Public vs. Private Governance -Julie Rada Page i of 12 Analytical Study:Public Governance vs. Private Governance The Separation of Powers Julie Rada December 7, 2010 PUB503 PR
Public vs. Private Governance -Julie Rada Page 1 of 12 Public Administrative Theory and the Separation of Powers discusses the application ofpublic administration management theory looking at divergent methods involving the executive,legislative, and judicial functions in governance (Rosenbloom, (1983) 2004). Addressing theargument that there has been a collapse in the separation of powers, Rosenbloom notes that asystem of checks and balances has devolved to the practice of governance, incorporating each ofthe three theoretical methods. Each approach may be more or less relevant to different agencies,administrative functions, and policy areas. Administrative actions are circumscribed by internalconsiderations of checks, balances, and administrative and political pressures. Publicadministrators are often called upon to integrate these three approaches to public administration. Management in the private sector is not subject to the constraints inherent with separationof powers. Increased attention is being focused on private governance in the wake of the recentfinancial collapse, government bailouts, and attendant scandals relating to fraudulentbookkeeping and excessive manager compensation (Benz & Frey, 2007). Academic publicadministration curriculum typically includes scholarly work focused on what the discipline canlearn from management practices in the private sector. Indeed, disciples of public managementtransformation extol the virtues of entrepreneurial spirit. Benz and Frey make a case for theadoption of certain public sector approaches as a means to improve governance in the privatesector. “The public governance perspective offers a distinct set of theoretical ideas on corporategovernance … (and includes) mechanisms that differ substantially from what is currentlypracticed” in the corporate world (p. 92). Benz and Frey acknowledge that democratic public administration is not ideal – it is, infact, known to be inefficient, and suffers from scandals, as well as distortions due to rent-seekingactivities. They believe that each can learn from the other. Approaching the topic from the
Public vs. Private Governance -Julie Rada Page 2 of 12economic analysis of political institutions, they propose that four cornerstones of publicgovernance can inform corporate governance. First, realignment of managers‟ compensationwith the prevalent practice in the public sector, i.e. fixed compensation as opposed toremuneration based on pay-for-performance. Second, consideration of the advantages separationof powers may have in application to the private sector. Third, the potential advantage to thecorporate arena through application of rules of succession followed in the political sphere.Fourth, by relying on “institutionalized competition in core areas of the firm” (p. 93). Fixed compensation is the norm in public governance because it is intended to militateagainst an environment conducive to self-interested manipulation of evaluation criteria by publicofficials, politicians and judges. Defining performance in the public sector is not easy, and oftennot measurable. During the 1990s, private sector managers were afforded pay-for-performanceopportunities, with corresponding incentives and opportunities for criteria manipulation in orderto enhance their pay packages. Managers were thus induced to focus on ways in which toinfluence their variable income, finding it easier and less demanding than seeking higher incomethrough increased efforts. Evidence of distortion and falsification of figures is plentiful. Accumulation of power and uncontrolled discretion by individuals in leading positionshas long been an issue in both public and private institutions. In the democratic political arenathe most effective means of restricting this power is through the separation of powers. It iscommon practice in business and industry for the chief executive officer to be chairperson of theboard, and thus the chair of shareholders meetings, simultaneously. Recently enacted legislation,e.g. the Sarbanes-Oxley Act, requires clear separation of executive and auditing functions of thecorporation. “This is an area where corporate governance has co-opted institutions applied inpublic governance, but only after having incurred huge costs” (p.95). Benz and Frey suggest that
Public vs. Private Governance -Julie Rada Page 3 of 12the shareholder voting process of corporations should be revamped to more closely reflect thepolitical process. Elections resulting in free choice among real options by those whose interestsare being represented would be an aspiration. Next, Benz and Frey address the issue of rules of succession. The posit that restrictedterms of office, restrictions on reelection, and position rotation might have practical applicationrelative to top executives. While term limits can have dysfunctional effects, they believe thatthere are advantages. First, is the renewal of incentive to develop a long-term business view.Second, it leads to increased job security and permits more investment in firm-specific humancapital that, in turn, benefits shareholders. Third, is the incentive it provides to carefully select atop manager. Institutionalized competition translated to the corporate world includes voting rights, thecompetitive election process, and voting rules. Unlike the democratic political process,shareholder voting can be affected by privileged shares and/or nonvoting shares. Thesemechanisms are implemented in attempts to forestall hostile takeover. The competitive electionprocess goes to the concept of providing real choice to the parties in interest. Voting rulestouches on consideration of new voting mechanisms such as voting by veto. Benz and Frey wrap up their treatise by discussing differences from other corporategovernance theories. The dominant approach, agency theory, is control-based, which they state issimilar to public governance approach in that they both place emphasis on controllingmanagerial self-interested behavior. Concrete mechanisms of the two views, however, differsubstantially. “The distinctive feature of the public governance perspective may be summarizedin one fundamental question: „Who has the actual rights to decide over what?‟” (p. 100).
