The crisis effect on performance based budgeting

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The recent global economic crisis has posed significant questions not only to the management of the financial institutions but also to the budgeting and, furthermore, to the Governance structures.
The paper reviews the different periods of budgeting theory, starting from the one- size- fits- all “Performance Based Budgeting”, going on to the managerial era, when budgeting had been transformed to the basic tool of a social engineering, and from there to the New Public Management which was considered as an instrument of “cutting back” policies and, finally, to the Governance concepts of the new millennium.
The paper sees the current crisis as an opportunity for the emergence of a sounder budgeting theory, since all basic notions, such as steering, trust , regulatory capture, etc. have indicated the theoretical and practical vacuum of the current Governance/Budgeting theorems.
The main point of the theoretical proposal of the paper is a re-balancing between the global, regional and local identities which participate in the governing and budgeting process. To that direction a lot of systemic failures can be avoided. The paper concludes with some theoretical work assumptions after having examined a typical budgeting failure concentrating on the Greek case.

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The crisis effect on performance based budgeting

  1. 1. THE CRISIS EFFECT ON PERFORMANCE BASEDBUDGETINGPANAGIOTIS KARKATSOULISNational School of Public Administration, Athens, Hellas ABSTRACTThe recent global economic crisis has posed significant questions notonly to the management of the financial institutions but also to thebudgeting and, furthermore, to the Governance structures.The paper reviews the different periods of budgeting theory, startingfrom the one- size- fits- all “Performance Based Budgeting”, going onto the managerial era, when budgeting had been transformed to thebasic tool of a social engineering, and from there to the New PublicManagement which was considered as an instrument of “cutting back”policies and, finally, to the Governance concepts of the newmillennium.The paper sees the current crisis as an opportunity for the emergence ofa sounder budgeting theory, since all basic notions, such as steering,trust , regulatory capture, etc. have indicated the theoretical andpractical vacuum of the current Governance/Budgeting theorems.The main point of the theoretical proposal of the paper is a re-balancingbetween the global, regional and local identities which participate in thegoverning and budgeting process. To that direction a lot of systemicfailures can be avoided. The paper concludes with some theoreticalwork assumptions after having examined a typical budgeting failureconcentrating on the Greek case.Key words: Global economic crisis, governance, budgeting, socialsystems theory THE MANAGERIAL FOUNDATION OF BUDGETING The global economic crisis poses significantquestions to both the theory and practice of budgeting,disputing the validity of well established theorems andpractices.
  2. 2. 450 PAQ WINTER 2010 The crisis questions the core notion of“performance” as well as other cardinal concepts ofPerformance Based Budgeting (PBB), such as the “greatestreturn in social utility” (Downs 1960), “political and socialconsent” (Key 1940)- notions central to the way stateresources were allocated during the previous five decades. The crisis influences the budgetary agenda, as newfacts arise (such as climate change, clean energy,employment policies) which call for a revision of themethods and tools used up to now. Other issues which alsoemerge refer to the internal organization of the structuresdealing with the budget as well as with the structuresinvolved in recruiting, training and evaluating their staff. The discourse on budgeting has been going on for along time (Schik 1966): it is as old as administrativescience and has always been one of its major issues.Administrative science and budgeting theory evolved inclose interconnection: the methods and tools used bybudgeting over time depicted the prevailing paradigm ofthe administrative science. This article intends to clarify the maincharacteristics of the four distinct periods in the evolutionof budgeting, and to point out the weak points that shouldbe cured in the crisis aftermath. The conclusion drawn fromthis mapping is that there is a need for a reinforced centralgovernment model, different from any authoritarian orimperative model of the past. (Economist 2010). PBB usedto offer a better, alternative, answer to the question “whypublic money were spent to Action A instead of Action B”(Key 1940) in comparison with the one offered by theclassic executive budget theory (Thurmaier 1995). Given the scarcity of resources, it becomes evenmore imperative to find the most appropriate criterion inorder to choose among different options. Notions such asrelative value, displacement costs (Lewis 1952) etc, should
