Innovations in Public Governance - Volume 15 Innovation and the Public Sector

INNOVATIONS IN PUBLIC GOVERNANCE

Innovation and the Public Sector The functioning of the public sector gives rise to considerable debate. Not only the efficiency and efficacy of the sector are at stake, but also its legitimacy. At the same time we see that in the public sector all kinds of innovations are taking place. These innovations are not only technological, which enable the redesign of all kinds of processes, like service delivery. The emphasis can also be put on more organizational and conceptual innovations. In this series we will try to understand the nature of a wide variety of innovations taking place in the public sector of the 21st century and try to evaluate their outcomes. How do they take place? What are relevant triggers? And, how are their outcomes being shaped by all kinds of actors and influences? And, do public innovations differ from innovations in the private sector? Moreover we try to assess the actual effects of these innovations, not only from an instrumental point of view, but also from a more institutional point of view. Do these innovations not only contribute to a better functioning of the public sector, but do they also challenge grown practices and vested interests? And what does this imply for the management of public sector innovations? Series Editors:

Prof. Dr. Victor J.J.M. Bekkers Erasmus University, Rotterdam, The Netherlands

Prof. Jean Hartley The University of Warwick, Coventry, United Kingdom

Prof. Sharon S. Dawes University at Albany/SUNY, Albany, NY, USA

Volume 15 Recently published in this series Vol. 14. Vol. 13. Vol. 12.

Vol. 11. Vol. 10.

A. Meijer, K. Boersma and P. Wagenaar (Eds.), ICTs, Citizens and Governance: After the Hype! D. Griffin, P. Trevorrow and E. Halpin (Eds.), Developments in e-Government – A Critical Analysis V. Bekkers, H. van Duivenboden and M. Thaens (Eds.), Information and Communication Technology and Public Innovation – Assessing the ICT-Driven Modernization of Public Administration M. Lips, J.A. Taylor and F. Bannister (Eds.), Public Administration in the Information Society – Essays on Risk and Trust M. Veenswijk (Ed.), Organizing Innovation – New Approaches to Cultural Change and Intervention in Public Sector Organizations

This series is a continuation of “Informatization Developments and the Public Sector” (vols. 1–9, ISSN 0928-9038) ISSN 1871-1073 (print) ISSN 1879-8454 (online)

Innovations in Public Governance

Edited by

Ari-Veikko Anttiroiko University of Tampere, Finland

Stephen J. Bailey Glasgow Caledonian University, UK

and

Pekka Valkama University of Tampere, Finland

Amsterdam • Berlin • Tokyo • Washington, DC

© 2011 The authors and IOS Press. All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without prior written permission from the publisher. ISBN 978-1-60750-726-0 (print) ISBN 978-1-60750-727-7 (online) Library of Congress Control Number: 2011925299 Publisher IOS Press BV Nieuwe Hemweg 6B 1013 BG Amsterdam Netherlands fax: +31 20 687 0019 e-mail: [email protected] Distributor in the USA and Canada IOS Press, Inc. 4502 Rachael Manor Drive Fairfax, VA 22032 USA fax: +1 703 323 3668 e-mail: [email protected]

Cover Design Joost van Grinsven

LEGAL NOTICE The publisher is not responsible for the use which might be made of the following information. PRINTED IN THE NETHERLANDS

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved.

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Preface Public governance is one of the most important hot topics in the world of public administration. It depicts the profound changes both in government and public services caused by both external pressures and internal tensions. Administrative and bureaucratic hierarchies are being transformed into complex settings of public governance. Our question in this book is how these governance processes and structures should be changed in order to achieve better results from social, political and economic points of view. This is where ‘innovations’, another buzzword of our time, comes into the picture. We provide a contextual view for innovations in public governance in which the main purpose is to introduce innovations which make a real difference in public governance. February 12, 2011, in Tampere, Finland and Glasgow, Scotland, UK Editors Ari-Veikko Anttiroiko

Stephen J. Bailey

Pekka Valkama

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Acknowledgements The editorial team of this book wishes to express gratitude to all facilitators and partners who have supported our research work and editorial activities. The University of Tampere, Finland and Glasgow Caledonian University, Scotland, UK provided academic settings for the team. The Academy of Finland and the Finnish Funding Agency for Technology and Innovation (Tekes) provided funding for members of the team. This book on innovation in public governance is the outcome of the work done by experts and researchers from the USA and Europe. We want to express our warm thanks to all authors who have contributed to this book. Special thanks go to Professor Mark Bevir of UC Berkeley, Professor John Zysman of BRIE, UC Berkeley and Professor Gerald E. Caiden of the University of Southern California, Los Angeles for their collaboration during the editing process. We would also like to thank Ms Marita Alanko, M.A. Virginia Mattila and M.A. Bentley Mathias from the University of Tampere. Marita set up the camera-ready version of the manuscript. Virginia and Bentley acted as language consultants. Finally, we would also like to thank IOS Press for smooth and fruitful collaboration. February 2, 2011, in Tampere, Finland and Glasgow, Scotland, UK Ari-Veikko Anttiroiko

Stephen J. Bailey

Pekka Valkama

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Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved.

List of Contributors Ari-Veikko Anttiroiko Adjunct Professor, University of Tampere, Finland. Stephen J. Bailey Professor, Glasgow Caledonian University, United Kingdom. Jennifer F. Baron Senior Researcher, Institute for Strategy and Competitiveness, Harvard Business School, Boston, MA, USA. Victor Bekkers Professor, Center for Public Innovation, Erasmus University Rotterdam, The Netherlands. Mark Bevir Professor, Department of Political Science, UC Berkeley, California, USA. Quinlan Bowman Department of Political Science, UC Berkeley, California, USA. Gerald E. Caiden Professor, School of Policy, Planning, and Development (SPPD), University of Southern California, Los Angeles, California, USA. Helmut Drüke Researcher, University of Applied Labour Studies of the Federal Employment Agency, Mannheim, Germany. Stuart Feldman Vice President, Engineering, East Coast, Google, USA. Tuula Jäppinen Senior Adviser, Service Innovation, The Association of Finnish Local and Regional Authorities, Helsinki, Finland. Peter Klinger Former Head of the IT Department of the City of Hagen, Germany; Lecturer, The FernUniversität of Hagen, Germany.

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x

Kenji E. Kushida    

      Stanford University; Research Fellow, BRIE, UC Berkeley, California, USA. Jonathan Murray Founding Partner, Innovia Ventures, Zurich, Switzerland. Niels Christian Nielsen Director, Mondaymorning, Copenhagen, Denmark. B. Guy Peters Professor, University of Pittsburgh, Pittsburgh, Pennsylvania, USA. Pushpinder S. Puniha School of Policy, Planning, and Development (SPPD), University of Southern California, Los Angeles, CA, USA. Christopher G. Reddick Associate Professor and Department Chair, Department of Public Administration, The University of Texas at San Antonio, San Antonio, Texas, USA. Gerry Stoker Professor, School of Social Sciences, University of Southampton, United Kingdom. Pekka Valkama Research Director, University of Tampere, Finland. John Zysman Professor, UC Berkeley; Co-Director, BRIE, UC Berkeley, California, USA.

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved.

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Contents Preface

v

Acknowledgements

vii

List of Contributors

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Innovations in Public Governance in the Western World Ari-Veikko Anttiroiko, Stephen J. Bailey and Pekka Valkama

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Putting Public Governance Innovation into Perspective: From Administrative Reform to Innovation Discourse Gerald E. Caiden and Pushpinder S. Puniha The New Challenge to Economic Governance: The Digital Transformation of Services John Zysman, Stuart Feldman, Jonathan Murray, Niels Christian Nielsen and Kenji Kushida

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39

The Evolving Governance of Public Services in England: Extending Competition, Choice, Co-design and Co-production Stephen J. Bailey

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Innovation in the Microfoundations of Governance: Explaining the Flaws in the UK New Labour Government’s Reform of Public Services Gerry Stoker

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Reform Begets Reform: How Governments Have Responded to the New Public Management B. Guy Peters

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State-Level Health Care Reform and Innovation in the United States: the Experience of Massachusetts Jennifer F. Baron

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Networked Public Administration for Better Service: New Production Model for Local Service Delivery in Germany Helmut Drüke and Peter Klinger

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New User-driven Innovation Policy: The Key to Finnish Local Government Service Reform Tuula Jäppinen

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Innovations in Democratic Governance Mark Bevir and Quinlan Bowman

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Three Faces of E-Government: Innovation, Interaction, and Governance Victor Bekkers

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Citizen-centric E-Governance and Innovative Developments of Public Services Christopher G. Reddick

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Subject Index

235

Author Index

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Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved. doi: 10.3233/978-1-60750-727-7-1

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Innovations in Public Governance in the Western World Ari-Veikko Anttiroiko University of Tampere, Finland Stephen J. Bailey Glasgow Caledonian University, UK Pekka Valkama University of Tampere, Finland

In this book we discuss innovations in public governance. Public governance is about coordination and the use of various forms of institutional arrangements in the policymaking and related processes to pursue collective interest. As this book provides highlights from two continents and various societal contexts, we pay special attention to contextual differences and global interactions. The approach applied in this book can thus be called contextual in the sense that innovations in public governance are discussed in their societal and political contexts.

Introduction Effective public policies have long been recognized as a precondition for success in a competitive global arena. A well-functioning public governance backing up a responsive regulatory framework, high-performing public policy programs, highly productive public service delivery, and high-performing public organizations have become indispensable to any large or small territorial community striving for sustainable economic development and smart growth. Just like in the business world, success in public sectors is increasingly dependent on innovativeness and creativity and, thus, on public sector organizations’ transformative and innovative capability. Besides such a growth agenda, governments have also started to pursue innovations due to various domestic challenges, such as the provision of high quality services with reduced resources and a need to improve responsiveness and citizen participation (Alberti & Bertucci 2006). Proper theorization of innovation in governance is thin in both innovation literature and governance literature (Moore & Hartley 2008), allowing us to conceptualize innovation in public governance and approach those innovations in a contextual way. This is also why our interest is not only in innovations per se but also in the conditions in which they are created. Some major contextual changes are quite common in many Western countries but their societal structures and governance systems are different. This explains why apparently similar global challenges are met with differing responses and why particular public sector innovations have gained ground at the expense of others in a given polity.

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The key concepts and main types of innovation in public governance will be presented and reviewed in this chapter. Since the early 1990s, the governance innovation agenda has revolved around New Public Management (NPM), which has been framed by the overall liberalization trend of our time. On the other hand, even if NPM-inspired              ern world and have attracted a lot of attention in the current literature, they provide only a partial view of on-going innovation-intensive public sector transformation. What needs to be taken into account in particular are new forms of public governance that aim at building on consensus orientation and community dimension as a response to side-effects of business-like and market-oriented governance models. Indeed, current developments are characterized by various kinds of underlying tensions that are likely to increase the diversity of responses to the challenges for public governance, the most fundamental being between global instrumentalism and community-oriented localism (e.g. Castells 1997). Other similar tensions include market-orientation vs. democratic values, technooptimism vs. radical environmentalism, developmentalism vs. welfarism and top-down vs. bottom-up perspectives on development processes.

      As a general term, governance refers to all patterns of rule. It is a set of principles adopted by an organization like a company or a state expressing how to rule and what kind of principles to apply in internal and external stakeholder relations. As a concept and a practical system, governance is very old and widely diffused across different organizational contexts, sectors of society and different industries. In this respect, corporate governance, global governance, urban governance, internet governance, banking governance, environmental governance, European economic governance, etc., are illustrative examples of                cal concept which can be used in order to develop and carry out abstract analysis of social coordination (Bevir 2010). Sometimes concepts of both old and new governance are used in public policy studies in order to point out radically different eras of governance. According Bevir (2009, 3, 22), in public management studies, old governance refers to bureaucratic and hierarchic                  

 ‘golden era’ of the welfare state 1945–1979, people thought that governments take care of them ‘from the cradle to the grave’ (Osborne 2010, 3; Bailey 2008). New governance has its origins in radical changes of public policies in the 1980s and 1990s, when marketization of public administration started gradually and private sector management practices were adopted in public bodies. State government is not anymore so superior in society and has to cooperate with other stakeholders in order to promote political goals effectively (Pierre & Peters 2000). As a general concept public governance refers to a ruling system applied in the public sector. Public governance is a distinct form of rule which is peculiar only for state, regional and local governments. According to Osborne (2010), public governance can be        

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      describes institutional relationships in a society;

   !               works;              "       is a collection of policies regulating contracting-in and outsourcing practices; and     explains how non-governmental organizations work with and without government in order to promote the public interest.

New public governance refers to steering, coordination and the use of institutional arrangements in the policy-making and implementation processes in a polycentric multisectoral stakeholder context to pursue the collective interest. Modern governments need new public governance in order to implement public policies in different sectors of soci             # $                        public governance differ from one context to other. Moreover, new public governance is also developing fast because national and international stakeholders are growing in number and innovations and recurrent policy reforms are changing elements of public governance. Innovation in public governance is a new mechanism or institutional arrangement which is successfully implemented to solve governance problems or to gain better governance outcomes. The public sector is keen on innovations because of the endless need for improve productivity and effectiveness. Innovation represents novelty in public action and the art of doing things in a better way than before in public administration. Public                      or facilitate accountable relationships between the general public and public administra  %                         '     *       +           /:+ < =  1986; Lynn 1997, 7, 86; Altshuler & Zegans 1997, 73; Sapolsky 1967; Wilson 1966; Becker & Whisler 1967, 462–463; Elmore 1997, 248; Moore, Sparrow & Spelman 1997, 276–277).                                      >  and informal rules, standards and established traditions are key factors which build up an institutional framework of public policy making and public service delivery. These mechanisms embody a dynamic part of public governance regulating functional and technical factors of governance. Differences in and cohesion between institutional arrangements               $      ?           regulation, means state control and supervision of enterprises to promote the public interest related to the activities of these enterprises. These enterprises are usually privatized former state-owned companies or                            ?               a main element of that institutional arrangement. Another key element is a regulatory agency which is a public body (for example a quango) whose duties are set down in

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legislation. Activities of the regulatory agency like supervision, control and authorizing actions, are the ways in which these duties are carried out and the tools used in operative functions are all dynamic elements of the system of new public governance (Hodgson 1988; Hallikainen 2003, 48; Harding & Preker 2003, 25; OECD 1992). Innovation in public governance represents newness. Non-innovative reforms and changes are introduction of old, already well-established mechanisms which may not                                                        easy to evaluate long-term success of R&D and innovations by examining market shares,                    $            +       same time, disadvantage other stakeholders. The World Bank has developed general governance indicators which judge quality of the governmental system by assessing rule of law, control of corruption, political stability, absence of violence and other such indicators (Bevir 2009, 97). In sharp contrast, there are obvious, acute and challenging needs for public administration studies to develop criteria for and indicators of innovation in public governance. Indicators could be used particularly to describe the public sector’s ability go generate, apply and diffuse innovations across all levels of administration. Assessment criteria are necessary for evaluation of how new and successful innovations have been. These criteria include factors such as                   satisfaction and ‘creative destruction’ in the Schumpeterian way of thinking. However, a lot more research needs to be done with these criteria before a wider consensus can be built concerning what is the essence of successful innovation (Kallio & Valkama 2009).

The context of innovation The external challenges faced by governments The construction of welfare services since the 1960s took place at the same time as the Cold War (between the Western allies and the former communist block) and the heyday of Keynesian economics, which, together with fairly steady economic growth, made it possible to increase state intervention and to expand the public economy. Public policy making did not need the help of other stakeholders in order to pursue nationally-motivated common interests. However, when economic growth slowed down and emergence of pluralistic economic relations shook up conventional ways of production and trading, the traditional system of governing based on direct government interventions began to struggle. Challenges to public governance have their roots in the changing role of the public sector in a globalizing world. Globalization is the most pervasive megatrend of our time and it conditions government policies by increasing interorganizational linkages. It is a process which embodies a change in the spatial sphere of social relations and econom           ! /# < >@:

2008, 4–6). Increased market operations, internationalization of trade and emergence of multinational conglomerates are forces, which gradually diminish traditional powers of

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political leadership in territorial communities. In economic policy, Keynesianism was deemed to come to an end as its ideas of state intervention did not work as expected in the new international economy, the result of globalization of production and increased interdependency (Axtmann 1998; Barnet & Cavanagh 1995; Zysman 2004). However, the general view of these developments is not indisputable. For example, Osborne (2010, 2–5) noted that although the reality of public administration is complex, the dominant regime is still based on hierarchy. Zuleeg and Martens (2009, 148, 159) have pointed out          QUUX   Y[?     =                            Globalization is not only due to technological advancements, improvements of transportation systems and cheaper international communication possibilities. It is also due to adaptation of more free-market oriented policies and public support for entrepreneurship. (Graham & Richardson 1997; Brecher & Costello 1994; Barnet & Cavanagh 1995). Regulatory frameworks have been renewed and relaxed in order to support expansion of +  \      !          rights have spilt over national and regional boundaries (Anttiroiko 2009; Maskell et al. 1998; Huggins 1997; Castells 1989). In many European countries there was a ‘post-war settlement’, which was the economic, social and political consensus established after the Second World War (1939– 1945) between trade unions, employers and governments. This was particularly strong in the UK and the Nordic countries. This social contract had its roots in the rise of the working class, the construction of the welfare state and its universal service concept, together with a fairly strong inclination towards political consensus. Development of the European single market, breakdown of East-European socialist and communist re       ^: % @ + /

   Y=_   $  changes preferring market forces to public policy as a means of allocating resources and distributing welfare in society. These developments gave rise to the idea of welfare mix, which assumes a transition from largely monopolistic and state-centric public service provision to a broader base of service providers, including private companies, self-help groups, families and voluntary associations. It also paved the way for a change in the overall conception of how government should work with its stakeholders and respond to its environment: crystallized in the phrase ‘from government to governance’. Governmental bodies started to see themselves network-like government organizations that are  

                /{ & Horton 1996, 3–23; Argyriades 2002). This implies that the concepts such as catalytic state, network state and intermediary state aptly depict the very nature of government in                /[ { |_ In recent decades, there has also been growing pressure from local communities on the legislature and political elite concerning distribution of political power between different levels of government. Local policymakers have insisted that there should be more autonomy in localities. Central governments agreed to decentralize public duties, increase                  countries, for example Spain and the UK, political devolution has created new regional layers of government between local and central government. The issue has not been so much about strengthening local authorities within existing structures of local govern-

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Figure 1. Examples of contextual factors affecting new forms of governance.

ment, but, instead, to strengthen their governance and service capacity by mergers and extensive cooperation in order to create stronger economic regions. These processes have forced governments to learn and adopt new governance systems in order to allow freedom to grow in localities but, at the same time, create incentives and guidelines for local decision makers and actors. The neoliberal tone of globalization and pro-market emphasis of public policy is not the complete picture. As stated by Alberti and Bertucci (2006, 2), when market forces and drastic economic cycles have caused some bitter disappointments people have started to look back at government and the public sector as a driving force. Despite this return to government, the institution of government cannot remain the same because both its internal structures and external environment are not what they used to be. This is where networked government with catalytic and intermediary functions comes into the picture. Modern welfare states do not support only disadvantaged members of society but also support entrepreneurship, private sector investments and third-sector activities, which are supposed to generate multiplicative effects and enhance national competitiveness. Such modern industrial policies can be seen in how public sector organizations work and interact with their stakeholders and customers (Deighton-Smith 2001; Steinert 2003). Some critics have claimed that this kind of ‘growth machine’ orientation has a dominance at the expense of redistributive and solidarity-oriented welfare policies (Logan 1999, 64). This can be seen as a logical consequence of globalization, as there is an apparent need to increase the attractiveness of countries and local communities regarding the global !          +           

                   (‘welfare-oriented policy’) and developmentalism (‘development-oriented policy’).

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From bureaucracy to co-existing governance models } ^ @              

     +                 services. In all these areas the viability of bureaucratically organized public administra    

 ~+        >          {         Control mechanisms do not work properly. Public choice theorists have put a lot of effort into revealing such government failures. A new agenda was set by Osborne and Gaebler (1992) with their idea of ‘reinventing government’. Its main message was to help us see government in a new light. They propagated a transition from a bureaucratic culture towards entrepreneurial government which, in essence, is high-performing, business-like and enabling government (Osborne & Gaebler 1992; Osborne & Plastrik 1997). Historically, the basic theory to describe government’s way of working was the theory of bureaucracy derived from the work of Max Weber. In more recent theorization, traditional public administration has been seen as governance by hierarchy which is one         / <   QUUU_ #      

                there was a need to control multi-faceted principal-agent relations with special reference to the control of the allocation of resources; second, the need to safeguard accountability, impartiality and civic rights and also some degree of popular control over public policies and their implementation. The main ethos was thus based on control orientation rather    }             $     potential mismanagement within which public policies were designed and implemented               !   cal change in the societal context of public administration after the development of liberal democracy. The new paradigm itself is an expression of the conviction that bureaucratic, incrementalist and particularistic managerial functions should be superseded by a more economics-based, rational and generic model (Farnham & Horton 1996, 37, 43).                     still the key governance body at all institutional levels (Caiden 2007, 264). It serves to maintain the legitimacy and democratic control of the system. As emphasized by John (2001, 17), local governance will not replace the established institutions (laws, municipal budgets, political parties, etc.) of local governments. Yet, as emphasized earlier, this does not mean that the role of public administration remains unchanged. Besides, even if the main target of criticism of public administration is associated with the fundamental idea and practices of bureaucracy, there have been also some apologies for bureaucracy. It is not necessarily a Weberian relic that is giving way to networks, partnerships and market mechanism, as the simplistic historical extrapolation suggests. What is essential to note here is the fact that the picture of modes of governance is not as black-and-white as it may appear. Rather, different forms of governance can be found side-by-side in different settings (cf. Caiden 2007, 262). In this picture bureaucracy, as the rational implementation of commonly-accepted principles, is an integral part of the functioning of modern society (Olsen 2004). We live in the new phase of a political       !         }  $            

     ^ @ 

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is understood today in a pragmatic way and its rationality is gaining new dimensions                     way to describe the model of public governance because a large part of publicly-organized services and activities is not based on hierarchically-organized in-house production. As pointed out by Olsen (2004, 14), bureaucratic public bureaus co-exist with commercial organizations and network-organizations because they are supplementing as well as competing with each other. Such a governance mix is a result of increased pluralism and widening reform horizons and which creates stimulating environment for innovations in public governance. Politicians, bureaucrats and people as innovators As public governance is about the steering and coordination of stakeholder relationships in the context of public policy, it is important to consider the roles of key actors in public governance and related innovation processes. Key actors in the representative system of government are people as electorates and their political representatives who have a mandate to make formal political decisions within the given polity. Civil servants or ‘bureaucrats’ are needed to implement those political decisions. In such a setting, different roles tend to lead to different approaches to innovation. It seems that the most active innovators within public administration are middle managers and front-line staff (Borins 2001). This is rather surprising in that the standard model of public bureaucracy does not encourage innovativeness and entrepreneurship in order to ensure duly regulated processes and to minimize corruption. On the other hand, there is increased autonomy and capacity to innovate in modern bureaucracies. In addition, it is worth noting that the smaller the local authority, the more frequently initiators of innovative actions are politicians and highlevel public managers. Another important observation in the literature on innovations in the public sector is that actors’ positions and roles affect the motives for innovation. For example, politicians                  $ internal problems or take advantage of technological development (Borins 2001). As to the fundamental reason behind innovative actions in the public sector, the most frequent cause seems to be internal problems faced by public organizations, as in the cases of                      +     ?        *  that threatens the existence or the realization of the main mission of the organization (Borins 2001, 15). ?                   ‚  citizens, customers, and users – in the governance of public affairs and in the development of public policies and services. These innovations range from fairly widely applied innovations in planning and participation to more focused customer involvement and new forms of open and user innovation (von Hippel 2005; Chesbrough et al. 2006).

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From governance theories to governance innovations Governance theories as a window to innovations Theoretically speaking, we can distinguish four fundamentally different approaches to public governance as depicted in Figure 2, which includes the connections of those approaches to their ideological foundations: 

  

   – use of market mechanisms and business-like trading of public services favoring the idea of wide participation of private sector organizations;    – improving productivity and a clear orientation towards corporate-style result-based management      – strong reliance on public authorities, public-public col      !            !" – citizens and local civil society revolving around the ideals of community governance and grassroots democracy.

Figure 2. Perspectives of governance theories on innovations.

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 #$ Here, there is a tendency to see public administration as akin to a business, providing a choice of services to citizens with the help of a market mechanism and capitalism. Market-based and entrepreneurial approaches have absorbed ideas from a range of ‘New Right’ ideologies, doctrines and theories which profoundly affected the intellectual and ideological landscape. They became an integral part of political life and provided powerful arguments for radical neoliberal public sector reform. Such contributions include both old and more recent theorizations, such as classical liberalism (Adam Smith), the Austrian School (Ludwig von Mises, Carl Menger, Friedrich von Hayek), public choice theory (James Buchanan, Gordon Tullock, William Niskanen, Mancur Olson, Vincent and Elinor Ostrom), monetarism (Milton Friedman) and to some extent also neoclassical economics in general. The common denominator of this tradition is that market-based coordination and entrepreneurship, as well as customer choice, is given priority over collective decisions and actions. Most of the supporters of this market-based approach to governance prefer a minimal state paradigm and, at least in the case of public choice theorists, also a decen                   }   side of the coin is that equity and the redistributive side of public policy pursuing social 

          +  

  criticized by those who claim a stronger role for government. Such dissent concerning fundamental values and government’s role in society correlates to some extent with the              ƒ      

  sectors report the best economic performance while countries with large public sectors show more equal income distribution (Afonso et al. 2003).  #$This is associated with New Public Management (NPM), which is disputed and its newness questioned. NPM is a wide collection of multipur       ƒ         the growth of the public sector and break barriers between the private and public sectors (Hood 1991; Bevir 2007, 368–369; Olsen 2004). NPM-inspired public sector reforms are                contracts for the provision of public services by private companies, quasi-marketization, private funding of public infrastructure, output and budgetary targets, performance audits and, especially, the utilization of corporate management techniques. These corporate management techniques have close connections with a range of innovative management techniques which have their roots in the early 20th   /     erations research, group problem-solving, management by objectives, SWOT analysis, excellence theorizations, strategic windows, Balanced Scorecard, Total Quality Management [TQM], etc.). Many OECD countries (e.g. USA, Canada, UK, Australia, New Zealand, Sweden, Finland and Denmark) introduced extensive but locally-customized NPM reforms during the 1980s and 1990s. Based on these changes, we may even claim that NPM has been the most innovative public management doctrine in the public sector in the past few decades as it has been the framework within which were introduced many of the then ‘new’ management techniques that are now in everyday use. Nevertheless, NPM has been much criticized and some new authoritative conceptions claim that NPM was a short-lived and intermediate phase in the development of public administration (Osborne 2010, 2). This criticism may be due to the many macro-level problems, such as serious market failures

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that international organizations were not able to correct (Kaul & Conceição 2006) and, more importantly, numerous micro-level problems, such as those relating to the implementation of Public-Private Partnerships (El-Gohary et al. 2006) and contract failures in local government (Warner 2006; Lamothe & Lamothe 2006). One of the reasons for micro-level problems is that, as a reform agenda of the 1980s and 1990s, NPM was fair                $     force through a top-down restructuring within local agencies. Such a policy neglected the bottom-up and lateral components of public governance (Ferlie & Steane 2002, 1461). Such criticism has gradually changed NPM itself and also stimulated discussion about its alternatives. Stakeholder Relations. This third approach to public governance is an institutionalist or governmentalist approach. New Public Governance highlights the role of govern               

     New Public Service is a more recent approach which focuses on how to realize the collective public interest in providing public services to citizens and other target groups. Its theoretical foundation is public value theory which is to reconnect the public and its values with public managers through a democratic process of deliberation and public                /' 1995). The proponents of this approach thus believe that there are considerations that                    * factor in decisions and also in service provision. They see the role of the administrator as complex, synthesizing the needs of citizens, interest groups, elected representatives and other stakeholders in a polity (Denhardt & Denhardt 2000; Moore 1995). Such an approach has a close connection with network governance theories, and many similar governance-related theorizations. These all also connect with user involvement and citi         +    !%"$This fourth approach to public governance is the genuine citizen-centric approach, which relies more on direct citizen power. A representative case of more radical citizen-oriented approaches is communitarianism, which starts from the conviction of the importance of community in the functioning of political life, in the analysis and evaluation of political institutions, and in understanding people and their orientations. Some forms of the social capital approach are closely related to this orientation. Putnam (2000) in his seminal work, shows how Americans have become increasingly disconnected from one another and also how social structures have disintegrated, as seen in institutions ranging from churches to political parties. The other side of the coin is to see social capital as a producer of civic engagement and also as a broad societal measure of communal health. Such community and citizen-oriented approaches emphasize synergy between citizen participation and governmental effectiveness, placing attention on the former in the policy process (Skocpol 1996). It goes without saying that many of these normative stances have a lot in common,  +      

$           :ertheless their categorical differences are rooted in their perceptions of coordination and decision-making in the public domain: 1) market orientation, 2) managerial performance orientation, 3) political-administrative system, or 4) direct citizen power. Around the mid-1990s, American political, business and professional elites deliberately pulled out of locally-rooted associations and activism and caused a high degree

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of local civic disengagement (Skocpol 1996). These elites argued that less privileged Americans must themselves reinstate social connectedness from below without much help from government or their privileged fellow citizens. Very similar discussions can be   

      !             tion and decentralization trends and of elitism and democracy. Innovations in governance        !              tion processes favor managerialist innovations and ‘harmless’ democratic innovations in public governance, whereas bottom-up social movements and activists favor more radical         !         [   emphasis has clearly been on the side of the former. Managerial and democratic dimensions of governance Finger and Langenberg (2007) characterize governance as the growing involvement of       

        !       cation of the connection between government and its broader environment (Grönlund 2007). All such relationships of public organizations with the external environment can be constructed following managerial or democratic principles providing a dichotomous view of public governance and also a sketchy perspective on the application areas of governance innovations. Democracy has an inherent connection to governance, because government-citizen interaction is at the core of public governance, sometimes referred to as democratic governance. This aspect of governance is rooted in democratic control, inclusiveness and the forms of citizen participation. The other side of governance, here called managerial governance !      @           +   service provision, development, procurement and transaction processes, relying mainly on networks, partnerships and competitive outsourcing. These concepts are schematically illustrated in Figure 3 (Anttiroiko 2008).

Figure 3. Typologies of innovation in public governance. (Anttiroiko 2008).

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13

Analyzing innovation in public governance Innovation in public governance focuses on the ‘public domain’ to solve problems or to create new opportunities and, in recent decades, has led to an increase in market- and network-oriented forms of governance, such as vouchers, citizen charters, competitive                novation networks.

Figure 4. A rough historical sketch of the main trends in governance innovations. /'   ? + QU|U ‰|_

Innovation in public governance is fundamentally distinct from innovation in products and process, the latter usually being the focus of discussions in the innovation literature (Moore & Hartley 2008). In particular, governance innovations tend to: ˆ ˆ

ˆ

ˆ

ˆ

+  @  $       + based production models;                                nancing, material or human resources;       @     $     vate rights and responsibilities and to mobilize private resources, thus forming complex socio-political relationships;                    which usually relates to an urge to utilize private resources in the public interest; and +    +           of these innovations, extending the utilitarian perspective to terms such as justice, fairness and community-building.

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A.-V. Anttiroiko et al. / Innovations in Public Governance in the Western World

In the previous section we approached governance innovations on the basis of governance theories. An alternative approach is to build a picture of governance innovations on the basis of innovation theories. Such an approach allows us to consider what kinds               %    focuses mostly on the organizational perspective, operating at a level that is not always relevant for governance structures and processes (Moore & Hartley 2008). Innovation typologies are mostly simple dichotomies, such as technological versus programmatic innovations or service versus management innovations. However, we need at least four to

                  or ontological categories of innovation applied to governance. For the sake of simplicity, we may identify four basic modes of innovations: technological, processual, organizational and institutional or systemic innovations (Alberti & Bertucci 2006, 6). There are also concepts that refer to application areas of governance innovation, such as democratic, managerial, development and service functions of government. When combining these two views with the conceptualization of governance              $                            innovation in Figure 5.

{ Š            

A.-V. Anttiroiko et al. / Innovations in Public Governance in the Western World

15

The application of the four-fold innovation typology to governance is presented in Figure 6, with a connection to commonly-used terms that depict the change or transformation       ‹              novations may have impacts on social processes and action in a way that exerts pressure                                         $    { ure 6. For example, Web 2.0 developments have provided new tools for sharing, which are slowly affecting governance processes and paving the way for a new conception of government referred to as Government 2.0, which may ultimately contribute to the building of a network society. The opposite direction is from social structures towards processes and tools. For example, in order to realize the high-level goal of four freedoms within the EU, regulations are set requiring adjustments at national level and also some related creative adjustment strategies and solutions at local level. The free movement of services between EU Member States, the services Directive in the Internal Market, related national legislation and policies and local competitive processes are all instances of complex institutional chains in which innovative practices at local level are ultimately pushed forward by institutional innovations. In reality the picture is much more complex and iterative, of course.

Figure 6. Four aspects of innovation in public governance.

A.-V. Anttiroiko et al. / Innovations in Public Governance in the Western World

16

The schematic categorization of innovation in governance shown in Figure 6 brings together in a single conceptual framework many transformative dimensions of innovation in public governance. This reveals how the concept of governance innovation relates to concepts used to describe deliberate changes in public administration, such as large-scale administrative reforms, reorganization, process improvement, Business Process Redesign /\%_           

Innovation in public governance in the foreseeable future Innovations in public governance seem to focus on two aspects of ‘Big Society’, i.e. the utilization of market forces and of civil society. Governments seem to decrease control and direct involvement by encouraging partnerships and stakeholder involvement in various forms. This creates a fundamental governance challenge that must be solved in one way or another: how to rely on the market mechanism and private sector involvement and                      community development? A general sentiment in most of the Western countries seems to be a slow but steady transformation towards a network society in which private sector ef      

           and community involvement. It seems that the majority of governance innovations are directed towards implementation and service provision. Diminishing government involvement is not particularly appealing when compared with public services whose transformation from in-house production towards co-production and outsourcing generates a plethora of opportunities for both service users and service providers. In this respect, experience of ongoing innovations in public governance suggests more extensive use of: 

  

 



      – co-funding and multi-funding, PPP-lite,          $  nancing, land taxes;             – outsourcing, off-shoring, joined-up government, network and virtual organizations, real-time interactive (re)design;         – co-design, co-production and co-creation with service user as individuals, stakeholders, and communities;     &       – hybrid para-public/para-private organizations, mutual organizational forms, trusts, co-operatives, volunteerbased arrangements;            – common and multifunctional service standards, common drive and/or joint use of services;            – service-level and outcome agreements increasingly based on both quantitative and qualitative and holistic measures,               ments;               – public-private joint ventures, community buy-out, mutual ownership models of various types and common property arrangements.

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17

Accumulated knowledge in these areas is being used to further develop new organizational models and networks and learning-by-doing. In the old public governance, economic values of public sector service users were created locally, hierarchically, in-house and manually. In the new public service economy, new value constellations are fast becoming more ICT-based, outsourced, off-shored, network-based and regional. Alternative service delivery systems, new methods of citizen participation, the utilization of new technology,                       citizens and evolution of political philosophy and political economy are all taking place within changing socio-cultural contexts. }                   creasing use of market-oriented and network-oriented forms of governance. The conventional approach has been for public service processes to follow service (i.e. departmental) structures and this is still very much the case in public sectors. However, development of integrated multi-profession services focused on meeting the needs of service users and clients (such as elderly people receiving care services) will ultimately require service structures to follow service (i.e. multi-professional) processes. Development of such service-oriented architecture will, in turn, require adaptation of budgetary and accounting structures. These governance innovations will be further facilitated by ongoing developments in    

    ^+  @         leading to holistic ‘front-line’ services as departments, professions and budgets move out of their silos and bunker mentality. The latter development requires much more than just joined-up government where service silos cooperate with each other but remain within fragmented service architecture. Instead, what will ultimately be required is a fully integrated, comprehensive and holistic service-oriented architecture that creates outcome synergies so that the whole is greater than the sum of the individual parts, maximizing public value through real-time feedback mechanisms and processes whilst services are being delivered and used. This developing scenario is not just one of co-design and co-production but, more importantly, of co-creation of public value, service innovation becoming increasingly endogenously dynamic as distinct from simply being exogenous add-on static service-silo innovations. Some innovations will undoubtedly fail but, in learning from failure (as well as from success), public sector organizations, service users, stakeholder groups and communities can increasingly promote successful innovations which add potentially substantial public value. The adverse impacts of failures of innovations will be minimized if decentralization promotes micro-level initiatives, as distinct from highly-costly failure of centralized innovation initiatives at national and regional levels of government. Although admittedly rather speculative, this highly dynamic and self-reinforcing cocreation scenario for innovation contrasts sharply with the static, rule-bound Weberian model of top-down public service provision which was risk-averse, suppressed innovation and allowed no scope for co-production. It also goes beyond the NPM’s inclusion of stakeholder groups for co-design which is strictly only applicable to truly collective services (economists’ pure public goods) and, otherwise, to public services with sub      / @   $   _ Ž      organization culture is particularly suited for services focusing on individual service users (economists’ pure private goods).

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The NPM focused on innovation in service production via quasi-markets, payment                     the processes using them to derive outputs. Nevertheless, production still takes place to a large extent in service silos. Future innovations in production will increasingly focus on breaking out of those silos as joined-up government develops further. However, NPM and joined-up government are only part of the public service picture and perhaps the smaller part. Innovation in service consumption has arguably the greatest potential to provide                    on the part of service users can yield much greater improvements in outcome effectiveness. For example, it is now recognized that improved health outcomes derived from                 

   /  

          $    smoking etc.). Likewise, school pupils are known to achieve improved educational outcomes if they and especially their parents take an active interest in what they are taught at school and take part in additional learning activities outside school (family and group visits to museums, exhibitions, natural and local history events etc.). Hence, in the future, public sector innovation will become increasingly focused on both production (outputs) and consumption (use) of public services, innovation increasingly taking place within dynamic and proactive learning-by-doing cultures adopted by increasingly decentralized service-oriented, polycentric and networked architectures whose processes seek improved outcomes arising from service provision and use. One can question whether this optimal scenario will ever transpire. The reply is that there has clearly been a sequential and progressive broadening of organizational culture from a preoccupation with the hierarchical Weberian model of public administration to the now well-established NPM model of managerial incentives and, more recently, to joined-up government model. Personalization of public services through co-design and co-production by service providers and users is the ongoing ‘change of organizational culture’ event, ideally metamorphosing into co-creation of public value. In the private sector, vertically-integrated in-house manufacturing processes have become increasingly unbundled by outsourcing services and functions related to production of physical goods, for example design, marketing, training and payroll. The same could happen for vertically-integrated in-house public services, so increasing the scope for innovation and bringing potentially substantial productivity improvements that disproves Baumol’s Disease. This ‘disease’ is based on the generally-accepted hypothesis that, compared with manufactured goods, there is very limited scope for productivity improvements in client-centered public services with the result that the latter’s production costs rise relative to those of private sector outputs (the ‘relative price effect’). In our much more positive scenario of a highly-innovative unbundled public sector, the future of innovation clearly lies in substantial development of the learning organiza            +  $         the voluntary sector (charities and support groups) and individuals and communities. This scenario does not describe a debilitating disease. Instead, it depicts a vibrant, healthy, sustainable and increasingly cost- and outcome-effective co-creator of public value.

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19

Topics addressed in this book In this book various contextual aspects of innovations in public governance are analyzed. We approach the matter by highlighting tensions, such as global networks versus local democracy, marketization versus institutionalism, micro-level user innovations versus large-scale structural reforms, and instrumental concepts (such as e-government) versus ideal or normative concepts (such as good governance). Such topics are illustrated in Figure 7, which also shows schematically how the authors and their chapters in this book relate to the key topics associated with governance innovations.

Figure 7. Themes of governance innovations discussed in this book.

The discussion starts with a chapter by Gerald E. Caiden and Pushpinder S. Puniha which puts governance innovation into perspective by describing the evolution from administrative reforms to institutional innovations. A contextual perspective on governance is offered by John Zysman and others, who paint a picture of global service transformation and its implications for governance. In the next chapter Stephen J. Bailey sheds light on governance innovation from the point of view of market-oriented public sector innovations in the UK and covers changes in public service delivery since the 1980s, when ‘New Right’ thinking became dominant. Discussion about the public service reform in the UK continues in Gerry Stoker’s account of how a microfoundational base premised on instrumental rationality and on principal +      !          of public services. Stoker provides evidence of the failure of the New Labour Government’s reform program in the context of relatively benign conditions and argues that the

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failure was to a large degree because of the inadequacies of the microfoundations that guided the reform program.   

   \ ‹      

   proper coordination mechanisms as a response to fragmentation caused by increased market-based governance innovations. Jennifer F. Baron discusses public sector reforms in the chapter describing a state-level health care innovation in Massachusetts in the United States. In the next chapter Helmut Drüke and Peter Klinger discuss the new administrative production model for German local government. Their chapter is followed by another local government case presented by Tuula Jäppinen, whose focus is on user innovation in Finnish local government. In their chapter, Mark Bevir and Quinlan Bowman introduce a broader range of innovations in democratic governance. Victor Bekkers then discusses e-government as a source of innovation in public governance. After this Christopher G. Reddick highlights innovation in citizen-centric e-governance with special reference to a citizen-relationship management system. Together, the chapters of this book clearly demonstrate the wide variety of issues and institutions we may include as innovations in public governance. Our contention is that societal conditions, ideologies and managerial doctrines condition all innovation activities and affect their outcomes in the political-administrative sphere. Governance    !                      $     } *     $      dialectic view of innovation in public governance.

References Afonso, A., Schuknect, L. & Tanzi, V. (2003)     

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Putting Public Governance Innovation into Perspective: From Administrative Reform to Innovation Discourse Gerald E. Caiden and Pushpinder S. Puniha University of Southern California, Los Angeles, CA, USA

The current push for innovation in governance repeats a familiar historical pattern as societies grapple with fast changing circumstances. It begins with administrative reforms to improve the performance of public authorities, moves invariably on to        +            

                +         

 ƒ            cle of modernization. This is the continuing struggle to overcome the dysfunctions of bureaucratization and to inject creativity into the ever-increasing complex process of conducting the public’s business. The imperative arises from the gap between results obtained and rising expectations. While the process is somewhat consistent, the substance changes radically over time as public leaders try to catch up with advances in      +            # in governance, reforms and overhauls often disappoint as traditional arrangements persist beyond their time.

Introduction For some two decades, social scientists have been brandishing words like redesigning, restructuring, remodeling, re-engineering, reform, and reinventing to indicate the vital need for institutions to adjust themselves to their rapidly changing circumstances. They needed to overhaul their outmoded procedures, policies, plans, and programs to deal with the challenges of the day and the foreseeable future (United Nations 2007b; 2007c; 2007d). The common theme was that if governments just kept running in the same place,       

         ?       +                             /‹   < 

 2009; World Bank 1997). What was badly needed were similar advances in creativity and innovation in the conduct of the public’s business (Berman & Kim 2010; Borins 2008; OECD 2001). This was very much in line with the history of human innovation that has witnessed         :    +      ogy, such as astrophysics, biochemistry, and computerization, have emerged to transform the way people think and act. Much the same can be said of the social sciences with the   $                

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and administration still owe a great deal to unknown thinkers dating back to prehistory. From the very beginning, human ingenuity has devised various responses to adapt to changing circumstances and to advance the human condition. People still remain fascinated by new discoveries as contemporary research concentrates more on what has happened within living memory and what new discoveries are being made right now, simply because too much of that history is taken for granted and reconstructing it is arduous and time consuming. But every so often, it is useful to step back and view the present against the backdrop of the past, to remind ourselves how we got here and how much we owe to our ancestors. Innovations in governance have a past and reminding ourselves of it may prevent us needlessly re-inventing it as so often happens and learning from others’ mistakes. To simplify a complicated history, the innovation cycle had generally begun in a small way     +                            

  on to institutional reforms that incorporated innovations. In this way, tradition had been modernized, keeping the true and trusted while transforming the way societies operated. At the time, few people had been aware of what was in store and how rough the passage was going to be, though abrupt departures from the past would inevitably involve upheaval. This chapter endeavors to sketch how the current discourse on institutional innova                    time span than people realize. The trends seen over the past two decades are hardly new. }              $mented with many different arrangements to improve how they conducted their public business. Progress was inevitably slow. But every so often there was an impressive burst due to breakthroughs as societies adjusted to circumstances beyond their control or change was initiated by creative thinking on the part of exceptional individuals whose ideas were adopted. Even so, every major sacred text to this day includes some reference to institutional arrangements, public laws and their execution, the raising and expenditure       ƒ              Careful study shows that bureaucracy predates civilization as a way of organizing people on a large scale (Crozier 1964) and a key to development has always been the ability of rulers to extract resources from the ruled (Pollack 2009). Besides such continuity in governance, there has always been much pragmatism. The proof was in the results although many innovators were frequently unaware of the permanent impact they were about to make. These improvements in the state of the art rarely attracted much outside attention for hundreds of years because their main focus was just on improving the effectiveness of the exercise of authority. The discourse changed profoundly in different societies when an expressly moral dimension was interjected into civilized government by taking into account the impact of the exercise of authority on   *  }              @    the good of as many people as possible, namely good governance. Eventually, this notion went well beyond just considering means but ends as well, not just locally but also over the decades on a global scale, together with the different and alternative ways those ends could be met through painstaking governance reform. Finally, the accelerating pace of change with globalization has demanded nothing less than institutional innovation anticipating and preparing for the future as well dealing with the day’s challenges.

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Administrative reform Once societies required written laws about customs, religious beliefs and practices, power structure, land holding, means of protection, trade and exchange, money and credit, and inheritance, administrative improvements were inevitable. Even primitive governments employed bureaucracies to hold communal ceremonies and organize common rituals, administer laws, deploy troops and weapons, construct major public works and buildings, supervise masses of laborers, and manage public budgets. Ever since, the study of public administration has largely focused on bureaucratic administration and ways and means of improving its performance. But administrative reform did not come clearly into its own until a distinction could be drawn and formalized between the politics of the state and the politics of religion when a clear distinction could be made between public and private organizations, property, monies, employees, and conduct. Such separation took centuries to evolve and when it did the study of public administration concentrated on this emerging public sector, the administrative arrangements of the state and government much to the exclusion of other social institutions, The best illustration of the arrival of public administration was in the recognition of the cameral sciences in the Eighteenth Century designed to educate and train the new public service professions in the arts and crafts of their technical performance together with their management (Caiden 1971). The credo of these public service occupations was not just to be good bureaucrats but also to be innovators and researchers to improve the state of their arts irrespective of prevailing political ideology or different images of melding society and government. (See Caiden 1969.) Once professional and tenured career experts began increasingly to take over public administration, they took it upon themselves to institutionalize changes within almost as a matter of course, unheralded and often unknown to their political overseers and to the wider public. But many things they could not alter without outside intervention, political            

   traditional practices. For example, Florence Nightingale, one of the Nineteenth Century’s notable administrative reformers was seen, like so many others, as an outside trouble maker, certainly an amateur way out of line, irresponsible, odd to say the least, and unorthodox (Woodham-Smith 1955). That she triumphed in the end showed how public professions could be stuck in the past, reactionary, arrogant, unbending, placing selfinterest before the greater public good. In time, administrative reformers both within and without the public sector found themselves confronted with the unthinking bureaucracy unwilling to experiment and overprotective of the outmoded, certainly slow to change with the times. With increasing degrees of democratization, governments had to listen more to their electorates, not just to their peers in the corridors of power. Governments made promises. The public wanted results. As public expectations rose, so did disappointment with               ƒ  recommend what might be done to improve on the status quo (Caiden 1991). Thus the expert outside inquiry became a popular form of administrative reform being open, ac   *                action. Insiders could testify and reveal what obstructions hindered progress. Outsiders could testify how they were being ignored. Public leaders and the public at large could weigh up the evidence and decide what should be done. Even if nothing changed, anyone                       

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in other places where they might be applicable. This way administrative reform became globalized (Caiden 1991). Administrative reform could be taken for granted. Whenever something came along that was obviously superior to what existed, it would be automatically adopted and all the necessary arrangements made without too much fuss and dislocation. Obviously incremental changes would be preferred. But sometimes something bigger or more substantive would be required and these changes would involve resistance that would have to be overcome. Innovation required changing habits of thought and action that involved dissent and dislocation. One asset of bureaucracy is that it institutionalizes changes in habits      {            and alternatives to it that have been tried have rarely stood the test of time or matched its performance. \                      time occurrence between intervals. That was all very well in a slow moving world but as the speed of change accelerates even reform lags behind the times. Administration cannot be seen as a snapshot. It is ever-changing and resembles more of a speeded up video. Reform itself has to be institutionalized. It has to become a part of the administration, going beyond intermittent change to continuously adapt administration to rapidly changing circumstances. Every administrator has to become a change agent. Every administration has to be continually transforming itself on its own initiative, providing encouragement and incentives for all to contribute to heightened achievement. Reform has to become routine (Brunsson 2009).

The impact of New Public Management \                   form. One of the boldest attempts ever undertaken to overcome this obstacle has been in progress for some thirty or so years following many past attempts to try to make gov      +          } : Public Management (NPM) movement has bundled together a variety of management ƒ             in traditional public administration. It has hitched them to a political agenda that goes be                  a more business-like and market-oriented approach. This is seen in its major elements: ˆ ˆ ˆ ˆ ˆ

}             / _    replacement by a system of shared authority (governance) working in harmony. ‹                more thoughtful, insightful, enterprising, and innovative.    + / _            (rowing).                      enterprises would be liberalized and deregulated.          +        and perquisites, and curbing public union power.

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                 performance measurement. ~           +   emphasis on stakeholder satisfaction and convenience. #             and effective methods. }               /?gyriades 2006; Aucoin 1990; Kettl 2005; Osborne & Gaebler 1992; Pollitt & Bouckaert 2004; Wollman 2003).

What gave NPM its appeal was its promise to improve public sector performance while getting government and bureaucracy off people’s backs (Aucoin 1995). The government would provide “more for less” meaning more value for public money, less governmental aggrandizement, and less bureaucratic interference in people’s daily affairs. This way, the administrative state would be reined in, contained, and its inner workings transformed by allowing “the managers to manage” with greater professional freedom to decide how things should be run. Public managers would search for alternative ways of delivering public goods and services than solely through monopolistic public organizations. They would arrest runaway public expenses caused by over-ambitious goals, outmoded procedures and practices, and over-protection of poor performers. The timing of NPM was ripe. Democratic governments were troubled by growing criticism of their performance. Solutions to problems rarely seemed to work out as planned or expected. Government did not seem capable anymore and people wanted something different than the same old policies and practices. Too often governments were    \   $      !$        citizens. Fresh thinking was needed and NPM provided it (Chakrabarty & Bhattacharya 2005). Politically, statism was becoming more unpopular and the administrative state was long overdue for an extensive overhaul. Business was eager to show it could do a better job. Opportunities in the public domain were less risky, and less risky than in the market place. Intellectually, the ground was shifting away from statism to the new institutional economics, public choice theory, and principal-agent theory that stressed the self-interest of all stakeholders. These were embraced by think tanks, institutional actors, international bodies, and national governments (Haque 2007, 180; OECD 1995). Not surprisingly, NPM quickly became the darling of administrative reformers round the globe (Kettl 2005). But from its outset, NPM has been criticized as being a misnomer, not being new, public, or really so much about public management as the pursuit of an anti-statist and anti-government neo-liberal agenda. NPM sought to roll back the welfare state, privatize public enterprises and natural monopolies, and reduce the power of the labor movement. Its critics claim that it has little to do with freedom and democracy. Instead, they argue, it has opened the way to the invasion of partisan consultants, lobby                    corruption while weakening transparency, accountability, and responsiveness. It promises more than it can deliver. In any event, its underlying managerial values when applied to the public sector demote more socially desirable values (Argyriades 2006). It assumes sophistication still out of the reach of most poor countries whose government performance most needs improvement. In short, its adoption over the long haul is unlikely to result in better government performance, more apt public policies, greater satisfaction with gov-

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ernment, more reputable public management, reduced public expenses, more motivated               Thus, NPM, to its critics, is more an article of faith than based on concrete evidence and they object to the way it unfairly distorts the basic nature of public administration, the public interest, and social values (Argyriades 2006; Dellepiane-Avellaneda 2010; Dribben, Wood & Roper 2004; Haque 2007; Rosenbloom 2001). As with many reforms in the past, quick results can be deceiving as they do not guarantee permanent success, circumstances may change unexpectedly, and unforeseen events may bury them. Even before the turn of the Twenty-First century, NPM had begun to lose its appeal and perhaps had already “run its course, even if not yet fully implemented in all jurisdictions” to be superseded by new initiatives and models “for a radically transformed public sector” (Berman & Kim 2010, 643). This controversy over NPM could be illustrated not just over administrative and governance reform but in regard to any attempt at institutional innovation. Nevertheless, NPM did stress the need for more public accountability, responsibility, participation and transparency that were key elements of the emerging good governance movement.

Good governance The objective of administrative reform is to improve government performance, from local to international as well as in public sector organizations. But support for this worthy goal is by no means universal. The doubters realize that governments can be dysfunctional, even evil, and administrative reform could worsen matters. For these, good government is one that promotes the welfare of all humanity and the whole planet. It is or should be virtuous, progressive, just, trustworthy, credible, responsible, accountable, and transparent. Needless to say, no government comes up to this ideal of perfection (Andrews 2010; Bang 2003). But many fall far short and cannot in any sense qualify. On the contrary, too  $  $               effective administrative state to commit all manner of wickedness. The contrast between good and bad government should be readily ascertainable. It was left to political philosophers to articulate what people thought was good or bad government. They did so long before Machiavelli (1513) gave his realistic advice on how to achieve and retain political authority. His analysis was immediately attacked by all those who had different views of how government should be conducted and what limits should be placed on the exercise of state power. Already in place were historical landmarks toward curbing bad government and thereafter, new devices followed to promote better government. These moved away from authoritarianism, heralding representative and responsible government, democratization, and eventually the universal declaration of human rights. The implication behind all these instruments was the fear that the administrative state could turn at any time into a monster. Safeguards had to be provided to ensure that this possibility was minimized. Both world wars in the Twentieth Century demonstrated what horror could be wrought and what evil could result from totalitarianism. Government was becoming too aggrandized for its own good. In a rapidly changing world, the time had come to reduce its dominance, allow other institutions to emerge out of its shadow, shift to them government activities that they could perform just as well, and

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generally encourage non-governmental organizations to be more innovative than public bureaucracy. This revision of the role of government in society went well beyond the domain of administrative reform (Rhodes 1997). It envisioned an entire transformation of societal arrangements. What term could be used to describe this new state of affairs? The old English word – governance – had once been used to refer to people who had authority over others. It was now revised to describe the coming new world of interlocking organizations tackling big problems requiring big responses by both public and private sectors led by many leaders (Cleveland 1972; Frederickson 2003). With globalization in full !             }             \+      

beyond the capacity of public sector management “to the rules and institutions which create predictable and transparent frameworks for the conduct of public and private business,            š /  \+ |––| |_ Quickly, other international organizations followed its lead (Kooiman 1993; 2003). The search for good government now became the search for good governance (Dellepiane-Avellaneda 2010; Doornboos 2001; Peters & Savoie 1995). Its focus was no longer just on administrative reform but broader strategies to strengthen the institutions of civic society (Hyden, Court & Mease 2004; Pierre & Peters 2000; Rhodes 1997). With the collapse of the Soviet Union, the liberal economic agenda spread well beyond public policy and management to global liberalization, legitimacy, democratization, rule of law, competence, human rights, citizenry, transparency, accountability, and participation. All this was captured by the United Nations Development Program. Good governance is among other things, participatory, transparent and accountable. It is also effective and equitable. And it promises the rule of law. Good governance ensures that political, social and economic priorities are based on broad consensus in society and that the values of the poorest and the most vulnerable are heard in decision-making over the allocation of development resources. (UNDP 1997, 2–3) This was made clear in the 2002 Human Development Report of the United Nations where governance failures were held responsible for persistent poverty and lagging development. Indeed, human development was not just a social, economic and technological challenge but also an institutional and political challenge as ineffective institutions usually caused the most harm to the poor and vulnerable, which must have a say in how institutions and rules operate through their participation as a basic human right. Thus, “good governance is democratic governance.” Democratic governance means that: ˆ ˆ ˆ ˆ ˆ

 @           

  to live with dignity.                +                        ƒ                decision-making.

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ˆ ˆ ˆ ˆ

                  other attribute. }        !      —         @     —            $  choices that all people have in their lives. (United Nations 2002, 51)

There was no ambiguity here. Good governance meant the universal institutionalization      /: QUU‰" [ < }  QUUX"  + < # 2002; United Nations 2007a; 2007b). To achieve this objective, good governance meant going beyond public sector reform, government and governance into institutional reform                 reveal how real change could be made to improve the quality of life in diverse communities (Ostrom 1990). While most reformers had been concentrating on societal features on a grand scale, others had been explaining how the general models could be implemented in quite diverse communities and under quite different circumstances. They realized while overarching reforms were necessary, local conditions might not be amenable to ac         +         what was achievable, over what time frame, and with what available local resources and talents. Locals did understand what was feasible and likely to improve their lot. They also knew what they did not want and would stubbornly reject. But they also saw an opportunity to recycle outside aid into what they wanted to do. They were not as ignorant as the experts assumed. While NPM might be seen as the richest source of administrative reform and reinventing government and good governance, the locals might well be another rich and undervalued source for institutional reform and innovation.

Institutional reform ?         *       keeping functions of public organizations but when extended to good governance, particularly democratic governance, the task becomes truly herculean. Take for example the original 2001 strategy paper of the United Kingdom’s Department for International Development that concentrated on seven key governance capabilities to meet its targets (Chhotray & Stoker 2009, 106): ˆ >             

           !       ˆ                   trade so as to promote the necessary reforms to reduce poverty. ˆ        

        accordingly. ˆ ‹   ƒ           ˆ —           *   

 ˆ '                           !  ˆ ~            

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Not surprisingly, the department realized that to assist other countries to develop, it would have to impose conditions on them. So did the United States which decided to concentrate on low-income countries “ruling justly, investing in their people and encouraging economic freedom,” actually helping themselves according to indicators of good governance very much slanted to American values and the political and strategic concerns of the United States (Chhotray & Stoker 2009, 110). Consequently countries opposed to Westernization and Americanization were excluded or excluded themselves, passing up American assistance. For them, globalization need not require homogenization or standardization. }             }       have taken to walking out of international conferences in indignation and breaking off discussions altogether. [  +                  of institutional reform? Memories go back to the transformation of West Germany, Italy and Japan from authoritarian regimes to lasting liberal democracies within a very short time span after the Second World War. They had suffered terribly during that war and their leaderships had been discredited. The Western allies had managed to transform these defeated enemies into genuine democracies and could be proud of their successes. But they had had much to work with. These three defeated countries had been major pre-war powers, possessing among the highest skilled, disciplined, and innovative work forces in the world with a reputation for industriousness. They were hardly starting all over again from scratch. They had taken a wrong turn but with different leadership already waiting in the wings, they could be righted. Both sides were determined to bury the immediate past as quickly as possible. Outside direction and inside energy proved a wonderful combination. The next experience in institutional reform was more complicated. In this, the United States took the lead when it insisted that its Western allies decolonize. It monitored what it hoped would be the peaceful transfer of power to the newly-independent states without chaos and dislocation. All understood the risks they were taking in this act of faith. This time, imposition was out of the question. Incoming leaderships would decide what they wanted done but as long as they allied themselves with the West, they would be helped. Once again, things went better than expected. There were hitches and setbacks, and failures too, but there was reason for optimism too that all would work out for the best. That optimism was short lived. The former colonial powers thought that independence had been premature. The newly independent states were not yet mature enough to thrive in the contemporary world. The incoming leaderships believed this to be much nonsense. This is what colonialists had always claimed to justify themselves. What had held the colonies back was imperialism which had exploited local peoples and chained them to authoritarianism, thereby suppressing local talent and initiatives. Independence brought true liberty from foreign imposition. The new leaderships would have to decide what to do about tradition. At least, they would have a better understanding of what was at stake and what would be involved, and they would be undertaking the risks if things did not go as anticipated. They would be solely responsible for institutional reform. The rest of the world would just have to mind its own business. This attitude suited much of the rest of the world anyway. Why interfere anywhere else? Many countries were already having enough trouble dealing with their own institutional reforms, even long-established democracies. Postwar consensus had deterio-

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       }      +     powerful vested interests, dissenters, counter-culture movements, and political extremists had blocked some reforms altogether. Other reforms that had made it through the public                   [ they were relieved to be free at last of other countries’ institutional reforms. At the same time, they were also being accused by the leadership of newly-independent countries of not practicing at home what they had been preaching outside (March & Olsen 1989; Ostrom 1990). Accordingly, even the most advanced administrative states became more receptive to proposals that promised to improve government performance, public approval of the way public business was conducted, and more dynamic operation of the machinery of government. This now extended beyond purely public organizations to include an array of hybrid public-private arrangements carrying out public policy, public laws and regulations, and delegated public authority and administrative law. All the same questions that could be posed in administrative reform applied to institutional reform. Should the same principles of good governance apply universally across the board with everyone on the same page? Could contemporary society function effectively if different institutions were at odds with one another, if they acted at cross-purposes, if they undermined each other’s efforts, and if they viewed one another as rivals not partners? What ways and means could be devised to promote working compromises, mutual sharing of responsibility, attainment of common goals and objectives, more effective joint performance, greater credibility and trustworthiness, higher standards of integrity, wider participation, more accurate planning, better evaluation, and more dependable leadership? What would really work and work well? In regards to the reform process itself, what needed to be thought out well ahead of time? What support would be necessary for success? How was resistance to be overcome? At what point would original proposals have to be altered when circumstances changed? When should they be abandoned when it was evident they were failing? How was success or failure to be measured and by whom? But institutional reforms are far more complicated, involve many more actors, probably require longer lead in time, and can range in scope right across the whole spectrum   [                    (Benz & Papadopoulos 2006; Caiden & Su 2007; Chandler 2010; Fung & Wright 2003). } $            

               $        }  is the international democratization movement whose aim is to wean countries off authoritarianism and to strengthen democratic governance (Lukacs 2005; March & Olsen 1995; Munez 2005). The second is another international campaign to combat corruption that undermines good governance and diverts public resources into immoral if not criminal hands. Both go way beyond governance into the very foundations of societal institutions. Of the two, democratization has fared the better. There are many more genuine democracies in existence today than there were thirty years ago (OECD 2001). It still falls short of what had been hoped at the outset by its international promoters and their allies (Caiden & Caiden 2006). Democratization remains very much a work in progress (So < }  QUUX" ›* QUUX_ {

  +   [ Y  has had mixed success among former Communist regimes. Some are unlikely to revert to authoritarianism now that their peoples have tasted freedom and enjoyed greater pros-

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perity while others have barely moved away or seem once more to be slipping back to a non-Soviet style of absolutism. This is similar to Latin American countries where lack of economic development and persistent discrimination under democratic regimes have been pushing the poor to forego democracy in favor of authoritarianism if that improves or just promises to improve economic prospects (Bardhan 2009, 350). Every continent has its examples of lasting successes but each also has examples of countries posing as democracies but where true democratic reforms are being denied. Elsewhere, traditional absolutist regimes ruled directly and indirectly by the military or by privileged elites steadfastly reject democratization in any shape or form. They assume their power and position to be their birthright. As opposition is silenced, democratization has to proceed cautiously by stealth at best. Thus, many religious fundamentalists continue to view democratization as a foreign intrusion, an invasion of alien ideas, a symbol of cultural imperialism, a challenge to religious authority, a corrupter of innocents, and an evil that has to be avoided at virtually any cost. They are unwilling to bow        

 }        If anything, the anti-corruption campaign has fared worse. Around the globe corruption is or has become so institutionalized that it is the regular way of conducting public (and even private) business, a way of life not just a fact of life as it has been from time    !  @      @     ple’s powerlessness to do anything about it. As autocracy according to good governance                      highest offenders on any international scale of corruption and democratic regimes rate the cleanest. Nor is it surprising that the most corrupt regimes rate among the poorest economies as corrupt societies and institutions fail to promote societal investment, reward immoral and unscrupulous behavior, and promote the export of mobile capital and brains. The corrupt oppose democratization because they will lose out; they are unlikely to have the political will to deprive themselves of their advantages, position, and ill-gotten rewards. After all, power has its privileges and the powerful become accustomed to the trappings that accompany the exercise of authority. Without the institutional safeguards                                      straight and narrow and serve their own interest before that of the public at large. Many governments and governance systems that most need reforming are indifferent to moral persuasion. Leaders stirred into action by international embarrassment to curb corruption are defeated by the deep roots of corruption within their country. Those countries which have been successful in combating corruption are exceptional. When they try to export their reforms they fare poorly through lack of political will in client regimes, lack of follow through, and lack of enforcement. Even when temporarily successful, a      +            As soon as one loophole is closed, many others more sophisticated and deceiving open up. The reformers get frustrated and lose heart and the game of corruption goes on with      Ž         ƒ+ $ /Ž QUUœ" Caiden, Dwivedi & Jabra 2005; Jain 2004; Kaufmann 2005). Yet the reformers are not attempting the impossible. They are not seeking to put an   

                 it from pervasive, harmful forms to minor, inconsequential forms. To do this, they have

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to win over public opinion, to rally support for their cause, to promote and heighten civic consciousness, to exert communal pressures, and instigate civil action, They have to convince the many victims of corruption to stand up for themselves to ensure that scarce resources are no longer being harvested by the powerful and their brokers, and diverted from more worthy causes helping the deserving. Until this happens, the corrupt will continue to take advantage of what opportunities are available to them in any society while its

   +             Since every society is different one from another, institutional reformers have to ask themselves a series of questions if they are to be more successful in combating corruption. Where are people being most victimized? What forms of corruption is most handicapping good governance? Which anti-corruption instruments are most likely to succeed without unforeseen adverse effects? Who is most reliable and trustworthy to follow through on anti-corruption measures? How can the reform momentum be continuously recharged? What can be learnt from those anti-corruption campaigns that have transformed governance and made government clean up its act? As with democratization, success in overcoming institutionalized corruption is likely to take generations.

