Please e-mail me if you do so, telling
me the title (as I have other work on the web).
This is the pre-copy-editing text of the article appearing as: “‘Economic
Rationalism’ In Canberra and Canada:
Public Sector Reorganization, Politics, and Power,” Australian
Economic History Review, forthcoming 43:1, January 2003
‘ECONOMIC RATIONALISM’ IN
CANBERRA AND CANADA:
HERMAN SCHWARTZ
Department of Politics
PO Box 400787
University of Virginia
Charlottesville VA 22904-4787
434 924 7818
434 924 3359 (fax)
e-mail: hms2f@virginia.edu
http://www.people.virginia.edu/~hms2f
© Herman Schwartz 2002
Abstract:
Australian Public sector
institutions and public sector labour relations experienced intense change in
the 1980s and 1990s. Proponents of
restructuring sought to insert market-like pressures into areas formerly
governed by bureaucratic mechanisms.
This reversed a trend towards continual growth in state provision of
non-market based social protection and social welfare, and continual growth in
the public sector’s share of the economy.
The politics and content of Australian public sector restructuring under
Labor and then the Liberals substantially resembled restructuring efforts in
two Canadian provinces. In all three
examples political pacts between unions in the exposed and non-exposed sectors,
and between organized labour and capital, determined the direction of
change. But the level of institutional
robustness of these various actors determined both the pace and effectiveness
of change. Weak employer organizations
and unions incapable of sustaining pacts in Canada produced wider oscillations
in policy content that arguably attained less substantive success than in
Australia.
‘Economic Rationalism’ In
Canberra and Canada:
Public Sector Reorganization,
Politics, and Power
The public sector was second only to collective bargaining in general as the most intense site for institutional restructuring in Australia in the 1980s and 1990s; because the areas overlapped, public sector labour relations may well have seen the greatest degree of institutional restructuring. Proponents of restructuring sought to insert market-like pressures into areas formerly governed by bureaucratic mechanisms, reversing an acceleration in the provision of social protection and employment through tax funded, non-market transfers and services in the prior 20 years. By the early 1980s government spending accounted for about a quarter of Australian GDP, and government employment about one-fifth of total employment. Adding in the unemployed, pensioners and those on social assistance meant that roughly two-fifths of Australians relied on the state for a ‘paycheck.’ While this was low by OECD standards, most other OECD economies also had lower levels of trade protection and wage regulation at that time.
Castles, Gerritsen and Vowles labelled this reversal The Great Experiment, but a more pointed label might be The Second Great Transformation.[1] States everywhere responded to the disembedding of markets identified in Polanyi’s analysis of the (first) great transformation by sheltering individuals and firms from the world market that had emerged by 1914, and fallen into catastrophic depression in 1929. Australia’s version of this sheltering relied more on border protection and pervasive wage regulation than Europe’s typical mix of tax funded, high public transfer, high public service social welfare programs.
The second great transformation has
reintroduced market pressures into many formerly sheltered areas. Deregulation replaced bureaucratic controls
on private enterprise with prudential regulation of corporate behaviour and
market regulation of prices and products.
Deregulation replaced bureaucratic controls on public enterprises with
market and prudential regulation via commercialisation or privatisation. Deregulation has additionally replaced input
oriented bureaucratic controls over non-commercial public activities with more
competition among agencies, more private sector style management of personnel
and inputs, and more emphasis on outputs.
So ‘deregulation’ did not eliminate regulation from the public sector so
much as it changed the nature of regulation, and shifted the boundary between
the public and private sectors via privatisation and contracting out.
Who engineered these changes and for what
reasons? What did they try to do? Did they succeed? Many analyses attributed these changes to ‘globalisation,’ but
this is an overly broad term that tells us nothing about actors’ motives – what
groups tried to do – or about variations in policy choices – whether they
succeeded in what they attempted. In
this article I will compare Australian public sector restructuring to similar
processes in two Canadian provinces, Ontario and British Columbia (albeit with
a ten year delay). I use Canadian
provinces rather than the federal government, because they account for the bulk
of public sector spending and service delivery, as well as having a substantial
say in private sector regulation.
Looking at provincial politics also provides
tighter control over the analysis. The
actors, motives and intentions were similar in all cases. All three had episodes in which Left leaning
parties tried to restrain relative unit labour costs through public sector
reorganization and deals approximating the “Accord.” Indeed, the Canadian accords explicitly drew on that of
Australia. All three ultimately saw an
erosion of unity with the labour movement and between labour and the segments
of business that supported labour’s favoured form of reorganization. The similarities suggest that Australian
‘economic rationalism’ was unique only in its relative success. While actors’ motives were similar
everywhere, actors’ varying organizational capacities for political management
of public sector reorganization affected their ability to carry out
reorganization. The following sections
examine the ‘problems’ with the public sector; who responded to these problems
and why; what institutions they tried to change; and what these changes might
signify.
Simultaneous sharp increases in global real interest rates and
competition in product markets in the early 1980s put the cases considered here
into economic difficulty, although Ontario initially benefited from an
expansion of automobile production by multinationals. All three economies had rising unemployment, fiscal deficits and
foreign domiciled debt or foreign currency debt. The two Canadian provinces encountered even greater difficulties
in the 1990s, when the Canadian Federal government began cutting its own
deficit. Foreign investors downgraded debt
ratings and speculated against their currencies. Internally, unemployment rose to unprecedented levels while
public dissatisfaction with public services put pressure on politicians.
The policy implications of these indicators
were unclear, because bad numbers do not necessarily create similar
responses. Policy responses to bad
numbers are a function of how politically powerful groups understand the
problem in relation to their interests.
