Good Government Means Different Things in Different Countries

MATT ANDREWS*

Work on good governance implies a one-best-way model of effective government. This has isomorphic influences on development, whereby governments are influenced to adopt a one-size-fits-all approach to get things done. This article challenges whether such an approach exists, proposing that models actually do not hold even for the so-called effective governments. Governments look different, even if they are similarly called models of good government. This proposition is examined through a study of public financial management practices in a set of Organisation for Economic Co-operation and Development (OECD) and non-OECD countries. The study shows that effective governments are not more likely to exhibit better practice characteristics implied in one-best-way models. Good public financial management means different things in different countries. The article concludes by suggesting that good governance models give way to menus and the development community invest more time in examining why different countries select different menu items.

Introduction

Variation is one of the world’s core characteristics, manifest in our abilities to categorize things on the basis of uncountable variables and in the many manifestations of global inequality. The international need for social and economic development is also a broadly felt twenty-first-century issue. In pursuit of this second issue, however, many observers have forgotten the first, applying routine development solutions to different countries, regardless of variation. The good governance movement is an example. It manifests in influential indicators composed of multiple dimensions that seemingly constitute a one-best-way model of good or effective government around which all countries should converge—especially those needing to develop. Political and administrative reforms in many countries are directly shaped by good governance indicator scores and their underlying “best practice” dimensions, with countries apparently buying into the implied story that “this is what good government looks like.”

I challenge such a story in this article, arguing that the good governance version of good or effective government is a hollow one imposing a false

*Harvard University

Governance: An International Journal of Policy, Administration, and Institutions, Vol. 23, No. 1, January 2010 (pp. 7–35). © 2010 Wiley Periodicals, Inc., 350 Main St., Malden, MA 02148, USA, and 9600 Garsington Road, Oxford, OX4 2DQ, UK. ISSN 0952-1895

one-best-way model on developing countries. I argue that countries reflecting “good government” according to prominent good governance indicators actually look very different, varying on the very dimensions that indicators imply are central to good government. These governments provide firsthand evidence that good government means different things in different countries.

Following an opening section that presents this proposition in a general sense, the article’s main contribution takes the form of an analysis of public financial management (PFM) structures in a selection of 38 national governments. PFM structures are central to most government arrangements, and good governance work identifies good government PFM characteristics. The analysis of data from a recent Organisation for Economic Co-operation and Development (OECD) survey of budget practices and procedures shows, however, that governments we would comfortably call good or effective (1) are not more likely to exhibit these characteristics than other governments and (2) have highly varying characteristics. I suggest these findings as preliminary evidence in favor of the research proposition and call for more work to better understand why good governments look different, apparently choosing structural items from a menu instead of treating them as part of a wholesale model. I argue that answers to this question would be more valuable for governments aspiring to improve effectiveness than the models of governance currently in vogue.

Observations and Propositions about Good Government

The good governance community has grown in the past decade, producing many indicators and commentaries (Arndt and Oman 2006; Boivard and Löffler 2003; Grindle 2004; Hood, Dixon, and Beeston 2008; Knack, Kugler, and Manning 2003; Kurtz and Schrank 2007; La Porta et al. 1999; Rotberg and Gisselquist 2008; Rothstein and Teorell 2008). Most indicator sets spotlight structural characteristics of governments and associated outcomes considered important for development: The World Governance Indicators (WGI) name a measure “government effectiveness,” for example (Kaufmann, Kraay, and Mastruzzi 2007; Kaufmann, Kraay, and Zoido-Lobaton 1999). The indicators (WGI and others) arguably underlie strong isomorphic influences on thinking about what effective government is (for discussion, see Arndt and Oman and Goldsmith 2007). Academic work, lending engagements, and reform proposals gain legitimacy by identifying with the “myth” that formal structures reflected in the indicators provide a rational means to attain desirable ends—in this case, development itself (Meyer and Rowan 1991, 46). The following description captures the contents of such myth (Andrews 2008a, 382):

An effective government is small and limited in its engagement, formalized in mission and process and drawing limited revenues primarily from domestic sources. High-quality personnel devise and implement needed programs and deliver efficient and effective services via participatory processes and through formalized, disciplined, efficient and targeted financial management. Responsiveness to the citizenry’s changing needs is high, effected through transparent, decentralized and politically neutral structures; consistently, even during political instability, without impeding (indeed supporting) the private sector.

Many might find this word picture appealing—the kind of government we would all imagine is “good.” The message implied in these indicators is that these are the common characteristics of a good government that developing country governments should attempt to reproduce. But the picture mixes policy choices, outcomes, and institutional characteristics together, and when one breaks these up it, appears that more effective governments are similar in terms of general developmental outcomes only, not institutional characteristics central to governance.

Figure 1 shows the 2006 WGI government effectiveness scores for 81 countries. The more effective governments (scoring above zero on the WGI government effectiveness indicator) tend to be in more developed parts of the world (the OECD, European Union members of Eastern Europe, the Middle East, and certain parts of East Asia). Most governments in developing and transitional regions, the Former Soviet Union, Sub-Saharan Africa, South Asia, and Latin America score in the ineffective space below zero.

Many would agree that the countries scoring highest on this indicator are models of some sort—Denmark, Singapore, Canada, Sweden, Australia, the Netherlands,1 United Kingdom, Hong Kong, United States, Belgium, and Germany.2 They are characteristically developed and tend to have better outcomes, from more sustained growth rates to stronger

FIGURE 1

Government Effectiveness Score, 2006 (-2.5 to +2.5)

FSU SSA SA LA EA MENA EaU OECD

FSU, Former Soviet Union; SSA, Sub-Saharan Africa; SA, South Asia; LA, Latin America; EA, East Asia; MENA, Middle East; EaU, Eastern Europe; OECD, Organisation for Economic Co-operation and Development.

business environments and better social indicators. But institutional characteristics—the core of governance structures—seem to vary a great deal.