  3. 3. PAQ WINTER 2010 451be re-examined under the light shed upon them because ofthe recent crisis. Looking back at the initial managerial stages of thebudgeting theory one observes that a primary emphasis wasput on the central control of spending and the budget wasused to guard from administrative abuses (Caiden andWildavsky 1974). The detailed classification of objects ofexpenditure which was the main characteristic of thebudget during the first period, turned out to be its weakpoint. The monitoring of all expenditure lines required ahigh capacity and led to the establishment of complicatedand extended control mechanisms. Thus, it was theprocedure of budgeting that gained all the attention and notthe very essence of the budget itself, which is to pursuepolicy outcomes. Such an approach to the budget is notviable especially in the aftermath of the economic turmoil. When budgeting entered the matured managerialera, it was disposed of the weaknesses observed during thefirst period. Its main objective was to manage the efficientperformance of work and prescribed activities.Performance budgeting, officially introduced by theHoover Commission (Cothran 1993), was the majorcontribution of the managerial era to budgeting. During thisphase, the emphasis was given on the efforts to avoid thesocial engineering of reform; namely, to obviate themechanistic transformation of budgeting and render it atool to change the state and society (Lynch 1995). It was considered (Bouckaert 1994) that theobjectives of budgeting would be better accomplishedthrough the implementation of a set of techniques, capableto replace the simple balance sheet debit-credit accountsand reflect the financing of (a sum of) (Boorsma and Mol1995) single actions incorporating policy goals and aimingat specific results (Bouckaert 2002). Managerialisms weak point was a metaphysicalunderstanding of rationalism, since the absence of the
  4. 4. 452 PAQ WINTER 2010"super managers" translated as lack of necessaryprerequisites to implement a management orientedbudgeting. The heterogeneity between the goals and themeans to attain them, the difficulty to connect strategy andimplementation as well as the absence of concrete goals foreach public organization hinder the success of PBB,especially when it came to economic and financialturbulences (Bier 2006). The reasoning of performance based budgetinggrew more mature, as it was structured in a next step, in asystemic way. Information, criteria, indicators and financialflows were networked and took stock on each other strivingfor better choices and decisions (Posner P., Ryu S. K. andTkachenko A. 2009). Some quite important institutional setups had been undertaken, mainly for the strengthening ofcontrols and the evaluation of the results of the budgetaryprocess, through the empowerment of parliaments and auditoffices (Peters and Savoie 1996). A determinative factor ofsuccess is considered to be the strengthening of theadministrative capacity of the Ministries of Finance as wellas of the financial department in every other Ministry andorganization that spends public money. The frequentlyobserved lack of the capacity of public organizations toidentify themselves and their various long-standingshortcomings (lack of reliable data, low learning capacity,poor communication with organizations and stakeholders)have often led to a re-allocation of the existing budgetarycodes after linking them to some “objectives” and “results”(promulgated but not real) (Walters 1994). This was followed by a focus on the planning andprojecting function of the budget, rooted in the Keynesianeconomics, according to which a countrys economydepends a lot on public expenditures. Nevertheless, the discussion, in this phase, remainsintrovert, one-dimensional (basically of a monetarycharacter) and asocial, despite the vivid theoretical
  5. 5. PAQ WINTER 2010 453discussion on “quality” (Bouckaert and Peters 2002),“ethics” (Melkers and Willoughby 1998) or “organizationalchange” (Pollitt and Bouckaert 1995) which resulted tosuggestions (Caiden 1988) about the best way to transformbudgeting (Rabin 1992). But, in spite of all good,theoretical, intentions (Lee and Johnson 1989), the resultswere feeble (OECD 2007). BUDGETING IN THE GOVERNANCE ERA The concept of governance marked the nextqualitative differentiated phase of the relevant discussion,as it was called to cover the “deficit” of legitimacy inperformance based budgeting. Governance puts emphasison networking and the re-establishment of confidenceamong the stakeholders (World Bank 1994). Governance accentuates the social dimension in theprocedure of drafting, monitoring and evaluating policies(Halachmi and Boorsma 1998). Therefore, a non linearquest takes place in order to find a modus vivendi betweenthe supranational and national (central and local)administrative state, markets and civil society. Theadoption of goals, results and indicators is no longer basedon established subjective notions, but it is happening in asystemic context, in order to reflect the interface of eachsubject and its environment, adding to their credibility andcoherence. Following the above mentioned principles andorientations, some significant issues of social/politicalcharacter have been raised about budgeting. The emphasisshould henceforth be on the re-examination of the relationbetween policy goals/results and their budgetary prediction,whereas the societal character of the budget prevailscompared to the “econocratic” one (Pollitt and Bouckaert2004). The rise of the political dimension of budgeting
