Societal Transformations

Transformations in society and societal expectations often make it difficult for public managers to address new challenges, especially from a single agency or governmental perspective. Today we live in “a densely interconnected system in which local decisions and actions may trigger global repercussions—and vice versa—and the fate of communities in one region is bound to choices by decision makers elsewhere” (O’Toole and Hanf 2002, 158). Many different things move on globalized networks—people, products, data, money, flora and fauna, news, images, voices—faster, more cheaply, and to more places than ever before (Rosenau 1990; Scholte 2005; Wolfe 2004). Globalization compels public managers to look outside their traditional jurisdictional boundaries in an attempt to understand and solve the problems they face.

Increased global competition also is transforming what used to be thought of as a seller’s market, where power was held by the producers of goods and services, to a buyer’s market, where consumers have more choices. This has led many businesses to increase their focus on customer-centered practices. As a result, consumers have increased expectations of receiving excellent customer service from the firms and stores where they shop. When we order clothes, books, and household items online, we expect to receive what we wanted, and if we are not satisfied with the product, we expect to return it, no questions asked. With this growing expectation, public services that follow a more bureaucratic (and monopolistic) culture look even less satisfactory than before.

Major Challenges Require New Thinking

The list of major challenges for government is as numerous as at any other point in our recent history, encompassing such issues as deteriorating infrastructure, out-of-control health care costs, and climate change. Climate change provides just one clear example of a need for collaboration. The earth’s temperature is rising. Although some may debate the impact human activity plays in the rising temperatures at the earth’s surface and in the atmosphere (e.g., a combustion of fossil fuels for power and transportation, deforestation, and expanding livestock herds), none can debate that greenhouse gases in the atmosphere have sharply risen in modern times (Pachauri and Reisinger 2008). Figure 1.1 provides a dramatic illustration of the problem.

The consequences of climate change are alarming: greater melting of ice at the earth’s polar caps and rising sea levels that threaten cities and nations. Global ecosystems will be altered, threatening the health or even survival of flora and fauna. Weather patterns are changing, and hurricanes and other storms are likely to become stronger due to warmer ocean temperatures. Diseases could also migrate with rising temperatures, possibly spawning global pandemics. Rising temperatures could mean dramatic changes in crop yields and production, threatening food shortages (National Geographic 2011; US Environmental Protection Agency 2011). Public leaders and managers will have to find methods for involving all sectors in addressing the causes and consequences of climate change.

A Dysfunctional Public Sector Environment

Despite the obvious need for an effective public sector, public attitudes about government, caused in part by the dysfunctional behavior of public officials, and public fiscal constraints, make public-only solutions nearly impossible. Americans’ confidence in their national government is at historic lows, according to Gallup’s annual governance survey. A poll conducted in October 2013 found that 81 percent of Americans are dissatisfied with the way the country is being governed, equaling the highest share since Gallup first asked the question in 1972 (Gallup 2013). Fortunately, public satisfaction with state and local government is significantly higher than that of the federal government, with 74 percent expressing a good or fair level of confidence in local government and 65 percent in their state government (Gallup 2012).

Over the past twenty-five years at the federal level, the public has witnessed a retreat from building rational, bipartisan policy consensus. By almost all measures of partisan polarization, the divide between Democratic and Republican members of Congress has deeply widened over the past twenty-five years, reaching levels of partisan conflict not witnessed since the 1920s and 1930s. Even the appointment of officials to lead government agencies is a victim of such partisanship. Presidential appointees now take longer to get approval than ever before, and more positions remain unfilled for long periods of time. The very functionality of government agencies is weakened, and qualified executives simply pass on taking a government position, unwilling to face the partisan public scrutiny and politicking that is often the price to pay for public service.

The fiscal health of most US governments is not good. In 2012, government debt at all levels was at record levels and budget deficits were commonplace. While fiscal conditions improved somewhat in 2013, many state and local governments are at or near their borrowing limits. Standard & Poor’s announced in August 2011 that it had downgraded the US federal credit rating for the first time ever, dealing a symbolic blow to the reputation of the world’s economic superpower.