Most actors understood and explained their policy preferences as a
response to globalisation. However, as
I have argued elsewhere, globalisation is a meaningless word.[2] What was significant about the 1980s and
1990s was the gradual reintroduction of market forces into parts of the economy
that had been sheltered from market pressures ever since the Great
Depression. Although many analysts saw
globalisation strictly as an effort by capital to roll back the most visible
protections for labour, namely the welfare state, substantial producer sectors
were also sheltered by the state. The
potential introduction of markets thus threatened rates of return and
investments for business as well.
The reintroduction of markets into the service sector began in the United States with deregulation of civil aviation, trucking, natural gas transmission, rail, telecommunications, finance and power generation in the late 1970s and early 1980s, and soon spread to Britain. The American government simultaneously mounted an international offensive to open up protected service sector markets in Europe and elsewhere, which culminated in the World Trade Organization’s General Agreement on Trade in Services.
American deregulation of the service sector
changed the material interests of exposed sector businesses and unions outside
the US. Both business and unions had
previously acquiesced in public ownership of the service sector, and in wage
growth that sometimes ran ahead of productivity gains. This was because public ownership assured
local firms of supply contracts and workers enjoyed the benefits of expanding
welfare state services. But American
deregulation and the growing reality of competition made exposed sector firms
and unions more sensitive to the relative cost of sheltered service sector inputs. Similarly, the growing importance of supply
chain management and ‘just in time’ production disciplines increased exposed
sector firms’ sensitivity to the quality and responsiveness of service sector
firms. Exposed sector firms could not
compete with American firms that enjoyed falling relative prices for services
inputs. At the same time, rising global
interest rates meant that governments could no longer subsidize inefficient
publicly owned firms with cheap capital.
The public sector was thus out of balance with
the rest of the economy. Public sector
unions had used their growing membership and organizational strength to demand
wage increases above productivity gains in the 1970s, and in any case public
ownership and tight regulation hampered efforts to raise productivity and
service quality. Tightly centralized
systems of collective bargaining then spread these gains to the exposed sector.[3] As both Australian models and the
Scandinavian Aukrust-EFO inflation models suggest, these wage increases made
exporting more difficult by raising relative unit labour costs in the exposed
sector.[4] Public sector wage increases thus
contributed to rising current account deficits, while disrupting established
wage parities between different groups of workers. Each state tried to use incomes policies – central bargains in
which unions exposed lower wages for tax cuts or a stable social wage – to
control or roll back these wage rises.
Unions in the exposed sector were willing to adopt wage restraint
strategies in order to remain internationally competitive and protect
employment, but sheltered public sectors unions did not face a direct
international constraint on wages.
Finally both citizen/consumers and elected officials were increasingly
irritated by the low quality of service from, and unresponsiveness of, public
sector workers and bureaucrats.
Understanding how general pressures to fix these public
sector problems turned into specific policies requires us to look at how
different actors were affected by the expanding public sector, and how these
groups combined to produce specific policies for public sector
reorganization. Splitting organized
interests up into capital and labour, and exposed and non-exposed sectors,
yields four different policy paradigms centred on each of the four groups (Figure
1). The four policy paradigms are
limited neo-liberalism (limited because it only attacked policies sheltering
labour), neo-progressivism (or the new public management, NPM), social
progressivism (NPM with a human face), and the responsive state strategy
(better welfare as a political strategy).
These pure preferences were rarely expressed in actual policy, because
each group needed coalition partners both to win elections and to implement
wage and income policies. While these
groups had different interests and thus sought different ends, they
could often agree on similar means – public sector reorganization – to
those ends.
Sheltered
businesses, primarily small service sector firms and direct agricultural
producers, sought limited neo-liberalism.
They sought to roll back welfare for workers and remove regulations that
hampered their profitability, while preserving regulations and subsidies that
sheltered them from the market.
Sheltered firms typically preferred the wholesale elimination of publicly
socialized health, education and labour market risks to lower their tax
burden. (Except of course where they
live off that sector, as in private health sector producers.) Individuation of risks allows sheltered
firms to pass social costs onto larger firms that face organized labour and so
must provide a wide range of benefits to buy labour peace. Lower income taxes enable the owners and
managers of sheltered firms to purchase “welfare goods” tailored to their needs,
and to maintain a socially defined standard of living in the face of increased
competition. In terms of the broader
public sector, smaller scale sheltered firms and producers also prefer
wholesale privatisation of (relatively expensive) public services and deep
budget cuts to fund accompanying income tax cuts (since they receive much of
their return as what the tax system considers “income”).
Sheltered firms and producers also
prefer to shift regulatory control out of the state and down to their own
organized interest groups. For smaller
firms, the fixed costs of regulatory compliance cannot be spread over large and
stable revenue flows, so the choice is to contract out for them (at a high
cost) or simply evade them (risking legal penalties). Studies of Australian firms have shown that these costs are not
trivial, amounting to 4 percent of turnover and equivalent to 32 percent of
profits in 5 sampled industries.[5] Delegation of regulation down to sheltered
firms’ producer organizations reinforces their ability to use selective (dis-)
incentives for collective action in defence of their property rights, while
minimizing regulatory costs.
Exposed sector firms, by contrast,
sought to lower the cost of service sector and welfare state inputs rather than
trying to eliminate the welfare state wholesale. Like the original progressive movement in late 19th century
America, this ‘neo-progressivist’
model emphasized depoliticised and efficient government, and it attacks much
‘corporate welfare’ (i.e. sheltering) just as the progressives attacked urban
machines’ patron-client welfare networks.
Exposed capital thus is the strongest advocate for the ‘new public
management’ model of public sector reform, involving real wage disciplines,
results oriented management, budgetary transparency, and true costing (Schwartz, 1994). New public management does not involve the wholesale program of
deregulation, privatisation, and public sector staffing cuts that sheltered
firms prefer. Instead, it aims at lower costs via higher productivity and via
the professionalisation and insulation of the state, and at making public
sector actors behave more predictably and more like private sector actors who
are susceptible to cost reduction pressures.
