneand Nye, "globalization shrinks distance,but it does not make distance irrelevant.And the filters provided by domestic politicsand political institutions play a major rolein determining what effects globalizationreally has and how well various countries adaptto it" (Keohane and Nye, 2000, p.117). Inessence, the capacity of the State to respondto external negative shocks largely dependson the degree of economic and social devel-opment, as well as political institutional-ization of a specific country.

As recent experience has shown, States withweak institutions are also vulnerable in theface of rapid change, and the uncertainty thatglobalization engenders. Without buildingstrong institutions at the national level, in-cluding independent and effective judiciar-ies, strong parliaments, accountable execu-tives, and without strong social policies, in-cluding those on health, education, and so-cial security systems, there are too many risksthat the benefits of globalization will be un-equally distributed among the population.Without complementarity between domesticstrategies for institutional reform andstrategies for opening to global marketforces, developing countries may risk ex-posing themselves to the kinds of protract-ed crises from which some have just begunto recover (Raghavan, 2000).

States with weak institutions are also morevulnerable to the upsurge of deadly con-flicts, which in turn hinder economic and so-cial development and the integration of a coun-try into the world economy. As the Secretary-General of the United Nations has recentlyunderscored at the Cyrus Vance Lecture Se-ries on the Prevention of Deadly Conflict:"There is abundant evidence that war is lesslikely to happen in a country - even a poorcountry - which is well governed and has trans-parent, accountable institutions" (Annan,2001). In fact, the absence of strong demo-cratic institutions and adequate social poli-cies, especially in countries marked by socialand ethnic cleavages, may lead to severeconflicts over the distribution of resources andpolitical, as well as social unrest.

It is generally recognized that the mainte-nance of peace and security are closelylinked - both in positive and negative ways- to economic and social development. Pover-ty, especially amidst plenty, is a major causeof violence, crime and social disintegration.The disparities between rich and poor inmany parts of the world are creating societiescharacterized by huge imbalances in termsof distribution of resources and power. Theseimbalances, in turn, engender among the un-der-privileged population a deep sense ofresentment, injustice, hatred and alienation.This is not only unacceptable per se. It is al-so very dangerous in terms of social cohesionsince it can lead to the upsurge of religiousfundamentalism, to ethnically or racially-basedpolitical movements, and this, in turn, to State-engineered repression. Poverty and social ex-clusion may also lead to anti-democraticsentiments, a loss of trust in government in-stitutions and political alienation, whichmay pose serious threats to the longevity ofa democracy.

In other words, governments with weak in-stitutions are much more vulnerable to in-ternal conflict and strife, which as experiencehas shown may degenerate into devastatingcivil wars or international conflicts. In thisrespect, it may be said that institution-build-ing, or creating institutions that ensure a peace-ful co-existence of all social forces within a

60


It is now being

acknowledged that

States with weak

institutions are not well

prepared to face the

adjustment costs of

globalization

given polity, is a fundamental pre-requisiteof conflict prevention. Only by creating sol-id democratic institutions capable of medi-ating as well as channeling diversity and con-flict can there be lasting peace. This re-quires devising appropriate political insti-tutions. These may include electoral sys-tems that ensure fair representation of allparties; clear rules for the division of powerbetween central and local authorities; anindependent and efficient judiciary; mecha-nisms that allow for tolerance and respect ofplurality; equal access to the courts of jus-tice; and protection of minority groups.

The impact of globalization on the State al-so varies according to the degree of econom-ic integration that each State has so farachieved and the degree of exposure to theprocess of globalization. Generally, countriessuch as OECD members, which are more in-tegrated within the global economy, have lessdifficulties in further internationalizing theirdomestic decision-making. They are rela-tively prepared for adapting to global standardsand practices, and to respond to externalcrises, and have the resources to maintain ef-ficient physical infrastructure. On the contrary,many developing countries are not wellequipped to cope with international econom-ic crises, to counteract the outflow of skilledworkers, to manage sudden loss of employment(through for example, unemployment benefits),to prevent corruption and crime and to respondto a rapidly changing international environ-ment. In many regions of the world, the Stateis still being constructed or is just beginningthe process of modernization or undergoinga process of de-institutionalization. As such,many developing countries lack adequatephysical infrastructure, are not technologicallyequipped, and have limited professional hu-man resources and expertise to deal with thecomplexities of the global market.

If high quality responses to globalizationrequire oftentimes local institutional reform,including reform of the State, acceleration ofthe globalization trends that was charac-teristic of the 1990s coincided with the mostfar-reaching experiment in reconstructingStates since 1930s. It is important to estab-

lish whether the neo-liberal underpinningsof this experiment steer it toward results thatstrengthen the capacity of the States to re-spond to the challenges of globalization, oron the contrary, whether they limit them. Whatis becoming apparent now is that, althoughmany of the reforms imposed by internationalorganizations on developing countries werenecessary to get their economies back ontrack, they were not sufficient for address-ing fundamental institutional problems anddeficits in State capacity.

It is now clear that one of the major causesof the malaise which affects a number of States- mostly the already mentioned developingcountries and countries with economies in tran-sition - is a rampant capacity deficit. Noticeableon every level of State administration, it be-comes increasingly apparent in the man-agement of issues, which, because of their com-plexity and worldwide ramifications, de-mand a higher standard of competence,knowledge and sophistication. It is not so muchthat the countries lack the requisite skills,as might have been the case only a fewdecades ago. More often, the institutionshave not been put in place to tap, attract, re-tain and use these skills effectively. The netresult, however, is basically the same:

� Failure to adjust, in time, to changing cir-cumstances, and failure to grasp opportuni-ties and cope with emerging constraints;

� Failure to take the initiative, and to be proac-tive;

� Passivity in the face of critical decisions thatmust be made;

� Uncritical acceptance of "omnibus solu-tions" that do not fit the context of the re-cipient country, and "externally-induced re-forms" that often come with promises whichcannot be fulfilled.

Globalization sheds light on the issue of ca-pacity deficit in several developing coun-tries. Specifically, it points to the impor-tance of reinforcing State institutions, poli-cy frameworks and trusted normative struc-

61


It is now clear that one

of the major causes of

the malaise which

affects a number of

States ... is a rampant

capacity deficit

tures, which are able to command and receiveindividual allegiance and enjoin individualcommitment of effort and resources towardsa higher purpose. Failure or inability to ad-dress, let alone resolve, this issue may, to alarge extent, account for the questionable recordof reforms in the 1980s. The story of transi-tion in parts of Eastern Europe and the CISwould also justify a similar remark.

How the State adapts to the new global en-vironment, how it strikes a balance betweengreater efficiency and equity, and how itmanages greater openness and loss of em-ployment for certain sectors of society, justto mention a few, are all critical issues whichdeserve great attention. However these chal-lenges will be met, one lesson is clearlyemerging: weak States are not the answer.A true measure of the State is not its "size",but rather the nature of the functions it per-forms, and the efficiency and effectiveness withwhich it performs them.

It may be safely affirmed that, more than any-thing else, it was the vacuum left by the re-treat of the State, coupled in several in-stances with the absence of a civic cultureand public trust, that brought about theemergence of soft States and kleptocraciesduring the 1990s especially. With many trag-ic cases of human rights abuses, informali-ty, corruption, social disintegration and civ-il strife, the record of the 1990s has lessonsfor the future, which must not be overlooked:

� It points to the fragility of democraticstructures, especially under conditions ofmajor stress, volatility and insecurity;

� It further underscores the need to reinforcethese institutions, to shore up the infra-structure of democratic government and theÉtat de droit, and to revitalize the civic cul-ture and public service ethic needed;

� It points to the role of the State as guar-antor of stability, continuity and pre-dictability at times of rapid change;

� It further emphasizes the roles of Statesas founders, sustainers, reformers and mem-

bers of inter-governmental regimes, as wellas main stakeholders in the maintenance ofpeace and international order;

� Accordingly, it highlights the roles that Statescan play as counterweights in minimizing thecosts of globalization, in enlisting the sup-port of local and transnational companies, andin establishing partnerships in creative en-terprises, while also protecting citizensagainst the possibility of exploitation and abuse.

Two decades of trial and error, in several partsof the world, have amply demonstrated thefragility of reforms, which took insufficientcognizance of the socio-political context andcultural dimensions, and also underratedthe importance of adequate strategies and in-stitutional tools in carrying out reforms.

Many of the economic reforms undertakenin developing countries in the past decade,although costly in social terms, may have beennecessary for economic stabilization, and havebeen an important step towards recovery. How-ever, they only represent the first step towardsgeneral prosperity; much more has to bedone in terms of institution building, ca-pacity building and social reform, includingthe provision of basic social services to all,and of safety nets to the most vulnerable. Thenext two chapters analyze these issues in moredetail.

62


A true measure of the

State is not its "size", but

rather the nature of the

functions it performs,

and the efficiency and

effectiveness with

which it performs them

country to mediate the impact of globaliza-tion and even to thrive in the global envi-ronment" (UN, 2000, ST/SG/AC.6/2000/L.6).Thus, it is essential to start by re-examin-ing the role of the State.

This chapter explores the complex issue ofredesigning the State, its institutions and poli-cies in a globalizing world. Rethinking therole of the State in the XXI century is of greatimportance to shape the grounds for inclu-sive globalization, one that is geared to-wards redistributing its benefits among thepopulation, while minimizing the costs andlosses of affected groups.

2. New global dynamics require a fresh approach tothe State

In the 1980s, the discussion of the role of theState appeared to have been closed. Pointsof view predominated which considered thatthe State, in almost all its facets, was amarket "impediment" and that the marketalone would solve the problems. Conse-quently, the conclusion reached was thatthe State should be dismantled and reducedto the bare minimum. These views had re-placed the notion that the State alone couldgenerate development, views which werecharacteristic of previous decades. Todayboth extremes of the pendulum have been giv-en the lie by concrete facts. So, just as theconcept centering on the omnipotence of theState was erroneous, reality has proven that

1. Making globalization workfor all

ot all countries have been ableto benefit from globalization. Todo so, they must strengthentheir public sector and enhance

their capacity for policy analysis, policy for-mulation and implementation. In fact, "theGovernments that seem to be �riding thewave of globalization� are those that haveopened their [policy] analysis to uncertain-ty, ambiguity and change. In these globallyaware Governments, institutions have beencreated or altered to scan the rapidly chang-ing environment, to promote policy inventionand policy dialogue, to speed up decision-mak-ing in order to take advantage of emergingopportunities, and to embrace short-termfailures in favour of creating long-term sus-tainable strategies. National governance in-stitutions are faced with dynamic transfor-mations at the global level and the [local] lev-el. Governments without adequate capacityto recognize and respond to change are des-tined to be forever behind the �waves ofchange�. The ability to embrace change is re-lated to an attitude of openness to diversi-ty, comfort with uncertainty, and optimismabout the future. Globally aware leadersseek to build institutions that can embodythese attitudes and inspire citizens to par-ticipate in the emerging aspects of globalization,while at the same time attracting globalforces to participate in national develop-ment. Strategic participation by both inter-national and citizen organizations enables a

63

REINFORCING STATE INSTITUTIONS AND SOCIAL POLICIES

N

Chapter III

Reinforcing state institutions andsocial policies

WORLD PUBLIC SECTOR REPORT: GLOBALIZATION AND THE STATEWORLD PUBLIC SECTOR REPORT: GLOBALIZATION AND THE STATE

zations, on which the emerging new worldorder depends. It has changed and it ischanging in response to a changing envi-ronment and the rise of institutions with amajor regional role like the EU or ASEAN.In spite of its limitations, constitutionaldemocracy is still the best system of gover-nance, as it is the best guarantor of freedom,human rights and social development.

What the experience of the 1990s has madeapparent is that turning "globalization intoan instrument of opportunity and inclusion"cannot be accomplished overnight, through"big bangs" and "quick fixes". This undertakingcalls for systematic, consistent, long-term ef-forts at the sub-national, national, and in-ternational levels, involving many players,both State and non-state actors. In turn, tobe constructive, these efforts require solid in-stitutional frameworks and sound gover-nance, which the World Bank has defined as�the manner in which power is exercised inthe management of a country's economicand social resources for development� (WorldBank, 1994, p. vii).

Building effective constitutional democra-cies and reinforcing State institutions istherefore a theme of great relevance in anera of globalization. We cannot escape the con-clusion that, by and large, the countries thatfared best through the crises of the tumul-tuous 1990s were those whose national gov-ernments remained fully in command andmade their own decisions on major issues ofpolicy. Experience demonstrates that as a ruleintelligent, democratic States have so farcoped much better with the effects of glob-alization. They have been able to turn op-portunities to advantage; to circumscribethe effects of downturns; to play their partin global governance in a responsible man-ner; and manage to protect their citizens fromthe vagaries of adverse contingencies. An in-telligent, democratic State is needed to po-sition a country in such a way that it can copeeffectively with rapidly changing contin-gencies and harness to its advantage the windsof change (UN, 2000, E/2000/66, p. 8).

the market has a great productive potentialbut that without regulations it can generatefar-reaching imbalances. A 1999 UNDP re-port focuses on some of them: "When the mar-ket goes too far in controlling social and po-litical effects, the opportunities and benefitsof internationalization are distributed un-equally and iniquitously, concentrating pow-er and wealth among a select group of per-sons, countries and companies, while by-passing everyone else. When the marketgets out of control, instabilities in "boomand bust" economies surface, as for examplethe financial crisis in Eastern Asia and itsrepercussions on a worldwide scale. When thedesire for profits by market participantsgets out of control, it challenges the ethicsof countries and sacrifices the respect for jus-tice and human rights" (UNDP, 1999, HumanDevelopment Report).

Both extremes have produced very debatableresults and, today, a new wave of question-ing begins on how to achieve a different bal-ance among the State, market and the oth-er important actor, civil society, as well as whatrole the State could play in this search. Therhetoric is changing. In its special report onthe State, the World Bank maintains that ef-ficient development is very difficult withoutthe State. The report states: "there can beneither economic nor social developmentwithout a good government" (World Bank,1997). The notion of a Welfare State appar-ently completely stripped of legitimacy dur-ing the heyday of the market is being reex-amined from other angles. The idea of the pro-ductive State is being postulated and the ex-periences of countries, such as the Nordic coun-tries and the Netherlands, that haveachieved progress in that direction while atthe same time obtaining good economic re-sults and maintaining elevated social balances,are being examined (Kliksberg, 2000; see al-so Kliksberg, 2001).

It is an incontrovertible fact that the demo-cratic State remains the major actor on theinternational scene and the most reliable forcefor freedom and self-governance. It is the fore-most mover in the complex global networkof inter-governmental regimes and organi-

64

It is an incontrovertible

fact that the

democratic State

remains the major

actor on the

international scene

and the most reliable

force for freedom and

self-governance

A democratic State, which is proactive andstrategic is required to arrest and, in the medi-um-term, reverse poverty and underdevel-opment. Combating poverty both national-ly and internationally, represents an essen-tial dimension of a strategy of restoring pub-lic trust and rebuilding human capital,which is necessary not merely for develop-ment, but also for the effectiveness of dem-ocratic governance. "A healthy, educated anddemocratic citizenry is the most importantfactor in economic development" (UN, 1997,E/1997/86, p. 21).

The State has an important role to play inthe establishment and preservation of an "evenplaying field" and an enabling environmentfor private enterprise, individual creativityand social action. It can also contribute to theestablishment and maintenance of socialsafety nets; promote as well as facilitate so-cial dialogue at the sub-national, national,and international levels; establish and main-tain mechanisms for mediation of disputes,mitigation of conflicts and reconciliation ofrival cultures or interests in the increas-ingly diversified contemporary societies.

Last, but not least, intelligent, democraticStates are necessary to protect the children,the sick, the elderly and other vulnerable seg-ments of society, combat the social exclusionof minority groups, and ensure a more eq-uitable distribution of the benefits of glob-alization.

In brief, more than ever before what is need-ed today is an intelligent State endowedwith institutions that are capable of copingwith both domestic and international prob-lems, and challenges. Strong democratic in-stitutions are vital in providing a solidframework of political, economic and socialrules, and in creating an enabling environ-ment for people's prosperity. In order to seizethe benefits of globalization, developingcountries need to strengthen and modernizetheir democratic institutions. "Our runawayworld does not need less, but more govern-ment - and this, only democratic institu-tions can provide" (Giddens, 2000, p. 100).

2.1. What is meant by an intelligent,democratic State

Experience demonstrates that sound insti-tutional frameworks and governance, in thisparticular meaning, cannot be developedoutside a healthy State. Indeed, it might beargued that they define this type of State.It is important to underline that an intelli-gent, democratic State is also socially proac-tive, but does not mean "big government". Itmeans "quality" not "quantity" or volume ofgovernment activity. It implies a State withlean but strong democratic institutions. Theterm "intelligent, democratic State", in oth-er words, puts the accent on capacity to car-ry out effectively the tasks incumbent on theState, on the international, national andsub-national levels. "There is a growing con-sensus that governments can play a vital rolein successful development efforts, but wealso recognize that the wrong kind of gov-ernment intervention can be highly detri-mental. We have recognized that the scopeand effectiveness of government activities,rather than simply the size of the government'sbudget or personnel, is the key issue. With-in a given size range, the governments' ef-fectiveness can vary widely with the scopeof its activities: they can do too much ofsome things and too little of others, andredirecting the State's efforts could producebenefits on both accounts" (Stiglitz, 1998, p.2).

An intelligent, democratic State is one thatintervenes strategically by creating the con-ditions that support constructive endeav-ours for people-centred growth. Its roleshould be catalytic and supportive - i.e., pro-moting without investing - and superviso-ry/regulatory. Recent experience has shownthat people often benefit when the State isnot involved in the production of goods and,generally, the provision of non-social servic-es. Greater competition brings down pricesand enhances the choice to consumers. In-herent in this concept of the State is the crit-ical notion of quality, in particular the qual-ity of the normative, strategic and steeringtasks of the State. Manifested, first and fore-most, in the outputs of these functions, such

65


The State has an

important role to play

in the establishment

and preservation of an

"even playing field"

quality is a composite of several different at-tributes: appropriateness, effectiveness, vi-ability or sustainability, timeliness, equity,and acceptability.

It is also predicated on many factors, notably:

� Thorough knowledge or expertise;

� Skill in decision-making;

� Sense of responsibility;

� Respect for due process and the rights ofall stakeholders;

� Integrity and command of public trust; and

� Ability to capture and reconcile convergentor divergent group interests.

All of the above attributes and factors are cru-cial. Few policy decisions are made by expertsalone or taken in a social or political vacu-um. Most are the product of inputs of verydifferent types, the synthesis of many fieldsof specialization, and representative voicesfrom segments of society affected by these de-cisions. The quality of the outputs, accord-ingly, is a function of two important variables:

� Level of individual inputs;

� Capacity of the institutional framework ordecision-making structures and processesto weave these inputs together into a coherentwhole and a workable project, in a timely fash-ion.

Thus, an intelligent, democratic State is onewhich "promotes social justice, ensures uni-versal access to quality services and productiveassets, and creates an enabling environmentfor sustainable people-centred develop-ment", in the terms of General Assembly res-olution 50/225/1996. Greater human devel-opment and prosperity can be achieved on-ly if certain fundamental conditions are met.These include the existence of a basic dem-ocratic system; a commitment of the politi-cal leadership to work towards a more equitabledistribution of wealth; strong, healthy State

institutions besides the executive, namely thelegislature, the judiciary and the local au-thorities. It also entails a strong capacity ofthe State to develop social and economicpolicies and strategies; strong commitmentbacked by appropriate resource outlays to re-dress social inequalities, and to protect andincrease social human capital. The public sec-tor should have a clear mission, with cleargoals and objectives. "What is needed is a vi-sionary administration" that is capable to ad-dress the complexity of the issues and prob-lems confronting the State at the thresholdof the XXI century (UN, 2000, E/2000/66).

Although experience varies, it may be saidthat the hallmarks of an intelligent, demo-cratic State can be summarized as follows:

� Strong institutions of governance and therule of law;

� Credible judicial and legal institutions;

� Effective legal frameworks for economic ac-tivity;

� An open and competitive economic envi-ronment;

� Price stability and fiscal responsibility;

� An equitable tax system;

� Developed and competitive labour, finan-cial and capital markets;

� Adequate steering, regulatory and en-forcement capacities, together with judiciousprivatization and outsourcing of services toprivate providers;

� Public and private sector partnerships inthe promotion of business, with emphasis onmicro-industries and small and medium-size enterprises;

� Access to information;

� Promotion of technological and infra-structure development.

66


An intelligent,

democratic State is

one which promotes

social justice, ensures

universal access to

quality services and

productive assets, and

creates an enabling

environment for

people-centred

development

An intelligent, democratic State should al-so promote a �sharp focus on the needs of thepoor; powerful watchdogs; intolerance of cor-ruption; transparency and accountability inthe management of public affairs; respect forhuman rights; participation by all citizens inthe decisions that affect their lives; as wellas the creation of an enabling environmentfor the private sector and civil society"(Amoako, 2000).

It is important to underline that the Statein the XXI century will differ in many waysfrom that of the past. It will depart signifi-cantly from the Welfare State as we knew it.Still, it might be unwise to base it on the "Min-imal State", in view of the catastrophic re-sults the latter has produced in many de-veloping countries. We should not forgetthat the Welfare State contributed to socialand economic progress in many countries,though arguably in some cases it led to pub-lic debts, and to the inefficient use of stateresources. Today efficiency has become wide-ly acknowledged as a critical attribute of goodgovernance. Nevertheless, efficiency and ef-fectiveness should not be pursued at the ex-pense of the principles of legality and of theprimacy of the public interest.

We should avoid confusion between policy goals,set by the State, and methods of imple-menting such goals. The latter may indeedbe performed by the private sector in a moreefficient way. Nevertheless, there are certainpolicy areas which cannot be guided by effi-ciency criteria alone but rather by consid-erations of the public interest. What we needis to combine some of the goals of the Wel-fare State model with some of the methodsof the "Managerial State". In what propor-tion these should be mixed is to be decidedby each country according to its own degreeof development and needs.

2.2. The relationship between intelligent, democratic States andfree markets

The Millennium Report underscores that: "In-clusive globalization must be built on the greatenabling force of the market, but market forces

alone will not achieve it" (UN, 2000, Mil-lennium Report, A/54/2000, p. 6). As shownby recent events, the �Minimal State� char-acterized by small government, deregula-tion, privatization, and basically a shift fromthe public to the private sector has in somecases not been sufficient to foster sustainablehuman development. There is growing

67


Box III.1

DECLARATION OF THE MILLENNIUM ASSEMBLY OF THE UN

�We believe that the central challenge we face today is to ensure thatglobalization becomes a positive force for all the world�s people. For whileglobalization offers great opportunities, at present its benefits are veryunevenly shared, while its costs are unevenly distributed. We recognize thatdeveloping countries and countries with economies in transition face specialdifficulties in responding to this central challenge. Thus, only through broadand sustained efforts to create a shared future, based upon our commonhumanity, in all its diversity, can globalization be made fully inclusive andequitable. These efforts must include policies and measures, at the globallevel, which correspond to the needs of developing countries and economiesin transition, and are formulated and implemented with their effectiveparticipation.

"We consider certain fundamental values to be essential to internationalrelations in the twenty-first century. These include:

� Freedom. Men and women have the right to live their lives and raise their children in dignity, free from hunger and from the fear of violence, oppression or injustice. Democratic and participatory governance, basedon the will, of the people best assures these rights.

� Equality. No individual and no nation must be denied the opportunity to benefit from development. The equal rights and opportunities of women and men must be assured.

� Solidarity. Global challenges must be managed in a way that distributes the costs and burdens fairly in accordance with basic principles of equity and social justice. Those who suffer, or who benefit least, deserve help fromthose who benefit most.

� Tolerance. Human beings must respect each other, in all their diversity ofbelief, culture and language. Differences within and between societies should be neither feared nor repressed, but cherished as a precious asset of humanity. A Culture of Peace and Dialogue among all civilizations should be actively promoted.

� Respect for nature. Prudence must be shown in the management of all living species and natural resources, in accordance with the precepts of sustainable development. Only in this way can the immeasurable riches provided to us by nature be preserved and passed on to our descendants.The current unsustainable patterns of production and consumption must be changed, in the interest of our future welfare and that of our descendants.

� Shared responsibility. Responsibility for managing worldwide economic andsocial development, as well as threats to international peace and security,must be shared among the nations of the world and should be exercised multilaterally. As the most universal and most representative organization inthe world, the United Nations must play a central role.�

Source: A/RES/55/2/2000, paras. 5-6.

agreement on the fact that economic reformsneed to be complemented by better social poli-cies.

It is erroneous to think that markets shouldbe weakened or that the State should replacethe market in its fundamental functions.However, it is important to underline thatnot every aspect of public life should be leftto market forces or be guided by corporatemethods. Rather, markets should be cou-pled with "intelligent" States. In fact, mar-kets and States should not be seen as ad-versarial forces, but as truly complementa-ry. That is because markets can flourish andsustainable economic prosperity can beachieved only if there is a democratic and ef-fective State that provides, through rules andinstitutions, an enabling environment forprivate sector development and economicgrowth. In the absence of appropriate insti-tutions, competition is stifled and lawlessnessprevails leading to instability, chaos and of-ten to the emergence of kleptocracies.

Experience has shown that Governmentscan continue to play a vital role in creatingan effective legal and regulatory frameworkin which the private sector is enabled to op-erate. As those in countries moving towardsa market economy keep pointing out, the pri-vate sector cannot develop fully unless theGovernment institutes a legal frameworkthat guarantees and protects private prop-erty, govern business relationships and en-forces the commitments involved in busi-ness contracts. Suitable enforceable legisla-tion is needed as related to the personal li-abilities of owners and the bankruptcy of busi-nesses as well as the obligations of those in-volved. An adequate legal framework is vi-tal in developing an enabling environmentin which business creation and operationcan function successfully. Therefore, the roleof the State in this respect is to establish therules of the game for the operation of the mar-ket and at the same time to perform the roleof arbitrator.

Experience also demonstrates that, withoutproper structures, enforceable laws and so-cially sensitive policies, markets can degen-

erate into instruments of exploitation, mar-ginalization, corruption and social exclu-sion. Poorly managed States and exclusion-ary politics contribute to holding back eco-nomic and social development. To be sure, eco-nomic growth alone is not sufficient to sus-tain equitable human development. Provid-ing health care and education, public infra-structure, safety nets for the unemployed, equalopportunities for all and the respect of ba-sic human rights is a fundamental respon-sibility of the State, which is not unrelatedto the goal of economic prosperity for alland to the enhancement of people's free-doms and quality of life. Poverty is reducedand development is more easily achievedwhen the State has a larger redistributiverole. In the words of Secretary-General KofiAnnan, speaking at the Global Compactmeeting, in July 2000, "... let's choose tounite the powers of markets with the authorityof universal ideas. Let us choose to reconcilethe creative forces of private entrepreneur-ship with the needs of the disadvantaged andthe requirements of the future genera-tions..." (UN, 2000, Global Compact Meeting).

Although markets perform invaluable func-tions within an economy, not all aspects ofpublic life are best served by market prin-ciples. On the one hand, States remain im-portant actors because their actions helpdetermine the extent to which economic andsocial prosperity occur within their own bor-ders, as well as the extent to which prosperityis widely spread among the population. Onthe other hand, a free market and policiesto promote a vibrant private sector are in-dispensable if a country wishes to increaseits living standards and seize the opportu-nities of integration into the global market.

2.3. The role of the State in creatingan enabling environment for theprivate sector

Governments have a crucial role in creatingan enabling environment for the developmentand/or reinforcement of the private sector, andthe institutional and regulatory capacities ofgovernments to interact with the privatesector should be enhanced. However, creat-

68


It is erroneous to think

that markets should be

weakened or that the

State should replace

the market in its

fundamental functions.

However ... not every

aspect of public life

should be left to

market forces

ing an enabling environment involves morethan removing obstacles. Governments mustperform a dual task. First, to create a polit-ical and economic system in which entre-preneurship can flourish; second, to facilitateentrepreneurial undertakings. The first taskrequires a stable and secure political orderin which contracts are enforced, necessaryadjudicating machinery exists for resolutionof disputes, and the social order is backed bydemocratic institutions. The second task in-volves the establishment of financial, legaland market institutions, and of a regulato-ry apparatus that enables people to open abusiness without too much difficulty, to haveaccess to affordable credit, and to invest inproductive activities.

Designing appropriate rules for the func-tioning of the market is essential because"where there are no rules, the rich and thepowerful bully the poor and the powerless (UK,2000). The existence of an appropriate andeffective legal framework is a basic pre-con-dition for successful efforts to promote sus-tainable development. Yet, legal frame-works, as formulated and applied so far,have not always stimulated adequate par-ticipation in economic development activities.While it is the duty of the State to enhancethe development of civil society and to enablethe private sector to operate efficiently by en-acting appropriate laws, experience shows that"state laws" have not been utilized by localcommunities and indigenous people. Themain reason for this attitude is that, oftentransposed from outside and moulded accordingto foreign concepts and experiences, the le-gal framework for development is not alwaysadapted to the needs of the people in devel-oping countries and countries witheconomies in transition. In fact, past eventsshow that business organizations, contracts,bankruptcy, and banking laws are not alwaysrespected or well defined. Legal frameworksshould always reflect the ideologies, atti-tudes and aspirations of the people for whomthey are meant, rather than be imposedfrom outside.

Most importantly, governments should takethe lead in simplifying procedures and reg-

ulations for the registration and licensing ofbusinesses. Without simplifying bureau-cratic procedures and rules to set up a busi-ness, entrepreneurial initiative will be sti-fled. A study conducted by Hernando De So-to shows how red tape and byzantine pro-cedures pose a serious hurdle to people'sentrepreneurial capacities. To open a smallbusiness in Lima and get it registered takes289 days, and the cost of legal registrationis $1,231 - thirty one times the monthlyminimum wage. "To obtain legal authoriza-tion to build a house on State-owned land takessix years and eleven months, requiring 207administrative steps in 52 government offices.To obtain a legal title for that piece of landtakes 728 steps. ... In Egypt, the person who

69


Box III.2

A COMPACT FOR THE NEW CENTURY

At the World Economic Forum, held in Davos on 31 January 1999, UNSecretary-General Kofi A. Annan challenged world business leaders to"embrace and enact" the Global Compact, both in their individual corporatepractices and by supporting appropriate public policies. These principlescover topics in human rights, labour and environment:

Human Rights

The Secretary-General asked world business to:

Principle 1: support and respect the protection of international human rightswithin their sphere of influence; and

Principle 2: make sure their own corporations are not complicit in human rightabuses.

Labour

The Secretary-General asked world business to uphold:

Principle 3: freedom of association and the effective recognition of the rightto collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour; and

Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment

The Secretary-General asked world business to:

Principle 7: support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Source: UN, 2000, Global Compact Meeting.

wants to acquire and legally register a lot onState-owned desert land must wend his waythrough at least 77 bureaucratic proceduresat 31 public and private agencies. ... This ex-plains why 4.7 million Egyptians have cho-sen to build their dwellings illegally (De So-to, 2000, p. 20).

Additionally, there needs to be a permanentmechanism for consultation with represen-tatives of the private sector on the formula-tion of relevant policies and the monitoringof their impact. Collaboration is needed inways that safeguard the interests of consumersand small enterprises from cozy, at times of-ten corrupt, coalitions of government and bigbusiness, or vice versa. Corporations andcompanies should be encouraged to adopt anew relationship with the environment andsociety. In this respect, one of the mostalarming issues is related to child abuseand labor exploitation. Both the Director-Gen-eral of the International Labour Organiza-tion, Juan Somavia and several participantsat the Global Compact Meeting, called forstrong action to stop the current pandemicof child abuse. Today, as many as 250 mil-lion children throughout the world work inappalling conditions both in multinationalsand local businesses.

The OECD recently elaborated new standardson corporate governance, workplace conditions,environmental safeguards, bribery and pro-tection for whistleblowers. The rules, how-ever, are not legally binding, although gov-ernments are expected to promote compliance.In a more general manner, it is essential tohave national legislation in place that setsclear security and health standards in theworkplace, which corporations should re-spect. This represents an urgent yet difficulttask ahead. Moreover, a greater commit-ment by the private sector should be pursuedto engender a new culture of environmentalaccountability, environmental performanceindicators and reporting, and the establish-ment of a precautionary approach in in-vestment and technology decisions. This ap-proach must be linked to the development ofcleaner and more resource-efficient tech-nologies for a life-cycle economy and efforts

to facilitate the transfer of environmentallysound technologies (UNEP, 2000, AnnualReport). National and trans-national corpo-rations can play an important role in upholdingsocial and environmental values, as well asrespecting human rights.

Voluntary commitments are important but,in general, insufficient to curb pollution ofthe environment and corrupt practices. Gov-ernments can play a crucial role in this re-spect. Often, it is weak government that in-directly bears ultimate responsibility for notpreventing inhumane working conditions,pollution, deforestation, depletion of naturalresources and other transgressions. This isso because they do not ensure that appropriatelaws and regulations are in place to protectworkers and the environment. However, itmust be said that even countries that havegood labour laws might fail to curb the abuseof human rights in the workplace if their ju-dicial systems are ineffective.

2.4. Fostering partnerships betweenthe State and civil society

An era of globalization calls for building ro-bust partnerships between the State andcivil society. Such partnerships, however,can only emerge between a intelligent, dem-ocratic State, on the one hand, and a vibrantcivil society, on the other. Their nature andimportance were recently highlighted by theSecretary-General of the United Nations,who put them in perspective in his addressto the opening ceremony of the Forum Gene-va 2000 on 25 June 2000: "I remain convincedthat globalization can benefit humankind asa whole. But clearly at the moment millionsof people - perhaps even the majority of thehuman race - are being denied those bene-fits. They are poor not because they have toomuch globalization, but too little or none atall. And many people are actually sufferingin different ways - I would say not fromglobalization itself, but from the failure to man-age its adverse effects. Some have lost theirjobs, others see their communities disinte-grating, some feel that their very identity isat stake. Even in the richest and most dem-ocratic countries, people wonder if the lead-

70


Today, as many as 250

million children

throughout the world

work in appalling

conditions both in

multinationals and local

businesses

ers they elect have any real control overevents. I think these fears can be answered,but not by any one nation alone, and not bygovernments alone either. The State andcivil society should not see each other as en-emies, but as allies. The strongest State isone that listens to civil society, and explainsitself to civil society in a way that encour-ages people to work with the State, of theirown free will. When I speak about civil so-ciety, I do not mean only non-governmentalorganizations, though they are a very im-portant part of it. I also mean universities,foundations, labour unions and - yes - pri-vate corporations" (UN, 2000, General As-sembly Twenty-fourth Special Session,Geneva).

The emergence of a vibrant and assertive civ-il society, notably in those countries whereit had been virtually absent, may rightly beconsidered as a most welcome feature of thetrends of the past twenty years. However, itseffectiveness critically depends on the es-tablishment and maintenance of an enablingframework of laws, regulations and rules safe-guarding not only the independence ofNGOs and other civil society organizationsbut also the transparency and accountabil-ity of their acts. Such conditions are predi-cated on a proactive State, a democratic cul-ture receptive to diversity and which valuespublic service and, last but not least, an in-stitutional framework for effective inter-gov-ernmental cooperation.

Globalization also requires improved chan-nels of participation. There is a growingneed for greater citizen participation and newparticipatory policy-making processes. Inparticular, the State could greatly benefit fromweaving inter-social networks. It has beencommon practice in developing countries tosee important problems, among them socialproblems, as an exclusive undertaking fromthe organizational point of view. These prob-lems would correspond to either the State,civil society or the market, but only to oneof the aforementioned. In this type of logic,the weak points of each of the actors are em-phasized and the stress is placed on histor-ical and potential conflicts. This type of rea-

soning is "at this time the State cannot par-ticipate because ...", or "we can't rely on theNGOs because at one time they ..." etc. Thesocial reality is so difficult and complex thatit first and foremost imperatively demandsresponsibility from all social actors. AsWolfenshon, among others, stresses, "all mustcooperate" because what will happen is in every-one's interest. However, it is also necessaryto capitalize on what each party can con-tribute. Skills that might be utilized cannotbe overlooked. The culture of "false competi-tion" should be replaced by one policy of "let'suse the best of each and let's complement eachother" (Wolfenshon, 2000).

Inter-social networks geared to solving im-portant social problems need to be built. Inthis context public policy should play the en-ergetic role of calling for the establishmentof a network, and of being an ongoing stim-ulus for and a relevant actor in the network.But it should also actively attempt to uniteas many diverse actors as possible in that net-work. Civil society can make valuable con-tributions to solving social problems. Religiouscommunities, labour unions, universities,neighbourhood associations, and the NGOsset up to work in the social service area, andmany other actors of a similar nature can con-tribute ideas and invaluable human and fi-nancial resources. The power of volunteersin the different developing countries and insmall countries is very important. Concert-ed efforts to mobilize the social responsibil-ity of the business world should also be tak-en in order to directly involve it as an actorin large-scale social undertakings.The inter-social networks are a complexweb. They require diverse actors with differentexperience, languages, little practice inworking together and mutual biases. In or-der to set up these networks and make themfunction, systematic and laborious action isrequired. The intelligent, democratic Stateought to develop the needed capacities, in-cluding the ability for concentration, nego-tiation, joint planning, and creation of veryflexible and open organizational designs.

In order to foster a new relationship be-tween civil servants and citizens, State in-

71


I remain convinced that

globalization can

benefit humankind as a

whole. But clearly at

the moment millions of

people - perhaps even

the majority of the

human race - are

being denied those

benefits. They are poor

not because they have

too much globalization,

but too little or none at

all

Kofi AnnanUnited Nations

Secretary-General

stitutions ought to be more open, flexible inthe face of change, and especially more ac-countable to the public at large. There is agreat need to counteract the tendency, whichis present in many countries, to a powerfuland pervasive state machinery, which main-ly favours the rich and influential at the ex-pense of the poor. State institutions shouldbe made to work for all and should not be seen,nor act as repressive or "unfriendly" to themajority of citizens. State institutionsshould not be "abusive" in the way they dealwith citizens, but should be more open,transparent and work for and with, ratherthan against citizens. Therefore, greater em-phasis should be set on ethics and profes-sionalism in government, as well as on an-ti-corruption measures. Greater attentionought to be given to developing a more serv-ice-oriented spirit among civil servants, andto ensure effective and transparent mecha-nisms for citizens to channel their com-plaints concerning poor, inefficient or de-nied access to public services. Ombudsmanmechanisms should be reinforced or set inplace where they do not exist. It is a fact thatin many developing countries, but also in thedeveloped world, access to public services ismade very difficult for those who lack per-sonal influence or money. In other words, whatis a right becomes a privilege that only thefew are able to "buy". For the rest of the pop-ulation getting a passport, renewing a license,or having a fair trial becomes a bureaucrat-ic "nightmare". In brief, there is a compellingneed for state institutions to operate in a moredemocratic and accountable way in many coun-tries.

The role of social dialogue in institution-building also highlights the growing impor-tance of organized civil society. On the sub-national, national, and international levelsactive participation by groups of informed cit-izens, such as at the global summits duringthe past decade, has modified the process ofdecision-making, profoundly influenced out-comes and more than anything else addednew meaning to "governance", a conceptwhich, in truth, goes back to the XVII cen-tury, or earlier. Throughout the world, includingdeveloping countries and countries with

economies in transition, the number of civ-il society organizations has grown by leapsand bounds. Precisely on this account, how-ever, this old/new phenomenon is still the causeof much controversy and exaggerated claims.

One of the many fallacies born in the 1980sand 1990s was the belief that the retreat ofthe State could somehow be matched by cor-responding advances from both civil societyand the private sector, which between themwould be able to close the ensuing gap. Thishas not come about. �In quantitative terms,the collective contribution generated by pri-vate philanthropy remains infinitesimalcompared to government programmes inmost Western industrialized societies, atany rate� (O'Connell, 1996). In qualitativeterms also, the lessons of experience suggesta cautious approach. A partnership withgovernment entails responsibilities and, inthe last analysis, the claim and obligation tospeak and to decide for the country as a wholebelongs to elected governments and them alone.

Properly exercised, supervision by the Statecould exert a salutary influence on NGOs/CSOs. It would keep them on the right track.The State needs NGOs as an important out-let for outsourcing government services, atthe national and sub-national levels. In ourglobalized economy, inter-governmental or-ganizations (IGOs) engage in similar part-nerships with international and local NGOs.Both governments and IGOs should know thatthere is a fine line between accountability andtotal control. This fine line must be observedand respected. It has not always been so.

These dangers are avoidable, but onlythrough the establishment of legislative andregulatory frameworks which enforce ac-countability and oblige CSOs/NGOs to provetheir worth and democratic credentials as wellas their ability to raise a substantial part oftheir revenue from sources other than the gov-ernment in a transparent way. Paradoxical-ly, the virtue, utility and credibility ofNGOs/CSOs, especially in an era of global-ization, are largely predicated on the pres-ence and affirmative action of a strong State.Because until they prove ability to escape the

72


One of the many

fallacies born in the

1980s and 1990s was

the belief that the

retreat of the State

could somehow be

matched by

corresponding

advances from both

civil society and the

private sector

many present risks, and until they broadentheir base of financial support, civil societywill remain a poor substitute for democrat-ically accountable governance and, at best,a useful adjunct to State-to-State cooperationthrough international organizations.

3. Creation of a strong anddemocratic institutionalframework

3.1. Democracy, freedom and participation

Both in the current literature and populardiscourse, "democratization" is frequentlypresented as a critical development and ir-resistible trend of the past quarter century.Thus, we read the following statement in theWorld Development Report 1999/2000: "Theproportion of countries with some form of dem-ocratic government rose from 28 per cent in1974 to 61 per cent in 1998. A majority of gov-ernments have made legally binding com-mitments to respect the civil and political rightsof their citizens. Thus far, 140 countrieshave ratified the International Covenant onCivil and Political Rights, and 42 havesigned the optional protocol of the Covenant,recognizing the Authority of the United Na-tions Human Rights Committee to considerclaims from those alleging violations of theirrights" (World Bank, 1999/2000, p. 43).

There is certainly truth in this statement. Whatit does not reveal, however, is the distancethat exists between ritual and rhetoric, onthe one hand, and reality on the other. Un-deniably, the world is host to a great diver-sity of forms of government - some moredemocratic than others. What is noticeable,and what the regional studies outlined in chap-ter II have underscored, is the fragility ofdemocracy in several parts of the world,predicated as it is on a number of conditionswhich are not always present to the desiredextent. Of these requisites, none other seemmore vital than capacity for sound governanceand a values system rooted in profound re-spect for freedom, equality and public serv-ice, or the pursuit of the common good.