Public vs. Private Governance -Julie Rada Page 4 of 12 Ownership and funding are often cited as key factors in differentiating between publicand private sectors (Solomon, 1986). User fees sometimes finance some organizations, however,and there are private companies that rely primarily on government contracts. While managementfunctions in both sectors are conceptually similar, “effectiveness depends on matching theinternal organizational structure to the demands of the task environment” (p. 247). In addition tofunding sources and ownership, other differences between the two impacting structure andpractices include political and legal environments, and criteria for accountability and control.Sources of funding and degree of market exposure are among the most frequently citedenvironmental factors that differentially affect organizations in the two sectors. With profitability as the ultimate criterion for success, private sector managers operate ina competitive and dynamic marketplace. Responsiveness to market and customer demands isexpected, as is the implementation of organizational policies that foster rational economic actionand efficiency. The private sector is profit-driven. Public sector managers must maintainconstituencies, deal with multiple goals, and must navigate through an appropriation processsusceptible to political influences to obtain funding. The culture of the public environment is oneof conflicting values, with often competing objectives, and not conducive to productivity andefficiency. There is a constant tension between accountability and efficiency and theexpectations on public managers to meet demands of public responsiveness. “In the private sector, the extent to which certain actions will be encouraged andrewarded is generally determined by the degree to which they help meet the goals of increasedefficiency. Conversely, the public sector, facing multiple and competing goals and additionalconstraints, might assign a lower priority to policies that reward efficiency, yielding more to thevagaries of the political climate” (p. 248). In evaluating job satisfaction among top managers in
Public vs. Private Governance -Julie Rada Page 5 of 12both sectors, Solomon found that the largest differences between sectors occurred in the area ofreward systems. Satisfaction with performance contingent rewards was significantly higher in theprivate sector. Public sector service organizations expressed greatest dissatisfaction with rewardssystems. A recent study on perceptions of flexibility and red tape in personnel practices found thatthe non-profit sector aligned more closely with the private sector than the public sector in theirresponses (Feeney & Rainey, 2009). This study involved respondents in both Georgia andIllinois. In their discussion and conclusion Feeney and Rainey reveal that there were differencesin perception between the two states as well, suggesting that union presence in Illinois and recentpersonnel reforms in Georgia may have influenced perceptions. They suggest such factors shouldbe considered in future studies. These differences in administrative culture might provide furtherevidence pointing to the impact of separation of powers in public governance. Another feature of public administration borne out of the separation of powers involvesthe use of private litigation to influence statutory policy (Farhang, 2007, Fahrang, 2008). As ameans of ensuring longevity of policies, congress has adopted a practice of inserting litigationprovisions into the legislation that it enacts. This is particularly the case when Congress desiresto ensure that what it intended at policy initiation is not subverted at the agency level, to forestalladverse judicial interpretation, and to safeguard against future legislative action by a Congresscomprised of members with political views that compete with those in place at the time ofenactment. The purpose is to utilize the energies and resource of private actors to control agencypolicy-making. “The oversight literature concerns the mobilization of private resources tocontrol, for example, the Environmental Projection (sic) Agency and the Department of Labor,not to directly control Chevron‟s emissions or Wal-Mart‟s labor practices by suing them. The
Public vs. Private Governance -Julie Rada Page 6 of 12oversight literature is about „how to regulate the regulators,‟ and „not how to regulate society‟”(Farhang, 2007, p. 3). Through passage of the Civil Rights Amendment of 1991, Congressutilized economic incentives as a policy tool with the express purpose of mobilizing privateenforcers. It sought to correct under-enforcement of civil rights laws. Civil rights interest groupsand their Congressional allies “were spurred to action by Supreme Court interpretations of TitleVII that did not comport with their preferences” (p. 36). The ensuing rise in litigation relating toTitle VII reflects the impact of how a Congressional majority dealt with an ideological conflictwith the Supreme Court. “Ideological conflict between Congress and the president, most simply measured asdivided government, is a statistically significant, consistent, and substantively powerful predictorof congressional enactment of incentives to mobilize private litigants. These findings link long-run historical patterns of divided government and legislative-executive polarization, whichincreased in frequency and intensity starting in the late 1960s, with the coincident growth of therole of litigation and courts in the implementation and elaboration of federal statutory policy.Higher levels of risk of electoral losses by the majority party, Democratic control of Congress,and demand by issue-oriented interest groups are also significant predictors of congressionalenactment of such incentives” (Fahrang, 2008, p. 821). Farhang‟s 2008 report covers the years 1887 to 2004. Suits initiated by interest groupsrepresented only two percent of total litigation, and litigation to enjoin or revise policy decisionscomprised five percent of cases filed from 1960 to 2004. Over ninety percent of private litigationenforcing statutes involved a decentralized array of private plaintiffs and their private attorneysin pursuit of private interests.