  6. 6. 454 PAQ WINTER 2010mainly stems from its strategic and operational forecasts,particularly the long term ones. A remarkable set of questions has been expressedby various authors (Mintzberg 2000) who do not see thedirect relation between budgeting and strategic planning.They basically doubt the methodological way of linking thegoals and reform intentions to the budget, in the sense thatstrategy, which the budget is supposed to support,constitutes mainly an irrational exercise (myths, beliefs,etc), while budgetary predictions should be as rational aspossible (Miller, Rabin and Hildreth 1987). However, the desire of people in power to upholdtheir status undermines the objectiveness of the budgetaryforecasts, because of the high political cost. On the otherhand, social self-reflection, contributing to thesustainability of budgetary forecasts, can only be achievedthrough a painful and time consuming procedure ofredefinition of the public and social values (Luhmann1997). The toilful procedure of self-reflection is necessaryin order not to wrongly determine the values and the socialmyths which are to be served by the budgetaryexpenditures (Moynihan 2004). It has been noticed(Ciborra 2002) that in the case that those values and mythsare wrongly determined, budget deficits may be observed. According to the above mentioned estimations,budgetary policy should be conceived rather as a“framework” of goals, means and results than as the directlinkage of outcomes with expenditures. A frameworkallows for more (equivalent) solutions to budget’s goals - akind of a supportive instrument to the annual decisionstaken by the respective society and administration. When itcomes to the annual budget, one has to deal more with apsychological than with a rational issue, since it reflectsmore the anxiety of the budget people regarding time spanthan a consistent choice based on long term predictions(Sun and Lynch 2008).
  7. 7. PAQ WINTER 2010 455 Governance took budgeting ahead but remained aloose frame offering no operational solutions. Governancedid not succeed to broaden, in a non-ontological way, thenotions of trust, responsibility and accountability and lendto them a social meaning beyond that of the mererepresentation and collectivity (Sztompka 2000).Governance, furthermore, did not create psychological andcognitive expectations, which counterbalance thelimitations of the rational forecasts and allocations (Bevirand Rhodes 2001). Governance, finally, did not provide a fertile groundfor the establishment of new, more effective mechanisms tomonitor the budget. These mechanisms could have beenbased on the networking and substantial participation of allthose who are affected by the budget. According to theGovernance principles, consensual control models, likepeer reviews or the European “open method ofcoordination” are to be preferred, but, even so, notuncritically: They have to be adapted to the establishedpolitical and administrative control culture (Pollitt andBouckaert 1995). Another weakness of the current Governanceconcept lies in its drawback to dealing effectively withcrisis phenomena, an issue that might be attributed to alesser epistemological clarity. The critique expressed, fromthe very beginning of the discussion about Governance,was about the missing practicability of its solutions and hasrecently re-appeared in the discussion regarding the globalfinancial and economic crisis. Applicable solutions and thefinal decision per se have not been properly developed intheir qualitative and communicative nature. That is a pieceof knowledge, which has been gained thanks to empiricalstudies (Latin America, Africa) on Governance (Plumptreand Graham 1999) showing that a re-definition is needed. Governance has to distance itself from certaintheoretical foundations, (such as the “rational-choice”
  8. 8. 456 PAQ WINTER 2010theory), which are underlying its epistemologicalfoundation, to a “power based model of change” (Bovairdand Loeffler 2001). The necessity to renounce thepiecemeal approaches with insufficient content (Opello andRosow 2004), in favour of an unconditional empowermentof Governments (Pierre 2000), is again in the spotlightbecause of questions the crisis left unanswered. Movingfrom the current Governance concept onwards, both theoryand practice elaborate on the reinforcement of coordinationand policy coherence. All levels of government are equallyasked to undertake responsibility for the promotion ofrelevant actions. Governance based approaches to budgeting reliedheavily on credible indicators measuring and evaluating itsefficiency on certain policy areas. Strategic forecasts areparticularly difficult because of the high capitalinvestments required for their attainment. Therefore,composite indicators were required to monitor budgetimplementation, instead of the univocal results indicatorsusually used (Saltelli 2006). Composite indicators offer theadvantage of a broad general view of procedures mappedout in various parameters. Laying down and keeping tabson such composite indicators shifts the observation point ofevery defined legal and administrative policy closer to itsgoals. The selection of the appropriate indicators as well asthe definition of the weight attributed to each of theirconstitutive parameters is in itself a political process, whichmay be better achieved through a participatory anddeliberative procedure. Decentralization is also a crucial parameter of asuccessful performance based budgeting. The connectionbetween decentralization and budgeting has been re-invented through the “multi-level” governance discussion(Cothran 1993 and Doern and Johnson 2006). Theproposed model is that central governments undertake theresponsibility for their own budget only, while local self-