Hollowed-Out Government

More than twenty years ago Mark Goldstein (1992) observed how sustained budget cuts for US government agencies and the rollback of regulatory authority had severely reduced their capacity to govern. At the time he cited Department of Housing and Urban Development and Food and Drug Administration scandals, the savings and loan bailout, and the Hubble telescope failure as proof of the damaging legacy of severe government cutbacks. He used the term hollow government to indicate the lack of resources to carry out government’s responsibilities. Figure 1.2 compares the growth in national spending and US population to the growth of federal civilian employees since 1948. Despite the increase in spending and population, federal civilian employment has not changed significantly since the post–World War II era. While increased government productivity due to technology may ameliorate this issue somewhat, much of what government workers do has limited potential for productivity gains. Of course, looking just at federal employment hides the full extent of federal government programs. More than a decade ago, Light estimated that the “true size” of government was substantially larger than the federal workforce when you counted federal contractors, state and local employees enforcing federal programs, and various grantees of federal funds (1999).

It was in the early 1980s and during the Reagan Revolution that public support began to ebb for maintaining the highest-quality workforce in federal government agencies. In the past thirty years, the nondefense federal workforce has remained at nearly the same level as it was during the period Goldstein was observing. Since that number includes significant increases for Homeland Security and Veterans Affairs, the workforce at other federal agencies has actually shrunk (US Office of Personnel Management 2011).

Public Sector

The public sector consists of entities organized and governed through some type of government-sponsored structure. In the United States, eighty-nine thousand governments are tracked by the US Census and constitute the public sector. This includes “general-purpose governments”: the national government, fifty state governments (and the District of Columbia), over three thousand county governments, nearly twenty thousand municipalities, and sixteen thousand towns. There also are fifty thousand single-purpose governments, such as school districts, utility districts, airport authorities, and miscellaneous quasi-governmental units. All public sector units operate under federal or state constitutional authority and applicable statutes. These governments range from the very small (e.g., a local community library district) to very large, such as the State of California, whose economy, if it were a nation, would rank eighth in the world, ahead of both Brazil and Russia.

Public organizations tend to be mission driven, and the process for the delivery of goods and services is an important element in their mission. Principles such as equity, citizen participation, and due process are sometimes as important as the final results. Public organizations are typically more constrained than either their private or nonprofit counterparts. Legislation, regulations, and judicial decisions all influence how public organizations operate. Public manager discretion is typically low, with too often an overemphasis on rules and procedures. Fortunately, some of the public sector reforms beginning in the 1980s have led to public organizations that are becoming more results driven as we shift from an emphasis on process to a greater emphasis on outcomes, as provided in the federal Government Performance Results Act, performance budgeting, and balanced scorecards (Newcomer 1997).

Private Sector

The private (or for-profit) sector consists of all individuals or organizations that provide goods or services with the goal of making a profit. In the United States, the Internal Revenue Service determines for-profit classifications, and there is an enormous diversity of organizations that operate within the private sector. Examples of for-profit entities include multinational corporations, such as Toyota, Marriott, General Electric, Apple, and Samsung; businesses designed to have a social impact (social enterprise organizations); family-run mom-and-pop stores; a variety of partnerships; and individual self-employed persons who generally provide a limited range of goods and services.

Private sector organizations are primarily driven by profit motivation; measures of success are typically financial measures such as profit, return on equity, dividends, stock price related to earnings, and market share. Financial measures are important because the private owners of these organizations are in competition for capital and customers. Private firms may exhibit corporate social responsibility by assisting their communities, becoming environmentally sustainable, and contributing to other worthy causes; but good corporate citizenship also is generally good for business. In the final analysis, however, private sector organizations are oriented toward a positive fiscal bottom line. They place a high emphasis on efficiency and entrepreneurial activity that can enhance their short-term and long-term fiscal situation and satisfy their customers, stakeholders, and shareholders.

Nonprofits

The nonprofit sector consists of organizations and associations that are organized for reasons other than to make a profit but are not governmental. A wide spectrum of organizations fits into the broad category of nonprofit organizations, and more and more public services are delivered through some type of collaboration with nonprofits. The trend is particularly prevalent in the area of human (or social) service provision. As of 2009, government agencies had approximately 200,000 formal agreements (contracts and grants) with about 33,000 human service nonprofit organizations (Boris et al. 2010). Working with government is the primary function of many nonprofit organizations, with over 65 percent of the overall revenue for human service nonprofits coming from the public sector (Boris et al. 2010).

