R. W. M. Johnson
Dr Johnson was an agricultural administrator in the Economics Division, Ministry of Agriculture, Wellington, New Zealand, before retirement. He was formerly a research officer in the Colonial Service, London (specialising in Africa south of the Sahara), lecturer in the University of Zimbabwe, and a principal research officer at Lincoln University, New Zealand. He has served on various missions for FAO in the field and at headquarters, as well as representing New Zealand at FAO and OECD meetings in the 1970s and 1980s. Dr Johnson is a past President of the Australian Agricultural and Resource Economics Society, and a Distinguished Fellow of the Society.
[Inside front cover author note]
All countries have some system of government decision making and implementation for chosen policies. Across the world there are wide variations in the way political decisions are reached and are implemented. These variations affect permanency and effectiveness of the government policies put in place. In turn, some countries who utilise foreign aid have great difficulty in accommodating and implementing aid programs. This discussion paper sets out where these difficulties arise by using a political economy framework, and shows how a greater understanding of the processes involved would assist strategy formulation and implementation.
Every country is different and, of course, needs to be examined in its own context. There are, however, certain generalisations that can be made about government decision making and administration systems, however, that will be helpful to persons making arrangements for technical assistance as well as those who administer it. In terms of improved strategy formulation and consensus building in the World Bank and its client countries, a relevant challenge is "improving our understanding of the political economy of agriculture and agrarian relations" (World Bank 1997a, p.51). This paper goes toward meeting that challenge.
Policy analysts within country policy ministries as well as those in the aid agencies will find this paper particularly useful.
Alexander F. McCalla, Director, Rural Development Department
The following have contributed to the writing of this paper: J. Anderson, M. Bale, N. Okidegbe, R. Thompson (World Bank), F. Sandiford-Rossmiller, G. E. Rossmiller (UK), H. Plunkett (Australia), R. Horesh, J. R. Martin (New Zealand); any opinions expressed, however, are entirely those of the author.
1: Setting the Scene: Rural Policy in a Macroeconomic Context
1.1 The over-riding importance of macroeconomic policy
1.2 The significance of the natural resource base
1.3 The influence of technology in policy development
1.4 Improving the existing portfolio through monitoring and evaluation
1.5 Implications for institutional research
2: The Role of Institutions
2.1 What are institutions and do they matter?
2.2 Variations in government institutions in different countries
2.2.1 Some basic structures of government
2.2.2 Political systems in different countries
2.2.3 Democratic systems
2.2.4 Other systems
2.2.5 Legal systems
2.3 Policy implementation
2.4 Political economy of policy reforms and delivery systems
2.4.1 Public choice models
2.4.2 Constitutions and institutional rules
2.4.3 New public management
2.4.4 The policy advice and delivery system
2.5 A transaction cost theory of policy and delivery decision making
2.5.1 Choice of administrative instruments
2.5.2 Implications for policy implementation
2.5.3 Checks and balances
2.5.4 Political stability and malfeasance
2.5.5 Evaluation of policy structures and instruments
3: Ex post critiques of policy proposals
3.1 European milk policy
3.2 The demise of the New Zealand [NZ] Wheat Board
3.3 World Bank support to Kenyan agriculture
4 Conclusions
References
1. This Discussion Paper is about the efficient delivery of government policies, their design and implementation. The World Bank has an abiding interest in the efficiency of domestic policy programs in its borrowing member countries for which it is a major source of lending and non-lending services. Policy analysts within policy ministries are concerned with these issues on an every day basis. The international community recognises that domestic resources will be limited in many countries, and that grants-in-aid, loan programs and advisory services are an essential catalyst to speedier development in such countries.
2. The Bank has recently revised its overall strategy for the rural sector in a report entitled Rural Development: From Vision to Action: A Sector Strategy (World Bank 1997a, hereafter in this paper Vision to Action or VtA):
“The mandate of the World Bank Group is to help its clients reduce poverty and improve living standards through sustainable, broad-based growth and investment in people.....The Bank's objectives of poverty reduction, widely shared growth, food security, and sustainable natural resource management cannot be met unless rural development in general, and a thriving agricultural economy in particular, are nurtured and improved. This premise is at the core of the recommended strategy for improving the rural economy”(VtA, p.1).
3. There are four areas in which positive advances are envisaged in country programs supported by the Bank:
4. The role of the rural sector is much misunderstood in developing countries. There has often been a perception that development capital should be directed to areas of rapid growth, export opportunities, and urban environments. This direction of resources mitigates against the rural sector where the majority of people live in such countries. These trends in domestic policies do little to help the relief of poverty and hunger, to encourage the growth benefits that the rural sector can generate, to guarantee the maintenance of essential food supplies, or to encourage policies for meeting continued environmental degradation (VtA, pp.1-3).
5. There has been a reduction in international resources going into rural programmes in developing countries in recent years (VtA, p.3-4). Many countries have viewed agriculture as a declining sector, and therefore not important for development. Second, falling real food prices over the last two decades have led to a complacency towards the agricultural sector. Complacency, in turn, has led to a failure to develop the capacity to execute the complex reforms and programs required to achieve sustainable rural development. Third, the rural poor have little political voice. Because rural populations are geographically dispersed and because rural communications and transport infrastructure are often poorly organised, rural people, and rural women in particular, have difficulty organising their preferences through political processes.
6. These factors, coupled with the political power of urban elites, explain the urban bias so characteristic of policies, institutions, and expenditure patterns in developing countries. It is thus argued that there is a need to return to a more rural focus to meet the over-riding needs of rural people (See Box 1). Vision to Action sees the need for the total policy mix of individual country governments to be adjusted in this direction, and that international assistance should be used to back up these goals.
7. Vision to Action has articulated several macroeconomic principles in which rural policy must be placed:
“First, the policy and institutional framework must be supportive of (Bank assisted) project success, rather than working against it. Second, wherever possible, the private sector must be mobilised to provide investment capital, production, and most services. Third, the state has new roles, away from heavy intervention in the economy, towards providing enabling, sound macroeconomic, fiscal and sector policy environments. Fourth, a plurality of institutions is involved, including community level groups, and lower-level governments, in addition to central ministries. Fifth, projects and programs are decentralised and are designed and executed with a high degree of influence and participation by communities, associations and local governments” (VtA, p.5).
Box 1: The vision of the World Bank Group for rural development
8.Vision to Action is concerned with meeting these positive goals in policy planning in client countries. As far as Bank assistance is concerned, there is a need for a systematic and coherent approach to tackling poor performance of some projects in the past:
“Based on extensive research and past experience, the bank has articulated a vision for rural sector operations [as in Box 1] and has recommended best practices for many components of agricultural and rural programs. The strategic policies, institutional developments, and public expenditure programs have been identified [see Box 2]. This strategic checklist provides a way for countries to see where they are in terms of creating the conditions that foster thriving rural communities. The list reflects the enormous range and diversity of issues that countries face in promoting rural development” (VtA, p.7).
Box 2: Vision to Action strategic checklist for rural development
9. There is increased concern world-wide for the preservation of natural resources. While some systems of agriculture in temperate countries are self-balancing in nutrient supply and demand, many systems in use around the world are depleting soil resources and do not replace nutrients on a permanent basis. Problems particularly occur in hill and mountain areas where runoff cannot be controlled. In addition, agriculture is a significant user of water and supplies are becoming limited in many countries. The invasion of forested areas by agriculture is another problem.
10. As Vision to Action states:
“Hundreds of millions of private farmers, large and small, are the stewards of the vast majority of the globe's arable land resources. Of the world's fresh water used by people, agriculture uses more than 70 per cent for irrigation. Unsustainable agriculture practices are significant sources of non-point pollution. Deforestation remains a critical issue, with 25 ha of forest lost every minute. The global challenges of desertification, climate change, and loss of biodiversity require major efforts“ (VtA,p.24).
11. Vision to Action points to the need to develop sustainable agricultural production systems. Negative impacts (externalities) must be reversed. Improved agricultural production could relieve the use of land at the margin. Both lending and non-lending services must be directed to the development of agricultural (including forestry and fishing) systems that are more productive and which protect natural resources.
“In sum, the Bank's objectives of poverty reduction, sustainable natural resources management, and food security cannot be met unless rural development in general, and a thriving agricultural economy in particular, are nurtured and improved. This is at the core of the recommended strategy for improving the rural economy” (VtA, p.24).
12. The Bank also has a unique role in fostering the use of better agricultural practices throughout the developing world. The key to better practice lies in the application of scientific research to the problems of agriculture and the dissemination of that new knowledge on a wide front. Higher agricultural productivity will relieve pressure on marginal areas unsuitable for cultivation and on the virgin soils under forest cover. Better science can also contribute to the development of sustainable systems of mixed farming and livestock farming.
13. The Bank points out there are many new development in international agricultural research (VtA, p.25). There is the scientific revolution in biology, leading to the growth of disciplines such as molecular biology and biotechnology. There is the information technology revolution leading to improved communications and teaching methods. There is growth in the cadres of qualified scientists in developing countries, and there is the development over the past 25 years of an effective network of international agricultural research centres which have greatly enhanced the international exchange of seeds and research results, and the development of research into natural resource management.
“Each of these major trends brings with it the necessity and opportunity for agricultural researchers to collaborate with a new group of partners (from the private sector, national agricultural research systems, and farmer organisations, and other natural resource use users, basic research institutions and so on). These new or deeper and more diversified partnerships define a new agricultural research system that is emerging and needs to be supported.” (VtA, p.25).
14. The results of agricultural research have to be taken to the farmers themselves. The results have to modified for adaptation and tested widely. Teaching systems need to be re-explored so as to carry the message to the remotest cultivators. A huge effort will be required in which the Bank wishes to play a part:
“The stakes involved for developing countries-and particularly for the poor- are very high because ensuring that they have sufficient voice in that new system will be a challenge. But at the same time, these technical and institutional developments offer the possibility of overcoming many of the constraints that have hampered the productivity of agricultural research in the past. In addition these developments challenge the traditional view that technological development is the responsibility of research institutions, while dissemination is that of extension agencies, and farmers are left with the task of adopting. It is now clear that the processes involved are much more iterative and interactive than recognised earlier. Thus all the actors involved in technology development, dissemination, and implementation must adopt new roles and functions in working together” (VtA, pp.25-26).
15. Vision in Action calls for improving management of its existing portfolio of development projects in client countries. In 1995 the performance of agricultural projects was better than the Bank average over the whole Bank portfolio (VtA, p.52). Vision in Action identified the following activities that will help the performance of the agricultural and broad rural portfolio on a sustained basis:
16. Vision to Action notes that achieving satisfactory ratings for 80 per cent of completed projects by fiscal 2002, will require many measures, including significantly improving quality at entry and project implementation, extensive use of piloting, and increased willingness to restructure or cancel substandard projects. It will also require channelling lending more to countries with favourable economic and governance environments, and providing more non-lending services to others. Since the 1980s, monitoring and evaluation techniques have evolved significantly. Rapid assessment approaches and systematic client and stakeholder consultations have become much more common. Significant work has also been done on generating better quantitative and qualitative performance indicators for a range of different projects, and for measuring the impact of rural Bank operations as a whole.
17. There is a need for improved implementation support (VtA, p.54). Present implementation suffers from three main weaknesses: there is little continuity of staff, there is inadequate consultation with stakeholders and donors, and there are too few Bank staff in-country. The report notes better results in North-East Brazil and in Costa Rica from providing implementation assistance.
18. The Bank's Operations Evaluation Department has put forward a set of project quality requirements that should be taken into account (VtA, p.54). Project quality could be assessed by examining relevance, efficacy, efficiency, institutional development and sustainability. Quality depends on preparing and implementing projects, that, from the outset, have a high probability of meeting such tests. Quality follows from: relevant, rigorous, and realistic sector work, stakeholder participation and commitment, flexibility in the project cycle, application of a logical framework of analysis, rigorous economic analysis, thorough and realistic risk assessment, effective monitoring and evaluation (M&E), and sustained implementation support. The advice put forward in this paper is most closely approximated by Implementation Completion Reports, which are prepared as the Bank is completing its disbursements on each operation (World Bank 1998, p.31). ICRs assess the outcome of the operation, and the plan the borrower has proposed for its future management.
19. This analysis of the development strategies for rural development has widespread implications for the design and implementation of agricultural policies. Both the Bank's programs and the programs in individual countries depend on realistic policies being drawn up in the first place and then carried out in an efficient and non-wasteful way. These themes are developed in the following chapters.
20. Various country policy changes have been identified to guide future Bank strategies that bear on institutional structure (VtA, pp.5-6). For example:
21. The counter-factual to such strategic aims on the Bank's part is a need to strengthen country commitment to the Bank's programs. Country assistance strategies are to be developed to define the key issues for development, analyse current and future prospects and provide the overall context within which Bank operations are undertaken. This will include improved analytical work and synthesis of available country specific knowledge to fully articulate appropriate rural strategies, and fostering greater consensus in client countries in support of the improved strategies and programs.
22. To meet the need for improved project performance, special country portfolio reviews will be undertaken by the Bank.
“The reviews will result in better performance of projects under their existing design, redesign, merger of projects into larger subsector or sector investment programs, or in cancellation” (VtA, p.9).