  9. 9. PAQ WINTER 2010 457governments for the regional and local budgets. Theimplementation of the model proved quite unproductive,since it leads to tensions and conflicts between central andregional governments (Grizzle 1987), especially as far ascompliance and control functions are concerned. The multi-level governance approach is not a merestructural decentralization. It focuses on policy areas andattempts to improve the efficiency of the public entity,offering a public service at whatever level of governancethat entity may be. However, even in the context of multi-level governance, the discussion focuses on the“management of budgeting” instead of the budgetarypolicy’s functions, the content of the policy itself and theprevailing values. THE QUESTIONS INTRODUCED BY THE CRISIS The reduction of policy and social problems totechnical or structural ones befogs the actual query abouteffectiveness. As the attempts to exit the economic andfinancial crisis have shown, it is crucial for public decisionmaking and public policy building to have explicitknowledge of the field a reform takes place: Many of themeasures adopted to confront the crisis should have beenimplemented at the local level, but policy advisors were notaware of the administrative capacity at that level ofgovernance, so the measures were not properly effected,resulting to further money losses (Posner P., Ryu S. K. andTkachenko A. 2009). The economic and financial crisis has shown that anorganization may be equally ineffective in pursuing apolicy, regardless of the content and methodology, either ifit was designed bottom-up or top-down. Governmentaldecisions on budgets without their legitimacy will continueto be conceived as an allocation problem, identified in asimplistic monetary sense (or, in some other cases as a
  10. 10. 458 PAQ WINTER 2010“management skills” problem) (IMF 2001). The economicand financial crisis offered a relevant example, when manycountries proceeded to allocating stimulus packages to beadministered at the regional or the local level. But as thecapacity at those levels was not always adequate, the resultwas inefficient management and lack of transparency.Transparency is considered as a collateral damage of thecentral-local budgetary interdependence and a quite longdiscussion was focused on its ideal linkage to budgeting(Blöndal 2002). We may consider the arguments about transparencyin budgeting as one more episode in a metaphysicalunderstanding of social and governmental notions andcontexts. There is a rather undifferentiated discussionabout “weak governments”, “regulatory capture” and “lackof trust”, mostly perceived from a moral (instead from asocial) point of view. But even among social scientists,trust has only marginally been considered as a mechanismfor reducing the complexity of the globalised world (andconsequently economy), which overcomes the barriers ofcausal unequivocal interpretations (Luhmann 1988). Trustshould be conceptualized as an attribute of theinstitutionalized system of Governance and in this senseGovernance sets the framework to redefine the design,implementation and monitoring of policies in a systemicway. The most important question in budgetary researchis about the guarantors of the consistency and the “socialreturn” of actions among the spenders of public money.The termini “steering” and “coherence” of actions are usedinterchangeably to describe both a self-referred way oforganizing as well as a way of exercising power over othersin order to better govern. The experience from dealing withthe current crisis also attests that coordination can only beachieved by powerful and coherent governments. Thus, we
  11. 11. PAQ WINTER 2010 459could set forth, as a predictive behest for the budget, thenecessity to support the coherence of government. Thetricky part is to achieve coherence without slipping towardscentralization and authoritative management. Governments are entrusted with two differentfunctions: On the one hand, they establish collectivebinding decisions and, on the other hand, they arestakeholders in the legitimacy process of these decisions.Governments should, of course, preserve, inside thestakeholders’ network, their distinguished character. It isunder this condition, Governments and the “politicaleconomy of reform” (Tommasi and Velasco 1996), shallavoid the traps of bureaucratization of politics (World Bank1995) and, at the same time, re-gain some of their lostreputation. But, for these certain purposes a redefinition ofGovernance is needed. It should in an organic wayincorporate global, regional, and local characteristics ofgoverning to a unique notion. In order to do that, manycases have to be studied and some concrete examples offailures and successes have to be thoroughly examined. It isin this direction we present the case of the Greek budgetarypolicy and reform. The Greek case will be elaborated upon in order toevaluate what has been achieved so far trying to construethe jigsaw of economic and political factors affecting thebudget, in order to draw a road map for a successfultransition from the current budgetary policy to performancebased budgeting, in a re-shaped context of Governance. GREEK BUDGETARY POLICY AND REFORM Budgeting reforms in post war Greece are correlatedto the Ministry of Coordination. It was established in theearly 50s mainly to undertake the coordination of foreigneconomic aid and to promote the development of the
