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Public Sector Reform - Does It Work or Doesnt It?


Henry Hazlitt once said the ‘private sector’ of the economy is, in fact, the voluntary sector; and the ‘public sector’ is, in fact, the coercive sector.


The motivation of public sector reform include pressure from electorates, the need for economic growth and the demand for better services from government departments. The better the democratic process and the press, the greater the demand for reform. 

Greater information, better education and research institutions have increased the demand for reform.  Heavy debt and unemployment may force nations to seek external help and such help may come with reform conditions. Some of those conditions may include tax reform and financial management reform, which frequently dovetail into other areas, including human capital reform.

Some of the instruments that have been used before include the completion of transitions to democracy and transitions to market economies.  Many nations anticipate a reward at successful public sector reform, and this ‘anticipated reward’ oils the spokes of reform. Such rewards may include additional credible long term funding, as well as advisory services and facilitation from experts.  In addition to these, they may attract budget support to run their governments as well as loans and debt relief.

Although financial support is a great motivator, it has run into problems in the past where despite the money, the nation lacks the capacity to implement change. Sometimes the number of donors is high and they each have contrasting priorities and therefore may over-complicate the conditionalities for the beneficiary.  Sometimes, the support provided is for international political reasons, which undermines the credibility of such support.  In addition, the tenure of the support may not rhyme with the politics of the country or the length of governments and therefore disruptions occur.

There must be a careful balance between expectations of beneficiary governments and expectations of financiers and donors.

In general, reforming the civil service and reducing corruption have been very ambitious goals for nation states.  They take a long time to be successful, as well as unprecedented political will power and many nation states do not have sufficient guidance or effective independent political systems.

The Scope of public sector reform should be incremental and opportunistic, although it can frequently benefit from a shock and awe strategy. In the most effective cases, the approach has been politically driven and taken advantage of top management support as well as slim windows of opportunity. Strong support at the beginning is critical as is demonstration of success which can build up appetite for more reform.

Where public sector reform has been unsuccessful, sometimes financial support was too complicated and paid little attention to change management and government ownership.  Sometimes, instead of comprehensive human resources reforms, sometimes governments simply retrench workers.  Many projects pay inadequate attention to the improvement in quality and efficiency of service delivery. In areas such as tax administration a good diagnosis combined with government enthusiasm and external project management often produces results.

The issues surrounding corruption and transparency are well researched by now as indicators for ease of doing business, but there is inadequate research into procurement corruption and misreporting.  Reasons why these problems continue to subsist even in the stringiest institutions. Here government ownership continues to be critical.

Inter-sector coordination is becoming more and more critical.

What is the Way Forward?

A critical step in the progress path is to recognize that public sector reform is highly political and complex.  Objectives need to be set realistically.  Enough time needs to be allocated to get significant results and the basic reforms need to be focused upon first.  Changing institutions requires sustained support in human capital as well as in investment projects. Recognize that any project will at first record only modest progress especially for countries starting with weaker than average capacity.  Here you might well find more time is taken up by capacity building and data collection.

Public Sector Reform efforts need to be prioritized. Areas which will yield the greatest dividend need to be concentrated upon to reduce poverty and drive growth, reduce corruption and improve governance.  Hot spots include business licensing, procurement, tax administration and government payroll.  Reducing corruption inevitably leads to high growth and lower poverty and this can be done by building systems, and giving greater access to information.  This would be strengthened by institutions such as the Audit service, the Police and the Judiciary.

Finally, Human Resources Management, Public Finance Management and other Critical Support Agencies must be major components of reform.