Responding to the challenges that poverty,oppression and human insecurity haveposed in many regions is part of the all-im-portant tasks of consolidating democracyand promoting human development. Theemergence or restoration of pluralist democ-racies where autocratic regimes or totalitariandictatorships had prevailed in the past mayrightly be considered as one of the most pos-itive developments of the past fifteen years.The growth of an articulate and vibrant civ-il society, where none had existed before, iscertainly another. Both these trends augurwell for the future, and both are strength-ened by the lowering of barriers that comeswith globalization.

However, these very welcome trends shouldnot induce complacency. It must not be over-looked that, in a number of countries, the in-stitutional bases for democratic governanceremain fragile. The structures to facilitatepopular participation are still largely in themaking and, last but not least, a culture ofcivic responsibility and of respect for diver-sity needs much nurturing and propitious con-ditions to grow. "To a considerable degree, thegap between democratic form and substancein the world is an institutional gap. No po-litical system in the world operates strictlyaccording to its formal institutional pre-scriptions, but what distinguishes most of thedemocracies in Latin America, Asia, Africaand the postcommunist States are politicalinstitutions too weak to ensure the repre-

73


Graph III.1. Proportion of countries with democratic governments (%)

0 20 40 60 80

1974

1988

1993

1998

Source: World Bank, 2000.

sentation of diverse interests, constitution-al supremacy, the rule of law, and the con-straint of executive authority" (Diamond,1999).

Designing and/or strengthening institutionsis key to democracy and economic develop-

ment, which in turn are essential for the in-tegration of countries into the world econo-my. Of the needed institutions, the basic in-stitutions, arguably, are:

� An equitable, transparent and democrat-ic framework of laws and regulations to gov-ern registration, structure and operation ofboth political parties and CSOs. To date, inspite of the best efforts of IGOs, including theUnited Nations, such legislative and regu-latory frameworks are either reminiscent ofthe preceding authoritarian regimes, or socumbersome and slow as to make it very dif-ficult for citizens to establish and operate anassociation effectively.

� An efficient and effective, transparent andfair system for the organization and conductof elections, both nationally and locally, forpurposes of government or otherwise. Freeand fair elections on all levels represent a ba-sic prerequisite of democratic government,but also of transparency and accountability,notably in the governance of civil society or-ganizations, both for profit and non- profit,political, philanthropic or otherwise.

Curiously, to this day, relatively little attentionhas been paid to the laws regulating elections,let alone to the mechanics of conductingthem. It must not be overlooked that the qual-ity and vitality of democratic governancedepend to a large extent on citizens' partic-ipation, and this begins at the polls, thoughit should not end there. Democracy meanschoices - effective choices - and, what is mostimportant, it means that decision-making pow-er lies firmly with the citizens, the people.Without strategic choices at the national, sub-national or indeed international levels, andwithout discernible differences among politicaloptions, democracy degenerates into an emp-ty ritual, inviting public apathy which par-tisan rhetoric tries in vain to overcome.What should also be remembered is that is-sues do not disappear when they have beenwithdrawn from public debate, or because thebody of citizens has failed to exercise theirright to vote and to choose on those issues.More often than not, in such cases, the fo-cus of decision is shifted, and power in this

74


Box III.3

THE ADMINISTRATION AND COST OF ELECTIONS PROJECT (ACE)

What is the ACE Project?The ACE publications provide systematic information on the range of choicesavailable to election professionals involved in organizing elections. Thepublications specifically analise the differences among electoral choices andfocus on the cost and administrative implications of those choices. Election specialists and writers around the world played a key role inproducing the ACE Project. The result is over 5000 pages of information,including original texts, country studies and scanned sample materials such asballot papers and manuals. The ACE Project has created and now supportsthe evolution of a unique online publication available via an Internet Website(www.aceproject.org) and a CD-ROM. Partners: The ACE Project is a jointendeavour of the United Nations, the International Institute for Democracyand Electoral Assistance (IDEA), and the International Foundation for ElectoralSystems (IFES).

Why is ACE needed?Emergence of new democracies in the 1990s and continued reassessment ofdemocratic institutions and electoral processes in countries with longestablished democratic tradition, highlighted the need for a unifiedcomprehensive, simple to use and easily accessible resource of electioninformation.

The ACE Project Topic Areas� Electoral Systems� Legislative Framework� Electoral Management� Boundary Delimitation� Voter Registration� Voter Education� Parties and Candidates� Voting Operations� Vote Counting� Media and Elections� Elections and technology� Electoral Integrity

Examples of how ACE can be used:As an informational tool and reference source when; � Re-designing the electoral process in new as well as established

democracies� Designing training courses for electoral officials and observers in order to

increase their knowledge about electoral processes� Providing information to the media about legitimate democratic electoral

options

Source: ACE, www.aceproject.org.

regard appropriated, directly or indirectly, byspecial interest groups.

In the diversified and highly complex soci-eties in which we live, diffusion and disper-sion of decision-making power are both in-evitable and desirable, but only up to apoint. Given the considerably uneven dis-tribution of power and wealth, with staggeringinequalities in these regards, this diffusionand dispersion also carries dangers which can-not be overlooked. While the orderly devo-lution of power, through decentralization orother means, keeps people in control and hasthe added merit of leaving the decisions tothose directly concerned (e.g., the local com-munity or the end-users), appropriation of de-cision-making power, when it happens by de-fault, inevitably entails surrender of thepublic space to special interest groups. Thisneed not happen. Nationally and interna-tionally, experiments with partnerships in-volving public sector and private sectoragencies or NGO's, both state and non-stateactors have amply demonstrated how,through performance contracting and othermeans, it is possible to ensure a win-win sit-uation, one that accommodates the specialinterest groups, but also, and above all, safe-guards accountability and the primacy ofthe public interest.

One of the critical challenges which con-fronts political leadership as we enter the XXIcentury is the pressing task of building, oroverhauling, the structures that will permitsuch partnerships of state and non-state ac-tors, to combine respect for democratic val-ues, transparency and accountability with thepursuit of efficiency and effectiveness. In-creasingly, such structures and institutionswill be required on the international level todesign and to implement global policies andprogrammes.

3.2. Making democracy meaningful

Paradoxically, on the morrow of the fall of dic-tatorships and authoritarian regimes, thegreatest challenge before us, as we enter theXXI century, may be precisely this: to makedemocracy meaningful to citizens at large.

In the foreseeable future, the dangers fordemocracy will come arguably less from dic-tators, though there may still be a few in theworld at large. The massive intervention ofmajor power-holders, either through controlof the mass media and electoral campaign fi-nancing or through systematic corruption ofofficials, has devastating effects on the cred-ibility of democratic institutions and the le-gitimization of their outcomes. "There is in-creasing evidence that corruption under-mines development. It also hampers the ef-fectiveness with which domestic savings andexternal aid are used in many developing coun-tries, and this in turn threatens to underminegrassroots support for foreign assistance"(World Bank, 1997, World Development Re-port).

Democracies are not immune to the corrosiveinfluence of unaccountable forces, which canturn democratic regimes into oligarchies ofwealth or kleptocracies at worst. When thishappens, a spirit of venality slowly pervadesthe system, as citizens lose interest, becom-ing the passive onlookers of a game playedout by only a few. Democracies survive andthrive by empowering their citizens. Muchof late has been made of this term, but of-ten the reality belies the current rhetoric. Ascommonly understood, empowerment im-plies having meaningful options, but also tak-ing part in making important decisionswhich affect people's lives. To make it real,it demands of all citizens and groups in civ-il society that they claim their rights and callthe agents of government to account, as re-quired in a democracy. A proactive civil so-ciety is crucial to the vitality of democraticgovernance, whose pillars are none otherthan freedom, equality of opportunities andsolidarity. The three pillars are indivisible,but while it may be true that freedom mayhave spread during the past decade, the ob-stacles (such as poverty and illiteracy) to equalopportunities have not, so far, been removedin many cases. Carried too far, poverty andinequality, whether in the East, West, Northor South, can undermine the solidity of thesocial fabric, creating the phenomena ofmarginalization and social exclusion, com-pounded by alienation, that already exist

75


Democracies survive

and thrive by

empowering their

citizens

around us. Ignoring such social problems isa recipe for failure.

3.3. The rule of law and public trust

The issue of what is needed most, good lead-ers or good laws, goes back to the beginningsof political discourse. Although both are es-sential and indeed complementary, few peo-ple would dispute that, under present con-ditions, given the scale and complexity of so-cial, economic and political transactions, onthe global and national levels, sound legaland regulatory frameworks are sine qua nonconditions for the prevalence and sustenanceof a culture of trust and respect for the ruleof law.

Governments need to build effective regulatoryand institutional frameworks, which includean efficient legal system that secures the ruleof law; an independent judiciary that ensuresreliable processes for resolving disputes; astrong parliament to counterbalance powerfulexecutives; an efficient tax system that pro-vides the necessary resources for social pol-icy reforms and other legitimate state activities;a financial system that is modern, ade-quately supervised and transparent; and apolitical system that ensures widespreadparticipation. Equitable, transparent andconsistent legal systems are needed to pro-vide solid foundations and structures for so-cial institutions where initiative can thriveand collective pursuits, in both the public andbusiness sectors, promote the general in-terest.

By contrast, nothing saps the public trust morequickly than the confusion resulting from in-applicable, vague, conflicting and foreverchanging legal provisions, which compoundthe costs of business, discourage enterpriseor, worse still, afford knaves and villainswindows of opportunity at public expense.Labyrinthine provisions and legislative loop-holes both serve to exacerbate the practiceof rewarding the least deserving, and of de-frauding the public, thus slowly but surely,creating a climate of collective alienation, cyn-icism and greed.

The current pandemic of corruption, often tiedto organized crime, is a disturbing phenom-enon of universal dimensions. Its worstmanifestations have been the collapse ofStates, where social disintegration and in-formality prevail. In an era of globalization,such kleptocracies can serve as launching padsor havens for various illegal activities (for in-stance, money laundering). Very often, klep-tocracies condemn their own peoples to a fateof destitution and total insecurity at themargins of the global economy. However,they may also pose a threat to neighbouringcountries, as recent experience in several partsof the world has demonstrated.

Since 1996, several global fora and major in-ternational and national reports havesounded the alarm, warning against the per-ils of corruption and organized crime, whoseoutreach has expanded with globalization.Among the earlier studies, the World De-velopment Report of 1997 on the "State in aChanging World" explored the many facetsof this old/new phenomenon, its causes andimpact on the effectiveness of institutions andthus on public trust (World Bank, 1997, pp.99-101). Significantly, the study reached theconclusion that corruption cannot be effec-tively tackled in isolation from other prob-lems, of which it is often a mere symptom.

The problem can only be treated by ad-dressing its root causes, especially the flawsin the organization and management of thepublic service profession, and by promotingprofessionalism, performance, ethical val-ues and standards in public life at large.

3.4. Strengthening and modernizingnational judicial systems

With the increase in complexity and type ofcross-border activities, as well as with the grow-ing number of actors at the national, re-gional and global levels, there is a parallelincrease in the need for regulation and en-forcement mechanisms. Sound legal frame-works, as well as an effective and inde-pendent judiciary is a crucial pre-conditionfor a country's success in a globalized world.

76


Labyrinthine provisions

and legislative

loopholes both serve to

exacerbate the

practice of rewarding

the least deserving,

and of defrauding the

public

Globalization demands strong and effectivejudicial systems for a number of reasons. Firstand most importantly, a strong judiciary isa key factor in creating a stable environmentfor investments and entrepreneurship. It isalso essential to ensure that democraciesfunction properly through a system of checksand balances. The crucial role of the judici-ary, especially in relatively new democracies,is increasingly being recognized and the is-sue of "horizontal accountability" seems tobe gaining a central relevance. O'Donnell de-scribes it as "the existence of state agenciesthat are legally enabled and empowered,and factually willing and capable, to take ac-tions or omissions by other agents of the Statethat may, in principle or presumably, bequalified as unlawful" (O'Donnell, 1997, p.15). Without a proper system of checks andbalances, the separation of powers could bejeopardized leading to a concentration ofpower in one of the branches of government,thus undermining the constitutional basis ofa democracy. The task of the judiciary in con-temporary democracies is not only to solveconflicts among contending parties, but al-so to check governmental actions and to pro-tect minority rights. The fundamental pre-requisite is that the judiciary be independ-ent not only from the parties involved, butalso from political pressure. Without a tru-ly independent judiciary there is no rule oflaw and, under such conditions, a demo-cratic free society is in danger.

A strong and efficient judiciary is also essentialin providing a stable environment for thegrowth of investments and economic activi-ty. For a country to attract foreign capital andto be a desirable place for investment, it isof utmost importance that the rule of law isupheld. Potential investors will invest onlyif they perceive that a country is politicallystable and especially if they feel that theirbusiness transactions are backed up by a wellfunctioning legal and judicial system. Thecourts of justice have a very important roleto play in guaranteeing that property rightsare respected, that contracts are legallybinding and that transactions occur in an at-mosphere of legality. Given that investors canchoose where to invest, and in a globalized

world they have the whole globe to choose from,legal stability is a must not only to attractforeign investment, but also to promote thedevelopment of a strong domestic market."There is a growing awareness that a judi-ciary able to resolve cases in a fair and time-ly manner is an important prerequisite foreconomic development. In many developingcountries, the judiciary is not consistent inits conflict resolution, and carries a large back-log of cases, stifling private-sector growth andcausing the erosion of individual and prop-erty rights" (Buscaglia and Dakalios, 1999,p. 1). "While globalization has spurred eco-nomic development, its benefits have un-evenly impacted different segments of soci-ety. The poor often lack legal rights to em-power them to take advantage of opportunitiesand provide them with security against ar-bitrary and inequitable treatment. Dis-criminatory laws and arbitrary enforcementof the laws deprive protection of individualand property rights, raise barriers to justiceand keep the poor poor" (World Bank, 2001,p. 2). Inadequate access to justice is there-fore one of the major obstacles to development.

Also, courts of justice increasingly have to dealwith cases related to transnational illegal ac-tivities. Criminal justice increasingly beinginvolved in cases of transnational crime,corruption, trafficking in human beings anddrugs, money laundering, and terrorism.This requires not only a more effective judicialsystem at the national level, but also greatercooperation at the international level. The Unit-ed Nations Convention against Transna-tional Organized Crime, which was adoptedby the General Assembly at its Millenniummeeting in 2000, is an example of interna-tional cooperation in this regard. It is the firstlegally binding UN instrument in the fieldof crime, which must be signed and ratifiedby 40 countries before it comes into force. Statesparty to the Convention would be requiredto establish in their domestic laws four crim-inal offences:

� participation in an organized criminalgroup;

� money laundering;

77


For a country to attract

foreign capital and to

be a desirable place

for investment, it is of

utmost importance that

the rule of law is upheld

� corruption; and

� obstruction of justice.

At the national level, courts of justice, especiallyin countries with economies in transition aswell as recent democracies are called uponto decide on a growing number of cases, in-cluding cases regarding property rights andobligations. In other words, judicial systemsare subject to great pressure and to a grow-ing demand for justice. This, in turn, requiresmodernizing the administration of justice.

The new UN instrument spells out howcountries can improve cooperation on suchmatters as extradition, mutual legal assis-tance, transfer of proceedings and joint in-vestigations. �It contains provisions for vic-tim and witness protection, and shielding le-gal markets from infiltration by organized crim-inal groups. Parties to the treaty would al-so provide technical assistance to developingcountries to help them take the necessarymeasures and upgrade their capacities for deal-ing with organized crime. Also adopted by theGeneral Assembly were two optional proto-cols by which countries would undertake in-depth measures to combat smuggling of mi-grants and the buying and selling of womenand children for sexual exploitation or"sweat shop" labour. A third protocol, deal-ing with the illicit manufacturing of andtrafficking in firearms, is under negotiation.Interlinked gangs worldwide traffic an esti-mated 4 million people every year as �humancargo�. The annual estimated earnings fromthis trafficking has reached US$ 5 to US$ 7billion. The protocols on trafficking in humanbeings - new forms of slavery - and on smug-gling of illegal migrants are intended to beefup and internationalize efforts to stem thesepractices. The third protocol would commitparties to setting controls on the illicit man-ufacture and sale of firearms, which have beenplaying an increasing role in civilian violence,terrorism and organized crime. It is hopedthat upon ratification, the Convention willemerge as the main tool of the internation-al community for fighting transnationalcrime" (UN, 2000, Convention againstTransnational Crime, A/55/383).

With the advance of information technologycourts of justice will be called upon to decide,on a growing scale, on cases related to e-com-merce activities, illegal activities on the In-ternet, and copyright issues on the Internet.

Furthermore, globalization has produced anumber of changes in the way transactionsare carried out and on the modalities of suchtransactions, and has opened up new areas,which increasingly demand greater regula-tion and enforcement. National judicial sys-tems, especially in countries with economiesin transition and in developing countries, needto be strengthened both at the institutionaland organizational level. In a number of de-veloping countries, the judiciary branch is theweakest branch of government.

At the institutional level, it is important toensure that the judicial system is inde-pendent, i.e. that it is impermeable to unduepolitical pressures, incorruptible, and fair inits decisions, and that it respects the rule oflaw. From an organizational point of view, thejudiciary needs to be modernized. For this pur-pose, skills must be upgraded and informa-tion technology could be introduced, wherethe necessary infrastructure is in place, asa device that allows for quicker and more re-liable storage and retrieval of information. Judicial integrity may be strengthened in anumber of ways. The Global Programmeagainst Corruption, set up by the United Na-tions Office for Drug Control and Crime Pre-vention, has made some recommendations inthis respect:

� "Data collection: There is a need for datacollection and national and internationalexchange of information concerning thescope and variety of forms of corruptionwithin the judiciary. There is a need to es-tablish a mechanism to assemble and recordsuch data ... ;

� Remuneration: There is a need to improvethe low salaries paid in many countries tojudicial officers ... ;

� Monitor: There is a need to establish in everyjurisdiction an institution, independent of

78


Globalization has

produced a number of

changes in the way

transactions are

carried out and on the

modalities of such

transactions, and has

opened up new areas,

which increasingly

demand greater

regulation and

enforcement

the judicature itself, to receive, investigateand determine complaints of corruption al-legedly involving judicial officers and courtstaff ... ;

� Judicial appointments: There is a need toinstitute more transparent procedures for ju-dicial appointments to combat the actualityor perception of corruption in judicial ap-pointments (including nepotism and politi-cization) ... ;

� Codes of conduct: There is a need for theadoption of judicial codes of conduct, for theinclusion of instruction of such codes in theeducation of new judicial officers and for in-formation to the public about the existenceand provision of such codes against which theconduct of judicial officers may be meas-ured;

� Adherence: There is a need to enhance re-quirements for newly appointed judicial of-ficers to subscribe to such a judicial code ofconduct and to agree, in the case of a seri-ous breach ... to resign from judicial or re-lated office;

� Delay: There is a need to ensure reason-ably rapid trials as justice delayed is justicedenied ..." (UN, 2000, Office for Drug Con-trol and Crime Prevention).

3.5. Strengthening and modernizingnational parliaments

Parliaments have a very important role toplay in responding to the emerging chal-lenges caused by globalization and rapidchange. Parliaments are the main forum forreaching agreements and concrete solutionsto compelling problems such as the eradicationof poverty, improvement of health and edu-cation services, public security and admin-istration of justice, as well as the fightagainst corruption, terrorism, drug traffick-ing and international organized crime. Awell functioning parliament is also essentialto ensure that adequate legislation is inplace to protect the sectors of society whichmay be negatively affected by integration in-to the world economy. That is to say, parlia-

ments can play a vital role in setting out leg-islation for the establishment of social safe-ty nets (e.g., unemployment benefits, re-training, relocation benefits). Legislation onsuch compelling social and economic problemsis greatly needed in many countries world-wide.

Thus, strengthening parliament's opera-tional and organizational functions is of ut-most importance as part of a strategy of in-stitutional reforms and as condition for suc-cessful economic integration. It is also a nec-essary device to ensure that a country caneffectively regulate through its own legisla-tion the increasingly complex areas, partic-ularly those related to globalization, that arein need of change. Furthermore, we shouldnot forget that more democracy, more par-ticipation, and greater openness and trans-parency begin with a strong parliament.

The Legislative Power plays a central rolein democratic regimes, especially within thedivision of powers framework, and representsa fundamental institution of constitutionaldemocracies. Yet, its centrality and rele-vance depend to a great extent on how its leg-islative and representational functions are

79


Box III.4

INFORMATION TECHNOLOGY AND THE COURTS IN AUSTRALIA

The Australian judiciary routinely uses electronic means to deliver judgments,to manage proceedings and to assist in legal research. This has offered greatbenefits to the legal profession and those people who come into contactwith the legal system. And it has also opened up the courts to public scrutinyand allowed greater community awareness and understanding of the legalprocess in Australia, particularly the sentencing process in criminal matters.

The High Court took its first, tentative steps into this brave new world in the1980s when it pioneered the use of satellite video conferencing. The FederalCourt was a world leader when it set up its national video conferencingsystem in 1994. The Court was also the first Australian superior court to allowthe recording of judgments for subsequent broadcast the videotaping of awhole trial (Yorta Yorta) for potential televising and the live broadcast of ajudgment (MUA/Patricks Full Court).

The Court now regularly admits the electronic media to record judgmentsand broadcasts sound and vision of judgments on its Internet page. It hassuccessfully conducted a live broadcast of a judgment on both Internet andcable television.1 The Court is now considering regular live broadcasts ofjudgments on the Internet.

Source: Australia, 2000, Attorney-General.

performed. As is well known, the main prob-lems that affect parliaments in a number ofdeveloping countries are their - real or per-ceived - poor functioning, and lack of credi-bility and legitimacy. A weak LegislativePower, without credibility and legitimacymay pave the way to authoritarianism andto an unchecked Executive, leading to whatO�Donnell has called "delegative democracies";that is to say, democracies that are hollowand emptied of their true meaning once elec-tions have taken place (O�Donnell, 1994). Thisis especially true in presidential systems inwhich the mechanisms of checks and balancesin place are weak, and the Executive can rulewith almost unlimited power. The separationof powers, as well as the principle of checksand balances, are the fundamental basis ofa constitutional democracy. As such, its vi-ability and strength depend, to a large ex-tent, on the capacity of the Legislative Pow-er to perform its functions. Strengthening thelegislative body is extremely important to coun-terbalance and ensure appropriate politicalcontrol over the often excessive prerogativesof the Executive. In other words, it is a pow-erful tool to reinforce democracy.

Parliaments perform a crucial role also in oth-er respects, primarily to represent all polit-ical forces of society and to act as a legitimatecentre for consensus building in fundamen-tal decision-making processes. In fact, par-liaments are the principal political locus ofdialogue, confrontation and mediation in ademocracy. Inasmuch as parliament allowsboth the majority and the minority to enjoyfreedom of expression, its members will beable to exercise steadily a representativeand critical role. Parliaments also play a vi-tal role in guaranteeing political stability, andlegal security, and in promoting economic andsocial development.

In many parts of the world where a parlia-mentary culture has not yet developed, par-liaments have been rather weak vis-à-vis theExecutive Power. It is therefore crucial to un-dertake major efforts in order to reinforce par-liaments' capacity to carry out its many func-tions in an efficient and transparent way.

The role of the Legislative Power has becomean issue of great relevance not only in youngdemocracies but also in consolidated ones.Democracy could, indeed, be reinforced withan efficient, participatory and transparentinstitution, i.e. a strengthened parliamentwhich adequately performs its functions,and becomes the forum of strategic thinkingand cooperation, as well as the focal point ofall sectors of the country, and the consensuscenter for fundamental decisions. Parlia-ments should be reinforced so as to allow allgroups and interests to be articulated and rep-resented in a fair and equal manner. A par-liament with transparent procedures, that en-sures the full participation in debates and vot-ing for both the majority and minority rep-resents an essential factor in ensuring theproper functioning of a system of checks andbalances. A parliament where the majoritycan resolve problems while the minority isempowered to express its opinions freelyand vote in an environment of ongoing dia-logue is of utmost importance for political sta-bility.

Parliaments in many regions of the world havegreat challenges ahead: to ensure that all sec-tors of society will be represented, that de-cisions will be taken in an open way, and thatdemands from civil society will be dealt withefficiently.

3.6. Promoting effective decentralization

Promoting decentralization and broad par-ticipation of ordinary citizens in democrat-ic processes is being recognized as an importantingredient of contemporary democracies.Resolution 50/225/1996 of the General As-sembly of the United Nations called for "de-centralization of public institutions andservices", often as a condition of "enhancedefficiency and productivity, accountabilityand responsiveness". More than just in-creasing efficiency, decentralization and peo-ple participation seek to bring governmentcloser to the citizen, where it belongs. Thisis one feature that became a critical objec-tive in the transition process in the countriesof Eastern Europe and beyond. A proactive

80


The Legislative Power

plays a central role in

democratic regimes,

especially within the

division of powers

framework, and

represents a

fundamental institution

of constitutional

democracies

State is needed to provide a solid counter-weight to the dispersion of power but also ofresponsibility that may be the concommitantsof decentralization and devolution of functionsto civil society groups. Under appropriate safe-guards securing the requisite measure oftransparency and accountability, such de-volution of functions is known to have pro-duced beneficial outcomes in terms of mus-tering support and mobilizing resources,both human and material, towards creativeends. However, experience demonstratesthat this is only possible given a solid basisin the constitution and other relevant texts,a clear and consistent legislative framework,and financial resource allocations commen-surate to the tasks. To be sure, decentralizationremains very high on the priority list of re-form of many developing countries.

4. The importance ofstrengthening social policiesin an era of globalization

As mentioned earlier, globalization as tech-nical change not only brings opportunities,but also social costs. It is precisely in the so-cial area where the State can play a vital roleand needs greater reinforcement. The un-derstanding that the State is essential in re-dressing the adjustment costs of globaliza-tion is becoming more widely accepted. In thepast decades, however, more attention wasgiven to economic imperatives than to socialconsiderations. A number of countries and ma-jor international organizations have setgreat emphasis on efficiency, economicgrowth, and market competitiveness over-shadowing, to some extent, the intrinsic val-ues of democracy, equity, human rights andthe quality of life. That is to say, too muchattention was focused on markets and howthey perform rather than on people. As a con-sequence, the debate concerning the devel-opment and the reform of the State hasoverwhelmingly focused on economic effi-ciency and technocratic solutions to politicalproblems, whereas social matters have notbeen given enough consideration. Somethought that social problems could be solvedby delegating a good part of them to the mar-

ket. Others thought that civil society alonecould find solutions to the problems. This ap-pears to be a very promising and interest-ing path, but experience shows that civil so-cieties, in many cases seriously weakened bythe social problems characteristic of the de-veloping world, have significant limitationswhen it comes to confronting those problems.

A special study by Katzman on the topicmaintains that: "It is therefore paradoxical

81


Box III.5

YEREVAN DECLARATION ON DECENTRALIZATION

The United Nations Conference on Decentralization held in Yerevan, Armenia,from 26 to 28 April 1999, focused on Eastern Europe and the CIS. It looked tothe practical facets of policy implementation and sought to elicit lessons fromexperience in these countries. In light of the mixed record and oscillatingfortunes of decentralization in the region as a whole, the Conferenceexplored what, in its view, was needed for the success of reform. TheConference identified four such sets of conditions:

� �First, the critical role that legislative bodies perform as prompters, initiators,monitors and guides of the process of decentralization; the part they play inshaping "an enabling institutional framework" and setting it in motion;

� Second, financial decentralization and creation, for local government, ofan adequate resource base;

� Third, the human factor, which brings institutions to life. By common accord,human resources management and human resources developmentrepresent a critical need, but also a field of activity, which offers greatpotential for regional cooperation. This includes in-service training, but alsopersonnel systems, which must be put in place so that capacity-building mayyield all its potential benefits; and

� Fourth, civil society, to mobilize support for local self-government and helpthe body of citizens to internalize their role as clients, prompters, advocates,agenda-setters, monitors and evaluators of local government services.�

The Conference unanimously adopted a Declaration which underlined theimportance of the following:

� �The catalytic role of decentralization in the transition process anddemocratization;

� The need to pay attention to the specific circumstances of each particularcountry; the problem may be common, but the solutions vary widely fromplace to place. One-size-does-not-fit-all;

� Common to all countries is the need for a strong supportive centre with aview to decentralization. Based on the constitution and other relevant texts,a clear and consistent legislative framework should establish the foundationsfor the distribution of functions and competencies both between the Stateand local self-government and among the various levels of local self-government. Such a division of functions does not preclude a closecooperation among them.�

Source: UN, 2000, ST/ESA/PAD/SER.E/7.

that while a policy takes root that aims toreduce the functions of the State in the areaof protection and social security, in order totransfer them to civil society or to solidari-ty institutions created within the community,the family - as a primordial institution -shows signs of being unable to sustain eventhe most elemental functions" (Katzman,1999). Accordingly, while "the 1990s beganwith the widespread expectation thatachieving sound, market-oriented, macro-economic fundamentals was the ticket tothe prosperity that had long eluded poorcountries, the decade has ended with the morefrustrating but also more realistic under-standing that sound macroeconomics is nota goal but just a precondition" (Naím, 2000,p. 97).

By the end of the 1990s new trends emergedand new evidence suggested that economicand social development are strictly intertwined,and that both affect the quality of a democ-racy and the well-being of its citizens. Eversince there has been a growing awareness thateconomic development is a necessary, but nota sufficient condition for long-term equi-table growth on which human prosperityand progress depend. Although economicgrowth is an essential part of development,it does not by itself lead to human develop-ment or an improvement in people's livingconditions.

It is widely recognized that an increase inGDP does not automatically translate intogreater well-being for all. There may well beeconomic growth, but if its benefits are unequallydistributed it means very little to the vast ma-jority of people in a given country. The persistingdisparities in developing regions of the worldindicate that inequities in income distributionhave not been mitigated by economic growth.

Needless to say, a high concentration of pow-er and wealth in the hands of a few peopletranslates into unequal access to political pow-er and critical resources, to health care andeducation, and to employment opportuni-ties (Griffin and Khan, 1992, p. 1). There isgrowing consensus around the idea that "...social and economic welfare are not separate

concepts. Without economic prosperity, no coun-try can provide for all the social needs of itscitizens. But nor can any country be calledtruly prosperous so long as many of its citi-zens are left to fend for themselves againstignorance, hardship and disease. Nor yetcan any country achieve prosperity by sub-ordinating all social concerns to the achieve-ment of a few quantitative benchmarks.What matters in the last resort is the qual-ity of life - a big part of which is the feelingthat you belong freely to your society, and thatit also belongs to you" (UN, 2000, GeneralAssembly Twenty-fourth Special Session,A/55/344).

As argued by Sen, "development can be seenas a process of expanding the real freedomsthat people enjoy. Development requires theremoval of major sources of non-freedom: pover-ty as well as tyranny, poor economic oppor-tunities as well as systematic social depri-vation, neglect of public facilities as well asintolerance or over-activity of repressiveStates" (Sen, 1999/a, p. 3). Expanding per-sonal freedoms implies that people havegreater opportunities to make choices inevery field, and to participate in everysphere of public life. To enjoy such freedoms,people must be free from avoidable illness,free from ignorance, and have reasonably ad-equate living conditions. As emphasized inthe Declaration of Human Rights, article22: "everyone, as a member of society, has theright to social security and is entitled to re-alization - through national effort and in-ternational cooperation and in accordance withthe organization and resources of each State- of the economic, social and cultural rightsindispensable for his [or her] dignity and thefree development of his [or her] personality".

The problem which confronts many developingcountries is that until now macro-economicpolicies, deregulation, and privatizationhave not been coupled with similar reformsin political and social areas. In many cases,low consideration has been given to im-proving health care, education, and public in-frastructures. This, in turn, has made it dif-ficult for many countries to elude the socialcosts of globalization, including the reper-

82


Although economic

growth is an essential

part of development, it

does not by itself lead

to human development

or an improvement in

people's living

conditions

cussions of economic and financial instabil-ity. In some developed countries, cuttingback on social expenditure has also meantmore insecurity in the face of change en-gendered by globalization.

There would seem to be ample space for areassessment of the role that public policiescan play in the developing world in dealingwith social problems. It is not simply a caseof returning to the omnipotent view of theState, but of thinking about a different statemodel: a State which is articulated into pro-ductive networks with civil society in all itsmanifestations, and with the same poor com-munities all together trying to find really validsolutions to problems. UNDP has outlined abroad plan involving lines of action that gov-ernments ought to promote and amongwhich are the following:

� "To ... increase opportunities as a priorityof economic policy.

� To eliminate biases against the poor in themacroeconomic framework.

� To invest in the capacity of the poor by re-structuring public spending and taxation.

� To make sure the poor have access to pro-ductive resources, including loans.

� To increase the productivity of small-scaleagriculture.

� To promote micro-enterprises and the non-structured sector.

� To emphasize industrialization ... to increaseemployment opportunities" (UNDP, 1999, Hu-man Development Report).

In order to reduce inequality in developingcountries, McGovern proposes implementingthe following measures through alliancesamong governments, companies and NGOs:

� "To build up human capital through edu-cation and by ensuring that the poor haveaccess to education. It has been shown thateducation is the most important asset on which

the disparity of income is based, and that salarydispersion among the skill levels has be-come quite significant.

� To make sure that clean water, healthservices and housing are accessible to the poor.

� To make available more financial assets andproductive resources to the poor and gener-ate productive and remunerative employ-ment for them.

� To reduce inequality by progressive taxa-tion of income and other redistributive poli-cies.

� To transfer income and adopt other protectivemeasures for society during periods of ad-justment and crises and implement pro-grammes to fight poverty and for the bene-fit of the poorest members of society" (Mc-Govern, 2000).

A State with renewed organizational lines isneeded to put into practice policies with theabove characteristics. The experience of thelast decades has shown the need for publicpolicies, but has also brought to light the ur-gency of updating government executorystructures and of overcoming their inflexibilityand inefficiency in many cases.

States need to address the many social prob-lems that are arising as a result of global-ization. Stronger institutions and more eq-uitable social policies are greatly needed indeveloping countries not only because theywill enable the market to flourish and willreduce the effects of global instability, but al-so because they will lead to an improvementof people's living conditions. "It is now wide-ly recognized that market-driven globaliza-tion by itself will ensure neither fairness norsocial progress ... The asymmetric distribu-tion of benefits and risks arising from glob-alization warrants a global 'social contract'between developing and developed coun-tries, based on genuine solidarity and sharedresponsibility" (UN, 2000, Millennium Report,A/54/2000, p. 9).

83


The problem which

confronts many

developing countries is

that until now macro-

economic policies,

deregulation, and

privatization have not

been coupled with

similar reforms in

political and social

areas

4.1. Reinforcing social capital

Several recent studies have reaffirmed theimportance of building social capital to-gether with the need to strengthen the ca-pacity of the State for social development. Af-ter its 1990 landmark report on Poverty, theWorld Bank, in a document significantly en-titled "The State in a Changing World", gaveprominence to the concept of social capital,which it associated with citizen involvementin local public affairs and the impact of in-vestments in education and health on eco-nomic performance (World Bank, 1997, pp.114-118). Experts in public administration cri-tiqued the fact that all too many countrieshad not placed "social development at the topof the development agenda" (UN, 1997,E/1997/86, p. 32). They called on the Stateto reclaim its "central role in the formulationof public policies" (ibid., p. 30), also remind-ing governments that "return on invest-ments in human resources are, in some cas-es, higher than those in physical assets" andthat "countries whose contribution of in-come and assets is more equal have been grow-ing more rapidly than those where distributionis unequal" (ibid.)

Considering the extent of global interde-pendence, reinforcing public trust and build-ing social capital must be viewed as essen-tial, not merely for the purposes of nation-al development, but also of global peace. Ex-perience demonstrates that building publictrust requires concerted efforts to meet thechallenges of poverty, inequality and socialexclusion. These phenomena have not beentackled with efficiency in recent years, rep-resenting a real threat both to individual coun-tries, where they prevail, and also to globalsociety. No day goes past without a stark re-minder of this threat. International cooper-ation among strong, proactive States istherefore urgently needed to begin address-ing this problem effectively.

To be sure, there is no more important taskthan building social capital in a knowledge-based society. Countries that want to bene-fit from globalization must invest in educa-tion, and in upgrading their people's skillsand knowledge in order to be competitive inthe global economy. Learning is the indis-pensable investment required for success inthe �information age� we are entering. As ar-gued by Reich, "policy makers have failed tounderstand that a nation's real technologi-cal asset are the capacities of its citizens tosolve complex problems of the future. It istheir knowledge, their contribution to the worldeconomy which determines a country's pros-perity" (Reich, quoted in Beck, 2000, p.137).

It is noteworthy that developing countrieswhich have given priority to education andhuman development are also those thathave prospered the most economically, andhave been able to integrate more rapidly in-to the global economy. "Whereas almosteveryone in South Korea, Taiwan, Singa-pore, and Hong Kong received a high-schooleducation when their countries' exportdrives began decades ago�, in many regionsof the developing world half of the popula-tion never makes it to fifth grade (BusinessWeek, 2000, 6 Nov., pp. 72-100). Not sur-prisingly, Latin America and South Asia arehit by great poverty. Africa suffers from oneof the lowest levels of education in the worldand has so far not been able to reap the ben-

84


Graph III.2. Share of government budget spenton basic social services (%)

0 5 10 15

Latin America and theCaribbean

Sub-Saharan Africa

Asia

Source: World Bank, 2000/2001.

Basic educationBasic health and nutritionLow-cost water and sanitation

efits of globalization. Accordingly, educationmay be said to be one of the most significantfactors in determining a country's capacityto participate in the new global economy, aswell as a tool for people to obtain higher lev-els of quality of life. Only if people have ad-equate levels of education, access to healthcare, and adequate living conditions canthere be a vibrant society and economy.There can be no true development withoutsocial development.

Developing social capital is also indispensableto create or reinforce domestic marketeconomies. Fostering policies aimed at en-hancing the level of education and techno-logical knowledge of citizens is of paramountimportance in creating a workforce that isup-to-date, prepared for change and capableof seizing the many new opportunities of aglobalizing world. Combating poverty and po-larization in terms of power and wealth isextremely important. In the absence of a well-developed middle class, the entrepreneurialforces will be limited, as will the rate of con-sumption and savings, hindering economicprogress. This means that "for the manyemerging countries that already have the in-stitutions and income levels to attract pri-vate capital and the education levels to pros-per in the new information age, the privatesector will fuel continued economic devel-opment" (Cutter, Spero and D�Andrea Tyson,2000, p. 93). For those countries that lack cer-tain fundamental conditions, such as basic ed-ucation for all, training opportunities, adequatepension systems, health care benefits andsafety nets, people-centred economic growth- essential for prosperity - will lag behind.

Official development assistance (ODA) couldplay a significant role in this respect. Fundscould be directed towards critical social ar-eas and building public infrastructure.Loans from major international financial in-stitutions could also include human or socialconditions. Until now, conditionality hasbeen imposed to monetary, fiscal, exchange-rate, and trade policies. As argued byStreeten, "it has more recently been appliedto environmental, political and humanrights policies and international reform poli-

cies (under the "banner" of governance), al-though funds have not been added. ... Hu-man or social conditions could also be added.Indeed, it can be argued that these shouldhave higher priority, because the effects ofeconomic variables are not a matter of sci-entific certainty but the obligation to reducehuman misery is a moral certainty"(Streeten, 1996, p. 32). Whether recipient coun-tries would see this as an infringement ontheir sovereignty and object to such condi-tionality is a matter for concern, but onethat must be addressed.

Finally, education, especially civic educa-tion, is a fundamental pre-requisite in anycountry in order to enhance citizen's partic-ipation at all levels. Education and trainingdeserve special consideration since they areinvaluable instruments in building self-re-liance in the face of the economic turmoil thatglobalization can engender, particularly in cer-tain parts of the world. In other words, so-cieties must be ready for change, and edu-cation programmes can play a major role inresponding to the challenges of globalization.

4.2. Public services for everyone: adesirable goal

Poverty is not simply related to employmentor the income of a family group. A core com-ponent is the actual access to basic public serv-ices. For example, a key risk factor in pub-lic health in developing countries is the lackof access by the poor to services that shouldbe guaranteed for the entire population,such as sanitation, electricity and potable wa-ter. The same occurs in the vital field of ed-ucation. If public policies do not actively in-tervene to facilitate universal access togrammar and highschool education, there willbe significant imbalances among the differ-ent social sectors that will strengthen the re-production of the "perverse circles of in-equality". Also, without active public policies,only children from the upper and middleclasses will be able to attend pre-school - to-day considered to be an imperative and vi-tal step in the educational process - while theimportance of access to education will pro-gressively increase. An Uruguayan research

85


Societies must be

ready for change, and

education

programmes can play

a major role in

responding to the

challenges of

globalization

study (Katzman, 1999) concluded that, in Mon-tevideo, in 1981, young people between 20 and30 years old needed 9 years of schooling tomaintain a family, without sinking intopoverty. At present that figure has risen to17 years of education.

The notion of public services should also in-clude the progressive idea, present in the in-dustrialized world, of the necessity of guar-anteeing the so-called caregiver services,such as day care for children, care for the eld-erly, nursing care, support for the family ingeneral, and protection in the event of a cri-sis. In different countries some of these serv-ices are provided by women, who already havea seriously overloaded workday withoutrecognition or remuneration, resulting insignificant gender-linked inequalities.

One of the central missions of a democraticand effective State is to ensure that every-one has access to basic services of appropri-ate quality. Most importantly, States need toadopt an integrated holistic approach to de-velopment and to focus on inclusion policies- starting with education for all, especiallywomen and marginalized groups. Universalaccess to health care, and social protectionfor the unemployed, elderly and those withdisabilities should be a priority not only indeveloping countries, but in any democrat-ic country as well.

4.3. Establishment of an information system to design andmonitor social policies

What are the poverty levels distributed byregions and districts in a country? What arethe diverse forms of poverty? What is the of-fering of social services available in eachdistrict in comparison with the magnitudeof the demand? How are the basic socialvariables evolving from the employment lev-els, the types of employment, all the waythrough to the costs of the staples of dailyliving. What are the social impacts of the di-verse economic policy alternatives? Whateconomic effects can the different social poli-cies, in turn, have on production?

These and many other key questions for the ad-equate formulation of social policy are difficultto answer in many developing countries becauseof the lack of organic systems for generatingspecialized information about the social area.This leaves all social decision makers in a sit-uation where they must use information gen-erated for other purposes, as well as data thathas not been updated or of doubtful quality, alongwith the fundamental problem of monitoring.Efficient social management requires the gen-eration of information in real time, on the ba-sis of which the results and concrete impactsare being produced. Unplanned effects often ap-pear in the social sphere, some of which maybe negative and others positive. This is high-ly unpredictable ground and monitoring satisfiesessential functions.