Not all organizations classified as nonprofits in the United States provide human services, however. Nonprofits also consist of insurance companies, religious organizations, recreational clubs, arts organizations, business associations, cemetery companies, and a variety of other service organizations. This sector includes small neighborhood associations and churches, larger arts organizations (a local symphony orchestra, ballet, or opera company), and very large organizations such as the American Red Cross (in the United States) and the Red Crescent (in the Arab-speaking world). It also includes coalitions of such organizations. For example, the International Federation of Red Cross and Red Crescent Societies is the world’s largest humanitarian organization, consisting of 187 members and a secretariat in Geneva (International Federation of Red Cross and Red Crescent Societies 2013).

Some nonprofit organizations are specifically created for educational and charitable purposes; in the United States, these organizations (nearly one million) are referred to as 501(c)(3) organizations (after the applicable section in the federal income tax code) and receive special tax status and are allowed to receive tax-deductible contributions from individuals and corporations. Internationally, nonprofit organizations are often referred to as NGOs. This sector collectively is also sometimes referred to as “civil society.”

Nonprofit organizations have a more nuanced bottom line than the private sector does. They are typically mission driven (as is the public sector) and place an emphasis on numbers of people served related to that mission. For example, Meals on Wheels, an organization that brings food to homebound individuals, measures its success by the number of meals delivered and individuals served. Nonprofit organizations have to maintain a balanced budget to stay in business, but they do not think about making a profit. Maintaining some budgetary surplus, however, is good for the long-term sustainability of the organizations. Surplus earnings can help to build institutional capacity in nonprofit organizations, strengthening fundraising departments or administrative divisions devoted to monitoring and evaluation. The challenge for many nonprofit organizations is that the program funding that they depend on often prioritizes program delivery and leaves little room for the institutional capacity building that can sustain long-term operations (Boris et al. 2010).

Nonprofit organizations also must meet the needs of donors, members of their organizations, and the clients they serve. Donor organizations such as foundations generally pressure nonprofit organizations to professionalize by promoting operating procedures and reporting structures in consistent formats that align with funding objectives. While members and donors normally are committed to the mission of the nonprofit, they may have additional goals that must be met, for example, participation in decision making or delivery of the services. Efficiency is important, but more important is how effective the organization is in meeting its mission and whether it is conforming to the principles of the organization, such as fairness, or service to a particular population of citizens. Finally, the increasing reliance on user fees in nonprofit service delivery, as high as 24 percent from private sources in 2008, adds pressure for nonprofit organizations to respond to the populations they serve (National Center for Charitable Statistics 2012).

While it may seem that these sector definitions are fairly exact, there is overlap among the sectors in terms of functions, approaches, and interactions with the public. Figure 1.3 provides an illustration of the sector’s roles and overlap.

While there are some roles that only the public sector performs (such as elections for public office, criminal trials, public health), other functions overlap the sectors. Thus, in the United States we have both publicly and privately operated utilities, as well as nonprofit cooperative utilities. Most housing is produced in the private sector, but we also have public housing authorities, and nonprofit organizations are involved in producing or managing low-income housing. Most arts organizations are organized as nonprofits, but many entertainment activities of similar nature (e.g., Cirque du Soleil, Broadway shows) are operated for a profit. We have for-profit television and the nonprofit Public Broadcasting Service. Attempts to delineate some activities as “inherently governmental” or “for-profit only” have not been terribly successful, as we examine more closely in chapter 3.

Primary Choices for Public Provision and Cross-Sector Collaboration

This section briefly describes and discusses the five choices representing the primary options available to public managers, ranging from the most traditional, direct government provision, to the latest incarnation of CSC, IPSPs. We do not claim that these five options cover all possibilities, but they represent basic models public managers may use, each with basic characteristics, differences, expectations, tensions, and implications.

Illustrating the Five Choices: Public Health Programs

To briefly illustrate those choices, we examine a common public service: public health.