New public management consisted of:
·
a ‘policy-provider split’:
separating policy making from the management and implementation of
policy or the provision of goods/services; and separating commercial and
regulatory functions
·
management by results: shifting
from input oriented, bureaucratic controls to output and results oriented
control modes using quantifiable output and performance measures
·
multi-year business or strategic plans, true and full costing of
services, budgetary transparency and enhanced auditing capacity at the centre
·
real wage discipline: hire-fire
capacity and pay for performance
Substantively
exposed firms sought increased public sector productivity because they directly
and indirectly consume a wide range of public services. These services
typically amount to 30 percent of total costs for these firms. Most firms in this sector either face
organized labour or value a stable, skilled labour force as a competitive
resource. They thus view dismantling
the welfare state and desocialization of risks as something that will raise
their labour costs rather than reducing them.
Exposed firms thus see fiscal discipline as a way to put a hard budget
constraint on public producers, a way to attain better credit ratings, and a
way to stabilize tax levels, rather than a way to finance tax reductions in
individual income tax levels. Fiscal
discipline improves the state’s credit rating and thus indirectly firms’ own
rating and borrowing costs. Exposed firms
prefer broad based sales taxes whose regressivity does not affect their upper
management, and whose rebate-ability improves their position in export
markets. In short, exposed firms prefer
to fix the state’s service production rather than eliminate it.
Employers in the exposed sectors also found
that centralized systems for collective bargaining prevented them from
attracting or developing a pool of skilled labour without simultaneously
causing wage increases in the public sector.
Disciplined skilled labour was a prerequisite for success in the changed
international economic environment of the 1980s. But incomes policies, solidaristic bargaining by unions that
compressed wage differentials, and award rigidities prevented them from using
increased wages to attract skilled labour.[6] Rising private sector wages triggered public
sector demands; in turn private sector employees and employers sought to
restore differentials with the public sector, setting off wage leapfrogging.
Unions in the exposed sector also preferred a
flavour of progressivism. Exposed
sector unions feared that wage pressures emanating from organized sheltered
workers would induce their own workers to take wage positions detrimental to
their long-term employment. But exposed
workers also consume public sector services that represent socialized risks,
and prefer that to individualized and market based risk. Exposed labour thus preferred to reorganize
the public sector and welfare state to impose fiscal and wage disciplines on
it, but without a recision of public services. Like exposed firms, exposed labour prefers welfare state
reorganization to dismantling, but it also prefers continued public ownership
to privatisation and open private-public competition. To the extent that productivity gains are not forthcoming in the
public sector, exposed workers have strong incentives to band together with
exposed firms to break wage parities with the public sector.
This ensemble can be
called ‘social progressivism.’ As with the neo-progressivism of exposed
firms, it emphasizes the more business-like, new public management model; but
it diverges by preferring continued socialization of a broad range of risks and
a relatively higher level of public spending, ownership and service provision.
In all our cases the most important private and
exposed sector unions – Australia’s AMWU (now MTFU), Ontario’s automobile and
steel workers, and British Columbia’s forestry union, IWA – sought control over
public sector wages. The erosion of
wage differentials between skilled and exposed sector workers on the one hand
and unskilled and public sector workers on the other dismayed skilled workers’
unions.[7] The Australian Accord is of course
familiar. But in British Columbia after
1991 the left wing New Democrat Party (NDP) government and the private sector
Federation of Labour constructed new corporatist institutions to regularize and
control public sector wage bargaining.
The Ontario New Democrat Party similarly offered an accord to public
sector workers. As with Australia’s
Accord these new institutions rested on an explicit exchange of wage restraint
for employment security.
Finally sheltered sector unions
sought to protect labour markets from world market prices much as sheltered
firms seek to protect their stream of profits from franchisers and other forms
of international market intrusion.
These unions prefer a large public sector whose entrenched work norms
and rules enable it to soak up excess (and often unskilled) labour. Aside from direct beneficiaries, who anyway
are almost always concerned only about their own specific income stream, this
is the largest status quo constituency in the welfare state debate.
In its most positive and forward
looking formulations, this strategy tries to overcome the management problems
associated with a bureaucratic welfare state in order to generate continued
public support for the public sector.[8]
It is a ‘high road’ strategy for
the public sector, emphasizing high quality services at, of course, high
cost. The political strategy here tries
to retain the support of middle-income voters (or firms) by offering high
quality services, and then using cross subsidies to also provide high quality
services to poor people. This strategy
also tries to inculcate a set of values centred on social citizenship; not everything
has a ‘price,’ and the state is not a supermarket for services. Consequently, this strategy focuses much
more on client service than on NPM style production efficiencies; thus it is a responsive state strategy. Only public sector labour unions possess
enough organization to implement this strategy, because most private service
industries have fragmented and volatile labour forces. However, unionised private sector service
workers in regulated product markets are also conscious defenders of their
‘local welfare state,’ that is, the secure employment conferred on them by
sectoral regulation and market segmentation.
What about the state
itself? Finance ministries provided
convenient theoretical diagnoses of public sector problems using public choice
and agency theories.[9] Public choice theories suggest that pressure
groups typically demand too much in the way of services and transfers, that
bureaucrats inflate budgets, and that politicians are overly eager to concede
these items to both groups. Similarly,
agency theory argued that public sector organizations and their workers work
too little and in the wrong ways from the point of view of consumers and
politicians. Both imply that consumers
(and/or taxpayers) are at a disadvantage when they try to organize to curb
public sector expansion, or make public servants act in clients' (their
principals’) interests.
Finance ministries saw markets with
private production as one solution to these problems, because they allow
consumers to use exit as a method of disciplining producers; consumers can take
their money to another, presumably cheaper and more consumer-friendly
producer. But markets are not the only
plausible solution. Other possibilities
are more competition among public providers (through for example vouchers or
capitation payments), more user input in the administration of public services
(for example parent dominated school boards), more legal rights (for example
via citizen charters) and more operational autonomy for producers (for example
freedom from counterproductive central surveillance). So both the definition of the problem and the solutions proffered
are political.