The establishment of social information sys-tems with modern methodologies, data pro-cessing and ongoing contact with realityshould be one of the axes of social institutionalrenewal.

4.4. Inter-organizational management of social programmes

Poverty and vulnerability derive from setsof mutually interacting problems. The de-termining factors of deprivation, which af-fects vast sectors of society, act by reinforc-ing each other. Thus, families in crisis becauseof the burden of poverty, will lead to low per-formance at school by children or cause themto drop out. This in turn will make it diffi-cult for these children, when they grow up,to obtain stable employment and raise soundfamilies. Public policies must be adapted tothe structural nature of poverty if they areto really impact it. If they act in isolated man-ner, focusing on a specific factor, the possi-bility of these policies exerting any type ofinfluence will be severely limited. The great-est productivity and impact of social policiesand programmes is found in the organizationalintegration of efforts. Comparative experienceclearly indicates that the most successful so-cial programmes are those that have targetedthis substantive combination of differenttypes of efforts. Thus, for example, the pro-grammes with the greatest impact in re-

86


One of the central

missions of a

democratic and

effective State is to

ensure that everyone

has access to basic

services of appropriate

quality

ducing the grade school drop-out rate, are nev-er those programmes whose focus is strict-ly limited to "education", to acting only in theclassroom. Successful programmes combineactions focusing on family groups, nutrition,and other dimensions, and the most usefulpreventive health programmes are thosewith an approach that is not exclusivelymedical, but rather actively incorporate ed-ucational, cultural and psycho-social variables.

In many developing countries, the governmentstructures are designed and geared almostcounter to what has been recommended.Everything is set up for isolated sector ac-tion. Much work goes into carefully tracingthe boundaries among the different min-istries. The spheres of influence of the Min-istry of Health, or Education, or those deal-ing with gender, youth, families, or housing,are formally delimited with great detail.Each ministry zealously defends its jurisdictionand tries to keep the others from invadingits territory. An infinity of "towers and bu-reaucratic drawbridges" are raised to preventaccess by strangers. In the social area, thisis contrary to the basic logic of social poli-cies. Coordination is not only desirable; it isindispensable so that serious action can betaken with respect to the multiple manifes-tations of poverty and vulnerability. If the min-istries and agencies do not integrate actionsthrough inter-organizational formulas, therewill be a deficient use of resources and verylean results. Systematic work is imperativeso that the transition can be made from a cul-ture of "bureaucratic castles" to one of "or-ganizational networks".

4.5. Toward decentralizing socialservices

Decentralization of functions, responsibilities,and resources toward levels that are closerto the citizens appears to be the route to or-ganizational renewal of the traditional Statewith multiple virtues. Many of its advantagesappear to lie in the social field. Action in ar-eas such as health, education, the fightagainst poverty, strengthening of the fami-ly, preventing delinquency, and ensuringcompensation for people who are displaced

because of economic restructuring causedby greater economic openness, will be morein tune with reality if such action takesplace at the local level. It will no longer bea question of long-distance decisions emanatingfrom large urban centers, but of actions thatlocal institutions will take on a daily basis,bearing in mind the variations in the reali-ty of each area. Decentralized social actionwill make it easier for "face-to-face" contact,which is very relevant in the social field. Con-ditions will also be created that are the mostconducive to citizen participation in social pro-grammes, and there will be increased viabilityfor an effective social monitoring of suchprogrammes. The inter-organizational inte-gration mentioned earlier will be easier toimplement on the more limited municipal lev-el.

However, international experience hasshown that all these virtues may not bepresent in their entirety or even partially, ifcareful attention is not paid to certain risksinherent to the decentralization processes inthe developing world. In many cases, thereare marked asymmetries among municipal-ities. If measures are not taken in the resource-transfer processes to ensure regional balance,with a positive bias in favour of the weak-est, decentralization could worsen the pre-existing situation. Central government mustguarantee equity. The delegation, for exam-ple, of taxation powers to finance healthcareor education could have very different resultsdepending on the actual capacity of the dif-ferent types of municipalities to collect tax-es. A different risk is one derived from an-other type of asymmetry or the degree of so-cial polarization toward the interior of theregional jurisdictions and municipalities. Inmany cases there are small, local "oli-garchies" that from time immemorial havecontrolled the functioning of local society. Ifdemocratizing conditions are not achieved,it is most probable that decentralization willbe "taken over" by those minorities for theirown interests. Another problem is the degreeof actual capacity of the municipalities to im-plement social policies. The intention of thecentral government and of the municipalmayors to decentralize, is insufficient. A lo-

87


Decentralized social

action will make it

easier for "face-to-

face" contact, which is

very relevant in the

social field

cal, social, institutional framework must al-so be developed. Numerous municipalities inthe developing world either have no insti-tutional area specializing in social matters,or else it is part of another area. It is nec-essary to begin social "institution building"on the municipal level and to provide up-to-date training to local human resources to man-age the programmes.

In a recent study, ECLAC included warningsregarding some of the risks identified abovein the case of Latin America. ECLAC stress-es a point that can also be applied to otherregional realities: "Theoretically, decentral-ization offers advantages derived from a lo-cal provision of services that promotesgreater responsibility and better control byusers and by the respective communities, whichcan translate into more efficient social man-agement. In view of the disparity of incomeand availability of human capital in rural ar-eas of the countries of the region, this trans-fer of social responsibilities could have a se-rious impact in terms of territorial equity"(ECLAC, 1999).

Steps should be taken to advance along theroad to decentralization, but it is also nec-essary to adopt policies to confront the risksin question.

4.6. Community participation: astrategic key for renewing the social institutional framework

Comparative results are conclusive. Social pro-grammes with active community participa-tion in their design, management and eval-uation have better results than programmesof a vertical bureaucratic nature. Amongothers, a study by the World Bank analyzedthe performance, under different organiza-tional modalities, of 121 projects for supplyingpotable water to groups of poor farmers in49 countries in Africa, Asia and Latin Amer-ica. Those projects with a high rate of com-munity participation also had a high returnin 80 per cent of the cases, and an averagereturn in 20 per cent of the cases; that is, noneof these projects recorded a low yield. How-

ever, among the projects with a low rate ofcommunity participation, only 2.7 per centrecorded a high yield; 40 per cent recordedan average yield; and 57.3 per cent a low yield.The most successful projects of recentdecades, such as those of the Grameen Bankin Bangladesh, the EUUCO schools in Cen-tral America and Villa El Salvador in Peru,all are eminently participatory (Narayan, 1994).

Participation contributes very specific elementsto the organizational process, which influencethe differences cited. Among others, the co-design of projects with the poor communityallows it to incorporate its true priorities. Thecommunity's participation in managing theproject also gives it a singular strength.When the community feels that it owns a proj-ect it also takes the initiative, contributes ideas,and takes an interest in each detail of theproject. The community's integration intomonitoring and evaluating the project givesthat project a permanent "base" in reality.Those benefiting from the project will con-sistently provide feedback as to whether ornot targeted goals have been reached and towhat degree, as well as what modificationsor corrections need to be made. Communityparticipation ensures the transparency ofthe project and perhaps, above all, ownershipby the community generates an increased im-portance of such ownership. The communi-ty learns and its self-esteem grows as thegroundwork is laid for the sustainability ofthe project once external aid is withdrawn.

However, despite the noteworthy managerialadvantages added to the already importantpositive consequences of democratization,in developing countries participation in so-cial projects is advancing in limited fashion.Government spokespersons often claim to agreewith democratization and numerous publicpolicies proclaim it, but in practice thereare strong impediments to and difficulties inachieving democratization and the accumu-lated frustrations of poor communities areuncountable.

One of the most important organizationalchanges needed in the transformation of theState is to replace the current underhandedly

88


Social programmes with

active community

participation in their

design, management

and evaluation have

better results than

programmes of a

vertical bureaucratic

nature

anti-participatory "bureaucratic" culture, withone that is really interested in participationand willing to promote it. This is not simplya problem of form. Change will not beachieved through decrees or regulations: itis something more profound. There is anentire organizational culture based on hier-archy and verticality, with a strong author-itarian stamp, that clashes with the call fora consultative, shared and democratic man-agement, implicit in participation. Suchchange is possible if the appropriate strate-gies are used. There are already diverse ex-periences in joint work between public serv-ice and the community with excellent resultson a number of fronts, such as the interna-tionally recognized participatory municipalbudget in Porto Alegre, Brazil. Significant ex-periences with officials themselves partici-pating in managing their own organizationsare beginning to emerge. From the outset thiswill establish the bases for a culture thatfavours community participation, such asthe one that is being implemented in the Cana-dian social service.

In addition to all the previously mentionedand other ancillary advantages, participationhas another very relevant advantage that isconnected with the preceding point: decen-tralization. The sum of decentralization pluscommunity participation is a powerful com-bination. Active intervention by local com-munities in the decentralization processes byparticipating in the design of policies, man-agement and evaluation of the municipali-ty creates conditions that are more con-ducive to ensuring that the basic elementsof decentralization are achieved. This ac-tive intervention prevents decentralization frombeing taken over by the power elites, and pro-motes and supports actions by civil servants,enriches managerial capacity, is a powerfulanti-corruption measure, and contributes ahighly efficient evaluation mechanism.

4.7. The focus of social management

An intelligent, democratic State should haveexceptional ability in the area of social man-agement. What is social management? Is itgood business management? There appear

to be managerial problems in the social areathat are similar to some that appear in theregular management of any organization; how-ever, there are also other, very specific prob-lems, that merit particular attention and re-quire the use of appropriate technical crite-ria in solving them. Some problems arise fromthe preceding points. A socially efficientmanagement should give preference to com-munity participation; decentralize towardregional and municipal governments; promotethe establishment of inter-organizationalnetworks toward the internal workings of thepublic sector and inter-social networks withother actors from society; systematicallypractice transparency; generate ongoing in-formation regarding social matters (as wasrecommended above); and, as a body, moni-tor and evaluate programmes. All this un-derscores the need for capabilities, attitudes,orientations and very specific managerialcriteria, which must be well differentiated fromthose of the traditional hierarchical man-agement. In the latter case, participation, de-centralization and networks have a limitedmeaning; in social management they arethe key to success.

Furthermore, to all the preceding we shouldadd that the organizational mission of socialmanagement is singularly complex. The tar-get objectives of social policies and pro-grammes are not similar to those of other or-ganizational fields. What is sought is to en-sure that the programmes are efficient in termsof utilization of the usual target resources,but at the same time that their final impactson poverty and related problems be those thatare really expected, which implies anothertype of efficiency: that of a quantitative/qual-itative type. In effect, the aim is to have theprogrammes contribute to improving equity,a crucial topic today for the developingworld. Therefore, those programmes must ad-dress multiple considerations regarding whothe final beneficiaries will be. It is also hopedthat the programmes will be self-sustaining.This is a very relevant point. Internal reportsof the World Bank indicate that about 50 percent of the Bank's projects do not satisfy thiscondition. Five or six years after the completionof the project, when the international or-

89


Active intervention by

local communities in

the decentralization

processes ... creates

conditions that are

more conducive to

ensuring that the basic

elements of

decentralization are

achieved

ganization had withdrawn, the flow of ben-efits to the community was interrupted be-cause the strengths needed for the self-sus-tainability of the programmes had not beendeveloped.

However, the dynamics of social pro-grammes in progress appear to differmarkedly from what happens in other or-ganizational fields. The programmes arecharacterized by a high degree of volatility.Multiple actors participate in them, pa-tronage as well as economic and political in-terests come into play, and the poor com-munities have basic instabilities. All these,plus other factors, contribute to the contin-ual appearance of variations, some of whichpose heretofore unforeseen obstacles whileothers generate opportunities from whichbenefit can be obtained. Describing the sit-uation, Dennis Rondinelli observes, afteranalyzing numerous programmes imple-mented by international organizations indeveloping countries: "Regardless of howcomprehensive the planning of a project, orthe way in which the technical analysis wascarried out, rarely is there a comment thatthe problems encountered could not have beenpredicted" (Rondinelli, 1983).

States need a social managerial approach toaddress all these details: the specific missionof social programmes, high volatility dy-namics, orientation to participation, decen-tralization, and the establishment of networks.This would presuppose the specialized train-ing of social managers with the skills to seeto such details, and a general organization-al culture that gives priority and is ready toconfront them.

An in-depth reform of the State in develop-ing countries is essential for development. Re-forms should encompass a clear orientationtoward basic public services for everyone; thecreation of a strong and efficient institu-tional framework; the establishment of an in-formation system to design and monitor so-cial policies; safety nets; inter-organization-al links; decentralization; broad communityparticipation; inter-social networks; trans-parency; and a social managerial approach.

What basic conditions are needed to steer re-forms in this direction and transform the Stateinto the kind that is required to implementinnovative public policies, much like thoselisted above, and that will make it possibleto confront the extremely serious problemsof exclusion that are rampant today in de-veloping countries? (UNDP, 1999, Human De-velopment Report). Following are some finalcomments on this problem.

An essential underlying condition for mak-ing progress in directions of this type ofmanagement is the requirement that thereform in the roles and characteristics of theState have the solid backing of society. In-sofar as the reform of the State is concerned,experience has repeatedly shown thatchanges introduced by just technical ra-tionality "come up short". It is possible to eas-ily prevent or reverse them. In-depth re-forms require active social and political sup-port. In this case the support can be convened,given the objectives, which are to have a gov-ernment that can actively and efficientlyhelp to confront poverty, the gaps in healthcare, inequality, differential access to tech-nologies, vulnerability and other alarming so-cial phenomena such as the vertiginous in-crease in criminality. However, in many de-veloping countries, a broad debate regardingvery relevant aspects of the problem must beopened up and promoted. There appears tobe a consistent tendency to see social deficitsas lamentable but postponable problemsthat will automatically be resolved by "aflow of benefits" which will occur when theeconomic recipes, favoured in recentdecades, are adopted. From this point ofview, the social is seen to be basically an ex-pense that is necessary primarily for politi-cal reasons, but which should be limited be-cause it diverts resources from the economy.

Progress has been made in recent years inthis debate, but there is still a long way togo. It has been demonstrated that socialproblems cannot be resolved by means of a"flow". The losers continue to increase andthe winners expand the gap between them-selves and others. A typical case is Latin Amer-ica. Birdsall and Londoño have demon-

90


An in-depth reform of

the State in developing

countries is essential for

development

strated that such is the weight of inequali-ty in social development that the high rateof poverty would be half of what it is if theinequality levels (likewise high) of the ear-ly 1970s had been maintained and if they hadnot risen as fast as they did. Therefore, thesuggestion is that if the efforts that are in-dispensable for ensuring that an economygrows, and has stability, technologicalprogress and competitiveness are not ac-companied by energetic social public policies,the social deficits will not be resolved (Bird-sall and Londoño, 1997). Social policies arenot stopgap measures while waiting for the"flow" to begin, but are a fundamental com-ponent for balanced development.

However, the debate to be initiated in the de-veloping world must go further. What needsto be discussed is basically that social ex-penditure is not just a cost, but also an in-vestment. To consistently earmark resourcesover time for the development of education,to increase the number of years of schoolingand the quality of the curriculum, to improvepublic health rates and expand the areas wherepotable water and sanitation services are avail-able, is to strengthen the most valuable re-source of any economy in the XXI century:the quality of the population. In other areas,as was already mentioned, access to basic con-ditions for competitiveness is strongly linkedwith the average level of the labour force ina country. In recent years, diverse "hi-tech"investors selected a Latin American countryfor their businesses; specifically Costa Rica,small and with limited natural resources. Adecisive factor in making this selection wasthat it is one of the few countries which hassystematically invested over the decades inhealth and education, has a well qualified pop-ulation and a solid sanitation system.

Social policies, besides being indispensableto confront the deficits in this area are, inaccordance with modern development views,a powerful lever for healthy growth and in-tegration in the world economy. As AlainTouraine points out: "Instead of compensat-ing the effects of economic logic, social poli-cies should be perceived as an indispensablecondition for economic development"

(Touraine, 1997). It is necessary to promotethis great debate in developing countriesbecause it will create a firm support baseamong citizens for the extremely necessarysocial reform of the State.

Another fundamental condition for progressin this reform is to confront another type ofpowerful reasoning that may be found in de-veloping countries. One often hears theclaim that it is impossible to do anything ofimportance in the social area because of thesevere restriction of resources. Developing coun-tries have scant resources and are con-demned, according to this line of reasoning,to having a significant part of their popula-tion live in poverty.

Without a doubt, the topic of resources is fun-damental. Absolutely everything possibleshould be done so that developing countriescan grow at the highest possible rates, haveeconomic stability, attract investments, andadvance technologically. However, Sen pos-es a structural question in this regard: howcan we explain that certain countries withper capita gross products lower than thoseof other countries, nonetheless have a bet-ter life expectancy, which is a decisive indi-cator? (Sen, 1998). The Nobel Laureate in Eco-nomics maintains that life expectancyshould be considered a very important indi-cator of economic success or failure.

A condition for progressing toward the typeof State required now has nothing to do withthe discussion of the overall environment, butwith the direction reform takes. Reformmust respect the diversity of national con-ditions. The strategy should be selective andgradual. Reform styles should not be elitist,nor vertical, and it is necessary to involve pub-lic officials in the reform. The State, with itsparticipatory attitude regarding what itwants to achieve, should be participatory notonly from the inside out, but also from theoutside in.

A very crucial aspect of reform is to resumethe ethical discussion of the public function,which has been relegated to the sideline inpurely technocratic reforms.

91


What needs to be

discussed is basically

that social expenditure

is not just a cost, but

also an investment

Who should public policies serve? What eth-ical dilemmas have been posed? Whatshould the code of ethics of the civil servantencompass? The fact that the civic servantneeds to feel that his or her work has the po-tential of serving the community and takepride in the work being done, should be top-ics of discussion.

What could be the stimulus for creating con-ditions, such as those mentioned above, thatmight favour reform? How to promote an im-portant public debate about the priorities ofsociety, the role of the social sphere, the al-lotment of scarce resources, participatoryreforms toward the outside and also insidethe civil service framework, ethics and ad-ditional related topics?

It would seem that much can be expected fromthe ongoing strengthening of democratizingprocesses, with respect to which importantprogress has already been made in develop-ing countries. The call for genuine partici-pation has grown increasingly, and slowly butsurely the fundamental conditions fordemocracy are improving. Civil societies arebecoming stronger and their role in decen-tralized entities such as municipalities is grow-ing. There is ever closer monitoring of pub-lic actions, more vigorous demands for theefficient functioning of the justice system andof other key institutions, and repudiation of

corruption is on the rise. As Sen points out,one of the consequences of democracy is thatit generates "political incentives for deci-sion makers to respond positively to theneeds and demands of society" (Sen, 1999/b).The more active democracy is the greater andmore effective will be the pressure of theseincentives on the decision makers. Sen's ex-ample is well known.

The vast contingents of people living inpoverty, the extensive sectors of the populationthat are being left out of the virtual worldand which are therefore forming a new dis-advantaged group or the "cybernetic illiter-ates" who cannot take full advantage of glob-alization, the people affected easily by eco-nomic and natural crises, demand immedi-ate answers because they embody immensesocial suffering. As Pope John Paul II saidin 1999: "the problem of poverty is urgent andcannot be left for tomorrow".

A more socially proactive State, supported bydemocratization processes, can play a veryimportant role in the face of the countless prob-lems that afflict developing countries. The les-sons and warnings that can be gleaned, par-ticularly from world experiences in the lastdecade, are that the development of capabilities,in terms of institutions and high level gov-ernment skills and leadership, have rarelybeen important for everyone.

To be sure, globalization calls for improvedarrangements for global governance. It alsorequires the �development of appropriatepolicies, at national, regional and communitylevels, for optimal use of the global economyin the interest of ... human welfare and de-velopment� (Helleiner, 2000, p.6). Political so-lutions to the many challenges posed byglobalization need to be pursued at these threedifferent levels of governance, possibly in syn-ergy, if we want globalization to work for all.

The failures of the past coupled with the needto make globalization more equitable call fora people-centred approach to globalization.As expressed by the Secretary-General of theUnited Nations, "no shift in the way wethink or act can be more critical than this:

92


Graph III.3. World Health Indicators 1997

26 richest countries 49 poorest countries

Life expectancy at birth

78 (in years) 53

Deaths before age 50

8 (% of total deaths) 73

Deaths before age 5

8 (for every 1000 births) 144

Infant mortality

6 (death in the first year of life 100

for every 1000 births)

Source: World Health Organization, 1998.

we must put people at the centre of every-thing we do" (UN, 2000, Millennium Re-port, A/54/2000). We need this vision to copewith the challenges of globalization and totackle the social issues that undermine hu-man development and prosperity both indeveloped and developing countries.

Social, ethical and environmental valuesought to be included in our economic calcu-lus if we want to preserve the earth for fu-ture generations and if we want globaliza-tion to bring prosperity for all. This impliesrethinking the role of the State in develop-ment and in social policy. The latter, in turn,entails strengthening State institutions,rather than "shrinking" the State.

5. The case for robust multilateralism

In a rapidly integrating world, cooperationamong nation-States is increasingly neededto confront complex world issues. Many of theproblems afflicting the world today (such aspoverty, environmental pollution, economiccrises, international organized crime) aretransnational in nature, and cannot be dealtwith exclusively at the national level, nor byState to State negotiations (Meny, 1999).The Millennium Assembly stated: "If we areto capture the promise of globalization, whilemanaging its adverse effects, we must learnto govern better, and govern together" (UN,2000, Millennium Report, A/54/2000). Pro-tectionism is not a viable option. As inter-connections increase and decisions taken inone country have lasting effects on otherparts of the world, cooperation and policy co-ordination among States is increasingly cru-cial to manage effectively global issues.

With globalization there is a growing needfor international agreements and standardsin a number of relevant areas, such as theenvironment, labour rights and humanrights, as well as the fight against organizedcrime. Thus, "many functions of govern-ment, in particular the supply of publicgoods and the pursuit of social objectives, willsomehow have to be undertaken at the glob-

al level" (Helleiner, 2000, p. 5). This impliesthat inter-governmental institutions willplay an increasingly vital role in these andother areas that were previously the do-main of individual governments. For exam-ple, there is no doubt that prevention, con-trol and repression of cross-border organizedcrime can be dealt with only at the interna-tional level. Only concerted action among Statescan effectively curb such illegal activities astrade of body organs or of children andwomen. Poverty, violations of human rights,social degradation, the spread of diseases suchas HIV/AIDS, just to mention a few, also de-mand global responses since they have glob-al implications.

It is increasingly evident that social policiesare no longer only a matter for national con-sideration, but also for global governance. "Dif-ferent societies have different preferences for- among other things - income distribution,welfare provision, cultural diversity, work-er protection, and structures of education.Nonetheless, societies increasingly interactand cannot function in isolation. Failures ofsocial development resulting, for example, ininvoluntary mass migration cannot be con-fined within national boundaries" (Com-mission on Global Governance, 1995, p. 143).Similarly, global warming, massive defor-estation, and depletion of natural resourcesare phenomena which also require multilateralsolutions because their negative effects arenot confined to one region or State.

In order to respond to globalization, nation-al economic governance regimes must besupplemented by regional and global economicgovernance regimes. The management ofthe global economy requires complex globalgovernance systems. The global governanceframework entails a number of basic op-tions, namely:

�Creation of a world government, whichwould establish legal and institutionalframeworks for global economic governance.This extremely controversial option is high-ly unrealistic in the foreseeable future;

�Creation of international institutions,

93


A more socially

proactive State,

supported by

democratization

processes, can play a

very important role in

the face of the

countless problems that

afflict developing

countries

which are based on the pooling and delega-tion of national sovereignty rights in certainfunctional policy areas. At present, this ap-proach is encountered only in economic in-tegration processes, notably within the Eu-ropean Union;

�Global economic governance without aglobal government. This option is based onvoluntary agreements between sovereignnation-States, which create internationaleconomic regimes (global economic gover-nance regimes) for specific policy areas, suchas international trade, international finance,as well as international investment andcompetition. These global regulatoryregimes establish relevant principles, normsand rules for international transactions; and

� International coordination of national eco-nomic policies. This option is limited at pres-ent to certain policy areas and a small groupof countries. In light of present realities, thedevelopment of international economicregimes seems to be the most promising op-tion in dealing with economic globalization.Such global economic systems are based oninter-governmental agreements and admin-istered by inter-governmental economic or-ganizations based on international econom-ic law.

The establishment of principles, norms andrules, which guide the actions of economicagents in international transactions (cross-border policies) is greatly needed in an in-creasingly interdependent world. Global eco-nomic governance regimes include mechanismsfor supervision of policy implementation andthe settlement of disputes. Despite theirfragmented nature and lack of comprehen-sive and consistent global regimes, theseglobal regulatory regimes form the back-bone of an emerging basic global economiclegal framework. To be sure, the presentglobal economic governance system consistsof a loose set of functional regimes with gapsand missing links. Despite its limitations, thefunctional system in international trade isnow the most advanced, whereas the inter-national regime related to capital flows is cur-rently the subject of debate. Comprehensive

regimes on international investments and com-petition are also still lacking. Increased ef-forts are required to build a global econom-ic governance system, which is adequate tomanaging a globalized economy.

The governance of the global economy islargely predicated on national economic poli-cies supplemented by regional and global eco-nomic governance regimes, for differentfunctional policy areas such as trade and fi-nance. Arrangements at the regional level al-so attempt to respond to the pressures of eco-nomic globalization; these arrangementsneed to be linked with compatible globalregulatory regimes. The complexity of the glob-al economy creates equally complex problemsof global economic governance. The link be-tween different functional regimes (hori-zontal link) is not often well established.The same concerns arise with regard to thelinks between bilateral, regional and globaleconomic governance regimes (vertical link).Global competition exerts pressure in the di-rection of increasing convergence of differentnational regulatory and institutional sys-tems, but significant differences remain.

To be sure, there is an institutional and reg-ulatory deficit on the global level, whichcalls for new governance structures; it relatesto norm-setting and policy coordination. A bet-ter defined multilateral approach and thestrengthening of functional regimes is nec-essary. The system of global governance, inthe measure that it has emerged in a some-what ad hoc way, is characterized by in-creased complexity manifested in a web ofbilateral, regional and global regimes. It hasalso been marked by the emergence of newissues, which are associated with the liber-alization of trade and capital flows.

Technological developments and economicliberalization have often run ahead of the need-ed adaptation of principles, norms and rulesas elements of economic governance. This isparticularly pronounced on the internation-al level.

Coping with international economic and fi-nancial instability is one of the many press-

94


The establishment of

principles, norms and

rules ... is greatly

needed in an

increasingly

interdependent world

ing challenges of our times calling for moreeffective partnerships among States on theone hand, and financial institutions on theother. National responses are not sufficientlyadequate to deal with possible crises. In theabsence of a strong international regulato-ry system coupled with strong national in-stitutions, local financial crises often de-generate into severe crises provoking mas-sive loss of employment and resources as ithappened not so long ago in South-EastAsia. Such crises were so intense that not on-ly did they affect the countries in whichthey originated, but also quickly reverberatedin other parts of the world.

In other words, "the pace of globalization offinancial and other markets is currently out-stripping the capacity of governments toprovide the necessary frameworks of rulesand co-operative arrangements to ensurestability and prevent abuses of monopolyand other market failures" (ibid., p. 137).

There is an urgent need to establish globalrules on issues associated with deep eco-nomic integration. These issues concern in-ternational competition policies, harmo-nization of corporate taxation, standards ofcorporate governance and the national treat-ment of foreign investment. Overall, it maybe argued that the present system of globaleconomic governance is untidy, burdenedwith overlapping jurisdictions and incom-patibilities between different functionalregimes.

The rules-based international trade system,administered by the World Trade Organiza-tion, has made progress in liberalizing mar-ket access and reducing both tariff and non-tariff trade barriers. The system is based onthe principles of non-discrimination, andreciprocity. A detailed system of norms andrules has been established for different sec-tors. While some progress has been made, anumber of issues require further considera-tion. These concern non-tariff barriers, theuse of export subsidies, anti-dumping, the ex-clusion of certain sectors, such as agricultureand textiles, and a weak sanctions mecha-nism. There is also a need to make region-

al trade arrangements compatible with themultilateral regimes.

The linkages between international trade,labour and environmental standards must beconsidered in the framework of the traderegime. There is also the need for moretransparency in the decision-making con-ducted in the framework of such regimes. More-over, the monetary and financial regimesneed to be closely coordinated with the traderegime. Surveillance mechanisms must be ad-justed and institutional arrangements fornorm-setting and controls need also to be im-proved. The existing regimes have obvious-ly not kept up with the range of hazards in-volved in international finance, includingimportant investments, risks in raising cap-ital and volatility of short-term flows. Newregulatory systems and institutions at the in-ternational level are necessary to cope witheconomic globalization in this policy area.

Another policy area which requires greaterregulation at the international level is en-vironmental protection. Due to the delicatebalance of the global ecosystem and to thespill-over effects of pollution from one partof the world to other parts, it is increasing-ly evident that protecting the environmentis a matter which cannot be dealt with at thenational level alone. Furthermore, "althoughindustrial countries, including the UnitedStates, are disproportionately responsiblefor most of the environmental problems, de-veloping countries are also rapidly damag-ing common environmental resources. Solu-tions, therefore, require the participation ofboth developed and developing nations"(Cutter, Spero and D�Andrea Tyson, 2000, p.94).There is also a growing need to hold multi-national corporations and local businesses ac-countable for their actions not only regard-ing environmental pollution, but also work-ing conditions.

In summary, inter-governmental institu-tions play an increasingly vital role in whatwas previously the domain of individual gov-ernments. They have helped to forge wide-spread commitment to agreed-upon objectives,such as the aspirations set out by the vari-

95


There is an urgent need

to establish global rules

on issues associated

with deep economic

integration

ous UN Global Conferences. These conferenceshave encouraged the development of new na-tional governmental and inter-governmentalmachinery. Such bodies have been instrumentalin promoting the advancement of women, reg-ulating international activities, ensuringcompliance with human rights standards, andcoordinating the actions of the internation-al community towards progress in poverty erad-ication and sustainable development. Yet, in-ter-governmental institutions still need to berefined to reflect a more integrated global econ-omy.

6. The need for a balanced approach to globalization

At the beginning of the XXI century there isa compelling need to uphold a new approachto globalization, which should be predicat-ed on such values as responsibility, sus-tainability and respect for human rights.What is most required is a shift to a people-centered approach to globalization. Toomuch attention has been paid to producers,and too little to consumers.

The lessons of experience point to a bal-anced approach, one that neither demonizesglobalization nor builds it into a force settingthe course of humanity in a predetermineddirection. In our age of globalization, as inthe past, the destinies of people can still bemostly shaped not by impersonal forces ful-ly beyond their control, but through collec-tive efforts of groups and individuals, livingand operating in democratic societies, underthe rule of law.

The �Minimal State� and the assumption thatthe market alone can solve most of societies'problems have been proven wrong. The ab-dication of the State in crucial and strategicareas such as health, education, housing, andsanitation have not favoured poverty alleviationaround the world. Therefore, there is a grow-ing need to reconsider the role of the Stateto foster a new awareness in society at largeof such fundamental values as equity, socialinclusion, fairness, and social justice.

One thing is clear: democratic and flexibleinstitutions are needed in order to promotean enabling environment for economicgrowth and to enhance the quality of life ofpeople, making them active participants inthe process of globalization.

The challenge that we face lies in the press-ing need to refashion or refine the tools andinstitutions of governance and public ad-ministration, so that they apply the knowl-edge, technologies and skills available tohumankind for the greater good of all andnot, as may have happened in the past twen-ty years, mostly for the greater wealth of 20per cent of the world. This is precisely a taskin which inputs and process largely determinethe outcome of reform and where, on that ac-count, the values of democracy and humanrights must be accorded precedence over thefamous triptych - economy, efficiency and ef-fectiveness - important as it is.

Two fundamental factors will determinewhether nations will be able to prosper fromglobalization. First, how each nation-Stateresponds to globalization at the nationallevel and, second, how they act together toshape international rules and processes fora more open trading system, for better gov-ernance and enhanced social responsibility.

96


Inter-governmental

institutions play an

increasingly vital role in

what was previously the

domain of individual

governments

time. The world was entering what laterwas to be recognized as virtually a perma-nent state of turbulence. The natural paceof change would so accelerate that sooneverybody would be suffering from future shockas their abilities to accommodate to changewould be overtaxed" (Caiden, 1991).

By the late 1990s, the context for most gov-ernments and many organizations had beentransformed so radically that their tradi-tional structures and modes of operationhad slipped into obsolescence. The fused py-ramidal structures, hallmark of state bu-reaucracies, could still perform effectively con-ducting routine tasks in closeted environments,but they proved increasingly inept in inter-acting creatively with a diversified, de-manding clientele or in responding swiftly toshifting opportunities and new constraints.Likewise, the five-year plans, pillars, untilquite recently of the command economies butalso, mutatis mutandis, a feature of policy-making in many other countries were losingcredibility as both a tool and process.

In a significant study of planning, which al-though chiefly inspired from private sectorpractices has relevance to government,Canadian author Mintzberg argued that,given the conditions of rapid change, plan-ning must be continuous and incremental(Mintzberg, 1994). Although it seeks to in-corporate competent policy-analysis and ex-pert advice, current strategic planning isnot viewed as an essentially technocraticprocess. It also seeks to build on clients� ex-

1. The management ofchange: the State as a �learning organization�

he proliferation of actors on thepolitical scene and great diver-sification of interests and pursuitsin society at large vastly adds to

the complexity of the tasks of modern gov-ernance. This has been further compound-ed by the progress of globalization and mod-ern technology, that have radically loweredor indeed eliminated some of the protectivebarriers which sheltered the operations of gov-ernments in the past. A world of public au-thorities dealing with limited numbers of clientsand stakeholders and able to control eventswithin their borders is swiftly giving way toa more complex world; a world in which therange of clients and stakeholders is vastly morediverse, and in which numerous factors, im-perfectly understood, loom on the recedinghorizons of decision-makers.

As governments pass, in most fields of activity,from a relatively homogeneous and stable en-vironment to one that is unstable, complex,heterogeneous and multi-faceted, they needto learn to cope with unpredictability, un-certainty and randomness. Another major chal-lenge to governments and managers comesfrom the accelerating pace and the very na-ture of change. Describing this development,Gerald Caiden observed: "What adminis-trative reformers in the early 1960s did notanticipate was that they would not be ableto proceed at their own pace in their own good

97

STRENGTHENING THE ADMINISTRATIVE CAPACITY OF THE STATE

T

Chapter IV

Strengthening the administrative capacityof the State


the concept of people as citizens must markthe end of the authoritarian approach topower and the bureaucratic, technocraticand feudalistic style of management. This de-velopment, which goes beyond the conven-tional form of hierarchy, calls for a new styleof action and conduct in the exercise of au-thority" (Sedjari, 2000, p. 5).

Contemporary management theory high-lights the value and role of learning organ-izations in trying to reconcile these difficultdilemmas which government must face and,furthermore, equip them to manage changeeffectively. In relation to developing countriesand countries in transition, attention shouldbe drawn to four areas of need, all of particularmoment to the steering tasks of the State:

� Management of change: The State must bein the forefront of implementing change andsmoothing the path for progress. This entailsproactive measures to develop enabling pol-icy frameworks, promote the use of newtechnologies, set up performance measure-ment and evaluation systems, overhaul ad-ministrative structures and design adequatepatterns for the collection of international-ly comparable, reliable and accurate data forpolicy-making purposes;

� Administrative reform: In the light of cur-rent trends, bureaucratic structures nolonger work effectively. Debureaucratizationand decentralization must go in tandemwith new approaches to management, ex-emplifying openness, adaptability, participation,flexibility, diversity and responsiveness.Many new tasks of governance require pub-lic authorities to act as mediators, advo-cates or promoters, actively seeking part-nerships with business and non-govern-mental organizations, or otherwise endeav-ouring to engage civil society in the pursuitof developmental objectives;

� Human resources development: skills con-stantly upgraded, leadership qualities de-veloped, facilitation of change and fosteringof a new image for the public service that callfor new career structures that emphasize mo-bility, integrity and professionalism and the

pectations, as well as intuition and aspira-tion (vision of future States). Precisely on thisaccount, it needs to avoid the pitfalls of bu-reaucratic closure and a top-down approach,which tend to stifle initiative and limit par-ticipation.

Success in modern government largely de-pends on widening the basis of citizen par-ticipation and galvanizing support for broad-ly-shared objectives. This, in turn, is predi-cated on building and maintaining an insti-tutional framework as open to diversity asit facilitates stakeholders� contributions to pol-icy-making and evaluation processes. This isnot always easy. Not all groups of stakeholdersare readily amenable to cooperation andcompromise. Not all are public-spirited.Seeking to muster support and developingconsensus for a given goal or vision is amost challenging task. As a process, it mayprove both costly and time-consuming, eventhough its long-term yield may be broadly ben-eficial.

Flexible structures and processes are thenincreasingly favored over the more tradi-tional and bureaucratic patterns. This is sonot merely on account of the nature and fre-quency of change in a highly volatile and tur-bulent global environment, but also as a re-sult of the cumulative pressures from diversecitizens� groups, which demand to be heard.Ability to include and synergize, as well asdisposition to listen and respond, are al-most universally accepted as an importantsource of policy legitimation. Neither comeseasily, as most critiques of government andorganizations amply show. They call for reaf-firming a unity of direction amidst many di-verse and often conflicting purposes: reinforcinginstitutional memory. They also call for fos-tering a sense of continuity, consistency, sta-bility and predictability, which structures striveto inject into the fluid, uncertain conditionsin which numerous countries in today�s glob-al society live. "Applying democracy to ad-ministration cannot fail to consolidate theState�s public image by improving function-al and communication channels. In thisquest for democracy, citizens must be placedat the centre of public action. The return to

98

Success in modern

government largely

depends on widening

the basis of citizen

participation and

galvanizing support for

broadly-shared

objectives

overriding claims of merit in the recruit-ment, placement and promotion of publicservants;

� Information: Timely availability of ade-quate, reliable, accurate and relevant datathat has become a sine qua non not only ofsound policy-making but also of the meas-urement, monitoring and evaluation of pub-lic sector performance. The United NationsProgramme in Public Administration andFinance is playing a vital role in mobilizingand disseminating such information of essentialimportance to governments, notably throughthe United Nations Public AdministrationNetwork - UNPAN (UN, 1998, E/1998/77, pp.1-2).

In an era of rapid change and globalization,a learning organization necessarily becomesa changing organization; that is, it learns tolisten and to respond to messages that comefrom its environment. Furthermore, in today�sglobal village, this never-ending process can-not, as in the past, take place under the cov-er of high protective barriers.

2. Enhancing leadership skillsand strategic planningcapacities

Capacity to adjust to changing circum-stances and face the emerging challenges de-mands leadership skills and strategic plan-ning capacities. Specifically, it calls for:

� Sound analytical and diagnostic capabili-ties;

� Careful scanning of the environment for pos-sible constraints or emerging opportunities;

� Ability to galvanize and mobilize supportfor both the goals and course of organizationalchange;

� Building of the structures and culture ofdialogue and mutual accommodation;

� Encompassing diversity, reconciliation ofdifferences, promotion of consensus; and

� Management of change, in both a peace-ful and effective manner.

It follows that although, under today�s con-ditions of swift technological progress anychange should incorporate extensive expertadvice, a learning organization cannot con-sider reform in purely technocratic terms. Intoday�s fast-moving world, a process of reformand capacity-building must also encompassclients� and partners� perspectives. It shouldseek to build on knowledge and expertise, butalso on intuition, vision and aspirations(mission statements) because it views suc-cess as clearly predicated on:

� Inclusion, integration, participation and em-powerment of all key factors, actors andstakeholders;

� Team-building, a key element of motivation;and

� Social or organizational peace and cohesion.

For analogous reasons, change and capaci-ty-building in a learning organization can-not any longer be approached through the tra-ditional, authoritarian and bureaucraticmethods. Although they seek to inject an el-ement of continuity, consistency and pre-dictability, which all organizations and so-cieties require in order to operate effective-ly, the structures and process of change inlearning organizations must also induce ac-ceptance of the following:

� A high degree of uncertainty, in an oftenvolatile and turbulent global environment;

� Flexibility consistent with a rapid, non- lin-ear change process in an age of discontinu-ity.

Swift progress and great uncertainty add animportant dimension to managing change andto capacity-building, requiring leaders andmanagers to plan and steer the course withpeople, not without them, let alone in spiteof them. Learning from the mistakes and les-sons of past failures, there is need to addressthe question of what essential structures

99


Capacity to adjust to

changing

circumstances and

face the emerging

challenges demands

leadership skills and

strategic planning

capacities

and core competencies all countries, but es-pecially developing countries and countrieswith economies in transition, need to buildor reinforce in order to secure sustainableprogress and growth. Although much ofwhat follows flows from what has been said,we need to be reminded that sustainable re-form and capacity-building encompass far morethan personnel training or human resourcesdevelopment. Both call for the reinforce-ment of institutions and their adjustment tothe demands of the times in a globalizing world.

3. Fostering capacity-building

Like the concept of "empowerment", theterm "capacity-building" has gained a lot ofcurrency in recent years. It is, to say the least,a very elusive concept: the composite of sev-eral elements. For the purposes of this Re-port, attention is drawn to three inter-relatedfacets of this multi-dimensional issue which,aside from its importance, has acquiredmuch topical relevance.

Capacity-building has been defined in manyways and it encompasses various dimen-sions. In organizational terms, one of the pos-sible definitions of capacity is the volume andcomplexity of the inputs and activities whichan organization is able to handle effective-ly in any given time. Capacity-building, ac-cordingly, denotes an effort to expand the ex-isting capabilities of an organization or of theState qualitatively and quantitatively. Inother words, capacity-building may be definedas the co-efficient of human resources de-velopment and institution-building. Twoprincipal dimensions may be distinguished.One is a process involving the establish-ment, reinforcement or reform of an organi-zational framework for the conduct of humanactivities. The other is human resources de-velopment, which includes human capital for-mation, the enrichment and refinement of es-sential management skills and requisitetechnical aptitudes and support for value sys-tems conducive to the goals of cost-effectivemanagement in organizations.

The two principal dimensions are comple-mentary and mutually reinforcing. A soundinstitutional framework integrates and syn-ergizes organizational members towards theaccomplishment of the set goals. To be sure,the best institutional framework with lim-ited human capacity is of as little use as amillion dollar racing car with a timid, in-competent driver at the wheel. However, thereverse is probably even worse. Nothing ismore conducive to disaffection among po-tentially promising and competent staff thana convoluted administrative structure,which frustrates the best designs and corruptsthe most efficient and best intentioned per-sonnel. The recent rediscovery of the comple-mentarity of human resources developmentand institution-building has lent capacity-build-ing its current importance, but also, to an ex-tent, has shaped the ways and methods of seek-ing to implement it in learning organizations.

