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Wolfgang Dreschler and New Public Management

Wolfgang Drechsler has taught at universities in Germany and Sweden, served as an advisor to the President of Estonia, as an executive with the German re-unification project and, as an American Political Science Association Professional Fellow, a Senior Legislative Analyst in the US Congress. He has worked, in different capacities, on the national development plans of several countries including Estonia, Mongolia, Kazakhstan, Peru, Brazil, and Norway.

Drechsler points out that NPM comes from Anglo-America, and was strongly pushed by most of the International Finance Institutions (IFI’s) such as the World Bank and the IMF.

Drechsler views NPM as symbiotic with and based on a neo-liberal understanding of state and economy. In a recent article “The Rise and Demise of the New Public Management“ (Post-autistic Economics Review Issue no. 33, 14 September 2005) Drechsler writes, “In recent decades the alliance of neoclassical economics and neoliberalism has hijacked the term “economic reform”. By presenting political choices as market necessities, they have subverted public debate about what economic policy changes are possible and are or are not desirable.”

“NPM ignores the fundamental difference between the public and private spheres. The state is denoted primarily by its monopoly of power, force, and coercion on one side and its orientation towards the public good, the commonweal ” … on the other; the business world legitimately focuses on profit maximization. NPM, however, as it has been said, “harvests” the public; it sees no difference between public and private interest. The use of business techniques within the public sphere thus confuses the most basic requirements of any state, particularly of a Democracy, with a liability: regularity, transparency, and due process are simply much more important than low costs and speed.”

Whilst the bureaucracy typical of public management in many domains is slow moving and seemingly hidebound that is not by itself a reason for demolishing the public sector and turning it over to the private sector. As Drechsler says, the alternative to bad public administration (PA) – the “bureaucracy” in common parlance – is not the abolition of PA, but good PA, one that works for state, society, and economy alike. Drechsler quotes Koldo Echebarria (of the Inter-American Development Bank), “The direct correlation between the capabilities of government and countries’ development ” … is based on vast historical evidence. The most powerful nations’ strength and ability to create and distribute wealth cannot be explained without acknowledging the central role of public institutions.”

Drechsler is not by any means the sole critic of NPM, neoliberal views of the economic world (or market economics) or of public choice theory. Patrick Dunleavy, professor from the London School of Economics (LSE) in the fields of public policy and government, also considers NPM to be finished! Together with a number of colleagues, he writes “The new public management” (NPM) wave in public sector organizational change was founded on themes of disaggregation, competition, and incentivization. Although its effects are still working through in countries new to NPM, this wave has now largely stalled or been reversed in some key “leading-edge” countries. This ebbing chiefly reflects the cumulation of adverse indirect effects on citizens’ capacities for solving social problems because NPM has radically increased institutional and policy complexity. The character of the post-NPM regime is currently being formed.”

Before proceeding further it is worthwhile reminding ourselves of the consequences for museums.

Nobel laureate Amartya Sen has vigorously criticised the basis of market economics. Another Nobel laureate, Joseph Stiglitz (in “Globalization and its Discontents”, Penguin 2002) has extensively criticised the extent to which market economics has invaded the application of globalization in countries such as Russia and a number of developing countries. Nordic countries and some others such as Austria devote substantial resources to social programs, yet have been shown to be the most competitive economically as mentioned elsewhere. (Their education system also produces the highest performers in OECD surveys such as PISA.)

Robert Kuttner was a co-founder and one-time editor-in-chief of The American Prospect, created in 1990 as “an authoritative magazine of liberal ideas,” according to its mission statement. He is also one of five co-founders of the Economic Policy Institute; Kuttner attended Oberlin College, the University of California, Berkeley, and the London School of Economics and at different times has taught at Brandeis, Boston University, UMass, and Harvard’s Institute of Politics. He has also been a John F. Kennedy Fellow at Harvard University, a Woodrow Wilson Fellow at UC-Berkeley, a Guggenheim Fellow, and a Radcliffe Public Policy Fellow. He is a writer, editor and broadcaster.

In an essay in The American Prospect no.31 (March-April 1997): 28-41, “The Limits of Markets“ (adapted from Everything for Sale: The Virtues and Limits of Markets, Alfred A. Knopf / Twentieth Century Fund, 1997) Kuttner examines in detail the claim that the freest market produces the best economic outcome is the centerpiece of the conservative political resurgence. “If the state is deemed incompetent to balance the market’s instability, temper its inequality, or correct its myopia,” Kuttner writes, “there is not much left of the mixed economy and the modern liberal project.”

“At bottom, three big things are wrong with the utopian claims about markets. First, they misdescribe the dynamics of human motivation. Second, they ignore the fact that civil society needs realms of political rights where some things are not for sale. And third, even in the economic realm, markets price many things wrong, which means that pure markets do not yield optimal economic outcomes.”

In support of his argument Kuttner points to the work of experimental (or behavioural) economists such as psychologists Daniel Kahneman and Amos Tversky who have demonstrated that people do not behave the way the model specifies. “Although the market model imagines a rational individual, maximizing utility in an institutional vacuum, real people also have civic and social selves. People will typically charge more to give something up than to acquire the identical article; economic theory would predict a single “market-clearing” price. People help strangers, return wallets, leave generous tips in restaurants they will never visit again, give donations to public radio when theory would predict they would rationally “free-ride,” and engage in other acts that suggest they value general norms of fairness. To conceive of altruism as a special form of selfishness misses the point utterly.”

