A Political Perspective on Contracting Out: The Politics of Good Times. Experiences from Danish Local Governments

Privatization has been on the political agenda for the last two decades. The literature points to two major explanations of privatization. One explanation is political-ideological, considering privatization to be a Liberal-Conservative strategy. Economic crisis or fiscal stress is the other main explanation of privatization. The two theses are investigated by evaluating the determinants of contracting out in Danish local governments. The analysis shows that fiscal stress is strongly, but inversely related to contracting out, while Liberal-Conservative political leadership is not associated with higher levels of contracting out than Social Democratic governance. Thus, the richer a local government becomes, the more it contracts out. Although party politics is not decisive for contracting out, the motivation seems to be political rather than economical. Specifically, it is argued that in a strongly decentralized public sector with influential public employees, contracting out is possible in good times when revenue and public expenditure are easier to increase, which reduces public employee resistance to contracting out.     

Outsourcing Oversight: A Comparison of Monitoring for In-House and Contracted Services

The public sector contracting literature has long argued that outsourced services need to be and, in fact, are subject to a more elevated level of scrutiny compared to internally delivered services. Recently, the performance measurement and management literature has suggested that the twin themes of accountability and results have altered the management landscape at all levels of government. By focusing on performance monitoring, the implication is that monitoring levels for internally provided services should more closely approximate those for contracted services. The analysis provided here yields empirical comparisons of how governments monitor the same service provided in-house and contracted out. We find evidence that services provided internally by a government's own employees are indeed monitored intensively by the contracting government, with levels of monitoring nearly as high as those for services contracted out to for-profit providers. In contrast, however, we find strong evidence that performance monitoring by the contracting government does not extend to nonprofit and other governmental service providers, each of which is monitored much less intensively than when comparable services are provided internally. For such service providers, it appears that monitoring is either outsourced along with services, or simply reduced.     

Caucuses in Collaborative Governance: Modeling the Effects of Structure,Power, and Problem Complexity

ABSTRACT

This article explores societal culture as an antecedent of public service motivation. Culture can be a major factor in developing an institution-based theory of public service motivation. In the field of organization theory, culture is considered a fundamental factor for explaining organization behavior. But our review of the literature reveals that culture has not been fully integrated into public service motivation theory or carefully investigated in this research stream. This study starts to fill this gap in the literature by using institutionalism and social-identity theory to predict how the sub-national Germanic and Latin cultures of Switzerland, which are measured through the mother tongues of public employees and the regional locations of public offices, affect their levels of public service motivation. Our analysis centers on two large data sets of federal and municipal employees, and produces evidence that culture has a consistent impact on public service motivation. The results show that Swiss German public employees have a significantly higher level of public service motivation on the whole, while Swiss French public employees have a significantly lower level overall. Implications for theory development and future research are discussed.     

Contracting Out and Public Values: A Symposium

The three papers that constitute this symposium were first commissioned for a workshop entitled Citizenship and Contractualism held in October 2000. The theme of that workshop centred on the contractualisation of the relationship between service deliverers and their clients. 1 They have been published elsewhere in a special issue of Law in Context, March 2001, co‐edited by Terry Carney, Gaby Ramia and Anna Yeatman.
These three papers did not fit that theme. They are concerned more with the general use of contracting out as a tool of contemporary governance. I have used the title contracting out and public values because all three of these papers raise fundamental questions about the implications of contracting out for public values.     

Limiting aspects of contracting out in transitional countries: the case of Estonian prisons

Estonia, being one of the most diligent students of the neo‐liberal economic paradigm among the Central and Eastern European transitional countries, has declared that private organisations should be given the chance to operate public prisons. This article argues that in spite of the promising perspective of this idea, the transitional context mixed with the complex nature of incarceration services, sets serious limits for a successful application of the initiative. After identifying four key sources of limiting factors of contracting out, which concern political, legal, administrative and economic aspects, the article gives a brief overview of the development of the Estonian public administration and prison system. It is argued that although no political limits could be identified, there exists some legal and most importantly administrative and economic limits for contracting out prisons in Estonia. There is a need to understand that due to problems inherent in transitional countries such as a low administrative capacity and underdeveloped markets, the implementation of contracting out in cases of complex public services does not solve but transfer the essence of the problems. Copyright © 2004 John Wiley & Sons, Ltd.     