Public vs. Private Governance -Julie Rada Page 7 of 12 Bureaucratic implementation of agency policy typically empowers the administrator withboth articulation and enforcement of rules. Private enforcement as enabled through litigationdivides the two powers. Courts articulate the rules, and private plaintiffs and their attorneysexecute rule enforcement functions. Other potential causes for enactment of private legislativeenforcement include: the rent-seeking lawyer hypothesis, the issue group hypothesis, the budgetconstraint hypothesis, and party alignment hypothesis. Private enforcement as contemplated in this study results in even greater inefficienciesand has significant impact on agency management. It “produce(s) inconsistency and uncertainty…mobilize(s) less policy expertise … (is) needlessly adversarial, subverting cooperation andvoluntary compliance … (is) extremely costly; and … painfully slow and cumbersome”(Fahrang, 2008). Federal regulation including fee shifts and damages enhancement span thespectrum of policy domain. A breakdown of the distribution of enhancements is as follows:Property – predominantly intellectual (12%), Civil Rights (9%), Consumer (9%), Labor (9%),Public Health and Safety (8%), Banking (6%), Environmental (6%), Interstate Commerce (6%),Security and Commodities Exchange (6%), Housing (5%), Antitrust (4%), Bankruptcy (2%),Communications (2%), Elections (2%), Other (14%). Subsequent to Congress‟ enactment of private enforcement legislation, the rate of federalstatutory litigation filed by private parties at the end of the 1960s rose sharply. “This growth inprivate statutory enforcement litigation far outstripped the growth in other types of litigation inthe federal system, such as tort and contract claims brought under diversity jurisdiction” (p.836). It has grown from a relatively minor share of the federal civil docket to the dominant one.Compared with 18% in 1965, they averaged more than 163,000 per year during the five-yearperiod preceding this study, accounting for an average of 63% of the federal civil docket.
Public vs. Private Governance -Julie Rada Page 8 of 12 As a prelude to his discussion of the differences between public and private management,Graham Allison constructed a table of the functions of general management (Allison, (1979)2004). The table is divided into three parts: strategy, managing internal components, andmanaging external constituencies. Strategy includes establishing objectives and priorities, anddevising operational plans to achieve those objectives. Internal components consist of organizingand staffing, directing personnel and personnel management systems, and controllingperformance. External constituencies reflect dealings with: other units within the organization;independent organizations, i.e. agencies from other branches, interest groups, and privateenterprises; and the press and public. “While there is a level of generality at which management is management, whetherpublic or private, functions that bear identical labels take on rather different meaning in publicand private settings” (p. 399). In addressing the differences, Allison looks to individuals whohave been general managers in both sectors, and who are generally unanimous in theirconclusions. Included are the reflections of George Schultz, Donald Rumsfeld, MichaelBlumenthal, Roy Ash, Lyman Hamilton, and George Romney. All deem that management differsbetween the two sectors, and that it is more difficult in the public sector. Allison‟s summary of his literature review lists the main points of consensus regardingthe attributes of a public organization, relative to those of a private organization. Four topics areaddressed under the heading of environmental factors: degree of market exposure, legal, formalconstraints, and political influences. Less market exposure negatively impacts incentive costreduction, effective performance, and operating efficiency. It also results in lower allocationalefficiency, which can be affected by consumer preferences, and issues concerning proportioningsupply to demand, for example. Additionally, less market exposure reduces availability of