While one may argue that all of the governments exhibit formal bureaucratic systems with disciplined budgetary processes, for example, and are commonly focused on introducing new public management mechanisms, differences in the details of how these systems work are quite significant (Curristine 2005; Hallerberg, Strauch, and von Hagen 2007; Joumard et al. 2004). The degree of political influence on appointments, promotions, and performance assessments, for instance, varies significantly across the governments, as do basic civil service structures (see OECD 1999 for a dated comment, and for more recent discussion, Choi and Whitford 2008 and Matheson et al. 2007). The use of arm’s-length agencies also varies, as does the degree to which these agencies are subject to formal rules governing the rest of government (Matheson et al. 2007).

There are even more prominent differences when one considers the limits and size of government and the degree to which it is engaged in the economy (Handler et al. 2005; OECD 1999). The good governance picture suggests the importance of limited government, which it measures in terms of legal checks (rule of law) as well as institutionalized constraints on government scope and fiscal size.3 While rule of law is central to all of the “good governments,” it is much more limiting in some than others. A recent OECD survey of budgeting practices found, for example, that the United States legislates processes in all 11 areas queried, but the United Kingdom only legislates 4 of the 11, implying different levels of discretion in the latter.4 Further, government revenue and spending as a percentage of gross domestic product (GDP) ranged in these governments from about 35% to about 55% in 2004 (Hauptmeier, Heiperz, and Schuknecht 2007, 268).5 A government like Sweden uses this money to fund extensive engagements across the economy and plays a dominant role in financing and providing social services (also providing “bakeries, gyms and garden centers”; Henrekson 2005). The U.S. government is more restrained in its social activities, and the private sector actually plays a bigger role in financing and providing key services like health care. Comparing the two reveals that the governments actually differ a lot, at least in size and scope—two variables that organizational theorists find that foster all sorts of other structural variations.

The literature shows that the model governments differ in other areas as well. The governments exhibit different levels and types of decentralization—politically, administratively, and fiscally (Mosca 2007; Stegarescu 2004). Also, while economic and administrative regulatory burdens tend to be lower than in other countries (except for Belgium, which has higher levels), they are still highly variable across the sample (Malyshev 2006; OECD 2005). Different regulatory mechanisms underpin different relational structures between government and the private sector, an important aspect of governance.

Governance indicators thus identify governments that look commonly good in terms of the outcomes they produce but seem to vary in regard to other institutional characteristics. Perhaps we should not be surprised at this, given that the indicators generally reflect perceptions of governance and not measures of actual institutional characteristics. The bottom line, however, is that the “good governance” picture presented in these indicators seems quite limited: Good governments can look very different.

Do Good Governments Really Look the Same? Analyzing PFM Systems

Critics might claim that the differences I mention are random or that good governments probably vary less on core “best practice” characteristics than other countries. They might argue that relative convergence around good governance criteria is higher in good governments than in less good governments and that my observations fall far short in providing rigorous evidence otherwise.

Preempting such challenges, this section analyzes key characteristics of PFM systems in good governments, testing the implicit “good governance” idea that good governments look the same. PFM characteristics constitute only one corner of the good governance universe. I believe that analysis of this kind must necessarily be focused on narrow areas like this, however, especially if one is to achieve the clarity and rigor about administrative situations and concepts that Herbert Simon (1947) presented as necessary to transform administrative proverbs into administrative theory. This kind of focus is also sanctioned by institutional theory, which emphasizes that research in “organizational fields” is defined as the set of “organizations that, in aggregate, constitute a recognized area in institutional life” (DiMaggio and Powell 1983, 148).

I focus on the specific PFM field because this stands at the heart of resource management in all governments and has broad influence on the ability of governments to provide services, manage transparently, and ensure stability (key points of focus in the development domain and the broad good governance dialogue). Kettl underscores the centrality of PFM in the context of American government, describing it as the place where “everything of importance comes together,” because “nearly everything we want government to do requires money” (Kettl 1992, 1). This area is also characterized by fairly consistent thinking about what good or effective practice looks like. Many of my non-PFM colleagues assume a onebest-way model (“Surely there is only one way to do accounts?”) and would be happy with comments by people like David Shand (n.d.) (then of the World Bank), who noted in an undated report for the Japanese government, “There is now a general consensus among donors and partner countries on what constitutes good PFM.” The OECD documents (Blöndal 2003), the multidonor Public Expenditure and Financial Accountability work (PEFA 2006), and other authoritative materials emphasize common PFM goals and characteristics.6

The increasingly used PEFA instrument allows developing country governments to compare their system quality with “good practice” in regard to 31 elements, implying both the applicability of a standard model to all countries and the existence of “good practice” (ostensibly in the world’s good governments). Blöndal (2003, 3) identifies seven institutional features of strong PFM systems, which the OECD “believe[s] play a key role in order to effectively control public expenditures” (and which, Blöndal argues, were directly related to the strength of PFM systems in the OECD). These key institutional characteristics are reflected both directly and indirectly in the PEFA measures. I sum them into four areas of “good PFM characteristics”:

  1. Top-down, structured budgeting techniques (including fiscal rules, medium-term frameworks, and prudent economic assumptions),7

  2. Relaxed input controls with ex post performance measures,

  3. The use of modern financial management practices (including accruals, capital charges, internal audit, and carryovers), and

  4. Strong budget transparency and accountability arrangements (including active legislative engagement).

Research Approach

With these apparent characteristics of good PFM identified, I adopt a research approach to test the proposition implicit in the governance indicators that good government means the same thing in different countries. I ask primarily if data show that governments considered “good” or “more effective” have higher or lower convergence around these characteristics than others and then examine differences in structure among governments considered more effective (the nine identified as scoring the highest points in the WGI government effectiveness sample referenced in Figure 1—Denmark, Canada, Sweden, Australia, the Netherlands, United Kingdom, United States, Belgium, and Germany).

I look at four specific areas related to the above list: fiscal rules, lump sum appropriations and performance management, internal audit, and legislative authority. I use data from the 2007 OECD Budget Practices and Procedures Database, which provides quantitative data with regard to 89 detailed questions about PFM systems in 38 countries (OECD 2007a).8 The data were collected through the OECD’s Senior Budget Officers network and represent the answers of these officers. It is the broadest one-stop information source in the world currently and is referenced fairly widely (e.g., see Curristine 2007; Lienert 2005). There are, however, some concerns about data quality, particularly related to the lack of stringent quality control by the OECD. This necessitates careful quality control when using the data, which I conducted (where possible) through triangulation of the OECD data with other primary or secondary sources—including government reports and legislation, and academic articles. Even with such quality control, it is possible that the information may yield debate, partly because some of the answers are subjective or require respondents to have information they may not be privy to. While noted, I do not believe this should undermine the value of my analysis. Ultimately, data on how things are done in any administrative process are often open to subjectivity and debate.