23. Serious efforts will be made to improve project quality. The goal “will require many measures, including significantly improving quality at entry and project implementation, extensive use of piloting, and increased willingness to restructure or cancel substandard projects. It will also require channelling lending to countries with favourable economic and governance environments, and providing more non-lending services to others”".
24. This goal is seen as a huge challenge for the Bank. Administrative failure in client countries is attributed to weak country commitment, poorly articulated objectives, the absence of an appropriate policy and institutional environment, lack of staff training in strategy formulation, and weak understanding of the political economy of agrarian relations (VtA, p.51). These examples of government and administrative failure can be better understood in the context of a review of political institutions prevailing in a country, the process of policy formation employed, and a study of the various parties who are involved in implementation.
25. Vision to Action also states that the goal of improving country portfolios will be assisted by the systematic rebuilding of rural monitoring and evaluation capacities (VtA, p.54). It is stressed that feedback from beneficiaries during implementation is weak, mechanisms to deal quickly with problem projects are inadequate, other donors are not sufficiently involved in implementation, and there is insufficient piloting of new approaches before adopting an approach into larger projects. These appear to be a list of governance issues for the Bank rather than client countries, although some poor ratings could well be due to poor country design and implementation. The following chapters show how poor performance can originate in the type of institutional structures found in different countries and the inter-relationships between the different interest groups involved.
26. A new literature in agricultural economics has appeared in recent years concerning policy delivery systems (PDSs) as opposed to policy formation and political economy (Sandiford and Rossmiller 1996). The new literature uses the structure/conduct/performance paradigm to examine case study material of actual policies from the point of view of effectiveness, efficiency, enforceability and equity (Koch 1980). The aim is to identify whether policy programmes have been effective and to use the approach to particularly identify whether problems are caused by the institutional environment in place, or assumed to be in place, or whether problems have emerged from the way the programs have been implemented.
27. In earlier papers, the author has reviewed the new literature of the PDS and its success in explaining case studies of different policy programmes put forward by the respective authors (Johnson 1998, 1999). In some, but not all, of the case studies the institutional structure provided an important explanation of the subsequent performance of the programs enacted by the respective legislatures or governments concerned. This suggests that a particular policy performance and conduct can in many cases be traced to the institutional arrangements that were in existence in a particular country at a particular time.
28. By “institutional arrangements” is meant the institutions of governance that operate in a country including the electoral system, the structure of the parliamentary system, the role of the bureaucracy, the role of political parties if any, and any conventions concerning operational rules within the government system. It also includes arrangements for the conduct of commerce including attitudes to property rights, the rule of law, and rules for the resolution of conflicts, as these also enter into the formation and delivery of economic policy. Lastly, it includes inter-relationships between government entities and interest groups in the making of policy and its implementation. The term ‘government’ will be used to refer to the generic system as a whole, the term "political system" to refer to such as the legislature, ‘bureaucracy’ for the civil service and para-statal organisations concerned with carrying out government policy, and ‘commercial conventions’ to refer to the conduct of trade and commerce.
29. The economic literature in this area includes writings on public choice, transactions cost economics and the new institutional economics. But much of the evidence comes from the public management literature and political science. The aim of this paper is to draw from these literatures to explain problems in the delivery of economic policy in different countries and to suggest lessons for the future. The paper is not a treatise on political science. Rather it attempts to catalogue operational experience in a convenient and summary form that would be of guidance to policy specialists in international organisations and in governments who may be less familiar with the literature than they would wish.
30. The paper first discusses policy making institutions in representative systems of government, and then variants of the system found in different countries. It then discusses political economy approaches to government decision making and focuses attention on delivery or implementation aspects of policy programmes. The paper then develops a transactions cost approach to policy delivery systems to identify the key institutional parameters at work. A few case studies are examined from this point of view. The paper concludes with an assessment of the approach and its implications for the future.
31. Every country has some system of government to carry out civil administration and to keep law and order. The heads of government may be elected or self-appointed and legislatures may be freely elected or appointed as well. Our interest in this paper lies in the particular machinery of government which controls the authority and the resources needed to plan and implement policy programmes (Considine 1996, p.72). The institutions concerned include the legislature, the system of elections, the decision-making bodies within the legislature, the role of administrative bodies, and interactions with the public. Most of this paper is about how government institutions work, how they interact with each other, and bodies outside, and how they affect the formation and delivery of policy.
32. There are considerable variations in government structures among countries1 2. We will attempt to review common strands in government institutions among different countries in a way that international experts, say, can usefully use in preliminary thinking about the country they are about to visit. As Considine puts it...“our inquiry ...needs to pay attention to the evaluation of institutions, to understanding their limits as well as the uses they have for settling, calming and improving social interactions among actors in policy systems” (p.73).
33. The common elements in government structures are likely to include the role of the executive and the legislature (if any), the use of legislative enactments, electoral systems in place, the raising of revenue, and the role of the civil service (Box 3). The legislature is the body of elected representatives, and the executive is a small group, chosen by different means, in charge of the day-to-day running of government business. In most countries there are two houses3. Systems of elections for representatives vary from country to country and are discussed further below. The appointment of the executive can also be by different means - in the presidential system (USA and France) the executive is appointed by the president and does not necessarily come from within the legislature, while in parliamentary systems (UK, Australia, NZ, Canada etc), the executive (or Cabinet) is normally drawn from the elected representatives and dominant party (see Box 4).
34. In principle, the executive4 and the legislature govern on behalf of the citizenry. The elected members represent the nation as a whole. The authority to govern is based on the particular constitutional arrangements which may prevail with regard to elections. Accountability is to the electorate at election time, but between elections accountability may be sought by other means, e.g. scrutiny by Parliament, Ombudsmen, freedom of information statutes, and the Courts (judicial review). The system requires the dominant group to work effectively. This is usually the political party or parties commanding on major issues [e.g. the budget] a majority of votes in the legislature.
35. The work of a parliament is expressed in the form of new laws or amendment of existing statutes. The functions of laws are to make customary rules binding on the citizenry and to give administrators authority to act in the name of the government. Most proposals have to pass through a system of review and discussion before they are approved by the house of representatives as law of the land. Exceptions are subordinate legislation and executive decisions which may be made without reference to parliament. The initiation of policy proposals may reside in the bureaucracy in meeting routine requirements, or may reflect political initiatives promised at elections or in response to pressure groups. Such proposals can be subject to internal scrutiny and not all of them proceed to the next stage. Informal consultation with outside interests might take place5.
36. Members of the parliament have to be re-elected on a regular basis - the precise interval between elections varies considerably (In some countries the duration of parliament is fixed - in others the executive may seek early dissolution and an early election). The size of the Parliament in terms of representatives in democratic systems is determined by infrequent constitutional changes and it may consist of an electorate-based membership (single or multiple member), nominated members (based on total votes cast), or a mixture of the two. Elections are a lottery for politicians as the result can be determined by changes in opinion, the media, and external events for example. The power of the voter is at its greatest at this time and decreases sharply in between elections.6 Different voting systems are in place in different countries, mainly being first-past-the-post (a single plurality) or variations of different weighting systems for votes (proportional representation). Elections are very fluid times in terms of policy formation, as the insecurity of office-holding is at its greatest and alternative views and interests of pressure groups are more likely to be taken into account.
37. The Budget is a significant institution of a parliament in itself as most constitutions require an annual financial accounting of the government's activities to be presented to the legislature. The Budget is largely concerned with ongoing appropriations for government departments, but is also a policy document as it registers the Government's policy priorities, and may change the way the revenue is raised (by taxes) or signal new policy approaches to an old problem. It reflects the priorities accorded by the Executive to expenditure programs. By and large, the Budget sets the fiscal stance of a Government, so that expenditure is matched by tax revenue or is funded by borrowing.7 There is a large variation between countries in the level of government intervention in the economy. Recent trends are in terms of a reduction in involvement in the economy - “fiscal conservatism” (Schwartz 1996).
38. The civil service: The legislature is a democratic meeting of representatives of the people with a mission to meet the needs of the nation as a whole and to guarantee the safety and welfare of the individuals who make up the nation. The delivery of programs to discharge this mission requires a large army of support staff to service the political executive, and administer the existing and new policy programmes previously agreed upon. The more interventionist the government, the larger the number of employees who directly come under the orbit of the national authority. Some governments require government departments to administer programmes, but others may utilise stand-alone but tax-financed entities for regulatory purposes (US), or state-owned enterprises which operate within their own revenues (Horn 1995, pp.40,170). At the centre of the civil service will be the major "policy" departments, which specialise in advising the executive on different courses of action available to them. Other agencies will be concerned principally with the delivery of public services. As quite major enterprises and employers of people, the bureaucracy has problems of efficiency and accountability of its own which are discussed later.8
| Box 3: Main Functions of Governments | ||
|---|---|---|
| Broad Function | Function/process | |
| 1. | The Executive and Legislature: | Election of the Legislature Selection of the Executive Authority and accountability Role of parties |
| 2. | Legislation: | Initiation of proposals Clearance to proceed and review Consideration and consultation Reading a Bill |
| 3. | Elections: | Power of the voter Forms of representation Electoral rules Elections and policy change |
| 4. | Budgets: | The Role of the Budget Policy role of the Budget Fiscal conservatism |
| 5. | The Civil Service: | The policy advice system Efficiency and accountability |
| Source: Adapted from Considine (1996). | ||
39. One of the main differences among countries is the constitutional or political system that is in place. The political system determines who governs, the process whereby rulers obtain power, the amount of consultation with interest groups, and the goals that are followed. The brief description of government administrative processes above is based on the "party government" parliamentary system, though variations of it are found in other systems. Among democratic political systems, Weaver and Rockman (1993) recognise four main systems which they call respectively: presidential systems, party governments, multiparty coalitions and single party dominants. To widen the world coverage, we also need to recognise traditional or monarchic systems, communist countries, and countries with popular but generally anti-democratic governments (Box 4).
40. No country can be placed precisely in a particular category but will straddle a spectrum of experience. Nevertheless, countries can be grouped into approximate clusters around the modal type (Blondel 1990, p.28). It is possible to identify secondary characteristics of a cluster that clarify political party arrangements, coalition arrangements, and relationships of the political arm of government with the civil administration. The clusters also tend to have common arrangements for democratic conventions like elections (as in Box 4).
| Box 4: Political Systems in Different Countries | |||
|---|---|---|---|
| Political system and country | Modal characteristics | Secondary characteristics | Electoral convention |
| (a) Liberal-democratic regimes: | |||
| 1. Presidential system: USA France Israel (post 1997) | Separation of executive and legislative power, general acceptance of 'constitutional' rules | Parties can differ in executive and legislature, supportive administrative structure/ 'elite' admin. structure | Multiple state representation (USA) Double ballot (France) |
| 2. Party government: United Kingdom Canada Australia New Zealand (pre-1996) | Two major parties, alternate majority control of government, general acceptance of rules | Minority government, multiparty coalition government, supportive admin. structure | Single-member-district plurality |
| 3. Multiparty coalition: Netherlands Belgium Denmark Norway Germany Israel (pre-1997) New Zealand (post-1996) | Two or more parties govern in minimum, winning coalition, with partners changed after elections, general acceptance of rules | Minority single-party government. Oversized coalition. Majority single-party government, supportive admin. structure | Proportional representation with low hurdles |
| 4. Single-party-dominant: Japan Sweden (pre-1976) Italy (pre-1970s) Singapore | Dominant party rules alone or as dominant coalition partner for prolonged periods, rules accepted | Minority government by dominant party, coalition government by opposition parties, strong bureaucracy | Proportional representation or multimember districts that encourage large parties and discourage small parties |
| (b) Traditional-inegalitarian regimes: Arabic States Himalayan Kingdoms | Monarchic/oligarchic control by the few, preservation of existing structures | Political parties dis-couraged, low level of administration, mass support encouraged | Virtual absence of parliamentary and electoral institutions |
| (c) Populist regimes: Tanzania Malawi Argentine Paraguay | Post-colonial period of adjustment, charismatic leader-ship | Reliance on existing structures gives way to authoritarianism, often through the military, bureaucracy politicised | Suspension of elections common |
| (d) Egalitarian-authoritarian regimes: Russia China Korea | Use of the power of the collective, highly centralised power structure | Merging of political and administrative structures, suppression of alternative parties, mass support encouraged | Single party elections |
| (e) Authoritarian-inegalitarian regimes: Zimbabwe Congo Nigeria Latin America | Control of power by military or single party, charismatic leadership | Bureaucracy supports regime, political parties discouraged, mass support encouraged | Absent or reduced to a minimum |
41. These classifications are useful for two purposes; first, the reader can add his or her own experiences to the list or add to the categories, and second, they lead to further discussion (below) of decision making structures and processes with regard to policy delivery. Some attributes like federal systems of government do not lend themselves to such classification and may be found in all the modal types.
42. Weaver and Rockman (1993, p.25) identify further reasons for differences between the democratic regimes with regard to decision making structures and processes. These relate to:
These distinctions are useful in the following discussion as they often pinpoint possible reasons why some legislatures are slow to respond to change or reasons for political instability itself. Some of the more important differences between the regimes shown in Box 4 are discussed next.