Explaining Interest Rates in Local Government Borrowing

ABSTRACT

This article analyzes the usefulness of municipal accounting information in the interest rates agreed on by financial institutions in the European context. Most of the literature has focused on municipal bonds, mainly in the United States. Our core contribution is to study which factors determine the interest rates on bank loans to municipalities. This framework is different, since there is neither a secondary bond market nor credit ratings, and therefore information asymmetry is higher. Specifically, we investigate if municipal financial indicators and financial reports’ quality have an influence on interest rates paid by Spanish municipalities in the period 2001–2008. Our empirical results indicate that, in general, the municipal financial situation exerts an influence on the credit policy of lenders, who charge a risk premium to those municipalities with less current surplus, which is an indicator of the municipality's saving ability. Furthermore, there is also some inertia in the municipal annual interest rate (year t ? 1 interest determines around 27% of year t interest). Other findings indicate that high levels of expenditures and debt per capita increase the interest cost of municipal borrowing. Finally, municipalities that disclose full detailed financial reports pay less interest because information asymmetry and transaction costs are lower.     

Endogenous Development Dynamics of Multisectoral Network Management

ABSTRACT

Little is known about the effects of regime change on government workers’ job satisfaction. Conventional theories of work satisfaction have identified various individual or organizational antecedents of public employees’ well-being in many different contexts. In this study, we add an additional level of analysis to the study of job satisfaction. The German reunification in 1990 constitutes a natural experiment where public employees’ institutional work environment changed dramatically. Using data from the German Socio-Economic Panel, we show that, after the reunification, East German public employees who stayed in their jobs experienced a “satisfaction shock” by substantially decreasing their levels of job satisfaction. This finding is in line with what has been labelled as “survivor syndrome” in the general management literature. We also find that, after three years’ time, differences in satisfaction levels between East and West Germans reverted to pre-reunion levels. These findings are robust to various model specifications and alternative estimators. The theoretical and practical implications of our findings are discussed.     

Managing Boundaries in American Administration: The Collaboration Imperative

Boundaries have long played a central role in American public administration. In part, this is because boundaries are central to the administrative process, as they define what organizations are responsible for doing and what powers and functions lie elsewhere. It is also because of the nation's political culture and unusual system of federalism, in which boundaries have always been the focus of conflict. Five boundaries have historically been important in the American administrative system: mission, resources, capacity, responsibility, and accountability. New forces make managing these boundaries increasingly difficult: political processes that complicate administrative responses, indirect administrative tactics, and wicked problems that levy enormous costs when solutions fail. Working effectively at these boundaries requires new strategies of collaboration and new skills for public managers. Failure to develop these strategies—or an instinct to approach boundaries primarily as political symbolism—worsens the performance of the administrative system.     

Adam Smith or Machiavelli? Political incentives for contracting out local public services

Why do some local governments deliver public services directly while others rely on providers from the private sector? Previous literature on local contracting out and on the privatization of state-owned enterprises have offered two competing interpretations on why center-right governments rely more on private providers. Some maintain that center-right politicians contract out more because, like Adam Smith, they believe in market competition. Others claim that center-right politicians use privatization in a Machiavellian fashion; it is used as a strategy to retain power, by ??purchasing?? the electoral support of certain constituencies. Using a unique dataset, which includes the political attitudes of over 8,000 Swedish local politicians from 290 municipalities for a period of 10 years, this paper tests these ideological predictions together with additional political economy factors which have been overlooked in previous studies, such as the number of veto players. Results first indicate support for the Machiavellian interpretation, as contracting out increases with electoral competition. Second, irrespective of ideological concerns, municipalities with more veto players in the coalition government contract out fewer services.     

Civil Service Reforms in Italy: The Importance of External Endorsement and Administrative Leadership

The traditional portrait of civil servants in Italy, as well as in most other countries, has always been one of not particularly efficient employees yet have the benefit of a secure job and can look forward to a comfortable retirement package. In order to change this image, public management reforms have largely focused on civil servants since the 1990s. However, many academics and practitioners claim some inertia in the reform implementation. In this article we aim to identify the determinants of such inertia in Italy's civil service reforms and we analyze data from 885 Italian municipalities expected to adopt the pay system reform for senior officials, as required by national legislature. Our findings stress the importance of accrued legitimacy, external public endorsement, and the influence of key internal stakeholders (like administrative leaders) as major vehicles to promote or slow down the implementation of administrative reforms in the public sector.     