PFM in Good Governments: Commonly Good Outcomes but Different Structures

What I find in the study largely confirms the earlier discussion and provides interesting information from which to start inductively building a framework that explains why good governments actually look different in different countries.

I begin by looking at the degree to which good governments have similar outcomes (something I argued above in saying that these governments are similarly successful). Deficits are the only PFM outcome measure commonly available across countries, but thankfully, these are also a vital PFM outcome measure given current struggles with economic downturns and fiscal management.9 Figure 2 shows average deficits across a section of countries for 1990–2006. Governments considered more effective on the WGI are at the right with deficit averages below 2.5% on GDP over this period, compared with higher averages in many of the other governments. The figure thus suggests a convergence around lower average deficits in the more effective governments.

FIGURE 2

Average Deficits for 1990–2006

Government effectiveness score

Sources: World Development Indicators (accessed December 2007); OECD (2007b).

FIGURE 3

Deficit Records for the Nine “Good Governments,” 1987–2006

0.2

0.1

0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6

Deficit/surplus

Sources: World Development Indicators (accessed December 2007); OECD (2007b).

All of the good governments were responding to higher, problematic deficits in the 1970s and 1980s (and in most cases, still in the first few years of the 1990s, shown in Figure 3). Economic and political pressure to control these deficits is credited as the dominant influence in favor of recent more disciplined financial management (Blöndal 2003). Most of the nine governments actually recorded material decreases in expenditure in the mid to late 1990s as a result of such pressures (shown in Figure 4).

The pressure was not just for control and lower spending, however, but also for lower and better spending. Various authors suggest a high level of consistency in the way the more effective governments dealt with this pressure (e.g., see Blöndal 2003; Joumard et al. 2004), arguing that they all introduced the kinds of PFM processes listed earlier as better practices. Recent information from an OECD budgeting survey tells a different story, however, of highly varied experience.10

The Story with Fiscal Rules. Anyone reading work on fiscal rules in New Zealand and Europe in the mid-1990s would have believed that all leading governments had similar top-down mechanisms and that these rules offered a one-best-way solution to fiscal problems. The fiscal rule concept was quickly picked up in Latin America and other regions as a best practice mechanism to facilitate expenditure control and management. It is now part of the dialogue in reform throughout the world, manifest in terms like “deficit rule,” “expenditure rule,” and even in the more operational “budget limit.” Figure 5 shows data from the OECD database illustrating FIGURE 4

Public Expenditure Patterns for the Nine “Good Governments,” 1987–2006

0.8

0.7

Australia

0.6

Spending as % of GDP

0.5

0.4

0.3

0.2

0.1 0

Belgium Canada Denmark Germany The Netherlands Sweden United Kingdom USA

Year

GDP, gross domestic product. FIGURE 5

Fiscal Rules and Government Effectiveness Scores

Source: 2007 OECD Budget Practices and Procedures Database.

how extensive global fiscal rule adoption is. Scores range from 0 to 4, indicating the number of different rule types a country has in place (including budget balance, debt, expenditure, and revenue rules). The scores are correlated with different WGI effectiveness scores (as in Figure 1).

The figure shows that higher fiscal rule adoption is not reserved for the more effective good government models to the right. Indeed, three out of the four governments in the sample scoring below 0 on the WGI government effectiveness indicator (Venezuela, Peru, and Argentina) have scores of 3 on the fiscal rule adoption measure. Only one of the five governments scoring above 2 on the WGI has a fiscal rule adoption measure of 3 (the other four scoring below this level). The 10 countries scoring lowest on the government effectiveness indicator (all below 0.5) have the highest fiscal rule adoption measure average (of 2.2) as compared with the 10 countries scoring between 0.5 and 1.5 (averaging 1.9) and the 17 countries scoring between 1.5 and 2.5 on the WGI (with an average of 1.47). The t-tests indicate that none of these differences are significant, however, showing that good governments are not more likely to exhibit this good government characteristic than others.

Table 1 details the variation in fiscal rule adoption in the nine so-called good governments identified for deeper analysis, showing that these governments do indeed look very different. The first column in Table 1 shows that two of the nine governments (Australia and United States) do not actually have fiscal rules.11 The other seven have different types and combinations of rules.

The second column shows that the mix of expenditure rules looks quite different in the four countries that have such. In some cases, the rule targets expenditure levels, while in others, it targets growth rates, covering central government only in some cases and the entire government sector in others, and relying on political commitment for influence in some cases, agreement between ruling parties in others, and legislation in one country. The third column features information about whether governments provide limits for budgeting entities prior to these entities submitting spending requests (often called ceilings). These are not macro-fiscal rules but certainly are budget rules and contribute to the top-down formal budget structure. Again, there is a range of experience, from no limits at all to indicative limits only, to limits on some kinds of expenditure, to limits for all expenditure types.

I believe that this range of experience creates problems for advocates of a one-best-way model of PFM. Some may disagree and argue that the general experience is to have rules. However, the institutional literature so readily referenced in good governance work emphasizes the importance of institutional detail, making even differences in the mix or specifics of rules very important. These differences lead to different influences on behavior. Consider, for example, the different ways offside rules impact behavior across sporting codes like soccer, field hockey, and rugby. In some instances, these rules prohibit an attacking player from exceeding the last line of defense, but in others, they prohibit passing a certain point in the field, while in others, they constrain players to points behind the physical presence of the opposition. The different implications of such different rules on budgeting behavior would be amusing to consider!