43. In comparing presidential and parliamentary systems of representation, Weaver and Rockman (1993, p.12) note that in parliamentary systems the head of the executive is drawn from the legislature and is dependent for continuation in office on maintaining the confidence of the legislature. In separation-of-powers systems, the chief executive is chosen independently of the legislature - usually by direct election - and serves a fixed term of office. The chief executive can neither dismiss the legislature and call for new elections nor be dismissed by the legislature without cause.
44. In turn, the party system is strong in parliamentary systems but weak in presidential systems9. In the US in particular, representatives have more leeway to build a ‘personal vote’ for themselves and are less liable to co-operate with other representatives. Also in the US, members of the executive cannot be recruited from the legislature. In France they may but must be replaced. In the US, Cabinet is weaker than in parliamentary systems, and in practice bureau heads look to Congress for guidance and support. It is also said that the lower level of party discipline in the US permits greater public access to policy makers and hence puts pressure on their representatives to meet their wishes (Weaver and Rockman 1993, pp.15-16). France has a Prime Minister as well as President, and a parliamentary system more like a party system.
45. Party systems are typical of the Westminster political system, and once elected, a ruling party has considerable power and room for manoeuvre. From previous discussion it is clear that party government systems have a high degree of cohesion within the executive and the legislature, there are few opportunities for members to veto a policy proposal in progress, the executive tends to be stable between elections, and the executive is generally inaccessible to interest groups.
46. Where proportional representation has been adopted (parties are elected according to the total number of votes cast rather than simply by districts/electorates), individual parties tend to be less dominant, and coalition governments frequently result. As a result, elite cohesion and co-ordination is weaker in multiparty coalitions, minority groups may hold the balance of power and be able to delay (veto) government programs, the executive may not last between elections, and the elite may or may not be accessible to interest groups. On the other hand, in the single party dominance regime, there is high elite cohesion, few veto points, and high stability between elections (Weaver and Rockman 1993, p.18), and hence considerable continuity in policy making.
48. There have been considerable changes in the constitutional position of many countries since the Second World War (see Box 5). Many countries have passed through a process of decolonization, temporary experience with a democratic constitution, and then various upheavals to emerge as one-party political states. In non-democratic regimes the stability ensured by regular elections is considerably reduced. The ruling elite has few challenges from alternative parties, and actively maintain the system to prevent such challenges. The question of veto delays does not arise, or at least does not arise on the surface of the political debate. All debate is internalised. The threat to traditional systems comes from populist uprisings, which themselves are unstable, and often lead on to authoritarian regimes. Communist systems have also proved to be unstable in Central Europe, and have been replaced by various versions of liberal-democratic regimes. These in turn then become sensitive to electoral change and to instability among the newly appointed elite (Blondel 1990, pp.29-30).
49. Policy design and implementation has to accommodate the laws and conventions of commerce in a given country. This is particularly apparent in different views of property rights and their treatment in law. The economist D. C. North (1987) says that without specific rules of commerce, international trade would founder as no one would be able trust anyone else. There are wide differences between countries in legal systems as is now reviewed.
Box 5: Recent changes in constitutional arrangements
(Adapted from Jan-Erik Lane, 1996, pp.71-80)
50. Lane (1996) notes that there are a wide range of legal systems in use outside Western systems: Socialist law, Muslim law, Hindu law, Chinese law, Japanese law and African law. Muslim law and Hindu law are examples of religious legal systems whereas Chinese law and African law represent customary legal systems. From a constitutional view, the two major Western categories of legal systems are the most relevant: Romano-Germanic and the common law.
51. The Romano-Germanic legal systems, or civil law, emphasise codification, meaning the establishment of general and abstract principles of law. The most well-known codes are the five Napoleonic codes enacted between 1804 and 1811. Earlier codes systematised mainly private law, but in the Romano-Germanic legal systems there is a distinction between private and public law.Romano-Germanic law covers continental Europe, including Spain and Portugal as well as the Scandinavian countries, and also Latin America.
52. The common law type of legal systems underline judge-made law, i.e. how law is interpreted in the courts. Precedents are more important than in Romano-Germanic systems. The common law system does not recognise a sharp distinction between public and private law. Instead there is a hesitation to accept special forms of public law, such as administrative law as somehow different from ordinary law. At the same time, there is a realisation that there has been an expansion of public law in the form of new statutes in, for example, the UK and the US.(Lane 1996, p.144). Common law is found in the UK, in most Commonwealth countries and the United States.
53. There are some points in common. Thus both the US and Germany allow for extensive constitutional review, in the case of the former to its main chief ordinary court, the Supreme Court, and in the case of the latter, a special constitutional court in Karlsruhe. Similarly the UK and Romano-Germanic countries such as the Netherlands and Sweden reject extensive legal review, all three adhering to the principle of Parliamentary sovereignty.
54. There is the possibility of mixtures. One such blend is the use of Dutch law and English law in S Africa - Roman-Dutch law. Another mixture is the employment of either a Romano-Germanic type law or a common law type in countries which have either religious or customary law. The Romano-Germanic type of law has been adopted more or less in Latin America, parts of Africa, the Near East, Japan and Indonesia.(Lane 1996, p.144).
55. At a practical level, these distinctions are important in the event of disputes over contracts, the time taken to get resolution of disputes through the courts, and the establishment of property rights. The resolution of these issues raises transaction costs as flexibility is reduced, transactions are slower, litigation is slower, and legal representation is increased (F.Sandiford-Rossmiller, pers. com.). These factors are common impediments to the successful execution of many aid packages to developing countries.
56. This literature does not devote much analysis to the design and implementationof economic policy. The authors are mainly concerned with different capabilities in parliamentary systems to achieve chosen goals and note that some government regimes as a whole perform tasks better than others (Weaver and Rockman 1993, p.445). Characteristic tasks of government which should be scrutinised include:
57. The first five are performed best by governments with concentrated power, and the last three are performed best by governments with decentralised power. Party governments have greater control over implementation, while separation of powers governments face greater risks in implementation of policies. As far as effective implementation is concerned:
“Concentration of power is .... important for implementation of a government's objectives and programs once they have been decided upon. The most obvious obstacle to effective implementation is additional veto points in the implementation process, which are most likely to involve third tier institutions such as sub-national governments or courts. But first and second tier institutions affect implementation as well by leading to policies that are either more or less difficult to implement or more or less stable. If executive-legislative conflict and intra-legislative squabbles in separation-of-powers systems lead to either ‘bidding-up’10or ‘splitting the difference’ in policy design, serious implementation problems could result. Policies may also be adopted without adequate funding. Party government systems, on the other hand, run the risk that policies may be reversed before they can be implemented. Political arrangements (notably single-party-dominant systems and to a lesser extent coalitional ones) that feature both a high degree of elite stability and a well-established consultation process are likely to be most conducive to effective implementation of government policies” (Weaver and Rockman 1993, p.457).
58. These issues will be re-visited in Section 2.5 below when the transactions cost model of policy delivery is discussed.
59. From this discussion of government, political structures and legal systems - all of which constitute the set of institutions concerned with policy delivery and implementation - we move on to discuss a political economy framework for government which brings together the parts in a working whole. It is useful to distinguish between the national interest and the private interest in this discussion and the motivation for different actors' behaviour. The different actors are people with political power and support, the people who have to implement political decisions (the bureaucracy), and people who are affected by the decisions made (interest groups or constituents as we later call them)11.
60. One proviso should be made. By and large, the political economy literature is based on parliamentary and presidential systems of government. We thus need to assume that the policy making and implementation structures in different countries all have some common characteristics concerned with carrying out ruling party or presidential decisions, that some hierarchical civil service structure exists to carry out these tasks, and that fiscal constraints are more often present than absent. It is this question of a lack of resources which leads to the necessity for foreign grants-in-aid and lending.
61. Economists and political scientists have developed several alternative working models that purport to explain how governments reach decisions, which, in turn, determine the structure and intended conduct of individual economic policies for agriculture or any other sector or interest. From these it is possible to set up an evaluation analysis for testing the efficiency and equity effects of a given policy programme from the point of view of the donor and the recipient. These working models are useful devices for country analysts to understand the organisational problems that are likely to occur.
62. The public interest model: In this model, the national interest is achieved by parliament agreeing to legislation that evolved from compromise and bargaining among the elected representatives. The national interest can be broadly interpreted as the Benthamite `greatest good of the greatest number' as seen in the eyes of the decision makers. Civil servants (bureaucrats) provide independent advice to legislators, and implement the policies that result from the political decision level. A career civil service based upon expertise and non-political appointments is assumed to be available.
63. The economic role of government in this framework is to introduce policies that increase social welfare. The welfare maximisation perspective sees government as an omniscient and benevolent dictator (Swinnen and van der Zee 1993). Governments intervene in the private economy where it fails to function properly in allocating and distributing resources ("market failure"). The nation state can produce goods, internalise social costs and benefits, regulate decreasing cost industries, and redistribute income. In theory these government actions can redistribute resources to maximise welfare.
64. Randall (1987) notes the philosophical lineage of this model from Rousseau, Marshall and Pigou. Its basic premises are that the true public interest will be revealed in the political process; that programmes to promote economic activity, to rectify market failure (to internalise externalities), to provide public goods and merit goods, and to promote equality of opportunity; all may be seen as enhancing the general welfare; and that continued vigilance and effort are necessary to ensure that government remains responsive to the public interest.
65. The individualistic model: This model is based on the idea that the nation state is not an organic body apart from the collection of individuals comprising it, and that the central role of economists is to analyse how efficiently government institutions enable individuals to express and realise their preferences about public goods, public services, and policies (Johnson, D.B. 1991. p.11). In this view, bureaucrats have their own preferences and goals which they can achieve by enlarging the size and budgets of their agencies. Politicians can achieve their goals by being elected to office and bestowing favours. Interest groups act on behalf of individuals in getting favourable policies passed in the legislature.
66. This model postulates that government decision making is subject to pressures from interest groups, lobbying, voting behaviour, as well as self-interest. Decisions tend to reflect the respective power bases of the participants12. Randall (1987) notes the lineage of this model from the writings of Wicksell and Locke, as modified by Buchanan (1987) and Tulloch (1983). All rights are assumed to rest with the individual and to avoid anarchy, individuals rationally delegate some rights to a central authority. The emphasis is on voluntary exchange and freedom of choice; and on individual liberty. “The cornerstone of liberty is a set of complete, carefully specified, secure, enforceable, and transferable property rights”.
67. The resulting decisions made by government in this environment are said to reflect the "private interest point of view". Outcomes are determined by the weight of the respective power bases of the participants. Interest groups can earn economic rents from their activities by influencing political decision making. "Capture" of politicians, agencies and civil servants is often observed13. In the US, campaign contributions are significant in this context (R.Thompson, pers.com.).
68. Transaction cost models: This approach compares the costs of planning, adapting, and monitoring under alternative government structures. Decision makers wish to minimise their aggregate costs of production and transactions. The literature on transaction costs indicates that some transactions are better suited to market-type arrangements, while others are better suited to hierarchical or rule-driven organisations (Bale and Dale 1998). In-house provision is likely to be more efficient where there is a high risk of self-interest, conflicts of interest, substantial uncertainty, and recurrent, complex transactions. They posit that effective public administration requires that transaction costs be minimised in determining and pursuing society's goals (Zeckhauser 1995).
69. A more recent development of this approach is to apply the model to the legislative process (Horn 1995). In line with public choice theory, legislators are regarded as self-seeking in their use of legislation to increase their net political support. Their opportunities are limited by a number of specific "transaction costs". The legislators who are most likely to remain in power are those who are most successful in overcoming these transaction problems, such as those who are best able to reassure their supporters that the benefits of legislation will not be lost to administrators in the implementation, or undone by subsequent legislatures (Horn 1995, p.14). This is the approach which will be followed in Section 2.5 below.
70. Institutional economics: The models of institutional economics emphasise the results of individual and co-operative attempts to solve problems posed in a world of potentially large transaction costs. The new institutional economics is said to be firmly rooted in a second best world where the relative efficiency of institutional arrangements is the concern. It acknowledges the importance of bounded rationality, complexity and costly information, combined with opportunism (Murrell 1994). These lead to the emphasis on transaction costs and the belief that there may be a variety of institutional arrangements that reduce transaction costs successfully. If co-operative solutions can be found, the emphasis on opportunism is decreased. If satisfactory norms of behaviour can be agreed, transaction costs are also reduced, in this view.
71. The literature emphasises the innovativeness of individual and collective attempts to solve transactions cost problems. They apply equally to private economic relationships as well as the political sphere, where co-operative efforts can result in new political constructs aimed at solving problems caused by poorly constructed property rights (Murrell 1994, p.202):
“The picture emerging is one of complexity - arrangements or institutions of enormous variety and complexity that have been developed to solve the difficult problems that arise when economic interactions are other than the simplest kind of spot transactions. This picture does not give us the simplicity and harmony of the Newtonian system that is echoed in general equilibrium economics, but instead has all the complexity of a catalogue of the earth's ecology”.
72. According to Williamson (1985), the institutional differences explain the concentration of production in some sectors in a few large firms. Thus direct provision may be preferable when maintaining quality is critical and opportunism poses a serious threat. On the other hand, external supply is best when behavioural uncertainty is low and when the quality and quantity of the desired goods and services can be easily measured. In a paper at the Bank, Williamson (1994, pp.171,193) clarifies what institutional economics has to offer:
73. This paper develops such an institutional approach to policy formation and delivery questions in government administration.
