Public sector added value: can bureaucracy deliver?

Today there is a search for a new understanding of the role and function of democratic government and along with it an answer to the question how best might the institutions of government add value to the services that they provide? What is the source of the value added by government bureaucracies and are alternative forms of public sector supply superior sources of value added? These are the fundamental questions which lie at the heart of the contest between public sector bureaucratic supply and arms length decentralised market supply or, simply, hierarchy vs. markets. Answers to the fundamental questions focus upon two issues. First is the effective co-ordination of individual activities and the second is the control of opportunistic behaviour. Are decentralised markets, for example, better at solving these co-ordination and control problems? These questions are a continuation of an agenda found in the works of Adam Smith, who advocated policies that were designed to maximise social welfare subject to the constraints of the administrative agencies of government which implemented the policies. Today much theoretical analysis is being directed at designing suitable incentives for public administration in order to relax the constraints on welfare improvements imposed by the administrative intermediaries of government. In other words, this analytical search is focused upon the optimal structure of government institutions. Central to this analysis are models based upon asymmetric information and agency in which contracts are incomplete as too are constitutions. This reflects the complexity of relationships that exist in the post-fordist and post-modern world of ambiguity and indeterminism. The purpose of this paper is to take stock of our understanding of the “architecture” of public sector resource allocation mechanisms. In particular, the relative efficiency and effectiveness of alternative architectures. This is a speculative venture and a framework rather than a precise theoretical model will be sketched out whilst engaging in a search for the frontiers of understanding by identifying unresolved problems. The vehicle that will be used is a consideration of the success or otherwise of some recently implemented public sector management reforms along with the proposed changes recently announced by the incoming UK Labour Government of 1997. Specifically, the question which will be addressed is whether or not public sector bureaucracy can deliver value for money. The search for improved designs in fiscal systems and the institutions of government is as old as Plato’s Republic. The modernist search for efficient institutional forms of government is based upon some rather old propositions. The first proposition originates in the Scottish moralists and is represented in Adam Smith’s contention that economic decentralisation, especially via market exchange, is more efficient than centralised decision making. The second proposition is found in the French Enlightenment claim that human happiness can be engineered by changing the social order. [Text from the Introduction]