The Performance of Public Sector Bodies

Chapter 3. The Performance of Public Sector Bodies

71. Implicit in the public sector reform strategies the Bank often proposes is the idea that public sector performance depends crucially not only on the resources devoted to the public sector, but on the institutional environment in which state employees do their work. The environment is shaped by many factors from the technocratic, such as the formal rules that are adopted, to the informal, such as the organizational culture that

motivates employees to behave in positive or negative ways.

72. Public sector performance is an undeniably complex concept, influenced by many factors not all of which are under the control of policy makers. We make no pretense to fully understanding these myriad factors, nor do we claim to have found an unambiguous definition of just what constitutes performance in the public sector. Yet clearly any considered attempt to improve public sector performance must begin with a conceptualization of what performance means and how to achieve it, difficult as these questions may be. Many experts in the Bank and elsewhere devote enormous energy to just this task, drawing on historical experience and detailed qualitative examinations of institutions and incentives. Our analysis offers a complementary approach. Empirical studies such as that summarized in this chapter contribute to our understanding of a complex issue, but they do not trump other forms of analysis. Quite the contrary, improving public sector performance relies crucially on expert analyses by public administration specialists. Indeed, empirical analyses may provide corroborating evidence for the wealth of expert opinions and descriptive testimonials to the importance of the institutions of public administration. Conversely, they may also impose some empirical discipline on assertions about the ways in which public sector institutions affect performance of public sector bodies.

73. In this chapter we focus on the ways in which the internal institutions of public administration influence the performance of public sector bodies in the Kyrgyz Republic,

Romania, and the Slovak Republic, focusing on quality and integrity as the two key dimensions of performance. A sensible answer to such a question will have to identify, for a specific boat, which design factor is currently the most serious constraint to performance improvements. It is in this sense that we investigate the determinants of the performance of public sector organizations. We would not be surprised to find that the

most serious constraints to performance improvements vary across countries, due to differences in their enabling environments. Accordingly, we estimate separate models for each country and compare results across countries.

74. The chapter contains a technical discussion of the basic model we use to evaluate the role of public sector institutions in public sector performance, our data sources, and tables

summarizing our econometric results. Some of the choices we have made, both in the design of the model and in its implementation were driven by the availability of data. Where applicable, we identify where we have made these compromises. In the Annex we summarize how we might have designed and implemented this model differently, had the data used for this report been collected explicitly for this purpose.

75. A preview of our key findings follows. § Building a meritocratic civil service is of universal importance to performance. In all

three countries, public sector bodies with more merit-oriented systems of personnel management had much higher levels of public sector performance. Of the four aspects of public administration, meritocracy was the only consistent influence on overall public sector performance. This result is consistent with cross-country empirical studies and has important implications for the Bank’s work in public administration. The strength of the relationship confirms the importance of a merit-oriented civil service as a development issue.

§ A well-functioning system of administrative procedures lays the foundation for meritocracy . Although administrative procedures exert a weak direct effect on public sector performance, the most important contribution to be made by administrative

procedures is the indirect effect on performance, working through the enabling environment it creates for building meritocracy. In sequencing Bank interventions in public administration, therefore, strengthening systems of administrative procedures should be among the earliest components.

§ Performance management systems demonstrated remarkably little influence on anything . With the exception of a mutually supportive role with respect to personnel management in the Slo vak Republic, performance management had either no effect at all, or a negative effect. Indeed, in the Kyrgyz Republic, public sector bodies with better performance management had higher levels of bribery. Certain aspects of performance management, in particular the existence of complaint systems, have an influence on performance in reduced form estimations, but only in the two European countries with the stronger effect being in the Slovak Republic. These findings suggest that instituting performance management in environments where the foundations of public administration have not been established may be inconsequential at best, or risky at worst.

§ Financial management systems showed little sign of direct or indirect effect on public sector performance. Financial management systems exerted no effect on any other

system of public administration. In reduced form estimations, the only aspect of financial management that had an important effect on performance was the existence of

extra-budgetary funds in Romania, which was associated with higher levels of bribery. 16 While a strong financial management system will always be necessary for fiduciary

purposes, expectations that such systems will lead to noticeable improvements in public sector performance should be modest if these findings are corroborated. Having said this, it is important to note that the measures of the quality of financial management systems included in these models were particularly weak. As such, these findings are probably more sensibly viewed as signaling the need for better measurement of financial management systems, rather than as evidence of the unimportance of financial