  12. 12. 460 PAQ WINTER 2010country. Most of the institutional, organizational andadministrative structures and functions of the country wereestablished under its leadership. The criticism exercised tothe Ministry of Coordination regarded the fact that itspolicy agenda has been formulated as a response to theflow of foreign aid to Greece during the post war periodinstead of an elaborated national development strategybased on the existing needs of the economy and the society(Porter 1950). Although budgeting in Greece has beenconstantly described as an “instrument of development”(Diomides 1905), it was handled rather as a facilitatinginstrument to support extraneous priorities than as aninstrument to serve broader public interest. The criticism was rather accurate, as the samepattern re-appeared some decades later, when Greecejoined the European Union. Apart from the nationalpriorities, there were new imperatives deriving from theacquis communautaire and the European conventionswhose fiscal policy was called to support, thus becoming aninstrument for the integration of Greece to the EU. Themain policies which the budget had to support were theregional development, the macro-economic stability andthe micro-economic alignment to the Lisbon goals(competitiveness, administrative reform and better jobs)(European Commission 2005). The growth strategy wasthen focused in following the indexes and indicatorsmonitoring the attainment of the policy priorities imposedby the EU, consequently disorientating the country fromthe development of initiatives for structural reforms, inorder to heal the systemic failure of the Greek state. Examining the current situation from anorganizational point of view, the Ministries of Economyand Finance and the Ministry of the Interior, which areinvolved in the budgetary policy, have been two separateentities during the last two decades. Furthermore, when itcomes to the internal formation of the Ministry of Economy
  13. 13. PAQ WINTER 2010 461and Finance, a fractured structure appears once more: TheMinistry of Economy merged with the Ministry of Finance,in 2002, but only nominally, since economic policy designwas practically separated from fiscal policy implementationand control. The necessity of reducing the number of theMinistries had led to another quasi reform. As a result theeconomic, financial or organizational performance did notimprove. Structural discrepancies led to policyinconsistencies: Although regional development anddecentralization has been a promulgated goal, financialmanagement and budgetary control remained heavilycentralized. Some competencies and resources were,indeed, decentralized but the strategic planning capacity ofthe local government was not enhanced Some cultural as well as historic issues were addedon top of structural and policy inconsistencies. Clientelismand rent seeking pushed the already tight budget to the edgeaugmenting its deficit. The large numbers of the so-called“special accounts” as well as the continued accruals in aseries of deficit budgets is a proof of that. Legalism,adhocracy and political maneuvers also hindered the effortsto modernize budgeting: As a matter of fact, during the firsteighteen years (1975 – 1993) after the military junta inGreece, one hundred thirty four (134) bills were enacted,regulating the prices and income policy. The General Accounting Office (GAO), competentfor drafting the budget and monitoring its implementation,supervised by the Ministry of Finance, suffers from internaltensions: On the one hand, there is the strong ex antecontrol culture and, on the other hand, the decentralizationpolicy is going on for almost two decades. The transfer ofsome dispersed competencies to the local level ofgovernance was not followed by a corresponding re-alignment of the relevant budgetary structures. The GAOestablished a well centralized control mechanism, through
  14. 14. 