Capacity-building concerns have recentlygrown largely on account of:

� Increasing resource scarcity; and

� Rapid, unanticipated changes in the externalenvironment, occasionally leading to sys-tems� breakdown, when action to adjust andmodernize these systems is not initiated ina timely fashion and pursued effectively.

During the 1980s and early 1990s, accord-ingly, "downsizing" or "rightsizing" and "do-ing more with less" became the standard mot-tos of reorganization. Consistent with the crit-icism that faulted previous practices therewas also a shift of focus from the centre tothe periphery and from the top to the grass-roots, through a process of devolution and de-centralization. This carried in its trail em-phasis on outsourcing, reliance on NGOsand other non-state actors for public servicedelivery, stress on priority tasks and corre-sponding emphasis on what were designat-ed as an organization�s core competencies.

Emphasis on core competencies and ways inwhich these competencies must be deployedand leveraged to maximum effect has oftenbeen accompanied by a process of selective

100


Capacity-building ...

denotes an effort to

expand the existing

capabilities of an

organization or of the

State qualitatively and

quantitatively

divestiture of secondary functions which arecontracted out to partners in the private or"third" sectors (Reschenthaler and Thomp-son, 1998). Such focus on essentials, tied toa holistic approach and a critical review ofthe lessons of experience form part of the cur-rent emphasis on both "capacity-building" andthe related concept of "the learning organi-zation" (ibid.).

3.1. Building cognitive capacity inthe face of globalization

Though few dispute the claims of the polit-ical leadership to be the final arbiters ofwhat the public needs, many may still lookaskance at the role of experts in govern-ment and many more discount or fail to un-derstand the need for policy analysts and pol-icy advisers. Developing countries and coun-tries with economies in transition in gener-al have paid a heavy price for their capaci-ty deficit in this regard. While few questionthe importance of expatriate expert advice,it needs to be emphasized that the value ofsuch advice to governments is largely pred-icated on the availability of institutionalmemory at the national level, as well as onthe quality of the information and know-howthat governments command from indige-nous sources, preferably their own.

Even the best advice received from foreignexperts needs to be a complement at best tothat of the government�s own, which it can-not replace. Nothing can effectively replaceorganized policy planning on the national lev-el. Accordingly, what matters more than thelevel of individual experts is the country�s sys-temic capacity to generate ideas on major na-tional issues and questions of global concernand institutional memory, which can instillconsistency and continuity in policy direction.

Many developing countries and countrieswith economies in transition have seen, inrecent years, the rise of independent think-tanks, whose presence in advanced societieshas long been taken for granted. They playa useful part in offering a complement andcheck to "official thought". However, they areno substitute for a corps of well-organized,

well-trained, professional policy-analystsand advisers in the service of the government.A constant flow of comprehensive, accurateand up-to-date information is also essentialfor the government�s performance of its func-tions, including playing its part in the man-agement of international regimes. No gov-ernment can fully "outsource" all of its corefunctions to outsiders without de facto sur-rendering an important part of its sovereignty,credibility and prestige. What countries needmost is a critical mass of expertise in gov-ernment, as well as very sound organizationand a degree of autonomy in the collection ofdata and the conduct of research (UN, 1998,E/1998/77).

In many developing countries and countrieswith economies in transition, the dearth ofexpertise at the senior policy level is com-pounded by turnover of specialists in high de-mand, who find more lucrative outlets in pri-vate enterprise or international agencies,both governmental and non-governmental.The problem is further aggravated by basicflaws in the requisite support structures.To help address this issue and to assist theMember States in meeting the commitmentswhich they made at global conferences or-ganized by the United Nations during the pastdecade, the Fourteenth Meeting of theGroup of Experts, which took place in NewYork in 1998, made a number of recommen-dations whose intent was to reinforce the sys-tems of data-gathering and to enhance thequality of information available to govern-ments for policy-making purposes. Among theserecommendations was the elaboration of:

� A framework for the collection of interna-tionally comparable data, including qualitativeas well as quantitative indicators, for the pur-pose of measuring the changing role of theState as reflected by privatization, deregu-lation and decentralization;

� A framework for the exchange of infor-mation via the Internet, focusing on the pro-vision of advisory services, particularly to leastdeveloped and geographically isolated coun-tries, in order to improve accessibility to theInternet, at all levels of government; and

101


What matters more

than the level of

individual experts is

the country�s systemic

capacity to generate

ideas on major

national issues and

questions of global

concern and

institutional memory,

which can instill

consistency and

continuity in policy

direction

� An appropriate system of indicators, basedon pertinent and timely political, social andeconomic data, intended to provide an ear-ly warning system against impending crises(ibid.).

The Fourteenth Meeting of the Group of Ex-perts stressed the role of the United NationsProgramme in Public Administration andFinance in "fostering the exchange of infor-

mation on best practices. Therefore, itstrongly welcomes the establishment of theinformation-clearing house World Wide Website, as the centerpiece for the performanceof the role of the facilitator in the informa-tion exchange. The Web site, in particular,would be a useful tool in the managementof the global network. The Meeting takes theview that it is also important for the Pro-gramme to pursue initiatives relating to thecollection of data on the public sector for pol-icy-making purposes" (ibid., RecommendationNo. 32).

A notable departure in this regard is the es-tablishment of the already mentioned Unit-ed Nations Online Public AdministrationNetwork (UNPAN), which has become op-erational with related centres in every ma-jor region of the world. Yet another impor-tant initiative took the form of a regional con-ference in Thessaloniki, Greece, which interalia explored the "Making of Highly Quali-fied, Creative and Conscientious Policy Ad-visors," as part of "Enhancing Professional-ism in Public Policy Planning"1.

"In relation to building national capacity todiagnose and evaluate national needs and pri-orities, it is important to underline that eachcountry must elaborate its own types of re-sponses institutionally and operationally, inorder to maximize benefits and minimizenegative consequences. Clearly, neither theUnited Nations nor any other intergovern-mental organization can give a one-size-fits-all solution. They can only suggest and/or pro-pose potential strategies and reform pathsthrough methodological approaches andtools that seek to uncover what are the es-sential functions that the State needs to ful-fill, at what level and to what extent. Thesequestions can be suitably answered not in theabstract or aggregate, but only in relation tothe private sector, the national and inter-national environment inclusively" (UN,2000, E/2000/66, p. 11).

Consonant with this approach, it should beunderscored "that all governments, but spe-cially those of developing countries andcountries in transition, should accord prior-

102


Box IV.1

THE UNITED NATIONS ONLINE NETWORKIN PUBLIC ADMINISTRATION AND FINANCE

(UNPAN)

The Division for Public Economics and Public Administration of theDepartment of Economic and Social Affairs of the United Nations, asentrusted by the General Assembly in late 1999, developed an importantprogramme entitled �The United Nations Online Network in PublicAdministration and Finance (UNPAN)� for implementation.

UNPAN�s immediate objective is to establish an electronic platform linkingthe regional and national institutions devoted to public administration andfinance online for information exchange, experience sharing and on-the-job training in the areas of public sector policy and management. Its long-term objective is to build the capacity of these regional and nationalinstitutions to access, process and disseminate relevant information via up-to-date information and communication technologies (ICTs) for thepromotion of a more effective public administration.

UNPAN offers (a) far-reaching access to experience in the practice ofpublic policy development and management at the international,regional, national and local levels; (b) capacity-building and south-southcooperation in information and knowledge management; (c) demand-driven and interactive two-way provision of information and knowledge.Most significantly, UNPAN is a dynamic process, and not a static outcome,which aims at responding to the needs of its users and addresses their mostcritical areas of work.

UNPAN�s immediate beneficiaries are public administration-relatedregional and national institutions. Its ultimate clients are governmentagencies, the private sector, NGOs, and academic institutions. It focuseson: (a) public economic policy; (b) governance and institution building; (c)civil service and public sector reform; (d) management innovation anddevelopment; and (e) public finance. Within the above-mentionedthematic framework, emphasis will be given to emerging issues, which areof concern to most countries. It provides five major onlineservices/products, including: information; training; technical advisoryservices; conferencing; and worldwide directories.

UNPAN is executed and managed by the Division for Public Economics andPublic Administration (DPEPA), UNDESA, in close partnership with a group ofinternational and regional institutions in public administration and finance,representing all regions of the world.

The UNPAN online network at http://www.unpan.org serves as a portal forpublic administration and finance, and is the only one such network in theworld today.

Source: DPEPA/UNDESA, 2001. See also UN, 1998, E/1998/77.

ity to strengthening capacities in public pol-icy formation and public service management"(ibid., Recommendation No. 18). Specifical-ly, institutional and managerial responses toglobalization and diversification, should en-compass:

� Dedicated think-tanks for policy planningpurposes;

� Learning from global experience;

� Inclusive, participatory, decentralized de-cision-making bodies;

� Strengthening of the capacity to deal withand negotiate disputes and foster a cultureof dialogue; and

� Focal points in departments of govern-ment to interface with outside agencies andwith the public.

It has been pointed out, but it bears re-peating that, under modern conditions, fewmajor decisions of policy can be made or im-plemented in a political, social or economicvacuum. Important though it may be, the con-tribution of experts and "technocrats" shouldbe complemented by inputs from people rep-resentative of civil society groups. Address-ing this very issue, a report on Public Ad-ministration and Globalization (Timsit andBouckaert, 2000)2 made the point that es-tablishing a balance between economic effi-ciency and social equity is a major task of gov-ernment. Inter alia, it entails such measuresas the enhancement of labour unionstrength and support for collective bargain-ing. Still, according to this report, it be-hooves the government to develop and ar-ticulate policies and strategies expressive ofthe common good and of the public interest,which cannot be solely the "product of tradenegotiations among particular interests"(ibid. p. 37).

4. The need for performance standards for managementdevelopment

One of the net effects of globalization is theprogressive emergence and spread of globalperformance standards in management de-velopment and change. In the measure thatsuch standards are developed, articulated andpublicized through the relevant literature, theytend to reproduce a set of values, which of-ten may be prevalent in a particular culture,but are certainly not universal. This is es-pecially true of the influential literature ofthe past two decades. Written mostly in theEnglish language, it records the tested prac-tices and valuable experience, as well as be-lief systems of a small range of countries, eco-nomically advanced, but still comprising on-ly a relatively small proportion of the world�spopulation. Importing foreign standards andbenchmarks, which relate to specific man-agement traditions and sets of expectations,may be a recipe for failure, unless such stan-dards and benchmarks are appropriately re-viewed, and adapted to the local culture.

Making this point, however, is not to say thatstandards in certain major areas may not con-verge or that the setting of standards andbenchmarks should not be accorded its dueweight in any management culture. There issome evidence pointing to the effects of glob-alization on a certain convergence of stan-dards, in the measure that behaviour normsand clients� expectations throughout theworld are moving toward a common ground.However, one must acknowledge the findingsof research in continental Western Europe,which stresses the profound, pervasive andpersistent influence of culture on managementbehaviour and management techniques,both of which are culture-specific and not read-ily transposable from one country to anoth-er, even when they are contiguous (e.g., theNetherlands and Belgium). According to thisschool of thought3, cultural differences con-dition the validity of management philoso-phies and practices in various countries andshould, therefore, be taken into account inthe establishment of standards and the mak-ing of management policy.

103


One of the net effects

of globalization is the

progressive

emergence and

spread of global

performance

standards in

management

development and

change

The formulation of performance standards likethe development and articulation of policy rep-resent essential functions of the State, whichcannot be surrendered or "outsourced". To besure, under conditions of globalization, theexchange of information among govern-ments will lead them, in some cases, to alignmethods and practices in the quest of sharedobjectives. However, it is incumbent on gov-ernments to establish standard setting, per-formance indicators and the practice ofbenchmarking on an institutional basis, aspart of their core functions.

Though stress on performance standardshas been with us for some time, it has tak-en on great salience in the past two decades,in part due to the effect of the new trends inmanagement and the emphasis they haveplaced on results orientation. Mindful of res-olution 50/225 of the United Nations GeneralAssembly, which in paras. 7 and 9 called forenhanced effectiveness of public adminis-tration systems worldwide (UN, 1996, A/RES/50/225), the Fourteenth Meeting of theGroup of Experts made performance moni-toring and evaluation one of the major top-ics of its agenda. Its report (UN, 1998,E/1998/77, paras. 44-46) explores in some de-tail the issues in performance monitoring andevaluation, and underscores their impor-tance. The Fourteenth Meeting of the Groupof Experts viewed this new significance in lightof four perspectives:

� The changing role of government from soleprovider of services to one of founder, lender,contractor, purchaser and regulator;

� The public�s right to know;

� The need to measure the outcomes of poli-cies and programmes, and thus to act as cat-alyst for periodic reviews, possible recon-sideration of resource allocation and thequest for performance improvements; and

� The need to go beyond the traditionalforms of accountability to ensure value formoney and the cost-effective pursuit of thepublic interest.

In light of these perspectives and the ongo-ing pursuit of subsidiarity through decen-tralization, deconcentration, devolution ofresponsibility and offloading or outsourcing,one must incorporate performance indicatorsin the formulation of policies and pro-grammes, which serve to mobilize stake-holders� support and involvement, but alsohelp to structure and guide the evaluationof progress and results. Seen in this light, per-formance measurement, monitoring andevaluation represent a necessary compass inthe quest of complex objectives involvingcontributions from the several partners un-der conditions of democratic and accountablegovernance.

4.1. Purposes of performance measures

The fundamental purpose of instituting per-formance measures in an organization is toevaluate its performance. Briefly, they maybe used in accounting for past activities,managing current operations and assessingprogress toward planned objectives. One ofthe oldest uses of performance measureswas for purposes of accountability, specificallyrelated to the budget process. Performancemeasures were to be incorporated in agencybudget presentations in an effort to replace:

� Workload or activity levels, such as appli-cations processed, inventory levels, inspec-tions carried out, students in class;

� Outputs, such as the number of childrenvaccinated, miles of road built, tons of trashpicked up, students graduated;

� Outcomes of products or services, such asillnesses prevented, percentage of taxes col-lected, clean air levels achieved, accident-freeworkplaces attained, poverty alleviated;

� Productivity, such as cases investigated perdetective, applications processed per per-son, emergency calls handled per dispatcher;

� Costs, such as coverage costs to build onemile of highway, educate one child, maintainone swimming pool;

104


The formulation of

performance

standards like the

development and

articulation of policy

represent essential

functions of the State,

which cannot be

surrendered or

"outsourced"

� Customer satisfaction, such as numbers ofcomplaints received over a period of time, re-sults of surveys, use of participative process-es;

� Service quality and timeliness, such aspolice response times, ability to contact anagency by telephone, compliance with trans-portation timetables, breakdown rates, serv-ice availability.

Where levels are specified for any measure,these constitute "performance standards".Where reference is made to identifying andimplementing best practices in order to setout a standard for comparison of results andto drive performance improvement, this isknown as "benchmarking". When output isnot directly measurable, proxies known as"indicators" may be used. "Performance in-centives" may be used to assess individualperformance in determining remuneration.These measures are designed to assess theeconomy, efficiency and effectiveness withwhich an organization delivers its services.

Economy is concerned with the capacity ofan organization to operate at the lowest pos-sible cost and may be assessed through in-put measures and comparisons throughbenchmarking. Efficiency is the relationshipbetween input and outputs, i.e., using min-imum inputs to achieve a given output, or gain-ing maximum outputs for a given level of in-put. It may be measured through output, pro-ductivity and cost measures. Effectiveness de-lineates the success of programmes and fo-cuses on their results, as assessed throughoutcome measures. In addition, the qualityof services may be assessed through processmeasures relating to customer satisfactionand perceptions.

While any of these measures might be usedto assess an organization�s performance, re-cent emphasis has been on quantitative ef-fectiveness or outcomes measurement. A re-port of the United States General Account-ing Office on Performance Budgeting has sug-gested a change of focus from "ensuring thatfunds are spent properly" to "managing dol-lars to produce agreed upon results" (Unit-

ed States General Accounting Office, February1999, p. 3). If such a change is really takingplace, it is not a trivial one. It is a move as-sociated with administrative reforms inmany European countries as well as Australia,Canada, New Zealand and the UnitedStates. Such reforms go beyond reorganiza-tion to question whether specific programmeareas continue to serve a public interest;whether they should be transferred, entire-ly or in part, to the private or voluntary sec-tors; and how, if the programme continues,it might be made more efficient and afford-able. In effect, programme evaluation is tiedto the evaluation of the entire role of gov-ernment.

5. The need for top-level managers

The progress of globalization brings out a newdimension in standard setting, and in per-formance measurement, monitoring andevaluation: the need to elaborate and to ar-ticulate a range of shared approaches, val-ues and methodologies, which ease commu-nication in international dealings and makethe cooperation of diverse groups more fruit-ful and rewarding. Referring to changingwhat needs to be changed, a similar remarkmight be made about the need for a new cadreof able and responsible top managers to facethe emerging challenges and handle theglobal agenda in an increasingly interactiveand competitive global environment.

Although technology, innovative systemsand processes of work organization and user-friendly methods of public service deliveryare increasingly important ingredients ofthe managerial response to globalization,building the capacity of the human resourcesrepresents a crucial dimension of governments�response to globalization (UN, 2000, E/2000/66, pp. 12-15).

It is important to note that governments, in-creasingly, perform significant tasks on a supra-national level. This is true not only of enti-ties like the European Union, which repre-sents an advanced manifestation of this

105


Where reference is

made to identifying

and implementing best

practices in order to set

out a standard for

comparison of results

and to drive

performance

improvement, this is

known as

�benchmarking�

trend, but also of the formation and opera-tion of international regimes in many fieldsof activities. All depend for their effectivenesson an elaborate framework of rules, process-es and practices, which determine how pow-er is exercised and governance conducted withconsistency, transparency, coherence and ac-countability, as well as on a cadre of top-lev-el managers from the governments of Mem-ber States, who can bring this framework tolife and operate effectively in the new glob-al environment.

Attention ought to be focused on competen-cies needed to operate effectively on thesupra-national level, and on ways of build-ing capacity on the national level. It shouldbe pointed out that the ability to field sucha cadre of top managers and leaders condi-tions a country�s effectiveness as an actor ininter-governmental negotiations and globalregimes. With such individuals, MemberStates are effectively "in the loop" and havethe possibility to promote their country�s in-terests. Dearth of such people, by contrast,may consign States to the margins and to therole of spectators of the progress accom-plished by others.

"Tell me and I�ll forget.Show me and I�ll remember.

Involve me and I�ll understand."Chinese proverb

In view of the pressures that globalizationcreate, "public servants should be trained tooperate on the national, sub-national and in-ternational levels and participate in leader-ship training. Governments should build aframework of public personnel structure,policies and career paths able to attract, re-tain, develop and motivate the right peopleand to direct their energies towards the pub-lic good" (ibid., Recommendation No. 19).

Furthermore, "the United Nations should as-sist national governments in acquiring thenecessary negotiating capacities to preparefor negotiations of global economic governanceregimes" (ibid., Recommendation No. 15),and it "should assist national governmentsin adjusting their national economic gover-

nance systems (policies and institutions) inresponse to globalization. This includes sup-port for policy development and implemen-tation capacities in developing and transitioneconomies" (ibid., Recommendation, No. 16).

The Fifteenth Meeting of the Group of Expertsdrew attention to the weaknesses of the de-veloping countries and countries witheconomies in transition resulting from "thescarcity of world-wide economists and specialistswith knowledge of the working of internationalagreements, treaties and regimes, as well astechnical skills" (ibid., p. 14). Significantly, how-ever, the Meeting took the view that analo-gous shortcomings could be observed in theoperation of States at the national and sub-national levels. Everywhere, it may be argued,globalization and democratization have in-creased the pace of change, complexity andambiguity, making demands on cadres for whichthey are ill-prepared.

6. Competencies needed tomeet the challenges of globalization

The competencies needed to meet the criti-cal challenges of contemporary governancerefer to a combination of knowledge, skills,behaviours and attitudes, which often goesbeyond what was required of "bureaucrats",or officials operating in traditional, closed-system work environments. No two countriesneed to agree on the desired profile of a sen-ior public manager or on the relative weightand indeed precise definition of the most of-ten-mentioned competencies, some of whichare described in the following paragraphs.

Knowledge, a hard substantive core, is partof the competencies that senior profession-al managers need to bring into their officeas a basic precondition of being able to ex-ercise effective guidance and leadership.

A component of technical knowledge will al-ways be required. Though this may varywidely depending on a manager�s assignedresponsibilities, substantive knowledge isneeded to grasp the issues involved in the ex-

106


Attention ought to be

focused on

competencies needed

to operate effectively

on the supra-national

level, and on ways of

building capacity on

the national level

ercise of one�s duties to make intelligentchoices. Traditionally, the study of law pro-vided a common core of required technicalknowledge for top public managers in manyof the foremost administrative cultures.Though this remains the case in severalparts of the world, now law is complement-ed by the study of social sciences, especial-ly economics. Knowledge of economics is ba-sic not merely to the management of any giv-en field, but also to interacting effectively withother public managers on the sub-national,national, and international levels.

Another core component of the substantiveknowledge required of an effective professionalpublic manager is, what may be described asthe management of the resources assignedto his or her care. These preeminently include:

� Human resources;

� Financial resources; and

� Information resources.

Most managers need not be specialists in fi-nance, organizational theory or informationmanagement to ensure the responsible stew-ardship and use of the above resources. Ap-preciation, however, of their true value, aswell as a sound understanding of all the rel-evant issues can greatly enhance effective-ness on the job and, therefore, should formpart of pre-entry and in-service preparationfor the job.

As to skills, they manifest themselves inthe ways in which a manager performs hisor her major roles. These comprise:

� The exercise of leadership, including man-agerial skills;

� Decisional roles; and

� Informational roles.

Leadership calls for vision, ability to iden-tify and seize an opportunity, anticipate a cri-sis and cope with constraints effectively. Itis exemplified in the persistent quest for ex-

cellence, innovative ideas and actions or be-haviour, which seek constructive ways toestablish and secure a country�s or organi-zation�s competitive edge. Within the or-ganization, leadership is demonstratedthrough building trust, communicating vision,empowering colleagues, serving as a rolemodel and managing performance effec-tively.

Decision-making skills include the effectiveuse of information, data, technologies and ideas;a clear sense of direction, priorities andneeds; sound planning and good timing; andclient orientation, which also means re-sponsiveness to changes and developmentsin the organization�s external environment.They call for critical judgment, sagacity anddiscernment, courage and intuition, but al-so uncommon capacity to cope with ambiguity,diversity, complexity and turbulence.

In essence, information as a function of man-agement, is effective communication. It callsfor clarity of expression, verbal or written,sound knowledge of the language and abil-ity to tailor it, in style and tone, to match theneeds and expectations of a particular audience.Culture is an important determinant of ef-fective communication. Thus, a clear appre-ciation of the culture of the target audiencerepresents a key ingredient of success inreaching out and having an impact on it. Intoday�s diverse societies and organizations,this is no easy task. To operate effectively onthe international plane, senior managersrequire more than vicarious knowledge of themain international languages and culturesin which they need to operate. However,even at the national and sub-national levels,the presence of diversity and the diffusion ofpower that have come with democratizationhave added to the importance of good listeningskills, effective use of the media and infor-mation technologies, and above all, the needto keep the channels of communication openat all times. One of the many effects of glob-alization has been to enhance the value ofthese and other related "soft skills", makingit necessary to use in-service training, evenmore intensively than in the past, for the pur-pose of fine-tuning these valuable skills.

107


Leadership calls for

vision, ability to identify

and seize an

opportunity, anticipate

a crisis and cope with

constraints effectively

Furthermore, as already indicated, in an in-creasingly interconnected world public ser-vants will need to master foreign languages.In order to deal with a variety of internationalactors and to conduct negotiations in inter-national fora, it will be crucial for the pub-lic servant of the XXI century to know morethan one foreign language. Knowledge oflanguages should become part of public serv-ice training and lifelong learning pro-grammes.

7. Public serviceprofessionalism

Cutting across the range of skills and knowl-edge needed to build effective managementin today�s fast-moving world is the conceptof professionalism, which, in the past few years,has made a marked re-entry into the field ofmanagement, where it had been neglected.Suddenly, since approximately 1996, con-ferences and publications on public serviceprofessionalism and the related concept of pub-lic sector ethics have become legion. Muchof the current interest has focused on the fightagainst corruption. A concern over the declineof standards and corresponding need for in-tegrity in public life has driven the debateon the scope and significance of public serv-ice professionalism.

Professionalism in government, as in any oth-er field, is observable through competence inways outlined above, i.e., through relevantdeep knowledge and aptitudes or skills, butalso through a coherent, widely-shared andprofoundly-internalized values systemwhich manifests itself in the pursuit and thor-ough application of knowledge, the use of par-ticular skills, and the exercise of controlover practice. Indeed, it may be argued thatprofessionalism consists in standards and val-ues which underpin the day-to-day practicesand conduct of a group. Although these val-ues and standards must, to some extent, re-flect the changing expectations of clients of thegroup and recipients of its services, they al-so represent the group�s own aspirations anddeep sense of its mission. Hence, their worthis an important guide and motivational tool.

Historically, professionalism has played a ma-jor role in the growth and organization of ma-jor occupational groups (doctors andlawyers, for instance), as well as in provid-ing a measure of consistency, continuity andpredictability in the conduct of their activi-ties. There is reason to believe that in-creasing interdependence, both at the levelof government and that of civil society in thewake of globalization, has greatly enhancedthe importance of consistency and pre-dictability in inter-governmental and non-gov-ernmental relations.

It is easy to understand why kleptocracieshave emerged in some cases, but more gen-erally why the prevalence of corrupt or evenmercenary behaviour has come to be perceivedas an obstacle and a threat not merely todemocracy and development at the nation-al level, but also to the effective operation ofthe emerging system of global governance.What may be harder to grasp, in light of theprevailing "neo-managerial culture", is thatprofessional ethics in any major field, be itmedicine or law, teaching or architecture, setslimits to "responsiveness" to customers� de-mands, requiring of professionals that theyexercise instead their best professionaljudgement in light of best available knowl-edge or expertise.

At the United Nations, a recent definition andstatement of the "competencies for the future"has underscored integrity, professionalism andrespect for diversity as core United Nationsvalues for its staff. These include:

(a) pride in work and mastery of subjectmatter;

(b) motivation by intrinsic, professional,rather than extrinsic or personal concerns;

(c) persistence in the face of challenges andcrises;

(d) resistance to "undue" political pressurein decision-making;

(e) defence of the Organization�s interests, evenunder fire; and

108


Professionalism in

government ... is

observable ... through

relevant deep

knowledge and

aptitudes or skills, but

also through a

coherent, widely-

shared and

profoundly-internalized

values system

(f) the legitimate use of power and authori-ty.

7.1. Transparency: a generalizeddemand

One of the main criticisms leveled at the Statein recent decades has been the fact that cor-rupt practices often exist and such practicesare not punished. This is a very widespreadproblem that does not exclusively affect thedeveloping world. These practices are not sole-ly confined to social areas. Modern researchinto corruption points out that wheneverthere is a corrupt person in the public sec-tor, there is someone who does the corrupt-ing from the private sector. Corruption hasto do with intra-social combinations thatare often of vast scope. Some episodes of themost blatant corruption in Latin America inrecent years did not occur in the public sec-tor. The embezzlement that took place in anumber of large banks in the area a few yearsago, which translated into a sizable loss ofresources for the countries involved, wasspurred by the corrupt practices of importantprivate bankers, often aided and abetted bythe ineptitude of some public regulating bod-ies. The episodes of corruption that accom-panied privatization processes in certain de-veloping countries were connected to pub-lic/private interest arrangements.

Today, worldwide, there is a generalized de-mand to put an end to corruption. Its costsfor the economies of developing countries areextremely high and the moral consequencesare even worse. In the social sphere, corruptionin the guise of skimming resources frompolicies and programmes set up to help thepoorest members of society, is a true ethicalcrime. The State must undergo a radicaltransformation in this area. All anti-cor-ruption strategies that could be effectiveshould be brought into play, among which,the first should be the monumental task ofeducating people about corruption. Spaces mustsystematically be created to discuss theproblem in all educational venues for civil ser-vants; clear cut codes of ethics that can bestrictly enforced must be devised. It is alsonecessary to make all actions taken by the

State in the social area transparent to citi-zens. Information concerning social pro-grammes must be complete, ongoing and to-tally accessible. The purpose of the pro-grammes, the resources to be used, sourcesof financing and implementation processesmust constitute information that is as ac-cessible as any other elemental administra-tive data, and this is precisely where IT andthe Internet can make valuable contributions.At the same time, channels should be set upso that social control of public administra-tion can make itself felt. The entire systemshould also contain clear and indisputablemeasures for penalizing and punishing cor-ruption.

Corruption must be transformed into an ex-ceptional occurrence, morally penalized; butthe risk of criminal prosecution should alsoexist. In summary, it should be difficult anddangerous to engage in corrupt practices, be-cause of permanent controls by the preven-tive systems in place and monitoring by thecitizens themselves, as well as by the threatof punishment.

7.2. Managing diversity

Diversity takes on many forms. Globalizationand progress bring in their wake the prolif-eration of preferences, sub-cultures, interestgroups, religions, cults, ideologies andgroups demanding recognition and protectionof their identity or indeed representation indecision-making processes which impact ontheir status and rights.

Repression of such groups is not a viable op-tion. It has proved counter-productive and,as experience shows, is costly economicallyand politically. Experience demonstrates apressing need to strengthen the capacity ofStates both in accommodating and manag-ing diversity and change. It comes as nosurprise that the greater the diversity, thefaster the process of change and the more vi-tally important the role of the State becomesin managing this process. International co-operation and the force of global example mayhelp in building up the State�s much-need-ed capacity to serve as guarantor, time-keep-

109


Corruption must be

transformed into an

exceptional

occurrence, morally

penalized; but the risk

of criminal prosecution

should also exist

er, moderator and manager of a process ofchange involving multiple partners andstakeholders, while all along safeguarding theinterests and rights of all concerned. A dy-namic market economy requires an effectiveState, where the instruments for strength-ening the nation-State obviously needed, forinstance in some of the former Republics ofthe former Soviet Union, have to be bal-anced with adequate decentralized policies.This is needed partly in response to the ex-pectations of groups aspiring to administertheir own cultures and traditions as part ofthe newly formed national entities. Thegreatest challenge, while moving into the newmillennium, will prove to be the building ofviable political institutions for the new na-tion-States of the region. Institutions shouldbe capable of respecting the aspirations of mi-norities that are part of these nations, andof establishing a balance between what is dic-tated by economic logic and clamoured for inpolitical expectations. The political processof the breaking up of the Soviet Union hasbeen remarkably peaceful. However, in its af-termath, the forces of ethnicity and minor-ity and of the periphery in relation to the cen-tre demand political leadership to promotepolicies that are all inclusive, a commodityrare even in normal times and certainlyharder to come by when the economic andsocial indicators are worsening.

�Those who applauded the lifting of the �IronCurtain�, which separated people between coun-tries, never expected �Glass Curtains� to de-scend separating people within countries. Thechallenge now is to achieve political rightsin an environment of growing economic in-security. Human insecurity breeds human vi-olence, making it even more necessary for eco-nomic growth to aim at enriching human de-velopment� (UNDP, 1999, Human Develop-ment Report, p. 11). Training programmes ondiversity and "conflict resolution" have mul-tiplied and spread, in several parts of the world,both in the public service and academic es-tablishments. Still, it should be noted thatthe scope of such departures is, in somecountries, limited to three main targetgroups: women, minorities and people withspecial needs.

One cannot over-emphasize the urgency andcomplexity of gender mainstreaming, on theone hand, and progressive integration ofhitherto underprivileged and under-repre-sented categories of citizens, on the other. Thishas seldom proved an easy task. Not only spe-cial measures and facilities may be required,but also language and culture have provedin some cases to be steep barriers to surmount.

One of the many effects of globalization hasbeen to ease the movement of peoples acrossborders and bring them closer together.Proximity, however, has not invariablyhelped to combat or assuage stereotyping, letalone eliminate prejudice and discrimination.Recent events in the world have broughthome to some governments a sense of the di-versity of their respective countries and thedangers of exclusion. Still, it would be an er-ror to view the current stress on diversity man-agement purely in terms of "affirmative ac-tion", equalizing opportunities or righting his-torical wrongs, important though these maybe.

Accommodating diversity makes good busi-ness sense in any organization. It repre-sents a necessity primarily on account of theprocess of diversification present in all soci-eties and all organizations. Such growing het-erogeneity reflects more than plurality andvisibility of cultures, which must be accom-modated in any one workplace. On a morebasic level, heterogeneity springs from thediversity of occupational groups, the productof specialization, which rapid advances in sci-ence and technology have carried in their trail.Today, very few policies or programmes, de-cisions or operations can either be designedor implemented without the cooperation ofmany different specialties and sub-special-ties. Bringing them together into a cohesivegroup, building them into a team, is hardlyan easy task. Distinct occupational groupshave often different values, divergentmethodologies or problem-solving tech-niques, let alone competing interests. Occa-sionally, they exhibit what others may con-sider an exaggerated sense of their own rel-ative importance. Building a balanced syn-thesis of many complementary but still dis-

110


Accommodating

diversity makes good

business sense in any

organization

similar elements is a challenge which requiressensitivity to difference, perseverance, open-mindedness, negotiating skills and capacityto reconcile conflicting views and interests.

Coping with diversity represents a reasonedresponse, by top managers and by the State,to the challenge of globalization and the re-lated processes of differentiation and frag-mentation, which are pronounced in most ad-vanced societies, but present all over the world.In fact, it constitutes an important new di-mension of the functions of management, re-quiring new perspectives on its role, meth-ods and mission. Particularly relevant tothe needs of global management, the man-agement of diversity calls for the invest-ment of time and resources in building or re-fining the structures and a culture of dialogueand accommodation. Inclusive of both peo-ple and viewpoints, these structures andthis culture endeavour to manage with dif-ferences, not in spite of or against them. Man-agers look to long-term progress over short-term expediency and take a broader view ofthe three "Es" (economy, efficiency and ef-fectiveness). These are obviously the an-tithesis of reductionist approaches and "ma-cho-managerialism" (Timsit and Bouckaert,2000, p. 299).

On the national as well as the internation-al levels, the structures and the culture ofdialogue and peace are clearly the mark andcreation of fully democratic States. They en-deavour to redress market failures and tryto give a voice "to the poor and to the future",which all too often have none (UN, 1997,E/1997/86, para. 62). It has become appar-ent that persisting poverty and inequality be-tween and within nations has been accom-panied, in many cases, by a sharp deterio-ration in the prevalent conditions of life andwork which "have rendered necessary a re-definition of the role of the State" preciselyin this direction (Timsit and Bouckaert,2000).

8. Organizational responsesfor human resources development

The need for redefinition and growing interestin diversity management worldwide bring in-to sharp relief the critical role of the Stateand of its public service as guardians of thecommon good, charged with the criticaltasks of elaborating, articulating and de-fending the public interest. In pluralisticsocieties, let alone the global community,these tasks need to be accomplished throughdemocratic processes of dialogue and consensus.These processes, in turn, require elaboratestructures, but also special skills - alreadydiscussed at length above - and a mindset,which senior managers especially will needto develop and internalize. How to acquirethis mindset and high-level skills could bethe subject of debate at national, regional andinterregional fora, although in the lastanalysis, countries may opt to formulatetheir own specific responses to this genericchallenge.

Many regional initiatives since 1997 suggestthat the revaluation of public service pro-fessionalism including ethics must be in-cluded in this response.4 A synthesis of theoutcomes of these several UN-sponsored ac-tivities is provided in a document publishedby the Department of Economic and SocialAffairs under the title "Professionalism andEthics in the Public Service: Issues andPractices in Selected Regions" (UN, 2000,ST/ESA/PAD/SER.E/5). It has been rightlyargued that, in a way, there is not one sin-gle profession of government, but many."Governments employ all kinds of persons -such as doctors, meteorologists, teachers,lawyers, public security personnel, as well asthose whose field of expertise does not eas-ily fit under any single heading. Yet governmentprofessionals have certain attributes in com-mon. They work in a common institutionaland legal framework, which offers its own con-straints and opportunities. They share acommitment to use their skills for the pub-lic good, in public service as against privategain, for fixed remuneration. They are sub-

111


Coping with diversity

represents a reasoned

response, by top

managers and by the

State, to the challenge

of globalization and the

related processes of

differentiation and

fragmentation, which

are pronounced in most

advanced societies,

but present all over the

world

ject to public accountability for their ac-tions" (UN, 1999, ST/ESA/PAD/SER.E/3, p.80).

How governments recruit and under what con-ditions they employ their personnel are in-stitutional issues, where wide diversity of prac-tice may be observed. Obviously, there is noone-best-way, and "no-one-size-fits-all." Inmany parts of the world, patterns in publicemployment have long been bound withtenure and the concept of careers. Thegrowth of political pluralism during the XIXand XX centuries reinforced this trend. Forreasons related as much to political probityas to the proper working of the administra-tive system, civil service reforms have pro-moted the separation between political func-tions and civil service posts. The latter wereprogressively brought into career structures,one of whose main objectives was to bufferpublic servants from external political pres-sures and to safeguard their "neutrality".

To be sure, respect for this neutrality and lackof political tampering with the public serv-ice have been variously observed in differentparts of the world. More recently, however,both "career" and "permanence" have comeunder attack from several quarters. Amongthe arguments put forward in favour of theabandonment of this traditional doctrine,the diversification and changing configura-tion of personnel requirements in the pub-lic sector stand out as incontrovertible. Thecivil service profile in most countries todaybears no relation to its counterpart before theSecond World War. What is more, it is con-stantly changing. With efforts on the way tocurb public expenditures and calls to priva-tize or outsource large sectors of activity, sev-eral governments and public organizationshave come to regard permanent contracts or"tenure" as an obstacle to change, or as anobstruction to rapid response. At times of re-source scarcity, constraints on "trimmingdown" redundant personnel are both foundunacceptable to some and accentuate thefeeling that permanent appointments providestrong disincentives to work hard and toadjustment.

Accordingly, many governments and inter-governmental organizations are currentlyexperimenting with innovative approacheswhich seek to redefine the scope of the pub-lic sector, change the traditional structuresof public organizations and introduce moreflexible, often private-sector-inspired modal-ities for the employment of personnel in thepublic sector. It should be pointed out thatsuccess of such experiments in one countrydoes not necessarily mean they would workin others. Uncritical acceptance of foreign pol-icy transfers, as we have seen, has often ledto unhappy consequences. There are, nev-ertheless, important ways in which com-parison of civil service reforms in differentparts of the world could prove extremelyuseful by shedding light on factors which con-tributed to the success of reforms. Such fac-tors are, for instance, the presence of a well-organized market for high-level skills, a de-veloped and expanding private sector, a cul-ture of respect for the rule of law and a gen-erally supportive legal and institutionalframework. With the analysis of outcomes,cross-cultural comparisons should explorethe factors which contributed to the successof policies and shaped these final outcomes.

After more than two decades of experimentswith change, it would be very useful to pro-ceed with an objective analysis of benefits andcosts and try to demonstrate the strengthsand weaknesses, advantages and disadvan-tages of the policies pursued: what workedand what did not; where, how and, most im-portantly, why.

States� responses to the challenge of global-ization ought to accord priority to the en-richment of the stock of competencies avail-able to governments for purposes of man-agement and policy-making. However, the val-ue of a structured institutionalized approachshould not be overlooked. Governments needto build "a framework of public personnel struc-tures, policies and career paths able to at-tract, retain, develop and motivate the rightpeople and motivate their energies towardsthe public good" (UN, 2000, E/2000/66, Rec-ommendation No. 19). Furthermore, "gov-ernments should take urgent concerted

112


Cross-cultural

comparisons should

explore the factors

which contributed to

the success of policies

and shaped ... final

outcomes

measures to reinforce the ethics infrastruc-ture of their respective countries and to in-troduce a comprehensive set of mechanisms,including merit pay and performance bench-marks, to deal with corruption and generallyraise the standards of public life, national-ly and globally" (ibid., Recommendation No.20).

The role of infrastructures and institution-al frameworks is to act as the key determi-nant of the nature and levels of the compe-tencies and values that a country wants tofoster both in the public service and publiclife in general. Notwithstanding cultural dif-ferences, most countries would agree in in-cluding, in the latter, objectivity, equity, tol-erance, intellectual courage, integrity and,even more importantly today, commitmentto democracy, and respect for human rightsand for the rule of law. Although it would berisky to generalize, it may be fair to arguethat countries find it hard to nurture and sus-tain such values and competencies in the pub-lic service in the absence of certain conditions,which need to be highlighted:

� An institutional framework and a profes-sional cadre for human resources manage-ment and development ensuring for theservice a measure of coherence, consistency,transparency, credibility and predictability;

� A culture of respect for service to society andto the State, and for recognition of merit.

Many developing countries and countrieswith economies in transition are facing se-rious problems in this regard. For example,due to the paucity of pay, which is so low insome countries and so rarely disbursed, pub-lic servants are forced to choose betweenservice to their country and meeting their fam-ily�s basic needs. Experience throughout theworld corroborates the dictum that a "cheappublic servant can cost the State a lot".

However increasing salary levels of public of-ficers would not yield proper results andmight be counterproductive if it were not ac-companied by a commensurate rise in per-formance levels. Raising performance levels

demands concerted action. In turn, such ac-tion demands a truly professional manage-ment of public sector human resources anda holistic approach to their sustained de-velopment. The former would require build-ing a cadre of top-level professionals. The lat-ter would entail well-coordinated actionthrough (a) pre- and in-service training; (b)mobility and rotation; (c) ending the pa-tronage system, where it exists; and (d) re-cruitment, posting and promotion strictlyon the basis of merit (with allowances for af-firmative action). In this regard, it would beadvisable that "the State stop being an em-ployer of last resort" (ibid., p. 14).

To give substance to this approach in concreteterms, the Meeting of the Group of Expertsrecommended �the proclamation of a Unit-ed Nations Public Service Day, which wouldcelebrate the value and the virtue of serviceto the community on the local, national andglobal levels, with prizes to be awarded bythe Secretary-General for contributionsmade to the cause of enhancing the role, pres-tige and visibility of public service" (ibid., Rec-ommendation No. 3).

It may be worth exploring, in the frameworkof the United Nations Programme in PublicAdministration and Finance, other meas-ures to enhance the prestige accorded topublic service worldwide and the relative au-tonomy of the public service profession. Fortoo long and in too many countries, public em-ployment has been viewed as instrumentalto extraneous ends and human resourcemanagement subordinated to short-termconsiderations unrelated to the goal of soundoverall performance in the public service.