These
four groups and state actors fought to build coalitions to secure political power
and institute their preferred policy solution to the emergence of service
sector markets and public dissatisfaction with welfare state services. The next section analyses policy oscillation
as a function of changes in political power in each of our three cases.
All three of our cases responded to the crises of the 1970s (in Australia) or 1980s (in Canada) with efforts to rationalize the welfare states and state owned sectors that had emerged in the prior decades. In all three, reorganization efforts oscillated between different syndromes, even though similar legislative and political technologies were deployed in pursuit of office. Roughly speaking the 1970s and 1980s saw relatively hesitant efforts at change and even some continuation of policy routines, but as fiscal pressures deepened after 1980 and 1990, efforts to create a new model emerged in all three cases. The discussion below will privilege the Australian experience, using the Canadian ones to highlight the political dimensions of change.
Whitlam’s ALP government 1973-5 represented an
effort to blend social progressivist and responsive state strategies, but like
the British Columbia and Ontario cases, the Whitlam government rested on a very
unstable and uninstitutionalised coalition between different wings of the
labour movement. Whitlam tried to
expand the state’s provision of welfare through Medibank and the Australian
Assistance program, while also imposing new management routines. He centralized financial controls while
decentralizing service provision.
Whitlam attacked bureaucratic indifference to both customers/clients and
(would-be) political masters via the Royal Commission on Australian Government
Administration (Coombs Commission).
Coombs articulated three complaints about bureaucratic unresponsiveness.[10] First, bureaucracies ignored their own
employees’ desires for a less hierarchical administration. Second, they ignored the presence of
distinct communities within Australia.
And third, they ignored unorganised communities. Coombs’ recommendations on personnel
administration foreshadowed the later use of forward estimates to let
departments set their own priorities and staffing.
State level inquiries, like Peter Wilenski’s
1977 Review of NSW Government Administration, echoed this. Wilenski argued for more accessibility to,
more diversity in, and more political control over, the bureaucracy. Anticipating later trends towards budget
centralization and operational decentralization, Wilenski argued that
politicians, not technicians, should set policy, using competition between old
and new programs to guide spending.
Simultaneously the ‘excessively hierarchical’ administration should
delegate responsibility downwards, allowing technicians to tailor programs to
individual needs.[11]
The Coombs and Wilenski reports presented
‘left’ critiques of public sector unresponsiveness, reflecting Whitlam’s and
Wran’s difficulties in controlling bureaucracies indifferent to the ALP’s
social aims. Both reports exerted a
strong influence on the ALP governments of the 1980s. But when Fraser displaced Whitlam in 1975, he articulated a new
right-wing critique and praxis that focused on pure cost control rather than
responsiveness. Despite small
managerial reforms that foreshadowed the NPM, Fraser’s government primarily
pursued a limited neo-liberal agenda.
Fraser abolished the Australian Assistance Program, the Department of
Urban and Regional Development, and severely cut staff at the Department of
Social Services.
On the managerial side, the Fraser government
launched its own Administrative Review Committee in 1975 to root out ‘waste,’
but also to increase central control over the growing bureaucracy inherited
from Whitlam. Two Acts in 1976 and 1977
gave managers wider latitude to fire and manage staff. Finally, Fraser carried out the ALP’s
recommendation to separate the Department of Finance from Treasury, and began
the gradual cumulation of real policy control into the Department of Prime
Minister and Cabinet that marked the Hawke years.
As administrative reforms, all these early
efforts had limited success. They
focused on questions of formal organizational structure, and not on the
motivations of public sector workers. They
were designed to impose a central vision across multiple agencies, but in the
absence of a crisis environment they tended towards incremental change. And they faced a united phalanx of workers’
organizations that saw change in zero-sum terms.
All this changed in the early 1980s. PCT and agency theory had shifted fiscal
bureaucrats’ attention away from organizational charts per se and towards the incentive
structures governing employee and agency behaviour. Fear of
‘Banana Republicanisation’ gave impetus to root and branch reform. Unions in the exposed sector had reasons to
support public sector reorganization, and the new presence of sheltered and
public sector unions in the ACTU made a deal possible, providing public sector
unions were offered some positive incentives for wage restraint. Sweeping change was now possible, and with
Whitlam’s experience still a live memory, the ALP explicitly campaigned on
public service reform in the 1983 election.[12]
All this made a social progressivist policy possible
under the Hawke ALP governments. These
governments sought to create markets and quasi-markets for publicly provided
goods and services in order to change the incentives governing the behaviour of
agencies and employees in the public sector.
By changing the incentive structures embedded in institutions they hoped
to change individual and collective behaviours. The emphasis on markets was strongest at the Commonwealth level
and then diffused to State policy. How
were markets to be created?
The essential feature of micro-economic and public sector reform in Australia and elsewhere was putting market pressures on producers and consumers of public services. Reorganization had two streams: first commercialising and then privatising GBEs producing services and goods with close private sector equivalents; second, introducing market like principles into the production of merit goods (for example, health or education) where private markets typically failed.
To make markets, proponents of reorganization
had to break up roles that had previously been combined within monolithic,
monopolistic agencies. Reorganizers had
to segregate the roles of service consumer, service arranger, service financer
and service provider into different people and organizations to create the
discrete buyers and sellers of goods and services that markets need to
function. Reorganizers thus had to
separate policy making from policy execution (or service provision), and
separate those who financed services from those who provided services. Reorganizers also had to open up service
provision to competition and insert a cash or contractual nexus between
providers of services and consumers and funders of services. Reorganizers complemented this separation
with changes in work practices inside agencies, and between agencies and their
funders, in order to make it possible for agencies to respond to market
pressures. When it was not possible to
create an open market, reorganizers tried quasi-markets like purchasing
“outputs” from agencies.
