Complete summary of the book Public Management Ian Greener. The summary includes all important elements, concepts, processes and tables that are included in the book. The summary is written in the original language of the book (English).
2 -The financial crisis and its public management consequences
Responses to the 2007 financial crisis:
- Lay the blame at everyone’s door
- Blame the government:
I) It was not the deregulation of financial services that caused the crisis, but instead that they
were not regulated enough.
II) Governments have contributed to the crisis in bailing out failed financial institutions after the
crisis occurred. This led to a ‘moral hazard’.
- Blame the bankers: dealing with the financial crisis as a problem investigated by the bankers,
points the finger pointedly back at the governments that allowed speculative activity to get so
out of control, and a rethinking of the way that we govern our economies.
- Blame capitalism, which has a number of versions:
I) Suggests that the financial and asset markets, which were at the root of the crisis became
skewed in such a way that some groups were able to disproportionally profit from them, with
others being excluded and often now having to take their share of the pain in economies that
are stagnating and which have accumulated vast debts.
II) A second argument comes from the resurgence in Marxism. In outline, it suggests that the US
and UK economies, in placing such faith in a finance-driven model of economic growth from the
1980s onwards, took a catastrophically bad turn, weakening labour movements and creating
gross inequalities in income and wealth that have resulted in the inflation of vast asset bubbles
and left those economies holding debts they will now struggle to serve.
The mainstream interpretation of the crisis is that economies that were heavily based on
financialization, such as the US and UK, and those that have been on the receiving end of the
collapse of world trade and were already indebted, such as Greece, Italy and Ireland, now face
substantial budget deficits and must introduce deficit reduction programmes or face speculative
flows acting against their countries to either bid up interest rates on the debts they face, and so
face potential debt default, or, if they are outside a large currency such as the zero, driving down
the value of their currencies.
Paradoxes in this chapter:
I. The financial crisis, a colossal market failure, did not lead to us reforming financial services and
rethinking our approach to the use of markets in the public sector, but instead to accelerating
their usage in the belief that there is no alternative to governing in a period of austerity than
to make a greater use of market mechanisms and privatisation.
II. The financial markets, whose failure led to the crises, are now attacking nation-states for the
level of debts that they have to repay, when those debts were largely incurred bailing out
financial services firms in the crisis.
1
,3 - The context of public management and the changing role of the state
After WWII, there was a general trend amongst developed nations towards the expansion of
public services. There were several drivers leading to this expansion, with two of the most
important being based, first, on the experience of the industrial economies before WWII during
the Great Depression; and second, the implications of the war itself for the way that government
was conceptualised.
Free-market economists believe that recessions are the price that needs to be paid for poor
capital investment decisions in the past. New investments will be made that lead to profitability in
the next rise in economic activity. This view of the world leads to a belief that government should
be involved in the economy as little as possible.
Keynes suggested that in a recession there is a danger of a vicious circle in which a fall in
confidence leads to falling investment and job lay-offs, which leads back to a further fall in
confidence and a potentially destructive spiral downwards. He suggested that:
- … unemployment and falling output might require the government to intervene and ‘pump-
prime’ demand by increasing public spending.
- … government should deliberately generate deficits in order to boost the economy as a whole
and remove the deficiencies in demand.
- … the government has a legitimate reason to get involved in the running of the economy
where there are economic problems, but should withdraw again in better economic times.
Keynes’ ideas gave governments the intellectual basis for expanding the role of the public sector.
The experience of war
WWII was used as a justification for extending the role of the state into nearly every area of life.
Countries in Europe developed wartime economies that were dramatically different from those
they had in peacetime.
Politicians believed that wartime had not only shown how it was possible for the state to run the
economy but also that Keynesian economics suggested the state had an intellectual basis and an
ethical reason to be involved more fully in the economy. The alternative to Keynesian
management was a return to the private market.
The post-war public settlement was therefore based on an expansion of public services that were
justified through the ideas of Keynes and the experience of greater state involvement in wartime.
Stagflation: economic stagnation plus inflation; invented for a situation in which governments
appeared powerless with no idea of what to do. Result of Keynesianism.
Fiscal crisis
By the 1970s, the state has expanded considerably from its position at the end of WWII, as more
services were provided and expectations about the role of that state were raised. The claim was
made that the government had simply grown too big, and now had to be scaled back.
2
,The fiscal argument suggested that state expenditure was dividable into two categories:
I. Social capital: state investment in the productive economy.
II. Social expenses: provided by the state to prevent the workforce from becoming so disaffected
by capitalism that protest and rebellion undermined it.
- Problem: social expenses tend to have a ‘ratchet-effect’ - once they have been introduced it
is very difficult politically to subsequently withdraw them.
This creates a dynamic where the state is required to pay for a wider and wider range of public
services until a point is reached where ‘fiscal crisis’ is reached.