Specifically, in several countries, a spoilssystem still prevails. Positions at all levels,though paid from public funds, are virtual-ly appropriated by the political leadership andused for electoral purposes or the exercise ofpatronage. The effects of "clientelism" are com-pounded, in most cases, by the tendency touse the public service as a means or as aninstrument to combat or conceal unemploy-ment. The negative effects of such practiceshave been manifold and visible. Not only have

113


For too long and in too

many countries, public

employment has been

viewed as instrumental

to extraneous ends and

human resource

management

they contributed to inflating staff costs andadding to tax burdens on citizen taxpayers,but they have also tended to "debase the civ-il service coin". A once prestigious profession,it has gradually become the butt of attacksand derision from many quarters.

Efforts to enhance the role, professionalism,performance, ethical values and standardsin the public service ought to begin by ad-dressing this issue. Whatever must be doneto further job creation, using the public serv-ice is not the way. Staffing, recruitment,posting, promotion, career development andremuneration practices must follow objectiveprinciples with only the prestige, perform-ance and integrity of the service in mind.

Though policies will vary from one countryto another, one thing seems certain: thatpolicies and practices of human resources man-agement and development must rest in pro-fessional hands. How to recruit, retain, de-velop and motivate professionals, at variouslevels, is an issue that must be addressed.A complex of activities which seeks to applythe lessons of international practice, inter-national cooperation in institution-buildingand human resources development conveysa powerful message. The means available, interms of knowledge, science, technology andknow-how open immense possibilities forthe world as a whole. Building a public serv-ice worthy of a democracy is well within thereach of most governments. Will the deter-mination to use these possibilities provecommensurate to the challenge of the times?

9. Technology and reform

It has become apparent that globalization hasinvested reform with new meaning. Once anoccasional task of bureaucrats and politicians,it is fast becoming a recurrent event and afacet of the process of modernization. In-creasingly, however, two new dimensionsare added. One dimension is the progressiveexposure of previously veiled structures topublic view and growing public scrutiny; theother may be termed the "internationaliza-tion" of administrative change. On both

fronts, major strides have been made in re-cent years. Most governments now welcomean exchange of information and some indeedaccept a measure of convergence of admin-istrative practice, notably as a prerequisiteof their accession to wider regional groups(e.g., the acquis communautaire, required forfuture membership of the European Union).

Reflective of the effects of technologicalprogress in accelerating the transition froma closed to an open systems approach and inpromoting transparency of government op-erations, this new exposure of national ad-ministration to domestic civil society and in-ternational scrutiny is welcome on thewhole. It fosters sensitivity to public expec-tations and may serve to reinforce greater re-spect for professionalism in the public serv-ice. There are nevertheless also potential down-sides. One is a certain risk that the respon-sibility for administrative action may bedangerously diffracted and that accountabilitymay suffer, as a result. The other is the ten-dency to exaggerate the scope for meaning-ful comparisons and policy transfers.

Capacity-reinforcement must therefore beunderstood in broad strategic terms as along-term endeavour, indeed a continualtask of shaping, redefining and revampinginstitutions with the help of evolving tech-nologies and refining human competenciesin this light. The potential is enormous. Buthow to ensure that progress driven by mod-ern technologies follows the paths of reasonand serves the public interest is the challengethat public institutions at the national, sub-national and international levels must face.

9.1. Information technology: itspromise and potential for reform

IT carries in it the prospect of major re-forms in the whole field of governance andpublic administration. These could takeshape and form in any of the following ways:

� More efficient and effective public man-agement;

114


Capacity-

reinforcement must ...

be understood in

broad strategic terms

as a ... continual task

of shaping, redefining

and revamping

institutions with the

help of evolving

technologies and

refining human

competencies in this

light

� More accessible and better informationfor the public;

� Better delivery of services; and

� Building partnerships for interactive andparticipative governance.

Though in the 1960s and 1970s computerswere already widely used by governments toimprove the efficiency and effectiveness of theiroperations, it is since the 1980s that infor-mation technology has been applied more mas-sively, not only on the operational, but alsoon the tactical or managerial and strategiclevels. Innovations, in the form of Manage-ment Information Systems (MIS) and Deci-sion Support Systems (DSS), are graduallytransforming the processes of governance.Thus, they have made governments in mostdeveloped countries the largest single usersof IT and predominant consumers of IT prod-ucts in many developing countries.

Information systems have greatly improvedeffectiveness, efficiency and productivity ingovernment. For example, an integrated net-work-based national revenue managementsystem will collect information speedily andeffectively, enable revenue officers to receivecases more quickly and also automate andmodernize the tax collection process. Fur-thermore, it will empower the treasury de-partment to collect taxes more productive-ly, which is, of course, a benefit to govern-ment and the country.

A significant concomitant of computerizationis the exploitation and utilization of gov-ernment data/information resources. Theprocess of computerizing government busi-ness is de facto a process of exploitation ofgovernment information resources. It is wellknown that one of the primary activities ofgovernment is record-keeping. On the oper-ational level especially, government author-ities collect, process, maintain and update var-ious kinds of data on individuals, families andorganizations. As a result, the governmentbecomes the largest public information own-er and manages vast resources of data. In manydeveloping countries, the government is fre-

quently the only producer and manager of rel-evant economic and social data.

Information is a valuable resource. Howev-er, it must be developed so that it can bet-ter serve users. The traditional means forobtaining and disseminating informationwere books, journals, indexes, libraries andarchives. Favoured today, by contrast, aredigitization and computerization of dataand information in such forms as digitizeddocuments, digitized images, audios andvideos, databases, data mining and datawarehousing. Thus large amounts of da-ta/information can be effectively, promptlyand easily stored, reprocessed, retrievedand transmitted widely.

In this and other ways, IT facilitates gov-ernment information services. In democrat-ic societies, one of the government�s princi-pal responsibilities is to report on its affairsto its citizens. The administration has the du-ty to inform individuals of their rights andobligations and to maintain good relationswith them. An individual citizen�s under-standing of the public service depends not onits outcomes only, but also on the way in whichhe or she is informed. Therefore, to make in-formation accessible and intelligible to thepublic is a critical component of governmentservices to citizens and a powerful means tofacilitate popular participation in theprocesses of government.

IT is changing the ways of public informa-tion. Electronic distribution of governmentdocumentation and increasing public accessto government information are being devel-oped very quickly in many countries. Manygovernments have set up websites and con-nected databases and information systemsto the Internet, thus enabling the public tosearch, locate, view and download governmentreports, studies, computer software, datafiles and databases. IT promotes the shar-ing of information resources and makes gov-ernments able to provide more and better in-formation services cost-effectively.

By improving public access to information,IT has helped to foster transparency and ac-

115


IT is changing the ways

of public information.

Electronic distribution of

government

documentation and

increasing public

access to government

information are being

developed very quickly

in many countries

116


Box IV.2

HOW DID THE INTERNET DEVELOP?

The Internet began as a government project, more specifically, as a project of the Advanced Research ProjectsAgency (ARPA) of the United States Department of Defence. The Pentagon asked ARPA to design a computer networkthat would be secure and resist attack in the event of war. Researchers at ARPA developed the concept of packet-switching, in which data is split into tiny packets that may take different routes to arrive at a final destination, wherethey are re-assembled. From a military point of view, such a network is secure for two reasons. First, it is difficult for anenemy to make sense of intercepted, unassembled packets. Second, since there is more than one route to adestination, if one node is destroyed by enemy action, the packets can travel by an alternative route.

ARPANET, precursor of today�s Internet, linked four research centres in 1969, and 15 by the year 1971. In 1973 ARPANETwent international, with links to University College of London and the Royal Radar Establishment in Norway. Thedevelopers of ARPANET had in mind communication between machines (long distance computing and file transfers)rather than communication between persons (electronic mail and discussion groups). It turned out that, contrary toexpectations, communication between people became much more popular than communication betweenmachines. In 1971, Ray Tomlinson of ARPANET invented e-mail, and it was an instant success. Various discussion groupssprang up, where a person asks to receive all posts on a particular topic, and the volume of e-mail in ARPANETaccelerated. To the dismay of the Pentagon, which was financing the network, the most popular discussion group wasone on science fiction.

The first step toward extending this new tool of communication beyond the small group of ARPA subcontractorsoccurred in 1974, with the creation of Telnet, a public version of ARPANET. In 1979, two graduate students made use ofTelnet to establish USENET "newsgroups" that exist to this day, and continue to grow. Newsgroups differ from thediscussion groups of ARPA in that, instead of signing up for receipt of all posted messages, a member accesses anelectronic bulletin board where the messages are temporarily stored. Various other networks, such as BITNET and CSNET,were established to provide services (especially e-mail) to university researchers with no access to ARPANET.

On January 1, 1983 ARPANET adopted Transmission Control Protocol/Internet Protocol (TCP/IP), a date that, for many,marks the birth of the Internet. The Internet is the global interconnection of millions of otherwise independent computersand information systems. TCP/IP makes this interconnection possible. The Internet Protocol (IP) provides an address foreach tiny packet of data, which can then be transmitted by any of a number of routes, using otherwise incompatiblecomputers of different makes and models. The next higher layer of protocol, the TCP, handles the re-sending of anypackets that might have been lost, and reassembles the packets at their destination. The authors of TCP/IP use theanalogy of �electronic postcards� to explain how the Internet is able to transmit packets (Kahn and Cerf, 1999).

After TCP/IP, the most important development to date for the Internet was the release in 1991 of the World Wide Web(WWW), which was developed by Tim Berners-Lee at CERN (Switzerland). The WWW "browser/editor" gave anyone witha modem and a computer access to documents throughout the world. Users of the browser do not have to know this,but it functions thanks to a special protocol known as Hypertext Transfer Protocol (HTTP), and, for fast retrieval,documents can be written in Hypertext Markup Language (HTML). The first browser did not support graphics, but thischanged in 1993 with the release of Mosaic (which developed into Netscape) and the WWW revolution truly began.Business and media began for the first time to take notice of the Internet, and the number of web sites mushroomedfrom 623 in December 1993 to 100,000 in January 1996, one million in April 1997, 3.7 million by year-end 1998 and 9.5million by year-end 1999.

As of November 2000, an estimated 407 million persons worldwide were accessing the Internet, more than twice the201 million of September 1999, and more than 15 times the 26 million estimated to have been online in 1995 (Nua, 2001).As impressive as such growth is, it implies that the Internet still reaches fewer than 7 percent of the world�s population.Moreover, it tends to reach the wealthiest and most educated of this population, for the Internet, like earlier ICT, hasspread unevenly. (It is said that half the inhabitants of our planet have never used a telephone and, more than fivecenturies after Gutenberg, illiteracy continues to block the access of many to both books and the Internet.) There aremore users of the Internet in affluent Sweden than in the entire continent of Africa, more in Britain than in Latin Americaand the Caribbean. The number of unique documents on the World Wide Web, as of January 2000, is estimated atmore than one billion, posted on 4.2 million unique servers, and additional documents are being posted at a rate ofmore than 20 million a month. Not surprisingly, English is the language of preference on the web, for 86.55% of all pagesare written in this language, and an additional 2.36% in the French language (Inktomi, 2001).

Source: Willmore, 2001.

countability in government. In the past twodecades, IT has also played a major role inhelping to spread the concept of a more ef-ficient and responsive public sector, based on"service management". Emphasis on thisconcept has also led to extensive use of ITtools for measuring the effectiveness andefficiency of public services.

IT has made a start at changing the modal-ities of public service delivery. For centuries,the notion that citizens might actively par-ticipate in all public affairs and make sub-stantive inputs in policy decisions remaineda distant prospect. Now government websites,e-mail and other means could turn such par-ticipation into a reality. Electronic polling,for instance, by either public or private in-stitutions, will probably take place in the verynear future. If family computers are connectedto a national or local information infra-structure and wired up to government web-sites, a two-way communication system willhave been established. At the local commu-nity level, an Intranet may also be set up.This Intranet may be used to sample opin-ions in a quick and painless fashion. Ques-tions put on an administration�s websitewould appear on the computer screens of allthe households connected to it. Viewerscould click the icon which they select on thescreen, and thus a poll is taken. Each house-hold on the network could then be brieflyscanned; the choices and results accumulatedwould appear in a matter of a few seconds.

Electronic referenda and electronic voting mayalso happen eventually. An on-line voterguide could provide the public with currentinformation about elections. Consultation onnational issues may take place and elections,either local or national, could be conductedthrough the Internet. The voting can take placewherever the voter is, provided that elec-tronic votes are properly designed. It goes with-out saying that such electronic polls, referendaand voting systems must meet political as wellas technical requirements of accuracy, relia-bility and eligibility, when required.

In the public and private sectors, IT is rap-idly changing not merely work processes

and ways of doing business, but also formsand structures in organizations. For exam-ple, with the Internet and on-line databas-es, all kinds of information text, graphics, im-ages, voice or video can be accessed andhandled by many individuals concurrently.Accordingly, it is possible to carry out activ-ities and workflows at different posts si-multaneously if computers and informationnetworks are in place. Knowledge manage-ment systems, with the help of a search en-gine on the Internet can capture the knowl-edge of specialists and non-specialists for rou-tine decision-making. Delegation of author-ity to lower levels of responsibility within anorganization thus becomes a distinct possi-bility. Traditional hierarchical organiza-tional structures based on pyramidal flowsof information could be rendered obsolete. IThas the potential to bring about significant-ly altered organizational structures previouslybased on hierarchical distribution of infor-mation, diminish the value of departmentalboundaries, and change the way decisions aretaken and communicated.

Since the mid 1980s, accordingly, the focusof IT has shifted, from the quest for efficiencyand productivity by automating routinetasks, to the achievement of effectiveness interms of new approaches to traditional tasksand solutions to new tasks. State agenciesand enterprises in many countries are cur-rently engaged in restructuring their or-ganizations in manners more appropriate tothe new IT environment. In this process, theyare removing layers of traditional manage-ment, compressing job categories, creating workteams, training employees in multi-levelskills, simplifying business processes andstreamlining administration. The outcomesof this re-engineering have demonstratedthe scope for administrative reform as wellas shown that, ultimately, decisions on thepace and extent of such reform depend on thequality of top management.

9.2. Delivering on promises: copingwith the digital divide

The paradigm of a knowledge-based econo-my is not an impossible dream for the de-

117


Traditional hierarchical

organizational

structures based on

pyramidal flows of

information could be

rendered obsolete

veloping countries. Still, moving to a knowl-edge-based economy may not be either fea-sible or meaningful for all countries, espe-cially in the short term. "It is important tonote that bridging the �digital divide� is notsimply an issue of building an informationinfrastructure, nor of buying and handing outcomputers and modems to everyone in a so-ciety. Indeed, moving to a knowledge-basedeconomy and becoming integrated into theglobalization process involves more thanjust acquiring and using IT. Specific policychoices, the ability to absorb new technolo-gies and success in creating a national �IT cul-ture� are also important variables. It shouldalso be noted that in some developing coun-tries there are major technical problems.For example, in many rural areas of SouthAfrica and in the rest of Africa, electricity isa scarce or even unavailable commodity"(Thornhill, 2000, p. 13).

These critical prerequisites highlight thecrucial role that only States can play. The ini-tiative must come from duly empowered gov-ernments acting in cooperation with civilsociety. Governments need to articulate a vi-sion and a strategy based on the situationin their respective countries. They mustthen galvanize the needed political will, com-mit the resources and mobilize for action thatwill eventually lead their countries to inte-gration in the process of globalization and theemerging information-based global system.With a keen sense of priorities, governmentsmust be aware of the advantages and pitfallsof IT. Notwithstanding the widely acknowl-edged potential of IT, evidence of its impactis still limited, particularly in developingcountries. It is also instructive to note thatIT-based concepts such as e-government ande-commerce, in which all internal activitiesas well as external relations with partnersare conducted substantively through electronicmeans, have yet to become a widespread re-ality. The problems in achieving and meas-uring the immediate impact on productivi-ty and competitiveness are common to boththe public and private sectors.

For national governments, the most impor-tant and immediate task is the formulation

and implementation of a coherent nationalIT strategy which clarifies priorities, mapsout an action plan over the short, mediumand long term, and establishes roles for boththe public and private sectors. In many de-veloped countries, such a national IT strat-egy exists only implicitly because of the highlevel of understanding of IT and the existenceof numerous specialized institutions withsubstantial experience in IT. However, for allcountries, an explicit IT strategy is requiredwhich would serve to catalyze inducementsof acquisition and diffusion of IT.

The information revolution poses significantchallenges to States not only in the developingcountries but also in the developed world. Byway of simplification, it may be said that gov-ernments are confronted with the followingchallenges:

� To introduce IT in the public sector, totrain civil servants, to enhance the efficien-cy of service delivery through the use of IT,and to improve effectiveness, accountabili-ty and citizen participation;

� To elaborate policies, which ensure computertraining and affordable access to informationtechnology for the disadvantaged groups insociety;

� To encourage, through appropriate meas-ures, on-the-job training and re-training, aswell as to promote life-long learning in thepublic sector;

� To elaborate policies aimed at creatingsafety nets for those laid off as a conse-quence of the introduction of IT in the work-place;

� To assist countries, particularly develop-ing countries, in building or improving theircapacity to access, manage and exchangethe information that is so critical for efficientpublic sectors and effective policy develop-ment.

In this sphere of activity, as in other areas,the progress of technology and globalizationhas served to accentuate the importance of

118


For national

governments, the most

important and

immediate task is the

formulation and

implementation of a

coherent national IT

strategy

democratic, efficient States acting singly orin unison through inter-governmental or-ganizations. IT has also enhanced the needfor highly skilled professionals in the serv-ice of the government. Ultimately, to quotean ancient dictum: "the measure of all thingsis Man" (i.e., men and women).

119


120


Footnotes - Chapter IV

1 See also Yehezkel Dror, "Workshop on Governance for the 21st Century: Upgrading Capacitiesto Govern," unpublished report submitted to UNDESA/DPEPA, 1997; report to the Director ofDPEPA/DESA, in preparation of the Fourteenth Meeting of the Group of Experts on the UnitedNations Programme in Public Administration and Finance.

2 G. Timsit and G. Bouckaert, �Administrations et Mondialisations�. Report prepared for theInternational Institute of Administrative Sciences and the United Nations, submitted to theDirector of DPEPA/DESA for the Fourteenth Meeting of the Group of Experts.

3 Institute for Research on Inter-Cultural Cooperation, The Netherlands.

4 A regional initiative in this direction was taken by the Second Pan-African Conference ofMinisters of Civil Service. A Ministers� task force, broadly representative of the main groupsand traditions on the Continent, was set up to design a code of ethics for African publicservants. It reported on its findings to an Experts Meeting convened at United NationsHeadquarters in New York, on 24-26 November 1999 under the joint auspices of the UnitedNations and CAFRAD. The Meeting approved a draft, which was submitted at a meeting ofMinisters in Rabat, Morocco (17-19 January 2000). It was presented at the Fifteenth Meetingof the Group of Experts, held in New York (8-12 May 2000). It was adopted at the Third Pan-African Conference of Ministers of Civil Service in Windhoek, Namibia (5-6 February 2001).This public service code might serve as a model for similar codes on public serviceprofessionalism and ethics of a regional scope. Other related conferences on this theme includethe International Seminar on Ethics and Public Administration in Latin American Countries,cosponsored by UNDESA, at Isla Margarita, Venezuela (October 1997) and a Symposium onEthics in the Public Service: Challenges and Opportunities for OECD Countries, organized bythe Public Management Service (PUMA) of OECD (November 1997). This was followed by aMulti-Country Seminar on Normative and Institutional Structures Supporting Public ServiceEthics organized by Support for Improvement in Governance and Management (SIGMA) inCentral and Eastern European Countries, at OECD Headquarters in Paris. Their findings werefed into the proceedings of yet another conference held in Thessaloniki, Greece (November1997). The subject of that conference was Public Service in Transition: Enhancing its Role,Professionalism, Ethical Values and Standards. Other subsequent events included theColloquium on Promoting Ethics in the Public Service, co-organized by UN/DESA, the FederalGovernment of Brazil and the Hyundai Corporation in Brasilia (8-10 December 1997).

centralization, deregulation and privatizationwere also accorded prominence. What can wesay of the outcomes? There have been reportedsuccesses, mostly in the North and West, butalso stories of failures in many developingcountries and countries in transition. The char-acterization of the 1980s as �the lost decade�and of the 1990s as a �mixed bag at best� givesthe measure of the distance between expec-tations and outcomes.

2. Reforms must be home-grown and made to fitreal needs

Preliminary findings embodied in this doc-ument give only a partial picture of what clear-ly is a highly complex, prismatic situationworldwide. A systematic study of past pro-grammes and policies would greatly assistthe quest for more appropriate strategies andmethods of reform than those already triedin the past two decades. It must be carriedout, and the United Nations, first in thefield and sponsor of arguably the oldest pro-gramme of technical cooperation in public ad-ministration and governance, is well positionedto put it into effect. However, the weight ofavailable evidence, as shown in this Report,points to a convergence of views on certainsalient features of past approaches andmeasures:

� Arather dogmatic and technocratic approach,which failed to take account of the com-plexities of particular national circum-stances and overemphasized one facet of re-form (e.g., cutback management) over allothers. Now widely criticized as �reduction-

his Report embraces the opin-ion, put forward by the Secretary-General of the United Nations,that globalization must be prop-

erly understood as a complex phenomenon,as well as a source of opportunities which canbe widely spread, but which so far havetouched and benefited only a few. The chal-lenge that confronts us is to ensure thatmore people around the world can benefitfrom globalization.

1. What went wrong?

The weight of the available evidence strong-ly suggests that, in the past two decades, manydeveloping countries and countries in tran-sition were victims of advice on policy deci-sions which, in the last analysis, not alwaysbore relevance to their particular circumstancesand needs. In contrast to the strategies pur-sued in prior years, such policy prescrip-tions de-emphasized the role of the institu-tions of government, which they portrayedin essentially negative terms, as obstacles togrowth and the progress of globalization.This negative view of the State went in tan-dem with attacks against the public serviceand the glorification of private sector waysover the public sector.

Experience demonstrates that States withweak institutions have not been able to em-power their citizens to take part in global-ization or to fend off the implied social costs.The language of discourse and measures ad-vocated reflected the ideology which heldsway in the West, during the 1980s and ear-ly 1990s. Devolution of responsibility, de-

121

LOOKING TOWARDS THE FUTURE

T

Chapter V

Looking towards thefuture


that their elected government has lost con-trol of events.

3. Making democracymeaningful: the need for astrong, strategic State

Experience demonstrates that the failure ofdemocracies to make any meaningfulchanges in the social and economic conditionsof their citizens, lead to public cynicism, ap-athy and alienation. What we call �the na-tion-State� which, needless to point out, isdifferent today than half a century ago, is thebest instrumentality we have at our dispos-al in order to accomplish our purposes in dem-ocratic ways.

The State is indispensable to democraticgovernance. It has been pointed out, however,that several of its tasks cannot be carried out,as in the past, in centripetal fashion out ofthe national capital. Important functions ofgovernment have been devolved on the sub-national level and, more significantly, majordecisions of government are taken in the frame-work, or subject to provisions of inter-gov-ernmental regimes (e.g. World Trade Orga-nization) and supra-national bodies (e.g. Eu-ropean Union). As the Fifteenth Meeting ofthe Group of Experts has aptly pointed out,this situation makes major new demands onMember States of the United Nations, forwhich developing countries and countriesin transition are often ill prepared. Indeed,it may be argued that the capacity deficit, thatis to say the distance between what countrieshave and what it takes to make them well-functioning democracies, as well as effectiveplayers on the international scene, is one ofthe main causes of the crises plaguing theworld.

4. The State as linking pin: astrong supportive centre

One of the principal findings and messagesof this Report is that we need the State, andthat the State, increasingly, will functionon three levels:

ist�, this approach took for granted a meas-ure of convergence of managerial cultureswhich appears, in retrospect, as somewhatunrealistic. It correspondingly pressed for �onebest way� solutions which earned it the de-scription: �one-size-fits-all�. What is neededare customized approaches to meet the di-verse needs of individual countries� (UN,2000, E/2000/66, p. 15). In fact, �an overlytechnocratic or purely economic growth ap-proach to institutional development divorcesthe institutional strategy from the socio-eco-nomic strategy and political environmentwhich it is meant to serve.� (ibid., p. 11)

� A related criticism has faulted the rela-tionship between recipient and donor. Con-trary to officially accepted doctrine, toomany programmes proved to have been sup-ply-driven. In many cases, accordingly, reformshave been externally induced. Too often, asa result, style has invaded substance and pro-grammes were concerned with �quick fixes�rather than long-term progress.

The lessons of experience strongly point to theconclusion that reforms to be successful and,accordingly, aid programmes to produce�user-friendly� results, must clearly be:

� Home-grown;

� Demand-driven; and

� Internally consistent and duly coordinat-ed on the national policy level.

It has become apparent that the design andconduct of programmes of reform requirethe steady involvement of competent na-tional teams, which must be in the driver�sseat. Main policy decisions cannot be �out-sourced� to consultants, however good. How-ever well-intentioned and technically ac-complished, foreign advice must stay with-in the bounds of counselling and guidance.Overstepping that limit is both counter-pro-ductive and dangerously shortsighted. Car-ried too far, it undermines the confidence ofpeoples in their respective governments andinstitutions. Democracy is �hollowed-out�and accountability lost when citizens conclude

122

The State is

indispensable to

democratic

governance ...

however ... several of

its tasks cannot be

carried out, as in the

past, in centripetal

fashion out of the

national capital

� the national, or central government level;

� the sub-national level, as a result of aprocess of devolution of functions, to local gov-ernment structures, or even non-state actorsoperating within bounds established by theState and under its supervision; and

� the international level, where an entire ed-ifice set up for global governance is slowlytaking shape, but clearly is underpinned bynation-States and driven by the initiativeswhich they deploy.

Increasingly, the State is called upon toserve as linking pin of these three levels, toharmonize and coordinate activities andprocesses involving diverse actors, govern-mental and non-governmental, national andinternational, with interests and agendas thatmay differ substantially. A strong support-ive centre within each nation-State representsan essential prerequisite of:

� Domestic peace, tranquillity, socio-eco-nomic development and progress on the pathto decentralization, deregulation and debu-reaucratization; and

� International cooperation in ways thatbring prosperity not only to a minority, butto the great majority of the world�s popula-tion.

The present Report explores the concept ofan �intelligent, democratic State,� which itviews as the antithesis of �bureaucracy� and�big government�. The stress is squarely onquality, integrity and equity rather than vol-ume or quantity. It emphasizes leadership,empowerment, example, motivation, dis-cussion, negotiation, accommodation andconciliation, rather than �slash and burn� andsimilar top-down command approaches. Toraise performance levels in this regard, theReport calls for:

� professionalism in government; and

� capacity-building or capacity-reinforce-ment.

5. Building the essential competence for an intelligent,democratic State

There can be little doubt that giving democ-racy meaning and raising the level of com-petence in governance begin with the rein-forcement of the capacity of States to meetthe needs and expectations of their citizens.Precisely on this account, a major recom-mendation of this Report is the urgent needto build up in all developing countries andcountries in transition:

� Diagnostic capacity; and

� Strategic capacity for the design, the con-duct, monitoring and evaluation of pro-grammes of reform.

In this age of globalization and rapid advancesof science and technology, there will alwaysbe need for foreign expertise and specializedassistance. However, what is necessary is fordeveloping countries and governments in gen-eral to have at their disposal and under theircommand the necessary deep knowledge,know-how and range of skills in order to be able:

� To design, implement and evaluate effec-tive national policies;

� To conduct the consultations and negotia-tions needed at both the international andthe sub-national levels in order to elicit, ar-ticulate, promote and defend the public in-terest; and

� To help establish and consolidate peace, bothnationally and internationally, and playtheir part as members of the global communityeffectively.

Here are some generic requirements, whichthis study has revealed:

� Professionalism in public policy planningand development;

� Professionalism in policy and programmeimplementation;

123


There can be little

doubt that giving

democracy meaning

and raising the level of

competence in

governance begin with

the reinforcement of

the capacity of States

to meet the needs and

expectations of their

citizens

� Professionalism in human resources man-agement and development;

� Professionalism in the management ofmoney, equipment, technology and informa-tion; and

� Professionalism in performance measure-ment, monitoring and evaluation.

As pointed out in a recent report of the Unit-ed Nations:

�Professionalism in government, or any oth-er field, rests on two foundations: one is a com-petence base, a special body of knowledge ora definable skill acquired through study andpractice. The concept of professionalism,however, also suggests a shared values sys-tem, a code of ethical conduct that manifestthemselves in the application of knowledge,the use of particular skills, and in the exer-cise of control over practice� (UN, 1999,ST/ESA/PAD/SER.E./3, p. 97).

Enhancing professionalism is also predicat-ed on two related objectives:

� First, to restore, enhance and highlight thevirtue, value and dignity of service to the com-munity;

� Second, to promote and take concertedmeasures which are required to raise moti-vation, morale, integrity and commitmentamong all public servants, elected and ap-pointed, and at all levels of government.

6. Reinforcing core publicservice values

Reinforcing core public values should bebased on a number of elements:

� Revaluation of learning, integrity andcompetence;

� Stress on the merit system, while payingdue regard to affirmative action in favour ofminorities and historically or otherwise dis-advantaged groups;

� Growing sensitivity towards and respect forthe citizens� needs;

� Low tolerance for laxity, corruption andcrime;

� Increasing recognition of the need to ac-knowledge and to reward industry, loyalty,accomplishment and merit;

� Increasing recognition of the value of neu-trality of civil servants and of the need to se-cure a degree of autonomy of public person-nel management from extraneous pressuresin order to safeguard high quality perform-ance, motivation, integrity and professionalismin the public service;

� Increasing recognition of the value ofcross-cultural and international links asmeans towards the improvement of the pro-fessional image and performance of the pub-lic service (ibid., p. 24)

7. Assisting developingcountries with institution-building

It is idle to pretend that such values can beestablished and fostered overnight or with-out any regard to the political, social and cul-tural environment in which a public serviceoperates, but also and most importantly,without appropriate structures, legislative andpolicy frameworks designed to tap, attract,retain, develop and motivate the neededmen and women using their skills produc-tively and effectively. Assisting developing coun-tries and countries with economies in tran-sition in building or refining these structuresand policy frameworks represents an ur-gent priority and a strong recommendationof this Report. It cannot be overstressed thatpolicy advice and programmatic assistanceoffered by either the bilateral or the multi-lateral programmes must respect the distinctlegal and political traditions of differentcountries, which vary widely. Some countries,for example, adhere to a tenure career sys-tem, while others, by contrast, prefer moreflexible staffing arrangements. One size does

124


Assisting developing

countries and

countries with

economies in transition

in building or refining ...

structures and policy

frameworks represents

an urgent priority

not fit all. Nevertheless, experience strong-ly suggests the need to professionalize hu-man resources management and develop-ment in the public service sector. It seemsrather incongruous that a large body ofknowledge and accumulated experience onthese subjects has yet to make its mark oncivil service reform and public administra-tion, in all too many countries. It is even moreregrettable that public service employmentremains, in several countries, a haven ofclientelism, patronage and partisanship. Notsurprisingly, in such countries, the State isalso regarded as the employer of last resort.We must revaluate public service as a nec-essary prerequisite to reinforcing democra-cy, the State and sustainable development.Whatever measures are needed to combat un-employment, using the public sector asrefuge for the jobless is certainly not the way.

8. Building networks amongpublic services: the UnitedNations can help

One of the visible outcomes of globalizationis that it has expanded the range of contactsamong senior civil servants and governmentofficials from different parts of the world. Del-egates and representatives from North andSouth periodically meet at international con-ferences, which are convened for purposes oftrade negotiations or to develop the basis ofinternational cooperation in any of a num-ber of major policy areas. At meetings ofthis nature, national representatives from thedeveloping countries suffer from many draw-backs, which cannot be readily remedied. Notonly are they required to bargain from a weak-er negotiating position, but in so doing theymay also compete unfavourably in terms ofinformation, degree of specialization andtime they may devote to mastering a subject.They often lack the equipment, databases,and support staff, which are not as readilyavailable in the South and East as in the Northand West. They live from hand to mouth, cop-ing with emerging crises, dealing with toppriorities but, for that very reason, alsotempted on occasions to leave other mattersaside. Under such conditions, the broader long-

term issues, including global agendas, maynot receive the attention which they de-serve.

There is no easy solution to this difficultpredicament of small developing countries andcountries in transition. However, there areways in which the international communi-ty could facilitate a more active and effectiveparticipation of the developing countries ininternational governance. One obviousmodality is policy advice and briefing onemerging major issues of policy; another isassistance in coping with the deficit in di-agnostic, negotiating and related skills; a thirdcould take the form of online networks pro-viding up-to-date and comparable data in read-ily usable form. The United Nations OnlinePublic Administration Network (UNPAN)affords an illustration of what advancedtechnology can do to bring policy advice, in-formation and training within the reach ofofficers in the developing countries.

Globalization and rapid change trigger twoantithetical although concurrent trends:convergence in some aspects, but also di-vergence and diversification in others. Thereexists today an infinitely greater variety ofspecializations, group interests, ideologies,and points of view than fifty years ago. Thisgrowing differentiation poses a challenge tomanagers that goes beyond the need for tol-erance of diversity. It calls for listeningskills, capacity to mediate and arbitrate,finding a common ground between opposingviews, turning potential conflicts into win-win situations, and sources of opportunity forthe greater good of all.

9. Helping developingcountries to cope withcomplexity and change

Helping developing countries and countriesin transition confront the pressing chal-lenges of globalization must also encompassprogrammes designed to enhance capacity incoping with diversity, complexity andchange. The need is institutional, in otherwords, it requires the crafting or fine-tuning

125


Globalization and

rapid change trigger

two antithetical

although concurrent

trends: convergence in

some aspects, but also

divergence and

diversification in others

of structures for consultation, mediation andpolicy coordination, but also manifests itselfin the new required profile for senior policyadvisers and senior public managers. At thenational, sub-national and international lev-els, both policy advisers and senior public man-agers are increasingly faced with the de-manding tasks of reconciling differences,mediating disputes, resolving thorny con-flicts, negotiating agreements and trying tobuild consensus in a volatile environmentwhere differentiation takes on a variety offorms:

� Diversity of cultures, ethnicity, language,religion or ideology;

� Diversity of political, legal and economicsystems; and

� Diversity of conditions, interests and view-points.

The above are all compounded by an enor-mous range of fields of specializations thatgo into policy-making and policy-implemen-tation. Tackling complex issues effectively callsfor substantial knowledge of economics, pol-itics, psychology and law, as well as other dis-ciplines depending on the nature of the prob-lem at hand. It calls for historical depth andcomparative perspective, and uncommonsensitivity to the dynamics of human inter-action. There is a pressing need for properresponses to globalization, which can bringmany opportunities to developing countries.Nevertheless, as indicated in the Report, italso has social adjustment costs which re-quire both States and other players on theinternational scene to strengthen their ca-pacity for long-term policy planning. They callfor institutions and competencies needed tohandle consultations on multi-faceted issuesof considerable complexity. The interna-tional community can play a major role inthis respect through policy advisory servic-es, targeted training programmes, and in-formation exchanges. Its task is really twofold:� On the level of the States, it needs to co-operate with the developing countries and coun-tries in transition in building the capacitywhich makes for democratic and more effective

governance, but also will enable them to bemore active players on the internationalscene;

� On the international level, it needs to co-operate with all the States, as well as NGOsand other non-state actors in improving,modernizing and fine-tuning the machineryfor global governance.

10. Making globalization an instrument of inclusion

To turn globalization into an effective in-strument of inclusion and opportunity, notfear, we should endeavour to make it workfor the good of all and of the future; not justfor the short-term and for the good of a few.This is no easy task, given the vast dispar-ities of power and wealth and the realitiesof global power politics. Still, even within theseconstraints, possibilities do exist; we mustseize these opportunities. Mobilizing worldopinion for international action on issues ofglobal concern is our best chance. Success ispredicated on democratic States shoulderingtheir responsibilities and playing an activepart in global governance. Reinforcing statecapacity, as well as making the global insti-tutional framework more democratic, arenecessary conditions for people to enjoy thebenefits of globalization and to protect andpromote the interests of vulnerable groupsin society. In fact, globalization is an oppor-tunity and a challenge. Working together itcan be made into a formidable tool for theprogress of all humanity.

126


Mobilizing world

opinion for

international action on

issues of global

concern is our best

chance [for success]

References - Part One

Administration and Cost of Elections Project (ACE) (2001). �The user�s guide to the ACEproject electronic resources�, United Nations; International Idea Institute forDemocracy and Electoral Assistance; and International Foundation for ElectionSystems (www.aceproject.org).

Allen, Richard (1999). �New Public Management: Pitfalls for Central Europe�, in PublicManagement Forum, 1 (1).

Amin, Samir (1999). �Economic Globalization and Political Universalism: Conflicting Issues?�,in Journal of the Hellenic Diaspora, 25 (1).

Amoako, K.Y. (2000). Executive Secretary of ECA, �The Market, Democracy and Developmentin Africa�, Keynote Address at the 40th Anniversary of Africa Confidential, 19 April,London.

Annan, Kofi, United Nations Secretary-General (2001). Cyrus Vance Lecture Series on thePrevention of Deadly Conflict, New York.

___ (1999). The Wall Street Journal, Nov. 24.

Australia (2000). Attorney General, statement on Information Technology and the Courts inAustralia, April.

Barberis, Peter (1998). �The New Public Management and a New Accountability�, in PublicAdministration, 76 (3).

Barzelay, Michael (1998). �The New Public Management: Comparative Analysis of PolicyChange�, paper presented at the �Managerial Reform of the State� InternationalSeminar, Brazilia.

Beck, Ulrich (2000). What is Globalization?, Polity Press, Cambridge, UK.

Birdsall, Nancy and Juan Luis Londoño (1997). �Assets inequality matters: an assessment ofthe World Bank approach to poverty reduction�, in American Economic Review, May.

Boston, Jonathan, P. Dalziel and S. St. John (1999). Redesigning the Welfare State in NewZealand, Oxford University Press, Auckland.

Boyne, George A. (1996), �The Intellectual Crisis in British Public Administration: Is PublicManagement the Problem or the Solution?�, in Public Administration, 74 (4).

Bresser Pereira L.C. (1998). �La reforma del Estado en los años noventa�, in DesarolloEconómico, 150 (38).

Buscaglia, Edgardo and Maria Dakalios (1999). Comparative International Study of CourtPerformance Indicators. A descriptive and Analytical Account, World Bank,Washington D.C.

BusinessWeek (2000). Special Report, �Global Capitalism. Can it be made to work better?�,November 6.

Cable, Vincent (1995). �What Future for the State�, in Deadalus, March 22,(http://www.globalpolicy.org/globaliz/econ/globnat.htm).

Caiden, Naomi J. and Gerald E. Caiden (2000). �Toward More Democratic Governance:Modernizing the Administrative State in Australasia, North America, and the UnitedKingdom�, paper prepared for the Group of Experts on the United NationsProgramme in Public Administration and Finance at its Fifteenth Meeting,(DPEPA/DESA).

Caiden Gerald E. (1991). Administrative Reform Comes of Age, De Grugter, New York.

127

REFERENCES

Clark, Barry (1998). Political Economy: A Comparative Approach, Praeger, Westport, CT,Second edition.

Commission on Global Governance Report (1995). Our Global Neighbourhood, OxfordUniversity Press, Oxford.

Computer Industry Almanac Inc., 2001. (http://www.c-i-a.com).

___ 2000. (http://www.c-i-a.com).

Cutter, W. Bowman, Joan Spero and Laura D�Andrea Tyson (2000). �New World, New Deal: ADemocratic Approach to Globalization�, in Foreign Affairs, Vol. 79, No. 2.

Davis, Glyn, Barbara Sullivan, and Anna Yeatman (eds.) (1997). The New Contractualism,Macmillan Education, Melbourne.

DeLeon, Linda and Robert G. Dernhardt (2000). �The Political Theory of Reinvention�, inPublic Administration Review, 60 (2).

De Soto, Hernando (2000). The Mystery of Capital: Why Capitalism Triumphs in the West andFails Everywhere Else, Basic Books, New York.

Diamond, Larry (1999). Developing Democracy toward consolidation, The Johns HopkinsUniversity Press, Baltimore.

Dwivedi, O. P. (2000). �Mapping Public Sector Management in South and East Asia: Trends,Issues and Prospects�, paper prepared for the Division of Public Economics andPublic Administration (DPEPA/DESA).

Economic Commission for Latin America and the Caribbean (1999). �Descentralización fiscal:tendencias y tareas pendientes�, United Nations, Santiago.

___ (1998). Biennial Report, United Nations, Santiago.

Ferlie, Ewan (1998). �The New Public Management in the United Kingdom: Origins,Implementation and Prospects�, paper presented at the Managerial Reform of theState International Seminar, Brazilia.

Fox, Charles J. (1996). �Reinventing Goverment as Post-Modern Symbolic Politics�, in PublicAdministration Review, 56 (3).

Frederickson, H. George (1996). �Comparing the Reinventing Government Movement withthe New Public Administration�, in Public Administration Review, 56 (3).

Friedman, Thomas L. (2000). Understanding Globalization. The Lexus and the Olive Tree,Anchor Books, a Division of Random House, New York.

Giddens, Anthony (2000). The Third Way and its Critics, Polity Press, Cambridge, UK.

Griffin, Keith and Azizur Rahman Khan (1992). �Globalization and the Developing World: AnEssay on the International Dimensions of Development in the Post-Cold War Era�,UNRISD, Geneva.

Harlow, Carol (2000). �Public Administration and Globalization: International andSupranational Administrations�, paper prepared for the International Institute ofAdministrative Sciences, First Regional International Conference, Bologna, June.

Haq, Mahbub ul (1997). Reflections on Human Development, Oxford University Press, NewYork.

128


Helleiner, Gerald Karl (2000). �Markets, Politics and Globalization: Can the Global Economy

Be Civilized?�, 10th Raul Prebisch Lecture delivered at the Palais des Nations,UNCTAD Geneva.

Hesse, Joachim (2000). �Public Sector 2000: Central and Eastern Europe (and the CIS)�,paper prepared for the Group of Experts on Public Administration and Finance at itsFifteenth Meeting, (DPEPA/DESA).

Hirst, Paul and Grahame Thompson (1996). Globalization in Question: the InternationalEconomy and the Possibilities of Governance, Blackwell Publishers, Cambridge, UK.

Hood, Christopher (1991). �A Public Management for All Seasons?�, in Public Administration,69.

Inktomi (2001). �Inktomi Webmap�, http://inktomi.com/webmap.

International Association of Schools and Institutes of Administration (2001). AnnualConference, �New trends and New Techniques: Implications for Education andTraining�, Athens.