74. Constitutional economics is the application of economic analysis to the selection of efficient rules and decision making institutions (Johnson D.B. 1991, p.341). Constitutional analysis recognises a difference between operational and constitutional levels of decision making. The operational level consists of decisions made within a given set of already existing and broadly accepted constitutional rules. The latter include voting procedures and means of raising the revenue. The constitutional level is where the rules of the game are established including the rules for the application of property rights. These constitutional rules are thought to be established in an atmosphere of conceptual impartiality because the future effects on individuals cannot be foreseen. Once established, they change only very slowly, but sometimes cataclysmically (the French Revolution for example14). In between such times, individuals/corporates/governments operate in a relatively unchanging environment and can make operational changes in policies, revenue collection and so on (incrementalism)15.
75. Rules and conventions essentially make commerce and government easier to conduct. Rules are a time-saving and efficient way of individuals interacting (Johnson, D.B. 1991, p.345). Constitutional rules set the conduct of operational rules and do not need to be changed in the short term. In modern societies, characterised by multiple interdependencies and externalities, growth and increases in the standard of living have become increasingly dependent upon establishing an institutional environment that provides the correct signals, information and incentives to members of society. These institutions of society guide everyday conduct.
76. The growth of trade and commerce is dependent on such rules (North 1987, p.421). Modern societies have devised formal contracts, bonding of participants, guarantees, brand names, elaborate monitoring systems and enforcement systems to protect the individual but also to create security and confidence in commerce16. North calls this a well-enforced and well-specified system of property rights. He points out that the resources devoted to transacting are large (although small per transaction) but the productivity gains from trade are even larger. Governments have a co-ordinating and facilitating role in providing the environment where transaction costs of trade and commerce are minimised and property rights secure and protected. In turn, Governments can make international agreements that provide security of contracts and protection of property rights that thus facilitate trade.
77. Rules can be written (as in constitutions or international agreements) or unwritten (as with common understandings between individuals). The conduct and performance of public policy depends on the extent to which a Government can design, adapt or modify the written and unwritten rules in its environment. Constitutional rules, particularly, are difficult to change easily, but when they do change, the changes to society may be quite profound. This appears to be the case in Australia at the present time as that Government seeks to find ways to implement the Mabo decision - a question of native property rights to land.
78. Rules are therefore important in the study of political and economic institutions. They characterise the institutions surrounding political decision making. They help reduce transaction costs. They make policy formation easier and more productive. They reduce reliance on negotiating skills on a case-by-case basis in the presence of high transaction costs. They provide opportunities for increased efficiency and hence general welfare (Martin 1989, p.5). But they may increase litigation as they can be appealed and reinterpreted through the Courts. Secondly, they reduce uncertainty and promote solidarity between various participants in the political process through the development of routines and standard procedures (Considine 1996, p.71). When these settled sets of rules and codes for governing become fully acceptable, they form recognisable policy making and forming institutions such as parliaments, parties and bureaucracies as we know them. At their broadest, these institutions are any standardised behaviours which are regularly represented throughout the political or policy system that built up over a long time: “institutions accumulate historical experience through learning. The results and inferences of past experience are stored in standard operating procedures, professional rules, and the elementary rules of thumb of a practical person” (Considine 1996, p.71).
79. The importance of these means for settling and defining what has been learned cannot be overestimated. Without them any social group would be forced to keep rediscovering the simplest ways of organising themselves and dealing with the common tasks of survival. As well as being practical devices for solving routine problems, institutions are the group's way of establishing priorities, fixing values, and turning profound philosophical problems into simple routines. How long the routine will hold is as important a question as asking what function the institution itself performs (Considine 1996, p.72).
80. Buchanan (1975) argues that it is inappropriate to apply maximising models to government policy formation, as wider constitutional issues have to be considered in such a process Policy acts are a matter of social organisation and should be approached differently. Given the ongoing nature of government policy making, economists should consider the economic problems of government not as agents seeking to maximise economic welfare but as arbitrators, seeking to work out compromises between conflicting claims. The role of constitutions and rules is important in this process.
81. J.E Stiglitz (1999, p.4) makes an impressive plea along the lines of these paragraphs in his recent review of the transition in the Russian economy:
“Policy advisors put forward policy prescriptions in the context of a particular society - a society with a particular history, with a certain level of social capital, with a particular set of political institutions, and with political processes affected by (if not determined by) the existence of particular political forces. Interventions do not occur in a vacuum. How those recommendations are used, or abused, is not an issue from which economists can simply walk away. And this especially so in those instances where one of the arguments for the economic reforms is either failures in the political process or their impact on the political process itself....The point is not to refight old battles, but to learn the lessons of the past, to help guide the future”.
82. In the switch from central planning and state ownership to marketization (perestroika) in the Soviet Union under Gorbachev, land reform was seriously impeded by bureaucratic inertia and failure to understand the institutional requirements of reform. In a penetrating essay, Foldvary identifies the problem as follows (Kimenyi and Mbaku 1999, p.293):
“...the agricultural reforms of Soviet president Mikhail Gorbachev included lease contracting (arendnyi podriad) for land, facilities and work stock by brigades, families and individuals. Work organisations such as producers' cooperatives were to be more diversified. Legislation passed in early 1990 laid the legal basis for the leasing of land and the autonomous operation of enterprises, but the government failed to follow through with complementary deregulation. The planning and command authority of the state was reduced, but continuing price controls, the lack of genuinely convertible currency, high taxes on enterprise and products, the slow pace of implementing reforms, and a reluctance to legalise private enterprise in full, prevented the establishment of a market economy.” 17
83. This refers to a different but not unrelated set of ideas to public choice focusing on the introduction of better systems of management in the bureaucracy (Boston 1991, p.8). Aucoin (1990, p.116) refers to two separate paradigms of government and management in western democracies. The first is public choice theory which focuses on the need to re-establish the primacy of representative government over bureaucracy; the second is managerial theory which focuses on the need to re-establish the primacy of managerial principles over bureaucracy. Managerialism is a set of ideas emanating from sources external to public management per se, namely the literature on private sector or business administration. It stresses that the capacities of modern complex organisations to realise their objectives can be enhanced by management structures and practices that reduce bureaucrat procedures in organisational systems.
84. The two paradigms are likely to introduce a measure of tension, even contradiction, in their application to changes in organisation (Aucoin 1990, pp.125-6). Public choice sees politics as pervading management; that is politics is present in both the formulation and the implementation of policies. Managerialism sees politics as present essentially in the determination of the basic values or missions, and thus the policies, of an organisation. Thus, in one case, politicians must ‘tame’ the bureaucracy via a concentration of power in the elected representatives, while, on the other, bureaucracy must be freed of excessive controls especially on line managers. In the first case, the perceived need is to eliminate the capture of the bureaucratic organs of the nation state by groups that pursue their narrow self-interest in order that elected representatives be able to represent the public's interest in public policy; compared with giving high priority to the responsiveness of bureaucrats to their policy constituencies (policy capture).
85 Hood (1991) has identified the following components of the new public management:
These trends suggest a greater stress on management skills as opposed to professional skills, greater accountability through measures of performance, a shift from input controls to output controls, the separation of commercial from non-commercial functions, a shift to contracts and public tendering procedures, more flexibility within departments, and cutting costs in the public sector. Many countries and jurisdictions have embraced these procedures in part or in whole in recent years, but they may be missing is some of the Bank's borrowing countries.
86. So far we have referred to the relationship between the executive and the bureaucracy as that of a principal-agent. The altruistic model sees economic advisors (agents) giving independent and objective advice, and political decision makers (principals) making inspiring national interest decisions. The individualistic model sees the executive and the bureaucracy as competing forces with separate agendas, with the emphasis on self-interest. By way of contrast, the actual relationship between the executive and the bureaucracy is more likely to be characterised by a mixture of duties and obligations with changing emphasis on different aspects of policy making and direction as circumstances change.
87. In addition, the policy advice process itself is surrounded by considerable uncertainty, and a clear-cut principal-agent relationship is complicated by incomplete information in the exchange, asymmetrical information supply, and uncertainty as to any outcomes (Boston et al 1996). While the role of advisors is to process the necessary information that decision making requires, and put forward alternative courses of action that might be consistent with the stated aims of the executive (the passive view), the role of the executive is to be seen to be acting in the national interest and meeting any sectional interests they may represent. Uncertainty about the ends of the policy proposed, means that the process itself has to be viewed as a probabilistic problem rather than a certainty one19.
88. The passive view of economists as advisors is that they only have a role in analysing the alternatives that face decision makers, and that they should not impose their own values into the political decision making process. It is pointed out that governments should define some objective function in terms of multiple ends or goals of economic activity, and economists should delineate what is possible and the costs and benefits of each course of action (Blaug 1992, p.128). This is a technocratic view of the policy advice process.
89. The executive, or principal in this argument, may well have any number of well-defined and not so well-defined goals. In economic terms these are the preference functions of the executive and these may articulate national interest concerns and/or private interest concerns. Most commentators, including Blaug, believe that the executive does not have a well-defined preference function, but is more engaged in a constant search for a new preference functions as a result of learning by doing.
90. Blaug says that any executive decision maker starts with on-going activities and gradually begins to define his/her objectives in the light of experience with actual policies. Political decision makers do not try to get what they want, rather they learn to want by appraising what they get. Means and ends are indissolubly related, and evaluation of past decisions, or technical advice about future decisions, have to serve this purpose (Trebilcock 1995, pp.24-29). Thus decision making is disjointed as it is repeatedly reviewed in bits and pieces (by different people)20, and it is incremental because it considers only a limited range of policies that differ little from existing ones21. “Disjointed incrementalism” does not merely adjust means to ends but explores the ends while applying the means, in effect choosing the ends and means simultaneously (Braybrooke and Lindblom 1963)22.
91. Bureaucrats as deliverers/administrators of policy programs have not been studied in such depth. However, the transactions cost approach of Horn et al (the Harvard University group of political scientists) indicates that legislators do have a choice of delivery institutions at the policy formation stage, and that constituents are likely to be consulted as to that decision's effects on them. Once the delivery structure is decided, the buck passes to the delivery agent. The problem then becomes one of conduct rather than structure, as administrative details are unlikely to have been highly specified in the original enactment23. In this area, bureaucracies have their own sets of rules and conventions, which vary from country to country and institution to institution, but which will probably be the guiding force in determining the ongoing delivery of the enacted policy programme. According to Sandiford and Rossmiller (1996), it is this conduct stage which will primarily determine the resulting performance of the policy in terms of the original aims.
92. This discussion is a very important one with regard to the argument being developed in this paper. It has moved from a discussion of single purpose models of government to a view of the government process as a whole. The single purpose models explain various facets of government activity, but they do not adequately explain the total activity of the government system at any one time. The central idea of disjointed incrementalism is thus an attempt to generalise about public choice theories, transactions economics, and agency theory as a whole and yet learn from the process so as to better understand the policy delivery structures that were envisaged in the first place.
93. To sum up, Box 6 shows the three-way relationship between the political, bureaucratic and private interest groups (the so-called iron triangle), and the institutional functions of each that are addressed in part by the theories of government described above. As far as policy delivery is concerned, the most important parameters are those concerned with policy design and implementation. The structure set up at the outset to administer the policy proposal (new instruments or modifications of old ones) is very much a political decision, subject to legal and administrative advice. The actual conduct of the policy from that point passes into another group's area of responsibility. Here, as Box 6 makes clear, a different set of functional goals come into play with a potential to modify the original intentions. The civil service is not without self-interest, in the sense that it is involved in administering the policy, monitoring its effects and reporting back (feedback). This feedback loop, which is the more important one, at least in parliamentary systems, sets up further principal-agent conflicts over the success or not of the policy programmes. The recipients/clients/customers of the policies, or the private group interests and individuals (constituencies according to Horn (1995)), have clear-cut private interests at heart. The interesting observation that Horn comes up with is that they also have a feedback loop both with regard to instrument design at the early stages of a policy initiative, and with regard to ongoing reporting of the success of the original policy proposal.
| Box 6: Institutions and Economic Theory | ||
|---|---|---|
| Participant | Institutional Functions | Theory |
| House of representatives: (Principal) |
National interest policies Revealed preferences Private agendas Design&implementation Consultation/feedback Commitment |
Altruism Public choice Transaction costs Transaction costs Transaction costs |
| Civil service: (Agent) |
Policy advice/national interest Policy advice/private agendas Administration/implementation Accountability Efficiency Consultation/feedback |
Altruism Public choice NPM/ trans costs NPM NPM Transaction costs |
| Groups/Individuals: | Group interests Consultation/feedback/design | Public choice Transaction costs |
| NPM = new public management | ||
94. These (public administration) models focus on how governments are and should be organised. They deploy the rationality hypothesis and a theory of transaction costs to explain how government organisations work. They posit that effective public administration requires that transaction costs be minimised in determining and pursuing society's goals (Zeckhauser 1995). Legislators are regarded as self-seeking in their use of legislation to increase their net political support (Horn 1995, p.13). Their opportunities are limited by a number of “transactions costs”. These are the time and effort it takes to reach agreement on legislative refinements and any time and effort that affected private interests have to subsequently devote to participating in implementation and administration; political uncertainty that the legislation will last; uncertainty that the legislation will be administered as intended; and, uncertainty about the distribution of private benefits and costs.