Institutional innovation As can be seen by the example of the global democratization and anti-corruption campaigns, institutional reform may be exclusively focused at the point of local implemen   ?        ?              }        }       democratize and/or reduce their corruption to a world’s low have taken generations to do so, a feat punctuated by titanic struggles fought by dedicated heroes and martyrs. Even today, constant vigilance has to be maintained to prevent slippage. Most reforms fail to

   $   }           results. And some, far from improving governance, make things even worse. Reform will always be a risky business (Caiden 1991). }              \       history, experience, precedent, or comparability. Innovations either catch on or fall by the wayside. Introducing something totally new requires that rare spark of genius not just in invention but also in seeing its potential. Although ideas can be stolen, it is not so easy to completely bury them even when branded as heresy. They may initially be suppressed by the powers-that-be unreceptive to anything that threatens their authority and position. Vested interests which might lose through their adoption are bound to oppose them. Creatures of habit resist trying something novel and untested. Fortunately in governance, many innovations are self-evident even if they take some learning and getting used to. Unfortunately, hovering in the background is bureaucratic caution that whispers                 In the rapidly changing world of today, innovation is both inevitable and unavoida  }            $      life. Research and development is all the rage. More than ever before, it is realized that with every pair of hands comes a brain and that brain is worth more than the hands when it comes to unraveling the secrets of nature that transform dreams into reality. This is not

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so true when it comes to governance where intellectuals pose threats to insecure leaders. Nonetheless, in recent decades most progress has been made by countries that have been the most inventive in all spheres of knowledge and have most encouraged learning and research. As regards governance, the hollowing out of the administrative state, the shrinking of public administration and the decline of public service has much reduced the attractiveness of public administration to the best brains. Creative individuals have found government employment somewhat pedestrian, just a means of earning a living. The whole            

     ? 

                   number of adults as public employees, contractors, recipients of public services, parents, taxpayers, voters, and stakeholders. Every one of them is capable of improving the per          }         though the great majority stick with what they have always known and lack the imagination of thinking anything different. The essence of governance is that it does belong to everyone, not just a privileged few, not just its employees, not just academic experts. Nobody has a monopoly of creativity. Why should anyone with a complaint about governance be discouraged from seeking a home-grown solution or a resolution? People do all the time despite the heavy hand of bureaucracy and eventually their innovations may become standard operating procedure. That way the public ethos is automatically served without fanfare and special inducements. Indeed, tapping society’s talent is probably better than relying on insider bureaucrats who know more than they let on and outside experts who push their own hobbyhorses. When these do collude, objectivity may go out of the window as when independent research becomes research for hire as so often happens in governance. Whistleblowers who are prepared to break ranks jeopardize themselves more often than not and

           $   +     oppressive atmosphere detracting innovation. Much information on how to encourage innovation is now accessible to all through modern information technology. Even before the spread of modern information technology that has shrunk the world,  +     }   |–œ‰   # Y    = School, alarmed at public service bashing, unfair and unjust attacks on government and public administration, the ideological assaults on statism, citizen apathy, and loss of trust in government, established its Innovations in American Government Awards Program. It later was expanded into a specialized research center entitled the Ash Institute for Democratic Governance and Innovation. The aim was to show how dynamic, enterprising, and creative governance could be in improving its performance without hollowing out public administration (Borins 2008). The second was the publication of Reinventing Government; How the Entrepreneurial Spirit is Transforming the Public Service (Osborne & Gaebler 1992) which quickly became the best-selling book in public administration and the bible for the Clinton Administration’s “more for less” overhaul of the federal machinery of government in the United States. That book was based on generalizing case studies of innovations that were transforming government into governance. It spurred a generation of people engaged in public affairs to think quite differently about searching for new ways of conducting public business (Veenswijk 2006).

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The trouble is that institutional innovation cannot be conjured up on demand. People  +    $         ƒ      image in any organization. They are presumed to resent strictly following the rules and allowance has to be made for their non-conformity (Sutton 2001). And there is no telling how long their creativity will last. One of the best illustrations in recent years is the evolution of e-government which is fast changing the nature of public management, of  +   +             ion that nobody could have foreseen twenty or so years ago. Many inventions had to                    no standard job description and no regular career path and who could hardly be found through a typical civil service entrance examination. They could not be fooled by passing fads and fancies substituting “gimmickry or fantasy for inventiveness” (Spann 1981, 12). But they could withstand the criticism of the experienced old hands that they were discarding too much of the time-honored and proven in favor of the risky and untried that would not live up to its promise. Little do the old hands realize that the greater challenge is for them not to dampen innovative ideas but to learn how to nurture them. }                                }    beset with so many intractable problems that some way has to be found to overcome so much gridlock that is preventing needed breakthroughs. Science and technology in their   *               affairs. Are we racing too far ahead of ourselves? Are we jeopardizing the future of life? How can we end war and violence? How do we achieve a greater measure of justice? Are we making ourselves any happier? How do we improve the quality of life of all living beings and future generations too? Can governance innovation live up to these challenges? History suggests that human ingenuity usually rises to the occasion.

Conclusion This brief survey could not possibly cover the detailed history of the evolution from administrative reform to institutional innovation via good governance and institutional reform. It would have to retrace thousands of years of moving from subsistence societies to the contemporary global society. Space alone prohibits. But it is crucial to emphasize that it has been a torturous journey with many ups and downs, one of much trial and error. Reforms and innovations often fail and disappear into oblivion although they may have paved the way for others that did succeed. Both are important for human progress. More has to be known about both and every contribution is important. Probably even reform   ž                 The modern world moves at such a breakneck speed that the traditional approach to its study, and indeed the study of social sciences, is fast becoming outdated. Hence, the shift from reform to innovation with all the attendant risks involved in attempting something that has never been done before in a world in which so many other things have also not been done before. Nobody can tell what will fail or succeed. So the more illumination that research can provide, the better.

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Kettl, D. (2005) The Global Public Management Revolution. Washington, D.C.: The Brookings Institution. Kooiman, J. (ed.) (1993) Modern Governance: New Government-Society Interactions. London: Sage Publications. Kooiman, J. (2003) Governing as Governance. London: Sage. Lukacs, J. (2005) Democracy and Populism, New Haven, CT: Yale University Press. Machiavelli, N. (1513 and 1977) The Prince. New York: W.W. Norton & Co. March, J. & Olsen, J. (1989) Rediscovering Institutions: The Organizational Basis of Politics. New York: Free Press. March, J. & Olsen, J. (1995) Democratic Governance. NewYork: Free Press. Munez, H. (2005) Democracy Rising: Assessing the Global Challenges. Boulder, CO: Lynne Reinner. Nanda, V. (2006) The “Good Governance” Concept Revisited. The Annals of the American Academy of Political and Social Science 603(1), 269–283. OECD (1995) Governance in Transition. Paris: Organisation for Economic Cooperation and Development. OECD (2001) Government of the Future. Paris: Organisation for Economic Cooperation and Development. Osborne, D. & Gaebler, T. (1992) Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector. Reading: Addison-Wesley. Ostrom, E. (1990) Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press. Peters, G. & Savoie, D. (Eds.) (1995) Governance in a Changing Environment. Montreal: McGill-Queen’s University Press. Pierre, J. & Peters, G. (2000) Governance, Politics and the State. Basingstoke: Palgrave Macmillan. Pollack, S. (2009) War, Revenue, and State Building: Financing the Development of the American State. Ithaca: Cornell University Press. Pollitt, C. & Bouckaert, G. (2004) Public Reform Management: A Comparative Analysis. Oxford: Oxford University Press. Rhodes, R. (1997) Understanding Governance: Policy Networks, Governance, and Accountability. Buckingham: Open University Press. Rosenbloom, D. (2001) History Lesson for Reinventors. Public Administration Review 61(2), 161–165. [ — < }  Ÿ /QUUX_ Theories of Democratic Network Governance. Basingstoke: Palgrave Macmillan. Spann, R. (1981) Fashions and Fantasies in Public Administration. Australian Journal of Public Administration 40(1), 12–25. Sutton, R. (2001) The Weird Rules of Creativity. Harvard Business Review 79(9), 94–103. United Nations (2002) Human Development Report. New York: United Nations. United Nations (2007a) Towards Participatory and Transparent Governance: Reinventing Government. New York: Department of Economic Affairs. United Nations (2007b) Governance for the Millennium Development Goals: Core Issues and Good Practices. New York: Department of Economic and Social Affairs, United Nations (2007c) Public Administration and Democratic Governance: Government Serving Citizens. New York: Department of Economic and Social Affairs. United Nations (2007d) Excellence and Leadership in the Public Sector: The Role of Education and Leadership. New York: Department of Economic and Social affairs. UNDP (1997) Governance for Sustainable Development. New York: United Nations. Veenswijk, M. (2006) Organizing innovation: New approaches to cultural change and intervention in public sector organizations. Washington, D.C.: IOS Press. Verheijen, T. (2007) Administrative Capacity in The New EU Member States: The Limits o f Innovation? Washington, D.C.: The World Bank. Wilkinson, R. & Hughes, S, (Eds.) (2002) Global Governance: Critical Perspectives. London: Routledge. Wollman, H. (Ed,) (2003) Evaluation in Public Sector Reform: Concepts and Practice in International Perspective. Cheltenham: Edward Elgar. Woodham-Smith, C. (1955) Florence Nightingale 1820–1910. Harmondsworth, Middlesex: Penguin Books Ltd. World Bank (1991) Governance and Development. Washington D.C.: World Bank. World Bank (1997) The State in a Changing World. Washington D.C.: World Bank.

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The New Challenge to Economic Governance: The Digital Transformation of Services1 John Zysman UC Berkeley, California, USA Stuart Feldman East Coast, Google, USA Jonathan Murray Innovia Ventures, Zurich, Switzerland Niels Christian Nielsen Mondaymorning, Copenhagen, Denmark Kenji E. Kushida UC Berkeley, California, USA

Introduction A fundamental transformation of services is underway, driven by developments in information and communications technology (ICT) tools, the uses to which they are being put,    +     }   

!     

   

         ‹  liver services and the activities they must regulate. This ICT-based transformation poses    

         [     +         technological or organizational productivity increases.2 Now, they are widely recognized as a source of productivity growth and dynamism in the economy that is changing the structure of employment, the division of labor, and the character of work and its location (Triplett & Bosworth 2004). Yet, the actual character of this transformation is often obscured by the increase in jobs labeled as services and by a focus on the digital technolo1 This chapter is an adaptation of BRIE Working Paper 187, April 6, 2010, In addition to the discussions among and experience of the authors the article has also drawn heavily on the research efforts at BRIE of Bartholomew Watson and Derek Wong. 2 William Baumol wrote in the 1960s that it still takes the same amount of labor to play a Beethoven quintet. (See Baumol & Bowen 1966, William J. Baumol 1967.) In the past years he has come to recognize the power of the ICT transformation of services. (See Baumol 2007.)

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gies that, certainly, are facilitating this transformation.3 This transformation, central to the growth of productivity and competition in the economy, poses basic policy and business choices. The policy debate about services has focused on the growth in the size of the service economy. The core of our story of the services transformation is not about the growth in quantity or value of the activities labeled services, the conventional emphasis of much of the writing about services. Nor is it about the revolution in digital technology. Rather, it is about how the application of rule-based information technology tools to service activities transforms the services component of the economy, altering how activities are conducted                                  $           }         

                     

  Algorithmic Revolution (Zysman 2006). Traditional business models can be made more productive, extended with ICT tools. And entirely new business models can be created, offering services previously impossible at any price. The Algorithmic Revolution in ser          }             ƒ   ernments and business deal with each other. The classic distinction between goods and services has always been muddled (Cohen & Zysman 1987). But as services rest increasingly on ICT systems that are designed and built, the distinction increasingly evaporates. Policy makers will be better served by considering issues about manufacturing and ICTenabled services as elements of a larger category, Production. Services are increasingly                   products, that is to avoid competition based solely on price when market offerings are relatively similar.4 However, the unbundling of services activities themselves accelerates               process and infrastructure services available to them. Firms increasingly become bundles of services purchased on markets, and at the same time some of those in-house business functions that are maintained are then offered as services. A consequence is that the distinction between products and services blurs, as manufactured products are increasingly embedded within and recast as services offerings. Clearly, traditional sectoral boundaries +                 direct competition. Just as work was transformed by the evolution of manufacturing, the consequences of the algorithmic revolution in services for business and government organizations and 3 The conventional view, summarized effectively by the National Academy of Sciences, is that growth since the mid-1990s was largely driven by the rapidly falling cost of processing power (following “Moore’s law,” which predicted that the number of transistors in integrated circuits – roughly, processing power – would double every two years) and heavy corporate investments into ICT. (Jorgenson & Wessner 2007; Jorgenson et al. 2005.) # +   :?[            Ž}     es; “A structural change most associated with the New Economy today is the transformation of the Internet from a communication media to a platform for service delivery [which has] contributed to the remarkable growth of the U.S. service economy… new business models, enabled by the web… will contribute to sustaining the productivity growth of [sic] U.S. economy.” (Jorgenson & Wessner, eds., 2007, 22–23.) What they treat as an endpoint, this paper takes as the beginning. 4 For a consulting and corporate view, see Young 2008.

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the character of work in the public and the private sectors is profound. Governments will provide services in new ways, and the ability to “outsource” many government activities will lead to reorganization of governance.5 ICT-enabled services facilitate outsourcing government functions, the privatization of the delivery, the development of networked relations, and shifts in the very notion of how to govern. The automation of basic activities both frees, but also requires, professionals to perform more advanced tasks. And the    +     !    Ž}     require a different set of skills than providing the service itself. Capturing the possibilities from the services transformation presents new policy challenges for governments and regions. Services are deeply rooted in social rules, conventions, and regulations. Consequently, capturing the value possibilities inherently means recasting the rules, regulations, and conventions in which the services are embedded. Patterns of economic governance and the character of business government relations will, of necessity, evolve.6 Our argument unfolds in three parts. Part I depicts the dramatic and pervasive transformation of services. Part II introduces several analytic concepts and provides a framework for analyzing the transformation. Part III explores the policy challenges and the implications for economic governance raised by the transformation.

Part I: The services transformation unfolding The transformation of services with ICT tools is dramatic, pervasive, and far-reaching. ?                  boundaries are breaking down between products and services, manufacturing and services,        #            each other will change. The Algorithmic Revolution transforms activities With the Algorithmic Revolution, tasks underlying services can be transformed into                      execution. The inexorable rise in computational power means that an ever-greater range of activities are amenable to expression as computable algorithms, a growing array of activities are reorganized and automated. (Nordhaus n/d). Indeed, core activities in services                 captured and expressed as digital information. The examples abound, become commonplace. Bank ATMs have automated simple bank transactions, and consumers increasingly book airline tickets and car rentals online. In major enterprises, payroll processes have         {       *   

know how to compute payroll checks, with their myriad deductions, overlapping tax districts, reporting restrictions, and other variables. Instead, the knowledge and process details are embedded in software, usually offered as external specialist services. 5 For an example of how the public sector is transformed by the use of IT, see Baekkeskov 2009. ‰ {       +               • < :man 2006.

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{   $              often take on new purposes and create new forms of value. For example, the act of making a purchase at a supermarket or retailer has transformed from a simple monetary transaction to a data-generating activity. At the beginning of the application of ICT to retail, of course, inventories were monitored (Borrus et al. 1985). Then, increasingly

                   lected to be analyzed – to capture consumer preferences and consumption patterns, as well as to manage inventories and supply chains, and sometimes, sold to third parties. Accenture transformed its data management service into a new value-added service of data monitoring. Its initial service, offered to pharmaceutical companies, was to manage the latter’s clinical trial data. Accenture then leveraged its ability to analyze this data,  +               *  to drugs.7 ‹  +             and as they decompose and outsource activities, many of those activities are also taken offshore.                 services for purchase. }                      +  ?     package and sell those services to others. As the range of in-company business tasks that can be digitized and manipulated expands, activities can be unbundled – separated from    + ‚           Ž   the increasing ability of heterogeneous ICT systems to exchange information with others,8 tasks can be moved outside companies and offered as services. Business functions ranging from accounting, computing, payroll, supply chain management, and even semiconductor    %<~      +  '     are becoming an agglomeration of services offered by others, linked by ICT systems. This unbundling of service activities is the counterpart to the decomposition of manufacturing, in which modularity in product design enabled manufacturing supply chains to be broken apart and spread across multiple corporate boundaries (outsourcing) and national borders (offshoring) (Borrus et al. 2000; Baldwin & Clark 2000). In both cases – the unbundling of services and decomposition of manufacturing – it is the re-composition that is critical to sustaining market position and driving productivity. The issue is how the elements are constituted into products and services, both in constituent modules/bundles     ƒ    

7 “Outsourcing: External Affairs,” The Economist, July 28 2007. 8 Firms usually installed IT systems by adding new systems to existing legacy ones. By the late 1990s, most large enterprises were running several different legacy systems that were not always compatible with each other. Waves of M&A activity exacerbated the situation. However, increases in the sheer number-crunching ability, combined with “glue-code”-pieces of code that bridged heterogeneous system, increasingly enabled hetero }                    facilitated the connections of IT systems across company borders, facilitating the outsourcing of an increasing array of activities.

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Repositioning services to avoid commoditization }                   offerings is the most powerful pressure driving the reorchestration of services with ICT tools. Intense global competition, the array of newcomers from diverse countries and the rapid diffusion of technology, means that many products face intense price competition. That is, the products become commodities, largely interchangeable from their rivals and    

           ?  seek to avoid ever-faster commoditization, many are repositioning the role of services                    defensible positions in markets.9 They use them in a variety of ways. Firms’ hardware offerings are increasingly enhanced in value by ICT-enabled services offerings. Apple’s iPod is more than an attractively designed mp3 player. Its integration with the iTunes software was critical to its commercial success, and Apple’s online music store revolutionized the way music is sold.10 Komatsu, a Japanese construction machinery

 

      "          only about the deterioration of parts, but also fuel usage and other information, to the company’s headquarters. As a result, Komatsu can notify its customers in developing countries if fuel is being siphoned, and it can even remotely halt the operation of machines if lease payments are overdue.11 Similarly, John Deere offers agricultural equipment that embeds an array of services. Location-referenced soil samples can be collected, analyzed, sent wirelessly to a remote database, which both helps “map” the fertilizer applied and adjusts the fertilizer mixtures in real time. [     shifting their core businesses from selling products towards offering services, often delivered via ICT networks. IBM, for example, transformed itself from a product company in which services support provided competitive advantage, to a services company embodying products in its offerings.12 Emblematic of this transformation was IBM’s sale of its Thinkpad notebook computer division to the Chinese company Lenovo, and its acquisition of PricewaterhouseCoopers’ consulting arm. While  

          \'@                  @ Ž}                     \'@  recent “Solutions for a smarter planet” campaign, with a wide range of target customers ranging from banking, buildings, education, and energy to food, healthcare, government,               *        on services. The array of examples expands continuously. Some are engaging stories. Consider Wireless Fasteners. Helial screws – the screws we are familiar with today with a thread

9 For example, see Frei 2008; and Shankar et al. 2009. 10 Until Apple’s music store became hugely popular, it was not obvious that consumers were willing to pay     }   :   

      ‘      music, was sometimes argued to have had such a pervasive cultural effect that people would be unwilling to pay for any content downloaded from online. 11 The company can also use data from the levels of usage of its machines to generate supply-demand predictions for countries or regions in which statistics about economic trends are unreliable. 12 IBM mainframes were leased to major enterprises and manned by specialists.

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cut into it – was a revolutionary technology when introduced widely in the 1400. They were hand-made by craftsmen until the invention of a screw-cutting lathe in the late 1700s, and the mechanical production of screws and bolts played a major role in the industrial revolution. As mass production along the lines of Henry Ford’s factories took hold in the early 1900s, an integrated nut-and-bolt system was invented, creating the tooling and nut and bolt mechanism that could be integrated into mass production environments. TZ Group, an Australian company, takes the next step in fastening technology. It designs wireless-enabled fastening systems meaning that potentially labor-intensive +               }    controlled ‘Nuts and bolts’ enable a technician to remotely unlock any number of seats to               +   Similar systems are now being developed for use in many other industries, from automotive and marine applications to medicine and defense. Consider the Chilean mining company CODELCO, the world’s largest copper producer. To increase worker safety and improve productivity, it has embarked on a program     $  ƒ          tency, telemetry. This capability removed the need for workers to be co-located with the equipment, enabling miners to move outside the mine into safe clean working environments. This remote control capability also dramatically reduced the number of miners required to deliver the same output capacity. These initial steps open up the possibility to view mining as a service business with remotely-controlled operations being offered to other companies and in other countries. All these stories show that the traditional distinctions between products and services,              Products themselves can be transformed into services when delivered via ICT networks. For example, software, which used to be a product distributed on physical media, is now increasingly repositioned as a service. Quicken, a software product if purchased on a CD in a box, becomes a service if the same software engine runs on the web, charging for access. Enterprise software for large companies increasingly takes the form of “Software-as-a-Service” (SaaS), with software delivered via the Internet and billed by usage. Even products as basic as data servers and computer processors are transformed into services delivered  Ž}  + = 

    ¡Ž  Ž š      are offering storage and processing power, applications, and software development platforms remotely, with pay-as-you-go payment schemes. (Kushida et al. 2010; see also Armbrust et al. 2009.) Products can become portals to services, or are embedded in services. Apple’s iPod is at once a product and a portal to its online music store. Likewise, Apple’s iPhone is both a product and a portal to Apple’s services platform; the iPhone’s capability as a conventional phone is not its primary competitive attribute, as cellular handsets are increasingly commoditized. Amazon’s electronic reader, the Kindle, is a product, but its primary value is in its integration with Amazon’s online bookstore and magazine offerings.13 13 Amazon’s online Kindle offerings were initially only available on Amazon’s Kindle device. Amazon subsequently introduced Kindle reader software for PCs, iPhones, and Blackberry smartphones. Kindle offerings can be read on a variety of platforms, but only using Kindle software, which is not (as of this writing) offered for any other electronic reading device competing directly with the Kindle reader device. As long as this continues,

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}+                choices. Consider two simple examples. First, what are the rules for consumer protection if the service is embedded in a product, in ICT processes that may be located anywhere in the world? Should Google, E-bay, or Craigslist be responsible for the ads or auctions conducted on their infrastructures? Second, what are the boundaries of the relevant market for competition policy when IBM takes on the task of providing business processes in an array of industries. What happens when the industry boundaries collapse? Conventional sectoral distinctions are collapsing into “value domains,” in which the digitization of information brings previously physically distinct products and sectors                    14 The block of plastic we call a phone morphed into a smart phone that provides an array of different digitally founded functions and services. Consider the evolving competition surrounding cellular handsets, digital cameras, portable music players, music distribution, and software. Until the early 2000s, Nokia    

        '   —   Ÿ and Korean handset manufacturers. However, as digital cameras became embedded in cell phones, handset manufacturers were offering a function in the smart phone that implicitly competes with basic camera offerings from companies such as Canon, Nikon, and Casio.15 As digital music players became increasing popular, led by Apple’s iPod and its iTunes online store – which proved consumers were willing to pay for legally downloaded music – Nokia, other handset manufacturers, and cellular carriers entered this value domain. Cellular handset manufacturers began incorporating digital music player capabilities into their handsets, offering digital music services, such as Sony Ericsson’s Walkman brand handset and Nokia’s one-price, unlimited-use music licensing with its “Comes with Music” service. Cellular carriers around the world began offering their own music download services.16 Microsoft, which began its life as a software company, also entered this domain, offering its own mp3 music player and music download service. As the computing performance of cellular handsets improved, bringing them ever                    interested in their performance as a portal for online service offerings. Apple’s entry into the cellular handset business, the iPhone, was not simply a handset, but a portal for an online mobile applications store. Microsoft already had mobile handset operating system offerings – it was on its sixth version when Apple introduced the iPhone – but Apple the Kindle device will not be commoditized as quickly as if content interfaces were open. Therefore, product cycles do not have to be as fast, such as every three months, to stay ahead—a contrast with cellular handsets, especially before the introduction of smartphones such as Apple’s iPhone. Apple’s book reader application for the iPad is also initially offered only for that particular device. |£ ' +  —++ >   :+          # + |Š                  +  ƒ    observing the behavior of crowds at any noteworthy event captured by camera will show a large proportion of people holding up their cell phone. Even more so in markets where cell phone camera quality was an attribute of competition, such as Japan and South Korea. 16 The success of carriers differed widely across markets. Japan’s KDDI, for example, commercialized downloadable songs, “chaku-uta” in late 2004. It logged 5 million downloads in the following 16 months, closing in on the number of CD singles sold in early to mid-2006. (Masuno 2006, 34.) The music download services of major US carriers such as Verizon’s V Cast Music, however, have not made headlines with their subscription levels or download volume after it was introduced in 2006.

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         +         Ž in countries such as Japan and Korea were already offering mobile Internet service      +            to their domestic markets.17 More recently, Google moved from web-based services into the handset operating system and handset markets as well, with its Android platform followed by a handset offering. Thus, competition within distinct sectors has extended into competition over “value domains.” More players are involved, and there is less clarity over the boundaries of previously distinct product and user categories. Blurring the boundaries between manufacturing and services This distinction between manufacturing and services has long been a fundamental assumption underlying economic analyses and policy debates. As the market border between products and services is eroded, the analytical distinction is blurred, and therefore the policy debates that rest on the distinction are emptied of meaning. The distinction between products and services was never completely clear; a window washer in a GM           +     ‹'     worker if employed by subcontractor, even if the person and the task remained unchanged. (Cohen & Zysman 1987.) As the Algorithmic Revolution extends the range of computable activities, and as developments in software, processing power, and ICT networks enable increasing portions of corporate activity to be outsourced, the breakdown of this distinction accelerates. In the current era, manufacturing itself is offered as a service, with examples   } ¡ š         such as Flextronics, which manufactures electronic products under contract to brandname suppliers (Original Equipment Manufacturing – OEM). For national accounting purposes, to understand sources of productivity, and to analyze the nature of labor and         ƒ      >—'           >        ?   Amazon design their iPhones and Kindle electronic reader devices, but manufacture them on an OEM basis; does this mean they are not engaged in manufacturing? }                   especially at the higher ends of production. The relationships between Unimerco, a Danish company with sophisticated knowledge about materials and tools, and its clients, provide an example. As ICT tools enabled advances in materials science, leading to a             +    ? ? and Ford turned outside their organizations for sophisticated knowledge and tools to work with the new materials. Unimerco transformed itself from a traditional toolmaker / _                   basis of its sophisticated management of knowledge and know-how of production sys-

17 The most famous mobile internet connection services in Japan, NTT DoCoMo’s i-mode, pioneered in 1998, helped launch a mobile content market in Japan with revenues of approximately 1 billion dollars by 2002, reaching 7 billion by 2007. However, the entire ecosystem, consisting of content, handsets, and carriers’ business models, was trapped in the domestic market. (For details, see Kushida 2008.)

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tems more generally (services). The question is whether to consider Unimerco employees +   !                 line as manufacturing or service workers. {

        +        +     +    ¡ š        further.

Part II: Understanding the services transformation }           ‹   only have to make rules for this new ICT services economy, but they are in effect buyers of huge portions of the services. Consequently we need some tools to sort through the developments. First, we distinguish the underlying services activities, placing them on a spectrum ranging from irreducible to automated. We then consider the implications for productivity gains for each type of activity and lay out the limits of the transformation – a case for the enduring role of human judgment. Then we turn to a range of transformations            }         and to governments. The services spectrum There is a range of services activities to consider, from irreducible, to hybrid, to automated.18 (See Figure 1.) The spectrum proposed here applies to government activities  

 

Irreducible Services

Hybrid Services

Automated Services

Rely on humans to deliver services, which are typically created at the same time and in the same place they are delivered.

Rely on a combination of humans and electonic tools to deliver services, using ICT and other systems to leverage or enhance human capabilities. This combination is often constituted as a system.

Rely on ICT or other technologies to deliver services that have been       available, often using electronic communication or distribution tools.

Figure 1. The services spectrum.

Irreducible services rely on humans to deliver them. They are provided strictly by human beings, either because they require personal skills or attributes that only humans can offer, or for simple reasons of practicality and cost. Examples include the services provided by

18 For a typology that takes a different vantage, see Jansson 2006.

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hairdressers, judges, psychologists, and priests.19 In most cases, irreducible services are created at the same time and in the same place where they are delivered and used; such services cannot truly be said to “exist” apart from their delivery by humans in a particular moment and location. Irreducible services originally constituted the full range of services available in the economy, and they still make up the majority of services sold. The constant evolution and growing power of ICT tools constantly increases the range of services that can be “transformed” into automated or hybrid services. By contrast, ICT automated services rely on digital ICT to manage information and deploy it in ways that are useful and valuable to customers. The services provided by a bank ATM, an Internet travel agency, or electronic systems for collecting road and bridge tolls are familiar examples.20 Some automated services compete with and threaten existing manual services, or extend their reach. In one sense, eBay’s online auctions compete with traditional suppliers of human-based auctions services, such as Sotheby’s, Christies, and hundreds of local auction houses. However, their real business success rests on extending the auction model to products and communities that model could never reach without ICT tools. Others offer entirely new services that could not be provided manually – for example, Google’s online search capability can perform functions analogous to those of a                   accuracy, and thoroughness that no human service provider could ever hope to duplicate. >           : !$ 

  to stream content previously only available on DVD or through illegal downloads, is another example. Finally, hybrid services combine human and machine-based capabilities, either harnessing technology to improve and leverage the abilities of people, or depending on human talents to augment, deliver, customize, personalize, or otherwise add value to automated services. (They are not simply services in which some of the information involved in the process or transaction is captured electronically – such as a massage therapy business using digital software to manage reservations and accounting. Rather, a central element in the creation of value is digitally processed.) A growing fraction of the most valuable and popular services are now hybrids. For $                   $   ++                  and manipulate large amounts of data with ease, speed, and accuracy. However, they supplement the power of the software with personal judgment that helps them provide advice and insights suited to particular situations. Similarly, travel agencies handle most transactions digitally, but use human agents to handle complex cases and particularly high-value customers. This system is highly dynamic, with particular services, service companies, and even entire industries moving, rapidly or slowly, from one position on the spectrum to another. As new technology and business systems are devised, the nature of possibilities continues

19 These examples, just four among scores that could be named, suggest the wide range of income levels, required training, and social or professional status among the providers of irreducible services. 20 But not all automated services use digital ICT: for example, a self-service Laundromat is an automated provider of services that typically does not employ ICT, except to the extent that modern washing machines use microchips to control some functions.

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to evolve. Services once practically unobtainable – access to vast stores of information now provided by a routine web search engine, for example – can now be obtained at virtually no cost in terms of time, money, or effort. The local limitations that constrain the availability of traditional human-delivered services are also reduced or eliminated by digitization. The services spectrum and potential for productivity gains Fully automated systems, the evidence suggests, offer the greatest potential productivity  \                  algorithmic services can be expected to improve in accordance with exponential increases in computing capabilities. As chips improve and multiply, and the networks they form become exponentially more powerful, the possibilities for fully automated digitized services expand dramatically. It is in the hybrid sector, where human delivery is combined with automation, that the deepest economic transformations are occurring. The value of hybrid services depends on human capabilities being augmented by increasingly sophisticated ICT systems. Existing data on productivity, organized by traditional industrial sectors, is not optimal for measuring productivity increases across our divisions of activities – automated, hybrid, and irreducible. A rough estimate, taking select industries in which the bulk of                 

 /[ }  |_

Table 1. Productivity increases, US (1995–2003), Selected Industries. Activity Type

Industry

Productivity Increase

Automated

Telecommunications

70.5%

Hybrid

Retail Trade Financial Intermediation

53.0% 66.2%

Irreducible

Business Activities (Consulting)

16.9%

Source: Groningen 60-Industry database.

The limits of the transformation: the need for human judgment The outcome of the transformation rests not on the inherent unfolding of the technologies, but the policy choices and the talent and skills we develop. Crucial for policy and business strategy is that these technologies can empower human creativity and, indeed, only by capturing that possibility can distinctive advantage be generate. The ultimate limits                    observers, including the authors of this chapter. One extreme view is that the domain of the computable will eventually push out human judgment altogether. The opposite view is that human knowledge will continue to dominate—that core facets of knowledge can

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never be reduced to algorithms. Our view is that, while the domain of human activity that           * 

              QUUœ     *    tion era.21 Whatever its other implications, it will stand as a stark demonstration of the new logic of value creation, the transformed character of the service economy, and – paradoxically – the heightened importance of human judgment in a world where electronic tools for gathering, analyzing, and managing information are more ubiquitous and powerful than ever. (Nielsen & Nielsen 2006.) '                    data, to perform complicated mathematical calculations and to act in real time. But how       ‚              – depends on the judgments and talents of people.           |––U  QUUU    +                +  } possibility of complex computation often hid, and hid from the practitioners, the problems with the information they were using and the nature of risk itself. First, loan companies and mortgage grantors took heavy advantage of the seeming clarity of credit scoring systems reduced to computerized algorithms, such as Fair-Isaac’s FICO. Produced by credit bureaus, credit card companies, and specialists with access to tens of millions of loan records and the ability to analyze, these systems were found to           *       \ tools like these work only if the factual underpinnings are correct and the models valid. :         + ‚      ƒ  common and were known among some bankers by the affectionate title of “liar’s loans,” while the possibility of massive foreclosure episodes was not taken into account in the scoring process. Second, the pricing of derivatives is based on massive simulations of risk scenarios; the most complex multi-level derivatives require astonishing amounts of computing power to evaluate. These derivative products became feasible only when investment

        $       mathematicians. Certainly, the models were only as good as the assumptions and data underlying them; for example, most models did not take account of nation-wide decrease     ?                  rather than considering how the parameters and variables evolve, which makes them in               + conditions.22 Third, the trading of securities, options, and other derivatives is dominated by “program trading” – computers making decisions and placing bids in thousandths of a second. This increased volatility, as programs kicked in response to swings in prices and other conditions stipulated in their code. Finally, the securitization and sale of complex instruments became a global business, pulling in capital from around the world over networks. Few actually understood, for

21 The dot-com bubble and crash of 2000 was the result of misplaced investments and optimism, but it was a classic bubble; the dot-com bubble was not about the underlying IT tools and how they were deployed and used. QQ {                  QU|U

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example, the real risks in the mortgages underlying the packaged securities (Lewis 2010). Few individuals or companies had anticipated the true counter-party risks that were being undertaken. Crucially, there was a lack of transparency in the system which hid how risk             }      tion, and very nearly a catastrophic depression. The lesson: Those who live by information also can die by it. Once again, the old I.T. slogan, “Garbage in, garbage out” was validated. Steve Lohr of the New York Times put it this way: …the larger failure…. was human—in how the risk models were applied, under                         

           " while markets were booming, the incentives on Wall Street were to keep chasing                making larger and larger bets.23 We see the same message in many other industries, though delivered in less dramatic fashion. Now that we have covered the spectrum of how services activities are transformed by the Algorithmic Revolution, led us now turn to how they affect business models built on top of service activities. A range of services business model transformations The Algorithmic revolution makes possible a range of business model transformations. Many business models entail delivery of the services themselves. Others are extended or transformed by the underlying tools available to them (see Figure 2). These possibilities suggest the range of business governance questions that governments will need to address.

ICT Services Enhance —   }  Business Models

Traditional Business '  —$    Ž} Services

Completely new Business '   Ž}

Figure 2. The range of business model transformations.

?      ICT services to enhance traditional business models, often by     { $           transform their business models with the massive application of computing resources and

23 “In Modeling Risk, the Human Factor Was Left Out.” New York Times, November 5, 2008.

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algorithms. Wal-Mart’s early and extensive use of ICT to link suppliers and distribution 

        Firms can also extend traditional business models with ICT-Enabled Activities. Amazon extended a catalog retailer's business model with an online storefront and user-generated reviews and ratings. The Chilean mining company introduced earlier took its traditional business of operating mining machines and shifted them to ICT-enabled remote operations. Now that its machines are remotely operated, it can offer remote mining operations as a service worldwide. —$            $ "                $    model in new ways. Wal-Mart and other big box retailers’ moves into online retailing is an example. For new entrants, the ability to begin afresh with new business models that extend traditional ones offers an array of entry points. Amazon, for example, was not a traditional bookseller or retailer, starting from the ground up with an ICT-extended business model. At the far end of the spectrum, entirely new business models are invented. Google is the prime example, linking advertising revenue to search. An interesting example of an entirely new business model can be found in virtual currency; users using real money to purchase virtual gifts, avatars, or other virtual goods within an online game or social networking site. Some estimate the virtual currency market in the US was over $1 billion in 2009 (Walsh 2009). There are relatively few examples, but many hope to discover and develop the next completely new business model. The services dilemma: the necessity for continuous innovation We have seen that the ICT enabled service transformation involves both including a services component in the business model and transforming service activities, particularly routine activities, into computable processes. This is just the beginning of the competitive story. Two matters must be noted. First, the application of ICT to existing service activities, the automation of existing activities, is always the beginning of the story – a cycle. What          "    ¡  š    

    Ž        ƒ }  offerings need to be rethought, reconceived, and implemented anew. Second, even for radical new services, such as online search or twitter which open entirely new domains, the competitive problem is how to maintain advantage. Google’s constant introduction of new functionality and new possibilities is part of its effort to hold its users, and hence its advertising rates. The services dilemma thus pits potential productivity gains against the constant threat of commoditization. If the services component of a business model or activity is primarily    

              Ž} tools to achieve similar results. However, it is then susceptible to Baumol’s productivity  >                  ductivity can be won, but at the cost of a continuing threat of commoditization. Thus, the need for innovation in offerings, processes and business model continues.

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The clear policy implication is that conditions for sustained innovation in the development and deployment of platforms, applications, and business models are essential. Drivers of the transformation: why now and why so fast? This algorithmic transformation of services, the era of ICT enabled services has unfolded rapidly, accelerating in the last decade or so. In order to understand why it is unfolding now, and why it is unfolding so fast, and why it will be such a pervasive issue, we need to look at what is driving the services transformation. The spiral of ever increasing commoditization and competition: pressure from a global, digital era There has been a spiral of intensifying competition and a resulting commoditization of goods and services, that is increasing competition based on price alone as more and more competitors emerge for the routine and established. That spiral is driven by a digitization of information and globalization of markets. We know that as information is digitized, it can be stored, moved, and manipulated, allowing information-based activities to be relocated, transformed, and recombined.   +     { $       

 encapsulated information, with algorithms determining patterns of trading and the composition of derivatives-based products. For digital media, such as CDs and DVDs, streamed video content, and online databases, the information itself is the product. Moreover, the digitization of information drives the breakdown of traditional sectors into value domains, as noted earlier. Firms in traditionally distinct sectors are brought into                   points in the market. These same ICT tools facilitated the communication that encouraged an extension of competition. New competitors from countries seeking to industrialize entered the marketplace. The new competitor usually began with basic products, either borrowing technology and producing for their home markets or sending basic exports to wealthier more advanced countries. Meanwhile companies from the advanced countries moved produc    [           "                    abroad. As ICT tools became ever more sophisticated producing both goods and services abroad, developing product abroad, and managing the complex operations this implied, all became easier and less expensive. The consequence, though, was straightforward. Competition for standard product – products that were in essence commodities differentiated by price or by branding – became ever more intense. The competitive pressures                     seeking value in ICT-enabled services ICT-enabled services are one competitive response to the market and price pressures of commoditization. There are two mechanisms, which we have already noted. One is                 consequences of the commoditization of the product itself, with Apple’s iPod perhaps the most discussed example. Second, the application of ICT can transform all services. Yet, though ICT enabled, they are no panacea. That which is routine is likely to be automated.

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?                  routine. And automation of the routine is easily copied. So decisive advantage comes by sustaining the pace of automation of the routine, by innovative ways of approaching traditional activities to create new and distinct values, and by generating entirely new ICT-based products and services. We have a particular vantage on globalization. Globalization is not simply a story of worldwide convergence – it is also a story of national innovations played out on a larger stage. In the classic view, global competition begins with falling transport and                      !     Ž}        + outsourcing and offshoring allow corporations to reconstitute themselves as orchestrating lego block-like nodes of activity, buying R&D from here, production capacity from there, and so forth (Friedman 2005; Berger & MIT Industrial Performance Center 2006). The decomposition of value chains with outsourced manufacturing allowed multiple points for innovation and entry by new actors. Governments are constrained in this vantage,               ¡  š chasing “mobile assets.”24 However, we contend that although the global era does mean a larger set of points for innovation, more competitors, and factor price convergence, it is still a story about national developments interacting on a global stage (Kushida & Zysman 2009). Lean production, developed in Japan, clearly diffused to production processes around the world. Although not all Japanese companies adopted the Toyota production innovation, lean production would not have developed were the Japanese nascent auto industry not protected from imports and direct investment while gaining access to the US and global export +  [    {  :+   ƒ    {    less likely to have dominated global mobile handset markets if Nordic roaming standards had not been adopted, followed by GSM as a European standard, giving Nokia access to broader markets.25 China’s current trajectory of development was rooted in cross-national    +     !      @ cess as a business process outsourcing and offshoring destination was initially sparked by the combination of educational strength and telecommunications liberalization within In              $   Y[    and the shortage of software engineers in the US.26 The sequence of national stories produces a sequence of challenges in the form of new competitors and new competitive strategies for companies and countries. The result is an enduring tension between the dislocations and challenges of the global against ad    *           In short, competition in the global, digital era is characterized by unexpected, constant disruption, both from countries and companies. A myriad of new entrants in vari24 Quote from Nielsen & Nielsen 2006. See also Strange 1996; Ohmae 1999. 25 Finland’s concerted efforts toward attaining mobile prominence occurred in the context of a broader Finnish move away from supplying the Soviet Empire to become a technology-based innovator. See Hyytinen et al. 2006. 26 The software engineer shortage was acute as the Y2K problem demanded a massive quantity of relatively ba   ?                   *                [ { QUUŠ" ~ < = QUU–

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ous points along value networks and production processes, combined with the increasing ability for granulized production and the purchase of business processes on markets,    $              Technology drivers: evolving computing platforms, captured by organizations The technology drivers of the services transformation include the exponential growth in computing power, the increasing speed of networks, evolution of software, and the progression of computing platforms.27 Computing platforms evolved along two dimensions – from stand-alone to networked, and from mainframe computers to PCs.28 The result was an ever-increasing power to digitize information and then process store 27 Computing power has increased exponentially, following the principle known as Moore’s Law. Derived from the prediction made by Gordon Moore, founder of Intel, in 1965, Moore’s Law states that the number of transistors that can be placed inexpensively on an integrated circuit would continue to double approximately every twelve to twenty-four months. This principle has held until now, leading to exponential rises in computing power and decreasing cost (A typical laptop today has as much computing capacity as the world did in 1960). Networking has also speeded up radically. In the 1970s, the fastest links between computers were about 1.5 megabits per second; today 10 gigabits (10,000 as fast) is typical. The transatlantic cables of the 1950s carried an equivalent bandwidth of a few megabits, while the most recent international cables have a theoretical capacity in the terabits (one million times as much). Transmission costs have fallen by comparable amounts, partly since cables’ carrying capacities can be improved with new equipment at the end, without replacing the installed

 }+           +         than having to be concentrated in or near corporate headquarters—and when knowledge is dispersed, so, to a   $     Software, too, has undergone a series of dramatic evolutionary steps. In the early days of computing,     +        }                   

                printed checks. With growing experience and increasing technological power, new algorithms were designed to do ever-larger numeric computations and to perform them more quickly than ever. 28 Let us go into more detail about the evolution of computing platforms—combinations of hardware, software,                ?         technology involves several different platforms, it also exhibits a single major divide—that between I.T. systems that are fundamentally independent and systems that are highly interconnected. The stand-alone era began with the platform of mainframe computers in the early post-World War II  ~                 /    the processing of transactions and reports) is still a dominant function of the mainframe platform. The original uses were all batch-oriented and off-line due to hardware limitations. The mainframe platform entailed centralized management, control by a highly-trained priesthood of experts, and utter dependability purchased at a high price. After a series of transitional standalone computers, Personal Computers (PC) became the new paradigm from the 1980s. The so-called Wintel PC, using Intel-based processors and Microsoft-based operating systems and software (with Apple’s Macintosh computers and the Linux operating system providing an alternative). The key technology breakthrough was the development of the computer whose processing capability was contained on a single chip. Thanks to Moore’s Law, what began as a toy quickly became a powerhouse. Although the op           +           the existence of this long-lasting de facto standard has encouraged the growth of a major ecosystem of software and hardware producers. The low cost, simplicity, and ease of use of the PC revolutionized the role of I.T. in business. Individuals became direct users of information technology, no longer reliant on a priesthood of experts. They were free to create their own data, manipulate it as they liked, load new applications or create their own. Inside corporations, work groups equipped with PCs could operate almost independently in providing services to themselves and to others. Freelancers and small business could create applications and manage information as easily as large corporations. And all the while, costs were plummeting. In companies based on the mainframe model, the I.T.   

 |Š   "     Ž    *   

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J. Zysman et al. / The New Challenge to Economic Governance

and transmit information in digital form.29 Each technology step opened new possibilities for the application of ICT to services. The ever-increasing processing power, expanded storage, and connectivity meant a whole variety of things. All that brought greater functionality to the desktop, but it also meant small phones, increasing connectivity and distributed sensors embedded in everything. The advent of the Internet as a platform for the delivery of services and business activities ushered in the contemporary era in the transformation of services. An evolution to the next computing platform is currently underway. Cloud Computing, a combination of technologies and business models, will kick off another major round of innovations and new entrants. Cloud Computing, in essence, offers 1) computing resources (such as applications, services, and data) on demand via networks, 2) which can be scaled up or down rapidly according to the users’ needs (providing users    

        _  ‘_        requiring no up-front commitment.30 For users, Cloud Computing allows computing to become an “enhanced utility” (See Kushida et al. 2010). Firms can avoid capital expenditures of building their own data centers, instead paying for computing resources

The connected era had roots in the 1960s or earlier, but it came of age with the advent of the World Wide Web and the Internet. Even predating the Web and the Internet, increasing standardization, openness, and bandwidth enabled IT to attain locational independence (the data could reside and computations could be performed anywhere), distributed processing (the ability to combine information and calculations without physical relocation or permission), and federation (the ability to combine data and processes across organizational boundaries and ownership domains). The Internet, in its essence, is a system for easy networking, a universally-accepted way of communicating among machines (whether mainframes, microcomputers, or terminals) using open protocols – that is, the way different machines are accessed is the same everywhere. These open protocols, designed for the U.S. government and supported by a volunteer standards body, together with an underlying philosophy of end-to-end communication, have led to a huge and rapid growth in networked computing by making it possible to add data sources, services, and human users quickly, easily, and cheaply. The new communication and information formats created for the Internet had enormous impact, becoming the key standards for the 1995–2010 era. As processing and software capabilities are extended, the interactions between systems over the Internet are extended. While the Internet is basically a message-based model, with simple interactions, systems can now interact is through a service model. With a service model, the basic unit is a request from one system to another for a service to be performed. A service is characterized not only by what is wanted, but also by the expectations of service level (such as promptness and reliability) and by business-like attributes (such as cost and ownership of information). There are a variety of competing protocols for services, but the underlying Internet and Web mechanisms               [            is possible to build services that use other services as components, held together by what programmers call glue code. The work can be done at various levels of software engineering rigor, from quickly written mash-ups (web applications that combine data from more than one source into a single integrated tool assembled on a rapid, ad hoc basis) to carefully-built service frameworks. 29 The combination of today’s computer hardware, vast interconnected networks, and enormous databases has enabled the development of entirely novel sets of algorithms that mine data and draw inferences using statistical techniques from large data sets. They have started to replicate many of the analytical tasks previously done by skilled knowledge workers; the resulting change, which is as much qualitative as quantitative, is radical. The analytic powers thus liberated made possible such remarkable applications as the creation of useful, real-time weather forecasts, enormous improvements in the accuracy and detail of demographic projections for use by insurance companies, and the expansion of basic payroll programs into full-scale H.R. systems that maintain records of employee compensation, roles, training, skills, and so on. ‘U [ Ž  Ž    

    

       } teristics here are from Armbrust et al. 2009.

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as they need them. Entry barriers into computing-intensive areas are lowered, capabilities for experimentation are increased, and it becomes easier than ever for startups and new entrants to scale up rapidly to become major players. The technologies, of course, do not produce their own use, do not generate their own value. The services transformation is not simply a technology story; the advantage of ICT tools is captured by organizations. The argument put forth by Stephen Cohen, Bradford ~  Ÿ • /QUUU_         Ž}     

stands: “At each point in the past forty years the critical step in the transformation of technical potential into economic productivity has been the discovery by users of information technology of how to employ their ever-greater and ever-cheaper computing power to do the previously-impossible.”           

     information technology, were critical. Information technology was adopted to solve a particular problem, or to cut costs. Innovative users then discovered new uses. For example, Ž + +    !        +        area surrounding Manhattan, but all the way to South Dakota. The organizational shift     ‚    +    ‚        +             Ž    $               models and services possibilities, will continue to drive the services transformation. Thus, the interplay of technology, organizations, competition in a global, digital world creating pressure to escape commoditization, and the evolving computer platforms are driving the services transformation.

Part III: Capturing the services transformation The governance problem, the policy question for government and the strategy question                   tion. But before we turn to the particular policy and strategy issues, we need to emphasize two propositions that must be fundamental now to any discussion of how to govern the economy. First, services are a form of production ever more supported by ICTs. Second, precisely for that reason, ICT-enabled services are driving productivity growth in the economy. ICT-based services as production: recasting the policy debates Classic conceptions of services revolved around the notion that services were market activities that did not produce or transform material goods. Consequently, they could not be stored or shipped, and were consumed in the same moment and at the same place they were created. This is still mostly true for traditional services. ICT-based services differ because they often require massive (and ongoing) investments on a new industrial scale to support the future services. With the application of ICT tools, services can be incorporated into larger systems – systems that change the level and character of investment required for delivery. Google invests massively into creating automated systems that create and deliver the actual

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services at a later time, anywhere. ICT-based services can often be scaled far beyond traditional services. The development and deployment of ICT-enabled services should be considered a form of production. ICT-based services have to be built and produced, or, at least the ICT systems have to be designed, developed, built, and implemented. The tools, including software, have to be ‘built’ and the online services themselves have to be ‘constructed’.31 Consequently they are very much open to innovation and productivity increases. From a policy standpoint, the question is how to conceive, design, develop and build and deploy the new system. The “good” jobs, high value added functions, are in the innovative development and deployment of these systems. Policy makers need to employ strategies  

            ƒ    form of production. The continuing debate in political, economic and public policy circles about the relative value of manufacturing jobs and service-sector jobs is increasingly irrelevant to policy debates in the real economy. Just as it is inaccurate to assume that manufacturing jobs are secure and well paid, it is also inaccurate to consider service jobs to be dead-end, low-wage, unskilled positions. This model ignores not only the lawyer and physician, but                ‚    paid, highly skilled service worker. Rather than focusing on the increasingly irrelevant distinction between manufacturing and services, the conversation should be recast. If the word ‘production’ includes not only traditional manufacturing but also the development of IT-based services – with the know-how, skills, and tool mastery they require – then we see that, in this broader sense, production remains of vital importance in the digital age, not just in the traditional manufacturing industries but in the services sector as well. And production workers – including not only assembly-line employees but also many kinds  +  +            }  education, media, and entertainment – are now more important than ever. Services driving productivity [      +          cal or organizationally-driven productivity increases. As Baumol and Bowen put it in the 1960s, it still takes the same amount of labor to play a Beethoven quintet (Baumol & Bowen 1966). “Baumol’s Cost Disease,” as it became known, pointed to services as a drag on aggregate economic growth as their role grew in the economy.32 It didn’t work out that way. At the same time that Baumol was writing, another article announcing Moore’s law pointed the way to the explosive expansion of digital information processing (Moore 1965). That capacity, as Baumol (2007) himself notes, is transforming the services industry, and the economy. Services are now widely recognized as a source of productivity growth and dynamism in the economy. The US experienced a rapid labor productivity surge starting in

31 This is particularly true for Cloud Computing-based services, in which new services are often literally “constructed” by combining other Cloud services as building blocks. 32 The logic was that while the productivity of a large portion of services did not increase, wages increased, pulled up by the sectors in which productivity did grow, such as manufacturing, see Baumol 1967.

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1995. Baumol’s disease was cured; new data showed that services, which we contend were transformed, drove the productivity surge. That transformation was every bit as important as investment and innovation in the manufacturing sectors (Triplett & Bosworth 2006; Triplett & Bosworth 2004).33 Services were originally a ‘residual’ in national accounting after manufacturing and agriculture. Since ‘services’ was a catch-all category not thought to be central to the processes of innovation and productivity, little attention was given to how to measure        }          " measures of services price, quantity, and quality are problematic (Griliches et al. 1992). Let us consider a few instances. For major industries driving productivity growth, which include banking, insurance, securities, and real estate among others, there is debate over            '       !   + market bubbles. Investment activities that fall outside traditional business categories may     ‚            $  >                    and product mix of retail stores, not captured by traditional performance indices. The ƒ          $          output ‘product’ of business services such as management consulting is also problematic. (Triplett & Bosworth 2000). Since measures of productivity rest on output units or value         +             observed slow productivity growth of services until 1995.34 (The measures have since improved, see Triplett & Bosworth 2000). }    Ž}                   services.35 New data and improved measures available from the early 2000s revealed that ICT contributed to the surge of US aggregate labor productivity since 1995. This               Ž}       to productivity growth – the “productivity paradox” (Jorgenson et al. 2005; Jorgenson et al. 2008). Of the aggregate labor productivity growth from ICT industries and implementation, services industries contributed a majority – 80 percent, according to Triplett and Bosworth (2004).36 # 

                ?     ƒ             transformed by ICT tools. The key policy areas are: 1) connectivity – the availability of ICT tools and infrastructure, 2) people – the skills the capacities to implement technology, and 3) government as a user as well as regulator. 33 Until the surge from 1995, observed in the early 2000s, the lack of productivity gains from ICT observable in economic data had been puzzling economists – it was referred to as the “productivity paradox.” 34 It is possible that the previous slow growth of productivity in services despite heavy ICT investments was due to measurement and data problems. As Triplett and Bosworth have noted, a large proportion of ICT investment in the US goes into the particular service industries with the most serious measurement problems, such              /}  < \  QUUU_ 35 Until the productivity surge from 1995 became apparent in the early 2000s, economists had puzzled over a ‘productivity paradox’; massive ICT investments were not showing up in productivity growth data. 36 “ICT in services industries accounted for 80 percent of the total ICT contribution to U.S. labor productivity growth between 1995 and 2001.” (Triplett & Bosworth 2004, 2.)

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Connectivity By ‘connectivity’, we refer broadly to the availability of ICT networks and tools. The notion of connectivity has evolved over time, causing a parallel shift in the potential role of the government in ensuring connectivity.37 The original notion of connectivity consisted of ensuring universal telephone access, to remote geographic regions and across all income levels. With the advent of the Internet, connectivity expanded to cover Internet access, with concerns over the ‘digital divide’ between those with and without access. More recently, connectivity  $              throughput thresholds. The diffusion of mobile technologies further widens the notion of connectivity, as the Internet may be best accessed through mobile networks, especially in developing regions. Although the notion of connectivity continues to evolve, it is clear that without connectivity, very little is possible in the way of taking advantage of the production and consumption of digitally-transformed services. Rapidly shifting technologies and market conditions have made the government’s +                }    was that government should adopt policies to push for broadband for public access. Ž    $          universal service, and direct subsidies to public telecommunications carriers were among the traditional policy tools. Over the past few years, the ownership of infrastructure has been evolving. The role of public telecommunications carriers is changing. Increasing                 { $  ‹                                   + ?      connections over the Internet jump onto Google’s private network increasingly early on, especially in developing countries. Thus, in Africa, for example, connections jump onto Google’s private network at a very early point, circumventing as much of public networks    }      +               recent data. (Labovitz et al. n/d.) The emerging policy debate is over what market needs are to be provided by public and private actors. People: skills and capacities Even if technology and connectivity are available, they are useless without people capable of using and implementing them. This is clearly understood; human skills affect what can be done. While purely routine tasks will become increasingly automated, human tasks remain. } 

                 vices to be automated through the creation of algorithms. For example, in the automation of healthcare, as medical knowledge is advanced, new systems need to be constructed,

37 In the evolving ICT world, other aspects of connectivity in addition to raw connectivity to the networks become important. For example, access to data, collaborative activities, and the availability of digital tools should be included. We will expand upon this point in subsequent versions of this chapter.

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new monitoring and intervention patterns will be needed, and human interventions will still ultimately be necessary. There will also remain an almost endless array of services relying on the application of both tacit knowledge and pattern recognition. Competitive companies will continue to depend on human abilities to identify and integrate sources of new knowledge and insight, to communicate this information with others through rich verbal and written interactions, to apply expert judgment based on tacit knowledge and pattern recognition,                     of addressing it. ?                       needed. Reading, writing, and arithmetic – the traditional basics of elementary schooling – are no longer enough. Instead, basic education must also focus on abstract reasoning and communication skills – the ability to identify, structure, and solve problems, both qualitative and quantitative; to access and organize information; and to communicate ideas and logical connections to others. The high school graduate (or equivalent) of tomorrow must be prepared either to help build the new technologies or to apply them in a human context – that is, either to work in services design and production or in services delivery.38 A second implication of the new workforce dynamic is that the balance between   +

   +

    Y       +

                      /+   _   

      }        +

        celerating introduction of new products and new services based on new technologies and new production methods, and with the growing use of IT-driven tools to automate processes that are purely routine, knowledge of “how things have been done” is increasingly perishable. By contrast, such general skills as the ability to understand and cope with the unusual and the unexpected, and the ability to learn quickly in ever-shifting environments are becoming more and more critical. People who can pull together information from various expert systems and knowledge bases, crossing domains and identifying patterns and connections will create the most economic value in societies. This kind of abstract thinking – the ability to combine sensory data with an intuitive sense of what is right and        ƒ      ‚  $         digital algorithm, and will probably remain so for many years to come. Therefore, this uniquely human capability needs to be emphasized and developed as much as possible in both educational systems and in knowledge management programs at the company level. The implications for worker training and recruitment programs have yet to be worked through. How does a country or a company maintain the capacity to sustain vital skill domains (cutting metal, for example) when the technologies and techniques dramatically change (as when lasers replace diamond-tipped tools in metallurgy)? It is not just a matter

38 Notice that this ‘new literacy’ does not imply a reduction of the elementary and secondary curricula to courses in math, English grammar, and perhaps computer programming. Many subjects, including such traditional ones as history, can be used as vehicles for the teaching of analytic skills, problem-solving, logic, communication, and the other talents needed by the knowledge workers of tomorrow.

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of hiring smart, well-educated people, but about hiring people whose greatest skill is the ability to develop, absorb, and communicate ever-changing knowledge. As futurist Alvin }!     ¡} 

     Q|   

                  š /}! < }! |––œ_ Government as an actor Governments play several roles in shaping the way the ICT-enabled service sectors un  ?          +    !   vate sector deploys and uses new technologies; as promoters, they can identify distinctive opportunities. Governments are major users of information technology, in many cases shaping the ICT environment. There is a running debate over the continuing importance of the government as a buyer, and whether or how it will shape industry. Government spending on IT is certainly not trivial. In 2008, for example, Gartner estimated that in worldwide }             manufacturing, a pattern projected to continue in 2009.39 The US government spent an estimated $80 billion a year on IT for the past few years,40 and in Europe, the UK government alone planned to spend $36.8 billion in 2010. (IDC 2010.) These expenditures dwarf that of major companies, which might spend about $5 billion in a year at the high end. [     

          }                 }    41 In this vantage, initiatives such as the one launched in early 2010 by the US government for a sweeping consolidation of the government’s datacenters are likely to affect the development of IT. It can accelerate the adoption of Cloud Computing, which can offer              $ 42 Others argue that the slow time scale of government spending will limit governments’ effects on the development of industry.43 [        !        deployment of ICT enabled services, though. Many governments have increasingly declared that they favor “open source” products as a way of limiting pricing leverage by some dominant companies and encouraging competition. Of course, that objective only opens such questions as what constitutes “open source” and whether independent players are creating ever newer products or whether the open source technology is driven now by major IT players aiming to weaken the hold of competitors on decisive levers. The recent 39 “Gartner Says Worldwide Vertical Market IT Spending Will Be Flat in 2009,” http://www.gartner.com/it/ page.jsp?id=893512. The top 10 worldwide IT spenders in 2008 according to Gartner were (billions of dollars): 1) Financial Services, 559; 2) Manufacturing 483; 3) Government 420; 4) Communications 368; 5) Services 190; 6) Retail Trade 153; 7) Utilities 128; 8) Transportation 106; 9) Healthcare 86; 10) Wholesale Trade 81. (Gartner 2009). 40 ComputerWorld estimate. See Thibodeau 2009. £| }    }                        } $  ?         QUUU‚QUU|      }                 + similar measures until now. 42 The program, the “Federal Data Center Consolidation Initiative” was announced in February 2010 by the { Ž   > @ Ž          >    43 This is a point of contention among the authors.