International Labour Organization (2001). 89th Session, 5-21 June, Report VI(http://www.ilo.org/public/english/standards/relm/ilc/ilc89/).

Jones, Barry R.J. (2000). The World Turned Upside Down?: Globalization and The Future ofthe State, St. Martin�s Press, New York.

Kahn, Robert E. and Vinton G. Cerf (1999). �What is the Internet (and what makes it work),�December (http://www.worldcom.com/about_the_company/cerfs_up/internet_history/whatIs.phtml).

Kaldor, M. (1995). �The Potential Consequences of Demilitarization and the Issues ofConversion�, in Mihaly Simai (ed.), The Evolving New Global Envirionment for theDevelopment Process, UNU Press, Helsinki.

Kamensky, John M. (1996). �The Role of the �Reinventing Government� Movement in FederalManagement Reform�, Public Administration Review, 56 (3).

Katzman, Rubén (1999), Coordinator. Activos y estructuras de oportunidades. Estudios sobrelas raíces de la vulnerabilidad social en el Uruguay, ECLAC/UNDP.

Keohane, Robert and Joseph S. Nye Jr., (2000). �Globalization: What�s New? What�s Not?(And So What?), in Foreign Policy, Spring Issue.

Kettl, Donald F. (1995). �The Global Revolution in Public Management: Driving Themes,Missing Links�, in Journal of Policy Analysis and Management, 16 (3).

Keynes, John Maynard (1919). The Economic Consequence of the Peace, Pondview Books,London.

Kiggundu, Moses N. (2000). �Public Sector Reform in Sub-Saharan Africa: Background,Progress and Challenges Ahead�, paper prepared for the Group of Experts on theUnited Nations Programme in Public Administration and Finance at its FifteenthMeeting (DPEPA/DESA).

Kliksberg, Bernardo (2001). Towards an Intelligent State, UNDESA, IIAS, Vol. 15,ST/ESA/PAD/SER.E/25, IOS Press, Amsterdam.

___ (2000). �How to reform the State to face social challenges of 2000�, paper preparedfor the Group of Experts on the United Nations Programme in Public Administrationand Finance at its Fifteenth Meeting (DPEPA/DESA).

129

REFERENCES

Krugman, Paul (1994). �Competitiveness: A dangerous obsession�, in Foreign Affairs, NewYork, Mar/Apr, Vol. 73, Issue 2.

McGovern, George (2000). Too many children are hungry. Time for lunch. The WashingtonPost. February 27.

Meny, Yves (1999). �La mondialisation se ne fera pas sur le modele des démocratiesnationales�, Le Monde, Tuesday December 14.

Mintzberg, Henry (1994). The Rise and Fall of Strategic Planning, The Free Press, New York.

Mittelman, James H. (2000). The Globalization Syndrome: Transformation and Resistance,Princeton University Press, Princeton, New Jersey.

Mittelman, James H. (ed.) (1996). Globalization: Critical Reflections. Lynne RiennerPublishers, Boulder, Colorado.

Naím, Moisés (2000). �Washington Consensus or Washington Confusion?�, in Foreign PolicyJournal, Spring Issue.

Narayan, Deepa (1994). �The contribution of people�s participation�, World Bank, Workshopon Participating Development.

Newland, Chester (1996). �Transformational Challenges in Central and Eastern Europe andSchools of Public Administration�, in Public Administration Review, 56 (4).

NUA Internet Surveys (2001). ComputerScope Ltd. and others, Scope CommunicationsGroup, Prospect House, Dublin 9, Ireland (http://www.nua.com/surveys/).

___ (1999). Scope Communications Group, Prospect House, Dublin 9, Ireland(http://www.nua.com/surveys/).

O�Connell, Brian (1996). �A Major Transfer of Government Responsibility to VoluntaryOrganizations? Proceed with Caution�, in Public Administration Review, 56 (3).

O�Donnell, Guillermo (1994). �Delegative Democracies�, in Journal of Democracy, 5, no.1.January.

___ (1997). �Horizontal Accountability and New Polyarchies, paper prepared for theConference on �Institutionalizing Horizontal Accountability�, co-organized by theInstitute for Advanced Studies of Vienna and the International Forum forDemocratic Studies, Vienna, June.

Ohmae, Kenichi (1995). The End of the Nation-State: The Rise of Regional Economies,Harper-Collins, London.

Opazo, Andrés (1997). �Ethics, Culture and Citizenship: Dimensions of DemocraticGovernance� in Governance and Democratic Development in Latin America and theCaribbean, UNDP Bureau for Latin America and the Caribbean, New York.

Osborne, D. and T. Gaebler (1992). Reinventing Government, Addison Wesley, Reading, MA.

Ospina, Gustavo López (2000). �Education for Sustainable Development: A Local andInternational Challenge�, in Prospects, Vol. XXX. No. 1, March.

Ostry, Sylvia (2000). �Convergence and Sovereignty�, in Prakash, Aseem and Jeffrey A. Hart(eds.), Coping with Globalization, Routledge, New York.

Palankai, Tibor (1995). �The Impact of the European Community on the Consolidation andModernization of Central and Eastern Europe�, in Mihaly Simai (ed.) The EvolvingNew Global Envirionment for the Development Process, UNU Press, Helsinki.

130


Plowden, W. (1985). �What Prospects for the Civil Service?�, in Public Administration, 66 (4).

Pope John Paul II (1999). Speech delivered in Elk, Poland.

Prakash, Aseem and Jeffrey A. Hart (eds.) (2000). Coping with Globalization, Routledge, NewYork.

Premfors, Rune (1998). �Reshaping the Democratic State: Swedish Experiences in aComparative Perspective�, in Public Administration, 76 (1).

Raghavan, Chakravarthi (2000). �Globalization needs strong internal institutions�, ThirdWorld Network (http://www.twnside.org.sg/twnintro.htm).

Reich, Simon (1998). �What is Globalization? Four Possible Answers�, Working Paper, TheHelen Kellogg Institute for International Studies.

Reschenthaler, G.B. and F. Thompson (1998). �Public Management and the LearningOrganizations�, in International Public Management Journal, 1 (1).

Rondinelli, Dennis A. (1983). Development policy as policy experience: an adaptive approach todevelopment administration, Methuen, New York.

Sassen, Saskia (1998). Globalization and Its Discontents, New Press, New York.

Sedjari, Ali (2000). �Globalisation and Administrative Activity: Towards New Principles and APath for Action�, paper prepared for the International Institute of AdministrativeSciences, First Regional International Conference, Bologna, Italy, 19-22 June.

Sen, Amartya (2001). �If It�s Fair, It�s Good: 10 Truths about Globalization�, Los AngelesTimes Syndicate, Saturday-Sunday, July 14-15.

____ (1999/a). Development as Freedom, A.A. Knopf, New York.

____ (1999/b). The value of democracy, The World Bank Institute, Development Outreach,Vol. 1, Summer Issue.

____ (1998). �Mortality as an indicator of economic success and failure�, The EconomicJournal, January.

Soros, George (2000). Open Society (Reforming Global Capitalism), Public Affairs Press, NewYork.

Spar, Debora L. and David B. Yoffe (2000). �A race to the bottom or governance from the top?,in Prakash, Aseem and Jeffrey A. Hart (eds.), Coping with Globalization, Routledge,New York.

Spigelman, J. J. (1999). �Foundations of Administrative Law�, in Australian Journal of PublicAdministration, 58 (1), March.

Stern, Nicholas (2000). �Globalization and Poverty�, address at the Institute of Economic andSocial Research, Faculty of Economics, University of Indonesia, December 15.

Stiglitz, Joseph (1998). �Redefining the Role of the State: What should it do? How should it doit? And how should these decisions be made?, paper presented at the TenthAnniversary of MITI Research Institute, Tokyo, Japan.

Streeten, Paul (1996). �A Global Game of Winners and Losers�, Inter-American DevelopmentBank, Washington, D.C.

131

REFERENCES

Sulbrandt, José (2000). �Modernización de la gestión y organización del Estado en AméricaLatina y el Caribe�, paper prepared for the Group of Experts on the United NationsProgramme in Public Administration and Finance at its Fifteenth Meeting(DPEPA/DESA).

Thompson, J. D. and P.W. Ingraham (1996). �The Reinvention Game�, in PublicAdministration Review, 56 (3).

Thornhill, Christopher (2000). �South Africa and Globalization�, paper prepared for theInternational Institute of Administrative Sciences, First Regional InternationalConference, Bologna, Italy, 19 to 22 June.

Timsit, G. (2000). �Modernisations et Mondialisations: La Capacité de l�Etat dans les Pays del�Europe Continentale Occidentale�, paper prepared for the Group of Experts on theUnited Nations Programme in Public Administration and Finance at its FifteenthMeeting (DPEPA/DESA).

Timsit, G. and G. Bouckaert (2000). Administrations et Mondialisations, report to the UnitedNations and IIAS.

Timsit, G. and C. Wiener (1980). �Le Module Marxiste de l�Administration�, in L. Boulet (ed.),Sciences et Action Administratives, Mélanges Lamgrod, Paris Editionsd�Organisation, Paris.

Touraine, Alan (1997). Por una nueva política social, El País, Madrid, 4 August.

United Kingdom (2000). Second White Paper on International Development. �EliminatingWorld Poverty: Making Globalisation Work for the Poor�(http://www.globalisation.gov.uk/).

United Nations (2001). Executive summary of the report of the High-level Panel on Financingfor Development, A/55/1000.

___ �Five-year assessment of the progress made in the implementation of GeneralAssembly resolution 50/225 on public administration and development�, Report ofthe Secretary General, A/56/127-E/2001/101.

___ Intergovernmental Panel on Climate Change (IPCC), �Climate Change 2001:Impacts, Adaptation and Vulnerability�, WMO/UNEP, Geneva.

United Nations (2000). A Compact For The New Century (1999). World Economic Forum,Secretary-General Kofi A. Annan, Davos, 31 January, SG/SM/6881/Rev.1.

___ Convention against Transnational Crime and its Protocols, A/55/383.

___ �Decentralization: Conditions for Success. Lessons from Central and Eastern Europeand the Commonwealth Independent States�, ST/ESA/PAD/SER.E/7.

___ Global Compact High-Level Meeting (2000). �Executive Summary and Conclusion:High-Level Meeting on Global Compact�, 26 July, New York, Press Release SG/2065/ECO/18.

___ �Institutional Response to Globalization�, report prepared by the Secretariat for theGroup of Experts on the United Nations Programme in Public Administration andFinance at its Fifteenth Meeting, ST/SG/AC.6/2000/L.6.

___ Millenium Report of the Secretary-General, �We, the Peoples: The Role of the United

Nations in the 21st Century�, A/54/2000.

132


___ Office for Drug Control and Crime Prevention (1999), �Global Programme againstCorruption: An outline for action�, V.99-80875 (E), Vienna.

___ �Professionalism and ethics in the public service: issues and practices in selectedregions�, ST/ESA/PAD/SER.E/5.

___ Report of the Secretary-General on the outcome of the Twenty-fourth Special Sessionof the General Assembly entitled �World Summit for Social Development and beyond:achieving social development for all in a globalizing world�, Geneva, 26-30 June,(A/55/344).

___ The Declaration of the Millennium Assembly, Official Records of the GeneralAssembly, Fifty-fifth Session, A/RES/55/2.

___ �Work of the Group of Experts on the United Nations Programme in PublicAdministration and Finance� at its Fifteenth Meeting, E/2000/66.

United Nations (1999). Official Records of the General Assembly, Fifty-third Session,A/RES/53/163.

___ �Public service in transition: enhancing its role, professionalism, ethical values andstandards�, ST/ESA/PAD/SER.E/3.

United Nations (1998). �Work of the Fourteenth Meeting of the Group of Experts on theUnited Nations Programme in Public Administration and Finance�, E/1998/77.

United Nations (1997). �Economic questions, environmental questions: public administrationand development�, Thirteenth Meeting of the Group of Experts on the UnitedNations Programme in Public Administration and Finance (DPEPA/DESA),E/1997/86.

United Nations (1996). Official Records of the General Assembly, Fiftieth Session,A/RES/50/225.

United Nations Conference on Trade and Development (2000). Tenth session, BangkokDeclaration, Global Dialogue and Dynamic Engagement (http://www.unctad-10.org/news.en.htm).

United Nations Development Programme (1999). Human Development Report, OxfordUniversity Press, New York.

United Nations Development Programme (1997). Regional Bureau for Europe and the CIS,�The Shrinking State: Governance and Human Development of Independent States�,New York.

___ Regional Bureau for Latin America and the Caribbean, �Governance and DemocraticDevelopment in Latin America and the Caribbean�, New York.

United Nations Environment Programme (2000). Annual Report, Nairobi.

___ First Global Ministerial Environmental Forum, Sixth Special Session of theGoverning Council of the United Nations Environment Programme, MalmöDeclaration, Malmö, 31 May.

United States (1999). �Performance Budgeting: Initial Experiences Under the Results Act inLinking Plans With Budgets�, GAO/AIMD/GGD-99-67, Washington, D.C.

Veseth, Michael (1998). The End of Geography and the Last Nation-State, in SellingGlobalization: The Myth of the Global Economy, Lynne Rienner Publishers, Boulder,Colorado.

133

REFERENCES

Wacquant, Loic (1999). �Europe: le débat Fischer-Chevènment�, Le Monde, 7 December.

West Indian Commission (1992). �Time for Action: Report of the West Indian Commission�,West Indian Commission, Black Rock, Barbados.

Wholey, Joseph (1999). �Performance-Based Management�, in Public Productivity ofManagement Review, 22 (3).

Wildavsky, A. (1988). �Ubiquitous Anomie: Public Service in an Era of Ideological Dissensus�,in Public Administration Review, 48(4).

Willmore, Larry (2001). �Government Policies Towards Information and CommunicationTechnologies: A Historical Perspective�, UN/DESA Discussion Paper No. 21, October2001.

Wolfensohn, James D. (2000). The New York Times, 27 September.

World Bank (2001). �Initiatives in Legal and Judicial Reform�, Washington D.C.

___ (2000/2001). World Development Report, Attacking Poverty, Oxford University Press,New York.

___ (2000). World Bank, World Development Indicators, Washington, D.C.

___ (1999/2000), World Development Report, Entering the 21st Century, OxfordUniversity Press, New York.

___ (1997). World Development Report, The State in a Changing World, OxfordUniversity Press, New York.

___ (1994). �Governance: The World Bank�s Experience�, Washington, D.C.

World Health Organization (1998). La salud para todos en el siglo XXI.

World Trade Organization (1999). Annual Report, Geneva.

___ (1998). �The globalization of economic activity�, in Annual Report, Geneva.

___ (1996). Report on Trade and Foreign Direct Investment, Geneva.

134


PART TWO

PART TWO

ment statistics are available for govern-ments or less frequently for the entire pub-lic sector, but only for a limited number ofcountries and years. The employment figuressuffer from lack of comparability in additionto their limited availability. Statistics ongovernment consumption expenditure (but notactual final consumption) are widely avail-able. However, these also suffer from poor in-ter-country comparability, primarily becausegovernments sometimes choose to recordpublic spending on health and education asgovernment consumption (transfers in kind),sometimes as subsidies (negative taxes), andsometimes as cash transfers to households.Expenditure data are available in most cas-es only for central governments, withoutany estimate of the value of tax expenditures,much less the value of implicit subsidiesgiven to producers.

For the third question, despite these theo-retical ambiguities and the poor quality ofavailable data, it is possible to provide somesurprisingly robust answers. When govern-ment is measured by employment or by con-sumption expenditure, there is strong evidenceof economies of scale in the provision of serv-ices, but no evidence that the size of gov-ernment is reduced by globalization. Whengovernment is measured by central govern-ment expenditure, it is globalization that de-termines its size, with no evidence ofeconomies of scale. In sum, there areeconomies of scale in the provision of gov-ernment services such as defense, healthand education, but a government�s budget isdriven by globalization, not by the land areaor population of a country.

art Two of this Report is meantto be a constant feature of all fu-ture issues. It will present dataon the public sector, measure-

ment tools and relevant statistical informa-tion. Its goal will be to provide a meaning-ful indication on how quantitatively the pub-lic sector changes along the years, and pos-sibly to make some connection betweenthese changes and its functioning. In this in-agural issue of the Report a first methodologicalanalysis is carried out, aimed at answeringthree basic questions: (a) How can the sizeof the public sector be measured in theory?(b) How can it be measured in fact, given theconstraints of existing data? (c) What accountsfor observed variation in the size of the pub-lic sector?

The first question is extremely difficult. Tomeasure the total impact of the State on so-ciety is a very complex task, in part becausethe impact of government regulations can-not be quantified in any meaningful way.Nonetheless, it is possible to measure spe-cific aspects of the size of the public sector.There are three broad approaches: produc-tion, consumption and expenditure. The pro-duction and consumption approaches rely oninformation from basic national accounts,whereas the expenditure approach requiresknowledge of government taxation and out-lays; expenditure is the most comprehensiveof the three approaches, in that it focuses ongovernment, but includes public and pri-vate corporations to the extent that govern-ment subsidizes goods and services sold inthe market.

The second question presents another set ofproblems dealing with actual measurement.For the production approach, output statis-tics are not generally available. Employ-

137

INTRODUCTION

P

Part Two

Introduction

democratic tradition, a written constitutionor a bill of rights. The State is able to (a) im-pose regulations on and collect taxes from oth-er sectors of the economy, (b) produce goodsand services that it can either sell in the mar-ket or supply free of charge to individuals andthe community, and (c) distribute fundsthrough transfers. We examine each of theseforms of State intervention under five head-ings: regulation, taxation, production, con-sumption and cash transfers.

1.1. The State as regulator

The State is able to regulate economic activitiesin myriad ways that affect virtually every-one. There are many examples. The State es-tablishes and enforces standards regardinghealth, safety, hours of work, minimumwages and emission of pollutants. It issuesand limits the number of licenses for taxis,restaurants, hairdressers, radio stations,and countless other businesses. It estab-lishes quotas for the import and export of spe-cific products. It requires automobile driversto purchase liability insurance and workersto save for their old age.

It is extremely difficult to quantify the ex-tent of this regulation of economic activity.It is possible to count the number of regu-latory laws that are in effect, and some re-searchers have done so. But the number oflaws may bear little relation to the extent ofregulation. An alternative is to estimate theamount of economic activity that is subjectto regulation; but this measures the size ofthe formal, as opposed to the informal, sec-tor of an economy. Such a statistic would not

1. Conceptual framework

hat does it mean to say thatthe public sector of one coun-try is larger than that of an-other, or that the public sec-

tor in a particular country has increased insize over time? Since the public sector is theembodiment of the State, to answer thisquestion one must first clarify the meaningof the word �State�.

In no country is it legal for individuals, act-ing in their own self-interest, to force othersto do something against their will. In manycountries citizens are allowed to organize busi-ness firms, trade unions or religious societies,but these institutions rely, for the most part,on the market and on persuasion to recruitmembers and to influence the behaviour ofothers. Large corporations such as GeneralMotors (or Volkswagen or Toyota) offer au-tomobiles for sale. They persuade, or at-tempt to persuade, with advertising, butthere is no way they can force consumers topurchase these products. Market transactionsare voluntary, as is participation in civicand social causes. Individuals purchasegoods or services only if they find the cost tobe less than the satisfaction or utility theyexpect to derive from them. And they join afirm, church or sporting club only if it is intheir interest to do so.

The State is different. It is not a voluntaryorganization. It is concerned not with max-imization of profit or utility, but with publicpolicy. More importantly, it enjoys a mo-nopoly of legitimate force, limited perhaps by

139

DEFINING AND MEASURING THE SIZE OF THE STATE

W

Part Two

Defining and measuring the size of the State


cash subsidy, it does not show up as in-creased government expenditure or taxa-tion. Other examples are the tax conces-sions granted to firms that locate in a spe-cific area, export certain products, or be-have in other ways desired by the State.

It would be informative to sum all tax ex-penditures in each country for purposes ofcomparison. Unfortunately such data arecollected in few countries. Tax expenditure,unlike regulation, is simple to measure;nonetheless it is seldom done.

1.3. The State as producer

A third function of the State is the produc-tion of goods and services. Those destined forfinal consumption are either sold or distrib-uted without charge to residents. The Sys-tem of National Accounts (SNA)1 distin-guishes between these two types of produc-tion, and refers to them as market and non-market activities (see figure 1 below). Goodsand services sold on the market are regard-ed as output of public corporations, not gov-ernment. They are valued at market prices,even if these prices are less than cost. Ex-amples are publicly-owned telecommunica-tions, railways, electric utilities, and postalservices. Goods and services which are pro-duced by employees of the State and distributedwithout charge (or at prices which are noteconomically significant) are deemed to bethe output of general government. This in-cludes the activities of government min-istries, but it also includes activities of pub-lic non-market institutions such as schools,provided they are both controlled and fi-nanced by government. �Government� in theSNA refers to activities of the central gov-ernment and all lower levels of government,such as municipalities.

An institution that is not controlled by thegovernment, regardless of the extent of pub-lic financial support, is deemed to be private.This is true for public universities that en-joy considerable autonomy and for schools andhospitals that are wholly or partially fi-nanced by government but run by religiousorders or other non-profit institutions.

allow one to rank countries by degree of reg-ulation nor measure changes in the extentof regulation over time. Indeed, the rela-tionship between regulation and formality isnot necessarily positive, for onerous regula-tions encourage growth of the informal sec-tor.

In sum, even though regulation is an importantfunction of the State, it is virtually impos-sible to measure in any meaningful way,and thus will be ignored in the remainder ofthis Part.

1.2. The State as tax collector

Without tax revenue, a State cannot survive.It can order its central bank to print mon-ey, but that is a form of taxation since theresulting inflation erodes the real value ofcash balances held by the public. The Statecan also finance its expenditures by bor-rowing, but it is the capacity to collect tax-es in the future that gives it access to capi-tal markets today.

The amount of taxes collected is determinedby expenditure requirements, at least in thelong-run. But the State affects profoundly theeconomy and the distribution of income bythe way in which it collects taxes. Groups ofcitizens or particular activities are favouredwhen they are exempted from payment of tax-es. These �tax expenditures� give the illusionthat the State is smaller in terms of revenueor expenditure, and distort inter-countrycomparisons. To cite a simple example, gov-ernments typically allow taxpayers an incometax deduction for each dependent child. A num-ber of European countries provide in addi-tion generous monthly payments to the fam-ily of each child, with the result that gov-ernment expenditure and taxation is largerthan it would be if the State relied solely onincome tax deductions. Another example issubsidies given to homeowners by allowingdeduction of mortgage interest payments. Oth-er things being equal, one would like to con-clude that the State is larger with this pref-erential treatment of homeowners overrenters. Yet, because the mortgage interestdeduction is tax expenditure rather than a

140

Without tax revenue, a

State cannot survive. It

can order its central

bank to print money,

but that is a form of

taxation

Other definitions of public sector produc-tion are possible. Discussion is limited hereto the SNA because it is a system that wasprepared under the auspices of an Inter-Secretariat Working Group drawn from fiveorganizations: the European Commission(Eurostat), the International MonetaryFund (IMF), the Organisation for Econom-ic Co-operation and Development (OECD), theUnited Nations (DESA�s Statistics Divisionand regional commissions) and the WorldBank2. Moreover, it is a system accepted, evenif not fully implemented, by the vast major-ity of countries today.

When goods and services are distributedfree of charge, or are sold for low, non-mar-ket prices, national income accountants typ-ically value the output at cost rather thanat market price. The value of the output ofpublic schools, for example, is assumed to equalthe sum of salaries paid, plus textbooks andother purchased materials, plus depreciationand maintenance of buildings, grounds, fur-niture and equipment. Occasionally, goods andservices similar to those distributed for freeare offered for sale at market prices, providinguseful information that can be used to im-pute the value of the output of public or pri-vate institutions operating outside the mar-

ket. But this is rare. In nearly all cases, thevalue of non-marketed goods and services isassumed to equal their cost of production.

It should be straightforward to measure thesize of the public sector by summing theoutput of the general government (which isnot sold on the market) and the output of thepublic corporate sector (which is). To avoiddouble counting, this would have to be doneas value-added, that is, as the value of pro-duction less the cost of intermediate inputs.Value-added comprises depreciation and thecost of capital as well as the cost of labour.

Unfortunately, public production statistics arenot generally available. What is available, forsome countries and some years, are esti-mates of the number of persons employed bythe central government or by the entire pub-lic sector. Estimates of government employ-ment are thought to be more reliable, or atleast more comparable, than estimates of em-ployment in public corporations, largely be-cause of problems in the definition of whatconstitutes a public as opposed to a privatecorporation.

Estimates of government employment sufferfrom problems of inter-country comparabil-

141


Source: Adapted from OECD, Statistical Sources on Public Sector Employment (Paris, 1994), p. 38.

Figure 1. The Public Sector in the 1993 System of National Accounts (SNA)

GENERALGOVERNMENT

SOCIALSECURITY

FUNDS

PUBLICNON-MARKETINSTITUTIONS

PRIVATENON-MARKETINSTITUTIONS

PRIVATENON-PROFIT

INSTITUTIONS

PRIVATEFOR-PROFIT

INSTITUTIONS

PUBLICCORPORATIONS

GOVERNMENTALUNITS

PUBLIC CORPORATESECTOR

PUBLICSECTOR

PRIVATESECTOR

ity as well. Some countries report the totalnumber of employees (both full-and part-time), whereas others report only the num-ber of full-time workers. Few countries fol-low the SNA recommendation of reporting full-time or equivalent employees. A more seri-ous problem is that some countries includemilitary personnel, whereas others excludethem. Furthermore, some of these statisticsinclude military conscripts, even though theSNA stipulates that labour that is not paidan economically significant wage be exclud-ed from national accounts. Another seriousproblem is the occasional inclusion of mar-ket activities in figures for government em-ployment. Italy, for example, until 1993 in-cluded postal and telecommunications em-ployees in total government employment.These individuals were excluded in 1994, butprevious data were not corrected, and soItaly reported a large drop in government em-ployment in that year because of this re-classification of public employees. However,even close adherence to SNA guidelines cancreate problems for analysis. Austria, forexample, registered a 13.5 per cent fall in gov-ernment employment in 1997, which was notthe result of any contraction of governmentspending, but rather as a reform of thehealth sector, with more autonomy given topublic hospitals and clinics, and their sub-sequent reclassification as private institutions.

1.4. The State as consumer

It is said that the State participates in theeconomy as a consumer as well as a producer.The famous accounting identity of elemen-tary macroeconomics is:

GDP = C + I + G + (X-M),

i.e., gross domestic product is the sum of pri-vate consumption plus gross investment3

plus government consumption plus net ex-ports. Private consumption is of final goodsand services only. Intermediate goods, whichare inputs into the production of final goods,are not counted separately since their val-ue is already included in the price of final goods.Investment includes public as well as privateexpenditure on new buildings, highways,

port facilities and equipment. Constructionis often shown separately from expenditureon capital equipment.

There is no term in the accounting identityfor corporate or business consumption. TheSNA assumes that all private consumptionof final goods and services is by households.Corporations consume only intermediategoods, inputs into the production process. Work-ers, managers and stockholders consume fi-nal goods and services, but corporations donot.

Why, then, is there a term for governmentconsumption? Is it not true that all govern-ment output intended for final consumptionis distributed to the public either free ofcharge or for a nominal fee? A case can bemade that government consumption of finalgoods and services, like corporate consump-tion, is in all instances equal to zero. Muchof the output of government, such as school-ing, health services and defence, could eas-ily be classified as final consumption ofhouseholds. Government output that is notcapital formation and does not benefit con-sumers directly could be classified as an in-termediate input into final production. Pub-lic highways, for example, are used to trans-port goods as well as people, and delivery ispart of the cost of production. The justice sys-tem benefits parties to a business contract,who otherwise would have to hire someoneas an intermediary in the event of disputes.Also, agricultural extension services are in-termediate inputs into food production.

The SNA does not take this approach. It as-sumes that all government output otherthan capital formation is for final consump-tion and defines actual final consumption ofgovernment to be equal to its consumptionexpenditure on collective services. �Althoughcollective services benefit the community,or certain sections of the community, ratherthan the government, the actual consump-tion of these services cannot be distributedamong individual households, or evenamong groups of households such as subsectorsof the household sector�4. This limits gov-ernment consumption to general adminis-

142


There is no term in the

accounting identity for

corporate or business

consumption. The SNA

assumes that all

private consumption of

final goods and

services is by

households

tration and other collective consumptiongoods such as defence. Since there is no pro-vision for government production of inter-mediate goods, the remainder of govern-ment output is allocated to capital formation(investment) and private consumption.

No country publishes estimates of actual fi-nal consumption of government as definedin the SNA. Published statistics refer to con-sumption expenditure, which is also definedin the SNA. The measured size of governmentis much larger under this approach. Gov-ernment consumption expenditure is theoutput of general government less sales lesscapital formation plus goods and services pur-chased from the private sector and transferredin kind to households or the community.Transfers �in kind� include goods and serv-ices purchased by households or non-profitinstitutions and reimbursed by government.

The philosophy behind the expenditure ap-proach is that consumption is private onlywhen households are free to save or toswitch the value of the expenditure to someother item of consumption5. When govern-ment provides free goods or services, such ashealth care or schooling or weather reports,this is classified as government consumption.An individual is free to consume or not con-sume free health care, but is not free to re-duce consumption of free health care in or-der to increase his or her savings or con-sumption of food. It makes no differencewhether the institution that produces the goodsor services is private or public. All that mat-ters is that government finance the specificconsumption. If the consumer pays somethingout of pocket, such as tuition fees for educationor charges for visits to a clinic or hospital,then part of the expenditure is allocated togovernment and part to private consumption.If the consumer pays nothing, the entire ex-penditure is allocated to government con-sumption, even if the school, hospital or clin-ic is in the private sector.

In summary, government consumption ex-penditure is equal to the sum of govern-ment production (less any fees collected)plus government purchases of (or reim-

bursements for) goods and services that aredistributed without charge to individualsand to the community at large. Governmentconsumption expenditure is often abbreviatedas �government consumption�, and is typical-ly much larger than government production.

Data on government consumption expendi-ture are readily available from the nationalaccounts of a large number of countries, andfor this reason are popular measures of thesize of government. Inter-country compara-bility of the data is unfortunately marred bytwo problems. First, some countries areknown to understate government consump-tion by classifying transfers in kind as cashtransfers to households. An example is theUnited States, which, in its national ac-counts, classifies reimbursements throughMedicare and Medicaid as cash transfers tohouseholds rather than as government con-sumption of health services. Similar practicesexist in the compilation of national accountsfor expenditures on health care in Australia,Austria and Spain6. At the same time, oth-er countries with extensive systems of pri-vate medical care, such as Canada, follow-ing SNA guidelines, classify public expendi-tures on health care as government con-sumption. Similar discrepancies exist in thetreatment of other social transfers in kind,such as education. The resulting statistics forgovernment consumption are thus not fullycomparable between countries.

A second and more serious problem arises fromthe classification of government expendi-tures as production subsidies rather than associal transfers in kind. This is a more seri-ous problem because that classification is al-lowed by the SNA. Governments are free toclassify expenditures in support of inde-pendent universities and hospitals, for example,as either (a) transfers to households, whichis part of government consumption, or (b) pro-duction subsidies, which are treated as neg-ative taxes. Subsidies to producers reduce thevalue of measured output and consumptionwhereas transfers to households do not. Thisaffects significantly the comparability of es-timates of government consumption acrosscountries and across time7.

143


Data on government

consumption

expenditure are

readily available from

the national accounts

of a large number of

countries, and for this

reason are popular

measures of the size of

government

1.5. The State as provider of cashtransfers and subsidies

As has been shown, consumption expendituresof government consist of goods and servicessupplied to individual households and to thecommunity as a whole. Governments also pro-vide cash payments to households and pro-ducers. When the recipient is a household thepayment is defined in the SNA as a currenttransfer payment. When the recipient is a pri-vate or public institution it is defined as asubsidy or, when tied to the acquisition of fixedassets, as a capital transfer.

Transfer payments include payment of intereston the national debt, provision of public pen-sions for the elderly, income support for theunemployed, and other cash outlays. Theseexpenditures do not add to government con-sumption expenditure, but they transferpurchasing power from the taxpayer andthe purchaser of government bonds to des-ignated individuals and institutions. This re-distribution of income is an essential featureof the modern Welfare State.

For the purpose of measuring the size of gov-ernment, it makes little sense to look atsubsidies and cash transfers separately fromsocial transfers in kind or, for that matter,from government provision of collective con-sumption goods. A useful measure of thepresence of government in an economywould thus be government consumption ex-penditure plus subsidies and cash transfers.Unfortunately, this statistic is not availableat the present time, though national ac-counts are moving in this direction withsatellite tables known as �income and out-lay� accounts.

One important subsidy that is never record-ed in national accounts is the implicit sub-sidy to producers provided by tariffs on im-ports. Protection allows domestic producersto raise their prices, in effect forcing consumersto subsidize their products. Governmentscould achieve the same result by taxing theconsumption of specific goods, then return-ing the tax as a subsidy to domestic producersbut not to importers. This policy, except for

administrative expenses, would replicatetariffs, but it would be recorded as explicittaxes and subsidies. With tariffs, govern-ments record only taxes collected on actualimports, not the implicit taxes paid by con-sumers who purchase protected domesticoutput. With very high tariffs, or importprohibitions, protection is high yet few or notaxes are collected.

What is widely available are data on actualtaxes collected and expenditures made by cen-tral governments. With few exceptions thesedo not provide information on government con-sumption, for there is almost never an esti-mate of depreciation of buildings and equip-ment. Instead, the data include capital ex-penditures, which are often not collectedseparately from other expenditures. The en-tire expense of a new building, for example,is allocated to the year of its construction eventhough it provides services for many subse-quent years. This is an important limitationof the data. A more serious drawback, how-ever, is the fact that, with few exceptions, in-formation on taxes and expenditures of low-er levels of government is not available fordeveloping countries. Sometimes re-searchers report total government tax rev-enue and expenditures for developed coun-tries, then central government tax revenueand expenditures for developing countries,eliminating from their sample two obviousfederal states (Brazil and India). This doesnot seem to be appropriate, since many uni-tary States also have large local govern-ment expenditures, and thus central gov-ernment taxes and expenditures are re-ported for all countries, developed as well asdeveloping8.

1.6. Measuring the size of the publicsector

It has been shown that there are many waysto measure the size of the public sector, andthat policies chosen by governments toachieve specific goals have a profound effecton these measures. This can perhaps best beillustrated with a simple example.

144


For the purpose of

measuring the size of

government, it makes

little sense to look at

subsidies and cash

transfers separately

from social transfers in

kind or ... from

government provision

of collective

consumption goods

Suppose that the State wants to improve airquality through generalized use of catalyticconverters on motor vehicles. There are a num-ber of ways to accomplish this goal. TheState may simply use its power to regulate,that is, decree that each motor vehicle soldin the country be equipped with a catalyticconverter. A cost is imposed on the consumer,which shows up in the national accounts asprivate consumption expenditure. There isno change in the size of the public sector, atleast in so far as we are able to measure it.

Alternatively, the State may choose to pro-duce catalytic converters in publicly ownedplants, then sell them to consumers, who arerequired to install them on their vehicles. Thispolicy increases the size of the public corpo-rate sector, but it has no effect on governmentproduction or consumption.

Rather than sell the catalytic converters itproduces, the State might choose to givethem away (or charge an economically in-significant price) to all owners of motor ve-hicles. With this policy, the cost of produc-tion of catalytic converters is registered innational accounts as government produc-tion, and consumption of catalytic convert-ers is registered as government consumptionexpenditure. By either measure, the size ofgovernment increases. If instead of giving theproduct away, the State subsidizes pur-chasers by granting them an income taxcredit, there would be no measurable effecton government production (since the cat-alytic converters are sold in the first in-stance) or consumption (for the same reason).

Now suppose that the State chooses not toproduce catalytic converters, but rather to pur-chase them from the private sector and dis-tribute them free of charge to owners of ve-hicles. The result (compared to the situationprior to mandated catalytic converters) is anincrease in government consumption ex-penditure, with no change in government pro-duction.

Finally, suppose that the State decides,rather than provide each owner of a motorvehicle with a transfer in kind, to subsidize

the private production of catalytic convert-ers so that their price is close to zero. Sub-sidies are not part of government consump-tion, and so government expenditure is theonly measure that will capture this increasein the size of government.

In any of these scenarios, the costs to socie-ty are the same: the resources needed to pro-duce the required number of catalytic con-verters. And the benefits to society are alsothe same: improved air quality. But effectson measured size of the public sector varygreatly, as do effects on household budgets.With pure regulation, costs of cleaner air areborne proportionately by those contributingto pollution. With free government provi-sion of catalytic converters, costs are borneby taxpayers in general, irrespective of theircontribution to air pollution.

In this particular example, countries every-where rely solely on regulation to mandatethe use of catalytic converters. But policy-mak-ers by no means pursue all goals in thismanner. In the above discussion, substitute�primary education� for �catalytic converters�and �households with children� for �ownersof motor vehicles�. All of the options areagain equally plausible, yet countriesaround the world do not stop with regulation(requiring each child to attend school); theyalmost invariably offer residents free publicschooling or, at the very least, provide gen-erous subsidies and tax credits for inde-pendent schools.

2. Measures of the size of government

Rather than focus on a single measure of thesize of the public sector, this Part of the Re-port presents available data for a variety ofmeasures: government and public sector em-ployment, government consumption expen-ditures, central government expenditureand central government tax revenue. This Partends with a discussion of possible determi-nants of the size of the public sector and abrief conclusion. The emphasis throughoutis on differences between countries and re-

145


Subsidies are not part of

government

consumption, and so

government

expenditure is the only

measure that will

capture this increase in

the size of government

gions of the world at the beginning of thedecade and in the latest available year,which is usually the year 1997.

2.1. Government and public sectoremployment, 1990 and 1997

Table 1 below reports data on governmentand public sector employment for the years1990 and 1997 or closest to those two yearsthat are available. The main source of in-formation is a Survey on public sector em-ployment statistics that the InternationalLabour Organization carried out in Octoberof 19989. This was supplemented with datafrom the OECD for eight countries. In all cas-es the data are comprehensive, in that theyinclude employment at all levels of govern-ment.

To facilitate comparisons, the number of per-sons employed is shown for each country asa percentage of the total population. The ILOreports government employment as a per-centage of total employment. This is notdone here because �total employment� miss-es a large percentage of workers in some coun-tries10. Calculations were also made for thetotal population aged 15 through 59; theseare not reported because this alternativemeasure did not affect comparisons of regions,nor the statistical results for determinantsof the size of the public sector.

Detailed results can be seen in table 1 above,while figures 2a through 3c below provide aquick overview. Two types of diagrams areused in the figures of this and subsequentsections. The first type of diagram containsbars, one for each region of the world. Thebottom of the bar is the minimum value reg-istered by countries in the region, and thetop is the maximum value. In other words,the bar represents the range of observationsthat are observed. The solid horizontal linerepresents the median, or midpoint, of thedistribution. One-half of all observations liebelow, and one-half above the median. Un-less a distribution is very symmetrical, themedian is not equal to the simple average(mean) reported in table 1 below.

The second type of diagram provides a quickoverview of trends. It consists of a square witha diagonal line running from the lower lefthand side to the upper right hand side cor-ner. For each country, a single point is en-tered into the box. The vertical axis meas-ures the statistic for 1997 and the horizon-tal axis the same statistic for 1990. If an ob-servation lies below the diagonal line, thismeans that employment is falling as a pro-portion of population. If it lies above theline, this indicates that employment is ris-ing.

Figures 2a and 2b below contain the bar di-agrams for government employment in fiveregions of the world; three features are strik-ing. First, government, as measured by theshare of government employees in the totalpopulation, is surprisingly large in the de-veloped and transitional economies com-pared to developing countries. Second, by thismeasure, governments are smallest inAfrica, followed by Asia and Latin America,in that order. Third, there is an impressivediversity of government sizes in all regions,especially for the transitional and developedcountries, and this seems more important thanany measure of central tendency such asthe mean or the median.

Estimates of government employment existfor 51 countries in 1990 and 54 in 1997 (orproximate years), but only for 47 countriesare there estimates for both years. Figure 2cbelow illustrates the trend in government em-ployment for these 47 countries. Most of theobservations are close to the diagonal, an in-dication that there was little change in gov-ernment size. But two economies in transi-tion (Azerbaijan and Kazakhstan) register im-pressive reductions in the ratio of governmentemployment to total population.