Reorganizers built markets with four key
institutional changes respectively affecting workers’ behaviour, managers
behaviour, agency and ministerial behaviour, and the overall environment. The first change went by the slogan ‘let
managers manage,’ but really implied the reimposition of private sector style
wage disciplines on public sector labour.
Reorganizers sought to replace older public sector tenure, seniority,
job classification and uniform pay systems with managerial power to hire and
fire, to individuate pay scales (including incentive pay), to set flexible work
hours and to determine individual job responsibilities. This change extended to senior civil
servants in Australia. Reorganizers
wanted these changes motivate workers, and they wanted separate executive
career tracks to reorient agency heads’ loyalties towards the finance ministry
and not their own agency.
The ALP decentralised control over internal
personnel for the Commonwealth using two mid-1980s acts that reduced the number
of job classifications and gave managers more power to redeploy, hire and fire
labour at will. Control over staffing
levels shifted from the Public Service Board to the Finance Ministry. Performance pay expanded from senior
executives to other managerial ranks in 1992.
The 1988 Industrial Relations Act and subsequent AIRC decisions reduced
the number of salary bands and a 1992 government-union agreement expanded enterprise
bargaining. By 1994 about 62 percent of
the workers with AIRC approved enterprise bargains were in the public sector.[13] The Liberal-National government also
reinforced wage discipline with its 1996 Workplace Relations Act. This made individual and enterprise
contracts possible under the federal system, while constricting the scope of
federal awards and the old federal AIRC.
The second change is summed in the phrase,
‘management for results,’ and involved the reorientation of management
attention away from inputs and towards outputs and outcomes. Budgeting and accounting practices shifted
from detailed input control towards block budgeting, and current and capital
spending were split. The (sometimes
limited) introduction of ‘user-pays’ principles encouraged managers to recover
and retain at least part of the cost of production. Consistent with these changes, finance ministries achieved
greater control over the composition of the total budget, and control over
public sector personnel shifted from dedicated public service boards to finance
ministries.
Reorganizers wanted to use this simultaneous
centralization of control over the allocation of gross budgetary resources and
decentralization of operational authority to use budget and personnel resources
to change managers’ behaviour. Rather
than worrying about overspending their line item for pencils, managers would
focus on delivering goods or services to clients. Meanwhile competition (discussed below) would assure that market
pressures would force managers to use their new-found managerial ‘freedoms’ to
search for efficient production methods.
Managers could organise production and attain their goals anyway they
pleased, so long as they did not exceed their budget. In effect, finance ministries tried to turn line agencies into
black boxes; they no longer cared how the job was done – or indeed by whom – so
long as it got done. Despite earlier
failures with across the board budget cuts, the ALP also used pre-announced
real budget decreases to increase pressure on managers to boost productivity.
Australia’s budget and management changes
occurred through the 1984 Financial Management Improvement Programme and its
associated Running Costs and Programme Management and Budgeting systems. These shifted planning to the production of
specified outputs. The introduction of
programme budgeting in 1987 and the simultaneous imposition of an across the
board annual 1.25 percent reduction in budgets reinforced the reorientation of
control towards outcomes and managerial flexibility. Programme budgeting brought together functionally related areas
previously dispersed across several ministries, and allowed ministers to make
trade offs among different programs inside a given portfolio. Agencies could retain any savings they made over
and above the 1.25 percent ‘efficiency dividend’ (that is, budget cutback) and
use those retained funds to reward individual productivity. In 1996 a new budgeting information system,
the Finance Information on Resource Management – FIRM, aptly suggesting both
the private sector and budget restraint – gave the centre more control.
Third, reorganizers changed the machinery of
government to make it conform more closely to the then popular private sector
notion of a ‘flat corporation,’ in which planning (policy) and implementation
(provision) are divorced. Strategic
decision-making, including the allocation of investment resources, was
concentrated into small policy teams who arranged for the purchase/provision of
services from both internal and external suppliers, and who themselves ‘managed
the managers.’ These teams took orders
from the politicians, who presumably represented social demands for particular
services.
Commonwealth fiscal bureaucrats saw flatter
hierarchies as permitting tighter global financial control simultaneous with
operational autonomy. Structurally,
control over spending was concentrated into the Department of Prime Minster and
Cabinet. The centre was able to hold
departments to multi-year ‘forward estimates’ of their spending, roll current
forward estimates over as next year's budget, and set line agency budgets
without new input from those agencies.
The 1987 Machinery of Government reform
reinforced this, consolidating 27 departments into 16, partly to eliminate
middle management jobs, and partly to subordinate departments controlled by old
style social liberals to those controlled by the new style SES. Further centralization was hampered by
intra-ALP factional fights, and to conflict between the Ministry of Finance and
the Treasury.
Both Pusey’s fine-grained study of the Senior
Executive Service elite, and Campbell and Halligan’s broader survey of
administrative change reveal a commitment to flatter hierarchies, increased
central control over spending levels (but not details), and a reorientation
towards outputs via portfolio budgeting – in short a complete change in the
geist of the Australian federal public service.[14] Equally important, competitive pressures
have been placed on agencies through a combination of full cost recovery user
fees and pressures to contract out.
These changes opened the door to private-public competition.
Finally, reorganizers imposed a market’s most
basic requirement: competition between
producers. They tried to eliminate or
undercut agencies’ monopolies over service provision by introducing competitive
tendering or internal markets. All
these changes aimed to reduce surveillance costs for finance ministries and the
information asymmetries creating moral hazard.
Planners/contractors could afford to let implementation agencies be
‘black boxes’ so long as they could replace them with other (equally ‘black
box’) agencies from the public or private sector in the event of failure to
produce the outputs specified by the contract.