• Direct governmental provision. Governments directly provide health services through a variety of programs. The federal Veterans Health Administration operates hospitals and clinics for veterans, states or counties have hospitals for those with mental health disabilities, and many cities operate public hospitals. All of these are funded with public dollars and staffed by public employees with the expectation that direct public provision is less expensive than private health care or that direct provision is necessary to provide services to a population that otherwise would not be served.
• Contracting out. Governments have determined that certain public health functions can be contracted out to reduce the cost of service. Some city hospitals have been contracted out to a private provider that operates and manages them. In these cases, personnel might be a mix of public and private sector workers. In instances where the local government has sold the facility to a for-profit or nonprofit health care provider, the workers are private (although many would be former employees of the hospital and therefore former government workers). Government may contract for certain services, such as care of indigents or emergency room operations, where the private or nonprofit sector may not be able to recoup costs; in this case, government might pay based on service provided.
• Partnerships. Partnerships in the health care industry are common. They range from the use by the federal government of private providers in Medicare (for seniors aged sixty-five and over) to the use by states of various health maintenance organizations to provide services for those eligible for Medicaid (the federal-state program for low-income individuals). Partnerships typically occur because expertise and functionality exist in the private sector, so it makes sense to use the private sector in the delivery of these services instead of maintaining or developing a separate public capacity to provide the same services. Such partnerships often provide greater choices for the citizens served.
• Networks. Networks in health care are common. The Small Communities Environment Infrastructure Group (discussed in chapter 5) is an illustration of a consortium of public, private, and nonprofit organizations designed to assist local communities in the design and funding of clean water and wastewater programs. Networks allow the combining of expertise from a number of different sources and sectors to bring to bear on the problem at hand.
• Independent public-services providers. IPSPs are emerging in response to health care needs that are not being met by government programs. The Global Network for Neglected Tropical Diseases, discussed in more detail in chapter 6, is an example of a program funded and operated by a consortium of private and nonprofit organizations to fight tropical diseases that do not receive much attention from government programs.

Examining the Trade-Offs

There are advantages and disadvantages with each method of collaboration. For example, government has complete control when it defines, produces, and provides the public good or service (public provision). As we move to the right on the continuum, there is less government control as other actors become involved. At the extreme right is privatization or private provision, where government is completely removed from the provision equation and only indirectly controls, if at all, through the regulatory and taxation process. In giving up control, government may achieve other important objectives, including greater efficiency, more innovation, greater targeted service, and growth of the private sector. As we move to the right, government also must operate in a greater collaborative environment, and the intensity of the collaboration is likely to increase. Thus, as with many other choices, public managers may have to decide which competing interest or value is most important and then decide whether and how to use the various approaches.

As public servants move to the right on the continuum, they also are embracing multisector solutions that involve multiple organizations in a network of policy actors or implementers. This new environment involves collaboration and mutuality and is organized around a heterarchy, or web of actors in a variety of horizontal relationships that exist outside the traditional government hierarchy (Kettl 1997; Kee and Newcomer 2008). Instead of a public administration based on traditional hierarchical notions of accountability, public servants must negotiate agreements with actors over whom they may have less leverage or no direct control, but instead are connected through contractual or other arrangements in horizontal relationships that involve the development of reciprocal trust and mutual accountability. In heterarchical relationships, government must exercise control through contract monitoring, performance measurements, after-action reports, citizen engagement and feedback, or other means to ensure that their contractors, network partners, and others involved are performing in a manner that meets public expectations.

Finally, moving from direct provision and a traditional contracting arrangement to CSC means moving from the traditional principal-agent to a principal-principal relationship. In public provision, public servants are agents of elected policymakers (the principals), and in contracts, contractors are agents of public managers; both of these are traditional principal-agent relationships. In partnerships and networks, however, private and nonprofit actors are principals with their own goals and objectives, and negotiations become more nuanced and balanced. While there may be some agency involvement (e.g., in developing a contract), the nongovernmental actors traditionally have more control over how they operate, and the development of goals, objectives, and measurements is typically a joint activity, not one in which government dictates to its agent. Finally, with IPSPs, public managers are dealing with fully autonomous organizations over which they may have little leverage and or control.

Table 1.1 provides an illustration of additional characteristics among the four CSC methods in contrast to public provision.

The descriptions provided in table 1.1 make clear that choosing the best option is based on a variety of factors. The relationship to the government takes into account the role it will play in directing and controlling the public services being provided. Direct provision gives government maximum control. As we describe more fully in chapters 3 through 6, each of the other choices in sequence reduces government’s ability to specify and dictate the services to be provided and requires a different approach by public managers with respect to leadership and accountability. The choice of using an IPSP means that governments will play only a secondary role in defining and directing what services are provided, how they are provided, and individuals’ eligibility to receive them.

