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Relevant to Paper P1 from December 2014

In this, the second of two articles considering the new content in the Paper P1 Study Guide on public sector governance, the final three outcomes are discussed. These are all from Study Guide section A9.

b) Describe, compare and contrast the different types of public sector organisations at subnational, national and supranational level.

Public sector organisations – those involved in delivering state services that cannot always be effectively delivered by the private sector – can exist at several different levels. Perhaps we usually think of these at the national level. National government is usually based in the national capital city and is divided into central government departments (all examples of national-level public sector organisations). The names given to these departments vary by country but most governments have a treasury, an interior department, a foreign office, a defence department, a health service, education, social services, etc. In many cases, these departments are led by a political minister from the governing political party. This is important in democratic countries because the policies adopted by these departments affect many people and it is important that they are subject to political change if the electorate changes a government at an election (this being a part of the social contract between the government and the governed).

In addition, national government policy is configured and coordinated centrally to ensure that strategic policies are pursued and that departments work together to ensure this. The head of government (not to be confused with the head of state) is responsible for national government policy and in a democracy, he or she can be re-elected or defeated based on his or her performance in the role.

In terms of governance, national government departments are nominally headed by a minister from the governing political party. This means that he or she issues instructions on how the department should formulate and implement policy to help achieve the government’s overall strategic objectives. There is also, however, a substantial structure of permanent government employees (sometimes called ‘civil servants’ or similar) whose role it is to advise the minister and help him or her to implement policy in the relevant department.

In addition to national government, public sector organisations also exist at the supranational and subnational levels. Below national level (‘subnational’), some countries are organised or subdivided into regional authorities, variously called regional assemblies, states, cantons, departments, municipalities, local authorities or similar. Some selected powers are devolved down to these subnational bodies by national government in the belief that these selected powers are either best handled by local people or that service delivery to the regions will be more efficient or cost effective if done so. Typical powers devolved down to the subnational level include planning (such as roads and new housing permissions), utilities (such as energy and water), local schools, housing, support of vulnerable communities, rubbish collection, etc. In many countries, for example, children’s education is one of the tasks devolved to local authorities. This is because local authorities are usually in possession of the particular statistics and needs analyses that are necessary for effective planning of education services. So if a large new housing project is planned, it will be typically be the local authority that ensures that a school is located nearby for children in that area to attend. Similarly, local demographic trends and particular educational needs may be better understood by subnational authorities than by national government. In such cases, individual schools must report to the local authority on selected metrics, which might include budgetary compliance, teaching quality and exam results.

In many cases, subnational public sector organisations are led by elected representatives in a similar way to national governments. These are supported by permanent officials in a similar manner to civil servants in national governments.

Supranational bodies are a little more complicated. When national governments form supranational bodies, they do so for a shared purpose and they are often subject to significant pressures as a result. This is often because national governments do not agree with each other, as each one is subject to pressure from its own people to prefer one outcome to another in the supranational organisation. Many European countries, for example, are members of the European Union, with offices in Strasbourg and Brussels, whilst similar bodies exist elsewhere in the world. The United Nations (UN), based in New York, expresses the collective opinion of many countries in different parts of the world, on a range of international issues. The UN employs many thousands of people both at its headquarters in New York and around the world through its various agencies (eg in the World Health Organisation, in its refugee agency, environment programme, etc). Similarly, the World Trade Organisation (WTO, formerly the General Agreement on Tariffs and Trade) meets every few years (in ‘rounds’ named after the city they meet in) in order to help with reducing barriers to international trade in terms of reducing or removing tariffs (import taxes) and quotas (limits on imports of certain goods and services).

c) Assess and evaluate the strategic objectives, leadership and governance arrangements specific to public sector organisations as contrasted with private sector.

In the previous article in this series, the issues of the nature of public sector organisations and their stakeholders were raised and discussed. Because of their nature and the ways they are funded, there are major differences between public and private sector organisations.

Strategic objectives

While most private sector organisations are independent in that they are ‘stand alone’ companies answerable to their shareholders, most public sector organisations are part of a larger public sector structure. A defence force, such as an army, cannot act alone and as it sees fit. Rather, it is funded by government and is tightly controlled in what it is asked to do and how it achieves its aims. Likewise, a school in the public sector will rarely have the freedom to do as it likes in terms of what and how it teaches, who it appoints and where it locates itself. In each case, the public sector organisation is helping to achieve and implement a set of higher government policy objectives.

This is not to say that individual public sector organisations do not have strategic objectives, however. Each one must work out how it will achieve what it is asked to do but the autonomy given to individual organisations varies. The ‘three Es’ framework encountered in the previous article is of help in understanding this. Each public sector organisation must be strategically effective in that it must achieve the objectives established for it in carrying out government policy. Because they are funded by public money, they must also be efficient and make the most of whatever resources they are provided with. Finally, they must also be economical in that they must work within specified budget and deliver desired outputs within that budget. Accordingly, there is an emphasis on value for money and service delivery. When public sector organisations are occasionally criticised in the media, it is usually because they have either overspent, underperformed, or both.