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standards battle, largely between IBM and Microsoft, with an initial but only tentative victory by Microsoft, over whether Open XML is an open-source product is one instance. The battle over the national control of internet addressing and the establishment of IP6 is another. ‹         +    !                      laborate with others. Competitive markets throughout the value chain have been central to the development and rapid diffusion of the new ICT tools. For example, when the technology giants IBM and AT&T declined to enter the nascent semiconductor industry because of direct and indirect antitrust implications, a new array of companies pushing the use of the new digital technologies emerged. Similarly, the rapid development of the Internet grew from the competition unleashed by judicial deconstruction of the monopoly phone company. Policy makers should be on guard against monopolistic or oligopolistic          +        gence of multiple companies so as to encourage competition and drive innovation. ‹               nologies, but by creating the conditions and investing to promote effective capacities that enable companies and communities to maintain a competitive advantage. Here we list three: ˆ

ˆ ˆ

{        develop new technologies – the classic research and development function that has long been emphasized (correctly) as a vital tool for innovation. [       recognize and harvest new technologies from around the world and from diverse sectors. }       combine, absorb, and apply diverse innovations and sources of knowledge into whatever production processes they are engaged in.

Conclusion: governing the transition to ICT-enabled service economy By way of summary and conclusion, we argue that the governance problem in the move to an ICT-enabled service economy is not simply technical, though the policy concerns we sketch above are important. Rather, this transition will address central political ques                   and society. We have argued that a fundamental transformation of services is underway. It is being driven by developments in ICT tools, and the uses to which they are being put. The application of rule-based IT tools is transforming service activities, altering how activities are conducted and how value is created. Services sectors have transformed from a productivity sinkhole to a source of dynamism and productivity growth. The Algorithmic %     +                                            on markets, and manufactured products are increasingly embedded and recast as services offerings. Traditional sectoral boundaries are breaking down as information and services              

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We have offered some analytical vantages to understand how the services transformation is unfolding. We introduced a spectrum of services activities, ranging from irreducible, to hybrid, to automated. While the latter offer the highest potential productivity gains, we contend that human judgment will continue to be critical. We also introduced a range of business model transformations made possible from the ?   %             models, to extending traditional business models with ICT, to creating completely new business models. We showed why the transformation is unfolding now, and so rapidly, by contextualizing it in the competitive pressures from a global, digital era and the evolution of computing technologies and platforms. } 

                transformation. We call for recasting the policy debates by considering ICT-based   ¡ š {              technologies requires new business models, new organizational strategies, and cultivating new skills. For governments, this requires providing connectivity, an environment to foster the ability to continually learn new skills, and creating rules to facilitate experimentation and implementation. At the same time there must be attention to the classic market problems of assuring consumer rights, competition, and the like. Services are deeply rooted in social rules, conventions, and regulations. Consequently, capturing the value possibilities in the algorithmic transformation inherently means recasting the rules, regulations, and conventions in which the services are embedded. The present debates about intellectual property, about the rights of Google to copy   @        ‘     

 of that basic debate about the new rules of market for a digital services age. Writing the new rules is not a matter of just saying, we have established principles. Those established principles about – for example, property and privacy, are in fact complex bargains often created and institutionalized over decades if not centuries. It is not enough to say apply those bargains in a digital age. New digital capabilities raise new issues. Who should    @  >            ticular populations. As important, reopening the old bargains to deal with the new issues makes re-striking the bargain necessary and may change the original principles. There are implications both for the process of transformation, what it takes to accomplish the transformation, and for the kinds of services and tools that evolve.44 Managing transitions: recasting rules, regulations, and conventions The implementation of new technologies, and the adoption of new business models and strategies, involve complex transitions. These transitions are not just about adopting a new technology, or about a shift from one market equilibrium to another, but rather a broader shift from one policy regime and set of market signals to alternate policy regimes and sets of market signals. Social and economic transformations always involve winners and losers, and hence are, in both a large and small sense, political. It is a tumultuous process as economic wellbeing and social positions are recast and reinvented.

44 Scholars on services innovation fail to make the comparative analysis of regions; for most authors, regions  !                   

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In a small political sense there will be the struggles around and within the organization of companies, about shifts in required work skills, the relocation of work and displacements of workers. Again, even these smaller stories are never just technical, but,                  !  In a larger political sense there will be battles about the rules of providing services, who can be providers, how quality is maintained, who gets to use what information, as well as about how losers are compensated and potential winners supported. Those who would implement the new tools, reorganize services and service delivery, must understand, almost begin with, the entrenched social character of services, of market regulation and labor market dynamics. That will apply to the end user, a health care company or a bank, to the ICT services company, or to the regulator. As the political debates and battles unfold across the world, policymakers, analysts, and scholars may be tempted to see a narrower set of issues and problems with a smaller set of solutions. Our view is that only by understanding the fundamental transformation of services, which are driving the emergence of these issues and debates, can we see the disparate issues as part of a larger complex, systemic transition – a transition entailing different sets of bargains and solutions that will unfold differently across the globe.

References ?  ' {$ ? ‹  % Ÿ ?~ =  % =+ ?  ‹   ~ %+ ? Stoica, I. & Zaharia, M. (2009) Above the Clouds: A Berkeley View of Cloud Computing. Technical Report No. UCB/EECS-2009-28. Retrieved May 20, 2010, from www.eecs.berkeley.edu/Pubs/TechRpts/2009/ EECS-2009-28.pdf. Baekkeskov, Erik (2009) Politics of Contracting-out Government Activities. Ph.D Dissertation. University of California Berkeley, CA. Baldwin, Carliss Y. & Clark, Kim B. (2000) Design Rules. Cambridge, MA: MIT Press. Baumol, William J. (1967) Macroeconomics Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis. American Economic Review 57, 415–26. Baumol, William J. (2007) On Mechanisms Underlying the Growing Share of Service Employment in the Industrialized Economies. In: Mary Gregory, Wiemer Salverda & Ronald Schettkat (Eds.) Services and Employment: Explaining the U.S.-European Gap, 63–80. Princeton, NJ: Princeton University Press. Baumol, William J. & Bowen, William G. (1966) Performing Arts, the Economic Dilemma; a Study of Problems Common to Theater, Opera, Music, and Dance. New York: Twentieth Century Fund. Berger, Suzanne & MIT Industrial Performance Center (2006) How We Compete : What Companies around the World Are Doing to Make It in Today’s Global Economy. 1st ed. New York: Currency Doubleday. Borrus, M., Bar, F., Cogez, P. Thoresen, A., Yoshikawa, A. & Warde, I. (1985) Telecommunications Development in Comparative Prospective: The New Telecommunications in Europe, Japan, and the U.S. BRIE working Paper 14. Berkeley, CA: UC Berkeley. Borrus, Michael, Ernst, Dieter & Haggard, Stephan (2000) International Production Networks in Asia Rivalry or Riches? %  ?  ?  \ ||   : ¨+ %  Cohen, Stephen, J., DeLong, Bradford & Zysman, John (2000) Tools for Thought: What Is New and Important About The “E-Conomy”. Berkeley, CA: Berkeley Roundtable on the International Economy, University of California at Berkeley. Cohen, Stephen S. & Zysman, John (1987) Manufacturing Matters: The Myth of the Post-Industrial Economy. New York: Basic Books. ~ % ƒ < = '  /QUU–_ [    ‹  — } —   —$perience.” Review of Policy Research 26(1–2), 77–104. Frei, Frances X. (2008) The Four Things a Service Business Must Get Right. Harvard Business Review 86(4), 70–80.

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Friedman, Thomas L. (2005) The World Is Flat: A Brief History of the Twenty-First Century. 1st ed. New York: Farrar Straus and Giroux. Gartner (2009) Gartner Says Worldwide Vertical Market It Spending Will Be Flat in 2009. Gartner Newsroom. Retrieved May 20, 2010, from http://www.gartner.com/it/page.jsp?id=893512 Griliches, Zvi, Berndt, Ernst R., Bresnahan, Timothy F. & Manser, Marilyn (1992) Output Measurement in the Service Sectors. Chicago: University of Chicago Press. Groningen Growth and Development Centre (2006) 60-Industry Database. September 2006. Retrieved November 20, 2010, from http://www.ggdc.net Hyytinen, Ari, Paija, Laura, Rouvinen, Petri & Ylä-Anttila, Pekka (2006) Finland’s Emergence as a Global Information and Communications Technology Player: Lessons from the Finnish Wireless Cluster. In: John Zysman & Abraham Newman (Eds.) How Revolutionary Was the Digital Revolution?:National Responses, Market Transitions, and Global Technology, 55–77. Stanford, CA: Stanford Business Books. IDC (2010) IDC Government Insights Says Government It Spending in Western Europe Will Reach $68.6 Billion by 2013. ICD Government Insights. Press Release, February 5, 2010. Retrieved May 20, 2010, from http://www.idc-gi.com/getdoc.jsp?containerId=prIT22198510. Jansson, Jan Owen (2006) The Economics of Services: Development and Policy. Cheltenham, UK & Northampton, MA: Edward Elgar. Jorgenson, Dale W., Ho, Mun S. & Stiroh, Kevin J. (2005) Information Technology and the American Growth Resurgence. Productivity, Volume 3. Cambridge, MA and London: MIT Press. Jorgenson, Dale W., Ho, Mun S. & Stiroh, Kevin J. (2008) A Retrospective Look at the U.S. Productivity Growth Resurgence. Journal of Economic Perspectives 22(1), 3–24. Jorgenson, Dale Weldeau & Wessner, Charles W. (Eds.) (2007) Enhancing Productivity Growth in the Information Age. Washington, D.C.: National Academies Press. Kushida, Kenji E. (2008) Leading without Followers: Innovation, Competition, and the Political Economy of Japan’s Telecommunications Sector. BRIE Working Paper 184. Kushida, Kenji E., Breznitz, Dan & Zysman, John (2010) Cutting through the Fog: Understanding the Competitive Dynamics in Cloud Computing. Manuscript. Forthcoming. Kushida, Kenji E. & Zysman, John (2009) The Services Transformation and Network Policy: The New Logic of Value Creation. Review of Policy Research 26(1–2), 173–194. Labovitz, C., Lekel-Johnson, S., McPherson, D., Oberheide, J., Jahanian F. & Karir, M. (n/d) Atlas Internet Observatory 2009 Annual Report. Retrieved May 20, 2010, from http://www.nanog.org/meetings/nanog47/ presentations/Monday/Labovitz_ObserveReport_N47_Mon.pdf. Lewis, Michael (2010) The Big Short: Inside the Doomsday Machine W. W. Norton & Company. Masuno, Daisuke (2006) Gyoukai Kenkyu Shiriizu: Tsushin [Industry Analysis Series: Telecom]. Tokyo: Nihon Keizai Shimbun Sha. Moore, Gordon (1965) Cramming More Components onto Integrated Circuits. Electronics 38(8), 114–117. New York Times (2008) In Modeling Risk, the Human Factor Was Left Out. New York Times, November 5, 2008. Nielsen, Niels Christian & Nielsen, Maj Cecilie (2006) Spoken-About Knowledge: Why It Takes Much More Than Knowledge Management to Manage Knowledge.” In: John Zysman & Abraham Newman (Eds.) How Revolutionary Was the Digital Revolution? National Responses, Market Transitions, and Global Technology in a Digital Era, 242–66. Stanford, CA: Stanford Business Press. Nordhaus, William D. (n/d) The Progress of Computing Ver 5.2.2. Yale and NBER, Retrieved May 20, 2010, from http://nordhaus.econ.yale.edu/prog_030402_all.pdf. Ohmae, Kenichi (1999) The Borderless World: Power and Strategy in the Interlinked Economy. Rev. ed. New York: HarperBusiness. Outsourcing: External Affairs (2006) The Economist, July 28 2007, 65. Shankar, Venkatesh, Berry, Leonard L. & Dotzel, Thomas (2009) A Practical Guide to Combining Products and Services. Harvard Business Review 87(11), 94–99. Strange, Susan (1996) The Retreat of the State: The Diffusion of Power in the World Economy. Cambridge, UK and New York: Cambridge University Press. Thibodeau, Patrick (2009) White House Appoints Its First Federal CIO. March 5, 2009. Computerworld 2010. Retrieved May 20, 2010, from http://www.cio.com/article/483180/White_House_Appoints_Its_First_ Federal_CIO. }! ?  < }! # /|––œ_ {  % ‹ /—_ Rethinking the Future: Rethinking Business Principles, Competition, Control and Complexity, Leadership, Markets and the World. London: Nicholas Brealey Publishing.

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Triplett, Jack E. & Bosworth, Barry P. (2000) Productivity in the Services Sector. Washington D.C.: Brookings Institution. Triplett, Jack E. & Bosworth, Barry (2004) Productivity in the U.S. Services Sector. New Sources of Economic Growth. Washington, D.C.: Brookings Institution Press. Triplett, Jack E. & Bosworth, Barry P. (2006) “Baumol’s Disease” Has Been Cured: It and Multifactor Productivity in US Services Industries. In: Dennis W. Jansen (Ed.) The New Economy and Beyond: Past, Present and Future, 34–65. Cheltenham, UK and Northampton, MA: Edward Elgar. Walsh, Mark (2009) Virtual Goods to Reach $1 Billion in 2009. MediaPostNews, Online Media Daily Oct 14, 2009. Retrived May 20, 2010, from http://www.mediapost.com/publications/?fa=Articles. showArticle&art_aid=115398. Young, Laurie (2008) From Products to Services: Insight and Experience from Companies Which Have Embraced the Service Economy. Chichester, England & Hoboken, NJ: John Wiley & Sons. Zysman, John (2006) The 4th Service Transformation: The Algorithmic Revolution. Communications of the ACM 49(7), 48. Zysman, John & Newman, Abraham (Eds.) (2006) How Revolutionary Was the Digital Revolution? National Responses, Market Transitions, and Global Technology in a Digital Era. Stanford, CA: Stanford Business Press.

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved. doi: 10.3233/978-1-60750-727-7-68

The Evolving Governance of Public Services in England: Extending Competition, Choice, Co-design and Co-production Stephen J. Bailey Glasgow Caledonian University, United Kingdom

During the 1980s and 1990s reforms within the English public sector sought to increase value for money by increasing the scope for competition in the provision of public services in order to reduce their costs and by setting targets for service delivery. During the 2000s attention focused on giving service users increased scope for choice of both service provider and service form so as to increase further the value of public services. Increasing the scope for user choice of the form of service received is also intended to lead to the co-design and co-production of services, this implying a quite radical change in the nature of the welfare state and its system of governance. This paper assesses the rationale for these reforms and critically appraises their effectiveness.

Introduction Competition between alternative providers of a product or service is generally seen as                 mize the costs of a given output. By adopting least-cost production methods, output can  $            !  minimized costs of production, purchasers are able to buy those outputs at least cost and so maximize their consumption within the constraints of a given budget. However, an additional requirement must be in place for purchasers to be able to  

        }         tween alternative providers of the good or service they use so that they can secure the best possible match between the characteristics of that output and their preferences. Such   $               consumption. Hence, choice is generally seen as an effective way of maximizing cost effectiveness in consumption. Combining these two theoretical propositions, the freedom of consumers or service clients to choose between highly competitive service providers is the most effective means of securing value for money spent, whether in the public or private sector. This requirement has long been recognized by elementary orthodox economic theory. Nevertheless, until fairly recently, the rapid growth of the post-1945 welfare state was predi-

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cated on direct provision of services by governments themselves and either compulsory consumption or a ‘take-it-or-leave-it’ approach towards service users. In general, there was virtually no competition in the supply of public services to their users and very little scope for users to choose between alternative providers. It was either assumed that public                  + precedence over any concerns about relatively high service costs and lack of choice. Likewise, it was generally assumed that those who made decisions about what services to provide, how and to whom, knew better than those to whom those services were supplied what was in their best interests. Put simply, the approach adopted in most countries was that of the ‘despotic benevolent model of government’ (Bailey 1999). Predominantly, public services were produced and consumed collectively, being supplied by monopoly state-owned enterprises or service departments to uniform standards under what        Y=   ^ 

@  ^ + @ approach to governance. This is the traditional institutionally-oriented mode of governance by hierarchies within the governmental system. The compulsory payment of taxes to fund the provision of monopoly public services, the characteristics of which individual service users had little or no say over, was also *           ƒ

      This was the case for services provided at the national government level, for example the UK’s National Health Service (NHS). Although local governments provided for some           !  $          constituent communities differed from national collective interests, the despotic benevolent model of government was still adopted. Put simply, public servants (politicians and bureaucrats) were trusted to act in the interests of those they represented and for whom they provided services. This collective approach to the production and consumption of public services began to be increasingly questioned as the public sectors of many developed countries took increasingly large shares of taxpayers’ gross incomes and also of national output (GDP). There were increasingly vociferous arguments that governments should be held much more accountable for their use of taxpayers’ money than was provided for at periodic    '                                +    low wage, low tax, developing countries (e.g. Malaysia, India and China) as globalization proceeded apace (Bailey 2004). There was increasing acceptance amongst the makers of          $            and so have to be restrained in both the collective and individual interest (Bailey 2002). Additionally, trusting public servants to always act in the public (rather than in their own) interest was increasingly challenged (Bailey 1993). To the extent that such arguments are valid, the remedy is to seek to improve costeffectiveness in both the production and consumption of public services so as to minimize the taxes required to achieve the outcome objectives of public policy. Choice of service              @  cumstances have recently been championed by all three major UK political parties. These and other reforms within English local government and the NHS require radical reforms of public services at all levels of government and so of the method of their governance (Besley & Ghatak 2003). This paper assesses the rationale for these reforms and critically appraises their effectiveness.

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Forms of competition within local government Various forms of competition exist within local government. First, there is political com           +       }    of local democracy whereby a citizen-voter can vote for the party offering to provide the most desired mix of municipal services and its associated local tax cost. However, choice is collective, rather than individual, and political parties require a majority of elected seats in order to be able to honor their manifesto commitments. Hence, not all voters will have their preferences realized. The nature of this form of choice is passive, in that it is from a ‘menu’ of alternative tax-expenditure packages, much like choosing from a restaurant menu. In England,             *          past-the-post system of electoral representation means that many voters’ preferences are not represented. Even proportional representation would still not necessarily ensure that the preferences of those who vote for minority parties are provided for. Moreover, those             

        what services they voted for will actually be provided. Manifesto promises are not always honored in practice. A second form of competition is that between local governments, geographically mobile households being able to choose between alternative municipalities in order to receive the desired tax-expenditure package. Again, choice is essentially passive and there is no guarantee that the tax-expenditure package on offer at the time of relocation to a given municipality will continue in the future. There may, of course, be changes in politi          $$  +                   ? 

   and other costs of moving between municipalities can be expected to be high relative             $$  + }         —      $    ! over local policymaking. Prescriptive national legislation and intensive inspections of

                        !        differences in local tax and expenditure packages amongst which households can choose (Bailey 1988). Moreover, relative to other European countries, England has few local governments between which to choose (Bailey 1999). Choice of municipality is particularly limited for those who live outside cities because of the (generally) two-tier system of large county councils providing people-related services (e.g. education and personal social services) and small district councils providing property-related services (e.g. municipal housing and collection of household waste). Compared with rural areas, however, choice is greater in cities which typically encompass several municipalities, there being 33 borough councils in London. Household mobility in England tends to be positively related to household income, !                  }      !            !       @       pendent upon family ties, schooling of children and availability of employment. Differ-

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   $$  +       !    household has already decided to relocate for other reasons. Clearly, choice between local governments is heavily constrained in practice. A third form of competition is that within a single jurisdiction. Two forms are possible within local governments. First, there is competition for service contracts and, second, competition for service users. Reforms within English local government focused on the

  |–œU  |––U        QUUU %ƒ   changes in the way public services are governed, these reforms have also been introduced fairly extensively in other countries. Even Nordic countries with previously bureaucratized welfare states also adopted competition for service contracts, leading to a transition from government to governance (Bailey 1993). Competition for service contracts Competition for service contracts has been facilitated by introduction of the purchaser    }       +          by local governments’ own in-house service departments. It was referred to in the UK as ‘compulsory competitive tendering’ (CCT) because it required service contracts to be drawn up and be subject to competitive bidding (tendering). The intention of the then (1979–1997) UK Conservative central government introducing the CCT regime was to               /     _ public expenditure. This was part of a wider policy to ‘roll back the frontiers of the state’ by encouraging private enterprise and to facilitate an ‘enabling role’ for local government in enabling services to be provided, though not necessarily by its own in-house service units. Less than a tenth of local authorities had introduced competitive tendering before CCT was introduced in 1980 because of political and trades union opposition to competitive tendering. Furthermore, it was asserted that the UK’s large local governments had already achieved economies of scale, so minimizing the costs of service provision even without competitive tendering. However, there was theoretical confusion between large scale of municipal population and of output from a single production unit (e.g. school), only the latter being relevant for economies of scale. Moreover, large scale of output is              }       incentive to achieve any potential cost reductions.       $          +  +  $               costs. Reducing costs would lead to job losses of trades union members and possible strike action by workers and so loss of votes as a result of the consequent disruption of              $  of economies of scale is unlikely to occur unless there is strong competition for service contracts. CCT was introduced in 1980 for English local authorities’ construction-related activities undertaken by their direct labor organizations (DLOs). It was later extended in 1988 to the cleaning of buildings, collection of household waste, street cleaning, school and welfare catering, other catering (e.g. town halls), vehicle maintenance, grounds maintenance (i.e. municipal parks and gardens), and management of sports and leisure ser-

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vices. These services were previously provided only by local authorities’ direct service organizations (DSOs). By the mid-1990s there was competition for most ‘blue collar’ (i.e. manual) services. From the mid-1990s there was also competition for ‘white collar’ (professional & ad  _            services, personnel services, corporate and administrative services and construction-related professional services (architecture, engineering and property management services). Hence, local authorities were increasingly required to subject provision of services to competitive contracting and this made possible the provision of public services by private sector organizations if and when they won the service contract by submitting the lowestcost tender. In practice, local authorities’ DSOs initially won most contracts because of few if any      {  !              relative size of market, the costs of entry and exit, the degree of labor unionization of activities, the capacity of the private sector to undertake individual activities, an individual local government’s attitude to contracting, and any anti-competitive behavior by coun  —$      

  +         costs of entry to and exit from the market (e.g. up-front capital expenditures that could not be retrieved when closing down), the larger and more hostile the trade union membership   +              services because of lack of the necessary skills and experience, the greater any hostility of local governments to contracting out and the greater barriers they erected to block external bids for contracts. Because of proliferation of these factors, it was argued that competition was so limited that the cost of administering the purchaser-provider split was disproportionately high relative to the cost savings achieved. However, in theory, the very fact that the service contract was contestable forced in-house service departments to minimize their costs in order to increase their chances of                               /\  |–––_ ?   for cost savings vary widely depending on the nature of the service, the country to which the data relate and whether net of costs of contracting and monitoring, gross savings of about 20% seem broadly representative. This was also broadly the case in England where                ‚ bor mix, better asset management, reductions in overheads and cuts in wage costs, mainly      %      *         quarter were fairly commonplace, these being achieved mostly by natural wastage, early retirement and redeployment rather than by means of substantial compulsory redundancies (except for the cleaning of premises). Savings from changes in pay and conditions were achieved by greater discrimination in the use of bonuses and overtime, cuts in basic pay rates being less common. The pay and conditions for local authority employees had previously been generous relative to those of the private sector for ‘blue collar’ (i.e. unskilled manual) workers as councils sought to be ‘model employers’. Pay and conditions tended to be relatively less generous for ‘white collar’ professional and administrative workers. The bulk of savings were                    blue- and white-collar employees.

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Comparing the outcomes in different authorities in England revealed that markettesting public service contracts led to greater reductions in costs the greater the avail           +           ƒ to provide the service, and the easier it was to specify quality in contracts. These features vary between services (e.g. cleaning versus sports facility management) but demonstrate the impact of innovation in the service economy by means of competitive contracting. Such markets for public service contracts are often referred to as ‘quasi-markets’ because service users still have little or no choice of service provider. It is the service contract that is competed for, not the service user. The local government is still responsible for public policy in relation to services put out to competitive tender and the provision of the service is still a monopoly, irrespective of whether the contract is won by an external organization or by the municipality’s own in-house service department. The service user’s choice, if any, is still passive in nature, as noted above. #                            ŽŽ}      involve users in setting standards for services. The CCT regime had an undue focus on inputs and processes whereas service objectives are set in terms of outputs and outcomes. Local authorities continued to focus on inputs and processes despite the purchaser-provider split having supposedly delegated such concerns to contractors (Bailey & Davidson 1999). Outputs and outcomes are more focused on quality of service and the criticism of CCT was that it put too much emphasis on cost reduction at the expense of service quality. For example, there is fairly convincing evidence that the quality of school meals did suffer as a result of being subject to CCT (Bailey 1998). Related to the perceived adverse impact on quality of service, other criticisms of CCT were that it led to demotivation of employees (who were therefore less conscientious in dealing with service users), loss of service expertise where contracting-out took place (because of knowledge and skills being embedded in actual provision) and the fact that short-term contracts discouraged investment in new and improved capital facilities. In response to the perceived undesirable effects of CCT, the 1997–2010 UK Labour government soon replaced it with the best value (BV) regime, the intention being to shift the focus towards outputs & outcomes. Replacement of the CCT regime acknowledged                 + scenario of formal separation of the responsibilities of the commissioner (i.e. municipality) and the contractor (i.e. service provider) by means of fully comprehensive contracts. In fact, the purchaser-provider relationship is often highly interdependent, both the commissioner and contractor suffering the ill-effects of failure to deliver to contract. The BV regime covers all local authority services (not just those previously subject  ŽŽ}_    *        Y  \›  attention has shifted from the process of tendering towards outcomes. It also considers effectiveness and service quality and so addresses overall cost-effectiveness. Competition for service contracts is still used if other potential providers exist. Otherwise, municipalities have to demonstrate why competition is inappropriate. This arrangement recognizes that competition is not the only means of securing value for money. In effect, competitive tendering has been made voluntary rather than being compulsory. } \›    ŽŽ}      !$   ment of best value, being too focused on cost savings. Service quality was often ignored          Ž     

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       +           its public policy objectives due to lack of cooperation by the level of government actually providing most public services (i.e. municipalities). The process of competition had become an end in itself rather than a means of achieving best value for money spent. :    \›            ket testing is a bipartisan non-ideological policy. Competition is still seen as the primary means of delivering value for money and liberalization of public sector markets has been strengthened. Local authorities can now invite private sector organizations to carry out town hall functions, including collecting council tax payments, paying staff salaries and pensions, administering rent subsidies to low-income tenants etc. Contracting out has become de-politicized and is increasingly referred to as ‘outsourcing’. Outsourcing is likely to increase as the current UK Conservative–Liberal Democrat coalition government (elected in May 2010) tries to reduce costs in order to reduce the             QUUX‚U–    ƒ  /\     QUU–_ >    ^@    win service contracts, as has happened in some areas for street cleaning and may happen if newly-created academy schools (see below) contract out their school management to (say) North American educational companies. Market testing service contracts and outsourcing can be used for almost all technical services. As well as the former CCT services, these also include library support services,            +     vices, home-to-school transport, minor highway works, various police support services,                    ŽŽ}     ciency of contractors but there were considerable concerns about its impact on quality of  :               ŽŽ}            ƒ              equipment and central overheads and it prompted a trend towards activity-based costing. This trend will be enhanced further by the expected increase in outsourcing from 2011 onwards. Competition for service users Even where the costs of provision are minimized by the threat of competition for service               

 

 !    service users. In such cases services will be underused where there is choice whether or not to use them. Hence, in principle, cost-effectiveness requires competition for service users as well as for service contracts. If service users are able to choose between competing service providers, the need to attract users can be expected to put more pressure    +     

 !     }  course, is the nature of competition in the private sector. Choice of service provider is referred to as ‘exit’ because users can choose to leave what they consider to be unsatisfactory service. This form of choice is conceptually distinct from that of expressing one’s preferences through the ballot box, the latter being referred to as ‘voice’. Exit and voice are sometimes seen as mutually exclusive, expression of voice being the choice mechanism in the public sector but the power of exit being that of the private sector. In fact, exit and voice can complement each other if only because

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the possibility of exit forces service providers to respond more fully to users’ complaints about unsatisfactory service. Although it has been argued that voice is of more importance than exit for quality,           

      

 been reactive in terms of only having the opportunity to complain about poor quality, as                 ƒ   ? though there was little evidence that CCT improved services to users such improvement was not a stated objective of that policy initiative. It was simply assumed that quality would be held constant as competitive tendering drove down service costs. }         ƒ             to identify and measure. Moreover, who determines quality – local politicians, local of         +        ƒ   + it-or-leave-it approach to service provision is not tenable when the service provider’s income is directly dependent upon the number of users of that service. This would be the case either where users pay charges directly to providers or where providers receive payments from municipalities in accordance with levels of use of the service. Where the ‘money follows the user’, service providers will go bankrupt if they fail to attract enough users to fully cover their costs. However, although it may be acceptable for private sector producers to close down, the same result may not be as readily accepted in the case of public sector schools, hospitals, etc., this being against the ethos of public                    tive producers amongst which users can freely choose, the result being that service availability is severely compromised in the event of bankruptcy of one or more of them. To some extent, the power of exit makes the nature of choice less passive, in that it encourages service users to be more discerning about the services they use. It encourages them to consider alternative service providers and so make use of those providing services that better match their preferences. Although public policy-making in respect of the service remains with the local government, both it as the service commissioner and the contractor (i.e. the DSO or company) can be expected to take at least some account of the preferences of service users revealed by their propensity to exit unsatisfactory services. Ž        $ !    —    @ provision of leisure and recreation services (Bailey & Reid 1994).

Competition and quality of service Given the substantial cost savings resulting from CCT, it could have been expected that                 back to voter-taxpayers. In practice, however, it would appear that those savings were retained within service budgets and used for other purposes. One way of reabsorbing those savings is to demonstrate how they have led to higher service quality. Typically, however,    ƒ                municipalities. Service quality may be part of the bureaucratic utility function whereby     ƒ         *       rather than take account of service users’ preferences. In that case managers are empowered, not service users. This possible outcome assumes a technocratic model of power relationships where power resides with those who provide services.

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Furthermore, in adopting a predominantly managerial approach to quality, it was generally believed that management of process ensures quality through service delivery,                 /¨    1996). However, this approach pays more attention to technical than to non-technical standards, only monitoring what can be monitored. Non-technical standards are partic           Žƒ    

  +  mechanisms related to effective outcomes and failure to involve service users in contract    }              *  standards could not be written in contracts. Effective monitoring and remedial action is critical but commissioner-side information and skills were often poor. Hence, it was realized that competition by means of the purchaser-provider split is            ƒ       tion of quality changed subsequent to abolition of CCT. It became less a collectivist, paternalistic and inward-looking, institution-based, managerial concept and increasingly more an outward-looking responsive relationship with individual customers (as service users were increasingly being regarded). Nevertheless, consumer sovereignty was not to be the sole determinant of quality, local authorities’ public policymaking continuing to +             ƒ         each service still being required. Within the parameters of that vision, however, individual         !         Clearly, although the system of governance was becoming increasingly multi-faceted, it was not simply governance by markets.

User choice of service provider and service characteristics As noted above, competitive contracting can only improve the production process by      #                                        diverse preferences for services. The fact that the service is cheap to produce has no merit if it does not deliver what people actually want. In principle, therefore, choice is the best means of identifying individual preferences and should therefore be extended as far as possible (Le Grand 2007). Moreover, surveys in the UK have indicated that a clear majority of the population believes people should be able to exercise choice of hospital and school (Mori 2003). However, it has been argued that too much choice can be counter-productive in creating psychological pressures so greatly debilitating that users fall back on expert opinion rather than making choices themselves (Schwartz 2004). This may indeed be the case for certain alternative medical treatments, the success of which determines whether a person lives or dies. Nevertheless, other choices between alternative public services pose no such dilemmas, for example use of particular leisure facilities or types of personal care. Indeed, wealthy people have been choosing from private providers of health, education and social care for many decades and value for money can be improved by changing the ways in which services are used. In particular, users can be encouraged to interact more with               

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by proactive choice of the type or form of service provided (Arend et al. 2003; Dowding & John 2006; Lent & Arend 2004; Perri et al. 2004). Where proactive choices are encouraged the role of the traditional service provider is radically changed to that of helping users to solve their own problems. This is a more ambitious form of the enabling model of government than simply facilitating competition in production of public services. It tries to supplement, rather than replace, individual effort. Rights to access services are balanced with personal responsibilities to make their use as effective as possible. This approach is conceptually distinct from the conventional focus on service users being treated as either citizens (only being allowed collective choices) or consumers (the supermarket or shopping mall consumerism analogy): they are obviously both. Service providers recognize that their own users are a valuable resource in seeking to achieve outcome objectives (Stephens et al. 2008). In this way, services become personalized through choice of service characteristics rather than simply through choice of service provider (PCPS 2004). Referred to as ‘coproduction’ or (more recently) ‘co-design’ of services, such user empowerment moves              +   !  behavior so as to create public value (Kelly & Muers 2002). This is consistent with the argument that merely adding alternatives to a choice set does not add value if those additional alternatives are not what the chooser wants and that choice must genuinely enhance the individual’s control of the service (Dowding 1992). Additionally, it is arguable that co-design and co-production of services can help avoid any negative psychological feedback arising from too much choice because individual service users help technocrats to shape the service to suit their preferences. Public value can be created by the very process of encouraging service users to become more personally responsible for their use of services, leading to behavioral changes on their part such that service outcomes can be more readily achieved (Halpern et al. 2004). For example, improved health depends on people leading healthier lifestyles in     

                           }       (which contain excessive amounts of salt, sugar and fat) and an essentially sedentary life style has led to increasing concerns about rising levels of obesity and its adverse consequences for people’s health. It is now realized that health advisors need to work with overweight people to encourage them to eat better and exercise more, this preventative health care being potentially much more cost-effective than remedial medical treatments only after those adverse health consequences have occurred. Similarly, improved school education outcomes are seen as crucially dependent upon parents becoming key partners in the education of their children. Parental interest in the education of their children is thought to motivate children and is seen as a major determinant of how well school pupils apply themselves to classes and so how much they learn. } 

ƒ             ment of improved educational outcomes. Likewise, a reduction in crime and anti-social behavior is heavily dependent upon the cooperation of local communities. Parents must accept responsibility for how their children behave and local communities must police themselves to a considerable extent by making abundantly clear that vandalism and petty crime is not socially acceptable. These examples demonstrate how citizens can be made active co-designers and coproducers, rather than simply passive recipients, of public services. They can be encour-

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aged to develop the capacity to manage their own health, learning and other requirements   [ 

            cantly more cost-effective than governments acting on their own. Users are put at the heart of public services, their high expectations of the power to choose services being seen as the best way of improving the provision and quality of public services. By informing service design and delivery, co-production has the potential to achieve the personalization of public services (Leadbeater 2004a). The role of the traditional service provider is radically changed to that of helping clients to solve their own problems – the enabling model of government, supplementing not replacing individual effort, balancing rights to public services with personal responsibilities in using them, as noted above. Professionals work with clients to determine their needs and so shape service characteristics. Professionals also work in partnership with other organizations where necessary, the money following the service user to the chosen provider. “It is only by truly transferring power to the public through choice, through personalizing services, that we can create the drivers for continuous improvement in all our services” (former UK Labour Prime Minister Tony Blair quoted in Leadbeater 2004b). For example, personalization of education occurs within the national curriculum by agreeing individual learning targets and providing structured feedback to individual pupils in accordance with their needs. In this way, a child’s education is co-designed and co-produced, pupils and their parents not simply being shoppers in the educational market place. Hence, parents are empowered not just to choose school but also to tailor the                     + account of the way they learn. Integrated support with individual learning can also come from the local community, other local institutions and social services outside normal school hours via breakfast and after-school clubs and at weekends. By such means, the distinction between formal and informal education becomes redundant and learning pathways become networked across the totality of learning resources, including those at home, school and other places including local libraries, aided by information and communication technology (Leadbeater 2004c). Put simply, the school or college is no longer the sole vehicle for learning and choice increasingly occurs within as well as between schools. The educational system is molded round the child in much the same way that health care and social care services are molded round the patient and client respectively. This new way of working is conceptually distinct from the supermarket or shopping mall consumerism analogy based on the ability to exit unsatisfactory service providers. People are neither left to sink or swim in market systems nor made passively dependent upon the centralized paternalistic and bureaucratic state sector. This system of governance becomes much broader than that by government and quasi-markets, also involving governance by user engagement in co-design, co-production, life-style behavioral changes on the part of service users, use of networks, partnerships and multiple stakeholders. Involving users in co-design and co-production may increase                               /\

< [ QUU£_ [+

 $  

           to participate. Hence, the proportion of users actively involved in choosing the form of       $              ƒ ity of service and service outcomes will improve across the board as service providers

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appreciate more clearly the need to facilitate personalization of services through highly proactive user choice. This form of governance is also pluralistic and is based on both formal and informal hierarchies and networks. The theoretical result is to enhance public value and legitimacy through a complex production system based on a more horizontal, hybridized and associational form of governance (Moore & Hartley 2008). Increasing scope for choice in health care The 1997–2010 UK Labour government planned to progressively extend patient choice in the National Health Service (NHS) in England (Appleby et al. 2005), health care not being a local government service. The subsequent 2010 UK Conservative–Liberal Democrat coalition government announced the continuation of these policies (DoH 2010). The intention of both governments is that patient choice (of hospital, treatment etc.) should be the key driver of the healthcare system. Of course, this requires patients to be willing to exercise those choices to personalize their care. Moreover, exercising such choices should not put at risk either the ‘equal access for equal need’ objective of the NHS nor the need to control spending. The 1997–2010 UK Labour government’s initial reforms were generally perceived as fairly effective in terms of achieving top-down central government process targets (e.g. shorter waiting times for patients before medical treatments) but less successful in terms of delivering improved outcomes (e.g. improved results of medical treatments). The 2010 UK Conservative-Liberal Democrat coalition government hopes its additional measures will achieve improved medical outcomes for patients by moving away from the still predominantly traditional NHS approach to one of more effective patient choice, competition and diversity of suppliers. The 1997–2010 UK Labour government progressively extended patient choice in the NHS in England to include giving people greater choices in how they are treated, choosing from amongst a wider range of services and service providers, including General Practitioner family doctors (GPs), NHS hospitals and independent treatment centers, choosing hospital appointments at times that suit them, choosing where, when and how to get medicines, all choices being based on better information and supported by expert advice (DoH 2003; DoH 2004a). Patient choice, GP commissioning and money following patients was intended to increasingly make patient choice the key driver of the healthcare system, as long as patients are willing to exercise those choices to personalize their care (DoH 2004b) and as long as the independent sector capacity expands (Rossiter & Williams 2005). The 2010 UK Conservative-Liberal Democrat coalition government plans to take these choice measures further (DoH 2010). It plans to measure medical standards and performance by collecting information on treatment outcomes, the intention being to bring about a shift towards a greater focus on measuring health services in terms of their quality and outcomes rather than the earlier concentration on activity and process targets. Patients will be given access to a plethora of information about GPs services, hospitals and the medical consultants and surgeons employed in those hospitals, including success rates. The purpose of such information is that patients can share in decisions made by clinicians about their health care and so have more choice and control, not just over medical treatments but also about lifestyle choices and how to look after their own and their family’s health. GP consortiums will commission hospitals, private health care companies

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and charitable organizations to deliver medical services agreed with their patients. It is hoped that patient choices about where to receive treatment and from whom will drive up standards of care. These measures effectively enhance both exit and voice, lack of voice being identi     +   Y=      / ‹ QUU‘_     exercise voice by proactively discussing their needs and preferences with their family doctors and other health care providers, rather than simply passively accepting doctors’ decisions on their behalf. However, the effectiveness of these various measures depends upon the commitment of both parties to utilize the scope for exit and voice. In fact, a joint investigation by the Healthcare Commission and Audit Commission found no evidence that choice policy had any impact at that time on where patients were treated or that it had led to improvements in the quality of service offered (Audit Commission 2008). This could be because family doctors were not offering those choices to their patients and/or because patients were not willing to make them. }       $                         ly if patients’ choices of treatments or providers are not always able to be matched by service availability. Alternatively, doctors may consider that they know their patients’ needs better than the patients themselves do, perhaps because of the complexity of some medical problems. The second possibility may be because people do not behave as orthodox economics theory assumes they do. Orthodox economics assumes consumers perform              

                   / $   required commitment of time and effort). In contrast, behavioral economics emphasizes less than perfect rule-of-thumb decision-making, habit and inertia. It takes the view that people are on average far more irrational and more human than orthodox economists assume (Ariely 2008). Moreover, increased scope for choice is not easy to reconcile with equality of access        #        and ethnic groups seem to be more able to take advantage of opportunities than other groups. Hence, it has been argued that increasing the scope for choice requires a parallel policy to empower socially-disadvantaged groups so that there is genuine equality of opportunity across all groups within society (Barber 2008). This requirement applies with even more force where co-payments are allowed, individuals being able to top-up service   +        /\  QUU‰ % & Williams 2010). In such cases, it has to be recognized that public and private sector doctors may suggest different types of medical tests and treatments because they face dif         Increasing scope for choice in school education Parental choice of school is longstanding. An implicit school voucher scheme operates within a quasi-market for school education (Le Grand 2003; Valkama & Bailey 2001). #                      popular schools. Shortages of capacity have led to a relative rise in the value of housing in the areas served by the most popular schools, creating an income constraint for poorer

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households in much the same way as school fees do in the private sector (Cheshire & Sheppard 2004). Since 1998, a series of Acts introduced and subsequently increased scope for parental choice of school and also allowed for a greater diversity of schools and development of specialisms. The 1997–2010 UK Labour central government progressively widened the range of schools, including independent specialist schools, city technology colleges, faith schools (including both Christian and non-Christian religions) and privately-sponsored academies, amongst which parents can choose on behalf of their children (DFES 2005a). The 2010 UK Conservative-Liberal Democrat coalition government intends to continue with this policy via its ‘free schools’ initiative, based on the free schools model employed in Sweden since the early 1990s. The coalition government’s intention is to break down barriers to entry into both the primary (ages 5 to 10) and secondary (ages 11 to 18) school education sectors so that any good providers of education can set up free schools (which are still academies in legal terms). Seen as a natural extension of Labour’s academy program, the coalition government’s plan is to allow hundreds of schools judged by  >   [   —  /> _   ¡  š      status. Only 202 of the 3,000 or so secondary schools in England became academies dur  Y=   @       

     schools have been able to convert to academies on such a large scale. Parents, teachers, charities and other philanthropic organizations will also be able to set up their own schools, further extending the scope for parents’ choice of school type for their children. Governing bodies of academies will be able to contract out the management of their                in order to attract new providers into the state schools sector. Although not under local education authority control, free schools will still receive state funding. Hence, during the forthcoming period of real-term cuts in spending on school education, active choices by parents will result in money following pupils away from existing schools losing pupils into new and expanding free schools. This could possibly result in more choice for highly       !            segregation by type of school. Nevertheless, both the 1997–2010 UK Labour and subsequent Conservative-Liberal Democrat coalition governments believe that competition amongst schools for pupils will raise standards (in much the same way as is intended for hospitals) in a self-sustaining        ?           ?  +        —           on quality attributable to the rapid increases in spending on the service (prior to 2010)     ƒ+       !    }     

           $      QU||              !enced more by political ideology than by evidence (Perry et al. 2010). Increasing scope for choice in social care Elderly people requiring long-term residential care have long been able to choose their           #  >   { } 

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(OFT 2005) cast doubt on the ability to choose an alternative home to the one offered                     advance (typically) of discharge from hospital (Lowe 2004). The 1997–2010 UK Labour government increased the scope for choice by the shift away from institutional care and towards community care in elderly people’s own homes (Wood 2004). Local authorities are required, in certain circumstances, to offer direct payments to individuals meeting eligibility criteria to enable them to obtain for themselves the community care services they are assessed to need (Miller et al. 2004). By exercising                     their own preferences whilst still being guided by professionals’ expert advice (McCarthy and Thomas 2004). The 2001 National Service Framework for Older People requires health and social                than the service provider. It is a user-rights model seeking to empower users of social care services (Evans 2004) and it seems that the 2010 UK Conservative-Liberal Democrat coalition government will continue with this approach. Depending on the results of pilot tests in health care, personal budgets may be extended to people living with long-term medical conditions. However, there are ongoing concerns that older people are not getting             +   help them to remain independent (Spiers 2008; Horton 2009). Increasing scope for choice in municipal housing Municipal tenants have been able to choose to buy their council properties since the rightto-buy policy was introduced in 1980 by the 1979–1997 UK Conservative government. The subsequent 1997–2010 UK Labour government also offered council tenants a wider range of landlords from which to choose, facilitated by large scale voluntary transfers of housing stock from the traditional council housing department to other providers of social housing, usually housing associations (ODPM 2000). Critics argue that such choices are forced on tenants, especially as council rents were also being restructured (i.e. raised to the higher levels charged by housing associations) to encourage transfer. For new tenants and those wishing to move, ‘choice-based lettings’ for tenants of social housing are increasingly replacing (or at least supplementing) points systems of housing allocation. They allow scope for choice of location and type of property as 

   /    _ %  # \ /   government social security payment which subsidizes the rents of low-income tenants) complement choice-based lettings, recipients no longer being fully protected from rent increases related to choice of property (DWP 2002). This means that co-payments will be required where such choices are exercised and the 2010 UK Conservative-Liberal Demo               # \  } tenants face enhanced incentives to optimize their housing consumption, for example avoiding under-occupancy of dwellings (Marsh 2004). Whether optimization can occur is debatable, given that landlords are heavily constrained by the centralized legislative, subsidy and regulatory system of social housing (Brown & King 2005).

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Increasing scope for choice in sports and leisure Neighborhoods can set up parks trusts to manage urban parks within their areas (DTLR 2002). Most local authorities operate leisure card schemes, a form of voucher giving holders increased scope for choice amongst alternative sports and recreation providers in internal (or sometimes external) market systems. Although take-up rates have generally been low (Collins 2003), the UK Labour Government’s 2005 Youth Green Paper proposed a more comprehensive scheme (‘opportunity cards’) for all teenagers to help them pay for ‘constructive activities’ ranging from sports and outdoor adventure trips to theatre visits (DFES 2005b). Use of vouchers for leisure and other services is considered more fully elsewhere (Valkama & Bailey 2001; Elliott et al., 2010). Increasing scope for choice in collection of household waste Households could be given the choice to reduce the amount of waste they generate by participating in kerb-side recycling schemes or otherwise pay a higher variable charge directly related to the amount of waste produced (Strategy Unit 2002). However, the 2010 UK Conservative-Liberal Democrat coalition government abandoned the charges proposal, instead preferring reward schemes in the form of reduced local tax payments for households engaging in recycling. Overview of choice mechanisms Clearly, choice and diversity of supply together have become key to the reform of public services in England as a means of improving their quality and responsiveness to their users. The various ongoing reforms within local government and the NHS increasingly allow choice of form of service as well as the provider of that service. [            $   * placement, parental choice of school and housing stock transfer. Other choices are made frequently or can be changed more readily, for example ‘meals-on-wheels’ delivered to elderly people, direct payments for community care and choice-based lettings. Some of these choices are individualistic whereas others are more collectivist or mutual in form. The exercise of choice needs varying levels of professional support, higher in respect of medical care, choice-based lettings, direct payments for community care and large scale housing stock transfers but less in respect of meals-on-wheels to elderly people and for choice of leisure facilities. Choices do not necessarily have to be made for the service to continue to be provided, for example in the case of urgent non-elective medical treatment, school, council housing, community care and parks. As a general rule, delegating choice to service users is likely to be most suitable when policy-makers and service users recognize a variety of legitimate outcomes, where user effort and behavior is critical in achieving those outcomes and where they are wellinformed about available service options. Given the need to make service users wellinformed, an extension of choice throughout public services is therefore not likely to reduce costs of bureaucracy. Moreover, choices will not always be exercised. This is especially likely to be the case where the service has a low salience to service users’ living standards, or where they perceive no problems with existing services, or where choice

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demands considerable inputs of their own time and effort. Indeed, there is a history of low participation rates in consultative processes such as user groups, citizens’ juries and neighborhood forums (Birchall & Simmons 2004). }           /  ‹ < \  |––‘_  whether giving individuals greater scope for choice has positive or negative impacts on ƒ  ƒ                 ?! well-educated groups may be more able to avail themselves of choice, leading to middle             # ƒ        offer them their services in preference to poorer groups, ‘cream-skimming’ the users easiest to serve. User choices may lead to loss of jobs and/or cuts in pay etc. Those choices bypass the decision-making structures of the public authority, diluting democratic processes. The counter arguments, respectively, are that greater scope for choice can overcome social exclusion by extending to deprived groups the choices and quality of services   *  !   +@ *                          more on strategic issues, ‘steering rather than rowing’ public services. Although there is a substantial amount of evidence for and against each of these arguments, “it is the conditions under which choice schemes operate rather than choice itself which determine its positive and negative effects” (Lent & Arend 2004, 19). Argu   +        

      provider capacity to make users’ choices real rather than illusory. For example, lack of capacity at popular schools turns user choice into producer choice via selection on the basis of academic, residential or other such criteria that advantage middle class groups with better-supported children and the ability to buy properties in the schools’ catchment areas. Nevertheless, it appears that the possibility of ‘cream-skimming’ in school education has been exaggerated and that any potential adverse effects resulting from it are                  aided by league tables of school examination results and other performance indicators (Le Grand 2003). Moreover, the 1997–2010 UK Labour government sought to prevent this by regulation, statutory guidelines and school funding weighted for deprivation (OPSR 2005). Nevertheless, doubt has been cast on the past effectiveness of such measures (Perri 2003), concerns being greatest in respect of autonomous schools (West 2005). Where individual choice is constrained by the need for collective action, those collective choices need to be decentralized as far as possible, for example to the neighborhood level in respect of parks, libraries and leisure centers (ODPM 2005). The 2010 UK Conservative-Liberal Democrat coalition government plans to extend the previous   @                nancial autonomy to local government and community groups. This will require and be               Nevertheless, the intention is to give councils powers to choose their own local priorities for public services and to allow community groups and charities to take direct ownership of buildings and services, the coalition government’s so-called ‘Big Society’ agenda. In the words of the new UK Prime Minister, the Big Society “is a total change in the way our country is run: from closed systems to open markets; from bureaucracy to democracy; from big government to big society” (David Cameron quoted in Wintour 2010). If these intended changes are actually made effective the old system of bureau-

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cratic accountability and governance will be replaced by a new system of democratic accountability to the people, not to the government machine. Power will be transferred from Whitehall (the base of central government in London) to people and communities, adding local democratic control and governance to competition and choice. It remains to be seen if this ambitious restructuring of government and society can actually be achieved.

Conclusions During the 1980s and 1990s reforms within the English public sector sought to increase value for money by increasing the scope for competition in the provision of public services in order to reduce their costs and by setting targets for service delivery. During the 2000s attention focused on giving service users increased scope for choice of both service provider and service form so as to increase further the value of public services. Increasing the scope for user choice of the form of service received is also intended to lead to the codesign and co-production of services, this implying a quite radical change in the nature of the welfare state and its system of governance. This paper has assessed the rationale for these reforms and critically appraised their effectiveness. The experience of introducing competition and choice in English local government                                        responsive enough form of governance for the heterogeneity of users’ needs. Even though                                    +  ?   ƒ                   evidence that competitive contracting improved services to users. User involvement was limited, being more reactive than proactive. Within the constraints of public policy parameters, the scope for individual choice to supplement collective choice is being increased and this has now begun to receive considerable attention. Initially, choice was limited to choosing amongst alternative service providers (hospitals, schools etc.). However, scope for choice has now been widened to include choice of service form. Such choices are most suitable where competitive supply is limited or where exiting unsatisfactory supply is highly disruptive, for example to a child’s education. Both the previous UK Labour and the current (2010) Conservative-Liberal Democrat coalition government’s intention is to deliver public services based, as far as practically possible, on competition and choice. This does not mean consumer values will permeate the public sector because a strategic vision for each service is still required. Instead, the intention is that individual choices will complement collective choices (themselves being decentralized as far as possible) in helping achieve outcome objectives for public services. Personalization of services through co-design and co-production is expected to create progressively increasing demand-led pressures for ongoing radical reforms in the delivery of public services overcoming the limitations of both consumerism and paternalism. Choice of service provider and/or of service form is seen as a panacea. As always, however, the devil is in the detail and it remains to be seen the extent to which the UK government’s intentions are realized.

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Bearing this caveat in mind, the form of governance of public services in England is becoming increasingly pluralistic in being based on both formal and informal hierarchies, on networks of multiple stakeholders and on proactive engagement of service users in the design and production of public services. This can be expected to stimulate further evolution and innovation in the system of governance in a self-perpetuating process of reforms that could ultimately change the way society works.

References Appleby, J., Harrison, A. & Devlin, N. (2005) What is the Real Cost of Patient Choice? Consumer Policy Review 15 (3), 112–121. Arend, N., Corry, D., Hatter, W., Le Grand, J. & Lent, A. (2003) Choice: what role can it play in helping local services evolve? London: New Local Government Network. Retrieved July 27, 2010, from www.nlgn. org.uk Ariely, D. (2008) Predictably Irrational: The Hidden Forces That Shape Our Decisions Glasgow: Harper Collins. Audit Commission (2008) Is the Treatment Working? Progress with the NHS System Reform Programme London: Audit Commission. Bailey, S.J. (1988) Local Government Finance in Britain. In: R. Paddison & S.J. Bailey (Eds.) Local Government Finance: International Perspectives. London: Routledge. Bailey, S.J. (1993) Public Choice Theory and the Reform of Local Government in Britain: From Government to Governance Public Policy and Administration 8(2), 7–24. Bailey, S.J. (1998) Assuring the Quality of UK Local Government Services: A Case Study of School Meals Catering Public Policy and Administration 13(1), 95–106. Bailey, S.J. (1999) Local Government Economics: Principles and Practice Basingstoke: Palgrave Macmillan. Bailey, S.J. (2002) Public Sector Economics: Theory, Policy and Practice Basingstoke: Palgrave Macmillan (2nd edition). Bailey, S.J. (2004) Strategic Public Finance Basingstoke: Palgrave Macmillan. Bailey, S.J. (2006) Co-payments in UK Local Governments. In: J. Asato (Ed.) Charging Ahead? Spreading the Costs of Modern Public Services, 55–64 London: Social Market Foundation. Bailey, S.J. & Davidson, C. (1999) The Purchaser-Provider Split: Theory and UK Evidence Environment and Planning C: Government and Policy 17(2), 161–75. Bailey, S. J. & Reid, G. (1994) Contracting Municipal Sports Management: Policy-Making Interactions Local Government Policy Making 21(2) 55–66. Bailey, S.J., Asenova, D. & Beck, M. (2009) UK Public Private Partnerships and the Credit Crunch: A Case of Risk Contagion? Journal of Risk and Governance 1 (3). Barber, M. (2008) Instruction to Deliver: Fighting to Transform Britain’s Public Services London: Methuen Publishing Ltd. Besley, T. & Ghatak, M. (2003) Incentives, Choice and Accountability in the Provision of Public Services. Oxford Review of Economic Policy 19(2) 235–249. Birchall, J. & Simmons, R. (2004) User Power: the participation of users in public services London: National Consumer Council. Retrieved July 27, 2010, from www.ncc.org.uk Brown, T. & King, P. (2005) The Power to Choose: Effective Choice in Housing Policy European Journal of Housing Policy 5(1), 59–75. Cheshire, P. & Sheppard, S. (2004) Capitalising the Value of Free Schools: The Impact of Supply Characteristics and Uncertainty (Working Paper, June). London: London School of Economics. Collins, M.F. (2003) Sport and Social Exclusion London: Routledge. DFES (2005a) Higher Standards, Better Schools for All: More Choice for Parents and Pupils. Cm 6677. London: Department for Education and Skills. Retrieved July 27, 2010, from www.dfes.gov.uk/publications/ education DFES (2005b) Youth Matters. Cm 6629. London: Department for Education and Skills. Retrieved July 27, 2010, from www.dfes.gov.uk/publications/youth DoH (2003) Building on the Best: Choice, Responsiveness and Equity in the NHS. Cm 6079. London: Department of Health. Retrieved July 27, 2010, from www.dh.gov.uk

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DoH (2004a) The NHS Improvement Plan: Putting People at the Heart of Public Services. Cm 6268. London: Department of Health. Retrieved July 27, 2010, from www.dh.gov.uk DoH (2004b) Patient and Public Involvement in Health: The Evidence for Policy Implementation, London: Department of Health. Retrieved July 27, 2010, from www.dh.gov.uk DoH (2010) Equity and Excellence: Liberating the NHS, Cm 7881 London: Department of Health. Retrieved July 27, 2010, from http://www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/@dh/@en/@ps/ documents/digitalasset/dh_117701.pdf Dowding, K. (1992) Choice: Its increase and its value. British Journal of Political Science 22(3), 301–314. Dowding, K. & John, P. (2006) Public Services: Exit and Voice as a Means of Enhancing Service Delivery. ESRC Public Services Programme [RES-153-25-00 56]. Retrieved July 27, 2010, from http://www.publicservices.ac.uk/our_research.asp DTLR (2002) Green Spaces, Better Places. Final Report of the Urban Green Spaces Task Force London: Department of Transport, Local Government and the Regions. DWP (2002) "$  %      '  "  . London: Department of Work and Pensions. Elliott, I.C., Valkama, P. & Bailey, S.J. (2010) Public Service Vouchers in the UK and Finland. In: Bailey S. J., Valkama P & Anttiroiko A-V (Eds.) Innovations in Financing Public Services: Country Case Studies Basingstoke: Palgrave Macmillan. — Ž /QUU£_ %!    '  — Y    Journal of Integrated Care 12(6), 22–27. #  ~ \  Ž '  ‹ ?  [ \  ‹ < #    ? /QUU£_ Personal Responsibility and Changing Behaviour: the state of knowledge and its implications for public policy. London: Cabinet >  %  Ÿ  QX QU|U  |U+’ Horton, C. (2009) Creating a Stronger Information, Advice and Advocacy System for Older People. York: Joseph Rowntree Foundation. Kelly, G. & Muers, S. (2002) Creating Public Value: an analytical framework for public service reform. London: Strategy Unit. Retrieved July 27, 2010, from www.number10.gov.uk/su/pv/public_value.pdf Leadbeater, C. (2004a) Personalisation through Participation: A new script for public services. London: Demos. Retrieved July 27, 2010, from www.demos.co.uk Leadbeater, C. (2004b) ‘Shape of Things to Come’ The Guardian (Society section), 14 April, p. 7. Leadbeater, C. (2004c) Learning about Personalisation: how can we put the learner at the heart of the education system. London: Demos. Retrieved July 27, 2010, from www.demos.co.uk Le Grand, J. (2003) Motivation, Agency, and Public Policy: Of Knights and Knaves, Pawns and Queens. Oxford: Oxford University Press. Le Grand, J. (2007) The Other Invisible Hand: Delivering Public Services Through Choice and Competition. Princeton N.J.: Princeton University Press. Le Grand, J. & Bartlett, W. (Eds.) (1993) Quasi-markets and Social Policy. Basingstoke: Macmillan Press. Lent, A. & Arend, N. (2004) Making Choices: how can choice improve local public services. London: New Local Government Network. Retrieved July 27, 2010, from www.nlgn.org.uk Lowe, S. (2004) Taking Care of Business: care homes under scrutiny. Consumer Policy Review 14(3), 66–71. Marsh, A. (2004) The Inexorable Rise of the Rational Consumer? The Blair Government and the Reshaping of Social Housing. European Journal of Housing Policy 4(2), 185–207. McCarthy, H. & Thomas, G. (2004) Home Alone: Combating Isolation with Older Housebound People. London: Demos. Retrieved July 27, 2010, from www.demos.co.uk Miller, P., Parker, S. & Gillinson, S. (2004) Disablism: How to tackle the last prejudice. London: Demos. Retrieved July 27, 2010, from www.demos.co.uk Moore, M. & Hartley, J. (2008) Innovations in Governance. Public Management Review 10(1), 3–20. Mori (2003) Public Services and Choice Poll. Retrieved July 27, 2010, from www.mori.com/polls/2003/ s030708.shtml NLGN (2005) New Localism in Action. London: New Local Government Network. Retrieved July 27, 2010, from www.nlgn.org.uk ODPM (2000) Quality and Choice: A Decent Home for All – The Way Forward for Housing  >  of Deputy Prime Minister. Retrieved July 27, 2010, from http://www.housing.odpm.gov.uk/information/ index18.htm ODPM (2005) Sustainable Communities: People, Places and Prosperity.  >    ~   Minister. Retrieved July 27, 2010, from www.odpm.gov.uk OFT (2005) Care Homes for Older People in the UK: A Market Study.  >   { }

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OPSR (2005) Choice and Voice in the Reform of Public Services: Government Response to the PASC Report – Choice, Voice and Public Services. Ž ‰‰‘U  Ž >  %  Ÿ  QX QU|U  www.number10.gov.uk/su PCPS (2004) Policy Commission on Public Services Making Public Services Personal: a new compact for public services. London: National Consumer Council. Retrieved July 27, 2010, from www.ncc.org.uk Perri 6 (2003) Giving Consumers of British Public Services More Choice: what can be learned from recent history? Journal of Social Policy 32(2), 239–270. Perri 6, Hughes, M., Mullins, D., Rogers, M., Rowlands, R. & Willis, M. (2004) Enabling Choice: Research on choice in public services. LGA Research Report 1/04. London: Local Government Association. Retrieved July 27, 2010, from www.lga.gov.uk/PublicationsList Perry, A., Amadeo, C., Fletcher, M. & Walker, E. (2010) Instinct or Reason: How Education Policy is Made and How we Might Make it Better. Reading: Centre for British Teachers (CfBT) Education Trust. % % < 

 % /QU|U_ :#[ }  ?                  Lansley abolishes cap on revenues. The Guardian, 2 August, p. 1. Rossiter, A. & Williams, J. (2005) Choice Systems in Practice: Case Study in Health. Consumer Policy Review 15(3), 85–93. SCC (2004) Layman’s Terms: the involvement of lay people in the inspection of public services. Glasgow: Scottish Consumer Council. Retrieved July 27, 2010, from www.scotconsumer.org.uk Schwartz, B. (2004) The Paradox of Choice: Why More is Less. New York: ECCO. Spiers, J. (2008) Who Decides Who Decides? Enabling choice, equity, access, improved performance and patient guaranteed care. Abingdon: Radcliffe Publishing. Stephens, L., Ryan-Collins, J. & Boyle, D. (2008) Co-production: A Manifesto for Growing the Core Economy. London: New Economics Foundation. Strategy Unit (2002) Waste Not Want Not: A Strategy for Tackling the Waste Problem in England. London: Ž >  Valkama, P. & Bailey, S.J. (2001) Vouchers as an Alternative Public Sector Funding System. Public Policy and Administration 16 (1), 32–58. West, A. (2005) ‘School ‘Choice’: The Limits of Quasi-regulation’ Consumer Policy Review 15 (3), 94–97. Wintour, P. (2010) Cameron to Pledge More Citizen Control Over Public Services. The Guardian, 8 July, p.14. Wood, H. (2004) Sustaining Disabled People in the Community: does supported housing offer a real choice? Practice 16(3), 185–196. Younis, T., Bailey, S.J. & Davidson, C. (1996) The Application of Total Quality Management to the Public Sector. International Review of Administrative Sciences 62(3), 369–382.

