Has New Public Management improved public services?

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  • Published Date: 15 July 2020

New Public Management reforms have been accused of importing practices from the private sector that could collide with core public service values. But have they been effective in their promise of improving public service delivery?

At a glance

During the last four decades, the public sector in most countries has been reshaped by reforms under the umbrella of New Public Management (NPM). A paper in Governance examines whether these reforms have improved the quality, efficiency and effectiveness of public services. It finds success or failure depends on the administrative, political and policy context in which the reforms take place.

What is New Public Management?

A basic definition of NPM is the “attempt to implement management ideas from business and the private sector to public services.”

The assumption is business‐like practices enhance both the efficiency and effectiveness of public organisations. This becomes especially relevant when the priority is to cut public expenditure so as to reduce budget deficits and public debt. Such was the case in the 1980s when NPM first emerged.

The first NPM reforms took place in Anglo-Saxon countries, particularly the United Kingdom and New Zealand. They quickly spread all over the world, most prominently in OECD advanced democracies although with differences across countries.

Characteristics of NPM reforms include incentivisation, competition and disaggregation.

Incentivisation

Incentivisation refers to rewarding performance by public managers or external providers delivering services for government by emphasising extrinsic incentives like those employed in the private sector. Introducing business‐like practices such as performance‐based pay and merit‐based promotions were thought to enhance the performance of public agencies

However, early analyses have noted the failure these attempts to motivate public employees. Unlike private firms, public agencies deal with goal ambiguity. Not only are public sector goals more diverse but they are also harder to measure than in the private sector. This complicates the design of incentive schemes.

Public sector employees may have different values and more intrinsic or altruistic motivations than private sector employees. As such using extrinsic or self‐interested incentives may not be successful.

Incentivisation also plays a role in the relationship between the public sector and external providers. In particular, NPM has promoted the use of public-private partnerships (PPPs)— the arrangements between public agencies and private firms for financing, building and operating infrastructure such as transportation, electricity, telecommunications or water facilities.

Competition

From the start, NPM reforms were devised to foster competition. Public services were outsourced to external actors, either private or public. The goal was to improve efficiency and reduce costs. With the creation of “quasi markets” governments make the funding of providers contingent on their performance.

This increased competition in the provision of public services should lead to a more efficient use of public money. However, there could be a cost‐quality trade‐off. Since it is easier to measure costs than quality in public services, private providers have an incentive to cut the quality of services, at least to a minimum level.

Disaggregation

A central feature of NPM is the disaggregation of public sector organisations into smaller agencies. This is assumed to improve results and strengthen accountability through better performance monitoring. It is also thought to lead to a stronger mission focus in the delivery of services and policy.

Disaggregation is a form of decentralisation and could be seen as a strategy by central governmental departments to retain control. It is a government that steers but that does not row. The executive decides the “what” but the “how” is in hands of autonomous agencies whose managers have incentives to deliver in the most efficient way.

Has NPM delivered?

A survey of studies on the effects of NPM presents a more nuanced picture than the conventional anti‐ or pro‐managerial rhetoric prevailing both in academic and practitioners' debates.

NPM has transformed how administrations work. All over the world, public organisations have adopted the two central NPM goals: efficiency and effectiveness. No matter the extent of specific NPM reforms, performance in the public sector is now universally seen as output and outcome, instead of the previous view of performance as input and process.

Notable benefits from NPM reforms and principles include transparency and competition, but NPM reforms may crowd out other reforms or values. For example, a focus on extrinsic motives may crowd out intrinsic motivation.

The success of NPM reforms cannot be isolated from the administrative context in which these reforms take place, and can require robust institutional underpinnings to be effective. The most notable example is the experience of the Nordic countries, which show that respecting core public values like impartiality and equity is not only compatible with incorporating managerial values like efficiency and efficacy, but they may be complementary. 

Want to read more?

The effects of new public management on the quality of public services – Victor Lapuente and Steven Van de Walle, Governance, May 2020


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