Crowding out
A related idea to that of fiscal crisis is that, if the public sector gets too big, it will result in
investors using their resources to buy public debt rather than being investing in private
organisations. According to this view, as more and more public debt is generated and sold to
investors, its purchase ‘crowds out’ private investment, and the productive, wealth-generating
part of the economy allowed to stagnate as the state grows instead.
Crowding out results in a form of crisis in which the private economy is unable to support the
large public sector as its taxation demands have grown too great, and the private economy
stagnates because it is unable to generate sufficient investment to renew itself. The result is
economic stagnation, with private firms, even if they have excellent ideas for new products or
services, unable to attract the investment they need.
Theory of government ‘overload’
Where the government reaches a size where it can simply no longer discharge its responsibilities.
The size of an institution becomes so large that it is unable to co-ordinate its activities or control
what it does, or it might be due to the state entering areas of activity it has no expertise to be
able to manage.
Ideational crisis
An ideational crisis occurs when governments find that they can no longer depend upon the
ideas or principles upon which they have been previously governing.
State response to the crisis of Keynesianism
Governments have increasingly cast themselves not as paternalistic planners of the economy, as
they became under Keynesianism, instead occupying more managerial roles in which they favour
entrepreneurship and enterprise. The goal was to make the economy more competitive in a
globalised world. Instead of boosting the demand side of the economy, governments focused on
boosting the supply side, to try and make its industries, both private and public, more competitive
and productive.
In these circumstances, the state does not ‘spend’ its taxation revenues, but instead ‘invests’ them
to the end of achieving greater economic competitiveness.
3
,Changes in the state
Bob Jessop explains how and why the role of the state has moved from one predominantly
concerned with Keynesianism to one oriented instead around what he calls Schumpeterianism.
Keynesianism can also be read as a means of attempting to stabilise economic cycles by justifying
states paying benefit to those out of work.
Schumpeterianism in contrast emphasises competition and enterprise in an economy, suggesting
that the state should be concerned not with the demand side of the economy, but instead with
the supply side, because the globalised economy is no longer relatively close to international
trade and currency speculation. Schumpeterianism aims to create a more competitive economy
through the reduction of state control and deregulation.
Changes in welfare state Description
Keynesianism to Schumpeterianism Move from paternalistic planning and focus on demand side of
economy to enterprising, entrepreneurial supply-side focus.
Welfare to workfare Move from social benefits being a right to having duties
associated with them.
National to post-national Move from national basis of economy and policy to use of both
international and local bodies.
State to regime Move from centralised state provision to a plurality of providers
often organised in a network form.
These theories lead to two ideal types:
I. The Keynesian, Welfare, National State (KWNS)
II. The Schumpeterian Workfare Postnational Regime (SWPR)
Capitalism and the welfare state
Offe’s paradox suggests that capitalism cannot exist either with or without the welfare state. The
state cannot exist with the welfare state because the welfare state imposes a taxation cost upon
the private sector meaning that capitalists are destined to be forever complaining that the welfare
state is getting in the way of profitable expansion, as well as denying opportunities to provide
public services on a for-profit basis. However, at the same time, capitalism cannot exist without
the welfare state, as it is dependent upon it to provide its workers with the services they need to
access in order to meet their basic needs, to stabilise the economy in periods of recession and so
underpin successful capitalism.
4
, 4 - Changing ideas about public management
Public service typically refers to those services which we believe either should be available to
everyone as a right, and so are paid for by the state and provided either free of on a subsidised or
means-tested basis.
The situation immediately after WWII was one dominated by the principles of traditional public
administration, which were:
I. Public provision of a function is more equitable, reliable and democratic than provision by a
commercial or voluntary body.
II. Where a ministry or other public authority is responsible for a function, it normally carries out
that function itself with its own staff.
III. Where a public body provides a service, it is provided uniformly to everyone within its
jurisdiction.
IV. Operations are controlled from the headquarters of the public body through a hierarchy of
unbroken supervision.
V. Employment practices are standardised throughout each of the public services.
VI. Accountability of public servants to the public is via elected representative bodies.
Traditional public administration is primarily concerned about the achievement of equity and
fairness as goals, through public provision as well as public financing.
Problem with the traditional public administration is that it’s not a coherent set of ideas, but that it
is instead base more upon ‘muddling through’ or an ‘incremental’ political process.
The lack of responsiveness of public bureaucracies to either citizen or consumer demand led to
two particular criticisms:
I. The democratic problem: if the democratic loop that was meant to lead to public service
improvement was flawed, then public services might also be less accountable than their
designers suggested, but this meant that there was little scope for the public improving them.
II. Came from the users of services who, having received an extension of their welfare rights in
the post-war period, now appeared to begin to take the right to use public services
increasingly for granted and to demand that the level of service they were receiving be
improved.
These two criticisms were the start of developing new modes of organising public services.
Three E’s: economy, efficiency, effectiveness.
The ‘New Right’: advocates services being transferred into the private sector as liberal, minimal
state ideas gained credence and politicians preached the virtues of individuals providing for
themselves rather than depending upon the state.
Hollow state: a state that no longer provides services but simply oversees contractual
arrangements for them.
5
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