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved. doi: 10.3233/978-1-60750-727-7-89

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Innovation in the Microfoundations of Governance: Explaining the Flaws in the '()* +  !/  of Public Services1 Gerry Stoker University of Southampton, United Kingdom

This chapter provides a UK case study of public service reform to illustrate how a microfoundational base premised on instrumental rationality – in particular a prin  + ‚  $   !        governance of public services. It also provides evidence of the failure of the New Labour Government’s reform program in the context of relatively benign conditions and argues that the failure was to a substantial degree because of the inadequacies of the microfoundations that guided the reform program. The chapter concludes by discussing the circumstances when microfoundations are most likely to impact on policymaking. It argues for a greater awareness by policymakers of their microfoundational assumptions and for the advantage of developing policy in a manner that gives due recognition to the plurality of microfoundations commonly used in the social sciences.

Introduction Innovations in governance in the UK during the period 1997–2010 focused strongly on changing incentives faced by service providers by adoption of the principal-agent model. This was a logical development of the traditional Weberian model of public administration based on a hierarchical line-management approach to governance and provision of services by the public sector. Adoption of the principal-agent model by the UK Labour Government (1997–2010) was an attempt to strengthen that hierarchical control by providing public service managers with stronger incentives to perform well against output (and later outcome) targets set by their political masters. }     *  /      higher-level managers) but also reputational (making available in the public domain performance league tables to effectively ‘name and shame’ poorly performing managers and service units). Poorly-performing service managers were threatened with dismissal | }        —[%Ž  {

 %—[UŠ|QXUU‰X?            } Y   [   /Qœth November, 2007), De Montfort University, Leicester (12th December 2007) and Chilworth Manor, Hampshire (8–9th January 2008).

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if inadequate performance was not quickly improved. The ultimate sanction for poor managerial performance was dismissal of individual managers and/or sending so-called ‘hit squads’ of new management teams to take over management of failing public service units. These sanctions were used ‘pour encourager les autres’ on many occasions during      QUUU               services. Hence, the principal-agent model’s approach to service governance has been based on both ‘carrot and stick’ (referring to how best to encourage a donkey to move in the reƒ  _ } ^ @         !   expectations of performance. The ‘stick’ is shaming the professional reputation and, ultimately, sacking poorly-performing managers. This approach to governance is critically appraised in this chapter and found to be based on a too narrow microfoundational approach to governance. The idea of microfoundations refers to the individual-level behavior that underlies social activity. In social science the search for microfoundations rests on identifying individual-level mechanisms which bring about aggregate social outcomes. For policymakers, microfoundations provide a basic understanding of human behavior that helps to guide the selection of a governance strategy. Microfoundations can come to play a major role in shaping research and governance choices. As Herbert Simon explains: Nothing is more fundamental in setting our research agenda and informing our research methods than our view of the nature of the human beings whose behavior we are studying. It makes a difference, a very large difference, to our research strategy whether we are studying the nearly omniscient Homo economicus of rational choice theory or the boundedly rational Homo psychologicus of cognitive psychology. It makes a difference to research, but it also makes a difference for the proper design of political institutions (Simon 1985, 303). }         +       !  sense that human beings are driven by an instrumental rationality – a microfoundational        ‚         ciently and make predictable calculations to advance their objectives. While not deny the power of instrumental rationality as a microfoundation the chapter argues that those in          $      dations around which they are assembling their understanding of the appropriate rules, systems and styles of practice of governing. Indeed the chapter goes further and suggests that too often policymakers construct their policies they take their mircofoundational as            

     tional assumptions used in social sciences. Policy mistakes might be avoided if a greater sense of the plurality of microfoundational assumptions was prominent. This argument is supported through an examination of New Labour’s reform program for public services under the Blair premiership where it is demonstrated that a crude application of ‘Homo economicus’, principal-agent, microfoundational principles steered the governance strategy driving the program. The program despite the relatively benign conditions under which it was implemented failed to deliver against its core policy and    *  }               

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because of the inadequacies of microfoundations that guided the reform program. The             ‚     ^# psychologicus’ perspective – whose insights can help to explain the limitations of New Labour’s approach and might provide a more appropriate guide for future reform strategies. The chapter’s conclusion is that policymakers should be more critically self-aware of the microfoundations that underlie their decision-making and governance choices and more willing to step outside a wholesale reliance on ‘Homo economicus’ microfoundations.

Mircofoundations in social sciences Microfoundations refer to the micro level activity that underlies a macro level phenomenon. Much of the work on microfoundations developed initially in economics and re!                $ tions at the macroeconomics level to an understanding of individual level behavior. The prime but not entirely dominant perspective is one of rational instrumentality ‘focused on rationally-behaving self-interested economic agents’ (Janssen 2006, 8) and the core purpose is to provide explanations based on individual behavior to explain aggregate level phenomena. Very few non-economists have followed a microfoundation approach committed to a full-blown methodological individualism but many are comfortable with the desire to supplement macro level explanation with an understanding of how individuals within social contexts bring about macro phenomena. Jon Elster (2006), for example, argues that social sciences need to understand the micro-level mechanisms that lead to the broad societal-level features they observe. Microfoundations offer a search for completeness, and sometimes the starting point, in explana             +       (Little 1998). Good social science requires the supplementing of macro-explanation with knowledge about ‘what it is about the local circumstances of the typical individual that leads him to act in such a way as to bring about this relationship’ (Little 1998, 8). The search for microfoundations does not imply a commitment to methodological individualism in this case. It premised rather on the view that the ‘mechanisms through which social causation is mediated turn on the structured circumstances of choice of intentional agents, and nothing else’ (Little 1998, 108). We are here in the familiar terrain of structure and     +      !      context in which they are operating (Hay 2002). Almost all social scientists would accept that in developing or using a theory it is important to be aware of microfoundational assumptions built into its construction. As Jones (2001, 208) argues: ‘(t)he analysis of organizations and institutions in social science must have a mircofoundation in the actions and interactions of individual humans’. But equally many social scientists would accept that as the theory becomes applied in   $     *         !   microfoundational assumptions become more attenuated although they do not disappear completely.              *        in human thought and in application to issues of public governance (Mueller 2003 and for

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a more critical perspective Green & Shapiro 1994). Rational choice theory – the dominant paradigm of economics – focuses largely on understanding the world through the actions of instrumental actors competitively seeking their self-interest (Moe 1984). But rational choice has developed a powerful microfoundational hold throughout the social sciences. There are a number of different strands to rational choice applications but they share a number of common assumptions and an understanding of key problems (cf. Peters 1999, 46–47). All approaches assume that individual actors are central to the process and that they act rationally to maximize personal utility. Institutions provide a framework for individuals in making decisions, providing incentives and constraints provided by the rules that institutions establish and maintain. The approach tends to assume that most individuals respond in the same way to the same set of incentives. Rational choice theory also tends to share a concern about how to solve a set of common problems which are       }          +  lective decisions, following their own interests, but without having a decision imposed by external authority. The second is how coordination and control can be made to work in institutions, how principals (the leaders of organizations) can oversee effectively the performance of agents and get them to work to the principal’s goals rather than their own. There are alternatives to rational choice in the social sciences. It is possible to see the social sciences, particularly in their application to politics and public administration, as divided into a number of broad schools of thought in terms of their competing microfoundational bases. Analytical Marxism concentrates on the material interests of different social actors (Little 1998). A further school of thought offers a more heavily socialized account of the individual constrained by roles, expectations about the appropriateness of their actions and organizational context (March & Olsen 1995; Powell & DiMaggio 1991). From a more social-psychological perspective comes a microfoundational approach that emphasizes the limited cognitive capacities of decision-makers and focuses on their various coping strategies as a key element in explanation (Simon 1948/1998; Jones 2001). Again drawing on a mixture of social-psychology and political theory Frey (2007) and Goodin (1982) make the case for taking moral incentives seriously and recognizing the compulsion to behavior that comes from intrinsic incentives. These different schools challenge the microfoundational thinking embedded in rational choice approaches in a number of ways. Analytical Marxism emphasizes the way that material interests determine individual choices rather than rational responses to institutional incentives and constraints. Those that offer a more socialized account of individual behavior bring into focus what is assumed in rational choice theory the way that people’s preferences are formed. In rational choice preferences are just given – the factor that drives individual choice – but social institutionalists are interested in the way that preferences can be shaped by membership of a social group, sustained institutional framing or even hegemonic power. The bounded rationality school challenges the process of decision-making that is at the heart of rational choice microfoundational assumptions. Individuals are not rational calculators, being restricted by limited cognitive capacities which lead them to adopt various heuristic and coping mechanisms to make decisions that both can quicken and distort their decision-making practices compared to those of fully rational decision-maker. Finally other schools challenge the microfoundational assumption of self-interested motivation and suggest that human motivation can be mixed. As Julian Le Grand (2003)

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 + or principled knights in that in practice all organizations (and individuals) contain elements of both types of motivational factors. Some take the argument a stage further arguing that incentives, providing extrinsic rewards, will undermine rather than bolster motivation. ‘We should note that in passing the dangers of treating policy prescription and institutional design purely as exercises in manipulating incentives … given that extrinsic rewards and penalties can undermine intrinsic motivation’ (Taylor 1996, 231).

             There is a place for microfoundational thinking in the approach of practical policymakers. Policies are constructed in a world where there are multiple problems and limited time and resources available to policymakers to design solutions. In the cauldron where policy is formed the practical judgments that substitute for a more intensive evidence    !           +  a broad sense of how to govern. Coote and colleagues found in their study of the social programs of New Labour that they were ‘designed, by and large, on the basis of informed guesswork and expert hunches, enriched by some evidence and driven by political and other imperatives’ (Coote et al. 2004, 3). A reader of many of the classic texts in policy studies would not be surprised by such observations as these insights about New Labour’s      !          +    resources, time and predictability make policymaking a process conditioned by ‘muddling through’ as much as rational planning (Lindblom 1965). It is possible to see policymakers as reliant on microfoundations in their approach to policymaking in the same way as they play an important part in aiding the process of understanding for many social scientists. Microfoundations provide a way of coping with the complexity of the world. In politics, as in life, argues Dunn (2000, 183) ‘most *       @  !        thought. Ideas about how things work and how to bring about change can have a long lasting impact on policymakers, even after it has become clear that that those ideas may have only limited value or depth. According to John Maynard Keynes: ‘the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical             *    +    ally the slaves of some defunct economist’ (Keynes 1933/1950, 383). The fear expressed by Keynes that policymakers can be trapped by one mode of thinking is a reasonable one given the pressures of limited time and opportunity for re!    $  + 

    $   making structures. {   *        !        crofoundations that they are using in their explanations so do policymakers. The default microfoundation choice of many policymakers when it comes to a governance strategy 

 !                  strumentally rational guided by self-interest but conditioned in their actions by information provided by the context in which they make choices.

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There is an irony here since the very adoption of microfoundations by policymakers !    $       $         !                 mere self-interest. Policymakers often seek to manipulate the world using a microfoundational framework that views citizens as more rational and self-regarding than policymakers experience their own decision-making. Policy is constructed on the basis that individuals are self-interested but subject to manipulation through a combination of incentives     [ +       ‹ /|–œ£ ||‘_           !         ~ # in the eighteenth century and captured in the dictum ‘to design institutions for knaves’ by offering material sanctions and incentives for good behavior. The approach is also supported by a long history of utilitarian thinking on the design of institutions, constitutions and laws. The reasons why instrumental rationality paradigm is dominant are complex. Policymakers expect to explanations of their own activities in a broad rational choice paradigm because such assumptions pervade our thinking. As Jackson comments in his review of understandings held by policymakers about how to change citizen behaviors: ‘the rational choice model is so widespread and so deeply entrenched in the institutions and structures of modern (Western) society, that it tends to have an immediate familiarity to us’ (Jackson 2005, 27). Policymakers present themselves commonly as rational actors in a rational world. They did A to make B happen and they constructed A because they understood that the focus of the intervention C needed the right mix of incentives and constraints to encourage them to behave in a certain way. Another more institutional factor may be the dominance of economists and those with some economistic training, at least among the generalist decision-makers engaged in decision-making, that are particularly familiar with and comfortable with this form of thinking. The plurality of microfoundational bases for thinking about human behavior is not        +            because of the dominance of rational instrumental assumptions. My objective is to challenge rational choice’s dominance as a stylized heuristic, the main microfoundational crutch used by policymakers, a position that even some of its harshest critics are still willing to concede to it (Hay 2004).

0     )* !     A case study of New Labour’s reform of public services under Blair provides a reasonable test of the impact of microfoundational thinking because the conditions for the policy’s implementation were relatively benign thereby ruling out some of other common explanations of policy failure. A lack of political support, shortage of resources or a fragmented political leadership were not factors in the limitations of the program as in other cases of public sector reform (Ingraham et al. 1988). The New Labour coalition had established a hegemonic grip over the parliamentary Labour party and had a large majority in parlia            /|––X‚QUU| QUU|‚Š_      +   reform plans with sustained and substantial new investment as the economic conditions remained broadly positive during Blair’s premiership. Until the impact of the Iraq war

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from 2003, the Prime Minister’s personal popularity and standing remained relatively high and in the program of investment and reform of public services in this period he had the backing, and despite a few disagreements, the support of his closest and powerful political ally (but also potential enemy) the Chancellor of the Exchequer, Gordon Brown (Seldon 2005). Yet despite all these advantages, as the case study will show, judged by the objectives of its proponents the reform program of public services under Blair is perceived as a relative failure. A phenomenon, it will be suggested, related to an overweaning dominance given to an instrumental rationality microfoundational base in its chosen governance strategy. New Labour’s governance strategy developed from a principal-agent microfoundational framework, one of a range of economistic approaches to the study of political   /' |–œ£_ :            all public service providers as agents. The focus on principal-agent dimension in the public service system was not unreasonable for New Labour ministers since principal-agent theory (Moe 1984; Laffont & Martimont 2002; Miller 2005; Karagiannis 2007) addresses an issue central to modern political systems where decision-making authority rests on the political side of the fence (the principal position) but informational advantage is held by bureaucrats and professionals on the other side of the fence (the agent position). The challenge that principal-agent theory addresses in its normative form is how the principal can manipulate incentives in order to get the agent to act as the principal wishes. New Labour’s answer was a very much in tune with a classic manoeuvre in principalagent exchanges whereby the principal checks the outcomes achieved by agents as this can be directly observed and manipulated unlike their day-to-day activity. Targets were                   \                 public services would be improved in the way that Ministers desired. Outcome-based incentives were seen, exactly as suggested by principal-agent theory, as the key to getting agents to deliver. As Hood (2006) points out the Blair government applied the approach of targets and key performance indicators to central departments and local agencies; identifying over 300 targets for central departments that were multiplied by the departments themselves to set targets for the agencies and institutions in their purview. Local authorities faced a situation where they were to provide 600 to 1200 performance indicators to central government (DCLG 2006, 122). Welcome to public service ‘target world’, as Hood (2006, 515) puts it. It is important to clarify when exploring the microfoundational of principal-agent theory that my focus is on what Miller (2005) calls the canonical, initial, economistic statement of the theory. There are now several versions of principal-agent theory and many of the applications in political science have abandoned some of the microfoundational bases of the initial, economistic statement (Miller 2005; Karagiannis 2007; Heuritier & Lehmkuhl 2008). In the founding economistic version of principal-agent theory crucially ‘actors are (a) perfectly rational but (b) not omniscient’ (Karagiannis 2007, 6). Actors can expect other actors to react rationally to a given incentive but they cannot know another’s private information and so the game is one of manipulation rather than direct control. Information asymmetry is the major issue in the relationship between principal and agent. Detailed and direct monitoring activity by the principal is too time-con-

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suming and costly to be effective. In its crudest form principal-agent theory posits a game between principal and agent where the issue for the boss is whether he or she can get the incentives right, given information asymmetry, to ensure that the agent works rather than shirks; or to be put it less pejoratively ‘the subordinate can either act in a way that is good for the boss or not’ (Bendor et al. 2001, 236). The basic principal-agent model suggests that the principal can get more of what she           }  ƒ        to rely on outcome-based incentives. Effort and process cannot be monitored effectively but there is a greater chance that outcomes can be more effectively checked. Second, the principal can expend time and effort on selection; on choosing or developing agents that share in some way the principal’s goals. Incentives and selection are the key levers but neither is without problems. Outcome incentives rest on surrogate measures and agents may be tempted to put their effort towards boosting those surrogate measures rather than the unobservable productive activity that the principal was hoping to stimulate in the agents. Further selection is not as easy process and there is always the possibility that the        +   +        guarantee their behavior. Recognition of these factors leads to a third primary result from principal-agent theory namely that all settlements between principal and agent involve                +    persistent failings and limits in the construction of relationships in context of politicalbureaucratic hierarchy. As noted earlier the principal-agent model has been developed in a variety of ways in the academic world, abandoning some of the original assumptions of the economistic model and identifying subtle and complex variations the principal-agent exchange. There is a considerable empirical debate in the principal-agent literature and beyond as to whether principals or agents are more likely winners and about how and to what extent politicians can exercise control over bureaucracies (Bendor et al. 2001; Meier & O’Toole 2006). In the academic literature the original economistic model is or should be largely abandoned in its application to the study of politics and policy (Karagiannis 2007). According to Miller (2005), the economistic model is limited very much in its empirical application in that neither principals nor agents behave in the way that the model predicts and so the microfoundational base is unsustainable. But it is this base economistic model that New Labour embraced becoming as predicted by Keynes ‘slaves of some defunct economist’. Stripped to its core, New Labour’s microfoundational understanding of its public service reform program was premised on a view that the actors are rational, selfinterested (in most instances) and likely to respond in a predictable way to incentives and constraints. It is these microfoundational ingredients that were core to New Labour’s thinking as it developed its public service reform strategies in tune with principal-agent thinking.

)* !   

    Support for the claim that New Labour ministers operated within a framework of principal-agent microfoundational thinking can be advanced through the commentaries of   : @  ~        

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publications from New Labour sources, the memoirs of Labour’s public service reform  ' \   !                —     !   Several commentators note how New Labour combined an awkward dualism of a commitment to control and empowerment in its approach to public service reform. Perri 6 and Ed Peck (2004) note ten themes in New Labour’s modernization program for public services with inspection and central target-setting sitting alongside area-based initiatives      [ + /QUU£_            a mix of top-down strategies aimed at framing the tasks of local authorities and practices aimed at promoting empowerment and engagement for local agencies and communities. Newman (2001, 84–5) makes the argument clearly: <  +     =   

 >      public service modernisation. One is that of ‘partnership’, the other of ‘principals and agents’… This principal-agent form of relationship captures the way in which local services were mandated to deliver government policy but under conditions of tight monitoring and control. The judgment of many researchers, then, is that New Labour’s reform strategies were a puzzling mix but offered in their commitment to increased public spending and belief in government a marked contrast to the earlier Conservative governments of Prime Ministers Thatcher and Major. Targets and controls shared some reform ground with part                   stronger showing. But top-down outcome-oriented targets were New Labour’s initial and                   that were tools of limiting government through the years of Conservative government in the 1980s and 1990s, became for New Labour a favored tool for delivering effective government and providing what they as the principal wanted: more effective and responsive public services. Broadly, while not capturing the complete range of public reform strategies offered by New Labour, it would appear that a variety of academic commentators have no problem in seeing strong echoes of principal-agent thinking in New Labour’s approach to public service reform. There is more direct evidence of principal-agent assumptions and perspectives from :    +             +ing peppered throughout them. Let me illustrate this by quoting from one key document at the start of the Blair years and from one towards the end. Modernising Government published in 1999 represented an initial summary of government thinking. In the document the government clearly claims the role of principal: ‘The Government needs to ensure that public bodies are clearly focused on the results that matter to people, that they monitor and report their progress in achieving these results and that they do not allow bureaucratic boundaries to get in the way of sensible co-operation’ (HM Government 1999, Ž  £  ‘_ }                reform in which a pattern of principal–agent thought shines through. Public institutions it is argued ‘tend to look after their own interests, public services can be organized too much around the structure of the providers rather than the users … and … devote much of their effort to maximizing their funding rather than considering what difference they can

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make in the form of actual results or outcomes’ (HM Government 1999, Chapter 1: para ||_ %!  +           ' @ [   Unit noted in 2006 that early analysis had led to a top-down approach aimed at challenging the agents involved in delivery. Increased spending on public services was accompanied by a tougher performance management regime which was intended to provide a clear and rapid signal that improved outputs and outcomes were expected from the additional expenditure. This regime consisted of new Public Service Agreement targets intended to set out unambiguously the improvements the Government wished to see in areas like hospital waiting times and standards in education /Ž >  QUU‰ Q|_ As the Strategy Unit paper goes on to note this theme was joined by a more all-embracing reform approach giving greater scope to the role of competition and consumer choice but targets remained a dominant theme throughout the Blair years. The greatest disciple and exponent of this style of reform was Michael Barber, an   *          ~ \ +  education issues, and then from 2001 to 2005 headed up the Prime Minister’s Delivery Y  

               his time at the core of New Labour’s public service reform machine. His book gives no explicit recognition of principal-agent theory but his account of ‘deliverology’ – the program for reform his unit administered – reeks of principal-agent thinking (Barber 2007, ‘_ }     ~  Y            

  framed in classic principal-agent theory terms. How could forty people employed within the Unit, Barber asks, ‘possibly make a difference to the delivery of outcomes to millions of citizens? Or to broaden the question slightly and make it relevant the world over, how does government … ensure that the vast bureaucracies that are government departments and the even vaster public services … actually deliver measurable improvements in performance within a three- to four-year period?’ (Barber 2007, 71). The answer provided  \   !    +         which the agents of service delivery danced to the tune that the delivery unit wanted to  =                    that deliver to account against those goals. The process involved developing a much more detailed understanding of how services were delivered and a much wider range of data about performance. A favored approach was the use of regular ‘stocktakes’ and above all the much stronger promotion of league tables. Barber (2007, 96) comments: ‘Not everyone in the public services likes league tables but I love them. I have spent much of the last decade advocating them’. Although towards the end of the memoirs Barber notes the limits to the top-down approach he remains convinced that it was a valuable and essential strategy for the reform of public services under New Labour. The commitment to ‘deliverology’ by New Labour was no token exercise, as Hood (2006) comments; it was a strategy of ‘targets and terror’ backed by considerable resources. Failure to deliver a key target could affect the career prospects of key bureaucrats. A low star rating or performance assessment – based on failures to hit targets – could see forced resignations of health managers or head teachers. In local government a system of a low rating in comprehensive performance assessment – a judgment introduced in 2002

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about how a local authority was achieving against a range of performance indicators – could lead to pressure on chief executives and even political leaders to resign or move on (Martin et al. 2006). }           +     and political advisors closely connected to New Labour. A total of 10 interviews were conducted between November 2006 and June 2007 by the author and dozen workshops were attended organized respectively by HM Treasury, The Public Service Reform Group  } % [    ?  }      + }    the commitment of New Labour Ministers to innovation and change led them in many     ^   @ +          given a sense that they had to devise new and continuous reform challenges. Second how    ^   @ +  

 ^ @   were the tools of analysis that many advisors felt most comfortable with. As one former strategy unit advisor commented: We treated public services through the lens of a rational economic man model and we did not understand about the values that professions and others buy into…we              +                @     the public the crucial thing was the quality of the relationship and our rational economic actor model stopped us from seeing that (interview conducted by telephone by author 27th May 2007). The indirect and direct evidence, then, suggests strongly that New Labour believed in and followed the logic of principal-agent microfoundations in developing its governance strategy to public service reform.

Limitations and downsides to public service reform under Blair It is worth emphasizing the scale of the ambition that Blair set for the reform of public services. The Modernising Government White Paper, referred to earlier, offered a dramatic new vision of improved public services after years of under investment and argued for a step change in the way that public services were perceived both by public servants and the public. Above all reform meant ‘raising all standards until they match the best within and outside the public service, and continue improving. It means transforming government, so that it is organized around what the public wants and needs, rather than around the needs or convenience of institutions’ (HM Government 1999, Ch1: para 18). The unstated, but nevertheless key, message was also that in demonstrating its capacity to reform public service delivery and achievements New Labour would get the political credit and win plaudits, not only from its own citizens but from other countries in terms of the scale of the transformation. Against such an ambitious agenda the Blair reform program must be judged, at least, a partial failure. In this section of the paper the evidence on the impact of Blair public service reform program is reviewed and a catalogue of limita         

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As argued earlier it is consistent with principal-agent theory that some sort of effectiveness trade-off might emerge as part of the practice of New Labour’s ‘target-world’       ‹           national levels, and some local politicians, view targets as having had a limited but positive impact on driving up service performance. The Strategy Unit report in 2006 (Cabinet >  QUU‰_  ' \@ + /\ QUUX_      at least in terms of service providers meeting or in some cases considerably exceeding the targets set for them. More neutral observers, such as Hood (2006), argue that given the                    to judge how much of an impact targets and New Labour’s management approach have made. Boyne (2003) in a review of a range of studies of public sector studies argues that in general service improvement is most likely to be the product of extra resources and better management. But the challenge of understanding what drives service performance remains a task surrounded by complexity (Boyne & Walker 2005). On the balance Hood and other observers (Martin et al. 2006) conclude that targets in the Blair years may have helped to drive up performance in UK public services. In a careful study of English education authorities between 1998 and 2003 Boyne and Chen (2006) conclude that perfor   !           But there is good reason to doubt what has been achieved, given the scale of the new investment in public services, according to two recent studies on health and education. Health in the Blair years saw a 50 per cent increase in real terms spending from 2002. A study (Wanless et al. 2007) by the respected Kings Fund in 2007 suggests that the advances made for all that additional investment are limited. The study found that 43 per cent        

    !  }      more being done in terms of operations and treatments but not of productivity or quality gains. The general view expressed by the review is that the health service has made some                   started to come on tap on such a large scale from 2002. A similar picture emerges in the area of education that also saw a large increase in spending, some 20 to 30 per cent in real terms in the Blair years. But a report by the independent Cambridge University study in 2007 demonstrates that the initial sharp rise in primary school test results between 1995 and 2000 is now understood to be largely a result of teaching to the tests, and not to a dramatic improvement in learning. The study                "    tory tests make it harder, not easier, to judge pupils’ progress; that there have been rises in test-induced stress among pupils; that the results of the tests are unreliable in up to a third of cases; and that the gap between the highest and lowest achievers in Britain is wider than in many other countries. The study concludes ‘massive efforts to bring about change have had a relatively small impact’ (reported in Russell 2007). So given the scale of new investment it would appear that Blair’s reform strategy has fallen short even allowing for the prediction of principal-agent theory that some sort of effectiveness gap is to be expected. But what is clear is that assessed against its wider renewal and political objectives the reform project is a failure. This message is summed up effectively in a book published by observers and players broadly sympathetic to New Labour’s reform program (Diamond 2007). They comment that any gains made through a highly formalized and elaborate target approach came with considerable costs and down-

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sides and crucially from a political perspective that the public have at best be left on the sidelines in ‘target-world’ or, at worst, view claims of performance advance as mendacious. Despite very substantial increases in public spending on key services such as education and health and, despite actual improvements in those services, the public is not convinced that these services are improving. Where once the Government enjoyed very strong public support for its approach to public services, now it faces deep public scepticism… The only glimmer of hope here is that on the whole people’s own experience of public services such as hospitals and schools is more positive than their assessment of the performance of these services nationally… The danger for Labour is getting the worst of both worlds – neither getting the credit for improvements so far, nor being trusted to improve things in the future (Lucas 2007, 19). The public appear to strongly distrust New Labour’s claims that public services have been substantially improved. This interpretation is backed up by repeated surveys and focus groups from Ipsos MORI, a respected survey company. In response to the statement ‘In the long term this government’s policies will improve the state of Britain’s public ser@  +         Ÿ QUU|       «QQ                    

  Qœ    [  QUU‰ /’'>% QUU‰_ Indeed, there appears to be good grounds for doubting the full veracity of the performance information that lies behind government claims about improvements in public services. Hood (2006) describes how standard gaming strategies in the context of target–                    in central government. These included: rachet effects – underperforming in order to avoid being set too high a target next time around; threshold effects – targets that reward average performance and give no incentive high performers to go further; and output distortion practices – by, for example, on a temporary basis shifting extra resources into an area of practice in order to hit a particular target. As Hood (2006) argues various attempts were made to tackle the worst abuses and certainly to deter outright lying about performance data but those at the centre tolerated some elements of gaming in part because they wanted to report success to citizens. On occasion targets that were missed that could have been political embarrassing were quietly buried and abandoned. The Diamond (2007) review of New Labour’s performance suggests a range of other problems with the public service reform strategy. First, public service professionals and other public employees appear to hold very downbeat views about the process of reform and indeed the scale of its positive outcomes. And here is a double bind for New Labour strategists given that it appears that the public broadly believe front-line staff and do not believe administrators, national media and Ministers. Second, there appears to be a strong plateau effect in operation whereby after early signs of progress are reported then there appears to be tailing off and certain social problems and in particular issues of inequality appear to be not be easily ‘tractable’ and close to immovable obstacles on the path way to reform. Finally, the ‘targets and terror’ system carries with it a considerable administrative burden that is unsustainable and potentially in the long run would appear to be

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damaging to morale of those who provide public services. New Labour according to this argument has landed itself in a trap of its own making. In summary: judged most positively the reform strategy has helped to make some modest gains but judged against performance in the areas that saw the highest real terms increase in investment achieved by any post-Second World War (i.e. post-1945) government the level of gain in public service outcomes has been disappointing. So much so that the public appear to have little faith in the achievements of the strategy and those that work for public services have found the strategy seriously limited and problematic.

0    ")* !    [  !      : @         to the argument of this article, suggests problems with the microfoundations built into principal-agent theory that became embedded in New Labour’s target-world approach to public service reform. Principal-agent theory in its initial economistic form is erected on a !                   the opportunities and constraints in the task environment determine an individual’s effort towards goal accomplishment. That is why incentives work – and why a combination of ‘targets-and-terror’ should deliver for reformers. But the adoption of other microfoundational bases in the social sciences would lead to a questioning of this judgement. Earlier in the paper a range of alternative microfoundational bases to instrumental rationality     \         ‚         agent models – and use insights from these to indicate why Blair’s reform program ran into trouble. It is important to emphasize that these alternative microfoundational bases are not based on wishful thinking in contrast to the hard-nosed approach of instrumental rational  Ÿ    !     real behavior of people so too do the other microfoundational bases that are about to be examined. If anything the evidence that people behave with bounded rationality and intrinsic moral motivation especially from decades of social psychological work is more direct than that for the rational choice model that is usually conceded to lack behavioral accuracy but have predictive capacity because people behave as if they were rational actors in many situations.

Insights from a bounded rationality microfoundational base: the complexity of communication The bounded rationality tradition of thinking starts with the same assumption as rational            

       !  ish or more altruistic motivations. The key to its microfoundational base is captured by the maxim that ‘we have small brains and face big problems’. The fundamental human predicament is processing information, understanding a situation and determining consequences given the limits of our cognitive capacities and the complexities of the world we operate in. ‘Humans are goal directed, understand their environment in realistic terms, and adjust to changing circumstances facing them. But they are not completely successful

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in doing so-because of the inner limitations. Moreover, these cognitive limitations make a major difference in human affairs – in the affairs of individuals and in the affairs of state and nation’ (Jones 2001, 27). Decision-making is conditioned by the framing features of the human mind and the organizational context in which people operate in complex ways. The possibility of using bounded rationality as a counter-weight to the rational choice school has been recognized by several writers including Moe (1984), Jones (2001) and Bendor (2003). Drawing on the microfoundational insights of bounded rationality would have helped New Labour avoid some of the limitations of its reform strategy. Bounded rationality microfoundations tell us that for individuals to respond in the manner required by principal-agent theory assumes that decision-making on the part of humans is a rational response to external stimuli. The decision-maker, it is postulated, comprehensively perceives the environment and weights up options against her or his preferences in the context of incentives and constraints and chooses the option that maximizes those preferences. But that is a misleading picture of decision-making, so argue the advocates of the bounded rationality model. Decision-makers, as it were, have to deal both with the external environment and their inner world, their cognitive architecture. The inner world helps them to focus on some things and ignore others and it is driven by habits of thought, rules of thumb, and emotions. Rationality is ‘bounded’ by this framing role of the human mind. Insights from social psychology and cognitive studies suggest that actors develop various coping techniques and heuristics to deal with the decision challenges they face. The implications of these insights for the principal-agent model are profound. We can accept the idea that principals and agents need each other but information asymmetry gives way to information processing as the core challenge. The problem in organizations is less differential access to information and more that there is too much information. The challenge for both principal and agent is the same: how to know what information is relevant and how to process it effectively. The initiative in the principal-agent relationship cannot be seen as simply resting with the principal. The setting of the agenda in the relationship is a more complex affair since both principal and agents may bring differ                 ?   construct a rule Y for people in position X and expect behavior Z as a result. But agents in position X might not grasp that they fall under rule Y, or they might understand the implications of rule Y differently from the understanding held by the principal. Plainly in these circumstances they might not act in a manner Z even if they intend to follow the rule (cf. Bevir 2003, 206). The principal-agent model assumes away communication issues with its depiction of comprehensive rationality and the associated assumption that both sender and receiver share a common frame of reference. ‘(S)tudies assume that communication may involve uncertainty, but not issues of interpretation. Rational actors may try to manipulate one another, but they never seem to misunderstand one another’ (Jones 2001, 87). But the social-psychological tradition suggests that there is massive scope for misunderstanding between principal and agent because of bounded rationality. The cognitive architecture of receiver, and the randomness of the world they exist in, means that information transfer is subject to systematic distortion. People may be operating on different timescales and not be paying attention when the message is sent, they may respond                     different to that of the originator of the message and a sheer lack of capacity to process

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new information may create information overload and a failure to respond on the part of the receiver. The limits of the principal-agent model exposed by insights from the microfoundational base of bounded rationality give us large clues as to the limits of New Labour’s top-down target-driven reform strategy. Bounded rationality assumptions would lead us to expect that agents would respond to reform efforts in a disjointed and episodic manner given that information-processing capacity is often blocked or limited. The problems of        :   +                             to enabling them to selectively attend to the management of tasks and meet the challenge of information overload. As Jones (2001, 194) argues ‘a major reason that institutional reforms fail to perform as well as expected is that designers do not pay enough attention to how the incentives they create or alter are likely to be perceived by participants in the institution’. In coping with past reform programs and current activities, agents may have developed heuristics that are undermining or distorting of reform messages. Perceptions of what to care about and what not to care about are reinforced in the rules and operating procedures of organizations and people may have developed an emotional attachment to them and a loyalty to their part of the organization. These attachments can block reform   ‹  !   !        earlier waves of reform. They are not necessarily the product of an in-built desire to shirk on behalf of agents. The vastly different ways of ‘representing the problem’ perceived by              '   

   have an impact on patients, clients and service users. The processes on bounded rational                  :                     }                  users who have in their own boundedly rational experience more reasons to trust frontline providers than government spokespeople. The ‘plateauing’ of many improvement schemes can be seen as a response to the complexity of the decision environment faced by front-line providers, competing demands and limits to their capacities. Wrap up all of       !                             : @      *   ! Microfoundational models of how humans behave matter because they inform not only the thinking of social scientists but also those of policymakers. The very simplicity of the principal-agent framework makes it appealing but the problem is that it overlooks the cognitive architecture of decision-makers. A bounded rationality microfoundational base, if it had been adopted by policymakers, would have drawn attention to confounding issues. First, the challenge of communication comes to the fore in a world where people can and do regularly misunderstand one another rather than a world where communication is cost-free and problem-free. Second, bounded rationality argues that information processing practices and heuristics will need to be addressed rather than the issue of information asymmetry in any governance arrangement.

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Insights from a moral agency microfoundational base: the power of intrinsic motivation We can glean further insights as to the limitations of instrumental rationality microfoundations by taking on board the microfoundational idea that humans are moral agents seeking to cooperate with one another. The principal-agent relationship is premised on the view that the principal has to create the conditions for rational cooperation against resistance. What if we assume instead that individuals have innate tendencies to cooperate with others and reject the assumption of opportunism built into instrumental rationality             $        tives, people will choose options in their narrow short term self-interest when most of us would claim to live and make choices in some moral universe? The assumptions of pure self-interested rationality embedded in principal-agent theory creates what Bryan Jones (2001, 120–121) calls a rationality trap, a perceived problem that will plague human interactions that might be illusionary if there is a tendency built into humans to over-cooperate. Social-psychological research suggests there are good evolutionary grounds and much evidence to suggest that such a cooperative tendency does exist (Jones 2001, Ch 5). There is a long tradition in political theory that recognizes the possibility of the internalization of moral principles which cannot be traded. As Goodin (1982) comments, taking moral principles seriously means recognizing more than an individual could maximize some utility function for moralistic goods; it means viewing that individual as having a moral code and having moral principles – sacred and separate – and using them as a core guide to decision-making. In short what is being suggested is a microfoundational assumption that people are capable of exercising moral as well as instrumental judgment and that the two forms of judgment cannot be collapsed into one another. In particular, for policymakers there is a danger that by focusing on crass material or instrumental incentives they may undermine moral motivations. Crucially, in designing institutional interventions as if agents are treated as knaves means running the risk that ‘good works which were formerly produced out of the goodness of people’s hearts must now be compelled   $    $       @ /‹ 1982, 114–115). Frey (2007) drawing a range of social psychological research has developed this insight to argue for a different approach to changing behavior which recognizes that the incentives and constraints favored by instrumental rationality can crowd-out intrinsic motivation. ‘The ‘holy cow’ of modern economics needs to be reconsidered. External and, in particular, monetary incentives do not mechanically induce human beings to act                  ditions (Frey 2007, 4–5). Three psychological processes account for the hidden costs of stimulating behavior thorough external incentives and constraints. When people feel that they are being controlled, especially through intensive oversight and regulation, they may fell impelled to forego intrinsic motivation because the external framework is too overwhelming that it makes maintaining an intrinsic motivation pointless. When people

         +          loss of self-esteem of their part and a loss of sense of purpose. Finally, when they are not encouraged to display their cherished intrinsic motivations they can experience a sense of anger at this deprivation.

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The implications for policymakers in choosing their governance strategies and interventions are potentially substantial in the light of these arguments. In the case of New Labour’s public service reform program it becomes possible to see how the extensive use of targets and controls may have crowded-out some of the more moral or intrinsic motivations held by public servants and professionals, sometimes expressed in terms of a public service ethic. This ethic rests on a sense of motivation beyond self-interest, the value of specialized knowledge, a bond of trust with the public, government and society, a commitment to impartiality and the value of judgment built on experience (Plant 2003). Targets and rewards may have delivered less than expected because all they did was replace previously held intrinsic motivations. The anger and resentment at the reform pro  !                 motivation they had have been respectively overlooked and crowded out. In short the narrowness of the microfoundational base of New Labour’s interventions helps to explain the limitations and failings of Blair’s public service reform program. A bounded rationality combined with moral agency reframing of the microfoundational base for the reform of public services would not necessarily argue for the wholesale rejection of target-setting but rather for far fewer, locally negotiated, targets so that they could be more effectively communicated. It would argue for targets to be proposed by service providers so that ownership of the targets could be established and integrated in an adaptive way into the heuristics and behavior of service providers. It would also suggest that targets became a minor not a dominant motif in the expression of policy in order to avoid crowding-out other intrinsic motivations. } \              ! dational base. The microfoundational logic of the reform program was provided by a version principal-agent theory premised on a simplistic view of actors driven by instrumental rationality. My argument is that an understanding of microfoundations beyond those stemming from instrumental rationality and principal-agent insights might have led to the construction of a more effective reform program and that insights from these alternative motivations would push the reform program to an even more radical ‘handsoff’ approach.

Conclusions Microfoundations are likely to matter most in areas where the policy has a high political salience, where technical expertise has not established an over-arching legitimacy to             +       uncertain. The policy setting of the reform of public services under the Blair premiership meets these criteria. In these settings broader models of how human behavior may have    !          +    ^  ples’ thinking. }          !      lating to New Labour’s political style and the dominance of the Westminster model in the British media and political class. New Labour was particularly prone to a principal-agent understanding of the task of public service reform because its origins lay in the commitment of small group that seized control of the commanding levers of a moribund and

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failing political party. New Labour took this preference for control into government from   /[  QUUŠ" [ + QUU|_ }           dominant Westminster model of understanding the governing task. According to Richards and Smith (2006, 327), the ‘Westminster model is based on a simple assumption about the relationship between the political and the administra X      <            cal decisions of ministers’. The model is to an extent a myth given the complexity and fragmentation of the world of public service delivery but, according to Richards and Smith (2006), the Blair premiership saw an evolving search to exercise to re-impose the Westminster model through targets, regulation and direct political control, supported by an administrative apparatus of joined up government, public service agreements and a delivery unit reporting directly to the Prime Minister. The dominance of instrumental thinking may be more likely in Westminster-style      !      +      funct ideas and models, abandoned in the burgeoning and complex debates and research dynamic of the academic world. Yet the assumption of instrumental rationality remains the dominant microfoundational heuristic available to policymakers in modern Western societies. This chapter has shown how alternative microfoundational bases could lead to the selection of different and potentially more effective governance strategies. It is time for policymakers and students of governance to take the models of Homo psychologicus at least as seriously as models of Homo economicus. Microfoundational assumptions about rational instrumentality provide a heuristic for          !        approaches for normative and practical purposes. Other perspectives – drawn from different traditions in the social sciences and public administration – have in the main been ‘extremely weak’, as Peters (1999, 38) puts it, when it comes to guiding institutional design. But the focus on alternative microfoundations drawn from non-economistic traditions offered in this chapter offers the prospect of designers having a wider array of heuristic         +       

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Coote, A., Allen, J. & Woodhead, D. (2004) Finding Out What Works. London: Kings Fund. DCLG (2006) Strong and Prosperous Communities. The Local Government White Paper. Volume 1.Cm 6939-1, London: Department for Communities and Local Government. Diamond, P. (2007) Public Matters. London: Methuen. DiMaggio, P & Powell, W. (1991) Introduction. In: W. Powell & P. DiMaggio (Eds) The New Institutionalism in Organizational Analysis, 1–38. Chicago: University Press of Chicago. Dunn, J. (2000) The Cunning of Unreason. Making Sense of Politics. London: Harper Collins. Elster, J. (2007) Explaining Social Behavior. More Nuts and Bolts for the Social Sciences. Cambridge: Cambridge University Press. Frey, B. (2007) Motivation Crowding Theory: A New Approach to Behaviour. Roundtable on Behavioural Economics and Public Policy, Melbourne, 8–9 August 2007. Green, D. & Shapiro, I. (1994) Pathologies of rational choice. New Haven: Yale University Press. Goodin, R. (1982) Political Theory and Public Policy. Chicago: The University of Chicago. Hay, C. (2002) Political Analysis. A Critical Introduction. Basingstoke: Palgrave. # Ž /QUU£_ }        

  }          public administration. Public Administration 82(1), 39–62. HM Government (1999) Modernising Government. Cm4310. Retrieved May 15, 2007, from http://www.ar   +’ ’£‘’£‘|U’£‘|U  Hood, C. (2006) Gaming in Targetworld: The Targets Approach to Managing British Public Services. Public Administration Review 66(4), 515–521. Ingraham, P.W., Thompson, J. & Sanders, R. (Eds.) (1998) Transforming Government. San Francisco CA: Jossey-Bass. Ipsos/MORI. (2006) Public Sceptical About the Future of Public Services. 13 October 2006. Retrieved October 20, 2010, from http://www.ipsos-mori.com/researchpublications/researcharchive/poll.aspx?oItemId=2075 Jackson, T. (2005) Motivating Sustainable Consumption: a review of evidence on consumer behaviour and behavioural change. A report to the Sustainable Development Research Network, Centre for Environmental Strategy, University of Surrey. Janssen, M. (2006) Microfoundations. Tinbergen Institute Discussion Paper. TI2006-041/1. Rotterdam: Erasmus University. Retrieved October 2, 2006, from www.tinbergen.nl. Jones, B. (2001) Politics and the Architecture of Choice. Chicago: University of Chicago Press. Keynes, J.M. (1936 /1950) The General Theory of Employment, Interest, and Money. New York: Harbinger Books. Laffont, J.-J. & Martimont, D. (2002) The Theory of Incentives. The Principal-Agent Model. Princeton: Princeton University Press. Lindblom, C. (1965) The Intelligence of Democracy. New York: Free Press. Little, D. (1998) Microfoundations, Method, and Causation. Essays in the Philosophy of the Social Sciences. New York: Transaction Publishers. Lucas, B. (2007) The context for reform and why progressives need a new narrative on public services. In: P. Diamond (Ed.) Public Matters. London: Politicos. March, J. & Olsen, M. (1989) Rediscovering Institutions. New York: Free Press. Martin, S., Entwhistle, T., Ashworth, R., Boyne, G., Chen, A., Dowson, L., Enticott, G., Law J. & Walker, R. (2006) The Long Term Evaluation of the Best Value Regime: Final Report. London: Department for Communities and Local Government. Miller, G. (2005) The political evolution of principal-agent models. Annual Review of Political Science 8, 203–225. Moe, T. (1984) The New Economics of Organization. American Journal of Political Science 28(4), 739–777. Mueller, D. (2003) Public Choice III. Cambridge: Cambridge University Press. Newman, J. (2001) Modernising Governance. New Labour, Policy and Society. London: Sage. Nutley, S., Walter, I. & Davies, H. (2003) From Knowing to Doing: A Framework for Understanding the Evidence-Into-Practice Agenda. Evaluation 9(2), 125–148. Perri 6 & Peck, E. (2004) Modernization. The Ten Commitments of New Labour’s Approach to Public Management? International Public Management Journal 7(1), 1–18. Peters, G. (1999) Institutional Theory in Political Science. London: Pinter. Plant, R. (2003) A Public Service Ethic and Political Accountability. Parliamentary Affairs 56, 560–79. Powell, W & DiMaggio, P. (Eds.) (1991) The New Institutionalism in Organizational Analysis. Chicago, IL: University of Chicago Press. Pressman, J & Wildavsky, A. (1973) Implementation. Berkeley: University of California Press.

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Richards, D. & Smith, M. (2006) Central control and policy implementation in the UK: A case study of the Prime Minister’s Delivery Unit. Journal of Comparative Policy Analysis: Research and Practice 8(4), 325–345. Russell, J. (2007) Ten years of bold education boasts now look sadly hollow. The Guardian, Wednesday, November 14, 2007. Sanderson, I. (2002) Evaluation, Policy Learning and Evidence-Based Policy Making. Public Administration 80(1), 1–22. [   : /|––‰_ %  Ž     —  Ÿ { /—_ The Rational Choice Controversy, 189–212. New Haven: Yale University Press. Simon, H. (1985) Human Nature in Politics: The Dialogue of Psychology with Political Science. American Political Science Review 79, 293–304. Simon, H. (1997) Administrative Behavior. Fourth Edition. New York: Free Press. Seldon, A. (2005) Blair. London: Free Press. Stoker, G. (2000) The Three Projects of New Labour. Renewal 8(3), 7–15. Stoker, G. (2004) Transforming Local Governance. Basingstoke: Palgrave Macmillan. Taylor, M. (1996) When Rationality Fails. In: J. Friedman (Ed.) The Rational Choice Controversy, 223–234. New Haven: Yale University Press. Tversky, A. & Kahneman, D. (1986) Rational choice and the framing of decisions. Journal of Business 59(4), 251–278. Wanless, D., Appleby, J., Harrison, A. & Patel, D. (2007) Our Future Health Secured? London: Kings Fund. Retrieved October 10, 2010, from http://www.kingsfund.org.uk/research/publications/our_future.html Young, K., Ashby, D., Boaz, A. & Grayson, L. (2002) Social Science and the Evidence-based Policy Movement. Social Policy and Society 1(3), 215–224.

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved. doi: 10.3233/978-1-60750-727-7-110

Reform Begets Reform: How Governments Have Responded to the New Public Management B. Guy Peters University of Pittsburgh, Pittsburgh, Pennsylvania, USA

Governments are frequently involved in processes of administrative and policy reform. The reforms associated with the New Public Management (NPM) have been one of the largest and most sustained periods of reform, rivaling in magnitude if not in speed, those occurring during World War II in the history of the public sector. The emphasis on autonomous organizations and autonomous managers during the past                     #                  the levels of coordination within the public service, with the paradoxical outcome that even if the performance of individual programs was being improved, the overall performance of government may have been decreased. There have been a variety of responses to the problems created by such reforms. The reaction to the continuing issues of policy coordination, as well as the increased demands for performance resulting from NPM. require governments to develop mechanisms for producing better coordinated and more effective governance schemes. These responses range from returning to well-worn paths for producing more effective integration of policy to more innovative solutions.

Introduction One of the oldest activities of governments is reforming itself. No matter what any single                  ness, it is rarely very long before a set of dysfunctions associated with those reforms are also noted. Those dysfunctions then require consideration of some new directions for change within the public sector. The impetus for the new reforms within the public sector may come from within government itself, or it may come from outsiders – academics, interest groups, consultants – but in any case there will be some pressures for change. When we examine the organization and administration of the public sector over any                     

    ¡ š             ¡ š           }        is dependent upon a range of normative and political factors (Rothstein & Toerell 2008). What appears to be a well-designed and well-functioning government to some observers            

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Much of the basic logic of this cycle of reforms was set out some decades ago by Herbert Simon (1947) who argued that the “proverbs of administration” tended to come    >     $           uniformity, coordination and control. The opposite value of decentralization promises to provide more opportunities to match policies with local demands, greater democratic in         }             organizing government promise valuable outcomes for governments and for citizens, and if governments follow one track then they risk minimizing the other values. The preference for one or the other of these approaches to organizing government may depend upon                    Zeitgeist for management at the time. As well as applying to the principles by which public organizations, and groups of those organizations, are organized, the same dualistic nature can be discerned within the processes of reform themselves. That is, not only do the goals of reform tend to occur as dichotomies, but so too do the means by which those goals are achieved (Peters 1998). For example, some successful reforms have been imposed from the top down, e.g. the large-scale reforms of the British public sector imposed during the Thatcher government (Savoie 1994), while others have been attained by involving the objects of the reform – the public service – more directly in the design and implementation of the reforms. For example, in the Clinton administration the Reinventing Government project contained a number of instruments for involving lower echelon employees and clients in the process of changing the system (Peters 2002). Both theoretically and in the process of reform we can identify dichotomies inherent within the structure and processes of government. These dichotomies to a great extent   ƒ                           Ž     proach to organization theory (Fernandez & Rainey 2006) has attempted to address the need to match organizational formats with sets of demands being imposed upon those organizations, but has been relatively unsuccessful in identifying clear matches that could guide institutional design. }   ƒ       !    $     involved in organizing government. Organization and action in the public sector involves attempting to satisfy multiple constituencies with varying values and interests. No single organizational format is likely to be successful in satisfying those competing demands. >              

  

  not as complex. Further, reform in the public sector does not have to confront political and ideological demands that may prevent implementing the most “rational” forms of change. }   !                 the role that the New Public Management has played in guiding reforms during the past                    approach to reforming the public sector, there are a number of aspects of governing that have been affected by the New Public Management (NPM) (Hood 1991; Christensen & Laegreid 2007). Many of these transformations within the public sector have been di                  in the private sector is the appropriate exemplar for management in the public sector. This

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premise was adopted despite Graham Allison’s famous aphorism that “Public and private management are alike in all unimportant respects”. >                tor was to divide government into a number of autonomous or quasi-autonomous organizations and to grant those organizations much greater latitude to make and implement their own policies (Pollitt & Talbot 2004). The assumption was that having only a limited          +       without the possible confusion and cross-subsidy encountered in multi-purpose organizations. Likewise, having greater autonomy the managers in these agencies would have       $  +

            agencies. The net result of this structural change in the public sector was intended to               ¡ š   agency. While the structural change of creating agencies was the clearest manifestation of the pursuit of greater managerial autonomy within the public sector it was not the only one. The emphasis on managerial autonomy, whether within autonomous organizations or within more conventional ministerial organizations, has been a central tenet of the NPM, an idea captured in the phrase: “Let the managers manage”. The assumption was that if skillful professional managers could be freed from controls – whether from rules (DiIulio 1994) or from their nominal political masters – then the public sector would perform better. The emphasis on autonomous organizations and autonomous managers during the                     zens, as was intended by the advocates of those reforms. The agency model has generated improvements in service delivery and high-quality public management did enhance           } :'      formance of public organizations and enabled the public to ascertain more directly how                  organizations or not.

Coordination as a response to decentered government These reforms were not the panaceas that their advocates had anticipated. The advocates of the NPM to some extent appeared believe that their reforms would indeed generate       $       $        in order to “sell” the reforms politically. This problem has been endemic in attempts to        $           changes – even if they certainly did produce some positive changes. As well as generating                :'          /Ž  <  QUUX_         

                     public service, with the paradoxical outcome that even if the performance of individual programs were being improved, the overall performance of government may have been decreased. The agency reform was but one of many changes that have moved control out of the center of government, but it is an important impetus for searching for greater coherence in governing.

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Coordination is one of the oldest challenges for any system of governing. Many of the same problems arise in large private sector organizations although the availability of a common metric – i.e. money – for assessing performance provides greater capacity for generating coherence. As soon as governments began to differentiate into multiple, more or less specialized organizations problems of maintaining coherent governance emerged (6, 2004). These problems were exacerbated by the development and expansion of the welfare state when the public sector became increasingly involved in a range of policy     $      ! 

      The term coordination is used frequently when describing problems in the public sector, but it is often not conceptualized adequately. For example, some coordination           $        to correspond properly, creating a “poverty trap”, in which the interaction of the tax and             >    lems arise sequentially, as when food products pass from farm to processor to consumer and the safety programs associated with them must be successfully linked to maintain effective control (Burns 2010). Finally, some coordination problems are vertical, involving the interaction of central and lower level of government and attempting to create greater uniformity across the territory of the country. Another way to conceptualize the issue of policy coordination is to question whether coordination would better occur at the policy level or at the level of administration. Most coordination occurs at the administrative, implementation level. The organizations          !        operate well, may be well be forced to work out their differences. On the other hand, if       +   !                  

     +   will be cognizant of the potential budgetary and “turf” implications of cooperating with other programs. Finally, we can think about Fritz Scharpf’s (1997) discussion of “negative” and “positive” coordination. Negative coordination is the simpler of the two, meaning that organizations will merely understand what each other is doing and will attempt not to !      Positive coordination, on the other hand, involves not only not !          +         

    ?          ƒ substantially greater investment of organizational time and effort than does simply getting out of the way. We can also think about a third level of coordination–a strategic level. Rather than thinking about merely cooperating within the context of organizations that retain many of their own goals, if governments can move to a strategic level of coordination there will be consideration of comprehensive, strategic goals and how the individual organiza     { $   : •           [   %   !        “A healthier New Zealand”. Then the individual organizations in government have key results areas that are related to the broader goals. This enables establishing strategic plans for policy while at the same time relating the existing organizations in the public sector to those goals. The concept of coordination is complex, and the politics involved in coordinating may be even more complex. The reaction to the continuing issues of policy coordina-

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tion, as well as the increased demands for performance resulting from NPM require governments to develop mechanisms for producing better coordinated and more effective governance schemes. As we will discuss in the next section, these responses range from returning to well-worn paths for producing more effective integration of policy to more                    tions may require even greater investment of political capital.

Responses to the need for coordination Governments have been faced with a major challenge to their existing patterns of governance. Not only have reforms in governance resulting from the NPM reduced their capacity to govern from the center (Dahlstrom, Peters & Pierre 2010) but more general demands for government performance produce demands for more coordinated and integrated styles of governing. Faced with relatively common demands, it is important to understand the range of responses made by governments and the political and managerial logics that lay behind those choices. We will discuss these reactions beginning with responses that are              !    innovation. Departments and mega-departments As noted, the emphasis on organizational autonomy in NPM spawned a large number of organizations existing outside conventional ministerial departments. The numerous agencies resulting from the NPM reforms exacerbated the existing coordination problems. Most of these agencies were carved out of existing ministerial departments and therefore the simplest means of attempting to enhance their coordination is to return those organizations to their former departments or to other departments. Reabsorbing an agency is not a guarantee of enhanced coordination and, additionally, may not help coordination with other departments, but it is a natural response to perceived coordination problems. A somewhat more creative approach to the problem of autonomy is to create “megadepartments”. The idea of this approach is to build large structures that put all the relevant activities under a single organizational roof. The creation of the Department of Homeland Security in the United States is a clear example of this style of reorganization, bringing together over twenty organizations in this new department attempting to address problems of terrorism and domestic security. The constituent organizations ranged from small research facilities to large, armed protective services. The creation of mega-departments is not an entirely new response to the need to coordinate policies and programs. The creation of the US Department of Defense was intended to being together all four armed forces to create a more coherent defense force. Likewise, in the United Kingdom during the 1960s there was an experiment with a large Department of Economic Affairs and attempts to integrate a wide range of industrial and labor market policies. Sweden also developed a large department bringing together similar economic and communications activities. Even though the creation of these mega-departments may appear to be a logical solution to many problems of coordination, it is far from a panacea. First, it is not clear that simply putting organizations within a larger structure will make them work together, as

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the continuing coordination problems within the US Department of Defense indicate. The four armed services have retained their own cultures that continue to inhibit cooperation. Further, bringing a range of coordination problems within a single organizational structure may make that one large organization almost unmanageable, as the experience of Human Resources and Development Canada indicates (Good 2003). For purposes of coordination the greatest challenge facing building mega-departments may be deciding what functions and organizations should be in and what out. Even if a department is thought to be comprehensive, there may still be functions left out. For example, the Department of Homeland Security in the United States included a wide range of functions but left out the intelligence function that may be crucial for its ability to identify potential threats to security. And a number of public organizations may be multifunctional so that any place they are located is to some extent wrong. In summary, the non-innovative response to the management and policy challenges posed by NPM has been the easiest to implement but may also be the least effective in creating genuine coordination. Simply building ministerial organizations, no matter how large they may be, may only move coordination problems inside the department without solving them. Like any reorganization, however, it enables political leaders to argue that they have done something, and in this case they will have done something that creates minimal disruption within the administrative and policymaking systems. Creating czars As already argued the problem of coordination has been endemic in government, even if exacerbated by the NPM and governance reforms. A somewhat more innovative solution to this problem has been to create “czars”, or individuals to whom authority is delegated to coordinate a particular policy area and produce results in that area. For example, given the manifest failings leading up to September 11, 2001 President George W. Bush created an “intelligence czar” (technically the title is Director of National Intelligence) responsible for coordinating the various intelligence services although military intelligence  

           }          analogous to the current crop of czars in the past–Lord Beaverbrook became in essence a czar for aircraft production in Britain at the beginning of World War II (Ponting 1990). The Reagan administration in the United States created a “Drug Czar” responsible for coordinating the numerous federal agencies involved in the “War on Drugs”. Even here,                       ments. The contemporary use of czars in administration was most visible in the Blair government in the United Kingdom. Faced with pledges to improve the quality of public services and several embarrassing failures, Prime Minister Blair began to designate a number of individuals with responsibility for various services (Smith 2009). Several major accidents on the railways produced a railway czar, for example, and problems in the :  #  [          }    were responsible directly to the Prime Minister and had varying levels of real authority to change patterns of policy and administration in their area. The Obama administration in the United States has exceeded even the Blair administration in its use of czars. Some of these positions have been directed at dealing with the severe problems coming from the economic recession, for example the “car czar”

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responsible for subsidizing the purchase of new cars to stimulate that industry. Other czars, however, are more directed at coordinating a range of public sector activities. For example, there is now a Border Czar and a Climate Change Czar serving with President Obama, attempting to place his particular stamp on these policies. For all the czars there are real questions about what sort of managerial improve    

               budgets or policy but have primarily symbolic powers. The czars can also use the media effectively to attempt to mobilize public opinion in favor of change. That said, being able to speak in the name of a chief executive may enable the czar the ability to encourage the line departments to cooperate and to coordinate their activities. The use of czars has been much more common in the Anglo-American democracies than in other systems, perhaps in part because of the excessive impact of NPM and its decentering ideas in these systems. Even in the United States that had not adopted much of the NPM agenda per se, the history of autonomy for federal organizations (Carpenter 2004) has produced major coordination problems (Seidman 1999). There have been in           +    [       but the managerialism of the Anglo-American systems has produced a need for more innovative solutions. Procedures: joined-up government The most common responses to perceived problems within the public sector tend to be change the structures of the public sector. Another possible response is to change the procedures through which the public sector operates, or to add new procedures on top of existing arrangements. A number of different procedures have been used to attempt to bring programs together, but there have been several more innovative responses during     }          ment more generally, but have had a strong emphasis on improving coordination. One of the most innovative of these responses to the reforms from NPM has been the development of “joined-up government” in the United Kingdom (Bogdanor 2005). As the name implies the basic idea behind joined-up government (JUG) is to bring together those programs and organizations in the public sector that have been apart, especially those that                    of the Thatcher years. As developed early in the Blair years this program of joined-up government was intended to enhance coordination but it also was pursuing several other goals. Pollitt /QUU‘_  $               public resources, provide better interaction and cooperation among the whole range of stakeholders (not just those within the public sector) and also to provide a “seamless” set of service for the public. I have described this approach as being innovative, but Pollitt argues that there are clear antecedents to the approach in British government. Perhaps the clearest attempts were during the 1970s with the Central Policy Review Staff’s attempts to coordinate, especially in the area of social policy (Challis et al. 1988). Although those attempts were important attempts at coordination, they did not have the comprehensive character of the JUG initiative. In particular, the approach attempted to identify “broad, overarching themes” in government and to pursue those through more effective coordination. The

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reforms associated with NPM therefore have spawned an attempt to create a more comprehensive approach to the problems of policy coordination. The logic of joined-up government has to some extent been extended further to consider the possibilities of “Holistic Governance”. This concept (6, Leat, Selzer & Stoker 2002) implies considering more thoroughly how all the various programs and activities                     style of governing. This is an extremely interesting important idea about governing, but           +   }        tinuing tension in government between specialization and coordination (see Bouckaert, Peters & Verhoest 2010). Holistic governance therefore implies trading off the virtues of specialization in favor of more joined-up thinking and service delivery. At a less extreme level the whole logic of JUG also raises questions about just how far policymaking systems should go in attempting to put programs together into larger and presumably more coherent packages. The JUG approach does, however, force attention onto the policymaking dimension involved in coordination. The implicit, if not explicit, argument is that if public policies are not aligned, even if not in a totally holistic manner, then it is unlikely that they can work together as they are being implemented. There are important examples of enhancing coordinated service delivery at the implementation stage, e.g. Centrelink in Australia (Halligan 2005), but joining up government tends to rely more on getting the programs             The other political advantage of the JUG approach to coordination is that it focused attention, inside and outside the public sector, on the problems of policy coordination and coherence. Any number of governments have attempted ot produce better coordination among their programs but the JUG approach has been an attempt to encapsulate that need and provide a means of spreading the commitment to this program of change. Politically then, labeling a program of change as an innovation can pay some dividends, even if the actual content of the reforms in question are in many ways just repackaging of well-known patterns of management. At the same time, however, civil servants often become cynical about “innovations” having seen any number of them in the course of their careers. Although the genesis of the idea of joined-up government was in the United Kingdom, some of its basic concepts have been diffused to other governments. For example, New Zealand was often considered the prime example of the NPM but its government felt the need to adopt a program entitled “Restoring the Centre” to attempt to rebuild some of the policy coherence that had been lost (Gregory 2003; 2007). Likewise, Australia has instituted a program called the “Whole of Government” in an attempt to have the public sector return to functioning as an entity rather than as a set of autonomous agencies (Halligan 2007). Outside the Westminster political systems much of the emphasis on coordination has remained within rather conventional organizational formats, often relying on the chief executive (see Fleischer 2010; Dahlstrom & Pierre 2010). In summary, the problems emerging from the NPM have resulted in the development of a number of programs for reintegrating the public sector. Many of these changes in the public sector have paraded under the banner of joined-up government. This term does not, however, represent a clearly developed methodology for change so much as it represents a cast of mind that is focused on the problems of incoherence in government and the need to create more effective governance through improving coordination. However,

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in the political context within which these reforms are being implemented, being able to                is an important innovation in itself.