In Australia, the whole thrust of micro-economic reform and post-Hilmer competition policy has been to introduce market based competition in broad swathes of the economy. Transportation and civil aviation have been liberalized, and all GBEs were commercialised and many privatised. Health care continues to be characterised by competition among private physicians, and the Liberal-National government tried but failed to encourage a shift towards private health insurance and ultimately private hospitals with a tax rebate.
If there is a choice between restructuring with
a human face and with a hard face, what are the political preconditions for the
former? The critical precondition for
restructuring with a human face appears to be comity between exposed and
sheltered unions, and this in turn rests on the institutions surrounding
collective bargaining, as can be seen below with regard to British Columbia and
Ontario.
Social Credit (conservative) governments
pursued increasingly purer limited neo-liberal projects from the 1982 recession
to 1990. This alienated exposed sector
labour and firms, leading to a New Democrat Party (NDP) government in
1991. This government began a social
progressivist project in 1991 with strong support from sheltered and exposed
unions, and passive support from exposed firms. When side-payments to sheltered unions eroded fiscal balance,
driving exposed firms towards the Liberal Party, the NDP added
neo-progressivist elements to its project to retain their support. In short, the 1990s in British Columbia
played out much like the 1980s in Australia.
Before the 1980s, British Columbia’s many sheltered firms formed the Social Credit party’s core electoral base. During the 1970s, Social Credit relentlessly expanded the public sector to retain support from exposed firms and labour in rural areas, while also relentlessly promoting concentration in the forestry and mining industries. These policies inadvertently expanded both exposed sector and public sector unions and thus the base for a strong left party, the NDP. Two Social Credit administrations in the 1980s tried to cage this Frankenstein with limited neo-liberal policies. The first – William Bennett’s – was more conscious of the need to make side payments to exposed firms and exposed unions than the second – William Vander Zalm’s – whose purely neo-liberal policy line antagonized exposed unions and firms, and destroyed Social Credit.
The Bennett administration pursued five typical
neo-liberal policies after the recession of 1982: attacking public sector
employment, wage levels, and collective bargaining rights; centralization of
spending and operational authority; burden shifting to municipal government;
contracting out for its own sake; and increased subsidies for sheltered private
sector projects. The 1983 Compensation
Stabilization Program (Bill 11) held public sector wage increases below
inflation. Bennett also proposed
removing government employees’ rights to negotiate anything but wages in
collective bargaining and giving public sector employers the ability to fire
without cause.[15] Civil service employment fell from 47,000
FTEs in 1983/84 to about 40,000 in 1984/85, while real public sector spending
fell from C$4,200 million in 1984 to C$3,700 in 1985 and stayed there until
1990.[16]
At no time were any NPM
principles introduced.
Bennett initially continued Social Credit’s
long-standing strategy of dividing exposed and sheltered unions. When public servants and public clients
defeated Bill 11 with demonstrations and strikes, Bennett struck a deal with
the largest exposed sector union (International Woodworkers of America -
forestry) that allowed him to whittle away the public sector. But Bennett proposed legislation potentially
damaging to exposed unions, while his successor Vander Zalm pursued almost pure
limited neo-liberal policies. The
Vander Zalm administration cut civil service employment from 34,314 full time
equivalents to 27,635, 1987 to 1991, and began wholesale privatisation in 1987.[17] Exposed sector unions flocked to the NDP,
forged an alliance with sheltered labour and agreed to a pact resembling
Australia’s Accord. Meanwhile fiscal
deficits and corruption drove large exposed businesses to the NDP, putting them
in office in 1991.
The NDP oversaw two distinct periods of public sector reorganization. In the first, under Michael Harcourt, the policy centre of gravity lay between sheltered and exposed unions’ interests. Glen Clark led the second, whose centre of gravity lay more between exposed unions’ and firms’ interests.
The NDP’s policy reflected a classic social
progressivist bargain between sheltered and exposed unions. In 1987 the NDP leadership imitated the
ALP’s Accord, proposing to exchange public sector employment security for wage
restraint and an end to pay relativities conflicts. Harcourt brokered this deal between the exposed and sheltered
sector unions, and then tried to institutionalise it using the Korbin
Commission on the Public Sector.[18] The commission contained representatives
from exposed firms and labour, and the NDP.
The commission argued that contracting out made spending unmeasurable
and thus uncontrollable, while endangering public and private sector wage
parities.[19] Korbin recommended creating a set of nested
corporatist bargaining arenas to permit the state to plan and control 240,000
workers and C$10.5 billion in wages.
The commission thus preserved public provision of social protection
while making provision more business-like and predictable.
The March 1992
Employment Security Agreement and the Public Sector Employers Act 1993
institutionalised these recommendations.
In the former, public sector unions traded wage restraint for government
promises to preserve overall staffing levels but not specific positions. The
latter consolidated managements’ bargaining units under the new Public Sector
Employers Council (PSEC). PSEC gave the
government control over public sector wage settlements. In the private sector, the NDP’s new Labour
Relations Code made the closed shop compulsory if a majority of workers voted
to unionise. The British Columbia
Business Council – exposed sector firms – helped draft the bill, while small
and non-traded firms opposed it.[20] In short, these Acts allowed the Harcourt
administration to create institutions that would be able to enforce wage
restraint in the public sector while also delivering employment security to
public sector workers.
NDP efforts to reward their core supporters
created some tensions with exposed firms.
Giving sheltered public sector unions elements of a responsive state
policy by focusing on ‘process’ in public sector administration conflicted with
the more value for money orientation of neo-progressivism, while failing to
control costs.[21] The Korbin institutions failed to deliver,
with public sector wages rising roughly 23 percent 1991 through 1995, ahead of
forestry sector wages. Public debt rose
from 12.5 percent to 19.5 percent of GDP.