Choosing an approach has implications for the relationship of the service provided with citizens as well. Except when government directly provides the service, all the other choices involve some entity other than the government that provides services to citizens. Having the service provided by public employees may best ensure that government is responsive to its citizens. When someone else provides a service, direct accountability is reduced. This can raise questions and potential protests by people who do not want to deal with government contractors or others.

The third factor that relates to relationships is trust. IPSPs and networks require a high level of trust between government and their collaborators. Since government has less influence in networks and IPSPs over the specifics of the service delivery, it must have great confidence that collaborators will carry out activities as expected and in good faith. Partnerships and PPPs also require trust, but there generally are legal provisions within the partnership agreements to ensure that performance meets expectations. Trust is a minimal factor in traditional contracting out, as it is assumed vendors will present their capabilities honestly in their proposals and adhere to their contractual obligations. The contract itself will ensure compliance.

Each of the choices poses significant issues for public managers. Public managers are more familiar with the issues and tensions around government provision and traditional contracting out. However, as public managers seek to choose collaborative options, new issues and tensions arise. Can the public manager ensure an outcome in the public interest? Can the managers recognize the legitimate interests of their private and nonprofit collaborators and still effectively articulate an overriding public value or result that is the expected outcome of the collaboration?

Private and nonprofit organizations are capable and credible actors in the provision of public goods and services. When collaborating with government, they present to public managers an important option for improving the quality of such goods and services and citizens’ access to them. Of course, governments have long made use of the capacities of business and the nonprofit sector to help achieve government policy and program goals and objectives, typically through specific contracts for the products and services that government needs or wants to deliver. However, the growth and popularity of arrangements such as partnerships/PPPs and networks suggest that they also are expanding collaborative mechanisms of choice.

Today public managers have many options, and partnerships/PPPs and networks can be found at all levels of government:

• Yuma Desert Proving Grounds is a unique partnership arrangement between General Motors (GM) and the US Army Enhanced Use Leasing (EUL) Program. The public-private partnership resulted in GM constructing a new proving ground on federal land. GM and the EUL share use of the facilities and jointly advance vehicle testing (National Council for Public-Private Partnerships 2009).
• Indiana Economic Development Council is a 501(c)(3) nonprofit organization that serves as a statewide economic development agency. Its membership consists of a network of all entities within the state that are involved in economic development, including representatives from all sectors (Agranoff 2003).
• Rainforest Alliance uses the power of the market to ensure profit for both business and local communities through a variety of partnership arrangements with governments and business. The alliance strives to conserve biodiversity while ensuring sustainable livelihoods (Rainforest Alliance 2013). It operates outside governmental structures and directly with business and other nonprofits.
• Drug Abuse Resistance Education, created in Los Angeles in 1983, is a network advocating substance abuse prevention. The program brings police officers into classrooms to deliver necessary skills to students to prevent drug use, gang involvement, and violence (Milward and Provan 2006).
• City of Dallas/Dallas Public Library is a developmental partnership agreement between the City of Dallas and the Kroger Company, which developed a library in a strip shopping center. Library attendance rose while more people were similarly brought to the neighboring grocery store as they both benefited from shared services (National Council for Public-Private Partnerships 1999).
• Global Alliance for Improved Nutrition (2011), created in 2002, is an independent public-services provider that supports public-private partnerships to increase the amount of nutrients in the diets of people around the world. It has already worked with more than six hundred companies in twenty-five countries, reaching an estimated four hundred million people.

As government solutions move away from programmatic silos toward structures that involve the public, nonprofit organizations, and the private sector, public managers need different management skills from those honed in traditional hierarchical structures. Although the exact shape and extent of the emerging heterarchy is not fully defined, it is evident that public managers are moving toward a networked or partnership approach to service delivery that involves organizations from all sectors. In such a heterarchy, “authority is determined by knowledge and function—through horizontal linkages rather than the traditional hierarchical form of vertical authority” (Kee and Newcomer 2008, 10). Sometimes these horizontal linkages are forged through contractual arrangements with government as chief funder and coordinator. At other times, public managers must negotiate with entities over which they have little control.