Kuttner points also to the way in which market economics has invaded politics. “Public Choice theory ” … [holds that] self-seeking characterizes both economic man and political man. But in economics, competition converts individual selfishness into a general good, while in politics, selfishness creates little monopolies. Public Choice claims that office holders have as their paramount goal re-election, and that groups of voters are essentially “rent seekers” looking for a free ride at public expense, rather than legitimate members of a political collectivity expressing democratic voice. Ordinary citizens are drowned out by organized interest groups, so the mythic “people” never get what they want. Thus, since the democratic process is largely a sham, as well as a drag on economic efficiency, it is best to entrust as little to the public realm as possible.” Regulation is generally held to be a deadweight cost, since it cannot improve upon the outcomes that free individuals would rationally negotiate.

As is well known one of the problems of the general application of market economics is the explanation for the less than efficient working of the market because of “externalities”, costs or benefits not captured by the price set by the immediate transaction. For example polluters “externalize” the true cost of the waste products by simply dumping them into the environment to be dealt with by the community (or government).

Kuttner concludes, As the economic historian Douglass North, the 1993 Nobel laureate in economics, has observed, competent public administration and governance are a source of competitive advantage for nation-states. Third-world nations and postcommunist regimes are notably disadvantaged not just by the absence of functioning markets but by the weakness of legitimate states. A vacuum of legitimate state authority does not yield efficient laissez faire; it yields mafias and militias, with whose arbitrary power would-be entrepreneurs must reckon. The marketizers advising post-Soviet Russia imagined that their challenge was to dismantle a state in order to create a market. In fact, the more difficult challenge was to constitute a state to create a market.

Norms that encourage informed civic engagement increase the likelihood of competent, responsive politics and public administration, which in turn yield a more efficient mixed economy. North writes:

“The evolution of government from its medieval, Mafia-like character to that embodying modern legal institutions and instruments is a major part of the history of freedom. It is a part that tends to be obscured or ignored because of the myopic vision of many economists, who persist in modeling government as nothing more than a gigantic form of theft and income redistribution.”

Here, North is echoing Jefferson, who pointed out that property and liberty, as we know and value them, are not intrinsic to the state of nature but are fruits of effective government.

Unless we are to leave society to the tender mercies of laissez faire, we need a mixed economy. Even laissez faire, for that matter, requires rules to define property rights. Either way, capitalism entails public policies, which in turn are creatures of democratic politics. The grail of a market economy untainted by politics is the most dangerous illusion of our age.”


If we are going to be concerned about understanding the workings of individual enterprises and we are gong to demand management based on evidence, then the ongoing dominance of NPM is some countries such as Australia and Canada, despite its failures to deliver a more effective state better serving the citizenry, needs to be more than seriously questioned. Governments pursuing NPM have failed the accountability test!

It is fair to say that there are those who claim that NPM style reforms were needed because of limits to the growth of the public sector and to the resources which could be devoted to it. However, limits to resources are hardly a reason to adopt practices which are entirely inappropriate to the context, even undermine democracy!

As Drechsler points out, self-interest is one of the foundations of NPM. Adam Smith, the eighteenth century Scottish philosopher and author of “The Wealth of Nations” considered freedom to pursue our own self-interest to be one of the three things that make us more prosperous, in a general sort of way. (The other two were specialization, which he called division of labor; and freedom of trade; Smiths was an ardent anti-mercantilist.)

But the emphasis on self-interest that Smith referred to was the view that it was a good idea for the individual to try to better themselves: Smith was writing in a time when the overwhelming majority of people were living in extremely poor conditions in almost every way. To give self-interest the degree of emphasis today that Smith gave it is to completely ignore the context in which Smith wrote.

As American writer and satirist, and biographer of Adam Smith, P.J O’Rourke points out (in “Talk of the Nation“ on NPR in the USA January 8 2007), “In the chapter “Of the Wages of Labour,” in book 1 of The Wealth of Nations, Smith remarked in a tone approaching modern irony, “Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society?” If, in the eighteenth century, prosperity was not yet considered a self-evidently good thing for the lower ranks of people, it was because nobody had bothered to ask them. In many places nobody has bothered to ask them yet. But it is never a question of folly, sacrilege, or vulgarity to better our circumstances. The question is how to do it.”

Again (“PJ O’Rourke: The original Republican Party Reptile is back“ by John Walsh The Independent 7 January 2008). “Smith wasn’t talking about Gordon Gekko in Wall Street,” laughs O’Rourke. “He was talking about poor crofters in Scotland. At the time he was writing, the majority of people the world over had no capacity to exercise self-interest. They were serfs, slaves, peons working for pitiful wages. All their behaviour was subject to the will of others. By self-interest, Smith saw them as having a chance to better themselves, to jack up their standards a bit, to have the liberty to start a business and not be interfered with by the rich and powerful.”

So, in this emphasis on self-interest by the promoters of NPM, we have the usual distortion of Smith’s work which has plagued the business community and political economics for decades now. Consistent with “new normal” NPM has simply been asserted to be the right prescription. (“New Normal” was coined by market investor Roger McNamee allegedly to focus on getting results now but used also to justify making assertions without the need for any evidence. According to Barry Jones in his Manning Clark lecture in March 2007 new normal has led after 911 in the United States to “truth, evidence and analysis [becoming] marginal, or irrelevant” (This is the contention of a report by Human Rights First.)

Civilized society is being ground down by distortions of the “dismal science”.