Exposed firms drifted away from the NDP as the share of revenue being
raised from business roughly doubled.[22] Harcourt’s resignation in 1995 signalled a
rapprochement between exposed sectors firms and unions, and a more NPM style
policy.
The successor Clark administration mixed social
progressivist and neo-progressivist projects.
On the social progressivist side, the NDP shored up exposed unions by
using legislation and state owned firms in natural resources to reunionise
construction and forestry industries.
Representatives from capital, labor and environmental groups were
constituted as new self-standing corporations governing natural resource
extraction. These corporations imposed
closed shops, which exposed unions liked; exposed firms were assured neither
labor nor environmentalists would block their projects. The NDP also catered to exposed firms by
reining in public sector spending after 1996.
Clark cut social services spending from 1996 through 1998, and froze
wages for civil servants for 20 months.
In short, Clark’s policy reflected the typical interests of the exposed
sector: productivity pacts in export
industries; public sector wage restraint; and a business-like public sector.
Ontario, in contrast, experienced two extreme projects because successive governments failed to build sustainable coalitions. The Rae NDP government (1991-1995), loosely anchored to both exposed and sheltered unions but shunned by exposed firms, initiated a responsive state project but shifted toward a social progressivist social contract to control an expanding fiscal deficit. This contract failed because the relatively unprofessional NDP also confronted undisciplined labor organizations. The successor Harris Conservative government (1995-2002), anchored firmly in sheltered firms, pursued a limited neo-liberal policy, cutting spending and taxes without introducing NPM.
Although the NDP represented the interests of exposed and sheltered unions, it had relatively weak ties to them and had never held government before 1990. The government’s inexperience and distance from its natural social partners made it difficult to implement either a responsive state or social progressivist strategy difficult, and rendered a disciplined response to recession induced deficits after 1991 impossible.
The NDP first tried to implement a set of NPM
proposals generated by the civil service, including more cooperative relations
between management and public sector workers, decentralizing operational
responsibility to lower level workers, putting clients in control of part of
the process of service delivery, and the beginning of a policy – provider
split. The NDP also tried to create
corporatist institutions in the exposed sector, using the Ontario Training and
Adjustment Board as an institutional arena for corporatist cooperation. But exposed sector firms had little respect
for the sandal wearing NDP, impeding a progressivist alliance a la British
Columbia. Ultimately only exposed
sector unions supported the NDP.
The NDP also rewarded sheltered unions with
large wage hikes and an expansion of their collective bargaining and strike
rights.[23]
This allowed the NDP to close
about 25 percent of Ontario’s hospital beds without much job loss or furor.[24]
But a C$10 billion fiscal deficit
ended efforts at a responsive state policy.
Instead the NDP tried to negotiate a formal social progressivist deal
with public sector labour, offering job security (rather than 40,000 job cuts)
for wage restraint. But without organic
ties to either side of the labour movement, without any experience of this kind
of deal on labour’s part, and with public sector workers divided over a
multitude of unions, this failed.
Consequently NDP legislated a ‘social contract’ with support from exposed
sector unions. The Expenditure Control
Plan of April 1993 imposed C$4 billion in savings through attrition of 7,000
public sector employees. Public sector
unions then suicidally refused to support the NDP in the 1995 election.
The NDP’s electoral catastrophe opened the door
to a neo-liberal project under the Harris Conservative government. By 1990 a neo-liberal faction had displaced
the Tory party’s traditional ‘red tory’ leadership based in exposed sector firms. They successfully campaigned for a ‘Common
Sense Revolution’ in 1995. The
Revolutionaries made sweeping spending cuts that left Ontario below average
Canadian spending levels for most public expenditure areas, and matched those
cuts with a 30 percent cut in personal provincial income tax rates. The Harris government also made blind,
across the board public service staffing cuts of 15 percent. Finally Harris
aggressively pursued deregulation favouring sheltered firms by devolving
control over the enforcement of regulations onto producer groups. The Harris administration also rolled back a
variety of labour protections, stripping successor rights away from public
sector employees to pave the way for privatisation. This provoked failed strikes by civil servants and teachers in
1996.
Harris pursued neo-liberal administrative
reforms, centralizing control over spending without NPM’s simultaneous
devolution of operational authority. In
education, for example, the government removed school boards’ tax powers, and
then amalgamated them into fewer bodies with fewer real powers. There have been no sustained efforts at
bench marking, client service, or quality standards.
This brief survey of public sector
reorganization suggests that public sector restructuring was not a transient
phenomenon, that Australian restructuring was neither idiosyncratic nor an
‘error’ promulgated by an ALP imitating trans-Tasman or British trends, and
that politics does matter. Inevitable
changes can take different forms with different consequences.
Restructuring is the internal face of ‘globalisation.’ Creating markets for public sector goods and services in many cases exposes them to international competition, which precludes returning to older bureaucratic forms of regulation. Policy has transformed sheltered sectors into exposed sectors. Restructuring and decentralization in collective bargaining are thus a general phenomenon. Restructuring everywhere had the same core elements: new mechanisms for consumer voice, choice, and exit; the delegation of operational authority to public sector producers; and the use of global budgets to maintain macro-economic balance. But the devil is in the details of those core elements. Voice, choice and exit can be institutionalised through regressive taxes, unregulated private competition, and individual employment contracts or through publicly provided vouchers, intra-public sector competition, and collectively bargained safety nets. There is a choice between change with a soft face and change with a harsh face.
Finally, political skill and labour market
institutions interact in managing this transition, as the contrasting cases
presented here show.[25] The relative balance of power among the
constituents of restructuring coalitions, and their ability to translate their
preferences into policy meant that these ‘inevitable’ changes took different
forms, even where the social base for restructuring was relatively
similar. The ALP in its heyday seemed
to have had the greatest success balancing political survivability for the
party, macro-economic balance, a continued political base for a safety net, and
thorough restructuring. Despite the
recent Liberal-National victory, in this regard social democracy down under may
not also mean social democracy going down.