Different fiscal rule influence is in evidence across the governments. A country like Sweden has found the rules (based in legislation) quite influential and is one of the governments actually maintaining fiscal discipline

TABLE 1

Fiscal Rules in the More Effective Governments

Country Fiscal Rule Expenditure Rule Limits for Spending Requests

Australia No rules No Belgium Budget balance rule For some types of expenditure at achapter levelCanada Expenditure, budget balance,Targets nominal growth rate, coveringFor all expenditure at chapter level

debt rules central government only, dependenton political commitment ofgovernment

Denmark Expenditure, revenue, budgetTargets real growth rate, coveringFor some types of expenditure at a

balance rules entire government sector,chapter level dependent on political commitmentof government

Germany Debt rule For all expenditure at line item levelThe Netherlands Expenditure, revenue, budgetTargets real expenditure ceiling,For all expenditure at chapter levelbalance rules dependent on formal agreement ofparties in government Sweden Expenditure, budget balanceTargets nominal expenditure ceiling,Other rules covering central government only,

based in legislation United Kingdom Budget balance, debt rule No, but indicative limitsUnited States No rules No, but indicative limits

Source: 2007 OECD Budget Practices and Procedures Database.

in recent years (at least at the national level and when looking at expenditures in a strict sense).12 Germany, in contrast, found rigid rules in the European Stability and Growth Pact impossible to enforce because of economic challenges associated in part with unification and also with recession.13 The United States actually had fiscal rules from the late 1980s and formally still has some on the books, but these are not reflected in the OECD database partly because of their perceived lack of presence and influence.14 In both the United States and Germany, social and economic challenges (the Iraq war, unification, and economic pressures) were partly to blame for undermining the influence of rules. Other governments in the effective government sample are also experiencing pressure in this regard as they face the challenges of other “special costs” associated with aging populations and, more recently, the 2008 global economic downturn.15 These costs contribute uncertainty to the PFM agenda and make rigid rules less appropriate devices for fiscal management. One could also argue that they redefine the role of fiscal deficit measures as PFM outcome indicators; in the face of spending challenges or economic downturns, some governments might find it less appropriate to control deficits rigidly in some years, rather allowing some slack to accommodate new policies or demands.16

Identifying how uncertainty influences the appropriateness of fiscal rules assists one in understanding why different governments have different PFM processes in place. Hallerberg et al. underscore the importance of this kind of understanding in their direct reference to unanswered questions about adopting fiscal rules themselves: “While rules seem attractive and straightforward to contain the spending and borrowing bias of profligate governments, it is by no means clear what institutional design they need and how they should be embedded into the government budgeting process to be effective” (Hallerberg et al. 2007, 335). They suggest other political process influences on fiscal rule adoption, identifying two institutional approaches in countries attempting to enhance top-down budgetary influence—delegation and contracts (Hallerberg et al. 2007). Delegation involves a minister of finance using rules to enforce his/her influence, and contracts involve actual contractual agreements about fiscal behavior within the executive and between the executive and legislature. The authors argue that delegation is appropriate for single-party governments where ideological distance and political competition is small in the party, while contracts are appropriate for coalition governments and for single-party governments where ruling party ideological distance and political competition is significant. The authors emphasize the materiality of these differences: “The European framework [of rigid rules] may be less effective in countries whose budget process is shaped by the delegation approach... [and]...the two are not easily interchangeable for a given country” (Hallerberg et al. 2007, 339). The story of PFM systems, related to fiscal rules, thus emphasizes context and the need to embrace contextual variation.

FIGURE 6

Input Control Relaxation and Government Effectiveness Scores

Source: 2007 OECD Budget Practices and Procedures Database.

The Story with Relaxed Input Controls and Performance Management. Figure 6 shows how the 38 governments perform in terms of the second PFM area I examined—relaxation of input controls. The OECD data asked about the degree of control relaxation, with lowest scores going to countries with rigid ex ante controls, where: “Each agency/executive organisation receives an appropriation that specifies expenditures below the agency level” (OECD 2007a). The countries score higher when recipients have more discretion in spending against their appropriation. A country scores 4 if it can be characterized as: “Yes, each agency/executive organisation receives a lump sum appropriation covering both operating and capital expenditures, with a sub-limit on wages” (OECD).

The figure shows that most governments have moved, in some degree, toward relaxing input controls, which is also the case with performance budgeting in principle: All 38 countries indicate having some form of nonfinancial performance orientation in the budgeting and reporting process. The figure does suggest that more effective governments at the right are more likely to have more discretionary appropriations approaches than less effective governments at the left. The average score for countries scoring above 1.5 on the WGI is indeed marginally higher than that for countries scoring below 1.5 (2.11 compared with 2). The t-tests indicate that this difference of means is not significant, however. Similarly, even though the 10 most effective governments have an average of half a point higher than the 10 least effective governments (2.2 vs. 1.7), the difference in means is only significant at the 10% level—hardly conclusive evidence that “good governments” are more likely to be characterized by this practice than others.

So, there is no significant evidence that good governments are more likely to adopt these mechanisms than less good governments. But is there evidence of variation within good governments themselves? Certainly, as reflected in Table 2, which provides information on the way the nine more

TABLE 2

Relaxed Input Controls and Performance Measures

Performance againstLump SumObjectives RoutinelyCountry Appropriations? Response to Poor Performance Presented to Legislature

Australia Yes, for operatingexpenditures

Belgium No, expenditurespecified belowagency level

Canada Yes, for operatingexpenditures, but asublimit on wages

Denmark Yes, for operatingexpenditures, but asublimit on wages

Germany No, expenditurespecified belowagency level

Programs eliminated? A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD. of head official affected?

Programs eliminated? A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD.of head official affected?

Programs eliminated? A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD. of head official affected?

Programs eliminated? A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD. of head official affected?

Programs eliminated? A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD. of head official affected?

SometimesA.

Almost alwaysB.

SometimesC.

Almost never D.

Rarely A.

Rarely B.

Almost neverC.

Rarely or almost neverD.

Almost never A.

Rarely B.

Almost neverC.

Almost never D.

Almost never A.

OftenB.

Rarely C.

Almost always or oftenD.

Rarely A.

OftenB.

SometimesC.

Almost never D.

Yes, each ministry preparesperformance reportsaccompanying the budget

No

Other

No, only on ad hoc basis

No, only on ad hoc basis

Continued

TABLE 2

Continued

Performance againstLump SumObjectives RoutinelyCountry Appropriations? Response to Poor Performance Presented to Legislature

The Netherlands

Sweden

United Kingdom

United States

Some agencies, foroperatingexpenditure

Yes, for operatingexpenditures

Yes, for operatingexpenditures, but asublimit on wages

No, for cabinet andmajor agencies; yesfor some smallagencies

  1. A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD. of head official affected?

Programs eliminated? A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD. of head official affected?