Public vs. Private Governance -Julie Rada Page 9 of 12market indicators and information. Legal and formal constraints mean less autonomy ofmanagers in making decisions due to constraints on procedures and spheres of operation. Thetendency to promulgate formal specifications and controls is greater. There are more externalsources of formal influences, greater fragmentation of those sources. Political influences includediverse and intense external informal influences such as bargaining, public opinion, and interestgroup reaction. There is a greater need for constituency support. The first topic listed under organization-environment transactions is coerciveness. Aspreviously discussed, government has unique sanctions and coercive power. Second is breadth ofimpact. Government has broader impact and a wider scope of concern, i.e. public interest.Actions of public administrators have greater symbolic significance. Third, there is greater publicscrutiny of public officials and their actions. Fourth, public expectations are greater that publicofficials will act with more fairness, responsiveness, accountability and honesty. With regard to internal structures and processes, public managers face greater multiplicityand diversity of objectives and criteria. These are more likely to be vague and intangible than inthe private sector, and there is a greater tendency for conflicting goals in the public sector. Publicadministrators have less decision-making autonomy and flexibility in personnel matters.Authority over subordinates and lower levels is weaker and more fragmented. There is a higherdegree of reluctance to delegate, more levels of review, and greater use of formal regulationsthan in private business and industry. Comparison of organizational performance indicatesgreater cautiousness, rigidity, and less innovativeness on the part of the public administrator. Dueto elections and political appointments, there is more frequent turnover of top leaders, andgreater disruption of plan implementation. Public managers experience greater difficulty indevising incentives for effective and efficient performance, and public employees place lower
Public vs. Private Governance -Julie Rada Page 10 of 12value on pecuniary incentives. Finally, Allison cites results of individual empirical studies thatindicate public employees exhibit personal characteristics with a variety of traits and needs.These include the need on the part of government managers for higher dominance and flexibility,or a need for higher achievement. Work satisfaction and organization commitment are also lowerthan in the public sector. Allison offers, “public and private management are at least as different as they aresimilar, and that the differences are more important than the similarities” (p. 410). In hisconcluding remarks he offers six postulates. One, it is right to demand efficient performance ingovernment, and the perception that performance in the public lags private business is correct.The notion that private management practices and skills can produce significant improvements ifdirectly transferred to the public sector is wrong. Two, substantial improvement to publicmanagement will come through recognition of and consciousness about the public managementfunction. Three, private management rules of thumb, such as the 80/20 rule do not have wideapplication in the public sector. Four, accounting functions are tied to operational tasks. Someaccounting rules may be transferrable directly to public sector problems, however, accountingcategories, rules, and measures yet to be imagined can be created by dedicated attention tospecific management functions. Five, it is possible to learn from experience. Six, development ofthe field of public management should begin with problems faced by public managers.
Public vs. Private Governance -Julie Rada Page 11 of 12 Works CitedAllison, G. T. ((1979) 2004). Public and private management: are they findamentally alike in all unimportant respects? In J. M. Shafritz, A. C. Hyde, & S. J. Parkes, Classics of public Administration (Fifth ed., pp. 396-413). Redmond, CA: Thomson Wadsworth.Benz, M., & Frey, B. S. (2007). Corporate governance: whata can we learn from public governance? Academy of management review , 32 (1), 92-104.Fahrang, S. (2008). Public regulation and private lawsuits in the American separation of powers system. American journal of political science , 52 (4), 821-839.Farhang, S. (2007, Sep. 14). Congressional mobilization of private litigants: evidence from the civil rights act of 1991. JSP/Center for the Study of Law and Society Faculty Working Papers , 44.Feeney, M. K., & Rainey, H. G. (2009). Personnel flexibility and red tape in public and nonprofit organizations: distinctions due to institutional and political accountability. Journal of pubic administration research , 20, 801-826.Rosenbloom, D. H. ((1983) 2004). Public administrative theory and the separation of powers. In J. M. Shafritz, A. C. Hyde, & S. J. Parkes, Classics of public administration (Fifth ed., pp. 446-457). Belmont, CA: Thomson Wadswoorth.Solomon, E. E. (1986). Private and public sector managers: an empirical investigation of job characteristics and organizational climate. Journal of applied psychology , 71 (2), 247- 259.