Is Management Performance a Factor in Municipal Bond Credit Ratings? The Case of Texas School Districts

Municipal bond ratings are an important determinant of interest costs that a bond issuer must pay. The three major bond rating firms profess that economic and management factors are considered in assigning a bond rating. The management component is of particular interest to public administrators because they can exert more direct control over management factors. Management factors have not been studied empirically in the literature because management performance is generally difficult to quantify. However, the public education sector has seen advances in performance measures and at the same time has increasingly relied on municipal bonds to finance construction. The ordered probit estimation provides support that management performance, as measured in the districts performance on standardized test scores and success in student college admission rates, does influence Texas school district bond credit ratings.     

Reinventing the Proverbs of Government

The field of public administration has a long history of popular reform movements. Many of these reforms have failed to deliver the improvements promised. The current "reinventing government" reforms, which follow largely from the writings of David Osborne and his coauthors, claim to establish a new governmental paradigm based on liberating employees and citizens to do their best and using new management methods to get the most out of what government does. However, a careful analysis of Osborne's chief works, Reinventing Government and Banishing Bureaucracy, reveals that their advice cannot be applied because it is inconsistent. No new paradigm is established, and, more importantly, because of the ahistorical nature of these texts, Osborne proposes discredited ideas for administrative reform and misleads the reader concerning the significance of his observations.     

Municipalities’ Choices of Service Delivery Modes: The Influence of Service,Political, Governance,and Financial Characteristics

This study investigates the influence of service, political, governance, and financial characteristics on municipalities’ choices of four service delivery modes (in-house, inter-municipal cooperation, municipality-owned firm, and private firm) in the Dutch local government setting. The results show that as a service involves more asset specificity and more measurement difficulty, the likelihood that municipalities contract this service out is lower. Also, although some differences in preferences are found between boards of aldermen and municipal councils, for both political bodies a more right-wing political orientation is shown to be positively related to privatization of services. Furthermore, contracting out is also shown to be related to the governance model of municipalities, as services of municipalities that (in general) put relatively less emphasis on input, process, and output performance indicators, and more on outcome performance indicators, are more likely to be privatized. Finally, the results also show that services of municipalities that have a better financial position are less likely to be contracted out to a private firm.     

International Comparison of Public and Private Employees’ Work Motives,Attitudes, and Perceived Rewards

This article presents a conceptual perspective on the distinctive characteristics of public organizations and their personnel. This perspective leads to hypotheses that public organizations deliver distinctive goods and services that influence the motives and rewards for their employees. These hypotheses are tested with evidence from the International Social Survey Programme in order to compare public and private employees in 30 nations. Public employees in 28 of the 30 nations expressed higher levels of public‐service‐oriented motives. In all of the countries, public employees were more likely to say they receive rewards in the form of perceived social impact. In most of the countries, public employees placed less importance on high income as a reward and expressed higher levels of organizational commitment.

Practitioner Points

• The findings presented here add to previous evidence that public employees seek and attain more altruistic and public‐service‐oriented rewards than private sector employees. In particular, we add evidence that these differences hold in many different nations and cultural contexts.
• Compensation and incentive system reforms in many governments have often concentrated on financial incentives and streamlining procedures for discipline and removal. Such matters are important but should not drive out concerns with showing public employees the impact of their work on the well‐being of others and on the community and society. Leaders and managers should invest in incentive systems that emphasize such motives and rewards.
• Leaders and managers should invest in the use of altruistic and socially beneficial motives and rewards in recruiting systems.

     

Public Pensions and Collective Bargaining Rights: Evidence from State and Local Governments

An aging workforce and increasing retirement benefits are ongoing problems for states and municipalities. Unions are often blamed for governments offering too generous pension benefits. This contributes to budgetary pressures in some state and municipal governments. This article analyzes the impact of collective bargaining on pension benefit generosity under different economic conditions. The study finds that the impact of collective bargaining on pension benefits is not consistent over time or across pension plans. Collective bargaining has a positive effect on pension benefits under worsening economic conditions. Additionally, unions indirectly influence pension benefit generosity through campaign donations and unionization intensity. The findings suggest mixed impacts of collective bargaining on different groups of public employees regarding pension contributions. The article concludes with implications for the role of unions in public financial performance and strategic human resource management during fiscal austerity.     