Programs eliminated? A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD. of head official affected?

Programs eliminated? A.

More intense monitoring? B.

Budget size reduced? C.

Pay and career opportunitiesD. of head official affected?

A.

Rarely B.

Rarely C.

Almost never D.

Rarely A.

SometimesB.

Rarely C.

Almost never D.

Almost never A.

OftenB.

Almost neverC.

Almost never D.

Almost never A.

Almost alwaysB.

Almost neverC.

Almost never D.

Yes, integrated into mainbudget documents

Yes, each ministry preparesperformance reportsaccompanying the budget

Yes, each ministry preparesperformance reportsaccompanying the budget

Yes

Source: 2007 OECD Budget Practices and Procedures Database.

effective governments have acted to reduce input controls and introduce a performance orientation. The three items cited are part of a much larger set on this topic in the OECD database, summarized in recent work (OECD 2007a). This work shows that most governments in the OECD have introduced performance measures and use these in some respect (as I allude to above). However, the work also shows significant variation in what performance management systems look like across the OECD. The information provided shows some of this variation, in terms of the degree to which governments have relaxed ex ante controls on budget allocations (by providing lump sum appropriations), tie appropriations to performance objectives, and reference nonfinancial performance in reports to the legislature.

The nine governments vary in all three areas. This kind of variation is again important and interesting, especially when considered in tandem with recent work explaining why governments adopt such measures. The OECD’s summary of the survey (OECD 2007a, 12) addresses this issue, commenting, “There is no one model of performance budgeting; countries need to adapt their approach to the relevant political and institutional context.” The report details influences on performance budgeting structures in a subsection titled “Context is important” (OECD 2007a, 74):

Institutional and political factors help to explain the different country approaches, but also influence the ability of these reforms to achieve their objectives. These factors include: the nature of the political system, especially the respective roles of the legislature and the executive in the budget process; the state structure, federalist or unitary; the degree of centralisation of the public administration system; and the relative power of the MOF in the wider institutional structure.

The report also advises that adopting performance-oriented systems is difficult and should be located in a “learning process,” suggesting that the type and effectiveness of such a system is also contingent on the time since initial implementation and the degree to which the governing environment allows learning over time (instead of once-off, win-or-lose reform attempts). Andrews (2004) similarly emphasizes “space” for reform as crucial to performance-based interventions in U.S. states, arising in some environments and not in others. Environmental influences like these emerge from various factors, such as those mentioned in the OECD report. Pollitt (2006) identifies others more specifically, finding through case study research that: (1) task types influence whether performance management is embraced and effective; (2) majoritarian, single-party governments institute performance-based changes more readily than others; and

(3) more individualistic and risk-accepting cultures best accommodate the use of devices like performance-related pay and transparent public reporting of targets and achievements. Consensualist countries are likely to accept performance measurement as a legitimate modern technique but use performance information in a less direct, more negotiative manner, which leads Pollitt (38) to comment:

In such circumstances [more consensualist situations] hard-edged performance steering may threaten important relationships and interests—not least those of the powerful public service unions or political parties that are allied to them or to certain agency missions.

These observations once again suggest that there are appropriate reasons for variation in intergovernment and intragovernment structures related to tasks being undertaken, politics, and culture. The lack of performance-based contracts or pay may not denote ineffective government, just different government context. Context matters, as Curristine notes in discussing performance budgeting information derived from the 2003 OECD Budget Survey: “These reforms have been introduced into an existing institutional context and budget process” (Curristine 2005, 124). She notes, “In most cases, they have not completely transformed or shifted systems away from inputs,” suggesting that, in the short run at least, the new processes actually run in parallel to the old.17 Brinkerhoff and Goldsmith (2005, 199–200) call this “institutional dualism,” which further complicates the nature of systems in countries observed: Because there are different combinations of new and old systems likely in all domains, it is very difficult to understand the true institutional qualities in place.18 Curristine (140) recognizes this important issue by stating, “Reformers do not begin with a blank sheet; performance indicators and targets are introduced into existing and established systems of accountability and control, which have both informal and formal components.” Again referring to the 2003 OECD survey, she notes further that the question reformers and observers of government effectiveness should concern themselves with centers on establishing the appropriate mix of systems for specific countries:

Traditional accountability mechanisms designed around input controls have not been extensively relaxed in some countries. Accountability for performance will co-exist alongside traditional mechanisms. The issue is not about completely replacing input controls with outputs/outcomes, it is more a question of how to find the desired mix of mechanisms within the [individual country] system (Curristine 2005, 140, italics added).

Emphasizing the importance of finding a desired mix within a specific country once again explicitly refutes any one-best-way model of government effectiveness. It also yields the few studies aimed at identifying what the systems should “fit” around vitally important.

The Story with Modern Financial Management Practices—Internal Audit. Figure 7 illustrates arguably higher levels of overall convergence on a better practice characteristic than either Figure 5 or 6. The figure reflects the percentage of line ministries that “have internal audit units” in each of the 38 governments. The data have not been quality checked, given very limited access to information on this issue, and one should be concerned about this because of the many different interpretations of internal audit around the world.19 However, taking it at face value, one must first be FIGURE 7

Internal Audit in Line Ministries and Government Effectiveness Scores

% Budgetary entities with internalaudit

-1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 Government effectiveness score

Source: 2007 OECD Budget Practices and Procedures Database.

impressed by the number of countries apparently covering their ministries with what is a fairly modern financial management practice. Twenty-seven out of 38 countries noted coverage between 80% and 100% (which I show as 90% in the figure). Only six identified not having internal audit units in line ministries or having units covering less than 20% of these ministries.

For the sakes of this article, the more interesting observation is the fact that low internal audit adopters are in the more effective governments. The average coverage for governments scoring below 1.5 on the WGI government effectiveness indicator is 75%, compared with 59% for governments above 1.5. The difference is actually most glaring for the bottom 10 WGI scorers (which score below 0.5 on the government effectiveness measure but have an average internal audit coverage of 83.3%) and the top 10 WGI scorers (all scoring above 1.8 on government effectiveness but with less than 60% internal audit coverage in line ministries). The t-tests show that the differences in means are all significant at the 1% level. This suggests for the first time that good governments may be different from less good governments. But note the direction of the difference: Good governments are less likely to adopt the better practice internal audit characteristic than others!