Governance arrangements

There is no single way in which public sector organisations are governed. Accountability is gained in part by having a system or reporting and oversight of one body over others. Because there is no market mechanism of monitoring performance (as there is with listed companies, for example), other ways must be found to ensure that organisations achieve the objectives and service delivery targets established for them.

In some cases, then, a head of service or a board of directors must report to an external body of oversight. The oversight body may be a board of governors, a council of reference, a board of trustees, an oversight board or similar. In each case, its role is to hold the management of the service to account for the delivery of the public service and to ensure that the organisation is run for the benefit of the service users. Because public sector organisations are not held to account by shareholders as with business companies, the oversight body is often put in place as a means of holding the management to account. In this respect, oversight bodies are acting in the interests of service funders (usually taxpayers) in making public sector organisations accountable.

Typical (and general) roles of oversight bodies include the following, although their roles do vary substantially depending on jurisdiction and government policy. Firstly, they are there to comply with government rules on whichever public sector governance applies. So a school may have a board of governors in order to comply with the local authority or education department rules on school governance. A hospital’s management may, likewise report to a superordinate body possibly overseeing several other hospitals at the same time.

Second, it is their role to ensure the organisation is well-run and meets the performance targets established for it by higher levels of government. It may receive internal or external audit reports to help achieve this or make visits and other interventions to ensure that the organisation is performing to expectation. Third, the oversight body may be involved in budget negotiations and then in monitoring performance against budget and any number of other agreed financial measures in a similar way that a management accountant might in a conventional business.

Fourth, it is likely to be involved in making senior appointments to the public sector body and in monitoring the performance of management on an ongoing basis. In many cases, boards of governors in schools or universities, for example, have the power to remove a senior manager (perhaps a head teacher) if they believe he or she is underperforming and not delivering the quality of services required. Finally, they are sometimes required to report upwards, perhaps to local or central authorities, on the organisations they have oversight over.

There is an increasing move in some situations to run some public services along similar lines to private companies. This means they may have an executive board and also some non-executive membership on the board also.

d) Discuss and assess the nature of democratic control, political influence and policy implementation in public sector organisations including the contestable nature of public sector policy'

One of the curious and fascinating features about public sector organisations is that there is sometimes a debate about how they should be operated and even whether they should exist at all. Because, in many democratic countries, public policy is debated in the public arena, there is a public debate about how the state sector should be constituted. This includes debates over the size of the state and the role of its institutions.

In a democracy, political parties argue over the nature of public policy and they do so from a particular set of underlying assumptions. Some of these underlying assumptions influence the way they argue for particular outcomes and the way in which they guide a government when they achieve political power. It tends to be the case (with exceptions) that left-leaning governments prefer a larger state sector, with more state spending and more public sector employment, while right-leaning governments prefer more to be achieved in the private sector and less by government.

In addition, changing policy objectives mean that some public sector organisations are required to change over time, both in size and in what they are asked to do. As governments change, some public sector organisations grow in size and become more important, and others become small and less important.

The debate is often intense and enduring. In the case of health services, for example, some believe that health should always be entirely within the public sector and entirely funded by the taxpayer. This means that, for the service user (the patient), everything is free at the point of use. Others strongly believe that this is a misuse of public funds and that people should pay for health services in other ways, such as through an insurance or subscription scheme. Likewise with university education: some believe it should be paid for by the state and others believe that students should pay. In each case, debates are complicated. If there were easy and convincing answers, there would be less debate, but public opinion is split on most areas of public debate and this fuels political debate and, in turn, how public sector organisations are configured in line with particular political influences.

One of the ways in which some countries have restructured their economies in recent years, is through the process of privatisation. This means taking a service that was previously delivered through public sector organisations and then allowing it to be provided by private sector organisations. In some cases, the previous public sector monopoly supplier of a service is transferred into the private sector by making it into a public listed company so that people can buy shares in it. Those in favour of privatisation tend to argue that services can be delivered more efficiently in the private sector where management have a profit motive and competition. This, in turn, delivers better value to the customer.

This process is not without its critics, however. Opponents of privatisation sometimes argue that some strategic services, such as utilities, water, etc, are too important to be subject to the market forces of private enterprise. Others believe, perhaps from a position of personal ideology, that the state should control much more of the economy rather than less. So transport and airlines should also be under state control, perhaps.

Privatised businesses, once transferred from the state sector, are often subject to a great deal of internal change including changes in culture, structure, and governance. Some Paper P1 questions have used privatised businesses as a case study, focusing in particular on issues of changing governance. In any event, however, we can see that changes in opinion influence public sector organisations in many ways.

These changes to the Paper P1 Study Guide represent a broadening of the study of governance into a wider range of organisations than previously. The public sector shares some features of governance with the private sector in terms of the need for strategic leadership, clear thinking and effective strategy implementation. The governance arrangements often differ, however, and it is important to study these in preparation for future Paper P1 exams.

Written by a member of the Paper P1 examining team

Last updated: 20 Apr 2015