Administrative Error Control: The Role of Value-Based HR Practices,I-Deals,and Organizational Politics

Value-based HR practices, which cultivate public values in public employees, may activate employee’s upward negotiations with the employer to go beyond administrative norms and constraints. The primary research aim is to assess the role of value-based HR practices in fostering idiosyncratic deals (i-deals) among public employees, which in turn contribute to the effectiveness of administrative error control. The research also investigates whether organizational politics undermines the momentum of i-deals in public employees. The source of data for the research includes the responses from public employees and their direct supervisors from People’s Committees of Wards—the grassroots level of government—in Ho Chi Minh City, Vietnam. The data were then analyzed using structural equation modeling. Through the research findings, the effect chain from value-based HR practices through i-deals to administrative error control was confirmed. The negative effect of organizational politics on i-deals was also grounded in the data analysis.     

A Multiple–Indicator Approach to Municipal Service Evaluation: Correlating Performance Measurement and Citizen Satisfaction across Jurisdictions

Early work on municipal service–quality assessment recommended multiple measures of performance from both providers and users. Citizen satisfaction surveys have rivaled their more quantitative counterpart, administrative performance measures, in adoption, but the implication of survey results for action is not well understood by managers or scholars. To achieve meaningfully integrated multiple measures of service quality, we need to explore the dimensions of citizen satisfaction and review patterns of satisfaction across localities. We also need to understand the relationship between administrative performance measures and citizen perceptions. This cross–sectional analysis of municipal citizen satisfaction and performance benchmark data suggests that citizen satisfaction survey results are useful to managers in conjunction with performance–measurement programs as part of a multiple–indicator approach to evaluating municipal service quality. However, understanding citizen perceptions requires a different perspective than that applied to administrative service performance measurement.     

Rediscovering Implementation: Public Sector Contracting and Human Services

There is vast literature on how to implement public policies, with endless case studies emphasising a few key lessons. The drive to contracting in the public sector raises familiar threats to coherent program implementation, and adds those of control and incentives. Contracting fragments program responsibility among multiple contractors, and separates policy agencies from service delivery contractors. It raises questions about political control and accountability, and the prospect of gaps between intention and outcome. This paper 'rediscovers implementation' by reviewing the practical difficulties of constructing public-private relationships which can deliver quality human services. After considering broad arguments about the efficacy of contracting, the paper turns to the provision of human services by examining the contracting out of welfare services and the Job Network. Our argument is modest: that public sector contracting fails if the challenges of implementation are not addressed explicitly, since service delivery through the private sector can falter for exactly the same reasons as traditional public bureaucracies.     

Contracting Out Local Services: A Tale of Technical and Social Services

Governments face a fundamental choice between in‐house production and contracting out for the delivery of services to citizens. This article examines the importance of ideology, fiscal pressure, and size for contracting out in technical and social services. The analysis builds on a panel data set covering municipal spending on services in all 98 Danish municipalities. The authors find that contracting out is shaped by ideology in social services but not in technical services, which indicates that social services are the contemporary ideological battlefield of privatization. The analysis further reveals that economically prosperous municipalities are more likely to contract out social services, whereas contracting out of technical services is not influenced by economic affluence. Finally, larger municipalities contract out more in technical services but less in social services, demonstrating that the size effect is contingent on the transaction cost characteristics of the service.     

BUREAUCRATS AS PURCHASERS OF HEALTH SERVICES: LIMITATIONS OF THE PUBLIC SECTOR FOR CONTRACTING

Contracting out of health services increasingly involves a new role for governments as purchasers of services. To date, emphasis has been on contractual outcomes and the contracting process, which may benefit from improvements in developing countries, has been understudied. This article uses evidence from wide scale NGO contracting in Pakistan and examines the performance of government purchasers in managing the contracting process; draws comparisons with NGO managed contracting; and identifies purchaser skills needed for contracting NGOs. We found that the contracting process is complex and government purchasers struggled to manage the contracting process despite the provision of well‐designed contracts and guidelines. Weaknesses were seen in three areas: (i) poor capacity for managing tendering; (ii) weak public sector governance resulting in slow processes, low interest and rent seeking pressures; and (iii) mistrust between government and the NGO sector. In comparison parallel contracting ventures managed by large NGOs generally resulted in faster implementation, closer contractual relationships, drew wider participation of NGOs and often provided technical support. Our findings do not dilute the importance of government in contracting but front the case for an independent purchasing agency, for example an experienced NGO, to manage public sector contracts for community based services with the government role instead being one of larger oversight. Copyright © 2011 John Wiley & Sons, Ltd.