Coordination through the budget The budget is one of the central statements of priorities in government, expressed in terms of dollars, euros, or whatever. Given that it is so central stating what is important for government, it should also be a central locus for generating coordination. That is, however, often not the case and the budget may in reality be where organizations and programs attempt to carve out their individual empires rather than cooperate with others. The budget is typically a source of competition rather than cooperation within government, so attempting to use it as a source of coordination will require changing entrenched patterns of behavior. Historically the program budgeting innovations during the 1960s and 1970s in the United States (Wildavsky 1969) were an attempt to impose more coordinated styles of budgeting on this competitive system. The concepts that informed program budgeting were similar to those that returned in the joined-up government programs much later. The basic question being asked was what are the major goals of government and how do individual programs support those larger goals. The budget then was to be prepared in terms of the larger goals with the individual organizations receiving their budgets indirectly from the money allocated to those overarching goals. Although the governance logic of program budgeting was powerful and creative, its        !              the executive branch, program budgeting failed to recognize that the budget is both an instrument for allocating resources and a central instrument for Congressional oversight   $   }     !            Ž  +          countability. Therefore this important innovation never became institutionalized within the federal government. More recently the blurring of accountability in the NPM and the tendency toward more decentralized budgetary decisions has produced further innovations in governing. One of the most important of these has been the adoption of the ”Loi organique relative *    \ (LOLF) in France (Bezes & Le Lidec 2010). As did program budgeting, the LOLF moved away from line-item budgeting, and, rather than thinking about comprehensive spending and service categories, this reform adopted the performance budgeting strategy that had evolved from NPM (Miller, Hildreth & Rabin 2003). Programs and organizations had to create annual performance plans, with measurable targets, and budget allocations would be made with reference to performance. However, like the experiment with program budgeting in the United States this innovation also encountered substantial opposition because it too went against the “folkways” within government. The emphasis on performance budgeting can be related to the comments above about the levels of performance management in New Zealand. The budgeting system in France remained primarily at the level of the individual organization, as have most other forms of performance budgeting (Radin 2006). That said, however, to thinking about performance in broader categories (such as those used in program budgeting and linking those with

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analogs of the strategic results areas in the New Zealand example) would be a logical extension of the budgeting system and could move governing in a more coherent direction.

Managing priorities Finally, the devolution of control resulting from the NPM, as well as other trends in governance, has produced more direct attempts by governments to create innovative, strategic levels of governing. In addition to the New Zealand example of performance management already discussed, the government of Finland has been perhaps the most active in creating this more coordinated and coherent style of governing. While again one could

           { $         of attempting to set priorities and relate other programs to those goals. The reforms in Finland emerged in large part from the need to coordinate programs more effectively as well as from the perceived need to restore the “priority of politics” in governing (Bouckaert, Ormond & Peters 2000). As argued above, one of the impacts of the NPM has been to denigrate political control of policy and therefore politicians. In                     their positions in governing, to restore democratic values and accountability if nothing else. To some extent these two movements are linked because any attempt to manage priorities within government is almost inherently centralizing and will move power upward towards prime ministers and presidents. The Finnish plan for enhancing coordination is based on the initial agreement among parties forming the coalition governments in Finland. A part of the document creating the government is an agreement on a set of programs that cut across existing organizations             { $     government to use this system, the priorities were entrepreneurship, employment, information society and public participation. A program like employment involved existing ministries such as labor, industry, and education and required them to rethink how their activities contributed to the more comprehensive goal. The basic logic of program management is to involve existing programs and organizations in the cross-cutting programs. The programs are given a higher civil servant to coordinate these efforts and a lead minister and a committee of ministers from ministries contributing to the program to provide political leadership. That management structure for the program was adequate but the programs did not appear to have the resources necessary to gain the cooperation of existing organizations. The program managers were given little more than ‘the power to beg’ so that they had little capacity to ‘encourage’ the other participants to invest heavily in these cross-cutting programs when there are in                 organizations. There are also political questions about the investment of ministers and senior public servants in these programs. They exist for the life of a government, and may well be terminated at the end of that government. Of course new governments will have new priori            

!    processes of change. That said, however, for policy coordination to be effective strategically, there is a need for longer term thinking and some stability in the programs. Thus, as

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is always the case in effective governing, there is a need to balance long-term priorities with shorter term responsiveness for effective democratic governing.

Conclusion Governments are very frequently involved in processes of administrative and policy reform. The reforms associated with the NPM have been one of the largest and most sustained periods of reform, rivaling in magnitude if not in speed, those occurring during World War II in the history of the public sector. Despite the magnitude of these reforms, their success in some dimensions of management and the ideological support that they have enjoyed, they have by no means solved all the problems facing the public sector, even in those cases where they have been the most successful. The general result of the NPM reforms was to both shift power away from the center of government and to empower public managers relative to their nominal political mas  }                   many public sectors, especially in the industrialized democracies. However, as already argued, this style of reform also diminished the coherence of the public policies adopted, and also had a political consequence of reducing some of the capacity of political leaders  !       There have been a variety of responses, innovative and less innovative, to the problems created by the NPM reforms. It appears that all of the countries observed attempted to mobilize the power of the center of government in order to address these issues, but there were a number of attempts to move beyond those rather familiar responses to con                   coherent manner. These have all been interesting and important changes in patterns of governance but there is still a great deal more to do if the public sector is to become the effective policymaker and implementer that is required for contemporary societies. This continuing cycle of reforms should not be considered to be entirely negative. Although there has been a sequence of reforms each one tends to add something to the capacity of the public sector to govern effectively. In the examples cited here the coordination reforms discussed do not represent going back to an earlier pattern but rather moving                       reforms and builds on those reforms with a more strategic sense of governing. Thus, the                                 +    are responsible.

References 6, P. (2004) Joined-Up Government in the Western World in Comparative Perspective: A Preliminary Literature Review and Exploration. Journal of Public Administration Research and Theory 14, 103–38. 6, P., Leat, D., Selzer, K. & Stoker, G. (2002) Towards Holistic Governance: The New Reform Agenda. Basingstoke: Palgrave. Bezes, P. & Le Lidic, P. (2010) Steering from the Centre in France in the 2000s. In: C. Dahlstrom, B.G. Peters & J. Pierre (Eds.) 

  $  $  # 

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Bogdanor, V. (2005) Joined-Up Government. Oxford: Oxford University Press. Bouckart, G., Ormond, D. & Peters, B.G. (2000) A Possible Governance Agenda for Finland. Helsinki: Ministry of Finance. Bouckaert, G., Peters, B.G. & Verhoest, K. (2010) Specialization and Coordination in Seven Industrialized Democracies. Basingstoke: Macmillan. Burns, J.P. (2010) Coordinating Food Safety Policy in Hong Kong. Unpublished paper. Hong Kong SAR: Department of Politics and Public Administration, University of Hong Kong. Carpenter, D.P. (2001) The Forging of Bureaucratic Autonomy: Reputations, Networks and Policy Innovations in Executive Agencies 1862–1928. Princeton, NJ: Princeton University Press. Challis, L., Fuller, S., Henwood, M., Klein, R., Plowden, W., Webb, A., Whittingham, P. & Wistow, G. (1988) Joint Approaches to Social Policy: Rationality and Practice. Cambridge: Cambridge University Press. Christensen, T. & Laegreid, P. (2007) Transcending New Public Management. Aldershot: Ashgate. Dahlstrom, C. & Pierre, J. (2010) Steering the Swedish State: Politicization and a Coordination Strategy. In: C. Dahlstrom, B.G. Peters & J. Pierre (Eds.) Steering from the Centre: $  # 

 ^    Role in Governing. Toronto: University of Toronto Press. Dahlstrom, C., Peters, B.G. & Pierre, J. (2010) 

  $  $  # 

 ^    Role in Governing. Toronto: University of Toronto Press. DiIulio, J.J. (Ed.) (1994) Deregulating the Public Service: Can Government Be Improved? Washington, D.C.: Brookings Institution. Fernandez, S. & Rainey, H.G. (2006) Managing Successful Organizational Change in the Public Sector. Public Administration Review 66, 168–76. Fleischer, J. (2010) Governing from the German Centre: More Policy Coordination and Less Policy Initiation, In: C. Dahlstrom, B. G. Peters & J. Pierre (Eds.) 

  $  $  # 

 ^  and their Role in Governing. Toronto: University of Toronto Press. Good, D. (2003) The Politics of Public Management. Toronto: University of Toronto Press. Gregory, R. (2003) All the King’s Horses and All the King’s Men: Putting New Zealnd’s Public Sector Back Together Again. International Public Management Review 4, 41–58. Gregory, R. (2007) Theoretical Faith and Practical Works: De-Autonomizing and Joining-Up the State Sector in New Zealand. In: T. Christensen & P. Laegreid (Eds.) Autonomy and Regulation: Coping with Agencies in the Modern State. Cheltenham: Edward Elgar. Halligan, J.A. (2005) Politics Management Relations in an Agency Context: The Case of Centrelink. In: R. Koch & J. Dixon (Eds.) Public Governance and Leadership. Wiesbaden: DUV. Halligan, J.A. (2007) The Reassertion of the Centre in a First Generation NPM System. In: T. Christensen & P. Laegreid (Eds.) Autonomy and Regulation: Coping with Agencies in the Modern State. Cheltenhan: Edward Elgar. Hood, C. (1991) A Public Management for All Seasons? Public Administration 69, 3–19. Miller, G., Hildreth, W.B. & Rabin, J. (2003) Performance Based Budgeting. Boulder, CO: Westview. Peters, B.G. (1998) What Works? The Antiphons of Administrative Reform. In: B.G. Peters & D.J. Savoie (Eds.) Taking Stock: Assessing Public Sector Reforms. Montreal: McGill Queens University Press. Peters, B.G. (2002) The Future of Governing. 2nd edition. Lawrence: University Press of Kansas. Pollitt, C. (2003) Joined-Up Government: A Survey. Political Studies Review 1, 34–49. Pollitt, C. & Talbot, C. (2004) Unbundled Government: A Critical Analysis of the Global Trend to Agencies, Quangos and Contractualisation. London: Routledge. Ponting, C. (1990) 1940: Myth and Reality. London: Hamish Hamilton. Radin, B. (2006) Challenging the Performance Movement: Accountability, Complexity and Democratic Values. Washington, DC: Georgetown University Press. Rothstein, D. & Toerell, J. (2008) What is the Quality of Governance? A Theory of Impartial Government Institutions. Governance 21, 165–190. Savoie, D.J. (1994) Reagan, Thatcher, Mulroney: In Search of a New Bureaucracy. Pittsburgh: University of Pittsburgh Press. Scharpf, F. W. (1997) Games Real Actors Play: Actor Centered Institutionalism. Boulder, CO: Westview Press. Seidman, H. (1999) Politics, Power and Position: The Dynamics of Federal Organization. 5th edition. New York: Oxford University Press. Simon, H.A. (1947) Administrative Behavior. New York: Free Press. Smith, M.J. (2009) Tsars, Leadership and Innovation in the Public Services. Paper presented at annual conference of the Political Studies Association of the United Kingdom, Manchester, April 7–9. Wildavsky, A. (1969) Rescuing Policy Analysis from PPBS. Public Administration Review 29, 189–202.

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved. doi: 10.3233/978-1-60750-727-7-122

State-Level Health Care Reform and Innovation in the United States: the Experience of Massachusetts Jennifer F. Baron Institute for Strategy and Competitiveness, Harvard Business School, Boston, MA, USA

In 2006, Massachusetts signed a landmark health care reform bill aiming to make it   Y[           ?  



 in 2008 that sought to curb rising health care costs and improve quality of care. Key elements of the reforms included the creation of two new insurance programs: Commonwealth Care, offering subsidized coverage via private health plans to lowincome individuals; and Commonwealth Choice, offering unsubsidized private coverage to individuals and small businesses. A new independent state agency known as the Commonwealth Connector Authority was developed to oversee both insurance programs. Employers with 11 or more employees were required to offer to pay a “fair and reasonable” portion of their workers’ health insurance premiums, or pay a per employee fee. Among the most controversial aspects of the reform was the introduction of an individual insurance mandate, requiring all adults to obtain health            $ [      including a major role for the private sector and emphasis on performance measurement, embody principles of the governance and New Managerialism or New Public Management (NPM) theories that have gained popularity in recent decades. With regard to results of the reform, by 2009, more than 97% of Massachusetts residents were believed to have health insurance, the highest proportion of insured individuals in any US state. Although still in its early stages, the Massachusetts plan was commonly cited as a possible starting point for broader, national health care reform efforts.

Introduction Upon becoming Governor of Massachusetts in 2003, Republican Mitt Romney took the helm of a state with roughly half a million uninsured residents, and costs of insurance and care were rising (Cook 2006; Blue Cross Blue Shield of Massachusetts Foundation 2004). These circumstances were not unique to Massachusetts, which actually enjoyed a lower rate of uninsurance than most other US states. Yet the state and its new Governor were determined to develop an innovative solution. After studying the problem, Romney noted, “We’re spending a billion dollars giving [uncompensated] health care to people who don’t have insurance. And my question was: could we take that billion dollars and help the poor purchase insurance? Let them pay what they can afford. We’ll subsidize what they can’t (Knox 2006).”

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The ensuing three years involved heated debate and negotiations both among policymakers and with various non-governmental constituencies. On April 12, 2006, Romney   +     

   + '    Y[ state to achieve nearly universal health insurance coverage for its residents. Only two of 193 state legislators voted against the plan. A second wave of reforms in 2008 introduced provisions designed to begin to curb the rising costs of care and coverage while improving the quality of health care delivery. In 2009, the state was contemplating yet a third round of changes, this time to address provider reimbursement. Meanwhile, the Massachusetts efforts were again in the spotlight amid a controversial push for national health care reform in the United States. Upon examining the components of the Massachusetts legislation and the results achieved to date, some federal lawmakers considered the Massachusetts reforms to be a virtual roadmap for broader change. Faced with the same information, others deemed the Massachusetts experience a failure that should serve as a warning sign for national reform (Trumbull 2009; Lischko, Bachman & Vangeli 2009; Dorn & Hogan 2009; King 2009). The Massachusetts experience with health care reform is a far cry from the era when, as Woodrow Wilson described, “government went about imperatively and compelled men, without thought of consulting their wishes (Wilson 1887).” Instead, the course of reform in Massachusetts has involved a more decentralized role for government that includes close collaboration with non-government stakeholders, conscious variability in services delivered to residents, and performance measurement of both government entities and their partners. In this way, both the legislation and the reform process itself exhibit modern trends in public administration. In particular, many of the characteristics of the Massachusetts reforms are key aspects of the Governance and New Managerialism or New Public Management (NPM) theories that have gained popularity in recent decades (Peters 2003; Peters & Pierre 1998). In spite of these elements, it would be premature and likely inaccurate to say that Massachusetts is actively pursuing either approach. As University of Chicago Prof. Laurence Lynn has aptly observed, public management in the US is “never a coherent phenomenon (Lynn 2006).” Moreover, while many of the implications of governance and NPM theories are similar, the ideology underlying the practices often differs, requiring insight into “the” rationale behind reforms that actually represent a compromise of multiple philosophies. Nonetheless, the governance and NPM terminology can serve as a useful framework to examine Massachusetts health care reform, as the effort not only represents an innovative approach to a previously intractable state-level issue, but is considered by many to have been a starting point for national reform. After describing the process and content   '      

!          and other stakeholder networks in shaping public policy, a core principle of governance   

            }  

  $amine the components most closely aligned with NPM, including a major role for the                 ment (Hood 1991).

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Preparing for reform Building consensus Governor Romney was only one of many public and private sector individuals and or   !               legislation. Some of these actors, such as the Blue Cross Blue Shield of Massachusetts Foundation, had been campaigning for change even prior to Romney’s election. The Foundation, created in 2001 by the state’s largest private insurer of the same name, partnered with a public policy think tank to form the “Roadmap to Coverage” initiative to         } %                           that served as focusing events for the Governor and other political leaders to discuss their plans (McDonough et al. 2008). Other non-governmental players included the local advocacy community, which had a strong presence in Massachusetts. A range of existing organizations from religious groups to labor unions formed a coalition that supported reform measures such as state Medicaid expansion, penalties for employers that did not offer health insurance to their workers, and subsidies to help lower-income residents purchase coverage (McDonough et al. 2008). As leverage, the coalition worked to collect enough signatures to put its own universal health care proposal up for a vote in the November 2006 state elections if the          @    /‹ QUUŠ" #  Ž for All 2005). Public sector involvement was not limited to the Governor and state legislature; the federal government also served as a major catalyst for Massachusetts reform. The Centers for Medicare and Medicaid Services (CMS), the federal agency which administers the US Medicare and state Medicaid health insurance programs, had required Massachusetts to reduce the number of uninsured residents as a condition of renewing its federal Medicaid waiver (Porter & Baron 2008; The U.S. Centers for Medicare and Medicaid Services 2010; D’Angelo & Haislmaier 2008). Each US state operates its own Medicaid program, all of which are required to cover certain populations (e.g. poor pregnant women and children) and health care services (e.g. physician and hospital care, laboratory services). Each program in turn receives federal “matching funds” for state money spent to cover these mandatory services and populations. Match rates range from 50% to 76%, with poorer states receiving higher rates. For expanded services or populations, however, federal matching funds are provided only when approved by federal waivers. For that reason, Massachusetts had to successfully renew its federal waiver in order to maintain its state Medicaid program. Governor Romney negotiated an agreement with CMS under which the state would directly subsidize the purchase of insurance for low-income individuals. Even with some degree of reform virtually inevitable following that agreement, however, achieving political consensus was not easy. Governor Romney personally delivered letters to legislative leaders’ residences urging them to continue discussions, while US Senator Ted Kennedy reportedly telephoned leaders at home to encourage progress (Belluck 2006; Porter & Baron 2010).

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Enablers of reform In addition to the stakeholders listed above, two important factors contributed to the timing and feasibility of state health care reform. First, in the mid-1990s Massachusetts had implemented policies designed to minimize premium variability in the individual and small group markets. These policies likely improved access to coverage for people with $                           { $  ¡     š 

 miums to vary by age, geography, and family size, but not by health status and gender (Felland, Draper & Liebhaber 2007). The highest premium charged by a plan could not be more than double the lowest (a “two-to-one” rate band). Additionally, health plans in Massachusetts had to accept all applicants (“guaranteed issue”) and could not refuse to renew their policies or re-underwrite their premiums for medical reasons. In states that lacked these policies, additional insurance reforms along these lines would likely have been needed to promote affordability for individuals and small groups. And second, Massachusetts spent over $600 million per year to deliver health care to          /Ž   '  2006). This funding came from a state Uncompensated Care Pool, created in 1985 to support individuals ineligible for public programs and unable to pay for health care services. Since 1990, uncompensated care costs had exceeded the pool’s available funds nearly every year (Seifert 2002). Challenges to reform Alongside these enabling circumstances, Massachusetts also faced ongoing obstacles to reform related to the state’s provider and insurance markets as well as the timing of reform. Massachusetts is a medical care and education hub with a concentrated provider market that includes several of the nation’s most reputable academic medical centers. Health plans feel compelled to include those centers in their networks due to employer     \  !     +   ‚    health plan premiums – high (Holahan & Blumberg 2009). Such a dynamic can be detrimental, not only by amplifying prices but also by muting incentives to innovate and                    $  ' ter and Elizabeth Teisberg (2006) to mean patient health outcomes achieved per unit of cost spent. That is not to say that these providers are not innovative in spite of their substantial leverage; countless research milestones have indeed been achieved in Massachusetts. However, the type of innovation pursued is likely quite affected by the competitive landscape, which does not require providers to demonstrate and improve patient value (i.e.           _          tracts or patients. The market for health plans in Massachusetts is also concentrated, with a single in        ‰U­         /#  & Blumberg 2009). The lack of competition among insurers in turn diminishes the incentive for the dominant player to pressure providers to improve value for patients. And as in other insurance markets, when insurers do negotiate with providers, they focus heavily

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on driving down the cost component of the value equation rather than seeking to improve patient health outcomes. This is a natural reaction within the current system, where prices             #      minimizing spending on up-front care, or introducing incentives to ration necessary care, can actually raise long-term costs by impairing quality, for example through higher rates of complications or incomplete recovery that ultimately require additional services and spending (Porter & Teisberg 2006; Porter & Baron 2008; Porter, Teisberg & Wallace 2009; Fuhrmans 2007).

2006 Reform legislation The 2006 Massachusetts health care reform legislation, entitled “An Act Providing Access to Affordable, Quality Accountable Health Care,” sought to modify the way health insurance was purchased and administered to ensure that everyone had access to an affordable plan. Subsidies were introduced to help low-income residents purchase private insurance, and an individual mandate required nearly all adults to obtain coverage. Individual mandate Perhaps the most contentious aspect of the Massachusetts reforms was the requirement that virtually all adults obtain health insurance coverage. Addressing his state’s divided public opinion shortly before signing the bill, Governor Romney reminded doubters that, “we insist that everybody who drives a car has insurance, and cars are a lot less expensive than people (Fahrenthold 2006).” }         +   Y[        of coverage by ensuring that healthy individuals, who were more likely to forgo insurance, were paying into the system (Commonwealth of Massachusetts 2006). Uninsured adults deemed to be able to afford coverage face tax penalties that are scheduled to increase over time. Health Connector A new independent, quasi-governmental state agency called the Health Connector was created to administer much of the new legislation. The organization is run by a 10-mem                   and other private sector representation. The Connector’s funding comes both from the state (an initial infusion of $25 million) and revenue from operations (Lischko, Bachman & Vangeli 2009). }      

         serves as a marketplace for private coverage under two new health insurance programs. Y    Ž  Ž  Ž       plans, selected by competitive bidding. These plans are available through the Connector on an unsubsidized basis to individuals, families, and small employers. Each participating insurer must offer four different options with a range of deductibles and other cost-

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sharing requirements. The lowest premium plan must be a special Young Adult plan for    |œ  Q‰ The second new insurance program, Commonwealth Care, is open to low-income Massachusetts residents ineligible for Medicaid coverage (Health Connector 2009). Plans with no insurance premiums and minimal cost sharing are available to those with incomes below 150% of the US federal poverty level, or $16,620 for an individual in 2009. Premiums for people with incomes up to 300% of the poverty level are subsidized on a sliding scale. The Connector is also responsible for reviewing and certifying Commonwealth Choice and Care plans, setting affordability standards for Commonwealth Care premiums, and waiving the individual mandate for adults earning above 300% of the federal poverty level who cannot afford a plan that meets Connector standards (Health Connector 2010). Individual and small group insurance market reforms Notably, the Health Connector is not a purchasing pool and does not hold any risk for its commercial products. To that end, the 2006 reforms merged the small group and nongroup insurance markets to improve the risk pooling mechanism for residents seeking coverage outside of large employers (which are often self-insured).1 Individuals are now               

 /'~    2008). Combining the lower-priced 750,000-person small group market with the roughly 50,000-person individual market was expected to decrease non-group premiums by approximately 15% while increasing small group rates between 1% and 1.5% (Felland, Draper & Liebhaber 2007; Gorman Actuarial et al. 2006). Medicaid expansion To further improve access to insurance outside of the Connector, Massachusetts Medicaid was expanded to cover more of the state’s low-income residents, including raising the income eligibility cap for children from 200% to 300% of the federal poverty level. Along with opening the program to a broader population, $3 million was provided for outreach   '          

 Ž     had been cut in 2002, such as dental and vision services, were restored, and a smoking cessation pilot program was created. Employer requirements The legislation sought to retain and reinforce the employer-based health insurance system, as nearly 69% of non-elderly Massachusetts adults received private coverage through their employers at the time of the reforms, versus 63% nationally (Kaiser Commission on Medicaid and the Uninsured and Urban Institute 2008). Still, nearly 75% of the uninsured

1 Self-insured employers effectively function as insurers, using their employees as risk pools. Self-funded plans ƒ       +               receive.

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         +  

 /'  ~vision of Health Care Finance and Policy 2006). Under the 2006 reforms, all employers with 11 or more full-time workers are required to contribute to health care costs or pay an annual “fair share contribution” of $295 per full-time employee who accesses medical care funded by the state’s free care pool for the uninsured (Health Connector 2010). {                   all full-time employees. While they cannot make more generous premium payments to cover higher-paid employees, they can make larger contributions for lower-paid workers, subject to certain limitations (Raymond 2007). Employers with more than 10 workers are also required to offer a “Section 125” or “cafeteria” plan that enables employees to pay for insurance on a pre-tax basis. Quality and Cost Council A Quality and Cost Council was created to “establish health care quality improvement and cost containment goals (Chapter 58 of the Acts of 2006).” The Council is governed by a 13-member body that includes seven health care quality and cost experts appointed   ‹  

 $         /'# Ž>    QU|U_ %              a major provider system, and local policy and research organizations. The Council’s responsibilities include the development of health and quality and cost containment goals, performance measurement benchmarks, and the design and implementation of quality interventions. The Council is encouraged to collaborate with other organizations and to use existing quality and cost measures to the extent possible. The Council is also charged with creating a consumer health information website to help individuals make informed choices among health care providers. The website includes quality and cost information for nearly 30 medical conditions and procedures, reported by provider organizations.

Reform “Phase II” By 2008, the reforms had resulted in coverage of more than 300,000 previously uninsured Massachusetts residents and attention had shifted to containing the cost of health care delivery (Commonwealth Fund 2008). It was widely believed that failure to curb the cost of coverage and care would threaten the sustainability of reform. While improving access to coverage had already reduced average out-of-pocket health care spending for Massachusetts residents, the state’s contribution to Commonwealth Care subsidies were proving higher than expected (Long 2008). ? 

  !$          care amid a recognized national shortage in primary care clinicians. Underlying the shortage were long, unpredictable hours and substantially lower pay than most other medical specialties (Kowalczyk & Rose 2008). In 2008, waits to see some primary care physicians in Massachusetts were as long as 100 days, while the number of internists no longer accepting new patients had risen to 42% from 33% in 2004.

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  '  [   } '     

 ¡? ?    Ž Ž   }  —    ~  of Quality Health Care.” Signed into law on August 11, 2008, the Act aimed to address health care costs to ensure the sustainability of expanded access to coverage and care. It also imposed limits on certain types of gifts given to clinicians by pharmaceutical and medical device companies, and sought to improve access to primary care, particularly primary care physicians. Access to primary care To improve access to primary care, the law called for the creation of a Center for Primary Care Recruitment and Replacement. The Center’s responsibilities include monitoring trends in access, engaging in outreach and recruiting efforts to encourage primary care providers to practice in Massachusetts, coordinating state and federal loan repayment and other incentive programs aimed at primary care providers, and acting as a career service center and providing primary care job placement assistance (Chapter 305 of the Acts of 2008). In addition to coordinating existing incentive programs, the Center is also charged with establishing a primary care workforce development and loan forgiveness grant programs at facilities in underserved areas. Participating clinicians would be obligated to perform at least four years of service in Massachusetts. To increase the number of primary care physicians in the medium- to long-term, the law also directed the University of Massachusetts Medical School to expand its class size in order to train and graduate more primary care doctors. Health information technology A principal component of the law’s cost containment approach involved measures to increase the prevalence and use of health information technology. The legislation set a goal of state-wide implementation of an electronic health record (EHR) in all provider settings as part of an interoperable health information exchange by the end of 2014 (Massachusetts e-Health Institute website 2010). Hospitals and health centers will also have to implement computerized physician order entry (CPOE) systems by fall 2012 (Monegain 2008). To facilitate the process, the law created the Massachusetts e-Health Institute with a mission to “create and maintain a statewide, interoperable electronic health records system to improve patient safety and quality, and to lower costs in the state’s health care system, with a particular emphasis on...underserved regions” (Chapter 305 of the Acts of 2008). Ultimately, adoption of qualifying EHRs will become a condition of obtaining and renewing provider facilities’ state licenses, and medical board applicants will be required to demonstrate competency in using health IT as a standard of eligibility (Chapter 305 of the Acts of 2008). ?     #      {      @     include issuing grants to provider organizations working to develop and deploy new technologies. This type of funding is considered essential to small providers in particular, as EHR systems can cost $30,000 or more (Allen 2008).

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In the interest of promoting interoperability both within and across providers and provider systems, e-Health Institute funds may only support products or networks that          Ž    Ž  #    }  /ŽŽ#}_       ¡     body” for US health information technology by the federal government (Chapter 305 of the Acts of 2008). Reimbursement reform The law called for a Subcommittee of the Quality and Cost Council to explore health care   [ 

  [     +     velop non-binding payment guidelines and best practices to align purchasing incentives around quality improvement and cost containment (Chapter 305 of the Acts of 2008).

Massachusetts health care in 2009 Coverage The 2006 reforms clearly set a principal goal of improving access to coverage, and early results suggest much progress has been made. By summer 2009, over 400,000 Massachusetts residents had obtained health insurance since 2006, with estimates suggesting only 2.7% continued to lack coverage (Health Connector 2009). Approximately 151,000 individuals, over one-third of the newly insured, are enrolled in subsidized coverage through Ž  Ž       #  Ž  >    over 40% contribute to the cost of their monthly premiums while the rest receive fully subsidized coverage. About 132,000, or nearly one-third of the newly insured, are enrolled in private insurance plans purchased either through the Health Connector’s Commonwealth Choice plans (21,000 individuals) or from an employer-based or individually purchased plan (Health Connector 2009). The Health Connector offered six plans through the Common  Ž  } $          resent about 90% of the commercial insurance market in Massachusetts. Another 99,000 individuals had enrolled in Massachusetts Medicaid, while more than 25,000 legal immigrants were covered via a new “Massachusetts Bridge” program          Ž  Ž /'% 2010). Of the residents who remained uninsured in 2007, around 40% had been exempted from the individual mandate, either because they were deemed unable to afford it or due to religious beliefs (Health Connector 2009). The remaining 60% were subject to the mandate according to the Connector’s affordability standards, and incurred a tax penalty. As of 2009, pre-reform fears that expanding access to coverage via the Connector and public programs would lead to declines in employer-based coverage (“crowd out”)         '          X‘­  QUUX  X–­  QUUœ       statistically unchanged (Gabel et al. 2008). Nor have employers sought to restrict the

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scope of coverage offered or the groups of employees eligible for coverage (Long & Stockley 2009). Access to care Ž                 non-emergency care than before reform. Indeed, according to a 2008 survey, 92% of Massachusetts residents reported having a primary health care provider (Health Con  QUU–_ >  Š­  

           !   |U­          /#  Ž  QUU–_ In fall 2007, low-income adults were 6% more likely to have undergone a physician visit for preventive care (e.g. a well visit or physical exam) than the previous year. In addition, the share of adults spending more than $500 per year out-of-pocket on health care expenses fell by about 4% (Health Connector 2009). These reductions were concentrated among low-income adults, a population that also saw an 8% decline in those spending more than $3,000 per year. Still, efforts to expand health insurance coverage have generated concern about whether access to coverage might come at the expense of ease of access to care, for both            QUU‰       appear to have declined, the proportion of low-income adults citing unmet health care                 QUU‰  2007 (Health Connector 2009). Costs Cost has without a doubt been the most controversial aspect of the Massachusetts reform efforts, both in terms of the cost of reforms themselves (e.g. Commonwealth Care subsidies) and in terms of the state’s overall health spending. }    $    *     QUUœ   than $150 million, drawing major criticisms about sustainability (Lischko, Bachman & Vangeli 2009). However, the higher cost was due largely to higher than expected enrollment in subsidized Commonwealth Care plans rather than under-estimating the per capita cost of coverage. Other reasons for the excessive costs included a more generous subsidy schedule than originally anticipated, and probable adverse self-selection into Common  Ž   / +       +   

   year) (Holahan & Blumberg 2009). For Commonwealth Care enrollees, the cost per covered life actually came in just                  !   QUUX  2008 (Health Connector 2009). Moreover, 2009 premium increases of less than 4% were expected for Commonwealth Care plans, with estimated increases for Commonwealth Choice only slightly higher at 5%. Discerning the overall impact of reform on costs of coverage and care in Massachusetts is substantially murkier than examining direct costs of reform in isolation. Average insurance premiums in Massachusetts have continued to rise since 2006, remaining among the highest in the country (though this was also the case prior to reform). A 2009 report showed that average family premiums for employer-based plans in Massachusetts were $13,788, a 40% increase from 2003 versus a national increase of 33% (Lazar 2009).

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However, individual coverage can be obtained at a lower cost than before reforms, based on a comparison of monthly 2006 and 2008 premiums in the individual insurance +        $       +            QUU‰   for the Commonwealth Choice plans offered by the same insurers in 2008. The 2008 Ž  Ž         ! *   for virtually all plans, with some up to 30% or even 40% less costly (Turnbull 2008). Of the plans considered, only one HMO (Health Management Organisation) for a family of 4 cost more in 2008 than in 2006. Reimbursement reform In 2009, the state was considering still another round of changes, this time to address provider reimbursement. In July, the Quality and Cost Council Subcommittee issued nonbinding recommendations as called for by the 2008 reform legislation. The group, whose members represented state government, physician and hospital associations, insurers, and academia, unanimously proposed a strategy of “global payments,” positioned as an “updated” form of capitation (Bebinger 2009). Capitated payments were used widely by managed care plans in the U.S. during the |–œU  |––U    $          }  amount was paid for each person served (though payments could be risk-adjusted), and did not vary according to the quantity of services actually delivered. Capitation is often considered in the context of cost containment approaches because it eliminates incentives to over-provide care by setting pre-determined payment levels regardless of the volume of services provided. In contrast, under fee-for-service payment, the dominant approach in Massachusetts, providers can earn more by delivering more care, in turn driving up insurance premiums (Bebinger 2009). The Special Commission’s proposal would connect the state’s providers into health care networks or “Accountable Care Organizations (ACO),” and charge the networks with managing patients’ care in exchange for global payments (Bebinger 2009). Networks would be built around one or more hospitals, physicians, and other provider organizations, forming systems that could care for many or all of patients’ health care needs. Each patient’s network – and the corresponding payment for that patient – would be determined based on his or her primary care physician. The patient would remain legally free to obtain care from a provider outside of the network, though insurance contracts could charge more for those services or prohibit them altogether (Kirwan & Iselin 2009). The Commission did not specify how reimbursement for out-of-network care would work, noting that such care could continue to be paid on a fee-for-service basis. Whether and how this would affect the original network’s global payment is unclear. To minimize the insurance risk assumed by the provider networks, payments would  + *   !      $ /= <   QUU–_ Networks would, however, assume responsibility for “performance risk” in terms of cost, access, and quality. To minimize incentives to under-provide care, each network would         ¡    !    process compliance, patient health outcomes, access to care, and patient satisfaction. Pay-

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for-performance incentives would then be based on “consistent performance measures and measurement across all payers.” A new independent Board or existing state executive branch agency would oversee the implementation process, with key responsibilities including developing global pay            +  ?Ž>    measures, and analyzing results (Kirwan & Iselin 2009).

Discussion: Principles of NPM and governance in the Massachusetts reforms The Massachusetts health care reforms have deliberately or otherwise combined elements of governance and New Public Management theories. Additionally, steps such as the individual coverage mandate and Medicaid expansion could be argued to more closely !             }+   however, the reforms largely embody a “steer, not row” role for government common to both governance and NPM approaches (Peters 2003; Peters & Pierre 1998; Van Kerbergen & Van Waarden 2004). Since most would agree that government exists, at least in part, to ensure the provision of public services, the approach to public administration is most important to the extent that it impacts that aim. Whether universal access to health insurance and care is a human right and should be considered a core responsibility of government is beyond the scope of this paper. But given that Massachusetts, like the United States, does aspire to achieve universal coverage, the state’s approach to public administration can be evaluated in terms of whether it is likely to support that goal. The new Commonwealth Care and Choice plans offered by the Health Connector, merged individual and small group insurance markets, Medicaid expansion, and the individual mandate have already brought Massachusetts closer to universal coverage than any other state. While much remains to be done, early results are hopeful, considering that the state is only just beginning to tackle the cost reduction and quality improvement efforts essential to sustainability. Even after all of these changes have been implemented, however, their true effects may not be known for years. While Commonwealth Care subsidies and Medicaid expansion have increased near-term costs, any savings derived from a healthier population will take substantially longer to achieve (Porter 2010a). Principles of governance As with NPM, governance theory suggests that government is becoming more of an “Enabling State than it is a hierarchical, commanding State (Peters 2003).” According to the governance approach, non-state actors assume a prominent role under an enabling state, forming networks involved in shaping and implementing policy. In Massachusetts,        +     !        cess. Within the private sector, providers, insurers, and employers all participated to varying degrees, some of which were organized into associations and other networks. The advocacy community was extremely well organized into formal networks that included representation for low-income groups and other vulnerable populations that often risk exclusion from policy considerations (Peters 2004).

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The legislation itself also incorporates innovative agency design that includes representation from multiple private sector health care networks and stakeholder groups. For example, more than half of the 13 members of the Health Care Quality and Cost Council’s    $      ‹          this way, the state is serving as an enabler of quality improvement and cost containment,    $                 Governance theory also questions the appropriateness of uniformity of administration and services for all “clients” or citizens (Peters 2004). The Massachusetts coverage $                 tors such as access to employer-based coverage, as well as differing standards for em          /     _ and size (e.g. assistance with IT implementation). Residents purchasing Commonwealth Choice coverage through the Health Connector are also able to choose among multiple plans offering variable cost sharing levels. The young adult option varies both cost sharing and coverage levels to meet the needs of a population that is generally healthy and often seeks coverage for unexpected, “catastrophic” conditions rather than regular care. Principles of New Public Management First, the Massachusetts reforms preserve a substantial role for the private sector in both health insurance coverage and care delivery. As before the reforms, health care services in Massachusetts continue to be delivered by private providers even when funded by publicly-run health insurance programs (e.g. Medicaid, Medicare). While as noted above, the reforms did expand the public state Medicaid program, the real innovation involved the creation of Commonwealth Care and Commonwealth Choice, both of which expanded coverage through health plans offered by private insurers. The reforms also retain and arguably strengthen the state’s primarily employer-based                         

     + } ƒment that employers contribute to employee coverage or pay a fair share contribution can promote value, not just by improving access to insurance but by presenting opportunities for higher value coverage.2 An employer-based system can offer advantages in today’s setting where providers and insurers try to be all things to all people and patients lack suf                 '   have realized that it is very much in their interests to maintain a healthy workforce, with estimates suggesting the costs of diminished productivity due to chronic disease can be two to four times greater than the direct health care costs for those conditions (Partnership for Prevention 2005; Working Toward Wellness 2008). Although individuals can now access coverage through the Connector, many larger employers are still better positioned to negotiate with health plans3 on their employees’ behalf. Though few employees have done so, employers can also customize covered ser-

2 It is debatable whether the US system of predominantly employer-based coverage would be optimal if creating a health care system from scratch. 3 Or third-party administrators, in the case of self-insured employers.

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vices and even provider networks to meet the particular needs of its employees, who may comprise fewer, more similar sub-populations than the general public. With daily access to employees, employers are also in a unique position to promote healthy behaviors. Second, the reforms rely on competition among private insurers and providers to im  ƒ                 also the case in Massachusetts pre-reform, and in the United States in general, the new legislation together with existing state insurance market regulations aim to improve the way these organizations compete. }                  }  sent patient health outcomes achieved per unit of cost spent. In other words, the principal                                    /  < } QUU‰_ Competition per se does not enable value creation in health care. In fact, the United States has historically been a prime example of the value destruction that can occur when insurers engage in “zero-sum” competition on factors other than value, such as compet  $  +         @   they become ill.4 Competition can be a positive force for value creation, however, when 

       $

      '   $  state legislation works to promote value-based competition through guaranteed issue and           @       ¡ sum” practices. Third, the later rounds of Massachusetts reforms focus heavily on cost containment, which will be needed to sustain premium subsidy levels and improve affordability of private coverage. The rising costs of coverage and care have been a major impetus for state and national health care reform in the US. Yet unlike the “do more with less” approach to controlling costs that is often associated with NPM, health care strategists have suggested a positive relationship between quality improvement and cost containment (Hood 1991; Porter & Teisberg 2006). In other words, the best and only way to sustainably control costs while maintaining access to services is to improve the quality of coverage and care delivery. Inevitably, attempts  ¡ š                 +   patients are often forced to forgo high-value care while resources are dedicated to cost shifting exercises rather than improving patient health (Porter & Teisberg 2006). Massachusetts has taken some steps that could improve quality while containing costs, such as efforts to improve access to primary care and increasing the use of interoperable health information technology. Primary care services that keep patients well and catch diseases early can impact both the numerator (outcomes) and denominator (costs) of the value equation, with costs including both the direct costs of coverage and care as 

               pendently (Porter & Teisberg 2006). The state’s approach to health information technology would also create value by improving clinician access to patient health information, reducing costly duplicative or

4 For an in-depth discussion of zero-sum versus value-based or positive-sum competition in health care, see Porter, M. E. & Teisberg, E. O. (2006) %  ' $ Boston: HBS Press; see also http://www.hbs. edu/rhc/index.html

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even harmful care. Interoperability would enable communication and information sharing even across out-of-state providers, recognizing that health IT can achieve much more than simply automating existing processes (Porter & Teisberg 2006). Health IT can also greatly facilitate health outcome and cost measurement and analysis of results for providers and health plans. Fourth, the state charged the Quality and Cost Council with developing a health care quality measurement system, and publishing the information online for public use. Performance measurement is linked to both NPM and Governance approaches, although in those contexts, measurement may be used to justify or evaluate a cost-quality tradeoff that many argue does not apply in the same way to health care (Hood 1991; Porter & Teisberg 2006; Bouckaert & Peters 2002). In order to achieve and accelerate improvement in quality and cost, the most effective next step that Massachusetts can take will be to vastly improve and expand its system for measuring and analyzing the results of care and coverage, as authorized by the Quality and Cost Council (Porter 2009; Porter & Baron 2009). All providers and health plans should ultimately be required to measure and report their patient or member health outcomes for every medical condition and patient population.5 Great care must be taken to focus principally on true patient health outcomes (and some processes closely linked to actual results), for a poor system of results measurement can be even worse than none at all. Geert Bouckaert and B. Guy Peters note that an inadequate system not only provides “a false sense of security” but will also “misdirect resources and activities (Bouckaert & Peters 2002).” If metrics are structured effectively, however, poor provider performance will expose harmful rationing of services. Most patients will want to seek care from high-quality pro         



           against skimping on effective treatment. Only in this way will the state know for certain whether reform is truly creating value for Massachusetts residents, and how it can be improved.

Context and conclusion The governance and NPM framing can serve as helpful lenses through which to consider Massachusetts health care reform. Examining the experiences of governments according to common sets of principles can facilitate comparison and help to predict or interpret trends. For those comparisons to be meaningful, however, it is also important to consider the context of the governments or reform efforts in question. Much of the governance and NPM research has come from Europe, where transitioning care delivery from the government to the private sector, and increasing the role of the private sector in health care in general, represents a shift toward an enabler role for government. In the US, however, public sector adoption of certain NPM principles predates the theory itself, and the distinction between “business” and “government” practices has been less clear (Lynn 2006). Therefore, while US-based reforms may resemble

5 For an in-depth discussion of value measurement, see Porter 2010b; see also Porter 2009.

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concurrent efforts in European nations, they may represent extremely different, or even opposite, starting points and trajectories. The Massachusetts approach to health care reform, for example, exhibits a number of principles of governance and NPM principles. However, the Massachusetts reforms indicate greater government regulation over an existing market-based system. In contrast, the growth of privately-owned health care providers and private insurance in Europe nor

                Additionally, the large size of the US compared to many of its European counter            !$         federal versus state or other sub-national governments. The Massachusetts experience is an example of the national government strongly encouraging and even demanding state reform, using the state’s federal Medicaid waiver as leverage. The NPM literature has also observed that US state and local governments have been more likely to adopt management principles and market-based ideas, and are generally “more creative” in their use of policy tools (Peters & Pierre 1998). In the case of health care reform, however, while US states had perhaps demonstrated more creativity than the national government through 2009, progress remained minimal. For example, only three states, including Massachusetts, have enacted legislation aimed at universal coverage, and Massachusetts was               $     The innovative aspects of Massachusetts health care reform, therefore, are derived not only from the unique combination of principles embodied in the process and legislation, but also in the context of a state government acting to ensure universal health care coverage within a large country struggling to achieve the same goal.

References Allen, S. (2008) Leaders nip, tuck healthcare policy. The Boston Globe, August 11, 2008. Retrieved February 1, 2010 from http://www.boston.com/news/local/articles/2008/08/11/leaders_nip_tuck_healthcare_policy/ Bebinger, M. (2009) Mission Not Yet Accomplished? Massachusetts Contemplated Major Moves on Cost Containment. Health Affairs 28(5), 1373–1381. Belluck, P. (2006) On Health Care, Massachusetts Leaders Invoke Action, Not Talk. The New York Times, April 6, 2006. Retrieved February 1, 2010 from http://www.nytimes.com/2006/04/06/us/06health.html Blue Cross Blue Shield of Massachusetts Foundation (2004) Landmark Study Analyzes Cost of Medical Care for Uninsured in Massachusetts, November 16, 2004. Retrieved February 1, 2010 from http://bluecrossfoundation.org/foundationroot/en_US/documents/roadmapRelease.pdf Bouckaert, G. & Peters, B.G. (2002) Performance Measurement and Management: The Achilles’ Heel in Administrative Modernization. Public Performance & Management Review 25(4), 359–362. Chapter 305 of the Acts of 2008 (2008) XX    $ $  <   _  the Delivery of Quality Health Care. Retrieved February 1, 2010 from http://www.mass.gov/legis/laws/ seslaw08/sl080305.htm Chapter 58 of the Acts of 2006 (2006) An Act Providing Access to Affordable, Quality, Accountable Health Care. Retrieved February 1, 2010 from http://www.mass.gov/legis/laws/seslaw06/sl060058.htm Commonwealth Fund (2008) Massachusetts Health Care Reform—On Second Anniversary of Passage, What Progress Has Been Made? Retrieved February 1, 2010 from http://www.commonwealthfund.org/Content/  ’[   ’QUUœ’?’' # Ž%>[? Passage--What-Progress-Has-Been-Made.aspx Commonwealth of Massachusetts (2006) Health Care Access and Affordability Conference Committee Report. Retrieved February 1, 2010 from http://www.mass.gov/legis/summary.pdf, Accessed February 1, 2010 Cook, A. (2006) Health Insurance Coverage and the Uninsured in Massachusetts. Retrieved February 1, 2010, from http://www.urban.org/publications/1000980.html

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D’Angelo, G. & Haislmaier, E.F. (2008) Health Care Reform in Massachusetts: Medicaid Waiver Renewal Will Set a Precedent, July 2, 2008. Retrieved February 1, 2010 from http://www.heritage.org/Research/ Healthcare/wm1979.cfm Dorn, S. & Hogan, S. (2009) The Secrets of Massachusetts’ Success: Why 97 Percent of State Residents Have Health Coverage : QUU– %  { | QU|U   ’’*’ ’ research/51368fullreport.pdf Fahrenthold, D.A. (2006) Mass. Bill Requires Health Coverage. The Washington Post, April 5, 2006. Felland, L.E., Draper, D.A., & Liebhaber, A. (2007) Massachusetts Health Reform: Employers, Lower-Wage Workers and Universal Coverage. Retrieved February 1, 2010 from http://www.hschange.com/CONTENT/939/ Fuhrmans, V. (2007) Withdrawal treatment: a novel plan helps hospital wean itself off pricey tests—it cajoles big insurer to pay a little more for cheaper therapies. Wall Street Journal, January 12, 2007. Gabel, J.R. et al. (2008) After the Mandates: MA Employers Continue to Support Health Reform as More Firms Offer Coverage. Health Affairs 27(6), w566–w575. Gorman Actuarial, LLC, DeWeese Consulting, Inc., & Hinckley Allen & Tringale LP (2006) Impact of Merging the Massachusetts Non-Group and Small Group Health Insurance Markets. Retrieved February 1, 2010 from http://www.mass.gov/Eoca/docs/doi/Legal_Hearings/NonGrp_SmallGrp/FinalReport_12_26.pdf Greenberger, S.S. (2005) Mass. group set to push for universal healthcare. The Boston Globe, May 26, 2005. Retrieved February 1, 2010 from http://www.boston.com/news/local/articles/2005/05/26/mass_group_ set_to_push_for_universal_healthcare/ Health Care for All (2005) Getting Ready for the Fast Lane, October 28, 2005. Retrieved February 1, 2010 from http://blog.hcfama.org/?p=340 Health Connector (2009) Health Care Reform Facts and Figures, December 2009. Retrieved February 1, 2010 from https://www.mahealthconnector.org/portal/site/connector/menuitem.d7b34e88a23468a2dbef6f47d7 £‰œU’ [® Health Connector (2010) Health Care Reform FAQ. Retrieved February 1, 2010 from https://www.mahealthconnector.org/portal/site/connector/menuitem.ab426e09b06869c2dbef6f47d7468a0c/ Holahan, J. & Blumberg, L. (2009) Massachusetts Health Reform: Solving the Long-Run Cost Problem. Retrieved February 1, 2010 from http://www.urban.org/publications/411820.html Hood, C. (1991) A Public Management for All Seasons? Public Administration 69(1), 3–19. Kaiser Commission on Medicaid and the Uninsured and Urban Institute (2008) Analysis of the 2007 and 2008 ASEC Supplements to the Current Population Survey. Retrieved February 1, 2010 from http://facts.kff. org/chart.aspx?cb=55&sctn=147&p=1 King, S.L. (2009) Mass. healthcare reform is failing us. The Boston Globe, March 2, 2009. Retrieved February 1, 2010 from http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/03/02/mass_ healthcare_reform_is_failing_us/ Kirwan, L.A. & Iselin, S. (2009) Recommendations of the Special Commission on the Health Care Payment System. Retrieved February 1, 2010 from http://www.mass.gov/Eeohhs2/docs/dhcfp/pc/Final_Report/Final_Report.pdf Knox, R. (2006) Romney’s Mission: Massachusetts Health Care. National Public Radio, April 8, 2006. Kowalczyk, L. & Rose, S. (2008) Across Mass., wait to see doctors grows; Access to care, insurance law cited for delays. The Boston Globe, September 22, 2008. Lazar, K. (2009) Bay State health insurance premiums highest in country. The Boston Globe, August 22, 2009. Retrieved February 1, 2010 from http://www.boston.com/news/health/articles/2009/08/22/bay_state_ health_insurance_premiums_highest_in_country/ Lischko, A., Bachman, S.S. & Vangeli, A. (2009) The Massachusetts Commonwealth Health Insurance Connector: Structure and Functions. Commonwealth Fund Issue Brief, May 2009. Long, S.K. (2008) On the Road to Universal Coverage: Impacts of Reform in Massachusetts at One Year. Health Affairs 27(4), w270–w284. Long, S.K. & Stockley, K. (2009) Massachusetts Health Reform: Employer Coverage from Employees’ Perspective. Health Affairs 28(6), w1079–w1087. Lynn, L. (2006) New Public Management Comes to America, Harris School Working Paper Series, Revised January 10, 2006. Massachusetts Division of Health Care Finance and Policy (2006) Health Insurance Status of Massachusetts Residents, Fifth Edition. Retrieved February 1, 2010 from http://www.mass.gov/?pageID=eohhs2termina

<®£<U®#<|®%<Q®«/ «'# _<‘®# ««[ urveys&sid=Eeohhs2&b=terminalcontent&f=dhcfp_researcher_resident_survey&csid=Eeohhs2

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Massachusetts e-Health Institute website (2010) Retrieved February 1, 2010 from http://www.maehi.org/legislation.html MassResources.org website (2010) Retrieved February 1, 2010 from http://www.massresources.org/pages.cfm ?contentID=81&pageID=13&subpages=yes&dynamicID=956 McDonough, J.E., Rosman, B., Butt, M., Tucker, L. & Howe, L.K. (2008) Massachusetts Health Reform Implementation: Major Progress and Future Challenges, Health Affairs 27(4), w285–w297. Monegain, B. (2008) Massachusetts law to require EHRs. Healthcare IT News, September 5, 2008. Retrieved January 26, 2010 from http://www.healthcareitnews.com MyHealthCareOptions website (2010) Retrieved February 1, 2010 from http://hcqcc.hcf.state.ma.us/Content/ AboutUs.aspx Partnership for Prevention (2005) Leading by Example: Improving the Bottom Line Through A High Performance, Less Costly Workforce. Retrieved February 1, 2010 from http://www.prevent.org/images/stories/ Files/docs/Leading_by_Example.pdf Peters, B.G. (2003) The Changing Nature of Public Administration: From Easy Answers to Hard Questions. Viesoji Politika Ir Administravimas (5), 7–20. Peters, B.G. (2004) Governance and Public Bureaucracy: New Forms of Democracy or New Forms of Control? < X `   X   26(1), 3–15. Peters, B.G. & Pierre, J. (1998) Governance without government? Rethinking public administration. Journal of Public Administration Research & Theory 8(2), 223–243. Porter, M.E. (2009) A Strategy for Health Care Reform: Toward a Value-Based System. The New England Journal of Medicine 361(2), 109–112. Porter, M.E. (2010a) How Can We Salvage Health Care Reform, unpublished draft, February 1, 2010. Porter, M.E. (2010b) What is Value in Health Care. The New England Journal of Medicine, forthcoming. Porter, M.E. & Baron, J.F. (2008) Commonwealth Care Alliance: Elderly and Disabled Care, Harvard Business School No. 9-708-502, Boston, MA: HBS Publishing. Porter, M.E. & Baron, J.F. (2009) Commentary and Recommendations for the Measurement Components of the Senate Finance Committee Health Care Reform Bill, unpublished draft, November 2, 2009. Porter, M.E. & Baron, J.F. (2010) Moving to Universal Coverage: Health Care Reform in Massachusetts, Harvard Business School case study, unpublished draft, April 5, 2010. Porter, M.E. & Teisberg, E.O. (2006) %  ' $ Boston: HBS Press. Porter, M.E., Teisberg, E.O. & Wallace, S. (2009) The Joslin Diabetes Center, Harvard Business School No. 710–424. Boston, MA: HBS Publishing. Raymond, A.G. (2007) The 2006 Massachusetts Health Care Reform Law: Progress and Challenges at One Year of Implementation. Retrieved February 1, 2010 from http://bluecrossfoundation.org/foundationroot/ en_US/documents/MassHCReformHighlights.pdf Seifert, R.W. (2002) The Uncompensated Care Pool: Saving the Safety Net. Retrieved February 1, 2010 from http://masshealthpolicyforum.brandeis.edu/publications/pdfs/16-Oct02/IB%20UncompCarePool%2016. pdf Trumbull, M. (2009) What lessons Massachusetts holds for US healthcare reform. The Christian Science Monitor, October 21, 2009. Retrieved February 1, 2010 from http://www.csmonitor.com/USA/Politics/2009/1021/what-lessons-massachusetts-holds-for-us-healthcare-reform Turnbull, N. (2008) Individual Market Reforms: Data for a Few More PowerPoint Slides, September 15, 2008. Retrieved February 1, 2010 from http://commonhealth.wbur.org/nancy-turnbull/2008/09/individual-market-reforms-data-for-a-few-more-powerpoint-slides-by-nancy-turnbull/ U.S. Centers for Medicare and Medicaid Services (2010) Retrieved February 1, 2010 from http://www.cms.hhs. gov/MedicaidStWaivProgDemoPGI/03_Research&DemonstrationProjects-Section1115.asp Van Kersbergen, K. & Van Waarden, F. (2004) ‘Governance’ as a bridge between disciplines: Cross-disciplinary inspiration regarding shifts in governance and problems of governability, accountability, and legitimacy. European Journal of Political Research 43(2), 143–171. Wilson, W. (1887) The Study of Administration. Political Science Quarterly 2(2), 197–222. Working Toward Wellness Initiative (2008) Working Toward Wellness: The Business Rationale. Retrieved February 1, 2010 from http://www.pwc.com/gx/en/healthcare/working-towards-wellness-business-rationale. jhtml

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Networked Public Administration for Better Service: New Production Model for Local Service Delivery in Germany Helmut Drüke University of Applied Labour Studies of the Federal Employment Agency, Mannheim, Germany Peter Klinger FernUniversität in Hagen, Germany

Introduction Public administration is at a stage where considerable pressure for change exists. The old Weberian model of bureaucracy with its high division of labor, local and technical com               

     interim by the New Public Management (NPM), is obsolete. An alternative production model of public administration is in sight: the model of joined-up production of public services. Essentially, the new administrative production model is characterized by the centrality of business process engineering, organizational restructuring with the intro            +       +        This chapter discusses the dynamics of innovation in the public sector focusing on the German experience with reform initiatives since 2008 that clearly led to the establishment of the New Joined-up Production Model (NJPM) of public administration. Thereby  !    ƒ      +       $    national conditions. In most of the more important innovations in the public sector, Ger     + }       +  out yearly by the European Commission (Capgemini 2009). In the introduction of the NPM, too, Germany has been more a follower than a trendsetter for innovation in the public sector (Pollitt & Bouckaert 2004). In Germany it is quite common to stress the respective competence and autonomy in        }             ure information technology (IT) systems as well as the practice of consensus building and                }  $    characterizes the typically German way to achieve consensus in all aspects of political cooperation and administrative optimization. According to Naschold (1999, 70) it is “the

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overlap and permeation of the hierarchical coordination structure by a tight vertical and horizontal network of the interest to cooperation and negotiation” resulting in a “com      

                

          

ritorial positioning of an actor.” The effect of this complex administrative structure and interest constellation is that public sector reform activities are bound to proceed in a disjointed and incrementalist rather than a comprehensive and ‘wholesale’ manner, as pointed out by Schröter and Wollmann (1997). All in all, when it comes to the modernization of the public sector, Germany belongs to the group of “more conservative Rechtsstaat regimes” (Pollitt & Bouckaert 2004, 80) following the trajectory of moderate alteration of the basic system of actor constellation and avoiding the direction and modes of modernization. With this background, this chapter discusses the perspectives of the implementation of the NJPM in the public sector in Germany. Given the structural constraint of Germany when it comes to reforming the public administration, the question is whether there are substantial indications for a sustainable establishment of the NJPM of public administration. This fundamental research question is discussed in the following analytical steps. To understand the ways and dynamics of innovation in the German public sector, two preconditions must be met. Firstly, the theoretical approach that the authors use to analyze innovation in the public sector will to be set down. Secondly, basic framework conditions of the German public sector have to be introduced so that the reader can understand the analysis of the reform initiatives around the NJPM of public administration. Following this, the main characteristics of the NJPM of public administration and the driving factors to implement it are discussed. Next we analyze the factors fostering and the hindering the implementation of the new model of production of public administration in Germany. In this section we describe some developments in the German public sector touching on distinctive institutional reforms that will, by design or default, introduce elements of the NJPM in the public administration. In the conclusion the results of the case studies are summarized and interpreted, reverting to the fundamental question of the perspectives of institutional reform in Germany. According to Lynn (1997),     

       and fundamental transformation of an organization’s core tasks :Ÿ'    

  criteria of innovation, for it transforms the way in which the administration carries out its activities. It profoundly affects both the processes and the organization of public administration and its relationship with citizens and companies. This chapter provides an understanding of what the NJPM of public administration consists of, explains the globally-acting driving forces to implement it and analyzes the                :Ÿ'                        sector.

Theoretical approach In the institutionalist perspective public administration is to be regarded as a hierarchical institutional arrangement and simultaneously as a frame for the development of institu-

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tions since the state guarantees the overall conditions for the development of society, institutions and organizations. Drawing on the groundbreaking evolutionary approach of Nelson (1993) and related institutionalist approach for institutions in the private sector (Hollingsworth, Schmitter & Streeck 1994; Hollingsworth 2000), we assume that institutionalist approach is applicable to gain an understanding of innovation in the public sector. The remarks on how and under what conditions institutional change takes place are appropriate especially to the development of the public sector in Germany. Taking into account the works by Pierson and Skocpol (2002) it becomes clear how reform of the public administration depends on “past choices” (Scherrer 1998), referring to the historically evolving institutional and cultural traditions and related path dependencies. In this contribution we aim to strike an appropriate balance between explaining the German development according to the cultural, institutional heritage on the one hand and to the urge for reform and cost-effectiveness on the other. As Hollingsworth (2000, 618) points out, “despite the emphasis on the logic of institutional continuity, this is not an argument that systems change along some predetermined path. There are critical turning points in the history of highly industrialized societies, but with the choices limited by the existing institutional terrain.” We regard the European Service Directive as such a critical turning point likely to speed up organizational change on the way to a NJPM of public administration.

   +   Currently, new joined-up service production is, at least in Germany, still more a vision      }                   Germany at the beginning of the 21st century. German public administration is characterized by structural aspects that need to be taken into account when evaluating the perspective of the implementation of the NJPM. First of all, the constitutionally-rooted structure and the ways in which the levels of the public administration have functioned since 1949, the year of the birth of this constitutional structure, is of vital importance. This structure generates attitudes, values and perspectives that decision-makers, public managers and citizens and companies have when it comes to a reform of the public administration. The Weberian concept of bureaucracy represents the analytical reference point given that Germany stands for the full roll-out of this ideal type, which is gradually remolding into a kind of neo-Weberian model of public administration (Schröter & Wollmann 1997; Pollit & Bouckaert 2004). Structural aspects of German public administration The German system of public administration is based on federalism. It is divided into the federal level (the Bund) and the regional level (Länder or states). The Länder govern the local level with the municipalities, the district-free cities (Kreisfreie Städte), and the districts. Within the responsibility of the Länder the right of self-government is guaranteed by the Basic Constitutional Law as well as by most state constitutions. The Constitution stresses the right of the local administration to attend to all matters relevant to the local community in their own responsibility within the frame of the existing legislation (Art. 28,

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paragraph 2 Basic Constitutional Law). This “general competence clause” is the basis for the all-purpose model (Allzuständigkeit), which is one of the most important historical and legal heritages from the early 19th century, where a strong local administration was regarded as a modern way to organize public administration. Local “all-purpose administration” goes together with the organizational principle of multi-functional territoriality, according to which special functions, single-purpose                    

   local space to be operated and coordinated by the multi-functionally responsible elected local authority. Against this background inter-municipal cooperation and restructuring of responsibility – one of the cornerstones of the NJPM of public administration – is hard to realize. A second structural aspect that needs to be known to understand the complexity of innovation in the German public system is the regulation of administrative procedures. ?   ƒ    — /QUU£ ||X_       ¡}              /Fachgesetze) or statutory rules (Rechtsverordnungen). These laws comprise in particular many provisions on the formal requirements of applications or permits and the participation of third parties, the general public and various administrative agencies … These Acts stipulate the general requirements of the different         /Handlungsformen), especially the administrative act (Verwaltungsakt) and contracts, governed by administrative law (öffentlich-rechtlicher Vertrag)”. Given this strict legality of administrative action and the overwhelming neces                      NJPM model of public administration with the reform of the Administrative Procedure Act becomes more understandable. Cooperation in the federal system The other side of the German way to organize public administration is a complex system of formal and informal cooperation, so-called “cooperative federalism”. This does not just indicate the shared responsibilities between the Bund and the Länder, i.e. the socalled common tasks according to Art. 91 of the Basic Constitutional Law, but a whole range of informal cooperation that takes place on all levels of the public administration. (For a detailed description of the pattern and modes of cooperation, see Eifert 2004, 118.)       ‹   

   $       and interest harmonization that is essential to further develop semantic standardization for e-government service delivery, for the provision of common basic components for authorities on all administrative levels, and for the roll-out of the new electronic identity card in the electronic age. The tension between the autonomy and general competence status of the local communities on the one hand and the experiences in cooperation on the other is indispensable to understand the perspective of the NJPM in Germany. If the highly regulated German         

  !$           redistribute competencies, the NJPM simply cannot be implemented. The reality of cooperative federalism is thus one of the driving factors contributing to the implementation of the NJPM.