The OECD data do not allow deeper analysis of differences in adoption among the good governments themselves, but the range in ministry coverage across the nine governments is from 10% (Belgium) to 90%. One recent study is tremendously useful in understanding differences at a deeper level, speaking to the variation in choice of design. Sterck and Bouckaert (2006) study internal audit entities in six OECD governments and purport to find “similarities in legal requirements, organizational structure, and future challenges.” Consider, however, the differences they actually relate in this six-country sample (which includes Australia, Canada, the Netherlands, Sweden, the United Kingdom, and the United States): Some governments legislate the need for internal audit, while others do not; while most governments have internal audit directly in budgetary entities, there are important exceptions that provide internal audit through central entities; some governments have central standard-setting entities for internal audit, while others do not; internal audit entities in all governments produce similar reports (reviews of internal control systems, financial audits, legislative compliance audits, and performance audits), but the time spent on the various types is very different (as is time spent on assurance and consulting activities); and the ratio of civil servants to internal auditor varies significantly, from 247 in the United States to 752 in the Netherlands and 979 in Canada.

Instead of emphasizing the supposed similarities, the article could have examined reasons for what are really notable differences, some of which it even alludes to. Consider, for example, the differences in institutionalization of the internal audit profession (in the formation of professional institutes in the United States in the 1940s20 vs. in many European countries like the Netherlands and Belgium in the 1970s21). This explanation is reflected partially in the article’s observation that human resource organizations in governments must be able to attract and retain talent but speaks to a larger social and cultural context in which such talent is produced. And consider the fact that internal audit was legally recognized and mandated as a public sector function at very different times in the governments—1978 in the United States and 2001 in the Netherlands. The article emphasizes the importance of establishing a legal mechanism but does not discuss how time since passing legislation might affect internal audit coverage, activity, and influence. The article also mentions the importance of managerial acceptance of internal auditing as a function (especially the modern version) but does not allude to what this acceptance hinges on—cultural awareness (and the professionalization issue already referenced), social and economic pressures to manage risks, risk, and uncertainty avoidance, perhaps?

The Story with Accountability Structures—Legislative Authority. The budgetary authority of the legislature is also an issue raised in recent good governance work, especially pertaining to PFM. The PEFA instrument used to assess the “performance” of PFM systems in developing countries devotes 2 of 28 indicators to this issue, noting that government accountability is undermined where the legislature does not effectively exercise its power. PEFA notes that the legislature should have authority over budget review, in-year adjustments to the budget, and review of financial reports and audits. The OECD database asks whether legislatures do indeed have such authority in these areas, as well as whether they have staffs to assist and whether the time allowed for review is sufficient for the exercise of authority.22 Figure 8 shows a “legislative authority index” calculated on the basis of answers to these questions in the 2007 survey. Scores on the exact same index are provided for 2002 in Lienert (2005).

FIGURE 8

Legislative Budgetary Authority and Government Effectiveness Scores

Legislative budgetary authorityindex (out of 11)

-1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 Government effectiveness score

Source: 2007 OECD Budget Practices and Procedures Database.

One should immediately observe that some governments score extremely poorly on this index—0 or 1 out of 11! One should also note that the lower scores are at the high end of the government effectiveness scores. Five of the countries scoring the 11 highest scores on the government effectiveness indicator scored 0 or 1 on the legislative authority index. In contrast, only one of the weakest 11 governments (scoring the lowest WGI scores) recorded 0 or 1 on the legislative authority index.

The average scores for governments scoring above and below 0.5 on the WGI effectiveness indicator are close, at 4 and 4.1, and a t-test shows that the two means are not significantly different. A paired t-test also shows that the difference in means of the top and bottom 10 countries is also not significant, although the mean of the weaker group exceeds that of the top (4 in the bottom 10 and 3.9 in the top 10).

Once again, “good governments” are not found to be more likely to adopt a “better practice” PFM characteristic than other governments. But once again, we ask: Is there more evidence that the good governments actually differ among each other? And again, the answer is yes. Legislative authority varies quite significantly across the effective government group, as shown in the scores in Table 3 (the same as those shown in Figure 7). With a potential score of 11, one sees variation in the nine more effective governments, with Australia, Canada, and the United Kingdom at 1 and the United States at 10. The different contexts yield different power struggles, demand for different kinds of budget information, and—in the words that title a prominent article on this topic—“shape policy and budgets” differently.23

It is important to note that the variation in Table 3 has implications for the broader budget dialog and process in place in the nine governments. Highly engaged legislatures can be a significant “brake” on executive budgetary freedom, having a domino effect on other processes in place. A counterargument suggests that stronger legislatures can foster a pro

TABLE 3

Different Kinds of Legislative Budgetary Authority

Legislature’s Country Type of Government Budgetary Authority

Australia Westminster 1 Belgium Parliamentary monarchy 4 Canada Westminster 1 Denmark Parliamentary monarchy 5 Germany Parliamentary republic 4 The Netherlands Parliamentary monarchy 6 Sweden Parliamentary monarchy 9 United kingdom Westminster 1 United States Presidential 10

Sources: 2007 OECD Budget Practices and Procedures Database; Lienert (2005).

spending bias, which was argued particularly in Sweden’s case in the late 1980s (Wehner 2007). This counterargument focused mostly on the influence legislatures can have in adjusting budgetary allocations, however, which would only make up three points in the authority measure in Table 3, leaving eight points focused on the accountability-enhancing aspects of legislative engagements. The fact remains that some more effective governments score substantially less than 8 and that the variation in scores is still evident.

The observation further weakens any one-best-way argument about what good or effective government looks like and suggests the importance of examining context to understand what kind of system a country needs. Table 3 alludes to one important contextual aspect that seems to define the level of legislative authority that may be possible or appropriate to a given government—its type. The table suggests that presidential governments like the United States tend to have higher levels of legislative authority, while parliamentary governments (and Westminster governments in particular) have lower levels. Lienert (2005) argues that this may not in fact be as strong a pattern as the table suggests, partly because most government types are now hybrids. Other important influences relate to political legacy (with French-influenced systems looking quite different from others, for example),24 the broader political engagement of citizens and civil society, demand for information, and demand for legislative activism. Where these factors vary, one can expect variation in government structures, which seems appropriate and necessary for contextually significant effectiveness.