95. The legislators who are most likely to remain in power are those who are most successful in overcoming these transaction problems, such as those who are best able to reassure their supporters that the benefits of legislation will not be lost to administrators in the implementation, or undone by subsequent legislatures (Horn 1995, p.14). In this context, Horn draws on agency theory in his discussion of implementation of legislation. As he sees it:
96. These problems create agency costs - that is the costs incurred to induce administrators to implement faithfully what was intended in the legislature, and the losses legislators and constituents sustain by being unable to do so perfectly. They include the costs associated with selecting administrators and monitoring their compliance, the costs of using ex post corrective devices (rewards, sanctions, and legislative direction), and the cost of any residual non-compliance that produces a difference between the policy enacted and what is implemented (Horn 1995, p.19). There are a number of administrative mechanisms that legislators can draw on that minimise these costs: contracting out versus in-house delivery, tax-funded bureaux (departments), non-profit tax-financed regulatory agencies (as in the US), and revenue-earning state-owned enterprises (as in the British system). Each has its advantages and disadvantages (Williamson 1994, Horn 1995, pp.9, 40, 170).
97. Private interests have a definite interest in implementation (Horn 1995, p.13).
“Legislators and their constituencies (Horn's term for private interests) are seen as engaged in a form of exchange. Legislators want electoral support and constituents want private benefits - or reduced private costs - of legislation. The amount of net electoral support legislators receive from promoting a piece of legislation depends on the flow of benefits and costs that private interests expect it to generate over time. The implementation features of the legislation bear on this calculus because private interests are sufficiently forward looking to anticipate how decisions on implementation will affect the flow of benefits and costs. That is why there are often heated disputes over decisions on matters like the scope of delegated authority, the form of organisation charged with implementation, and the procedures administrative agents must adopt. These factors affect “who” ultimately “gets what” out of the legislation”.
98. Thus the design of legislation reflects the interests of the different groups taking part in the political process and this may well have little regard for equity and efficiency considerations. Most important is what Horn calls the "commitment" problem. The flow of benefits to legislators is often much more immediate than the flow of benefits to constituents (Horn 1995, p.16). Constituents run the risk that the present or subsequent legislative coalitions might undermine the benefits of given legislation. This is a problem for legislators because forward-looking constituents will assess the durability of future legislative benefits and costs and reflect that assessment in the degree of electoral support they are willing to offer. Thus legislators cannot guarantee constituents durable benefits but they can make binding arrangements that might tie down future legislators. Constituents respond by seeking guarantees that these bindings will be entered into at the design stage, if, and when, they are consulted.
99. Public administration models suggests, other things being equal, that the national interest would be best served by governments choosing the most efficient instruments available to accomplish any given policy objective (Trebilcock 1995, p.25). The argument is that, whatever the policy objective, it ought to be achieved at the lowest social cost: nobody gains by needlessly dissipating resources. The standard set of political axioms governing policy and instrument choice behaviour includes:
100. Trebilcock argues that these axioms “explain” the widely expressed perception of a mis-match between policy instruments and ideal policy objectives. Such mis-matching is unlikely to be the random product of mistakes, ignorance or stupidity on the part of collective decision makers, he says, but in many cases is likely to reflect systematic incentive structures that the community has built into political institutions such as one man-one vote and regular cycles of elections (Trebilcock 1995, p.27).
101. These paragraphs have drawn attention to the important double role of the bureaucracy in advising the executive of the options that are available to it as well as the carrying out of what is decided. It has been noted that the typical bureaucracy is subject to some of the same pressures as the political arm of government, viz. self-interested activities, responding to interest groups (sometimes representing them), and poor decision making. Bureaucracy also is subject to problems of its own such as developing private agendas and obfuscating the objectives handed down to them. It has been noted that bureaucratic organisations have been subject to reforms in some countries (NPM) in the interests of better accountability to the nation and greater efficiency. Finally, it was noted that bureaucratic processes make use of procedural rules to simplify and decentralise tasks, as do other organisations and firms.
102. The response to these concerns has been to introduce new systems of management in the public sector in some countries. The aim has been to try and bring about better results from the bureaucracy in terms of work output, efficiency and accountability. Some of these procedures have been borrowed from the private sector. Concern for greater bureaucratic accountability in New Zealand has led to the introduction of contractual arrangements between Ministers and public servants (Bale and Dale 1998, p.105). A contractual arrangement can be designed to identify the work the Minister wants performed and for the chief executive to carry out. A contract enables penalties to be established and non-performance punished. Monitoring has to be introduced to establish standards and performance. Financial support can be also be tied to the contractual arrangement and payment made accordingly.
103. According to Bale and Dale (1998, p 106), this approach to bureaucratic accountability has five main advantages:
104. It may well be that evaluation and review suggests that other forms of organisation might carry out the tasks better. The new institutional economics suggests that in some circumstances better efficiencies can be achieved by outside contracting, or from other self-supporting agencies (Williamson 1994). They may well respond to appropriate incentives and rules to carry out designated tasks efficiently.
105. The problems of principal-agent control are further extended when an aid agency is trying to influence the management of a policy program in which it has an interest (Heaver 1982). Normally, the aid agency is working with a departmental agency in a particular developing country and meets difficulties in the implementation of their jointly sponsored programs. Heaver (1982, p.i) characterises the situation as follows:
“Through the 1970s, the planning of rural development was emphasised rather than the management of implementation. But a key characteristic of the implementation process in the developing world is its political nature: and political influences on the development bureaucracy effectively alter policy and plans at the implementation stage. Some of these influences come from above, from the official political level of government: others from below, from powerful groups in the rural areas: others again are generated by interest groups within the bureaucracy itself. They result in performance in the field which differs radically from the intentions of project designers and funding agencies, and which cannot be explained solely by the endemic resource and skilled manpower shortages of the Third World. These political pressures, explicit or informal, affect the attitudes and day-to-day actions of project and program managers, through the creation of a pattern of incentives and pressures within implementation agencies.”
106. Heaver concludes (1982, p.64) that there is a need for funding agencies to make formal recognition of the fact that implementation is a political process: that the pattern of incentives and pressures operating within implementing organisations is the product of a (given) political system, influenced by the distribution of wealth and power, as well as relative factor prices etc outside the organisation. He suggests that aid givers could more closely identify with powerful rural development lobbies in the countries concerned; that withdrawal of aid should be considered where there is a clear lack of commitment; greater assessment of political and management capacity and incentives; targeting beneficiary groups; funding more local recurrent costs; carrying out more pilot projects and research; and making use of non-governmental organisations (NGOs) with matching contributions.
107. These principal-agent problems are discussed further in section 3.3.
108.This discussion suggests that some sanctions might be useful in implementing policy measures and programs. With the growth of government organisations in western democracies since the C19 there has been a continuing concern for monitoring and auditing of the agencies of government. Part of this has been a concern about financial honesty in the agents of the state and partly about ensuring that the aims of the state are achieved by its minions. This approach is discussed at some length in Chapter 5 of the World Development Report 1997 on building institutions for a capable public sector (World Bank 1997b, pp.79-98). Box 5.1, in that Report, notes that there were also changes in the rules and restraints governing policy formation and implementation. “By the end of the nineteenth century, the United Kingdom had laid the foundations of a modern government and formally institutionalized the values of honesty, economy, and political neutrality”.
109. In the case of policy implementation in different countries (the subject of this paper), these values are suggested as still worth pursuing. The democratic goal should still be that the wishes of the nation, as expressed by the executive and the legislature, are carried out in full by civil service organisations. The public administration models developed by Horn (paras 90-94), and those earlier developed by J.Q.Wilson of the Harvard School are concerned with the problems of policy implementation in a necessarily political framework (as set out at para 67).
110. In recent years, formal proposals for evaluation and review for policy programs have been systematically introduced in many countries. Probably not representative of the developing world, but instructive nevertheless, are recent requirements established in New Zealand24[Box 7] and Australia25. While introduced in the name of increased accountability, there is also increased concern for (private) compliance costs and distributive effects of policy change. There has also been a political interest in the permanency of policy change with the introduction of the Fiscal Responsibility Act in New Zealand which effectively binds future governments to current decisions.
111. There have been public review processes in Australia since 1973.26 The Industries Assistance Commission was established, on the recommendation of Sir John Crawford, to advise the Federal Government on assistance which should be given to, or withdrawn from, industries in Australia. Crawford identified the following reasons for establishing the Commission (Uhrig 1983, p.4):
The Commission was to report back on matters referred to it but could also initiate enquiries under certain circumstances. The Commission later became the Industries Commission and then the Productivity Commission. While the focus was on the need for industry assistance, there is an implication in the aims of the legislation that the implementation of the policy and the suitability of the instruments should be assessed.27
112. Regulatory Impact Statements ('RIS') have been introduced in both Australia and New Zealand. A RIS must be prepared for all new or amended regulations that directly or indirectly affect business, or restrict competition. A RIS should be prepared early in the policy development process, and should set out (among other things), the options (regulatory and/or non-regulatory) that may constitute viable means of achieving the desired objective(s), an assessment of the impacts (cost and benefits) on consumers, business, government and the community of each option, and a consultation statement (Productivity Commission 1998).28
Box 7: Policy Review Procedures in the New Zealand Government System
1. Departmental: Until recently there were no formal requirements. Cabinet papers making new proposals or proposed adjustments to previous legislation required a background statement of previous enactments and cross-references. The reasons for change were expected to emerge from such a statement. Design of instruments should be addressed if relevant. Consultation was not mandatory [but see 2 below]. Background papers based on a form of structure/conduct/performance were optional but were not a requirement. Background papers could be contracted out. Ministers seldom involved in formal consultation, but Select Committees of the House of Representatives may call for submissions on legislative enactments.
2. Regulatory Impact Statements29: As of July 1 1998, all policy proposals submitted to Cabinet which result in government bills or statutory regulations must be accompanied by a Regulatory Impact Statement, unless an exemption applies. The Statement should consistently examine potential impacts arising from government action and communicate the information to decision-makers. Completion will provide an assurance that new or amended regulatory proposals are subject to proper analysis and scrutiny as to their necessity, efficiency, and net impact on community welfare. The Statement should contain the following information:
a) a statement of the nature and magnitude of the problem and the need for government action;
b) a statement of the public policy objective;
c) a statement of feasible options [regulatory and/or non regulatory] that may constitute viable means for achieving the desired objective(s);
d) a statement of the net benefit of the proposal, including the total regulatory costs [administrative, compliance, and economic costs] and benefits [including non-quantifiable benefits] of the proposal, and other feasible options; and
e) a statement of the consultative programme undertaken.
[presumably the statement of net benefits could be followed up in an ex post sense at a later date and comparisons made].
3. The Audit Office:30 The Audit Office exists as a constitutional safeguard to maintain the financial integrity of New Zealand's parliamentary system of government. The Audit Office, as an Office of Parliament, is independent of the executive branch of government. The Office's role is to assist Parliament to strengthen the effectiveness, efficiency, and accountability of the instruments of government. This role is discharged by providing reports on whether public sector organisations operate, and account for their performance, in a manner consistent with Parliament's intentions. The outcomes sought are that Parliament and the public will be confident that public sector organisations are: delivering what they have been asked to; have operated lawfully and honestly, and have not been wasteful; and have fairly reported their performance in their statements of account (italics added).
4. The Crown Company Monitoring and Advisory Unit: Crown companies are fully owned registered companies subject to the Companies Act 1993 but where the shareholding is still held by two Ministers of the Crown. The Crown Company Monitoring and Advisory Unit (CCMAU) was established in 1993 to ensure that the investment is performing to the best of its ability, to collect information on performance of the companies, and to provide advice to Ministers. CCMAU is an independent unit attached to the Treasury department. CCMAU's approach is to maximise the performance of the individual companies in which the Crown has an ownership interest.. To meet this objective from a company-level perspective, CCMAU (1998) focuses on:
a) the formation, structure, investment and continued ownership of individual companies,
b) business strategy and the associated risks and opportunities,
c) ensuring the most quap class="ind"fied directors are recommended for appointments,
d) performance, in absolute terms, against benchmarked companies,
e) the impact of government poplicy and regulation on individual companies or groups of companies, and
f) innovation, best practice and continuity of essential services (italics added).
113. These paragraphs (108-112) thus suggest that organisations like the World Bank, FAO, and other aid agencies have a vested interest in the conduct of policy making and implementation in developing countries. Suggestions have been made as to how various government administration reforms could assist in making new policies more effective and worthwhile. The value of increased contracting has been pointed out. There remain one further set of problems to do with political stability and malfeasance in some countries.
114. Weaver and Rockman (1993) point out that most discussion of political systems takes the maintenance of law and order for granted. Discussions tend to assume that the checks and balances of the western parliamentary systems are widely adopted. These authors discuss this matter under the euphemism of ‘cleavage’. By this they mean ‘how do existing governments manage dissent and minority views?’. As pointed out in Box 5, there has been a continuous process of change in the political structures of many developed and developing countries in the last fifty years. Concurrent with such change has been a high level of malfeasance or corruption in some countries.