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The Implementation of the NJPM in Germany The experiences of reform and innovation become part of the institutional heritage of public authorities. An outstanding reform in Germany and indeed throughout the Western world was the implementation of New Public Management (NPM) in the 1990s. As noted, the major objective of introducing NPM was to get away from the hierarchical Weberian model of bureaucracy. The implementation of business control mechanisms and instruments such as cost accounting and monitoring, output budgeting and  

              $  on legal correctness typical of the Weberian model. }              ¡     : Steering Model” (NSM) show that NPM has not effectively changed local administration (Kuhlmann et al. 2008). Although virtually all German municipalities have introduced elements of NPM/NSM, after more than ten years of modernization of German local government, there are hardly any traces of NPM in the managerial practices of local governments. At the same time this study highlights that after the wave of NPM and related disillusion, especially in Germany, measures to modernize administration have produced satisfactory results when NSM/NSM-related concepts and tools (such as cost accounting) have been combined with traditional administrative principles. Some analysts have ar     !     ¡:š     administration (see Pollitt & Bouckaert 2004).

)3         &  To understand the NJPM, a brief description of the old production model is appropriate as a point of reference. What follows is the analysis of the driving factors to move from the old to the new model. The crisis of the old production model The crisis of the old production model of the public administration has many causes. }                                      administration is of paramount importance. #      ƒ     ƒ   velopments. The unit costs per service increase as the population decreases. Another aspect of demographic development is that, in Germany, by 2012, approximately 40 percent of the public employees will have retired from the public sector. However, because of       

  

 

 ?                Another driving factor is the competition between local authorities to attract companies and investments (on this issue see e.g. Anttiroiko 2009.). The taxes related to the economic activities of companies need to be kept low in order to be attractive, which in                     $          tration. The main effect of e-government is:

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“simply better government by enabling better policy outcomes, higher quality services, greater engagement with citizens and by improving other key outputs iden  # 

                     judged against these established criteria for success” (OECD 2003, 12). Main features of the NJPM The introduction of the NJPM revolves around reengineering and new organizational    

 !  $  } ‹     thorities, the Kommunale Gemeinschaftsstelle für Verwaltungsmanagement (KGSt), describes this new model as “network administration”. Centrality of business process engineering E-government projects are primarily about reorganization rather than about technology. “First organize, then digitize”, is the right order. Such a reorganization revolves around the engineering of local government processes (in order to deregulate them), to make them leaner, and then to implement all adequate e-government functions. A process            ƒ      a service. These activities include such diverse process types as management processes, production processes and auxiliary or support processes. In the old production model the processes for the production of public services are organized separately for every agency within their competence. The resources used (staff  _            In the NJPM the focus is on the construction of the process chains, which are, instead, oriented towards the producers and the recipients of services. This implies a re-division of labor that transcends departmental borders. For the purposes of greater effectiveness     +                 overall creation of public services. Besides, the question is which partner in the joined-up service organization has at its disposal the competence and resources that are needed to carry out shared assignments. This redistribution of activities and responsibilities does not affect the distribution of services, which continues to be the task of the locally-present           Such a re-division of the activities and their re-composition in inter-organizational networks matches with the decentralized competences within the state structure. Organizational creation of elbow room for federal structures can be respected through the principle of modularization. For this, common processes must be optimized and standardized. Only standardized processes can be the working basis of joined-up structures. To make these structures possible organization-neutral descriptions of requirements must be formulated with intercalation of juridical and semantic conformity. However, in such a service network not only must the administrative processes be standardized, but also the IT systems, in particular in the area of the local processes. However, this does not mean standardization at the product level. Here competition still prevails among the suppliers, but now within the framework of standardized processes. Standardization of processes reduces the risks of inconsistent and contradictory implementation. The linking of the administrative processes of several partners in new process chains assumes that the processes which should be taken over from the contractor are

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standardized. Possible cost advantages through economies of scale realized due to production in the network will be lost if an individual business process is to be modeled for every client. The public and private service partners involved in the whole process carry out activities in parallel. A common knowledge base is a basic requirement for this. For example, the whole process to get a permit (see below the discussion of the European Service Directive) thereby becomes considerably shorter. At the level of joined-up service processes considerations are to be made for the regulation of the responsibilities for the production of services and the respective competencies. New organizational elements The following organizational elements form the conceptual basis for the NJPM: – ‚ – – –

One-stop government {    +     Shared services Service centers Outsourcing.

These organizational elements are now discussed in detail. One-stop government. In the case of many administrative services the citizen must contact several authorities to receive different service elements. In contrast to this, in the case of one-stop government all services, including those from different authorities, are organized so that acceptance of and consultation on demands can take place at one location. Because of the deterritorialization of the data by means of e-government it is possible to organize access to these distributed data inventories fairly simply. The only condition is that the user is authorized to access the data. Network-like organizational forms able to transcend the borders of local and objective competencies are necessary to accomplish this type of administrative work. To think in formal competencies, as is habitual today, is no longer useful in the age of quick information exchange and the Internet. Network-like service structures must be supported by IT to enable electronic communication and to protect and maintain data inventories. Here e-government offers the technical infrastructure within which one-stop government can be realized. One-stop government means that different administrative services of the same or also other authorities are bundled at one place and in one process. Likewise in the discussion of NPM similar terms such as ‘integrated service delivery’, ‘single window’, ‘one-faceto-the-customer’ or ‘one-point-of-contact’ have been used to describe the phenomenon of bundled competencies. In recent years one-stop government has been realized in local administration, for example when municipal service points have been installed. Municipal service points have the same character insofar as public services are available at one spot. However, the main difference is that the offer is restricted to the public services of only one public authority.

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In the NJPM local communities are very well prepared to accept demands for service    +                                 to joined service centers in the background able to process high case numbers with their specialized knowledge. The one-stop-administration takes care of the production and distribution of public services and is not blocked by competence barriers as it is today. All local authorities that are part of this network administration are prepared to process service   

    ^+@           :Ÿ'  public authority acts beyond the borders of its former competence. Administrative procedures become service processes. The production processes must be adapted to this organizational form. This is why                 +      importance. {      | The separation of service distribution and ser          

   +   tion. The KGSt describes the potential of such an organizational form as follows: seam               +       the integration possible today between distribution and production – within one authority and between authorities. Only then can opportunities for increased rationalization and for quality improvement be fully realized (Wulff & Lehmann 2006). To achieve these improvements the processes and work routines have to be adapted to this organizational form and have to be interconnected with each other. This is the only way to produce a good administrative service based on joined-up structures. }             }     

     /                       _   +              e.g. when it forwards the service result to the citizen. However, in the NJPM the explicit integration of the two functions is a constituent of the new organization. E-government frameworks are suited to supporting the new network structure because they enable access to data and programs on the Internet instead of networks whose maintenance requires considerable resources. This holds true in particular if several au      +      + }     +               advantages compared to the situation today. Public administration can specialize in an un+           Y      ƒ   and quantity are improved. According to the business management principle, large num                           

     +   #  must also be stressed that new management expenses originate from such a distributed   '           +          Shared services. A shared service center is an independent organizational unit. Support         }        of mails etc., for several municipalities are provided. These tasks are no longer accom-

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plished in the respective municipalities but are transferred to the shared service center. Service-level agreements determine the relation between client and contractor. This new organization aims to reduce expenses due to economies of scale achieved and advantages in terms of specialization and cost reduction that go along with it. Service centers. The Federal Administration Authority (Bundesverwaltungsamt) executes on behalf of the Ministry of Internal Affairs a number of cross-authority tasks for currently over 100 authorities of the federal state: ‚ – – – –

?     /       _ Aid calculation Travel expenses, certain allowances, relocation expenses Travel Management System Job ticket.

The objective is to carry out these tasks more economically and to reduce their process costs. This service center is a shared service body in the sense of the above-mentioned description. Outsourcing. Outsourcing refers to the privatization of public service production. The execution of the tasks is transferred to a private contractor. However, the responsibility for the service to be offered remains with the appointing local authority. Elements of the above-mentioned models of task execution can be found side-byside in the NJPM. The whole spectrum of ways to reduce the vertical degree of integra              

!     Conditions for the establishment of the NJPM To enable the cooperation of joined-up local communities in a NJPM some conditions must be met: 1. 2. 3.

Deterritorialization of, and worldwide access, to data Stringent standardization for e-government beyond the borders of authorities Network ability.

} ƒ  

 !      Deterritorialization of data and worldwide access to it Today e-government technology enables us not only to involve customers and citizens in processes, but also employees of other authorities. E-government facilitates deterritorialization. Production processes can be composed and supported technically so that is no longer necessary and useful for all municipalities to maintain their own production processes for every service. The service continues to be offered in every municipality, e.g., through optimized local service points. Nevertheless, in cases of more complicated subjects, a production structure that is jointly maintained by the municipalities involved                     

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Stringent standardization for e-government beyond the borders of authorities Process optimizations are a groundbreaking approach to reducing product unit cost but          ƒ             customer friendliness. On the other hand e-government enables new process engineering by partners beyond the borders of organizations and with it the introduction of a new local production model. This new model is characterized by local service networks that   *   +              making full use of local administrative structures. Both opportunities can only be realized if local processes are standardized in terms of common rules for metadata. But obviously this is not enough; optimized and deregulated processes are required that include technical e-government functions. Network capability A new local production model requires the readiness to think and to work in network structures. So far there is no such tradition in Germany. The principle of local and allpurpose competence prevails. To install cooperation beyond administrative borders new forms of integrated public management are required. Network capability requires changes in the institutional structure of local administra           }          in new forms of work, and the public managers concerned, including the heads of the political representative organs, must relinquish their present exclusive control and learn to steer within network structures. The corresponding structures in Germany do not so far exist and public managers are not prepared to work in these new structures. The potential of information and communication technologies The application of modern information and communication technologies (ICTs), and here above all of the Internet, provides an impetus to the modernization of public administration. After the disentanglement of data and program functions, public administration can work wherever there is an Internet connection. Municipalities need not maintain unaided and costly technical infrastructure, which increase unnecessary personnel costs. With an integrating e-government infrastructure marked by the application of service-oriented architecture (SOA) for shared services, cooperative service production and innovative collaborative scenarios between local communities as well as between local communities and regions can be initiated. If embedded in the comprehensive modernization concept of electronic government, Ž}      ƒ         +   edented manner. Completely new organization concepts of public administration for the purposes of the network administration await realization. Their main characteristics are         +          }          +!   }            }  *        $   œU   

              [      $  !  the service face in towns and municipalities.

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Not only does the local organization increasingly rediscover the NJPM, but also IT. The service-oriented architecture (SOA) that can be regarded as trendsetting technology assumes that, with regard to their extent and function, services are clearly determined by the reengineering of processes. SOA comprises IT architectures which, on the basis of a process platform, are able to provide support functions for the sequence of processes in such a way that other processes              }     of process elements, administration process platforms (also called process turntables) form the basis of the system. This structure is necessary to generate the technical network capability of administrative processes within an organization, but also with partner authorities. Using SOA, it is easier and requires fewer resources to adapt the technical structure to new organizational forms of public assignment execution in the future. SOA is not only a technological concept but also an organizational concept. It rests                  ! the respective administrative structure. Nevertheless, this often means a paradigm change in local administration. So far the processes have followed the structures. In future the structures should follow the processes (Lenk 2007). Four administrative districts and two cities participated in the study of process optimization conducted by b.i.t.consult Ltd together with the KGSt. This study produced       

        +       process reengineering. This study has shown in particular that the processes which consume a lot of resources, are likely to be supported by the NJPM.1

On the way to the NJPM in Germany Pilot project for inter-municipal cooperation in the region of North-Rhine Westphalia A short description of the activity of the so-called ‘competence center digital public administration North Rhine-Westphalia’ to achieve progress on the area of standardization and of an on-going pilot project of joined-up service delivery helps to understand how modernizers in Germany are trying to introduce the NJPM. The centrality of the local level in the new administrative production model. Most civil contacts take place in Germany, as well as in other countries, with the municipal authorities. These are cities belonging to a district and district-free cities as well as special

| }                    

 }   studied was the quantitative structure of processes of the local administration. The cities in the sample include a range from at about 1,400 up to 3,491 processes depending on the size of the city. The districts included from 670 to 1,800 processes. This quantity embraces main processes such as service delivery to citizens and companies and processes of maintenance or other services such as IT, facility management and so forth. Out of this amount 10 to 20 per cent of the processes involve from 80 to 90 per cent of the resources in the local community. At the district level this results in an average of approximately 200 structurally important main processes. Examining these processes with regard to their suitability to be put online the result is astonishing: while 57 per cent of all processes have e-government options, this applies to 78 per cent of the main processes.

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purpose associations in which several local communities have joined forces to execute       ?     +                               ties for waste management, sewage disposal, special schools, or IT services. These caserelated forms of inter-municipal cooperation are increasingly complemented by more farreaching considerations with regard to forms of cooperation. A local process is a chain of many single operations within a certain work routine for the production of a service. Local processes are usually differentiated into management processes, production processes and auxiliary or support processes. Local processes are as a rule not a result of structured considerations, but ‘heirlooms’ bequeathed by one employee to the next. This is because process engineering has become less important in many municipalities in the last decade. Other modernization projects like the NPM Model and the New Local Financial Management (Neues Kommunales Finanzmanagement, NKF) were in the foreground. However, the salient point is that the                     the New Local Financial Management, urge us to question the production processes of these services and to remodel them. Nevertheless, this responsibility for the restructuring of processes has been decentralized at many municipalities. However, due to the lack of   

  +           bility often cannot be administered as it should be. In addition, the people involved fail because the structural borders of their organizational structure set sharp limits to the ac                  organizational structure.      :  { '     istered in department-related budgets. When joined-up e-government, joined-up administration and networked local authorities became an issue in recent years, the subject of process engineering gained more attention in the work of the local administrations. In addition, in the state North Rhine-Westphalia several local communities, data centers for the local communities, the association d-NRW and the Ministry of the Interior of North Rhine-Westphalia have joined in a municipal working group (the so-called ‘competence centre digital public administration North Rhine-Westphalia’ [NRWKDV]) mainly to speed up the standardization and optimization among local communities. Modeling of a sample process for the pilot projects. In North Rhine-Westphalia the com                  }    evaluate the standard. The models of local processes took into consideration all optimization possibilities even including e-government functions. One of the decisive conclusions was that it is realistic to build optimized processes and, in so doing, to set standards. The results of the project passed through a quality assurance procedure carried out by practitioners from local communities and the KGSt. The following results give an indication of what the structure of the NJPM looks like: – ‚

Concept for the future engineering standard to describe and analyze local processes (independently of manufacturer/no license fees). —                   optimized model processes (business registration, business cancellation, change

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of business registration, craftsman’s parking permit, information from the professional register, concessions, licenses according to the federal air pollution control law). As mentioned before, the NJPM is being tested in North Rhine-Westphalia in some sample local communities. What network capability means in practice becomes clear when we take a closer look at the pilot project. The following projects were selected: ‚

–

‚

–

Ž      ¡     š    by the administrative management of a district and some local communities belonging to that district. Construction of structures in order to jointly execute building management and municipal tax management in four municipalities. For this a jointly coordinated citizen service center should be constructed. Ž               *  $   ++         agement system. Construction of a common center for the digital treatment of mail communication involving one district administration and several local communities.

} *    }                        +          }   of the pilot project will be published in 2010. Standardization of local processes. Currently twenty local main processes are engineered in compliance with the engineering standard. Twenty local institutions of all dimensions from North Rhine-Westphalia take part. These are urban municipalities, municipalities belonging to a district and local area districts. These partners come together to develop the engineering standard and to generate reference processes and process components. The main aim is to establish a local process register in North Rhine-Westphalia built by inter-municipal cooperation to enable further inter-municipal cooperation. The engineering method and the project results are available to the municipalities for their purposes free of charge. }         #

 E-government beyond administrative borders is rather the exception than the rule due to the federal structure of the Federal Republic of Germany and the accompanying decomposition and individuation in authorities. To take remedial action here for the future and to be able to put through a stringent standardization, e-government is now also anchored in the German Basic Constitutional Law. Besides, the security of the IT network infrastructure beyond administrative borders has been transferred to the federal state. In addition, a new system of IT governance for the federal and regional levels has been installed. More  

  }                 the regions has been set up. This council has important tasks to coordinate IT between                   }  ability and of IT security.

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The new article 91c of the Basic Constitutional Law2 has raised e-government, as a technical infrastructure for administrative services, in the constitutional ranking. The norm creates the legal conditions for complete and seamless electronic communication between all German authorities. Nevertheless, the IT planning council has an executive power in the area of standards only for the federal state and the regions. How that restriction will affect the municipalities remains open. A substantially clearer control power in e-government is necessary, however. In the area of identity management the federal state has succeeded in setting a binding standard by law concerning the new identity card. From November 2010 Germans 

              !  

 line. A microchip contains biometrical data, so-called electronic identity data (e.g. family            _     @ ƒ              Due to this development an ‘Internet identity card’ is available for secure processes using e-government and e-business for the whole population. However, here too it must be said that this new function is still waiting to be integrated into the local processes and the administrative processes of all state levels. To do this the processes have to be adapted. This new identity system enables many new local e-government processes hitherto excluded. The next step is the introduction of secure electronic communication between citizen and public administration with the service DE.Mail. Only such standards make it possible to realize the joined-up structures of the production of administrative services. Implementation of the European Service Directive (ESD) in Germany With the EU’s ESD the joined-up service network is no longer only an abstract model. To realize the Service Directive paragraph by paragraph leads to the development of one-stop government. However, with the leeway offered by directives there is no straight                     a supra-governmental regulation becomes reality. The following section describes the German way to implement the ESD. This account is paradigmatic to understand the dif       :Ÿ' Objective and main contents of the ESD According to the ESD (2006/123/EC) all Member States had to ensure that, by December 2009, service providers could use electronic means to complete procedures and formalities linked to their business activities. These electronic procedures had to be available both to providers in the same State and also to providers in other Member States. The directive is an essential component of the objective of the EU to realize a single market and to facilitate the settlement of any company in the public services market. Most of all it                 

Q > U|’Uœ’QUU–      \ Ž                came into effect. The Basic Constitutional Law has been complemented by the articles 91c and 91d (comparative analysis of IT performance).

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a new company and to register it. The ESD regulates the related electronic administrative processes. From a practical perspective, this directive (art. 8) required Member States to implement electronic points of single contact where service providers covered by the directive, both national and from other Member States, can electronically complete all procedures and formalities in order to be allowed to start or exercise a service activity in that Member State. The core concerning the establishment of the NJPM is that all Member States are obliged to provide the technical and organizational infrastructure to execute the electronic procedures. All authorities engaged in the supervision of business have to cooperate in a European-wide electronic administrative network. In fact, these regulations enforce the implementation of one-stop government in a process chain between the public administration and the economy. As a consequence networked and adequate process structures for the quick and seamless exchange of information between public authorities and joint process chains with private business had to be set up. Approach and realization in Germany In view of the huge challenges and the considerable innovative character, Germany has         —[~             quirements concerning IT infrastructure were realized in 2009. Thereby the obligation for         

                           |«   tions can be developed. Step 2 means the construction of completely seamless business processes after 2010. By December 31, 2009 the decision-makers in Germany had implemented the ESD in a restricted way: “Up to now the projects in the federal states have a rather technological and juridical bias focusing on the functionalities of the single point of contact with regard to the provider and on the question where to install the single point of contact.” (Schuppan 2010). This development is disappointing because the ESD gives the opportunity to turn the administrative system into a network system beyond the boundaries of authorities, which focuses on processes, on inter-organizational cooperation and on common standards in a heterogeneous landscape. The opportunity to initiate a far-reaching process of administrative modernization had been missed because the German decision-makers focused on secondary concerns: – – –

They focused on where to locate the single point of contact They established many points of contact They addressed the electronic access to the single point of contact but disregarded the necessity to organize a service network between the single points of contact and the respective public authorities.

#                        +   [              seeks permission to start a business. As one focal element in this process chain the single point of contact was designed to be part of an inter-organizational cooperation.

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?  ƒ               what and with whom, who is linked to whom in the process chain and why. The objective  

               !  information between the single point of contact and the responsible administrative authority. This production network between authorities has to be supported by the development of an integrated architecture. Core elements are process registers, standardization, so-called e-government basic components like authentication functions and the list of authorities who should be established as shared services. (Schuppan 2010, 5.) Changes in the Administrative Procedure Act }                       an unknown function in the German administrative procedure legislation. Given that an administrative body is only allowed to process personal data of applicants if this is neces  

+  ƒ                to be anchored in the administrative law. To ensure this the Federal Administrative Procedure Act was changed by the fourth law of the change of administrative procedures (4. VwVfÄndG) passed on 11 December 2008. The single point of contact was given legal security by the introduction of articles 71a to 71e. The federal states have incorporated these changes in their regional Administrative Procedure Acts thereby creating nationwide regulation. Article 71a, paragraph 1 stipulates that regulations of the complementary chapter of the Federal Administrative Procedure Act are valid when a regulation arranges that an administrative procedure can be dealt with over a single point of contact. Besides, the name “single point of contact” was consciously chosen to articulate that                   the German administrative procedure legislation. In so doing the new organizational form was not restricted in the obligation to implement the ESD. The comments to justify the new legislation argued that such a procedure could also be arranged in the case of public services. For that to be accomplished a simple addendum to the law in question is needed. }            +      law in the German administration.

Conclusion Innovation in public administration in Germany is not easy to implement. In particular, due to the federal system, the actors are forced to negotiate about the way, the speed and the direction of innovation in the public administration. In Germany such a system of interest harmonization has been established since 1949, the birth of the state system as it is known today. According to Naschold (1996, 147–148), “[t]he reform of the public sector is politicization and political modernization and therefore above all subjected to the logics of the political system. Decisions are not only results of learning processes (‘trial 

>~      

  +     \ }                   ‹man trajectory of innovation of its public administration.

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The second and possibly the most important aspect is the principle of Rechtsstaat in the German public sector. The Rechtsstaat and federal principles constitute the essential formal parameters for policy making and administrative modernization (Benz & Götz 1996, 17). Innovation seems to be only acceptable if this principle is not compromized. The third structural and peculiar aspect is the fact that administrative innovation mainly takes place at the local level since actual service delivery takes place at that level.3 ? =   ¯! /|––‰ |‘£_               ernization are the local governments. The federal administration, insofar it is concerned with law-making, is not as affected as the local level by the need for administrative reform (Pollitt & Bourckaert 2004, 239). At the local level the need for reform has arisen primarily due to the cost pressure occasioned by the budget crisis of the municipalities in Germany. The initiatives to install shared service centers as an element of joined-up government or to standardize processes all aim at reducing the cost burden on the local level. A second impetus for innovation comes from the European Commission as a supra-governmental and supranational authority. The report on the realization of the German solution in the sense of the European [ ~  

         ‹        transcends the borders of the regional state level, the Land. Innovation in Germany takes place in a very special way. The NJPM will be realized but by a long and circuitous road with greater or smaller obstacles blocking the way or at least hindering a rapid realization of joined-up government.

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Lynn, L. (1997) Innovation and the Public Interest: Insights from the Private Sector. In: A. Altshuler & R. Behn (Eds.) Innovation in American Government, 83–103. Washington, DC: Brookings Institution. Naschold, F., Jann, W. & Reichard, C. (1999) Innovation, Effektivität, Nachhaltigkeit. Internationale Erfahrungen zentralstaatlicher Verwaltungsreform °  —  [       —$ences with Central State Administrative Reform]. Berlin: Edition sigma. Naschold, Frieder & Oppen, Maria (1999) Leistungstiefenoptimierung im Umsetzungsprozeß (Optimization of the Vertical Division of Work in the Process of Implementation). In: F. Naschold, W. Jann & C. Reichard: Innovation, Effektivität, Nachhaltigkeit. Internationale Erfahrungen zentralstaatlicher Verwaltungsreform °  —  [       —$   Ž  [   ?   Reform], 141–159. Berlin: Edition sigma. Nelson, R.R. (Ed.) (1993) National Innovation Systems: a Comparative Analysis, New York and Oxford: Oxford University Press. OECD (2003) The E-Government Imperative. Paris: OECD. Pierson, P. & Skocpol, T. (2002) Historical institutionalism in contemporary political science. In: I. Katznelson, I. & H.V. Milner (Eds.) Political Science: State of the Discipline, 693–721. New York: W. W. Norton. Pollitt, C. & Bouckaert, G. (2004) Public Management Reform. A Comparative Analysis, 2nd. ed. Oxford: Oxford University Press. Scherrer, C. (1998) Jenseits von Pfadabhängigkeit und ‘natürlicher Auslese’: Institutionentransfer aus diskursanalytischer Perspektive [Beyond Path Dependency and ‘Natural Selection’: Institutional Transfer in the Discourse-Analytical Perspective]. Discussion Paper of the Wissenschaftszentrum Berlin für Sozialforschung [Science Centre Berlin for Social Research], FS II 01-205. Schröter, E. & Wollmann, H. (1997) Public Sector reforms in Germany: whence and where? A case of ambivalence. Hallinon Tutkimus 3, 184–200. Schuppan, T. (2010) Die EG-Dienstleistungsrichtlinie aus E-Government-Sicht: Mode oder Modernisierung? [The EU Service Directive seen from the e-government perspective: Fashion or Modernization?]. In: H. Bauer, C. Büchner & F. Brosius-Gersdorf (Eds.) Die Europäische Dienstleistungsrichtlinie: Herausforderung für die Kommunen. [The EU Service Directive: Challenge for the Local Communities]. Potsdam: Universitätsverlag. Wulff, M. & Lehmann, P. (2006) Prozessorganization in der Kommunalverwaltung. [Process Engineering in the Local Administration], KGSt – Paper. Köln: KGSt.

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved. doi: 10.3233/978-1-60750-727-7-158

New User-driven Innovation Policy: The Key to Finnish Local Government Service Reform Tuula Jäppinen The Association of Finnish Local and Regional Authorities, Helsinki, Finland

In Europe the paradigms of local governance have changed from the old public administration to New Public Management and public governance. The innovation policy of the 21st century entails broadening the concept of innovation from the private sector to public service innovation together with service users. User-centricity means that the development of services is based on the needs of citizens and the focus is on users rather than on production. In theory, citizens have two channels for participation in public service reform: the traditional way to participate in decision-making on services through user democracy and a new, more innovative way to participate as users in service provision. Two Finnish case studies are used to illustrate how             }     describes participation in decision-making, the second user-driven innovation in service provision. These cases show that service users are better prepared for the shift towards user-centricity than service providers.

Introduction In the Finnish system, municipalities have responsibility for providing basic services, including social, health and educational services. In Finland, the public sector provides over 80 per cent of health and social services and over 85 per cent of educational services (Kanniainen 2002, 52, 34). Two-thirds of public service provision is the responsibility of local government. In Europe the paradigms of local governance have changed from the old public administration to New Public Management (NPM) and public governance. OECD countries have developed many new ways to foster openness and receptiveness to public concerns. An open government is understood to be one where business, civil society organizations and residents know what has been decided (transparency), how to obtain legitimate service (accessibility) and how to be heard (consultation and participation). The Scandinavian countries have been pioneers in changing these structures (Blum & Manning 2009, 43–46). In 2005 the Government of Finland launched a project to restructure Finnish local government and services. The project is the most extensive reform of municipal administration and services in the history of Finland. The goal of the reform is to consolidate local government and service structure and to promote new methods of service provision              

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and review how the areas of responsibility have been divided between local and central governments (VM 2005). In 2007, to support and accelerate the implementation of the restructuring project, a project on best practices of municipal services was launched. The purpose of the project was to promote the reform of municipal service provision, increase productivity and ef           }     * issued in spring 2009 proposed client and user-oriented development and innovation and increased cooperation as measures to restructure public services that would improve ef  /›' QUUX_ Broad-based governmental innovation policy of the 21st century entails broadening the concept of innovation from product innovation in the private sector to public service innovation together with service users. In theory, citizens have two channels for participation in public service reform: the traditional way to participate in decision-making on services through user democracy and a new, more innovative way to participate in service provision as users through user-driven innovation. The third part of this chapter consists of two Finnish case studies describing and                }  case study is in the town of Mikkeli and describes participation in decision-making. The second case study is in the capital city, Helsinki and describes user-driven innovation in service provision. Although the primary aim of this article is to examine the new potential of user-driven innovation and co-production in the development of public services, it was necessary                  }   tion of interaction – the general public are no longer merely consulted when matters are prepared, but instead are given an equal role in decision-making – paves the way for user-driven service reform.

User-driven innovation in public services ?                  chapter describes theories framing the needed change in service reform from government-centric service production to user-centric production. Citizen participation in local service decision-making Theories framing participation are liberalism, managerialism and communitarism (Kettunen 2004, 69–70, 20). According to liberalism, civil society and political and governmental systems such as central and local governments should be separate systems and ensure the freedom of citizens. The governmental system is based on representative democracy, where political parties compete for supporters and aim to consolidate their own power positions. According to this theory, the interests of the general public are set and political decision-making only needs to identify and channel them. The role of citizens is limited to expressing support and making demands; there is no need for direct participation. In this model, citizens are seen as consumers, and freedom of choice, product infor               !

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The managerialist political and governmental system takes its model from the private sector. Public services are produced in accordance with the consumer (Toikko 2006, 17). In this model, citizens are seen as clients, and surveys, feedback systems, service guar                  ! According to the communitarian system that supports community, central and local governments ensure the freedom of the public, and direct interaction between decisionmakers and citizens is an essential part of the system (Kettunen 2004, 70). According to this theory, the main function of decision-making is to weigh up the different alternatives together with citizens; to discuss and look for the best solutions in dynamic interaction. In this model citizens are seen as service users and active residents. That is why community discussion, user democracy and the devolution of decision-making and services are the *       ! The Constitution of Finland (731/1999) and the Local Government Act (365/1995)

          ! >        !                  ?   Openness of Government Activities, the Administrative Procedure Act, the Land Use and Building Act and the Act on the Status and Rights of Social Welfare Clients. Since its enactment in 1995, the Local Government Act (365/195) has emphasized      ±   ±  !      user democracy as a way to complement representative democracy. In Finland the objec       '   ±    Ž  |––Š‚QUU‘         !      publicity of governance. The Ministry of the Interior set up the participation program in order to meet the objectives of the Local Government Act and Government program to        ! }        tion, drafted in 2002, groups the forms of participation into four categories, which are participation through information; participation through planning; participation through decision-making; and participation through direct activities. Participation through information refers to citizens´ right to receive and produce information. The forms of this participation are, for example, communication to, and consultation of, citizens by the municipality, responding to queries, and service commitments. Participation through planning refers to interaction between the municipal organization and local people in issues related to planning. It takes place on a deeper level than participation through information; examples include community planning and city forums. Participation through decision-making means that citizens participate in the decision-making on service provision or on issues concerning their own neighborhoods. User democracy can be understood as participation through decision–making when decisionmaking is delegated to service users. The forms of participation through decision-making include for example neighborhood committees. Participation through direct activities refers to citizens´ own activities in their living environment, or environmental regeneration and maintenance and service provision carried out as voluntary work (Direct participation 2002, 3–5).      !             dence in political and governmental activities. This is described in the Mikkeli case study in the next section.

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User-driven innovation in public services                                ?                               and performance. At the same time as the role of the municipality and its citizens is shifting towards one of participation, interaction and user-centricity, the innovation theories, too, are starting to acknowledge a continuum from one-way linear to interactive feedback models. According to the linear innovation theories of the 1960s and 1980s, ideas as the source of innovations could stem from two sources: science or the market. The later innovation                !   the producer-user relationship and the experiences of the main user (Hyvönen & Valovirta 2009, 8). Finland’s National Innovation Strategy (Aho et al. 2008; Evaluation … 2009, 21), was prepared under the Program of Prime Minister Matti Vanhanen´s Cabinet and approved in 2008. Demand and user orientation are – in addition to the broad-based ap ‚         { @ :    [   Demand- and user-driven orientation is new in innovation policy both at the international and the Finnish national level. There are, however, no tried and tested models available for its implementation. Neither has innovation policy so far been used to singlemindedly support the development within the public sector (TEM 2008, 31). The concept of user-driven innovation was created in the late 1990s by Professor Eric von Hippel, who described it as “innovations created by the user” within companies (Rosted 2005, 4). } { '   —    —        conceptual framework for demand and user-oriented innovation policy in June 2009. “User-driven innovation policy provides stimulus for public and private sector innovation activities that are inspired by user needs and involve systematic collaboration with users” (UDI Seminar 2009). According to a recently published European Innovation Scoreboard study, Finland is a pioneer in innovation activities among the European Union’s 27 Member States. Finland has been placed in the group of innovation leaders together with the UK, Denmark, Germany and Sweden (European … 2009). In these countries, service design is today one central element of current user-driven innovation policy. The concept of service design refers to service innovation and development with the methods of design. The aim                   proactively. In particular, the latent and unconscious needs of clients, which they cannot articulate in interviews or surveys, are the starting point of service design (Koivisto 2007, 78). This changed role of design is connected to a larger transition in innovation policy, where design serves as an interpreter between users and different organizations (Aminoff, Hänninen, Kämäräinen & Loiske 2009, 4). Professor Birgit Mager describes service design as follows (cited from Miettinen 2009, 12): “Design thinking and innovative methods are working as tools for creating desirable value propositions for services. These service concepts are created in multidisciplinary teams, using visual and creative thinking as a source of innovation in the research and creation process.” Service design can act as an innovation tool for the public sector

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in creating new service systems together with the governmental sector, non-governmental organizations, and citizens (Miettinen 2009, 11). Different kinds of user-driven methods are in use in different phases of innovation and development processes. These phases and methods can be divided according to Kline  %@ /|–œ‰ Qœ–‚Q–‘_  +          market; invent and/or produce design; detailed design and test; redesign and produce; distribute and market. User needs can be examined in these different phases (Hanington 2003, 13; Miettinen 2009, 64–65) with traditional methods, adapted methods and innovative human-centered methods. It is also possible to categorize these methods into these different phases of innovation process (Moritz 2005, 123; Koivisto 2007, 73–75). The next section discusses two local cases on the development of services with userdriven innovations and service design.

User-driven innovations in two Finnish cities The promotion of user-driven innovations is currently the explicit strategic aim of three Finnish cities: Helsinki, Tampere and Mikkeli. This part of the chapter discusses two of these cases with the aim to illustrate how local governments are implementing user-driv     }          '++     pation in decision-making in service provision. The other empirical case study focuses on the city of Helsinki. It describes user-driven innovation in service provision. Both cases are presented from an actor-centric perspective. User-driven Living Lab in Mikkeli The Association of Finnish Local and Regional Authorities put into practice the pioneering project on user-driven Living Lab for municipalities with the town of Mikkeli in 2009. The aim of the project was to look for new user-driven practices in the development of local services and in the management of this development work. Another aim was to empower service developers and citizens and introduce a new user-driven development path in the development of public services. The method in this pilot was the Living Lab method, which can be used to develop products and services in their authentic environment. The so-called Quadruple Helix model was also applied to public service development during the project. In this model the development process not only involved the public sector (the town which enabled the process and provided local services), the private sector (as service providers and developers) and research institutes and universities (as developers of methods and tools), but also residents, tourists and employees (as users and developers of services) (Rönkä & Jäppinen 2009, 3). In this user-driven model the user is one of the developers, a subject. Mikkeli was chosen as a target of this collaboration project because at the time the town had just launched both a strategy process and a process to develop public services. The implementation of the pioneering project was carried out by three actors: the author of this chapter, as a specialist in user-centricity, the director of research from Movense Ltd, and the director of development from the town of Mikkeli. Service users were represented by members of ProMikkeli, a registered civil organization, and by students at the Department of Business Economics of Mikkeli University of Applied Sciences. The

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third user group consisted of the 506 respondents who participated in January 2009 in the online survey conducted in Mikkeli under the Municipal Program of the Finnish Innovation Fund Sitra. The project encompassed joint planning, user observation, two Living Labs, and re      ?   *           local service development was analyzed on the basis of the results from the electronic survey conducted by Sitra. Citizen participation and the need for cross-sectoral development were among the issues raised by the survey and were selected as themes for Living Labs. The most important development targets that emerged were housing, social and health services, rural areas and studying. Of these, the themes related to housing and the elderly were selected for the Living Labs. In March, the parties implementing the project met three times with the representatives of the ProMikkeli civil organization and Mikkeli University of Applied Sciences. The agenda for the meeting covered the wishes expressed by civil organizations that the general public be consulted in the renewed strategy and service provision process and in the choice of workshop themes; the agenda also covered the plans of Mikkeli University of Applied Sciences to document the ongoing Mikkeli strategy and change-program process with the help of narratives, in this case user narratives. }       +    ?  }      tion for Mikkeli, a new development concept, User Market, was created. The name User Market was chosen to convey the idea of transparency and openness and to refer to the town’s marketplace, a popular meeting place and an open forum for the townsfolk, where interesting ideas surface. For this reason, the User Markets took place in another public space on the edge of the market, in Mikkeli Regional Library. Those invited included actors from the Mikkeli region innovation environment: city employees, members of the public and representatives of educational institutions and the     }     Y '+  ^^}     government” and the focus was on increasing interaction between actors. A peer resident from the Maunula district forum in Helsinki discussed experiences gathered over a period                     The theme of the second User Market was ‘‘Senior Citizens – Experience and Perspective”. In the workshops, the future Mikkeli forums were planned and the perspectives of students and senior citizens were discussed. Users participating in the workshops could choose the themes and groups they were interested in. The number of participants in the

 +  ŠU     £U The use of different forms of participation Sjöblom (2006, 224) examined the increase in participation in Finland and notes that participatory democracy has grown considerably in recent decades. A study of different forms of participation was carried out as part of the Finnish Local Government 2004 Re  }        |––‰   ||     pation in the study questionnaires. In 2000 there were 17 different forms of participation  !    QUU£  QU        ! were included (Sjöblom 2006, 246). New forms of participation are participation in the parents´ evenings in kindergarten/school; donations to local campaigns; volunteer work in the neighborhood; participation in a movement; neighborhood or village activities;

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responding the citizen or user surveys; and taking part in collaboration activities or city  }              QUUU@  responding to surveys, attending parents´ evenings and doing volunteer work. The more traditional channels such as contacting decision-makers were less popular. A total of 86% of all Finnish citizens had used at least one of these forms of participation (Sjöblom 2006, 248–249). }        !         +  to the local decision-making process. The decision-making on local political and governmental matters proceeds through four phases: initial phase, preparatory phase, decisionmaking phase and implementation phase. The four forms of participation listed in the second part can be placed in the framework that depicts the four-phase decision-making process (see Kettunen 2004, 20).

Table 1. Forms of citizen participation used in Mikkeli during the local political and governmental process of decision-making.

Different phases of decision-making and participation

Initial phase/ Participation through information

Preparatory phase/ Participation through planning

Decision-making phase/ Participation through decision-making

Implementation phase/ Participation through direct activities

Forms of participation

Information, Citizens´ consultation, Responding to questionnaires, User narratives, Interactive Web site, Service commitments

Community planning (Living Lab), City forums (Mikkeli forum)

Area or neighborhood committees

Volunteer environmental work, maintenance or service provision

Source: Adapted from Direct participation 2002, 4–5; Kettunen 2004, 20.

During the pilot, the opportunities offered to the townsfolk to participate in local de+          +  }  | above, that is, the initial and preparatory phases. When comparing the forms of participation used by Mikkeli residents to those emerged in the Finnish Local Government 2004 Research Program, the residents of Mikkeli used the most common forms of participation such as responding to surveys. This pilot introduced one new phase, preparatory, and one new form, participation through planning, to this process via User Markets. Local residents were more prepared than the decision-makers to participate through decision-making and direct activities. One of the issues discussed at the User Markets was whether residents are willing to take over the maintenance of the local outdoor facility for washing mats and to volunteer for environmental work and elderly care. If these forms of participation had been realized, residents would have gained access to two forms of participation that are less common in Finland: participation through decision-making and direct activities, rather than only to the two traditional ones, i.e. participation through information and planning.

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  + 

The effectiveness of public participation varies between the different forms of participation. Burns et al. (1994) divides these forms of participation into consultative and controlled forms. Consultative forms refer to practices used by municipal actors to inform or consult citizens. In controlled forms, the opinions or the wishes of citizens affect the choices of decision-makers. Kettunen (2004, 21) follows Arnstein´s (1969, 216–224) famous ‘‘ladder of citizen participation” and divides the different levels of participation into     !  $  From the citizens’ perspective, consultation is the weakest form. In that form, decision-makers aim to inform the public or elicit their opinions. Consultation in the initial and preparatory phases refers, for example, to meetings between decision-makers/committee members and the public, open meetings and communication, community planning, information sessions, feedback systems and different kinds of surveys. Common to these consultative interaction forms is top-down information and the fact that local decision-makers are not obliged to take the opinions of citizens into consideration. The    !  participation that originates from the citizens themselves. In this form an individual citizen or a group tries to convey its opinion to local decision+ '     $ !  +                   +        !           +        + }    !    joint decision-making. Participation may originate from local decision-makers who wish to have direct contact      ’        $ !   members of committees, and by engaging in the planning and provision of services. In this form the essential feature is the equal or crucial role of the general public compared     +     }          control by citizens: transferring tasks and the associated responsibilities to them. This means that some parts of the community act independently or that citizens or users are given the responsibility for providing some of the services at the local level (in neighborhoods or villages) (Kettunen 2004, 21–22). In this last form citizen-centric life can even lead to renewed community structure with responsive and involved citizens (see Ryynänen 2000, 18; Gretschel 2002, 54–55) with public infrastructure supporting more civil activities (Rönkkö 2003, 87). }    '++             ! The municipality consulted them in the initial and preparatory phases via User Markets. }    !               used in Mikkeli by the Pro Mikkeli Association. Its principal aim is to raise public interest in and to communicate residents’ own opinion to local decision making. In fact, the Association had been established two years before to ensure residents more say in local decision-making and to ensure that the statutory services were safeguarded. As the third   !   +          pilot in order to have continuous contact with the public and to inform them of the decision-making process. The public at large were more prepared than the decision-makers to participate in interactive and role-free discussion in Living Labs and on the Internet. This discussion had previously been conducted through formal statements and via local

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 }                 the municipality and citizens rather than at service development. Results from the perspective of user-driven innovation As a result of the User Market, the most important decisions taken were to stress the importance of participation in local governance, to develop a concept for a Mikkeli forum, to make one’s home town more close or “personal” under the theme “My Mikkeli”, and to make service development more personal by bringing service providers and users faceto-face. User Markets were also open to the press and the townsfolk. Transparency was increased by real-time reporting on the planning and implementation of User Markets on the Web sites of the town of Mikkeli and the Association of Finnish Local and Regional Authorities (AFLRA). Reporting of the pilot also included documentation and bachelor’s theses videotaped as user narratives, provided by Mikkeli University of Applied Sciences. Users reported on the outcome of the project on the ProMikkeli Web site, in local papers and on regional television. At the operative level a user-oriented approach was adopted in an extensive ongoing development project in the social and welfare sector. The development project focused on 11 work units and their practices in the health and social sector. Encouraged by the outcomes of the User Markets, the town of Mikkeli is also providing user-oriented training in 2010 aimed at employees of the town administration. At the level of strategy, the town of Mikkeli will pursue user and client orientation as one area of development. As an outcome of the project, Mikkeli set out to become a modern service town in its new town strategy made public in June 2009. The new strategy          !$         ity’s own practices. Another area of focus is public participation and the provision of more opportunities for participation. The town clearly wants to become less focused on government and governance and turn towards clients and citizens by adopting a modern service-thinking approach. The town is also going to launch a value process that will identify the key values of the town’s organization. The User Markets have opened up new opportunities for using social media in the town’s operations and development.  Ÿ QUU–      *    '++  {     marketplace, where everyone was welcome to participate in debates and bring forward new ideas. As part of the forum, there was a panel discussion on the town’s future with the title “Mikkeli – my town, our town”. The forum was organized by the development consultant responsible for the pioneering project on user-driven Living Lab for munici   {         '++ @    + and the representatives of the ProMikkeli civil organization. Helsinki Service Design pilot User-centricity in public services means that the starting point for the development of services is the needs of the general public. In a municipal service context this requires that the focus is shifted from production-centricity to user-centricity, involving ordinary people in service-related decision-making and introducing design thinking and methods in a service context.

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The city of Helsinki, the capital of Finland, is the one of the Finnish pioneers in developing public business services, piloting the user-centric and service design methodology stated in Finland’s National Innovation Strategy. Service design is in focus of the business-friendly partner program carried out between 2008 and 2011, which sets out to change the focus of three of the city’s service processes from product-orientation to user-driven orientation. These service paths are: ensuring smoother running of the permit process for organizers of private outdoor events and linking these events with tourism + "                "  facilitating SME´s acquisition of plots and premises (Sorsimo 2009, 56–57). The main objective of this program is to innovate and create business-friendly and customer-driven service solutions for the use of the business sector and entrepreneurs. Other objectives of the program include the development of service and operational culture in the city administration, collaboration and networking practices and cross-sectoral service delivery process management. A further aim is to increase public participation and ! /[ QUU– Š‰‚ŠX_ }  @ —    ~   !     \ness Friendly Partner program. Program partners and members of service design teams include entrepreneurs (as customers), representatives from Helsinki Region Chamber of Ž # + Ž  —  ?       QU    departments or enterprises (as service producers) and Helsinki Service Designers (as developers) (Sorsimo 2009, 57). Based on Mager’s model (Sorsimo 2009, 57), the service design process in this program consists of four phases: the discovery phase, the creation phase, the reality check phase and the implementation phase (Service Design e-learning tool 2009, 3). These phases correspond to Kline and Rosenberg’s interactive chain-link model and to Moritz’s model described above. ?      +           customers’ everyday lives and behavior and conducting research on issues and needs that are meaningful for customers using ethnographic methods. Several different methods were used to enhance customer experience and insight. First of these methods were employee and customer interviews and service safaris. Employees in customer service were asked, for example, how and when they met the customer; what kind of services and            "            or the role of the entire city administration was in delivering services to the customer. By contrast, customer interviews focused on customer behavior and customer service encounters with the business services. Using the third method, the Mystery Shopping, a researcher went through customers’ everyday lives and service situations and noted which areas needed improvement and which functioned well. As a fourth method in this phase, working groups went on service safaris, in other words, exploration and observation visits to meet their customers. On these safaris, teams gathered information about the service process and how the city’s business services are connected to the daily work of different types of companies and entrepreneurs (Sorsimo 2009, 57–58). The second creation phase utilizes the customer experience and service models by using service design processes, methods and skills. Instead of implementing or reforming              +      service models and concepts are created. They can be tested and evaluated with itera-

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tive design and prototypes before implementation in the fourth phase (Service Design e-learning tool 2009, 5). Results from the user-driven innovation perspective As before, when dealing with different ways of participation and their linkage to the local preparatory and decision-making process (Kettunen 2004, 20), these new user-driven practices, too, can be studied by placing them in the local service provision process. As a framework we can use Kline and Rosenberg’s (1986, 289–293) interactive chain-link model and complement it with Koivisto’s service design phases (2007, 72–75) and Sorsimos (2009, 57) methods.

Table 2. Forms of user-driven service design methods in the different phases of the innovation process in Helsinki.

Phases of innovation and service design process

Potential market/ Understand

Invent and/or produce design/ Discuss

Detailed design and test/ Develop

Redesign and produce/ Select and explain

Distribute and market/ Implement

Methods

Bench marking, Market research, Focus groups, Surveys, Interviews, Participant Observation, (photography, video documentation)

Personas, Cognitive mapping, Customer safaris, Workshops, Mystery Shopping

Co-creation workshops, Stakeholder mapping, Service journey mapping, Personas, Service blue prints, Brainstorm, Visualization, Service samples, Empathic design

Prototypes, Personas, Usability evaluation,Pilots, Focus groups, Service samples, Empathic design, Animation, Puppet theater

Service journey, Service moments, Touch points

Source: Adapted from Kline & Rosenberg 1986, 289–293; Rilla & Saarinen 2007, 2; Koivisto 2007, 72–5.

Residents of Helsinki used different forms of service design and user-driven innovation in 

          }  Q  '               +  /   _"  and/or produce; detailed design and test through ethnography, employee and customer interviews and customer safaris. Researchers using the mystery shopping method mapped the whole customer journey in the role of the customer and service user. User-centricity is one of the new success factors in the Helsinki City Strategy adopted in April 2009. User-centricity in public services means that the starting point for the development of services is the needs of users. Until now, sectors of the Helsinki city administration accountable for delivery of services to the city’s business customers have been working alone and delivered their share of the service entity in a user-friendly way from the sectoral point of view, but not as whole. The visual and demonstrative approaches of service design as well as participatory methods have helped align diverse

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perspectives and establish a common understanding, also from the users’ point of view. Working group meetings and workshops between customers and different sectors of the     $    

  [ ~ Ž     space reserved for project teams, has also played an important role in co-creation process (Sorsimo 2009, 57–58).           *      moral and political arguments. New cross-sectoral processes and user-driven innovations help modernize service provision and increase the competitive powers of both municipalities and the private sector (Rosted 2005, 10, 19, 26). This competitiveness can be seen as a rapid response to users needs. Used systematically, user-driven innovations can be       ƒ            + by prototyping and testing new ideas together with users (Design Council 2008, 1–2). Behind the moral and political arguments are the impacts of user-orientation on users’ own quality of life, feelings of citizenship and democracy. At the same time the research recognizes that user participation in public services cannot undermine representative de                }     users and service professionals are evident in the feedback. User-driven methods improve the quality of services because they reduce the risk of providing unnecessary services and               }    allow professionals to share some of the responsibility and increase the job satisfaction of people working in public services. As yet there is little evidence of their cost-effectiveness /#  Ž QUUœ |Q‚|Š_ —   $       # + learnt new aspects about their customers’ behavior, feelings and emotions and acquired new ideas for new services or how to make collaboration with city administration easier. In future, the City of Helsinki will try to develop public services for entrepreneurs so that they are renewed user-centric service paths. The aim of these service paths is to optimize cross-sectoral customer processes, save business customers’ time and improve service encounters and satisfaction. During this working process, new user-centric choices and services reforms have been undertaken. New working models have been developed and evaluated together with service personnel, customers and design team (Sorsimo 2009, 58). :                   collaboration between sectors. The following are examples of the new service propositions introduced during these three projects: prototypes for electronic services, different kinds of guidebooks and instructions and reform of some service areas. Improvements such as instructions for event organizers have already been adopted (Sorsimo 2009, 58). The pilot has introduced new practices and a new process to Helsinki residents to develop horizontally cross-sectoral services in co-operation with the service providers and users. Use of different forms of participation The Helsinki City Entrepreneurs’ Association and Helsinki Region Chamber of Commerce participated in the selection of one of the service journeys at the start of the pilot and, having representatives in the pilot’s steering group, they were also involved in decision-making concerning the content of the two other service journeys. Therefore,         +     *   !   

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of user democracy. The entrepreneurs (as customers) participated in decisions about the methods used in these three service paths. However, the main emphasis of the pilot was on testing and implementing new user-driven methods.

Participation through information and planning / Discover and creation phase in innovation process

Learning about the citizens/useres’ needs

Implementation

Setting goals and objectives

Co-designed alternative decisions

Decision making

Testing and evaluation

Source: Adapted from Sorsimo 2010.

Figure 1. Interactive decision-making process and user-driven design in public services.

Conclusions The role of citizens in local governance has been a topical issue across Europe over the  QU  ‘U  ~         !    considerably. Citizen participation has been supported as a complement to representative democracy by the cabinet programs, legislation and different forms of participation projects since the 1990s. Participation has brought new innovative processes and empowered forms such as community planning, visioning, focus groups and city forums. The older, more traditional channels like contacting decision-makers remain less popular. Increas     !               political and governmental activities and making services more responsive to the needs of users. }     Q|st century introduced the concept of user-driven innovation and service design to public service reform. At the same time the traditional participation in the form of consulting the public has been complemented with new, more innovative

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user-driven ways, which involve both service users and service professionals in service design and provision through user-driven innovation. These services, however, are still not extensively used. [                  to identify latent customer needs, which may lead to radical innovations instead of minor improvements to services or products. New cross-sectoral processes and user-driven innovations help modernize service provision and increase the competitive powers of both municipalities and the private sector. Used systematically, user-driven innovation can      ƒ            + by prototyping and testing new ideas together with users. }          '++        participation in service related decision-making. The second case study in Helsinki described user-driven innovation in the city’s service provision. In both cases, citizens were more prepared for the change required by user-centricity and for participation than the +       The methods of participation and user-driven innovation are partly the same and take place in parallel processes. The simple ideal model depicted below describes the abovedemonstrated two parallel decision-making and innovation processes in one integrated process where people can participate in the interactive user-driven design and decisionmaking process through discover, creation, reality check, and implementation phases. In this idealistic citizen-centric model, responsiveness to citizens’ needs, priorities and lifestyles in local governance can lead to renewed community structure with so              ! }   model emphasizes the forms of civic responsibility and volunteer work. The role of the public changes from object to subject and responsible co-producer in service provision. The aim of user-driven welfare services in civil society is to empower the public to lead independent lives. In this renewed local governance model citizens are naturally participating in both decision-making and service processes and they are no longer kept separate.

References Aho, E., Brunila, A., Eriksson, J.-T., Harjunen, P., Heikinheimo, R., Karjalainen, S., Kekkonen, T., Neittaanmäki, P., Ormala, E., Peltonen, P. Pöysti, K., Strengell, M., Stenros, A., Temperi, J. & Toivanen, H. (2008) The Proposal for Finlands´s Innovation Strategy. Helsinki: The Ministry of Employment and the Eonomy. Aminoff, C., Hänninen, T., Kämäräinen, M. & Loiske, J. (2009) Muotoilun muuttunut rooli [Changed role of design]. Luovan talouden strateginen hanke. Provoke Design Oy. Helsinki: Työ- ja elinkeinoministeriö. Arnstein, S.R. (1969) A Ladder of Citizen Participation. Originally published in JAIP 35(4), July 1969, 216– 224. Retrieved April 14, 2010, from http://lithgow-schmidt.dk/sherry-arnstein/ladder-of-citizen-participation.html Blum, J. & Manning, N. (2009) Public management reforms across OECD countries. In: Tony Bovaird & Elke ¯! /—_ Public Management and Governance. Second edition. London: Routledge. Burns, D., Hambleton, R. & Hoggett, P. (1994) The Politics of Decentralisation. Revitalising Local Democracy. Basingstoke: Macmillan. Design Council (2008) The role of design in public services ~ Ž \  UQ %  ~ |U QUU–   +’ UQ Direct participation (2002) Valtioneuvoston selonteko Eduskunnalle kansalaisten suoran osallistumisen kehittymisessä [Report of the increase in direct participation 2002]. Retrieved March 2, 2010, from http://www.   ’ ’’

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European … (2009) European Innovation Scoreboard 2009. Retrieved March 24, 2010, from http://www.proinno-europe.eu/node/24173 Evaluation … (2009) The Evaluation of the National Innovation System. Retrieved January 13, 2010, from  ’’  ’$   ®<®‘|‰| Gretschel, A. (2002) Kunta nuorten osallisuusympäristönä. Nuorten ryhmän ja kunnan vuorovaikutussuhteen tarkastelu kolmen liikuntarakentamisprojektin laadunarvioinnin keinoin. [The municipality as an involvement environment. An examination of the interactive relationship between youth groups and municipalities through the quality assessment of three sports facilities construction projects]. Jyväskylä: Jyväskylän yliopisto. Hanington, B. (2003) Methods in the Making: A Perspective on the State of Human Research. Design Issues 19(4), 9–18. Boston, MA: MIT Press. House of Commons (2008) User Involvement in Public Services. Public Administration Select Committee. Sixth Report of Session 2007 – 08. Report, together with formal minutes. Ordered by the House of Commons to be printed 24 April 2008. HC 410. Published on 7 may 2008 by the authority of the House of Ž  } [   >  Hyvönen, J. & Valovirta, V. (2009) Yleiskuva innovaatioiden luonteesta ja innovaatiotoiminnasta julkisella sektorilla [General picture of the nature of innovation and innovation activities in public sector]. Inno  +    ›}} %  : Q‘ QUUœ   ’$ ’ ’ default/.../Setu_11-2009.pdf Kanniainen, V. (2002) Puhtia hyvinvointiyhteiskunnan purjeisiin [Wind to the sails of the welfare society]. Peruspalveluja uudella tavalla. Eva. Helsinki: Taloustieto Oy. Kettunen, P. (2004) Osallistua vai vaikuttaa? °}      !² =

  + ³³³ ¯ tutkimusjulkaisut, nro 39. Helsinki: Kunnallisalan kehittämissäätiö. Kline, S. & Rosenberg, N. (1986) An Overview of Innovation. In: R. Landau & N. Rosenberg (Eds.) The Positive Sum Strategy – Harnessing Technology for Economic Growth, 275–306. Washington D.C.: National Academy Press. Koivisto, M. (2007) Mitä on palvelumuotoilu? – Muotoilun hyödyntäminen palvelujen suunnittelussa [What is service design? – Taking advance of design in planning of services]. Taiteen maisterin lopputyö. Taideteollinen korkeakoulu. Retrieved March 8, 2010, from:  ’’ ’ Miettinen, S. (2009) Designing Services with Innovative Methods. In: Miettinen, S. & Koivisto, M. (Eds.) Designing Services with Innovative Methods, 10–25. Helsinki: University of Art and Design of Helsinki. Moritz, S. (2005) 

        . Köln International School of Design. %  Ÿ Qœ QU|U   ’’  ’ ’[¬~¬ ’  ­QU?cess%20to%20Service%20Design.pdf Rilla, N. & Saarinen, J. (Eds.) (2007) Tutkimusmatka innovaatioihin [Exploring innovations]. Teknologiakatsaus 197/2007. Helsinki: Tekes. Rosted, J. (2005) User-driven innovation. Results and recommendations. The Ministry of Economic and Business Affairs´ Divivision for Research and Analysis. Copenhagen: FORA. Ryynänen, A. (2000) Asukkaasta osalliseksi [From a resident to an active citizen]. In: U.-M. Laiho (Ed.) Katse kansalaisuuteen – osallisuudesta ja osallisuushankkeiden tuloksista, 7–20. Sisäasianministeriön Osallisuushankekatsaus. Helsinki: Sisäasiainministeriö. Rönkkö, P. (2003) Kunta osana suomalaista yhteiskuntaa [Municipality as a part of Finnish society]. In: Anttiroiko, A-V., Haveri, A., Karhu, V., Ryynänen, A. & Siitonen, P. (Eds.) Kuntien toiminta, johtaminen ja hallintasuhteet, 11–23. Kunnallistutkimuksia. Tampere: Tampere University Press. Rönkä, K. & Jäppinen, T. (2009) Edelläkävijäkunta Living Lab. Johtopäätöksiä Mikkelin käyttäjätoreilta. Loppuraportti. [Pioneering Municipality Living Lab. Final Report.] Julkaisematon raportti 13.5.2009. Service Design e-learning tool (2009) Why service design? Retrieved March 27, 2010, from http://www.share2solve.org/introtosd/start/ [*¯  [ /QUU‰_ =   + * °Ž   !  ²  + [*¯  ' #  › < Sjöblom, S. (Eds.) Kuntalainen – kansalainen. Tutkimus kuntalaisten asenteista ja osallistumisesta 1996– 2004, 243–273. KuntaSuomi 2004 -tutkimuksia nro 56. ACTA nro 182. Helsinki: Suomen Kuntaliitto. Sorsimo, J. (2009) Palvelutuotanto käyttäjästä ohjautuvaksi. [User-driven Service Provision]. Tietoplus. Kuntalehti 16/2009. Sorsimo, J. (2010) Julkisten palvelujen käyttäjälähtöinen suunnittelu- ja päätöksentekoprosessi. [Interactive user-driven design and decision-making process in public services]. Unpublished source. TEM (2008) Innovaatiopoliittinen selonteko. [National Innovation Strategy. Government’s Communication on Finland’s National Innovation Strategy to the Parliament]. Työ- ja elinkeinoministeriö. Retrieved August 26, 2009, from  ’’  ’$  ®Q£||

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Toikko, T. (2006) Asiakkaan osallistuminen palveluiden kehittämiseen [Client participation to service development]. Työpoliittinen aikakauskirja 3/2006. Retrieved March 3, 2010, from   ’ ’ ’––¬’

’U‰’U‰’ ++ UDI Seminar (2009) UDI = User Driven Innovation –seminar in Helsinki. Retrieved January 13, 2010, from  ’’  ’$  ®‘‘X‰ VM (2005) Kunta- ja palvelurakenneuudistus 2005. [The project to restructure Finnish local government and services]. Valtiovarainministeriö. Retrieved August 23, 2009, from  ’’ ’’ ’UŠ¬+keet/025_paras/index.jsp VM (2007) Parhaat palvelukäytännöt –hanke. [The Best Municipal Service Practices Project]. Valtiovarainministeriö. Retrieved August 26, 2009, from  ’’ ’’ ’UŠ¬++ ’UQŠ¬’UX¬+ ¬ parhaat_palvelukaytannot/index.jsp

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved. doi: 10.3233/978-1-60750-727-7-174

Innovations in Democratic Governance Mark Bevir and Quinlan Bowman UC Berkeley, California, USA

This chapter explores how direct citizen participation can feature throughout the varied stages of the public policy cascade. It discusses a range of democratic innovations for public participation, focusing on three aspects of the policy process: public opinion formation, decision-making, and implementation. The case studies indicate how public participation can operate at multiple geographical scales – ranging from the neighborhood level all the way up to the transnational – and illustrate how participation at different levels might be linked up. The examples explore ways that citizens might craft their own rules for participation; monitor those rules and the policies they help generate; and cooperatively implement their own local policies. They also         $            of largely supporting and facilitating public participation. To conclude, the authors discuss a few ways in which innovative practices might contribute to a more effective policy process.