One can also expect differences in acceptability of certain practices that define dimensions of good or effective government, like corruption and responsiveness. Various observers explain pork barrel spending as a function of the peculiar government type and legislative strength in the United States, for example. Most decry the practice, as referenced by Brinkerhoff and Goldsmith (2005, 213):

Pork-barrel spending is almost always viewed critically, as the embodiment of bad governance.... [It] not only tends to bust the government budget but also leads to excessive spending on local projects relative to projects in the national interest.

Brinkerhoff and Goldsmith go on to suggest, however, that this kind of practice may have some appropriateness in context, facilitating broad resource allocation decisions in complex negotiation environments and contributing to overall political stability (213):

[G]overnment funds have to be spent for various government projects in different locations. Some method is needed to allocate these funds, and bargaining among politicians may be as good as many others. In large and diverse societies such as the United States, political pork is a vehicle for placating different regions and ethnic groups. Often, the widening of a local road, the dredging of a local waterway, or a similarly mundane act adds to political legitimacy and thus, indirectly, to democratic governance.

Concluding Thoughts

The data and discussion around Figures 5–8 constitute a challenge to the good governance proposition that good government looks the same in different countries. Countries that exhibit good outcomes can have very different governance structures. This evidence should challenge the current predilection for one-best-way models of PFM systems and government structures in general. These models are being foisted on developing countries with the implied promise of development but without evidence that the developed countries themselves uniformly adopt the model elements. Countries that come out reflecting “good government” according to the influential good governance indicators actually look very different, varying on the very dimensions that indicators imply are central to good government. I show this point here with regard to basic public financial constructs where many would probably believe there is one way: Imagine the variation with more controversial aspects of governance.

I believe that the development community should pay more attention to this variation. Such attention will require closer focus on the importance of context in shaping governments. Instead of building an ever-growing list of good governance characteristics we would like developing countries to adopt, researchers should focus on better understanding what structures government actually do adopt and why.

It is important to note that elements of the good government picture painted by governance indicators are already fixtures in global public sector reform programs, and context appropriateness is not a strong point in most development engagements. A recent study of 31 African countries’ PFM reforms finds governments commonly pursuing multiple “best practice” constructs in the form of a model: like multiyear budgets (29 of the 31); program, activity, or performance budgets (25 of the 31); external audit and legislative reform (28 of the 31); and internal audit (25 of the 31) (Andrews 2008b). One should note the cross-country variation in this sample: About half had Francophone histories (where external audit did not exist in the modern guise), 7 of the 31 countries had experienced serious social and political upheaval in the last five years, 6 had not produced an annual budget in at least one of the last three years, at least half had major discrepancies in the line item classification scheme they used, and most had only 20–50 qualified accountants in the country (private and public sector, the numbers present in the United States in the 1880s). Surely, the variation in countries should have led to varying types of reform proposals, composed of different mixes of the best practice constructs (and perhaps some constructs that are not best practice). Surely, the major differences between these contexts and those in which new ideas were hatched should raise red flags to those advocating replication.

The stories of replicated “best practice” reform designs abound, as do tales of failed reforms. The latter are partly to blame (I believe) gpt the fact that effective government elements underlying reforms resemble the principles of administration that Herbert Simon decried as problematic proverbs 60 years ago—quotable and convenient constructs for rationalizing past behavior or justifying future decisions but defective in providing serious theoretical explanation or practical advice. Simon argued that, as with all proverbs, the principles of administration of his day stood well when applied alone and in the right context but poorly when considered in tandem with others: “For every principle one can find an equally plausible and acceptable contradictory principle” (Simon 1947, 53).

The discussion of variation in “good government” structures suggests to me that leading world governments do not treat these sets of potentially conflicting principles (or proverbs) as elements of one strict model but rather as items in a menu. Put metaphorically, Sweden “chose” to have a large but decentralized government system for providing its health care, because it “fit” the context.25 The United States has a system dominated by the private sector perhaps because it “fit” that context as well. The two governments and societies adopted different menu selections of different practices, to achieve similar objectives (provide world-class health care). Interestingly, there is evidence of “choice” even within governments and over time. While authors like Wehner (2007) show that wealthier, more developed countries are also more transparent in their PFM systems, most wealthy governments “choose” lower levels of transparency in certain sectors—like defense.

History tells us that such “choices” change as contexts change as well— National Aeronautics and Space Administration’s (NASA) early space program successes, arguably a major highlight in twentieth-century administrative achievement, were born out of considerably less transparency and “best practice” management and governance than its more recent (though less remarkable) endeavors (Bizony 2006; Lambright 1998). McCurdy (1994) notes that the early NASA exhibited a “frontier mentality” that was later changed as flexibility decreased and bureaucracy increased. McCurdy likens the NASA story to that of another great twentieth-century achievement, the 1933 Tennessee Valley Authority work, which was also given huge flexibility at its start, shaped to reflect what today might be called shoddy governance: “In setting up the Tennessee Valley Authority (TVA) in 1933...the US Congress exempted the new agency from burdensome administrative regulations during its formative years and placed its governing board in Knoxville, Tennessee, in part to distance it from the constant oversight imposed on federal executive housed in Washington, D.C.” (McCurdy 1994, 100).

Conceptualizing governance constructs as menu items to be chosen, rather than essential elements of a one-best-way model, is, I believe, an important step to better understanding why good government looks different in different settings. I imagine it will be a helpful step for developing country governments, especially if linked to thoughts on how governments should “choose” from the menu. The development community could start addressing this question by asking why the world’s more effective governments exhibit different combinations of better practices (as shown in Figures 5–8 and Tables 1–3). What current cross-country characteristics and/or historical factors led to these menu choices? With regard to the NASA-type interventions, what internal factors lead governments to adopt different governing solutions? While the current article does not provide definitive answers to these questions, the discussion does point to some design factors that academics and practitioners engaged in PFM reforms might find interesting:

Future research should aim to develop these ideas into real answers to the questions posed earlier. This would be very valuable for developing countries, not only showing an honest respect for the fact that good government looks different in different contexts but also actually trying to explain why.