Figures 3a and 3b below show the same sta-tistics for employment in the public sector (gen-eral government plus public corporations). Thepublic sector, as is the case with govern-ment narrowly defined, tends to be larger indeveloped and transitional economies com-pared to developing countries. Observationsfor Latin America and the Caribbean are

146


Estimates of

government

employment exist for

51 countries in 1990

and 54 in 1997 ... but

only for 47 countries

are there estimates for

both years

147


Country Year Govern- Public Year Govern- Publicment Sector ment Sector

Complete Sample 6.2 11.9 5.7 9.4

Developed Countries 7.8 9.4 7.8 10.9Australia 1990 7.6 1997 6.8Austria 1990 5.7 1996 5.8Canada 1990 9.6 10.9 1997 8.4 9.2Denmark 1990 12.5 1997 15.6 17.9Finland 1990 10.8 14.2 1997 10.2 12.1France 1990 8.1 1996 7.5Germany 1997 6.3 7.9Iceland 1990 7.2Ireland 1990 5.9 7.8 1996 6.2 7.7Isle of Man 1996 10.3Italy 1990 6.4 1995 6.1Japan 1991 4.0 1996 4.1Luxembourg 1990 4.0Malta 1998 8.4 13.0Netherlands 1990 4.9 1995 4.6New Zealand 1990 6.7 8.8 1997 5.6 6.5Norway 1990 13.7 1995 14.9 18.2Spain 1990 4.3 5.4 1997 5.0 5.7Sweden 1990 14.9 1995 11.9United Kingdom 1990 7.6 1997 6.5United States 1990 7.2 1997 7.3

Transition Economies 10.1 29.8 7.1 16.0Albania 1993 5.6 11.6 1997 4.6 7.2Azerbaijan 1990 23.6 30.3 1995 17.2 21.5Belarus 1991 10.2 34.5 1997 10.9 24.5Croatia 1990 33.4 1997 12.1Czech Republic 1997 7.3 11.3Estonia 1990 14.1 38.5 1996 10.5 16.3Hungary 1992 7.8 1997 7.5 9.5Kazakhstan 1994 22.6 32.9 1997 11.6 34.2Latvia 1997 14.5Moldova, Rep. Of 1990 0.7 29.8 1997 1.1 10.2Poland 1990 6.3 23.4 1996 6.3 13.8Romania 1990 0.4 34.1 1996 0.6 16.9

Table 1. Government and Public Employment as a Percentage of Population (available countries and simple averages for groups of countries)

148


Developing Countries 3.4 5.9 3.4 5.7

Africa 1.9 3.9 1.9 4.6Botswana 1990 5.1 6.0 1995 5.8 6.7Burkina Faso 1990 0.4 1997 0.4Egypt 1990 2.0 1995 1.9Ethiopia 1994 1.3Gambia 1998 1.3 1.6Kenya 1990 2.9 1996 2.5Libya 1995 13.7Malawi 1990 1.1 1.4 1995 1.1 1.6Senegal 1992 0.8 1.1 1997 0.8 0.8Seychelles 1990 12.8 1995 12.9South Africa 1994 1.5 1997 1.1Tanzania 1991 1.2 1.9Zimbabwe 1990 2.9 3.4 1997 2.5 2.9

Latin America & CarIbbean 5.4 7.0 4.8 6.1Barbados 1991 9.5 1997 9.4Belize 1997 2.6 4.4Brazil 1992 3.8 4.9 1996 3.9 4.9Cayman Islands 1991 7.2 7.8 1996 6.3 7.0Costa Rica 1990 6.5 1997 5.4Dominican Republic 1998 3.5Ecuador 1990 4.0 1997 3.5Mexico 1990 4.5 5.6 1996 4.4 5.0Panama 1990 3.3 5.7 1997 3.4 5.7Puerto Rico 1991 8.0 1997 8.2Trinidad and Tobago 1990 8.3 10.5 1997 8.2 10.2

Asia & Oceania 3.5 6.6 3.6 6.3Bangladesh 1993 0.9China 1990 17.0 1996 20.1Cyprus 1990 5.0 6.0 1995 5.1 6.3Fiji 1989 4.3 5.9 1996 4.0 5.9India 1990 2.2 1995 2.1Indonesia 1990 2.1 1997 2.0Iran, Islamic Rep. Of 1991 7.5 1996 6.7Korea, Rep. Of 1990 1.9 1996 2.0Macau 1990 3.9 1997 3.9Malaysia 1990 3.9 1998 3.1Oman 1990 4.5 4.7 1997 4.2 4.5Philippines 1990 1.9 2.1 1995 1.8 1.9Singapore 1990 3.0 1997 2.8Sri Lanka 1994 4.2Syrian Arab Rep. 1990 5.3 1995 5.4Tonga 1988 5.1 7.0 1996 5.4 7.1Turkey 1998 4.6

Source: Government and public sector employment data are from ILO, Survey on public sector employment statistics, October 1998, except for Australia, Austria, France, Italy, Luxembourg, Netherlands, Sweden and the United Kingdom, where the source is OECD. Population estimates are those of United Nations DESA, Statistics Division.

Table 1. (concluded)

Country Year Govern- Public Year Govern- Publicment Sector ment Sector

Complete Sample 6.2 11.9 5.7 9.4

Latin America and Caribbean

Asia and Oceania

surprisingly compressed (the bar has a shortheight). The vast majority of the 38 countriesfor which we have data for both years showlittle change in the ratio of public employ-ment to population: nearly all observationslie on or close to the diagonal line of figure3c. Seven �outliers� show a large drop in pub-lic sector employment; all of these are tran-sition economies that experienced massive pri-vatization of State enterprises (see also fig-ure 3c below).

2.2. Government consumption, 1990and 1997

Consumption is an alternative way to meas-ure the size of government, and governmentconsumption is typically expressed as ashare of GDP. Note that this is a measure ofthe size of government, not of the entirepublic sector. In national accounts, govern-ment consumption is the sum of all goods andservices provided without charge to indi-vidual households and collectively to thecommunity. It includes goods and services pur-chased from the private sector as well as thoseproduced by government, so is not directlyrelated to government employment. It isperfectly possible for a country with low gov-ernment employment to have high govern-ment consumption if government purchaseslarge amounts of schooling, health care andother services from private institutions.

One problem affecting the comparability ofthese statistics between countries, as has beenshown above, is the fact that national accountssometimes disguise transfers in kind as cashtransfers or subsidies that are excluded fromgovernment consumption expenditure. Anotherserious problem is that, at prevailing exchangerates, the cost of government consumptionvaries widely among countries. Services,such as schooling, nursing or general ad-ministration, are seldom traded interna-tionally, so their cost is much lower in coun-tries with low wages. Goods tend to be ex-ported and imported, so the cost and pricesof goods tend to be similar regardless of thelevel of wages. In other words, the relativeprice of services is low in low-wage countries.Services weigh heavily in government con-

sumption, so division of government con-sumption expenditure (in local prices) byGDP (also in local prices) biases downwardsthe estimates of the share of government con-sumption in the GDP of low-income countries.Similar biases apply to comparisons overlong periods of time because productivity inservices lags behind productivity in goods, caus-ing the relative price of services to in-crease11.

The International Comparison Programme(ICP) of the United Nations attempts tosolve this problem by estimating the GDP ofeach economy not in domestic prices, but inprices of a numéraire country, the UnitedStates. These prices are known as purchas-ing power parity (PPP) prices because withthem one US dollar has the same purchas-ing power everywhere in the world for auniform basket of goods and services. It isnot enough to know prices in the United States;prices in each economy must also be knownin order to transform the GDP componentsfrom domestic to PPP prices. The most re-cent PPP estimates are for the year 1985 andcover 64 countries12; the ICP is currentlypreparing estimates for 1993 covering a larg-er set of countries.

A group of researchers noted certain regu-larities between shares of major expenditurecomponents of GDP measured in domesticprices and shares of the same componentsmeasured in PPP prices. They used statis-tical techniques to extrapolate the PPP es-timates to years and to countries not in-cluded in the ICP. The results are known asthe Penn World Tables. The latest version con-tains statistics for 152 countries, in most cas-es for the years from 1950 through 1991 or199213.

The Statistical Appendix comprises tables B1to B3. Table B1 reports government con-sumption as a share of GDP in 1990 (PPPprices and domestic prices) and 1997 (onlydomestic prices). The 1990 government con-sumption shares in domestic prices weretransformed to government consumptionshares in PPP prices, using estimates ofprice levels of GDP and price levels of gov-

149


Consumption is an

alternative way to

measure the size of

government, and

government

consumption is

typically expressed as

a share of GDP

150


Figure 2a. 1990 Ratio of Government Employment to Population(percentages)

0

5

10

15

20

25

DevelopedCountries

(18)

TransitionEconomies (9)

Africa (7) Latin America(5)

Asia (12)

Figure 2b. 1997 Ratio of Government Employment to Population(percentages)

0

5

10

15

20

25

DevelopedCountries

(18)

TransitionEconomies

(12)

Africa (7) LatinAmerica (6)

Asia (11)

Figure 3b. 1997 Ratio of Public Sector Employment to Population(Percentages)

0

5

10

15

20

25

30

35

40

DevelopedCountries

(10)

TransitionEconomies

(15)


Asia (10)

Figure 3c. Public Employment as % of Population(38 countries)

0

10

20

30

40

0 10 20 30 40

1990

Figure 2c. Government Employment as % of Population(47 countries)

0

5

10

15

20

25

0 5 10 15 20 25

1990

Figure 3a. 1990 Ratio of Public Sector Employment to Population(percentages)

0

5

10

15

20

25

30

35

40

DevelopedCountries (5)

TransitionEconomies

(9)


Asia (8)

ernment consumption reported in the PennWorld Table (Mark 5.6)14.

Table 2 below summarizes these data withsimple averages for the complete sampleand for the five main regions of interest. Thesecond and third columns of the table referto the same statistic: 1990 government con-sumption in domestic prices; they differ be-cause the sample of countries in the secondcolumn is constrained in order to equal thecountries for which PPP price data are avail-able. In other words, the first and secondcolumns differ only because prices differ(PPP versus domestic), not because the sam-ples differ.

In comparing the PPP ratios to those for do-mestic prices, three results deserve men-tion.

First, government consumption as a shareof GDP is much smaller measured in PPPprices than in domestic prices for developedcountries, but it is much larger in PPP pricesfor the developing countries. This pattern isto be expected, since PPP prices are much high-er than domestic prices for services in low-income countries. For the very small sample(four countries) of economies in transition,there is little difference on average betweengovernment consumption as a share of GDPin PPP prices and the same statistic in do-mestic prices.

Second, government size, as measured by con-sumption with domestic prices, is larger inthe developed than in the developing coun-tries; this is reversed with PPP prices, whichshow developing countries to have far larg-er governments. While there is no doubtthat domestic prices understate the impor-tance of government consumption in low-in-come countries, it may well be that PPPprices create a bias in the opposite direction.Services provided by government are notsold on domestic markets, much less inter-national markets, so output is assumed to equalthe sum of inputs and it is very difficult tocorrect for differences in quality. School-teachers and tax collectors in Ghana arepaid much less than schoolteachers and tax

collectors in the United States. Is the qual-ity of their work and their productivity iden-tical? PPP estimates assume that they are,provided they have identical years of train-ing, so adjust only for differences in theamount of education that such workersbring to their jobs.

Third, by using this measure, a reduction re-sulted in the average size of governmentover the decade in Africa and Asia. In con-trast, there was little change in the averageratio of government consumption to GDP inthe developed countries or in Latin Ameri-ca and the Caribbean. Surprisingly, theeconomies in transition registered an in-crease in government consumption, from anaverage of 16 per cent of GDP in 1990 to 17per cent in 1997.

These same data are summarized in a dif-ferent way in figures 4a, 4b and 4c below. Whatis striking about these graphs is the fact thatin every case a very large range (long bar)overshadows the measures of central tendency.In other words, there appears to be more vari-ation within regions than between regions,with the possible exception of the PPP esti-mates for developed countries shown in fig-ure 4a below.

2.3. Central government expenditure, 1990 and 1997

A third measure of government size is cen-tral government expenditure, which in-cludes cash transfers and subsidies as wellas outlays for consumption and investment.These statistics, which are almost as wide-ly used as government consumption statis-tics, have two unfortunate drawbacks. First,they record investment expenditure ratherthan depreciation of capital, and conse-quently all the outlay for a large highway ora new port, for example, shows up in the yearof construction and not in subsequent yearswhen it is actually in use. Second, the sta-tistics include only transfers to lower levelsof government, and thus ignore self-financedexpenditures of provincial and municipalgovernments.

151


A third measure of

government size is

central government

expenditure, which

includes cash transfers

and subsidies as well as

outlays for consumption

and investment

Table 3 below reports the available data oncentral government expenditure for 1990and 1997 (or proximate years) as publishedin the IMF annual Government FinanceStatistics. The figures are expressed as a shareof GDP. It should be noted, however, that ex-penditure, unlike consumption, is not a com-ponent of GDP, and so it is possible for gov-ernment expenditure to exceed GDP.

The simple averages of these statistics arereported for groups of countries also in table3 below. The sample size is not the same inthe two years, so not too much importanceshould be given to comparisons of 1990 with1997. Note, however, that central governmentexpenditures of the developed countries,which average 37 per cent of GDP, are muchlarger than those of the developing countries.Latin America and the Caribbean is a regionwith low central government expenditure,amounting on average to less than 23 per centof GDP in 1997.

These same data are displayed in graphic formin figures 5a and 5b below. Note that the rangeof observed ratios is extremely large (the barsare very long) in both years. In each of thefive regions there are countries with very lowand countries with very high government ex-penditures. This indicates that there is a great

deal of diversity in styles of governmentwithin regions.

Table 4 below summarizes, for the entire sam-ple and for regions, the distribution of cen-tral government expenditures by type of ex-penditure and by function. The basic data arenot included in this report, but are availablefrom the IMF publication Government FinanceStatistics. Looking first at type of expendi-ture, for the developed and transitionaleconomies �subsidies and cash transfers� isby far the most important category of ex-penditure. This is not true for developing coun-tries, where wage payments exceed subsidiesand cash transfers, unless one includes in-terest payments, which are a form of cashtransfer.

Expenditures by function are grouped underfour main headings: traditional State func-tions, modern State functions, interest pay-ments and other expenditures. Traditionalexpenditures are those for general adminis-tration, justice, police and defence. For themost part these are expenditures on collec-tive consumption goods. Modern State func-tions refer to transfers in kind, largely edu-cation and heath care, plus cash transfers andsubsidies. Modern expenditures are thus di-rected to individual households and pro-

152


PPP Domestic 1990 1997

Complete Sample 19.2 15.4 16.3 15.8Developed Countries 13.7 17.8 17.8 17.8Transition Economies 17.0 17.6 16.0 17.2Developing Countries 21.0 14.5 15.9 15.0

Africa 25.3 15.3 15.7 14.3Latin America & Caribbean 17.0 13.2 14.2 14.1Asia & Oceania 19.4 14.8 17.8 16.8

Domestic PricesYear 1990

Table 2. Government Consumption as a Percentage of GDP (simple averages for groups of countries in a sample)

Note: PPP refers to "purchasing power parity" prices.The countries averaged in the second column are restrictedto match those in the first column.

Source: Statistical Appendix Table B1.

ductive enterprises; they form the basis of themodern welfare State. Interest paymentsneed no explanation, but it should be notedthat these represent payments of nominal in-terest. For countries with high inflation, alarge part of these payments might more prop-erly be classified as debt repayment ratherthan debt servicing15. �Other expenditures�,for the most part, are cash transfers to low-er levels of government, which are ulti-mately spent on traditional State functions,on modern State functions, or on paymentof interest.

Modern State functions account for morethan two-thirds of the budget of central gov-ernments in developed countries and incountries with economies in transition, areflection of a long tradition of social ex-penditures in those countries. But modernfunctions are surprisingly important in thebudgets of developing countries as well, andaccount for more than half of central gov-ernment expenditures in Africa and Asia, andnearly two-thirds of expenditures in LatinAmerica. Developing countries allocate alarge share of their budget to education com-pared to central government expenditures indeveloped countries, but this may reflect inpart that responsibility for education is moreoften transferred to lower levels of govern-ment in the developed world.

Figures 5a and 5b below illustrate the rangefor the ratio of central government expendituresto GDP in five major groupings of countries.As was the case with employment and con-sumption, there is considerable overlap be-tween the five groups. In sum, there existsconsiderable diversity within the developed,transitional and each of the three groups ofdeveloping countries.

2.4. Central government tax revenue, 1990 and 1997

Table 5 below reports information for groupsof countries on central government tax rev-enue. It is interesting to note that informa-tion is available for more countries on tax-ation than on expenditure: over 100 countriesas compared to about 80 countries respectively.

153


Figure 4a. 1990 Ratio of Government Consumption to GDP(PPP prices, percentages)

0

10

20

30

40

50

60



Asia (21)

Figure 4b. 1990 Ratio of Government Consumption to GDP (domestic prices, percentages)

0

5

10

15

20

25

30

35

40

45

DevelopedCountries

(24)

TransitionEconomies

(14)


Asia (30)

Figure 4c. 1997 Ratio of Government Consumption to GDP(domestic prices, percentages)

0

5

10

15

20

25

30

35

40

45

DevelopedCountries

(24)

TransitionEconomies

(14)


Asia (30)

Tax revenue tends to be lower than expen-diture because governments have sources ofrevenue other than taxes: they charge feesfor licenses and for use of public property, theycollect royalties on the extraction of oil andminerals, and they borrow money. Nonethe-less, the pattern of tax revenue as a shareof GDP is similar to that of expenditure: high-est in the developed and transitionaleconomies, lowest in the developing countries.

Table 5 also reports ratios for four broad typesof taxes: taxes on international trade, taxeson retail sales (including value-added taxes),taxes on wages and direct taxes on incomeand wealth. Over the decade, there was in-creased taxation of sales and modest de-creases in revenue from trade taxes almosteverywhere, but little change in other typesof taxes. Trade taxes remain quite importantin the developing countries, particularly inAfrica, whereas developed countries relymore on other taxes.

3. Determinants of the size ofgovernment

Regardless how one measures it, size of gov-ernment varies widely from country to coun-try. The tables of the Technical Appendix (ta-bles A1 to A9) report our effort to relatemeasures of the size of government to vari-ables such as income per capita, degree of glob-alization, and size of country (populationand land area). Other variables, known as

�dummies� because they take values of zeroand one, control for independent effects com-mon to a particular group of countries (de-veloped, transitional, African, Asian or LatinAmerican). The statistical technique ap-plied, which is a known as ordinary leastsquares regression, involves fitting an equa-tion that minimizes the sum of the squareddistances between each data point and theregression equation. Readers familiar withthis type of analysis may want to examinethe detailed results in the technical appen-dix tables. What follows is a non-technicaloverview of those tables.

To summarize briefly the statistical find-ings: there is a dichotomy. There are two dis-tinct types of regression equations that haveonly the control variable �income per capi-ta� in common. When government size is meas-ured by employment or by consumption ex-penditure, the variables that �explain� gov-ernment size are population and land area.But, when government size is measured bycentral government expenditure, globaliza-tion is a significant explanatory variable,though not population or land area.

3.1. Economies of scale in government

In each of the regression equations for theratio of government employment to popula-tion (table A3 of the Technical Appendix), andfor the ratio of government consumption to

154


1990 1997

Complete Sample 28.1 28.0Developed Countries 36.9 36.8Transition Economies 38.1 31.3Developing Countries 23.8 25.0 Africa 25.5 27.6 Latin America 20.2 22.6 Asia 25.7 24.7

Table 3. Central Government Expenditure as a Percentage of GDP, domestic prices (simple averages for groups of countries in a sample)


GDP (table A4), the population variable hasa highly significant and negative coefficient,while the land area variable has an equallysignificant but positive coefficient. Global-ization, measured as openness to trade, is nev-er significant. This is true for the year 1990as well as 1997, and for consumption meas-ured in PPP prices as well as in domestic prices,and thus constitutes strong evidence ofeconomies of scale in the provision of gov-ernment services. If there are economies ofscale in provision of government services, costs(and presumably expenditures) are lower incountries with large populations (holdingterritorial size constant) or small territories(holding population constant). In other

words, high population density facilitatesprovision of defence, highways, schools, med-ical care and other government services.

The regression results using the govern-ment employment/population equation for 1997are illustrated in figure 6a below for a smallcountry the size of Belgium and in figure 6bbelow for a large country the size of theUnited States. Income per capita is also a vari-able in the equation, and is assumed toequal the actual income of each respectivecountry in the year 1997. Government em-ployment is not known for Belgium, but theequation depicted in figure 6a below predictsthat this would amount to approximately 5.9

155


Complete LatinSample Developed Transition Developing Africa America Asia

BY TYPE OF EXPENDITURENo. of observations 75 18 10 47 8 18 21

Wages 22.4 14.5 12.1 27.6 30.9 28.7 25.4 Purchase of goods and services 16.7 10.7 21.2 18.1 21.0 14.6 19.9 Interest payments 10.5 11.5 8.2 10.6 9.1 11.9 9.9 Subsidies and transfers 35.3 56.6 48.3 24.3 20.1 28.0 22.8 Capital expenditure 15.2 6.7 10.2 19.5 18.9 16.8 22.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

BY FUNCTIONNo. of observations 81 19 12 50 11 16 23

Traditional state functions 22.7 13.9 17.4 27.3 27.7 21.5 31.2

G. adm+order 13.6 8.6 11.5 16.1 20.4 16.8 13.5 Defence 8.3 4.9 5.6 10.3 7.5 4.3 15.7

Modern state functions 60.6 69.2 64.4 56.5 51.9 63.6 53.7

Education 11.8 8.2 6.5 14.5 15.5 14.7 13.8 Health 8.1 10.8 9.6 6.8 5.4 9.4 5.6 Other social functions 25.4 40.6 36.2 17.0 12.9 25.0 13.4 Economic services 15.3 9.6 12.2 18.2 18.0 14.5 20.9

Interest payments 10.7 10.9 7.9 11.3 13.3 12.6 9.6

Other 5.9 6.0 10.2 4.8 7.2 2.3 5.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: IMF, Government Finance Statistics (consolidated central government expenditures).

Table 4. Central Government Expenditure by Type and by Function, as Percentage of All Central Government Expenditure, 1997 (simple averages for groups of countries in sample)

per cent of Belgium�s population of 10.1 mil-lion persons. Reading down the curve, acountry with Belgium�s income per capita andland area but twice its population would re-quire less than twice the number of govern-ment employees, 4.8 per cent of the 20.2million residents, to be precise.

Government provided jobs for approximate-ly 7.3 per cent of the 270 million residentsof the United States in 1997. The equationdepicted in figure 6b below, predicts gov-ernment employment/ population ratio ofonly 5.7 per cent, so by this measure, gov-ernment in the United States is larger thanexpected. Canada, with more land and apopulation of only 30 million, is expected, fromour regression equation, to suffer �disec-onomies� of scale and employ 10.3 per centof its population at all levels of government.Actual government employment amounts toonly 8.4 per cent of population. Thus, fromthe raw statistics, Canada appears to havelarger government for its population than theUnited States. Taking into account the �dis-economies� of serving a small populationdispersed over a wide area, Canada actual-ly has a rather small government comparedto that of the United States. Similar con-siderations help to explain the large size ofgovernment in countries of northern Eu-rope, especially Finland, Norway and Swe-den, compared to more densely populated coun-

tries in southern Europe. But the statisticsused are crude and may require some ad-justment for quality of land. It is easier topolice frozen tundra or desert wastelandthan to administer areas that are actuallyinhabited by people spread over large distances.

3.2. Income per capita

One of the best-known stylized facts of pub-lic economics is �Wagner�s Law,� formulatedmore than a hundred years ago by AdolphWagner, a leading German economist of hisday. It asserts that there is a long-run ten-dency for government activity to grow fasterthan the economy16. In a cross-section ofcountries, the law predicts a positive rela-tionship between income per capita and allmeasures of government size.

The income variable is, indeed, statisticallysignificant in most of the regression equations.But there is one problem. Its coefficient,though highly significant in each instance,is negative in the equation for governmentconsumption in PPP prices, but positive inthe equation for government consumptionmeasured in domestic prices. The coefficientis also positive in the regression equationsfor government employment and centralgovernment expenditure, and so it is difficultto interpret the PPP result as a refutationof Wagner�s Law. It more likely reflects a fail-

156


Figure 5a. 1990 Ratio of Central Government Expenditure to GDP(domestic prices, percentages)

0

10

20

30

40

50

60

70


TransitionEconomies (8)


Asia (26)

Figure 5b. 1997 Ratio of Central Government Expenditure to GDP(domestic prices, percentages)

0

10

20

30

40

50

60

70

DevelopedCountries

(19)

TransitionEconomies

(12)


Asia (26)

the ratio of trade to GDP or as the presenceof foreign direct investment. It was not pos-sible to distinguish between effects of tradeand effects of foreign direct investment be-cause of strong collinearity: transnationalsare known to be effective conduits for bothexports and imports18.

The positive relationship between opennessand central government expenditure andtaxation is evident, though not as strongly,even without controlling for the effect of in-come per capita and regional dummies. Thisis shown in figures 7, 8 and 9 below for to-tal expenditure, expenditure on modernState functions and tax revenue, respec-tively (data in all cases are for the year1997). The fit is not quite as good for taxa-tion as for expenditure because some gov-ernments are able to combine high expenditurewith low taxation thanks to revenue from roy-alties on the extraction of oil and other min-erals.

Income per capita is not a significant deter-minant of tax revenue in the regressions re-ported in table A6. In regressions of compo-

ure to adjust adequately for differences in thequality and productivity of employees in theservice sector of low-income countries com-pared to their counterparts in developedcountries. In other words, this finding con-stitutes evidence that the PPP estimates ofgovernment consumption in low-incomecountries are biased upwards.

3.3. Globalization and size of government

The second type of regression equation is thatfor central government expenditures (tableA5) and tax revenue (table A6), each ex-pressed as a share of GDP. Globalization isa significant explanatory variable in allthese regressions, but population and landarea are not. The fit of the equation is some-what better for expenditure on modern Statefunctions than for total expenditure. Theseresults are consistent with the recent workof Alberto Alesina and Romain Wacziarg,who report similar findings in a cross-coun-try comparison of government consumptionand expenditure17. And it is true regardlessof whether one measures �globalization� as

No. of obs. Total Trade Retail Payroll DirectTaxes Sales Tax Taxes Taxes

1990Complete Sample 108 20.1 3.4 6.2 3.4 6.8Developed Countries 24 30.0 0.7 9.4 8.1 11.5Transition Economies 8 32.0 1.3 11.2 10.9 8.2Developing Countries 76 15.8 4.4 4.7 1.2 5.2 Africa 23 18.7 6.2 5.1 1.0 6.0 Latin America 25 15.9 4.2 4.8 1.9 4.4 Asia 28 13.2 3.0 4.1 0.6 5.1

1997Complete Sample 109 21.0 2.9 7.2 3.9 6.6Developed Countries 24 30.6 0.2 9.9 8.8 11.3Transition Economies 12 27.3 1.6 11.1 9.3 5.1Developing Countries 73 16.8 4.0 5.7 1.3 5.3

Africa 21 19.9 6.5 5.5 1.0 6.5Latin America 24 17.5 3.6 6.7 2.2 4.4Asia 28 14.0 2.5 4.9 0.9 5.2

Tax Revenue of Central Government

157


Note: Components do not add to total tax revenue because of the exclusion of "other taxes".


Table 5. Central Government Tax Revenue as a Percentage of GDP, 1990 and 1997 (simple averages)

nents of tax revenue, it is positive and sig-nificant only for payroll taxes, not for tradetaxes, sales taxes or direct taxes on incomeand wealth (see tables A7 and A8). Since in-come per capita is measured in PPP prices,this might reflect to some extent the poor qual-ity of the underlying statistics. It also reflectsthe fact that some high-income countriesenjoy considerable revenue from royalties onoil and other minerals, and thus have littleneed to impose taxes on their population.

From a policy perspective, it is remarkablethat openness, though positive and signifi-

cant in the regression of total tax revenue,is not significant in the regressions of any ofthe components of tax revenue. The coeffi-cient of openness in fact takes a positive, thoughinsignificant, sign in 10 of the 12 regressionsfor components of central government tax-es. One might have expected reduced revenuefrom trade taxes to be offset with revenue fromsales taxes or direct taxes. There is no evi-dence of this, and thus it appears that gov-ernments with relatively open economiesare better at collecting all types of tax, eventaxes on trade.

In any case, revenue needs are no reason toimpose discriminatory taxes on interna-tional trade. If government wants to tax theconsumption of a luxury good, such as tele-vision sets or passenger automobiles, it canimpose a selective consumption tax, and col-lect it at the customs house, in the case ofimports, and at the factory, in the case of do-mestic production. Discriminatory taxationof imported goods encourages expansion ofuntaxed domestic production behind tariffwalls, with a consequent loss of tax rev-enue.

3.4. Changes in the size of government

The cross-section evidence on the relation-ship between openness and the size of cen-tral governments, as measured by expendi-ture and taxation, is evidence that in the long-run there is no conflict between openness andgovernment expenditure. Open economiesare not laissez-faire economies. Indeed, onaverage, governments of open economiesspend a significantly larger portion of GDPand collect the additional taxes neededtherefore.

But what about the short run? Is an in-crease in openness associated with an increaseor a decrease in the size of government?One might expect a negative relation, evenif the long-run relation is positive, if policy-makers who open their economies to theoutside world also reduce governmentspending and taxation. Even if it is not re-quired, a negative correlation may result if

158


Figure 6a. Small Territory: Economies of Scale in Government

0

4

8

12

16

20

24

0 20 40 60 80

Population (millions)

Figure 6b. Large Territory: Economies of Scale in Government

0

4

8

12

16

20

24

0 50 100 150 200 250 300

Population (millions)

policy-makers believe that small govern-ment is a condition for open markets.

There is no evidence for the systematic pres-ence of a negative relation of this type in thedecade of the 1990s. Of the 116 countries forwhich export and import data are available,81 registered an increase in the ratio oftrade to GDP. Of these 81 countries, infor-mation is available on changes in central gov-ernment expenditure for 54 countries, andinformation on changes in tax revenue for 60countries. Only in a minority of countries didexpenditure and taxation decrease alongwith trade. More precisely, 23 of the 54 coun-tries registered a decrease in government ex-penditure, 25 of the 60 countries registereda fall in total tax revenue and 24 of the lat-ter registered a decrease in revenue from di-rect taxes. The majority of the �globalizers�,then, actually registered increases in ex-penditure and tax revenue.

The regression results reported in table A9of the technical appendix below, also provideno evidence that globalizers have successfullyshrunk central government budgets in thelast decade. In fact, the regressions providestrong evidence that an increase in opennessis associated with an increase in centralgovernment expenditure and revenue. Aftercontrolling for changes in income per capi-ta, which has a positive, independent effecton the size of government budgets, increasedopenness has a positive and significant ef-fect on government expenditure, total tax rev-enue, and revenue from direct taxes. Thesevariables should be monitored, for there isno guarantee that such a relationship willcontinue in the future. In the last decade, how-ever, globalization and budgets of central gov-ernments increased hand in hand. Thefaster the pace of globalization, the larger wasthe increase in central government expenditureand taxation. There is no evidence so far thatglobalization is causing the demise of the na-tion-State. On the contrary, globalization isplacing increasing demands on budgets of cen-tral governments, and governments are re-sponding to these demands.

4. Conclusion

By way of conclusion, we return to the threequestions posed in the Introduction to thisPart.

4.1. How can the size of the publicsector be measured in theory?

To measure the total impact of the State onsociety is a complex task, in part because itis difficult to quantify the impact of govern-ment regulations in any meaningful way.Nonetheless, it is possible to measure someaspects of the size of the public sector. Thereare three broad approaches: production, con-sumption and expenditure. The productionand consumption approaches rely on infor-mation from basic national accounts, where-as the expenditure approach requires knowl-edge of government taxation and outlays.

Using the production approach, one wouldlike to divide gross domestic product (GDP)into two parts: output of the private sectorand output of the public sector. In addition,remunerated labour could be divided into pri-vate and public employment. In the Systemof National Accounts (SNA), the public sec-tor is the sum of general government (all lev-els) plus public corporations. Public corpo-rations, like private firms, sell goods and serv-ices at market prices, whereas government(by definition) does not, and consequently forsome purposes it is better to measure onlygovernment output (or employment) ratherthan output (employment) of the entire pub-lic sector.

The consumption approach is more complex.It is difficult, even conceptually, to distinguishbetween public and private consumption.According to the SNA, public corporations pro-duce but do not consume final goods and serv-ices, and so it follows that public consump-tion must equal government consumption. Inthis spirit, one might conclude that house-holds consume all final goods and services,in which case it makes no more sense to speakof government consumption than to speak ofbusiness consumption. A less extreme view

159


To measure the total

impact of the State on

society is a complex

task ... Nonetheless, it is

possible to measure

some aspects of the

size of the public sector

is to classify as government consumptionthose services that benefit the community butcannot be allocated to individual households.In the jargon of the SNA, collective con-sumption of these services (such as defence)make up the actual final consumption ofgovernment; all other consumption is de-fined as actual final consumption of house-holds. A broader measure defines governmentconsumption as the sum of collective con-sumption goods plus transfers in kind (suchas schooling) to households. In the SNA,this broad measure is known as governmentconsumption expenditure. Total consump-tion in the national accounts is not affectedby one�s definition of government consump-tion: only its division into public and privateconsumption is affected.

Expenditure is the most comprehensive of thethree approaches. It focuses on government,but includes public and private corporationsto the extent that government subsidizesgoods and services sold in the market. As afirst approximation, government expendi-ture ought to record outlays of all levels ofgovernment, cash transfers as well as ex-penditure on transfers in kind and on collectiveconsumption goods. Ideally, the measureshould include also the value of tax expen-ditures (credits granted to specific taxpay-ers) as well as the value of implicit subsidiesto producers engendered by trade restrictions.A drawback of the expenditure approach isthat it sums capital and current expenditures.Expenditure on an asset with a long life, suchas a highway, bridge or building, is record-ed in the year (or years) of construction, andis not spread over the useful life of the as-set. This can easily be corrected by replac-ing spending on capital formation with an es-timate of the current cost (including depre-ciation) of fixed assets owned by govern-ment.

4.2. How can the size of the publicsector be measured in fact?

Actual measurement presents myriad prob-lems. For the production approach, outputstatistics are not generally available. Em-ployment statistics, for a limited number of

160


Figure 9. Openness and Central Government Tax Revenue

0

10

20

30

40

50

0 50 100 150 200

Exports plus Imports (percent of GDP)

`

Figure 7. Openness and Central Government Expenditure (total)

0

10

20

30

40

50

60

0 50 100 150 200


`

Figure 8. Openness and Central Government Expenditure(modern state functions)

0

10

20

30

40

50

0 50 100 150 200


`

countries and years, are often available forgovernment but, less often, for the entire pub-lic sector. The employment figures sufferfrom lack of comparability in addition totheir limited availability. Statistics on gov-ernment consumption expenditure (but notactual final consumption) are widely avail-able. These also suffer from poor inter-coun-try comparability, primarily because gov-ernments sometimes choose to record pub-lic spending on health and education as gov-ernment consumption (transfers in kind),sometimes as subsidies (negative taxes), andsometimes as cash transfers to households.Expenditure data are available in most cas-es only for central governments, withoutany estimate of the value of tax expenditures,much less the value of implicit subsidiesgiven to producers.

4.3. What accounts for observedvariation in the size of the publicsector?

Despite the poor quality of available data, sta-tistical tests on determinants of governmentsize produce interesting and surprisinglyrobust results. When government is meas-ured by employment or by consumption ex-penditure, there is strong evidence ofeconomies of scale in the provision of serv-ices, but no evidence that the amount ofgovernment services is reduced by the extentthat a country is integrated into world mar-kets. When government is measured by cen-tral government expenditure, it is integra-tion into world markets �globalization� thatdetermines size, with no evidence ofeconomies of scale. Moreover, the relation-ship between globalization and governmentexpenditure is positive, and it persists whenone looks at changes in expenditure andchanges in globalization over the pastdecade rather than their levels at the beginningor end of the decade. In sum, there areeconomies of scale in the provision of gov-ernment services such as defence, healthand education, but a government�s budget isdriven by globalization, not by the land areaor population of a country.

Future research would benefit greatly fromimprovement in both the quantity and thequality of data. First priority should to be giv-en to expenditure by all levels of government.In many countries, lower levels of governmentare responsible for education and health,with the result that these social expendituresare missing from central government statistics.Second priority could be given to collectionof data on government employment, interms of full-time equivalent workers and ex-cluding conscript labour in order to facilitateinter-country comparisons. Third prioritycould be given to the estimation of the val-ue of tax expenditures, including the valueof implicit subsidies provided to producersthrough protective tariffs and quotas.

161


Despite the poor quality

of available data,

statistical tests on

determinants of

government size

produce interesting and

surprisingly robust

results

163

TECHNICAL APPENDIX � MEASURING THE SIZE OF THE STATE

Table A1. Dependent Variables used in Regressions

Sample

Year Size Mean

Government employment (% of population) 1990 51 6.4

1997 54 5.7

Government consumption (% of GDP):

Purchasing Power parity prices 1990 100 19.2

Domestic prices 1990 132 16.3

Domestic prices 1997 132 15.8

Central government expenditure (% of GDP) 1990 102 28.2

1997 98 28.0

Central government expenditure on modern

state functions (% of GDP) 1997 78 18.2

Central government tax revenue (% of GDP) 1990 106 20.1

1997 109 21.0

Revenue from trade taxes (% of GDP) 1990 106 3.3

1997 109 2.9

Revenue from sales taxes 1990 106 6.2

(including VAT, % of GDP) 1997 109 7.2

Revenue from payroll taxes (largely 1990 106 3.5

social security, % of GDP) 1997 109 3.9

Revenue from direct taxes on income 1990 106 6.8

and wealth (% of GDP) 1997 109 6.6

Technical Appendix

Table A1. Dependent Variables used in Regressions

164


Table A2. Independent Variables used in RegressionI

Sample

Year Size Mean


1997 54 5.7


1997 54 5.7

Income: Per capita GDP, PPP exchange 1990 128 7271.0

rates, from DESA, WESS99 data base 1997 128 10876.0

Open: Ratio of exports plus imports

to GDP, average of three years ending in 1990 120 0.7

and in 1997 128 0.8

FDI: Stock of foreign direct investment 1990 130 18.6

(% of GDP, from UNCTAD World Investment 1997 144 25.5

Report)

Population: Number of inhabitants 1990 150 33m

1997 150 37m

Area: Land area (square kilometres) 150 815k

Transition: Dummy, =1 if transition economy, =0 otherwise

Africa: Dummy, =1 if African economy, =0 otherwise

Asia: Dummy, =1 if Asian economy, =0 otherwise

Latin America: Dummy, =1 if Latin America or Caribbean country, =0 otherwise

Table A2. Independent Variables used in Regressions

165


Table A3. Regression of government employment/population ratios on country size and other variables.

Independent variable 1990 1990 1997 1997

Constant -0.940 0.172 2.265 2.193

[2.21] [1.80] [2.17] [1.68]

Income 0.326 0.372 ** 0.284 0.283

[0.17] [0.13] [0.19] [0.15]

Open 0.289 0.072

[0.19] [0.19]

Population -0.0154 * -0.284 ** -0.290 ** -0.298 **

[0.07] [0.07] [0.087] [0.06]

Area 0.190 ** 0.22 ** 0.141 0.152 **

[0.05] [0.05] [0.06] [0.05]

Transition -0.392 -0.212

[0.84] [0.32]

Africa -0.917 -0.845 * -1.398 * -1.362 **

[0.49] [0.38] [0.55] [0.46]

Asia -0.026 -0.177

[0.30] [0.27]

LatinAmerica -0.515 -0.646 ** -0.529 *

[0.26] [0.24] [0.22]

R-squared 0.652 0.506 0.675 0.613

No. of observations 42 50 46 52

** Significant at the 1 percent level.

* Significant at the 5 percent level.

Note: Numbers in brackets are heteroscedasticity-consistent standard errors. Estimation is by OLS.

Except for the dummies, all variables enter regressions in logs, so the estimated coefficients

are elasticities. Replacement of population with population aged 15-59 produced similar results,

with a somewhat poorer fit.

Regression Coefficients

Table A3. Regression of government employment/population ratios on country size and other variables

Note: Numbers in brackets are heteroscedasticity-consistent standard errors. Estimation is by OLS.Except for the dummies, all variables enter regressions in logs, so the estimated coefficients areelasticities. Replacement of population with population aged 15-59 produced similar results,with a somewhat poorer fit.

166


Table A4. Regression of government consumption/GDP ratios on country size and other variables.

Independent variable PPP 1990 PPP 1990 1990 1990 1997 1997

Constant 5.671 ** 5.532 ** 4.147 ** 3.817 ** 3.761 ** 3.356 **

[0.82] [0.43] [0.86] [0.42] [0.66] [0.42]

Income -0.194 * -0.225 ** 0.072 0.072 ** 0.091 * 0.113 **

[0.08] [0.03] [0.06] [0.03] [0.04] [0.03]

Open -0.087 -0.063 -0.035

[0.12] [0.11] [0.09]

Population -0.131 ** -0.111 ** -0.184 ** -0.158 ** -0.168 ** -0.154 **

[0.05] [0.04] [0.04] [0.03] [0.03] [0.03]

Area 0.073 * 0.084 ** 0.079 ** 0.074 ** 0.074 ** 0.073 **

[0.03] [0.03] [0.02] [0.02] [0.02] [0.02]

Transition -0.293 -0.041 0.036

[0.15] [0.19] [0.12]

Africa -0.049 -0.054 -0.142

[0.21] [0.17] [0.14]

Asia -0.213 -0.231 * -0.415 ** -0.393 ** -0.349 ** -0.322 **

[0.15] [0.11] [0.14] [0.12] [0.12] [0.09]

LatinAmerica 0.049 0.068 0.046

[0.21] [0.13] [0.10]

R-squared 0.401 0.399 0.337 0.300 0.401 0.364

No. of observations 87 91 103 117 113 117




Results reported in first two columns refer to government consumption in international (purchasing

power parity) prices; results reported in the other four columns refer to government consumption

in domestic prices.Except for the dummies, all variables enter regressions in logs, so the estimated

coefficients are elasticities.


Table A4. Regression of government consumption/GDP ratios on country size and other variables

Note: Numbers in brackets are heteroscedasticity-consistent standard errors. Estimation is by OLS.Results reported in first two columns refer to government consumption in international prices(purchasing power parity); results reported in the other four columns refer to government consumptionin domestic prices. Except for the dummies, all variables enter regressions in logs, so the estimated coefficients areelasticities.

167


Table A5. Regression of central government expenditure/GDP ratios on openness and other variables.

Independent variable 1990 1990 1997 1997 1997 1997

Constant 2.962 ** 2.157 ** 3.430 ** 2.603 ** 3.572 ** 2.149 **

[0.99] [0.36] [0.75] [0.38] [0.87] [0.60]

Income 0.129 0.150 ** 0.081 0.104 * 0.107 0.117

[0.10] [0.04] [0.06] [0.04] [0.07] [0.06]

Open 0.133 0.207 ** 0.119 0.179 ** 0.175 * 0.291 **

[0.10] [0.08] [0.08] [0.06] [0.07] [0.06]

Population -0.025 -0.030 -0.087

[0.04] [0.04] [0.05]

Area -0.016 -0.010 0.002

[0.03] [0.03] [0.04]

Transition 0.391 ** 0.456 ** 0.049 0.064

[0.14] [0.08] [0.12] [0.15]

Africa -0.029 -0.097 -0.363 -0.360 *

[0.24] [0.16] [0.20] [0.16]

Asia -0.545 ** -0.452 ** -0.475 ** -0.438 ** -0.438 ** -0.432 **

[0.16] [0.11] [0.12] [0.11] [0.15] [0.14]

LatinAmerica -0.182 -0.302 * -0.276 ** -0.420 ** -0.472 **

[0.22] [0.14] [0.10] [0.15] [0.13]

R-squared 0.504 0.474 0.437 0.416 0.573 0.529






are elasticities.

Regression Coefficients Regression Coefficients

Total Central Government Expenditure Modern State Functions

Note: Numbers in brackets are heteroscedasticity-consistent standard errors. Estimation is by OLS.Except for the dummies, all variables enter regressions in logs, so the estimated coefficients areelasticities.

Table A5. Regression of central government expenditure/GDP ratios on openness and other variables

168


Table A6. Regression of central government tax revenue/GDP ratios on openness and other variables.