Introduction Democratic governance is a pressing concern, yet also, just possibly, a concern about which we might feel cautiously optimistic. Why is democratic governance now a pressing concern? Well, for a start, longstanding electoral democracies have experienced a steady decline in popular legitimacy and participation. Surveys point to falling rates of trust in government and declining support for elected politicians across many states since at least the mid-1970s (Dalton 2004). While many people remain committed to democratic ide                $     processes. Research also points to declining rates of voting in elections. According to one global study, the percentage of eligible voters who cast a vote in elections that were clas            |–£Š  |––U                    |–œU  ‰œ­   

 64% in the 1990s (International Institute for Democracy and Electoral Assistance 2009). The American case is instructive. A few years ago, Harvard’s Vanishing Voter Project found that the period from 1960 to 2000 marked the longest ebb in voter turnout in U.S. history (Patterson 2002). In the run up to the 2000 presidential election, the Project found that more than 60 percent of regular voters agreed with the statement: “Politics in America is generally pretty disgusting” (Patterson 2000). More generally, while caution is always needed in interpreting public opinion studies, a good deal of evidence suggests that there is a deep divide between public preferences and actual public policies on a wide range of domestic and international issues (Chomsky 2006). At times, the public seems to recognize this. A 2005 Gallup poll, for instance, found that more than 7 in 10 Americans agreed that the country would be better off “if the leaders of our nation followed the views

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       š /: QUUŠ_   QUUœ 

    ?  that their country is “run by a few big interests looking out for themselves,” rather than ¡    

 š /       ?   QUUœ_ Other concerns about the state of democracy arise out of the widespread public sector reforms of the 1980s. These reforms marked a shift from the provision of goods and services through a command-and-control bureaucracy toward greater use of markets and policy networks that involve both state and non-state actors. This shift coincided with global political-economic changes, including: an increase in transnational economic activity; moves toward decentralization or devolution; and the rise of regional institutions such as the European Union (EU). The result is complexity and fragmentation. Programs and policies more often require the involvement of actors beyond national borders. In certain policy areas, interdependencies between federal, state, and local levels of government have become more common (Radin 2006, 206). Many states increasingly depend on other organizations to secure their intentions and to deliver services. The involvement of a multiplicity of organizations with overlapping jurisdictions means that the very pattern            /?

QUUU" ' QUU‘_ } changes pose severe dilemmas to the historic ideal of representative and responsible government (Bevir 2010). The involvement of diverse actors in formulating policies and              +      to say who should be held responsible for what (Considine 2002; Minow 2003). ‹             cautious optimism? Well, to begin with, many politicians and other policy actors are growing worried about declining rates of legitimacy and participation. Some have begun to look at ways of reversing the decline. Many local, state, national, and transnational actors appear willing to experiment with certain democratic innovations. Often, their primary aim may be to shore up the perceived performance and legitimacy of existing political institutions, rather than to promote the self-governance of citizens. They may hope that consulting actors beyond professional politicians and civil servants will make elite-favored policies more acceptable to those whom they target. Often, their preferred initiatives may leave the state with control over which groups are involved. Rather than granting decision-making powers, they may restrict participation to mere consultation while leaving decisions to alleged experts (Bevir 2006). Nonetheless, democrats might take heart from growing awareness of the need to innovate. Even such limited reforms may be a valuable supplement to longstanding representative institutions. What is more, they may open up space for further innovations that promote greater pluralism in the policy process and devolve actual decision-making powers. Of course, whether or not they do so is a matter of contingent power struggles, political will, and choice. Another reason for cautious optimism goes to the character of the public sector reforms themselves. Clearly, these reforms include aspects of marketization, competition, and managerialism, all of which can erode public service ethics and, as we have mentioned, accountability (Shamsul Haque 2001; Vigoda 2002). However, the rise of new actors in the policy process has also led to innovative modes of collaborative governance, many of which actively involve citizens in various stages of the policy process (Ansell & Gash 2008; Bingham 2010). Collaborative governance refers here to policy actors working in partnership with stakeholders or the general public in, for example, forums for public deliberation, community problem-solving, and stakeholder dispute resolution.

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?            |–œU                ƒ /[ 1995). But the reforms often did not result in the markets envisaged by their proponents. As the British case suggests, what emerged were networks variously comprised of public, semi-public, and private actors jointly participating in service delivery (Rhodes 1997). A second wave of reforms then attempted to provide states with new managerial techniques with which to control and coordinate such networks (Kickert, Klijn, & Koppenjan 1997). Yet, these techniques are liable to generate unintended consequences, especially if they ignore the contingent meanings and responses of the citizens involved. After all, network management is in large part about trying to understand, and respond suitably to, the beliefs, traditions, and practices of a network’s participants. Perhaps, therefore, the time has come for a third wave of reforms directly promoting democratic governance. In this chapter, we look for inspiration for such a third wave. We pursue the optimistic signs of policy actors promoting greater citizen participation, dialogue, and deliberation. We do not want to imply that these signs augur a necessary future. Nor do we want to exaggerate the extent to which these practices are spreading. Our aims are more modest. We look at diverse democratic innovations throughout the varied stages of the policy cascade. For simplicity, we divide the policy cascade into three stages: public opinion formation, decision-making, and implementation.1 >       

   how direct citizen participation can feature throughout the policy cascade, and, second, to indicate how it can operate at multiple geographical scales. Hence, we take up cases of participation ranging from the neighborhood level all the way up to the transnational. Some of these indicate ways participation at different levels might be linked up. Our $    $           $       directing and controlling the policy process to largely supporting and facilitating public participation. Finally, our cases indicate several dialogic and deliberative practices that could be used to enhance participation in public life more broadly. Should the examples we discuss prove compelling, perhaps they will serve as inspiration for further such innovations. So, without further ado, let us consider some recent democratic innovations in processes of public opinion formation, decision-making, and implementation. To close, we then comment on the potential effectiveness of these innovations.

Public opinion formation Some democratic innovations attempt primarily to make public opinion more informed. Prime examples derive from the idea that informed public opinion develops through dialogue and collective deliberation. Frequently, proponents of such practices – including self-styled deliberative democrats – focus on widening fair and inclusive deliberative engagements in the informal public sphere. Consequently, many of the practices they en-

1 Clearly, our discussion leaves out key moments of the policy process and new ways for the public to participate in it. A more comprehensive treatment would consider, for example, online innovations (Smith 2009), participatory policy evaluation (Taylor & Balloch 2005), and participatory approaches to policy dispute resolution (Bingham 2010).

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 !                 only a limited impact on the exercise of public power (Cohen & Fung 2004, 174). Such practices include cases of what have been called “mini-publics”. Among other examples, mini-publics include 21st Century Town Meetings, consensus conferences, and deliberative polls. A second strand of innovative approaches to opinion formation builds on critical pedagogy (Freire 1970). Typically, these approaches emphasize practices in which participants – particularly subordinate or marginalized groups – are encouraged to think critically about their social reality and so to discover possible ways of transforming it. A main example is participatory mapping. Mini-publics A mini-public consists in a forum that convenes a segment of the population in self-consciously organized public deliberations (Fung 2003a). The scale of participation ranges          '         + public opinion more informed through collective deliberation, and, second, to bring informed opinion to bear on public issues. Town Hall Meetings One type of mini-public is the 21st Century Town Meeting. AmericaSpeaks organizes “Town Hall Meetings” (THMs) that convene thousands of citizens in large-scale public discussions (Fung 2003b; Lukensmeyer, Goldman, & Brigham 2005). Each citizen spends the day at a table composed of 10 to 12 demographically diverse individuals. A trained facilitator helps the table to deliberate the relevant issue. The citizens begin with a broad dialogue about visions and values in order to clarify what is important to them      }            + issues and policy options. At each table, a volunteer records the main points of the discussion on a laptop computer. The computers are networked together. A “theme team” is thus able to read participants’ comments from every table in real time and to distill these comments into key messages or themes. The key messages and themes are then presented back to the whole room. The facilitators solicit rapid reactions, collect demographic surveys, and conduct straw polls throughout the meeting. Each participant has a polling keypad with which to respond to the facilitators. Issue experts are also available to answer   ƒ         ›       }#' [        stitutions sponsor these meetings on issues over which they have some decision-making authority. For example, the mayor of Washington, D.C. sponsored two THMs in 1999 and 2001, which were attended, respectively, by some 3,000 and 3,500 residents. At other times, a broad coalition of civic organizations will sponsor a meeting. For example, in 2002, a coalition of nearly 100 civic organizations convened three THMs in New York City in order to discuss the redevelopment of the World Trade Center after the September 11th terrorist attacks. When civic organizations sponsor THMs, they typically try to in                 +     that public decision-makers will be responsive to the event. Moreover, the event organizers often provide summaries of the day’s outcomes not only to participants but also to

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        }          ! public decision-making. In the case of the New York City meetings, for example, some observers argue that the media coverage of the event spurred decision-makers to rework the plans and to include several detailed recommendations that arose out of the forums (Fung 2003b, 31–32; Lukensmeyer et al. 2005, 161). As with other mini-publics, one of the main issues surrounding THMs is how to ensure the involvement of an appropriate group of citizens. Organizers typically want a group that represents the demographic diversity of the larger community. To assemble such a group, the organizers often have to tailor their outreach and recruitment strategies     *  ?       compare the registration numbers to the demographic targets and adjust the recruitment strategy accordingly. Consensus conferences Mini-publics include not only 21st Century Town Meetings but also consensus conferences. Consensus conferences originated with the Danish Board of Technology (Hendriks 2005). In the Danish model, 10 to 12 citizens come together for eight days of deliberation over a period of roughly three months. The participants develop a series of policy recom  }                  the desired characteristics of the larger population. The meetings involve two stages. }          +       to learn about one another, the subject, and the process. The participants also develop a series of questions that the conference will discuss. And they choose people to make presentations to the conference from a list of potential interest group representatives and $  }        }         session at which the presenters respond to the questions set for the conference. Throughout these days, the citizens’ panel occasionally retreats into closed sessions to articulate further questions for the presenters and to clarify points of contention or misunderstand         

           main recommendations. They then present the report to pertinent decision-makers before a public audience. Sometimes, the presenters are given the opportunity to reply, and the citizens are then free to revise their report. The organizers often include professionallytrained facilitators throughout the process, but like the citizens, these facilitators are not experts on the relevant topic. An external advisory body oversees the whole process. This body maintains the integrity of the procedure, compiles the list of presenters, develops                       facilitators and participants. It generally includes academics, practitioners of public participation, and experts on the relevant topic. } ~ \  }         |–œX   aims were to provide policymakers with a better understanding of the social context of emerging technologies and to stimulate informed public debate. Since then, at least 22 conferences have been held in Denmark on controversial technology issues such as gene technology, air pollution, and electronic surveillance. The consensus conferences are usu

                  } Technology Board also organizes a set of local debates after the closing forum and press conference (Goodin & Dryzek 2006, 223). Some observers believe that the consensus conferences have stimulated public discussion across the country. One opinion poll found

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that seventeen percent of the surveyed population (N = 1000) had heard of the consensus conferences and could describe some of the topics they had addressed (Hendriks 2005, 105). Deliberative polls }    

          $    ! public debates. Deliberative polling emerged out of the work of academics such as James Fishkin. Unlike conventional polls, “a deliberative poll attempts to model what the public would think, had it a better opportunity to consider the questions at issue” (Fishkin 1995, 162). It does so by modeling citizen deliberation under ideal conditions. Deliberative polling begins with invitations to random individuals (Fishkin & Farrar 2005). The selection of participants generally occurs by random phone dialing. Sometimes, a warm-up letter is sent to a random sample of phone listings and a follow-up call is then made. People who choose to participate are compensated for their time. Typically, participants have approximated the initial sample and the larger target population in both their surveyed attitudes and their demographic characteristics. Before the event, participants are sent background materials that provide an array of information and perspectives on the issues in question. The event includes both small-group discussions and a plenary session during which participants can ask questions of an expert panel. Experienced moderators facilitate the small-group discussions. The moderators are trained to: remain neutral, not to impart information, to support broad participation, and to refrain from promoting consensus among the participants. There is no restriction on what participants can say or on the kind of speech they can use. Participants are not instructed to refrain from storytelling or to rely exclusively on arguments. They are also not asked to restrict their speech to appeals to the common good. The organizers attempt to provide balance in         $           and post-deliberation surveys permit the organizers to assess shifts in the participants’ opinions, knowledge of factual questions, and considered judgments. Generally, the organizers of deliberative polls work hard to obtain broad media coverage. During the 1996 U.S. presidential primary, some 10 million television viewers watched a deliberative poll of 460 participants (Levine 2002, 78). More generally, the By the People Citizen Deliberations project works with local television stations, community foundations, civic organizations, and colleges and universities to organize and broadcast deliberations regarding local perspectives on national topics.2 Deliberative polling has been extended to increasingly broad pools of participants (Fishkin & Farrar 2005). To date, more than 50 deliberative polls have been conducted throughout the world at local, regional, and national levels. The polls have addressed a wide variety of issues, including elections, national referenda, foreign policy, public ser   }        

+     —Y  >  2007.3 It involved 362 participants drawn from all 27 member states and had simultaneous translations in 22 languages. Deliberative polls have also been conducted online (Fishkin 2009).

2 See http://www.pbs.org/newshour/btp/about.html (last accessed on April 15, 2010) 3 See http://www.tomorrowseurope.eu/ (last accessed on April 14, 2010)

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A closely related innovation is the European Citizens’ Consultations.4 The 2009 pro*                    debate and to relay ideas about EU policy options. These ideas were fed into national consultations that took place in all 27 member states. Over three weekends, hundreds of participants at each of these events (a total of 1,600 citizens chosen through random selection) worked to generate 10 proposals for action at the EU level. The participants then voted on the recommendations generated by the national events, thereby creating a list of the top 15 recommendations. About 150 of the participants then went to Brussels to submit these recommendations to EU-level policymakers and to discuss them. Participatory learning and action Other innovative approaches to opinion formation rely less on deliberation but still focus on broad public engagement. Drawing inspiration from critical pedagogy, one family of practices is sometimes called “participatory learning and action.”5 These approaches emphasize engagements in which local people enter into interactive or dialogic learning processes. They focus on problems confronting a community and possible actions for addressing these problems; local people themselves determine the purposes of research inquiry. They include, for instance, Participatory Rural Appraisal, Participatory Action Research, and Participatory Mapping. The last of these is one of the most widespread practices (Chambers 2006; IFAD 2009).     +             by a group of non-experts. Participatory maps can record geographical, social, cultural, economic, and historical information. They sometimes include information about ethnolinguistic groups, demography, health, mythology, land-use occupancy, and the distribution of wealth. As the authors of a report for the International Fund for Agricultural Development explain, “participatory maps often represent a socially or culturally distinct understanding of landscape and include information that is excluded from mainstream maps, which usually represent the view [sic] of the dominant sectors of society” (IFAD 2009, 7). The authors suggest that participatory maps “can pose alternatives to the languages and images of existing power structures and become a medium of empowerment by allowing local communities to represent themselves spatially” (IFAD 2009, 7). Indigenous First Nations communities in Western Canada, for example, have used participa                  ! land claims, and to generate an interest in spatial knowledge among the young members of their communities (IFAD 2009, 5).

Decision-making ~           !       also to bring citizens’ considered judgments directly to bear on decision-making pro-

4 See http://www.european-citizens-consultations.eu/ (last accessed on April 14, 2010) 5 See the journal Participatory Learning and Action, available at http://www.planotes.org/ (last accessed on April 14, 2010)

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cesses. Typical representative-democratic institutions rely formally on elected politicians to make policy decisions on behalf of citizens. Yet, there are also approaches that enable citizens themselves to play an active role in decision-making. Some of these approaches – for instance, referenda – are long-standing and familiar. In recent years, however, there has been an upsurge in the use of other, sometimes related, approaches. Here we consider three examples: citizens’ assemblies, participatory budgeting, and decentralized development planning. Citizens’ assemblies Referenda and other forms of direct legislation are perhaps the most obvious examples of how citizens can directly participate in public decision-making processes. Yet most referenda are advisory and take place at the initiative of governments. Citizens rarely have the right to initiate propositions (Smith 2009, 111). However, a recent referendum in the Canadian province of British Columbia provides one interesting illustration of how citizens can be directly involved in formulating binding referenda. In 2003–4, the provincial government of British Columbia, Canada established a Citizens’ Assembly on Electoral Reform. The Assembly shows how a mini-public can be combined with a referendum to give its participants a clear role in legislation. The Assembly had a mandate to study electoral models, to decide whether the province needed a new one, and, if it did, to develop a proposal to be submitted to a public referendum (Lang QUUX_                  /      and gender to meet 2001 census data) in each district. A randomly selected subsection of      /        _         at which one eligible man and woman from each district were randomly selected. Elected                       }          |‰U ‚          X– electoral districts plus two randomly selected participants of Aboriginal descent. } ?  +     }       Ÿ  ' 2004. The members met every other weekend to learn about different electoral systems. The agenda relied heavily on lectures developed by two political scientists hired from the University of British Columbia. These lectures were developed in consultation with an academic advisory board composed of political scientists from the University of British Columbia and Simon Fraser University. The meetings began with the lectures, after which participants asked clarifying questions. Then, graduate-student facilitators led small group discussions in which randomly selected members would debate questions from the preceding lecture. Members requested information on declining voter turnout and the province’s demographics. The Assembly’s staff brought in two additional experts to discuss these issues. Participants then produced a preliminary report that was released to the public prior to the next phase. A second stage consisted of 50 public hearings held around the province. Each hearing was hosted by a local member of the Assembly and attended by 2 to 10 other members. The hearings involved presentations by members of the public, followed by a town-hall style meeting at the end of the evening. During May and June, the Assembly members heard more than 350 presentations. Some 2,850 people attended the hearings. The Assembly’s online submission portal had received an additional 1,604 submissions

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by early September. Assembly members also created a private online forum to discuss different electoral systems among themselves. }                     entations from individuals who had been chosen from the public hearings as good representatives of the varying options and issues under consideration. Assembly members   

              public hearing. Then, in July, a randomly selected committee of Assembly members met to select presenters who would represent a variety of views. Over several weekends, Assembly members then: ranked the values they wished to uphold; constructed proposals for electoral systems that would advance those values; chose a system; wrote the referendum question; and prepared a public report on their recommendation that would be given to the public. The Assembly voted for a Single Transferrable Vote system rather than a Mixed Member Proportional system (123 to 31). But referendum voters narrowly rejected the Assembly’s proposal. (For the referendum to pass, over 60% of votes across the province needed to be in favor of the proposal, as did over 50% of votes in at least 60% of the electoral districts; but, in the end, while 77 out of 79 districts were in favor, the overall vote came only to 57.69%.) Participatory Budgeting Participatory Budgeting (PB) provides an example of more continuous citizen involvement in decision-making processes than the British Columbia Citizens’ Assembly. PB      |–œ–    ?  \                 *     > QŠU \         at some point between 1990 and 2004. Municipalities in over 40 other counties have also implemented some version of it (Wampler 2007, 6). Most Brazilian PB programs employ a format that is similar, though not identical, to that of Porto Alegre, which we summarize here.6 Citizen participation in the formation of the annual budget occurs at three geographic levels: the neighborhood, district, and municipality. There are two rounds of meetings at both the neighborhood and district

  ?                         + }        elect delegates for their district. The government provides detailed technical information, establishes times and places for the meetings, and furnishes organizational support such as photocopies and telephone access. The rate of turnout at these neighborhood meetings determines how many representatives a neighborhood sends to the district assembly; the number of delegates allotted to each neighborhood increases as a diminishing marginal         ?                               }          *  it wishes participants to approve, and prepares a Quality-of-Life Index to be used later in deciding the distribution of resources among districts. At both the neighborhood and dis        

            6 In recent years, some important changes appear to have been made to Porto Alegre’s PB (CIDADE 2005). Our discussion is based on the format presented in Avritzer (2009) and Wampler (2007).

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 presenting information and end with a question-and-answer session between citizens and    }    

     +       *   policies that they want the municipal government to implement over the next one to                      proposals for public works. They make “priority trips” to proposed project sites in order to assess the level of need in each case. And they then vote on the region’s desired policies and public works. While the process is largely deliberative, at times it also involves negotiation, mobilization and the formation of alliances among delegates from different  ‹               estimates of proposed project costs, arranging the priority trips, and monitoring votes. Meanwhile, at the neighborhood level, participants continue to mobilize in favor of given policies or projects and they now elect oversight committees that will later monitor project implementation. Sometimes these committees also approve the technical plans for various projects. The government’s role is to draft technical plans and provide technical staff to work closely with the oversight committees. During this round, a district-level open assembly is also held in which delegates are elected to the third level of participation, the Municipal Budget Council (MBC). ‹

  '\Ž           nicipal legislature. In Porto Alegre, the MBC has 44 members: two councilors from each of the 16 regions, one from the public service trade union, one from the umbrella or               semblies. The thematic assemblies occur parallel to the territorial ones. They address general spending priorities, such as health care and education. The government provides detailed information on current policies and spending priorities that affect the city as a whole. Participants evaluate this information before then constructing their own ordering    } '\Ž +    $         the citywide budget proposal based on the thematic priorities, the preferences expressed in the district votes, and the government’s Quality-of-Life Index. A larger proportion of resources goes to districts with higher poverty rates, denser populations, and poorer services and infrastructure. While the city legislature has limited prerogatives to amend the budget, in 2003 Baiocchi reported that the budget proposal had been approved every year until then without major alterations. Some observers argue that the process of public *           \ +          the budget proposal (Baiocchi 2003, 65; Fung 2004, 237). The MBC itself has the power to modify the rules that govern the PB process. Each year, it can alter: the rules governing the composition of the council; the rules for the election of delegates; the conditions for losing a mandate; the rules for argumentation in the council; and the rules by which the council can change the rules for deliberation itself. Decentralized development planning If PB illustrates one way in which popular councils can be nested into municipal governance institutions, decentralized development planning shows how local citizen deliberations and problem-solving exercises can be nested into planning activities that span a

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whole state. Decentralized development planning also shows how participatory learning and action might be incorporated directly into decision-making processes. Decentralized development planning is widely associated with the Indian state of Kerala. In 1996, Kerala’s state government launched the “People’s Campaign for Decentralized Planning” (Heller, Harilal & Chauduri 2007; Thomas Isaac & Heller 2003).7 The Campaign gave new resources and functions to the state’s 1,214 local governments (municipalities and the three rural levels of panchayat, district, and block). Local governments acquired discretionary budgeting authority over 35–40% of the state’s development expenditures. These governments were charged with designing and implementing their own development plans through a sequence of participatory meetings in which citizens would have a direct role in shaping projects and policies. In Kerala, the planning and budgeting cycle has four stages. It starts with open Gram Sabhas (local assemblies) in which residents identify local development problems and generate priorities. The meetings are held on holidays and in public buildings. After an introductory session, residents form small groups to deal with particular development sectors. Locally-recruited facilitators encourage residents to identify and analyze issues       $ [        

groups. Minutes are kept, and each group gives a report of its deliberations and produces    ¡ š   ‹ [         *  A second stage consists in Development Seminars formulating integrated solutions to problems listed at the Gram Sabhas. The participants in these Seminars are citizen representatives chosen by the Gram Sabhas, local political leaders, experts from the locality    +           /   +  government). The Seminars produce a comprehensive planning document for the respective panchayat. The third stage consists in Task Forces selected by the Development Seminars. The participants translate the general solutions generated by the Seminars into actionable pro          ? }+ {    |U   tors. Generally, the Task Forces include representatives selected by the Gram Sabhas, the               ?                    @ nual budget. The panchayats create plans based on grants-in-aid, their own resources, and state or center-project funds. The panchayat council approves the plans and then presents them back to the public. At that point, differences with the Gram Sabha proposals are explicated. These local plans are then integrated into higher-level plans at the block and district tiers to ensure regional coordination. As close observers have noted, “the entire planning cycle – which begins with the collection of local data and ends with the formulation of a comprehensive local plan that consists of hundreds of projects – is an extended exercise in practical problem-solving” (Thomas Isaac & Heller 2003, 79). Kerala’s Campaign for Decentralized Planning explicitly used planning as a tool for                     state, district, and local levels, covering some 5,000 elected representatives, 25,000 of    XŠUUU    }           X >           Ž     #

    /QUUX_  Thomas Isaac and Heller (2003), and does not consider any changes that may have been made thereafter.

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ticularly the Kerala Sastra Sahitya Parishad (People’s Science Movement or KSSP). At the beginning of the Campaign, panchayats conducted formal assessments of local human and natural resources to provide an initial basis for the planning process. The Campaign worked with the KSSP and the Center for Earth Science Studies to devise a method of       % ?      ƒ and the kind of participatory pedagogical practices used in earlier KSSP literacy and other campaigns. A “base map” was created from information contained in local revenue           }           

 µ             } aim was to make data collection and planning relevant to the everyday life of the community members. The process of data collection thus actively involved citizens, stimulating discussions about local problems among the members of the community. In addition, the organizers treated the mapping process as a socio-cultural tool for communication among   $       ¡—$ š        to include not only the civil engineer, for instance, but also the “wise farmer” (Fischer 2009, 260–266). Experts were appointed on a voluntary basis to serve as advisors during local deliberations.

Implementation PB and decentralized development planning can also provide citizens with an active role in the implementation of public policies. In Belo Horizonte’s PB, district citizen committees approve the technical plans of all PB projects and oversee that they are implemented according to the agreed plans. Additionally, neighborhood committees monitor on-site construction to ensure that it follows established criteria (Wampler 2007, 57). Similarly, Kerala’s Campaign encouraged local organizations to implement public works through    *          /}  < # ler 2003, 96). Further examples of participation in policy implementation can be linked to changes brought about by the widespread public sector reforms that began in the 1980s. Of course, government agencies continue to provide some public goods and services predominantly or exclusively through their own activities. In other cases, however, non-state actors exclusively provide goods and services. In still others, diverse networks of government agencies and other organizations are responsible. The range of networks is extraordinary. At times, an activity traditionally performed by government is contracted out to an organization that does not itself consume the good or use the service it provides. Other cases                   or management of the services they use. When the state withdraws – entirely or in part – from the direct provision of certain goods and services, space for democratic innovations sometimes emerges; substantial          +        $  are not recent innovations, they indicate what self-organization in policy implementa   + + }             support, the second one in which long-standing forms of self-organization have existed largely apart from it.

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Co-production Co-production refers here to a process in which a good or service arises out of the joint activities of individuals from different organizations. It variously includes state, private, and voluntary actors. One area in which co-production has received substantial research attention is that of common pool resource governance (Lam 2010). Common pool resources can be natural or human-made. Their key feature is that it is costly but not im   $              />  1990). Irrigation services in Taiwan provide one example of co-production in common pool resource governance (Lam 1996). Irrigation management depends on the existence of rule-ordered relationships among farmers, and, in particular, on the farmers’ day-today care of their system, their contributions to the maintenance of its structure, and their faithfulness to water allocation rules. Yet these relationships cannot simply be “produced”             ƒ       working relationships with one another. Taiwan contains 17 Irrigation Associations (IAs). These IAs are responsible for operating and maintaining the irrigation systems in one or more hydraulic regions. The IAs are “parastatal” agencies. They are formed and legally owned by farmers, but higherlevel governments supervise them. Their legal status gives them considerable autonomy and the authority to charge water fees. The staff at the IA headquarters allocates water to various regions. Within each region, a management station coordinates water allocation to various areas. Within each area, a working station delivers water to different irrigation districts. Within each irrigation district, a network of irrigation groups generally coordinates the tasks of operation and management. How irrigation groups organize varies ac       }

            several irrigation blocks. In each, farmers usually organize into irrigation teams. Both the irrigation groups and the irrigation teams are considered farmers’ self-organizing units. Participants at different levels have considerable leeway to adopt organizational       } ?          them. For instance, working stations are free to work out water delivery and distribution       ?              level of autonomy to decide how water delivery is conducted within irrigation blocks.                    operation and maintenance at the local level. These domains of autonomy enable people to create informal rules, and so to exercise their problem-solving capabilities, in order to deal with the different problems that arise in diverse settings. The exercise of autonomy in these different domains is facilitated by various practices. For example, the national government strongly fosters the understanding that farmers occupy a dominant position with respect to the IAs. This supports the autonomy of the farmers’ self-organized irrigation groups from these organizations. In addition, the autonomy at lower levels is nested within institutions at higher levels; those problems that cannot be handled effectively at a lower level are transmitted to the next level up. Self-governance If irrigation management in Taiwan indicates how co-production can involve domains of autonomy in which participants are largely self-organized, a second example makes

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clearer how public problems are sometimes solved by voluntary self-governing associa                      ment of users and suppliers in collective resource governance can allow them to devise rules for resource appropriation and divisions of labor that participants may regard as fair and equitable. The same might be said regarding policy implementation generally. Much research has documented the operation of long-enduring, self-governing institutions for common pool resource management.8 Ostrom (1990), for instance, has explored settings in which the resource appropriators themselves – rather than “external” agents – have devised, applied, and monitored rules to control common pool resources. Communal tenure in high mountain meadows and forests in Switzerland is one example. Throughout the Alpine region of Switzerland, farmers use a combination of private     {              erty. In the case of the commonly-owned alpine meadows, all of the Swiss institutions used to govern the common pool resource share the characteristic that the appropriators themselves make all major decisions regarding its use. Overuse of alpine meadows is rarely reported, however. The village of Törbel serves to illustrate (Ostrom 1990; Netting 1981). For centuries, Törbel farmers have planted their privately owned plots with fruit trees, garden vegetables, bread grains, and hay for winter fodder. Five types of communally-owned property exist alongside these plots: alpine grazing meadows, forests, “waste” lands, irrigation systems, and paths and roads connecting communally and privately-owned properties. In 1483, Törbel residents signed articles to formally establish an association to improve the regulation of the communal lands. An inventory document from 1507 indicates that the boundaries of the communally-owned land were long ago established. As in villages throughout the Swiss Alps, generations of Törbel villagers have chosen to preserve the institution of communal property as the basis for land use and similar key aspects of their village economy. In Törbel, village statutes are voted on by all local citizens and provide the general authority for an alp association to manage the alp. The association holds annual meetings               }       maintenance work, arrange for distribution of manure on the summer pastures, impose

               {        the meadows or labor contributions typically are set in proportion to the number of cattle sent by each owner. Trees for use in construction and heating are marked by village of             While Törbel’s residents thus invest time in governing themselves, many of the rules          !        # the procedures for timber cutting are illustrative. First, the village forester marks the trees that are ready for harvest. Second, the households eligible for timber form work teams and equally divide the tasks of cutting trees, lugging the logs, and piling the logs    ƒ  + ?        +        As Ostrom (1990, 65) notes, “this procedure nicely combines a careful assessment of the

8 A good part of this literature adopts what might be called, at least loosely, a rational choice perspective. Here, our intention is merely to relay the substance of the following practices, not to adopt or endorse a particular theoretical stance for interpreting them – rational choice or otherwise.

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condition of the forest with methods for allocating work and the resulting products that are easy to monitor and [apparently] considered fair by all participants”.

Concluding assessment {   *                novative practices can expand the opportunities citizens enjoy to participate in the decisions that affect them and those they care about. Having the opportunity to defend one’s interests or those of others, through political participation, is a basic freedom that people have reason to value. Yet, democratic governance has not only to meet widely-shared political values but also to be effective. Democratic innovations may well be of value in themselves. But they may also need to show relevant constituencies that they “work,”        ?       ¡ š    the cultivation of broad participation. Advocates of participatory, dialogic, and deliberative innovations often argue that they can lead to more effective problem-solving practices. Among other reasons, the following are sometimes offered in support of this contention (Fung & Wright 2003, 25). First, participants in local venues may have intimate knowledge about pertinent circum  [        ‚           – may best know how to improve local conditions. Third, deliberative processes ideally allow all participants to provide useful information and to consider alternative proposals more fully, and the greater range of input and discussion may ensure better quality decisions. Fourth, involving citizens can strengthen their commitment to outcomes, so citizens may become more committed to the implementation and success of public policies. Fifth, direct involvement can shorten the time period between decisions, actions, outcomes, observations and reappraisals, and, as a result, misguided or ineffective policies can be rejected or revised more quickly. Sixth, the proliferation of local groups operating with substantial autonomy allows for the concurrent pursuit of numerous policies and strategies. Where there are linkages of accountability and communication that connect these groups to superordinate bodies, effective strategies may be discovered more rapidly and diffused throughout the system. To what extent, though, do studies of democratic innovations actually support claims for their effectiveness? Certainly, some empirical studies suggest that participatory, dialogic, and deliberative arrangements can improve the effectiveness of the policy process. }     + !             to enhance service quality, to promote redistribution, to foster civic consciousness, and to make the policy process more inclusive.9 [ ƒ         >      +                # = @ Ž  ~tralized Planning certainly appears to have led to more positive evaluations. The main evidence comes from a survey in 72 rural panchayats selected (out of 990) by random       /#

    QUUX_ }  +      ƒ   9 These, of course, are only a few of the ends potentially advanced by recent democratic innovations. For more comprehensive summaries, see Fung (2003a) and Smith (2009).

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of services and development had improved, deteriorated, or stayed the same in each of 13         Ž ?    *            ¡š  ¡  š      /#

 et al. 2007, 632–33). In 5 of the 13 categories, over 40% believed that there had been “sig  š  /#

    QUUX ‰‘‘_               /            opposition politicians and various civil society actors), the overall positive evaluation of the Campaign’s impact remained. For all 13 questions, they found that a majority in every respondent category felt there had been improvement (Heller et al. 2007, 633). One might also note here the apparent effectiveness of self-governing institutions in the Swiss mountain commons, which have been sustained, perhaps even enhanced, during centuries of use (Ostrom 1990, 60). Likewise, Taiwan’s irrigation systems are reported to be among the most effective in the world (Lam 1996, 1039). Some democratic innovations can also be effective tools for promoting a redistribution of public resources toward traditionally underserved constituencies. Several studies of PB explore the extent to which it has led to redistribution. For instance, one study divided the 16 regions of Porto Alegre into four categories based on average income levels: low, low-medium, medium, and high (Marquetti 2003). Over an eight-year period, the four low-income regions received the highest average per person investment of PB funds, between 4 and 16 times higher than in the wealthier regions. Another study of PB in Belo Horizonte revealed similar redistributive effects (Pires 2001). The Campaign in Kerala is      ‚           ‚        œ–­                 Campaign had been “the socially and economically disadvantaged” (Heller et al. 2007, ‰‘Š_  +  ¡            more or less likely to be poor than those selected under earlier schemes,” 88% answered more likely under the Campaign (Heller et al. 2007, 635). Dialogic and deliberative forms of participation may also promote civic consciousness. The evidence here is both ethnographic and experimental. For example, an ethnographic study of three districts in Porto Alegre suggested that PB meetings became “emergent public spheres” characterized by open-ended debate about issues of collective concern and community problem-solving (Baiocchi 2005, 94–95). The meetings became sites where citizens could discuss community affairs, plan and coordinate political and                   *     government, and create lasting bonds with other activists. More broadly, one might reasonably expect the design of mini-publics to orient participants toward considerations of the public interest: participation does not represent an opportunity for advancement, promotion or re-election (Smith 2009, 94–95). Fishkin (2009) cites experimental data from a variety of deliberative polls that appear consistent with this expectation. One example concerns a deliberative poll that gathered local citizens in China to deliberate about vari      }      *                   $            

      +        ?        @     ‘U *                /{+ QUU– |U–_ ? 

    }$ *  on energy choices, the percentage of participants willing to pay more on their monthly

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utility bills in order to provide wind power to the whole community increased by about 30 points (averaged over the eight projects). The percentage willing to pay more on their monthly bills in order to pay for conservation efforts for the community also rose by about 30 points (Fishkin 2009, 142).   

                 more inclusive public policy processes. Do the innovations we have discussed really give us some grounds for optimism about the future of democratic governance here? One major problem is that participation rates in many forms of political engagement strongly favor the wealthier, the more educated, and those who belong to dominant racial and ethnic groups (Fung & Wright 2003, 34). Two broad participant selection methods         }               open to all, but the institution’s organizers make an explicit effort to recruit participants among groups that are typically less likely to participate. A “passive” version of selective recruitment occurs when the participatory forum addresses issues that are often more pressing for disadvantaged constituencies than for more advantaged ones. The second is random selection, with participants being selected from the general population to attain descriptive representativeness (Fung 2006, 67–68). The innovations we have discussed include examples of both selection methods. The AmericaSpeaks 21st Century Town Meetings are open to all, but the organizers tailor their local recruitment strategies to ensure the involvement of underrepresented groups. ?               ~Ž   was indeed largely representative of the larger area population. The focus of PB on issues such as basic infrastructure, sanitation, and housing arguably makes participation more attractive to disadvantaged constituencies than to more advantaged ones. The data on participation rates in Porto Alegre appear consistent with this interpretation. Baiocchi (2003, Š|‚ŠQ_  $                    

    @      tion and income. While participation varies more in Belo Horizonte than in Porto Alegre,        {       +                   /?  QUU– 96). Research on Kerala paints a similar picture of disadvantaged group participation. In 1999–2000, Scheduled Castes accounted for 14% of Gram Sabha participants, well above their proportion of the general population. While the rates of participation by women and Scheduled Tribes were lower than their population rates, by comparative standards the

  

             /#

  al. 2007, 636). The use of random selection has also created more inclusive participant pools. We noted above that participants in most deliberative polls have approximated the initial sample and the larger target population in both their surveyed attitudes and     }           were adopted more widely, they might contribute to a much more inclusive public policy process. Of course, there remains room for doubt. The democratic innovations we have reviewed are not a panacea for all the ills of modern governance. When policy actors attempt to implement a particular democratic innovation – say, PB – in dissimilar contexts, widely divergent outcomes sometimes emerge, as much comparative research has amply demonstrated (Wampler 2007; Avritzer 2009; Goldfrank 2007). At times, the drawbacks               {     

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some circumstances, a move toward self-governing institutions in natural resource management might lead to the degradation of common pool resources. Clearly, then, relevant constituencies need always to weigh the values potentially advanced by innovative practices against those they might undercut. In doing so, suitable measures to balance competing priorities will sometimes emerge. Faced with the prospect of natural resource depletion, for example, rights of use or property rights to a commonpool resource might be conferred only on the condition that the resource remains uninjured or undiminished. At other times, though, suitable compensatory measures might not immediately emerge. In such cases, certain more participatory arrangements might be forgone, at least temporarily. Rather than focusing on such important comparative matters, however, we have sought here primarily to expand the imaginative horizon. The participatory practices we have considered can promote important democratic values, and participants and close observers sometimes regard them as highly effective. We have indicated how direct participation throughout the policy process can be sporadic or more continuous; involve consultation or actual decision-making; and operate at multiple geographical scales. Some of our cases have also indicated ways that citizens might craft their own rules for participation; monitor those rules and the policies they help generate; and co-operatively implement their own local policies. Many extensions of the above practices – both vertically (into higher levels of governance) and horizontally (into new policy areas) – are conceivable. PB might be scaled up to the state level and perhaps beyond (Goldfrank & Schneider 2006). Permanent citizens’ assemblies – with rotating members, chosen by lot – might come to replace or supplement traditional legislatures at different jurisdictional levels (Wright 2010). Citizens’ assemblies could regularly be used to provide voters with balanced views on ballot initiatives and recall or other referenda. Deliberative polling might be used to democratize party candidate selection (Fishkin 2009). These are but a few of the possibilities. We live in an age when markets and policy networks are emerging alongside – sometimes even replacing – older forms of public organization, when accountability is in                     representatives. If we are to resurrect democratic ideals, we may need to supplement representative institutions with an increasing reliance on participatory, dialogic, and deliberative practices that give citizens a direct role in the policy process. It may be time to give greater scope to practices such as deliberative polls, PB, and self-governing schemes of collective resource management.

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Lang, A. (2007) But Is It for Real? The British Columbia Citizens’ Assembly as a Model of State-Sponsored Citizen Empowerment. Politics and Society 35(1), 35–69. Lam, W. (1996) Institutional Design of Public Agencies and Coproduction: A Study of Irrigation Associations in Taiwan. World Development 24(6), 1039–1054. Lam, W. (2010) Governing the Commons. In: M. Bevir (Ed.) The Sage Handbook of Governance. London: Sage. Levine, P. (2002) Getting Practical about Deliberative Democracy. In: V. Gehring & W. Galston (Eds.) Philosophical Dimensions of Public Policy, 77–90. New Brunswick: Transaction Publishers. Lukensmeyer, C., Goldman, J., & Brigham, S. (2005) A Town Meeting for the Twenty-First Century. In: J. Gastil & P. Levine (Eds.) The Deliberative Democracy Handbook. Strategies for Effective Civic Engagement in the 21st Century, 154–163. San Francisco: Jossey-Bass. Marquetti, A. (2003) Participação e Redistribuição: O Orçamento Participativo em Porto Alegre [Participation and Redistribution: The Participatory Budget in Porto Alegre]. In: L. Avritzer & Z. Navarro (Eds.) A Inovação Democrática no Brasil, 129–156. São Paolo: Cortez Editora. Minow, M. (2003) Public and Private Partnerships: Accounting for the New Religion. Harvard Law Review 116(5), 1229–1270. Netting, R. (1981) Balancing on an Alp. Ecological Change and Continuity in a Swiss Mountain Community. New York: Cambridge University Press. Newport, F. (2005) Americans Want Leaders to Pay More Attention to Public Opinion. Gallup, October 12, 2005. Retrieved April 22, 2010, from http://www.gallup.com/poll/19138/americans-want-leaders-payattention-public-opinion.aspx Ostrom, E. (1990) Governing the Commons. The Evolution of Institutions for Collective Action. New York: Cambridge University Press. Patterson, T. (2000) Point of Agreement: We’re Glad It’s Over [Opinion]. New York Times, November 8, 2000. Patterson, T. (2002) The Vanishing Voter. Public Involvement in an Age of Uncertainty. New York: Alfred A. Knopf. Program on International Policy Attitudes (2008) World Public Opinion on Governance and Democracy [Monograph]. College Park: University of Maryland. Retrieved April 22, 2010, from http://www.worldpublicopinion.org/pipa/pdf/may08/WPO_Governance_May08_packet.pdf Pires, R. (2001) Orçamento Participativo e Planejamento Municipal. Uma Análise Neoinstitucional a Partir do Caso da Prefeitura de Belo Horizonte [Participatory Budgeting and Municipal Planning. A Neoinstitutional Analysis Concerning the Case of Belo Horizonte’s City Hall][Monograph]. Belo Horizonte: Fundação João Pinheiro. Retrieved August 10, 2009, from  ’’  ’ ’ RobertoPires.pdf Radin, B. (2006) Challenging the Performance Movement. Accountability, Complexity, and Democratic Values. Washington, D.C.: Georgetown University Press. Rhodes, R. (1997) Understanding Governance. Buckingham: Open University Press. Savoie, D. (1995) Thatcher, Reagan, Mulroney. In Search of a New Bureaucracy. Pittsburgh: Pittsburgh University Press. Shamsul Haque, M. (2001) The Diminishing Publicness of Public Service under the Current Mode of Governance. Public Administration Review 61(1), 65–82. Smith, G. (2009) Democratic Innovations. Designing Institutions for Citizen Participation. Cambridge: Cambridge University Press. Taylor, D. & Balloch, S. (Eds.) (2005) The Politics of Evaluation. Participation and Policy Implementation. Bristol: The Policy Press. Thomas Isaac, T.M. & Heller, P. (2003) Democracy and Development: Decentralized Planning in Kerala. In: A. Fung & E.O. Wright (Eds.) Deepening Democracy. Institutional Innovations in Empowered Participatory Governance, 77–110. London: Verso. Vigoda, E. (2002) From Responsiveness to Collaboration: Governance, Citizens, and the Next Generation of Public Administration. Public Administration Review 62(5), 527–40. Wampler, B. (2007) Participatory Budgeting in Brazil. Contestation, Cooperation, and Accountability. University Park: The Pennsylvania State University Press. Wright, E.O. (2010) Envisioning Real Utopias. London: Verso.

Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved. doi: 10.3233/978-1-60750-727-7-194

Three Faces of E-Government: Innovation, Interaction, and Governance Victor Bekkers Erasmus University Rotterdam, The Netherlands

Why does e-government look as it looks? Many e-government studies lack explanatory power, because they are under-theorized. In this chapter a theoretical framework is provided which focus on the interactions between actors that shape the content of e-government. This framework is based on open systems innovation theory, the co-evolutionary social and political shaping of technology and the governance capacities that ICT provides in terms of the intelligent state and the intelligent society.

Introduction “Government matters. We all want it to deliver policies, programmes and services that will make us more healthy, more secure and better equipped to tackle the challenges we face. Government should improve the quality of our lives. Modernization is vital if government is to achieve that ambition”. These are the opening lines of the vision statement that Mr. Tony Blair, then the Prime Minister of the United Kingdom, presented to    ' |––– /Ž >  |–––_ [      munication technology (ICT) has been perceived as an important driver for innovation and modernization. According to Blair: “Information technology is changing our lives: the way we work, the way we do business, the way we communicate with each other, how we spend our time. New technology offers opportunities and choices. It can give us access to services 24 hours a day, seven days a week. It will make our lives easier. Government intends to be at the head of these developments (…) Government must bring about a fundamental change in the way we use IT. We must modernize the business of government itself, achieving joined-up working between different parts of government and providing         |        ernment and to receive services” /Ž >  |–––_ Electronic government (e-government) is one of the cornerstones in government modernization. E-government can be described as the use of ICT in order to design new or to redesign existing information processing practices in order to achieve a better gov  

                 (OECD 2003; Moon 2004). Although e-government has inspired many policy makers and scholars, e-govern            +        / ‹¯  < ? QUU‰" [

QUU‰_ '        to explain why e-government looks like as it really looks. Hence, e-government as a body

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 +       $   Ž}       ministration.                   three bodies of knowledge which have their off-spring in social sciences, if e-government studies want to increase their explanatory power. In doing so, I will also present a number of research questions that will enable scholars of e-government to strengthen the explanatory quality of their research. In section three I will elaborate on how e-government stud               renewal, of leaving the past behind. Furthermore, many e-government studies do not substantially question the role of technology in use. This is peculiar, because ICT is embraced as the major source of innovation and driver for change. Hence, it would be interesting              '   interesting to understand the nature of the changes that e-government brings. Many policy            /  _  (access to government 24 hours a day, 7 days a week) and speed. Behind these effects, other, more fundamental, effects can be witnessed. They refer to the governance potential  Ž}  !              ety. I will take this body of knowledge into consideration. We will bring these insights               # let us start with a discussion regarding the content of the e-government concept.

The myths of e-government ~               policy makers have used to modernize public administration (Dunleavy et al. 2005; Bekkers & Homburg 2007; Margetts 2009). Although e-government is primarily focussed                  />—Ž~ QUU‘" ' QUU£_          —      ICT, especially network technologies, to facilitate or to redesign the interactions between government and relevant stakeholders in its internal and external environment in order to achieve added value. Relevant stakeholders are citizens, companies, non-governmental organizations, other government organizations as well as civil servants. The interactions between these stakeholders relate to different services such as; ˆ ˆ ˆ ˆ ˆ

                                       +     ƒ  and applications,                  eration; and        $       ard information.

Added value can be found in the following goals: increasing the access to government, fa     ƒ                  

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public and political accountability, increasing the political participation of citizens, and improving interorganizational cooperation and relations (Chadwick & May 2003; Moon 2004; Bekkers & Homburg 2007; Margetts 2009). In order to achieve this added value, policy makers in Western countries have been inspired by a number of myths in which the blessings of technology in order to achieve a better government, were embraced. One the one hand these myths stimulated policymakers and the general public to develop new and innovative ways of thinking about the functioning of government. It is interesting so that each time again, when policy makers embrace a new generation of technology, like the change over from Web 1.0 to Web 2.0., these myths are fostered. On the other hand, these myths blur their view regarding what is realistic and what is not (Bekkers & Homburg 2007). They prevent us looking behind, while trying to grasp the nature of the transformations that have been taken place. Some myths can be discerned (Bekkers & Homburg 2007): ˆ

ˆ

ˆ

ˆ

ˆ

}             —  marily perceived as the use of a set of neutral tools that in the hands of the right persons will lead to a better government. }         }        redesign or reinvent the machinery of government in such a way that policy +                            }          terms of the number of public services that are digitally available. In order to do so, existing information processing processes have to be readjusted (in terms of business process redesign). This is the myth of a better government in which a mechanistic view on the functioning of government prevails. }        [   / ‰    QUUQ" ~  et al. 2005; Margetts 2009) suggest that this better government can also be achieved when ICT is used to create an integrated, joined-up or holistic government, thereby adding a new element to this myth of a better government. ICT helps to end the fragmentation that the introduction of New Public Management has produced, due to its emphasis on disaggregation (agency formation), the introduction of competition in public services and the negative side effects of performance management in electronic service delivery, with its emphasis on quantitative outputs. ICT facilitates reintegration and needs-based holism (Margetts 2009). Behind this idea lies the desire to create an organic government. This is the myth of whole government. }          }        achieved, if policy makers and public managers are able to apply these digital tools in a planned and standardized manner. In doing so, e-government is primarily seen as an (information) management challenge. }          }         and companies that act as a rational consumer or client who receive services in a customer-friendly way and who want to have a information about the price/ quality relation of public services.

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Although these myths have inspired many people within the theory and practice of public administration, questions can be raised, when looking at the results that have been achieved (OECD 2003; Bekkers & Homburg 2007; Taylor & Lips 2008). Has government really transformed itself according these myths? What is the transformational power of technology and how can it be explained? If we want to answer these questions, what answers do e-government studies provide? In many e-government studies the emphasis is put on the conditions under which successful e-government projects (in terms of the realization of these the myths) can be accomplished (Bekkers & Homburg 2007; Kraemer & King 2006; Heeks & Bailur 2007; Dawes 2008). A managerial and project orientation prevails, which has, at least, two consequences. First, the nature of many of these studies is descriptive. They lack explanatory  /‹¯  < ? QUU‰" '  QUU–_ ?       !                   implementation of a one-stop-shop concept, a government portal or a central databases in which information is stored that can be used for many purposes (Heeks 1999; OECD 2003). Also attention is paid to the degree in which change management and implementation strategies were successful. Secondly, due to the public and political embracement of            ^@ }      increased attention for the question, how to achieve the blessings of e-government. That is why e-government studies have a normative connotation (Bekkers & Homburg 2007). ?                ers, this result in a government-centric approach, in which technology is pushed forward. The emphasis lies on how governments, from their perspective, might use these new technologies to interact with citizens and companies (Taylor & Lips 2008). As a result of this descriptive and normative emphasis, many e-government studies are under-theorized (Scholl 2006; Grönlund & Andersson 2006; Margetts 2009). In order to bridge this gap Scholl (2006) wants to bring in insights from other disciplines. He calls for a more interdisciplinary approach. Hence, it is interesting to explore, if social sciences can provide some insights. The added value of the social science perspective is that social and political phenomena, like the content and shaping of e-government, can be understood by looking at the contingent and meaningful interactions between actors, their actions, and the ‘rules’ that guide these actions and interactions (Weber 1977). This is also the case in e-government. It can be seen as a technological, social and political intervention in which there are many potential choices, about what kinds of technologies are used, how they are organized and supported, how people work with them and how they alter the character of work life at all (Kling 1987). In order to do understand these choices we need to understand the social character of the relations between the involved actors, the kind of technological and social infrastructure that is needed to support e-government and the historical commitment that these actors have to each other in relation to the development, adoption and implementation of e-government (Kling 1987). The governance challenge which emerges from this view refers to the creation of arrangements that facilitate collective action in a network of different but often interdependent stakeholders (Bekkers 2007).

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E-government as innovation Traditionally, innovation studies have paid a lot of attention to the role of technology. It is perceived as a major source of innovation and driver for change. One of the found        Ÿ [  /|–£Q_     as a process of creative destruction in which ‘new combinations of existing resources’ are being achieved that implies a discontinuity with the past (Osborne & Brown 2005). Technology is a source which helps innovators to create new combinations. However, the question is whether e-government should be considered as a technological innovation as such. In many cases it is the combination of ICT innovation with the introduction of new services, new processes, new concepts, new governance arrangements or new organizational forms that together create an e-government practice (Moore & Hartley 2008). ?             ¡     *  is perceived as new by an individual or unit of adoption” (Rogers 2003,12; Fagerberg 2005). Innovation requires change and the willingness to learn, but change is not always necessarily innovative, while a learning process does not always turn into new ideas, practices etc. (Rogers 2003; Osborne & Brown 2005). An important issue is how radical the innovation is. What is the ‘newness’ of the change that has occurred? And what is the nature of the learning process which has led to the adoption of a radical or an incremental change? In the last type of changes, only new elements or new layers are put on existing practices (Argyris & Schon 1978; Hall 1993; McDaniel 2002; Mulgan & Albery 2003). That is why some innovation scholars make a distinction between more transformative and incremental or evolutionary innovations. Hence, the development of an e-government practice can be perceived as a learning process. The nature of this learning process tells us              }                       a second-order learning process and why this is the case (Argyris & Schön 1978). In the           *      that can be used to achieve existing goals (output and outcomes) that are used in another way. The emphasis lies on incremental innovation. In the case of a second-order learning process, when looking at the possibilities that ICT might offer, the assumptions that lay behind the goals are being questioned. Can we achieve other and new outcomes by using new means? If so, the emphasis lies on more radical innovations. If we take these two learning processes into our mind, the question is if the actual outlook of e-government can be seen as the expression of incremental or radical innovations and why is this the case? As we will argue in the next section, research indicates that the nature of e-government resembles in many cases incremental innovation, because it tends to reinforce existing practices. Innovation spaces In contemporary innovation studies the power to innovate and the willingness to learn lies not in the hand of one person, the entrepreneur as Schumpeter presupposes. He is not the only person who learns. Recent innovation studies emphasize the importance of so-called ‘innovation milieux’ or ‘open innovation systems’ (Castells 1996; Chesbrough 2003; von Hippel 1988). The empirical foundation for this idea is that technological innovation is

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        !        +          and industrial environment, a certain availability of skills to determine problems and            +           network of producers and users who can communicate their experience cumulatively, learning by using and by doing. What is essential is the ability and willingness of relevant actors to cooperate and to interactively link and share ideas, knowledge, experience and information beyond traditional organizational borders as well as to exchange vital resources like staff. New ideas and concepts are discussed, tested and proved in intra- and inter-organizational networks, which are often intertwined. Hence, the nature of e-government can be understood, if we take into account the institutional setting of the actors                  willingness, not only to share their ideas, but also to share other relevant resources, like technology and information. This can also be seen as an important governance challenge. Hence, the nature of an e-government practice tells us something about the openness of the relationships between the actors involved. Openness refers to the absence of    !   +     $ ' it means the existence of an open culture and a safe context in which ‘trial and error’, ^! @  ^ @  +         + ^ +@ or not realizing results at once. Openness also refers to the idea of variety of different perspectives and different bodies of knowledge that is available, that can be used and challenged. It implies the existence of a free and informal spaces or networks, in which there are not many restrictions for developing new and creative ideas and concepts. Innovation often takes place in the ‘grey, informal’ area between formal organizations, in local climates of trust (Nooteboom 2006). #   !   +   $ 

      afraid that the knowledge and information that they provide will be used against them so that their interests are being harmed. This is especially the case in relation to innovation, because the involvement in innovation is being considered as a risky and uncertain activity (Chiles & McMakin 1996). No-one knows what the outcome will be or if efforts to create innovating products or solutions for problems will be successful. It is also next to impossible to create adequate control mechanisms against opportunistic behavior of other actors because nobody can know beforehand what kind of opportunistic behavior one has to protect against. Trust can facilitate innovation because uncertainty about opportunistic behavior is reduced and the feeling that other actors will exercise their goodwill in the search for innovative solutions is increased (Zand 1972; Nooteboom 2002). Hence, in the innovation literature special attention is given to the trustworthiness of the relationships between the actors involved and to the social capital which is present in these networks /{+ |––Š"   |––‘" QUUU" :  QUUQ_ {+ /|––Š Q‰_   trust as “the expectation that arises within a community of regular, honest, and co-operative behavior based on commonly-shared norms, on the part of other members of the community (…) these communities do not require extensive contractual and legal regulation of their relationships because prior moral consensus gives members of the group (…) a basis of mutual trust.”                

     !     

  $    likely to be greater. As a result the problem-solving capacity is enlarged (see Zand 1972; Deutsch 1973; Lundvall 1993). Much of today’s information is specialist information and

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not always easy to trade. It is tacit information, which rests in the expertise of persons or organization (parts). However, learning and creating new solutions for complex problems require that organizations exchange specialist information and capabilities. As a consequence, the embeddedness of these ‘free spaces’ in which the involved actors can trust each other, is important for the follow-through or adoption of e-government practices in existing, formal organizations and institutions (Edelenbos 2005). This can be seen as an important governance challenge. Important in these grey zones is that a careful balance between exploration and exploitation exists (March 1999). Exploration is the search for discovery and of novelty, and innovation. It involves variation, risk taking, and experimentation. It occasionally leads to important new directions and discoveries. —$                   +                 

           *           between exploration and exploitation: ‘Both exploration and exploitation are needed (…). Exploration cannot realize its occasional gains without exploitation of discoveries. Exploitation becomes obsolescent without exploration of new directions’ (March 1999, 5). Hence, in order to understand the nature of e-government, we have to ask ourselves if these grey zones are available to experiment with ICT, to learn by trial and error? How are they organized and ‘protected’? How did the involved actors perceive the risks of              +  +            +       }      !    $    +     

  take as well as the way in which these actors can trust each other, are willing and able to exchange vital resources like the sharing of explicit and tacit knowledge and information (Bekkers 2007; Teo et al. 2008). As a result the quality of the relationships between the involved actors – strong and stable relationships and the social capital that is present in     ‚  !            developed (Fountain 1998; Maskell 2000; Bekkers 2007; Teo et al. 2008). Moreover, in                    to look which ideas and interests have been included in the design and implementation           *  #    cesses? Linking leadership Two other elements play an important role in functioning of these ‘innovation milieux’. }             +     necessary. Leadership has been perceived as one of the cornerstones of innovation, because it plays an important role in changing the status quo, in breaking away. Hence, we see that there is a strong relationship between the innovation and transformational leadership (Burns 1978; Bass & Avolio 1994). Relevant characteristics of this type of leadership are that leaders should be able to create and communicate a clear vision which inspires and unites thereby changing the perceptions and values of others, that leaders should be able to cope with resistance and skepticism, thereby overcome all kinds of hurdles, that they should be able to create a coalition of the willing as well as create a context for change. Hence, for the study of e-government practices it is interesting to see what the

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role of leadership is in the construction of a coalition of the willing as well as to overcome possible resistance to change. More recently, also in relation to the importance of networks or milieu of innovation, attention is being paid to another type of leadership, which can be understood in   ^ @  ^+@   ~ ƒ /|–Xœ £U‚£|_   boundary spanners as “people who operate at the periphery or boundary of an organization, performing organizational relevant tasks, relating the organization with elements outside it”. These managers stimulate the interaction between people on the intersection of different organizations, in an informal area in which (diverging) perspectives, values and information meet, leading to innovation. Boundary objects can be helpful in realizing a starting common ground. Boundary objects provide a shared language that allows for       +           + on the other side of the boundary (Carlile 2002). They provide a concrete means for specifying and learning about differences and dependencies across a boundary as rich representations of the own perspective (Carlile 2002). These objects become “tangible artefacts (…) like forms of communication that inhabit several intersecting social worlds and satisfy the information requirements of each of them” (Star & Griesemer 1989, 393). These boundary objects, like visions on e-government, have different meanings in different social worlds but their structure is common enough to more than one world to make them recognizable. The creation and management of boundary objects is considered a key process in developing and maintaining divergence and coherence in intersecting social worlds (Star & Griesemer 1989, 393). The bringing together of different new perspectives can also be called the ‘structural hole argument’ (Burt 1992). It relates to bringing in new information, new knowledge and thus new actors between an existing network of actors    /   +_                +         +         as an important condition for innovation (Schuller et al. 2000). This implies that in e-government studies much more attention should be paid to people who bridge and link different domains, views, values and rationalities in order to create productive win-win situations. For instance, Bekkers (2009) has demonstrated that in the development and implementation of e-government infrastructures four rationalities                +    a legitimacy of their own, have to be balanced. The political rationality deals with the question ‘who gets what, how and when’, if we look at the political challenges with which a political community is confronted (Lasswell 1958). Information and ICT are important                    +       ƒ       '   Ž}      !ence the information position of actors and their relationships (Margetts 1998). The legal rationality stresses the importance of the rule of the law, which e.g. implies offering legal         }                               /    _ }                                  +              Ž}    sional knowledge concerning the requirements under which ICT can operate effectively     +            #       

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   !          +     these different rationalities. Successful e-government projects depend on the availability of leaders who are able to act as brokers, who are able to bridge different bodies of knowledge and relevant values that play a role in the complex design of e-government practices. #                  +         /   _         and include (or exclude them) in the shaping of the e-government practice. Users matter The second element that is important in the functioning of these innovation milieux, is put forward by von Hippel (1998). He argues that open innovation also depends on the willingness of the actors who are involved in innovation projects to seriously take into account the wishes and needs of consumers and citizens. In order to create new view points, and thus innovations, they should be given an important position in the innovation process. They should be considered as a relevant and interesting co-producer of innovation. That is why users matter (Oudshoorn & Pinch 2003). This implies that, although                   and duties, citizens should be more involved in the way they want to interact with government. How would e-government look if citizens were taken more seriously in the design of e-government services? Up till now the shaping of many e-government practices, as I argued above, takes place primarily from a government-centric perspective (van Dijk et al. 2006). The inclusion of the citizen perspective in the design of e-government can be seen as an important governance challenge.