Moreover, the economic robustness of the Australian model in the 1980s
and 1990s suggests that other societies might usefully adapt some of its
institutional structures.[26]
Australian Labor Party (1983), Labor and the Quality of Government
(Canberra).
Campbell, Colin, and Halligan, John (1992), Political Leadership in
an Age of Constraint (Pittsburgh).
Castles, Francis and Shirley Ian (1996), Labour and Social Policy, in F.
Castles, et al., eds., The Great Experiment (Sydney).
Castles, Francis, Gerritsen, Rolf , and Vowles, Jack (1996), The
Great Experiment: Labour Parties and Public Policy Transformation in Australia
and New Zealand (Sydney).
Due, Jesper et al., (1994), The Survival of the Danish Model
(Copenhagen).
Ewer, Peter, Higgens, Winton and Annette Stevens (1987), Unions and
the Future of Australian Manufacturing (Sydney).
Frenkel, Stephen ed., (1987), Union Strategy and Industrial Change
(Sydney).
Gawthorp, Daniel (1996), Highwire Act (Vancouver).
Hamilton, Reg (1994), Employer
Matters in 1993, Journal of Industrial Relations, 36, 1: 117.
Ibbitson, John (1997), Promised Land: Inside the Mike Harris
Revolution (Toronto).
Iversen, Torben (1996), Power, Flexibility, and the Breakdown of
Centralized Wage Bargaining: Denmark and Sweden in Comparative Perspective, Comparative
Politics, 28: 399-329.
Korbin, Judi (1992), Interim Report (Victoria).
Korbin, Judi (1993), Final Report (Victoria).
Lindquist, Evert and White, Graham (1995), Streams, Springs and Stones:
Ontario Public Service Reform in the 1980s and 1990s, Canadian Public
Administration, 37, 2: 267-301.
Magnusson, Warren (1984). The
New Reality (Vancouver).
Nannestad, Peter (1991), Danish Design or British Disease?
(Aarhus).
OECD (1994), National Accounts 1980-1992. (Paris).
OECD (1976), Economic Survey -- Australia, 1976 (Paris).
Pusey Michael (1991), Economic Rationalism in Canberra
(Melbourne).
Royal Commission on Australian Government Administration (1976), Report
(Canberra).
Ruff, Norman, (1996), Provincial Governance and the Public Service, in
R. Carty, Policy, Politics and Government in British Columbia
(Vancouver).
Scarfe, Brian (1996), Public Finance and Fiscal Policy, in R. Carty, Policy,
Politics and Government in British Columbia (Vancouver).
Schwartz, Herman (1994), Public Choice Theory and Public Choices, Administration
and Society, 26, 1: 44-77.
Schwartz, Herman (1994), Small States in Big Trouble, World Politics,
46, 4: 527-555.
Schwartz, Herman (1998), Social Democracy Going Down vs. Social
Democracy Down Under? Comparative
Politics, 30, 3: 253-272.
Schwartz, Herman (2000), Round up the Usual Suspects! in P. Pierson, New
Politics of the Welfare State (Oxford).
Swenson, Peter (1991), Labor and the Limits of the Welfare State, Comparative
Politics, 23, 4: 379-399.
Wilenski Peter (1977), Review of NSW Government Administration
(Sydney).
[1]. Castles,
Gerritsen, and Vowles, The Great Experiment.
[2]. Schwartz, Round up the Usual Suspects.
[3]. The
tradable or exposed sector produces goods whose price is determined by world
markets either through competition for global export shares or competition with
imported substitutes in domestic markets.
The non-exposed sector does not face significant external competition
and so can price by marking up above its costs. Tradability is partly determined economically and partly
politically.
[4]. OECD, Economic
Survey -- Australia, 1976, p. 24; Nannestad, Danish Design, pp.
103-104, 175-178.
[5] OECD,
1988b, p. 128. Similarly, some French
small business owners have registered their firms in Britain to avoid taxation
on proprietor’s income, with savings amounting to 30 percent of owners’ gross
pay (Washington Post, 16 April 1998, p. A23).
[6]. Frenkel,
Union Strategy and Industrial Change; Ewer, Higgens, and Stevens, Unions
and the Future of Australian Manufacturing; Iversen, Power, Flexibility,
and the Breakdown of Centralized Wage Bargaining.
[7]. Swenson,
Labor and the Limits of the Welfare State.
[8] Rothstein, 1996.
[9]. For a
more extensive treatment see Schwartz, Public Choice Theory and Public Choices.
[10]. Royal
Commission on Australian Government Administration, Report.
[11]. Campbell
and Halligan, Political Leadership in an Age of Constraint, p. 201; Wilenski,
Review of NSW Government Administration.
[12]. Australian
Labor Party, Labor and the Quality of Government.
[13]. Hamilton,
Employer Matters in 1993, p. 117.
[14]. Pusey, Economic
Rationalism; Campbell and Halligan, Political Leadership, pp. 28-31,
43-51.
[15] Magnusson, The New Reality, pp. 79-80.
[16] Korbin, Final Report.
[17] Ruff, Provincial Governance and the Public Service, pp.
166-167.
[18] Gawthorp, Highwire Act, p. 32.
[19] Korbin, Interim Report, and Korbin, Final Report,
passim.
[20] Gawthorp, Highwire Act, p. 66.
[21] Ruff, Provincial Governance and the Public Service, pp.
172-173.
[22] Scarfe, Public Finance and Fiscal Policy, pp. 228, 231.
[23] Lindquist and White, Streams, Springs and Stones.
[24] Ibbitson, Promised Land.
[25]. See for example
Castles and Shirley, Labour and Social Policy; and Schwartz, Small States in
Big Trouble.
[26]. See
Schwartz, Social Democracy Going Down.