Independent variable 1990 1990 1990 1997 1997 1997

Constant 2.410 3.489 ** 3.000 ** 2.862 ** 3.464 ** 2.961 **

[1.92] [0.06] [0.10] [0.92] [0.05] [[0.13]

Income 0.104 0.067

[0.19] [0.09]

Open 0.143 0.262 ** 0.162 0.227 **

[0.10] [0.08] [0.09] [0.09]

FDI 0.158 ** 0.142 **

[0.03] [0.04]

Transition 0.394 0.297 ** 0.901 ** 0.025

[0.24] [0.08] [0.18] [0.13]

Africa -0.264 -0.512 ** -0.440 ** -0.447 -0.523 ** -0.419 **

[0.47] [0.12] [0.10] [0.24] [0.12] [0.13]

Asia -0.637 * -0.732 ** -0.777 ** -0.521 ** -0.533 ** -0.602 **

[0.28] [0.12] [0.11] [0.14] [0.08] [0.09]

LatinAmerica -0.817 -0.984 ** -0.836 ** -0.951 ** -1.019 ** -0.858 **

[0.45] [0.20] [0.17] [0.34] [0.21] [0.17]

R-squared 0.394 0.365 0.445 0.372 0.363 0.343






are elasticities.


Table A6. Regression of central government tax revenue/GDP ratios on openness and other variables


169


variables, 1990.

Independent variable Sales Tax

Constant 3.311 3.114 2.833 -15.103 ** -14.548 ** 2.425

[4.64] [3.79] [2.12] [5.39] [2.59] [4.39]

Income -0.594 -0.597 -0.078 1.695 ** 1.161 ** 0.0003

[[0.45] [0.40] [0.21] [0.55] [0.28] [0.45]

Open 0.087 0.030 0.463 0.136

[0.42] [0.62] [0.14]

FDI 0.082

[0.13]

Transition 1.954 2.662 ** 0.411 3.330 ** 3.124 ** -0.121

[1.14] [0.69] [0.29] [0.73] [0.43] [0.55]

Africa 2.534 2.547 * -0.734 0.350 -2.981 ** -0.660

[1.31] [1.15] [0.53] [1.51] [0.71] [1.10]

Asia 2.323 ** 2.286 ** -0.777 * 0.141 -1.202

[0.89] [0.86] [0.36] [1.03] [0.68]

LatinAmerica 2.178 2.223 * -1.168 * -2.376 * -1.359

[1.18] [0.99] [0.51] [1.02] [1.08]

R-squared 0.462 0.469 0.186 0.434 0.478 0.206






are elasticities.

Trade Taxes Payroll Taxes Direct Taxes


Table A7. Regression of components of central government taxes/GDP ratios on openness and other variables, 1990


170


Table A8. Regression of components of central government taxes/GDP ratios on openness and other

variables, 1997.

Independent variable Sales Tax

Constant 0.136 0.571 2.352 -11.467 * -17.321 ** 2.534

[2.43] [2.24] [1.15] [4.46] [3.00] [1.92]

Income -0.374 -0.405 -0.014 1.348 ** 1.873 ** -0.018

[0.23] [0.24] [0.12] [0.45] [0.32] [0.20]

Open -0.079 0.148 0.312 0.028

[0.34] [0.14] [0.38] [0.18]

FDI -0.035

[0.18]

Transition 2.606 * 2.790 ** 0.153 2.202 ** 2.957 ** -0.580 *

[1.09] [0.86] [0.19] [0.67] [0.75] [0.28]

Africa 3.792 ** 3.711 ** -0.659 * -2.454 -0.707

[0.91] [0.89] [0.32] [1.43] [0.53]

Asia 3.528 ** 3.515 ** -0.210 -1.141 -1.002 **

[0.64] [0.67] [0.20] [0.92] [0.30]

LatinAmerica 3.186 ** 3.172 ** -1.190 * -2.900 ** -2.261 ** -1.397

[0.86] [0.79] [0.58] [0.96] [0.75] [0.72]

R-squared 0.516 0.513 0.168 0.521 0.484 0.185






are elasticities.

Trade Taxes Payroll Taxes Direct Taxes


Table A8. Regression of components of central government taxes/GDP ratios on openness and other variables, 1997


171


Table A9. Regression of changes in central government expenditure/GDP and taxes/GDP ratios on

changes in openness, income and other variables, 1990-1997.

Independent variable

Constant -0.026 -0.014 -0.007 -0.027 -0.135 -0.039

[0.03] [0.03] [0.02] [0.04] [0.03] [0.04]

Income97/Income90 0.051 0.068 * 0.083 * 0.127 ** 0.054 0.113 **

[0.04] [0.03] [0.04] [0.03] [0.03] [0.03]

Open97/Open90 0.301 * 0.314 * 0.316 ** 0.340 ** 0.307 * 0.326 *

[0.12] [0.13] [0.12] [0.13] [0.15] [0.15]

Transition -0.171 ** -0.187 ** -0.265 ** -0.252 ** -0.158

[0.04] [0.05] [0.09] [0.09] [0.10]

Africa 0.014 -0.147 -0.160

[0.07] [0.08] [0.11]

Asia 0.112 0.157 0.213

[0.11] [0.13] [0.13]

LatinAmerica -0.051 -0.064 -0.008

[0.06] [0.06] [0.07]

R-squared 0.145 0.104 0.217 0.122 0.187 0.073





Except for the dummies, all variables enter regressions as logs of the ratio of 1997 values to

1990 values.

Expenditure/GDP Tax Revenue/GDP Direct Taxes/GDP


Table A9. Regression of changes in central government expenditure/GDP and taxes/GDP ratios on changes in openness,

income and other variables, 1990-1997

Note: Numbers in brackets are heteroscedasticity-consistent standard errors. Estimation is by OLS.Except for the dummies, all variables enter regressions as logs of the ratio of 1997 values to 1990 values.

173

STATISTICAL APPENDIX � MEASURING THE SIZE OF THE STATE

Appendix table 1. Government Consumption as a Percentage of GDP, 1990 and 1997.

1990 1990 1997

Developed CountriesAustralia 12.4 17.2 1) 16.8 1)

Austria 13.0 18.6 19.0

Belgium 10.1 14.0 14.4

Canada 12.0 20.2 1) 19.6 1)

Denmark 19.8 25.6 25.3

Finland 15.2 21.1 20.9

France 15.4 19.3 1) 19.6 1)

Germany 13.2 18.3 1) 19.3 1)

Greece 10.0 15.3 14.8

Iceland 17.5 19.2 20.5 2)

Ireland 11.0 15.0 13.8

Italy 11.4 17.6 1) 16.6 1)

Japan 7.4 9.1 1) 9.6 1)

Luxembourg 9.0 16.4 14.5 7)

Malta 17.6 21.0

Netherlands 11.1 14.5 1) 13.8 1)

New Zealand 14.0 17.1 1) 15.2 1)

Norway 18.0 20.8 20.2

Portugal 21.0 16.3 19.4

Spain 12.3 15.2 16.4

Sweden 21.9 27.4 25.8

Switzerland 9.2 13.7 1) 15.0 1)

UK 16.6 20.5 1) 20.1 1)

US 12.8 17.7 1) 15.3 1) 6)

Transition EconomiesArmenia 17.7 1) 5) 11.8

Belarus 15.4 1) 4) 20.3

Bulgaria 14.5 19.0 1) 3) 12.4

Czech Republic 31.0 22.1 1) 5) 20.2

Estonia 13.1 1) 3) 24.1

Hungary 12.6 10.6 10.1

Kyrgyzstan 9.2 1) 4) 15.2

Moldova 17.8 1) 3) 27.1

Poland 10.0 18.7 17.3

Romania 13.3 10.1

Russia 13.9 1) 4) 20.8

Slovakia 25.0 1) 5) 22.4

Slovenia 21.1 1) 5) 20.4

Ukraine 7.4 1) 4) 9.1

Purchasing PowerParity Prices Domestic Prices

Statistical AppendixTable B1. Government Consumption as a Percentage of GDP, 1990 and 1997

Developed Countries

Transitional Economies

United Kingdom

United States

174


1990 1990 1997

Developing Countries AfricaAlgeria 22.5 14.9 15.8 1) 6)

Benin 23.2 13.2 9.1 2)

Botswana 22.0 26.8

Burkina+A95 Faso 19.7 15.4 11.0

Burundi 33.8 19.5 16.5

Cameroon 27.9 12.8 6.6

Cote d'Ivoire 21.2 18.5 10.6

Democratic Republic of the Congo 11.5 4.9 6)

Egypt 30.5 11.3 10.2

Ethiopia 19.2 11.1

Gha 18.0 10.9 12.4

Guinea-Bissau 14.9 11.4

Kenya 22.4 18.7 16.9

Lesotho 19.6 14.6 16.6 7)

Madagascar 18.7 8.0 7.6 2)

Malawi 30.0 15.2 12.6

Mali 27.2 14.2 15.1

Mauritania 25.0 17.2 3) 21.9 6)

Mauritius 14.8 11.8 11.9

Morocco 23.1 15.4 17.9

Mozambique 31.1 20.2 12.5 6)

Namibia 31.1 29.1 29.9 7)

Niger 17.0 16.0

Nigeria 9.5 4.4 5.8 2)

Rwanda 28.3 13.6 8.9

Senegal 24.7 14.7 10.2

Seychelles 34.0 27.7 28.7

Sierra Leone 32.9 7.8 8.8 6)

South Afri 23.1 19.1 1) 21.3 1)

Swaziland 18.5 27.1

Togo 18.3 12.6 11.2

Tunisia 18.6 16.4 15.7

Uganda 19.1 8.0 10.0 7)

United Republic of Tanzania 18.9 8.8

Zambia 56.0 19.0 15.4

Zimbabwe 30.3 19.5 17.1


Table B1. (continued)

Developing Countries

Ghana

South Africa

175


1990 1990 1997

Latin America & CaribbeanAntigua and Barbuda 18.0 20.6

Bahamas 13.6 15.8 6)

Barbados 20.2 21.4

Belize 18.7 14.4 16.9

Bolivia 16.2 11.8 13.7

Brazil 16.9 19.1 18.1

Chile 16.4 9.8 10.0

Colombia 13.5 10.3 16.1 7)

Costa Rica 19.4 18.2 16.7

Dominican Republic 3.0 2.9 7.7

Ecuador 16.1 8.6 11.6

El Salvador 24.1 9.9 9.1

Grenada 11.4 21.6 16.0 2)

Guatemala 11.1 6.8 5.1

Guyana 24.7 13.6 20.5

Honduras 16.2 12.9 8.3

Jamaica 14.5 14.0 14.4 7)

Mexico 9.8 9.1 1) 3) 8.4

Nicaragua 33.9 32.5 14.6

Panama [exc. Canal Zone] 25.5 18.1 16.1

Paraguay 12.3 6.2 8.1 2)

Peru 17.4 6.1 8.4

St. Kitts-Nevis-Anguilla 21.6 18.4 18.2 7)

Saint Vincent and the Grenadines 17.5 26.3 7)

Suriname 25.2 16.9 1) 5)

Trinidad and Tobago 14.9 16.2 14.6

Uruguay 17.4 13.9 13.7

Venezuela 16.2 8.4 6.4 2)

Parity Prices Domestic PricesPurchasing Power



176


1990 1990 1997

Asia & OceaniaBahrain 24.2 20.3

Bangladesh 40.7 14.0 14.1

Bhutan 15.7 29.4 7)

China 25.8 12.3 11.4

China, Hong Kong Special Administrative 5.6 7.4 8.5

Cyprus 17.7 17.4 18.0 7)

Fiji 19.8 16.9 15.0

India 30.0 11.5 10.4 7)

Indonesia 14.6 9.0 6.9

Iran (Islamic Republic of) 10.6 11.1 14.1 2)

Israel 29.2 30.0 29.4

Jordan 28.2 24.9 25.0

Kuwait 38.6 27.6

Malaysia 14.8 14.0 11.1

Nepal 8.7 9.1

Oman 38.1 21.5

Pakistan 20.8 15.1 12.4

Papua New Guinea 32.1 24.8 24.4 1) 5)

Philippines 15.8 10.1 13.0

Qatar 32.9 32.9 6)

Republic of Korea 7.8 10.1 11.1

Saudi Arabia 30.6 27.4 2)

Singapore 7.6 10.0 9.4

Sri Lanka 18.8 9.8 10.4

Syrian Arab Republic 13.1 14.3 11.7 2)

Thailand 13.8 9.4 10.3

Turkey 8.7 11.0 12.1

United Arab Emirates 16.3 16.0 7)

Vanuatu 32.0 28.2 26.0 6)

Yemen 17.9 16.2

Source: Statistics in domestic prices estimated from UNESIS data base of United Nations DESA unless otherwise noted. Statistics in PPP prices estimated by adjusted domestic price data by the relative price of government consumpiton,.as reported in Penn World Table, version 5.6a.

Notes: 1) from IMF, International Financial Statistics, February 1999. 2) Provisional or preliminary estimate. 3) 1991. 4) 1992. 5) 1993. 6) 1995.

7) 1997


Table B1. (concluded)

Source: Statistics in domestic prices estimated from UNESIS data base of United Nations DESA unlessotherwise noted. Statistics in PPP prices estimated by adjusted domestic price data by therelative price of government consumption, as reported in Penn World Table, version 5.6a.

Notes: 1) From IMF, International Financial Statistics, February 1999.2) Provisional or preliminary estimate.3) 1991.4) 1992.5) 1993.6) 1995.7) 1997.

Asia and Oceania

Admin.

177


Appendix Table 2. Central Government Expenditure as a Percentage of GDP(domestic prices, 1990 and 1997).

Year Ratio (%) Year Ratio (%)

Developed CountriesAustralia 2) 5) 1990 24.3 1997 25.3

Austria 1990 38.1 1996 41.8

Belgium 1988 49.2

Canada 4) 1990 23.8 1994 24.0

Denmark 1990 39.0 1995 41.4

Finland 1990 30.8 1996 40.3

France 1990 45.0 1993 53.5

Germany 1990 29.5

Greece 1991 35.9 1996 32.7

Iceland 1990 32.3 1996 32.2

Ireland 1990 40.1 1995 39.0

Italy 1988 46.2

Japan 4) 1991 14.9

Luxembourg 1990 46.3 1995 41.4

Malta 1990 44.5 1996 41.4

Netherlands 1990 51.6 1997 48.0

New Zealand 2) 3) 5) 1991 40.4 1997 32.1

Norway 1990 41.3 1996 36.8

Portugal 1988 54.1

Spain 1990 33.8 1995 36.8

Sweden 8) 1990 39.5 1997 44.3

Switzerland 1991 23.5 1996 26.3

United Kingdom 1990 37.6 1995 41.6

United States 6) 1990 23.9 1997 21.2

Transition EconomiesAlbania 1) 1995 31.0

Belarus 1992 37.6 1996 33.9

Bulgaria 1990 55.1 1997 33.5

Czech Republic 1993 38.2 1997 35.9

Estonia 1991 22.1 1997 31.6

Georgia 1) 3) 1997 10.4

Hungary 1990 52.1 1997 42.7

Latvia 1997 32.0

Lithuania 1993 21.4 1997 27.4

Poland 1994 44.2 1997 41.2

Romania 1990 33.8 1996 31.4

Russia 1995 24.7

Table B2. Central government expenditure as a percentage of GDP (domestic prices, 1990 and 1997)

Developed Countries


178


Developing CountriesAfricaAlgeria 1995 30.6

Botswana 3) 4) 1990 35.0 1996 37.2

Burundi 1991 29.7 1996 27.3

Cameroon 5) 1989 20.7

Democratic Republic of the Congo 1990 18.8 1995 8.2

Egypt 1990 27.8 1995 33.5

Ethiopia 5) 1990 26.8 1995 22.5

Gambia 5) 1990 22.0 1993 25.1

Ghana 1990 12.5 1993 22.1

Kenya 3) 5) 1990 25.8 1996 27.1

Lesotho 4) 1990 50.9

Madagascar 1990 16.1 1996 17.3

Mauritius 2) 5) 1990 21.2 1997 22.2

Morocco 1990 28.7 1995 33.3

Namibia 4) 1990 30.8 1993 36.3

Rwanda 1990 18.9 1993 24.2

Seychelles 1995 52.8

Sierra Leone 5) 1990 5.7 1994 16.7

South Africa 2) 4) 1990 30.7 1997 33.1

Tunisia 1990 34.6 1996 32.6

Zambia 1993 26.4 1996 21.4

Zimbabwe 1990 27.4 1993 29.0

Latin America & CaribbeanArgentina 1990 10.6 1996 14.1

Bahamas 1990 18.3 1993 20.5

Barbados 1989 33.2

Bolivia 1990 16.4 1997 23.1

Brazil 1990 35.0 1994 33.8

Belize 2) 3) 4) 1991 31.4 1997 29.2

Chile 1990 20.4 1997 20.7

Colombia 1990 11.6 1993 8.8

Costa Rica 1990 25.6 1996 30.1

Dominican Republic 1990 11.7 1996 15.6

Ecuador 1990 14.5 1994 15.7

El Salvador 3) 1990 10.9 1997 12.3

Grenada 3) 1991 30.7 1995 28.1

Guatemala 1990 10.0 1997 9.7

Mexico 1990 19.2 1996 15.5

Netherlands Antilles 1) 1990 16.7 1995 15.4

Nicaragua 1990 7.2 1994 32.3

Panama [exc. Canal Zone] 1990 23.7 1996 27.7

Paraguay 1990 9.4

St. Kitts-Nevis-Anguilla




Africa


179


Saint Vincent and the Grenadine8) 1990 32.9 1997 42.7

Trinidad and Tobago 1993 29.4 1995 28.2

Uruguay 1990 26.0 1997 31.7

Venezuela 1990 20.7 1997 20.6

Asia & OceaniaBahrain 1997 27.0

Bhutan 5) 1990 33.9 1996 32.4

China 1990 10.2 1996 7.8

Cyprus 1990 32.8 1995 32.9

Fiji 1990 26.7 1996 29.5

India 4) 1990 16.6 1996 15.0

Indonesia 4) 1996 14.0

Iran (Islamic Republic of) 2) 4) 1991 17.6 1997 25.6

Israel 7) 1993 44.0 1997 48.3

Jordan 3) 1990 35.8 1996 35.0

Kuwait 2) 5) 1990 69.3 1997 42.0

Lebanon 1) 1993 23.4 1996 37.9

Malaysia 1990 30.1 1997 20.1

Mongolia 1993 26.9

Myanmar 4) 1990 15.2 1996 9.3

Nepal 2) 5) 1990 15.9 1997 16.6

Oman 3) 1990 39.5 1997 29.8

Pakistan 5) 1990 17.5 1995 17.9

Papua New Guinea 1990 34.7

Philippines 3) 1990 19.6 1997 19.3

Republic of Korea 1990 16.2 1997 18.8

Singapore 5) 1990 19.8 1996 20.0

Sri Lanka 1990 28.4 1997 25.7

Syrian Arab Republic 1990 21.8 1996 23.0

Thailand 6) 1990 14.6 1997 18.8

Turkey 1990 17.4 1996 27.6

United Arab Emirates 1990 11.7 1994 11.7

Yemen 1990 28.5 1997 39.2

Consolidated Central Government expendituresSource: IMF, Government Finance Statistics unless otherwise noted.

Notes:1) GDP source: UNDESA, based on national statistical information2) 1997 value based on estimated GDP figures3) Budgetary Central Government expenditures4) Fiscal year ending March, GDP accordingly adjusted5) Fiscal year ending June, GDP accordingly adjusted6) Fiscal year ending September, GDP accordingly adjusted7) Fiscal year ending March for 1990 figure, and December for 1997 figure, GDP adj.8) Fiscal year ending June for 1990 figure, and December for 1997 figure, GDP adj.



Asia and Oceania

180


Appendix Table 3. Central Government Tax Revenue as Percentage of GDP, 1990 and 1997.

year1 year2 1990 1997 1990 1997 1990 1997 1990 1997 1990 1997 1990 1997

Developed Countries

Australia 2) 5) 1990 1997 24.06 22.47 1.08 0.59 5.51 4.98 0.32 0.58 17.15 16.31 0.00 0.00

Austria 1990 1996 31.43 34.47 0.51 0.08 8.73 9.32 14.55 16.17 7.20 8.43 0.45 0.47

Belgium 1990 1995 41.46 42.92 0.01 0.00 10.21 11.04 15.10 15.13 16.14 16.74 0.00 0.00

Canada 4) 1990 1994 18.24 18.01 0.60 0.47 3.61 3.85 3.05 3.84 10.98 9.84 0.00 0.00

Denmark 1990 1995 32.26 33.69 0.02 0.02 15.52 15.70 1.75 1.76 14.96 16.01 0.00 0.21

Finland 1990 1996 28.30 28.63 0.28 0.01 14.53 14.25 2.68 3.86 10.75 10.40 0.06 0.10

France 1990 1997 39.72 39.19 0.00 0.00 12.13 11.93 19.20 17.99 8.35 9.00 0.04 0.26

Germany 1990 1996 26.95 26.94 0.00 0.00 6.84 6.75 15.36 15.48 4.75 4.71 0.00 0.00

Greece 1991 1997 20.66 23.00 0.03 0.02 12.60 13.08 0.10 0.52 7.18 8.56 0.75 0.82

Iceland 1990 1996 25.23 26.53 2.67 0.37 13.22 14.78 2.02 2.70 7.20 8.57 0.11 0.11

Ireland 1990 1995 33.79 33.21 0.00 0.00 14.22 13.49 5.68 5.40 13.89 14.32 0.00 0.00

Italy 1990 1997 37.24 42.24 0.00 0.08 11.19 10.24 11.16 14.93 14.55 16.52 0.34 0.46

Japan 4) 1990 1993 13.62 17.60 0.19 0.26 2.43 3.02 0.00 5.55 10.59 8.43 0.41 0.34

Luxembourg 1990 1996 44.80 43.45 0.00 0.00 11.22 11.90 12.28 11.60 20.48 18.41 0.82 1.54

Malta 1990 1996 25.60 26.95 8.94 1.38 2.02 10.82 5.52 5.88 9.03 8.77 0.08 0.10

Netherlands 1990 1997 42.84 42.99 0.00 0.00 10.45 10.46 16.69 18.96 15.42 12.81 0.27 0.76

New Zealand 2) 3) 5) 1990 1997 35.73 31.01 0.90 0.93 11.34 8.98 0.66 0.34 22.82 20.78 0.03 -0.01

Norway 1990 1996 32.27 32.55 0.23 0.24 14.41 15.20 10.16 8.83 7.47 8.28 0.00 0.00

Portugal 1990 1996 28.37 29.13 0.73 0.00 10.88 11.74 8.25 8.00 7.45 8.57 1.05 0.81

Spain 1990 1995 28.79 28.34 0.50 0.00 6.73 7.21 11.65 11.73 9.91 9.40 0.00 0.00

Sweden 8) 1990 1997 37.19 36.93 0.23 0.21 12.22 11.73 15.42 18.31 9.30 6.64 0.03 0.06

Switzerland 1991 1996 19.58 21.10 0.27 0.20 4.83 5.48 10.66 11.64 3.82 3.79 0.00 0.00

United Kingdom 1990 1995 33.45 33.31 0.02 0.02 10.70 11.76 5.90 6.21 16.82 15.29 0.01 0.02

United States 6) 1990 1997 18.33 19.37 0.31 0.23 0.64 0.70 6.88 6.69 10.49 11.75 0.00 0.00

Transition Countries

Albania 1) 1995 16.64 2.96 8.39 3.22 2.00 0.07

Belarus 1) 1992 1996 30.64 29.45 1.42 1.72 12.54 11.91 12.76 12.51 3.93 2.94 0.00 0.37

Bulgaria 1990 1997 34.51 25.16 0.86 2.13 8.54 8.33 10.82 7.53 14.00 7.14 0.30 0.03

Croatia 1997 41.53 3.93 17.22 15.02 5.15 0.21

Czech Republic 1993 1997 35.70 32.74 1.51 0.91 12.12 11.79 13.42 15.15 7.30 4.88 1.35 0.01

Estonia 1991 1997 23.88 30.10 0.20 0.00 9.95 14.11 6.84 10.55 6.56 5.45 0.32 0.00

Georgia 1) 3) 1997 5.52 0.92 3.94 0.00 0.66 0.00

Hungary 1990 1997 44.71 32.55 3.07 1.89 16.58 12.11 15.55 10.83 9.51 7.27 0.00 0.44

Latvia 1997 29.19 0.69 13.72 10.70 4.06 0.02

Lithuania 1993 1997 20.16 25.43 0.86 0.71 7.00 13.19 6.18 6.97 6.09 4.51 0.03 0.06

Poland 1988 1997 35.13 35.18 2.30 1.58 11.26 12.48 8.40 11.31 12.01 9.75 1.15 0.05

Romania 1990 1996 30.93 24.38 0.19 1.71 11.24 6.46 13.00 7.57 6.51 7.57 0.00 1.08

Trade Taxes

Total

Tax Revenue

IncomeSales

Other Taxes& WealthSocial Security& VAT

Table B3. Central government tax revenue as a percentage of GDP, 1990 and 1997


181


Africa

Algeria 3) 1995 29.02 5.66 3.17 0.00 19.87 0.33

Botswana 3) 4) 1990 1996 28.64 15.55 7.07 5.79 1.00 1.75 0.00 0.00 20.58 8.01 0.00 0.00

Burkina Faso 1987 13.69 4.02 4.16 1.51 3.37 0.63

Burundi 1991 1997 16.88 13.30 4.44 2.24 7.03 6.43 1.27 1.20 3.94 3.20 0.20 0.22

Cameroon 5) 1989 1994 16.68 7.35 2.45 2.19 3.55 2.36 1.13 0.00 8.22 2.56 1.33 0.23

Chad 1) 1990 8.61 2.28 3.67 0.20 2.05 0.41

Dem. Rep. of the Congo 1990 1995 9.41 4.88 4.62 1.73 1.85 0.99 0.24 0.07 2.69 1.75 0.01 0.35

Egypt 1990 1995 16.74 21.03 3.16 3.59 3.13 4.65 3.55 3.49 4.67 6.13 2.24 3.17

Ethiopia 3) 5) 1990 1995 12.09 11.25 2.51 4.90 4.25 2.39 0.00 0.00 5.14 3.65 0.18 0.31

Gambia 3) 5) 1990 1993 18.21 26.19 8.33 12.32 7.27 9.49 0.07 0.07 2.50 4.24 0.05 0.06

Ghana 3) 1990 1993 10.81 13.86 4.57 4.79 3.53 6.06 0.00 0.00 2.71 3.00 0.00 0.00

Kenya 3) 5) 1990 1996 18.96 21.91 3.38 3.75 9.07 9.43 0.00 0.00 6.23 8.51 0.28 0.22

Lesotho 4) 1990 1996 34.52 40.89 22.02 26.47 8.06 6.36 0.00 0.00 4.40 7.87 0.03 0.19

Madagascar 1990 1996 9.43 8.47 5.53 4.62 2.23 2.11 0.00 0.00 1.63 1.70 0.04 0.04

Mauritius 2) 5) 1990 1997 19.41 16.54 9.85 6.09 4.44 5.72 0.97 1.15 4.07 3.57 0.08 0.01

Morocco 1990 1995 22.90 23.82 4.69 4.20 9.87 11.17 1.04 1.94 6.83 6.21 0.46 0.29

Namibia 4) 1990 1993 25.26 28.05 7.72 9.60 7.29 9.03 0.00 0.00 10.15 9.22 0.10 0.19

Rwanda 1990 9.51 2.78 3.68 0.73 1.95 0.37

Seychelles 1989 1995 44.79 34.91 25.39 20.15 2.72 1.92 8.00 7.27 8.50 5.28 0.18 0.29

Sierra Leone 5) 1990 1994 3.63 10.35 1.53 4.24 0.89 3.70 0.00 0.03 1.20 2.38 0.00 0.00

South Africa 2) 4) 1990 1997 24.75 26.94 0.98 0.08 9.06 9.98 0.48 0.46 14.00 16.18 0.24 0.24

Tunisia 1990 1996 24.01 24.85 8.61 7.60 5.98 6.18 4.41 5.41 4.45 4.68 0.57 0.97

Zambia 1990 1996 19.48 17.13 3.55 2.17 7.73 8.13 0.02 0.00 8.19 6.82 0.00 0.00

Zimbabwe 1990 1993 21.79 20.60 4.23 4.36 6.34 4.55 0.12 0.00 10.89 11.47 0.21 0.22

Latin America & Caribb.

Argentina 1990 1996 9.37 11.05 1.48 0.78 2.06 4.69 4.53 3.57 0.77 1.98 0.53 0.03

Bahamas 1990 1993 14.63 17.02 10.57 11.11 2.08 2.18 0.00 0.00 0.63 0.70 1.34 3.04

Belize 2) 3) 4) 1991 1997 20.67 20.23 12.67 7.17 2.25 8.15 0.00 0.00 5.31 4.33 0.44 0.58

Bolivia 1990 1997 8.60 15.98 0.94 1.15 4.30 8.95 1.20 3.18 1.68 2.65 0.49 0.05

Brazil 1990 1994 19.11 20.12 0.48 0.52 5.54 6.57 8.41 9.38 4.69 3.65 0.00 0.00

Chile 1990 1997 16.26 18.94 2.41 1.87 8.95 10.45 1.73 1.39 2.57 4.03 0.60 1.20

Colombia 1990 1994 10.24 13.63 2.51 1.40 3.84 6.65 0.00 0.00 3.73 5.57 0.17 0.02

Costa Rica 1990 1996 20.81 23.12 5.30 2.22 6.29 10.51 6.62 7.14 2.40 2.84 0.20 0.40

Dominican Republic 1990 1996 10.84 13.88 4.86 5.55 2.71 5.09 0.54 0.62 2.67 2.58 0.06 0.03

Ecuador budgetary 1990 1994 17.80 13.87 2.41 1.77 3.94 4.05 0.00 0.00 11.36 8.05 0.09 0.00

El Salvador 3) 1990 1997 8.90 10.51 2.00 1.34 4.16 6.03 0.00 0.00 2.62 3.10 0.12 0.04

Grenada 3) 1991 1995 23.05 23.08 6.22 4.61 11.67 11.43 0.00 0.00 4.69 6.38 0.46 0.66

Guatemala 3) 1990 1997 6.87 8.69 1.54 1.42 3.31 4.97 0.00 0.00 1.61 2.14 0.40 0.16

Mexico 1990 1996 17.72 15.64 1.03 0.59 9.25 8.73 2.19 1.93 5.05 4.08 0.20 0.32

Netherlands Antilles 1) 1990 1995 10.78 7.62 3.44 4.26 3.20 2.84 3.64 0.00 0.19 0.39 0.31 0.14

Nicaragua 1990 1995 2.93 23.88 0.62 5.31 1.16 10.89 0.30 3.30 0.70 2.81 0.14 1.56

Panama [exc. Canal Zone] 1990 1994 17.72 17.96 3.07 2.71 4.38 4.37 5.11 5.53 4.85 4.88 0.31 0.47

Paraguay 1990 1993 9.17 9.08 2.46 1.75 2.60 5.03 0.11 0.16 2.21 2.00 1.78 0.13

Peru 1990 1997 10.49 14.83 1.77 1.35 5.34 7.79 0.78 1.94 1.35 3.29 1.24 0.46

year1 year2 1990 1997 1990 1997 1990 1997 1990 1997 1990 1997 1990 1997

Trade Taxes

Total

Tax Revenue

IncomeSales





Africa

182


St. Kitts-Nevis-Anguilla 1990 1994 22.52 23.57 12.58 11.21 1.48 3.32 2.85 3.25 5.12 4.81 0.48 0.98

St. Lucia 1) 4) 1990 27.72 8.74 10.56 0.00 7.87 0.55

St. Vincent and the Grenadines 1991 1997 25.03 28.16 11.99 13.32 3.05 3.78 1.52 1.83 7.77 7.81 0.70 1.42

Trinidad and Tobago 1993 1995 24.00 23.34 2.57 1.56 8.63 7.13 0.74 0.57 11.93 13.91 0.14 0.18

Uruguay 1990 1997 24.20 26.84 2.60 1.15 9.53 10.35 7.30 7.99 3.19 5.56 1.59 1.79

Venezuela 1990 1997 18.41 18.34 1.61 1.61 0.75 7.16 0.89 0.37 15.16 9.20 0.00 0.00

Asia & Oceania

Bahrain 1990 1997 7.55 6.75 2.29 2.42 1.05 0.85 2.53 1.90 1.69 1.57 0.00 0.00

Bhutan 1990 1996 4.42 6.59 0.06 0.24 2.90 2.98 0.00 0.00 1.44 3.37 0.02 0.00

China 3) 1990 1996 4.01 4.83 0.88 0.44 1.13 3.65 0.00 0.00 2.00 0.65 0.00 0.09

Cyprus 1990 1995 22.36 25.71 4.35 2.55 4.69 8.97 4.74 5.06 6.75 6.73 1.82 2.41

Fiji 3) 1990 1996 23.08 21.23 8.74 5.27 3.97 7.99 0.00 0.00 10.11 7.92 0.27 0.06

India 4) 1990 1996 10.36 9.81 3.71 3.27 4.65 3.56 0.00 0.00 1.98 2.97 0.01 0.01

Indonesia 4) 1990 1996 18.42 14.08 1.25 0.52 4.62 4.80 0.00 0.44 12.44 8.31 0.12 0.00

Iran (Islamic Rep. of) 2) 4) 1991 1997 7.55 9.25 2.62 1.71 0.82 2.40 1.87 1.82 2.17 3.26 0.09 0.07

Israel 1993 1997 31.95 36.81 0.38 0.18 13.47 13.59 3.39 7.00 14.46 15.81 0.24 0.22

Jordan 3) 1990 1996 18.63 22.38 7.01 7.46 5.45 8.66 0.17 0.11 5.08 4.97 0.93 1.19

Kuwait 2) 5) 1990 1996 1.94 0.98 1.49 0.78 0.02 0.00 0.00 0.00 0.43 0.21 0.00 0.00

Lebanon 1) 1993 1996 9.21 14.05 5.05 7.99 0.80 0.68 0.00 0.00 2.84 2.84 0.51 2.54

Malaysia 1990 1997 19.63 19.38 4.85 2.99 5.50 6.24 0.21 0.29 8.42 8.75 0.65 1.11

Mongolia 1992 1996 15.64 17.03 3.06 2.37 5.67 4.60 2.49 4.95 4.42 4.97 0.00 0.14

Myanmar 4) 1990 1996 5.86 3.65 1.37 0.93 2.75 1.64 0.00 0.00 1.75 1.07 0.00 0.00

Nepal 2) 5) 1990 1997 6.47 8.69 2.42 2.99 2.79 3.99 0.00 0.00 1.25 1.71 0.01 0.00

Oman 3) 1990 1997 10.38 8.59 0.80 0.71 0.27 0.38 0.14 0.49 9.16 7.01 0.00 0.00

Pakistan 5) 1990 1995 12.15 14.11 5.40 4.49 5.16 6.59 0.00 0.00 1.59 3.02 0.00 0.00

Papua New Guinea 3) 1990 1994 20.07 19.52 6.35 5.39 3.53 2.37 0.00 0.00 9.44 11.38 0.76 0.37

Philippines 3) 1990 1997 14.08 17.01 4.06 3.93 4.98 5.50 0.00 0.00 4.68 6.81 0.37 0.76

Republic of Korea 1990 1997 15.79 18.63 2.05 1.38 6.06 7.28 0.81 2.02 6.30 6.15 0.57 1.80

Singapore 5) 1990 1996 14.30 15.77 0.50 0.33 3.99 4.71 0.00 0.00 8.03 7.96 1.79 2.77

Sri Lanka 1990 1997 19.02 16.17 6.01 2.99 9.75 9.97 0.00 0.00 3.26 3.21 0.00 0.00

Syrian Arab Republic 1990 1996 16.71 15.98 1.62 2.78 6.88 6.50 0.67 0.72 7.06 5.37 0.49 0.59

Thailand 6) 1990 1997 17.72 16.22 4.25 2.20 7.98 7.69 0.02 0.27 5.29 5.96 0.18 0.10

Turkey 1990 1996 11.57 15.65 0.85 0.44 4.39 8.75 0.00 0.00 5.95 6.06 0.38 0.40

United Arab Emirates 3) 1990 1994 0.61 0.61 0.00 0.00 0.57 0.57 0.04 0.04 0.00 0.00 0.00 0.00

Yemen 1990 1997 11.13 13.31 3.25 3.92 1.98 2.04 0.00 0.00 5.04 6.85 0.86 0.51

year1 year2 1990 1997 1990 1997 1990 1997 1990 1997 1990 1997 1990 1997

Trade Taxes

Total

Tax Revenue

IncomeSales



Asia and Oceania

Consolidated Central Government expendituresSources: IMF, UNDESA

Note: 1) GDP source: UNDESA, based on national statistical information2) 1997 value based on estimated GDP figures3) Budgetary Central Government expenditures4) Fiscal year ending March, GDP accordingly adjusted5) Fiscal year ending June, GDP accordingly adjusted6) Fiscal year ending September, GDP accordingly adjusted7) Fiscal year ending March for 1990 figure, and December for 1997 figure, GDP adj.8) Fiscal year ending June for 1990 figure, and December for 1997 figure, GDP adj.

183

MEASURING THE SIZE OF THE STATE

Footnotes and References - Part Two

1 System of National Accounts 1993 (United Nations Sales No. E.94.XVII.4).

2 The OECD considers employment data for public corporations to be so poor that it reportson a regular basis only employment for general government in member countries. See OECD,Trends in Public Sector Pay in OECD Countries (Paris, 1997) and Statistical Sources on Pub-lic Sector Employment (Paris, 1994).

3 In the National Accounts, �gross investment� is referred to as gross capital formation.

4 System of National Accounts 1993 (United Nations Sales No. E.94.XVII.4), para. 9.91, p. 215.

5 �Whereas the recipients of current cash transfers may dispose of them as they wish, the re-cipients of social transfers in kind have little or no choice.�, System of National Accounts 1993(United Nations Sales No. E.94.XVII.4), para. 8.100, p. 201. Note however that the authors ofthe SNA do not allow for the fact that social transfers are fungible. Recipients of free schooling,for example, would spend at least part of their income on schooling were it not provided by gov-ernment, so government expenditures on schooling ultimately finance household savings andconsumption of other goods and services.

6 See OECD, �Expenditure on health in national accounts,� available on the Internet atwww.oecd.org/.

7 SNA treatment of indirect taxes differs markedly from that of subsidies. Sales taxes alwaysincrease the price of goods or services and are never recorded as a negative �transfer in kind� tohouseholds.

8 This is also the approach of the World Bank in The State in a Changing World (World De-velopment Report, Oxford University Press, New York, 1997), chap. 1.

9 See Messaoud Hammouya, �Statistics on Public Sector Employment: Methodology, Structuresand Trends�, Working Paper of the Bureau of Statistics of the International Labour Office, Gene-va, July 1999. The ILO circulated an earlier version of this paper in December 1998 with thetitle �Statistiques de l�emploi dans le secteur public: méthodologie, structure et tendance�.

10 Agricultural workers, for example, are excluded from �total employment� in India and fourother countries. And statistics for Egypt exclude workers in private establishments with fewerthan ten employees. It is somewhat misleading, then, to report that the public sector accountsfor 70 per cent of �total employment� in Egypt and India, the highest figure of all countries sur-veyed. See Messaoud Hammouya, op cit, notes to table 1, p. 13.

11 This has come to be known as �Baumol�s Disease� after the economist who first drew atten-tion to it. See William J. Baumol, �Containing medical costs: Why price controls won�t work�,Public Interest, No. 93 (Fall 1988), pp. 37-53.

12 See World Comparisons of Real Gross Domestic Product and Purchasing Power, 1985: PhaseV of the International Comparison Programme, Series F, No. 64 (United Nations publication,Sales No. E.94.XVII.7 and Corr.1).

13 See Robert Summers and Alan Heston, �The Penn World Table (Mark 5): An expanded setof international comparisons, 1950-1988�, Quarterly Journal of Economics, vol. 106, No. 2 (May1991), pp. 327-368. The current version (Mark 5.6) was released in January 1995 and can bedownloaded from The Center for International Comparisons at the University of Pennsylvania(http://pwt.econ.upenn.edu) or accessed online from the University of Toronto (http://datacen-tre.chass.utoronto.ca/pwt/index.html).

184


14 Government consumption shares of GDP in PPP prices reported in the Penn World Table nec-essarily ignore subsequent revisions to national accounts. For this reason, the figures of Sta-tistical Appendix table B1 were calculated by applying PPP price indexes to the latest SNA es-timates of shares. For countries that have not revised their national accounts, the resulting PPPshare of government consumption in GDP is identical to that reported in the Penn World Table.A careful reader will note that in the numéraire country (the United States) 1990 governmentconsumption is 12.8 per cent of GDP in PPP prices and 17.7 per cent in domestic prices. Thetwo figures are surprisingly different. They differ because price levels in the Penn World Tablesare expressed relative to the world rather than relative to the United States. Thus, price in-dexes for components of GDP for the United States are not equal to one, even though the priceindex for overall GDP is. More precisely, the price index for government consumption in the Unit-ed States is equal to 1.38, the price index for GDP is equal to one, and 12.8 is equal to 17.7 di-vided by 1.38.

15 Suppose a government has to service a debt of 1 million pesos, prices are stable and the an-nual interest rate is 10 per cent. With interest payments of 100,000 pesos the value of the out-standing debt would remain unchanged. Now suppose that there is price inflation of 10 per centa year, and that the interest rate is 20 per cent per year. Interest payments would now double,to 200,000 pesos. But the burden of the debt is unchanged, for if the government were to issuenew nominal debt in the amount of 100,000 pesos, the real (constant peso) value of the debt wouldremain unchanged.

16 See Adolph Wagner, �Three extracts on public finance�, originally published in German in1883 and included in English translation in R.A. Musgrave and A.T. Peacock (eds.), Classics inthe Theory of Public Finance (London, Macmillan, 1958).

17 Alberto Alesina and Romain Wacziarg, �Openness, country size and the government,� Jour-nal of Public Economics, vol. 69, No. 3 (September 1998), pp. 305-321. See also David R.Cameron, �The expansion of the public economy: A comparative analysis,� American PoliticalScience Review, vol. 72, No. 4 (December 1978), pp. 1243-1261; Peter Saunders, �Explaining in-ternational differences in public expenditure: An empirical study,� Public Finance, vol. 43, No.2 (1988), pp. 271-294; and Dani Rodrik, �Why do more open economies have bigger governments?�Journal of Political Economy, vol. 106, No. 5 (1998), pp. 997-1032.

18 Larry Willmore, �Transnationals and foreign trade: Evidence from Brazil,� Journal of DevelopmentStudies, vol. 28, No. 2 (January 1992), pp. 314-335. See also United Nations, World InvestmentReport 1999 (New York and Geneva, Sales No. E.99.II.D.3), pp. 229-255. Not all regressions us-ing the foreign direct investment variable are reported in the appendix tables.

-----

Documents

World Public Sector Report 2001 - Globalization and the State