E-government as the socio-political shaping of technology The second body of knowledge that might be relevant to explain the outlook of e-government, refers to the interactions of actors that in the end shape the technology that is used. The idea is that the shaping of the technology to be developed as well the shaping of the          !    +   }   that the assumption that technology is a neutral tool in the hands of policymakers who can determine what effects can be accomplished, is being questioned. Nevertheless, this assumption is present in many policy documents and e-government studies (Bekkers & Homburg 2007). In this so-called voluntaristic view on ICT three conditions are considered to be essential for the successful implementation of e-government. First, it is important that policymakers have clear goals about the effects to be realized. If these goals are formulated, it is possible to develop ICT in accordance with them. Secondly, it is                       exploit their capacities. Thirdly, it is important that the conditions under which these tools have to be implemented are managed properly (Heeks 1999). If these conditions are met, the intended effects will really occur. However, research into the effects of ICT in public and private organizations shows             }        $  driven, while all kinds of side-effects also occur. They have not been foreseen but have

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to be addressed (e.g. van de Donk & Snellen 1998; Anderson & Danziger 2001). The main reason is that the introduction of ICT in an organization or in a policy sector is a          +  !          the (information) domains of the actors involved (Kling 1987; Bellamy & Taylor 1998). Thus the introduction of ICT is not a neutral intervention but a political one. ICT is       Ž     Ž} !   use and distribution of information among actors and their communication. Furthermore, Ž}   !               these actors and the (inter)dependency between them. As a result ‘game like’ interactions between these actors occur (Pfeffer & Salancik 1978; Dutton & Guthrie 1991; Dawes 1996; Davenport et al. 1992; Davenport 1997; Bellamy & Taylor 1998; Homburg 2000; Bekkers 2007). Therefore scholars point at the social and political shaping of the development, introduction, implementation and use of technologies in and between organizations (e.g. Bijker et al. 1987; Kumar & van Dissel 1986; Kraemer & King 1986; Kraemer et al. 1987). From this perspective the nature of e-government and the changes that occur, can be understood in terms of resource politics, in which the use of ICT is seen as a strategy to reduce dependency in the exchange of information (Pfeffer & Salancik 1978; Kraemer & King 1986). In terms of Knight and Murray (1992), the content and shaping of e-government should therefore be explained in terms of ‘information politicking’. The management of this process of information politicking can be conceived as an important governance challenge.     ‚ } $ ƒ                       }     ƒ     /    tions of actors) use ICT and the kind of information that is being gathered, processed and $                                  $    the strengths and weaknesses of the technology to be developed or to be used and the effects to be expected, are expressed (Bijker et al. 1987; Orlikowski 1991; 2000; Fountain QUU|_                +       frame (or combination of frames) is selected in contrast to other frames which have been *  #                 technological frame, what elements have been included and what elements have been $  }    /     _                            considered to be relevant. Hence, if we want to understand the nature of e-government, we have to understand the negotiations between the involved actors and the frames which emerge from these negotiations as the most relevant and powerful (Fountain 2001). Special attention in this framing process should be paid to a set of qualities that are embedded in technology to be used and the expectations that actors have of them (Bekkers 1998). These qualities go further than the ability to process large quantities of data in a speedier and more convenient way. Hence, it is important to understand how these qualities are being framed by the involved actors when they want to use them in the development of e-government services. The relevant qualities are:

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ˆ

ˆ

ˆ

ˆ

ˆ

Calculation. To compute refers to the power to make calculations, thereby taking into account different data sets and different parameters which mutually in!    Access and transparency. Ž}             and data sets but also helps governments to have a better understanding about                   sector. Control. ICT presupposes standardization and formalization which is often a prerequisite for control. The same is true for transparency. Transparency very often opens the door to control. Communication and transaction. The linking capacities of ICT contribute to the exchange of data, knowledge and communications which helps people and organizations to get involved in transactions as well as to develop a shared understanding; Visualization and simulation of occurrences. ICT helps to visualize occurrences by presenting complicated information in an image as well helps to visualize the effects of ‘what if’ assumptions, like the effects of the rising of the sea level.

#  ƒ      ?              }                  and views. For instance, to what extent should the information processing activities of citizens and companies, when they are involved in the electronic handling of tax assessments, be controlled? What is the extent of transparency that is needed, when a citizen        >            + place between citizen and government be structured? Is it possible to send an e-mail or is   

      Furthermore, research shows that in the public sector, ICT very often strengthens the existing frames of reference, power relations and positions of the already privileged actors within an organization or within a policy sector (e.g. Kraemer & King 1986; 2006; Kraemer et al. 1987; Moon 2002; Norris & Moon 2005; Fountain 2001; Margetts 2009). Hence, if we want to understand the nature of e-government we have to ask ourselves if      !            $ ing positions, views and interests. Hence, it is interesting to ask ourselves the question,          +           not decisive. Co-evolution Studies also make clear that these framing interactions have a local, and so unique,     } +        $         evolution of different environments in which different actors, with different practices, values, relationships and existing technologies operate and interact. Hence, the nature of e-government should be understood in terms of e-government ecologies, in which the technological, managerial, social and political aspects merge together. The nature of                ments, changes that are pushed for as relevant by different actors. Technology changes

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in public organizations go together with organizational changes in public administration,              / _ behaviour changes in society (Dunleay et al. 2005; Lips & Schuppan 2009): they coevolve (Davenport 1997; Nardi & O’Day 1999; Bekkers & Homburg 2005). However, the interesting question is, how, and under what circumstances, can these changes be

+                   Hence, it is interesting to understand the nature of e-government from the idea of a policy  }                                                      /    _         In doing so, not only are problems looking for a solution, but also e-government is looking for relevant problems to be matched with as a relevant solution. Policy entrepreneurs play an important role in this coupling process, especially in terms of boundary scanning and spanning (Kingdon 1984). Different logics However, all these actors are bound by shared but also by different rules that structure and stabilize the interactions between them and the frames they put forward. March and >  /|–œ– QQ_      

 \         ventions, roles, strategies, organizational forms and technologies around which political activity is constructed. Ostrom and others (1994, 38) describe rules as prescriptions that      /  _  ƒ          authorized if the rules are not followed. This implies that actors have a limited discretion to pursuit their own interests, views and claims. Hence, it is important to understand  +  ^ @                practices. According to March and Olsen (1989) two sets of rules, which they call logics, play an important role in public administration. The way in which policymakers and politicians address these logics adds to the legitimacy of public administration, and thus              }  logic refers to the logic of consequence. Policy actions and programs, like e-government,                  However, most actions in public administration are political in nature, because they refer    

             /—  |–‰Š_ # typical for political actions is that these values have to be balanced against each other in such a way that this balance is appropriate. In order to be appropriate, different views, knowledge claims, interests and values have to be carefully looked at and have to be bal /    "    _      and implement programs that are responsive to and supportive of the needs of citizens and companies. In order to assess the nature of e-government, scholars not only have to

+   ƒ             outcomes. They also have to assess the appropriateness of e-government in terms of the               +              }    logic which has to be considered (the logic of appropriateness). Hence, it is interesting to see, which of these two logics is dominant in the way policymakers frame the blessings of e-government and, consequently, what does this tell us about the nature of e-government?

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E-government as governance arrangements If we want to understand the effects of ICT that is used to facilitate the interactions between government and citizens, society and other government organizations, we can use a functional and instrumental perspective. Effects that are being reported refer especially to    />—Ž~ QUU‘_ #                 !            goals, interests or views, we will see other effects. The use of ICT also refers to the capac   !               an act of governance. However, the question is: who governs and who is to be governed? By using a governance perspective e-government practices can be understood as governance practice: who governs who? The governance capacity of an actor can be described as the problem-solving capacity of this actor, which depends on the ability to mobilize and                   /\++ 1998). E-government can also be seen as an act of governance, because governments try            +      technology, to address problems that relate to, for instance, the quality of public services. #                we use this perspective we refer to another concept of governance that normally is used when talking about e-government. E-governance refers to the allocation of tasks, responsibilities and competences as well as the distribution of resources among the involved actors that is necessary to develop and implement e-government services. As I have argued in the previous section, the use of these resources involves the exercise of power and the framing of this power potential. As a result the transformations which e-government has brought to public administration can therefore be understood in            $ #   being exercised through e-government? In this section I will sketch how the governance capacity of public administration through the use of ICT is being organized. I call this the intelligent state (see the next section). However, as already mentioned, typical for egovernment is its government-centrism. These ICT-driven governance capacities are also available for society. Hence, it is also interesting to look at the content of e-government from the perspective of the intelligent society. E-government and the intelligent state In the intelligent state, the interactions between government on the one hand and citizens, companies and other government agencies on the other hand, are mainly database driven. Access to these databases as well as to the combination of different datasets – that stem from different databases that are located in different organizations – play a vital role in the rendering of integrated, but often obligatory services. These services occur as a result of the need to exchange and process information during the implementation and            ~                        /     _            /   $ assessments) in order to assess if their claims or obligations meet the formulated requirements. Governments also use ICT in order to control the information exchange processes with these companies and citizens as well with other government agencies. Through the

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employment of all kinds of electronic formats and digitalized routines and procedures, governments try to enhance the quality of the communications, data transfers and transactions that take place. Hence, the emphasis lies on the design of transparent, formalized, standardized and thus controlled information processing processes. These processes are organized around databases or around the referral indexes that act as an information bro+               +   New organizational forms The database becomes the vital core, the heart of the organization, to which most of the activities in the organization are directed. Around this database concentric circles of users – within the agency, but also outside the agency – can be discerned (Zuboff 1988; Fountain 2001; Bekkers 2003). The outer circle are companies or citizens who through the use of the internet and the web-based applications have limited access to this database and are able to add new or change existing information. In doing so, a process of inclusion occurs. However, the desire to develop integrated service delivery and enforcement programs, which presupposes a more organic, joined-up working of government, stimulates the further elaboration of this concentric organization model. Around a central database one may notice the emergence of dedicated service or enforcement (supply) chains - more or less sequential organized coalitions of public and private organizations – that all use the same data from the database, or that share different data, which are owned by these organizations, through the use of a common information broker. An example is the Dutch Vehicle License Agency which controls a central database containing basic and authentic data regarding the ownership of vehicles. Not only the employees of the Agency use this information but also the employees of other private and public organizations who use this information for different purposes as well as add new information to it. Examples are the police, the tax administration, insurance companies, garages that inspect the safety of cars, and other foreign vehicle license agencies. As a result, the Vehicle License Agency acts as a spider in a network of chains that are linked to each other because they share the same database. Two factors have contributed to this spider’s position. First, the Agency is the legal owner of the database and other organizations using this database have to comply with the requirements of the agency. Secondly, the ICT knowledge and experience that is available within the Agency (Bekkers 2009). However, in the Netherlands the Vehicle License Agency is not the only spider in a web. In other policy sectors, like social security, similar webs, under the banner of e-government have also been created (Bekkers 2009). An important driver for the creation of these centrally-controlled networks is the                forcement process. The emergence of these new types of government organizations can therefore be understood from the desire to comply to the logic of consequence (March < >  |–œ–_                cussed the exploitation of existing resources in new ways. Castells (1997, 301) has described this development in terms of ‘Little Sisters’. “Rather than an oppressive ‘Big Brother’ it is a myriad of well-wishing ‘little sisters’, relating to each of us on a personal basis because they know who we are, who have invaded all the realms of life”. Others, however, question the good intentions of these little sisters, and point the informational power that is in hands of a small number of organiza-

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tions. They question for instance the way in which this power and its possible misuse is controlled. Hence, they talk about the rise of an panoptical state in a surveillance society which is based on transparency and control (Lyon 1992). In doing so they also refer to new technological developments in which the so-called ‘semantic web’ (that enables people to combine information in an even more individualized way) and the so-called ‘internet of things’ (with its embedded intelligence of micro and RFID chips) opens new ways for tracking and tracing people, goods and movements. Conditions and challenges In order to achieve this intelligent state some conditions – in terms of e-governance – have to be met. First, it is necessary that different kind of interoperability issues are handled (Dawes 1996; Kumar & van Dissel 1996; Bellamy & Taylor 1998; OECD 2003; {  QUU|" \++ QUUX_ %    !  $     *       "      !    and obligations (e.g. in relation to privacy and safety regulations); incompatibility of   ^ @ Ž}    /   _"  +  and information processing process, routines and procedures; the idiosyncrasy of infor       +       " !    norms and values, communication patterns and grown practices. Secondly, it is necessary to organize the necessary cooperation between different public, semi-public and private organizations. Sometimes cooperation can be imposed e.g. through the allocation of legal competences which gives an actor a super-ordinated position. In other cases cooperation has to achieved through the creation of a shared understanding about the necessity to share resources (e.g. information and technology) in relation to goal or challenge that has to be addressed collectively by the involved actors that are horizontally connected to each other (Bekkers 2007). Among many factors, trust seems to be an important condition for the development of joined-up, network and chain-based forms of collaboration (Teo et al. 2008). Hence, the emergence of the intelligent state depends to a large extent on the social ^  @         }         

 :

  ƒ                        } $            technologies that helps to implement the law. Bovens and Zouridis (2002) have shown that, in order to build completely automated and integrated information handling processes within the intelligent state that cross the boundaries of different agencies and that are directed to one central database or information broker, one should start with the design of the information infrastructure. The next step is to draft a law that ensures that a robust and predictable infrastructure can be developed and that necessary rules and regulations are formulated in such a (binary) way that they can be automated. The last step, is to build an organization around this database. E-government and the intelligent society The governance capacities that ICT provide to people and organizations are not only restricted to government. Also citizens, companies and non-governmental organizations can use them. It is important to address this aspect, because e-government refers to the interactions between government and society. In principle e-government is not limited

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to one-way communication, in which government is the central actor. E-government can also be shaped from the perspective of society. If I look at how especially citizens use ICT for their interactions with government, two qualities of ICT seem to be important. First, there is communication. Citizens use ICT to communicate with each other, to share ideas, information, knowledge, pictures, contacts and experiences. It is interesting to see how the nature of this communication has changed during the last years: from originally one-to-one-communication (e-mail) to many-to-many-communication in which instant messaging applications like MSN play an important role. Instant messaging also occurs in numerous social networks and communities that (mostly) consist of loosely-coupled persons that share the same interest, opinion, fantasy, illness etc. Most recently these networks can be found in Web 2.0 environments. Web 2.0 refers to the so-called social web in which people share ideas, contacts, views, interests etc. In doing so they together generate relevant, user-generated content (O’Reilly 2004; 2005). This sharing may take place within networks, groups or lists of friends and followers, like Twitter and Facebook; within networks that give access to a pool of shared visualized experiences, like the pictures and videos that are available on YouTube and Flickr; within collaboration environments in which people add new knowledge to existing knowledge like Wikipedia; or through the use of blogs which helps people to make their opinions and ideas freely available, to a wider public. Sharing viewpoints with others is a highly desirable quality of ICT: the ability to give access to other people, knowledge, contacts etc. so that issues become transparent. Through the combination of these (albeit scattered) information sources, new information and new intelligence is being created. This refers to the idea of the ‘wisdom of the crowds’ (Surowiecki 2004) as well as to the learning mechanism that is used in the Linux community of software developers: ‘given enough eyeballs all bugs are shallow’ (Bekkers 2004). Innovation that occurs in these networks is based on the competitive confrontation of ideas, perspectives and also values, which may help generate combinations (Edelenbos & Klijn 2007). Hence, we see that the emphasis lies on innovation through exploration instead of exploitation. New organizational forms What is the organizational pattern that lies behind these networks? Frissen (1999) uses the      }            

tions, very fast then die. When somebody is disappointed in a discussion or in a group or wants to explore a related issue, he will leave or start his own discussion, which will attract other new members. The result is a myriad of interrelated and isolated discussion and sub discussion groups or networks. The creation of these groups depends on a process of self-organization through communication. There is no super-ordinated actor, although some actors – their blogs, their networks of friends – are (more or less) temporarily the center of the communication that occurs (Bekkers 2003). Conditions and challenges Governments have increasing interest in utilizing various conceptions of society in the purpose of involving citizens, companies and non-governmental organizations in the development and evaluation of policy programs. For instance, in terms of e-government,

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electronic town halls and digital discussion platforms or forums have been erected to give citizens the opportunity to participate and to bring in their ideas, views and claims. However, in many cases the results were relatively disappointing. Three factors, amongst others, should be mentioned in particular (Bekkers 2004). First, in many cases it was not clear how the outcomes of the discussion were used in the policy formulation and decision-making process and how the participation of citizens were balanced against the primacy of politics. In the end politicians (but also public managers) were quite reluctant to use these outcomes, because they interfered with their own ideas. Playing rules did not always exist, or they were too vague. Secondly, there is the quality of the discussion. Opinions and statements were exchanged but a shared learning process was in many cases not present. Thirdly, the people who actively participated in the discussion were rather few. People who already decided to participate, were given an additional forum for participation, but these digital discussions were not able to attract new possible participants. Also lack of access to internet excluded a number of people from the on-line deliberations (the so-called ‘digital divide’; see van Dijk & Hacker 2003). Simultaneously and most recently, we see that short term and ad hoc policy commu                 or a blog. Around such themes all kinds of discussion groups emerge, while simulta  +                 claims. An example is the anti-globalization movement. Very often it refers to knowledge and information that, according to the participants in these lists, is not being referred to in          ?     ƒ   ƒ ity of the information – Keen (2007) calls this the cult of the amateur – that is produced and discussed, these groups show how their collective intelligence is able to produce alternative knowledge which might challenge the information and knowledge monopoly of government in policy process. In doing so, they question the appropriateness of the rea                   programs. An interesting example is discussion that has its origins in the many kinds of discussion groups on the internet, regarding the potentially libelous claims of the United Nation IPPC panel on global warming, thereby referring to mistakes in the data which the panel uses. Another example is the resistance in some countries, like the Netherlands  ~+    !          alternative information that is made accessible through the internet. The best of both worlds? In order to understand the nature of e-government I have to look at the governance capac   Ž}       

     # when looking at many e-government practices in today’s society, I notice that the ICTdriven governance capacity which is present in society has not been substantially linked to the ICT-driven governance capacity of the state. This also explains why the nature of e-government resembles that of the ideal type of the intelligent state. Hence, the following questions should be raised: Why is this the case? What are the options for the future of e-government, if these two sets of capacities are being linked? Under what conditions can   + ? $    +   ^ $    @   Y=  

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add new and almost realtime information about road problems to a state-owned website            $    

Conclusion It is quite easy to discuss the future of e-government in terms of trends and prospects. Scholars and policy makers might take some emerging technology trends and use their imagination to develop scenarios of how government will or could look and what relevant conditions should be taken into consideration. However, they really want to understand the innovative power of e-government, they can also use a different perspective. In order to understand the innovative power of e-government, they can look into the mirror and ask the question: why does e-government look as it looks? How can we explain the nature of e-government as it has been materialized in the interactions between government and society? If scholars and policy makers were able to identify a number of relevant bodies of knowledge that would enable them to explain the shaping and content of egovernment, they would also be able to have a more profound discussion about the next generation of e-government. In this chapter I have addressed three bodies of knowledge which could help scholars and policy makers to understand the nature of e-government, especially by looking at the interactions that shape the content of e-government practices. Based on these bodies of knowledge, it is possible to formulate a conceptual framework that helps us to understand e-government nowadays. This framework can also help us to formulate research     '    ƒ        sections. How does this framework look? E-government – in terms of a technology driven innovation which co-shapes the introduction of new services, processes, organization forms and concepts – requires the free !     +          /  _ ganizations and domains which come together in informal grey zones. Hence, the characteristics of these grey zones may explain to some extent the kind of e-government we are experiencing nowadays. In these grey zones there is room to exploit new ideas, to experiment, to get involved in processes of trial and error, and learning. However, the quality of    /              processes) does tell us something about the nature of e-government and the innovations that take place. In order to insert new ideas and to link different but relevant design logics and values, three factors are especially important. First, transformative leadership is needed in order to formulate a rather open vision of the future of e-government, as well as linking leadership which focuses on boundary scanning and spanning activities. Secondly, it is important to take into account the perspective of the user, especially citizens, in order to prevent a government-centric approach. Thirdly, due to the involvement of a large number of relevant organizations which act on different layers of government and within different societal domains, innovation in e-government depends on the quality of the relations between the actors involved in terms of the degree of trust and social capital that is present in this milieu. Hence, the nature of e-government mirrors to some extent the levels of trust that actors have in each other.

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The interesting thing about looking at e-government from the perspective of an innovation milieux is, that it does not take the technology that is used in e-government practices as granted and given. This point can be further elaborated by looking for insights from the so-called technology debate, in which the idea is questioned that ICT is a given and neutral set of tools to be directed to previously determined policy goals. I have argued that it is not the technology alone that explains how e-government looks. The technology that is used in e-government practices is the result of a process of social and political shaping in which demands stem from different environments. Different demands for change          #        occur? In this shaping process different actors with different frames regarding the bless  Ž}   !       }    is subjected to a process of information politicking is that the development and use of ICT in e-government is considered an important source of power which strengthens and weakens the position of some actors in contrast to other actors. E-government changes the dependency relations between governments, citizens and companies. Furthermore, research has shown that ICTs in many cases leads to a reinforcement of existing practices, interests, views, and biases. This has important consequences for our understanding of the innovative potential of future e-government programs because it draws our attention to ƒ            /_               +     been rejected? Furthermore, actors very often frame e-government and the use of ICT in it, as a way  $                    nature of e-government, we should address the governance capacity of ICT that is present in these e-government practices. Analyzing the way these governance capacities are being used, tells us something about the interests that are served and the bias that lies behind these e-government practices. I have argued that, at this moment, most e-government practices are focused on the creation of the intelligent state in which database technology plays a vital role in the transformation of government. In this transformation we see that especially implementation and enforcement agencies create their own web of information relations so that they, in their role of spiders, can control the transactions with relevant parties in their environment. However, the governance capacity to which ICT refers is also available for citizens and companies themselves. This potential has been described in terms of the intelligent society in which relevant knowledge, information, experiences and contacts can be shared through social network technologies. However, it is interesting to see that the intelligent society has not really been picked up in the dominant thinking about e-government. Why is this the case? An important challenge for the future of egovernment is to question how to link the governance capacities that are present in the intelligent state to that of the intelligent society. What are the conditions under which this might take place? Can they substitute for each other, or are they mutually exclusive? #    $   +           !   can take place, that grey zones are established in which actors are able and capable to explore how these two governance logics can be linked in order to show that, according to the opening words of Tony Blair as referred to in the introduction, government matters. What does this imply for the general topic of the book: innovations in governance? Based on the ideas that are presented in this chapter, the innovation that e-government

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        }     the governance potential of ICTs, which has been conceptualized through the introduction of the ‘intelligent state’   ^ 

  @ ?           practice that re-shapes the relations and interactions between government and society. I have demonstrated what kind of changes happen and what the relevant conditions and challenges are. Given these ICT-driven governance practices, the second level refers to the governance of the conditions and the steering of the (innovative) interactions between the involved stakeholders, to exploit the governance potential of ICT. In the section on innovation and social shaping of technology special attention has been paid to the quality of the relations and the interactions between the involved actors. It is this quality – in              ‚  ! the social and political shaping of the technology to be used. Hence, we can conclude that ICT-driven innovation in governance can be seen as a meta-governance challenge that has to be addressed at two levels. This implies that the outlook of e-government can be explained by the way different stakeholders have been able to manage this meta-governance challenge.

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 \? /|––‘_ —$     Ž "     } Ž ?  ‹ ‹her (Ed.) The Embedded Firm. London: Routledge. Lyon, D. (1992) The electronic eye. Cambridge: Polity Press. March, J.G. (1999) The pursuit of organizational intelligence. Oxford: Blackwell. March, J. & Olsen, J. (1989) Rediscovering institutions. New York: Free Press. Margetts, H. (1998) Computerizing the tools of government. In: I. Snellen & W. van de Donk (Eds.) Public Administration in an Information Age, 441–460. Amsterdam: IOS Press. Margetts, H. (2009) Public Management Change and E-government: The Emergence of Digital Era Governance. In: A. Chadwick & P.N. Howard (Eds.) Oxford Handbook of Internet Politics, 114–128. Oxford: Oxford University Press. Maskell, P. (2000) Social Capital, innovation and competiveness. In: S. Baron, J. Field & T. Schuller (Eds.) Social Capital, 111–123. Oxford: Oxford University Press. McDaniel, B. (2002) Entrepreneurship and Innovation. New York: Sharpe. Moon, M. (2004) The Evolution of E-Government Among Municipalities: Rhetoric or Reality? Public Administration Review 64(4), 424–433. Moore, M. & Hartley, J. (2008) Innovations in Governance. Public Management Review 10(1), 3–20. Mulgan, G. & Albury, D. (2003) Innovation in the Public Sector  [   Y Ž >  Nardi, B. & O’Day, V. (1999) Information ecologies. Cambridge Mass.: MIT Press. Nooteboom, B. (2002) <            Cheltenham: Edward Elgar. Nooteboom, S. (2006) Adaptive networks: the governance for sustainable development. Delft: Eburon. Norris, D. & Moon, M. (2005) Advancing e-government at the grass roots: tortoise or hare? Public Administration Review 65(1), 64–75. OECD (2003) The E-Government Imperative. Paris: OECD. O’Reilly, T. (2004) The architecture of participation. Retrieved May 22, 2010, from http://www.oreillynet.com/ pub/a/oreilly/tim/articles/architecture_of_participation.html O’Reilly, T. (2005) What is web 2.0: design patterns and business models for the next generation of software, Retrieved May 22, 2010, from http://www.oreillynet.com/pub/a/oreilly/tim/news/2005/09/30/what_is_ web-20.html Orlikowski, W. (1991) The duality of technology: rethinking the concept of technology in organizations. Organization Science 3(3), 398–427. Orlikowski, W. (2000) Using technology and constituting structures. Organizational Science 11(4), 404–428. Osborne, S. & Brown, K. (2005) Managing change and innovation in public service organizations. London and New York: Routledge. Ostrom, E., Gardner, R. & Walker, J. (1994) Rules, Games, & Common-Pool Resources. Ann Arbor: University of Michigan Press. Oudshoorn, N. & Pinch T. (Eds.) (2003) How users matter. Cambridge, Mass.: MIT Press Perri 6, Leat, D., Seltzer, K. & Stoker, G. (2002) Towards holistic governance. Houndsmills: Palgrave. Pfeffer, J. & Salancik, G. (1978) The external control of organizations. New York: Harper & Row. Putnam, R.D. (1993) Making Democracy Work. Civic traditions in Modern Italy. Princeton, NJ: Princeton University Press. Putnam, R.D. (2000) Bowling Alone: The Collapse and Revival of American Community. New York: Simon & Schuster. Rogers, E. (2003) Diffusion of Innovations. 5th edition. New York: Free Press. Scholl, H. (2006) Is E-Government Research a Flash in the Pan or Here for the Long Shot? In: M. Wimmer, J. Scholl & A. Gronlund (Eds.) Electronic Government. Lecture Notes in Computer Science, 13–24. Heidelberg: Springer.

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4 & #+  Innovative Developments of Public Services Christopher G. Reddick The University of Texas at San Antonio, San Antonio, Texas, USA

This chapter provides an analysis and examples of how the emergence of citizencentric e-governance has transformed public service delivery. There is a discussion of what e-governance is and the most important models that explain its development. The important role that citizens play in e-governance is examined. E-governance and its impact on organizational change and development are highlighted, with a particular focus on its ability to transform government and public service delivery. Finally, there is a discussion of some of the emerging technologies that can potentially create more citizen-centric government. The overall conclusion of this chapter is that Information and Communication Technologies (ICT) have the potential to transform government, but the evidence suggests a more incremental path than what some of the earlier scholars had envisioned.

Introduction This chapter provides an analysis and examples of how the emergence of citizen-centric e-governance has transformed public service delivery. Citizen-centric e-governance is an innovation in public service delivery, where governments focus on the needs of citizens when delivering services. Information and Communication Technologies (ICTs) have enabled governments to be more innovative and cater their services to meet citizen demand. Common examples, as discussed in this chapter, are the use of government websites to display information to more sophisticated social media technologies such as Twitter and Facebook. }        }   $    — governance is especially important for citizens and their interaction with government, this chapter covers that important relationship. The second part of this chapter examines egovernance as a way of promoting electronic transformation or e-transformation in government. One area that e-governance has impacted government is through the delivery of public services. Most notable in public service delivery is the change in the relationship of the traditional street-level bureaucrat because of ICT. The last part of this chapter provides a case study of centralized customer service systems as a way of transforming government. This technology is innovative since it is supposed to break down the functional silos of public service delivery and centralize it into one system. This chapter highlights the importance of e-governance as a way of transforming government to make it more citizen-centric in the delivery of public services.

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E-governance This section on e-governance provides the theoretical foundations for the chapter. The argument is made that in order to understand citizen-centric government and the role that e-governance plays, one must understand the critical elements of ICT in transforming government. Citizens play a crucial role in the future of e-governance and provide the catalyst for its future development. _‡ 

    —           Ž}    ƒ    effectiveness of service delivery for citizens (Chen & Hsieh 2009). E-governance goes beyond merely improving service delivery for government, and delves into the area of enhancing democracy and citizen participation in the policy-making process (Kolsaker & Lee-Kelley 2008). Most of the e-governance research has focused on the supply-side metrics such as government output as measured through website features, but the more critical question for e-governance is the demand-side perspective, or citizens’ interaction with government (Reddick 2005). Demand-side research focuses more on the role that citizens play in shaping e-governance through policy and management (Reddick 2010a). This research is critical to know since change as a result of e-governance can have lasting impacts if it is driven by citizens. E-commerce can sometimes be confused with e-governance, but there are three major differences related to access, structure, and accountability (Carter & Bélanger 2005). In ecommerce businesses are allowed to choose their customers; in e-governance government agencies are required to provide access to an entire eligible population. These individuals may be those that are on lower incomes and have disabilities. This digital divide in access makes providing e-governance especially challenging for governments. Structure is also different for e-governance compared to e-commerce in the private sector. In business the structure is normally more decentralized and entrepreneurial, while in government there is much more rigidity in the form of hierarchy. Accountability is another difference in e-commerce and e-governance, where public sector agencies are required to allocate resources on the basis of public interest which recognizes the political nature of decisions.    

                When reviewing the e-governance literature, there are several important characteristics of e-governance that should be noted (Grant & Chau 2005). First, most e-governance                       { $     $         of public service bills online, and renewal of vehicle registration online are common examples used for successfully implementing e-governance. Second, there is literature that argues for e-governance as a transformative force of change. This view holds that e 

               be transparent and accountable to its citizens. Third, e-governance offers a diverse range of solutions to a problem through applications. The focus here is applications that make improvements in government operations in different countries. The Internet with its universal standards makes it easier for developing countries to be able to offer e-governance services. Examples of services include online tax payment, online vehicle registration,

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and paying for a permit online. The universal standards of the Internet make interoperability of communications possible and e-governance a reality. Fourth, the integration of e-governance with existing IT systems is possible because of the Internet. The argument here is that e-governance is one important dimension of the overall Information Technology (IT) enterprise architecture. Fifth, there is the maturity aspects of e-governance examining the different stages of adoption in organizations. Common stages of development of e-governance go from information, transactions, and integration within organizations (Layne & Lee, 2001). Sixth, there is the international dimension of e-governance. Governments around the world in both developed and developing countries are looking at e-governance as a way to change their operations, reach out to citizens, and transform their organizations. From these six components Grant and Chau (2005, p. 9) came up with        A broad-based transformation initiative, enabled by leveraging the capabilities of information and communication technology: (1) to develop and deliver high quality, seamless, and integrated public services; (2) to enable effective constituent relationship management; and (3) to support the economic and social development goals of citizens, businesses, and civil society at local, state, national, and international levels. Table 1 shows the adoption of e-governance and its different phases of implementation /~ QUUœ_ }    |––U         predominant. These information systems processed large batch transactions. The second phase of e-governance was in the early 1990s, which was when desktop computers became the norm of government, with local area networks connecting them, and Internet access becoming more common. It was not until the mid-1990s with the commercialization of the Internet that the Web proliferated through both businesses and governments. As a result, citizens had more access to government online and there arose the issue of the digital divide, referring to those individuals that did not have access to the Internet. The late 1990s was a period of development of wireless networks, mobile computers and other advanced applications that built upon the early developments of the web. With the third phase there came the issue of privacy and security as enterprise architecture was used to connect government together with IT. The last phase, post-2000, saw the development of more social networking technologies and advanced programming languages such as extensible markup language (XML). This is a time of increased collaboration and potential for citizen participation in governance. The fourth phase is the development of citizen-centric governance. }          +                 /Ž < # QUU–_ }    seamless integration of government. Essentially, the integration of government information and services to promote better governance is part of seamlessly integrating IT. The                  which includes access and use by citizens. How have citizens’ lives been changed as a result of e-governance? In a comparative case study of the United States and Taiwan and their e-governance, Chen and Hsieh show that the United States is better at showing the importance of building democratic institutions and technology infrastructure to foster e-

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Table 1. E-governance phases and implementation issues. Time Period

Adopted Technologies

Implementation Issues

Emblematic Examples of Public Services

Pre-1990

Mainframe computers

High volume transactions, very centralized IT

Administrative services such as bookkeeping services and payroll

Early 1990s

Desktop computing,

   + and Web browser

Performance management,       decentralization IT

Word processing,    presentation software

Mid-1990s

Commercially available Internet, e-mail, networks

Websites, online citizen services, digital divide

One-way information delivery through government websites, such as city council agenda and government reports posted online

Late 1990s

Wireless networks, mobile computing, advanced applications such as search tools, data mining, and GIS

Privacy and security, Year 2000 (Y2K) issue, Enterprise Management

Advanced search engines such as google.com, accessibility of cell phones to the broader population

Post-2000 (Citizen-Centric E-Governance)

Web 2.0 technologies, and XML

Information sharing and collaboration, online voting and citizen participation

Social media technologies empower citizens to make decisions, e.g. Facebook and Twitter

Source: Adapted from Dawes (2008)

governance. With regards to integrating e-governance, Taiwan shows the importance of having a lead agency to coordinate e-governance projects. Essentially, e-governance is different from IT and public administration because of the integration of IT into increased citizen participation in governance. Models of e-governance There are three policy phases of e-governance, which are important to understand for       !    +       /[

 QUUQ_ }    Ž}             the network model of public administration with interactive policy making taking place. Policy making is also proactive in that different groups will mobilize because of an issue. There is the co-production of policies in which different groups that are impacted by the   

  !      }    Ž}     tion phase. This is where street-level bureaucrats play an integral role in how the policy is implemented. There is a tendency in a networked organization to downgrade the work of street-level bureaucrats, which is in line with the hollowing out of their administrative discretion. There is the creation of expert systems, which translate the policy into action-

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able behavior. Data mining and databases play a key role in the implementation phase by                  }    Ž} in the post-implementation phase. In this phase there is the handling of administrative complaints and judicial appeals of citizens, performance indicators and benchmarking, and freedom of access to policy documents. Chadwick and May (2003) demonstrate three models of e-governance, namely the managerial, consultative, and participatory model, which are shown in Table 2. As one moves from the managerial to participatory model there is an increased amount of citizen participation in governance.

Table 2. Managerial, consultative, and participatory models of e-governance. Level of Citizen-Centric Government Managerial

Consultative

Participatory

Role of Government

'     delivery of public services to citizens

\     with citizen input

Ž       

to the development of the state

Actors Involved

Customers as citizens, business, mass media

Interest groups, citizens as customers, business

Voluntary associations, interest groups, and citizens

Flow of Information

~   

~     but shaped by citizen input

Ž $     !  government and citizens shaping governance and policy

Technologies Used

Online tax returns, public information on websites

E-voting, opinion polling, electronic town hall meetings

Social media technologies

Logic

To enhance service delivery

To improve policy success

To enhance democracy

Implementation Issues

Lack of cost savings

Apathy of the public

No signs of radical change

Source: Adapted from Chadwick & May (2003)

}              through ICT (Chadwick & May 2003). In this model, change is incremental depending upon the challenges and opportunities available. This is a push model in which e-governance is provided to the public without any input. The consultative model is more of a pull model. In this model, the public is consulted on various e-governance projects, but                 }    the participative one, where there is more of a complex horizontal and vertical interaction    ! }             is that in the latter innovation occurs from the bottom up. The consultative model still has the bureaucracy set the parameters of participation; while in the participatory model citizens drive innovation.

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In an examination of the United States, United Kingdom, and the European Union, Chadwick and May (2003) found that these governments were relying more on the                consultative and participatory models. Individuals might get better services from their government, but there is little interactivity in the types and effectiveness of the services that they received. There are six important dimensions of e-governance, which Dawes (2009) indenti                     governance research will move beyond its main focus on services to citizens towards  }              in society? Issues such as accountability, transparency, and stewardship are important to answer this question. Second there are societal trends that will impact e-governance such as demographic trends, digital divide, and political participation that are important. Third, the changing technologies of e-governance is another dimension. Here there are issues of security and privacy, wireless technologies, social networks, and sensory technology that         }         digital archives and libraries, databases, and retrieval systems. Information management is extremely important as a result of these new technologies making it much easier to         }                       }       tion and complexity in which there is collaboration, multichannel service delivery, and system interoperability. According to Dawes (2009), e-governance is much more than service delivery, it encompasses broader social and technical changes that impact on citizens’ interaction with their government. E-governance and citizens E-governance has provided the potential of tapping new ways of relating to citizens (King QUUX_ }             through an information/transaction relationship with its citizens. The aim of such a sys           @ ƒ       transactions online. This citizen relationship is driven more by the needs of the government in regards to service delivery. The second phase is the insightful citizen relationship, which is still government driven. ICT systems can be used here to segment citizens depending upon their needs, providing operational analytics to improve performance of the organization. There also is a wall between the second and third phase, citizen-centric   } 

            created by bureaucratic, political, and the general government resistance to change. If governments are able to get past this wall they can achieve citizen-centric government through ICT. In this phase, there is extensive citizen access to data and the co-production of data and decisions made in conjunction with citizens. Therefore, in order to understand e-governance there needs to be more research on the demand by citizens for online information and services. In a survey of residents in the American State of Georgia, Thomas and Streib (2005) examined the demand for e-governance. Most of the existing research has focused on what government offers online, while their research focused more on citizens and their

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experiences with e-governance. These authors examined e-commerce, which can be de               $   } could be either citizens’ paying government income taxes owned or governments paying citizens a tax refund. E-democracy deals with citizens that engage in online activities in the political process. Finally, e-research refers to the use of government website to look up information when citizens need help with a problem. The results of their survey of citizens revealed, not surprisingly, that e-democracy was the least-used online service, while e-research and e-commerce was used more often. Accountability refers to the answerability of government to the public on its performance. E-governance is said to promote accountability because more information is delivered in a timely fashion to citizens, there is increased transparency of government to citizens, and an empowerment of citizens to monitor the government’s performance (Wong & Welch 2004). Research shows that the relationship between e-governance and public accountability is conditional, depending on the characteristics of the organization and its environment. However, ICT is said to reinforce existing systems and processes in organizations rather than change them (Kraemer & Dedrick 1997). The following section examines e-transformation, or the use of ICT to transform public service delivery. One important dimension of e-governance is e-transformation and its impact on organizational change.

E-transformation in governance One of the hallmarks of the e-governance literature is the potential of ICT to be able to transform government. There are two schools of thought on transformation outlined in this section, one school advocates that change is incremental; the past builds upon present organizational changes. A more radical view argues that change is transformational; a radical departure from the past is the result of e-governance. E-governance and organizational change There are two schools of thought on organizational change as a result of ICT (West 2004). One is the transformationalist, which believes ICT will have widespread consequences for society and government at large. The incremental perspective, by contrast, argues that  

      !            that prevent wholesale change. Examples of technological changes that can be viewed                    |œ££ and the telephone in 1876, the rise of the radio in the 1920s and coast-to-coast television broadcasting in 1946, all had dramatic and enduring consequences for business, government, and society. West argues that e-governance with regards to its potential to transform service delivery and democratic outreach has followed more of an incremental path and has not created a wholesale transformation that many of the earlier scholars predicted (Layne & Lee 2001). With this incremental pace of change as the result of e-governance, governments have not made much progress in enhancing the power of the Internet to increase accountability and representation (West 2004). There are very few interactive features in an

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extensive analysis of federal and state websites completed by West. This limits the ability of governments to use e-governance to transform the public sector. There are two important developments in modern public organizations according to [

 /QUUQ_ }                between governments and societies is being replaced by a horizontal network relationship which is much more complicated and has many interests involved. The horizontal  +       !  !        agencies. The second development is the introduction of ICT, which will change the control, surveillance, communication and knowledge of this horizontal network relationship. ICT has the potential to make horizontal organization a reality for governments. Allen, Juillet, Paquet, and Roy (2001) believe that the administrative cultures of governments are ill-suited for the transformational shift of e-governance. In a case study of the implementation of e-governance in Canada, these authors note that e-governance requires horizontal governance, but the Canadian government has relied on a vertical architecture of power and decision-making. E-governance refers to the new patterns of decision-making, power sharing, and coordination made possible with the advent of ICT. The Canadian federal government has taken a more incremental approach to adopting e-governance, but has the potential to embrace full-scale change if it accepts a more transformational aspect of this technology. These authors, and many others, have shown that egovernance and organizational change has been more incremental than transformational. Transformation and ICT as noted in this section can be both incremental and radical. Transformation is only possible if policy makers, or other actors, can change our mindsets or institutions. These changes will open up new avenues for radical departure from the status quo. The same is true with vertical and horizontal change, in that change needs to occur both vertically through management levels and horizontally across organizations in service delivery. E-governance and service delivery >                livery. Survey research shows that e-governance initiatives are still predominately non       /}  < % QUUŠ_ }   !  present service delivery model rather than transformational aspects of e-governance /Ž < : QUUœ_ }              interaction and participation of citizens in governance. Since e-democracy initiatives are not at the forefront of e-governance there will not be transformational change in the near future (Torres, Pina & Royo 2005). Grant and Chau (2005) provide a very comprehensive explanation of what e-governance is and its most important components, as demonstrated earlier in this chapter. —             Ž}      service delivery in public sector organizations. Grant and Chau believe that e-governance is much more than a technological phenomenon because of its transformative nature. ~         +  }   propose a more generic framework of e-governance in order to bring the most important              *    delivery.

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Dunleavy, Margetts, Bastow and Tinkler (2006) believe that New Public Management (NPM) has provided a dominant set of management principles for several decades. However, there is not much evidence of its impact on changing the overall effectiveness of government. These authors believe that e-governance offers the potential to change NPM or improve its relevance. There are three themes of NPM, as outlined by these authors, which are: disaggregation, competition, and incentivization. Disaggregation is               

  !$    Competition allows for the separation of public structures to create multiple forms of the provision of a service. Finally, incentivization is rewarding managers and staff for good performance. The three themes of e-governance are reintegration, needs-based holism, and digitalized changes. With reintegration there is the ability of ICT to put back together many of the elements that NPM separated. Needs-based holism is the ability of ICT to create a larger and more encompassing organization and stripping down the unnecessary steps. Finally, digitalized changes will create productivity changes with fully digital operations. E-governance, according to these authors, offers an opportunity to create real change in public management. Essentially, NPM is one reform effort that helps to explain the movement to citizen-centric e-governance by reaching citizens in a way that was not possible before the Internet in service delivery. The literature on e-governance and service delivery has often tried to codify the level               }     e-governance adoption for governments, demonstrating some of the innovative uses of        /[ƒ QUUœ_ }      +  the emerging presence. In this stage, governments provide a website for citizens to access information that is basic such as hours of operation of the city and contact information of employees. The information provided is static with few options available for citizens. The second stage is enhanced presence, this is where there is a greater amount of information placed online that would impact on public policy decisions such as newsletters, reports, regulations, policies, and laws that can be easily downloaded. Even though this information is more sophisticated it is still uni-directional, with government merely providing information to citizens and there is no exchange or interaction taking place in the enhanced presence stage. The third stage is the interactive phase, where citizens are able to interact         }          

out forms online, and get answers to questions through online comment forms. At this stage there is two-way interaction taking place, but no exchange of money and/or private information between parties. The fourth stage is the transactional; this is where citizens can complete secure two-way transactions for services with government such as a visa, passport, licenses, permit renewals, payment of taxes, and other web enabled services. The secure connection enables citizens to pay for the use of the service online and not   

    ƒ    [     integration stage. At this stage there is the removal of barriers to achieve most services. Services are removed from departments and centralized in a web portal. This works well for citizens since they know the service that they want but may be unfamiliar with the department they need to get this service from. A centralized customer-service system is technology that can be used to provide a one-stop access to government information and services, which is discussed in the last part of the chapter.

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}                $ing transformation within an organization. Essentially, development into the integration stage represents a fundamental transformative change in the organization. However, much of the existing research indicates more of a Web presence with regards to e-governance and there is not much evidence of a radical transformative change. One of the strategies for improving service delivery is to change the role of street-level bureaucrats that interact with government through ICT as the next section discusses. From street-level to system-level bureaucracy In many public sector agencies ICT has been adopted in organizations more reactively to cope with a loss of workers and other resources. Because of the high cost of service delivery for many public sector agencies, they are turning to automating services through ICT. Rather than speaking with a street-level bureaucrat, citizens are communicating with system-level bureaucrats through the Internet. In essence, ICT is a way of exacting control and accountability over the bureaucracy (Milward & Snyder 1996). Bovens and Zouridis (2002, 175) believe that the traditional street-level bureaucracy has been replaced by a system-level bureaucracy. They state: Meanwhile, the large-scale executive public agencies of the welfare state appear to be quietly undergoing a fundamental change of character internally. Information and communication technology (ICT) is one of the driving forces behind this transformation. Window clerks are being replaced by Web sites, and advanced information and expert systems are taking over the role of case managers and adjudicating  ¶}          ¡š     

                 ager behind a screen. In Table 3 there is a comparison of the characteristics of street-level bureaucracy and system-level bureaucracy. The role of ICT for the street-level bureaucracy is supportive for the organization, while for system-level bureaucracy its role is decisive, preprogrammed by the system designer. In addition, with the system-level bureaucracy there is limited human interface because ICT works behind the scenes to complete the service request. The system-level bureaucracy, most importantly, removes administrative discretion from decisions. The street-level bureaucrat has discretion in their interpretation of laws, but the system-level bureaucracy removes this discretion since it is preprogrammed by the system designer behind the scenes. The system-level bureaucracy has changed the traditional way that citizens interact with government. With the increase in system level approach to bureaucracy because of ICT, there is a counter-movement taking place of giving more power back to citizens. This is in the form of the Web 2.0 revolution that allow citizens to have more control thereby creating more citizen-centric governance. Two faces of citizen-centric e-governance There are essentially two faces of citizen-centric government. One is Web 2.0 technologies which are peer-supported having user-generated content. The second is Citizen Re-

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Table 3. Comparison of characteristics of street and system-level bureaucracies. Street-Level Bureaucracy

System-Level Bureaucracy

Role of ICT

Supportive

Decisive

Functions of ICT

Data entry

Execution, control, and external communication

Human interface with individual cases

Full contact

No contact

Organizational structure

Case managers

System designers

Organizational boundaries

Strict boundaries and separation from other agencies

Fluid boundaries within and between organizations

Legal

Ample discretion

No discretion

Adapted from Bovens and Zouridis (2002)

lationship Management (CiRM) technologies which are designed and managed by public sector organizations and are in the tradition of the NPM movement. Web 2.0 is not di     Ž%'      !       the ground up. CiRM is more in line with the tradition of NPM, an approach to provide better management of the relationship between citizens and government. Both of them are toolkits that can be used to create more citizen-centric e-governance. Website use has changed as a result of the movement towards Web 2.0, where there is an emphasis on user-generated content, social networking, interactivity, and openness, integration, and adaptability of service channels. Examples of Web 2.0 technologies are blogs, discussion groups, Wikis, music streams with rating features, and social networking platforms. These sites are normally self-organized by users bringing together their thoughts and opinions (Schellong, 2008). Social networking sites model real-world networks into a virtual community. They are Web-based services that allow users to (Schellong 2008, 229): /|_ Ž               " (2) Articulate a list of other users with whom they share a connection; and (3) View and traverse their list of connections of those made by others within the system. Social networking sites assist each user in creating or seeking a network of friends, acquaintances, and generally people who share similar interests. The members on these sites are encouraged to expand their network by inviting others to join the network (Schellong 2008). In an analysis of survey research, young people using the Internet for information   +       !             knowledge (Pasek & Romer 2009). Essentially, social networking site users of Facebook

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and MySpace are more civically engaged. Therefore, social networking sites may encourage more civic engagement, but there is no overwhelming evidence supporting a longlasting impact on governance. Another aspect of citizen-centric e-governance is the use of CiRM technology. This                      ate more citizen-centric government through ICT. These systems use old technology, but have been modernized because of the demand by citizens for different avenues of contact with their government than just the Internet. Research shows that citizens use different contact channels, depending upon the task they need to perform. For government information they prefer to use the Web, and to solve a problem they prefer to use the phone (Reddick 2010b). CiRM systems are able to integrate different contact channels into one system, thereby creating more citizen-centric government. A technology that is being used to enhance citizen interaction with government is      [

 /QUUœ_       Ž%'     sector as a strategy enabled by ICT to optimize relationships and encourage citizen participation. CiRM is part of the broader NPM approach in the e-governance literature. There is a major difference in the use of this technology in the private sector compared to the                *                      Ž%'   *    enhancing democratic accountability to the public. Although this technology originated in the private sector there needs to be more research that concentrates on its public sector application. An effective CiRM system enables citizens to rise above traditional departments and bureaucratic lines when they need information or services from government. CiRM systems have the potential to manipulate data to get a better picture of citizen behavior. Therefore, CiRM has the potential to work across departments and break down the functional silos of traditional public sector service delivery (Kannabiran, Xavier & Anantharaaj 2004). CiRM is a way to integrate multiple channels of contact with government through either the phone, Web, over the counter, or through the mail into one system. This system potentially could connect these different channel choices into one system to make service delivery a seamless experience for citizens. The following section provides a case study on the adoption of CiRM systems in local governments in the United States.

4 &        There is an increasing number of cities in the United States that use a non-emergency hotline number, normally 311, to provide centralized customer service support to their citizens (Schwester, Carrizales & Holzer 2009). These systems are usually supported by Ž%'   \           ‘||       was to reduce the number of non-emergency calls to overburdened 911 system. Nationwide the Department of Justice predicted that there was between 50% and 90% of 911 

   }           true emergencies. President Clinton requested that the Federal Communications Commission (FCC) set aside 311 for the use as a number for help in non-emergencies. Potentially

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229

311 systems could improve the relationship between governments and their citizens since they would enable the latter to make service requests and provide feedback. In an examination of 311/CiRM adoption in local governments in the United States, the author of this chapter constructed a survey that examined the impact of adoption (Reddick 2010c). A survey was sent between the months of April and May 2009 to Chief ?   >  /Ž?>_          ‘||’Ž%'   ?        ||‘           have 311/CiRM systems in their local government. Of those, there were 60 completed surveys that were received, a response rate of 53%. [             }  £   late to creating a more citizen-centric government. Improving customer service is one of the main reasons that a local government would want to adopt a 311/CiRM system. The results in Table 4 show that there is ample evidence that this system has indeed improved customer service for cities. The most agreement was for the proposition that 311/CiRM has improved communication with citizens; 55% of CAOs agreed to this statement. Overall, the results in Table 4 show that this system had an impact on improving customer service, and this was especially the case for improving communication with citizens.              ‘||’Ž%'      City/County Management Association (ICMA) some interesting results surfaced (ICMA 2008). These case studies looked at local governments that had successfully adopted 311/ CiRM systems and the key elements that supported their implementation. The cities studied were San Antonio, Texas, which was the largest city, having a population of almost 1.3 million. Their 311 system was built in-house and was designed by the city’s information technology department in 2000. The 311 department reports to the assistant city manager. Los Alamos County, New Mexico was the smallest local government studied                     ‘|| system. One city studied, Lynwood, California, does not have a 311 system, but a sevendigit hotline number. Minneapolis, Minnesota has one of the youngest systems of the group of cities with an integrated 911/311 Department reporting to the city coordinator. Finally, Hampton, Virginia has the oldest and most established 311 system of the group. >                   Ž'? /QUUœ_                                +       The idea that 311 as a front door to local government was mentioned in interviews with     :              needed to call for information or services: with 311 this made it happen with one phone call. Essentially, the challenge that citizens face is that they do not always understand which department to call; through one phone call the customer service agent can connect them with the right information. This can be a challenge since departments in the past have controlled information; 311/CiRM systems essentially break down these silos of information dissemination. Citizens viewed it as favorable because of the easy access to their government; essentially it made it easier for citizens to get involved. Providing excellent customer service makes for happier citizens and will enhance the community’s overall reputation (ICMA 2008).    Ž'?   

      

    ‘||’ CiRM system to measure the performance of the call center, and also the effectiveness

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Table 4. 311/CiRM created a more citizen-centric government. 311/CiRM in my local government…

Strongly Agree

Agree

Neither

Disagree

Strongly Disagree

Has helped to cope with increased service demands of citizens

31.7

48.3

20.0

0

0

Has helped to keep in touch with residents in my community with their issues

36.7

45.0

15.0

3.3

0

Has enabled us to redirect resources depending upon needs of citizens

16.7

51.7

26.7

5.0

0

Has resolved the needs of customers    

     



‘ŠU

Š|X

|UU

|X

|X

Has made customer satisfaction a priority within our local government

43.3

45.0

11.7

0

0

Has provided a consistent level of service to citizens

36.7

53.3

10.0

0

0

Has helped us anticipate the needs of citizens

20.0

48.3

31.7

0

0

Has improved communication with citizens

55.0

38.3

6.7

0

0

       # 

     struggled with how best to use the data that they collected, and the extent to which these governments used the performance data varied. For most local governments, servicelevel agreements were set which focused on the completion of meeting customer needs, which was a cultural shift. These service-level agreements can inform citizens when they can expect to get the work completed. This essentially holds departments accountable for results in their performance. 311/CiRM systems offered an opportunity to promote change within local govern  '          Ž'?          major cultural change in the way the local government does business. These systems have re-engineered government processes since cities have to spend time working on mapping business processes and procedures to complete their work orders. This allows local governments to determine where the bottlenecks occur and channel resources into these areas to remedy the problems. 311/CiRM can streamline processes in city government to create          

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Conclusion —         Ž}    ƒ       delivery. Most models of e-governance emphasize the importance of citizens in enhancing service delivery. There are three models of e-governance, namely managerial, consultative, and participatory. The managerial model, which involves the least level of citizen                   delivery. E-governance is thought by many scholars to be able to transform government, but the evidence suggests only incremental change to public service delivery. As a result of ICT, the traditional street-level bureaucrat is being replaced by a system-level bureaucrat. Essentially, e-governance is said to hollow out the administrative state (Milward & Snyder 1996). CiRM technology is being used to integrate the operations of government, where citizens can call a single number and get access to the information and services of government. Therefore, citizens no longer have to know which department they need a service from; the customer service representative can help direct them and answer their inquiry. CiRM systems are a new area of research in e-governance on channel choice in public service delivery, where citizens will use different channels depending upon what they need from government. Future research should examine the integration of ICT, whereby citizens can seamlessly contact government from any contact channel and request information or get a service. }                 e-government information and services. There are numerous studies that benchmark what governments post online and examine their degree of sophistication. There are far fewer studies that examine citizens and what they want from e-governance. This disconnect, between supply and demand for e-governance, is a concern for its future development. However, with the emergence of new social media technologies this may change the focus of the debate towards citizens and their participation in governance. Has there been an e-transformation as a result of e-governance? Existing research indicates that transformation in public service delivery is certainly possible, but a more      +       [   +      citizens are that it empowers citizens to make more decision on their own and participate in governance. The public service innovations that have been more advanced are those of Web 2.0 and CiRM technologies that enable citizens to participate more in governance. E-governance represents one important innovation in public service delivery, which surely will blossom as the Internet and related technologies become more advanced and provide greater access to government. What is the future of citizen-centric e-governance? Some areas that have been innovative are the social media technologies and other technologies that are able to go beyond simply posting information online. In addition, mobile technologies have the ability to transcend space and time and are particularly innovative for the future of e-governance. Technologies that converge different information systems, providing multiple contact channels are innovative and part of the future of e-governance. Essentially, the future of e-governance rests squarely on the citizens and their use of technology, which should drive change and innovation in governments.

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Torres, L., Pina, V., & Royo, S. (2005) E-government and the transformation of public administrations in EU countries: Beyond NPM or just a second wave of reforms? Online Information Review 29(5), 531–553. West, D.M. (2004) E-Government and the Transformation of Service Delivery and Citizen Attitudes. Public Administration Review 64(1), 15–27. Wong, W. &Welch, E. (2004) Does E-Government Promote Accountability? A Comparative Analysis of Website Openness and Government Accountability. Governance 17(2), 275–297.

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Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved.

Subject Index 311 system 228–230 administrative reform 25 agency model 112     ||‰ algorithmic revolution 40–41 americanization 31 analytical marxism 92 Ash Institute for Democratic Governance and Innovation 35 associational form of governance 79 automated services 47–48 autonomy 112 +   |£X bad government 28 Baumol’s disease 18 best value (BV) 73 big society 84 boundary spanning 201 bounded rationality 92, 94, 102–103 brokerage 201 bureaucracy 7, 25, 27, 142 business process engineering 145 capitated payments 132 carrot and stick 90 chain-link model 162 choice 76, 83 citizen participation 159, 170 citizen relationship management (CiRM) 226–228 citizen-centric e-governance 217 citizen-centric model 171 citizens’ assemblies 181 civic consciousness 189 cloud computing 44, 56 co-creation of public value 17–18 co-design of services 77 co-evolution 204 cognitive architecture 103–104 collaborative governance 175 collective intelligence 210 commoditization 43, 52 common pool resource governance 186–187 Commonwealth Care 127 Commonwealth Choice 126 communally-owned property 187 communication 103–104, 209 communitarian system 160 communitarianism 11 community care 82 competition 53, 70–71, 135, 225 – for service contracts 71 – for service users 74–75

– forms of 70–71 compulsory competitive tendering (CCT) 71 computing platforms 55 connectivity 60 consensus conferences 178 consultation 165 consultative model of e-governance 221 contextual approach 1 contingency theory 111 continuous innovation 52 cooperative federalism 143 coordination 112–113 co-payments 80 co-production 77, 186 corruption 32–34 cost of reforms 131 cross-cutting programs 119 ‘cult of the amateur’ 210 customer service support 228 czars 115–116 databases 206–207 decentralized development planning 183–185 decision-making process 164 deliberative polls 179 deliverology 98 demand and user orientation 161 demand-side perspective 218 democratic governance 12, 29, 174, 188 democratic innovations 188–189 democratization 25, 32–33 despotic benevolent model of government 69 deterritorialization 148–149 development seminars 184 dichotomies 111 digital divide 60, 210 digitalized changes 225 digitization 49, 53 disadvantaged group participation 190 disaggregation 225 e-commerce 218, 223 economists 94 education 80–81 e-governance 17, 218–220, 222, 224 – models of 221 – dimensions of 222 e-government 194–195 electronic government (e-government) 194–195 emergent public spheres 189 enabling model of government 77 e-transformation in governance 217, 223 European Service Directive (ESD) 153

236 exit 74 federalism 142   gaming strategies 101 globalization 4, 53–54 good governance 28–30 good government 28–29 governance 2, 12, 29, 35, 206 – associational form of 79 – by hierarchies 69 – collaborative 175 – of public services 86 governance capacity 212 governance innovations 13–16 governance mix 8 governance theories 9–12, 133–134 government 62, 27, 110, 194 – as regulator 63 – enabling model of 77 growth machine 6 health care 79–80, 122–123 health information technology 129 hierarchical line-management approach 89 holistic governance 117 horizontal network relationship 224 hybrid services 47–48 ICT-based services 57–58 ICT-based transformation 39 ICT-enabled services 41, 53, 57–58 implementation 30, 185 incentives 102 incentivization 225 inclusive public policy processes 190 information and communication technologies (ICTs) 39, 149, 194, 217 information asymmetry 95, 103 information infrastructure 208 information politicking 203, 212 information processing 103 information processing capacity 103–104 informational power 207 innovation 14, 34, 141, 161, 198 – in public governance 3, 13 – in service consumption 18 – continuous 52 innovation cycle 24 Innovations in American Government Awards Program 35 innovation milieux 198 institutional innovation 34 institutional reform 30–32 institutionalist approach 142 instrumental rationality 90 integrated public management 149 integrated service delivery 146, 207 integration of government information and services 219 intelligent society 208, 212

Subject Index

intelligent state 206, 208 internet of things 208 irreducible services 47–48 irrigation associations (IAs) 186 joined-up government 17, 116–117 joint decision-making 165 leadership 200–201 liberalism 159 ‘little sisters’ 207 living lab 162–163 local actors 188 local all-purpose administration 143 local democracy 70 locals 30 managerial autonomy 112 managerial model of e-governance 221 managerialist political and governmental system 160 manufacturing 46 Massachusetts health care reform 123, 133 Medicaid expansion 127 mega-departments 114–115 microfoundations 90–91 mini-publics 177 modernization 97, 194 modularization 145 moral agency 105 Moore’s Law 55n municipal budget council (MBC) 183 municipal housing 82 municipal service points 146 mystery shopping 167 needs-based holism 225 neo-liberal agenda 27 neo-Weberian model of public administration 142, 144 network administration 145, 147 network capability 149 networks 132, 176 new governance 2 new joined-up production model (NJPM) 140, 144 New Labour 94 New Labour’s reform program for public services 90       new public governance 3, 11 new public management (NPM) 10, 26–27, 111, 144 new public service 11 new public service economy 17 NPM, see New Public Management offshoring 42, 54, 74    one-stop government 146 openness 199 outcome-based incentives 96 outsourcing 42, 53–54, 74, 148 panoptical state 208

Subject Index parental choice 80 participation 159, 165 – forms of 165 participatory budgeting 182 participatory learning and action 180 participatory mapping 180 participatory model of e-governance 221 patient choice 79 people’s science movement (Kerala Sastra Sahitya Parishad, KSSP) 185 performance budgeting (PB) 118 personalization of public services 18, 78 phases of e-governance adoption 225 policy communities 210 policy window 205 policymaking 93 post-war settlement 5 principal-agent model 90, 96, 103 principal-agent theory 95 priority trips 183 productivity 49 productivity paradox 59 program budgeting 118 program management 119 public administration 7, 25 public governance 2, 7, 12 – challenges to 4–6 public opinion formation 176–177 public service ‘target world’ 95 public value theory 11 publicness 7 purchaser-provider split 71 quadruple helix model 162 quality 75 – of outputs and outcomes 75 quasi-markets 73 rational choice theory 91–92 rational instrumentality 91 redistribution 189 reengineering 150 regulation 3, 137 reintegration 225 reinventing government 7, 35, 111 reorganization 41, 114, 145 representative democracy 159 rule-of-thumb decision-making 80 rules 205 schools 80–81 self-governance 186–187 self-organization 185 semantic web 208 service center 148 service design 161 service design process 167 service economy 40 service safaris 167 service users 77, 83 service-oriented architecture (SOA) 149–150

services 40, 43, 46, 58–59 – automated 48 – hybrid 47–48 – ICT-enabled 41, 53, 57–58 – irreducible 47–48 services spectrum 47 services transformation 41, 47 shared service center 147–148 single point of contact 155 social capital approach 11 social care 81–82 social contract 5 social mobilization 184 social networking sites 227 socio-political shaping of technology 202 software-as-a-service (SaaS) 44 standardization 145, 149 strategic level of coordination 113 street-level bureaucracy 226–227 supply-side metrics 218 surveillance society 208 system-level bureaucracy 226–227 target world 95, 100 targets and terror 98 tax-expenditure package 70 town hall meetings (THMs) 177 transformation 49, 223–224 – of services 39 transformational leadership 200, 211 trust 199 unbundling of service activities 42 universal service 60 user-centricity 166, 168 user choice 76 user democracy 160 user empowerment 77 user engagement 78 – in co-design 78 – in co-production 78         User Market 163 user-centric production 159 user-driven innovation 161, 171 user-driven living lab 162 user-driven service design methods 168 value destruction 135 value domains 45, 53 value-based competition 135 voice 74, 80 Web 2.0 209, 227 Weberian model 89, 144 welfare states 6 welfare mix 5 westernization 31 Westminster model 107 whole of government 117 wisdom of the crowds 209 zero-sum competition 135

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Innovations in Public Governance A.-V. Anttiroiko et al. (Eds.) IOS Press, 2011 © 2011 The authors and IOS Press. All rights reserved.

Author Index Anttiroiko, Ari-Veikko Bailey, Stephen J. Baron, Jennifer F. Bekkers, Victor Bevir, Mark Bowman, Quinlan Caiden, Gerald E. Drüke, Helmut Feldman, Stuart Jäppinen, Tuula

1 1, 68 122 194 174 174 23 140 39 158

Klinger, Peter Kushida, Kenji E. Murray, Jonathan Nielsen, Niels Christian Peters, B. Guy Puniha, Pushpinder S. Reddick, Christopher G. Stoker, Gerry Valkama, Pekka Zysman, John

140 39 39 39 110 23 217 89 1 39

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