462 PAQ WINTER 2010the Financial Control Units (YDE) belonging to theMinistry of Finance and located within the line ministries,the prefectures, some major municipalities and other publicorganizations. They are independent from the public entitywhich hosts them, their mission being to control the legalityof the entity’s expenses. On the other hand, budgetingpriorities are set according to the programme, policy andwish of the elected local governments. The line ministriesas well as the regional and local authorities remained mererecipients of centrally made decisions about resourceallocation. The Municipalities are funded by the state budgetthrough a procedure that involves two decision centers andconsequently two poles of political power: The dominantplayer is the Minister of the Interior who takes the finaldecision on the exact amount of funds to be allocated toeach municipality. On the other hand, it is the Minister ofFinance who decides on the ceiling of each category ofmunicipality expenses. The Union of Municipalities ofGreece is also a significant political player, since decisionmakers have to take into account its proposals on how theresources would be allocated. Having not declared andcommunicated a clear strategy on political, fiscal andadministrative autonomy of the local self-governments thedifferent rationale of each one of the participants to thedecision making on the budget allocations to themunicipalities, leads to tensions among the majorstakeholders. With a rigid ex ante control framework in place andpeople who have developed an organizational culturetowards administrative but not performance scrutiny, thebudget reform efforts face the challenge of balancing thoseinternal system tensions. Some hesitant reform efforts took place during thepast five years, namely the enactment of the regulatoryframework for Public Private Partnerships (PPPs), the
  15. 15. PAQ WINTER 2010 463elaboration of the municipal business plans and the pilotprogramme for performance budgeting. PPPs were widely used in the mid-90s as anantidote to the feeble results of the nationalizationmovement which was prevailing in the 80s. Most of theprojects for the Olympic games in 2004 were alsoundertaken through PPPs. But as no regulatory frameworkwas in place until 2005, there is no concrete evaluation ofall the PPPs projects undertaken up to then and theirefficiency was not always obvious. When the PPPs wereregulated a PPP unit has also been created at the Ministryof Economy and Finance, in order to promote andscrutinize PPP projects (Karkatsoulis, Plymakis,Stefopoulou 2009). It could, moreover, serve as anoverarching unit to embed PPP initiatives in the country’sgrowth vision. It is not only the two parallel decision centers thatdisrupt the coherence of the municipal budget, but theinstitutionalization of a parallel funding structure whichcreates extra administrative burdens to the municipalbudgetary mechanisms. Some significant extra resourcesare given to the municipalities through a special project“Thiseas”, managed by the Ministry of the Interior.Thiseas’ expenses are not integrated in the state budget butin the annex to the budget, the “Public InvestmentProgram”. The municipalities are funded on the basis ofproject proposals, making it difficult to track the totalexpenditures of a municipality. The municipalities havethus to face the fact that the central state decides on thescope of the investment of their allocated budget, whichleaves no room for local initiatives and accountability toflourish. The fragmentation of the budgetary procedure,along with the fragmentation of competencies and of theaccountability procedures, is not an isolated phenomenondetected only in the budgetary management at the
  16. 16. 464 PAQ WINTER 2010municipal level. In fact, most of the reforms implementedin Greece end up fragmented, although they were designedin a rather comprehensive and systemic manner. A typicalexample is offered by a reform initiative implemented inthe mid 90s. It was the decentralization program“Kapodistrias”, initiated in 1997 to reform the local self-government. It reduced the number of municipalities from6500 to 1000, but did not allocate to them the budgetaryautonomy. Lack of ownership of the local economic andfiscal policy led to a politically manipulated bargainingbetween the local and central level of government, resultingto the inflation of the deficit and the public debt of localadministrations. These problems are now intensified,because of the global economic crisis. It is only with a recent (2008) decision that amunicipal budget is attempted to be connected to an overallstrategic planning. Municipalities with a population over20.000 inhabitants have to present an Action Plan wherethe expenses and the intended results should be highlighted.Although it took over 1.5 year for the Municipalities toelaborate the Action Plans, they face serious difficultieswhen it comes to their reliability. Since the allocation ofcompetencies to the Municipalities is still evolving in anincremental way, they cannot guarantee a certain quality ofservices to be provided by them. Some of the horizontalcompetencies usually allocated to the local level ofgovernment (both regulatory and operational) are stillexercised by the central Government. Primary regulatorypower remains to the Ministries while linking mechanismsbetween the levels of government (local and regional) aremissing. The central response to the request for amodernization of the budgetary policy came in 2007, withthe launching of a “programme based budgeting” reform. Itis an effort, aiming at the introduction of performancebudgeting in Greece, in order to fight some major