115. Continuous or spasmodic change in political systems leads to uncertainty and instability in the policy making and implementation process. Authoritarian command structures counteract free debate of alternative courses of action and the seeking of administrative efficiencies. In fact, many such command structures are based on the army in these countries. I think it has to be recognised that democratic principles may not be as widespread as we would like and that political and administrative systems will be managed accordingly. This places the aid agencies in a difficult situation. Much careful thought must go into giving aid in these situations and this analysis is not particularly fruitful in making new suggestions for such. It does seem from the Kenya experience, discussed below, that a more contractarian approach is desirable in setting up new aid programs and in arranging for their future monitoring and evaluation (M&E) requirements.
116. In many countries, malfeasance is rife. While it is dishonest to pocket the spoils of government in periods of instability and change, our particular concern is with the effects of corruption on policy making and implementation. First, political dishonesty leads to dishonesty down the line. Second, it draws scarce resources out of the government system and wastes them (or tucks them away in foreign bank accounts). Third, it leaves less resources for day-to-day administrative purposes and administrators cannot carry out their duties effectively. In the case of foreign aid, the effect is felt both at the resource level and the administrative level. Funds provided by aid get diverted from their purposes, either to other programs, or out of the system altogether. The very diversion of these funds then sets up an administrative barrier to effective management of aid-assisted schemes (as well as others). As a result, the expected objectives are not achieved and a process of evaluation and review is set in motion which eventually leads to the cessation of the program and a loss of welfare for the people it was trying to help.
117. It is significant that the World Development Report 1997 publicly recognised these problems (World Bank 1997b, p 99):
“Restraining the potential use and abuse of state power is a challenge for any country. Harder still is doing it without depriving state agencies of the flexibility they need to do their job. The misuse of state power creates serious problems of credibility, whose effects linger long after the event. The expropriation of property and the harassment of entrepreneurial minorities in Uganda under Idi Amin left a legacy of mistrust, which initially posed enormous problems when the current administration tried to attract private investment. But arbitrary and capricious state action undermines more than credibility. It undermines the rule of law itself, by weakening the force of whatever rules the state has set in place. And it fosters conditions that encourage state officials to place themselves above the law and tempt the rest of society to do the same. Development, in these circumstances, hits a brick wall”.
118.The Bank's suggestions for reducing opportunities for corrupt practice include the following
(World Bank 1997b, p.106-7):
119. It is manifest that malfeasance is one of the problems that undermine the effective delivery and implementation of positive policies in developing countries. It is a continuing problem for the international aid agencies. The Bank is clearly working on the problem. The solution lies in developing institutions like those described in the previous paragraph and in para 96m/138a that build up confidence in private exchange and trust in all commercial undertakings.32
120. From the above discussion, it is possible to derive a useful evaluation schema based on the structure-conduct-performance paradigm (Koch 1980). Such a schema asks the right kind of questions for ex post reviews of policy programmes and implementation. Horn's model of government processes suggests that any review takes account of institutional structures along the following lines:
121. Clarification of these issues will also enable policy analysts and advisors to governments to design better policy programs in the first place.
122. Three case studies in the recent literature demonstrate fairly close application of the principles discussed so far. They are a study of the EU milk support policy (Williams 1997), a study of the deregulation of the New Zealand wheat industry (Nixon 1993), and a recent unpublished study of World Bank support to Kenya (Anderson 1998). The first two studies examine the delivery of a given policy in a regional bloc and a national setting, and the third the delivery of a policy through a third party. The latter is the typical principal-agent situation found in the international aid area.
123. In this paper, published by FAO, R. Williams examines the institutional structures that are employed to deliver a uniform milk policy across the members of the European Community. With regard to the aims of EU milk policy, Williams (1997, p.107) states :
“The performance criteria are here being used endogenously: the focus of attention is a judgement of how effective and efficient the policy and its delivery system is in fulfilling its stated aims. Many discussions of the CAP (especially those emanating from the UK) usually implicitly adopt a marginalist approach in which judgement is passed on the system in relation to what the writer believes would be the outcome of a free-market situation. Such discussions frequently dismiss the aims of the policy without discussion and never consider the policy delivery system. Nevertheless, the policy exists to fulfil the requirements of Article 39 of the Treaty, which remains in the original form and as such is part of "the economic constitution" of the 15 member states. Moreover, the narrower aims of the policy legislation, particularly as stated in the articles of 804/68, remain the law of the EU. The EU has an agreement with the contracting parties of the GATT: this may require fundamental modifications to the milk policy but not to the Treaty, as Article 39 is not currently on the agenda of the Inter-Governmental Conference for the revision of the Maastricht Treaty. Therefore the analysis of milk policy... considers the policy in relation to its aims and does not question the aims themselves” (italics in original).
124. Consultation at enactment stage: The milk policy is determined by the European Commission in Brussels; the interests of the different original members of the Union had to be taken into account in drafting Article 39. The producer interests are very powerful in France and Germany in particular, and the enactment owes a lot to them though Williams does not specifically say so in his study, but states (Williams 1997 p.20 ):
“Around the central process of Community decision making through its principal constitutions there is considerable opportunity, particularly in agriculture and the dairy sector, for the activities of pressure groups and ‘industry experts’ (usually the representatives and employees of powerful organisations in the industry). Farmers' unions are represented in Brussels through the activities of COPA (Committee of Agricultural Producer's organisations in the EC) and co-operative marketing organisations are represented through COGECA (the general Committee for Agricultural Co-operatives in the EC). The dairy trade also has a European organisation, (EDA - formerly ASSILEC) the European Dairy Association, with representatives in Brussels. Each of these bodies is able to obtain representation on the Commission's Milk Advisory Committee, and through this channel farmers and industry marketing organisations can exercise influence on proposals to be made to the Council as well as on the implementation of policy by the Commission”.
125. Choice of instruments: The author does not discuss alternative instruments that might have achieved the CAP's' aims. The problems met in formulating the common policy for milk are referred to as follows (Williams 1997, p.31):
“It took the original Six members of the Community eleven years to achieve a common policy for milk and the other major commodities of cereals and beef. In the milk sector each member state had differing levels of protection for milk producers and different methods of achieving it. In Germany and the Netherlands the liquid milk market and the manufacturing or industrial milk market were separated with elaborate methods of pooling prices between the two to obtain the producer price. In order to establish free trade within their borders the Six had to harmonise support prices and intervention measures, eliminating border taxes and controls between themselves in transitional steps, and establish a common level of tariffs on imports of dairy products from third countries in matching steps. Export refunds had to be established and harmonised pari passu. The transitional system introduced a mechanism with a set of intra-Community levies on trade to be gradually eliminated in a series of steps as external tariffs and internal intervention measures were harmonised. Agreement in this process was achieved by the gradual alignment of the level of protection afforded by measures in the highest-price country”.
126. Conduct of delivery agents: The Williams paper is a tour de force in its discussion of the implementation of the milk policy in the different member countries of the EU. There is a three tier system of implementation:
“...at the first level are the Community institutions that are involved in policy making and objective setting, as well as in the implementation process. At the second level are the institutions of national governments (15 of them) each having some flexibility, albeit limited, in operating the system. At the third level are the marketing agencies who are responsible for their own strategies in a competitive market, and are affected by the normal factors in a market Structure-Conduct-Performance relation of investment, economies of scale, product differentiation, advertising and brand loyalty, research and development, and consumer demand for dairy products”.
The different attitudes of the bureaucracies in member states to quotas have given rise to much variation in milk prices (Williams 1997, pp.77, 109):
“...the amount of variation in the system throughout the Community is very considerable...At one extreme, the Republic of Ireland has generally had the lowest price with prices sometimes below 90 per cent of the Target Price i.e. below the intervention milk equivalent price. At the other, Italian producers have had prices estimated to be as high as 130 per cent of the Target Price...Ranges of this magnitude and variability could not reasonably have been said to have been the intention of the original designers of the policy who sought to eliminate variations that might occur through any arrangements that would protect local liquid milk prices. Explanations of price differences are complex and may relate to many structural differences between countries, the size of the processing/marketing organisations and economies of size, product differentiation, brand loyalty, and the management and ownership of marketing organisations”.
127. Performance in terms of original aims: Williams finds that the average target prices achieved from 1989 to 1995 over the 8 member countries were very near to that aimed for but that there was marked variation between countries (as discussed above). He notes average farm incomes have risen from 1978/79 to 1990/91 while the target price measured in ECUs moved very little. He attributes the positive structural changes which have taken place to the quota system and assistance for `outgoers'. Most member states have succeeded in keeping to within one per cent of their national reference quantities in most years. There are also other comments on efficiency, enforceability and equity, which generally suggest that the original aims of the policy are being met.
128. Commitment: The author notes that the Treaty of Rome locks member countries into the regional co-operation arrangements, though there are exception clause as the UK attitude to the EURO demonstrates.
129. In summary, this study presents a sympathetic and positive view of the EU milk policy which is broadly seen to be carrying out the aims originally enacted. By separating the delivery of the policy aims from the aims themselves, the author brings a new focus to the conduct and performance of a given policy initiative. He concludes that to be effective, analysts should always start with the aims and objectives of given policies and recognise that when they have been absorbed into a hard-fought-for constitutional agreement (the Treaty) they will be very hard to change indeed.
130. Marketing boards are legislative instruments set up to control fluctuations in prices and production ostensibly in the interests of producers. The NZ Wheat Board was established in 1965, in a process of consolidation of previous market interventions with powers, not unlike those of EU milk policy, to balance production and imports of wheat, determine farmers' prices, determine milling and manufacturing margins, and to recommend the price of bread to Government. In the discussion that follows, the Government of NZ is taken as the principal, the Wheat Board is the agent responsible for administering the policy, and the constituents are the wheat producers, the private millers, the private manufacturers using flour, wholesalers and retailers selling products with flour ingredients, and consumers. The same questions are asked of the original sources.
131. Aims of the enacting legislation: The NZ Wheat Board was set up by Act of Parliament in 1965 to rationalise and co-ordinate wheat production and imports and regulate the prices and quantity of flour. The Board was required:
132. Consultation at the enactment phase of the legislation: There was a considerable history of intervention before 1965. A wheat purchase board had been created in 1933 with power to purchase all wheat and fix prices to the growers and millers, but not on imports. In 1936, a Wheat Committee was formed to take over sole responsibility for the buying and selling of all wheat, including imports. Price controls were introduced in 1939 for the wheat, flour and bread sectors. In 1962, a Commission of Enquiry was instituted and it recommended the consolidation of the existing arrangements, including price control, in a new enabling Act. A commission of enquiry approach suggests that interested pressure groups were fully consulted in the public process of consultation, though the sources are silent on the design aspects of the legislation itself (In practice, in the NZ parliamentary system, legislation is framed by the bureaucrats and interested parties have only limited access, but access nevertheless, at the Select Committee stage of a Bill).
133. Choice of instruments: The two literature sources do not discuss alternative instruments that might have been available at the design stage (Sandrey and Reynolds 1990, Nixon 1993). Documentation of alternative instruments discussed at the time would be hidden in departmental archives. It is significant that both sources mostly document needed changes to the legislation after the legislation was no longer fulfilling its aims. They do not analyse whether the original aims of the legislation were met in the intervening period.
134. Conduct of the delivery agents: The NZ Wheat Board administered the legislation from 1965 to 1987 and from 1980 had to meet an increasing number of regulatory changes introduced by the Government. The documents consulted rather indicate that the Board as the Government's agent was faithful to the objectives laid down for them but that external events overtook them (Sandrey and Reynolds 1991, p.127):
“The key decision concerned the purchase price of wheat from farmers, a price set to recoup all Wheat Board costs, as this subsequently triggered other decisions such as the consumer price of flour. Each flour miller was paid the calculated cost of processing wheat into flour. These costs were independently calculated for each mill, leaving millers with limited commercial interest in the price of wheat. Indeed the only Board members who had a strong commercial interest in the price paid for wheat were the farmers. The Board maintained a pricing policy designed to encourage domestic production of wheat and, therefore, self-sufficiency”.
135. Prices: The sources are not precise on the course of producer prices, import replacement prices and prices of alternative enterprise products during the Board's administration. It appears that Australian wheat could be landed in NZ more cheaply than equivalent NZ grown wheat in most years and that pastoral products (especially lamb production) were competing for the same land. The Board was thus forced into large imports of Australian wheat (up to 100,000 tonnes in some years) to meet its adequacy commitments.
136. In the event, the Government removed price control on bread in 1980, introduced a producer price based on a three year average of landed Australian prices in 1981, abolished flour, bran and pollard price control in 1984, and eventually required that the Board cease trading in 1987.
137. Performance in terms of the original aims: The original aims were focused on producer welfare with the market system being driven by producer price negotiations with Government. One commentator stated (Ali 1993):
“It was very much a supply driven system, emanating from the growers, whereas consumers were largely tamed by regulations”.