Notes
  1. These six countries that scored above 2 and make up the top 5% in the 81-country sample.

  2. These countries scored above 1.5 and rounded out the top 10% in the sample.

  3. The WGI “regulatory burden” element has, as one of its core sources, scores on the Heritage Foundation/Wall Street Journal Index for government intervention in the economy, which is measured in terms of the following: government consumption as a percentage of the economy, government ownership of businesses and industries, share of government revenues from state-owned enterprises and government ownership of property, and economic output produced by the government.

  4. The numbers draw from my own assessment of question 4, a–k, in the 2007 OECD Budget Practices and Procedures Database, which asks about the legal basis of the following: the form and structure of the annual budget and related legislation, the timing of the annual budget process, roles and responsibilities of different parts of the executive in budget formulation and execution, roles and responsibilities of the legislature and the executive in the budget process, provisions on what happens when the budget is not approved by the beginning of the fiscal year, requirement for legislative authorization of spending, requirement for legislative authorization of taxes, rules for the use of contingency or reserve funds, requirement for audit of government accounts by the supreme audit institution, requirements for internal audit structures in line ministries, and management and reporting relating to off-budget expenditures.

  5. The entire group of governments was in fiscal trouble in the early to mid1990s, the tail of a fiscal expansion period that led to some significant adjustments in the past 15 years.

  6. See also British Department for International Development (DFID) (2001) and World Bank (1998), or the Asian Development Bank’s online toolkit: http://www.adb.org/Governance/gov_toolkits.asp#3.

  7. Anderson (2006) is a good reference point for this, making the prescriptive comment: “In sum, bottom up: disaster; top down: success.”

  8. Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, Costa Rica, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Peru, Poland, Portugal, Slovak Republic, Slovenia, Korea, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States, and Venezuela.

  1. Anderson (2006, 2) noted that deficits were reentering the agenda in 2006, stating: “Fiscal deficits have reclaimed their place as a pressing public policy issue around the world.”

  2. Not just different degrees of adoption as suggested, for example, by Blöndal (2003).

  3. See OECD (2002) for more detailed analysis of fiscal rules that confirm the information in the table. One (Australia) has had surpluses the past few years, while the other (United States) has recorded deficits.

  4. Anderson (2006, 31) argues that the rigid rules have not stemmed expenditures at the local level (not covered by rules) and have led to increased use of tax expenditures “to introduce new policies without breaching the ceiling or requiring balancing measures.”

  5. Posen (2005, 5) writes: “Germany, along with other Eurozone members France, Portugal, and more recently Italy, has been in repeated violation of these rules.” Posen argues that this is partly because “Germany has of course suffered from a prolonged recession and historically high unemployment since 2001, which has put significant pressure on fiscal policy” (5).

  6. The U.S. experience is well discussed in Anderson (2006) and in Schick (2005), who discusses the situation as such: “The Gramm-Rudman-Hollings laws (GRH) enacted in 1985 and 1987 purported to limit annual budget deficits; the 1990 Budget Enforcement Act (BEA) capped annual appropriations and required that any legislation increasing the deficit—or decreasing the surplus—be offset. BEA expired at the end of fiscal 2002, but some of its rules have been reimposed in congressional budget resolutions. These have not been effective.”

  7. Interestingly, a country like Sweden may face less pressure from such costs because of the historical role government has played in providing social welfare (something that was criticized in the deficit years of the early 1990s). This established role decreases uncertainty about future demands.

  8. In some instances, this will be reflected in structural deficit measures, which should account for economic cycles, but these measures do not reflect potential social challenges that may be demographically induced, or other challenges that governments may face. Countercyclical budget management approaches are increasingly being introduced to facilitate policy continuity and guide spending.

  9. Andrews and Hill (2003, 126) note this in a study of performance budgeting in the U.S. states: “In essence, PBB [performance-based budgeting] reforms involve the introduction of new rules and norms to drive budgeting behavior, which have to overcome the influence of pre-existing rules and norms (usually associated with incremental and program budgeting systems) in order to influence behavior.”

  10. This is a problem for clean, one-best-way-type theory and for data heads gathering information about such. How do you develop clean theory or gather clean data about the extent of a practice’s implementation when such is implemented in the presence of an existing practice, is often interrupted by the introduction of new practices, and has formal and informal dimensions? The common approach is to look at legislation and see whether innovation A or B is in place, which is obviously problematic.

  11. Some countries interpret this function as the equivalent of inspectorates, for example, and in some Eastern European settings, the internal audit office is literally the remnants of the KGB (the National Security Agency of the USSR). In the countries identified here, one can expect very significant differences in who the internal auditors are, what they do, etc.

  12. The U.S. Institute of Internal Auditors (IIA) was founded in 1941, although the internal audit function was entrenched in industry in the 1930s.

  1. The IIA’s Benelux Chapter was established as a professional organization for auditors in 1977 and had 70 members in its first year. Belgium had its own institute in 1994.

  2. The precise questions and highest scores for each are: (1) Does the legislature approve each year an updated budget strategy covering at least three years (including the new budget year)? (two points, depending partly on extent of legislative review); (2) Does the legislature have unlimited powers to amend the draft budget proposed by the executive? If there are any restrictions, how severe are these? (three points depending on severity of restrictions); (3) How many months does the legislature receive the draft budget from the executive? (two points, depending on time); (4) Does the legislature have a specialized budget advisory/research organization attached to provide budgetary analyses independent of the executive? (two points, partly dependent on size of unit); and (5) Does the legislature oblige the government to implement its expenditure programs exactly as adopted? If not, what restrictions are there on the governments’ powers to modify the budget during implementation? (two points, partly dependent on severity of restrictions).

  3. This is the title of Oppenheimer’s 1983 article.

  4. See Andrews (2008b).

  5. I am aware that the choice of words here will create problems for many readers. The idea that a country actively chooses one form over another is obviously controversial and requires greater analysis. I do not propose to do this here, but I believe that the issue is how, along paths of development, countries do adopt highly varying government structures.

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