  17. 17. PAQ WINTER 2010 465deficiencies of the current budgetary policy such as: theweak top-down process, its fragmented and detailedcharacter and the lack of a single cohesive budget whichoffers a clear snapshot of the state income andexpenditures. The reform effort was launched by the GAOin cooperation with the OECD (OECD 2008), in theframework of a three years agreement. A pilot performancebudget for the Ministry of Culture and a functionalclassification of the entire budget became part of the 2008budget (as an appendix to the annual budget) and it wascharacterized as “an excellent first step that clearly will bea great help in making the budget a more modern strategicpolicy document” (OECD 2008). A similar pilot for allMinistries on a performance basis has been included in the2009 budget. The initial plan was to shift to a finalProgramme Based Budgeting by 2012, after havingevaluated the results of the pilot projects. In spring 2009,the government announced the acceleration of theprocedures to fully adopt programme based budget, so thatall Ministries draft a programme based budget by 2011. The GAO used the “Classification of Functions ofGovernment” (COFOG) methodology (United Nations2000), to classify general government expenditure intopolicy areas in order to analyze the effectiveness andefficiency of general government spending. The GAOasked from the line Ministries to present goals whichshould be attained and performance indicators according towhich their results would be evaluated. The officials calledto submit a proposal for program budgeting reacted withthe well known, already in place, incremental budgeting,simply by recapitulating existing expenditures under thenew rubrics of the COFOG classification. The main shortcoming of the performance basedbudgeting attempt in Greece is its weakness to connectgoals and results to estimated expenditures and finallyallocated expenses.
  18. 18. 466 PAQ WINTER 2010 Although the institutionalization of setting goalsand performance indicators took place in Greece in 2004,they were never interconnected to the factual administrativeactions which followed according to the “command-and-control” model and the legal competencies on which theGreek public administration has been founded. However, it is not only the “light” goal setting thatcancels the rationalization of the budget but it is also thefragmentation of the administrative system, which makesextremely difficult to follow up -if at all- on the goals setby a public organization and to assess the return of its“social utility”. 19 Ministries (within some of them existother smaller coming from unfinished mergers), 13Regions, 54 local governments of second tier and 1034municipalities are producing a chaotic regulatoryenvironment for citizens and businesses. Even if theMinistries were obliged to connect their activities andprojects with goals and performance indicators, it wouldhave been impossible to coordinate and follow up theirimplementation without clearing the regulatory jungle. Anew merger plan to reduce the number of municipalities bytwo thirds has been recently announced. The present structures for the monitoring of thebudget implementation should be strengthened. The GreekCourt of Auditors, established in 1833 according to theFrench “Court des Comptes” (Charisis 2006), has a heavywork load, scrutinizing ex-ante the expenditures but theresults are still to come. The empowerment of the Parliament should be apriority as well. An amendment to the Parliament’s Rulesof Order concerning the budget procedure was added inJune 2008, providing that, in the future, the Parliament willbe able to make modifications to the budget, if the budgettotals remain unchanged – i.e. the Parliament can re-allocate between line items and not only vote on the budgeton a block basis.
  19. 19. PAQ WINTER 2010 467 There is a necessity to provide a unified budgetwhich includes all expenditures and revenues. As a firststep toward integration, top-down ceilings should beimposed on the budget and the investment budget datashould be included in program budget presentations(OECD 2008) The use of the economic assumptions should also bestreamlined in order to enhance the forecasting process. Afull set of data for making forecasts should be added to thecircular which is being sent out to the Ministries everyspring. Such data should include projected GDP growth,inflation, unemployment, social security insurance take up,demographic developments, and other variables orindicators that are of importance in the forecasting process.Budget documentation should include multi-year estimates(years t+2 and t+3) on the basis of maintaining currentpolicy. These estimates should be at program level andcontinually updated in the light of new policy decisions. The capacity of the GAO to conduct ex ante and expost value-for money analysis should be strengthened.Accordingly, its responsibility for both the investment andthe ordinary budget should be institutionalized. The use ofnet budgeting (i.e. the budget containing only the transferof funds, not the total expenditure) to fund public lawentities and hospitals should be reformed as well, shiftingto a gross budgeting basis as recommended (OECD 2002),since the present situation creates transparency problems. The above mentioned suggestions lead, in the shortrun, to a rationalization of the current budgetary policy. Atthe same time, the streamlining of broader reforms, whichshall create the conditions for the sustainability of shortterm reforms, is urgently needed. Such reforms are relatedto the improvement of strategic planning as well as theenhancement of the administrative capacity of the entitieswhich spend public money.