The legislation was enacted in a period when intervention in markets was highly fashionable among politicians and bureaucrats. The interesting feature of the legislation is that a once-removed marketing agency was chosen to administer the policy, which, in other areas, was carried out in administrative departments. The Board consisted of representatives from Government (including the chairman), and industry representatives from producers, millers and bakers. The Board was handicapped by its charter with its emphasis on encouraging domestic wheat growing which the Board interpreted as promoting self-sufficiency (Nixon 1993, p.23). Finally the Board had to negotiate a producer price with the farmers' interests that still required approval by Ministers. The conclusion must therefore be reached that it was the structure that was at fault and not the agency administering the policy. This is, of course, contrary to the views given in the documents and the popular view of events in the period concerned. But it does confirm the institutional view adopted by Williams that policy delivery must be examined in its context, and not judged out of context.
138. Commitment: The NZ Wheat Board was established through a parliamentary statute and only questions of administrative detail could be challenged in the Courts. In the case of this legislation, the affected parties would have appropriate channels to approach the legislators at the formative stage. In fact, it was not the affected parties who lost economic rents through the legislation, but the general consumer of the products concerned.
139. In summary, without regulation of prices and margins since 1987, there has been a reduction in the farmers' interest, an increase in the power of the millers and bakers, and an increase in consumer welfare. The position of the millers and bakers has been enhanced by amalgamation and take-overs and increased market power. The system is now driven by quality considerations in both grain and flour and by baking techniques. The price system is driven by international prices and competitive forces within the industry. The quality and diversity of products has increased considerably to the benefit of all consumers (Nixon 1993).
140. The relevant document in this case is an unpublished investigation by Jock Anderson (then in the Bank's Operations Evaluation Department) of Bank lending and non-lending activities in Kenya since 1960. The review traverses many of the issues raised in this theoretical discussion of policy design and implementation. Certainly, design and implementation issues are extensively featured in the report but there are other issues involved that are not so relevant here. In reviewing a portfolio of lending programs to a country over a considerable period of time, some of the clarity insights gained from the transactions cost model are probably lost to view. It may also be true that the recipient country has views of its "own" that did not emerge from his discussions with local authorities, which would assist in interpreting design and implementation problems.
141. The aims of the Bank's programs in Kenya have evolved with experience. The document recognises four phases in their interventions in agricultural policy:
142. Anderson assesses these aims in the following way:
“i. Most Bank-supported agricultural projects sought to improve the productivity of the agricultural sector, which was seen as the key for the economic development of the nation..... Early Bank projects focused on export industry development and more often than not succeeded in achieving their objectives. Emphasis then switched to integrated rural development projects that took up poverty-alleviation and food-security objectives through area development activities that involved a complex of infrastructural, social and productive investments. Most of these projects had unsatisfactory outcomes. Some notable failures resulted from a combination of poor design and inadequate ownership among shareholders, including some in government service”.
“ii. The structural adjustment phase that followed saw a series of interventions largely designed to liberalise the agricultural economy. These interventions aimed to reduce transaction costs and get domestic prices to reflect scarcity values. Considerable effort went into freeing the domestic market for food staples such as maize. But progress was extremely slow and occasional reversals made matters worse. These reversals usually resulted from sequencing difficulties and impediments that one side construed as domestic political imperatives and the other considered as disjointed donor pressures...”
“iii. The mid 1980s saw the introduction of interventions to raise managerial and administrative capacity, particularly in public entities. Here, progress should have been relatively easy, given that earlier Bank and donor activities had led to some well-qualified professional staffing in most of the key ministries. Instead, progress was (and continues to be) slow and partial...”
“iv. The bank has focused considerable support for institutional development on the provision of agricultural services. Kenya has a long history of supporting agricultural extension and has tried a variety of models. Recent operations have featured implementation of a training and visit approach . This has proved to be an expensive exercise that is difficult for the government to sustain, especially without external resources. Initially the system was too top-down and inflexible, but later adjustments made it more responsive to smallholder needs to diversify into such enterprises as dairy and vegetable production.”
“v. The Bank has supported agricultural research.....These efforts have been relatively successful in their institutional development...”
143. Consultation: It appears (from Anderson's work in Kenya and other sources) that considerable effort goes into Bank plans for lending to individual countries. Projects develop out of country policy reviews and may involve large teams of experts. Government departments and research institutions need to be consulted and, presumably, some form of political clearance is given in any sizeable loan arrangement. The theory says that constituents could/should help shape policy proposals, not only to benefit themselves, but to avoid implementation difficulties later on. Does this concept apply to foreign aid in the circumstances of Kenya?
144. In terms of the early production initiatives, Anderson argues:
“In early post-independence the perception that export crops were required to spur economic development in Kenya was strong in both the nation and the Bank...The dialogue surrounding the operations presumed access to world markets in these commodities. Initially Bank economic and sector work supported these investments. But in the early 1970s Bank policy shifted to avoiding investment in beverage crops.. The policy was repealed in 1993”.
145. In terms of introducing poverty-alleviation programs in the 1970s:
“In its country dialogue it (the Bank) concentrated on large economic studies, the results of which appeared in comprehensive reports every several years....Agricultural and other sectoral reports were issued every few years, largely to identify priority sectoral policy or strategy issues and projects, often with considerable external technical assistance.....These reports evolved into assessments of proposed five-year lending programs...Projects were then prepared, primarily by teams of consultants...”
146. Some of the wider implications of projects on the rest of the economy appear to have been overlooked:
“An inadequate understanding of beneficiary situations has meant systematic ignorance of real needs and of the effectiveness of local institutions. Credit schemes predicated on security of land titles (where such were generally unavailable, and in any case not too significant) is a case in point. Some of the good intentions in projects appear to have been hijacked by intermediaries in parastatals or farmer organisations through what have been aptly termed ‘directly unproductive profit-seeking activities’.”
147. At the end of the day, Anderson saw a lack of sufficient ownership as a principal weakness in Bank-supported operations in Kenya:
“Ownership of Bank assistance needs to occur at several levels - from Bank staff to senior government officials involved in the negotiations, from civil servants concerned with implementation to the intended beneficiaries and those indirectly affected by an intervention. Consultation among either of the latter groups seems seldom to have been deep or wide. But even among those in government service most closely involved with identification, preparation, appraisal, implementation, and completion, ownership of many projects in Kenya seems to have been wanting”.35
148. Choice of instruments: The blatant view of choice of instruments in cases of aid is not to give any help at all. Clearly, the theory suggests that in a single policy program proposal there may be several ways of approaching the problem concerned. The theory asks that these be fully explored at the outset. In the Bank's programs in Kenya there is obviously no lack of preparatory reports and use of experts. At any one time there are only a few individual programs under consideration. Yet the results described vary from ‘totally unsatisfactory’ to only ‘relatively satisfactory‘.
149. Anderson does not really discuss choice of instruments in a direct way. The Bank did at times proceed without adequate preparatory work and suffered the consequences. Yet the whole process of contact with a single country for 35 years must have yielded insights into what would work and what would not. This is reflected in the changes in emphasis described at para 117. The Bank more recently (in 1998) sees that priorities should be placed on a sector investment program:
“This operation will combine several key elements, including consulting widely with stakeholders (especially during implementation), addressing the unfinished agricultural policy reform agenda, supporting a more efficient extension service, and fostering the continued privatisation of those services that lend themselves to this (such as the delivery of veterinary services to smallholder livestock enterprises)...A first phase will focus on restructuring in the Ministry of Agriculture, Livestock Development, and Marketing (MOALDM) to support better the liberalisation efforts”.
150. Conduct of the delivery agents: In his review, Anderson found that many of the schemes the Bank had supported were inadequately identified and poorly designed and implemented. In irrigation, there was a lack of consultation with project beneficiaries and lack of ownership among members of the government. “Weak government capacity to implement was compounded by the imperative disbursement schedules of the Bank. Had design - especially sequencing - better recognised the capacity weaknesses, and had disbursement been more responsive to implementation realities, problems and tensions may have been fewer and achievements much greater”.
151. In the rural development phase, many of the problems of the production phase re-appeared:
“Activity levels and project preparation among the donor community and in the Bank increased rapidly in the 1970s, when enthusiasm for broad-based projects of this type reached a high pitch...Critical scrutiny of many aspects of implementation also grew rapidly in the 1970s, leading to a proliferating literature on design issues. Among the many concerns was underperformance in the monitoring and evaluation work planned for the projects; complexity in the scope of project activities, the argument went, led monitoring to be similarly complex, difficult and expensive......Special-purpose project implementation units, operations project implementation units outside the normal public service structure cannot make up for weak local and central administrative capacity”.
152. Monitoring and evaluation: The report on Kenya follows the criteria suggested in Section 1.4. In the transactions costs model, poor implementation of projects would be regarded as an agency problem - “the enacting coalition and its constituents must rely on administrative agents to implement their arrangements”, says Anderson. The model's answer to the problem is to establish the rules of the game at the beginning of negotiations and not half way through. In Kenya, the Bank as principal, had a decided agency problem in the supervision of projects in which it was interested:
“The agricultural projects funded by the Bank in Kenya have had widely mixed records on outcome, sustainability, and institutional development....The lack of ownership belies, in many cases, claims of project relevance. Projects seldom matched the priorities of the borrower....Clearly ownership has gradations from, say, the research-extension projects where Kenyans largely understood and ‘bought into’ the research component, and others, such as integrated rural development projects that were ‘foreign’ and remained so.”
“Some observers of Bank operations in Kenya have opined that it should have undertaken impact studies in the agricultural sector long ago, and as a matter of routine, along with the effective implementation of monitoring and evaluation processes. Many project designs specified such requirements, but the requirements were rarely met.....The possibilities of contracting M&E functions could perhaps be explored.....M&E should....become...a key element in the policy dialogue and design”".
153. Performance in terms of the original aims: Clearly, the original aims of assisting Kenyan agriculture to improve standards of living, encourage exports, and improve the welfare of rural communities were altruistic and well-meant. A large amount of preparatory work has gone into the programs over 35 years. Yet the record has varied from disastrous to promising. The Bank has learned from experience to design programs that can be managed with the resources available. Perhaps this is the main lesson to be learned? Anderson does conclude his review on a reasonably positive note:
“The Bank has been important in the agricultural development of Kenya, even if the record of project achievement has been somewhat discouraging. While about one-half of Bank operations had a satisfactory outcome, too many were less than satisfactory. Further, few were of likely sustainability and in many cases institutional development was modest or less. Borrower performance, considering its broken or unmet conditions and poor commitment, has been unsatisfactory. The Bank too bears some responsibility, and its performance rating can be no more than satisfactory”.
154. Commitment: These paragraphs demonstrate clearly enough, if not all that directly, that the Bank, as major lender, thought it had commitment from the recipient country in agreeing to the proposed programs. It indicates that the bureaucrats concerned believed that they could promise to implement the proposals as planned. The experts had reported. But the story makes quite clear, also, that the infrastructural arrangements in Kenya with regard to land tenure, credit, extension supervision, and political willpower,36 among other things, were not sufficient to ensure at least reasonable implementation in a lot of cases. Recent Bank arrangements for Kenya duly reflect a new appreciation of these factors. Further study is probably required of how to secure the necessary commitment in such circumstances.37
155. The major problem with an analysis of this sort is to encompass a wide enough set of institutional experience to make generalisation possible. This analysis is more of a framework for further work than a full testing of its applicability to the range of global experience with which the Bank must work.
156. While the viewpoint of agricultural policy implementation has been adopted, the analysis should be robust enough to cover a wide range of economic policy experience. The test is whether transactions cost theory ‘explains’ what happens in different countries and government systems? The evidence reviewed and other literature suggests that policy making and implementation is a political process where information and expected effects on constituents are important considerations, and that these characteristics are fairly universal across countries and governments.
157. The lesson to be learned is to evaluate past policies in their own context and ask the right questions. The institutional environment of a policy is therefore important. The relationship between the legislators and the constituents (to use Horn's terminology) has an effect on design and implementation. Bindings made on successors and on implementers may be introduced to improve the acceptance of the policy. Consultation will affect the choice of alternative policy instruments. It is in this sense that ‘institutions’ are most important in the evaluation of policy initiatives and programmes.
158. The main theoretical support for this work comes from transactions cost economics as applied to public administration. The model suggests that policy reviewers should ask questions like: what are the policy attributes that bring the different actors together? What impediments have to be overcome? How do the actors work together to find solutions? How lasting is the legislative design? What public agency implications are there? Are monitoring processes set up? What bindings have been entered into?
159. Policy review processes in Australia and New Zealand have been discussed as examples that analysts in country ministries could follow (paras 108-112). The emphasis is on giving policy advice to decision makers that has been subject to proper analysis, and scrutiny as to its necessity, efficiency, and net impact on community welfare. Audit procedures are tightly defined and implemented. Compliance costs should be identified. There is little room for shirking or malfeasance.
160. In the case of the World Bank, the transactions cost model has been applied to a political relationship between a donor institution and a client country. The model does not have to modified to any extent to explain the management problems with the Bank's portfolio of loans. The particular problems brought out by the case study of Kenya concern the relationship between principals and agents which the model anticipates. In spite of the best of intentions, government departments in Kenya could not provide the ‘commitment’ that was necessary for successful jointly-funded and managed development projects.38 And this no doubt applies to other client countries beside Kenya.
161. In terms of the World Bank's portfolio of lending across many countries, western country procedures for checks and balances may seem a little esoteric. It remains clear, however, that activity in this important sphere of monitoring and evaluation needs to be scaled up in the Bank's M&E programs. The Operations Evaluation Department appears to have recognised these requirements and refined their procedures (Box 8).
