This article is from Cal-Tax Digest, published
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At a conference last spring, President Clinton spoke of the rising importance that the quality and performance of public services and public institutions will play in shaping global competitiveness. As national trade barriers come down, businesses in metropolitan regions around the world are more exposed to direct competition for markets. Metropolitan regions are exposed to competition for attraction, retention and expansion of businesses nationally and internationally. Government services are subject to comparison and competition as never before, a trend that is increasing the pressure for better performance and results.

These new global realities are generally well known to the corporate sector since overseas earnings make up almost 40 percent of the revenues of the firms in the Dow Jones Industrial Average. But there are signs too that the quality and cost of public services may come under pressure from global competitiveness. The World Bank and the International Monetary Fund are paying increased attention to the quality and cost of public institutions and services in countries receiving assistance. Around the world, there is at least a glimmer of a consensus on how to make public services work better and cost less.

Some countries and their localities seem to be well ahead in the restructuring of public services actions to improve the quality and restrain or lower the price of public services. Those furthest along this path have been countries and cities that have experienced sharp economic decline or are highly dependent on the sale of exports. Economic crisis in New Zealand and Australia, for example, followed the entry of the United Kingdom, their primary trading partner, into the European Union. This crisis stimulated very thorough government reform efforts at national and local levels.

These public service reforms share a number of common elements. They include increased market testing and managed competition of public services, strengthened customer service, and "owner" reports to citizens. There is greater emphasis on outcomes or results of public service as an integral part of the public decision-making processes, as well as greater accountability for spending and results.

A number of countries have moved to substantially increase the market testing of public services. This is not privatization "but managed competition" as the public entity is typically allowed to compete with private firms. Mandatory tendering or competitive bidding of public services is on the rise in Australia, New Zealand, the United Kingdom and Canada. In the United States, Indianapolis, Phoenix and Milwaukee have moved far down the road of testing the price and quality of public services with these procedures. To make market-testing efforts possible, activity-based costing is used to determine the specific prices for public services results. This tool provides detailed information on the cost of a unit of service or a particular outcome costs - on services as diverse as the cost-per-child adopted or a hole-in-the-road filled. This information often is very useful for public leaders during budget deliberations, and for managers attempting to improve service performance, and for citizens who want to evaluate the value received for their tax dollar.

Lyle Wray, Ph.D., serves as executive director for the Citizens League, which is a nonpartisan, citizen-based public policy organization based in Minneapolis, Minnesota, since 1952. The Citizens League website is at www.citizensleague.net.

Another strand of reform is strengthened customer service that emphasizes understanding the attributes of service that customers value and increasing customer satisfaction. In the U.K. for example, the Service First initiative provides standards of performance for public services and a convenient mechanism, such as a refund form, for redress of failures of performance. While there are some outstanding examples of customer service improvement efforts in the United States, such as the improvement of telephone handling by the Social Security Administration, efforts are far less pervasive than covering all major public services.

A further trend that links many of these efforts is a heightened emphasis on managing for results - identifying, measuring and reporting on the outcomes or results of public services. An outcomes or performance management approach to public services involves adopting a framework for planning, delivering and improving public services. This framework typically involves a clear mission statement for each public agency, a vision for improving agency performance, a set of major goals, a closely related set of articulated strategies for attaining these goals, time-limited objectives, and development and use of a set of indicators of performance outcomes. The framework is strengthened further by results-oriented governments through linkage of budget decisions to the outcomes delivered by services.

"Owners reports" and value-for-money review are still other approaches used to improve the performance and accountability of government. The outcomes of public services have been given prominence in a number of ways. In England and Wales for more than 10 years, the Audit Commission has compared the price and performance of public services provided by all local governments. In the U.S., the states of Minnesota and Wisconsin have similar but more modest Best Practices Review programs that are similar to these performance audits. The Australian state of Queensland, for example, compares public service outcomes for all local governments in the state. A comparable but voluntary effort is under way in the U.S., led by the International City County Management Association. The province of Alberta, Canada, for example, provides a report to citizens entitled Measuring Up and describes major public service goals and the investments made in them.

The pressure of competition and performance comparison has spurred experimentation and reform to a much greater extent internationally than in the U.S. While many of these reforms have been tried on a more limited basis, and some of the techniques may have been pioneered in the U.S., the practices have not been as pervasive. The book "Banishing Bureaucracy," by David Osborne and Robert Plastik, provides in-depth descriptions of public service restructuring efforts in the U.S., U.K. and New Zealand over the past 15 years.

What now?

For the moment, good economic conditions have lessened the pressure for cutting costs. With many states in the U.S. showing record surpluses in state budgets in most parts of the country, there does not appear to be a great appetite for taking on the bruising battles needed to restructure public services at a scale and depth already experienced in other countries. Nevertheless, there is good reason to believe that the U.S. will not escape the need to restructure public services substantially in the future. Despite strong economic growth, a number of states have new tax limitation proposals on ballots this year. Many states provided large taxpayer refunds rather than new spending in response to surpluses. The aging of America's 67 million baby boomers may lead them into tax resistance as incomes flatten out. At some point, the expansion in the business cycle will slow or reverse and we will be faced not with disbursing surpluses but with making tougher decisions about priorities and program streamlining. While economic pressures may be momentarily reduced, the pressure for achieving better results is not diminished - citizens still want safe communities, schools that produce children who can read, and services that respond effectively to important community needs.

Global competitive pressures on firms and public services in our states and metropolitan regions add a new and potentially powerful factor to the mix of forces pushing for public services restructuring across the U.S. As we respond to these pressures, it is in our interest to keep informed on the progress being made in restructuring public services for better value in other parts of the globe.