  20. 20. 468 PAQ WINTER 2010 An opportunity to deliver long term reformprograms is provided through the EU co-funded structuralfunds Operational Programme “Public AdministrationReform 2007-2013”. The experience from its poorimplementation shows though that a high degree of inter-governmental coordination and coherence is needed. TheGovernment should urgently achieve the improvement ofits effectiveness and efficiency towards the implementationof both short and long term reforms. If the attainment of reforms, over time, is a difficulttask, under the crisis it seems a much more difficult target.But, there is also a strong counter-argument: The crisisoffers a good opportunity for reforming and re-organizingboth central and local governments, otherwise “anexemplary crisis opportunity will run to waste” (Gurria2009) The impact of such a reform shall have a positiveimpact on budgeting. The reform agenda should bebroadened in order to encompass the highest level ofgovernment which, up to now, was left out. A restructuredgovernment could act as a fertile environment forbudgeting, curing many of the shortcomings previousefforts failed to deal with. TOWARDS A NEW GOVERNANCE CONCEPT: FROM NETWORKS TO SYSTEMS The Greek case is not unique in what it concerns apoor budgetary policy and a mal implemented budget. Inmany countries, European or not, the reforms attemptedtowards the implementation of a PBB system metsubstantial difficulties. What caused them was the lack ofosmosis between the principles and methodologies of PBB,as they have been developed so far, and the uniqueness ofthe political, cultural, economical identity of each country(Eigen 1979). The initial Governance proposal which
  21. 21. PAQ WINTER 2010 469attempted to solve all the reform’s problems by simplysumming up its main components (economical, political,administrative etc.) had either failed, or had hardly offeredany result. A re-definition of governance, enriched with thecrisis input, needs to confront with the regressiveapproaches on the state’s role: A “command and control”state model isn’t an appropriate path to go. Still, more andbetter guarantees for the proper function of the markets in a“social market economy” can be provided by a decisive de-centralization policy instead of a re-concentration ofcompetencies. Multi-level coordination instead ofauthoritative decision making and enhancement ofaccountability in all levels of government can provide asuitable context for a healthy cooperation of the state andmarket’s institutions. A new governance scheme mustemphasize on a ‘whole-of- government- approach” andintegrate – through a process of self-knowledge and self-reflection– functional and structural elements of the policycycle, such as planning and monitoring of theimplementation of goals and strategy, as well as of themechanisms for the assessment and redesign of policies.Institutional trust becomes, that way, a more introvert thanextrovert issue. In the systemic public policies, the co-existence andcooperation of social sub-systems, depends not on theirspecific goals but on their ability to share the same basicvalue set. Moreover, the criteria for the assessment andevaluation of their performance should be established andmonitored by the sub-systems themselves (Luhmann,2000). This is a crucial difference from other approachesthat considered a personal disappointment from institutionsas critical to their efficiency (Rothstein, 1998). Accordingto our concept, there is no specific point, “out there” fromwhere one could observe and evaluate a self-referentialsocial sub-system. Anybody who is affecting or being
  22. 22. 470 PAQ WINTER 2010affected by governance and its interfaces with the othersocial systems, is an environmental element andparticipates, ex definitione, throughout the policy cycle. In this approach, governance is perceived asemerging from the interface among the social subsystems.Trust and distrust of the participators is an indicator of thequality of the system’s internalized environment; what inother words has been described as “emancipation of asocial structure” (Mishler and Rose, 2005). In a self-referential governance system there are no restrictions onthe expression of contradictory opinions, interests orconflicts in any given part of it. The divergent degree of the emancipation of thesystem’s parts reflects to the identity of the social system.Therefore, “internal” and “external” structures andfunctions of a system, as well as “human capital” andcommunications, provide an indication about its maturitydegree. The same goes to the inter-systemic communicationand interactions, mostly known as “networks”. The inter-systemic trust, should be understood as an internal affair ofthe network itself. The budgeting theory should, thus, be revised insuch a wider context of governance. Accordingly, its mainnotions such as "performance", "networks" etc, should bere-conceptualized. It seems an unavoidable prerequisite forPBB to remain “alive and well” (Boorsma 1999).
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