Box 8 Requirements of Implementation Completion Reports
162. This review suggests that closer monitoring from the earliest stage of a proposal would pay off and that continued monitoring is required throughout the life of a loan. It may be the borrower countries have other agendas to satisfy, but the least provision would be agreement on M&E procedures from the start of all projects. Secondly, the Bank needs to explore the nature of the contracts it enters into with borrowing countries with a view to more closely tying performance to the desired aims set out in the first place. This may involve inter-acting with a wider group of persons than hitherto, including political leaders on the one hand, and stakeholders or beneficiaries of projects on the other. In the case of reform in the Russian Federation, it seems plausible that bottom-up introduction of democratic decision making has more chances of success than top-down imposition of deregulation and decentralization policies.
163. In terms of Vision for Action; the Bank has set itself four ambitious goals (para 3) for its rural development programs. Better macroeconomic policies in client countries involve the policy and institutional framework found in any country (para 7). To this, RDV has added greater involvement of the private sector, an emphasis on enabling policies rather than intervention policies, encouragement of sub-units in organisations and firms, and decentralization of decision making. These features are also stressed by J. E. Stiglitz in his address to the Annual Bank Conference on Development Economics in April 1999 in relation to recent experience in Russia. They have strong overtones of problems with policy making and implementation in client countries, and agency relationships. The goals would be better realised if there were better understanding of the role of institutions in government and approaches modified accordingly. The significance of the natural resource base is important in terms of the world-wide goal of sustainable development. I see it as a worth-while goal rather than an institutional problem. The role of technology in policy development is a reversion to a more traditional function of aid agencies and development ministries. Combined with enhanced training opportunities and greater physical resources for research institutions, the goals of RDV in developing countries will be enhanced. Improving the existing portfolio through monitoring and evaluation is a new goal for the Bank.
164. Monitoring and assessment is part and parcel of the institutional argument put forward in this paper. Not only must progress in projects be assessed regularly, but they also must be surrounded by tight agreements as to responsibilities and commitment. Indeed, sanctions as in private contracts might be worth exploring. By some means, the workings of private institutions like property rights, contractual obligations, sanctions, duties, and incentives have to be developed and sponsored if the aims of development assistance are to be achieved.
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(Revised on 2/11/99)
1) In some countries (e.g. Australia, Canada, Germany, Switzerland and the USA), state or provincial systems share authority with the national system in terms of the fundamental law (the "constitution"). In others (e.g. the United Kingdom, New Zealand,[ & SouthAfrica]), the national legislature is sovereign and no sub-level parliamentary system exists (local government is subsidiary to the national system). Federal structures increase the number of parties to be consulted in national decision-making, and hence slow down the passage of legislation and impose veto points in policy development..
2) Regional groupings such as the European Union (EU) add a further dimension to the policy process. The EU has its own set of political institutions, set up by mutual agreement, and its ongoing policy programs. These programs are administered in member countries, which leads to some variation in administrative performance (Williams 1997).
3) Some houses are usually but not always composed of representatives of geographically defined constituencies. Upper houses take different forms: in federal systems they are likely to represent constitutional states or provinces; the British House of Lords comprises people whose participation is determined by traditional practices (currently under review). Some developing countries still retain a Council of Chiefs which fills this role.
4) There is no footnote 4.
5) In the Westminster system, the formal proposition involving a new policy is very often presented to Parliament in the form of a Bill - in essence a draft Act of Parliament. This is "debated" in the Parliament and may be referred to a subcommittee of the House (a Select Committee) for detailed consideration. Public submissions are taken at this stage in the British system. The fate of the Bill is then decided by the House - "reading a Bill" , with first, second and third readings. Committees in the US Congress are even more important than in Westminster.
6) The Parliamentary system is characterised by this attribute more than the US system where access to representatives is much more open.
7) In Parliamentary systems, Ministers bargain confidentially for a share of the revenue. In the US the budget proposals of the President are debated in the two Houses of Congress who have to reach agreement on the allocations.
8) An evaluation of different civil service structures is not attempted here. For a description of systems and capacities in developing countries see (World Bank 1997b, pp.83-86)
9) Quiggin (1987, p.12) points out that political parties play a relatively small part in public choice theory. This is due to the limited role of political parties in the United States which is the home of public choice theory. In the above presentation, parliamentary systems are taken as the norm and presidential systems as the exception.
10) The case where the parties in Congress add programmes to a piece of legislation which considerably increases its cost (D.Hathaway, pers com).
11) This classification assumes a national political entity in control of its own affairs. The need to accommodate a powerful external aid agency in the resolution of government decision making raises some interesting questions. At the country level, the externalagency is an intruder to be kept at a distance from national decision making; while for the agency there is a problem of getting suitable colaboration from different actors in the national economy.
12) In a two-stage bargaining game model of the post-communist Bulgarian economy, Rausser, Simon and van't Veld (1994) analyse how societies choose transition strategies. Three interest groups are identified: producers seeking economic surpluses, the nomenklatura (the old ruling elite) seeking their former rents, and a central reform group interested in social welfare. In another bargaining game study of Israeli dairy production, Zusman and Amiad (1977) identify the interest groups as: kibbutz (cooperative) farms, moshav (family) farms and consumers. Beghin (1990) uses cooperative game theory to study the Senegal economy. The interest groups are: farmers, consumers, and the marketing board/government complex. All these studies estimate weights for the relative influence of the different groups.
13) James Q. Wilson, a political scientist and professor of Government at Harvard, has written widely on the behaviour of government agencies (Wilson 1980, 1989). In the earlier book he sets out to examine whether regulatory agencies in the US were subject to capture and motivated by self-interest. The broad questions he asked were: how were goals determined, how was conflict resolved or managed, how were standards set, and how was policy enforced? He identifies that it is the distribution of costs and benefits from a given policy proposal that shapes its design and implementation particularly with regard to interest groups (ibid, pp.366-370). In the latter book, he asks why agencies behave as they do, how government works, and how do they interpret their mandate? After a wide-ranging discussion including the German army, Texas prisons and Atlanta schools, he notes that the critical tasks are different in each case and so the organisations differed in culture and patterns of authority, but all three were alike in one sense: incentives, culture and authority were combined in a way that suited the task at hand (ibid, p.365). The examination of the mandates of the agencies is more implicit than explicit in thesebooks but the general thrust is highly consistent with the application of the conduct paradigm discussed in this paper.
14) In more recent times, the establishment of a semi-presidential system under the Fifth Republic in 1958 ended a prolonged period of unstable coalition government. The executive tightly controls the national Assembly's examination of the five year law programmes and the budget process with regard to the timing of debates, the information that will be supplied to Parliament, and amendments to the budget. Direct election of the President followed a subsequent referendum of the public (Weaver and Rockman 1993, pp.401-2).
15) Interestingly, J.E. Stiglitz uses the French Revolution and incrementalism as metaphors in a recent discussion of transition economics in Russia (Stiglitz 1999).
16) These observations do not apply to countries with a civil code. Civil codes arising out of the Napoleonic reforms in France tend to circumscribe commercial relationships and hence property rights in order to protect the state. A civil code is resistant to reform. Effects on governance and commerce include high direct transaction costs, inflexibility, slow speed of transactions, the need to resort to the courts to resolve conflict, and a low low level of effectiveness and efficiency of litigation (Sandiford-Rossmiller and Rossmiller, pers. com.). On the other hand, the civil code has led to a high degree of professionalism in the civil service in France.
17) More recent developments include the introduction of decrees that guarantee the rights of land shareholders to sell, lease, transfer or bequeath their land shares; and affirmed their rights to mortgage their land (VtA 1997, p. 84).
18) For a comprehensive discussion of the applicability of these components to developing countries see Bale and Dale (1997).
19) This means that policy advice to decision makers always carries a risk element in that future outcomes cannot be predicted very accurately.
20) Braybrooke and Lindblom see disjointedness arising out the US plural system of many contributants to the policy process.
21) Incrementalism is not a universal phenomenon. Hall (1986, pp.8-9) points out that officials in Britain and France can display considerable forcefulness and real innovative capacity when occasion demands.
22) Blaug only refers to one part of the Braybrooke and Lindblom model (B&L). B&L (1963, pp.66-79) actually distinguish between incremental and large change, and low and high levels of understanding. The model adopted by Blaug, and used here is the incremental change and low understanding model. Decisions with incremental change and high understanding can be dealt with by the administrators; but decisions with large change, with low or high understanding, are not easily explained by the B&L approach. Constitutional economics also makes use of the distinction between small and large changes.
23) In US farm legislation, the struggle for power between the Congress and the executive has resulted in larger and larger farm bill texts. Farm Bills in the 1960s and 1970s ran to 200-300 pages; the 1996 FAIR Act exceeded 1600 pages as Congress sought to bind the hand of the Secretary of Agriculture (Sandiford-Rossmiller and Rossmiller, pers com).
24) Formal review of policy is provided for by the Audit Office, Regulatory Impact Statements to Cabinet, and the Crown Company Monitoring and Advisory Unit. The Audit Office has a statutory requirement to provide reports on whether public sector organisations operate, and account for their performance, in a manner consistent with Parliament's intentions. See Box 7 for details of these arrangements.
25) Robert Thompson points out that in the US Congress has created the Congressional Research Service (CRS), the Congressional Budget Office (CBO), and the General Accounting Office (GAO). These all serve to counterbalance the power of the executive.
26) Ed Rossmiller points out that the National Centre for Food and Agricultural Policy (NCFAP) plays a similar role in Washington.
27) Similar processes are carried out by the Australian National Audit Office. These are strong on administrative detail about implementation and alignment with professed objectives, but are not critical of policy per se. Since 1997, Regulation Impact Statements have been mandatory for all Commonwealth legislation that has the potential to affect business. "The costs and benefits of regulation are to be weighed up carefully to ensure that the putative [supposed] benefits are not outweighed by excessive economic and financial costs, including the compliance burden on business" (Prime Minister Howard 1997).
28) According to the Productivity Commission report, compliance with RIS requirements for Bills introduced into Parliament in 1997-98 was mixed. An Impact Statement was tabled in most cases where required, and generally the level of analysis was adequate. However, the requirement to provide a RIS to the decision maker was complied with in only about one third of cases (ibid, p.33).
29) From A guide to preparing Regulatory Impact Statements, Ministry of Commerce, Wellington, October 1998.
30) From Annual Report 1997-98, The Audit Office, House of Representatives, B28.
31)A new group to work with the Bank on combating corruption in E Asia was announced on 29 June 1999. The panel will be made up of representatives from private industry and former government officials. The group will focus on the relationship between the government and private industry, including bribery, government contracts, the sale of state-owned assets and corporate restructuring (www.worldbank. org/html/extdr/extme/2289.htm).
32) In an institutional approach to constitutional structure in developing countries, Gwartney and Holcombe suggest that a series of constitutional rules be developed to maintain economic freedom as a prerequisite for economic growth (Kimenyi and Mbaku 1999, pp.40-50). The rule for use of the public treasury reads as follows:
“Government revenues should only be used for purposes that benefit the general citizenry. The use of general revenue to subsidize, aid, or favor specific individuals, businesses, industries, associations, organizations, or concentrated interest groups is prohibited. Government programs that benefit specific groups must be financed with taxes or user charges imposed on the beneficiaries”.
33) This section is not a piece of parochialism about the author's country but comes to hand with the main issues involved sufficiently analysed.
34) Sandrey and Reynolds (1990, p.132) state that in 1974 and 1975, and in 1981, 1982 and 1984, NZ producers were receiving less than the equivalent Australian price though not in other years.
35) In Russia, Stiglitz (1999, p.9) argues that social change must be encouraged at the workplace level. In new post-socialist market economies, the primary example of extensive social cooperation in daily life is found in the workplace. Social organisations which might incubate and support entrepeurial efforts include local township governments, unions, schools, colleges, cooperatives, mutual aid associations, guilds, professional associations, churches, veteran's associations, clubs and extended family groups.
36) This situation is well-described by Rowley in a paper on rent seeking and economic growth in Africa (Kimenyi and Mbaku 1999, 223-254). “The new African leaders typically were not wealthy, having been marginalized by their colonial predecessors. In many instances, they succumbed to a temptation, not unknown among western political leaders, to use government power as a basis for personal accumulation of wealth. Since they had no entrepeneurial experience, the only basis for such wealth accumulation was the diversion of resources, often provided in the form of international aid, from processes of development into numbered bank accounts in foreign countries”. Rowley estimates that in Kenya, members of the government have shifted sums into foreign accounts equal to the total of western investment and aid provided over the last twenty years.
37) I found a very useful discussion of the development of local institutional capacity in Sub-Sahara African countries in Corkery, Land and Bossuyt (1998, pp 531-551). Stiglitz (1999, p.17) discusses the economics of transition in Russia. He suggests a formula of decentralisation to involve more independent business units in the process of reform.
38) Schick (1998, p.127) draws attention to the absence of formal contracts and internal markets in developing countries. He characterises this feature as part of the informal economy where ‘there is a long frontier with the legal world’; ‘norms, practices and ideas migrate from one sector to the other’, and ‘there is no habit of spending public money according to prescribed rules’.